Customers Bancorp, Inc. (NYSE:CUBI) Q3 2023 Earnings Conference Call October 27, 2023 9:00 AM ET
Company Participants
David Patti – Director of Communications
Jay Siddhu – Executive Chairman
Sam Sidhu – President and Chief Executive Officer
Carla Leibold – Executive Vice President and Chief Financial Officer
Phil Watkins – CFO
Conference Call Participants
Steve Moss – Raymond James
Casey Haire – Jefferies
Peter Winter – D.A. Davidson
Michael Perito – KBW
Frank Schiraldi – Piper Sandler
Matthew Breese – Stephens
Bill Dezellem – Tieton Capital Markets
David Patti
Thank you for joining us for the Customers Bancorp Earnings Call for the Third Quarter of 2023. The presentation deck you will see during today’s webcast has been posted on the investors web page of the bank’s website at www.customersbank.com. You can scroll to Q323 results and click Download Presentation. You can also download a PDF of the full press release at this spot. Our investor presentation includes important details that we will walk through on this morning’s webcast. I encourage you to download and use the document.
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 risk 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 10K and 10Q, 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 is my pleasure to introduce Customer’s Bancorp Chair Jay Siddhu. Jay?
Jay Siddhu
Thank you, Dave, and good morning, ladies and gentlemen. Welcome to Customers Bancorp. third quarter 2023 earnings call. Joining me this morning are Customer’s Bank’s President and CEO, Sam Siddhu. Customer’s Bankcorp. CFO Carla Leibold. Customer’s Bank CFO Phil Watkins. And our Chief Credit Officer, Andy Bowman. I would really want to thank Andy for all his service to the company, and as you all know, he is retiring from the bank after an exceptional service to us, and he’ll be leaving us end of the year.
We are pleased to share Customer’s Bancorp’s results with you this morning. This quarter’s results demonstrate the strength of our franchise with continued positive momentum across all our top financial priorities that include deposits, margin, liquidity, profitability, and capital. All of this while maintaining our strong risk management principles. We salute our team members throughout the bank, whose commitment and hard work makes our success possible.
I also want to thank our clients who place their trust in Customer’s Bank every day as we try to execute flawlessly in serving their banking needs. Looking at slide three, we wish to again demonstrate how Customer’s Bank is a forward-thinking bank with strong risk management. We will cover five major topics in this morning’s presentation. I’ll cover a few highlights, and my colleagues will cover each topic in more detail.
First, in terms of quarterly performance, we delivered another strong quarter that significantly exceeded street estimates across every metric based on strong underlying performance, as measured by return on assets, return on equity, margin expansion, control of our expenses. All of these while materially improving our capital ratios.
Second, we continue to create franchise value across the bank. We saw the market disruption as an opportunity to create and deepen client relationships. As an example, we are so proud of our team members in the Tech Inventure Banking Group that have not only met, but exceeded our expectations. As a result of strong deposit growth from our borrowers, the acquired Tech Inventure Banking portfolio is already self-funded one quarter ahead of our schedule. And there is excellent momentum to build our client base, our brand, and generate attractive deposit and loan opportunities going forward. We would also like to once again welcome these fantastic new clients to our firm who are driving innovation and progress in our economy.
We generated $1.3 billion of core deposit growth in the quarter. As promised, we use these deposits to improve the overall quality of our funding base by paying down high-cost wholesale deposits and redeeming some of our high-cost outstanding federal home loan bank advances. Importantly, our deposit jazzing was granular and diverse across our franchise and our non-interest-bearing deposits increased to 26% of our total deposit.
Third, we significantly increased our capital levels for second quarter in a row. Carla and Sam will provide much more details, but I wanted to mention that with a controlled balance sheet, we were able to increase our TCE ratio by 50 basis points this quarter. Our CET-1 ratio went up by 100 basis points this quarter to 11.3% and our risk-based capital ratio also went up by slightly over 100 basis points to 14.3% at the end of this quarter. We are committed to maintaining or further improving these ratios.
Fourth, credit quality, which is always a key focus and part of our DNA at customer’s bank remains incredibly strong. Recent areas of focus in office as well as retail, commercial real estate are absolutely immaterial components of our balance sheet. Our NPA ratio has remained stable and we are confident in the future performance of our loan portfolio. Finally, we remain very optimistic about our future performance. We are pleased with our quarter’s results and expect to significantly exceed our 2023 full-year core EPS guidance of $6 a year and report stronger core results in 2024 and beyond.
Now turning to slide four, let me briefly reiterate our priorities which remain unchanged. We have and will continue to moderate growth and ensure we are capturing franchise enhancing full banking relationships. We will continue to fortify our balance sheet and improve our capital ratios because that is a prudent thing to do in this uncertain environment. As always, risk management remains at the core of our bank’s DNA and we are unchanged in our commitment to our critical success factors.
These critical success factors have been in place since the day we started the bank. They are, first, managing credit and interest rate risk, secondly, maintaining robust liquidity and capital levels with strong asset liability management principles. Third, always making decisions that drive positive operating leverage. We believe our unique mix of size and sophistication creates a competitive advantage to many of our regional bank peers. We are seeing attractive new loan and deposit growth opportunities.
