Customers Bancorp Inc (CUBI) 2018 Q4 法說會逐字稿

Good afternoon, and welcome to the Fourth Quarter 2018 Customers Bancorp Business Inc. Earnings Call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Bob Ramsey, Head of Investor Relations for Customers Bancorp. You may begin.

Thank you. Before we begin, we would 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 results to differ materially from what is currently anticipated.

Please note that these forward-looking statements speak only as of the date of this presentation, and we 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 Form 10-K and 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 Customers Bancorp, CEO, Jay Sidhu. Jay, the floor is yours.

Thank you, Bob, and good afternoon, ladies and gentlemen. Thank you so much for dialing into the Customers Bancorp Q4 as well as the full year 2018 investor call.

Joining me here today in Pennsylvania are Dick Ehst, President and Chief Operating Officer of Customers Bancorp; Carla Leibold, Customers Bancorp CFO; Bob Ramsey, you just heard from, he is also BankMobile CFO. And also joining us today from our offices in New York City is Luvleen Sidhu, the President and Chief Strategy Officer of BankMobile.

I will first briefly discuss highlights of Q4 2018 and the full year 2018 with you and then provide updates on our strategic priorities we discussed with you at our Analyst Day in New York on October 15 last year. Carla will provide more details on our financial results later on.

Starting with Q4 2018. As you know, we reported core consolidated earnings of $0.53 a share with Customers Bank reporting $0.62 in core EPS for Q4 and BankMobile reporting an operating loss of $0.09 for the fourth quarter. For the full year, 2018, Customers Bancorp reported $2.43 in core operating earnings with Customers Bank reporting $2.75 in core earnings and BankMobile reporting an operating loss of $0.31 a share for the full year.

In 2018, as planned, and during a period of consistently rising interest rates with a relatively flat yield curve, we still remained very disciplined on expense management, while maintaining a strong credit quality culture and growing our franchise and longer-term profitability, enhancing core deposits and commercial loans, only -- principally C&I loans. We ended the year with only about a 2.5% growth in noninterest expenses year-over-year and our credit quality remained very strong with year-end nonperforming loans of only 0.32% of total loans.

Our total deposits in 2018 grew more than our loans with demand deposits growing by 22%, while we shrunk our reliance on CDs. We also reduced our average borrowings by over $1 billion in 2018. Our C&I loans grew about 20%, while we intentionally decreased our multifamily and non-owner occupied CRE by 10% during the year. Our C&I loans now make up 43% of total loans.

Now onto our strategic priorities discussed at our Analyst Day. We are pleased to have started to make significant progress towards meeting all our priorities and developing a strong foundation towards strengthening the quality of our balance sheet, reducing our interest rate risk, having much stronger tangible equity to asset ratios, achieving an ROA of 1.25% in that range and monetizing our investment in BankMobile in a manner so it continues to grow, while our shareholders get a good return on Customers Bancorp's investment in BankMobile.

So let me take each of our strategic priorities and update you on where we stand. The first priority was creating shareholder value to improve profitability. By that, we are -- we mean that we want to target 1.25% ROA over the next maybe 4 years -- 3 to 4 years. However, we believe improving our core ROA from 0.82% in Q4 2018 to about 1% in Q4 2019 is really possible. We hope to get to 2.75% or higher margin by Q4 2019, up from 2.57% at the present time. This will help us achieve an ROA of 1% or perhaps more by the end of 2019 and we're already assuming at least one fed rate hike in the middle of the year in our assumptions.

Now moving to our next strategic priority, and that was focusing and growing our core banking operations. In 2018, we added 5 C&I and deposit teams throughout our franchise. We look to add a few more in 2019 and are looking at about $1 billion growth in core deposits in 2019 and a corresponding decrease in wholesale deposits [and our] borrowings.

On the lending side, we see about a $1 billion increase in C&I and consumer loans during the year with a corresponding decrease in multifamily and non-owner occupied CRE loans. This, we believe, is definitely going to be increasing and improving our franchise [and] help us in growing our core banking operations.

Now onto BankMobile. We expect BankMobile to generate a positive contribution to Customers Bancorp by fourth quarter 2019. We will continue to make investments in technology at BankMobile during the year and expect to add a few more White Label partners in 2019 in addition to a successful launch of our partnership with T-Mobile in 2019.

