Customers Bancorp Reports Results for Full Year and Fourth Quarter 2022

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

Full Year 2022 Highlights

• 2022 net income available to common shareholders was $218.4 million, or $6.51 per diluted share; ROAA was 1.13% and ROCE was 17.40%.
• 2022 core earnings* were $256.4 million, or $7.63 per diluted share; Core ROAA* was 1.32% and Core ROCE* was 20.43%.
• 2022 core earnings excluding Paycheck Protection Program* («PPP») were $218.7 million, or $6.51 per diluted share, up 46.2% over 2021. This included a pre-tax provision release of $36.8 million, or $0.86 per diluted share, from the sale of $500.0 million of consumer installment loans in Q3 2022, and other full year 2022 core earnings (excluding PPP)* of $5.65.
• 2022 adjusted pre-tax pre-provision net income* was $400.7 million; adjusted pre-tax pre-provision ROAA* was 1.99%; adjusted pre-tax pre-provision ROCE* was 31.16%.
• Year-over-year loan growth was $1.2 billion, or 8.4%. Year-over-year loan growth excluding PPP* was $3.5 billion, or 30.7%, led by our low-risk variable rate corporate and specialty lending verticals.
• Year-over-year deposit growth was $1.4 billion, up 8.2%.
• 2022 net interest margin, tax equivalent was 3.19%. 2022 net interest margin, tax equivalent, excluding the impact of PPP loans* was 3.16%.
• 2022 provision for credit losses on loans and leases of $59.5 million was largely driven by the impact of loan growth, net of the sale of consumer installment loans in Q3 2022, the recognition of weaker macroeconomic forecasts, and certain one-time charge-offs.
• Non-performing assets were $30.8 million, or 0.15% of total assets, at December 31, 2022 compared to $49.8 million, or 0.25% of total assets, at December 31, 2021. Allowance for credit losses on loans and leases equaled 426% of non-performing loans at December 31, 2022, compared to 278% at December 31, 2021.
• Book value per share and tangible book value per share* grew year over year by $1.76 or 4.7%, despite increased AOCI losses of $158.1 million over the same time period. Tangible book value per share* has grown by 77.9% over the past 5 years, significantly higher than the industry average of 2% for mid-cap banks ⁽¹⁾.
• Repurchased 830,145 common shares for $33.2 million in 2022, leaving 1.9 million of common shares authorized to be repurchased by September 2023.

* 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) Mid-cap banks as reported by KRX Index.

Fourth Quarter 2022 Highlights

• Q4 2022 net income available to common shareholders was $25.6 million, or $0.77 per diluted share; ROAA was 0.55% and ROCE was 8.05%.
• Q4 2022 core earnings* were $39.4 million, or $1.19 per diluted share; Core ROAA* was 0.81% and Core ROCE* was 12.36%.
• Q4 2022 core earnings (excluding PPP)* were $45.3 million, or $1.37 per diluted share, up 22.9% over Q4 2021.
• Q4 2022 adjusted pre-tax pre-provision net income* was $81.4 million; adjusted pre-tax pre-provision ROAA* was 1.56%; adjusted pre-tax pre-provision ROCE* was 24.59%.
• Q4 2022 loan growth was $458.0 million, or 3.0%. Q4 2022 loan growth excluding PPP* was $614.5 million, or 4.3%, led by our low-risk variable rate corporate and specialty lending verticals.
• Q4 2022 deposit growth was $634.5 million, or 3.6%.
• Q4 2022 net interest margin, tax equivalent was 2.67%. Q4 2022 net interest margin, tax equivalent, excluding the impact of PPP loans* was 2.87%.
• Q4 2022 provision for credit losses on loans and leases of $27.9 million was largely driven by the impact of loan growth, the recognition of weaker macroeconomic forecasts, and one-time charge-offs of $11.0 million for loans originated pursuant to the PPP program.
• Non-performing assets were $30.8 million, or 0.15% of total assets, at December 31, 2022 compared to $28.0 million, or 0.14% of total assets, at September 30, 2022. Allowance for credit losses on loans and leases equaled 426% of non-performing loans at December 31, 2022, compared to 466% at September 30, 2022.
• Q4 2022 book value per share and tangible book value per share* grew by $0.62 or 1.6%, despite increased AOCI losses of $7.0 million over the same time period.
• Repurchased 166,000 common shares for $5.3 million in Q4 2022.

