Customers Bancorp Reports Results for Second Quarter 2023

Customers Bancorp, Inc. (NYSE:CUBI)

Second Quarter 2023 Highlights

  • Q2 2023 net income available to common shareholders was $44.0 million, or $1.39 per diluted share; ROAA was 0.88% and ROCE was 13.22%.
  • Q2 2023 core earnings* were $52.2 million, or $1.65 per diluted share; Core ROAA* was 1.03% and Core ROCE* was 15.67%.
  • CET 1 capital ratio of 10.3%1 at June 30, 2023, compared to 9.6% at March 31, 2023. Significant progress toward stated goal of 11.0% - 11.5% by year-end 2023.
  • Q2 2023 net interest margin, tax equivalent (NIM) was 3.15%, an increase of 19 basis points over Q1 2023 NIM of 2.96%. Q1 2023 NIM (excluding PPP)* was 2.80%
  • Significant positive deposit mix shift in Q2 2023 as total deposits grew by $226.8 million, with an increase in non-interest bearing deposits of $1.0 billion, or 29%, over Q1 2023. The average cost of deposits decreased 21 basis points in Q2 2023 while the June 30, 2023 spot cost of deposits declined one basis point from March 31, 2023 despite an increase in market interest rates in Q2 2023.
  • Total estimated insured deposits were 77%2 of total deposits at June 30, 2023, with immediately available liquidity covering uninsured deposits by approximately 222%.
  • Q2 2023 adjusted pre-tax pre-provision net income* was $96.8 million; adjusted pre-tax pre-provision ROAA* was 1.79%; and adjusted pre-tax pre-provision ROCE* was 28.01%.
  • Q2 2023 loans declined $1.2 billion or 7.6% over Q1 2023, with average loan yields up 13 basis points in Q2 2023, principally due to non-strategic loan sales.
  • Q2 2023 provision for credit losses on loans and leases of $22.4 million was largely driven by the recognition of weaker macroeconomic forecasts.
  • Non-performing assets were $28.4 million, or 0.13% of total assets, at June 30, 2023, down $3.9 million, or 12%, from March 31, 2023. Allowance for credit losses on loans and leases equaled 494% of non-performing loans at June 30, 2023, compared to 406% at March 31, 2023.
  • Q2 2023 book value per share and tangible book value per share* both grew by $1.08, or 2.6%, with increased AOCI losses of $11.9 million over the same time period.

 

 

 

 

 

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

1 Regulatory capital ratios as of June 30, 2023 are estimates.

2 Uninsured deposits (estimate) of $4.7 billion to be reported on the Bank's call report, less state and municipal deposits of $459.4 million collateralized by our line of credit from FHLB and from our affiliates of $92.0 million.

CEO Commentary

“We are very pleased with our second quarter results as we executed seamlessly on our strategic priorities and delivered one of our strongest quarters to date,” said Customers Bancorp Chairman and CEO Jay Sidhu. “While the industry continues to face significant headwinds from rising funding costs, negative deposit mix shifts and net interest margin compression, we successfully grew total deposits by $226.8 million in Q2 2023, even after the payoff of net brokered CDs of $660 million, with an increase in non-interest bearing deposits of $1 billion, or 29%. We expanded our net interest margin significantly over Q1 2023 despite holding even higher cash balances for prudent risk management purposes. Notably, our average cost of deposits decreased 21 basis points during the quarter as we replaced higher cost wholesale deposits with lower cost core deposits and continued to strengthen our deposit franchise. Our average loan yields increased 13 basis points as a result of the increase in interest rates and the floating rate nature of our loan portfolio. Following through on the commitments we made last quarter, we successfully exited certain non-strategic loan portfolios by selling $670 million in short-term syndicated capital call lines of credit and $556.7 million in consumer installment loans. This provided balance sheet capacity for the previously announced $631 million Venture Banking portfolio acquired from the FDIC at a 15% discount and afforded us a significant opportunity to further grow and strengthen our deposit franchise, improve our profitability, and increase our capital ratios,” stated Jay Sidhu.

“Our Q2 2023 GAAP earnings were $44.0 million, or $1.39 per diluted share. Core earnings* were $52.2 million, or $1.65 per diluted share, well above consensus estimates. At June 30, 2023, our deposit base was well diversified, with approximately 77%2 of total deposits insured. We maintain a strong liquidity position, with $9.1 billion of liquidity immediately available, which covers approximately 222% of uninsured deposits and our loan to deposit ratio was about 77%. We continued to purposely moderate loan growth and took other strategic actions in the second quarter 2023 to further improve our capital ratios. At June 30, 2023, we had $3.2 billion of cash on hand, which we believe was prudent given persisting levels of uncertainty. Asset quality remains exceptional and credit reserves are extremely robust at 494% of total non-performing loans at the end of Q2 2023. The prudent risk management strategic actions that we have taken over the past several quarters have us well positioned from a capital, credit, liquidity, interest rate risk, and earnings perspective as we enter the second half of 2023. With persisting levels of uncertainty, we believe it is prudent to continue to moderate growth, or even shrink the balance sheet somewhat, and focus on further strengthening the balance sheet and improving capital ratios. We remain committed to improving our CET 1 ratio to 11.0% - 11.5% by year-end 2023 and are extremely proud of the progress that we made in just one quarter. We are confident in our ability to manage our credit, interest rate, and liquidity risks, and superbly service our clients in all operating environments. We are incredibly optimistic about our future,” Jay Sidhu continued.

 

 

 

 

 

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

1 Regulatory capital ratios as of June 30, 2023 are estimates.

2 Uninsured deposits (estimate) of $4.7 billion to be reported on the Bank's call report, less state and municipal deposits of $459.4 million collateralized by our line of credit from FHLB and from our affiliates of $92.0 million.

 

Financial Highlights

(Dollars in thousands, except per share data)

 

At or Three Months Ended

 

Increase (Decrease)

 

June 30, 2023

 

March 31, 2023

 

Profitability Metrics:

 

 

 

 

 

 

 

 

Net income available for common shareholders

 

$

44,007

 

 

$

50,265

 

 

$

(6,258

)

 

(12.5

)%

Diluted earnings per share

 

$

1.39

 

 

$

1.55

 

 

$

(0.16

)

 

(10.3

)%

Core earnings*

 

$

52,163

 

 

$

51,143

 

 

$

1,020

 

 

2.0

%

Core earnings per share*

 

$

1.65

 

 

$

1.58

 

 

$

0.07

 

 

4.4

%

Core earnings, excluding PPP*

 

$

54,231

 

 

$

41,537

 

 

$

12,694

 

 

30.6

%

Core earnings per share, excluding PPP*

 

$

1.72

 

 

$

1.28

 

 

$

0.44

 

 

34.4

%

Return on average assets ("ROAA")

 

 

0.88

%

 

 

1.03

%

 

 

(0.15

)

 

 

Core ROAA*

 

 

1.03

%

 

 

1.05

%

 

 

(0.02

)

 

 

Core ROAA, excluding PPP*

 

 

1.07

%

 

 

0.87

%

 

 

0.20

 

 

 

Return on average common equity ("ROCE")

 

 

13.22

%

 

 

16.00

%

 

 

(2.78

)

 

 

Core ROCE*

 

 

15.67

%

 

 

16.28

%

 

 

(0.61

)

 

 

Adjusted pre-tax pre-provision net income*

 

$

96,833

 

 

$

89,282

 

 

$

7,551

 

 

8.5

%

Adjusted pre-tax pre-provision net income ROAA, excluding PPP*

 

 

1.83

%

 

 

1.53

%

 

 

0.30

 

 

 

Net interest margin, tax equivalent

 

 

3.15

%

 

 

2.96

%

 

 

0.19

 

 

 

Net interest margin, tax equivalent, excluding PPP*

 

 

3.20

%

 

 

2.80

%

 

 

0.40

 

 

 

Loan yield

 

 

6.83

%

 

 

6.70

%

 

 

0.13

 

 

 

Loan yield, excluding PPP*

 

 

6.89

%

 

 

6.46

%

 

 

0.43

 

 

 

Cost of deposits

 

 

3.11

%

 

 

3.32

%

 

 

(0.21

)

 

 

Efficiency ratio

 

 

49.25

%

 

 

47.71

%

 

 

1.54

 

 

 

Core efficiency ratio*

 

 

47.84

%

 

 

47.09

%

 

 

0.75

 

 

 

Balance Sheet Trends:

 

 

 

 

 

 

 

 

Total assets

 

$

22,028,565

 

 

$

21,751,614

 

 

$

276,951

 

 

1.3

%

Total loans and leases

 

$

13,910,907

 

 

$

15,063,034

 

 

$

(1,152,127

)

 

(7.6

)%

Total loans and leases, excluding PPP*

 

$

13,722,144

 

 

$

14,816,776

 

 

$

(1,094,632

)

 

(7.4

)%

Non-interest bearing demand deposits

 

$

4,490,198

 

 

$

3,487,517

 

 

$

1,002,681

 

 

28.8

%

Total deposits

 

$

17,950,431

 

 

$

17,723,617

 

 

$

226,814

 

 

1.3

%

Capital Metrics:

 

 

 

 

 

 

 

 

Common Equity

 

$

1,318,858

 

 

$

1,283,226

 

 

$

35,632

 

 

2.8

%

Tangible Common Equity*

 

$

1,315,229

 

 

$

1,279,597

 

 

$

35,632

 

 

2.8

%

Common Equity to Total Assets

 

 

6.0

%

 

 

5.9

%

 

 

0.1

 

 

 

Tangible Common Equity to Tangible Assets*

 

 

6.0

%

 

 

5.9

%

 

 

0.1

 

 

 

Tangible Common Equity to Tangible Assets, excluding PPP*

 

 

6.0

%

 

 

6.0

%

 

 

0.0

 

 

 

Book Value per common share

 

$

42.16

 

 

$

41.08

 

 

$

1.08

 

 

2.6

%

Tangible Book Value per common share*

 

$

42.04

 

 

$

40.96

 

 

$

1.08

 

 

2.6

%

Common equity Tier 1 capital ratio (1)

 

 

10.3

%

 

 

9.6

%

 

 

0.7

 

 

 

Total risk based capital ratio (1)

 

 

13.1

%

 

 

12.3

%

 

 

0.8

 

 

 

 

 

 

 

 

 

 

 

 

(1) Regulatory capital ratios as of June 30, 2023 are estimates.

