Q4 2021 Customers Bancorp Inc Earnings Presentation
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Our investor presentation includes important details that we will walk through on this morning's webcast.
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Before we begin we would like to remind you that some of the statements. We make today may be considered forward looking these forward looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated.
Please note that these forward looking statements speak only as of the date of this presentation and we undertake no obligation to update these forward looking statements in light of new information or future events, except to the extent required by applicable securities laws.
Please refer to our SEC filings, including our Form 10-K and Form 10-Q for a more detailed description of the risk factors that may affect our results.
Copies may be obtained from the SEC or by visiting the Investor Relations section of our website.
Now at this time, it's my pleasure to introduce customers Bancorp sure Jay submitted James Williams Sisters.
Thank you very much Steve and good morning, ladies and gentlemen, thank you so much for joining us today. This morning.
Year 2021 is when it's due for 2021.
<unk> Investor call.
2021 in our opinion was a remarkable year for the company.
And please join me in saluting our team members for their unwavering commitment.
Due to their hard work in helping customers bank.
<unk> remarkable achievement, we're still proud of our team and as you will see later in.
In the presentation today, we've also had the privilege of attracting talent this past year or two from several very well known high performing institutions.
Now onto our presentation joining me this morning.
Due to the Chief Executive Officer of customers Bank Covenant level, the Chief financial officer of customers Bancorp as well as Andrew Coleman, the Chief credit officer of customers Bank.
In 2021, we achieved record quarter earnings for the full year.
$343 6 million or $10 20 per share up 187% over full year 2020 in Q4 2021 core earnings of $100 million.
Our $2 92 per share up 83% over Q4 'twenty.
Core EPS, excluding PPP for the full year was $4 41 per share up 90% over full year, 2020, and well above our guidance of $4 for the year 2021 .
Our vision for growth has remained a part of our story since the beginning as you can see in slide four.
We inherited or got involved with customers bank.
Back in 2010 by making small investments of $17 million in this company, which was a problem institution at that time.
Panel 12 years customers with bank has grown from $250 million problem bank into a digital first technology driven financial institution with assets of approximately one 2 billion.
Which equates to a staggering CAGR of about 40% and clearly puts us as a top 100 bank in the United States.
Onto some other accomplishments as promised in $2000 in January of 2021, we divested bank model, which became the MTX and we're pleased that we were able to provide a special distribution of <unk> stock to our shareholders value that approximately $75 million.
In Q1 2021.
We are now also preparing for the exploration of the deposit servicing agreement with BNP <unk> by the end of this year.
We would expect that due to our success in generating considerably above average low cost core deposits. This exploration will be accretive to our net income by about $16 million pre tax in 2023 and beyond.
We also funded in 2021, either directly or indirectly about 256000, PPP loans totaling $5 2 billion, bringing the total PPP loans funded to over $10 billion and to over 350000 small businesses across America.
Okay.
We earned close to $350 million of deferred fees from the SBA to the PPP loans, which are significantly accretive to our earnings and capital levels. As these nodes are being now forgiven by the government. This initiative not only help save over 1 million American jobs, but also would have added approximately 300 million.
Two our common tangible equity by the middle of this year.
October 2021, we launched a blockchain based instant payment token that immediately began serving a growing array of <unk> clients, who want to benefit of instant payments and generated close to $2 billion of low cost or low cost deposits and only 90 days, we will provide more details about the signature.
GBP 3 billion.
Now, let's get onto the financial highlights first from the earnings perspective, I will focus on the quarter on slide six.
We earned a record $2 92, and core earnings which represented net income of 100 million as I shared with you earlier and Thats up from 83%. This translates to a quarter turn on common equity of 33, 7% return on average assets of $2, one one and pretax pre provision.
<unk> ROA of.
Of $2 67, and our margin net interest margin.
Was 231, 2% for the quarter now moving onto the balance sheet. We ended the quarter with $16 5 billion approximately in core assets excluding PPP.
Loan book was $11 3 billion at the end of the quarter C&I was up about 45% or $1 billion consumer loans were up about 40% or 500 million commercial real estate owner occupied was up about 15% or 83 million construction loans up about 41.
Percent or $58 million.
As you saw some risks in the multifamily business. So we will continue to be lesser declines, but thats. The underground you saw an increase in our multifamily loans in the fourth quarter and you should continue to see a.
A much greater growth this year, because we see that as a very good.
Really good credit quality, good asset quality asset now and we are building that pipeline.
Our loan pipeline overall and our.
Backlog has grown to an all time high levels across the franchise and we expect loan growth to continue into 2000 22022.
Double.
Double digit levels.
Total deposits.
This past year grew by $5 5 billion year on year, driven by a monumental effort from our commercial teams amplified by our digital bank teams success in deposit gathering associated with our customers Bank Institute.
Our feedback and we brought in as I speak.
With you earlier about $2 billion in low cost and low cost deposits.
Demand deposits are up 131%, our non interest DDA, we're up 90% and all of this growth while maintaining excellent credit quality strong asset quality is at the core of our franchise and we continue to have superior credit quality compared to the period.
With NPS at just 25 basis points and reserves to npls of about 278%.
I want to thank you for all your continued support and it's amazing to think that we are a young company and getting started in the next phase of our growth I will now turn it over to Sam to do the president of CEO of <unk> and CEO of customers Bank to take you through more details.
Sam.
Thank you Jay.
Another incredible quarter capping off a record year for our company.
Flipping to slide seven let me update you on our strategic priorities, both our incredible accomplishments in 2021 as well as our ambitious roadmap for 2022, which we are hyper focused on delivering.
This helps explain what makes customers banks, so unique and what has driven incredible value creation for our shareholders.
2021 copy with the number one bank stocks in our country and we expect that our innovation and unique business model will continue to drive strong returns for our shareholders shareholders.
In 2020, we laid out a plan for what we said could achieve significant value creation for our shareholders and we're proud to have delivered on that guidance, resulting in a tremendous return.
Firstly on community banking on the slide in 2021, we recruited several new teams covering new geographies in Texas, Florida, the Carolinas and the Pennsylvania capitalization plus a reboot of our Chicago office. This brought the annual total to four new expansion markets. We also added several new relationship managers.
And executives to our existing teams over the course of the year as well as in the last quarter.
We are also focused on continuing to grow our existing business lines. As previously stated we began maintaining and we will now begin to grow our multifamily portfolio.
SBA originations grew by over 150% in the year and we also achieved our target of quadrupling our gain on sale.
Income by ending the year with $6 2 million and total income.
In terms of 2022 community banking priorities, we will continue to recruit VGL C&I teams and in fact have several conversations in flight or.
Our community verticals are expected to grow by about 10% or more while SBA is expected to grow by over 50%, albeit off a lower base.
Moving to specialty lending in the middle in 2021, we expanded our niche verticals and launched three new clients last year, finally, finance technology and venture capital banking as well as our financial institutions group.
These new verticals are close to our existing core competencies, enabling strategic cross sell to existing customers to help emphasized this in the last quarter, we had over $350 million of referrals from existing customers and.
In general these verticals operate with inherently low credit risk as you heard from Jay.
Come with deposit rich clients.
And are supported by high operating leverage characteristics.
Our existing verticals also performed incredibly well in the year with lender finance growing by 77% real estate specialty lending by 60% and equipment financed by 27%.
We also importantly outperformed on a mortgage warehouse target of about $2 billion ending at $2 4 billion.
In 2022, and specialty lending, we will continue to recruit lending.
