Q4 2023 Customers Bancorp Inc Earnings Call

[music].

Yes.

Good morning, My name is Rob and I'll be your conference operator today at this time I would like to welcome everyone to the customers Bancorp Inc.

Rob: <unk> fourth quarter and full year 2023 conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again prestige star one.

Rob: Thank you, David Patti <unk> director of Communications.

Rob: <unk>.

David Patti: Thank you Rob and good morning, everyone. Thank you for joining us for the customer Banc Corps earnings call for the fourth quarter and full year of 2023 the.

David Patti: The presentation deck, you will see during today's webcast has been posted on the investors web page of the bank's website at customers Bank Dot Com you can scroll to Q4 twenty-three results and click download presentation. You can also download a PDF of the full press release at the spot.

Rob Banc: Our investor presentation includes important details that we will walk through on this morning's webcast I encourage you to download and use the document.

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

David Patti: 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.

David Patti: 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.

David Patti: Please refer to our SEC filings, including our Form 10-K, and 10-Q for a more detailed description of the risk factors that may affect our results.

David Patti: Copies may be obtained from the SEC or by visiting the Investor section of our website.

David Patti: At this time it is my pleasure to introduce customers Bancorp Chair Jay Sidhu.

Jay Sidhu: Thank you, Dave and good morning, ladies and gentlemen, welcome to customers Bancorp fourth quarter and full year 2023 earnings call John.

Sampson do: Joining me this morning are president and CEO of the bank Sampson do customers Bancorp CFO, Carla Leibold customers Bank CFO Jill Watkins.

Jay Sidhu: I will give you some introductory comments and then my colleagues will provide details of the quarter and for the full year 2023 for you.

Jay Sidhu: While the banking industry has largely recovered following the events from last spring.

John: There is still a lot of uncertainty and a lot of headwinds facing our industry. However.

John: However.

Customers banks differentiated strategy bucked industry trends, gaining strong momentum in 2023, and we expect that to continue into 'twenty 'twenty four.

John: We continue to execute on our strategic priorities and are pleased to report that we are delivering another strong quarter for our shareholders.

John: We are also very excited about the prospects and look forward to sharing our outlook for 2024 with you later on in this presentation.

John: As a forward thinking bank with strong risk management, we believe we are creating tremendous franchise value across the bank through execution of our profitable customer centric model.

John: In addition, we have and will continue to capitalize on market disruption as an opportunity to create new and deeper existing client relationships, resulting in stronger loan and deposit growth.

John: As you know we are reporting $1.90 of core EPS for Q4, 2023 with continued deposit transformation higher margin no expense growth during the quarter.

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Customers Bancorp Inc. fourth quarter and full year 2023 conference call. All lines have been placed on mute to prevent any background noise.

Jay Sidhu: We generated 1.1 billion of core deposit growth in the quarter.

Jay Sidhu: We use these deposits to improve the overall quality of our funding base, including.

Jay Sidhu: The planned exit of B M. T X deposits from our bank on December 1st as well as paying off about over $700 million of high rate wholesale Cds during Q4.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. David Patti, Director of Communications. Good morning, everyone.

Jay Sidhu: Capital levels increased substantially again with a tangible common equity to tangible asset ratio now over 7% and our C. E. T. One increasing to 12.2% we are extraordinarily proud of our ability to meet and exceed our capital goals that we outlined to you.

David Patti: Thank you for joining us for Customer Bank Corp's earnings call for the fourth quarter and full year of 2023. The presentation deck you will see during today's webcast has been posted on the Investors webpage of the bank's website at CustomersBank.com. You can scroll to Q4'23 Results and click Download Presentation.

Earlier last year.

Jay Sidhu: Asset quality remains exceptional with our NPA ratio down in the quarter and reserve levels are robust at almost 500% we have only about a 1% loan exposure to the office sector of commercial real estate and our average loan size to the offices I is less than four.

David Patti: You can also download a PDF of the full press release at this location. Our investor presentation includes important details that we will walk through on this morning's webcast. I encourage you to download and use the document.

David Patti: 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 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 section of our website. At this time, it is my pleasure to introduce Customers Bank Co-Chairman, Jay Sidhu. Thank you, Dave. And good morning, ladies and gentlemen.

Jay Sidhu: <unk> million dollars, we believe the office sector will continue to create challenges for the industry in the coming quarters.

Jay Sidhu: In addition to the future benefit from continued improvement in our deposit franchise as well as top quartile capital ratios.

Jay Sidhu: We are seeing attractive loan origination opportunities.

Jay Sidhu: These are primarily loans, where we have a holistic and primary relationship with a client.

Jay Sidhu: We have ample liquidity and capital to support a 10% to 15% loan growth in 2024.

Jay Sidhu: Moving on to slide four I'd like to take a moment to reflect back on the promises we made going back to a 2018 investor day.

Just about five years ago.

Jay Sidhu: Today on the fifth anniversary of this analyst day.

Jay Sidhu: We are thrilled to say that we have delivered on all of these promises the promises that we made to you at that time.

Jay Sidhu: Welcome to Customers Bank Corp.'s fourth quarter and full year 2023 earnings call. Joining me this morning are President and CEO of the bank, Sam Sidhu, Customers Bank Corp. CFO, Carla Leibold, and Customers Bank CFO, Phil Watkins. I will give you some introductory comments and then my colleagues will provide details of the quarter and for the full year 2023 to you. While the banking industry has largely recovered following the events of last spring, there is still a lot of uncertainty and a lot of headwinds facing our industry. However, customers, banks, and differentiated strategy bucked industry trends, gaining strong momentum in 2023, and we expect that to continue into 2024.

Jay Sidhu: Year to go we haven't let me share those with you number.

Jay Sidhu: Number one we are now as I said earlier, 7% TCE ratio and at that time, we were talking about perhaps getting to 7% number too.

We've delivered 15% average annual tangible book value growth and at that time, you were shooting for just under 10%.

Jay Sidhu: We've achieved a NIM of 331 and at that time, we were at 240 NIM.

We have a core ROA of 122 and our goal was at least 1%. We are reporting a return on common equity of 18, 3% and our goal was at least 10.

Jay Sidhu: And we delivered $7.72 of core EPS in 2023, surpassing at $6 EPS goal for 'twenty 25. So we are at least two years ahead and most important is that we maintained a strong risk management culture throughout this period.

Jay Sidhu: We continue to execute on our strategic priorities and are pleased to report that we are delivering another strong quarter for our shareholders. We are also very excited about the prospects and look forward to sharing our outlook for 2024 with you later in this presentation. As a forward-thinking bank with strong risk management, we believe we are creating tremendous franchise value across the bank through the execution of our profitable customer-centric model. In addition, we have and will continue to capitalize on market disruption as an opportunity to create new and deeper existing client relationships, resulting in stronger loan and deposit growth. As you know, we are reporting $1.90 of core EPS for Q4 2023 with continued deposit transformation, higher margin, and no expense growth during the quarter. We generated 1.1 billion of core deposit growth in the quarter.

Jay Sidhu: Turning to slide five we again reiterate our priorities to you rich remain absolutely unchanged.

We are moderating growth during these uncertain times, while strengthening our balance sheet and having a strong risk management culture.

Jay Sidhu: We are so proud of what we've accomplished in 2023 and an extremely challenging environment for our industry, our commitment to risk management and our client first mindset, where clients say Wow is positioning us well to navigate in this challenging environment I want to salute and express our.

Jay Sidhu: Gratitude and thanks to all our team members for their hard work and their continued dedication to serving our clients flawlessly.

Jay Sidhu: Lastly, we want to recognize all our investors for their support and confidence in US as you know customers Bancorp was the number one performing publicly traded bank stock in the United States in 2023 as measured by stock price and total shareholder return.

Jay Sidhu: We used these deposits to improve the overall quality of our funding base, including the planned exit of BMTX deposits from our bank on December the 1st, as well as paying off about $700 million of high-rate wholesale CDs during Q4. Capital levels increased substantially again, with our Tangible Common Equity to Tangible Asset Ratio now over 7%, and our CET1 increasing to 12.2%. We are extraordinarily proud of our ability to meet and exceed our capital goals that we outlined to you earlier last year. Asset quality remains exceptional, with our NPA ratio down in the quarter, and reserve levels are robust at almost 500 percent. We have only about a 1% loan exposure to the office sector of commercial real estate, and our average loan size to offices is less than $4 million.

Speaker Change: Clearly the markets are recognizing the strength of our performance and we commit to doing everything in the long run and the short term to serve our clients and provide solid returns to our investors before I pass the call on to Sam I want to welcome Hal cache to the call Hal join the call from B Riley.

Hal cache: Securities very recently initiated coverage on customers Bancorp, we want to thank all of the research analysts for their efforts and the insights that they bring to the bank and to the investment community.

Sam: With that I'll turn it over to Sam to cover the key activity and results of the quarter in much more detail.

Sam Jones: Thanks, Jay and good morning, everyone.

We will provide more detailed guidance on 2024 at the end of the presentation, but we did want to flag our key areas of focus for the year and my initial comments.

Jay Sidhu: We believe the office sector will continue to create challenges for the industry in the coming quarters, in addition to the future benefit from continued improvement in our deposit franchise, as well as our top quartile capital ratio. We are seeing attractive loan origination opportunities. These are primarily loans where we have a holistic and primary relationship with the client.

Sam Jones: Number one continuing our deposit transformation remains a key priority, which we will achieve through market share gains supported by Treasury management and transaction banking build outs.

Sam Jones: We've made significant strides in 2023 positively remixing, 15% of our deposits and just the last three quarters alone.

Sam Jones: Having said that we're just getting started and continue to have a strong pipeline, which we're looking to bolster with deposit focused talent and teams.

Jay Sidhu: We have ample liquidity and capital to support a 10 to 15% loan growth in 2025. Moving on to slide four, I'd like to take a moment to reflect back on the promises we made going back to our 2018 Investor Day, just about five years ago. Today, on the fifth anniversary of this endless day.

Jay Sidhu: Number two as Jay mentioned, we bucked the industry trend by expanding margin in 2023.

Jay Sidhu: We'll look to sustain that momentum in 'twenty four with continued improvement of our deposit franchise and also by remixing into higher yielding loans.

Jay Sidhu: We are thrilled to say that we have delivered on all these promises, the promises that we made to you at that time. Here they are. Let me share them with you.

Jay Sidhu: Number three.

Jay Sidhu: We're focused on driving profitability through our steadfast commitment to operational excellence and expanding fee income opportunities.

Jay Sidhu: Number one, we are now, as I said earlier, 7% of the TCE ratio, and at that time, we were talking about perhaps getting to 7%. Number two, we've delivered 15% average annual tangible book value growth, and at that time, we were shooting for just under 10%. We've achieved NIM of 331, and at that time, we were at 240 NIM.

The hard work and twenty-three to improve our technology and human capital infrastructure.

Jay Sidhu: We expect will pay huge dividends in 'twenty four and beyond number.

Jay Sidhu: Number four we will maintain we will continue to maintain a strong capital base and liquidity, while growing our loan portfolio.

Jay Sidhu: Number five we will never deviated from our credit first principles.

We will achieve this through ensuring the right client selection, where we have a fulsome two way relationship.

Jay Sidhu: We have a core ROA of 122, and our goal was at least 1%. We are reporting a return on common equity of 18.3%, and our goal was at least 10%, and we delivered $7.72 of core EPS in 2023, surpassing our $6 EPS goal for 2025. So we are at least two years ahead.

Jay Sidhu: Number six making our clients say Wow is what increases customer engagement and builds franchise value, especially given the void created by the recent market disruption.

Moving to slide seven you can see our GAAP financial highlights for the fourth quarter and the full year twenty-three.

Jay Sidhu: Turning to slide eight I'll comment on our core results for the quarter and year.

Jay Sidhu: And most important, we maintained a strong risk management culture throughout this period. Turning to slide five, we again reiterate our priorities to you, which remain absolutely unchanged. They are moderating growth during these uncertain times while strengthening our balance sheet and having a strong risk management culture. We are so proud of what we've accomplished in 2023 in an extremely challenging environment for our industry. Our commitment to risk management and a client-first mindset, where clients say, wow, is positioning us well to navigate this challenging environment. I want to salute and express our gratitude and thanks to all our team members for their hard work and their continued dedication to serving our clients flawlessly.

Jay Sidhu: In the fourth quarter of 'twenty three we produced extremely strong results across all profitability metrics, earning $1.90 and core EPS on net income of $61.6 million.

For the full year of 'twenty three we produced core EPS of $7 72 on net income of $248 million.

Jay Sidhu: 2023 was an exceptional year in which we delivered a record $687 million and net interest income.

Jay Sidhu: This record is all the more impressive given that prior year's benefited significantly.

To the tune of hundreds of millions of dollars from our efforts in PPP.

Jay Sidhu: Our core ROA for the fourth quarter was 122.

Jay Sidhu: In our core ROE was 16, 9%.

Jay Sidhu: For the full year twenty-three our core ROA was also 122.

