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What changed in ConnectOne Bancorp, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ConnectOne Bancorp, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+261 added−243 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in ConnectOne Bancorp, Inc.'s 2023 10-K

261 paragraphs added · 243 removed · 182 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

45 edited+21 added−17 removed108 unchanged
Biggest changeThe Gramm-Leach-Bliley Financial Services Modernization Act of 1999 The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “Modernization Act”): ● allows bank holding companies meeting management, capital, and Community Reinvestment Act standards to engage in a substantially broader range of non-banking activities than previously was permissible, including insurance underwriting and making merchant banking investments in commercial and financial companies, if the bank holding company elects to become a financial holding company.
Biggest changeBecause the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC could: ● Cease collection early, if it has collected enough to recover actual or estimated losses; ● Extend the special assessment collection period one or more quarters beyond the initial eight-quarter collection period, if actual or estimated losses exceed the amounts collected; and ● Impose a final shortfall special assessment on a one-time basis after the receiverships for Silicon Valley Bank and Signature Bank terminate, if actual losses exceed the amounts collected. -17- Table of Contents The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “Modernization Act”): ● allows bank holding companies meeting management, capital, and Community Reinvestment Act standards to engage in a substantially broader range of non-banking activities than previously was permissible, including insurance underwriting and making merchant banking investments in commercial and financial companies, if the bank holding company elects to become a financial holding company.
We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. We have formalized our commitment to training, education and mentoring through our ConnectOne University program. ConnectOne University houses our training, leadership development, continuing education and mentorship programs.
Education : We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. We have formalized our commitment to training, education and mentoring through our ConnectOne University program. ConnectOne University houses our training, leadership development, continuing education and mentorship programs.
The Parent Corporation has outstanding a series of perpetual preferred stock, our 5.25% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A. The rights of the preferred stockholders to receive dividends are senior to the rights of our common holders, although the preferred dividend rights are non-cumulative.
The Parent Corporation has a series of outstanding perpetual preferred stock, our 5.25% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A. The rights of the preferred stockholders to receive dividends are senior to the rights of our common holders, although the preferred dividend rights are non-cumulative.
While the New Rules generally require the phase-out of non-qualifying capital instruments such as trust preferred securities and cumulative perpetual preferred stock, holding companies with less than $15 billion in total consolidated assets as of December 31, 2009, such as the Company, may permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in Additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature. -14- Table of Contents The New Rules prescribe a standardized approach for calculating risk-weighted assets.
While the New Rules generally require the phase-out of non-qualifying capital instruments such as trust preferred securities and cumulative perpetual preferred stock, holding companies with less than $15 billion in total consolidated assets as of December 31, 2009, such as the Company, may permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in Additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature. -15- Table of Contents The New Rules prescribe a standardized approach for calculating risk-weighted assets.
Under federal law, a bank subsidiary may only make loans or extensions of credit to, or invest in the securities of, its parent or the non-bank subsidiaries of its parent (other than direct subsidiaries of such bank which are not financial subsidiaries) or to any affiliate, or take their securities as collateral for loans to any borrower, upon satisfaction of various regulatory criteria, including specific collateral loan to value requirements. -10- Table of Contents The Dodd-Frank Act The Dodd-Frank Act, adopted in 2010, will continue to have a broad impact on the financial services industry, as a result of the significant regulatory and compliance changes made by the Dodd-Frank Act, including, among other things, (i) enhanced resolution authority over troubled and failing banks and their holding companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes to assessments to be paid to the FDIC for federal deposit insurance; and (v) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector.
Under federal law, a bank subsidiary may only make loans or extensions of credit to, or invest in the securities of, its parent or the non-bank subsidiaries of its parent (other than direct subsidiaries of such bank which are not financial subsidiaries) or to any affiliate, or take their securities as collateral for loans to any borrower, upon satisfaction of various regulatory criteria, including specific collateral loan to value requirements. -11- Table of Contents The Dodd-Frank Act The Dodd-Frank Act, adopted in 2010, will continue to have a broad impact on the financial services industry as a result of the significant regulatory and compliance changes made by the Dodd-Frank Act, including, among other things, (i) enhanced resolution authority over troubled and failing banks and their holding companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes to assessments to be paid to the FDIC for federal deposit insurance; and (v) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector.
In addition, significant provisions of FDICIA required federal banking regulators to impose standards in a number of other important areas to assure bank safety and soundness, including internal controls, information systems and internal audit systems, credit underwriting, asset growth, compensation, loan documentation and interest rate exposure. -13- Table of Contents Capital Adequacy Guidelines In December 2010 and January 2011, the Basel Committee on Banking Supervision (the “Basel Committee”) published the final texts of reforms on capital and liquidity generally referred to as “Basel III.” In July 2013, the FRB, the FDIC and the Comptroller of the Currency adopted final rules (the “New Rules”), which implement certain provisions of Basel III and the Dodd-Frank Act.
In addition, significant provisions of FDICIA required federal banking regulators to impose standards in a number of other important areas to assure bank safety and soundness, including internal controls, information systems and internal audit systems, credit underwriting, asset growth, compensation, loan documentation and interest rate exposure. -14- Table of Contents Capital Adequacy Guidelines In December 2010 and January 2011, the Basel Committee on Banking Supervision (the “Basel Committee”) published the final texts of reforms on capital and liquidity generally referred to as “Basel III.” In July 2013, the FRB, the FDIC and the Comptroller of the Currency adopted final rules (the “New Rules”), which implement certain provisions of Basel III and the Dodd-Frank Act.
Products and Services We derive a majority of our revenue from net interest income (i.e., the difference between the interest we receive on our loans and securities and the interest we pay on deposits and borrowings). We offer a broad range of deposit and loan products.
Products and Services We derive a majority of our revenue from net interest income (i.e., the difference between the interest we receive on our loans and investment securities and the interest we pay on deposits and borrowings). We offer a broad range of deposit and loan products.
Although the Bank currently has slightly less than $10 billion in assets, and so is not subject to examination by the Bureau, it is likely that the Bank will exceed $10 billion in total assets in the foreseeable future, and so will become subject to examination by the Bureau. • Deposit Insurance.
Although the Bank currently has less than $10 billion in assets, and so is not subject to examination by the Bureau, it is likely that the Bank will exceed $10 billion in total assets in the foreseeable future, and so will become subject to examination by the Bureau. • Deposit Insurance.
These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their clients. -17- Table of Contents Loans to Related Parties The Company’s authority to extend credit to its directors and executive officers, as well as to entities controlled by such persons, is currently governed by the requirements of the Sarbanes-Oxley Act of 2002 and Regulation O promulgated by the FRB.
These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their clients. -19- Table of Contents Loans to Related Parties The Company’s authority to extend credit to its directors and executive officers, as well as to entities controlled by such persons, is currently governed by the requirements of the Sarbanes-Oxley Act of 2002 and Regulation O promulgated by the FRB.
A “covered transaction” includes: • a loan or extension of credit to an affiliate; • a purchase of, or an investment in, securities issued by an affiliate; • a purchase of assets from an affiliate, with some exceptions; • the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any party; and • the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. -12- Table of Contents Further, under Regulation W: • a bank and its subsidiaries may not purchase a low-quality asset from an affiliate; • covered transactions and other specified transactions between a bank or its subsidiaries and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices; and • with some exceptions, each loan or extension of credit by a bank to an affiliate must be secured by certain types of collateral with a market value ranging from 100% to 130% of the loan value, depending on the type of collateral, of the amount of the loan or extension of credit.
A “covered transaction” includes: • a loan or extension of credit to an affiliate; • a purchase of, or an investment in, securities issued by an affiliate; • a purchase of assets from an affiliate, with some exceptions; • the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any party; and • the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. -13- Table of Contents Further, under Regulation W: • a bank and its subsidiaries may not purchase a low-quality asset from an affiliate; • covered transactions and other specified transactions between a bank or its subsidiaries and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices; and • with some exceptions, each loan or extension of credit by a bank to an affiliate must be secured by certain types of collateral with a market value ranging from 100% to 130% of the loan value, depending on the type of collateral.
The Bank generally requires loan clients to maintain deposit accounts with the Bank. In addition, the Bank generally provides for a minimum required rate of interest in its variable rate loans.
The Bank generally requires loan clients to maintain deposit accounts with the Bank. In addition, the Bank generally provides a minimum required rate of interest in its variable rate loans.
Through high tech tools and service, the Bank is able to extend its reach supporting clients as they move into new markets, such as South Florida where we opened an office in West Palm Beach in August 2022. Our market area includes some of the most affluent markets in the United States.
Through high tech tools and service, the Bank is able to extend its reach supporting clients as they move into new markets, such as South Florida where we opened an office in West Palm Beach in August 2022. Our market area includes some of the most robust markets in the United States.
However, the Bank will make loans to persons outside of our primary trade area when we deem it prudent to do so. To promote a high degree of asset quality, the Bank focuses primarily upon offering secured loans. However, the Bank does make short-term unsecured loans to borrowers with higher net worth and income profiles.
However, the Bank will make loans to people outside of our primary trade area when we deem it prudent to do so. To promote a high degree of asset quality, the Bank focuses primarily upon offering secured loans. However, the Bank does make short-term unsecured loans to borrowers with higher net worth and income profiles.
Furthermore, the Senior Lending Group has authority to approve unsecured loan amounts without policy exceptions up to $10 million and up to $5 million with an exception. Loans to insiders must be approved by the entire Board. The Bank’s lending policies generally provide for lending within our primary trade area.
Furthermore, the Senior Lending Group has authority to approve unsecured loan amounts without policy exceptions up to $10 million and up to $5 million with an exception. Loans to insiders must be approved by the entire Board of Directors. The Bank’s lending policies generally provide for lending within our primary trade area.
The Dodd-Frank Act also authorizes the SEC to promulgate rules that would allow shareholders to nominate their own candidates using a company’s proxy materials. -11- Table of Contents Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized, many of the requirements called for have yet to be fully implemented and will likely be subject to implementing regulations over the course of several years.
The Dodd-Frank Act also authorizes the SEC to promulgate rules that would allow shareholders to nominate their own candidates using a company’s proxy materials, which the SEC has adopted. -12- Table of Contents Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized, many of the requirements called for have yet to be fully implemented and will likely be subject to implementing regulations over the course of several years.
Also available on the website are the Company’s corporate Code of Conduct that applies to all of the Company’s employees, including principal officers and directors.
Also available on the website is the Company’s corporate Code of Conduct that applies to all of the Company’s employees, including principal officers and directors.
These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions. -18- Table of Contents
These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions. -20- Table of Contents
In addition, to attract the business of consumer and business clients, we provide a broad array of other banking services. Products and services provided include personal and business checking accounts, money market accounts, time and savings accounts, credit cards, wire transfers, safe deposit boxes, access to automated teller services and telephone, internet and mobile banking.
In addition, to attract the business of consumer and business clients, we provide an extensive array of other banking services. Products and services provided include personal and business checking accounts, money market accounts, time and savings accounts, credit cards, wire transfers, safe deposit boxes, access to automated teller services and telephone, internet and mobile banking.
The Company’s subsidiaries also include a Real Estate Investment Trust (the “REIT”) which holds a portion of the Company’s real estate loan portfolio. All subsidiaries mentioned above are directly or indirectly wholly owned by the Company, except that the Company owns less than 100% of the preferred stock of the REIT. A REIT must have 100 or more shareholders.
The Company’s subsidiaries also include a Real Estate Investment Trust (the “REIT”) which holds a portion of the Company’s real estate loan portfolio. All subsidiaries mentioned above are directly or indirectly wholly owned by the Company, except that the Company indirectly owns less than 100% of the preferred stock of the REIT.
Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the FRB decides to treat these subsidiaries as affiliates.
Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks which are not “financial subsidiaries” from treatment as affiliates, except to the extent that the FRB decides to treat these subsidiaries as affiliates.
See Note 9 of the Notes to Consolidated Financial Statements. Except as described above, the Company’s wholly-owned subsidiaries are all included in the Company’s consolidated financial statements. These subsidiaries include BoeFly, an advertising subsidiary, an insurance subsidiary, and various investment subsidiaries which hold, maintain and manage investment assets for the Company.
See Note 9 of the Notes to Consolidated Financial Statements. Except as described above, the Company’s direct and indirect subsidiaries are all included in the Company’s consolidated financial statements. These subsidiaries include BoeFly, an advertising subsidiary, a financial services company, and various investment subsidiaries which hold, maintain and manage investment assets for the Company.
As of December 31, 2022, the Bank’s largest committed relationship (to several affiliated borrowers) was $177.1 million and single largest loan outstanding was $54.6 million. Our business model includes using industry best practices for community banks, including personalized service, state-of-the-art technology and extended hours.
As of December 31, 2023, the Bank’s largest committed relationship (to several affiliated borrowers) was $173.6 million, and the single largest loan outstanding was $60.0 million. Our business model includes using industry best practices for community banks, including personalized service, state-of-the-art technology, and extended hours.
On September 17, 2019, the federal banking agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies) with less than $10 billion in total consolidated assets, implementing provisions of EGRRCPA discussed above.
The Company adopted the CECL standard effective January 1, 2021. On September 17, 2019, the federal banking agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies) with less than $10 billion in total consolidated assets, implementing provisions of EGRRCPA discussed above.
The Bank’s legal lending limit to any one borrower is 15% of the Bank’s capital base (defined as tangible equity plus the allowance for credit losses) for most loans ($158.1 million) and 25% of the capital base for loans secured by readily marketable collateral ($263.5 million).
