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spk04: Greetings and welcome to the Connect One Bancorp, Inc. second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief 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. And as a reminder, this conference call is being recorded. It is now my pleasure to introduce Sia Vanzia, Chief Brand and Innovation Officer. Thank you, Sia. You may begin.
spk02: Good morning and welcome to today's conference call to review Connect One's results for the second quarter of 2022 and to update you on recent developments. On today's conference call will be Frank Sorrentino, Chairman and Chief Executive Officer, and Bill Burns, Senior 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. 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 be also 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. I will now turn the call over to Frank Sergentino. Frank, please go ahead.
spk05: Thank you, Sia, and good morning, everyone. We appreciate you joining us here today. I thought before getting started that I'd like to take a moment to review our longer-term track record, which, of course, we are very proud of. Connect One's performance metrics are consistently top tier in the industry. Our net interest margin has expanded since the early stages of the pandemic. Excuse me. Our net interest margin expanded since the early stages of the pandemic versus contraction for most of the industry. Our tangible book value per share continues to increase now for the ninth straight quarter, reflecting our core profitability and sound balance sheet management. our organic growth has consistently been above 10 percent. We've expanded both geographically and through new verticals, and we've remained disciplined to our commercial banking business model and focus on the lines of business where Connect One has expertise and competitive advantages. We augmented our organic growth with opportunistic value-enhancing M&A, and our fintech acquisition, Bowfly, is gaining momentum and is poised to create significant value. Our client-first tech-forward culture has led to strong performance and increased market share through various business cycles. And finally, in our view, with our track record of success, we are and remain a very compelling investment opportunity. With that, we're exceedingly pleased with ConnectOne's all-around performance in the second quarter, highlighted by significant organic balance sheet growth and continued record performance metrics. Annualized loan growth was 17%, while non-interest-bearing demand grew by an annualized 20%. Our PPNR as a percent of assets was 2.28%, exceeding 2% for the eighth consecutive quarter. Return on assets was in excess of 1.5%, and return on tangible common equity was in excess of 15%. Our net interest margin has continued to expand, and our efficiency ratio remains below 40%. And finally, our tangible book value increased again this quarter to almost $21 a share. These results are a testament to the success of our client-centric culture and relationship-focused origination franchise. The investments we continue to make in our team, infrastructure, and digitization are paying dividends as we, again, saw record loan fundings this quarter. We continue double-digit Our continued double-digit growth illustrates both the strength and the diversification in the markets we serve, bolstered by recent acceleration of hires, the lifting of teams, and expansion of our geographic reach. Origination metrics were favorable. Weighted average origination yields were in excess of 4.75 percent, and that number is now well in excess of 5 percent heading into the third quarter. Credit metrics were sound, strong LTVs, and conservative debt service coverage ratios, reflecting very conservative underwriting. This quarter's growth was higher than we initially guided, but it does not come as a complete surprise to us. We had a robust pipeline entering the quarter. Long growth across the industry is up. Our originations were diverse, spread amongst all segments and markets. And notably, CNI growth gained momentum this quarter, with additional synergies driven through Beaufly. Looking ahead, the loan pipeline remains strong with increasing spreads and rates. Our Florida team's success also exemplified that Connect One's relationship-focused model can be a clear differentiator in these other markets. We're seeing continued strong loan demand and core deposit growth there with the aggregate loan and deposit origination projected to be upwards of $200 million by year end. And with the hiring of additional staff and the opening of our permanent office in West Palm, we expect even further momentum. Turning to deposits, we expect competition to continue to increase. However, Connect One is well positioned to adapt to changing market dynamics. Our client-focused model has a proven record of generating core deposits to keep pace with loan growth. We also have a number of tech initiatives that are geared toward augmenting that deposit growth. To that end, we're excited to announce a partnership with Mantle to enhance the bank's deposit origination platform. This partnership allows us to leverage technology to expand our reach in supporting consumer, small business, and commercial clients while optimizing our workflows. Each