Customers Bancorp, Inc. (CUBI) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon, and welcome to the Customers Bancorp, Inc. update on BMT divestiture. At this time, I would like to turn the call over to Mr. Jay Sidhu. Please go ahead, sir.

Thank you very much, and good afternoon, ladies and gentlemen. Thank you so much for joining us this afternoon. We are really delighted to be talking about a very important milestone. But before we get into that, I'd like to ask Bob Ramsey to read the forward-looking disclosure.

Thank you, Jay, and good afternoon, everyone. Thank you for joining our call. 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 turn the call back over to Customers Bancorp's CEO, Jay Sidhu. Jay, the floor is yours.

Thank you very much, Bob. And ladies and gentlemen, today joining me besides Bob Ramsey also is Carla Leibold, our Chief Financial Officer; and also Sam Sidhu, Customers Bank's Chief Operating Officer. Like I mentioned to you earlier, we are really delighted to share with you that this morning, we executed a definitive agreement to divest BankMobile Technologies, Inc., the technology subsidiary of Customers Bank, for an enterprise value of $140 million. And this amount was structured as approximately $100 million in equity and the rest in debt with a debt that is expected to be paid off in a few years from cash flow being generated by the independent company, BM Technologies Inc., the new name of BankMobile Technologies. BM Technologies Inc. will be -- is expected to be, excuse me, trading on New York Stock Exchange as an independent company. On our books right now, BankMobile Technologies, Inc., a subsidiary of Customers Bank, is being carried as an asset of $85 million with liabilities of approximately $60 million and has equity of $25 million. We'd like to go over with you 3 items regarding this transaction this afternoon. I'd like to share with you a little bit about the background of BankMobile Technologies and why are we doing this. Number two is very important that I'm going to ask Carla to share with you, which is some more details about what we are divesting. But more important is its impact on capital and its impact on earnings of Customers Bancorp, which are all positive. And number three is to discuss with you the process that we followed with the help of investment bankers and our various advisers to get us to this position. So let me address number three, which is the process, first. So we invited Raymond James to be our financial adviser as well as our divestiture lead investment banker for this project. And Raymond James, as a result of their outreach, had invited and executed slightly over 50 nondisclosure agreements and provided the confidential information memorandum to about 50 different companies. The company did not want -- or Customers Bancorp did not want to own equity in a nonpublic company, and we wanted to be sure that this divestiture was in the best future growth opportunities available to BankMobile Technologies. From these 50-or-so opportunities that Raymond James identified, we narrowed -- they narrowed it down for us to 3 best bidders a few months ago. All of these bidders were given full opportunity to conduct a thorough due diligence and meeting with the management of BankMobile Technologies. Customers Bancorp and MFAC, when they were 1 of the 3 bidders, both institutions decided to form special committees of the Board of Directors. Customers Bancorp Special Committee really went into full gear in April of this year to review this possible transaction. Customers Bancorp Special Committee is chaired by Dan Rothermel, the lead Independent Director of Customers Bancorp as well as Customers Bank. Dan and the Special Committee of Customers Bancorp independently interviewed few investment bankers as their advisers and appointed a senior M&A lawyer from Duane Morris LLP as their independent council. Boenning and Scattergood was selected by them to be their financial adviser as well as the company in case it got to the final state to be providing a fairness opinion to the Special Committee. Dan informed the Board last week that the Special Committee held at least 15 committee meetings as part of its deliberations before making their unanimous recommendations to the full Board of Customers Bancorp and Customers Bank to move forward with Megalith Financial Acquisition Corp. Board members Bhanu Choudhrie, Sam Sidhu and I completely recused ourselves both from Customers Bancorp, Customers Bank as well as from Megalith Financial Acquisition Corporation Boards and we did not participate in any deliberations or wording at the Board level. Both Special Committees, like I mentioned earlier, unanimously recommended moving forward with this transaction and no Board member from either side voted against this transaction. The proposal from MFAC clearly had the highest and the best overall bid for BM Technologies. In addition to Duane Morris being the -- our special council's independent council, the company also used Nelson Mullins and Stradley Ronon as the corporate counsel in connection with this transaction and had them actively engaged to help with all the discussions. We, in addition to all the related parties who serve on the Board or executive management of Customers Bancorp or Customers Bank and expect to continue doing so, have given up all their management related from both in Megalith Financial Acquisition Corp, with that value being transferred to Customers Bancorp. So this is what I thought it would be important for you to know how Customers and Megalith handled the related party transactions. Now let me discuss a little bit about BankMobile's overview and why strategically we are looking and we are delighted to be involved in this transaction. So about 5 years ago, from an idea that digital banking might be becoming a whole lot more popular, branch banking might be becoming a whole lot less desirable and that overdraft charges of mid- to high $30 billion each year is what's subsidizing the inefficient branch networks of the banks, from that concept, BankMobile today, from 0 to now, has gathered about $700 million of no interest or very, very low-cost deposits and noninterest income of $60 million last year. We believe that unlocking this value of BankMobile Technologies and letting it take full advantage of all the opportunities available in the digital banking space and in the fintech space as a company with preferably public currency would be extremely attractive for not just our shareholders, but also the shareholders of BankMobile Technologies. And this would really help BMT perhaps have strategic options available for partnership and other growth initiatives in the fintech space. At the same time, we believe that this divestiture would simplify the end -- the story of Customers Bancorp would have management focus on its core banking, which is to continue to build a high-performing business bank. We completely recognize that deep value investors, like the ones who are mostly invested in the banks in our peer group, rightfully so, put no value on innovative start-ups or other types of start-ups in the banking business, are now very focused on coming up with tangible equity ratios and asset quality of banks. So inside of Customers Bancorp, BMT or BankMobile Technologies may have actually had a negative impact on Customers Bancorp's value in our opinion. But we know there was incredible value being created by the BankMobile Technologies. And in fact, what you have seen over here is its value turns out to be about 30% to 40% of the market cap of Customers Bancorp today. And -- but it was very difficult for investors or for the analyst community to evaluate what that value would be and how to put any kind of value on it. So that is the reason why we've decided that it would be to get the highest bidder have the best structure possible to create an opportunity for BankMobile Technologies or what we were now going to be calling them BM Technologies because they'll have nothing to do with the bank charter and what could they do and which is the best structure and the best way for us at Customers Bancorp to monetize this. And we, I want to assure you, have absolutely no intention of having any control or any influence by Customers Bank or Customers Bancorp or any interlock of management, interlock of Boards, that this truly should be an independent company. There will be no Board seats demanded by Customers Bancorp and there will be no Director or Executive Officer of Customers Bancorp serving in any capacity at BM Technologies. And all agreements will be all at arm's length agreement because we believe there is a very considerable opportunity for bank -- for BM Technologies to grow itself as an independent company totally independent and not an affiliate of Customers Bancorp in any way. So with that kind of a background, I'd like to now hand it over to Carla to discuss with you the financial impact of this divestiture. Carla?