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

Financial Highlights

(Dollars in thousands, except per share data)

 

At or Three Months Ended

 

Increase (Decrease)

 

Six Months Ended

 

Increase (Decrease)

 

June 30, 2023

 

June 30, 2022

 

 

June 30, 2023

 

June 30, 2022

 

Profitability Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available for common shareholders

 

$

44,007

 

 

$

56,519

 

 

$

(12,512

)

 

(22.1

)%

 

$

94,272

 

 

$

131,415

 

 

$

(37,143

)

 

(28.3

)%

Diluted earnings per share

 

$

1.39

 

 

$

1.68

 

 

$

(0.29

)

 

(17.3

)%

 

$

2.95

 

 

$

3.87

 

 

$

(0.92

)

 

(23.8

)%

Core earnings*

 

$

52,163

 

 

$

59,367

 

 

$

(7,204

)

 

(12.1

)%

 

$

103,306

 

 

$

134,777

 

 

$

(31,471

)

 

(23.4

)%

Core earnings per share*

 

$

1.65

 

 

$

1.77

 

 

$

(0.12

)

 

(6.8

)%

 

$

3.22

 

 

$

3.97

 

 

$

(0.75

)

 

(18.9

)%

Core earnings, excluding PPP*

 

$

54,231

 

 

$

46,301

 

 

$

7,930

 

 

17.1

%

 

$

95,768

 

 

$

96,998

 

 

$

(1,230

)

 

(1.3

)%

Core earnings per share, excluding PPP*

 

$

1.72

 

 

$

1.38

 

 

$

0.34

 

 

24.6

%

 

$

2.99

 

 

$

2.86

 

 

$

0.13

 

 

4.5

%

Return on average assets ("ROAA")

 

 

0.88

%

 

 

1.17

%

 

 

(0.29

)

 

 

 

 

0.96

%

 

 

1.39

%

 

 

(0.43

)

 

 

Core ROAA*

 

 

1.03

%

 

 

1.23

%

 

 

(0.20

)

 

 

 

 

1.04

%

 

 

1.43

%

 

 

(0.39

)

 

 

Core ROAA, excluding PPP*

 

 

1.07

%

 

 

1.04

%

 

 

0.03

 

 

 

 

 

0.97

%

 

 

1.04

%

 

 

(0.07

)

 

 

Return on average common equity ("ROCE")

 

 

13.22

%

 

 

18.21

%

 

 

(4.99

)

 

 

 

 

14.57

%

 

 

21.23

%

 

 

(6.66

)

 

 

Core ROCE*

 

 

15.67

%

 

 

19.13

%

 

 

(3.46

)

 

 

 

 

15.97

%

 

 

21.77

%

 

 

(5.80

)

 

 

Adjusted pre-tax pre-provision net income*

 

$

96,833

 

 

$

105,692

 

 

$

(8,859

)

 

(8.4

)%

 

$

186,115

 

 

$

218,341

 

 

$

(32,226

)

 

(14.8

)%

Adjusted pre-tax pre-provision net income ROAA, excluding PPP*

 

 

1.83

%

 

 

1.85

%

 

 

(0.02

)

 

 

 

 

1.69

%

 

 

1.86

%

 

 

(0.17

)

 

 

Net interest margin, tax equivalent

 

 

3.15

%

 

 

3.39

%

 

 

(0.24

)

 

 

 

 

3.06

%

 

 

3.49

%

 

 

(0.43

)

 

 

Net interest margin, tax equivalent, excluding PPP*

 

 

3.20

%

 

 

3.32

%

 

 

(0.12

)

 

 

 

 

3.01

%

 

 

3.32

%

 

 

(0.31

)

 

 

Loan yield

 

 

6.83

%

 

 

4.54

%

 

 

2.29

 

 

 

 

 

6.77

%

 

 

4.60

%

 

 

2.17

 

 

 

Loan yield, excluding PPP*

 

 

6.89

%

 

 

4.56

%

 

 

2.33

 

 

 

 

 

6.67

%

 

 

4.50

%

 

 

2.17

 

 

 

Cost of deposits

 

 

3.11

%

 

 

0.54

%

 

 

2.57

 

 

 

 

 

3.22

%

 

 

0.44

%

 

 

2.78

 

 

 

Efficiency ratio

 

 

49.25

%

 

 

42.14

%

 

 

7.11

 

 

 

 

 

48.51

%

 

 

40.76

%

 

 

7.75

 

 

 

Core efficiency ratio*

 

 

47.84

%

 

 

41.74

%

 

 

6.10

 

 

 

 

 

47.49

%

 

 

40.59

%

 

 

6.90

 

 

 

Balance Sheet Trends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

22,028,565

$

20,251,996

 

 

$

1,776,569

 

 

8.8

%

 

 

 

 

 

 

 

 

Total loans and leases

 

$

13,910,907

 

 

$

15,664,353

 

 

$

(1,753,446

)

 

(11.2

)%

 

 

 

 

 

 

 

 

Total loans and leases, excluding PPP*

 

$

13,722,144

 

 

$

14,094,193

 

 

$

(372,049

)

 

(2.6

)%

 

 

 

 

 

 

 

 

Non-interest bearing demand deposits

 

$

4,490,198

 

 

$

4,683,030

 

 

$

(192,832

)

 

(4.1

)%

 

 

 

 

 

 

 

 

Total deposits

 

$

17,950,431

 

 

$

16,944,719

 

 

$

1,005,712

 

 

5.9

%

 

 

 

 

 

 

 

 

Capital Metrics:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity

 

$

1,318,858

 

 

$

1,215,596

 

 

$

103,262

 

 

8.5

%

 

 

 

 

 

 

 

 

Tangible Common Equity*

 

$

1,315,229

 

 

$

1,211,967

 

 

$

103,262

 

 

8.5

%

 

 

 

 

 

 

 

 

Common Equity to Total Assets

 

 

6.0

%

 

 

6.0

%

 

 

0.0

 

 

 

 

 

 

 

 

 

 

 

Tangible Common Equity to Tangible Assets*

 

 

6.0

%

 

 

6.0

%

 

 

0.0

 

 

 

 

 

 

 

 

 

 

 

Tangible Common Equity to Tangible Assets, excluding PPP*

 

 

6.0

%

 

 

6.5

%

 

 

(0.5

)

 

 

 

 

 

 

 

 

 

 

Book Value per common share

 

$

42.16

 

 

$

37.46

 

 

$

4.70

 

 

12.5

%

 

 

 

 

 

 

 

 

Tangible Book Value per common share*

 

$

42.04

 

 

$

37.35

 

 

$

4.69

 

 

12.6

%

 

 

 

 

 

 

 

 

Common equity Tier 1 capital ratio (1)

 

 

10.3

%

 

 

9.7

%

 

 

0.6

 

 

 

 

 

 

 

 

 

 

 

Total risk based capital ratio (1)

 

 

13.1

%

 

 

12.6

%

 

 

0.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Regulatory capital ratios as of June 30, 2023 are estimates.

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

Key Balance Sheet Trends

Loans and Leases

The following table presents the composition of total loans and leases as of the dates indicated:

(Dollars in thousands)

June 30,

2023

 

% of

Total

 

March 31,

2023

 

% of

Total

 

June 30,

2022

 

% of

Total

Loans and Leases Held for Investment

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial:

 

 

 

 

 

 

 

 

 

 

 

Specialty lending

$

5,534,832

 

40.0

%

 

$

5,519,176

 

37.7

%

 

$

4,599,640

 

29.4

%

Other commercial & industrial

 

1,052,145

 

7.6

 

 

 

1,168,161

 

8.0

 

 

 

1,037,444

 

6.7

 

Multifamily

 

2,151,734

 

15.6

 

 

 

2,195,211

 

15.0

 

 

 

2,008,784

 

12.8

 

Loans to mortgage companies

 

1,108,598

 

8.0

 

 

 

1,374,894

 

9.4

 

 

 

1,975,189

 

12.6

 

Commercial real estate owner occupied

 

842,042

 

6.1

 

 

 

895,314

 

6.1

 

 

 

710,577

 

4.5

 

Loans receivable, PPP

 

188,763

 

1.4

 

 

 

246,258

 

1.7

 

 

 

1,570,160

 

10.0

 

Commercial real estate non-owner occupied

 

1,211,091

 

8.8

 

 

 

1,245,248

 

8.5

 

 

 

1,152,869

 

7.4

 

Construction

 

212,214

 

1.5

 

 

 

188,123

 

1.3

 

 

 

195,687

 

1.2

 

Total commercial loans and leases

 

12,301,419

 

89.0

 

 

 

12,832,385

 

87.7

 

 

 

13,250,350

 

84.6

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Residential

 

487,199

 

3.5

 

 

 

494,815

 

3.4

 

 

 

457,768

 

3.0

 

Manufactured housing

 

41,664

 

0.3

 

 

 

43,272

 

0.3

 

 

 

48,570

 

0.3

 

Installment:

 

 

 

 

 

 

 

 

 

 

 

Personal

 

752,470

 

5.4

 

 

 

849,420

 

5.8

 

 

 

1,613,628

 

10.3

 

Other

 

250,047

 

1.8

 

 

 

419,085

 

2.8

 

 

 

287,442

 

1.8

 

Total installment loans

 

1,002,517

 

7.2

 

 

 

1,268,505

 

8.6

 

 

 

1,901,070

 

12.1

 

Total consumer loans

 

1,531,380

 

11.0

 

 

 

1,806,592

 

12.3

 

 

 

2,407,408

 

15.4

 

Total loans and leases held for investment

$

13,832,799

 

100.0

%

 

$

14,638,977

 

100.0

%

 

$

15,657,758

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Loans Held for Sale

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Multifamily

$

 

%

 

$

4,051

 

1.0

%

 

$

4,136

 

62.7

%

Commercial real estate non-owner occupied

 

 

 

 

 

16,000

 

3.7

 

 

 

 

 

Total commercial loans and leases

 

 

 

 

 

20,051

 

4.7

 

 

 

4,136

 

62.7

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Residential

 

1,234

 

1.6

 

 

 

821

 

0.2

 

 

 

2,459

 

37.3

 

Installment:

 

 

 

 

 

 

 

 

 

 

 

Personal

 

76,874

 

98.4

 

 

 

307,336

 

72.5

 

 

 

 

 

Other

 

 

 

 

 

95,849

 

22.6

 

 

 

 

 

Total installment loans

 

76,874

 

98.4

 

 

 

403,185

 

95.1

 

 

 

 

 

Total consumer loans

 

78,108

 

100.0

 

 

 

404,006

 

95.3

 

 

 

2,459

 

37.3

 

Total loans held for sale

$

78,108

 

100.0

%

 

$

424,057

 

100.0

%

 

$

6,595

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases portfolio

$

13,910,907

 

 

 

$

15,063,034

 

 

 

$

15,664,353

 

 

Loans and Leases Held for Investment

Loans and leases held for investment were $13.8 billion at June 30, 2023, down $806.2 million, or 5.5%, from March 31, 2023, consistent with our stated goal of purposely moderating loan growth and exiting non-strategic relationships. Loans held for investment decreased in every category, except for relatively small increases in construction loans and specialty lending activities within commercial and industrial ("C&I") loans quarter-over-quarter.