Speaker Change: Lastly, we want to recognize all our investors for their support and confidence in us. As you know, Customers Bank Corp was the number one performing publicly traded bank stock in the United States in 2023 as measured by stock price and total shareholder return. Clearly, the markets are recognizing the strength of our performance, and we commit to doing everything in the long run and the short term to serve our clients and provide solid returns to our investors. Before I pass the call on to Sam, I want to welcome Hal Gash to the call.

Jay Sidhu: And our core ROE was 18, 3%.

Jay Sidhu: We continued our margin momentum in the quarter.

Jay Sidhu: The combination of our strong deposit growth and interest, earning asset yield increase led to margin expansion of 11 basis points in the fourth quarter to $3 three 1%.

Jay Sidhu: This was up from three 2% last quarter.

Jay Sidhu: After adjusting for the outsized accretion from the portfolio, we acquired from the FDIC.

Jay Sidhu: We continued to transform the quality of our deposit balances, which I'll provide more detail on shortly.

Speaker Change: Hal joins the call from B. Riley Securities, where he recently initiated coverage on customers' banks. We want to thank all of the research analysts for their efforts and the insights that they bring to the bank and to the investment community. With that, I'll turn it over to Sam to cover the key activity and results of the quarter in much more detail. Thanks, Jay, and good morning, everyone.

The modest decline in deposits in the quarter was driven by the planned outflows of service deposits that we previously disclosed as well as by the repayment of over $700 million of high rate wholesale Cds.

This is a very strong base for us to grow off of in 'twenty four.

Jay Sidhu: Credit quality remained strong as evidenced by our NPA ratio of just 13 basis points and reserve levels remained robust at almost 500% of Npls, while we do not see any signs of weakness in the portfolio. We remain highly focused on portfolio management.

Sam Sidhu: We will provide more detailed guidance on 2024 at the end of the presentation, but we did want to flag our key areas of focus for the year in my initial comments. Number one, continuing our deposit transformation remains a key priority, which we will achieve through market share gains supported by treasury management and transaction banking build-out. We've made significant strides in 2023, positively remixing 15% of our deposits in just the last three quarters alone. Having said that, we're just getting started and continue to have a strong pipeline, which we're looking to bolster with deposit-focused talent. Number two, as Jay mentioned, we bucked the industry trend by expanding margin in 2023. We'll look to sustain that momentum in 24 with continued improvement of our deposit franchise and also by remixing into higher yielding lows. Number three.

Jay Sidhu: Okay.

Jay Sidhu: Turning to slide nine I want to provide some additional color on the impact of the delivery of promises Jade discussed earlier.

Jay Sidhu: Over the last five years alone we have grown our balance sheet at a 17% compounded annual growth rate.

Jay Sidhu: But more importantly, we are also more than doubled our deposits over the same time period.

Jay Sidhu: We accomplished this growth without raising a single dollar of common equity capital.

Jade: Our loan to deposit ratio is now 72% as compared to 120% at the end of 2018.

Jade: And our liquidity position has increased about 10 times.

Jade: With our cash and short duration available for sale securities portfolio.

Available to provide us ample liquidity to reinvest into loan growth and 24.

Sam Sidhu: We're focused on driving profitability through our steadfast commitment to operational excellence and expanding fee income opportunities. The hard work in 23 to improve our technology and human capital infrastructure will pay huge dividends in 24 and beyond. Number four, we will maintain; we will continue to maintain a strong capital base and liquidity while growing our loan portfolio. Number five, we will never deviate from our credit first principle. We will achieve this through ensuring the right client selection where we have a fulsome two-way relationship. Number six.

Now, let's turn to slide 10 to discuss how this transformation has improved our core profitability.

Jade: Over the same five year time period, we have increased net interest income by 22% CAGR.

Jade: And improved our net interest margin by more than 70 basis points.

Jade: Diluted EPS is up by more than four times and our return on equity has increased by more than 900 basis points.

Jade: While we are very proud of the transformation. We have accomplished we believe the best days for customers Bank are ahead of us the investments in talent and technology that we've made over the last several years are reflected in our best in class performance metrics in 'twenty three.

Sam Sidhu: Making our clients say wow is what increases customer engagement and builds franchise value, especially given the void created by the recent market disruption. Moving to slide 7, you can see our GAP financial highlights for the fourth quarter and the full year. Turning to slide 8, I'll comment on our core results for the quarter and year. In the fourth quarter of 23, we produced extremely strong results across all profitability metrics, earning $1.90, and Corey Pias on net income of $61.6 million. For the full year of 23, we produced core EPS of $7.72 on net income of $248 million.

Jade: Looking ahead, there are still many strategic opportunities for us over the near term, we continue to see a large opportunity to capitalize on the once in a generation dislocation in the banking industry put in commercial clients and most importantly deposit teams in motion, especially in verticals, where we have existing deep expertise.

Jay Sidhu: If we capture mirror basis points of market share it will have a material impact on our franchise in anything in percentage point terms will be truly transformational.

Jay Sidhu: We have been extremely focused on operational excellence by improving our people processes and technology and expect these continued efforts will pay dividends driving positive operating leverage.

This operational excellent as evidenced by the doubling of our balance sheet since 2018, but our employee count is down by almost 20% over a similar time period.

Sam Sidhu: 2023 was an exceptional year in which we delivered a record $687 million in net interest income. This record is all the more impressive given that prior years benefited significantly, to the tune of hundreds of millions of dollars, from our efforts in PPP. Our core ROA for the fourth quarter was 122, and our core ROE was 16.9%. For the full year, our core ROA was also 122, and our core ROE was 18.3%. We continued our margin momentum in the quarter. The combination of our strong deposit growth and interest-earning asset yield increase led to a margin expansion of 11 basis points in the fourth quarter to 3.31%. This was up from 3.2% last quarter after adjusting for the outsized accretion from the portfolio we acquired from the FDIC. We continue to transform the quality of our deposit balances, which I'll provide more detail on shortly. The modest decline in deposits in the quarter was driven by the planned outflows of service deposits that we previously disclosed, as well as by the repayment of over $700 million of high-rate wholesale CDs.

Jay Sidhu: As Karla will provide more detail on later starting late in 2022 and accelerated early in 'twenty three we undertook efforts to exit non strategic relationships to materially increase our capital levels.

Jay Sidhu: These efforts are now bearing fruit as we have ample risk weighted capital and liquidity to fund strategic franchise enhancing loan growth.

Jay Sidhu: We look forward to delivering for our clients and shareholders again in 'twenty four and beyond.

Jay Sidhu: Turning to slide 11, the highlight of the franchise, we again generated strong core deposit growth of $1.1 billion in the quarter.

Karla: This represents our third consecutive billion dollar plus growth quarter and enabled us to repay $743 million in high cost wholesale Cds in the quarter.

Karla: The $3.1 billion of deposit growth in just the past three quarters represents a.

Karla: 15% positive remix of our deposit franchise.

Karla: It is worth noting that our noninterest bearing deposits increased by over about $1 billion over the same time period and $2 $5 billion over the course of 2023.

Karla: This is a huge testament to the power of our team in action.

Sam Sidhu: This is a very strong base for us to grow off of in 2016. Credit quality remains strong, as evidenced by our NPA ratio of just 13 basis points, and reserve levels remain robust at almost 500 percent of NPV. While we do not see any signs of weakness in the portfolio, we remain highly focused on portfolio management. Turning to slide 9, I want to provide some additional color on the impact of the delivery of promises Jade discussed earlier.

Karla: Okay.

Karla: Similar to last quarter I want to highlight not just the quantity, but also the quality and granularity of this deposit growth.

Karla: The growth we achieved was a team effort across the franchise once again more than 20 of our deposit channels saw growth in the quarter more than 40% of these deposit channels experienced growth of $25 million or more demonstrating the broad based nature and quality of our deposit transformation.

Karla: Total new commercial accounts opened in a quarter again was impressive and in excess of 500.

Sam Sidhu: Over the last five years alone, we have grown our balance sheet at a 17% compounded annual growth rate. But more importantly, we've also more than doubled our deposits over the same time. And we accomplish this growth without raising a single dollar of common equity.

Karla: As expected our cost of deposits increased slightly by 15 basis points in the quarter due in large part to the planned noninterest bearing service deposit outflows.

Karla: I'd notice I'd note that our interest expense continued to trend in the right direction declining by $3 million in the quarter positively impacting our net interest income. This is in contrast to all of the industry and driven by our deposit gathering successes.

Sam Sidhu: Our loan to deposit ratio is now 72% as compared to 120% at the end of 2018, and our liquidity position has increased about 10 times, with our cash and short-duration available for sale securities portfolio available to provide us with ample liquidity to reinvest in loan growth in 2040. Now, let's turn to slide 10 to discuss how this transformation has improved our core profitability. Over the same five-year time period, we have increased net interest income by a 22% CAGR and improved our net interest margin by more than 70 basis points. Diluted EPS is up by more than four times, and our return on equity has increased by more than 900.

Karla: We remain deeply focused on the quality and stability of our deposits and at the end of the quarter, 77% of our deposits were either ensured our collateralized just metrics keeps us in a very strong position relative to regional bank peers.

Karla: Even after our success in the quarter, our core deposit pipeline remains robust at approximately one $5 billion as we continue to backfill the previous growth we anticipate onboarding. This pipeline over the next two to three quarters.

Karla: Turning to slide 12.

Karla: Here, we highlight the success, we've had in gathering core deposits as well as in paying down wholesale funding.

Sam Sidhu: While we are very proud of the transformation we have accomplished, we believe the best days for Customers Bank are ahead of us. The investments in talent and technology that we have made over the last several years will be reflected in our best-in-class performance metrics in 2020. Looking ahead, there are still many strategic opportunities for us over the near term. We continue to see a large opportunity to capitalize on the once-in-a-generation dislocation in the banking industry, putting commercial clients and, most importantly, deposit teams in motion, especially in verticals where we have existing deep exports. If we capture mere basis points of market share, it will have a material impact on our franchise, and anything in percentage point terms will be truly transformational.

Karla: The $3 billion of inflows in the last couple of quarters has been used to pay down more than $2 $3 billion of wholesale Cds and $850 million of S. H L. B advances, but there remains a significant and impactful opportunity ahead, approximately $2 billion of wholesale Cds will come due in 'twenty 'twenty, four which provides a <unk>.

Karla: And efficacy value creation opportunity as we look to convert our deposit pipeline over the next coming quarters.

Karla: While this opportunity is meaningful it is important to remind everyone that like most banks there will always be a place for some level of wholesale funding our balance sheet.

Karla: Moving to slide 13.

Karla: Our net interest income was $173 million in the fourth quarter.

Sam Sidhu: We have been extremely focused on operational excellence by improving our people, processes, and technology and expect these continued efforts will pay dividends, driving positive operating levels. This operational excellence is evidenced by the doubling of our balance sheet since 2018, but our employee count is down by almost 20% over a similar time period. As Carla will provide more detail on later, starting late in 2022 and accelerating early in 23, we undertook efforts to exit non-strategic relationships to materially increase our capital.

Karla: This number is in line with our previous quarter adjusting for the outsized accretion.

Despite the modest reduction in interest earning assets.

Karla: Our net interest margin in the quarter was $3 31, which exceeded our 320 to $3 25 target guide for the quarter and represents 11 basis points of margin expansion on an apples to apples basis. We hope to continue this trend of funding mix and cost improvement and 24.

Karla: With that I'd like to turn the call over to karla to provide additional detail.

Karla Smith: Thank you Sam and good morning, everyone on Slide 14, you can see the trends in our loan portfolio the yield on loans and our loan to deposit ratio, we reduced our loan balances by about 600 million in the fourth quarter as we remain disciplined on loan prices.

Sam Sidhu: These efforts are now bearing fruit as we have ample risk-weighted capital and liquidity to fund strategic franchise-enhancing loan grants. We look forward to delivering for our clients and shareholders again in 24 and beyond. Turning to slide 11, the highlight of the franchise, we again generated strong core deposit growth of $1.1 billion in the quarter. This represents our third consecutive billion-dollar plus growth quarter and enabled us to repay $743 million in high-cost wholesale CDs in the quarter.

Karla Smith: And selectively extending credit and using balance sheet capacity for holistic banking relationships. The consumer health plans estimate loan portfolio continued to decline given normal planned run off while our consumer held for sale loan strategy continues to gain.

Sam Sidhu: The $3.1 billion of deposit growth in just the past three quarters represents a 15% positive remix of our deposit franchise. It is worth noting that our non-interest-bearing deposits increased by about a billion dollars over the same time period and two and a half billion dollars over the course of 2020. This is a huge testament to the power of our team.

Karla Smith: Tim in the fourth quarter, we achieved our $10 million annual run rate goal for fee and feel like income from our held for sale program. We expect that to continue in 2024 as a reminder, the scene like income comes with strong credit protection, we have complete.

Karla Smith: Our strategic loan portfolio remarks, and our.

Sam Sidhu: Similar to last quarter, I want to highlight not just the quantity but also the quality and granularity of this deposit growth. The growth we achieved was a team effort across the entire franchise. Once again, more than 20 of our deposit channels saw growth in the quarter, and more than 40% of these deposit channels experienced growth of $25 million or more, demonstrating the broad-based nature and quality of our deposit transactions. The total number of new commercial accounts opened in a quarter was again impressive at an excess of 500.

