Customers Bancorp Reports Results for Second Quarter 2022

WEST READING, Pa.–(BUSINESS WIRE)–$CUBI #FinTech–Customers Bancorp, Inc. (NYSE:CUBI)

Second Quarter 2022 Highlights

• Q2 2022 net income available to common shareholders was $56.5 million, or $1.68 per diluted share, down 2.6% over Q2 2021.

• Q2 2022 adjusted pre-tax pre-provision net income* was $105.7 million, up 22% over Q2 2021.

• Q2 2022 core earnings* were $59.4 million, or $1.77 per diluted share, up 0.1% over Q2 2021.

• Q2 2022 core earnings excluding Paycheck Protection Program* (“PPP”) were $46.3 million, or $1.38 per diluted share, up 32.3% over Q2 2021.

• Q2 2022 ROAA was 1.17% and Core ROAA* was 1.23%. Q2 2021 ROAA was 1.27% and Core ROAA* was 1.30%.

• Q2 2022 ROCE was 18.2% and Core ROCE* was 19.1%. Q2 2021 ROCE was 23.2% and Core ROCE* was 23.7%.

• Q2 2022 adjusted pre-tax pre-provision ROAA* was 2.11%. Q2 2021 adjusted pre-tax pre-provision ROAA* was 1.80%.

• Year-over-year loan growth (excluding PPP loans and loans to mortgage companies*) was $4.4 billion or 56.6%, led by our low-risk variable rate specialty lending verticals.

• Year-over-year commercial and industrial (C&I) loans and leases growth, including specialty lending, of $3.3 billion (up 145.8%), multifamily loan growth of $515.4 million (up 34.4%), and consumer loan increase of $500.8 million (up 26.2%).

• Q2 2022 net interest margin, tax equivalent* increased 41 basis points from Q2 2021 to 3.39%. Q2 2022 net interest margin, tax equivalent, excluding the impact of PPP loans* increased 2 basis points from Q2 2021 to 3.32%.

• Year-over-year deposit growth was $3.1 billion, up 22.1%. Total demand deposits increased $4.4 billion, or 64.0% year-over-year. This increase included CBIT-related deposits with a balance of $2.1 billion at June 30, 2022, up $0.3 billion from March 31, 2022.

• Onboarded 90 new CBIT customers in Q2 2022, bringing total customers to 190.

• Q2 2022 efficiency ratio was 42.14% compared to 46.59% for Q2 2021. Q2 2022 core efficiency ratio* was 41.74% compared to 44.33% in Q2 2021.

• Q2 2022 provision for credit losses on loans and leases of $24.2 million was largely driven by strong loan growth as asset quality remains exceptional and compares to $15.3 million in Q1 2022 and $3.3 million in Q2 2021.

• Non-performing assets were $28.2 million, or 0.14% of total assets, at June 30, 2022 compared to $43.9 million, or 0.23% of total assets, at March 31, 2022 and $46.9 million, or 0.24% of total assets, at June 30, 2021. Allowance for credit losses on loans and leases equaled 558% of non-performing loans at June 30, 2022, compared to 333% at March 31, 2022 and 270% at June 30, 2021.

• Well positioned to support growth in 2022 and 2023 and expect to meet or beat projections of core earnings (excluding PPP)* between $4.75 – $5.00 in 2022 and over $6.00 in 2023.

CEO Commentary

West Reading, PA, July 27, 2022 – “We continued to perform well in the second quarter and are extremely pleased with our results for the first half of 2022,” remarked Customers Bancorp Chairman and CEO, Jay Sidhu. “Despite the challenging macro and geopolitical environment, we remain laser focused on executing on our strategy which has not changed. Our core earnings per share, excluding PPP* were up over 32.3% year-over-year. Core ROAA* was 1.23% and core ROCE* was 19.1%. We continue to responsibly deliver remarkable organic loan growth without sacrificing credit quality. Our core loans* increased $2.2 billion in Q2 2022, up 18.7% from Q1 2022, and well above our $500 million average quarterly target. Nearly all of this growth was in low-risk specialty lending verticals and was predominately floating rate as we manage overall asset sensitivity. Asset quality remains exceptional and credit reserves are strong. Continuing the momentum from record 2021 performance and strong results for the first half of 2022, our loan and deposit pipelines remain robust, a testament to our customer centric business model supported by best-in-class service and technology. We remain very excited and optimistic about our future,” Mr. Jay Sidhu continued.

