Q1 2021 Customers Bancorp Inc Earnings Call
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Many customers.
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Good day, thank you for standing by for the.
Customers Bancorp, Inc. First quarter earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during this session you May press star one on your telephone keypad.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to turn the call over to our first speaker Jay for David Petty. Please go ahead.
Thank you Lisa and good morning, everyone. Thank you for joining us for customers Bancorp's earnings call for the first quarter of 2021.
The presentation deck, you will see during today's webcast has been posted on the Investor Relations page on the bank's website at Www Dot customers Bank Dot com.
You can access the debt by clicking a red button marked latest earnings presentation.
On our Investor presentation includes important details that we will walk through on this morning's webcast I encourage you to use download approach for Dr.
Before we begin we would like to remind you that some other statements. We make today may be considered forward looking.
These forward looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated.
Please note that these forward looking statements speak only as of the day to this presentation and we undertake no obligation to update these forward looking statements in light of new information or future events, except for the extent required by applicable securities laws.
Please refer to our SEC filings, including our form 10-K and form 10-Q for a more detailed description of the risk factors that may affect our results.
Copies may be obtained from the SEC or by visiting the Investor Relations section of our website.
At this time, it's my.
Pleasure to introduce customers Bancorp share Jason do Jay you may begin.
Thank you. Thank you very much David and good morning, ladies and gentlemen.
We really appreciate your taking the time to join US This morning.
So very important call for us.
Joining me today.
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Great.
Ticketed bulk materials customers bank.
On to do.
<unk> incoming president and Chief Executive Officer of customers Bank as the interest.
We are cognizant of this quarter.
Carla Leibold, our chief financial Officer, as well as Andy Bowman.
Our chief Credit Officer.
Before.
Share with you.
And then my colleagues to join me and sharing with you the results for the first quarter, we'd like to talk a little bit about ESG.
And he has a few considerations are varied by sandy created across for customers bank for different juniors business unit and into our policies into the principles that govern how our company operates we put them together.
Which is on our website and we encourage you to take a look at that and every single year, we'll be updating debt and we are taking this very seriously at on a board level and at a management level.
Now on to slide six.
The highlight of our for our.
Performance as well as our franchise as you can see for you.
We had an exceptional quarter earnings on the only difference between core earnings and GAAP earnings are something that we had shared with you earlier debt.
We had a gain on the disposition of <unk> technologies, and we had to pay tax on that because we passed on tier.
Among the disposition to our shareholders.
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For severance payments or reward for made by a two day management growth for the MTA.
This is all going to be historical we'd like for you to grow in March for what's going to simple.
For gaining very strong earnings.
For the turnaround on our common equity of 31% return on assets for one 6% and adjusted pretax pre provision on a weighted.
On one 9% very important also is and Youll hear a lot more about this from Andy Bowman is talking about our credit quality and debt improved about 25% this past quarter with our nonperforming asset on the 26 basis points.
Well as other drove the coverage of 171.
From a very important milestone also is a significant increase in our capital ratio and our bank capital ratio was 13, 2% at March 31 and <unk>.
We talk a lot more about this during our presentation today.
Moving on to slide seven.
Like for you to join me, including my partner brand and probably Inc. J D.
<unk> joined US join me in a couple of other upon our colleagues about 11 years ago.
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Some new country Bank, we became customers Bancorp at that time for bank.
For the time of the launch of this bank.
Sure.
We took over a $250 million asset trading bank and today you know it took $13 6 billion in total core assets and about $18 billion, including PPP, we put together Fortunately with fig.
Significant contributions are very highly experienced management team and our team average is about 30 years of banking experience and digitally for one we recruited all debt you cannot the commodity it doesn't matter, whether you had 75 or $74 76 could you find a successor.
Who would you are very comfortable with an EBITDA recruited for them to do.
On the board appointed to be his successor and fans will be taken over as customers Bank Chief Executive Officer effective July 1st.
We've also recruited.
On a new teams and you can really be talking more about those.
For Q&A and from a credit quality point of view.
We are very very.
Comfortable with maintaining our credit profile.
The next several quarters and from the quantity of the franchise point of view you know.
Demand deposits today are about 22 percentage of our total deposits and on PD, there on new Biodefense and the quality of the franchise has dramatically improved.
Last couple of years in terms of our focused strategy and long term goals.
Rick and I and our colleagues have been very much focused on is building a bank.
Built on single point of contact on our private banking for privately held businesses in a way that the customer feels different and wants to say Wow.
We will continue to develop on top of that in house digital banking services for small and medium sized businesses and consumers and we will continue to focus on improving our balance sheet and it's a very we believe are very high quality and diversified earning asset base and a stable and growing core deposits.
Franchise.
The company's capital allocation and risk management.
Always in the forefront of every single thing that we do and we are very much engaged in not just short term quarter by quarter.
Planning, but also on a longer term planning and we are pleased to share with you that we are comfortable and reporting GAAP earnings of at least $5 ish tier.
In 2021, and 'twenty, two and we are very comfortable with.
Our goal achieving our goal of $6 in core earnings by 2026. So it's my pleasure at this time.
To hand, it over to our bank income.
Incoming chief Executive officer sensitive too.
To go over some of our business highlights.
Thanks, Jay it's a pleasure and good morning, everyone on slide nine Youll see that we are off to a great start in 2021 with another terrific quarter that benefited from continued growth across the franchise let.
Let me briefly summarize our results firstly from an earnings perspective, as Jay mentioned, we had core EPS of a record $2 in 2014.
Which represented net income of $70 3 million.