The Bank’s legal lending limit to any one borrower is 15% of the Bank’s capital base (defined as tangible equity plus the allowance for credit losses) for most loans ($168.2 million) and 25% of the capital base for loans secured by readily marketable collateral ($280.3 million).
Commercial construction loans are loans to finance the construction of commercial or residential properties secured by first liens on such properties. Commercial real estate loans include loans secured by first liens on completed commercial properties, including multi-family properties, to purchase or refinance such properties.
Commercial construction loans are loans to finance the construction of commercial or residential properties secured by first liens on such properties. Commercial real estate loans include loans secured by first liens on completed commercial properties, including multifamily properties, to purchase or refinance such properties, as well as land loans.
Residential mortgages include loans secured by first liens on 1-4 family, condominium and Cooperative residential real estate and are generally made to existing clients of the Bank to purchase or refinance primary and secondary residences. Home equity loans and lines of credit include loans secured by first or second liens on residential real estate for primary or secondary residences.
Residential mortgages include loans secured by first liens on 1-4 family, 1-4 family investment properties , condominium and cooperative residential real estate and are generally made to existing clients of the Bank to purchase or refinance primary and secondary residences.
We offer Retirement accounts to Consumers and Cash Management services to business clients that include Treasury Direct, Automated Clearing House ("ACH") origination, Remote Deposit Capture (RDC) and Digital Invoicing. Non-interest demand deposit products include “Totally Free Checking” and “Simply Better Checking” for consumer clients and “Small Business Checking” and “Analysis Checking” for commercial clients.
We offer retirement accounts to consumers and cash management services to business clients that include TreasuryDirect, Automated Clearing House origination, Remote Deposit Capture and digital invoicing. 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.
In connection with adopting this assessment base calculation, the FDIC lowered total base assessment rates to between 2.5 and 9 basis points for banks in the lowest risk category, and 30 to 45 basis points for banks in the highest risk category.
In connection with adopting this assessment base calculation, the FDIC lowered total base assessment rates to between 2.5 and 9 basis points for banks in the lowest risk category, and 30 to 45 basis points for banks in the highest risk category. The Company paid $5.7 million and $2.8 million in total FDIC assessments in 2023 and 2022, respectively.
The Senior Lending Group (Chief Executive Officer, President, Chief Credit Officer and Chief Lending Officer) can approve loans up to $35 million in aggregate loan exposure with no policy exceptions and up to $30 million with policy exceptions.
Furthermore, the Management Credit Committee has authority to approve unsecured loan amounts without policy exceptions up to $40 million. The Senior Lending Group (Chief Executive Officer, President, Chief Credit Officer and Chief Lending Officer) can approve loans up to $35 million in aggregate loan exposure with no policy exceptions and up to $30 million with policy exceptions.
Commercial loans are loans made for business purposes and are primarily secured by collateral such as business assets including accounts receivable, inventory and equipment, and mortgages filed on commercial and residential real estate. Furthermore, cash balances, and marketable securities will be considered provided they are held by or under the control of the Bank.
Commercial loans are loans made for business purposes and are primarily secured by collateral such as business assets including accounts receivable, inventory and equipment. These facilities can also be secured by cash balances with the Bank, marketable securities held by or under the control of the Bank, and commercial and residential real estate.
The REIT has issued less than 20% of its outstanding non-voting preferred stock to individuals, primarily Bank personnel and directors.
A REIT must have 100 or more individual shareholders. The REIT has issued less than 20% of its outstanding non-voting preferred stock to individuals, primarily Bank personnel and directors.
Deposits serve as the primary source of funding for our interest-earning assets, but also generate noninterest revenue through insufficient funds fees, stop payment fees, wire transfer fees, safe deposit rental fees, debit card income, including foreign ATM fees and credit and debit card interchange, and other miscellaneous fees.] In addition, the Bank generates additional noninterest revenue associated with residential, commercial and Small Business Administration (“SBA”) loan originations and sales, loan servicing, late fees and merchant services.
Deposits serve as the primary source of funding for our interest-earning assets, but also generate noninterest revenue through insufficient funds fees, stop payment fees, wire transfer fees, safe deposit rental fees, debit card income, including foreign ATM fees and credit and debit card interchange, and other miscellaneous fees.
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. CDARS/ICS Reciprocal deposits are offered based on the Bank’s participation in the IntraFi Network LLC network, formerly known as Promontory Interfinancial Network.
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.
As part of this merger, the Company acquired approximately $0.4 billion in loans, assumed approximately $0.4 billion in deposits and acquired seven branch offices located in Rockland, Orange and Westchester, Counties, New York. On May 31, 2019, the Company, through the Bank, completed its purchase of New York/Boston-based BoeFly, LLC (“BoeFly”).
As part of this merger, the Company acquired approximately $0.4 billion in loans, assumed approximately $0.4 billion in deposits and acquired seven branch offices located in Rockland, Orange and Westchester, Counties, New York.
Requests should be sent to ConnectOne Bancorp, Inc., Attention: Investor Relations, 301 Sylvan Avenue, Englewood Cliffs, New Jersey 07632. Narrative Description of the Business ConnectOne Bancorp, Inc. is a modern financial services company with over $9.6 billion in assets. It operates primarily through its bank subsidiary, ConnectOne Bank.
The Company will provide, without charge, a copy of its Annual Report on Form 10-K to any shareholder by mail. Requests should be sent to: ConnectOne Bancorp, Inc. Attention: Investor Relations 301 Sylvan Avenue Englewood Cliffs, New Jersey 07632 Narrative Description of the Business ConnectOne Bancorp, Inc. is a modern financial services company with over $9.856 billion in assets.
In 2022, 73 employees were promoted into new roles. -9- Table of Contents SUPERVISION AND REGULATION The banking industry is highly regulated. Statutory and regulatory controls increase a bank holding company’s cost of doing business and limit the options of its management to deploy assets and maximize income.
We continuously assess any skill gaps and are gearing learning for the banking positions of the future. -10- Table of Contents SUPERVISION AND REGULATION The banking industry is highly regulated. Statutory and regulatory controls increase a bank holding company’s cost of doing business and limit the options of its management to deploy assets and maximize income.
Those officers are comprised of the Chief Executive Officer, President, Chief Credit Officer, Chief Lending Officer, Senior Credit Officers, Managing Directors, Team Leaders and the Consumer Loan Officers. All loan approvals require the signatures of a minimum of two officers.
The Management Credit Committee is comprised of six members of senior management, the Bank President, Chief Credit Officer, Chief Lending Officer, two Senior Credit Officers and one Managing Director. The officers are comprised of the Chief Executive Officer, Bank President, Chief Credit Officer, Chief Lending Officer, Senior Credit Officers, Managing Directors, Team Leaders and the Consumer Loan Officers.
The CRA requires the FDIC, in connection with its examination of every bank, to assess the bank’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such bank. -16- Table of Contents USA PATRIOT Act The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) gives the federal government powers to address terrorist threats through domestic security measures, surveillance powers, information sharing, and anti-money laundering requirements.
The Company is studying the revisions to determine the impact on its operations, which is uncertain at this time. -18- Table of Contents USA PATRIOT Act The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) gives the federal government powers to address terrorist threats through domestic security measures, surveillance powers, information sharing, and anti-money laundering requirements.
We seek to hire and retain quality employees who desire greater responsibility than may be available working for a larger employer. -8- Table of Contents Employees and Human Capital Resources Our employees are one of our greatest assets and we believe they provide us with an advantage over our competitors.
We seek to hire and retain quality employees who desire greater responsibility than may be available working for a larger employer. -8- Table of Contents Human Capital The Company strives to be an employer of choice by creating a working environment that fosters excellence, creativity and professional growth.
BoeFly’s online business lending marketplace helps connect small- to medium-size businesses, primarily franchisors and franchisees, with professional loan brokers and lenders across the United States.
On May 31, 2019, the Company, through the Bank, completed its purchase of all of the assets of New York/Boston-based BoeFly, LLC and contributed them to its newly formed subsidiary, BoeFly, Inc (“BoeFly”). BoeFly’s online business lending marketplace helps connect small- to medium-size businesses, primarily franchisors and franchisees, with professional loan brokers and lenders across the United States.
Additionally, within the Investor Relations section of the Company’s web site, charters for the Audit and Risk Committee, Nominating and Corporate Governance Committee and Compensation Committee can be found, along with the Company’s Corporate Governance Guidelines and Code of Ethics. The Company will provide, without charge, a copy of its Annual Report on Form 10-K to any shareholder by mail.
Additionally, within the Investor Relations section of the Company’s web site, charters for the Audit and Risk Committee, Nominating and Corporate Governance Committee and Compensation Committee can be found, along with the Company’s Corporate Governance Guidelines, Equal Employment Opportunity and Right to be Free of Gender Inequity 2022, Anti-Harassment & Discrimination Policy, Compensation Recoupment Policy and Code of Ethics.
We believe we have a talented, diverse team of financial experts and relationship specialists who understand the demands of a successful business and are prepared to meet them. As of December 31, 2022, we had 507 full-time employees, and 8 part-time employees. The employees are not represented by a collective bargaining unit.
Demographics : As of December 31, 2023, we had 487 full-time employees and 12 part-time and temporary employees. The employees are not represented by a collective bargaining unit.
During 2022, 236 employees participated in our leadership and mentoring programs within ConnectOne University. Through ConnectOne University, we also sponsor two employees each year to attend the Stonier Graduate School of Banking. This is a competitive process requiring an employee to be nominated by the employee’s manager and then participate in a panel interview.
We sponsor employees on an annual basis. This is a competitive process requiring an employee to be nominated by the employee’s manager and then participate in a panel interview. We continuously assess any skill gaps and are gearing learning for the banking positions of the future.
The Company paid $2.8 million and $2.9 million in total FDIC assessments in 2022 and 2021, respectively. -15- Table of Contents The FDIC has a designated reserve ratio (DRR), that is, the ratio of the DIF to insured deposits, of 1.35%.
The increase from 2023 was attributable to balance sheet growth and a two-basis point increase in the Bank’s initial base rate. -16- Table of Contents The FDIC has a designated reserve ratio (DRR), that is, the ratio of the DIF to insured deposits, of 1.35%.
As of December 31, 2022, the Company had $11.4 million in total PPP loans outstanding and not yet forgiven. The Board of Directors has approved a credit policy granting designated lending authorities to specific officers of the Bank.
Consumer loans are made to individuals who qualify for auto loans, cash reserve, credit cards and installment loans. -7- Table of Contents The Board of Directors has approved a credit policy granting designated lending authorities to the Management Credit Committee and specific officers of the Bank.
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Consumer loans are made to individuals who qualify for auto loans, cash reserve, credit cards and installment loans. -7- Table of Contents During 2021 and 2020, we participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) created under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
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It operates primarily through its bank subsidiary, ConnectOne Bank.
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The PPP provided funds to guarantee forgivable loans originated by depository institutions to eligible small businesses through the SBA’s 7(a) loan guaranty program. These loans are 100% federally guaranteed (principal and interest) and currently not subject to any allocation of allowance for credit losses.
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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"), formerly known as Promontory Interfinancial Network.
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An eligible business could apply under the PPP during the applicable covered period and receive a loan up to 2.5 times its average monthly “payroll costs” limited to a loan amount of $10.0 million.
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In addition, the Bank generates additional noninterest revenue associated with residential, commercial and Small Business Administration (“SBA”) loan originations and sales, loan servicing, late fees and merchant services.
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The proceeds of the loan could be used for payroll (excluding individual employee compensation over $100,000 per year), mortgage, interest, rent, insurance, utilities and other qualifying expenses.
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Home equity loans and lines of credit include loans secured by first or second liens on residential real estate for primary or secondary residences.
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PPP loans have: (a) an interest rate of 1.0%, (b) a two-year loan term (or five-year loan term for loans made after June 5, 2020) to maturity; and (c) principal and interest payments deferred until the date on which the SBA remits the loan forgiveness amount to the borrower’s lender or, alternatively, notifies the lender no loan forgiveness is allowed.
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All loan approvals require the signatures of a minimum of two officers. The Management Credit Committee (Bank President, Chief Credit Officer, Chief Lending Officer, two Senior Credit Officers and one Managing Director) can approve loans up to $80 million in aggregate loan exposure with no policy exceptions.
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If the borrower did not submit a loan forgiveness application to the lender within 10 months following the end of the 24-week loan forgiveness covered period (or the 8-week loan forgiveness covered period with respect to loans made prior to June 5, 2020 if such covered period is elected by the borrower), the borrower would begin paying principal and interest on the PPP loan immediately after the 10-month period.
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We strive to challenge our employees to be the best they can be and to provide them with the tools and training they need to help fulfill their critical service mandate. We endeavor to build a diverse team of financial experts and relationship specialists who understand the demands of a successful business and are prepared to meet them.
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On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the “Economic Aid Act”) became law. Among other things, the Economic Aid Act extended the PPP through March 31, 2021 and allocated additional funds for new PPP loans, to be guaranteed by the SBA.
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Diversity, Equity, & Inclusion : In 2022, we appointed our first Chief Diversity, Equity & Inclusion Officer, with a mandate to focus on workforce diversity, vendor/supplier diversity and cultivating more diverse leadership, among other vital issues. Employee resource groups (“ERG”) further support this overall commitment and vision, as well as Diversity, Equity, Inclusion, and Belonging in the workplace.
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The extension included an authorization to make new PPP loans to existing PPP loan borrowers, and to make loans to parties that did not previously obtain a PPP loan. The Company participated in the extended PPP. Loans originated under the extended PPP have substantially the same terms as under the original PPP.
Added
Our first ERG, WomenConnect , was established in January 2023 and follows a mission to empower and foster an inclusive environment where all individuals feel connected and make an impact through: mentorship, leadership, teamwork in the community, and both professional and personal growth opportunities.
