Customers Bancorp(US:CUBI)2022-07-28 16:15Financial Data and Key Metrics Changes - Core earnings per share, excluding PPP, increased by 32.3% year-over-year, with a core return on average assets of 1.23% and a core return on common equity of 19.1% [9] - Core assets, excluding PPP, reached $18.7 billion, up 40% year-over-year, while total deposits grew by 22% or $3.1 billion year-over-year [15][37] - Net interest margin for the quarter was $3.32, with expectations for the second half of the year to be between 3% and 3.25% [14][42] Business Line Data and Key Metrics Changes - Core loans increased by $2.2 billion in the second quarter, up 18.7% from the first quarter, primarily in low-risk specialty lending verticals [10][30] - Specialty lending C&I verticals ended the quarter at $4.8 billion, showing 50% growth quarter-over-quarter and 192% year-over-year [38] - The multifamily book grew by 18% quarter-over-quarter, while SBA production increased by 29% quarter-over-quarter and 88% year-over-year [18] Market Data and Key Metrics Changes - The company reported strong customer growth in its digital asset banking segment, with 90 new customers onboarded, bringing the total to 190 [32] - Total CBIT-related deposits reached $2.1 billion in the quarter, with significant growth driven by new customers [33] - Demand deposits increased by 64% year-over-year, reflecting a shift towards non-interest bearing deposits [40] Company Strategy and Development Direction - The company is focused on building a digital-first community bank with an emphasis on community banking, specialty banking, and digital banking [12] - Strategic initiatives include enhancing digital capabilities, maintaining a margin of 3% to 3.25%, and reorganizing operations to support digital technology [60][61] - The company aims to maintain above-average loan and deposit growth while ensuring exceptional credit quality [62] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about inflation and higher rates but noted that consumers believe they can manage these challenges [56] - The mortgage market is experiencing significant declines, with expectations of continued challenges in the second half of the year [57] - The company remains committed to meeting or exceeding EPS goals for 2022 and 2023 [61] Other Important Information - The company has proactively tightened credit underwriting and shifted loan growth mix to maintain a strong credit profile [16] - The reserve build in Q2 was primarily due to strong loan growth, resulting in a coverage ratio of 1.28% [55] - The company expects its tangible book value to remain above $40 by the end of 2022 [48] Q&A Session Summary Question: Margin outlook for the second half of the year - Management indicated that the decrease in margin to 3% to 3.25% is due to the increase in low credit risk, variable rate portfolios [66] Question: Outlook for deposit growth in the second half of the year - Management expects to continue improving the deposit mix and gathering low to no cost deposits through technology initiatives [67] Question: Loan growth guidance - Management maintained a quarterly average loan guidance of $500 million despite strong growth, citing stabilization in certain verticals [70] Question: Digital asset lending appetite - Management remains cautious but sees digital asset lending as an important product for their banking customers [78] Question: Operating expenses outlook - Management provided guidance on an efficiency ratio of plus or minus 45% for the back half of the year [82]