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Loans and the Allowance for Credit Losses (Tables) | 6 Months Ended
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Jun. 30, 2021
Receivables [Abstract] |
Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block] | Loans Receivable - As of and prior to December 31, 2020, loans receivable were accounted for under the incurred loss model. As of January 1, 2021, portfolio loans are accounted for under the expected loss model. Accordingly, some of the information presented is not comparable from period to period. See Note 1b. “Authoritative Accounting Guidance - Adoption of New Accounting Standards” for additional information. The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred fees, as of June 30, 2021 and December 31, 2020:
|  | June 30, |  | December 31,
|  | 2021 |  | 2020
|  | (dollars in thousands)
Commercial (1) |  | $ | 1,402,697 |  |  | $ | 1,521,967 |
Commercial real estate |  |  | 4,138,518 |  |  |  | 3,783,550 |
Commercial construction |  |  | 587,121 |  |  |  | 617,747 |
Residential real estate |  |  | 286,907 |  |  |  | 322,564 |
Consumer |  |  | 6,355 |  |  |  | 1,853 |
Gross loans |  |  | 6,421,598 |  |  |  | 6,247,681 |
Net deferred loan fees |  |  | (13,694 | ) |  |  | (11,374 | )
Total loans receivable |  | $ | 6,407,904 |  |  | $ | 6,236,307 |
(1) | Included in commercial loans as of June 30, 2021 and December 31, 2020 were PPP loans of $326.8 million and $397.5 million, respectively.
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 June 30, 2021 and December 31, 2020:
|  | June 30, |  | December 31,
|  | 2021 |  | 2020
|  | (dollars in thousands)
Commercial real estate |  | $ | 5,298 |  | $ | 1,990
Residential real estate |  |  | 861 |  |  | 2,720
Total carrying amount |  | $ | 6,159 |  | $ | 4,710
Schedule of Financing Receivables, Non Accrual Status [Table Text Block] | Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an ACL as of June 30, 2021 and nonaccrual loans without an ACL as of June 30, 2021:
|  | Nonaccrual Loans with an ACL |  | Nonaccrual loans without an ACL |  | Total
|  | (dollars in thousands) |  |  |
Commercial |  | $ | 28,009 |  | $ | 3,074 |  | $ | 31,083
Commercial real estate |  |  | 2,722 |  |  | 13,283 |  |  | 16,005
Commercial construction |  |  | 2,934 |  |  | 1,831 |  |  | 4,765
Residential real estate |  |  | - |  |  | 4,360 |  |  | 4,360
Consumer |  |  | - |  |  | - |  |  |
Total |  | $ | 33,665 |  | $ | 22,548 |  | $ | 56,213
21 Table of Contents
CONNECTONE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 5. Loans and the Allowance for Credit Losses – (continued) The following tables present total nonaccrual loans included in loans receivable by loan class as of December 31, 2020 (dollars in thousands):
|  |  |  | December 31,
|  |  |  | 2020
Commercial |  |  |  |  | $ | 33,019
Commercial real estate |  |  |  |  |  | 10,111
Commercial construction |  |  |  |  |  | 14,015
Residential real estate |  |  |  |  |  | 4,551
Consumer |  |  |  |  |  | -
Total nonaccrual loans |  |  |  |  | $ | 61,696
Financing Receivable Origination and Risk Designation [Table Text Block] | We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP. Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the table below. As of June 30, 2021, our loans based on year of origination and risk designation is as follows (dollars in thousands):
