ConnectOne Bancorp, Inc.: Form 10-Q for the period ended Sep 30, 2026

The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company’s results of operations for the periods presented herein and financial condition as of September 30, 2026 and December 31, 2025. In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.

Cautionary Statement Concerning Forward-Looking Statements

This report includes forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, that involve inherent risks and uncertainties. This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of ConnectOne Bancorp, Inc. and its subsidiaries, including statements preceded by, followed by, or that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions may increase significantly; (2) changes in the interest rate environment may reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and credit loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable than expected or may be adversely affected by policy uncertainties, including regarding the impact of tariffs; (5) political developments, sovereign debt problems, wars or other hostilities such as the ongoing conflict between Ukraine and Russia and the United States and Iran, and instability in the Middle East, may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions may adversely affect the businesses in which ConnectOne Bancorp is engaged or the business of our clients, such as changes affecting the owners of rent stabilized multi-family buildings in New York City; (7) changes and trends in the securities markets may adversely impact ConnectOne Bancorp; (8) a delayed or incomplete resolution of regulatory issues could adversely impact planning by ConnectOne Bancorp; (9) the impact on reputation risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant; (10) the outcome of regulatory and legal investigations and proceedings may not be anticipated, and (11) the impact of health emergencies or natural disasters on our employees and operations, and those of our customers. Further information on other factors that could affect the financial results of ConnectOne Bancorp is included in Item 1a. of ConnectOne Bancorp’s Annual Report on Form 10-K as amended and updated in ConnectOne Bancorp’s other filings with the Securities and Exchange Commission. These documents are available free of charge at the Commission’s website at http://www.sec.gov and/or from ConnectOne Bancorp, Inc.

Critical Accounting Policies and Estimates

Our accounting policies are integral to understanding the results reported. We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. As of September 30, 2026, there have been no material changes to our critical accounting policies as compared to the critical accounting policies disclosed in our most recent Annual Report on Form 10-K. Reference is made to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Balance Sheet Restructuring and Repositioning

During the third quarter of 2026, the Company completed a strategic review of its balance sheet and identified a pool of non-relationship multifamily loans to be sold with an unpaid principal balance of $753.7 million. As a result, in October 2026 the Company entered into an agreement to sell this pool to a single third-party purchaser, subject to adjustment as provided for under the transaction agreements.

The loan pool was transferred to held-for-sale, at the lower of cost or fair value of $678.9 million as of September 30, 2026, resulting in a $23.0 million pretax loss on loans held-for-sale, recorded in noninterest income. This charge reflects the gross discount related to the sale price, substantially offset by both interest-rate and credit purchase accounting marks previously recorded on The First National Bank of Long Island-originated loans, as part of the merger with The First of Long Island Corporation. The recognized loss on the pool is attributed to increases in market interest rates since the loans were originated. In connection with the transfer, the Company charged off $22.2 million of allowance for credit losses previously established on PCD loans in the pool; no additional provision for credit losses was required.

On October 29, 2026, the Company completed the sale of $690.2 million in unpaid principal balance of loans from the pool. Loans secured by New York City rent-stabilized properties represented approximately 61% of the pool, while approximately 31% of the pool was originated by the Bank and approximately 69% by FLIC. Loans with an unpaid principal balance of $61.4 million were excluded from the sale as provided for under the transaction agreements and remain in loans held-for-sale. The Company expects to recognize transaction costs of approximately $7 million to $8 million in the fourth quarter of 2026. The majority of the net proceeds is expected to be reinvested in government-guaranteed securities at yields similar to those of the loans sold, with the remainder used to pay down wholesale funding. The sale reduces the Company’s concentrations in CRE and New York City rent-stabilized loans and strengthens the Bank’s liquidity position. On a pro forma basis for the sale at September 30, 2026, the Bank’s regulatory CRE concentration ratio would decline to approximately 403%, from 444%. Exposure to New York City rent-stabilized loans would decline by 59% to approximately $271.0 million proforma at September 30, 2026 from approximately $656.4 million at June 30, 2026.

Operating Results Overview

Net income available to common stockholders for the three months ended September 30, 2026 was $29.9 million, compared to $39.5 million for the prior-year period. The Company’s diluted earnings per share was $0.59 for the three months ended September 30, 2026 compared with $0.78 for the prior-year period. Results for the third quarter of 2026 include a pretax loss of $23.0 million on the transfer of loans held-for-sale. The $9.6 million decrease in net income available to common stockholders and the $0.19 decrease in diluted earnings per share resulted mainly from a $33.9 million decrease in noninterest income, primarily reflecting the $23.0 million pretax loss on the transfer of loans held-for-sale described above. This was partially offset by a $15.3 million increase in net interest income, a $5.2 million decrease in income tax expense, a $3.3 million decrease in noninterest expenses and a $0.5 million decrease in the provision for credit losses. The decrease in noninterest income also reflects $10.1 million of non-recurring income recognized in the third quarter of 2025, consisting of $6.6 million in employee retention tax credit ("ERTC") and a $3.5 million defined benefit pension plan curtailment gain.

