Customers Bancorp Inc (CUBI) 2017 Q4 法說會逐字稿

Good day everyone and welcome to the Fourth Quarter 2017 Customers Bancorp Incorporated earnings call. Today's conference is being recorded. At this time, I?d like to turn the call over to Bob Ramsey, Head of Investor Relations and Strategic Planning for Customers Bancorp. Please go ahead, sir.

Thank you, Dana, and good morning everyone. Customer Bancorp's fourth quarter earnings release and accompanying slide deck was issued yesterday evening and is posted on the company's website at www.customersbank.com.

Representing the company on the call today are Jay Sidhu, Chairman and Chief Executive Officer; Bob Wahlman, Chief Financial Officer; Dick Ehst, Chief Operating Officer and myself, Bob Ramsey, Director of Investor Relations and Strategic Planning.

Before we begin we?d like to remind you that some of the statements we make today may be considered forward-looking. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual performance or results to differ materially including the risks that the results are different than currently anticipated. Please note that these forward-looking statements speak only as of the date of this presentation and undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws.

Please refer to our SEC filings including our report on form 10K and also the 10-Q for a more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the Investor Relations section of our website. At this time, it's my pleasure to introduce Customer Bancorp's CEO, Jay Sidhu. Jay, the floor is yours.

Yeah. Thank you very much, Bob, and good morning, ladies and gentlemen. Delighted to welcome you to this fourth quarter and 2017 investor call. We are very pleased with the results and I wanted to just share with you that we have set three priorities in 2017 and share with you a little bit on the progress made on all of those priorities.

Number one was set a very strong foundation for our core business bank in 2017 so that we would be executing on our unique strategy as well as very important for us, was achieving our capital targets by December 31, 2017.

Our second priority was to have a very clear strategy for creating one of America's best performing digital banks called BankMobile and give it to our shareholders in a clear path providing very extensive short-term and in our opinion, possible long-term value for our shareholders.

And a third priority in 2017 was to establish a very clear path going forward for Customers Bank, showing the market how it is clearly possible for our shareholder value to approximately double over the next four years or so. So, I?m pleased to now give you an update on all of these.

As you know from our press release regarding the strong foundation on our core business bank, in 2017 we reported earnings per share of $2.60 excluding securities gains and losses in 2017. In the fourth quarter our earnings per share for our core bank was $0.68 per diluted share despite our shrinking of our balance sheet by about 10% in the last six months of 2017 so that we could meet our capital targets by December 31, 2017, as well as give ourselves some headroom so that we can execute on our absolutely without any risk, on our clear strategy for creating one of America's best performing digital banks and giving it to our shareholders in a tax-free transaction. So, we are pleased with that.

How did our core bank do? The most important thing I wanted to share with you was our margin. So, we increased our net interest margin by 17 basis points in fourth quarter to 2.79% and that was done by our execution of certain transactions by us in shifting away from lower yielding assets into higher yielding assets and also changing the mix of our liabilities and getting normalized prepayment fees from our multifamily clients.

As far as capital is concerned as you may have seen from our press release, our shareholder equity continued to increase. Our tangible book value continued to increase and more and most important is our Tier 1 leverage capital ratio was about 9% for fourth quarter 2017 at December 31, and our tangible common equity to tangible asset ratio was 7%. Just a little over a year ago this was around 6% and we were very pleased with the execution of this in a manner that's the best treatment for our shareholders.

Included in our results for the year is our deferred tax asset charge of $5.5 million. That number was as some of you may have seen from our financial reports, up to about 10 million. We managed that very well to try to reduce that charge in the fourth quarter by executing on certain strategies. And at the same time, I?ll talk more about it -- I decided to exercise all my vested stock options so that the company can benefit from them in a higher tax rate time period in 2017 and at the same time, I put myself in a very good position to enjoy the benefits of our shareholders in receiving $3.50 to $4.00 of value in BankMobile when we give that stock dividend basically to our shareholders.

At this time, I?d like to hand it over to Bob Wahlman to talk a little bit more about our financial results.

Thank you, Jay, and good morning everyone. One strategic objective that we had at the end of the fourth quarter 2017 I?d like to spend just a moment on before I look at the operational piece, was that we did target having assets under $10 billion as of December 31. Customers achieved this objective which was a critical objective for us reporting assets of $9.8 billion as of December 31, down approximately $700 million from September 30. And this was accomplished without damaging Customers? franchise by taking advantage of the seasonally lower mortgage warehouse balances, selling a small portion of lower yielding multifamily and residential mortgage loans, which helped increased the yields that Jay referred to and the limited amount of those investment securities.

