Good day, and thank you for standing by. Welcome to the Customers Bancorp . third quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. Now I'd like to hand the conference over to your first speaker today, David Patti, Communications Director at Customers Bancorp, Inc. Thank you. Please go ahead.
Thank you, Paul, and good morning, everyone. Thank you for joining us for the Customers Bancorp's earnings call for the third quarter of 2021. The presentation deck you will see today has been posted on the investor relations page of the bank's website at customersbank.com. You can access the deck by clicking the red button marked Latest Earnings Presentation. Our investor presentation includes important details that we will walk through on this morning's webcast. I encourage you to use, download or print 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 relations section of our website. At this time, it's my pleasure to introduce Customers Bancorp Chairman, Jay Sidhu. Jay, the audience is yours.
Thanks. Thank you, David, and good morning, ladies and gentlemen. Thank you so much for joining us for this third quarter call. I'm joined today by my colleagues, Sam Sidhu, the President of Customers Bancorp, as well as the Chief Executive Officer of our subsidiary bank, Customers Bank. Carla Leibold, our Chief Financial Officer, and Andy Bowman, our Chief Credit Officer. Andy, Carla, Sam and I make up what we call the Office of the Chair at Customers Bancorp. We are very excited to be able to report another record quarter for our company. This quarter we generated more income in a single quarter than we have in any previous yearly earnings.
This milestone was achieved through incredible hard work by our teammates, consistently working very hard, being very focused on priorities, being innovative and delivering the highest quality service to our clients, which has been one of our company's hallmarks since its founding almost 12 years ago. Even more exciting than our performance this quarter is where we stand today as a company, which we are very excited to share with you this morning, and you will be pleased with our outlook for the future. We are proud to have stepped up last year through our innovative approach and our tech capabilities to help small businesses all across America by funding approximately 350,000 PPP loans for almost $10 billion and being number 2 in the nation among those who gave out the number of loans.
This outstanding execution has generated approximately $350 million in SBA deferred origination fees, which has and will continue to significantly improve our capital levels and allow us to expedite investments in our continued growth in shareholder value. Very important and gratifying to us is that we are seeing thousands of businesses all across America who are now our clients thriving. Let me briefly share with you the results for the third quarter. Total loans outstanding excluding PPP and mortgage warehouse were up 10% year-to-date annualized, led by 19% year-over-year growth in C&I and 32% year-over-year growth in consumer installment loans. Total deposits grew about 57% year-over-year and an incredible $3.1 billion during third quarter, with practically all the growth coming in non-interest-bearing demand deposits. Broad-based organic growth drove our strong performance for the quarter.
Net interest income was up about 100% year-over-year. Quite importantly, tangible book value per share increased 35% over last year. The safety and soundness of the bank continues to reflect the very strong credit quality and significantly improving capital ratios. Our strong performance supports further investments in the delivery and scalability of our business model by investing in capabilities and product lines that further serve our clients' needs and provide on-the-ground support as we continue to build our company. Exemplary of our agility and speed is that this quarter we entered, and a few quarters before that, we entered several new businesses, so this has been a remarkable year for us. Some examples, as you can see on slide 3, are everything that's in green.
You can see that we've now entered the fund finance business. We've recruited teams in technology and venture capital banking. We've recruited teams in the financial institutions group, and we have embarked on CBIT or Customers Bank Instant Token, and which is our digital payments system. We are very excited about digital asset banking and the small business services as well as SBA and credit card services that you can see from there. We offer a full suite of community banking, specialty banking, digital banking, both for the consumer and also for the commercial.
We are laying the footprint to be a nationwide bank over the next couple of years. We will continue to leverage our best-in-class technology to efficiently deliver high touch community banking, specialty banking, and digital banking services, keeping our customers at the core of everything we do. I want to thank you all for your continued support, and it's amazing to think that we are just getting started. I'll now turn it over to Sam Sidhu, President of Customers Bank, to take you through more detail. Sam?
Thank you, Jay. It has indeed been another great quarter and a very strong year so far. Our momentum has picked up pace, and we have benefited from continued growth across the company, which highlights the broad-based strength of the franchise. Let me briefly summarize our results in a little bit more detail. We recorded a record $3.36 in core EPS, which represented net income of $113.9 million, up an impressive 178% over the year-ago quarter. This translates to a core ROCE of 42%, ROA of 2.35%, and a pre-tax, pre-provision ROA of 3.36%. Our net interest margin came in at 3.24% for the quarter. Now moving to the balance sheet.
We ended the quarter with $14.2 billion in core assets, excluding PPP. Our loan book was $10.6 billion at quarter end. Importantly, our loan pipeline and backlog have grown to all-time high levels across the franchise, and we expect loan growth to continue to accelerate in the fourth quarter and into 2022. As you heard from Jay, our total deposits grew by $6.1 billion, with $3.1 billion of that in the last quarter, driven by our efforts on the Customers Bank Instant Token or CBIT launch, which brought in $1.5 billion of non-interest-bearing deposits as of September 30. Strong asset quality is at the core of our franchise, and we continue to have superior credit quality to peers with NPAs of just 27 basis points and our coverage ratio now at 1.65%.
