Customers Bancorp - Q4 2023
January 26, 2024
Transcript
Operator (participant)
Your session. If you would like to ask a question during this time, simply press Star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the Star one. Thank you. David Patti, Director of Communications.
David Patti (Director of Communications)
Thank you, Rob, and good morning, everyone. Thank you for joining us for the Customers Bancorp's Earnings Call for the Fourth Quarter and Full Year of 2023. The presentation deck you will see during today's webcast has been posted on the Investor's web page of the bank's website at customersbank.com. You can scroll to Q4 2023 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 risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated.
Please note that these forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings, including our Form 10-K and 10-Q, for a more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the investor section of our website. At this time, it is my pleasure to introduce Customers Bancorp Chair, Jay Sidhu.
Jay Sidhu (Chairman and CEO)
Thank you, Dave, and good morning, ladies and gentlemen. Welcome to Customers Bancorp Fourth Quarter and Full Year 2023 Earnings Call. Joining me this morning are President and CEO of the Bank, Sam Sidhu, Customers Bancorp CFO, Carla Leibold, Customers Bank CFO, Phil Watkins. I will give you some introductory comments, and then my colleagues will provide details of the quarter and for the full year 2023 for you. While the banking industry has largely recovered following the events from last spring, there is still a lot of uncertainty and a lot of headwinds facing our industry. However, Customers Bank's differentiated strategy bucked industry trends, gaining strong momentum in 2023, and we expect that to continue into 2024. We continue to execute on our strategic priorities and are pleased to report that we are delivering another strong quarter for our shareholders.
We are also very excited about the prospects and look forward to sharing our outlook for 2024 with you later on in this presentation. As a forward-thinking bank with strong risk management, we believe we are creating tremendous franchise value across the bank through execution of our profitable, customer-centric model. In addition, we have and will continue to capitalize on market disruption as an opportunity to create new and deeper existing client relationships, resulting in stronger loan and deposit growth. As you know, we are reporting $1.90 of core EPS for Q4 2023, with continued deposit transformation, higher margin, no expense growth during the quarter. We generated $1.1 billion of core deposit growth in the quarter.
We used these deposits to improve the overall quality of our funding base, including the planned exit of BMTX deposits from our bank on December the first, as well as paying off about over $700 million of high-rate wholesale CDs during Q4. Capital levels increased substantially again, with our tangible common equity to tangible asset ratio now over 7% and our CET1 increasing to 12.2%. We are extraordinarily proud of our ability to meet and exceed our capital goals that we outlined to you earlier last year. Asset quality remains exceptional, with our NPA ratio down in the quarter, and reserve levels are robust at almost 500%. We have only about a 1% loan exposure to the office sector of commercial real estate, and our average loan size to the offices is less than $4 million.
We believe the office sector will continue to create challenges for the industry in the coming quarters. In addition to the future benefit from continued improvement in our deposit franchise, as well as top-quartile capital ratios, we are seeing attractive loan origination opportunities. These are primarily loans where we have a holistic and primary relationship with the client. We have ample liquidity and capital to support a 10%-15% loan growth in 2024. Moving on to slide 4, I'd like to take a moment to reflect back on the promises we made going back to our 2018 Investor Day, just about 5 years ago. Today, on the fifth anniversary of this Analyst Day, we are thrilled to say that we have delivered on all these promises, the promises that we made to you at that time. Here they go. Let me share those with you.
1. we are now, as I said earlier, 7% TCE ratio, and at that time, we were talking about perhaps getting to 7%. 2, we've delivered 15% average annual tangible book value growth, and at that time, we were shooting for just under 10%.... We've achieved a NIM of 3.31, and at that time, we were at 2.40 NIM. We have a core ROA of 1.22, and our goal was at least 1%. We are reporting a return on common equity of 18.3%, and our goal was at least 10. And we delivered $7.72 of core EPS in 2023, surpassing our $6 EPS goal for 2025. So we are at least 2 years ahead. Most important is that we maintained a strong risk management culture throughout this period.
Turning to Slide 5, we again reiterate our priorities to you, which remain absolutely unchanged. They are moderating growth during these uncertain times while strengthening our balance sheet and having a strong risk management culture. We are so proud of what we've accomplished in 2023, in an extremely challenging environment for our industry. Our commitment to risk management and a client-first mindset, where clients say, "Wow!" is positioning us well to navigate in this challenging environment. I want to salute and express our gratitude and thanks to all our team members for their hard work and their continued dedication to serving our clients flawlessly. Lastly, we want to recognize all our investors for their support and confidence in us. As you know, Customers Bancorp was the number 1 performing publicly traded bank stock in the United States in 2023, as measured by stock price and total shareholder return.
Clearly, the markets are recognizing the strength of our performance, and we commit to doing everything in the long run and the short term to serve our clients and provide solid returns to our investors. Before I pass the call on to Sam, I want to welcome Hal Goetsch to the call. Hal joins the call from B. Riley Securities, where he recently initiated coverage on Customers Bancorp. We want to thank all of the research analysts for their efforts and the insights that they bring to the bank and to the investment community. With that, I'll turn it over to Sam to cover the key activity and results of the quarter in much more detail.
Sam Sidhu (President and CEO)
Thanks, Jay, and good morning, everyone. We'll provide more detailed guidance on 2024 at the end of the presentation, but we did want to flag our key areas of focus for the year in my initial comments. Number one, continuing our deposit transformation remains a key priority, which we will achieve through market share gains supported by treasury management and transaction banking build-outs. We've made significant strides in 2023, positively remixing 15% of our deposits in just the last three quarters alone. Having said that, we're just getting started and continue to have a strong pipeline, which we're looking to bolster with deposit-focused talent and teams. Number two, as Jay mentioned, we bucked the industry trend by expanding margin in 2023. We'll look to sustain that momentum in 2024, with continued improvement of our deposit franchise and also by remixing into higher-yielding loans.
Number 3, we're focused on driving profitability through our steadfast commitment to operational excellence and expanding fee income opportunities. The hard work in 2023 to improve our technology and human capital infrastructure, we expect will pay huge dividends in 2024 and beyond. Number 4, we will continue to maintain a strong capital base and liquidity while growing our loan portfolio. Number 5, we will never deviate from our credit-first principles. We will achieve this through ensuring the right client selection, where we have a fulsome two-way relationship. Number 6, making our clients say, "Wow," is what increases customer engagement and builds franchise value, especially given the void created by the recent market disruption. Moving to Slide 7, you can see our GAAP financial highlights for the fourth quarter and the full year 2023.
