Customers Bancorp Reports Strong Second Quarter 2020 Results
Customers Bancorp, Inc. (NYSE: CUBI) the parent company of Customers Bank and its operating division BankMobile (collectively “Customers” or "CUBI"), today reported second quarter 2020 ("Q2 2020") net income to common shareholders of $19.1 million, or $0.61 per diluted share. Core earnings (a non-GAAP measure) for Q2 2020 totaled $19.2 million, or $0.61 per diluted share.
“We are very pleased with our financial and business results to date in a difficult environment,” said Customers Bancorp Chairman and CEO Jay Sidhu. “But foremost, I am so pleased and proud to partner with such talented and hard-working team members at a time like this. We did not miss a beat in delivering tremendous service to our clients. And, we overcame tremendous obstacles to give access to Paycheck Protection Program loans to approximately 100,000 small businesses and non-profits. Working nearly around the clock, team members from every department worked with clients to finish loan applications to preserve the jobs of about 1 million Americans. Customers is poised for continued short-term and long-term improvements.”
In light of the COVID-19 public health crisis, Customers immediately responded and implemented the following:
Support for Team Members:
85% of our team members are currently working remotely and are expected to continue working remotely until a vaccine is developed; Special pay considerations, bonuses, additional PTO for essential front line team members; No furloughs; team members are at 100% pay; Zero-interest loans up to $2,500 are available to assist team members and their families facing challenges due to COVID-19; A hotline is available for any team member to call for assistance of any kind; and Set up a $1 million education scholarship fund for children of our team members.Support for Consumers and Businesses:
Participated in the SBA Paycheck Protection Program resulting in approximately $5.2 billion in PPP loan originations to date; Implemented payment modification programs for COVID-19 impacted clients; Not reporting payment deferrals to credit bureaus; and waiving or reducing certain fees.Support for Communities:
Donations leading to more than $1 million to communities in our footprint for urgent basic needs; Additional re-targeting of existing sponsorship and grants to non-profit organizations to support COVID-19 related activities; Provided a webinar for the entire business community on how to survive and thrive during this pandemic crisis; Represented community bank perspectives on CNBC and social media; and Engaged with all team members and our communities in fighting biases, discrimination, and inequalities for all minorities.Looking Ahead to the Remainder of 2020 and Beyond
Mr. Sidhu stated, "Before COVID-19, Customers was projecting core earnings per share of $3.00 for 2020 with continued improvement expected in all profitability metrics. However, rapid recent changes in economic activity introduce uncertainty to our near-term profitability. We have pivoted our strategy in this environment to building a stronger balance sheet and assisting our customers, team members and community to effectively deal with this crisis. Our provision will be higher, most customer activity will slow, and there will be disruptions, but we are also seeing positive trends in deposits and opportunities to serve customers through the SBA Paycheck Protection Program as well as other U.S. Treasury and Federal stimulus programs." Mr. Sidhu continued, "Despite all of this, we still are hoping to achieve about $3.00 per share in core earnings for 2020, subject to the amount of PPP revenues that will be recognized in 2020 and the economic environment in 2020. Longer term, we remain confident in our ability to achieve a run rate of about $6.00 per share in annual core earnings by the end of 2026."
6th Largest PPP Lender in U.S.; #1 Among Peers
Customers, directly or through fintech partnerships, originated approximately $5.2 billion in PPP loans to date, helping approximately 100,000 small businesses and non-profits across America and preserving about 1 million jobs. The expected revenue from this digital effort and fintech partnership resulted in Customers being the 6th largest PPP lender in the U.S., ranked by number of loans originated, and #1 position among its peer group. The average loan size disbursed by Customers was among the smallest by any bank, being approximately $50,000 per business, helping these small businesses across America save about 1 million jobs. This initiative is expected to result in Customers generating an estimated $100 million in origination fees to be recognized in interest income and an additional $10 million to $15 million in net interest income, materially boosting its tangible common equity to asset ratio. "This initiative is continuing," stated Sidhu.
Loan Portfolio Management during COVID-19 Crisis
Management's monitoring of the loan portfolio is the highest priority at Customers. In addition to very frequent client outreach and monitoring at the individual loan level, Customers has employed a bottoms up data driven approach to analyze its commercial portfolio. "Each borrower has been stressed for liquidity, debt capacity, and business profitability using forward looking views of their particular business sector, which sometimes reflect shock, reboot, and new normal scenarios. This data driven approach, completed with our traditional high touch approach with risk management processes best positions us to get out ahead of any deterioration in credit quality," Sidhu stated.
Here are some details about the loan portfolio with ending balances as of June 30, 2020 and deferment data presented as of July 24, 2020:
Commercial loan portfolio positioned well moving into COVID-19
Significant portions of the portfolio represent lending activity to industries that have not been significantly impacted, or not impacted at all, such as Customers' mortgage warehouse and specialty finance lender finance portfolios, which represent 32% and 7%, respectively, of the total commercial loan portfolio, excluding PPP loans. Borrowers in these two segments have requested no deferrals and have no delinquencies. Exposure to industry segments significantly impacted by COVID-19 is not substantial. The energy and utilities exposure was only $79 million (77% are wind farms); $65 million in colleges and universities (with no deferments requested); $54 million in CRE retail sales exposure (mostly auto sales); $51 million in franchise restaurants and dining; and $24 million in entertainment only businesses. Hospitality portfolio is approximately $413 million (about 5% of total commercial loans, excluding PPP), with 73% requesting deferment. Approximately 20% of the portfolio is operating at 95%+ occupancy under government contracts for transitional housing. The portfolio has an average loan to value of 65% (generally based on appraised value at time of origination) with approximately 75% having full or partial recourse. Healthcare portfolio is approximately $290 million, comprised predominantly of skilled nursing, which has been deemed an essential business and through a number of federal and state actions has been provided immunity from liability for COVID-19 related deaths. No deferments have been requested and there are no delinquencies. Multi-family portfolio is highly seasoned, with an average vacancy rate of 3.4% and loan to value of 56% (generally based on appraised value at time of origination). 58% of the portfolio is in New York City, of which 69% is in rent controlled/regulated properties with a vacancy rate of only 1.8%. As of July 24, 2020, 10% of the portfolio was on 90-day deferment. Investment CRE has a DSCR of 2.22x and loan to value of 51% (generally based on appraised value at time of origination), with most of the portfolio housed in the New York, Philadelphia, and Boston metro and surrounding markets.Steady decline in commercial deferment rates as COVID-19 has progressed
Customers' deferments have declined from a peak of about $1.2 billion, or about 13% of the commercial loan portfolio, to approximately $690 million, or about 8% of the commercial loan portfolio as of July 24, 2020.
Strong other consumer loan performance
$1.3 billion other consumer loan portfolio outperforms industry peers with deferments dropping below 2% and 30+ DPD delinquency below 1%. Strong credit quality (83% 750+ FICO), low concentration in at risk job segments, and outstanding performance of CB Direct originations have resulted in solid results through end of 2Q. Other consumer loan portfolio being managed to zero growth and strengthening credit quality, by replacing run-off with CB Direct originations 700 FICO and above.Aggressively addressing non-performing assets
Customers has been proactively addressing two large loans, which make up approximately 53% of non-performing assets as of June 30, 2020. Both of these assets were showing some weakness pre-COVID and Customers opted to take a proactive strategy in identifying and aggressively acting to address these two assets and move them off our balance sheet.
Laser focused on communicating with our borrowers
Undergoing an intensive and continuous portfolio management program that is laser focused on communicating with our borrowers, assessing their future prospects, and incorporating therein industry trends is Customers Bank's style. This program involves the entire senior management team and has been, and continues to be, performed from both a market and line of business perspective. This has enabled identification of problem credits early-on and allows us to accurately assess underlying borrower/portfolio risk and mitigate activities that will lead to increased exposure.
Stress testing
In addition to loan level stress testing, Customers also completed a thorough stress testing of its entire loan portfolio to base, moderate, and most severely adverse cases. "We are pleased to report that Customers remained well capitalized; with mitigating factors, under all those scenarios," stated Sidhu.