This translates to an ROA of 161% and PT pp ROA of one 9% core ROE was 31% in the quarter and adjusted pretax pre provision ROE was about 37%.
Now moving to PPP revenue.
Have made over $400 million today from our efforts on PPP and.
And we still have 300 million more of net revenue to be booked.
Fortunately this will be net of all internal and external costs throughout the life of the loans.
Now moving to asset quality.
Quality has always been a core pillar of our franchise and we continue to have superior credit quality for peers with NPA is at just 26 basis points on our coverage ratio now at one 7%.
In terms of loan growth total loans outstanding including funded PPP loans were up five 8 billion.
Over first quarter last year or 56, 6%.
Total loans, excluding PPP grew in line with expectations by about $700 million year.
Year over year or six 5%.
In terms of funding we had another incredible quarter total deposits grew by $4 $1 billion year over year or 48% with our demand deposits nearly doubling.
Our total cost of deposits are now at 90, now down 98 basis points to 53 basis points and as we have previously stated we expect this to drop below 40 basis points in the second quarter now.
Now looking at capital. This has been the most important achievement of the bank. This.
This year and we will continue to spend some time talking about this today.
We are experiencing tremendous capital build thanks to both strong core earnings as well as PPP reference.
We ended the quarter with TCE, excluding PPP up seven 1%.
After we realize our PPP revenues, you'll see Carlyle walked through a book value of $40, a share and TCE ratio approaching 10%.
Flipping to slide 10.
On loan growth and mix as we have previously shared we continue to experience strong loan growth as well as on improving loan remix away from lower yielding assets like our multifamily and mortgage warehouse franchises.
Now moving to slide 11.
On deposits Thats continues to be an unsung highlight of our franchise total deposits have grown nearly 50% over the past year with majority of that coming from demand deposit growth.
As mentioned, we expect our cost of deposits dropped below 40 basis points this quarter and I'll talk more on a few minutes about our future plans to use our superior technology platform to create a blockchain based fee to be real time payments network, which will allow us to grow our zero cost core deposit base in anticipation of an eventual rising rate environments.
Moving to slide 11 first on NIM, excluding PPP on the left side.
We are pleased but from our trough of 247% in 2018, we have been steadily increasing and are now stable at 3%, but are expected to rise throughout the year.
In the first quarter, we built a large cash position and anticipation of PPP, which started slow but has now ramped up towards the end of the quarter in terms of funded loans.
We are reaffirming our target of $3 10 to $3 30, NIM by year end and we expect to narrow this range as the year progresses.
Despite the drop in rates, our loan yields only declined 59 basis points.
Due to the mix shift and bottomed out last year again, we expect this trend to improve through the year with a three 8% spread between our loans and deposits by being even further.
Moving to slide 13.
To answer the question as to what is our strategy, we execute on our high Tech high touch single point of contact community banking model complemented by our niche businesses and these are in all cases supported by our best in class technology capabilities.
Our differentiated business model continues to perform incredibly well.
We have experienced and expect to continue to experienced 7% to 10% growth on the franchise driven through an increase in market share on existing business units.
<unk> of additional teams as Jay mentioned for this year with two of them in new geographies with Texas and in Florida.
As well as one in a new business line through fund finance.
Digitization and technology expertise is improving our performance in existing businesses like on consumer installment portfolio and automated small business lending, while also opening up greenfield opportunities like our small balance SBA loans, which were previously discussed.
We've made significant progress on our deposit characteristics as previously outlined.
We are still projecting 12% to 15% growth in 2021, while lowering our cost of deposits fee per protocol.
With that I'll pass it to Andy Bowman, our Chief credit officer to talk about our credit risk management.
Thanks, Dan and good morning, everyone.
Moving to slide 16.
Is that line on this slide our credit quality remains strong and we're very pleased with how the portfolio performs well continues to perform against economic social and political pressures brought about by COVID-19.
Total assets stood at only 26 basis points at.
For the firm it's continued decline both on commercial and consumer portfolios.
Overall, our near term credit outlook remains stable and we continue our commitment to strong credit quality and maintaining a strong coverage position, which was $1 71 as of quarter end.
Moving to slide 17.
This outlines for speeds for preserved for Q1 2021.
Rains predicated upon a detailed portfolio by portfolio Assessment, Inc.
On various macroeconomic factors was impacted by COVID-19.
Tied into individual portfolio attribute is impacted by macroeconomic and COVID-19 factors antiques.
And account for actual charge off rate and NPA levels with the end result, being a reserve of $128 7 million for 171%, which equates to a 264% coverage of Npls.
Slide 18 outlines on loan deferments on an overall very positive trend with total P&I deferments of only 1%.
And overall deferment on just one 7%.
After accounting for principal on the permits where borrowers continue to pay contractual interest.
Although hospitality remains the predominant industry receiving deferments for.
3% of those permits are principally with borrowers continuing to take contractual interest.
We fully anticipate on for permits to continue to run off over the next few quarters for seeing improved operating metrics within impacted industries and with our borrowers.
And at this time only 10% of the portfolio represents exposure to COVID-19 risk industry segments.
Into which we have added investment creophagy investment retail exposure.
Continued concerns around demand.
Important to stress and I'd really like to stress that we had minimal investment Cree office and retail exposure and on.
Our total deferments at risk industries was very limited and only one 2% of total book.
Slides 19, and 20 focused on our consumer portfolio.
And outlined very conservative attribute flow and diversification in this portfolio.
And these conservative attributes and diversification that have played a vital role in the strong performance for the portfolio versus peers.
Our consumer portfolio carries a strong average FICO was 740 <unk>.
As more middle market and competition as evidenced by conservative debt to income ratio and higher overall bar where income levels.