Turning to Slide 8, I'll comment on our core results for the quarter and year. In the fourth quarter of 2023, we produced extremely strong results across all profitability metrics, earning $1.90 in core EPS on net income of $61.6 million. For the full year of 2023, we produced core EPS of $7.72 on net income of $248 million. 2023 was an exceptional year in which we delivered a record $687 million in net interest income. This record is all the more impressive, given that prior years benefited significantly to the tune of hundreds of millions of dollars from our efforts in PPP. Our core ROA for the fourth quarter was 1.22, and our core ROE was 16.9%.
For the full year 2023, our core ROA was also 1.22, and our core ROE was 18.3%. We continued our margin momentum in the quarter. The combination of our strong deposit growth and interest-earning asset yield increase led to margin expansion of 11 basis points in the fourth quarter to 3.31%. This was up from 3.2% last quarter after adjusting for the outsized accretion from the portfolio we acquired from the FDIC. We continued to transform the quality of our deposit balances, which I'll provide more detail on shortly. The modest decline in deposits in the quarter was driven by the planned outflows of service deposits that we previously disclosed, as well as by the repayment of over $700 million of high-rate wholesale CDs.
This is a very strong base for us to grow off of in 2024. Credit quality remains strong, as evidenced by our NPA ratio of just 13 basis points, and reserve levels remained robust at almost 500% of NPLs. While we do not see any signs of weakness in the portfolio, we remain highly focused on portfolio management. Turning to slide 9, I want to provide some additional color on the impact of the delivery of promises Jay discussed earlier. Over the last 5 years alone, we have grown our balance sheet at a 17% compounded annual growth rate. But more importantly, we've also more than doubled our deposits over the same time period. We accomplished this growth without raising a single dollar of common equity capital.
Our loan to deposit ratio is now 72%, as compared to 120% at the end of 2018. Our liquidity position has increased about 10x, with our cash and short duration available for sale securities portfolio available to provide us ample liquidity to reinvest into loan growth in 2024. Now let's turn to slide 10 to discuss how this transformation has improved our core profitability. Over the same 5-year time period, we have increased net interest income by a 22% CAGR and improved our net interest margin by more than 70 basis points. Diluted EPS is up by more than 4x, and our return on equity has increased by more than 900 basis points. While we are very proud of the transformation we have accomplished, we believe the best days for Customers Bank are ahead of us.
The investments in talent and technology that we made over the last several years are reflected in our best-in-class performance metrics in 2023. Looking ahead, there are still many strategic opportunities for us over the near term. We continue to see a large opportunity to capitalize on the once-in-a-generation dislocation in the banking industry, putting commercial clients, and most importantly, deposit teams in motion, especially in verticals where we have existing deep expertise. If we capture mere basis points of market share, it will have a material impact on our franchise, and anything in percentage point terms will be truly transformational. We have been extremely focused on operational excellence by improving our people, processes, and technology, and expect these continued efforts will pay dividends, driving positive operating leverage.
This operational excellence is evidenced by the doubling of our balance sheet since 2018, but our employee count is down by almost 20% over a similar time period. As Carla will provide more detail on later, starting late in 2022 and accelerated early in 2023, we undertook efforts to exit non-strategic relationships to materially increase our capital levels. These efforts are now bearing fruit as we have ample risk-weighted capital and liquidity to fund strategic franchise-enhancing loan growth. We look forward to delivering for our clients and shareholders again in 2024 and beyond. Turning to slide 11, the highlight of the franchise. We again generated strong core deposit growth of $1.1 billion in the quarter. This represents our third consecutive billion-dollar-plus growth quarter and enabled us to repay $743 million in high-cost wholesale CDs in the quarter.
The $3.1 billion of deposit growth in just the past three quarters represents a 15% positive remix of our deposit franchise. It is worth noting that our non-interest-bearing deposits increased by over about $1 billion over the same time period, and $2.5 billion over the course of 2023. This is a huge testament to the power of our team in action. Similar to last quarter, I want to highlight not just the quantity, but also the quality and granularity of this deposit growth. The growth we achieved was a team effort across the franchise. Once again, more than 20 of our deposit channels saw growth in the quarter. More than 40% of these deposit channels experienced growth of $25 million or more, demonstrating the broad-based nature and quality of our deposit transformation.
Total new commercial accounts opened in the quarter, again, was impressive at an excess of 500. As expected, our cost of deposits increased slightly by 15 basis points in the quarter, due in large part to the planned non-interest-bearing service deposit outflows. I'd note that our interest expense continued to trend in the right direction, declining by $3 million in the quarter, positively impacting our net interest income. This is in contrast to all of the industry and driven by our deposit gathering successes. We remain deeply focused on the quality and stability of our deposits, and at the end of the quarter, 77% of our deposits were either insured or collateralized. This metric keeps us in a very strong position relative to regional bank peers.
Even after our success in the quarter, our core deposit pipeline remains robust at approximately $1.5 billion, as we continue to backfill the previous growth. We anticipate onboarding this pipeline over the next 2-3 quarters. Turning to slide 12. Here we highlight both the success we've had in gathering core deposits as well as in paying down wholesale funding. The $3 billion of inflows in the last couple of quarters has been used to pay down more than $2.3 billion of wholesale CDs and $850 million of FHLB advances. But there remains a significant and impactful opportunity ahead. Approximately $2 billion of wholesale CDs will come due in 2024, which provides a significant value creation opportunity as we look to convert our deposit pipeline over the next coming quarters.
While this opportunity is meaningful, it is important to remind everyone that, like most banks, there will always be a place for some level of wholesale funding on our balance sheet. Moving to slide 13, our net interest income was $173 million in the fourth quarter. This number is in line with our previous quarter, adjusting for the outsized accretion. Despite the modest reduction in interest-earning assets, our net interest margin in the quarter was 3.31, which exceeded our 3.20-3.25 target guide for the quarter and represents 11 basis points of margin expansion on an apples-to-apples basis. We hope to continue this trend of funding mix and cost improvement in 2024. With that, I'd like to turn the call over to Carla to provide additional detail.
Carla Leibold (EVP and CFO)
Thank you, Sam, and good morning, everyone. On slide 14, you can see the trends in our loan portfolio, the yield on loans, and our loan-to-deposit ratio. We reduced our loan balances by about $600 million in the fourth quarter as we remain disciplined on loan prices and selectively extending credit and using balance sheet capacity for holistic banking relationships. The consumer held for investment loan portfolio continued to decline, giving normal planned runoff, while our consumer held for sale loan strategy continues to gain momentum. In the fourth quarter, we achieved our $10 million annual run rate goal for fee and fee-like income from our held for sale program. We expect that to continue in 2024. As a reminder, this fee-like income comes with strong credit protection. We have completed our strategic loan portfolio remix and are excited about resuming loan growth.