Thanks, Jay, and good afternoon, everyone. We thought it might be helpful to discuss the accounting treatment for this transaction and what it will likely mean to CUBI upon closing. I think it's important to note that there are potentially 2 different accounting scenarios that could occur on day 1, and the outcome is largely dependent on the amount of cash that remains in the trust to be used as part of the transaction. Accordingly, the actual accounting for this transaction will not be known until closer to the closing date and after all appropriate analysis and considerations have been made. With that said, let me quickly walk you through both scenarios. The first scenario is that CUBI could own 50% or more of the equity in the newly formed BankMobile Technologies company. That would result in CUBI continuing to consolidate BMT and recording an increase to APIC for the amount of cash received in excess of our cost basis in the noncontrolling interest. The second scenario is that CUBI owns less than 50% of the new entity and has given up effective control of BankMobile Technologies. In this scenario, which we think is the more likely scenario for all the reasons Jay mentioned, CUBI would deconsolidate BMT and move to the equity method of accounting. As a result, we would derecognize the net assets in BMT, which is expected to be about $25 million, and record on our books the fair value of the consideration received, which is about $100 million before expenses, with the excess recording as gain on sale. Going forward, we would recognize in earnings our share of BankMobile Technologies' net income based on our ownership interest. Assuming deconsolidation and no controlling interest, which is fully our intent, we are expecting an increase to our TCE ratio of about 35 to 40 basis points and an increase of about $1.50 in tangible book value upon closing in fourth quarter 2020. We are not expecting dilution in our EPS as a result of the transaction and are still projecting $3 of core EPS in 2020 and 2021. Longer term, we are confident that we can make up any potential dilution and are still on track to achieve $6 of core EPS in 2026. And with that, Jay, I'll turn it back to you.