Net income available to common stockholders for the nine months ended September 30, 2026 was $106.4 million, compared to $36.4 million for the prior-year period. The Company’s diluted earnings per share were $2.10 for the nine months ended September 30, 2026 compared with $0.83 for the prior-year period. Results for the nine months ended September 30, 2026 include the $23.0 million pretax loss on the transfer of loans held-for-sale recognized in the third quarter of 2026. The $70.0 million increase in net income available to common stockholders and the $1.27 increase in diluted earnings per share resulted mainly from a $93.1 million increase in net interest income, a $26.2 million decrease in provision for credit losses and a $3.0 million decrease in noninterest expenses. This was partially offset by a $28.8 million decrease in noninterest income and a $23.5 million increase in income tax expense. The decrease in noninterest income was mainly attributable to the $23.0 million pretax loss described above. It also reflected $10.1 million of non-recurring income recognized in the third quarter of 2025, consisting of $6.6 million in employee retention tax credit ("ERTC") and a $3.5 million defined benefit pension plan curtailment gain.

Net Interest Income and Margin

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

Fully taxable equivalent net interest income for the three months ended September 30, 2026 was $118.5 million, an increase of $15.4 million, or 14.9%, from the prior-year period. The increase was due to a 33 basis-point widening of the net interest margin to 3.44% from 3.11%, and a 3.9% increase in average interest earning assets. The wider margin reflected a 15 basis-point increase in the yield on interest-earning assets and a 17 basis-point decrease in the average cost of deposits, including noninterest-bearing deposits.

Fully taxable equivalent net interest income for the nine months ended September 30, 2026 was $343.4 million, an increase of $93.8 million, or 37.6%, from prior-year period. The increase was due to a 38 basis-point widening of the net interest margin to 3.42% from 3.04%, and a 22.5% increase in average interest-earning assets. The margin also benefited from a 16 basis-point increase in the yield on interest-earning assets and a 31 basis-point decrease in the average costs of deposits, including noninterest-bearing deposits. The increase in average interest-earning assets mainly reflects the inclusion of FLIC’s results for the full nine months ended September 30, 2026, compared with approximately four months in the prior-year period following the completion of the merger on June 1, 2025.

The following tables present for the three and nine months ended September 30, 2026 and 2025, the Company’s average assets, liabilities and stockholders’ equity. The Company’s net interest income, net interest spread and net interest margin are also reflected.

Average Statements of Condition with Interest and Average Rates

(dollars in thousands)

(1) Average balances are based on amortized cost and include equity securities.

(2) Interest income is presented on a tax-equivalent basis using a 21% assumed tax rate.

(3) Includes loan fee income and accretion of purchase accounting adjustments.

(4) Total loans include loans held-for-sale and nonaccrual loans.

(5) Represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a tax-equivalent basis.

(6) Represents net interest income on a tax-equivalent basis divided by average total interest-earning assets.

(7) Rates are annualized.

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(dollars in thousands)

(1) Average balances are based on amortized cost and include equity securities.

(2) Interest income is presented on a tax-equivalent basis using a 21% assumed tax rate.

(3) Includes loan fee income and accretion of purchase accounting adjustments.

(4) Total loans include loans held-for-sale and nonaccrual loans.

(5) Represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a tax-equivalent basis.

(6) Represents net interest income on a tax-equivalent basis divided by average total interest-earning assets.

(7) Rates are annualized.

61

Noninterest Income

Noninterest income was a net loss of $14.5 million for the three months ended September 30, 2026, compared with income of $19.4 million for the prior-year period. Noninterest income for the third quarter of 2026 included the $23.0 million pretax loss on the transfer of loans held-for-sale described above. Noninterest income for the third quarter of 2025 included $10.1 million of non-recurring income, consisting of $6.6 million in ERTC and a $3.5 million defined benefit pension plan curtailment gain. Excluding these items, noninterest income decreased $0.8 million from the prior-year period. The decrease was mainly due to a $1.8 million decrease in net gains on equity securities, which went from a net gain of $1.7 million to a net loss of $0.2 million, and a $0.5 million decrease in deposit, loan and other income. These were partially offset by a $1.2 million increase in BOLI income, driven by death benefits recorded in the third quarter of 2026, and a $0.3 million increase in net gains on sale of loans held-for-sale, primarily SBA loans.

