ConnectOne Bancorp, Inc. (CNOBP) Q1 2020 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to ConnectOne first-quarter 2020 conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask a question. [Operator instructions]. I would now like to turn the conference over to Joe Calabrese with MWW PR. Please go ahead.

Thank you. Good morning, and welcome to today's conference call to review ConnectOne's results for the first quarter of 2020 and to update you on recent developments. On today's conference call will be Frank Sorrentino, Chairman and Chief Executive Officer; and Bill Burns, Executive Vice President and Chief Financial Officer. The results, as well as notice of this conference call on a listen-only basis over the Internet, we distributed this morning in a press release that has been covered by the financial media. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These risk factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of, the date of the call, and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures. Reconciliations of which are provided by the company's earnings release and accompanying tables of schedules which have been filed today on Form 8-K with the SEC. It may also be accessed through the company's website at ir.connectonebank.com. Each listener is encouraged to review those reconciliations provided in the earnings release, together with all other information provided in the release. I will now turn the call over to Frank Sorrentino. Frank, please go ahead.

Thank you, Joe. And thank you, everyone, for joining our conference call today. I'd like to begin by expressing our sincere hope that you and your families are all safe and doing well. These are challenging times, and our thoughts are with those who have been affected by this health crisis. Given these unique circumstances, I'd like to begin today's conference call by addressing our response to the COVID-19 pandemic. We took a proactive stance as the outbreak reached the New York area, taking immediate actions in order to safeguard the health and well-being of our team members and our clients. The investments we've made in infrastructure and technology played a critical role in transitioning to a virtual bank model, with 90% of our team shifting to a remote work-at-home environment seamlessly. We've leveraged these tools to continue to support our relationship banking model, allowing our clients direct connection to dedicated bankers who continue to serve them without skipping a beat. Through the use of our digital channels, technological tools, and our dedicated call center, our clients are primarily conducting day-to-day banking activities remotely. Simultaneously, our retail offices pivoted to a leaner contactless environment. All said, our team is doing well. They've responded to the changing work environment with resiliency, and their health and spirits are good. We're proud of these efforts, and to demonstrate our support for our teams during this crisis, we've increased certain employee benefits to help address their needs. We also quickly transitioned and mobilized our team to be an early and active participant in the SBA's Paycheck Protection Program. Through the initial PPP funding ground, ConnectOne has assisted approximately 1,400 companies and their 30,000 workers to ultimately secure nearly $400 million in needed funding for borrowers. We are adding to that in this now second round. We're proud of the fact that our capabilities allowed ConnectOne to be one of the first banks in the nation to close and fund an SBA PPP loan and recognize the importance of the CARES program to our clients, their employees, and our communities. This program truly is larger than the banking industry itself, and we believe it was a service necessary to provide in order to ensure the continuity of our clients' businesses, keeping their staff employed in the immediate future, and ensuring we do everything in our power to make sure clients get the funding that they need. We look forward to being able to continue to assist in this effort. Bill will speak to the economic impacts of the program momentarily, but I also wanted to take a moment to touch upon SBA lending activity at our fintech subsidiary, BoeFly. As we've discussed on prior calls, we acquired this online platform in June of 2019 and focused on building its operating scale and infrastructure. We implemented growth investments over the past few quarters. These investments turned out to be very well-timed, given the prevailing market conditions. BoeFly's extensive knowledge in SBA lending, coupled with its ability to connect small businesses to an extensive network of financial lenders across the United States, which has become a critical resource in helping many independent businesses and franchisees secure the capital they need to persevere. As a result, BoeFly's transaction flow has increased tremendously, and we believe this will continue beyond the PPP program. Visits by small businesses to BoeFly's websites, including the sbacares.boefly.com site have risen tenfold, and they've established relationships with several new banks. Apart from ConnectOne, BoeFly has facilitated over 3,500 applications through their online lending platform while successfully agenting over 2,000 PPP loans for borrowers totaling over $750 million through a number of financial institutions. We're extremely proud of BoeFly's ability to meaningfully address the increased need for small business funding during these very challenging times. BoeFly operates as an independent brand and generates revenue primarily through referral fees. Looking beyond the PPP, ConnectOne has joined the roster of banks funding BoeFly's secured loans. I'd now like to take turn to take a look at another important focus, which would be credit. We've taken a thorough approach to evaluating risk across our loan portfolio and have decided that postponing the adoption of CECL and utilizing our loan loss reserve model for the time being is the most appropriate path for ConnectOne. Bill will discuss our approach and its impact to our financials in greater detail. Taking a look at our loan portfolio, we have low levels of exposures to many of the most impacted industries. For example, our hospitality and hotel exposure represents just 1.2% of our loan portfolio, and transportation represents 1.5%, and our direct restaurant exposure is approximately 1%. Additionally, we have virtually no direct exposure to casinos, aviation, cruise lines, movie theaters or energy, and no credit card exposure. Nonetheless, we still have clients seeking assistance, and we're proactively communicating with them to ensure that they're aware of federal and state financial assistance programs available. Many of our borrowers are taking advantage of deferment opportunities that have effectively been afforded by legislative, regulatory, and accounting governing bodies. Regarding loan modifications and deferment requests, we're actively engaging with clients on a case-by-case scenario. And right now, total deferments under review currently represent roughly 15% of total loans or approximately $900 million, although our review process is showing that about a third of those are probably not necessary. Of the total deferments under review, a majority are in the CRE or multifamily segments, all very well-secured, strong LTV loans within our operating markets. As Bill walks through those numbers, you'll see why I believe we're taking a conservative approach, and we're all optimistic that if a return to work effort continues and we begin to move back to a functioning economy, the majority of our borrowers will be back on their feet. Additionally, we are, and always have been, a relationship lender, with virtually no brokered loans, employing a culture of strict underwriting standards with an objective of creating and growing a diversified loan portfolio and funding mix. Our capital base remains strong, and our Board of Directors recently declared a quarterly dividend payable on May 4th. However, we did suspend our share repurchase program until further notice. While we had another 600,000 shares available to purchase and believe the stock price is attractive and not reflective of the long-term prospects of ConnectOne, we and most in the industry would agree that now is just not the right time. Finally, I want to highlight that on January 2, we completed the in-market acquisition of Bancorp of New Jersey. The final phase of our integration and conversion will be completed on May 4, with no delays. And we're on track to meet or exceed the financial metrics disclosed when the transaction was announced. I'll now turn the call over to Bill.