We'll kind of try to update you on some happenings at Customers Bancorp. Number one is, for those of you who are wondering when the digital world is becoming more and more relevant in the banking industry, why are we now divesting BMT...

Mr. Sidhu, this is the operator. Your line has become very faint. [Technical Difficulty]

So we're maintaining the right to use the BankMobile Technologies IP, and we have to compete with BM Technologies at all -- in any of their lines of business. But at the same time, we intend to use the technology for direct-to-consumer type of operations as needed by Customers Bank. So that is number one. Number two update for you is on PPP loans. And you know that we were at $4.95 billion close to $5 billion in PPP loans, and I'm pleased to share with you that when Congress extended PPP, we are now at $5.3 billion loans. So we've added a few more million bucks to our revenues. And if Congress does extend it to PPP 3, that would give us a huge opportunity to continue to build our tangible common equity through a beautiful way, in our opinion, in a nondilutive way to build tangible common equity while we're helping thousands and thousands of businesses as well as saving millions of jobs. So we are well positioned and we are really following closely all the opportunities and all the things that are happening in Washington. And we hope over the next couple of days, there is a little bit more clarity and -- about the future role of PPP in helping stabilize the U.S. economy. Number three update is on deferrals. It was only a couple of days ago that we shared with you on the deferrals, and I'm very pleased to update you on where do we stand on the deferrals from the consumer business point of view. Our consumer deferrals today, in the last 1 week, they are down 17 bps from 1.82% that we shared with you down to 1.65%, and our delinquencies are better. So we continue to be pleased with that. And this happens to be from our -- for our purchased consumer loan portfolio. And for -- 30% or so of our consumer loan portfolio was directly originated by us. And in that category, we are pleased to share with you that our deferrals are only 42 bps, and that is down 17 bps in the last couple of days. As far as commercial deferrals are concerned, we continue to see that gradually coming down. And August is a reasonably big month for us, and we are on target for anticipated reduction and in line with what we shared with you and -- on our Q2 investor call. Number three -- or rather number four update is there is no question about it, that many of the banks are very focused on cutting their expenses and cutting their branch networks, those kind of things. We think that is a smart move that others are making. As you know, for our bank, which is $17 billion, but the core bank is about $12 billion in size. This $12 billion bank, we have over $10 billion in deposits. We only have 15 branches. Still, we will be consolidating about 20% of our 15 branches and reducing that branch network from 15 to perhaps as low as 12 within the next 6 to 12 months. This should not have any material financial impact. In fact, it's effectively using technology to -- it's reallocation of resources. So all our offices will have a technology-based delivery channels, and we will be experimenting and opening up nonbranch offices using total technology to attract and service the consumers that we are attracting towards fintech partnerships. And last item I'd like to just share with you is our belief, especially in environments like this, it's total capital and balance sheet accretiveness strategies that, in our opinion, are absolute max in these uncertain times. So from PPP loans, what have we generated so far? About $115 million in pretax income. And that is already in our hands, the money, and it's just going to flow into our income statement over the next couple of months. From BankMobile Technology, as you heard Carla talk about, it's about a $70 million pretax gain as well as [indiscernible] our intangibles on our balance sheet. So that's why we see [indiscernible] tangible common equity-to-asset ratio as well as accretiveness to our tangible book value. And as you all know, these banks -- or almost lots of banks are raising capital for defensive purposes. While we saw it -- the need for it last year. So in the third and the fourth quarter, we raised $100 million of subdebt. We raised that at less than 5% at cost. We were lucky. And so we are very, very comfortable with our capital position, especially now that we've raised common equity through our own initiatives to supplement the debt capital that we had raised. So we've added $100 million of subdebt to our capital in the last 9 months, but it was done last year. And we are obviously not going to be calling out $215 million of preferreds until the economy improves. So with that sort of thing, at December 31, 2020, our estimated Tier 1 capital is expected to go up from 8.8% to between 10.3% to 10.5%. So with that, operator, will -- please, if you can open it up for any questions anybody has.

