	Page
PART I – FINANCIAL INFORMATION	3
Item 1.Financial Statements	3
Consolidated Statements of Condition atas of June 30, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020	3
Consolidated Statements of Income for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~ 2020(unaudited)	4
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~ 2020(unaudited)	5
Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020 ~~and 2019~~ (unaudited)	6
Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 ~~and 2019~~ (unaudited)	8
Notes to Consolidated Financial Statements (unaudited)	10


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	4546
Item 3.Qualitative and Quantitative Disclosures about Market Risks	58
~~Item 4.Controls and Procedures~~60	59
Item 4.Controls and Procedures	61
PART II – OTHER INFORMATION	62
Item 1.Legal Proceedings	6062
Item 1a.Risk Factors	6062
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	6162
Item 3.Defaults Upon Senior Securities	61
~~Item 4.Mine Safety Disclosures~~62	61
~~Item 5.Other Information~~	61
~~Item 6.Exhibits~~	62
~~SIGNATURES~~Item 4.Mine Safety Disclosures	62
Item 5.Other Information	62
Item 6.Exhibits	63
SIGNATURES	64

~~ConnectOne Bancorp, Inc. and Subsidiaries~~CONNECTONE BANCORP, INC. AND SUBSIDIARIES

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except for per share data)	2020			2019			2020			2019			2021			2020			2021			2020
Interest income
Interest and fees on loans	$	75,797		$	63,524		$	148,733		$	123,850		$	71,101		$	75,797		$	141,563		$	148,733
Interest and dividends on investment securities:
Taxable		1,712			2,573			3,778			5,515			995			1,712			2,083			3,778
Tax-exempt		647			1,081			1,460			2,208			608			647			1,374			1,460
Dividends		442			410			842			867			263			442			519			842
Interest on federal funds sold and other short-term investments		79			290			578			647			84			79			133			578
Total interest income		78,677			67,878			155,391			133,087			73,051			78,677			145,672			155,391
Interest expense
Deposits		13,597			16,596			30,809			31,947			6,424			13,597			14,009			30,809
Borrowings		4,290			5,752			8,511			10,658			3,618			4,290			7,491			8,511
Total interest expense		17,887			22,348			39,320			42,605			10,042			17,887			21,500			39,320
Net interest income		60,790			45,530			116,071			90,482			63,009			60,790			124,172			116,071
Provision for loan losses		15,000			1,100			31,000			5,600
Net interest income after provision for loan losses		45,790			44,430			85,071			84,882
(Reversal of) provision for credit losses														(1,649	)		15,000			(7,415	)		31,000
Net interest income after (reversal of) provision for credit losses														64,658			45,790			131,587			85,071
Noninterest income
Deposit, loan and other income														2,222			3,212			3,390			4,499
Income on bank owned life insurance		1,128			833			2,095			1,655			1,185			1,128			2,249			2,095
Net gains on sale of loans held-for-sale		237			46			630			65			847			237			1,554			630
Deposit, loan and other income		3,212			914			4,499			1,700
Net gains on equity securities		44			158			222			261
Net (losses) gains on sales of securities available-for-sale		-			(9	)		29			(1	)
Gain on sale of branches														0-			0-			674			0-
Net gains (losses) on equity securities														23			44			(164	)		222
Net gains on sales/redemption of securities available-for-sale														195			0-			195			29
Total noninterest income		4,621			1,942			7,475			3,680			4,472			4,621			7,898			7,475
Noninterest expenses
Salaries and employee benefits		14,529			11,793			29,122			23,748			15,351			14,529			30,983			29,122
Occupancy and equipment		3,156			2,357			6,627			4,852			3,187			3,156			6,591			6,627
FDIC insurance		1,093			825			1,949			1,580			580			1,093			1,515			1,949
Professional and consulting		1,673			1,370			3,247			2,579			2,117			1,673			4,073			3,247
Marketing and advertising		426			397			730			607			278			426			519			730
Data processing		1,586			1,139			3,059			2,294			1,603			1,586			3,139			3,059
Merger and restructuring expenses		5,146			331			14,640			7,893			0-			5,146			0-			14,640
Loss on extinguishment of debt		-			1,047			-			1,047
Amortization of core deposit intangibles		652			364			1,304			728			508			652			1,015			1,304
Increase in value of acquisition price		2,333			-			2,333			-			0-			2,333			0-			2,333
Other components of net periodic pension expense		(29	)		29			(59	)		57			(67	)		(29	)		(134	)		(59	)
Other expenses		2,498			1,938			5,169			4,267			2,702			2,498			5,043			5,169
Total noninterest expenses		33,063			21,590			68,121			49,652			26,259			33,063			52,744			68,121
Income before income tax expense		17,348			24,782			24,425			38,910			42,871			17,348			86,741			24,425
Income tax expense		2,516			5,501			3,563			7,994			10,652			2,516			21,523			3,563
Net income	$	14,832		$	19,281		$	20,862		$	30,916		$	32,219		$	14,832		$	65,218		$	20,862
Earnings per common share:
Basic	$	0.37		$	0.54		$	0.53		$	0.87		$	0.81		$	0.37		$	1.64		$	0.53
Diluted		0.37			0.54			0.52			0.87			0.81			0.37			1.63			0.52

~~ConnectOne Bancorp, Inc. and Subsidiaries~~CONNECTONE BANCORP, INC. AND SUBSIDIARIES

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
(in thousands)	2020			2019			2020			2019			2021			2020			2021			2020
Net income	$	14,832		$	19,281		$	20,862		$	30,916		$	32,219		$	14,832		$	65,218		$	20,862

Other comprehensive income (loss):

Unrealized gains and losses:
Unrealized holding (losses) gains on available-for-sale securities arising during the period		(1,423	)		4,027			4,829			9,585
Unrealized holding gains (losses) on available-for-sale securities arising during the period														271			(1,423	)		(5,169	)		4,829
Tax effect		392			(1,055	)		(1,299	)		(2,477	)		(68	)		392			1,364			(1,299	)
Net of tax		(1,031	)		2,972			3,530			7,108			203			(1,031	)		(3,805	)		3,530

Reclassification adjustment for realized losses (gains) included in net income		-			9			(29	)		1
Reclassification adjustment for realized gains included in net income														(195	)		0-			(195	)		(29	)
Tax effect		-			(2	)		6			-			48			0-			48			6
Net of tax		-			7			(23	)		1			(147	)		0-			(147	)		(23	)

Unrealized losses on cash flow hedges		(566	)		(762	)		(3,315	)		(929)			(42	)		(566	)		(18	)		(3,315	)
Tax effect		140			255			913			282			15			140			4			913
Net of tax		(426	)		(507	)		(2,402	)		(647)			(27	)		(426	)		(14	)		(2,402	)

Reclassification adjustment for realized losses (gains) included in net income		318			(177	)		311			(358	)
Reclassification adjustment for realized losses on cash flow hedges included in net income														584			318			1,215			311
Tax effect		(71	)		39			(69	)		79			(167	)		(71	)		(344	)		(69	)
Net of tax		247			(138	)		242			(279	)		417			247			871			242

Unrealized pension plan gains and losses:
Unrealized pension plan losses before reclassifications		-			-			-			(562	)
Reclassification adjustment for pension plan amortization included in net income														75			76			150			151
Tax effect		-			-			-			158			(22	)		(21	)		(42	)		(42	)
Net of tax		-			-			-			(404	)		53			55			108			109

Reclassification adjustment for amortization included in net income		76			90			151			179
Tax effect		(21	)		(25)			(42	)		(50)
Net of tax		55			65			109			129

Total other comprehensive (loss) income		(1,155	)		2,399			1,456			5,908
Total other comprehensive income (loss)														499			(1,155	)		(2,987	)		1,456

Total comprehensive income	$	13,677		$	21,680		$	22,318		$	36,824		$	32,718		$	13,677		$	62,231		$	22,318

~~ConnectOne Bancorp, Inc. and Subsidiaries~~CONNECTONE BANCORP, INC. AND SUBSIDIARIES

Six Months Ended June 30, 2020

(dollars in thousands, except for per share data)

Preferred
Stock

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
(Loss) Income

Total
Stockholders’
Equity
Balance as of December 31, 2019

$
-

$
468,571

$
21,344

$
271,782

$
(29,360
)

$
(1,147
)

$
731,190

Net income

-

-

-

20,862

-

-

20,862

Other comprehensive income, net of tax

-

-

-

-

-

1,456

1,456

Cash dividends declared on common stock ($0.090 per share)

-

-

-

(3,956
)

-

-

(3,956
)
Exercise of stock options (25,413 shares)

-

-

163

-

-

-

163

Restricted stock grants (68,853 shares)

-

-

-

-

-

-

-

Net shares issued in satisfaction of restricted stock units earned
(16,541 shares)

-

-

-

-

-

-

-

Net shares issued in satisfaction of performance units earned (22,402 shares)

-

-

-

-

-

-

-

Share redemption for tax withholdings on performance units and restricted stock units earned

-

-

(639
)

-

-

-

(639
)
Repurchase of treasury stock (54,693 shares)

-

-

-

-

(911
)

-

(911
)
Stock issued (4,602,450 shares) in acquisition of Bancorp of New Jersey

-

118,375

-

-

-

-

118,375

Stock-based compensation

-

-

1,201

-

-

-

1,201

Balance as of June 30, 2020

$
-

$
586,946

$
22,069

$
288,688

$
(30,271
)

$
309

$
867,741

	Six Months Ended June 30, 2021
(dollars in thousands, except for per share data)	Preferred Stock		Common Stock		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity
Balance as of December 31, 2020	$	0-	$	586,946	$	23,887		$	331,951		$	(30,271	)	$	2,797		$	915,310
Cumulative effect of change in accounting principle (see note 1b. “Authoritative Accounting Guidance Presentation”), net of tax		-		-		-			(2,925	)		-			-			(2,925	)
Balance as of January 1, 2021 as adjusted for changes in accounting principle		-		586,946		23,887			329,026			(30,271	)		2,797			912,385
Net income		-		-		-			65,218			-			-			65,218
Other comprehensive loss, net of tax		-		-		-			-			-			(2,987	)		(2,987	)
Cash dividends declared on common stock ($0.20 per share)		-		-		-			(7,964	)		-			-			(7,964	)
Exercise of stock options (5,449 shares)		-		-		45			-			-			-			45
Restricted stock grants, net of forfeitures (47,982 shares)		-		-		-			-			-			-			0-
Stock grants (446 shares)		-		-		-			-			-			-			0-
Net shares issued in satisfaction of restricted stock units earned (14,711 shares)		-		-		-			-			-			-			0-
Net shares issued in satisfaction of performance units earned (34,458 shares)		-		-		-			-			-			-			0-
Share redemption for tax withholdings on performance units and restricted stock units earned		-		-		(1,283	)		-			-			-			(1,283	)
Repurchase of treasury stock (93,629 shares)		-		-		-			-			(2,411	)		-			(2,411	)
Stock-based compensation expense		-		-		1,957			-			-			-			1,957

Balance as of June 30, 2021	$	0-	$	586,946	$	24,606		$	386,280		$	(32,682	)	$	(190	)	$	964,960

Six Months Ended June 30, 2019

(dollars in thousands, except for per share data)
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
(Loss) Income
Total
Stockholders’
Equity
Balance as of December 31, 2018
$
-
$
412,546
$
15,542
$
211,345
$
(16,717
)
$
(8,789
)
$
613,927
Net income
-
-
-
30,916
-
-
30,916
Other comprehensive income, net of tax
-
-
-
-
-
5,908
5,908
Cash dividends declared on common stock ($0.18 per share)
-
-
-
(6,612
)
-
-
(6,612
)
Exercise of stock options (28,937 shares)
-
-
265
-
-
-
265
Restricted stock grants (52,480 shares)
-
-
-
-
-
-
-
Net restricted stock units issued (4,904 shares)
-
-
-
-
-
-
-
Repurchase of treasury stock (240,018 shares)
-
-
-
-
(5,175
)
-
(5,175
)
Net performance units issued (26,517 shares)
-
-
196
-
-
-
196
Stock issued (3,032,496 shares) in acquisition of Greater Hudson Bank
-
56,025
-
-
-
-
56,025
Restricted stock issued (119,008 shares) in acquisition of BoeFly, LLC
-
-
2,500
-
-
-
2,500
Stock-based compensation expense

-

-

1,274

-

-

-

1,274

Balance as of June 30, 2019
$
-
$
468,571
$
19,777
$
235,649

$
(21,892
)
$
(2,881
)
$
699,224

	Six Months Ended June 30, 2020
(dollars in thousands, except for per share data)	Preferred Stock		Common Stock		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity
Balance as of December 31, 2019	$	0-	$	468,571	$	21,344		$	271,782		$	(29,360	)	$	(1,147	)	$	731,190
Net income		-		-		-			20,862			-			-			20,862
Other comprehensive income, net of tax		-		-		-			-			-			1,456			1,456
Cash dividends declared on common stock ($0.090 per share)		-		-		-			(3,956	)		-			-			(3,956	)
Exercise of stock options (25,413 shares)		-		-		163			-			-			-			163
Restricted stock grants (68,853 shares)		-		-		-			-			-			-			0-
Net shares issued in satisfaction of restricted stock units earned (16,541 shares)		-		-		-			-			-			-			0-
Net shares issued in satisfaction of performance units earned (22,402 shares)		-		-		-			-			-			-			0-
Share redemption for tax withholdings on performance units and restricted stock units earned		-		-		(639	)		-			-			-			(639	)
Repurchase of treasury stock (54,693 shares)		-		-		-			-			(911	)		-			(911	)
Stock issued (4,602,450 shares) in acquisition of Bancorp of New Jersey		-		118,375		-			-			-			-			118,375
Stock-based compensation expense		-		-		1,201			-			-			-			1,201

Balance as of June 30, 2020	$	0-	$	586,946	$	22,069		$	288,688		$	(30,271	)	$	309		$	867,741

	Six Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)	2020			2019			2021			2020
Cash flows from operating activities
Net income	$	20,862		$	30,916		$	65,218		$	20,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		1,860			1,597			1,746			1,860
Provision for loan losses		31,000			5,600
(Reversal of) provision for credit losses								(7,415	)		31,000
Amortization of intangibles		1,304			728			1,015			1,304
Net accretion of loans		(3,752	)		(2,450	)		(2,803	)		(3,752	)
Accretion on bank premises		(45	)		(43	)		(45	)		(45	)
Accretion on deposits		(2,673	)		(639	)		(1,248	)		(2,673	)
(Accretion) amortization on borrowings, net		(104	)		114
Accretion on borrowings, net								(36	)		(104	)
Stock-based compensation		1,201			1,470			1,957			1,201
(Gains) losses on sales of securities available-for-sale, net		(29	)		1
Gains on equity securities, net		(222	)		(261	)
Gains on sales/redemptions of securities available-for-sale, net								(195	)		(29	)
Losses (gains) on equity securities, net								164			(222	)
Gain on sale of branches								(674	)		0-
Net losses on disposition of fixed assets								27			0-
Gains on sales of loans held-for-sale, net		(630	)		(65	)		(1,554	)		(630	)
Loans originated for resale		(17,141	)		(4,044	)		(30,600	)		(17,141	)
Proceeds from sale of loans held-for sale		30,894			4,109			40,043			30,894
Loss on extinguishment of debt		-			1,047
Payments on loans held-for-sale								18			172
Gain on sale of other real estate owned								(18	)		0-
Increase in cash surrender value of bank owned life insurance		(2,095	)		(1,655	)		(2,249	)		(2,095	)
Amortization of premiums and accretion of discounts on securities available-for-sale, net		2,512			1,759			3,152			2,512
Amortization of subordinated debentures issuance costs		170			164			152			170
Increase in accrued interest receivable		(6,035	)		(624	)
Decrease (increase) in accrued interest receivable								1,316			(6,035	)
Net change in operating leases		2,051			1,390			(439	)		2,051
Decrease in other assets		25,042			4,231			48,236			25,042
Decrease in other liabilities		(8,602	)		(8,078	)
Increase (decrease) in other liabilities								3,705			(8,602	)
Net cash provided by operating activities		75,568			35,267			119,473			75,740

Cash flows from investing activities
Investment securities available-for-sale:
Purchases		(108,584	)		(141,739	)		(126,641	)		(108,584	)
Sales		19,624			150,332			0-			19,624
Maturities, calls and principal repayments		97,625			91,028			147,342			97,625
Purchases of equity securities		(2,000	)		-			0-			(2,000	)
Sales of equity securities		-			569
Net redemptions (purchases) of restricted investment in bank stocks		3,805			(631	)
Payments on loans held-for-sale		172			-
Net redemptions of restricted investment in bank stocks								2,536			3,805
Net increase in loans		(463,094	)		(186,892	)		(173,384	)		(463,094	)
Purchases of bank owned life insurance		(25,000	)		-			(25,000	)		(25,000	)
Purchases of premises and equipment		(855	)		(649	)		(541	)		(855	)
Proceeds from sale of branches								1,087			0-
Proceeds from sale of OREO		992			-			321			992
Cash and cash equivalents acquired in acquisition		111,368			13,741
Cash consideration paid in acquisition		(23,977	)		(2,530	)
Cash and cash equivalents acquired in acquisition, net								0-			87,391
Net cash used in investing activities		(389,924	)		(76,771	)		(174,280	)		(390,096	)

Cash flows from financing activities
Net increase in deposits		276,614			133,580			234,537			276,614
Increase in subordinated debentures		73,421			-
(Repayment of) increase in subordinated debentures								(50,000	)		73,421
Advances of borrowings		1,376,489			892,000			100,000			1,376,489
Repayments of borrowings		(1,259,358	)		(960,031	)		(172,456	)		(1,259,358	)
Repurchase of treasury stock		(911	)		(5,175	)		(2,411	)		(911	)
Cash dividends paid on common stock		(3,545	)		(5,851	)		(7,964	)		(3,545	)
Proceeds from exercise of stock options		163			265			45			163
Share redemption for tax withholdings on performance units and restricted stock units earned		(639	)		-			(1,283	)		(639	)
Net cash provided by financing activities		462,234			54,788			100,468			462,234
Net change in cash and cash equivalents		147,878			13,284			45,661			147,878
Cash and cash equivalents at beginning of period		201,483			172,366			303,756			201,483

Cash and cash equivalents at end of period	$	349,361		$	185,650		$	349,417		$	349,361

Note 1a. Nature of Operations, Principles of Consolidation and Risk and Uncertainties

ConnectOne Bancorp, Inc. (the “Parent Corporation”) is incorporated under the laws of the State of New Jersey and is a registered bank holding company. The Parent Corporation’s business currently consists of the operation of its wholly-owned subsidiary, ConnectOne Bank (the “Bank” and, collectively with the Parent Corporation and the Parent Corporation’s subsidiaries, the “Company”). The Bank’s subsidiaries include Union Investment Co. (a New Jersey investment company), Twin Bridge Investment Co. (a ~~Delaware~~New Jersey investment company), ConnectOne Preferred Funding Corp. (a New Jersey real estate investment trust), Center Financial Group, LLC (a New Jersey financial services company), Center Advertising, Inc. (a New Jersey advertising company), Morris Property Company, LLC, (a New Jersey limited liability company), Volosin Holdings, LLC, (a New Jersey limited liability company), NJCB Spec-1, LLC (a New Jersey limited liability company), Port Jervis Holdings, LLC (a New Jersey limited liability company), BONJ Special Properties, LLC (a New Jersey limited liability company) and BoeFly, Inc. (a New Jersey ~~online business lending marketplace)~~financial technology company).

