	Page
PART I – FINANCIAL INFORMATION	3
Item 1.Financial Statements	3
Consolidated Statements of Condition as of ~~March 31,~~June 30, 2021 (unaudited) and December 31, 2020	3
Consolidated Statements of Income for the three and six months ended ~~March 31,~~June 30, 2021 and 2020 (unaudited)	4
Consolidated Statements of Comprehensive Income for the three and six months ended ~~March 31,~~June 30, 2021 and 2020 (unaudited)	5
Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended ~~March 31,~~June 30, 2021 and ~~2020~~ 2020 (unaudited)	6
Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020 (unaudited)	78
Notes to Consolidated Financial Statements (unaudited)	910


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	4046
Item 3.Qualitative and Quantitative Disclosures about Market Risks	5260
Item 4.Controls and Procedures	5361
PART II – OTHER INFORMATION	5462
Item 1.Legal Proceedings	5462
Item 1a.Risk Factors	5462
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	5462
Item 3.Defaults Upon Senior Securities	5462
Item 4.Mine Safety Disclosures	5462
Item 5.Other Information	5462
Item 6.Exhibits	5563
SIGNATURES	5664

	March 31,			December 31,			June 30,			December 31,
(in thousands, except for share data)	2021			2020			2021			2020
	(unaudited)						(unaudited)
ASSETS
Cash and due from banks	$	48,250		$	63,637		$	59,148		$	63,637
Interest-bearing deposits with banks		211,842			240,119			290,269			240,119
Cash and cash equivalents		260,092			303,756			349,417			303,756

Securities available-for-sale		442,023			487,955
Investment securities								458,933			487,955
Equity securities		13,200			13,387			13,223			13,387

Loans held-for-sale		6,900			4,710			6,159			4,710

Loans receivable		6,277,191			6,236,307			6,407,904			6,236,307
Less: Allowance for credit losses (loans)		80,568			79,226
Less: Allowance for credit losses - loans								78,684			79,226
Net loans receivable		6,196,623			6,157,081			6,329,220			6,157,081

Investment in restricted stock, at cost		22,483			25,099			22,563			25,099
Bank premises and equipment, net		29,296			30,108			28,811			30,108
Accrued interest receivable		35,249			35,317			34,001			35,317
Bank owned life insurance		167,024			165,960			193,209			165,960
Right of use operating lease assets		13,469			16,159			12,504			16,159
Goodwill		208,372			208,372			208,372			208,372
Core deposit intangibles		10,470			10,977			9,963			10,977
Other assets		44,438			88,458			43,707			88,458
Total assets	$	7,449,639		$	7,547,339		$	7,710,082		$	7,547,339
LIABILITIES
Deposits:
Noninterest-bearing	$	1,384,961		$	1,339,108		$	1,485,952		$	1,339,108
Interest-bearing		4,566,373			4,620,116			4,706,561			4,620,116
Total deposits		5,951,334			5,959,224			6,192,513			5,959,224
Borrowings		359,710			425,954			353,462			425,954
Subordinated debentures, net		152,724			202,648			152,800			202,648
Lease liabilities		15,260			18,026
Operating lease liabilities								14,235			18,026
Other liabilities		34,974			26,177			32,112			26,177
Total liabilities		6,514,002			6,632,029			6,745,122			6,632,029

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred Stock:
Authorized 5,000,000 shares		0-			0-			0-			0-
Common stock, no par value:
Authorized 50,000,000 shares; issued 42,525,864 shares as of March 31, 2021 and 42,444,031 shares as of December 31, 2020; outstanding 39,773,602 shares as of March 31, 2021 and 39,785,398 as of December 31, 2020		586,946			586,946
Authorized 50,000,000 shares; issued 42,547,077 shares as of June 30, 2021 and 42,444,031 shares as of December 31, 2020; outstanding 39,794,815 shares as of June 30, 2021 and 39,785,398 as of December 31, 2020								586,946			586,946
Additional paid-in capital		23,621			23,887			24,606			23,887
Retained earnings		358,441			331,951			386,280			331,951
Treasury stock, at cost 2,752,262 common shares as of March 31, 2021 and 2,658,633 as of December 31, 2020		(32,682	)		(30,271	)
Treasury stock, at cost 2,752,262 common shares as of June 30, 2021 and 2,658,633 as of December 31, 2020								(32,682	)		(30,271	)
Accumulated other comprehensive (loss) income		(689	)		2,797			(190	)		2,797
Total stockholders’ equity		935,637			915,310			964,960			915,310
Total liabilities and stockholders’ equity	$	7,449,639		$	7,547,339		$	7,710,082		$	7,547,339

	Three Months Ended						Three Months Ended June 30,						Six Months Ended June 30,
	March 31,
(dollars in thousands, except for per share data)	2021			2020
(in thousands, except for per share data)							2021			2020			2021			2020
Interest income
Interest and fees on loans	$	70,462		$	72,936		$	71,101		$	75,797		$	141,563		$	148,733
Interest and dividends on investment securities:
Taxable		1,088			2,066			995			1,712			2,083			3,778
Tax-exempt		766			813			608			647			1,374			1,460
Dividends		256			400			263			442			519			842
Interest on federal funds sold and other short-term investments		49			499			84			79			133			578
Total interest income		72,621			76,714			73,051			78,677			145,672			155,391
Interest expense
Deposits		7,585			17,212			6,424			13,597			14,009			30,809
Borrowings		3,873			4,221			3,618			4,290			7,491			8,511
Total interest expense		11,458			21,433			10,042			17,887			21,500			39,320
Net interest income		61,163			55,281			63,009			60,790			124,172			116,071
(Reversal of) provision for credit losses		(5,766	)		16,000			(1,649	)		15,000			(7,415	)		31,000
Net interest income after provision for credit losses		66,929			39,281
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		1,168			1,287			2,222			3,212			3,390			4,499
Income on bank owned life insurance		1,064			967			1,185			1,128			2,249			2,095
Net gains on sale of loans held-for-sale		707			393			847			237			1,554			630
Net gains on sale of investment securities		0-			29
Gain on sale of branches		674			0-			0-			0-			674			0-
Net (losses) gains on equity securities		(187	)		178
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		3,426			2,854			4,472			4,621			7,898			7,475
Noninterest expenses
Salaries and employee benefits		15,632			14,593			15,351			14,529			30,983			29,122
Occupancy and equipment		3,404			3,471			3,187			3,156			6,591			6,627
FDIC insurance		935			856			580			1,093			1,515			1,949
Professional and consulting		1,956			1,574			2,117			1,673			4,073			3,247
Marketing and advertising		241			304			278			426			519			730
Data processing		1,536			1,473			1,603			1,586			3,139			3,059
Merger expenses		0-			9,494
Merger and restructuring expenses								0-			5,146			0-			14,640
Amortization of core deposit intangibles		507			652			508			652			1,015			1,304
Increase in value of acquisition price								0-			2,333			0-			2,333
Other components of net periodic pension expense		(67	)		(30	)		(67	)		(29	)		(134	)		(59	)
Other expenses		2,341			2,671			2,702			2,498			5,043			5,169
Total noninterest expenses		26,485			35,058			26,259			33,063			52,744			68,121
Income before income tax expense		43,870			7,077			42,871			17,348			86,741			24,425
Income tax expense		10,871			1,047			10,652			2,516			21,523			3,563
Net income	$	32,999		$	6,030		$	32,219		$	14,832		$	65,218		$	20,862
Earnings per common share
Earnings per common share:
Basic	$	0.83		$	0.15		$	0.81		$	0.37		$	1.64		$	0.53
Diluted		0.82			0.15			0.81			0.37			1.63			0.52

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(dollars in thousands)	2021			2020
(in thousands)							2021			2020			2021			2020
Net income	$	32,999		$	6,030		$	32,219		$	14,832		$	65,218		$	20,862

Other comprehensive income:
Other comprehensive income (loss):

Unrealized holding (losses) gains on available-for-sale securities arising during the period		(5,440	)		6,252
Unrealized gains and losses:
Unrealized holding gains (losses) on available-for-sale securities arising during the period								271			(1,423	)		(5,169	)		4,829
Tax effect		1,432			(1,691	)		(68	)		392			1,364			(1,299	)
Net of tax		(4,008	)		4,561			203			(1,031	)		(3,805	)		3,530

Reclassification adjustment for realized gains on securities included in net income		0-			(29	)
Reclassification adjustment for realized gains included in net income								(195	)		0-			(195	)		(29	)
Tax effect		0-			6			48			0-			48			6
Net of tax		0-			(23	)		(147	)		0-			(147	)		(23	)

Unrealized gains (losses) on cash flow hedge		24			(2,749	)
Unrealized losses on cash flow hedges								(42	)		(566	)		(18	)		(3,315	)
Tax effect		(11	)		773			15			140			4			913
Net of tax		13			(1,976	)		(27	)		(426	)		(14	)		(2,402	)

Reclassification adjustment for realized losses (gains) included in net income		631			(7	)
Reclassification adjustment for realized losses on cash flow hedges included in net income								584			318			1,215			311
Tax effect		(177	)		2			(167	)		(71	)		(344	)		(69	)
Net of tax		454			(5	)		417			247			871			242

Reclassification adjustment for realized losses on pension plan included in net income		75			75
Reclassification adjustment for pension plan amortization included in net income								75			76			150			151
Tax effect		(20	)		(21	)		(22	)		(21	)		(42	)		(42	)
Net of tax		55			54			53			55			108			109

Total other comprehensive (loss) income		(3,486	)		2,611
Total other comprehensive income (loss)								499			(1,155	)		(2,987	)		1,456

Total comprehensive income	$	29,513		$	8,641		$	32,718		$	13,677		$	62,231		$	22,318

Accumulated

Additional

Other

Total
(dollars in thousands, except

Preferred

Common

Paid-In

Retained

Treasury

Comprehensive

Stockholders’
for per share data)

Stock

Stock

Capital

Earnings

Stock

(Loss) Income

Equity
Balance as of December 31, 2019

$
0-

$
468,571

$
21,344

$
271,782

$
(29,360
)

$
(1,147
)

$
731,190

Net income

-

-

-

6,030

-

-

6,030

Other comprehensive income, net of tax

-

-

-

-

-

2,611

2,611

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

-

-

-

(3,987
)

-

-

(3,987
)
Exercise of stock options (25,413 shares)

-

-

163

-

-

-

163

Restricted stock grants (20,684 shares)

-

-

0-

-

-

-

0-

Net shares issued in satisfaction of restricted stock units earned (16,599 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

-

-

(297
)

-

-

-

(297
)
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

-

-

536

-

-

-

536

Balance as of March 31, 2020

$
0-

$
586,946

$
21,746

$
273,825

$
(30,271
)

$
1,464

$
853,710

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
0-
586,946
23,887
329,026
(30,271
)
2,797
912,385
Net income

-

-

-

32,999

-

-

32,999

Other comprehensive loss, net of tax

-

-

-

-

-

(3,486
)

(3,486
)
Cash dividends declared on common stock ($0.11 per share)

-

-

-

(3,584
)

-

-

(3,584
)
Exercise of stock options (5,449 shares)

-

-

45

-

-

-

45

Restricted stock grants (26,769 shares)

-

-

0-

-

-

-

0-

Stock grants (446 shares)
-
-
0-
-
-
-
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

-

-

972

-

-

-

972

Balance as of March 31, 2021

$
0-

$
586,946

$
23,621

$
358,441

$
(32,682
)

$
(689
)

$
935,637

	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, 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