As Jay noted, while these lower level of assets helped improve Customers? capital ratios so that the capital levels and ratios were at substantively our targeted levels at year end and provided the additional benefit of maintaining Customers? classification as a small issuer of debit cards pursuant to the Durbin Amendment. This classification will allow BankMobile to continue to receive the same interchange fees as long as they are associated with Customers Banks through the planned disposition.

So, turning now to the operational elements of Customers? fourth-quarter earnings compared to fourth quarter of 2016, Q4 2017 net interest income was $68.3 million or an increase of $4.2 million or 6.5% from Q4 2016 as average earning assets increased about $400 million or 5% despite the engineered decline in the Q4 2017 assets to 700 million I just talked about.

Q4 2017 margin, net interest margin as Jay noted was 2.79%, up 17 basis points from Q3 2017 and down five basis points from a year ago. And Jay has already described that there is two primary sources for that, managing the asset yields on our portfolio as well as the prepayments returning to a more normalized level.

Investment security yields in our securities portfolio were 2.89% in Q4 2017, that's up from 2.65% on the $570 million average securities balance, portfolio balance which helped bring up the yields. Loan yields for the quarter were 4.08% in the fourth quarter compared to 3.83% in the fourth quarter 2016 again, indicating a continuing threat of increasing loan yields in our portfolio. Average loan balances as noted were up $700 million in Q4 2017 to $8.9 billion compared to the $8.2 billion at Q4 2016. Commercial and industrial loans were up approximately $300 million year over year and multifamily loans made up a predominant portion of the rest of the increase, up about $500 million year over year.

Just in terms of what we?re recording loans on, at this point in time the average coupon rate for over $500 million of loans originated Q4 2017 was approximately 4.15%. Looking at the funding side, average deposits and borrowings total were up nearly $800 million in Q4 2017 compared to Q4 2016 at $9.2 billion. Average non-interest demand deposits were up approximately $100 million and average interest-bearing costs were up about $300 million. Interest-bearing demand deposits were up $300 million at a cost of 99 basis points. Average bond new market deposits year-over-year were up about $100 million and then we have CDs of about $2.1 billion carrying a cost of 1.37%, they?re down about $700 Q4 2017 versus ?16 as we work off our brokered CDs.

Turning to noninterest income, noninterest income was up $4.6 million at $19.7 million compared to 15.1 million a year ago. The 15.1 million was deflated because of the Religare impairment charge that was taken in the fourth quarter of 2016 of $7.3 million. There is no impairment charge for the Religare Enterprises equity investment in the fourth quarter of 2017.

Turning to noninterest expense, noninterest expense was up $4.9 million in Q4 of 2017 to $54.8 million compared to $49.9 million in Q4 2016. The primary driver of this is technology, communication and bank operations expenses were up $4.8 million in 2017 compared to 2016. This is due to 3 different factors.

First of all, the Q4 2016 number was low, it was deflated a bit because we had a savings that came through in the fourth quarter of 2016 that reduced that expense, but we are incurring a little bit higher level of expenses as we go through systems conversion of our core applications that will provide us significant cost savings in the future. And then there are certain noncapitalizable development costs related to our development of the white label debit card services. Those are the primary drivers.

The rest of the noninterest expenses net were substantially flat year over year with increased compensation expense offset by savings in the other expense areas. The Community Bank segment efficiency ratio was 46% for the fourth quarter 2017 compared to 48% for the fourth quarter of 2016. Overall, combining the community banking segment and the BankMobile segment, the efficiency ratio was 61.6% for the quarter.

So, that concludes the financial overview. Jay, I?ll hand it back to you.

Thank you very much, Bob. In terms of our core business as Bob sort of covered there are two important points I?d like to emphasize. Number one is the non-interest-bearing deposits grew 28% in 2017 and our C&I loans grew by 19% in 2017 and those are in our opinion, very important drivers of value creation besides having strong asset quality, which we were able to maintain in 2017 as well as strong capital ratios which I?ve already discussed.

At this time, it's very important for us to discuss with you our views on 2018 as well as long-term shareholder value creation and regarding 2018 I?d like to hand it over to Bob Ramsey to share with you some of our strategic priorities and plans.

