Earnings Call Transcript
ConnectOne Bancorp, Inc. (CNOB)
Earnings Call Transcript - CNOB Q4 2022
Operator, Operator
Greetings. Welcome to ConnectOne Bancorp Incorporated Fourth Quarter 2022 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I will now turn the conference over to Siya Vansia, Chief Brand and Innovation Officer. Siya, you may begin.
Siya Vansia, Chief Brand and Innovation Officer
Good morning, and welcome to today's conference call to review ConnectOne's results for the fourth 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. I'd also like to caution you that we may make forward-looking statements during today's conference call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings. 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 also be accessed through the company's website. I will now turn the call over to Frank Sorrentino. Frank, please go ahead.
Frank Sorrentino, Chairman and CEO
Thank you, Siya, and good morning, everyone. We appreciate you joining us today. ConnectOne just completed another solid year. We generated high-quality earnings, achieved extraordinary organic growth, gained traction in our markets, and continue to digitize our infrastructure. As we think about our results, I'd like to emphasize our ongoing commitment to supporting our client's needs. Despite the ups and downs of interest rates or the economy, ConnectOne's client-centric business model has continually served us well. And like I've always said, if we do that right and we do things for the right reasons, we can create long-term shareholder value. And so, notwithstanding the challenging economic environment, we once again delivered strong financial performance for the quarter. Return on assets exceeded 1.3%, while our return on tangible common equity was nearly 15%. Our PPNR as a percent of assets exceeded 2%, the 10th consecutive quarter that PPNR has been higher than 2%. Tangible book value per share advanced another 4%. Our efficiency ratio again was below 40%. Capital ratios remained strong, and while much of the industry has experienced weakness here, our tangible common equity ratio stands at over 9% at year-end. We also capped off a record year for both loan originations and deposits. Our loan portfolio increased over 19% year-over-year, while our deposits grew in excess of 16%, benefiting from the recent investments in our team, infrastructure, and the digitization that we've shared over the last few quarters and seeing a healthy diversification in our portfolio. Our originations were spread amongst all segments of our markets, including Southeast Florida and Eastern Long Island, with additional synergies driven through BoeFly in both SBA and non-SBA lending verticals. ConnectOne's strong performance in 2022 is a testament to the success of our culture, the technological foundation we've built, and our relationship-focused origination franchise. That said, it's important to note that despite consistent performance, each quarter has its own set of challenges and opportunities. Like many banks, we had a challenging quarter with respect to net interest margin. The deposit competition significantly increased reflecting the Fed's intensified battle with inflation. In addition to the rapid and significant rise in short-term interest rates, quantitative tightening has removed liquidity from the financial markets, even if the economy continues to grow. As a result, by decreasing the money supply, there is an overall decline in deposits within the banking system, and this has led to historically fierce competition for interest-bearing deposits among both large and small banking institutions. While our loan portfolio rates are increasing at a nice pace around 50 basis points sequentially, credit spreads for bank loans continue to remain low from a historical perspective. And finally, while the inverted yield curve puts additional, albeit temporary pressure on the NIM, we made the decision to maintain and support our client relationships as our main focus on serving our clients, supporting our staff, delivering value to our shareholders, and improving and building upon our distinctive operating platform, all while maintaining our results-oriented client-centric culture. Our business model has performed well across a variety of economic interest rate environments. We always set ourselves apart by making it easier for our clients to do business with us while empowering them with the latest technology to meet their evolving needs. And we enter 2023 well positioned to build on our strengths and achieve our long-term objectives. Speaking of technology, several of our investments are moving through to implementation and are focused on providing a better experience for our clients while driving increased productivity and efficiency. Our partnership with MANTL to deploy a new modern omnichannel deposit origination platform is underway and this partnership allows us to expand our reach in supporting commercial, small business, and consumer clients, while optimizing our workflows. Our partnership with Nymbus, the launch venture arm, the new branded business vertical on a lean and nimble cloud-based tool is nearing launch and will provide bespoke banking services designed to meet the demands of