Removed
We continuously assess any skill gaps and are gearing learning for the banking positions of the future. The safety, health and wellness of our employees is a top priority. The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations.
Added
During 2023, 289 employees participated in our leadership and mentoring programs within ConnectOne University. Additionally, in 2023 we identified two individuals and placed them into a credit rotation program enabling them to move from their current position into a new career path. We also sponsored two employees to attend the Stonier Graduate School of Banking.
Removed
Through our technology and teamwork, we were able to transition, over a short period of time, substantially all of our non-branch employees to a remote working environment while still servicing the needs of our clients.
Added
Health and Safety : The safety, health and wellness of our employees is a top priority.
Removed
Branch locations have operated in a variety of ways: closed to lobby traffic, in person banking by appointment only, curbside banking and always with COVID-19 safety protocols at the forefront.
Added
The Bank has established wellness programs that include a Preventative Care Incentive Program, flu shot vaccination time-off, as well as health programs & service discounts. -9- Table of Contents Benefits & Employee Retention : We offer a wide variety of benefits and incentive rewards to attract, engage, retain and motivate talent.
Removed
When we were able to resume substantial in office employee participation, we took a number of steps to protect the health and safety of our employees, including adhering to the Center for Disease Control and Prevention and state guidelines for in-office work (limiting occupancy in the buildings, social distancing, mask requirements, limiting in person meetings).
Added
Included are competitive wages, performance based-bonuses and incentive based-compensation, stock awards, 401(k) Plan with competitive match, medical/dental/vision plans, insurance benefits, voluntary benefits, commuter benefits, health savings accounts, flexible spending accounts, tuition reimbursement, paid time-off, disability, sick/family leave and in addition, we have employee appreciation events that include team building events, community events, softball games, food truck days, and annual “Amazing” award celebrations.
Removed
We also developed COVID-19 protocols as a resources for all employees in the event someone was exposed. Currently, the Bank is operating under a hybrid schedule that combines working remotely as well as the ability to work out of our offices. We feel the flexibility of a hybrid approach will aid in employee retention, as well as new employee recruitment.
Added
Employee retention helps us to operate efficiently and is key to our ability to compete against larger competitors. The Bank also has Employee Assistance Programs, which provide work/life assistance and resources for all full-time employees. All services are provided confidentially and at no additional cost.
Removed
The Bank remains in compliance with all government requirements related to the pandemic. Employee retention helps us operate efficiently and is key to our ability to compete against larger competitors. We focus on promoting employees from within and leveraging their knowledge of the organization as we continue to grow our Bank.
Added
The Bank encourages a work/life balance by offering hybrid scheduling that combines working remotely, as well as the ability to work out of our offices. Promotions: We focus on promoting employees from within and leveraging their knowledge of the organization as we continue to grow our Bank. In 2023, 58 employees were promoted into new roles.
Removed
Under the CARES Act, the effective date for the implementation of ASU No. 2016-13 was delayed until the earlier of the end of the health crises caused by the COVID-19 Pandemic or December 31, 2020.
Added
The FDIC Board of Directors approved a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund (DIF) associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.
Removed
The Economic Aid Act then further delayed implementation until the earlier of the end of the health crises caused by the COVID-19 Pandemic or January 1, 2022.
Added
The Federal Deposit Insurance Act (FDI Act) requires the FDIC to take this action in connection with the systemic risk determination announced on March 12, 2023.
Removed
The final rule also provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. The Company adopted the CECL standard effective January 1, 2021.
Added
The assessment base for the special assessment is equal to an insured depository institution’s (IDI’s) estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion, applicable either to the IDI, if an IDI is not a subsidiary of a holding company, or at the banking organization level, to the extent that an IDI is part of a holding company with one or more subsidiary IDIs.
Added
The special assessment will be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods. The special assessment will be collected beginning with the first quarterly assessment period of 2024 (i.e., January 1 through March 31, 2024) with an invoice payment date of June 28, 2024.

… 3 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

27 edited+9 added−22 removed95 unchanged
Biggest changeIn addition, the economic value of portfolio equity would decline if interest rates increases. -25- Table of Contents Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities.
Biggest changeDifferent types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities. That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa.
Any weakening of the commercial real estate market may increase the likelihood of default of these loans, which could negatively impact our loan portfolio’s performance and asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, we could incur material losses.
Any weakening of the commercial real estate market may increase the likelihood of default on these loans, which could negatively impact our loan portfolio’s performance and asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, we could incur material losses.
Such capital may not be available at that time and may result in our regulators requiring us to reduce our concentration in commercial real estate loans. If we are limited in our ability to originate loans secured by commercial real estate, we may face greater risk in our loan portfolio.
Such capital may not be available at that time and may result in our regulators requiring us to reduce our concentration on commercial real estate loans. If we are limited in our ability to originate loans secured by commercial real estate, we may face greater risk in our loan portfolio.
In addition, in recent periods we have substantially increased our use of alternate deposit origination channels, such as brokered deposits, including reciprocal deposit services, and internet listing services. -22- Table of Contents Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general.
In addition, in recent periods we have substantially increased our use of alternate deposit origination channels, such as brokered deposits, including reciprocal deposit services, and internet listing services. -24- Table of Contents Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general.
Therefore, unless all dividends due on our outstanding preferred stock have been declared and paid for the most recent dividend period provided for under the terms of the preferred stock, we may not pay a dividend on our common stock or repurchase shares of our common stock during that period. -23- Table of Contents We may incur impairment to goodwill.
Therefore, unless all dividends due on our outstanding preferred stock have been declared and paid for the most recent dividend period provided for under the terms of the preferred stock, we may not pay a dividend on our common stock or repurchase shares of our common stock during that period. -25- Table of Contents We may incur impairment to goodwill.
Any of these events could increase our costs, require management time and attention, and materially and adversely affect us. -20- Table of Contents Federal banking agencies have issued guidance regarding high concentrations of commercial real estate loans within bank loan portfolios.
Any of these events could increase our costs, require management time and attention, and materially and adversely affect us. -22- Table of Contents Federal banking agencies have issued guidance regarding high concentrations of commercial real estate loans within bank loan portfolios.
The ultimate effect of certain of these changes on the financial services industry in general, and us in particular, is uncertain at this time. -26- Table of Contents The laws that regulate our operations are designed for the protection of depositors and the public, not our shareholders.
The ultimate effect of certain of these changes on the financial services industry in general, and us in particular, is uncertain at this time. -29- Table of Contents The laws that regulate our operations are designed for the protection of depositors and the public, not our shareholders.
Consequently, it may be difficult and expensive for our stockholders to remove current management, even if current management is not performing adequately. -21- Table of Contents Competition in originating loans and attracting deposits may adversely affect our profitability. We face substantial competition in originating loans.
Consequently, it may be difficult and expensive for our stockholders to remove current management, even if current management is not performing adequately. -23- Table of Contents Competition in originating loans and attracting deposits may adversely affect our profitability. We face substantial competition in originating loans.
Accordingly, it may be more difficult for commercial real estate borrowers to repay their loans in a timely manner, as commercial real estate borrowers’ ability to repay their loans frequently depends on the successful development of their properties.
Accordingly, it may be more difficult for commercial real estate borrowers to repay their loans in a timely manner, as commercial real estate borrowers’ ability to repay their loans frequently depends on the successful development and leasing of their properties.
However, if the program significantly tightens the nation’s money supply, it may adversely affect our results of operations and financial performance. The banking business is subject to significant government regulations. We are subject to extensive governmental supervision, regulation and control.
However, if the program significantly tightens the nation’s money supply, it may adversely affect our results of operations and financial performance. -28- Table of Contents The banking business is subject to significant government regulations. We are subject to extensive governmental supervision, regulation and control.
Based on this regulatory definition, our commercial real estate loans represented 483% of the Bank’s Tier 1 capital plus the allowance for credit losses on loans.
Based on this regulatory definition, our commercial real estate loans represented 463% of the Bank’s Tier 1 capital plus the allowance for credit losses on loans.
The nature and growth rate of our commercial loan portfolio may expose us to increased lending risks. Given the significant growth in our loan portfolio, many of our commercial real estate loans are unseasoned, meaning that they were originated relatively recently. As of December 31, 2022, we had $5.8 billion in commercial real estate loans outstanding.
The nature and growth rate of our commercial loan portfolio may expose us to increased lending risks. Given the significant growth in our loan portfolio, many of our commercial real estate loans are unseasoned, meaning that they originated relatively recently. As of December 31, 2023, we had $5.9 billion in commercial real estate loans outstanding.
Finally, health related events, such as a viral pandemic, could adversely affect the business of our clients and our local economies, thereby adversely affecting our results of operations. -24- Table of Contents The Company will be subject to heightened regulatory requirements when total assets exceed $10 billion. The Company’s total assets were $9.6 billion as of December 31, 2022.
Finally, health related events, such as a viral pandemic, could adversely affect the business of our clients and our local economies, thereby adversely affecting our results of operations. The Company will be subject to heightened regulatory requirements when total assets exceed $10 billion. The Company’s total assets were $9.856 billion as of December 31, 2023.
No assurance can be given that we will be able to raise any required capital, or that it will be able to raise capital on terms that are beneficial to stockholders. Attractive acquisition opportunities may not be available to us in the future.
No assurance can be given that we will be able to raise any required capital, or that we will be able to raise capital on terms that are beneficial to stockholders. -26- Table of Contents Attractive acquisition opportunities may not be available to us in the future.
Any significant failure to pay on time by our clients or a significant default by our clients would materially and adversely affect us. As of December 31, 2022, we had $6.2 billion of commercial real estate loans (nonowner-occupied, owner-occupied and multifamily), including construction loans, which represented 76.3% of loans receivable.
Any significant failure to pay on time by our clients or a significant default by our clients would materially and adversely affect us. As of December 31, 2023, we had $6.5 billion of commercial real estate loans (nonowner-occupied, owner-occupied multifamily and land), including construction loans, which represented 78.1% of loans receivable.
Approximately 67.4% of the loans, or $3.9 billion, had been originated in the past three years. As a result, it may be difficult to predict the future performance of our loan portfolio. These loans may have delinquency or charge-off levels above our expectations, which could negatively affect our performance.
Approximately 64.5% of the loans, or $3.8 billion, were originated in the past three years. As a result, it may be difficult to predict the future performance of our loan portfolio. These loans may have delinquency or charge-off levels above our expectations, which could negatively affect our performance.
Likewise, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could reduce our net interest income.
When interest-bearing liabilities mature or re-price more quickly than interest-earning assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could reduce our net interest income.
We have also been active in competing for New York and New Jersey governmental and municipal deposits. As of December 31, 2022, governmental and municipal deposits accounted for approximately $797.6 million in deposits.
We have also been active in competing for New York and New Jersey governmental and municipal deposits. As of December 31, 2023, governmental and municipal deposits accounted for approximately $745.0 million in deposits.
Global health concerns relating to the COVID-19 outbreak and its variants and related government actions taken to reduce the spread of the virus have weighed on the macroeconomic environment in our New Jersey/New York metropolitan market trade area, and the outbreak has significantly increased economic uncertainty and reduced economic activity.
Global health concerns relating to the COVID-19 outbreak and its variants and related government actions taken to reduce the spread of the virus and changes in customer, employer and employee behavior have weighed on and may continue to effect the macroeconomic environment in our New Jersey/New York metropolitan market trade area and have caused economic uncertainty and reduced economic activity.
A sustained increase in market interest rates, such as has been in effect during the second half of 2022, could adversely affect our earnings if our cost of funds increases more rapidly than our yield on our earning assets and compresses our net interest margin.
A sustained increase in market interest rates, such as has been in effect since the first half of 2023, could adversely affect our earnings if our cost of funds increases more rapidly than our yield on our earning assets and compresses our net interest margin. In addition, the economic value of portfolio equity would decline as interest rates increase.
Risks Applicable to the Banking Industry Generally: Our allowance for credit losses may not be adequate to cover actual losses. Like all financial institutions, we maintain an allowance for credit losses and to provide for loan defaults and nonperformance. The process for determining the amount of the allowance is critical to our financial results and condition.
Like all financial institutions, we maintain an allowance for credit losses and to provide for loan defaults and nonperformance. The process for determining the amount of the allowance is critical to our financial results and condition.
Upon reaching this threshold, the Company faces the risk of failing to meet these requirements, which may negatively impact results of operations and financial condition. Reforms to and uncertainty regarding LIBOR may adversely affect the business.
Upon reaching this threshold, the Company faces the risk of failing to meet these requirements, which may negatively impact results of operations and financial condition. Risks Applicable to the Banking Industry Generally: Recent events impacting the financial services industry.
Changes in interest rates, including increases to address inflation, as well as other actions the Federal Reserve may take to address inflation, may adversely affect our earnings and financial condition. Our net income depends primarily upon our net interest income.
Changes in interest rates, as well as other actions the Federal Reserve may take may adversely affect our earnings and financial condition. Our net income depends primarily upon our net interest income. Net interest income is the difference between interest income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and borrowed funds.
Declines in the value of our investment securities portfolio may adversely impact our results. As of December 31, 2022, we had approximately $634.9 million in investment securities, available-for-sale. We may be required to record impairment charges on our investment securities if they suffer a decline in value below their amortized cost basis that is considered credit related.
We may be required to record an allowance for credit on our investment securities if they suffer a decline in value below their amortized cost basis that is considered credit related.
Legislative and regulatory changes may increase our cost of doing business or otherwise adversely affect us and create competitive advantages for non-bank competitors. The potential impact of changes in monetary policy and interest rates may negatively affect our operations.