Noninterest income totaled $0.2 million for the nine months ended September 30, 2026, compared with $29.0 million for prior-year-period. Noninterest income for the nine months ended 2026 included the aforementioned $23.0 million pretax restructuring charge and in 2025 the $10.1 million in non-recurring gains discussed above. Excluding these items noninterest income increased by $4.3 million compared to the prior-year period. The increase was primarily due to a $3.5 million increase in BOLI income, a $1.9 million increase in net gains on sale of loans held-for-sale, and a $1.5 million increase in deposit, loan and other income, partially offset by a decrease of $2.6 million in net gains on equity securities. Similarly, growth across these noninterest income categories was primarily attributable to operating the expanded franchise for the full nine-month period in 2026 compared to just four months of FLIC activity in the prior-year period.

Noninterest Expenses

Noninterest expenses totaled $55.4 million for the three months ended September 30, 2026, compared with $58.7 million for the prior-year period. Noninterest expenses for the third quarter of 2025 included $2.9 million in merger, restructuring and exit charges. Excluding these charges, noninterest expenses were $55.4 million for the third quarter of 2026, down $0.4 million from $55.8 million in the prior-year period. Key drivers of the decrease included a $0.9 million decrease in FDIC insurance expense, a $0.4 million decrease in amortization of core deposit intangibles, a $0.2 million decrease in occupancy and equipment expenses and a $0.1 million decrease in other expenses, partially offset by a $0.5 million increase in salaries and employee benefits, a $0.3 million increase in professional and consulting expenses and a $0.2 million increase in marketing and advertising expenses.

Noninterest expenses totaled $168.7 million for the nine months ended September 30, 2026, compared with $171.6 million for the prior-year period. Noninterest expenses for the nine months ended September 30, 2026 included $2.2 million in merger, restructuring and exit charges, compared with $35.3 million in merger, restructuring and exit charges, including a $0.3 million BOLI restructuring charge, in the prior-year period. Excluding these charges, noninterest expenses were $166.4 million for the nine months ended September 30, 2026, up $30.1 million from $136.3 million in the prior-year period. The increase was primarily driven by the inclusion of FLIC’s operations for the full nine months of 2026, compared with approximately four months in the prior-year period. Key drivers of the increase included a $17.0 million increase in salaries and employee benefits, a $4.6 million increase in occupancy and equipment expenses, a $3.8 million increase in amortization of core deposit intangibles, a $2.0 million increase in other expenses, a $1.6 million increase in professional and consulting expenses, a $1.3 million increase in information technology and communications expenses and a $0.8 million increase in marketing and advertising expenses, partially offset by a $1.0 million decrease in FDIC insurance expense.

The Company expects noninterest expenses in the fourth quarter of 2026 to increase from the third quarter of 2026, reflecting normal operating growth, as well as the transaction costs of approximately $7 million to $8 million related to the loan sale described above under “Balance Sheet Restructuring and Repositioning.”

Income Taxes

Income tax expense was $11.0 million for the three months ended September 30, 2026, compared with $16.3 million for the prior-year period. The effective tax rate was 26.0% for the third quarter of 2026, compared with 28.4% for the prior-year period. The decrease in income tax expense and the effective tax rate was primarily due to lower taxable income resulting from the loss on loans held-for-sale related to the balance sheet restructuring.

Income tax expense was $41.9 million for the nine months ended September 30, 2026, compared with $18.4 million for the prior-year period. The effective tax rate was 27.4% for the nine months ended September 30, 2026, compared with 31.1% for the prior-year period. The $23.5 million increase in income tax expense was primarily due to higher pretax income, which was $152.8 million compared with $59.4 million in the prior-year period. This was partially offset by the effect of the loss on loans held-for-sale related to the balance sheet restructuring. Income tax expense for the prior-year period included a $3.0 million estimated state tax liability resulting from intercompany dividends. Excluding that charge, the effective tax rate for the prior-year period was 26.0%.

On June 30, 2026, the Company entered into an agreement committing up to $50.0 million to a renewable energy tax equity fund. The investment is expected to generate economic returns as well as federal investment tax credits (“ITCs”) and other tax benefits, and is accounted for under the proportional amortization method (see Note 5). During the three months ended September 30, 2026, the Company funded a $6.0 million capital call, reducing its unfunded commitment to $44.0 million. As of September 30, 2026, none of the underlying renewable energy projects had been placed in service. As a result, no tax credits, tax benefits or proportional amortization were recognized in the Consolidated Statements of Income for the three or nine months ended September 30, 2026. The Company has incorporated the anticipated 2026 tax credits and net benefits from this investment into its estimated annual effective tax rate for 2026. The Company expects the underlying projects to be placed in service in tranches during the fourth quarter of 2026. Remaining capital contributions, tax credits and proportional amortization will be recognized as each tranche is placed in service.