	Three Months Ended						Six Months Ended
	March 31,						June 30,
(dollars in thousands)	2021			2020			2021			2020
Cash flows from operating activities
Net income	$	32,999		$	6,030		$	65,218		$	20,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		880			949			1,746			1,860
(Reversal of) provision for credit losses		(5,766	)		16,000			(7,415	)		31,000
Amortization of intangibles		507			652			1,015			1,304
Net accretion of loans		(1,406	)		(1,996	)		(2,803	)		(3,752	)
Accretion on bank premises		(23	)		(23	)		(45	)		(45	)
Accretion on deposits		(650	)		(1,503	)		(1,248	)		(2,673	)
(Accretion) amortization on borrowings, net		(17	)		43
Accretion on borrowings, net								(36	)		(104	)
Stock-based compensation		972			536			1,957			1,201
Gains on sales of securities available-for-sale, net		0-			(29	)
Gains on sales/redemptions of securities available-for-sale, net								(195	)		(29	)
Losses (gains) on equity securities, net		187			(178	)		164			(222	)
Gains on sale of loans held-for-sale, net		(707	)		(393	)
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								(1,554	)		(630	)
Loans originated for resale		(23,348	)		(5,186	)		(30,600	)		(17,141	)
Proceeds from sale of loans held-for-sale		21,856			17,324
Gain on sale of branches		(674	)		0-
Net losses on disposition of other premises and equipment		22			0-
Proceeds from sale of loans held-for sale								40,043			30,894
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		(1,064	)		(968	)		(2,249	)		(2,095	)
Amortization of premiums and accretion of discounts on securities available-for-sale		1,605			1,101
Amortization of premiums and accretion of discounts on securities available-for-sale, net								3,152			2,512
Amortization of subordinated debentures issuance costs		76			82			152			170
Decrease increase in accrued interest receivable		68			(458	)
Decrease (increase) in accrued interest receivable								1,316			(6,035	)
Net change in operating leases		(131	)		(19	)		(439	)		2,051
Decrease in other assets		47,156			17,366			48,236			25,042
Increase (decrease) in other liabilities		7,589			(2,869	)		3,705			(8,602	)
Net cash provided by operating activities		80,131			46,461			119,473			75,740

Cash flows from investing activities
Securities available-for-sale:
Investment securities available-for-sale:
Purchases		(33,305	)		(86,731	)		(126,641	)		(108,584	)
Sales		0-			19,624			0-			19,624
Maturities, calls and principal repayments		72,193			50,294			147,342			97,625
Net purchases (redemptions) of restricted investment in bank stocks		2,616			(8,094	)
Purchases of equity securities		0-			(2,000	)		0-			(2,000	)
Payments on loans held-for-sale		9			75
Net redemptions of restricted investment in bank stocks								2,536			3,805
Net increase in loans		(36,553	)		(130,187	)		(173,384	)		(463,094	)
Purchases of bank owned life insurance		0-			(25,000	)		(25,000	)		(25,000	)
Purchases of premises and equipment		(67	)		(1,728	)		(541	)		(855	)
Proceeds from sale of branches		729			0-			1,087			0-
Proceeds from sale of OREO		0-			992			321			992
Cash and cash equivalents acquired in acquisition, net		0-			87,391			0-			87,391
Net cash provided by (used) in investing activities		5,622			(95,364	)
Net cash used in investing activities								(174,280	)		(390,096	)

Cash flows from financing activities
Net decrease in deposits		(7,240	)		(42,225	)
Advances of Federal Home Loan Bank (“FHLB”) borrowings		0-			980,000
Repayments of FHLB borrowings		(66,227	)		(803,222	)
Decrease in subordinated debt		(50,000	)		0-
Net increase in deposits								234,537			276,614
(Repayment of) increase in subordinated debentures								(50,000	)		73,421
Advances of borrowings								100,000			1,376,489
Repayments of borrowings								(172,456	)		(1,259,358	)
Repurchase of treasury stock								(2,411	)		(911	)
Cash dividends paid on common stock		(3,584	)		(3,576	)		(7,964	)		(3,545	)
Repurchase of treasury stock		(2,411	)		(911	)
Proceeds from exercise of stock options		45			163			45			163
Net cash (used in) provided by financing activities		(129,417	)		130,229
Share redemption for tax withholdings on performance units and restricted stock units earned								(1,283	)		(639	)
Net cash provided by financing activities								100,468			462,234
Net change in cash and cash equivalents		(43,664	)		81,326			45,661			147,878
Cash and cash equivalents at beginning of period		303,756			201,483			303,756			201,483

Cash and cash equivalents at end of period	$	260,092		$	282,809		$	349,417		$	349,361

Supplemental disclosures of cash flow information
Cash payments for:
Interest paid on deposits and borrowings	$	11,690	$	24,627	$	23,236	$	41,189
Income taxes		4,350		7,476		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	$	0-		10,995		9,356		10,995
Transfer of loans from held-for-sale to held-for-investment						0-		19,738

Business combinations:
Fair value of assets acquired	$	0-	$	949,276	$	0-	$	949,282
Fair value of liabilities assumed		0-		852,729		0-		852,729

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 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 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 ~~March 31,~~June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021, or for any other interim period. The Company’s 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 impact the United States and the world. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ~~(CARES~~(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 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 impact the 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 ~~additional~~ restrictions could be reimposed. It is therefore unknown how long COVID-19 may continue to impact the 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.

Effective 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 Financial Instruments”, which replaced the prior incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL” or the “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, ~~purchase~~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 ~~purchase~~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 reported in accordance with previously applicable accounting guidance. The adoption of the CECL Standard resulted in the following adjustments to our financial statements as of January 1, 2021 (dollars in ~~thousand)~~thousands):


	Change in Consolidated				Change to Retained Earnings		Change in Consolidated				Change to Retained Earnings
	Statement of Condition		Tax Effect		from Adoption of CECL		Statement of Condition		Tax Effect		from Adoption of CECL
Allowance for credit losses (“ACL”) (loans)	$	1,350	$	406	$	1,304	$	1,350	$	406	$	944
Adjustment related to purchased credit-impaired loan marks⁽¹⁾		5,207		0-		0-		5,207		0-		0-
Total ACL - loans		6,557		406		1,304		6,557		406		944
ACL – (unfunded credit commitments)		2,833		852		1,621
ACL (unfunded credit commitments)								2,833		852		1,981

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

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 CECL Standard, the Company did not reassess whether PCI loans met the criteria of PCD loans as of the 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 of January 1, 2021 over the remaining estimated life of the loans. Also, in accordance with the CECL Standard, the Company did not reassess whether modifications to individual acquired financial assets were troubled debt restructurings (“TDRs”) as of the date of adoption.

ACL for loans: The ACL for loans is a valuation account that is deducted from the amortized cost basis of portfolio loans to present the 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 confirmed, and the expected recoveries do not exceed the aggregate of amounts previously charged-off or expected to be 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 was effective for the Company as of January 1, 2021 and did not have a significant impact on our consolidated financial statements.

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.

	Three Months Ended						Three Months Ended June 30,						Six Months Ended June 30,
	March 31,						(in thousands, except for per share data)
(dollars in thousands, except for per share data)	2021			2020
							2021			2020			2021			2020
Net income	$	32,999		$	6,030		$	32,219		$	14,832		$	65,218		$	20,862
Earnings allocated to participating securities		(186	)		(27	)		(81	)		(69	)		(176	)		(94	)
Income attributable to common stock	$	32,813		$	6,003		$	32,138		$	14,763		$	65,042		$	20,768

Weighted average common shares outstanding, including participating securities		39,738			39,559			39,781			39,640			39,786			39,603
Weighted average participating securities		(181	)		(135	)		(100	)		(104	)		(107	)		(123	)
Weighted average common shares outstanding		39,557			39,424			39,681			39,536			39,679			39,480
Incremental shares from assumed conversions of options,
performance units and restricted shares		232			92
performance units and non-participating restricted shares								192			76			214			112
Weighted average common and equivalent shares outstanding		39,789			39,516			39,873			39,612			39,893			39,592

Earnings per common share:
Basic	$	0.83		$	0.15		$	0.81		$	0.37		$	1.64		$	0.53
Diluted		0.82			0.15			0.81			0.37			1.63			0.52

There were no antidilutive share equivalents as of ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020.

The Company’s investment securities are all classified as available-for-sale as of ~~March 31,~~June 30, 2021 and December 31, 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 ~~March 31,~~June 30, 2021 and December 31, 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 6 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 as of ~~March 31,~~June 30, 2021 and December 31, 2020.

											Allowance											Allowance
											for											for
			Gross		Gross						Investment			Gross		Gross						Investment
	Amortized		Unrealized		Unrealized			Fair			Credit	Amortized		Unrealized		Unrealized			Fair			Credit
	Cost		Gains		Losses			Value			Losses	Cost		Gains		Losses			Value			Losses
March 31, 2021	(dollars in thousands)
June 30, 2021												(dollars in thousands)
Securities available-for-sale
Federal agency obligations	$	40,507	$	1,141	$	(347	)	$	41,301		0-	$	34,649	$	1,197	$	(73	)	$	35,773		0-
Residential mortgage pass-through securities		238,406		3,628		(1,680	)		240,354		0-		261,761		2,655		(1,258	)		263,158		0-
Commercial mortgage pass-through securities		6,881		35		(502	)		6,414		0-		8,886		202		(293	)		8,795		0-
Obligations of U.S. states and political subdivisions		127,809		2,925		(231	)		130,503		0-		133,722		2,695		(29	)		136,388		0-
Corporate bonds and notes		17,444		221		0-			17,665		0-		11,459		162		0-			11,621		0-
Asset-backed securities		3,361		8		(10	)		3,359		0-		2,874		10		(4	)		2,880		0-
Certificates of deposit		149		1		0-			150		0-		150		1		0-			151		0-
Other securities		2,277		0-		0-			2,277		0-		167		0-		0-			167		0-
Total securities available-for-sale	$	436,834	$	7,959	$	(2,770	)	$	442,023	$	0-	$	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	$	37,015	$	1,508	$	(65	)	$	38,458		N/A
Residential mortgage pass-through securities		266,114		4,811		(41	)		270,884		N/A		266,114		4,811		(41	)		270,884		N/A
Commercial mortgage pass-through securities		6,906		203		(187	)		6,922		N/A		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		138,539		4,269		0-			142,808		N/A
Corporate bonds and notes		24,925		222		(52	)		25,095		N/A		24,925		222		(52	)		25,095		N/A
Asset-backed securities		3,521		0-		(41	)		3,480		N/A		3,521		0-		(41	)		3,480		N/A
Certificates of deposit		149		2		0-			151		N/A		149		2		0-			151		N/A
Other securities		157		0-		0-			157		N/A		157		0-		0-			157		N/A
Total securities available-for-sale	$	477,326	$	11,015	$	(386	)	$	487,955		N/A	$	477,326	$	11,015	$	(386	)	$	487,955		N/A

Investment securities having a carrying value of approximately ~~$112.2~~$178.0 million and $107.6 million as of ~~March 31,~~June 30, 2021 and December 31, 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 ~~March 31,~~June 30, 2021 and December 31, 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 as of ~~March 31,~~June 30, 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.

	March 31, 2021				June 30, 2021
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(dollars in thousands)				(dollars in thousands)
Securities available-for-sale:
Due in one year or less	$	5,898	$	5,929	$	5,614	$	5,637
Due after one year through five years		16,369		16,625		11,193		11,353
Due after five years through ten years		14,172		14,527		10,915		11,226
Due after ten years		152,831		155,897		155,132		158,597
Residential mortgage pass-through securities		238,406		240,354		261,761		263,158
Commercial mortgage pass-through securities		6,881		6,414		8,886		8,795
Other securities		2,277		2,277		167		167
Total securities available-for-sale	$	436,834	$	442,023	$	453,668	$	458,933

~~We had no gross gains or losses from the sale of securities for three months ended March 31, 2021.~~ Gross gains and losses ~~for three months ended March 31, 2020~~ from the sales and redemptions of securities for periods presented were as ~~follows (dollars in thousands):~~follows:

Impairment Analysis of ~~Available--for-sale~~Available-for-sale Debt Securities

The following tables indicate gross unrealized losses ~~in an unrealized loss position~~ for which an ACL has not been recorded, aggregated by investment category and by the length of continuous time individual securities have been in an unrealized loss position as of ~~March 31,~~June 30, 2021 and December 31, 2020.