As you will hear from Sam in our 2024 guidance, we have strong conviction in our ability to resume loan growth across the bank and to do so at accretive yields. We will reinvest securities cash flows, excess cash balances, and deposit growth this year into new loan originations. Today, our cash and securities are earning roughly the federal funds rate. Once deployed into loans, that liquidity will generate approximately 300 basis points of additional yield based on recent origination trends. We have an enviable loan-to-deposit ratio compared to our regional bank peers, given the success and continued momentum of our core deposit-generating initiatives. Our strong liquidity position provides us the flexibility to generate holistic, relationship-based loan growth without significantly increasing the overall size of the balance sheet. Moving to slide 15, we are pleased to report another quarter of core non-interest expenses in line with our guidance.
Like many banks our size and those much larger, we incurred a special assessment from the FDIC as a result of the banking failures in early 2023. Our one-time expense associated with this special assessment was close to $4 million and was fully accrued in the fourth quarter. Our core non-interest expense to average assets remains best in class at 1.67%. Our core efficiency ratio also remains strong at 47%, which was in line with our third quarter ratio after adjusting for the outsized accretion in that period. We will discuss our forward expectations later in the presentation, but I want to provide a few points of commentary right now. We committed significant resources during 2023 to find expense optimization opportunities that we can redeploy to create customer satisfaction and shareholder value.
Importantly, none of these expense reduction opportunities will take away from client-facing positions, risk management and compliance, or critical technology investments. In fact, these are the areas we plan to enhance even further by redeploying savings. Many of our anticipated expense savings will come from items like contract negotiation, vendor optimization, and reduction in outside service utilization. On slide 16, we continue to operate with robust levels of liquidity, as evidenced by more than 200% of immediately available liquidity to uninsured deposits. Total overall liquidity remained strong at $11.4 billion at year-end 2023. During the fourth quarter, we redeemed $340 million of callable Federal Home Loan Bank advances, which had a cost of close to 6%. We also sold $295 million of securities at roughly book value.
The combination of these two actions had a positive impact on our capital levels and will have a positive impact on margin going forward. On slide 17, we highlight a very important component of shareholder value: growth in tangible book value per share. In 2023 alone, we grew tangible book value per share by an impressive 22% to $47.61. We also have $4.34 of AOCI marks that will be recovered into tangible book value per share going forward. We expect to recover about $1.50 of that in 2024. The 22% growth in tangible book value per share in 2023 compares favorably to our regional bank peers that generated 13% growth. Our longer-term track record is even more differentiated.
If you look over the past 5 years, we've generated a compounded annual growth rate of 15%, while our regional bank peers have generated only 4% growth. We believe we are among the best in the industry on this metric. Based on our current outlook for earnings and recovery of AOCI in 2024, we also expect to end 2024 with more than $55 of tangible book value per share. I'll also point out that our tangible book value and GAAP book value are virtually the same. Turning to slide 18, our TCE ratio ended the fourth quarter at over 7%, which was an increase of 50 basis points in a single quarter and over 100 basis points in the last two quarters. AOCI continues to negatively impact this ratio by about 64 basis points.
Our estimated CET1 ratio ended the fourth quarter at 12.2%, which was an increase of 260 basis points for 2023. Adjusted for AOCI, this ratio was 11.2%, which is top quartile among banks with an asset size between $10 billion and $100 billion. The improvement in our CET1 ratio of 260 basis points is among the top 5% of all publicly traded U.S. banks during 2023. In 2023, we executed successfully on our goals and significantly improved our capital levels. Given the continued uncertainty in the market, we feel it is prudent to continue to maintain higher levels of capital going forward. On slide 19, credit quality in our portfolio remains strong across all metrics. Non-performing loans ended the fourth quarter at $27 million, and our non-performing asset ratio was just 13 basis points.
Net charge-offs overall came in line with our expectations. Commercial net charge-offs remain at very low levels, and consumer net charge-offs remain within our modeled expectations. Our provision expense of $13.4 million came in well below expectations in the fourth quarter, primarily due to the reduction in loan balances held for investment, which benefited provision expense by roughly $6 million. Absent this, provision would have been in line with our previous estimates. Our reserve level in dollars declined modestly quarter-over-quarter, given the lower loan balances I just discussed. We feel we are well reserved at a coverage ratio of 114 basis points of total loans held for investment, which increased 2 basis points during the fourth quarter. We remain extremely well positioned for the potential challenges ahead for the commercial real estate market.
The office and retail sectors of commercial real estate each only account for approximately 1% of our total loan portfolio and continue to perform well. With that, I'll pass the call back to Sam to discuss our outlook for 2024 and some concluding remarks.
Sam Sidhu (President and CEO)
Thank you, Carla. Turning to slide 20, we wanted to provide you our outlook for 2024. We've broken our guidance into three categories. Firstly, our financial targets. These metrics included ROA, efficiency ratio, and net interest margin. You will note that as opposed to providing specific expense guidance, we will manage the business to an attractive efficiency ratio. We believe this provides us the flexibility to make investments if we see meaningful positive operating leverage. Secondly, from a growth outlook perspective, our deposit growth story in 2024 will be focused on continuing and building off of the success we achieved in 2023. Modest growth and overall balances, with a focus on bringing in more high-quality low-beta deposits, will allow us to further reduce wholesale funding. We expect loan growth to resume in 2024. We're seeing attractive opportunities across our franchise, led by our national corporate businesses.
The strength of our capital and liquidity position provides us the ability to book 10%-15% loan growth. As we mentioned previously, we anticipate this will be funded with securities and cash in 2024, as opposed to meaningfully increasing the overall size of our balance sheet. These efforts should allow us to generate PPNR growth between 10%-15% in 2024, after adjusting for the PPP, NII, and Q3 outsized accretion income. Number three, operating assumptions. Our operating assumptions are consistent with what we've disclosed with you over the course of the year. We will target a CET1 ratio of about 11.5% and a TCE ratio of about 7.5%. Our tax rate is expected to be between 22% and 24%. With that, I'd like to finish on slide 21 with some concluding perspectives.
This was another incredibly strong quarter and year that we're very proud of at Customers Bank. I'll mention again, we generated over $3 billion of core deposit growth in the last 3 quarters alone, significantly improving and transforming the quality of our deposit franchise. Continuing to improve our deposit franchise remains our top priority in 2024, and we are prepared to continue this march with our robust pipeline. Our net interest margin improved substantially over the course of the year and drove higher profitability on a more liquid and better capitalized balance sheet. Our industry is looking to reach a NIM trough by the middle of this year, while we achieved that in 2022 and have increased since then. We attained our goal to build capital at an extraordinary pace due to strong organic earnings generation and a relatively flat and optimized balance sheet.
