CUBI - Earnings call transcript Q2 2019

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Operator

Good afternoon, and welcome to the Second Quarter 2019 Customers Bancorp, Inc. Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Bob Ramsey, Director of Investor Relations. Please go ahead.

Robert Ramsey

good and Melissa, you, afternoon, everyone. Thank second along with Bancorp's quarter earnings afternoon this issued was our release Customers investor presentation. Both Investor website are Relations page of the posted the at www.customersbank.com. on company's

streamlined changed quarter, will site speaking it to this directly presentation our As be we have and our this we call. on investor

Officer; Dick pull Leibold, a are and Chairman Relations Jay Representing encourage Sidhu, Ehst, Operating BankMobile. company Carla the Luvleen Officer; Officer; Chief I'd Financial Chief CFO and Bob So of up on and everyone Chief Sidhu, and Chief to of BankMobile; Investor copy. Ramsay, Strategy the today President Executive call of Director Officer myself,

Investor Relations may what begin, Please number to our CEO, may actual results. differ pleasure Copies the Sidhu. statements the looking undertake uncertainties filings, XX-Q of These Bancorp's future we floor or of be forward-looking obtained visiting of some these forward events, securities from section our cause Jay like light today is the or except At speak looking to more statements detailed of affect materially results our including a it's for that risk statements that to this performance are Customers may required and SEC currently this of the forward from website. introduce you that my of new we that note time, by update the yours. applicable to laws. Jay, by anticipated. these factors our to Form information and forward obligation refer SEC subject extent to XX-K date presentation of risks description looking. Before statements as the and a Please to only may we'd in is remind make the be no considered we

Jay Sidhu

much, Thank the for so you XXXX for second call. quarter good gentlemen. afternoon, and you and ladies joining Thank very Bob, much us

the Dick also and Sidhu by some the BankMobile And financials. will and Customers BankMobile comments second and half with and our some much over will more you quarter then the joined I XXXX Luvleen then here make highlights she by we'll provide for over Q&A. Carla open will Bank; sometime Carla I'm and and some And go over for mentioned, some it Ehst, Bob also year-to-date XXXX. this and is Luvleen, going President our up here financials at make introductory about offices take first detail. during followed will mentioned, provide then over presentation. I As guidance of Leibold. Bob comments also CFO, of as highlights in for

the we $X.XX per our per and in This the year. quarter foundation being confirming further for $X with again for pretty confidence, quarter share. clearly it's are the that our quarter, growth to the much building most which stronger of second thing XXXX of for core pleased core half good a are share, once fourth about earnings of important of a report we is earnings our increases foundation -- strong is Overall, XXXX guidance strongest

business. Carla strength Our quarter of upfront almost underlying was with $X.XX share. charge-offs, and the due provision know, as earnings million, the unusual GAAP below entirely of would $X.XX, you income for level mortgage we and clearly quite assets to quarter lowest when expectations, the regarding of growth primarily mortgage I our along per our This year. due to core banking with deposits business. second of for expense of for warehouse weakest That -- XXXX, items the ended will discuss $XX.X which in were bit strong second quarter of $X.XX noninterest insignificant or $X.X earnings these during first than the that quarter the with quarter especially Also we and is had BankMobile, you second about a for billion, BankMobile during also We later higher absolutely this year our call. on seasonally, our the are companies reflect

not growth up as period assets. million this quarter. billion, revenues assets than However, Hence much was and $XXX were closer X a the enjoy so and the lot did more our of quarter we for of loaded almost end less average to it the $XX.X

In of the our consumer on the of addition, day closed loans about business $XXX million we last quarter.

third well year. very are the fourth half we see the clearly can our and quarter quarter, positioned you of So for second

Page quarter Let me you at for information. provide for which you of second X some second -- some quarter to our like provide this goes XXXX deck, you. look I'd of Please, highlights which

basis So for by X points net And well during we positioned are the we about margin the by our the front. quarter. expanded way, on margin interest very margin,

quarter should XXXX. half You second DDAs XXXX. year-over-year. grew the now XX% of least basis at second of during grew NIM XX% XX% deposits expect XX during points year-over-year and expansion Total also

continued to loan our mix is improve. item Next

had were to expecting, we As expected as pleased during they XX% we XX% during grew they and decline, year-over-year with that and year-over-year are quarter you, we second to loans to declined X% XXXX. quarter were stated XXXX. and you loans, multifamily X% second share C&I

X% $XXX now the XXXX. to at loans As equal million total had shared you, about Bancorp loans we second with during consumer of customers XX, about June grew quarter,

equaled loans average about June which on $XXX approximately the Approximately for million $XXX deposits closings day. XX% last June, BankMobile from XXXX. loans came Average of XX, XXXX, QX these closed consumer of in business million of consumer

XXX, loans originating a equally between million directly consumer of loans, diversified. are million loans unique our well the for about and platform, are we loan loans score Currently, loans $XX to from None student in consumer FICO $XX about loans the the month subprime personal are refinancing. is average consumer the and

expectations during next ahead bit plan of first the for The our is our expenses. half were on this Expenses about item of -- the a year.

of be expected are XXXX. in to second down expenses the However, flat to half

be guidance should provided you. they with year, absolutely aligned had we the that for So the to

$X.XX showed this of a loss XXXX per million however, included BankMobile diluted a a or net segment, provision share. $X.X share, $X.XX For our QX

the second is I'd In quarter as fourth earlier, XXXX. BankMobile. on by addition, earnings weakest for seasonally positive target stated I BankMobile generate is contribution quarter to quarter believe,

On we quality very the credit credit strong in the area. remain quality front,

Nonperforming XX, only loans at equaled of June and were reserves loans points nonperforming total of XXX% basis XX loans.

