Q1 2024 Customers Bancorp Inc Earnings Call

April 26, 2024

David W. 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.

David W. 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. Copies may be obtained from the SEC or by visiting the Investor Relations section of our website. At this time, it is my pleasure to introduce Customers Bancorp Chairman, Jay Sidhu.

Operator: Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the Customers Bancorp Inc. Q1 2024 earnings call. All lines have been placed on mute to prevent any background noise.

My name is Gerald and I will be your conference operator today at this time I would like to welcome everyone to the customers Bancorp, Inc. Q1, 2024 earnings call.

Jay S. Sidhu: Thank you, Dave. And good morning, ladies and gentlemen, on this beautiful spring morning. Welcome to Customers Bancorp's 2024 First Quarter Earnings Call. Joining me this morning are President and CEO of Customers Bank, Sam Sidhu, and Customers Bancorp CFO, Phil Watkins. Please join me in welcoming and congratulating Phil on his promotion to Customers Bancorp CFO. We want to thank Carla Leibold, our former CFO, for her years of service and wish her well. I will provide some introductory comments, and then my colleagues will provide details of the quarter. At the conclusion of our prepared remarks, we look forward to answering your questions. Let's move to slide three.

Gerald: 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 Press Star one again thank.

Operator: 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to David Patti, Communications Director for Customers Bancorp. You may begin.

Gerald: Thank you I would now like to turn the conference over to David Petty Communications director of IR for customers Bancorp you may begin.

David W. Patti: Thank you, JL. And good morning, everyone.

David W. Patti: Thank you Jill and good morning, everyone. Thank you for joining us for the customers Bancorp earnings call for the first quarter of 'twenty 'twenty four.

David W. Patti: Thank you for joining us for the Customers Bancorp earnings call for the first quarter of 2024. 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 Q1-24 Results and click Download Presentation.

David W. Patti: The presentation deck, you will see during today's webcast has been posted on the investors webpage. The bank's website at customers Bank Dot com.

Jay S. Sidhu: Before we address our first quarter results, I just wanted to take a moment to briefly recap some of our positive trends over the past few years and one very significant activity that we announced in our recent press release, which we expect to have a material positive impact on our future performance. In our presentation last quarter, we highlighted the delivery on the promises we made to you five years ago across items like capital, tangible book value growth, profitability, and risk management.

David W. Patti: You can scroll to Q1, 'twenty four results and click download presentation.

David W. Patti: You can also download a PDF of the full press release at that 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 W. Patti: You can also download a PDF of the full press release at that spot.

David W. Patti: 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 W. 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.

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

Speaker Change: 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.

Jay S. Sidhu: While I won't go through all of them, I will highlight the incredible effort and results from our team members as we continue to strengthen our franchise, especially transform our deposit franchise. While we have made significant strides, especially in 2023, our opportunity in 2024 looks even stronger.

Speaker Change: 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.

Jay S. Sidhu: On that note, we are incredibly excited about the recent announcement we made about hiring 10 new high-performing business and commercial banking teams from Legacy Signature Bank. We expect this will accelerate the execution of our strategic priorities, especially helping to take the quality of our deposit franchise to the next level. These teams have an incredible track record with decades of experience working together, serving an awesome client base. We are so excited to welcome our new colleagues and their businesses to Customers Bank, and provide both with a platform to succeed.

David W. 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. Copies may be obtained from the SEC or by visiting the Investor Relations section of our website. At this time, it is my pleasure to introduce Customers Bancorp Chairman, Jay Sidhu.

Speaker Change: 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 Relations section of our website.

Speaker Change: At this time it is my pleasure to introduce customers Bancorp chair.

Jason: Jason do Jay.

Jason: Thank you, Dave and good morning, ladies and gentlemen on this beautiful spring morning, welcome to customers Bancorp's 'twenty 'twenty four first quarter earnings call. Joining me. This morning are president and CEO of customers banks Ams to do and customers Bancorp CFO Philip Watkins. Please join me in welcoming.

Jay S. Sidhu: We had another extremely strong quarter of business unit deposit growth, exceeding $1 billion, which we again used to reduce our wholesale certificates of deposit. Our capital levels continue to strengthen, with the TCE to TA ratio increasing to 7.3% and our CET1 ratio increasing to 12.5%. We have confidence in our ability to achieve the seven and a half percent TCE to TA ratio very soon.

Philip Watkins: Congratulating fail on his promotion to customers Bancorp CFO.

Philip Watkins: We want to thank Carla leibold, our former CFO for her years of service and wish her well.

Philip Watkins: I will provide some introductory comments and then my colleagues will provide details of the quarter at the conclusion of our prepared prepared remarks.

Jay S. Sidhu: And we established, we had established that goal earlier in the year, and we expect to put some excess CET1 capital to work with relationship-based loan growth this year. Asset quality remains very strong, and our NPA ratio is at 17 basis points, and we have ample reserve coverage. We remain very optimistic about the year ahead, with a strong and growing loan and deposit pipeline. We are in an enviable position to continue to take market share, and our new business and commercial banking teams serve to further accelerate and enhance those processes. Let's move to slide four.

Philip Watkins: We will forward, we look forward to answering your questions.

Speaker Change: Let's move to slide three.

Speaker Change: Before we address our first quarter results I just wanted to take a moment to briefly recap some of our positive trends over the past few years and one very significant activity that we announced in the recent press release, which we expect to have a material positive impact on our future performance.

Speaker Change: In our presentation last quarter, we highlighted the delivery on the promises we made to you five years ago a ago.

Jay S. Sidhu: Again, we reiterate our priorities to you, which broadly remain unchanged. We will continue to maintain a roughly flat balance sheet in 2024. However, we will execute disciplined loan growth of 10 to 15% in line with our previous guidance and focused on holistic client relations. In fact, our loan growth in April alone exceeded our entire Q1 loan growth. Beginning on slide five, you can see some of the key metrics we focus on and which we believe differentiate the top performing banks.

Speaker Change: Cross items like capital tangible book value growth profitability and risk management.

Speaker Change: While I won't go through all of them I will highlight the incredible effort and results from our team members as we continue to strengthen our franchise, especially transform our deposit franchise.

While we have made significant strides, especially in 'twenty two 'twenty three our opportunity in 'twenty 'twenty four looks even stronger.

Jay S. Sidhu: On that note, we are incredibly excited about the recent announcement we made about hiring 10 new high-performance business and commercial banking teams from Legacy Signature Bank. We expect this will accelerate the execution of our strategic priorities, especially helping to take the quality of our deposit franchise to the next level. These teams have an incredible track record with decades of experience working together, serving an awesome client base.

Speaker Change: On that note we are incredibly excited about the recent announcement, we made about hiring 10, new high performing business and commercial banking teams from legacy signature bank.

Jay S. Sidhu: These include growth in revenue, EPS, and tangible book value per share. We have recorded more than 15% annualized growth in each of these metrics over the last five years, and revenues have grown two times faster than expenses. We have accomplished this performance without raising a single dollar of common equity and diluting our existing shareholding.

Speaker Change: We expect this will accelerate the execution of our strategic priorities, especially helping to make take the quality of our deposit franchise to the next level. These teams have an incredible track record with decades of experience working together, so being an awesome client base. We are so excited to welcome our new <unk>.

Jay S. Sidhu: I want to express our gratitude and thanks to all the team members that make up Customers Bancorp for their hard work and dedication to serving our clients. Our people are what drives customer bank success as they work day in and day out to make our customers say, "Wow." I know our new team members are totally aligned to that vision, as Sam and I have had the opportunity to meet each and every one of them over the last several weeks. Before I pass the call on to my colleagues, I also want to welcome Kelly Motta to the call.

Jay S. Sidhu: We are so excited to welcome our new colleagues and their business to Customers Bank and provide both with a platform to succeed. We had another extremely strong quarter and of business unit deposit growth exceeding $1 billion, which we again used to reduce our wholesale certificates of deposit. Our capital levels continue to strengthen with the TCE to TA ratio increasing to 7.3% and our CET1 ratio increasing to 12.5%. We have confidence in our ability to achieve the seven and a half percent TCE to TA ratio very soon.

Speaker Change: <unk> and their business to customers bank and providing both with a platform to succeed.

Speaker Change: We had another extremely strong strong quarter in our business unit deposit growth exceeding 1 billion, which we again used to reduce our wholesale certificates of deposits.

Speaker Change: Our capital levels continued to strengthen with TCE to ta ratio, increasing to 7.3% and our CET one ratio increasing to 12.5%.

Speaker Change: We have confidence in our ability to achieve the 7.5% TCE to Ta very short soon and we established we had established that goal earlier in the year and we expect to put some excess CET one capital to work with relationship based loan growth this year.

Jay S. Sidhu: Kelly joins from KBW, where she recently assumed coverage of Customers Bancorp, and we look forward to collaborating and working with her going forward. With that, I'll turn it over to Sam to cover the key activity and results of the quarter in much more detail.

Speaker Change: Asset quality remains very strong and our NPL ratio at 17 basis points and our rehab ample reserve coverage.

Samvir S. Sidhu: Thanks, Jay, and wishing everyone a good morning as well. Moving to slide six. As we reflect back on the one year anniversary of the events of March 2023, while the banking industry has faced tremendous headwinds, Customers Bank was able to capitalize on the challenges and has emerged as one of the biggest beneficiaries of the disruption. We were already well-positioned heading into the events, having laid the groundwork in 2022 across key safety and soundness metrics like interest rate risk, credit risk, and liquidity, having already diversified and repositioned our securities, loan, and deposit portfolios.

We remain very optimistic about the year with strong and growing loan and deposit pipelines. We are in an enviable position to continue to take market share and our new business in commercial banking teams served to further accelerate and enhance those prospects, let's move to slide four.

Speaker Change: Again, we reiterate our priorities to you, which broadly remain unchanged. We will continue to maintain a roughly flat balance sheet in 'twenty 'twenty. Four however, we will execute disciplined loan growth of 10% to 15% in line with our previous guidance and focused on whole.

Speaker Change: Let's stick client relationships in fact, our loan growth in April alone exceeded our entire Q1 loan growth.

Samvir S. Sidhu: After ensuring our customer and deposit base was sound, we quickly pivoted to offense and bid on multiple processes with the FDIC, and just weeks following the outset of the crisis, we were awarded the Venture Banking Loan Portfolio from the FDIC at a substantial but fair discount. We were also able to capitalize on the opportunity to fill the void left in the wake of the bank failures last year, which put both customers and teams in motion in specific verticals in which we had already established expertise and brand recognition, depending on the size of the deposit.