|  | Term loans amortized cost basis by origination year |  |  | Resolving |  |  | Total Gross |
|  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2017 |  |  | Prior | Loans | Loans |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 324,543 |  |  | $ | 185,027 |  |  | $ | 64,057 |  |  | $ | 69,430 |  |  | $ | 99,833 |  |  | $ | 123,799 |  |  | $ | 466,262 |  |  | $ | 1,332,951 |
Special mention |  |  | - |  |  |  | - |  |  |  | 225 |  |  |  | 258 |  |  |  | 5,655 |  |  |  | 4,235 |  |  |  | 15,653 |  |  |  | 26,026 |
Substandard |  |  | 182 |  |  |  | - |  |  |  | 1,791 |  |  |  | 13,072 |  |  |  | 4,111 |  |  |  | 21,255 |  |  |  | 3,250 |  |  |  | 43,661 |
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 59 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 59 |
Total Commercial |  | $ | 324,725 |  |  | $ | 185,027 |  |  | $ | 66,073 |  |  | $ | 82,819 |  |  | $ | 109,599 |  |  | $ | 149,289 |  |  | $ | 485,165 |  |  | $ | 1,402,697 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 741,267 |  |  | $ | 601,375 |  |  | $ | 460,081 |  |  | $ | 529,053 |  |  | $ | 541,823 |  |  | $ | 1,012,888 |  |  | $ | 141,776 |  |  | $ | 4,028,263 |
Special mention |  |  | - |  |  |  | - |  |  |  | 3,375 |  |  |  | 19,360 |  |  |  | 4,364 |  |  |  | 29,160 |  |  |  | 15,454 |  |  |  | 71,713 |
Substandard |  |  | 1,969 |  |  |  | - |  |  |  | 659 |  |  |  | 1,473 |  |  |  | 2,722 |  |  |  | 31,719 |  |  |  | - |  |  |  | 38,542 |
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total Commercial Real Estate |  | $ | 743,236 |  |  | $ | 601,375 |  |  | $ | 464,115 |  |  | $ | 549,886 |  |  | $ | 548,909 |  |  | $ | 1,073,767 |  |  | $ | 157,230 |  |  | $ | 4,138,518 |
Commercial Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 1,405 |  |  | $ | 7,506 |  |  | $ | 37,715 |  |  | $ | 3,678 |  |  | $ | 3,981 |  |  | $ | 490 |  |  | $ | 510,227 |  |  | $ | 565,002 |
Special mention |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 22,119 |  |  |  | 22,119 |
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total Commercial Construction |  | $ | 1,405 |  |  | $ | 7,506 |  |  | $ | 37,715 |  |  | $ | 3,678 |  |  | $ | 3,981 |  |  | $ | 490 |  |  | $ | 532,346 |  |  | $ | 587,121 |
Residential Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 10,420 |  |  | $ | 34,493 |  |  | $ | 27,090 |  |  | $ | 32,888 |  |  | $ | 37,296 |  |  | $ | 83,096 |  |  | $ | 48,515 |  |  | $ | 273,798 |
Special mention |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 203 |  |  |  | - |  |  |  | 9,101 |  |  |  | 3,805 |  |  |  | 13,109 |
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total Residential Real Estate |  | $ | 10,420 |  |  | $ | 34,493 |  |  | $ | 27,090 |  |  | $ | 33,091 |  |  | $ | 37,296 |  |  | $ | 92,197 |  |  | $ | 52,320 |  |  | $ | 286,907 |
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | - |  |  | $ | 107 |  |  | $ | 54 |  |  | $ | 32 |  |  | $ | 41 |  |  | $ | 5,989 |  |  | $ | 132 |  |  | $ | 6,355 |