We believe we should be able to show high single digits to low double digit loan growths next year, assuming stable economic environment. We have ample liquidity and strong capital to support moderate growth. As the quality remains exceptional as I stated earlier, with our NPA ratios remaining roughly flat at just 14 basis points. Office and retail commercial real estate each represent less than 1% of our total loans.
Before I pass on the call to Sam, I want to welcome to the call Steve Moss, our new research analyst from Raymond James. Steve joins an already extremely talented group of research analysts who follow customer’s bank or story. We are excited for the insights that Steve will add to the discussions each quarter and to his regular reports. With that, I’d like to turn it over to Sam to cover the key activities and results of the quarter in more detail, Sam.
Sam Sidhu
Thanks, Jay, and good morning, everyone. We’re pleased to report that our team again delivered one of our best quarters yet, especially in an uncertain macroeconomic and geopolitical environment. In the third quarter of 2023, we produced extremely strong gap results across all profitability metrics, earning $2.58 in gap EPS on net income of $83 million. Our ROA was 1.57% and ROE was 24%. We continued to buck the industry trends and increased our net interest margins significantly in the quarter to 3.7%.
From a balance sheet perspective, we maintained a disciplined, roughly flat balance sheet. Total deposits were up 1% in the quarter as we continued to transform the quality of our deposit franchise, which I’ll provide more detail on shortly. Credit quality remained benign, as evidenced by the NPA ratio Jay walked us through. Reserve levels remained robust at 466% of NPLs. We do not see any signs of weakness in our book, but remain hyper-focused on portfolio management.
Before we dive into more detail, I wanted to take a moment to put our quarterly performance into context. We grew our core earnings by 60% in the quarter. We expanded margins significantly and reported net interest income well above expectations and significantly above industry trends. We earned more than 20% return on common equity, and we achieved all of this while building our capital base by 100 basis points. We’re extremely proud of what the team was able to accomplish and appreciative of all of their hard work in producing these extraordinary results.
Moving to slide six, in a challenging deposit environment for the industry, we were able to grow our deposits by a net $200 million, even after significant wholesale deposit payouts. From a core deposit perspective, we had $1.3 billion of growth. I’ll say that again, $1.3 billion of growth. This represents over $100 million of deposit generation per week throughout the quarter. When combined with last quarter’s growth, this is over $2.1 billion in core deposit growth, which is a significant growth in our core deposit franchise.
I want to highlight not just the quantity, but also the quality of this growth. The deposit growth we have achieved was a team effort across the franchise. For additional context, about two dozen of our deposit channels saw solid growth in the quarter, with most of them up $25 million or more, demonstrating the broad-based nature and quality of our deposit transformation. This growth was also very granular, as we added over 1,000 new high-quality commercial client relationships in the quarter.
This caliber of deposit growth represents true franchise value creation and continues to strengthen our deposit base. Our core deposit growth in the quarter was once again used to pay down higher cost, as well as wholesale funding, with the reduction of over $900 million in wholesale CD balances, which totals over $1.5 billion of pay down over the last two quarters. While the industry has been steadily losing non-interest-bearing deposit balances, year to date, we’ve increased our non-interest-bearing deposits by $2.9 billion.
Non-interest-bearing deposits now comprise 26% of our total deposits. This is the third consecutive quarter of increasing non-interest-bearing deposits, which we believe is a testament to the strengthening of our deposit franchise. As a result of these efforts, in spite of the Fed again increasing rates, our average cost of deposits increased by only 13 basis points in the quarter, which we believe is one of the lowest increases in the entire industry.
Since the first quarter, our average cost of deposits declined eight basis points this year. This is in the most challenging deposit environment that the industry has seen in recent history. We can say certainly, with certainty, we are the only bank in the industry to accomplish this decline. We remain deeply focused on the quality and stability of our deposits, and at the end of the quarter, 78% of our deposits were either insured or collateralized.
This metric keeps us in a very strong position relative to regional bank peers. Our core deposit pipeline remains robust with at over $1.5 billion, which we anticipate onboarding over the next three quarters or so. We would note that we expect the student portion of the deposits managed by BMTX of over 500 million plus to move to their new partner bank, likely sometime in the month of December.
We are one of the biggest beneficiaries in the industry of the significant customer and deposit disruption earlier this year. 2023 will be a transformative year for our deposit franchise and one marked by increasing the diversification, granularity, and overall strength of the franchise.
Moving to slide seven, $200 million of net interest income in the quarter represents a second quarter in a row of record net interest income, ex-PPP. The more than 20% increase in net interest income had roughly $27 million of outsized discount accretion from the acquired venture banking loan portfolio. Even after adjusting for the outside discount accretion, this would be a record quarterly NII ex-PPP, and we continue to have positive momentum for expansion off of this normalized base. While much of the industry continues to face headwinds, our net interest margin expanded to 3.7% in the quarter, benefiting from our deposit transformation, the floating rate composition of our interest earning assets, and was enhanced by the outsized accretion.
Normalizing for the accretion, our NIM would have been about 3.2% versus 3.15% last quarter and we expect this upward trajectory to continue in the fourth quarter and into 2024. Similar to the story on deposits, this is the second quarter where we had one of, if not the best performances in the industry with sequential continued improvement. With that, I’d like to turn the call over to Carla to discuss additional highlights from the quarter.