[Operator Instructions] Our first question comes from Steve Moss with B. Riley.

I guess perhaps starting with the process here in terms of as divestiture goes on and what you're retaining with BankMobile is obviously 2 parts. You get access to the technology but also the deposits. Just kind of curious, how do you think about the BankMobile deposits longer term? Do they remain on balance sheet? Or is there an expectation that it will go to maybe a Durbin-friendly type bank, if you will?

I think, Steve, that's a good question. I think we are obviously going to be very interested in BM Technologies expanding their relationships with other banks and looking at the Durbin-exempt banks. But for right now, for a 2-year period, we have made available to them to make sure that they can continue to attract new customers as well as continue to serve their existing customers, that we would make some hold on the Durbin. And -- but then we would retain all the deposits. So if as a strategy for BM Technologies to attract new bank partners they would like to buy deposits, we would definitely certainly entertain and assist BM Technologies in entering into those relationships to try to make it a win-win for everybody. So -- but in the foreseeable future, at least the next couple of quarters, we should expect those deposits to continue to grow and stay on our balance sheet.

Okay. That's helpful. And then in terms of the -- I guess, the other thing we talked about, white label partnerships -- or looking at additional white label partnerships. Is there any expectation of one being added in the next 12 months that would come on to your balance sheet? Or -- just kind of wondering what the thought process is there and the status of that?

Yes, Steve. I think we don't want to speak -- I don't want to speak on behalf of BM Technologies. And as you know, they are going to be in registration. They'll be filing their registration statement with the SEC this month. And I think I would encourage you that they gave a lot of information -- good information on their call. And they outlined all their opportunities and their -- who they are talking to and those kind of things. So I would please request that you look at their investor deck and you listen to their 25-minute presentation, and that will answer all your questions.

Okay. And then, I guess, my last question, just curious about the thought process around divesting your remaining stake. Just how do you think about the time lines of that and maybe any price sensitivity you may have? Just kind of curious.

Steve, one thing I can assure you is we are not going to destabilize the valuation of BM Technologies. Obviously, this is a win-win way that we structured it. And we wanted cash and we wanted a public currency that -- and that's essentially what we got. So what we would do is we will take a couple of quarters. We would look at every single opportunity in a nondisruptive way so that the customers of BM Technologies are not disrupted in any way and our equity holdings are not negatively impacted. And the shareholders, investors who would invest in BM Technologies, the different kind of investors than the value investors we have today, that they can be sure that we are partners with them who are as investors, not as management or influencers or people who will have a role and try to exert influence over the BM Technology at all. So once again, we -- by not being engaged on their Board, by being totally hands-off and letting BM Technology management run the company, it actually is the right thing to do and it opens opportunities for us to, in a very orderly fashion, divest our ownership over a period of time. But I cannot tell you exactly which quarter and when and at what price. Highest possible price would be our objective.

Our next question comes from Michael Perito with KBW.

I want to apologize. I don't know if it was my end, but some of the commentary in the prepared remarks was breaking up a little bit. I was wondering if you could just maybe rehash kind of what the day 1 impact of the sale will be fourth quarter to the CUBI balance sheet. And also maybe comment -- because I felt that you guys had a pretty sizable NOL from the Religare investment. And is that true? And will that help kind of bolster the after-tax impact of the gain also? Just curious if you could maybe provide some more color there. And I apologize if it's a rehash, but that would be great.

No. No. No. I'm so sorry if it wasn't very clear. Both Carla and I, unfortunately, are speaking from cell phones from our various different locations. So Carla, would you like to take this question?

Sure. Can everyone hear me? Can you hear me?

Yes.

Yes. Yes.

So as I mentioned in my prepared remarks, what we are expecting is a loss of control and a deconsolidation. So in that event, we are expecting a pretax gain of about $70 million. And Mike, you are correct that there were previous capital losses that we could take. And in the event we would now have a tax strategy in place capable of generating capital gains, we could utilize those capital losses to reduce any tax liability. However, just considering the, I'll say, the day 1 gain from deconsolidation, we are anticipating an increase in our tangible book value by about $1.50 a share by the end of the year and in our TCE ratio between 35 and 40 bps.

