Q3 2021 Customers Bancorp Inc Earnings Call
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Good day and thank you for spending by welcome to the customer's Bank Corp incorporated third quarter earnings Conference call. At this time, all participants are and then listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to first start.
One on your telephone if you require any further assistance. Please press five zero and now I'd like to have the conference over to your <unk> secret today, David Batty Communications director at customers Bancorp. Thank you. Please go ahead.
Thank you Paul and good morning, everyone. Thank you for joining us for the customer Bancorp's.
Call for the third quarter of 2021.
The presentation deck, you will see today.
Has been posted on the Investor Relations page of the bank's website at customers banks Dot com.
You can access the deck by clicking a red Mark latest earnings presentation.
Our investor presentation that please important details that we will walk through on this morning's webcast.
Urge you to use download print.
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Following week, and we would like to remind you that some of the statements. We make it may be configured forward Lucky.
These forward looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially 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 event, except to the extent required by applicable securities laws.
Please refer to our separate countries, including our Form 10-K, and 10-Q for a more detailed description of the risk factors that may affect Ah resolved copies.
Copies may be obtained from the a C C a body.
The Investor Relations section of our website.
At this time, it's my pleasure to introduce some customers bankrupt chair, Jason J what is this yours.
Thank thank you, David and good morning, ladies and gentlemen.
Thank you so much for joining us what is the order call I'm joined today by my colleagues sent to do the President customers Bancorp is what is the Chief Executive Officer of Art subsidiary Bank customers Bank, Carla liable Chief Financial Officer, and Andy Blooming.
Cheap credit officer, Andy God loves him and I make up what we call the office off the chair at customers Bancorp.
We are very excited to be able to report another record quarter for our company.
This quarter, we generated more income in a single quarter. Then do you have any previous fulltime year D O D earnings.
This milestone was achieved through incredible hard work by.
Consistently.
Working very hard being very focused on priorities.
And delivering the highest quality service to work lines, which has been one of our companies.
Walmart since its founding almost 12 years ago.
Even more exciting than outperformance. This quarter is where we are will be stand today as a company, which we are very excited to share with you. This morning, and you will be pleased with our with our outlook for the future.
We are proud to have stepped up last year, who are innovative approach and our tech capabilities to help small businesses all across America by funding approximately 350000 P. P P loans and for almost $10 billion and being number two in the nation.
Among those who give out the numbers a few owens.
This outstanding execution.
Generated.
350 million proximity league in S. D. A good food origination fees, which has and will continue to significantly improve our capital levels and allow us to expedite investments in our continued growth and shareholder value.
And very important than gratifying to us is that we're seeing thousands of businesses all across America.
Who are now our clients.
<unk>.
Let me briefly share with you the results for the third quarter.
Total loans outstanding.
Excluding P. P P and mortgage warehouse were up 10% year to date annualized led by 19% year over year Grill can CNI and 32% year over year growth in consumer installment loans.
Order deposits grew about.
7% year over year, and an incredible 3.1 billion during the third quarter with Dr.
Practically all the grill, it's coming in non interest bearing demand deposits.
Broad based organic growth drawbar strong performance for the quarter.
Interest income goes up about 100% year over year and quite importantly.
<unk> book value for sure increased 35% over last year.
The safety and soundness of the bank continues to reflect the very strong credit quality and significantly improving capital ratios.
Our strong performance supports further investments in the delivery and scalability of our business model by investing in capabilities and product lines that further serve our clients needs and provide on the drums support as we continue to build our company.
Exemplary part of Ginger tea and speed is that this quarter, we ended and and there's been a few quarters before that we entered several new businesses.
So this has been Ah marketable year for us some.
Some examples as you can see on slide three.
Everything that's in Green you can see that we've now entered the fund finance business, we've recruited teams and technology and venture capital banking, we've recruited teams in the financial institutions group and we have embarked on C. D. I T customer's bank instant token.
And which is our digital payment system and we are very excited about digital asset banking and a small business server.
Mrs as well as SBA and credit card services that you can see from there. So we all for full suite of community banking specialty banking digital banking both for the consumer and also for the commercial and we are we are laying the foot.
It'd be a nationwide bank over the next couple of years.
We will continue to leverage our best in class technology to efficiently deliver high touch community banking special.
Special do banking and digital banking services, keeping our customers at the court of everything we do.
I want to thank you all for your continued support and it's amazing to think that we are just getting started.
Now turn it over to Sam's to do president of customers banks take you through more detail.
Then.
Thank you J. It has indeed been another great quarter, and a very strong year so far.
Momentum has picked up pace and we have benefited from continued growth across the company, which highlights the broad base strength of the franchise. Let me briefly summarize our results in a little bit more detail.
We recorded.
A record $3.36 in core EPS, which represented net income of $113 $90 million up an impressive 178% over the year ago quarter. This translates to a core R. O C D of 42% R O a of 2.35%.
And a pretax preprovision ottaway of 336% in our net interest margin came in at 3% to 4% for the quarter.
I'm moving to the balance sheet.