Legislative and regulatory changes may increase our cost of doing business or otherwise adversely affect us and create competitive advantages for non-bank competitors. We cannot predict how changes in technology will impact our business; increased use of technology may expose us to service interruptions or breaches in security.
However, the effects could have a material impact on our results of operations and heighten many of our known risks described in this “Risk Factors” section. -19- Table of Contents Our growth-oriented business strategy could be adversely affected if we are not able to attract and retain skilled employees or if we lose the services of our senior management team.
The extent of such an impact will depend on future developments, which are highly uncertain. -21- Table of Contents Our growth-oriented business strategy could be adversely affected if we are not able to attract and retain skilled employees or if we lose the services of our senior management team.
Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to market factors or an adverse regulatory action against us. In addition, our ability to use alternate deposit origination channels could be substantially impaired if we fail to remain “well capitalized”.
Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to market factors or an adverse regulatory action against us, as well as events affecting other market participants, such as failures of other insured depository institutions.
Removed
The outbreak has resulted in authorities implementing numerous measures to try to mitigate the virus, and such measures, even as certain of them have been eased, have impacted consumer and business spending.
Added
Given the ongoing and dynamic nature of the pandemic, it is difficult to predict the full impact of the COVID-19 pandemic on our business and that of our clients, employees and third-party service providers.
Removed
In addition, the pandemic has changed consumer and employee behavior, such as through the rise in working from home, in ways that may negatively impact the overall economy of our Metropolitan New York economy and the businesses of our customers.
Added
In addition, our ability to use alternate deposit origination channels could be substantially impaired if we fail to remain “well capitalized”.
Removed
The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act and the Economic Aid Act, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion.
Added
Declines in the value of our investment securities portfolio may adversely impact our results. As of December 31, 2023, we had approximately $617.2 million in fair value of investment securities, all of which are classified as available-for-sale.
Removed
The outbreak has adversely impacted and is likely to further adversely impact our workforce and operations and the operations of our borrowers, clients and business partners.
Added
Recent events impacting the financial services industry, including the failures of Silicon Valley Bank, Signature Bank and First Republic Bank, have resulted in increased volatility and reduced valuations of equity and other securities of banks in the capital markets.
Removed
In particular, we may experience financial losses due to a number of operational factors impacting us or our borrowers, clients or business partners, including but not limited: o to credit losses resulting from financial stress being experienced by our borrowers as a result of the outbreak and related governmental actions, particularly in the hospitality, energy and retail industries, but across other industries as well.
Added
In addition, the Federal Reserve, in order to combat inflation, has employed quantitative tightening in order to reduce the size of its balance sheet, resulting in increased competition and costs for bank deposits and an increased risk of an economic recession.
Removed
As of December 31, 2022, the bank had no loans on deferrals; o declines in collateral values; o third party disruptions, including outages at network providers and other suppliers; o increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online and remote activity; and o operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions.
Added
These recent events have, and could continue to, increase competition for deposits and adversely impact the market price and volatility of the Company’s common stock.
Removed
These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided.
Added
These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business.
Removed
The extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, new variants of the virus and their impact, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions resume.
Added
We may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause substantial disruption within the financial markets and increased expenses.
Removed
Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.
Added
The cost of resolving the recent bank failures has caused the FDIC to issue additional special assessments and could cause the FDIC to increase premiums or issue additional special assessments in the future. -27- Table of Contents Our allowance for credit losses may not be adequate to cover actual losses.
Removed
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change.
Removed
We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole.
Removed
In 2017, a committee of private-market derivative participants and their regulators convened by the Federal Reserve, the Alternative Reference Rates Committee, or “ARRC”, was created to identify an alternative reference interest rate to replace LIBOR.
Removed
The ARRC announced Secured Overnight Financing Rate, or “SOFR”, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, as its preferred alternative to LIBOR. The U.S. bank regulatory agencies have directed U.S. insured depository institutions to cease using LIBOR in new loan or other financial agreements effective December 31, 2021.
Removed
Certain LIBOR maturity rates will no longer be published after December 31, 2021, with publication of the remaining maturity rates ending in 2023.The Federal Reserve Bank commenced publication of SOFR rates on April 2, 2018.
Removed
The uncertainty as to the nature and effect of such reforms and actions may adversely affect the value of and return on the Company’s financial assets and liabilities that are based on or are linked to LIBOR, the Company’s results of operations or financial condition.
Removed
Net interest income is the difference between interest income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and borrowed funds.
Removed
That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. When interest-bearing liabilities mature or re-price more quickly than interest-earning assets, an increase in market rates of interest could reduce our net interest income.
Removed
In addition, in order to implement Basel III and certain additional capital changes required by the Dodd-Frank Act, on July 9, 2013, the Federal banking agencies, including the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency, approved, as an interim final rule, the regulatory capital requirements for U.S. insured depository institutions and their holding companies.
Removed
This regulation requires financial institutions to maintain higher capital levels and more equity capital.
Removed
Our operating results may be significantly affected (favorably or unfavorably) by market rates of interest that, in turn, are affected by prevailing economic conditions, by the fiscal and monetary policies of the United States government and by the policies of various regulatory agencies.
Removed
Our earnings will depend significantly upon our interest rate spread (i.e., the difference between the interest rate earned on our loans and investments and the interest raid paid on our deposits and borrowings).
Removed
Like many financial institutions, we may be subject to the risk of fluctuations in interest rates, which, if significant, may have a material adverse effect on our operations. We cannot predict how changes in technology will impact our business; increased use of technology may expose us to service interruptions or breaches in security.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeBanking Office Location Term 301 Sylvan Avenue, Englewood Cliffs, NJ Term expires November 2028 156 Piermont Rd, Cresskill, NJ Term expires July 2023 142 John Street, Hackensack, NJ Term expires December 2026 171 East Ridgewood Avenue, Ridgewood, NJ Term expires April 2024 71 East Allendale Road, Saddle River, NJ Term expires May 2032 356 Chestnut Street, Union, NJ Term expires May 2027 545 Morris Avenue, Summit, NJ Term expires February 2024 217 Chestnut Street, Newark, NJ Term expires February 2024 5914 Park Avenue, West New York, NJ Term expires September 2023 963 Holmdel Road, Holmdel, NJ Term expires September 2026 551 Madison Avenue, Suite 202, NY, NY Term expires October 2028 48 South Service Rd, 2nd Fl, Melville, NY Term Expires July 2025 36-19 Broadway, Astoria, NY Term Expires August 2028 485 Schutt Rd, Middletown, NY Term Expires October 2025 715 Route 304, Bardonia NY Term Expires August 2028 567 North Broadway, White Plains NY Term Expires September 2028 155 White Plains Rd., Tarrytown NY Term Expires December 2026 170 East Erie St, Blauvelt NY Term Expires February 2028 625 N Flagler Dr Ste 1002, West Palm Beach, FL Term Expires June 2027
Biggest changeBanking Office Location Term 301 Sylvan Avenue, Englewood Cliffs, NJ Term expires November 2028 1 Union Ave, Cresskill, NJ Term expires January 2038 142 John Street, Hackensack, NJ Term expires December 2026 171 East Ridgewood Avenue, Ridgewood, NJ Term expires April 2029 71 East Allendale Road, Saddle River, NJ Term expires May 2032 356 Chestnut Street, Union, NJ Term expires May 2027 545 Morris Avenue, Summit, NJ Term expires January 2034 217 Chestnut Street, Newark, NJ Term expires December 2024 5914 Park Avenue, West New York, NJ Term expires September 2028 963 Holmdel Road, Holmdel, NJ Term expires September 2026 551 Madison Avenue, Suite 201, NY, NY Term expires May 2032 551 Madison Avenue, Suite 202, NY, NY Term expires October 2028 48 South Service Rd, 2nd Fl, Melville, NY Term expires June 2025 36-19 Broadway, Astoria, NY Term expires August 2028 485 Schutt Rd, Middletown, NY Term expires October 2025 715 Route 304, Bardonia NY Term expires August 2028 567 North Broadway, White Plains NY Term expires September 2028 155 White Plains Rd., Tarrytown NY Term expires December 2026 170 East Erie St, Blauvelt NY Term expires February 2028 625 N Flagler Dr Ste 1002, West Palm Beach, FL Term expires June 2027 78B Park Place, East Hampton, NY Term expires January 2029
Properties The Bank operates seven banking offices in Bergen County, NJ, in Fort Lee, Englewood Cliffs, Hackensack, Cresskill, Haworth, Ridgewood and Saddle River; four banking offices in Union County, NJ, consisting of two offices in Union Township, and one office each in Springfield Township, and Summit; one banking office in Morristown in Morris County, NJ; one office in Newark in Essex County, NJ; one office in West New York in Hudson County, NJ; one office in Holmdel in Monmouth County, NJ; one banking office in the borough of Manhattan in New York City, one office in Melville, Nassau County on Long Island, one in Astoria, Queens and five branches in the Hudson Valley, including in White Plains and Tarrytown, in Westchester County, NY, Bardonia and Blauvelt, in Rockland County, NY and in Middletown, in Orange County, NY, and one financial center in West Palm Beach in Palm Beach County, FL.
Properties The Bank operates six banking offices in Bergen County, NJ, in Fort Lee, Englewood Cliffs, Hackensack, Cresskill, Ridgewood and Saddle River; four banking offices in Union County, NJ, consisting of two offices in Union Township, and one office each in Springfield Township, and Summit; one banking office in Morristown in Morris County, NJ; one office in Newark in Essex County, NJ; one office in West New York in Hudson County, NJ; one office in Holmdel in Monmouth County, NJ; one banking office in the borough of Manhattan in New York City, one office in Melville, Nassau County and one financial center in East Hampton, Suffolk County in Long Island, one in Astoria, Queens and five branches in the Hudson Valley, including in White Plains and Tarrytown, in Westchester County, NY, Bardonia and Blauvelt, in Rockland County, NY and in Middletown, in Orange County, NY, and one financial center in West Palm Beach in Palm Beach County, FL.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−1 removed1 unchanged
Biggest changeNASDAQ AND KBW BANK INDEX Assumes $100 Invested on December 31, 2017, with Dividends Reinvested Year Ended December 31, 2022 COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS Fiscal Year Ending Company/Index/Market 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 ConnectOne Bancorp, Inc. 100.00 72.57 102.70 80.71 135.48 102.45 NASDAQ 100.00 97.19 132.88 192.74 235.56 158.97 KBW Bank Index 100.00 82.29 112.15 100.47 138.99 109.25
Biggest changeNASDAQ AND KBW BANK INDEX Assumes $100 Invested on December 31, 2018, with Dividends Reinvested Year Ended December 31, 2023 COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS Fiscal Year Ending Company/Index/Market 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 ConnectOne Bancorp, Inc. 100.00 141.36 100.11 186.70 147.11 138.50 NASDAQ 100.00 123.87 113.11 154.57 143.87 143.31 KBW Bank Index 100.00 136.73 198.33 242.38 163.58 236.70 -35- Table of Contents
For information regarding restrictions on dividends, see Part I, Item 1, “Business” and Part II, Item 8, “Financial Statements and Supplementary Data”, Note 18 and Note 21 of the Notes to Consolidated Financial Statements.” Stockholders Return Comparison Set forth on the following page is a line graph presentation comparing the cumulative stockholder return on the Parent Corporation’s common stock, on a dividend reinvested basis, against the cumulative total returns of the NASDAQ Composite and the KBW Bank Index for the period from December 31, 2017 through December 31, 2022. -29- Table of Contents COMPARATIVE SIX-YEAR CUMULATIVE TOTAL RETURN AMONG CONNECTONE BANCORP INC.
For information regarding restrictions on dividends, see Part I, Item 1, “Business” and Part II, Item 8, “Financial Statements and Supplementary Data”, Note 18 and Note 21 of the Notes to Consolidated Financial Statements.” Stockholders Return Comparison Set forth on the following page is a line graph presentation comparing the cumulative stockholder return on the Parent Corporation’s common stock, on a dividend reinvested basis, against the cumulative total returns of the NASDAQ Composite and the KBW Bank Index for the period from December 31, 2018 through December 31, 2023. -34- Table of Contents COMPARATIVE SIX-YEAR CUMULATIVE TOTAL RETURN AMONG CONNECTONE BANCORP INC.
As of December 31, 2022, the Company had 679 stockholders of record, excluding beneficial owners for whom Cede & Company or others act as nominees. 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.
As of December 31, 2023, the Company had 697 stockholders of record, excluding beneficial owners for whom Cede & Company or others act as nominees. 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.
The Company may repurchase shares from time to time in the open market, in privately negotiated share purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission and applicable federal securities laws.
In September 2021, the Board of Directors authorized the repurchase of up to 2,000,000 shares. The Company may repurchase shares from time to time in the open market, in privately negotiated share purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission and applicable federal securities laws.
The share repurchase plan does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion. During the year ended December 31, 2022, the Company repurchased a total of 447,108 shares. As of December 31, 2022, shares remaining for repurchase under the program were 1,827,640.
The share repurchase plan does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion. During the year ended December 31, 2023, the Company repurchased a total of 904,152 shares. As of December 31, 2023, shares remaining for repurchase under the program were 933,488.
The following table details share repurchases for the year 2022: Cumulative Total Number of Shares Maximum Number Purchased of Shares as Part of Publicly that May Yet Total Number Announced Be Purchased Shares of Shares Average Price Plans or Under the Plans Authorized Purchased Paid per Share Programs or Programs 2,274,748 First quarter 2022 - 144,793 $ 32.82 144,793 2,129,955 Second quarter 2022 - 302,315 27.29 447,108 1,827,640 Third quarter 2022 - - - 447,108 1,827,640 Fourth quarter 2022 - - - 447,108 1,827,640 Dividends Federal laws and regulations contain restrictions on the ability of the Parent Corporation and the Bank to pay dividends.