On June 15, 2023, Customers acquired $631.0 million of a Venture Banking loan portfolio at a discount from the FDIC. Customers has also recruited team members that originated these loans to service the venture-backed growth industry from seed-stage through late-stage. The newly recruited team gives clients access to the capital to grow from innovation to maturity and leverage a customized, best-in-class tech platform to support their growth. The team has long-standing relationships with these clients offering them premier end-to-end financial services meeting their needs. The addition of these team members creates venture banking client coverage in Austin, the Bay Area, Boston, Southern California, Chicago, Denver, Raleigh/Durham, and Washington, D.C. The technology and life sciences portfolio has been combined with Customers’ existing technology and venture capital banking vertical. The portfolio of capital call loans to venture capital firms has been combined with Customers' existing direct capital call lines vertical within fund finance. This acquisition was accomplished from exiting and selling all non strategic short-term syndicated capital call lines of credit and payoffs and sales of other loans, and contributed to the moderate growth in specialty lending verticals of $15.7 million, or 0.3% quarter-over-quarter. Other C&I loans decreased $116.0 million, or 9.9% quarter-over-quarter, to $1.1 billion. Loans to mortgage companies decreased $266.3 million, or 19.4% quarter-over-quarter due to lower mortgage activity. Consumer installment loans held for investment decreased $266.0 million, or 21.0% quarter-over-quarter, to $1.0 billion as we continue to execute on our held-for-sale strategy and de-risk the held-for-investment loan portfolio in 2023.

Loans and leases held for investment of $13.8 billion at June 30, 2023 was down $1.8 billion, or 11.7%, year-over-year, largely driven by reduced balances in PPP loans of $1.4 billion, consumer installment loans of $898.6 million, and loans to mortgage companies of $866.6 million, offset in part by net growth in the lower risk variable rate specialty lending verticals of $935.2 million.

Loans Held for Sale

Loans held for sale decreased $345.9 million quarter-over-quarter, and were only $78.1 million at June 30, 2023 as we continue to build out our held-for-sale strategy in 2023. On June 30, 2023, Customers sold consumer installment loans that were classified as held for sale with a carrying value of $556.7 million, inclusive of $154.0 million of other installment loans transferred from held for investment to held for sale during Q2 2023, accrued interest and unamortized deferred loan origination costs. As part of these sales, Customers recognized a net loss on sale of $1.0 million, which is presented within "Gain (loss) on sale of SBA and other loans" in the consolidated statement of income.

Allowance for Credit Losses on Loans and Leases

The following table presents the allowance for credit losses on loans and leases as of the dates and for the periods presented:

 

At or Three Months Ended

 

Increase

(Decrease)

 

At or Three Months Ended

 

Increase

(Decrease)

(Dollars in thousands)

June 30,

2023

 

March 31,

2023

 

 

June 30,

2023

 

June 30,

2022

 

Allowance for credit losses on loans and leases

$

139,656

 

 

$

130,281

 

 

$

9,375

 

 

$

139,656

 

 

$

156,530

 

 

$

(16,874

)

Provision for credit losses on loans and leases

$

22,363

 

 

$

18,008

 

 

$

4,355

 

 

$

22,363

 

 

$

24,164

 

 

$

(1,801

)

Net charge-offs from loans held for investment

$

15,564

 

 

$

18,651

 

 

$

(3,087

)

 

$

15,564

 

 

$

13,481

 

 

$

2,083

 

Annualized net charge-offs to average loans and leases

 

0.42

%

 

 

0.49

%

 

 

 

 

0.42

%

 

 

0.36

%

 

 

Coverage of credit loss reserves for loans and leases held for investment

 

1.09

%

 

 

0.97

%

 

 

 

 

1.09

%

 

 

1.14

%

 

 

Coverage of credit loss reserves for loans and leases held for investment, excluding PPP*

 

1.11

%

 

 

0.99

%

 

 

 

 

1.11

%

 

 

1.28

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

The decrease in net charge-offs in Q2 2023 compared to Q1 2023 was primarily due to a charge-off of a non-owner occupied commercial real estate loan in Q1 2023 and a decrease in consumer installment net charge-offs in Q2 2023 compared to Q1 2023. The net charge-offs of $15.6 million in Q2 2023 excludes $6.2 million of charge-offs for certain PCD loans acquired from FDIC applied against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of the loan portfolio on June 15, 2023.

The increase in net charge-offs in Q2 2023 compared to Q2 2022, excluding the charge-offs for certain PCD loans acquired from FDIC, was primarily due to an increase in consumer installment net charge-offs in Q2 2023 compared to Q2 2022.

Provision for Credit Losses

 

Three Months Ended

 

Increase

(Decrease)

 

Three Months Ended

 

Increase

(Decrease)

(Dollars in thousands)

June 30,

2023

 

March 31,

2023

 

 

June 30,

2023

 

June 30,

2022

 

Provision for credit losses on loans and leases

$

22,363

 

 

$

18,008

 

$

4,355

 

 

$

22,363

 

 

$

24,164

 

 

$

(1,801

)

Provision (benefit) for credit losses on available for sale debt securities

 

1,266

 

 

 

1,595

 

 

(329

)

 

 

1,266

 

 

 

(317

)

 

 

1,583

 

Provision for credit losses

 

23,629

 

 

 

19,603

 

 

4,026

 

 

 

23,629

 

 

 

23,847

 

 

 

(218

)

Provision (benefit) for credit losses on unfunded commitments

 

(304

)

 

 

280

 

 

(584

)

 

 

(304

)

 

 

608

 

 

 

(912

)

Total provision for credit losses

$

23,325

 

 

$

19,883

 

$

3,442

 

 

$

23,325

 

 

$

24,455

 

 

$

(1,130

)

 

 

 

 

 

 

 

 

 

 

 

 

The provision for credit losses on loans and leases in Q2 2023 was $22.4 million, compared to $18.0 million in Q1 2023. The provision in Q2 2023 was primarily due to our recognition of weaker macroeconomic forecasts, partially offset by lower consumer installment loans, as compared to provision in Q1 2023. The provision for credit losses on available for sale investment securities in Q2 2023 was $1.3 million compared to provision of $1.6 million in Q1 2023.

The provision for credit losses on loans and leases in Q2 2023 was $22.4 million, compared to $24.2 million in Q2 2022. The provision in Q2 2023 was primarily due to our recognition of weaker macroeconomic forecasts, partially offset by lower consumer installment loans, as compared to provision in Q2 2022, which was primarily to support loan growth. The provision for credit losses on available for sale investment securities in Q2 2023 was $1.3 million compared to a benefit to provision of $0.3 million in Q2 2022.

Asset Quality

The following table presents asset quality metrics as of the dates indicated:

(Dollars in thousands)

June 30,

2023

 

March 31,

2023

 

Increase

(Decrease)

 

June 30,

2023

 

June 30,

2022

 

Increase

(Decrease)

Non-performing assets ("NPAs"):

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual / non-performing loans ("NPLs")

$

28,244

 

 

$

32,124

 

 

$

(3,880

)

 

$

28,244

 

 

$

28,064

 

 

$

180

 

Non-performing assets

$

28,380

 

 

$

32,260

 

 

$

(3,880

)

 

$

28,380

 

 

$

28,150

 

 

$

230

 

NPLs to total loans and leases

 

0.20

%

 

 

0.21

%

 

 

 

 

0.20

%

 

 

0.18

%

 

 

Reserves to NPLs

 

494.46

%

 

 

405.56

%

 

 

 

 

494.46

%

 

 

557.76

%

 

 

NPAs to total assets

 

0.13

%

 

 

0.15

%

 

 

 

 

0.13

%

 

 

0.14

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases (1) risk ratings:

 

 

 

 

 

 

 

 

 

 

 

Commercial loans and leases (2)

 

 

 

 

 

 

 

 

 

 

 

Pass

$

10,667,619

 

 

$

10,928,620

 

 

$

(261,001

)

 

$

10,667,619

 

 

$

9,355,846

 

 

$

1,311,773

 

Special Mention (3)

 

166,468

 

 

 

136,986

 

 

 

29,482

 

 

 

166,468

 

 

 

106,566

 

 

 

59,902

 

Substandard (3)

 

272,301

 

 

 

273,154

 

 

 

(853

)

 

 

272,301

 

 

 

343,175

 

 

 

(70,874

)

Total commercial loans and leases

 

11,106,388

 

 

 

11,338,760

 

 

 

(232,372

)

 

 

11,106,388

 

 

 

9,805,587

 

 

 

1,300,801

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

Performing

 

1,508,208

 

 

 

1,787,123

 

 

 

(278,915

)

 

 

1,508,208

 

 

 

2,392,852

 

 

 

(884,644

)

Non-performing

 

23,172

 

 

 

19,469

 

 

 

3,703

 

 

 

23,172

 

 

 

14,556

 

 

 

8,616

 

Total consumer loans

 

1,531,380

 

 

 

1,806,592

 

 

 

(275,212

)

 

 

1,531,380

 

 

 

2,407,408

 

 

 

(876,028

)

Loans and leases receivable (1)

$

12,637,768

 

 

$

13,145,352

 

 

$

(507,584

)

 

$

12,637,768

 

 

$

12,212,995

 

 

$

424,773

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Risk ratings are assigned to loans and leases held for investment, and excludes loans held for sale and loans receivable, mortgage warehouse, at fair value.

(2)

Excludes loan receivable, PPP, as eligible PPP loans are fully guaranteed by the Small Business Administration.

(3)

Includes $24.3 million of C&I loans rated Special Mention and $2.1 million rated Substandard at June 30, 2023 that were acquired from the FDIC on June 15, 2023.

Over the last decade, we have developed a suite of commercial loan products with one particularly important common denominator: relatively low credit risk assumption. The Bank’s C&I, loans to mortgage companies, corporate and specialty lending lines of business, and multifamily loans for example, are characterized by conservative underwriting standards and low loss rates. Because of this emphasis, the Bank’s credit quality to date has been incredibly healthy despite an adverse economic environment. Maintaining strong asset quality also requires a highly active portfolio monitoring process. In addition to frequent client outreach and monitoring at the individual loan level, we employ a bottom-up data driven approach to analyze the commercial portfolio.