Lending teams to support future growth in our existing verticals, and we will evaluate new verticals, including digital asset lending.
This year, new lending verticals, including real estate specialty lending, which was technically formerly launched just prior to 'twenty. One are expected to cross over $1 billion.
Cumulative outstandings over time each of these new verticals is expected to be at least $1 billion plus individual business lines.
Moving to the right side of the page to digital banking and our technology efforts, we have established ourselves as a leader in technology and innovation in the digital banking and Fintech space and in the banking industry more broadly.
In 2021, we successfully completed a tack reorganization hiring a number of new key senior executives and team members. We also completed a corporate rebranding and website relaunch, which has been very well received by our customers and the market.
And very importantly, we achieved a big milestone in the quarter crossing over half a million customers acquired through our digital banking platform.
At customers Bank, we have created a unique extremely profitable credit led neo bank within a bank that is acquiring consumer and small and medium sized business customer sourced through digital channels at scale.
Moving to the digital consumer and more specifically our debt.
Direct personal loan origination business topped $1 7 billion of cumulative lifetime loan source underwritten and funded through our credit program since inception, we.
We ended with a digital personal loan portfolio up one 5 billion.
In terms of digital small and medium sized businesses. Our SMB, we funded over 250000 PPP loans in the year, bringing our total as you heard from Jay to 358000, PPP loans for $10 $3 billion funded generating approximately $350 million in origination fees for the bank.
We have now attracted $1 9 billion.
EBIT related to deposits in the first 90 days of launch.
Finally, we launched a banking as a service effort for a fintech lending partners.
As we look forward to 2022, we will be seeking to add a number of digital first consumer and SMB products to our portfolio.
To offer a multi product relationships to a half a million plus digitally native customer base through credit cards term loans revolving lines of credit.
In the coming quarters.
<unk>, a tremendous opportunity for our data science and digital marketing teams, who are advancing our data analytics to help our team prioritize products on the roadmap as well as create digital cross sell journeys for this customer base.
Importantly, last but not least we expect over $5 million of run rate revenue in 2022, as a result of our banking as a service efforts, which we expect to increase to $15 million to $20 million in revenue in 2023.
Moving to slide eight.
As we evolve from a community bank to a digital forward Super community Bank and beyond.
It means have shifted significantly on the slide here shows firms, we have recruited talent from in the last year.
We've hired from best in class organizations in each of the new required competencies related to our strategic priorities.
We have also found that our entrepreneurial environment and our rapidly scaling business.
Exciting trough for team members from much larger and in many cases much more tech oriented institutions, who in turn bank breath best practices and deep industry experience to customers Bank.
Flipping to slide nine.
A quick recap on the exciting launch of our blockchain based instant payments platform as well as our creation of the digital asset banking team.
The circle on the left lays out the vertical opportunities as we see them today with our initial primary focus on new customer acquisition led by the digital asset vertical.
We launched with approximately 25 customers and our soft launch and are creating sticky customer relationships strengthened by a powerful payments network effects.
Our focus in 2022 will be on growing and strengthening our network by driving customer growth API connectivity and engagement, thereby attracting more inflows into our ecosystem.
We are in full launch mode, now and expect significant customer and deposit growth in 2022.
Moving to slide 10 on PPP here, we lay out a summary of the PPP balances at year end, which continues to decline.
In addition to the purchase of the $529 million of portfolio in the third quarter, we purchased another $313 million portfolio for similar discount in the fourth quarter adds.
Adding several million dollars of additional PPP revenue most of which we will realize in 2022.
As Jay mentioned, we saw a slowdown in TPP three forgiveness application momentum.
Which surged after our technology partnership with the SBA on the direct forgiveness platform.
Inventory forgiveness has remained slow in January .
This impacted NII versus consensus, but this is a timing move.
Question of when not if and this will be pushed into 2022.
We still have about $90 million of deferred origination fees, which we expect to be recognize mostly this year.
Moving to slide 11.
We are incredibly proud of our record loan growth in the quarter, which is setting us up nicely for 2022 and tracking well ahead of the industry. We were very tactical throughout 'twenty. One is gearing up for the launch of <unk> by adding commercial teams and our expansion geographies and market verticals. These teams will be ramping up significantly in 2022.
Jay walked through some loan growth characteristics, but to summarize loans, excluding PPP in mortgage warehouse grew by $1 billion in the quarter or 18% year over year.
We have had significant improvements in our loan mix on our pipeline and backlog remain at record levels. We are reaffirming our guidance of an average of $3 to $500 million of quarterly loan growth with a bias to the upper end, which we expect to be double digit loan growth this year.
Moving to deposit growth and mix on slide 12, we had an incredible year with five 5 billion.
Growth of our 48% year over year importantly, our noninterest bearing deposits were up 89% to $4 5 billion.
As we laid out last quarter, we took a number of actions with the addition, and.
And future expectation of significant low to no cost CEVA deposits and have further reduced our cost of funding 36 basis points for the quarter and 29 basis points spot rate.
These initiatives coupled with a reduction in mortgage warehouse gpas of about $500 million, which was linked to market activity as well as lower seasonal student deposits down $300 million resulted in a slight quarterly decline in balances. However, this was in line with our expectations.
Many banks have bottomed out on deposit cost reduction opportunities facing the backdrop of a rising rate environment, but we expect to still have room to grow supported by our deposit remix as significant secret deposit growth potential.
With that I'll pass it to Carla to run through the rest of the financials.
Thanks, Tim and good morning, everyone I'll keep my comments focused on five key topics. The first is strong growth in non interest income generated by the core bank number Q ample liquidity, resulting in significant.
Investment portfolio growth and the ability to fund future organic loan growth.
Asset sensitivity and being well positioned for future rate hikes.
Exceptional credit quality and number five significant accretion in capital and tangible book value.
Turning to slide 13.
I'll start with core net interest income.
Just margin excluding TTP.
We show the trend of increasing net interest income over the past five quarters, largely driven by strong growth in core C&I and consumer loans.
To the year ago quarter fourth quarter 2021, net interest income increased 18% you can also see that we've maintained our loan yields quarter over quarter, while continuing to drive down our cost of deposit.
Speaker 1: Fourth quarter 2021 net interest income increased 18%. You can also see that we've maintained our low-neo quarter over quarter while continuing to drive down our cost of deposits.
Speaker 1: Additionally, there has been a significant increase in the percentage of deposits that are non-interest bearing year-over-year, as well as a 26 basis point decline in the cost of interest-bearing deposits.
Additionally, there has been a significant increase from a percentage of deposits that are noninterest bearing Europe again, as well as a 26 basis point decline in our cost of interest bearing deposits move.
Moving on to slide 14.
You can see tremendous growth in our liquidity.
Speaker 1: you can see tremendous growth in our liquidity position, particularly in the back half of 2021. Our investment portfolio has more than tripled year over year and has doubled over the prior quarter. At year-end 2021, we had about $6.3 billion of liquidity, which includes committed borrowing capacity of close to $2 billion.
<unk>, particularly in the back half of 2021.
Investment portfolio has more than tripled year over year and has doubled over the prior quarter.
Year end 2021, we had about $6 3 billion of liquidity, which includes committed borrowing capacity of close to $2 billion.
Speaker 1: Our investment portfolio remains well-diversified with the majority of the portfolio invested in MBS and CMOs. Our overall strategy remains unchanged in that excess cash is first used to pay down any higher costs or wholesale funding before it is deployed in investment security and then ultimately used to fund organic loan growth.
