Earnings Call Transcript - CNOB Q2 2021

Operator, Operator

Greetings, and welcome to ConnectOne Bancorp's Second Quarter 2021 Earnings Conference Call. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Siya Vansia, Chief Brand and Innovation Officer. Thank you. 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 second quarter of 2021 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 made only as of the date of this call, and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed today on Form 8-K with the SEC and may be 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, Chairman and CEO

Thank you, Siya, and good morning, everyone. So 2021 has been marked by the consistent execution of our operating strategy, and we're exceedingly pleased with ConnectOne's strong second quarter financial results. Our performance highlights our commitment to serve our growing client base and our ability to capitalize on a variety of growth opportunities. We entered the year in an uncertain state, and as we saw signs of economic momentum building, we were well positioned to actively participate in the early stages of our markets reopening. Our teams were prepared and took a proactive approach, which is clearly demonstrated in our results. This quarter's results were highlighted by record performance, meaningful organic growth in our balance sheet, and record operating metrics. Our pre-tax, pre-provision return on average assets was 2.19%. Our tangible book value per share grew another 4% for the quarter and is up in excess of 15% over the past year. Loans, excluding the PPP, grew by 22% on an annualized basis. And our net interest margin expanded again for the seventh quarter in a row to 3.6%. We continue to build valuable, non-interest demand and low-cost core deposit balances, leveraging our relationship banking model as we see an uptick in client activity. We realized accelerated loan growth, especially towards the end of the second quarter and heading into the third quarter, our pipeline remains at record high levels. For the remainder of 2021, we expect annualized double-digit loan growth at favorable market spreads. Beyond our existing pipeline, we continue to pursue attractive opportunities to grow responsibly and expand ConnectOne's valuable franchise. We've experienced numerous opportunities to support our clients' growth, both in size and in capability. We continue to see opportunities to leverage our client-first, sense of urgency culture to attract clients from the largest institutions. And finally, with the uptick in M&A in our markets and beyond, we see an opportunity to capitalize on the displacement that is occurring, primarily by attracting new lenders and thereby attracting new clients and expanding our market. Turning back to our performance. We delivered outstanding metrics, including a high return on tangible common equity, the building of tangible book value per share, and improving even further in our best-in-class efficiency ratio. On the expense side, we remain focused on maintaining our operating efficiency through continued utilization and leverage of our infrastructure. Moving forward, in anticipation of additional growth, we expect some expense growth to accelerate in the second half of 2021. To give you more color on that, we're having increased success in attracting top industry talent. Given the market disruptions, specifically from M&A, we're seeing multi-layered talent looking out to ConnectOne for opportunities. We're excited about accelerating the growth within and, in some cases, expansion of our footprint. These growth investments will continue to play a critical role in competitively positioning ConnectOne as a modern financial services company while driving long-term shareholder value. We're also very pleased with the growth of our fintech subsidiary, BoeFly. Mike Rozman and his team continue to generate traffic through their proprietary products and realize strong momentum on the online business platform. BoeFly has also benefited from its continued involvement in the latest PPP round generating meaningful fee income from other financial institutions without utilizing ConnectOne's balance sheet. Strategically, the PPP program has accelerated BoeFly further into its marketplace model as well as expanding its brand presence amongst banks, franchise owners, and small businesses. We look forward to further growth from BoeFly, reflecting continued investments in the platform and increased marketing. We also remain committed to several key elements that have contributed to our long-term success, including being disciplined in M&A pricing and stewardship of our shareholders' capital. Over the past two years, our capital and reserves have grown significantly, providing us the flexibility to grow organically through opportunistic M&A and to increase return of excess capital to our shareholders. Underscoring our solid capital position and our confidence in ConnectOne's future performance, we view share buybacks as an important component of our capital management strategy. We also recognize that our dividend payout ratio is low and that combined with our strong capital generation gives us flexibility to continue to increase the dividend in future quarters. While M&A remains an important component of our growth strategy, our track record of superior organic growth allows us to remain a financially disciplined acquirer. Before turning the call over to Bill, I'd like to spend a moment discussing our forward-thinking banking model. It's clear that the early investments we've made in technology and our infrastructure allowed ConnectOne to respond to both the pandemic and our reopening efficiently and effectively. Over the past 15 months we've seen meaningful shifts towards digital capabilities, and we're continuing to expand our use of technology to serve our clients. As ConnectOne returns to working together in person, I continue to be impressed by our team, including their ability to adapt, their resiliency, and their commitment to our clients and the communities we serve. I'll now turn the call over to Bill, who will provide a little more detail on the quarter's financial performance. Bill?