The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey and through its ~~thirty~~twenty-five other banking offices. Substantially all loans are secured with various types of collateral, including business assets, consumer assets and commercial/residential real estate. Each borrower’s ability to repay its loans is dependent on the conversion of assets, cash flows generated from the borrowers’ business, real estate rental and consumer wages.

The preceding unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2020,~~2021, or for any other interim period. The Company’s ~~2019~~2020 Annual Report on Form 10-K should be read in conjunction with these consolidated financial statements.

The consolidated financial statements have been prepared in conformity with GAAP. Some items in the prior year consolidated financial statements were reclassified to conform to current presentation. Reclassifications had no effect on prior year net income or stockholders’ equity.

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates.

As previously disclosed, on March 11, 2020 the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to ~~spread throughout~~impact the United States and ~~around~~ the world. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to, among other things, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic. The COVID-19 pandemic has adversely affected, and continues to adversely affect economic activity globally, nationally and locally. Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. Although economic activity has accelerated in 2021, and the United States continues to implement a COVID-19 vaccination program, COVID-19, it’s variants and actions taken to mitigate the spread of it have had and ~~are expected to continue to~~may in the future have an adverse impact on the economies and financial markets of many countries and parts of the United States, including the New Jersey/New York metropolitan area in which the Company primarily operates. Although the Company has been able to continue operations while taking steps to ensure the safety of employees and customers, COVID-19 could ~~also potentially create widespread business continuity issues for~~impact the ~~Company.~~

Company’s operations in the future. Federal Reserve reductions in interest rates and other effects of the COVID-19 pandemic may adversely affect the Company's financial condition and results of operations in future periods. Although state and local governments have lifted many restrictions on conducting business, it is possible that restrictions could be reimposed. It is therefore unknown how long COVID-19 may continue to impact the ~~adverse conditions associated with the COVID-19 pandemic will last~~economy and what the complete financial effect will be to the Company. It is reasonably possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including the determination of the allowance for ~~loan~~credit losses on loans, fair value of financial instruments, impairment of goodwill and other intangible assets and income taxes.

~~ASU No. 2017-04,~~ ~~“Intangibles – Goodwill and Other (Topic 350).”~~ ASU 2017-04 aims to simplify the subsequent measurement of goodwill. Under these amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets and still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 was effective forEffective January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2016-13 “ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on ~~January 1, 2020 and did not have a material impact on~~Financial Instruments”, which replaced the ~~Company’s financial statement disclosures.~~

~~ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities~~.” ASU No. 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not requireprior incurred loss methodology with an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.

~~ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~.” The amendments in this update modify disclosure requirements on fair value measurements by removing, modifying and adding certain disclosure requirements. The amendments primarily pertain to Level 3 fair value measurements and depending on the amendment are applied either prospectively or retrospectively. ASU 2018-03 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.

~~ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement~~expected loss methodology that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.

~~In June 2016, the FASB issued guidance related to credit losses on financial instruments. This update, commonly~~ referred to as the current expected credit ~~losses methodology~~loss (“CECL”~~), will change~~ or the ~~accounting for credit losses on loans and debt securities. Under the new guidance, the Company’s~~“CECL Standard”). The measurement of expected credit losses under the CECL Standard is applicable to financial assets measured at amortized cost, including portfolio loans and investment securities classified as held-to-maturity (“HTM”). It also applies to off-balance sheet credit exposures including loan commitments, standby letters of credit, financial guarantees and other similar instruments. In addition, the CECL Standard changes the accounting for investment securities classified as ("AFS"), including a requirement that estimated credit losses on AFS securities be presented as an allowance rather than as a direct write-down of the carrying balance of securities which we do not intend to sell, or believe that it is more likely than not, that we will be required to sell.

The Company adopted the CECL Standard using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. As discussed further below, purchased credit deteriorated assets were measured on a prospective basis in accordance with the CECL Standard and all purchase credit impaired loans as of December 31, 2020 were considered purchased credit deteriorated loans upon adoption. Results for reporting periods beginning after January 1, 2021 are presented under the CECL Standard while prior period amounts continue to be ~~based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability~~reported in accordance with previously applicable accounting guidance. The adoption of the ~~reported amount. For loans, this measurement will take place at~~CECL Standard resulted in the ~~time the~~following adjustments to our financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model previously required, but still permitted, under GAAP, which delays recognition until it is probable a loss has been incurred. ASU 2016-13 was effective, subject to optional delay discussed below, for the Company onstatements as of January 1, ~~2020.~~2021 (dollars in thousands):

Loans designated as purchased credit impaired loans (“PCI”) and accounted for under Accounting Standards Codification (“ASC”) 310-30 were designated as purchased with credit deterioration loans (“PCD”). In accordance with the ~~accounting relief provisions~~CECL Standard, the Company did not reassess whether PCI loans met the criteria of PCD loans as of the ~~CARES Act,~~date of adoption and determined all PCI loans were PCD loans. The Company recorded an increase to the balance of PCD loans and an increase to the ACL for loans of $5.2 million, which represented the expected credit losses for PCD loans. The remaining non-credit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as ~~it currently stands,~~of January 1, 2021 over the remaining estimated life of the loans. Also, in accordance with the CECL Standard, the Company ~~elected~~did not reassess whether modifications to ~~delay the adoption of FASB’s new standard covering the CECL model until the earlier~~individual acquired financial assets were troubled debt restructurings (“TDRs”) as of the ~~termination~~ date of the national emergency declared by President Trump on March 13, 2020 under the National Emergencies Act, related to the outbreak of COVID-19, and December 31, 2020. Management reached this decision due to the complexities of CECL loan loss forecasting exacerbated by the quickly changing economic environment resultingadoption.

ACL for loans: The ACL for loans is a valuation account that is deducted from the ~~COVID-19 pandemic. Once~~amortized cost basis of portfolio loans to present the ~~delay provision~~net amount expected to be collected on portfolio loans over their contractual life. Loans are charged-off against the allowance when we believe the uncollectibility of a loan balance has been ~~terminated, adoption will~~confirmed, and the expected recoveries do not exceed the aggregate of amounts previously charged-off or expected to be retroactive to January 1, 2020. During 2019, the Company implemented the CECL methodology and ran it concurrently with the historical incurred method. While the Company has not finalized the impact of implementing CECL, the Company expects to recognize a one-time cumulative effect adjustment to the allowance and beginning retained earnings, net of tax, upon adoption. The future impact of CECL on the Company’s allowance for credit losses and provision expense subsequent to the initial adoption will depend on changes in the loan portfolio, economic conditions and refinements to key assumptions including forecasting and qualitative factors. The Company measured its allowance under its current incurred loan loss model as of June 30, 2020.charged-off.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company currently utilizes a one-year reasonable and supportable forecast period followed by a one-year period over which estimated losses revert to historical loss experience for the remaining life of the loan. The measurement of expected credit loss under the CECL methodology is applicable to financial assets measured at amortized cost, including loans and held to maturity investments and it also applies to certain off-balance sheet credit exposures.

The ACL for loans is measured on a collective (pool) basis when similar risk characteristics exist. Generally, for all other loan types, the estimated expected credit loss is also calculated at the loan level and pool assignments are only utilized for aggregating the allowance estimates of similar loan types for financial statement disclosure purposes. Loan segments have unique risk characteristics with respect to credit quality and are as follows:

The repayment of commercial loans is generally dependent on the creditworthiness and cash flow of borrowers, and if applicable, guarantors, which may be negatively impacted by adverse economic conditions. While the majority of these loans are secured, collateral type, marketing, coverage, valuation and monitoring is not as uniform as in other portfolio classes and recovery from liquidation of such collateral may be subject to greater variability.

Payment on commercial mortgages is driven principally by operating results of the managed properties or underlying business and secondarily by the sale or refinance of such properties. Both primary and secondary sources of repayment, and value of the properties in liquidation, may be affected to a greater extent by adverse conditions in the real estate market or the economy in general.

Properties underlying construction, land and land development loans often do not generate sufficient cash flows to service debt and thus repayment is subject to the ability of the borrower and, if applicable, guarantors, to complete development or construction of the property and carry the project, often for extended periods of time. As a result, the performance of these loans is contingent upon future events whose probability at the time of origination is uncertain.

The ability of borrowers to service debt in the residential and consumer loan portfolios is generally subject to personal income which may be impacted by general economic conditions, such as increased unemployment levels. These loans are predominately collateralized by first and/or second liens on single family properties. If a borrower cannot maintain the loan, the Company’s ability to recover against the collateral in sufficient amount and in a timely manner may be significantly influenced by market, legal and regulatory conditions.

Individually Analyzed Loans: The Company will evaluate individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. Loans will transition from defined segments for individual analysis when credit characteristics, or risk traits, change in a material manner. A loan is considered for individual analysis when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining individual analysis include payment status and the probability of collecting scheduled principal and interest payments when due. Loans for which the terms have been modified as a concession to the borrower due to the borrower experiencing financial difficulties are considered TDRs and are classified as individually analyzed. Loans considered to be TDRs can be categorized as nonaccrual or performing. All PCD loans will be considered as individual analyzed. Generally, individually analyzed loans consist of nonaccrual loans and performing troubled debt restructurings. Of this group of loans, loans of $250,000 and over are individually evaluated, while loans with balances less than $250,000 are collectively evaluated, and, accordingly, are not separately identified for analysis or disclosures. Instruments will not be included in both collective and individual analysis. Individual analysis will establish a specific reserve for instruments in scope.

For collateral dependent loans, when it is determined that a foreclosure is probable, the ACL will be determined on a loan level basis using the fair value of the collateral as of the reporting date, less estimated disposition costs (“net fair value”), which will ensure that the credit loss is not delayed until the time at which the actual foreclosure takes place. In the event that this fair value is less the then amortized cost basis of these specific loans, we will recognize the difference between the net fair value at the reporting date and the amortized cost basis in the ACL. If the fair value of the collateral has increased as of the ACL evaluation date, the increase in the fair value of the collateral is reflected through a reduction in the ACL. ACL adjustments for estimated disposition costs are not appropriate when the repayment of a collateral-dependent loan is expected from the operation of the collateral. If repayment is based upon future expected cash flows, the present value of the expected future cash flows discounted at the loan’s original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as the allowance for credit losses. The effective interest rate used to discount expected cash flows is adjusted to incorporate expected prepayments, if applicable.

For charge-off and recoveries we will generally charge-off a loan balance after an analysis is completed which indicates that the collectability of the full principal is in doubt. Charge-offs are charged against the allowance in the period in which the loans are deemed to be uncollectible. Any expected future recoveries of amounts which were previously charged-off or expected to be charged-off will be included in the ACL, as the recoveries represent a component of the net amount expected to be collected. Expected recoveries in the ACL shall not exceed amounts previously charged-off or expected to be charged-off.

Investment Securities: Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in comprehensive income, net of tax. Interest income includes amortization of purchase premiums or discounts. Premiums and discounts on securities are generally amortized using the level-yield method without estimating prepayments, except for mortgage-backed securities, where prepayment rates are estimated. Premiums on callable investment securities are amortized to their earliest call date. Gains and losses on sales of securities are recorded on the trade date and determined using the specific identification method.

ACL - on investment securities classified as available-for-sale: For available-for-sale investment securities which are in an unrealized loss position, the Company first assess whether we intend to sell, or it is more likely than not, that we will be required to sell the security before recovery of the amortized cost basis. If either of the criteria is met, the amortized cost basis of the security is written down to fair value through income. For available-for-sale investment securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from an actual or estimated credit loss event or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, changes to the rating of the security, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss is likely, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, an ACL is recorded for the estimated credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when we believe the uncollectibility of an available-for-sale security has been confirmed or if either of the criteria regarding intent or requirement to sell is met.

ASU No. 2021-03, “Intangibles �� Goodwill and Other (Topic 350).” ASU 2021-03 requires an entity to identify and evaluate goodwill impairment triggering events when they occur to determine whether it is more likely than not that the fair value of a reporting unit (or entity, if the entity has elected the accounting alternative for amortizing goodwill and chosen that option) is less than its carrying amount. If an entity determines that it is more likely than not that the goodwill is impaired. It must test goodwill for impairment using the triggering event date as the measurement date. An entity is required to disclose the amount assigned to goodwill in total and by major business combination, or by reorganization event resulting in fresh-start-start reporting. Also, the weighted average amortization period in total and the amortization period by major business combination, or by reorganization event resulting in fresh-start reporting. ASU 2021-03 was effective for the Company on January 1, 2021 and did not have a significant impact on our consolidated financial statement.

ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” These amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 iswas effective for ~~fiscal years ending after December 15, 2020. We believe~~ the ~~adoption~~Company as of ~~this standard will~~January 1, 2021 and did not have a significant impact on our consolidated financial statements.

On January 2, 2020, Bancorp of New Jersey, Inc. (“BNJ”) merged with and into the Company, with the Company as the surviving entity. As a result of the merger, the Company acquired nine branch offices all located in Bergen County, New Jersey. Subject to the allocation and proration procedures set forth in the merger agreement, holders of BNJ common stock had the right to elect, with respect to each share of BNJ common stock, to receive either (i) $16.25 in cash or (ii) 0.780 of a share of CNOB common stock (plus cash in lieu of any fractional shares of CNOB common stock to which such holder would otherwise be entitled). The allocation and proration procedures set forth in the merger agreement required that approximately 20% of the shares of BNJ common stock be converted into cash and the remaining approximately 80% of BNJ common shares be converted into shares of the Company common stock.

The acquisition of BNJ was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The application of the acquisition method of accounting resulted in the recognition of goodwill of $45.8 million and a core deposit intangible of $8.1 million. The assets acquired and liabilities assumed and consideration paid in the acquisition of BNJ were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which runs through January 2, 2021, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The items most susceptible to adjustment are the credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition. As of June 30, 2020 there were no material changes to the provisional fair value adjustments recorded on January 2, 2020.

In connection with the acquisition, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:

The amount of goodwill recorded represents the excess purchase price over the estimated fair value of the net assets acquired by the Company and reflects the economies of scale, increased market share and lending capabilities, greater access to best-in-class banking technology, and related synergies that are expected to result from the acquisition.

Loans acquired in the BNJ acquisition were recorded at fair value, and there was no carryover related allowance for loan losses. The fair values of loans acquired from BNJ were estimated based on the value of the expected cash flows, which were projected based on the contractual terms of the loans, including both maturity and contractual amortization. The monthly principal and interest cash flows were adjusted for expected losses and prepayments, where appropriate. Projected cash flows were then discounted to present value using a discount rate developed based on the relative risk of the cash flows, considering the loan type, liquidity risk, the maturity of the loans, servicing costs and a required return on capital.

~~The following is a summary of the loans accounted for in accordance with ASC 310-30 that were acquired in the BNJ acquisition as of the Merger date:~~

~~Goodwill related to BNJ is not amortized for book purposes; however, it is reviewed at least annually for impairment and is not deductible for tax purposes.~~

The fair value of retail demand and interest-bearing deposit accounts was assumed to approximate the carrying value as those accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. The fair value of borrowed funds was estimated by discounting the future cash flows using market rates for similar borrowings.

Direct acquisition and integration costs of the BNJ acquisition were expensed as incurred. These items were recorded as merger expenses on the consolidated statement of income. During the three and six months ended June 30, 2020, merger expenses related to the BNJ acquisition were $2.1 and $11.6 million, respectively.

Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) No. 260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”). The restricted stock awards granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities. The two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities.

There were no antidilutive share equivalents as of June 30, ~~2020~~2021 and June 30, ~~2019.~~2020.

The Company’s investment securities are all classified as available-for-sale atas of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in stockholders’ equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value as of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 76 of the Notes to Consolidated Financial Statements for a further discussion.

The following tables present information related to the Company’s portfolio of securities available-for-sale atas of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Investment securities having a carrying value of approximately ~~$114.5~~$178.0 million and ~~$111.5~~$107.6 million atas of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were pledged to secure public deposits, borrowings, repurchase agreements, Federal Reserve Discount Window borrowings and Federal Home Loan Bank advances and for other purposes required or permitted by law. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

The following table presents information for investments in securities available-for-sale atas of June 30, ~~2020,~~2021, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer. Securities not due at a single maturity date are shown separately.

Gross gains and losses from the sales and redemptions of securities for periods presented were as follows:

~~Other-than-Temporarily Impaired Investments~~Impairment Analysis of Available-for-sale Debt Securities

The Company reviews all securities for potential recognition of other-than-temporary impairment. The Company maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could include credit rating downgrades.