Speaker Change: Beginning on slide five you can see some of the key metrics, we focus on and which we believe differentiate the top performing banks.

Speaker Change: These include growth in revenue EPS and tangible book value per share we have recorded more than 15% annualized growth on each of these metrics over the last five years and revenues have grown two times the expenses.

Speaker Change: We have accomplished this performance without raising a single dollar of common equity and diluting our existing shareholders.

Samvir S. Sidhu: Put that into perspective, remember these banks had collectively over $500 billion in total deposits. Even if you assumed all of our $4 billion of deposit business unit growth over the last 12 months came from these banks, it would still only represent less than 1% of those deposits. And all along the way, we have been adding exceptional talent, whether that was our venture banking team creating national client coverage, or the recruitment of our chief credit and marketing officers, or the head of our treasury management from much larger institutions. The key is that we have remained on our front foot despite industry setbacks.

Speaker Change: I want to express our gratitude and thanks to all the team members that make up customers Bancorp for their hard work and dedication to serving our clients. Our people are what drives customer bank success as they work day in and day out to make our customers say Wow I know our new team members are totally.

Speaker Change: Aligned to that vision.

Speaker Change: Sam and I have had the opposite the opportunity to meet.

Speaker Change: Each and every one of them over the last several weeks.

Sam: Before I pass the call onto my colleagues I also want to welcome Kelly motto to their call Kelly joins from K B W. Where she recently assumed coverage of customers Bancorp and we look forward to collaborating and working with Kelly going forward with that I'll turn it over to Sam to cover the key activity and results of the <unk>.

Samvir S. Sidhu: Which brings me to the significant opportunity which presented itself in the first quarter of this year to onboard 10 new banking teams, which I'll cover more in the next slide. We've been talking about our desire to continue on our trajectory of adding commercial deposit focused banking teams for some time now. We're thrilled to let you know that what started as a recruitment effort of a few strong top deposit teams beginning last year eventually transitioned to an application process for top New York City Metro and West Coast banking teams, which we previously announced.

Sam: Quarter in much more detail.

Sam: Yeah.

Samvir S. Sidhu: Thanks, Jay, and wishing everyone a good morning as well. Moving to slide six, as we reflect back on the one year anniversary of the events of March of 2023. While the banking industry has faced tremendous headwinds, Customers Bank was able to capitalize on the challenges and has emerged as one of the biggest beneficiaries of the disruption. We have been able to take advantage of opportunities because we were already well positioned heading into the events, having laid the groundwork in 2022 across key safety and soundness metrics like interest rate risk, credit risk, and liquidity, having already diversified and repositioned our securities, loan, and deposit portfolios.

Sam: Thanks, Jay and wishing everyone a good morning as well.

Sam: Moving to slide six as we reflect back on the one year anniversary of the events of March of 2023, while the banking industry has faced tremendous headwinds customers bank was able to capitalize on the challenges and has emerged as one of as the biggest beneficiaries of the disruption.

Sam: We have been able to take advantage of opportunities because we were already well positioned heading into the events, having laid the groundwork in 2022 across key safety and soundness metrics like interest rate risk credit risk and liquidity, having already diversified and repositioned our securities loan and deposit portfolios.

Samvir S. Sidhu: The end result is that we've been able to onboard what we believe to be the top available teams in the New York and West Coast regions. These banking teams had many options when selecting the best bank to serve their clients and opted to join Customers Bank for a number of reasons. We share a similar single point of contact client-centric mindset that these bankers historically applied to build their long-standing relationship. We have an entrepreneurial culture and offer them a platform where products, services, and technology meet the highest level of service to their clients.

Sam: After ensuring our customer and deposit base with sound, we quickly pivoted to offense and bid on multiple processes with the FDIC and just weeks following the outset of the crisis. We were awarded the venture banking loan portfolio from the FDIC at a substantial but fair discounts.

Sam: We were also able to capitalize on the opportunity to fill the void left in the wake of the bank failures last year, which has put both customers and teams in motion and specific verticals in which we had already established expertise and brand recognition.

Samvir S. Sidhu: And we continue to have some of the best strength and financial performance in the industry, which has been important to teams as well as their customers. The teams had well in excess of $10 billion in deposit balances before the crisis, and thousands of clients. Let me repeat that they had well over $10 billion in a high quality deposit portfolio. We feel strongly that they will be able to replicate their success over time at Customers Bank.

Sam: To put the size of the deposit.

Sam: Disrupted opportunity into perspective remember these banks had collectively over $500 billion in total deposits. Even if you assumed all of our $4 billion of deposit business unit growth over the last 12 months came from these banks it would still only represent less than 1% of those deposits.

Samvir S. Sidhu: While we're making significant investments in the teams, we expect them to drive meaningful franchise value through the addition of a substantial amount of high-quality, low-cost, primary relationship-based, and granular deposits. We expect this investment will increase our payroll expense by about $8 to $10 million per quarter.

Samvir S. Sidhu: And all along the way, we have been adding exceptional talent, whether that was our venture banking team creating national client coverage, or the recruitment of our chief credit and marketing officers, or the head of our treasury management from much larger banks. The key is that we have remained on our front foot despite industry setbacks. Which brings me to the significant opportunity which presented itself in the first quarter of this year to onboard 10 new banking teams, which I'll cover more on the next slide.

Sam: And all along the way we have been adding exceptional talent, whether that was with our venture banking team created national client coverage or the recruitment of our chief credit and marketing officers or the head of our Treasury management from much larger institutions.

Sam: The key is we have remained on our front foot despite industry setbacks.

Sam: Which brings me to the significant opportunity, which presented itself in the first quarter of this year to onboard 10, new banking teams, which I'll cover more on the next slide.

Samvir S. Sidhu: However, we expect incremental revenues to fully offset these expenses within 12 months, which is a very attractive return on investment. We believe that there will be meaningful net interest margin benefits mainly through reduced interest expense from remixing deposits. We expect this to provide significant EPS accretion of about 10% in 2025, and we expect to achieve this while continuing to deliver double-digit tangible book value per share growth. The opportunities we capitalized on over the past several years and in 23 were exceptional. Jay has already highlighted the incredible returns that we have had for our company and shareholders, and we are even more excited about our current prospects with these teams in 2024 and beyond.

Samvir S. Sidhu: We've been talking about our desire to continue on our trajectory of adding commercial deposit focused banking teams for some time now. We're thrilled to let you know that what started as a recruitment effort of a few strong top deposit teams beginning last year eventually transitioned to an application process for top New York City Metro and West Coast banking teams, which we previously announced. The end result is that we've been able to recruit what we believe to be the top available teams in New York and the West Coast.

Sam: We've been talking about our desire to continue on our trajectory of adding commercial deposit focused banking teams for some time now we're thrilled to let you know that what started as a recruitment effort of a few strong top deposit teams beginning last year eventually transition to an application process of top New York City Metro on West Coast banking teams, which we previously announced.

Sam: The end result is that we've been able to onboard what we believe to be the top available teams in the New York and West Coast regions. These banking teams had many options when selecting the best bank to serve their clients and opted to join customers bank for a number of reasons, we share a similar single point of contact client centric mindset that these bankers historically.

Samvir S. Sidhu: These banking teams had many options when selecting the best bank to serve their clients and opted to join Customers Bank for a number of reasons. We share a similar, single point of contact, client-centric mindset that these bankers historically applied to build their longstanding relationship.

Samvir S. Sidhu: Moving to slide eight, we have provided the quarter's financial highlights on a gap basis, and on slide nine, we have provided them on a core and adjusted basis. In the quarter, we earned $1.40 in gap EPS on $45.9 million of net income. Adjusted core EPS was $1.68 on $55 million of net income, and our adjusted core ROCE and ROA were 14.5 and 1.11 percent, respectively. As you heard from Jay, credit card quality remains strong, as evidenced by our NP ratio of just 17 basis points.

Sam: Tried to build their long standing relationships, we have an entrepreneurial culture and offer them a platform, where the products services and technology to provide the highest level of service to their clients and we continue to have some of the best strength and financial performance in the industry, which has been important the teams as well as our customers.

Samvir S. Sidhu: We have an entrepreneurial culture and offer them a platform with product services and technology to provide the highest level of service to their clients. And we continue to have some of the best strength and financial performance in the industry, which is important to teams as well as their customers. The teams had well in excess of $10 billion in deposit balances before the crisis, and thousands of clients. Let me repeat that they had well over $10 billion in a high quality deposit portfolio.

The teams had well in excess of $10 billion in deposit balances before the crisis and thousands of clients.

Sam: Let me repeat that they had well over $10 billion in high quality deposit portfolios, we feel strongly that they will be able to replicate their success over time at customers Bank, while we're making significant investment in the teams we expect it to drive meaningful franchise value through the addition of substantial amount of high quality low cost primary relationship.

Samvir S. Sidhu: We feel strongly that they will be able to replicate their success over time at Customers Bank. While we're making a significant investment in the teams, we expect it to drive meaningful franchise value through the addition of a substantial amount of high-quality, low-cost, primary relationship-based, and granular deposits. We expect this investment will increase our payroll expense by about $8 to $10 million per quarter.

Samvir S. Sidhu: Moving to slide 10 and the strength of the franchise, as you heard from Jay, we once again generated business unit deposit growth of about a billion dollars for the fourth consecutive quarter. We once again use this production to repay higher-cost wholesale CDs. We experience growth in multiple commercial verticals, including mortgage finance, fund finance, and our New York and venture banking, which opened more than 800 commercial accounts in the quarter. We continued with our positive non-interest-bearing mix shift and increased these deposits by $266 million in the quarter and increased the percent of total deposits now up to 26%. We continue to focus on the stability of the deposit franchise as insured, collateralized, and affiliate deposits ended the quarter at 78% of total deposits. The growth we achieved was a team effort across the entire franchise.

Sam: <unk> and granular deposits. We expect this investment will increase our payroll expense by about $8 million to $10 million per quarter. However, we expect incremental revenues to fully offset these expenses within 12 months, which is a very attractive return on investment.

Samvir S. Sidhu: However, we expect incremental revenues to fully offset these expenses within 12 months, which is a very attractive return on investment. Additionally, we believe that there will be meaningful net interest margin benefits, mainly through reduced interest expense from remixing deposits. We expect this to provide significant EPS accretion of about 10% in 2025, and we expect to achieve this while continuing to deliver double-digit tangible book value per share growth. The opportunities we capitalized on over the past several years, and in 23, were exceptional. Jay has already highlighted the incredible returns that we have had for our company and shareholders, and we are even more excited about our current prospects with these teams in 2024 and beyond.