Bill Burns, Executive Vice President and CFO

Thank you, Frank, and good morning, everyone. I want to echo Frank's sentiments about the positive economic momentum that has driven us forward, resulting in record operating results and significant organic growth for the second quarter. This morning, the market has responded very positively to our report, and there is a lot of good news to share. First, the PPNR as a percentage of assets increased by another 13 basis points sequentially to 2.19 this quarter, positioning us among the industry leaders. Our return on tangible common equity reached 17.8%, bolstered by the reserve release, though it would have been impressive even with a normalized provision, likely around 16.5%. As Frank indicated, we experienced strong loan growth in the latter part of the quarter. Although this growth had a minimal impact on net interest income for this quarter, it will certainly benefit the third quarter. On an annualized basis, excluding the PPP loans, sequential growth was 22%, and even when including PPP forgiveness, we still saw a robust annualized growth of 8%. Loan spreads on new originations remain favorable, with a weighted average origination rate of about 3.75%. Most of the loan growth has come from commercial real estate, but our current pipeline is strong, and we are seeing an uptick in commercial and industrial lending, with expected spreads remaining reasonable. We will continue to monitor the market for competitive pressures. For PPP loans at the end of the quarter, our balance has decreased to $327 million from gross originations of approximately $675 million, indicating an accelerated forgiveness timeline. The yield on the PPP loans for the second quarter was around 3.15%, and I anticipate this yield to continue as the portfolio declines. As Frank mentioned, our net interest margin has expanded for the seventh consecutive quarter. While we expect some decline in asset yields as we grow, this will likely be partially offset by using excess cash and a continued reduction in funding costs. The decrease in funding costs is due to an increase in our noninterest-bearing demand balances, which are now 23.5% of total deposits, up from 22% a year ago. We have also seen a 25% year-over-year growth in interest-bearing non-maturity balances that have favorable rate dynamics, and our higher-rate CDs and wholesale borrowings are either maturing at lower balances or lower rates. Given our outlook, we expect to significantly increase net interest income in the coming quarters. However, accelerated growth in a low-rate environment may lead to some margin compression, but this is expected to be nominal, and the overall benefit to net interest income should be significant and value-enhancing. Moving on to noninterest revenue growth, we are seeing positive momentum. Reported noninterest income was very strong, partly due to one-time PPP referral fees generated by BoeFly, amounting to about $700,000, while last year they earned over $2 million from PPP referrals. Once again, our recurring core revenue is strong, and we expect further growth as we develop our SBA lending platform, separate from BoeFly. The outlook for commercial and residential real estate loan sales appears positive and should increase alongside BoeFly's core business volumes. Historically, our run-rate was about $250,000 per quarter, and this quarter we significantly surpassed that. Additionally, our BOLI investments have increased in line with our capital growth. Regarding noninterest expense, it has remained flat sequentially for the quarter, consistent over the past several quarters. With the revenue increases I just mentioned, our efficiency ratio has improved further to 38.2% this quarter. As Frank noted, we do anticipate higher than normal expense growth for the rest of the year, as we bring in new talent in anticipation of loan growth and continue investments in technology and office support. This is expected to lead to sequential expense growth in the mid-single digits. Despite the increase in projected expenses, we still expect the efficiency ratio to remain around the 40% mark, as we anticipate revenue to rise as well. Regarding CECL reserves, we expect continued volatility due to changing economic forecasts. Nevertheless, credit quality remains solid at ConnectOne. We actually reached the lowest level of delinquent loans in recent history, with less than $1 million overdue by 30 days as of June 30. Our deferred portfolio stood at approximately $100 million at quarter-end, and we will continue to work that down throughout the year. Any potential losses from the deferred loans are expected to be minimal, and we have sufficient reserves for them. As for capital deployment, we recently filed a $300 million shelf. While we do not plan to issue common equity, the debt and preferred equity markets are currently welcoming, and we are considering various structures to enhance our capital stack and improve financial metrics. Any potential issuance would follow 12 months of significant capital retention, positioning us well to grow organically at a double-digit pace, increase our cash dividend, and accelerate stock repurchases. With that positive report, I will now turn it back to Frank.