Carla Leibold
Thank you, Sam, and good morning, everyone. I’ll begin on slide eight. We continued our strategy of improving the overall quality of our loan portfolio during the third quarter. As we’ve stated previously, our focus remains on building holistic client relationships. Loans held for investment declined modestly by about $250 million in the third quarter, with decreases in our mortgage warehouse, consumer, commercial real estate, and multifamily portfolios from clients where we did not have meaningful deposit relationships.
While we continuously evaluate our loan portfolio to ensure capital is generating the best possible risk-adjusted returns, I am pleased to say that we don’t see the need for additional remixing in the loan portfolio. We also continue to maintain strong liquidity as our loan to deposit ratio improved by two percentage points to end the third quarter at 75%, putting us in the top quartile of our regional bank peers. As a result of core deposit growth and selective loan originations, our 75% loan to deposit ratio provides a significant flexibility heading into 2024.
Turning to slide nine, core non-interest expenses were roughly flat in the third quarter at $89 million, consistent with our guidance. We believe we have significant opportunities to generate positive operating leverage with the current expense base. We are proud of our ability to operate the bank at one of the lowest levels of core non-interest expenses to average assets among our regional bank peers And we are in the top decile of all publicly traded U.S banks for the efficiency metric.
As we’ve discussed with you in the past, we are confident in our ability to operate the bank at a mid-40s efficiency ratio over the medium term. We remain committed to our business model of providing high touch client service with tech enabled capabilities and a limited physical branch network. This is the true differentiator of the customer’s bank franchise.
Moving to slide 10, as many of you may remember, we purposely took action throughout 2022 to proactively reposition our securities portfolio during a time when most of the industry had become complacent about securities portfolio management. That forward-looking strategy continues to pay dividends to our bank today. Without taking undue credit risk, we continue to generate approximately two times the yield on securities relative to regional bank peers. We accomplish this while taking only one third of the duration risk that those peers have exposed themselves too.
As a result of the strong interest rate risk management, despite the increase in rates during the third quarter, our AOCI as a percent of TCE actually declined by about 225 basis points during the quarter. And the low level of unrealized losses in our AFS and HTM portfolios relative to tangible common equity is top quartile among our regional bank peers.
Over on slide 11, our liquidity position remains robust and best in class with $11.7 billion in total liquidity, $9.7 billion in immediately available liquidity, including $3.4 billion of cash on balance sheet. As a result of strong core deposit growth and excess liquidity, we repaid $510 million of callable federal home loan bank advances at the end of the third quarter. This helps reduce interest expense going forward while also freeing up incremental off-balance sheet liquidity.
Immediately available liquidity as a percentage of uninsured deposits grew over 15% during the third quarter and is now almost 240%, putting us at the very high end of our regional bank peers. We will continue to monitor market conditions to determine the appropriate level of balance sheet cash. However, we continue to believe it is prudent from a risk management perspective to operate with higher levels of cash.
Turning to slide 12, we added more than $3 per share to our tangible book value in the third quarter, which benefited from strong organic capital generation and a positive impact to AOCI from our available for sale securities portfolio, which is in stark contrast to the industry.
We are very pleased to report that we already achieved our tangible book value target of $45, with one quarter remaining in 2023. While a higher for longer rate environment may continue to cause industry headwinds, we do not expect to be meaningfully impacted by such a rate outlook because of the short duration on our securities portfolio. Over the last five years, we have increased our tangible book value per share by 15% on an annualized basis.
We have already exceeded that 15% growth during 2023, with one more quarter to go. We are on track to grow our tangible book value by more than 20% this year, subject only to external market impacts.
Moving on to slide 13, our TCE ratio ended the third quarter at 6.5%, which was an increase of 50 basis points in a single quarter on a relatively flat balance sheet. This is a testament to our strong earnings power and balance sheet discipline.
AOCI continues to negatively impact this ratio by about 70 basis points. I’ll also point out that $3.4 billion of balance sheet cash has a material impact on this ratio. Our estimated CET1 ratio ended the third quarter at 11.3%. This is the second consecutive quarter that we’ve been able to materially increase our CET1 ratio. We’ve grown our CET1 ratio by 170 basis points this year. And with one more quarter to go in 2023, we have already achieved our previously guided range. I will also highlight that our AOCI adjusted CET1 ratio is 10.2%, which is top quartile of all banks from $10 billion to $100 billion in assets.
Turning to slide 14, credit quality in our portfolio remains strong across all metrics. Non-performing loans ended the third quarter at $30 million, and our non-performing asset ratio was low at just 14 basis points. Both metrics are in line with the levels we’ve experienced over the past four quarters. Consumer charge-off declined by about $1.1 million in the third quarter.
While the consumer charge-off ratio appears higher, the decline is skewed by the $550 million consumer loan sale we executed at the very end of the second quarter. This sale led to roughly 25% lower average consumer balances quarter over quarter. We remain extremely well positioned for the potential challenges ahead for the commercial real estate market. Commercial real estate, excluding multifamily, comprises only 14% of our loan portfolio, while our regional bank peers have about 30% exposure.
Furthermore, as Jay noted, the office and retail sectors of commercial real estate each only account for approximately 1% of our total loan portfolio. I’ll also highlight that our provision expense of $18 million came in at the very low end of our guidance of $18 million to $22 million per quarter. Our reserve level was roughly flat quarter over quarter, and we feel we are well reserved at 110 basis points of total loans held for investment.