Our credit quality remains exceptional, but we will stay vigilant in monitoring our portfolio. Our business model is highly focused on risk management and our ability to perform in all macroeconomic environments. With our differentiated and now deposit-led business model and the strategic opportunities ahead of us, we believe we are very well positioned for success in the years to come. With that, I'd like to open the call to any questions you may have.
Operator (participant)
At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Hal Goetsch from B. Riley Securities. Your line is open.
Hal Goetsch (Senior Managing Director and Head of FinTech & Financials)
Hey, good morning, everyone, and congratulations on a terrific year and quarter. The loan growth guidance is simply an outlier and pretty terrific in this environment. Can you give us a feel for the areas or industries that are contributing to this growth? And if I could ask one follow-up on expense growth, it's been flat for the last three quarters, and what can we expect for expense growth in 2024? Thank you.
Sam Sidhu (President and CEO)
Thanks, Hal. Really appreciate it, and welcome, you know, officially and formally. So firstly, you know, to focus on the loan growth and the loan portfolio, you know, 2024 is gonna be a year of, you know, franchise-enhancing loan growth as we replace the non-strategic assets we removed beginning in the first quarter, accelerating the second quarter of the year with a capital call, non-strategic line sales, and then the runoff that we've targeted in the second half of the year, which has also helped us build our capital levels. So really bilateral, and in many cases, deposit-rich customers, which include venture banking, fund finance. We also are expecting contributions from community banking, C&I.
We also like our fixed-rate equipment finance business. But all in all, we're remaining very selective, but with a 72% loan-to-deposit ratio, we have a tremendous amount of flexibility on our balance sheet. So 2023 was the year of deposit transformation, you know, and 2024 is... That's gonna continue in 2022-2023, but 2024 is really gonna be rebuilding the loan book, frankly, to, you know, directionally close to levels that we started at at the beginning of 2023. So the pipelines are strong, and hopefully that answers your question on the growth part of your question.
Hal Goetsch (Senior Managing Director and Head of FinTech & Financials)
Yeah.
Sam Sidhu (President and CEO)
So
Hal Goetsch (Senior Managing Director and Head of FinTech & Financials)
Thank you.
Sam Sidhu (President and CEO)
Sure, sure. The second question you had was, I believe, on non-interest expense. So, you know, I think we've done a really good job. Carla talked about a couple of things. Firstly, you know, we've managed our quarterly number at about $89 million, plus or minus, of core non-interest expense, you know, over the last three quarters. She also talked about some operational excellence initiatives with some detail. And really, our focus, as you saw on the guidance slide, is gonna be managing to an efficiency ratio. And we will continue to focus on trying to drive savings in the core recurring expense base. Having said that, you know, we'll continue to invest, you know, wherever we see opportunities.
You heard me talk about deposit teams, and really, we won't hold back on expenses and reinvesting those savings. However, we will always hold half the governor of that efficiency ratio. So long way of saying, you know, we'll look to... I think we're sort of at the high 40s right now. We're gonna get to the mid-40s, in 2024, and we'll look to, you know, at a minimum, you know, look to maintain, directionally, our core expense base, but really driving that revenue growth, which is gonna help us get to that efficiency ratio target.
Hal Goetsch (Senior Managing Director and Head of FinTech & Financials)
Thank you very much.
Operator (participant)
Your next question comes from the line, Casey Haire from Jefferies. Your line is open.
Casey Haire (VP and Senior Equity Analyst)
Yeah, thanks. Good morning, everyone. So, apologies if I missed this, but can you guys, your NIM guide of 3.20%-3.40%, what kind of Fed funds forecast is embedded within that? And what kind of deposit beta are you assuming if you do have cuts in there?
Sam Sidhu (President and CEO)
Good morning, Casey. I'm happy to take that, and Carla, you know, feel free to jump in with any clarification that I miss. So the NIM guidance is pretty wide. There's a lot of deposit remixing and loan remixing that's happening. You also heard me talk about, you know, the deposit side, the $2 billion ± more of wholesale CDs that are maturing in 2024. So really, you know, on the high end of the range, we would sort of assume, you know, cuts that would be more in line with the Fed dot plot. But you could have faster loan originations that happen earlier in the year as opposed to middle to later part of the year.
And, it could assume, you know, higher pace and faster pace of deposit inflows at lower costs, you know, earlier in the year versus later. And then the inverse, really, on the lower end of the range. So, the range, to be clear, is about 3-6 cuts, depending on the market and the Fed dot plot. So on the lower end of the range, it would be higher and faster cuts, and really the inverse of what I just described.
Casey Haire (VP and Senior Equity Analyst)
Gotcha. Okay, so 3-6 cuts. 6 cuts would, I would assume, get you to that 3.20, 3 would be to the higher end of 3.40. And then just in underneath that, what kind of, like, apologies, the deposit beta?
Sam Sidhu (President and CEO)
Sure.
Casey Haire (VP and Senior Equity Analyst)
Like on the first, say-
Sam Sidhu (President and CEO)
Yeah, it's really embedded in the guidance. You know, the way to think about deposit beta is, you know, on the way up, you know, we had a high deposit beta, which, you know, really impacted us in 2022, but really tapered off in 2023. And in fact, we peaked in the first quarter of last year. High deposit beta, high cost of funds, benefits you on the way down, and we expect, you know, a high beta on the way down.
Casey Haire (VP and Senior Equity Analyst)
Gotcha. Okay. And just lastly, on your—so the deposit remix, so $2.2 billion of wholesale CDs maturing this year. First off, what is the rate on those maturities? And then if I'm doing the math correctly, it looks like you've got core deposits up, you know, $1.5 billion-$2 billion. And if all-in deposits are growing low single digits, you know, there's gonna be some rollover of that two billion. Just wanted to make sure that's correct.
Sam Sidhu (President and CEO)
Yeah, Casey, good, good question. So, you know, overall, we'll look to, we'll look to remix, you know, you know, most, if not all of that, into with core deposit growth. It really depends on the overall pipeline, and mix. The cost of that, in this year is actually pretty close to 5%, so there's a tremendous opportunity from a cost of funds perspective. So hopefully, you know, you know, one of the things I did mention is that, you know, we're down to about 18% of wholesale CDs, you know, from our peak, you know, a couple of quarters ago. You know, our business model is branch-lite, so there's always gonna be a place for some portion of wholesale funding in our balance sheet.
