Q2 2020 Seacoast Banking Corporation of Florida Earnings Call
[music].
And the question answer session. If you have a question. Please press Star then one on your Touchtone phone.
Before we begin I've been asked her direct your attention to the statement contained at the end the press release regarding forward looking statements.
Cost will be discussing issues that constitute forward looking statements within the meeting at the Securities and Exchange Act and their comments today are intended to be covered within the meeting that act. Please note that this conference is being recorded I'll now turn the call over to Mr., Dennis Watson, Chairman and CEO Sea Coast Bank shots and you may begin.
Thank you all for joining us this morning as.
As we provide our comments we will reference the second quarter 2020 earnings slide deck, which can be found that cecos banking dot com.
As you know we announced several changes this quarter in the roles of our executive leadership.
With me today is in his new role as President and COO as Chuck Shaffer truck has been with because for many years and it's held roles across the organization. He's been instrumental in influencing our success in recent years and I have every confidence and his abilities and the new position.
Also a new roles this quarter, our Tracy Dexter now CFO.
And formerly our corporate controller and Dray Walker, who was expanded his role as treasurer and now ads director of corporate strategy.
Joining us all as always our Jeff Lee, our Chief Digital Officer, and David How the show our Chief Credit Officer.
I'd like to express my sincere appreciation to the Cecos team for their hard work over the past four months, a pandemic environment has proven traveling to navigate but our associates performed incredibly well.
I'm very proud of their effort to serve our customers and our communities through this challenging period.
Chuck I'll turn it over to you to share a your views on the second quarter.
Thanks Denny.
I also would like to express my sincere appreciation for the entire Cecos team for their dedication to service.
And they're steadfast focus on keeping CECO successful during this unprecedented period.
During the quarter, we saw significant increases and the number of Kobin cases.
Across the entire state.
And while the state remains open for business customers remain cautious and businesses are carefully navigating in uncertain environment.
And as such we will continue to be vigilant and maintaining our disciplined and conservative credit culture.
We entered this downturn from a position of strength with a fortress balance sheet inclusive of robust a robust capital position ample liquidity and a diversified well underwritten credit portfolio.
The underlying economic performance of the organization remains impressively resilient as a result of the efficient operating model Cecos team has built over the last five years.
This quarter's performance resulted in pretax pre provision adjusted return on tangible assets of 2.12%.
And despite continued prudent increases in reserve levels tangible book value per share grew by nearly 55% to $15 an 11 cents.
We remain cautious and discipline and extending credit.
Merrily, focusing our current clients have tightened credit criteria, such as increasing required debt service coverage ratios and reducing loan to value limits.
We've also reduced focused on several industries, an asset types and are requiring customers to provide detailed and supportable medium to long term cash flow projections that demonstrated an ability to sustain further revenue deterioration.
Thats the paycheck to Paycheck protection program launched in April we've originated over 5000 PPP loans for 591 man.
And during the quarter, we saw significant slowdown and request for deferrals.
And of the loans with payment deferrals that came due in July 60% have made a payment thus far.
We continued to increase our hcl coverage ratio for the quarter.
Flexing, our conservative posture and adopting the more severe economic scenarios provided by Moody's.
Tracy will provide further detail shortly.
Our focus is further turn to generating fee income and growing new deposit customers.
Our mortgage banking and wealth businesses, followed up a record breaking Q1 with further improvements in performance.
We were very impressed to see the mortgage team continued to hit their outstanding service level targets with customers.
Despite substantial increases in volume, while also delivering strong economic returns from the business.
And our wealth team continued to grow a U.M. by record breaking figure.
We also saw new business customer acquisition increased by nearly 50% in the second quarter when compared to prior quarters and introduced over 3000, new business customers to Cecos.
And lastly, our call center and retail associates continued to lead the market in availability and customer service standards.
Our call Center is far outperformed large bank call Center wait times and service level standards have excellent.
Digital usage continues to increase with the proportion of transactions and non branch delivery channels up 14% over this time last year.
And to conclude.
Our continued focus on operating and efficient organization, while maintaining robust levels of capital and liquidity will allow us to perform well through this cycle.
And during this period, our goal is to capitalize on our strength to protect and grow tangible book value per share build market share in a disciplined manner and position the company post pandemic to consolidate weaker players across the state of Florida should those opportunities develop.
Ill now turn the call over to Tracy will walk through our financial results.