The Company’s assessment of whether an impairment in the portfolio is other-than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced a restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed deteriorating financial condition or sustained significant losses.

~~The Company does not believe that any of the~~following tables indicate gross unrealized losses for which ~~were comprised~~an ACL has not been recorded, aggregated by investment category and by the length of ~~36 and 53~~continuous time individual securities have been in an unrealized loss position as of June 30, ~~2020~~2021 and December 31, 2019, respectively, represent an other-than-temporary impairment (“OTTI”). The gross unrealized losses associated with U.S. Treasury and agency securities, federal agency obligations, mortgage-backed securities, corporate bonds, tax-exempt securities, and asset-backed securities are not considered to be other-than-temporary because these unrealized losses are related to changes in interest rates and credit spreads and do not affect the expected cash flows of the underlying collateral or issuer.2020.

Factors which may contribute to unrealized losses include credit risk, market risk, changes in interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Company’s investment in any one issuer or industry. The Company has established policies to reduce exposure through diversification of the securities portfolio including limits on concentrations to any one issuer. The Company believes the securities portfolio is prudently diversified.

The unrealized losses included in the tables below are primarily related to changes in interest rates and credit spreads. All of the Company’s securities are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. These are largely intermediate duration holdings and, in certain cases, monthly principal payments can further reduce loss exposure resulting from an increase in rates.

In determining whether or not securities are OTTI, the Company must exercise considerable judgment. Accordingly, there can be no assurance that the actual results will not differ from the Company’s judgments and that such differences may not require the future recognition of OTTI charges that could have a material effect on the Company’s financial position and results of operations. In addition, the value of, and the realization of any loss on, a security is subject to numerous risks as cited above.

On January 1, 2021, the Company adopted ASU 2016-13 and implemented the CECL methodology for allowance for credit losses on its investment securities available-for-sale. The ~~following tables indicate gross unrealized~~new CECL methodology replaces the other-than-temporary impairment model that previously existed. The Company did not have a CECL day 1 impact attributable to its investment securities portfolio and did not have an allowance for credit losses ~~not recognized~~as of June 30, 2021. The Company has elected to exclude accrued interest from the amortized cost of its investment securities available-for-sale. Accrued interest receivable for investment securities available for sale as of June 30, 2021 and December 31, 2020, totaled $1.4 million and $1.7 million, respectively.

The Company evaluates securities in ~~income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous~~an unrealized loss position for impairment related to credit losses on at least a quarterly basis. Securities in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value resulted from credit losses or other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Unrealized losses on asset backed securities and state and municipal securities 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 decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale securities was recorded as of June 30, ~~2020~~2021.

Federal agency obligations, residential mortgage backed pass-through securities and ~~December 31, 2019.~~commercial mortgage back pass-through securities are issued by U.S. Government agencies and U.S. Government sponsored enterprises. Although a government guarantee exists on these investments, these entities are not legally backed by the full faith and credit of the federal government, and the current support they receive is subject to a cap as part of the agreement entered into in 2008. Nonetheless, at this time we do not foresee any set of circumstances in which the government would not fund its commitments on these investments as the issuers are an integral part of the U.S. housing market in providing liquidity and stability. Therefore, we concluded that a zero-allowance approach for these investment securities is appropriate.

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. Interest rate swaps were entered into on ~~August 24, 2015,~~ April 13, 2017, January 1, 2020 and March 3, 2020 each with a respective notional amount of $25.0 million and were designated as a cash flow hedge of a Federal Home Loan Bank ~~("FHLB")~~ advance. In addition, an interest rate ~~swaps were~~swap was entered into on ~~June 4, 2019 and~~ August 6, 2019, ~~each~~ with a ~~respective~~ notional amount of $50.0 million and ~~were~~was designated as a cash flow hedge of a Federal Home Loan Bank advance. The swaps were determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining term of the swaps.

Summary information about the interest rate swaps designated as cash flow hedges as of June 30, ~~2020,~~2021, December 31, ~~2019~~2020 and June 30, ~~2019~~2020 are presented in the following table.

Interest expense recorded on these swap transactions totaled approximately $584 thousand and $1.2 million during the three and six months ended June 30, 2021, respectively, compared to $318 thousand and $311 thousand during the three and six months ended June 30, 2020, ~~respectively, compared to $(176) thousand and $(358) thousand during the three and six months ended June 30, 2019,~~ respectively, and is reported as a component of interest expense on FHLB Advances.

The following table presents the net losses recorded in other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the following periods:

		Six Months Ended June 30, 2020
Interest rate contracts		$	(3,315	)		$	311			$	-

		Three Months Ended June 30, 2021
Interest rate contracts		$	(42	)		$	584			$	0-

		Six Months Ended June 30, 2019
Interest rate contracts		$	(929	)		$	(358	)		$	-

~~The following table reflects the cash flow hedges included in the consolidated statements of condition as of June 30, 2020 and December 31, 2019:~~

		June 30, 2020		December 31, 2019
Interest rate swaps related to FHLB advances included in assets		$	200,000		$	(3,277	)	$	150,000		$	(273)

		Three Months Ended June 30, 2020
Interest rate contracts		$	(566	)		$	318			$	0-

Note ~~6. Loans and the Allowance for Loan Losses~~4. Derivatives – (continued)

The following table ~~sets forth~~reflects the ~~composition~~cash flow hedges included in the consolidated statements of ~~the Company’s loan portfolio segments, including net deferred fees,~~condition as of June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

~~At June 30, 2020 and December 31, 2019, loan balances of approximately $2.8 billion and $2.5 billion, respectively, were pledged to secure borrowings from the FHLB of New York.~~

~~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:~~

~~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.

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during either the three months and six months ended June 30, 2020 or June 30, 2019. There were no reversals from the allowance for loan losses during the three and six months ended June 30, 2020 or June 30, 2019.

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 ~~presents~~sets forth the ~~accretable yield, or income expected to be collected, on~~composition of the ~~purchased credit-impaired loans for the three and six months ended~~Company’s loan portfolio segments, including net deferred fees, as of June 30, ~~2020~~2021 and December 31, 2020:

As of June 30, ~~2019:~~2021 and December 31, 2020, loan balances of approximately $2.7, were pledged to secure borrowings from the FHLB of New York.

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:

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans ~~included in loans receivable by loan class~~with an ACL as of June 30, ~~2020~~2021 and ~~December 31, 2019:~~nonaccrual loans without an ACL as of June 30, 2021:

Nonaccrual loans and loans 90 days or greater past due and still accruing included both smaller balance homogeneous loans that are collectively evaluated for impairment and loans individually evaluated for impairment.

The following tables present total nonaccrual loans included in loans receivable by loan class as of December 31, 2020 (dollars in thousands):

Nonaccrual loans and loans 90 days or greater past due and still accruing include both smaller balance homogeneous loans that are collectively evaluated for impairment and loans individually evaluated for impairment.

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:

~~The following table provides an analysis~~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 ~~impaired loans by class as~~table below. As of June 30, ~~2020~~2021, our loans based on year of origination and ~~December 31, 2019.~~risk designation is as follows (dollars in thousands):

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

	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		0-		0-		225		258		5,655		4,235		15,653		26,026
Substandard		182		0-		1,791		13,072		4,111		21,255		3,250		43,661
Doubtful		0-		0-		0-		59		0-		0-		0-		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		0-		0-		3,375		19,360		4,364		29,160		15,454		71,713
Substandard		1,969		0-		659		1,473		2,722		31,719		0-		38,542
Doubtful		0-		0-		0-		0-		0-		0-		0-		0-
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		0-		0-		0-		0-		0-		0-		0-		0-
Substandard		0-		0-		0-		0-		0-		0-		22,119		22,119
Doubtful		0-		0-		0-		0-		0-		0-		0-		0-
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		0-		0-		0-		0-		0-		0-		0-		0-
Substandard		0-		0-		0-		203		0-		9,101		3,805		13,109
Doubtful		0-		0-		0-		0-		0-		0-		0-		0-
Total Residential Real Estate	$	10,420	$	34,493	$	27,090	$	33,091	$	37,296	$	92,197	$	52,320	$	286,907

Consumer
Pass	$	0-	$	107	$	54	$	32	$	41	$	5,989	$	132	$	6,355
Special mention		0-		0-		0-		0-		0-		0-		0-		0-
Substandard		0-		0-		0-		0-		0-		0-		0-		0-
Doubtful		0-		0-		0-		0-		0-		0-		0-		0-
Total Consumer	$	0-	$	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		0-		0-		3,600		19,618		10,019		33,395		31,107		97,739
Substandard		2,151		0-		2,450		14,748		6,833		62,075		29,174		117,431
Doubtful		0-		0-		0-		59		0-		0-		0-		59
Grand Total	$	1,079,786	$	828,508	$	595,047	$	669,506	$	699,826	$	1,321,732	$	1,227,193	$	6,421,598

The following table ~~provides an analysis related to~~presents information about the ~~average recorded investment and interest income recognized on impaired~~loan credit quality by loan class of gross loans ~~by segment~~(which exclude net deferred fees) as of ~~and~~December 31, 2020:

Collateral Dependent Loans: Loans which meet certain criteria are individually evaluated as part of the process of calculating the allowance for credit losses. The evaluation is determined on an individual basis using the ~~three and six months ended~~fair value of the collateral as of the reporting date.

The following table presents collateral dependent loans individually evaluated for impairment as of June 30, ~~2020 and 2019:~~2021:

Included in impaired loans at June 30, 2020 and December 31, 2019 are loans that are deemed troubled debt restructurings. The recorded investment in loans include accrued interest receivable and other capitalized costs such as real estate taxes paid on behalf of the borrower and loan origination fees, net, when applicable. Cash basis interest and interest income recognized on accrual basis approximate each other.

~~Aging Analysis~~Impaired loans - Impaired loans disclosures presented below as of December 31, 2020 and as of and for the three and six months ended June 30, 2020 represent requirements prior to the adoption of CECL on January 1, 2021.

The following table provides an analysis of the ~~aging of the~~impaired loans by class ~~excluding net deferred fees, that are past due at June 30, 2020 and~~as of the year ended December 31, ~~2019:~~2020:

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.

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 accrete income per the valuation at date of acquisition.

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):

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):

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.

The 90 days or greater past due and still accruing category as of December 31, 2020 were purchased credit-impaired loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

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~~ACL that are allocated to each loan portfolio segment:

Included in the unallocated amount as of June 30, 2020 is a $27.0 million provision recorded during the six months ended June 30, 2020 associated with impacts of the COVID-19 pandemic. Management anticipates this amount will be allocated in future periods as more information regarding the individual loan and portfolio segment-specific impacts of the pandemic becomes available.

~~The Company’s allowance for loan losses is analyzed quarterly. Many factors are considered, including growth~~Activity in the ~~portfolio, delinquencies, nonaccrual loan levels,~~Company’s ACL for loans for the three months ended and ~~other factors inherent~~six months ended June 30, 2021 is summarized in the ~~extension~~table below. The CECL Day 1 row presents adjustments recorded through retained earnings to adopt the CECL standard and the increase to the ACL for loans associated with nonaccretable purchase accounting marks on loans that were classified as PCI as of ~~credit.~~December 31, 2020.

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 ~~activity~~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 ~~allowance for loan losses by loan segment is as follows:~~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.

Loans are considered to have been modified in a troubled debt restructuring (“TDRs”) when, except as discussed below, due to a borrower’s financial difficulties, the Company makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a nonaccrual loan that has been modified in a troubled debt restructuring remains on nonaccrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual status.

AtAs of June 30, ~~2020 and June 30, 2019,~~2021, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due 90 days or greater and still accruing interest, or whose terms have been modified in troubled debt restructurings.

As of June 30, ~~2020,~~2021, TDRs totaled ~~$50.9~~$62.4 million, of which ~~$30.5~~$29.4 million were on nonaccrual status and ~~$20.4~~$33.0 million were performing under their restructured terms. As of December 31, ~~2019,~~2020, TDRs totaled ~~$52.0~~$49.4 million, of which ~~$30.6~~$25.7 million were on nonaccrual status and ~~$21.4~~$23.7 million were performing under their restructured terms. The Company has allocated $9.2 million and $47 thousand ~~and $-0-~~ of specific allowance related to TDRs for the ~~three and~~ six months ended June 30, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively.

The following table presents loans by class modified as TDRs that occurred during the six months ended June 30, 2021:

The ten loans modified as TDRs during the six months ended June 30, 2021 included nine (9) maturity extensions and, one commercial real estate loan which was a recast of a nonaccrual credit.

There were no loans modified as TDRs during the ~~three and~~ six months ended June 30, ~~2020 and June 30, 2019.~~2020. There were no TDRs for which there was a payment default within twelve months following the modification during the three months ended and six months ended June 30, ~~2020~~2021 and June 30, ~~2019.~~2020.

In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., three to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Additionally, the statement allows for the Company to extend deferrals for an additional term at the option of the Company. Provisions of the CARES Act largely mirrored the provisions of the interagency statement, providing that modified loans ~~were~~would not be considered ~~TDR~~TDR’s if they were performing at year-end 2019, and the other ~~considerations~~conditions set forth in the interagency ~~statements~~statement were met. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented or at ~~year-end.~~year-end 2019. As of June 30, ~~2020,~~2021, the Bank had ~~575~~79 deferred loans totaling approximately ~~$937 million. The majority of these~~$100 million, compared to 113 deferred loans ~~were initially deferred between 90 and 120 days.~~

~~The following table sets forth the composition of these loans by loan segments~~totaling approximately $207 million as of ~~June 30, 2020:~~December 31, 2020.

The following table sets forth the composition of these loans by loan segments as of June 30, 2021:

As of June 30, 2021, there were no deferred loans that were delinquent or on nonaccrual status. As of June 30, 2021, $62.0 million of deferred loans were risk rated “special mention” or worse. The Company evaluates its deferred loans after the initial deferral period and will either return the deferred loan to its original loan terms or the loan will be reassessed at that time to determine if a further deferment should be granted and if a downgrade in risk rating is appropriate.

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):

The following table summarizes the (reversal of) provision for credit losses for the three and six months ended June 30, 2021 (dollars in thousands):

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (for example, supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

Securities Available-for-Sale and Equity Securities: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of instruments which would generally be classified within Level 2 of the valuation hierarchy include municipal bonds and certain agency collateralized mortgage obligations. In certain cases where there is limited activity in the market for a particular instrument, assumptions must be made to determine the fair value of the instruments and these are classified as Level 3. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Company’s evaluations are based on market data and the Company employs combinations of these approaches for its valuation methods depending on the asset class.

Derivatives: The fair value of derivatives is based on valuation models using observable market data as of the measurement date (level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Note 7.6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used atas of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:

Note 7.6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

There were no transfers between Level 1 and Level 2 during the six months ended June 30, ~~2020~~2021 and during the year ended December 31, ~~2019.~~2020.

The Company may be required periodically to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or impairment write-downs of individual assets. The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a nonrecurring basis atas of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Loans Held-for-Sale: Residential mortgage loans, originated and intended for sale in the secondary market, are carried at the lower of aggregate cost or estimated fair value as determined by outstanding commitments from investors. For these loans originated and intended for sale, gains and losses on loan sales (sale proceeds minus carrying value) are recorded in other income and direct loan origination costs and fees are deferred at origination of the loan and are recognized in other income upon sale of the loan. Management obtains quotes or bids on all or parts of these loans directly from the purchasing financial institutions (Level 2).

Other loans held-for-sale are carried at the lower of aggregate cost or estimated fair value. Fair value of these loans is determined based on the terms of the loan, such as interest rate, maturity date, reset term, as well as sales of similar assets (Level 3).

Note 7.6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

~~Impaired~~Collateral Dependent Loans: The Company may record adjustments to the carrying value of loans based on fair value measurements, generally as partial charge-offs of the uncollectible portions of these loans. These adjustments also include certain impairment amounts for collateral dependent loans calculated in accordance with GAAP. Impairment amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated impairment amount applicable to that loan does not necessarily represent the fair value of the loan. Real estate collateral is valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable by market participants. However, due to the substantial judgment applied and limited volume of activity as compared to other assets, fair value is based on Level 3 inputs. Estimates of fair value used for collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and are also based on Level 3 inputs.

For assets measured at fair value on a nonrecurring basis, the fair value measurements atas of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows:

~~Impaired~~Collateral dependent loans – Collateral dependent ~~impaired~~ loans atas of June 30, ~~2020~~2021 that required a valuation allowance were ~~$6.7~~$40.0 million with a related valuation allowance of ~~$1.8~~$20.6 million compared to ~~$3.8~~$26.5 million with a related valuation allowance of ~~$1.3~~$14.3 million atas of December 31, ~~2019.~~2020.

Note 7.6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, ~~2020~~2021 and for the year ended December 31, ~~2019:~~2020:

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis atas of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 hierarchy.

Note 7.6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Nonrecurring basis: The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a nonrecurring basis for the periods presented. The tables below provide quantitative information about significant unobservable inputs used in fair value measurements within Level 3 hierarchy.