Our consumer loan portfolio with is expectations average performing is time. X% delinquency better this plus XX-day at than below

We are on track have we provided you. to achieve guidance that the to

that expect you core estimates. $X.XX we with EPS earnings, $X.XX And again, once notable per share. Hence, should highest. you be share, most expected half core being XXXX, over be expected So excluding expected the per $X to will earnings about to analyst's fourth core today, certain second is quarter with per in covering share ahead of XXXX again, items XXXX is for the be of to exceed

hand this Now our over quarter. about Carla unusual information I before for to her it some items let you comments, provide me

corporate collateral as as of May. well customers XXXX. in abrupt, noted mortgage of release were we've in warehouse disappointed ours by of profitable XXXX, as the well a personal They one had out earnings since today's that the as this put weeks are very unexpected since few the As a mortgage guarantees, guarantees, X-K and possession an our and We shutdown been business customer had on we the then ago, extremely collateral sale. auction down bids write extension which were to this securities sale of to to indicated quick and for a held to quick us and levels, them keep our securities, for through as immediately investigating as After and them which loan. GNMA decided we them, of these abrupt the thoroughly additional got hold certain took were a for closing,

good The event that we any loss. will bad trends view news is broader news and we indicative incur only is The risks. a this in an as of here that not underlying any industry or the isolated

having Our Customers the carrying this write-down $X.X auction hold to collateral and in other additional in very commercial in be the are GNMA out by resulted securities. been has Customers to and formal these these excess portfolio -- on expect GNMA not we valuation loans, after interest-only of eventually, continue we confident we longer warehouse from any get this value mortgage does receiving exposure any surprises. no loans that has without this and any its mortgage collateralized for commercial interest the to a loan securities. should of securities warehouse, customer of million cash interest-only credit are have from that of that able

I pursue collect all earlier, plan principal We and have, the guarantees and as this of mentioned we aggressively company, the corporate and to Officer of guarantees personal to efforts Executive Chief deficiency. mortgage owner

be the we on bankruptcy, company unfortunately able matter. to any has Since will questions declared additional this not answer

by and been going annual with we us forward. teams, doing areas bottom cost, On our not that to about basis X% positions that several were in totally the saw at years for This now, we in we the and XX% strategy which resulted million areas severance an eliminated on have I should about us of all also XX expense. our annual $X compensation looked save aligned overall being examined

cost share. onetime recorded severance about or $XXX,XXX, a we $X.XX However,

Now to over -- I'm going to provide details you more some with Carla quarter. about it hand to to the

Carla? So

Carla Leibold

second on and net $X.X per Banking consolidated income I'll segment and results available GAAP $X.X of loss diluted Thanks, a second our the million or was $X.XX Slide million diluted share. a off with Business afternoon, $X.XX our XXXX diluted million per per to From or start consolidated On quarter quarter basis, share. segment reported perspective, common referenced $X.XX Jay, $XX.X good shareholders share X. everyone. or BankMobile net a earned

notable our loss results the of Jay also which interest-only by $X.XX. upon charges, a the lines mortgage on million There mentioned, As and headcount, the acquisition business, mark-to-market $X.XX, in in had GAAP negative second GNMA a earnings about profitable of adjustment This reduced second realized severance first effect the expense securities earlier. of certain that Jay earnings also about for customer our was our reductions warehouse $X.XX. reduced earnings GAAP less from on $XXX,XXX negative being about securities equity quarter $XXX,XXX, described include $X.X quarter the by primarily which of of

$X.XX core quarter the which share. quarter the per to these rounded million Excluding our up million $XX.X diluted second $XX.X or core reported up earnings share, $X.XX items, first of in also diluted from for XXXX, per earnings were of

Slide X. to on Moving

quarter of expanded margin X.XX% of the of that in points in interest the reported quarter XXXX, XX and from XXXX. second the basis the reported to first net Our trough up the in quarter, from up we basis third points X.XX% X.XX% X

the Our cost increased yields over points quarter, earning XX funding our asset basis points. while interest X basis prior increased

the increased Our loan to in quarter. decline point loan commercial partially basis of during multifamily yields basis driven offset due mainly points basis points, X warehouse XX loan yields mortgage and yields basis market XX higher points, consumer of by a increased XX interest by declining rates yield

to related Form some interest borrowings. note we in In the rates during to in slightly that first our our year's XX-Q, quarter X slightly decrease second advantage you'll in and of is we'll XX-Q, liability-sensitive, see that quarter, Of of extended interest X net the reported space margin asset-sensitive. we our we that were quarter particularly took out be the and

Overall, lending We that anticipate the we've that decrease will increase managed negatively margin. consumer our position the us in along months expected not or margin over growth achieve is to to and a restructuring such continued neutral projected in C&I efforts relatively made to forward. effect rates we've expansion on past a allow X with in our going