Regarding capital management, we expect to end 2019 at about 7.5% TCE ratio. Our board will continue to evaluate the best capital allocation options for us, including possible share buybacks to be restarted in 2019, and/or buying back or redeeming about 57 million of our preferred stock outstanding that becomes callable in the middle of 2020.

I will come back and give you some more color on the future of CUBI, but first, on to Carla to discuss with you the fourth quarter and full year 2018 financials. Carla?

Thanks, Jay, and good afternoon, everyone. I'll start off with the fourth quarter and full year 2018 GAAP results. On a consolidated basis, our fourth quarter GAAP net income available to common shareholders was $14.2 million or $0.44 per diluted share. For the full year of 2018, GAAP net income available to common shareholders was $57.2 million or $1.78 per diluted share.

From a segment perspective, the Business Banking segment earned $17.5 million or $0.55 per diluted share for the fourth quarter, and $70.7 million or $2.19 per diluted share for the full year of 2018. BankMobile reported a net loss of $3.3 million or $0.10 per diluted share for the fourth quarter, and a net loss of $13.5 million or $0.42 per diluted share for the full year of 2018.

Our fourth quarter GAAP results includes certain notable items, such as executive severance expense of $1.9 million, a $1.2 million loss realized from the sale of $55 million of lower-yielding multifamily loans, merger and acquisition-related expenses of $470,000 and losses on investment securities of around $100,000, which are not included in our disclosures of core earnings and other core performance metrics.

That being said, on a consolidated basis, core earnings for the fourth quarter were $17 million or $0.53 per diluted share. For the full year of 2018, core earnings were $78.5 million or $2.43 per diluted share.

The Business Banking segment reported core earnings of $19.9 million or $0.62 per diluted share for the fourth quarter and $88.6 million or $2.75 per diluted share for the full year of 2018. BankMobile reported a core loss of $2.9 million or $0.09 per diluted share for the fourth quarter and a core loss of $10.2 million or $0.31 per diluted share for the full year of 2018.

From an asset perspective, we ended the year at $9.8 billion, essentially flat from what we reported at December 31, 2017. We successfully remixed the assets and liabilities on our balance sheet. On the loan side, year-over-year, we achieved C&I loan growth of $312 million or 20%, ending the year at $1.9 billion. Our consumer loan growth, including the residential mortgage portfolio, was up $392 million, ending the year at $722 million. As planned, our multifamily loans at year-end were $3.3 billion, a decline of $361 million or 10% and our non-owner occupied CRE portfolio declined $94 million or 8%, down to $1.1 billion. Also our commercial mortgage warehousing portfolio ended the year at $1.4 billion, a decline of about $388 million or 22%.

On the liability side, we improved our funding mix, replacing higher cost funding with lower cost core deposits from BankMobile, our Digital Direct Bank and core business units. Total deposits at December 31, 2018, were $7.1 billion, an increase of $342 million or 5% year-over-year. Total demand deposits increased 22% year-over-year, ending at $1.9 billion. Money market and savings accounts increased 5% year-over-year, ending at $3.5 billion. And our CDs ended at $1.7 billion or a decline of 9% at year-end.

Moving onto our net interest margin. We reported a net interest margin of 2.57% for the fourth quarter of 2018. That's up 10 basis points from the 2.47% that we reported in the third quarter. Excluding prepayments, that expansion increased 15 basis points from the third quarter 2018. Our NIM benefited by about 13 basis points from increased yields on the asset side, reflecting our disciplined strategy of [running off] the lower-yielding assets and adding loans at a minimum of 5.25%, and also benefited from about 3 basis points on the funding side, mainly due to a favorable shift in our funding mix.

Turning to credit quality. Our core portfolio continues to perform remarkably well. At year-end, nonperforming loans to total loans was 32 basis points and total charge-offs to average assets for 2018 was 4 basis points. So we are relatively flat than the prior year, but continue to trend significantly below that of our peers.

Provision expense for the fourth quarter of 2018 totaled $1.4 million. That amount was driven by the change in the mix of our loan portfolio and allowances for specific loans, offset by improved credit quality and lower incurred losses than previously estimated. Looking forward to expected growth of about $400 million of consumer loans in 2019. That growth is expected to come on earlier in the year, resulting in provision expense being reported upon origination of those loans, while the interest income will be earned throughout the remainder of the year.