We ended the quarter with $14.2 billion in core assets, excluding PPP on loan book was $10 $6 billion at quarter end.
Importantly, our loan pipelining backlog have grown two all time high levels across the franchise and we expect loan growth to continue to accelerate in the fourth quarter and into 2022.
As you heard from J R. Total deposits grew by 6.1 billion with $3.1 billion of that in the last quarter driven by our efforts on the customer thank and some token R C bit launch, which brought in one and a half billion of non interest bearing deposits as of September 30th.
Strong asset quality is at the core of our franchise and we continue to have superior credit quantity. It appears with Npa's with just 27 basis points in our coverage ratio now at 165%.
And very importantly on capital R. TCE ratio cross, 8% ending at 8.1% as we continue to experience tremendous capital Bill. Thanks to both strong core earnings as well as Pvp revenue recognition, which was accelerated by our efforts to partner with the SBA on their direct forgiveness platform.
Our book value has increased an incredible 46% in the last six quarters, which is unprecedented growth of a bank of our size and importantly reach these levels and achieved this growth without any dilution to our shareholders.
Flipping to slide five.
Let me update you on our strategic initiatives broadly across the company.
This is what makes customers banks, so unique and this is what has and we expect will continue to drive value creation for our shareholders.
Firstly on the commercial side as.
As you heard from J receded, a new team in the Carolinas to be based in Bloomington. The Springs. This year's total to four new expansion markets to date with additional teams in the recruitment pipeline. A reminder, that this recruitment is driven by a single point of contact teen looks down strategy, which has proven to be a very successful part of the business model, especially in 2002.
Any one given the disruption caused by the M&A industry amplified by the great resignation.
Moving specialty lending, we've launched two new political as you heard from J and technology in B C banking as well as the financial institutions group based in Dallas.
As you can see these teams are strategic Stirlands, both geographically you for our footprint and new business lines and verticals that are close to our existing core competencies, enabling cross sell to existing customers and their affiliates.
We are supporting the strong demand across the franchise by continuing to add experienced senior bankers to our existing teams as well to help support the growth from that demand.
RSP 18th continues to perform very well with traditional seven a loan originations in the third quarter double of what we saw in the first half of 21 on.
On digital seven eight a reminder, that many of these businesses don't have preexisting banking relationships and a number of them came to customers Bang for their pubic pillow. This is why we created a digital 70 product and we believe we are the only bank that has a platform where additionally source to customer for loans under $350000 can apply online received quick decisioning.
In closing 30 days, which is unheard of an unprecedented in the SBA work.
The digital 78 pilot continues to progress well with nearly a million dollars in originations in the month of September which you would like to scale up as we previously stated to $3 million to $5 million monthly originations.
We achieved $4.3 million and year to date SBA gain on sale well in mind with our 6 million dollar stated full year target.
And our multifamily business, we experienced faster than expected runoff from the current rate environment and as such we have put a plan in place to grow the portfolio back to a state of target of 15% of total loans.
Now moving to the middle on a consumer business or digital direct personal loan business Cross the billion dollar and a quarter of customers cost a billion dollars in the quarter of customer source applied underwritten by our credit program.
Customers Bank direct originations, we ended up with digital personal loan portfolio of $1.3 billion.
Of which 70% has been source directly.
To put this in perspective this is compared to a portfolio of 845 billion as of December 2019 of which only 15% had been source directly under the customer's bank banner at that time.
As you can see we've created an extremely profitable credit, let Neil bank within our bank with over 130000 active profitable personal loans student loan medical dental specialty loan customers, all sorts through digital channels and partnerships.
When we add in our digital bank savings account customers and our 2020 in 2021 PPP customers. The total increases to over 450000 active customers coming in through our digital branch.
It's worth mentioning that to date, we have crossover additional products to less than 5% of that pool. This presents a tremendous opportunity for our data science in digital marketing teams or advancing our data analytics capabilities to help our team to prioritize products on our roadmap and importantly create digital cross sell journeys for these customers.
Moving to a consumer gain on sale initiatives are digital team originated in created loan pools, which were sold to investors in two separate transactions in the quarter, bringing a year to date total to four and a half million already in excess of the 4 million dollar target for the year.
We have sold $140 million of loans originated for sale today.
The year to date as previously mentioned we are also working on our first marketplace lending partnership expected to launch in 2022, which is being led by our embedded in tech team, which was recruited enjoying in the last 100 days or so.
We're also working continuing to work as you heard from J on a new credit card launch an additional consumer products in an effort to have an opportunity to earn multiproduct relationships with our digital customers.
Now moving to the right side of the page firstly in conjunction with the anticipation of a real time payments platform. As we mentioned we on board at a significant number of non interest bearing deposits towards the end of the quarter to assist us in these efforts we recruited an experienced team to.
To help with payments product launch business development customer Onboarding a customer success.
To form the digital asset banking vertical.
Moving to a digital SMB bundle. This is an advanced rollout starting with the digital seven eight which has already launched term loans revolving line of credit commercial credit cards are all in the near term roadmap. This is critical to build on our Pvp success with small businesses.