Investment portfolio remains well diversified with the majority of the portfolio.
<unk> and MBS and CMO.
Overall strategy remains unchanged and that excess cash firstly to pay down any higher cost wholesale funding before is deploying an assessment security and then ultimately used to fund our loan growth.
Speaker 1: Slide 15 shows the repricing characteristics of our interest-earning assets. I'll make a few comments here.
Slide 15 shows the repricing characteristics of our interest earning assets I'll make a few comments here first 64% of our interest earning assets on market sensitive, meaning that net interest income will increase.
Speaker 1: First, 64% of our interest earning assets are market sensitive, meaning that net interest income will increase in a rising rate environment. And second, given the transformational improvements that we've made in our deposit franchise over the past year or so, we are expecting our deposit costs to be significantly less sensitive to rising interest rates.
Rising rate environment, and second given the transformational improvements that we've made in our deposit franchise over the past year or so we are.
Our deposit costs to be significantly less sensitive to rising interest rates from a deposit beta perspective with internally model using 15% to 25% and then up 25 to 50 basis point scenario.
Speaker 1: From a deposit data perspective, we've internally modeled using 15 to 25% and then up 25 to 50 basis point scenario.
Speaker 1: and 40 to 50 percent in an up 100 basis point scenario.
40% to 50% in an up 100 basis points scenario three.
Speaker 1: Briefly turning to slide 16, a few high-level comments related to credit quality and reserve levels.
Briefly turning to slide 16, a few high level comments related to credit quality and reserve levels.
Speaker 1: Overall, our asset quality remains exceptional, our credit reserves are strong, and our near-term credit outlook remains stable. For 2021, we had less than $3 million of commercial charge-offs, and all of our prior commercial loan deferments became current by year-end 2021.
Overall, our asset quality remains exceptional credit reserves are strong and our near term credit outlook remains stable for 2021, we have less than $3 million of commercial charge offs and all of our prior commercial launch affirm it became current by year end 2021.
Yes.
Moving to slide 17.
Speaker 1: This slide really highlights the significant improvement in our total risk-based capital over the periods presented.
This slide really highlights the significant improvement in our total risk based capital over the periods presented the estimated total risk based capital at the end of fourth quarter 2021 is up about 139 basis points over the year ago period, Despite the $82 5 million.
Speaker 1: The estimated total risk-based capital at the end of fourth quarter 2021 is up about 139 basis points.
Speaker 1: over the year-ago period, despite the $82.5 million for first-stock redemption in the third quarter of 2021, which, on a standalone basis, decreased total risk-based capital by about 70 basis points.
Staff retention in the third quarter at 2021, which on a standalone basis decreased total risk base capital by about 70 basis points at December 31, 2021, our TCE ratio, excluding PPP was seven 5% up 111.
Speaker 1: At December 31st, 2021, our TCE ratio, excluding PPP, was 7.5%, up 111 basis points from the 6.4% reported a year ago.
A point from the six 4% reported a year ago. This accretion is driven by the profitability of the core bank as well as PPP related revenue at <unk>.
Speaker 1: This accretion is driven by the profitability of the core bank as well as PPP-related revenue. At December 31st
December 31, our Tam.
Speaker 1: Our tangible book value was 37 spot 21, that's up 33% year over year.
Tangible book value was 37% by 'twenty, one that's up 33% year over year lastly, fully pro forma and the remaining $90 million of deferred PTP origination fee, our tangible book value is at or above $40.
Speaker 1: Lastly, if you fully pro-format in the remaining $90 million of deferred PPP origination fees, our tangible book value is at or above $40.
Speaker 2: And with that I'll turn it back to you. Yes. Thank you very much. Carla. And as you can see we are really proud of these remarkable achievements of our team. And we are very upbeat about the future prospects of our company.
And with that I'll turn it back to you Jay Thank.
Thank you very much Carla.
As you can see we are really proud of the remarkable.
Remarkable achievements of our team and we are very upbeat about the future prospects of our company.
Speaker 2: Looking at the way we've summarized on slide 18, we expect strong core above average double digit growth in loans as well as low cost core deposits while maintaining our above industry average credit quality.
Looking at the way we've summarized on slide 18.
Strong core above average double digit growth in loans as well as low cost core deposits.
Maintaining our above industry average credit quality.
Speaker 2: and we are focused on improving the profitability as well as bringing our efficiency ratios in the low 40s within the next 12 to 24 months through a combination of revenue growth and prudent expense management over the next two to three years.
We are focused on improving the profitability as well as our bringing our efficiency ratio in the low <unk> within the next 12 to 24 months through a combination of revenue growth and prudent expense management over the next two to three years.
Speaker 2: We are very well positioned for a higher interest rate environment. As you heard from Carla with 64 percent of our interest earning assets expected to be market sensitive and the low deposit beta in the current environment.
We are very well positioned for higher interest rate environment as you heard from Carla with 64% of our interest earning assets expected to be market sensitive and a lower deposit beta in the current environment.
<unk> modeled in three rate increases in 2022, and we believe that maybe there is a possibility that the rate increases will continue into 2023.
However, it doesn't matter to us because we believe it would be prudent for us to remain somewhat asset sensitive.
Speaker 2: From from a strategy and point of view the best in class tech agility of customers bank is a huge strength of ours compared to the rest of the industry. And we believe this has allowed us to be a major participant.
From from a strategy point of view with the best in class Tech utility of customers Bank is a huge strength of ours compared to the rest of the industry and we believe this has allowed us to be a major participant in.
Speaker 2: in the PPP program, which generated $300 million.
The PPP program, which generated $300 million of.
Speaker 2: of approximately 200 million of common equity for our shareholders. And it's also helped us incubate new lines of businesses that we believe will support our sustainable above average growth over the coming years.
Approximately $200 million of common equity for our shareholders and it's also helped US incubate new lines of businesses that we believe will support our sustainable above average growth over the coming years.
Speaker 2: The financial benefits of PPP aside, we project our recurring core earnings power to be in that $4.75 to $5.00 range in 2022 and well above $6.00 per share in 2023, two or three years ahead of our previous guidance of $6.00 by either 2025 or 2026.
The financial benefits of PPP Aside we project our recurring core earnings power to be in the 475 to $5 range in 2022, and well above $6 per share.
'twenty three two or three years ahead of our previous guidance of $6 by either 2025 or 2026.
Speaker 2: We believe our stock is attractively valued, trading at about one and a half times the real current suggested tangible book value. Like Carla explained, that number is about at least $40 a share.
We believe our stock is attractively value creating.
About one five times the current adjusted tangible book value like Karla explained that the number is about at least $40 a share.
Speaker 2: And it's less than 10 times our guidance of 2023 earnings. And we see huge upside potential for our shareholders. I'm also pleased to share with you that 100 percent of our team members at end of year 2021 were shareholders of the.
And it's less than 10 times.
Guidance of 2000, 23 billion and we see huge upside potential for our shareholders.
Also pleased to share with you that 100% of our team members at the end of year 2021, both shareholders of the bank.
Speaker 2: So with that, I would like the operator to please open it up for Q&A.
So with that.
I would like the operator to please open it up for Q&A.
Speaker 3: Thank you. And as a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound key. One moment, please, for our first question.
Thank you and as a reminder to ask a question you will need to press. This timeline on your telephone to withdraw your question. Please press the pound key.
Please for your first question.
Speaker 3: And our first question comes from the line at Casey here from Jeffries. Your line is open.