Cited about resuming loan growth.

Sam Jones: You will hear from Sam and our 'twenty 'twenty four guidance, we have strong conviction in our ability to resume loan growth across the bank and to do so at accretive yields we will reinvest securities cash flows.

Sam Jones: Excess cash balances and deposit growth this year into new loan originations today, our cash and securities, earning roughly the federal funds rate once deployed into loans that liquidity will generate approximately 300 basis points of additional yield.

Sam Sidhu: As expected, our cost of deposits increased slightly by 15 basis points in the quarter, due in large part to the planned non-interest-bearing service deposit outflow. However, I'd note that our interest expense continued to trend in the right direction, declining by $3 million in the quarter, positively impacting our net interest investment. This is in contrast to all of the industry and driven by our deposit gathering. We remain deeply focused on the quality and stability of our deposits, and at the end of the quarter, 77% of our deposits were either insured or collateralized.

Sam Jones: Based on recent origination trends.

Sam Jones: We have an enviable loan to deposit ratio compared to our regional bank peers, given the success and continued momentum of our core deposit generating initiatives.

Sam Jones: Our strong liquidity position provides us the flexibility to generate holistic relationship base loan growth without significantly increasing the overall size of the balance sheet.

Sam Sidhu: This metrics keeps us in a very strong position relative to regional bank peers. Even after our success in the quarter, our core deposit pipeline remains robust at approximately $1.5 billion as we continue to backfill the previous growth. We anticipate onboarding this pipeline over the next two to three quarters. Turning to slide 12.

Moving to slide 15, we.

Sam Jones: We are pleased to report another quarter of core noninterest expenses in line with our guidance like many banks our size and there is much larger we incurred a special assessment from the FDIC as a result of the banking failures in early 2023, or one time expense associated with.

Sam Sidhu: And here we highlight both the success we've had in gathering core deposits as well as in paying down wholesale funding. $3 billion of inflows in the last couple of quarters have been used to pay down more than $2.3 billion of wholesale CDs and $850 million of FHLB advances. But there remains a significant and impactful opportunity ahead. Approximately two billion dollars of wholesale CDs will come due in 2024, which provides a significant value creation opportunity as we look to convert our deposit pipeline over the next coming quarter. While this opportunity is meaningful, it is important to remind everyone that, like most banks, there will always be a place for some level of wholesale funding or a balance. Moving to slide 13.

Sam Jones: The special assessment was close to $4 million and was fully accrued in the fourth quarter.

Jay Sidhu: Our core non interest expense to average assets remains best in class at 1.67%. Our core efficiency ratio also remained strong at 47%, which was in line with our third quarter ratio after adjusting for the outsized accretion in that period, we will dip.

Karla Smith: Gus afford expectations later in the presentation, but I want to provide a few points of commentary right. Now we committed significant resources during 2023 to find expense optimization opportunities that we can redeploy to create customer satisfaction and shareholder value and <unk>.

Sam Sidhu: Our net interest income was $173 million in the fourth quarter. This number is in line with our previous quarter, adjusting for the outsized decrease despite the modest reduction in interest-earning assets. Our net interest margin in the quarter was $3.31, which exceeded our $3.20 to $3.25 target guide for the quarter and represents 11 basis points of margin expansion on an apple. We hope to continue this trend of funding mix and cost improvement in 2014. With that, I'd like to turn the call over to Carla to provide additional details. Thank you, Sam, and good morning, everyone.

Karla Smith: Finally, none of these expense reduction opportunities will take away from client facing positions risk management and compliance are critical technology investments. In fact these are the areas we plan to enhance even further by redeploying savings many of our anticipated.

Karla Smith: Expense savings will come from items like contract negotiation vendor optimization and reduction in outside service utilization.

Karla Smith: On slide 16, we continue to operate with robust levels of liquidity as evidenced by more than 200% of immediately available liquidity to uninsured deposit total overall liquidity remains strong at $11 4 billion at year.

Carla Leibold: On slide 14, you can see the trends in our loan portfolio, the yield on loans, and our loan to deposit ratio. We reduced our loan balances by about $600 million in the fourth quarter as we remain disciplined on loan prices and selectively extend credit and use balance sheet capacity for holistic banking relationships. The Consumer Health for Investment Loan Portfolio continued to decline, giving normal planned runoff while our Consumer Health for Sale Loan Strategy continues to gain momentum. In the fourth quarter, we achieved our 10 million annual run rate goal for fee and fee-like income from our Health for Sale Program.

Year end 2023 during the fourth quarter, we redeemed $340 million of callable Federal home loan bank advances, which had a cost of close to 6%. We also sold $295 million of securities at roughly book value the combination of <unk>.

Karla Smith: These two actions had a positive impact on our capital levels and will have a positive impact on margin going forward.

Carla Leibold: We expect that to continue in 2024. As a reminder, this fee-like income comes with strong credit protection. We have completed our Strategic Loan Portfolio Remix and are excited about resuming loan growth. As you will hear from Sam in our 2024 guidance, we have strong conviction in our ability to resume loan growth across the bank and to do so at accretive yields. We will reinvest securities cash flows, excess cash balances, and deposit growth this year into new loan originations. Today, our cash and securities are earning roughly the federal funds rate.

David Patti: On slide 17, we highlight a very important component of shareholder value growth intangible book value per share in 2023 alone. We grew tangible book value per share by an impressive 22% to $47.61. We also.

David Patti: $4.34 of a OCI marks that will be recovered into tangible book value per share going forward, we expect to recover about $1.50 of that in 2020 for.

David Patti: The 22% growth intangible.

David Patti: Book value per share in 2023 compares favorably to our regional bank peers that generated 13% growth our longer term track record is even more differentiated if you look over the past five years, we've generated a compounded annual growth rate of 15%.

Carla Leibold: Once deployed into loans, that liquidity will generate approximately 300 basis points of additional yield based on recent origination trends. We have an enviable loan-to-deposit ratio compared to our regional bank peers, given the success and continued momentum of our core deposit generating initiative. Our strong liquidity position provides us the flexibility to generate holistic, relationship-based loan growth without significantly increasing the overall size of the balance sheet. Moving to slide 15.

Jay Sidhu: While our regional bank peers have generated only 4% growth. We believe we are among the best in the industry on this metric.

Jay Sidhu: Just on our current outlook for earnings and recovery of LCI in 'twenty 'twenty. Four we also expect to end 2024 with more than $55 of tangible book value per share I'll also point out that our tangible book value and GAAP book value are virtually the same.

Carla Leibold: We are pleased to report another quarter of core non-interest expenses in line with our guidance. Like many banks our size and those much larger, we incurred a special assessment from the FDIC as a result of the banking failures in early 2023. Our one-time expense associated with this special assessment was close to $4 million and was fully incurred in the fourth quarter.

Jay Sidhu: Turning to slide 18, our TCE ratio ended the fourth quarter at over 7%, which was an increase of 50 basis points and a single corner and over 100 basis points in the last two quarters LCI continues to negatively impact this ratio by them.

About 64 basis points.

Carla Leibold: Our core non-interest expense to average assets remains best in class at 1.67 percent. Our core efficiency ratio also remains strong at 47 percent, which was in line with our third-quarter ratio after adjusting for the outsized accretion in that period. We will discuss our forward expectations later in the presentation, but I want to provide a few points of commentary right now. We committed significant resources during 2023 to find expense optimization opportunities that we can redeploy to create customer satisfaction and shareholder value. Importantly, none of these expense reduction opportunities will take away from client-facing positions, risk management and compliance, or critical technology investments.

Jay Sidhu: Our estimated CET one ratio ended the fourth quarter at 12, 2%, which was an increase of 260 basis points for 2023 adjusted for a OCI. This ratio was 11, 2%, which is top quartile among banks with an asset.

Jay Sidhu: Between 10 and 100 Donald.

Jay Sidhu: The improvement in our CET one ratio of 260 basis points is among the top 5% of our publicly traded U S banks during 2023.

Jay Sidhu: In 2023, we executed successfully on our goals and significantly improved our capital levels. Given the continued uncertainty in the market. We feel it is prudent to continue to maintain higher levels of capital going forward.

Carla Leibold: In fact, these are the areas we plan to enhance even further by redeploying savings. Many of our anticipated expense savings will come from items like contract negotiation, vendor optimization, and reduction in outside service utilization. On slide 16, we continue to operate with robust levels of liquidity, as evidenced by more than 200 percent of immediately available liquidity to uninsured deposits. Total overall liquidity remained strong at $11.4 billion at year-end 2023.

Jay Sidhu: On slide 19 credit quality in our portfolio remained strong across all metrics nonperforming loans ended the fourth quarter at $27 million and our nonperforming asset ratio was just 13 basis points net charge offs overall came in line with our expectations.

Jay Sidhu: Patients commercial net charge offs remain at very low levels and consumer net charge offs remain within our modeled expectations.

Our provision expense of $13 4 million came in well below expectations in the fourth quarter, primarily too.

Carla Leibold: During the fourth quarter, we redeemed $340 million of callable federal home loan bank advances, which had a cost of close to 6 percent. We also sold $295 million of securities at roughly book value. The combination of these two actions had a positive impact on our capital levels and will have a positive impact on margin going forward. On slide 17, we highlight a very important component of shareholder value, growth, and tangible book value per share. In 2023 alone, we grew tangible book value per share by an impressive 22% to $47.61.

Jay Sidhu: Due to the reduction in loan balances held for investment, which benefited provision expense by roughly $6 million absent. This provision would have been in line with our previous estimates.

Our reserve level in dollars declined modestly quarter over quarter, given the lower loan balances I just discussed we feel we are well reserved at a coverage ratio of 114 basis points of total loans held for investment, which increased two basis points during the fourth quarter.

Jay Sidhu: We remain extremely well positioned for the potential challenges ahead for the commercial real estate market the office and retail sectors of commercial real estate each only account for approximately 1% of our total loan portfolio and continue to perform well with that I'll pass the call.

Carla Leibold: We also have $4.34 of AOCI marks that will be recovered into tangible book value per share going forward. We expect to recover about $1.50 of that in 2024. The 22% growth in tangible book value per share in 2023 compares favorably to our regional bank peers that generated 13% growth. Our longer-term track record is even more differentiated.

Back to Sam to discuss our outlook for 2024, and some concluding remarks.

Sam Jones: Thank you Carla.

Sam Jones: Turning to slide 20, we wanted to provide you our outlook for 2024.

Sam Jones: We've broken our guidance into three categories. Firstly, our financial targets. These metrics included ROA efficiency ratio and net interest margin you will note that as opposed to providing specific expense guidance, we will manage the business to attractive efficiency ratio. We believe this provides us the flexibility to make investments if we.

Carla Leibold: If you look over the past five years, we've generated a compounded annual growth rate of 15%, while our regional bank peers have generated only 4% growth. We believe we are among the best in the industry on this metric. Based on our current outlook for earnings and the recovery of AOCI in 2024, we also expect to end 2024 with more than $55 of tangible book value per share. I'll also point out that our tangible book value and gap book value are virtually the same. Turning to slide 18.

Sam Jones: See meaningful positive operating leverage.

Sam Jones: Secondly from a growth outlook perspective, our deposit growth story in 24 will be focused on continuing and building off the success. We achieved in 2023 modest growth in overall balances with a focus on bringing in more high quality, but deposits will allow us to further reduce wholesale funding.

Karla Smith: We expect loan growth to resume in 2024, and we're seeing attractive opportunities across our franchise led by our national corporate businesses, the strength of our capital and liquidity position provides us the ability to book, 10% to 15% loan growth as.

Carla Leibold: Our TCE ratio ended the fourth quarter at over 7 percent, which was an increase of 50 basis points in a single quarter and over 100 basis points in the last two quarters. AOCI continues to negatively impact this ratio by about 64 basis points. Our estimated CET1 ratio ended the fourth quarter at 12.2 percent, which was an increase of 260 basis points for 2023. Adjusted for AOCI, this ratio was 11.2 percent, which is in the top quartile among banks with an asset size between 10 and 100 billion. The improvement in our CET1 ratio of 260 basis points is among the top five percent of all publicly traded U.S. banks for 2025. In 2023, we executed successfully on our goals and significantly improved our capital levels.

Karla Smith: As we mentioned previously we anticipate this will be funded with securities in cash and 24 as opposed to meaningfully increasing the overall size of our balance sheet.

Karla Smith: These efforts should allow us to generate P. PNR growth between 10% to 15% and 24 after adjusting for the PPP NII in Q3 outsized accretion income.

Karla Smith: Yeah.

Karla Smith: Number three operating assumptions, our operating assumptions are consistent with what we've disclose with you over the course of the year, we will target a CET one ratio of about 11, 5% and a TCE ratio of about seven 5% our tax rate is expected to be between 22 and 24%.

Karla Smith: With that I'd like to finish on slide 21, with some concluding perspectives.

Karla Smith: This was another incredibly strong quarter and year that we're very proud of at customers Bank.

Karla Smith: I'll mention again, we generated over $3 billion of core deposit growths in last three quarters alone significantly improving and transforming the quality of our deposit franchise.