Special mention |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Substandard |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total Consumer |  | $ | - |  |  | $ | 107 |  |  | $ | 54 |  |  | $ | 32 |  |  | $ | 41 |  |  | $ | 5,989 |  |  | $ | 132 |  |  | $ | 6,355 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 1,077,635 |  |  | $ | 828,508 |  |  | $ | 588,997 |  |  | $ | 635,081 |  |  | $ | 682,974 |  |  | $ | 1,226,262 |  |  | $ | 1,166,912 |  |  | $ | 6,206,369 |
Special mention |  |  | - |  |  |  | - |  |  |  | 3,600 |  |  |  | 19,618 |  |  |  | 10,019 |  |  |  | 33,395 |  |  |  | 31,107 |  |  |  | 97,739 |
Substandard |  |  | 2,151 |  |  |  | - |  |  |  | 2,450 |  |  |  | 14,748 |  |  |  | 6,833 |  |  |  | 62,075 |  |  |  | 29,174 |  |  |  | 117,431 |
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 59 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 59 |
Grand Total |  | $ | 1,079,786 |  |  | $ | 828,508 |  |  | $ | 595,047 |  |  | $ | 669,506 |  |  | $ | 699,826 |  |  | $ | 1,321,732 |  |  | $ | 1,227,193 |  |  | $ | 6,421,598 |
Financing Receivable Credit Quality Indicators [Table Text Block] | The following table presents information about the loan credit quality by loan class of gross loans (which exclude net deferred fees) as of December 31, 2020:
|  | December 31, 2020
|  | Pass |  | Special Mention |  | Substandard |  | Doubtful |  | Total
|  | (dollars in thousands)
Commercial |  | $ | 1,447,097 |  | $ | 30,725 |  | $ | 43,930 |  | $ | 215 |  | $ | 1,521,967
Commercial real estate |  |  | 3,700,498 |  |  | 49,143 |  |  | 33,909 |  |  | - |  |  | 3,783,550
Commercial construction |  |  | 587,266 |  |  | - |  |  | 30,481 |  |  | - |  |  | 617,747
Residential real estate |  |  | 311,174 |  |  | - |  |  | 11,390 |  |  | - |  |  | 322,564
Consumer |  |  | 1,853 |  |  | - |  |  | - |  |  | - |  |  | 1,853
Gross loans |  | $ | 6,047,888 |  | $ | 79,868 |  | $ | 119,710 |  | $ | 215 |  | $ | 6,247,681
Schedule of Fair Value of Collateral [Table Text Block] | The following table presents collateral dependent loans individually evaluated for impairment as of June 30, 2021:
|  | June 30, 2021
|  | Real |  |  |  |  |
|  | Estate |  | Other |  | Total |
|  | (dollars in thousands) |
Commercial |  | $ | 6,598 |  | $ | 26,166 |  | $ | 32,764 |
Commercial real estate |  |  | 35,802 |  |  | - |  |  | 35,802 |
Commercial construction |  |  | 16,389 |  |  | - |  |  | 16,389 |
Residential real estate |  |  | 10,647 |  |  | - |  |  | 10,647 |
Consumer |  |  | - |  |  | - |  |  | - |
Total |  | $ | 69,436 |  | $ | 26,166 |  | $ | 95,602 |
Impaired Financing Receivables [Table Text Block] | The following table provides an analysis of the impaired loans by class as of the year ended December 31, 2020:
|  | December 31, 2020
|  |  |  | Unpaid |  |  |
|  | Recorded |  | Principal |  | Related |
|  | Investment |  | Balance |  | Allowance |
No related allowance recorded |  | (dollars in thousands) |
Commercial |  | $ | 11,325 |  | $ | 11,835 |  |  |  |
Commercial real estate |  |  | 13,105 |  |  | 13,449 |  |  |  |
Commercial construction |  |  | 24,284 |  |  | 24,907 |  |  |  |
Residential real estate |  |  | 5,378 |  |  | 5,723 |  |  |  |
Consumer |  |  | - |  |  | - |  |  |  |
Total (no related allowance) |  | $ | 54,092 |  | $ | 55,914 |  |  |  |
With an allowance recorded |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 23,736 |  | $ | 69,122 |  | $ | 12,985 |