X. deposits Moving Slide on on to

or deposits of growth XX% year-over-year. were was costs demand we the We period, Total this over quarter. lower about the growth to XX% excited year $XXX close growth the are million million saw that up ago from with $XXX in and deposits second

million. were From commercial growth quarter, first the grew strong We C&I second as grew grew by Slide offset part consumer loans million, in loan multifamily and planned. loans $XXX quarter million loans increases our about under mortgage in just million $XXX in X. shown $XXX as loan XXXX, XX%, $XXX also had decline balances about a warehouse on or These

down in increase see Moving of quarter, the on noninterest expenses to operating an flat second be expecting XX. in the expenses did are second to We but half on in to XXXX. costs Slide and efficiency

a assets average at of For operating Banking which is the expenses stable than lower as our X.X%, and significantly peers percentage overall. the Business segment, remained industry

Slide on quality Turning credit to XX.

don't a was Our loans reiterate basis, and basis balance our well. to mortgage June remarkably average nonperforming to XX we It's on loans charge-offs portfolio total basis loans points. remaining exposure important warehouse to X only At any sheet the XX, customer perform were points only continues discussed year-to-date to earlier. that net to on have

record on interest-only are And the We to used I'll we you, value comfortable the quarter and securities earnings. with acquired Jay. to it back that ultimately fair turn of charge that, in with June second estimated the XX, GNMA our

Jay Sidhu

Thank very Good. much, Carla. you

rest to XXXX, you and further Let what and I our the all items quarterly for outlined are on guidance some you then. note me calls now that the consistent Hopefully, XXXX with also that to October cover at provide you very XXXX. in various Analyst the will we since for of Day will

We are our you. of were, our year. to the margin would of that now report and achieved for X.XX% by X.XX% least end There that already at priorities least expansion year, pleased be at practically have outlined to should as margin think we had end of the of all know, we we you the the by

being loans are We multifamily our and portfolio, to today. the XX% higher reliance decreasing of exactly of consumer much be XX% ratios. about loans being you the view, XXXX We capital expect that and about dramatically capital C&I XX% end XXXX. being multifamily equal our portfolio. and we by by had and be of or portfolio multifamily believe portfolio were of than And should not dependency the loan to at wanted loan we majority That's of end have where talked the year if our from -- capital a portfolio at we've our this into end the end we said a that higher of to less XXXX where of it's to the on point diversifying and of or on in change our mix loan

Label profitable. shared you improvements BankMobile was BankMobile, we working our dramatic to show priority make White in to Another with partner get and to

is you $X to We in with are first That where and least we we wanted XXXX, we've lastly, exactly time, of by or that X.XX% our XXXX. that. at is updated X% what on in And -- that that XXXX, And on we you and we to also in And that you at at you us. $X emphasize share the earnings X from expect track should ROA, to are achieve company that. expect per the least, expect be adding to ROA you is shared we and so want is eventually to are to that which quarter get for target a X our priority should share since for fourth I within should are. number, that then years,

stated about XXXX, bit be our to So margin you year more quarter, margin details, you margin now some full refer earlier, -- fourth just I should X.XX% and should above expect talking interest at expect little XX, by as please with net the I'll our least X.XX%. to with Slide

average -- assets, be portfolio which for move expect first are which pace this with front, expect view, average half companies, you loans earning deposit assets roughly to a XXXX. year's same year, the of the you C&I to point of should to them and of equal you excluding the loans mortgage from last the more in grow that kind On everything should the less detail. saw a loan more than in of interest And been this earning loan analyzed expected bank's nature, to -- expected XXXX. by $XXX in We this to end in are business, we've we've average C&I segment are be of of approximately consumer they and Consumer loans seasonal to loans. the consumer Business great year, about it, deposits X.X% like Banking XX% loans BankMobile these in million grow are the expected

consumer on Business a be to optimistic loans. hope X.X% to Banking we want about We in get of segment will period the are Customers portfolio, -- remain diversification only sector. be in Bank and prime focusing the over this We and time,

billion below $X.X with about multifamily yields have X.XX%. loans, currently in principally loans, We

From growth point in impairment a of During to the $X in during noninterest efficiency security losses, curve, expense about any a slope second noninterest from is these our modest this helpful growth period. very or reducing excluding to down ratio of the about somewhat point half we the XXXX. that to of second first reducing expected view, on flat gains, growth welcome of that. XXXX, plan From half This half loans up. we loan our income expenses you continue expenses and going multifamily more XX% second plans. the And is mid-XXs, ahead XXXX, to perhaps and much recognize curve expense of core in billion should by we expect be as view, were But of our of the the during XXXX, XXXX. we our half focusing that to of XX% make will us, aggressively, during portfolio

-- we earlier, or the that warehouse better we than a now the comfortable are we in right our due but X.X% mortgage mentioned seasonal be range business, perhaps be stressed -- TCE to will principally equal On front, I that ratios to banking, where very like they close the bit are we little to capital -- somewhat capital XXXX. will -- ended mortgage

being will time. We are the we stock from And very we all to that not focused -- becomes buybacks in if on position the preferred time the to callable. of retire preferred as perhaps have some the stock it consider

a fourth and be you From of a effective view, to should earlier, view, expect quarter. be tax they of rate I should you mentioned from as to BankMobile's profit point to rate XX%, XX% in point the our reporting tax

to -- your Luvleen We priorities to to continue Luvleen? questions of to about over so and a now discuss lot get for BankMobile. going performance I'm hand And BankMobile's review.