of these improvements allow Connect One to build frictionless client experiences and processes that support continued scale and efficiency. As a reminder, last quarter, we announced a partnership with Nimbus to launch a new B2B vertical on the Nimbus platform. This partnership provides Connect One the opportunity to expand into new business verticals while leveraging lean and nimble cloud-based tools, and ultimately create a new avenue to drive deposits. Implementation has begun on both these fronts, and you can expect to hear more about this at the end of the year. On to Bowfly, our fintech subsidiary, which continues to shine. The platform continues to generate non-interest income and fees and revenues growing as franchisor adoption is running strong. The franchisee market is ripe with opportunities, and we continue to explore avenues to expand that platform. Under the leadership of Mike Rosman, Bowfly has not only expanded its core business, it has also helped spawn new verticals within Connect One. Our SBA unit is now generating respectable volumes. And our franchise lending group is seeing great deal flow. And the franchisor lending opportunities are providing high-quality clients to the bank. Expect to hear more about this as the year progresses. Shifting to the macro environment, we're certainly conscious of the possibility of a potential recession, which may lead to some loan stress across the industry. Just want to remind everyone we operate in some of the strongest markets in the country, and so far our clients appear to be in sound financial condition. Overall, non-performing assets and delinquencies at Connect One remain low, and we have very limited exposure to consumer business lines, which may be more susceptible to the recent market dynamics. Before I turn it over to Bill, let me just mention, that we continue to attract top talent to bolster bench strength across all lines at Connect One. Capitalizing on M&A disruption, we've been very successful in adding staff in all areas of the company. Connect One continues to be a top choice for displaced, experienced bankers, and we're building for the future across all of our markets.
spk07: So with that, let me now turn it over to Bill. All right. Thank you, Frank. Good morning, everyone. I also would like to say a few words before getting started. and I wanted to address head-on what are probably the two most important factors currently depressing bank stocks, including our own. First and foremost is the possibility of a recession and the resulting potential impact on credit losses. And second, to a lesser degree, is the uncertain impact continued Fed tightening will have on net interest margins. So first, with regard to a potential recession and its impact on Connect One, you know, the credit story at Connect One is excellent. We have a long track record of solid credit performance. We've been able to produce strong organic growth while avoiding hot button industries such as New York City office, hospitality, big box retail, and New York City luxury multifamily. Our construction portfolio is about 10% of the total portfolio. We have a particular expertise here that provides nice returns and losses have been virtually zero. We have immaterial amounts of consumer debt with virtually no second position retail and no credit card exposure. And even our taxi portfolio is now expected to generate recoveries. We are well-reserved under CECL with healthy level of total coverage. And our deep commercial origination franchise allows us to generate meaningful growth without reaching on credit pricing or terms. So all in all, we believe we're in a solid position to withstand an economic downturn. And that takes me to the net interest margin for Connect One. The second quarter reflected record high net interest margin. It eclipsed 3.9%. Included in that 3.90 metric was some extra PPP accretion and some back interest recoveries. So on a core basis, I estimate we were still slightly above 370, still very high by historical and industry standards, and moderately higher from the first quarter on that same basis. Our margin has continued to widen since the early stages of the pandemic, which is remarkable. But I'm even more proud of the fact that it's remained relatively stable, and we attribute that to two things. First, we've been proactive and reactive to anticipated and actual market and competitive rate moves, anticipating rate declines a couple of years ago, then locking in longer-term funding, and along with that, hedges to our AFS portfolio when rates were low. We tend to move quickly when market deposit rates start to change, whether to improve profitability or maintain our market share. And second, and just as important, our strong business development team continues to build a book of business that I believe is generally more valuable on the risk-reward spectrum than most. Our clients are typically willing to pay just a little bit more based on our service and response time, while our non-interest deposit growth remains strong, reflecting a relationship-based approach. So that combination of organic growth and margin stability has led to a very strong performance track record, including PPNR, return on assets and equity, tangible book value per share growth, and along with those metrics, a