Greetings, and welcome to the ConnectOne 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. As a reminder, this conference call is being recorded. It is now my pleasure to introduce Siya Vansia, Chief Brand and Innovation Officer. Thank you, Siya. You may begin.
Good morning, and welcome to today's conference call to review ConnectOne'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.
A t 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 8-K 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 Sorrentino.
Frank, please go ahead.
Thank you, Siya, 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. ConnectOne's performance metrics are consistently top tier in the industry. Our net interest margin has expanded since the early stages of the pandemic. 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%. We've expanded both geographically and through new verticals.
We've remained disciplined to our commercial banking business model and focus on lines of business where ConnectOne has expertise and competitive advantages. We augmented our organic growth with opportunistic value-enhancing M&A, and our fintech acquisition, BoeFly, 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.
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%. 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. 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%, and that number is now well in excess of 5% heading into the third quarter. Credit metrics were sound with 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.
Loan growth across the industry is up. Our originations were diverse, spread amongst all segments and markets, and notably, C&I growth gained momentum this quarter with additional synergies driven through BoeFly. Looking ahead, the loan pipeline remains strong with increasing spreads and rates. Our Florida team's success also exemplified that ConnectOne'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. 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, ConnectOne 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 MANTL 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 ConnectOne to build frictionless client experiences and processes that support continued scale and efficiency. As a reminder, last quarter, we announced a partnership with Nymbus to launch a new B2B vertical on the Nymbus platform. This partnership provides ConnectOne 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 BoeFly, 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 Rozman, BoeFly has not only expanded its core business, it has also helped spawn new verticals within ConnectOne. Our SBA unit is now generating respectable volume, and our franchise lending group is seeing great deal flow. 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 ConnectOne remain low, and we have very limited exposure to consumer business lines, which may be more susceptible to the recent market dynamics.
Before turning it over to Bill, let me just mention that we continue to attract top talent to bolster bench strength across all lines at ConnectOne. Capitalizing on M&A disruption, we've been very successful in adding staff in all areas of the company. ConnectOne continues to be a top choice for displaced experienced bankers, and we're building for the future across all of our markets. 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. Second, to a lesser degree, is the uncertain impact continued Fed tightening will have on net interest margins.
First, with regard to potential recession and its impact on ConnectOne. You know, the credit story at ConnectOne 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. It 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. 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. All in all, we believe we're in a solid position to withstand an economic downturn. That takes me to the net interest margin for ConnectOne. The second quarter reflected record high net interest margin. It eclipsed 3.9%.
Now included in that 3.90% was some extra PPP accretion and some back interest recoveries. On a core basis, I estimate we were still slightly above 3.70%, still very high by historical and industry standards, and moderately higher from the first quarter on that same. Our margin has continued to widen since the early stages of the pandemic, which is remarkable. I'm even more proud of the fact that it remains 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 it is to improve profitability or maintain our market share. 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 on our service and response time, while our non-interest deposit growth remains strong, reflecting a relationship-based approach.
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. Namely, 20% of the loan book is pure floating. Another 40% is adjustable. It resets at various times over the next three years. 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 costs.
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 ConnectOne'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 at yields in excess of 4%-4.75%, and those are now being marked up, not down. Tangible book value 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.
By the way, as a result of that, we are now trading at a very low price to tangible book, just 1.2x. We continue to believe we are undervalued. We have the capital strength to retain earnings to continue stock repurchases. Switching gears a little, I just want to emphasize some of Frank's remarks on BoeFly.
BoeFly's bread and butter, which is the referral fees on SBA loans to franchisees gained modestly as we continue to build our franchisor network. 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 ConnectOne's increased C&I originations. We're also researching avenues to sell those loans in the secondary market.
Either way, they bring value to us. Now let me move on to operating expenses. Adjusting for the final BoeFly earn-out payment, which was $833,000 for the quarter, expenses accelerated a little faster than I had previously guided you. You should view this as a good thing, as it's all related to planned additions to staff that came on board earlier than expected.
ConnectOne 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 BoeFly 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.
We're gonna 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. 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.