Luvleen Sidhu

We update business we then. passed experienced mark to student I many have Jay. on business. since significant like brief the would X-year wins since give and the a Thank acquired you, the just BankMobile

at X over have helped approximately school account approximately we students campuses checking with, of significant and also equity X students every to share access XXX new us tool. to enrolled market offer relationships which X XX school XXX,XXX added college-going to gives our student For Vibe new Today, the helps example, contracts, have in segment. goes brand the in we us which solidify

last account, three refi account we also checking to years, that personal credit the simple suite and includes a increased savings from product set a Over have loans. cards student just our product loans,

Vibe are opened month. new also We XX,XXX XXXX, open accounts May the savings of savings product have in since checking launch about accounts choosing to when and a customers a they open are savings the their XX% account. XXX,XXX approximately of account opening

that those account seen also of have in balances their a We who of accounts point-of-sales both terms checking increased their savings usage opened increase customers have and transactions.

seen referral products of credit originations with million through have Upstart. also $XX to million partnership a We million, a million a million month to our a origination to program we have volumes approximately $XX with loan $XX through at with And grow $XX personal approximately OneKey. million $XX $X month

our Although segment. has stayed year-over-year, relatively base deposit flat for overall the student

product and have We are active deposits our the account increased account base our account. XX% balances through our and seeing strength active the of marketing Year-over-year, and increased X%, deposits, refund above active per development. organic beyond by increased coming X%, per which approximately approximately in has engagement account increase have active our are our by per by approximately

show of XX, profitability had Additionally, improve. something primarily and seeing therefore, are score We're service. services customers year-over-year, waste and our now been by of has our who XX% about goal. over our cycle. are still and customer average and the are XXs, which above or is These continuously our $XXX by to fee, active the NPS introduction improvements that business, for jumped can statement time, using monthly which very noninterest When increasing our accounts accounts depositing have of per been we looking in in actively student the and metrics acquired engagements monthly be more the it total which income significantly increased driven the to industry was we financial also proud has for

have and these overall improvements We made cost reducing all while cost. our to

has in to April. Our T-Mobile nearly announcement continues the Today, strategy $XX public the generated with deposits. partnership BXBXC of million MONEY in expand

White any new opportunities keep We with look discussions posted you for here. partners, on significant we'll Label are are updates potential continuing several and and to in

future companies bank have get banks number the of U.S. valuation? looks -- are often BankMobile I There are fintech that emerging should how think There have we the that like relationship. bank partner and what question, does digital in about of growing the

and Number $X.X is $X billion. billion. and For is example, works was still at In hold the with at way brand the attract today Chime bank but We Bank fintech for valued Bancorp the with is Revolut $X.X XX the in uses the these recently products partner and and valued And and most company to ourselves as millions and looking examples, around customers. valued technology today company with U.S. Bank partners to Bank bank billion. and close the innovative customers a as fintech bank banks access the interface a their deposits between similar of our partner. view Customers Axis

Label company, the modern and As our serves developed a also service the banking fintech technology campuses higher that education powers we XXX have space. White that engine our in disbursement

continue customers. We with and XX% invest to White attract, members, Label designs technology retain data help analytics. engage over XXX development, and on have focused technology team over in UX we our partners Today, our to

improving a Going through forward, continue customer combination to service. metrics account efforts, focus and our development product marketing we of student exceptional on

and looking partners White Label in are growing banking We the add money workplace account deposits initiative the T-Mobile and additional are fall. to with focused on a launch

initiatives have you we as to in many look pipeline our grow keeping the updated business, exciting We on forward and the progress.

pass back I you. to would it to Now Jay. Thank like

Jay Sidhu

investment the see And our that consistently That's all Day, with exciting. at we the you Luvleen. that from you, last we let this thought before so to now summarize earnings experience company at achieved more kind higher Analyst Bancorp. call and should I much, for practically since had start that we very outlined much our because of you have you I that rapid Q&A, we Customers -- shared you priorities open already at highlights Thank for me strategic for

strong sheet. a of private is bank as Customers are unique very Bank and our improving balance believe So we dramatically quality and business We using number very banking a model. one, today the franchise single-point-of-contact you that that our know,

highly team clients. years XX plus We have teams, experience every with leader having skilled serving our

risk by because growth of have we've being interest we margins like rates, our on discussed people our on you. and and now you And two, technology believe so position. impact less struggled And a right as flat do and neutral from model three, on of our period bank that factored have what the strong heard think and interest more margins of into significant in organic impacted are this you Number much be and branches. to we've believe our future to with we relies more And far. significant rate we profitability guidance in of not we've number also Carla, we to impact has our we significantly any past changes improving in very that are during time the the kind any curve, should we -- a provided it a

or margin us expect to higher about X%, earlier, with by QX and rates. gradually higher should perhaps or X.XX% ROA stated you even report XXXX, I As decreasing

I've goal earlier. We X.XX% as get a have stated so, margin to years or two within to

risk about we interest with Number strongly operational begins and on strong is believe risk, four compliance. strong credit risk a lower rate maintaining quality, management, focus strong very risk having and controls management

do. from very easy few is never Luvleen, and thousands is of rate across deposits. we not one We is digital Number BankMobile focused of that to deviate hundreds on is are you America, five will attracting the That heard disruptive of as high bank from that. consumers

we digital getting on not and look create banking we now. months We the and be you bank. Bank as to for BankMobile happens checking and a relationships separate attracting become partner value that bank our profitable This substantial are using are That's deposits that tech have at right into accounts appreciation as demand consumer we shareholders, do. company platform and a or easy hope few shareholder banking to all an -- coming within ongoing focused Customers their will