Commercial real estate |  |  | 2,722 |  |  | 2,722 |  |  | 1,329 |
Total (with allowance) |  | $ | 26,458 |  | $ | 71,844 |  | $ | 14,314 |
Total |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 35,061 |  | $ | 80,957 |  | $ | 12,985 |
Commercial real estate |  |  | 15,827 |  |  | 16,171 |  |  | 1,329 |
Commercial construction |  |  | 24,284 |  |  | 24,907 |  |  | - |
Residential real estate |  |  | 5,378 |  |  | 5,723 |  |  | - |
Consumer |  |  | - |  |  | - |  |  | - |
Total |  | $ | 80,550 |  | $ | 127,758 |  | $ | 14,314 |
25 Table of Contents
CONNECTONE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 5. Loans and the Allowance for Credit Losses – (continued) The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by class as of and for the three months and six months ended June 30, 2020 (dollars in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2020 |  | 2020
|  | Average Recorded Investment |  | Interest Income Recognized |  | Average Recorded Investment |  | Interest Income Recognized
Impaired loans (no allowance) |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 35,813 |  | $ | 91 |  | $ | 36,127 |  | $ | 185
Commercial real estate |  |  | 15,415 |  |  | 82 |  |  | 15,352 |  |  | 155
Commercial construction |  |  | 17,719 |  |  | 87 |  |  | 17,545 |  |  | 171
Residential real estate |  |  | 3,500 |  |  | - |  |  | 3,308 |  |  | -
Total |  | $ | 72,447 |  | $ | 260 |  | $ | 72,332 |  | $ | 511
Impaired loans (allowance): |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  | $ | - |  | $ | - |  | $ | - |  | $ | -
Commercial construction |  |  | 6,463 |  |  | - |  |  | 6,463 |  |  | -
Residential real estate |  |  | 262 |  |  | 1 |  |  | 262 |  |  | 3
Total |  | $ | 6,725 |  | $ | 1 |  | $ | 6,725 |  | $ | 3
Total impaired loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 35,813 |  | $ | 91 |  | $ | 36,127 |  | $ | 185
Commercial real estate |  |  | 15,415 |  |  | 82 |  |  | 15,352 |  |  | 155
Commercial construction |  |  | 24,182 |  |  | 87 |  |  | 24,008 |  |  | 171
Residential real estate |  |  | 3,762 |  |  | 1 |  |  | 3,570 |  |  | 3
Total |  | $ | 79,172 |  | $ | 261 |  | $ | 79,057 |  | $ | 514
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 June 30, 2021 and December 31, 2020 (dollars in thousands):
|  | June 30, 2021
|  | 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
Commercial |  | $ | 297 |  | $ | - |  | $ | 4,588 |  | $ | 31,083 |  | $ | 35,968 |  | $ | 1,366,729 |  | $ | 1,402,697
Commercial real Estate |  |  | - |  |  | - |  |  | 7,607 |  |  | 16,005 |  |  | 23,612 |  |  | 4,114,906 |  |  | 4,138,518
Commercial construction |  |  | - |  |  | - |  |  | 3,221 |  |  | 4,765 |  |  | 7,986 |  |  | 579,135 |  |  | 587,121
Residential real Estate |  |  | 210 |  |  | 99 |  |  | 4,238 |  |  | 4,360 |  |  | 8,907 |  |  | 278,000 |  |  | 286,907
Consumer |  |  | 2 |  |  | - |  |  | - |  |  | - |  |  | 2 |  |  | 6,353 |  |  | 6,355
Total |  | $ | 509 |  | $ | 99 |  | $ | 19,654 |  | $ | 56,213 |  | $ | 76,475 |  | $ | 6,345,123 |  | $ | 6,421,598
Included in the 90 days or greater past due and still accruing category as of June 30, 2021 were $16.4 million in purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition.
