Joe Noyons - IR Jay Sidhu - Chairman & CEO Bob Wahlman - CFO Dick Ehst - President & COO Luvleen Sidhu - CSO, BankMobile.

Bob Ramsey - FBR Michael Pareto - KBW Bill Dezellem - Tieton Capital Frank Schiraldi - Sandler O'Neill.

Good afternoon and welcome to the 2016 Q3 Customers Bancorp Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Joe Noyons, Investor Relations. Please go ahead, sir..

Thank you, Gwen and good afternoon everyone. Welcome to Customers Bancorp's third quarter 2016 earnings conference call. Our earnings release was issued today after the close and is posted on the company's website at www.customersbank.com.

Representing the company today are Jay Sidhu, Chairman and Chief Executive Officer; Bob Wahlman, Chief Financial Officer; and Luvleen Sidhu, Co-founder and Chief Strategy Officer of BankMobile. 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 the actual performance results to differ materially, including the risks that the results are different than 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 securities laws.

Please refer to our SEC filings including our report on 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 is my pleasure to introduce Customers Bancorp Chief Executive Officer, Jay Sidhu.

Jay, the floor is yours..

Thank you and good afternoon Ladies and gentlemen. Thank you so much for dialing in. Also, joining Bob, Luvleen and myself here is Dick Ehst, president of the Customers. I am delighted to report to you that we had another very good quarter as you know third quarter 2016 earnings per share was up 28% over third quarter 2015.

And for the first nine months of 2016 our earnings per share are up 32% over the first 9 months of 2015. EPS of $0.64 during the quarter and for the last first 9 months of 2016 our EPS once again much higher, like I stated earlier 32% higher from last year.

From an asset quality point of view we are pleased that our non-performing loans actually improved a tad and are only 16 basis points of total loans on September 30. From a reserve point of view our reserves are about 288% of non-performing loans gained above our peer averages.

Extremely interesting also is our liquidity position improved significantly. Our non-interest bearing demand deposits were up about 39% over the same period last year and now exceed $1.1 billion of our total deposits and our total deposits are up about 28% over last year.

From a non-interest compounded view as expected which we had shared with you, that with the combinations where the disbursement business of Higher One, we today have 30% of our revenues are feed based revenues or non-interest income revenues. Our shareholder equity increased by $109 million during the quarter.

Our Tier 1 leverage ratio went up by 100 basis points at September 30 over June 30 2016. And our book value at September 30 was up to $20.78 and that's a 15.8% increase over the same period last year. From a performance point of view our return on average assets was 89 basis points 0.89% on September 30.

Our return on average common equity was 13.2% and this compares with ROA of 82 basis points last year at September 30 and ROE of 11.8% last year. Our return on average assets pre-tax we provisioned was 1.5% and return on average common equity pre-tax we provisioned was 23.5%.

Our efficiency ratio did go up to 61%, we believe that temporary and I will later on discuss with you our strategy for BankMobile which is actually performing very well. So later on you will hear from our colleague Luvleen who will talk about the BankMobile performance.

Before I hand it over to Bob Wahlman let me update you about the risk factor that we have disclosed in our 10-Ks and 10-Qs over the last couple of quarters.

As you know we had entered into a vendor relationship with Higher One back in 2013 and very shortly after entering into this relationship we identified the potential key critical compliance deficiency at Higher One. We demanded that Higher One fix that immediately, however due to systems changes it took over, took them about to remedy that situation.

Principally as a result of our findings as well as observation by federal reserve and FDIC from their examination that Higher One as you know another financial institution and Higher One in the past couple of months were required to pay fines and restitutions and enter into consent orders with their regulators.

We too want to put this issue or pending risk factor behind us and we are hopeful that in the very near future we too will be putting this matter behind us and settling this matter with the regulators.

I don't know that if there are any financial penalties as a part of the settlement in our opinion they will be insignificant and they would not have any effect on the company's performance or its financial condition as we had set up a reserve for potential regulatory issues back about 2 or 3 quarters ago.