Sam: We believe that there'll be meaningful net interest margin benefits, mainly through reduced interest expense from remixing deposits.

Sam: We expect this to provide significant EPS accretion of about 10% in 2025, and we expect to achieve this while continuing to deliver double digit tangible book value per share growth.

Sam: The opportunities we capitalized on over the past several years and in 'twenty, three where exceptional Jay already highlighted the incredible returns that we had for our company and shareholders and we are even more excited about our current prospects with these teams in 2024 and beyond.

Samvir S. Sidhu: Moving to slide eight, we here have provided the quarter's financial highlights on a gap basis, and on slide nine, we have provided them on a core and adjusted basis. In the quarter, we earned $1.40 in gap EPS on $45.9 million of net income. Adjusted core EPS was $1.68 on $55 million of net income, and our adjusted core ROCE and ROA were 14.5 and 1.11%, respectively. As you heard from Jay, credit card quality remains strong, as evidenced by our NP ratio of just 17 basis points.

Sam: Moving to slide eight we here, we provided the quarter's financial highlights on a GAAP basis and on slide nine we have provided on our core on adjusted basis in the quarter. We earned $1 40 in GAAP EPS on $45 $9 million of net income adjusted core EPS was $1 68 on five on $55 million of net income.

Samvir S. Sidhu: Once again, more than 20 of our deposit channels saw growth in the quarter. About half of these deposit channels experienced growth of $25 million or more, demonstrating the broad-based nature and quality of our deposit transactions. Now, let's move to slide 11.

Sam: And our adjusted core R. O C E and R. O a were $14 five and $1 one 1% respectively. As you heard from Jay credit card quality remains strong as evidenced by our NPA ratio of just 17 basis points.

Samvir S. Sidhu: Here we highlight the success we had in generating growth in business unit deposits as well as the de-emphasis on wholesale funding. Over the past 12 months, we've reduced the amount of wholesale CDs by 66% and borrowings by over 40%. Wholesale CDs as a percentage of total deposits dropped by 20 percentage points, and borrowings as a percent of total liabilities are down by 5 percentage points. These now stand at 10 and 8 percent, respectively, in line with industry averages despite our branch-like business. We are incredibly proud of the reduction we've achieved in such a short timeframe that, under normal circumstances, could take as much as a decade or require disruptive and dilutive M&A in an effort to achieve sooner.

Samvir S. Sidhu: Moving to slide 10 and the strength of the franchise, as you heard from Jay, we once again generated business unit deposit growth of about a billion dollars for the fourth consecutive quarter. We once again use this production to repay higher-cost wholesale C.D. We experience growth in multiple commercial verticals, including mortgage finance, fund finance, and our New York and venture banking, which opened more than 800 commercial accounts in the quarter. We continued with our positive non-interest-bearing mix shift and increased these deposits by $266 million in the quarter and increased the percent of total deposits now up to 26%. We continue to focus on the stability of the deposit franchise as insured, collateralized, and affiliate deposits ended the quarter at 78% of total deposits. The growth we achieved was a team effort across the entire franchise.

Sam: Moving to slide 10.

Sam: And the strength of the franchise.

Sam: As you heard from Jay we once again generated business unit deposit growth of about $1 billion for the fourth consecutive quarter.

Sam: We once again use this production to repay higher cost wholesale Cds.

Sam: We experienced growth in multiple commercial verticals, including mortgage Finance fund finance and our New York and venture banking teams, who opened more than 800 commercial accounts in the quarter.

Sam: We continued with our positive noninterest bearing mix shift and increased these deposits by $266 million in the quarter and increased the percent of total deposits now up to 26% we continue.

Sam: To focus on the stability of the deposit franchise as in short collateralized and affiliate deposits ended the quarter at 78% of total deposits.

Samvir S. Sidhu: Despite another quarter of over $1 billion of success, our deposit pipeline has been more than replenished to over $2 billion, which we would expect to be onboarded this year. And we expect our deposit pipeline, on a go-forward basis, to continuously be replenished at these levels. While the opportunity remains to further reduce some higher cost wholesale CDs, going forward, we see an excellent opportunity to start mixing higher cost business unit deposits with more attractively priced and granular deposits.

Sam: 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 about half of these deposit channels experienced growth of $25 million or more demonstrating the broad based nature and quality of our deposit transformation.

Samvir S. Sidhu: Once again, more than 20 of our deposit channels saw growth in the quarter. About half of these deposit channels experienced growth of 25 million dollars or more, demonstrating the broad-based nature and quality of our deposits. Now let's move to slide 11.

Sam: Yeah.

Sam: Now, let's move to slide 11 here, we highlight the success, we had in generating growth in business unit deposits as well as the de emphasis in wholesale funding.

Sam: Over the past 12 months, we've reduced the amount of wholesale Cds by 66% and borrowings by over 40% wholesale Cds as a percentage of total deposits dropped by 20 percentage points and borrowings as a percent of total liabilities are down by five percentage points. These now stand at 10 and 8% respectively.

Samvir S. Sidhu: With the Wholesale Funding Transformation nearly complete, let's turn to slide 12, where I'll expand on the next phase of our deposit transformation. Our existing channels continue to have strong momentum and have replenished pipelines despite strong continued performance in the first quarter. As you heard, this has been led by our Venture Banking Fund Finance and New York Community and Banking team. While it's too early to provide specifics of what our new business and commercial banking teams can deliver for our bank and investors, we want to share an illustrious analysis of potential outcomes.

Sam: In line with industry averages, despite our branch light business model.

Samvir S. Sidhu: We are incredibly proud of the reduction we've achieved in such a short time frame that, under normal circumstances, could take as much as a decade or require disruptive and dilutive M&A in an effort to achieve sooner.

Sam: We are incredibly proud of the reduction we've achieved in such a short timeframe that under normal circumstances could take as much as a decade or require disruptive and dilutive M&A and in an effort to achieve sooner.

Sam: Despite another quarter of over $1 billion of success, our deposit pipeline has been more than replenish to over $2 billion, which we would expect to be onboard at this year and we expect our deposit pipeline on a go forward basis to be continuously replenished at these levels.

Samvir S. Sidhu: Pipeline balances from our business and commercial banking teams will have a healthy non-interest-bearing DDA mix which we will use to pay off higher-cost deposits. Reducing remixed interest-bearing deposit costs by a blended rate between 150 to 250 basis points is realistic and, if achieved, would have a meaningful impact on our net interest income as well as our cost of interest-bearing and total deposits. This NII impact here assumes we continue to keep the balance sheet and our deposit flattish and excludes the eventual benefit of ultimately deploying excess liquidity into.

Sam: While the opportunity remains to further reduce some higher cost wholesale Cds going forward, we see an excellent opportunity to start remixing higher cost business unit deposits with more attractively priced and granular deposits.

Sam: With the wholesale funding transformation nearly complete let's turn to slide 12, where I'll expand on the next phase of our deposit transformation.

Sam: Our existing channels continued to have strong momentum and have replenish pipelines. Despite strong continued performance in the first quarter.

Samvir S. Sidhu: This demonstrates the strength of the customer relationships of our new business and commercial banking teams and why we are confident in the investments required to bring these bankers into customers' banks. Just as importantly, the granularity of these deposits will significantly improve the strength and the value of our deposits. With that, I'd like to turn the call over to Phil to provide additional

Sam: As you heard this has been led by our venture banking Fund Finance and New York community in banking teams.

Sam: While it's too early to provide specifics on what our new business in commercial banking teams can deliver for our bank and investors, we want assured and loss driven analysis of potential outcomes.

Samvir S. Sidhu: Pipeline balances from our business and commercial banking teams will have a healthy non-interest-bearing DDA mix, which we will use to pay off higher cost deposits. Reducing remixed interest-bearing deposit costs by a blended rate between 150 to 250 basis points is realistic and, if achieved, would have a meaningful impact on our net interest income as well as our cost of interest-bearing and total deposits. This NII impact here assumes we continue to keep the balance sheet and our deposit flattish and excludes the eventual benefit of ultimately deploying excess liquidity into. This demonstrates the strength of the customer relationships of our new business and commercial banking teams and why we are confident in the investments required to bring these bankers into our customers' banks. Just as importantly, the granularity of these deposits will significantly improve the strength and the value of our. With that, I'd like to turn the call over to Phil to provide additional

Sam: Pipeline balances from our business in commercial banking teams will have a healthy noninterest bearing DDA mix, which will be we will use to pay off higher cost deposits.

Philip Watkins: Thanks, Sam. I'll start on slide 13, where you can see that while total HFI loan balances remained relatively flat, up about $60 million in the quarter, we had over $200 million of growth in our corporate and specialized banking verticals, which is about 13% on an annualized basis. This was partially offset by maturities and prepayments in our community banking verticals and the continued tactical runoff of our consumer installment HFI. Our loan pipelines are extraordinarily robust and will only grow with the new bank.

Sam: Reducing remixed interest bearing deposit costs by a blended rate between 150 to 250 basis points is realistic and if achieved would have a meaningful impact on our net interest income as well as our cost of interest bearing and total deposits.

Sam: This NII impact here assumes we continue to keep the balance sheet.

Sam: And our deposit flattish and excludes the eventual benefit of ultimately deploying excess liquidity into loans.

Sam: This demonstrates the strength of the customer relationships of our new business in commercial banking teams and why we are confident in the investments required to bring these bankers into customers back.

Philip Watkins: Our outlook of 10 to 15% loan growth in 2024 remains intact. We have clear visibility into a pipeline of more than $500 million getting booked in the second quarter, and we're seeing and converting great opportunities across the franchise. On slide 14, we tried to provide more information than usual around our NII drivers to help walk the NII bridge.

Sam: Just as importantly.

The granularity of these deposits will significantly improve the strength and the value of our deposit franchise with that I'd like to turn the call over to Phil to provide additional detail.

Phil Watkins: Thanks, Sam. I'll start on slide 13, where you can see that while total HFI loan balances remained relatively flat, up about $60 million in the quarter, we had over $200 million of growth in our corporate and specialized banking vertical, which is about 13% on an annualized. This was partially offset by maturities and prepayments in our community banking verticals and the continued tactical runoff of our consumer installment HFI. Our loan pipelines are extraordinarily robust and will only grow with the new banking.

Phil: Thanks, Sam I'll start on slide 13, where you can see that while total H F. I loan balances remained relatively flat up about $60 million in the quarter, we had over $200 million of growth in our corporate and specialized banking verticals, which is about 13% on an annualized basis. This was.