Thank you Jeff good morning, everyone.
Directing your attention to second quarter results, let's turn to slide.
Net interest income increased 4.1 million sequentially.
The net interest margin decreased 23 basis 0.3 0.7 DRAM.
Our net interest margin from accretion of purchase discount on acquired loans with 16 basis points in the second quarter 2020.
Turning to 27 basis points first quarter, 2020, and 27 basis points in the second quarter 2019.
The lower accretion is the result of lower levels of commercial prepayment fourth quarter.
The effect on net interest margin identifying fees earned on PPP line with eight basis points in the second quarter.
Excluding accretion on acquired loans and interesting fees on CPP line. The net interest margin decreased by 20 basis point.
That decrease is primarily the result, procuring conservative additional liquidity and growth in deposit balances in second quarter.
Quarter over quarter, the yield on loans decreased 34 basis points, excluding accretion on acquired loans and interest in fees on PPP loan yield on loans decreased 26 basis points.
The decrease reflects the first full quarter of lower rate after the federal reserve actions in March that lowered overnight rates by 150 basis.
The yield on Securities also decreased 34 basis points affected by lower rates and as we noted in the first quarter unusually high level of Paydowns in the first quarter that did not recur in the second quarter.
The cost of deposits decreased substantially from 57 basis points in the first quarter to 31 basis points in the second quarter.
Late in the first quarter, we were aggressive with lowering rates on deposit and the second quarter reflects the full benefit of that action.
Looking ahead, we remain remain cautious in providing guidance on net interest margin given the dynamic market condition other than to say, we anticipate maintaining prudent posture circumstantial point.
Moving to slide seven non interest income a strong this quarter.
An adjustable bases noninterest income was 13.8 million a decrease of 0.9 marine or 6% from the previous quarter and a decrease of 0.3 marine or 2% from the prior year quarter.
Our focus on fee income generated another record quarter in mortgage banking fees, which increased 61% to 3.6 million and reflect the continuing vibrant residential refining Michael and strengthen the floor and a half platform.
The second quarter at 2020 was also another robust quarter for our wealth management team with 1.7 million in revenue and a record 125 million new assets under management.
Interchange revenue was near flat compared to the first quarter with declines in April offset by increases later in the quarter when results were covered for pre pandemic level.
Service charges on deposits decreased 0.9 compared to the first quarter retired deposit balances translating to lower NSF and overdraft charges.
Through much of the second quarter, we routinely and others, who will help our customers better manage through the financial and proportion of this period and that contributed to lower other income in the second quarter.
Also defining comparison for first quarter included income from equity investments not repeat each quarter and did not recur.
Security sales this quarter generated 1.2 million team.
We concluded strengthening credit profile of the CLL portfolio, where we sold all the single a rated CLL and replace them with purchasing a AAA rated.
Moving to slide.
Adjusted noninterest expense totaled 40.7, earning a decrease of 0.8 million from the prior quarter and an increase of 2.6 million compared to the prior year quarter.
On an adjusted basis, which excludes merger related charges salaries and benefits combined decreased by 1.9 million compared to the first quarter 2020.
I have no when we originate loans, we identified direct loan related costs and along with the fee.
Those costs are recognized over time as an adjustment interest income on that line.
Salaries represent a large portion of those eligible deferred costs.
In our PDP originations drove 2.9 million salary costs that were deferred so a reduction in salary expense during the quarter.
Other factors driving expenses lower this quarter, where the typical seasonal decline after a higher first quarter due to payroll taxes and follow on K contributions and also lower second quarter health insurance costs.
These decreases were offset by staffing additions primarily as a result of the first thanks for the Palm Beach is acquisition in the first quarter.
Additionally, there were temporary cost associated with our call Center staff, which has seen unprecedented volume from the performance.
The processing costs were higher by approximately 0.3 marine the result of higher lending related costs to support the PPP effort.
Other expenses in the second quarter were higher by 0.9 million and include the resumption of FDIC assessment expense in the second quarter as we've now applied all our available credits.
Other expenses also included costs associated with the PPP program and a 0.2 million increase in the reserve for unused commitments.
For the third quarter of 2020, we are modeling adjusted non interest expense to be approximately 43.5 million to 44.5 million, excluding the amortization of intangible assets, which is approximately 1.6 million per quarter and including the acquisition of.
Leading bank Expectable novel.
