CNOB 10-Q Quarterly Report March 31, 2024

CONNECTONE BANCORP, INC.

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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 March 31, 2024

☐

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

CONNECTONE BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

New Jersey

52-1273725

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

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 ☐

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:	38,333,053 shares
(Title of Class)	(Outstanding as of May 3, 2024)

Table of Contents

Table of Contents

		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Consolidated Statements of Condition as of March 31, 2024 (unaudited) and December 31, 2023	3
	Consolidated Statements of Income for the three months ended March 31, 2024 and 2023 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (unaudited)	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Qualitative and Quantitative Disclosures about Market Risks	58

Item 4.	Controls and Procedures	58

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	59

Item 1a.	Risk Factors	59

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3.	Defaults Upon Senior Securities	59

Item 4.	Mine Safety Disclosures	59

Item 5.	Other Information	59

Item 6.	Exhibits	60

SIGNATURES		61

Table of Contents

Item 1. Financial Statements

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except for share data)	March 31,			December 31,
	2024			2023
		(unaudited)
ASSETS
Cash and due from banks	$	45,322		$	61,421
Interest-bearing deposits with banks		232,261			181,293
Cash and cash equivalents		277,583			242,714

Investment securities		619,397			617,162
Equity securities		19,457			18,564

Loans receivable		8,297,957			8,345,145
Less: Allowance for credit losses - loans		82,869			81,974
Net loans receivable		8,215,088			8,263,171

Investment in restricted stock, at cost		48,931			51,457
Bank premises and equipment, net		29,827			30,779
Accrued interest receivable		49,731			49,108
Bank owned life insurance		239,308			237,644
Right of use operating lease assets		11,725			12,007
Goodwill		208,372			208,372
Core deposit intangibles		5,553			5,874
Other assets		128,992			118,751
Total assets	$	9,853,964		$	9,855,603
LIABILITIES
Deposits:
Noninterest-bearing	$	1,290,523		$	1,259,364
Interest-bearing		6,298,131			6,276,838
Total deposits		7,588,654			7,536,202
Borrowings		877,568			933,579
Subordinated debentures, net		79,566			79,439
Operating lease liabilities		12,843			13,171
Other liabilities		78,724			76,592
Total liabilities		8,637,355			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 March 31, 2024 and as of December 31, 2023; outstanding 115,000 shares as of March 31, 2024 and as of December 31, 2023		110,927			110,927
Common stock, no par value: Authorized 100,000,000 shares; issued 42,218,601 shares as of March 31, 2024 and 42,122,948 shares as of December 31, 2023; outstanding 38,333,053 shares as of March 31, 2024 and 38,519,770 as of December 31, 2023		586,946			586,946
Additional paid-in capital		32,866			33,182
Retained earnings		600,118			590,970
Treasury stock, at cost 3,885,548 common shares as of March 31, 2024 and 3,603,178 as of December 31, 2023		( 76,116	)		( 70,296	)
Accumulated other comprehensive loss		( 38,132	)		( 35,109	)
Total stockholders’ equity		1,216,609			1,216,620
Total liabilities and stockholders’ equity	$	9,853,964		$	9,855,603

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended
	March 31,
	2024			2023
(dollars in thousands, except for per share data)
Interest income
Interest and fees on loans	$	120,088		$	106,903
Interest and dividends on investment securities:
Taxable		4,334			4,229
Tax-exempt		1,154			1,092
Dividends		1,125			898
Interest on federal funds sold and other short-term investments		2,906			2,975
Total interest income		129,607			116,097
Interest expense
Deposits		60,407			40,087
Borrowings		8,900			8,926
Total interest expense		69,307			49,013
Net interest income		60,300			67,084
Provision for credit losses		4,000			1,000
Net interest income after provision for credit losses		56,300			66,084
Noninterest income
Deposit, loan and other income		1,592			1,403
Income on bank owned life insurance		1,664			1,531
Net gains on sale of loans held-for-sale		506			49
Net gain (losses) on equity securities		86			( 191	)
Total noninterest income		3,848			2,792
Noninterest expenses
Salaries and employee benefits		22,196			22,261
Occupancy and equipment		3,009			2,761
FDIC insurance		1,800			950
Professional and consulting		1,928			2,194
Marketing and advertising		677			532
Information technology and communications		4,389			3,061
Amortization of core deposit intangibles		321			372
Other components of net periodic pension expense		( 65	)		( 25	)
Other expenses		2,810			2,764
Total noninterest expenses		37,065			34,870
Income before income tax expense		23,083			34,006
Income tax expense		5,878			9,077
Net income		17,205			24,929
Preferred dividends		1,509			1,509
Net income available to common stockholders	$	15,696		$	23,420
Earnings per common share
Basic	$	0.41		$	0.60
Diluted		0.41			0.59

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended
	March 31,
(dollars in thousands)	2024			2023
Net income	$	17,205		$	24,929
Other comprehensive income (loss):

Unrealized holding (losses) gains on available-for-sale securities arising during the period		( 10,361	)		6,528
Tax effect		1,395			( 2,045	)
Net of tax		( 8,966	)		4,483

Unrealized gains (losses) on cash flow hedges		12,880			( 4,361	)
Tax effect		( 2,920	)		1,312
Net of tax		9,960			( 3,049	)

Reclassification adjustment for realized gains on cash flow hedges		( 5,629	)		( 4,267	)
Tax effect		1,582			1,284
Net of tax		( 4,047	)		( 2,983	)

Reclassification adjustment for realized losses on pension plan included in net income		43			74
Tax effect		( 13	)		( 23	)
Net of tax		30			51

Total other comprehensive loss		( 3,023	)		( 1,498	)

Total comprehensive income	$	14,182		$	23,431

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY

(unaudited)

	*Three Months Ended March 31, 2024*
														Accumulated
					Additional									Other			Total
	Preferred		Common		Paid-In			Retained			Treasury			Comprehensive			Stockholders’
(in thousands, except share data)	Stock		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		-		-		-			17,205			-			-			17,205
Other comprehensive loss, net of tax		-		-		-			-			-			( 3,023	)		( 3,023	)
Cash dividends paid on preferred stock ($ 0.328125 per depositary share)		-		-		-			( 1,509	)		-			-			( 1,509	)
Cash dividends paid on common stock ($ 0.17 per share)		-		-		-			( 6,548	)		-			-			( 6,548	)
Restricted stock grants, net of forfeitures ( 36,446 shares)		-		-		-			-			-			-			-
Stock grants ( 1,533 shares)		-		-		-			-			-			-			-
Net shares issued in satisfaction of deferred stock units earned ( 33,604 shares)		-		-		-			-			-			-			-
Net shares issued in satisfaction of performance units earned ( 24,070 shares)		-		-		-			-			-			-			-
Share redemption for tax withholdings on performance units and deferred stock units earned		-		-		( 1,324	)		-			-			-			( 1,324	)
Stock-based compensation expense		-		-		1,008			-			-			-			1,008
Repurchase of treasury stock ( 282,370 shares)		-		-		-			-			( 5,820	)		-			( 5,820	)

Balance as of March 31, 2024	$	110,927	$	586,946	$	32,866		$	600,118		$	( 76,116	)	$	( 38,132	)	$	1,216,609

