Center Bancorp CNOB Form 10-Q filing Q1 FY2026

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 credit loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable than expected or may be adversely effected by policy uncertainties, including regarding the impact of tariffs; (5) political developments, sovereign debt problems, wars or other hostilities such as the ongoing conflict between Ukraine and Russia and the United States and Iran, and instability in the Middle East, 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 or the business of our clients, such as changes affecting the owners of rest stabilized multi-family buildings in New York City; (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 health emergencies or natural disasters 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.

Critical Accounting Policies and Estimates

Our accounting policies are integral to understanding the results reported. We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. As of March 31, 2026, there have been no material changes to our critical accounting policies as compared to the critical accounting policies disclosed in our most recent Annual Report on Form 10-K. Reference is made to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Operating Results Overview

Net income available to common stockholders for the three months ended March 31, 2026 was $36.3 million, as compared to $18.7 million for the prior-year period. The Company’s diluted earnings per share were $0.72 for the three months ended March 31, 2026, as compared with diluted earnings per share of $0.49 for the prior-year period. The $17.6 million increase in net income available to common stockholders and the $0.23 increase in diluted earnings per share were due to a $43.0 million increase in net interest income and a $2.3 million increase in noninterest income, which was partially offset by an $18.6 million increase in noninterest expenses, a $7.5 million increase in income tax expense and a $1.7 million increase in provision for credit losses. The increases in net interest income and noninterest expenses were primarily driven by a full three-month impact of the FLIC acquisition in 2026, compared to the pre-merger period in 2025.

Net Interest Income and Margin

Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid on deposits and borrowings, which support these assets. Net interest income is presented on a tax-equivalent basis by adjusting tax-exempt income (including interest earned on tax-free loans and 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 assets. 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 first quarter of 2026 increased $43.4 million, or 65.2%, from prior-year period, due to a 46 basis-point widening of the net interest margin to 3.39% from 2.93%, and a 42.7% increase in average interest earning assets. The increase in average interest-earning assets was primarily due to the full-period impact of assets acquired in the FLIC merger. The margin also benefited from a 20 basis-point increase in the yield on interest-earning assets and a 49 basis-point decrease in the average costs of deposits, including noninterest-bearing deposits.

The following table presents for the three months ended March 31, 2026 and 2025, 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.

Average Statements of Condition with Interest and Average Rates

Noninterest Income

Noninterest income totaled $6.8 million for the three months ended March 31, 2026, compared with $4.5 million for prior-year-period. The increase was primarily due to a $1.4 million increase in BOLI income and a $1.3 million increase in deposit, loan and other income, which was partially offset by a $0.4 million decrease in net gains (losses) on equity securities. The growth in deposit, loan and other income was primarily attributable to the expanded scale of operations following the merger with FLIC.

Noninterest Expenses

Noninterest expenses totaled $57.9 million for the three months ended March 31, 2026, compared with $39.3 million for prior-year period. The increase was primarily due to a $10.2 million increase in salaries and employee benefits, a $2.7 million increase in occupancy and equipment expenses and a $2.6 million increase in amortization of core deposit intangibles. Other contributing factors included a $0.7 million increase in other expenses, a $0.7 million increase in professional and consulting expenses and a $0.6 million increase in information technology and communication expenses. Additionally, noninterest expenses for the first quarter of 2026 included $2.1 million in merger expenses and restructuring charges, compared to $1.3 million in the prior-year period. Excluding these merger-related items, noninterest expenses would have been $55.7 million and $38.0 million for the 2026 and 2025 periods, respectively. The variances in nearly all noninterest expense categories were primarily attributable to the expanded operations following the merger with FLIC.

Income Taxes

Income tax expense was $14.7 million for the first quarter of 2026, resulting in an effective tax rate of 28.0%, compared to income tax expense of $7.2 million and an effective tax rate of 26.1% for the prior-year period. The increase in income tax expense and the effective tax rate was primarily due to higher pre-tax income and changes in state and local tax apportionment factors resulting from our expanded presence in New York following the FLIC merger.