XXXX. We per that Xx trading for attractive very at a or $X book currently value guidance about opportunity. and of less XX% think only And we share are creates or

for open With the questions. that, ask now I operator to will up it

So please? Melissa, can you us help

Operator

question. [Operator Instructions]. we'll our And first take

Michael Perito

I the It's the and Analyst and things. there deck reconcile from kind that bit couple are wanted to a owner-occupied of of funds Mike handful that I date the recall, to show -- the CRE I but was Perito the Day, start if I look I investor are repricing, based quite X at on from couple non-owner-occupied the this trying where -- impact so get C&I the cuts Fed disclosures a book both of of potential year, would and on necessarily also wanted on the better Day? in how CRE, if margin KBW. in the to commercial loans a for prices of the margin a commentary. of understanding the under maturity slides I Analyst a just from later year, it

Jay Sidhu

will of will to any I to add the and comments good Carla I a It's make to request very you. question,

our portfolio. been yielding. because has Mike, of working of getting lowest As gone that at up that rid on of XX% was have time the know, a gradually time portfolio The average multifamily portfolio yield that you that since we

down and replace of our in change lower-yielding in be negative one any cost the minimize we going So of are going higher-yielding timing funding the coming and perhaps continuing with and a kind multifamily on quicker aggressively impact ways margins loans that of our continuing a cost to portfolio our to to is down deposit coming the with the loan them portfolios. yields decrease by to

actually you, to Carla like lot thing liabilities. of in our a extended quarter, is, mentioned second the Second we

are was or funding done our that so not all a our -- saw costs expected. You to go by we up asset-sensitive. have more you what may getting neutral position either than liability-sensitive That

see an will we that be impact, you were maybe expected from could So you benefiting than decreases. our more to what liability-sensitive have to just is rate margin to the have going if

of last well in on item plan is are positioned, of in our rate last assets we've of are funding the our very terms and extended you the liabilities. good hundred And to our mix that ahead of as we a portion well growth of of several we compared one margin sources, year, million and liability, the changing disclosures October especially since our to of our as

we and So change mix margins. is both significant our liability any don't that from see lower such assets rates impact on

Michael Perito

the kind the term of -- and ahead some asset an guess, to where get that plus being you curve taken, risk to part of of the I you've short in neutralizes start of liabilities So remixing environment of extension summarize the kind the if the we any think, moves of plan the down?

Jay Sidhu

I've a you. That shared more is correct and with lot

Michael Perito

to some warehouse apologize time I How have in handful a want general. us warehouse? the wanted you credit. just in starters, bankruptcy I given I I and spend bit noncorporate about information the about proceedings, then know you for specifically, guess, for I the talk can to talk questions, about on And portfolio of I mix the let's guess credit little the that I there. can't mortgage but this start much corporate give portfolio? more of a do versus starters, is

Jay Sidhu

corporate we know warehouse are single-family for what basically... are mortgage or And I noncorporate, all mean all they don't you loans, by loans.

Michael Perito

that I you I confused the what thought That's terminology was little guys you corporate included. guys but a did, by

Jay Sidhu

include that, the them Yes. but we commercial Mike, because call we the now. terminology sorry loans about reason is

So that's why...

Michael Perito

Okay.

So mortgage warehouse residential just portfolio mortgages? entire your is

Jay Sidhu

Yes.

Michael Perito

color this credit your of to size the warehouse you do size was that mortgage what And for? other the any compares and typical of And the how Okay. credit? have on

Jay Sidhu

who XXs because size this our and we million, about size are credit so some is unethical The the using our well-run average highly be the the means, other than mortgage midsize, but was to with dealing that -- ethical nature in size million are turned in mortgage companies one profitable, in credit of warehouse anyway of $XX low perhaps range. out this

Michael Perito

the this credit midpoint? at about was So

Jay Sidhu

is correct. That

Michael Perito

more noticed you of I I'm the it, of Okay. for just couple them the about a and given in And was aspect carry of an against allowance this the that event says loans rethink curious if these don't just makes kind XX-Q, businesses, allowance like I nature the any you here. underwriting portfolio? reading and in that it you

Carla Leibold

a Yes. take accounting We're I'll one. that under model. different

at are value. So their these fair mortgage loans warehouse

recorded type that asset see charge that accounting of take we under to through appropriate ultimately model. the not this noninterest that's it's is brought on allowance And So why an income. you'll

Michael Perito

that or to allowances do against believe that allowances is different there peers this mean, you I hold your an of portfolio, that? -- a hold do accounting can Why some ways do is

Carla Leibold

that. are some ways an different that peers accounting other we've similar and not made election do The value is election. made a to option fair There our of have

Michael Perito

lastly, credits this a just collateral. common of us wondering has that I mentioned of is loan against type holding may are? you of that sense could be Okay. in the was this if give you're more that then the what type collateral only specific you these portfolio a And

Jay Sidhu

loans perhaps we Yes. those instance, The Yes. been which mortgage best directly to the believe got In are collateral the that line this company. did we everybody than title sold took our we required delivered money us. bankruptcy where all And the our money of On keep of has personal the just top looking it collateral we against already, in warehouse at guarantees. of additional to We our collateral. to the knowledge, more that, hold the able they of collateral to whole proceedings. and were of were in consortium corporate only are was the bank more why securities. we common warehouse buyer, when money That's loans, we've On the few GNMA them, loans the that, are comes do which send then required this that, of don't fact, a to is top mortgage they also out closed form collateral, when loans that the collateral -- that's because mortgage in loans we we hold and that guarantees. we is, our they have of got mortgage the to we our and only for hold those and

with here ability then And and to and our a including they that creditors we gentleman's is provide able lucky over working that deal that to we all we till that are other this all every it collateral. give structure and on to So this were on. move collect ahead have their us to single and wait and of the collateral to good going penny to us. with And going we life start get partners, have company an people are make valuation miserable

Michael Perito

Got it. Okay.

understood and just the sure credit wanted of to better. Sorry, I the some [indiscernible. background make I

So I the appreciate all color.

