Good day everyone and welcome to the Customers Bancorp First Quarter 2015 Earnings Conference Call. As a remainder, today’s conference is being recorded. And this time, I would like to turn the call over to Mr. Ted Haberfield, President MZ North America. Please go ahead, sir.

Thank you and good morning everyone. Customers Bancorp’s first quarter 2015 earnings release was issued yesterday afternoon just after the close and is posted on the company’s website at www.customersbank.com. There will be no slides accompanying today’s call but the press release will be at website. You can also email me at thaberfield@mzgroup.us, if you have any additional questions. Representing the company 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 that we make today may be considered forward-looking. The discussion today may contain forward looking statements which are made in good faith by Customers Bancorp pursuant to the Safe Harbors provision of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 as amended and the Securities Exchange of 1934 as amended. These forward-looking statements include statements with respect to Customer Bancorp’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations due to the performance of business. Statements preceded by, followed by or that include the words may, could, should, pro forma, looking forward, would, believe, expect, anticipate, estimate intend, plan or similar expression generally indicate a forward-looking statement. At this time, it is my pleasure to introduce Customers Bancorp’s CEO, Jay Sidhu. Jay the floor is yours.

Thank you very much, Ted and good morning ladies and gentlemen. Thank you for taking the time to be on our call today. Also joining me today besides Bob Wahlman, our CFO, is Dick Ehst, our President of our bank. As you know, we are very pleased to report the strong beginning to 2015 and so our first quarter earnings per share as you know were up by 69% over Q1 2014 and we improved our financial metrics in every area. Return on equity, return on assets, asset quality, interest rate risk profile, all of them showed improvement. So, we are very pleased over the first quarter performance. Today’s call what we will do is, I’ll provide some initial comments; Bob will go over in detail our financial results and then before we open it out for Q&A, I’ll go over some of our critical success factors and some strategic issues that we are involved in and we really look forward to having a dialogue with you. As I mentioned to you earlier, earnings per share were very good and in terms of the deposit performance, we are very focused on that. And we are very pleased to share with you that our non-interest bearing deposits were up by about $75 million; net interest bearing deposits were -- if you combine the two, were exceeded our loan growth. And this is a very important accomplishment in this sort of an environment for us. And as we had expected and we had planned that we managed our capital very well and we focused on growth in variable rate loans in the first quarter. And the margin also expanded in the first quarter. So with that sort of general introduction, I’d like to hand it over to Bob Wahlman who will go over some details of the financial performance of the company.

Thank you very much Jay and good morning everyone. And thank you for calling into Customers earnings call this morning. Customers Bank is reporting a record net income for the first quarter of $14 million compared to net income of $8.1 for the first quarter of 2014, an increase of 71.5%. And as Jay noted a moment ago, Customers’ fully diluted earnings per share for Q1 2015 is $0.49 compared to earnings per share for Q1 of 2014 of $0.29 or an increase of 69% year-over-year. Linked quarter, the first quarter of 2015 earnings of $14 million were up $8 million or 6% over Q4 2014 and our Q1 2015 earnings per share of $0.49 increased to $0.02 compared to the $0.47 reported for Q4 2014. The other key financial and balance sheet metrics for Q1 2014 -- Q1 of 2015 of special note were as follows. Customers reached 12.5% return on equity in Q1 2014, up from 8.4% in Q1 2014 and 11.9% in Q4 2014. This was the first time we reached our previously stated goal of 12% target return on common equity. Asset quality continues to be outstanding with non-performing loans declining to $11.8 million to only 0.19% of total loans outstanding at March 31, 2015 that’s down $6.3 million or about a third from a year ago and other real estate also declined by $2.5 million from a year ago to $13.1 million. Customers’ efficiency ratio also continued its downward trend, reaching 52.8% in Q1 2015 compared to 61.8% at Q1 2014 and 54.9% for Q4 2014. Our return on assets also continued to improve, reaching 83 basis points for Q1 2015 compared to 76 basis points for a year ago quarter and 80 basis points for Q4 2014. Customers’ total assets climbed to $7.1 billion…