Financial Condition

Loan Portfolio

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

As of March 31, 2026, gross loans totaled $11.7 billion, an increase of $0.3 billion or 2.5% compared to December 31, 2025. The increase in gross loans as of March 31, 2026, compared to December 31, 2025, was primarily driven by organic growth in the commercial real estate portfolio, reflecting continued lending activity within our expanded market footprint.

While the previous table reflects the classification of our loans by loan portfolio segment, the following table presents further disaggregation of our commercial real estate portfolio along with applicable weighted average loan-to-value ratios, typically determined at loan origination.

The table above is further broken down in the following tables by geography:

In addition, the following tables present further details with respect to our nonowner-occupied and owner-occupied borrower concentrations included in the commercial real estate segment.

Allowance for Credit Losses and Related Provision

The ACL is an estimate of current expected credit losses considering available information relevant to assessing collectability of cash flows over the contractual term of the financial assets necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The methodology for determining the ACL is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded ACL. The loan portfolio also represents the largest asset type on the Company’s Consolidated Statement of Financial Condition.

As of March 31, 2026, the Company’s ACL was $153.1 million, a decrease of $1.2 million from $154.3 million as of December 31, 2025.

The provision for credit losses, which includes a provision for unfunded commitments, for the three months ended March 31, 2026 and March 31, 2025 was $5.2 million and $3.5 million, respectively. In each of the quarters presented, the provision for credit losses reflected net portfolio growth, charges related to individually evaluated loans, and changing macroeconomic forecasts and conditions.

Net charge-offs for the first quarter of 2026 totaled $6.7 million, or 0.23% of average loans on an annualized basis, compared to $3.4 million, or 0.17% of average loans, for the prior-year period. The current period activity was primarily driven by the resolution of PCD loans acquired in the FLIC merger, which represented 0.15% of the total annualized net charge-off ratio.

These PCD loans were successfully resolved against previously established nonaccretable credit marks and resulted in a $0.2 million release of provision for credit losses upon settlement. Excluding these acquisition-related resolutions, the annualized net charge-off ratio for the originating portfolio was 0.08% for the three months ended March 31, 2026, a decrease from the 0.17% reported in the prior-year period.

The level of the allowance for the respective periods of 2026 and 2025 reflects the credit quality within the loan portfolio, expected loan maturity dates, 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, 2026 is adequate to cover 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 on loans are presented in the following tables for the periods indicated (dollars in thousands).

Asset Quality

The Company manages asset quality and credit risk by maintaining diversification in its loan portfolio and through its review processes that includes 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 on, to record charge-offs promptly based on realistic assessments of current collateral values and cash flows, and to maintain an adequate ACL 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.

As of March 31, 2026, loans 30-59 days past due were 0.81% of loans receivable, compared to 0.19% as of December 31, 2025. This rise is predominantly due to an interrelated series of credits totaling $63.8 million secured by 19 multifamily NYC rent-regulated properties. We are working with our client to resolve these credits; however, the resulting financial impact cannot be determined at this time.

Nonperforming assets include nonaccrual loans and other real estate owned ("OREO") (the Company had no OREO at the periods presented). 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.

The following table sets forth, as of the dates indicated, the amount of the Company’s nonperforming assets:

(1) Nonperforming assets are defined as nonaccrual loans and OREO.

Purchased Credit-Deteriorated Loans

As of March 31, 2026, the Company's recorded investment in PCD loans totaled $207.6 million. PCD loans, or purchased credit deteriorated loans, are defined by the CECL standard as acquired financial loans that, at the time of acquisition, have experienced a more-than-insignificant deterioration in credit quality since their origination. The Company, with the assistance of independent third-party loan review experts, identified such deterioration by considering various factors. These factors included, but were not limited to, nonperforming status, payment history and delinquency, risk rating, debt service coverage ability, and rate repricing risk. The resulting PCD designated loans include multifamily loans, commercial real estate, commercial loans, and residential real estate.

Within the PCD loan portfolio as of March 31, 2026, there is a pool of rent-regulated loans amounting to $158.0 million. These loans are associated with multifamily properties located in the five boroughs of New York City, most of which are entirely or predominantly rent-regulated. This specific pool is subject to unique stressors, primarily due to the 2019 New York rent laws, which restricted rent increases while operating in an environment of escalating expenses, and certain proposed policies of the new mayoral administration of New York City, including a proposed rent freeze.