Got it. Okay. Very helpful. And then so, I guess, 2 quick follow-ups. So that $1.50, depending on your tax treatment and what you do there with that NOL, that could theoretically be higher? And I guess, I'll start there.

Yes. You're correct. It could theoretically be higher than that.

Okay. And then in terms of the shares that you guys will have, is there any unrealized gain or anything like that, that flows through the balance sheet? Or will that just be held until it's marked at the point of sale at some point over the next couple of years when you guys divest it for good?

Yes. So it will be recorded on our books at its estimated fair value, which was the expected $10.38 a share, and then it will not be marked to market up until the point where we own 20% interest. At that point in time, once we fall below 20% interest, we wouldn't have any significant influence, and then it would be mark-to-market.

Got it. Okay. And Jay, maybe a big picture question for you and following up on that. So I mean, you're unlocking some of this capital now. Obviously, the hope being that there's more to unlock in the future. But with the hands-off approach on BMT going forward, I guess, how do you see kind of use of proceeds here? I mean what are some of the top priorities we should be thinking about for the kind of the community commercial Customers Bancorp going forward with BMT now kind of not fully, but mostly in the rearview mirror from a -- at least from a human resources perspective especially? But some color there, if you want to provide any at this point.

Yes. Sure. Sure. Mike, we believe that we both impact Customers Bank from a business banking point of view as well as when we had BankMobile from a consumer banking point of view. We were taking sort of more of a forward-looking approach and looking at unique strategies that are emerging and how can we really differentiate ourselves and create a better bank for the future. And so that's how -- what's been driving. And now we are looking at -- that we will have about 15% to 20% of the bank and consumer businesses, and they will be all technology -- principally technology-related businesses. And as far as our business bank, there would be approximately 80% of our assets. And that will be combined with high cuts supported with high tech. We are going through a very significant transformation inside of our company. The digital transformation to become -- make ourselves much more efficient and also make a real difference when the customers will say that, "Hey, it's different and it's so much better than dealing with another bank," point of view. To give you an example, we envision within the next couple of months that all our larger commercial customers over videos will be talking and being a part of our Credit Committee decision-making process. And that itself, whereby smaller banks have an advantage or people with decision-making authority having an advantage in the past by being physically present in different geographies, well, now in the digital world, we will be present and we will interact between decision-makers and all our customers live through digital means and have them engaged in preparing and looking at our credit information memorandum. That is the kind of technology that we are developing, and we've already invested in that in our partnership with OakNorth. So you'd -- more to see is -- as far as short term is concerned, you should expect us to report GAAP earnings of at least $3 a share this year. You should expect us to report GAAP earnings of at least $3 a share next year. And we are totally committed, if it's humanly possible, to report GAAP earnings of $6 in 5 to 6 years in time frame depending upon how long this coronavirus lasts. And you should expect us to always be operating the company in greater than 10% Tier 1 equity ratio and we will -- we just want to build a company that is trading at market multiples, not at discount to market multiples. We really hope that that's what happens here.

That's helpful, Jay. And then just 2 more, if I could, real quick here. Just if I think back to kind of prior attempts to divest BankMobile, it seems like 2 hang-ups were one -- I think, one, Flagship had trouble raising some capital. And then two, the regulatory approval the last time. But if I'm looking at this transaction, I guess, it seems like based on the commentary and the deck the bank put out, that the pipe that MFAC needed to raise is largely already committed. I guess I just wanted to, one, confirm that, that was true. And then, two, with the deposits and assets not moving and no bank charter being involved here, it would seem like from afar, at least, that the regulatory approval process would be a little less onerous, I guess. Do you think that's a fair comment at this juncture given what you know today?