And we'll look to be thoughtful about recasting any small portion of that over the course of the year. But again, most, if not all of that, we'd look to remix through the course of the year with core deposits.
Casey Haire (VP and Senior Equity Analyst)
Very good. Thanks, guys.
Sam Sidhu (President and CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Peter Winter from D.A. Davidson. Your line is open.
Peter Winter (Managing Director and Senior Research Analyst)
Thanks. Good morning. I wanted to ask about the balance sheet sensitivity. I mean, as of 3Q, the balance sheet is fairly asset sensitive. I'm just wondering, were you able to reduce any of that sensitivity in the fourth quarter? And you know, what's the plan on trying to reduce some of that in 2024?
Sam Sidhu (President and CEO)
Sure. Absolutely. Good morning, Peter. So you know, a high-rate environment should be most challenging for, you know, a bank like, like us, you know, given that we don't have the retail network. You know, however, we neutered that with the, you know, the deposit trends and really the positive mix shift into non-interest bearing lower cost deposits over the course of, of last year. You know, the down rate is gonna be, you know, beneficial to us from an asset sensitivity perspective. As you know, there are limitations from a shock perspective and a spot perspective in the sense that, you know, our, our K is gonna be out in a couple of weeks. But even if you look at, at, at our September thirtieth numbers, non-interest-bearing deposit growth increases your asset sensitivity.
However, rolling off of fixed rate wholesale CDs into floating rate deposits decreases your asset sensitivity. So you know, we're, we're very prepared for declining rates, and while we're moderately slightly asset sensitive today, you know, the shock that you'll sort of see in those types of financials is not necessarily representative of how we will actually operate in a gradually declining rate environment, which is what, what we in the market, you know, overall expect directionally, whether it's three or six, you know, to be determined.
Peter Winter (Managing Director and Senior Research Analyst)
Okay. And then just how do we think about average earning assets from fourth quarter level? I mean, positive outlook on the loans, but funded with excess cash and securities cash flows. Just how do we think about the average earning asset growth rate?
Sam Sidhu (President and CEO)
So I think, you know, I talked about the ten to fifteen percent growth rate. If you take the midpoint of that range, it really you can sort of directionally see you're getting back to 12/31/2022 in terms of our directional loan balances. That, you know, earning asset mix shift is really gonna be coming from cash and securities as opposed to any changes in the balance sheet. So you can sort of think of the, you know, the average earning assets as you know, moderately flattish. I'd also mention that, you know, I think we've disclosed our securities portfolio is, you know, somewhere in the low to mid 5% range on a blended basis. Our cash, as you can probably appreciate, is generating something directionally similar.
And our incoming, you know, loan yields, you know, are typically, especially for sort of our national corporate businesses, which is what where, you know, greater than 50% of the, of the expected growth is, is planned to come from, is sort of, gives you an extra 300 basis points plus or minus spread above what those earning assets are currently yielding.
Peter Winter (Managing Director and Senior Research Analyst)
Got it. Just my last question. You guys are in some of these businesses of the failed banks last year, and then you of course bought Signature's venture capital banking portfolio from the FDIC. Are you seeing a lot of opportunities to add more bankers to the platform?
Sam Sidhu (President and CEO)
Yeah, Peter, that's a great question. I think you sort of heard me talk about, you know, market share gains and the hundreds of billions of impacted, you know, customer deposits and loans, you know, from the failed institutions. You know, I think that, you know, what's important about, you know, our business is we, you know, haven't added any new business lines or new business verticals. We happen to have a lot of high quality, low risk, high growth opportunity, you know, commercial verticals at our bank existing today. You know, from a lending perspective, we have very strong, you know, lenders across the franchise. From a deposit perspective, I think, you know, you're absolutely right, there will be opportunities for us to find...
Teams and individual performers in motion because clients are in motion. Clients have already changed banks once or twice in the past 12 months. And folks are looking to find high quality, you know, commercial-oriented platforms, you know, like ourselves, to be able to port into.
Michael Perito (Managing Director)
Got it. Thanks, Sam.
Sam Sidhu (President and CEO)
Absolutely.
Operator (participant)
Your next question comes from the line of Michael Perito from KBW. Your line is open.
Michael Perito (Managing Director)
Hey, guys. Good morning. Thanks for taking my questions. So obviously, the guide for 2024 is pretty thorough. I just had a couple of high-level questions I'd love some color on, if that's all right. You know, number one is just you guys are pretty clear and laid out the remixing opportunities for 2024, but I was wondering if you could go a layer deeper just on the mindset around balance sheet growth. Like, what are the pieces of the equation when that comes back into consideration in more earnest? Is it a certain capital level? Is it a certain amount of liquidity remixing or a deposit mix when you guys will start to consider growing the balance sheet?
You know, realize it's not 2024 consideration, but just as we look out to 2025 and maybe even 2026 in the next quarter or two, just trying to get a better sense of your thought process around when balance sheet growth might and could resume?
Sam Sidhu (President and CEO)
Thanks, Mike. Yeah, absolutely. So firstly, starting from a capital perspective, you know, we hit our minimum target of 7% by the end of the year, which was really important to us. You know, we expect in the first half of the year, we would hope to achieve at least a 7.5% TCE. You know, I think from a regulatory capital perspective, we've more than cleared and gotten to top quartile levels. You know, we think it's important to be at that 7.5% type range. Focusing on the inside of the balance sheet, you know, for a time period, then I'll address the latter part of your question, sort of a bit of more of a-
Michael Perito (Managing Director)
Mm-hmm
Sam Sidhu (President and CEO)
Medium to longer term cast. You know, from a loan growth perspective, I think we've pretty much covered that from sort of a transfer of cash and securities to, to loans, within the asset side of the balance sheet. From a deposit perspective, we are while we're top quartile or top decile and all the other most important profitability, you know, and balance sheet metrics, I think from a self-awareness perspective, from a deposit side, we're still on the higher end. And we'd like to continue to improve the mix and reduce the cost and the cost sensitivity of those deposit customers over the course of the coming quarters and years. And that's really what our, you know, our focus is gonna be on. You heard me talk about deposit-led growth.
I think the real differentiator, you know, for Customers Bank today is the customers and the teams that are in motion that are gonna really help us, you know, enter 2025 and beyond, are gonna help us build deposits first internally, and then a deposit-led growth in 2025 and beyond, maintaining our current, you know, capital goals, which we hope to achieve pretty quickly.