Our determination of PCD classification and initial allowance involved significant judgment. Key assumptions included expected remaining life, default rates, recoveries, and economic scenarios. We continue to monitor roll‑off and performance of the PCD portfolio in our quarterly review process.

Rent-regulated Portfolio

The Bank maintains a solid reserve position, particularly within its rent-regulated multifamily portfolio which includes significant credit and fair value marks applicable to the portfolio acquired from FLIC, in addition to qualitative ACL allocations applicable to its legacy portfolio. The following table provides additional information on the Bank's New York City ("NYC") rent-regulated portfolio as of March 31, 2026:

Investment Securities

As of March 31, 2026, the principal components of the securities portfolio were federal agency obligations, mortgage-backed securities, obligations of U.S. states and political subdivisions, corporate bonds and notes, asset-backed securities and equity securities. For the three months ended March 31, 2026, average securities, on an amortized cost basis, increased by $561.3 million to $1.3 billion, or 9.9% of average total interest-earning assets, from $745.9 billion, or 8.1% of average interest-earning assets, for the prior-year period.

As of March 31, 2026, net unrealized losses on available-for-sale securities, which are carried as a component of AOCI and included in stockholders’ equity, net of tax, amounted to $48.2 million as compared with net unrealized losses of $40.7 million as of December 31, 2025. The increase in unrealized losses is predominantly 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 issuers continue to make timely principal and interest payments on the securities. Any impairment that has not been recorded through an ACL is recognized in OCI, net of applicable taxes. The Company did not record an ACL for available-for-sale securities as of March 31, 2026.

Interest Rate Sensitivity Analysis

The principal objective of our asset and liability management function is to evaluate the interest-rate risk included in certain balance sheet accounts; determine the level of risk appropriate given our business focus, operating environment, and capital and liquidity requirements; establish prudent asset concentration guidelines; and manage the risk consistent with Board approved guidelines. We seek to reduce the vulnerability of our operations to changes in interest rates, and actions in this regard are taken under the guidance of the Bank’s Asset Liability Committee (the “ALCO”). The ALCO generally reviews our liquidity, cash flow needs, maturities of investments, deposits and borrowings, and current market conditions and interest rates.

The Company utilizes a number of strategies to manage interest rate risk including, but not limited to: (i) balancing the types and structures of interest-earning assets and interest-bearing liabilities by diversifying mix, coupons, maturities and/or repricing characteristics, (ii) reducing the overall interest rate sensitivity of liabilities by emphasizing core and/or longer-term deposits and utilizing FHLB advances and wholesale deposits for our interest rate risk profile, (iii) managing the investment portfolio for liquidity and interest rate risk profile, and (iv) entering into interest rate swap and cap agreements.

We currently utilize net interest income 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, 2026 and December 31, 2025, 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. The model also utilizes immediate and parallel shifts in market interest rates as of March 31, 2026.

Based on our model, which was run as of March 31, 2026, we estimated that over the next one-year period a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 4.71%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 2.73%. As of December 31, 2025, we estimated that over the next one-year period a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 4.95% while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 3.06%.

Based on our model, which was run as of March 31, 2026, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous and parallel increase in the general level of interest rates would increase our net interest income by 0.10%, while a 100 basis-point instantaneous and parallel decrease in interest rates would decrease net interest income by 0.87%. As of December 31, 2025, we estimated that over the next three years, on a cumulative basis, a 200 basis-point instantaneous and parallel increase in the general level of interest rates would decrease our net interest income by 0.32%, while a 100 basis-point instantaneous and parallel decrease in interest rates would increase net interest income by 1.04%.

An EVE analysis is also used to dynamically model the present value of asset and liability cash flows with instantaneous and parallel rate shocks of up 200 basis points and down 100 basis points. The EVE is likely to be different as interest rates change. Our EVE as of March 31, 2026, would decrease by 7.41% with an instantaneous and parallel rate shock of up 200 basis points, and increase by 0.84% with an instantaneous and parallel rate shock of down 100 basis points. Our EVE as of December 31, 2025, would decrease by 7.12% with an instantaneous and parallel rate shock of up 200 basis points, and increase by 0.28% with an instantaneous and parallel rate shock of down 100 basis-points.