From a capital perspective, our capital ratios improved across the board during the fourth quarter, and as expected, was relatively flat from the prior year. At year-end, our tangible common equity ratio was 7.4%, above the targeted amount of 7%. Also in December, we repurchased 719,200 shares of common stock at an average price of $18.04 per share, which was about 80% of our tangible book value at year-end and represented about 2% of shares outstanding at September 30. Subsequent to year-end, we repurchased an additional 31,159 shares at a cost of about $18.35 per share.

And with that Jay, I'll turn it back to you.

Okay. Thanks so much, Carla. And before we open it up for questions and answers, let me summarize for you the investment highlights that our board and our top management is really focused on at the present time.

Number one, we believe we have dramatically improved the quality of our franchise and our balance sheet. We believe Customers Bank is a small business bank that is using a very unique private banking, single-point-of-contact model, serving privately held businesses in the attractive Northeast United States markets of New England, Metro New York, Greater Philadelphia and now starting to grow our share also in the Greater Washington, D.C. area as well as the Chicago markets. We have highly skilled teams with every team leader having somewhere between 15 to 20 years or more experience serving our clients.

Number two, we have a strong organic growth strategy, and we believe we're using a model, which might become the bank of the future model that relies more on people, the experience level of those people as well as technology that supports them rather than relying on branches that typically only act as billboards for many banks and having ATMs [for] many banks. In our strategy, every other bank's ATM is available to our customers to use, so we have more ATMs than any bank in the United States, and we reimburse their ATM [for an ATM expenses for them] .

Number three, we are significantly improving our margins and profitability during a period when many in our industry are struggling to maintain margins and can only show growth through mergers and acquisitions. You should expect us to report, like I stated earlier, about a 1% or perhaps higher ROA within the year, 2.75% or higher margin even with gradually rising rates like I shared with you, we've already factored in at least one Fed increase in the middle of the year and a continuation on the flat curve. And we think even with all of those, we think an ROA in the range of 1.25% within 3 -- at the latest, 4 years is definitely achievable by us.

Number four, the thing we're focusing on is a strong risk management -- continuation of strong risk management functions, beginning with maintaining strong credit quality as well as lowering our interest rate risk position, specially managing the interest rate risk position in a flat to a potentially inverted yield curve.

Number five is that BankMobile today is one of the very few, if not the only, disruptive digital bank that is attracting hundreds of thousands of consumers across America each year for checking accounts or demand deposits. This digital consumer bank should become profitable by the end of this year, and in our opinion, create substantial shareholder value for all Customers Bancorp shareholders. We have a lot of work to do to improve the effectiveness of our -- of BankMobile, and we're very confident that the team is very focused on doing that.

So today, we are currently trading, as you know, at about 90% of our tangible book, and only at about 9x to 9.5x the consensus 2019 Street estimates of $2.21 a share for 2019. We are comfortable with these Street estimates with the consensus estimates, but believe you're not going to see straight-line quarters due to planned growth in consumer loans as Carla mentioned, and we think those consumer loans will [be put on by us] in the first few months of 2019 where we will have to front load provisions for growth and then enjoy the revenue growth in the later quarters.

Also our BankMobile and mortgage warehouse business have seasonal characteristics that might create some chunkiness quarter-to-quarter. However, you should expect continuation of disciplined focus on expense management, continued growth in the franchise, enhancing C&I and consumer loans during the year, stronger growth in core deposits and continued strong focus on risk management, especially credit quality. In 2020, we will also seriously look at crossing the $10 billion mark again with BankMobile becoming an independent bank no later than mid-2021.

So with that now, I would like to ask Jonathan to open it up for any questions any of you may have.

(Operator Instructions) We'll take our first question from Michael Perito with KBW.

I had a few things I wanted to hit on. First, maybe starting on the BankMobile side. I noticed a comment in the release that you guys are going to start increasing the fee structure in that business to help -- it sounds like boost revenues a little bit. And I was wondering if you could maybe give us a little more color about what the plans are there and kind of the overall strategy?

Luvleen, do you want to take that?

