Earnings Call Transcript - CNOB Q1 2020

Operator, Operator

Thank you for standing by. This is the conference operator. Welcome to ConnectOne's first-quarter 2020 conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask a question. I would now like to turn the conference over to Joe Calabrese with MWW PR. Please go ahead.

Joe Calabrese, Presenter

Thank you. Good morning, and welcome to today's conference call to review ConnectOne's results for the first quarter of 2020 and to update you on recent developments. On today's conference call will be Frank Sorrentino, Chairman and Chief Executive Officer; and Bill Burns, Executive Vice President and Chief Financial Officer. The results, as well as notice of this conference call on a listen-only basis over the Internet, were distributed this morning in a press release that has been covered by the financial media. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risks, which could cause actual results to differ materially from those anticipated. These risk factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of the 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 by the company's earnings release and accompanying tables of schedules that have been filed today on Form 8-K with the SEC. It may also be accessed through the company's website at ir.connectonebank.com. Each listener is encouraged to review those reconciliations provided in the earnings release, together with all other information provided in the release. I will now turn the call over to Frank Sorrentino. Frank, please go ahead.

Frank Sorrentino, CEO

Thank you, Joe. And thank you, everyone, for joining our conference call today. I'd like to begin by expressing our sincere hope that you and your families are all safe and doing well. These are challenging times, and our thoughts are with those who have been affected by this health crisis. Given these unique circumstances, I'd like to begin today's conference call by addressing our response to the COVID-19 pandemic. We took a proactive stance as the outbreak reached the New York area, taking immediate actions in order to safeguard the health and well-being of our team members and our clients. The investments we've made in infrastructure and technology played a critical role in transitioning to a virtual bank model, with 90% of our team shifting to a remote work-at-home environment seamlessly. We've leveraged these tools to continue to support our relationship banking model, allowing our clients direct connection to dedicated bankers who continue to serve them without skipping a beat. Through the use of our digital channels, technological tools, and our dedicated call center, our clients are primarily conducting day-to-day banking activities remotely. Simultaneously, our retail offices pivoted to a leaner contactless environment. All said, our team is doing well. They've responded to the changing work environment with resiliency, and their health and spirits are good. We're proud of these efforts, and to demonstrate our support for our teams during this crisis, we've increased certain employee benefits to help address their needs. We also quickly transitioned and mobilized our team to be an early and active participant in the SBA's Paycheck Protection Program. Through the initial PPP funding ground, ConnectOne has assisted approximately 1,400 companies and their 30,000 workers to ultimately secure nearly $400 million in needed funding for borrowers. We are adding to that in this now second round. We're proud of the fact that our capabilities allowed ConnectOne to be one of the first banks in the nation to close and fund an SBA PPP loan and recognize the importance of the CARES program to our clients, their employees, and our communities. This program truly is larger than the banking industry itself, and we believe it was a service necessary to provide in order to ensure the continuity of our clients' businesses, keeping their staff employed in the immediate future, and ensuring we do everything in our power to make sure clients get the funding that they need. We look forward to being able to continue to assist in this effort. Bill will speak to the economic impacts of the program momentarily, but I also wanted to take a moment to touch upon SBA lending activity at our fintech subsidiary, BoeFly. As we've discussed in prior calls, we acquired this online platform in June of 2019 and focused on building its operating scale and infrastructure. We implemented growth investments over the past few quarters. These investments turned out to be very well-timed, given the prevailing market conditions. BoeFly's extensive knowledge in SBA lending, coupled with its ability to connect small businesses to an extensive network of financial lenders across the United States, which has become a critical resource in helping many independent businesses and franchisees secure the capital they need to persevere. As a result, BoeFly's transaction flow has increased tremendously, and we believe this will continue beyond the PPP program. Visits by small businesses to BoeFly's websites, including the sbacares.boefly.com site have risen tenfold, and they've established relationships with several new banks. Apart from ConnectOne, BoeFly has facilitated over 3,500 applications through their online lending platform while successfully agenting over 2,000 PPP loans for borrowers totaling over $750 million through a number of financial institutions. We're extremely proud of BoeFly's ability to meaningfully address the increased need for small business funding during these very challenging times. BoeFly operates as an independent brand and generates revenue primarily through referral fees. Looking beyond the PPP, ConnectOne has joined the roster of banks funding BoeFly's secured loans. I'd now like to take a turn to take a look at another important focus, which is credit. We've taken a thorough approach to evaluating risk across our loan portfolio and have decided that postponing the adoption of CECL and utilizing our loan loss reserve model for the time being is the most appropriate path for ConnectOne. Bill will discuss our approach and its impact on our financials in greater detail. Taking a look at our loan portfolio, we have low levels of exposure to many of the most impacted industries. For example, our hospitality and hotel exposure represents just 1.2% of our loan portfolio, and transportation represents 1.5%, and our direct restaurant exposure is approximately 1%. Additionally, we have virtually no direct exposure to casinos, aviation, cruise lines, movie theaters, or energy, and no credit card exposure. Nonetheless, we still have clients seeking assistance, and we're proactively communicating with them to ensure that they're aware of federal and state financial assistance programs available. Many of our borrowers are taking advantage of deferment opportunities that have effectively been afforded by legislative, regulatory, and accounting governing bodies. Regarding loan modifications and deferment requests, we're actively engaging with clients on a case-by-case scenario. And right now, total deferments under review currently represent roughly 15% of total loans or approximately $900 million, although our review process is showing that about a third of those are probably not necessary. Of the total deferments under review, the majority are in the CRE or multifamily segments, all very well-secured, strong LTV loans within our operating markets. As Bill walks through those numbers, you'll see why I believe we're taking a conservative approach, and we're all optimistic that if a return-to-work effort continues and we begin to move back to a functioning economy, the majority of our borrowers will be back on their feet. Additionally, we are, and always have been, a relationship lender, with virtually no brokered loans, employing a culture of strict underwriting standards with the objective of creating and growing a diversified loan portfolio and funding mix. Our capital base remains strong, and our Board of Directors recently declared a quarterly dividend payable on May 4. However, we did suspend our share repurchase program until further notice. While we had another 600,000 shares available to purchase and believe the stock price is attractive and not reflective of the long-term prospects of ConnectOne, we and most in the industry would agree that now is just not the right time. Finally, I want to highlight that on January 2, we completed the in-market acquisition of Bancorp of New Jersey. The final phase of our integration and conversion will be completed on May 4, with no delays. And we're on track to meet or exceed the financial metrics disclosed when the transaction was announced. I'll now turn the call over to Bill.