Finally, it's previously discussed we have engaged a leading global digitally digital consultancy to rebrand and relaunch are omnichannel online presence, which reflects the digital maturation and institutional growth of customer's bank. This is on track to be completed by the end of the year.
Moving to slide six.
As you can see our partnership with the SBA in direct forgiveness is proven to be an incredibly smart decisions. We had a soft launch in August.
And it has resulted in significant acceleration of forget best for our 2021 PPP originations.
We have been able to process over 30% of these loans for forgiveness in just a matter of weeks I'm proud of the teams technical agility and entrepreneurship to collaborate on such an important technology initiative that many other banks will now have the ability to take advantage of it.
As you can see we still have just under 50% of our deferred origination fee still to be recognized in the coming quarters.
This will further improve our capital and more broadly are finance franchise position of strength.
Flipping to slide seven.
Sure you'll see a summary of the timeline an overview of the seabed launch process.
We launched within nine months of commencement of our comprehensive opportunity analysis, which first started with a built by partner evaluation.
This summer after selecting our partner and signing a contract we integrated the platform into our environment and implemented compliance processes and began our business development as an artist and.
In late September we began opening up D D as in anticipation of our imminent payments platform lunch and after we completed testing and had a fully functional platform. We soft launched earlier this month.
Our soft launch will include around 20 customers plus or minus and you expect to remain in soft launch for a few months before opening up more broadly to all commercial banking customers.
With our noninterest bearing deposit growth to date, we will be focusing on balance sheet capital and profitability discipline.
We are taken actions on the following items some of which are already in flight.
Firstly, we paid down our PPP less funding by $3.9 billion in the third quarter.
And saving an associate at 35 basis points or $3.4 million per quarter.
Currently have no P P pls funding remaining.
Next we are focused on improving our deposit mix and cost of funding by reducing or running off higher cost deposits. For example are digital bank deposits totaled over $1.2 billion and have savings rates around 50 basis points. We also have a planned run off by the end of 2020 of our Bankmobile associated with.
Posits, which were around $2 billion as of September 30th.
In addition to further improving our deposit franchise. We're also laser focused on interest earning asset deployment.
We increase the size of our investment portfolio by $357 million in the quarter and we will continue to deploy cash in excess of balances necessary to fund organic lending growth in the fourth quarter and thereafter.
In terms of loan growth, we have been very tactical through 2021 gearing up for the launch of a realtime payments platform by adding commercial teams and our expansion geographies and lending verticals like fun finance technology venture capital real estate specialty finance and digital asset banking. These teams are hitting our stride and we'll be ramping up nicely in 2022.
With that I'll pass on to conduct to cover the financials in more detail.
Thanks, and good morning, everyone I'll keep my comments focused on five T Capex first.
Strong Ah camera, along glass with a favorable unlock second transformation intermittent and the quality of the art deposit franchise.
Third closing that interesting and that interest margin for significant capital accretion and tans.
Santa Barbara value, turning it's like eight.
I'll start with long go out and alone.
You can take in a cloud of 24.
Compound annual growth rate.
Excluding people P at 8%.
Last year, our course, TNI portfolio important by 516 million or 19% and are confirmed that personal loan portfolio, great, 32% or 391, though.
That's expected our mortgage of our health portfolio declined 1.3.
Yeah.
The third quarter.
<unk> I'll spell of clan Ah multifamily warm barrel decline over the workout.
163 million, adding a third quarter at 1.4 bedroom.
Almost think about the overall long walk over time, we're still targeting all crazy.
With our court.
Holding specialty Randall, making up about 35% to 45% of our total lombok multifamily about 15% of of Lombok and that's me Crazy attachment will 10% mortgage warehouse, 15% to 20% of the loan portfolio and to confirm that.
Personal loan portfolio no more than 20 per cent.
As Sam mentioned, you can expect to see in the multifamily.
15% target.
Mortgage my House Folio Galaxy.
Decline and like expecting the end of the year.
One nine and 2.1.
The clothes and the multifamily.
Along with other lending vertical.
Tangle bump in the volatile sulking from our.
More than half block.
As Sam mentioned will strong pipelines across all of our lightning vertical and on track to hit our 10 21 court.
Travel Pat.
Yeah.
Moving hagrid flatline.
You can really see the transformational improvements that oatmeal trying to target tranches, an overall final profile a few items to highlight here.
Since 2018 kind of compounded annual growth rate.
37% a turtle.
Yeah, I think yeah, who have total to talk of breath.
One day, or one or 57%, which included a five.
Inquiry or a hutch.
And you're against 15% in total come normal process.
The end of the third quarter.
Okay.
89% of our total pocket pollyanna.
<unk> also declined 379 million or 39% year over here, making up only 3% of told US the topic at the end of the third quarter.
We also continue to make significant progress.
<unk>, our overall total cost of the pocket.
Average cost of gets high Tech in third quarter, 2021 track 25 basis points from a year ago carry it or.