Sure, I'd be happy to. So yes, we have decided to add fees starting in mid-February on the BankMobile-wide accounts, and the decision was really driven by the fact that we wanted to remain consistent with our vision and mission, which is to have affordable banking. So whatever fees that we put on, we made sure that we are substantially less than what competitors would offer. And so that is still living up to the affordable sort of banking solution.

So today, with the fee implementation starting in February, we'll be adding a monthly fee of $1.99 a month. And we give the option to be able to waive this if the students or the [graduate] deposited -- deposits $300 or more into the account. So it's really an incentive for those that are engaging with the account. There's a way for them to be able to avoid this and it's really trying to attract primary banking relationships and rewarding them for that. Additionally, we're adding an NSF fee of $24. And again, this is more than $10 below the national [bridge] for an NSF fee. We still feel very good about adhering to their affordability vision and mission again. But that being said, we do think that this is important for us to drive good behavior, and we also will be very cognizant that if people are hitting the $24 fee that we provide a lot of education and how they can avoid it in the future.

That was very helpful. And then another question on BankMobile, maybe for Bob Ramsey. But I was curious if you guys are willing at this point to offer a little bit more clarity on kind of the economics of the T-Mobile partnership, may be not -- and maybe it doesn't have to be the partnership specifically, but just how we can expect the revenues and the associated expenses to kind of flow through and especially in light of it, it sounds like you guys are looking to add some more White Label partners. I think it would help to have a little bit more color around of what -- in terms of what you guys are able to share anyway on what the kind of the geography and the income statement would look like for these partnerships?

Sure, Mike, I'd be happy to answer that. So as, I think, we've said in the past with these relationships, part of what we offer to our partners is the opportunity to have some sort of revenue share on the interchange piece of the overall revenues. And so what we'll end up doing is we will get the full interest income of these relationships. So that will help our net interest income. There will be a share on the interchange piece, and what you'll see come to our interest statement will be just a portion of the interchange income. And then, on the expenses, there is some expense share as well. But what you'll see on our income side will be the expenses that we bear. So what you'll see reported will be the pieces that [are net to us] in a revenue model that is predominantly driven for us by spread income.

All right. That's helpful. And then on the $5 million of deposits that you guys have already brought in with T-Mobile, do you have any sense of kind of what the interchange activity was on that? Or I'm not sure, being tailored or not, but just figured I would ask.

I think right now, Mike, we haven't even started marketing these products. So those happen to be the early adapters or the ones who search the web as well as the Apple Store, the App Store and those kind of things for deals. So we will share some of that with you in the second half of the year. We think by the middle of the year, there is a very good chance that there will be enough activity for us to share with you some more meaningful numbers.

I would also add Mike this, we really only started at the very end of November, so it's only a little bit of a lump that we have. And with the time period of only a month, you've barely given people enough time to fund accounts much less start to use debit cards and move things over. So I think the data that we have at this point is not really meaningful. I think, as Jay said, once we've got another 6 months to aggregate information and sort of see those account season just a little bit, we'll have much better information to share with you.

Fair enough. And then just one last one, switching over to the customer side. Jay, I just want to make sure I heard you correctly. So the consumer growth in 2019 -- consumer lending growth, you expected to be frontend loaded, I think that's what the release said, and so the provision expense should start higher and then work its way down. But are you guys kind of providing any general thoughts about what the annual provision range would be, just simply try to kind of conceptually visualize that number?

No, we are not, because it obviously depends on the quality of those loans and FICO scores and the like and whether they are secured or they are unsecured, and to the segment. So we are going to be provisioning. It's fair to say that we will get about maybe 70% or so of our numbers that we put in, they're done in the first quarter and the other 25% will be in the second quarter and then from there on out, we are simply going to monitor the performance of these loans versus our assumptions and expectations and simply be maintaining those portfolios or placing only the run-offs. These consumer loans will have a yield of somewhere between 8% to 12%.

Okay. So it actually sounds fairly dramatic. So the first half of 2019 should theoretically hold a majority of your annual provision expense next year?

That's correct. First quarter more so than...

(Operator Instructions) We'll take our next question from Steve Moss with B. Riley FBR.

I was wondering on the expected deposit growth here in 2019, kind of what do you expect in terms of the cost of deposits that will be coming on?