With that, I will turn it back over to Frank. 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, continued to leverage the momentum that we've built. We delivered really strong performance, which is truly a testament to the ConnectOne 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. With that, we're happy to take your questions. Operator?
Thank you, sir. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two 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 Schiraldi with Piper Sandler. Please proceed with your question.
Hey, good morning. It's actually Justin Crowley on for Frank this morning.
Morning.
Morning. I just wanted to start. With the strong loan growth in the quarter, you know, the loan to deposit ratio 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 know, managing that at this level or below this level, you know, as you think about margin going forward?
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. 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%-115% or so. It really depends on which quarter we have stronger loan growth as opposed to others. Generally, with the loan growth, there's corresponding deposit growth, and sometimes there's timing mismatches. That loan-to-deposit ratio may bounce around a bit.
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. 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. C&I was a pretty big percentage this time.
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.
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 you want to. Yeah, no, I think, Justin, you were suggesting that a low or 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. The other aspect of the margin is the rate we're earning on our loans.
It continues to go up. I think we averaged 4.75 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%. All in all, I talk to that, you know, looking for stability in the margin, where we've been operating at some of our highest levels. If it goes down a little, it's not going to be too much. 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%.
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, if it 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 MANTL and then sort of square that with the Nymbus partnership, what that does, on the deposit gathering side, sort of outside from the core banking functionality that I believe Nymbus will also bring?
Right. Let's start with Nymbus first and work backwards. Nymbus 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. 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 ConnectOne set of relationships that we have or other market segments.
MANTL, on the other hand, for all the other business or the vast majority of the business we do here at ConnectOne, 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 set, services, the way in which we reach out to clients, the way in which clients can access various products here at ConnectOne.
It will transform not only the front end, which will make the ability to open an account pretty seamless and within minutes, but it'll 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.
We're really excited about the idea of taking all these a variety of things that we've built up over the years in 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. Having a very high-end, what we think is the best in the business, high-end platform to digitize this entire process.
As everyone knows, I care a lot about efficiency here, and being able to eliminate duplication of services is high on my, you know, my checklist. 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 ConnectOne.
Okay, great. I appreciate it. Just quickly, on the buyback, it sounds like you guys are, you know, still view the stock as pretty attractive. You were fairly active in the quarter, you know, following the 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, you know, just given the information?
Look, 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. 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%. We have capacity to continue to buy back.
Got it. I'll leave it there. Thank you guys for taking my questions.
Yep.
Thank you. Our next question comes from Michael Perito with KBW. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my questions.
Hi. Good morning, Michael.
Obviously a good kind of good results 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.
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 commercial real estate with exposure to kind of consumer discretionary or anything of that nature?
Just curious how you guys are thinking about it.
Michael, yes, over the last 90 days, obviously I've made a lot of commentary about what I think is happening in that, you know, whether or not we're going into a recession is gonna 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 gonna have a work from home, or is everyone gonna be forced to go back to the office? There's clearly a change in sentiment around where are we headed? What are we gonna look like?
I stand firm that, yes, we're gonna 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. We're pretty bullish about taking advantage of the opportunities presented to us in this market.
Now that being said, we're going to be disciplined and cautious and, you know, not just throw darts at anything, but do what we've always done here. If you recall, over the, I don't know, whatever it is, 17 years of our existence now, we've always done best in turbulent times.
This to me appears to be one of those turbulent times. The sectors that, you know, as you know, we have a very, very small consumer business, so I really have very little concern there that we're gonna see any issues.
The only sector that we have that I would say some gray around it to say, "Hey, what do we think is gonna happen?" would be our office sector, which is, you know, quite small on our balance sheet, is mostly concentrated in New Jersey, and is over 80% personally guaranteed and has good, you know, good credit type tenants that occupy the space. That's really the segment that we've watched a lot. We've 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. 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, you know, we certainly are watching like a hawk.
Helpful perspective, Frank. Thank you. In terms of BoeFly and how that's positioned, you know, for this environment, and I don't necessarily mean from a credit perspective, because I know most of those loans, you know, move elsewhere, right? But just competitively, you know, the SBA secondary market for fixed loans has, you know, basically been frozen since the Fed moved at this pace.