His strong geographic diversification and has minimal exposure to COVID-19 at risk industries from a bar where employment perspective.
Overall, we are extremely pleased with how the portfolio has performed during these trying times and we're committed to maintaining our consistently applied strong credit standards and conservative for attribute moving forward.
Overall, our asset quality performance has been extremely strong during these trying times and this is attributable to our conservative underwriting standards strong client relationships through our single point of contact model and our proactive portfolio management practice.
We remain committed to these pillars moving forward, even as the market improves as they are core to our credit culture and that we firmly believe in how we act during good times will dictate how our portfolio performs during down times.
I'd like to thank you for your time this morning, and now I'll be turning the presentation back over to Sam.
On.
Thanks, Andy as you can see we are very focused on superior credit quality, both in good times and in bad and our results speak for themselves.
If you could flip to slide 21, as I mentioned before our high Tech High touch service model positioned us very well for the challenges for the last year and thanks to our superior technology capabilities. We've done so despite mostly working from home.
Our strategy is a hybrid model of bringing the best of our community Bank along with the best on a fintech.
We have been recognized as one of the top digital banks in the country by Bankrate Dot Com and we are hard pressed to find a comparable organizations in our peer group that has an average deposits per branch of $1 billion.
PPP was an example of high Tech high touch on action, our hybrid approach combine the knowledge and experience for our top 100 SBA lending team.
Along with Fintech technology expertise.
The same combination can be seen in our deposit efforts, we combined our relationship manager driven deposit gathering and servicing expertise with technology to digitally market and streamline the account opening process digital deposits are now at one 5 billion.
CD Max savings a product we started in November of last year has generated over 1000 accounts and $165 million in deposits in just a few months. We are consistently looking at ways to leverage our existing hybrid experienced lender strengths with our technology data analytics to drive additional value. One near term example of this is our.
For it to create a gain on sale business and our consumer installment vertical using all existing.
Team infrastructure and tech capabilities, we're piloting this in the second quarter and then looking to have this be a nice driver of fee income in the second half of the year.
Flipping to slide 22.
Here's a snapshot of some of our technology partnerships organize it through the lens with which we manage our tech platform first.
Firstly COVID-19 serve to accelerate a huge internal digitization effort that was already underway. When we bought a weighted over 140 processes that have saved over 60000 team member hours, you have and will continue to see this reflected in our efficiency ratio net.
Next our external partnerships that help us originate loans and deposits are driving significant impact on our financial results through for example, as I previously highlighted PPP as well as our digital deposit efforts.
Finally, we have created a unique and bespoke embedded partnerships develop delivering on our banking as a service model that few of our commercial bank peers are able to ambulate. We have centered this around a modern API based modular infrastructure.
Now moving to PPP on slide 23.
When Congress turned to the banks to distribute vital funds for small businesses in need we took debt obligations very seriously and frankly, our technology platform was built for this I.
I am pleased to be able to report that we have approved over 300000 loans for over $9 billion and over $400 on a pretax net revenue again after a related costs over the life of loans.
Importantly, we are serving those truly small businesses that need the most help with an average loan size of $150000 in 2020 and under $21000 or approximately $21000 in PDP three.
Among commercial banks, we have the smallest loan size among the top 15 lenders, we took our learnings and PPP wanted to and applied it to serve the small businesses in need on an even greater scale this year, including white label partnerships for other banks exclusive referral arrangements. Thus far in PPP three we have approved over 200000 applications.
For over $4 2 billion.
This makes us the number two bank in the country in terms of number of loans for reference this is 30% higher than JP Morgan, 40% higher than bank of America at 140% higher than Wells Fargo as perspective.
Moving to forgiveness on slide 20 for the.
Thus far we've processed approximately 40000 forget this applications for $2 $2 billion, which is just under 50% of our <unk>.
<unk> wanted to originations for 2020.
We've maintained a nearly 100% forgiveness rate on applications submitted.
As previously highlighted we have only recognized a $100 million of pre tax revenue to date and expect to realize the majority of round one and round two revenue in 2021.
We expect that nearly all of our combined PPP revenue should be recognized by the middle of next year.
Flipping to slide 25.
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Excited to share with you on our latest Tech initiative that is going to have an opportunity to further improve our already strong deposit franchise with the addition of likely zero cost core deposits.
For the last six months, we've been working on establishing a blockchain based payments platform to provide real time and Trump bank BTB payments via a closed private network through the use of a customers bank stable coin minted on the blockchain.
This means that both sides of payments transactions will be customers bank customers, creating a network effect and importantly deposits will stay within the bank.
We began the evaluation of this bid.
This line more than six months ago, when we took a deep dive into the real time payments platform that signature bank we.
We have existing clients across across healthcare real estate financial exchanges and institutional investors, who will benefit immediately.
We also consider this an excellent opportunity to become a leader in the payment space and grow our footprint in the verticals we have identified.
They will likely be more to come on this in the coming weeks and months with that I'll pass it to our CFO Carla leibold to bring it all together with capital book value growth and our outlook.
Thanks, Sam and good morning, everyone I'd like to focus my comments on <unk> volume important Capex for first is the earnings momentum.
Second of capital and net.
Third if tangible book value share.
Turning to slide 27, you can see that we continue to build the strong earnings momentum first quarter 2021 results compared to fourth quarter 2020 include net.
Net income from continuing operations of $74 6 million or $2.17 per diluted share, which was up 27%.
Record core earnings of $70 3 million.
Or $2 for 2014 cents per diluted share, which was up 25% from Q4 core return on average assets of <unk>.