Very importantly on capital, our TCE ratio crossed 8%, ending at 8.1% as we continue to experience tremendous capital build thanks to both strong core earnings as well as PPP revenue recognition, which is accelerated by our efforts to partner with the SBA on their direct forgiveness platform. Our book value has increased an incredible 46% in the last 6 quarters, which is unprecedented growth of a bank of our size. Importantly, we reached these levels and achieved this growth without any dilution to our shareholders. Flipping to slide 5. Let me update you on our strategic initiatives broadly across the company. This is what makes Customers Bank so unique, and this is what has and we expect will continue to drive value creation for our shareholders.
First, on the commercial side, as you heard from Jay, we seeded a new team in the Carolinas to be based in Wilmington. This brings this year's total to four new expansion markets to date, with additional teams in the recruitment pipeline. This recruitment is driven by a single point of contact team lift-out strategy, which has proven to be a very successful part of the business model, especially in 2021, given the disruption caused by the M&A industry, amplified by the Great Resignation. Moving to specialty lending. We have launched two new verticals, as you heard from Jay, in technology and VC banking, as well as the Financial Institutions Group based in Dallas.
As you can see, these teams are strategic fill-ins, both geographically for our footprint and new business lines in verticals that are close to our existing core competencies, enabling cross-sell to existing customers and their affiliates. We are supporting the strong demand across the franchise by continuing to add experienced senior bankers to our existing teams as well to help support the growth from that demand. Our SBA team continues to perform very well with traditional seven A loan originations in the third quarter, double of what we saw in the first half of 2021. On digital seven A, a reminder that many of these businesses don't have pre-existing banking relationships, and a number of them came to Customers Bank with their PPP loan.
This is why we created a digital 7(a) product, and we believe we are the only bank that has a platform where a digitally sourced customer for loans under $350,000 can apply online, receive quick decisioning, and close in 30 days, which is unheard of and unprecedented in the SBA world. The digital 7(a) pilot continues to progress well with nearly $1 million in originations in the month of September, which we would like to scale up as we previously stated, to $3 million-$5 million monthly originations. We achieved $4.3 million in year-to-date SBA gain on sale, well in line with our $6 million stated full year target. In our multifamily business, we experienced faster than expected runoff in the current rate environment.
As such, we have put a plan in place to grow the portfolio back to our stated target of 15% of total loans. Now moving to the middle on our consumer business. Our digital direct personal loan business crossed a billion dollars in the quarter of customers sourced, applied, underwritten by our credit program. Customers Bank direct originations. We ended up with digital personal loan portfolio of $1.3 billion, of which 70% has been sourced directly. To put this in perspective, this is compared to a portfolio of $845 million as of December 2019, of which only 15% had been sourced directly under the Customers Bank banner at that time.
As you can see, we've created an extremely profitable credit-led neobank within our bank with over 130,000 active, profitable personal loan, student loan, medical, dental, specialty loan customers all sourced through digital channels and partnerships. When we add in our digital bank savings account customers and our 2020 and 2021 PPP customers, the total increases to over 450,000 active customers coming in through our digital branch. It is worth mentioning that to date, we have cross-sold additional products to less than 5% of that pool. This presents a tremendous opportunity for our data science and digital marketing teams who are advancing our data analytics capabilities to help our team to prioritize products in our roadmap and importantly, create digital cross-sell journeys for these customers. Moving to our consumer gain on sale initiative.
Our digital team originated and created loan pools, which were sold to investors in 2 separate transactions in the quarter, bringing our year-to-date total to $ four and a half million already in excess of the $4 million target for the year. We have sold $140 million of loans originated for sale to date, year-to-date. As previously mentioned, we are also working on our first marketplace lending partnership, expected to launch in 2022, which is being led by our embedded FinTech team, which was recruited and joined in the last 100 days or so. We're also continuing to work, as you heard from Jay, on a new credit card launch and additional consumer products in an effort to have an opportunity to earn multi-product relationships with our digital customers. Now moving to the right side of the page.
Firstly, in conjunction with the anticipation of our real-time payments platform, as we mentioned, we onboarded a significant number of non-interest-bearing deposits towards the end of the quarter. To assist us in these efforts, we recruited an experienced team to help with payments product launch, business development, customer onboarding, and customer success to form the digital asset banking vertical. Moving to our digital SMB bundle. This is an advanced rollout starting with the digital 7(a), which has already launched. Term loans, revolving line of credit, commercial credit card are all on the near-term roadmap. This is critical to build on our PPP success with small businesses. Finally, as previously discussed, we have engaged a leading global digital consultancy to rebrand and relaunch our omni-channel online presence, which reflects the digital maturation and institutional growth of Customers Bank.