Total consumer installment loans held for investment at June 30, 2023 were less than 5% of total assets and approximately 7% of total loans and leases held for investment, and were supported by an allowance for credit losses of $57.6 million. At June 30, 2023, our consumer installment portfolio had the following characteristics: average original FICO score of 733, average debt-to-income of 19% and average borrower income of $105 thousand.

Non-performing loans at June 30, 2023 were essentially flat at 0.20% of total loans and leases, compared to 0.21% at March 31, 2023 and 0.18% at June 30, 2022.

Investment Securities

Our investment securities portfolio, including debt securities available for sale ("AFS") and held to maturity ("HTM") provides periodic cash flows through regular maturities and amortization, can be used as collateral to secure additional funding, and is an important component of our liquidity position.

The following table presents the composition of our investment securities portfolio as of the dates indicated:

(Dollars in thousands)

June 30,

2023

 

March 31,

2023

 

June 30,

2022

Debt securities, available for sale

$

2,797,940

 

$

2,900,259

 

$

3,120,111

Equity securities

 

26,698

 

 

26,710

 

 

24,771

Investment securities, at fair value

 

2,824,638

 

 

2,926,969

 

 

3,144,882

Debt securities, held to maturity

 

1,258,560

 

 

870,294

 

 

495,039

Total investment securities portfolio

$

4,083,198

 

$

3,797,263

 

$

3,639,921

Critically important to performance during the recent banking crisis are the characteristics of a bank’s securities portfolio. While there may be virtually no credit risk in some of these portfolios, holding longer term and lower yielding securities is creating challenges for many banks. Our securities portfolio is highly liquid, short in duration, and high in yield. At June 30, 2023, our AFS debt securities portfolio had a spot yield of 5.38%, an effective duration of approximately 1.5 years, and approximately 47% are variable rate. Additionally, 62% of our AFS securities portfolio was AAA rated at June 30, 2023.

At June 30, 2023, our HTM debt securities portfolio represented only 5.7% of our total assets at June 30, 2023, had a spot yield of 4.41% and an effective duration of approximately 3.0 years. Additionally, at June 30, 2023, approximately 36% of our HTM securities were AAA rated and 57% were credit enhanced asset backed securities with no current expectation of credit losses.

As a part of the sales of consumer installment loans that were classified as held for sale, Customers provided some financing to the purchaser for a portion of the sale price in the form of $436.8 million of asset-backed securities, collateralized by the sold loans, which accounted for the increase in HTM debt securities at June 30, 2023 as compared to the prior quarter.

Deposits

The following table presents the composition of our deposit portfolio as of the dates indicated:

(Dollars in thousands)

June 30,

2023

 

% of

Total

 

March 31,

2023

 

% of

Total

 

June 30,

2022

 

% of

Total

Demand, non-interest bearing

$

4,490,198

 

25.0

%

 

$

3,487,517

 

19.7

%

 

$

4,683,030

 

27.6

%

Demand, interest bearing

 

5,551,037

 

30.9

 

 

 

5,791,302

 

32.7

 

 

 

6,644,398

 

39.2

 

Total demand deposits

 

10,041,235

 

55.9

 

 

 

9,278,819

 

52.4

 

 

 

11,327,428

 

66.8

 

Savings

 

1,048,229

 

5.8

 

 

 

924,359

 

5.2

 

 

 

640,062

 

3.8

 

Money market

 

2,004,264

 

11.2

 

 

 

2,019,633

 

11.4

 

 

 

4,254,205

 

25.1

 

Time deposits

 

4,856,703

 

27.1

 

 

 

5,500,806

 

31.0

 

 

 

723,024

 

4.3

 

Total deposits

$

17,950,431

 

100.0

%

 

$

17,723,617

 

100.0

%

 

$

16,944,719

 

100.0

%

Total deposits increased $226.8 million, or 1.3%, to $18.0 billion at June 30, 2023 as compared to the prior quarter. Importantly, non-interest bearing demand deposits increased $1.0 billion, or 28.8%, to $4.5 billion. Savings deposits increased $123.9 million, or 13.4%, to $1.0 billion. These increases were offset by decreases in time deposits of $644.1 million, or 11.7%, to $4.9 billion, interest bearing demand deposits of $240.3 million, or 4.1%, to $5.6 billion and money market deposits of $15.4 million, or 0.8%, to $2.0 billion. The total average cost of deposits decreased by 21 basis points to 3.11% in Q2 2023 from 3.32% in the prior quarter primarily due to a shift in deposit mix. Total estimated uninsured deposits was $4.1 billion1, or 23% of total deposits (inclusive of accrued interest) at June 30, 2023. We are also highly focused on total deposits with contractual term to manage our liquidity profile and the funding of loans and securities.

Total deposits increased $1.0 billion, or 5.9%, to $18.0 billion at June 30, 2023 as compared to a year ago. Time deposits increased $4.1 billion to $4.9 billion. Savings deposits increased $408.2 million, or 63.8%, to $1.0 billion. These increases were offset in part by decreases in money market deposits of $2.2 billion, or 52.9%, to $2.0 billion, interest bearing demand deposits of $1.1 billion, or 16.5%, to $5.6 billion and non-interest bearing demand deposits of $192.8 million, or 4.1%, to $4.5 billion. The total average cost of deposits increased by 257 basis points to 3.11% in Q2 2023 from 0.54% in the prior year primarily due to higher market interest rates and a shift in deposit mix.

__________________________________

1 Uninsured deposits (estimate) of $4.7 billion to be reported on the Bank's call report, less state and municipal deposits of $459.4 million collateralized by our line of credit from FHLB and from our affiliates of $92.0 million.

Borrowings

The following table presents the composition of our borrowings as of the dates indicated:

(Dollars in thousands)

June 30,

2023

 

March 31,

2023

 

June 30,

2022

Federal funds purchased

$

 

$

 

$

770,000

FHLB advances

 

2,046,142

 

 

2,052,143

 

 

635,000

Senior notes

 

123,710

 

 

123,645

 

 

123,450

Subordinated debt

 

182,091

 

 

182,021

 

 

181,812

Total borrowings

$

2,351,943

 

$

2,357,809

 

$

1,710,262

Total borrowings were $2.4 billion at June 30, 2023, relatively unchanged from the prior quarter. As of June 30, 2023, Customers' borrowing capacity with the FRB and FHLB was approximately $8.6 billion, of which $2.1 billion of available capacity was utilized in borrowings and $600.5 million was utilized to collateralize state and municipal deposits.

Total borrowings increased $641.7 million, or 37.5%, to $2.4 billion at June 30, 2023 as compared to a year ago. This increase primarily resulted from an increase in FHLB advances to ensure ample cash on hand given the heightened liquidity risk in the banking system, particularly among regional banks since early March 2023, net of repayments of federal funds purchased.

Capital

The following table presents certain capital amounts and ratios as of the dates indicated:

(Dollars in thousands except per share data)

June 30,

2023

 

March 31,

2023

 

June 30,

2022

Customers Bancorp, Inc.

 

 

 

 

 

Common Equity

$

1,318,858

 

 

$

1,283,226

 

 

$

1,215,596

 

Tangible Common Equity*

$

1,315,229

 

 

$

1,279,597

 

 

$

1,211,967

 

Common Equity to Total Assets

 

6.0

%

 

 

5.9

%

 

 

6.0

%

Tangible Common Equity to Tangible Assets*

 

6.0

%

 

 

5.9

%

 

 

6.0

%

Tangible Common Equity to Tangible Assets, excluding PPP*

 

6.0

%

 

 

6.0

%

 

 

6.5

%

Book Value per common share

$

42.16

 

 

$

41.08

 

 

$

37.46

 

Tangible Book Value per common share*

$

42.04

 

 

$

40.96

 

 

$

37.35

 

Common equity Tier 1 (CET 1) capital ratio (1)

 

10.3

%

 

 

9.6

%

 

 

9.7

%

Total risk based capital ratio (1)

 

13.1

%

 

 

12.3

%

 

 

12.6

%

 

 

 

 

 

 

(1) Regulatory capital ratios as of June 30, 2023 are estimates.

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

Customers Bancorp's common equity increased $35.6 million to $1.3 billion, and tangible common equity* increased $35.6 million to $1.3 billion, at June 30, 2023 compared to the prior quarter, respectively, as earnings of $44.0 million more than offset a negative impact of increased unrealized losses on investment securities of $11.9 million (net of taxes) deferred in accumulated other comprehensive income ("AOCI"). Similarly, book value per common share increased to $42.16 from $41.08, and tangible book value per common share* increased to $42.04 from $40.96, at June 30, 2023 and March 31, 2023, respectively.

Customers Bancorp's common equity increased $103.3 million to $1.3 billion, and tangible common equity* increased $103.3 million to $1.3 billion, at June 30, 2023 compared to a year ago, respectively, as earnings of $181.3 million more than offset a negative impact to AOCI from increased unrealized losses on investment securities of $43.3 million (net of taxes) and $45.1 million of common share repurchases. Similarly, book value per common share increased to $42.16 from $37.46, and tangible book value per common share* increased to $42.04 from $37.35, at June 30, 2023 and June 30, 2022, respectively.

At the Customers Bancorp level, the CET 1 capital ratio (estimate), total risk based capital ratio (estimate), common equity to total assets ratio and tangible common equity to tangible assets ratio ("TCE ratio") were 10.3%, 13.1%, 6.0%, and 6.0%, respectively, at June 30, 2023.

At the Customers Bank level, capital levels remained strong and well above regulatory minimums. At June 30, 2023, estimated Tier 1 capital (estimate) and total risk-based capital (estimate) were 11.9% and 13.3%, respectively.

Even though Customers remains well capitalized by all regulatory measures, its goal is to increase its CET 1 ratio at year-end 2023 to be between 11.0% - 11.5%. "It is prudent to continue to moderate or even shrink our balance sheet in this uncertain environment and have strong capital ratios," stated Jay Sidhu.

Key Profitability Trends

Net Interest Income

Net interest income totaled $165.3 million in Q2 2023, an increase of $15.4 million from Q1 2023, primarily due to higher interest income from interest earning deposits of $17.2 million maintained in response to heightened liquidity risk in the banking system, particularly among regional banks since early March 2023, variable rate lower credit risk specialty lending of $18.1 million, and commercial loans to mortgage companies of $2.2 million, reflecting higher average balances and market interest rates. These increases were partially offset by lower interest income on consumer installment loans of $2.3 million reflecting the impact of the sales transactions that occurred late in Q2 2023 and reduced PPP interest income of $21.9 million resulting primarily from reduced recognition of deferred fees as the PPP program was substantially completed in Q1 2023. In addition, interest expense on deposits and other borrowings decreased by $0.2 million in Q2 2023 largely resulting from the positive shift in deposit mix towards no to lower-interest bearing deposits despite higher interest rates during Q2 2023, mostly offset by increased borrowing costs reflecting a full quarter impact of FHLB advances drawn in Q1 2023.