Thank you, Jay. So, yeah, first I just wanted to quickly overview our top three strategic priorities for 2018 and then I?ll talk a little bit about our outlook. The first strategic priority is to maintain strong capital ratios. We were very pleased to end 2017 with a tangible common equity ratio of 7.0%, in line with our target and in fact we substantially achieved all of our capital ratio targets at the end of the year. Our expectation for 2018 is to end the year with capital ratios at similar levels with balance sheet growth that is supported by internally generated capital, although capital ratios will likely dip as we go through the middle part of the year given the typical seasonality of our businesses.

Our second strategic priority for 2018 is to grow and successfully divest BankMobile. Despite headwinds from the Department of Education rule changes, BankMobile reported modest year-over-year growth in average deposit balances and disbursement business. And in case anyone missed it, I did want to mention that our investor deck this quarter includes eight quarter income statement for the BankMobile segment with an expanded breakout of that business's fee income and expenses.

We continue to make progress on the white label partnership that we?ve previously disclosed or talked about for that business and we believe will be a real source of growth for BankMobile going forward. And our planned spinoff and merger with Flagship is absolutely on track.

Our third strategic priority for 2018 is to grow and improve the profitability of the core community business bank segment. The Bank, this is the business that we?ll be left with after the BankMobile spinoff. We?re proud of that business's accomplishments in terms of expense management for 2017. In fact, we actually managed to slightly reduce that segment's overall expenses for the year despite growth in revenues. And growing revenues faster than expenses is always a goal at Customers Bank. Credit quality also is a strength of that business with net charge-offs in the single basis point level and nonperforming loans equal to just 30 basis points of total loans.

A couple other accomplishments which Jay already mentioned but bear mentioning again that we?re particularly proud of are the 19% year-over-year growth in C&I loans and 28% year-over-year growth in non-interest-bearing demand deposits and I just want to reiterate that is at the bank segment that does not include the BankMobile business, that's purely at the bank. While growth in non-interest-bearing deposits was strong this year, we know the core deposit funding has room for improvement and all of our business units are focused on core deposit growth and we?re rolling out certain new deposit products as well.

BankMobile's divestiture may partially obscure some of the company's core deposit growth this year on a consolidated basis but I want to remind everyone that from an income statement impact, the segment reporting does reflect the community business bank paying just over 2% for BankMobile's non-interest-bearing deposits.

Now I?d like to turn to our 2018 Outlook. Given BankMobile's seasonality, its impact on our consolidated financials until divestiture and tax reform, we?ve decided to provide more guidance in 2018 then we have in the past or likely will in the future, to help the market understand how we are thinking about the earnings power of our core banking business. For our core community business bank segment, we are targeting EPS of $2.75 to $3.00 per share. Now I want to put this in the context of a $3.00 EPS target that was given back in 2016.

Since the time that target was given, the company has issued additional stock and diluted our common share count by approximately 10%. We also made the strategic decision to reduce the size of our balance sheet by about 10% at the end of 2017 and issued additional preferred equity. All of these items, the negative impact of all of these items were largely offset by recent tax reform which puts us back in the same general ballpark in terms of earnings power.

The key drivers of our $2.75 to $3.00 in EPS for the bank segment are as follows. We are predicting about 12% to 15% growth in total assets, a net interest margin for the full year of 2.70% to 2.80%, an efficiency ratio for the bank segment in the high 40s, fee income of approximately $35 million to $40 million, an effective tax rate of 24%. Those are all full year numbers for the bank segment then I?d also like to remind everyone that the first-quarter earnings are seasonally impacted by lower average balances in the mortgage warehouse business, a shorter day count and seasonal increases in compensation expense.

Thinking about BankMobile, we continue to invest in that business and revenues and balances are very seasonal. The full year impact will really depend on the exact timing of the divestiture and so we can?t tell you exactly what that business will do for the full year, but we do expect on a quarterly basis the profitability to range from a slight profit to as much as a $4.5 million loss quarterly.

At this point I?d like to turn the call back over to Jay.

Okay, thank you very much, Bob. We remain, as you heard from Bob, very excited about 2018 outlook but I also wanted to cover some strategic priorities with you which go beyond 2018 and maybe also try to answer some of the questions that we often get asked.

First question which we always get asked is talking a little bit more about BankMobile. So, I?m, we are very, very confident about Flagship's ability to raise new equity. Flagship has decided to pursue an IPO rather than a private placement which we think is a very good move on their part and this will give much broader, more transparent and a process that their investment bankers have assured us will get executed based upon every single thing that they have reviewed so far.