Spot cockpit, the pocket strapped to 32 basis points.
30th.
Alex back to our spot classic topics to be below 30 basis points by year end 2021.
Turning a slide can.
You can see the growth in net interest income overflowing five quarters.
Core bank excluding P. P. P. I'll also make a few comments here first.
Net interest income of 108 million for the third quarter of 2021 increased 23% over the year ago period, and second net interest margin again, excluding P. P. T for the third quarter of 2021 with 3% to 4% it's important to highlight here that excess cash.
Barrett.
That were how 'bout have balance sheet negatively impacted.
Third quarter net interest margin by about 16 basis.
Absent these higher cash balances would have seen that interest margin expansion by about 10 days.
Three free training slide 11, a few high level comment correlated to credit quality overall, our asset quality.
Excellent Ah credit right. There is a strong and our near term credit outlook learning table.
Moving 512.
This slide really highlight significant improvement in our total riksbank capital ratio over the.
<unk> presenting the estimated total wreck capital ratio at the end of the third quarter of 2021 is up about 240 basis.
Over the year ago period, despite the 82 and a half million preferred stock redemption.
Click on a standalone basis decrease the total risk based capital ratios by about 70 basis.
A significant accretion and or TCE ratio, excluding PPP shown on the right side the right.
That flag really strange the frame shot effect in our capital ratios that we've been discussing all year at September 30th or TCE ratio with 8.1% up 36% from the 5.9% reported in your account.
Accretion is driven by the profitability of the core bank as well as P. P P related to Avenue.
Lastly, moving to slide 13, you can really see the appreciation and our tangible book value over the past 12 months at September 30th.
Tangible book value with a little north of 35.
Line, one year from September 30th and are tangible top value, what's close to 36 or two.
That's a 35% increase year over year now if you fully pro forma and all the expected net revenue from the P. P. P program are tangible book value in after about 48 hours give them, where we were trading as of October 20th or price to September 30th tangible cook value like a hanger.
34% and this is why we continued.
Significant.
Potential attack.
Before turning it back to Canada wrap up comment on our core EPS guidance, excluding P. P. P.
Full year 2021 way of protecting $4.
2022 way of protect protecting between 475.
<unk>, which is about a 20% to 25% increase over 2021, and we are now projecting a court E T S.
<unk>.
Sooner than previously reported 2025 and with that I'll turn it back to you okay.
Thanks, so much Carla a good report.
Let me just summarize for use some of the key accomplishments very quickly and then we would open it up for questions from any of you on the financial performance front as you heard.
We reported record earnings hundred 60, some million dollars pretax in around 10 million after tax so anything that like I mentioned was higher than any annual performance in the company's history.
The deposit side, that's been a very high priority for us to dramatically improve the deposit franchise of the company and we are really pleased with the rule and noninterest spiriting deposits and and even excluding C. V. I P related deposits ear to date good was 30.
7% and practically all of it came in and non interest bearing deposits on the shareholder value stock price performance as you know.
Customers Bancorp stock was one of the best performing publicly traded stock in 2021, with 160% plus appreciation, but we still believe that you're only trading at about 10 times earnings Santa Carla mentioned about hundred and 34% of tangible book value and just to remind you for the law.
Last two years.
And most of our colleagues have taken hundred percent of our bonuses and stock not cash.
He was pretty good now.
From a technology driven perspective cause you know T V. I P was launched 101.5 billion in deposits already here and do you have a very poised for significant additional growth on the Pvp front as you know.
But not only taken not only help 350000 or so businesses, but more than 95% of these businesses. We help with all classified as real micro businesses and many of them being by noted all of the women owned businesses and we are thrilled that we were able to.
Will help them as well as make hundreds of millions of dollars simultaneously for our shareholders from again on sale business. This is a new and you should have technology based let's face.
<unk> the long tail and we've done that resulted in the boat it almost $8.8 million in sales here to do it in 2021.
We will continue to opportunities opportunities, particularly look at more fintech partnerships to grow digital businesses, we think that it's a huge untapped opportunity.
The capital front as you heard from Karla and Sam Reid dramatically improved TCE ratio, excluding Pvp, we are now it isn't over.
Over 8% and we only about halfway through realization about P. P. P noninterest income as well as interested in them.
The capital front, we completed.
Road redemption of 82, and a half million dollars preferred stock with just wanted to add about 13 million annual C. B S run right as well as we execute it started to execute on our common stock purchase program will be will be brought back a few hundred and some thousand shares.
Last month, while we were in the quiet period, and we are committed to building shareholder value and will remain opportunistic and on any weaknesses. We are prepared to buy back our stock.
As of October 20th like I mentioned to you or the or the exact number was actually 167000 chairs that'd be purchased so we remain extremely optimistic about the future and the guidance that Carla giving you an E. P. S that is something which we are committed to executing so with that upgrade it. Please open it up.
For questions from anybody.
<unk> as a reminder to all participants if you have a question. Please press five one and your telephone keypad again.