Moving to slide nine.
I'd like to highlight our continued success in generating operating leverage with manage overhead and focus on growing rapidly.
The efficiency ratio improved to 50% and the ratio of adjusted non interest expense to tangible assets dropped to 2.13% compared to 2.44% in first quarter and 2.34% in the prior year quarter.
We continue to emphasize our commitment to the proactive.
Okay.
Turning to slide 10.
Loans outstanding increased to 5.8 billion with TPP long driving the increase along with $311 million in other portfolio origination.
Looking at our loan pipeline as anticipated our commercial pipeline was down 32% to 117 million at the end of the quarter, resulting from the continued conservative approach to production due to economic condition.
Given the uncertain outlook, we're only focused on relationships with liquidity and strong balance sheet that can support significant strides.
In consumer the pipeline is higher by 5% to 31 million.
Residential category pipelines were up 24% to 108 margin, reflecting the impact of is still vibrant refinance market and strong Florida housing market.
A significant majority of the residential mortgage volume will be sold in secondary market.
Looking forward, we expect loan outstandings to continue to be carefully manage lower in line with lower production expectations due to our conservative posture and declining PPP balances as the forgiveness process began in the third quarter.
Turning to slide 11.
Further highlighting our vigilant credit culture, we intend to continue to manage our credit exposures and robust capital position prudently.
We are confident that are established conservative posture entering this environment will serve us well.
Our portfolio is broadly distributed across various asset classes.
Stabilized income producing commercial real estate represents 24% of loans outstanding.
Owner occupied commercial real estate represents 19% of the portfolio and residential real estate comprises 25% portfolio.
Approximately 80% of our commercial portfolio is secured by real estate with borrowers that have meaningful equity in their investment lower loan to value.
The average LTV of the commercial portfolios secured by real estate and 54%.
We have managed our portfolio to keep confection land development loans in commercial real estate loan well below regulatory guidance.
At June Thirtyth that represented 32% and 176% of risk based capital respectively, a conservative position on lower than less than our peer group.
Our loan portfolio diverse and broadly distributed across categories with an average commercial loan size, excluding CTP 384000.
Our consumer portfolio has an average credit score of 751, and our residential mortgage portfolio has an average credit score of 755.
He lot portfolio has an average credit score of 749, the average LTV of our HELOC portfolio, 56%.
46% of the portfolio in first lien provision.
Turning to slide 12 or look at CPP loans.
As of the end of the second quarter, we have over 5000 PPP loan totaling over 560 576 million net net balances with an average loan size of 116000 and median loan size of 43.
Earn fees net of lung specific costs totaled 17 million and our deferred and recognized as an adjustment to yield over the expected life of loan.
In the second quarter, we recognized 4 million of that net 17 marine.
And we recognize contractual interest of 1.1 million, resulting in yield of 4.81 person.
We expect to recognize the majority of the remaining net fees over the third and fourth quarters of this year, but this could change as a result of the pace of the forget process.
Turning to slide 13, and 14 to discuss loans on deferred payments battle.
Throughout the second quarter, along with the industry, we supported our customers with short term pain deferral program of three to six months.
We began offering deferrals on March with the peak volume of deferrals process in April.
At June Thirtyth, very nearly 1.1 billion in loans in deferral status.
We are monitoring these loans closely and looking into the second half of the year, 39% of the loans. Currently on deferral are scheduled to return to regular payments in the third quarter of 2020 and 61% in fourth quarter.
Turning to slide 15 for a more detailed look at our theory HDFC portfolios.
Diversification across industries and collateral type has been a critical tenet of our strategy, which should position us well refinement.
The largest exposure in our theory and construction portfolio when aggregated is ourselves representing only 12% of the portfolio.
27% of these loans have taken advantage of a payment deferral program.
The average loan size in our office portfolio at 600000, and the average LTV is 53%.
58% of this portfolio is classified as owner occupied.
This primarily includes medical accounting engineering healthcare veterinarians and other light tight professional.
The remaining 42% of the office portfolio is stabilized income producing investment property.
Our second largest segment as retail real estate, representing 8% of total loans with 38% of these on deferred payment status.
The average loan size in our retail portfolio is 1.3 million and the average LTV is 45%.
This portfolio a diversified geographically and is characterized by multi day shopping centers that typically have a local anchor or are located in the shadow of the healthcare provider or large brand name our main shopping area.