	March 31, 2021															June 30, 2021
	Total					Less than 12 Months					12 Months or Longer					Total					Less than 12 Months					12 Months or Longer
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
	(dollars in thousands)															(dollars in thousands)
Investment Securities
Available-for-Sale:
Federal agency obligation	$	15,923	$	(347	)	$	15,922	$	(347	)	$	1	$	0-
Federal agency obligations																$	1,565	$	(73	)	$	1,565	$	(73	)	$	0-	$	0-
Residential mortgage pass-through securities		125,231		(1,680	)		125,223		(1,680	)		8		0-			142,615		(1,258	)		142,615		(1,258	)		0-		0-
Commercial mortgage pass-through securities		4,375		(502	)		4,375		(502	)		0-		0-			4,542		(293	)		4,542		(293	)		0-		0-
Obligations of U.S. states and political subdivisions		29,179		(231	)		29,179		(231	)		0-		0-			28,654		(29	)		28,654		(29	)		0-		0-
Corporate bonds and notes		1,000		0-			1,000		0-			0-		0-			0-		0-			0-		0-			0-		0-
Asset-backed securities		900		(10	)		0-		0-			900		(10	)		567		(4	)		0-		0-			567		(4	)
Total temporarily impaired securities	$	176,608	$	(2,770	)	$	175,699	$	(2,760	)	$	909	$	(10	)	$	177,943	$	(1,657	)	$	177,376	$	(1,653	)	$	567	$	(4	)

	December 31, 2020															December 31, 2020
	Total					Less than 12 Months					12 Months or Longer					Total					Less than 12 Months					12 Months or Longer
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
	(dollars in thousands)															(dollars in thousands)
Investment Securities
Available-for-Sale:
Federal agency obligation	$	8,978	$	(65	)	$	8,975	$	(65	)	$	3	$	0-
Federal agency obligations																$	8,978	$	(65	)	$	8,975	$	(65	)	$	3	$	0-
Residential mortgage pass-through securities		20,895		(41	)		20,886		(41	)		9		0-			20,895		(41	)		20,886		(41	)		9		0-
Commercial mortgage pass-through securities		3,954		(187	)		3,954		(187	)		0-		0-			3,954		(187	)		3,954		(187	)		0-		0-
Corporate bonds and notes		3,928		(52	)		3,928		(52	)		0-		0-			3,928		(52	)		3,928		(52	)		0-		0-
Asset-backed securities		3,083		(41	)		622		0-			2,461		(41	)		3,083		(41	)		622		0-			2,461		(41	)
Total Temporarily Impaired Securities	$	40,838	$	(386	)	$	38,365	$	(345	)	$	2,473	$	(41	)	$	40,838	$	(386	)	$	38,365	$	(345	)	$	2,473	$	(41	)

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 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 as of ~~March 31,~~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 ~~March 31,~~June 30, 2021 and December 31, 2020, totaled ~~$1.6~~$1.4 million and $1.7 million, respectively.

The Company evaluates securities in 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 ~~March 31,~~June 30, 2021.

Federal agency obligations, residential mortgage backed pass-through securities and 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 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 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 ~~March 31,~~June 30, 2021, December 31, 2020 and ~~March 31,~~June 30, 2020 are presented in the following table.


	March 31,			December 31,			March 31,			June 30,			December 31,			June 30,
	2021			2020			2020			2021			2020			2020
	(dollars in thousands)									(dollars in thousands)
Notional amount	$	175,000		$	175,000		$	200,000		$	125,000		$	175,000		$	200,000
Weighted average pay rates		0.22	%		1.85	%		1.74	%		1.66	%		1.85	%		1.70	%
Weighted average receive rates		1.68	%		0.92	%		1.76	%		0.27	%		0.92	%		1.37	%
Weighted average maturity		0.6 years			0.8 years			1.4 years			0.5 years			0.8 years			1.2 years
Fair value	$	(1,464	)	$	(2,119	)	$	(3,029	)	$	(922	)	$	(2,119	)	$	(3,277	)

Interest expense recorded on these swap transactions totaled approximately ~~$631~~$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 ~~March 31, 2021 compared to $(7) thousand during the three months ended March 31,~~June 30, 2020, 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:

		Three Months Ended March 31, 2021
Interest rate contracts		$	24			$	631			$	0-

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

		Three Months Ended March 31, 2020
Interest rate contracts		$	(2,749	)		$	(7	)		$	0-

~~The following table reflects the cash flow hedges included in the consolidated statements of condition as of March 31, 2021 and December 31, 2020:~~

		March 31, 2021		December 31, 2020
Interest rate swaps related to FHLB advances included in assets		$	175,000		$	(1,464	)	$	175,000		$	(2,119	)

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

		Six Months Ended June 30, 2021
Interest rate contracts		$	(18	)		$	1,215			$	0-

		Six Months Ended June 30, 2020
Interest rate contracts		$	(3,315	)		$	311			$	0-

The following table reflects the cash flow hedges included in the consolidated statements of condition as of June 30, 2021 and December 31, 2020:

		June 30, 2021		December 31, 2020
Interest rate swaps related to FHLB advances included in liabilities		$	125,000		$	(922	)	$	175,000		$	(2,119	)

Loans Receivable - As of and prior to December 31, 2020, loans receivable ~~was~~were accounted for under the incurred loss model. As of January 1, 2021, portfolio loans are accounted for under the expected loss model. Accordingly, some of the information presented is not comparable from period to period. See Note 1b. “Authoritative Accounting Guidance - Adoption of New Accounting Standards” for additional information. The following table sets forth the composition of the Company’s loan portfolio segments, including net deferred fees, as of ~~March 31,~~June 30, 2021 and December 31, 2020:

	March 31,			December 31,			June 30,			December 31,
	2021			2020			2021			2020
	(dollars in thousands)						(dollars in thousands)
Commercial ⁽¹⁾	$	1,622,652		$	1,521,967		$	1,402,697		$	1,521,967
Commercial real estate		3,797,244			3,783,550			4,138,518			3,783,550
Commercial construction		565,872			617,747			587,121			617,747
Residential real estate		306,376			322,564			286,907			322,564
Consumer		3,364			1,853			6,355			1,853
Gross loans		6,295,508			6,247,681			6,421,598			6,247,681
Net deferred loan fees		(18,317	)		(11,374	)		(13,694	)		(11,374	)
Total loans receivable	$	6,277,191		$	6,236,307		$	6,407,904		$	6,236,307

As of ~~March 31,~~June 30, 2021 and December 31, 2020, loan balances of approximately ~~$2.6 billion and~~ $2.7, ~~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 as of ~~March 31,~~June 30, 2021 and December 31, 2020:

	March 31,		December 31,		June 30,		December 31,
	2021		2020		2021		2020
	(dollars in thousands)				(dollars in thousands)
Commercial real estate	$	1,981	$	1,990	$	5,298	$	1,990
Residential real estate		4,919		2,720		861		2,720
Total carrying amount	$	6,900	$	4,710	$	6,159	$	4,710

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an ACL as of ~~March 31,~~June 30, 2021 and nonaccrual loans without an ACL as of ~~March 31,~~June 30, 2021:

	Nonaccrual Loans with an ACL		Nonaccrual loans without an ACL		Nonaccrual Loans with an ACL		Nonaccrual loans without an ACL		Total
	(dollars in thousands)				(dollars in thousands)
Commercial	$	28,136	$	2,969	$	28,009	$	3,074	$	31,083
Commercial real estate		3,225		12,876		2,722		13,283		16,005
Commercial construction		2,934		6,017		2,934		1,831		4,765
Residential real estate		0-		4,783		0-		4,360		4,360
Consumer		0-		0-		0-		0-
Total nonaccrual loans	$	34,295	$	26,645
Total					$	33,665	$	22,548	$	56,213

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.

We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP. Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the table below. As of ~~March 31,~~June 30, 2021, our loans based on year of origination and risk designation is as follows (dollars in thousands):

	Term loans amortized cost basis by origination year												Resolving Loans		Total Gross Loans		Term loans amortized cost basis by origination year												Resolving		Total Gross
	2021		2020		2019		2018		2017		Prior						2021		2020		2019		2018		2017		Prior		Loans
Commercial
Pass	$	289,283	$	393,432	$	67,665	$	70,763	$	109,667	$	131,509	$	486,619	$	1,548,938	$	324,543	$	185,027	$	64,057	$	69,430	$	99,833	$	123,799	$	466,262	$	1,332,951
Special mention		0-		0-		225		258		292		15,646		12,948		29,369		0-		0-		225		258		5,655		4,235		15,653		26,026
Substandard		0-		0-		1,795		13,307		4,122		21,638		3,274		44,136		182		0-		1,791		13,072		4,111		21,255		3,250		43,661
Doubtful		0-		0-		0-		209		0-		0-		0-		209		0-		0-		0-		59		0-		0-		0-		59
Total Commercial	$	289,283	$	393,432	$	69,685	$	84,537	$	114,081	$	168,793	$	502,841	$	1,622,652	$	324,725	$	185,027	$	66,073	$	82,819	$	109,599	$	149,289	$	485,165	$	1,402,697

Commercial Real Estate
Pass	$	241,516	$	608,263	$	477,620	$	570,798	$	592,738	$	1,097,118	$	120,252	$	3,708,305	$	741,267	$	601,375	$	460,081	$	529,053	$	541,823	$	1,012,888	$	141,776	$	4,028,263
Special mention		0-		0-		1,379		10,892		4,393		23,511		8,790		48,965		0-		0-		3,375		19,360		4,364		29,160		15,454		71,713
Substandard		1,996		0-		836		1,288		3,394		32,460		0-		39,974		1,969		0-		659		1,473		2,722		31,719		0-		38,542
Doubtful		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-
Total Commercial Real Estate	$	243,512	$	608,263	$	479,835	$	582,978	$	600,525	$	1,153,089	$	129,042	$	3,797,244	$	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	$	39,832	$	8,730	$	3,981	$	490	$	478,478	$	540,422	$	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-		0-		0-		0-		0-		0-		0-		0-		0-
Substandard		0-		0-		0-		0-		0-		216		25,234		25,450		0-		0-		0-		0-		0-		0-		22,119		22,119
Doubtful		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-
Total Commercial Construction	$	1,405	$	7,506	$	39,832	$	8,730	$	3,981	$	706	$	503,712	$	565,872	$	1,405	$	7,506	$	37,715	$	3,678	$	3,981	$	490	$	532,346	$	587,121

Residential Real Estate
Pass	$	3,680	$	35,193	$	29,698	$	34,362	$	46,531	$	93,376	$	50,046	$	292,886	$	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-		0-		0-		0-		0-		0-		0-		0-		0-
Substandard		0-		0-		0-		207		0-		9,543		3,740		13,490		0-		0-		0-		203		0-		9,101		3,805		13,109
Doubtful		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-
Total Residential Real Estate	$	3,680	$	35,193	$	29,698	$	34,569	$	46,531	$	102,919	$	53,786	$	306,376	$	10,420	$	34,493	$	27,090	$	33,091	$	37,296	$	92,197	$	52,320	$	286,907

Consumer
Pass	$	2	$	117	$	58	$	42	$	53	$	2,961	$	131	$	3,364	$	0-	$	107	$	54	$	32	$	41	$	5,989	$	132	$	6,355
Special mention		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-
Substandard		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-
Doubtful		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-
Total Consumer	$	2	$	117	$	58	$	42	$	53	$	2,961	$	131	$	3,364	$	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 presents information about the loan credit quality by loan class of gross loans (which exclude net deferred fees) as of December 31, 2020:

	December 31, 2020										December 31, 2020
	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
	(dollars in thousands)										(dollars in thousands)
Commercial	$	1,447,097	$	30,725	$	43,930	$	215	$	1,521,967	$	1,447,097	$	30,725	$	43,930	$	215	$	1,521,967
Commercial real Estate		3,700,498		49,143		33,909		0-		3,783,550
Commercial real estate												3,700,498		49,143		33,909		0-		3,783,550
Commercial construction		587,266		0-		30,481		0-		617,747		587,266		0-		30,481		0-		617,747
Residential real Estate		311,174		0-		11,390		0-		322,564
Residential real estate												311,174		0-		11,390		0-		322,564
Consumer		1,853		0-		0-		0-		1,853		1,853		0-		0-		0-		1,853
Gross loans	$	6,047,888	$	79,868	$	119,710	$	215	$	6,247,681	$	6,047,888	$	79,868	$	119,710	$	215	$	6,247,681

