ConnectOne Bancorp, Inc. (NASDAQ:CNOB) Q4 2022 Earnings Call Transcript

Matthew Breese: As you’re underwriting new real estate, how have cap rates changed or trended and debt service coverage ratio has changed or trended. And I feel like you’re alluding to there might be some different kind of performance change or MPA increase here, I’m just not quite sure where it is, is it on the valuation reset or the fundamentals of the property?

Frank Sorrentino: Yeah, I think there has been a valuation reset. And I do think that cap rates have gone up. And I think that’s pretty apparent in lot of places. But debt service coverage ratios have remained pretty strong. Rents had gone up in the residential arena, the places where there is some weakness is, obviously, in office, not necessarily that the lease rates have come way down, but that the occupancies are lower and businesses are cutting back on the number of square feet that they need to operate their business efficiently. So I think there’s a lot of challenges in there, but clearly cap rates are up. Valuations are either stable or down in a number of places. I think LTVs are still pretty strong relative to the industry as a whole.

I don’t know that there’s been a whole lot of movement around that debt service coverage ratio. I mean, ours has been pretty consistent pretty much since we started the bank at the north of 125. And I think our average on the portfolio is closer to 150. So there’s a lot of room in there for some level of weakness or temporary weakness. I think one of the areas that, of course, we watch very intently because it’s — a good part of our business is construction, because there’s a lot going on there, not only with the cap rate, not only with what the potential debt service coverage ratio will be a completion, but the cost of the construction, inflationary pressures on the execution of getting a project on the timeframe in which to get it done, so those are things that we’re watching very, very closely.

Matthew Breese: Understood. Okay, that’s all I had for questions. I appreciate you taking them. Thank you.

Frank Sorrentino: Great, Matt. Thank you.

Operator: Thank you. At this time, I will turn the floor back to management for closing remarks.

Frank Sorrentino: Well, I want to thank everyone for taking the time today to hear our remarks about the fourth quarter of 2022 and we’re excited to speak to you in the future quarters of 2023 as we continue our journey. Thank you all.

Operator: This will conclude today’s conference. Thank you for your participation. You may now disconnect your lines at this time.