Q2 2021 Customers Bancorp Inc Earnings Call

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Yes.

Good day, and thank you for standing by and welcome to the customers Bancorp incorporated second 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 to ask a question. During the session you will need to press star 1 on your telephone.

Telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your Speaker today, David Patty. Please go ahead.

Thank you Alicia and good morning, everyone. Thank.

Thank you for joining us for the customers Bancorp's.

Earnings call for the second quarter of 2021.

Presentation deck, you will see you during today's webcast is being posted on the Investor Relations page of the bank's website at www dot customers net dot com you.

You can access the debt by clicking and Red button and market latest earnings presentation on our investor.

For presentation includes.

It's important details, but we will walk through on this morning's webcast I encourage you to use download for principal document.

Before we begin we would like to remind you that some of the statements. We make today may be considered forward looking these.

These forward looking statements are subject to a number of risks and uncertainties that may cause actual performance or results to differ materially.

Really from what is currently anticipated.

Please note that these forward looking statements speak only as of the date of this presentation.

And we undertake no obligation to update these forward looking statements in light of new information or future events.

For the extent required by applicable securities laws.

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 and it's my pleasure to ensure.

Produce customers Bancorp sure Jason.

Jay the audience is yours.

Thank you very much.

David and good morning, everybody on <unk>.

And welcome you to customers Bancorp Q2 earnings call.

Appreciate your interest and customers Bancorp.

Before we begin.

Please join me again, and <unk> my friend and the banks, former Chief Executive Officer of Big East, who retired effective July 1st after a new luxury and a very meaningful 50 year to year and.

And banking and other related financial services.

Please join me also and congrats on.

Perhaps have you on being named customers banks, President and Chief Executive Officer on.

Upon the retirement of debt and Sam is also the president and head of corporate development at customers Bancorp today also happens to be real estate.

Sams vision leadership passion.

And then he is already making a huge positive difference at customers Bancorp and we and.

I encourage you to to really follow us very closely.

As we start to execute on all the things that we will be discussing today.

So besides Jan San and joining me today and for this call.

Carla Leibold, our Chief Financial Officer, Andy Bowman.

Chief Credit officer, and all for robots will participate in this call and will be available to answer your questions at the conclusion of our initial remarks.

Q2, 2021 was another exceptional quarter for us.

Helping us build a very strong foundation.

And you have a clear and unique strategy that is being executed both for the short term and for the long term and building a high.

High performing.

Hi Tech forward thinking bank debt is also supported by high touch.

And our relationship banking strategy.

I'd like to now draw your attention to slide 4 and just to give you an idea.

And where do we stand today at a glance you can see besides community banking and we are really positioning ourselves.

<unk> to be a niche bank.

Good.

Aspirations to become a national player and right now we are reaching up there. So besides community banking, we have developed very successful specialty lending or niche businesses as well as simultaneously.

And both for the consumer as well as for the businesses.

Digital banking platform and we believe that debt is absolutely critical and the for.

And for success, both in the short term and long term for mid sized banks.

Now moving onto slide 5.

Talking about on exceptional profitability and growth as you know on our core earnings were $1.76 up 182% on.

That was EPS and core earnings were about $59 million up and other similar 177% or a ton on capital common equity was 20 people.

7% and that's up from 11, 1% last year at the same time and talking about profitability quarter ton on average assets was 1 point for the <unk>.

And this quarter and and that was up from 68 basis points last year and quarter.

From a pre tax pre provision.

People went out and return on average assets was 1.8%.

Q2, and that's up from 1.5% last year same quarter, we've intentionally kept on balance sheet for the core businesses reasonably flat at about 13.5 billion and been focused.

And on on having their allocation of balance sheet from lower risk higher quality higher yielding assets.

And in spite of that we've seen we've been able to show some water for a slight increase in loans and leases and.

And we and you will hear from my colleagues.

Earlier today.

You should expect and acceleration of that growth and the second half of this year.

And then meeting onto deposits that has been a very very big story.

For the industry, but for us it's been exceptional and so we've seen a $2.9 billion dollar growth and.

Focus on <unk> over the last 1 year of which $2.4 billion, where demand deposits from a credit perspective.

Nonperforming assets ratio was only 24 basis points and we believe that compares with about 70 basis points for our peers and for.

Omar.

Deposits as a percentage of our of our loans held for investment and we were.

And at 1.61 percentage June 30th and again in our opinion equal to if not better than our peers.

So now decided going over the second quarter highlights we will also cover with you.

And where we briefly where we can't really sort of come from where we are headed and our strategic priorities and the general guidance for both short term and long term. So if you look at slide 6.

You can see that it was only about 11 years ago.

That some of us putting our money, where our mouth is and took over control of failing $215 million bank with 35% to 40% nonperforming assets at that time for.

From that kind of a foundation, we built what is customers bancorp today.

This growth.

Growth has been.

Pretty rapid but it's not been a straight line.

We have we've paused.

And for to build the capital the pause to take advantage of certain opportunities for.

For example, we wanted to close once and the country to build.

Consumer.

Total bank and then we decided to divest it before effectively crossing the $10 billion, Mark and get the best at it at a gain to our shareholders.

From a strategy point of view.

We believe that.

Our tech focused and our relationship driven strategy.

And being and niche businesses.

Winning sustainable strategy for the future.

And we are building on our private banking for private held privately held businesses. We are also building a leading edge in house digital bank for business.

Mrs.

