Good afternoon, and welcome to the 2016 First Quarter Customers Bank Incorporated Earnings Conference Call. Today's conference is being recorded. At this time, I'll turn the conference over to Matthew Selinger. Please go ahead.

Thank you, Jessica. Thank you everyone and good afternoon. This is Matthew Selinger from Three Part Advisors, and we are the IR form of record here with Customers Bancorp. Welcome again to Customers Bancorp's first quarter 2016 earnings call. The earnings release was issued today after the close 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; and Bob Wahlman, Chief Financial Officer. 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, including the risk that results are different than currently anticipated. Please note that these forward-looking statements speak only as of the date of this call and undertake no obligation to update these forward-looking statements in light of new information or future events, except in the extent required by applicable securities laws. Please refer to our SEC filings, including our report on the form 10-K and also the 10-Q for more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC, by visiting the Investor Relations section of our website. At this time, it is my pleasure to introduce Jay Sidhu, Customers Bancorp’s Chief Executive Officer. Jay?

Good, thank you very much Matt and good afternoon ladies and gentlemen. Welcome to Customers Bancorp first quarter 2016 call. Joining me over here today in Pennsylvania also our Dick Ehst, the President of Customers, Bob Wahlman, our Chief Financial Officer, as well as Steve Issa, our Chief Lending Officer. Customers Bancorp or CUBI as we call it is very pleased to report another strong quarter. This quarter was perhaps one of our cleanest quarters compared to the last couple of quarters. Other than a $1.2 million special reserve that we set aside for a potential or a possible regulatory charges in the sometime in the future, or and some related legal expenses that might go with it, this quarter was absolutely clean. We ended up at about $9 billion in assets and as you know, we have only 21 sales offices. Our deposit growth was strong, much stronger, they’ve end up by about $635 million and in terms of the composition [indiscernible] were flat, money market accounts went up by about $500 million during the quarter and demand deposits was up by about $135 million during the quarter. Hence our average brand size went up to from $330 million at the end of the year to about $380 million in deposits per branch. Our cost of funds went up about three basis points due to the Fed increase. On the lending side, it was another strong quarter for us. Commercial real estate went up only about a $100 million because that is not a major focus of our company. The major focus of the company is C&I, C&I loans are broken into C&I for the manufacturing service industries and the normal community banking activities and special C&I services to the privately held mortgage companies. So our C&I loans dues…

Thank you, Jay, and good afternoon everyone. As Jay described to you, customers is very pleased to report a great start to 2016, a start that’s very consistent and in line with the earnings guidance that we had previously provided for 2016 of $2.40 to $2.50 per share. Also as Jay noted in the first quarter, Customers net income to common shareholders was $16.4 million or $0.57 per share. In comparison, the first quarter of 2015 net income to common shareholders was $14 million or $0.49 per share. So, first quarter 2016 net income to customer shareholders was up approximately 17% over a year ago on growth in top line revenue of approximately 22%. So looking behind the net income number into the drivers of Customers performance, I think it’s important to focus on the following matters; first, Customers income producing assets and cash total $8.9 billion of a $9 billion balance sheet, so there is only a $100 million that we have for receivables and other non-income generating assets. Secondly, the principle driver to Customers growth and profitability was the growth in income producing loan balances. Customers continue to see strong demand with multi-family and commercial loans, including loans to mortgage bankers to finance their inventories. Q1 2016 to Q1 2015 average loan balances were up $1.5 billion. Multi-family loans made up the bulk of that at $933 million, commercial loans were up average balances $564 million and loans to mortgage banking company were up $276 million. That loan growth was funded largely with growth in deposits which was up $1.4 billion and capital which was up $133 million. Within deposits, average deposit loan balances Q1 2016 compared to Q1 2015 were up $753 million for money market deposits, $561 million for certificates of deposits and $102 million for…

Okay, thank you very much Bob. Let me just comment a little bit on the few items. Starting with the banking strategy first, as you know, our deposit growth over the last five years with absolutely no acquisitions has averaged about 40% a year compounded annual growth rate. And our DDAs are up about 51% a year at cagier. And our total deposits for branch over the last five years dip down from about $112 million of branch and they were 6.5 years ago as low as $40 million a branch and today they are $380 million a branch. So we – how have we been doing it? And on the lending side, our cagier approximately 47% and five years ago 75% to 80% of all our loans were mortgage warehouse and today they’re about 20%, 23%. And that all results from our core strategy of what we call the single point of contact strategy that I’m sure you heard from a few other high performing institutions. That strategy is very much what we also call high tough supported with high-tech where you hire bankers, private bankers we call them, who are at least 15 years of experience. You combine them with bankers or the people who have an experience in selling personal banking services and you have a client only make one call to the bank. And you have decision makers help the clients with all their business banking services, their consumer banking services and any other non-credit services. So these are very experienced teams that provide exceptional services that are supported with top notch technology and we compensate these teams with risk based incentive compensation plans. So as a result of this, 95% of all our revenues are coming from business segments. Those business segments are banking the…

Absolutely. [Operator Instructions] And we’ll first go to Bob Ramsey with FBR.