Bill Burns, CFO

Thank you, Frank, and good morning, everyone. I want to echo Frank's sentiments and hope you and your families are doing well. I appreciate the tremendous efforts of the ConnectOne team as we navigate through the COVID-19 pandemic. There's a lot to cover, so let's get started. Our first-quarter performance was robust across all metrics, showing strong net revenue, margin, and growth. On a pre-tax, pre-provision basis, including merger charges, our pre-tax net revenue rose to $32.6 million, an increase of $4.2 million sequentially. A portion of this growth resulted from our merger with BKJ, although Bank of New Jersey's quarterly run rate was slightly under $2 million. Even without the merger’s impact, we saw a solid sequential rise in operating net revenue. Net interest income was strong, driven by growth and improved margin, partly attributed to higher purchase accounting. I will provide more details about the net interest margin shortly. Our noninterest income also increased as we continue to build diverse revenue streams successfully. We're seeing more success in selling commercial loans, which I anticipate will be a reliable revenue source moving forward. I prefer not to provide exact projections for the remainder of the year due to the ongoing pandemic. Additionally, our bank-owned life insurance (BOLI) income grew, and we secured new contracts in the first quarter prior to the drop in rates, yielding favorable deals. This also represents a synergy from the Bank of New Jersey merger, which previously did not have any BOLI. Regarding BoeFly, even before the Paycheck Protection Program (PPP), we projected an increase in fee revenue, currently at about $1 million per year. The PPP has significantly elevated BoeFly’s visibility, and we hold an optimistic outlook here. On the expense side, we expect our core expense growth rate to be lower than previously anticipated due to a likely gradual growth scenario. One exception is the expenses associated with monitoring and closing out the PPP, which will coincide with revenue increases from the program. In terms of merger-related cost savings, we achieved about $1 million in savings in the first quarter. I anticipate an additional $1 million next quarter, bringing our total run rate to $2 million, with full run rate savings of $3.3 million per quarter expected by the third quarter. While the 70% savings may seem high, it's accurate. We are closing almost all Bank of New Jersey branches, possibly keeping only one open. We are pleased with our efficiency ratio of 42.7% for the first quarter, which shows flat performance compared to the same quarter in 2019 and remains strong within the industry. With the upcoming cost savings from the Bank of New Jersey merger, I expect further improvement as we progress through the year. Now, regarding our balance sheet and future trajectory: loan growth has been in the high single digits, both point-to-point annualized and sequentially, after adjusting for the acquisition. The same applies to deposit average growth, which remains strong even when excluding the benefits of the acquisition. Moving into the second quarter and beyond, we anticipate an increase in demand deposits due to the PPP, although some of that will be temporary. However, we are confident in gaining more core business clients as a result of the program. Virtually every client we assisted with the PPP expressed satisfaction with our service. In the upcoming quarters, we will maintain a strong focus on driving core deposit growth. The wholesale markets are currently very liquid and cost-effective, so we will carefully evaluate the trade-offs between core economics and potentially higher-cost deposit growth, such as competition in certificates of deposit. Regarding loan growth and spreads, we expect lower loan growth outside of the PPP and will refrain from providing specific guidance. However, we anticipate wider spreads in new low-risk loans. For instance, the spreads in the multifamily segment are currently above 250 basis points, contributing to our margin discussion. On a GAAP basis, our margin expanded by five basis points sequentially, aided by additional purchase accounting from the acquisition, which we expect to taper off by approximately $600,000 next quarter. Although our core margin contracted by six basis points, this does not tell the whole story. A significant portion of this contraction was due to