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 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, 2021:

	March 31, 2021						June 30, 2021

	Real						Real
	Estate		Other		Total		Estate		Other		Total
	(dollars in thousands)						(dollars in thousands)
Commercial	$	6,330	$	26,171	$	32,501	$	6,598	$	26,166	$	32,764
Commercial real estate		29,441		0-		29,441		35,802		0-		35,802
Commercial construction		19,402		0-		19,402		16,389		0-		16,389
Residential real estate		11,024		0-		11,024		10,647		0-		10,647
Consumer		0-		0-		0-		0-		0-		0-
Total (no related allowance)	$	66,197	$	26,171	$	92,368
Total							$	69,436	$	26,166	$	95,602

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

The following table ~~presents information about~~provides an analysis of the ~~loan credit quality~~impaired loans by ~~loan~~ class ~~of gross loans (which exclude net deferred fees)~~ as of the year ended December 31, 2020:

	December 31, 2020						December 31, 2020
			Unpaid						Unpaid
	Recorded		Principal		Recorded		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
No related allowance recorded	(dollars in thousands)						(dollars in thousands)
Commercial	$	11,325	$	11,835			$	11,325	$	11,835
Commercial real estate		13,105		13,449				13,105		13,449
Commercial construction		24,284		24,907				24,284		24,907
Residential real estate		5,378		5,723				5,378		5,723
Consumer		0-		0-				0-		0-
Total (no related allowance)	$	54,092	$	55,914			$	54,092	$	55,914

With an allowance recorded

Commercial	$	23,736	$	69,122	$	12,985	$	23,736	$	69,122	$	12,985
Commercial real estate		2,722		2,722		1,329		2,722		2,722		1,329
Total (with allowance)	$	26,458	$	71,844	$	14,314	$	26,458	$	71,844	$	14,314

Total
Commercial	$	35,061	$	80,957	$	12,985	$	35,061	$	80,957	$	12,985
Commercial real estate		15,827		16,171		1,329		15,827		16,171		1,329
Commercial construction		24,284		24,907		0-		24,284		24,907		0-
Residential real estate		5,378		5,723		0-		5,378		5,723		0-
Consumer		0-		0-		0-		0-		0-		0-
Total	$	80,550	$	127,758	$	14,314	$	80,550	$	127,758	$	14,314

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 ~~March 31,~~June 30, 2020 (dollars in thousands):

	March 31,2020				Three Months Ended June 30,					Six Months Ended June 30,
	Average		Interest			2020				2020
	Recorded		Income			Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	Investment		Recognized
Impaired loans with no related allowance recorded
Impaired loans (no allowance)

Commercial	$	36,442	$	94		$	35,813	$	91	$	36,127	$	185
Commercial real estate		15,238		84			15,415		82		15,352		155
Commercial construction		17,371		85			17,719		87		17,545		171
Residential real estate		3,827		0-			3,500		0-		3,308		0-
Consumer		0-		0-

Total	$	72,878	$	263		$	72,447	$	260	$	72,332	$	511

Impaired loans with an allowance recorded
Impaired loans (allowance):

Commercial real estate	$	0-	$	0-		$	0-	$	0-	$	0-	$	0-
Commercial construction		6,463		0-			6,463		0-		6,463		0-
Residential real estate		262		3			262		1		262		3

Total	$	6,725	$	3		$	6,725	$	1	$	6,725	$	3

Total impaired loans
Total impaired loans:
Commercial	$	36,442	$	94		$	35,813	$	91	$	36,127	$	185
Commercial real estate		15,238		84			15,415		82		15,352		155
Commercial construction		23,834		85			24,182		87		24,008		171
Residential real estate		4,089		3			3,762		1		3,570		3
Consumer		0-		0-

Total	$	79,603	$	266		$	79,172	$	261	$	79,057	$	514

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 ~~March 31,~~June 30, 2021 and December 31, ~~2020:~~2020 (dollars in thousands):

	December 31, 2020														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		Total Loans Receivable		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	$	1,445	$	558	$	3,182	$	33,019	$	38,204	$	1,483,763	$	1,521,967	$	297	$	0-	$	4,588	$	31,083	$	35,968	$	1,366,729	$	1,402,697
Commercial real estate		13,258		4,140		5,555		10,111		33,064		3,750,486		3,783,550
Commercial real Estate																0-		0-		7,607		16,005		23,612		4,114,906		4,138,518
Commercial construction		2,472		0-		0-		14,015		16,487		601,260		617,747		0-		0-		3,221		4,765		7,986		579,135		587,121
Residential real estate		1,367		241		4,084		4,551		10,243		312,321		322,564
Residential real Estate																210		99		4,238		4,360		8,907		278,000		286,907
Consumer		2		0-		0-		0-		2		1,851		1,853		2		0-		0-		0-		2		6,353		6,355
Total	$	18,544	$	4,939	$	12,821	$	61,696	$	98,000	$	6,149,681	$	6,247,681	$	509	$	99	$	19,654	$	56,213	$	76,475	$	6,345,123	$	6,421,598

Included in the 90 days or greater past due and still accruing category as of June 30, 2021 were $16.4 million in purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

The 90 days or greater past due and still accruing category as of December 31, 2020 ~~are~~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 credit losses~~ACL that are allocated to each loan portfolio segment:

	March 31, 2021												June 30, 2021
			Commercial		Commercial		Residential								Commercial		Commercial		Residential
	Commercial		real estate		construction		real estate		Consumer		Total		Commercial		real estate		construction		real estate		Consumer		Total
	(dollars in thousands)												(dollars in thousands)
ACL
Individually evaluated for impairment	$	15,663	$	1,634	$	434	$	283	$	0-	$	18,014	$	15,618	$	1,485	$	434	$	349	$	0-	$	17,886
Collectively evaluated for impairment		8,496		39,486		5,087		4,267		11		57,347		7,673		39,553		4,493		3,863		9		55,591
Acquired with deteriorated credit quality individually analyzed		2,276		2,777		0-		154		0-		5,207		2,276		2,777		0-		154		0-		5,207
Total	$	26,435	$	43,897	$	5,521	$	4,704	$	11	$	80,568	$	25,567	$	43,815	$	4,927	$	4,366	$	9	$	78,684

Gross loans
Individually evaluated for impairment	$	33,330	$	21,762	$	19,402	$	6,786	$	0-	$	81,280	$	33,473	$	28,197	$	16,389	$	6,408	$	0-	$	84,467
Collectively evaluated for impairment		1,584,095		3,767,803		546,470		295,352		3,364		6,197,084		1,364,019		4,102,715		570,732		276,260		6,355		6,320,081
Acquired with deteriorated credit quality individually analyzed		5,227		7,679		0-		4,238		0-		17,144		5,205		7,606		0-		4,239		0-		17,050
Total	$	1,622,652	$	3,797,244	$	565,872	$	306,376	$	3,364	$	6,295,508	$	1,402,697	$	4,138,518	$	587,121	$	286,907	$	6,355	$	6,421,598

	December 31, 2020														December 31, 2020
			Commercial		Commercial		Residential										Commercial		Commercial		Residential
	Commercial		real estate		construction		real estate		Consumer		Unallocated		Total		Commercial		real estate		construction		real estate		Consumer		Unallocated		Total
	(dollars in thousands)														(dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	12,985	$	1,329	$	0-	$	0-	$	0-	$	0-	$	14,314	$	12,985	$	1,329	$	0-	$	0-	$	0-	$	0-	$	14,314
Collectively evaluated for impairment		15,412		33,373		7,787		1,928		4		568		59,072		15,412		33,373		7,787		1,928		4		568		59,072
Acquired portfolio		46		4,628		407		759		0-		0-		5,840		46		4,628		407		759		00-		0-		5,840
Acquired with deteriorated credit quality		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-		0-
Total	$	28,443	$	39,330	$	8,194	$	2,687	$	4	$	568	$	79,226	$	28,443	$	39,330	$	8,194	$	2,687	$	4	$	568	$	79,226

Gross loans
Individually evaluated for impairment	$	35,061	$	15,827	$	24,284	$	5,378	$	0-			$	80,550	$	35,061	$	15,827	$	24,284	$	5,378	$	0-			$	80,550
Collectively evaluated for impairment		1,414,626		2,959,978		574,118		241,925		1,627				5,192,274		1,414,626		2,959,978		574,118		241,925		1,627				5,192,274
Acquired portfolio		68,402		802,190		19,345		71,177		226				961,340		68,402		802,190		19,345		71,177		226				961,340
Acquired with deteriorated credit quality		3,878		5,555		0-		4,084		0-				13,517		3,878		5,555		0-		4,084		0-				13,517
Total	$	1,521,967	$	3,783,550	$	617,747	$	322,564	$	1,853			$	6,247,681	$	1,521,967	$	3,783,550	$	617,747	$	322,564	$	1,853			$	6,247,681

Activity in the Company’s ACL for loans for the three months ended ~~March 31,~~and six months ended June 30, 2021 is summarized in the 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 December 31, 2020.

Three Months Ended March 31, 2021
Commercial
Commercial
Residential

Commercial
real estate
construction
real estate
Consumer
Unallocated
Total
(dollars in thousands)
Balance as of December 31, 2020
$
28,443
$
39,330
$
8,194
$
2,687
$
4
$
568
$
79,226

Day 1 effect of CECL
(4,225
)
9,605
(961
)
2,697
9
(568
)
6,557

Balance as of January 1, 2021 as adjusted for changes in accounting principle
24,218
48,935
7,233
5,384
13
0-
85,783

Charge-offs
0-
0-
0-
0-
0-
0-
0-

Recoveries
60
0-
0-
0-
1
0-
61

(Reversal of) provision for credit losses (loans)
2,157
(5,038
)
(1,712
)
(680
)
(3
)
0-
(5,276
)

Balance as of March 31, 2021
$
26,435
$
43,897
$
5,521
$
4,704
$
11
$
0-
$
80,568

	Three Months Ended June 30, 2021
				Commercial			Commercial			Residential
	Commercial			real estate			construction			real estate			Consumer			Unallocated		Total
	(dollars in thousands)
Balance as of March 31, 2021	$	26,435		$	43,897		$	5,521		$	4,704		$	11		$	0-	$	80,568


Charge-offs		(50	)		(155	)		0-			(7	)		0-			0-		(212	)

Recoveries		13			0-			0-			0-			1			0-		14

(Reversal of) provision for credit losses - loans		(831	)		73			(594	)		(331	)		(3	)		0-		(1,686	)
Balance as of June 30, 2021	$	25,567		$	43,815		$	4,927		$	4,366		$	9		$	0-	$	78,684

On January 1, 2021, the Company adopted CECL, which replaced the incurred loss method we used in prior periods for determining the provision for credit losses and the ACL. Under CECL, we record an expected loss of all cash flows we do not expect to collect at the inception of the loan. The adoption of CECL resulted in an increase in our ACL for loans of $6.6 million, which did not impact our consolidated income statement. We recorded a reversal of credit losses for loans of ~~$5.3~~$1.7 million and $7.0 million during the three and six months ended ~~March 31,~~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.

As of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021, TDRs totaled ~~$53.0~~$62.4 million, of which ~~$27.5~~$29.4 million were on nonaccrual status and ~~$25.5~~$33.0 million were performing under their restructured terms. As of December 31, 2020, TDRs totaled $49.4 million, of which $25.7 million were on nonaccrual status and $23.7 million were performing under their restructured terms. The Company has allocated ~~$10.0~~$9.2 million and $47 thousand of specific allowance related to TDRs for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020, respectively.