As well as a digital bank for consumers that is not dependent upon government. So that is something which is world class and our opinion that we have already built and we are continuing to continues to improve it from on asset quality and deposit growth we are very.

Very focused and you should not expect us to have above peer nonperforming assets ever as well as we are developing strategies to day when the industry is flushed with liquidity. We are building strategies to have a very strong core deposit franchise when day rates rise.

<unk> and the liquidity starts to disappear now is not the time and 2.

So on a way of deposits customers. This is the time to be building strategies virtual scheme and he'll give us.

Very above average deposit franchise, because we believe at the end of the day.

Evaluation of banks is highly dependent upon the quality of their deposit franchise all of this.

Only is good when you have a very experienced management team and and you will hear some talk about how we are significantly adding to this team and and.

And so that the team that we've assembled and we are continuing to add on his board made up of a very strong experienced bankers and they are complemented also with very significant technology experience that we are bringing it onto our management team as well as and our.

Boardroom, so with that I'd like to now and it over to Sam to go over some of the rest of the materials and the package.

Thanks Jay.

Good morning, all and thank you so much for your time today and interest and customers Bank.

Let me briefly summarize our results our strong momentum.

Has continued and 2021 with our third record quarter and the last year that has benefited from continued growth across the company highlight and the broad based strength of the franchise for.

On an earnings perspective, Jay covered the highlights in terms of PPP revenue, we expect to recognize over $400 million of our.

From our efforts and PPP and net of expenses of that we have only booked approximately $118 million of that revenue with substantial fees get to be accretive.

Strong asset quality is at the core of our franchise and we continue to have superior credit quality to peers, we had a provision expense of 3.

$3.3 million and the quarter compared to a benefit of $2.9 million from the first quarter.

Additionally, our COVID-19 related payment modifications are mostly behind us with only $91 million remaining on to curl, which is less and 1% of loans, excluding PPP at quarter end.

In terms of loan growth.

Total loans outstanding, including funded PPP loans were up $1.7 billion over a second quarter, 'twenty or 11% core C&I growth was up 13, 1% year over year and consumer installment growth was 25% over the same period.

In terms of.

Funding, we had another incredible quarter total deposits grew $2.9 billion or 26, 5% and on demand deposits grew by over 50%.

Total cost of deposits are down 44 basis points to 47 basis points.

And we will touch on some strategic actions, we have and will continue to take to play on a for a potentially.

Essentially rising rate environment.

Now looking at capital, we're experiencing tremendous capital build thanks to both strong core earnings as well as PPP revenues, we ended the quarter with TCE, excluding PDP, increasing to 7.7% Carla will walk through our estimates of book value and TCE ratio.

And realizing all of our PTP revenues and summary, we were up an impressive 29% year over year.

Moving to slide 9.

On loan growth 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 multifamily and and.

Mortgage warehouse.

Is that after a slow first quarter industry wide with the recovery and now significantly advance. We're pleased that our core loan pipeline is on an all time high and we expect robust known volume growth and the second half of the year.

Flipping to slide 10.

As Jay mentioned deposits and become a strength of our franchise.

Total deposits.

Have grown over 25% over the past here and and incredible 60% over the last 6 quarters with majority of that coming from demand deposits with C. D's now down to only for 5% of total deposits.

We delayed the planned Q2 pricing decrease and our digital deposits to mid July and.

Locked in about $500 million of deposits over the last 30, plus or minus days for up to 7 years and these acts and with these actions. We are now down to 44 basis points spot rate as of mid July and will continue to track to our goal of 40 basis points or below cost of deposits and the near term.

Positively and importantly.

Technology team is on track to launch on real time payments initiative to allow us to seek to grow on zero to very low cost core deposit base and anticipation of an eventual rising rate environment.

Flipping to slide 11.

First on margin, including P. P P from our trough.

Trough of 247% and 2018, we have been steadily increasing and we ended the quarter at 3.3%, which is 2 quarters ahead of the high end of our 2021 year and guidance on margin is expected to continue to expand in 2021 through the further remix of our loan portfolio as well as continued lowering of our cost.

Find assets to a with a target of around 35 basis points by the end of the year.

Moving to slide 12, and before I pass it to Andy on credit and let me highlight some exciting things that Jay referenced that are happening across the company on slide 12.

And I appreciate your patience as we run through this and this is what makes our strategy. So unique and this is this.

This is what has and we expect we will continue to drive value creation for our shareholders.

Firstly on the commercial side of our business as we have shared previously we have opened 3 new offices, several new teams and market and also in expansion markets and you should expect us to continue to evaluate new markets driven by a single point of contact team.

<unk> lift out strategy.

Moving on to SBA on digital 7 day as a reminder, for the mission driven strategic rationale a recent bipartisan and Goldman report cited that 82% of small businesses anticipated that their PPP funds would run out by the end of July a further 72, 6% anticipate and inability to make.

Payroll and the second half of 'twenty 1.

And finally, the most important factor for our small business and obtain and SBA loan just speed of Decisioning.

Many of these businesses don't have preexisting banking relationships and on a number of them came to customers bank for their PPP loan. This is why we are creating the digital 7 day product. We are in the midst of our pilot.

Closing, our first loans in the coming days, we are pleased with the pilots so far and we're targeting to be and a run rate of $3 million to $5 million and originations by the end of the year moved.

Moving to our specialty niche business lines, we added a new fund finance vertical and are continuing to evaluate adjacent and tuck in business and product lines.