This is on track to be completed by the end of the year. Moving to slide 6. As you can see, our partnership with the SBA and direct forgiveness has proven to be an incredibly smart decision. We had a soft launch in August, and it has resulted in significant acceleration of forgiveness for our 2021 PPP originations. We have been able to process over 30% of these loans for forgiveness in just a matter of weeks. I'm proud of the team's technical agility and entrepreneurship to collaborate on such an important technology initiative that many other banks will now have the ability to take advantage of. As you can see, we still have just under 50% of our deferred origination fees still to be recognized in the coming quarters. This will further improve our capital and more broadly, our franchise position and strength.
Flipping to slide 7. Here you'll see a summary of the timeline and overview of the CBIT launch process. We launched within 9 months of commencement of our comprehensive opportunity analysis, which first started with a build by partner evaluation. This summer, after selecting our partner and signing our contract, we integrated the platform into our environment and implemented compliance processes and began our business development in earnest. In late September, we began opening up DDAs in anticipation of our imminent payments platform launch. After we completed testing and had a fully functional platform, we soft launched earlier this month. Our soft launch will include around 20 customers, plus or minus, and we expect to remain in soft launch for a few months before opening up more broadly to all commercial banking customers.
With our non-interest-bearing deposit growth to date, we will be focusing on balance sheet, capital, and profitability discipline. We are taking actions on the following items, some of which are already in flight. Firstly, we paid down our PPPLF funding by $3.9 billion in the third quarter and saving an associated 35 basis points or $3.4 million per quarter. We currently have no PPPLF funding remaining. Next, we are focused on improving our deposit mix and cost of funding by reducing or running off higher cost deposits. For example, our digital bank deposits totaled over $1.2 billion and have savings rates around 50 basis points. We also have a planned run off by the end of 2020 of our BankMobile associated deposits, which were around $2 billion as of September 30.
In addition to further improving our deposit franchise, we are also laser-focused on interest-earning asset deployment. We increased the size of our investment portfolio by $357 million in the quarter, and we will continue to deploy cash in excess of balances necessary to fund organic lending growth in the fourth quarter and thereafter. In terms of loan growth, we have been very tactical through 2021, gearing up for the launch of our real-time payments platform by adding commercial teams in our expansion geographies and lending verticals like fund finance, technology venture capital, real estate specialty finance, and digital asset banking. These teams are hitting their stride and will be ramping up nicely in 2022. With that, I'll pass it to Carla to cover the financials in more detail.
Thanks, Sam, and good morning, everyone. I'll keep my comments focused on 5 key topics. First, strong organic loan growth with a favorable loan mix. Second, transformational improvements in the quality of our deposit franchise. Third, growth in net interest income and net interest margin. Fourth, significant capital accretion. Fifth, tangible book value. Turning to slide 8, I'll start with loan growth and overall loan mix. You can see from this slide that since 2018, we've had a compound annual growth rate in core loans, excluding PPP, of 8%. Over the past year, our core C&I portfolio grew by $516 million or 19%, and our consumer personal loan portfolio grew 32% or $391 million. As expected, our mortgage warehouse portfolio declined $1.3 billion year-over-year and ended the third quarter at $2.6 billion.
Also, as planned, our multifamily loan balances declined over the year-ago period by $563 million, ending the third quarter at $1.4 billion. When we think about the overall loan mix over time, we are still targeting previously reported ranges with our core C&I, including specialty lending, making up about 35%-45% of our total loan book. Multifamily, about 15% of the loan book. Investment CRE, approximately 10%. Mortgage warehouse, 15%-20% of the loan portfolio. The consumer personal loan portfolio, no more than 20%. As Sam mentioned, you can expect to see growth in the multifamily to hit the 15% target. The mortgage warehouse portfolio is still expected to decline, and we're expecting to end the year somewhere between $1.9 billion and $2.1 billion.
The growth in the multifamily business, along with other lending verticals, is intended to dampen the volatility resulting from our seasonal mortgage warehouse books. As Sam mentioned, we have strong pipelines across all of our lending verticals and are on track to hit our 2021 growth targets that we communicated earlier this year. Moving on to slide 9. You can really see the transformational improvements that we've made to our deposit franchise and overall funding profile. A few items to highlight here. Since 2018, we've had a compounded annual growth rate of 37% in total deposits. Year-over-year, we had total deposit growth of $6.1 billion or 57%, which included a $5.3 billion increase or 115% in total demand deposits. At the end of the third quarter, our DDAs accounted for 59% of our total deposit portfolio.
CDs also declined $379 million or 39% year-over-year, making up only 3% of total deposits at the end of the third quarter. We also continue to make significant progress on reducing our overall total cost of deposits. The average cost of deposits in third quarter 2021 dropped 25 basis points from the year-ago period. Our spot cost of deposits dropped to 32 basis points at September 30, and we now expect our spot cost of deposits to be below 30 basis points by year-end 2021. Turning to slide 10. You can see the growth in net interest income over a rolling 5 quarters from the core bank, excluding PPP. I'll also make a few comments here. First, net interest income of $108 million for third quarter 2021 increased 23% over the year-ago period.
