Customers Bancorp Reports Results for Third Quarter 2023

WEST READING, Pa., October 26, 2023--(BUSINESS WIRE)--Customers Bancorp, Inc. (NYSE:CUBI)

Third Quarter 2023 Highlights

  • Q3 2023 net income available to common shareholders was $83.0 million, or $2.58 per diluted share; ROAA was 1.57% and ROCE was 23.97%.

  • Q3 2023 core earnings* were $83.3 million, or $2.59 per diluted share; Core ROAA* was 1.57% and Core ROCE* was 24.06%.

  • CET 1 capital ratio of 11.3%1 at September 30, 2023, compared to 10.3% at June 30, 2023, achieving goal of 11.0% - 11.5% one quarter earlier than expected.

  • Q3 2023 net interest margin, tax equivalent (NIM) was 3.70%, an increase of 55 basis points over Q2 2023 NIM of 3.15%, largely resulting from higher than expected discount accretion on the Venture Banking portfolio acquired in Q2 2023.

  • Total deposits grew by $244.9 million in Q3 2023 over Q2 2023 with a significant positive mix shift. Q3 2023 core deposit growth of $1.3 billion drove the repayment of maturing wholesale CDs of $937 million and callable FHLB advances of $510 million. Q3 2023 non-interest bearing deposits increased $268.5 million, or 6%, over Q2 2023.

  • Total estimated insured deposits were 78%2 of total deposits at September 30, 2023, with immediately available liquidity covering uninsured deposits by approximately 239%.

  • Q3 2023 adjusted pre-tax pre-provision net income* was $128.6 million; adjusted pre-tax pre-provision ROAA* was 2.32%; and adjusted pre-tax pre-provision ROCE* was 36.04%.

  • Q3 2023 provision for credit losses on loans and leases of $17.1 million was lower compared to Q2 2023 largely driven by lower balances in loans held for investment.

  • Non-performing assets were $30.0 million, or 0.14% of total assets, at September 30, 2023 compared to 0.13% at June 30, 2023. Allowance for credit losses on loans and leases equaled 466% of non-performing loans at September 30, 2023, compared to 494% at June 30, 2023.

  • Q3 2023 book value per share and tangible book value per share* both grew by $3.31, or 7.9% over Q2 2023, driven by strong quarterly earnings combined with decreased AOCI losses of $18.4 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 September 30, 2023 are estimates.

2

Uninsured deposits (estimate) of $4.8 billion to be reported on the Bank's call report, less state and municipal deposits of $591.3 million collateralized by standby letters of credit from the FHLB and from our affiliates of $99.2 million.

CEO Commentary

"We are pleased to share our third quarter results as we continued to execute on our strategic priorities and delivered another strong quarter for shareholders," said Customers Bancorp Chairman and CEO Jay Sidhu. "While the banking industry has broadly stabilized following the events earlier this year, the headwinds of higher funding costs and net interest margin compression have not subsided for most banks. We demonstrated the sustainability of our differentiated deposit strategy by growing core deposits by $1.3 billion in the third quarter resulting in $245 million in total deposit growth. The remaining liquidity inflows, and a modest amount of balance sheet cash, were used to payoff maturing wholesale CDs of $937 million and $510 million in callable FHLB advances. The core deposit growth was broad-based with 13 different channels contributing $25 million or more and benefited from the onboarding of deposits from our new Venture Banking clients. Non-interest bearing deposits as a percentage of deposits increased modestly to 26%. Our net interest margin continued to expand in the quarter in contrast to the industry headwinds. Elevated payoffs and maturities in the acquired Venture Banking portfolio resulted in outsized discount accretion which contributed to our net interest income. Capital levels continued to increase substantially during the quarter as evidenced by a 50 basis point increase in our TCE ratio* and a 100 basis point increase in our CET 1 ratio to end the quarter at 11.3%. We remain well-positioned to continue strengthening our deposit franchise, improve our profitability, and increase our capital ratios," stated Jay Sidhu.

"Our Q3 2023 GAAP earnings were $83.0 million, or $2.58 per diluted share, well above consensus estimates. At September 30, 2023, our deposit base was well diversified, with approximately 78%2 of total deposits insured. We maintain a strong liquidity position, with $9.7 billion of liquidity immediately available, which covers approximately 239% of uninsured deposits and our loan to deposit ratio was 75%. We continue to be selective on new loan production given the uncertain environment and our commitment to improve our capital ratios and are focusing new loan production where we have a holistic and primary relationship. We are seeing attractive new origination opportunities and we remain firmly committed to serving our clients. We have ample liquidity and capital to support their needs. At September 30, 2023, we had $3.4 billion of cash on hand, which we believe is prudent balance sheet and liquidity management in the current environment. Asset quality remains exceptional with our NPA ratio remaining roughly flat at just 0.14% of total assets and reserve levels are robust at over 465% of total non-performing loans at the end of Q3 2023. Our exposure to higher risk commercial real estate such as the office and retail sectors is minimal, each representing only 1% of the loan portfolio. Continued execution on our strategic priorities has positioned us favorably for success through the remainder of 2023 and into 2024 from a capital, credit, liquidity, interest rate risk and earnings perspective. We will remain disciplined, but opportunistic, with our balance sheet capacity to minimize risk and maintain robust capital levels. We are extremely proud of the progress we made in the quarter and are confident in our risk management capabilities and ability to provide excellent service to our clients in all operating environments. We are excited and optimistic about the opportunities ahead," 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 September 30, 2023 are estimates.