Note 7.6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

As of June 30, ~~2020~~2021 the fair value measurements presented are consistent with Topic 820, Fair Value Measurement, in which fair value represents exit price. The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

					Fair Value Measurements										Fair Value Measurements
					Quoted										Quoted
					Prices in										Prices in
					Active		Significant								Active		Significant
					Markets for		Other		Significant						Markets for		Other		Significant
					Identical		Observable		Unobservable						Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs		Carrying		Fair		Assets		Inputs		Inputs
	Amount		Value		(Level 1)		(Level 2)		(Level 3)		Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(dollars in thousands)										(dollars in thousands)
June 30, 2020
June 30, 2021
Financial assets:
Cash and due from banks	$	349,361	$	349,361	$	349,361	$	-	$	-	$	349,417	$	349,417	$	349,417	$	0-	$	0-
Securities available-for-sale		418,426		418,426		184		409,262		8,980		458,933		458,933		167		450,061		8,705
Investment in restricted stocks		26,656		n/a		n/a		n/a		n/a		22,563		0n/a		0n/a		0n/a		0n/a
Equity securities		13,407		13,407		11,447		1,960		-		13,223		13,223		11,243		1,980		0-
Net loans		6,294,543		6,364,056		-		-		6,364,056		6,329,220		6,391,465		0-		0-		6,391,465
Accrued interest receivable		29,894		29,894		-		1,969		27,925		34,001		34,001		0-		1,444		32,557

Financial liabilities:
Noninterest-bearing deposits		1,276,070		1,276,070		1,276,070		-		-		1,485,952		1,485,952		1,485,952		0-		0-
Interest-bearing deposits		4,550,791		4,572,784		2,742,927		1,829,857		-		4,706,561		4,710,337		3,404,754		1,305,583		0-
Borrowings		667,062		671,634		-		671,634		-		353,462		355,783		0-		355,783		0-
Subordinated debentures		202,476		199,962		-		199,962		-		152,800		164,757		0-		164,757		0-
Derivatives		3,277		3,277		-		3,277		-		922		922		0-		922		0-
Accrued interest payable		4,756		4,756		-		4,756		-		3,083		3,083		0-		3,083		0-

December 31, 2019
December 31, 2020
Financial assets:
Cash and due from banks	$	201,483	$	201,483	$	201,483	$	-	$	-	$	303,756	$	303,756	$	303,756	$	0-	$	0-
Investment securities available-for-sale		404,701		404,701		140		395,447		9,114		487,955		487,955		157		478,954		8,844
Restricted investment in bank stocks		27,397		n/a		n/a		n/a		n/a		25,099		0n/a		0n/a		0n/a		0n/a
Equity securities		11,185		11,185		11,185		-		-		13,387		13,387		13,387		0-		0-
Net loans		5,075,234		5,096,669		-		-		5,096,669		6,157,081		6,244,037		0-		0-		6,244,037
Accrued interest receivable		20,949		20,949		-		2,187		18,762		35,317		35,317		0-		1,764		33,553

Financial liabilities:
Noninterest-bearing deposits		861,728		861,728		861,728		-		-		1,339,108		1,339,108		1,339,108		0-		0-
Interest-bearing deposits		3,905,814		3,917,405		2,352,093		1,565,312		-		4,620,116		4,633,961		3,155,983		1,477,978		0-
Borrowings		500,293		502,026		-		502,026		-		425,954		429,671		0-		429,671		0-
Subordinated debentures		128,885		134,973		-		134,973		-		202,648		214,113		0-		214,113		0-
Derivatives		273		273		-		273		-		2,119		2,119		0-		2,119		0-
Accrued interest payable		4,018		4,018		-		4,018		-		3,687		3,687		0-		3,687		0-

Note 7.6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, considering the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The fair value of commitments to originate loans is immaterial and not included in the tables above.

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.

Fair value estimates are based on existing balance sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, there are certain significant assets and liabilities that are not considered financial assets or liabilities, such as deferred taxes, premises and equipment, and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Management believes that reasonable comparability between financial institutions may not be likely, due to the wide range of permitted valuation techniques and numerous estimates which must be made, given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Total comprehensive income includes all changes in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s other comprehensive income is comprised of unrealized holding gains and losses on securities available-for-sale, unrealized gains (losses) on cash flow hedges, obligations for defined benefit pension plan and an adjustment to reflect the curtailment of the Company’s defined benefit pension plan, each net of taxes.

The following table represents the reclassification out of accumulated other comprehensive (loss) income for the periods presented:

Accumulated other comprehensive income (loss) atas of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following:

The Company’s stockholders approved the 2017 Equity Compensation Plan (“the Plan”) on May 23, 2017. The Plan eliminates all remaining issuable shares under previous plans and is the only outstanding plan as of June 30, ~~2020.~~2021. The maximum number of shares of common stock or equivalents which may be issued under the Plan, is 750,000. Grants under the Plan can be in the form of stock options (qualified or non-qualified), restricted shares, restricted share units or performance units. Shares available for grant and issuance under the Plan as of June 30, ~~2020~~2021 are approximately ~~314,394.~~332,628. The Company intends to issue all shares under the Plan in the form of newly issued shares.

Restricted stock, options and restricted stock units typically have a three-year vesting period starting one year after the date of grant with one-third vesting each ~~year.~~year or upon a change in control. The options generally expire ten years from the date of grant. Restricted stock granted to new employees and board members may be granted with shorter vesting periods. Grants of performance units typically have a cliff vesting after three years or upon a change ofin control. All issuances are subject to forfeiture if the recipient leaves or is terminated prior to the awards vesting. Restricted shares have the same dividend and voting rights as common stock, while options, performance units and restricted stock units do not.

All awards are issued at the fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant, ratably over the vesting period. Forfeiture rates are not estimated but are recorded as incurred. Stock-based compensation expense for the three and six months ended June 30, 2021 was $1.0 million and $2.0 million, respectively. Stock-based compensation expense for the three and six months ended June 30, 2020 ~~and June 30, 2019~~ was ~~$0.5~~$0.7 million and ~~$0.8~~$1.2 million, respectively.

Activity ~~under~~in the Company’s options for the six months ended June 30, ~~2020~~2021 was as follows:

The aggregate intrinsic value of outstanding and exercisable options above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on June 30, ~~2020~~2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, ~~2020.~~2021. This amount changes based on the fair market value of the Company’s stock.

Activity ~~under~~in the Company’s restricted shares for the six months ended June 30, ~~2020~~2021 was as follows:

As of June 30, ~~2020,~~2021, there was approximately ~~$1.5~~$1.8 million of total unrecognized compensation cost related to nonvested restricted shares granted. The cost is expected to be recognized over a weighted average period of ~~1.2~~1.4 years.

A summary of the status of unearned performance unit awards and the change during the period is presented in the table below:

AtAs of June 30, ~~2020,~~2021, the specific number of shares related to performance units that were expected to vest was ~~137,829,~~173,576, determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period. Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed. AtAs of June 30, ~~2020~~2021 the maximum amount of performance units that ultimately could vest if performance targets were exceeded is ~~206,744.~~233,638. During the six months ended June 30, ~~2020, 37,337~~2021, 29,421 shares vested. A total of ~~14,935~~14,710 shares were netted from the vested shares to satisfy employee tax obligations. The net shares issued from vesting of performance units during the six months ended June 30, ~~2020~~2021 were ~~22,402~~14,711 shares. AtAs of June 30, ~~2020,~~2021, compensation cost of approximately ~~$1.3~~$1.7 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of ~~2.0~~1.8 years.

A summary of the status of unearned restricted stock units and the changes in restricted stock units during the period is presented in the table below:

Any forfeitures would result in previously recognized expense being reversed. A portion of the shares that vest will be netted out to satisfy the tax obligations of the recipient. During the six months ended June 30, ~~2020, 27,626~~2021, 68,916 shares vested. A total of ~~11,085~~34,458 shares were netted from the vested shares to satisfy employee tax obligations. The net shares issued from vesting of restricted stock units during the six months ended June 30, ~~2020~~2021 were ~~16,541~~34,458 shares. AtAs of June 30, ~~2020,~~2021, compensation cost of approximately ~~$2.1~~$2.0 million related to non-vested restricted stock units, not yet recognized, is expected to be recognized over a weighted-average period of 2.1 years.

The Company maintained a non-contributory defined benefit pension plan for substantially all of its employees until June 30, 2007, at which time the Company froze the plan. The following table sets forth the net periodic pension cost of the Company’s pension plan for the periods indicated.

The Company did not contribute to the Pension Trust during the six months ended June 30, ~~2020.~~2021. The Company does not plan on contributing amounts to the Pension Trust for the remainder of ~~2020.~~2021. The trust is established to provide retirement and other benefits for eligible employees and their beneficiaries. No part of the trust assets may be applied to any purpose other than providing benefits under the plan and for defraying expenses of administering the plan and the trust.

The Company’s FHLB borrowings and weighted average interest rates are summarized below:

The FHLB borrowings are secured by pledges of certain collateral including, but not limited to, U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgages and commercial real estate loans.

Advances are payable at stated maturity, with a prepayment penalty for fixed rate advances. All FHLB advances are fixed rates. The advances atas of June 30, ~~2020~~2021 were primarily collateralized by approximately $2.0 billion of commercial mortgage loans, net of required over collateralization amounts, under a blanket lien arrangement. AtAs of June 30, ~~2020~~2021 the Company had remaining borrowing capacity of approximately $1.2 ~~million~~billion at FHLB.

~~Included in borrowings for the period ended June 30, 2020 was $206.6~~ million of borrowed funds under the PPPLF. Under the PPPLF, each Reserve Bank lends funds, on a nonrecourse basis, to eligible borrowers that have made PPP loans, taking the PPP loans as collateral. The maturity date of an extension of credit under the PPPLF equals the maturity date of the PPP loan pledged to secure the extension of credit. The maturity date of the PPPLF’s extension of credit will be accelerated if the underlying PPP loan goes into default or if the eligible borrower sells the PPP loan to the SBA to realize on the SBA guarantee. The maturity date of the PPPLF’s extension of credit also will be accelerated to the extent of any loan forgiveness reimbursement received by the eligible borrower from the SBA. Additionally, at the Company's, discretion the Company may prepay and borrowing under the PPPLF program at any time without incurring any associated penalty. The corresponding PPP loans which are pledged to secure these funds as of June 30, 2020 all carry maturity dates which contractually occur in April 2022.

During 2003, the Company formed a statutory business trust, which exists for the exclusive purpose of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of the Company; and (iii) engaging in only those activities necessary or incidental thereto. On December ~~19,~~ 2003, Center Bancorp Statutory Trust II, a statutory business trust and ~~wholly-owned~~wholly owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034. ~~The capital securities presently qualify as Tier I capital.~~ The trust loaned the proceeds of this offering to the Company and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures. The subordinated debentures are redeemable in whole or ~~in part prior to maturity.~~part. The floating interest rate on the ~~subordinate~~subordinated debentures is three-month LIBOR plus 2.85% and ~~reprices~~re-prices quarterly. The rate atas of June 30, ~~2020~~2021 was ~~3.61%~~3.04%. These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements as the statutory business trust is not consolidated in accordance with FASB ASC 810-10. Distributions on the subordinated debentures owned by the subsidiary trust have been classified as interest expense in the Consolidated Statements of Income.

The following table summarizes the mandatory redeemable trust preferred securities of the Company’s Statutory Trust II atas of June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

During June 2015, the Parent Corporation issued $50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2015 Notes”). The 2015 Notes may now be redeemed by the Company, have a stated maturity of July 1, 2025, and bear interest at a fixed rate of 5.75% per year, from and including June 30, 2015 to, but excluding July 1, 2020. From and including July 1, 2020 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 393 basis points. As of June 30, 2020, all costs related to 2015 issuance have been amortized.

On January 11, 2018, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2018 Notes”). The 2018 Notes bear interest at 5.20% annually from, and including, the date of initial issuance to, but excluding, February 1, 2023, payable semi-annually in arrears. From and including February 1, 2023 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month LIBOR rate plus 284 basis points (2.84%) payable quarterly in arrears. If three-month LIBOR is not available for any reason, then the rate for that interest period will be determined by such alternate method as provided in the Supplemental Indenture. Interest on the 2018 Notes will be paid on February 1, and August 1, commencing August 1, 2018 to but not including February 1, 2023, and from and including February 1, 2023, on February 1, May 1, August 1, and November 1, of each year to but excluding the stated maturity date, unless in any case previously redeemed. As of June 30, 2020, unamortized costs related to this debt issuance were approximately $1.1 million.

~~On June 10,~~ 2020, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”). The 2020 Notes bear interest at 5.75% annually from, and including, the date of initial issuance to, but excluding, June 15, 2025 or the date of earlier redemption, payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2020. From and including June 15, 2025 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR (as defined in the Second Supplemental Indenture), plus 560.5 basis points, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2025. Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero.

During January 2018, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “Notes”) to certain accredited investors. The net proceeds from the sale of the Notes were used in the first quarter of 2018 for general corporate purposes, which included the Parent Corporation contributing $65 million of the net proceeds to the Bank in the form of debt and common equity. The Notes are non-callable for five years, have a stated maturity of February 1, 2028 and bear interest at a fixed rate of 5.20% per year, from and including January 17, 2018 to, but excluding February 1, 2023. From and including February 1, 2023 to, but excluding the maturity date, or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 284 basis points.

During June 2015, the Parent Corporation issued $50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2015 Notes”). As of ~~June 30,~~December 31, 2020, ~~unamortized~~the 2015 Notes have a stated maturity of July 1, 2025, and bear interest until the maturity date or early redemption date at a variable rate equal to the then current three-month LIBOR rate plus 393 basis points. As of December 31, 2020, the variable interest rate was 4.16% and all costs related to ~~this debt~~2015 issuance have been amortized. The 2015 Notes were ~~estimated to be $1.6 million.~~redeemed in full on January 1, 2021.

In accordance with ASC 350, the Company performs goodwill impairment test at least annually, or more frequently if triggering event occurs. In the second quarter of 2020, the impact of COVID-19, prompted the Company to quantitively evaluate goodwill for impairment. The Company engaged an independent third-party to evaluate the fair value of the Company compared to its carrying value. To estimate the fair value of the Company, the third-party relied on a weighted discounted cash flow method, guideline public company method, and transaction method. The results concluded that the fair value of the Company exceeded its current carrying value and goodwill impairment did not exist. As of June 30, 2020 and December 31, 2019, goodwill was $208.4 million and $162.6 million, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. 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.

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 loan loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable than expected; (5) political developments, sovereign debt problems, wars or other hostilities 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; (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 ~~herein~~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, ~~(11) the risk that the businesses of BNJ~~ and ConnectOne Bancorp will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; expected revenue synergies and cost savings from the acquisition of BNJ may not be fully realized within the expected timeframe; revenues following the acquisition of BNJ may be lower than expected; and customer and employee relationships and business operations may be disrupted by the acquisition of BNJ; and (12)(11) the impact of the COVID-19 pandemic 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.

The accounting and reporting policies followed by ConnectOne Bancorp, Inc. and its subsidiaries (collectively, the “Company”) conform, in all material respects, to GAAP. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and for the periods indicated in the consolidated statements of income. Actual results could differ significantly from those estimates.

The Company’s accounting policies are fundamental to understanding Management’s Discussion and Analysis (“MD&A”) of financial condition and results of operations. The Company has identified the determination of the ~~allowance for loan losses,~~ACL, the other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill and the evaluation of deferred tax assets to be critical because management must make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Additional information on these policies is provided below.

Allowance for ~~Loan~~Credit Losses and Related Provision: The ~~allowance for loan losses (“ALLL”)~~ACL represents management’s estimate of ~~probable incurred~~current expected credit losses ~~inherent in~~considering available information relevant to assessing collectability of cash flows over the ~~loan portfolio.~~contractual term of the financial asset(s). Determining the amount of the ~~ALLL~~ACL is considered a critical accounting estimate because it requires significant judgment and the use of estimates ~~related to~~including reasonable and supportable forecasts that affect the ~~amount and timing~~collectability of ~~expected future~~the remaining cash flows ~~on impaired loans, estimated losses on pools~~over the contractual term of homogeneous loans based on historical loss experience, individual credit situation and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the ~~largest asset type on the consolidated statements of condition.~~financial assets.

The evaluation of the adequacy of the ~~ALLL~~ACL includes, among other factors, an analysis of historical loss rates by loan segment applied to current loan totals. However, actual ~~loan~~credit losses may be higher or lower than historical trends, which vary. Actual losses on specified problem loans, which also are provided for in the evaluation, may vary from estimated loss percentages, which are established based upon a limited number of potential loss classifications.

The ~~ALLL~~ACL is established through a provision for ~~loan~~credit losses charged to expense. Management believes that the current ~~ALLL~~ACL will be adequate to absorb ~~loan~~current expected credit losses on existing loans that may become uncollectible based on the evaluation of known and inherent risks in the loan portfolio. The evaluation takes into consideration such factors as changes in the nature and size of the portfolio, overall portfolio quality, and specific problem loans and current economic conditions which may affect the borrowers’ ability to pay. The evaluation also details historical losses by loan segment and the resulting ~~loan~~credit loss rates which are projected for current loan total amounts. Loss estimates for specified problem

loans are also detailed. All of the factors considered in the analysis of the adequacy of the ~~ALLL~~ACL may be subject to change. To the extent actual outcomes differ from management estimates, additional provisions for ~~loan~~credit losses may be required that could materially adversely impact earnings in future periods. Additional information can be found in Note 65 of the Notes to Consolidated Financial Statements.

Business Combinations: We account for business combinations under the acquisition method of accounting. Using this method, assets acquired, liabilities assumed and consideration paid are recorded at their estimated fair values as of the acquisition date. The application of this method of accounting requires the use of significant estimates and assumptions. The application of the acquisition method of accounting usually results in the recognition of goodwill and a core deposit intangible (if the acquiree has deposits). The amount of goodwill recorded represents the excess purchase price over the estimated fair value of the net assets acquired, including any identifiable intangibles, if applicable. Goodwill is not amortized for book purposes; however, it is reviewed at least annually for impairment and is usually not deductible for tax purposes.

The assets acquired and liabilities assumed and consideration paid in the acquisition are recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. Our estimates are based upon assumptions that we believe to be reasonable and the Company may use an outside service provider to assist with the valuations.

Goodwill: The Company adopted the provisions of FASB ASC 350-10, which requires that goodwill be reported separate from other intangible assets in the Consolidated Statements of Condition and not be amortized but rather tested for impairment annually or more frequently if impairment indicators arise. The Company performs an annual goodwill impairment test in the fourth quarter of each year, or more often if events or circumstances warrant. ~~At June 30, 2020, we performed a quantitative assessment and concluded that goodwill impairment did not exist.~~ We will continue to monitor and evaluate the impact of COVID-19 and its impact on our market capitalization, overall economic conditions and any other potential triggering events that may indicate an impairment of goodwill in the future. In the event we conclude that all or a portion of our goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or our regulatory capital ratios.