Net interest income totaled $165.3 million in Q2 2023, an increase of $0.4 million from Q2 2022. This increase was due to higher interest income of $133.8 million resulting from increased average balance of interest earning assets of $1.5 billion and higher market interest rates on variable rate loans and investments, offset in part by higher interest expenses on deposits and other borrowings of $133.4 million primarily resulting from higher average balances of interest bearing deposits and other borrowings and increased market rates. Interest-earning asset growth was primarily driven by increases in C&I loans and leases, mostly in the variable rate lower credit risk specialty lending verticals and multifamily loans, offset in part by decreases in commercial loans to mortgage companies due to lower mortgage activity from rising interest rates, PPP loans as the PPP program was substantially completed in Q1 2023 and consumer installment loans. Total consumer installment loans decreased in Q2 2023 as compared to Q2 2022, as installment loans held for investment decreased primarily for risk management purposes and implementation of our held-for-sale strategy.

Non-Interest Income

The following table presents details of non-interest income for the periods indicated:

 

Three Months Ended

 

Increase

(Decrease)

 

Three Months Ended

 

Increase

(Decrease)

(Dollars in thousands)

June 30,

2023

 

March 31,

2023

 

 

June 30,

2023

 

June 30,

2022

 

Commercial lease income

$

8,917

 

 

$

9,326

 

$

(409

)

 

$

8,917

 

 

$

6,592

 

 

$

2,325

 

Loan fees

 

4,271

 

 

 

3,990

 

 

281

 

 

 

4,271

 

 

 

2,618

 

 

 

1,653

 

Bank-owned life insurance

 

4,997

 

 

 

2,647

 

 

2,350

 

 

 

4,997

 

 

 

1,947

 

 

 

3,050

 

Mortgage warehouse transactional fees

 

1,376

 

 

 

1,074

 

 

302

 

 

 

1,376

 

 

 

1,883

 

 

 

(507

)

Gain (loss) on sale of SBA and other loans

 

(761

)

 

 

 

 

(761

)

 

 

(761

)

 

 

1,542

 

 

 

(2,303

)

Loss on sale of capital call lines of credit

 

(5,037

)

 

 

 

 

(5,037

)

 

 

(5,037

)

 

 

 

 

 

(5,037

)

Net gain (loss) on sale of investment securities

 

 

 

 

 

 

 

 

 

 

 

 

(3,029

)

 

 

3,029

 

Other

 

2,234

 

 

 

1,084

 

 

1,150

 

 

 

2,234

 

 

 

1,193

 

 

 

1,041

 

Total non-interest income

$

15,997

 

 

$

18,121

 

$

(2,124

)

 

$

15,997

 

 

$

12,746

 

 

$

3,251

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income totaled $16.0 million for Q2 2023, a decrease of $2.1 million compared to Q1 2023. The decrease was primarily due to a loss of $5.0 million realized from the sale of non-strategic short-term syndicated capital call lines of credit within our Specialty Lending vertical that the Bank exited completely and $0.8 million of net loss on sales of SBA loans and consumer installment loans that were classified as held for sale. These decreases were offset in part by increases in death benefits paid by insurance carriers under the bank-owned life insurance policies of $2.4 million and other income of $1.2 million mostly related to income from CRA-qualified investments in small business investment companies and tax interest and penalties refunds.

Non-interest income totaled $16.0 million for Q2 2023, an increase of $3.3 million compared to Q2 2022. The increase was primarily due to lower loss on securities sales of $3.0 million as there were no such sales in Q2 2023, and increases in death benefits paid by insurance carriers under the bank-owned life insurance policies of $3.1 million, commercial lease income of $2.3 million, loan fees of $1.7 million resulting from growth and other income of $1.0 million. These increases were offset partially by a $5.0 million loss realized from the sale of non-strategic short-term syndicated capital call lines of credit that the Bank exited completely and a decrease in net gain on sale of SBA and other loans of $2.3 million due to lower gains on sales of SBA loans and losses on sales of consumer installment loans that were classified as held for sale.

Non-Interest Expense

The following table presents details of non-interest expense for the periods indicated:

 

Three Months Ended

 

Increase

(Decrease)

 

Three Months Ended

 

Increase

(Decrease)

(Dollars in thousands)

June 30,

2023

 

March 31,

2023

 

 

June 30,

2023

 

June 30,

2022

 

Salaries and employee benefits

$

33,120

 

$

32,345

 

$

775

 

 

$

33,120

 

$

25,334

 

$

7,786

 

Technology, communication and bank operations

 

16,407

 

 

16,589

 

 

(182

)

 

 

16,407

 

 

22,738

 

 

(6,331

)

Commercial lease depreciation

 

7,328

 

 

7,875

 

 

(547

)

 

 

7,328

 

 

5,552

 

 

1,776

 

Professional services

 

9,192

 

 

7,596

 

 

1,596

 

 

 

9,192

 

 

7,415

 

 

1,777

 

Loan servicing

 

4,777

 

 

4,661

 

 

116

 

 

 

4,777

 

 

4,341

 

 

436

 

Occupancy

 

2,519

 

 

2,760

 

 

(241

)

 

 

2,519

 

 

4,279

 

 

(1,760

)

FDIC assessments, non-income taxes and regulatory fees

 

9,780

 

 

2,728

 

 

7,052

 

 

 

9,780

 

 

1,619

 

 

8,161

 

Advertising and promotion

 

546

 

 

1,049

 

 

(503

)

 

 

546

 

 

353

 

 

193

 

Other

 

5,628

 

 

4,530

 

 

1,098

 

 

 

5,628

 

 

4,574

 

 

1,054

 

Total non-interest expense

$

89,297

 

$

80,133

 

$

9,164

 

 

$

89,297

 

$

76,205

 

$

13,092

 

 

 

 

 

 

 

 

 

 

 

 

 

The management of non-interest expenses remains a priority for us. However, this will not deter us from making investments in new technologies to support efficient and responsible growth in the future.

Non-interest expenses totaled $89.3 million in Q2 2023, an increase of $9.2 million compared to Q1 2023. The increase was primarily attributable to higher FDIC assessments, non-income taxes and regulatory fees of $7.1 million resulting from higher FDIC assessment rates, higher professional fees of $1.6 million to enhance our technology, compliance and risk management capabilities, other expenses of $1.1 million primarily due to higher provision for operating losses and increased salaries and employee benefits of $0.8 million driven by higher incentives and stock based awards offset by lower benefits and severance.

Non-interest expenses totaled $89.3 million in Q2 2023, an increase of $13.1 million compared to Q2 2022. The increase was primarily attributable to increases of $8.2 million of FDIC assessments, non-income taxes and regulatory fees resulting from higher FDIC assessment rates, $7.8 million in salaries and employee benefits due to higher headcount, annual merit increases, incentives and SERP expenses, $1.8 million in professional fees mostly for transaction related legal fees, $1.8 million in commercial lease depreciation from growth and $1.1 million in other expenses primarily due to higher provision for operating losses. These increases were offset in part by decreases of $6.3 million in deposit servicing-related expenses mostly due to lower servicing fees and the discontinuation of interchange maintenance fees paid to BM Technologies offset by higher fees paid for software as a service and $1.8 million in occupancy mostly due to impairments associated with consolidation of branch locations in Q2 2022.

Taxes

Income tax expense increased by $6.2 million to $20.8 million in Q2 2023 from $14.6 million in Q1 2023 primarily due to tax expense of $4.1 million recognized in Q2 2023 on surrendered bank-owned life insurance policies.

Income tax expense increased by $1.9 million to $20.8 million in Q2 2023 from $18.9 million in Q2 2022 primarily due to tax expense on surrendered bank-owned life insurance policies, offset in part by lower pre-tax income and increased income tax credits.

The effective tax rate for Q2 2023 was 30%, primarily due to tax on surrendered bank-owned life insurance policies. Excluding the tax on surrendered bank-owned life insurance policies, the effective tax rate for Q2 2023 was 24%. Customers expects the full-year 2023 effective tax rate to be approximately 22% to 24%.

Outlook

“Looking ahead, we will continue to moderate growth, or even reduce the size of the balance sheet, as we optimize the balance sheet and materially improve our capital ratios, maintain positive operating leverage with prudent expense management, and continue to improve deposits and liquidity. We expect 2023 core loans to be essentially flat to down. Deposits are expected to remain relatively flat with a focus on improving our funding profile and reducing high cost deposits. We expect full year 2023 net interest margin, excluding PPP* to be at the upper end of the previously guided range of 2.85% - 3.05%. 2023 Core EPS (excluding PPP)* is still expected to be about $6.00 with a core return on common equity* of over 15%. Core non-interest expense* is now expected to increase about 15% in 2023 as a result of higher FDIC assessments and the newly recruited Venture Banking team. We are still targeting a CET 1 ratio of approximately 11.0% - 11.5% by year-end 2023, following up on the 70 basis point increase we achieved during Q2 2023. We are focused on improving the quality of our balance sheet and deposit franchise, improving capital and liquidity, maintaining superior credit quality, expanding our net interest margin, and achieving our tangible book value guidance in excess of $45 by year-end 2023,” concluded Customers Bancorp President Sam Sidhu.

 

 

 

 

 

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

Webcast

Date:

Friday, July 28, 2023

Time:

9:00 AM EDT

The live audio webcast, presentation slides, and earnings press release will be made available at https://www.customersbank.com/investor-relations/ and at the Customers Bancorp 2nd Quarter Earnings Webcast.

You may submit questions in advance of the live webcast by emailing our Communications Director, David Patti at dpatti@customersbank.com; questions may also be asked during the webcast through the webcast application.

The webcast will be archived for viewing on the Customers Bank Investor Relations page and available beginning approximately two hours after the conclusion of the live event.

Institutional Background

Customers Bancorp, Inc. (NYSE:CUBI) is one of the nation’s top-performing banking companies with over $22 billion in assets, making it the 81 largest bank holding companies in the US. Through its primary subsidiary, Customers Bank, commercial and consumer clients benefit from a full suite of technology-enabled tailored product experiences delivered by best-in-class customer service. In addition to traditional lines such as C&I lending, commercial real estate lending, and multifamily lending, Customers Bank also provides a number of national corporate banking services to Specialty Lending clients. Major accolades include:

  • #5 in top-performing banks with assets between $10 billion and $50 billion in 2022 per American Banker;
  • #34 out of the 100 largest publicly traded banks in 2023 per Forbes; and
  • #64 on Fortune Magazine’s 2022 list of the 100 fastest growing companies in America.

