ConnectOne Bancorp, Inc.

Q3 2021 Earnings Conference Call

10/28/2021

spk07: Greetings, and welcome to Connect One Bank Corp, Inc.' 's third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sia Vansia, Chief Brand and Innovation Officer.
spk01: Good morning and welcome to today's conference call to review Connect One's results for the third quarter of 2021 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 were 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 this 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 in the company's earnings release and accompanying tables or schedules, which have been filed today on Form 8K with the SEC and 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.
spk02: Thank you, Sia, and good morning, everyone. We appreciate everyone joining us today. I am very pleased to report a strong quarter and extremely proud of the year-to-date performance of our team. We leveraged the momentum in the first half of the year, demonstrating our ability to continue to execute and driving the strongest financial performance metrics in the company's history. Some highlights for the quarter include a return on assets of 1.62 and a return on tangible common equity of 16.9%. Our pre-provision net revenue increased once again to 2.23 percent of average assets, and our quarterly sequential annualized loan growth net of PPP was 21 percent. You know, none of this is surprising for Connect One. We saw early on an opportunity in the rebounding New York metro economy for banks like ours to take a proactive approach to the recovery. Our teams were prepared, and we leveraged our technological investments to drive growth. We also moved quickly, realizing market opportunities to add additional revenue-generating talent, and those efforts will support our outlook heading into the year. Loan growth accelerated for a second quarter in a row, a result of our strategic focus on our areas of expertise, coupled with our prudent adherence to strong credit standards and spread disciplines. All of this led to our margin expanding for the eighth consecutive quarter. Meanwhile, in August, we raised in excess of $100 million in non-cumulative preferred stock, increasing our flexibility in the deployment of our capital. And with that, today we announced the number of capital actions. First, based on our board's continued confidence in ConnectOne's performance, we raised our quarterly cash dividend for the second time this year to 13 cents, That's up 18% from the last quarter and up 44% from a year ago. Second, the board authorized an increase to our repurchase program by 2 million shares, or 5% of the outstanding shares. We're also pleased to see positive momentum in our non-interest revenue sources, and these include our SBA platform, where we expanded our talent, allowing us to further grow this business line. The origination or originating portfolios of commercial real estate loans held for sale has continued to accelerate, reflecting our disciplined lending philosophy while generating additional non-interest income. And lastly, BowFly, our fintech subsidiary, continues to build momentum as it realizes the benefits of the investments we made. We're generating more traffic through its proprietary product, BeVerify, and the patented BeQual, We also continue to scale and extend their competitive position amongst franchisors while continuing to support the banks who benefit from the loan market. We look forward to further growth both horizontally and vertically from both lines. The disruption in the M&A market and our markets continues to present numerous opportunities which we're taking advantage of. We're attracting high-performing talents who are seeking us out for the opportunity to join a growth-oriented, client-focused culture with a proven ability to execute. For that end, we've enhanced our competitive position within New York with the recent addition of a seasoned lending team in eastern Long Island. This allows us to further extend our reach and capability while strengthening our position as a New York metro bank. We're also excited to provide some details regarding the addition of a banking team in South Florida. This is a natural progression for Connect One's relationship-focused model, allowing us to further support our New York Metro-based clients who already have a presence in this market. Additionally, the commercial and small business community in South Florida is very dynamic, and we're seeing meaningful opportunities to couple our team's local expertise with the Connect One model to this growing marketplace. We plan to open our permanent office there in the early part of 2022 and look forward to sharing that update along with the progress of our team in the coming months. By the way, anyone interested in joining the Connect One team, we're still hiring in all of our markets. So come join us. So as expected, expenses were up sequentially, reflecting our recognition and our best in class team, the addition of new talent and the continued investments in our infrastructure and technology. And I'd like to reinforce that our industry-leading efficiency ratio is a direct indicator of our ability to enhance revenue growth while continuously building our operational capabilities. In other words, bringing in more revenue supports more in the areas such as operations, credit, BSA, and compliance. I just wanted to reiterate this is an exciting time for Connect One, and I'm pleased with the groundwork that we're laying for our long-term success. I'll now turn it over to Bill to provide a little more detail on this quarter's financial performance. Bill? Okay.