Financial Condition

Loan Portfolio

The following table sets forth the composition of our loan portfolio, excluding loans held-for-sale and net deferred loan fees, by loan segment at the periods indicated.

(dollars in thousands)

As of September 30, 2026, gross loans totaled $11.4 billion, a decrease of $21.9 million, or 0.2%, compared to December 31, 2025. During the third quarter of 2026, in connection with the balance sheet restructuring and repositioning (see “Balance Sheet Restructuring and Repositioning” above), the Company transferred multifamily loans, included in commercial real estate, with an amortized cost of $701.9 million to loans held-for-sale. The transfer followed charge-offs of $22.2 million of allowance for credit losses on PCD loans in the pool. Excluding the transferred loans and related charge-offs, gross loans increased $702.2 million, or 6.1%, compared to December 31, 2025. The increase was primarily due to a $651.0 million increase in commercial real estate loans and a $91.0 million increase in commercial loans, partially offset by a $38.2 million decrease in commercial construction loans.

Loans held-for-sale totaled $678.9 million as of September 30, 2026, compared to $0.4 million as of December 31, 2025. The loans transferred to held-for-sale had an unpaid principal balance of $753.7 million, net of purchase accounting marks of $29.6 million and PCD charge-offs of $22.2 million. They are carried at the lower of cost or fair value, which resulted in a $23.0 million write-down recorded in noninterest income. Loans held-for-sale are excluded from the loan portfolio tables above and from the allowance for credit losses.

While the previous table reflects the classification of our loans by loan portfolio segment, the following table presents further disaggregation of our commercial real estate portfolio along with applicable weighted average loan-to-value ratios, typically determined at loan origination.

(dollars in thousands)

The decrease in multifamily loans, primarily in New York, reflects the transfer of multifamily loans with an unpaid principal balance of $753.7 million to loans held-for-sale during the third quarter of 2026 in connection with the balance sheet restructuring and repositioning.

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

(dollars in thousands)

(dollars in thousands)

(dollars in thousands)

65

(dollars in thousands)

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

(dollars in thousands)

(dollars in thousands)

66

Allowance for Credit Losses and Related Provision

The ACL is an estimate of current expected credit losses considering available information relevant to assessing collectability of cash flows over the contractual term of the financial assets necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The methodology for determining the ACL is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded ACL. The loan portfolio also represents the largest asset type on the Company’s Consolidated Statements of Financial Condition.

As of September 30, 2026, the Company’s ACL was $120.6 million, a decrease of $33.7 million from $154.3 million as of December 31, 2025. The decrease was primarily due to a $30.2 million decrease in nonaccretable credit marks on PCD loans. That decrease mainly reflects the charge-off of $22.2 million of allowance on PCD loans transferred to loans held-for-sale in connection with the balance sheet restructuring and repositioning. These PCD charge-offs related to allowances established in connection with the FLIC merger and required no additional provision for credit losses. Excluding nonaccretable credit marks, the ACL decreased $3.5 million, to $108.8 million, as non-PCD net charge-offs exceeded the provision for credit losses on loans. The ACL represented 1.06% of loans receivable as of September 30, 2026, compared to 1.35% as of December 31, 2025.

The provision for credit losses, which includes a provision for unfunded commitments, was $5.0 million and $18.5 million for the three and nine months ended September 30, 2026, respectively, compared with $5.5 million and $44.7 million in the comparable prior-year periods. Included in the provision for credit losses for the nine months ended September 30, 2025 was $27.4 million in initial provision for credit losses related to the FLIC merger. In each of the 2026 periods, the provision for credit losses reflected charge-offs, specific reserves on individually evaluated loans, organic loan growth and changing macroeconomic forecasts and conditions.

Net charge-offs were $24.5 million and $52.1 million for the three and nine months ended September 30, 2026, respectively, compared with $5.1 million and $13.5 million for the prior-year periods. Net charge-offs for the three and nine months ended September 30, 2026 included $22.2 million of charge-offs on loans transferred to loans held-for-sale in connection with the balance sheet restructuring and repositioning. These were PCD loans for which an allowance had previously been established in connection with the FLIC merger, and the charge-offs required no additional provision for credit losses. Excluding these charge-offs, net charge-offs were $2.2 million and $29.9 million for the three and nine months ended September 30, 2026, respectively. Of the $29.9 million in charge-offs, $27.0 million related to New York City multifamily loans secured by rent-stabilized properties, primarily in the second quarter of 2026.