very low efficiency ratio. Now, in terms of the margin going forward, again, our goal is for stability, and we believe our margin will continue to be relatively stable. Now, just speaking structurally, there are asset-sensitive characteristics on our balance sheet, 20% of the loan book is pure floating. Another 40% is adjustable. It resets at various times over the next three years. And non-interest-bearing deposits have grown and are presently a healthy 26% of total deposits. Now, notwithstanding those positive attributes, there is some deposit beta catch-up going on impacting the entire industry, which is going to quicken the pace of increased funding course. And of course, you have an inverted yield curve. And for however long that lasts, it'll be a challenge for all of us. On a related issue, The performance of Connect One's securities portfolio has been among the best out there. We refrained from buying securities when rates were at the bottom. We hedged what we had, and the result has been just a very, very slight impact to our OCI and tangible book value per share. More recently, we've been buyers of securities that yield in excess of four to 475, and those are now being marked up, not down. So tangible book value share Per share increased once again in the second quarter. It's the ninth consecutive quarter of upward movement, and it's up 10% from a year ago. And by the way, as a result of that, we are now trading at a very low price tangible book, just 1.2 times. We continue to believe we are undervalued. We have the capital strength to retain earnings and continue stock repurchases. Switching gears a little, I just want to emphasize some of Frank's remarks on BowFly. BowFly is bread and butter, which is the referral fees on SBA loans to franchisees. gain modestly as we continue to build our franchisor network. But an additional avenue for growth is in the non-SBA franchisee lending space as well as the franchisor lending space where we're making headway, and that has already contributed to Connect One's increased C&I originations. We're also researching avenues to sell those loans in the secondary market, but either way, they bring value to us. Now let me move on to operating expenses. Adjusting for the final Bowfly earn-out payment, which was $833,000 for the quarter, expenses accelerated a little faster than I had previously guided you. But you should view this as a good thing, as it's all related to plan additions to staff that came on board earlier than expected. Connect One continues to be a top choice for experienced bankers displaced or disillusioned by M&A. We're building for the future in our traditional operating markets as well as in extended geographies. For next quarter, as I said, the both-fly earn-out payments are done, but we do expect to see some more core expense increases, followed by probably a flattening out in the fourth quarter. So we're going to be okay with a slight increase in our efficiency ratio, but I expect that to continue to trend downwards towards the end of the year and into 2023. In terms of loan growth, the pipeline remains strong, and another 5% sequential quarterly growth rate is possible. But with rates rising, we expect a slowdown in the fourth quarter, and that trend is likely to continue for us and the industry into 2023. And with that, I will turn it back over to Frank.
spk05: Thanks, Bill. You know, I have to say I'm extremely proud of all that we accomplished here in the second quarter. We, as a team, continue to leverage the momentum that we've built. We delivered really strong performance, which is truly a testament to the Connect One team, and I mean the entire team, We've built momentum in the technology space, launching several initiatives to create more opportunities for us to enhance our shareholder value and our franchise value. I got to say, I feel really good about where we are and what we have the potential to do. A lot of the work we've done is beginning now to pay dividends, and we've got a lot more runway ahead of us. Our best days certainly lie ahead, and I'm confident we'll navigate any challenges that we encounter along the way. I look forward to updating all of you on continued developments in the third quarter. And with that, we're happy to take your questions.
spk00: Operator?
spk04: Thank you, sir. 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. A confirmation tone will indicate that your line is in the question 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 any star keys. One moment, please, while we poll for any questions. Our first question comes from the line of Frank Chiraldi with Piper Sandler. Please proceed with your question.
spk03: Hey, good morning. It's actually Justin Crowley on for Frank this morning. Good morning. So I just wanted to start. With the strong loan growth in the quarter, you know, the loan-to-deposit ratio is sort of running at the higher end of where you guys have been recently. Could you maybe just provide some commentary on, you know, if this strong loan growth continues, you know, particularly as you alluded to, you know, maybe in the third quarter seeing somewhat of a similar result, sort of the strategies behind, you you know, managing that at this level or below this level, you know, as you think about margin going forward?