So, with that let me hand it over to Bob to really go over the financial details at September 30 with you..

Community business banking and BankMobile. We did say that we would be providing segment disclosures for this quarters subsequent to the disbursement business and will turn our attention to that.

For Q3 2016 we kept business banking, which is our historical core banking franchise, as generating net income to common shareholders of $19.8 million, and the BankMobile segment is generating only a $1.2 million loss.

Our methodology for calculating income and assigning cost described a bit more completely in our investor presentation materials, assigned expenses based upon where we believe those expenses would be incurred post the planned divestiture BankMobile, in addition, BankMobile receive the credit for the deposit it generates, that are used to fund the community banking business earning assets.

The yields use in our calculations of the current market yield paid for borrow liabilities of allied duration of those liabilities.

If BankMobile will standalone entity, it would arguably increase its revenues by buying securities or making loans, both of which would generate net interest income in excess of that the segment currently receive for the originator deposit.

Other notable accomplishments for the business, for the BankMobile business is the origination of over 200,000 check-in account, the migration of over 300,000 check-in accounts from the second bank that participated with customers and higher loan in the program, and the addition of colleges and universities to the service educational institutions, that will provide access to over 130,000 additional students for the 20th - 2017 academic year.

With that I'll conclude my comments I'll turn this over to Luvleen , who is BankMobile Chief Strategy Officer there's going to provide the additional insight into the activities of this business segment, Luvleen..

Thank you, Bob. I would like to spend a few minutes providing you with an update on BankMobile technologies. Today BankMobile has become one of the top digital banks in the country with approximately 1.75 million check-in account.

Since the closing of the higher one deal in mid-June, we have already opened approximately 200,000 new check-in account, and attracted approximately 300,000 additional accounts, from a former higher one-partner bank.

So, overall we have attracted approximately 500,000 new check-in account since our acquisition, additionally, our integration with the higher one disbursement system has been flawless and is but - now behind it. As of September 30, our BankMobile related non-interest bearing deposit have exceeded 600 million.

We continue to implement strategies, to increase the number of student check-in accounts we open through our relationships with approximately 800 colleges and universities around the country, this entailed continuing to grow the number of colleges we service, through our disbursement business, and also improving the BankMobile vibe check-in account offering, to increase the rate of adoption during the refund selection process.

In terms of growing the number of colleges reserve, since the announcement of the higher one acquisition we have added 22 school to our client list, giving us access to 201,000 more students which is four times more than what Higher One sold the previous year, we are also implementing various marketing strategies to increase account activity of our current student customer base, and retention after graduation of the students, through partnerships and product in feature enhancements.

Additionally, BankMobile labs which is led by Kirk Barrett our CTO and Dan Armstrong our Chief Digital Officer, is launching BankMobile 2.0, our in house developed mobile banking app in December 2016, this app uses proprietary cutting edge technology, and in our opinion will be the best mobile banking app in the market.

We will continue to pursue our direct to consumer strategy in the coming months, but will also continue to develop our B to B to C strategy, which focuses on acquiring customers through distribution partnerships and White Label banking.

We believe our partnership with approximately 800 colleges and universities has been the most effective way for us to attract customers, and we will continue to identify and execute such partnerships in the future. We often are asked the question how is our business model different from traditional banks.

I would like to briefly walk you through four of our main focus areas customer acquisition, customer engagement, customer development and customer retention, an outline for you how our business model is different from the traditional bank business model.

Starting with customer acquisition, the branch network has primarily been the customer acquisition vehicle for traditional banks, research shows that approximately only one net new check-in account is opened per branch per week and cost per acquisition on average is greater than $500 per costumer.

In our model, distribution partnership and white label banking are marginal acquisition cost is approximately zero to negligible. When looking at customer engagement, the traditional bank model focuses on engaging with customers through various channels including branches, phone, mobile and online.