2

Uninsured deposits (estimate) of $4.8 billion to be reported on the Bank's call report, less state and municipal deposits of $591.3 million collateralized by standby letters of credit from the FHLB and from our affiliates of $99.2 million.

Financial Highlights

(Dollars in thousands, except per share data)

At or Three Months Ended

Increase (Decrease)

September 30,

2023

June 30,

2023

Profitability Metrics:

Net income available for common shareholders

$

82,953

$

44,007

$

38,946

88.5

%

Diluted earnings per share

$

2.58

$

1.39

$

1.19

85.6

%

Core earnings*

$

83,294

$

52,163

$

31,131

59.7

%

Core earnings per share*

$

2.59

$

1.65

$

0.94

57.0

%

Return on average assets ("ROAA")

1.57

%

0.88

%

0.69

Core ROAA*

1.57

%

1.03

%

0.54

Return on average common equity ("ROCE")

23.97

%

13.22

%

10.75

Core ROCE*

24.06

%

15.67

%

8.39

Adjusted pre-tax pre-provision net income*

$

128,564

$

96,833

$

31,731

32.8

%

Net interest margin, tax equivalent

3.70

%

3.15

%

0.55

Loan yield

7.87

%

6.83

%

1.04

Cost of deposits

3.24

%

3.11

%

0.13

Efficiency ratio

41.01

%

49.25

%

(8.24

)

Core efficiency ratio*

41.04

%

47.84

%

(6.80

)

Balance Sheet Trends:

Total assets

$

21,857,152

$

22,028,565

$

(171,413

)

(0.8

)%

Total loans and leases

$

13,713,482

$

13,910,907

$

(197,425

)

(1.4

)%

Non-interest bearing demand deposits

$

4,758,682

$

4,490,198

$

268,484

6.0

%

Total deposits

$

18,195,364

$

17,950,431

$

244,933

1.4

%

Capital Metrics:

Common Equity

$

1,423,813

$

1,318,858

$

104,955

8.0

%

Tangible Common Equity*

$

1,420,184

$

1,315,229

$

104,955

8.0

%

Common Equity to Total Assets

6.5

%

6.0

%

0.5

Tangible Common Equity to Tangible Assets*

6.5

%

6.0

%

0.5

Book Value per common share

$

45.47

$

42.16

$

3.31

7.9

%

Tangible Book Value per common share*

$

45.36

$

42.04

$

3.32

7.9

%

Common equity Tier 1 capital ratio (1)

11.3

%

10.3

%

1.0

Total risk based capital ratio (1)

14.3

%

13.2

%

1.1

(1) Regulatory capital ratios as of September 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)

Nine Months Ended

Increase (Decrease)

September 30,

2023

September 30,

2022

September 30,

2023

September 30,

2022

Profitability Metrics:

Net income available for

common shareholders

$

82,953

$

61,364

$

21,589

35.2

%

$

177,225

$

192,779

$

(15,554

)

(8.1

)%

Diluted earnings per share

$

2.58

$

1.85

$

0.73

39.5

%

$

5.53

$

5.72

$

(0.19

)

(3.3

)%

Core earnings*

$

83,294

$

82,270

$

1,024

1.2

%

$

186,600

$

217,047

$

(30,447

)

(14.0

)%

Core earnings per share*

$

2.59

$

2.48

$

0.11

4.4

%

$

5.82

$

6.44

$

(0.62

)

(9.6

)%

Return on average assets ("ROAA")

1.57

%

1.24

%

0.33

1.17

%

1.34

%

(0.17

)

Core ROAA*

1.57

%

1.64

%

(0.07

)

1.22

%

1.50

%

(0.28

)

Return on average common equity ("ROCE")

23.97

%

19.33

%

4.64

17.84

%

20.58

%

(2.74

)

Core ROCE*

24.06

%

25.91

%

(1.85

)

18.79

%

23.17

%

(4.38

)

Adjusted pre-tax pre-provision

net income*

$

128,564

$

100,994

$

27,570

27.3

%

$

314,679

$

319,335

$

(4,656

)

(1.5

)%

Net interest margin, tax equivalent

3.70

%

3.16

%

0.54

3.28

%

3.38

%

(0.10

)