Multi bay retail centers have a variety of tenants.
The portfolio does not include regional mall complexes outlet mall movie theaters entertainment venue or other highly trafficked larger retail centers.
Our restaurant exposure is limited only 44 million and is distributed among quick serve and full service restaurants.
Our hotel portfolio, only 122 million at an average loan size of 3.39.
The restaurant and hotel portfolios are primarily secured by real estate with an average loan to value, a 50% and 46% respectively.
Turning to slide 16 for a more detailed look at our commercial and financial lines.
The largest exposure is in holding companies are high network individuals per aircraft and marine vessels.
And this represents only 3% total loans.
22% of the segment is on deferred payment status.
The remainder of commercial and financial loans are spread across multiple industries with no concentration above 2%.
Overall, 17% of the portfolio is on payment deferral.
We have no direct exposure to the cruise line industry casinos or the amusement park industry.
Turning to slide 17, 18 for the Securities portfolio.
With the declining rate and faster prepayments on mortgage backed securities yields are down this quarter by 34 basis points.
In terms of valuation credit spreads increased sharply in March and federal reserve stepped in to purchase bonds in multiple asset classes.
Lack of liquidity in some asset classes, including some of our CLL has led to lower market value at the end of the first quarter, which then significantly recovered in second quarter.
We also proactively improved the credit composition of our CLL booked during the second quarter, selling single, a holding and replacing them with AAA holdings.
Our CLL book has significant credit support and collateral all our investment grade and comprised of broadly syndicated loan.
The CLL portfolio now breaks down as 52% AAA and 48% cabaret graded bonds.
While market value recovered significantly to CLS remain below book. We believe this is not a reflection of credit risk and expected value to recover over the holding period.
Turning to slide 19, and 20 deposits outstanding increased 779 million or 13% sequentially in the second quarter, we saw meaningful increases in deposits with average total deposits up 868 million or 15% from the prior quarter, reflecting our attractive deposit base.
Some of the increases were associated with government support programs, including PPP individual stimulus payments and higher unemployment compensation.
Non interest bearing demand deposits now represent 32% of the deposit franchise up from 29% from last quarter and transaction accounts represent 55% of total deposits.
From 50% at the end of last quarter.
Turning to slide 21 charge off during the quarter remain at historic lows at 1.8 million this quarter and the level of nonperforming loans increased only slightly to 0.52%.
Classified and criticized assets were 3%, 9% respectively of total risk based capital at June Thirtyth down from 3% and 11% last quarter.
The overall allowance reserve estimate at June Thirtyth is 91.39.
Excluding PPP loans, which have not been assigned a reserve given the guaranteed status our coverage of allowance to total loans is 1.76% up from 1.61 person in the prior quarter.
As you know during the last two weeks of June cases of cover 19 in Florida and elsewhere began to increase again, which caused the slowing of lending businesses reopening and slowing of economic consumption by consumers.
Because that happened late in the quarter, the Moody's baseline economic forecasts for June have not captured this negative terms.
Taking a conservative approach our allowance estimate give significant weight to the Moody's asthree moderate recession scenario.
This led to the additional building reserve that continues to provide for a scenario in which the characteristics of the downturn might be more unfavorable and could be sustained over a more extended period.
As a pandemic and its impact on the economy continue to evolve we will manage our allowance accordingly.
Turning to slide 22, showing our conservative liquidity position.
Cash totaled 524 million, notably increased given the increase in deposits from March 31st.
At June Thirtyth, the company had available unsecured lines of credit of 135 million and lines of credit underlined double collateral value of 1.4 billion.
Additionally, the company has securities and loans totaling 1.6 billion that are available as collateral for potential borrowing and the ability to pledge PPP loans under the federal reserve PPP liquidity funding program.
Turning to slide 23.
Our capital position continues to be strong and our longstanding commitment to maintaining a fortress balance sheet has positioned us for resilience in the current environment.
Tangible book value per share is $15.11, an increase of 11% over prior year.
The tangible common equity to tangible asset ratio with 10.2% at quarter end and has ranked amongst the highest in our peer group.
The tier one capital ratio was 16.4%.
And the total risk based capital ratio was 17.6% at June Thirtyth each of these ratios increased quarter over quarter.
To wrap up on slide 24 over the last three years, we've achieved a compounded annual growth rate intangible book value per share of 12% driving shareholder value creation. We're confident that are established conservative posture and efficient operating model will serve us well as the recovery program.