We on the other hand provide a mobile first experience that focuses on engaging with the customer by using data analytics, ramification and providing tools like a credit builder, which we are rolling out with BankMobile 2.0. Customer development; which to us means empowering the customer with financial knowledge and advice.

The traditional banks really only reserved this for their high network clients. We have BankMobile provide financial coaching and personal bankers for all of our direct deposit or what we called VIP customers. We also have a strong focus on financial education.

Delivered through weekly podcast, Educational blog, our nationwide campus ambassador program and our online financial curriculum that comes with the certification. Lastly, customer retention for traditional banks has focused on bundled pricing and incentivize cross selling by bank employees.

Well, at BankMobile we are much more focused on offering best in class financial products do fintech partnership. Creating an Amazon like experience for financial services, that is memorable and helpful to our customers.

Although we have managed to become one of the fastest growing and largest mobile first banks in the country, in a short period of time. Our future growth opportunities remain significant. I look forward to keeping you updated as we continue to build a successful venture. Now I'd like to hand it back over to our CEO. Thank you..

Okay, thanks so much Luvleen. I really wish you could be retaining BankMobile forever, that's how pleased we are and you have been with BankMobile. But as you know customers Bancorp is about a 9.6 billion 9.7 billion asset bank holding company. We are well aware about the [indiscernible] amendment and that's why we have to do best.

And so, let me update you on where do we stand, with our diverse future plans at BankMobile.

Back in June on our analyst David have shared with you, that we were looking at the most probable option being that we would require a bank, we would then become a two a bank holding company for a while and for couple of quarters we will actually move BankMobile into a separate bank within customers Bancorp and then we would probably do an IPO.

We have now concluded that would take 18 months or more and their customers Bancorp should not wait for 18 months without having all strategic options open to it. So, we have decided that we are going to be selling BankMobile to another bank. And it would make up - we can execute that over the next few months.

And in this fashion customers Bancorp shareholder will - shareholders should be handsomely rewarded for being the venture capital behind BankMobile so far, or really helping BankMobile go from an idea phase to an awesome company.

That is the number one digital bank not only in the United States but in our opinion probably in the world, when you look at the customer acquisition, customer retention, the revenue model and the growth opportunities to continue with it.

So, we'll keep you informed but please stay tuned, we are very optimistic about the value creation coming out of BankMobile for customers Bancorp shareholders and we are so delighted with the management team.

They have joined us from high one and the management team that we've had over here and the new additions to the management team that we've brought on since this high one displacement [ph] business joined with the BankMobile to become the BankMobile Technologies that Luvleen just talked about and we will do everything possible for customers Bancorp to retain as much of an ownership as regulators will permit us to retain in a divested BankMobile Technologies business.

Now let me talk a little bit about our strategy costumers Bancorp going forward, so as Bob mentioned about capital, capital is what is very important and we recognize that being a greater than a $10 billion company requires higher capital ratios.

So as we had shared with you, we've set target of 9% Tier 1 and targets of about 13% risk-based capital, and to be totally compliant with the fast requirements, even though they are not applicable to us at all right now, but sooner or later they will become applicable to us.

So by managing our growth, continuing to improve our profitability, depressing ourselves on BankMobile technologies; we believe our capital ratios in the near future we'll be in fact above if not within a strong peer group average.

And we will position customers Bancorp very well, to look at every strategic option at this time, including organically crossing the $10 billion mark.

From an interest rate risk position, we are very well positioned we understand and recognize that there's a high degree of probability of a 25 basis points increase, in the short term rates and the probability or the possibility of continued flat curve. I want to mention to you again.

A flat curve should not hold customers Bancorp at all, our strategy is not to take bets on interest rates, our strategy is to be in the kinds of businesses which are low risk, and kinds of businesses that helped us maintain an interest rate risk position, that we should not hold of profitability and to be in the kinds of businesses that even in difficult times we can maintain our profitability.