The change in interest rate sensitivity was impacted by changes in overall market interest rates, updates to certain model assumptions, changes in short and intermediate-term fixed rate funding and by the deposit mix shift into certificates of deposit, from both noninterest-bearing and interest-bearing non-maturity deposits.

The following table illustrates the most recent results for EVE and one-year net interest income ("NII") sensitivity as of March 31, 2026.

Certain model limitations are inherent in the methodology used in the EVE and net interest income measurements. The models require the making of certain assumptions which may tend to oversimplify the way actual yields and costs respond to changes in market interest rates. The models assume that the composition of the Company’s interest sensitive assets and liabilities existing at the beginning of a period remain constant over the period being measured, thus they do not consider the Company’s strategic plans, or any other steps it may take to respond to changes in rates over the forecasted period of time. Additionally, the models assume immediate changes in interest rates, based on yield curves as of a point-in-time, which are reflected in a parallel, instantaneous and uniform manner across all yield curves, when in reality changes may rarely be of this nature. The models also utilize data derived from historical performance and as interest rates change the actual performance of loan prepayments, rate sensitivities, and average life assumptions may deviate from assumptions utilized in the models and can impact the results. Accordingly, although the above measurements provide an indication of the Company’s interest rate risk exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates. Given the nature and speed with which interest rates change, the projections noted above on the Company’s EVE and net interest income can be expected to differ from actual results.

Estimates of Fair Value

The estimation of fair value is significant to a number of the Company’s assets, including loans held-for-sale and available-for-sale securities. These are all recorded at either fair value or the lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, discount rates, or market interest rates. Fair values for most available-for-sale securities are based on quoted market prices. If quoted market prices are not available, fair values are based on judgments regarding future expected loss experience, current economic condition risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto presented elsewhere herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations; unlike most industrial companies, nearly all of the Company’s assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Liquidity

Management actively monitors and manages its liquidity position to determine any current or potential future liquidity needs. 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.

Liquidity and funding needs are managed through the Bank's Treasury functions and the Asset Liability Committee. An internal policy addresses liquidity and funds management and management monitors the adherence to policy limits to satisfy current and potential future cash flow needs. The policy includes internal limits, deposit concentrations, liquidity sources and availability, stress testing, collateral management, contingency funding plan and other qualitative and quantitative metrics.

As of March 31, 2026, 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, 2026, liquid assets (cash and due from banks, interest-bearing deposits with banks and unencumbered investment securities) were $772.0 million, which represented 5.4% of total assets and 6.3% of total deposits and borrowings, compared to $874.4 million as of December 31, 2025, which represented 6.2% of total assets and 7.2% of total deposits and borrowings. As of March 31, 2026, not included in the above liquid assets were securities with a market value of $95.0 million which were pledged to the FHLB and securities with a market value of $133.9 million which were pledged to the Federal Reserve Bank of New York, which supported aggregate unutilized borrowing capacity of $215.8 million and $223.3 million, respectively as of March 31, 2026 and December 31, 2025.

The Bank is a member of the FHLB of New York and, based on available qualified collateral as of March 31, 2026, had the ability to borrow $3.8 billion. The Bank also has a credit facility established with the Federal Reserve Bank of New York for direct discount window borrowings based on pledged collateral and had the ability to borrow $2.3 billion as of March 31, 2026. In addition, as of March 31, 2026, the Bank had in place borrowing capacity of $280.0 million through correspondent banks and other unsecured borrowing lines. As of March 31, 2026, the Bank had aggregate available and unused credit of approximately $4.4 billion, which represents the aforementioned facilities totaling $6.3 billion net of $1.9 billion in outstanding borrowings and letters of credit. As of March 31, 2026, outstanding commitments for the Bank to extend credit were approximately $1.4 billion.

Cash and cash equivalents totaled $344.5 million as of March 31, 2026, decreasing by $36.4 million from $380.9 million as of December 31, 2025. Operating activities provided $15.3 million in net cash. Investing activities used $233.1 million in net cash, a net increase in loans $273.3 million and investment purchases of $45.3 million and were partially offset by investment maturities, calls and principal repayments of $89.6 million .Financing activities provided $181.3 million in net cash, primarily reflecting a net increase in deposits of $272.3 million and were partially offset by net repayments of FHLB borrowings of $76.0 million.