|  | December 31, 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 |  | Total Loans Receivable
Commercial |  | $ | 1,445 |  | $ | 558 |  | $ | 3,182 |  | $ | 33,019 |  | $ | 38,204 |  | $ | 1,483,763 |  | $ | 1,521,967
Commercial real estate |  |  | 13,258 |  |  | 4,140 |  |  | 5,555 |  |  | 10,111 |  |  | 33,064 |  |  | 3,750,486 |  |  | 3,783,550
Commercial construction |  |  | 2,472 |  |  | - |  |  | - |  |  | 14,015 |  |  | 16,487 |  |  | 601,260 |  |  | 617,747
Residential real estate |  |  | 1,367 |  |  | 241 |  |  | 4,084 |  |  | 4,551 |  |  | 10,243 |  |  | 312,321 |  |  | 322,564
Consumer |  |  | 2 |  |  | - |  |  | - |  |  | - |  |  | 2 |  |  | 1,851 |  |  | 1,853
Total |  | $ | 18,544 |  | $ | 4,939 |  | $ | 12,821 |  | $ | 61,696 |  | $ | 98,000 |  | $ | 6,149,681 |  | $ | 6,247,681
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 ACL that are allocated to each loan portfolio segment:
|  | June 30, 2021
|  |  |  | Commercial |  | Commercial |  | Residential |  |  |  |  |  |  |  |  |
|  | Commercial |  | real estate |  | construction |  | real estate |  | Consumer |  |  |  | Total
|  | (dollars in thousands)
ACL |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 15,618 |  | $ | 1,485 |  | $ | 434 |  | $ | 349 |  | $ | - |  |  |  |  | $ | 17,886
Collectively evaluated for impairment |  |  | 7,673 |  |  | 39,553 |  |  | 4,493 |  |  | 3,863 |  |  | 9 |  |  |  |  |  | 55,591
Acquired with deteriorated credit quality individually analyzed |  |  | 2,276 |  |  | 2,777 |  |  | - |  |  | 154 |  |  | - |  |  |  |  |  | 5,207
Total |  | $ | 25,567 |  | $ | 43,815 |  | $ | 4,927 |  | $ | 4,366 |  | $ | 9 |  |  |  |  | $ | 78,684
Gross loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 33,473 |  | $ | 28,197 |  | $ | 16,389 |  | $ | 6,408 |  | $ | - |  |  |  |  | $ | 84,467
Collectively evaluated for impairment |  |  | 1,364,019 |  |  | 4,102,715 |  |  | 570,732 |  |  | 276,260 |  |  | 6,355 |  |  |  |  |  | 6,320,081
Acquired with deteriorated credit quality individually analyzed |  |  | 5,205 |  |  | 7,606 |  |  | - |  |  | 4,239 |  |  | - |  |  |  |  |  | 17,050
Total |  | $ | 1,402,697 |  | $ | 4,138,518 |  | $ | 587,121 |  | $ | 286,907 |  | $ | 6,355 |  |  |  |  | $ | 6,421,598
|  | December 31, 2020
|  |  |  | Commercial |  | Commercial |  | Residential |  |  |  |  |  |  |  |  |
|  | Commercial |  | real estate |  | construction |  | real estate |  | Consumer |  | Unallocated |  | Total
|  | (dollars in thousands)
Allowance for loan losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 12,985 |  | $ | 1,329 |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 14,314
Collectively evaluated for impairment |  |  | 15,412 |  |  | 33,373 |  |  | 7,787 |  |  | 1,928 |  |  | 4 |  |  | 568 |  |  | 59,072
Acquired portfolio |  |  | 46 |  |  | 4,628 |  |  | 407 |  |  | 759 |  |  | - |  |  | - |  |  | 5,840
Acquired with deteriorated credit quality |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | -
Total |  | $ | 28,443 |  | $ | 39,330 |  | $ | 8,194 |  | $ | 2,687 |  | $ | 4 |  | $ | 568 |  | $ | 79,226
Gross loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 35,061 |  | $ | 15,827 |  | $ | 24,284 |  | $ | 5,378 |  | $ | - |  |  |  |  | $ | 80,550
Collectively evaluated for impairment |  |  | 1,414,626 |  |  | 2,959,978 |  |  | 574,118 |  |  | 241,925 |  |  | 1,627 |  |  |  |  |  | 5,192,274