intentional liquidity management during the crisis, and the remaining contraction stemmed from the Bank of New Jersey’s lower margin of 2.7%. Through portfolio restructuring and deposit repricing during the quarter, we've mitigated that negative impact. Recently, we also benefited from the Fed's 100-basis point move, improving our shorter-term wholesale funding by almost the full 100 basis points. We seized opportunities to fund longer durations at rates below 1%, significantly lowering our deposit costs, with more repricing expected in the coming quarters. Despite numerous borrower requests to lower fixed-rate loans in light of decreasing market rates, we’ve limited such agreements to just a few cases. In summary, our core margin should trend upwards due to lower funding costs balanced against moderately lower asset yields, the impact of the PPP, and our expectations for higher lending spreads. Our capital ratios remain strong, well above what is required for being well-capitalized. Both our capital and liquidity are robust, and internal stress testing shows our capacity to withstand extended periods of economic stress. As Frank mentioned, we are temporarily suspending our share repurchase program until the crisis subsides. We've declared our common dividend with plans for only minor timing adjustments to align with the industry norms. I also want to address our tangible book value per share, which has increased consistently over the past ten quarters. While it slightly decreased this quarter by $0.13, we expected this decline due to the merger, and we remain focused on building tangible book value per share. As Frank referenced, we've decided to postpone the adoption of the Current Expected Credit Loss (CECL) standard. When the option to delay was announced, I acted quickly because I understood that the combination of this new complex accounting estimate and the rapidly changing economic landscape could create a confusing scenario for banks and investors alike. I acknowledge that many banks were unable to change course until they had no other choice regarding methodology. However, we had the flexibility to choose our path. We also recognize that delaying CECL raises questions about its financial statement implications. With respect to the day one adjustment related to the Bank of New Jersey merger, we estimate an increase in reserves of $20 million to $25 million, including the reallocation of $8 million of nonaccretable marks. This translates to a charge to capital of $8 million to $12 million after taxes. Regarding regulatory capital, there are transition rules in place, meaning that not implementing CECL at this time has a limited effect on our regulatory capital. In terms of loan loss provisioning for the quarter, we believe that our COVID-related provision remains unaffected by the choice between CECL and incurred loss methodologies. Our allowance for loan losses already incorporates our estimates for the potential COVID impact, using qualitative factors and monitoring deferral requests. Other banks using the incurred loss method may have reported lower provisions, but we do not share that view. We think the crisis impacts provisioning substantially, regardless of the approach, and our provision reflects conservative estimations. Forecasting economic conditions remains a challenge, but I believe that ConnectOne is well-positioned and prepared. We will closely monitor the depth and duration of the crisis and its consequences for our borrowers. Now, regarding the PPP, we have been and continue to be very successful in participating in the program, which has been beneficial to our local economy and borrowers while also generating additional income for us and our shareholders. Our technological infrastructure has enabled us to leverage the program effectively. Through the first funding round, as Frank noted, we processed around $400 million in funding, generating approximately 1,400 loans, and associated fees are forecasted to exceed $10 million. These yield adjustments will be recognized in our interest income over the life of these loans, which we anticipate will not exceed six months. Additionally, BoeFly, acting as an agent, is expected to earn some fee income. None of these figures account for the second round of the PPP, indicating even more potential revenue. That's all for now. I look forward to your questions, and I will now pass it back to Frank for his closing comments.