The level of the allowance for the respective periods of 2026 and 2025 reflects the credit quality within the loan portfolio, expected loan maturity dates, the changing composition of the commercial and residential real estate loan portfolios, including the transfer of multifamily loans to loans held-for-sale in the third quarter of 2026, and other related factors. In management’s view, the level of the ACL as of September 30, 2026 is adequate to cover expected credit losses over the contractual term of the loan portfolio. Management’s judgment regarding the adequacy of the allowance constitutes a “Forward-Looking Statement” under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the allowance.

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

(dollars in thousands)

(dollars in thousands)

68

(dollars in thousands)

69

(dollars in thousands)

70

Asset Quality

The Company manages credit risk and portfolio quality through its underwriting standards, periodic credit reviews and ongoing monitoring of delinquencies, risk ratings and portfolio trends. Management seeks to identify deteriorating credits early and to recognize charge-offs on a timely basis, based on assessments of expected cash flows and the value of underlying collateral, while maintaining an adequate ACL.

As a matter of policy, loans are generally placed on nonaccrual status when principal or interest payments become 90 days past due, unless the loan is both well-secured and in the process of collection. Loans may be placed on nonaccrual status earlier when management determines that collection of all principal and interest is not expected. When a loan is placed on nonaccrual status, interest recognition ceases and previously accrued but uncollected interest is reversed against interest income. Payments received on nonaccrual loans are generally applied to reduce principal. Loans are returned to accrual status when all delinquent amounts are brought current and the borrower has demonstrated sustained repayment performance, generally for a period of at least six months.

Nonperforming assets consist of nonaccrual loans and other real estate owned (“OREO”). The Company had no OREO at the periods presented. Loans 90 days or greater past due and still accruing represent loans that are both well-secured and in the process of collection, as well as PCD loans, net of fair value marks, which accrete income based on the valuation at the date of acquisition. The Company considers charging off loans, or a portion thereof, at the time it deems it has exhausted all means of collection. Nonperforming assets exclude loans held-for-sale.

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

(dollars in thousands)

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

Nonaccrual loans increased $18.4 million to $64.3 million as of September 30, 2026, from $45.9 million as of December 31, 2025. The increase was primarily driven by a group of New York City multifamily loans secured by rent-stabilized properties, which added $29.9 million (net of charge-offs) to nonaccrual loans during the second quarter of 2026 and remained on nonaccrual as of September 30, 2026. This increase was partially offset by work-out loan sales, charge-offs, payoffs and paydowns, net of other additions to nonaccrual loans. None of the loans transferred to loans held-for-sale were on nonaccrual status, and nonperforming assets exclude loans held-for-sale.

Purchased Credit-Deteriorated Loans

As of September 30, 2026, the Company’s recorded investment in PCD loans totaled $71.0 million, compared to $193.4 million as of June 30, 2026. The decrease was primarily due to the transfer of PCD loans with an amortized cost of $120.4 million to loans held-for-sale during the third quarter of 2026, in connection with the balance sheet restructuring and repositioning described above. PCD loans are acquired loans that, at the time of acquisition, had experienced a more-than-insignificant deterioration in credit quality since origination. In identifying PCD loans at the time of the FLIC merger, the Company, with the assistance of independent third-party loan review experts, considered factors including nonperforming status, payment history and delinquency, risk rating, debt service coverage and rate repricing risk. The Company’s remaining PCD loans consist of multifamily, commercial real estate, commercial and residential real estate loans.

As of September 30, 2026, PCD loans included $28.1 million of loans secured by multifamily properties located in the five boroughs of New York City that are entirely or predominantly rent-stabilized, compared to $146.3 million of such loans as of June 30, 2026. The decrease was primarily due to the transfer of PCD loans to loans held-for-sale described above. Rent-stabilized multifamily properties are subject to particular stressors, including the 2019 New York rent laws, which restricted rent increases in an environment of rising operating expenses. In addition, in June 2026, the New York City Rent Guidelines Board approved 0% rent adjustments for both one-year and two-year leases on rent-stabilized apartments commencing between October 1, 2026 and September 30, 2027. These factors may adversely affect the cash flows and values of these properties and, in turn, borrowers’ ability to service their loans. These conditions also affect certain non-PCD multifamily loans secured by rent-stabilized properties, including those placed on nonaccrual status during the second quarter of 2026.

The determination of PCD classification and the related allowance at acquisition involved significant judgment, including assumptions about expected remaining life, default rates, recoveries and economic scenarios. The Company continues to monitor the performance of the remaining PCD portfolio as part of its quarterly credit review process.