Income Taxes: The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns.

Fluctuations in the actual outcome of these future tax consequences could impact the Company’s consolidated financial condition or results of operations. Note 1211 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, ~~2019~~2020 includes additional discussion on the accounting for income taxes.

COVID-19 continues to impact the Company’s ~~operation~~operations and financial results, as well as those of our customers. ~~As of June 30, 2020, the Company has an unallocated loan loss reserve of $27.0 million related to the COVID-19 pandemic.~~ In response to the COVID-19 pandemic, the Company ~~has temporarily closed certain branch locations and is directing branch customers~~continued to ~~drive-thru windows and online banking services. The Company has also offered~~offer temporary relief to effected customers, deferring either their full loan payment, the principal component or the interest component of their loan payment for an initial period of time ranging from 30 to 120 days. As of June 30, ~~2020,~~2021, the Company has ~~executed 575 of these deferrals on~~79 deferred loans with a total outstanding loan ~~balances~~balance of ~~$937.4~~$100.0 million. ~~In accordance with interagency guidance issued in March 2020, and the provisions of~~As provided for under the CARES ~~Act,~~act, these short-term deferrals are not considered troubled debt restructurings, provided that the modification is related to COVID-19, executed on a loan that was ~~current~~not more than 30 days past due as of December 31, 2019 or the date of the ~~forbearance or as of year-end 2019. Additionally, there have been virtually no first-time deferment requests since June 30,~~deferral, and executed between March 1, 2020 and ~~we estimate~~January 1, 2022, or the date that ~~more than 50%~~is 60 days after the termination date of the ~~loans deferred will return~~national emergency declared by the president on March 13, 2020, under the National Emergencies Act related to ~~their original terms in~~ the ~~third quarter~~outbreak of ~~2020.~~COVID-19.

With the passage of the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), the Company was an active participant in assisting its customers with applications for resources through the program. PPP loans originated prior to June 5, 2020 have a two-year term, which may be extended to five years with the consent of the Company, and those originated on or after June 5, 2020 have a five year term, and the loans bear interest at 1%, along with an origination fee payable from the SBA to the Company. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of June 30, ~~2020, the Company has closed or approved with the SBA approximately 2,200~~2021, PPP loans ~~representing $473.7 million in funding.~~were $326.8 million. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government and, as such, the Company has not included the PPP loans in calculation of the ~~allowance for loan losses~~ACL as of June 30, ~~2020.~~2021. Should those circumstances change, the Company could be required to establish ~~an additional allowance for loan loss through~~ additional provisions for ~~loan~~credit loss expense charged to earnings. Additionally, management has elected to participate in the Federal Reserve Bank’s PPP Lending Facility ("PPPLF") and at June 30, 2020 has funded $206.6 million in PPP loans via the PPPLF. Furthermore, under the current regulatory guidance any PPP loan, which is pledged to and funded with the PPPLF, is excluded from the Company's average asset base for the purposes

Net income for the three months ended June 30, ~~2020~~2021 was ~~$14.8~~$32.2 million, compared to ~~$19.3~~$14.8 million for the comparable three-month period ended June 30, ~~2019.~~2020. The Company’s diluted earnings per share were ~~$0.37~~$0.81 for the three months ended June 30, ~~2020 as~~2021, compared with diluted earnings per share of ~~$0.54~~$0.37 for the comparable three-month period ended June 30, ~~2019.~~2020. The increase in net income and diluted earnings per share was attributable to a decrease in provision for credit losses of $16.6 million, a decrease in noninterest expenses of $6.8 million, and an increase in net interest income of $2.2 million, offset by an increase in income tax expense of $8.1 million. The decrease in provision for credit losses was due to the impact of an improved economic outlook on the current expected credit losses (“CECL”) accounting standard, compared with a $15.0 million provision in the second quarter of 2020.

Net income for the six months ended June 30, 2021 was $65.2 million compared to $20.9 million for the comparable six-month period ended June 30, 2020. The Company’s diluted earnings per share were $1.63 for the six months ended June 30, 2021, compared with diluted earnings per share of $0.52 for the comparable six-month period ended June 30, 2020. The increase in net income and diluted earnings per share was primarily attributable to ~~an increase~~a decrease in provision for ~~loan~~credit losses ~~and~~of $38.4 million, a decrease in noninterest expenses ~~partially offset by~~of $15.4 million, and an increase in net interest income of $8.1 million, offset by an increase in ~~noninterest income and a decrease in~~ income tax ~~expense.~~expense of $18.0 million. The ~~increase~~decrease in provision for loan losses was ~~primarily attributable to provisioning related~~due to the impact of an improved economic ~~uncertainties surrounding COVID-19 for~~outlook on the ~~three months ended June 30, 2020.~~

Net income for the six months ended June 30, 2020 was $20.9 million compared to $30.9 million for the comparable three-month period ended June 30, 2019. The Company’s diluted earnings per share were $0.52 for the six months ended June 30, 2020 asCECL accounting standard, compared with ~~diluted earnings per share of $0.87 for the comparable six-month period ended June 30, 2019. The decrease~~a $31.0 million provision in net income and diluted earnings per share was primarily attributable to an increase in provision for loan losses and noninterest expenses, partially offset by an increase in net interest income, an increase in noninterest income and a decrease in income tax expense. The increase in provision for loan losses was primarily attributable to provisioning related to the economic uncertainties surrounding COVID-19 for the six months ended June 30, 2020.

Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid for deposits and borrowings, which support these assets. Net interest income is presented on a tax-equivalent basis by adjusting tax-exempt income (primarily interest earned on obligations of state and political subdivisions) by the amount of income tax which would have been paid had the assets been invested in taxable issues. 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 June 30, ~~2020~~2021 increased by ~~$15.2~~$2.2 million, or ~~32.9%~~3.5%, from the comparable three-month period ended June 30, ~~2019, resulting from an~~2020. The increase ~~in average interest-earning assets of 27.8%, primarily resulting~~ from the ~~BNJ acquisition, and~~second quarter of 2020 resulted primarily from a 16 basis-point widening of the net interest margin to 3.60% from 3.44%, offset by a 1.5% decrease in average interest-earning assets, largely due to higher levels of ~~14 basis-points to 3.44% from 3.30%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $3.1 million~~PPP originations during the three months ended June 30, 2020 and $1.7 million during the comparable three-month period ended June 30, 2019. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.27% in the second quarter of ~~2020, widening by 10 basis-points from the second quarter of 2019 adjusted net interest margin of 3.17%.~~2020. The widening of the ~~adjusted~~ net interest margin resulted ~~primarily~~ from ~~the favorable impact the Fed’s first quarter 2020 interest rate reductions had on our funding costs, which more than offset declines in our interest-earning asset yields. Included in interest income~~a 53 basis-point reduction in the ~~second quarter~~cost of 2020 was PPP fee income of approximately $3.7 million. The remaining $11.4 million in unamortized fees are expected to be realized over the next two to three quarters. The benefit to the second quarter 2020 net interest margin attributable to the PPP wasinterest-bearing liabilities, partially offset by ~~additional liquidity~~a 27 basis-point reduction in the yield on ~~the Bank’s balance sheet.~~average interest-earning assets.

Fully taxable equivalent net interest income for the six months ended June 30, ~~2020~~2021 increased by ~~$25.4~~$8.0 million, or ~~27.8%~~6.8%, from the comparable six-month period ended June 30, ~~2019,~~2020, resulting from an increase in average interest-earning assets of ~~23.6%~~2.4%, ~~primarily resulting from the BNJ acquisition,~~largely due to PPP originations, and a 16 basis-point widening of the net interest margin ~~of 10 basis-points~~ to ~~3.42%~~3.58% from 3.32%. Included in net interest income was accretion and amortization of purchase accounting adjustments of $6.5 million during the six months ended June 30, 2020 and $3.0 million during the comparable six-month period ended June 30, 2019. Excluding these purchase accounting adjustments, the adjusted net interest margin was 3.23% for the six months ended June 30, 2020, widened by 2 basis-points from the six months ended June 30, 2019 adjusted net interest margin of 3.21%3.42%. The widening of the ~~adjusted~~ net interest margin resulted ~~primarily~~ from ~~the favorable impact the Fed’s first quarter 2020 interest rate reductions had on our funding costs, which more than offset declines in our interest-earning asset yields. Included in interest income~~a 64 basis-point reduction in the ~~six months ended June 30, 2020 was PPP fee income~~cost of ~~approximately $3.7 million. The benefit to the six months ended June 30, 2020 net interest margin attributable to the PPP was~~interest-bearing liabilities, partially offset by ~~additional liquidity~~a 37 basis-point reduction in the yield on ~~the Bank’s balance sheet.~~average interest-earning assets.

The following tables, “Average Statements of Condition with Interest and Average Rates”, present for the three and six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, 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.

Three Months Ended June 30,
2020
2019
Interest
Interest
Average
Income/
Average
Average
Income/
Average
Balance
Expense
Rate ⁽⁷⁾
Balance
Expense
Rate ⁽⁷⁾
(dollars in thousands)
Interest-earning assets:
Investment securities ^{(1) (2)}
$
443,282
$
2,531
2.30
%
$
515,022
$
3,941
3.07
%
Loans receivable and loans held-for-sale ^{(2) (3) (4)}
6,332,503
76,088
4.83
5,005,509
63,799
5.11
Federal funds sold and interest-bearing deposits with banks
357,758
79
0.09
54,619
290
2.13
Restricted investment in bank stocks
31,002
442
5.73
31,936
410
5.15
Total interest-earning assets
7,164,545
79,140
4.44
5,607,086
68,440
4.90
Allowance for loan losses
(53,502)
(37,390)
Other noninterest-earning assets
573,360
431,973
Total assets
$
7,684,403
$
6,001,669

Interest-bearing liabilities:
Time deposits
$
1,905,165
$
9,586
2.02
$
1,551,014
$
9,366
2.42
Other interest-bearing deposits
2,639,052
4,011
0.61
2,183,384
7,230
1.33
Total interest-bearing deposits
4,544,217
13,597
1.20
3,734,398
16,596
1.78

Borrowings
798,648
2,235
1.13
603,260
3,870
2.57
Subordinated debentures, net of capitalized costs
141,904
2,021
5.73
128,666
1,845
5.75
Capital lease obligation
2,257
34
6.06
2,436
37
6.09
Total interest-bearing liabilities
5,487,026
17,887
1.31
4,468,760
22,348
2.01

Noninterest-bearing demand deposits
1,277,428
800,856
Other liabilities
51,153
37,075
Total noninterest-bearing liabilities
1,328,581
837,931
Stockholders’ equity
868,796
694,978
Total liabilities and stockholders’ equity
$
7,684,403
$
6,001,669
Net interest income (tax-equivalent basis)
61,253
46,092
Net interest spread ⁽⁵⁾
3.13
%
2.89
%
Net interest margin ⁽⁶⁾
3.44
%
3.30
%
Tax-equivalent adjustment
(463)
(562)
Net interest income
$
60,790
$
45,530

	Three Months Ended June 30,
	2021							2020
	Average Balance		Interest Income/ Expense		Average Rate ⁽⁷⁾			Average Balance		Interest Income/ Expense		Average Rate ⁽⁷⁾
	(dollars in thousands)
Interest-earning assets:
Investment securities ^{(1) (2)}	$	444,461	$	1,765		1.59	%	$	443,282	$	2,531		2.30	%
Total loans ^{(2) (3) (4)}		6,252,212		71,348		4.58			6,332,503		76,088		4.83
Federal funds sold and interest-bearing deposits with banks		341,885		84		0.10			357,758		79		0.09
Restricted investment in bank stocks		21,407		263		4.93			31,002		442		5.73
Total interest-earning assets		7,059,965		73,460		4.17			7,164,545		79,140		4.44
Allowance for credit losses		(80,548)							(53,502)
Other noninterest-earning assets		587,259							573,360
Total assets	$	7,566,676						$	7,684,403

Interest-bearing liabilities:
Time deposits	$	1,324,510	$	3,963		1.20		$	1,905,165	$	9,586		2.02
Other interest-bearing deposits		3,320,400		2,461		0.30			2,639,052		4,011		0.61
Total interest-bearing deposits		4,644,910		6,424		0.55			4,544,217		13,597		1.20

Borrowings		331,633		1,419		1.72			798,648		2,235		1.13
Subordinated debentures, net of capitalized costs		152,750		2,168		5.69			141,904		2,021		5.73
Capital lease obligation		2,066		31		6.02			2,257		34		6.06
Total interest-bearing liabilities		5,131,359		10,042		0.78			5,487,026		17,887		1.31

Noninterest-bearing demand deposits		1,432,707							1,277,428
Other liabilities		50,591							51,153
Total noninterest-bearing liabilities		1,483,298							1,328,581
Stockholders’ equity		952,019							868,796
Total liabilities and stockholders’ equity	$	7,566,676						$	7,684,403
Net interest income (tax-equivalent basis)				63,418							61,253
Net interest spread ⁽⁵⁾						3.39							3.13
Net interest margin ⁽⁶⁾						3.60							3.44
Tax-equivalent adjustment				(409)							(463)
Net interest income			$	63,009						$	60,790

⁽¹⁾	Average balances are based on amortized cost and include equity securities.
⁽²⁾	Interest income is presented on a tax-equivalent basis using 21%.
⁽³⁾	Includes loan fee ~~income.~~ income and accretion of purchase accounting adjustments.
⁽⁴⁾	Total loans include loans held-for-sale and nonaccrual loans.
⁽⁵⁾	Represents 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.

Table of Contents

Average Statements of Condition with Interest and Average Rates

Six Months Ended June 30,
2020
2019
Interest
Interest
Average
Income/
Average
Average
Income/
Average
Balance
Expense
Rate ⁽⁷⁾
Balance
Expense
Rate ⁽⁷⁾
(dollars in thousands)
Interest-earning assets:
Investment securities ^{(1) (2)}
$
447,764
$
5,626
2.53
%
$
523,008
$
8,310
3.20
%
Loans receivable and loans held-for-sale ^{(2) (3) (4)}
6,144,486
149,308
4.89
4,956,866
124,397
5.06
Federal funds sold and interest-bearing deposits
with banks
253,093
578
0.46
56,146
647
2.32
Restricted investment in bank stocks
29,159
842
5.81
29,222
867
5.98
Total interest-earning assets
6,874,502
156,354
4.57
5,565,242
134,221
4.86
Allowance for loan losses
(46,240)
(36,450)
Other noninterest-earning assets
566,950
426,828
Total assets
$
7,395,212
$
5,955,620
Interest-bearing liabilities:
Time deposits
$
1,933,939
$
19,957
2.08
$
1,533,230
$
17,669
2.32
Other interest-bearing deposits
2,649,903
10,852
0.82
2,209,860
14,278
1.30
Total interest-bearing deposits
4,583,842
30,809
1.35
3,743,090
31,947
1.72

Borrowings
637,885
4,587
1.45
545,295
6,894
2.55
Subordinated debentures, net of capitalized costs
135,409
3,855
5.73
128,626
3,690
5.78
Capital lease obligation
2,280
69
6.09
2,458
74
6.07
Total interest-bearing liabilities
5,359,416
39,320
1.48
4,419,469
42,605
1.94

Noninterest-bearing demand deposits
1,116,393
812,421
Other liabilities
52,887
36,117
Total noninterest-bearing liabilities
1,169,280
848,538
Stockholders’ equity
866,516
687,613
Total liabilities and stockholders’ equity
$
7,395,212
$
5,955,620
Net interest income (tax-equivalent basis)
117,034
91,616
Net interest spread ⁽⁵⁾
3.09
%
2.92
%
Net interest margin ⁽⁶⁾
3.42
%
3.32
%
Tax-equivalent adjustment
(963)
(1,134)
Net interest income
$
116,071
$
90,482

	Six Months Ended June 30,
	2021							2020
	Average Balance		Interest Income/ Expense		Average Rate ⁽⁷⁾			Average Balance		Interest Income/ Expense		Average Rate ⁽⁷⁾
	(dollars in thousands)
Interest-earning assets:
Investment securities ^{(1) (2)}	$	458,741	$	3,823		1.68	%	$	447,764	$	5,626		2.53	%
Total loans ^{(2) (3) (4)}		6,249,630		142,031		4.58			6,144,486		149,308		4.89
Federal funds sold and interest-bearing deposits with banks		305,911		133		0.09			253,093		578		0.46
Restricted investment in bank stocks		22,111		519		4.73			29,159		842		5.81
Total interest-earning assets		7,036,393		146,506		4.20			6,874,502		156,354		4.57
Allowance for credit losses		(81,045)							(46,240)
Other noninterest-earning assets		580,210							566,950
Total assets	$	7,535,558						$	7,395,212
Interest-bearing liabilities:
Time deposits	$	1,373,133	$	9,113		1.34		$	1,933,939	$	19,957		2.08
Other interest-bearing deposits		3,273,337		4,896		0.30			2,649,903		10,852		0.82
Total interest-bearing deposits		4,646,470		14,009		0.61			4,583,842		30,809		1.35

Borrowings		353,451		3,093		1.77			637,885		4,587		1.45
Subordinated debentures, net of capitalized costs		153,541		4,335		5.69			135,409		3,855		5.73
Capital lease obligation		2,091		63		6.08			2,280		69		6.09
Total interest-bearing liabilities		5,155,553		21,500		0.84			5,359,416		39,320		1.48

Noninterest-bearing demand deposits		1,390,878							1,116,393
Other liabilities		49,031							52,887
Total noninterest-bearing liabilities		1,439,909							1,169,280
Stockholders’ equity		940,096							866,516
Total liabilities and stockholders’ equity	$	7,535,558						$	7,395,212
Net interest income (tax-equivalent basis)				125,006							117,034
Net interest spread ⁽⁵⁾						3.36							3.09
Net interest margin ⁽⁶⁾						3.58							3.42
Tax-equivalent adjustment				(834)							(963)
Net interest income			$	124,172						$	116,071

⁽¹⁾	Average balances are based on amortized cost and include equity securities.
⁽²⁾	Interest income is presented on a tax-equivalent basis using 21%.
⁽³⁾	Includes loan fee ~~income.~~ income and accretion of purchase accounting adjustments.
⁽⁴⁾	Total loans include loans held-for-sale and nonaccrual loans.
⁽⁵⁾	Represents 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.

