Loans and the Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

Loans Receivable: The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred fees, as of December 31, 2019 and December 31, 2018:

	2019		2018
	(dollars in thousands)
Commercial	$	1,129,661	$	988,758
Commercial real estate		3,041,959		2,778,167
Commercial construction		623,326		465,389
Residential real estate		320,020		309,991
Consumer		3,328		2,594
Gross loans		5,118,294		4,544,899
Net deferred fees		(4,767)		(3,807)
Loans receivable	$	5,113,527	$	4,541,092

Loans held for sale [Table Text Block]

Loans Held-For-Sale: The following table presents loans held-for-sale by loan segment as of December 31, 2019 and December 31, 2018:

	2019		2018
	(dollars in thousands)
Commercial	$	2,285	$	-
Commercial real estate		30,965		-
Total carrying amount	$	33,250	$	-

Loans and Leases Receivable Purchase Credit Impaired Loans [Table Text Block]

Purchased Credit-Impaired Loans: The Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows as of December 31, 2019 and December 31, 2018.

	2019		2018
	(dollars in thousands)
Commercial	$	5,452	$	2,509
Commercial real estate		1,101		-
Total carrying amount	$	6,553	$	2,509

Loans and Leases Receivable Purchased Loans [Table Text Block]

The accretable yield, or income expected to be collected, on the purchased credit-impaired loans above is as follows as of December 31, 2019 and December 31, 2018.

	2019		2018		2017
	(dollars in thousands)
Balance at January 1,	$	1,134	$	1,387		2,860
New loans purchased		1,286		-		-
Accretion of income		(1,119)		(253)		(1,473	)
Balance at December 31,	$	1,301	$	1,134	$	1,387

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

Loans Receivable on Nonaccrual Status: The following tables present nonaccrual loans included in loans receivable by loan class as of December 31, 2019 and December 31, 2018:

	2019		2018
	(dollars in thousands)
Commercial	$	31,455	$	29,340
Commercial real estate		8,338		15,135
Commercial construction		6,773		2,934
Residential real estate		2,915		4,446
Consumer		-		-
Total loans receivable on nonaccrual status	$	49,481	$	51,855

Financing Receivable Credit Quality Indicators [Table Text Block]

Credit Quality Indicators - The Company continuously monitors the credit quality of its loans receivable. In addition to its internal monitoring, the Company utilizes the services of a third-party loan review firm to periodically validate the credit quality of its loans receivable on a sample basis. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified “Pass” are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as “Special Mention” have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the loan quality or inadequately protect the Company’s credit position at some future date. Assets are classified “Substandard” if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements. An asset is classified as “Doubtful” if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a “distinct possibility” that a degree of loss will occur if the inadequacies are not corrected. All loans past due 90 days or greater and all impaired loans are included in the appropriate category below.

The following table presents information about the loan credit quality by loan class of gross loans (which exclude net deferred fees) at December 31, 2019 and December 31, 2018:

	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial	$	1,059,852	$	22,159	$	47,650	$	-	$	1,129,661
Commercial real estate		3,014,956		10,301		16,702		-		3,041,959
Commercial construction		604,298		4,609		14,419		-		623,326
Residential real estate		316,476		-		3,544		-		320,020
Consumer		3,328		-		-		-		3,328
Gross loans	$	4,998,910	$	37,069	$	82,315	$	-	$	5,118,294

	December 31, 2018
	Pass		Special Mention		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial	$	951,610	$	3,371	$	33,777	$	-	$	988,758
Commercial real estate		2,742,989		12,574		22,604		-		2,778,167
Commercial construction		453,598		5,515		6,276		-		465,389
Residential real estate		305,414		-		4,577		-		309,991
Consumer		2,576		-		18		-		2,594
Gross loans	$	4,456,187	$	21,460	$	67,252	$	-	$	4,544,899

Impaired Financing Receivables [Table Text Block]

The following table provides an analysis of the impaired loans by class as of and for the years ended December 31, 2019, 2018 and 2017.