Second, net interest margin, again, excluding PPP for the third quarter 2021 was 3.24%. It's important to highlight here that excess cash balances that were held on our balance sheet negatively impacted our third quarter net interest margin by about 16 basis points. Absent these higher cash balances, we would have seen net interest margin expansion by about 10 basis points. Briefly turning to slide 11. A few high-level comments related to credit quality. Overall, our asset quality remains excellent, our credit reserves are strong, and our near-term credit outlook remains stable. Moving to slide 12. This slide really highlights the significant improvement in our total risk-based capital ratio over the periods presented.
The estimated total risk-based capital ratio at the end of third quarter 2021 is up about 240 basis points over the year ago period, despite the $82.5 million preferred stock redemption on September 15, which on a standalone basis, decreased the total risk-based capital ratio by about 70 basis points. The significant accretion in our TCE ratio, excluding PPP, shown on the right slide of that slide, really demonstrates the slingshot effect in our capital ratios that we've been discussing all year. At September 30, our TCE ratio was 8.1%, up 36% from the 5.9% reported a year ago.
This accretion is driven by the profitability of the core bank as well as PPP-related revenue. Lastly, moving to slide 13, you can really see the appreciation in our tangible book value over the past 12 months. At September 30, our tangible book value was a little north of $35. Rewind one year from September 30 and our tangible book value was close to $36 or $26. That's a 35% increase year-over-year. Now, if you fully pro forma in all the expected net revenues from the PPP program, our tangible book value is at or above $40. Given where we were trading as of October 20, our price to September 30 tangible book value was a 134%. This is where we continue to see the significant potential upside.
Before turning it back to Jay to wrap up, I'll comment on our core EPS guidance excluding PPP. For full year 2021, we are projecting $4. For 2022, we are projecting between $4.75 and $5, which is about a 20%-25% increase over 2021. We are now projecting a core EPS of $6 sooner than the previously reported 2025. With that, I'll turn it back to you, Jay.
Thank you. Thanks so much, Carla. Great report. Let me just summarize for you some of the key accomplishments very quickly, and then we'll open it up for questions from any of you. On the financial performance front, as you heard, we reported record earnings, $160 million pre-tax and $110 million after-tax earnings. That, like I mentioned, was higher than any annual performance in the company's history. On the deposit side, that's been a very high priority for us to dramatically improve the deposit franchise of the company. We are really pleased with the growth in non-interest-bearing deposits. Even excluding CBIT related deposits, year-to-date growth was 37%, and practically all of it came in non-interest-bearing deposits.
On the shareholder value stock price performance, as you know, Customers Bancorp stock was one of the best performing publicly traded stocks in 2021, with 160%+ appreciation. We still believe that we are only trading at about 10x earnings, and as Carla mentioned, about 134% of tangible book value. Just to remind you, for the last three years, I and most of our colleagues have taken 100% of our bonuses in stock, not cash. Feels pretty good now. From a technology driven perspective, as you know, CBIT was launched $101.5 billion in deposits already here, and we are very poised for significant additional growth.
On the PPP front, as you know, we've not only helped 350,000 or so businesses, but more than 95% of these businesses we helped were all classified as real micro-businesses and many of them being minority owned and women owned businesses. We are thrilled that we were able to help them as well as make hundreds of millions of dollars simultaneously for our shareholders. From a gain on sale business, this is a new initiative, technology-based loan sale. That resulted in almost $8.8 million in gain on sales year to date in 2021. We will continue to opportunistically look at more FinTech partnerships to grow our digital businesses. We think that it's a huge untapped opportunity.
At the capital front, as you heard from Carla and Sam, we dramatically improved our TCE ratio, excluding PPP. We are now at over 8%, and we are only about halfway through realization of our PPP non-interest income as well as interest income. We completed the redemption of the $82.5 million preferred stock, which is going to add about $13 million in our annual EPS run rate. We started to execute on our common stock purchase program, where we bought back a few hundred thousand shares last month while we were in the quiet period. We are committed to building shareholder value and will remain opportunistic. On any weaknesses, we are prepared to buy back our stock.
As of October 20, like I mentioned to you earlier, the exact number was actually 167,000 shares that we purchased. We remain extremely optimistic about the future and the guidance that Carla has given you on EPS. That is something which we are committed to executing. With that, operator, please open it up for questions from anybody.
Thank you, sir. As a reminder to all participants, if you have a question, please press star one on your telephone keypad. Again, it's star one on your telephone keypad. However, if your question has been answered and you wish to remove yourself from the queue, please press the pound key. Stand by while we compile the Q&A roster. Your first question comes from the line of Steve Moss with B. Riley Securities. Your line is open.
Good morning.
Morning, Steve. Morning.