And our first question comes from the line of Casey Haire from Jefferies. Your line is open.
Speaker 4: Yeah, thanks. Good morning, everyone. I wanted to start on the loan growth. Obviously, a pretty big step up here in the fourth quarter. And if I heard you right, Jay, it sounds like pipelines are at an all-time high. So I appreciate the double-digit pace of loan growth.
Yes, thanks, good morning, everyone.
I wanted to touch I'll start on the loan growth.
Obviously, a pretty big step up here in the fourth quarter and if I heard you right Jay It sounds like pipelines are at.
An all time high.
So appreciate.
I appreciate that double digit pace of loan growth, but.
Speaker 4: Could you put a little bit more, could you frame that a little bit more, because, I mean, we're coming off a 28% late quarter annualized level and, you know, 10% just seems like a very low bar.
Could you put a little bit more can you frame that a little bit more because I mean, we're coming off a 28%.
Linked quarter annualized level.
10% seems it seems like a very low bar.
Samuel a sharp.
Speaker 2: Sure. Good morning, Casey. So, you know, as we think about, you know, 2021, 2021 was a back-ended year for many banks, you know, with a first half of the year being relatively slow, as we all recall, and have...
Good morning Casey.
So as we think about.
2021, 2021 was the back end of the year for many banks.
First the first half of the year being relatively slow as we all recall.
Speaker 2: blocked out of our memories. Having said that, as we look forward to 2022, we will be building off of the momentum that we've
Locked out of our memories, having said that as we look forward to 2022.
We will be building off the momentum that we have.
Speaker 5: uh you know created uh in the fourth quarter to put a little bit of a finer point
Created in the fourth quarter to put a little bit of a finer point.
Speaker 5: on the loan growth. It was led by our specialty businesses.
On the loan growth that was led by our specialty businesses.
Speaker 5: fund finance grew by about $250 million in the quarter. Our lender finance business grew by nearly $300 billion in the quarter. So, as we look forward in 2022, we gave guidance of $300 to $500 million in Q3. We've adjusted that to the higher end of that range, closer to an average of $500 billion per quarter in 2022.
Fund finance grew.
<unk> grew by about $250 million for the quarter, our lender finance business grew by nearly $300 in the quarter.
So as we look forward in 2022, we gave guidance of $3 to $500 million in Q3.
We've adjusted that to the higher end of that.
Range.
Closer to an average of 500 million per quarter in <unk> ratio.
Speaker 2: Gotcha. And I do. And I think as I also mentioned we see opportunities in the multifamily area that you only saw 100 million dollar growth. Like I mentioned to you we are you are to see much greater than that.
Gotcha.
And I think as you as I also mentioned, we see opportunities in the multifamily area that you only saw a $100 million of growth like I mentioned to you that you ought to see much greater than that.
Speaker 2: I think the mortgage warehouse business, we expect that the curve is probably going to get flatter. And if that does happen, we think the MBA projections are not going to be correct and that you might see the mortgage warehouse business also do better than what most of the folks in the industry are expecting. But we haven't factored it. We haven't modeled that. That would be ideal.
I think the mortgage warehouse business, we expect the curve is probably going to get flooded.
And if that does happen.
I think the MBA projections are not going to be correct and that you might see the mortgage warehouse business also will do better than what most of it.
Industry unexpected, but we have in fact, we haven't modeled that that would be.
Yeah.
Speaker 4: Okay, great. And just switching to the deposits, you know, CBIT deposit growth still positive, just a little bit lower than what we saw in a very strong, you know, start in the third quarter. Can you just provide some colors to what drove that moderation and what you expect going forward? It sounds like you're pretty upbeat on the growth prospects there.
Okay great.
Just switching to the deposits.
Ceded deposit growth still positive just a little bit lower than what we saw in <unk>.
Strong start in the third quarter.
Just provide some color as to what.
What drove that moderation and what what you expect going forward it sounds like Youre pretty.
Upbeat on growth prospects now.
Speaker 5: Sure absolutely. You know as we sort of laid out at the outset of the launch of the platform you know we said 20 to 25 customers for a soft launch which is what we stuck to. So there's no real customer increase in the fourth quarter. It was really just you know customers adding to their existing deposit basis.
Sure absolutely yeah, as we sort of laid out at the outset of the launch of <unk>.
Of the platform.
Said 20 to 25 customers for a soft launch which is what we've stuck to it so theres no real customer increase in the fourth quarter. It was really just customers, adding to their existing deposit basis.
Speaker 5: So while the number of customers did not grow appreciably, we will begin to start growing the customer base in the first quarter and ramping up over the course of the year as the network strengthens.
So while the number of customers did not grow appreciably, though that we will begin to start growing the customer base.
In the first quarter.
And ramping up over the course of the year as the network network strategies.
Okay very good.
Speaker 4: Okay, very good. And on the expense side, you know, obviously a lot going on here. You know, a lot of new verticals and sounds like you guys are still recruiting. What kind of expense growth is reasonable for 22?
On the expense side.
Obviously, a lot going on here.
A lot of new verticals and it sounds like you guys are still recruiting.
What kind of expense growth.
As reasonable for 'twenty two.
Speaker 1: So Casey, I can take that one. So first, just want to comment that expense management is always a focus.
So Casey I can take that one so first just want to comment that expense management is always a focus for us at customer Samsung consistent with last quarter, our fourth quarter results had certain non recurring or transitory items I think it's important to.
Speaker 1: for us at Customers Bank and consistent with last quarter or fourth quarter results had.
Speaker 1: certain non-recurring or transitory items that I think it's important to understand. So quickly walking through them, there was about $9 million in the fourth quarter. The third quarter had about $8 million of non-recurring expense items.
I understand so quickly walking through their network of about $9 million in the fourth quarter that third quarter had about $8 million of nonrecurring expense items, but in the fourth quarter, we had about 300 about $3 $5 million.
Speaker 1: But in the fourth quarter, we had about 300, about $3.5 million of increased incentive accruals that was really tied to the record 2021 financial performance that we we incur.
Increased incentive accruals that was really tied to the record 2021 financial performance that we incur.
Achieved.
Speaker 1: achieved. Secondly, there was about $1.6 million of.
Secondly, there was about $1 $6 million.
Speaker 1: It's described as occupancy-related expense, but it's really for the relocation of the bank headquarters. There was some flooding in our previous headquarters that resulted in a move that took place to a much more efficient and attractive location, so that was recorded in our fourth-quarter results.
It's described as occupancy related expense, but it's really for the relocation of the bank headquarters.
Some flooding in our.
Previous headquarters that resulted in a move that took place so much more.
<unk> an attractive location.
That was recorded in our fourth quarter results.
Speaker 1: We also had $1.8 million of the increased.
Also had $1 $8 million of increased technology and servicing related expenses that was tied to growth in PMT access service deposits.
Speaker 1: technology and servicing related expenses that was tied to growth in CMTX service deposits.
Speaker 1: Um, and then there was another $1.2 million of increased charitable contributions, corporate sponsorships.
And then there was another $1 $2 million of increased charitable contributions corporate sponsorship some of which were ESG related and then we had miscellaneous.
Speaker 1: some of which were ESG related. And then we had miscellaneous, a couple hundred thousands, which totally.
Couple of hundred thousands which totaled.
Speaker 1: about 9 million. So when you look at the trend for the second
About $9 million. So when you looked at the trends for the second third and fourth quarter, you can see that our what we think of as core expenses remained relatively.