Philip Watkins: As you may recall, loans and securities were reduced by about a billion dollars late in the fourth quarter, as we allowed some less strategic assets to roll off. As a result, interest income declined in the first quarter due to overall lower balances of these higher yielding interest earning assets. For the second quarter in a row, we had a decline in our interest. Our total cost of funding remained roughly flat during the quarter, helped by the lower level of average FHLB advances.

Phil: Partially offset by maturities and prepayments in our community banking verticals and the continued tactical run off of our consumer installment portfolio.

Phil: Our loan pipelines are extraordinarily robust and will only grow with the new banking teams our outlook of 10% to 15% loan growth in 2024 remains intact, we have clear visibility into a pipeline of more than $500 million getting booked in the second quarter and we're seeing in converting great opportunity.

Philip Watkins: The reduction in interest-earning asset balances I mentioned, coupled with strong deposit activity, resulted in higher average cash balances, which also contributed to a decline in our NIM. This was largely due to the measured pace of replacing the loans that exited late in Q4 with net originations of higher yielding loans. We remain disciplined, extending credit for holistic relationships, and we also reserve balance sheet capacity for the new. Additionally, we had the full quarter impact of replacing the service deposits that were classified as non-interest bearing with interest-bearing deposits.

Phil: Across the franchise.

Phil: On slide 14, we tried to provide more information than usual around our NII drivers to help walk the NII bridge as you may recall loans and securities were reduced by about $1 billion late in the fourth quarter.

Phil: As we allowed some less strategic assets to roll off.

Phil: As a result interest income declined in the first quarter due to overall lower balances of these higher yielding interest earning assets for.

Philip Watkins: We remain confident in our ability to achieve our full-year NIM target given our liquidity position and the strength of both our loan and deposit pipelines and expect meaningful expansion from here, with or without a change in rates by the Fed. Moving on to slide 15, we'll discuss some of the components of our first quarter expenses and 2024 outlook. Our adjusted core non-interest expenses decreased to roughly $87.5 million.

Phil: For the second quarter in a row, we had a decline in our interest expense. Our total cost of funding remained roughly flat during the quarter helped by the lower level of average <unk> advances outstanding.

Phil: The reduction in interest, earning asset balances I mentioned, coupled with strong deposit activity resulted in higher average cash balances, which also contributed to a decline in our NIM.

Phil: This was largely due to the measured pace of replacing the loans that have exited late in Q4 with net originations of higher yielding loans, we remain disciplined extending credit for holistic relationships and we also reserve balance sheet capacity for the new teams.

Philip Watkins: We incurred a $500,000 increase to the estimated industry-wide FDIC special assessment due to last year's bank. We also recorded $11.3 million of expense in the first quarter for items that relate to periods prior to 2024, which will not be in our run rate expenses going forward. Finally, as Sam previously mentioned, the new banking teams will add roughly $8 to $10 million to our quarterly expenses. And while this will temporarily elevate our efficiency ratio, we expect incremental revenues to fully offset these expenses within 12 months.

Phil: Additionally, we had the full quarter impact of replacing the service deposits that were classified as noninterest bearing with interest bearing deposits.

Phil: We remain confident in our ability to achieve our full year NIM target given our liquidity position and the strength of both our loan and deposit pipelines and expect meaningful expansion from here with or without a change in rates by the fed.

Phil: Moving on to slide 15 will discuss some of the components of our first quarter expenses and 2020 for outlook.

Philip Watkins: We have made significant investments over the last few years building out our infrastructure to be prepared for such an opportunity. We made these investments with the foresight that they would be necessary to take the franchise to the next level. We believe it's prudent to invest in the business in a disciplined way to generate long-term shareholder value. We have always committed to only making investments that generate revenue of at least two times expenses over a reasonable time.

Phil: Our adjusted core noninterest expenses decreased to roughly 87, and a half million dollars we.

Phil: We incurred a $500000 increase to the estimated industry wide FDIC special assessment due to last year's bank failures.

Phil: We recorded we also recorded an $11 $3 million of expense in the first quarter for items that related to periods prior to 2024, which will not be in our run rate expenses going forward.

Phil: Finally, as Sam previously mentioned, the new banking teams will add roughly $8 million to $10 million to our quarterly expense base and while this will temporarily elevate our efficiency ratio, we expect incremental revenues to fully offset these expenses within 12 months.

Philip Watkins: We expect this banking team expansion to meet that criteria and then some and should enable us to return to a mid 40s efficiency ratio over the medium term and keep our non interest expense to average asset ratio at a best in class level for the. Turning to slide 16, the strategy has not changed in terms of our focus on maintaining robust levels of liquidity. Combined cash balances and immediately available capacity from the FRB and FHLB increased by about $400 million during. Our coverage of immediately available liquidity to uninsured deposits is extremely robust at 224%. These levels of liquidity compare favorably to almost anyone in the industry.

Phil: We have made significant investments over the last few years building out our infrastructure to be prepared for such an opportunity.

Phil: We made these investments with the foresight that they would be necessary to take the franchise to the next level.

Phil: We believe it's prudent to invest in the business in a disciplined way to generate long term shareholder value.

Phil: We have always committed to only making investments that generate revenue of at least two times expenses over a reasonable time period.

Phil: We expect this banking team expansion to meet that criteria and then some and should enable us to return to a mid <unk> efficiency ratio over the medium term and keep our noninterest expense to average asset ratio at a best in class level for the industry.

Philip Watkins: Also, looking at other metrics like loan to deposit and borrowing to total liability ratio, we compare very favorably to regional banks. On slide 17, we focus on a key driver of shareholder value, tangible book value per share. We have doubled our tangible book value per share over the last five years, growing at a compound annual growth rate exceeding 15%. This compares to less than 4% for our regional bank. Our tangible book value per share grew by more than 20% compared to Q1 2020. We also recovered $4.3 million, or 14 cents per share of AOCI, with over $4 still to be recovered over time. Moving to slide 18.

Turning to slide 16, the strategy has not changed in terms of our focus on maintaining robust levels of liquidity.

Phil: Combined cash balances and immediately available capacity from the FRB and FH lb increased by about $400 million during the quarter our coverage of immediately available liquidity to uninsured deposits is extremely robust at 224%.

Phil: These levels of liquidity compare favorably to almost anyone in the industry.

Phil: Also looking at other metrics like loan to deposit and borrowing to total liability ratio, we compare very favorably to regional bank peers.

Phil: On slide 17, we focus on a key driver of shareholder value tangible book value per share growth, we have doubled our tangible book value per share over the last five years growing at a compound annual growth rate exceeding 15%.

Philip Watkins: Similar to the transformation of our deposit franchise, we have transformed our capital position, which has grown significantly for four consecutive years. We have grown our CET1 ratio by over 280 basis points over that period. Our TCE to TA ratio grew by 25 basis points during the quarter and has increased by 140 basis points over the last year. We remain on track to achieve our approximately 7.5% target. While we expect continued accretion to our TCE ratio over the next several quarters, we do anticipate deploying some risk-based capital to support our clients as we generate franchise-enhancing and higher yielding loans. When adjusting our CET1 ratio for the impact of AOCI, our capital position was again in the top quartile among banks with 10 to 100 billion in assets, and we remain committed to operating the bank with robust levels of capital.

Phil: This compares to less than 4% for our regional bank peers, our tangible book value per share grew by more than 20% compared to Q1 2023.

Phil: We also recovered $4 $3 million or <unk> 14 per share of a OCI with over $4 still to be recovered over time.

Phil: Moving to slide 18, similar to the transformation of our deposit franchise, we have transformed our capital position, which has grown significantly for four consecutive quarters, we have grown our CET one ratio by over 280 basis points over that period.

Our TCE to Ta ratio grew by 25 basis points during the quarter and has increased by 140 basis points over the last year.

Philip Watkins: On slide 19, as Jay and Sam highlighted, NPAs as a percentage of total assets ended the quarter at just 17 basis points and remain extremely low. Commercial NCOs were down three basis points to just 14 basis points. On a blended basis, our NCOs were 55 basis points, up four basis points from the prior period.

Phil: We remain on track to achieve our approximately seven 5% target this year.

Phil: While we expect continued accretion to our TCE ratio over the next several quarters, we do anticipate deploying some risk based capital to support our clients as we generate franchise enhancing and higher yielding loan growth.

Philip Watkins: I would also highlight that the amount of criticized and classified loans declined by 11% during the pandemic. Office commercial real estate, an area of perceived higher risk, accounts for only 1% of our loans. We also continue to closely monitor our multifamily portfolio and remain confident in our underwriting and the unique attributes of our portfolio. As an example, in the majority New York City rent-regulated component, we have less than $55 million of loans that rate reset or mature in 24 and 25.

Phil: When adjusting our CET one ratio for the impact of <unk>, our capital position was again in the top quartile among banks with 10 to 100 billion in assets and we remain committed to operating the bank with robust levels of capital.

Phil: On slide 19, as Jan Sam highlighted <unk> as a percentage of total assets ended the quarter at just 17 basis points and remain extremely low.

Philip Watkins: Consistent with our strategy to reduce exposure to consumer installment HFI loans, this portfolio now only accounts for about 6% of total loans down from 7% last. I'll now pass the call back over to Sam before we open up the line for Q&A.

Phil: Commercial Ncos were down three basis points to just 14 basis points on a blended basis, our NCS, where 55 basis points up four basis points from the prior period.

Phil: I would also highlight that the amount of criticized and classified loans declined by 11% during the quarter.

Samvir S. Sidhu: Thanks, Phil. We remain committed to and are pleased to reaffirm our loan deposit and capital guidance. We are reiterating our NIM guidance and expect margin to expand over the course of the year, getting to the high end of our range by year end. As stated previously, we do expect that our efficiency ratio will be slightly elevated in the near term as the upfront investments we have made in the teams are realized through increased profitability over a couple of quarters.

Phil: Office commercial real estate and area perceived and area perceived higher risk accounts for only 1% of our loan portfolio.

Phil: We also continue to closely monitor our multifamily portfolio and remain confident in our underwriting and the unique attributes of our portfolio.

Phil: As an example in the majority of New York City rent regulated component, we have less than $55 million of loans that rate reset or mature in 'twenty four 'twenty five <unk>.

Samvir S. Sidhu: On our profitability metric guidance, we remain committed to targeting these levels now on a run rate basis by the end of the year, as the upfront investment will impact the full year. Concluding on slide 21, I want to wrap up with a couple of comments.

Phil: Consistent with our strategy to reduce exposure to consumer installment H F. <unk> loans. This portfolio now only accounts for about 6% of total loans down from 7% last quarter.