So we are well positioned for affect it creates, and know the improvement in the stroke of the curve. As I mentioned briefly about getting ready for the $10 billion Mark crossing.

So now we have been currently completed and started the process and have already completed a preliminary V-cast [ph] analysis, and for us - and we have we're going to all the steps in fact on a board meeting, we had advisers, consultants, sharing with us for everything and we feel very comfortable and very good about the way we are prepared upon crossing of the $10 billion mark, because we think our shareholders will be rewarded handsomely once we execute our strategy to be bigger than a $10 billion bank.

And looking at every single strategic option to make that happen, and not be in a position where the only option appears to be selling the company. So we are well positioned for that and we believe that there is a high degree of probability that at some time in 2017 in one form or another, that we would be crossing but $10 billion mark.

As far as some comments on the concentration issues, just want to share with you that at September 30, our multi-family loans were only 345% and that's down from well over 400% of our capital, of our risk based capital.

And we had completed a very follow risk assessment of all our concentration including the multi-family portfolio and once again wanted to share with you, that our average loan size is remains to be between 5 million to 7 million, our annual debt service coverage ratios remains about 1.4%.

and average yield on our portfolio is about 3.8%, our medium loan to value ratio is about 70%, our geographic concentration demands in the New York City area, the new you are most segment of the New York City area multi-family them in very strong.

All properties are inspected prior to the loan being granted and monitored thereafter on an annual basis by dedicated portfolio managers, and customers to date has never experienced.

Anything more than a 30-day delinquency on any of our multi-family loans that we have originated and the credit approval process and the credit review process it remained independent of the customers sales and portfolio management process. We have a very good relationship with our clients, which are high network families.

Principally, we are not engaged in doing financing for REITs [ph] or financing for private equity funds or any other leverage type of financing, this is fundamental financing for the high network segments. so we are very comfortable with that.

As far as C&I business is concerned, the economy in our local market between Boston and Philadelphia are doing reasonably well and there are pipeline looks good, and we continue to see - you should expect us to continue to see to build that business.

As far as our banking the mortgage companies are concerned or what people call the mortgage warehouse business as you know, they are not being different than secured commercial lines of credit to companies, which happened to be in the mortgage lending business. So C&I loans to us, but they do come with some volatility.

We are expecting that on an average compared to where it was in the third quarter, but you will see a corresponding increase in our other loan portfolios during the fourth quarter, while we try to maintain our average size of the balance sheet somewhere between $9.6 billion to $9.9 billion during the fourth quarter because we are very focused on improving our capital ratios, and staying below about $10 billion till the divestiture of BankMobile is completed.

And then we will look at every strategic options once again to cross the $10 billion mark. So with that, you all know about our evaluation that I'm not pleased to share with you that we are only creating at 10 times earnings and about 120% [ph] of book value, but this too will change. So with that Gwen, let's open it up for questions and answers..

[Operator Instructions] And we'll take our first question from Bob Ramsey with FBR capital market..

Hey, good after noon guys, good thanks I wanted to be sure I heard you right, did I hear you say that the plan is to execute a sale of BankMobile in the next few months..

That is correct..

Okay..

And that would be Bob because that would be quicker than it opens up strategic options for us to do whatever is necessary to continue building customers Bancorp..

Sure, did you know at this point if the plan is to sell to an existing bank that has some other bank strategy or will the plan be to sell this into maybe a small bank it would be some sort of reverse merger that would really sort of be BankMobile predominately pose transaction..

It's most important thing for us Bob, is that we really love this business and we think it's a strong business at a very high growth business, and we have a tremendous amount of respect and admiration for the management team of BankMobile, that is running this business.

And they are and that kind of clients and the partnerships that Luvleen talked about and the client of colleges and universities that Andrew Crawford [ph] who runs that business for us, and Kacey McGwen [ph] who run that student business for us, they have built pipeline and it's very good.