Loan yield

7.87

%

5.08

%

2.79

7.12

%

4.77

%

2.35

Cost of deposits

3.24

%

1.48

%

1.76

3.23

%

0.80

%

2.43

Efficiency ratio

41.01

%

50.00

%

(8.99

)

45.62

%

43.46

%

2.16

Core efficiency ratio*

41.04

%

42.57

%

(1.53

)

45.03

%

41.23

%

3.80

Balance Sheet Trends:

Total assets

$

21,857,152

$

20,367,621

$

1,489,531

7.3

%

Total loans and leases

$

13,713,482

$

15,336,688

$

(1,623,206

)

(10.6

)%

Non-interest bearing demand deposits

$

4,758,682

$

2,993,793

$

1,764,889

59.0

%

Total deposits

$

18,195,364

$

17,522,438

$

672,926

3.8

...

%

Capital Metrics:

Common Equity

$

1,423,813

$

1,249,137

$

174,676

14.0

%

Tangible Common Equity*

$

1,420,184

$

1,245,508

$

174,676

14.0

%

Common Equity to Total Assets

6.5

%

6.1

%

0.4

Tangible Common Equity to

Tangible Assets*

6.5

%

6.1

%

0.4

Book Value per common share

$

45.47

$

38.46

$

7.01

18.2

%

Tangible Book Value per

common share*

$

45.36

$

38.35

$

7.01

18.3

%

Common equity Tier 1 capital

ratio (1)

11.3

%

9.8

%

1.5

Total risk based capital ratio (1)

14.3

%

12.5

%

1.8

(1) Regulatory capital ratios as of September 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)

September 30,

2023

% of

Total

June 30,

2023

% of

Total

September 30,

2022

% of

Total

Loans and Leases Held for Investment

Commercial:

Commercial & industrial:

Specialty lending

$

5,422,161

40.0

%

$

5,534,832

40.0

%

$

5,103,974

33.3

%

Other commercial & industrial

1,115,364

8.2

1,052,145

7.6

1,064,332

7.0

Multifamily

2,130,213

15.7

2,151,734

15.6

2,263,268

14.8

Loans to mortgage companies

1,042,549

7.7

1,108,598

8.0

1,708,587

11.1

Commercial real estate owner occupied

794,815

5.9

842,042

6.1

726,670

4.7

Loans receivable, PPP

137,063

1.0

188,763

1.4

1,154,632

7.5

Commercial real estate non-owner occupied

1,178,203

8.7

1,211,091

8.8

1,263,211

8.2

Construction

252,588

1.8

212,214

1.5

136,133

0.9

Total commercial loans and leases

12,072,956

89.0

12,301,419

89.0

13,420,807

87.5

Consumer:

Residential

483,133

3.6

487,199

3.5

465,772

3.1

Manufactured housing

40,129

0.3

41,664

0.3

46,990

0.3

Installment:

Personal

629,843

4.6

752,470

5.4

1,056,432

6.9

Other

337,053

2.5

250,047

1.8

341,463

2.2

Total installment loans

966,896

7.1

1,002,517

7.2

1,397,895

9.1

Total consumer loans

1,490,158

11.0

1,531,380

11.0

1,910,657

12.5

Total loans and leases held for investment

$

13,563,114

100.0

%

$

13,832,799

100.0

%

$

15,331,464

100.0

%

Loans Held for Sale

Commercial:

Multifamily

$

%

$

%

$

4,108

78.6

%

Commercial real estate non-owner occupied

Total commercial loans and leases

4,108

78.6

Consumer:

Residential

1,005

0.7

1,234

1.6

1,116

21.4

Installment:

Personal

124,848

83.0

76,874

98.4

Other

24,515

16.3

Total installment loans

149,363

99.3

76,874

98.4

Total consumer loans

150,368

100.0

78,108

100.0

1,116

21.4

Total loans held for sale

$

150,368

100.0

%

$

78,108

100.0

%

$

5,224

100.0

%

Total loans and leases portfolio

$

13,713,482

$

13,910,907

$

15,336,688

Loans and Leases Held for Investment

Loans and leases held for investment were $13.6 billion at September 30, 2023, down $269.7 million, or 1.9%, from June 30, 2023, consistent with our stated goal of purposely moderating loan growth and exiting non-strategic relationships. Loans held for investment decreased modestly in every category, except for relatively small increases in construction loans and in other commercial and industrial ("C&I") loans quarter-over-quarter. Other C&I loans increased $63.2 million, or 6.0% quarter-over-quarter, to $1.1 billion. Loans to mortgage companies decreased $66.0 million, or 6.0% quarter-over-quarter due to lower mortgage activity. Consumer installment loans held for investment decreased $35.6 million, or 3.6% 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 $13.6 billion at September 30, 2023 was down $1.8 billion, or 11.5%, year-over-year, largely driven by reduced balances in PPP loans of $1.0 billion, loans to mortgage companies of $666.0 million and consumer installment loans of $431.0 million, offset in part by net growth in the lower risk variable rate specialty lending verticals of $318.2 million. Consumer installment loans held for investment decreased $431.0 million, or 30.8% year-over-year, to $966.9 million as we continue to execute on our held-for-sale strategy and de-risk the held-for-investment loan portfolio in 2023.