Operator

We'll question. next to our move on

Stephen Moss

the want start B. with Moss with Steve It's guess, I I Riley this quarter. to FBR. purchases here consumer loan

Just on wondering what what is type the of those did consumer loans? And loans purchased? rate you

Jay Sidhu

we do are business. that the we loan what at in Steve, look -- personal is we

loan-to-deposit business, to we have looking wanted use refinance have adopt. on around would XX% but that that models building of in and we the to ratio We student we our our somewhere do of loan quite concentrating -- are are a we been it and sort it want to us a own. and that realized We at BankMobile. bit criteria on that we take thing have time We

get hopefully, Upstart model. And of either it's are biggest loans are. our portfolio These our they we partner way, student ones a that and ours. we under and can X another originations where being of sources. we own decided replace own another and that's credit to we criteria, able where to then our continue -- of in of Prosper well-diversified about different then The a also from So our our loans majority to personal follow refinancing. all partner And model very to so experience big can those SoFi, see or is loan with X, be consumer one And ours... are

Stephen Moss

a single rate the Okay. I assume? digit, just And is high I on loans the guess in

Jay Sidhu

Yes. Yes, That sorry, is yes. single High correct. digits.

Stephen Moss

the saw then the And from on multifamily there. regarding portfolio disclosures the I Okay. side,

have improvement the if you is any capital could Just loans And exposure of wondering properties? you the do quantify major that? what geographic guys

Jay Sidhu

any improvement portfolio any York. No, multifamily of significant loans, and we don't have is New capital or XX% loan our

Stephen Moss

other sorry, I the is of I'm York it guess, in bulk is I And -- like, Okay. within or Manhattan it New boroughs? should perhaps in clarified, have City the by

Jay Sidhu

not boroughs, Manhattan. it not five is -- of not just the a In bulk

Stephen Moss

about balance I neutral just kind the cut but deposit the on on was rate, here of curious position then the And side, hear Okay. of what rates on get this to you the will sheet, guys I just XX had how Feds points those think are where kind we -- you what quarter, you of your the go? deposits guys if basis wondering interest-bearing do thinking

Jay Sidhu

will of XX. a be First basis points all, cut, belief there XX not Fed our is

will the to think wherever our not it's in points about assumed. will worry opportunity and Where that's for going rate So follow, market modeling, XX be we a opportunistic lead. basis increase relationship see we've we we not will share what we And following. are cuts, don't lead to we we an

So that we maximization strategy rate think it's drive -- increase. the business not our strategy of should margin should short-term and

short-term than We margin are of doing maximization other things profits. just to increase rather

rates will to it ahead, work. that deposit when bank away. works, hear it go it love it, every from wait it margin other love they than they nothing tomorrow, seeing are right do I gives opportunity Sometimes cut other please can't I compression. an because us I

Stephen Moss

position? Okay. in mortgage taking terms wondering it you to That's potential strip borrower retain In strategy the selling drove other rates. helpful. default, the then words, the the interest-only risk declining versus And of with acquired just the from what just

Jay Sidhu

folks we went cash those different That engaged -- In we who saw the for bids with higher We securities, are and the significantly got took our we are was securities. Yes. case, than flow credit. strategies, are these they took different I'm flow. securities for out this those sorry, cash they We interest.

if a them. out, at them we paying we can are assumptions them. know we sort will regular stress-tested look yes, ever So will and we see on there we -- not we And basis

Now them to. at working we that the value down are market

we on sort will to will a them regular a These to basis. and not we continue evaluate, fair maturity. So be or of value mark-to-market are holding

Stephen Moss

on to wondering And originations loan a this this particular, if on C&I origination I last I originations was missed now in just Okay. rate your apologize what one commercial the I was I on guess, question -- quarter? just

Jay Sidhu

X% About to X.XX%. between

Operator

we'll on our move next to And question.

Jay Sidhu

this? is Who

Russell Gunther

Yes. questions a I some clarify, I expense wanted It's around with quarter. Russell just to of Gunther Davidson. this the initiatives comments had D.A. couple of made

guys back you the in savings I think half referenced additional of material XXXX.

cost sure you'd around from want where savings those just be are I And then to staff of the those in to $X expect color So just from? the that coming annual addition million maybe would some make get reductions?