And as opportunities ultimately arise seacoast is well positioned to take advantage of those opportunities.
We look forward to your questions I'll turn the call back over to secondary first.
Thanks, Tracy and operator, we'd be pleased to take a few questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone, if you wish you'd be removed from the Q. Please press the pound sign or the hash key.
And our first question on line comes from Mr., Michael Young. Please go ahead.
Hey, good morning, Thanks for the question.
Michael.
Maybe just wanted to start off with kind of the cadence of the PPP impacts on the income statement.
It looks like you guys already started to recognize some of the accelerated benefit on interest income and then also just wanted to get to feel for how the expense trajectory would would ramp back up.
I can take that.
As we pointed out we had.
A number of cost associated with originating those lines in the second quarter and some of that we've estimated 2.9 million in salaries expense.
So you can think about whether that would be deferred if other originations occurred or would would just recur in the future period.
In terms of earning on PPP loans, we have.
Net 17 million.
In fees earned of which 4 million were earned during the second quarter and based on our initial judgment you can expect the rest of that to come in over mostly the rest of.
The year. So we've got about 24% earned of the total 17, so far.
Okay, Thanks, and maybe jumping over to just kind of the loans that are on deferral. I know you guys were a little more liberal.
Allowing those deferrals and I appreciate kind of but the timeline on when they'll return back to.
Normal payment.
Joel if theyre able, but maybe could you just walk through any additional modifications that you might play into may come into that October period, or beyond hi handling it from here.
Yes, as we talked about in the last call we.
We were aggressive and reaching out to our customers to assist through the.
Challenging period, we're in.
We got to those customers early and it was something our bankers executed on well and therefore, we are able to offer payment deferrals to a number of our customers to give you a sense of what we've seen through the first 15 days of July we've had about 1200 loans reached or deferral status through July 15th.
60% of those have returned to making payments.
10% of those took another deferral and the remainder are still working their way through the payment and billing cycle. So that if that helps give you some sense where we're at.
Yes, that's helpful. I, just I'm, just trying to get a fuel for.
Would you expect deferral levels come down to low single digits maybe.
To the end of this year and would you look to do any just collect PD ours or something like that as we head into 2021, there were still some beleaguered credits.
We we haven't put together a projection per se of exactly where those heads, but we do feel fairly strongly that they should come down in the in the coming quarters and if anything were to move to TDR status will be dependent on largely where the economy is and how those borrowers are doing by the time, we get to fourth quarter.
Based on the first 15 days, you're right it would be pretty significant the decline, we'll just have to see how things.
Evolve over.
Over time here.
We're very encouraged with what we've seen thus far.
Okay, and maybe just one on the Miss maybe too early but on capital I mean, your capital levels or.
Hi, quite strong obviously that that's a good place to be right now, but then as we look at what's more the medium or or maybe even longer term. How do you think about capital levels and when would you start to.
What would give you confidence I guess to start to return those to more normalized level.
And as you said in the current environment I think our key focus is to continue to protect and build tangible book value and grow capital Thats I think the most important thing we can be focused on.
And we'll remain conservative in our posturing around capital through this period.
The biggest.
Thing that will help us make any decision on capital will be clarity and clarity emerges.
Late this year end to 2021, there's a number of options for capital, including organic growth in M&A as well as buybacks and dividends and so we'll consider the various capital options as clarity emerges, but that likely doesn't seem like it will occur until later this year into 2021.
Okay. Thank recall for me thanks.
Thanks Mark.
Thank you. Our next question on line comes from Mr., Steve Boss. Please go ahead.
Hi, Good morning, good morning, Steve.
What does the start off the with kind of what you're seeing for business activity. Here you guys mentioned that interchange income.
Returned to pre pandemic levels in June kind of wondering what you're seeing for July.
Yeah, I don't think we have anything on July yet the is we haven't gotten the data yet we did definitely saw business activity pick back up at a fairly rapid pace through the months of May and June.
Is.
We came out of the stay at home orders.
We're still a fully open for business and the state of Florida and consumers are out doing business obviously.
Cobot cases have increased a fairly significantly here in the last five weeks, but to but things are happening businesses are opening our conversations with customers.
Thank you to reiterate to us that there.