Okay, so, thank you, Frank. And good morning, everyone. First, I'd like to echo Frank's remarks, and I hope that you and all your families are well. And I extend thanks to the ConnectOne team for all their extraordinary efforts as we all seek to overcome the COVID-19 pandemic. So, anyway, there's a lot to cover here, so let me get right into it. The first quarter on an operating basis was quite strong for us and that was across the board. It was strong in terms of net revenue, margin, and growth. On a pre-tax pre-provision basis, and in that number, I'm also adding back merger charges, our pre-tax net revenue increased to $32.6 million, which is up $4.2 million sequentially, and that's why. Now part of that was simply the merger with BKJ, but Bank of New Jersey's quarterly run rate was slightly below $2 million. So, even excluding the effect of the merger, the quarter reflected a nice sequential increase in operating net revenue. Net interest income was solid, reflecting growth and stronger margin that included higher purchase accounting. And in a couple of minutes, I'll get more into what's going on with the NIM. Turning to noninterest income. It, too, was up as we continue to successfully build noninterest income revenue streams. We're having more success selling commercial loans, and I expect that to be a consistent source of revenue for us in the future. I don't want to project exact amounts right now for the rest of this year given the pandemic crisis. Second, we increased our BOLI income and entered into some new contracts in the first quarter before rates plunged, so we got good deals there. And this is another synergy from the Bank of New Jersey merger, which didn't have any BOLI. Third is BoeFly, which even before the PPP, was projected to have increasing fee revenue. And the current run rate there is about $1 million per year. The PPP program has put BoeFly on the map like never before, so we are very optimistic here. Now to the expense side. Our core expense growth rate will likely be lower than originally anticipated due to a more likely than not slower growth scenario. One caveat to that are the expenses to be incurred in monitoring and closing out PPP, but those expenses come off the increased revenue from the program. And then just an update on how the merger cost saves are impacting the expense line. The first quarter reflects about $1 million in cost saves. Next quarter, I expect to add an additional $1 million, bringing the total run rate to $2 million. And then by the third quarter, we'll hit the full run rate of 70% savings or $3.3 million savings per quarter. So that 70% seems high, maybe it's even a record in the banking industry, but it is accurate. Keep in mind, we are closing virtually all the Bank of New Jersey branches, maybe one will be kept open. So hopefully, that's enough for you for your models. On the efficiency ratio for the first quarter, we are pleased with the 42.7%. It's usually higher in the first quarter, and it was flat versus the 2019 first quarter. Remains among the best in the industry. And with the Bank of New Jersey cost saves that are coming, I'm expecting that to improve as we get through 2020. I want to talk now about the balance sheet, what's happening, where we're going. So first, with regard to loan growth, you know, point-to-point annualized after adjusting for the acquisition was in the high single digits sequentially. And the same for deposit average growth. When you take away the benefit of the acquisition, we were still in the high single digits. Looking to the second quarter and beyond, I'll try to give you these guidelines. So, we're going to see an increase in demand deposits due to the PPP. But to some extent, that'll be temporary. However, we are confident that we will gain more clients -- more core clients in business as a result of that program. I can assure you that virtually every client who funded through the program was very pleased with how we process them and assisted them with their applications. As always, in the quarters ahead, we will remain highly focused on driving both DDA, the core relationship deposit growth. However, the wholesale markets remain very liquid now and very, very cheap. So we will be -- we always monitor the trade-off between core economics versus potentially higher cost deposit growth, for example, competing on CDs which are always highly competitive. Next is loan growth and spreads. Certainly, our expectation is for lower loan growth outside PPP. But as of now, we're just going to refrain from giving any loan growth guidance. But to the extent we are originating new low-risk loans, our expectation is for wider spreads. Even on the multifamily segment, those spreads right now are in excess to 250 basis points, which leads me to a little bit further discussion of the margin. So first, on a GAAP basis, our margin expanded five basis points sequentially, and part of that was due to the additional purchase accounting accretion coming from the acquisition. And those amounts will be tapering off by about $600,000 next quarter, and by a total of $1 million by the end of 2020. So, on a GAAP basis, we're still going to have purchase accounting. It will just be a little bit less. But now let's look at the core margin, which appeared to contract by six basis points but I don't think that tells you the story, which is a positive one. First off, four of those six basis points were due solely to actual liquidity on the balance sheet, something we did