Jay Sidhu

Also, we we bank, looking through are expenses. all are of going entire a digitizing process the at

have be looked technology expenses We areas, looking that are -- at at improved, technology also. we can which where

when us the expense that comp you what beyond them the half, that be that's in confidence $X.X combine will second So offset. gives million of all lower of

much future are build so the comp our more expense. are incentive about have We up going confident to -- we earnings, to be we

don't line own you So results to half exceed own second we go comp at or see quite when the the bit you other up on just have the goals now, in a is of Yes, areas half, we the expense right but target besides our see management are and meeting that to our second goals. of it where comp comp in expense the will expense the because year. look exceeding build upon based

Russell Gunther

so And kind initiatives, that you what this be would cost comps bottom your hitting the what savings but boogies maybe we falls net got can Is okay. efficiency then to of guys so if -- -- quantify are because line? are the going you up

Jay Sidhu

are bit saying to little you I down. think we to flat

model, -- your be expenses going just you on down to you $X of at just if half If flat would number. at highest to So the the it's depending them and or be that up look million maybe it's less. first keep down,

Russell Gunther

Okay.

expect grow Okay. for not either loan or And here, guys last or is one then whether consumer organic purchased significantly to me from -- balances you the organically?

Jay Sidhu

$XX a is million to growth organic running So around $XX million month.

pay-offs to less than So that. that's be are going -- our

of this weaknesses at major and like in are you, with the like risk-adjusted and consumer will in opportunities looking nothing into loans reward, profile prime I what see area just we a credits, we from more area. the we prime subprime market seeing are near But there significant. credit we we be the business prime shared So or the see and getting

that. from away staying are We

Our above. definition is and of X.XX% prime

-- really sorry. are we X.XX% above, So and

and So hardly really we -- anything have we X% average That's a to our X.XX% we X.XX%, are bit. little -- X.XX%. but is why between have close

of X.X% do consumer opportunistic it. do BankMobile, to segment loan targeted period see we'll outside it a increase of somewhere time as have don't should to of we to And think a loans. the of part be be the I in but when Bank X% that So Customers over how we we and significant portfolio you

Operator

question. move on to And our we'll next

William Dezellem

at It's Bill have Dezellem X Tieton questions. Capital. I

The trends with And from what of estimate are you in year? assumptions for $X coming T-Mobile preferred secondarily, first you've in deposits one next is your terms seen redemption, with what MONEY? making

Jay Sidhu

by the deposits, me, MONEY in Luvleen of think we XXXX, redemption, I for T-Mobile it's going year, over next excuse have become -- million next $XXX so, as is in million last the and in or callable Carla, you what million? $XX about, $XX brought to far end as which -- X we've the the shared about the months with $XXX as million,

Carla Leibold

$XX.XX million.

Jay Sidhu

$XX-some-whatever-million, $XX so of assumption or we've so. only made an million next redemption the the for year

William Dezellem

please? did And versus of quarter? in the you the the throughout increasing million would $XX see trend Luvleen deposits referenced, first the if numbers release you press those about And that talk the quarter

Jay Sidhu

second limited engaged and limited the growth Phase and quarter. introduction very much them. this in is part the with the happened really digital Well, introduction are latter of T-Mobile, we And by I

to anymore other than want don't we So comment that.

Operator

next question. our And we'll take

Frank Schiraldi

from Schiraldi Sandler. Frank It's

late the of in so was you late front. to curious if the why consumer kind that wanted funding on of of just by design? the starting little with bit deposit kind on Just Was in came get about quarter, quarter? that all on came consumer, talk color the could Just that there

Jay Sidhu

so a What And so try and work together and that would with area, what longer quarter. diligence coming it obviously, this the to took love it we None very company, last we happened have we from some into that just to to happened compliance the revenues process that groups completed push and on third through during -- do That's the as not then We had Frank. have day. of of did to the that thorough just want of the close seller so earlier it various go happened. it a follow we diligence it to including close. is quarter business No, above. and thorough doing we diligence, a happened we the our

Frank Schiraldi

quarter you consumer for the for in C&I the specifically the think Okay. the reserves net consumer Could reserves taken I on -- run in of off. release And multifamily boarded talked that was was then you about in and the what the just $X book? million

Carla Leibold

It $X.X was about million.

Frank Schiraldi

had just number you've talk like reserves in initially higher actually would than why lower the just that X% into average can past, talked seems anticipated the anticipated? versus X% the out much the FICOs you I just think maybe were about than reserves about quarter, levels, have going you a So I coming around

Carla Leibold

Part expecting. of is the were performing what reason initially we but the what seen are also than better we've portfolios

was the consideration that of determining part So the in quarter. second for rate the reserve

Jay Sidhu

review a very reserved. Yes. and -- not not that appropriate under for and thorough definitely We and is do accounting analysis you you'll reserve appropriate the and do over have reserves not

consumer like some that, just assumptions yes, have And assumptions. we to said are were it. who are of the segments, like had consumer with going banks higher conservative So traditionally been you, consumer shared And using hey, charge-offs the and business in the are be the there ignoring we've we top are you the assumes or tranche lenders we bank subprime it quality perform much pick is can but and be customer you type. can would the up more business performing lenders -- everybody selective, much low-prime finance of assumed and if lenders marketplace and had you that -- more like

Frank Schiraldi

to million results. why this now can you the just reserve quarter, talked you And the ask credit releases better-than-expected and allocated where this wonder that if reversed? wanted I about that consumer the we're about -- baked I guess so -- is the yield -- in. X%, you the single in then assume high are X% digits, here And Okay. loans yields so in $X.X also about was I was -- of these I talk mentioned high with million talking What to, $X.X about reserves on the

Jay Sidhu

want to you Carla, take it?