Y ou know, 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 some, maybe some potential challenges if we get into a kind of a more challenging environment for the consumer that some of these SBA-type products could slow down from a origination standpoint?
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. You know, what BoFly has really been successful at doing for us is expanding other verticals and other areas of concentration for us.
While the core business of BoFly 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. We may be slowing down relative to the percentage of pull-through rate on the franchisors we have, but we keep adding franchisors. At the end of the day, I do think we're gonna continue to grow that core business.
All of these other verticals that are coming off that Mike Rozman has really deftly 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. You know, 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 BoeFly platform.
Great. Just lastly for me, you know, obviously you guys have given a lot of color already on margin, and I appreciate it. Just, you know, we've spent a lot of time over the last year talking about the disruption in your, you know, 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?
Just curious if you could 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?
Yeah. 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-interest-bearing 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. That hasn't moved much. I do anticipate with all the Fed increases that at some point the beta has to catch up. 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 gonna come. 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. In 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 C&I 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 12-18 months. Some of that stuff is really starting to pay dividends today, and we're seeing it. You know, our DDA percentage is now at a record here for ConnectOne. 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, you know, that number jumps around a bit. We're seeing the progress we wanna see in those particular areas. You know, notably, this is the first quarter that our multifamily exposure actually declined a little bit, while C&I, you know, sort of bolted ahead. All the transitions we're making are actually showing up in the numbers. It's not just a story, it's a story with some facts behind it.
Great. Thank you guys for the color. Appreciate it.
Thank you, Michael.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. You may press star two if you would like to remove your question from the queue. Our next question comes from the line of Matthew Breese with Stephens. Please proceed with your question.
Hey, good morning.
Morning, Matt.
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 or not you're seeing any sort of valuation deterioration across commercial real estate multifamily as a result of higher cap rates. Then secondly, in regards to the recession fear commentary, have you changed how you're underwriting at all to reflect the weakening environment, whether it's more cash up front, you know, personal guarantees, that sort of thing?
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. When we underwrite these transactions, typically from an LTV basis, they're quite low. They're. I think our portfolio is in the high 50s or just under 60% from an LTV perspective.
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. There are still banks out there that are providing and there are insurance companies and Fannie Mae, Freddie Mac and whatever. You can still get a loan for a multifamily with a 4 handle on it today. 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. 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 gonna be completed and/or online for the next 18-24 months. 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. 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. 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. 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. For the deals that we do decide we wanna do, we're pretty comfortable that they have the means, irrespective of whatever happens in the interest rate environment.
Got it. I appreciate all that. You know, Bill, maybe turning to your commentary around NIM stability. I just wanna clarify that just make sure we're on the same page. You're defining stability off the core NIM around 3.70% versus the all-in that was a notch higher.
Correct. Correct.
Last one. You know, Frank, I gotta pull on the string a bit more. You know, BoeFly 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 BoeFly for quite some time now. Yet, you know, if someone were to press me on the bottom line impact from BoeFly, I'd have a tough time articulating that. Should we expect a more material benefit from this and over what time?
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 BoeFly is contributing to ConnectOne, both from its core business and from the other verticals that it's helping us to build. 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 BoeFly 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. I think more towards the end of the year, we will be able to speak more about the BoeFly 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 are 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 you know, it's been somewhat of a long journey, but not really. It's only really.
I date BoeFly 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 the pandemic, which then turned the company completely into a PPP machine. It wasn't until after that was over that we really started to refocus on the things we're talking about today. It's really only been a year, 18 months that we've been developing these various lines around BoeFly.
All I can tell you is I am pretty optimistic about Mike Rozman, his team there, what he's building, and how that's gonna turn into a pretty much complete financial services company that would rival any bank. We're excited about that.
Great to hear. Look forward to learning more towards the end of the year. That's all I had. Thanks for taking my questions.
Thanks, Matt.
Thanks, Matt.
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.
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. Thank you. We'll see you in the third quarter.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.