Speaker 1: third and fourth quarter you can see that our what we think of as core expenses remained relatively stable at around 70 to 71 million.
Stable at around 70 to 71 million.
Speaker 1: And so when we're thinking about the expense guidance going out into 2022 and 2023, we think the right measure to really focus on is not the absolute level of expense growth, but really that efficiency ratio and making sure that
Thinking about the expense guidance going out into 2022 and 2023, we think the right measure to really focus on is not the absolute level of expense growth, but really that efficiency ratio and making sure that.
Speaker 1: the growth in revenue surpasses the expense growth and that efficiency ratio that we're focused on and we gave guidance in 2023 is to get to the low 40s.
The growth in revenues surpassed it.
Expense growth in that.
<unk> ratio that we're focused on and we gave guidance in 2023 is to get to the low 40, so that will exclude some of the PPP related revenues as well as expenses associated with the deposit services agreement throughout 2022, we should expect to see.
Speaker 1: So that will exclude some of the PPP-related revenues as well as the expenses associated with the deposit services agreement.
Speaker 1: So throughout 2022, you should expect to see increasing efficiency ratios and then to
Increasing efficiency ratio and then too.
In 2023 seats at 20 below 40%.
Speaker 1: in 2023 see that 20 below 40.
Speaker 4: Okay, great. Thanks, Carla. I appreciate that. Just last one for me on the 23 EPS guide of well over six. Just want to make sure I'm thinking about this right. So, you know, assuming you get to that high $4 number in 22, and then you have the bank mobile deposit service agreement lapsing, which is about a buck 35, that, I mean, that puts you in the, you know, around six and a quarter.
Okay, great. Thanks, Karl I appreciate that just last one from me on the 23 EPS Guide.
Well over six I, just want to make sure I'm thinking about this right. So.
Assuming you get to that high $4 number in 'twenty two and then you have the bank mobile.
Deposit service agreement Lapsing, which was about above 35%.
I mean that puts you in.
Round six in a quarter.
Speaker 4: And that doesn't factor in anything from growth or any benefit from rates on an asset-sensitive balance sheet, correct?
And that doesn't factor in anything from growth or any any benefit from rates on an asset sensitive balance sheet correct.
Yes, that's correct.
Okay. Thank you.
Speaker 3: Your next question comes from the line of Peter Winter from Redbush Securities. Your line is open. Good morning.
Your next question comes from the line of Peter Winter from Wedbush Securities. Your line is open.
Good morning.
Speaker 6: You guys, you reconfirmed EPS guidance this year, $4.75 to $5, and you had given that guidance in October , but the interest rate environment is more favorable, and I'm just wondering, at one point, Jay, you mentioned that your model assumes three rate hikes, but is that included in the guidance of $4.75 to $5?
You guys.
Reconfirm EPS guidance this year for 75 to $5 you had given that guidance in October .
But the interest rate environment is more favorable.
Im just wondering at one point Jay you mentioned that your model assumes three rate hikes, but is that included in.
And the guidance of 475 to $5.
Speaker 2: Yes Peter. And you know who knows. We've generally speaking you know we give a overall general guidance not a precise number on the models that we are running the company at.
Yes, Peter.
Who knows.
Generally speaking we give it.
Overall general guidance not a precise number on the models that we are running the company.
Speaker 2: So yes we are as sensitive. We do have some flows on certain aspects of our own portfolio. We have those kind of things have also been factored in.
So yes, we are asset sensitive we do have some floors on certain aspects of our loan portfolio.
Those kind of things have also been factored in but going forward.
Speaker 2: But going forward I think the real learning power of our company will be very evident in the second half of 2022 as well as leading into 2023.
I think the real earnings power of our company.
We will be very evident in the second half of 2022 as well as meeting into 2023.
Speaker 2: And the opportunities to really accelerate the global congenital income as a result of the higher rate is not going to be evident because the wage hike isn't going to be there until March of this year. So we factored all that in. That's why we are very bullish on 2023. And rather than give you precise numbers, we are only going to continue saying well above six.
And the opportunities to to really accelerate the growth of net interest income as a result of the higher rate is not going to be evident because of this isn't going to be there two months of this year. So we factored all of that and that's why we're very bullish on 2023 and.
Rather than give you precise numbers, we are only going to continue seeing well above six.
Speaker 2: this year gap earnings should be well above seven bucks you know again because of ppt right
This year GAAP earnings should be well above seven but again because of PPP.
Alright.
Maybe if I can ask it differently.
Speaker 6: just going back to the four seventy five five dollars to five assume any rate hike dot earnings estimate
Just going back to the 475 to $5 does that assume any rate hikes.
That earnings estimate.
Yes.
It does.
Okay.
Can I ask one.
My question on that just.
Speaker 6: For every 25 basis point rate hike, can you talk about what the impact to net interest income is?
For every 25 basis point rate hike can you talk about what the impact to net interest income.
Speaker 1: Yeah, so we can give some guidance to that. And I'll keep the comments focused on, I think I talked about the deposit data between 25 and 50 basis points, and that we're using a 15 to 25%. Looking at, I'll give you a 100 basis point up scenario. So you should expect to see NII increased somewhere between five to 10%.
Yes, so we can give them some guidance to that end.
Get the comment.
Focus on I think I talked about the deposit beta is between 25 to 50 basis points and that we are using a 15% to 25% looking at.
I'll give you 100 basis point up scenario. So you should expect to see NII.
Increase somewhere between 5% to 10%.
Speaker 1: in an up 100 scenario, I would say that we probably internally model more conservatively less than that. But I think that's a good estimate for you.
In an up 110.
Scenario I would say that we probably internally modeled more conservatively than that but I think thats a good estimate.
Speaker 6: Okay. Thanks, Carla. And then just, Sam, just on the CBIT launch, one, it's good to see that it looks like you're rolling it out about a quarter earlier than you originally had planned. And I'm just wondering if you have any type of guidance in terms of deposit growth or customer growth from the CBIT initiative?
Okay. Thanks, Carla and then just.
Sam just on the launch.
One it's good to see that it's it looks like you're rolling it out about a quarter earlier than we originally had planned and Im just wondering if you have any type of guidance in terms of deposit growth or customer growth.
From the <unk> initiatives.
Sure So I think that it's.
Speaker 5: So you know I think that it's as we've sort of stated previously at the beginning of launch it's difficult to give specific guidance. As I mentioned we expect it to be significant over the course of the year. You know and I think that the way to sort of think about it is we are taking a little bit of a crawl walk run approach as you mentioned. You know we've started to walk right now. And as the network.
As we've sort of stated please.
Previously at the beginning of the launch it's difficult to give specific guidance as I mentioned, we expect it to be significant over the course of the year.
And I think that the way to sort of think about it is we are taking a little bit of a crawl walk run approach. As you mentioned, we started to work right now and as the network gets to a level, where there's a lot more API connectivity and scale.
Speaker 5: gets to a level where there's a lot more API connectivity and scale, um, you know, we'll see payments volume and deposits increased naturally through those efforts. So
We will see payments volume and deposits increased naturally through those efforts.
Speaker 5: You know, while we are not giving specific guidance, what you can probably assume is that, you know, from a customer-based perspective, we would at least double in the first quarter.
While we are not giving specific guidance, but you could probably assume is that fair.
A customer base perspective, we would at least double.
In the first quarter.
Okay.
Thanks Sam.
Sure.
Speaker 3: Your next question comes from the line of Michael Perdido from KBW, your line is open.