A member of the Federal Reserve System with deposits insured by the Federal Deposit Insurance Corporation, Customers Bank is an equal opportunity lender. Learn more: www.customersbank.com.

“Safe Harbor” Statement

In addition to historical information, this press release may contain “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to Customers Bancorp, Inc.’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “project,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Customers Bancorp, Inc.’s control). Numerous competitive, economic, regulatory, legal and technological events and factors, among others, could cause Customers Bancorp, Inc.’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements, including: a continuation of the recent turmoil in the banking industry, responsive measures taken by us and regulatory authorities to mitigate and manage related risks, regulatory actions taken that address related issues and the costs and obligations associated therewith, the impact of COVID-19 and its variants on the U.S. economy and customer behavior, the impact that changes in the economy have on the performance of our loan and lease portfolio, the market value of our investment securities, the continued success and acceptance of our blockchain payments system, the demand for our products and services and the availability of sources of funding, the effects of actions by the federal government, including the Board of Governors of the Federal Reserve System and other government agencies, that affect market interest rates and the money supply, actions that we and our customers take in response to these developments and the effects such actions have on our operations, products, services and customer relationships, higher inflation and its impacts, and the effects of any changes in accounting standards or policies. Customers Bancorp, Inc. cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Customers Bancorp, Inc.’s filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K for the year ended December 31, 2022, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments thereto, that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Customers Bancorp, Inc. does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Customers Bancorp, Inc. or by or on behalf of Customers Bank, except as may be required under applicable law.

Q2 2023 Overview

The following table presents a summary of key earnings and performance metrics for the quarter ended June 30, 2023 and the preceding four quarters:

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

EARNINGS SUMMARY - UNAUDITED

 

(Dollars in thousands, except per share data and stock price data)

Q2

 

Q1

 

Q4

 

Q3

 

Q2

 

Six Months Ended

June 30,

2023

 

2023

 

2022

 

2022

 

2022

 

2023

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Profitability Metrics:

Net income available to common shareholders

$

44,007

$

50,265

$

25,623

$

61,364

$

56,519

$

94,272

$

131,415

Per share amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic

$

1.41

 

 

$

1.58

 

 

$

0.79

 

 

$

1.89

 

 

$

1.73

 

 

$

2.99

 

 

$

4.00

 

Earnings per share - diluted

$

1.39

 

 

$

1.55

 

 

$

0.77

 

 

$

1.85

 

 

$

1.68

 

 

$

2.95

 

 

$

3.87

 

Book value per common share (1)

$

42.16

 

 

$

41.08

 

 

$

39.08

 

 

$

38.46

 

 

$

37.46

 

 

$

42.16

 

 

$

37.46

 

CUBI stock price (1)

$

30.26

 

 

$

18.52

 

 

$

28.34

 

 

$

29.48

 

 

$

33.90

 

 

$

30.26

 

 

$

33.90

 

CUBI stock price as % of book value (1)

 

72

%

 

 

45

%

 

 

73

%

 

 

77

%

 

 

90

%

 

 

72

%

 

 

90

%

Average shares outstanding - basic

 

31,254,125

 

 

 

31,819,203

 

 

 

32,413,459

 

 

 

32,455,814

 

 

 

32,712,616

 

 

 

31,535,103

 

 

 

32,834,150

 

Average shares outstanding - diluted

 

31,591,142

 

 

 

32,345,017

 

 

 

33,075,422

 

 

 

33,226,607

 

 

 

33,579,013

 

 

 

31,965,997

 

 

 

33,950,973

 

Shares outstanding (1)

 

31,282,318

 

 

 

31,239,750

 

 

 

32,373,697

 

 

 

32,475,502

 

 

 

32,449,486

 

 

 

31,282,318

 

 

 

32,449,486

 

Return on average assets ("ROAA")

 

0.88

%

 

 

1.03

%

 

 

0.55

%

 

 

1.24

%

 

 

1.17

%

 

 

0.96

%

 

 

1.39

%

Return on average common equity ("ROCE")

 

13.22

%

 

 

16.00

%

 

 

8.05

%

 

 

19.33

%

 

 

18.21

%

 

 

14.57

%

 

 

21.23

%

Net interest margin, tax equivalent

 

3.15

%

 

 

2.96

%

 

 

2.67

%

 

 

3.16

%

 

 

3.39

%

 

 

3.06

%

 

 

3.49

%

Efficiency ratio

 

49.25

%

 

 

47.71

%

 

 

49.20

%

 

 

50.00

%

 

 

42.14

%

 

 

48.51

%

 

 

40.76

%

Non-GAAP Profitability Metrics (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

Core earnings

$

52,163

 

 

$

51,143

 

 

$

39,368

 

 

$

82,270

 

 

$

59,367

 

 

$

103,306

 

 

$

134,777

 

Adjusted pre-tax pre-provision net income

$

96,833

 

 

$

89,282

 

 

$

81,377

 

 

$

100,994

 

 

$

105,692

 

 

$

186,115

 

 

$

218,341

 

Per share amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

Core earnings per share - diluted

$

1.65

 

 

$

1.58

 

 

$

1.19

 

 

$

2.48

 

 

$

1.77

 

 

$

3.22

 

 

$

3.97

 

Tangible book value per common share (1)

$

42.04

 

 

$

40.96

 

 

$

38.97

 

 

$

38.35

 

 

$

37.35

 

 

$

42.04

 

 

$

37.35

 

CUBI stock price as % of tangible book value (1)

 

72

%

 

 

45

%

 

 

73

%

 

 

77

%

 

 

91

%

 

 

72

%

 

 

91

%

Core ROAA

 

1.03

%

 

 

1.05

%

 

 

0.81

%

 

 

1.64

%

 

 

1.23

%

 

 

1.04

%

 

 

1.43

%

Core ROCE

 

15.67

%

 

 

16.28

%

 

 

12.36

%

 

 

25.91

%

 

 

19.13

%

 

 

15.97

%

 

 

21.77

%

Adjusted ROAA - pre-tax and pre-provision

 

1.79

%

 

 

1.72

%

 

 

1.56

%

 

 

1.95

%

 

 

2.11

%

 

 

1.76

%

 

 

2.25

%

Adjusted ROCE - pre-tax and pre-provision

 

28.01

%

 

 

27.33

%

 

 

24.59

%

 

 

31.01

%

 

 

33.37

%

 

 

27.68

%

 

 

34.62

%

Net interest margin, tax equivalent, excluding PPP loans

 

3.20

%

 

 

2.80

%

 

 

2.87

%

 

 

3.18

%

 

 

3.32

%

 

 

3.01

%

 

 

3.32

%

Core efficiency ratio

 

47.84

%

 

 

47.09

%

 

 

49.12

%

 

 

42.57

%

 

 

41.74

%

 

 

47.49

%

 

 

40.59

%

Asset Quality:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs

$

15,564

 

 

$

18,651

 

 

$

27,164

 

 

$

18,497

 

 

$

13,481

 

 

$

34,215

 

 

$

20,707

 

Annualized net charge-offs to average total loans and leases

 

0.42

%

 

 

0.49

%

 

 

0.70

%

 

 

0.47

%

 

 

0.36

%

 

 

0.46

%

 

 

0.29

%

Non-performing loans ("NPLs") to total loans and leases (1)

 

0.20

%

 

 

0.21

%

 

 

0.19

%

 

 

0.18

%

 

 

0.18

%

 

 

0.20

%

 

 

0.18

%

Reserves to NPLs (1)

 

494.46

%

 

 

405.56

%

 

 

425.95

%

 

 

466.34

%

 

 

557.76

%

 

 

494.46

%

 

 

557.76

%

Non-performing assets ("NPAs") to total assets

 

0.13

%

 

 

0.15

%

 

 

0.15

%

 

 

0.14

%

 

 

0.14

%

 

 

0.13

%

 

 

0.14

%

Customers Bank Capital Ratios (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital to risk-weighted assets

 

11.9

%

 

 

11.31

%

 

 

11.21

%

 

 

11.42

%

 

 

11.46

%

 

 

11.9

%

 

 

11.46

%

Tier 1 capital to risk-weighted assets

 

11.9

%

 

 

11.31

%

 

 

11.21

%

 

 

11.42

%

 

 

11.46

%

 

 

11.9

%

 

 

11.46

%

Total capital to risk-weighted assets

 

13.3

%

 

 

12.64

%

 

 

12.40

%

 

 

12.65

%

 

 

12.91

%

 

 

13.3

%

 

 

12.91

%

Tier 1 capital to average assets (leverage ratio)

 

8.0

%

 

 

8.09

%

 

 

8.15

%

 

 

8.10

%

 

 

8.09

%

 

 

8.0

%

 

 

8.09

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Metric is a spot balance for the last day of each quarter presented.

(2) Customers' reasons for the use of these non-GAAP measures and a detailed reconciliation between the non-GAAP measures and the comparable GAAP amounts are included at the end of this document.

