• Core Earnings Per Share: $1.34 in the quarter.
• Net Income: $43.8 million.
• Return on Common Equity (ROCE): 10.7%.
• Return on Average Assets (ROAA): 89 basis points.
• Loan Growth: 16% annualized pace.
• Deposit Growth: 9% annualized increase.
• Tangible Book Value: Nearly $53 per share, 18% annualized growth.
• Net Interest Income: $159 million in the quarter.
• Net Interest Margin (NIM): 3.06%.
• Non-Performing Assets (NPA) Ratio: Improved to 22 basis points.
• Net Charge-Offs: Declined by about $1.7 million or 9%.
• Deposit Inflows: $1.1 billion, primarily from commercial clients.
• New Commercial Accounts: Close to 4,000 net new accounts added in the last year.
• Capital Ratios: CET1 at 12.5%, TCE to TA at 7.7%.
• Liquidity Coverage: 183% coverage of immediately available liquidity to uninsured deposits.

• Warning! GuruFocus has detected 6 Warning Signs with CGAU.

Release Date: November 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Customers Bancorp Inc (NYSE:CUBI) reported strong high-quality diversified loan growth at a 16% annualized pace, demonstrating resilience against industry trends.
• The company achieved nearly $53 per share in tangible book value, with an 18% annualized growth in the quarter, marking one of the best performances in the industry.
• CUBI's liquidity metrics remain robust, with a strong coverage of immediately available liquidity to uninsured deposits at 183%.
• The bank's credit quality remains a strong point, with improvements across most credit metrics, including a decline in special mention and substandard loans.
• CUBI's new banking teams have shown impressive results, generating about $370 million of relationship-based deposit growth in the quarter alone.

Negative Points

• The reported net interest margin declined in the quarter, primarily due to lower discount accretion from the acquired loan portfolio and lower prepayment income.
• Core non-interest expenses increased, driven by investments in new hires and risk management infrastructure, impacting short-term profitability.
• The bank is experiencing temporary elevated non-interest expenses due to ongoing investments in risk management and compliance platforms.
• Despite strong deposit inflows, the timing of deposit remixing has not yet fully translated into reduced interest expenses.
• CUBI is under a regulatory written agreement related to its digital asset business, requiring enhancements in risk management and compliance.

Q & A Highlights

Q: Can you explain the balance sheet remix and its impact on asset sensitivity and deposit pricing trends? A: Philip Watkins, CFO, explained that the remix involved increasing fixed-rate lending and implementing forward-starting swap hedges to convert fixed to floating on the liability side. The securities portfolio was also repositioned to trade out floating rate securities for longer-duration fixed-rate assets, enhancing liquidity and reducing asset sensitivity. Sam Sidhu, CEO, added that deposit pricing for new inflows was in the low 3% range, with a significant remix from higher-cost deposits at 5.25% to lower-cost deposits.

Q: What is the average size of the new deposit accounts, and how granular are they? A: Sam Sidhu, CEO, noted that the new deposit accounts are highly granular, with an average size in the couple of hundred thousand range. Some accounts have $5 million to $10 million in deposits, typically from clients with significant operational expenses. The accounts are geographically focused in key markets like New York City and the West Coast.

Q: Why haven't deposit costs decreased despite the deposit remix, and when will this impact NII growth? A: Philip Watkins, CFO, explained that the timing of the remix and the onboarding of new accounts contributed to the current deposit cost levels. Some new accounts are from organizations with higher rates, which affects immediate cost reduction. Sam Sidhu, CEO, added that while loans were higher, average loan balances were lower due to unexpected payoffs, impacting the overall margin.

Q: What is the expected impact of the deposit remix on future balance sheet growth? A: Sam Sidhu, CEO, stated that the deposit remix will continue for a few quarters, with gross deposit inflows exceeding loan growth. Once the remix is complete, balance sheet growth is expected to increase, driven by high-quality deposit growth.

Q: How is the digital asset business being managed in light of the regulatory order, and what is its future outlook? A: Sam Sidhu, CEO, emphasized that the digital asset business, CBIT, is primarily a payments business with a focus on risk management. The company is investing in a proprietary payments platform to enhance risk and compliance. Fee income from this business is expected to be a few hundred thousand dollars per month, and the company aims to create a regulatory moat around the business for long-term success.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.