Carla Leibold

was really Yes. When think we we're loans on had was business say and the and banking the to incurred. initially higher residential those ultimately estate on it portfolio have real estimated than a we segment what allocated, in going you loss it and

resulted so in a And release. that

Jay Sidhu

you portfolios. CRA, -- Carla, I'm last we CRA thorough reserves. bit what was view and do review charge-offs, me we we if this, did. well, recall CRA that required exactly doing generally, close if on usually Carla it. do take we but And And acquired think end not to that portfolio better of you the a a to quarter then quite a that that's mentioned generally year, we And we you if what We'd to a high for that's of loans. to I and on had all means, wrong without a without mentioned, be And so reported, that are we expected rather had help CRA the analysis and conservative that portfolio adjust you're conservative exactly

is thought it as So as we this bad be. one not would

Frank Schiraldi

wonder just sort expect take Okay. will provide detail place And be anticipate specifically up what when or Cecil any, on you that just following under of able some then on to additional reserving, Cecil? implementation, you'll with -- if

Carla Leibold

at say what We've X, So we're now. we're see XXXX. disclosures that be team got right not to giving a effect, giving going you is that, this not point we're any guidance dedicated at this in point potential phase going in quarter time, January by good but confident working around might that Potentially, We've queue, some we ready estimate time. our can third through the parallel more partners. on in but our we're got

Jay Sidhu

banks, you're banks to about see find my any I say, who guess seeing right plus/minus a Frank, reserving. Carla's a don't in are different lot is best from a why addition of And comments XX% reason you'll that. that now,

comment provision. will higher that a guarantee you you see if you, I can any, well, made, your So

of to at of to us, stress range be just give it. have we so are with We'd you we or we So are guaranteed completely, unable for be substantiate rather model, and meaningless absolutely we have accurate -- that time. it's and are we this the numbers, testing at able to like done that but agree I in -- movement are time be kind that Carla numbers this

in range. control. be well in it's it's that So And to going

Frank Schiraldi

Okay. BankMobile the just And then can business. one on if last I sneak in, one

structure about what increasing compared low of been student has fees. sort know do disbursement to fee of some talked that I curious, I -- if you about some and competition very just share anticipate additional Just revenue stream your can wonder as you've of the and very, create? that, you you I will you talked the know

Jay Sidhu

we quarter second the first the I implemented of we second, fees majority get some into were Originally, get into June in then forced in hoping went effect and kind to believe. but it Frank, the got fees the of that sure. X, did on

only time, gathered this how a far? at million numbers much so have we've had And few these dollars. Bob, approximately from fees so we incremental

Robert Savino

the at mean $X.X you million if quarter I we're about second think quarter, year. the last Yes. over I up second look

can the definitely see you impact. So

June, second structure. said, the Jay a X the impact new during had As did fee of months impact have of We full partial we first the quarter. the

in fourth. have those do business. will but deposit definitely the see do we the in fees, you more So lift the bit and seasonality we in little our a get third the normal in Keep mind,

of much bigger the activity because be to for going and are the rate, if quite full quarters the full rate not run seasonality. fourth third normalize be the approaching is would run to second were But than and first quarter the So you but what third. is a

Jay Sidhu

products. that performing you've mainly digital best a just which And articulated tech the BankMobile unique look that make interested Luvleen technology, nation. And of that interested are in be interesting, in company, I'd not well to final maximizing comment lot like fees. banks on as X in very a BankMobile the is, developing we so this And we of one the is and to are having at got

who with in not of interested getting customers are and nothing We do just thousands us. hundreds

and guidance our so will hopefully bit fourth we commenting so the very developments up, status the the And about be able more you exciting to give a company that's little of quarter. tech that put why coming we in

Operator

have another And we queue. question do the in

Michael Perito

Perito. Mike It's

was over if but guys you keep you quarter expect just this still I something. -- balance want follow-up. to nice $XX the I kind and mentioned Obviously, assets commentary us the not little or thought forgetting just around year-end. of was wondering color I of under quick Sorry, trend to have billion give a I'm that you try you through had how outlook that could year? it there I'm growth a

pieces the year the you are bit as assets? can of how back a more of color give maybe little And just thinking on the you're the unfolds? half there moving of what of So us trajectory some

Jay Sidhu

you've comments. entire again, mortgage helping our environment, Sure. the to to Carla, of remain noticed Sure. the I'll the third our average and expect first to year. try please assets that add half strong of continue kind from be earning than business a rate to my we in In this what warehouse higher quarter,

assets you fourth average looking expanded the in potentially addition So billion. earning billion earnings should by sheet the margin. incremental even provide expect in be be our $X.X the to quarter as to high through us balance year to to some half second the may $X as to continuing are or reducing in And we at then the about of

that. we are executing the more of at as the you fourth hopefully, in to will that, that on and part We to give how guidance beginning to sometime looking we different third so quarter in do latter the or of are quarter able many be ways

Michael Perito

Great. Okay.

the Is that... to from guys bank to $XX take going billion. at to modeling the but perspective, $XX end basis, So of a under be the action going are are I guess the year billion, average on balances a you above keep period-end fundamentally

Jay Sidhu

will questions? much as $X.X that could so modeling the all going you for any the more earning that's is Melissa, half, Yes. earnings at add asset higher, in could to to to Mike, or be assume purposes. And assets least there and billion got be -- be second are earning

Operator

further no questions this I time. show at

Jay Sidhu

much, thank and gentlemen. ladies Well, Okay. you very

a longer, Sorry, Thanks have good so we little but is this questions. bit your and a day. much, appreciate

Operator

Thank today. conclude That does participation. for you for your conference our

Customers Bancorp (CUBI) 24 Jul 192019 Q2 Earnings call transcript