Customers Bancorp Reports Record Third Quarter 2021 Results

Net Income of $110.2 million, or $3.25 Per Diluted Share, Up 120% Over Q3 2020

 ROAA of 2.33% and ROCE of 40.82%

Tangible Book Value Increased 35% Over Q3 2020

Customers Bank Instant Token (CBIT) for Real-Time Blockchain Payments Launched October 2021 Attracting $1.5 billion in Deposits

• Q3 2021 net income available to common shareholders was $110.2 million, or $3.25 per diluted share, up 120% over Q3 2020.
• Q3 2021 core earnings (a non-GAAP measure) were $113.9 million, or $3.36 per diluted share, up 178% over Q3 2020.
• Q3 2021 ROAA was 2.33% and Core ROAA (a non-GAAP measure) was 2.35%. Q3 2020 ROAA was 1.12% and Core ROAA (a non-GAAP measure) was 0.93%.
• Q3 2021 ROCE was 40.82% and Core ROCE (a non-GAAP measure) was 42.16%. Q3 2020 ROCE was 23.05% and Core ROCE (a non-GAAP measure) was 18.82%.
• Adjusted pre-tax pre-provision net income (a non-GAAP measure) for Q3 2021 was $167.2 million, an increase of 161% over Q3 2020. Q3 2021 adjusted pre-tax pre-provision return on average assets (a non-GAAP measure) was 3.36% compared to 1.43% for Q3 2020.
• Net interest income for Q3 2021 grew $81.1 million, or 58.5%, over Q2 2021 and $112.5 million, or 104.7%, over Q3 2020.
• Q3 2021 net interest margin (a non-GAAP measure) increased to 4.59% from 2.98% in Q2 2021. Q3 2021 net interest margin, excluding the impact of Paycheck Protection Program ("PPP") loans (a non-GAAP measure), was 3.24%. Significant excess cash balances resulting from strong deposit growth negatively impacted net interest margin by about 16 basis points.
• Non-interest bearing deposits increased $2.3 billion, or 84%, in Q3 2021, of which $1.5 billion was driven by new CBIT customers on the TassatPay real-time blockchain payments platform which launched in October 2021.
• Total deposits increased $6.1 billion, or 56.6% year-over-year, which included a $5.3 billion, or 115.2%, increase in demand deposits. The total cost of deposits dropped 25 basis points from the year-ago quarter. Total deposits increased $3.1 billion, or 22.3%, over Q2 2021, with $1.5 billion coming from CBIT related deposits.
• Commercial and industrial ("C&I") loans increased $417.9 million, or 19%, year-over-year, and consumer installment loans increased $390.7 million, or 32% year-over-year.
• Purchased $529 million PPP loan portfolio from global fintech in September 2021 at a discount further increasing deferred revenue recognition in future quarters.
• Achieved $1 billion in direct Customers Bank personal loan originations, all executed digitally.
• Technology-led loans sales in Consumer and SBA Groups resulted in consumer loan gains of $4.0 million and SBA gains of $1.3 million in Q3 2021, bringing YTD September 2021 consumer loan gains to $4.5 million and YTD September 2021 SBA gains to $4.3 million. Expect recurring gain on sale strategy to continue over the next several quarters.
• Redeemed all outstanding shares of our Series C and Series D Preferred Stock on September 15, 2021.
• Adopted a one-year common stock repurchase program to repurchase up to 3.2 million shares, of which approximately 167,000 shares have been repurchased to date.
• Added four commercial teams, including one new geography in North Carolina; three new verticals in Digital Asset Banking, Technology and Venture Capital Banking and Financial Institutions Group in Q3 2021; YTD 2021 includes four new market expansions and four new verticals.
• Q3 2021 efficiency ratio was 33.42% compared to 46.76% for Q3 2020. Q3 2021 core efficiency ratio was 30.36% compared to 46.10% in Q3 2020 (non-GAAP measures).
• Q3 2021 provision for credit losses on loans and leases was $13.2 million compared to $3.3 million in Q2 2021. At September 30, 2021, the coverage of credit loss reserves for loans and leases held for investment, excluding PPP loans (a non-GAAP measure), was 1.65% compared to 1.61% at June 30, 2021.
• Non-performing assets were 0.27% of total assets at September 30, 2021 compared to 0.34% at September 30, 2020. Allowance for credit losses equaled 253% of non-performing loans at September 30, 2021, compared to 245% at September 30, 2020.
• Total deferments declined to $80.1 million, or 0.8% of total loans and leases excluding PPP loans (a non-GAAP measure) at September 30, 2021, down from $98.2 million, or 0.9% of total loans and leases excluding PPP loans (a non-GAAP measure) at June 30, 2021.