The following table details share repurchases for the year 2023: Cumulative Total Number of Shares Maximum Number Purchased of Shares as Part of Publicly that May Yet Total Number Announced Be Purchased Shares of Shares Average Price Plans or Under the Plans Authorized Purchased Paid per Share Programs or Programs 1,827,640 First quarter 2023 - 205,163 $ 22.52 215,163 1,622,477 Second quarter 2023 - 270,000 15.29 485,163 1,352,477 Third quarter 2023 - 316,789 19.45 801,952 1,035,688 Fourth quarter 2023 - 102,200 21.17 904,152 933,488 Dividends Federal laws and regulations contain restrictions on the ability of the Parent Corporation and the Bank to pay dividends.
Removed
In March 2019, the Board of Directors of the Company approved a share repurchase program for up to 1,200,000 shares. In September 2021, the Board of Directors had authorized the repurchase of up to an additional 2,000,000 shares.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

101 edited+49 added−21 removed69 unchanged
Biggest changeYears Ended December 31, 2022 2021 2020 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ (Tax-Equivalent Basis) Balance Expense Rate Balance Expense Rate Balance Expense Rate (dollars in thousands) ASSETS Interest-earning assets: Investment securities (1) (2) $ 660,760 $ 17,640 2.67 % $ 464,342 $ 7,455 1.61 % $ 444,070 $ 9,996 2.25 % Loans receivable and loans held-for-sale (2) (3) (4) 7,380,584 354,450 4.80 % 6,419,610 294,686 4.59 % 6,198,753 297,756 4.80 % Federal funds sold and interest-earning deposits with banks 186,205 2,493 1.34 % 322,692 405 0.13 % 267,824 694 0.22 % Restricted investment in bank stocks 36,744 1,655 4.50 % 20,797 971 4.67 % 27,185 1,642 6.04 % Total interest-earning assets 8,264,293 376,238 4.55 % 7,227,441 303,517 4.20 % 6,937,832 310,088 4.47 % Noninterest-earning assets: Allowance for credit losses (84,209 ) (79,863 ) (59,271 ) Noninterest-earning assets 602,657 587,650 574,913 Total assets $ 8,782,741 $ 7,735,228 $ 7,453,474 LIABILITIES & STOCKHOLDERS’ EQUITY Time deposits $ 1,449,826 $ 21,331 1.47 % $ 1,300,270 $ 14,813 1.14 % $ 1,792,568 $ 34,813 1.94 % Other interest-bearing deposits 3,702,773 29,230 0.79 % 3,451,765 9,955 0.29 % 2,819,908 17,573 0.62 % Total interest-bearing deposits 5,152,599 50,561 0.98 % 4,752,035 24,768 0.52 % 4,612,476 52,386 1.14 % Borrowings 661,729 12,188 1.84 % 318,700 5,300 1.66 % 537,773 8,435 1.57 % Subordinated debentures 153,092 8,759 5.72 % 153,199 8,669 5.66 % 169,139 9,254 5.47 % Finance obligation 1,838 119 6.47 % 2,041 123 6.03 % 2,233 134 6.00 % Total interest-bearing liabilities 5,969,258 71,627 1.20 % 5,225,975 38,860 0.74 % 5,321,621 70,209 1.32 % Noninterest-bearing deposits 1,612,040 1,454,148 1,195,547 Other liabilities 51,048 48,082 55,586 Stockholders’ equity 1,150,395 1,007,023 880,720 Total liabilities and stockholders’ equity $ 8,782,741 $ 7,735,228 $ 7,453,474 Net interest income/interest rate spread (5) 304,611 3.35 % 264,657 3.46 % 239,879 3.15 % Tax-equivalent adjustment (2,492 ) (1,779 ) (1,888 ) Net interest income as reported $ 302,119 $ 262,878 $ 237,991 Net interest margin (6) 3.69 % 3.66 % 3.46 % (1) Average balances are based on amortized cost.
Biggest changeYears Ended December 31, 2023 2022 2021 Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ (Tax-Equivalent Basis) Balance Expense Rate Balance Expense Rate Balance Expense Rate (dollars in thousands) ASSETS Interest-earning assets: Investment securities (1) (2) $ 726,487 $ 22,541 3.10 % $ 660,760 $ 17,640 2.67 % $ 464,342 $ 7,455 1.61 % Loans receivable and loans held-for-sale (2) (3) (4) 8,179,853 455,940 5.57 % 7,380,584 354,450 4.80 % 6,419,610 294,686 4.59 % Federal funds sold and interest-earning deposits with banks 220,143 11,104 5.04 % 186,205 2,493 1.34 % 322,692 405 0.13 % Restricted investment in bank stocks 44,389 3,662 8.25 % 36,744 1,655 4.50 % 20,797 971 4.67 % Total interest-earning assets 9,170,872 493,247 5.38 % 8,264,293 376,238 4.55 % 7,227,441 303,517 4.20 % Noninterest-earning assets: Allowance for credit losses (89,119 ) (84,209 ) (79,863 ) Noninterest-earning assets 613,642 602,657 587,650 Total assets $ 9,695,395 $ 8,782,741 $ 7,735,228 LIABILITIES & STOCKHOLDERS’ EQUITY Interest-bearing liabilities: Time deposits $ 2,529,892 $ 92,969 3.67 % $ 1,449,826 $ 21,331 1.47 % $ 1,300,270 $ 14,813 1.14 % Other interest-bearing deposits 3,667,096 113,207 3.09 % 3,702,773 29,230 0.79 % 3,451,765 9,955 0.29 % Total interest-bearing deposits 6,196,988 206,176 3.33 % 5,152,599 50,561 0.98 % 4,752,035 24,768 0.52 % Borrowings 792,239 22,453 2.83 % 661,729 12,188 1.84 % 318,700 5,300 1.66 % Subordinated debentures 85,249 6,234 7.31 % 153,092 8,759 5.72 % 153,199 8,669 5.66 % Finance obligation 1,630 96 5.89 % 1,838 119 6.47 % 2,041 123 6.03 % Total interest-bearing liabilities 7,076,106 234,959 3.32 % 5,969,258 71,627 1.20 % 5,225,975 38,860 0.74 % Noninterest-bearing deposits 1,332,809 1,612,040 1,454,148 Other liabilities 89,122 51,048 48,082 Stockholders’ equity 1,197,358 1,150,395 1,007,023 Total liabilities and stockholders’ equity $ 9,695,395 $ 8,782,741 $ 7,735,228 Net interest income/interest rate spread (5) 258,288 2.06 % 304,611 3.35 % 264,657 3.46 % Tax-equivalent adjustment (3,182 ) (2,492 ) (1,779 ) Net interest income as reported $ 255,106 $ 302,119 $ 262,878 Net interest margin (6) 2.82 % 3.69 % 3.66 % (1) Average balances are based on amortized cost.
The increase was primarily due to organic loan growth, as well as changes in forecasted macroeconomic conditions. ● Increase in noninterest expenses of $17.4 million, primarily due to increase in salaries and employee benefits of $16.9 million attributable to increased staff in both the revenue and back-office areas of the Bank, base salary increases and incentive compensation accruals.
The increase was primarily due to organic loan growth, as well as changes in forecasted macroeconomic conditions ● Increase in noninterest expenses of $17.4 million, primarily due to increases in salaries and employee benefits of $16.9 million attributable to increased staff in both the revenue and back-office areas of the Bank, base salary increases and incentive compensation accruals.
The increase was primarily due to increases in salaries and employee benefits of $16.9 million, change in value of acquisition price of $1.5 million , other expenses of $1.1 million, marketing and advertising $0.4 million and FDIC insurance of $0.2 million, partially offset by decreases in occupancy and equipment of $1.8 million, amortization of core deposit intangible of $0.3 million, information technology and communication of $0.2 million, professional and consulting of $0.2 million and other components of net periodic pension income of $0.3 million.
The increase was primarily due to increases in salaries and employee benefits of $16.9 million, change in value of acquisition price of $1.5 million , other expenses of $1.1 million, marketing and advertising of $0.4 million and FDIC insurance of $0.2 million, partially offset by decreases in occupancy and equipment of $1.8 million, amortization of core deposit intangible of $0.3 million, information technology and communication of $0.2 million, professional and consulting of $0.2 million and other components of net periodic pension income of $0.3 million.
As of December 31, 2020, the variable interest rate was 4.16%, all costs related to 2015 issuance had been amortized and the 2015 Notes were redeemed in full on January 1, 2021. -51- Table of Contents Preferred Stock On August 19, 2021, the Company completed an underwritten public offering of 115,000 shares, or $115 million in aggregate liquidation preference, of its depositary shares, each representing a 1/40th interest in a share of the Company’s 5.25% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, no par value, with a liquidation preference of $1,000 per share.
As of December 31, 2020, the variable interest rate was 4.16%, all costs related to 2015 issuance had been amortized and the 2015 Notes were redeemed in full on January 1, 2021. -65- Table of Contents Preferred Stock On August 19, 2021, the Company completed an underwritten public offering of 115,000 shares, or $115 million in aggregate liquidation preference, of its depositary shares, each representing a 1/40th interest in a share of the Company’s 5.25% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, no par value, with a liquidation preference of $1,000 per share.
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 decrease 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.
As of December 31, 2022, 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 December 31, 2023, the amount of liquid assets remained at a level management deemed adequate to ensure that, on a short and long-term basis, contractual liabilities, depositors’ withdrawal requirements, and other operational and client credit needs could be satisfied.
The increase in Tier 1 capital reflects the Company’s retained earnings during 2022. United States bank regulators have issued guidelines establishing minimum capital standards related to the level of assets and off balance-sheet exposures adjusted for credit risk.
The increase in Tier 1 capital reflects the Company’s retained earnings during 2023. United States bank regulators have issued guidelines establishing minimum capital standards related to the level of assets and off balance-sheet exposures adjusted for credit risk.
(6) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets. -37- Table of Contents Rate/Volume Analysis The following table presents, by category, the major factors that contributed to the changes in net interest income.
(6) Represents net interest income on a tax equivalent basis divided by average total interest-earning assets. -41- Table of Contents Rate/Volume Analysis The following table presents, by category, the major factors that contributed to the changes in net interest income.
As of December 31, 2022, the principal components of the investment portfolio are U.S. Treasury and Government Agency Obligations, Federal Agency Obligations including mortgage-backed securities, Obligations of U.S. States and Political Subdivisions, Corporate Bonds and other debt and equity securities.
As of December 31, 2023, the principal components of the investment portfolio are U.S. Treasury and Government Agency Obligations, Federal Agency Obligations including mortgage-backed securities, Obligations of U.S. States and Political Subdivisions, Corporate Bonds and other debt and equity securities.
General The following discussion and analysis present the more significant factors affecting the Company’s financial condition as of December 31, 2022 and 2021 and results of operations for each of the years in the three-year period ended December 31, 2022.
General The following discussion and analysis present the more significant factors affecting the Company’s financial condition as of December 31, 2023 and 2022 and results of operations for each of the years in the three-year period ended December 31, 2023.
Contractual Obligations and Other Commitments The following table summarizes contractual obligations as of December 31, 2022 and the effect such obligations are expected to have on liquidity and cash flows in future periods.
Contractual Obligations and Other Commitments The following table summarizes contractual obligations as of December 31, 2023 and the effect such obligations are expected to have on liquidity and cash flows in future periods.
For the year ended December 31, 2022, the provision for (reversal of) credit losses was $17.8 million, an increase of $23.3 million, compared to the provision for (reversal of) credit losses of ($5.5) million for the year ended December 31, 2021.
For the year ended December 31, 2022, the provision for (reversal of) credit losses were $17.8 million, an increase of $23.3 million, compared to the provision for (reversal of) credit losses of ($5.5) million for the year ended December 31, 2021.
There were no municipal securities, or corporate securities, of any single issuer exceeding 10% of stockholders’ equity as of December 31, 2022.
There were no municipal securities, or corporate securities, of any single issuer exceeding 10% of stockholders’ equity as of December 31, 2023.
For loans designated as TDR or nonaccrual with balances less than $250,000, these loans are collectively evaluated, and, accordingly, are not separately identified for analysis or disclosures. Instruments will not be included in both collective and individual analysis. Individual analysis will establish a specific reserve for instruments in scope. -41- Table of Contents Asset Classification.
For loans designated as nonaccrual with balances of less than $250,000, these loans are collectively evaluated, and, accordingly, are not separately identified for analysis or disclosures. Instruments will not be included in either collective or individual analysis. Individual analysis will establish a specific reserve for instruments in scope. -49- Table of Contents Asset Classification.
As of December 31, 2022, the Company’s allowance for credit losses on individually analyzed loans decreased $7.7 million from December 31, 2021. This decrease was primarily due to reductions in individually analyzed loans, increases in charge-offs, and increases in the fair value of collateral for collateral-dependent loans, partially offset by increases to the allowance on existing individually analyzed loans.
As of December 31, 2023, the Company’s allowance for credit losses on individually analyzed loans decreased $9.4 million from December 31, 2022. This decrease was primarily due to reductions in individually analyzed loans, increases in charge-offs, and increases in the fair value of collateral for collateral-dependent loans, partially offset by increases to the allowance on existing individually analyzed loans.
Based on our model, which was run as of December 31, 2022, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.66%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 3.99%.
As of December 31, 2022, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.66%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 3.99%.
Within the various economic scenarios considered for this hypothetical sensitivity analysis, as of December 31, 2022, the quantitative estimate of the allowance for credit loss for collectively evaluated loans would increase by approximately $40 million under sole consideration of an adverse Moody’s economic forecast.