Dar one on your telephone keypad. However, anything your question has been answered and you wish to remove yourself from the key piece plastic pankey standby only compiled between near Austin.
Your first question comes from the line Nazis Mosman B Ramsey communities in line.
Good morning.
Good morning.
One thing I'm Jay.
We're just starting with E R T deposits here.
And a half before the soft launch is quite impressive kind of curious.
How many customers comprise a billion and a half and if you could maybe give us some color here on your balances are now that you're you call. It a week or two passed the soft lunch.
Sure, Steve Happy happy to provide a little bit what colors for the soft launch as we mentioned is.
Somewhere between you know sort of 18 and low 20 around 2000 customers.
Most of whom have either already funded their accounts or on the open the account submitted process of funding and then beginning sort of payment stress testing and transactions over a period of time will continue to share more information on the composition. Once we have a more stable <unk> system. The way that the ecosystem was program today was.
To create three to five nodes of important counterparties with each other and many of those notes also connects to at least one counterparty. So that we're starting to create the beginning of a weapon in network.
And over time will be able to share more information on the number of customers the average balance size and potentially even payments volume et cetera et cetera.
Okay.
Just as we think about.
You're in soft orange mood kind of how long do you think it could be here and you know when you play to go go to a formal launch how.
How many customers do you envision maybe adding on at a time just kind of get a feel for the potential growth here in the next couple of quantity well.
Sure. So it's difficult to fully say with certainty put all sort of answer it the best I can to kind of give you a perspective on how we'll approach it so firstly from a timing perspective.
We we anticipate will remain in soft launched through.
Through the quarter, there's only 60 days left and we need to make sure that we have all of our.
Customer service and testing and monitoring bundled up.
And and we will continue then sort of onboarding, new customers more likely in the first quarter.
The way to think about it is is that as I mentioned will continue to add more nodes.
These three to five sort of customer type nodes.
Common customer typed notes and then we'll add to the existing nodes.
So there's going to be a combination I should think about deposit growth and and and customer growth. There's existing growth from customers who are already on the platform or will eventually be moving over more dollars as they start to to see more of their counterparties training on the platform.
Similarly, the counterparties little bit, bringing on deposits as well and then we'll be continuing to add more notes as well. So that's sort of how we think about the programming and really will onboard quicker.
Quickly as makes sense.
A from a compliance at a technology monitoring perspective.
Okay. That's helpful. And then you guys hired a number of new commercial.
Shall teams here.
Just color on the book of business, you're expecting them to bring over and also your thoughts on the digital asset lending in particular kind of curious as to how to think about that.
Sure so.
So first thing on the teams I think the better way to think about it is that there's only so many players who are actively targeted in banking.
Payment space digital asset ecosystem.
So.
Over a period of time and a medium to long term.
We feel that we should have an opportunity to take our fair share.
Payments transactions as well as the associated to pump deposit float.
To fund those payments.
And.
And to be from owning at with girls point of view overall, we're very optimistic that as a result of these teams that we have on board it as well as me about it and as well as we are much more focused on earning asset growth.
Maintaining got credit standards.
We are looking at something like 350 to 500 billion good quarter renewing guys.
And specifically on the digital asset Monday, Steve. It's on as you can appreciate you know and trying to sort of build a moat around keeps digital asset banking customers, who are entering customer's bank in our payments ecosystem, we want to make sure I get Sir multiproduct relationships, especially could've more institutional more keystone anchor customers and as such.
We are exploring in early stages of diligence on launching.
Blending into that vertical as well.
Okay.
That's all helpful and then in in terms of maybe just on you know.
The the digital SBA initiatives and the origination very good quarter in terms of everything in England sales just talk about you know any release you have to talk about a couple of quarters.
Keen on sale income I mean are you guys just thinking of putting it on balance sheet longer just kind of curious as to how you're thinking about the strategy on that side.
The gain on sale that we view is we we are looking to make sure that we have sort of a minimum threshold of four times, what we were in.
In 2020 as an example.
In 2021, and that's something that we would like to maintain some sort of a $6 million plus or minus type recurring revenue gain on sale Street.
We are currently originating at a pace of about $10 million, a month and our traditional seven a business.
And that feels like a good number to be building off but we are continuing to hire word individuals to to join that team.
To have an opportunity to to grow in 2022 and 2023.
To date would be 90% no guarantee sort of salt and also a little bit potentially.
This year, we have still seen our gain on sale premiums at north of 10% we were north of 10%. This quarterly regards of 10% in the second quarter.
So in a market, where you are sort of about 10% to 12% gain on sale.
Situation it does make sense to continue to sell.
The the guaranteed portion of our own book and he said that over time, we may reevaluate this but that's more of a long term decision.
Okay.
Alright, Thank you very much all step back into the queue. Thanks.
Thanks, Steve.
Once again, ladies and gentlemen, if you have a question. Please press star One night now again, it's far one and your telephone keypad.
Your next question is from Bill Dentalman with Titan Capital Management Your line who can.
Okay. Thank you I believe that you all.