(3) Regulatory capital ratios are estimated for Q2 2023 and actual for the remaining periods. In accordance with regulatory capital rules, Customers elected to apply the CECL capital transition provisions which delayed the effects of CECL on regulatory capital for two years until January 1, 2022, followed by a three-year transition period. The cumulative CECL capital transition impact as of December 31, 2021 which amounted to $61.6 million will be phased in at 25% per year beginning on January 1, 2022 through December 31, 2024. As of June 30, 2023, our regulatory capital ratios reflected 50%, or $30.8 million, benefit associated with the CECL transition provisions.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

Q2

 

Q1

 

Q4

 

Q3

 

Q2

 

June 30,

 

2023

 

2023

 

2022

 

2022

 

2022

 

2023

 

2022

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases

$

241,745

 

 

$

244,212

 

$

217,471

 

 

$

200,438

 

 

$

168,920

 

 

$

485,957

 

 

$

326,040

 

Investment securities

 

48,026

 

 

 

47,316

 

 

42,953

 

 

 

30,546

 

 

 

25,442

 

 

 

95,342

 

 

 

45,737

 

Loans held for sale

 

11,149

 

 

 

11,701

 

 

1,269

 

 

 

19

 

 

 

21

 

 

 

22,850

 

 

 

76

 

Interest earning deposits

 

27,624

 

 

 

10,395

 

 

6,754

 

 

 

2,949

 

 

 

919

 

 

 

38,019

 

 

 

1,248

 

Other

 

1,616

 

 

 

1,321

 

 

1,200

 

 

 

1,964

 

 

 

1,032

 

 

 

2,937

 

 

 

6,709

 

Total interest income

 

330,160

 

 

 

314,945

 

 

269,647

 

 

 

235,916

 

 

 

196,334

 

 

 

645,105

 

 

 

379,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

136,375

 

 

 

143,930

 

 

124,366

 

 

 

65,380

 

 

 

22,781

 

 

 

280,305

 

 

 

36,493

 

FHLB advances

 

24,285

 

 

 

10,370

 

 

4,464

 

 

 

4,684

 

 

 

2,316

 

 

 

34,655

 

 

 

2,316

 

FRB advances

 

 

 

 

6,286

 

 

 

 

 

 

 

 

 

 

 

6,286

 

 

 

 

Subordinated debt

 

2,689

 

 

 

2,689

 

 

2,688

 

 

 

2,689

 

 

 

2,689

 

 

 

5,378

 

 

 

5,378

 

Other borrowings

 

1,540

 

 

 

1,771

 

 

2,992

 

 

 

4,131

 

 

 

3,696

 

 

 

3,311

 

 

 

6,072

 

Total interest expense

 

164,889

 

 

 

165,046

 

 

134,510

 

 

 

76,884

 

 

 

31,482

 

 

 

329,935

 

 

 

50,259

 

Net interest income

 

165,271

 

 

 

149,899

 

 

135,137

 

 

 

159,032

 

 

 

164,852

 

 

 

315,170

 

 

 

329,551

 

Provision (benefit) for credit losses

 

23,629

 

 

 

19,603

 

 

28,216

 

 

 

(7,994

)

 

 

23,847

 

 

 

43,232

 

 

 

39,844

 

Net interest income after provision (benefit) for credit losses

 

141,642

 

 

 

130,296

 

 

106,921

 

 

 

167,026

 

 

 

141,005

 

 

 

271,938

 

 

 

289,707

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial lease income

 

8,917

 

 

 

9,326

 

 

8,135

 

 

 

7,097

 

 

 

6,592

 

 

 

18,243

 

 

 

12,487

 

Loan fees

 

4,271

 

 

 

3,990

 

 

4,017

 

 

 

3,008

 

 

 

2,618

 

 

 

8,261

 

 

 

5,163

 

Bank-owned life insurance

 

4,997

 

 

 

2,647

 

 

1,975

 

 

 

3,449

 

 

 

1,947

 

 

 

7,644

 

 

 

10,273

 

Mortgage warehouse transactional fees

 

1,376

 

 

 

1,074

 

 

1,295

 

 

 

1,545

 

 

 

1,883

 

 

 

2,450

 

 

 

3,898

 

Gain (loss) on sale of SBA and other loans

 

(761

)

 

 

 

 

 

 

 

106

 

 

 

1,542

 

 

 

(761

)

 

 

3,049

 

Loss on sale of capital call lines of credit

 

(5,037

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,037

)

 

 

 

Loss on sale of consumer installment loans

 

 

 

 

 

 

 

 

 

(23,465

)

 

 

 

 

 

 

 

 

 

Net gain (loss) on sale of investment securities

 

 

 

 

 

 

(16,937

)

 

 

(2,135

)

 

 

(3,029

)

 

 

 

 

 

(4,092

)

Legal settlement gain

 

 

 

 

 

 

7,519

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

2,234

 

 

 

1,084

 

 

1,341

 

 

 

1,378

 

 

 

1,193

 

 

 

3,318

 

 

 

3,166

 

Total non-interest income

 

15,997

 

 

 

18,121

 

 

7,345

 

 

 

(9,017

)

 

 

12,746

 

 

 

34,118

 

 

 

33,944

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

33,120

 

 

 

32,345

 

 

29,194

 

 

 

31,230

 

 

 

25,334

 

 

 

65,465

 

 

 

51,941

 

Technology, communication and bank operations

 

16,407

 

 

 

16,589

 

 

18,604

 

 

 

19,588

 

 

 

22,738

 

 

 

32,996

 

 

 

46,806

 

Commercial lease depreciation

 

7,328

 

 

 

7,875

 

 

6,518

 

 

 

5,966

 

 

 

5,552

 

 

 

15,203

 

 

 

10,494

 

Professional services

 

9,192

 

 

 

7,596

 

 

6,825

 

 

 

6,269

 

 

 

7,415

 

 

 

16,788

 

 

 

14,371

 

Loan servicing

 

4,777

 

 

 

4,661

 

 

4,460

 

 

 

3,851

 

 

 

4,341

 

 

 

9,438

 

 

 

6,712

 

Occupancy

 

2,519

 

 

 

2,760

 

 

3,672

 

 

 

2,605

 

 

 

4,279

 

 

��

5,279

 

 

 

7,329

 

FDIC assessments, non-income taxes and regulatory fees

 

9,780

 

 

 

2,728

 

 

2,339

 

 

 

2,528

 

 

 

1,619

 

 

 

12,508

 

 

 

4,002

 

Advertising and promotion

 

546

 

 

 

1,049

 

 

1,111

 

 

 

762

 

 

 

353

 

 

 

1,595

 

 

 

668

 

Other

 

5,628

 

 

 

4,530

 

 

5,696

 

 

 

3,399

 

 

 

4,574

 

 

 

10,158

 

 

 

7,689

 

Total non-interest expense

 

89,297

 

 

 

80,133

 

 

78,419

 

 

 

76,198

 

 

 

76,205

 

 

 

169,430

 

 

 

150,012

 

Income before income tax expense

 

68,342

 

 

 

68,284

 

 

35,847

 

 

 

81,811

 

 

 

77,546

 

 

 

136,626

 

 

 

173,639

 

Income tax expense

 

20,768

 

 

 

14,563

 

 

7,136

 

 

 

17,899

 

 

 

18,896

 

 

 

35,331

 

 

 

38,228

 

Net income

 

47,574

 

 

 

53,721

 

 

28,711

 

 

 

63,912

 

 

 

58,650

 

 

 

101,295

 

 

 

135,411

 

Preferred stock dividends

 

3,567

 

 

 

3,456

 

 

3,088

 

 

 

2,548

 

 

 

2,131

 

 

 

7,023

 

 

 

3,996

 

Net income available to common shareholders

$

44,007

 

 

$

50,265

 

$

25,623

 

 

$

61,364

 

 

$

56,519

 

 

$

94,272

 

 

$

131,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

1.41

 

 

$

1.58

 

$

0.79

 

 

$

1.89

 

 

$

1.73

 

 

$

2.99

 

 

$

4.00

 

Diluted earnings per common share

 

1.39

 

 

 

1.55

 

 

0.77

 

 

 

1.85

 

 

 

1.68

 

 

 

2.95

 

 

 

3.87

 

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET - UNAUDITED

(Dollars in thousands)

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

2023

 

2023

 

2022

 

2022

 

2022

ASSETS

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

54,127

 

 

$

77,251

 

 

$

58,025

 

 

$

41,520

 

 

$

66,703

 

Interest earning deposits

 

3,101,097

 

 

 

1,969,434

 

 

 

397,781

 

 

 

362,945

 

 

 

178,475

 

Cash and cash equivalents

 

3,155,224

 

 

 

2,046,685

 

 

 

455,806

 

 

 

404,465

 

 

 

245,178

 

Investment securities, at fair value

 

2,824,638

 

 

 

2,926,969

 

 

 

2,987,500

 

 

 

2,943,694

 

 

 

3,144,882

 

Investment securities held to maturity

 

1,258,560

 

 

 

870,294

 

 

 

840,259

 

 

 

886,294

 

 

 

495,039

 

Loans held for sale

 

78,108

 

 

 

424,057

 

 

 

328,312

 

 

 

5,224

 

 

 

6,595

 

Loans receivable, mortgage warehouse, at fair value

 

1,006,268

 

 

 

1,247,367

 

 

 

1,323,312

 

 

 

1,569,090

 

 

 

1,874,603

 

Loans receivable, PPP

 

188,763

 

 

 

246,258

 

 

 

998,153

 

 

 

1,154,632

 

 

 

1,570,160

 

Loans and leases receivable

 

12,637,768

 

 

 

13,145,352

 

 

 

13,144,894

 

 

 

12,607,742

 

 

 

12,212,995

 

Allowance for credit losses on loans and leases

 

(139,656

)

 

 

(130,281

)

 

 

(130,924

)

 

 

(130,197

)

 

 

(156,530

)

Total loans and leases receivable, net of allowance for credit losses on loans and leases

 

13,693,143

 

 

 

14,508,696

 

 

 

15,335,435

 

 

 

15,201,267

 

 

 

15,501,228

 

FHLB, Federal Reserve Bank, and other restricted stock

 

126,240

 

 

 

124,733

 

 

 

74,196

 

 

 

64,112

 

 

 

74,626

 

Accrued interest receivable

 

119,501

 

 

 

123,754

 

 

 

123,374

 

 

 

107,621

 

 

 

98,727

 

Bank premises and equipment, net

 

8,031

 

 

 

8,581

 

 

 

9,025

 

 

 

6,610

 

 

 

6,755

 

Bank-owned life insurance

 

290,322

 

 

 

339,607

 

 

 

338,441

 

 

 

336,130

 

 

 

335,153

 

Goodwill and other intangibles

 

3,629

 

 

 

3,629

 

 

 

3,629

 

 

 

3,629

 

 

 

3,629

 

Other assets

 

471,169

 

 

 

374,609

 

 

 

400,135

 

 

 

408,575

 

 

 

340,184

 

Total assets

$

22,028,565

 

 

$

21,751,614

 

 

$

20,896,112

 

 

$

20,367,621

 

 

$

20,251,996

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Demand, non-interest bearing deposits

$

4,490,198

 

 

$

3,487,517

 

 

$

1,885,045

 

 

$

2,993,793

 

 

$

4,683,030

 

Interest bearing deposits

 

13,460,233

 

 

 

14,236,100

 

 

 

16,271,908

 

 

 

14,528,645

 

 

 

12,261,689

 

Total deposits

 

17,950,431

 

 

 

17,723,617

 

 

 

18,156,953

 

 

 

17,522,438

 

 

 

16,944,719

 

Federal funds purchased

 

 

 

 

 

 

 

 

 

 

365,000

 

 

 

770,000

 

FHLB advances

 

2,046,142

 

 

 

2,052,143

 

 

 

800,000

 

 

 

500,000

 

 

 