So BankMobile today as you know, has had more time to develop a track record and it has become an absolute dominant in the business of offering banking services to college students in the United States. One-third, 33%, of every single college-bound student in the United States is offered a BankMobile product today, which is absolutely unbelievable opportunity for them to take advantage of, of this opportunity with millennials.

Additionally, BankMobile continues to develop an exciting white label partnership which it expects to launch in the first half of 2018. We expect the partner and potential of this partnership to generate strong core deposits, which we believe will be viewed very favorably by the market and enhance BankMobile's shareholder value.

I also want to make it very clear that now that we will be able to transfer value of BankMobile in a tax-free spinoff to all our shareholders there will not be any incentive payouts under the December 2016 cash compensation agreement, and Customers Bancorp does not intend to make any payments hence as a result of this transaction.

The new publicly traded company called BankMobile will set up its own stock and cash-based performance incentive compensation plans following the divestiture or the spin by Customers Bank. Another important thing to note is that Customers Bancorp will not retain any ownership of BankMobile since we are giving it all directly to our shareholders, and that BankMobile will not have any Customers? employees involved in any way, in any role at BankMobile.

Customers Bancorp is going to remain very focused on its core business of serving as a business bank and BankMobile will be a totally self-sustaining independent bank and taking over the charter of Flagship and the only link between the two companies is that I have been asked to sit on the BankMobile's, new BankMobile's board and I will be one of 10 to12 directors, independent directors, on their board.

As a way of transition to some comments on CUBI's core banking franchise I wanted to mention a little bit again about my stock option exercise in late 2017 and this was done as I shared with you earlier, to really help improve the capital ratios and to help us achieve our goal of the capital targets at December 31, and take advantage of the higher tax rates of 2017 rather than reduce the benefit to the company in 2018.

And this has resulted in the company's capital being benefited by at least 3 to $4 million and as such by the exercising of these options even though it's going to cost in earnings per share, if I would have exercised them in the first or the second quarter normally it would have resulted in somewhere around $5 million or so tax benefit in 2018, $4 million tax benefit in 2018 compared to a 7 million or so benefit that the company was able to realize by my exercising in 2017. I?m excited that this exercise of the option enables me to participate in the BankMobile spinoff in a bigger way, receiving the BankMobile stock dividend on those shares sometime during the second quarter of 2018.

While this was a cashless exercise, I sold no shares, nor do I intend to as I?m very excited about the future for both Customers Bancorp stock as well as BankMobile stock that I will receive as a result of being a large shareholder of Customers Bancorp.

Now on to the longer-term prospects and our opinion about Customers Bancorp stock and those are the questions we always get asked. In simple terms I think the stock could double over the next four years. I believe the company is capable of earning $4.00 per share within a four-year period and at a 15 times multiple that equates to about $60 in value or roughly double the current stock price. And that is before giving any consideration to the stock and BankMobile that I along with every shareholder will receive from the spinoff.

It is our best estimate today that the value of the stock that we will provide to every single shareholder will be somewhere in the $3.50 to $4.00 range and that's going to be a very significant benefit, in our opinion, for our shareholders. So how does CUBI grow EPS from $2.75 or $3.00 a share in 2018 to $4.00 or so in four years you may ask? We can achieve that level of profitability as we hit our targeted return on assets of about 1% by the end of 2018 and 1.1% by sometime in 2019. And if you apply that return on 14 billion of assets which is a very conservative number for us in four years, you can see that we can be earning $4.00 per share comfortably within a four-year period.

Talking a little bit about the uniqueness of Customers Bancorp strategy going forward, it's is very simple. It is focusing on a few things, providing exceptional service to our business customers, being very focused on all of the things we do for them and at the same time being very aware of some of the things we will not be doing for them, and that is a very important aspect in our opinion of strategic clarity and unique strategy.

Some of the people in the banking industry call this strategy single point of contact. We call it single point of contact private banking strategy for Customers Bancorp. This is a strategy that has resulted in 2017 growing our C&I loans by 19% and our non-interest-bearing deposits by 28% and we are very confident that we can maintain these kind of growth rates going forward in our core franchise.