Within the various economic scenarios considered for this hypothetical sensitivity analysis, as of December 31, 2023, the quantitative estimate of the allowance for credit loss for collectively evaluated loans would increase by approximately $39.4 million under sole consideration of an adverse Moody’s economic forecast.
As of December 31, 2022, 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 $61.8 million as compared with net unrealized losses of $0.5 million as of December 31, 2021.
As of December 31, 2023, net unrealized losses on securities available-for-sale, which are carried as a component of accumulated other comprehensive loss and included in stockholders’ equity, net of tax, amounted to $57.8 million as compared with net unrealized losses of $61.8 million as of December 31, 2022.
The increase in average total loans is primarily attributable to higher, non PPP, loan originations. Average Balance Sheets The following table sets forth certain information relating to our average assets and liabilities for the years ended December 31, 2022, 2021 and 2020 and reflects the average yield on assets and average cost of liabilities for the periods indicated.
The increase in average total loans is primarily attributable to higher loan originations. -40- Table of Contents Average Balance Sheets The following table sets forth certain information relating to our average assets and liabilities for the years ended December 31, 2023, 2022 and 2021 and reflects the average yield on assets and average cost of liabilities for the periods indicated.
The loan portfolio also represents the largest asset type on the Company’s Consolidated Statements of Condition. Management believes the following information may enable investors to better understand the changes in our allowance for credit losses for loans. The Company’s allowance for credit losses for loans totaled $90.5 million and $78.8 million as of December 31, 2022 and 2021, respectively.
The loan portfolio also represents the largest asset type on the Company’s Consolidated Statements of Condition. Management believes the following information may enable investors to better understand the changes in our allowance for credit losses for loans. The Company’s allowance for credit losses ("ACL") for loans totaled $82.0 million and $90.5 million as of December 31, 2023 and 2022, respectively.
Based on our model, which was run as of December 31, 2022, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.22%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 2.01%.
As of December 31, 2022, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 2.22%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 2.01%.
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 December 31, 2022, and December 31, 2021, the results of the models were within guidelines prescribed by our Board of Directors.
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 December 31, 2023, and December 31, 2022, the results of the models are monitored by guidelines prescribed by our Board of Directors.
As of December 31, 2022, on a weighted average basis the most severe historical loss rate for our commercial and commercial real estate loans were 2.20% and 1.85%, respectively. -34- Table of Contents The Company’s quantitative component of allowance for credit losses for collectively evaluated loans is calculated with an economic forecast sourced from Moody’s.
As of December 31, 2023, on a weighted average basis the most severe historical loss rate for our commercial and commercial real estate loans were 2.33% and 1.88%, respectively. -37- Table of Contents The Company’s quantitative component of allowance for credit losses for collectively evaluated loans is calculated with an economic forecast sourced from Moody’s.
Additionally, there were increases in acquisition expenses related to BoeFly of $1.5 million, other expenses of $1.1 million, marketing and advertising of $0.4 million, and FDIC insurance of $0.2 million, partially offset by decreases in occupancy and equipment of $1.8 million, amortization of core deposit intangibles of $0.3 million, professional and consulting of $0.2 million and information technology and communication of $0.2 million. ● Decrease in noninterest income of $2.4 million, primarily due to decreases in net gains on loans-held-for-sale of $2.1 million, gains on sales of branches of $0.7 million in 2021, decreases in net gains on sale/redemption of investment securities of $0.2 million and an increase in net losses on equity securities of $1.1 million, partially offset by increases in deposit, loan and other income of $0.9 million and income on bank owned life insurance of $0.8 million. ● Increase in income tax expense of $1.3 million resulting primarily from higher state tax rates and a slightly higher percentage of income being derived from taxable sources.
Additionally, there were increases in acquisition expenses related to BoeFly of $1.5 million, other expenses of $1.1 million, marketing and advertising of $0.4 million, and FDIC insurance of $0.2 million, partially offset by decreases in occupancy and equipment of $1.8 million, amortization of core deposit intangibles of $0.3 million, professional and consulting of $0.2 million and information technology and communication of $0.2 million. ● Decrease in noninterest income of $2.4 million, primarily due to decreases in net gains on loans-held-for-sale of $2.1 million, gains on sales of branches of $0.7 million in 2021, decreases in net gains on sale/redemption of investment securities of $0.2 million and an increase in net losses on equity securities of $1.1 million, partially offset by increases in deposit, loan and other income of $0.9 million and income on bank owned life insurance of $0.8 million. ● Increase in income tax expense of $1.3 million resulting primarily from higher state tax rates and a slightly higher percentage of income being derived from taxable sources. ● Increase in preferred dividends of $4.3 million. -39- Table of Contents Net Interest Income Fully taxable equivalent net interest income for 2023 totaled $258.3 million, a decrease of $46.3 million, or 15.2%, from 2022.
Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero. During January 2018, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “Notes”) to certain accredited investors.
Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero. During January 2018, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2018 Notes”).
Impact of Inflation and Changing Prices The financial statements and notes thereto presented elsewhere herein have been prepared in accordance with generally accepted accounting principles, which require 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.
Changes in assumptions could significantly affect the estimates. -57- Table of Contents Impact of Inflation and Changing Prices The financial statements and notes thereto presented elsewhere herein have been prepared in accordance with generally accepted accounting principles, which require 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 increase was primarily due to increases in net gains on loans held for sale of $1.7 million, gain on sale of branches of $0.7 million and net gains on sale/redemption of investment securities of $0.2 million, partially offset by decreases in deposit, loan and other income of $0.5 million, income on bank owned life insurance of $0.2 million and net gains on equity securities of $0.6 million.
The decrease was primarily due to decreases in net gains on loans held for sale of $2.1 million, gains on sale of branches of $0.7 million, net gains on sale/redemption of investment securities of $0.2 million and an increase in net losses on equity securities of $1.1 million, partially offset by increases in deposit, loan and other income of $0.9 million and income on bank owned life insurance of $0.8 million.
For a more detailed description of income taxes see Note 10 of the Notes to Consolidated Financial Statements. Financial Condition Overview As of December 31, 2022, the Company’s total assets were $9.6 billion, an increase of $1.5 billion from December 31, 2021. Total loans (including loans held-for-sale) were $8.1 billion, an increase of $1.3 billion from December 31, 2021.
For a more detailed description of income taxes see Note 10 of the Notes to Consolidated Financial Statements. Financial Condition Overview As of December 31, 2023, the Company’s total assets were $9.856 billion, an increase of $0.2 billion from December 31, 2022. Total loans (including loans held-for-sale) were $8.3 billion, an increase of $0.2 billion from December 31, 2022.
The Company’s Tier 1 leverage capital (defined as tangible stockholders’ equity for common stock and Trust Preferred Capital Securities) as of December 31, 2022 amounted to $1.0 billion or 10.7% of average total assets. As of December 31, 2021, the Company’s Tier 1 leverage capital amounted to $909.6 million or 11.7% of average total assets.
The Company’s Tier 1 leverage capital (defined as tangible stockholders’ equity for common stock and Trust Preferred Capital Securities) as of December 31, 2023 amounted to $1.0 billion or 10.8% of average total assets. As of December 31, 2022, the Company’s Tier 1 leverage capital amounted to $1.0 billion or 10.7% of average total assets.
Other securities do not have a contractual maturity and are included in the “Due in 1 year or less” maturity in the table above. -46- Table of Contents The following table sets forth the carrying value of the Company’s investment securities, as of December 31 for each of the last three years. 2022 2021 2020 (dollars in thousands) Investment Securities Available-for-Sale: Federal agency obligations $ 44,450 $ 50,360 $ 38,458 Residential mortgage pass-through securities 417,578 316,095 270,884 Commercial mortgage pass-through securities 21,104 10,469 6,922 Obligations of U.S.
Other securities do not have a contractual maturity and are included in the “Due in 1 year or less” maturity in the table above. -54- Table of Contents The following table sets forth the carrying value of the Company’s investment securities, as of December 31 for each of the last three years. 2023 2022 2021 (dollars in thousands) Investment Securities Available-for-Sale: Federal agency obligations $ 45,326 $ 44,450 $ 50,360 Residential mortgage pass-through securities 411,191 417,578 316,095 Commercial mortgage pass-through securities 21,564 21,104 10,469 Obligations of U.S.
The Bank adopted CECL beginning on January 1, 2021. Provision expense may therefore become more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance. See Note 1b to our audited financial statements included herein.
The Bank adopted CECL beginning on January 1, 2021. Provision expense may therefore become more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance.
Specifically, these guidelines categorize assets and off balance-sheet items into risk-weightings and require banking institutions to maintain a minimum ratio of capital to risk-weighted assets. As of December 31, 2022, the Company’s CET 1, Tier 1 and total risk-based capital ratios were 10.30%, 11.66% and 14.45%, respectively.
Specifically, these guidelines categorize assets and off balance-sheet items into risk-weightings and require banking institutions to maintain a minimum ratio of capital to risk-weighted assets. As of December 31, 2023, the Company’s CET 1, Tier 1 and total risk-based capital ratios were 10.62%, 11.95% and 13.77%, respectively.
The increase in income tax expense in 2021 when compared to 2020 was also primarily the result of higher taxable income. The effective tax rates were 26.9% in 2022, 25.5% in 2021 and 21.1% for 2020.
The decrease in income tax expense in 2023 when compared to 2022 was primarily the result of lower taxable income. The increase in income tax expense in 2022 when compared to 2021 was also primarily the result of higher taxable income. The effective tax rates were 25.6% in 2023, 26.9% in 2022 and 25.5% for 2021.
The table below sets forth information on our classified loans and loans designated as special mention (excluding loans held-for-sale) as of the dates presented: 2022 2021 (dollars in thousands) Classified Loans: Substandard $ 120,330 $ 157,434 Doubtful - - Loss - - Total classified loans 120,330 157,434 Special Mention Loans 62,105 72,286 Total classified and special mention loans $ 182,435 $ 229,720 During the year ended December 31, 2022, “substandard” loans and “doubtful” loans, which include lower credit quality loans which possess higher risk characteristics than “special mention” loans, decreased to $120.3 million, or 1.5% of loans receivable, as of December 31, 2022 from $157.4 million, or 2.3% of loans receivable, as of December 31, 2021.
The table below sets forth information on our classified loans and loans designated as special mention (excluding loans held-for-sale) as of the dates presented: 2023 2022 (dollars in thousands) Classified Loans: Substandard $ 58,509 $ 120,330 Doubtful - - Loss - - Total classified loans 58,509 120,330 Special Mention Loans 54,168 62,105 Total classified and special mention loans $ 112,677 $ 182,435 During the year ended December 31, 2023, “substandard” loans and “doubtful” loans, which include lower credit quality loans which possess higher risk characteristics than “special mention” loans, decreased to $58.5 million, or 0.7% of loans receivable, as of December 31, 2023 from $120.3 million, or 1.5% of loans receivable, as of December 31, 2022.
The increase in net interest income was due to an increase in average interest-earning assets, which grew by 4.2% to $7.2 billion and a widening of 20 basis-points in the net interest margin.
The increase in net interest income was due to an increase in average interest-earning assets, which grew by 14.3% to $8.3 billion and a widening of 3 basis-points in the net interest margin.
December 31, December 31, December 31, 2022 2021 2020 Balance as of January 1, $ 78,773 $ 79,226 $ 38,293 CECL Day 1 Adjustment - 6,557 - Balance as of January 1, as adjusted for changes in accounting principal 78,773 85,783 38,293 Charge-offs: Commercial 2,612 382 552 Commercial real estate 2,819 1,780 - Residential real estate 9 235 341 Consumer 3 - 7 Total charge-offs 5,443 2,397 900 Recoveries: Commercial 54 289 4 Commercial real estate - 85 802 Residential real estate 63 20 23 Consumer - 11 4 Total recoveries 117 405 833 Net charge-offs 5,326 1,992 67 Provision for (reversal of) credit losses for loans 17,066 (5,018 ) 41,000 Balance at end of year $ 90,513 $ 78,773 $ 79,226 Ratio of net charge-offs during the year to average loans receivable outstanding during the year 0.07 % 0.03 % 0.00 % Allowance for credit losses for loans as a percentage of loans receivable 1.12 % 1.15 % 1.27 % For additional information regarding loans, see Note 4 of the Notes to the Consolidated Financial Statements.
December 31, December 31, December 31, 2023 2022 2021 Balance as of January 1, $ 90,513 $ 78,773 $ 79,226 CECL Day 1 Adjustment - - 6,557 Balance as of January 1, as adjusted for changes in accounting principal 90,513 78,773 85,783 Charge-offs: Commercial 14,888 2,612 382 Commercial real estate 2,142 2,819 1,780 Residential real estate 18 9 235 Consumer 1 3 - Total charge-offs 17,049 5,443 2,397 Recoveries: Commercial 10 54 289 Commercial real estate - - 85 Residential real estate 68 63 20 Consumer 8 - 11 Total recoveries 86 117 405 Net charge-offs 16,963 5,326 1,992 Provision for (reversal of) credit losses for loans 8,424 17,066 (5,018 ) Balance at end of year $ 81,974 $ 90,513 $ 78,773 Ratio of net charge-offs during the year to average loans receivable outstanding during the year 0.23 % 0.07 % 0.03 % Allowance for credit losses for loans as a percentage of loans receivable 0.98 1.12 1.15 For additional information regarding loans, see Note 4 of the Notes to the Consolidated Financial Statements.
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.
These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.