high-growth venture-backed technology companies. Turning to BoeFly, our online business lending marketplace, we continue to enhance its infrastructure, add new users, increase our client's overall workflow efficiency, and drive revenue. Now turning to credit, our credit performance remained strong and while Bill will provide some additional detail shortly, we saw improvement in credit metrics during the fourth quarter. Our NPAs declined by more than 20%. Our delinquencies as a percentage of total loans remain near zero, and we continue to prudently maintain reserve levels commensurate with our organic growth and the changing macroeconomic forecast. We ended the year with a very strong capital position across all regulatory ratios, in addition to the tangible common equity ratio, which has hardly been impacted by AOCI. We've also been investing in our business. And as we enter 2023, I'm excited to build on the early successes we've seen from the launch of our new healthcare team and our expansion into Southeast Florida and Eastern Long Island markets. With that, we remain confident in our ability to drive value for our shareholders. And similar to previous years, that could include our board evaluating future dividend increases and reinforcing our belief that ConnectOne shares are undervalued, potentially utilizing share repurchases, all subject to market conditions. So to wrap things up, we're a dynamic, highly valuable franchise, and we're pressing forward and leveraging our client-first operating model. We enter 2023 with a deep capital base and strong earnings that can support multiple growth initiatives. In short, I'm confident that we'll continue to produce opportunities for our clients, our team members, and our shareholders. We look forward to sharing our progress in the quarters ahead. And with that, I'll now turn the call over to Bill.
Bill Burns, CFO
All right. Thank you, Frank. Good morning, everyone. I'm sure many of you are waiting for my commentary on the net interest margin, both for the current quarter and give you some guidance for 2023. But before I get there, I'd like to review what was a stellar year for ConnectOne. Our operating earnings were a record representing 2.2% of average assets and they were up nearly 12% from the prior year. Period end loans grew by 19% and deposits by more than 16%. Our tangible book value per share increased another 8% in 2022 after increasing by 15% in 2021, that's close to 25% in two years. And that reflects not only our strong core earnings, but also effective management of our securities portfolio and the resulting AOCI and the fact that we've grown organically and not through M&A. Credit quality, those metrics improved even further with our nonperforming asset ratio decreasing for the fifth consecutive quarter to 0.46%. And as many of you are aware, some of those non-performing assets include a small and declining exposure that we have tax medallions, which by the way already have a very comfortable reserve recurring value. Excluding those taxi loans, our NPA ratio was cut in half to 23 basis points. And delinquencies, that is loans past due 30 days or more, were next to nothing, just 2 basis points of total loans. Our net interest margin, which has been under pressure recently came in at 3.70% for the entire year, that's a record for ConnectOne and higher than most in the industry. And our efficiency ratio was 39% for the year, even as we invest in technology, reward and build our staff, and prepare for crossing the $10 billion threshold. So when you combine our strong growth with a wide margin, an efficient back office, strong credit, and balance sheet management, the result is upper quartile, if not higher returns on asset, equity, and tangible book value per share growth. And that kind of performance gives us the flexibility to manage for the long-term, which is nothing new at ConnectOne. For example, while some of the industry achieved efficiency by cutting costs, ConnectOne's best-in-class efficiency is based on strong revenue and a scalable operating platform as we invest opportunistically and where needed to ensure the long-term success for the company. In a similar light and turning to today's challenges, we reviewed the landscape and made a strategic decision to be more aggressive with deposit rate competition to proactively both retain our existing clients and grow our core commercial client base, which we believe will drive long-term benefit. We are one of the top commercial and business banking franchises headquartered in the Metropolitan New York region. We don't focus on ancillary business lines that can be both volatile and troublesome, rather those businesses, segments, and clients we know and serve best. Now let's dive a little deeper into some of the factors impacting our margin, many of which either have or will be impacting many others in the banking industry. And as I said before, we had previously anticipated pressure on the margin, given that we're already operating at record highs. Now let's talk about the two primary tools to the Fed's disposal to contain inflation, which are: one, increasing the Fed's funds target rate; and second, open market access to contract money supply. First, that short-term rate rise in