161%, which was up 35 basis points, our core return on common equity of 31%, which was up 600 basis points. Our adjusted pre tax pre provision net income of $86 8 million, which was up 11% our adjusted pre tax.
Return on average assets of 190, which was up 20 basis points on net interest income of $132 7 million, which was up 8% and our NIM of 3%, which was up 22 basis points from fourth quarter 2020.
Moving on to capital on Slide 28.
This slide shows for significant capital accretion, resulting from the recognition of deferred origination fees on the PPP loans on strong core earnings starting at the end of Q1, our total risk based capital was estimated at about 12, 5% and our TCE ratio.
Excluding PPP loans with seven 1% fast for till the end of this tier and our total risk based capital is expected to be approximately 14% and our TCE ratio, excluding PPP loans is expected to be around.
And a half percent now if you pro forma full recognition of the $400 million of pretax pre P. P revenue on the end of 2021, you'll see that the estimated total risk based capital increased to 15, 9% on.
On the TCE ratio, excluding PPP loans, Inc.
<unk> to 10, 1%. So what are the income from the PPP loans for was recognized in 2021 on 2022, it is still significantly accretive to our capital ratio.
Turning to slide 29, I'll quickly talk about tangible book value and <unk>.
One year, we had 29% gross intangible book value at the end of first quarter 2021, our tangible book value was $30 that's up from about $23 at the year ago quarter by the end of 2021 again, if you pro forma full recognition of the PPP.
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Tangible book value is expected to be around $40. That's additional growth of about 33% on this is where we really see the value proposition building on Alex's slide 30.
Sales possible strategies that create further EPS expansion since the P. P. P revenue has effectively after that for non dilutive capital raise for the first strategy would be to consider adopting a common stock repurchase program.
Estimating that a 25 million common share buybacks would be accretive to our EPS by about 14 cents.
Could also consider redeeming all or a portion of our preferred stock currently total series C. On the series D preferred stock are redeemable redeeming both of those would be accretive to EPS by about 13 sites also by the end of the tier the series E and series F also become a day.
If we were to redeem all outstanding series, a preferred stock our EPS for the increase by about 38 cents.
Capital accretion that we've been talking about also leaves us very well positioned to support future growth of our balance sheet, particularly in our core C&I specialty lending niches.
Lastly, turning on slide 31.
For the financial guidance is as follows.
Loan growth, excluding PPP and mortgage warehouse balances. It is expected to average in the mid to high single digits over the next several quarters.
Balance of commercial loans to mortgage companies is expected to decline to between one six on $2 4 billion at the end of this year again, our total capital ratio is expected to exceed 40% by year end 2021 and our TCE ratio is expected to be around eight per se.
We project NIM, excluding PPP loans to expand between 310 and 330 by fourth quarter 2021, we're projecting and ask.
Estimated effective tax rate from continuing operations.
Tangible book value of about $40 million about $40, including full recognition of the P. P. P revenue and with that Jay I'll turn it back to you.
Thank you very much Carla.
As you all know over the years <expletive>.
And I and our colleagues have been very focused on building shareholder value.
For the company in the bank debt has a very unique strategy.
We for the.
Okay.
For thinking thing supported with high cash holdings.
Coming a lot more clear to everybody.
We are building I think for for the future.
Our bank debt not relying on what do we do it on our branches and how do we build earning assets and how do we build for.
On being franchise.
Over the last two three years that we've been very focused on these five priorities, which we are.
They.
Hopefully apparently clear to the street number one was we shared with you that we wanted to.
Take advantage of the BMT divestiture, because we were building the company beyond 10 billion in China that was done and done it.
And we did a special dividend of $70 million of BNP ex stock for our shareholders and for the benefit of a longer term share holders.
We believe that debt stock will become tradable sometime this quarter.
And just to share with you we are very upbeat on the value of debt stock, it's not just being for the todays stock price, but we think the future revenue having created one of the fastest growing digital banks in the nation.
Will be very beneficial for our long term shareholders, who wish to vote on that Scott.
Large shareholder ourselves for cash.
<unk>, obviously got a decent amount of the MTX dock and onboarding onto it.
Number two is we've been very focused on capital allocation capital management and being very opportunistic so as you can.
So.
Oftentimes in our opinion regarding the lower than average TCE ratio for it for our customers Bancorp.
Have been addressed and we believe that we maintain we received on capital goes in a manner that was very significantly accretive to our TCE ratio accretive to our tangible book value.
And we believe that the $40 per share tangible book value per share.
Is achievable within the next year or so.
Number three we've been very focused on the quality of our franchise and commodity of deposit as you heard for my colleagues.
We intend to have a low are still lower.
For two blocks in the framing systems.
Business model that.
Is going to be supporting the growth for our franchise in growth for for a quantity on for deposits going forward that even net debt at pace than what you've seen in the past.
Number for we've been very focused on risk management, especially on the credit quality and as you heard from Randy that we also have no concentration risk.
We believe it's very important and we believe that the.
There is in the future horizon, probably a commercial real estate crisis, which may be based upon office space and we have absolutely minimal exposure because we've been expecting debt for the last couple of years. We were ahead of other kind.
Probably too soon but that's okay, and we think that's coming and we are very low position whenever that happens and lastly, as Carla shared with you and building a.
A company with earnings momentum and a company that is very focused not just on short term, but also on the long term Jay.
That for at least if you can please open it up for Q&A.
As a reminder.
Thank you.
One on your telephone.
Any other questions.
Okay.
Thank you.
Sure.
Your first question comes from the line of.
Winter with Wedbush Securities.
Hi, good morning.
Very nice quarter.
I wanted to just ask if I think about January guidance.
Today, you increased the EPS forecast by $1 for 2022.