Investment Securities

As of September 30, 2026, the principal components of the securities portfolio were federal agency obligations, mortgage-backed securities, obligations of U.S. states and political subdivisions, corporate bonds and notes, asset-backed securities and equity securities. For the three months ended September 30, 2026, average securities, on an amortized cost basis, increased by $31.8 million to $1.4 billion, or 10.1% of average total interest-earning assets, compared to $1.4 billion, or 10.3% of average interest-earning assets, for the prior-year period. For the nine months ended September 30, 2026, average securities, on an amortized cost basis increased by $308.8 million to approximately $1.3 billion, or 9.9% of average total interest-earning assets, from approximately $1.0 billion, or 9.3% of average interest-earning assets, for the nine months ended September 30, 2025.

As of September 30, 2026, net unrealized losses on available-for-sale securities, which are carried as a component of accumulated other comprehensive loss and included in stockholders’ equity, net of tax, amounted to $95.8 million as compared with net unrealized losses of $40.7 million as of December 31, 2025. The increase in net unrealized losses is predominantly 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 issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an ACL is recognized in OCI, net of applicable taxes. The Company did not record an ACL for available-for-sale securities as of September 30, 2026.

Interest Rate Sensitivity Analysis

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

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

We currently utilize net interest income simulation and economic value of equity (“EVE”) models to measure the potential impact to the Bank of future changes in interest rates. As of September 30, 2026 and December 31, 2025, the results of the models were within guidelines prescribed by our Board of Directors. If model results were to fall outside prescribed ranges, action, including additional monitoring and reporting to the Board, would be required by the ALCO and the Bank’s management.

The net interest income simulation model attempts to measure the change in net interest income over the next one-year period, and over the next three-year period on a cumulative basis, assuming certain changes in the general level of interest rates. The model also utilizes immediate and parallel shifts in market interest rates as of September 30, 2026.

Based on our model, which was run as of September 30, 2026, we estimated that over the next one-year period a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 9.25%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 4.28%. As of December 31, 2025, we estimated that over the next one-year period a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 4.95% while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 3.06%.

Based on our model, which was run as of September 30, 2026, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous and parallel increase in the general level of interest rates would increase our net interest income by 5.15%, while a 100 basis-point instantaneous and parallel decrease in interest rates would decrease net interest income by 1.36%. As of December 31, 2025, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 0.32%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 1.04%.

An EVE analysis is also used to dynamically model the present value of asset and liability cash flows with instantaneous and parallel rate shocks of up 200 basis-points and down 100 basis-points. The EVE is likely to be different as interest rates change. Our EVE as of September 30, 2026, would decrease by 10.33% with an instantaneous and parallel rate shock of up 200 basis-points, and increase by 2.40% with an instantaneous and parallel rate shock of down 100 basis-points. Our EVE as of December 31, 2025, would decrease by 7.12% with an instantaneous and parallel rate shock of up 200 basis-points, and increase by 0.28% with an instantaneous and parallel rate shock of down 100 basis-points.

The change in interest rate sensitivity from December 31, 2025 was primarily impacted by changes in overall market interest rates, growth in fixed-rate loans, an increase in short-term wholesale funding and updates to certain model assumptions. The September 30, 2026 results include the multifamily loans classified as held-for-sale, and do not reflect the subsequent sale of those loans or the planned reinvestment of the proceeds and repayment of wholesale funding.

The following table illustrates the most recent results for EVE and one-year net interest income ("NII") sensitivity as of September 30, 2026.

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

Estimates of Fair Value

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

Impact of Inflation and Changing Prices

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

Liquidity

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

Liquidity and funding needs are managed through the Bank's Treasury functions and the Asset Liability Committee. An internal policy addresses liquidity and funds management and management monitors the adherence to policy limits to satisfy current and potential future cash flow needs. The policy includes internal limits, deposit concentrations, liquidity sources and availability, stress testing, collateral management, contingency funding plan and other qualitative and quantitative metrics.

As of September 30, 2026, 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 September 30, 2026, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $1.0 billion, which represented 6.9% of total assets and 7.9% of total deposits and borrowings, compared to $874.4 million as of December 31, 2025, which represented 6.2% of total assets and 7.2% of total deposits and borrowings. As of September 30, 2026, not included in the above liquid assets were securities with a market value of $84.7 million which were pledged to the FHLB and securities with a market value of $117.0 million which were pledged to the Federal Reserve Bank of New York, which supported aggregate unutilized borrowing capacity of $191.4 million and $223.3 million, respectively as of September 30, 2026 and December 31, 2025.