	*Three Months Ended March 31, 2023*
													Accumulated
					Additional								Other			Total
	Preferred		Common		Paid-In		Retained			Treasury			Comprehensive			Stockholders’
(in thousands, except share data)	Stock		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		-		-		-		24,929			-			-			24,929
Other comprehensive loss, net of tax		-		-		-		-			-			( 1,498	)		( 1,498	)
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)		-		-		-		( 6,074	)		-			-			( 6,074	)
Exercise of stock options ( 6,473 shares)		-		-		81		-			-			-			81
Restricted stock grants, net of forfeitures ( 49,202 shares)		-		-		-		-			-			-			-
Stock grants ( 995 shares)		-		-		-		-			-			-			-
Net shares issued in satisfaction of deferred stock units earned ( 32,068 shares)		-		-		-		-			-			-			-
Net shares issued in satisfaction of performance units earned ( 52,353 shares)		-		-		-		-			-			-			-
Stock-based compensation expense		-		-		1,143		-			-			-			1,143
Repurchase of treasury stock ( 205,163 shares)		-		-		-		-			( 4,853	)		-			( 4,853	)

Balance as of March 31, 2023	$	110,927	$	586,946	$	31,350	$	553,261		$	( 57,652	)	$	( 33,862	)	$	1,190,970

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended
	March 31,
(dollars in thousands)	2024			2023
Cash flows from operating activities
Net income	$	17,205		$	24,929
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		1,102			1,076
Provision for credit losses		4,000			1,000
Amortization of intangibles		321			372
Net accretion of loans		( 247	)		( 743	)
Accretion on bank premises		( 12	)		( 12	)
Accretion on deposits		( 39	)		( 101	)
Amortization on borrowings, net		5			5
Stock-based compensation		1,008			1,143
(Gains) losses on equity securities, net		( 86	)		191
Gains on sale of loans held-for-sale, net		( 506	)		( 49	)
Loans originated for resale		( 6,617	)		( 854	)
Proceeds from sale of loans held-for-sale		7,123			1,202
Loss on sale of other real estate owned		-			22
Increase in cash surrender value of bank owned life insurance		( 1,664	)		( 1,531	)
Amortization of premium and accretion of discounts on securities available-for-sale		185			268
Amortization of subordinated debentures issuance costs		127			805
Increase in accrued interest receivable		( 623	)		( 239	)
Net change in operating leases		( 46	)		( 42	)
Increase in other assets		( 2,946	)		( 13,321	)
Increase in other liabilities		2,232			2,253
Net cash provided by operating activities		20,522			16,374

Cash flows from investing activities
Investment securities available-for-sale:
Purchases		( 25,947	)		( 4,763	)
Maturities, calls and principal repayments		13,166			16,906
Purchase of equity securities		( 807	)		( 2,405	)
Net redemptions of restricted investment in bank stocks		2,526			225
Payments on loans held-for-sale		-			17
Net decrease (increase) in loans		44,273			( 33,911	)
Purchases of premises and equipment		( 138	)		( 2,867	)
Proceeds from sale of OREO		-			242
Net cash provided by (used in) investing activities		33,073			( 26,556	)

Cash flows from financing activities
Net increase in deposits		52,491			396,654
Advances of Federal Home Loan Bank (“FHLB”) borrowings		445,000			750,000
Repayments of FHLB borrowings		( 501,016	)		( 755,016	)
Repayments of subordinated debt		-			( 75,000	)
Cash dividends on preferred stock		( 1,509	)		( 1,509	)
Cash dividends paid on common stock		( 6,548	)		( 6,074	)
Repurchase of treasury stock		( 5,820	)		( 4,853	)
Proceeds from exercise of stock options		-			81
Share redemption for tax withholdings on performance units and deferred stock units earned		( 1,324	)		-
Net cash (used in) provided by financing activities		( 18,726	)		304,283
Net change in cash and cash equivalents		34,869			294,101
Cash and cash equivalents at beginning of period		242,714			268,315
Cash and cash equivalents at end of period	$	277,583		$	562,416

Table of Contents

(continued)

Supplemental disclosures of cash flow information
Cash payments for:
Interest paid on deposits and borrowings	$	67,063	$	46,590
Income taxes		10,861		1,257

Supplemental disclosures of noncash activities
Investing:
Transfer of loans from held-for-sale to held-for-investment	-	13,456
Transfer of loans from held-for-investment to held-for-sale	-	11,197

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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.

Table of Contents

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.

Table of Contents

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
	March 31,
(dollars in thousands, except for per share data)	2024			2023
Net income available to common stockholders	$	15,696		$	23,420
Earnings allocated to participating securities		( 42	)		( 44	)
Income attributable to common stock	$	15,654		$	23,376

Weighted average common shares outstanding, including participating securities		38,423			39,178
Weighted average participating securities		( 104	)		( 74	)
Weighted average common shares outstanding		38,319			39,104
Incremental shares from assumed conversions of options, performance units and restricted shares		193			197
Weighted average common and equivalent shares outstanding		38,512			39,301

Earnings per common share:
Basic	$	0.41		$	0.60
Diluted		0.41			0.59

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

Table of Contents

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 March 31, 2024 and December 31, 2023 . Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in stockholders’ equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value as of March 31, 2024 and December 31, 2023 . Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 6 of the Notes to Consolidated Financial Statements for further discussion.

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

										Allowance
										for
			Gross		Gross					Investment
	Amortized		Unrealized		Unrealized			Fair		Credit
	Cost		Gains		Losses			Value		Losses
	(dollars in thousands)
March 31, 2024
Investment securities available-for-sale:
Federal agency obligations	$	76,953	$	190	$	( 11,411	)	$	65,732	$	-
Residential mortgage pass-through securities		454,980		289		( 58,848	)		396,421		-
Commercial mortgage pass-through securities		25,178		-		( 3,740	)		21,438		-
Obligations of U.S. states and political subdivisions		147,553		166		( 18,163	)		129,556		-
Corporate bonds and notes		5,000		-		( 29	)		4,971		-
Asset-backed securities		1,167		-		( 15	)		1,152		-
Other securities		127		-		-			127		-
Total investment securities available-for-sale	$	710,958	$	645	$	( 92,206	)	$	619,397	$	-

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	$	-

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Investment Securities – (continued)

Investment securities having a carrying value of approximately $ 192.4 million and $ 358.0 million as of March 31, 2024 and December 31, 2023 , respectively, were pledged to secure public deposits, borrowings, repurchase agreements, access to unutilized Federal Reserve Discount Window, Bank Term Funding Program ("BTFP") borrowings, and access to unutilized Federal Home Loan Bank advances and for other purposes required or permitted by law. The BTFP was a temporary facility of the Federal Reserve and expired on March 11, 2024. As of March 31, 2024 and December 31, 2023 , there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

The following table presents information for investments in securities available-for-sale as of March 31, 2024 , based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer. Securities not due at a single maturity date are shown separately.

	March 31, 2024
	Amortized		Fair
	Cost		Value
	(dollars in thousands)
Investment securities available-for-sale:
Due in one year or less	$	2,284	$	2,269
Due after one year through five years		6,362		6,338
Due after five years through ten years		2,283		2,241
Due after ten years		219,744		190,563
Residential mortgage pass-through securities		454,980		396,421
Commercial mortgage pass-through securities		25,178		21,438
Other securities		127		127
Total investment securities available-for-sale	$	710,958	$	619,397

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

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 March 31, 2024 and December 31, 2023 .