In terms of expansion, geographic expansion, in the fourth quarter we opened up a new office in Chicago and in the first quarter we expect to open our office in Washington DC this quarter. Our office in Chicago is fully staffed. We have hired a team away from a local bank with a tremendous track record and we are very excited about the capabilities of that team. Our team leader in Washington DC comes to us from Bank of America, he's already on our -- part of our team right now and we have very high expectations for growth from these two markets and our team, quality of our team is absolutely exceptional. We expect to break even within one year at both of these locations.

For 2018 this is only geographic expansion that we are planning and what we would intend to do is to add on to our teams in other markets, especially in Philadelphia. We are in very late discussions with an exceptional team to be picked up and added to our existing teams in Philadelphia.

We have received some questions recently about our launch 2% bonus checking product, this is a new trial product to see how depositors will respond and use very attractive product in a consumer market by a bank that doesn?t have branches. And as a hypothetical example let me to share with you the logic behind this product.

So, let's say a depositor with an average balance of $10,000 in their checking account, their paycheck coming into their account resulting in a monthly spend of their debit cards of about $1000. By staying below 10,000, by staying below 10 billion at December 31, 2017, from this monthly spend of about $1000 a month we would generate interchange revenues of approximately $144 a year, which is about 1.2% of your monthly charges or 1.2% of $12,000 for the year on the debit card interchange.

The interest expense would be about $200 on the approximate $10,000 balance. So, the net cost of this account to us is 56 basis points and we have a huge strategic advantage of combining a size of a bank, of a Customers Bank, with the advantages of Durban for another 18 months and this is an exceptional opportunity for us. So, that's why we introduced this product and we have similar plans to take advantage of digital banking also by Customers Bancorp for the benefit of our existing customers and new prospects and become a much stronger bank from a deposits point of view also.

So, in conclusion I?m very excited about 2018 for both our core bank franchise as well as for BankMobile. This will be a very exciting year for our shareholders. They ought to see a significant amount of increases in their shareholder value through the branch spinoff and at this point, I would like to open the lineup for any kind of questions you may have. So, Dana, can you help us out please?

Yes. Thank you, sir. (Operator Instructions). And we?ll go first, please announce your name.

Good morning. It's Steve Moss.

Oh, hi, Steve. How are you?

Good. With regard to the BankMobile transaction spinoff here, how should we think about the milestones and the progress of the transaction here over the next several months?

Thanks, Steve. Good question. Like we?ve stated before but let me spend a little bit more time on this to fully answer your question. So, we expect Flagship to file an application with FDIC next week and so by the end of this month the FDIC will have a complete application filed by Flagship for the acquisition of the entire business, as well as the deposits, even though technically the only regulatory approval needed by Flagship is for the deposits. But rightfully so, Flagship is taking the right approach and prepared a very extensive strategic plan for FDIC's benefit and we are very confident that they are doing everything right and that?ll be done by the end of this month.

They did invite, Flagship did invite me, for a meeting that they had set up with the FDIC and that was a very good meeting to educate and to share with FDIC some of the plan. So that should be in place by the end of this month.

Number two is Customers Bancorp will file with the SEC for the spinoff of the BankMobile Technologies, but we intend to do that after our audit is complete. So that means after we file our 10K and we expect to file our 10K by the last week in February. So probably in March, early March of 2018, you should expect CUBI to file with the SEC for the spinoff of the BankMobile Technologies. We?ve already set up and move the assets of BankMobile, other than deposits, into our subsidiary called BankMobile Technologies and that is the subsidiary which will be spun off to our shareholders. And then there's a separate transaction whereby Flagship will be acquiring the deposits and merging the two to become the new BankMobile.

Flagship has also informed us that they intend to file a registration statement for the IPO with FDIC after they?ve completed their audited financial statements. As you know, Flagship is a private bank, so they didn?t have -- they need to follow the appropriate audit standards for a public company. They expect to get that accomplished by the end of February also. So, the registration statement, similar to the SEC statement however, since Flagship will not become a bank holding company they intend to file it with the FDIC in the March timeframe.

CUBI then will announce a record date for spinoff and that record date we expect to be somewhere in the second quarter of 2018 and we think that?ll be the important record date so that all our shareholders who will be our shareholders of record on that date are the ones that will receive this dividend of BankMobile Technologies due further execution of the spinoff.

Flagship has informed us that their IPO will be completed sometime in the middle of 2018. They have shared with us all the different firms that they have interviewed and that they have selected two nationally known investment banking firms to be involved in their IPO. So, we believe that CUBI's dividends of the BankMobile Technologies to its shareholders, as well as Flagship's acquisition of the BankMobile Technologies will all take place at the conclusion of the IPO.