Superior credit quality is in the DNA of Customers Bank. We are firm believers that management must remain highly focused on credit risk during strong economic times, which is why we feel we are very well positioned despite the uncertain macroeconomic environment today.
With that, I’ll pass the call back to Sam to address our outlook and provide some concluding thoughts. Sam?
Sam Sidhu
Thank you, Carla. I would like to wrap up with a brief update on our expectations for the remainder of 2023. Before going through the details, I want to reiterate that our top focus areas remain strengthening our balance sheet, improving our deposit franchise, as well as maintaining industry-leading levels of liquidity with a strong and growing capital base.
We continue to perform against our previous loan and deposit guidance. As Carla mentioned already, the remixing of our loan portfolios complete the transformation of our deposit franchise through taking market share due to market disruption as I described earlier, is well underway and has a fantastic runway ahead. For an interest margin, normalized NIM was approximately 3.2% in the third quarter, and we expect continued expansion from there.
We set an ambitious goal of $6 in EPS at the beginning of this year, and I’m pleased to report that we anticipate significantly exceeding that target. And finally, we are very proud that we have already achieved our CET1 intangible book value per share targets. We look forward to providing you our financial outlook for 2024 and the new-year, but as you can imagine with the results we’ve achieved so far this year, we are very optimistic about our prospects in 2024. To conclude, to wrap up, this was clearly an incredibly strong quarter.
Here are some takeaways. Number one, as we’ve said numerous times in this call and throughout the course of the year, risk management is and will always be our top priority. Number two, despite industry headwinds, we continue to materially improve the quality of our deposit franchise. Over the last two quarters, we’ve grown core deposits by $2.1 billion and reduced our wholesale funding by $2.1 billion.
Our deposit growth was broad-based and granular. We continued to grow our non-interest-bearing deposits, demonstrating primacy and importance of relationships. The pipeline remains strong at approximately 10% of core deposits and we’re just getting started. Number three, our recurring net interest margin improvement this year is significant and sustainable. Number four, we achieved tremendous improvement in our capital ratios.
Our TCE to TA ratio increased by 50 basis points in a single quarter on a relatively flat balance sheet and our CET1 increased by 100 basis points and as you heard Carla say, adjusted for AOCI, Customers Bank is in the top quartile of all banks between $10 billion and $100 billion on this metric. Lastly, as we look towards 2024, despite the challenges in the banking industry today, the future is very bright for Customers Bank.
Our loan portfolio remix is complete and we’re well positioned for growth over the next year. We have strong opportunities to further strengthen our deposit franchise. Our platform is extremely efficient and at current levels is able to drive positive operating leverage and profitability. We have capital and liquidity to support our clients’ needs.
Thank you very much and with that, we’ll now be happy to open up the line for questions.
Question-and-Answer Session
Operator
[Operating instructions] Our first question comes from Steve Moss with Raymond James. Your line is open.
Steve Moss
Good morning and thank you, Jay, for your kind comments. maybe just starting on the deposit side here, just curious, how much in the quarter came from the venture team and the FDIC transaction?
Jay Siddhu
Good morning, Steve. About less than half of our $1.3 billion.
Steve Moss
Okay. And then in terms of the pipeline going forward, how much is there how much is there as well?
Jay Siddhu
You know, as we stated, the venture banking team was expected to get to one-to-one by the end of the year in the medium to longer term, two-to-one. We continue to reiterate that trajectory. in the near term, we’re past all of the servicing and onboarding client transition efforts that the team has been working feverishly on. We also had a number of credit requests, as you can imagine, hence the outsized accretion that was from the pent-up demand from customers who were looking to make some of those decisions while under FDIC receivership.
On a go-forward basis, we are out. We have national events in San Francisco, all around the country, where we’re meeting perspective and existing customers as well as their investors. And as you can imagine, the management team is very excited and we are personally supporting those efforts.
Steve Moss
Got you, and I realize it’s still early, three, four months in, Sam, but just kind of curious, what’s the underlying business mix you’re seeing between kind of Capital Call Lines and the tech and venture and just, how we think about that on, both the lending side and the deposit side?
Jay Siddhu
Sure, so historically, our fund finance business was more focused on the private equity side of the Capital Call Line business, we did inherit a good number of venture capital focused clients that we’ve actually moved over to our fund finance group. The fund finance group, to address your question specific on deposits, has seen a tremendous amount of slow but steady and granular, as well as non-interest-bearing growth that’s coming not just from, sort of the new venture banking team and their associated relationships, but also from just the dislocation and the banks that have been impacted that used to cover these customers.
And on the venture banking side, we’re seeing, we’ve seen a couple of banks look to add teams to their existing franchise. As a reminder, we had a, half a billion-dollar portfolio prior to the acquisition of this team and this franchise. We have about 40 team members that’s fully integrated, including credit, portfolio management and treasury services. So we have a significant, leg up and really look to continue to grow this franchise in the near to medium term.
Steve Moss
Okay, appreciate the color there. And then on the margin here with the 320, 325 guide, just curious, how much are you assuming for purchase accounting accretion?