	March 31, 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	$	49,276	$	( 11,411	)	$	11,597	$	( 93	)	$	37,679	$	( 11,318	)
Residential mortgage pass-through securities		368,077		( 58,848	)		3,345		( 77	)		364,732		( 58,771	)
Commercial mortgage pass-through securities		21,437		( 3,740	)		-		-			21,437		( 3,740	)
Obligations of U.S. states and political subdivisions		118,304		( 18,163	)		19,806		( 389	)		98,498		( 17,774	)
Corporate bonds and notes		4,972		( 29	)		2,987		( 14	)		1,985		( 15	)
Asset-backed securities		1,153		( 15	)		-		-			1,153		( 15	)
Total temporarily impaired securities	$	563,219	$	( 92,206	)	$	37,735	$	( 573	)	$	525,484	$	( 91,633	)

	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 as of March 31, 2024 and December 31, 2023 , totaled $ 2.2 million and $ 2.3 million, respectively.

The Company evaluates securities in an unrealized loss position for impairment related to credit losses on at least a quarterly basis. Securities in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value resulted from credit losses or other factors. 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 March 31, 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.

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 2025 to March 2028. The swaps are determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income. 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 matures in October of 2027 and one interest rate cap spread transaction, with a total notional amount of $ 75 million, which became effective in November 2022 and matures in November of 2027. These are designated as cash flow hedges of brokered certificates of deposits, and the interest rate cap spread is indexed to a benchmark of fed funds with payment required on a monthly basis. The structure of these instruments is such that the Company entered into a total of $225 million in notional amount of sold interest rate cap agreements, in which we are required to pay the counterparty an incremental amount if the index rate exceeds a set cap rate. Simultaneously, the Company purchased a total of $ 225 million notional amount of interest rate cap agreements in which we receive an incremental amount if the index rate is above a set cap rate. No payments are required if the index rate is at, or below, the cap rate on the sold or purchased interest rate cap agreements.

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

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:

	Three Months Ended March 31, 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	$	12,880	$	( 5,629	)	$	-

	Three Months Ended March 31, 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	$	( 4,361	)	$	( 4,267	)	$	-

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

	March 31, 2024				December 31, 2023
	Notional Amount		Fair Value		Notional Amount		Fair Value
			(dollars in thousands)
Interest rate contracts	$	1,000,000	$	50,508	$	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 March 31, 2024 and December 31, 2023 :

	March 31, 2024			December 31, 2023
	(dollars in thousands)
Commercial	$	1,572,494		$	1,578,730
Commercial real estate		5,829,950			5,895,545
Commercial construction		646,593			620,496
Residential real estate		254,214			256,041
Consumer		850			1,029
Gross loans		8,304,101			8,351,841
Net deferred loan fees		( 6,144	)		( 6,696	)
Total loans receivable	$	8,297,957		$	8,345,145

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

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

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

	March 31, 2024
	Nonaccrual loans with ACL		Nonaccrual loans without ACL		Total nonaccrual loans
	(dollars in thousands)
Commercial	$	1,683	$	10,957	$	12,640
Commercial real estate		65		33,210		33,275
Residential real estate		691		832		1,523
Total	$	2,439	$	44,999	$	47,438

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

	*Term loans amortized cost basis by origination year*
	*2024*		*2023*		*2022*		*2021*		*2020*		*Prior*		*Revolving Loans*		*Total Gross Loans*
Commercial
Pass	$	8,719	$	163,629	$	253,890	$	257,399	$	37,512	$	112,276	$	706,574	$	1,539,999
Special mention		-		-		10,687		-		18		3,945		3,184		17,834
Substandard		-		250		124		236		-		12,998		1,053		14,661
Doubtful		-		-		-		-		-		-		-		-
Total commercial	$	8,719	$	163,879	$	264,701	$	257,635	$	37,530	$	129,219	$	710,811	$	1,572,494
YTD gross charge-offs	$	-	$	-	$	300	$	-	$	-	$	-	$	-	$	300

Commercial Real Estate
Pass	$	55,180	$	247,846	$	1,557,645	$	1,564,163	$	343,799	$	1,521,233	$	478,777	$	5,768,643
Special mention		-		-		-		-		-		22,723		-		22,723
Substandard		-		-		-		1,878		-		19,921		16,785		38,584
Doubtful		-		-		-		-		-		-		-		-
Total commercial real estate	$	55,180	$	247,846	$	1,557,645	$	1,566,041	$	343,799	$	1,563,877	$	495,562	$	5,829,950
YTD gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	2,885	$	-	$	2,885

Commercial Construction
Pass	$	5,250	$	582	$	4,201	$	15,608	$	6,236	$	-	$	606,016	$	637,893
Special mention		-		-		-		-		-		-		8,700		8,700
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total commercial construction	$	5,250	$	582	$	4,201	$	15,608	$	6,236	$	-	$	614,716	$	646,593
YTD gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Residential
Pass	$	4,466	$	15,268	$	42,558	$	21,832	$	21,396	$	107,917	$	35,797	$	249,234
Special mention		-		-		-		-		-		647		2,810		3,457
Substandard		-		-		-		547		-		735		241		1,523
Doubtful		-		-		-		-		-		-		-		-
Total residential real estate	$	4,466	$	15,268	$	42,558	$	22,379	$	21,396	$	109,299	$	38,848	$	254,214
YTD gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Consumer
Pass	$	706	$	29	$	36	$	-	$	5	$	-	$	74	$	850
Special mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total consumer	$	706	$	29	$	36	$	-	$	5	$	-	$	74	$	850
YTD gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total
Pass	$	74,321	$	427,354	$	1,858,330	$	1,859,002	$	408,948	$	1,741,426	$	1,827,238	$	8,196,619
Special mention		-		-		10,687		-		18		27,315		14,694		52,714
Substandard		-		250		124		2,661		-		33,654		18,079		54,768
Doubtful		-		-		-		-		-		-		-		-
Grand total	$	74,321	$	427,604	$	1,869,141	$	1,861,663	$	408,966	$	1,802,395	$	1,860,011	$	8,304,101
YTD gross charge-offs	$	-	$	-	$	300	$	-	$	-	$	2,885	$	-	$	3,185

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 March 31, 2024 and December 31, 2023 :

	March 31, 2024
	Real Estate		Other		Total
	(dollars in thousands)
Commercial	$	1,700	$	10,280	$	11,980
Commercial real estate		33,210		-		33,210
Commercial construction		-		-		-
Residential real estate		832		-		832
Total	$	35,742	$	10,280	$	46,022

	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 March 31, 2024 and December 31, 2023:

	March 31, 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	$	495	$	-	$	-	$	12,640	$	13,135	$	1,559,359	$	1,572,494
Commercial real estate		525		-		-		33,275		33,800		5,796,150		5,829,950
Commercial construction		-		-		23,600		-		23,600		622,993		646,593
Residential real estate		1,942		-		-		1,523		3,465		250,749		254,214
Consumer		99		-		-		-		99		751		850
Total	$	3,061	$	-	$	23,600	$	47,438	$	74,099	$	8,230,002	$	8,304,101

As of March 31, 2024, one loan for $23.6 million was past due more than 90 days and still accruing; the loan is well-secured at a loan-to-value of approximately 60% and is in the process of collection.

	December 31, 2023
	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:

	March 31, 2024
	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Total
	(dollars in thousands)
Allowance for credit losses - loans
Individually analyzed	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated		20,475		52,794		5,011		4,326		3		82,609
Acquired with deteriorated credit quality		260		-		-		-		-		260
Total	$	20,735	$	52,794	$	5,011	$	4,326	$	3	$	82,869

Gross loans
Individually analyzed	$	11,980	$	33,210	$	-	$	832	$	-	$	46,022
Collectively evaluated		1,560,040		5,796,740		646,593		253,382		850		8,257,605
Acquired with deteriorated credit quality		474		-		-		-		-		474
Total	$	1,572,494	$	5,829,950	$	646,593	$	254,214	$	850	$	8,304,101

	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 months ended March 31, 2024 is summarized in the tables below.