Loans Held for Sale

Loans held for sale increased $72.3 million quarter-over-quarter, and were $150.4 million at September 30, 2023 as we continue to build out our held-for-sale strategy in 2023.

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)

September 30,

2023

June 30,

2023

September 30,

2023

September 30,

2022

Allowance for credit losses on loans and leases

$

139,213

$

139,656

$

(443

)

$

139,213

$

130,197

$

9,016

Provision (benefit) for credit losses on loans and leases

$

17,055

$

22,363

$

(5,308

)

$

17,055

$

(7,836

)

$

24,891

Net charge-offs from loans held for investment

$

17,498

$

15,564

$

1,934

$

17,498

$

18,497

$

(999

)

Annualized net charge-offs to average loans and leases

0.50

%

0.42

%

0.50

%

0.47

%

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

1.10

%

1.09

%

1.10

%

0.95

%

Net charge-offs were relatively stable with $17.5 million in Q3 2023, compared to $15.6 million in Q2 2023 and $18.5 million in Q3 2022.

Provision (benefit) for Credit Losses

Three Months Ended

Increase

(Decrease)

Three Months Ended

Increase

(Decrease)

(Dollars in thousands)

September 30,

2023

June 30,

2023

September 30,

2023

September 30,

2022

Provision (benefit) for credit losses on loans and leases

$

17,055

$

22,363

$

(5,308

)

$

17,055

$

(7,836

)

$

24,891

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

801

1,266

(465

)

801

(158

)

959

Provision for credit losses

17,856

23,629

(5,773

)

17,856

(7,994

)

25,850

Provision (benefit) for credit losses on unfunded commitments

48

(304

)

352

48

254

(206

)

Total provision for credit losses

$

17,904

$

23,325

$

(5,421

)

$

17,904

$

(7,740

)

$

25,644

The provision for credit losses on loans and leases in Q3 2023 was $17.1 million, compared to $22.4 million in Q2 2023 and a benefit to provision of $7.8 million in Q3 2022. The lower provision in Q3 2023 was primarily due to lower balances in loans held for investment. The benefit to provision in Q3 2022 was primarily due to the sale of $500.0 million of unsecured consumer installment loans, partially offset by loan growth and the recognition of weaker macroeconomic forecasts. The sale transaction resulted in approximately $36.8 million of release in allowance for credit losses, which was included in core earnings* in Q3 2022.

The provision for credit losses on available for sale investment securities in Q3 2023 was $0.8 million, compared to provision of $1.3 million in Q2 2023 and a benefit to provision of $0.2 million in Q3 2022.

Asset Quality

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

(Dollars in thousands)

September 30,

2023

June 30,

2023

Increase

(Decrease)

September 30,

2023

September 30,

2022

Increase

(Decrease)

Non-performing assets ("NPAs"):

Nonaccrual / non-performing loans ("NPLs")

$

29,867

$

28,244

$

1,623

$

29,867

$

27,919

$

1,948

Non-performing assets

$

29,970

$

28,380

$

1,590

$

29,970

$

27,965

$

2,005

NPLs to total loans and leases

0.22

%

0.20

%

0.22

%

0.18

%

Reserves to NPLs

466.11

%

494.46

%

466.11

%

466.34

%

NPAs to total assets

0.14

%

0.13

%

0.14

%

0.14

%

Loans and leases (1) risk ratings:

Commercial loans and leases (2)

Pass

$

10,503,731

$

10,667,619

$

(163,888

)

$

10,503,731

$

10,262,647

$

241,084

Special Mention

189,329

166,468

22,861

189,329

104,560

84,769

Substandard

280,267

272,301

7,966

280,267

329,878

(49,611

)

Total commercial loans and leases

10,973,327

11,106,388

(133,061

)

10,973,327

10,697,085

276,242

Consumer loans

Performing

1,473,493

1,508,208

(34,715

)

1,473,493

1,893,977

(420,484

)

Non-performing

16,665

23,172

(6,507

)

16,665

16,680

(15

)

Total consumer loans

1,490,158

1,531,380

(41,222

)

1,490,158

1,910,657

(420,499

)

Loans and leases receivable (1)

$

12,463,485

$

12,637,768

$

(174,283

)

$

12,463,485

$

12,607,742

$

(144,257

)

(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.

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 September 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 $58.2 million. At September 30, 2023, our consumer installment portfolio had the following characteristics: average original FICO score of 734, average debt-to-income of 19% and average borrower income of $106 thousand.