spk05: Yeah, sure. Why don't I just start with the, you know, the business part of it, and then maybe Bill could talk a little bit about what's behind that. We've, at ConnectOne, have always operated in the geography above 100% loan-to-deposit ratio, and it's you know, sort of bounced around between 105 and 115 or so. It really depends on which quarter we have stronger loan growth as opposed to others. But generally there's, with the loan growth, there's corresponding deposit growth and sometimes there's timing mismatches. And so that loan to deposit ratio may bounce around a bit. But in general, just about every single relationship that we're onboarding comes with a depository relationship. And we're seeing that in the growth of our non-interest-bearing demand, which is the place that we care about the most. So, and on top of that, this quarter was really interesting to dive into the loan growth because a lot of it came from non-CRE components. CNI was a pretty big percentage this time, and so we are seeing more opportunities for onboarding deposit-rich clients along with their loans, as we've seen in the past. Now, that'll take some time. The balance sheet's big, so it does take time to move any of those metrics. We do monitor this incredibly closely, and we watch for what we're doing. We do price accordingly relative to who brings us deposits and who doesn't. So overall, we're pretty comfortable with where we are. We'd like to see the loan-to-deposit ratio a little bit lower, and we'll be working towards that as we move forward. Bill, maybe?
spk07: Yeah, no, I think, Justin, I think you were suggesting that a higher loan-to-deposit ratio means a lower margin, and I don't necessarily agree with that. The most important thing in terms of funding is building non-interest-bearing demand deposits. We've been doing a good job at that. In terms of the other sources of deposits, there are. you know, more market-based sources of deposits that we can utilize if we want to, or the federal home loan bank. It probably doesn't matter which one. So, and the other aspect of the margin is the rate we're earning on our loans. It continues to go up. I think we average 475 in the quarter. And we're right now, you know, our average loan rate, weighted average loan rate for this month has been over 5%. So all in all, I talk to that, you know, looking for stability in the margin. We've been operating at some of our highest levels. If it goes down a little, it's not going to be too much. And I still think we can drive the returns we've driven before, which includes return on assets of over 1.5 and return on equity over 15%.
spk03: Okay, great. That's helpful. Yeah, no, I guess I was just trying to get a sense for, you know, as you look at that loan to deposit ratio, but changes your thinking on sort of you know, having to pass off these costs to your depositors as far as, you know, rates you're paying. I guess sort of in that vein, could you provide just maybe a little more detail on this new partnership with Mantle and then sort of square that with the Nimbus partnership, what that does on the deposit gathering side, sort of outside from the core banking functionality that I believe Nimbus will also bring?
spk05: Right, so let's start with Nimbus first and work backwards. Nimbus is a new core that we're bringing on for a specific purpose to stand up a particular vertical to service a certain market segment. And so that'll work completely independently, and we're pretty excited about the opportunity there to be able to create a bespoke solution for a particular segment of the marketplace. That really doesn't interact with the whole rest of the Connect One set of relationships that we have or other market segments. Mantle, on the other hand, for all the other business or the vast majority of the business we do here at Connect One, will replace a variety of systems that we have here today in order to onboard new clients and be able to manage the deposit origination product sets, services, the way in which we reach out to clients, the way in which clients can access various products here at Connect One. So it will transform not only the front end, which will make the ability to open an account pretty seamless and within minutes, but it will also dramatically transform the back of the house, and will allow for a lot less friction, a lot less duplication of services, a lot less duplication of data, and better clean data for us to use going forward. So we're really excited about the idea of taking all these variety of things that we've built up over the years and how we open new accounts for folks and really streamline that process, making it so much easier, and especially in light of the fact that we are now in multiple markets. Market expansion is important to us, both geographic and otherwise. And so having a very high end, what we think is the best in the business, high end platform to digitize this entire prospect, as everyone knows, I care a lot about efficiency here and being able to eliminate duplication of services is high on my checklist. So we're pretty excited about what that will bring to us going forward. And that will run the gamut of just about every product that we run here at Connect One.
spk03: Okay, great. I appreciate it. And then just quickly on the buyback, it sounds like you guys are, you know, still view the stock as pretty attractive. We're fairly active in the quarter, you know, following activity in the March quarter. You know, is there anything either on the growth side or just, you know, as far as macroeconomic uncertainty that could, you know, sort of cause you guys to take a step back, you know, as we head into the end of the year as far as repurchases go? Or, you know, does the level, you know, buybacks this quarter, you know, does that sort of make sense here?