Your next question comes from the line of Michael Perito from K VW. Your line is open.
Speaker 7: Hey, good morning, everybody. Thanks for taking my questions. And obviously, really strong 2021. So congratulations on that. Just a couple of clarifications I want to touch on. Stan, to stick on the CBIT platform for a second here. You know, based on what you guys have said, I mean, it seems like the
Hey, good morning, everybody Hi, Mike Thanks for taking my questions.
Obviously really strong 2021 so congratulations on that.
Just a couple clarifications I wanted to touch on.
Sam just stick on the ceded platform for a second here.
Based on what you guys have said I mean, it seems like the <unk>.
Speaker 7: pilot, you know, really wasn't about growing customers, obviously, it was about getting those targeted 20 to 25 on and making sure everything functions. So I was wondering if you could just spend a second talking about.
Pilot really worried about growing customer and number two is about getting those targeted 20 to 25 on and making sure everything functions. So I was wondering if you could just spend a second talking about what.
Speaker 7: what the, you know, not only what the customer pipeline looks like as you as you exit the pilot, but but also what the kind of a sales process will transform to as you go. I mean, obviously, you made some hires, I believe, in the back half of the year. And I'm just curious how that will play out now that you guys could presumably start to kind of more aggressively pursue growth opportunities there.
The.
Not only with the customer pipeline looks like as you exit the pilot, but also what's the kind of a sales process will transform too as you guys have been obviously you've made some hires I believe in the back half of the year and just curious how that will play out now that you guys could presumably start to kind of more aggressively pursue growth opportunities there.
Speaker 5: Sure. Absolutely. So so Mike I think the way to sort of think about the soft launch as you mentioned it was it was tactical it was to take time to pressure test the technology the infrastructure processes onboarding payments.
Sure absolutely. So so Mike I think the way to sort of.
Think about the soft launch as you mentioned it was tactical there was to take time to pressure test the technology the infrastructure.
Processes on boarding payments, but it was also to spend time working with very key customers in this space.
Speaker 5: you know to think about you know where where they need to be to to to grow their businesses what they're looking for from their bank partners over a period of time. The addition of the team members is very helpful and critical for that. So you know we'll as you mentioned we look to double the customer base.
To think about.
Where were they need to be to grow their businesses, what they're looking for from their bank partners over a period of time. The addition of the team members is very helpful and critical.
For that so as you mentioned, we look to double the customer base.
Speaker 5: in the first quarter. We are adding more customers with API connectivity. Think of that as automation for payments. And we are expanding the relative networks of the hubs and spokes that we previously described of each of the various market participants in the digital asset sub-vertical.
In the first quarter.
And we are.
Adding more customers with API connectivity think of that as automation for.
For payments.
And we are expanding the relative networks will be.
The hubs and spokes that we've previously described of each of the various market participants and the and the digital asset sub verticals.
Speaker 5: So you know that's the way to sort of think about how we're how we're roadmapping over the course of the year. Now over the course of the year we may also add lending which we talked about and other legacy as well as sort of cutting edge products and services for the overt digital asset banking coverage.
So that's the way to sort of think about how we're our roadmap in over the course of the year now over the course of the year. We may also add lending, which we've talked about.
And and other legacy as well as sort of.
Cutting edge.
Products and services for the over a digital asset banking coverage.
Speaker 7: Guy, and when you talk about kind of digital asset lending, is that, you know...
And when you talk about kind of digital asset lending is that.
No.
Speaker 4: digital asset collateralized USD loans or are there other products that you guys are exploring?
Digital asset collateralized, USD loans or or are there other products that you guys are exploring.
Speaker 5: Yes. So they would be enterprise loans to market participants that we would otherwise lend to regardless of whether they're focused in the digital asset industry. And then to your point they could also include loans that are backed by digital asset collaterals specifically Bitcoin.
Yes, so they would be enterprise loans to market participants that we would otherwise laing to regardless of whether they are focused on the digital asset industry and then to your point. They could also include.
Loans that are backed by.
Digital asset collateral specifically.
Bitcoin.
Speaker 7: Got it. Okay. Helpful. Thank you. And then on the, the PM technologies.
Got it okay.
Helpful. Thank you and then on the <unk>.
Technologies.
Speaker 4: termination or or expiration rather of the service deposit service agreement
Termination or expiration rather of the service deposit service agreement.
Speaker 4: The $60 million cost that you guys will pick back up, what is that exactly? Is that servicing costs? Is that, you know, I believe that you guys were kind of honoring the debit interchange rate of Bank Mobile, even though you guys moved over $10 billion. Is that incorporated in there? Just trying to get a better sense of what actually makes up that number and what will be moving away. And then just secondarily on that, the accretion also assumes that you will replace the loss deposits with.
The 60 million cost.
You guys will pick back up.
What is that.
Exactly is that servicing cost is that I believe you guys were.
Kind of honoring the debit interchange rate bank mobile, even though you guys moved over $10 billion does that incorporate in there just trying to get a better sense of what actually makes up that number and what will be moving away and then just secondarily on that the the accretion also assumes that you will replace demos deposits with.
Speaker 7: um new deposits fully and and at a comparable rate conservatively is that is that correct also yeah i'll take that
New deposits fully and at a comparable rate conservatively is that is that correct also.
Sure.
I'll take that.
Speaker 2: So, Mike, yes, we will have CBIT deposits, you know, growth are expected to be replacing those. They are right now, those deposits are costing us about 30 basis points and that we expect to replace them with lower costs.
So Mike Yes, so we will have sleeper deposits.
Growth are expected to be replacing those.
Right now those deposits are costing us about 30 basis points and that we expect to replace them with lower cost than that.
Speaker 2: And, yes, we are, that $60 million number includes our deposit servicing costs as well as any make-or-break agreements that we have with BNPX.
And.
Yes.
The $60 million number includes.
Our deposit servicing cost as well as any backhaul agreements that we have with.
With BNP.
Speaker 2: At that time, as you know, when we set up this agreement was in 2019 and the rates were heading up and these were
At that time.
No.
Set up this agreement was in 2019.
Rates were adding up and these voters black maximum 30 basis points for deposits. So thats why we locked them up with owning assets and so these are profitable to us, but they will become much more profitable to us.
Speaker 2: flat maximum 30 basis points for deposits so that's why we lock them up. We're learning assets and so these are profitable to us but they will become much more profitable to us when you look at the overall operating expenses plus cost of funds.
When you look at the overall operating expenses plus cost of funds and both of those categories will be coming down and that's why we are confident that we will be able to transfer a $60 million of accretion as a result of this strategy.
Speaker 2: And both those categories will be coming down. And that's why we are confident that we will be able to transfer $60 billion of accretion as a result.
Speaker 7: Okay and so just to kind of be clear on the geography though it sounds like it'll be a mix of um unless I misheard but it sounds like there'll be a mix of um you know lower expenses that that will come out when that expires but then also potentially higher spread from the lower funding costs assuming it's all replaced with CBIT deposits is that kind of a fair geographic representation of the 60 million of accretion? Yes Mike that's correct. Okay.
Okay.
To be clear on the geographies all it sounds like it'll be a mix of.
Unless I misheard, but it sounds like there'll be a mix of.
Lower expenses that will come out when that.
Expires, but then also potentially higher spread from the lower funding costs, assuming it's all replacement CD deposits.
Kind of a fair geographic representation of the $60 million of accretion piece, yes, Mike that's correct okay.