Status Report on Strategic Priorities Articulated at Analyst Day in October 2018, with Subsequent Updates
Improve Profitability: Top Quartile Profitability with 1.25% Core ROAA in 2-3 years
As stated during our 2018 Analysts Day in October 2018, Customers expects to remain focused on growing its core businesses, while improving margins, capital and profitability. Through favorable mix shifts in both assets and liabilities, while maintaining its superior credit quality culture and extreme focus on productivity improvement, Customers improved the overall quality of its balance sheet and deposit franchise, expanded its net interest margin, enhanced liquidity and remains relatively neutral to interest rate changes. The strategies articulated at the 2018 Analysts Day in October 2018 and subsequent progress through Q2 2020 are summarized below:
Target ROAA in top quartile of peer group, which we expect will equate to a ROAA of 1.25% or higher over the next 2-3 years. ROAA was 0.62% in Q2 2020, up from Q1 2020 ROAA of 0.11% due to the decreases in interest expense on deposits driven by the Federal Reserve interest rate cuts of 150 basis points in March 2020 and in provision for credit losses on loans and leases, mostly due to a reduction in net charge-offs. The pre-tax and pre-provision adjusted ROAA (a non-GAAP measure) was 1.39% for Q2 2020, up 38 basis points from 1.01% in Q2 2019. Achieve NIM expansion to 2.75% or greater by Q4 2019, with full year 2019 NIM above 2.70%, through an expected shift in asset and funding mix. Actual results for 2019 were materially better, with full year 2019 NIM of 2.75%. NIM in Q2 2020 was 2.65%, down from 2.99% in Q1 2020 and up from 2.64% in Q2 2019. Since Q3 2018, Customers effectively restructured its balance sheet resulting in NIM expansion of 18 basis points. Net interest margin, excluding PPP loans, expected to remain on average between 2.9% and 3.0% for 2020. BankMobile growth and maturity was expected with profitability achieved by year end 2019. BankMobile reached profitability in Q3 2019 and maintained profitability in Q4 2019 and Q2 2020, and was also profitable in Q1 2020 on an adjusted pre-tax pre-provision basis (a non-GAAP measure). BankMobile's profitability in Q1 2020 was negatively impacted by increased CECL-related provision expense, the COVID-19 crisis, a legal reserve of $1 million related to the previously disclosed DOE matter, increased depreciation expense related to capitalized development costs for technology placed in service in 2019 and non-capitalizable technology-related expenses. Key strategic priorities for 2020 include keeping BankMobile profitable, and attempting to divest it by the end of 2020. Expense control. Customers' efficiency ratio was 58.44% in Q2 2020, down from 66.03% in Q1 2020 and 77.32% in Q2 2019. Improving operating efficiency is a high priority. Growth in core deposits and good quality higher-yielding loans. Demand Deposit Accounts ("DDAs") grew 97% year-over-year. Lower yielding multi-family loans decreased by $1.0 billion, or 33%, year-over-year and were replaced by higher yielding C&I loans and leases and other consumer loans, which had net growth of $515 million and $712 million year-over-year, respectively. Customers originated $4.8 billion of PPP loans during Q2 2020 and approximately $5.2 billion year to date. Maintain strong credit quality and superior risk management. Non-performing loans ("NPLs") were negatively impacted by two commercial real estate loans in northern New Jersey and Massachusetts, respectively. In spite of this, NPLs were only 0.56% of total loans and leases at June 30, 2020. Customers expects to resolve both of these credits during Q3 or Q4 2020. Reserves to NPLs at June 30, 2020 were 185% and the coverage ratio was 2.2% of loans and leases receivable, excluding PPP loans (a non-GAAP measure). The Bank is relatively neutral to interest rate changes at June 30, 2020. We remain very focused on a strong Risk Management culture throughout our company. Evaluate opportunities to redeem our preferred stock as it becomes callable. Redeeming all of the preferred stock as it becomes callable would result in an increase to our diluted earnings per share by approximately $0.46 annually, if not replaced. Given the current economic uncertainty stemming from the COVID-19 crisis, Customers will not call for redemption any preferred stock in 2020 or 2021.Focus on Capital Allocation
Customers remains well capitalized by all regulatory measures. At the Customers Bank level, CET 1 ratio was 10.64% and total capital to risk weighted assets was 12.30% at June 30, 2020. "We continue to target reaching about a 7.00% tangible common equity ratio (a non-GAAP measure) organically by the end of 2020 for Customers Bancorp, from strong earnings and controlled balance sheet growth. Customers intends to fund all PPP loans by borrowing from the Federal Reserve PPP Liquidity Facility and pledging the PPP loans as collateral, eliminating any capital needs for any of its PPP loans. Since the average PPP loan on the books is approximately $50,000, we expect about 90% of our loans to be forgiven by the SBA," Sidhu commented. "As stated earlier, PPP initiatives by Customers Bank should result in over $100 million in origination revenues, adding materially to our tangible common equity to asset ratio," concluded Sidhu.
Q2 2020 Overview
The following table presents a summary of key earnings and performance metrics for the quarter ended June 30, 2020 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,
2020
2020
2019
2019
2019
2020
2019
GAAP Profitability Metrics:
Net income available to common shareholders
$
19,137
$
(515
)
$
23,911
$
23,451
$
5,681
$
18,621
$
17,506
Per share amounts:
Earnings per share - basic
$
0.61
$
(0.02
)
$
0.76
$
0.75
$
0.18
$
0.59
$
0.56
Earnings per share - diluted
$
0.61
$
(0.02
)
$
0.75
$
0.74
$
0.18
$
0.59
$
0.55
Book value per common share (1)
$
25.08
$
23.74
$
26.66
$
25.66
$
24.80
$
25.08
$
24.80
CUBI stock price (1)
$
12.02
$
10.93
$
23.81
$
20.74
$
21.00
$
12.02
$
21.00
CUBI stock price as % of book value (1)
48
%
46
%
89
%
81
%
85
%
48
%
85
%
Average shares outstanding - basic
31,477,591
31,391,151
31,306,813
31,223,777
31,154,292
31,434,371
31,101,037
Average shares outstanding - diluted
31,625,771
31,391,151
31,876,341
31,644,728
31,625,741
31,625,669
31,548,022
Shares outstanding (1)
31,510,287
31,470,026
31,336,791
31,245,776
31,202,023
31,510,287
31,202,023
Return on average assets ("ROAA")
0.62
%
0.11
%
0.97
%
0.95
%
0.36
%
0.40
%
0.50
%
Return on average common equity ("ROCE")
9.97
%
(0.26
)
%
11.58
%
11.81
%
2.96
%
4.74
%
4.65
%
Efficiency ratio
58.44
%
66.03
%
56.98
%
61.58
%
77.32
%
62.09
%
72.76
%
Non-GAAP Profitability Metrics (2):
Core earnings
$
19,174
$
603
$
23,843
$
23,402
$
12,688
$
19,776
$
24,768
Adjusted pre-tax pre-provision net income
$
50,766
$
38,595
$
44,676
$
39,440
$
26,140
$
89,360
$
51,445
Core ROAA
0.62
%
0.15
%
0.97
%
0.95
%
0.63
%
0.41
%
0.64
%
Core ROCE
9.99
%
0.30
%
11.55
%
11.78
%
6.62
%
5.04
%
6.57
%
Adjusted ROAA - pre-tax and pre-provision
1.39
%
1.34
%
1.57
%
1.39
%
1.01
%
1.37
%
1.03
%
Adjusted ROCE - pre-tax and pre-provision
24.59
%
17.41
%
19.89
%
18.04
%
11.75
%
20.92
%
11.73
%
Core efficiency ratio
55.39
%
63.33
%
56.76
%
59.21
%
69.25
%
59.16
%
68.66
%
Core earnings per share - diluted
$
0.61
$
0.02
$
0.75
$
0.74
$
0.40
$
0.63
$
0.79
Tangible book value per common share (1)
$
24.62
$
23.27
$
26.17
$
25.16
$
24.30
$
24.62
$
24.30
CUBI stock price as % of tangible book value (1)
49
%
47
%
91
%
82
%
86
%
49
%
86
%
Net interest margin, tax equivalent
2.65
%
2.99
%
2.89
%
2.83
%
2.64
%
2.80
%
2.62
%
Net interest margin, tax equivalent, excluding PPP loans
2.97
%
2.99
%
2.89
%
2.83
%
2.64
%
2.98
%
2.62
%
Asset Quality:
Net charge-offs
$
10,325
$
18,711
$
4,362
$
1,761
$
637
$
29,035
$
1,697
Annualized net charge-offs to average total loans and leases
0.32
%
0.79
%
0.18
%
0.07
%
0.03
%
0.52
%
0.04
%
Non-performing loans ("NPLs") to total loans and leases (1)
0.56
%
0.49
%
0.21
%
0.17
%
0.15
%
0.56
%
0.15
%
Reserves to NPLs (1)
185.36
%
296.44
%
264.67
%
290.38
%
330.36
%
185.36
%
330.36
%
Customers Bank Capital Ratios (3):
Common equity Tier 1 capital to risk-weighted assets
10.64
%
10.60
%
11.32
%
10.85
%
11.19
%
10.64
%
11.19
%
Tier 1 capital to risk-weighted assets
10.64
%
10.60
%
11.32
%
10.85
%
11.19
%
10.64
%
11.19
%
Total capital to risk-weighted assets
12.30
%
12.21
%
12.93
%
12.42
%
12.84
%
12.30
%
12.84
%
Tier 1 capital to average assets (leverage ratio)
9.59
%
9.99
%
10.38
%
9.83
%
10.32
%
9.59
%
10.32
%
(1) Metric is a spot balance for the last day of each quarter presented.
(2) Non-GAAP measures exclude unrealized gains (losses) on loans HFS, investment securities gains and losses, severance expense, merger and acquisition-related expenses, losses realized from the sale of non-QM residential mortgage loans, loss upon acquisition of interest-only GNMA securities, legal reserves, credit valuation adjustments on derivatives, risk participation agreement mark-to-market adjustments, and goodwill and intangible assets. These notable items are not included in Customers' disclosures of core earnings and other core profitability metrics. Please note that not each of the aforementioned adjustments affected the reported amount in each of the periods presented. 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 2020 and actual for the remaining periods. In accordance with regulatory capital rules, Customers elected an option to delay the estimated impact of CECL on its regulatory capital over a five-year transition period ending January 1, 2025. As a result, capital ratios and amounts as of Q2 2020 exclude the impact of the increased allowance for credit losses on loans and leases and unfunded loan commitments attributed to the adoption of CECL and 25% of the quarterly provision for credit losses for subsequent quarters through Q4 2021.
Net Interest Income
Net interest income totaled $92.0 million in Q2 2020, an increase of $10.7 million from Q1 2020, primarily due to a $3.0 billion increase in average interest-earning assets, mostly driven by PPP loan originations and increases in commercial loans to mortgage companies, partially offset by a 34 basis point decline in NIM (a non-GAAP measure) to 2.65%. Compared to Q1 2020, total loan yields decreased 117 basis points to 3.72%. The decrease primarily resulted from the origination of PPP loans, comprising 31% of the total loans and leases at June 30, 2020, yielding 1.71%, and the two Federal Reserve interest rate cuts for 150 basis points during March 2020 due to COVID-19. The cost of interest-bearing deposits in Q2 2020 similarly decreased by 71 basis points to 1.11% due to the interest rate cuts during March 2020. Borrowing costs excluding the impact of FRB PPP Liquidity Facility borrowings decreased by 154 basis points to 1.62% due to the decline in interest rates on short-term borrowings from the interest rate cuts. During Q2 2020, Customers obtained FRB PPP Liquidity Facility borrowings of $4.4 billion, costing 0.35%, to fund its PPP loan originations.