Frank Sorrentino, Chairman and CEO

Thanks, Bill. That's certainly a very positive report. So as we've discussed, our second quarter's earnings are a testament to ConnectOne's team and highly efficient client-first, sense of urgency business model. Our performance is highlighted by record operating metrics, record organic originations, and improved efficiency. As we move into the second half of the year, our earnings profile is strong, balance sheet, and credit are in a good place. We continue to grow organically and see a strong growth rate for the rest of 2021. Our capital position is strong. We have a valuable franchise and continue to benefit from multiple streams of income and increased momentum across multiple platforms. We're continuing our digital enhancements and investments. While we continue to invest in our future, we continue to improve our best-in-class efficiency. We're excited about our future. We remain confident in our ability to drive long-term sustainable growth and industry-leading returns. Our outlook for the second half of 2021 is extremely positive, and we remain well positioned to capitalize on meaningful growth strategies. With that, we're happy to take your questions. Operator?

Operator, Operator

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from William Wallace with Raymond James.

William Wallace, Analyst

So a couple of questions. On the loan growth guidance, Frank, I believe you said double-digits, and if I look at the first half of the year, you're running around 14% annualized. Given what you saw late in the second quarter. Do you think that growth rate could be higher than that? Or do you expect that we've had some pent-up loan growth and maybe that'd be too aggressive to model in kind of mid-teens run-rate for the year?

Frank Sorrentino, Chairman and CEO

Wally, I'd love to say yes, but we're trying to be disciplined as well. Spreads are something we focus on, the quality of the business, where it's at, what type of business it is, how it's fitting into our balance sheet. We're definitely here to support our clients. But there's a lot of competition out there. So I think we're going to have strong growth for the balance of the year, but I really wouldn't want to speculate that it's going to be that much stronger than what we've experienced recently.

William Wallace, Analyst

Okay. Can you discuss where you are seeing demand in loan growth this quarter, both in terms of geography and product categories?

Frank Sorrentino, Chairman and CEO

We are experiencing growth from our current client base, which began once the economy started reopening, allowing our existing clients to return. Much of the growth this quarter has been driven by commercial real estate and, to some extent, multifamily sectors, as those were the easiest to finalize. Timing has certainly played a role. We are also seeing our loan portfolio's pipeline expand in other areas. The majority of this growth is coming from what we consider to be our current market. We are slightly pushing the boundaries of that market by hiring new individuals from various sectors, whether acquired or newly built. Additionally, we are receiving requests from clients in different regions. As previously mentioned, we have engaged with some clients in the Florida market, leading to demand from a variety of places.

William Wallace, Analyst

And then what about in New York City? Manhattan specifically.

Frank Sorrentino, Chairman and CEO

New York City has been awakening recently in quite a strong way. And when I say New York City, I'm talking about the five boroughs. It was a little bit of a lag. We saw the awakening in New Jersey first. But we're seeing a lot of positive signs in and around the five boroughs, and we think that's all going to show up pretty much in the third and fourth quarters.

William Wallace, Analyst

Great. Can you expand a bit on the hiring opportunities? I would like to know how many new lenders you have brought on board so far, considering the significant disruption in your markets. What are the prospects for continued hiring? If you have the chance to hire freely, how will you manage expense growth in relation to potential future gains?

Frank Sorrentino, Chairman and CEO

Wally, I'm pleased to report that our expense growth has increased significantly due to our high-quality hiring. So far, we've managed to maintain our efficiency and even lower the efficiency ratio. Typically, under normal conditions, we can hire several lenders at a time without negatively affecting the efficiency ratio. I can tell you that based on the current marketplace, we are very excited about the caliber of candidates coming from respected companies who are dissatisfied with the current state of affairs, particularly due to mergers and displacements. They are not only being sought after by us, but they are also actively looking for opportunities with us. ConnectOne is becoming a preferred destination for those interested in a stable, progressive, client-focused organization. There aren't many choices left in the market. When considering our marketing and the banks that meet their clients' needs, we are starting to appear unique. We are actively looking for talent, and they are looking for us as well.

William Wallace, Analyst

Okay. Could you quantify how many net new lenders you've hired this year to date? This would help frame our conversation.