Deposits

Deposits serve as our primary source of funding. The Company offers a comprehensive suite of products including noninterest-bearing demand, interest-bearing checking, money market, and savings accounts, as well as time deposits with maturities generally ranging from 31 days to 60 months. We supplement core funding with brokered certificates of deposit and internet listing service deposits for asset-liability management purposes.

To support clients with balances exceeding standard FDIC insurance limits, we utilize reciprocal deposit networks. This primarily includes the IntraFi Network LLC for the placement of Certificate of Deposit Account Registry Service ("CDARS") and Insured Cash Sweep ("ICS") accounts. Through these networks, large-dollar deposits are placed into accounts at other participating banks in increments below the FDIC insurance limit to ensure full principal and interest coverage.

During the first quarter of 2026, the Company expanded these capabilities by launching a partnership with the National Bank InterDeposit Company (“NBID”) network, operated by ModernFi. We are currently in the initial stages of transitioning select client funds to this network to further diversify our reciprocal deposit options. While the financial impact of this transition was not material to our results of operations or liquidity position for the three months ended March 31, 2026, we anticipate utilizing this platform to complement our existing reciprocal programs in future periods.

The following table sets forth the average balances and weighted average rates of our deposits for the periods indicated.

Average total deposits increased by $3.6 billion, or 47.0%, during the three months ended March 31, 2026 when compared to the prior-year period. The increase in total average deposits was due to a $1.8 billion increase in demand, interest-bearing and NOW deposits, a $1.1 billion increase in noninterest-bearing deposits, a $0.4 billion increase in savings deposits and a $0.4 billion increase in time deposits. The increase in all quarter-to-date average deposit categories was primarily due to the merger with FLIC.

The increase in average time deposits of $0.4 billion during the three months ended March 31, 2026 was primarily due to a $0.5 billion increase in retail time deposits, partially offset by a $0.1 billion dollar decrease in nonreciprocal brokered certificates of deposit. Average nonreciprocal brokered certificates of deposit included in total time deposits were $0.8 billion for the three months ended March 31, 2026, compared to $0.9 billion for the prior-year period.

Average aggregate demand deposits included $1.2 billion and $1.1 billion in ICS reciprocal deposits during the three months ended March 31, 2026 and March 31, 2025, respectively.

The deposit beta—the measurement of rate sensitivity in response to market changes—on nonreciprocal brokered certificates of deposit tends to be higher than that of ICS and CDARS reciprocal deposits. This is because nonreciprocal brokered funds are more directly correlated to prevailing market rates, whereas reciprocal deposits reflect deeper client relationships and a primary focus on FDIC insurance coverage rather than market-leading yields.

The following table sets forth information related to the uninsured deposit balances of the Bank.

The following table sets forth the distribution of total actual deposit accounts, by account types for the periods indicated.

Total deposits increased by $0.3 billion, or 2.4%, when compared to December 31, 2025. The increase in total deposits was primarily due to a $0.2 billion increase in time deposits and a $0.1 billion increase in demand, interest-bearing and NOW deposits.

Aggregate demand deposits included $1.2 billion in ICS reciprocal deposits as of both March 31, 2026 and December 31, 2025.

Included in time deposits were nonreciprocal brokered certificates of deposit of $0.9 billion as of March 31, 2026 and $0.7 billion as of December 31, 2025.

As of March 31, 2026, we held $1.0 billion of time deposits with balances greater than $250,000. The following table provides information on the maturity distribution of the time deposits with balances greater than $250,000 as of March 31, 2026:

March 31, 2026 · (dollars in thousands)

Subordinated Debentures

During December 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034. The trust loaned the proceeds of this offering to the Parent Corporation 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. Upon the cessation of publication of LIBOR rates and pursuant to the Federal LIBOR Act and Federal Reserve regulations implementing the Act, the MMCapS capital securities converted as of June 30, 2023 to a new index based on CME Term SOFR, as defined in the LIBOR Act, plus a tenor spread adjustment, which is referred to as the Benchmark Replacement. Effective for quarterly interest rate resets after July 3, 2023 the subordinated debentures' floating rate will be three-month CME Term SOFR plus 2.85% plus a tenor spread adjustment of 0.26161%. The rate as of March 31, 2026 was 6.78%.