For $5.
Obviously, a lot of that is driven by the TPP with the success in round three but what are some of the other drivers to the increase on the outlook for earnings next year.
I think the drivers have been and again on my other colleagues who stepped in for the drivers have been good.
Do you feel like you said a much more comfortable in having the money for bank. So called from PPP free in two and a half months, having generated $200 million in revenue gives us a lot of comfort.
The future number two is it.
Really our gross focus on credit quality and that's been very very clear for me.
To everybody number three is our comfort level and originating high quality, earning assets.
And in this kind of environment and for the future and see those margins expand.
Number for US is really for the future as Sam talked about.
On the clarity of something that we've been working on for the last several months, but also with glass.
<unk> team based debt.
Technology.
We expect to implement sometime in the second half of this year to build our core deposit funding and we believe.
It is based on an inevitable and do you believe you're going to have a commercial real estate for this session before that that's sort of operating and we are very well positioned in those cases and that's good for some momentum for this year and it gives us the confidence level to continue to reaffirm our fixed on it.
2026.
And I would just add to that Jay.
Jay and Peter for your benefit.
Advent and introduction of <unk>.
Some additional fee income businesses the game on specifically the gain on sale business.
Both from SBA, which we had previously disclosed is what happens on a quarter or $6 million for the year, So meeting and other expertise.
Learnings from PPP as well as the.
And have a similar business on a consumer installment portfolio.
Okay.
That's helpful and then just card.
Carlo you outlined some opportunities on the capital front with potential share buyback and retaining some other preferred but what's the likelihood debt.
That happens maybe on the second half of the year, just given a better outlook on the capital ratios.
Yeah. So I'll just give a few thoughts around that you can see the slingshot effect, that's going on occur alpha.
Just on the full recognition of the revenue for from PPP round, one and round two so we are well positioned to consider.
Doing either common stock buyback on a latter part of this year early 2022, and also to consider our preferred stock for gaming that.
I think we've said.
In the past.
There is very focused on shareholder value condition, if our stock.
It does not respond and does not get to market multiples than peer group multiples multiples, we are not going to be shy about buying the stock back.
Okay and then just my last question.
Could you give a little bit more color on the teams for teens you hired this quarter and maybe what's on the pipeline as we go forward.
Sure I'll take the first shot at that high teens into C&I lending area on the right here in Pennsylvania and in New York on one and.
It's all related to C&I.
And deposit generation through private banking for privately held businesses in London.
And on Orlando and one in Dallas.
On top of this we have our team in Chicago.
We continue to do well and then as Sam mentioned there'll be for started to fund finance group and that team has been.
It is already in place today and for those other teams that you've added in the last few months.
And I would just add Peter that's about a dozen new team members collectively in the geographies debt that Jay just mentioned.
And we've also had one of our senior leaders and our move to one of those geographies as well to help open up an office.
Great.
Thanks for taking my questions.
Thank you Jay.
Yeah.
Your next question comes from the line of Casey Haire with Jefferies.
Yeah. Thanks, good morning, everyone.
I had a question on loan growth on two part actually so I apologize if I missed this but.
The $4 2 billion of Triple P round three.
What's what's the expectation for that like where does that end up number one and then to the core loan growth mid to high single digits.
I think that's been in your guide.
You know for the last couple of quarters, you you've been.
Been shy of it but obviously you have done very well on the on the P. P. T side. So I'm just wondering does that does that now youre, making you haven't you don't have to make as much room for PPP. You can you can focus on core loan growth is that the way to think about it going forward.
So I'm going to take that.
Sure so.
Good morning, Casey glad to have you on the call. So firstly in terms of PPP, the $4 2 billion debt.
Debt we've originated this year similar to how we thought about it last year the goalposts for forgiveness, it's typically what the SBA.
Copies of services.
Time period through which the SBA servicing the loans, which is at a maximum of about 16 to 18 months. So that's where we sort of thinking about the middle of next year is that at the end of the goalposts for PPP three originations.
Getting back to overall.
C&I core C&I loan growth for.
First quarter as you typically see for our business as well as a little bit slower having said that we are reaffirming our loan growth expectations. We are seeing green shoots across the franchise, we have a strong pipeline that's building.
And we feel comfortable about our previous state.
Previous guidance that we've got on line.
Okay, and but the Triple T will continue to grow from that $4 2 billion in round three.
It's it depends on how long debt.
Funds are available for program is.
Through extended through May 31, having said that the money may not last year that for a period of time, but I would remind you that.
While we funded a good portion of this with cash to date.
The ppt out laughing other liquidity facilities are available for 100% financing. So it is not at the expenses.
Traditional customers bank loan growth.
Okay, Okay great.
Just circling back to the capital.
Management front, so the EPS guide for <unk> for this year.
<unk>.
$5.
Does that presume any any buyback embedded or if buyback was.
We did choose to redeem preferred or initiate a buyback debt would be upside to that number.
All other numbers and the projections they've seen the document exclude a buyback our preferred stock redemption.
So all of that would be upside.
Okay.
Alright, and then just lastly for me the the balance sheet restructuring in the quarter is do you feel like you've got the balance sheet, where you want it in this kind of rate backdrop or should we expect more.
No.
<unk>.
Go ahead go ahead, sorry, I was just going to give a little more color on the balance sheet restructuring. So we did terminate $850 million on cash flow hedges that were essentially used to lock in wholesale funding at a fixed rate and so we did unwind those hedges and solve an offsetting amount of six.
<unk>.
And that's net securities to essentially neutralize that on our capital impact we were able to replace those securities with a book yield such that we expect that our structuring to build about 15 basis points going forward on by the end of 2021, and our NIM and then I'll just add there in summary.