Carla Leibold: Given the continued uncertainty in the market, we feel it is prudent to continue to maintain higher levels of capital going forward. As shown on slide 19, credit quality in our portfolio remains strong across all metrics. Non-performing loans ended the fourth quarter at $27 million, and our non-performing asset ratio was just 13 basis points. Net charge-offs, overall, came in line with our expectations. Commercial net charge-offs remain at very low levels, and consumer net charge-offs remain within our modeled expectations. Our provision expense of $13.4 million came in well below expectations in the fourth quarter, primarily due to the reduction in loan balances held for investment, which benefited provision expense by roughly $6 million.

Jay Sidhu: Continuing to improve our deposit franchise remains our top priority in 'twenty four and we are prepared to continue this march with our robust pipeline.

Jay Sidhu: Our net interest margin improved substantially over the course of the year and drove higher profitability on a more liquid and better capitalized balance sheet.

Jay Sidhu: Our industry is looking to reach a NIM trough by the middle of this year, while we achieved that in 2022 and have increased since then.

Jay Sidhu: We attained our goal to build capital at an extra ordinary pace due to strong organic or an earnings generation and a relatively flat an optimized balance sheet.

Our credit quality remains exceptional, but we will stay vigilant in monitoring our portfolio.

Jay Sidhu: Our business model is highly focused on risk management, and our ability to perform in all macroeconomic environments.

Carla Leibold: Absent this, provision would have been in line with our previous estimate. However, our reserve level in dollars declined modestly quarter over quarter, given the lower loan balances I just discussed. We feel we are well reserved at a coverage ratio of 114 basis points of total loans held for investment, which increased two basis points during the fourth quarter. We remain extremely well positioned for the potential challenges ahead in the commercial real estate market. The office and retail sectors of commercial real estate each only account for approximately 1% of our total loan portfolio and continue to perform well. With that, I'll pass the call back to Sam to discuss our outlook for 2024 and some concluding remarks. Thank you, Carla.

Jay Sidhu: With our differentiated and now deposit led business model and the strategic opportunities ahead of US. We believe we are very well positioned for success in the years to come with.

Jay Sidhu: With that I'd like to open the call to any questions you may have.

Jay Sidhu: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Jay Sidhu: Your first question comes from the line of <unk> from B Riley Securities. Your line is open.

Jay Sidhu: Hey, good morning, everyone and congratulations on a terrific year and quarter.

Jay Sidhu: The loan growth guidance is it simply an outlier in pretty terrific. In this environment can you give us a feel for the areas of industry that are contributing to this growth and if I could ask one follow up on expense growth has been.

Jay Sidhu: Flat for the last three quarters and what can we expect for expense growth in 2024. Thank you.

Sam Sidhu: Turning to slide 20, we wanted to provide you our outlook for 2024. We've broken our guidance into three categories. Firstly, our financial targets. These metrics include ROA, efficiency ratio, and an interest margin.

Jay Sidhu: Thanks, Hal really appreciate it and welcome officially informally.

Jay Sidhu: So firstly to focus on on the loan growth in the loan portfolio.

Jay Sidhu: You know 'twenty 'twenty four is going to be a year of.

Hal: Franchise enhancing loan growth as we replace.

Sam Sidhu: You will note that as opposed to providing specific expense guidance, we will manage the business to an attractive efficiency ratio. We believe this provides us with the flexibility to make investments if we see meaningful positive operating levels. Secondly, from a growth outlook perspective, our deposit growth story in 2024 will be focused on continuing and building on the success we achieved in 2023. Moderate growth and overall balances, with a focus on bringing in more high-quality deposits, will allow us to further reduce wholesale funding.

Hal: The non strategic assets, we remove beginning in the.

Jay Sidhu: In the first quarter accelerating in the second quarter of the year with a capital call nonstrategic.

<unk> sales and then and then the runoff that we've targeted in the second half of the year, which has also helped us build our capital levels.

Jay Sidhu: So really bilateral and in many cases deposit rich customers, which include venture banking Fund finance. We also are expecting contributions from.

Jay Sidhu: Community banking C&I, we also like our fixed rate equipment finance business.

Sam Sidhu: We expect loan growth to resume in 2024. We're seeing attractive opportunities across our franchise, led by our national corporate business. The strength of our capital and liquidity position provides us with the ability to book 10 to 15 percent loan growth. As we mentioned previously, we anticipate this will be funded with securities and cash in 2024 as opposed to meaningfully increasing the overall size of our balance sheet. These efforts should allow us to generate PP&R growth between 10 to 15% in 24, after adjusting for the PPP, NII, and Q3 outsized accretion. Number three, operating assumptions.

Jay Sidhu: But all in all we are remaining very selective, but with a 72% loan to deposit ratio, we have a tremendous amount of flexibility.

On our balance sheet. So 23 was the year of deposit transformation and on 24 is.

That's going to continue in 'twenty three 'twenty four is really going to be rebuilding the loan book frankly, too you know directionally close to levels that we started at.

Jay Sidhu: At the beginning of 2023, so the pipelines are strong and then hopefully that answers your question on the growth part of here.

Jay Sidhu: Of your question.

Jay Sidhu: So okay sure.

Jay Sidhu: Sure sure. The second question you had was I believe on noninterest expense.

Sam Sidhu: Our operating assumptions are consistent with what we've disclosed with you over the course of the year. We will target a CET1 ratio of about 11.5% and a TCE ratio of about 7.5%. Our tax rate is expected to be between 22 and 24.

Karla Smith: So I think we've done a really good job karla talked about a couple of things. Firstly, we've managed our our quarterly number at about $89 million plus or minus of of core noninterest expense.

Karla Smith: But over the last three quarters. She also talked.

Speaker Change: With that, I'd like to finish on slide 21 with some concluding thoughts. This was another incredibly strong quarter and year that we're very proud of at Customers Bank. I'll mention again that we generated over $3 billion of core deposit growth in the last three quarters alone, significantly improving and transforming the quality of our deposit franchise. Continuing to improve our deposit franchise remains our top priority in 24, and we are prepared to continue this march with our robust pipeline. Our net interest margin improved substantially over the course of the year and drove higher profitability on a more liquid and better capitalized balance sheet. Our industry is looking to reach a nim trough by the middle of this year, while we achieved that in 2022 and have increased since then. We attained our goal to build capital at an extraordinary pace due to strong organic earnings generation and a relatively flat and optimized balance sheet.

Karla Smith: Talked about some operational excellence initiatives with some detail.

Karla Smith: And really our focus as you saw on the guidance slide is gonna be managing to an efficiency ratio.

Karla Smith: And and we will continue to focus on trying to drive savings in the core.

Karla Smith: Recurring expense space, having said that we will continue to invest wherever we see opportunities.

Karla Smith: You heard me talk about deposit teams.

Karla Smith: And really we won't.

Karla Smith: Hold back on expenses and reinvesting those savings. However, we will always hold half the governor of that efficiency ratio, so long way of saying well, where we'll look to I think we're sort of at the high high Forty's right now we're going to get to the mid Forty's.

Karla Smith: And in 'twenty, four and we'll look to at a minimum.

Karla Smith: Yeah, you know look to maintain.

Karla Smith: Directionally, our core expense base, but really driving that revenue growth, which is going to help us get to that efficiency ratio target.

Speaker Change: Our credit quality remains exceptional, but we will stay vigilant in monitoring our portfolio. Our business model is highly focused on risk management and our ability to perform in all macroeconomic environments. With our differentiated and now deposit-led business model and the strategic opportunities ahead of us, we believe we are very well positioned for success in the years ahead. With that, I'd like to open the call to any questions you may have. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad.

Karla Smith: Okay, great. Thank you very much.

Karla Smith: Your next question comes from the line Casey Haire from Jefferies. Your line is open.

Karla Smith: Yes, thanks, good morning, everyone.

Karla Smith: So.

Karla Smith: I apologize if I missed this but can you guys.

Karla Smith: Your NIM guide of $3 20 to $3 40, what.

Karla Smith: What kind of fed funds forecast is embedded within that and what kind of deposit beta are you assuming if you do have cuts in there.

Karla Smith: Good morning Casey.

Speaker Change: Your first question comes from the line of Hal Goat from B. Riley Securities. Your line is open. Hey, good morning, everyone, and congratulations on a terrific year and quarter. The Low Growth Guidance is simply an outlier and pretty good in this environment. Can you give us a feel for the areas or industries that are contributing to this growth? And if I could ask one follow-up question on expense growth, which has been flat for the last three quarters? And what can we expect for expense growth in 2024? Thank you. Thanks, Hal. I really appreciate it, and welcome, you know, officially and formally.

Are we to take that and Carla you know feel free to jump in with any clarification that I Miss so.

Karla Smith: So the NIM guidance is pretty wide, there's a lot of deposit Remixing hand loan Remixing. That's happening you also heard me talk about the deposit side, the 2 billion plus or minus more of wholesale Cds that are maturing in 'twenty four.

Karla Smith: So really on the high end of the range, we would sort of assume.

Karla Smith: Cuts that it will be more in line with the fed dot plot.

Karla Smith: But you could have faster loan originations that happened earlier in the year as opposed to middle to later part of the year.

And it could assume.

Speaker Change: So firstly, you know, to focus on loan growth and the loan portfolio. You know, 2024 is going to be a year of franchise-enhancing loan growth as we replace the non-strategic assets we removed beginning in the first quarter and accelerated in the second quarter of the year with a capital call on non-strategic line sales and then and then the runoff that we've targeted in the second half of the year, which has also helped us build our capital levels. So, really, bilateral and, in many cases, deposit-rich customers, which include venture banking and fund finance. We are also expecting contributions from community banking C&I. We also like our fixed-rate equipment finance business. But all in all, we're remaining very selective.

Karla Smith: Higher pace and faster pace of deposit inflows at lower costs.

Karla Smith: Earlier in the year versus later and then the inverse really on the lower end of the range. So the range to be clear is about three to six cuts dependent depending on the market and the fed dot plot.

Karla Smith: So on the lower end of the range would be higher and faster cuts.

Karla Smith: And really the inverse of what I just described.

Karla Smith: Got you Okay. So three to six cuts six cuts would I would assume gets you to that 323 would be to the higher end of $3 40, and then just.

Karla Smith: Underneath that what kind of like I apologize that the deposit beta.

Karla Smith: Sure Blake on the first so yes, its embedded its really embedded in the guidance the way to think about deposit betas on the way up you know, we had a high deposit beta which.

Speaker Change: But with a 72% loan to deposit ratio, we have a tremendous amount of flexibility on our balance sheet. 23 was the year of deposit transformation, you know, and 24 is if that's going to continue in 23. But 24 is really going to be rebuilding the loan book, frankly, to, you know, directionally close to levels that we started at at the beginning of 2023. So the pipelines are strong, and hopefully that answers your question on the growth part of your question. Thank you.

Karla Smith: You know really impacted us in 'twenty, two and but really tapered off in 'twenty three and in fact, we peaked in.

Karla Smith: In the first quarter of last year.

Karla Smith: Deposit beta high cost of funds benefits you on the way down and we expect to have.

A high beta on the way down.

Karla Smith: Yeah.

Karla Smith: Gotcha, Okay, and just lastly on your <unk>.

The deposit remix of $2 2 billion of wholesale Cds maturing this year.

Speaker Change: Sure, sure. The second question you had was, I believe, on non-interest expense. So, you know, I think we've done a really good job. Carla talked about a couple of things.

Karla Smith: First off what is the what is the rate on those maturities and then if I'm doing the math correctly it looks like you've got core deposits.

Speaker Change: Firstly, you know, we've managed our quarterly number at about $89 million plus or minus of core non-interest expense, you know, over the last three quarters. She also talked about some operational excellence initiatives with some detail. And really, our focus, as you saw on the guidance slide, is gonna be managing to an efficiency ratio, and we will continue to focus on trying to drive savings in the core recurring expense space. Having said that, you know, we'll continue to invest wherever we see opportunities. You heard me talk about deposit teams, and really, we won't hold back on expenses or reinvest those savings. However, we will always have the governor of that efficiency ratio. So, in the long way of saying, you know, we'll look to see if we're sort of at the high 40s right now. We're gonna get to the mid 40s in 24.

Karla Smith: <unk> 1 billion and a half to $2 billion.

Karla Smith: And if if all and deposits are growing low single digits.

Karla Smith: There's going to be some rollover of that two 2 billion.

Karla Smith: Just wanted to make sure that's correct.

Speaker Change: Yeah Casey good good question. So overall, we'll look to it.

Speaker Change: We will look to remix.

Speaker Change: Most if not all of that into with core deposit growth really depends on the overall pipeline.

Speaker Change: And mix the cost of that and this year is actually pretty close to 5%. So there's a tremendous opportunity from a cost of funds perspective.

Speaker Change: So hopefully you know one of the things I did mention is is that you know we're down to about 18% of wholesale Cds from our peak a couple of quarters ago are.

Speaker Change: Our business model is branch light.

Speaker Change: So theres always going to be a place for some portion of wholesale funding and our balance sheet.

Speaker Change: And we'll look to be thoughtful about recasting and a small portion of that over the course of the year, but but again, most if not all of that we'd look to remix through the course of the year with core deposits.