The following table presents loans by class modified as TDRs that occurred during the ~~three~~six months ended ~~March 31,~~June 30, 2021:

			Pre-Modification Outstanding		Post-Modification Outstanding				Pre-Modification Outstanding		Post-Modification Outstanding
	Number of Loans		Recorded Investment		Recorded Investment		Number of Loans		Recorded Investment		Recorded Investment
Troubled debt restructurings:	(dollars in thousands)						(dollars in thousands)
Commercial								3	$	631	$	631
Commercial real estate		1	$	1,658	$	1,658		3		8,603		8,603
Commercial construction								1		1,641		1,641
Residential real estate		2		1,996		1,996		3		1,758		1,758
Total		3	$	3,654	$	3,654		10	$	12,633	$	12,633

The ~~two residential real estate~~ten loans modified as TDRs during the ~~three~~six months ended ~~March 31,~~June 30, 2021 ~~were~~included nine (9) maturity extensions ~~while the~~and, one commercial real estate loan which was a recast of a nonaccrual credit.

There were no loans modified as TDRs during the ~~three~~six months ended ~~March 31,~~June 30, 2020. There were no TDRs for which there was a payment default within twelve months following the modification during the three months ended ~~March 31,~~and six months ended June 30, 2021 and ~~March 31,~~June 30, 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 would not be considered TDR’s if they were performing at year-end 2019, and the other conditions set forth in the interagency 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 2019. As of ~~March 31,~~June 30, 2021, the Bank had ~~102~~79 deferred loans totaling approximately ~~$204.2~~$100 million, compared to 113 deferred loans totaling approximately ~~$207.1~~$207 million as of December 31, 2020.

The following table sets forth the composition of these loans by loan segments as of ~~March 31,~~June 30, 2021:

			Unpaid				Unpaid
	Number of Loans		Principal Balance		Number of Loans		Principal Balance
	(dollars in thousands)				(dollars in thousands)
Commercial		32	$	103,653		59	$	17,260
Commercial real estate		68	$	97,400		20		82,760
Commercial construction		2		3,150
Total		102	$	204,203		79	$	100,020

As of ~~March 31,~~June 30, 2021, there were no deferred loans that were delinquent or on nonaccrual status. As of ~~March 31,~~June 30, 2021, ~~$44.1~~$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 ~~March 31,~~June 30, 2021 (dollars in thousands):

The following table summarizes the ~~(Reversal~~(reversal of) provision for credit losses ~~as March 31,~~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.

~~Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)~~

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 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 as of ~~March 31,~~June 30, 2021 and December 31, 2020 are as follows:

				March 31, 2021										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	$	41,301		$	0-	$	41,301		$	0-	$	35,773		$	0-	$	35,773		$	0-
Residential mortgage pass-through securities		240,354			0-		240,354			0-		263,158			0-		263,158			0-
Commercial mortgage pass-through securities		6,414			0-		6,414			0-		8,795			0-		8,795			0-
Obligations of U.S. states and political subdivision		130,503			0-		121,729			8,774		136,388			0-		127,683			8,705
Corporate bonds and notes		17,665			0-		17,665			0-		11,621			0-		11,621			0-
Asset-backed securities		3,359			0-		3,359			0-		2,880			0-		2,880			0-
Certificates of deposit		150			0-		150			0-		151			0-		151			0-
Other securities		2,277			2,277		0-			0-		167			167		0-			0-
Total available-for-sale		442,023			2,277		430,972			8,774	$	458,933		$	167	$	450,061		$	8,705

Equity securities		13,200			13,200		0-			0-		13,223			11,243		1,980			0-
Total assets	$	455,223		$	15,477	$	430,972		$	8,774	$	472,156		$	11,410	$	452,041		$	8,705

Liabilities
Derivatives	$	(1,464	)	$	0-	$	(1,464	)	$	0-	$	(922	)	$	0-	$	(922	)	$	0-
Total liabilities	$	(1,464	)	$	0-	$	(1,464	)	$	0-	$	(922	)	$	0-	$	(922	)	$	0-

Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

There were no transfers between Level 1 and Level 2 during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and during the year ended December 31, 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 as of ~~March 31,~~June 30, 2021 and December 31, 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 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

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 ~~market place~~marketplace and are also based on Level 3 inputs.

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

			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
			Quoted								Quoted
			Prices								Prices
			in Active		Significant						in Active		Significant
	Carrying		Markets for		Other		Significant				Markets for		Other		Significant
	Value as of		Identical		Observable		Unobservable				Identical		Observable		Unobservable
Assets measured at fair value on a nonrecurring	March 31,		Assets		Inputs		Inputs		June 30,		Assets		Inputs		Inputs
basis:	2021		(Level 1)		(Level 2)		(Level 3)		2021		(Level 1)		(Level 2)		(Level 3)
Collateral dependent loans:			(dollars in thousands)								(dollars in thousands)
Commercial	$	12,890	$	0-	$	0-	$	12,890	$	12,928	$	0-	$	0-	$	12,928
Commercial real estate		2,283		0-		0-		2,283		1,902		0-		0-		1,902
Commercial construction		2,500		0-		0-		2,500		2,500		0-		0-		2,500
Residential real estate		2,089		0-		0-		2,089		2,033		0-		0-		2,033

Collateral dependent loans – Collateral dependent loans as of ~~March 31,~~June 30, 2021 that required a valuation allowance were ~~$40.5~~$40.0 million with a related valuation allowance of ~~$20.7~~$20.6 million compared to ~~$24.4~~$26.5 million with a related valuation allowance of $14.3 million as of December 31, 2020.

Note 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 ~~three~~six months ended ~~March 31,~~June 30, 2021 and for the year ended December 31, 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 as of ~~March 31,~~June 30, 2021 and December 31, 2020. The table below provides quantitative information about significant unobservable inputs used in fair value measurements within Level 3 hierarchy.

March 31, 2021

June 30, 2021

Valuation

Unobservable

Valuation

Unobservable

Fair Value

Techniques

Input

Rate

Fair Value

Techniques

Input

Rate

Securities available-for-sale:

(dollars in thousands)

Municipal securities

8,774

Discounted cash flows

Discount rate

2.9

8,705

Discounted cash flows

Discount rate

2.9

Note 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.

			Valuation	Unobservable				Valuation	Unobservable
(dollars in thousands)	Fair Value		Techniques	Input	Range (weighted average)	Fair Value		Techniques	Input	Range (weighted average)
Collateral dependent:
Commercial	$	722	Appraisals of collateral value	Comparable sales	0% - 5% (2%)	$	750	Appraisals of collateral value	Comparable sales	0% - 5% (2%)

Commercial	$	12,168	Market approach (100)	Average transfer price as a price to unpaid principal balance	48 – 53 (49)	$	12,178	Market approach (100)	Average transfer price as a price to unpaid principal balance	48 – 53 (49)

Commercial real estate	$	2,283	Appraisals of collateral value	Comparable sales	0% - 25% (8%)	$	1,902	Appraisals of collateral value	Comparable sales	0% - 25% (8%)

Construction	$	2,500	Appraisals of collateral value	Comparable sales	15%	$	2,500	Appraisals of collateral value	Comparable sales	15%

Residential	$	2,089	Appraisals of collateral value	Comparable sales	1% - 15% (6%)	$	2,033	Appraisals of collateral value	Comparable sales	1% - 15% (6%)

Valuation

Unobservable

Valuation

Unobservable

(dollars in thousands)

Fair Value

Techniques

Input

Range (weighted average)

Fair Value

Techniques

Input

Range (weighed average)

Impaired loans:

Commercial

10,524

Market approach (100%)

Average transfer price as a price to unpaid principal balance

48 - 53 (49)

10,524

Market approach (100%)

Average transfer price as a price to unpaid principal balance

48 - 53 (49)

Commercial

227

Appraisals of collateral value

Adjustment for comparable sales

1% to + 5% (+2%)

227

Appraisals of collateral value

Adjustment for comparable sales

1% to +5% (+2%)

Commercial real estate

1,393

Appraisals of collateral value

Adjustment for comparable sales

-25% to +20% (-8%)

1,393

Appraisals of collateral value

Adjustment for comparable sales

-25% to +20% (-8%)

Note 6. Fair Value Measurements and Fair Value of Financial Instruments – (continued)

As of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021 and December 31, 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)
March 31, 2021
June 30, 2021
Financial assets:
Cash and due from banks	$	260,092	$	260,092	$	260,092	$	0-	$	0-	$	349,417	$	349,417	$	349,417	$	0-	$	0-
Securities available-for-sale		442,023		442,023		2,277		442,023		8,774		458,933		458,933		167		450,061		8,705
Investment in restricted stocks		22,483		0n/a		0n/a		0n/a		0n/a		22,563		0n/a		0n/a		0n/a		0n/a
Equity securities		13,200		13,200		13,200		0-		0-		13,223		13,223		11,243		1,980		0-
Net loans		6,196,623		6,267,519		0-		0-		6,267,519		6,329,220		6,391,465		0-		0-		6,391,465
Accrued interest receivable		35,249		35,249		0-		1,598		33,651		34,001		34,001		0-		1,444		32,557

Financial liabilities:
Noninterest-bearing deposits		1,384,961		1,384,961		1,384,961		0-		0-		1,485,952		1,485,952		1,485,952		0-		0-
Interest-bearing deposits		4,566,373		4,573,673		3,209,774		1,363,899		0-		4,706,561		4,710,337		3,404,754		1,305,583		0-
Borrowings		359,710		362,497		0-		362,497		0-		353,462		355,783		0-		355,783		0-
Subordinated debentures		152,724		163,868		0-		163,868		0-		152,800		164,757		0-		164,757		0-
Derivatives		1,464		1,464		0-		1,464		0-		922		922		0-		922		0-
Accrued interest payable		3,598		3,598		0-		3,598		0-		3,083		3,083		0-		3,083		0-

December 31, 2020
Financial assets:
Cash and due from banks	$	303,756	$	303,756	$	303,756	$	0-	$	0-	$	303,756	$	303,756	$	303,756	$	0-	$	0-
Investment securities available-for-sale		487,955		487,955		157		478,954		8,844		487,955		487,955		157		478,954		8,844
Restricted investment in bank stocks		25,099		0n/a		0n/a		0n/a		0n/a		25,099		0n/a		0n/a		0n/a		0n/a
Equity securities		13,387		13,387		13,387		0-		0-		13,387		13,387		13,387		0-		0-
Net loans		6,157,081		6,244,037		0-		0-		6,244,037		6,157,081		6,244,037		0-		0-		6,244,037
Accrued interest receivable		35,317		35,317		0-		1,764		33,553		35,317		35,317		0-		1,764		33,553

Financial liabilities:
Noninterest-bearing deposits		1,339,108		1,339,108		1,339,108		0-		0-		1,339,108		1,339,108		1,339,108		0-		0-
Interest-bearing deposits		4,620,116		4,633,961		3,155,983		1,477,978		0-		4,620,116		4,633,961		3,155,983		1,477,978		0-
Borrowings		425,954		429,671		0-		429,671		0-		425,954		429,671		0-		429,671		0-
Subordinated debentures		202,648		214,113		0-		214,113		0-		202,648		214,113		0-		214,113		0-
Derivatives		2,119		2,119		0-		2,119		0-		2,119		2,119		0-		2,119		0-
Accrued interest payable		3,687		3,687		0-		3,687		0-		3,687		3,687		0-		3,687		0-

Note 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, ~~taking into account~~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:

Details about Accumulated Other	Amounts Reclassified from Accumulated						Affected Line item in the
Comprehensive Loss Components	Other Comprehensive Income (Loss)						Statement Where Net Income is Presented
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
	Three Months Ended							Three Months Ended						Six Months Ended
	March 31,							June 30,						June 30,
	2021			2020				2021			2020			2021			2020
	(dollars in thousands)							(dollars in thousands)
Sale of investment securities	$	0-		$	29		Net losses on sale of securities available-for-	$	195		$	0-		$	195		$	29		Net gains on sale of securities available-for-saleavailable Income tax expense
available for sale		0-			(6	)	sale Income tax benefit		(48	)		0-			(48	)		(6	)
		0-			23				147			0-			147			23

Net interest income on swaps	$	(631	)	$	7		Borrowings	$	(584	)	$	(318	)	$	(1,215	)	$	(311	)	Borrowings
		177			(2	)	Income tax expense		165			71			342			69		Income tax expense
		(454	)		5				(419	)		(247	)		(873	)		(242	)

Amortization of pension plan net		(75	)		(75	)	Other components of net periodic pension		(75	)		(76	)		(150	)		(151	)	Other components of net periodic pension expense
actuarial losses		20			21		expense Income tax benefit		22			21			42			42		Income tax benefit
		(55	)		(54	)			(53	)		(55	)		(108	)		(109	)

Total reclassification	$	(509	)	$	(26	)		$	(325	)	$	(302	)	$	(834	)	$	(328	)

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

	March 31,			December 31,			June 30,			December 31,
	2021			2020			2021			2020
	(dollars in thousands)						(dollars in thousands)
Investment securities available-for-sale, net of tax	$	3,851		$	7,859		$	3,907		$	7,859
Cash flow hedge, net of tax		(1,053	)		(1,520	)		(663	)		(1,520	)
Defined benefit pension and post-retirement plans, net of tax		(3,487	)		(3,542	)		(3,434	)		(3,542	)
Total	$	(689	)	$	2,797		$	(190	)	$	2,797

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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021 are approximately ~~353,841.~~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 ~~March 31,~~June 30, 2021 was $1.0 million and ~~March 31,~~$2.0 million, respectively. Stock-based compensation expense for the three and six months ended June 30, 2020 was $~~1.0~~$0.7 million and $~~0.5~~$1.2 million, respectively.