<unk> of the loan that we do expect to happen just as mortgage warehouse hits that seasonal decline of D&A yeah.
Okay. Thank you.
Your next question comes from the line of Steve Moss with B Riley Securities.
Good morning, everyone.
Yes.
Congrats and best wishes to <expletive> on his upcoming retirement here.
Wanted to start maybe with going back to the PPP program.
On the.
With regard to the second round draws you have 55000 at eligible by May 31st just wondering how much is there.
On may 31st if we get an extension of the program.
I don't have the numbers off the top of my head I will tell you that we don't anticipate that there would be a further extension because they would need to be additional funds as I previously mentioned.
So we think that the.
The addressable market, we're approaching somewhere in that 50 to 60000 range.
Okay.
Alright, that's helpful and then in terms on the share repurchases here just kind of curious you know.
How to think about that in terms of capital you guys have historically run the bank.
Call day is 10% TCE ratio, so heading up towards 10 is pretty meaningful do we think about it maybe in terms of 50 to 100 basis points of T. Can you just kind of maybe sizing that up a bit.
I think thats possible like Carla shared with you very clearly that we have opportunities both for stock repurchases as long as for redemption on.
On a per foot and until we will be looking at capital allocation, whether we put it into the repurchases and it will depend upon how our stock is performing and if it were not creating good market multiples.
And we remain very comfortable with the future. There is no question about his stock repurchase will become a priority.
And in other ways that we would be focused on the preferred and of course, we would always continue to look at capital allocation.
For the lower risk higher margin and from a profitability point of view. So those are that's sort of on a module for capital allocation.
Okay.
And then in terms of the.
In terms of the deep deep blockchain payments rollout here just kind of curious.
How are you guys thinking about it just in terms of.
Primarily as a deposit gather or should we think perhaps there would be some fee generation, whether its interchange or or some sort of a.
I think along those lines.
Sure I'll take that so I think that at the end of the day. This is a very strategic play for us instant payments don't need to be delivered over the blockchain.
<unk> said that.
SMB and corporate customers are requesting and in some cases demanding this type of service.
From banks, so we're making sure that we're building a platform for where the puck is going.
From a strategic perspective number one priority is low to zero cost deposits.
Number two would be potential in our fee income down the line, having said that looking at some of the banks that have been.
First movers and providing and building this type of service typically they are providing.
Both the payments for free at the moment.
And for that Theyre getting zero cost deposits. So down the line, we'll have to think about once we have a sense of what the opportunity is what the associated payments rails are absolutely one could justify that there could be for you going to come down the line, but thats more on the medium to long term once we build for us both the business around us.
Okay. That's helpful. And then just one other thing in terms of the.
Just looking at the expectations for consumer installment loan growth going forward I'm curious as to the drivers here how much do you guys expect to be a cubby vs partners going forward.
Sure.
Great question, we are currently originating direct somewhere between $75 million to $100 million a month in the first quarter.
And we've as you can see these slightly ticked up the portfolio. This year and we expect that to continue with a target of reaching potentially the low end of the range.
Of the 15 to 20 per cent by by the end of the year and.
And that'll be a majority if not all in some quarters direct.
Okay.
Great. Thank you very much nice quarter.
Okay. Thank you.
Your next question comes from the line of will Curtiss with hockey card.
Hi, good morning, everyone.
Good morning.
Paul I guess I wanted to follow up in terms of the your discussion around the $5 of EPS.
And I don't know if you mentioned it but what does that assume.
For for expense growth.
I'm sorry, what it what does it assume for what I couldn't hear you on.
I'm sorry, yes, I'm just curious what are what's your $5 of EPS, what does that assume in terms of expense growth for this year.
Yes for expense growth, we said that our focus is on positive operating leverage to the extent, we add expenses for the expectation is to grow revenues by two times that amount. We are forecasting in our model such that we essentially hold expense growth flat outside of that.
Got it Okay, and then Jay I wanted to see if you could expand a little bit on the on the comments on the slide about market expansion and just give us a little bit of a sense in terms of some other markets that might be of interest to you.
Oh sure.
Our business model as a as really branch light in fact.
People always ask me, how many branches for the customers Bancorp and my hands, who usually there's 11 too many because you got 12 other.
So we are driven by how do we expand and reach out to the client on the.
Without having any traditional branches, we're doing it with private banking for privately held businesses, which means acquisition of teams. So we did an analysis income so where do you see that creators.
And privately held small to medium size businesses.
And where do we see disruptions in the marketplace.
Do we see as compelling as it is known for that.
And so we can attract for teens.
So today as you know we are in Boston and Providence, We are in Manhattan in New York in this environment with New York and we are in Philadelphia, we are in suburban.
For an adult Yogurts includes Lancaster, and Harrisburg and veterinarian.
And we were in Chicago, and then two other analysis, we identified there.
On the Orlando Tampa Jacksonville market, we identified the Dallas, Texas market, because we already had some clients there so.
So our objective for the next two years for unit and half to two years is it concentrated in these markets.
And really.
See how things are going before we have an expansion for that expansion into new markets now that we might do a fill in for him.
Carolina markets as an example.
On a per thing, but that's our focus is easton.
We will might look at with our funds for non skew that there could be an opportunity to go to the west coast. Because there are quite a few private equity venture capital firms that are there.
And but that would be not necessarily the income.
For the private banking for privately held businesses.
Alright, Thank you very much.
Next question.
Right.
David.
So you can hardly hear you.
Yeah, Hey, Jay its Mike Perito for you guys here.
Brian are you there.