intentionally in conjunction with the crisis. Further, that remaining two basis points of contraction came from the Bank of New Jersey balance sheet, which had a margin of only 2.7%. So, over the course of the quarter, through securities portfolio restructuring and deposit repricing, we did that through the quarter. We've eliminated that negative drag. And then more recently, we have benefited from the Fed 100-basis point move. All our shorter-term wholesale funding improved by close to the full 100 basis points. We also had opportunities we took advantage of to fund longer duration at rates below 1%, over $100 million of that. We lowered deposit costs significantly, and there could be more to go even. And there'll be CDs repricing over the next few quarters. And on the lending side, we were protected significantly by the floors on the floating rate loans. And although there have been many requests by borrowers to lower their fixed-rate loans in response to decreasing market rates, we agreed to that in only a small handful of cases. So, in summary, the trend is an increase in core margin due to lower funding costs, combined with just moderately lower asset yields, the impact of the PPP and our expectation of higher lending spreads. Now let me give a word, too, on capital. The capital ratios remain strong, well above levels needed for well-capitalized. Our capital and liquidity levels continue to remain robust. And through internal stress testing, we show an ability to weather substantial stress over a prolonged period of time. Nevertheless, as Frank mentioned, we are suspending that share repurchase program for the time being, at least until the crisis clears. We recently declared our common dividend, have no plans to change that other than a slight change to the timing to conform with most of the industry. On the tangible -- I want to comment about tangible book value per share. It's increased, I think, over the last 10 or more quarters in a row. It fell slightly this quarter, but it was only by $0.13. But we had expected that drop as a result of merger, and we will continue, as always, to focus on building tangible book value per share. As Frank mentioned, I'm going to talk about CECL. He alluded to it, and we disclosed in the release, we decided to postpone adoption of CECL. When that flexibility to delay was announced, I basically jumped on it because I knew that the combination of this new complex accounting estimate, combined with the drastically changed economic situation and forecast that would lead to potentially a very nontransparent, confusing situation for all banks and investors. Now I do understand that many banks couldn't reverse course until they didn't have a choice on methodology, but we have the flexibility to go either way. And we do understand that postponing CECL raises a question of what will the effect be to the financial statements. So first, let me tell you, with regard to that day one adjustment and the Bank of New Jersey merger, we estimate that the impact is going to be an additional $20 million to $25 million increase to reserves. That includes the reallocation of the PCI nonaccretable marks totaling about $8 million. So, if you understand the math here, the charge to capital is only going to be $8 million to $12 million after taxes. And -- but with regard to regulatory capital, there are transition rules and effects. So, end of the day, not implementing CECL today has a very limited impact on regulatory capital. Secondly, turning to our loan loss provisioning for the quarter, I believe our COVID-related provision for this quarter was not materially impacted by using one method over the other. In other words, the loan loss allowance includes our estimated potential impact of COVID by utilizing qualitative factors and monitoring our deferral requests. Many other banks sticking to the incurred loss method came to the conclusion that the provisions could be lower. We didn't see it that way. To us, the crisis impacts provisioning in a similar magnitude, whether you use CECL or incurred loss, and that our provision and reserve reflects conservative estimation parameters. So, as you are all well aware, it's going to continue to be difficult for anyone to forecast economic conditions down the road. But I believe ConnectOne is both well-positioned and well-prepared, and we'll be closely monitoring the depth and duration of the crisis and its impact to our borrowers. I just want to turn to PPP, talk about that a little bit. We were and continue to be very successful participating in the PPP, helping the local economy and our borrowers, and also earning some extra income for us and our shareholders. We've been able to leverage our technological infrastructure. And our view, it has allowed us to effectively take advantage of the program. So, through the first funding round, as Frank mentioned, we had upwards of $400 million of fundings representing 1,400 loans. And the fees associated with it are expected to be in the $10 million-plus range. So those are yield adjustments that will flow into our interest income over the life of these loans. The life of these loans, we expect to be less than six months. On top of that, BoeFly as an agent is expected to book some fee income. And none of these numbers take into account second round of PPP, so even more revenue is potentially expected. So that is all for now. I look forward to your questions. But first, let me hand it back to Frank for some of his closing comments. Frank?