Activity ~~under~~in the Company’s options for the ~~three~~six months ended ~~March 31,~~June 30, 2021 was as follows:

	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 as of December 31, 2020	38,013		$	9.03				38,013		$	9.03
Granted	0-			-				0-			0-
Exercised	(5,449	)		8.34				(5,449	)		8.34
Forfeited/cancelled/expired	-			-				0-			0-
Outstanding as of March 31, 2021	32,564			9.15	1.21	$	527,672
Outstanding as of June 30, 2021								32,564		$	9.15	1.0	$	554,374

Exercisable as of March 31, 2021	32,564		$	9.15	1.21	$	527,672
Exercisable as of June 30, 2021								32,564		$	9.15	1.0	$	554,374

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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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 ~~three~~six months ended ~~March 31,~~June 30, 2021 was as follows:

			Weighted-				Weighted-
			Average				Average
	Nonvested		Grant Date		Nonvested		Grant Date
	Shares		Fair Value		Shares		Fair Value
Nonvested as of December 31, 2020	113,114		$	18.15	113,114		$	18.15
Granted	27,147			23.23	49,590			25.32
Vested	(15,157	)		24.36	(64,149	)		16.95
Forfeited/cancelled/expired	(378	)		23.23	(1,608	)		24.11
Nonvested March 31, 2021	124,726		$	18.49
Nonvested June 30, 2021					96,947		$	22.51

As of ~~March 31,~~June 30, 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 ~~1.5~~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:

				Weighted					Weighted
				Average Grant					Average Grant
	Units		Units	Date Fair		Units		Units	Date Fair
	(expected)		(maximum)	Value		(expected)		(maximum)	Value
Unearned as of December 31, 2020	147,636			$	17.29	147,636			$	17.29
Awarded	35,593				25.24	37,543				25.24
Change in estimate	17,818				20.79	17,818				20.79
Vested shares	(29,421	)			31.35	(29,421	)			31.35
Unearned as of March 31, 2021	171,626		230,712	$	16.89
Unearned as of June 30, 2021						173,576		233,638	$	16.99

As of ~~March 31,~~June 30, 2021, the specific number of shares related to performance units that were expected to vest was ~~171,626,~~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. As of ~~March 31,~~June 30, 2021 the maximum amount of performance units that ultimately could vest if performance targets were exceeded is ~~230,713.~~233,638. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, 29,421 shares vested. A total of ~~14,711~~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 ~~three~~six months ended ~~March 31,~~June 30, 2021 were 14,711 shares. As of ~~March 31,~~June 30, 2021, compensation cost of approximately ~~$2.0~~$1.7 million related to non-vested performance units not yet recognized is expected to be recognized over a weighted-average period of ~~1.9~~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:

			Weighted				Weighted
			Average Grant				Average Grant
	Units		Date Fair		Units		Date Fair
	(expected)		Value		(expected)		Value
Unearned as of December 31, 2020	169,313		$	14.07	169,313		$	14.07
Awarded	43,077			25.24	45,027			25.24
Vested shares	(68,916	)		16.29	(68,916	)		16.29
Unearned as of March 31, 2021	143,474		$	16.36
Unearned as of June 30, 2021					145,424		$	16.48

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 ~~three~~six months ended ~~March 31,~~June 30, 2021, 68,916 shares vested. A total of 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 ~~three~~six months ended ~~March 31,~~June 30, 2021 were 34,458 shares. As of ~~March 31,~~June 30, 2021, compensation cost of approximately ~~$2.3~~$2.0 million related to non-vested restricted stock units, not yet recognized, is expected to be recognized over a weighted-average period of ~~2.3~~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.

	Three Months Ended						Affected Line Item in the Consolidated
	March 31,						Statements of Income	Three Months Ended June 30,						Affected Line Item in the Consolidated Statements of Income
	2021			2020				2021			2020
	(dollars in thousands)							(dollars in thousands)
Service cost	$	0-		$	0-			$	0-		$	0-
Interest cost		71			91		Other components of net periodic pension expense		71			91		Other components of net periodic pension expense

Expected return on plan assets		(213	)		(196	)	Other components of net periodic pension expense		(213	)		(196	)	Other components of net periodic pension expense
Net amortization		75			75		Other components of net periodic pension expense		75			76		Other components of net periodic pension expense

Total periodic pension income	$	(67	)	$	(30	)		$	(67)		$	(29)

The Company did not ~~make a contribution~~contribute to the Pension Trust during the ~~three~~six months ended ~~March 31,~~June 30, 2021. The Company does not plan on contributing amounts to the Pension Trust for the remainder of 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:

	March 31, 2021					December 31, 2020					June 30, 2021					December 31, 2020
	Amount			Rate		Amount			Rate		Amount			Rate		Amount			Rate
	(dollars in thousands)										(dollars in thousands)
Total FHLB borrowings	$	359,710		1.11	%	$	425,954		1.07	%	$	353,462		0.97	%	$	425,954		1.07	%

By remaining period to maturity:
Less than 1 year	$	297,381		0.93	%	$	297,570		0.84	%	$	268,420		0.93	%	$	297,570		0.84	%
1 year through less than 2 years		34,621		1.24	%		75,644		1.42	%		57,368		1.24	%		75,644		1.42	%
2 years through less than 3 years		25,000		2.92	%		50,000		1.84	%		0-		0-			50,000		1.84	%
3 years through less than 4 years		0-		-			0-		0-			25,000		1.00	%		0-		0-
4 years through 5 years		0-		-			0-		0-			2,050		2.23	%		0-		0-
After 5 years		2,809		2.41	%		2,824		2.42	%		744		2.41	%		2,824		2.42	%
Total FHLB borrowings		359,811		1.11	%		426,038		1.07	%		353,582		0.97	%		426,038		1.07	%
Fair value premium (discount)		(101	)				(84	)				(120	)				(84	)
FHLB borrowings, net	$	359,710				$	425,954				$	353,462				$	425,954

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 as of ~~March 31,~~June 30, 2021 were primarily collateralized by approximately ~~$1.9~~$2.0 billion of commercial mortgage loans, net of required over collateralization amounts, under a blanket lien arrangement. As of ~~March 31,~~June 30, 2021 the Company had remaining borrowing capacity of approximately ~~$1.1~~$1.2 billion at FHLB.

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. The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85% and re-prices quarterly. The rate as of ~~March 31,~~June 30, 2021 was ~~3.06%~~3.04%.

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

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 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 December 31, 2020, 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 2015 issuance have been amortized. The 2015 Notes were redeemed in full on January 1, 2021.

Certain financial instrument-related assets and liabilities may, under GAAP, be offset on the consolidated statements of condition because they are subject to master netting agreements or similar agreements, although the Company has elected to disclose such arrangements on a gross basis on its consolidated financial statements. The Company enters into interest rate swap agreements with financial institution counterparties. For additional detail regarding interest rate swap agreements refer to Note 4 within this section. In the event of default on, or termination of, any one contract, both parties have the right to net settle multiple contracts. Also, certain interest rate swap agreements may require the Company to receive or pledge cash or financial instrument collateral based on the contract provisions. The following table presents information about financial instruments that are eligible for offset as of March 31, 2021 and December 31, 2020:

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 ~~March 31,~~June 30, 2021 and December 31, 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 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, and (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 credit 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 Credit Losses and Related Provision: The ~~allowance for credit losses (“ACL”)~~ACL represents management’s estimate of current expected credit losses considering available information relevant to assessing collectability of cash flows over the contractual term of the financial asset(s). Determining the amount of the ACL is considered a critical accounting estimate because it requires significant judgment and the use of estimates including reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

The evaluation of the adequacy of the ACL includes, among other factors, an analysis of historical loss rates by loan segment applied to current loan totals. However, actual 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 ACL is established through a provision for credit losses charged to expense. Management believes that the current ACL will be adequate to absorb 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 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 ACL may be subject to change. To the extent actual outcomes differ from management estimates, additional provisions for 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. 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 11 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2020 includes additional discussion on the accounting for income taxes.

COVID-19 continues to impact the Company’s operations and financial results, as well as those of our customers. In response to the COVID-19 pandemic, the Company continued to 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 ~~March 31,~~June 30, 2021, the Company has ~~102~~79 deferred loans with a total outstanding loan balance of ~~$204.2~~$100.0 million. As provided for under the CARES 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 not more than 30 days past due as of December 31, 2019 or the date of the deferral, and executed between March 1, 2020 and January 1, 2022, or the date that is 60 days after the termination date of the national emergency declared by the president on March 13, 2020, under the National Emergencies Act related to the outbreak of 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 ~~March 31,~~June 30, 2021, PPP loans were ~~$522.3~~$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 ACL as of ~~March 31,~~June 30, 2021. Should those circumstances change, the Company could be required to establish additional provisions for ~~loan~~credit loss expense charged to earnings.

Net income for the three months ended ~~March 31,~~June 30, 2021 was ~~$33.0~~$32.2 million, compared to ~~$6.0~~$14.8 million for the comparable three-month period ended ~~March 31,~~June 30, 2020. The Company’s diluted earnings per share were ~~$0.82~~$0.81 for the three months ended ~~March 31,~~June 30, 2021, as compared with diluted earnings per share of ~~$0.15~~$0.37 for the comparable three-month period ended ~~March 31,~~June 30, 2020. The increase in net income and diluted earnings per share was ~~primarily~~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 ~~a $5.8 million recapture of credit loss reserves in the current quarter reflecting~~ the impact of ~~the~~an improved economic outlook on the current expected credit losses (“CECL”) accounting standard, compared with a ~~$16.0~~$15.0 million provision in the ~~first~~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 a decrease in provision for credit losses of $38.4 million, a decrease in noninterest expenses of $15.4 million, and an increase in net interest income of $8.1 million, offset by an increase in income tax expense of $18.0 million. The decrease in provision for loan losses was due to the impact of an improved economic outlook on the CECL accounting standard, compared with a $31.0 million provision in 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 ~~local~~ 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 ~~March 31,~~June 30, 2021 increased by ~~$5.8~~$2.2 million, or ~~10.4%~~3.5%, from the comparable three-month period ended ~~March 31,~~June 30, 2020. The increase from the ~~first~~second quarter of ~~2021~~2020 resulted primarily from a ~~6.4% increase in average interest-earning assets, largely due to PPP originations, and a 15~~16 basis-point widening of the net interest margin to ~~3.56%~~3.60% from ~~3.41%~~3.44%, offset by a 1.5% decrease in average interest-earning assets, largely due to higher levels of PPP originations during the second quarter of 2020. The widening of the net interest margin resulted from a 53 basis-point reduction in the cost of interest-bearing liabilities, partially offset by a 27 basis-point reduction in the yield on average interest-earning assets.