Yeah, Mike good to hear you great.
Great.
On.
Thanks for the DAC and on obviously most of my questions have been answered at this primary asking for clarification. Thanks, I just want to spend a minute on what I guess just.
Not to beat a dead horse here, but on the buyback for preferred conversation.
Try and get on your has a little bit here for Mike It seems like the buyback at least near term here.
It would seem.
More timely and extra cute strategically impactful obviously the earnings per pack from occurred is it's pretty attractive, but you don't always get to buy your stock back at just above book value. I mean is that similar to how you guys are thinking about it is as we just try to map out the capital deployment over the next two or three years or is there any other element, we should kind of be thinking about is as we.
We try to make those assumptions.
I think over the next two years two to three years.
We believe we will be pretty good bucket. So that there's no question about it.
And our performance will lead us to debt, we don't know what's going to happen tomorrow or in 30 day 60 days a few months, but we're looking at debt right.
So it would be fair to assume debt.
Within that two year period on our preferred would be would have been redeemed by us.
And then to a normal earning asset generation, we will be optimistic view on that.
Absolutely right.
The low cost.
It's almost a no brainer to be looking at buying back your card.
Scott.
Got it.
That's helpful. Thanks for that.
The blockchain payments. So obviously you know I think this whole thing started with silver get right with their silver exchange network event for them to kind of compete with that but I think the product away from crypto on trying to use this on other areas like payroll and stuff like that it seems like you guys. I guess just to clarify first based on the size of your commentary. It seems like you guys. At this point arent looking for not for Recompete.
And in the crypto round with debt. So I guess, one just on a confirm that for two.
Think about some of the areas that you guys are laying out on the slides.
Yeah.
The game plan of gross like for example, and in the Hospital systems you got the insurance carrier's first and then cross sell for the hospital.
Kind of at least for my experience with these types of networks and obviously, there's only been a couple but there has been some type of kind of targeted marketing game plan for how you grow that and I'm. Just curious if maybe you could expand about how youre thinking about that more kind of a yearly earnings here.
Sure absolutely Mike. Thanks, Thanks for the question.
So again on the first question you know we are we are looking at the signature playbook. They were looking to try to emulate it.
They've done a very very impressive job in such a short period of time and day.
There is a large addressable market. So a significant focus of ours is going to be.
For example.
On the synapse between institutional investors on the platforms on exchanges they transact on but to your question about growth I think the important thing here is and this goes for for anyone who's sitting on a private deal closed blockchain based network blockchain based payments network as debt.
You first go to a provider that has has power power as a vendor power as a supplier.
And I'm not sure you're going to keep first Jay these verticals and industries that we've identified and then they have the ability to bring in the other side of the transaction and net.
Some cases.
That's the first first.
Participants that had debt is trying to sort of get the real time payments capabilities and in other cases, it's the first participant that moves, but it's the other side of that transaction, but are demanding.
On the main participants so it's a little bit of an interesting chart.
So there's a number of different use cases that that we've identified that we will.
To explore on being in heavily on.
As and when we launch.
Now on the last thing I would mention is that debt.
I touched on this before you know a blockchain based base network is not required to provide instant payment capabilities.
However, as we think about where the puck is going this is a private closed network in the long term private clubs that workday on half the benefits.
That a more.
Semi private or public network for them. So having said that we've also been studying what the large banks again and we're viewing this as a very strategic initiative.
Whereby in the medium term after a successful launch and hopefully after enhancing our deposit franchise we could.
And infrastructure that could be interbank.
Some of the midsize banks to be able to.
Compete with debt.
The deep pockets and Nio, Inc.
Infrastructures of the very large banks.
No that makes sense I mean, it's definitely something where it feels like on the sales cycle those first two.
Gross first one or two sales are the most probably the most difficult for the most critical and then after you get those on for the networks are still people are more willing to jump on helping on the deposit counted and reap the benefits on it so.
Very interesting. Thank you Sam for that and then just lastly, I just wanted to clarify Chris.
Had a couple of different comments on 2020 to EPS on an average just to make sure I got it right for dollar number was just recurring revenue which would <unk>.
Exclude PPP right and on the five dollar number.
Core but includes P. P T right. That's the only variance between those two figures I E in the ER.
Yes, I think what we had said I think what we had said earlier was on.
On for dollar number was excluding the PPP.
And so you got to look at this is yes.
So we are very low.
And we're very comfortable with the size and not just for this year with five for next year for okay.
GAAP earnings is on it.
As our guidance and that kind of includes a base assumption that it's fair to think that on a decent chunk I mean, who knows what the GAAP number is but a fair amount of it that's third weight forgiveness will fall into the first half of 2022 correct.
Okay.
Okay.
Thank you guys for all the color I appreciate it.
Thank you Brian.
Your next question comes from the line for Russell Gunther with D. A Davidson.
Hey, good morning, guys.
Good morning.
Hey, just a one really big picture question left as most of the line had been asked and answered. So as we look all the way ahead to your path to $6 that 2026 number is there any way to size up.
What the differentiated model here, it probably contributes to that for whether it's blockchain payments or the banking as a service.
Some of the other internal and external tech partnerships, how do you think about that as a contributor.
Contributor to the six boxes of longer term earnings per share target.
I think we have given the longer term when Congress, even before we talk about blockchain. So we don't look at we need to do this in other words were not going to make it we're going to make on six bucks a share.
Anyway, it's just a matter of.
And a company that is clear about the strategy clear about his decision.
And is constantly evaluating the external environment is constantly looking at innovation.
Because we are on forward thinking forward looking for.
Technologies.
But still very much in a high touch community banking type of per model.