Jay Siddhu
So the guidance, I’ll jump in Steve and Carla, let me know if I missed anything. The guidance here we provide is for normalized NIM. The outsized impact that we had in the third quarter is really just six months of catch up and, when you’re diligencing in a data room, you don’t necessarily get all of those customer contacts and conversations. So, the 320 to 325 is sort of our normalized guide going forward.
Steve Moss
Okay, so then you guys had about, let’s call it $94 million, $95 million mark. And so, there’s gonna be accretion over and above that 320, 325 range?
Jay Siddhu
No, Steve, happy to walk you through some of the accounting and we can do that, a little bit offline. The loans are booked at the discounted impact on our books. So, it’s already flowing through our normalized earnings.
Steve Moss
Okay, got it. Okay, that’s everything for me at the moment. I’ll step back. Thanks. Thank you.
Jay Siddhu
Thanks, Steve.
Operator
Our next question comes from Casey Haire with Jefferies. Your line is open.
Casey Haire
Yes, thanks. Good morning, everyone. So follow up question on the NIM, specifically around the cash position. What is the NIM guide presume that that cash position, where the cash position trends in the fourth quarter, as well as the borrowings?
Carla Leibold
Yeah, so on the cash position, as we stated in our remarks, we’ve said it should stay about the same level that we have it in the third quarter and we’ll continue to maintain those levels for risk management perspective. On the borrowings, I would say the borrowings, there are some opportunities to remix the borrowings.
We’ll continue to evaluate that looks like, but third quarter levels, there will be some benefit based on the fact that we did call $510 million advances late in the third quarter. So, there’ll be some benefit coming into the fourth quarter. All of that is factored into the guided range of 320 to 325 in the fourth quarter.
Casey Haire
Okay, and just following up on that, I mean, why I understand it’s prudent to run with a lot of cash, but with your cash position at 15% of the balance sheet, there’s definitely, there’s some flexibility for you to lean into that and further optimize your NIM. I mean, it’s almost, at the end of period, it’s almost two times the borrowings. So, I’m just curious, why not lean into that more?
Carla Leibold
Yes, for that, I would just add that, as Sam mentioned, we are preparing and have been preparing for the outflow of, a portion of the bank mobile service deposits. So those student deposits are leaving in the fourth quarter late in the fourth quarter. So, we want to make sure we have ample cash on hand to fund that outflow.
Jay Siddhu
And I’d also add that, Casey, we continue to have wholesale CD maturities in the fourth quarter. And then finally, as we’ve discussed, we have and will continue to maintain our secret balances and cash.
Casey Haire
Okay, and on the student deposit outflow, is that around that $900 million, where it was in the summer?
Carla Leibold
No. No, there’s some seasonally elevated balance. So, the student deposit businesses have some seasonality associated them with the school year. So, it’s what we’ve been saying is it’s roughly half of the balances that we reported at June 30. BMTX hasn’t released their earnings yet. So, we’re pointing back to those second quarter numbers, but was roughly half of last quarter’s with some seasonality associated with the student deposits.
Casey Haire
Okay, very good. And just last one for me, switching to capital, you guys well above your, above 11% CT1 and a sub tangible book stock price. Just wondering what’s holding you back from being a little bit more aggressive on the buyback?
Jay Siddhu
Okay, see, we will always be on that. And, but for right now, we see, like I said, we see opportunities for some loan growth next year. And we are well, we are done with our remix. We are seeing continued growth in our deposits. So I think buying back common or redeeming are preferred are all the things on the table. But we will update you on a regular basis. But for right now, we would like to see our TCE ratio go up even higher. And our target is 7% for that.
Casey Haire
Understood, thank you.
Operator
Our next question comes from Peter Winter from D.A. Davidson. Your line is open.
Peter Winter
Good morning. So it was nice to hear about the outlook for loan growth next year, high single digit, low double digit. Where do you expect the growth to come from besides the specialty lending businesses? And then secondly, I heard you say that there’s no additional remixing of the loan portfolio, but would you expect some certain other portfolios just to, naturally run down?
Sam Sidhu
Hey, Peter, good morning Yep, so, I think that, on the loan opportunities, we continue to see a number of attractive opportunities. we’ve been very focused on integrating the venture banking acquisition, as well as really increasing our capital ratios. And that’s evidenced on the CET1, is almost 200 basis points up over in just a six-month period.
So now that we’ve sort of, as you heard Carla say, we’ve finished that remix. We’re going to be very focused on growing across verticals that are focused on strategic relationships. We’re continuing to see opportunities in fund finance and lender finance and real estate specialty finance, healthcare, equipment finance, at floating rate spreads of 300 to 350 basis points. Venture banking is at prime press up to 100 basis point And obviously the venture banking portfolio comes with the, the extra added benefit of significant deposits relative to commitments and definitely relative to outstandings.
Peter Winter
And are there any other portfolios, that continue to kind of migrate lower? And is that slowing?
Sam Sidhu
Yeah, we’ve discussed historically, multi-family. our multi-family portfolio is just under 4%, book yield. You can get about at least 150 to 200 basis points higher today. But having said that, it’s still, not accretive to margin and not accretive to some of the other strategic opportunities that we have when we think about capital allocation for next year. So that’s an example of a portfolio that is being de-emphasized. As a reminder, there’s about $250 million plus or minus over the next four to six quarters of maturities in that portfolio.