Hi there, good afternoon.

Hi Bob.

Hello Bob, how are you?

Hey, good thank you. So, I guess the first question I have for you, I appreciated the loan growth guidance that sort of expect something like 5% annualized growth over the next year. So how should we think about deposit growth, you had very good deposit growth this quarter, I know you touched on that at your comments, maybe I need more color on what really drove that this quarter. And I’m assuming that the deposit growth will stay much stronger than loan growth and I guess we should expect the loan to deposit ratio to sort of trend lower over the next year?

That is absolutely correct Bob, I think you should expect our deposit growth on an average to remain similar to what you saw in the first quarter. And that also is that if at a certain day 18 months or two years from now, we do choose to divest BankMobile technologies that’ll take some deposits out of CUBI so that we intend to kind of build a much stronger deposit balance sheet so that Customers Bancorp itself doesn’t have a weaker balance sheet or weaker deposit base by the time we are ready to execute on that.

Okay, that’s helpful. And then any more color on sort of what really drove the loan growth this quarter?

We decided – yes Bob, we decided as a strategy that there is a seasonality to our business of the mortgage warehouse business. So, with the Fed increase in rates there was some uncertainty in the market place, the average – we saw average yields of 3.4% in the high quality multi-family business that we could put on our balance sheet. And based upon our market position we decided to take advantage of that and really built a very strong pipeline at a time when many of our competitors were sitting on the side line, wondering what the Fed was going to do and what that might - impact it might have on the rates of multi-family. So then we were expecting like I said earlier, our mortgage warehouse business perhaps to be down by $200 million. So, looking ahead in the second quarter you should expect us to have some nominal continued growth in multi-family but not to the same extent you saw in the first quarter. But I wouldn’t be surprised, this yield curve - consumer is very smart and this yield curve is being, is really driving a lot of volume of refinancing, adjustable rate mortgage loan especially into 7 year and 15 year fixed rate loans. We are seeing a huge increase in that business, which obviously our clients are looking for credit lines from us so that goes very well for our second quarter profitability. And that’s why bottom line is that, we may not be able to show you significantly better capital numbers in the second quarter but you will start to see our capital, especially the tangible common equity to average tangible assets start to go up more so in the second half. And on an average you’ll start to see the loan growth being greater than 5% in certain of our core businesses and less than 5% perhaps based upon our estimate significantly less than 5% in the mortgage warehouse business.

Okay. Do you have the Tier 1 risk based capital ratio and total risk based capital ratio for the first quarter handy by any chance?

Bob, we don’t – we haven’t – we have preliminary numbers Bob, but nothing that we published at this point in time, that’s consistent with our past practices we wait until we issue the call reports.

But they were all pretty much consistent – Bob, you can see that our Tier 1 equity was 7.15 that we raised some, so they were all…

They’re generally consistent with last quarters.

Okay, okay.

But you can call us before the call report Bob, we’ll give them to you as soon as we’ve done.

Okay. Last question, I’ll hand it off to someone else, but any sort of preview you can provide for the upcoming Analyst Day in New York? I’m curious how much of the focus is going to be on BankMobile and what should we be looking for?

Sure Bob, that’s going to be minimum 50-50 but if possible it might be 60%, 70% BankMobile and the rest would be on the rest of Customers bank, because there are more questions and there are more – lots of our shareholders are really looking forward to what it might mean for BankMobile technologies divestiture because right now last year there was a seven point some million dollar expense zero valuation given to us by our shareholders, and we are getting a lot of questions about BankMobile. So in response to that it’s probably going to be 60% or 70% BankMobile and the rest will be commercial – the rest will be the commercial banking operations of Customers bank.

Great, all right, looking forward to it. Thank you guys.

You’re welcome.

And we’ll go to Joe Gladue from Merion Capital Group.

Hi Joe.

Yeah, good afternoon. Yeah, I’ve just had one question, you did mention – you’ve added some changes in the last three or four months but wondered what the outlook for the rest of the year is as far as additional more teams.

Joe, we’ve added approximately 14, 15 or so folks in the last six months in our various teams and we’re going to pause. The best opportunities are right after you get those bonuses or those kind of things so there is a lot of hiring that takes places between February and March and we did our share. And so you shouldn’t expect any other significant increases in our teams, but we are expecting reasonably strong growth in C&I business but not a huge based upon what we are seeing in the market place. And we will be looking at simply doing fundamentals and having a much stronger balance sheet for the next year or two and you should expect like I said earlier, us to get close to 1% to ROE within this 18 months to two year period.

All right, thank you.

[Operator Instructions] We’ll now go to Kelly Motta from KBW.