Purchased roughly $529 million a P. P P loans in the quarter and.
That's correct.
The discount that you paid on those loans and and is there any difference in timing that you anticipate for windows will be forgiven.
Sure. Good morning, Bill So we purchased those loans at approximately a 1% discount.
Plus the we have the ability to put a 1%.
Interest income.
Having said that we thought this is a an interesting opportunity in conjunction with the launch of the Spa's direct forget this platform.
This was a global can tech who wanted to rationalize it and and move PPP off their books and put it behind them. So they can focus on other initiatives and as such we had an opportunity to not only acquired alone book at a discount, but we also feel we're going to have an opportunity.
To forgive these loans at a faster pace than you would have seen in in 2020 and as such there is an opportunity to to recognize most of that.
And in the next two quarters.
And some sand and if we understand correctly the.
The benefit or gains in to you all will be double the normal P. P. P as opposed to 1% it will be the 1% plus the 1% discount or a total of 2%.
Well the 1% interest income is on an annualized basis, so the discount will be realized.
But the interest income will be per hour. However, many months pro rata that those runner Dodge.
Understood My ear, thank you very much.
Thanks, though.
Once again, if you have a question. Please press star one now. He next question is from Peter Winter with Wedbush Securities in line.
Hi, good morning.
I wanted I was very helpful to give be updated EPS guidance for next year I was wondering could you just provide maybe some big picture details maybe on the balance sheet income statement trends that you're thinking and then secondly does that include share buybacks and potential for it.
Additional preferred stock redemption.
Yeah, let me take a stab at that bit of bastard onto power lights and put any additional comments.
So we're looking at like I mentioned earlier.
Against that goes in deploying there's some of our excess cash.
So that's gonna be contributing then continued not interest income growth continued noted those to income growth.
As well as.
Continue to manage our expenses, but we've been we've been making all the investments that are needed to make for our for our future growth. So I think drivers of our of our revenue, let's next year would be good but by maintaining our expense grows and getting the net interest income going.
Condoning acid generation capabilities and beach set the stage for that'd be set the foundation for that.
And we are very.
He bullish that we'll be able to execute up there.
Carla anything you would wish to add.
Okay. I think you hit the comment on noninterest expenses and that we're remaining very elegant on managing.
An athlete thank out longer time for 2022 and beyond.
Projecting no more.
5%.
Okay.
Cause the guidance does that include any share buybacks or potential for additional preferred stock redemption.
I think we we've been not included any significant share buyback that'd be opportunistic because we think there might be a lot of volatility in the markets who knows over the next several quarters and we are going to be prepared to execute aggressively if needed.
Share buyback, but at the same time, we see revenue growth and deploying the capital and that gives us a higher return.
Then we will allocate the capital in that direction. So we really what we've done is that we positioned ourselves.
Four four capital allocation in the.
The best possible way.
And and so we.
We.
He was a physician in our opinion to make the the net income guidelines, if you've given to you without share buyback.
And kind of do you want addressed.
Part of the question on the preferred.
Yeah.
Perfect and what we're thinking about right now is.
December.
By lap hearings of preferred stock will ultimately respect and become retain number so as we think about that longer term lacking.
I'm sorry, three final thing one.
You know.
We came in and then refinancing them in 25 yeah.
Okay. Thanks.
I hear you on credit quality that you've got a positive outlook on credit quality I guess I was a little bit surprised that you added 6 million two reserves, that's a little bit of an outlier versus other banks and.
Part of it is to support the consumer loan growth, but I'm. Just wondering if you could talk about the the rationale for the anything else. While you added to reserves and then maybe just with the outlook is for provision expense.
So I can get a couple of comments on that first of all joining a core Henry.
Quite a tech team.
Profession.
And that way.
After $579, a psychology framework 6 million dollar increasing our ACL and we have a very good planned government's process surrounding the estimation of our ACL and when we looked at that Marsh.
Marshall that consumed my stomach.
The change in the next staff who has some.
Increase and the provision expense Mustang now now I'm lacking trail and the Guy was.
That way.
Within that $10 million to $15 million per quarter suddenly felt kept quiet with right in the middle of that previous plays up <unk>.
And then my last question.
That's 662 million.
<unk> to a single high deposit cross customer.
Can you just provide a little bit more color on that and.
Why it's it's transitory.
Yeah, let me get on two years ago, a year and a half ago. When there was a very different environment as part of our hedging strategy. We accepted a large deposit from a national company.
With a fixed rate for a five year period.
And and we just stood so you can just kind of an environment that it made any sense to keep that on our balance sheet plus the fact that we have a tremendous school to it in an interest bearing deposit and that he could.
Get rid of it.
The very effectively.
And clearly effect on.
Income statement. So it is it is.
Yeah. It was the right move for us and that's going to help us with a margin utility helped us with our margin and then we think it's the right thing to do.
Okay.
Congratulations.
Nice quarter.
Thank you so much.
Your next question comes from the line of French reality Red.
Hi, first handler line itself.
Good morning.
Barney Frank.