The Bank is a member of the FHLB of New York and, based on available qualified collateral as of September 30, 2026, had the ability to borrow $3.8 billion. The Bank also has a credit facility established with the Federal Reserve Bank of New York for direct discount window borrowings based on pledged collateral and had the ability to borrow $2.9 billion as of September 30, 2026. In addition, as of September 30, 2026, the Bank had in place borrowing capacity of $280.0 million through correspondent banks and other unsecured borrowing lines. As of September 30, 2026, the Bank had aggregate available and unused credit of approximately $5.2 billion, which represents the aforementioned facilities totaling $7.0 billion net of $1.8 billion in outstanding borrowings and letters of credit. As of September 30, 2026, outstanding commitments for the Bank to extend credit were approximately $1.7 billion.

Cash and cash equivalents totaled $313.3 million as of September 30, 2026, decreasing by $67.6 million from $380.9 million as of December 31, 2025. Operating activities provided $135.2 million in net cash. Investing activities used $869.9 million in net cash, a net increase in loans of $704.8 million and investment purchases of $376.5 million and were partially offset by investment maturities, calls and principal repayments of $226.3 million. Financing activities provided $667.2 million in net cash, primarily reflecting a net increase in deposits of $537.4 million and FHLB net borrowings of $168.9 million.

Deposits

Deposits serve as our primary source of funding. The Company offers a comprehensive suite of products including noninterest-bearing demand, interest-bearing checking, money market, and savings accounts, as well as time deposits with maturities generally ranging from 31 days to 60 months. We supplement core funding with brokered certificates of deposit and internet listing service deposits for asset-liability management purposes.

To support clients with balances exceeding standard FDIC insurance limits, we utilize reciprocal deposit networks. This includes the IntraFi Network LLC for the placement of Certificate of Deposit Account Registry Service ("CDARS") and Insured Cash Sweep ("ICS") accounts, as well as the National Bank InterDeposit Company (“NBID”) network, operated by ModernFi. Through these networks, large-dollar deposits are placed into accounts at other participating banks in increments below the FDIC insurance limit to ensure full principal and interest coverage.

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

(dollars in thousands)

Average total deposits increased by $287.5 million, or 2.5%, during the three months ended September 30, 2026 when compared to the prior-year period. The increase was due to a $370.2 million increase in interest-bearing demand and NOW deposits and a $23.9 million increase in noninterest-bearing demand deposits, partially offset by a $99.5 million decrease in time deposits and a $7.0 million decrease in savings deposits. The average cost of total deposits, including noninterest-bearing deposits, decreased 17 basis points to 2.45% from 2.62%.

The decrease in average time deposits of $99.5 million during the three months ended September 30, 2026 was primarily due to a $245.5 million decrease in nonreciprocal brokered certificates of deposit and a $22.7 million decrease in listing service deposits, partially offset by a $167.6 million increase in retail time deposits and a $1.1 million increase in CDARS reciprocal deposits. Average nonreciprocal brokered certificates of deposit included in total time deposits were $706.6 million and $952.1 million during the three months ended September 30, 2026 and 2025, respectively.

Average demand deposits included $1.2 billion and $1.1 billion in ICS and ModernFi reciprocal deposits in the aggregate during the three months ended September 30, 2026 and 2025, respectively.

(dollars in thousands)

Average total deposits increased $2.2 billion, or 23.6%, during the nine months ended September 30, 2026 when compared to the prior-year period. The increase was due to a $1.2 billion increase in interest-bearing demand and NOW deposits, a $611.8 million increase in noninterest-bearing demand deposits, a $215.0 million increase in time deposits and a $182.6 million increase in savings deposits. The increases primarily reflect the inclusion of FLIC’s deposits for the full nine months of 2026, compared with approximately four months in the prior-year period. The average cost of total deposits, including noninterest-bearing deposits, decreased 31 basis points to 2.41% from 2.72%.

The increase in average time deposits of $215.0 million during the nine months ended September 30, 2026 was primarily due to a $344.5 million increase in retail time deposits, partially offset by a $124.4 million decrease in nonreciprocal brokered certificates of deposit, a $4.7 million decrease in CDARS reciprocal deposits and a $0.4 million decrease in listing service deposits. Average nonreciprocal brokered certificates of deposit included in total time deposits were $793.4 million for the nine months ended September 30, 2026, compared to $917.8 million for the prior-year period.

Average aggregate demand deposits included $1.2 billion and $1.1 billion in ICS and ModernFi reciprocal deposits in the aggregate during the nine months ended September 30, 2026 and September 30, 2025, respectively.

The deposit beta, a measure of the sensitivity of deposit rates to changes in market interest rates, is generally higher for nonreciprocal brokered certificates of deposit than for ICS, ModernFi and CDARS reciprocal deposits. Nonreciprocal brokered deposits are more directly tied to prevailing market rates, while reciprocal deposits generally reflect client relationships in which FDIC insurance coverage, rather than yield, is the primary consideration.