The MD&A should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and other information contained in this report. -35- Table of Contents Operating Results Overview Net income available to common stockholders for the year ended December 31, 2022 was $119.2 million, a decrease of $9.5 million, or 7.4%, compared to net income of $128.6 million for 2021.
The MD&A should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and other information contained in this report. -38- Table of Contents Operating Results Overview Net income available to common stockholders for the year ended December 31, 2023 was $81.0 million, a decrease of $38.2 million, or 32.1%, compared to net income of $119.2 million for 2022.
States and political subdivisions 142,896 145,625 142,808 Corporate bonds and notes 6,974 9,049 25,095 Asset-backed securities 1,640 2,564 3,480 Certificates of deposit - 150 151 Other securities 242 195 157 Total $ 634,884 $ 534,507 $ 487,955 For other information regarding the Company’s investment securities portfolio, see Note 3, Note 15 and Note 20 of the Notes to the Consolidated Financial Statements.
States and political subdivisions 132,705 142,896 145,625 Corporate bonds and notes 4,973 6,974 9,049 Asset-backed securities 1,238 1,640 2,564 Certificates of deposit - - 150 Other securities 165 242 195 Total $ 617,162 $ 634,884 $ 534,507 For other information regarding the Company’s investment securities portfolio, see Note 3, Note 15 and Note 20 of the Notes to the Consolidated Financial Statements.
The main component contributing to the increase in commercial real estate loans is an increase in the multifamily loans. Commercial loans totaled $1.5 billion as of December 31, 2022, an increase of $173.3 million, or 13.3%, compared to commercial loans as of December 31, 2021 of $1.3 billion.
Commercial real estate loans as of December 31, 2023 totaled $5.9 billion, an increase of $100 million, or 1.7%, compared to commercial real estate loans as of December 31, 2022 of $5.8 billion. The main component contributing to the increase in commercial real estate loans is an increase in multifamily loans.
During the year ended December 31, 2022, rate related factors increased investment revenue by $4.9 million and volume related factors increased investment revenue by $5.2 million. The tax-equivalent yield on investments increased by 106 basis points to 2.67% from a yield of 1.61% during the year ended December 31, 2021.
During the year ended December 31, 2023, rate related factors increased investment revenue by $2.9 million and volume related factors increased investment revenue by $2.0 million. The tax-equivalent yield on investments increased by 43 basis points to 3.10% from a yield of 2.67% during the year ended December 31, 2022.
The Bank believes that its strategy of high-quality client service, competitive rate structures and selective marketing have enabled it to gain market share. -39- Table of Contents Commercial loans are loans made for business purposes and are primarily secured by collateral such as cash balances with the Bank, marketable securities held by or under the control of the Bank, business assets including accounts receivable, inventory and equipment and liens on commercial and residential real estate.
The Bank believes that its strategy of high-quality client service, competitive rate structures and selective marketing have enabled it to gain market share. -44- Table of Contents Commercial loans are loans made for business purposes and are primarily secured by collateral such as business assets including accounts receivable, inventory and equipment.
During the year ended December 31, 2022, “special mention” loans were $62.1 million, or 0.8% of loans receivable, while “special mention” loans as of December 31, 2021 were $72.3 million, or 1.0% of loans receivable. -42- Table of Contents Nonaccrual Loans, Performing Troubled Debt Restructurings, OREO and Loans 90 Days or Greater Past Due and Still Accruing Nonperforming assets include nonaccrual loans and OREO.
During the year ended December 31, 2023, “special mention” loans were $54.2 million, or 0.6% of loans receivable, while “special mention” loans as of December 31, 2022 were $62.1 million, or 0.8% of loans receivable. -50- Table of Contents Nonaccrual Loans, OREO and Loans 90 Days or Greater Past Due and Still Accruing Nonperforming assets include nonaccrual loans and OREO.
The Company’s allowance for credit losses for collectively evaluated loans totaled $78.0 million as of December 31, 2022, which included $70.1 million of allowance related to commercial and commercial real estate loans. Included in that $70.1 million of allowance related to commercial and commercial real estate loans, $24.7 million was attributable to qualitative loss factors.
The Company’s allowance for credit losses for collectively evaluated loans totaled $80.6 million as of December 31, 2023, which included $71.6 million of allowance related to commercial and commercial real estate loans. Of the $71.6 million allowance related to commercial and commercial real estate loans, $24.1 million was attributable to qualitative loss factors.
Deposits were $7.4 billion, an increase of $1.0 billion from December 31, 2021. As of December 31, 2021, the Company’s total assets were $8.1 billion, an increase of $0.6 billion from December 31, 2020. Total loans (including loans held-for-sale) were $6.8 billion, an increase of $0.6 billion from December 31, 2020.
Deposits were $7.5 billion, an increase of $0.2 billion from December 31, 2022. As of December 31, 2022, the Company’s total assets were $9.645 billion, an increase of $1.5 billion from December 31, 2021. Total loans (including loans held-for-sale) were $8.1 billion, an increase of $1.3 billion from December 31, 2021.
The table below shows, for three types of loans, the amounts of the allowance allocable to such loans and the percentage of such loans to gross loans, along with the amount of the unallocated allowance. Commercial loan type shown below includes commercial, commercial real estate and commercial construction loans.
The following table shows the amounts of the allowance allocable to such loans and the percentage of such loans to gross loans, along with the amount of the unallocated allowance. “Total Commercial”, as shown below, includes commercial, commercial real estate and commercial construction loans.
The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures. The subordinated debentures are redeemable in whole or part. The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85% and re-prices quarterly. The rate as of December 31, 2022 was 7.26%.
The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures. The subordinated debentures are redeemable in whole or in part prior to maturity. The floating interest rate on the subordinate debentures was previously three-month LIBOR plus 2.85% and reprices quarterly.
Commercial Residential Real Estate Consumer Unallocated Amount of % of Total Amount of % of Total Amount of % of Total Amount of Total Allowance Allowance Allowance Allowance Allowance Allowance Allowance Allowance (dollars in thousands) 2022 $ 86,363 95.4 % $ 4,143 4.6 % $ 7 0.1 % $ - $ 90,513 2021 75,138 95.4 % 3,628 4.6 % 7 0.1 % - 78,773 2020 75,967 94.8 % 2,687 5.2 % 4 0.0 % 568 79,226 -44- Table of Contents Investments For the year ended December 31, 2022, the average volume of investment securities, including equity securities, increased by $196.4 million to approximately $660.8 million or 8.0% of average earning assets, from $464.3 million, or 6.4% of average earning assets, for the year ended December 31, 2021.
Total Commercial Residential Real Estate Consumer Amount of % of Total Amount of % of Total Amount of % of Total Total Allowance Allowance Allowance Allowance Allowance Allowance Allowance (dollars in thousands) 2023 $ 77,649 94.7 % $ 4,320 5.2 % $ 5 0.1 % $ 81,974 2022 86,363 95.4 % 4,143 4.6 % 7 0.1 % 90,513 2021 75,138 95.4 % 3,628 4.6 % 7 0.1 % 78,773 -52- Table of Contents Investments For the year ended December 31, 2023, the amortized cost of investment securities, including equity securities, increased by $65.7 million to approximately $726.5 million or 7.9% of average earning assets, from $660.8 million, or 8.0% of average earning assets, for the year ended December 31, 2022.
The following table provides information on the maturity distribution of the time deposits exceeding the FDIC insurance limit as of December 31, 2022 and 2021: December 31, December 31, 2022 2021 (dollars in thousands) 3 months or less $ 147,761 $ 71,293 Over 3 to 6 months 103,074 69,394 Over 6 to 12 months 213,961 63,549 Over 12 months 126,984 46,288 Total $ 591,780 $ 250,524 -49- Table of Contents Federal Home Loan Bank Advances Federal Home Loan Bank advances are secured, under the terms of a blanket collateral agreement, primarily by commercial mortgage loans.
The following table provides information on the maturity distribution of the time deposits exceeding the FDIC insurance limit as of December 31, 2023 and 2022: December 31, December 31, 2023 2022 (dollars in thousands) 3 months or less $ 275,943 $ 147,761 Over 3 to 6 months 102,985 103,074 Over 6 to 12 months 225,518 213,961 Over 12 months 38,904 126,984 Total $ 643,350 $ 591,780 -62- Table of Contents Federal Home Loan Bank Advances Federal Home Loan Bank advances are secured, under the terms of a blanket collateral agreement, primarily by commercial mortgage loans.
As of December 31, 2021, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 3.35%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 5.64%.
Based on our model, which was run as of December 31, 2023, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 9.25%, while a 100 basis-point instantaneous decrease in interest rates would increase net interest income by 5.34%.
As of December 31, 2021, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 9.77%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 10.41%.
Based on our model, which was run as of December 31, 2023, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would decrease our net interest income by 5.68%, while a 100 basis-point instantaneous decrease in interest rates would increase net interest income by 4.29%.
Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. For additional information regarding the Company’s investment portfolio, see Note 3, Note 15 and Note 20 of the Notes to the Consolidated Financial Statements. During 2022 and 2021, there were no sales from the Company’s available-for-sale portfolio.
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. For additional information regarding the Company’s investment portfolio, see Note 3, Note 15 and Note 20 of the Notes to the Consolidated Financial Statements.
The largest component of the gross loan portfolio as of December 31, 2022 and December 31, 2021 was commercial real estate loans. Commercial real estate loans as of December 31, 2022 totaled $5.8 billion, an increase of $1.1 million, or 22.2%, compared to commercial real estate loans as of December 31, 2021 of $4.7 billion.
Gross loans as of December 31, 2023 totaled $8.3 billion, an increase of $0.2 billion, or 3.0%, over gross loans as of December 31, 2022 of $8.1 billion. The largest component of the gross loan portfolio as of December 31, 2023 and December 31, 2022 was commercial real estate loans.
As of December 31, 2021, the Company had a gross carrying value of $468.3 million, excluding a net fair value discount of $120 thousand, in notes outstanding at a weighted average interest rate of 0.73%.
As of December 31, 2023, the Company had a gross carrying value of $933.6 million, excluding a net fair value discount of $58 thousand, in notes outstanding at a weighted average interest rate of 5.41%.
Net income available to common stockholders for the year ended December 31, 2021 was $128.6 million, an increase of $57.3 million, or 80.4%, compared to net income of $71.3 million for 2020. Diluted earnings per share were $3.22 for 2021, a 79.9% increase from $1.79 for 2020.
Net income available to common stockholders for the year ended December 31, 2022 was $119.2 million, a decrease of $9.5 million, or 7.4%, compared to net income of $128.6 million for 2021. Diluted earnings per share were $3.01 for 2022, a 6.5% decrease from $3.22 for 2021.
The increase in provision for credit losses for the year ended December 31, 2022 reflected strong organic loan growth and changes in forecasted macroeconomic conditions.
The decrease in provision for credit losses for the year ended December 31, 2023 reflected changes in forecasted macroeconomic conditions, partially offset by organic loan growth.
Changes due to both volume and rate have been allocated in proportion to the relationship of the dollar amount change in each. 2022/2021 2021/2020 Increase (Decrease) Increase (Decrease) Due to Change in: Due to Change in: Average Average Net Average Average Net Volume Rate Change Volume Rate Change (dollars in thousands) Interest income: Investment securities: $ 5,244 $ 4,941 $ 10,185 $ 325 $ (2,866 ) $ (2,541 ) Loans receivable and loans held-for-sale 46,150 13,614 59,764 10,138 (13,208 ) (3,070 ) Federal funds sold and interest-earnings deposits with banks (1,827 ) 3,915 2,088 69 (358 ) (289 ) Restricted investment in bank stocks 718 (34 ) 684 (298 ) (373 ) (671 ) Total interest income: $ 50,285 $ 22,436 $ 72,721 $ 10,234 $ (16,805 ) $ (6,571 ) Interest expense: Savings, NOW, money market, interest checking $ 1,981 $ 17,294 $ 19,275 $ 1,822 $ (9,440 ) $ (7,618 ) Time deposits 2,200 4,317 6,517 (5,608 ) (14,392 ) (20,000 ) Borrowings and subordinated debentures 6,312 667 6,979 (4,545 ) 825 (3,720 ) Finance obligation (13 ) 9 (4 ) (12 ) 1 (11 ) Total interest expense: $ 10,480 $ 22,287 $ 32,767 $ (8,343 ) $ (23,006 ) $ (31,349 ) Net interest income: $ 39,805 $ 149 $ 39,954 $ 18,577 $ 6,201 $ 24,778 Provision for (Reversal of) Credit Losses In determining the provision for credit losses, management considers national and local economic trends and conditions; trends in the portfolio including orientation to specific loan types or industries; experience, ability and depth of lending management in relation to the complexity of the portfolio; effects of changes in lending policies, trends in volume and terms of loans; levels and trends in delinquencies, impaired loans and net charge-offs and the results of independent third party loan review.
