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Loans and the Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2020

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 June 30, 2020 and December 31, 2019:

	June 30,			December 31,
	2020			2019
	(dollars in thousands)
Commercial⁽¹⁾	$	1,659,935		$	1,129,661
Commercial real estate		3,676,057			3,041,959
Commercial construction		673,893			623,326
Residential real estate		366,315			320,020
Consumer		2,001			3,328
Gross loans		6,378,201			5,118,294
Net deferred loan fees		(14,934	)		(4,767	)
Total loans receivable	$	6,363,267		$	5,113,527

Loans held for sale [Table Text Block]

Loans held-for-sale - The following table sets forth the composition of the Company’s loans held-for-sale portfolio at June 30, 2020 and December 31, 2019:

	June 30,		December 31,
	2020		2019
	(dollars in thousands)
Commercial	$	-	$	2,285
Commercial real estate		10,867		30,965
Residential real estate		345		-
Total carrying amount	$	11,212	$	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 recorded investment of those loans is as follows at June 30, 2020 and December 31, 2019.

	June 30,		December 31,
	2020		2019
	(dollars in thousands)
Commercial	$	3,881	$	5,452
Commercial real estate		5,487		1,101
Commercial construction		4,160		-
	$	13,528	$	6,553

Loans and Leases Receivable Purchased Loans [Table Text Block]

The following table presents the accretable yield, or income expected to be collected, on the purchased credit-impaired loans for the three and six months ended June 30, 2020 and June 30, 2019:

	Three Months			Three Months
	Ended			Ended
	June 30,			June 30,
	2020			2019
	(dollars in thousands)
Balance at March 31	$	1,678		$	2,213
Accretion of income		(353	)		(575	)
Balance at June 30	$	1,325		$	1,638

	Six Months			Six Months
	Ended			Ended
	June 30,			June 30,
	2020			2019
	(dollars in thousands)
Balance at December 31	$	1,301		$	1,134
New loans acquired		605			1,286
Accretion of income		(581	)		(782	)
Balance at June 30	$	1,325		$	1,638

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 June 30, 2020 and December 31, 2019:

	June 30,		December 31,
	2020		2019
	(dollars in thousands)
Commercial	$	30,584	$	31,455
Commercial real estate		9,739		8,338
Commercial construction		18,205		6,773
Residential real estate		6,050		2,915
Consumer		2		-
Total nonaccrual loans	$	64,580	$	49,481

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 June 30, 2020 and December 31, 2019:

	June 30, 2020
			Special
	Pass		Mention		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial	$	1,594,144	$	20,977	$	44,814	$	-	$	1,659,935
Commercial real estate		3,639,674		14,469		21,914		-		3,676,057
Commercial construction		643,456		-		30,437		-		673,893
Residential real estate		355,196		-		11,119		-		366,315
Consumer		1,999		-		2		-		2,001
Gross loans	$	6,234,469	$	35,446	$	108,286	$	-	$	6,378,201

	December 31, 2019
			Special
	Pass		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

Impaired Financing Receivables [Table Text Block]

The following table provides an analysis of the impaired loans by class as of June 30, 2020 and December 31, 2019.

	June 30, 2020
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
No related allowance recorded	(dollars in thousands)
Commercial	$	35,727	$	81,377
Commercial real estate		15,464		15,733
Commercial construction		17,899		17,899
Residential real estate		3,699		4,020
Total (no related allowance)	$	72,789	$	119,029

With an allowance recorded
Commercial construction		6,463		6,463	$	1,806
Residential real estate		261		261		47
Total (with allowance)	$	6,724	$	6,724	$	1,853

Total
Commercial	$	35,727	$	81,377	$	-
Commercial real estate		15,464		15,733		-
Commercial construction		24,362		24,362		1,806
Residential real estate		3,960		4,281		47
Total	$	79,513	$	125,753	$	1,853

	December 31, 2019
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
No related allowance recorded	(dollars in thousands)
Commercial	$	37,984	$	83,225
Commercial real estate		15,249		15,467
Commercial construction		8,649		8,649
Residential real estate		1,311		1,463
Consumer		-		-
Total (no related allowance)	$	63,193	$	108,804

With an allowance recorded
Commercial construction	$	3,530	$	3,530	$	1,244
Residential real estate		263		263		23
Total (with allowance)	$	3,793	$	3,793	$	1,267

Total
Commercial	$	37,984	$	83,225	$	-
Commercial real estate		15,249		15,467		-
Commercial construction		12,179		12,179		1,244
Residential real estate		1,574		1,726		23
Consumer		-		-		-
Total	$	66,986	$	112,597	$	1,267

Schedule of Average Balance and Interest Income Recognized on Impaired Loans [Table Text Block]

The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by segment as of and for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
		(dollars in thousands)
Impaired loans (no allowance)

Commercial	$	35,813	$	91	$	33,663	$	82	$	36,127	$	185	$	33,066	$	164
Commercial real estate		15,415		82		17,205		68		15,352		155		17,170		143
Commercial construction		17,719		87		6,048		25		17,545		171		6,049		80
Residential real estate		3,500		-		3,198		-		3,308		-		3,195		-

Total	$	72,447	$	260	$	60,114	$	175	$	72,332	$	511	$	59,480	$	387

Impaired loans (allowance):

Commercial real estate	$	-	$	-	$	393	$	-	$	-	$	-	$	393	$	-
Commercial construction		6,463		-		2,850		42		6,463		-		2,818		85
Residential real estate		262		1		255		-		262		3		256		-

Total	$	6,725	$	1	$	3,498	$	42	$	6,725	$	3	$	3,467	$	85

Total impaired loans:
Commercial	$	35,813	$	91	$	33,663	$	82	$	36,127	$	185	$	33,066	$	164
Commercial real estate		15,415		82		17,598		68		15,352		155		17,563		143
Commercial construction		24,182		87		8,898		67		24,008		171		8,867		165
Residential real estate		3,762		1		3,453		-		3,570		3		3,451		-