Phil: I will now pass the call back over to Sam before we open up the line for Q&A.

Sam: Thanks, Phil.

Sam: We remain committed to and are pleased to reaffirm our loan deposit and capital guidance. We are reiterating our NIM guidance and expect margin to expand over the course of the year getting to the high end of our range by year end.

Samvir S. Sidhu: If the enthusiasm during this call was not obvious, let me say we are extremely excited about the amazing opportunities ahead for both our existing franchise and for the new banking team. Our existing franchise has built a very strong loan and deposit pipeline, which we expect to be realized starting this quarter. And on the new teams, we've admired them from the outside for many years as friendly competitors, with deep industry knowledge and exceptional client relationships. And now we couldn't be more grateful to have them join Customers Bank. We're incredibly excited about what they will deliver in the coming quarters and years.

Sam: As stated previously we do expect that our efficiency ratio will be slightly elevated in the near term as the upfront investments. We have made and the teams is realized through increased profitability over a couple of quarters.

Sam: On a profitability metric guidance, we remain committed to targeting these levels now on a run rate basis by the end of the year as the upfront investment will impact our full year metrics.

Speaker Change: Concluding on slide 21, I want to wrap up with a couple of comments if the enthusiasm. During this call was not obvious let me say we are extremely excited about the amazing opportunities ahead for both our existing franchise and for the new banking teams.

Samvir S. Sidhu: We have more or less completed phase one of the deposit transformation that we laid the groundwork for several years ago. Phase one increased our non-interest-bearing deposits by almost two and a half times and brought our wholesale CDs down to just 10% of deposits in the last 12 months. Phase two of our deposit transformation should be even more transformational for our franchise by improving the cost, quality, granularity, and primacy of our C&I business unit deposits.

Speaker Change: Our existing franchise has built a very strong loan and deposit pipeline, which we expect to be realized starting this quarter.

Speaker Change: And on the new teams, we've admired them from the outside in for many years as friendly competitors with deep industry knowledge and exceptional client relationships and now we couldn't be more grateful to have them join customers back.

Speaker Change: We're incredibly excited about what they will deliver in the quarters and years to come.

Speaker Change: We have more or less completed phase one of the deposit transformation that we laid the groundwork for several years ago phase one increased our noninterest bearing deposits by almost two five times and brought our wholesale Cds down to just 10% of deposits in the last 12 months.

Samvir S. Sidhu: We have a robust deposit pipeline that we expect to convert this year and remix our higher-cost deposits. This will be a key contributor to improving our net interest margin over the remainder of 24 NBI. Capital, liquidity, and risk management continue to be the focus of our management team and board of directors. We are confident in our ability to perform above the industry in all macroeconomic and credit and interest rate environments.

Speaker Change: Phase two of our deposit transformation should be even more transformational for our franchise by improving the cost quality granularity and Primus primacy of our C&I business unit deposits.

Speaker Change: We have a robust deposit pipeline that we expect to convert this year and remix our higher cost deposits.

Speaker Change: This will be a key contributor to improving our net interest margin over the remainder of 'twenty four and beyond.

Capital liquidity and risk management continues to be the focus of our management team and board of directors.

Samvir S. Sidhu: With our differentiated business model, client-centric culture, and even more talent among our banking and management teams, we believe we are best positioned for success in the years to come as we continue to build out an enviable full-service commercial bank. With that, I'd like to open the call to any questions you may have.

Speaker Change: We are confident in our ability to perform above the industry in all macroeconomic and credit and interest rate environments with our differentiated business model client centric culture, and even more talent among our banking and management teams. We believe we are best positioned for success in the years to come as we continue to build out an enviable full serve.

Unknown Speaker: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Your first question comes from the line of Casey Haire of Jeffries.

Speaker Change: <unk> commercial bank.

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

Speaker Change: Thank you the floor is now open for questions.

Speaker Change: If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.

Speaker Change: I would like to withdraw your question simply press Star one again.

Speaker Change: If you are called upon to ask a question and are listening via loud speaker on your device. Please pickup your handset to ensure that your phone is not on mute when asking your question.

Speaker Change: Your first question comes from the line of.

Casey Haire: Casey Haire of Jefferies.

Casey Haire: Please go ahead. Great. Thanks. Good morning, everyone.

Casey Haire: Please go ahead great. Thanks.

Casey Haire: Great. Thanks, good morning, everyone.

Casey Haire:

Casey Haire: I wanted to start off on the.

Unknown Speaker: I want to start off on the NII guide and NIM guide. So maybe on the loan side first. So the loan growth guide that you guys are talking about, it looks like it will be about a billion and a half to 2 billion over the next three quarters. Just wondering what your NIM guide assumes for how that comes across. Is it fairly ratable? And at what yield?

On the NII guide the NIM guide so.

Casey Haire: Maybe on the loan side first so the loan growth guide that you guys are talking about it looks like to be about $1 billion of half to $2 billion.

Casey Haire: Over the next three quarters, just wondering what what's your NIM guide assumes for how that comes across is it fairly ratable and at what yield.

Unknown Speaker: Yeah, hey, good morning, Casey. So yeah, that's correct on the aggregate amount. We did provide some guidance as well on the pipeline that we are looking into on the pipeline that we see executing into Q2. And so I think it, you know, it would be fairly fair to assume that it comes over on a relatively even basis over the period. As far as yield on the loans, again, as we've said, the pipeline is predominantly driven by our corporate and specialized lending verticals. And we've always kind of, we've always communicated that we try and target about 300 basis points spread on those products.

Speaker Change: Yeah, Hey, good morning Casey.

Speaker Change: Yes, that's correct on the aggregate amount.

Speaker Change: We did provide some guidance as well on the pipeline that.

Speaker Change: Look into on the pipeline that we see executing into Q2.

Speaker Change: And so I think it.

Speaker Change: It would be fairly fair to assume that it comes over on a relatively even basis over the period.

As far as the yield on the loans again as we've said the pipeline is predominantly driven by our corporate and specialized lending verticals and we've always kind of we've always communicated that we try and target about 300 basis points spread on those products.

Unknown Speaker: Okay, very good. All right. And then just switching to the funding side of things. I guess a similar amount, right, a billion, five to two billion. Is that coming across ratably? And then I know it's early days, and you guys are, you know, slide 12 is helpful in terms of what the remix opportunity is. But what does the NIM guide presume where you guys fall on that spectrum, be it, you know, lower 150 bps, 200 bps, 250 bps?

Okay very good.

Speaker Change: Alright, and then just switching to the funding side of things.

Speaker Change: I guess similar.

Speaker Change: Similar amount right 1 billion.

Speaker Change: $5 2 billion.

Speaker Change: Is that coming across Ratably and then.

Speaker Change: I know, it's early days and you guys.

Speaker Change: Slide 12 is helpful. In terms of what the remix opportunity is but what is the NIM guide presume, where you guys fall on that spectrum.

Speaker Change: 150 bps 200 bps 250 bps.

Unknown Speaker: Sure, absolutely. Casey, I'm happy to take that question.

Speaker Change: Sure absolutely Casey happy to take that question.

Unknown Speaker: So, you know, in terms of the pipeline, it's difficult to, you know, the loan pipeline is very easy to kind of give clarity on sort of term sheets signed and memos out and closings. The deposit pipeline is a little bit broader. So we're trying to give some, you know, sort of a rough outline here of the deposit pipeline, which grew despite the 1.2 billion of production in the first quarter. So, you know, I think that obviously the teams, the new teams who are going to be generating a good component of the future pipeline execution have really been onboarding through the month of April.

Speaker Change: So in terms of the pipeline its difficult to.

Casey Haire: One pipeline, it's very easy to give clarity on sort of term sheet signed and memos out in closings deposit pipeline is a little bit broader so we're trying to give some.

Casey Haire: Sort of a rough outline here of the deposit pipeline, which grew despite the $1 2 billion of production in the first quarter.

Casey Haire: And I think that obviously the teams are the new teams, who are going to be generating a good component of the future pipeline execution.

Casey Haire: I've really been on been Onboarding through the month of April these things take a little bit of time, we in fact, even at nine or 10 folks start just this week to kind of put things in perspective.

Unknown Speaker: These things take a little bit of time. We, in fact, even had nine or 10 folks start just this week to kind of put things in perspective. You know, primary accounts require DDAs, and require a little bit of time to migrate accounts, set up payroll, payables, et cetera, those types of things. So we'll see. I would stick to the, you know, the two to three quarters of guidance that we provided on the pipeline to kind of help put that, you know, in a ring fence.

Casey Haire: Primary accounts require DDA has required a little bit of time of migrating accounts setting up payroll payables et cetera. Those types of things. So we will see it I would stick to the two to three quarters of guidance that we provided on the pipeline to kind of help put that in.

Casey Haire: Then ring fence. It woke up we'll give you a better update and sort of how things are progressing.

Unknown Speaker: We'll give you a better update and sort of how things are progressing in July when we have our next call, which will also give you clarity on what happened in the quarter, what percentage came from sort of existing teams and new teams, and also give you a little bit of a look forward on the second.

Casey Haire: In July when we have our next call, which will also give clarity in what happened in the quarter what percentage came from sort of existing teams in new teams and also give you a little bit of a look forward on the second half of the year.

Unknown Speaker: Okay, very good. And just last question for me, the PPNR guide, talking about 10 to 15% from the 367 baseline. So that's what for a little over 400 million or 425 that implies a run rate of a little over 100 million by the fourth quarter. Is that what you're trying to put out? Yeah, that's right. Getting basically

Speaker Change: Okay very good and just last question for me the PNR Guide.

Speaker Change: Talking about 10% to 15% from the 367 baseline.

Speaker Change: So thats, what four or a little over $400 million of 425 that implies a run rate of.

Speaker Change: A little over $100 million by the fourth quarter or is that is that what the what youre trying to.

Speaker Change: Put out.

Speaker Change: Yes, that's right getting basically to that run rate in the fourth quarter.

Unknown Speaker: Yeah, that's right. We got basically to that run rate in the fourth quarter.

Speaker Change: Got you. Thank you.

Speaker Change: Thank you.

Speaker Change: Your next your next question comes from the line of Steve Moss of Raymond James. Please go ahead.

Unknown Speaker: Your next question comes from the line of Steve Moss of Raymond James. Please go ahead.

Stephen M. Moss: Morning, Steve. Maybe just following up here. Morning, Sam.

Stephen M. Moss: Good morning.

Stephen M. Moss: Steve.

Stephen M. Moss: Just following up here good morning, Tim just following up here on the on the efficiency ratio and then just moving drivers.