Morning, Sam, Jay. Maybe just starting with the CBIT deposits here. You know, $1.5 billion before the soft launch is quite impressive. Kind of curious, you know, how many customers comprise the $1.5 billion? If you could maybe give us some color here on where balances are now that you're, you know, call it a week or two past the soft launch.
Sure, Steve. You know, happy to provide a little bit more color. The soft launch, as we mentioned, is somewhere between 18 and low 20, around 2,000 type customers, most of whom have either already funded their accounts, or have opened their accounts and are in process of funding and beginning sort of payments testing and transactions. Over a period of time, we'll continue to share more information on the composition once we have a more stabilized ecosystem. The way that the ecosystem was programmed today was to create 3-5 nodes of important counterparties with each other. Many of those nodes also connect to at least one counterparty, so that we're starting to create the beginning of a web and a network. Over time, we'll be able to share more information on the number of customers, the average balance size, and potentially even payments volume once that ramps up.
Okay. Just as we think about, you know, you're hitting soft launch mode, kind of how long do you think you'll be here? You know, when you maybe, you know, go to a formal launch, you know, how many customers do you envision maybe adding on at a time? Just to kind of get a feel for the potential growth here over the next, couple quarters, if you will.
Sure. It's difficult to fully say with certainty, but I'll sort of answer it the best I can to kind of give you perspective of on how we'll approach it. Firstly, from a timing perspective, we anticipate we'll remain in soft launch through the quarter. There's only 60 days left, and we need to, you know, make sure that we have all of our, you know, customer service, and testing and monitoring, buttoned up. We'll continue then sort of onboarding new customers, you know, more likely in the first quarter.
The way to think about it is that, you know, as I mentioned, we'll continue to add more nodes, these 3-5 sort of customer type nodes, common customer type nodes, and then we'll add to the existing nodes. So there's gonna be a combination as you think about deposit growth and customer growth. There's existing growth from customers who are already on the platform or who will eventually be moving over more dollars as they start to see more of their counterparties you know, on the platform. Similarly, the counterparties will be bringing on deposits as well, and then we'll be continuing, you know, to add more nodes as well. So that's sort of how we think about the programming. Really we'll onboard as quickly as makes sense from a compliance and a technology monitoring perspective.
Okay, that's helpful. You guys hired a number of new commercial teams here. You know, just color on the book of business you're expecting them to bring over and also, you know, your thoughts on the digital asset lending in particular. Kind of curious as to how to think about that.
Sure. Firstly on the theme, I think the better way to think about it is that there's only so many players who are actively targeting and banking the payments space, digital asset ecosystem. You know, over a period of time in the medium to long term, you know, we feel that we should have an opportunity to take our fair share of payments transactions as well as the associated deposit float to fund those payments.
And, uh-
Okay.
Steve, from an earning asset growth point of view, overall, we are very optimistic that as a result of these teams that we've onboarded as well as we've added, we are much more focused on earning asset growth, but maintaining our credit standards. We are looking at something like $350 million-$500 million growth per quarter in earning assets.
Specifically on the digital asset lending, Steve, as you can appreciate, you know, in trying to sort of build a moat around these digital asset banking customers who are entering Customers Bank and our payments ecosystem, we wanna make sure these are multi-product relationships, especially for the more institutional, more keystone anchor customers. As such, you know, we are exploring and in early stages of diligence on launching lending into that vertical as well.
Okay. That's all helpful. In terms of maybe just on, you know, the digital SBA initiative and the originations there, you know, a good quarter in terms of everything and loan sales. Just talk about, you know. In the release, you had talked about a couple quarters of gain on sale income. I mean, are you guys just thinking of putting it on balance sheet longer? Just kind of curious as to how you're thinking about the strategy on that side.
There's, you know, the gain on sale that we view is we are looking to make sure that we have sort of a minimum threshold of four times what we were in 2020 as an example, in 2021, and that's something that we would like to maintain from sort of a $6 million plus or minus type recurring revenue of gain on sale stream. We're currently originating at a pace of about $10 million a month in our traditional 7(a) business, and that feels like a good number to be building off of. We're continuing to hire more individuals to join that team to have an opportunity to grow in 2022 and 2023.
To date, you know, with the 90% guarantee sort of falling off a little bit potentially, you know, this year, we have still seen our gain on sale premiums at north of 10%. We were north of 10% this quarter. We were north of 10% in the second quarter. In a market where you're sort of in that 10%-12% gain on sale situation, it does make sense to continue to sell, you know, the guaranteed portion of our loan book. Having said that, over time, we may reevaluate this, but you know, that's more of a long-term decision.
Okay. All right. Thank you very much. I'll step back into the queue.
Thanks, Steve.
Once again, ladies and gentlemen, if you have a question, please press star one now. Again, it's star one on your telephone keypad. Your next question is from Bill Dezellem with Tieton Capital Management. Your line is open.
Thank you. I believe that you all purchased roughly $529 million of PPP loans in the quarter. If that's correct, what was the discount that you paid on those loans? Is there any difference in timing that you would anticipate for when those will be forgiven?