Fully taxable equivalent net interest income for the six months ended June 30, 2021 increased by $8.0 million, or 6.8%, from the comparable six-month period ended June 30, 2020, resulting from an increase in average interest-earning assets of 2.4%, largely due to PPP originations, and a 16 basis-point widening of the net interest margin to 3.58% from 3.42%. The widening of the net interest margin resulted from a ~~75 basis-points~~64 basis-point reduction in the cost of ~~funding interest-earning assets,~~interest-bearing liabilities, partially offset by a 4937 basis-point reduction in the ~~rate of~~yield on average interest-earning assets.

The following tables, “Average Statements of Condition with Interest and Average Rates”, present for the three and six months ended ~~March 31,~~June 30, 2021 and 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 March 31,
2021
2020
Interest
Interest
Average
Income/
Average
Average
Income/
Average
Balance
Expense
Rate ⁽⁷⁾
Balance
Expense
Rate ⁽⁷⁾
(dollars in thousands)
Interest-earning assets:
Securities ^{(1) (2)}
$
473,181
$
2,058
1.76
%
$
452,294
$
3,095
2.75
%
Total loans ^{(2) (3) (4)}
6,242,960
70,676
4.59
5,956,469
73,220
4.94
Federal funds sold and interest-bearing with banks
269,537
49
0.07
148,429
499
1.35
Restricted investment in bank stocks
22,822
256
4.55
27,316
400
5.89
Total interest-earning assets
7,008,500
73,039
4.23
6,584,508
77,214
4.72
Noninterest-earning assets:
Allowance for credit losses
(81,549
)
(38,970
)
Other noninterest-earning assets
573,083
560,489
Total assets
$
7,500,034
$
7,106,027

Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits
$
1,422,295
2,434
0.69
$
1,962,714
10,371
2.13
Other interest-bearing deposits
3,225,751
5,151
0.65
2,660,755
6,841
1.03
Total interest-bearing deposits
4,648,046
7,585
0.66
4,623,469
17,212
1.50

Borrowings
375,511
1,674
1.81
477,121
2,352
1.98
Subordinated debentures
154,341
2,167
5.70
128,913
1,834
5.72
Finance lease
2,115
32
6.14
2,303
35
6.11
Total interest-bearing liabilities
5,180,013
11,458
0.90
5,231,806
21,433
1.65

Demand deposits
1,348,585
955,358
Other liabilities
43,340
54,622
Total noninterest-bearing liabilities
1,391,925
1,009,980
Stockholders’ equity
928,096
864,241
Total liabilities and stockholders’ equity
$
7,500,034
$
7,106,027
Net interest income (tax-equivalent basis)
61,581
55,781
Net interest spread ⁽⁵⁾
3.33
%
3.07
%
Net interest margin ⁽⁶⁾
3.56
%
3.41
%
Tax-equivalent adjustment
(418
)
(500
)
Net interest income
$
61,163
$
55,281

Noninterest income totaled ~~$3.4~~$4.5 million for the three months ended ~~March 31,~~June 30, 2021, compared with ~~$2.9~~$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 totaled $26.3 million for the three months ended ~~March 31,~~June 30, 2021, compared with $33.1 million for the comparable three-month period ended June 30, 2020. ~~During the first quarter of 2021, the Bank completed the sale of two branches, resulting in a gain of $0.7 million, which was included~~Included in noninterest income. Total noninterest income, excluding the branch sales, decreased $0.1 million from the first quarter of 2020. The decrease was primarily attributable to a decrease in net gains on sale of securities of $0.4 million, partially offset by an increase in net gains on sale of loans held-for-sale of $0.3 million.

~~Noninterest~~ expenses ~~totaled $26.5 million~~ for the three months ended March 31, 2021, compared to $35.1 million for the three months ended March 31, 2020. Noninterest expenses decreased by $8.6 million from the prior year first quarter due primarily to a decrease of $9.5June 30, 2020 were $5.1 million in merger and restructuring expenses ~~resulting from~~and $2.3 million in expenses related to the ~~acquisition of Bancorp of New Jersey (“BNJ”)in 2020.~~BoeFly acquisition. Excluding ~~merger-related expenses,~~these items, noninterest expenses increased ~~by $0.9~~$0.7 million ~~from~~when compared to the ~~first quarter of 2020 due~~comparable three-month period ended June 30, 2020. The increase was primarily attributable to increases in salaries and employee benefits of ~~$1.0~~$0.8 million, ~~and~~increases in professional and consulting expenses of $0.4 million and ~~was~~increases in other expenses of $0.2 million, partially offset by decreases in ~~other~~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 expenses totaled $52.7 million for the six months ended June 30, 2021, compared with $68.1 million for the comparable six-month period ended June 30, 2020. Included in noninterest expenses for the six months ended June 30, 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 expenses increased $1.6 million when compared to the comparable six-month period ended June 30, 2020. The increase was primarily attributable to increases in salaries and employee benefits of $1.8 million and increases in professional and consulting expenses of $0.8 million, partially offset by decreases in FDIC insurance expense of $0.4 million, decreases in amortization of core deposit intangibles of $0.3 million and ~~amortization~~decreases in marketing and advertising of ~~core deposit intangible of $0.1~~$0.2 million.

Income tax expense was ~~$10.9~~$10.7 million for the three months ended ~~March 31,~~June 30, 2021, compared to ~~$1.0~~$2.5 million for the ~~three months~~comparable three-month period ended ~~March 31,~~June 30, 2020. The increase in income tax expense was the result of higher income before taxes. The effective tax rate for the three months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020 was 24.8% and ~~14.8%~~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 $21.5 million for the six months ended June 30, 2021, compared to $3.6 million for comparable six-month period ended June 30, 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, 2021 was 24.8% versus 14.6% for the prior-year period. The higher effective tax rate during the first ~~quarter~~half of 2021 when compared to the first half of 2020 ~~was~~resulted from a lower ~~compared to March 31, 2021 due to different proportions~~proportion of income from non-taxable sources.

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.

As of ~~March 31,~~June 30, 2021, gross loans totaled ~~$6.3~~$6.4 billion, an increase of ~~$47.8~~$173.9 million, or ~~0.8%~~2.8%, as compared to December 31, 2020. Net loan growth was primarily attributable to increases in the commercial real estate segment of $355.0 million, offset by decreases in the commercial segment of $119.3 million, which primarily resulted from PPP ~~loans.~~

As of January 1, 2021, the Company adopted the CECL accounting standard. As of ~~March 31,~~June 30, 2021, the Company’s ~~allowance for credit losses~~ACL for loans was ~~$80.6~~$78.7 million, ~~an increase~~a decrease of ~~$1.4~~$0.5 million from $79.2 million ~~as of~~ December 31, 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 “Day 1” effect of the adoption of the CECL ~~accounting standard, which was $6.6 million, offset by a $5.8 million recapture of credit loss reserves during the first quarter of 2021.~~accounting.

The (reversal of) provision for credit losses, which includes provision for unfunded commitments, for the three and six months ended June 30, 2021 was ~~$(5.8)~~$(1.6) million and $(7.4) million, respectively, compared to $15.0 million and $31.0 million, for the ~~first quarter of 2021,~~three and ~~$16.0 million for the first quarter of 2020.~~six months ended June 30, 2020, respectively. The decrease in provision for credit losses ~~during the first quarter of 2021 when compared to the first quarter of 2020~~ was 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.

As of March 31, 2021, the ACL was $80.6 million as compared to $79.2 million as of December 31, 2020. The level of the allowance for the respective periods of 2021 and 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.

There were $0.2 million and $0.1 million ~~net recoveries for the three months ended March 31, 2021, compared with $0.1 million~~in net charge-offs for the three and six months ended ~~March 31, 2020.~~June 30, 2021, compared with $0.4 million and $0.6 million in net charge-offs for the three and six months ended June 30, 2020 respectively. The ACL as a percentage of loans receivable amounted to ~~1.28%~~1.23% as of ~~March 31,~~June 30, 2021 compared to 1.27% as of December 31, 2020. Excluding the impact of PPP loans, in the calculation of the ACL as a percentage of loans receivable, the ratio increases to ~~1.40%~~1.29% as of ~~March 31,~~June 30, 2021, compared to 1.36% as of December 31, ~~2020.~~2020 allowance for loan losses. PPP loans do not have allowance for ~~loan~~credit losses attributable to them, as they are fully guaranteed by the SBA.

The level of the ~~allowance~~ACL for the respective periods of 2021 and 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. In management’s view, the level of the ACL as of ~~March 31,~~June 30, 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.

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

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 ~~credit~~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:

As of ~~March 31,~~June 30, 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 ~~quarter~~three months ended ~~March 31,~~June 30, 2021, average securities increased ~~$12.7~~by $1.2 million to approximately ~~$473.2~~$444.5 million, or ~~6.8%~~6.3% of average total interest-earning assets, from approximately ~~$460.5~~$443.3 million, or ~~6.5%~~6.2% of average interest-earning assets, ~~compared to December 31,~~for the comparable period in 2020.

As of ~~March 31,~~June 30, 2021, net unrealized ~~losses~~gains on securities available-for-sale, which are carried as a component of accumulated other comprehensive ~~loss~~income and included in stockholders’ equity, net of tax, amounted to $3.9 million as compared with net unrealized gains of $7.9 million as of December 31, 2020. The ~~increase~~decrease in unrealized ~~losses~~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 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. The Company did not record an ~~allowance for credit losses~~ACL for available-for-sale as of ~~March 31,~~June 30, 2021.

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 ~~March 31,~~June 30, 2021 and December 31, 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 ~~March 31,~~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 ~~1.89%~~2.94%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by ~~5.91%~~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 0.70%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 5.18%.

Based on our model, which was run as of ~~March 31,~~June 30, 2021, 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 ~~6.97%~~8.60%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by ~~10.57%~~10.90%. As of 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 3.89%, while a 100 basis-point instantaneous decrease in interest rates would decrease net interest income by 8.56%.

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 ~~March 31,~~June 30, 2021, would decline by ~~8.01%~~1.79% with an instantaneous rate shock of up 200 basis points, and ~~increase~~decrease by ~~5.59%~~1.13% with an instantaneous rate shock of down 100 basis points. Our EVE as of December 31, 2020, would decline by 7.76% with an instantaneous rate shock of up 200 basis points, and increase by 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~~one-year NII sensitivity as of ~~March 31,~~June 30, 2021.

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.

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 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.

As of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2021, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were ~~$601.1~~$724.1 million, which represented ~~8.1%~~9.4% of total assets and ~~9.5%~~11.1% of total deposits and borrowings, compared to $697.4 million as of December 31, 2020, which represented 9.2% of total assets and 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 ~~March 31,~~June 30, 2021, had the ability to borrow ~~$1.9~~$2.0 billion. In addition, as of ~~March 31,~~June 30, 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 $3.2 million. As of ~~March 31,~~June 30, 2021, the Bank had aggregate available and unused credit of approximately ~~$1.1~~$1.2 billion, which represents the aforementioned facilities totaling ~~$1.9~~$2.0 billion net of ~~$0.8 billion~~$820.4 million in outstanding borrowings and letters of credit. As of ~~March 31,~~June 30, 2021, outstanding commitments for the Bank to extend credit were approximately ~~$970 million.~~$1.1 billion.

Cash and cash equivalents totaled ~~$260.1~~$349.4 million as of ~~March 31,~~June 30, 2021, ~~decreasing~~increasing by ~~$43.7~~$45.7 million from $303.8 million as of December 31, 2020. Operating activities provided ~~$80.1~~$119.5 million in net cash. Investing activities ~~provided $5.6~~used $174.3 million in net cash, primarily reflecting an increase in loans and securities ~~partially offset by an increase in loans.~~purchases. Financing activities ~~used $129.4~~provided $100.5 million in net cash, primarily reflecting a ~~repayment~~net increase in deposits of ~~FHLB borrowings and subordinated debentures of approximately $66.2~~$234.5 million and ~~$50.0 million, respectively.~~a decrease in net borrowings of $72.5 million.