Speaker 7: And then, just lastly for me, the pull forward of the $6 in EPS, well, $6 plus of EPS in 2023 that you guys are now guiding to, I was wondering if you could just maybe give some rails.
And then just lastly for me the pull forward of the $6 and EPS of $6 of EPS a 23.
You guys are now guiding to I was wondering if you could just maybe give some rails around the balance sheet size and the reserve.
Speaker 7: around the balance sheet size and the reserve percentage that you guys generally see the bank operating at at that time.
Percentage of expect that you guys generally see the bank operating at at that time.
Speaker 4: With kind of the excess liquidity in the system and PPP, I know it's a bit of a moving target, but with some of the niche lending you have targeted also, any kind of guardrails you can provide on those two items would be helpful for me. I appreciate anything you can provide.
With kind of the excess liquidity in the system with TPP is obviously I know its bit of a moving target, but with some of the rent.
Lending you have targeted also just any kind of guardrails you can provide on those two items.
Would be helpful. For me I'd appreciate anything you can correct.
Speaker 2: I'll start off and then ask Carla to give you a lot more color on that, but overall we are looking at
I'll start off and then ask Carl to give you a lot more color on that but overall, we are looking at that.
Speaker 2: not significantly increasing our balance sheet but improving the quality of the balance sheet. And by that I mean by having much greater
Not significantly increasing our balance sheet, but improving the quality of the balance sheet.
I mean by having much greater stable core deposits.
Speaker 2: stable core deposits, replacing our higher cost deposits, then of course this BMTX termination of the deposit servicing agreement is going to be accretive.
<unk> cost the deposits then of course.
BNP termination of the deposit servicing agreement is going to be.
Speaker 2: We see and Carla can run through some of those numbers with you. There's going to be quite a bit of capital depletion
Accretive to us.
C.
Let him run through some of those numbers with you theres going to be quite a bit of capital accretion. This.
Speaker 2: this year as well as into next year. So we are very disciplined about maintaining our capital ratio.
This year.
As well as the into next year. So we are very disciplined about maintaining capital ratios.
Speaker 2: at the same time. So when you combine all that up from a modeling point of view you should assume that somewhere in that 17 16 to 18 billion dollar type on an average balance sheet the total price.
At the same time, so when you combine all that from a modeling point of view you should assume that somewhere in the 17 16.
Billion.
Right.
Average balance sheet.
Bringing the total size of the balance.
Speaker 1: Yeah and then from a reserving perspective obviously we don't give any forward-looking provision expense guidance per se. Our coverage ratio right now is about 156 which we feel we are adequately if not conservatively reserved. Internally when we're modeling out that far I think we're still looking at that 10 to 15 million dollar quarterly provision.
Yes, and then from a reserving perspective, obviously, we don't give any forward looking provision expense guidance per se our coverage ratio right now is about $1 56, which we feel we are at.
Adequately if not conservatively.
<unk> entirely when we're modeling out that thus far I think.
Looking at that $10 million to $15 million.
Quarterly provision.
Speaker 1: expense which makes sense and is what we're using to internally model.
<unk>, which makes sense and that's what we're using internally model.
That's helpful Matt.
Speaker 7: Yeah, yeah, thank you. Thank you guys for taking all my questions. Appreciate it.
Yes, yes. Thank you. Thank you guys for taking all my questions I appreciate it.
Okay.
Speaker 3: And your next question comes from the line of Steve Moss from B Riley Securities. Your line is open.
And your next question comes from the line of Steve Moss from B Riley Securities. Your line is open.
Speaker 2: Have a good morning.
Good morning.
Maybe just starting off.
Speaker 6: morning. Maybe just maybe just start off with the going back to the pipeline of either customers. Sam, I heard you on more than doubling the customers here in the first quarter. Just kind of curious, you know, how to think about the backlog and the size of the potential customers that you have over the next over the course of the year.
Good morning, maybe just maybe just start off with the going back to the pipeline of either customers. Sam I heard you on more than doubling the customers here in the first quarter just kind of curious.
How to think about.
The backlog and the size of the potential customers that you have over the next over the course of the year.
Yes, so I think that the.
Speaker 5: Yeah. So I think that we sort of stated that in the beginning when we brought in 25 customers it wasn't that we necessarily had a you know a backlog. It was more programmed. So we were focused on selecting customers reaching out to customers through both a push and a pull type strategy to be able to create you know a healthy sort of test and pilot ecosystem.
Sort of steady state of this a bit in the beginning when we brought in 25 customers. So it wasn't that way necessarily.
Our backlog it was more program. So we were focused on.
Select gained customers reaching out to customers through both a push and a core type strategy to be able to create.
A healthy sort of test.
Pilot ecosystem.
Speaker 5: So, as we think about Q1, Q2, it'll be more augmenting the respective networks of the first 25, as well as creating new nodes and hubs and spokes for future network growth.
As we think about Q1 Q2, it'll be more augmenting the respective networks of the first 25, as well as creating new nodes and hubs and spokes for future network growth.
Speaker 5: as well as, as I mentioned, automating our initial customer bases, especially the key larger customers, to make sure that they, as well as their partners, are connected via API and thus have an ability to ramp up payments volume quickly.
As well as as I mentioned automating.
Our initial customer base is especially the key larger customers.
To make sure that day as well as our partners are connected via API.
And any.
Let me first have an ability to ramp up.
Payments volume.
Quickly.
Okay.
Speaker 2: Okay, that's helpful. And then, in terms of, you know, following up on loan growth here, just kind of curious as to what you're seeing for loan pricing these days, just as a model going forward.
Okay. That's helpful and then.
In terms of following up on <unk>.
Loan growth here, just kind of curious as to what youre seeing for loan pricing. These days.
Just as we model going forward.
Your question was on loan pricing.
Yes.
Yeah, I think we.
Speaker 8: I think, you know, we've seen, as you can see from our average yields, you know, we've been able to maintain a loan pricing pretty much during this time period. I think on the different categories.
We've seen as you can see from our average yields we've been able to maintain our loan pricing pretty much. During this time period I think on the different categories.
Speaker 8: as such, the fund finance and specialty lending, other areas which are really very, very strong credit quality. They are all variable rate loans, and the pricing you should expect that to be
The fund finance, which is the specialty lending areas.
Which are really very very strong credit quality.
They are all variable rate loans and the pricing you should expect that to be.
Speaker 8: adjusted as the rates go up on that portfolio.
Adjusted as the rates go up on that portfolio in the multifamily area.
Speaker 8: In the multi-family area, since we are back in that business now, we've seen about 3.5% or so average yield in that the consumer sector is seeing a lot of pressure. Everybody is suddenly finding consumers to be attractive, you know, and we were ahead of the game. And so there's a lot of pressure on the higher-quality consumers, so you should be seeing some pressure in that sector.
Since we are back in that business now, we've seen about 5% or so.
Average yield in the consumer sector is seeing a lot of pressure everybody has suddenly finding consumer.
[laughter] attractive.
Out of the gate and so there's a lot of testing around the higher credit quality agency.
You will see compression.
In that sector.
Speaker 8: and such. I think in the mortgage warehouse business, like I talked about floor...
I think in the mortgage warehouse business like I talked about.
Speaker 8: So we have instituted floors of 1% in the mortgage warehouse.
Severe instituted floors of 1%.
Mortgage warehouse business.
Speaker 8: and now going over to SOFR or some other, you know,
Going over.
Two silver or some other.
Index. So we are removing the flows.