Hi, this is Kelly Motta on for Chris McGratty, thanks for taking my question.

Sure.

So your loan growth is particularly strong in Q1, partly impacted by no loan sales. Can you describe what your near term outlook is for loan sales, particularly with respect to managing your overall capital levels?

Sure. Kelly, we will do loan sales whenever we feel there is an opportunity for us to get a nice good price for it because we are not in the business of multi-family, it’s not a mortgage banking operation, it is a business that we are in for holding them in portfolios. So in the first quarter we didn’t do any loan sales because there was somewhat of uncertainty in the marketplace as to the valuation of these multi-family portfolios but you shouldn’t be surprised if we do a loan sale of multi-family in the second quarter. And then going forward, we are seeing payoffs and prepayments add up to somewhere between $150 million or so a quarter of multi-family loans and so if we do book more significantly more than that it’s probably because like you said so correctly that we see opportunities for loan sales and we are very focused on improving our capital ratios without sacrificing earnings growth.

Okay, thank you.

And it appears there are no further questions. I’ll turn the conference back over to our presenters for any additional or closing remarks. Actually I apologize, it looks like we do have a question now coming in. Frank from Sandler O’Neill, please go ahead.

Hi, it’s Frank Schiraldi, how are you guys?

Good Frank, how are you?

Good, thanks. Just wanted to ask about BankMobile, the 100,000 accounts plus I think it is that you have, is there any color you can give on percentage of those accounts that are direct deposit, what’s driving those accounts, are they in part reflect graduates coming from higher one deposits, if you could just give any color there? Thanks.

I think all of the above, we are attracting the graduates, we are doing a lot of testing on various approaches that work. We have a bank mobilist program which is at non-higher one colleges and universities who are bringing in a lot of these customers to us. And – but all I can say to you is that direct BankMobile to consumer is not a frictionless process and indirect BankMobile through someone else whether it’s affinity group or whether it’s colleges and universities, whether BankMobile those kind of things are much more effective that we are finding and much more cost effective and a better quality of a customer that we are finding. We will be talking a whole lot more about this Frank on June 3.

Okay, so do you have that handy just the direct deposit number or is that something you guys will give out at the Analyst Day?

We’ll give it out in the Analyst Day, and we’ll also share with you what our goals are at the Analyst Day.

Okay, great. And then just on the growth in deposits, I see obviously a big chunk was in money market. Jay, you said that that was reflective of that came from your commercial customers primarily…

Yes, all of it, almost all of it, 98% came from commercial customers.

Okay, and what’s the yield – the average yield on the – just curious, on the deposits coming on the books in the quarter?

Our average cost of funds for the – on deposits for the quarter went up by about three basis points. Bob, do you have it broken down by different categories?

Yeah I do, I can tell you on – I can’t answer this question specifically in terms of those specific assets…

Money market deposits, if there is…

But I think these are different but money market deposits are 58 basis points Frank, and these are coming on in that 50 to – generally in that price range.

Okay great, that’s helpful. And then just finally, on multi-family, just in terms of competition in New York, we’ve heard a lot about it sort of heating up and in terms of pricing and terms and heard a bit about offerings coming in with interest only initial term sometimes for multiyear periods. Just wondering if you can talk about the competition in multi-family specifically in New York and how you guys approach that, what you’re willing to do on the IO side?

We are not willing to do any of the things that you heard from your competitors Frank, and we just make that clear. And there is nothing new about competition, this is – as banks woke up in the last two years to say, my god we got to start generating more revenues, how do we do it. And then they all sort of realized, the ones who are generating revenues are the banks who happen to be doing a lot of New York multi-family and you’ve seen a lot of new entrance in the market place and the only way that they believe they can compete with us and with signature and with New York community is by price. Well, I can tell you this, this is not just the price sensitive market, this is very much of a relationship business, even though it’s done through brokers predominately it is entirely a relationship business and we are not going to be playing the price game with any of our competitors, even if it means we have to stay out of the market. We have never made a multi-family loan below three and a quarter, we told you our average yield and the business we put on in the first quarter was 3.4%.

Okay.

And in Ohio, no five years, no 10 years. So, I told you it’s not a commodity.

Okay. So competition hasn’t necessarily guys, it’s just been fierce all along and hasn’t necessarily changed and to your point the relationship is important.

Yeah, and if it changes we will change our business focus too rather than just match up.

Okay, thank you.

Thank you, Frank. Anybody else Jessica?

It appears there are no further questions.

Okay, well thank you very much. And in summary, I would just like to once again state that we made public our goals for 2016 to be between $240 million to $250 million in operating core earnings per share and we are right on target and seeing no reason to change that guidance that we’ve given to you. So thank you very much for dialing in and please give us a call if you have any other questions, but otherwise we hope to see many of you and your clients on June 3 in New York. Thank you.

This concludes today’s presentation. Thank you for your participation.