spk09: Thank you, Frank, and good morning, everyone. It was another great quarter for ConnectOne, and I am happy to report that we are finally getting some recognition in terms of stock price performance. The stock price is up recently about 10% more than our peers, but I still believe we're undervalued. I base that view on our current earnings, our expected growth rate, and our strategic plans to capitalize on this evolving financial services industry. And as you saw in today's release, we announced a couple of capital actions. First, we raised our dividend again the second time this year by another two cents. Naturally, this reflects the board's confidence in our future earnings, but also reflects the fact that our dividend payout ratio is very low and a bit out of step with the peer group. And even with this increase, the payout ratio is below 20%. So there is room for more increases in the future. Now, we are aware of the differing views out there on dividends, but all things considered, we think this move makes sense given our strong profitability and high return on tangible common equity. Secondly, our board just upped our stock repurchase authority by 2 million shares, or about 5% of outstanding shares. The non-cumulative preferred we just issued in August gave us added flexibility to establish a large repurchase plan. Capital ratios are strong. And the target levels there are based on a host of factors. Those include growth, earnings estimates, as well as considerations for risk. But we presently have a cushion. Going forward, we're going to take into consideration these factors as well as our valuation on any given day. But bottom line, we stand ready to be aggressive when the timing is right. So now in terms of our core profitability for the quarter, as Frank was talking to, our PPNR increased significantly, both sequentially by 7% and from a year ago by 17%. 2.23% of assets. That's a very, very strong metric. You know, I was happy when we were over 2% five quarters ago, and since then we've increased that metric every quarter. The main driver of the increase this time was net interest income growth, which we achieved through a combination of strong loan originations and margin expansion. Average loans grew at an annualized rate of 13%, which includes a negative impact of PPP forgiveness. So if you exclude the PPP, Our loan portfolio grew at an annualized rate in excess of 20%. And then our margin, it widened by more than 10 basis points at 373. And let me give you some color there. We continue to see improvement in both our cost of funds and deposit mix as CDs reprice. We continue to grow core deposits. Meanwhile, you know, the match funded spread originations remains favorable, I'd say, above 3%. However, the margin for the quarter was aided by two non-core items. One was an acceleration of PPP fee accretion due to faster than expected forgiveness. That added about an extra $1 million to the quarter's net income. And the other was the recovery of back interest we collected upon the resolution of a non-accrual loan. That was another $600,000. I just want to make one more point on the PPP. I think there is a misconception that PPP is adding to margin on a recurring basis. PPP loan yields typically average below $325 per quarter as they run off. We more than make up for it with new originations. What happened this quarter is we needed to accelerate the creation of fees, which temporarily increased the yield on this small portfolio for the quarter. So without those items I just mentioned, the core margin was still wider, but probably just a few basis points, not the 10 basis points on a GAAP basis. Let me get some color on non-interest income. The non-interest income line was down slightly sequentially as the second quarter included some non-recovering PPP referral income coming out of Beaufly. However, the underlying trend for core non-interest income was positive across the board. Frank mentioned this as well. Our SBA lending initiative continues to accelerate. CRE loan sales continue to hold pace and the outlook is for continued momentum. We have more and more smaller banks lacking the original capability of Connect One. And at Bowfly, we're seeing accelerating traffic and traction driving increased core revenues from that platform. Let me turn to OpEx. For the quarter, our efficiency ratio remained at a sub-40% level, and that was even with operating expenses increasing by 7% sequentially, as was anticipated as I alerted you to this on last quarter's earnings call. Most of the increase was related to the hiring, along with experienced support staff. The staff count was up 5% from our quarter. This investment will support our continued organic growth. And like others, we too are feeling the effects of wage inflation. But whether or not wage inflation pressures continue, we will continue to reward our employees with superior individual performance. And