WEST READING, Pa.--(BUSINESS WIRE)-- Customers Bancorp, Inc. (NYSE: CUBI), the parent company of Customers Bank (collectively "Customers" or "CUBI"), today reported third quarter 2021 ("Q3 2021") net income to common shareholders of $110.2 million, or $3.25 per diluted share, significantly up from second quarter 2021 ("Q2 2021") net income to common shareholders of $58.0 million, or $1.72 per diluted share. Core earnings for Q3 2021 totaled $113.9 million, or $3.36 per diluted share compared to Q2 2021 core earnings of $59.3 million, or $1.76 per diluted share (non-GAAP measures). Adjusted pre-tax pre-provision net income was $167.2 million for Q3 2021 compared to $86.5 million for Q2 2021 (non-GAAP measures). Net interest margin, tax equivalent ("NIM") increased to 4.59% for Q3 2021 from 2.98% in Q2 2021.

“This quarter's results mark a milestone in our company's history, with more income earned in a single quarter than any of our previous full-year earnings,” remarked Customers Bancorp Chairman and CEO, Jay Sidhu. “Our organic growth rates remain remarkable, with our C&I loans growing 19% year-over-year, consumer installment loans growing 32%, and non-interest bearing deposits growing 113%. In addition, we funded, either directly or indirectly, about 347,000 PPP loans totaling $10 billion, helping those businesses deal with adversities related to the pandemic with most of them thriving today. We also earned $346 million of deferred origination fees from the SBA through the PPP loans and we could not be prouder of our participation in and execution of this program. As demonstrated this quarter, the recognition of the deferred fees is significantly accretive to our earnings and capital levels as these loans are forgiven by the government. We also recently launched a blockchain-based real time payments token that will immediately begin serving a growing array of B2B clients who want the benefit of instant payments, which is expected to significantly enhance our core low-to-no cost deposit franchise. This combined with our market expansion plans, new teams and lending verticals, and strong pipeline leave us very well positioned to support future growth. We remain optimistic about our future,” Mr. Sidhu concluded.

Launch of Customers Bank Instant Token (CBIT)

“We are thrilled to announce that CBIT on the TassatPay payments platform went live on October 18, 2021. We received $1.5 billion in new non-interest bearing demand deposits as of September 30, 2021 and are very pleased with meeting the needs of our business clients through this block-chain based payment processing system. We not only developed and implemented this new technology, in partnership with TassatPay, in record time, but did so following a very thorough strategic initiative process," commented Mr. Sidhu. "We believe our technology, compliance and customer service and support systems are among the best in the country," concluded Mr. Sidhu.

As of September 30, 2021, $1.5 billion in non-interest bearing demand deposits have been attracted to the Bank through this system. We expect these deposits to grow modestly over the next few quarters, giving us an opportunity to transform our deposits into high quality, low-to-no cost, stable and growing deposit franchise.

Recruitment of New Commercial Teams

To further build out our franchise and support the growth of our business banking initiatives, we are pleased to announce the onboarding of a new expansion market (North Carolina) and three new commercial verticals (Digital Asset Banking, Technology and Venture Capital Banking and Financial Institutions Group). In addition to the teams onboarded this quarter and year to date (Florida, Texas, Harrisburg and Fund Finance), we have several teams currently in the recruitment pipeline. “Our strategy of high tech supported by high touch private banking teams has proven to be a superior business model and growth strategy. The success of our commercial team recruitment to date has given us the confidence to continue to advance the strategy allowing us to deploy the low-to-no-cost deposits we are generating. This is resulting in optimism for future earnings and continued shareholder value creation,” commented Mr. Sidhu.