Sure. Good morning, Bill. So we purchased those loans at approximately a 1% discount, plus the, you know, we have the ability for the 1%, you know, interest income. Having said that, we thought this was an interesting opportunity in conjunction with the launch of the SBA direct forgiveness platform. This was a global FinTech who wanted to rationalize and move PPP, you know, off their books and put it behind them so they could focus on other initiatives. As such, you know, we had an opportunity to not only acquire the loan book at a discount, but we also feel we're gonna have an opportunity to forgive these loans at a faster pace than you would've seen in 2020. As such, there's an opportunity to recognize most of that, you know, gain in the next two quarters.
Sam, if we understand correctly, the benefit or gain to you all will be double the normal PPP as opposed to 1%. It will be the 1% plus the 1% discount or a total of 2%.
Well, the 1% interest income is on an annualized basis. The discount will be realized, but the interest income will be for however many months pro rata that those are on our balance sheet.
Understood, my error. Thank you very much.
Thanks, Bill.
Once again, if you have a question, please press star one now. Your next question is from Peter Winter with Wedbush Securities. Your line is open.
Good morning. It's very helpful to give the updated EPS guidance for next year. I was wondering, could you just provide maybe some big picture details maybe on the balance sheet income statement trends that you're thinking? Secondly, does that include share buybacks and potential for additional preferred stock redemption?
Yeah. Let me take a stab at that, and then I'll pass it on to Carla and Sam for any additional comments. Peter, we are looking at, like I mentioned earlier, earning asset growth and deploying some of our excess cash. That's going to be contributing, the continued non-interest income growth, continued net interest income growth, as well as continue to manage our expenses. We've been making all the investments that are needed to make for our future growth. I think the drivers of our revenue next year will be driven by maintaining our expense growth and getting the net interest income going from the earning asset generation capabilities. We've set the stage for that. We've set the foundation for that, and we are very, very bullish that we'll be able to execute on that. Carla, anything you would wish to add?
No, Jay, I think you hit the comment on non-interest expenses and that we're remaining very diligent on managing those expenses. As we think out longer term for 2022 and beyond, we're projecting no more expense growth than 5%.
Does that guidance include any share buybacks or potential for additional preferred stock redemption?
I think we would not include any significant share buyback. That'll be opportunistic because we think there might be a lot of volatility in the markets, who knows, over the next several quarters. We are going to be prepared to execute aggressively if needed for our share buyback. At the same time, we see revenue growth and deploying the capital, and that gives us a higher return. We will allocate the capital in that direction. We really, what we've done is that we positioned ourselves for capital allocation in the best possible way. We are very well positioned, in our opinion, to make the net income guidelines that we've given to you with our share buyback. Carla, do you wanna address the part of the question on the preferreds?
From a preferred perspective, what we're thinking about right now is as of December 16, our last series of preferred stock will ultimately reset and become redeemable. As we think about that longer term, we're considering potentially refinancing them or you know, redeeming them and refinancing them in 2022.
Okay, thanks. I hear you on credit quality, that you've got a positive outlook on credit quality. I guess I was a little bit surprised that you added $6 million to reserves. That's a little bit of an outlier versus other banks. Part of it is to support the consumer loan growth. I'm just wondering if you could talk about the rationale for that and anything else why you added to reserves and then maybe just what the outlook is for provision expense.
I can give a couple comments on that. First of all, during the quarter, we recorded $13 million of provision expense, and that was offset by about $7 million of charge-offs for a net $6 million increase in our ACL. We have a very disciplined governance process surrounding the estimation of our ACL. When we looked at mostly the consumer installment portfolio, just the change in the mix there, we had some increase in the provision expense, but no emerging trends. The guidance that we've given is still within that $10 million-$15 million per quarter. We felt this quarter was right in the middle of that previously reported estimate.
Great. Then just my last question. That $6.2 million, the make-whole fee to a single high deposit customer, can you just provide a little bit more color on that and why it's transitory?
Yeah.
So we-
Let me take that on. Two years ago, a year and a half ago, when there was a very different environment, as part of our hedging strategy, we accepted a large deposit from a national company with a fixed rate for a five-year period. We just didn't think in this kind of an environment that it made any sense to keep that on our balance sheet. Plus the fact that we have a tremendous growth rate in non-interest-bearing deposits, and that we could get rid of it very effectively and not really affect on our income statement. It was the right move for us, and that's gonna help us with our margin. It's already helped us with our margin. We think it's the right thing to do.
Got it. Thanks. Congratulations on a really nice quarter.
Thank you so much.
Your next question comes from the line of Frank Schiraldi with Piper Sandler. The line is open.
Morning.
Morning, Frank.
I just wanna make sure I have the, you know, loan growth expectations right. I think in the last quarter, you talked about mid-to-high single digit loan growth excluding PPP and warehouse. Now, with, you know, some more, I guess, growth in multifamily, just wondering if that still holds true and any thoughts for, you know, as we head into 2022.