Thank you very much Bob. I stand corrected on one thing; I mentioned to you in my opening comments that our deposits, DDAs were up by about 75, the number is more accurate, what Bob said; it’s about 180 million, not 75 million. So, we’re very, very pleased with that. Now talking about a few other highlights as you can -- as you heard from Bob. We had strong profitability; efficiency ratio went down; we’re getting much more closer to the 50% and we would love to get down in the 40%, 45% to 50% range. And we think within the next 24 months or so that’s going to happen. And the credit quality remained very, very strong. As you know our NPLs are today at 19 basis points and our charge-offs have been for the last five quarters between 0.02% and 0.03%. So what’s been our strategy? As you know, our shareholder value creation model is really focusing on building and attracting very high credit quality loan portfolio, loan customers by marketing to very high credit quality borrowers. And even if we have to sacrifice a little bit on the interest rate, we will do that but we don’t sacrifice on the structure. We deliver through a single point of contact and by recruiting and retaining and continuing to attract very experienced team. So, in the first quarter, we are pleased to share with you that we’ve added two full fledged teams and one in New York area and that team came to us from Chase and supplemented that with Capital One and that team will be housed in Melville, Long Island and they will be focusing on gathering core deposits as well as small and medium sized middle market lending. And then we announced recently that we’ve attracted…

Thank you. [Operator Instructions]. And we’ll go to our first caller Frank Schiraldi with Sandler O’Neill.

First, I just wanted to ask on capital plan. In the past year, you guys have talked about 2015 and said you weren’t interested in raising common equity. Obviously the stock price has moved pretty significantly, valuation has improved. So, wondering if that has changed at all. And then if we -- other than that, if we should expect a preferred at some point, perhaps this year?

Frank, we remain focused on constantly managing our capital along with other things. But I want to make very clear, we are not going to issue common equity that is consistent. So we don’t need to, we’re going to taper our growth to our self generated common equity, as such generated through retained earnings and we’ll remain opportunistic and we will look at every single option available to us on a regular basis. We don’t need to increase any capital at any time and we go look at options to us on a constant basis.

And then I just guess on Tier 1 risk adjusted, is it sort of at the end of the quarter, is that sort of again or somewhere to what we saw at the end of the year, I think around 8.4% maybe 8.5% if I recall that correctly?

It’s in that range, yes.

Okay. And then just on Bank Mobile, given really a reiteration of what you said in the past Jay. It sounds like it’s pretty much going according to plan. And just want to get maybe a little more commentary there. And then on the expense front, is it still safe to assume about $5 million in expenses for the year? I believe that was the number.

Like I just said a moment ago, Frank, it is somewhere between $5 million to $6 million of expenses. And yes everything is on plan. And it’s been very well receive by the marketplace and we continue to make improvements. So our strategy, we haven’t done any marketing at all yet, and that will be in the second half of the year. And we are on target. It’s going to take us somewhere between 3 to 5 years to reach the breakeven point. So, it will be an expense burden on our company for the next at least two to three years.

And then finally, I think in the past you’ve talked about a -- I think it was on 4Q call, but a margin in sort of the range of plus or minus 2.80. I just wanted to if there was still reasonable assumption going forward and if you could just share with us what the contribution the margin was this quarter? It sounds like there was very little in prepayment penalty but from the FHLB special dividend?

I think that what we’ve said before is we expect the net interest margin to range between 2.75 and 2.80 is certainly within that range. And I think it is reasonable expectation going forward, maybe a little higher. But there is a lot that goes into the net interest margin on every side, everything all that interest trading assets and liabilities come in to play there. We’ve had something develop over the period. As we know that there was lower prepayment fees that were received during the first quarter which actually was against it, it was a shorter month of February when we have 28 days and that helps us. We had some -- the FHLB had a little bit more to dividend this period and versus a lot of different pieces that come into play. And I think overall we’ve talked about a range, 2.75 to 3 and we’re comfortable with that.

I just want to make sure, it was in the ballpark on the FHLB dividend. I thought it would be about 1.7 million, 1.8 million, the special dividend, they paid, I guess in the first quarter; is that in the ballpark or…

That would be much too high for the special dividend; that would be the total dividend, the special dividend would have been only 40% of that.

Okay. And the special dividend was 2.5% on your FHLB stock?

Correct.

I thought -- maybe just to the stock -- I thought the stock was about 70 million as of the end of the period -- fourth quarter at least, has that changed?

Frank, our FHLB as Bob mentioned special was only a couple of hundred thousand bucks, not into millions, no.