And our increased cross sell to our customers.

With this focus we are experiencing 10% or more growth and most verticals.

Now moving over to our consumer business, we are building fee generating businesses first leveraging off of the success of our personal loan platform, which I'll talk about later as well as bank partner income opportunities.

As for our marketplace lending partners that we've established over the past several years.

We are also continuing to fine tune, our existing products like credit cards, and we will evaluate additional product lines and the coming quarters.

Moving to our digital bank as Jay highlighted as we mature our agile delivery model.

And we'll find how we operate this quarter, we have reorganized our tech team and me.

To that of a technology and our consumer facing technology company by separating embedded Fintech data information technology, and digital product and marketing.

This was a planned medium to long term future state for us that new materials.

And simply accept materially accelerated and we believe very few banks have made this type of aspirational organizational alignment.

With this re org, we've injected fresh talent into the tech team firstly with promotions of our Chief administrative officer, our Chief Information Security Officer and.

And the head of our digital bank as well as new hires with the head of digital marketing and a.

Real time payments platform.

Business development for our real time payments platform, Chief data officer, CIO or CTO as well as several engineers. The tech team joins us from large financials like Mastercard and Goldman as well.

Cheering them on and tech and data companies.

Our digital SMB bundle is and advanced rollout starting with the digital <unk>, followed by term loans and credit card all on the roadmap. This is critical to build off of our PPP success with small businesses.

Our real time payments initiative is on track for a launch and our progress.

Approximately 60 days, which we want to emphasize is 1 of the most important strategic initiatives at the company today for a variety of reasons that Jay also touched on earlier.

And finally, we have engaged a leading digital consultancy to rebrand and relaunch our omni channel online presence, which reflects the digital and maturation and institutional.

And a growth of the bank. This is expected to be completed by the end of the year.

With that please flip to slide 13, and this is a bit more detail on the gain on sale revenue driven and enabled by our tech team turning our cost center and to eventually into a profit center.

Consistent with previous guidance, we expect our SBA gain on sale revenue to increase.

For X 4 times, and 2021 and had been working on consumer health on a consumer held for sale initiative that is on a similar growth trajectory.

Both are on early stages and are already embedded and our annual and long term guidance, which we had previously provided.

With that I'll pass it to Andy Bowman, our Chief Credit Officer.

Thank you Stan and good morning, everyone.

And I'm starting on slide 14.

Outlines the quarter and credit quality remains extremely strong and we're very pleased with how the portfolio was formed and continues to perform against the economic social and political pressures brought about by COVID-19 as evidenced.

Evidenced by NPA to total assets of only 24 basis points.

Which is less than half with peer averages total 30 to 89 day delinquencies stood at only 7 basis points for zero, 7% and marketing a 5 year low and.

And annualized net charge offs to average total loans and leases.

And only 16 basis points for <unk>, 6%.

Given the bank's continued commitment to sound credit quality and limited exposure that we have for at risk industries. We expect the near term credit outlook remains stable.

Moving on to slide 15, and as both Jay and Sam had mentioned.

We had a sizable reduction and loan deferment from Q1 with affirmative accounting for only 9% for total core loans, which excludes PPP at quarter end.

And we anticipate this trend to continue moving forward as our commercial borrowers continue to show improving operating metrics as the reopening process gains.

Momentum, particularly across the hospitality sector, which constitutes the majority of our remaining deferment.

We're also extremely pleased with how well our consumer portfolio has performed and we remain cautiously optimistic that given is conservative attributes and diversification. It will continue its strong performance.

<unk> moving forward despite recent inflationary concerns.

Moving to slide 16 outlines our seasonal reserve for the second quarter of 2001, which remains predicated upon detailed portfolio wide portfolio assessment based on the various macroeconomic factors is impacted.

And by Covid, 19, and a deep dive into each individual portfolio attribute is impacted by these macroeconomic factors.

And account for actual charge off rates and NPA levels with the end result, being reserve of approximately $125.7 million or 161%.

At quarter end, which equates to a 270% coverage.

NPL.

As evidenced and Napa mentioned slides our asset quality performance remains extremely strong and we remain committed to the conservative underwriting standards.

Strong client relationships through our single point of contact.

Tax model and proactive portfolio management on.

All of which have been critical and continue to be critical as we continue to weather. The COVID-19 storm and take on the challenges associated with a post pandemic world and just as we were and continue to be laser focused on our customer base given the pressures of COVID-19.

For climbed the same degree of focus on those segments of our customer base deemed at risk due to a new challenge in the form of inflationary pressures.

I'd like to thank you for your time this morning, and now I would like to turn it back over to Sam.

Thanks, Andy.

Flipping to slide 18, I want to spend some time talking about our digital banking capabilities and business model, we execute on our high Tech high touch single point of contact community banking model as you know complemented by our niche specialty businesses and these are on all cases supported by our best in class technology capabilities.

Utilization and technology.

Expertise is improving our performance and existing businesses like our income consumer installment portfolio.

Business lending, while also opening up greenfield opportunities like our small balance SBA loans, which we previously discussed.

Our strategy is a hybrid model of bringing the best for the community Bank along with the best for the Fintech.

We are hard pressed to find a comparable.

Allergy agitation and midsize banks with our tech capabilities and agility as an example, and the investments that we've made previously and building out our middleware technology have allowed us to standup and technology partnerships, which have been fueling both the efficiency and growth across the organization.

Similarly, we are reaping the benefits of our best in class Cyber security.