Steve, we are focusing on -- maximum on noninterest-bearing demand deposits. A majority of the deposits that will be coming on through the BankMobile division will be noninterest-bearing or very low cost. Through our other franchises, again, we are counting on about 30% to 40% of the deposits being below the market rates and about 30%, 40% of the deposits being pretty close to market rates. So we are -- it's very difficult. We're just giving guidance on the margin, but we're not giving guidance, and it's very difficult for us to predict the exact cost of just the deposits and yields on the different aspects of earning assets, but margin expansion is another story.

Right. And then, I was wondering, I believe, you said in your prepared remarks Jay, that you expect -- you're mulling one Fed rate hike in 2019. Just wondering if the Fed doesn't hike, what would you guys expect the margin to be?

We are slightly liability sensitive. So it's going to be a help. So we're looking at one Fed rate hike in the middle of the year and perhaps one Fed rate hike in December of this year, so which will may or may not have an effect, but in our modeling, we'll put that in.

Okay. And then my third thing, just on expenses here. It sounds like they're going to be pretty tightly controlled in 2019. Are there any investments or projects you guys plan on adding in the upcoming year? Or is this a reasonable run rate for expenses in 2019?

I think, we will be adding a few more teams like we've shared with you to help us in all our existing geographic markets. We are not planning on expanding any of our geographic markets. And then, in the risk management area, we are very, very focused on that, so that we look at adding some expenses in that area, continuing to build our strength in interest management. And then, in BankMobile, like I mentioned, we are continuing to spend -- make investments in the technology side of the business. And we are also, as we shared with you on our Analyst Day, we are going through a major strategic initiative on digitizing the bank with the intention of supporting our customer-centric single partner contact process with a much better technology expense, so ending up with a better experience for our customers. So there will be a few expenses on that side. We are not focusing on adding any other people on to our staff besides the things that I just mentioned to you. And so all of those -- the things that we're talking about is for risk management or improved customer experience or higher revenues.

We'll take our next question from Russell Gunther with D.A. Davidson.

So just a quick follow-up on the consumer growth you touched on earlier. Would you guys give us a sense whether on the frontend loaded growth, is this all expected to be CUBI originated? Or does this include some portfolio purchase as well?

I think it will be both.

Okay. And then, just a general range, if you could, in terms of how you're thinking about where is the reserve for this consumer growth that's coming on?

So I think for -- we're not putting on any subprime loans. So we're looking at -- if they happen to be in the 680 to 725 FICO, they will have a higher reserve, and if they happen to be in the 720 to 760 FICO, they will have a lower reserve. All I can say is, we are going to be conservative in our reserving. And so you can figure that out from industry numbers what those are. And for some other loans that we end up buying at a discount, but we really like the quality and they happen to be loans with the kind of customers that we want to develop relationships with. In those cases, we will use purchase accounting to set up. So it's very difficult to give you a very definitive guidance, but all we can tell you is we are comfortable with the Street consensus estimates even with a chunkiness in our quarter-to-quarter EPS.

Got it. Last one from me then is just to switch gears to the core C&I growth. Big success last year. Obviously, a pretty steady growth outlook there. So just share with us, geographically where do you expect that to come from, your overall growth strategy? And then if you have any target included in there for additional teams?

Yes. So that's a good question, Russell. We are -- we have a very strong C&I franchise, and our pipeline looks very good. I believe in the month of December, to give you an idea, we booked about $70 million of C&I loans, and they were all above -- on an average about 5% yield. And right now, the pipeline is similar to what we saw happen in December.

In terms of where they're coming from in geography, they happen to be all within our market area and within the existing lines of businesses for us. So New England and the New York market and Pennsylvania markets are all humming. The Chicago and Washington markets are slightly slower as you would expect and -- but, I think in 2019, we think they will being in this -- completing a one full year of opening up those, we expect in the second half of this year that their growth rates will increase.

Now our teams generate both loans and deposits. And in fact, our incentive compensation plan rewards them more for generating deposits than loans. And as you know, we have monthly profit and loss statements by teams, so perhaps, we'll think about based upon your question to share with you a little bit more on a quarterly basis how our various teams are doing both on the deposits and the lending side at the future calls.