Now what is the best way I think to think about the BankMobile profitability which would be a normal question for BankMobile, for Customers Bancorp shareholders to be asking if they?re getting a dividend. And in our opinion BankMobile segment reporting that we have provided in a very detailed now if you look at our investor deck, Steve, we?ve given you a lot of detailed information on BankMobile. But the net interest income is based upon just about a 2% yield of credit, interest credit being given on all of the non-interest-bearing and interest-bearing deposits of BankMobile.

So once this business is independent it?ll be able to invest those deposits and earning assets at a market rate which we could encourage you to make your own assumptions what those rates are but if they happen to be 4% you can see that the net interest income just from their existing business would be two times what we have reported. And so, while BankMobile may still lose money based upon the wider margin in 2017, but we think it would have been significantly less. And looking ahead one can only guess where this business can go. The benefits of BankMobile having the white label partners, BankMobile is already has one large white label partner and is in discussions with several others. But we will leave that for Flagship's management to discuss and we are only answering questions for the benefit of our existing shareholders.

So long winded answer, Steve, for a pretty good question.

In terms of -- just one follow-up there maybe you can?t comment on this but just what is the timing of the launch of the white label partnership in terms of public announcement and so forth?

Steve, we expect it to happen in the first half of 2018.

Okay. Okay, that's helpful. And then with regard to the margin guidance for the bank, in terms of how many rate hikes are you including your assumptions, the timing of those rate hikes? Can you just walk through loan yields and fees and interest-bearing deposit costs, I?m sorry?

Yeah, we?ve assumed two rate hikes in 2018 and they are all factored into the guidance that we provided to you and how Bob Ramsey walked through some of those assumptions, they all incorporate two rate hikes in 2018, one in March and one in the second half of 2018.

Okay. And in terms of the mortgage warehouse business, how should we think about the growth of that business in 2018 perhaps on an average basis?

I think first quarter will be seasonally low and as you?ve seen. But I think if you look at our 2017 performance our expectation is that 2018 will be pretty close to the 2017 average balances during the year. The market is expected to be slightly slower in 2018 compared to 2017 but we are picking up a few more clients. So, our guidance to you would be to use approximately the numbers of 2017 on a quarter by quarter basis for 2018.

All right. Well, thank you very much.

We'll go to our next question. Please go ahead, caller.

Good morning, guys. Mike Perito, KBW. A few questions for me, one financial and maybe a couple of strategic questions. One, either Jay or Bob, just curious I was trying to delineate in the press release but obviously there's a few moving parts with the BankMobile deposits still in numbers. But can you maybe just give us an update over kind of the last six months or so how some of the deposit initiatives you?ve done on the core legacy bank have tracked and then with both these DC and Chicago offices pegged to be open in short order here, how you kind of expect those to trend in the early part of next year?

We are shooting for deposit growth of about $1 billion in 2018 and that would be a combination of core deposits and maybe some wholesale deposits. The majority of it is our emphasis will be core deposits. This will be coming from our existing customers as well as new customers that we?ve targeted in all our geographic markets. All our teams, Mike, as you know, are compensated based upon achievement of their deposit goals as well as earning asset goals as well as fee income goals. And they do take responsibility for all their expenses and the quality of their assets. So, it's like running their own bank and that is how we are able to attract very high-quality teams.

Right now, to give you an example in New York at December 31, our deposits were 2.1 billion and we don?t have a single office and it works out of I?m sure you may have visited, out of the 11th floor or so of 101 Park Ave. But our legal office in New York happens to be in Rye Brook so our team service their clients out of that same Rye Brook office.

Similarly, our teams in New England are very focused on deposit generation in 2018 [unintelligible] we had about 160 million in deposits in 2017. And in Philadelphia we are targeting higher deposit growth, and Chicago and Washington teams are going to be focused on both liabilities as well as assets.

And do you guys feel that especially the newer offices I guess you mentioned specifically in Chicago you feel like you have the team in place, I mean are you guys kind of comfortable with the treasury management talent across the franchise at this point or is that an area of emphasis moving forward?

We believe and Dick, maybe you could comment on that more, but I believe that we already have all of the treasury management products and services. We?ve been working on that for over a year now to be able to attract business. But I?ll let Dick comment on that.