Speaker 8: So we are removing the floors. So in the short period of time it could be a slightly lower yield. But we like it because the portfolio we don't expect to be expected to be at the sort of the lowest level in the first quarter. And before it starts to build up we think the Fed will be increasing the rate. So we think that we will be able to benefit from that.
In the short period of time, it could be lets glad you're doing reviews, but we like it because the portfolio view don't expect we expect it to be at the sort of the lowest levels in the first quarter and deployed it starts to build up we think the fed will be treating disease. So we think that we will be able to benefit from that so the margins on.
Speaker 8: So the margins on that will be about the same as what you've seen.
That will be about the same as what you've seen in the past.
Speaker 2: Okay. All right. Thank you very much. Appreciate all the color.
Okay.
Great. Thank you very much I appreciate all the color.
Speaker 3: And your next question comes from the line of Frank Chiraldi from Piper Sandler. Your line is open. Good morning.
And your next question comes from the line of Frank <unk> from Piper Sandler Your line is open.
Good morning.
Okay.
Speaker 4: Just wanted to ask, on the 2023 guide, you talked about your expectations for really more balance sheet optimization than growth. So just kind of curious if you could give, and I guess I could back into that, but ROA expectations that you need to kind of hit to get to that $6 plus. Thank you.
Just wanted to ask on the on the 2023 guide.
Any sort of you talked about.
Your expectations for really more balance sheet optimization than growth.
So just.
I'm just kind of curious that if.
If you could give and I guess I get back into that.
But.
ROA expectation.
That you need to kind of hit to get to that $6 plus.
Yes, I think Frank we are factoring.
Speaker 8: factoring all those in so it'll be the ROA in that 121.25 range.
Factoring all of those and so it would be the other way.
And there's 121 25 range.
Speaker 8: You can figure that out. And then we are you are absolutely correct. Our priorities are both balance sheet optimization as well as growth. And we will all the time evaluate which is the best optimum way for us to allocate capital.
You can do to figure that out.
We are you are absolutely correct priorities, our book balance sheet optimization.
Our group and we will all the time evaluated.
Which is the best optimum way for us to allocate the capital.
Speaker 8: and look at making sure that the end result is optimization of shareholder value creation. So that's what we are for.
And look at.
They are making shows at the end.
End result is optimization of shareholder value creation.
Creation, so that's what we're focused on.
Okay.
And Carlos sorry, if I missed that I know I caught the tangible book comments tangible book value per share comment.
But as far as the TCE ratio.
For 2022 have you shared expectations there.
Yes, so just to give a little bit of color. What we shared is if you take the $90 million of.
Speaker 1: Yes, so just to give a little bit of color, what we shared of is if you take the $90 million of deferred fees, you get to that $40 and then factoring in just on the, between the $475 to $5 of our core EPF, which excludes the PPP, you get to that $44 to $45 rate.
Deferred fee you get to that $40 and then factoring in.
Just on the <unk> between the $4 75 to $5 of our core core EPS, which excludes the PTT you get to that 44% to $45 range.
Right.
Speaker 6: Right, on tangible book value per share? And then on the PC ratio?
Tangible book value per share.
And then the TCE ratio.
Speaker 1: So on the TCE ratio, again.
So on the TCE ratio again.
Yeah.
Speaker 1: Factoring in just the size of the balance sheet is somewhere around that 7.5% range.
Factoring in just the size of the balance sheet is somewhere around that seven 5% range.
Speaker 7: I'm okay. Sorry, I missed that quote. Sorry. Um, and, uh, I guess, you know, 7.5% is still, um, I'd say a bit below, uh,
Sorry, I missed that quantify.
I guess seven 5% is still.
I would say bump it below.
Speaker 6: the peer group, given the opportunity on the CBIT side, given the opportunity on the CNI side, Jay, what are your thoughts on the potential for an offensive capital raise in the near term?
The peer group given that.
The opportunity EBIT side, given the opportunity on the C&I side.
Jay.
Your thoughts on the potential for.
For a offensive capital rates in the near term.
Speaker 8: You know we continue to always be and the best way to allocate our capital. At this time we have no plans which are in the process. But we will always evaluate which is the best opportunity and the best option available for us to build shareholder value. And so we will continue to always evaluate all our.
We continue to always be.
And the best.
Two two.
<unk> allocated our capital at this time, we have no plans, which are in the process, but we will always evaluate which is the best opportunity and the best option available for us to build shareholder value and so we will continue to always evaluate all options.
Speaker 6: OK, and then just finally on the $60 million pickup.
Okay, and then just finally on the.
The $60 million pickup.
Speaker 6: from Bank Mobile. I just want to make sure I understand, what is required to be able to move or to end that deposit relationship? I think Bank Mobile is currently in the process of buying a bank partner and they'll replace Coupy, I guess, as the bank partner in that relationship. Is that a requirement to ending that deposit service relationship or does it expire anyway?
From Bank mobile.
Just want to make sure I understand what is required to be able to move or to end that deposit relationship.
<unk> Bank mobile is currently in the process of buying a bank partner.
And they will replace <unk>.
Yes.
The bank partner and that relationship is that a requirement.
Two ending that deposit.
Service relationship or does it expire anyway.
Speaker 8: It expires anyway. But I think BMTX has taken the steps to maintain their
Expires anyway, but I think <unk> taken the steps to maintain.
Speaker 8: whatever their objectives are, so that's why I think it's all falling in line pretty well, and by the end of this year, you'll see that being a win-win for both institutions, both PMTX.
Whatever their objectives are.
So thats why I think it's all falling in line.
Pretty well and this by the end of this year.
Is that being a win win for both institutions both BNP.
Speaker 8: should do well by taking those deposits. And of course, the company will do well on by.
Should be well taken.
Taking those deposits and of course, the company will do well.
Speaker 8: by seeing determination go into effect by December 31st.
But see determination go into effect by December 31.
Speaker 6: Okay. And then just finally, on that one, you mentioned the 30 bps in deposit cost. I guess that's on about $2 billion in...
Okay.
And then just finally on that front you mentioned the 30.
On deposit costs I.
I guess, that's on about $2 billion.
Speaker 2: in related deposits, so that's around $6 million. The rest of the 60 is, I guess, an expense. Where is that just from the modeling standpoint? Is that all from mostly in that technology communications line? Where does that go now?
And related deposit so that's around $6 million.
The rest of the 60.
Some expenses that just from a modeling standpoint is that all or mostly in that technology to Jason's line, what does that timeline.
Speaker 6: That's right. Okay. And, uh, and that's 60 million pickup or $15 million a quarter from the four Q run rate. That's good. Okay.
That's right, Okay and.
And Thats 60 million pick up $115 million a quarter from the <unk> run rate.
But.
Okay, Alright, great. Thank you.
Thank you.
Speaker 3: Now we have reached the end of our Q&A session. I would like to hand the conference back to Mr. Sam Sidhu for closing remarks.
Well, we have reached the end of our Q&A session I would like to turn the conference back to Mr. Sandeep <unk> for closing remarks.
Speaker 8: Well, thank you very much again for dialing in. We really appreciate your interest in customers. And if you have any follow-up questions, please give us a call. Thank you and have a good day.
Well. Thank you very much again for dialing in we really appreciate your interest in customers and if you have any follow up questions. Please give us a call. Thank you and have a good day.
Speaker 3: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Presenters, please stay on the line for the post-conference.
Thank you and ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect presenters. Please stay on the line for the fossil plants.
Speaker 9: ?
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Yes.
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