Frank Sorrentino, Chairman and CEO

I don't know exactly, but I would say it's in excess of a half a dozen so far, and we have a pipeline of people who are interested in joining.

Operator, Operator

Our next question comes from Frank Schiraldi with Piper Sandler.

Frank Schiraldi, Analyst

I was curious if you could elaborate on the Korean Multifamily being the greatest opportunity in the quarter. Additionally, you mentioned a pickup in C&I. Can you discuss the average size of the relationships you're targeting on the C&I side, and whether that is changing or if you see the potential to move upmarket in terms of size?

Frank Sorrentino, Chairman and CEO

Yes. I would say that the vast majority of the opportunities we're seeing are pretty much right in our wheelhouse. It's in that $5 million to $15 million range of C&I exposure. The types of companies that we're dealing with are pretty much right down the fairway. Are we leaning a little bit towards larger sizes just because we can? I would say the answer is yes. We're getting in front of more sophisticated companies. But for the most part, I think it would look pretty much like what you would have seen in the portfolio through to this day.

Frank Schiraldi, Analyst

Okay. And then in terms of growth, I mean, thinking about what the portfolio could look like 6, 12 months out. Any color there in terms of if you have your druthers in terms of where the growth will come. And for example, what C&I could move to as a percentage of total loans and sort of what the offset is?

Frank Sorrentino, Chairman and CEO

Yes. I need to take some time to consider that. We are pleased with the production in our Commercial and Industrial portfolio, and I believe it will increasingly contribute to the balance sheet. Clients are approaching us across various segments, including construction, commercial real estate, and multi-family, due to our execution capabilities. We are encountering more opportunities in all the sectors we operate in. It’s challenging to predict the timing of these developments; we address them as they arise and are committed to supporting our clients in their moments of need. I do believe that over time, a larger portion will come from Commercial and Industrial since we're focusing our efforts there. However, this doesn’t mean we are decreasing our activities in multi-family, commercial real estate, or construction. We aim to pursue all deals that align with our strategy, especially with our existing client base, while also seeking to expand into new markets.

Frank Schiraldi, Analyst

Got you. And then just lastly for me. I know it's not your core business line in terms of your operations, but the stock seems very undervalued to me here. Bill, you mentioned buybacks when you talked about the recent shelf. And so it sounds like that could be tied to some debt instrument. And just wondering how aggressive you could be on that front, if you think in terms of size and timing?

Bill Burns, Executive Vice President and CFO

Well, there are a lot of factors that affect the speed at which we can buy back stock. We have 500,000 shares left on the current program. I would hope to get through that over the course of this year and then re-up the authorization before the end of the year.

Frank Schiraldi, Analyst

Okay. Did I understand correctly that a debt instrument might be linked to that and used to accelerate the program?

Bill Burns, Executive Vice President and CFO

Yes, either a preferred instrument or debt interest.

Frank Schiraldi, Analyst

Okay. So I guess, any color on in terms of how large you could go on the next program? Or is that too hard to say?

Bill Burns, Executive Vice President and CFO

I don't want to speculate at this point. Let's see what the growth in the company is. Any way you look at it, we have a lot of flexibility. We're probably operating at capital ratios that are above where we should be, and we continue to generate a tremendous amount of retained earnings. So there should be a lot of flexibility to do all the things we've been talking about, which includes double-digit growth, share repurchases, and dividend increases.

Operator, Operator

Our next question is from David Bishop with Seaport Research Partners.

David Bishop, Analyst

On the margin, I think, Bill, you mentioned there might be some more opportunity to lean a little bit on the funding side. Just curious where you're onboarding new funds on the CD side and any sort of outlook you can give in terms of what's rolling off here in the next quarter or so?

Bill Burns, Executive Vice President and CFO

Yes, let's start by discussing where we are placing new CDs, which is in the 40 to 50 basis point range. The impact has been quite significant over the past year. It's slowing down a bit only because the CDs in our portfolio are in the 120 to 130 range. However, we still have another $1 billion to allocate over the next year, with the majority of that happening in the next six months.

David Bishop, Analyst

Got it. And I think I heard you say in terms of the outlook for operating expenses in the second half, mid-single digits. I assume that was sort of an annualized rate. Just curious, at the investment in lending talent, which Frank spoke about, just curious where you see sort of the...

