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Loans and the Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 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 September 30, 2020 and December 31, 2019:

	September 30,			December 31,
	2020			2019
	(dollars in thousands)
Commercial⁽¹⁾	$	1,631,434		$	1,129,661
Commercial real estate		3,672,462			3,041,959
Commercial construction		614,112			623,326
Residential real estate		343,376			320,020
Consumer		1,876			3,328
Gross loans		6,263,260			5,118,294
Net deferred loan fees		(12,209	)		(4,767	)
Total loans receivable	$	6,251,051		$	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 as of September 30, 2020 and December 31, 2019:

	September 30,		December 31,
	2020		2019
	(dollars in thousands)
Commercial	$	-	$	2,285
Commercial real estate		6,460		30,965
Residential real estate		2,048		-
Total carrying amount	$	8,508	$	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 as of September 30, 2020 and December 31, 2019.

	September 30,		December 31,
	2020		2019
	(dollars in thousands)
Commercial	$	3,868	$	5,452
Commercial real estate		5,525		1,101
Commercial construction		4,127		-
	$	13,520	$	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 nine months ended September 30, 2020 and September 30, 2019:

	Three Months			Three Months
	Ended			Ended
	September 30,			September 30,
	2020			2019
	(dollars in thousands)
Balance at June 30	$	1,325		$	2,213
Accretion of income		(124	)		(575	)
Balance as of September 30	$	1,201		$	1,638

	Nine Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2020			2019
	(dollars in thousands)
Balance as of December 31	$	1,301		$	1,134
New loans acquired		605			1,286
Accretion of income		(705	)		(782	)
Balance as of September 30	$	1,201		$	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 September 30, 2020 and December 31, 2019:

	September 30,		December 31,
	2020		2019
	(dollars in thousands)
Commercial	$	33,108	$	31,455
Commercial real estate		9,378		8,338
Commercial construction		17,727		6,773
Residential real estate		5,281		2,915
Total nonaccrual loans	$	65,494	$	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) as of September 30, 2020 and December 31, 2019:

	September 30, 2020
			Special
	Pass		Mention		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial	$	1,566,486	$	20,608	$	44,340	$	-	$	1,631,434
Commercial real estate		3,637,852		13,419		21,191		-		3,672,462
Commercial construction		583,749		-		30,363		-		614,112
Residential real estate		332,686		-		10,690		-		343,376
Consumer		1,874		-		2		-		1,876
Gross loans	$	6,121,647	$	34,027	$	106,586	$	-	$	6,263,260

	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 September 30, 2020 and December 31, 2019.

	September 30, 2020
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
No related allowance recorded	(dollars in thousands)
Commercial	$	12,185	$	12,588
Commercial real estate		12,400		12,696
Commercial construction		21,019		21,490
Residential real estate		3,981		4,311
Total (no related allowance)	$	49,585	$	51,085

With an allowance recorded
Commercial		23,024		68,406	$	10,000
Commercial real estate		2,722		2,722		1,000
Commercial construction		2,934		2,934		302
Residential real estate		261		261		47
Total (with allowance)	$	28,941	$	74,323	$	11,349

Total
Commercial	$	35,209	$	80,994	$	10,000
Commercial real estate		15,122		15,418		1,000
Commercial construction		23,953		24,424		302
Residential real estate		4,242		4,572		47
Total	$	78,526	$	125,408	$	11,349

	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 nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,								Nine Months Ended September 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	$	12,266	$	50	$	41,332	$	570	$	12,100	$	150	$	41,731	$	733
Commercial real estate		12,460		74		12,178		79		12,415		229		12,213		221
Commercial construction		21,297		91		6,044		58		21,149		262		6,047		138
Residential real estate		4,011		16		1,552		-		3,761		16		1,579		19

Total	$	50,034	$	231	$	61,106	$	707	$	49,425	$	657	$	61,570	$	1,111

Impaired loans (allowance):

Commercial	$	23,024	$	-	$	392	$	-	$	23,195	$	-	$	393	$	-
Commercial real estate		2,722		-		392		-		2,722		-		393		-
Commercial construction		2,934		-		6,439		220		2,934		-		6,378		220
Residential real estate		261		5		252		9		262		5		255		9

Total	$	28,941	$	5	$	7,083	$	936	$	29,113	$	5	$	7,026	$	229

Total impaired loans:
Commercial	$	35,290	$	50	$	41,332	$	570	$	35,295	$	150	$	41,731	$	733
Commercial real estate		15,182		74		12,570		79		15,137		229		12,606		221
Commercial construction		24,231		91		12,483		278		24,083		262		12,425		358
Residential real estate		4,272		21		1,804		9		4,023		21		1,834		28

Total	$	78,975	$	236	$	68,189	$	936	$	78,538	$	662	$	68,596	$	1,340

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 as of September 30, 2020 and December 31, 2019:

	September 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	$	119	$	403	$	3,156	$	33,108	$	36,786	$	1,594,648	$	1,631,434
Commercial real estate		-		3,927		5,525		9,378		18,830		3,653,632		3,672,462
Commercial construction		338		1,265		-		17,727		19,330		594,782		614,112
Residential real estate		1,434		227		4,127		5,281		11,069		332,307		343,376
Consumer		-		-		-		-		-		1,876		1,876
Total	$	1,891	$	5,822	$	12,808	$	65,494	$	86,015	$	6,177,245	$	6,263,260

Included in the 90 days or greater past due and still accruing category as of September 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:

	September 30, 2020
			Commercial		Commercial		Residential
	Commercial		real estate		construction		real estate		Consumer		Unallocated		Total
	(dollars in thousands)
ALLL
Individually evaluated for impairment	$	10,000	$	1,000	$	302	$	47	$	-			$	11,349
Collectively evaluated for impairment		14,158		37,519		6,389		1,811		3				59,880
Acquired portfolio		-		1,559		291		642		-				2,492
Acquired with deteriorated credit quality		-		-		-		-		-				-
Unallocated		-		-		-		-		-		546		546
Total	$	24,158	$	40,078	$	6,982	$	2,500	$	3	$	546	$	74,267

Gross loans
Individually evaluated for impairment	$	35,209	$	15,122	$	23,953	$	4,242	$	-			$	78,526
Collectively evaluated for impairment		1,509,236		2,790,162		559,665		252,418		1,564				5,113,045
Acquired portfolio		83,121		861,653		30,494		82,589		312				1,058,169
Acquired with deteriorated credit quality		3,868		5,525		-		4,127		-				13,520
Total	$	1,631,434	$	3,672,462	$	614,112	$	343,376	$	1,876			$	6,263,260

	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		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 September 30, 2020
				Commercial		Commercial			Residential
	Commercial			real estate		construction			real estate			Consumer			Unallocated			Total
	(dollars in thousands)
Balance as of June 30, 2020	$	9,345		$	22,655	$	8,026		$	1,690		$	5		$	27,003		$	68,724


Charge-offs		(48	)		-		-			(209	)		-			-			(257	)

Recoveries		-			800		-			-			-			-			800

Provision		14,861			16,623		(1,044	)		1,019			(2	)		(26,457	)		5,000
Balance as of September 30, 2020	$	24,158		$	40,078	$	6,982		$	2,500		$	3		$	546		$	74,267

	Three Months Ended September 30, 2019
				Commercial			Commercial		Residential
	Commercial			real estate			construction		real estate			Consumer			Unallocated			Total
	(dollars in thousands)
Balance as of June 30, 2019	$	8,721		$	21,485		$	5,542	$	1,208		$	2		$	740		$	37,698


Charge-offs		-			(387	)		-		(557	)		(20	)		-			(964	)

Recoveries		28			-			-		-			9			-			37

Provision		(424	)		(88	)		1,633		1,110			13			(244	)		2,000
Balance as of September 30, 2019	$	8,325		$	21,010		$	7,175	$	1,761		$	4		$	496		$	38,771

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

Charge-offs		(552	)		-		-			(278	)		(3	)		-		(833	)

Recoveries		2			802		-			-			3			-		807

Provision		16,359			18,423		(322	)		1,093			-			447		36,000
Balance as of September 30, 2020	$	24,158		$	40,078	$	6,982		$	2,500		$	3		$	546	$	74,267

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

Charge-offs		-			(3,469	)		-		(557	)		(20	)		-		(4,046	)

Recoveries		214			30			-		3			16			-		263

Provision		(1,764	)		5,602			2,656		1,049			6			51		7,600

Balance as of September 30, 2019	$	8,325		$	21,010		$	7,175	$	1,761		$	4		$	496	$	38,771

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 nine months ended September 30, 2020:

	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:	(dollars in thousands)
Commercial	1	$	191	$	191
Commercial real estate	1		97		97

Total	2	$	288	$	288

The two loan modifications during the nine months ended September 30, 2020 were maturity extensions.

There were no TDRs for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, 2020.

The following table presents loans by class modified as TDRs that occurred during the nine months ended September 30, 2019:

	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:	(dollars in thousands)
Commercial	8	$	13,753	$	13,753
Commercial real estate	2		2,635		2,635
Commercial construction	3		5,630		5,630

Total	13	$	22,018	$	22,018

Schedule of Composition of Loans by Loan Segments

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

			Unpaid
	Number of		Principal
	Loans		Balance
	(dollars in thousands)
Commercial		77	$	51,594
Commercial real estate		105		281,636
Commercial construction		6		20
Residential real estate		11		5,284
Total		199	$	355,167