Carla, you wanna take that?
Yes, that does still hold true. As Sam and we've talked about, we have record pipelines across all of our lending verticals, and we're expecting most of that to come into the fourth quarter. Maybe some of that will come into the first quarter of next year. Right now, still on target to hit those growth expectations.
Any thoughts on 2022? I know, you know, it's still 2021, but just given the teams you've added and everything you're doing, it seems like there could be some acceleration in those expectations.
Yeah. At this point in time, we're waiting to see what comes through in the fourth quarter. Then as we complete our strategic planning process later this year, early next year, we'll come out with more guidance in 2022 for growth expectations.
Okay.
On our January call.
Okay. Then just lastly on efficiency, wondered if there's any color you can provide. Jay, you already talked about, you know, these investments having been made for these new business lines you're entering. Wondering if you could either, you know, Carla, talk about expense growth or maybe more easily, it's more easy to talk about, you know, core efficiency levels that you anticipate for the bank.
Yeah. A couple comments there, and I think we talked about it with the addition of the new team. Some of those were added very late in the third quarter. Some will come through the fourth quarter. Not fully baked into our run rate at this point in time. As we mentioned, we remain very diligent about managing our expenses as we strive for operational excellence. We will be very diligent in controlling those expenses in 2022 and beyond. As we go through that strategic planning process, again, we will continue to invest in our future and new technology with the balance of managing those expenses.
Okay. If I could just sneak in one last one on buybacks. Jay, you mentioned, you know, it sounded to me like you might be more opportunistic, just given some of the volatility you think you could see in the marketplace. Is it safe to assume maybe at these levels, it's more about keeping powder dry and then, if there is, you know, volatility in the market, being opportunistic there?
Frank, yeah, you're right. Because we are very focused, and we don't wanna take our eye off the fact that we want to improve and have best-in-class TCE ratios and overall capital ratios. Unlike majority In the banking industry who are really struggling to see any kind of revenue growth, we are not struggling to see revenue growth. You know, we are sort of a very unique, very few banks like us, you know, who are seeing such opportunities.
That's why from a capital allocation process, we wanna make sure that, we allocate the capital in a manner that is most effective from a safety and soundness point of view, that's most effective from the shareholder value creation point of view, and that we use all types of capital, to support our growth. We are not backing away from our targets, for TCE ratios, to be dramatically higher than where they have been, and we wanna maintain those.
We are conservative, and we've been building our reserves like we shared with you, and we wanna have a fortress balance sheet. That is much more related to shareholder value creation than constant regular buybacks to support earnings per share growth. Revenues, in our opinion, must support earnings per share growth with buybacks whenever there is an opportunity. That's our philosophy.
Great. Okay. Thank you for all the color.
Your next question comes from the line of Michael Perito with KBW. Your line is open.
Hey, good morning everyone.
Hi, Mike.
Thanks for all the color thus far. Obviously a lot of my questions have been asked and answered, but I did have a couple additional questions on the CBIT launch I wanted to drill down on. I guess number one, I would appreciate any color around how you guys are thinking about kind of the volatility of the deposits that come onto the platform and how that kind of impacts your ability and your appetite to deploy them, whether it be in cash, securities or loans, you know, over time as they season. Would love a little bit more color about how you guys are thinking about that dynamic, because I know, you know, the volatility, you know, quarter to quarter, week to week can be pretty high with some of the other banks that are doing something similar to this.
Sure. Absolutely. Good morning, Mike. Happy to take the question. I think that some of the other banks are seeing payments volatility. They're not necessarily seeing deposits volatility. They're seeing more velocity, which makes sense. As there's market volatility, there's more transactions, you know, between some of the institutional investors. First and foremost, we have enough. You know, our loan to deposit ratio is just slightly above 60% sitting where we are today, ex-PPP. So we have a tremendous amount of cash to continue to deploy to fund our even sort of a, you know, opportunistic loan growth, you know, above what one would expect in all of 2022. That's the first point I would make.
That's just important to note as we think about the ramp-up of this business. The second thing that I would say is that, you know, being a fast follower in the business, we have the luxury, the benefit, of choosing some of the most institutional but also key anchor clients, who have grown a lot in the last, you know, couple of years since they first started payments-based banking relationships. We have an opportunity to be very selective, especially in the beginning as we program the beginning of the foundation of the payments platform. I think the two of those combined give a lot of should give a lot of medium-term comfort.
From a long-term perspective, you know, we talked about a strategy of investment securities being on standby for loan growth. That helps our short to medium-term profitability. We'll be able to disclose all of the types of statistics and disclosures that will help give you comfort that these are sticky deposits as opposed to me just telling you today that they will be sticky.
Yeah. No, I mean, I think the question wasn't more so that whether they're sticky or not. I think it's just, you know, if there's a lot of volatility in the movement, it can just be a little trickier to deploy. I think, you know, generally speaking, the deposits, you know, seem to be pretty operational in nature, right? Which should make them sticky, you know, over their lifetime, I would think.