Non-performing loans at September 30, 2023 remained relatively stable at 0.22% of total loans and leases, compared to 0.20% at June 30, 2023 and 0.18% at September 30, 2022.

Investment Securities

Our investment securities portfolio, including debt securities classified as 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)

September 30,

2023

June 30,

2023

September 30,

2022

Debt securities, available for sale

$

2,746,729

$

2,797,940

$

2,918,830

Equity securities

26,478

26,698

24,864

Investment securities, at fair value

2,773,207

2,824,638

2,943,694

Debt securities, held to maturity

1,178,370

1,258,560

886,294

Total investment securities portfolio

$

3,951,577

$

4,083,198

$

3,829,988

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 September 30, 2023, our AFS debt securities portfolio had a spot yield of 5.43%, an effective duration of approximately 1.6 years, and approximately 48% are variable rate. Additionally, 64% of our AFS securities portfolio was AAA rated at September 30, 2023.

At September 30, 2023, our HTM debt securities portfolio represented only 5.4% of our total assets at September 30, 2023, had a spot yield of 4.34% and an effective duration of approximately 3.0 years. Additionally, at September 30, 2023, approximately 38% of our HTM securities were AAA rated and 55% were credit enhanced asset backed securities with no current expectation of credit losses.

Deposits

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

(Dollars in thousands)

September 30,

2023

% of

Total

June 30,

2023

% of

Total

September 30,

2022

% of

Total

Demand, non-interest bearing

$

4,758,682

26.2

%

$

4,490,198

25.0

%

$

2,993,793

17.1

%

Demand, interest bearing

5,824,410

32.0

5,551,037

30.9

7,124,663

40.7

Total demand deposits

10,583,092

58.2

10,041,235

55.9

10,118,456

57.8

Savings

1,118,353

6.1

1,048,229

5.8

592,002

3.4

Money market

2,499,593

13.7

2,004,264

11.2

4,913,967

28.0

Time deposits

3,994,326

22.0

4,856,703

27.1

1,898,013

10.8

Total deposits

$

18,195,364

100.0

%

$

17,950,431

100.0

%

$

17,522,438

100.0

%

Total deposits increased $244.9 million, or 1.4%, to $18.2 billion at September 30, 2023 as compared to the prior quarter. Importantly, non-interest bearing demand deposits increased $268.5 million, or 6.0%, to $4.8 billion. Money market deposits increased $495.3 million, or 24.7%, to $2.5 billion, interest bearing demand deposits increased $273.4 million, or 4.9%, to $5.8 billion, and savings deposits increased $70.1 million, or 6.7%, to $1.1 billion. These increases were offset in part by a decrease in time deposits of $862.4 million, or 17.8%, to $4.0 billion. The total average cost of deposits increased by 13 basis points to 3.24% in Q3 2023 from 3.11% in the prior quarter largely driven by the increase in market interest rates during the third quarter. Total estimated uninsured deposits was $4.1 billion1, or 22% of total deposits (inclusive of accrued interest) at September 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 $672.9 million, or 3.8%, to $18.2 billion at September 30, 2023 as compared to a year ago. Non-interest bearing demand deposits increased $1.8 billion, or 59.0%, to $4.8 billion, time deposits increased $2.1 billion to $4.0 billion and savings deposits increased $526.4 million, or 88.9%, to $1.1 billion. These increases were offset in part by decreases in money market deposits of $2.4 billion, or 49.1%, to $2.5 billion and interest bearing demand deposits of $1.3 billion, or 18.3%, to $5.8 billion. The total average cost of deposits increased by 176 basis points to 3.24% in Q3 2023 from 1.48% in the prior year primarily due to higher market interest rates and a shift in deposit mix.

____________________

1

Uninsured deposits (estimate) of $4.8 billion to be reported on the Bank's call report, less state and municipal deposits of $591.3 million collateralized by standby letters of credit from the FHLB and from our affiliates of $99.2 million.

Borrowings

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

(Dollars in thousands)

September 30,

2023

June 30,

2023

September 30,

2022

Federal funds purchased

$

$

$

365,000

FHLB advances

1,529,839

2,046,142

500,000

Senior notes

123,775

123,710

123,515

Subordinated debt

182,161

182,091

181,882

Total borrowings

$

1,835,775

$

2,351,943

$

1,170,397

Total borrowings decreased $516.2 million, or 21.9%, to $1.8 billion at September 30, 2023 as compared to the prior quarter. This decrease primarily resulted from the repayment of $510 million in callable FHLB advances. As of September 30, 2023, Customers' borrowing capacity with the FRB and FHLB was approximately $8.4 billion, of which $1.5 billion of available capacity was utilized in borrowings and $599.4 million was utilized to collateralize state and municipal deposits.