Q2 2020 net interest income increased $27.3 million from Q2 2019, primarily due to a $4.1 billion increase in average interest-earnings assets, primarily related to PPP loan originations, increases in other consumer loans, commercial loans to mortgage companies, and commercial and industrial loans, and one basis point of NIM expansion to 2.65%. Compared to Q2 2019, total loan yields decreased 90 basis points to 3.72%. The decrease primarily resulted from the originations of PPP loans, now comprising 31% of the total loans and leases at June 30, 2020, yielding 1.71%, and the Federal Reserve interest rate cuts for 225 basis points since August 2019.
Total loans and leases increased $5.6 billion, 57%, to $15.3 billion at June 30, 2020 compared to the year-ago period. Customers originated $4.8 billion in PPP loans directly or through fintech partnerships during Q2 2020. Additionally, loan mix improved year-over-year as mortgage warehouse loans increased $778 million to $2.8 billion, commercial and industrial loans and leases increased $515 million to $2.1 billion, commercial real estate non-owner occupied loans increased $86 million to $1.3 billion, and other consumer loans increased $712 million to $1.3 billion. These increases were offset in part by planned decreases in multi-family loans of $990 million to $2.0 billion and residential mortgages of $311 million to $353 million.
Total deposits increased $2.8 billion, or 34%, to $11.0 billion at June 30, 2020 compared to the year-ago period. Total demand deposits increased $2.2 billion, or 97%, to $4.5 billion, money market deposits increased $492 million, or 17%, to $3.4 billion, and savings deposits increased $615 million, or 116%, to $1.1 billion. These increases were offset in part by a decrease in time deposits of $568 million, or 23%, to $1.9 billion.
Risk Management, Provision and Credit Quality
Risk management is a critical component of how Customers creates long-term shareholder value, and Customers believes that asset quality is one of the most important risks in banking to be understood and managed. Customers believes that asset quality risks must be diligently addressed during good economic times with prudent underwriting standards so that when the economy deteriorates the bank's capital is sufficient to absorb all losses without threatening its ability to operate and serve its community and other constituents. Since mid-2019, Customers has been operating in a pre-recessionary environment assuming a recession was imminent in the foreseeable future. "Our Credit Administration Group and Market Presidents started analyzing their portfolios, in detail, and stressing them under adverse scenarios and either exiting or increasing the monitoring activities of higher risk credits. Customers' non-performing loans at June 30, 2020 were only 0.56% of total loans and leases, compared to the industry average non-performing loans of 1.01%, in the most recent period available. Our Q2 2020 non-performing loans were impacted by two commercial real estate credits, with both expected to be resolved during Q3 or Q4 2020, reducing our non-performing loans in future periods. Our expectation is superior asset quality performance in good times and in difficult years," said Mr. Sidhu.
The provision for credit losses on loans and leases in Q2 2020, which was calculated under the CECL accounting standard effective January 1, 2020, was $20.9 million, compared to $31.8 million in Q1 2020 and $5.3 million in Q2 2019. The decrease compared to Q1 2020 primarily resulted from a decline in net charge-offs, while the increase compared to Q2 2019 primarily resulted from the adoption of CECL and the impact of COVID-19. Net charge-offs for Q2 2020 were $10.3 million, or 32 basis points of average loans and leases on an annualized basis, compared to net charge-offs of $18.7 million, or 79 basis points in Q1 2020, and $0.6 million, or 3 basis points in Q2 2019. The allowance for credit losses on loans and leases represented 2.2% of total loans and leases receivable, excluding PPP loans (a non-GAAP measure) at June 30, 2020, compared to 2.0% at March 31, 2020, and 0.6% at June 30, 2019. The allowance for credit losses for unfunded loan commitments is presented within accrued interest payable and other liabilities in the consolidated balance sheet. The Q2 2020 provision for credit losses for unfunded loan commitments was a credit of $0.4 million, compared to a provision of $0.8 million in Q1 2020, and is presented as part of other non-interest expense.
Non-Interest Income
Non-interest income totaled $22.2 million for Q2 2020, an increase of $0.3 million compared to Q1 2020. The increase in non-interest income primarily resulted from increases of $2.6 million in unrealized gain on equity securities issued by a foreign entity, $0.6 million in mortgage warehouse transactional fees, and $0.4 million in gain on sale of investment securities, offset in part by decreases of $2.8 million in other non-interest income and $0.3 million in interchange and card revenue. The increase in mortgage warehouse transactional fees primarily resulted from an increase in transaction volumes due to a decline in market interest rates. The increase in gain on sale of investment securities primarily related to gains realized from the sale of $30.0 million of corporate bonds and $6.3 million in non-agency guaranteed collateralized mortgage obligations in Q2 2020. The decrease in other non-interest income primarily resulted from a negative credit valuation adjustment of $1.8 million primarily resulting from an interest rate swap associated with a non-performing borrower, partially offset by changes in market interest rates, an unrealized loss on one loan held for sale of $1.5 million, and a decline in swap premiums of $1.2 million, offset by an increase in non-qualified retirement plan assets of $1.2 million due to market driven gains of those investments. The decrease in interchange and card revenue primarily resulted from lower activity volumes at BankMobile, principally due to COVID-19.
Non-interest income totaled $22.2 million in Q2 2020, an increase of $10.2 million compared to Q2 2019. The increase in non-interest income primarily resulted from a decrease of $7.5 million in loss realized upon the acquisition of certain interest-only GNMA securities in Q2 2019 and increases of $4.4 million in realized gain on sale of investment securities, $1.7 million in commercial lease income, $1.5 million in unrealized gain on equity securities issued by a foreign entity, $0.9 million in mortgage warehouse transactional fees, offset in part by a decreases of $5.3 million in other non-interest income and $0.3 million in interchange and card revenue. The decrease in loss realized upon the acquisition of certain interest-only GNMA securities resulted from a mortgage warehouse customer that unexpectedly ceased operations in Q2 2019. The increase in gains on sale of investment securities resulted from the sale of $30.0 million of corporate bonds and $6.3 million in non-agency guaranteed collateralized mortgage obligations in Q2 2020. The increase in commercial lease income primarily resulted from organic growth in commercial operating leases. The increase in mortgage warehouse transactional fees primarily resulted from increased refinancing activity driven by the decline in market interest rates. The decrease in non-interest income primarily resulted from a negative mark-to-market derivative credit valuation adjustment of $3.3 million, mostly due to market interest rates and resulting from an interest rate swap associated with a non-performing borrower, an unrealized loss on one loan held for sale of $1.5 million, and a decline in swap premiums of $0.9 million. The decrease in interchange and card revenue primarily resulted from lower activity volumes at BankMobile, principally due to COVID-19.
Non-Interest Expense
Non-interest expense totaled $63.5 million for Q2 2020, a decrease of $3.0 million compared to Q1 2020. The decrease in non-interest expense primarily resulted from decreases of $3.3 million in other non-interest expenses, $3.1 million in professional services, and $1.1 million in advertising and promotion, partially offset in part by increases of $3.0 million in salaries and employee benefits and $1.4 million in loan workout. The decrease in other non-interest expenses was driven by legal reserves of $1.0 million related to a partial settlement of the previously disclosed DOE matter in Q1 2020, a decrease in the provision for credit losses for unfunded commitments of $1.2 million, and a decline in expenses associated with our white label collaboration. The decrease in professional services was primarily driven by management's continued efforts to monitor and control expenses. The decrease in advertising and promotion was driven by decreases in promotional campaigns related to Customers' Digital Banking product and BankMobile and its white label collaboration. The increase in salaries and employee benefits was primarily driven by an increase in full time equivalents needed for future growth. The increase in loan workout was primarily driven by two commercial relationships that are expected to be resolved in the second half of 2020.
Non-interest expense totaled $63.5 million in Q2 2020, an increase of $3.9 million compared to Q2 2019. The increase in non-interest expense primarily resulted from increases of $4.4 million in salaries and employee benefits, $1.4 million in commercial lease depreciation, $1.2 million in loan workout, and $0.9 million in technology, communications and bank operations, offset in part by a decreases of $1.4 million in provision for operating losses, $1.2 million in professional services, $0.8 million in other non-interest expense, and $0.8 million in advertising and promotion. The increase in salaries and employee benefits was primarily driven by annual salary increases and an increase in full time equivalents to support future growth. The increase in commercial lease depreciation was primarily driven by the organic growth of the commercial operating lease portfolio. The increase in loan workout was primarily driven by two commercial relationships. The increase in technology, communications and bank operations primarily resulted from the continued investment in Customers' digital transformation initiatives. The decrease in provision for operating losses was primarily driven from initiatives implemented by management to reduce fraud and theft-based losses. The decrease in professional services was primarily driven by management's continued efforts to monitor and control expenses. The decrease in other non-interest expense was primarily driven by a decline in expenses associated with our white label collaboration. The decrease in advertising and promotion was primarily driven by decreases in promotional campaigns related to Customers' Digital Banking product and BankMobile and its white label collaboration.
Taxes
Customers' effective tax rate was 23.7% for Q2 2020, compared to 38.1% for Q1 2020 and 21.1% for Q2 2019. The decrease in the effective tax rate from Q1 2020 was primarily driven by discrete provision items which increased income tax expense in Q1 2020. The increase in the effective tax rate in Q2 2020 when compared to Q2 2019 is mainly driven by a favorable return to provision adjustment recorded during Q2 2019.