Absolutely fair comment. If you recall, Mike, we were trying to raise capital. You're also right in Flagship was unable to raise enough capital to get Customers Bancorp out in a fair fashion. And when we were doing the spin merge, the Durbin regulatory issue became an issue, whereby the regulatory view was where if our shareholders own 25% of another bank's shareholder, that bank would be considered an affiliate for Durbin purposes. And that created a problem. So that's why now what we are doing is separating the banking business from the technology business, and you know that there are some rules. Regulators do not like bank subsidiaries to be operating nonbanking businesses. So we -- that's the only hurdle we have to cross. And we don't envision any issues in our meeting that hurdle because we have no intention of becoming a venture capital fund at the bank level or a private equity fund or a hedge fund owning equities at the bank level. None whatsoever. So we do intend to simply bring our equity position down to whatever level it makes sense from a regulatory point of view. And we have no intention to have any influence other than helping, wherever needed, BM Technologies to succeed. So the only regulatory hurdle for Megalith Financial Acquisition Corp is SEC approval, and they don't expect any issues there at all.

Okay. Very helpful. And then just lastly, to follow up to one of Steve's questions. The agreement that you're keeping the deposits on CUBI balance sheet, which, I think, makes sense from a business continuity standpoint. But I guess, what's your -- kind of the economic arrangement of doing that? I mean are you guys making up BMT whole for kind of the lost Durbin money that they would otherwise be earning at a sub-$10 billion asset bank? And then secondly, just a follow-up to that, is there any impact at all to any of the -- whether the T-Mobile partnership or the newly announced Google partnership or anything on the disbursement side, is there any impact or clauses in any of those contracts from the sale that we should be mindful of?

Let me answer the last question first. No, nothing. Our partners are well aware of the divestiture. Divestiture also helped T-Mobile because their economic sharing model is dependent upon interchange, so revenues being shared. And so -- and with Google, Google was -- Google Pay is well aware and -- when everything was being negotiated and -- with them. So we don't expect any issues over there. And one thing I didn't answer, I forgot. In the earlier part was you were asking about the $20 million of cash that's already been raised. Yes, that has already been done and confirmed. And you know the advisers were KBW for Megalith for that. And so what was your other question with Steve? I think...

Just the kind of the economics of the relationship with BankMobile -- yes.

Yes. Yes. Sorry. Sorry about that. And yes, we are making BankMobile whole for a maximum of a 2-year period ending December 31, 2020, on the interchange. But again, BankMobile -- BM Technologies, I should say. Sorry, I keep using the wrong lingo sometimes. But BM Technologies is incented and will be helped by us to finding other bank partners. And that's why as an inducement, we would be willing to, if they are interested, negotiate with them the sale of our deposits and/or any loans, if that's what they would like. As you know, if any -- for any bank partner to enter into a relationship with BM Technologies, if they do get the deposits from us at a reasonable price, it'll be accretive to their -- potentially accretive to their earnings right away. And so that's why that's the relationship that we have. It's an arm's length relationship right now. We think that's the best way to do it.

Our next question comes from Russell Gunther with D.A. Davidson.

Following up on the TCE guide that you guys provided, the 35 to 40 basis point increase. With the earnings call, there was a near-term range of 7.5% to 8%. And so is this -- is that accretive to that original guidance of 7.5% to 8%? I just want to make sure I'm clear on that.

That is correct.

Okay. Perfect. And then in terms of the timing of the deal close, this is a fourth quarter event. And so, one, I just want to make sure I have that right. And two, the kind of $3 a share that you have put out for 2020 and 2021. I just wanted to confirm that, that is also a core number and doesn't reflect any of the original gains here. Do I have that right as well?

I don't know what you mean by original gains here, but those would be the GAAP earnings numbers, yes.

Got it. Okay. And then last question was from the deck earlier this morning in terms of BankMobile projection for 2020 that has about, I think, a $7 million net income loss. And I'm just curious what that contemplates for the back half of the year.

Accounting for BM Technologies, you should talk to them. It's going to be different than the way BankMobile division financial statements were presented by us because we are a bank and BM Technologies is not a bank. So they are being measured by EBITDA and revenues, and we were obviously being measured by net income and so I cannot comment on their financial statements. I actually haven't paid any too much attention. But Carla, you can comment. But my suggestion would be that it's better for us not to, that you should just call Bob Ramsey and -- if you have any questions regarding BM Technologies' financial statements.

Our next question comes from Bill Dezellem with Tieton Capital.