Key Balance Sheet Trends

Commercial and industrial loans and leases increased $417.9 million to $2.6 billion, commercial real estate owner occupied loans increased $98.4 million to $656.0 million, consumer installment loans increased $390.7 million to $1.6 billion and construction loans increased $75.6 million to $198.6 million. These increases in loans and leases were partially offset by planned decreases in multi-family loans of $563.1 million to $1.4 billion, commercial real estate non-owner occupied loans of $89.2 million to $1.1 billion and residential mortgages of $83.0 million to $260.8 million. “Looking ahead, we see continued growth in core C&I and consumer loans offsetting the continued expected seasonal and yield curve related decreases in loans to mortgage companies at the end of this year," stated Mr. Sidhu.

Total loans and leases decreased $1.1 billion, or 6.6%, to $15.5 billion at September 30, 2021 compared to the year-ago period. As expected, commercial loans to mortgage companies declined $1.3 billion to $2.6 billion compared to the year-ago period. PPP loans were $5.0 billion at September 30, 2021, relatively unchanged from the year-ago period, driven by $4.7 billion in originations and purchases from the latest round of PPP loans, offset by $4.7 billion in forgiveness, repayments and associated net deferred fees from the new round and earlier rounds of PPP loans. Excluding PPP loans and commercial loans to mortgage companies, total loans and leases increased $238.4 million, or 3.1%, as the loan mix continued to improve year-over-year.

Total deposits increased $6.1 billion, or 56.6%, to $17.0 billion at September 30, 2021 compared to the year-ago period. Total demand deposits increased $5.3 billion, or 115.2%, to $10.0 billion, money market deposits increased $1.0 billion, or 25.5%, to $5.1 billion, and savings deposits increased $136.7 million, or 11.6%, to $1.3 billion. These increases were offset, in part, by a decrease in time deposits of $379.3 million, or 39.0%, to $593.1 million. The total cost of deposits declined by 25 basis points to 0.42% in Q3 2021 from 0.67% in the year-ago quarter. "Our current spot cost of deposits is approximately 32 basis points and we expect our deposit costs to be below 30 basis points by December 31, 2021, a dramatic improvement in our deposit franchise," stated Mr. Sidhu.

Other borrowings increased $99.2 million to $223.2 million at September 30, 2021 compared to the year-ago period from the issuance of our 2.875% fixed-to-floating rate senior notes, the proceeds of which were used to redeem all outstanding shares of our Series C and Series D Preferred Stock.

Very Strong Growth in Tangible Common Equity and Tangible Book Value Per Share

Customers experienced significant improvements in regulatory capital ratios in Q3 2021 as compared to a year ago. Customers Bancorp's tangible common equity (a non-GAAP measure) increased by $323.1 million to $1.1 billion at September 30, 2021 from $819.6 million at September 30, 2020, and the tangible book value per common share (a non-GAAP measure) increased to $35.12 at September 30, 2021 from $25.97 at September 30, 2020, an increase of 35.2%. 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 (a non-GAAP measure), were 13.4% and 8.1%, respectively, at September 30, 2021. At June 30, 2021, Customers Bancorp's total risk based capital ratio and TCE ratio, excluding PPP loans (a non-GAAP measure), were 13.3% and 7.7%, respectively.

Loan Portfolio Management During the COVID-19 Crisis

Over the last decade, Customers has developed a suite of commercial and retail loan products with one particularly important common denominator: relatively low credit risk assumption. The Bank’s C&I, mortgage warehouse, 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, Customers employs a bottom-up data driven approach to analyze its commercial portfolio.

Strong commercial loan portfolio with very low concentration in COVID-19 impacted industries and CRE