Security organization fueled by investments and next generation technologies, which has improved our security and agility and development of a security focused operational culture.

Very large banks use technology to serve existing customers, but arent necessarily using it to broadly source, new digital customers with a digital bank with a digital branch focused.

And we're going to see like we are we are adding approximately 25000, new consumer customers a quarter and addition to several hundred thousand Smbs and the last year.

Now moving to slide 19, our participation and PPP has clearly been transformational for the bank at the close of the program we funded approximately 320.

<unk> thousand loans for about $9.5 billion.

And it is a top 5 bank across PPP won through PPP 3.

And this year's <unk> 3 we were the number 2 bank and the country with loans more than every bank and the country of larger than us and cumulatively since last year, we have exceeded loan volume.

5 of well known money center banks like Wells Fargo, Citi, TD, and P&C and rival that of Jpmorgan and Bank of America at huge origination teams led by tens of thousands of employees and outsource resources.

In terms of forgiveness, thus far we processed approximately 57000 and forgiveness applications.

<unk> 3 billion, which is about 60% of the $5.1 billion round, 1 and originations.

Our borrowers have maintained and nearly 100% forgiveness rate on applications and it.

As you may have read on our press release from the SBA yesterday as well as a feature and the Wall Street Journal, we have partnered with them on a direct forgiveness tech platform.

For <unk>, which has the potential to accelerate forgiveness, especially for 2021 originations, possibly as early as this calendar year.

Thank you and with that I'll pass it to our CFO Carla leibold to bring it all together with capital book value growth and on our outlook.

Thanks Sam.

And good morning, everyone I'll focus my comments.

The first with capital and second as tangible book value and.

And tariff impact 2021 here and outlook beginning with capital on slide 21.

This slide shows.

And second capital accretion.

And the resulting from the recognition of deferred origination fee for PPP loan and strong core earnings.

And the end of Q2.

Total risk based capital.

Weighted about 13, 2% and on.

TCE ratio, excluding PPP loans for $7.

7% SaaS.

SaaS for until the end of this year and our total risk based capital is expected to be approximately 14% and TCE.

TCE ratio, excluding PPP loans is expected to be around 9% net.

Pro forma for recognition.

400.

And none of free cash PTT revenue bump.

We ended 2021, and you will see that the estimated total risk based capital increases to about 16% and.

And the TCE ratio, excluding PPP loan increases to about 10% so whether the income is recognized.

And 2021 or 2022, it is still significantly accretive to our capital ratio.

Turning to slide 22, I'll talk about tangible book value.

Year over here, we've had 29% growth and tangible book value at the end of the second quarter, our tangible book value.

Now for $32.

From around $24, 1 year ago by the end of 2021 and again, if you pro forma for recognition of the PTP revenues, our tangible book value.

<unk> increased alcohol above $40 for sure that's.

The additional growth of about 6% and this is what we really think about and competition.

Turning his line.

Our updated financial guidance for year end 2021 total followed.

Loan growth, excluding PCI loans, and mortgage warehouse and is expected to be and.

And was closer to high single digit growth, we are still expecting mortgage warehouse balance to decline between 1.6 and $2.4 billion by year end.

Expecting on net interest margin to be in the 3 and a quarter to 360 range for the second half of 2021.

We are increasing our core EPS guidance, which includes the PPP related revenue to at least $6 and 2021 and 2022.

Core EPS guidance, excluding PPP related revenue is expected to be.

On the mobile <unk>, and 2020, 1 and 2022, and we expect to achieve the $6 and core EPS in 2025.

On Sac.

The total risk based capital is expected to be around 14% at year end and our TCE ratio is expected to be around 9.

<unk>.

And I'll highlight that these capital projections do not incorporate any stock buybacks for redemption lastly, our effective tax rate from continuing operations is expected to be between 23 and the 25%.

Quickly touching on slide 20 for this.

Slide shows.

For tax core EPS of $6 and 2025, rather than 2026, applying reasonable growth assumptions and our return on average assets of about 110, and you can see how we hit that $6 target with assets somewhere between 18 and $20 billion.

Before turning the floor.

And.

I'd like to emphasize 2 points 1.

And what became capital accretion from from PPP revenue and strong core earnings and Q.

Our pro forma on tangible book value.

Leased $40, including full recognition of the PTP revenues.

Our black and with that I'll turn it back for you Jay.

Thank you very much Carla and thank you. Thank you. Thank you Sam.

I think if you look at.

25.

And you will appreciate it sort of sums it all up.

We have a very unique strategy and we have on.

And with very experienced and talented management team debt.

We are privileged to be working with.

We have our strategy is very high tech and.

And it's supported with high touch and it's broken into these objectives are broken into key results and be followed or PR for those.

If you are familiar with debt.

Management.

System and the processes to really drill down on each 1 of these objectives and through actionable results and then have alignment and Thats the way and we look at things.

From a reported earnings performance would it be.

Yeah.

And now about on earnings performance and from a high degree with franchise.

Respective.

Woods and talk a lot about debt and.

But the important thing is we are building upon our strength, while community banking and getting into the future by focusing.

And also on digital banking, which is supported by our digital lending digital franchises and combining superior technology with high touch specialty lending on niche businesses or the court.

From a capital point of view this was a major objective strategic objective of ours to be at all.

Average capital ratios and we are so pleased to share with you today.

We expect to be between 9% to 10% tangible common equity ratios without doing any capital raises and.

And at the same time.