we want them to share in the overall success of Connect One. Now a little on credit metrics. Overall, underlying credit quality remains strong. We did have a slight uptick in non-accruals and TDRs. That non-accrual increase was largely due to two isolated credits that we have deemed to be impaired, but they are not delinquent. They are current. And my expectation is that the aggregate non-accruals will decrease over the next couple of quarters. On to TDRs, those increased as expected, and I did mention it last earnings call. These included a small handful of loans that were deferred under the CARES Act. and are better served going forward with slightly relaxed terms. They are now performing under restructured terms. And speaking of deferred loans, that total is now down to just 10 loans, aggregating just $10 million. As far as loan loss provisioning, many banks are still releasing reserves, while we have a small group adding. We had significant non-PPP loan growth, and that was the driving factor for the very modest provision of $1 million for the quarter. Let me get into some guidance that I feel comfortable giving you guys. Loan pipeline remains strong, so the fourth quarter is likely to be similar to the past two quarters in terms of loan growth. I think it's a little early to project 2022, and I expect things to slow down a bit, but we still feel comfortable with approximately 10% growth rate next year, maybe a little more, maybe a little less. The core margin this quarter was in the 360 to 365 range, and I expect some compression from that level, maybe a few basis points per quarter. In terms of expense growth, we might see just a modest uptick for the rest of this year, not as big as the sequential increase we had this quarter. Next year could be more challenging. The labor markets are tight. There is wage inflation, but we will continue to invest in our people, technology, and our overall infrastructure. I definitely think a 40% efficiency ratio is certainly achievable. We hope we can do a little better than that. And then finally, just with regard to the tax rate, a little bit higher than the street had estimated. Just given the increased level of taxable income and our expected growth, I do see the tax rate increasing modestly over time. And before we get to questions, I'll turn it back over to Frank for closing comments.
spk02: Thanks, Bill. You know, we have a solid foundation and we're looking forward to building the next chapter of our company here. There's never been a more exciting time to be at Connect One. We're in a unique place because of the market in which we operate, the position of our balance sheet for enhanced scale, and the opportunities to utilize digital tools to grow efficiently. Our strong earnings power, coupled with our enhanced capital position, allows us to execute on a multitude of strategic initiatives. The potential for our FinTech subsidiary, BowFly, is exciting as we see opportunity for growth across a number of verticals. And finally, we're a dynamic, highly valuable franchise, and we continue to explore financially attractive opportunities that could enhance our organic momentum on both the traditional bank side and in other financial services. So as you can see, we're very excited about our future. We're pressing forward in expanding our client-first model and we remain confident in our ability to drive value for our shareholders, our team, and for our clients. And with that, we're happy to take your questions. Operator?
spk07: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation cell will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Frank Chiraldi with Piper Sandler. Please proceed.
spk04: Morning. I wanted to ask about the Florida team, and I just wondered if you could share, you know, what sort of balances you have on the books currently in that geography, and then Frank, I think you mentioned an office down there or opening an office down there. Is that are you talking a full service branch or what are your longer term plans for that geography?
spk02: Sure, Frank. Up to today, we have about $100 million in footings in Florida that we've accumulated over the last couple of years as our clients have seen Florida as I like to call it the sixth borough of New York. So And we see that building over time. The team that we've hired there will occupy what we've been building for the last number of years here, which is a full-service office. You know, generally these are not retail-type locations, but they're more for the promotion of good business development officers, but will have full branch and deposit-taking capability.
spk04: Okay. And, you know, as you see, you know, Florida has a, in terms of the rate of growth, a better rate of growth than up here in the Northeast. So just wondering how you think percentage-wise that could trend. And is there any interest in maybe acquiring something down there?