And then I guess just finally on the deposit front, obviously some pretty strong deposit growth. Was that supplemented by brokered or wholesale deposits and could you just share where those levels were as a percentage of total deposits at the end of the period?

We’ve been deemphasizing broker deposits. Our broker deposits reduced significantly. This is core deposit growth and not broker deposit growth. And I think broker deposits are about 20% or so approximately. And we will keep them at that level or lower.

And we’ll go next to Michael Perino.

Hey Mike.

It looks like his line disconnected. [Operator Instructions].

Okay Aaron, why don’t we move to someone else?

Okay, we’ll go next to Bob Ramsey with FBR.

Let me follow up real quick on Frank’s question about the FHLB special. I mean it looks to me, looking at the average balance sheet, like there was increase in the income from other interest earning assets of about 1.3 million quarter over quarter. And I thought most of that was the FHLB special. But if it’s not, if FHLB special is only couple of hundred thousand, I’m just curious, what else is benefiting the yield on other interest earning assets this quarter versus last.

Bob there is in that income number, there was -- the total amount of dividend that was received from the FHLB was approximately $2 million for the quarter and that’s why you see the increase period over period. Some of that increase is related to core dividend which was 4% and some of that relates to the special dividend which was 2.5%. So roughly that $2 million is divided 60-40 between regular dividend on our borrowings from the FHLB and the special dividend. So the special dividend was approximately $750,000 to $800,000.

And what was the dividend in the fourth quarter, just by point of reference?

The dividend in the fourth quarter was approximately $700,000, little bit, plus or minus something. But as our balances increase, our short-term balances increase our borrowing.

And I might have missed it earlier but did you quantify what prepayments were this quarter versus last? I know you said they were down; I just didn’t catch the dollar amount.

They were down approximately 400,000.

So next quarter, if prepayments are similar and the special goes down, I guess that adds a little bit of margin pressure, sort of above whatever would be core is the right way to think about margin here?

Yes, Bob. But like we said, there’s a lot that goes into it. And sometimes there is some things that come up that are good and sometimes some things work against you. So I think that when we talk in a range, it’s the best way to think about it.

And there’re a couple of numbers I couldn’t find in the release. Do you have the dollar amount of net charge-offs this quarter and the end of period shares outstanding?

Yes, I think the end of period shares outstanding were 28.3; it’s in the press release.

Okay, I only found diluted; I couldn’t find the end of period.

We’ll get you those.

Between 500,000 share difference between the outstanding and the fully diluted, Bob; it’s an approximation but we can get back to you. And then in regard to the charge-offs, the charge-offs for the period were $1 million.

And then I was hoping you give maybe a little bit more color, I know you broke out sort of what drove the provision expense this quarter. And there was about $2 million for decreased collateral valuation on some credit impaired loans. Could you just elaborate on what types of loans these are; what are these loans that you guys acquired or originated; whether they were updated appraisals or kind of what drove the shift in collateral valuation?

Bob, we try to take a very conservative view on credit quality and on reserving. And we felt that even though our loan portfolio will help our investment, didn’t really -- we didn’t want to increase it as much this quarter but still there ought to be some consistency in the provisioning. And so keeping that in mind, we went through a pretty thorough analysis and we came up with a number that of our provisions. And you can see it’s an allocated based upon the appropriate accounting guidelines that are there. And we will -- but the bottom line is we don’t envision and we don’t see any deterioration at all in our credit quality. And so, this is the way we intend really justify and quantify our provision.

And so on a go forward basis, I guess if quarter trends seem reasonably stable, what’s fair to expect provision expense will stay in that $2 million to $3 million to $4 million ballpark, is that a fair way to think about it?

Once again, we’re going to have to follow accounting guidelines and SEC guidelines and the end result is that whenever that comes but we will be as conservative as we possibly can be.

I was wonder Jay, if you could provide may be a little bit of update on the outlook for multi-family loan sales. You guys obviously had your third quarter where you all have sold a fair amount of multi-family loans. That gain on sales has bound surround a little bit. Just curious sort of how you see the outlook for that piece of the business?

I think we -- there has been many of our competitors of really in our opinion taken the -- put on some loans on their books in the 2.75 to 3 range. And they are most welcome to have that kind of business. And we think with the interest rate risk profile that we want to maintain and there’s better quality that we want to maintain. And our earning asset needs that exist right now that we don’t have to stretch it all and we will not violate our pricing discipline as well as our structure discipline. So in the last two or three quarters, we sold approximate on an average of $100 to $225 million that you should expect us to sell a little bit this quarter also. And it’s based upon our needs for balance sheet as such. And what’s happening is that the business still is coming to us but it’s at a lower level and because some of the people are just given it away in our assessment. So, we will continue with our strategy. There is nothing new. And the bottom line is, you will probably see a growth in our multi-family outstanding this quarter and because we see a need to do that; and may be a little bit less sales this quarter compared to what we did in the first quarter.

I am curious to sort of outlook for mortgage warehouse, obviously a very strong quarter for balances in that business and I guess mortgage banking in a broader sounds. But how are you all thinking about the mortgage warehouse outlook from here today?

Mortgage warehouse is about 25% to 30% of our business and we want to keep it in that range. We think the second quarter average outstandings might be pretty darn similar to the first quarter and we expect it to slow down a little bit in the third and the fourth quarters as such. About 60%; between 55% to 60% of our businesses is refi business and so that you can see why we believe that that volume will be coming down a little bit in the second half of the year. So, we are picking up some new customers at the present time. We’ve been consistent in this market. Our quality of service is very, very high and that’s why you should expect us to see that volumes, our outstandings to be somewhere between 1 billion to 1.7 billion for the rest of the year.

And we go next to Chris McGratty with KBW.

Jay, I know you mentioned in the prepared remarks, you talked about some of the hiring initiatives you’ve done and kind of the build-out of Bank Mobile. And so I apologize if you’ve already covered it. Can you help us with the outlook on the expenses? You guys have talked about leveraging the expense base and driving the efficiencies lower but if we think about core expenses, there are marginally, sequentially but any kind of expectations for the next few quarters?

Chris, we spent about $1 million a little over $1 million in the first quarter on Bank Mobile and we expect for the year that number to be somewhere between $5 million to $6 million that is consistent with guidance that we’ve given to you last year. And we’re on target with our expectation on the new business what we are getting. This is the business which like I said earlier that doesn’t have any significant impact on our income statement on the revenue side. It does have a significant impact on the expense side but the greatest impact is going to be in the franchise value creation. We think it will take us about three to four years, minimum two years to reach a breakeven point. And that’s why -- but so far it’s been very well received by the customers, very well received by the marketplace. And that’s why we’re going to continue doing what we have done in the first quarter. And we are in phase one. We’re actually also recruiting a technology team. So, we will be making some phase two improvements in that area. And like we said earlier that we have intentions, also sometime over the next few quarters to also launch Bank Mobile like offering for small and medium size businesses to gather deposits and to extend our small business administration lending through the mobile technology also.

Bank competition, you talked about some of your competitors doing 2.75 pricing. I am interested in is that coming from kind of the smaller players in your market or is that coming from bigger banks market share, they have may lost?

I think the bigger players are generally much more disciplined than the new entrants and the smaller players.

Last question is on overall balance sheet growth. I think you talked about managing the originated sale model to kind of keep the capital steady but I can’t remember that you told us exact range of the kind of total balance sheet growth for the year?

I think we have given the guidance of 10% to 15% total balance sheet growth for the year. So you can see we had 4 point some percent balance sheet growth in the first quarter. And so that’s consistent in that range. And so you should expect us in the high end 15% and the low end at 10% for the year. So, we ended the first quarter with little over 7 billion. You should expect us to be by the end of the year to be about 8 billion or under.

And we’ll go next to Chris Stulpin with Merion Capital.

Two of my questions remain from my list and they are the equipment finance team is new line of business, the team that you hired up in New England. What are your growth plans for this line of business and how should we look at this as it pretends to contributing to future earnings?

I think Chris, it’s in addition to our small business administration - excuse me, small business lending. So, we’re very focused on privately held companies. And this business will help us in that area, plus there are certain industry segments like one is an expertise that our team has in the plastics industry and very unique situations and needs that they have for financing. Another expertise this team has is in certain high quality franchise businesses for some term financing in that area. So, we believe that this team within a year will reach very people point and then will be contributing to our profitability beyond that. And so, we remain in that area. We have stated in the past that’s we would like to see our C&I loans and our owner occupied commercial real estate loans over a three to five year period to be about a third of our business. And we think this is consistent with that, so this is simply helping us to get to that level. And as you know, that business, C&I and owner occupied CRE is approximately 12% to 13% of our business right now. So, we see tremendous growth opportunities in that area over the next three to five years.