short-term rates has provided greater incentive to the positive, the transfer of balances out of non-interest-bearing accounts. We are seeing this; the whole industry is experiencing it. And that intentional upward push on short-term rates had the effect of inverting the yield curve. And that too is putting pressure on loan spreads and margins. Second, the tightening of the money supply, which results in increased competition for deposits, competition that heats up during the fourth quarter, and that is essentially what is accelerating deposit betas. One more item impacting the margin is a significantly lower level of loan prepayments and therefore the associated prepayment penalty income is lower. These items have combined to cause a larger than expected compression to our margins. But keep in mind that net interest income for the quarter was about flat sequentially and is up 11% from a year ago. Now, going back to some of Frank's comments, I want to reiterate that although we carefully watch and are cognizant of Federal Reserve policy and do all we can to lessen the impact of economic conditions, those things are somewhat out of our control and tend to be temporary. Where we are keenly focused is on managing things in our control, which is more specifically serving our clients. And we have been extremely effective at maintaining and solidifying strong client relationships and then capturing new market share, especially where clients are feeling particularly displaced by M&A. Ultimately, that will continue to make us a consistent earner, maintaining a prudent approach to growth in terms of both credit and spreads, managing our expenses, and maintaining our culture; all those together over the long term will continue to drive shareholder value. Now looking ahead, we're going to continue to focus on gaining market share of market rates. We do believe things have calmed down slightly; however, there was still potential for several rate hikes and continued contraction in liquidity, so there will likely be continued pressure on the NIM in the short term. However, when conditions settle down, when the yield curve resumes its normal upward slope, we aim to be back to where we are today or even slightly above. Now moving to other items impacting the financials, we saw modest seasonal provisioning this quarter related to both organic loan growth and a slightly continued deterioration in Moody's economic forecast across a range of specific metrics. The quarter's charge-offs relate to the successful workout of non-accrual loans identified and reserved for in previous periods. Therefore, it did not materially impact the provision this quarter and certainly is not any indication of an upward trend in charge-offs, the net charge-off rate for the year which is just 7 basis points. And just to reiterate, all indications at the present time point to solid asset quality metrics. As far as non-interest income, we are probably just a little light versus Street estimates, but we have a pipeline of SBA loan sale gains building through both BoeFly and traditional sources, and we are optimistic that will be an increasing source of revenue for ConnectOne. In terms of other expenses, inflationary pressures persist and are impacting our numbers to some degree. As is typical for ConnectOne, there is usually an increase in sequential expenses heading into a new year, and I'm estimating that to be about 4% for quarter one. But I'm targeting relatively minor expense increases for the remainder of the year. We finished 2022 with a 13% increase in staff over the course of 2022. I expect that rate of staff increase to be much lower in '23. I also wanted to mention that we will be calling $75 million or 5.2% subordinated debt on February 1, in just a few days. We pre-funded that in 2021 with a non-cumulative preferred stock issuance. So we end the year with a nice capital level, and assuming solid growth, we would plan to recommend dividend increases and stock repurchases for 2023. And that concludes my remarks. Back to Frank.
Frank Sorrentino, Chairman and CEO
Thank you, Bill. So, as you all heard, we made some significant strides in 2022 and from market expansion through the addition of new talent and business lines and leading investments in technology and infrastructure. We certainly laid a lot of groundwork to capitalize on new growth opportunities in 2023. Even with the number of uncertainties hanging over the industry, our strategic priorities for 2023 are very clear. We're prepared and geared to continue to smartly gain market share. We have a dynamic team of bankers with a proven ability to execute. And I'd be remiss if I didn't acknowledge all of our team members who made 2022 the success that it is. We had a scalable operating model that continuously evolves by leveraging technology. We continue to view 2023 as a year that will be ripe with opportunities for continued expansion of our prudent growth given the M&A disruption and our proven success at capitalizing in these moments. So we're excited for the future ahead. And in our view, ConnectOne continues to generate meaningful shareholder value and remains a very compelling investment opportunity. So thanks again and we're happy at this time to take your questions.
