Equibles

10-Q

ConnectOne Bancorp, Inc. (CNOB)

10-Q 2024-08-02 For: 2024-06-30
View Original
Added on April 06, 2026

Table of Contents

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission File Number: 000-11486

image1banklogo.jpg

CONNECTONE BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

New Jersey 52-1273725
(State or Other Jurisdiction of<br> <br>Incorporation or Organization) (IRS Employer<br> <br>Identification No.)

301 Sylvan Avenue

Englewood Cliffs, New Jersey 07632

(Address of Principal Executive Offices) (Zip Code)

201-816-8900

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading symbol Name of each exchange on which registered
Common stock CNOB NASDAQ
Depositary Shares (each representing a 1/40^th^ interest in a share of 5.25% Series A Non-Cumulative, perpetual preferred stock) CNOBP NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒ No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See definition of “large accelerated filer”, “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer  ☒ Accelerated filer  ☐ Non-accelerated filer  ☐ Smaller reporting company  ☐<br> <br>Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, no par value: 38,368,217 shares
(Title of Class) (Outstanding as of August 2, 2024)

Table of Contents

Table of Contents

Page
PART I –FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Statements of Condition as ofJune 30, 2024(unaudited) and December 31, 2023 3
Consolidated Statements of Income for thethree and six months ended June 30, 2024 and 2023 (unaudited) 4
Consolidated Statements of Comprehensive Income for thethree and six months ended June 30, 2024 and 2023 (unaudited) 5
Consolidated Statements of Changes in Stockholders’ Equity for thethree and six months ended June 30, 2024 and 2023 (unaudited) 6
Consolidated Statements of Cash Flows for thesix months ended June 30, 2024 and 2023 (unaudited) 8
Notes to Consolidated Financial Statements (unaudited) 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 45
Item 3. Qualitative and Quantitative Disclosures about Market Risks 65
Item 4. Controls and Procedures 65
PART II –OTHER INFORMATION
Item 1. Legal Proceedings 66
Item 1a. Risk Factors 66
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 66
Item 3. Defaults Upon Senior Securities 66
Item 4. Mine Safety Disclosures 66
Item 5. Other Information 66
Item 6. Exhibits 67
SIGNATURES 68

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Item 1. Financial Statements

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except for share data) December 31,
2023
ASSETS **** ****
Cash and due from banks 47,105 $ 61,421
Interest-bearing deposits with banks 246,408 181,293
Cash and cash equivalents 293,513 242,714
Investment securities 620,579 617,162
Equity securities 19,743 18,564
Loans held-for-sale 435 -
Loans receivable 8,157,903 8,345,145
Less: Allowance for credit losses - loans 82,077 81,974
Net loans receivable 8,075,826 8,263,171
Investment in restricted stock, at cost 43,403 51,457
Bank premises and equipment, net 28,881 30,779
Accrued interest receivable 48,262 49,108
Bank owned life insurance 240,985 237,644
Right of use operating lease assets 13,359 12,007
Goodwill 208,372 208,372
Core deposit intangibles 5,232 5,874
Other assets 125,141 118,751
Total assets 9,723,731 $ 9,855,603
LIABILITIES **** ****
Deposits:
Noninterest-bearing 1,268,882 $ 1,259,364
Interest-bearing 6,307,132 6,276,838
Total deposits 7,576,014 7,536,202
Borrowings 756,144 933,579
Subordinated debentures, net 79,692 79,439
Operating lease liabilities 14,435 13,171
Other liabilities 73,219 76,592
Total liabilities 8,499,504 8,638,983
COMMITMENTS AND CONTINGENCIES **** ****
STOCKHOLDERS’ EQUITY **** ****
Preferred Stock, no par value; 1,000 per share liquidation preference; Authorized 5,000,000 shares; 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
Common stock, no par value: Authorized 100,000,000 shares; 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
Additional paid-in capital 33,955 33,182
Retained earnings 610,759 590,970
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 )
Accumulated other comprehensive loss (42,244 ) (35,109 )
Total stockholders’ equity 1,224,227 1,216,620
Total liabilities and stockholders’ equity 9,723,731 $ 9,855,603

All values are in US Dollars.

See accompanying notes to unaudited consolidated financial statements.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
(dollars in thousands, except for per share data) **** **** **** ****
Interest income **** **** **** ****
Interest and fees on loans $ 120,145 $ 111,048 $ 240,233 $ 217,951
Interest and dividends on investment securities:
Taxable 4,683 4,029 9,017 8,258
Tax-exempt 1,121 1,247 2,275 2,339
Dividends 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 **** **** **** ****
Deposits 62,086 50,714 122,493 90,801
Borrowings 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 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
Net income 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 **** **** **** ****
Basic $ 0.46 $ 0.51 $ 0.87 $ 1.11
Diluted 0.46 0.51 0.86 1.10

See accompanying notes to unaudited consolidated financial statements.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
(dollars in thousands) 2024 2023 2024 2023
Net income $ 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 )
Total (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 )
Total (881 ) 7,321 5,032 1,289
Defined benefit pension and post-retirement benefit plans
Amortization of actuarial net loss 32 52 62 103
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.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Comprehensive Stockholders’
(in thousands, except share data) Stock Capital Earnings Stock (Loss) Income Equity
Balance as of March 31, 2024 110,927 $ 586,946 $ 32,866 $ 600,118 $ (76,116 ) $ (38,132 ) $ 1,216,609
Net income - - - 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

All values are in US Dollars.
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Comprehensive Stockholders’
(in thousands, except share data) Stock Capital Earnings Stock (Loss) Income Equity
Balance as of March 31, 2023 110,927 $ 586,946 $ 31,350 $ 553,261 $ (57,652 ) $ (33,862 ) $ 1,190,970
Net income - - - 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

All values are in US Dollars.

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(continued)
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Comprehensive Stockholders’
(in thousands, except share data) Stock Capital Earnings Stock (Loss) Income Equity
Balance as of December 31, 2023 110,927 $ 586,946 $ 33,182 $ 590,970 $ (70,296 ) $ (35,109 ) $ 1,216,620
Net income - - - 36,261 - - 36,261
Other comprehensive loss, net of tax - - - - - (7,135 ) (7,135 )
Cash dividends paid on preferred stock (0.65625 per depositary share) - - - (3,018 ) - - (3,018 )
Cash dividends paid on common stock (0.35 per share) - - - (13,454 ) - - (13,454 )
Restricted stock grants, net of forfeitures (68,462 shares) - - - - - - -
Stock grants (1,533 shares) - - - - - - -
Net shares issued in satisfaction of deferred stock units earned (33,604 shares) - - - - - - -
Net shares issued in satisfaction of performance units earned (24,070 shares) - - - - - - -
Share redemption for tax withholdings on performance units and deferred stock units earned - - (1,324 ) - - - (1,324 )
Repurchase of treasury stock (282,370 shares) - - - - (5,820 ) - (5,820 )
Stock-based compensation expense - - 2,097 - - - 2,097
Balance as of June 30, 2024 110,927 $ 586,946 $ 33,955 $ 610,759 $ (76,116 ) $ (42,244 ) $ 1,224,227

All values are in US Dollars.
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Comprehensive Stockholders’
(in thousands, except share data) Stock Capital Earnings Stock (Loss) Income Equity
Balance as of December 31, 2022 110,927 $ 586,946 $ 30,126 $ 535,915 $ (52,799 ) $ (32,364 ) $ 1,178,751
Net income - - - 46,323 - - 46,323
Other comprehensive loss, net of tax - - - - - (1,473 ) (1,473 )
Cash dividends declared on preferred stock (0.65625 per depositary share) - - - (3,018 ) - - (3,018 )
Cash dividends declared on common stock (0.34 per share) - - - (12,722 ) - - (12,722 )
Exercise of stock options (6,742 shares) - - 85 - - - 85
Restricted stock grants, net of forfeitures (86,534 shares) - - - - - - -
Stock grants (995 shares) - - - - - - -
Net shares issued in satisfaction of deferred stock units earned (32,068 shares) - - - - - - -
Net shares issued in satisfaction of performance units earned (48,140 shares) - - - - - - -
Share redemption for tax withholdings on performance units and deferred stock units earned - - (1,836 ) - - - (1,836 )
Repurchase of treasury stock (485,163 shares) - - - - (9,078 ) - (9,078 )
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

All values are in US Dollars.

See accompanying notes to unaudited consolidated financial statements.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Six Months Ended
June 30,
(dollars in thousands) 2024 2023
Cash flows from operating activities **** ****
Net income $ 36,261 $ 46,323
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 2,185 2,211
Provision for credit losses 6,500 4,000
Amortization of intangibles 642 743
Net accretion of loans (472 ) (1,248 )
Accretion on bank premises (24 ) (24 )
Accretion on deposits (65 ) (177 )
Amortization on borrowings, net 11 11
Stock-based compensation 2,097 2,365
Losses on equity securities, net 123 401
Gains on sale of loans held-for-sale, net (1,783 ) (599 )
Loans originated for resale (12,511 ) (10,084 )
Proceeds from sale of loans held-for-sale 13,859 18,382
Loss on sale of other real estate owned - 22
Increase in cash surrender value of bank owned life insurance (3,341 ) (3,084 )
Amortization of premium and accretion of discounts on securities available-for-sale 401 565
Amortization of subordinated debentures issuance costs 253 932
Decrease (increase) in accrued interest receivable 846 (175 )
Net change in operating leases (88 ) (85 )
Decrease (increase) in other assets 1,176 (5,378 )
Decrease in other liabilities (3,251 ) (17,463 )
Net cash provided by operating activities 42,819 37,638
Cash flows from investing activities **** ****
Investment securities available-for-sale:
Purchases (48,814 ) (14,678 )
Maturities, calls and principal repayments 30,209 32,403
Purchase of equity securities (1,302 ) (2,540 )
Net redemptions (purchases) of restricted investment in bank stocks 8,054 (84 )
Payments on loans held-for-sale - 25
Net decrease (increase) in loans 181,281 (48,168 )
Purchases of premises and equipment (263 ) (3,480 )
Proceeds from sale of OREO - 242
Net cash provided by (used in) investing activities 169,165 (36,280 )
Cash flows from financing activities **** ****
Net increase in deposits 39,877 181,852
Advances of Federal Home Loan Bank (“FHLB”) borrowings 595,587 1,377,000
Repayments of FHLB borrowings (773,033 ) (1,407,032 )
Repayments of subordinated debt - (75,000 )
Cash dividends on preferred stock (3,018 ) (3,018 )
Cash dividends paid on common stock (13,454 ) (12,722 )
Repurchase of treasury stock (5,820 ) (9,078 )
Proceeds from exercise of stock options - 85
Share redemption for tax withholdings on performance units and deferred stock units earned (1,324 ) (1,836 )
Net cash (used in) provided by financing activities (161,185 ) 50,251
Net change in cash and cash equivalents 50,799 51,609
Cash and cash equivalents at beginning of period 242,714 268,315
Cash and cash equivalents at end of period $ 293,513 $ 319,924

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(continued)

Supplemental disclosures of cash flow information
Cash payments for:
Interest paid on deposits and borrowings $ 137,520 $ 104,752
Income taxes 15,594 18,655
Supplemental disclosures of noncash activities
--- --- ---
Investing:
Transfer of loans from held-for-sale to held-for-investment - 16,156
Transfer of loans from held-for-investment to held-for-sale - 11,197

See accompanying notes to unaudited consolidated financial statements.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1a. Nature of Operations, Principles of Consolidation and Risk and Uncertainties

Nature of Operations

ConnectOne Bancorp, Inc. (the “Parent Corporation”) is incorporated under the laws of the State of New Jersey and is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”). The Parent Corporation’s business currently consists of the operation of its wholly-owned subsidiary, ConnectOne Bank (the “Bank” and, collectively with the Parent Corporation and the Parent Corporation’s subsidiaries, the “Company”) and making certain limited investments. The Bank’s direct and indirect subsidiaries include Union Investment Co. (a New Jersey investment company), Twin Bridge Investment Co. (a Delaware investment company), ConnectOne Preferred Funding Corp. (a New Jersey real estate investment trust), Center Financial Group, LLC (a New Jersey financial services company), Center Advertising, Inc. (a New Jersey advertising company), Morris Property Company, LLC, (a New Jersey limited liability company), Volosin Holdings, LLC, (a New Jersey limited liability company), NJCB Spec-1, LLC (a New Jersey limited liability company), Port Jervis Holdings, LLC (a New Jersey limited liability company), BONJ Special Properties, LLC (a New Jersey limited liability company) and BoeFly, Inc. (a New Jersey financial technology company).

The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey and through its 24 other banking offices. Substantially all loans are secured with various types of collateral, including business assets, consumer assets and commercial/residential real estate. Each borrower’s ability to repay its loans is dependent on the conversion of assets, cash flows generated from the borrowers’ business, real estate rental and consumer wages.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. The consolidated financial statements of the Parent Corporation are prepared on an accrual basis and include the accounts of the Parent Corporation and the Company. All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.

Segments

FASB ASC 28, “Segment Reporting,” requires companies to report certain information about operating segments. The Company is managed as one segment: a community bank. All decisions including but not limited to loan growth, deposit funding, interest rate risk, credit risk and pricing are determined after assessing the effect on the totality of the organization. For example, loan growth is dependent on the ability of the organization to fund this growth through deposits or other borrowings. As a result, the Company is managed as one operating segment.

Use of Estimates

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1b. Authoritative Accounting Guidance

Adoption of New Accounting Standards in 2024

In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2022-03”). ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. We adopted ASU 2022-03 on January 1, 2024 and it did not have a material effect on the Company’s financial statements.

Newly Issued, But Not Yet Effective Accounting Standards

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. These amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). The amendments require that all entities disclose on an annual basis the following information about income taxes paid: 1) The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes. 2) The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received). The amendments also require that all entities disclose the following information: 1) Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and 2) Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. ASU 2023-09 is effective for the Company beginning January 1, 2025.The Company is evaluating the effect that ASU 2023-09 will have on its consolidated financial statements.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 2. Earnings per Common Share

Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) No. 260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”). The restricted stock awards granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities. The two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities.

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

Three Months Ended Six Months Ended
June 30, June 30,
(dollars in thousands, except for per share data) 2024 2023 2024 2023
Net income available to common stockholders $ 17,547 $ 19,885 $ 33,243 $ 43,305
Earnings allocated to participating securities (46 ) (53 ) (89 ) (98 )
Income attributable to common stock $ 17,501 $ 19,832 $ 33,154 $ 43,207
Weighted average common shares outstanding, including participating securities 38,421 39,078 38,383 39,127
Weighted average participating securities (101 ) (104 ) (103 ) (88 )
Weighted average common shares outstanding 38,320 38,974 38,280 39,039
Incremental shares from assumed conversions of options, performance units and restricted shares 129 43 173 135
Weighted average common and equivalent shares outstanding 38,449 39,017 38,453 39,174
Earnings per common share:
Basic $ 0.46 $ 0.51 $ 0.87 $ 1.11
Diluted 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.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Investment Securities

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 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 June 30, 2024 and December 31, 2023.

Allowance
for
Gross Gross Investment
Amortized Unrealized Unrealized Fair Credit
Cost Gains Losses Value Losses
(dollars in thousands)
June 30, 2024
Investment securities available-for-sale:
Federal agency obligations $ 93,088 $ 205 $ (11,918 ) $ 81,375 $ -
Residential mortgage pass-through securities 446,631 148 (60,787 ) 385,992 -
Commercial mortgage pass-through securities 25,115 - (3,697 ) 21,418 -
Obligations of U.S. states and political subdivisions 145,574 73 (19,977 ) 125,670 -
Corporate bonds and notes 5,000 - (22 ) 4,978 -
Asset-backed securities 1,012 - (12 ) 1,000 -
Other securities 146 - - 146 -
Total investment securities available-for-sale $ 716,566 $ 426 $ (96,413 ) $ 620,579 $ -
December 31, 2023
Investment securities available-for-sale:
Federal agency obligations $ 55,898 $ 189 $ (10,761 ) $ 45,326 $ -
Residential mortgage pass-through securities 462,004 620 (51,433 ) 411,191 -
Commercial mortgage pass-through securities 25,240 - (3,676 ) 21,564 -
Obligations of U.S. states and political subdivisions 148,795 415 (16,505 ) 132,705 -
Corporate bonds and notes 5,000 - (27 ) 4,973 -
Asset-backed securities 1,260 - (22 ) 1,238 -
Other securities 165 - - 165 -
Total investment securities available-for-sale $ 698,362 $ 1,224 $ (82,424 ) $ 617,162 $ -

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Investment Securities – (continued)

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 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.

June 30, 2024
Amortized Fair
Cost Value
(dollars in thousands)
Investment securities available-for-sale:
Due in one year or less $ 2,284 $ 2,279
Due after one year through five years 6,300 6,248
Due after five years through ten years 2,223 2,161
Due after ten years 233,867 202,335
Residential mortgage pass-through securities 446,631 385,992
Commercial mortgage pass-through securities 25,115 21,418
Other securities 146 146
Total investment securities available-for-sale $ 716,566 $ 620,579

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

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Investment Securities – (continued)

Impairment Analysis of Available-for-Sale Debt Securities

The following tables indicate securities in an unrealized loss position for which an allowance for credit losses (“ACL”) has not been recorded, aggregated by investment category and by the length of continuous time individual securities have been in an unrealized loss position as of June 30, 2024 and December 31, 2023.

June 30, 2024
Total Less than 12 Months 12 Months or Longer
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
(dollars in thousands)
Investment securities available-for-sale:
Federal agency obligations $ 57,109 $ (11,918 ) $ 19,579 $ (129 ) $ 37,530 $ (11,789 )
Residential mortgage pass-through securities 373,145 (60,787 ) 15,527 (92 ) 357,618 (60,695 )
Commercial mortgage pass-through securities 21,419 (3,697 ) - - 21,419 (3,697 )
Obligations of U.S. states and political subdivisions 114,985 (19,977 ) 20,002 (558 ) 94,983 (19,419 )
Corporate bonds and notes 4,978 (22 ) 2,984 (16 ) 1,994 (6 )
Asset-backed securities 1,001 (12 ) - - 1,001 (12 )
Total temporarily impaired securities $ 572,637 $ (96,413 ) $ 58,092 $ (795 ) $ 514,545 $ (95,618 )
December 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Total Less than 12 Months 12 Months or Longer
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
(dollars in thousands)
Investment securities available-for-sale:
Federal agency obligations $ 40,779 $ (10,761 ) $ 1,689 $ (65 ) $ 39,090 $ (10,696 )
Residential mortgage pass-through securities 382,042 (51,433 ) 4,138 (51 ) 377,904 (51,382 )
Commercial mortgage pass-through securities 21,565 (3,676 ) - - 21,565 (3,676 )
Obligations of U.S. states and political subdivisions 101,189 (16,505 ) 1,340 (7 ) 99,849 (16,498 )
Corporate bonds and notes 4,973 (27 ) 2,993 (7 ) 1,980 (20 )
Asset-backed securities 1,238 (22 ) - - 1,238 (22 )
Total temporarily impaired securities $ 551,786 $ (82,424 ) $ 10,160 $ (130 ) $ 541,626 $ (82,294 )

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Investment Securities – (continued)

The Company has elected to exclude accrued interest from the amortized cost of its investment securities available-for-sale. Accrued interest receivable for investment securities available-for-sale 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. Securities in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value resulted from credit losses or other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Unrealized losses on asset backed securities and state and municipal securities have not been recognized into income because the issuers are of high credit quality and we do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery. The decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. 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. Government agencies and U.S. Government sponsored enterprises. Although a government guarantee exists on these investments, these entities are not legally backed by the full faith and credit of the federal government, and the current support they receive is subject to a cap as part of the agreement entered into in 2008. Nonetheless, at this time we do not foresee any set of circumstances in which the government would not fund its commitments on these investments as the issuers are an integral part of the U.S. housing market in providing liquidity and stability. Therefore, we concluded that a zero-allowance approach for these investment securities is appropriate.

Note 4. Derivatives

As part of our overall asset liability management strategy the Company uses derivative instruments, which can include interest rate swaps, collars, caps, and floors. The notional amount does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. Derivative instruments are recognized on the balance sheet at their fair value and are not reported on a net basis.

Derivatives Designated as Hedges

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

1) Cash flow hedges: changes in fair value are recognized as a component in other comprehensive income

2) Fair value hedges: changes in fair value are recognized concurrently in earnings

As long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, 100% of the periodic changes in fair value of the hedging instrument are accounted for as outlined above. This is the case whether or not economic mismatches exist in the hedging relationship. As a result, there is no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses is recognized in the period in which the hedged transactions impact earnings. The change in fair value of the hedging instrument that is included in the assessment of hedge effectiveness is presented in the same income statement line item that is used to present the earnings effect of the hedged item. As of June 30, 2024, the Bank was not utilizing fair value hedges.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 4. Derivatives – (continued)

Cash Flow Hedges

The Company during 2021, 2022 and 2024 entered into twelve pay fixed-rate interest rate swaps, with a total notional amount of $550 million. These are designated as cash flow hedges of outstanding Federal Home Loan Bank advances. We are required to pay fixed rates of interest ranging from 0.63% to 3.72% and receive variable rates of interest that reset quarterly based on the daily compounding secured overnight financing rate (“SOFR”). The twelve swaps carry expiration dates ranging from December 2025to *March 2028.*The swaps are determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swap is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining term of the swaps.

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. The structure of these instruments is such that the Company entered into a total of $225 million in notional amount of sold interest rate cap agreements, in which we are required to pay the counterparty an incremental amount if the index rate exceeds a set cap rate. Simultaneously, the Company purchased a total of $225 million notional amount of interest rate cap agreements in which we receive an incremental amount if the index rate is above a set cap rate. No payments are required if the index rate is at, or below, the cap rate on the sold or purchased interest rate cap agreements.

Net interest income recorded on these swap and interest rate cap transactions totaled approximately $5.7 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.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 4. Derivatives – (continued)

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

Six Months Ended June 30, 2024
Amount of gain (loss) recognized in OCI (Effective Portion) Amount of (gain) loss reclassified from OCI to interest expense Amount of gain recognized in other Noninterest income (Ineffective Portion)
(dollars in thousands)
Interest rate contracts $ 17,337 $ (11,312 ) $ -
Six Months Ended June 30, 2023
--- --- --- --- --- --- --- ---
Amount of gain (loss) recognized in OCI (Effective Portion) Amount of (gain) loss reclassified from OCI to interest expense Amount of gain recognized in other Noninterest income (Ineffective Portion)
(dollars in thousands)
Interest rate contracts $ 10,064 $ (8,221 ) $ -

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
Notional Amount Fair Value Notional Amount Fair Value
(dollars in thousands)
Interest rate contracts $ 1,000,000 $ 48,734 $ 950,000 $ 43,805

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 5. 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 June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023
(dollars in thousands)
Commercial $ 1,501,732 $ 1,578,730
Commercial real estate 5,763,869 5,895,545
Commercial construction 639,168 620,496
Residential real estate 256,786 256,041
Consumer 945 1,029
Gross loans 8,162,500 8,351,841
Net deferred loan fees (4,597 ) (6,696 )
Total loans receivable $ 8,157,903 $ 8,345,145

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 $ 435 $ -
Total loans held-for-sale $ 435 $ -

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 June 30, 2024 and December 31, 2023:

June 30, 2024
Nonaccrual loans with ACL Nonaccrual loans without ACL Total nonaccrual loans
(dollars in thousands)
Commercial $ 1,928 $ 10,850 $ 12,778
Commercial real estate - 29,585 29,585
Commercial construction 409 1,795 2,204
Residential real estate 237 1,222 1,459
Total $ 2,574 $ 43,452 $ 46,026

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

December 31, 2023
Nonaccrual loans with ACL Nonaccrual loans without ACL Total nonaccrual loans
(dollars in thousands)
Commercial $ 1,763 $ 11,064 $ 12,827
Commercial real estate 8,013 28,179 36,192
Residential real estate 1,033 2,472 3,505
Total $ 10,809 $ 41,715 $ 52,524

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

Credit Quality Indicators - The Company continuously monitors the credit quality of its loans receivable. In addition to its internal monitoring, the Company utilizes the services of a third-party loan review firm to periodically validate the credit quality of its loans receivable on a sample basis. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified “Pass” are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as “Special Mention” have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the credit quality or inadequately protect the Company’s credit position at some future date. Assets are classified “Substandard” if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements. An asset is classified as “Doubtful” if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a “distinct possibility” that a degree of loss will occur if the inadequacies are not corrected.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP. Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for 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
2024 2023 2022 2021 2020 Prior Revolving Loans Total Gross Loans
Commercial
Pass $ 16,275 $ 148,282 $ 195,059 $ 283,478 $ 32,453 $ 122,418 $ 652,444 $ 1,450,409
Special mention - - 11,090 2,810 1,634 9,920 11,150 36,604
Substandard - 250 739 230 - 12,773 727 14,719
Doubtful - - - - - - - -
Total commercial $ 16,275 $ 148,532 $ 206,888 $ 286,518 $ 34,087 $ 145,111 $ 664,321 $ 1,501,732
YTD gross charge-offs $ - $ - $ - $ - $ - $ - $ 300 $ 300
Commercial Real Estate
Pass $ 100,404 $ 273,253 $ 1,534,768 $ 1,562,051 $ 357,702 $ 1,509,393 $ 371,401 $ 5,708,972
Special mention - - - - - 15,072 - 15,072
Substandard - - - 1,867 - 37,958 - 39,825
Doubtful - - - - - - - -
Total commercial real estate $ 100,404 $ 273,253 $ 1,534,768 $ 1,563,918 $ 357,702 $ 1,562,423 $ 371,401 $ 5,763,869
YTD gross charge-offs $ - $ - $ - $ - $ - $ 6,481 $ - $ 6,481
Commercial Construction
Pass $ 9,500 $ 582 $ 2,124 $ 9,071 $ 6,236 $ 10,500 $ 590,251 $ 628,264
Special mention - - - - - - 8,700 8,700
Substandard - - - - - - 2,204 2,204
Doubtful - - - - - - - -
Total commercial construction $ 9,500 $ 582 $ 2,124 $ 9,071 $ 6,236 $ 10,500 $ 601,155 $ 639,168
YTD gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Residential
Pass $ 11,222 $ 15,126 $ 41,597 $ 21,675 $ 21,004 $ 104,637 $ 36,626 $ 251,887
Special mention - - - - - 643 2,797 3,440
Substandard - - - 536 - 686 237 1,459
Doubtful - - - - - - - -
Total residential real estate $ 11,222 $ 15,126 $ 41,597 $ 22,211 $ 21,004 $ 105,966 $ 39,660 $ 256,786
YTD gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Consumer
Pass $ 809 $ 27 $ 10 $ - $ - $ - $ 99 $ 945
Special mention - - - - - - - -
Substandard - - - - - - - -
Doubtful - - - - - - - -
Total consumer $ 809 $ 27 $ 10 $ - $ - $ - $ 99 $ 945
YTD gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Total
Pass $ 138,210 $ 437,270 $ 1,773,558 $ 1,876,275 $ 417,395 $ 1,746,948 $ 1,650,821 $ 8,040,477
Special mention - - 11,090 2,810 1,634 25,635 22,647 63,816
Substandard - 250 739 2,633 - 51,417 3,168 58,207
Doubtful - - - - - - - -
Grand total $ 138,210 $ 437,520 $ 1,785,387 $ 1,881,718 $ 419,029 $ 1,824,000 $ 1,676,636 $ 8,162,500
YTD gross charge-offs $ - $ - $ - $ - $ - $ 6,481 $ 300 $ 6,781

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

Term loans amortized cost basis by origination year
2023 2022 2021 2020 2019 Prior Revolving Loans Total Gross Loans
Commercial
Pass $ 178,582 $ 252,151 $ 265,705 $ 38,909 $ 13,726 $ 112,145 $ 684,779 $ 1,545,997
Special mention - 10,620 - - 562 3,417 3,199 17,798
Substandard 250 439 241 1 612 11,695 1,697 14,935
Doubtful - - - - - - - -
Total commercial $ 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
Pass $ 248,660 $ 1,561,841 $ 1,585,109 $ 352,445 $ 353,391 $ 1,232,240 $ 497,588 $ 5,831,274
Special mention - - - - - 24,202 - 24,202
Substandard - - 1,888 - 1,255 20,141 16,785 40,069
Doubtful - - - - - - - -
Total commercial real estate $ 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
Pass $ 582 $ 5,463 $ 15,645 $ 6,236 $ - $ - $ 583,870 $ 611,796
Special mention - - - - - - 8,700 8,700
Substandard - - - - - - - -
Doubtful - - - - - - - -
Total commercial construction $ 582 $ 5,463 $ 15,645 $ 6,236 $ - $ - $ 592,570 $ 620,496
YTD gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ -
Residential real estate
Pass $ 15,455 $ 42,830 $ 21,987 $ 21,704 $ 19,896 $ 91,114 $ 36,082 $ 249,068
Special mention - - - - - 651 2,817 3,468
Substandard - - 555 - - 2,144 806 3,505
Doubtful - - - - - - - -
Total residential real estate $ 15,455 $ 42,830 $ 22,542 $ 21,704 $ 19,896 $ 93,909 $ 39,705 $ 256,041
YTD gross charge-offs $ - $ - $ - $ - $ - $ - $ 18 $ 18
Consumer
Pass $ 849 $ 83 $ - $ 5 $ - $ - $ 92 $ 1,029
Special mention - - - - - - - -
Substandard - - - - - - - -
Doubtful - - - - - - - -
Total consumer $ 849 $ 83 $ - $ 5 $ - $ - $ 92 $ 1,029
YTD gross charge-offs $ - $ - $ - $ - $ - $ - $ 1 $ 1
Total
Pass $ 444,128 $ 1,862,368 $ 1,888,446 $ 419,299 $ 387,013 $ 1,435,499 $ 1,802,411 $ 8,239,164
Special mention - 10,620 - - 562 28,270 14,716 54,168
Substandard 250 439 2,684 1 1,867 33,980 19,288 58,509
Doubtful - - - - - - - -
Grand total $ 444,378 $ 1,873,427 $ 1,891,130 $ 419,300 $ 389,442 $ 1,497,749 $ 1,836,415 $ 8,351,841
YTD gross charge-offs $ 54 $ 3,397 $ - $ - $ 280 $ 13,236 $ 82 $ 17,049

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Collateral Dependent Loans: Loans which meet certain criteria are individually evaluated as part of the process of calculating the allowance for credit losses. 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 June 30, 2024 and December 31, 2023:

June 30, 2024
Real Estate Other Total
(dollars in thousands)
Commercial $ 1,677 $ 10,174 $ 11,851
Commercial real estate 29,585 - 29,585
Commercial construction 2,204 - 2,204
Residential real estate 813 - 813
Total $ 34,279 $ 10,174 $ 44,453
December 31, 2023
--- --- --- --- --- --- ---
Real Estate Other Total
(dollars in thousands)
Commercial $ 4,949 $ 10,387 $ 15,336
Commercial real estate 39,986 - 39,986
Commercial construction 8,700 - 8,700
Residential real estate 5,941 - 5,941
Total $ 59,576 $ 10,387 $ 69,963

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 June 30, 2024 and December 31, 2023:

June 30, 2024
30-59 Days Past Due 60-89 Days Past Due 90 Days or Greater Past Due and Still Accruing Nonaccrual Total Past Due and Nonaccrual Current Gross Loans
(dollars in thousands)
Commercial $ 1,667 $ 427 $ - $ 12,778 $ 14,872 $ 1,486,860 $ 1,501,732
Commercial real estate - 4,876 - 29,585 34,461 5,729,408 5,763,869
Commercial construction - - - 2,204 2,204 636,964 639,168
Residential real estate - 1,813 - 1,459 3,272 253,514 256,786
Consumer - - - - - 945 945
Total $ 1,667 $ 7,116 $ - $ 46,026 $ 54,809 $ 8,107,691 $ 8,162,500
December 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
30-59 Days Past Due 60-89 Days Past Due 90 Days or Greater Past Due and Still Accruing Nonaccrual Total Past Due and Nonaccrual Current Gross Loans
(dollars in thousands)
Commercial $ 555 $ - $ - $ 12,827 $ 13,382 $ 1,565,348 $ 1,578,730
Commercial real estate 527 - - 36,192 36,719 5,858,826 5,895,545
Commercial construction - 23,600 - - 23,600 596,896 620,496
Residential real estate 275 226 - 3,505 4,006 252,035 256,041
Consumer - - - - - 1,029 1,029
Total $ 1,357 $ 23,826 $ - $ 52,524 $ 77,707 $ 8,274,134 $ 8,351,841

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

June 30, 2024
Commercial Commercial real estate Commercial construction Residential real estate Consumer Total
(dollars in thousands)
Allowance for credit losses - loans
Individually analyzed $ 337 $ - $ - $ - $ - $ 337
Collectively evaluated 19,458 53,098 4,472 4,484 3 81,515
Acquired with deteriorated credit quality 225 - - - - 225
Total $ 20,020 $ 53,098 $ 4,472 $ 4,484 $ 3 $ 82,077
Gross loans
Individually analyzed $ 12,188 $ 29,585 $ 2,204 $ 813 $ - $ 44,790
Collectively evaluated 1,489,083 5,734,284 636,964 255,973 945 8,117,249
Acquired with deteriorated credit quality 461 - - - - 461
Total $ 1,501,732 $ 5,763,869 $ 639,168 $ 256,786 $ 945 $ 8,162,500
December 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- ---
Commercial Commercial real estate Commercial construction Residential real estate Consumer Total
(dollars in thousands)
Allowance for credit losses - loans
Individually analyzed $ - $ 941 $ - $ - $ - $ 941
Collectively evaluated 20,215 51,337 4,739 4,320 5 80,616
Acquired with deteriorated credit quality 417 - - - - 417
Total $ 20,632 $ 52,278 $ 4,739 $ 4,320 $ 5 $ 81,974
Gross loans
Individually analyzed $ 15,336 $ 39,986 $ 8,700 $ 5,941 $ - $ 69,963
Collectively evaluated 1,562,910 5,855,559 611,796 250,100 1,029 8,281,394
Acquired with deteriorated credit quality 484 - - - - 484
Total $ 1,578,730 $ 5,895,545 $ 620,496 $ 256,041 $ 1,029 $ 8,351,841

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 5. 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, 2024 is summarized in the tables below.

Three Months Ended June 30, 2024
Commercial Commercial real estate Commercial construction Residential real estate Consumer Total
(dollars in thousands)
Balance as of March 31, 2024 $ 20,735 $ 52,794 $ 5,011 $ 4,326 $ 3 $ 82,869
Charge-offs - (3,595 ) - - - (3,595 )
Recoveries 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 Commercial real estate Commercial construction Residential real estate Consumer Total
(dollars in thousands)
Balance as of December 31, 2023 $ 20,632 $ 52,278 $ 4,739 $ 4,320 $ 5 $ 81,974
Charge-offs (300 ) (6,480 ) - - - (6,780 )
Recoveries 347 - - - - 347
(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

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 5. 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 Commercial real estate Commercial construction Residential real estate Consumer Total
(dollars in thousands)
Balance as of March 31, 2023 $ 26,162 $ 53,000 $ 3,966 $ 3,868 $ 6 $ 87,002
Charge-offs (1,100 ) - - (18 ) - (1,118 )
Recoveries 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 Commercial real estate Commercial construction Residential real estate Consumer Total
(dollars in thousands)
Balance as of December 31, 2022 $ 28,903 $ 53,742 $ 3,718 $ 4,143 $ 7 $ 90,513
Charge-offs (3,867 ) (1,717 ) - (18 ) - (5,602 )
Recoveries 9 - - 68 - 77
Provision for (reversal of) credit losses - loans 4,281 484 (172 ) (374 ) (2 ) 4,217
Balance as of June 30, 2023 $ 29,326 $ 52,509 $ 3,546 $ 3,819 $ 5 $ 89,205

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Loan Modifications to Borrowers Experiencing Financial Difficulty:

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

Three Months Ended
June 30, 2024
Term Extension Payment Deferral Interest Rate Reduction Total % of Portfolio Loan Segment
(dollars in thousands)
Commercial $ 11,150 $ - $ - $ 11,150 0.75 %
Residential real estate 1,417 - - 1,417 0.01
Six Months Ended
--- --- --- --- --- --- --- --- --- --- --- ---
June 30, 2024
Term Extension Payment Deferral Interest Rate Reduction Total % of Portfolio Loan Segment
(dollars in thousands)
Commercial $ 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.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Three Months Ended
June 30, 2023
Term Extension Payment Deferral Interest Rate Reduction Total % of Portfolio Loan Segment
(dollars in thousands)
Commercial $ - $ - $ - $ - 0.00 %
Commercial real estate 213 213 0.00 %
Six Months Ended
--- --- --- --- --- --- --- --- --- --- --- ---
June 30, 2023
Term Extension Payment Deferral Interest Rate Reduction Total % of Portfolio Loan Segment
(dollars in thousands)
Commercial $ 53 $ - $ - $ 53 0.00 %
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
Current 30-89 Days Past Due 90 Days or Greater Past Due and Still Accruing
(dollars in thousands)
Commercial $ 21,559 $ - $ -
Commercial real estate 7,272 - -
Residential real estate 1,417 - -

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.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Allowance for Credit Losses for Unfunded Commitments

The Company has recorded an ACL for unfunded credit commitments, which was recorded in other liabilities. The provision is recorded within the provision for (reversal of) credit losses on the Company’s income statement. The following table presents a roll forward of the allowance for credit losses for unfunded commitments for the three and six months ended June 30, 2024 and 2023:

Three Months Ended Three Months Ended
June 30, June 30,
2024 2023
(dollars in thousands)
Balance at beginning of period $ 2,754 $ 3,064
Provision for (reversal of) credit losses - unfunded commitments 21 (245 )
Balance at end of period $ 2,775 $ 2,819
Six Months Ended Six Months Ended
--- --- --- --- --- --- ---
June 30, June 30,
2024 2023
(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

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Components of Provision for Credit Losses

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

Three Months Ended Three Months Ended
June 30, June 30,
2024 2023
(dollars in thousands)
Provision for credit losses – loans $ 2,479 $ 3,245
Provision for (reversal of) credit losses - unfunded commitments 21 (245 )
Provision for credit losses $ 2,500 $ 3,000
Six Months Ended Six Months Ended
--- --- --- --- --- --- ---
June 30, June 30,
2024 2023
(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

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6. Fair Value Measurements and Fair Value of Financial Instruments

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

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
--- ---
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (for example, supported with little or no market activity).
--- ---

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

Investment Securities Available-for-Sale and Equity Securities: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of instruments which would generally be classified within Level 2 of the valuation hierarchy include municipal bonds and certain agency collateralized mortgage obligations. In certain cases where there is limited activity in the market for a particular instrument, assumptions must be made to determine the fair value of the instruments and these are classified as Level 3. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Company’s evaluations are based on market data and the Company employs combinations of these approaches for its valuation methods depending on the asset class.

Derivatives: The fair value of derivatives is based on valuation models using observable market data as of the measurement date (level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position. 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 June 30, 2024 and December 31, 2023 are as follows:

June 30, 2024
Fair Value Measurements at Reporting Date Using
Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(dollars in thousands)
Recurring fair value measurements: Assets
Investment securities:
Available-for-sale:
Federal agency obligations $ 81,375 $ - $ 81,375 $ -
Residential mortgage pass-through securities 385,992 - 385,992 -
Commercial mortgage pass-through securities 21,418 - 21,418 -
Obligations of U.S. states and political subdivision 125,670 - 118,919 6,751
Corporate bonds and notes 4,978 - 4,978 -
Asset-backed securities 1,000 - 1,000 -
Other securities 146 146 - -
Total available-for-sale 620,579 146 613,682 6,751
Equity securities 19,743 9,693 10,050 -
Derivatives 48,734 - 48,734 -
Total assets $ 689,056 $ 9,839 $ 672,466 $ 6,751

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

December 31, 2023
Fair Value Measurements at Reporting Date Using
Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(dollars in thousands)
Recurring fair value measurements: Assets
Investment securities:
Available-for-sale:
Federal agency obligations $ 45,326 $ - $ 45,326 $ -
Residential mortgage pass- through securities 411,191 - 411,191 -
Commercial mortgage pass-through securities 21,564 - 21,564 -
Obligations of U.S. states and political subdivision 132,705 - 125,583 7,122
Corporate bonds and notes 4,973 - 4,973 -
Asset-backed securities 1,238 - 1,238 -
Other securities 165 165 - -
Total available-for-sale $ 617,162 $ 165 $ 609,875 $ 7,122
Equity securities 18,564 9,867 8,697 -
Derivatives 43,805 - 43,805 -
Total assets $ 679,531 $ 10,032 $ 662,377 $ 7,122

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

The Company may be required periodically to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. 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 June 30, 2024 and December 31, 2023.

Loans Held-for-Sale: Residential mortgage loans, originated and intended for sale in the secondary market, are carried at the lower of aggregate cost or estimated fair value as determined by outstanding commitments from investors. For these loans originated and intended for sale, gains and losses on loan sales (sale proceeds minus carrying value) are recorded in other income and direct loan origination costs and fees are deferred at origination of the loan and are recognized in other income upon sale of the loan. Management obtains quotes or bids on all or parts of these loans directly from the purchasing financial institutions (Level 2).

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

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Collateral Dependent Loans: The Company may record adjustments to the carrying value of loans based on fair value measurements, generally as partial charge-offs of the uncollectible portions of these loans. These adjustments also include certain impairment amounts for collateral dependent loans calculated in accordance with GAAP. Impairment amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated impairment amount applicable to that loan does not necessarily represent the fair value of the loan. 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. However, due to the substantial judgment applied and limited volume of activity as compared to other assets, fair value is based on Level 3 inputs. 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 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: 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: (dollars in thousands)
Commercial $ 775 $ - $ - $ 775
Fair Value Measurements at Reporting Date Using
--- --- --- --- --- --- --- --- ---
Assets measured at fair value on a nonrecurring basis: December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
Collateral dependent loans: (dollars in thousands)
Commercial $ 657 $ - $ - $ 657
Commercial real estate 7,005 - - 7,005

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.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Assets Measured with Significant Unobservable Level 3 Inputs

Recurring basis

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

Municipal Securities
(dollars in thousands)
Beginning balance, January 1, 2024 $ 7,122
Principal paydowns (150 )
Change in unrealized loss (221 )
Ending balance, June 30, 2024 $ 6,751
Municipal Securities
--- --- --- ---
(dollars in thousands)
Beginning balance, January 1, 2023 $ 7,349
Principal paydowns (272 )
Changes in unrealized gain 45
Ending balance, December 31, 2023 $ 7,122

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.

June 30, 2024
Fair Value Valuation Techniques Unobservable Input Rate
Securities available-for-sale: (dollars in thousands)
Municipal securities $ 6,751 Discounted cash flows Discount rate 4.8 %
December 31, 2023
--- --- --- --- --- --- --- ---
Fair Value Valuation Techniques Unobservable Input Rate
Securities available-for-sale: (dollars in thousands)
Municipal securities $ 7,122 Discounted cash flows Discount rate 4.3 %

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Nonrecurring basis*:* The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a nonrecurring basis for the periods presented. The tables below provide quantitative information about significant unobservable inputs used in fair value measurements within Level 3 hierarchy of collateral dependent loans.

June 30, 2024
(dollars in thousands) Fair Value Valuation Techniques Unobservable Input Range (weighted average)
Commercial $ 775 Appraisals of collateral value Adjustment for comparable sales -7.5% to +25% (+0.8%)
December 31, 2023
--- --- --- --- --- --- ---
(dollars in thousands) Fair Value Valuation Techniques Unobservable Input Range (weighted average)
Commercial loans $ 657 Appraisals of collateral value Adjustment for comparable sales -7.5% to +25% (+.1%)
Commercial real estate loans 7,005 Appraisals of collateral value Adjustment for comparable sales -15% to +0% (-10.3%)

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

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
Carrying Amount Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(dollars in thousands)
June 30, 2024
Financial assets:
Cash and due from banks $ 293,513 $ 293,513 $ 293,513 $ - $ -
Securities available-for-sale 620,579 620,579 146 613,682 6,751
Restricted investments in bank stocks 43,403 n/a n/a n/a n/a
Equity securities 19,743 19,743 9,693 10,050 -
Net loans 8,075,826 7,832,816 - - 7,832,816
Derivatives - interest rate contracts 48,734 48,734 - 48,734 -
Accrued interest receivable 48,262 48,262 - 5,891 42,371
Financial liabilities:
Noninterest-bearing deposits 1,268,882 1,268,882 1,268,882 - -
Interest-bearing deposits 6,307,132 6,287,889 3,713,967 2,573,922 -
Borrowings 756,144 753,394 - 753,394 -
Subordinated debentures 79,692 79,680 - 79,680 -
Accrued interest payable 10,309 10,309 - 10,309 -
December 31, 2023
Financial assets:
Cash and due from banks $ 242,714 $ 242,714 $ 242,714 $ - $ -
Investment securities available-for-sale 617,162 617,162 165 609,875 7,122
Restricted investment in bank stocks 51,457 n/a n/a n/a n/a
Equity securities 18,564 18,564 9,867 8,697 -
Net loans 8,263,171 8,001,504 - - 8,001,504
Derivatives - interest rate contracts 43,805 43,805 - 43,805 -
Accrued interest receivable 49,108 49,108 - 5,387 43,721
Financial liabilities:
Noninterest-bearing deposits 1,259,364 1,259,364 1,259,364 - -
Interest-bearing deposits 6,276,838 6,256,444 3,745,467 2,510,977 -
Borrowings 933,579 932,081 . 932,081 -
Subordinated debentures 79,439 77,952 - 77,952 -
Accrued interest payable 10,152 10,152 - 10,152 -

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The fair value of commitments to originate loans is immaterial and not included in the tables above.

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

The Company’s remaining assets and liabilities, which are not considered financial instruments, have not been valued differently than has been customary with historical cost accounting. No disclosure of the relationship value of the Company’s core deposit base is required by FASB ASC 825-10.

Fair value estimates are based on existing balance sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, there are certain significant assets and liabilities that are not considered financial assets or liabilities, such as deferred taxes, premises and equipment, and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Management believes that reasonable comparability between financial institutions may not be likely, due to the wide range of permitted valuation techniques and numerous estimates which must be made, given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Note 7. Comprehensive (Loss) Income

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.

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

Details about Accumulated Other Comprehensive Income Components Amounts Reclassified from Accumulated Other Comprehensive Income Amounts Reclassified from Accumulated Other Comprehensive Income Affected Line item in the Consolidated Statements of Income
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Interest income on cash flow hedges $ 5,683 $ 3,953 $ 11,312 $ 8,220 Borrowings and deposits expense
(1,598 ) (1,189 ) (3,180 ) (2,473 ) Income tax expense
$ 4,085 $ 2,764 $ 8,132 $ 5,747
Amortization of pension plan net actuarial losses $ (43 ) $ (74 ) $ (86 ) $ (148 ) Other components of net periodic pension expense
11 22 24 45 Income tax benefit
$ (32 ) $ (52 ) $ (62 ) $ (103 )
Total reclassification $ 4,053 $ 2,712 $ 8,070 $ 5,644

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 7. Comprehensive (Loss) Income– (continued)

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

June 30, 2024 December 31, 2023
(dollars in thousands)
Investment securities available-for-sale, net of tax $ (70,064 ) $ (57,835 )
Cash flow hedge, net of tax 29,842 24,810
Defined benefit pension and post-retirement plans, net of tax (2,022 ) (2,084 )
Total $ (42,244 ) $ (35,109 )

Note 8. Stock-based Compensation

The Company’s stockholders approved the 2017 Equity Compensation Plan (“the Plan”) on *May 23, 2017.*The Plan eliminates all remaining issuable shares under previous plans and is the only outstanding plan as of 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 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. Restricted stock and deferred stock units granted to new employees and board members may be granted with shorter vesting periods. Grants of performance units typically have a cliff vesting after three years or upon a change of control. All issuances are subject to forfeiture if the recipient is no longer employed prior to the award's vesting. Any forfeitures would result in previously recognized expense being reversed. Restricted stock grants have the same dividend and voting rights as common stock, while options, performance units and deferred stock units do not.

All awards are issued at the fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant, ratably over the vesting period. Forfeiture rates are not estimated but are recorded as incurred. Stock-based compensation expense for the three and 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
Nonvested as of December 31, 2023 115,805 $ 17.85
Granted 71,843 18.93
Vested (76,643 ) 18.41
Forfeited/cancelled/expired (1,848 ) 18.95
Nonvested as of June 30, 2024 109,157 $ 18.15

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 8. Stock-Based Compensation – (continued)

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.

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

Units (expected) Units (maximum) Weighted Average Grant Date Fair Value
Unearned as of December 31, 2023 164,231 $ 23.06
Awarded 91,691 19.01
Change in estimate (10,774 ) 11.93
Vested shares (53,041 ) 25.24
Forfeited/cancelled/expired (10,260 ) 23.10
Unearned as of June 30, 2024 181,847 302,196 $ 21.04

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 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 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:

Units (expected) Weighted Average Grant Date Fair Value
Unearned as of December 31, 2023 188,348 $ 22.11
Awarded 81,736 19.01
Vested shares (73,013 ) 22.98
Forfeited/cancelled/expired (7,360 ) 21.53
Unearned as of June 30, 2024 189,711 $ 20.46

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

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 9. Components of Net Periodic Pension Cost

The Company maintained a non-contributory defined benefit pension plan for substantially all of its employees until June 30, 2007, at which time the Company froze the plan. The following table sets forth the net periodic pension cost of the Company’s pension plan for the periods indicated.

Three Months Ended Affected Line Item in the Consolidated
June 30, Statements of Income
2024 2023
(dollars in thousands)
Service cost $ - $ -
Interest cost 106 110 Other components of net periodic pension expense
Expected return on plan assets (214 ) (209 ) Other components of net periodic pension expense
Net amortization 43 74 Other components of net periodic pension expense
Total periodic pension income $ (65 ) $ (25 )
Six Months Ended Affected Line Item in the Consolidated
--- --- --- --- --- --- --- ---
June 30, Statements of Income
2024 2023
(dollars in thousands)
Service cost $ - $ -
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 six months ended June 30, 2024. The Company does not plan on contributing amounts to the Pension Trust for the remainder of 2024. The trust is established to provide retirement and other benefits for eligible employees and their beneficiaries. No part of the trust assets may be applied to any purpose other than providing benefits under the plan and for defraying expenses of administering the plan and the trust.

Note 10. Deposits

Time Deposits

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):

2024 $ 1,411,458
2025 903,364
2026 234,734
2027 39,007
2028 5,246
thereafter 471
Time deposits (before net discount) $ 2,594,280
Fair value net discount (1,115 )
Total time deposits (after net discount) $ 2,593,165

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.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 11. FHLB Borrowings

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

June 30, 2024 December 31, 2023
Amount Rate Amount Rate
(dollars in thousands)
By remaining period to maturity:
Less than 1 year $ 603,587 5.50 % $ 881,000 5.57 %
1 year through less than 2 years 75,000 3.30 25,000 1.00
2 years through less than 3 years 52,050 4.19 2,050 2.23
3 years through less than 4 years 25,276 4.17 293 2.85
4 years through 5 years - 0.00 25,000 4.18
After 5 years 278 2.96 294 2.96
FHLB borrowings - gross 756,191 5.15 % 933,637 5.41 %
Fair value discount (47 ) (58 )
Total FHLB borrowings $ 756,144 $ 933,579

The FHLB borrowings are secured by pledges of certain collateral including, but not limited to, U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgages and commercial real estate loans.

Advances are payable at stated maturity, with a prepayment penalty for fixed rate advances. All FHLB advances bear fixed rates. 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.

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 12. Subordinated Debentures

During 2003, the Company formed a statutory business trust, which exists for the exclusive purpose of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of the Company; and (iii) engaging in only those activities necessary or incidental thereto. On December 19, 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly-owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034. The capital securities presently qualify as Tier I capital. The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures. The subordinated debentures are redeemable in whole or in part prior to maturity. 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, 2023to 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 adjustment of 0.26161%. 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 June 30, 2024 and December 31, 2023.

As of June 30, 2024
Issuance Date Securities Issued Liquidation Value Coupon Rate Maturity Redeemable by Issuer Beginning
12/19/2003 $5,000,000 $1,000 per Capital Security Floating 3-month CME Term SOFR + 285 Basis Points + 26.161 Basis Points 1/23/2034 1/23/2009
As of December 31, 2023
Issuance Date Securities Issued Liquidation Value Coupon Rate Maturity Redeemable by Issuer Beginning
12/19/2003 $5,000,000 $1,000 per Capital Security Floating 3-month CME Term SOFR + 285 Basis Points+26.161 Basis Points 1/23/2034 1/23/2009

On June 10, 2020, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”). The 2020 Notes bear interest at 5.75% annually from, and including, the date of initial issuance up to, but excluding, June 15, 2025 or the date of earlier redemption, payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2020. From and including June 15, 2025 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR: (as defined in the Second Supplemental Indenture), plus 560.5 basis points, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2025. Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero.

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Item 2. 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 June 30, 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.

Cautionary Statement Concerning Forward-Looking Statements

This report includes forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, that involve inherent risks and uncertainties. This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of ConnectOne Bancorp Inc. and its subsidiaries, including statements preceded by, followed by, or that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions may increase significantly; (2) changes in the interest rate environment may reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and credit loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable than expected; (5) political developments, sovereign debt problems, wars or other hostilities such as the ongoing conflict between Ukraine and Russia and instability in the Middle East, may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions may adversely affect the businesses in which ConnectOne Bancorp is engaged; (7) changes and trends in the securities markets may adversely impact ConnectOne Bancorp; (8) a delayed or incomplete resolution of regulatory issues could adversely impact planning by ConnectOne Bancorp; (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 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. of ConnectOne Bancorp’s Annual Report on Form 10-K as amended and updated in ConnectOne Bancorp’s other filings with the Securities and Exchange Commission. These documents are available free of charge at the Commission’s website at http://www.sec.gov and/or from ConnectOne Bancorp, Inc.

Critical Accounting Policies and Estimates

Our accounting policies are integral to understanding the results reported. We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. As of June 30, 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.

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Operating Results Overview

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

Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid on deposits and borrowings, which support these assets. Net interest income is presented on a tax-equivalent basis by adjusting tax-exempt income (including interest earned on tax-free loans and on obligations of state and local political subdivisions) by the amount of income tax which would have been paid had the assets been invested in taxable assets. Net interest margin is defined as net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets.

Fully taxable equivalent net interest income for the three months ended 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.

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.

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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 June 30,
2024 2023
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate ^(7)^ Balance Expense Rate^^^(7)^
(dollars in thousands)
Interest-earning assets:
Investment^^securities ^(1) (2)^ $ 739,591 $ 6,102 3.32 % $ 726,315 $ 5,607 3.10 %
Total loans ^(2) (3) (4)^ 8,212,825 120,663 5.91 8,149,374 111,501 5.49
Federal funds sold and interest-bearing deposits with banks 212,811 2,841 5.37 309,458 4,056 5.26
Restricted investment in bank stocks 44,823 1,217 10.92 42,932 945 8.83
Total interest-earning assets 9,210,050 130,823 5.71 9,228,079 122,109 5.31
Noninterest-earning assets
Allowance for credit losses (84,681 ) (87,473 )
Other noninterest-earning assets 620,484 624,976
Total assets $ 9,745,853 $ 9,765,582
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits $ 2,587,706 28,898 4.49 $ 2,658,673 23,778 3.59
Other interest-bearing deposits 3,721,167 33,188 3.59 3,640,939 26,936 2.97
Total interest-bearing deposits 6,308,873 62,086 3.96 6,299,612 50,714 3.23
Borrowings 787,256 5,150 2.63 756,303 5,438 2.88
Subordinated debentures, net 79,609 1,311 6.62 79,104 1,306 6.62
Finance lease 1,416 21 5.96 1,658 24 5.81
Total interest-bearing liabilities 7,177,154 68,568 3.84 7,136,677 57,482 3.23
Noninterest-bearing demand deposits 1,256,251 1,347,268
Other liabilities 91,827 84,594
Total noninterest-bearing liabilities 1,348,078 1,431,862
Stockholders’ equity 1,220,621 1,197,043
Total liabilities and stockholders’ equity $ 9,745,853 $ 9,765,582
Net interest income (tax-equivalent basis) 62,255 64,627
Net interest spread ^(5)^ 1.87 % 2.08 %
Net interest margin ^(6)^ 2.72 % 2.81 %
Tax-equivalent adjustment (816 ) (784 )
Net interest income $ 61,439 $ 63,843
^(1)^ Average balances are based on amortized cost and include equity securities.
--- ---
^(2)^ Interest income is presented on a tax-equivalent basis using a 21% assumed tax rate.
^(3)^ Includes loan fee income and accretion of purchase accounting adjustments.
^(4)^ Total loans include loans held-for-sale and nonaccrual loans.
^(5)^ 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.
^(6)^ Represents net interest income on a tax-equivalent basis divided by average total interest-earning assets.
^(7)^ Rates are annualized.

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Six Months Ended June 30,
2024 2023
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate ^(7)^ Balance Expense Rate ^(7)^
(dollars in thousands)
Interest-earning assets:
Securities ^(1) (2)^ $ 729,947 $ 11,897 3.28 % $ 729,604 $ 11,219 3.08 %
Total loans ^(2) (3) (4)^ 8,272,826 241,255 5.86 8,140,255 218,856 5.39
Federal funds sold and interest-bearing with banks 215,512 5,747 5.36 285,014 7,031 4.95
Restricted investment in bank stocks 48,385 2,342 9.73 46,400 1,843 7.97
Total interest-earning assets 9,266,670 261,241 5.67 9,201,273 238,949 5.21
Noninterest-earning assets:
Allowance for credit losses (84,343 ) (88,820 )
Other noninterest-earning assets 620,976 620,782
Total assets $ 9,803,303 $ 9,733,235
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits $ 2,577,737 56,936 4.44 $ 2,508,835 41,045 3.28
Other interest-bearing deposits 3,708,771 65,557 3.55 3,599,582 49,756 2.77
Total interest-bearing deposits 6,286,508 122,493 3.92 6,108,417 90,801 2.98
Borrowings 867,129 12,717 2.95 848,273 12,035 2.85
Subordinated debentures 79,546 2,622 6.63 91,303 3,609 7.93
Finance lease 1,450 43 5.96 1,686 50 5.95
Total interest-bearing liabilities 7,234,633 137,875 3.83 7,049,679 106,495 3.03
Demand deposits 1,255,225 1,403,220
Other liabilities 92,725 86,191
Total noninterest-bearing liabilities 1,347,950 1,489,411
Stockholders’ equity 1,220,720 1,194,145
Total liabilities and stockholders’ equity $ 9,803,303 $ 9,733,235
Net interest income (tax-equivalent basis) 123,366 132,454
Net interest spread ^(5)^ 1.84 % 2.18 %
Net interest margin ^(6)^ 2.68 % 2.89 %
Tax-equivalent adjustment (1,627 ) (1,527 )
Net interest income $ 121,739 $ 130,927
^(1)^ Average balances are based on amortized cost and include equity securities.
--- ---
^(2)^ Interest income is presented on a tax-equivalent basis using a 21% assumed tax rate.
^(3)^ Includes loan fee income and accretion of purchase accounting adjustments.
^(4)^ Total loans include loans held-for-sale and nonaccrual loans.
^(5)^ 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.
^(6)^ Represents net interest income on a tax-equivalent basis divided by average total interest-earning assets.
^(7)^ Rates are annualized.

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Noninterest Income

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 $37.6 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 Taxes

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 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.

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Financial Condition

Loan Portfolio

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.

June 30, 2024 December 31, 2023 Amount Increase/
Amount Percent of Total Amount Percent of Total (Decrease)
(dollars in thousands)
Commercial $ 1,501,732 18.4 % $ 1,578,730 18.9 % $ (76,998 )
Commercial real estate 5,763,869 70.6 5,895,545 70.6 (131,676 )
Commercial construction 639,168 7.8 620,496 7.4 18,672
Residential real estate 256,786 3.2 256,041 3.1 745
Consumer 945 - 1,029 - (84 )
Gross loans $ 8,162,500 100.0 % $ 8,351,841 100.0 % $ (189,341 )

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.

June 30, 2024 December 31, 2023
Balance Loan-to-Value Balance Loan-to-Value
(dollars in thousands)
Commercial real estate loans **** **** ****
Multifamily $ 2,489,205 61 % $ 2,553,401 61 %
Nonowner-occupied 2,168,145 53 2,177,585 54
Owner-occupied 891,113 51 930,319 53
Land loans 215,249 45 234,563 45
Total commercial real estate loans (before discount) $ 5,763,712 56 % $ 5,895,868 56 %
Fair value premium (discount) 157 (323 )
Total commercial real estate loans $ 5,763,869 $ 5,895,545

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

June 30, 2024 December 31, 2023
Balance Percent of Total Balance Percent of Total
(dollars in thousands)
Multifamily loans **** ****
New Jersey $ 1,576,764 63.4 % $ 1,623,666 63.6 %
New York 747,324 30.0 789,065 30.9
Florida 7,805 0.3 7,828 0.3
Connecticut 40,420 1.6 36,761 1.4
All Other States 116,892 4.7 96,081 3.8
Total multifamily loans $ 2,489,205 100.0 % $ 2,553,401 100.0 %
June 30, 2024 December 31, 2023
--- --- --- --- --- --- --- --- --- --- ---
Balance Percent of Total Balance Percent of Total
(dollars in thousands)
Nonowner-occupied **** ****
New Jersey $ 849,390 39.2 % $ 972,907 44.7 %
New York 759,743 35.0 778,842 35.8
Florida 205,611 9.5 205,178 9.4
Connecticut 79,029 3.6 80,067 3.7
All Other States 274,372 12.7 140,592 6.4
Total nonowner occupied $ 2,168,145 100.0 % $ 2,177,585 100.0 %
June 30, 2024 December 31, 2023
--- --- --- --- --- --- --- --- --- --- ---
Balance Percent of Total Balance Percent of Total
(dollars in thousands)
Owner-occupied **** ****
New Jersey $ 427,500 48.0 % $ 474,905 51.1 %
New York 266,473 29.9 267,990 28.8
Florida 50,188 5.6 69,989 7.5
Connecticut 5,810 0.7 5,887 0.6
All Other States 141,142 15.8 111,548 12.0
Total owner-occupied $ 891,113 100.0 % $ 930,319 100.0 %

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June 30, 2024 December 31, 2023
Balance Percent of Total Balance Percent of Total
(dollars in thousands)
Land loans **** ****
New Jersey $ 100,575 46.7 % $ 106,884 45.6 %
New York 57,682 26.8 77,767 33.1
Florida 54,387 25.3 48,807 20.8
Connecticut - - - -
All Other States 2,605 1.2 1,105 0.5
Total land $ 215,249 100.0 % $ 234,563 100.0 %

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
Balance Percent of Total Balance Percent of Total
(dollars in thousands)
Nonowner-occupied **** **** **** **** **** **** **** **** **** ****
Retail $ 631,606 29.1 % $ 637,211 29.3 %
Office 418,985 19.3 424,479 19.5
Warehouse/Industrial 227,965 10.5 233,518 10.7
Mixed Use 192,670 8.9 192,617 8.8
Other 696,919 32.2 689,760 31.7
Total nonowner-occupied $ 2,168,145 100.0 % $ 2,177,585 100.0 %
June 30, 2024 December 31, 2023
--- --- --- --- --- --- --- --- --- --- ---
Balance Percent of Total Balance Percent of Total
(dollars in thousands)
Owner-occupied **** **** **** **** **** **** **** **** **** ****
Retail $ 205,517 23.1 % $ 208,685 22.4 %
Office 93,757 10.5 102,886 11.1
Warehouse/Industrial 255,058 28.6 249,557 26.8
Mixed Use 106,856 12.0 116,046 12.5
Other 229,925 25.8 253,145 27.2
Total owner-occupied $ 891,113 100.0 % $ 930,319 100.0 %

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Allowance for Credit Losses and Related Provision

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

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

Three Months Ended
June 30,
2024 2023
(dollars in thousands)
Average loans receivable $ 8,212,656 $ 8,140,859
Analysis of the ACL:
Balance - beginning of quarter $ 82,869 $ 87,002
Charge-offs:
Commercial - (1,100 )
Commercial real estate (3,595 ) -
Residential real estate - (18 )
Total charge-offs (3,595 ) (1,118 )
Recoveries:
Commercial 324 9
Residential real estate - 67
Total recoveries 324 76
Net charge-offs (3,271 ) (1,042 )
Provision for credit losses – loans 2,479 3,245
Balance - end of period $ 82,077 $ 89,205
Ratio of annualized net charge-offs during the period to average loans receivable during the period 0.16 % 0.05 %
Loans receivable $ 8,157,903 $ 8,148,540
ACL as a percentage of loans receivable 1.01 % 1.09 %
Six Months Ended
--- --- --- --- --- --- ---
June 30,
2024 2023
(dollars in thousands)
Average loans receivable $ 8,272,692 $ 8,129,280
Analysis of the ACL:
Balance - beginning of quarter $ 81,974 $ 90,513
Charge-offs:
Commercial (300 ) (3,867 )
Commercial real estate (6,480 ) (1,717 )
Residential real estate - (18 )
Total charge-offs (6,780 ) (5,602 )
Recoveries:
Commercial 347 9
Residential real estate - 68
Total recoveries 347 77
Net charge-offs (6,433 ) (5,525 )
Provision for credit losses – loans 6,536 4,217
Balance - end of period $ 82,077 $ 89,205
Ratio of annualized net charge-offs during the period to average loans receivable during the period 0.16 % 0.14 %
Loans receivable $ 8,157,903 $ 8,148,540
ACL as a percentage of loans receivable 1.01 % 1.09 %

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Asset Quality

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.

It is generally the Company’s policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on nonaccrual loans are generally applied against principal. A loan may be restored to an accruing basis when all past due amounts have been collected. Loans past due 90 days or more which are both well-secured and in the process of collection may remain on an accrual basis.

Nonperforming assets include nonaccrual loans and other real estate owned. Nonaccrual loans represent loans on which interest accruals have been suspended. In general, it is the policy of management to consider the charge-off of uncollectible amounts of loans at the point they become past due 90 days.

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

June 30, 2024 December 31, 2023
(dollars in thousands)
Nonaccrual loans $ 46,026 $ 52,524
OREO - -
Total nonperforming assets^(1)^ $ 46,026 $ 52,524
^(1)^ Nonperforming assets are defined as nonaccrual loans and OREO.
--- ---
Nonaccrual loans to total loans receivable 0.56 % 0.63 %
--- --- --- --- ---
Nonperforming assets to total assets 0.47 0.53

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Investment Securities

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 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. Unrealized losses have not been recognized into income because the issuers are of high credit quality, we do not intend to sell, and it is likely that we will not be required to sell the securities prior to their anticipated recovery. The decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. The Company did not record an allowance for credit losses for available-for-sale securities as of June 30, 2024.

Interest Rate Sensitivity Analysis

The principal objective of our asset and liability management function is to evaluate the interest-rate risk included in certain balance sheet accounts; determine the level of risk appropriate given our business focus, operating environment, and capital and liquidity requirements; establish prudent asset concentration guidelines; and manage the risk consistent with Board approved guidelines. We seek to reduce the vulnerability of our operations to changes in interest rates, and actions in this regard are taken under the guidance of the Bank’s Asset Liability Committee (the “ALCO”). The ALCO generally reviews our liquidity, cash flow needs, maturities of investments, deposits and borrowings, and current market conditions and interest rates.

The Company utilizes a number of strategies to manage interest rate risk including, but not limited to: (i) balancing the types and structures of interest-earning assets and interest-bearing liabilities by diversifying mix, coupons, maturities and/or repricing characteristics, (ii) reducing the overall interest rate sensitivity of liabilities by emphasizing core and/or longer-term deposits; utilizing FHLB advances and wholesale deposits for our interest rate risk profile, (iii) managing the investment portfolio for liquidity and interest rate risk profile, and (iv) entering into interest rate swap and cap agreements.

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

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An economic value of equity ("EVE") analysis is also used to dynamically model the present value of asset and liability cash flows with instantaneous and parallel rate shocks of up 200 basis points and down 100 basis points. The EVE is likely to be different as interest rates change. Our EVE as of 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 June 30, 2024.

Interest Rates Estimated Estimated Change in EVE Interest Rates Estimated Estimated Change in NII
(basis points) EVE Amount % (basis points) NII Amount %
+300 $ 784,644 (183,590 ) (18.96 ) 300 $ 213,402 $ (25,210 ) (10.57 )
+200 848,897 (119,337 ) (12.33 ) 200 222,740 (15,872 ) (6.65 )
+100 918,010 (50,224 ) (5.19 ) 100 232,145 (6,467 ) (2.71 )
0 968,234 - - 0 238,612 - -
-100 991,852 23,618 2.44 -100 242,335 3,723 1.56
-200 994,032 25,798 2.66 -200 242,592 3,980 1.67
-300 985,231 16,997 1.76 -300 243,503 4,891 2.05

Certain model limitations are inherent in the methodology used in the EVE and net interest income measurements. The models require the making of certain assumptions which may tend to oversimplify the way actual yields and costs respond to changes in market interest rates. The models assume that the composition of the Company’s interest sensitive assets and liabilities existing at the beginning of a period remain constant over the period being measured, thus they do not consider the Company’s strategic plans, or any other steps it may take to respond to changes in rates over the forecasted period of time. Additionally, the models assume immediate changes in interest rates, based on yield curves as of a point-in-time, which are reflected in a parallel, instantaneous and uniform manner across all yield curves, when in reality changes may rarely be of this nature. The models also utilize data derived from historical performance and as interest rates change the actual performance of loan prepayments, rate sensitivities, and average life assumptions may deviate from assumptions utilized in the models and can impact the results. Accordingly, although the above measurements provide an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates. Given the 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

The estimation of fair value is significant to a number of the Company’s assets, including loans held-for-sale and securities available-for-sale. These are all recorded at either fair value or the lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, discount rates, or market interest rates. Fair values for most available-for-sale securities are based on quoted market prices. If quoted market prices are not available, fair values are based on judgments regarding future expected loss experience, current economic condition risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto presented elsewhere herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations; unlike most industrial companies, nearly all of the Company’s assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Liquidity

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. Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

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 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 and 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 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.

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Deposits

Deposits are our primary source of funds. Noninterest bearing demand deposit products include “Totally Free Checking” and “Simply Better Checking” for consumer clients and “Small Business Checking” and “Analysis Checking” for commercial clients. Interest-bearing checking accounts require minimum balances for both consumer and commercial clients and include “Consumer Interest Checking” and “Business Interest Checking”. Money market accounts consist of products that provide a market rate of interest to depositors. Our savings accounts offer paper and/or electronic statements. Time deposits ("TD") are for non-retirement and IRA accounts, generally with initial maturities ranging from 31 days to 60 months, and brokered TDs, which we use for asset liability management purposes and to supplement other sources of funding. Many of our deposit products can be accessed through both our branches and online to provide ease of access to our clients and communities. CDARS/ICS reciprocal deposits are offered based on the Bank’s participation in the IntraFi Network LLC ("the network"). Clients, who are Federal Deposit Insurance Corporation (“FDIC”) insurance sensitive, are able to place large dollar deposits with the Company and the Company utilizes CDARS to place those funds into certificates of deposit issued by other banks in the Network. This occurs in increments of less than the FDIC insurance limits so that both the principal and interest are eligible for FDIC insurance coverage in amounts larger than the insured dollar amount. Unless certain conditions are satisfied, the FDIC considers these funds as brokered deposits. The Bank also utilizes internet listing services deposits which are obtained through the use of websites such as Rateline or QwickRate.

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
Balance Rate Balance Rate
(dollars in thousands)
Demand, noninterest-bearing $ 1,256,251 - $ 1,347,268 -
Demand, interest-bearing & NOW 3,240,134 3.64 % 3,279,785 3.05 %
Savings 481,033 3.25 361,154 2.19
Time 2,587,706 4.49 2,658,673 3.59
Total average deposits $ 7,565,124 3.30 % $ 7,646,880 2.66 %

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 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.

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

Year-to-Date Average June 30, 2024 Year-to-Date Average June 30, 2023
Balance Rate Balance Rate
(dollars in thousands)
Demand, noninterest-bearing $ 1,255,225 - $ 1,403,220 -
Demand, interest-bearing & NOW 3,247,479 3.61 % 3,230,549 2.85 %
Savings 461,292 3.17 369,033 2.10
Time 2,577,737 4.44 2,508,835 3.28
Total average deposits $ 7,541,733 3.27 % $ 7,511,637 2.42 %

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.

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) 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 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.

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

June 30, 2024 December 31, 2023
Balance Balance
(dollars in thousands)
As stated in FFIEC 041-Consolidated Report of Condition, schedule RC-O:
Total Bank unconsolidated deposits (including affiliate and subsidiary accounts) $ 11,493,169 $ 11,243,254
Estimated uninsured deposits 6,344,752 6,152,454
The Company, on a consolidated basis:
Total deposits $ 7,588,654 $ 7,356,202
Estimated uninsured deposits (excluding affiliate and subsidiary accounts) 2,412,640 2,388,545

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

June 30, 2024 December 31, 2023
Amount Percent of total Amount Percent of total
(dollars in thousands)
Demand, noninterest-bearing $ 1,268,882 16.8 % $ 1,259,364 16.7 %
Demand, interest-bearing & NOW 3,212,891 42.4 3,326,989 44.1
Savings 501,076 6.6 418,478 5.6
Time 2,593,165 34.2 2,531,371 33.6
Total deposits $ 7,576,014 100.0 % $ 7,536,202 100.0 %

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.

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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)
3 months or less $ 222,239
Over 3 to 6 months 192,937
Over 6 to 12 months 281,673
Over 12 months 32,653
Total $ 729,502

Subordinated Debentures

During December 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034. The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures. The subordinated debentures are redeemable in whole or part prior to maturity. Upon the cessation of publication of LIBOR rates and pursuant to the Federal LIBOR Act and Federal Reserve regulations implementing the Act, the MMCapS capital securities converted as of June 30, 2023 to a new index based on CME Term SOFR, as defined in the LIBOR Act, plus a tenor spread adjustment, which is referred to as the Benchmark Replacement. Effective for quarterly interest rate resets after July 3, 2023 the subordinated debentures' floating rate will be three-month CME Term SOFR plus 2.85% plus a tenor spread 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”). The 2020 Notes bear interest at 5.75% annually from, and including, the date of initial issuance up to, but excluding, September 15, 2025 or the date of earlier redemption, payable semi-annually in arrears on September 15 and December 15 of each year, commencing December 15, 2020. From and including September 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.

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Stockholders’ Equity

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 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.

June 30, 2024 December 31, 2023
(dollars in thousands, except for share and per share data)
Common equity $ 1,113,300 $ 1,105,693
Less: intangible assets (213,604 ) (214,246 )
Tangible common stockholders’ equity $ 899,696 $ 891,447
Total assets $ 9,723,731 $ 9,855,603
Less: intangible assets (213,604 ) (214,246 )
Tangible assets $ 9,510,127 $ 9,641,357
Common stock outstanding at period end 38,365,069 38,519,770
Tangible common equity ratio ^(1)^ 9.46 % 9.25 %
Book value per common share $ 29.02 $ 28.70
Less: intangible assets 5.57 5.56
Tangible book value per common share $ 23.45 $ 23.14
^(1)^ Tangible common equity ratio is a non-GAAP measure.
--- ---

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Regulatory Capital and Capital Adequacy

The maintenance of a solid capital foundation is a primary goal for the Company. Accordingly, capital plans, stock repurchases and dividend policies are monitored on an ongoing basis. The Company’s objective with respect to the capital planning process is to effectively balance the retention of capital to support future growth with the goal of providing stockholders with an attractive long-term return on their investment.

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

The following is a summary of regulatory capital amounts and ratios as of 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. For Capital Adequacy Purposes To Be Well-Capitalized Under Prompt Corrective Action Provisions
The Company Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2024 (dollars in thousands)
Tier 1 leverage capital $ 1,056,834 10.97 % $ 385,324 4.00 % NA NA
CET I risk-based ratio 940,752 10.90 388,275 4.50 NA NA
Tier 1 risk-based capital 1,056,834 12.25 517,700 6.00 NA NA
Total risk-based capital 1,216,462 14.10 690,267 8.00 NA NA

N/A - not applicable

ConnectOne Bank For Capital Adequacy Purposes To Be Well-Capitalized Under Prompt Corrective Action Provisions
The Bank Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2024 (dollars in thousands)
Tier 1 leverage capital $ 1,086,753 11.29 % $ 384,986 4.00 % 481,232 5.00 %
CET I risk-based ratio 1,086,753 12.60 388,268 4.50 560,832 6.50
Tier 1 risk-based capital 1,086,753 12.60 517,691 6.00 690,254 8.00
Total risk-based capital 1,171,380 13.58 690,254 8.00 862,818 10.00

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.

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Item 3. Qualitative and Quantitative Disclosures about Market Risks

Market Risk

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

Item 4. Controls and Procedures

a) Disclosure controls and procedures. As of the end of the Company’s most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and are operating in an effective manner and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

b) Changes in internal controls over financial reporting. There have been no changes in the Company’s internal controls over financial reporting that occurred during the Company’s last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not subject to any legal proceedings, which could have a materially adverse impact on its results of operations and financial condition.

Item 1a. Risk Factors

There have been no material changes to the risks inherent in our business from those described under Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchase Program

Historically, repurchases have been made from time to time as, in the opinion of management, market conditions warranted, in the open market or in privately negotiated transactions. During the quarter ended June 30, 2024, the Company did not repurchase any shares. As of June 30, 2024, shares remaining for repurchase under the program were 641,118.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5 Other Information

Not applicable

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Item 6. Exhibits

Exhibit No. Description
31.1 Certification of the Chief Executive Officer of the Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer of the Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer of the Parent Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer of the Parent Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.

CONNECTONE BANCORP, INC.

(Registrant)

By: /s/ Frank Sorrentino III By: /s/ William S. Burns
Frank Sorrentino III William S. Burns
Chairman and Chief Executive Officer Senior Executive Vice President and Chief Financial Officer
Date: August 2, 2024 Date: August 2, 2024

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ex_668852.htm

EXHIBIT 31.1

CERTIFICATION

I, Frank Sorrentino III, certify that:

  1. I have reviewed this quarterly report on Form 10-Q of ConnectOne Bancorp, Inc.;

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

  4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

  1. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: August 2, 2024 /s/ Frank Sorrentino III
Frank Sorrentino III
Chairman and Chief Executive Officer

ex_668853.htm

EXHIBIT 31.2

CERTIFICATION

I, William S. Burns, certify that:

  1. I have reviewed this quarterly report on Form 10-Q of ConnectOne Bancorp, Inc.;

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

  4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

  1. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: August 2, 2024 /s/ William S. Burns
William S. Burns
Senior Executive Vice President and Chief Financial Officer

ex_668854.htm

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report of ConnectOne Bancorp, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2024 filed with the Securities and Exchange Commission (the “Report”), I, Frank Sorrentino III, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

  1. The Report fully complies with the requirements of Section 13 (a) of the Securities Exchange Act of 1934; and

  2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated results of operations of the Company for the periods presented.

Date: August 2, 2024 /s/ Frank Sorrentino III
Frank Sorrentino III
Chairman and Chief Executive Officer

ex_668855.htm

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report of ConnectOne Bancorp, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2024 filed with the Securities and Exchange Commission (the “Report”), I, William S. Burns, Senior Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

  1. The Report fully complies with the requirements of Section 13 (a) of the Securities Exchange Act of 1934; and

  2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated results of operations of the Company for the periods presented.

Date: August 2, 2024 /s/ William S. Burns
William S. Burns
Senior Executive Vice President and Chief Financial Officer

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