Acquired portfolio |  |  | 68,402 |  |  | 802,190 |  |  | 19,345 |  |  | 71,177 |  |  | 226 |  |  |  |  |  | 961,340
Acquired with deteriorated credit quality |  |  | 3,878 |  |  | 5,555 |  |  | - |  |  | 4,084 |  |  | - |  |  |  |  |  | 13,517
Total |  | $ | 1,521,967 |  | $ | 3,783,550 |  | $ | 617,747 |  | $ | 322,564 |  | $ | 1,853 |  |  |  |  | $ | 6,247,681
Allowance for Credit Losses on Financing Receivables [Table Text Block] |
|  | Three Months Ended June 30, 2021
|  |  |  |  |  | Commercial |  | Commercial |  | Residential |  |  |  |  |  |  |  |  |  |  |
|  | Commercial |  | real estate |  | construction |  | real estate |  | Consumer |  | Unallocated |  | Total
|  | (dollars in thousands)
Balance as of March 31, 2021 |  | $ | 26,435 |  |  | $ | 43,897 |  |  | $ | 5,521 |  | $ | 4,704 |  |  | $ | 11 |  |  | $ | - |  | $ | 80,568 |
Charge-offs |  |  | (50 | ) |  |  | (155 | ) |  |  | - |  |  | (7 | ) |  |  | - |  |  |  | - |  |  | (212 | )
Recoveries |  |  | 13 |  |  |  | - |  |  |  | - |  |  | - |  |  |  | 1 |  |  |  | - |  |  | 14 |
(Reversal of) provision for credit losses - loans |  |  | (831 | ) |  |  | 73 |  |  |  | (594 | ) |  | (331 | ) |  |  | (3 | ) |  |  | - |  |  | (1,686 | )
Balance as of June 30, 2021 |  | $ | 25,567 |  |  | $ | 43,815 |  |  | $ | 4,927 |  | $ | 4,366 |  |  | $ | 9 |  |  | $ | - |  | $ | 78,684 |
|  | Six Months Ended June 30, 2021
|  |  |  |  |  | Commercial |  | Commercial |  | Residential |  |  |  |  |  |  |  |  |  |  |
|  | Commercial |  | real estate |  | construction |  | real estate |  | Consumer |  | Unallocated |  | Total
|  | (dollars in thousands)
Balance as of December 31, 2020 |  | $ | 28,443 |  |  | $ | 39,330 |  |  | $ | 8,194 |  | $ | 2,687 |  |  | $ | 4 |  |  | $ | 568 |  | $ | 79,226 |
Day 1 effect of CECL |  |  | (4,225 | ) |  |  | 9,605 |  |  |  | (961 | ) |  | 2,697 |  |  |  | 9 |  |  |  | (568 | ) |  | 6,557 |
Balance as of January 1, 2021 as adjusted for changes in accounting principle |  |  | 24,218 |  |  |  | 48,935 |  |  |  | 7,233 |  |  | 5,384 |  |  |  | 13 |  |  |  | - |  |  | 85,783 |
Charge-offs |  |  | (50 | ) |  |  | (155 | ) |  |  | - |  |  | (7 | ) |  |  | - |  |  |  | - |  |  | (212 | )
Recoveries |  |  | 73 |  |  |  | - |  |  |  | - |  |  | - |  |  |  | 2 |  |  |  | - |  |  | 75 |
Provision for (reversal of) credit losses - loans |  |  | 1,326 |  |  |  | (4,965 | ) |  |  | (2,306 | ) |  | (1,011 | ) |  |  | (6 | ) |  |  | - |  |  | (6,962 | )
Balance as of June 30, 2021 |  | $ | 25,567 |  |  | $ | 43,815 |  |  | $ | 4,927 |  | $ | 4,366 |  |  | $ | 9 |  |  | $ | - |  | $ | 78,684 |
On January 1, 2021, the Company adopted CECL, which replaced the incurred loss method we used in prior periods for determining the provision for credit losses and the ACL. Under CECL, we record an expected loss of all cash flows we do not expect to collect at the inception of the loan. The adoption of CECL resulted in an increase in our ACL for loans of $6.6 million, which did not impact our consolidated income statement. We recorded a reversal of credit losses for loans of $1.7 million and $7.0 million during the three and six months ended June 30, 2021, respectively, utilizing the CECL methodology, which was the result of an improved macroeconomic environment from January 1, 2021, the day of adoption. 29 Table of Contents
CONNECTONE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 5. Loans and the Allowance for Credit Losses – (continued)