During May 2025, the Parent Corporation issued $200 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "2025 Notes"). The 2025 Notes bear interest at 8.125% annually from, and including, the date of initial issuance up to but excluding June 1, 2030 or the date of earlier redemption, payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2025. From and including June 1, 2030 through maturity or earlier redemption, the interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate, which is Three-Month Term SOFR, plus 441.5 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing on September 1, 2030. Notwithstanding the foregoing, if the benchmark rate is less than zero, then the benchmark rate shall be deemed to be zero.

Stockholders’ Equity

The Company’s stockholders’ equity increased by $18.2 million when compared to December 31, 2025. The increase in total stockholders’ equity was primarily due to an increase in retained earnings of $27.3 million, partially offset by an increase in the AOCI of $6.2 million. As of March 31, 2026, the Company’s tangible common equity ratio and tangible book value per share were 8.64% and $23.93, respectively, compared to 8.62% and $23.52, respectively, as of December 31, 2025. Total goodwill and other intangible assets were $277.3 million as of March 31, 2026, and $280.2 million as of December 31, 2025.

The following table reconciles common equity to tangible common equity and the tangible common equity ratio.

(dollars in thousands, except for per share data)

(1) Tangible common equity ratio is tangible common equity divided by tangible assets and is a non-GAAP measure.

Regulatory Capital and Capital Adequacy

The maintenance of a solid capital foundation is a primary goal for the Company. Accordingly, capital plans, stock repurchases and dividend policies are monitored on an ongoing basis. The Company’s objective with respect to the capital planning process is to effectively balance the retention of capital to support future growth with the goal of providing stockholders with an attractive long-term return on their investment.

The Company and the Bank are subject to regulatory guidelines establishing minimum capital standards that involve quantitative measures of assets, and certain off-balance sheet items, as risk-adjusted assets under regulatory accounting practices.

The following is a summary of regulatory capital amounts and ratios as of March 31, 2026 for the Company and the Bank, compared with minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized depository institution (for the Bank).

N/A - not applicable

As of March 31, 2026, 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 Capital Ratio which was 2.69 percentage points above the minimum buffer ratio and, at the Bank, the lowest ratio was the Total Risk Based Capital Ratio which was 2.84 percentage points above the minimum buffer ratio.

Item 3. Qualitative and Quantitative Disclosures about Market Risks

Market Risk

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

Item 4. Controls and Procedures

a) Disclosure controls and procedures. As of the end of the Company’s most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and are operating in an effective manner and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

b) Changes in internal controls over financial reporting. There have been no changes in the Company’s internal controls over financial reporting that occurred during the Company’s last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On August 28, 2024, FLIC filed an 8-K disclosing that its subsidiary, FNBLI was notified by a customer of suspicious wire transfer activity in July 2024 involving the customer's bank accounts. According to the 8-K, the wire transfer activity arose as the result of unauthorized access to banking information within the customer's control. FLIC completed an investigation with the assistance of a digital forensic investigations firm, which did not yield evidence of unauthorized network activity.

The net amount of funds at issue, after the initial return of recalled wires, involved in the suspicious wire transfer activity is approximately $11.1 million.

On January 22, 2025, the customer filed suit against FLIC and FNBLI claiming damages of approximately $11.1 million. The Company and the Bank, as the successors to FLIC and FNBLI, vehemently disagree with the customer’s allegations and intend to vigorously defend these claims. FLIC, and so the Company, has been dismissed from the case, while it proceeds against the Bank as successor to FNBLI.

Item 1a. Risk Factors

There have been no material changes to the risks inherent in our business from those described under Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2025.

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

Share Repurchase Program

Historically, repurchases have been made from time to time as, in the opinion of management, market conditions warranted, in the open market or in privately negotiated transactions. During the quarter ended March 31, 2026, the Company repurchased 90,000 shares. As of March 31, 2026, shares remaining for repurchase under the program were 551,118.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5 Other Information

Not applicable

Item 6. Exhibits

SIGNATURES

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