Frank Sorrentino, CEO

Well, thank you, Bill. Again, we are certainly especially proud of our efforts around the PPP program. Being one of the first in the nation, and combined with the efforts put forth by our subsidiary, BoeFly, says a lot about our team here at ConnectOne Bank. The strong culture of our company was the driving factor in our execution success. From the founding of our bank through to today, we continue to operate with two key principles: put our clients first, and operate with a sense of urgency. This is certainly true when our clients are growing. We've proven it to be true during difficult times, and it's especially true today in the crisis. We were built for this. This is an unprecedented time, and the short term will clearly be a challenge, but we will all face it together, head-on and determined to persevere. As always, we remain disciplined in managing our business by conducting business more digitally as we grow, by using the full range of our company's banking expertise to help our clients, by building our technology to help small business clients, including through added capabilities such as BoeFly, and by diligently watching our credit. While we look forward to the time when we get in front of this pandemic, we are prepared to continue to operate ConnectOne in a safe and sound manner for our clients, our communities, and our shareholders. With that, we're happy to take your questions.

Operator, Operator

We will now begin the question-and-answer session. Our first question comes from William Wallace with Raymond James. Please go ahead.

William Wallace, Analyst

The net interest margin commentary. Bill, you said there's four basis points of pressure that was due to excess liquidity that you put on at the beginning of this. Is that liquidity still on balance sheet? And if so, how long do you think you could keep it to be cautious?

Bill Burns, CFO

I think for the duration of this crisis, I'd like to have a little bit more liquidity. So, in your models, I would keep it where it is now.

William Wallace, Analyst

We expect to regain two basis points in the second quarter, and it seems like you've captured significant benefits from the funding side without experiencing much pressure. Can you help us quantify the potential impact on the margin?

Bill Burns, CFO

It could be significant, Wally, but it really depends on the strategic moves we want to implement. For example, if it's over 10 basis points, I might take a more aggressive approach towards competing deposits. This involves analyzing our past performance and making projections for the future. I'm optimistic about the core margin going forward, but there are many variables, and while we can adjust our strategy slightly, I can't provide exact figures.

William Wallace, Analyst

Okay. On the PPP, I think you might have mentioned it, Bill, but if you did, could you please repeat what the fees are on the first round of loans?

Bill Burns, CFO

I'm pretty confident we're going to be able to get more than $10 million in fees in the first round. And again, while it's classified as fee income, it will be included in interest income. We will have to see how long the loans stay on the books. If they really come off in the first quarter, then by the second quarter they will be accounted for. However, if those loans remain outstanding, the fees could extend into the third quarter.

William Wallace, Analyst

Yes. And then what's the pipeline or kind of expectation for round two?

Frank Sorrentino, CEO

Wally, it's Frank. I would say that we've had a similar level of requests in round two compared to the number of applications that are coming through. The amounts per loan are actually a bit smaller in the second round. My best guess is that the more sophisticated borrowers made it through in round one, while some of those who needed to gather additional information came in round two, and they tend to be the smaller businesses.

William Wallace, Analyst

Okay.

Frank Sorrentino, CEO

And it's going to depend on how long the program lasts, right? You see now the SBA is spending a lot of time figuring out ways to moderate the program so that all banks get access to it.

William Wallace, Analyst

Sure. I want to ask you about the CECL decision, Bill. You built your reserves to $16 million, which aligns with what it would have been under CECL, but you would have received the $8 million back on the balance sheet. This means you could compare more directly with the other banks that have adopted CECL. I recall you mentioned that the comparison might not be as favorable. Could you elaborate on that?