|  | Three Months Ended June 30, 2020
|  |  |  |  |  | Commercial |  | Commercial |  | Residential |  |  |  |  |  |  |  |  |  |  |
|  | Commercial |  | real estate |  | construction |  | real estate |  | Consumer |  | Unallocated |  | Total
|  | (dollars in thousands)
Balance as of 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 credit losses - loans |  |  | 665 |  |  |  | 617 |  |  |  | 207 |  |  | 78 |  |  |  | 2 |  |  |  | 13,431 |  |  | 15,000 |
Balance as of June 30, 2020 |  | $ | 9,345 |  |  | $ | 22,655 |  |  | $ | 8,026 |  | $ | 1,690 |  |  | $ | 5 |  |  | $ | 27,003 |  | $ | 68,724 |
|  | Six Months Ended June 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 |  |  | (504 | ) |  |  | - |  |  |  | - |  |  | (69 | ) |  |  | (3 | ) |  |  | - |  |  | (576 | )
Recoveries |  |  | 2 |  |  |  | 2 |  |  |  | - |  |  | 3 |  |  |  | - |  |  |  | - |  |  | 7 |
Provision |  |  | 1,498 |  |  |  | 1,800 |  |  |  | 722 |  |  | 71 |  |  |  | 5 |  |  |  | 26,904 |  |  | 31,000 |
Balance as of June 30, 2020 |  | $ | 9,345 |  |  | $ | 22,655 |  |  | $ | 8,026 |  | $ | 1,690 |  |  | $ | 5 |  |  | $ | 27,003 |  | $ | 68,724 |
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 six months ended June 30, 2021:
|  |  |  | Pre-Modification Outstanding |  | Post-Modification Outstanding
|  | Number of Loans |  | Recorded Investment |  | Recorded Investment
Troubled debt restructurings: |  | (dollars in thousands)
Commercial |  |  | 3 |  | $ | 631 |  | $ | 631
Commercial real estate |  |  | 3 |  |  | 8,603 |  |  | 8,603
Commercial construction |  |  | 1 |  |  | 1,641 |  |  | 1,641
Residential real estate |  |  | 3 |  |  | 1,758 |  |  | 1,758
Total |  |  | 10 |  | $ | 12,633 |  | $ | 12,633
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, 2021:
|  |  |  | Unpaid
|  | Number of Loans |  | Principal Balance
|  | (dollars in thousands)
Commercial |  |  | 59 |  | $ | 17,260
Commercial real estate |  |  | 20 |  |  | 82,760
Total |  |  | 79 |  | $ | 100,020
Schedule of ACL for off-balance sheet credit exposure | The Company has recorded an ACL for unfunded credit commitments, which was recorded in other liabilities. The provision is recorded within the (reversal of) provision for credit losses on the Company’s income statement. The following table presents the ACL for unfunded commitments for the three and six months ended June 30, 2021 (dollars in thousands):
|  | Three Months Ended
|  | June 30, 2021
Balance as of beginning of period |  | $ | 2,343
Provision for credit losses - unfunded commitments |  |  | 37
Balance as of end of period |  | $ | 2,380
|  | Six Months Ended
|  | June 30, 2021
Balance as of beginning of period |  | $ | -
Day 1 Effect of CECL |  |  | 2,833
Reversal of credit losses - unfunded commitments |  |  | (453)
Balance as of end of period |  | $ | 2,380
Schedule of (Reversal of) provision for credit losses | The following table summarizes the (reversal of) provision for credit losses for the three and six months ended June 30, 2021 (dollars in thousands):
|  | Three Months Ended June 30, 2021 |  | Six Months Ended June 30, 2021
(Reversal of) provision for credit losses - loans |  | $ | (1,686) |  | $ | (6,962)
(Reversal of) provision for credit losses - unfunded commitments |  |  | 37 |  |  | (453)
(Reversal of) provision for credit losses |  | $ | (1,649) |  | $ | (7,415)

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