spk07: You know, just given the valuation. I think we think we're very undervalued, and it's a good buy at these levels. In terms of capacity, you know, a lot of people were hurt by the, you know, the AOCI hit. We didn't have that. And so we've got a tremendous amount of, you know, return on equity. Our dividend rate, although we've increased it, is still pretty low, and the dividend payout ratio is 20%. So we have capacity to continue to buy back.
spk03: Got it. I'll leave it there. Thank you guys for taking my questions.
spk04: Thank you. Our next question comes from Michael Perito with KBW. Please proceed with your question.
spk06: Hey, good morning, guys. Thanks for taking my question. Hi, good morning, Michael. Obviously, a good kind of good result here, and, you know, Frank, I've kind of been following your public commentary over the last kind of 90 days, and obviously the environment, though, is challenging, you know, just from a credit clarity standpoint. I was curious, though, you know, it sounds like all your borrowers are healthy and there's kind of this perception versus reality gap here where, you know, borrowers seem healthy, but you're seeing kind of retailers start to report some stuff that's concerning. And I'm just curious, as you guys kind of comb through your portfolio, are there any areas where maybe you're more or less concerned or thinking about, you know, maybe deprioritizing growth, whether that be, you know, Kummer for real estate with exposure to kind of consumer discretionary or anything of that nature. Just curious how you guys are thinking about it.
spk05: So, Michael, yes, over the last 90 days, obviously, I've made a lot of commentary about what I think is happening and that, you know, whether or not we're going into a recession is going to wind up being semantics. The business climate is still pretty good. I think consumers still have very strong balance sheets. Businesses have good, strong balance sheets. But the psychology has changed. Everybody's talking about interest rates. Everybody's talking about a slowdown. Everybody's talking about, are we going to have work from home? Or is everyone going to be forced to go back to the office? So there's clearly a change in sentiment around where are we headed? What are we going to look like? I stand firm that, yes, we're going to have a bit of a slowdown. And I don't know if it'll technically be a recession or not. But I think whatever it is, it'll be short-lived. There's more liquidity in the system now than there's ever been before. I've never seen stronger balance sheets than I've ever seen before leading into what is supposed to be a recession. So we're pretty bullish about taking advantage of the opportunities presented to us in this particular market. Now, that being said, we're going to be disciplined and cautious and not just throw darts at anything, but do what we've always done here, If you recall over, I don't know, whatever it is, 17 years of our existence now, we've always done best in turbulent times. And so this, to me, appears to be one of those turbulent times. The sectors that, you know, concern, as you know, we have a very, very small consumer business. So I really have very little concern there that we're going to see any issues. The only sector that we have that I would say has some gray around it to say, hey, what do we think is going to happen, would be our office sector, which is quite small on our balance sheet, is mostly concentrated in New Jersey, and is over 80% personally guaranteed and has good credit-type tenants that occupy the space. That's really the segment that we've watched a lot. We certainly put a lot of detail into our construction portfolio. We actually feel really good about that portfolio going forward. And we actually see opportunities. We've seen a lot of players pull away from that market. And I believe there are some good sponsors out there that still warrant the ability to finance their projects. So those would be the two areas that I'd say, you know, need to be watched the most. One is quite small. For us and the other, we certainly are watching like a hawk.
spk06: Helpful perspective, Frank. Thank you. And then in terms of Bullfly and how that's positioned for this environment, and I don't necessarily mean from a credit perspective because I know most of those loans move elsewhere, right? Just competitively, the SBA secondary market for fixed loans has basically been frozen since the Fed moved at this pace. Are you seeing players pull back? Has there been market share opportunities, or do you expect that to maybe happen but it hasn't happened yet? Or do you think there are maybe some potential challenges if we get into a more challenging environment for the consumer that some of these SBA-type products could slow down from an origination standpoint?