I wondered if I just want to make sure I have the loan growth expectations right I think in the.
Last quarter, you talked about mid mid to high single digit long growth, excluding triple P N warehouse.
And now with some more I guess growth in multifamily.
I'm just wondering if that still holds true in any thoughts.
Uhm.
Head into 2022.
Color you want to take that yeah.
Yeah. So.
Yes that Guy Downhaul trail.
And we talked about and we have a record pipeline across all of our lending radicals and.
Checking most of that to come in to the fourth quarter, maybe some of that will come into the first quarter of next year.
To write have con target.
This past expectation.
And any thoughts on 2022, I know you know it's.
2021, but just given the teams you've added and.
Everything you're doing it seems like there could be some acceleration in those expectations.
Yeah.
At this point in time, we'll see what comes through in the fourth quarter and then.
Complete our strategic planning process.
Early next year, and we will come out with more guidance and 2022.
Nathan.
Okay.
Our call.
Okay, and then just just lastly on the on efficiency.
I'm wondering if there's any how long you can provide J you already talked about these investments having been made.
The new business lines, you are entering wondering if you could either Carla talk about expense growth or or maybe.
More easily it's more easy to talk about.
Core efficiency level that you you anticipate pretty for the bank.
Yeah.
And I think we talked about it.
<unk> have been getting some.
Some other time.
Third quarter somewhat complex fourth quarter still not fully take into our Brian right.
But as we mention.
Brian Gallatin about managing thankful strive for operational excellence, who will be very jealous and controlling.
In 2022 and beyond.
He goes to that strategic any process.
We will continue to one affecting our tech.
Technology with the balance kept managing that's expensive.
Okay, and then if I could just sneak in one last one on buybacks Yeah, you mentioned.
It sounded to me like you might be more optimistic just given some of the volatility volatility. Thank you could see in the marketplace. So is it safe.
Safe to assume maybe at these levels, it's more about keeping powder dry and then.
<unk> market being opportunistic there.
Thank you you are right because we are very focused and we don't want to get a high off perfect that we want to improve and have best in class TCE ratios and overall capital ratios and unlike majority in the.
Banking industry, who are really struggling to see any got a revenue growth we are not struggling to see the new growth.
Sort of a very unique very few banks like us.
See such opportunities. So that's why from a capital allocation process, we want to make sure that we are located the capital in a manner that is most effective from a safety and soundness point of view, but most effective from the shareholder value creation point of view and it'd be use all types of capital to support.
<unk>.
We are not backing away from targets four P C ratios to be dramatically higher than where they have been and we want to maintain those.
Conservative and you've been building up reserves like we shared with you and you wanted to have a quote for some chick that is much more related to shareholder value creation than constant regular buybacks do support Onyx wish you a good read.
Good news.
You must support Oh needs to pursue a growth with buybacks whenever there's an opportunity that's not philosophy.
Right. Okay. Thank you for all the color.
Your next question comes from the line of Michael <unk> K V. W. Your line is okay.
Hey, good morning, everyone. Thanks for all the color of thus far I'm still out of my questions have been asked and answered but I did have a couple additional questions on C. D. I C V. I T launch I wanted them to drill down on I guess.
Number one.
Appreciate any color around how you guys are thinking about kind of the.
The volatility at the deposits that come onto the platform and how that kind of impact your your ability and your your appetite to deploy them, whether it be in cash securities or loans overtime. If they season the level a little bit more color about how you got your thinking about that dynamic because I know a couple of the volatility quarter to quarter. We can we can be can be pretty.
Hi, with some of the other banks that are doing something similar to this.
Sure absolutely good morning, Mike happy to have to take the question. So I.
I think that some of the other banks are seen payments voluntarily, but not necessary in necessarily seem deposits volatility there seemed more velocity, which makes sense as theirs market volatility there's more transactions.
Between some of the institutional investors, so first and foremost.
We have enough alone to deposit ratio is is almost it's just slightly above 60% sitting where we are today X P. P. P. So we have a tremendous amount of cash to continue to deploy.
To fund.
Hour.
Even sort of opportunistic up loan growth.
Above what one would expect in all of 2022, that's the first point I would make that's just important to note as we think about the ramp up of this business day.
Second thing that I would say is is that being a fast follower and the business we have the luxury the benefits.
Of choosing some of the most institutional but also key anchor clients.
Who have grown a lot.
In the last couple of years since they first started.
Payment states based banking relationships.
So we have an opportunity to be very very selective, especially in the beginning is we'd program. The beginning of the foundation of the of the payments platform. So I think the two of those combined give a lot of give should get a lot of medium term comfort and then from a long term perspective.
We talked about strategy of.
Investment Securities.
Being on standby for for a loan growth that helps our short to medium term profitability and then we'll be able to disclose all of the types of.
Statistics and disclosures that will help give you comfort that these are sticky deposits as opposed to me just telling you today, but they will be sticky.