Unknown Speaker: Just following up here on the efficiency ratio and just moving drivers. As we think about expenses here, I heard you on the total expenses coming from the new team, Sam, but just the case of the efficiency ratio kind of seems like low to mid 50s, you know, for this quarter, moderating to maybe the high 40s. By the time we get to the fourth quarter seems, or the high 40s, 50% seems about right. Yeah, that's right.

Stephen M. Moss: As we think about expenses here I heard you on the call expenses coming from the new teams, Dan, but just the cadence of the efficiency ratio kind of seems like low to mid fifties for this quarter moderating to maybe the high 40 by the time, we get to the fourth quarter seems.

Stephen M. Moss: <unk> hundred 40, 70% seems about right.

Dan: Yeah, that's right I think we said, 50% by the by the fourth quarter, absolutely that's correct.

Unknown Speaker: Yeah, that's right. I think we said 50% by the fourth quarter. Absolutely. That's correct.

Dan: Okay.

Unknown Speaker: Okay. And then on the teams you hired here, I realize they're deposit rich, but just curious, you know, how much of a lending opportunity do you have with their client base as well? Sure.

And then.

Dan: On the teams you hired here.

Dan: They are deposit rich, but just curious.

How much of a lending opportunities you have with their client base as well.

Unknown Speaker: Sure, great question, Steve. So as you can imagine, you know, these, these teams, as we mentioned, are predominantly deposit-focused. However, you know, there are management lines and C&I extensions of credit that would be needed in some cases to move over primary relationships. That's why we sort of held back and preserved some liquidity in the first quarter. So the typical sort of teams in aggregate are about four to six times the deposit.

Speaker Change: Sure Great question, Steve So as you can imagine.

Speaker Change: These are these teams as we mentioned are predominantly deposit focus however.

Speaker Change: You know there are management lines, and then C&I extensions of credit that would be needed in some cases to move off of primary relationships. That's why we sort of held back and preserve some liquidity in the first quarter.

Speaker Change: So the typical sort of teams in aggregate are about four to six times deposits to loans.

Unknown Speaker: I think that's great, and then, in terms of your Sam, Phil, I hear you in terms of the C&I and specialty businesses. Maybe just can you give us a little color underneath about what are the big drivers of the pickup in the pipeline?

Speaker Change: Okay, Great I appreciate that and then then in terms of.

Speaker Change: Sure.

Speaker Change: So I hear you in terms of the.

Speaker Change: C&I specialty businesses, maybe just can you give us a little color underneath of what are the big drivers of the pick up in the pipeline.

Unknown Speaker: Sure. Yeah, Steve. Good morning.

Speaker Change: Sure Yeah, Steve Good morning.

Unknown Speaker: I'd say very similar to what we've been talking about for some time. We definitely see great opportunities in our fund finance verticals. We're also seeing opportunities in healthcare, and equipment finance. And so it's fairly broad-based across those portfolios, but really pretty consistent with the key verticals that we've been talking about.

Speaker Change: I would say very similar to what we've been talking about for some time, we definitely see great opportunities in our fund finance.

Stephen M. Moss: And finance verticals, we're also seeing opportunities in healthcare and equipment finance.

Stephen M. Moss: And and.

Stephen M. Moss: So it's fairly broad based across those portfolios, but really pretty consistent with the key verticals that we've been talking about for some time.

Unknown Speaker: And I would just add Steve, you know, close the loop on the loan pipelines. I think that, you know, we continue to see opportunities; the pipeline today has little from the new teams, and it's still well over $500 million. Phil talked a little bit about sort of the range of where we see this pipeline coming from. And one of the things that we'll continue to explore as the year progresses is given our low CRE concentration, you know, there may be opportunities in the second half of 24th.

Speaker Change: And I would just add Steve.

It did.

Stephen M. Moss: To close the loop on the loan pipeline as you know I think that.

Speaker Change: We continue to see opportunities the pipeline today has little from from the new teams and it's still well over $500 million, Phil talked a little bit about sort of the range of where we see this pipeline coming in from and one of the things that will continue to explore as the year progresses, just given our low CRE concentration.

Speaker Change: There may be opportunities in the second half of 'twenty four there.

Unknown Speaker: Okay, great. And maybe I could, you know, squeeze one more in here. Just as we think about, you know, the opportunity on deposits, I see the remixing you have within your balance sheet as funding comes in. Curious, you know, how are you thinking about, I know it's still early days, but how do you think about 2025 balance sheet growth?

Speaker Change: Okay, great and maybe.

Speaker Change: If I could.

Speaker Change: Squeeze one more in here.

Speaker Change: We think about the opportunity on deposits.

Speaker Change: See the Remixing you have.

Speaker Change: Within your balance sheet.

Speaker Change: Funding comes in.

Speaker Change: How are you thinking about I know, it's still early days, but how are you thinking about 2025 balance sheet.

Speaker Change: Growth.

Unknown Speaker: Yeah, Steve, I think that it's a great question. I think that from the perspective of how we're approaching things today, there are a tremendous amount of deposit remix opportunities. And we'll continue to do that. You know, for the course of this year and through early next year, we're generating a tremendous amount of capital, as you can see, over the last 12 months with a flat balance sheet. We're committed to our, you know, first and foremost, to hitting our seven and a half percent TCE target, which, as you can see, it will likely hit in the next quarter or so.

Speaker Change: Yes, Steve I think that's a great question I think that from the perspective of how we're approaching things today is there's a tremendous amount of deposit remix opportunities.

Speaker Change: And we'll continue to do that.

Stephen M. Moss: For the course of this year and through early next year, we're generating a tremendous amount of capital as you as you can see over the last 12 months with a flat balance sheet, we're committed to our.

Stephen M. Moss: First and foremost to hitting our seven 5% TCE target, which as you can see it will likely hit.

Stephen M. Moss: And the next quarter or so.

Unknown Speaker: And having said that, you know, our loan book is sitting at, you know, approximately 13 billion plus or minus, and there's still growth on the loan side that we can do within the same side of the balance sheet. And only after our balance sheet on the deposit side is completely remixed would we consider increasing from these levels, which I do not anticipate for the next several

Stephen M. Moss: And having said that our loan book is sitting at approximately $13 billion, plus or minus and Theres still growth in the loan side that we can do within the same side of the balance sheet and only after our balance sheet on the deposit side is completely remixed would we consider increasing from these levels, which I do not anticipate for the next.

Unknown Speaker: Great. I appreciate all the color. Thank you very much.

Stephen M. Moss: Several quarters.

Speaker Change: Okay. Great appreciate all color. Thank you very much.

Yeah.

Speaker Change: Your next question comes from the line of Kelly Motta of K B W.

Kelly Ann Motta: Your next question comes from the line of Kelly Motta of KBW. Please go.

Kelly Motta: Please go ahead.

Kelly Motta: Hi, Good morning, Thank you for the warm welcome today.

Kelly Ann Motta: Hi, good morning. Thank you for the warm welcome today.

Kelly Motta: I was hoping we could.

Kelly Motta: Along with the deposit remix opportunity here.

Unknown Speaker: I was hoping we could continue on with the deposit remix opportunity here. I think you have done a tremendous job with the wholesale CDs. Just wondering, could you walk through where, you know, you still see opportunities to take down higher cost funding either by, you know, business line or whatnot in the cost of that, just so we can help better frame the opportunity here?

Speaker Change: Thank you our have done a tremendous job with wholesale.

Speaker Change: I'm just wondering.

Speaker Change: That's very aware.

Speaker Change: The opportunity for bolt down higher cost funding, thereby.

Speaker Change: Fine or whatnot low cost at that point.

Speaker Change: To help better frame the opportunity here.

Unknown Speaker: Yep, sure, absolutely. So first and foremost, there still remains, you know, wholesale; some wholesale CDs above 5%. I think, as an example, we have about 500 million plus or minus in the next 90 days or so. Additionally, you know, there are a number of deposit verticals that have deposits on the high end, you know, deposits in the 5% plus or minus type range, especially in sort of the financial institutions group and some of our digital bank deposits more focused on, you know, digital savings. And those would be the initial pockets that we would look to. So, focusing on higher cost, excess, and, in some cases, you know, larger relationships to reduce concentration and improve granularity.

Speaker Change: Yeah sure absolutely so first and foremost there still remains.

Speaker Change: Wholesale some wholesale Cds above 5% I think for as an example, we have about $500 million plus or minus for the next 90 days or so.

Speaker Change: Additionally, there are a number of deposit verticals that have on the high end deposits and a 5% plus or minus type range, especially in sort of financial institutions group in some of our digital bank deposits more focused on.

Speaker Change: Digital savings and those will be the initial pockets that we would look to so focusing on higher cost access and in some cases.

Speaker Change: Larger relationships to it too.

Speaker Change: To reduce concentration and improve granularity.

Unknown Speaker: Okay, thank you. Thank you for that color, Sam.

Speaker Change: Okay. Thank you. Thank you for that color Dan.

Unknown Speaker: And as we look ahead, you know, I appreciate the color of TCE Above Targets and your CT1X AOCI is top tier. But it does seem like there's a really nice deposit generation opportunity from these teams. Understanding that, you know, balance sheet growth is limited near term as we look ahead to next year and beyond. Would you anticipate the internal capital generation to be enough to sustain whatever growth those those teams would contribute to the bottom line through deposits and loans?

Speaker Change: We look ahead.

Speaker Change: The color.

Speaker Change: At that target.

Speaker Change: So why is top tier.

Speaker Change: It does seem like there's a rule.

Right.

Speaker Change: Deposit generation opportunities.

Speaker Change: Yeah.

Speaker Change: Understanding or balancing near.

Speaker Change: Near term I think.

Speaker Change: Look ahead.

Speaker Change: Plus four and beyond.

Speaker Change: We're hopeful for an old topic.

Speaker Change: All up too.

Speaker Change: Paul.

Speaker Change: Whatever growth.

Speaker Change: Political comfort.

Speaker Change: Bottom line.

Speaker Change: Deposits alone.

Unknown Speaker: Thanks.

Unknown Speaker: Yeah, absolutely, Kelly. So the simple answer is that our internal capitalization, yes, will cover, you know, future growth. So as an example, if we remix a couple of deposits, a couple billion of deposits, you know, this year, and there's an opportunity to continue to produce, you know, a few billion more of deposits, well, our, our, internal estimates and consensus estimates show that there's enough capital being generated by a bank to sustain that level of growth.

Speaker Change: Yeah, absolutely Kelly.

Speaker Change: The simple answer is as our internal calculation, yes, we'll we'll cover.