Operator, Operator
Thank you. Thank you and your first question is from the line of Frank Schiraldi with Piper Sandler. Please proceed with your questions.
Frank Schiraldi, Analyst
Good morning.
Frank Sorrentino, Chairman and CEO
Hey, Frank.
Bill Burns, CFO
Good morning, Frank.
Frank Schiraldi, Analyst
I would like to start by discussing the margin and am always seeking insights. Bill, regarding the mention of potential rate hikes early in 2023, as indicated by the forward curve, I am curious about the possible additional contraction you referenced. Could you provide some insights on the deposit beta you are currently using in this cycle or your expectations for where the net interest margin might bottom out given the current rate outlook?
Bill Burns, CFO
The main concern is the reduction of liquidity, which is intensifying competition. We constantly monitor this situation, and it continues to bolster our balance sheet while reducing the money supply, even as the economy expands. Everyone is dealing with this competition, and if some have not yet felt it or are seeing slow deposit betas today, I believe they will begin to rise if the Fed maintains its current course. Regarding margin compression in the future, I think it will be a bit challenging, so I want to take a cautious approach. We are currently offering loans at 7%, and our funding is in the range of 350 to 450. The spreads on new business remain quite favorable. However, I want to remain prudent because I expect the Fed to continue to be aggressive.
Frank Schiraldi, Analyst
Okay. When we consider the 350 to 450 level of funding, could you provide more details on the duration you are targeting for the CDs being added to the books? Additionally, what was the situation in the quarter, and is that expected to continue?
Bill Burns, CFO
Right, it's hard to say what the duration of all funding is going to be in the future, but what we're going into the marketplace is in the one to two year range for those CDs.
Frank Schiraldi, Analyst
Okay. And has pricing kind of stabilized there at those levels?
Bill Burns, CFO
Sorry, what would stabilize, the deposit pricing?
Frank Schiraldi, Analyst
Yeah. For that.
Bill Burns, CFO
I believe there could be ongoing competition that may complicate matters. Additionally, there is always the possibility of non-interest-bearing deposits leaving, which seems to be a common issue among banks with a similar situation occurring.
Frank Schiraldi, Analyst
And then lastly, regarding capital return, you mentioned the stronger capital aspect. You discussed buybacks and potential dividend increases. Where do we currently stand? What is the stock rate today? Is there a preferred method of capital return? Additionally, could you remind us of any targets you had for regulatory capital for 2023?
Bill Burns, CFO
Well, without getting into a specific target, I think that our capital generation is going towards seeing our asset growth. So there's going to be the ability to return capital. The second thing is, our dividend payout ratio remains one of the lowest out there around 19% or 20%. So we have room to move that dividend up just on that basis alone.
Frank Schiraldi, Analyst
Okay. All right. I appreciate it. Thank you.
Bill Burns, CFO
Yeah.
Frank Sorrentino, Chairman and CEO
Thanks, Frank.
Operator, Operator
Our next question is from the line of Michael Perito with KBW. Please proceed with your questions.
Michael Perito, Analyst
Hey guys, good morning. Thanks for taking my question.
Frank Sorrentino, Chairman and CEO
Good morning, Michael.
Michael Perito, Analyst
I would like to follow up on the previous questions about the expense guidance. Can we summarize that this is the first quarter in a while where the efficiency ratio has dipped below 40%, but it appears it will remain in the low 40% range for this year, with the hope for slight improvement once the rate environment stabilizes, as you indicated? Is that a fair assessment at this time?
Frank Sorrentino, Chairman and CEO
I think we have mentioned that we could be just below or above 40%. However, in the long run, I believe our scalable operating platform will help us reduce that efficiency ratio over time. Yes, this is affected by the margin. As I mentioned earlier, when the yield curve normalizes, we will be in a much better position, and our margins will grow at that point.
Michael Perito, Analyst
Okay. Regarding the growth aspect, I apologize if I missed a specific number or perspective, but I sensed two different viewpoints. Bill, you mentioned that your team plans to be aggressive in retaining customers and increasing market share, yet there was also a point raised about potentially scaling back growth due to the current funding environment. I might have misunderstood that second part, but could you clarify the growth expectations for 2023, particularly considering those broader circumstances?