Total	$	79,172	$	261	$	63,612	$	217	$	79,057	$	514	$	62,947	$	472

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 June 30, 2020 and December 31, 2019:

	June 30, 2020
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due and Still Accruing		Nonaccrual		Total Past Due and Nonaccrual		Current		Gross Loans
	(dollars in thousands)
Commercial	$	1,124	$	6,679	$	2,658	$	30,584	$	41,045	$	1,618,890	$	1,659,935
Commercial real estate		-		4,267		1,331		9,739		15,337		3,660,720		3,676,057
Commercial construction		-		3,055		-		18,205		21,260		652,633		673,893
Residential real estate		301		346		1,982		6,050		8,679		357,636		366,315
Consumer		-		-		-		2		2		1,999		2,001
Total	$	1,425	$	14,347	$	5,971	$	64,580	$	86,323	$	6,291,878	$	6,378,201

Included in the 90 days or greater past due and still accruing category as of June 30, 2020 are purchased credit-impaired loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

	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

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:

	June 30, 2020
			Commercial		Commercial		Residential
	Commercial		real estate		construction		real estate		Consumer		Unallocated		Total
	(dollars in thousands)
ALLL
Individually evaluated for impairment	$	-	$	-	$	1,806	$	47	$	-			$	1,853
Collectively evaluated for impairment		9,305		21,284		5,904		1,643		5				38,141
Acquired portfolio		40		1,371		316		-		-				1,727
Acquired with deteriorated credit quality		-		-		-		-		-				-
Unallocated		-		-		-		-		-				27,003
Total	$	9,345	$	22,655	$	8,026	$	1,690	$	5	$	27,003	$	68,724

Gross loans
Individually evaluated for impairment	$	35,727	$	15,464	$	24,362	$	3,960	$	-			$	79,513
Collectively evaluated for impairment		1,529,703		2,762,767		596,699		266,155		1,710				5,157,034
Acquired portfolio		90,624		892,339		52,832		92,040		291				1,128,126
Acquired with deteriorated credit quality		3,881		5,487		-		4,160		-				13,528
Total	$	1,659,935	$	3,676,057	$	673,893	$	366,315	$	2,001			$	6,378,201

	December 31, 2019
			Commercial		Commercial		Residential
	Commercial		real estate		construction		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				35,685
Acquired portfolio		40		886		316		-		-				1,242
Acquired with deteriorated credit quality		-		-		-		-		-				-
Unallocated		-		-		-		-		-				99
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
	$	1,129,661	$	3,041,959	$	623,326	$	320,020	$	3,328			$	5,118,294
Total

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:

	Three Months Ended June 30, 2020
				Commercial		Commercial		Residential
	Commercial			real estate		construction		real estate			Consumer		Unallocated		Total
	(dollars in thousands)
Balance at March 31, 2020	$	9,058		$	22,036	$	7,819	$	1,681		$	3	$	13,572	$	54,169


Charge-offs		(380	)		-		-		(69	)		-		-		(449	)

Recoveries		2			2		-		-			-		-		4

Provision for loan losses		665			617		207		78			2		13,431		15,000
Balance at June 30, 2020	$	9,345		$	22,655	$	8,026	$	1,690		$	5	$	27,003	$	68,724

	Three Months Ended June 30, 2019
				Commercial			Commercial		Residential
	Commercial			real estate			construction		real estate		Consumer		Unallocated		Total
	(dollars in thousands)
Balance at March 31, 2019	$	8,660		$	21,561		$	4,982	$	1,166	$	1	$	488	$	36,858


Charge-offs		-			(406	)		-		-		-		-		(406	)

Recoveries		115			30			-		1		-		-		146

Provision		(54	)		300			560		41		1		252		1,100
Balance at June 30, 2019	$	8,721		$	21,485		$	5,542	$	1,208	$	2	$	740	$	37,698

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6. Loans and the Allowance for Loan Losses – (continued)

	Six Months Ended June 30, 2020
				Commercial		Commercial		Residential
	Commercial			real estate		construction		real estate			Consumer			Unallocated		Total
	(dollars in thousands)
Balance at December 31, 2019	$	8,349		$	20,853	$	7,304	$	1,685		$	3		$	99	$	38,293

Charge-offs		(504	)		-		-		(69	)		(3	)		-		(576	)

Recoveries		2			2		-		3			-			-		7

Provision		1,498			1,800		722		71			5			26,904		31,000
Balance at June 30, 2020	$	9,345		$	22,655	$	8,026	$	1,690		$	5		$	27,003	$	68,724

	Six Months Ended June 30, 2019
				Commercial			Commercial		Residential
	Commercial			real estate			construction		real estate			Consumer			Unallocated		Total
	(dollars in thousands)
Balance at December 31, 2018	$	9,875		$	18,847		$	4,519	$	1,266		$	2		$	445	$	34,954

Charge-offs		-			(3,082	)		-		-			-			-		(3,082	)

Recoveries		186			30			-		3			7			-		226

Provision		(1,340	)		5,690			1,023		(61	)		(7	)		295		5,600

Balance at June 30, 2019	$	8,721		$	21,485		$	5,542	$	1,208		$	2		$	740	$	37,698

Schedule of Composition of Loans by Loan Segments

The following table sets forth the composition of these loans by loan segments as of June 30, 2020:

	Number of Loans		Unpaid Principal Balance
	(dollars in thousands)
Commercial		331	$	123,031
Commercial real estate		126		688,336
Commercial construction		15		73,670
Residential real estate		101		52,312
Consumer		2		23
Total		575	$	937,372