	December 31, 2019
No Related Allowance Recorded	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Commercial	$	37,984	$	83,225			$	39,801	$	815
Commercial real estate		15,249		15,467				15,421		428
Commercial construction		8,649		8,649				8,394		332
Residential real estate		1,311		1,463				1,311		-
Consumer		-		-				-		-
Total	$	63,193	$	108,804			$	64,927	$	1,575
With An Allowance Recorded
Commercial construction	$	3,530		3,530		1,244		3,530		91
Residential real estate		263		263		23		257		11
Total	$	3,793	$	3,793		1,267	$	3,787	$	102
Total
Commercial	$	37,984	$	83,225	$	-	$	39,801	$	815
Commercial real estate		15,249		15,467		-		15,421		428
Commercial construction		12,179		12,179		1,244		11,924		423
Residential real estate		1,574		1,726		23		1,568		11
Consumer		-		-		-		-		-
Total (including related allowance)	$	66,986	$	112,597	$	1,267	$	68,714	$	1,677

	December 31, 2018
No Related Allowance Recorded	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Commercial	$	29,896	$	83,596			$	31,721	$	66
Commercial real estate		16,839		17,935				17,676		149
Commercial construction		9,240		9,240				11,215		493
Residential real estate		2,209		2,521				2,284		-
Consumer		-		-				-		-
Total	$	58,184	$	113,292			$	62,896	$	708
With An Allowance Recorded
Commercial real estate	$	1,488		1,488		7		1,511		46
Residential real estate		260		266		29		265		-
Total	$	1,748	$	1,754		36	$	1,776	$	46
Total
Commercial	$	29,896	$	83,596	$	-	$	31,721	$	66
Commercial real estate		18,327		19,423		7		19,187		195
Commercial construction		9,240		9,240		-		11,215		493
Residential real estate		2,469		2,787		29		2,549		-
Consumer		-		-		-		-		-
Total (including related allowance)	$	59,932	$	115,046	$	36	$	64,672	$	754

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CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	December 31, 2017
No Related Allowance Recorded	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Commercial	$	49,761	$	101,066			$	10,552	$	161
Commercial real estate		23,905		23,976				24,099		585
Commercial construction		6,662		6,662				5,509		322
Residential real estate		3,203		3,442				3,255		-
Consumer		-		-				-		-
Total	$	83,531	$	135,146			$	43,415	$	1,068
With An Allowance Recorded
Commercial real estate	$	1,133	$	1,133	$	39	$	1,152	$	51
Total
Commercial	$	49,761	$	101,066	$	-	$	10,552	$	161
Commercial real estate		25,038		25,109		39		25,251		636
Commercial construction		6,662		6,662		-		5,509		322
Residential real estate		3,203		3,442		-		3,255		-
Consumer		-		-		-		-		-
Total (including related allowance)	$	84,664	$	136,279	$	39	$	44,567	$	1,119

Past Due Financing Receivables [Table Text Block]

Aging Analysis: The following table provides an analysis of the aging of the loans by class, excluding net deferred fees, that are past due at December 31, 2019 and December 31, 2018 (dollars in thousands):

	December 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total Loans Receivable
Commercial	$	239	$	-	$	3,107	$	31,455	$	34,801	$	1,094,860	$	1,129,661
Commercial real estate		1,980		490		-		8,338		10,808		3,031,151		3,041,959
Commercial construction		-		-		-		6,773		6,773		616,553		623,326
Residential real estate		3,357		143		-		2,915		6,415		313,605		320,020
Consumer		-		-		-		-		-		3,328		3,328
Total	$	5,576	$	633	$	3,107	$	49,481	$	58,797	$	5,059,497	$	5,118,294

Included in the 90 days or greater past due and still accruing category as of December 31, 2019 are purchased credit-impaired loans, net of fair value marks, which accretes income per the valuation at date of acquisition.

	December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Total Loans Receivable
Commercial	$	1,673	$	-	$	1,647	$	29,340	$	32,660	$	956,098	$	988,758
Commercial real estate		6,162		1,840		-		15,135		23,137		2,755,030		2,778,167
Commercial construction		2,496		564		-		2,934		5,994		459,395		465,389
Residential real estate		3,455		119		-		4,446		8,020		301,971		309,991
Consumer		-		-		-		-		-		2,594		2,594
Total	$	13,786	$	2,523	$	1,647	$	51,855	$	69,811	$	4,475,088	$	4,544,899

Schedule of Recorded Investment in Financing Receivables [Table Text Block]

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

	December 31, 2019
	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	-	$	-	$	1,244	$	23	$	-	$	-	$	1,267
Collectively evaluated for impairment		8,309		19,967		5,744		1,662		3		99		35,784
Acquired portfolio		40		886		316		-		-		-		1,242
Acquired with deteriorated credit quality		-		-		-		-		-		-		-
Total	$	8,349	$	20,853	$	7,304	$	1,685	$	3	$	99	$	38,293
Gross loans
Individually evaluated for impairment	$	37,984	$	15,249	$	12,179	$	1,574	$	-			$	66,986
Collectively evaluated for impairment		1,011,708		2,669,999		578,620		276,177		3,064				4,539,568
Acquired portfolio		74,517		355,610		32,527		42,269		264				505,187
Acquired with deteriorated credit quality		5,452		1,101		-		-		-				6,553
Total	$	1,129,661	$	3,041,959	$	623,326	$	320,020	$	3,328			$	5,118,294