Bill Burns, CFO

Well, the reserves will be higher, but you do have to take a little bit of the capital, too, to make the reserves higher. So just saying, on a total basis, looking at the capital accounts of the company, it really isn't that much different. Okay. But you're right. The reserve, if you're looking at that reserve number, it is going to be higher. We have one when we implement CECL. Okay. And also, the other point I wanted to make that was just on an operating basis. And I believe this, that it really comes out the same way, incurred loss versus CECL because, you know, people misunderstand the incurred loss. It doesn't mean the loss was incurred. It means you can potentially see those losses. So, there is a projection element to the incurred loss method. The thing that CECL is different is that it goes out over the life of the loan way out to the very end.

William Wallace, Analyst

Yes, right. Yes, Okay. But for you, which I think might be different than others, you took, it seems, like a pretty conservative approach on the key factors and the loss expectations. So, until today, it's not showing. Okay. All right. I'll step out and let somebody else ask questions.

Operator, Operator

Our next question comes from Collyn Gilbert with KBW. Please go ahead.

Collyn Gilbert, Analyst

Can you provide some insight on the PPP program in relation to BoeFly? You mentioned their previous run rate was around $1 million annually. How can we put that $1 million in context with their past volumes and your expectations for future volumes? We don't necessarily need a specific number for the year, but we want to understand the potential impact they could have on the organization.

Frank Sorrentino, CEO

I think that what we definitely saw here was a phenomenal opportunity for BoeFly to showcase where and how its ability to act responsibly in the marketplace. There are banks that never heard of BoeFly before that are now on the platform. There are franchisors that never considered using BoeFly that are now on the platform. So, you know, it's really going to depend on the strength of the economy going forward. But certainly, from a marketing perspective, BoeFly is now in a very enviable position. And I don't know that we can draw a straight line from what happened in PPP to increasing revenues. But clearly, if all the sources of your future business are now awakened to your ability to be there and execute, it's got to translate into a better revenue stream going forward. We've also taken this time and through this process, we have been building infrastructure for BoeFly over the last nine months. But we put a lot of effort over the last six weeks into solidifying a lot of how their platform works, getting economies of scale out of it, having the ability to scale up quickly. And we think that's all going to bode really well for BoeFly going forward. They're as well-prepared as they could be.

Collyn Gilbert, Analyst

Okay. And I just want to make sure, in the press release, I think if I read it correctly, I'm just trying to understand. So, did I see it that BoeFly expects to process 1,000 applications and upwards of $750 million in loans? Is that isolated to BoeFly? Or that's BoeFly and CNOB combined?

Frank Sorrentino, CEO

Yes. No, that's just BoeFly. And actually, we expect those numbers to continue to climb with PPP/2.

Bill Burns, CFO

And those loans are agented compared to the loans that we funded on ConnectOne.

Collyn Gilbert, Analyst

Right. So then that was going to be my next question is how does the fee structure with the agency part of this program work?

Bill Burns, CFO

So, it's a lot less than if we do it, then we fund it. But the purpose of it was really to build BoeFly's connections and build its business base. And I think we're successful at that. We've been successful with that.

Collyn Gilbert, Analyst

Okay, got it. And putting BoeFly aside for a second. Within what you guys have done so far in the PPP program and what you anticipate to do, what's the split between new customer extensions versus current customer extensions within that program?

Frank Sorrentino, CEO

So, I would tell you that the majority of what we've done has been for existing clients. However, there is a component that would fit the non-client, but they could have been a client of ConnectOne through some other entity that they had. So, we've certainly serviced those folks as well. So, if someone that had company A with us, but company B was with a different financial institution and they brought company B to us for the PPP loan, we treated them the same as if they were a client for that company as well. In many of those cases, we're able to bring that relationship into the ConnectOne family. For completely non-clients, again, I would break those down into, you know, into different segments, but the one segment that we had a lot of success with is folks that could not get their PPP loan processed with generally the larger institutions who were a little bit late to the party in the first program. And so, we've had tremendous success in bringing new clients into the bank who have promised to bring us their depository relationships. And so, we've done a fair amount of that business. We've also done business for, whether it's churches or schools, nonprofits, other, you know, what we thought were central businesses within the communities that we serve, if they asked us to, we tried to say yes wherever we could.

Collyn Gilbert, Analyst

And along those lines, Frank or Bill, Bill, you had alluded to deposits going up because of the PPP program. Is that sort of what you're just saying right there, Frank, is that the deposit relationships are coming as well with the new customers, or whatever?