	Three Months Ended March 31, 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	)		( 2,885	)		-		-		-			( 3,185	)
Recoveries		23			-			-		-		-			23
Provision for (reversal of) credit losses - loans		380			3,401			272		6		( 2	)		4,057

Balance as of March 31, 2024	$	20,735		$	52,794		$	5,011	$	4,326	$	3		$	82,869

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

	Three Months Ended March 31, 2023
	Commercial			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		( 2,767	)		( 1,717	)		-		-			-			( 4,484	)
Recoveries		-			-			-		1			-			1
Provision for (reversal of) credit losses - loans		26			975			248		( 276	)		( 1	)		972

Balance as of March 31, 2023	$	26,162		$	53,000		$	3,966	$	3,868		$	6		$	87,002

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
	March 31, 2024
	Term Extension		Payment Deferral		Interest Rate Reduction		Total		% of Portfolio Loan Segment
	(dollars in thousands)
Commercial	$	-	$	126	$	-	$	126		0.01	%

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

	Three Months Ended
	March 31, 2023
	Term Extension		Payment Deferral		Interest Rate Reduction		Total		% of Portfolio Loan Segment
	(dollars in thousands)
Commercial	$	63	$	-	$	-	$	63		0.01	%

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

The Company closely monitors the performance of loans that are modified to borrower’s experiencing financial difficulty to understand the effectiveness of its modification efforts. The following tables present the performance of such loans that have been modified during the three months ended March 31, 2024 and March 31, 2023:

	March 31, 2024
	Current		30-89 Days Past Due		90 Days or Greater Past Due and Still Accruing
	(dollars in thousands)
Commercial	$	126	$	-	$	-

	March 31, 2023
	Current		30-89 Days Past Due		90 Days or Greater Past Due and Still Accruing
	(dollars in thousands)
Commercial	$	63	$	-	$	-

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:

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

There were no loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2024 and 2023 and were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure. 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.

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 months ended March 31, 2024 and 2023 :

	Three Months Ended			Three Months Ended
	March 31,			March 31,
	2024			2023
	(dollars in thousands)
Balance at beginning of period	$	2,811		$	3,036
(Reversal of) provision for credit losses - unfunded commitments		( 57	)		28
Balance at end of period	$	2,754		$	3,064

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 months ended March 31, 2024 and 2023 :

	Three Months Ended			Three Months Ended
	March 31,			March 31,
	2024			2023
	(dollars in thousands)
Provision for credit losses – loans	$	4,057		$	972
(Reversal of) provision for credit losses - unfunded commitments		( 57	)		28
Provision for credit losses	$	4,000		$	1,000

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

			March 31, 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	$	65,732	$	-	$	65,732	$	-
Residential mortgage pass-through securities		396,421		-		396,421		-
Commercial mortgage pass-through securities		21,438		-		21,438		-
Obligations of U.S. states and political subdivision		129,556		-		122,666		6,890
Corporate bonds and notes		4,971		-		4,971		-
Asset-backed securities		1,152		-		1,152		-
Other securities		127		127		-		-
Total available-for-sale		619,397		127		612,380		6,890

Equity securities		19,457		9,743		9,714		-
Derivatives		50,508		-		50,508		-
Total assets	$	689,362	$	9,870	$	672,602	$	6,890

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 three months ended March 31, 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 March 31, 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 March 31, 2024 and December 31, 2023 are as follows:

			Fair Value Measurements at Reporting Date Using
Assets measured at fair value on a nonrecurring basis:	March 31, 2024		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral dependent loans:	(dollars in thousands)
Commercial	$	763	$	-	$	-	$	763

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

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 three months ended March 31, 2024 and for the year ended December 31, 2023:

	Municipal Securities
	(dollars in thousands)
Beginning balance, January 1, 2024	$	7,122
Principal paydowns		( 75	)
Change in unrealized loss		( 157	)
Ending balance, March 31, 2024	$	6,890

	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 March 31, 2024 and December 31, 2023 . The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 hierarchy.

March 31, 2024
	Fair Value		Valuation Techniques	Unobservable Input	Rate
Securities available-for-sale:			(dollars in thousands)
Municipal securities	$	6,890	Discounted cash flows	Discount rate		4.6	%

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	%

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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.

March 31, 2024
(dollars in thousands)	Fair Value		Valuation Techniques	Unobservable Input	Range (weighted average)
Commercial	$	763	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%)

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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 March 31, 2024 the fair value measurements presented are consistent with Topic 820, Fair Value Measurement , in which fair value represents exit price. The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2024 and December 31, 2023 :

					Fair Value Measurements
	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)

March 31, 2024
Financial assets:
Cash and due from banks	$	277,583	$	277,583	$	277,583	$	-	$	-
Securities available-for-sale		619,397		619,397		127		612,380		6,890
Restricted investments in bank stocks		48,931		n/a		n/a		n/a		n/a
Equity securities		19,457		19,457		9,743		9,714		-
Net loans		8,215,088		7,946,659		-		-		7,946,659
Derivatives - interest rate contracts		50,508		50,508		-		50,508		-
Accrued interest receivable		49,731		49,731		-		5,847		43,884

Financial liabilities:
Noninterest-bearing deposits		1,290,523		1,290,523		1,290,523		-		-
Interest-bearing deposits		6,298,131		6,276,751		3,674,740		2,602,011		-
Borrowings		877,568		874,778		-		874,778		-
Subordinated debentures		79,566		79,748		-		79,748		-
Accrued interest payable		12,304		12,304		-		12,304		-

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		-

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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 (loss) income includes all changes in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s other comprehensive income is comprised of unrealized holding gains and losses on securities available-for-sale, unrealized gains (losses) on cash flow hedges, obligations for defined benefit pension plan and an adjustment to reflect the curtailment of the Company’s defined benefit pension plan, each net of taxes.

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

Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income						Affected Line item in the Consolidated Statements of Income
	Three Months Ended March 31,
	2024			2023
Interest income on cash flow hedges	$	5,629		$	4,267		Borrowings and deposits expense
		(1,582	)		(1,284	)	Income tax (expense) benefit
	$	4,047		$	2,983

Amortization of pension plan net actuarial losses	$	( 43	)	$	( 74	)	Other components of net periodic pension expense
		13			23		Income tax benefit
	$	( 30	)	$	( 51	)
Total reclassification	$	4,017		$	2,932

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

	March 31, 2024			December 31, 2023
	(dollars in thousands)
Investment securities available-for-sale, net of tax	$	( 66,743	)	$	( 57,835	)
Cash flow hedge, net of tax		30,723			24,810
Defined benefit pension and post-retirement plans, net of tax		( 2,112	)		( 2,084	)
Total	$	( 38,132	)	$	( 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 March 31, 2024 . On May 30, 2023, the Company's stockholders approved an amendment to the Plan that increased the maximum number of shares issuable to 1,200,000 . Grants under the Plan can be in the form of stock options (qualified or non-qualified), restricted shares, deferred stock units or performance units. Shares available for grant and issuance under the Plan as of March 31, 2024 were approximately 373,848 . The Company intends to issue all shares under the Plan in the form of newly issued shares.

Restricted stock, options and deferred stock units typically have a three -year vesting period starting one year after the date of grant with one - third vesting each year. The options generally expire ten years from the date of grant. Restricted stock and deferred stock units granted to new employees and board members may be granted with shorter vesting periods. 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 months ended March 31, 2024 and March 31, 2023 were $ 1.0 million and $ 1.1 million, respectively.