Speaker Change: Future growth. So as an example, if we remix a couple of deposits a couple billion of deposits.

Speaker Change: This year, there is an opportunity to continue to produce.

Speaker Change: A few billion more of deposits well you know our our internal estimates and consensus estimates show that theres enough capital being generated by bank to sustain that level of growth.

Speaker Change: Thank you so much for the color I'll step back.

Speaker Change: Thanks.

Unknown Speaker: Thank you so much.

Speaker Change: Welcome to the next question comes from the line.

Unknown Speaker: Your next question comes from the line. Your next question comes from the line of Peter Winter of D.A. Davidson Please go ahead.

Speaker Change: Your next question comes from the line of Peter Winter of D. A Davidson. Please go ahead.

Peter J. Winter: Thanks. Good morning.

Peter J. Winter: Thanks, Good morning.

Unknown Speaker: I'm just sticking with deposits. You guys have done a lot of work on remixing deposits. And I understand that there's still a lot to do. I'm just surprised that the sequential increase in deposit costs has stayed the same the past three quarters, same for liability costs. And so the question is, why hasn't it moderated? And would you expect deposit costs to actually come down this year, even without rate cuts?

Peter J. Winter: Just sticking with the deposits.

Peter J. Winter: You guys have done a lot of work on Remixing, the deposits and I understand that there's still a lot to do.

Peter J. Winter: I'm just surprised that the sequential increase in deposit cost stayed the same.

Peter J. Winter: The past three quarters same for liability cost.

Peter J. Winter: So the question is why hasn't it moderated and would you expect deposit cost to actually come down this year, even with without rate cuts.

Unknown Speaker: Hey Peter, good morning.

Hey, Peter good morning.

Unknown Speaker: Hey Peter, good morning. So the answer to your last question is yes, we would expect deposit costs to trend down, you know, over the course of this year. The answer to your first question is that our interest expense has been declining over the past couple of quarters, including this last quarter. We did have a mixed shift in geography with non-interest expense from service deposits moving up to interest expense in the quarter through the terminated relationship with our partner that happened in December of last year. So that's really what the difference was from a deposit cost perspective. However, interest expense went down, which is a key metric.

Peter J. Winter: So the answer to your last question is yes, we would expect deposit cost to trend down over the course of this year the.

Peter J. Winter: The answer to your first question is is that our interest expense has been declining.

Peter J. Winter: Over the past couple of quarters, including this last quarter.

Peter J. Winter: We did have a mix shift in a geography with noninterest expense from service deposits moving up to interest expense in the quarter.

Peter J. Winter: Through the terminated relationship.

Peter J. Winter: With our partner that happened in December of last year. So that's really what the difference was from a deposit cost perspective interest expense went down which is a key metric.

Unknown Speaker: You know, just with the 10 new teams coming on focused on deposit generation, I was, I guess, surprised that you didn't change your deposit outlook for the year.

Peter J. Winter: Okay.

Peter J. Winter: And then.

Peter J. Winter: Just with the 10, new teams coming on focus on deposit generation I.

Peter J. Winter: I guess surprised that you didn't change your deposit outlook for the year.

Unknown Speaker: Sure, you know, Peter, I think that meant we did increase the deposit pipeline. We also did talk about how the deposit pipeline would be expected to be continuously replenished, which is an impressive number to have on a rolling two to three-quarter basis. And as I mentioned, the only question is really timing. It does take time to move over operating DDA accounts and relationships. So, like I said before, we'll provide a little bit more color on how Q2 progressed on our next call, and we'll be able to give a lot more color with some clarity on how the pipeline is trending. And, you know, we hope to continue this billion dollar plus type quarterly generation.

Speaker Change: Sure Peter I think that.

Speaker Change: We did increase the.

Speaker Change: Deposit pipeline. We also did talk about how the deposit pipeline would be expected to be continuously replenished, which is an impressive number to have in a rolling two to three quarter basis.

And as I mentioned the only.

Speaker Change: The question is all really on timing.

Speaker Change: It does take time to move over operating DDA accounts and relationships. So like I said before we will provide a little bit more color on how the how Q2 progressed on our next call Emilie I will give a lot more color with some clarity on how the pipeline is trending.

Emilie: We hope to continue on this $1 billion plus type type of quarterly generation.

Unknown Speaker: Just my thanks and just my last question. Can you provide more details with regard to the two non-recurring charges on the deposit servicing fees and these FDIC premiums prior to 24? Sure. Hey, Peter.

Speaker Change: Just just my thanks, and just my last question.

Can you provide more.

Speaker Change: More details with regards to the two nonrecurring charges on the deposit servicing fees in these FDIC premiums prior to 'twenty four.

Philip Watkins: Sure. Hey Peter, good morning.

Emilie: Sure Hey, Peter Good morning.

Philip Watkins: So on the two items, the first on the FDIC insurance premiums, this was due to the reclassification of certain loans under FDIC categorizations. But it's important to note that the additional expense was just for the purpose of setting the FDIC premium levels; it had no impact on our risk ratings, classified asset levels, or any other credit metrics of the loans. And we went through a comprehensive review and are confident this has been fully addressed.

Speaker Change: So on the two items the first on the FDIC insurance premiums. This was due to the reclassification of certain loans under FDIC categorizations, but it's important to note that the additional expense was just for the purpose of setting the FDIC premium levels no impact on our risk ratings classes.

Speaker Change: Asset levels or any other credit metrics of the loans.

Speaker Change: And we went through a comprehensive review and are confident this has been fully addressed.

Philip Watkins: And on the deposit servicing fees from prior periods, we received some additional information from the servicing partner during the quarter. After completing our analysis, we recorded the expense in Q1 and, again, believe it's been fully addressed and won't recur going forward.

Speaker Change: And on the on the deposit servicing fees from prior periods. We received some additional information from the servicing partner during the quarter. After completing our analysis, we recorded the expense in Q1.

Speaker Change: And again believe it's been fully addressed and won't recur going forward.

Speaker Change: Got it.

Thanks, Phil congratulations thanks.

Unknown Speaker: Thanks, Phil. Congratulations.

Thanks Peter.

Speaker Change: Your next question comes from the line of.

Frank Joseph Schiraldi: Your next question comes from the line of Frank Schiraldi on Piper Sandler. Please go ahead.

Speaker Change: Frank Schiraldi of Piper Sandler. Please go ahead.

Unknown Speaker: Good morning. Just on the efficiency ratio, you talked about, obviously, the investment in teams and the 50% at the end of the year. Just curious about how quickly you get back to that mid-40s. Is that kind of the right level for Qubitube to be operating at, at the, you know, intermediate, longer term?

Frank Joseph Schiraldi: Good morning.

Frank Joseph Schiraldi: Just on the.

Frank Joseph Schiraldi: The efficiency ratio you talked about.

Frank Joseph Schiraldi: Obviously, the investment in teams and 50% end of the year.

Speaker Change: Just curious your thoughts about how quickly you get back to that mid $40 is that kind of the right.

Speaker Change: Level four activity to be operating at the intermediate longer term.

Unknown Speaker: Hey Frank, good morning. Yeah, the answer is yes. You know, so I think that our target hasn't changed. This is a short-term blip. Like I said before, it's a little difficult to fully project timing, but we expect to get to 50 by the end of the year and then march down from there and go back to sort of our mid-40s target for next year.

Hey, Hey, Frank Good morning, Yes. The answer is yes, so I think that our target Hasnt changed this is a short term.

Frank Joseph Schiraldi: Blip like I said before it's a little difficult to fully project timing, but we expect to get to 50 by the end of the year and then March down from there and go back to sort of our mid forties target for next year.

Unknown Speaker: Okay, and on capital in terms of the CT1, I guess, target, which you're ahead of, just curious if that 11.5% is a reasonable, reasonable place to sort of land, call it end 2025. Is that also kind of holding more maybe for a potentially uncertain environment? Or is that a decent place to anticipate, you know, where you guys get to get down to by 2025?

Speaker Change: Okay, and then on capital in terms of the CET one target.

Speaker Change: Sure.

Speaker Change: Just curious if that 11, 5% is a reasonable reasonable place to sort of land.

Speaker Change: In a.

Speaker Change: Call. It 2025 is that also kind of holding more maybe for <unk>.

Speaker Change: Essentially uncertain environment or is that a decent place to anticipate.

Speaker Change: Guys get too.

Speaker Change: Get down to by 2025.

Unknown Speaker: Hey Frank, so yes, I think that both for this year and next year we think it's prudent at this point in time, with the information that we have today, to operate with higher, you know, CET1 levels, and I think the industry has shown a tremendous amount of discipline along the same lines, so with the information we have today, that feels like a very reasonable assumption.

Speaker Change: Hey, Frank So, yes, I think that both for this year and next year. We think it's prudent at this point in time with the information that we have today to operate with higher <unk> levels and I think the industry has shown a tremendous amount of discipline along the same line. So.

Speaker Change: The information we have today that feels like a very reasonable assumption.

Unknown Speaker: And then, just lastly, on the deposit strategy, kind of entering phase two here, as you noted, I just wanted to make sure I understood some of the commentary around increasing granularity. Is that, you know, has that been more of a focus maybe in the near term than bringing down the overall cost of deposits? And can you also talk about maybe some of the concentrations and places that you are reducing concentrations, obviously outside of just the reduction in wholesale, places you're reducing concentrations in coming quarters on the deposit side? Thanks. Yes.

Speaker Change: Great and then.

Speaker Change: And just lastly on the deposit strategy.

Speaker Change: Kind of entering phase two here as you noted I just wanted to make sure I understood some of the commentary around.

Speaker Change: Increasing granularity.

Speaker Change: Is that.

Speaker Change: Has that been more of a focus maybe in the near term then bringing down overall cost of deposits in and can you also talk about maybe some of the concentrations.

Speaker Change: In places that you are.

Speaker Change: Reducing concentration obviously outside of just the reduction in wholesale.

Speaker Change: Places you're reducing concentrations.

Speaker Change: In coming quarters.

Speaker Change: On the deposit side.

Speaker Change: Yes sure so.

Unknown Speaker: Yeah, sure. So, to be clear, over the last, you know, 12 months, we have tremendously improved the granularity of our deposit franchise because the core deposit franchise, excluding the wholesale CDs, you know, has been, you know, we've added thousands of customers, commercial customers. I think we've laid that out pretty well over the past couple of quarters. You know, we had over 800 commercial customers again add to the franchise this quarter, which is a significant increase from our, you know, existing base.