Speaker Change: And we'll look to, you know, at a minimum, look to maintain, you know, directionally our core expense space but really driving that revenue growth, which is gonna help us get to that efficiency ratio. Thank you very much. Your next question comes from the line, Casey Hare from Jeffries. Your line is open. Yeah, thanks. Good morning, everyone. So apologies if I missed this, but can you guys, your NIM guide of 320 to 340, what kind of fed funds forecast is embedded within that, and what kind of deposit beta? Good morning, Casey.

Speaker Change: Very good thanks, guys.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Peter Winter from D. A Davidson your line is open.

Thanks, Good morning.

Speaker Change: I wanted to ask about the balance sheet sensitivity as.

Speaker Change: As of <unk>, the balance sheet is fairly asset sensitive so I'm just wondering.

Speaker Change: We were able to reduce any of that sensitivity in the fourth quarter and.

Karla Smith: What's the plan.

Karla Smith: Im trying to reduce some of that in 2004.

Sharp absolutely good morning, Peter.

Karla Smith: So you know a high rate environment should be most challenging for a bank like like us given that we don't have the retail network.

Casey Hare: I'm happy to take that. And Carla, you know, feel free to jump in with any clarification that I miss. So the NIM guidance is pretty wide. There's a lot of deposit mixing and loan mixing that's happening. You also heard me talk about the deposit side, the $2 billion plus or minus more of wholesale CDs that are maturing in 2024. So really, you know, on the high end of the range, we would sort of assume cuts that would be more in line with the Fed's dot plot, but you could have faster loan originations that happen earlier in the year as opposed to the middle to later part of the year, and it could assume, you know, And then the inverse, really, on the lower end of the range.

Karla Smith: However, we knew that with the deposit trends and really the positive mix shift into noninterest bearing lower cost deposits over the course of last year.

Karla Smith: Now the down rate is going to be beneficial to us from an asset sensitivity perspective, as you know their limitations from a shock perspective in a spot perspective in the sunset.

Karla Smith: RK is going to be out in a couple of weeks, but even if you look at it.

Karla Smith: At our September 30th numbers noninterest bearing deposit growth increases your asset sensitivity. However.

Karla Smith: Rolling off of fixed rate.

Karla Smith: Wholesale Cds into floating rate.

Karla Smith: Deposits.

Karla Smith: Decreases your asset sensitivity.

Karla Smith: So you know, we're we're very prepared for declining rates and while we are moderately.

Speaker Change: So the range, to be clear, is about three to six cuts, depending on the market and the Fed's dot plot. So on the lower end of the range would be higher and faster cuts, and really the inverse of what I just said. Okay, so three to six cuts, six cuts would, I would assume, get you to that 323 would be on the higher end, and then just.

Slightly asset sensitive.

Karla Smith: Today, the shock that youll sort of see in those types of financials is not necessarily representative of how we will actually operate in a gradually declining.

Karla Smith: Our rate environment, which is what we in the market and overall expect directionally, whether it's three or six to be determined.

Karla Smith: Okay.

Karla Smith: And then just.

Karla Smith: How do we think about average earning assets from fourth quarter level.

Speaker Change: And underneath that, what kind of, like, apologies, the deposit beta? Sure. Yeah, it's embedded.

Karla Smith: Positive outlook on the loans funded with excess cash and securities cash flow. It's just how do we think about the average earning asset growth rate.

Speaker Change: It's really embedded in the guidance. You know, the way to think about deposit betas, you know, on the way up, you know, we had a high deposit beta, which really impacted us in twenty two, but it really tapered off in twenty three. And in fact, we peaked in the first quarter of last year. High deposit beta and high cost of funds benefit you on the way down. And we expect, you know, a high beta on the way down, gotcha okay, and just, just lastly, on your deposit remix, so 2.2 billion of wholesale CDs. So we're talking about what's maturing this year. First off, what is the rate on those maturities? And if I'm doing the math correctly, it looks like you've got core deposits up a billion and a half to 2 billion, all in deposits are growing low single digits. You know, there's going to be some rollover of that $2 billion. Yeah, Casey, good question.

Karla Smith: So I think.

I talked about that 10% to 15% growth rate. If you. If you take the midpoint of that range. It really you can sort of directionally see.

Karla Smith: Youre getting back to.

Karla Smith: 12, 31 22 in terms of our our directional loan balances that earning asset mix shift is really going to be coming from cash and securities as opposed to any changes in the balance sheet and sort of think of the average earning asset says.

Karla Smith: In a moderately flattish.

Karla Smith: I'd also mentioned that you know I think we've disclosed our securities portfolio as you know somewhere in the low to mid 5% range on a blended basis.

Karla Smith: Our cash as you can probably appreciate is generating something directionally similar.

Karla Smith: And our incoming loan yields are typically, especially for several of our national corporate businesses, which is what were you know greater than 50% of the of the expected growth is planned to come from.

Karla Smith: It sort of gives you an extra 300 basis points, plus or minus spread above what those earning assets are currently yielding.

Speaker Change: So, you know, overall, we'll look to, we'll look to remix, you know, you know, most if not all of that into with core deposit growth, it really depends on the overall pipeline, and mix the cost of that in this year is actually pretty close to 5%. So there's a tremendous opportunity from a cost of funds perspective. So hopefully, you know, you know, one of the things I did mention is, is that, you know, we're down to about 18% of wholesale CDs, you know, from our peak, you know, a couple of quarters ago, you know, our business model is branch light. So there's always going to be a place for some portion of wholesale funding in our balance sheet. And we'll look to be thoughtful about recasting any small portion of that over the course of the year. But But again, most if not all of that we'd look to remix through the course of the year with quarter. Very good. Thanks, guys. Thank you. Your next question comes from the line of Peter Winter from D.A. Davidson.

Karla Smith: Got it just my last question.

Karla Smith: You guys are in some of these businesses of the failed banks last year.

Karla Smith: Of course bought signatures venture capital banking portfolio.

Karla Smith: The FDIC or are you seeing a lot of opportunities to add more bankers to the platform.

Karla Smith: Yeah, Peter that's a it's a great question I think you sort of heard me talk about.

Karla Smith: Market share gains in the hundreds of billions of impacted in our customer deposits and loans.

Karla Smith: From the failed institutions and I think that what's important about our businesses. We haven't added any new business lines or new business verticals, we happen to have a lot of high quality.

Peter J. Winter: Your line is open. Science, good morning. I wanted to ask about the balance sheet sensitivity. I mean, as of 3Q, the balance sheet is fairly asset sensitive. I'm just wondering, were you able to reduce any of that sensitivity in the fourth quarter? And what's the plan on trying to reduce some of that in 24?

Karla Smith: Low risk high growth opportunity.

Karla Smith: Commercial verticals at our bank existing today from.

Karla Smith: From a lending perspective, we have very strong lenders.

Karla Smith: Lenders across the franchise from a deposit perspective, I think you're absolutely right there will be opportunities for us to.

Karla Smith: Find.

Teams and individual.

Speaker Change: Absolutely. Good morning, Peter. So, you know, a high rate environment should be most challenging for a bank like us, given that we don't have the retail network. However, we mitigate that with the deposit trends and really the positive mix shift into non-interest bearing lower cost deposits over the course of the year. The down rate is going to be beneficial to us from an asset sensitivity perspective, as you know, but there are limitations from a shock perspective and a spot perspective in the sense But even if you look at our September 30th numbers, non-interest bearing deposit growth increases your asset sensitivity. However, rolling off fixed-rate wholesale CDs into floating rate deposits decreases your asset sensitivity.

Karla Smith: Performers in motion because clients are in motion clients have already changed banks once or twice in the past 12 months.

Karla Smith: And folks are looking to find high quality commercial oriented platforms like ourselves to be able to port into.

Karla Smith: Got it thanks Pam.

Karla Smith: Absolutely.

Karla Smith: Yeah.

Karla Smith: Your next question comes from the line of Michael Perito from K B W. Your line is open.

Speaker Change: Hey, guys. Good morning, Thanks for taking my questions.

Speaker Change: Yes.

Speaker Change:

Speaker Change: Obviously the guide for 'twenty four is pretty thorough I just had a couple of high level questions I'd love. Some color on if that's all right. You know number. One is just you guys are pretty clear and laid out the remixing opportunities for 24, but I was wondering if you could go a layer deeper just on the mindset around balance sheet growth like what are what are the pieces of the equation when that comes back.

Speaker Change: So, you know, we're very prepared for declining rates. And while we're moderately, slightly asset sensitive today, the shock that you'll sort of see in those types of financials is not necessarily representative of how we will actually operate in a gradually rising rate environment, which is what we in the market, you know, overall, expect directionally, whether it's three or six, you know, two bid. And then just how do we think about average earning assets from the fourth quarter level? I mean, I have a positive outlook on the loans, but funded with excess cash and securities cash flows. Just how do we think about the average earning asset growth rate? So I think, you know, I talked about the 10 to 15% growth rate. If you take the midpoint of that range, really, you can sort of directionally see where you're getting back to.

Speaker Change: <unk> into consideration in more earnest is it a certain capital level is it a certain amount of liquidity remixing our deposit mix. When you guys will start to consider growing the balance sheet. You know realize it's not 'twenty for consideration, but just as we look out to 'twenty five and maybe even 26 in the next quarter or two just trying to get a better sense of your thought process around one balance sheet growth might've been could resume.

Speaker Change: Okay.

Mike: Thanks, Mike Yeah, absolutely.

Mike: So firstly starting from a capital perspective, we hit our minimum target of 7% by the end of the year, which was really important to us we expect in the first half of the year.

Mike: We would hope to achieve at least seven 5% TCE I think from a from a regulatory capital perspective, we've more than cleared and gotten to top quartile levels.

Karla Smith: We think it's important to be at that seven 5% type range focusing on the inside of the balance sheet for a time period, then I'll address the latter part of your question sort of a bit of more of a medium to longer term cast you know from a loan growth perspective, I think we've pretty much covered that from sort of a transfer of cash and securities to loans.

Speaker Change: 1231-22 in terms of our directional loan balance. That, you know, earning asset makes shift is really going to be coming from cash and securities as opposed to any changes in the balance sheet. So you can sort of think of the average earning asset as moderately flattish.

Karla Smith: Within the asset side of the balance sheet from a deposit perspective.

Speaker Change: I'd also mention that, as we have disclosed, our securities portfolio is somewhere in the low to mid 5% range on a blended basis. Our cash, as you can probably appreciate, is generating something directionally similar. And our incoming loan yields are typically, especially for our national corporate businesses, which is where greater than 50% of the expected growth is planned to come from, sort of gives you an extra 300 basis points plus or minus spread above what those earning assets are currently. Just my last question.

We are while we're top quartile or top decile and all the other most important profitability.

Karla Smith: And and balance sheet metrics I think from a self awareness perspective from a deposit side, we're still on the higher end.

Karla Smith: And we'd like to continue to improve the mix and reduce the cost and the cost sensitivity of those deposit customers over the course.

Karla Smith: Of the coming quarters and years, and that's really what our our focus is going to be on.

Karla Smith: You heard me talk about deposit led growth I think the real differentiator for for customers Bank today is the the customers and the teams that are in motion that are going.

Speaker Change: You guys are in some of these businesses of the failed banks last year, and then you, of course, bought Signature's venture capital banking portfolio from the FDIC. Are you seeing a lot of opportunities to add more bankers to the platform? Yeah, Peter, that's a great question.

We're going to really help us.

Karla Smith: Enter 2025 and beyond.

Karla Smith: Are going to help us build deposits first internally.

Karla Smith: And then deposit led growth in 'twenty, five and beyond maintaining our current.

Karla Smith: Capital goals, which we hope to achieve pretty quickly.

Speaker Change: I think you sort of heard me talk about market share gains and the hundreds of billions of impacted customer deposits and loans from the failed institutions. And I think that what's important about our business is that we haven't added any new business lines or new business verticals. We happen to have a lot of high quality, low risk, high growth opportunity commercial verticals at our bank existing today. From a lending perspective, we have very strong lenders across the franchise. From a deposit perspective, I think you're absolutely right. There will be opportunities for us to find teams and individual performers in motion because clients are in motion. Clients have already changed banks once or twice in the past 12 months, and folks are looking to find high-quality, commercial-oriented platforms like ourselves to be able to port them. Thanks.

That's helpful color. Thanks, and then just you mentioned the the expense guide kind of shifting to the efficiency ratio would give you guys flexibility to invest where you see opportunities. Just was wondering if you could maybe spend a minute now that you guys need more because you've obviously been very busy in.

Karla Smith: And done very well, but but but at what initiatives are or what does that mean like what are you going to look to invest in is it new business lines is just adding more people in the business lines you've added over the last two years I'm.

Karla Smith: Just would love another layer deeper on that is we think once again about the kind of forward outlook and growth opportunities.

Karla Smith: Sure absolutely you know our reinvestment for the near to medium term is really going to be focused on continuing to build out the infrastructure from you heard about sort of treasury management.

Karla Smith: And a lot of the support functions that allow us to have the breadth of products and services generate fee income enhance the customer experience.

Karla Smith: Could also sort of brought bleed into sort of technology and other AI type initiatives, which will help enhance the customer experience and customer service.