We'll take our next question from Frank Schiraldi with Sandler O'Neill and Partners.

Just a couple of questions on. First, I just wonder if you could remind us on the deposits, the end of period deposits versus last quarter. So we are about $7.1 billion in deposits, and then at September 30, I think you're up at $8.5 billion. I know you had some wholesale deposits you were going to run off. It seems like you got a majority of that done just based on the commentary in the release here. But I thought that was only about $400 million done in the quarter. So if you could talk about the rest of that decrease, what's making that up?

Well, Frank, there's seasonality to our deposits, also that's got one of the low points for BankMobile deposits, so that had an effect. And yes, you're absolutely right, we're focused on having a lot of our municipal deposits and some of the other wholesale deposits run off, the ones which did not have a term. And we still have more of that to do. And that's why we are sharing with you that we expect a $1 billion of growth. And at the same time, you'll see $1 billion of run off because we are -- or so we're -- I'm not about talking exact numbers, but just directionally, which is where we're going. So some quarters, some days, you may see us having certain deposits run off, and in the beginning of the year, certain come in. In January, we've experienced about a $200 million -- $175 million to $200 million growth in non-interest-bearing DDAs already. So will that stay on March 31? I can't tell you that. But those are the kinds of things which go on in our balance sheet. So -- but we are pretty confident that you will see us improve the quality of our franchise, and we are determined to make that happen.

Okay. Do you have available -- I can see where BankMobile was, I understand at the end of the year, BankMobile is at a low point, and I can see where those deposits were at $375 million at the end of the year. Do you have handy or can you provide where they were at September 30, just so I can...

Yes, sure, yes Frank. So the last slide of our slide deck has actually got these deposit numbers, I urge you to pull them up for the last couple of years. But they were $732 million at September -- at the end of September. So they were down by about, call it $350 million, which is actually a little bit less decline [than] in the year ago fourth quarter. So the same seasonal pattern that you see in this business this year as also we see in other years.

Okay. But then, I guess, the contraction quarter-over-quarter is expected largely it sounds like, and it's bounced back in the first quarter and there's no concern about funding levels, total deposit levels at this point?

No concern.

And then, just I wanted to ask about credit obviously remains really strong. It's not a big number, but I did see that the C&I nonperforming ticked up a little bit and there were some charge-offs as well in the C&I book. Is there any color you can give on that? Is that all one relationship? Anything you can provide would be helpful.

Yes, there were 2 or 3 smaller loans, Frank there, even in the best of the times, things happen, whether it's for technology or whatever, the lack of focus on management teams. So all we can say is we think we are in the times, as you know, which is the best of times for credit quality. It can only get worse. So these are the times that you focus on keeping a very strong eye on the credit quality. That's why you heard us talk about that, that is an area we will never get our eye off. And that risk management practices to us is in our DNA, and it's very important for us. So all we can say to you is, we are expecting nonperforming loans to move up, but not because of any unique situation in our company, but because we think it only has one way to go.

Right. I guess, just how you're feeling just in general about the larger economy here? I mean, people talk about being late cycle, certainly at this point, economic numbers look pretty strong obviously in the U.S. at least. Just curious, your thoughts about where we are in the cycle and what you're seeing from your borrowers?

That's a very good question. We keep asking ourselves that question. There is no doubt in our mind that the economy will remain cyclical and we will have slowdowns. And we are not seeing anything, which makes us believe that, that will happen in any significant way in 2019. In our own modeling, we are assuming that to be a 2020-type of a time frame for the slowdown. But, guess what, 2 years ago, it was 2018 or 2019 that we were expecting a slowdown in our modeling. So that can change, but we believe there is a pretty good chance the global economies and our clients, we don't have too many clients which are doing international trade, but those who are, they are concerned about what will happen over the next 6 to 12 months. And so, now temporarily in the short term, in certain markets, in the major metropolitan areas where there is a larger number of federal employees, we are seeing some impact of them struggling because we offer benefits and we want to help our fellow citizens who are having a difficult time. And we've developed a program along those lines, and we are seeing some people take advantage of it. So bottom line, it should be a steady economy this year with some clouds in the horizon.

(Operator Instructions) We'll take our next question from Bill Dezellem with Tieton Capital Management.