Frank Sorrentino, Chairman and CEO
I apologize for any confusion, but we are not focusing on growth solely based on net interest margin. Our priority is to support our existing clients while seeking opportunities in the marketplace to attract new ones. The net interest margin will take care of itself. While some institutions are letting large deposits leave, we believe we have worked hard to attract high-quality clients, and we are not willing to let them go, even if it comes at a cost. However, given the current economy and the available growth opportunities, there are fewer overall prospects. We see potential in the marketplace, but 2023 is likely to be a more difficult year, not just for us, but for the economy as a whole, due to factors like the interest rate environment, liquidity challenges, and business formation. We expect to navigate this year well, but I can't predict that we will grow faster than last year. The key takeaway is that we are committed to supporting our clients regardless of the interest rate circumstances.
Michael Perito, Analyst
Got it. That's helpful clarification, Frank. Thanks. I'm curious about the current status of the pipeline and how it looks in terms of product or geography. Could you provide any additional details?
Frank Sorrentino, Chairman and CEO
Yeah. I mean, I would say that our pipeline is quite strong even today, and it's still pretty well diversified across the various aspects of the different verticals that we typically lend in. There is a little bit more emphasis in the C&I space. We're seeing some improvements there, but I'm not sure it's big enough to make enormous change in the balance sheet, but there's definitely a higher focus there. And we are seeing probably more opportunities in some of those newer markets that we put some resources around or that we've made investments in, namely the Florida market, which has been performing extremely well for us, both in the size of the market we've created there and the loan to deposit ratio within that specific market as well as the Eastern Long Island market. Those markets have been pretty exciting for us to watch throughout, and we're expecting really good things from both of those as we move into 2023. And additionally, all the other projects that we had around, whether it be a new vertical or a new place where we're putting emphasis, the healthcare business being an example of that.
Michael Perito, Analyst
Perfect. Thank you, guys, for addressing those. Appreciate it.
Frank Sorrentino, Chairman and CEO
Thank you.
Operator, Operator
The next question is from Daniel Tamayo with Raymond James. Please go ahead with your question.
Daniel Tamayo, Analyst
Hey guys, good morning.
Frank Sorrentino, Chairman and CEO
Hi, Dan.
Bill Burns, CFO
Hi, Dan.
Daniel Tamayo, Analyst
Maybe starting on the credit quality with reserves down to 1.12% here, just could get your thoughts on where you could see that ratio trending through the year given the economic uncertainty and the loan growth you're expecting?
Bill Burns, CFO
Well, listen, with CECL, it's really contingent upon where the forecast comes out. And for now, although some of those metrics, those forecasts are declining, especially in terms of projected GDP growth sales, those where the negatives are. But the unemployment rate is not really changing much in terms of economic forecast. Until you see that, you're not going to see a ton of provisioning around the industry. So I think there's a lot of misconceptions out there, but our CECL works and people think that it's how we feel about where reserve levels used to be. And I think most bankers would agree it wouldn't hurt to add to reserves, but that's not what CECL is really allowing these days. So other than having specific reserves for specific credits, which we don't have any, it's all really contingent upon this black box model. So if you think that at some point the unemployment rate forecast is going to increase, then you'll see fairly significant increases in reserving. If you don't, it's probably going to be pretty much benign.
Daniel Tamayo, Analyst
Okay, great. And I appreciate that. My only other question is just around the $10 billion in asset threshold. And you're thinking that was likely you would cross this year, that's still the case or if that's changed at all with the economic forecasts?
Bill Burns, CFO
I believe there is a strong possibility that we will exceed the $10 billion mark. We have been preparing for this for some time. While there are some costs involved in crossing that threshold, they are relatively minor for ConnectOne, and we have been building towards this. Therefore, I don't anticipate significant changes in our financial performance. I also want to emphasize that even in challenging times, we have consistently delivered robust return metrics and credit quality metrics year after year, and I expect no difference in the upcoming year.