Frank Sorrentino, CEO

So, unlike what Bill mentioned about the loan funding heading to a depository account until it's spent, I was talking about new clients interested in their PPP loans who are bringing their entire banking relationships to us. We have seen tens of millions of dollars in new deposits that are unrelated to PPP loans. These deposits are a result of clients being dissatisfied with their previous banks and choosing to move to ConnectOne.

Collyn Gilbert, Analyst

Frank, you mentioned that the dollar amount of forbearance requests is $900 million, mostly concerning multifamily and commercial real estate. Can you provide more details on that? Additionally, if you covered this in your initial remarks, I'm sorry, but can you clarify the deferral period you are extending? Also, of that $900 million, how many of those loan balances participate in the PPP program?

Frank Sorrentino, CEO

Let me address the first question regarding the 90-day deferral for those who request it and meet the qualification program criteria, which we are evaluating on a case-by-case basis. We're reviewing these requests, and if they are reasonable, we will approve them. We anticipate that further underwriting and time will reveal that up to a third, or possibly slightly more, will show they didn’t actually need the deferral. Many are requesting it due to market pressures, even if they're entitled to it. As for expectations moving forward, it’s difficult to predict when we will return to normal operations and how this will impact us. Our multifamily portfolio in New Jersey appears to be stronger and has a better payment capability compared to our smaller multifamily portfolio in New York. Most tenants in B class apartment buildings have paid their April rents. We haven’t observed much direct assistance from the PPP program for clients within the commercial real estate categories. However, there’s evidence that in mixed-use properties or the commercial and industrial sector, and in retail, the PPP funding is being helpful, with money flowing through. It's clear that the PPP program supports employee payments, which ultimately helps them pay their rent, benefiting the whole system. Overall, the April results here at ConnectOne surpassed our expectations regarding rent payments and their implications for apartment building owners. It will be interesting to see how May unfolds.

Operator, Operator

Our next question comes from Matthew Breese with Stephens Inc. Please go ahead.

Matthew Breese, Analyst

Bill, just maybe going back to the core NIM commentary. If you have it, can you give us an idea of what the spot rate for deposits were at the end of this quarter versus at year-end?

Frank Sorrentino, CEO

I don't know exactly what that number is, but I know they were down pretty significantly from year-end due to the 100-point basis move with the Fed reserve. But I can get you that number, Matt.

Matthew Breese, Analyst

Okay. And then you had mentioned that the multifamily rent payment trends in New York were quite a bit better than New Jersey. Can you quantify that?

Frank Sorrentino, CEO

I think relative to what our peers have reported, I don't know what's in their portfolios. But relative to our own portfolio, we found that the New Jersey portfolio performed better. When I say performed better, I mean, across the board, we had similar performance relative to April on-time payments and/or request for deferrals. But when we started to inquire as to who's paying rent where, we've found that the New Jersey portfolio had better percentages of tenants paying the rent. I think there's a number of factors that go into that. I think it's the smaller rent size that is more affordable. I think it's people maybe not living in New York City 100% of the time, feeling that they don't feel obligated to pay those rents. The dollar amounts are much greater in New York than they are in New Jersey. The amount of workforce housing is more prevalent in New Jersey than it is, you know, in some of the inner boroughs of New York. So, I think there's been a lot of factors that go into why that would actually be true. But that's how – you know, that's what we found when we did our stress testing and research around our own portfolio.

Bill Burns, CFO

I got that.

Frank Sorrentino, CEO

Yes. New York was worse than New Jersey, correct?

Bill Burns, CFO

Right, yes.

Matthew Breese, Analyst

Right. Can you quantify that? Because we've heard conflicting things on the rent collection from some of your peers.

Bill Burns, CFO

Yes. I believe the construction challenges will result in better performance than what analysts are predicting. The markets in New Jersey are not ideal, but we have achieved sufficient completions and secured the necessary loans in that area, which we hope will lead to continued success.

Operator, Operator

There are no further questions at this time. I would like to turn the conference back over to management for any closing remarks.

Frank Sorrentino, CEO

So, thank you very much, everyone. We appreciate you taking the time today to listen to and join our first quarter conference call. Please stay safe. And we look forward to speaking to you next quarter. So, thank you, all.

Operator, Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.