Last question, what’s your comfort range for your loan to deposit ratio? I know it came down substantially linked quarter in the first quarter of this year.

Like I said earlier, our balance bank is a strong bank and we think shareholder value creation comes through franchise enhancement and franchise enhancement comes through deposit -- core deposit generation as well as high quality loans which cannot easily be duplicated. So, we continue to recruit teams to build our deposits. We think we should be building deposits faster than loans this year. It depends on some seasonality. And so we’re focused on that sort of a thing and you should expect our core loan to deposit ratio to remain between 95% to 100%. We look at funding our mortgage warehouse business or banking to the mortgage companies with some deposits but mainly with the borrowings, so that there is match funding for that.

And we’ll go next to Bill Dezellem Tieton Capital Management.

Couple of questions, the first one would be relative to Bank Mobile. You said you’re going to begin advertising in the second half of the year. How are you planning on doing that and as we look out in the marketplace, how will we see the Bank Mobile advertising?

I think I’m sorry if I used the word advertising but I said the marketing. And the marketing, it’s probably going to be much more digital marketing than newspaper advertising or radio or television advertising. So, you probably will not see that much. We think data analytics is the way to go. And we can look at so many different market segments, analyze what their preferences are and use digital marketing to propose to them this option for banking. And so our model remains the same, which is you go after [indiscernible] some of our interest to infinity groups and then you also use some direct marketing techniques, such as multilevel marketing and guerilla marketing at the street level, that sort of the thing marketing we’re in, so we have no intensions of using mass media advertising.

And then the second question, you have reached your ROE goal here this quarter? And how about the ROA goal, what do you need to do to accomplish that ROA goal?

I think for ROA, the way we look at it is to grow our revenues faster than the growth in expenses. And if you take about $5 million to $6 million in expenses that we’re investing in our consumer banking franchise through Bank Mobile that has an impact on the ROA and ROE and EPS. But we believe by recruiting teams, by getting earning asset growth, by maintaining our margins, by looking at non-interest income sources; that is the way we will achieve our ROA goal. And so we think that within that two to three year period of ROA somewhere between 90 to 100 basis points is very doable by us.

And we’ll go next to Richard Reach with RLR Capital Management.

Thank you for taking my question. When you sell loans, is there a put back feature in any of those loan sale agreements?

No.

And we’ll go next to Bob Ramsey with FBR.

I just had couple of lingering questions. With the equipment financing that you guys are bringing on board, how will that impact expenses in the second quarter? I imagine you see some lifts in expenses before the revenue starts to coming through?

Bob, we see revenues pick up in another areas for the second quarter, so you shouldn’t expect any material change to our efficiency ratios in the second quarter, even though we’ll be picking up compensation of each people because this is the largest team that we’ve recruited at one time but we do see offsetting revenues coming from the areas. It wouldn’t make any effect in terms on our second quarter earnings.

Just from a modeling perspective; how much should we increase the expenses for the team or how should we think about that?

You can figure out eight people and they’re all very experienced people and those kind of things for modeling purpose.

Okay.

It’s very difficult and we’re not going to be giving any guidance at team level. But what I’m saying to you is it should not have any material impact at all on our second quarter earnings and our modeling for second quarter that we’re doing.

And then just curious as well if there is any updated thoughts you guys can share or want to share on I guess one the Religare investment and two Philly Fed ongoing situation?

I think on the Religare, we stay and remain the same, which we’ve said to you in the first -- in the last couple of quarters, including our Analyst Day at New York Stock Exchange on January the 7th that we’re going to wait till the third or fourth quarter and at the most that’s it. And if our investment doesn’t get increased in value significantly as a result of Religare getting a banking license, we’re going to pull it back. And as far as the regulatory issues are concerned, we don’t comment on that other than to say that we’re very, very strong in risk management. We believe we are very strong in CRA compliance and we have no issues on pure lending at all. So, we feel very optimistic about the strength of our company and the risk management practices that we’ve been taught.

And we have no questions holding in the queue at this time.

Okay. Thank you very much, ladies and gentlemen. Please give us a call or email us, if you have any questions at all. And we’re excited about 2015 and look forward to the next call.

And this does conclude today’s conference. We thank you all for your participation.