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

(dollars in thousands)

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

(dollars in thousands)

Total deposits increased $537.7 million, or 4.8%, as of September 30, 2026, compared to December 31, 2025. The increase was due to a $322.7 million increase in time deposits, a $251.0 million increase in interest-bearing demand and NOW deposits and a $59.2 million increase in noninterest-bearing demand deposits, partially offset by a $95.2 million decrease in savings deposits.

Demand deposits included $1.3 billion and $1.2 billion in ICS and ModernFi reciprocal deposits in the aggregate as of September 30, 2026 and December 31, 2025, respectively.

Nonreciprocal brokered certificates of deposit included in total time deposits were $842.6 million and $723.4 million as of September 30, 2026 and December 31, 2025, respectively.

As of September 30, 2026, we held $1.2 billion of time deposits with balances greater than $250,000. The following table provides information on the maturity distribution of the time deposits with balances greater than $250,000 as of September 30, 2026:

(dollars in thousands)

78

Subordinated Debentures

During December 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly-owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034. The trust loaned the proceeds of this offering to the Parent Corporation and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures. The subordinated debentures are redeemable in whole or part prior to maturity. Upon the cessation of publication of LIBOR rates and pursuant to the Federal LIBOR Act and Federal Reserve regulations implementing the Act, the MMCapS capital securities converted as of June 30, 2023 to a new index based on CME Term SOFR, as defined in the LIBOR Act, plus a tenor spread adjustment, which is referred to as the Benchmark Replacement. Effective for quarterly interest rate resets after July 3, 2023 the subordinated debentures' floating rate will be three-month CME Term SOFR plus 2.85% plus a tenor spread adjustment of 0.26161%. The rate as of September 30, 2026 was 6.95%.

During May 2025, the Parent Corporation issued $200 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "2025 Notes"). The 2025 Notes bear interest at 8.125% annually from, and including, the date of initial issuance up to but excluding June 1, 2030 or the date of earlier redemption, payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2025. From and including June 1, 2030 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate, which is Three-Month Term SOFR, plus 441.5 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing on September 1, 2030. Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero.

Stockholders’ Equity

The Company’s stockholders’ equity increased by $25.3 million when compared to December 31, 2025. The increase in total stockholders’ equity was primarily due to an increase in retained earnings of $77.7 million, partially offset by an increase in accumulated other comprehensive loss of $51.0 million. As of September 30, 2026, the Company’s tangible common equity ratio and tangible book value per share were 8.38% and $24.19, respectively, compared to 8.62% and $23.52, respectively, as of December 31, 2025. Total goodwill and other intangible assets were $271.6 million as of September 30, 2026, and $280.2 million as of December 31, 2025.

In accordance with its terms, the dividend rate on the Company’s 5.25% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A, reset on September 1, 2026, for the first five-year reset period. For each five-year reset period, the dividend rate equals the average of the yields to maturity on actively traded U.S. treasury securities, adjusted to constant maturity, for five-year maturities, for the five business days prior to and including the reset date, which is three business days prior to the reset date, appearing under the caption “Treasury Constant Maturities” in the most recently published statistical release designated H.15 Daily Update or any successor publication which is published by the Federal Reserve Board, plus 4.42%. As a result, the dividend rate reset from 5.25% to 8.81% per annum, effective for dividend periods beginning September 1, 2026, and will remain at that rate until the next reset date of September 1, 2031.

In October 2026, the Board of Directors declared the first quarterly dividend at the reset rate of $0.556620 per depositary share, or approximately $2.6 million, payable on December 1, 2026. Dividends on the Series A preferred stock are non-cumulative and are payable only when, as and if declared by the Board of Directors.

The following table reconciles common equity to tangible common equity and the tangible common equity ratio.

(dollars in thousands, except for per share data)

(1) Tangible common equity ratio is tangible common equity divided by tangible assets and is a non-GAAP measure.

Regulatory Capital and Capital Adequacy

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

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

The following is a summary of regulatory capital amounts and ratios as of September 30, 2026 for the Company and the Bank, compared with minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized depository institution (for the Bank).

(dollars in thousands)

N/A - not applicable

(dollars in thousands)

As of September 30, 2026, both the Company and Bank satisfy the capital conservation buffer requirements applicable to them. The lowest ratio at the Company is the Tier 1 Risk Based Capital Ratio which was 2.51 percentage points above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was 2.49 percentage points above the minimum buffer ratio.

Market Risk

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

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

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

There have been no material changes to the risks inherent in our business from those described under Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2025.