spk02: You know, hard for me to say at this point in time. We are looking at that Florida market, and I think we'll continue to look at it. more through the lens of what our clients are thinking here in New York. Florida, because of the convenience of getting there, the favorable tax status has really attracted a lot of our top-name developers and real estate folks and even other commercial business enterprises to open either offices or put some capital into that marketplace. So we'll be following that. And I think that'll be leading the charge for us as to where we are, how big that gets, and how much of that winds up here at Connect One. While we're there, I think we also see that there are opportunities to grow. There are a number of interesting types of businesses and other opportunities within and around that same marketplace. you know, that growth could be accelerated a little bit by, you know, what we find once we're there. But I think it's going to be led mostly by, you know, what the clients that we have. And, you know, through COVID, we've seen that a lot of our clients now are, I know we keep using these words, mobile, remote, whatever, but our clients are no longer geographically anchored. And so they're starting and capital is starting to find its way into places that in different ways, and I think we needed to think about that in the same way. And so we're pretty excited about the opportunity. The bankers that we've been able to hire there were hired from organizations that resembled us that may have been acquired, and now those folks feel disenfranchised, you know, working at much bigger organizations. And so being able to join the Connect One team has been a big plus for them. Relative to acquisitions, I think it's a little early to talk about that. Obviously, if something made a lot of sense, we'd consider it. And, you know, that outlook relative to, you know, the acquisitions that we might look at may be a little bit different today than it was a couple years ago.
spk04: Gotcha. Okay. And then just lastly, Bill, on the buyback, you know, the additional authorization, does this signal maybe a pickup in activity or is it still more opportunistic just given your growth opportunities organically?
spk09: Yeah, I think we're going to, this is Bill, I think we're going to be opportunistic there, watch the level of growth, going to remain active and how aggressive we are will depend on a bunch of things including growth as well as what the share price is.
spk04: So, with the given growth particularly strong right now, is it fair to say the levels we saw in this quarter might be a reasonable place to think about buybacks?
spk09: You could say that. One of the reasons for the preferred issue was to give us more flexibility on buying back common. So it depends. If that's what you want to use for your model, that's fine. It could be a little more aggressive than that.
spk04: Gotcha.
spk09: And we still think the stock is cheap here.
spk08: Okay. All right. Great. Thank you. Our next question is from Michael Perito with KBW. Please proceed. Hey, good morning.
spk03: Thanks for taking my questions.
spk08: Morning, Michael.
spk03: Hi. Sorry if I missed it, but did you guys say where in South Florida the office you were planning to open is going to be? Just out of curiosity.
spk02: Yeah, it'll be in the west.
spk03: I'm sorry. I don't know if it was just my phone, but you broke up there a little bit, Frank. What was that?
spk02: West Palm Beach area.
spk03: Got it. Okay. And then in terms of the loan growth outlook, Bill, you know, you mentioned still comfortable with kind of the 10% plus or minus next year. So don't want to kind of push too hard on it, but it seems like there's quite a few tailwinds at your back here. I guess, is there is that more just conservatism? And, you know, obviously, it's hard to have line to site on the pipeline that far out. Or are there other kind of dynamics in the marketplace that you think could could slow down the production that you guys have seen the last couple of quarters and seemingly expect to continue into next quarter?
spk08: Mike, maybe I'll say a couple of words and maybe Bill will add to it.