spk05: Yeah, I mean, I think we have seen a little bit of a slowdown within the SBA vertical itself, but we're also seeing lots of opportunities outside of the SBA vertical, as I mentioned in my comments. So, you know, what Bowfly has really been successful at doing for us is expanding other verticals and other areas of concentration for us. So while the core business of Bowfly is and their ability to generate those types of loans may slow a little bit, although I will tell you they keep adding franchisors to the platform, which is incredibly encouraging to us. So we may be slowing down relative to the percentage of pull-through rate on the franchisors we have, but we keep adding more franchisors. So at the end of the day, I do think we're going to continue to grow that core business. But All of these other verticals that are coming off that Mike Rosman has really definitely been able to piece together and put a strategy around all different types of financial needs, including credit, for whether they're SBA, non-SBA, whether they're for the franchisee or the franchisor, is really generating some great opportunities for us. We're at the very early innings here with a lot of those things. As the year goes on, I think we'll be able to report in more detail about some of these developing segments, but we're very bullish about what's happening around that BowFly platform.
spk06: Great. And then just lastly for me, obviously you guys have given a lot of color already on the margin, and I appreciate it. We spent a lot of time over the last year talking about the disruption in your markets and the asset opportunity. I guess just curious if on the deposit side, have you guys seen anything structurally a little different? I mean, it seems like you're outperforming your expectations. Has it been less competitive? Does that have maybe less to do with any M&A disruption or less competitiveness and more to do with just how much liquidity a lot of your peers are sitting with this time versus last time? I'm curious if you can maybe just break that down a little bit more and see if there's anything structurally maybe that might help you guys sustain some of this outperformance.
spk07: Yeah, well, a bunch of all of the things you said are happening right now, and we haven't seen a dramatic rise in our cost of funds, you know, in our, you know, non-disbaring transaction accounts. I think the average rate for last quarter was 38 basis points. At the end of the quarter, it was 45 basis points, so that hasn't moved much, but I do anticipate with all the Fed increases that at some point the beta has to catch up. So, I'm just being cautious about it. We're not seeing too much pressure right now on the core deposit side, but I imagine it's going to come.
spk05: But to answer the other part of your question, Michael, I think there's still a lot of competition in the marketplace today. It's not like it disappeared, but it has changed. There's different competitors now. The types of business has changed a bit. I would say in some places we have better competitive advantages and other places it's getting tougher. The one thing that is helping us a bit and where we do feel we're gaining on the competition is, you know, in our CNI platform. As you know, we've been building that for the last eight years. and it's really gotten some momentum recently, and we have made some really great hires in that space over the last 12 to 18 months, and some of that stuff is really starting to pay dividends today, and we're seeing it. Our DDA percentage is now at a record here for Connect One. We still think it's too low for us. We want it to go higher, and I think we'll make progress on that over time. Obviously, that number jumps around a bit, but we're seeing the progress we want to see in those particular areas. You know, notably, this is the first quarter that our multifamily exposure actually declined a little bit, while CNI, you know, sort of bolted ahead. So all the transitions we're making are actually showing up in the numbers, so it's not just a story. It's a story with some facts behind it.
spk06: Great. Thank you, guys, for the call. I appreciate it.
spk00: Thanks, Michael.
spk04: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. You may press star 2 if you would like to remove your question from the queue. Our next question comes from the line of Matthew Brees with Stevens. Please proceed with your question.
spk01: Hey, good morning. You talked a little bit about recession fears. I'm also focused on higher interest rates and cap rates. I guess it's part and parcel. I'm just curious whether you're seeing any sort of valuation deterioration across commercial real estate multifamily as a result of higher cap rates. And then secondly, in regards to the recession fear commentary, have you changed how you're underwriting at all to reflect the weakened environment, whether it's more cash up front, personal guarantees, that sort of thing?