I had a couple of questions. First of all, relative to the White Label business. How many stores did T-Mobile start out with their beta testing?

Bill, right now, the beta test is really a true beta test, which is just opening up and [seeing with] their internal folks, friends and family. So it's not available at any of its stores yet.

That's helpful. And is T-Mobile accepting accounts simply from the general public or are these friends and family somehow tied to T-Mobile the carrier, may be not an employee, but the carrier itself with an account for an account?

No, no, Bill, you can go in and download the app and you can open up an account tonight. And so if somebody -- it's not limited, but what I'm saying is, the promotion or the awareness is all internal. There is no marketing, nothing, but yes, anybody -- and that's how we've had, I think, somewhere around 15,000 to 20,000 who have already opened up the account to-date without any promotion. That's more than what 95% of the banks in the United States have opened checking accounts in the last 30 days or 60 days. That's the power of this. And on the funded accounts, so we're seeing that they are funding at assumed average balances, and we're not disclosing any of those yet, but they're coming in with those kind of levels. So this is a real beta test before the marketing starts.

That's helpful. And when you look at those accounts that have opened, is it concentrated in particular geographic regions or evenly spread across the country?

No, they are from all over the country.

Great. And then I do want to shift to the student side of BankMobile for a moment, if I may. What proportion of the accounts today do not deposit the $300 each month to have the fee removed?

Bill, today, there's not a substantial proportion of the accounts that are meeting that deposit hurdles, certainly, our hopes though with the incentive here to avoid fees more that students will choose to make those an account that they use at a primary level, you'll see us more frequently put more money in that. So we would love to see that number be 100%, but today, it's a very small percentage of the total.

And Bill, fees and the incentives will actually go into effect as, I think, Luvleen mentioned around 15th of February -- in the back half of February.

Right. So let me just make sure I understand the math correctly. If all of the students were to deposit their $300 per month, that would -- so you've roughly 1 million accounts and a very few I'm going to round down to say 0 are depositing $300 a month. That would imply that you would have $300 million of incremental deposits each month. Is that the correct math?

If everybody does it, it's a correct math, and we are thinking it will be -- someday it will start off in the 5% to 20% range, and in the beginning -- in the first couple of months if we reach somewhere in that 5% to 10% range, it's a success and it would be gradual after that. But you are absolutely right. The potential, as Luvleen mentioned is to really make some the prime [rechecking] account customers. So that potential is very good. Well, once because once they graduate, all they have to do is either deposit one way or another that much and they'll have an awesome account. And once we get more benefits through our White Labeled partners, including T-Mobile, and make them available to these clients, it's going to add more value to having the banking relationship with BankMobile.

And so I will just add in your hypothetical example, there is a twofold benefit and that we are not going to have $300 million every month because the students will spend the money that they deposit, but that spend will benefit our interchange income, and so you would see a substantial increase in a hypothetical scenario in our fee income in addition to the benefit and deposit balances.

Right. Okay, that's quite helpful. And then I'm going to take my hypothetical and completely reverse it and make the assumption that, again, that no students are depositing currently the $300 a month, which I recognize is not accurate. But if that were the case, that $1 million -- that 1 million account would lead to approximately $2 million per month of incremental fee. And if one works that out on an annual basis -- pardon me.

Yes. I think that's theoretically possible, Bill, but we have a lot of students, who draw down their accounts, which is about 20% -- 25%, 30% of the students, sometimes their money comes in and it becomes a very low balance, 0 balance, and we have decided not to charge fees and not to let these accounts get into negative because that is not a consumer-friendly strategy. So those folks -- if they have $5 in their accounts or $2 in their account, we're not going to necessarily take it down to $0, but we will try to encourage them to become a primary customer. So -- but you're right, theoretically, whatever are the balance customers, everybody if they don't deposit will be paying $1.99 a month fee.

Which is roughly $0.50 a share annually of earnings, something in that neighborhood.

Theoretically, possible.

Right. And so then realistically, so if we move out of the theoretical world, that's really putting the brackets around the potentials from $300 million a month of deposits to $0.50 a year of incremental earnings per share, and it will likely fall somewhere in between, which leads to higher fees from the $1.99, but hopefully, also higher fees from the interchange fees that would come from making this the primary account?

That's correct.

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