Would you please talk to the Google relationship and how that is similar and/or different from the T-Mobile relationship?

The Google collaboration or partnership is rather different from T-Mobile's. In T-Mobile's case, it is really offering and developing the technology and everything in response to the request from T-Mobile to create a digital bank for them. In the case of Google, it is using Google's technology to help BMT and the deposit holder of BMT's partnership, which happens to be Customers Bank still today, to get higher penetration among those student customer base. And at the same time, when Google offers through Google Pay the different bank partners that they have, like Citibank and BBVA and BMO, we will be listed as one of those banks also that would be their offering. So that has a lot of value coming in through the Google partnership. So I hope that's clear that they are 2 very different types of partnerships.

And so what will Google be doing to increase the penetration into that student market? What will be the appeal that BankMobile on its own is not doing besides the name and the name recognition, which in and of itself could be quite meaningful?

Yes. But I'm sorry that it's not -- it's -- there are certain things we can't really talk about. And you should -- please be a little bit patient because I believe BM Technology announced that it's not going to be operational until next year. And all we can tell you is that all of us who have collaborated with Google, Google are very excited about the opportunities in this partnership, what that will bring, and it's a lot more than Google needs.

[Operator Instructions] Our next question comes from Frank Schiraldi with Piper Sandler.

I also -- I wanted to follow up on your comments, Carla, about the tangible book accretion. You mentioned there were 2 scenarios, but you thought the second was more likely. Under the consolidated scenario, just wondering what those -- what that accretion would look like.

Yes. So under that scenario, we would -- just walk you through the accounting, we would record an additional APIC for any excess consideration of our cost basis in the net assets. So assuming we have 50% and received, say, $30 million in cash, we would have a pickup in APIC close to $20 million. And so you can use that amount to calculate the effect. But again, we're pointing to the likely scenario being the loss of effective control and deconsolidation.

Right. Okay. So $20 million under that consolidated and then just add that into tangible book and tangible common equity.

Yes.

What was the main trigger again that would get you to the second scenario? Why you thought that was much more likely?

It is the loss of control, so below 50% interest and not maintaining effective control. And as we stated, longer term, our goal is not to have effective control for all the reasons that Jay mentioned earlier.

Okay. So that's just an accounting call. And you guys feel like it's going to be the second -- the latter rather than the former. Okay. And then also, I just want to make sure I understand on the deal price. To the extent you do get some redemption from -- does see some redemption. Does that reduce -- I guess, it does reduce the cash consideration. Does it reduce the total consideration to BankMobile? Or is that made up in some other way if the cash consideration falls?

No. It doesn't reduce the total consideration.

Okay. So does it reduce the cash consideration then and then you'd make up the rest in stock? How does that work?

That is correct. And the way -- Frank, the way we are valuing it inside our company, Frank, is $100 million equity, $40 million or so debt and then we get the IP at no royalty fees for a 10-year period. So Carla and her team will put a value on their IP. So it's really -- in our estimate, it's at least $150 million valuation subject to confirmation on the value of IP free for a 10-year period.

Got you. Okay. And I just want to follow up on Russell's question on the $3 per share. It seems cleaner next year certainly what BankMobile divested of. But in terms of the 2020 number, Carla, did you mention that the -- under the equity method, you'll get that gain through the P&L? And then I assume that's not part of the $3.

Yes. So under the equity method, our percent ownership interest, we would recognize that proportionate amount of BankMobile Technologies -- BM Technologies getting a loss through our income statement. And so you were asking about 2020. There wouldn't be a material impact for that. So it's factored into our number.

I'm sorry. So the $3 number, that includes the gain in the fourth quarter from this or no?

It does not, Frank. It does not.

No. it does not.

To clarify, we gave the same guidance last week prior to the announcement of the deal.

Sure. That's what I thought. Okay. So that's a no.

Speakers, at this time, we have no other questioners in the queue.

Very well. Thank you very much, please, for dialing in and we really appreciate your interest in Customers Bancorp. Have a good day.

Thank you. Ladies and gentlemen, that concludes the Customers Bancorp corporate update on BMT divestiture. You may disconnect your phone lines and thank you for joining us today.