Michael Perito (Managing Director)
That's helpful color, Sam. Thanks. And then just you mentioned the expense guide kind of shifting to the efficiency ratio to give you guys flexibility to invest where you see opportunities. Just was wondering if you could maybe spend a minute, not that you guys, you know, need more, 'cause you've obviously been very busy and done very well, but what initiatives or what does that mean? Like, what are you gonna look to invest in? Is it new business lines? Is it just adding more people in the business lines you've added over the last two years? Just would love another layer deeper on that, as we think once again, about the kind of forward outlook and growth opportunities.
Sam Sidhu (President and CEO)
Sure. Absolutely. You know, our reinvestment, you know, for the near to medium term is really gonna be focused on continuing to build out the infrastructure. You heard about sort of treasury management, you know, marketing, a lot of the support functions that allow us to have the breadth of products and services, generate fee income, enhance the customer experience. Those could also sort of broadly bleed into sort of technology and other AI-type initiatives, which will help enhance the customer experience and customer service. But the real focus from a true, material, sort of non-interest expense perspective is gonna be on, you know, people that help us, you know, service and acquire new customers, really focus on those deposit customers.
Michael Perito (Managing Director)
So you think it, the biggest area for investment will probably be, you know, growth-facing people as you guys continue to scale infrastructure?
Sam Sidhu (President and CEO)
That's absolutely right. Yep. There's a lot of folks that have had logos on their business cards changed, you know, in the past, you know, nine months, and there's a lot of folks that have elected to change the logos on their business cards, who are now looking to change again.
Michael Perito (Managing Director)
Great. And then just one last one for me. Just would love a minute on kind of where you guys are at on the technology roadmap. I mean, any kind of internal investments in your core or other capabilities, just not really kind of an earnings impactful question necessarily. I'm sure it's baked into your budget and efficiency ratio guide, but just would love any flavor you can give on where you guys are spending some money on technology and infrastructure side.
Sam Sidhu (President and CEO)
Yep. Sure, Mike. Happy to also take that. So, you know, I think that we're always, you know, looking to streamline and improve the effectiveness of our, you know, technology platform. We were one of the first banks, going back 7 or 8 years ago, to invest in middleware that sits on top of our, you know, legacy core. We are probably on the third iteration of that today and continue to enhance it. We're also, you know, in the midst of—again, this is not something that has required a ton of investment because we have the people at our institution. We have developers, we have API developers.
You know, we have, you know, a lot of experts who have come from both big and small institutions who can help us, you know, continue to enhance, you know, our technology platform. But we're really looking to rewire and rearchitect things that sit, you know, even above and below the middleware. And we're happy to share some more information on that over time. Again, it's not requiring investment, but it's really gonna enhance and streamline the way that we look to port in and add new technology providers and also how we currently service our customers. So that's one.
You know, again, similarly, on some of the now, I guess, more legacy-type software providers, like Salesforce or nCino, we're, you know, multiple years into, you know, probably second or third contract negotiations. Whenever those come up, which come up in the next sort of twelve months or so, we typically look to, you know, pivot and reset, and reuse that as an opportunity to redesign, and think about what we, what we've learned over the past couple of years, think about sort of the new business lines.
In many cases, what's really interesting is some of the new team members that we bring on have different ways of doing things that we can sort of export to the rest of our organization in a very positive way. So hopefully that gives you a bit of flavor. I touched on AI as well, and these are the types of things that are, you know, very low stakes test cases that we continue to, you know, expand upon exploring across the organization. But again, these are all things to enhance the customer experience and to streamline operations. Nothing that's requiring a tremendous amount of investment, but what's important is that we truly are at the cutting edge of thinking about these types of investments and initiatives.
Michael Perito (Managing Director)
Great. No, definitely helpful. Thanks, Sam, for taking my questions. Appreciate it. Have a good weekend.
Sam Sidhu (President and CEO)
You too.
Operator (participant)
Your next question comes from the line of Steve Moss from Raymond James. Your line is open.
Steve Moss (Managing Director)
Hi, good morning. Hi, Sam, on the deposit pipeline here, just curious, you know, if you could give a little color on the underlying mix, you know, whether there's a mix shift or this quarter here, and just also what you're thinking is roughly the average cost of those deposits as they're expected to come on.
Sam Sidhu (President and CEO)
Sure, absolutely. Good morning, Steve. So just to sort of recap, I think I mentioned this earlier, you know, it was broad-based across the franchise. This is the $1.1 billion of core deposit growth. Not dissimilar at all to last quarter. We had 20 of our deposit channels that saw good growth, and they, you know, these channels had growth of $25 million or more individually, which really sort of helps put a pin in the broad-based nature and the quality of this, you know, of the growth. About a third, you know, to put it in more with more specificity, came from private client groups in New York. About a third came from our financial institutions group, and the balance was more broadly spread across the organization.
So it's a little bit of a shift from, you know, towards more of our private client groups, you know, versus last quarter, which was more focused on the venture banking group because of the migration of the portfolio at the end of the second quarter that really, you know, brought in those customers in the third quarter. But I think what's more relevant is to just zoom out and focus on the $3 billion, you know, over the past couple of quarters for a second, because I think that really puts color on the total transformation. So about a quarter of that came from our private clients groups.
15%-20% came from the venture banking group, 20% from our financial institutions group, and the balance was spread across the organization, like fund finance, commercial real estate, equipment finance, consumer, you know, and others. So, it's also worth mentioning, you know, as we added $3 billion of core deposits, we also increased our non-interest-bearing deposits by, you know, about $1 billion over the same time period. So hopefully that gives you color on, you know, on where the deposit growth came from. The pipeline is very similar. So, you know, don't need to sort of rehash it, but, you know, I think on the venture side, the team was more on, you know, transitioning customers in the third quarter.
Fourth quarter was outgoing business development, and we're gonna start to see, you know, the customer growth after a foundational quarter in sort of the first half of this year. I think you also asked about rate. So, you know, all-in rates, when accounting for the non-interest-bearing balances, are coming in not so dissimilar to last quarter, in sort of that mid-3% range right now. So, you know, I think that we're optimistic. We're getting close to an inflection point in the interest rate hiking cycle, so hopefully, this is where things will continue. Having said that, I think it's very important to note, we're not gonna miss market share opportunities by standing on ceremony, especially, you know, given all of this dislocation here.
So if we need to bring in, you know, true primary customer relationships and have a portion of those deposits be at market rates, you know, we, we won't shy away from that.
Steve Moss (Managing Director)
Okay, great. I appreciate all that color there. And then, you know, similar question on the loan growth side here. You know, you mentioned the VC fund finance, community bank, C&I, and equipment finance as drivers of loan growth. Just kind of curious, you know, do you view, like, fund finance and community bank as the primary drivers relative to VC and equipment finance, or just how do we kind of think about that mix and the opportunities you see?