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

										Amount
										Increase/
		March 31, 2021				December 31, 2020				(Decrease)		June 30, 2021					December 31, 2020					Amount Increase/ (Decrease)
		Amount		%		Amount		%		2021 vs. 2020		Amount		%			Amount		%			2021 vs. 2020
	(dollars in thousands)											(dollars in thousands)
Demand, noninterest-bearing		$	1,384,961	23.3	%	$	1,339,108	22.5	%	$	45,853	$	1,485,952		24.0	%	$	1,339,108		22.5	%	$	146,844
Demand, interest-bearing			1,488,943	25.0			1,462,675	24.5	%		26,268		3,029,469		48.9			2,861,820		48.0			167,649
Money Market			1,394,491	23.4			1,399,145	23.5	%		(4,654)
Savings			326,340	5.5			294,163	4.9	%		32,177		375,285		6.1			294,163		4.9			81,122
Time			1,356,599	22.8			1,464,133	24.6	%		(107,534)		1,301,807		21.0			1,464,133		24.6			(162,326)
Total deposits		$	5,951,334	100.0	%	$	5,959,224	100.0	%	$	(7,890)	$	6,192,513		100.0	%	$	5,959,224		100.0	%	$	233,289

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~~three-month LIBOR plus 2.85% and re-prices quarterly. The rate as of ~~March 31,~~June 30, 2021 was ~~3.06%~~3.04%.

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 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 ~~have~~had a stated maturity of July 1, 2025, and ~~bear~~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.

The Company’s stockholders’ equity was ~~$935.6~~$965.0 million as of ~~March 31,~~June 30, 2021, an increase of ~~$20.3~~$49.7 million from December 31, 2020. The increase in stockholders’ equity was primarily attributable to retained ~~earnings.~~earnings during the period. As of ~~March 31,~~June 30, 2021, the Company’s tangible common equity ratio and tangible book value per share were ~~9.91%~~9.97% and ~~$18.02,~~$18.76, respectively. As of December 31, 2020, the tangible common equity ratio and tangible book value per share were 9.50% and $17.49, respectively. Total goodwill and other intangible assets were approximately ~~$219~~$218.3 million and $219.3 million as of ~~March 31,~~June 30, 2021 and December 31, ~~2020. The following table shows the reconciliation of common equity to tangible common equity and the tangible common equity ratio.~~2020, respectively.

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 ~~March 31,~~June 30, 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.

As of ~~March 31,~~June 30, 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 ~~2.94%~~2.67% above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was ~~4.05%~~3.57% above the minimum buffer ratio.

Interest rate risk management is our primary market risk. See ~~“Item~~"Item 2- ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Sensitivity ~~Analysis”~~Analysis" herein for a discussion of our management of our interest rate risk.

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.

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

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, 2020.

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

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.

(Mark One)

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

For the Quarterly Period Ended ~~March 31,~~June 30, 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:	~~39,773,602~~39,794,815 shares
(Title of Class)	(Outstanding as of ~~May 7,~~August 6, 2021)

														Accumulated
					Additional									Other			Total
(dollars in thousands, except	Preferred		Common		Paid-In			Retained			Treasury			Comprehensive			Stockholders’
for per share data)	Stock		Stock		Capital			Earnings			Stock			(Loss) Income			Equity
Balance as of December 31, 2019	$	0-	$	468,571	$	21,344		$	271,782		$	(29,360	)	$	(1,147	)	$	731,190
Net income		-		-		-			6,030			-			-			6,030
Other comprehensive income, net of tax		-		-		-			-			-			2,611			2,611
Cash dividends declared on common stock ($0.090 per share)		-		-		-			(3,987	)		-			-			(3,987	)

Exercise of stock options (25,413 shares)		-		-		163			-			-			-			163
Restricted stock grants (20,684 shares)		-		-		0-			-			-			-			0-
Net shares issued in satisfaction of restricted stock units earned (16,599 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		-		-		(297	)		-			-			-			(297	)
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		-		-		536			-			-			-			536

Balance as of March 31, 2020	$	0-	$	586,946	$	21,746		$	273,825		$	(30,271	)	$	1,464		$	853,710

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		0-		586,946		23,887			329,026			(30,271	)		2,797			912,385
Net income		-		-		-			32,999			-			-			32,999
Other comprehensive loss, net of tax		-		-		-			-			-			(3,486	)		(3,486	)
Cash dividends declared on common stock ($0.11 per share)		-		-		-			(3,584	)		-			-			(3,584	)
Exercise of stock options (5,449 shares)		-		-		45			-			-			-			45
Restricted stock grants (26,769 shares)		-		-		0-			-			-			-			0-
Stock grants (446 shares)		-		-		0-			-			-			-			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		-		-		972			-			-			-			972

Balance as of March 31, 2021	$	0-	$	586,946	$	23,621		$	358,441		$	(32,682	)	$	(689	)	$	935,637

	Three Months Ended March 31, 2021
	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	$	24	$	631	$	0-

	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-

	March 31, 2021					December 31, 2020
	Notional					Notional
	Amount		Fair Value			Amount		Fair Value
	(dollars in thousands)
Interest rate swaps related to FHLB advances included in assets	$	175,000	$	(1,464	)	$	175,000	$	(2,119	)

	Three Months Ended
	March 31, 2021

Balance at beginning of period	$	0-
Day 1 Effect of CECL		2,833
(Reversal of) provision for credit losses (unfunded commitments)		(490)
Balance at end of period	$	2,343

	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)

		~~March 31, 2021~~
	CONNECTONE BANCORP, INC. AND SUBSIDIARIES
~~(Reversal of) provision for credit losses (loans)~~		$	~~(5,276)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~(Reversal of) provision for credit losses (unfunded commitments)~~			~~(490)~~(unaudited)
~~(Reversal of) provision for credit losses~~
	$	~~(5,766)~~

	Municipal
	Securities
	(dollars in thousands)
Beginning balance, December 31, 2020	$	8,844
Principal paydowns		(70	)
Ending balance, March 31, 2021	$	8,774

									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)
March 31, 2021
Assets:
Interest rate swaps	$	0-		$	0-	$	0-		$	0-	$	0-		$	0-
Liabilities:
Interest rate swaps	$	(1,464	)	$	0-	$	(1,464	)	$	0-	$	(1,464	)	$	0-

December 31, 2020
Assets:
Interest rate swaps	$	0-		$	0-	$	0-		$	0-	$	0-		$	0-
Liabilities:
Interest rate swaps	$	(2,119	)	$	0-	$	(2,119	)	$	0-	$	(2,119	)	$	0-

	Three Months Ended March 31,
	2021								2020
				Interest								Interest
	Average			Income/			Average		Average			Income/			Average
	Balance			Expense			Rate ⁽⁷⁾		Balance			Expense			Rate ⁽⁷⁾
	(dollars in thousands)
Interest-earning assets:
Securities ^{(1) (2)}	$	473,181		$	2,058		1.76	%	$	452,294		$	3,095		2.75	%
Total loans ^{(2) (3) (4)}		6,242,960			70,676		4.59			5,956,469			73,220		4.94
Federal funds sold and interest-bearing with banks		269,537			49		0.07			148,429			499		1.35
Restricted investment in bank stocks		22,822			256		4.55			27,316			400		5.89
Total interest-earning assets		7,008,500			73,039		4.23			6,584,508			77,214		4.72
Noninterest-earning assets:
Allowance for credit losses		(81,549	)							(38,970	)
Other noninterest-earning assets		573,083								560,489
Total assets	$	7,500,034							$	7,106,027

Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits	$	1,422,295			2,434		0.69		$	1,962,714			10,371		2.13
Other interest-bearing deposits		3,225,751			5,151		0.65			2,660,755			6,841		1.03
Total interest-bearing deposits		4,648,046			7,585		0.66			4,623,469			17,212		1.50

Borrowings		375,511			1,674		1.81			477,121			2,352		1.98
Subordinated debentures		154,341			2,167		5.70			128,913			1,834		5.72
Finance lease		2,115			32		6.14			2,303			35		6.11
Total interest-bearing liabilities		5,180,013			11,458		0.90			5,231,806			21,433		1.65

Demand deposits		1,348,585								955,358
Other liabilities		43,340								54,622
Total noninterest-bearing liabilities		1,391,925								1,009,980
Stockholders’ equity		928,096								864,241
Total liabilities and stockholders’ equity	$	7,500,034							$	7,106,027
Net interest income (tax-equivalent basis)					61,581								55,781
Net interest spread ⁽⁵⁾							3.33	%							3.07	%
Net interest margin ⁽⁶⁾							3.56	%							3.41	%
Tax-equivalent adjustment					(418	)							(500	)
Net interest income				$	61,163							$	55,281

⁽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 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.

	June 30, 2021					December 31, 2020					Amount Increase/
	Amount		%			Amount		%			(Decrease)
	(dollars in thousands)
Commercial ⁽¹⁾	$	1,402,697		21.8	%	$	1,521,967		24.4	%	$	(119,270)
Commercial real estate		4,138,518		64.5			3,783,550		60.6			354,968
Commercial construction		587,121		9.1			617,747		9.8			(30,626)
Residential real estate		286,907		4.5			322,564		5.1			(35,657)
Consumer		6,355		0.1			1,853		0.1			4,502
Gross loans	$	6,421,598		100.0	%	$	6,247,681		100.0	%	$	173,917


⁽¹⁾	~~Included in commercial loans as of March 31, 2021 and December 31, 2020 are PPP loans of $522.3 million and $397.5 million, respectively.~~

	Three Months Ended June 30,
	2021			2020⁽¹⁾
	(dollars in thousands)
Average loans receivable at end of period	$	6,248,516		$	6,301,174
Analysis of the ACL:
Balance – beginning of period	$	80,568		$	54,169
Charge-offs:
Commercial		(50)			(380)
Commercial real estate		(155)			-
Residential real estate		(7)			(69)
Total charge-offs		(212)			(449)
Recoveries:
Commercial		13			2
Commercial real estate		-			2
Consumer		1			-
Total recoveries		14			4
Net recoveries (charge-offs)		(198)			(445)
(Reversal of) provision for credit losses (loans)		(1,686)			15,000
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	%		0.03	%
Loans receivable	$	6,407,904		$	6,363,267
ACL as a percentage of loans receivable		1.23	%		1.08	%

Nonaccrual loans to total loans receivable	0.97	%	0.99	%
Nonperforming assets to total assets	0.82		0.82
Nonperforming assets, performing TDRs, and loans 90 days or greater past due and still accruing to loans receivable	1.64		1.57


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)

									To Be Well-Capitalized Under
					For Capital Adequacy				Prompt Corrective Action
	ConnectOne Bancorp, Inc.				Purposes				Provisions
The Company	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2021					(dollars in thousands)
Leverage (Tier 1) capital	$	718,814	9.89	%	$	290,750	4.00	%	$	N/A	N/A
Risk-based Capital:										N/A	N/A
Common Equity Tier 1		713,659	11.36			282,800	4.50			N/A	N/A
Tier 1		718,814	11.44			377,067	6.00			N/A	N/A
Total		947,395	15.08			502,756	8.00			N/A	N/A

	ConnectOne Bancorp, Inc.					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
As of June 30, 2021	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(dollars in thousands)
Tier 1 leverage capital	$	748,145		10.19	%	$	293,537		4.00	%		N/A	N/A
CET I risk-based ratio		742,990		11.09			301,514		4.50			N/A	N/A
Tier 1 risk-based capital		748,145		11.17			402,019		6.00			N/A	N/A
Total risk-based capital		976,829		14.58			536,026		8.00			N/A	N/A

	ConnectOne Bank					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
As of June 30, 2021	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(dollars in thousands)
Tier 1 leverage capital	$	832,047		11.34	%	$	293,526		4.00	%	$	366,907	5.00	%
CET I risk-based ratio		832,047		12.42			301,499		4.50			435,499	6.50
Tier 1 risk-based capital		832,047		12.42			401,999		6.00			535,999	8.00
Total risk-based capital		942,981		14.07			535,999		8.00			669,999	10.00

Exhibit No.	Description



31.1
~~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	XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
~~101.INS~~ 101.SCH	~~XBRL Instance 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 (formatted as Inline XBRL and contained in Exhibit 101).

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: ~~May 7,~~August 6, 2021	~~Date: May 7, 2021~~