But the real focus from a true.

Speaker Change: Absolutely. Your next question comes from a line from Michael Perito from KBW. Your line is open. Hey guys, good morning. Thanks for taking my questions. So obviously, the guide for 24 is pretty thorough.

Karla Smith: Materials sort of noninterest expense perspective is going to be on.

Karla Smith: People that help us service and acquire new customers really focus on those deposit customers.

Karla Smith: So you think are the biggest areas for investment will probably be yeah grow facing people as as you guys continue to scale infrastructure.

Michael Perito: I just had a couple high-level questions I'd love some color on if that's okay. You know, number one is just that you guys are pretty clear and laid out the remixing opportunities for 24. But I was wondering if you could go a layer deeper on the mindset around balance sheet growth. Like what are the pieces of the equation when that comes back into consideration in more earnest?

Karla Smith: Absolutely right, yes, there's a lot of folks that have had logos on their business cards changed you know in the past.

Karla Smith: Nine months and Theres a lot of folks that have elected to change the logos on their business cards, who are now looking to change again.

Karla Smith: Uh huh.

Michael Perito: Is it a certain capital level? Is it a certain amount of liquidity remixing or a deposit mix when you guys will start to consider growing the balance sheet? You know, realize it's not a 24 consideration, but just as we look out to 25 and maybe even 26 in the next quarter or two, just trying to get a better sense of your thought process around when balance sheet growth might and could resume. Thanks, Mike.

Karla Smith: Great and then just one last one for me I'm just would love a minute on kind of where you guys are at on the technology roadmap I mean, any kind of internal investments in in your core or other capabilities, just not really kind of an earnings impactful question necessarily I'm sure. It's baked into your budget inefficiency ratio guy but.

Mike: Yeah, absolutely. So, firstly, starting from a capital perspective, you know, we hit our minimum target of 7% by the end of the year, which was really important to us. You know, we expect in the first half of the year, we would hope to achieve at least a 7.5% TCE. I think from a regulatory capital perspective, we've more than cleared and gotten to top quartile levels. You know, we think it's important to be at that 7.5% type. Focusing on the inside of the balance sheet for a time period, then I'll address the latter part of your question, sort of a bit more of a medium to longer term cast.

Karla Smith: We would love of any flavor you can give us on where you guys are spending some money on the technology and infrastructure side.

Karla Smith: Yep sure My copy happy to also take that so I think that we're always.

Karla Smith: Looking to streamline and improve the effectiveness of our technology platform. We were one of the first banks going back seven or eight years ago to invest in middleware that sits on top of our legacy core.

Karla Smith: We are probably on the third iteration of that today and continue to enhance it we're also.

Mike: From a loan growth perspective, I think we've pretty much covered that from sort of a transfer of cash and securities to loans within the asset side of the balance sheet. From a deposit perspective, while we're top quartile or top decile and all the other most important profitability and balance sheet metrics, I think from a self-awareness perspective, from a deposit perspective, we're still on the higher end. And we'd like to continue to improve the mix and reduce the cost and the cost sensitivity of those deposit customers over the course of the coming quarters and years. And that's really what our focus is gonna be on.

Karla Smith: You know in the midst of again this is not something that has required a ton of investment because we have the people.

Karla Smith: At our institution, we have developers we have.

Karla Smith: API developers, we have you know a lot of experts who have come from both big and small institutions, who can help us.

Karla Smith: <unk> continued to enhance our technology platform, but we're really looking to rewire and re architect things.

Karla Smith: That set.

Karla Smith: Even above and below the middleware.

Karla Smith: And we're happy to share some more information on that over time again, its not require investment, but it's really going to enhance and streamline the way that we'd look to port in and add new.

Mike: You heard me talk about deposit-led growth. I think the real differentiator for Customers Bank today is the customers, and the teams that are in motion that are gonna really help us enter 2025 and beyond are gonna help us build deposits, first internally, and then deposit-led growth in 25 and beyond, maintaining our current capital goals, which we hope to achieve pretty quickly. That's helpful, Sam.

Karla Smith: Technology providers and also how we currently service our customers. So that's that's one you know again similarly on on some of the.

Karla Smith: Now I guess more legacy type software providers like a salesforce or encino, where multiple years into you know probably second or third contract negotiations and whatever those stores come up which come up in the next sort of 12 months or so we typically look to.

Karla Smith: You know pivot and reset and re re use that as an opportunity to.

Karla Smith: To redesign and.

Karla Smith: And think about what we've what we've learned over the past couple of years think about sort of the new business lines and in many cases, what's really interesting is some of the new team members that we bring on.

Sam Sidhu: And then just, you mentioned the expense guide kind of shifting to the efficiency ratio to give you guys flexibility to invest where you see opportunities. Just was wondering if you could maybe spend a minute, not that you guys need more, because you've obviously been very busy and done very well, but what initiatives or what that means. Like, what are you going to look to invest in?

Have have different ways of doing things that we can sort of.

Karla Smith: Export to the rest of our organization in a very positive way. So hopefully that gives you a bit of flavor I touched on on AI as well and these are the types of things that are very very low Stakes test cases that we continue to expand upon.

Speaker Change: Is it new business lines? Is it just adding more people to the business lines you've had over the last two years? I'd love another layer deeper on that, as we think, once again, about the kind of forward outlook and growth opportunities. Sure, absolutely.

Karla Smith: Flooring across the organization.

Speaker Change: You know, our reinvestment, you know, for the near to medium term is really going to be focused on continuing to build out the infrastructure that you heard about, sort of treasury management, you know, marketing, a lot of the support functions that allow us to have the breadth of products and services, generate fee income, and enhance the customer experience. Those could also sort of bleed into technology and other AI-type initiatives, which will help enhance the customer experience and customer service. But the real focus from a true material sort of non-interest expense perspective is going to be on, you know, people that help us service and acquire new customers really focus on those deposits. So you think the biggest area for investment will probably be growth facing people as you guys continue to scale infrastructure? That's absolutely right. Yep, there are a lot of folks that have had the logos on their business cards changed in the past nine months, and there are a lot of folks that have elected to change the logos on their business cards and are now looking to change again. Great And then just one last one for me.

Karla Smith: But again these are all things to enhance the customer experience and to streamline operations nothing that's required a tremendous amount of investment but what's important is is that we truly are at the cutting edge of thinking about these types of investments and initiatives.

Great No I definitely helpful. Thanks for taking my questions I appreciate it and have a good weekend, Utah.

Karla Smith: Yeah.

Karla Smith: Your next question comes from the line of Steve Moss from Raymond James Your line is open.

Karla Smith: Good morning.

Hi.

Karla Smith: On the deposit pipeline here just curious if you could give a little color on the underlying mix.

Karla Smith: You know whether theres a mix shift there.

Karla Smith: This quarter here and just also what youre thinking roughly the average cost of deposits as well as our expected Kumar.

Steve Moss: Sure absolutely good morning, Steve.

Steve Moss: So just to sort of recap I think I mentioned. This earlier you know it was broad based across the franchise versus the $1 1 billion of core deposit growth.

Steve Moss: Not dissimilar at all to last quarter.

Steve Moss: We had almost two dozen with 20 of our deposit channels that saw good growth in these channels had.

Growth of $25 million or more individually, which really sort of helps put a pin in the broad based nature and the quality of this.

Speaker Change: Just would love a minute on kind of where you guys are at on the technology roadmap. I mean, any kind of internal investments in your core or other capabilities, just not really kind of an earnings impactful question, necessarily. I'm sure it's baked into your budget and efficiency ratio guide, but I just would love any flavor you can give on where you guys are spending some money on the technology and infrastructure side. Yep, sure, Mike. Happy, happy to also take that.

Steve Moss: Of the growth.

Steve Moss: About a third to put it in more with more specificity came from private client groups in New York about a third came from our financial institutions group and.

Steve Moss: And the balance was more broadly spread across the organization. So it's a little bit of a shift from.

Steve Moss: Towards more of our private client group's universe as last quarter, which was more focused on the venture banking group because of the migration of the portfolio at the end of the second quarter that really.

Speaker Change: So, you know, we're always, you know, looking to streamline and improve the effectiveness of our, you know, technology platform. We were one of the first banks, going back seven or eight years ago, to invest in middleware that sits on top of our, you know, legacy core. We are probably on the third iteration of that today and continue to enhance it. We're also, you know, in the midst of, again, this is not something that has required a ton of investment because we have the people at our institution. We have developers, we have API developers, you know, we have, you know, a lot of experts who have come from both big and small institutions who can help us, you know, continue to enhance our technology platform.

Steve Moss: Brought on those customers in the third quarter, but I think what's more relevant is to just to zoom out and focus on the $3 billion over the past couple of orders for quarters for a second because I think that really puts a puts color on the total transformation.

Steve Moss: So about a quarter of that came from our private clients groups.

Karla Smith: 15% to 20% came from the venture banking group.

Karla Smith: 20% from our financial institutions group and the balance was spread across the organization like fund finance commercial real estate equipment finance.

Karla Smith: Consumer and others. So it's also worth mentioning as we added 3 billion of core deposits. We also increased our noninterest bearing deposits by.

Speaker Change: But we're really looking to rewire and re-architect things that sit, you know, even above and below the middleware and we're happy to share some more information on that over time. Again, it's not requiring investment, but it's really going to enhance and streamline the way that we look to port in and add new technology providers and also how we currently service our customers. So that's one, you know, again, similarly on some of the now, I guess, more legacy type software providers like a Salesforce or Encino, we're, you know, multiple years into, you know, probably second or third contract, negotiations, and whenever those come up, which come up in the next sort of 12 months or so, we typically look to, you know, pivot and reset and reuse that as an opportunity to redesign and think about what we've learned over the past couple of years, think about sort of the new business lines, and in many cases what's really interesting is some of the new team members that we bring on have different ways of doing things that we can sort of export to the rest of our organization in a very positive way. So hopefully that gives you a bit of flavor.

Karla Smith: About 1 billion over the same same time periods. So hopefully that gives you color on on Oh, you know on where the deposit growth came from the.

The pipeline is very similar so I don't need to sort of rehash. It but you know I think on the venture side. The team was more on.

Karla Smith: Transitioning customers in the third quarter fourth quarter was outgoing business development, and we're going to start to see yet.

Karla Smith: The customer growth.

Karla Smith: After it.

Karla Smith: Foundational quarter in sort of the first first half of this year.

Thank you also asked about rate.

Karla Smith: So all in rates when accounting for the noninterest bearing balances are coming in.

Karla Smith: Not so dissimilar to last quarter and sort of that mid 3% range right now.

So I think that.

Karla Smith: We're we're optimistic we're getting close to an inflection point in the interest rate hiking cycle. So hopefully this is where things will continue having said that I think it's very important to note.

We're not going to miss the market share opportunities by standing on ceremony, especially given all of this dislocation here.

Karla Smith: So if we need to bring in.

Karla Smith: True primary customer relationships and have a portion of those deposits paid market rates.

Speaker Change: I touched on AI as well, and these are the types of things that are, you know, very low-stakes test cases that we continue to, you know, expand upon exploring across the organization. But again, these are all things to enhance the customer experience and to streamline operations. Nothing that's requiring a tremendous amount of investment, but what's important is that we truly are at the cutting edge of thinking about these types of investments and initiatives. No, but it is definitely helpful.

Karla Smith: We won't shy away from that.

Karla Smith: Okay, Great I appreciate all that color there and then yeah.

Karla Smith: One more question on the loan growth side here you mentioned.

Karla Smith: If the fund demand.

Karla Smith: Can you like C&I and drivers of loan growth just kind of curious.

Do you view like fund finance and community Bank as the primary drivers relative to the lease income and finance or just how do we kind of think about that mix in Washington D. C.

Speaker Change: Thanks, Sam, for taking my questions. I appreciate it. Have a good weekend. You too.

Karla Smith: Sure. So in terms of originations you know I think you you you hit the nail on the head its really its fund finance venture banking equipment Finance health care.

Speaker Change: Your next question comes from a line of Steve Moss from Raymond James. Your line is open. Good morning.

Karla Smith: On the corporate side, and then and then community banking really will be on those sort of the more traditional C&I and nothing really to report on.

Steve Moss: All right, Sam, on the deposit pipeline here, just curious, you know, if you could give a little color on the underlying mix, you know, whether there's a mix shift this quarter here, and just also what you're thinking is roughly the average cost of deposits as they're expected. Sure, absolutely. Good morning, Steve.

Karla Smith: On on CRE, what's worth noting on venture banking is as you can appreciate these lines are typically not like I say, a fund finance line, where their average typically average outstandings are hovering in it within a tight range. So you have a sense of what our commitment leads to in terms of outstanding. These are typically slow draws so we may have originations and that also helps.

Sam Sidhu: So just to sort of recap, I think I mentioned this earlier, you know, it was broad-based across the franchise. This is the 1.1 billion of core deposit growth, not dissimilar at all to last quarter. We had almost two dozen, we had 20 of our deposit channels that saw good growth. And they, you know, these channels had growth of $25 million or more individually, which really sort of helps put a pin in the broad-based nature and the quality of this growth.

Karla Smith: <unk> be the catalyst to bring over.