Total borrowings increased $665.4 million, or 56.9%, to $1.8 billion at September 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 $510 million in callable FHLB advances in Q3 2023 and 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)

September 30,

2023

June 30,

2023

September 30,

2022

Customers Bancorp, Inc.

Common Equity

$

1,423,813

$

1,318,858

$

1,249,137

Tangible Common Equity*

$

1,420,184

$

1,315,229

$

1,245,508

Common Equity to Total Assets

6.5

%

6.0

%

6.1

%

Tangible Common Equity to Tangible Assets*

6.5

%

6.0

%

6.1

%

Book Value per common share

$

45.47

$

42.16

$

38.46

Tangible Book Value per common share*

$

45.36

$

42.04

$

38.35

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

11.3

%

10.3

%

9.8

%

Total risk based capital ratio (1)

14.3

%

13.2

%

12.5

%

(1) Regulatory capital ratios as of September 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 $105.0 million to $1.4 billion, and tangible common equity* increased $105.0 million to $1.4 billion, at September 30, 2023 compared to the prior quarter, respectively, primarily from earnings of $83.0 million and decreased unrealized losses on investment securities of $18.4 million (net of taxes) deferred in accumulated other comprehensive income ("AOCI"). Similarly, book value per common share increased to $45.47 from $42.16, and tangible book value per common share* increased to $45.36 from $42.04, at September 30, 2023 and June 30, 2023, respectively.

Customers Bancorp's common equity increased $174.7 million to $1.4 billion, and tangible common equity* increased $174.7 million to $1.4 billion, at September 30, 2023 compared to a year ago, respectively, primarily from earnings of $202.8 million and decreased unrealized losses on investment securities in AOCI of $6.3 million (net of taxes), partially offset by $45.1 million of common share repurchases. Similarly, book value per common share increased to $45.47 from $38.46, and tangible book value per common share* increased to $45.36 from $38.35, at September 30, 2023 and September 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 11.3%, 14.3%, 6.5%, and 6.5%, respectively, at September 30, 2023.

At the Customers Bank level, capital levels remained strong and well above regulatory minimums. At September 30, 2023, Tier 1 capital (estimate) and total risk based capital (estimate) were 13.0% and 14.5%, respectively.

"Even though we remain well capitalized by all regulatory measures, we are committed to maintaining our CET 1 capital ratio between 11.0% - 11.5% at year-end 2023. In this environment, we will continue to be selective on new loan production to ensure the strength of our balance sheet and further improve our strong capital ratios," stated Jay Sidhu.

Key Profitability Trends

Net Interest Income

Net interest income totaled $199.8 million in Q3 2023, an increase of $34.5 million from Q2 2023, primarily due to higher interest income from variable rate lower credit risk specialty lending verticals of $35.9 million, which included the acquired Venture Banking portfolio, interest earning deposits of $16.2 million maintained in response to heightened liquidity risk in the banking system, particularly among regional banks since early March 2023, and investment securities of $6.2 million, reflecting higher average balance and market interest rates. These increases were partially offset by lower interest income on consumer installment loans of $13.0 million reflecting the impact of the sales transactions that occurred late in Q2 2023. In addition, interest expense on deposits and other borrowings increased by $11.7 million in Q3 2023 largely resulting from higher market interest rates.

"We experienced robust net interest income growth in the third quarter due to strong core business performance and outsized discount accretion recognized on the acquired loan portfolio from the FDIC. To provide some context on the outsized discount accretion, Venture Banking loans have more frequent financing needs than traditional commercial loans given ongoing capital raises and other activities of the companies. These activities were essentially paused between March and our acquisition of the loan portfolio in June. When our new Venture Banking team members were fully onboarded in July, they began addressing this backlog in earnest. We estimate approximately $27 million of interest income in Q3 2023 was attributable to outsized discount accretion," stated Customers Bancorp President Sam Sidhu.

Net interest income totaled $199.8 million in Q3 2023, an increase of $40.7 million from Q3 2022. This increase was due to higher interest income of $140.4 million resulting from increased average balance of interest earning assets of $1.5 billion, higher market interest rates on variable rate loans, investments and interest earning deposits, and discount accretion on the acquired Venture Banking portfolio, offset in part by higher interest expenses on deposits and other borrowings of $99.7 million primarily resulting from increased market interest rates and higher average balances of other borrowings. Interest-earning asset growth was primarily driven by increases in interest earning deposits and investments, C&I loans and leases, mostly in the variable rate lower credit risk specialty lending verticals, offset in part by decreases in PPP loans, as the PPP program was substantially completed in Q1 2023, consumer installment loans and commercial loans to mortgage companies. Total consumer installment loans decreased in Q3 2023 as compared to Q3 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)

September 30,

2023

June 30,

2023

September 30,

2023

September 30,

2022

Commercial lease income

$

8,901

$

8,917

$

(16

)

$

8,901

$

7,097

$

1,804

Loan fees

6,029

4,271

1,758

6,029

3,008

3,021

Bank-owned life insurance

1,973

4,997

(3,024

)

1,973

3,449

(1,476

)

Mortgage warehouse transactional fees

1,018

1,376

(358

)

1,018

1,545

(527

)

Gain (loss) on sale of SBA and other loans

(348

)

(761

)

413

(348

)

106

(454

)

Loss on sale of capital call lines of credit

(5,037

)

5,037

Loss on sale of consumer installment loans

(23,465

)

23,465

Net gain (loss) on sale of investment securities

(429

)

(429

)

(429

)

(2,135

)

1,706

Other

631

2,234

(1,603

)

631

1,378

(747

)

Total non-interest income

$

17,775

$

15,997

$

1,778

$

17,775

$

(9,017

)

$

26,792

Non-interest income totaled $17.8 million for Q3 2023, an increase of $1.8 million compared to Q2 2023. The increase 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 in Q2 2023 offset in part by decreases in death benefits paid by insurance carriers under bank-owned life insurance policies of $3.0 million.

Non-interest income totaled $17.8 million for Q3 2023, an increase of $26.8 million compared to Q3 2022. The increase was primarily due to a loss of $23.5 million realized from the sale of $500 million of consumer installment loans in Q3 2022 and an increase in loan fees of $3.0 million resulting from increased servicing-related revenue and unused line of credit fees.

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)

September 30,

2023

June 30,

2023

September 30,

2023

September 30,

2022

Salaries and employee benefits

$

33,845

$

33,120

$

725

$

33,845

$

31,230

$

2,615

Technology, communication and bank operations

15,667

16,407

(740

)

15,667

19,588

(3,921

)

Commercial lease depreciation

7,338

7,328

10

7,338

5,966

1,372

Professional services

8,569

9,192

(623

)

8,569

6,269

2,300

Loan servicing

3,858

4,777

(919

)

3,858

3,851

7

Occupancy

2,471

2,519

(48

)

2,471

2,605

(134

)

FDIC assessments, non-income taxes and regulatory fees

8,551

9,780

(1,229

)

8,551

2,528

6,023

Advertising and promotion

650

546

104

650

762

(112

)

Legal settlement expense

4,096

4,096

4,096

4,096

Other

4,421

5,628

(1,207

)

4,421

3,399

1,022

Total non-interest expense

$

89,466

$

89,297

$

169

$

89,466

$

76,198

$

13,268

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 $89.5 million in Q3 2023, an increase of $0.2 million compared to Q2 2023. The increase was primarily attributable to $4.1 million of expenses from a settlement with a third party PPP service provider and an increase of $0.7 million in salaries and employee benefits resulting from the onboarding of the Venture Banking team. These increases were partially offset by decreases of $1.2 million in FDIC assessments, non-income taxes and regulatory fees, $1.2 million in other expenses primarily due to lower provision for operating losses, $0.9 million in loan servicing from loan portfolios serviced by third parties, $0.7 million in technology, communication and bank operations mostly due to lower fees paid to BM Technologies and $0.6 million in professional fees.

Non-interest expenses totaled $89.5 million in Q3 2023, an increase of $13.3 million compared to Q3 2022. The increase was primarily attributable to $4.1 million of expenses from a settlement with a third party PPP service provider, and increases of $6.0 million in FDIC assessments, non-income taxes and regulatory fees resulting from higher FDIC assessment rates, $2.6 million in salaries and employee benefits primarily due to headcount, annual merit increases, incentives and stock awards, $2.3 million in professional fees mostly for technology, compliance and risk management, $1.4 million in commercial lease depreciation from growth and $1.0 million in other expenses. These increases were partially offset by a decrease of $3.9 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.

Taxes

Income tax expense increased by $2.7 million to $23.5 million in Q3 2023 from $20.8 million in Q2 2023 primarily due to higher pre-tax income, partially offset by tax expense of $4.1 million on surrendered bank-owned life insurance policies recognized in Q2 2023 and increased income tax credits.

Income tax expense increased by $5.6 million to $23.5 million in Q3 2023 from $17.9 million in Q3 2022 primarily due to higher pre-tax income, partially offset by increased income tax credits.

The effective tax rate for Q3 2023 was 21%. Customers expects the full-year 2023 effective tax rate to be approximately 22% to 24%.

