Customers Bancorp(US:CUBI)2024-11-01 19:19Financial Data and Key Metrics Changes - The company reported core earnings per share of $1.34 for the quarter, with net income of $43.8 million, reflecting strong growth in both loans and deposits, with loans growing at an annualized rate of 16% and deposits increasing by 9% annualized [24][30] - The tangible book value reached nearly $53 per share, representing an 18% annualized growth in the quarter, marking the sixth consecutive quarter of double-digit increases [16][65] - The net interest margin (NIM) was reported at 3.06%, with a noted decline in reported NIM, although the base NIM remained stable [52][14] Business Line Data and Key Metrics Changes - The company experienced strong high-quality diversified loan growth at a 16% annualized pace, with significant contributions from mortgage finance, commercial real estate, and equipment finance [13][44] - The deposit transformation strategy led to gross deposit inflows of $1.1 billion, primarily from the commercial client franchise, allowing the company to pay down approximately $700 million in higher-cost deposits [29][72] - The venture banking vertical has grown to nearly a $1 billion business, demonstrating the effectiveness of the team lift-out strategy and contributing to overall growth [35][37] Market Data and Key Metrics Changes - The company added close to 4,000 net new commercial accounts over the last year, representing more than a 25% increase in the deposit base [32] - The average interest-bearing deposit cost was reported at around 2.9%, with expectations for further reductions as higher-cost deposits are replaced [101][81] - The company maintained a strong liquidity position, with coverage of immediately available liquidity to uninsured deposits at 183% [68] Company Strategy and Development Direction - The company aims to evolve from a regional community bank to a high-performing specialized commercial and business bank with a national presence [7] - Investments in technology and product improvement, along with a focus on risk management infrastructure, are expected to pay off in the coming quarters, supporting revenue growth and NIM expansion [11][10] - The strategy emphasizes exceptional client service through a single point-of-contact model, which is expected to drive organic growth and enhance franchise value [19][22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing strong deposit and loan pipelines and the ability to take market share on a national scale [18][74] - The company anticipates achieving EPS growth of 30% or more in 2025, driven by the profitability of new banking teams and a tapering of elevated risk management investments [27][74] - Management acknowledged the transitional nature of 2024 but remains confident in returning to mid-teens ROE and ROA in the near future [26][27] Other Important Information - The company has maintained robust credit quality, with improvements in most credit metrics, including a decline in the NPA ratio to just 22 basis points [17][70] - Core noninterest expenses increased due to investments in talent and risk management, but the company remains focused on operating efficiency [15][60] - The company plans to provide a full management outlook for 2025 in the next earnings call scheduled for January [76] Q&A Session Summary Question: Balance sheet remix and deposit pricing trends - Management explained that the balance sheet remix involved increasing fixed-rate lending and implementing forward starting swap hedges to reduce asset sensitivity, with deposit pricing expected to improve as higher-cost deposits are replaced [78][79] Question: Deposit gathering and account sizes - Management noted that the new accounts opened are highly granular, with an average size around a couple of hundred thousand, and emphasized the focus on top-tier markets [85][86] Question: Deposit costs and NII growth dynamics - Management clarified that while deposit costs have not significantly changed, the timing of deposit remixing and the onboarding of new accounts will provide opportunities for future reductions in interest expense [90][91] Question: Future deposit growth and remixing - Management confirmed that the company expects to continue remixing deposits for several quarters, with a strong pipeline indicating ongoing growth [110] Question: Compliance investments and expense expectations - Management indicated that compliance-related expenses are expected to be elevated in the next couple of quarters before normalizing, emphasizing the franchise-enhancing nature of these investments [111][113]