Sam Sidhu (President and CEO)
Sure. So in terms of originations, you know, I think you hit the nail on the head. It's really fund finance, venture banking, equipment finance, you know, healthcare, on the corporate side, and then community banking really will be on the sort of the more traditional C&I and nothing really to report on CRE. What's worth noting on venture banking is, as you can appreciate, these lines are typically not like, say, a fund finance line, where their average, you know, typically average outstandings are hovering within a tight range. So you have a sense of what a commitment leads to in terms of outstanding. These are typically slow draws.
So we may have originations, and that also helps be the catalyst to bring over, you know, deposit relationships, but we don't expect draws and outstandings really, you know, in the first half of the year.
Steve Moss (Managing Director)
Okay, great. Appreciate all the color. Most of my questions are asked and answered. Next quarter.
Sam Sidhu (President and CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Frank Schiraldi from Piper Sandler. Your line is open.
Frank Schiraldi (Managing Director and Senior Research Analyst)
Good morning. Just as you, you know, talked about maintaining higher levels of capital here in the near term, and you mentioned, I think, 11.5% CET1 assumed for 2024. Just curious if, you know, what you think the right level for the bank is longer term. Is the TCE ratio a bit of a governor on that? Or, you know, any sort of targets maybe when things calm down a bit and a little more certainty in the marketplace, where you think the right level of capital is?
Sam Sidhu (President and CEO)
Sure. Frank, appreciate the question. So, you know, from a CET1 perspective, I think we had set an ambitious goal at the beginning of the year, of 11-11.5%, which we crossed, and really got to, you know, top quartile, from a regulatory capital perspective in the third quarter. TCE, as you rightfully noted, is, has really been our, our governing, you know, constraining capital level, which, you know, we've gotten to sort of what I would call the minimum of a target range, and, and expect in the, in the near term, in the next quarter, or two, you know, to be at that 7.5%+ type range. And, and that gives us flexibility if we do, you know, feel, that deposit growth is, is, is...
Deposit mix is more or less complete, and deposit growth could potentially lead to balance sheet growth, but that's not something we expect, you know, in the next couple of quarters. So I think 7.5% feels like the right target from a TCE perspective. So, you know, as we think about, you know, going off of there and sort of casting a bit more of a longer-term range, you know, I think we've always talked about a broad range of 7%-8%. I think now that we're, you know, talking about a minimum level of wanting to get to that 7.5%, I feel like that is gonna be our more medium-term target.
Our organic capital generation has really ramped up, and you know, we expect to you know, continue to operate within that sort of minimum range.
Frank Schiraldi (Managing Director and Senior Research Analyst)
Okay. And then I believe you're just under 20% total brokered at this point, deposits. And sounds like given maturities over the next 12 months, that probably should fall below 10%. Just curious if there's any sort of, you know, hard line in terms of where you want to get below. You mentioned, you know, brokered or wholesale is part of the mix for a bank going forward. So just curious on that front.
Sam Sidhu (President and CEO)
Good question, Frank, and yes, we're at 17%, today, or as of 12/31, you know, and declining, you know, even further. So I think we're more or less at that level where we would have targeted that we wanted to get to. I think even getting, you know, building off further from here, is really gonna be dependent on core deposit growth. So I do think that we'll continue to make significant headway as the year progresses, getting closer to that 10% plus or minus range. There's no immediate target.
There are benefits, and I think the bias and stigma for any bank, for some portion of wholesale, contractual insured, CDs as part of an overall funding base and funding strategy, especially for a commercial-oriented, you know, non-retail branch-based bank, makes sense. It's something we'll continue to evaluate over time. I don't have a specific number for you in mind, but do feel that we're gonna continue to, you know, significantly reduce even from the 17% we have today.
Frank Schiraldi (Managing Director and Senior Research Analyst)
Okay. And then just on the, Sorry if I missed it, but on CBIT deposits in the past, you've talked, I think, about a 15%, max, sort of, you know, from a standpoint of concentration. Is that kind of where these are sitting now? And then, as you think about core deposit generation, you know, how do you think about it? Is this still core? I mean, obviously, if we get some rate contraction, they could become a little less attractive in the near term unless you move to a fee model. So just curious where those are and how you're thinking about that business longer term.
Sam Sidhu (President and CEO)
Sure. Absolutely. So the answer to your first question is, yes, you know, we have and continue to, and frankly, it's been very, very stable. So, $2.2 billion ± again, in the quarter, so, you know, on an average deposit perspective, so that's constant, you know, for three quarters in a row. So, you know, we're managing it very well and also managing it well with our customers and holding those in cash. You know, in a longer term basis, we'll continue to evaluate, you know, as rates evolve. We're in discussions, you know, with customers. We're providing business-critical-...
services to customers and holding operating accounts, where those customers cannot necessarily fully operate without the technology we're providing. So, you know, I think we feel very privileged to be in that type of position. Our customers are very privileged to be working with us. Over time, as rates decline, we'll—you know, we're still at a significant NIM, you know, at today's rates, and so there's, you know, several hundred basis points before that would necessarily be, you know, below our NIM average. And there are different things that we're exploring, including fees over time, that we'll continue to evaluate. But we're not really holding any excess, you know, funds there.
These are truly sort of payment services and operating accounts at current levels.
Bill Dezellem (Founder, Chief Investment Officer & President)
Great. Okay. I appreciate all the color. Thanks.
Operator (participant)
Your next question comes from the line of Matthew Breese from Stephens Inc. Your line is open.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Hey, good morning, everybody. Just looking at loan growth guidance for the year implies kind of a, you know, rough figure, $1.6 billion. I know you talked about coming from cash and securities. Could you break down for us how much do you expect to come from cash and how much from securities?
Sam Sidhu (President and CEO)
Sure. You know, it's. I'll give you sort of rough directional, you know, numbers, Matt, just sort of based on, you know, maturity set, schedules and, and cash flow amortization. You know, it's typically gonna be in that range of $600 million-$800 million that's gonna come from the securities book. And the balance would come from cash. And, you know, we're at a 72% loan-to-deposit ratio today. Even with sort of thinking about the high end of the range, we'd still be, you know, have a seven handle below, you know, 80% or below from a loan-to-deposit ratio. So hopefully that gives you some governors and some framework to think about that.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
That's great. That's what I need there. And then, you know, going to the NIM, it sounded like the pipeline's blended yield is in that kind of 3.50 range. It's not too dissimilar from where we are now. Is that 3.50 a good proxy for where we might see peak deposit costs in 2024? And when do you expect that to occur?