Amount of accretion to be soon.

And on earnings.

Far exceeds any of the accretion that you've seen from bank mergers and acquisitions and dose for the kinds of things and we've done it and organically by taking advantage of the environment from a credit quality as Andy mentioned to you. It's been exceptional. So these are the things that.

Our board of directors, our top management is focused on on that do on a regular basis and we are that's why very optimistic about our future so with that.

And open it up for questions. Please.

At this time, if you would like to ask a question. Please press Star then the number 1.

And on your telephone keypad.

Pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Peter Winter.

Wedbush Securities.

Good morning.

And visit.

Good morning, I wanted to start with the margin.

If you could talk about some of the drivers to the increase and the margin of the.

Core margin of 31 basis points.

And just I was curious if anything was unusual and the quarter.

And then just the outlook is why the low end of updated NIM guidance of $3.25 is below the second quarter results.

Okay.

I think our carload and he can take it for just let me just tier 1 bigger deal for you too.

Bob.

Okay.

Always want too.

Provide general overall guidance, rather than very specific guidance and we always have a style of exceeding expectations.

So with that column and talk about specifics.

Yes, Thanks Jay.

So I'll start Peter and just.

As described for balance sheet restructuring that occurred and the first quarter of 2021, and which we terminated some of our cash flow hedges and really.

And the opportunity to reduce our overall funding costs.

<unk> on a loan that was expected to provide at least 15 and 20 basis points going forward.

And so as expected we did see.

And that margin expansion coming through and in the second quarter as well as we continue to make efforts, reducing our deposit costs.

And then the last thing I would say, it's just the mix and the portfolio, helping increase our overall low switch.

Obviously sales and margin expansion for the rest of this year as long and we are focused on our funding cost and.

And bringing those down and being very disciplined on our pricing strategy.

And we are not forecasting any margin compression and really for the rest of the year expected to be within that 3 and a quarter and $3.50 range.

Okay. Thanks.

Cash and the period commercial loan growth.

Excluding the.

Multifamily mortgage warehouse.

Really nice growth you mentioned on the calls and I guess pipelines for all time highs I was just wondering if you could give a little bit more color.

Social side.

Where the growth is and.

What are you hearing from the clients.

I think Sam and then you've got the appropriate question for you guys.

Sure absolutely I'll start off and and Andy Let me know if I missed anything.

Overall pipeline is it's pretty broad based.

Our local geographic teams are seeing and a record record pipelines are low.

And your finance business.

Our commercial finance business a lot of this was pent up demand and.

And carryforward from from a softer first and second quarter, we do expect that the growth will be accelerating throughout the year.

And just given the seasonality of our business plus.

Some of the likely debt reduction and our commercial mortgage warehouse business and we think it's just a very nice.

Both loan remix and yield remixing spread but also on opportunity too to really show.

Far above peer.

Loan growth.

And if anything.

And I think also too and I.

I'd just add David from a for C&I lending perspective, even with the geographic expansion.

We're seeing a lot of great penetration, there and we've been able to take advantage of some.

Other bank mergers and on the market that and credit.

Year to options has given us an opportunity to pick up some relationships that we have been processing for a period of time. So I think we're seeing it really it's not just and especially once we are also very good and the core line.

For C&I lines of business and.

I think you'd see that it's a good margin business as well.

So overall.

And for all the pipeline and robust but.

<unk> specialty and for C&I.

That's great and just my last question and I understand that you guys like to be conservative, but just the debt.

And that $6 guidance for the full year this year it does imply.

Earnings flat for the second half of the year and.

Is it just the timing issue of the PPP, because I would assume most of that $300 million should.

It should be recognized over the next 3 or 4 quarters.

How does that Peter and I'll take better and I'll take that question, yes, absolutely Peter it's.

And it's a when not if.

And I think the the.

Operative word at least or a minimum of $6 and both years Youre absolutely right and if we're also saying that $4 a core core EPS, excluding PPP would mean that Theres limited forgiveness, and 2021, which is not our anticipation, but going back to Jayson on the.

The time, we want to be conservative because PPP forgiveness is not like 1 of our core businesses that we really have a lot of control.

And and we can't really give short term guidance on.

And we provided the pre tax revenues from <unk>, which we expect will almost entirely come in between the remainder of this year and next year.

And.

We appointed and it's difficult to make some modeling assumptions, but we also have the same issue internally, we really only have a 30 to 60 day at most foresight and to what.

And what.

And sort of origination fee realization could be so for example.

For the.

The SBA centre for wire.

And we have a $1 billion on January 1 versus December 31, we could have as much as a $20 million swing and quarterly revenue and Thats. The challenge that we face and that's why we understand we want we would request and some of our investors and analysts kind of make it on forgiveness estimates and we expect that debt nearly all of it will be realized between this year and next.

Sure.

And we could make 7 this year, we could make 650, we could make 8 but it would just take it a little bit from next year and we don't want to have technical misses due to uncertainty on borrowers and stepping up and the government review and timing, but this is also why we partner with the SBA on their tech direct forgiveness platform that I touched on.

Try to.

For this uncertainty and the rearview mirror focus on business as usual and start getting to a core core earnings.

Earnings strength.

Carla and might be helpful. Could you just share if you have the numbers handy for some precision on the PPP origination fees split between last year and this year.

As well as the breakdown of the 100.

$18 million and has already been realized to date that will help some of the modeling.

Sure Sam.

So as Dan mentioned.

And are projecting 400 zero.