Looking Ahead
Customers is well positioned to execute on its 2020 and 2026 LT strategies
Net interest margin, excluding PPP loans, expected to remain on average between 2.9% and 3.0% for 2020 Core operating expenses expected to remain flat over next few quarters Tax rate expected to be 22% to 23% for 2020 Excluding PPP loans, balance sheet at year-end 2020 expected to be about the same or moderately higher than at December 31, 2019 Absent a further deterioration in economic forecasts, management does not expect a material build up in CECL reserves in future quarters PPP loans expected to add about $100 million (pre-tax) to equity capital Management focused on the longer term horizon, striving to achieve a run rate of $6.00 per share in core earnings by end of 2026Capital allocation and philosophy
Targeting CET 1 of 10.5% to 11.0% at Customers Bank and tangible common equity to tangible assets targeted at about 7.0% at year-end 2020 for the holding company, excluding PPP loans Preferred equity will not be called in 2020 or 2021BankMobile
BankMobile expected to remain profitable in 2020 Divestiture on target for completion by year-end 2020Webcast
Date:
Thursday, July 30, 2020
Time:
9:00 AM EDT
The live audio webcast and presentation slides will be made available at https://www.customersbank.com/investor-relations/ and at Customers Bank 2nd Quarter Earnings Webcast.
The second quarter 2020 earnings press release will be issued before the market opens on Thursday, July 30, 2020.
You may submit questions in advance of the live webcast by emailing Customers' Director of Investor Relations, Bob Ramsey at rramsey@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. Telephone playback of the webcast audio will be available beginning July 30 at 2:00 PM EDT until 2:00 PM EDT on August 20, 2020. Details to access the telephone playback will also be found on the Customers Bank Investor Relations page.
Institutional Background
Customers Bancorp, Inc. is a bank holding company located in West Reading, Pennsylvania engaged in banking and related businesses through its bank subsidiary, Customers Bank. Customers Bank is a community-based, full-service bank with assets of approximately $17.9 billion at June 30, 2020. A member of the Federal Reserve System with deposits insured by the Federal Deposit Insurance Corporation, Customers Bank is an equal opportunity lender that provides a range of banking services to small and medium-sized businesses, professionals, individuals and families through offices in Pennsylvania, Illinois, New York, Rhode Island, Massachusetts, New Hampshire and New Jersey. Committed to fostering customer loyalty, Customers Bank uses a High Tech/High Touch strategy that includes use of industry-leading technology to provide customers better access to their money, as well as Concierge Banking® by appointment at customers’ homes or offices 12 hours a day, seven days a week. Customers Bank offers a continually expanding portfolio of loans to small businesses, multi-family projects, mortgage companies and consumers.
Customers Bancorp, Inc.'s voting common shares are listed on the New York Stock Exchange under the symbol CUBI. Additional information about Customers Bancorp, Inc. can be found on the Company’s website, 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,” 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: the adverse impact on the U.S. economy, including the markets in which we operate, of the coronavirus outbreak, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan and lease portfolio, the market value of our investment securities, 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 effect 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; the effects of changes in accounting standards or policies, including Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (CECL); and, our ability to divest BankMobile on terms and conditions acceptable to us, in the timeframe we currently intend, and the possible effects on our business and results of operations of a divestiture of BankMobile or if we are unable to divest BankMobile for an extended period of time. 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, 2019, 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.
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,
2020
2020
2019
2019
2019
2020
2019
Interest income:
Loans and leases
$
118,447
$
116,080
$
116,365
$
118,444
$
103,567
$
234,527
$
196,683
Investment securities
6,155
4,977
5,125
5,867
6,481
11,132
12,722
Other
616
4,286
2,505
2,407
1,902
4,902
3,620
Total interest income
125,218
125,343
123,995
126,718
111,950
250,561
213,025
Interest expense:
Deposits
23,238
34,353
35,992
38,267
35,980
57,591
67,204
FHLB advances
4,736
5,390
6,056
7,563
7,607
10,127
12,900
Subordinated debt
2,689
2,689
1,930
1,684
1,684
5,378
3,369
Federal funds purchased and other borrowings
2,573
1,590
2,424
3,469
2,000
4,163
5,569
Total interest expense
33,236
44,022
46,402
50,983
47,271
77,259
89,042
Net interest income
91,982
81,321
77,593
75,735
64,679
173,302
123,983
Provision for credit losses on loans and leases
20,946
31,786
9,689
4,426
5,346
52,732
10,113
Net interest income after provision for credit losses on loans and leases
71,036
49,535
67,904
71,309
59,333
120,570
113,870
Non-interest income:
Interchange and card revenue
6,478
6,809
6,506
6,869
6,760
13,287
15,565
Deposit fees
3,321
3,460
3,616
3,642
3,348
6,782
5,557
Commercial lease income
4,508
4,268
3,839
3,080
2,730
8,776
5,131
Bank-owned life insurance
1,757
1,762
1,795
1,824
1,836
3,519
3,653
Mortgage warehouse transactional fees
2,582
1,952
1,983
2,150
1,681
4,533
2,995
Gain (loss) on sale of SBA and other loans
23
11
2,770
—
—
34
—
Mortgage banking income (loss)
38
296
(635
)
283
250
334
417
Loss upon acquisition of interest-only GNMA securities
—
—
—
—
(7,476
)
—
(7,476
)
Gain (loss) on sale of investment securities
4,353
3,974
—
1,001
—
8,328
—
Unrealized gain (loss) on investment securities
1,200
(1,378
)
310
1,333
(347
)
(178
)
(345
)
Other
(2,024
)
776
5,629
3,187
3,254
(1,248
)
6,257
Total non-interest income
22,236
21,930
25,813
23,369
12,036
44,167
31,754
Non-interest expense:
Salaries and employee benefits
31,296
28,310
27,697
27,193
26,920
59,607
52,743
Technology, communication and bank operations
13,310
13,050
10,370
8,755
12,402
26,360
24,355
Professional services
4,552
7,670
6,470
8,348
5,718
12,223
10,291
Occupancy
3,025
3,032
3,470
3,661
3,064
6,057
5,967
Commercial lease depreciation
3,643
3,427
2,840
2,459
2,252
7,070
4,174
FDIC assessments, non-income taxes and regulatory fees
2,368
2,867
2,492
(777
)
2,157
5,235
4,145
Provision for operating losses
1,068
912
1,415
3,998
2,446
1,980
4,225
Advertising and promotion
582
1,641
899
976
1,360
2,222
2,169
Merger and acquisition related expenses
25
50
100
—
—
75
—
Loan workout
1,808
366
230
495
643
2,175
963
Other real estate owned
12
8
247
108
(14
)
20
43
Other
1,817
5,126
2,510
4,376
2,634
6,941
4,491
Total non-interest expense
63,506
66,459
58,740
59,592
59,582
129,965
113,566
Income before income tax expense
29,766
5,006
34,977
35,086
11,787
34,772
32,058
Income tax expense
7,048
1,906
7,451
8,020
2,491
8,955
7,323
Net income
22,718
3,100
27,526
27,066
9,296
25,817
24,735
Preferred stock dividends
3,581
3,615
3,615
3,615
3,615
7,196
7,229
Net income available to common shareholders
$
19,137
$
(515
)
$
23,911
$
23,451
$
5,681
$
18,621
$
17,506
Basic earnings per common share
$
0.61
$
(0.02
)
$
0.76
$
0.75
$
0.18
$
0.59
$
0.56
Diluted earnings per common share
$
0.61
$
(0.02
)
$
0.75
$
0.74
$
0.18
$
0.59
$
0.55
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - UNAUDITED
(Dollars in thousands)
June 30,
March 31,
December 31,
September 30,
June 30,
2020
2020
2019
2019
2019
ASSETS
Cash and due from banks
$
44,577
$
18,842
$
33,095
$
12,555
$
24,757
Interest earning deposits
1,022,753
237,390
179,410
169,663
71,038
Cash and cash equivalents
1,067,330
256,232
212,505
182,218
95,795
Investment securities, at fair value
681,382
712,657
595,876
608,714
708,359
Loans held for sale
464,164
450,157
486,328
502,854
5,697
Loans receivable, mortgage warehouse, at fair value
2,793,164
2,518,012
2,245,758
2,438,530
2,001,540
Loans receivable, PPP
4,760,427
—
—
—
—
Loans and leases receivable
7,272,447
7,353,262
7,318,988
7,336,237
7,714,106
Allowance for credit losses on loans and leases
(159,905
)
(149,283
)
(56,379
)
(51,053
)
(48,388
)
Total loans and leases receivable, net of allowance for credit losses on loans and leases
14,666,133
9,721,991
9,508,367
9,723,714
9,667,258
FHLB, Federal Reserve Bank, and other restricted stock
91,023
87,140
84,214
81,853
101,947
Accrued interest receivable
49,911
40,570
38,072
38,412
38,506