Yes. No, thank you, Jay. We have completed the development of our treasury products effective about 30 days ago. But also, in addition to that, our conversion and schedule for 26 February, will complete our new product development with significant product enhancements to serve our multifamily customers in the New York market.

Great, thanks. And then a couple of strategic questions for you, Jay. I guess one, I appreciate the color on this 2% checking account and kind of the financials behind it. I guess depending on how it's received by the markets I guess at some point moving forward given the growth outlook you guys have and the spinoff of BankMobile obviously the interchange piece of it will be a little less attractive. But curious what you guys think you could kind of learn and maybe take from this trial here to try and emphasize gaining new clients going forward as you guys see it?

Mike, it's in our opinion it's very critical to have deep relationships with your customers and that is how we built Customers Bancorp. Right now, all our lending relationships we have core banking relationships with them. We don?t have any borrowers with no deposit relationships with us. I just want to make that very clear as a part of our strategy. We are not a wholesale bank.

We are a franchise building community bank that happens to be very focused on the business banking segment. In the business banking segment, you have businesses and you have employees and you have top managements of those businesses. So, the products that we?ve developed including the bonus checking and we have in place private banking products that we have developed and are in the process of completing some of the developments further, will be private banking type services for the managements of all our business clients. And that is a very important part of our strategy to have deeper relationships with all our clients and to provide them that Concierge Banking which is High Touch supported with High Tech type of banking and that is why we are very confident about the success we will achieve on the deposit side of it to supplement building the asset side of the balance sheet.

So, we are focusing on a 20% plus/minus growth in C&I loans in 2018 and in addition to that, but our growth rate on the deposit side should be greater and the core deposit side should be greater. We recognize today we have above average share of some wholesale deposits as well as some broker deposits, and our intention is to gradually as we generate the deposit growth that we would be reducing our reliance on those areas and having more of a core franchise continuing to experiment, continuing to combine digital banking, electronic banking services to our private banking offerings. And that is our strategic plan to improve the quality and value of our franchise.

Got it. Helpful. Thank you. And then just last one, appreciate also the update on the BankMobile spin and everything, it's helpful. Just curious and obviously you guys have been working side-by-side with BankMobile for several years now and there's been a lot of investment on the digital side. I?m just curious if there's anything Customers have kind of learned or is going to take from some of those investments to help frame or benefit their kind of technological and digital approach to banking going forward? I?m not sure if that question makes total sense. I can clarify further if you need. But I guess just kind of curious what if any you guys can say that you learned from the process that could benefit the future Customers Bank outlook?

I think it's a very good question, Mike, that you?ve asked and that is what have we learned in terms of approach of community banking to small and medium-size businesses and consumers. Because traditionally as you know the purpose of a bank branch is to attract customers and then to use the ATM network in those branches so that your customers can continue to get money from that bank without having to incur charges for ATM withdrawal.

I mean you think about it, besides having a billboard that's about all a bank branch does. So, what have we learned? We?ve learned that Concierge Banking, which is electronic digital banking for our business customers with treasury products and delivery by human beings and offering their top management world-class digital banking products is not just liked but it is loved by business customers also.

Business customers think banks are antiquated, still working in the 19th century, that's what we hear from our business customers. They cannot stand that they are paying for all of these ridiculous branches that only some of the smart banks have decided to trim those branches by 10% a year. They can?t wait for those benefits to be transferred over through innovation in the banking business. That's what we?ve learned from our business customers.

And what we?ve learned from the consumer customers we can apply that in a private banking approach to our existing customers because Customers Bancorp's average customer is not going to be a student who keeps 300, $400 in an account. It is going to be someone who keeps $10,000 in their account you know, as an example I?ve given you. But the electronic delivery channel means that you can have ATM networks, which is about five times the size of Bank of America's ATM or Wells Fargo's ATM network and give it to them free. And find a way to offer digitally banking services to all of their employees which are better than what even Bank of America can do for them. Now you see the opportunities of a bank like Customers Bancorp and just watch us.

Got it. Thanks, Jay. I appreciate the color on all of my questions. Thank you.

And we?ll go to our next question. Please go ahead, caller.

It's Bill Dezellem with Tieton capital. In Philadelphia you mentioned that you are going to be adding or you?re in late stage talks with another team. Would you please share with us what you currently have in terms of teams in Philly and how this new team will fit in?

Currently in Philadelphia we have teams and I?ll let Dick talk more about it, which cover the small business and mainly the consumer banking segment, but we don?t have a team that covers the small, medium-sized businesses. So, Dick, to you.