Peter Winter
Okay and then Sam, how much, can you just talk about how much is left in turn, or rather how much in broker TDs mature in the fourth quarter and just the ongoing opportunities to reduce TDs and federal home loan bank borrowings going forward?
Sam Sidhu
Yeah, so Peter, it’s a similar amount in the fourth quarter as we had in the third quarter. The third quarter, I believe it was $900, $950 million plus or minus. And on the FHLB side, we have somewhere around $300 million plus or minus of additional expensive callables that we always had the intention of redeeming, hence why the advances were taken as callables, which we expect to also sort of reduce in the next couple of quarters.
Peter Winter
Just my last question. Jay, you’re 72 years young. Just wondering what the future plans are. I think you once said if earnings got above $6, you consider retiring and there’s still plenty of golf courses for you to be played.
Jay Siddhu
Yeah, thanks for asking that. I also had said that at that time, you were expecting in 2025, 2026 to reach $6. I’m so pleased that our shareholders will benefit from the fact that we are running three years ahead of plan. So, we will update you, but I see so many exciting opportunities. I’m the largest individual shareholder in the company and I’m very excited about the opportunities for us. And so, we will just look out, but at least for the next two years or so, I intend to remain active.
Peter Winter
Congratulations on a really solid quarter down the line.
Jay Siddhu
Thank you.
Operator
Our next question comes from Michael Perito from KBW. Your line is open.
Michael Perito
Hey, good morning, guys. Thanks for taking my questions. I wanted to just start, apologies if I missed this, jumped around a little bit this morning, but are you guys expecting a similar kind of bumping capital in the fourth quarter that we saw in the third quarter? And I guess as differently, still kind of the expectation to get to 7% by year end. And then kind of as a followup to that, but I know you’re not providing 24 guides yet, but any initial thoughts on kind of overall balance sheet growth for next year?
Is it fair for us to think that, there’s probably some room for growth, but top of mind is still making sure those capital ratios continue to build and kind of reach the more seven and a half, 8% level. Is that fair or should we rethink about it differently?
Sam Sidhu
Hey, Mike, thanks for the question. So, firstly on CET1, we’d given the target of 11 to 11 and a half. We’ve reached the range that feels like a good operating range for us. We’re not looking, you won’t necessarily see the same type of jump as we’ve been optimizing throughout the course of the year. Plus, we had the extra benefit of the, tailwind of the accretion. So that’s sort of how we’re thinking about the range, obviously organic capital creation just in the fourth quarter is going to bump that up, to the high end of the range, if not higher.
And that gives us a very strong jumping off point, for next year, when you sort of think about the organic capital creation, maintaining that range and that discipline and thinking about what that means for loan growth, relative to our 75% plus or minus loan or deposit ratio. And also sort of the deposit pipeline that can help fund future growth, including liquidity created by securities, cash flows, et cetera.
On TCE, we’ve always said 7% is a stretch and the best way to continue to bump up TCE significantly with retained earnings is by maintaining a flat balance sheet. And that’s what we’re committed to for the foreseeable future, because there’s a tremendous amount of remix that can happen within the interest earning assets, especially on the securities book side, as that short duration continues to cashflow provides an opportunity to maintain an increase, the loan deposit ratio, closer to industry medians, as opposed to one of the lower in the industry.
Michael Perito
Got it, thank you. And then just another follow up. I heard you mention in a prior response about the, I think the excess cash you guys are holding, that you hold cash against the CBIT deposit balances. Apologies if I missed it, but did you mention what those balances were at the end of the third quarter?
And then just more broadly speaking, as we think about kind of some of the niches and different verticals that you guys are in or have gone into over the recent, past couple of quarters, I’m sure you’re thinking about kind of fee contribution on this business model going forward. It’s more of kind of a high-level question, but obviously I think it’s about kind of 8% or 9% of revenues now, but I would imagine there’s kind of opportunities to grow and optimize that as you get a little bit more of a strong foundation in some of these new businesses. But just curious how you guys are thinking about that as we move into 24.
Sam Sidhu
Yeah, thanks Mike. So firstly, on CBIT, the balances were below our, obviously, our 15% self-imposed cap. Average balances were essentially flat quarter over quarter, around 2.2 billion, plus or minus. So, it’s right where we want it to be. But I think it’s also important just to sort of reemphasize here that we’ve essentially onboarded any customer that we wanted to onboard, that is integral to the industry.
We’ve also been able to manage our quote unquote, I’ll call, instead of saying large customers, I’d say most institutional central customers to really stabilize deposit balances that allow us to maintain that non-interest-bearing float. Typical large customer is operating between that 5% to 10% of total associated deposits. So, there’s not a lot of tremendous concentration within this portfolio, even though it may fluctuate a little bit. Fee income across the franchise is going to be incredibly important.
We spent a good amount of time talking about our MPL program and the held for sale strategy on a consumer portfolio, building off of Peter’s question on loan remix. We’ve really brought down our consumer portfolio to about 7% of held for investment today. That’s down a billion and a half in balances over the last year, dramatically reduced the credit risk or perceived credit risk relative to underwriting of our entire franchise, which we think is incredibly important
and we’ll continue to focus on that type of remixing, but really look to generate a high-quality revenue from those customers that we’ve worked so hard on building strong relationships over the past five to seven years. We talked about a $10 million run rate in that business by the end of the year and we are well on target to achieve that.