Bank premises and equipment, net
8,380
8,890
9,389
14,075
10,095
Bank-owned life insurance
275,842
273,576
272,546
270,526
268,682
Other real estate owned
131
131
173
204
1,076
Goodwill and other intangibles
14,575
14,870
15,195
15,521
15,847
Other assets
584,247
452,585
298,052
285,699
269,165
Total assets
$
17,903,118
$
12,018,799
$
11,520,717
$
11,723,790
$
11,182,427
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand, non-interest bearing deposits
$
1,879,789
$
1,435,151
$
1,343,391
$
1,569,918
$
1,380,698
Interest bearing deposits
9,086,086
6,978,492
7,305,545
7,355,767
6,805,079
Total deposits
10,965,875
8,413,643
8,648,936
8,925,685
8,185,777
FRB advances
—
175,000
—
—
—
Federal funds purchased
—
705,000
538,000
373,000
406,000
FHLB advances
850,000
1,260,000
850,000
1,040,800
1,262,100
Other borrowings
123,833
123,732
123,630
123,528
99,055
Subordinated debt
181,255
181,185
181,115
109,050
109,026
FRB PPP liquidity facility
4,419,967
—
—
—
—
Accrued interest payable and other liabilities
354,341
195,603
126,241
132,577
129,064
Total liabilities
16,895,271
11,054,163
10,467,922
10,704,640
10,191,022
Preferred stock
217,471
217,471
217,471
217,471
217,471
Common stock
32,791
32,751
32,617
32,526
32,483
Additional paid in capital
450,665
446,840
444,218
441,499
439,067
Retained earnings
338,665
319,529
381,519
357,608
334,157
Accumulated other comprehensive loss
(9,965
)
(30,175
)
(1,250
)
(8,174
)
(9,993
)
Treasury stock, at cost
(21,780
)
(21,780
)
(21,780
)
(21,780
)
(21,780
)
Total shareholders' equity
1,007,847
964,636
1,052,795
1,019,150
991,405
Total liabilities & shareholders' equity
$
17,903,118
$
12,018,799
$
11,520,717
$
11,723,790
$
11,182,427
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET / NET INTEREST MARGIN - UNAUDITED
(Dollars in thousands)
Three Months Ended
June 30, 2020
March 31, 2020
June 30, 2019
Average
Balance
Average
Yield or
Cost (%)
Average
Balance
Average
Yield or
Cost (%)
Average
Balance
Average
Yield or
Cost (%)
Assets
Interest earning deposits
$
384,622
0.12%
$
772,249
1.49%
$
78,666
3.01%
Investment securities (1)
705,389
3.49%
566,287
3.52%
687,048
3.77%
Loans and leases:
Commercial loans to mortgage companies
2,456,067
2.91%
1,841,659
3.82%
1,658,070
4.76%
Multi-family loans
2,009,847
3.87%
2,213,858
4.06%
3,097,537
3.84%
Commercial and industrial loans and leases (2)
2,460,060
4.05%
2,460,811
4.70%
2,041,315
5.19%
Loans receivable, PPP
2,754,920
1.71%
—
—%
—
—%
Non-owner occupied commercial real estate loans
1,392,131
3.81%
1,335,459
4.35%
1,181,455
4.53%
Residential mortgages
429,609
3.53%
445,953
3.97%
723,160
4.28%
Other consumer loans
1,288,999
8.72%
1,259,051
9.14%
289,511
9.41%
Total loans and leases (3)
12,791,633
3.72%
9,556,791
4.89%
8,991,048
4.62%
Other interest-earning assets
98,377
2.06%
81,404
7.04%
94,388
5.58%
Total interest-earning assets
13,980,021
3.60%
10,976,731
4.59%
9,851,150
4.56%
Non-interest-earning assets
695,563
596,675
520,692
Total assets
$
14,675,584
$
11,573,406
$
10,371,842
Liabilities
Interest checking accounts
$
2,482,222
0.75%
$
1,294,098
1.43%
$
836,154
1.96%
Money market deposit accounts
3,034,457
0.85%
3,635,554
1.79%
3,168,957
2.26%
Other savings accounts
1,177,554
1.94%
1,141,406
2.05%
484,303
2.16%
Certificates of deposit
1,734,062
1.51%
1,524,770
2.04%
1,972,792
2.33%
Total interest-bearing deposits (4)
8,428,295
1.11%
7,595,828
1.82%
6,462,206
2.23%
FRB PPP liquidity facility
942,258
0.35%
—
—%
—
—%
Borrowings
2,282,761
1.62%
1,229,399
3.16%
1,462,362
3.09%
Total interest-bearing liabilities
11,653,314
1.15%
8,825,227
2.01%
7,924,568
2.39%
Non-interest-bearing deposits (4)
1,890,955
1,573,371
1,345,494
Total deposits and borrowings
13,544,269
0.99%
10,398,598
1.70%
9,270,062
2.04%
Other non-interest-bearing liabilities
142,181
149,453
115,717
Total liabilities
13,686,450
10,548,051
9,385,779
Shareholders' equity
989,134
1,025,355
986,063
Total liabilities and shareholders' equity
$
14,675,584
$
11,573,406
$
10,371,842
Interest spread
2.61%
2.89%
2.51%
Net interest margin
2.65%
2.98%
2.63%
Net interest margin tax equivalent (5)
2.65%
2.99%
2.64%
Net interest margin tax equivalent excl. PPP (6)
2.97%
2.99%
2.64%
(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 0.91%, 1.51% and 1.85% for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.
(5) Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, presented to approximate interest income as a taxable asset. 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.
(6) Non-GAAP tax-equivalent basis, as described in note (5) for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019, 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 SUBSIDIARIESAVERAGE BALANCE SHEET / NET INTEREST MARGIN - UNAUDITED
(Dollars in thousands)
Six Months Ended
June 30, 2020
June 30, 2019
Average Balance
Average Yield
or Cost (%)
Average Balance
Average Yield
or Cost (%)
Assets
Interest earning deposits
$
578,435
1.03%
$
81,947
2.76%
Investment securities (1)
635,838
3.50%
689,422
3.69%
Loans and leases:
Commercial loans to mortgage companies
2,148,863
3.30%
1,462,362
4.89%
Multi-family loans
2,111,853
3.97%
3,175,233
3.81%
Commercial and industrial loans and leases (2)
2,460,435
4.37%
1,981,559
5.16%
Loans receivable, PPP
1,377,460
1.71%
—
—%
Non-owner occupied commercial real estate loans
1,363,795
4.07%
1,175,428
4.50%
Residential mortgages
437,782
3.75%
709,529
4.22%
Other consumer loans
1,274,024
8.93%
203,381
9.34%
Total loans and leases (3)
11,174,212
4.22%
8,707,492
4.55%
Other interest-earning assets
89,890
4.31%
87,503
5.76%
Total interest-earning assets
12,478,375
4.04%
9,566,364
4.49%
Non-interest-earning assets
646,120
501,013
Total assets
$
13,124,495
$
10,067,377
Liabilities
Interest checking accounts
$
1,888,160
0.98%
$
825,672
1.93%
Money market deposit accounts
3,335,006
1.37%
3,156,988
2.25%
Other savings accounts
1,159,479
1.99%
432,893
2.10%
Certificates of deposit
1,629,416
1.76%
1,763,634
2.24%
Total interest-bearing deposits (4)
8,012,061
1.45%
6,179,187
2.19%
FRB PPP liquidity facility
471,129
0.35%
—
—%
Borrowings
1,756,080
2.16%
1,447,606
3.04%
Total interest-bearing liabilities
10,239,270
1.52%
7,626,793
2.35%
Non-interest-bearing deposits (4)
1,732,163
1,353,112
Total deposits and borrowings
11,971,433
1.30%
8,979,905
2.00%
Other non-interest-bearing liabilities
145,818
110,090
Total liabilities
12,117,251
9,089,995
Shareholders' equity
1,007,244
977,382
Total liabilities and shareholders' equity
$
13,124,495
$
10,067,377
Interest spread
2.74%
2.49%
Net interest margin
2.79%
2.61%
Net interest margin tax equivalent (5)
2.80%
2.62%
Net interest margin tax equivalent (6)
2.98%
2.62%
(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 1.19% and 1.80% for the six months ended June 30, 2020 and June 30, 2019, respectively.
(5) Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the six months ended June 30, 2020 and 2019, presented to approximate interest income as a taxable asset. 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.
(6) Non-GAAP tax-equivalent basis as described in noted (5), for both the six months ended June 30, 2020 and 2019, 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 SUBSIDIARIESSEGMENT REPORTING - UNAUDITED
(Dollars in thousands, except per share amounts)
The following tables present Customers' business segment results for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30, 2020
Three Months Ended June 30, 2019
Customers
Bank Business
Banking
BankMobile
Consolidated
Customers
Bank Business
Banking
BankMobile
Consolidated
Interest income (1)
$
112,455
$
12,763
$
125,218
$
103,014
$
8,936
$
111,950
Interest expense
32,856
380
33,236
47,061
210
47,271
Net interest income
79,599
12,383
91,982
55,953
8,726
64,679
Provision for loan and lease losses
19,623
1,323
20,946
(2,206
)
7,552
5,346
Non-interest income
11,683
10,553
22,236
970
11,066
12,036
Non-interest expense
44,270
19,236
63,506
38,107
21,475
59,582
Income (loss) before income tax expense (benefit)
27,389
2,377
29,766
21,022
(9,235
)
11,787
Income tax expense (benefit)
6,611
437
7,048
4,629
(2,138
)
2,491
Net income (loss)
20,778
1,940
22,718
16,393
(7,097
)
9,296
Preferred stock dividends
3,581
—
3,581
3,615
—
3,615
Net income (loss) available to common shareholders
$
17,197
$
1,940
$
19,137
$
12,778
$
(7,097
)
$
5,681
Basic earnings (loss) per common share
$
0.55
$
0.06
$
0.61
$
0.41
$
(0.23
)
$
0.18
Diluted earnings (loss) per common share
$
0.54
$
0.06
$
0.61
$
0.40
$
(0.22
)
$
0.18
(1) Amounts reported include funds transfer pricing of $1.6 million and $2.2 million for the three months ended June 30, 2020 and 2019, respectively, credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of excess low/no cost deposits.
Six Months Ended June 30, 2020
Six Months Ended June 30, 2019
Customers
Bank Business
Banking
BankMobile
Consolidated
Customers
Bank Business
Banking
BankMobile
Consolidated
Interest income (1)
$
225,171
$
25,390
$
250,561
$
195,885
$
17,140
$
213,025
Interest expense
76,533
726
77,259
88,666
376
89,042
Net interest income
148,638
24,664
173,302
107,219
16,764
123,983
Provision for credit losses on loans and leases
46,921
5,811
52,732
770
9,343
10,113
Non-interest income
22,819
21,348
44,167
8,547
23,207
31,754
Non-interest expense
88,130
41,835
129,965
73,491
40,075
113,566
Income (loss) before income tax expense (benefit)
36,406
(1,634
)
34,772
41,505
(9,447
)
32,058
Income tax expense (benefit)
9,334
(379
)
8,955
9,510
(2,187
)
7,323
Net income (loss)
27,072
(1,255
)
25,817
31,995
(7,260
)
24,735
Preferred stock dividends
7,196
—
7,196
7,229
—
7,229
Net income (loss) available to common shareholders
$
19,876
$
(1,255
)
$
18,621
$
24,766
$
(7,260
)
$
17,506
Basic earnings (loss) per common share
$
0.63
$
(0.04
)
$
0.59
$
0.80
$
(0.23
)
$
0.56
Diluted earnings (loss) per common share
$
0.63
$
(0.04
)
$
0.59
$
0.79
$
(0.23
)
$
0.55
As of June 30, 2020 and 2019
Goodwill and other intangibles
$
3,629
$
10,946
$
14,575
$
3,629
$
12,218
$
15,847
Total assets (2)
$
17,316,394
$
586,724
$
17,903,118
$
10,555,141
$
627,286
$
11,182,427
Total deposits
$
10,303,112
$
662,763
$
10,965,875
$
7,729,580
$
456,197
$
8,185,777
Total non-deposit liabilities (2)
$
5,895,690
$
33,706
$
5,929,396
$
1,970,391
$
34,854
$
2,005,245
(1) Amounts reported include funds transfer pricing of $3.1 million and $7.8 million for the six months ended June 30, 2020 and 2019, respectively, credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of excess low/no cost deposits.
(2) Amounts reported exclude inter-segment receivables and payables.
The following tables present Customers' business segment results for the quarter ended June 30, 2020, the preceding four quarters, and the six months ended June 30, 2020 and 2019, respectively:
Customers Bank Business Banking:
Six Months Ended June 30,
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
Interest income (1)
$
112,455
$
112,717
$
112,212
$
113,995
$
103,014
$
225,171
$
195,885
Interest expense
32,856
43,678
46,111
50,734
47,061
76,533
88,666
Net interest income
79,599
69,039
66,101
63,261
55,953
148,638
107,219
Provision for credit losses on loans and leases
19,623
27,298
6,846
2,475
(2,206
)
46,921
770
Non-interest income
11,683
11,136
14,964
11,757
970
22,819
8,547
Non-interest expense
44,270
43,860
41,494
38,347
38,107
88,130
73,491
Income before income tax expense
27,389
9,017
32,725
34,196
21,022
36,406
41,505
Income tax expense
6,611
2,722
6,892
7,814
4,629
9,334
9,510
Net income
20,778
6,295
25,833
26,382
16,393
27,072
31,995
Preferred stock dividends
3,581
3,615
3,615
3,615
3,615
7,196
7,229
Net income available to common shareholders
$
17,197
$
2,680
$
22,218
$
22,767
$
12,778
$
19,876
$
24,766
Basic earnings per common share
$
0.55
$
0.09
$
0.71
$
0.73
$
0.41
$
0.63
$
0.80
Diluted earnings per common share
$
0.54
$
0.09
$
0.70
$
0.72
$
0.40
$
0.63
$
0.79
(1) Amounts reported include funds transfer pricing of $1.6 million, $1.4 million, $0.7 million, $0.3 million and $2.2 million for the three months ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, and June 30, 2019, respectively. Amounts reported also include funds transfer pricing of $3.1 million and $7.8 million for the six months ended June 30, 2020 and 2019, respectively. These amounts are credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of excess low/no cost deposits.
BankMobile:
Six Months Ended June 30,
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
Interest income (2)
$
12,763
$
12,626
$
11,783
$
12,723
$
8,936
$
25,390
$
17,140
Interest expense
380
344
291
249
210
726
376
Net interest income
12,383
12,282
11,492
12,474
8,726
24,664
16,764
Provision for credit losses on loans and leases
1,323
4,488
2,843
1,951
7,552
5,811
9,343
Non-interest income
10,553
10,794
10,849
11,612
11,066
21,348
23,207
Non-interest expense
19,236
22,599
17,246
21,245
21,475
41,835
40,075
Income (loss) before income tax expense (benefit)
2,377
(4,011
)
2,252
890
(9,235
)
(1,634
)
(9,447
)
Income tax benefit
437
(816
)
559
206
(2,138
)
(379
)
(2,187
)
Net income (loss) available to common shareholders
$
1,940
$
(3,195
)
$
1,693
$
684
$
(7,097
)
$
(1,255
)
$
(7,260
)
Basic income (loss) per common share
$
0.06
$
(0.10
)
$
0.05
$
0.02
$
(0.23
)
$
(0.04
)
$
(0.23
)
Diluted income (loss) per common share
$
0.06
$
(0.10
)
$
0.05
$
0.02
$
(0.22
)
$
(0.04
)
$
(0.23
)
Deposit balances (3)
Disbursements business deposits
$
500,072
$
502,711
$
319,263
$
598,064
$
409,683
White label deposits
162,691
107,054
81,837
67,541
46,514
Total deposits
$
662,763
$
609,765
$
401,100
$
665,605
$
456,197
(2) Amounts reported include funds transfer pricing of $1.6 million, $1.4 million, $0.7 million, $0.3 million and $2.2 million for the three months ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, and June 30, 2019, respectively. Amounts reported also include funds transfer pricing of $3.1 million and $7.8 million for the six months ended June 30, 2020 and 2019, respectively. These amounts are credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of excess low/no cost deposits.
(3) As of June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, and June 30, 2019.
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
PERIOD END LOAN AND LEASE COMPOSITION - UNAUDITED
(Dollars in thousands)
June 30,
March 31,
December 31,
September 30,
June 30,
2020
2020
2019
2019
2019
Commercial:
Multi-family
$
2,023,571
$
2,069,077
$
2,390,204
$
2,797,579
$
3,014,005
Mortgage warehouse
2,832,112
2,573,397
2,305,784
2,549,088
2,054,104
Commercial & industrial
2,060,494
2,017,567
1,831,126
1,778,423
1,545,930
Commercial real estate owner occupied
544,772
543,945
551,948
475,774
585,985
Loans receivable, PPP
4,760,427
—
—
—
—
Commercial real estate non-owner occupied
1,262,373
1,252,826
1,222,772
1,267,679
1,176,108
Construction
128,834
115,448
117,617
60,429
59,230
Total commercial loans and leases
13,612,583
8,572,260
8,419,451
8,928,972
8,435,362
Consumer:
Residential
352,941
364,760
386,089
640,786
663,959
Manufactured housing
66,865
69,240
71,359
73,626
76,644
Other consumer
1,257,813
1,315,171
1,174,175
634,237
545,378
Total consumer loans
1,677,619
1,749,171
1,631,623
1,348,649
1,285,981
Total loans and leases
$
15,290,202
$
10,321,431
$
10,051,074
$
10,277,621
$
9,721,343
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
PERIOD END DEPOSIT COMPOSITION - UNAUDITED
(Dollars in thousands)
June 30,
March 31,
December 31,
September 30,
June 30,
2020
2020
2019
2019
2019
Demand, non-interest bearing
$
1,879,789
$
1,435,151
$
1,343,391
$
1,569,918
$
1,380,698
Demand, interest bearing
2,666,209
1,577,034
1,235,292
1,139,675
925,180
Total demand deposits
4,545,998
3,012,185
2,578,683
2,709,593
2,305,878
Savings
1,144,788
1,168,121
919,214
591,336
529,532
Money market
3,404,709
2,833,990
3,482,505
3,201,883
2,912,266
Time deposits
1,870,380
1,399,347
1,668,534
2,422,873
2,438,101
Total deposits
$
10,965,875
$
8,413,643
$
8,648,936
$
8,925,685
$
8,185,777
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
ASSET QUALITY - UNAUDITED
(Dollars in thousands)
As of June 30, 2020
As of March 31, 2020
As of June 30, 2019
Total loans
Non
accrual
/NPLs
Allowance
for credit
losses
Total
NPLs to
total loans
Total
reserves to
total NPLs
Total loans
Non
accrual
/NPLs
Allowance
for credit
losses
Total
NPLs to
total loans
Total
reserves to
total NPLs
Total loans
Non accrual /NPLs
Allowance
for credit
losses
Total
NPLs to
total loans
Total
reserves to
total NPLs
Loan type
Multi-family
$
1,581,839
$
7,013
$
14,697
0.44
%
209.57
%
$
1,621,633
$
4,020
$
8,750
0.25
%
217.66
%
$
3,014,005
$
—
$
9,926
—
%
—
%
Commercial & industrial
2,099,442
9,974
12,302
0.48
%
123.34
%
2,072,952
9,993
18,806
0.48
%
188.19
%
1,598,494
5,409
15,201
0.34
%
281.03
%
Commercial real estate owner occupied
544,772
4,022
11,405
0.74
%
283.57
%
543,945
2,411
8,527
0.44
%
353.67
%
585,985
918
1,895
0.16
%
206.43
%
Loans receivable, PPP
4,760,427
—
—
—
%
—
%
—
—
—
—
%
—
%
—
—
—
—
%
—
%
Commercial real estate non-owner occupied
1,244,773
30,257
26,493
2.43
%
87.56
%
1,252,826
21,479
18,530
1.71
%
86.27
%
1,176,108
94
6,159
0.01
%
6552.13
%
Construction
128,834
—
5,297
—
%
—
%
115,448
—
1,934
—
%
—
%
59,230
—
649
—
%
—
%
Total commercial loans and leases receivable
10,360,087
51,266
70,194
0.49
%
136.92
%
5,606,804
37,903
56,547
0.68
%
149.19
%
6,433,822
6,421
33,830
0.10
%
526.86
%
Residential
348,109
7,857
4,550
2.26
%
57.91
%
362,047
6,054
4,180
1.67
%
69.05
%
658,262
5,083
4,168
0.77
%
82.00
%
Manufactured housing
66,865
3,331
6,014
4.98
%
180.55
%
69,240
2,558
4,987
3.69
%
194.96
%
76,644
1,570
489
2.05
%
31.15
%
Other consumer
1,257,813
4,887
79,147
0.39
%
1619.54
%
1,315,171
2,519
83,569
0.19
%
3317.55
%
545,378
359
10,267
0.07
%
2859.89
%
Total consumer loans receivable
1,672,787
16,075
89,711
0.96
%
558.08
%
1,746,458
11,131
92,736
0.64
%
833.13
%
1,280,284
7,012
14,924
0.55
%
212.84
%
Loans and leases receivable
12,032,874
67,341
159,905
0.56
%
237.46
%
7,353,262
49,034
149,283
0.67
%
304.45
%
7,714,106
13,433
48,754
0.17
%
362.94
%
Loans and leases receivable, excluding loans receivable, PPP
7,272,447
67,341
159,905
0.93
%
237.46
%
7,353,262
49,034
149,283
0.67
%
304.45
%
7,714,106
13,433
48,754
0.17
%
362.94
%
Loans receivable, mortgage warehouse, at fair value
2,793,164
—
—
2,518,012
—
—
2,001,540
—
—
Total loans held for sale
464,164
18,925
—
4.08
%
—
%
450,157
1,325
—
0.29
%
—
%
5,697
1,325
—
23.26
%
—
%
Total portfolio
$
15,290,202
$
86,266
$
159,905
0.56
%
185.36
%
$
10,321,431
$
50,359
$
149,283
0.49
%
296.44
%
$
9,721,343
$
14,758
$
48,754
0.15
%
330.36
%
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
NET CHARGE-OFFS/(RECOVERIES) - UNAUDITED
(Dollars in thousands)
Q2
Q1
Q4
Q3
Q2
Six Months Ended June 30,
2020
2020
2019
2019
2019
2020
2019
Loan type
Multi-family
$
—
$
—
$
—
$
—
$
(7
)
$
—
$
534
Commercial & industrial
(4
)
43
(224
)
(20
)
(155
)
39
(274
)
Commercial real estate owner occupied
(2
)
(3
)
(1
)
35
(31
)
(5
)
(151
)
Commercial real estate non-owner occupied
2,801
12,797
—
—
—
15,598
—
Construction
(113
)
(3
)
(8
)
(8
)
(114
)
(116
)
(120
)
Residential
(26
)
(29
)
181
(5
)
61
(55
)
94
Other consumer
7,669
5,906
4,414
1,759
883
13,575
1,614
Total net charge-offs (recoveries) from loans held for investment
$
10,325
$
18,711
$
4,362
$
1,761
$
637
$
29,036
$
1,697
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES - UNAUDITED
Customers believes that the non-GAAP measurements disclosed within this document are useful for investors, regulators, management and others to evaluate our core results of operations and financial condition relative to other financial institutions. These non-GAAP financial measures are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in Customers' industry. These non-GAAP financial measures exclude from corresponding GAAP measures the impact of certain elements that we do not believe are representative of our ongoing financial results, which we believe enhance an overall understanding of our performance and increases comparability of our period to period results. Investors should consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. Although non-GAAP financial measures are frequently used in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results of operations or financial condition as reported under GAAP.
The following tables present reconciliations of GAAP to non-GAAP measures disclosed within this document.
Core Earnings - Customers Bancorp
Six Months Ended
June 30,
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
(dollars in thousands except per share data)
USD
Per share
USD
Per share
USD
Per share
USD
Per share
USD
Per share
USD
Per share
USD
Per share
GAAP net income to common shareholders
$
19,137
$
0.61
$
(515
)
$
(0.02
)
$
23,911
$
0.75
$
23,451
$
0.74
$
5,681
$
0.18
$
18,621
$
0.59
$
17,506
$
0.55
Reconciling items (after tax):
Severance expense
—
—
—
—
—
—
—
—
373
0.01
—
—
373
0.01
Loss upon acquisition of interest-only GNMA securities
—
—
—
—
—
—
—
—
5,682
0.18
—
—
5,682
0.18
Merger and acquisition related expenses
19
—
40
—
76
—
—
—
—
—
59
—
—
—
Legal reserves
—
—
830
0.03
—
—
1,520
0.05
—
—
830
0.03
—
—
(Gains) losses on investment securities
(4,543
)
(0.14
)
(1,788
)
(0.06
)
(310
)
(0.01
)
(1,947
)
(0.06
)
347
0.01
(6,331
)
(0.20
)
345
0.01
Derivative credit valuation adjustment
4,527
0.14
2,036
0.06
(429
)
(0.01
)
378
0.01
605
0.02
6,563
0.21
862
0.03
Risk participation agreement mark-to-market adjustment
(1,080
)
(0.03
)
—
—
—
—
—
—
—
—
(1,080
)
(0.03
)
—
—
Losses on sale of non-QM residential mortgage loans
—
—
—
—
595
0.02
—
—
—
—
—
—
—
—
Unrealized losses on loans held for sale
1,114
0.04
—
—
—
—
—
—
—
—
1,114
0.04
—
—
Core earnings
$
19,174
$
0.61
$
603
$
0.02
$
23,843
$
0.75
$
23,402
$
0.74
$
12,688
$
0.40
$
19,776
$
0.63
$
24,768
$
0.79
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES - UNAUDITED
Core Return on Average Assets - Customers Bancorp
Six Months Ended
June 30,
(dollars in thousands except per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
GAAP net income
$
22,718
$
3,100
$
27,526
$
27,066
$
9,296
$
25,817
$
24,735
Reconciling items (after tax):
Severance expense
—
—
—
—
373
—
373
Loss upon acquisition of interest-only GNMA securities
—
—
—
—
5,682
—
5,682
Merger and acquisition related expenses
19
40
76
—
—
59
—
Legal reserves
—
830
—
1,520
—
830
—
(Gains) losses on investment securities
(4,543
)
(1,788
)
(310
)
(1,947
)
347
(6,331
)
345
Derivative credit valuation adjustment
4,527
2,036
(429
)
378
605
6,563
862
Risk participation agreement mark-to-market adjustment
(1,080
)
—
—
—
—
(1,080
)
—
Losses on sale of non-QM residential mortgage loans
—
—
595
—
—
—
—
Unrealized losses on loans held for sale
1,114
—
—
—
—
1,114
—
Core net income
$
22,755
$
4,218
$
27,458
$
27,017
$
16,303
$
26,972
$
31,997
Average total assets
$
14,675,584
$
11,573,406
$
11,257,207
$
11,259,144
$
10,371,842
$
13,124,495
$
10,067,377
Core return on average assets
0.62
%
0.15
%
0.97
%
0.95
%
0.63
%
0.41
%
0.64
%
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES - UNAUDITED (CONTINUED)
(Dollars in thousands, except per share data)
Adjusted Net Income and Adjusted ROAA - Pre-Tax Pre-Provision - Customers Bancorp
Six Months Ended
June 30,
(dollars in thousands except per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
GAAP net income
$
22,718
$
3,100
$
27,526
$
27,066
$
9,296
$
25,817
$
24,735
Reconciling items:
Income tax expense
7,048
1,906
7,451
8,020
2,491
8,955
7,323
Provision for credit losses on loans and leases
20,946
31,786
9,689
4,426
5,346
52,732
10,113
Provision for credit losses on unfunded commitments
(356
)
751
3
(235
)
(102
)
395
(171
)
Severance expense
—
—
—
—
490
—
490
Loss upon acquisition of interest-only GNMA securities
—
—
—
—
7,476
—
7,476
Merger and acquisition related expenses
25
50
100
—
—
75
—
Legal reserves
—
1,042
—
2,000
—
1,042
—
(Gains) losses on investment securities
(5,553
)
(2,596
)
(310
)
(2,334
)
347
(8,150
)
345
Derivative credit valuation adjustment
5,895
2,556
(565
)
497
796
8,451
1,134
Risk participation agreement mark-to-market adjustment
(1,407
)
—
—
—
—
(1,407
)
—
Losses on sale of non-QM residential mortgage loans
—
—
782
—
—
—
—
Unrealized losses on loans held for sale
1,450
—
—
—
—
1,450
—
Adjusted net income - pre-tax pre-provision
$
50,766
$
38,595
$
44,676
$
39,440
$
26,140
$
89,360
$
51,445
Average total assets
$
14,675,584
$
11,573,406
$
11,257,207
$
11,259,144
$
10,371,842
$
13,124,495
$
10,067,377
Adjusted ROAA - pre-tax pre-provision
1.39
%
1.34
%
1.57
%
1.39
%
1.01
%
1.37
%
1.03
%
Core Return on Average Common Equity - Customers Bancorp
Six Months Ended
June 30,
(dollars in thousands except per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
GAAP net income to common shareholders
$19,137
$(515
) $ 23,911 $23,451
$
5,681
$
18,621
$17,506
Reconciling items (after tax):
Severance expense
—
—
—
—
373
—
373
Loss upon acquisition of interest-only GNMA securities
—
—
—
—
5,682
—
5,682
Merger and acquisition related expenses
19
40
76
—
—
59
—
Legal reserves
—
830
—
1,520
—
830
—
(Gains) losses on investment securities
(4,543
)(1,788
)(310
)(1,947
)
347
(6,331
)345
Derivative credit valuation adjustment
4,527
2,036
(429
)378
605
6,563
862
Risk participation agreement mark-to-market adjustment
(1,080
)—
—
—
—
(1,080
)—
Losses on sale of non-QM residential mortgage loans
—
—
595
—
—
—
—
Unrealized losses on loans held for sale
1,114
—
—
—
—
1,114
—
Core earnings
$19,174
$603
$23,843
$23,402
$
12,688
$
19,776
$24,768
Average total common shareholders' equity
$771,663
$807,884
$819,018
$787,885
$
768,592
$
789,774
$759,911
Core return on average common equity
9.99
%0.30
%11.55
%11.78
%
6.62
%
5.04
%6.57
%CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES - UNAUDITED (CONTINUED)
(Dollars in thousands, except per share data)
Adjusted ROCE - Pre-Tax Pre-Provision - Customers Bancorp
Six Months Ended
June 30,
(dollars in thousands except per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
GAAP net income to common shareholders
$
19,137
$
(515
)
$
23,911
$
23,451
$
5,681
$
18,621
$
17,506
Reconciling items:
Income tax expense
7,048
1,906
7,451
8,020
2,491
8,955
7,323
Provision for credit losses on loan and leases
20,946
31,786
9,689
4,426
5,346
52,732
10,113
Provision for credit losses on unfunded commitments
(356
)
751
3
(235
)
(102
)
395
(171
)
Severance expense
—
—
—
—
490
—
490
Loss upon acquisition of interest-only GNMA securities
—
—
—
—
7,476
—
7,476
Merger and acquisition related expenses
25
50
100
—
—
75
—
Legal reserves
—
1,042
—
2,000
—
1,042
—
(Gains) losses on investment securities
(5,553
)
(2,596
)
(310
)
(2,334
)
347
(8,150
)
345
Derivative credit valuation adjustment
5,895
2,556
(565
)
497
796
8,451
1,134
Risk participation agreement mark-to-market adjustment
(1,407
)
—
—
—
—
(1,407
)
—
Losses on sale of non-QM residential mortgage loans
—
—
782
—
—
—
—
Unrealized losses on loans held for sale
1,450
—
—
—
—
1,450
—
Pre-tax pre-provision adjusted net income available to common shareholders
$
47,185
$
34,980
$
41,061
$
35,825
$
22,525
$
82,164
$
44,216
Average total common shareholders' equity
$
771,663
$
807,884
$
819,018
$
787,885
$
768,592
$
789,774
$
759,911
Adjusted ROCE - pre-tax pre-provision
24.59
%
17.41
%
19.89
%
18.04
%
11.75
%
20.92
%
11.73
%
Net Interest Margin, Tax Equivalent - Customers Bancorp
Six Months Ended
June 30,
(dollars in thousands except per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
GAAP net interest income
$
91,982
$
81,321
$
77,593
$
75,735
$
64,679
$
173,302
$
123,983
Tax-equivalent adjustment
225
205
187
184
183
430
364
Net interest income tax equivalent
$
92,207
$
81,526
$
77,780
$
75,919
$
64,862
$
173,732
$
124,347
Average total interest earning assets
$
13,980,021
$
10,976,731
$
10,676,730
$
10,667,198
$
9,851,150
$
12,478,375
$
9,566,364
Net interest margin, tax equivalent
2.65
%
2.99
%
2.89
%
2.83
%
2.64
%
2.80
%
2.62
%
Net Interest Margin, Tax Equivalent, Excluding PPP - Customers Bancorp
Six Months Ended
June 30,
(dollars in thousands except per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
GAAP net interest income
$
91,982
$
81,321
$
77,593
$
75,735
$
64,679
$
173,302
$
123,983
PPP net interest income
(9,308
)
—
—
—
—
(9,308
)
—
Tax-equivalent adjustment
225
205
187
184
183
430
364
Net interest income, tax equivalent, excluding PPP
$
82,899
$
81,526
$
77,780
$
75,919
$
64,862
$
164,424
$
124,347
GAAP average total interest earning assets
$
13,980,021
$
10,976,731
$
10,676,730
$
10,667,198
$
9,851,150
$
12,478,375
$
9,566,364
Average PPP loans
(2,754,920
)
—
—
—
—
(1,377,460
)
—
Adjusted average total interest earning assets
$
11,225,101
$
10,976,731
$
10,676,730
$
10,667,198
$
9,851,150
$
11,100,915
$
9,566,364
Net interest margin, tax equivalent, excluding PPP
2.97
%
2.99
%
2.89
%
2.82
%
2.64
%
2.98
%
2.62
%
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES - UNAUDITED (CONTINUED)
(Dollars in thousands, except per share data)
Core Efficiency Ratio - Customers Bancorp
Six Months Ended
June 30,
(dollars in thousands except per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
GAAP net interest income
$
91,982
$
81,321
$
77,593
$
75,735
$
64,679
$
173,302
$
123,983
GAAP non-interest income
$
22,236
$
21,930
$
25,813
$
23,369
$
12,036
$
44,167
$
31,754
Loss upon acquisition of interest-only GNMA securities
—
—
—
—
7,476
—
7,476
(Gains) losses on investment securities
(5,553
)
(2,596
)
(310
)
(2,334
)
347
(8,150
)
345
Derivative credit valuation adjustment
5,895
2,556
(565
)
497
796
8,451
1,134
Risk participation agreement mark-to-market adjustment
(1,407
)
—
—
—
—
(1,407
)
—
Losses on sale of non-QM residential mortgage loans
—
—
782
—
—
—
—
Unrealized losses on loans held for sale
1,450
—
—
—
—
1,450
—
Core non-interest income
22,621
21,890
25,720
21,532
20,655
44,511
40,709
Core revenue
$
114,603
$
103,211
$
103,313
$
97,267
$
85,334
$
217,813
$
164,692
GAAP non-interest expense
$
63,506
$
66,459
$
58,740
$
59,592
$
59,582
$
129,965
$
113,566
Severance expense
—
—
—
—
(490
)
—
(490
)
Legal reserves
—
(1,042
)
—
(2,000
)
—
(1,042
)
—
Merger and acquisition related expenses
(25
)
(50
)
(100
)
—
—
(75
)
—
Core non-interest expense
$
63,481
$
65,367
$
58,640
$
57,592
$
59,092
$
128,848
$
113,076
Core efficiency ratio (1)
55.39
%
63.33
%
56.76
%
59.21
%
69.25
%
59.16
%
68.66
%
(1) Core efficiency ratio calculated as core non-interest expense divided by core revenue.
Tangible Common Equity to Tangible Assets - Customers Bancorp
(dollars in thousands except per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
GAAP total shareholders' equity
$
1,007,847
$
964,636
$
1,052,795
$
1,019,150
$
991,405
Reconciling items:
Preferred stock
(217,471
)
(217,471
)
(217,471
)
(217,471
)
(217,471
)
Goodwill and other intangibles
(14,575
)
(14,870
)
(15,195
)
(15,521
)
(15,847
)
Tangible common equity
$
775,801
$
732,295
$
820,129
$
786,158
$
758,087
GAAP total assets
$
17,903,118
$
12,018,799
$
11,520,717
$
11,723,790
$
11,182,427
Reconciling items:
Goodwill and other intangibles
(14,575
)
(14,870
)
(15,195
)
(15,521
)
(15,847
)
Tangible assets
$
17,888,543
$
12,003,929
$
11,505,522
$
11,708,269
$
11,166,580
Tangible common equity to tangible assets
4.34
%
6.10
%
7.13
%
6.71
%
6.79
%
CUSTOMERS BANCORP, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP TO NON-GAAP MEASURES - UNAUDITED (CONTINUED)
(Dollars in thousands, except per share data)
Tangible Book Value per Common Share - Customers Bancorp
(dollars in thousands except share and per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
GAAP total shareholders' equity
$
1,007,847
$
964,636
$
1,052,795
$
1,019,150
$
991,405
Reconciling Items:
Preferred stock
(217,471
)
(217,471
)
(217,471
)
(217,471
)
(217,471
)
Goodwill and other intangibles
(14,575
)
(14,870
)
(15,195
)
(15,521
)
(15,847
)
Tangible common equity
$
775,801
$
732,295
$
820,129
$
786,158
$
758,087
Common shares outstanding
31,510,287
31,470,026
31,336,791
31,245,776
31,202,023
Tangible book value per common share
$
24.62
$
23.27
$
26.17
$
25.16
$
24.30
Adjusted Net Income - Pre-Tax Pre-Provision - BankMobile
Six Months Ended
June 30,
(dollars in thousands except per share data)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
2020
2019
GAAP net income to common shareholders
$
1,940
$
(3,195
)
$
1,693
$
684
$
(7,097
)
$
(1,255
)
$
(7,260
)
Reconciling items:
Income tax expense (benefit)
437
(816
)
559
206
(2,138
)
(379
)
(2,187
)
Provision for credit losses on loan and leases
1,323
4,488
2,843
1,951
7,552
5,811
9,343
Severance expense
—
—
—
—
18
—
18
Merger and acquisition related expenses
25
50
100
—
—
75
—
Legal reserves
—
1,042
—
1,000
—
1,042
—
Pre-tax pre-provision adjusted net income available to common shareholders
$
3,725
$
1,569
$
5,195
$
3,841
$
(1,665
)
$
5,294
$
(86
)
Total Loans and Leases, excluding PPP
(dollars in thousands)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
Total loans and leases
$
15,290,202
$
10,321,431
$
10,051,074
$
10,277,621
$
9,721,343
Loans receivable, PPP
(4,760,427
)
—
—
—
—
Loans and leases, excluding PPP
$
10,529,775
$
10,321,431
$
10,051,074
$
10,277,621
$
9,721,343
Coverage of credit loss reserves for loans and leases held for investment, excluding PPP
(dollars in thousands)
Q2 2020
Q1 2020
Q4 2019
Q3 2019
Q2 2019
Loans and leases receivable
$
12,032,874
$
7,353,262
$
7,318,988
$
7,336,237
$
7,714,106
Loans receivable, PPP
(4,760,427
)
—
—
—
—
Loans and leases held for investment, excluding PPP
$
7,272,447
$
7,353,262
$
7,318,988
$
7,336,237
$
7,714,106
Allowance for credit losses on loans and leases
159,905
149,283
56,379
51,053
48,388
Coverage of credit loss reserve for loans and leases held for investment, excluding PPP
2.20
%
2.03
%
0.77
%
0.70
%
0.63
%
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