So our partner who we would negotiators the sell this to, we want to be positive that they are committed to building this business and growing this business, that'll be the main driver for us. And we will take - we will look at the all the partners all the way from potential small banks, or to somebody larger whichever makes the most of what I said..

Okay, great and I guess I mean if you're talking next few months I'm assuming you already sort of started that process of having discussions for your notifications, fillers, etcetera?.

That's correct..

Okay, great. I guess shifting from BankMobile to provision was obviously really low this quarter, I guess that reflects the fact you don't put a lot of loans on the books, you don't need to book the reserves concern to assume provisional stay low until you guys are able to sort of re-ignite the growth at customer's bank..

That's correct. and let's hope it's not too many quarters away, you know it is only few months away, but like I give you the guidance, so we expect to be between $9.6 billion to $9.9 billion at December 31..

Okay. And I know that there was a press release that mentioned there was $2.2 million recovery over previously recorded loss, the rental fee income.

Was it the fraud issue, I can't remember now, was I a year ago and when exactly that happened?.

No this was a recovery of fraud issue during our mortgage, now we really don't want to talk about customer specific information but it was something we had written down earlier and we expected it to recover. We told the street we had expected it to recover and we recovered it..

Okay so is this the mortgage warehouse thing from sometime back?.

I don't think we can comment on that at all. I will leave it up to you to figure it out..

Okay got it. And I know you also noted that there was $3.9 million of onetime expense related to technology related services.

What does that pertain to?.

We have, we are based upon the merging of the two businesses.

There were some issues that came up based upon the size of the assets and those kind of things we wanted to take a very conservative view and so we setup a reserve so that we are trying to resolve it but it was prudent and conservative because we were having enough space in a corner that we setup a reserve against a potential liability..

Okay. Great and then last question, I will give someone else a turn but in terms of capital I see you guys did - clinical [ph] a little bit of suck out there with the ATM. Just kind of curious about your appetite to continue to build the common equity at Customers bank through the ATM..

Yes we decided to go ahead to go ahead and build our Tier 1 equity to $85 million preferred offering so we basically stopped the ATM offering during the time period and we are going to be very disciplined about the price levels that we will be issuing our common equity at and so we will continue to keep it open and we will continue to do everything possible to try to get to equity to asset ratios as well as our Tier 1 as well as our risk phase capital ratios which I have outlined to you which are about 9% and 13 and we will look for the best ways to do that without diluting our book value and diluting our existing share holders' value..

Okay.

And sorry along the lines of the preferred that you guys have issued should we expect a little bit of increase in the preferred dividend expense and next quarter I can't remember if you had a full load of that expense this quarter or whether some of that actually comes in next quarter?.

Some of it will come in next quarter, Bob, this issue was in August and so we only had a little bit more than a month..

Okay.

Do you have a good number to use as a preferred dividend expense next quarter?.

6% coupon..

Yes, 6% coupon but $85 million issued..

Okay, all right, I will do the math. Thank you..

Thanks, Bob..

We will go next to Michael Pareto with KBW..

Good afternoon. Jay, just wanted to clarify. Think I might be confusing two different things. So you had mentioned there was the kind of regulatory focused issue at legacy Higher One.

That's separate, the tech expense, the reserve linked or are those two separate items?.

No, they are not at all linked..

Okay.

So there is a reserve that you guys have for the regulatory issue that you guys said a few quarters back and then this is something separate?.

This is yes, the tech issue is a potential dispute with the technology partner as I said and that regulatory reserve was setup by us in the early part of 2016, I think in the first quarter and second quarter and we are the ones who identified the problem at Higher One, we are the ones who solved it and that's why we wanted to make sure that it is resolved because it is a pending risk issue and we are hopeful that this quarter we will kind of put that behind us..

Okay, that makes sense. Thank you, sir. Maybe switching to the - kind of the BankMobile sale $10 billion crossing issue, couple of separate questions.