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

	Nonvested Shares			Weighted Average Grant Date Fair Value
Nonvested as of December 31, 2023		115,805		$	17.85
Granted		39,653			19.16
Vested		( 32,764	)		23.63
Forfeited/cancelled/expired		( 1,674	)		17.93
Nonvested as of March 31, 2024		121,020		$	16.71

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 8. Stock-Based Compensation – (continued)

As of March 31, 2024 , there was approximately $ 1.1 million of total unrecognized compensation cost related to nonvested restricted stock granted. The cost is expected to be recognized over a weighted average period of 1.7 years.

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

	Units (expected)			Units (maximum)		Weighted Average Grant Date Fair Value
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 March 31, 2024		181,847			302,196	$	21.04

As of March 31, 2024 , the specific number of shares related to performance units that were expected to vest was 181,847 , determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period. Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed. As of March 31, 2024 , the maximum amount of performance units that ultimately could vest if performance targets were exceeded is 302,196 . During the three months ended March 31, 2024 , 53,041 shares vested. A total of 28,971 shares were netted from the vested shares to satisfy employee tax obligations. The net shares issued from vesting of performance units during the three months ended March 31, 2024 were 24,070 shares. As of March 31, 2024 , compensation cost of approximately $ 3.0 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of 2.2 years.

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

	Units (expected)			Weighted Average Grant Date Fair Value
Unearned as of December 31, 2023		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 March 31, 2024		189,711		$	20.46

Any forfeitures would result in previously recognized expense being reversed. A portion of the shares that vest will be netted out to satisfy the tax obligations of the recipient. During the three months ended March 31, 2024 , 73,013 shares vested. A total of 39,409 shares were netted from the vested shares to satisfy employee tax obligations. The net shares issued from vesting of deferred stock units during the three months ended March 31, 2024 were 33,604 shares. As of March 31, 2024 , compensation cost of approximately $ 2.4 million related to non-vested deferred stock units, not yet recognized, is expected to be recognized over a weighted-average period of 1.8 years.

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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
	March 31,						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	)

Contributions

The Company did not contribute to the Pension Trust during the three months ended March 31, 2024 . The Company does not plan on contributing amounts to the Pension Trust for the remainder of 2024. 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 March 31, 2024 and December 31, 2023, the Company's total time deposits were $ 2.6 billion and $ 2.5 billion, respectively. Included in time deposits were gross nonreciprocal brokered time deposits of $ 920.1 million and $ 916.8 million as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, the contractual maturities of these time deposits were as follows (dollars in thousands):

2024	$	1,756,289
2025		598,372
2026		226,995
2027		38,946
2028		3,891
thereafter		176
Time deposits (before net discount)	$	2,624,669
Fair value net discount		( 1,278	)
Total time deposits (after net discount)	$	2,623,391

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

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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:

	March 31, 2024						December 31, 2023
	Amount			Rate			Amount			Rate
	(dollars in thousands)
By remaining period to maturity:
Less than 1 year	$	725,000			5.48	%	$	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			4.15			2,050			2.23
3 years through less than 4 years		285			2.85			293			2.85
4 years through 5 years		25,000			4.18			25,000			4.18
After 5 years		286			2.96			294			2.96
FHLB borrowings - gross		877,621			5.18	%		933,637			5.41	%
Fair value discount		( 53	)					( 58	)
Total FHLB borrowings	$	877,568					$	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 March 31, 2024 were primarily collateralized by approximately $ 2.8 billion of commercial mortgage loans and securities, net of required over collateralization amounts, under a blanket lien arrangement. As of March 31, 2024 the Company had remaining borrowing capacity of approximately $ 1.4 billion at FHLB.

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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, 2023 to a new index based on CME Term SOFR, as defined in the LIBOR Act, plus a tenor spread adjustment, which is referred to as the Benchmark Replacement. Therefore, effective for quarterly interest rate resets after July 3, 2023 the subordinated debentures’ floating rate will be three -month CME Term SOFR plus 2.85 % plus a tenor spread adjust of 0.26161 %. The rate as of March 31, 2024 was 8.43 %. These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements, as the statutory business trust is not consolidated in accordance with FASB ASC 810 - 10. Distributions on the subordinated debentures owned by the subsidiary trust have been classified as interest expense in the Consolidated Statements of Income.

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

As of March 31, 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 March 31, 2024 and December 31, 2023. In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.

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 the COVID-19 pandemic 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 March 31, 2024, there have been no material changes to our critical accounting policies as compared to the critical accounting policies disclosed in our most recent Annual Report on Form 10-K. Reference is made to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

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Operating Results Overview

Net income available to common stockholders for the three months ended March 31, 2024 was $15.7 million compared to $23.4 million for the comparable three-month period ended March 31, 2023. The Company’s diluted earnings per share were $0.41 for the three months ended March 31, 2024 as compared with diluted earnings per share of $0.59 for the comparable three-month period ended March 31, 2023. The $7.7 million decrease in net income available to common stockholders and $0.18 decrease in diluted earnings per share versus the first quarter of 2023 were due to a $6.8 million decrease in net interest income, a $3.0 million increase in provision for credit losses, and a $2.2 million increase in noninterest expenses, partially offset by a $3.2 million decrease in income tax expense and a $1.1 million increase in noninterest income.

Net 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 March 31, 2024 decreased by $6.7 million, or 9.9%, from three months ended March 31, 2023. The decrease primarily from a 36 basis-point decrease in the net interest margin to 2.64% from 3.00%, partially offset by a $149.1 million, or 1.6%, increase in average interest-earning assets. The contraction of the net interest margin was primarily attributable to a 114 basis-point increase in the average costs of deposits, partially offset by a 47 basis-point increase in the loan portfolio yield.

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

Average Statements of Condition with Interest and Average Rates

	Three Months Ended March 31,
	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)}	$	720,303		$	5,794			3.24	%	$	732,929		$	5,620			3.11	%
Total loans ^{(2) (3) (4)}		8,332,828			120,592			5.82			8,131,035			107,348			5.35
Federal funds sold and interest-bearing deposits with banks		218,212			2,906			5.36			260,297			2,975			4.64
Restricted investment in bank stocks		51,948			1,126			8.72			49,906			898			7.30
Total interest-earning assets		9,323,291			130,418			5.63			9,174,167			116,841			5.17
Noninterest-earning assets
Allowance for credit losses		(84,005	)								(90,182	)
Other noninterest-earning assets		621,467									616,545
Total assets	$	9,860,753								$	9,700,530

Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits	$	2,567,767			28,038			4.39		$	2,357,332			17,267			2.97
Other interest-bearing deposits		3,696,374			32,369			3.52			3,565,904			22,820			2.60
Total interest-bearing deposits		6,264,141			60,407			3.88			5,923,236			40,087			2.74

Borrowings		947,003			7,567			3.21			941,266			7,322			3.15
Subordinated debentures, net		79,483			1,311			6.63			103,638			1,579			6.18
Finance lease		1,483			22			5.97			1,714			25			5.92
Total interest-bearing liabilities		7,292,110			69,307			3.82			6,969,854			49,013			2.85

Noninterest-bearing demand deposits		1,254,201									1,451,654
Other liabilities		93,624									87,807
Total noninterest-bearing liabilities		1,347,825									1,539,461
Stockholders’ equity		1,220,818									1,191,215
Total liabilities and stockholders’ equity	$	9,860,753								$	9,700,530
Net interest income (tax-equivalent basis)					61,111									67,828
Net interest spread ⁽⁵⁾								1.80	%								2.32	%
Net interest margin ⁽⁶⁾								2.64	%								3.00	%
Tax-equivalent adjustment					(811	)								(744	)
Net interest income				$	60,300								$	67,084

⁽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 $3.9 million for the three months ended March 31, 2024, compared with $2.8 million for the three months ended March 31, 2023. Included in noninterest income for the three months ended March 31, 2024 and March 31, 2023 were net gain (losses) on equity securities of $0.1 million and ($0.2) million, respectively. Excluding these items, noninterest income increased $0.8 million when compared to the three months ended March 31, 2023. The increase was primarily attributable to an increase in net gains on sale of loans held-for-sale, primarily Small Business Administration (“SBA”) loans of $0.5 million, an increase in deposit, loan, and other income of $0.2 million and an increase in bank owned life insurance ("BOLI") income of $0.1 million.

Noninterest Expenses

Noninterest expenses totaled $37.1 million for the three months ended March 31, 2024, compared with $34.9 million for the three months ended March 31, 2023. Noninterest expenses increased by $2.2 million when compared to the three months ended March 31, 2023. The increase was primarily attributable to an increase in information technology and communications of $1.3 million, due to additional investments in technology, equipment, and software, FDIC insurance of $0.9 million, primarily attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate, occupancy and equipment of $0.3 million, marketing and advertising of $0.2 million, and other expense of $0.1 million, partially offset by decreases in professional and consulting of $0.2 million, salaries and employee benefits of $0.1 million and amortization of core deposit intangibles of $0.1 million.

Income Taxes

Income tax expense was $5.9 million for the three months ended March 31, 2024, compared to $9.1 million for the three months ended March 31, 2023. The decrease in income tax expense was the result of lower income before income tax expense. The effective tax rate for the three months ended March 31, 2024 and March 31, 2023 was 25.5% and 26.7%, respectively. The decrease in the effective tax rate when compared to the three months ended March 31, 2023 is largely attributable to lower taxable income.

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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.

	March 31, 2024					December 31, 2023					Amount Increase/
	Amount		Percent of Total			Amount		Percent of Total			(Decrease)
	(dollars in thousands)
Commercial	$	1,572,494		18.9	%	$	1,578,730		18.9	%	$	(6,236	)
Commercial real estate		5,829,950		70.2			5,895,545		70.6			(65,595	)
Commercial construction		646,593		7.8			620,496		7.4			26,097
Residential real estate		254,214		3.1			256,041		3.1			(1,827	)
Consumer		850		-			1,029		-			(179	)
Gross loans	$	8,304,101		100.0	%	$	8,351,841		100.0	%	$	(47,740	)

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

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

	March 31, 2024						December 31, 2023
	Balance			Loan-to-Value			Balance			Loan-to-Value
(dollars in thousands)
Commercial real estate loans
Multifamily	$	2,496,821			61	%	$	2,553,401			61	%
Nonowner-occupied		2,174,399			53			2,177,585			54
Owner-occupied		929,835			53			930,319			53
Land loans		228,968			45			234,563			45
Total commercial real estate loans (before discount)		5,830,023			56	%		5,895,868			56	%
Fair value discount		(73	)					(323	)
Total commercial real estate loans	$	5,829,950					$	5,895,545

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

	March 31, 2024					December 31, 2023
	Balance		Percent of Total			Balance		Percent of Total
(dollars in thousands)
Multifamily loans
New Jersey	$	1,586,258		63.5	%	$	1,623,666		63.6	%
New York		755,714		30.3			789,065		30.9
Florida		7,816		0.3			7,828		0.3
Connecticut		40,504		1.6			36,761		1.4
All Other States		106,529		4.3			96,081		3.8
Total multifamily loans	$	2,496,821		100.0	%	$	2,553,401		100.0	%

	March 31, 2024					December 31, 2023
	Balance		Percent of Total			Balance		Percent of Total
(dollars in thousands)
Nonowner-occupied
New Jersey	$	872,766		40.1	%	$	972,907		44.7	%
New York		753,637		34.7			778,842		35.8
Florida		204,839		9.4			205,178		9.4
Connecticut		79,546		3.7			80,067		3.7
All Other States		263,611		12.1			140,592		6.4
Total nonowner occupied	$	2,174,399		100.0	%	$	2,177,585		100.0	%

	March 31, 2024					December 31, 2023
	Balance		Percent of Total			Balance		Percent of Total
(dollars in thousands)
Owner-occupied
New Jersey	$	466,271		50.2	%	$	474,905		51.1	%
New York		265,327		28.5			267,990		28.8
Florida		50,666		5.4			69,989		7.5
Connecticut		5,849		0.6			5,887		0.6
All Other States		141,722		15.3			111,548		12.0
Total owner-occupied	$	929,835		100.0	%	$	930,319		100.0	%

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	March 31, 2024					December 31, 2023
	Balance		Percent of Total			Balance		Percent of Total
(dollars in thousands)
Land loans
New Jersey	$	97,000		42.4	%	$	106,884		45.6	%
New York		78,433		34.2			77,767		33.1
Florida		52,430		22.9			48,807		20.8
Connecticut		-		-			-		-
All Other States		1,105		0.5			1,105		0.5
Total land	$	228,968		100.0	%	$	234,563		100.0	%

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

	March 31, 2024					December 31, 2023
	Balance		Percent of Total			Balance		Percent of Total
(dollars in thousands)
Owner-occupied
Retail	$	206,551		22.2	%	$	208,685		22.4	%
Office		98,209		10.6			102,886		11.1
Warehouse/Industrial		252,423		27.1			249,557		26.8
Mixed Use		111,121		12.0			116,046		12.5
Other		261,531		28.1			253,145		27.2
Total owner-occupied	$	929,835		100.0	%	$	930,319		100.0	%

	March 31, 2024					December 31, 2023
	Balance		Percent of Total			Balance		Percent of Total
(dollars in thousands)
Nonowner-occupied
Retail	$	637,734		29.3	%	$	637,211		29.3	%
Office		418,472		19.2			424,479		19.5
Warehouse/Industrial		230,403		10.6			233,518		10.7
Mixed Use		192,996		8.9			192,617		8.8
Other		694,794		32.0			689,760		31.7
Total nonowner-occupied	$	2,174,399		100.0	%	$	2,177,585		100.0	%

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Allowance for Credit Losses and Related Provision

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

The provision for credit losses, which includes a provision for unfunded commitments, for the three months ended March 31, 2024 and March 31, 2023 was $4.0 million and $1.0 million, respectively. The increase in the provision for credit losses when compared to the comparable period in 2023 reflected increases in changes in macroeconomic forecasts, qualitative factor adjustments and specific reserves.

There were $3.2 million net charge-offs for the three months ended March 31, 2024, compared with $4.5 million in net charge-offs for the three months ended March 31, 2023. The ACL as a percentage of loans receivable amounted to 1.00% as of March 31, 2024 compared to 0.98% as of December 31, 2023.

The level of the allowance for the respective periods of 2024 and 2023 reflects the credit quality within the loan portfolio, loan growth, the changing composition of the commercial and residential real estate loan portfolios and other related factors. In management’s view, the level of the ACL as of March 31, 2024 is adequate to cover credit losses inherent in the loan portfolio. Management’s judgment regarding the adequacy of the allowance constitutes a “Forward-Looking Statement” under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the allowance.

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

	Three Months Ended
	March 31,
	2024			2023
	(dollars in thousands)
Average loans receivable	$	8,332,729		$	8,117,572
Analysis of the ACL:
Balance - beginning of quarter	$	81,974		$	90,513
Charge-offs:
Commercial		(300	)		(2,767	)
Commercial real estate		(2,885	)		(1,716	)
Total charge-offs		(3,185	)		(4,483	)
Recoveries:
Commercial		23			-
Consumer		-			1
Total recoveries		23			1
Net charge-offs		(3,162	)		(4,482	)
Provision for credit losses – loans		4,057			1,000
Balance - end of period	$	82,869		$	87,031

Ratio of annualized net charge-offs during the period to average loans receivable during the period		0.15	%		0.22	%
Loans receivable	$	8,297,957		$	8,132,119
ACL as a percentage of loans receivable		1.00	%		1.07	%

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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 includes analysis of credit requests and ongoing examination of outstanding loans, delinquencies, and potential problem loans, with particular attention to portfolio dynamics and mix. The Company strives to identify loans experiencing difficulty early on, to record charge-offs promptly based on realistic assessments of current collateral values and cash flows, and to maintain an adequate allowance for credit losses at all times.

It is generally the Company’s policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days. 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. As of March 31, 2024, one loan for $23.6 million was past due more than 90 days and still accruing; the loan is well-secured at a loan-to-value of approximately 60% and is in the process of collection.

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

	March 31, 2024		December 31, 2023
	(dollars in thousands)
Nonaccrual loans	$	47,438	$	52,524
OREO		-		-
Total nonperforming assets ⁽¹⁾	$	47,438	$	52,524

⁽¹⁾	Nonperforming assets are defined as nonaccrual loans and OREO.

Nonaccrual loans to total loans receivable			0.57	%			0.63	%
Nonperforming assets to total assets			0.48				0.53

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Investment Securities

As of March 31, 2024, the principal components of the securities portfolio were federal agency obligations, mortgage-backed securities, obligations of U.S. states and political subdivisions, corporate bonds and notes, asset-backed securities and equity securities. For the three months ended March 31, 2024, average securities, on an amortized cost basis, decreased by $12.6 million to approximately $720.3 million, or 7.7% of average total interest-earning assets, from approximately $732.9 million, or 8.0% of average interest-earning assets, for the three months ended March 31, 2023.

As of March 31, 2024, net unrealized losses on securities available-for-sale, which are carried as a component of accumulated other comprehensive loss and included in stockholders’ equity, net of tax, amounted to $66.7 million as compared with net unrealized losses of $57.8 million as of December 31, 2023. 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 March 31, 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 March 31, 2024 and December 31, 2023, the results of the models were within guidelines prescribed by our Board of Directors. If model results were to fall outside prescribed ranges, action, including additional monitoring and reporting to the Board, would be required by the ALCO and the Bank’s management.

The net interest income simulation model attempts to measure the change in net interest income over the next one-year period, and over the next three-year period on a cumulative basis, assuming certain changes in the general level of interest rates. The model also utilizes immediate and parallel shifts in market interest rates as of March 31, 2024.

Based on our model, which was run as of March 31, 2024, we estimated that over the next one-year period a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 6.38%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 2.66%. As of December 31, 2023, we estimated that over the next one-year period a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 9.25%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 5.34%.

Based on our model, which was run as of March 31, 2024, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 3.56%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 1.19%. As of December 31, 2023, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 5.68%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 4.29%.

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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 March 31, 2024, would decrease by 12.46% with an instantaneous and parallel rate shock of up 200 basis points, and increase by 4.44% with an instantaneous and parallel rate shock of down 100 basis points. Our EVE as of December 31, 2023, would decrease by 15.09% with an instantaneous and parallel rate shock of up 200 basis points, and increase by 5.75% with an instantaneous and parallel rate shock of down 100 basis-points.

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

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

Interest Rates	Estimated		Estimated Change in EVE						Interest Rates		Estimated		Estimated Change in NII
(basis points)	EVE		Amount			%			(basis points)		NII		Amount			%
+300	$	1,022,701		(236,296	)		(18.77	)		+300	$	232,637	$	(25,878	)		(10.01	)
+200		1,102,148		(156,849	)		(12.46	)		+200		242,027		(16,488	)		(6.38	)
+100		1,189,141		(69,856	)		(5.55	)		+100		251,514		(7,001	)		(2.71	)
0		1,258,997		-			-			0		258,515		-			-
-100		1,314,947		55,950			4.44			-100		265,384		6,869			2.66
-200		1,353,483		94,486			7.50			-200		269,020		10,505			4.06
-300		1,382,650		123,653			9.82			-300		273,019		14,504			5.61

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

Estimates of Fair Value

The estimation of fair value is significant to a number of the Company’s assets, including loans held-for-sale and securities available-for-sale. These are all recorded at either fair value or the lower of cost or fair value. 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

Liquidity is a measure of a bank’s ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner. Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

As of March 31, 2024, the amount of liquid assets remained at a level management deemed adequate to ensure that, on a short and long-term basis, contractual liabilities, depositors’ withdrawal requirements, and other operational and client credit needs could be satisfied. As of March 31, 2024, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $706.2 million, which represented 7.2% of total assets and 8.3% of total deposits and borrowings, compared to $516.3 million as of December 31, 2023, which represented 5.2% of total assets and 6.1% of total deposits and borrowings. As of March 31, 2024, not included in the above liquid assets were securities with a market value of $110.7 million which were pledged to the Federal Home Loan Bank, which support aggregate unutilized borrowing capacity of $105.2 million as of March 31, 2024. As of December 31, 2023, not included in the above liquid assets were securities with a market value of $276.0 million which were pledged to either the Federal Reserve Bank’s Bank Term Funding Program (“BTFP”), or the Federal Home Loan Bank, which support aggregate unutilized borrowing capacity of $300.5 million as of December 31, 2023.

The Bank is a member of the Federal Home Loan Bank of New York and, based on available qualified collateral as of March 31, 2024, had the ability to borrow $2.9 billion. The Bank also has a credit facilities established with the Federal Reserve Bank of New York for direct discount window borrowings based on pledged collateral and had the ability to borrow $1.4 billion as of March 31, 2024. In addition, as of March 31, 2024, the Bank had in place borrowing capacity of $325 million through correspondent banks and other unsecured borrowing lines. As of March 31, 2024, the Bank had aggregate available and unused credit of approximately $3.2 billion, which represents the aforementioned facilities totaling $4.7 billion net of $1.5 billion in outstanding borrowings and letters of credit. As of March 31, 2024, outstanding commitments for the Bank to extend credit were approximately $1.1 billion.

Cash an d cash equivalents totaled $277.6 million as of March 31, 2024, increasing by $34.9 million from $242.7 million as of December 31, 2023. Operating activities provided $20.5 million in net cash. Investing activities used $33.1 million in net cash, primarily reflecting a decrease in loans partially offset by an increase in securities. Financing activities used $18.7 million in net cash, primarily reflecting a net decrease of $56.0 million in repayment of FHLB borrowings and partially offset by an increase of $52.5 million in deposits.

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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.

Average total deposits increased by $142 million, or 1.9%, to $7.5 billion for the first quarter of 2024 from $7.4 billion for the first quarter of 2023. The increase in total average deposits was primarily attributed to an increase in time deposits of $210 million, demand, interest-bearing and NOW of $66 million and savings deposits of $65 million, partially offset by a decrease in noninterest-bearing demand deposits of $198 million.