Speaker Change: To be clear over the last 12 months, we have tremendously improve the granularity of our deposit franchise, because the core deposit franchise executing the wholesale Cds has been we've had one thousands of customers.

Speaker Change: Commercial customers I think we've laid that out pretty well over the past couple of quarters we.

Speaker Change: We had over 800 commercial customers again.

Speaker Change: Added to the franchise this quarter, which was a significant increase off of our existing base on.

Unknown Speaker: You know, on a go forward basis, as I mentioned, these teams that we've onboarded have thousands of customers collectively, you know, which if onboarded over, you know, a one, two, three-year period, you know, could be in a position to double the size of our commercial deposit base, which is a commercial customer deposit base, which I think is very important. So granular operating DDA accounts that we are looking to bring in that will create a tremendous amount of franchise value over time.

Speaker Change: On a go forward basis as I mentioned these teams that we've that we've on boarded have thousands of customers collectively.

Speaker Change: Which if if on boarded over.

Speaker Change: 123 year period.

Speaker Change: Could be in a position to double the size of our commercial deposit base, which a commercial customer deposit base, which I think is very important so granular operate in DDA accounts that we are looking to bring in that will create a tremendous amount of franchise value over time.

Unknown Speaker: Yeah, I guess just on the commercial side, you know, in terms of commercial deposits, are there any areas that you're looking to or expect to reduce concentrations, you know, specific verticals that you can speak to? Or is that, you know, at this point, that's just not a focus? Yes, yep. Sorry, I missed that part of the question. Yeah, so I think I mentioned

Speaker Change: Yes, I guess just on the commercial side in terms of commercial deposits are there any areas that you are looking to or expect to reduce.

Speaker Change: Concentrations.

Speaker Change: Specific verticals that you can that you can speak to or is that.

Speaker Change: At this point that that's just not a focus.

Unknown Speaker: Yes, sorry, I missed that part of the question. Yes, so I think I mentioned financial institutions, that's an area where we sometimes have some of the larger customers with, you know, $25 million plus type deposit relationships; they're generally higher cost. And I also mentioned, while this is not granular, the higher cost sort of digital bank deposits.

Speaker Change: Yes, yes, sorry, I missed that part of the question yet so, but so I think I mentioned financial institutions, that's an area, where we sometimes have some of the larger customers with $25 million plus type deposit relationships, they're generally higher cost.

Speaker Change: And I also mentioned, while it does not granular at a higher cost sort of digital bank deposits as well.

Speaker Change: Sure.

Unknown Speaker: Again, if you would like to ask a question, press star, then number one on your telephone keypad. Your next question comes from the line of Hal Goetsch of B Reilly Securities. Your line is open.

Speaker Change: Great. Thank you.

Speaker Change: Again, if you'd like to ask a question press Star then the number one on your telephone keypad.

Hell: Next question comes from the line of Hell.

Hell: Goetsch B Riley. Please your line is open.

Harold Lee Goetsch: Hey, good morning, guys. I got a question on. I hope you don't talk about too much of the consumer part of your loan portfolio. It's come down nicely by design, and from my experience in consumer loans right now, the originators of many of these types of installment loans have tightened many, many times, and the returns and risk are improving. What would it take to get back into that if you wanted to?

Speaker Change: Hey, Good morning, guys I've got a question on <unk>.

Speaker Change: We don't talk about too much is the consumer part of your loan portfolio.

Speaker Change: It's come down nicely by design and I'm sure.

In my experience in consumer loans right now theres been the originators of many of these types of installment loans are tightened many many times in the returns and risk are improving.

Speaker Change: Would it take to get back into that if you wanted to it seems to me it can be fairly easy entry. If you wanted to it but I wanted to get your thoughts on that if that is something you want to get back into the bigger.

Harold Lee Goetsch: It seems to me it could be fairly easy entry if you wanted it, but I wanted to get your thoughts on that. If that is something you want to get back into in a bigger, bigger way, or is it something you want to de-ethicize, you know, more permanently going forward? Thanks.

Speaker Change: Or is it something you want to deemphasize.

Speaker Change: More permanently going forward. Thanks.

Unknown Speaker: Yeah, hi, how is your morning? So I think you are right, there's certainly, you know, a stronger risk-adjusted return profile for that product now than there has been in the recent past. But I think we've strategically said that while we want to emphasize our strengths in that business, and it's why we've transitioned more towards our held for sale strategies where we can similarly play an important role in that product, but without taking the credit risk of holding those loans on our balance sheet. And so that's where we continue to see that, you know, see that going forward.

Yes, hi, good morning. So I think you are right there are certainly.

Speaker Change: Stronger risk adjusted return profile on that product now than there has been in the recent past, but I think we've strategically said, we while we we want to emphasize our strengths in that business and it's why we've transitioned more towards our held for sale.

Speaker Change: Strategies, where we can similarly play an important role in that product, but without taking the credit risk of holding those loans on our balance sheet and so that's where we continue to see that see that going forward.

Unknown Speaker: And I would just add, Hal, one of the things to build off of the comment Phil made about sort of the strength of our institution, you know, versus others is, while many of these MPLs have improved their underwriting and, arguably, the risk profile, that's an indirect business, and we're focused on a direct business, and from a direct perspective, our strengths rely on the commercial side. And B2B is the way that we approach that business, as opposed to, you know, B2C or B2B2C, which we did many years ago.

Speaker Change: And I would just add that one of the things that are to build off of the comment Phil made about sort of the strength of our institution.

Speaker Change: Versus others as well.

Speaker Change: While many of these npls have been crude improved their underwriting and arguably the risk profile, that's an indirect business and we're focused on our direct business and from a direct perspective, our strengths rely on the commercial side.

Speaker Change: B to B is the way that we approach that business as opposed to B to C. R.

Speaker Change: <unk>, which we had done many years ago.

Unknown Speaker: All right. Super. Thanks a lot.

Speaker Change: Alright Super Thanks.

Speaker Change: Thanks, a lot.

William J. Dezellem: Your next question comes from one of Bill Dezellem of Titan Capital Management. Please go ahead.

Speaker Change: Your next question comes from the line of Bill <unk>.

Bill: Titan Capital management. Please go ahead.

Unknown Speaker: Thank you and good morning. Relative to the 10 teams that you have brought on board, what is the size of the loan portfolios that they present? I believe you mentioned in the opening remarks that deposits are about $10 billion. What's the loan level?

Bill: Okay. Thank you and good morning.

Bill: Relative to that.

Bill: That.

You have brought on.

Bill: Syed.

Bill: Loan portfolios.

Bill: Yes.

Bill: I believe you mentioned in the opening remarks.

Bill: <unk> are about 10 billion, what's the what's the loan level.

Unknown Speaker: Sure, Bill. The, you know, expected or rough, you know, rough, associated loan book is under a billion dollars.

Bill: Sure Bill.

Bill: You know expected around you know rough rough associated loan book is.

Unknown Speaker: And of the $10 billion and of the $1 billion over the course of, say, a couple of years, which gets us to how much? as well as a portion of the would you expect to bring in? Sure.

Bill: Under our $1 billion.

Bill: And of the of the 10 billion and up to 1 billion over the course of a couple.

Yes, yes.

Bill: Yes.

Speaker Change: How much.

Speaker Change: What proportion of them.

Would you expect to bring on.

Speaker Change: Sure.

Unknown Speaker: Sure, you're cutting out a little bit. But you know, I want to clarify one thing: the loan book was over this way, the deposit book was over 10 billion, just prior to last March; it was a little smaller at the beginning of this year. But over time, we expect that we'll have an opportunity, you know, to bring in the entire current size of the deposit portfolio over the next call it three years. And on the loan side, you know, it's sort of stick a rough estimate is that sort of 20 to 30% loan to deposit ratio for these, these portfolios.

Speaker Change: Cut out a little bit, but I want to clarify one thing is the loan book was was over decided a deposit book was over $10 billion. Just prior to last March is a little smaller at the beginning of this year.

Speaker Change: But over time, we expect that we'd have an opportunity to bring in.

Speaker Change: The entire current size of the deposit portfolio over the next call it three years and the loan side.

Speaker Change: It's sort of stick a rough estimates that sort of 20% to 30% loan to deposit ratio for these these portfolios.

Speaker Change: Great. Thank you and then last question tied to it.

Unknown Speaker: Great, thank you. And then last question tied to this with the recent ruling that non-compete agreements are no longer allowed. Does that make it easier for these teams to bring in Hey, Bill?

Speaker Change: Yeah.

Speaker Change: A recent ruling noncompete agreements are no longer allowed does that make it easier for these for these teams to bring.

Unknown Speaker: Hey, Bill, you cut out again at the end, but I heard the comment about the new ruling and non-competes. You know, I think what's important about customers banks and retaining, you know, and retaining talent is really do we have the right platform, the right culture, the right business model, the right compensation model to be able to, you know, retain and attract top talent, which we definitely have. And from a customer perspective, customers follow the teams, and then they look at banks in terms of the same attributes that I just mentioned. And the good news is that, you know, we have and will continue to have both.

Speaker Change: Hey, Bill are you cut out again at the end, but I heard the comment about the new ruling a noncompete.

Speaker Change: What's important about customers bank and retaining.

Bill: You know and retaining talent is really do we have the right platform. The right culture, the right business model, the right compensation model to be able to retain and attract top talent that we definitely have and from a customer perspective customers follow.

Bill: Teams and then they look to the banks in terms of the same attributes that I just mentioned.

Bill: The good news is is that we have and will continue to have both.

Samvir S. Sidhu: That concludes our Q&A session. I will now turn the conference back over to Customers Bancorp President Sam Sidhu for closing remarks.

Bill: Try to finish.

Bill: Okay.

Speaker Change: That concludes our Q&A session I will now turn the conference back over to customers Bancorp President <unk> for closing remarks.

Samvir S. Sidhu: Thank you. I want to conclude by personally thanking our People Experience team, our technology, our operations, our product, and our treasury management teams for having so many team members up and running on our platform so expeditiously over the past couple of weeks. Now, thank you to all our analysts and investors for your continued interest in and support of Customers Bancorp, and we look forward to speaking to you next quarter.

Speaker Change: Thank you I want to conclude by personally thanking our people experienced team our technology, our operations, our product or in our Treasury management teams for having so many team members up and running on our platform. So expeditiously over the past couple of weeks. Thank you to all our analysts and investors for your continued interest in and support of customers Bancorp and we look forward to speak of.

Speaker Change: Into next quarter.

Unknown Speaker: This concludes today's conference call. You may now disconnect.

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

Speaker Change: Okay.

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

Speaker Change: Okay.

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