635,000

 

Other borrowings

 

123,710

 

 

 

123,645

 

 

 

123,580

 

 

 

123,515

 

 

 

123,450

 

Subordinated debt

 

182,091

 

 

 

182,021

 

 

 

181,952

 

 

 

181,882

 

 

 

181,812

 

Accrued interest payable and other liabilities

 

269,539

 

 

 

249,168

 

 

 

230,666

 

 

 

287,855

 

 

 

243,625

 

Total liabilities

 

20,571,913

 

 

 

20,330,594

 

 

 

19,493,151

 

 

 

18,980,690

 

 

 

18,898,606

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

137,794

 

 

 

137,794

 

 

 

137,794

 

 

 

137,794

 

 

 

137,794

 

Common stock

 

35,301

 

 

 

35,258

 

 

 

35,012

 

 

 

34,948

 

 

 

34,922

 

Additional paid in capital

 

555,737

 

 

 

552,255

 

 

 

551,721

 

 

 

549,066

 

 

 

545,670

 

Retained earnings

 

1,018,406

 

 

 

974,399

 

 

 

924,134

 

 

 

898,511

 

 

 

837,147

 

Accumulated other comprehensive income (loss), net

 

(168,176

)

 

 

(156,276

)

 

 

(163,096

)

 

 

(156,126

)

 

 

(124,881

)

Treasury stock, at cost

 

(122,410

)

 

 

(122,410

)

 

 

(82,604

)

 

 

(77,262

)

 

 

(77,262

)

Total shareholders' equity

 

1,456,652

 

 

 

1,421,020

 

 

 

1,402,961

 

 

 

1,386,931

 

 

 

1,353,390

 

Total liabilities and shareholders' equity

$

22,028,565

 

 

$

21,751,614

 

 

$

20,896,112

 

 

$

20,367,621

 

 

$

20,251,996

 

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

AVERAGE BALANCE SHEET / NET INTEREST MARGIN - UNAUDITED

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

June 30, 2023

 

March 31, 2023

 

June 30, 2022

 

Average

Balance

 

Interest

Income or

Expense

 

Average

Yield or

Cost (%)

 

Average

Balance

 

Interest

Income or

Expense

 

Average

Yield or

Cost (%)

 

Average

Balance

 

Interest

Income or

Expense

 

Average

Yield or

Cost (%)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits

$

2,150,154

 

$

27,624

 

5.15

%

 

$

914,149

 

$

10,395

 

4.61

%

 

$

434,950

 

$

919

 

0.85

%

Investment securities (1)

 

3,949,732

 

 

48,026

 

4.86

%

 

 

4,031,247

 

 

47,316

 

4.69

%

 

 

4,104,463

 

 

25,442

 

2.48

%

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specialty lending loans and leases (2)

 

5,832,485

 

 

121,779

 

8.37

%

 

 

5,694,168

 

 

103,688

 

7.38

%

 

 

4,068,175

 

 

39,160

 

3.86

%

Other commercial & industrial loans (2)

 

1,672,668

 

 

26,028

 

6.24

%

 

 

1,705,205

 

 

25,570

 

6.08

%

 

 

1,509,655

 

 

14,706

 

3.91

%

Commercial loans to mortgage companies

 

1,300,496

 

 

19,606

 

6.05

%

 

 

1,262,139

 

 

17,412

 

5.59

%

 

 

1,898,554

 

 

15,615

 

3.30

%

Multifamily loans

 

2,181,617

 

 

21,095

 

3.88

%

 

 

2,206,600

 

 

20,470

 

3.76

%

 

 

1,845,527

 

 

17,313

 

3.76

%

Loans receivable, PPP

 

207,127

 

 

1,633

 

3.16

%

 

 

889,235

 

 

23,551

 

10.74

%

 

 

1,863,429

 

 

20,572

 

4.43

%

Non-owner occupied commercial real estate loans

 

1,428,086

 

 

19,877

 

5.58

%

 

 

1,449,722

 

 

20,199

 

5.65

%

 

 

1,307,995

 

 

12,749

 

3.91

%

Residential mortgages

 

535,739

 

 

5,735

 

4.28

%

 

 

542,909

 

 

5,598

 

4.18

%

 

 

515,612

 

 

4,898

 

3.81

%

Installment loans

 

1,684,215

 

 

37,141

 

8.84

%

 

 

1,727,995

 

 

39,425

 

9.25

%

 

 

1,909,551

 

 

43,928

 

9.23

%

Total loans and leases (3)

 

14,842,432

 

 

252,894

 

6.83

%

 

 

15,477,973

 

 

255,913

 

6.70

%

 

 

14,918,498

 

 

168,941

 

4.54

%

Other interest-earning assets

 

131,362

 

 

1,616

 

4.93

%

 

 

91,308

 

 

1,321

 

5.87

%

 

 

68,025

 

 

1,032

 

6.09

%

Total interest-earning assets

 

21,073,680

 

 

330,160

 

6.28

%

 

 

20,514,677

 

 

314,945

 

6.21

%

 

 

19,525,936

 

 

196,334

 

4.03

%

Non-interest-earning assets

 

581,055

 

 

 

 

 

 

538,243

 

 

 

 

 

 

530,084

 

 

 

 

Total assets

$

21,654,735

 

 

 

 

 

$

21,052,920

 

 

 

 

 

$

20,056,020

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking accounts

$

5,309,775

 

$

49,862

 

3.77

%

 

$

7,494,379

 

$

70,485

 

3.81

%

 

$

6,409,617

 

$

13,644

 

0.85

%

Money market deposit accounts

 

1,978,546

 

 

19,678

 

3.99

%

 

 

2,470,004

 

 

20,783

 

3.41

%

 

 

4,704,767

 

 

7,523

 

0.64

%

Other savings accounts

 

997,205

 

 

9,839

 

3.96

%

 

 

822,312

 

 

6,286

 

3.10

%

 

 

695,176

 

 

758

 

0.44

%

Certificates of deposit

 

5,020,205

 

 

56,996

 

4.55

%

 

 

4,504,333

 

 

46,376

 

4.18

%

 

 

530,180

 

 

856

 

0.65

%

Total interest-bearing deposits (4)

 

13,305,731

 

 

136,375

 

4.11

%

 

 

15,291,028

 

 

143,930

 

3.82

%

 

 

12,339,740

 

 

22,781

 

0.74

%

Federal funds purchased

 

 

 

 

%

 

 

15,333

 

 

188

 

4.97

%

 

 

642,747

 

 

1,429

 

0.89

%

Borrowings

 

2,357,981

 

 

28,514

 

4.85

%

 

 

1,788,116

 

 

20,928

 

4.75

%

 

 

940,068

 

 

7,272

 

3.10

%

Total interest-bearing liabilities

 

15,663,712

 

 

164,889

 

4.22

%

 

 

17,094,477

 

 

165,046

 

3.91

%

 

 

13,922,555

 

 

31,482

 

0.91

%

Non-interest-bearing deposits (4)

 

4,258,711

 

 

 

 

 

 

2,299,295

 

 

 

 

 

 

4,491,574

 

 

 

 

Total deposits and borrowings

 

19,922,423

 

 

 

3.32

%

 

 

19,393,772

 

 

 

3.45

%

 

 

18,414,129

 

 

 

0.69

%

Other non-interest-bearing liabilities

 

259,111

 

 

 

 

 

 

247,575

 

 

 

 

 

 

259,279

 

 

 

 

Total liabilities

 

20,181,534

 

 

 

 

 

 

19,641,347

 

 

 

 

 

 

18,673,408

 

 

 

 

Shareholders' equity

 

1,473,201

 

 

 

 

 

 

1,411,573

 

 

 

 

 

 

1,382,612

 

 

 

 

Total liabilities and shareholders' equity

$

21,654,735

 

 

 

 

 

$

21,052,920

 

 

 

 

 

$

20,056,020

 

 

 

 

Net interest income

 

 

 

165,271

 

 

 

 

 

 

149,899

 

 

 

 

 

 

164,852

 

 

Tax-equivalent adjustment

 

 

 

390

 

 

 

 

 

 

375

 

 

 

 

 

 

270

 

 

Net interest earnings

 

 

$

165,661

 

 

 

 

 

$

150,274

 

 

 

 

 

$

165,122

 

 

Interest spread

 

 

 

 

2.96

%

 

 

 

 

 

2.76

%

 

 

 

 

 

3.35

%

Net interest margin

 

 

 

 

3.14

%

 

 

 

 

 

2.95

%

 

 

 

 

 

3.38

%

Net interest margin tax equivalent

 

 

 

 

3.15

%

 

 

 

 

 

2.96

%

 

 

 

 

 

3.39

%

Net interest margin tax equivalent excl. PPP (5)

 

 

 

 

3.20

%

 

 

 

 

 

2.80

%

 

 

 

 

 

3.32

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) For presentation in this table, average balances and the corresponding average yields for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.

(2) Includes owner occupied commercial real estate loans.

(3) Includes non-accrual loans, the effect of which is to reduce the yield earned on loans and leases, and deferred loan fees.

(4) Total costs of deposits (including interest bearing and non-interest bearing) were 3.11%, 3.32% and 0.54% for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022, respectively.

(5) Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022, presented to approximate interest income as a taxable asset and excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

 

AVERAGE BALANCE SHEET / NET INTEREST MARGIN - UNAUDITED (CONTINUED)

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 2023

 

June 30, 2022

 

 

Average

Balance

 

Interest

Income or

Expense

 

Average

Yield or

Cost (%)

 

Average

Balance

 

Interest

Income or

Expense

 

Average

Yield or

Cost (%)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits

$

1,535,566

 

$

38,019

 

4.99

%

 

$

629,514

 

$

1,248

 

0.40

%

Investment securities (1)

 

3,990,265

 

 

95,342

 

4.78

%

 

 

4,070,901

 

 

45,737

 

2.25

%

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial & industrial:

 

 

 

 

 

 

 

 

 

 

 

 

Specialty lending loans and leases (2)

 

5,763,708

 

 

225,467

 

7.89

%

 

 

3,403,276

 

 

62,551

 

3.71

%

Other commercial & industrial loans (2)

 

1,688,847

 

 

51,598

 

6.16

%

 

 

1,451,858

 

 

27,974

 

3.89

%

Commercial loans to mortgage companies

 

1,281,424

 

 

37,018

 

5.83

%

 

 

1,867,772

 

 

29,620

 

3.20

%

Multifamily loans

 

2,194,039

 

 

41,565

 

3.82

%

 

 

1,689,553

 

 

31,079

 

3.71

%

Loans receivable, PPP

 

546,297