Yeah, and no I mean, I I think it's a question once more so that whether they are sticky or not I think it just you know if there's a lot of volatile velocity and the movement and can you speak a little trickier to deploy I think generally speaking the deposits seemed to be pretty operational in nature, right, which should make them sticky over over their lifetime I would think.
That's right that's right Yep I think.
I think that.
And one thing to drink I mentioned, when those macho guys annuity, yes, when there's market volatility.
The customers actually fund Gore and deposits, so higher volatility actually leads to higher deposit balanced which is counter intuitive when you think about it right on the digital asset side, you you're talking about specifically right.
<unk>.
Yeah, and and I apologize if you guys clarify this but the 1.5 billion.
Digital asset deposits.
That wasn't.
I was kind of.
He was a little confused with the way that.
It's just kind of operational deposits that opened up with customers think right. That's not necessarily funds that were opened up specifically to be on the C V I T platform, which launched.
Quarter, and does that is that right or am I misinterpreting that.
No. It's actually it's actually about the latter day date joined the platform in anticipation.
Of the real time payments platform lunch. They started opening up D D. As in funding accounts prior to the launch got it okay alright.
And she's lastly, as you you know I think the obviously with the sand and taking that are very did your last one focus but you guys are are are not kind of limiting your.
That.
You know in terms of only focusing the Catholic platform. There I was just curious, though I mean, it's it's the digital asset space kind of be likely to be the most nearest growth opportunity but was curious.
To provide a little bit more color around what other use cases, you'd think the platform could have that maybe we could see some momentum in.
Inside the next 12 months versus you know kind of multiyear buildout.
Thanks for that question, it's something we didn't cover.
Firstly, there is a maritime client that's part of our soft launched to give you perspective. So we've already brought a new corporate client that was not part of the customer's bank already.
And two and that's a multibillion dollar customer Sunday, there's an opportunity while the account balance is not very high today.
Did a tremendous opportunity is counterparties connect.
The second thing that we've done is we have about 10% of our customer base.
That of our deposit customer base that is already engaged in discussions about look either learning more or joining the seabed platform, specifically 375 million of that is in process of.
Of.
Integration and Onboarding too eventually joined the platform in the next quarter or so.
So that is an increase our deposit but it just talks about the engagement and then obviously those folks will need counterparties to be joining customer's bank as well to make the payments platform successful.
Got it.
Okay.
Very helpful color and thank you and thank you for all the other ones I appreciate it.
Thanks Bye.
We have completed our our are there any final question.
Please press star one that now.
Well if they are in order.
<unk>.
Sorry go ahead.
I apologize I apologize since our last question is from Steve Moss and you have to be Riley.
Just a couple of false here just.
Just in terms of the P. P. P fees, just kind of curious on the disclosure. The PVC total does that include the $529 million purchase or does that exclude.
Yes, it does.
Okay, and then in terms of just the timing of the P. P V fees here as we think that realization looked like blue good acceleration into quarter and some don't.
I don't think we'd talk necessarily about how to think about what you think could be paid down here in the upcoming quarter or two [noise].
Sure Steve it's.
We unfortunately don't have a great sense, what I can say is that you can tell there was a big surge 70000 loans.
Forgiven.
Seven weeks after the the soft launch of the direct forgiveness platform and he said that as you can appreciate you know where where a couple of weeks into the quarter and that has to pesos is definitely slowed down, but we're continuing to engage in digital marketing campaigns and data with those customers understanding who has started an application for the last question.
<unk>.
And what's really fascinated must also translates into our cross so opportunity says we have a 70% to 80%.
E Mail open right.
For these customers.
So there's a beyond forget if there's a visit incredible.
Upside opportunity to to continue to sell products and services into these customers.
Right and that ties in to my next question came in terms of just the digital S. M B.
You guys are highlight the pilot launch here in the first half of 22.
I mean, I see the changes of 2000, and you need customers, but kind of curious.
How do you think about this.
Potential side of those customers and if he could sizing up in any way kind of frame that kind of thing, but the potential of that initiative.
Yeah. It's a good question and it's something that we're gonna have to share more overtime. Because we're also learning about the customer and the customer health and we've actually gone so far as to to.
To partner with third party data providers, just tried to triangulate transaction data for food for many of these merchants we're.
We're also in some cases treating the business owner.
As a individual save for a personal loan product.
But first and foremost the demand that we think.
Is is going to be top of mind is going to be the digital 70 product, which is what we prioritise first so overtime will continue to share more information. We just wanted to take this opportunity this quarter to share with the gross.
Customer pool looks like which is very unique bank of our size.
Right, Okay, great well, thank you very much and a great <unk>.
Thanks, Steve.
Mhm. Thanks, Thanks, everybody.
So.
<unk> and that completes the question you asked touching I'll ask them to call back to <unk>, Chairman and C. I a lot of customers.
An executive chairman Okay.
Yeah, I'm, saying, okay. Thank you very much everybody really appreciate your interest in customer Bancorp. If you have any further questions. Please don't hesitate to call any of US. Thank you and have a good day.
Ladies and gentlemen, complete today's conference call. Thank you for joining.
Kind of a hunter green.