Well, thank you, Bill. Again, I -- we are certainly especially proud of our efforts around the PPP program. Being one of the first in the nation, and combined with the efforts put forth by our subsidiary, BoeFly, says a lot about our team here at ConnectOne Bank. The strong culture of our company was the driving factor in our execution success. From the founding of our bank through to today, we continue to operate with two key principles: put our clients first, and operate with a sense of urgency. This is certainly true when our clients are growing. We've proven it to be true during difficult times, and it's especially true today in the crisis. We were built for this. This is an unprecedented time, and the short term will clearly be a challenge, but we will all face it together, head-on and determined to persevere. As always, we remain disciplined in managing our business by conducting business more digitally as we grow, by using the full range of our company's banking expertise to help our clients, by building our technology to help small business clients, including through added capabilities such as BoeFly, and by diligently watching our credit. While we look forward to the time when we get in front of this pandemic, we are prepared to continue to operate ConnectOne in a safe and sound manner for our clients, our communities, and our shareholders. With that, we're happy to take your questions. Operator?

We will now begin the question-and-answer session. [Operator instructions] Our first question comes from William Wallace with Raymond James. Please go ahead.

The net interest margin commentary. Bill, you said there's four basis points of pressure that was due to excess liquidity that you put on at the beginning of this. Is that liquidity still on balance sheet? And if so, how long do you think you could keep it to be cautious?

I think for the duration of this crisis, I'd like to have a little bit more liquidity. So, I -- in your models, I would keep it where it is now.

So, we'll get the two basis points back in the second quarter, and then, it sounds like -- I mean, it sounds like you really captured a lot of the benefit on the funding side, and you're not seeing that much pressure. Can you maybe help us quantify what level of benefit the margin might experience?

Well, it could be a lot, Wally, but it depends what we -- what are the strategic moves we want to make. So, for instance, if it's really, in excess of 10 basis points, I might be a little bit more aggressive on deposits, right, on competing deposits. So, part of this is looking where we've been and also making an estimate of the future. So, all I can say is that I'm optimistic about the core margin going forward, but I don't feel, there are so many moving parts and we, can change course a little bit, but I don't want to give you exact numbers, Okay?

Okay. On the PPP, I think you might have given it, Bill, but did you -- if you did, would you repeat what the fees are on the round one loans?

I'm pretty confident we're going to be able to get more than $10 million in fees in the first round. And again, that isn't -- it's fee income but it goes into interest income. So, we'll have to see exactly how long the loans are on the books. I mean, you know, if it really is off in the first quarter, in the second quarter, it will all be gone, right, and booked in the second quarter. But if those loans remain outstanding, right, then they can -- it can go into the third quarter.

Yes. And then what's the pipeline or kind of expectation for round two?

Wally, it's Frank. I would say that we've had -- yes, we've had similar level of requests in round two relative to the number of applications that are coming through. The dollars per loan are actually a little bit smaller in the second round. My best guess there is, the most sophisticated borrowers were able to get through in round one. And you know, some of the folks that needed to get some additional information together came through in round two, and they tend to be the smaller businesses.

Okay.

And it's going to depend on how long the program lasts, right? You see now the SBA is spending a lot of time figuring out ways to moderate the program so that all banks get access to it.

Right, right. Okay. Okay. and one -- I just want to ask you about the CECL decision, Bill. And you built your reserves, $16 million, call it, and right in line with what it would have been with CECL, but you would have gotten the $8 million back on balance sheet. So you would compare more apples-to-apples for all the other banks that have adopted CECL. And I believe you said it wouldn't be as good of a comparison. So, I'm just kind of curious if you could talk me through that again.

Well, the reserves will be higher, but you do have to take a little bit of the capital, too, to make the reserves higher. So just saying, on a total basis, looking at the capital accounts of the company, it really isn't that much different. Okay. But you're right. The reserve, if you're looking at that reserve number, it is going to be higher. We have one when we implement CECL. Okay. And also, the other point I wanted to make that was just on an operating basis. And I believe this, that it really comes out the same way, incurred loss versus CECL because, you know, people misunderstand the incurred loss. It doesn't mean the loss was incurred. It means you can potentially see those losses. So, there is a projection element to the incurred loss method. The thing that CECL is different is that it goes out over the life of the loan way out to the very end.

Yes, right. Yes, Okay. But for you, which I think might be different than others, you took, it seems, like a pretty conservative approach on the key factors and the loss expectations. So, until today [indiscernible] difference other than the $8 million it's not --that's not on. It's not showing. Okay. All right. I'll step out and let somebody else ask questions.

Our next question comes from Collyn Gilbert with KBW. Please go ahead.

First question on the PPP program, specifically as it relates to BoeFly. So, I know you had said, you know, their previous run rate was kind of in the $1 million or so a year. Is there any way you can help us quantify, you know, relate that $1 million to what the volumes had been before for them and where you see volumes going for them? Like not just -- we don't have to tie to a definitive number for the year, but just trying to really quantify the magnitude of what they could potentially could be bringing to the organization.

I think that what we definitely saw here was a phenomenal opportunity for BoeFly to show cases where and how its ability to act responsibly in the marketplace. There are banks that never heard of BoeFly before that are now on the platform. There are franchisors that never considered using BoeFly that are now on the platform. So, you know, it's really going to depend on the strength of the economy going forward. But certainly, from a marketing perspective, BoeFly is now in a very enviable position. And I don't know that we can draw a straight line from what happened in PPP to increasing revenues. But clearly, if all the sources of your future business are now awakened to your ability to be there and ability to execute, it's got to translate into a better revenue stream going forward. We've also taken this time and through this process, we have been building infrastructure for BoeFly over the last nine months. But we put a lot of effort over the last six weeks into solidifying a lot of how their platform works, getting economies of scale out of it, having the ability to scale up quickly. And we think that's all going to bode really well for BoeFly going forward. They're as well-prepared as they could be.

Okay. And I just want to make sure, in the press release, I think if I read it correctly, I'm just trying to understand. So, did I see it that BoeFly expects to process 1,000 applications and upwards of $750 million in loans? Is that isolated to BoeFly? Or that's BoeFly and CNOB combined?

Yes. No, that's just BoeFly. And actually, we expect those numbers to continue to climb with PPP/2, right?

Yes. Okay. And then...

And those -- Collyn, it's Bill. And those loans are agented versus the loans that we funded on ConnectOne.

Right. So then that was going to be my next question is how does the fee structure with the agency part of this program work?

So, it's a lot less than if we do it, then we fund it. But the purpose of it was really to build BoeFly's connections and build its business base. And I think we're successful at that. We've been successful with that.

Okay, got it. And putting BoeFly aside for a second. Within what you guys have done so far in the PPP program and what you anticipate to do, what's the split between new customer extensions versus current customer extensions within that program?