I guess the first, as you start to look to find the partner, has that pending regulatory issue and that kind of the desire on your end to keep ownership, has that limited kind of the scope of people considering it with the reception has been so far which is kind of the, are you guys starting to look for the right partner there?.

Not at all, no impact whatsoever of the regulatory issues. None. In fact you can see Luvleen reported to you, we are building the business, we are growing the business and we are very confident that it's going to create significant shareholders’ value for Bancorp..

Okay. And then secondly, you mentioned the board is considering all its options to crossing $10 billion. I mean we might just be a quarter or two away from when you guys are going to start thinking about that issue.

Obviously you have some flexibility to extend if you need it but I guess, can you option explain your thoughts about what you are considering. It would seem like the organic growth ratio prior to approaching $10 billion would be enough to kind of surpass kind of the organic standpoint.

Is there kind of a thought process on the board to maybe acquire something that would help diversify the business a little bit, any thoughts there would be helpful..

I think all I can say is we will look at every single strategic option. We are in a very strong position and we can do it organically.

We can acquire someone, we can merge with someone, we will look at every single option because we know it is going to cost us a few million bucks to cross $10 billion and we don't want our shareholders have to pay for that.

So we will look at every single way which is the best way for us to cross that $10 billion mark and you are right, organically we can do it too..

Okay. Maybe one last question for Luvleen on the BankMobile side, looks like coin released the deposits related to BankMobile a little over half a billion today servicing a bit more than that.

I guess two part question, is there more opportunity to bring other service deposits that aren't on balance sheet over the next quarter or so and two I guess, it sounds like you are adding more wholesale relationships in terms of universities.

How do you expect that to translate into deposit growth over the near term here?.

Sure, so to answer the second question first. We really focus on expanding the number of students we have access to and the reason why that is helpful to us is the more eyes sort of making that refund selection process, the larger number of accounts you can possibly open.

So it's really important for us to have the number of schools and more so the number of students at those schools students represents. We are broadening our student base with the hope of our adoption rate going up over time and our absolute number of assertive accounts opening over time also going up.

I would suggest handing it over to our CEO for the first question..

Yes, I think in terms of deposit balances this is strictly good business and no question about it like Luvleen said, if we get a 100,000 more check-in accounts our average balance is $250 so you can do that math what that will do.

Interesting most important thing is our strategy for retaining the customers and in retaining the customers we believe we will see a gradual 500,000 students graduate by this time next year.

We have very aggressive plans, what that will do is end up pretty significant increase in the deposits as well as pretty significant increase in non-interest income revenue. There is no question about it. I am not at liberty to talk about future goals but I think Bob Wahlman on June 17 shared with you 3 year type down the road plan.

All we can say to you is we are more confident today about achieving that 2019 type numbers that Bob put up over there than what we were on June 17, we are more confident today.

Does that answer your question?.

Yes, that's actually very helpful. Thank you..

Sure..

We will go next to Joe [ph] with Maryland Capital Group..

Hi, good afternoon. I guess I will stick on the topic of BankMobile, just wondering in addition to the student disbursement deposits.

How much success or strategy is for trying to get non-refundable deposits and how that's going?.

I think Joe like it was stated earlier, it's a customer acquisition is to get the students. Customer retention strategy is that give them awesome experience and services and Luvleen talked about the board so that they retain with you, they stay with you. And at the same time enter into partnerships using this model, please look at our investor deck.

We have updated the investor deck on the BankMobile site of it based upon that strategy of potentially. If you can do this with 800 campuses around United States, you can do this with lots of other business partners. That is where the customer acquisition strategy other than students will come in.

The problem in the banking industry today is that you are only opening up about one net new check-in account per week per branch. That's an entire United States. There are 94,000 branches so all we are doing is opening up all over banks, all over US 94,000 check-in accounts per week.

Our goals as we see it in the next 3 years is to be opening up a million check-in accounts a year. BankMobile is going to position itself to open up a million new check-in accounts every year and retaining them..

