Customers Bancorp, Inc. (NYSE:CUBI, Financial)
Second Quarter 2023 Highlights
- Q2 2023 net income available to common shareholders was $44.0 million, or $1.39 per diluted share; ROAA was 0.88% and ROCE was 13.22%.
- Q2 2023 core earnings* were $52.2 million, or $1.65 per diluted share; Core ROAA* was 1.03% and Core ROCE* was 15.67%.
- CET 1 capital ratio of 10.3%1 at June 30, 2023, compared to 9.6% at March 31, 2023. Significant progress toward stated goal of 11.0% - 11.5% by year-end 2023.
- Q2 2023 net interest margin, tax equivalent (NIM) was 3.15%, an increase of 19 basis points over Q1 2023 NIM of 2.96%. Q1 2023 NIM (excluding PPP)* was 2.80%
- Significant positive deposit mix shift in Q2 2023 as total deposits grew by $226.8 million, with an increase in non-interest bearing deposits of $1.0 billion, or 29%, over Q1 2023. The average cost of deposits decreased 21 basis points in Q2 2023 while the June 30, 2023 spot cost of deposits declined one basis point from March 31, 2023 despite an increase in market interest rates in Q2 2023.
- Total estimated insured deposits were 77%2 of total deposits at June 30, 2023, with immediately available liquidity covering uninsured deposits by approximately 222%.
- Q2 2023 adjusted pre-tax pre-provision net income* was $96.8 million; adjusted pre-tax pre-provision ROAA* was 1.79%; and adjusted pre-tax pre-provision ROCE* was 28.01%.
- Q2 2023 loans declined $1.2 billion or 7.6% over Q1 2023, with average loan yields up 13 basis points in Q2 2023, principally due to non-strategic loan sales.
- Q2 2023 provision for credit losses on loans and leases of $22.4 million was largely driven by the recognition of weaker macroeconomic forecasts.
- Non-performing assets were $28.4 million, or 0.13% of total assets, at June 30, 2023, down $3.9 million, or 12%, from March 31, 2023. Allowance for credit losses on loans and leases equaled 494% of non-performing loans at June 30, 2023, compared to 406% at March 31, 2023.
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Q2 2023 book value per share and tangible book value per share* both grew by $1.08, or 2.6%, with increased AOCI losses of $11.9 million over the same time period.
* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document. | ||||
1 Regulatory capital ratios as of June 30, 2023 are estimates. | ||||
2 Uninsured deposits (estimate) of $4.7 billion to be reported on the Bank's call report, less state and municipal deposits of $459.4 million collateralized by our line of credit from FHLB and from our affiliates of $92.0 million. | ||||
CEO Commentary
“We are very pleased with our second quarter results as we executed seamlessly on our strategic priorities and delivered one of our strongest quarters to date,” said Customers Bancorp Chairman and CEO Jay Sidhu. “While the industry continues to face significant headwinds from rising funding costs, negative deposit mix shifts and net interest margin compression, we successfully grew total deposits by $226.8 million in Q2 2023, even after the payoff of net brokered CDs of $660 million, with an increase in non-interest bearing deposits of $1 billion, or 29%. We expanded our net interest margin significantly over Q1 2023 despite holding even higher cash balances for prudent risk management purposes. Notably, our average cost of deposits decreased 21 basis points during the quarter as we replaced higher cost wholesale deposits with lower cost core deposits and continued to strengthen our deposit franchise. Our average loan yields increased 13 basis points as a result of the increase in interest rates and the floating rate nature of our loan portfolio. Following through on the commitments we made last quarter, we successfully exited certain non-strategic loan portfolios by selling $670 million in short-term syndicated capital call lines of credit and $556.7 million in consumer installment loans. This provided balance sheet capacity for the previously announced $631 million Venture Banking portfolio acquired from the FDIC at a 15% discount and afforded us a significant opportunity to further grow and strengthen our deposit franchise, improve our profitability, and increase our capital ratios,” stated Jay Sidhu.
“Our Q2 2023 GAAP earnings were $44.0 million, or $1.39 per diluted share. Core earnings* were $52.2 million, or $1.65 per diluted share, well above consensus estimates. At June 30, 2023, our deposit base was well diversified, with approximately 77%2 of total deposits insured. We maintain a strong liquidity position, with $9.1 billion of liquidity immediately available, which covers approximately 222% of uninsured deposits and our loan to deposit ratio was about 77%. We continued to purposely moderate loan growth and took other strategic actions in the second quarter 2023 to further improve our capital ratios. At June 30, 2023, we had $3.2 billion of cash on hand, which we believe was prudent given persisting levels of uncertainty. Asset quality remains exceptional and credit reserves are extremely robust at 494% of total non-performing loans at the end of Q2 2023. The prudent risk management strategic actions that we have taken over the past several quarters have us well positioned from a capital, credit, liquidity, interest rate risk, and earnings perspective as we enter the second half of 2023. With persisting levels of uncertainty, we believe it is prudent to continue to moderate growth, or even shrink the balance sheet somewhat, and focus on further strengthening the balance sheet and improving capital ratios. We remain committed to improving our CET 1 ratio to 11.0% - 11.5% by year-end 2023 and are extremely proud of the progress that we made in just one quarter. We are confident in our ability to manage our credit, interest rate, and liquidity risks, and superbly service our clients in all operating environments. We are incredibly optimistic about our future,” Jay Sidhu continued.
* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document. | ||||
1 Regulatory capital ratios as of June 30, 2023 are estimates. | ||||
2 Uninsured deposits (estimate) of $4.7 billion to be reported on the Bank's call report, less state and municipal deposits of $459.4 million collateralized by our line of credit from FHLB and from our affiliates of $92.0 million. | ||||
Financial Highlights
(Dollars in thousands, except per share data) | At or Three Months Ended | Increase (Decrease) | |||||||||||||
June 30, 2023 | March 31, 2023 | ||||||||||||||
Profitability Metrics: | |||||||||||||||
Net income available for common shareholders | $ | 44,007 | $ | 50,265 | $ | (6,258 | ) | (12.5 | )% | ||||||
Diluted earnings per share | $ | 1.39 | $ | 1.55 | $ | (0.16 | ) | (10.3 | )% | ||||||
Core earnings* | $ | 52,163 | $ | 51,143 | $ | 1,020 | 2.0 | % | |||||||
Core earnings per share* | $ | 1.65 | $ | 1.58 | $ | 0.07 | 4.4 | % | |||||||
Core earnings, excluding PPP* | $ | 54,231 | $ | 41,537 | $ | 12,694 | 30.6 | % | |||||||
Core earnings per share, excluding PPP* | $ | 1.72 | $ | 1.28 | $ | 0.44 | 34.4 | % | |||||||
Return on average assets ("ROAA") | 0.88 | % | 1.03 | % | (0.15 | ) | |||||||||
Core ROAA* | 1.03 | % | 1.05 | % | (0.02 | ) | |||||||||
Core ROAA, excluding PPP* | 1.07 | % | 0.87 | % | 0.20 | ||||||||||
Return on average common equity ("ROCE") | 13.22 | % | 16.00 | % | (2.78 | ) | |||||||||
Core ROCE* | 15.67 | % | 16.28 | % | (0.61 | ) | |||||||||
Adjusted pre-tax pre-provision net income* | $ | 96,833 | $ | 89,282 | $ | 7,551 | 8.5 | % | |||||||
Adjusted pre-tax pre-provision net income ROAA, excluding PPP* | 1.83 | % | 1.53 | % | 0.30 | ||||||||||
Net interest margin, tax equivalent | 3.15 | % | 2.96 | % | 0.19 | ||||||||||
Net interest margin, tax equivalent, excluding PPP* | 3.20 | % | 2.80 | % | 0.40 | ||||||||||
Loan yield | 6.83 | % | 6.70 | % | 0.13 | ||||||||||
Loan yield, excluding PPP* | 6.89 | % | 6.46 | % | 0.43 | ||||||||||
Cost of deposits | 3.11 | % | 3.32 | % | (0.21 | ) | |||||||||
Efficiency ratio | 49.25 | % | 47.71 | % | 1.54 | ||||||||||
Core efficiency ratio* | 47.84 | % | 47.09 | % | 0.75 | ||||||||||
Balance Sheet Trends: | |||||||||||||||
Total assets | $ | 22,028,565 | $ | 21,751,614 | $ | 276,951 | 1.3 | % | |||||||
Total loans and leases | $ | 13,910,907 | $ | 15,063,034 | $ | (1,152,127 | ) | (7.6 | )% | ||||||
Total loans and leases, excluding PPP* | $ | 13,722,144 | $ | 14,816,776 | $ | (1,094,632 | ) | (7.4 | )% | ||||||
Non-interest bearing demand deposits | $ | 4,490,198 | $ | 3,487,517 | $ | 1,002,681 | 28.8 | % | |||||||
Total deposits | $ | 17,950,431 | $ | 17,723,617 | $ | 226,814 | 1.3 | % | |||||||
Capital Metrics: | |||||||||||||||
Common Equity | $ | 1,318,858 | $ | 1,283,226 | $ | 35,632 | 2.8 | % | |||||||
Tangible Common Equity* | $ | 1,315,229 | $ | 1,279,597 | $ | 35,632 | 2.8 | % | |||||||
Common Equity to Total Assets | 6.0 | % | 5.9 | % | 0.1 | ||||||||||
Tangible Common Equity to Tangible Assets* | 6.0 | % | 5.9 | % | 0.1 | ||||||||||
Tangible Common Equity to Tangible Assets, excluding PPP* | 6.0 | % | 6.0 | % | 0.0 | ||||||||||
Book Value per common share | $ | 42.16 | $ | 41.08 | $ | 1.08 | 2.6 | % | |||||||
Tangible Book Value per common share* | $ | 42.04 | $ | 40.96 | $ | 1.08 | 2.6 | % | |||||||
Common equity Tier 1 capital ratio (1) | 10.3 | % | 9.6 | % | 0.7 | ||||||||||
Total risk based capital ratio (1) | 13.1 | % | 12.3 | % | 0.8 | ||||||||||
(1) Regulatory capital ratios as of June 30, 2023 are estimates. | |||||||||||||||
* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document. | |||||||||||||||
Financial Highlights
(Dollars in thousands, except per share data) | At or Three Months Ended | Increase (Decrease) | Six Months Ended | Increase (Decrease) | ||||||||||||||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||||
Profitability Metrics: | ||||||||||||||||||||||||||||||
Net income available for common shareholders | $ | 44,007 | $ | 56,519 | $ | (12,512 | ) | (22.1 | )% | $ | 94,272 | $ | 131,415 | $ | (37,143 | ) | (28.3 | )% | ||||||||||||
Diluted earnings per share | $ | 1.39 | ||||||||||||||||||||||||||||