So, I would tell you that the majority of what we've done have been for existing clients. However, there is a component that would fit the non-client, but they could have been a client of ConnectOne through some other entity that they had. So, we've certainly serviced those folks as well. So, if someone that had company A with us, but company B was with a different financial institution and they brought company B to us for the PPP loan, we treated them the same as if they were a client for that company as well. And in many of those cases, we're able to bring that relationship into the ConnectOne family. For completely non-clients, again, I would break those down into, you know, into different segments, but the one segment that we had a lot of success with is folks that could not get their PPP loan processed with generally the larger institutions who were a little bit late to the party in the first program. And so, we've had tremendous success in bringing new clients into the bank who have promised to bring us their depository relationships. And so, we've done a fair amount of that business. We've also done business for, whether it's churches or schools, nonprofits, other, you know, what we thought were central businesses within the communities that we serve, if they asked us to, we tried to say yes wherever we could.

And along those lines, Frank or Bill, Bill, you had alluded to deposits going up because of the PPP program. Is that sort of what you're just saying right there, Frank, is that the deposit relationships are coming as well with the new customers, or whatever?

So, differently than what Bill reported -- Bill reporting that, whatever loan funding we put out is going to wind up in a depository account, right, until it's spent. But what I was referring to is that for a brand-new client who wants us to do their PPP loan, and we're moving their relationship in, we've had tens of millions of dollars of new deposits come into the bank that have nothing to do with PPP, nothing to do with the loan itself, but have to do with the fact that they were dissatisfied with the bank that they were at and they moved their entire relationship into ConnectOne.

And then, Frank, on the -- you mentioned that the dollar amount of sort of forbearance requests is $900 million, and so the majority of multifamily and CRE. Do you have any more color on that? And if you said it in your initial comments, I apologize, but what you're extending kind of the deferral period that you're extending? And then also, two, do of that $900 million, how many of those loans balances or whatever also participates in the PPP program?

So, let me take the first question first, which is, we are granting a 90-day deferral for the folks that do ask for it and can go through a qualification program that we -- as we said, we're doing this on a case-by-case basis. We're looking at those requests. If it's a reasonable request, we'll grant it. We do believe that in further underwriting and time will show that probably up to a third, or maybe even a little bit more, will demonstrate that they really didn't need the deferral, but because of all the market pressures out there, that they feel they're entitled to it, they're going to ask for it because they can get it. As far as, what's underneath the cover relative to you know, what the expectation is going forward, at this moment, it's really hard to tell based on, when are we going to get back to work, what's going to happen, how are they going to be impacted. We have found our multifamily portfolio in New Jersey is somewhat stronger or has a better ability to pay than the multifamily portfolio in New York, which is obviously much smaller in percentage terms relative to, you know, ConnectOne's portfolio. And that the B class apartment buildings, the vast majority of the tenants are paying or at least have paid their April rents. We do not see in the CRE categories that the PPP program provided a lot of direct help to those clients. We are seeing where we have mixed use or in the C&I area or in any, you know, retail component or other types of CRE where PPP is going to be helpful, that money is flowing through. We also feel it's obvious to me, right, the PPP program is going to flow money through to employees of companies that will then be able to pay their rent, which obviously helps the entire system. So, I think April numbers came in across the board here at ConnectOne better than our expectation for who's paying what and, you know, what the derivative of who's paying what to the apartment building owners. It will be interesting to see what happens in May.

[Operator instructions]. Our next question comes from Matthew Breese with Stephens Inc. Please go ahead.

Bill, just maybe going back to the core NIM commentary. If you have it, can you give us an idea of what the spot rate for deposits were at the end of this quarter versus at year-end?

Bill? Hey, Matt, would you ask that question again?

Yes, sure. So, on the core NIM outlook, I was just curious what the spot rate of deposits were at the end of the quarter versus at year-end?

I don't know exactly what that number is, but I know they were down pretty significantly from year-end due to the 100-point basis – 100-basis-point move with the Fed reserve. But I can get you that number, Matt.

Okay. And then you had mentioned that the multifamily rent payment trends in New York was quite a bit better than New Jersey. Can you quantify that...

[indiscernible].

New York was, yes, New York was worse than New Jersey, correct?

Right, yes.

Right. Can you quantify that? Because we've heard conflicting things on the rent collection from some of your peers.

I got that.

Let me just finish this question, Bill. So, I think relative to what our peers have reported, I don't know what's in their portfolios. But relative to our own portfolio, we found that the New Jersey portfolio performed better. And when I say performed better, I mean, across the board, we had similar performance relative to April on-time payments and/or request for deferrals. But when we started to inquire as to who's paying rent where, we've found that the New Jersey portfolio had better percentages of tenants paying the rent. And I think there's a number of factors that go into that. I think it's the smaller rent size that is more affordable. I think it's people maybe not living in New York City 100% of the time, feeling that they don't feel obligated to pay those rents. The dollar amounts are much greater in New York than they are in New Jersey. The amount of workforce housing is more prevalent in New Jersey than it is, you know, in some of the inner boroughs of New York. So, I think there's been a lot of factors that go into why that would actually be true. But that's how – you know, that's what we found when we did our stress testing and our research around our own portfolio.

Got it. Bill, when you dropped off, I'd ask what the spot rate of deposits was, you know, at the end of the quarter versus year-end, what that delta was.

You mean what rate our deposits going on at?

Exactly, yup.

Well, on the wholesale side, it's very cheap. In the 30 -- I think it's 30 to 50 basis points. On the core deposit side, we dropped them about halfway, giving like a beta -- I'd say, about a beta of 50%. And then we have more deposit CDs coming off, a few hundred million in each of the next three quarters at 2% or so in CDs. So, there's a lot of reason to believe our deposit cost is going down a lot, but I don't have the exact number for you right now.

No, that was helpful. And then in the release, you had noted that, you know, there was a construction credit that drove some of the increase in NPAs. You also said it was well-secured. Can you just give us a bit more color on that loan? What it's secured by? And is there any estimate of what you think lost content on this one could be?

Yes, I'll take that. Matt, I don't believe we're going to take a loss in that. Actually, that building was contracted. It was a condo project that was nearing completion in Brooklyn and was actually contracted to be sold just before the crisis, the entire building. Ownership was going to change. And then through, you know, the worsening in this crisis, that transaction fell apart. So, we do believe that, that'll get back on track. We're working with the borrowers right now. But in the meantime, the metrics of the transaction, you know, forced us to put it on nonaccrual. And we're taking the most conservative approach there, but we do not expect a loss.

Our next question comes from Collyn Gilbert with KBW. Please go ahead.

I thought I was done but I'm not done, although Matt covered a couple of those things. So just on the CD side, Bill, can you tell us what your current CD offering, like your one-year CD offering rate is? I know you mentioned you've got 2% coming off, but just curious as to what that new CD is.

Well, we think about it like every couple of weeks. We adjust based on what the competition is at. But we had a need to be at 1%-plus still to bring money in. So, it's not economic versus wholesale funding, which is 40 to 50 basis points. But, you know, we still, you know, want to be somewhat competitive out there and not see too much runoff.

And then just following up on the construction comment. Just broadly, how is your construction portfolio holding up? And what are you seeing kind of anecdotally from some of those borrowers, I mean, despite, I guess, construction supposedly being shut down in New Jersey? It doesn't seem like it, from what I observed. So just curious as to how that portfolio is faring.

Yes. Collyn, we've spoken to most of our clients there in the construction realm. And for quite a while, they were doing okay even though the crisis until the state ordered the shutdown. And that's only been a couple of weeks. So, we recognize there will be some delays in delivery of projects. There were also some delays that, you know, we observed through materials that were coming from overseas that will be tied up, you know. Anything that's coming from Asia, anything that's coming from Europe, there will be some slight delays in getting windows and door knobs and those kinds of things. But overall, we think construction will resume shortly, if not in some places, it's already begun to resume. And I know what you're saying, in some places, it never stopped. But it will resume and projects will get completed. We actually think, for the vast majority of the portfolio, the demand is actually increasing for the product that's being built because there's been so much stress on the construction sector. So, I think we're going to wind up in a good place. We will have to extend some maturities, give people a little bit more time to get projects completed. We are, you know, doing a very thorough evaluation of the entire portfolio, you know, looking at percentages of completion and whatnot at this point in time and really getting behind the numbers as to what are going to be the request for extensions of time. But we think that's really about it. It's the extension of time that's going to be a little bit of an issue.

There are no further questions at this time. I would like to turn the conference back over to management for any closing remarks.

So, thank you very much, everyone. We appreciate you taking the time today to listen to -- and join our first quarter conference call. Please stay safe. And we look forward to speaking to you next quarter. So, thank you, all.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.