Right on the loan side as you are trying to, for the time being, stay under the $10 billion mark, just sort of wondering if staying in place without growing the loan portfolio, does that give you some opportunity to be selective in the accounts you have taken out.

In other words can we expect higher yielding loans to be put on as opposed to if you were just freely opening up the space?.

We are always trying to get the best quality loans and managed our risk as also Bob indicated to you and ensure if we can get high credit quality and higher rates simultaneously, we don't find that too often. So I don't think you should expect us to get into any new line of businesses chasing yields. We are not going to do that.

We will stick to our knitting's. We know we will stay with what we know well and we are a business bank and that's why we will continue to do what we have done and what you have seen from us.

Ensure the short term rates going up, we believe that once next year if the Fed continues with that strategy and taking a pause on the growth point of view in the second half of 2016 like we had indicated to you in the beginning of the year. Don't expect a lot of growth from us in second half of 2016.

That is exactly what is going on but when you see that happening our earnings will continue to do well and we are not going to have the provision expense and other things coming through and other issues impacting it. So that's exactly what you are seeing.

So once the rates go up we are going to be in a position to continue growing in our low risk businesses and that's what we intend to do..

All right, thank you..

We will go next to Bill Dezellem with Tieton Capital Management..

Thank you. A couple of additional questions relative to BankMobile.

As you see it today when would you believe that your revenues would exceed expenses so that business would turn profitable?.

I think on an average, we have indicated to you that you should expect this business getting closer to breakeven if not breaking even by the end of the year. I think we think that it still will be there. We are obviously spending money on technology.

And developments and our objectives are not to make this marginally profitable in a short run but to have a strategy that this becomes a very meaningful company with a very meaningful valuation. That is our priority. And we continue to build upon the management talent and the team that has and give them an opportunity to grow this business.

So if in the worst case scenario, I think you are going to see on an annual basis the kind of loss that we saw in the third quarter because we decided to spend some money. In a best case scenario you will see a small profit coming from this in the next 2 or 3 quarters.

The plan that we shared on the investor day that is still focus for BankMobile management..

And so is there some seasonality that will benefit the first quarter but negatively impacted the third quarter? Is that thinking about it also?.

No it's kind of the other way round. The fourth quarter is not going to be as great as the first quarter will be and the third quarter only one month was good but July, August were not there, best months for us are September and October. And then December is slow and then January, February, March are going to be good.

That's why the first quarter is the best quarter..

And just to add Bill that second quarter is the one that is most challenging..

That's most helpful, thank you. And then the 21 schools, I believe, schools that you all added, how is it that you did that so quickly. Given that presumably Higher One probably also looking to add schools.

Congratulations but how did you do it?.

Well as Luvleen shared its focus and on adding the schools with the quality of students coming from there and Andrew Crawford who runs that business for us and his team have done a very good job and when Higher One was in all sorts of state wondering what is the strategy there wasn't the clarity of the Department of Education rules and there wasn't a bank behind it.

So when you have a bank behind it and you have clarity of the rules and you have a dynamite management team and you have a record product offering, that's why we are getting it and in fact we hope to continue with that growth and our goal is within the next 12 months or so hopefully we can add colleges with another 500,000 students coming into us..

And I think a lot of schools just add to that, a lot of schools were hesitant given their reputation of risk with Higher One and the really fee based banking account that they were offering and so been able to really alleviate a lot of those fears by really having the best student account out there that we are now offering, really help schools get excited and want to come on board with us..

And wouldn't be a fair expectation and thought on our side that this is just the beginning of getting the wheels turning and there is a momentum now behind this. Or were there a number of schools alternatively had a dam built up that you opened the floodgates on, some of that credit and momentum building..

There is definitely more momentum building and I am not sure in the slide it shows the market share and how this market really looks but about 5% - 6% of the market is really owned by prepaid providers and we're the one bank account that's really owning really 25% of the market today.