Daniel Tamayo, Analyst
Great. I appreciate the color.
Operator, Operator
Our next question is from the line of Matthew Breese with Stephens. Please proceed with your question.
Matthew Breese, Analyst
Good morning.
Frank Sorrentino, Chairman and CEO
Hey, Matt.
Bill Burns, CFO
Good morning, Matt.
Matthew Breese, Analyst
I wanted to revisit the net interest margin and net interest income. Bill, in the past, we've talked about what the NIM floor might be in a higher rate environment. You mentioned that a range around 350 basis points seemed reasonable. It appears that the floor may be somewhat lower now. Additionally, regarding your incremental loan yields of 7% compared to funding costs, it seems that the incremental spreads are currently where the NIM is or about 100 basis points lower, which is quite a range.
Bill Burns, CFO
Right.
Matthew Breese, Analyst
So I was just hoping you could give us some updated thoughts on realistically where you think that NIM could floor.
Bill Burns, CFO
I have concerns about the growing competition for deposits as the money supply continues to decrease. I've been monitoring this closely each week. There are a couple of factors at play. There's increasing competition for interest-bearing deposits, and we also see a trend of non-interest-bearing deposits leaving banks across the board, not just ours. This issue really began to impact us significantly in the middle of the fourth quarter, and the level of competition for deposits has been more intense than I anticipated, which I believe others in the banking sector are also experiencing. Currently, the new business we are establishing is producing spreads that should help maintain our margins, but I remain worried about these external factors that could create some pressure. However, I believe this situation is temporary and will stabilize. The inverted yield curve is not beneficial for anyone. If the yield curve returns to its normal state and the longer-term rates remain higher than they were a year ago, the banking industry and margins should be positioned well.
Matthew Breese, Analyst
You had mentioned that incremental loan yield is in that 7% range, I am curious what are they rolling off at?
Bill Burns, CFO
They're rolling off around about high 5% to 6%.
Matthew Breese, Analyst
Okay. The other question just around NII, just thinking about 4Q NII $78 million, a little over $300 million annualized. Is that a number you think you can grow off of in 2023?
Bill Burns, CFO
Yeah, I would expect that we will grow that. I'd say that the growth in the balance sheet will exceed any percentage decline in the net interest margin.
Matthew Breese, Analyst
Okay. I'm sorry if I missed this, Frank, your earlier commentary around. Did you mention any loan growth guidance for the year?
Frank Sorrentino, Chairman and CEO
I did not. I mean, sitting here, I would tell you that based on our pipeline, based on what we see relative to payoffs, I would tell you that it would be my anticipation we'd be growing in probably mid to high single digits.
Matthew Breese, Analyst
Okay. Other question is, I know credit quality metrics today look very solid. As I think about new paper coming on at 7%, I would think there are also changes in cap rates. I mean, do you have any underlying concerns with the ability to keep NPAs and charge-offs at these levels just given the higher interest rate environment or should we expect some normalization in those figures?
Frank Sorrentino, Chairman and CEO
I believe it seems unusual for all banks to have nearly no delinquencies. I think there needs to be some normalization in delinquency metrics, and we will likely see some credit issues ahead. It would be unrealistic to expect these numbers to remain at zero. However, I think we are in a very different environment compared to 2008. Real estate behaves differently now, and there is significantly more capital involved in transactions than before. The inflationary environment has also increased disposable income for many people. As a result, I anticipate that we will encounter different types of credit issues. While I can't predict exactly where they will arise, history shows that we can't maintain this situation indefinitely; something has to give.
Matthew Breese, Analyst
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, Chairman and CEO
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 a 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 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 at completion, but the cost of the construction, and 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, Analyst
Understood. Okay, that's all I had for questions. I appreciate you taking them. Thank you.
Frank Sorrentino, Chairman and CEO
Great, Matt. Thank you.
Operator, Operator
Thank you. At this time, I will turn the floor back to management for closing remarks.
Frank Sorrentino, Chairman and CEO
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, Operator
This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.