That's absolutely, Jay. Our office, our community development office at 1501 N. Broad Street, has a fully staffed team of small business lenders. In small business we believe is anything less than $1 million per customer. Last year we did about $50 million in production out of that small business facility. But as Jay mentioned, where we really need to build out is the small to medium-size businesses that we can really serve from a new location that we?ve identified at 2 Logan Sq. So, we are building C&I teams, middle-market teams, lower middle-market teams for that office and that's the negotiation we?re going through right now with this one particular team. We feel Philadelphia has a significant opportunity for our unique business model and we want to take advantage of that.

Great. Thank you both.

(Operator Instructions) We?ll go to our next. Please go ahead, caller her.

Good morning. It's Frank Schiraldi from Sandler. I wanted to ask a few if I could. First, Bob, I think you mentioned in terms of the BankMobile quarterly contribution, I think the range you gave included slight profitability. So, I think 1Q is the stronger quarter for BankMobile given stronger interchange. I was just wondering so is the implication that you could reach or BankMobile could reach profitability by the first quarter of 2018 or do you guys think that might be too soon?

No, I mean I think that is as you said a normal seasonal pattern for BankMobile and it's what we saw last year, and it is a seasonal business and you could expect a similar trend this year.

Okay. So, when you say I mean slight profitability there's only really two quarters where you?re going to have BankMobile within Customers is the thinking. So, then 1Q would be the quarter where you would have a better shot at hitting the slight profitability you mentioned.

Yeah, we haven?t said two quarters. We?ve said mid-2018 so there's a little bit of leeway I guess on either side of that. But yeah, that would be right, slight profitability to start and then you could have losses quarterly thereafter.

Okay. And then just back to the large white label relationship that has already been assigned, I think Jay, you mentioned it should be up and running the first half of 2018. Is it your guys? understanding that we should get disclosure of that in the registration statement that Flagship files, I guess expected in March you said?

Before Flagship's IPO the market will know everything about that white label partner.

Okay, but I was just trying to figure out when we might get that disclosure and I thought the registration statement would make sense. But you?re not saying -- you don?t necessarily think it will be in there?

I think it's important for us and the white label partner to have an execution launch strategy and we may or may not put the details in our first draft to our CUBI shareholders and Flagship may or may not disclose everything about that in March. But before the launch of the IPO there is no question about it that CUBI will be making the appropriate disclosures and we believe Flagship will be making the appropriate disclosures in detail about that white label partner.

And then just finally with BankMobile moving off balance sheet I would think that frees up some time maybe to take stock of strategy and just curious if there's any new businesses or niches you?re sort of looking at, Jay, thinking about that could be interesting for Customers?

Frank, we believe that the best opportunities for us is to continue to have better execution of our strategies. We don?t have a huge track record, it's about four to five years but it's long enough that we?ve learned from our mistakes and our successes. And we intend to build upon that.

Our model is very clear to us. We are recruiting high-quality teams. We are not interested in taking dilution to our book value by buying banks that do not necessarily have the franchise value for the future. We intend to build franchise value for the future through execution by our teams. We are very focused on innovation and products and strong risk management infrastructure that is very critical to the success of these teams.

We have developed with leadership development program at our company, which is very important to create the leaders for the future as well as bank management who can understand and run a bank by themselves. Those are the quality teams that we are recruiting right now, Frank.

So as an example, we are looking at, we look at New England as an independent bank. We look at New York as an independent bank. Within New York, New England, Pennsylvania we have teams which are run, and we have big monthly financial statements, P&L statements by those teams and we measure them as you measure CUBI, we measure them in more detail than that on a monthly basis.

So, all we?re trying to do, Frank, is just be better at blocking and tackling and look at opportunities for enhancement and products and services. And we are not going to spend our energy looking at buying banks.

Okay, okay. It doesn?t sound like there's any new businesses. Just sort of on the commercial side, you?ve got plenty of opportunity and growth and that's going to take you, keep you busy for a while I guess. Thank you very much.

Yes, Frank, and try to build shareholder value which should be a very attractive returns for our shareholders.

We have no further questions but just as a final reminder, (Operator Instructions).

Ladies and gentlemen, thank you so much for joining our call. Once again if you have any questions at all please don?t hesitate to call any of us. My number direct line is 610-301-6476. Thank you very much and have a good day.

Thank you and that does conclude today's conference. Thank you for your participation and you may now disconnect.