spk02: But, you know, certainly we have a strong pipeline sitting here today, and I think we are taking advantage of a lot of the opportunities that have built up in the marketplace here in 2021. But when we look ahead, while we see a strong pipeline, there's a lot of headwinds out there. The economy in general could possibly, you know, slow down. We're seeing signs of that already. A lot of the pent up demand that existed in the New York marketplace is beginning to wane a little bit. Really, if you could tell me what's going to happen with interest rates, maybe we could talk a little bit more about. There are those who think interest rates will definitely rise, which will definitely tamp down some of the interest in various markets. If you think interest rates are going to remain low, then I would tell you there's going to be fierce competition for assets. So there's just a lot that when we sit here, can we sustain 5% per quarter growth? The answer is probably not. And we would probably be happier, especially with our disciplined approach. Keep in mind, we're not just having growth for growth's sake. We're putting growth on while being disciplined around margin spread and credit quality. And so therefore, we just don't see, as we look out over the horizon into 2022, being able to get higher than probably single digit, high single digit, and possibly break double digits for the year of 2022. Now, we could be wrong in either direction. But we think that's probably the most reasonable assessment based on what we know today. And it's going to take everything that we're doing at this moment in time, and I think that's why Bill talks a little bit more about the expense growth, to achieve even that level of growth, which you may think is conservative, is going to take everything we have, including bringing on new lenders, new markets, new products and services, I think, to achieve that. I hope we're wrong, and I hope we're sitting here a year from now, you know, sort of laughing about how we underestimated it. But I think to be realistic about it, when you think about what the numbers are, the amount of payoffs, what's happening with interest rates, and what's really going on in our marketplace, I think we'd be very pleased to be able to hit that level of target.
spk03: Makes sense. Thanks for that additional color. And then it kind of leads into my last question, which is just, nothing major, but we saw a couple, there's been a handful of banks in the Metro New York area this quarter where we've seen some upticks on non-accruals or delinquencies or things like that. I know personally, we've started going back into the office a little bit, still a lot of vacant buildings, but definitely some more activity. And I was curious if you could just give I mean, you kind of, you sort of did in your prior answer, but just maybe a little bit more credit specific update on the Metro New York area. And if you're seeing any trends or anything that's like kind of more, has you more alert than maybe three or six months ago?
spk09: Listen, I think there's had to be some fallout from the pandemic. I mean, you know, a year and a half ago, we all were really nervous and we're in a much, much better place. So there are just select areas, select credits where there is some, you know, impairment going on. We've run into a couple of those. We're taking care of them. You know, even the charge off that we had this quarter, that slight charge off, we got us 10 basis points. We already had taken a reserve for it. So I think we're, you know, well ahead of the curve on it. But any bank that says they don't have any issues from the pandemic, I just can't believe it. So, you know, we've taken reserves well in excess of anything that we need.
spk03: Great. Thank you, guys.
spk08: I appreciate the insights. Great, Michael. Our next question is from Matthew Brees with Stevens.
spk07: Please proceed.
spk05: Good morning. Good morning, Matt. Hi, Matt. A few questions. Maybe first, could you give us an idea of where incremental loan yields are coming on versus what's on the books, particularly in kind of commercial real estate, multifamily, and CNI?
spk09: The blended rate excluding any fees associated with is about 375. So that's pretty strong, my view, yeah.
spk05: Okay. And then, you know, Bill, I appreciate the NIM guidance. It's been a tough one to model during the cycle because of fluctuations in liquidity for the industry, not just yourselves. Can we maybe try to hone in the guide on NII versus NIM? I mean, year to date, you're up about 10%. Do you feel like The pace of NAI growth can mimic what you're seeing on loan growth from here. Maybe give us some color there.
spk09: Well, I think the growth is going to surpass the margin compression. So we'll continue to have increases in net interest income. But if you have margin compression, that's going to put a little bit of a damper on net interest income growth. Now, I keep saying we're going to have compression, and we don't. We continue to reprice CDs lower, and we'll continue to benefit from that. But if you add up our spreads, which include match funding and include the value of core deposits increasing, it's still a little bit lower than our core margin. So when I look at that, that's how I come up with my estimate of a few basis points per quarter on a core margin compressing. For any given quarter, you're right, it's very hard to assess. There's still prepayments. fluctuating. PPP income accretion is not consistent all the time. And then, of course, for all banks, less so for Connect One, you know, excess cash is all over the place. But look, we pride ourselves on keeping a stable margin. And, you know, we continue to focus on that. And as Frank was alluding to before about loan growth, you know, yeah, we can grow loans at 20 percent if we cut our rates but we're going to be disciplined and make sure the margin on new loans is appropriate to maintain the margin where it is, and that could keep our loan growth at just a 10% level, which is not bad.