Karla Smith: Deposit relationships, but we don't expect draws in Outstandings really.

Karla Smith: You know in the first half of the year.

Karla Smith: Okay, Great I appreciate all the color both of my questions nice quarter.

Karla Smith: Thank you.

Karla Smith: Your next question comes from the line of Frank Schiraldi from Piper Sandler Your line is open.

Sam Sidhu: About a third, you know, to put it with more specificity, came from private client groups in New York. About a third came from our financial institutions group, and the balance was more broadly spread across the organization.

Karla Smith: Good morning.

Karla Smith: Thank you.

Frank Joseph Schiraldi: Talk about maintaining higher levels of capital here in the near term in <unk>.

Sam Sidhu: So it's a little bit of a shift from, you know, towards more of our private client groups versus last quarter, which was more focused on the venture banking group because of the migration of the portfolio at the end of the second quarter that really brought in those customers in the third quarter. But I think what's more relevant is just to zoom out and focus on the $3 billion, you know, over the past couple of quarters for a second, because I think that really puts a color on the total transformation. So about a quarter of that came from our private client groups. 15 to 20 percent of the funds came from the venture banking group. 20% from our financial institutions group, and the balance was spread across the organization like fund finance, commercial real estate, equipment finance, consumer, you know, and others.

Frank Joseph Schiraldi: Mentioned, I think 11, 5% CET one for assumed for 2024, just curious if you know what you think the right level for the bank as longer terms with TCE ratio a bit of a golf in there on that.

Frank Joseph Schiraldi: Any sort of targets, maybe when things calm down a bit and a.

Frank Joseph Schiraldi: Little more certainty in the marketplace.

Where do you think the right level of capital is.

Sure.

Frank Joseph Schiraldi: Frank I. Appreciate the question. So you know from a C. E. T perspective, I think we had set an ambitious goal at the beginning of the year.

Frank Joseph Schiraldi: 11, 11, 5%, which we crossed and really got too.

Frank Joseph Schiraldi: Top quartile from a regulatory capital perspective in the third quarter.

Karla Smith: TCE as you rightfully noted has really been our governing.

Sam Sidhu: So it's also worth mentioning, you know, as we added 3 billion in core deposits, we also increased our non-interest-bearing deposits by, you know, about a billion over the same time period. So hopefully that gives you color on, you know, where the deposit growth came from. The pipeline is very similar. So, you know, don't need to sort of rehash it.

Karla Smith: Constraining capital level, which we've gotten to sort of what I would call a minimum of a target range and expect in the near term in the next quarter.

Or two to be at that seven 5% plus type range in and that gives us flexibility. If we do feel that deposit growth as is.

Karla Smith: As deposit mix is more or less complete and in deposit growth could potentially lead to balance sheet growth, but that's not something we expect in the next couple of quarters. So I think seven 5% feels like the right target from a TCE perspective, so as we think about.

Sam Sidhu: But, you know, I think on the venture side, the team was more focused on transitioning customers in the third quarter; the fourth quarter was outgoing business development. And we're going to start to see customer growth after a foundational quarter and sort of the first half of this year. I think you also asked about rates.

Karla Smith: Going off of there and sort of casting a bit a bit more of a longer term range.

Karla Smith: I think we've always talked about a broad range of of of seven to eight I think now that we're at.

Sam Sidhu: So, you know, all in rates when accounting for the non-interest-bearing balances are coming in not so dissimilar to last quarter and sort of in that mid 3% range right now. So, you know, I think that we're optimistic. We're getting close to an inflection point in the interest rate hiking cycle, so hopefully, this is where things will continue. Having said that, I think it's very important to note we're not going to miss market share opportunities by standing on ceremony, especially given all of this dislocation here. So if we need to bring in true primary customer relationships and have a portion of those deposits be at market rates, we won't shy away from that. Okay, great; I appreciate all that color there. And then, you know.

Talking about a minimum level of wanting to get to that seven 5% I feel like that is going to be our or more medium term target of our organic capital generation.

Karla Smith: <unk> has really ramped up.

Karla Smith: And we expect to.

Continue to operate within that sort of minimum range.

Karla Smith: Okay.

Karla Smith: And then I believe Youre, just under 20% total brokered at this point deposits.

It sounds like given maturities over the next 12 months, it probably should fall below 10%.

Karla Smith: Curious if there any start up.

Hard line in terms of where you want to get below.

Speaker Change: Some more questions on the loan growth side here. You know, you mentioned VC, fund finance, community bank, C&I, and equipment finance as drivers of loan growth. I'm just kind of curious, you know, do you view fund finance and community banks as the primary drivers relative to VC and equipment finance? Or just how do we kind of think about that mix and the opportunities you see? Sure. So in terms of origination, you know, I think you hit the nail on the head.

Karla Smith: You mentioned, you know brokered or wholesale.

Karla Smith: Part of the mix for our bank going forward. So I'm just curious on that Brian.

Brian Moynihan: Good question, Frank and yes, we're at 17%.

Brian Moynihan: Today or as of 12 31 and.

Brian Moynihan: And declining even further so I think we're more or less at the at that that's the level, where we would have targeted that we wanted to get to I think even getting.

Brian Moynihan: Building off further from here.

Speaker Change: It's really fund finance, venture banking, equipment finance, you know, healthcare on the corporate side, and then community banking will be on the sort of the more traditional CNI, and nothing really to report on CRE. What's worth noting on venture banking is, as you can appreciate, these lines are typically not like, say, a fund finance line where their average, you know, typically average outstandings are hovering within a tight range. So you have a sense of what a commitment leads to in terms of outstanding. These are typically slow draws.

Brian Moynihan: It's really going to be dependent on core deposit growth. So I do think that we'll continue to make significant headway as the year progresses getting closer to that 10% plus or minus range Theres no immediate target. There are benefits that I think the bias and stigma for any bank for some portion of wholesale contractual insured Cds as part of an over.

Brian Moynihan: Our funding base and funding strategy, especially for a commercial oriented or.

Brian Moynihan: Non retail branch based bank makes sense, it's something we'll continue to evaluate over time I don't have a specific number for you in mind, but do feel that we're going to continue to significantly reduce even from the 17% we have today.

Speaker Change: So we may have originations, and that also helps be the catalyst to bring over, you know, deposit relationships, but we don't expect draws and outstandings to really happen in the first half. Okay, great. Appreciate all the color.

Brian Moynihan: Yeah.

Brian Moynihan: Okay, and then just on the.

Brian Moynihan: Sorry, if I missed it but on an EBIT deposits in the past you've talked I think about a 15%.

Speaker Change: Both of my questions and answers will be next quarter. Thank you. Your next question comes from a line from Frank Schiraldi on Piper Sandler. Your line is open. Good morning.

Brian Moynihan: Max sort of you know from the standpoint of concentration is that kind of where these are sitting now and then as you think about core deposit generation. How do you think about it is this still core I mean, obviously, if we get some some rate contraction.

Frank Joseph Schiraldi: Just as you, you know, talk about maintaining higher levels of capital here in the near term, and you mentioned, I think, 11.5% CET1 assumed for 2024, just curious if, you know, what you think the right level for the bank is longer term, the TCE ratio, a bit of a governor on that, or, you know, any sort of targets, maybe, when things calm down a bit and there is a little more certainty Sure, Frank. I appreciate the question. So, you know, from a CEP perspective, I think we had set an ambitious goal at the beginning of the year of 11, 11 and a half percent, which we crossed and really got to, you know, the top quartile from a regulatory capital perspective in the third quarter.

Brian Moynihan: That could become a little less attractive in the near term unless unless you moved to a fee model. So just curious where those are and how you're thinking about that business longer term.

Brian Moynihan: Sure absolutely. So so the answer to your first question is yes, we have and continue to.

Brian Moynihan: And frankly, it's been very very stable, so $2 2 billion plus or minus again in the quarter. So on an average deposit perspective. So that's constant for three quarters in a row. So we're managing it very well and also managing it well with our customers and holding those in.

In cash.

Brian Moynihan: And a longer term basis, we'll continue to evaluate.

Brian Moynihan: As as rates evolve we're in discussions.

Frank Joseph Schiraldi: PCE, as you rightfully noted, has really been our governing, you know, constraining capital level, which, you know, we've gotten to sort of what I would call the minimum of a target range and expect in the near term, in the next quarter or two, to be at that seven and a half percent plus type range. And that gives us flexibility if we do, you know, feel that deposit growth is is, and Jeff Clinton. Thank you; a TCE perspective.

Brian Moynihan: With with customers, we're providing business critical.

Brian Moynihan: The services to customers and holding operating accounts.

Where are where those customers cannot necessarily fully operate without the technology, we are providing so.

Brian Moynihan: I think we feel very.

Brian Moynihan: A privilege to be in that type of position our customers are very privileged to be working with us over time as rates decline will you know, we're we're still at a significant.

Brian Moynihan: At today's rates and so there. So you know several hundred basis points before that would necessarily be.

Brian Moynihan: Blow our our our nib average and there are different things that we're exploring including fees over time that will continue to evaluate but.

Frank Joseph Schiraldi: So, you know, as we think about going off of that and sort of casting a bit more of a longer-term range, you know, I think we've always talked about a broad range of 7 to 8. I think now that we're talking about a minimum level of wanting to get to that 7.5%, I feel like that is going to be our more medium-term target. Our organic capital generation has really ramped up, and, you know, we expect to, you know, continue to operate within that sort of minimum range. Okay, and then I believe you're just under 20% total brokered at this point, deposits. And it sounds like given maturities over the next 12 months, that probably should fall below 10%. Just curious if there's any sort of, you know, a hard line in terms of where you wanna get below. You mentioned that brokered or wholesale is part of the mix for a bank going forward. So just curious about that.

Brian Moynihan: But we're not really holding any excess.

Funds there these are truly sort of payment.

Brian Moynihan: Payment services.

Brian Moynihan: And operating accounts that at current levels.

Brian Moynihan: Great. Okay I appreciate all the color. Thanks.

Brian Moynihan: Yes.

Brian Moynihan: Your next question comes from the line of Matthew Breese from Stephens, Inc. Your line is open hey, good.

Brian Moynihan: Good morning, everybody.

Matthew M. Breese: Just looking at loan growth guidance for the year implies kind of a rough figure $1 6 billion.

Matthew M. Breese: I know you talked about coming from cash and securities.

Matthew M. Breese: Lake down for Us how much do you expect to come from cash and how much from securities.

Sure.

Matthew M. Breese: Yeah, I'll give you sort of rough directional numbers, Matt just sort of based on.

Matthew M. Breese: Maturity schedules and in cash flow amortization, no. It's typically going to be in that range of $6 million to $800 million, that's going to come from the securities book and the balance would come from cash and we're at a 72% loan or deposit ratio today, even with the sort of thinking about the high end of the range would still be seven or a seven handle.

Speaker Change: Good question, Frank. And yes, we're at 17% today, or as of 1231, you know, and declining, you know, even further. So I think we're more or less at the level where we would have targeted that we wanted to get to. I think even getting, you know, building off further from here is really going to be dependent on core deposit growth. So I do think that we'll continue to make significant headway as the year progresses, getting closer to that 10% plus or minus range. There's no immediate target.

Matt Smith: Below you know, 80% or below from a loan to deposit ratio. So hopefully that gives you some governors and some framework to think about that.

Matt Smith: That's great that's what I need there and then going to the NIM.

Matt Smith: It sounded like the pipelines blended yield is in that kind of $3 50 range not too dissimilar from where we are now.

Matt Smith: Is that 350, a good proxy for where we might see peak deposit costs in 'twenty four.

Speaker Change: There are benefits, and I think the bias and stigma for any bank for some portion of wholesale contractual insured CDs as part of an overall funding base and funding strategy, especially for a commercial-oriented, you know, non-retail branch-based bank, make sense. It's something we'll continue to evaluate over time. I don't have a specific number for you in mind but do feel that we're going to continue to, you know, significantly reduce even from the 17 percent. Okay. And then just on the, sorry if I missed it, but on CBIT deposits in the past, you've talked, I think, about a 15% max, sort of, you know, from a standpoint of concentration. Is that kind of where these are sitting now? And then as you think about core deposit generation, you know, how do you think about it? Is this still core?

And when do you expect that to occur.

So it is I think you sort of heard me referenced we're sort of at that that overall inflection point from a deposit perspective, we also talked about.

Matt Smith: The.

Matt Smith: The wholesale Cds.

Matt Smith: <unk>.

Matt Smith: To decline I think it's worth it's worth mentioning that from.

From a growth perspective, you also heard me say that we're not gonna be imprudent to about taking taken market share our interest expense.

Matt Smith: Can and should continue to decline even before rate cuts. So yes, while the output of our cost of interest bearing deposits may change. The deposit mix is really going to be the main driver of ups and downs interest expense should be maintained and ideally it should.

Speaker Change: I mean, obviously, if we get some weight contraction, they could become a little less attractive in the near term unless you move to a P model. So just curious where they are and how you're thinking about that business over the long term. Sure, absolutely. So the answer to your first question is, yes, we have and continue to.

Karla Smith: It should trend downwards.

Karla Smith: On the sort of flattish type deposit base. So we.