Focused on maintaining the operations and focus on being successful through this period and we're working to assist them in doing that so things have come back things are happening, but certainly not at the levels that they were pre pandemic.
So theres been some improvement in our has as I've talked with individual customers.
Certainly with the recent increase in cases, we saw some declines so its I've heard about some declines in revenue and and.
Restaurants.
But generally speaking I don't think we've seen that and so we're pretty optimistic about where we are right now you know the state.
Did not close down.
In response to the increase cases.
Just about every municipality and every county in the state now requires.
Folks to wear masks when there are public areas and if you walked around Florida right now that's what you'd see.
And thats kind of interesting we've seen.
The.
Number of new cases began to stabilize in the last two or three weeks.
We've seen.
The number of desks come way down across the state over the last two weeks, so it's kind of encouraging.
Information that perhaps would suggest that things are stabilizing now in Florida.
Great that's helpful and then.
On the margin here.
Obviously have a lot of ERP noise.
But.
Outside of that was really the healthy decline in funding cost and I heard your common Tracy about.
Fully reflected in the numbers just kind of curious as to.
Maybe ex TPP, how you guys, we think about margin here going forward.
Hey, Steve JF I'll take that.
Yes, I think if you assume kind of similar accretion levels on loans.
We would probably see some more pressure on the asset side securities and loans just from dilution.
From lower AD on rates, but we do have a little bit of room on the funding side, we have some higher rate brokered funding that we would expect roll off the balance sheet.
As well as some retail Cds that will reprice over the back half of the year. So.
Overall, I think theres less of a liquidity effect as some of this higher rate wholesale funding rolls off the balance sheet and.
Any excess liquidity, we're looking to deploy into the securities book, So kind of ex PPP I think.
Yes under this scenario you could expect core margin to to be maintained at roughly the same level you saw exiting the second quarter.
Alright, great. Thank you very much appreciate all the color.
Steve.
Operator, we'll take another question.
So sorry I was on mute. Our next question on line comes from David Feaster. Please go ahead.
Hey, good morning, everybody, Hey, David David I, just wanted to.
I appreciate the commentary on loans in the prepared remarks, but just wanted to get any thoughts on organic growth ex PD.
Grown X PDP decreased a bit more than expected just curious the trends you're seeing it sounds like some of this was strategic where you are tightening the credit box or just any commentary on cnine utilization payoffs and pay down trends competitive landscape just what's the overall demand for new correct.
Yes, I would I would describe it is you're thinking about modeling is the third quarter, probably look a lot like second quarter pretty much across the businesses, we expect mortgage to remain very strong.
Refinance remains very strong as well is a residential real estate market is been a surprisingly resilient all this and so.
We expect mortgage business too.
We remain.
Very strong going in the quarter is well is I would expect our consumer businesses look a lot like the second quarter and on the commercial side, we remain very conservative.
Prudent in our underwriting practices.
I would say there's.
Not a tremendous demand out there for credit in the marketplace right now and we're picking a.
Our path very cautiously and thoughtfully and so our past quarters really hard to provide any guidance, but if you're thinking about the third quarter I think it'll look a lot like second quarter.
Borrower selection and at times like this is critical and that's where we've.
Ben very focused as you know forever and some of the work we've done around borrower selection it alone selection.
And that continues today, so and I will just also mentioned the other thing is theres other ways to drive revenue, which is mortgages and deposits and we saw well almost a 50% increase and new customer acquisition on the business side quarter over quarter, which shows very encouraged by.
And the large banks remain very difficult from a availability standpoint.
Performed.
Quarterly when compared to the community banks on PPP and just access to the national banks, it's been hard for customers were taken advantage of that we've been aggressive out in the marketplace with outreach from our our bankers and thats turned into business, so and some ways, while it's a challenging environment is key to provided.
Opportunities for us for us to growth franchise.
Just to be clear I mean, many of the large bank competitors here the Mega banks have many many of their offices closed.
Fully.
So ano customers are confused they are having a hard time as Chuck said getting into talk with anybody or and they've had some real problems with call centers.
Wait times on the like so there's a lot at the satisfaction out there and we're hopeful but maybe that's.
Been helpful to our recent surge in new customer growth. So we feel pretty pretty good about that we started advertising again.
Which we think it's important and that a little.
Should be an interesting period over the balance of the year.
Yes, that's helpful color or what the great job, but just following up on the what are you seeing on on the opportunities for new hires I mean as these guys. There that maybe some of the big bag from.