Changes due to both volume and rate have been allocated in proportion to the relationship of the dollar amount change in each. 2023/2022 2022/2021 Increase (Decrease) Increase (Decrease) Due to Change in: Due to Change in: Average Average Net Average Average Net Volume Rate Change Volume Rate Change (dollars in thousands) Interest income: Investment securities: $ 2,039 $ 2,862 $ 4,901 $ 5,244 $ 4,941 $ 10,185 Loans receivable and loans held-for-sale 44,551 56,939 101,490 46,150 13,614 59,764 Federal funds sold and interest-earnings deposits with banks 1,712 6,899 8,611 (1,827 ) 3,915 2,088 Restricted investment in bank stocks 631 1,376 2,007 718 (34 ) 684 Total interest income: $ 48,933 $ 68,076 $ 117,009 $ 50,285 $ 22,436 $ 72,721 Interest expense: Savings, NOW, money market, interest checking $ (1,101 ) $ 85,078 $ 83,977 $ 1,981 $ 17,294 $ 19,275 Time deposits 39,690 31,949 71,639 2,200 4,317 6,517 Borrowings and subordinated debentures (1,262 ) 9,001 7,739 6,312 667 6,979 Finance obligation (12 ) (11 ) (23 ) (13 ) 9 (4 ) Total interest expense: $ 37,315 $ 126,017 $ 163,332 $ 10,480 $ 22,287 $ 32,767 Net interest income: $ 11,618 $ (57,941 ) $ (46,323 ) $ 39,805 $ 149 $ 39,954 Provision for (Reversal of) Credit Losses In determining the provision for credit losses, management considers national and local economic trends and conditions; trends in the portfolio including orientation to specific loan types or industries; experience, ability and depth of lending management in relation to the complexity of the portfolio; effects of changes in lending policies, trends in volume and terms of loans; levels and trends in delinquencies, individually analyzed loans and net charge-offs and the results of independent third party loan reviews.
During 2020, there were $19.6 million in sales from the Company’s available-for-sale portfolio. The Company had a $195 thousand gain on the redemption of available-for-sale securities during 2021. The gross realized gains on securities sold, called or matured amounted to $29 thousand in 2020. The Company had no impairment charges in 2022, 2021 and 2020.
During 2023, 2022 and 2021, there were no sales from the Company’s available-for-sale portfolio. The Company had a $195 thousand gain on the redemption of available-for-sale securities during 2021. The Company had no impairment charges in 2023, 2022 and 2021.
Deposits were $6.3 billion, an increase of $0.4 billion from December 31, 2020.
Deposits were $7.4 billion, an increase of $1.0 billion from December 31, 2021.
Residential mortgages include loans secured by first liens on residential real estate and are generally made to existing clients of the Bank to purchase or refinance primary and secondary residences. Home equity loans and lines of credit include loans secured by first or second liens on residential real estate for primary or secondary residences.
Commercial real estate loans include loans secured by first liens on completed commercial properties, including multifamily properties, to purchase or refinance such properties, as well as land loans. Residential mortgages include loans secured by first liens on residential real estate and are generally made to existing clients of the Bank to purchase or refinance primary and secondary residences.
The increase in salaries and employee benefits was attributable to increased staff in both revenue and back-office areas of the Bank, base salary increases, and incentive compensation accruals. Noninterest expenses for the full-year 2021 decreased by $12.0 million, or 9.9%, to $109.0 million from $121.0 million in 2020.
Noninterest Expense Noninterest expenses for the full-year 2023 increased by $17.6 million, primarily due to increases in salaries and employee benefits of $7.0 million attributable to increased staff in both the revenue and back-office areas of the Bank, base salary increases and incentive compensation accruals.
Noninterest Expense Noninterest expenses for the full-year 2022 increased by $17.4 million, or 15.9%, to $126.4 million from $109.0 million in 2021.
The increase in information technology and communications was primarily attributable to additional investments in technology, equipment and software. Noninterest expenses for the full-year 2022 increased by $17.4 million, or 15.9%, to $126.4 million from $109.0 million in 2021.
The quantitative component of our allowance for credit losses on collectively evaluated loans, which is largely based on a selection of various economic forecasts, increased by $19.4 million as of December 31, 2022 when compared to December 31, 2021.
The quantitative component of our ACL for loans on collectively evaluated loans, which is largely based on a selection of various economic forecasts, increased by $3.4 million as of December 31, 2023 when compared to December 31, 2022. This increase was primarily attributable to organic growth of $0.3 billion in collectively evaluated loans.
Included in commercial loans were PPP loans of $11.4 million as of December 31, 2022 and $93.1 million as of December 31, 2021. Commercial construction loans as of December 31, 2022 totaled $574.1 million, an increase of $34.0 million, or 6.3%, compared to commercial construction loans as of December 31, 2021 of $540.2 million.
Included in commercial loans were PPP loans of $9 million as of December 31, 2023 and $11 million as of December 31, 2022. Commercial construction loans as of December 31, 2023 totaled $620 million, an increase of $46 million, or 8.1%, compared to commercial construction loans as of December 31, 2022 of $574 million.
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.
Estimates of Fair Value The estimation of fair value is significant to certain assets of the Company, including available-for-sale investment securities. 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.
Net Interest Income Fully taxable equivalent net interest income for 2022 totaled $304.6 million, an increase of $39.9 million, or 15.1%, from 2021. The increase in net interest income was due to an increase in average interest-earning assets, which grew by 14.3% to $8.3 billion and a widening of 3 basis-points in the net interest margin.
The increase in net interest income was due to an increase in average interest-earning assets, which grew by 14.3% to $8.3 billion and a widening of 3 basis-points in the net interest margin. ● Increase in provision for credit losses of $23.3 million.
Diluted earnings per share were $3.01 for 2022, a 6.5% decrease from $3.22 for 2021. The change in net income from 2021 to 2022 was attributable to the following: ● Increased provision for credit losses of $23.2 million.
Diluted earnings per share were $2.07 for 2023, a 31.2% decrease from $3.01 for 2022. The change in net income from 2022 to 2023 was attributable to the following: ● Decrease in net interest income of $47.0 million.
Residential real estate loans totaled $264.7 million as of December 31, 2022, an increase of $9.5 million, or 3.7%, compared to residential real estate loans as of December 31, 2021 of $255.3 million. Consumer loans as of December 31, 2022 totaled $2.3 million compared to $1.9 million as of December 31, 2021.
Residential real estate loans totaled $256 million as of December 31, 2023, a decrease of $9 million, or 3.3%, compared to residential real estate loans as of December 31, 2022 of $265 million. Consumer loans as of December 31, 2023 totaled $1 million compared to $2 million as of December 31, 2022.
In addition, as of December 31, 2022, the Bank had borrowing capacity of $450 million through correspondent banks. As of December 31, 2022, the Bank had aggregate available and unused credit of approximately $949 million, which represents the aforementioned facilities totaling $2.4 billion net of $1.5 billion in outstanding borrowings and letters of credit.
As of December 31, 2023, the Bank had aggregate available and unused credit of approximately $3.3 billion, which represents the aforementioned facilities totaling $4.8 billion net of $1.5 billion in outstanding borrowings and letters of credit. As of December 31, 2023, outstanding commitments for the Bank to extend credit were approximately $1.2 billion.
The higher effective tax rate during 2022 when compared to 2021 and 2020, was the result of a higher percentage of income being derived from taxable sources. The Company expects its effective tax rate to increase in 2023, as a result of the Company’s revenue growth in existing and new markets.
The lower effective tax rate during 2023 when compared to 2022, was the result of a lower percentage of income being derived from taxable sources. The higher effective tax rate during 2022 when compared to 2021 was the result of a higher percentage of income being derived from taxable sources.
Factors considered by the Company in determining individual analysis include payment status and the probability of collecting scheduled principal and interest payments when due.
Factors considered by the Company in determining individual analysis include payment status and the probability of collecting scheduled principal and interest payments when due. Nonaccrual loans that are $250,000 or higher and all purchased credit-deteriorated (PCD) loans are individually analyzed.
Average total deposits increased by $0.6 million, or 9.0%, to $6.8 billion in 2022 from $6.2 billion in 2021 and increased $0.4 million, or 6.9%, to $6.2 billion in 2021 from $5.8 billion in 2020. The increase in total average deposits in 2022 and 2021 was attributable to organic growth.
Average total deposits increased by $765 million, or 11.3%, to $7.5 billion in 2023 from $6.8 billion in 2022 and increased $558 million, or 9.0%, to $6.8 billion in 2022 from $6.2 billion in 2021.
December 31, December 31, December 31, 2022 2021 2020 Commercial (1) $ 1,472,734 $ 1,299,428 $ 1,521,967 Commercial real estate 5,795,228 4,741,590 3,783,550 Commercial construction 574,139 540,178 617,747 Residential real estate 264,748 255,269 322,564 Consumer 2,312 1,886 1,853 Gross loans 8,109,161 6,838,351 6,247,681 Net deferred fees (9,472 ) (9,729 ) (11,374 ) Loans receivable 8,099,689 6,828,622 6,236,307 Allowance for credit losses (90,513 ) (78,773 ) (79,226 ) Net loans receivable $ 8,009,176 $ 6,749,849 $ 6,157,081 (1) Includes PPP loans of $11.4 million and $93.1 million as of December 31, 2022 and December 31, 2021, respectively. -40- Table of Contents The following table sets forth the classification of our gross loans by loan portfolio segment and by fixed and adjustable rate loans as of December 31, 2022 by remaining contractual maturity.
December 31, December 31, December 31, 2023 2022 2021 Commercial (1) $ 1,578,730 $ 1,472,734 $ 1,299,428 Commercial real estate 5,895,545 5,795,228 4,741,590 Commercial construction 620,496 574,139 540,178 Residential real estate 256,041 264,748 255,269 Consumer 1,029 2,312 1,886 Gross loans 8,351,841 8,109,161 6,838,351 Net deferred fees (6,696 ) (9,472 ) (9,729 ) Loans receivable 8,345,145 8,099,689 6,828,622 Allowance for credit losses (81,974 ) (90,513 ) (78,773 ) Net loans receivable $ 8,263,171 $ 8,009,176 $ 6,749,849 (1) Includes PPP loans of $9 million, $11 million and $93 million as of December 31, 2023, December 31, 2022 and December 31, 2021, respectively. -45- Table of Contents 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.
As of December 31, 2022, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $760.0 million, which represented 7.9% of total assets and 9.3% of total deposits and borrowings, compared to $742.1 million as of December 31, 2021, which represented 9.1% of total assets and 10.9% of total deposits and borrowings on such date. -48- Table of Contents The Bank is a member of the Federal Home Loan Bank of New York and, based on available qualified collateral as of December 31, 2022, had the ability to borrow $2.0 billion.
As of December 31, 2023, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $516.3 million, which represented 5.2% of total assets and 6.1% of total deposits and borrowings, compared to $760.0 million as of December 31, 2022, which represented 7.9% of total assets and 9.3% of total deposits and borrowings on such date.
The increase in average total loans is primarily attributable to higher loan originations. -36- Table of Contents Fully taxable equivalent net interest income for 2021 totaled $264.7 million, an increase of $24.8 million, or 10.3%, from 2020.
The increase in average total loans is attributable to higher loan originations. Fully taxable equivalent net interest income for 2022 totaled $304.6 million, an increase of $39.9 million, or 15.1%, from 2022.
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.
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 Bank’s management. -55- Table of Contents 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 following table sets forth the year-to-date average balances and weighted average rates for various types of deposits for 2022, 2021 and 2020. 2022 2021 2020 Balance Rate Balance Rate Balance Rate (dollars in thousands) Demand, noninterest-bearing $ 1,612,040 - $ 1,454,148 - $ 1,195,547 - Demand, interest-bearing & NOW 3,284,866 0.80 % 3,081,899 0.29 % 2,583,590 0.66 % Savings 417,907 0.70 % 369,866 0.31 % 236,318 0.27 % Time 1,449,826 1.47 % 1,300,270 1.14 % 1,792,568 1.94 % Average Total Deposits $ 6,764,639 0.75 % $ 6,206,183 0.52 % $ 5,808,023 0.90 % The following table sets forth the distribution of total deposit accounts, by account types for each of the dates indicated.
Year-to-Date Average December 31, 2023 Year-to-Date Average December 31, 2022 Year-to-Date Average December 31, 2021 Balance Rate Balance Rate Balance Rate (dollars in thousands) Demand, noninterest-bearing $ 1,332,809 - $ 1,612,040 - $ 1,454,148 - Demand, interest-bearing & NOW 3,292,907 3.17 % 3,284,866 0.80 % 3,081,899 0.29 % Savings 374,189 2.37 417,907 0.70 369,866 0.31 Time 2,529,892 3.67 1,449,826 1.47 1,300,270 1.14 Average Total Deposits $ 7,529,797 2.74 % $ 6,764,639 0.75 % $ 6,206,183 0.52 % The following table sets forth information related to the uninsured deposit balances of the Bank.
Capital amounts and classifications are also subject to qualitative judgments by the bank regulators regarding capital components, risk weightings, and other factors. 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.
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 release of allowance for credit losses during the year ended December 31, 2021 was the result of the continually improving macro-economic outlook during the course of 2021. Noninterest Income Noninterest income for the full-year 2022 decreased by $2.4 million, or 15.6%, to $13.2 million from $15.7 million in 2021.
Noninterest income for the full-year 2022 decreased by $2.4 million, or 15.6%, to $13.2 million from $15.7 million in 2021.
The decrease was primarily due to decreases in net gains on loans held for sale of $2.1 million, gains on sale of branches of $0.7 million, net gains on sale/redemption of investment securities of $0.2 million and an increase in net losses on equity securities of $1.1 million, partially offset by increases in deposit, loan and other income of $0.9 million and income on bank owned life insurance of $0.8 million. -38- Table of Contents Noninterest income for the full-year 2021 increased by $1.3 million, or 9.0%, to $15.7 million from $14.4 million in 2020.
The increase was primarily due to decreases in net losses on equity securities of $1.4 million and increases in income on bank owned life insurance of $0.7 million, partially offset by decreases in deposit, loan and other income of $1.4 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Sensitivity Market Risk Interest rate risk management is our primary market risk. See “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operation- Interest Rate Sensitivity Analysis” herein for a discussion of our management of our interest rate risk. -52- Table of Contents PART II
Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Sensitivity Market Risk Interest rate risk management is our primary market risk. See “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operation- Interest Rate Sensitivity Analysis” herein for a discussion of our management of our interest rate risk. -66- Table of Contents PART II

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