• Total commercial deferments declined to $73.4 million, or 0.7% of total loans and leases, excluding PPP loans (a non-GAAP measure), at September 30, 2021, down from $89.8 million, or 0.8% of total loans and leases, excluding PPP loans, at June 30, 2021. Customers' commercial deferments peaked at about $1.2 billion in July 2020.
• Exposure to industry segments significantly impacted by COVID-19 is not substantial. At September 30, 2021, Customers had $83.2 million in energy and utilities exposure (with no deferments); $62.0 million in colleges and universities (with no deferments); $62.8 million in CRE retail sales exposure (mostly auto sales; with no deferments); $45.6 million in franchise restaurants and dining (with no deferments); and $23.8 million in entertainment only businesses (with no deferments).
• At September 30, 2021, the hospitality portfolio was $397.2 million, or 3.8% of total loans and leases, excluding PPP loans (a non-GAAP measure), with $59.2 million in deferment. Approximately 80% ($317.7 million) represents “flagged” facilities, with the majority of the non-flagged being high-end destination hotels in Cape May (NJ), Avalon (NJ), and Long Island (NY). We believe the majority of the hotels have sufficient cash resources to get through the COVID-19 crisis.
• At September 30, 2021, the healthcare portfolio was approximately $420.6 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.
• The multi-family portfolio is highly seasoned, with a weighted average loan to value of 61.7% as of quarter-end. 54.3% of the portfolio was in New York City, of which 70.6% was in rent controlled/regulated properties. As of September 30, 2021, no deferments have been requested.
• At September 30, 2021, investment CRE had a weighted average loan to value of 62.9%, with approximately 48.1% of the portfolio housed in New York, Philadelphia and surrounding markets. As of September 30, 2021, none of the portfolio was on deferment.

Consumer installment, mortgage and home equity loan portfolios continue to perform well

• Total consumer-related deferments declined to $6.7 million, or 0.1% of total loans and leases, excluding PPP loans (a non-GAAP measure), at September 30, 2021, down from $8.4 million at June 30, 2021.
• The $1.6 billion consumer installment loan portfolio outperformed industry peers with deferments dropping to 0.26% and 30+ day delinquency at only 0.80%. Strong credit quality (avg. FICO at origination: 740), low concentration in at-risk job segments, and outstanding performance of CB Direct originations have resulted in solid results through the end of Q3 2021.
• The consumer installment portfolio has been managed to moderate growth and strengthening credit quality, by replacing run-off with CB Direct originations with higher FICO scores.

Key Profitability Trends

Net Interest Income

Net interest income totaled $219.9 million in Q3 2021, an increase of $81.1 million from Q2 2021, primarily due to a $334.8 million net increase in average interest-earning assets and a decrease in the cost of interest-bearing liabilities. Interest-earning asset growth was driven by increases in commercial and industrial loans, consumer loans and the purchases of PPP loans, offset by PPP loan forgiveness from the first two rounds and the latest round, which accelerated the recognition of net deferred loan origination fees, and decreases in commercial loans to mortgage companies and multi-family loans. Compared to Q2 2021, total loan yields increased 197 basis points to 5.71%. The increase is attributable to increased forgiveness of PPP loans and higher yields on C&I loans. Total borrowing costs increased by 12 basis points to 0.89% primarily due to the issuance of fixed-to-floating rate senior notes, the proceeds of which were used to redeem all outstanding shares of our Series C and Series D preferred stock offset by less reliance on borrowings due to higher deposits including the repayment of the FRB PPP Liquidity Facility, costing 0.35%. "As we've stated previously, it is difficult to predict net interest income in future periods because the timing of PPP forgiveness results in the accelerated recognition of net deferred fees and also affects the amount of net interest income expected to be earned while the PPP loans are held on our balance sheet," commented Mr. Sidhu.

Provision for Credit Losses

The provision for credit losses on loans and leases in Q3 2021 was $13.2 million, compared to a $3.3 million provision in Q2 2021. The provision in Q3 2021 was primarily to support continued growth in CB Direct consumer installment loan originations. The allowance for credit losses on loans and leases represented 1.65% of total loans and leases receivable, excluding PPP loans (a non-GAAP measure) at September 30, 2021, compared to 1.61% at June 30, 2021 and 2.02% at September 30, 2020. Customers' non-performing loans at September 30, 2021 were only 0.34% of total loans and leases, an improvement from 0.38% at September 30, 2020.

Non-Interest Income

Non-interest income totaled $25.6 million for Q3 2021, an increase of $8.8 million compared to Q2 2021. A technology-led new initiative for selling excess consumer installment loans into securitizations was launched earlier this year. This resulted in a $4.0 million gain on sale in Q3 2021, bringing YTD September 2021 consumer loan gains to $4.5 million. The SBA gains were $1.3 million in Q3 2021, bringing the YTD September 2021 SBA gains to $4.3 million. "We will continue to grow this initiative," commented Mr. Sidhu. The $6.1 million of gains realized from the sale of investment securities were used to offset a $6.2 million make-whole fee paid to a single high-cost deposit customer in Q3 2021.