Michael Perito
Great, thank you guys for taking my questions.
Sam Sidhu
Thanks Mike.
Operator
Our next question comes from Frank Schiraldi from Piper Sandler. Your line is open.
Frank Schiraldi
Good morning. Jay, you mentioned a lot of the opportunities out there. I’m just curious, given you talked about multifamily rolling off to a degree, you guys have been pretty negative on Cree overall, which has certainly been the right call, but just thinking about plenty of room there on that side if you were interested and I imagine with others shrinking their books, there’s opportunity to pick up good business. Just wondering if that’s a business you guys are looking at at all, just the Cree, either permanent or sort of bridge loan businesses.
Jay Siddhu
Hey Frank. We are not a focus on Cree. Yeah, so go ahead, Sam.
Sam Sidhu
Yep, I would agree, Frank. We’re not very focused on Cree, but at the end of the day, when you have very high-quality sponsors that otherwise diversify their business across a number of banks who are willing to consolidate all of their business with one bank and have incredible net worth and liquidity, those are the types of opportunities that we’re evaluating to your question. They’re not going to be major needle drivers, but they will be major franchise enhancement drivers.
Frank Schiraldi
Okay, and then just obviously the loan book that you guys acquired through the FDIC was a great win. And maybe I’ve kind of lost track of what’s left there at the FDIC, but is there anything you guys are interested in that is coming up or is being bid out, I guess, by the FDIC currently?
Jay Siddhu
Yeah, so Frank, I think that what was left of the portfolio was non-core, non-strategic to us, mostly Cree.
Frank Schiraldi
Fair enough. And then just thinking about the loans that you did bring over, and obviously you spoke to the outsized discount accretion. I assume other than that outsized discount accretion, it sounds like there was another portion that was kind of more run rate in the quarter. So just wondering if you can share what the remaining discount accretion is and then the duration of the book so we can kind of model of how that progresses or the run rate over time.
Jay Siddhu
Yeah, Frank. So, I think that we’re not going to be breaking out the discount. As I mentioned, these books are different than a whole bank acquisition when you have a bargain purchase gain and there’s equity created. In this case, these loans are booked on our balance sheet at the discounted rate. So essentially to sort of think about this to your question about duration, it’s about a one-and-a-half-year duration. So, if you say a third was outsized and of the $95 million this quarter, it kind of gives you a sense of how to think about it over a six-quarter type period.
Frank Schiraldi
Yeah. Okay, great. Thanks for that. And just lastly, I guess on the non-interest-bearing growth, I just wanted to, so you mentioned the CBIT. I assume that’s all non-interest-bearing and I assume over time the idea is still, I mean, you’re getting a great return on that right now just in NII, but I assume over time there’s the idea or the expectation is the fee side of things. Just curious if that’s something you think you could ramp up in 2024, that’s sort of further down the line or how you thinking about that?
Jay Siddhu
Hey, Frank. So, it’s a great question. Obviously in a higher for longer type scenario, we don’t anticipate this being a need in 2024. We’re working collaboratively with customers and their technology needs. So eventually as you can imagine, our low-rate environment does need to be a fee-based business, but then it also doesn’t need to take up so much of your balance sheet. So that’ll be an evolution over time, but I don’t anticipate that being a 2024 event.
Frank Schiraldi
Gotcha. Okay, great. Thanks for all the color guys.
Operator
Our next question comes from Matthew Breese from Stephens. Your line is open.
Matthew Breese
Hey, good morning. I know you had referenced the VC kind of driving a portion of the non-interest-bearing deposit growth, but I was hoping for just some better color as to what the components were that drove the quarterly increase.
Jay Siddhu
Yeah. So, I think, Matt, we talked last quarter about our $2 billion pipeline, despite the $1.3 billion of growth, we still have one and a half billion in sort of replenished in our pipeline. We also talked about a quarter of that pipeline being non-interest bearing across, verticals. And that was reasonably consistent across the venture banking team.
Matthew Breese
Okay. And I don’t know if you mentioned this, but what is the near term and in 2024, if we have it both kind of overall deposit growth outlook and then outlook for non-interest-bearing deposit growth?
Jay Siddhu
Sure. So, one and a half billion, about three quarters, about a quarter of that, would be non-interest bearing. So that kind of gets you to, $500 million, sort of a quarter. And with a quarter of that being non-interest bearing. But just a reminder, we will have in the fourth quarter, you do have the transition out of the non-core, non-strategic, BMT student deposits.
So, the fourth quarter will be flattish to, potentially a slight decline, in deposit balances. But again, when taken in totality about sort of the go forward foundation of the franchise, we’ll continue growing off of that base in early next year and hopefully continue to replenish the pipeline as we have done incredibly successfully over the last two quarters.
Matthew Breese
And where did the BMTF student deposits currently reside?
Carla Leibold
Yeah, so I can give some interest bearing, non-interest bearing, I can give you some color on that. So, it’s split. So the student deposits are currently in non-interest deposits, and then the T-Mobile related deposits are in interest bearing.
Matthew Breese
And what’s, are they split 50-50 or what’s kind of the breakdown?
Carla Leibold
It’s roughly 50-50 with some seasonality around the student deposits tied to the school year.