Bill Burns, Executive Vice President and CFO

Right. That is actually a sequential increase. We do expect, and keep in mind, we have been relatively flat for the past three or four quarters. So I anticipate a slight uptick in expenses, perhaps a bit more in the fourth quarter compared to the third quarter, but revenue is increasing as well. Our efficiency ratio improved to 38%. I expect it to be around 40%, possibly slightly above or below that figure.

David Bishop, Analyst

As we look into 2022, I understand that in the last few quarters there has been positive operating leverage, and while there may be some pressure on margins, it could be balanced by growth in top line spread income. Do you believe you can sustain and still achieve that positive operating leverage as we head into 2022, considering your previous comments?

Bill Burns, Executive Vice President and CFO

I am very optimistic about it. I have mentioned on every call that there will be margin compression, yet we continue to expand our margin. However, at some point, particularly in a low-rate environment, I believe that despite our current strong spreads, competition will remain. Ultimately, our focus is on driving returns on tangible common equity. With our margin at 360, even at 3.6%, we still expect to achieve very high returns on equity, though I am not saying we will push it that far.

David Bishop, Analyst

Got it. And then I have one final question. I think you mentioned a strong quarter for the BoeFly fees. I'm just curious if you have that number.

Bill Burns, Executive Vice President and CFO

Well, on a pure quarter basis, they were in the $300 million to $325 million range. BoeFly always has a way to expand the sources of revenue we're always looking at. So they probably had another $50,000 to $75,000 of fees that were apart from their regular business, which is referrals of SBA loans to other banks.

Operator, Operator

Next question comes from Matthew Breese with Stephens.

Matthew Breese, Analyst

Frank, you mentioned a couple of times now potentially going after new opportunities, expanding the market. Could you just expand upon that comment? What markets are you making progress in? You mentioned some of the newer markets; you've mentioned Florida. And what markets are on the whiteboard that we might expect you to go into?

Frank Sorrentino, Chairman and CEO

I can provide an update on our current position. We've seen significant disruption in some markets, particularly those further out from New York City, such as the areas we acquired through Greater Hudson and our efforts on Long Island. As we continue to make strong hires and build name recognition in these regions, we're extending our reach further into the northern and eastern parts of the market. This is where we're concentrating our efforts right now, as it is also where we see the most disruption occurring. I previously mentioned Florida, which is increasingly important as many of our New York City clients, including developers, landowners, management companies, and law firms, are also establishing a presence there. Over the past year and a half, we’ve felt it necessary to follow our clients to support them, and this has led to growth as we move forward. Ultimately, our focus is on following our clients into these areas.

Matthew Breese, Analyst

Might we see an LPO opening in one of these further out Long Island or Westchester or up to Hudson Valley, as you make continued progress?

Frank Sorrentino, Chairman and CEO

We typically base our growth on our team. Once we identify skilled individuals who want to join us, we then decide where to establish new offices. We don't usually approach it the other way around. It's important to support the team members who are driving business, and if they're all located in a specific area without an existing office, we will need to create new office environments. We've previously done this to enter markets like New York City, Melville, and Newark, among others. I don’t see any reason to change this approach, as it has proven to be very effective for us.

Matthew Breese, Analyst

Understood. Okay. Bill, how much of the portfolio today is floating rate and with or without floors? And as a follow-up, do you feel like the asset sensitivity of the bank, on paper, is really balance sheet neutral today? Is the asset sensitivity, given improvements to the deposit portfolio, understated?

Bill Burns, Executive Vice President and CFO

You might expect that since we benefited from falling rates, we could be vulnerable to rising rates. However, we've gained from changes in our deposit portfolio, and we are taking the opportunity to extend our funding into the five to six-year range, paying slightly more than what we could set at 60 or 70 basis points. We're paying around 1% or a bit more to safeguard ourselves. In a higher-rate environment, we actually benefit from elevated demand deposits, which hold more value, and we are also protecting ourselves on the interest-bearing side of our liabilities. Therefore, I feel confident that we are largely insulated from fluctuations in interest rates.

Matthew Breese, Analyst

Okay. And then last one for me is just on credit. It's amazing where charge-offs are considering where we were a year ago and 18 months ago. Is there anything on the horizon that would make the charge-off trajectory any meaningfully different than what we've seen over the last four to six quarters? Just want to recalibrate a little bit my expectations for losses here.