Getting frustrated by the performance there are they see more inbound calls are you interested in new hires or even.
Potential.
Growth, maybe trying to be a bit more aggressive in terms of hiring and expansion what others are being a bit more beautiful.
Yes, I'd describe our our strategy around new hires as opportunistic where we see.
Well season strong bankers in the marketplace that we think would be additions to the franchise will.
We'll make those hires all while being thoughtful about cost in this environment, we need to continue to be prudent on our expense discipline something its weaved into the forever fabric of our organization, but where we have opportunities to acquire a good solid bankers with track records and.
Portfolios to customers will absolutely take a look at them.
Okay. That's helpful. And then last one from me just obviously I think this whole environment is really just supported your your strategy overall, but just curious.
As you look forward and maybe how do your strategic planning is there other opportunity that you've identified the either at the product offering or digital initiatives or any comments on how you're planning to maybe adapt further in this new normal or is it just more of an affirmation of your business model.
Hey, David Jeff Leo I'll take that I think to started certainly at Athens affirmation of the business model, which we introduced at the Investor Day in February 2017, if you'll remember that the notion of multichannel distribution being vitally important to now it's really in our mind positioned as well, but if you think about where we want.
To push harder I think it's about the digital suite that we have to serve those business customers. We made a lot of progress with consumer and we've seen really good momentum with the business side of the house I do think that there's more to be done in that area. This probably more.
From a servicing aspect that we can look at and we continue to look at our product set as well, we think thats a part of the consideration set for the businesses that we want to attract to the franchise in this opportunity. It's the capability sets. So you expect to see us pushing even more on the business side of the digital front.
Thank you.
Thanks, David.
Thank you. Our next question comes from Christopher Marinac. Please go ahead.
Yeah. Thanks. Good morning, Thanks for all the information not last night today and I had a similar question for you Jeff to sort of what is next in the industry.
Mentioned, the well that focus on the business business customer but.
Our other banks catching up to CECO stores, it's simply that they kind of figured out what you introduced you actually years ago.
I would I would tell you I think every bank in the country now understands that you've got to be thoughtful about how you interact with customers. When you don't see him face to face anymore that was a major part of our thesis back in 14 15 before we even unveiled that in in the 17 Investor day right with our.
We expected customers to naturally migrate to more convenient channels. This should the logical thing to expect whether it's the call center, whether it's the digital channels.
And Thats why we really locked in on well how do you interact with customers and have thoughtful conversations when you don't see them face to face and so I know for effect. There is a heightened sense of urgency across the Nonbanks. When you look at kind of what's happening and the idea is about about a new normal about what this is going.
Look like I do think it positions us well this notion of multichannel distribution really focused on driving the non routine activities or the routine activities to to the non branch channels I think you're going to see that take hold at a greater pace across the industry, but I think that the cultural change to that I think a lot of these Mexico.
I have to go through we focused a lot on the cultural aspects of what we're trying to do that can be underestimated in my view.
Add to that the SEC fluid I was.
Thinking about when you are winning Rick.
Talk in areas that when you look at.
Back at what we've got done from a cultural perspective, and the performance of our bankers with outreach.
We were already moving towards the accessing customers via phone via digital the online and using other channels to support those needs of customers and this.
Pandemic has largely accelerated that and if you look at the integrated approach we've taken with appointments in the branches over 6000 appointments and since we rolled out the appointment tool earlier in the year.
The availability of our call center on our call centers.
Availability to serve all needs of customers and providing mobile suite. It's this integrated approach along with an analytics driven sales process. There I think allows us to.
Probably outcompete here for a while in this environment.
Great. So I guess as a kind of a score card going forward is it's simple it simply watching the new business wins on deposits as well as loans is kind of best way to keep track is there anything else that you would look for.
Yeah, and the other piece would be a continuing to move the servicing part of our organization to lower cost channels, that's a big emphasis for us.
I think the pandemic allow us to accelerate that as customers seek for other other ways to service our relationships and the more we can get servicing costs down the more it frees up the availability to take cost in the franchise and move them over into growth oriented activities and.
Support capital and so.
Thats the way, we will be approaching this moving forward.
Okay, great. Thanks again for the color This morning Express Chris.
Thank you.
Your final question comes from Jeff Capital. Please go ahead.
Hey, guys and congrats to Chuck and congrats years, while many.