The student market and so with the CFPB coming out and really sharing their thoughts on prepaid and really there being an uprising in terms of what people feel about that product, there is a whole new slew of schools that really probably are looking to shift from some of those competitors to our offering..

Thank you. And then one additional question relative to the transition to $10 billion. Do we understand correctly that magic date is December 31, so that if you cross $10 billion in January or February, that - really that then will trigger December 31 of '17 when you have to worry about it.

Is that correct or can you tell me on it like you would, please.

I think on the Durban amendment, you are correct, that is - goes into - and Durban amendment impacts into change income on debit cards. So that would kick-in the year that we crossed $10 billion. It will be after December 31 that the end to change income gets impacted which means BankMobile will get impacted if it's still on our balance sheet.

But the deep-fast requirements which is stress testing and what not is all based upon the fourth quarter average. And then you have approximately another 12 to 18 months depending on whether there is the floor of the stress testing and the other requirements of $10 billion of greater institutions.

So we are couple of years, two/three years; that's why I said even if we cross the $10 billion mark sometime next year, the deep-fast rules and other requirements will not kick-in for us other than the Durban amendment feel sometime in 2018 or even beyond 2018..

Thank you all for your insights..

And we'll go next to Frank Schiraldi with Sandler O'Neill..

Good afternoon. I just want to start with - I'm trying to think through the buyer of the bank, who the buyer would be.

Is it reasonable to expect that one of the parameters would be a bank well under the $10 billion, otherwise they face the same sort of interchange - loss with interchange revenue?.

Frank, I'll leave it up to you to determine who the potential buyer is, we are not going to talk about that..

Okay, but I just assume like - when you put out the - at the Analyst Day you talked about BankMobile being able to earn a $1 a share I think in 2018-2019. I'm assuming that was based on interchange of the bank under $10 billion..

That is correct..

And then secondly, just….

And Frank, there are some balance sheet numbers that were included in the presentation on June 17. So that would give you some insight in terms of what we were thinking but it's hard to put ourselves in the shoes of - what the potential acquirer might be and what their strategies might be..

Okay.

And then the other question on BankMobile I had is, the 200,000 new checking accounts that were noted, is that partially from the higher one distribution channel or what sort of percentage of those, if any, are coming from the higher one distribution channel?.

They were mostly from the higher one distribution channel..

Okay.

And then just on capital, Jay you guys - you mentioned your risk-based capital ratio targets; I'm wondering if you have a target in mind for the TCE ratio as well?.

I think I gave you the target for Tier 1 capital and we don't have a specific target for the TCE right now but you can almost figure out that this quarter alone by managing our growth, we added about 50 basis points, 40 basis points or something of that to our TCE.

And our earnings - if their earnings are going to be in the $18 million to $20 million range, even in the next two/three quarters alone on an average we're taking about a pretty significant increase in our TCE ratios by managing our growth..

Okay. I guess, there is - well, there you still have the ATM outstanding, so that would be another potential increase to TCE.

And then just my last question was on guidance, just wondering if you plan to give EPS guidance for 2017 and if so, when you expect to do that?.

Frank, in the last two years we've given guidance and in every single quarter we have beaten the street estimates, consistently. And so we've decided on a policy not to give guidance, just to focus on performance. So we are not going to give guidance beyond 2016 that you already have.

We are confirming our guidance that we have given to you for 2016 because - so we will do that but we think it's prudent to just focus on the performance of the company and the shareholders will get rewarded based upon the performance and not have folks all over the place based upon their guidance, trying to justify why the stock price is where it is..

Okay, thank you..

And there are no other questions at this time. I'd like to turn the conference back to our speakers for any closing remarks..

Thank you very much everybody and if you have any questions, please give us a call. And we look forward to a good fourth quarter also. Thank you. Have a good evening..

Thank you, everyone. That does conclude today's conference. We thank you for your participation..