Outlook

"Looking forward, our strategy and risk management principles will remain unchanged. We’re focused on managing risk, strengthening our deposit franchise, improving our profitability and increasing our capital ratios. Our deposits will be relatively flat with continued improvement in the quality of deposits, reducing higher cost wholesale deposits with lower cost core deposits. Following the robust 3.70% NIM in Q3 2023 which was boosted by the outsized discount accretion, we expect a normalization of NIM to roughly 3.20%-3.25% in Q4 2023. Core EPS (excluding PPP)* remains on track for, and will likely well exceed, our target of $6.00 per diluted share with a core return on common equity* of over 15%. Operating efficiency has and will continue to be a differentiator of our business model, and we will continue to only make investments that generate long-term positive operating leverage. We remain committed to maintaining a CET 1 ratio between 11.0%-11.5% at year-end 2023 and have also achieved the tangible book value per share target of $45.00, inclusive of the impact of AOCI, a full quarter early. We are committed to preserving superior credit quality, managing interest rate risk, maintaining robust liquidity, further improving our capital ratios and generating positive operating leverage," concluded 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, October 27, 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 3rd 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 about $22.0 billion in assets, making it one of the 80 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 2023 per American Banker list;

  • #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.

Q3 2023 Overview

The following table presents a summary of key earnings and performance metrics for the quarter ended September 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)

Q3

Q2

Q1

Q4

Q3

Nine Months Ended

September 30,

2023

2023

2023

2022

2022

2023

2022

GAAP Profitability Metrics:

Net income available to common shareholders

$

82,953

$

44,007

$

50,265

$

25,623

$

61,364

$

177,225

$

192,779

Per share amounts:

Earnings per share - basic

$

2.65

$

1.41

$

1.58

$

0.79

$

1.89

$

5.63

$

5.89

Earnings per share - diluted

$

2.58

$

1.39

$

1.55

$

0.77

$

1.85

$

5.53

$

5.72

Book value per common share (1)

$

45.47

$

42.16

$

41.08

$

39.08

$

38.46

$

45.47

$

38.46

CUBI stock price (1)

$

34.45

$

30.26

$

18.52

$

28.34

$

29.48

$

34.45

$

29.48

CUBI stock price as % of book value (1)

76

%

72

%

45

%

73

%

77

%

76

%

77

%

Average shares outstanding - basic

31,290,581

31,254,125

31,819,203

32,413,459

32,455,814

31,452,700

32,706,652

Average shares outstanding - diluted

32,175,084

31,591,142

32,345,017

33,075,422

33,226,607

32,036,459

33,706,864

Shares outstanding (1)

31,311,254

31,282,318

31,239,750

32,373,697

32,475,502

31,311,254

32,475,502

Return on average assets ("ROAA")

1.57

%

0.88

%

1.03

%

0.55

%

1.24

%

1.17

%

1.34

%

Return on average common equity ("ROCE")

23.97

%

13.22

%

16.00

%

8.05

%

19.33

%

17.84

%

20.58

%

Net interest margin, tax equivalent

3.70

%

3.15

%

2.96

%

2.67

%

3.16

%

3.28

%

3.38

%

Efficiency ratio

41.01

%

49.25

%

47.71

%

49.20

%

50.00

%

45.62

%

43.46

%

Non-GAAP Profitability Metrics (2):

Core earnings

$

83,294

$

52,163

$

51,143

$

39,368

$

82,270

$

186,600

$

217,047

Adjusted pre-tax pre-provision net income

$

128,564

$

96,833

$

89,282

$

81,377

$

100,994

$

314,679

$

319,335

Per share amounts:

Core earnings per share - diluted

$

2.59

$

1.65

$

1.58

$

1.19

$

2.48

$

5.82

$

6.44

Tangible book value per common share (1)

$

45.36

$

42.04

$

40.96

$

38.97

$

38.35

$

45.36

$

38.35

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

76

%

72

%

45

%

73

%

77

%

76

%

77

%

Core ROAA

1.57

%

1.03

%

1.05

%

0.81

%

1.64

%

1.22

%

1.50

%

Core ROCE

24.06

%

15.67

%

16.28

%

12.36

%

25.91

%

18.79

%

23.17

%

Adjusted ROAA - pre-tax and pre-provision

2.32

%

1.79

%

1.72

%

1.56

%

1.95

%

1.95

%

2.14

%

Adjusted ROCE - pre-tax and pre-provision

36.04

%

28.01

%

27.33

%

24.59

%

31.01

%

30.59

%

33.40

%

Net interest margin, tax equivalent, excluding PPP loans

3.75

%

3.20

%

2.80

%

2.87

%

3.18

%

3.27

%

3.27

%

Core efficiency ratio

41.04

%

47.84

%

47.09

%

49.12

%

42.57

%

45.03

%

41.23

%

Asset Quality:

Net charge-offs

$

17,498

$

15,564

$

18,651

$

27,164

$

18,497

$

51,713

$

39,204

Annualized net charge-offs to average total loans and leases

0.50

%

0.42

%

0.49

%

0.70

%

0.47

%

0.47

%

0.36

%

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

0.22

%

0.20

%

0.21

%

0.19

%

0.18

%

0.22

%

0.18

%

Reserves to NPLs (1)

466.11

%

494.46

%