Matthew Breese
Okay. And then, this quarter there was some legal expense tied to a third party PPP lender. There’s still some PPP left on the books. So I guess one, I was looking for some better clarity as to what happened that caused, the $4 or $5 million in legal costs. And then what is the outlet for resolving the remaining stub piece of PPP loans? It feels like it’s just been on for, it’s been ongoing for longer than most of your peers.
Jay Siddhu
Hey, Matt. So, obviously on PPP, just as a reminder, it may be ongoing. It’s 1% of our balances of origination, right? We originated $10 billion. We made $500 million of revenue, $8 of book value creation. We had guided to about this number a couple of quarters ago of balances we expected to stay in our balance sheet. We also guided last quarter that that would be our last quarter of needing to do some of the pro forma metrics. It’s now put into tables in the back of our franchise.
To answer your question specifically, this was also in an effort to make sure that we just cleaned up any issues. As you can imagine, there were no PPP servicers prior to March of 2020. So, PPP servicers, who had technology capabilities, et cetera, and also didn’t necessarily plan to be in this business for three to five years. So, we had to take on some of those servicing efforts and we cleaned things up. There are no disputes on outgoing.
We talked about this particular arbitration a year ago. I think it was in the fourth quarter of last year. So, we’ve disclosed that there’s nothing, no minor, no major dispute. PPP is essentially cleaned up and behind us in these balances. We don’t know when they’re going to term out, but just assume that they’re part of our franchise going forward. Not great, from the 1% interest rate given our cost of funds, but very de minimis in the grand scheme of things. And PPP was an incredible program for us and transformed us to where we are today where we can make as much in a quarter as we made in an entire year prior to PPP.
Matthew Breese
Understood. Okay. And now that you do have the servicing, you’ve won back your servicing, should we expect a full and maybe expedited resolution of the stub balances? Is that the way to think about it?
Jay Siddhu
Remember stub balances essentially are termed out balances for the most part, Matt. Right? So, these are folks that have a two or five year PPP loan and banks have these on their balance sheets as well.
Matthew Breese
Okay. I was hoping to turn to charge-offs, you know. One, there’s quite a bit that’s coming from the installment book. So maybe just give us a sense for the outlook on charge-offs from here if we should expect something consistent with this quarter. And then secondarily, what are the early-stage delinquencies? What does that look like for the installment book today versus last quarter?
Phil Watkins
Yeah. Hey, Matt, good morning. This is Phil Watkins. So, I think you saw on the consumer side on an aggregate basis, those charge-offs actually came down by $1.1 million in the quarter. And we did say as the consumer HFI portfolio continues to, to mature and decline that you’ll see those kind of continue to come down on, on that trajectory over time. So, it’s not going to happen overnight in a quarter, but that is where we would think things are going.
And as far as the, early look into those portfolios, we obviously continue to monitor it very closely. But, as a reminder, our portfolio is very differentiated from the consumer overall. So super, prime and super prime, 730 FICO, 19% DTI, over $105,000 of income. So, we’re, we’re not seeing any, any material changes. obviously there was credit normalization from the, from the unsustainably low levels. But we continue to feel the book’s performing as expected.
Matthew Breese
Okay, I’ll leave it there. Thank you.
Operator
Our next question comes from Bill Dezellem from Tieton Capital Markets. Your line is open.
Bill Dezellem
Thank you. Relative to the loan growth that you were referencing that you anticipate in 2024, would you talk to the category where you see the most opportunity? And to what degree is that opportunity a function of competitors pulling back from those market segments as they’re trying to navigate the environment?
Phil Watkins
Hey, Bill. Good morning. Good question. to sort of recap some of the and bring together some of the conversations we had on the call today. So, we expect venture banking to be a major sort of commitment driver. As you can imagine, these are on average $8 million, $10 million loans, there’s not a huge amount of balance growth that can actually happen in a short period of time responsibly.
But we are taking market share, and we have a tremendous amount of deposit only customers and also tremendous amount of net deposit customers that will be on board on boarded lending to the market disruption. Also, in the fund finance space and the capital call line, side of, we sold all of our non-bilateral loans last quarter and we’re starting to build a great pipeline of 100 basis points of extra spread, plus the Fed, plus Fed funds increases from where we were originating at the beginning of this year and of last year, in that business.
And that also comes with associated, non-interest-bearing balance deposit growth as well, not only from credit customers, but also from banking, those types of customers. So those are two examples of the most dislocated from a competitive environment. Remember, we have an existing franchise, as well. And we have existing teams that have, built incredible franchises across the board.
Our community banking, team that has, expanded over the past couple of years has a great existing and new relationships. our healthcare business, has great opportunities that with a good pipeline building, as does our commercial finance business, colloquially known as our equipment finance business.
Bill Dezellem
And so if I am hearing you correctly, you do have some of the growth next year will be a function of some of the dislocation of some of these segments, but others will simply be a function of the areas of strength that you have for lending, irrespective of the competitive environment.
Phil Watkins
That’s right, Bill.
Bill Dezellem
Great, thank you. And great quarter.
Operator
This concludes the question-and-answer session. I will now turn the call back to Sam Sidhu, President and CEO for closing remark.
Sam Sidhu
Thanks, Brianna. Everyone, we’d really like to thank you for your continued interest and support of customers, Bancorp, and really look forward to speaking to you again soon. Thank you.
Operator
This concludes today’s conference. You may now disconnect.
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