spk05: So what I would say to that, Matt, is we constantly look over our portfolio and monitor what's happening in the various segments relative to our multifamily portfolio. If you recall, we're very much debt service constrained. And when we underwrite these transactions, so typically from an LTV basis, they're quite low. I think our portfolio was in the high 50s or just under 60% from an LTV perspective. And I think if you were to stress any of the assets that are in our portfolio today with higher interest rates, you would see, because we did that when we underwrote them, that they would pass the test in the current market that we see ourselves in today. Keep in mind, even with the 75 basis point move yesterday, the 10-year fell. So there are still banks out there that are providing and there are insurance companies and Fannie Freddie and whatever. You can still get a loan for a multifamily with a four handle on it today. So for the most part, that portfolio is pretty sound. And I think it'll remain pretty sound going forward. A new project or a new opportunity that comes in the door today might have slightly different challenges. And the cap rates that we would apply to that would be higher. And so there are a lot more deals that fall out. We put a lot of emphasis on that type of stress testing, especially in our construction portfolio, because projects that start today probably aren't going to be completed and or online for the next 18 to 24 months. And so we have to make some guess as to what we think interest rates will be at that time and what the cap rate needs to be at that time for that project to be successful. We have definitely seen where we have conversations with developers, and after our conversation with them, they've shelved the project for the time being and are waiting to see where things actually shake out. So if that's your definition of changing our lending standards, I would say, yes, we're guilty, and yes, we do that. I would tell you, though, our loan policy hasn't changed a bit. We've always maintained that we have a disciplined and conservative approach to all our underwriting. especially in the construction segment. And I think it's doing what it's supposed to do. It's not allowing for certain projects which are on the borderline to go through. We are on the flip side of that, though. I will tell you that the projects that are successful and that we do wind up financing, we are seeing developers with a lot of liquidity on their balance sheets. I have never seen in the run up to any sort of recession the amount of strength on developers' or borrowers' balance sheets, as I'm seeing today. And so for the deals that we do decide we want to do, we're pretty comfortable that they have the means, irrespective of whatever happens in the interest rate environment.
spk01: Got it. I appreciate all that. You know, Bill, maybe turning to your commentary around NIM stability, I just want to clarify that, just make sure we're on the same page. You're defining stability off the core NIM around 370 versus the all-in that was a notch higher. And then last one, you know, Frank, I got to pull on the string a bit more, you know, BowFly plus a more robust SBA platform, plus other tech capabilities. And it sounds like you have a great leader in place. Just talk to us a bit about the ultimate vision here, what the fee income or loan growth opportunities are, the extent, you know, this can help the bottom line. You mentioned that it's spawning new verticals. Curious what those are. I mean, you know, we've been talking about Bowfly for quite some time now. And yet, you know, if someone were to press me on the bottom line impact from Bowfly, I'd have a tough time articulating that. Should we expect a more material benefit from this and over what time?
spk05: Yeah. As I've indicated, for the last couple of quarters, I said by year end, I think we'd be in a position where we could start to develop a model around what BowFly is contributing to Connect One, both from its core business and from the other verticals that it's helping us to build. And I think we're on track to be able to do that. Whether it's the fourth quarter or the first quarter of next year, we should be able to lay out both lie almost as an individual entity and what it is truly contributing from a financial perspective. Right now, there's lots of overlaps. We're, you know, in the testing phase on a lot of different products. So we're, you know, tepidly launching them and doing a lot all at the same time. I think that'll all come into clear focus. It's already beginning to do that. We're beginning to see that. But I think more toward the end of the year, we will be able to speak more about the Beaufly unit itself and what does it actually present from a financial perspective. All I'm trying to say or do right now is say that the things that we are putting forth today are producing benefits maybe not to the net profitability of the company, but they're definitely producing benefits. We're hiring people, we're building out these different segments, and we will see a financial benefit from it. I know it's been somewhat of a long journey, but not really. It's only really, I think both lie basically from the end of the pandemic, because when we bought the company, we were rebuilding their platform. They were ramping up a little bit and then we got hit with Bowfly. So I'm sorry, we got hit with the pandemic, which then turned the company completely into a PPP machine. And it wasn't until after that was over that we really started to refocus on the things we're talking about today. So it's really only been a year, 18 months that we've been developing these various lines around Bowfly. And all I can tell you is I am pretty optimistic about Mike Rosman, his team there, what he's building, and how that's going to turn into a pretty much a complete financial services company that would rival any bank. And we're excited about that.
spk01: Great to hear. I look forward to learning more towards the end of the year. That's all I had. Thanks for taking my questions.
spk05: Thanks, Matt. Thanks, Matt.
spk04: Thank you. At this time, we have reached the end of the question and answer session, and I would now like to turn the floor back over to management for any closing remarks.
spk05: Well, thank you, and thank you for all those great questions. I really appreciate everyone joining us for our second quarter conference call, and we look forward to speaking to you again. I hope everybody has a great summer, and thank you. We'll see you in the third quarter.
spk04: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
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