The increase in average time deposits of $210 million for the first quarter of 2024 was primarily attributed to increases of $90 million in nonreciprocal brokered time deposits, $54 million in CDARs, $39 million in retail time deposits and $27 million in internet listing services. The Bank continues to increase its utilization of nonreciprocal brokered time deposits to enhance balance sheet liquidity and because it served as a favorable alternative to other borrowings.

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

Average demand deposits (including interest-bearing and noninterest-bearing) for the first quarter of 2024 included $1.1 billion in ICS reciprocal deposits, compared to $376 million for the first quarter of 2023. Average time deposits for the first quarter of 2024 included $92 million in CDARS, compared to $38 million for the first quarter of 2023. The increases in ICS reciprocal deposits and CDARS resulted primarily from changes in customer and market sentiment related to the failure of three regional banks in March 2023 and the resulting migration of client deposits to the IntraFi Network in an effort to increase the level of FDIC deposit insurance for clients.

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

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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 March 31, 2024					Year-to-Date Average March 31, 2023
	Balance		Rate			Balance		Rate
(dollars in thousands)
Demand, noninterest-bearing	$	1,254,201		-		$	1,452,654		-
Demand, interest-bearing & NOW		3,254,823		0.89	%		3,188,905		0.66	%
Savings		441,551		0.77			376,999		0.50
Time		2,567,767		1.09			2,357,332		0.73
Total average deposits	$	7,518,342		0.80	%	$	7,375,890		0.54	%

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

	March 31, 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)	$	11,397,143	$	11,243,254
Estimated uninsured deposits		6,108,775		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)		2,295,121		2,388,545

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

	March 31, 2024					December 31, 2023
	Amount		Percent of total			Amount		Percent of total
(dollars in thousands)
Demand, noninterest-bearing	$	1,290,523		17.0	%	$	1,259,364		16.7	%
Demand, interest-bearing & NOW		3,215,646		42.4			3,326,989		44.1
Savings		459,094		6.0			418,478		5.6
Time		2,623,342		34.6			2,531,371		33.6
Total deposits	$	7,588,605		100.0	%	$	7,536,202		100.0	%

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Total deposits increased by $53 million, or 0.7%, to $7.6 billion as of March 31, 2024 from $7.5 billion as of December 31, 2023. The increase in total deposits was primarily attributed to increases in time deposits of $92 million, savings deposits of $41 million and noninterest-bearing demand deposits of $31 million, partially offset by decreases in demand, interest-bearing & NOW of $111 million.

Total demand, interest-bearing & NOW deposits as of March 31, 2024 include $1.2 billion in ICS reciprocal deposits, compared to $1.1 billion as of December 31, 2023. Total time deposits as of March 31, 2024 include $68 million in CDARS, compared to $96 million as of December 31, 2023.

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

As of March 31, 2024, we held $648 million of time deposits with balances in excess of $250,000. The following table provides information on the maturity distribution of the time deposits with balances in excess of $250,000 as of March 31, 2024:

	March 31, 2024
	(dollars in thousands)
3 months or less	$	201,278
Over 3 to 6 months		128,589
Over 6 to 12 months		299,942
Over 12 months		18,086
Total	$	647,895

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 adjust of 0.26161%. The rate as of March 31, 2024 was 8.43%.

During June 2020, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”). The 2020 Notes bear interest at 5.75% annually from, and including, the date of initial issuance up to, but excluding, September 15, 2025 or the date of earlier redemption, payable semi-annually in arrears on September 15 and December 15 of each year, commencing December 15, 2020. 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 March 31, 2024, and December 31, 2023. Retained earnings increased by $9 million, and was offset by increases in treasury stock of $6 million and accumulated other comprehensive losses of $3 million. As of March 31, 2024, the Company’s tangible common equity ratio and tangible book value per share were 9.25% and $23.26, respectively, compared to 9.25% and $23.14, respectively, as of December 31, 2023. Total goodwill and other intangible assets were $213.9 million as of March 31, 2024, and $214.2 million as of December 31, 2023.

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

	March 31, 2024			December 31, 2023
	(dollars in thousands, except for share and per share data)
Common equity	$	1,105,682		$	1,105,693
Less: intangible assets		(213,925	)		(214,246	)
Tangible common stockholders’ equity	$	891,757		$	891,447

Total assets	$	9,853,964		$	9,855,603
Less: intangible assets		(213,925	)		(214,246	)
Tangible assets	$	9,640,039		$	9,641,357

Common stock outstanding at period end		38,333,053			38,519,770

Tangible common equity ratio ⁽¹⁾		9.25	%		9.25	%

Book value per common share	$	28.84		$	28.70
Less: intangible assets		5.58			5.56
Tangible book value per common share	$	23.26		$	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 March 31, 2024 for the Company and the Bank, compared with minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized depository institution (for the Bank).

	ConnectOne Bancorp, Inc.					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
The Company	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2024	(dollars in thousands)
Tier 1 leverage capital	$	1,044,783		10.73	%	$	389,307		4.00	%		NA		NA
CET I risk-based ratio		928,701		10.70			390,690		4.50			NA		NA
Tier 1 risk-based capital		1,044,783		12.03			520,920		6.00			NA		NA
Total risk-based capital		1,205,174		13.88			694,560		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 March 31, 2024						(dollars in thousands)
Tier 1 leverage capital	$	1,079,059		11.10	%	$	389,013		4.00	%		482,266		5.00	%
CET I risk-based ratio		1,079,059		12.43			390,683		4.50			564,320		6.50
Tier 1 risk-based capital		1,079,059		12.43			520,911		6.00			694,547		8.00
Total risk-based capital		1,164,450		13.41			694,547		8.00			868,184		10.00

As of March 31, 2024, both the Company and Bank satisfy the capital conservation buffer requirements applicable to them. The lowest ratio at the Company is the Total Risk Based Capital Ratio which was 3.38% above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was 2.91% above the minimum buffer ratio.

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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 March 31, 2024, the Company repurchased a total of 282,370 shares. As of March 31, 2024, shares remaining for repurchase under the program were 641,118.

The following table details share repurchases for the three months ended March 31, 2024:

	Total Number of Shares Purchased		Average Price Paid per Share		Cumulative Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2024 - January 31, 2024		-		n/a		-		923,488
February 1, 2024 - February 29, 2024		207,370		20.56		207,370		716,118
March 1, 2024 - March 31, 2024		75,000		19.66		282,370		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: May 3, 2024		Date: May 3, 2024

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Item 1. Financial Statements Note 1A. Nature Of Operations, Principles Of Consolidation and Risk and Uncertainties Note 1B. Authoritative Accounting Guidance Note 2. Earnings Per Common Share Note 3. Investment Securities Note 3. Investment Securities (continued)Note 4. Derivatives Note 4. Derivatives (continued)Note 5. Loans and The Allowance For Credit Losses Note 5. Loans and The Allowance For Credit Losses (continued)Note 6. Fair Value Measurements and Fair Value Of Financial Instruments Note 6. Fair Value Measurements and Fair Value Of Financial Instruments (continued)Note 6. Fair Value Measurements and Fair Value Of Financial Instruments (continued Note 7. Comprehensive (loss) Income Note 7. Comprehensive (loss) Income (continued)Note 8. Stock-based Compensation Note 8. Stock-based Compensation (continued)Note 9. Components Of Net Periodic Pension Cost Note 10. Deposits Note 11. Fhlb Borrowings Note 12. Subordinated Debentures Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2. Management Item 3. Qualitative and Quantitative Disclosures About Market Risks Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5 Other Information Item 6. Exhibits

Exhibits

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.

CNOB 10-Q Quarter ended March 31, 2024

Exhibits