Bill Burns, Executive Vice President and CFO

Not much is coming up on the horizon. The portfolio is currently very solid. As I mentioned, delinquencies are at record lows.

Operator, Operator

Our next question comes from Mike Perito with KBW.

Mike Perito, Analyst

A lot of my questions have been answered. I just had a few things I wanted to hit. Just to put the credit theme for a second, a little bit of a conceptual question here. But just in the news flow here being in around the city again, you're starting to hear companies kind of walk back some of their policies around coming into the office and stuff with the Delta variant. And I mean, just as we think about the reserve moving forward, it might be a little early to ask this question, but is it fair to think that you guys will take the environment and be on the conservative side of the environment moving forward in that, if there is some type of modest pullback that you would use the opportunity to keep as much reserve as economically feasible?

Bill Burns, Executive Vice President and CFO

These days, we're focused on our CECL model, which largely relies on economic forecasts. I believe the releases will eventually slow down and stop for all banks. As a sell-side research analyst, monitoring the economic forecast will aid in predicting how banks will manage their reserve levels.

Mike Perito, Analyst

Yes, it's quite notable to observe how the number of banks you've competed with has significantly reduced in a relatively short timeframe. To frame my question differently, while there are numerous lenders and talent available, are there any specific specialty lines or deposit initiatives you're considering? Many banks have pursued initiatives to enhance their commercial and industrial lending and improve their deposits. The current interest rate environment has been advantageous, and it appears that many have made some progress. Are there any particular platforms, teams, or specialty situations where you might be able to enhance the funding aspect of your business in the long term?

Bill Burns, Executive Vice President and CFO

So we're definitely on the lookout for that. And clearly, we'd like to enhance the places either where we don't have expertise or where we'd like to build additional expertise. But you also would have to understand that a lot of the banks that we competed with, in the markets and on the products that we were good competitors, if there’s somebody out there who's not happy with their current position, and they felt like we were worthy competitors, they're seeking us out because it's something they know. They know us, and they want to be a part of what we're doing. So I would tell you that we're having a lot of good success in the products and in the markets in which we already serve. But we are definitely on the lookout for how can we improve our product mix, pick up an additional line, as you described, and take advantage of some of those other opportunities. And I would tell you that it's my belief when we have this call a year from now, our balance sheet will look a little bit differently.

Mike Perito, Analyst

Yes. I might get criticized for suggesting this, but are there any possibilities, even just one or two, like the question about opening an LPO in other markets? Could there be some branch divestitures where you establish an office somewhere, potentially gaining a few customers and deposits to assist in funding the opening? I anticipate there might be some resistance in the marketplace, and I'm not necessarily in favor of adding many branches. But do you think there are any opportunities like that which could arise, or not really?

Frank Sorrentino, Chairman and CEO

Michael, there is a possibility. I don't want to completely dismiss the idea. I would say it could happen. However, our primary focus right now is a significant opportunity for people. We can either integrate them into our current infrastructure, which is the most cost-effective option, or we can construct new infrastructure to support them. Ultimately, it's about the people, not the locations.

Mike Perito, Analyst

Got it. And just one last thing from me. I believe it has been around nine months since your partnership with Built and nCino on the construction software became known publicly. I am curious, considering the other financial questions asked, if you could provide a brief overview of the benefits of this partnership. It has been nearly a year since it went live, and as construction activity increases, do you see it as a competitive advantage in the marketplace? Any additional insights on that would be appreciated.

Frank Sorrentino, Chairman and CEO

Our efficiency stands at 38.4%. The main reason for our focus on nCino over the past few years and our partnerships with firms like Built has been to provide top-quality service to our clients. We're working to minimize friction in the process so that clients enjoy doing business with us, all while delivering a consistent product at the lowest possible cost. I believe this is reflected in metrics like our efficiency ratio and is also evident in the increase in repeat customers. These customers return to us, willing to pay a bit more because we make the process easy for them, ensuring they can close and execute on time. These initiatives are client-focused and enable us to scale without needing additional infrastructure.

Operator, Operator

We've reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to management for closing comments.

Frank Sorrentino, Chairman and CEO

Well, thank you, everyone, for joining us today for our second quarter call. We really look forward to another report at the end of the third quarter. Look forward to seeing you all then. Thank you.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.