Financial Highlights

Customers Bank Instant Token (CBIT^TM)

“Despite significant market volatility in the digital asset space during second quarter, we are very pleased with our progress to date. In Q2 2022, we onboarded 90 new CBIT-related customers to the Digital Bank, once again beating our internal target, and bringing total customers to 190. Our digital asset-related deposits stabilized in Q2 2022 and ended the quarter approximately $0.3 billion higher than Q1 2022. We continue to expect digital asset-related deposits to grow in 2022 as our pipelines remain strong, giving us an opportunity to further transform our deposits into a high quality, low-to-no cost, stable and growing deposit franchise. We believe our technology, compliance and customer service and support systems remain among the best in the country,” commented Mr. Sam Sidhu, President and CEO of Customers Bank.

At June 30, 2022, $2.1 billion in core low-to-no cost demand deposits have been attracted to the Bank through this system.

Paycheck Protection Program (PPP)

We funded, either directly or indirectly, about 256,000 PPP loans totaling $5.2 billion in 2021, bringing total PPP loans funded to approximately 358,000 and $10.3 billion. We also earned close to $350 million of deferred origination fees from the SBA through the PPP loans, which is significantly accretive to our earnings and capital levels as these loans are forgiven by the government. In Q2 2022, we recognized $15 million of these fees in earnings, bringing total fees recognized to date to $307 million, resulting in approximately $43 million remaining to be recognized throughout 2022 and 2023. “As we’ve stated previously, it is difficult to predict the timing of PPP forgiveness. We continue to expect most of the fees to be recognized in 2022, with approximately two-thirds of the remaining fees to be recognized in the second half of this year,” commented Customers Bancorp CFO, Carla Leibold.

Key Balance Sheet Trends

Loans and Leases

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

C&I loans and leases, including specialty lending, increased $3.3 billion, or 145.8% year-over-year, to $5.6 billion. Practically all of the increases were in low-risk variable rate secured categories of Fund Finance and Lender Finance. Multi-family loans increased $515.4 million, or 34.4%, to $2.0 billion, consumer installment loans increased $323.4 million, or 20.5%, to $1.9 billion, residential loans increased $186.7 million, or 68.3%, to $460.2 million, commercial real estate owner occupied loans increased $56.9 million, or 8.7%, to $710.6 million and construction loans increased $16.5 million, or 9.2%, to $195.7 million. These increases in loans and leases were partially offset by a decrease in commercial real estate non-owner occupied loans of $53.8 million, or 4.5% year-over-year to $1.2 billion.

Allowance for Credit Losses on Loans and Leases

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

Provision for Credit Losses

The provision for credit losses on loans and leases in Q2 2022 was $24.2 million, compared to $15.3 million in Q1 2022. The provision in Q2 2022 was primarily to support loan growth. The provision (benefit) for credit losses for available for sale investment securities in Q2 2022 was a benefit to provision of $0.3 million compared to provision expense of $0.7 million in Q1 2022.

Asset Quality

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

⁽¹⁾ Excludes loan receivable, PPP, as 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, specialty finance lines of business, and multi-family 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 healthy despite a highly 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. Exposure to industry segments and CRE significantly impacted by COVID-19 initially is not substantial.

Total consumer installment loans were approximately 9% of total assets at June 30, 2022 and were supported by an allowance for credit losses of $111.2 million. At June 30, 2022, our consumer installment portfolio had the following characteristics: average FICO score of 729, average debt-to-income of 17.4% and average borrower income of $102 thousand.

Non-performing loans at June 30, 2022 were 0.18% of total loans and leases, compared to 0.31% at March 31, 2022 and 0.27% at June 30, 2021.

Deposits and Borrowings

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

Total deposits increased $3.1 billion, or 22.1%, to $16.9 billion at June 30, 2022 as compared to a year ago. Total demand deposits increased $4.4 billion, or 64.0%, to $11.3 billion. Time deposits increased $95.9 million, or 15.3%, to $723.0 million. These increases were offset, in part, by decreases in savings deposits of $791.7 million, or 55.3%, to $640.1 million and money market deposits of $654.6 million, or 13.3%, to $4.3 billion. The total cost of deposits increased by 7 basis points to 0.54% in Q2 2022 from 0.47% in the prior year.

Other borrowings remained relatively unchanged at $123.5 million at June 30, 2022 compared to the prior year due to the issuance of the Customers Bancorp 2.875% senior notes in August 2021, offset by the pay off at maturity of the Customers Bancorp 3.95% senior notes in June 2022.

Capital

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

Customers Bancorp’s tangible common equity* increased $182.3 million to $1.2 billion at June 30, 2022 compared to a year ago, as earnings of $340.3 million more than offset a negative impact to accumulated other comprehensive income (“AOCI”) from increased unrealized losses on investment securities of $130.9 million (net of taxes) and share buyback of $55.5 million. Similarly, tangible book value per common share* increased to $37.35 at June 30, 2022 from $31.82 at June 30, 2021. Customers remains well capitalized by all regulatory measures.

At the Customers Bancorp level, the total risk based capital ratio (estimate) and tangible common equity to tangible assets ratio (“TCE ratio”), excluding PPP loans*, were 12.6% and 6.49%, respectively, at June 30, 2022. “We expect our TCE ratio to be at or above 7.5% within the next three to four quarters,” stated Mr. Sam Sidhu.

At the Customers Bank level, capital levels remained strong and well above regulatory minimums. At June 30, 2022, estimated Tier 1 capital and total risk-based capital were 11.5% and 12.9% respectively.

Key Profitability Trends

Net Interest Income

Net interest income totaled $164.9 million in Q2 2022, an increase of $0.2 million from Q1 2022, primarily due to increased net interest income earned by the core bank, including increased interest income on investment securities and core loans* of $5.1 million and $28.1 million, respectively, mostly due to higher average balances. This increase was offset in part by lower PPP interest income of $16.3 million resulting from reduced recognition of deferred fees of $14.7 million driven by lower loan forgiveness in Q2 2022 and by dividend income of $5.2 million primarily from an equity investment distribution in Q1 2022. In addition, higher expenses paid on deposits, FHLB advances and other borrowings of $12.7 million resulted mainly from higher interest rates during Q2 2022. Excluding PPP loans, average interest-earning assets increased $1.7 billion. Interest-earning asset growth was primarily driven by increases in C&I loans and leases and multi-family loans, offset in part by a decrease in interest earning deposits. Compared to Q1 2022, total loan yields decreased 13 basis points to 4.54% primarily due to higher PPP yields driven by deferred fee recognition and average balances in Q1 2022. Excluding PPP loans, the Q2 2022 total loan yield was 13 basis points higher than Q1 2022 reflecting increased interest rates and the variable rate nature of the loan portfolio.

Non-Interest Income

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

Non-interest income totaled $12.7 million for Q2 2022, a decrease of $8.5 million compared to Q1 2022. The decrease was primarily due to $6.4 million of death benefits from bank-owned life insurance policies in Q1 2022 and higher realized losses from the sale of investment securities of $2.0 million in Q2 2022 compared to Q1 2022.

Non-Interest Expense

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

Contacts

David W. Patti, Communications Director 610-451-9452

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