<unk> 400 billion.

Pre tax net revenue set against them.

Second on how that breaks down.

Total of about 3.

335 million.

Deferred net deferred origination.

And that breaks down and around for next year.

About 100 million and then 2 line and 75 million level.

And so when we think about that.

Same thing about.

Was it not yet and.

So for PPP round, 1 and to date, we've recognized about $75 million of that 100 billion for about 75% of that is already been recognized $25 million is still expected to come in at some point during 2021.

And on ground right and the 2000 and sign.

And time is deferred origination team and.

And that has been recognized so.

And so theres still a lot of upside of that into our NII on.

And just upon the timing for Jay.

Now the day.

And we've recognized 100, Inc.

I'll focus just on a wedding day 2021.

Recognized about 70 million.

Our first quarter and second quarter margin total.

Can you just a little debt perspective.

Yes.

That's great really helpful I'm.

Thanks for taking my questions.

Thanks Peter.

Your next question comes from the line of Steve Moss of B Riley Securities.

Good morning.

Good morning.

They're close really helped us maybe just in terms of.

On the cap.

Im all set front here you guys announced.

Preferred redemption later this year, just kind of curious will that be all preferreds.

And also you can just discuss your appetite for a stock buyback here.

And.

And how aggressive do you want on it.

Steve.

Shared with you that.

Capital for once we cross the 7 and.

And now.

Percent TCE ratio.

We want to make debt absolute floor for.

For us and we've also shared with you today that once all this PPP revenues have been recognized.

Could be at 10.

So that gives us tremendous ability.

To look at all options and at the same time, we are a growth oriented company.

So we don't want to show earnings growth just by buying back the stock.

That is the only option available to low growth franchises.

So we continuously look at opt.

Options for us and we are very optimistic that we will be trading at higher multiples over period short period of time and.

And but at the same time, Inc.

And the market disruptions and are.

And with equity becomes attractive.

Percentage to buyback rather than to accept the lower stock price, we will not hesitate.

<unk> Institute.

Common stock buyback at this time, we think it would be most prudent for us and consider.

<unk> buyback.

Buyback and you can see it's about $82 million as an opportunity.

People are us if we do take advantage of it and and debt itself.

We will save us several million dollars of that for tax.

Net income and which.

And is accretive to our EPS.

Okay. So.

I.

The PPP building tangible book here towards the mid Forty's.

If your stock is and the high 30 to $40 range now should we expect a repurchase program. Maybe next quarter is that kind of how to think about that or.

And I would say is.

You should expect us to post volume tool on board.

And a direct.

Correct, because as decided which is probably the purchase.

Preferred and you should expect us to get the PTP revenues and house, rather than projected TCE and and once that's done whether it's fourth quarter or next year. If there are any weaknesses and our stock price.

I guess it would be prudent for us to buy back on Scott.

And we'll look at that.

At that time, not and the third quarter, but beyond fourth quarter everything is on the table.

Okay.

And then in terms of the.

And we come back from a margin for.

For a moment.

If I exclude pvp and looks like and around a 4 and a half type loan yield and funding costs are coming down.

<unk> is just the 3 and a quarter to $3.50 range, reflecting on some of your expectations for liquidity with the initiatives coming online here in the near future.

Hello, Steve.

Yes, definitely that's definitely a lever that could that could compress margin we're on.

Also seen while we still are maintaining loan yields that we are seeing some.

Increased competition over the last 60 days 90 days for.

From a loan yield perspective and.

Spreads have been maintaining.

Having said that floors are starting to compress a little bit. So we're just maintaining a little bit of a flexibility and to jay's earlier point and making sure that you know we have conviction on the range that we're providing.

Okay. Okay got you.

And then just in terms of on it.

Gain on sale with you now.

I mean, you mentioned the consumer health for sale initiative is that is that more and we think about the the gain on sale and there is a 2022 event or should we expect that and the second half of this year.

A portion of that and we'll be in the second half of this year.

And we are planning a trip.

For us to seek to do this with regularity on a quarterly basis.

And what we have provided in terms of guidance on the $4 of EPS for this year. This is obviously not an initiative. We just turned the switch on and the last couple of weeks, it's something that's been in the works.

For for 6 plus months, so it's part of our guidance for 2021 and and.

And also.

Part of our guidance for 2020, 2 but if we if it ramps up sooner or or faster will be and communication on what the impact could be for next year.

Yeah.

Okay, great. Thank you very much.

Absolutely.

Your next question comes from the line of and Michael Perito.

L a K B W.

And Mike.

Good morning, guys how are you.

I wanted to just start on line.

And a simplistic question and I just wanted to make sure that I was kind of thinking about a 3 way and I was looking at the outlook why do you guys or.

Long term guidance like you guys were talking about the asset growth I just wanted to make sure that.

I was kind of thinking about the baseline on that asset growth near term the right way I know it should for a range per se, but it's still there.

Fair to you know when we look at the mortgage warehouse guidance for I think 162.

There's a little over 2 but I could take the midpoint call. It 2 billion and that's about 900 million and validation there and you're probably a little over 6 billion and P. P. So is it fair.

And it might we don't know necessarily when you'll get there per se, but to think about the core balance sheet today at about that 12, $12.5 billion asset level as we pick.

Long term asset growth Carla.

Yes, I think that's for sure.

Thank you.

Okay and.

And Mike just a charge off and put a little bit of a fine point on that and <unk>.

$13.3 billion at the end of June 30.

On the loan growth for the second half of the year.

Will will mitigate the perspective midpoint of the range of mortgage warehouse.

Drops.

Got it so it's obviously not unreasonable and we will make our own.

On assumptions around PPP kind of forgiveness, and and and the mortgage warehouse activity within the range you provided but kind of piggy back it's not unreasonable for things at that 12 to $12.5 should grow 7% and 10% over a multiyear period and at least that's how you guys are kind of thinking about it today.

That's correct.

<unk> 13.

And I would say with deal.

Flow or because of what the.

And we're looking at our TCE ratio as we're looking at debt 13 to $13.5 billion got it Okay got.

Got it that's helpful.

Thank you guys and then.

Strategically longer term.

Right.

And.

<unk>.

And <unk> really.

Really helpful.

And thank you for putting that together, but it's as I think about the balance sheet mix right I mean, presumably for the next year, you know mortgage warehouse could be high PTT will still be around but as I think as move until late 2022, and 2023 and beyond.

And again.

It seems like a lot of on the.

And the commercial type stuff seems a little bit more on some of the Fintech partnership seemed a little bit more lending focus.

Is the thought process is as we think about it is that from for the real time payments initiative and some of the digital <unk>.

Mall business.

And its banking stuff will that be more of where the kind of hopefully lower cost liability growth comps on some.

The consumer and other fintech partnerships and and geographic expansion on the commercial side that I imagine will drive 7 to 10 asset growth over a multiyear period of time or is there other elements that we should be thinking of is in terms of kind of how the mix of growth.

Growth and funding of that growth will evolve once you know somebody's. These temporary programs like the PPP eventually run their course.

Sure absolutely.

I'll take a stab at that so from a funding perspective, yes, we do anticipate that some of our digital initiatives should have.

<unk> to help fuel some of our growth having said that we also have.

Strong growth.

Across the franchise from a geographic perspective, including and some of our new geographic markets markets, which are starting to really move the needle.

From a funding perspective.

And then just to highlight in the near term.

And many of the items that we discussed on slide 12.

A reasonably balance sheet light.

On the SBA business. So it's a combination of retaining a portion and the gain on sale business with digital SME business will take some time to ramp up.

But the majority sort of users and the near term we've already guided towards.

And on.

On the Oh, sorry, I was on.

No I would just margin.

And then and then I'm sorry.

I was just going to add.

And by year.

You know what real time payments did for signature and what they did for silver did and.

And you can make some assumption.

And the opportunities there.

And of the thing can have for on.

Core non interest cost deposit franchise.

Yeah, and and and Jay and I was going to be my next question right. I think the technology stood up and you guys did it fairly quickly soft launch and the next 60 days, which is great and I think I asked the person on.

And last quarter, but would love an update on some more specifics on how you're getting closer to that launch and what's the roadmap for the plan.

When I think about signature and silver.

As you mentioned I mean, they obviously created strong networks, which kind of art and necessity right now for these RTP networks to to really take off and and get the customers and the deposits on there and.

And what's what's the sales plan and I think last quarter, you had a quite a few different industries and the debt debt that you were targeting but.

Would love just some additional color on on on where Youre going to focus your efforts and and what's going to kind of be the process of trying to get people on board to really see that deposit growth take off.

This question sure I'll start on this question and so in terms of the verticals. We are focused on on prioritizing internally.

Some of the verticals that we think would have the highest ROI.

From a deposit growth perspective, and a customer acquisition perspective.

And so as you can appreciate there are.

Digital asset ecosystem for example that you've seen so silver data and signature.

Focus on <unk>.

Similarly, we're at we're in advanced discussions with any of our existing customers.

And so when we sort of think about a soft launch which is really just a combination of existing customers.

Counterparties and a network creation as well as new customers with new customers you have to bring on the networks altogether.

That's and then.

And we would do a soft launch at the end of the third quarter early fourth quarter, and then with 90 day as to sort of a more broad launch.

And so that we can be able to.

Plus customers those ecosystems are quickly and make sure that we're banking them.

For the best of there and making sure that the service is the best and what I Wouldnt say its debt and parallel their dedicated teams for business development and sales and relationship management and treasury as well as on a technology project manager and infrastructure. So this is Jay.

So it's full steam ahead.

Very helpful and then just.

1 last 1 for me sorry to keep going here, but but just on capital.

And as I think back to the company history, right and be JV, you guys have always had pretty decent growth and.

And and certainly now.

And just looking at the slide 12 Theres no.

Shortage of opportunities for you guys to grow and and it's clearly been a really great 12 to 18 months for for coffee and and and Theres been a lot of progress, but just as we think longer term here.

On the right.

Capital ratios.

And for US to think about you guys wanting to run the bank with with the.

Environment, you have and you know I guess.

It seems like with some of the ROA targets, there and certainly with the P. P. P and near term you guys I would imagine we'll be able to remain well in excess of those targets without any external capital, but just as we think about you know a growth organization right and I think the capital piece is really critical and low right now, there's a lot of noise and and.

And a lot of benefit from the PPP, but just as we think longer term out into 2020.3 and beyond I mean, you guys have any updated sense of what the right capital ratios or position is.

For the organization that we should be mindful of.

Yeah.

It's a good it's a good good question and what I would say is that historically I think.

And certainly we have operated at below peer capital levels, but we've been very open as to why that makes sense for our organization based upon our assets our asset profile and our liquidity profile, having said that with the benefit of all of the key capital accretion and.

And I'd sort of say a range, which we previously were guiding towards.

Think we were 7% and 8% that's up to 7.5% to 8 and a half with 7 and a happy and a minimum and a bias towards the high end of that range.

And the and the medium term.

Absolutely right.

And say goodbye.

Got it okay. So.

And I think if I can just kind of.

Comment on summer IV it sounds like there.

You guys aren't trying to run around with it and 9 or 10% handle on your capital, but how about relative historical it. It's fair for us to think that youre going to run with a little bit more capital relative to the peer group debt than maybe historically, which would make sense right. Because I mean historically you guys had you know the multifamily book is much bigger.

And and now you're looking at from higher yielding assets, but I just want to make sure I'm kind of thinking about that conceptually. It seemed like you guys are.

That's right okay.

Okay.

Excellent. Thank you guys for taking all my questions and I appreciate it thanks, Mike.

Yeah.

Your next question comes from the line of Frank Schiraldi of Piper Sandler.

Yes.

Hi, good morning, Brian.

I just wanted to hit on 1 thing.

On the geographic expansion and I wondered if you could share.

Specific portfolio size specific pipelines for some of the.

And new geographies, you guys have announced over the last few months.

And I'll, just I'll start on debt and Tim if you can help and instead up because I was out visiting our team and Chicago.

Just a couple of weeks ago to give you an idea and Chicago our deposit franchise is in excess of $750 million today and.

Our loan book is in excess of 1 day.

So you can.

See there it's opportunistic.

And and.

We are taking advantage of.

The opportunity for years, it's not just.

Lendingtree and it's also a relationship driven and and then and niche.

Certain niches which were on.

And <unk>.

And we think that's sort of the goals by each and every geography.

And and not all and being driven like I said, so we are very very bullish.

Based upon our experiment over the last 2.3 years this and something.

And on some can.

Duplicate and.

Various markets.

Around the country and that we will not do it.

Typical bank waiver, which is through M&A, we will do it through organic growth.

Turning up sort of loan production offices, and then doing on deposits.

<unk> for gathering and a border on a high.

Touch.

Private banking for those niches that we identified as high growth opportunities, including real time payments.

And I would just add.

Frank.

And so it's driven.

Driven strategy.

Followed by loans, each 1 of our geographies Chicago Dallas.

And Florida are typically at least 70.525 deposits to loans, So majority deposits Street and 1 on.

And deposit perspective.

And as Jay talked about sort of on the deposit levels.

And Chicago.

Okay and.

And and Florida, and Texas combined we're tracking on on on a 9 figure deposits growth already and just a very short period of time and each of them from a nascent generation perspective as you can appreciate it and your geography should have a minimum threshold.

Or at least 50 to 75 million of longer and the first year with with.

Frankly, Ah and upcycle, you know higher than that.

Okay, and and took the ball and there's nobody there in terms of a roadmap.

Additional geography's you could add you didn't talk about conversations to add additional team is there any roadmap or expectation on you know new geographies to enter into you know say over a 12 month period going forward.

[noise] [noise] and our our strategy is very much a a people driven team strategy first as opposed to choosing a a pin on a map.

And then following that with a team. So we have you know geography is on the eastern Seaboard and you can imagine that.

And that makes sense, including a reboot of R. D.

D C Metro area.

Geography.

But again.

Again as we previously said, it's and it's looking at some of the the top Msas Bifurcating thinking about what are the best for my competition perspective, and a competitive set perspective, and a quality of customer perspective, and then making sure that the number on filter as people first.

Got it thank you.

Absolutely.

Your final question on the line comes from Bill does Elam Uptight and capital management.

And.

Good morning, and I had a couple of questions. The first 1 is relative to the S. B, a forgetting forgiveness platform and to announce yesterday, all day to slow Pony and the room here can you can you discuss what that does for you and that's different from your from your current approach.

Sure absolutely Bill you know I'll take that so what the F. B a is seeking to do and you know and and and partnership with with bags and and and new lenders are you at U S. P. A lender's is to essentially trying to create a bar work friendly SBA platform that non.

Only allows a sort of co branded and white label type relationship with a bank or lender.

As opposed to having a 2 tiered process for a bank runs for forgiveness passes it to the Spa's passes and facts that bank passes it to the customer.

Rendering a decision and allows it to be much more of a collaborative and streamlined process now the second thing that the S. B a has done with the banks would not have the ability to do on their own as they have created and sort of a data and analytics. This analysis to make some determinations, especially for a second trial on loans, which had a 25%.

Revenue test to automate that as opposed to requiring for every borrower a.

Backup for a 25% for revenue dropped all of this is only for loans below 150000 and wish for customers bankers as you probably know for this year was about 99% of our loans and.

So Ah larger loans will still go bank first submit test VA for the traditional process, but this this.

This tech platform should should tremendously streamlined process.

That is helpful. Thank you and then if I remember correctly your redemption of the preferred and I wish.

And not included in your EPS guidance and that.

That is that is correct is it also the case that you are still not including that and your guidance that you've given here today.

[noise] bottles cracked now and it's quicker.

Great. Thank you both.

Absolutely. Thank.

And can.

There are no further questions from the phone.

Good 1 of the simple.

Buddy.

Yeah, we really appreciate your interest and got.

[noise] Bancorp if there are any follow up questions. Please don't hesitate to give us a call. Thank you and have a good day.

This concludes today's conference call you may now disconnect.

[noise] [music].