Non-Interest Expense

The management of non-interest expenses remains a priority at Customers. However, this will not be at the expense of not making adequate investments with new technologies. Our Q3 2021 normalized expenses were about unchanged over Q2 2021, although our financial statements show an increase of $9.2 million compared to Q2 2021. The increase was primarily due to over $8.0 million of certain one-time or other transitory items including a $6.2 million make-whole fee paid to a single high-cost deposit customer, a litigation settlement amount of $1.2 million, and $0.6 million of increased outside service expense to assist with the PPP forgiveness process, and higher technology and servicing-related expenses of $1.7 million and a $0.6 million increase in the provision to credit losses for unfunded commitments. These increases were offset in part by a net decrease of $1.8 million in salaries and employee benefits primarily resulting from approximately $2.5 million of compensation expense associated with an executive's retirement and other one-time benefits in Q2 2021.

Taxes

Income tax expense from continuing operations increased by $16.2 million to $36.3 million in Q3 2021 from $20.1 million in Q2 2021 primarily due to an increase in projected pre-tax income from continuing operations. The effective tax rate from continuing operations remained relatively constant at approximately 24%. Customers expects the full-year 2021 effective tax rate from continuing operations to be approximately 20% to 25%.

Net Loss From Discontinued Operations

The divestiture of BankMobile Technologies, Inc. was completed on January 4, 2021, and its historical financial results are presented as discontinued operations.

Outlook

“Looking ahead, we are very optimistic about the prospects of our company. The best in class tech agility of Customers Bancorp has allowed us to be a major participant in the PPP program and to incubate new lines of businesses that leverage our fintech relationships. We recently launched a private real-time, blockchain-based B2B payments platform with integration of digital and legacy payment rails. The platform will deliver enhanced payments functionality for our business clients and is expected to generate additional deposit growth in targeted niches, such as real estate, monetary and currency exchanges and institutional investments. We've achieved significant accretion in our capital levels over the past 12 months and our credit quality is expected to remain in line with or better than peers. The financial benefits of PPP aside, we project our recurring core earnings power to be $4.00 in 2021; $4.75 - $5.00 in 2022, an increase of 20% - 25% over 2021 core earnings; and we expect to achieve $6.00 in core EPS even sooner than the guidance we had provided for 2025,” concluded Mr. Sidhu.

Webcast

The live audio webcast, presentation slides, and earnings press release will be made available at https://www.customersbank.com/investor-relations/ and at the Customers Bancorp 3rd Quarter Earnings Webcast.

You may submit questions in advance of the live webcast by emailing Customers' Communications & Marketing Director, David Patti at [email protected]; questions may also be asked during the webcast through the webcast application.

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

Institutional Background

Customers Bancorp, Inc. (NYSE:CUBI) is a bank holding company located in West Reading, Pennsylvania engaged in banking and related businesses through its bank subsidiary, Customers Bank, a full-service bank with $19.1 billion in assets at September 30, 2021. 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 and lending services to small and medium-sized businesses, professionals, individuals and families. Services and products are available wherever permitted by law through mobile-first apps, online portals, and a network of offices and branches. Customers Bank provides blockchain-based digital payments via the Customers Bank Instant Token (CBIT) which allows clients to make real-time payments in US dollars, 24 hours a day, 7 days a week, 365 days a year.

“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 affect market interest rates and the money supply; actions that we and our customers take in response to these developments and the effects such actions have on our operations, products, services and customer relationships; and the effects of any changes in accounting standards or policies. Customers Bancorp, Inc. cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Customers Bancorp, Inc.’s filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K for the year ended December 31, 2020, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments thereto, that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Customers Bancorp, Inc. does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Customers Bancorp, Inc. or by or on behalf of Customers Bank, except as may be required under applicable law.

Q3 2021 Overview

The following table presents a summary of key earnings and performance metrics for the quarter ended September 30, 2021 and the preceding four quarters: