Customers Bancorp, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights: - Customers Bancorp has a unique customer-centric business model, focusing on deposit and loan generation without a traditional branch network, and has developed technology solutions for clients. - The top financial priority is deposit transformation, replacing less strategic and higher-cost deposits with higher-quality ones. - Loan growth was strong at 16% annualized, with granular growth and new relationships. - Credit quality remained strong, with NPA ratio at 22 basis points. - Investments in people, technology, and risk management infrastructure are ongoing, with expectations of payoff in coming quarters. - Venture banking and new commercial teams are showing strong results, with venture banking now a billion-dollar business and new commercial teams generating significant deposits.

Segment Performance: Loans saw 16% annualized growth, with $520 million in high-quality held-for-investment loan growth in the quarter. Deposits had 9% annualized growth, with gross deposit inflows of $1.1 billion almost exclusively from the commercial client franchise, used to pay down $700 million in higher-cost less strategic deposits. Venture banking is nearly a billion-dollar business, and new commercial banking teams generated $370 million in relationship-based deposits in the quarter, with a deposit pipeline exceeding $2 billion. Loan growth was granular, with over 175 new lending relationships established, and annualized loan growth at 16%.

Guidance: - Expect net interest margin expansion in the medium term due to deposit transformation and loan growth. - New banking teams are expected to break even by the end of Q1 2025 and contribute to profitability. - Target ROE and ROA in the mid-teens and north of 1% respectively. - Anticipate $500 million or more in deposit growth per quarter from new teams next year. - Loan growth expected to be 10-15% full-year, translating to $400-500 million in Q4 2024, with focus on franchise-enhancing safe organic loan growth.

Risks: - Forward-looking statements subject to risks and uncertainties that may cause actual performance to differ from expectations. - Regulatory requirements and compliance, particularly related to digital asset business and written agreements. - Timing differences in deposit remixing may affect short-term results. - Elevated noninterest expenses due to investments in people, technology, and risk management may impact short-term profitability.

Question and Answer: Q: Balance sheet remix and deposit pricing?

A: Phil Watkins discussed swaps, securities portfolio repositioning, and Sam Sidhu mentioned deposit pricing with blended rates around low threes and non-interest-bearing components.

Q: Deposit gathering average size?

A: Sam Sidhu stated deposits are granular, with a 30% non-interest-bearing ratio, and new teams contributing below 3% blended rate.

Q: Margin outlook?

A: Phil Watkins and Sam Sidhu discussed factors like deposit remix, loan growth, and hedging strategies impacting margin.

Q: Digital asset business update?

A: Sam Sidhu discussed payments platform development, fee income from digital assets, and risk management compliance efforts related to the business.