spk05: Understood. Okay. And then just on the hiring front, obviously there's a lot of your key competitors involved in deals now or recently have been. Can you just talk about the conversation flow on new lenders, new lending teams, and hires? Have those conversations accelerated or decelerated? And then along those same lines, does all this disruption and change, you know, does it change where whole bank M&A stacks up on your priority list?
spk02: So I'll take the first question first, which is I think the conversations, I would say they've modestly increased over time, although this year it's been dramatically more than in years past. We've talked about this the last couple of calls where we think we're in a fairly unique marketplace relative to the amount of M&A activity that's going on specific to our organization, meaning for a bank our size with our capabilities and the types of talent we're looking to hire, we feel this is sort of a unique time. Most of the talent that's reaching out to us is at organizations where they felt that they had a really good thing going and now are not so confident in the future going forward. They've learned about the culture here at Connect One or they've come in contact with it because they've competed with us in the past. And when they made a decision about where they think they want to go, one of the first places they're calling is Connect One. So I think those conversations are modestly accelerating. I know there's inbound calls here all the time. We continue to interview and place people. Growing our staff 5% in one quarter is not typical here at Connect One Bank, so we're clearly taking advantage of those increased phone calls, and we expect that to continue over the short to moderate near term. Look, I think that's great, and these are great folks. They fit right in here at Connect One, and they've been making a difference from the moment they hit the ground. You know, as far as how do we think about M&A, I really think we've always thought about it this way. We've always projected the company as an organic growth or organic first growth company, and to me, that's the best way to create value. It's the best way to maintain our culture, which is the thing that scares me the most. How do we do all these things and still maintain who we are and what we do and how we do it? But that being said, I think we've done some pretty good discussions that have allowed us to leapfrog in size, scale, and in some cases capability. And so those opportunities I think are still out there, but Matt, I think the point you're trying to make is, yeah, it's hard. You know, we do have to put it up against that to say, you know, where do we want to put our efforts? How do we want to deploy our capital and what makes sense? And I think we say over and over again, we're a disciplined acquirer. And I think that's true. Again, all that being said, we're going to do things that we think make sense here at Connect One. And I think that's why we are where we are today with probably some of the best metrics we've ever had in our history.
spk05: Great. Appreciate that. Just two more for me. So the first one is how many lenders are part of the South Florida team? And is this team native to Florida or are they planted from somewhere or are they coming from somewhere else?
spk02: Yeah, this is a team that originally was at Stonegate, which is a bank we had a lot of, you know, a lot of respect for. There's two lenders there today together with a support team. And we expect to add to that team over the over the course of time. Okay.
spk05: And the other one is, you know, obviously throughout history, there's been a lot of banks that have made the jump from Metro New York City in the Northeast to Florida. Some of these jumps have gone really well. Others have gone, you know, not so well. Can you talk a bit about the demographic trends in Florida this cycle and what gives you confidence about what's going on down there that you can underwrite to the same high credit standards that you do in New York City and things can go well?