Table of Contents

Noninterest Income

Noninterest income totaled ~~$4.6~~$4.5 million for the three months ended June 30, ~~2020,~~2021, compared with ~~$1.9~~$4.6 million for the comparable three-month period ended June 30, 2020. Included in noninterest income for the three months ended June 30, 2021 and June 30, 2020 were $0.7 million and $2.3 million, respectively, of PPP loan referral fee income generated by BoeFly. Also included in noninterest income for the three months ended June 30, 2021 was a $0.2 million gain on sale/redemption of investment securities. Excluding these items, noninterest income increased $1.2 million when compared to the comparable three-month period ended June 30, 2020. The increase was primarily attributable to increases in net gains on loans held-for-sale of $0.6 million and increases in deposit, loan and other income of $0.6 million, which includes a $0.3 million increase in BoeFly core revenue.

Noninterest income totaled $7.9 million for the six months ended June 30, 2021, compared with $7.5 million for the comparable six-month period ended June 30, 2020. Included in noninterest income for the six months ended June 30, 2021 and June 30, 2020 were $0.7 million and $2.3 million, respectively, of PPP loan referral fee income generated by BoeFly. Also included in noninterest income for the six months ended June 30, 2021 was $0.7 million on a gain on sale of branches and a $0.2 million gain on sale/redemption of investment securities. Excluding these items, noninterest income increased $1.1 million when compared to the comparable six-month period ended June 30, 2020. The increase was primarily attributable to increases in net gains on loans held-for-sale of $0.9 million, increases in deposit, loan and other income of $0.4 million, and an increase in income on bank owned life insurance of $0.2 million, offset by a decrease in net gains on equity securities of $0.4 million.

Noninterest Expenses

Noninterest expenses totaled $26.3 million for the three months ended June 30, ~~2019. The increase~~2021, compared with $33.1 million for the comparable three-month period ended June 30, 2020. Included in noninterest ~~income of $2.7 million from~~expenses for the three months ended June 30, ~~2019~~2020 were $5.1 million in merger and restructuring expenses and $2.3 million in expenses related to the BoeFly acquisition. Excluding these items, noninterest expenses increased $0.7 million when compared to the comparable three-month period ended June 30, 2020. The increase was primarily ~~attributed~~attributable to increases ~~deposit, loan~~in salaries and ~~other income~~employee benefits of ~~$2.3~~$0.8 million, ~~which included $2.3 millions~~increases in professional and consulting expenses of ~~loan referral fee income of generated by BoeFly as a result of its participation in the PPP program. Additional increases were in net gains on sale of loans held-for-sale of $0.2~~$0.4 million and increases in ~~income on bank owned life insurance~~other expenses of ~~$0.3~~$0.2 million, partially offset by ~~a reduction~~decreases in ~~net gains on equity securities~~FDIC insurance expense of $0.5 million, decreases in marketing and advertising of $0.1 million and decreases in amortization of core deposit intangibles of $0.1 million.

Noninterest ~~income~~expenses totaled ~~$7.5~~$52.7 million for the six months ended June 30, ~~2020,~~2021, compared with ~~$3.7~~$68.1 million for the comparable six-month period ended June 30, 2020. Included in noninterest expenses for the six months ended June 30, ~~2019. The increase~~2020 were $14.6 million in merger and restructuring expenses and $2.3 million in expenses related to the BoeFly acquisition. Excluding these items, noninterest ~~income of $3.8~~expenses increased $1.6 million ~~from~~when compared to the ~~six months~~comparable six-month period ended June 30, ~~2019~~2020. The increase was primarily ~~attributed~~attributable to increases in ~~deposit, loan~~salaries and ~~other income~~employee benefits of $2.8 million, which included $2.3 million of loan referral fee income generated by BoeFly as a result of its participation in the PPP program. Additional increases were in net gains on sale of loans held-for-sale of $0.6$1.8 million and increases in ~~income on bank owned life~~professional and consulting expenses of $0.8 million, partially offset by decreases in FDIC insurance expense of $0.4 ~~million. The increases~~million, decreases in ~~net gains on sale~~amortization of ~~loans held-for-sale~~core deposit intangibles of $0.3 million and decreases in marketing and advertising of $0.2 million.

Income Taxes

Income tax expense was ~~attributable to sales of commercial real estate loans originated for sale during the first quarter of 2020.~~

~~Noninterest Expenses~~

~~Noninterest expenses totaled $33.1~~$10.7 million for the three months ended June 30, ~~2020,~~2021, compared with $21.6 million for the three months ended June 30, 2019. Included in noninterest expenses were merger and restructuring expenses totaling $5.1 million and $0.3 million during the three months ended June 30, 2020 and 2019, respectively. Excluding merger and restructuring expenses, noninterest expenses increased by $6.7 million from the three months ended June 30, 2019, primarily attributable to an increases in salaries and employee benefits of $2.7 million, an additional $2.3 million in expenses related to the BoeFly acquisition, increases in occupancy and equipment expenses of $0.8 million, increases in other expenses of $0.6 million, increases in data processing of $0.4 million and increases in FDIC insurance of $0.3 million, partially offset by a $1.0 million loss on extinguishment of debt that took place during the three months ended June 30, 2019. There was no such charege in the current period. The increases in salaries and employee expenses, occupancy and equipment expenses, other expenses, data processing and FDIC insurance are mainly attributable to the acquisition of BNJ.

Noninterest expenses totaled $68.1 million for the six months ended June 30, 2020, compared with $49.7 million for the six months ended June 30, 2019. Included in noninterest expenses were merger and restructuring expenses totaling $14.6 million and $7.9 million during the six months ended June 30, 2020 and 2019, respectively. Excluding merger and restructuring expenses, noninterest expenses increased by $11.7 million from the six months ended June 30, 2019, primarily attributable to an increases in salaries and employee benefits of $5.3 million, an additional $2.3 million in expenses related to the BoeFly acquisition, increases in occupancy and equipment expenses of $1.8 million, increases in other expenses of $0.9 million, increases in data processing of $0.8 million and increases in professional and consulting of $0.7 million, partially offset by a $1.0 million loss on extinguishment of debt that took place during the second quarter of 2019. There was no such charege in the current period. The increases in salaries and employee expenses, occupancy and equipment expenses, other expenses, data processing and FDIC insurance are mainly attributable to the acquisition of BNJ.

~~Income Taxes~~

~~Income tax expense was~~ $2.5 million for the ~~three months~~comparable three-month period ended June 30, ~~2020, compared to $5.5 million for the three months ended June 30, 2019.~~2020. The ~~decrease~~increase in income tax expense was the result of ~~lower~~higher income before taxes. The effective tax rate for the three months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 was ~~14.5%~~24.8% and ~~22.2%~~14.5%, respectively. The higher effective tax rate during the second quarter 2021 when compared to the second quarter of 2020 resulted from a lower proportion of income from non-taxable sources.

Income tax expense was ~~$3.6~~$21.5 million for the six months ended June 30, ~~2020,~~2021, compared to ~~$8.0~~$3.6 million for ~~the six months~~comparable six-month period ended June 30, ~~2019.~~2020. The increase in income tax expense was the result of higher income before taxes. The effective tax rate for the six months ended June 30, ~~2019~~2021 was ~~14.6%~~24.8% versus ~~20.5%~~14.6% for the prior-year period. The higher effective tax rate during the first half of 2021 when compared to the first half of 2020 resulted from a lower proportion of income from non-taxable sources.

5051

Table of Contents

Financial Condition

Loan Portfolio

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

									Amount
	June 30, 2020				December 31, 2019				Increase/		June 30, 2021					December 31, 2020					Amount Increase/
	Amount		%		Amount		%		(Decrease)		Amount		%			Amount		%			(Decrease)
	(dollars in thousands)										(dollars in thousands)
Commercial ⁽¹⁾	$	1,659,935	26.1	%	$	1,129,661	22.1	%	$	530,274	$	1,402,697		21.8	%	$	1,521,967		24.4	%	$	(119,270)
Commercial real estate		3,676,057	57.6			3,041,959	59.4			634,098		4,138,518		64.5			3,783,550		60.6			354,968
Commercial construction		673,893	10.6			623,326	12.2			50,567		587,121		9.1			617,747		9.8			(30,626)
Residential real estate		366,315	5.7			320,020	6.2			46,295		286,907		4.5			322,564		5.1			(35,657)
Consumer		2,001	0.0			3,328	0.1			(1,327)		6,355		0.1			1,853		0.1			4,502
Gross loans	$	6,378,201	100.0	%	$	5,118,294	100.0	%	$	1,259,907	$	6,421,598		100.0	%	$	6,247,681		100.0	%	$	173,917


	⁽¹⁾	~~Includes PPP~~^{Included in commercial loans of $474 million as of June 30, 2020.} 2021 and December 31, 2020 were PPP loans of $326.8 million and $397.5 million, respectively.

As of June 30, ~~2020,~~2021, gross loans totaled $6.4 billion, an increase of ~~$1.3 billion,~~$173.9 million, or ~~24.6%~~2.8%, as compared to December 31, ~~2019.~~2020. Net loan growth was primarily attributable to increases in the ~~BNJ acquisition~~commercial real estate segment of $355.0 million, offset by decreases in the commercial segment of $119.3 million, which primarily resulted from PPP loan forgiveness, decreases in commercial construction of $30.6 million and decreases in residential real estate of $35.7 million.

Allowance for Credit Losses and Related Provision

As of January 1, 2021, the ~~origination~~Company adopted the CECL accounting standard. As of ~~PPP loans.~~

At June 30, ~~2020, acquired~~2021, the Company’s ACL for loans ~~within the loan portfolio totaled $1.1 billion, compared to~~was $78.7 million, a decrease of $0.5 ~~billion as of~~million from $79.2 million December 31, ~~2019.~~2020. The ~~increase~~decrease was attributable to a release of credit losses of approximately $7.0 million, offset by an increase in provision of $6.6 million resulting from the ~~BNJ acquisition.~~

~~Allowance for Loan Losses and Related Provision~~

~~In accordance with the accounting relief provisions~~“Day 1” effect of ~~the CARES Act and regulatory guidance, the Company has postponed~~ the adoption of the ~~current expected~~CECL accounting.

The (reversal of) provision for credit losses, ~~(“CECL”) accounting standards. Management reached this decision due to~~which includes provision for unfunded commitments, for the complexities of CECL loan loss forecasting exacerbated by the quickly changing economic environment resulting from the COVID-19 pandemic. The Company measured its allowance under its current incurred loan loss model as ofthree and six months ended June 30, ~~2020.~~

~~At June 30, 2020, the ALLL~~2021 was ~~$68.7~~$(1.6) million asand $(7.4) million, respectively, compared to ~~$38.3~~$15.0 million ~~at December 31, 2019. The provision for loan losses~~and $31.0 million, for the three and six months ended June 30, 2020, respectively. The decrease in provision for credit losses was ~~$15.0~~the result of an improved macro-economic outlook as of June 30, 2021 when compared to January 1, 2021, the day the Company adopted CECL. The prior year provision in the three and six months ended June 30, 2020, was primarily due to the significant economic slowdown due to the COVID 19 pandemic.

There were $0.2 million and ~~$31.0~~$0.1 million ~~respectively, compared to $1.1 million and $5.6 million~~in net charge-offs for the three and six months ended June 30, 2019, respectively. The increase in the provision for loan losses was primarily attributable to a $27.0 million of unallocated provision related the economic uncertainties caused by the COVID-19 pandemic.

~~There were~~2021, compared with $0.4 million and $0.6 million in net charge-offs for the three and six months ended June 30, 2020 ~~compared with $0.3 million and $2.9 million in net charge-offs for the three and six months ended June 30, 2019,~~ respectively. The ~~ALLL~~ACL as a percentage of loans receivable amounted to ~~1.08% at~~1.23% as of June 30, ~~2020~~2021 compared to ~~0.75% at~~1.27% as of December 31, ~~2019 and 0.74 % at June 30, 2019.~~2020. Excluding the impact of PPP loans, in the calculation of the ~~ALLL~~ACL as a %percentage of loans receivable, the ratio increases to ~~1.17%~~1.29% as of June 30, ~~2020.~~2021, compared to 1.36% as of December 31, 2020 allowance for loan losses. PPP loans do not have allowance for ~~loan~~credit losses attributable to them, as they are ~~gauranteed~~fully guaranteed by the SBA.

The level of the ~~allowance~~ACL for the respective periods of ~~2020~~2021 and ~~2019~~allowance for loan losses for 2020 reflects the credit quality within the loan portfolio, loan growth, the changing composition of the commercial and residential real estate loan portfolios and other related factors. ~~Addtionally, the higher allowance for loan losses for 2020 is a result of the impact of the COVID-19 pandemic.~~ In management’s view, the level of the ~~ALLL at~~ACL as of June 30, ~~2020~~2021 is adequate to cover expected credit losses inherent in 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.

Table of Contents

Changes in the ~~ALLL~~ACL are presented in the following table for the periods indicated.

	Three Months Ended
	June 30,						Three Months Ended June 30,
	2020			2019			2021			2020⁽¹⁾
	(dollars in thousands)						(dollars in thousands)
Average loans receivable at end of period	$	6,301,174		$	5,005,284		$	6,248,516		$	6,301,174
Average loans held-for-sale at end of period		31,329			225
Average total loans at end of period	$	6,332,503		$	5,005,509

Analysis of the ALLL:
Balance - beginning of quarter	$	54,169		$	36,858
Analysis of the ACL:
Balance – beginning of period							$	80,568		$	54,169
Charge-offs:
Commercial		(380	)		-			(50)			(380)
Commercial real estate		-			(406	)		(155)			-
Residential real estate		(69	)		-			(7)			(69)
Total charge-offs		(449	)		(406	)		(212)			(449)
Recoveries:
Commercial		2			115			13			2
Commercial real estate		2			30			-			2
Residential real estate		-			1
Consumer								1			-
Total recoveries		4			146			14			4
Net (charge-offs) recoveries		(445	)		(260	)
Provision for loan and losses		15,000			1,100
Net recoveries (charge-offs)								(198)			(445)
(Reversal of) provision for credit losses (loans)								(1,686)			15,000
Balance - end of period	$	68,724		$	37,698		$	78,684		$	68,724
Ratio of annualized net charge-offs during the period to average loans during the period		0.03	%		0.02	%
Ratio of annualized net charge-offs during the period to average loans receivable during the period								0.01	%		0.03	%
Loans receivable							$	6,407,904		$	6,363,267
ACL as a percentage of loans receivable								1.23	%		1.08	%

Loans receivable	$	6,363,267		$	5,090,492
ALLL as a percentage of loans receivable		1.08	%		0.74	%

	Six Months Ended June 30,
	2021			2020⁽¹⁾
	(dollars in thousands)
Average loans receivable at end of period	$	6,245,665		$	6,111,994
Analysis of the ACL:
Balance - beginning of quarter	$	79,226		$	38,293
CECL Day 1 Adjustment		6,557			-
Balance – January 1, 2021 (as adjusted)		85,783			38,293
Charge-offs:
Commercial		(50)			(504)
Commercial real estate		(155)			-
Residential real estate		(7)			(69)
Consumer		-			(3)
Total charge-offs		(212)			(576)
Recoveries:
Commercial		73			2
Commercial real estate		-			2
Residential real estate		-			3
Consumer		2			-
Total recoveries		75			7
Net recoveries (charge-offs)		(137)			(569)
(Reversal of) provision for credit losses (loans)		(6,962)			31,000
Balance - end of period	$	78,684		$	68,724
Ratio of annualized net charge-offs during the period to average loans receivable during the period		0.01	%		0.02	%
Loans receivable	$	6,407,904		$	6,363,267
ACL as a percentage of loans receivable		1.23	%		1.08	%

⁽¹⁾

The ACL for the prior periods was calculated based on the incurred loan loss model.

Six Months Ended
June 30,
2020
2019
(dollars in thousands)
Average loans receivable at end of period
$
6,111,994
$
4,956,691
Average loans held-for-sale at end of period
32,492
175
Average total loans at end of period
$
6,144,486
$
4,956,866

Analysis of the ALLL:
Balance - beginning of quarter
$
38,293
$
34,954
Charge-offs:
Commercial
(504
)
-
Commercial real estate
-
(3,082
)
Residential real estate
(69
)
-
Consumer
(3
)
-
Total charge-offs
(576
)
(3,082
)
Recoveries:
Commercial
2
186
Commercial real estate
2
30
Residential real estate
3
3
Consumer
-
7
Total recoveries
7
226
Net (charge-offs) recoveries
(569
)
(2,856
)
Provision for loan and losses
31,000
5,600
Balance - end of period
$
68,724
$
37,698
Ratio of annualized net charge-offs during the period to average loans during the period
0.02
%
0.12
%

Loans receivable
$
6,363,267
$
5,090,492
ALLL as a percentage of loans receivable
1.08
%
0.74
%

Table of Contents

Asset Quality

The Company manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination of outstanding loans, delinquencies, and potential problem loans, with particular attention to portfolio dynamics and mix. The Company strives to identify loans experiencing difficulty early enough to correct the problems, to record charge-offs promptly based on realistic assessments of current collateral values and cash flows, and to maintain an adequate allowance for loan losses at all times.

It is generally the Company’s policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days. When a loan is placed on nonaccrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on nonaccrual loans are generally applied against principal. A loan may be restored to an accruing basis when all past due amounts have been collected. Loans past due 90 days or more which are both well-secured and in the process of collection may remain on an accrual basis.

Nonperforming assets include nonaccrual loans and other real estate owned. Nonaccrual loans represent loans on which interest accruals have been suspended. In general, it is the policy of management to consider the charge-off of uncollectible amounts of loans at the point they become past due 90 days. Performing troubled debt restructured loans represent loans to borrowers experiencing financial difficulties on which a concession was granted, such as a reduction in interest rate below the current market rate for new debt with similar risks or modified repayment terms, and are performing under the restructured terms.

The following table sets forth, as of the dates indicated, the amount of the Company’s nonaccrual loans, other real estate owned (“OREO”), performing troubled debt restructurings (“TDRs”) and loans past due 90 days or greater and still accruing:

June 30,
December 31,
2020
2019
(dollars in thousands)
Nonaccrual loans
$
64,580
$
49,481
OREO
-
-
Total nonperforming assets ⁽¹⁾
$
64,580
$
49,481

Performing TDRs
$
20,418
$
21,410
Loans 90 days or greater past due and still accruing (non-PCI)
$
-
$
-
Loans 90 days or greater past due and still accruing (PCI)
$
5,971
$
3,107


	June 30, 2021		December 31, 2020
	(dollars in thousands)
Nonaccrual loans	$	56,213	$	61,T696
OREO		-		-
Total nonperforming assets ⁽¹⁾	$	56,213	$	61,696
Performing TDRs	$	33,021	$	23,655
Loans 90 days or greater past due and still accruing (non PCD)	$	-	$	-
Loans 90 days or greater past due and still accruing (PCD)	$	19,654	$	12,821

⁽¹⁾

^{Nonperforming assets are defined as nonaccrual loans and OREO.}

Nonaccrual loans to total loans receivable	0.88	%	0.99	%
Nonperforming assets to total assets	0.73		0.82
Nonperforming assets, performing TDRs, and loans 90 days or greater past due and still accruing to loans receivable	1.70		1.57

Nonaccrual loans to loans receivable
1.01
%
0.97
%
Nonperforming assets to total assets
0.85
%
0.80
%
Nonperforming assets, performing TDRs, and loans 90 days or greater past due and still accruing to loans receivable
1.34
%
1.44
%

~~The above table does not include deferred loans, which totaled approximately $937 million as~~Table of ~~June 30, 2020. These deferred loans could migrate to nonperforming assets sometime in the future but have not as of June 30, 2020.~~Contents

Investment Securities

As of June 30, ~~2020,~~2021, 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 June 30, ~~2020,~~2021, average securities ~~decreased $71.7~~increased by $1.2 million to approximately ~~$443.3~~$444.5 million, or ~~6.2%~~6.3% of average total interest-earning assets, from approximately ~~$515.0~~$443.3 million, or ~~9.2%~~6.2% of average interest-earning assets, for the comparable period in ~~2019.~~2020.

As of June 30, ~~2020,~~2021, net unrealized gains on securities available-for-sale, which are carried as a component of accumulated other comprehensive income and included in stockholders’ equity, net of tax, amounted to ~~$6.2~~$3.9 million as compared with net unrealized gains of ~~$2.7~~$7.9 million atas of December 31, ~~2019.~~2020. The ~~increase~~decrease in unrealized gains is predominately 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 gross unrealized losses associated with agency securities and federal agency obligations, mortgage-backed securities, corporate bonds and tax-exempt securities are not considered to be other-than-temporary because their unrealized losses are relateddecline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an allowance for credit ~~spreads and do~~losses is recognized in other comprehensive income, net of applicable taxes. The Company did not ~~affect the expected cash flows~~record an ACL for available-for-sale as of ~~the underlying collateral or issuer.~~June 30, 2021.

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.

We currently utilize net interest income (“NII”) simulation and economic value of equity (“EVE”) models to measure the potential impact to the Bank of future changes in interest rates. As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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.

Based on our model, which was run as of June 30, 2021, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 2.94%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 6.04%. As of December 31, 2020, we estimated that over the next one-year period a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by ~~0.91%~~0.70%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by ~~3.55%~~5.18%. As

Based on our model, which was run as of ~~December 31, 2019,~~June 30, 2021, we estimated that over the next ~~one-year period,~~three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by ~~1.55%~~8.60%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by ~~1.71%~~10.90%.

~~Based on our model, which was run as~~ As of ~~June 30,~~December 31, 2020, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by ~~2.55%~~3.89%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by ~~5.59%~~8.56%. As of December 31, 2019, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous increase in the general level of interest rates would increase our net interest income by 2.86%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 4.86%

An EVE analysis is also used to dynamically model the present value of asset and liability cash flows with instantaneous rate shocks of up 200 basis points and down 100 basis points. The economic value of equity is likely to be different as interest rates change. Our EVE as of June 30, ~~2020,~~2021, would decline by ~~6.60%~~1.79% with an instantaneous rate shock of up 200 basis points, and ~~increase~~decrease by ~~4.40%~~1.13% with an instantaneous rate shock of down 100 basis points. Our EVE as of December 31, ~~2019,~~2020, would decline by ~~7.2%~~7.76% with an instantaneous rate shock of up 200 basis points, and increase by ~~3.69%~~5.70% with an instantaneous rate shock of down 100 basis points.

The following table illustrates the most recent results for EVE and one-year NII sensitivity as of June 30, ~~2020.~~2021.


Interest Rates	Estimated	Estimated Change in EVE		Interest Rates	Estimated	Estimated Change in NII
(basis points)	EVE	Amount	%	(basis points)	NII	Amount	%
+300	$928,870	$(40,743)	(4.20)	+300	$259,628	$10,574	4.25
+200	953,271	(17,342)	(1.79)	+200	256,385	7,331	2.94
+100	964,554	(6,059)	(0.62)	+100	252,839	3,785	1.52
0	970,613	-	0.0	0	249,054	-	0.0
-100	959,676	(10,937)	(1.13)	-100	234,017	(15,037)	(6.04)

Table of Contents

Interest Rates
Estimated
Estimated Change
in EVE
Interest Rates
Estimated
Estimated Change in NII
(basis points)
EVE
Amount
%
(basis points)
NII
Amount
%
+300
$
898,121
$
(79,855
)
(8.17
)
+300
$
241,702
$
5,375
2.27
+200
913,438
(64,538
)
(6.60
)
+200
238,488
2,161
0.91
+100
933,568
(44,408
)
(4.54
)
+100
236,680
353
0.15
0
977,976
-
0.0
0
236,327
-
0.0
-100
1,022,015
44,039
4.40
-100
227,932
(8,395
)
(3.55
)

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 securities available-for-sale. 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

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.

AtAs of June 30, ~~2020,~~2021, 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 June 30, ~~2020,~~2021, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were ~~$666.5~~$724.1 million, which represented ~~8.8%~~9.4% of total assets and ~~10.3%~~11.1% of total deposits and borrowings, compared to ~~$506~~$697.4 million as of December 31, ~~2019,~~2020, which represented ~~8.2%~~9.2% of total assets and ~~9.6%~~10.9% of total deposits and borrowings.

The Bank is a member of the Federal Home Loan Bank of New York and, based on available qualified collateral as of June 30, ~~2020,~~2021, had the ability to borrow ~~$2.1~~$2.0 billion. In addition, atas of June 30, ~~2020,~~2021, the Bank had in place borrowing capacity of $25 million through correspondent banks. The Bank also has a credit facility established with the Federal Reserve Bank of New York for direct discount window borrowings with capacity based on pledged collateral of ~~$5.3~~$3.2 million. AtAs of June 30, ~~2020,~~2021, the Bank had aggregate available and unused credit of approximately $1.2 billion, which represents the aforementioned facilities totaling ~~$2.1~~$2.0 billion net of ~~$880.4~~$820.4 million in outstanding borrowings and letters of credit. AtAs of June 30, ~~2020,~~2021, outstanding commitments for the Bank to extend credit were approximately ~~$1.2~~$1.1 billion.

Cash and cash equivalents totaled $349.4 million atas of June 30, ~~2020,~~2021, increasing by ~~$147.9~~$45.7 million from ~~$201.5~~$303.8 million atas of December 31, ~~2019.~~2020. Operating activities provided ~~$75.6~~$119.5 million in net cash. Investing activities used ~~$389.9~~$174.3 million in net cash, primarily reflecting an increase in loans and securities ~~purchases, cash flows acquired from BNJ, and cash consideration for the BNJ acquisition.~~purchases. Financing activities provided ~~$462.2~~$100.5 million in net cash, primarily reflecting a net increase in deposits of ~~$276.6~~$234.5 million ~~an increase~~and a decrease in ~~subordinated debentures of $73.4 million and~~ net borrowings of ~~$117.1~~$72.5 million.

Table of Contents

Deposits

The following table sets forth the composition of our deposit base by the periods indicated.

										Amount
										Increase/
		June 30, 2020				December 31, 2019				(Decrease)		June 30, 2021					December 31, 2020					Amount Increase/ (Decrease)
		Amount		%		Amount		%		2020 vs. 2019		Amount		%			Amount		%			2021 vs. 2020
	(dollars in thousands)											(dollars in thousands)
Demand, noninterest-bearing		$	1,276,070	21.9	%	$	819,917	17.7	%	$	456,153	$	1,485,952		24.0	%	$	1,339,108		22.5	%	$	146,844
Demand, interest-bearing			1,224,342	21.0			980,669	21.1			243,673		3,029,469		48.9			2,861,820		48.0			167,649
Money market			1,294,101	22.2			1,121,605	24.2			172,496
Savings			224,484	3.9			165,538	3.6			58,946		375,285		6.1			294,163		4.9			81,122
Time			1,807,864	31.0			1,549,700	33.4			258,164		1,301,807		21.0			1,464,133		24.6			(162,326)
Total deposits		$	5,826,861	100.0	%	$	4,637,429	100.0	%	$	1,189,432	$	6,192,513		100.0	%	$	5,959,224		100.0	%	$	233,289

~~Total deposits increased by $1.2 billion, or 25.7%, to $5.8 billion at June 30, 2020 from December 31, 2019. The increase was primarily attributable the acquisition of BNJ.~~

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 Company 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. The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85% and re-prices quarterly. The rate atas of June 30, ~~2020~~2021 was ~~3.61%~~3.04%.

During June 2015, the Parent Corporation issued $50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “Notes”) to certain institutional accredited investors. The net proceeds from the sale of the Notes were used by the Parent Corporation to contribute $35.0 million of common equity to the Bank and to repay $11.25 million of SBLF preferred stock issued to the U.S. Treasury on March 11, 2016. Remaining funds were used for general corporate purposes. The Notes may now be redeemed by the Company, have a stated maturity of July 1, 2025, and bear interest at a fixed rate of 5.75% per year, from and including June 30, 2015 to, but excluding July 1, 2020. From and including July 1, 2020 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 393 basis points.

During January 2018, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2018 Notes”) to certain accredited investors. The net proceeds from the sale of the 2018 Notes were used for general corporate purposes, which included the Parent Corporation contributing $65 million of the net proceeds to the Bank in the form of debt and common equity in the first quarter of 2018. The 2018 Notes are non-callable for five years, have a stated maturity of February 1, 2028 and bear interest at a fixed rate of 5.20% per year, from and including January 17, 2018 to, but excluding February 1, 2023. From and including February 1, 2023 to, but excluding the maturity date, or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 284 basis points.

During June 2020, the Parent Corporation issued $75 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2020 Notes”). The 2020 Notes bear interest at 5.75% annually from, and including, the date of initial issuance to, but excluding, June 15, 2025 or the date of earlier redemption, payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2020. From and including June 15, 2025 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR (as defined in the Second Supplemental Indenture), plus 560.5 basis points, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2025. Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero.

During June 2015, the Parent Corporation issued $50 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “2015 Notes”). As of December 31, 2020, the 2015 Notes had a stated maturity of July 1, 2025, and bore interest until the maturity date or early redemption date at a variable rate equal to the then current three-month LIBOR rate plus 393 basis points. As of December 31, 2020, the variable interest rate was 4.16% and all costs related to 2015 issuance have been amortized. The 2015 Notes were redeemed in full on January 1, 2021.

Table of Contents

Stockholders’ Equity

The Company’s stockholders’ equity was ~~$868~~$965.0 million atas of June 30, ~~2020,~~2021, an increase of ~~$137~~$49.7 million from December 31, ~~2019.~~2020. The increase in stockholders’ equity was primarily attributable to retained earnings during the ~~acquisition of BNJ, which increased capital by $118 million.~~period. As of June 30, ~~2020,~~2021, the Company’s tangible common equity ratio and tangible book value per share were ~~8.75%~~9.97% and ~~$16.28,~~$18.76, respectively. As of December 31, ~~2019,~~2020, the tangible common equity ratio and tangible book value per share were ~~9.38%~~9.50% and ~~$16.06,~~$17.49, respectively. Total goodwill and other intangible assets were approximately ~~$221~~$218.3 million and $219.3 million as of June 30, ~~2020~~2021 and ~~$168 million as of~~ December 31, ~~2019.~~2020, respectively.

	June 30,			December 31,
	2021			2020
	(dollars in thousands, except for share and per share data)
Common equity	$	964,960		$	915,310
Less: intangible assets		(218,335)			(219,349)
Tangible common stockholders’ equity	$	746,625		$	695,961

Total assets	$	7,710,082		$	7,547,339
Less: intangible assets		(218,335)			(219,349)
Tangible assets	$	7,491,747		$	7,327,990

Common stock outstanding as of period end		39,794,815			39,785,398

Tangible common equity ratio ⁽¹⁾		9.97	%		9.50	%

Book value per common share	$	24.25		$	23.01
Less: intangible assets		5.49			5.52
Tangible book value per common share	$	18.76		$	17.49

(1)

Tangible common equity ratio is a non-GAAP measure.

June 30,
December 31,
2020
2019
(dollars in thousands, except for share and per
share data)
Stockholders’ equity
$
867,741
$
731,190

Less: Goodwill and other intangible assets
(220,605)
(168,034)
Tangible common stockholders’ equity
$
647,136
$
563,156

Common stock outstanding at period end
39,753,033
35,072,067

Book value per common share
$
21.83
$
20.85
Less: Goodwill and other intangible assets
5.55
4.79
Tangible book value per common share
$
16.28
$
16.06

Table of Contents

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 June 30, ~~2020~~2021 for the Company and the Bank, compared with minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized depository institution.

									To Be Well-Capitalized Under			ConnectOne Bancorp, Inc.					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
					For Capital Adequacy				Prompt Corrective Action
	ConnectOne Bancorp, Inc.				Purposes				Provisions
At June 30, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2021												Amount		Ratio			Amount		Ratio			Amount		Ratio
					(dollars in thousands)												(dollars in thousands)
Tier 1 leverage capital	$	648,558	8.99	%	$	288,426	4.00	%		N/A	N/A	$	748,145		10.19	%	$	293,537		4.00	%		N/A	N/A
CET I risk-based ratio		643,403	10.05			288,029	4.50			N/A	N/A		742,990		11.09			301,514		4.50			N/A	N/A
Tier 1 risk-based capital		648,558	10.13			384,039	6.00			N/A	N/A		748,145		11.17			402,019		6.00			N/A	N/A
Total risk-based capital		917,282	14.33			512,052	8.00			N/A	N/A		976,829		14.58			536,026		8.00			N/A	N/A

									To Be Well-Capitalized Under				ConnectOne Bank					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
					For Capital Adequacy				Prompt Corrective Action
	ConnectOne Bank				Purposes				Provisions
At June 30, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2021													Amount		Ratio			Amount		Ratio			Amount		Ratio
					(dollars in thousands)													(dollars in thousands)
Tier 1 leverage capital	$	729,034	10.12	%	$	288,288	4.00	%	$	360,360	5.00	%	$	832,047		11.34	%	$	293,526		4.00	%	$	366,907	5.00	%
CET I risk-based ratio		729,034	11.39			288,008	4.50			416,011	6.50			832,047		12.42			301,499		4.50			435,499	6.50
Tier 1 risk-based capital		729,034	11.39			384,010	6.00			512,014	8.00			832,047		12.42			401,999		6.00			535,999	8.00
Total risk-based capital		830,008	12.97			512,014	8.00			640,017	10.00			942,981		14.07			535,999		8.00			669,999	10.00

N/A - not applicable

As of June 30, 2020, management believes that each of the Bank and the Company meet all capital adequacy requirements to which they are subject. Basel III rules require a “capital conservation buffer” for both the Company and the Bank. Beginning January 1, 2019, the Company and the Bank were required to maintain a 2.5% capital conservation buffer, above and beyond the capital levels otherwise required under applicable regulation. Under this guidance banking institutions with a CET1, Tier 1 Capital Ratio and Total Risk Based Capital Ratio above the minimum regulatory adequate capital ratios but below the capital conservation buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive officers, based on the amount of the shortfall.

~~As of June 30, 2020,~~2021, 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 Ratio which was ~~1.63%~~2.67% above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was ~~2.47%~~3.57% above the minimum buffer ratio.

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Item 3. Qualitative and Quantitative Disclosures about Market Risks

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.

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Table of Contents

Item 4. Controls and Procedures

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.

5961

Table of Contents

PART II -– OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not subject to any legal proceedings, which could have a materially adverse impact on its results of operations and financial condition.

Item 1a. Risk Factors

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, ~~2019, with the exception of:~~2020.

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

Global health concerns relating to the COVID-19 outbreak and related government actions taken to reduce the spread of the virus, including the closure of all non-essential business and stay at home orders, have been weighing on the macroeconomic environment in our New Jersey/New York metropolitan market trade area, and the outbreak has significantly increased economic uncertainty and reduced economic activity. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures, even as certain of them have been eased, have significantly contributed to rising unemployment and negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no assurance that such steps will be effective or achieve their desired results in a timely fashion.

The outbreak has adversely impacted and is likely to further adversely impact our workforce and operations and the operations of our borrowers, customers and business partners. In particular, we may experience financial losses due to a number of operational factors impacting us or our borrowers, customers or business partners, including but not limited to:

•

credit losses resulting from financial stress being experienced by our borrowers as a result of the outbreak and related governmental actions, particularly in the hospitality, energy, retail and restaurant industries, but across other industries as well; As of June 30, 2020, we had agreed to short-term payment deferrals of approximately $937 million in outstanding loans for clients facing financial stress due to COVID-19 pandemic;

•

~~declines in collateral values;~~

•

~~third party disruptions, including outages at network providers and other suppliers;~~

•

~~increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online and remote activity; and~~

•

~~operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions.~~

These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided.

The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, and developing work from home and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.

The extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

See “Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations – Shareholders’ Equity”

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5.5 Other Information

Not applicable

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Item 6. Exhibits

Exhibit No.	Description



31.1
~~10.1~~	~~Second Supplemental Indenture, dated as of June 15, 2020, between the Company an U.S. Bank National Association, as~~ ~~Trustee~~ ⁽¹⁾.

~~31.1~~	Certification of the Chief Executive Officer of the Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer of the Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer of the Parent Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer of the Parent Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
~~101.INS~~	XBRL Instance ~~Document - the~~Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema ~~Document~~ Document.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~ Document.
101.DEF	~~Definition~~Inline XBRL Taxonomy Extension Definition Linkbase ~~Document~~ Document.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase ~~Document~~ Document.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document~~ Document.
104	Cover Page Interactive Data File ~~– the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the~~(formatted as Inline XBRL ~~document.~~and contained in Exhibit 101).

⁽¹⁾ ~~Incorporated by reference from Exhibit 4.2 of the Registrant's Current Report on Form 8-K filed June 15, 2020.~~

Table of Contents

62SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.

CONNECTONE BANCORP, INC.

(Registrant)

By:	/s/ Frank Sorrentino III	By:	/s/ William S. Burns
	Frank Sorrentino III		William S. Burns
	Chairman and Chief Executive Officer		Executive Vice President and Chief Financial Officer

	Date: August 6, 2021		Date: August ~~10, 2020~~6, 2021	~~Date: August 10, 2020~~

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, ~~2020~~2021

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from __________ to __________

Title of each class	Trading symbol	Name of each exchange on which registered
Common stock	CNOB	NASDAQ

Common Stock, no par value:	~~39,752,711~~39,794,815 shares
(Title of Class)	(Outstanding as of August ~~10, 2020)~~6, 2021)

Supplemental disclosures of cash flow information
Cash payments for:
Interest paid on deposits and borrowings	$	41,189	$	44,169	$	23,236	$	41,189
Income taxes		12,096		7,816		20,299		12,096

Supplemental disclosures of noncash activities
Investing:
Transfer of loans from held-for-investment to other real estate owned					$	304	$	0-
Transfer of loans from held-for-investment to held-for-sale	$	10,995		-		9,356		10,995
Transfer of loans from held-for-sale to held-for-investment		19,738		-		0-		19,738

Business combinations:
Fair value of assets acquired	$	949,282	$	534,146	$	0-	$	949,282
Fair value of liabilities assumed		852,729		488,475		0-		852,729


	Change in Consolidated				Change to Retained Earnings
	Statement of Condition		Tax Effect		from Adoption of CECL
Allowance for credit losses (“ACL”) (loans)	$	1,350	$	406	$	944
Adjustment related to purchased credit-impaired loan marks⁽¹⁾		5,207		0-		0-
Total ACL - loans		6,557		406		944
ACL (unfunded credit commitments)		2,833		852		1,981

Total impact of CECL adoption	$	9,390	$	1,258	$	2,925

	Three Months Ended June 30, 2019

(dollars in thousands, except for per share data)	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity
Balance as of March 31, 2019	$	-	$	468,571	$	16,513	$	219,558		$	(16,967	)	$	(5,280	)	$	682,395
Net income		-		-		-		19,281			-			-			19,281
Other comprehensive income, net of tax		-		-		-		-			-			2,399			2,399
Cash dividends declared on common stock ($0.090 per share)		-		-		-		(3,190	)		-			-			(3,190	)
Exercise of stock options (6,946) shares)		-		-		122		-			-			-			122
Restricted stock grants (8,997 shares)		-		-		-		-			-			-			-
Repurchase of treasury stock (227,018 shares)		-		-		-		-			(4,925	)		-			(4,925	)
Restricted stock issued (119,008 shares) in acquisition of BoeFly, LLC		-		-		2,500		-			-			-			2,500
Stock-based compensation expense		-		-		642		-			-			-			642
Balance as of June 30, 2019	$	-	$	468,571	$	19,777	$	235,649		$	(21,892	)	$	(2,881	)	$	699,224

	Estimated Fair
	Value at
	January 2, 2020
	(in thousands)
Consideration paid:
Common stock issued in acquisition	$	118,375
Cash paid in acquisition		23,977
Total consideration paid:		142,352

Assets acquired:
Cash and cash equivalents		111,368
Securities available-for-sale		20,073
Loans, net		774,720
Premises and equipment, net		12,826
Accrued interest receivable		2,910
Core deposit intangibles		8,076
Other assets		19,309
Total assets acquired		949,282
Liabilities assumed:
Deposits		785,378
Borrowings		49,742
Other liabilities		17,609
Total liabilities assumed		852,729

Net assets acquired		96,553

Goodwill recorded in acquisition	$	45,799

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
June 30, 2020	(dollars in thousands)
Securities available-for-sale
Federal agency obligations	$	44,868	$	1,827	$	(26	)	$	46,669
Residential mortgage pass-through securities		206,186		4,424		(40	)		210,570
Commercial mortgage pass-through securities		2,026		205		-			2,231
Obligations of U.S. states and political subdivisions		126,128		2,899		(306	)		128,721
Corporate bonds and notes		25,159		270		(594	)		24,835
Asset-backed securities		5,274		-		(208	)		5,066
Certificates of deposit		148		2		-			150
Other securities		184		-		-			184
Total securities available-for-sale	$	409,973	$	9,627	$	(1,174	)	$	418,426

			Gross		Gross															Allowance
	Amortized		Unrealized		Unrealized			Fair												for
	Cost		Gains		Losses			Value				Gross		Gross						Investment
December 31, 2019	(dollars in thousands)
										Amortized		Unrealized		Unrealized			Fair			Credit
										Cost		Gains		Losses			Value			Losses
June 30, 2021										(dollars in thousands)
Securities available-for-sale
Federal agency obligations	$	27,667	$	612	$	(42	)	$	28,237	$	34,649	$	1,197	$	(73	)	$	35,773		0-
Residential mortgage pass-through securities		199,611		1,528		(643	)		200,496		261,761		2,655		(1,258	)		263,158		0-
Commercial mortgage pass-through securities		4,995		37		(35	)		4,997		8,886		202		(293	)		8,795		0-
Obligations of U.S. states and political subdivisions		134,500		2,411		(392	)		136,519		133,722		2,695		(29	)		136,388		0-
Corporate bonds and notes		28,142		285		(45	)		28,382		11,459		162		0-			11,621		0-
Asset-backed securities		5,845		-		(65	)		5,780		2,874		10		(4	)		2,880		0-
Certificates of deposit		148		2		-			150		150		1		0-			151		0-
Other securities		140		-		-			140		167		0-		0-			167		0-
Total securities available-for-sale	$	401,048	$	4,875	$	(1,222	)	$	404,701
Total securities available-for-sale										$	453,668	$	6,922	$	(1,657	)	$	458,933	$	0-

December 31, 2020
Securities available-for-sale
Federal agency obligations										$	37,015	$	1,508	$	(65	)	$	38,458		N/A
Residential mortgage pass-through securities											266,114		4,811		(41	)		270,884		N/A
Commercial mortgage pass-through securities											6,906		203		(187	)		6,922		N/A
Obligations of U.S. states and political subdivisions											138,539		4,269		0-			142,808		N/A
Corporate bonds and notes											24,925		222		(52	)		25,095		N/A
Asset-backed securities											3,521		0-		(41	)		3,480		N/A
Certificates of deposit											149		2		0-			151		N/A
Other securities											157		0-		0-			157		N/A
Total securities available-for-sale										$	477,326	$	11,015	$	(386	)	$	487,955		N/A

	June 30, 2021
	Total					Less than 12 Months					12 Months or Longer
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(dollars in thousands)
Investment Securities
Available-for-Sale:
Federal agency obligations	$	1,565	$	(73	)	$	1,565	$	(73	)	$	0-	$	0-
Residential mortgage pass-through securities		142,615		(1,258	)		142,615		(1,258	)		0-		0-
Commercial mortgage pass-through securities		4,542		(293	)		4,542		(293	)		0-		0-
Obligations of U.S. states and political subdivisions		28,654		(29	)		28,654		(29	)		0-		0-
Corporate bonds and notes		0-		0-			0-		0-			0-		0-
Asset-backed securities		567		(4	)		0-		0-			567		(4	)
Total temporarily impaired securities	$	177,943	$	(1,657	)	$	177,376	$	(1,653	)	$	567	$	(4	)

	Six Months Ended June 30, 2020
	Amount of gain			Amount of (gain)		Amount of gain
	(loss) recognized			loss reclassified		recognized in other
	in OCI (Effective			from OCI to		Noninterest income
	Portion)			interest income		(Ineffective Portion)
	(dollars in thousands)
Interest rate contracts	$	(3,315	)	$	311	$	-

	Three Months Ended June 30, 2021
	Amount of (loss)			Amount of loss		Amount of gain
	gain recognized			(gain) reclassified		recognized in other
	in OCI (Effective			from OCI to		Noninterest income
	Portion)			interest income		(Ineffective Portion)
	(dollars in thousands)
Interest rate contracts	$	(42	)	$	584	$	0-

	June 30, 2020					December 31, 2019
	Notional					Notional
	Amount		Fair Value			Amount		Fair Value
	(dollars in thousands)
Interest rate swaps related to FHLB advances included in assets	$	200,000	$	(3,277	)	$	150,000	$	(273)

	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

	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

	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

	June 30, 2020														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		Gross Loans				Unpaid
	(dollars in thousands)														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																0-		0-
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	$	1,124	$	6,679	$	2,658	$	30,584	$	41,045	$	1,618,890	$	1,659,935	$	35,061	$	80,957	$	12,985
Commercial real estate		-		4,267		1,331		9,739		15,337		3,660,720		3,676,057		15,827		16,171		1,329
Commercial construction		-		3,055		-		18,205		21,260		652,633		673,893		24,284		24,907		0-
Residential real estate		301		346		1,982		6,050		8,679		357,636		366,315		5,378		5,723		0-
Consumer		-		-		-		2		2		1,999		2,001		0-		0-		0-
Total	$	1,425	$	14,347	$	5,971	$	64,580	$	86,323	$	6,291,878	$	6,378,201	$	80,550	$	127,758	$	14,314

	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

	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	$	0-	$	4,588	$	31,083	$	35,968	$	1,366,729	$	1,402,697
Commercial real Estate		0-		0-		7,607		16,005		23,612		4,114,906		4,138,518
Commercial construction		0-		0-		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		0-		0-		0-		2		6,353		6,355
Total	$	509	$	99	$	19,654	$	56,213	$	76,475	$	6,345,123	$	6,421,598

			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

	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

	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

	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)

				June 30, 2020										June 30, 2021
				Fair Value Measurements at Reporting Date Using										Fair Value Measurements at Reporting Date Using
	Total Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
(dollars in thousands)
Recurring fair value measurements:
Assets
Investment securities:
Available-for-sale:
Federal agency obligations	$	46,669		$	-	$	46,669		$	-	$	35,773		$	0-	$	35,773		$	0-
Residential mortgage pass-through securities		210,570			-		210,570			-		263,158			0-		263,158			0-
Commercial mortgage pass-through securities		2,231			-		2,231			-		8,795			0-		8,795			0-
Obligations of U.S. states and political subdivision		128,721			-		119,741			8,980		136,388			0-		127,683			8,705
Corporate bonds and notes		24,835			-		24,835			-		11,621			0-		11,621			0-
Asset-backed securities		5,066			-		5,066			-		2,880			0-		2,880			0-
Certificates of deposit		150			-		150			-		151			0-		151			0-
Other securities		184			184		-			-		167			167		0-			0-
Total available-for-sale	$	418,426		$	184	$	409,262		$	8,980	$	458,933		$	167	$	450,061		$	8,705

Equity securities		13,407			11,447		1,960			-		13,223			11,243		1,980			0-
Total assets	$	431,833		$	11,631	$	411,222		$	8,980	$	472,156		$	11,410	$	452,041		$	8,705

Liabilities
Derivatives	$	(3,277	)	$	-	$	(3,277	)	$	-	$	(922	)	$	0-	$	(922	)	$	0-
Total liabilities	$	(3,277	)	$	-	$	(3,277	)	$	-	$	(922	)	$	0-	$	(922	)	$	0-

	Municipal
	Securities
	(dollars in thousands)
Balance at December 31, 2019	$	9,114
Principal paydowns		(134	)
Balance at June 30, 2020	$	8,980

Details about Accumulated Other Comprehensive Loss Components	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)						Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line item in the Statement Where Net Income is Presented	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)						Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line item in the Statement Where Net Income is Presented
	Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
	June 30,						June 30,							June 30,						June 30,
	2020			2019			2020			2019				2021			2020			2021			2020
	(dollars in thousands)													(dollars in thousands)
Sale of investment securities	$	-		$	(9	)	$	29		$	(1	)	Net (losses) gains on sale of securities available-for-sale Income tax expense	$	195		$	0-		$	195		$	29		Net gains on sale of securities available-for-saleavailable Income tax expense
available for sale		-			2			(6	)		-				(48	)		0-			(48	)		(6	)
		-			(7	)		23			(1	)			147			0-			147			23

Net interest income on swaps	$	(318	)	$	176		$	(311	)	$	358		Borrowings	$	(584	)	$	(318	)	$	(1,215	)	$	(311	)	Borrowings
		71			(39	)		69			(79	)	Income tax expense		165			71			342			69		Income tax expense
		(247	)		137			(242	)		279				(419	)		(247	)		(873	)		(242	)

Amortization of pension plan net		(76	)		(90	)		(151	)		(179	)	Other components of net periodic pension expense		(75	)		(76	)		(150	)		(151	)	Other components of net periodic pension expense
actuarial losses		21			25			42			50		Income tax benefit		22			21			42			42		Income tax benefit
		(55	)		(65	)		(109	)		(129	)			(53	)		(55	)		(108	)		(109	)

Total reclassification	$	(302	)	$	65		$	(328	)	$	149			$	(325	)	$	(302	)	$	(834	)	$	(328	)

	Number of Stock Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value		Number of Stock Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2019	73,426		$	8.19
Outstanding as of December 31, 2020								38,013		$	9.03
Granted	-			-				0-			0-
Exercised	(25,413	)		7.39				(5,449	)		8.34
Forfeited/cancelled/expired	-			-				0-			0-
Outstanding at June 30, 2020	48,013		$	8.61	1.7	$	360,793
Outstanding as of June 30, 2021								32,564		$	9.15	1.0	$	554,374

Exercisable at June 30, 2020	48,013		$	8.61	1.7	$	360,793
Exercisable as of June 30, 2021								32,564		$	9.15	1.0	$	554,374

			Weighted-				Weighted-
			Average				Average
	Nonvested		Grant Date		Nonvested		Grant Date
	Shares		Fair Value		Shares		Fair Value
Nonvested at December 31, 2019	75,351		$	21.61
Nonvested as of December 31, 2020					113,114		$	18.15
Granted	68,853			17.42	49,590			25.32
Vested	(47,198	)		21.41	(64,149	)		16.95
Forfeited/cancelled/expired	-			-	(1,608	)		24.11
Nonvested June 30, 2020	97,006		$	18.73
Nonvested June 30, 2021					96,947		$	22.51

				Weighted					Weighted
				Average Grant					Average Grant
	Units		Units	Date Fair		Units		Units	Date Fair
	(expected)		(maximum)	Value		(expected)		(maximum)	Value
Unearned at December 31, 2019	90,097			$	23.85
Unearned as of December 31, 2020						147,636			$	17.29
Awarded	82,579				10.77	37,543				25.24
Change in estimate	2,490				22.75	17,818				20.79
Vested shares	(37,337	)			22.75	(29,421	)			31.35
Unearned at June 30, 2020	137,829		206,744	$	16.29
Unearned as of June 30, 2021						173,576		233,638	$	16.99

									Gross Amounts Not Offset
	Gross Amounts Recognized			Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition			Financial Instruments Recognized		Cash or Financial Instrument Collateral			Net Amount
	(dollars in thousands)
June 30, 2020
Assets:
Interest rate swaps	$	-		$	-	$	-		$	-	$	-		$	-
Liabilities:
Interest rate swaps	$	(3,277	)	$	-	$	(3,277	)	$	-	$	(3,277	)	$	-

December 31, 2019
Assets:
Interest rate swaps	$	-		$	-	$	-		$	-	$	-		$	-
Liabilities:
Interest rate swaps	$	(273	)	$	-	$	(273	)	$	-	$	-		$	(273	)

Nonaccrual loans to loans receivable	1.01	%	0.97	%
Nonperforming assets to total assets	0.85	%	0.80	%
Nonperforming assets, performing TDRs, and loans 90 days or greater past due and still accruing to loans receivable	1.34	%	1.44	%


Interest Rates	Estimated		Estimated Change in EVE					Interest Rates	Estimated		Estimated Change in NII
(basis points)	EVE		Amount			%		(basis points)	NII		Amount			%
+300	$	898,121	$	(79,855	)	(8.17	)	+300	$	241,702	$	5,375		2.27
+200		913,438		(64,538	)	(6.60	)	+200		238,488		2,161		0.91
+100		933,568		(44,408	)	(4.54	)	+100		236,680		353		0.15
0		977,976		-		0.0		0		236,327		-		0.0
-100		1,022,015		44,039		4.40		-100		227,932		(8,395	)	(3.55	)

Number of Loans

Principal Balance

(dollars in thousands)

Commercial

Commercial real estate