That's right. Yep, absolutely.
Yeah. Okay.
I think that's one thing to just mention.
Thank you. Oh, sorry. Go ahead.
When there's market volatility, the customers actually fund more in deposits. Higher volatility actually leads to higher deposit balances, which is counterintuitive when you think about it.
Right. On the digital asset side you're talking about specifically, right?
Correct.
Correct. Yeah. I apologize if you guys clarified this, but the $1.5 billion of digital asset deposits, that wasn't. It was kind of. I was a little confused with the way it read. That is just kind of operational deposits that opened up with Customers Bank, right? That's not necessarily funds that were opened up specifically to be on the CBIT platform which launched, you know, post-quarter end. Is that right or am I misinterpreting that?
No, it's actually the latter. They joined the platform in anticipation of the real-time payments platform launch. They started opening up DDAs and funding accounts prior to the launch.
Got it. Okay. All right. Just lastly, as you. You know, I think the obviously with Silvergate and Signature are very digital asset focused, but you guys are not kind of, you know, limiting yourselves to that, you know, in terms of only focusing on the CBIT platform there. I was just curious though, I mean, is the digital asset space kind of likely the most nearest growth opportunity. Was curious if you were willing to provide a little bit more color around what other use cases you think the platform could have that maybe we could see some momentum in, you know, inside the next 12 months versus, you know, kind of multi-year build-outs.
Thanks for that question. It's something we didn't cover. Firstly, there's a maritime client that's part of our soft launch to give you perspective. We've already brought a new corporate client that was not part of Customers Bank already, you know, that's a multi-billion-dollar customer. There's an opportunity while the account balance is not very high today, there's a tremendous opportunity as counterparties come in. Second thing that we've done is, you know, we have about 10% of our deposit customer base that is already engaged and in discussions about either learning more or joining the CBIT platform.
Specifically, $375 million of that is in process of integration and onboarding to eventually join the platform in the next quarter or so. That doesn't increase our deposit, but it just talks about the engagement. Obviously those folks will need counterparties to be joining Customers Bank as well to make the payments platform successful.
Got it. Okay. Very helpful color, Sam. Thank you. Thank you for all the other insights. Appreciate it.
Thanks. Bye.
We have completed our hour. Are there any final questions? Please press star one now.
Well, if there are no other que-
I, uh-
Sorry, go ahead.
Apologies, sir. Our last question is from Steve Moss with B. Riley Securities.
Just a couple of follow-ups here. Just in terms of the PPP fees, just kind of curious on the disclosure of the PPP fee total. Does that include the $529 million purchase, or does that exclude?
Yes, it did. It does.
Okay. In terms of just the timing of the PPP fees here as we think about realization, looks like, you know, you had really good acceleration into quarter end. Don't think we've talked necessarily about how to think about, you know, what you think could be paid down here in the upcoming quarter or two.
Sure, Steve. We unfortunately don't have a great sense. What I can say is that you can tell there was a big surge, you know, 70,000 loans, you know, forgiven, in just 7 weeks, after the soft launch of the direct forgiveness platform. Having said that, as you can appreciate, you know, we're a couple of weeks into the quarter, and the pace has definitely slowed down. We're continuing to engage in digital marketing campaigns and data with those customers, understanding who has started an application, who has questions. What's really fascinating, this also translates into our cross-sell opportunities, is we have a 70%-80% email open rate, for these customers. Beyond the forgiveness, there's an incredible, you know, upside opportunity to continue to sell products and services into these customers.
Right. That ties in to my next question, Sam. In terms of just the digital SMB, you know, you guys highlight the pilot launch here in the first half of 2022. Just kind of, I mean, I see the 315,000 in unique customers, but kind of curious, you know, how you think about, you know, the potential size, of those customers, and if you could size it up in any way, kind of frame out how to think about the potential of that initiative.
Yeah. It's a good question. It's something that we're gonna have to share more over time because we're also learning about the customer and customer health. We've actually gone so far as to partner with third-party data providers to try to triangulate transaction data for many of these merchants. We're also in some cases treating the business owner as an individual, say for a personal loan product. First and foremost, the demand that we think is gonna be top of mind is gonna be the digital 7(a) product, which is what we prioritize first. Over time, we'll continue to share more information. We just wanted to take this opportunity this quarter to share what the gross, you know, customer pool looks like, which is very unique of a bank of our size.
Right. Okay. Great. Well, thank you very much and a great quarter.
Thanks, Steve.
That concludes.
Well, thanks, everybody. Sorry.
Apologies again, sir. That concludes the question and answer session. I'll now turn the call back to Jay Sidhu, Chairman and CEO of Customers Bancorp, Inc., and Executive Chairman of Customers Bank for closing remarks.
Yeah. Thank you very much, everybody. Really appreciate your interest in Customers Bancorp. If you have any further questions, please don't hesitate to call any of us. Thank you and have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.