For us.
You know we're going to.
I think the right question for you might have been can you do.
Loss per share by 2025.
We don't know yet but.
But you know for holidays. It would it be something we are very focused on doing the right thing.
And we feel very comfortable with the guidance, we had given to you for 2026 for six months per share.
And he also come into reality.
We are assuming a recession between now and 2026 and that would be coming probably because of the off market problems for MBS.
And some banks, who are heavily concentrated in debt as well as some people who are also pretty heavily concentrated in the shopping malls.
Yes.
Alright. Thank you very much guys. That's it for me.
Yes.
Your next question comes from the line of feel does add on with Titan capital management.
Thank you I have two questions first of all.
200000, a round three PPP loans for $2 billion.
And how much of that is from the white label PPP partnerships, and Oh, I guess versus what you had originated debt internally.
So.
First of all on good morning, Bill. Thanks for your question. So firstly in terms of the.
<unk> see a pent up direct white label relationships it was about <unk>.
Somewhere in the range.
Sure.
40000.
The originations came through those relationships.
And was there any size difference or where they essentially similar to two year 21000 average.
They were the ones that came from banks as you can appreciate we're on.
This rounds.
Namely because of the.
25% revenue test.
So overall, it's still lower than you would've seen last time, but that's trended higher than our 20000 and for the ones that come from banks, but then we also have exclusive partnership with price.
Partnerships with non banks as well.
Many of those were closer to the.
The average.
Understood. Thank you and then I'm going to expose my ignorance here on the on the blockchain front would you talk to the <unk>.
Vantage is.
Is that it.
Essentially <unk> in firm would choose to do such a thing I understand the advantage of the low cost deposit for zero cash deposit for you all.
But given the instantaneous.
Money movement.
Randy can happen.
Again, my ignorance of not understanding what the advantages are so can you walk us through that please.
Sure absolutely Bill good good question and good clarification.
So.
The HCA network, which is typically how interbank.
On a transactions occur.
Typically as you know a one to two day settlement process in terms of an outbound today as well as sort of an inbound potential play.
So the benefit is instant payments and settlements. So think of this as you know as an example say what Paypal is.
If you said per se <unk> Paypal, you can instantly transfer amongst a buyer and a seller say on ebay.
But I'm asking that in a <unk> world with two supplier on a vendor.
Contain yesterday, having said that now as opposed to in a Paypal account with that language can be settled two door bank, which would traditionally be done through ACTH would that same delay type period now you have both of those technologies.
Technology for existing within our bank. So you could have on instant.
U S dollar transfer as well.
One of them.
Great. Thank you Sam.
Absolutely.
And now Mr. Pat to answer your questions from the webcast and email.
Thank you Lisa.
Uh huh.
Our first question comes from Jim Ludlow a.
Investor in Central, Pennsylvania, who would love to know Jay if you could comment a little more on what he perceives to be at the low.
The ratio of our day to earnings.
Or I'm, sorry, I'm, sorry for the stock price.
Something that then of course, you've talked about before and also he asked if you would consider a dividend on common stock.
I think.
The second one for capital.
Capital allocation is there is a very important aspect or for our board of directors or non branded tremendous consequent to be focused on and we pretty much have the PPP revenues.
And on our hip pocket, but to GAAP, we want we want to first recognize that before we would look at.
Look at.
The dividend will be accounted for.
On our capital allocation process now in terms of why on Earth.
He is so much lower I think deep enough for them.
We just focus on on.
Performance and I think.
If I have heard for brand into a tool for us.
It's what I addressed in the question there was some confusion as to when and how the BNP.
Divestiture would be there it's all behind US there were some concerns about our lower than peer average capital ratio that's been addressed by us.
For some concerned whether we have a good core deposit franchise that has been addressed by US and also for the tier three we believe the level of good quality deposit cemeteries. There were some concerns at one time about.
Every concentration and multifamily loans by us.
Address that and there were some concerns about our consumer loan portfolio I think market should be able to feel very comfortable about that and there were some concerns about the earnings momentum by some analysts and we think that in vivo than performance.
That are influencing that.
Right.
Thank you Jay and then we have a question for them our friends Oliver Mihajlovic at the seven pillars capital on London, Oliver rates does the expectation to generate over $400 million of pretax revenue over the life of the loans is quoting for from a release referred to all PPP vintages.
That means that for two.
<unk> thousand 20, plus for 2021 loans as far as the collective and has management made any allowance for the probability of current PPP program funding running out of funds before the end of May something as simple as touched on.
Thanks, Dave I'll take that so yes. It is a combination of all vintages in the fourth quarter in January in our earnings release, and IR deck, we talked about over 150 going on for 2020 vintages.
So backing into that that would be $250 million plus of PPP three tier.
Day and this is based upon the origination so its not a projection of future originations between now and when the money runs out.
Alright, thank you.
Seeing no additional questions I think everything else has already been been answered or addressed please stay.
If anyone's listening on the webcast details that we didn't fully cover the questions feel free to email us your sense of the line you can find my contact information on the Investor Relations page.
We'll provide those to our speakers.
Wise I believe that's exactly on the questions for now.
Well. Thank you very much everybody really appreciate your interest in customers Bancorp and like Dave said, please just give us a commodity email anytime you have any questions and we look forward to speaking with you and please join me once again and congrats on moving into moving my friend.
Partners.
His contributions to our company has been absolutely unbelievable and we will miss him, but he's staying on our board.
So thank you and enjoy your retirement and thank you. Thank you very much everybody for joining us and have a good day.
This concludes today's conference call. Thank you for participating you may now disconnect presenters. Please remain online.
Thank you Lisa.