Sam Sidhu (President and CEO)
You know, it is. I think you sort of heard me, you know, reference we're sort of at that overall inflection point from a, you know, from a deposit perspective. We also talked about, you know, the wholesale CDs, you know, continuing to decline. I think it's worth mentioning that, you know, from a growth perspective, you also heard me say that, you know, we're not gonna be imprudent about taking market share. Our interest expense, you know, can and should continue to decline even before rate cuts. So yes, while the output of a, you know, a cost of interest-bearing deposits may change, the deposit mix is really gonna be the main driver of ups and downs.
Interest expense, you know, should be maintained, and ideally, it should, it should trend downwards, you know, on this sort of flattish type deposit base. So, we feel privileged to be in this type of a trend, and we feel confident in sort of our, our deposit pipeline and backlog.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Okay. And then two other quick ones. You know, the first one is just in regards to the specialty lending balances were down around $400 million this quarter, and I was curious, what was the driver of that? You know, what happened there, and expectations for that kind of line item, for 2024?
Sam Sidhu (President and CEO)
Sure. As I mentioned before, it was sort of targeted. These were, you know, lower margin, you know, slightly below 300 basis points, you know, 250 plus or minus type spread, from that particular business line, from the specialty. It was within our fund finance business, specifically focused on our lender finance business. These loans were really rolled off in late December. We'd sort of planned for them, and opted and elected not to renew. So, non-strategic from a business line as well as you know, customer relationship perspective, non-strategic from a deposit perspective, and non-strategic from a primacy of relationship perspective.
So hopefully that gives you some color, and we'll look, you know, and that gives us sort of more, you know, more opportunity to refill that with more strategic, you know, loan growth in the year.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Understood. Okay, and then the last one was just, you know, appreciating that credit, credit metrics were solid. NPAs were basically flat at 14 basis points or 13 basis points. I did see that substandard loans increased about 20% quarter-over-quarter, and I was curious what happened. What happened there, and is there anything worth mentioning?
Phil Watkins (CFO)
Yeah. Hey, hey, Matt, good morning. So yeah, the substandards did increase by that. It's actually really related to a single credit that migrated in the portfolio, and it's worth noting on that, that we actually have 100% coverage of the loan amount in cash from the borrower at the bank. So it's a bit of a unique situation. And since the quarter, there's actually been some positive developments on that credit as well, so we wouldn't be surprised to see that re-upgrade during the quarter. So you know, really not anything that we're worried about.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Okay. Just curious, what was the loan tied to in terms of commercial versus real estate, you know, consumer?
Sam Sidhu (President and CEO)
It was something in our commercial finance, you know, equipment finance business. So, you know, again, it's a, you know, large, large loan, large relationship, $60 million plus. I don't know the exact number, and it's 100% backed by cash.
Matthew Breese (Managing Director and Senior Equity Research Analyst)
Got it. Okay. That's all I had. Thank you for taking my questions.
Sam Sidhu (President and CEO)
Sure.
Operator (participant)
Your next question comes from the line of Bill Dezellem from Tieton Capital Management. Your line is open.
Bill Dezellem (Founder, Chief Investment Officer & President)
Thank you, and nice quarter. So relative to your guidance about loan demand, given that that's a bit unusual for the industry right now, would you talk to us about what you've seen in terms of loan demand changes or trends over the last four months or so, please?
Sam Sidhu (President and CEO)
Sure. Thanks for the question, Bill. So, two major things to highlight that I haven't already covered, you know, on the call today. Firstly is that our lending teams have been sitting on their hands, you know, for the past 12-15 months really, and I think that there's a lot of pent-up demand from existing customer relationships, even when not taking into account, you know, new opportunities. That's amplified by there being, you know, now fewer competitors in many of our national corporate verticals, which I've sort of highlighted, you know, what the components of those are, earlier on the call.
So the combination of the pent-up demand plus fewer competition, you know, and our sort of focus on these, you know, national, you know, low credit risk verticals. You know, it's, you know, it's not a stretch for us, and because we were targeted in reducing our non-strategic, you know, assets, it's really just getting our portfolio back to where it was 12 months ago. So it's not a stretch, and it's all relative to the, to our size and the business lines that, that we're focused on.
Bill Dezellem (Founder, Chief Investment Officer & President)
Thank you, Sam. And then, have you seen that loan demand change and get stronger over the last four months? Or basically, the demand has been there. Your bankers have just been in a holding pattern.
Sam Sidhu (President and CEO)
Yeah. Over the last, you know, you know, three to four months, it's really hasn't changed much. It's, it's, it's just been that our discipline has been on, on, making sure we focused on, on capital, and, and having a very strong base to, to build off of. So, haven't seen a material change. And I think what's also important to note is we're not CRE dependent like many of our peers, and I think that's really, you know, helping to benefit us in the sense that we have a broader, more C&I commercial-oriented base that's helping to source this input.
Bill Dezellem (Founder, Chief Investment Officer & President)
That's very helpful. I know we're running a little long here, but one final question. Long term, not, not in 2024, but beyond, how are you thinking about the loan-to-deposit ratio? Where? What's the range that you find is a comfortable place to settle into?
Sam Sidhu (President and CEO)
Sure. So, you know, I think I, I talked about, you know, between sort of where we are and 80% ± for this year. You know, likely sort of staying in the, in the sort of the mid- to high 70s. You know, longer term, you know, we've been sitting on very prudent, you know, cash balances, and part of that is by, by nature of, the events of, of March of last year.
You know, longer term, you know, where we used to be at 120% in 2018, mostly driven by some of our focus on, you know, our mortgage warehouse business, which we felt comfortable and sort of, given the short duration and liquid nature of that portfolio and going to the higher end of the overall peer group. We feel, you know, probably more in the, you know, mid-80 range. Feels like a more medium term, but it's something we'll continue to communicate about, you know, in the coming, you know, 12-24 months.
Bill Dezellem (Founder, Chief Investment Officer & President)
Great. Thank you, and thank you again for the questions, and congratulations on the solid, solid results.
Sam Sidhu (President and CEO)
Thanks, Bill. Appreciate it.
Operator (participant)
There are no further questions at this time. Mr. Sam Sidhu, I turn the call back over to you for some final closing remarks.
Sam Sidhu (President and CEO)
Now, thanks so much, everyone. We really appreciate your continued interest in and support of Customers Bank. We look forward to speaking with you next quarter. Thanks so much, and have a great day and a great weekend.
Operator (participant)
This concludes today's conference call. Thank you for your participation. You may now disconnect.