Karla Smith: We feel privileged to be in this type of a trend and we feel confident in sort of our deposit pipeline and backlog.

Okay and then two other quick ones. The first one is just in regards to the specialty lending balances were down.

Speaker Change: And frankly, it's been very, very stable. So $2.2 billion, plus or minus, again, in the quarter, so on an average deposit perspective, so that's constant for three quarters in a row. So we're managing it very well and also managing it well with our customers and holding those in cash. You know, on a longer term basis, we'll continue to evaluate, you know, as rates evolve, we're in discussions with customers, we're providing business-critical services to customers and holding operating accounts where those customers cannot necessarily fully operate without the technology we're providing. So, you know, I think we feel very privileged to be in that type of position.

Karla Smith: 400 million this quarter I was curious what was the driver that what happened there.

Karla Smith: And expectations for that kind of line item.

For 2024.

Karla Smith: Sure.

Karla Smith: As I mentioned before it was sort of targeted these whereas lower margin.

Karla Smith: Slightly below 300 basis points.

$2, 50, plus or minus type spread from that particular business line from them.

Specialty is it was a within our fund finance business, specifically focus on our lender finance business.

Karla Smith: These are these.

Karla Smith: These loans were really.

Karla Smith: Rolled off in late December we'd sort of plan for them.

Karla Smith: And did an opt in and elected not to not to renew so.

Karla Smith: Non strategic.

Speaker Change: Our customers are very privileged to be working with us. Over time, as rates decline, we'll, you know, we're still at a significant NIM, you know, at today's rates. And so there are, you know, several hundred basis points before that would necessarily be, you know, below our NIM average.

Karla Smith: From a business line as well as a customer relationship perspective, non strategic from a deposit perspective, and non strategic from a primacy of relationship perspective. So hopefully that gives you some color.

Karla Smith: And we'll look to and that gives us sort of more.

Karla Smith: No more opportunity to refill that with more strategic you know loan growth in the in the understood.

Speaker Change: And there are different things that we're exploring, including fees over time that we'll continue to evaluate. But we're not really holding any excess funds there. These are truly sort of payment services and operating accounts at this point. Great. OK, I appreciate all the comments. Thanks. Your next question comes from the line of Matthew Breese from Stevens Inc. Your line is open. Hey, good morning, everybody.

Karla Smith: Okay and then the last one is just you know appreciating the credit credit metrics are solid.

And basically flat at 14 bps or 13 bps.

Karla Smith: I did see that substandard loans increased about 20% quarter over quarter and I was curious what happened what happened there and is there anything worth mentioning.

Matt Smith: Yeah, Hey, Hey, Matt Good morning, So yeah. The sub standards did increase by that it's actually really related to a single credit that migrated in the portfolio and it's worth noting on that that we actually have 100% coverage of the loan amount and in cash from the borrower at the bank and so it's a bit of a unique situation.

Matthew M. Breese: Just looking at loan growth guidance for the year implies kind of a rough figure of $1.6 billion. I know you talked about it coming from cash and securities. Could you break down for us how much you expect to come from cash and how much from securities? Sure. I'll give you sort of rough directional numbers, Matt, just sort of based on maturity schedules and cash flow amortization. It's typically going to be in that range of $600 million to $800 million that's going to come from the securities book, and the balance would come from cash.

Matt Smith: And since the quarter Theres actually been some some positive developments on that credit as well. So we wouldn't be surprised to see that re upgrade during the quarter and so really not not anything that we're worried about.

Matt: Okay I was just curious what.

Matt Smith: What was the.

The loan tied to in terms of commercial real estate.

Matt Smith: Consumer.

Matt Smith: There was something our commercial finance and equipment finance business. So you know again, it's a large large law large relationships 60 million plus I don't know the exact number in a 100% backed by cash.

Matthew M. Breese: And we're at a 72% loan or deposit ratio today; even with sort of thinking about the high end of the range, we'd still have a seven handle below, 80% or below from a loan or deposit ratio. So hopefully, that gives you some governors and some framework to think about. That's great.

Got it okay. That's all I had thanks for taking my questions.

Sure.

Your next question comes from the line of build as Ellen from Titan Capital Management. Your line is open.

Alright, Thank you and nice quarter, so relative to your <unk>.

Ellen: Guidance about loan demand given that that's a bit unusual for the industry right. Now would you talk to us about what you've seen in terms of loan demand changes or trends over the last four months or so please.

Speaker Change: That's what I need there. And then, you know, going to the NIM, it sounded like the pipeline's blended yield is in that kind of 350 range. It's not too dissimilar from where we are now.

Ellen: Sure. Thanks for the question Bill so.

Speaker Change: Is $350,000 a good proxy for where we might see peak deposit costs in 2024? And when do you expect that to occur? So it is, I think you sort of heard me reference, we're sort of at that overall inflection point from a deposit perspective. We also talked about wholesale CDs continuing to decline. I think it's worth mentioning that from a growth perspective, you also heard me say that we're not gonna be imprudent about taking market share. Our interest expense, you know, can and should continue to decline even before rate cuts. So yes, while the output of a cost of interest-bearing deposits may change, the deposit mix is really going to be the main driver of ups and downs; interest expense, you know, should be maintained.

Bill: Two major things to highlight that I haven't already covered too.

Bill: On the call today.

Firstly is that our.

Our lending teams have been sitting on their hands.

Bill: For the past 12 to.

Bill: To 15 months really and I think that Theres, a lot of pent up demand from existing customer relationships, even when not taking into account new opportunities.

That's amplified by there being you know now fewer competitors in many of our national corporate verticals, which I've sort of highlighted what the components of those are.

Bill: Earlier on the call. So the combination of the pent up demand plus fewer competition.

Bill: And in our sort of focus on these national low credit risk verticals.

Bill: It's a.

Speaker Change: And ideally, it should, it should trend downwards, you know, on this sort of flattish deposit base. So we feel privileged to be in this type of trend. And we feel confident in sort of our deposit pipeline and back. Okay, and then two other quick ones. You know, the first one is just in regards to the specialty lending balances being down around $400 million this quarter. And I was curious, what was the driver of that? What did you happen there?

Bill: It's not a stretch for us and because we were targeted and reducing our non strategic.

Bill: Assets, it's really just getting our portfolio back to where it was 12 months ago. So it's a it's not a it's not a stretch at all relative to the to our size in the business lines that are that we're focused on.

Thank you Shannon and then have you seen that loan demand.

Range.

Bill: And and get stronger over the last four months or basically the demand has been there you just have your bankers have just been in a holding pattern.

Speaker Change: And expectations for that kind of line item for 2024? Sure. As I mentioned before, it was sort of targeted.

Yeah over the last year.

Speaker Change: These were, you know, lower margin loans, slightly below 300 basis points, you know, 250 plus or minus type spread. From that particular business line, from the specialty, it was within our fund finance business, specifically focused on our lender finance business. These loans were really rolled off in late December. We'd sort of planned for them and opted not to renew.

Bill: You know three to four months, it's really hasnt changed much its just been that our discipline has been on on on making sure we focused on on capital.

Bill: And having a very strong base to.

To build off of so I haven't seen a material change and I think what's also important to notice we're not.

Bill: CRE dependent like many of our peers and I think that's really helping to benefit us in the sense that we have a broader or more C&I commercial oriented base, that's helping to source this input.

Speaker Change: So, non-strategic from a business line as well as a, you know, customer relationship perspective, non-strategic from a deposit perspective, and non-strategic from a primacy of relationship perspective. So hopefully, that gives you some color, and we'll look to, you know, that gives us sort of more, you know, more opportunity to fill that with more strategic, you know, loan growth in the year Okay, and then the last one was just, you know, appreciating that credit credit metrics for solid NPAs were basically flat at 14 bps or 13 bps. I did see that substandard loans increased about 20% quarter-to-quarter, and I was curious what happened there and if there was anything worth mentioning. Yeah, hey, Mac, good morning.

Bill: That's very helpful and I know, we're running a little long here, but one final question long term not in 2024, but beyond how are you thinking about the loan to deposit ratio, where what's the range that you find is a comfortable place to settle in Q.

Brian Moynihan: Sure. So I think I talked about.

Brian Moynihan: Between sort of where we are at 80% plus or minus for for this year.

Brian Moynihan: Likely sort of staying in the in those sort of the mid to high seventies longer term, we've been sitting on very prudent cash balances.

Brian Moynihan: And part of that is by by nature of it.

Brian Moynihan: The events of March of last year longer term, where we used to be at 120% in 2018, mostly driven by some of our focus on in our mortgage warehouse business, which we felt comfortable in sort of given the short duration and liquid nature of that portfolio and going to the higher end of the overall peer group we.

Speaker Change: So yeah, the substandards did increase by that, but it's actually really related to a single credit that migrated in the portfolio. And it's worth noting on that that we actually have 100% coverage of the loan amount in cash from the borrower at the bank. So it's a bit of a unique situation.

Brian Moynihan: Feel probably more in the.

Brian Moynihan: Mid 80 range feels like a more medium term, but it's something we'll continue to communicate about you know in the coming 12 to 24 months.

Brian Moynihan: Great. Thank you and thank you again for the questions and congratulations on the solid solid results. Thanks Bill appreciate it.

Speaker Change: And since the quarter, there's actually been some positive developments on that credit as well. So we wouldn't be surprised to see that re-upgrade during the quarter. So, you know, really not anything that we're worried about. Okay, I'm just curious, what will the loan be tied to in terms of commercial real estate? Schingler.

Brian Moynihan: There are no further questions at this time, Mr. Sam Sidhu I'd turn the call back over to you for some final closing remarks.

Sam Sidhu: Thanks, So much everyone. We really appreciate your continued interest in and support of customers Bank. We look forward to speaking with you next quarter. Thanks, So much and have a great day and a great weekend.

Speaker Change: It was something in our commercial finance, you know, equipment finance business, so, you know, again, it's a, you know, large, large loan, large relationship, 60 million plus, I don't know the exact number, and it's 100% backed by capital. Got it. Okay, that's all I had. Thank you for taking my question. Sure. Your next question comes from the line of Bill Dezellem from Titan Capital Management. Your line is open.

Sam Sidhu: This concludes today's conference call. Thank you for your participation you may now disconnect I. Appreciate your continued interest in and support of customers Bank.

William J. Dezellem: Thank you, and nice quarter. Relative to your guidance about loan demand, given that that's a bit unusual for the industry right now, would you talk to us about what you've seen in terms of loan demand changes or trends over the last four months or so, please? Sure.

Speaker Change: Thanks for the question, Bill. So I have two major things to highlight that I haven't already covered on the call today. Firstly, our lending teams have been sitting on their hands for the past 12 to 15 months, really. And I think that there's a lot of pent-up demand from existing customer relationships, even when not taken into account, you know, new opportunities. That's amplified by there being, you know, fewer competitors in many of our national corporate verticals, which I've sort of highlighted what the components of those are earlier on the call. So the combination of the pent-up demand plus less competition, you know, and our sort of focus on these, you know, national, you know, low credit risk verticals, you know, it's, you know, it's not a stretch for us.

William J. Dezellem: And because we were targeted at reducing our non-strategic, you know, assets, it's really just getting our portfolio back to where it was 12. So it's not a stretch, and it's all relative to our size and the business lines that we're focused on. Thank you, Sam. And then, have you seen loan demand change and get stronger over the last four months, or basically, the demand has been there, you just have, your bankers have just been in a holding pattern? Yeah, over the last three to four months, it really hasn't changed much. It's just that our discipline has been to make sure we focused on capital and had a very strong base to build off of. So I haven't seen a material change.

Sam Sidhu: And I think what's also important to note is that we're not CRE-dependent, like many of our peers. And I think that's really helping to benefit us in the sense that we have a broader, more C&I commercial-oriented base that's helping to source this. That's very helpful, and I know we're running a little late here. But one final question, long term, not in 2024, but beyond, how are you thinking about the loan to deposit ratio? What's the range that you find is a comfortable place to settle in?

Speaker Change: Sure. So, you know, I think I talked about between sort of where we are at 80% plus or minus for this year, you know, likely sort of staying in the sort of the mid to high 70s. You know, longer term, you know, we've been sitting on very prudent, you know, cash balances and part of that is by nature of the events of March of last year. You know, short term, you know, where we used to be at 120% in 2018, mostly driven by some of our focus on, you know, our mortgage warehouse business, which we felt comfortable and sort of given the short duration and liquid nature of that portfolio and going to the higher end of the overall peer group, we feel, you know, probably more in the, you know, mid 80 range feels like a more medium term, but it's something we'll continue to communicate about, you know, in the coming, you know, 12 to 24 months.

Speaker Change: Great. Thank you. And thank you again for the questions and congratulations on the solid, solid results. Thanks, Bill. I appreciate it.

Speaker Change: There are no further questions at this time. Mr. Sam Sidhu, I turn the call back over to you for some final closing remarks. Now, thanks so much, everyone. We really appreciate your continued interest in and support of Customers Bank. We look forward to speaking with you next quarter. Thanks so much, and have a great day and a great week. This concludes today's conference call. Thank you for your participation. You may now disconnect. We appreciate your continued interest in and support of Customers Bank.