	December 31, 2018
	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	-	$	7	$	-	$	29	$	-	$	-	$	36
Collectively evaluated for impairment		9,675		17,840		4,519		1,237		2		445		33,718
Acquired portfolio		200		1,000		-		-		-		-		1,200
Acquired with deteriorated credit quality		-		-		-		-		-		-		-
Total	$	9,875	$	18,847	$	4,519	$	1,266	$	2	$	445	$	34,954
Gross loans
Individually evaluated for impairment	$	29,896	$	18,327	$	9,240	$	2,469	$	-			$	59,932
Collectively evaluated for impairment		949,129		2,500,132		456,149		263,449		2,484				4,171,343
Acquired portfolio		7,224		259,708		-		44,073		110				311,115
Acquired with deteriorated credit quality		2,509		-		-		-		-				2,509
Total	$	988,758	$	2,778,167	$	465,389	$	309,991	$	2,594			$	4,544,899

Allowance for Credit Losses on Financing Receivables [Table Text Block]

A summary of the activity in the allowance for loan losses by loan segment is as follows:

	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Balance at January 1, 2019	$	9,875	$	18,847	$	4,519	$	1,266	$	2	$	445	$	34,954
Loan charge-offs		(1,029)		(3,470)		-		(557)		(20)		-		(5,076)
Recoveries		265		30		-		3		17		-		315
Provision for loan losses		(762)		5,446		2,785		973		4		(346)		8,100
Balance at December 31, 2019	$	8,349	$	20,853	$	7,304	$	1,685	$	3	$	99	$	38,293

	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Balance at January 1, 2018	$	8,233	$	17,112	$	4,747	$	1,050	$	1	$	605	$	31,748
Loan charge-offs		(17,066)		(915)		-		(23)		(7)		-		(18,011)
Recoveries		109		-		-		2		6		-		117
Provision for loan losses		18,599		2,650		(228)		237		2		(160)		21,100
Balance at December 31, 2018	$	9,875	$	18,847	$	4,519	$	1,266	$	2	$	445	$	34,954

	Commercial		Commercial real estate		Commercial construction		Residential real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Balance at January 1, 2017	$	6,632	$	12,583	$	4,789	$	958	$	3	$	779	$	25,744
Loan charge-offs		(70)		(155)		-		-		(14)		-		(239)
Recoveries		178		51		-		12		2		-		243
Provision for loan losses		1,493		4,633		(42)		80		10		(174)		6,000
Balance at December 31, 2017	$	8,233	$	17,112	$	4,747	$	1,050	$	1	$	605	$	31,748

Schedule of Debtor Troubled Debt Restructuring, Current Period [Table Text Block]

The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2019:

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)
Troubled debt restructurings:
Commercial		11	$	14,558	$	14,558
Commercial real estate		3		5,863		5,863
Commercial construction		3		5,630		5,630
Total		17	$	26,051	$	26,051

Included in the commercial loan segment of the troubled debt restructurings is one taxi medallion loan totaling $0.3 million. This taxi medallion loan was on nonaccrual status prior to modification, and will remain on nonaccrual status post-modification. All loan modifications during the year ended December 31, 2019 included interest rate reductions and/or maturity extensions.

The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2018:

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)
TDRs
Commercial		32	$	16,017	$	16,017
Commercial real estate		3		1,422		1,422
Commercial construction		3		4,773		4,773
Residential real estate		2		454		454
Total		40	$	22,666	$	22,666

Included in the commercial loan segment of the troubled debt restructurings are 27 taxi medallion loans totaling $11.2 million. All 27 taxi medallion loans included above were on nonaccrual status prior to modification, and remain on nonaccrual status post-modification. All loan modifications during the year ended December 31, 2018 included interest rate reductions and/or maturity extensions.

- 79 -

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2017:

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(dollars in thousands)
TDRs
Commercial		1	$	692	$	692
Commercial real estate		2		3,007		3,007
Commercial construction		2		6,662		6,662
Residential real estate		1		17		17
Consumer		-		-		-
Total		6	$	10,378	$	10,378