Thanks, Thank you.
Thanks, Chuck I, just want to ask your strategic one im going to piggyback. Other question, we were just by failure.
Can you talk a little bit about how you're thinking about managing the balance sheet. In this environment questions. As you know what are you most appropriate stock right now on and what should we expect over the next few months couple of quarters, just how fast should seacoast be growing to balance.
Our in house prudent tubing cecos, despite all the uncertainty out there. Thanks.
Yeah, I think if you just think about.
Just balance sheet management in this environment, obviously interest rates have changed meaningfully and the the outlook has changed due given the dynamic environment, where and I think you know the best way to describe it is will be very prudent.
And.
Server, Dave as we move forward, we've put more liquidity in the balance sheet given the environment. We're in we'll continue to manage to a robust capital position.
And from a loan growth expectation as we talked about I'd, probably expect loans outstandings to decline modestly in the coming quarter given our.
Conservative posturing around credit.
Overall, though there's other ways to such as I mentioned earlier theres other ways to generate franchise value in that so focusing on fees. It's also focusing on growing deposit customers and customers on general and maintaining a prudent approach to our expense base and so we'll continue to properly manage both.
Income and the balance sheet as we move through time, but we'll then we'll do that from sort of a conservative lane.
Okay, great. Thanks.
Question on interchange income.
It's going to us through the second quarter should be the bottom October revenue, there and not there.
The improvement from pure on out I guess.
Thanks, David economic activity will probably improve over the next few months off the bottom steps all here in the second quarter is we've got better can you, maybe just talk to adopt a little bit back.
I'd say at this point you know the barring anything wildly unexpected from a pandemic standpoint, I mean, one would expect the number to continue to recover when you when you Peel apart the quarterly aspect. It was really April that took a big hit and I think thats, where up everyone took.
Pause on what they were doing and then in May the number and honestly pop right back up to prior levels a lot of people buying staples and doing the things you have to keep your household cut operational so again, Jeff borrowing barring anything wildly unforeseen I would expect to see the number to continue to.
To trend the way it had been previously.
Mission to the vast majority of our entertain comes from debit, which is more everyday spend tighter our change right versus vacation interchange off credit card. Other rewards program. So as everyday spend returns we expect debit to return.
Got it and.
And then lastly.
One final one and Theres a lot of chatter.
Well right now about digital migration and what I mean by that.
Weekly contributors moving over to digital banking.
In response Caribbean.
This ecosystem, we had a very strong tech sector I figured you redirecting Colombia.
Are you seeing digital migration by your customers.
And if so can you can you tell us in ways that you are taking the migrate to digital while mobile banking on like Bill payment because it is it so we're going or 70 people Medea I'm. Just curious if you give us feel for what you're saying.
And maybe just a reminder, banking by consumers.
Helps you curve share from from an operational standpoint I. Appreciate thanks, very much yes, no problem. We've certainly seen the usage number go up and I think Jeff when you dig into those numbers what youre seeing is you've got always that a portion of your users that are always active right. What we've seen now that those people who were modern.
Really active are now becoming much more dependent on the channel to stay connected with their bank in their banking relationship and so that's kind of the first thing the Pos when you look at just the usage numbers across consumer and across importantly for us business, you've seen those numbers pop.
Also numbers that you've seen pop is just the amount of deposits that are now being done outside of the branch network. That's a number we focused on for a number of years now we're now nearly 60% of all consumers are making their deposits outside the branch network.
So that's kind of a big deal that number gives us a lot of operating flexibility as we as we move forward. Those small businesses now are increasingly finding the digital channels and non branch channeled even more convenient and then this environment, 44%. So we think is that continues to evolve it gives us some flexibility but importantly.
We did Chuck mentioned that well it helps our organization free up time to focus on that on the high value things, we can do for our clients growing relationships as more and more of the routine is digitize I do think it's an inflection point for the industry does it mean, we're all digital only banks of course, not that's just not who we are and that's not what our customers expect.
But it does mean that we're providing really good digital experiences for our customers.
And then when that face to face moment of truth happens, whether it's by zoo or truly face to face were there and we have the technology to be able to facilitate that.
Okay, great. Thank you and congrats.
Hey, Jeff.
Great.
Thank you operator, I think that concludes the question answer session and we all look forward to speaking again as we complete the third quarter. Thank you.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
[music].