spk02: So, you know, I certainly... sat among the folks who years ago did not or could not understand making the leap from New York to Florida, and maybe I didn't see it early enough. So Matt, I share the skepticism relative to can this work, will it work? It's worked for some, maybe hasn't worked for others. History would tell us moving out of geographic markets may or may not be a good move for some organizations. But when I really start to think about, and all of us here start to sit with our clients and listen to what they're doing and why they're doing it and how they're thinking about their businesses, I actually started to think about Florida not as an offensive move, but almost a defensive move. We have clients that are devoting a fair amount of their capital to the Florida marketplace because of demographic trends, because of tax scenarios, because of the growth in that marketplace. And there are quite a number of New York banks or New York located banks that have presence in Florida. And as we all know, I mean, everybody around, all 5,000 banks today can do business in Florida. There's really no more geographic boundary around where a bank can do business or not, especially in this new digital age. And so I started to think about our clients going to Florida, having to go to a different bank to do business there, and that bank would have exposure to New York. And so we'd have competition from Florida for our New York business. And so from our perspective, I don't want to say it was just as easy as going to Long Island from New Jersey, but it's almost that simple a decision in a relative story. There's no place else in the country that looks like that to us at this moment in time. There is clearly a very strong connection between the New York City market and the southeastern part of Florida, from Miami up to Palm Beach County. And so from our perspective, you know, this just made perfect sense.
spk05: Understood. I appreciate all that color. That's all I had. Thank you.
spk07: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate that your line is in the queue.
spk08: Our next question is from David Bishop with Seaport Research Partners. Please proceed.
spk06: David Bishop Hey, good morning, gentlemen. David Bishop Good morning, David. David Bishop Hey, most of my questions have been asked and answered. But, Bill, I think you alluded to the fact that there could be some opportunities still to lower deposit costs maybe on the CD front. Maybe give us an update what the repricing schedule, maturity schedule looks like and the cost benefit from what's rolling off in current rates?
spk09: Yeah, it's still another $800 million over the next year. The benefit of the rate, about 100 basis points benefit. About 100 basis points benefit. So still continuing, not as steep as it was.
spk06: Got it. Then maybe, Frank, obviously another strong quarter for multifamily, maybe just update what you're seeing in that mark in terms of supply and demand and pricing opportunities on that product?
spk02: Yeah, I think it was a strong quarter for multifamily. I think a lot of that had to do with some very specific opportunities in the marketplace. You know, some organizations out there that are competitors also had big pipelines of multifamily, couldn't get deals done on time. And so we saw a little bit of an advantage from that, being able to execute better than maybe some of the competitors that had their pipelines clogged up. I do think the multifamily space is still a strong asset here in the New York petromarket. Rents have definitely rebounded from their lows. There are now bidding wars over rents at particular sites. But it's still a very tricky asset relative to pricing, competition, and really knowing where the asset's located and having a great relationship with the operator. For those operators and managers that we have an ongoing and longstanding relationship with, we're continuing to support those folks. They're seeing some opportunities. Some are finding that the market's getting overheated in certain places, and so they're deciding not to participate in particular areas. Others are moving more quickly into areas where they think opportunities exist, and we're there to support them. I think it's one of the reasons why I said before, I do think there are some headwinds as we start to move into the early part of next year with potentially rising interest rates and just a quite hot or maybe even in some cases, overheated market as we move into the end of this year. So I think we need to keep a close eye on that entire portfolio. Not so much the portfolio, but the pipeline that's going into that portfolio over the next quarter or two.
spk09: Yeah, just to add, you know, the yield, including fees, is in the 325 to 350 range. So, you know, the spreads are a little narrower than our other lines of, other segments of our loan portfolio, but still, wider than the tightest it's ever been in the multifamily market.
spk06: Got it. And then one final question, Bill. I don't know any color you can provide on the, I think you mentioned two credits. Joe, the increase of the non-recruits, maybe any sort of color in terms of segments and maybe what sort of collaterals behind that. Thanks.
spk09: Those were commercial real estate deals, as I told you. We deem them to be impaired based on the values of the properties, but we expect them to, well, they're current and they continue to pay, but we decided to take a conservative approach and put them on non-accrual.
spk08: Great, thank you. Thank you.
spk07: Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to management for any closing remarks.
spk02: Well, I just want to say thank you to everyone. This was a great quarter here at Connect One, and we look forward to speaking to you at the end of the year, or actually in the beginning of next year. So thank you all for your time today.
spk07: This concludes today's conference. You may disconnect your lines at this time. Thank you very much for your participation, and have a great day.
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