CEO Commentary

“We delivered another solid quarter and are extremely pleased with our 2022 results despite the challenging interest rate and economic environment,” said Customers Bancorp Chairman and CEO, Jay Sidhu. “Our Q4 2022 GAAP earnings were negatively impacted by after-tax securities net losses of $13.5 million, or $0.41 per diluted share, which will benefit net interest margin in the short-term and has an earn back of roughly one year as well as after-tax net losses on PPP loans of $6.0 million, or $0.18 per diluted share. However, we are very pleased to report that Q4 2022 earnings from the core bank* were $1.37 per diluted share, beating internal targets and estimates, and bringing full year 2022 core earnings (excluding PPP)* per share to $6.51. Our responsible organic growth strategy is laser focused on credit quality with 90% of our growth in low credit risk verticals. We have taken prudent risk management strategic actions over the past several quarters to ensure we are well positioned from a capital, credit, liquidity and earnings perspective especially as we head into a highly uncertain 2023. We are also pleased to report that we beat the upper end of our 2022 core earnings per share, excluding PPP* target of $4.75 – $5.00 by 13%, even before considering the Q3 2022 pre-tax provision release of $36.8 million. Core loan* growth in 2022 was led by increases in low-risk variable rate specialty lending verticals of $3.0 billion. Asset quality remains exceptional and credit reserves are extremely robust at 426% of total non-performing loans. Our loan and deposit pipelines remain strong and we are very focused on improving our margins, moderating our growth, controlling our expenses, actively buying back common shares to the extent we are trading below book value, and creating exceptional value for our shareholders. We remain very optimistic about our future,” Mr. Jay Sidhu continued.

Core earnings excluding PPP* for Q4 2022 were $45.3 million, or $1.37 per diluted share, calculated as shown below.

(Dollars in thousands, except per share data)				USD					Per share
GAAP net income available to shareholders				$	25,623				$	0.77
Less: PPP net loss, after-tax					(5,956	)				(0.18	)
GAAP net income to common shareholders, excluding PPP					31,579					0.95
Losses on investment securities					13,543					0.41
Derivative credit valuation adjustment					202					0.01
Core earnings, excluding PPP				$	45,324				$	1.37

Financial Highlights

(Dollars in thousands, except per share data)		At or Three Months Ended								Increase (Decrease)							Twelve Months Ended								Increase (Decrease)
		December 31, 2022				December 31, 2021											December 31, 2022				December 31, 2021
Profitability Metrics:
Net income available for common shareholders		$	25,623			$	98,647			$	(73,024	)		(74.0	) %		$	218,402			$	300,134			$	(81,732	)		(27.2	) %
Diluted earnings per share		$	0.77			$	2.87			$	(2.10	)		(73.2	) %		$	6.51			$	8.91			$	(2.40	)		(26.9	) %
Core earnings*		$	39,368			$	101,213			$	(61,845	)		(61.1	) %		$	256,415			$	344,700			$	(88,285	)		(25.6	) %
Core earnings per share*		$	1.19			$	2.95			$	(1.76	)		(59.7	) %		$	7.63			$	10.23			$	(2.60	)		(25.4	) %
Core earnings, excluding PPP*		$	45,324			$	36,890			$	8,434			22.9	%		$	218,746			$	149,650			$	69,096			46.2	%
Core earnings per share, excluding PPP*		$	1.37			$	1.07			$	0.30			28.0	%		$	6.51			$	4.44			$	2.07			46.6	%
Return on average assets («ROAA»)			0.55	%			2.08	%			(1.53	)						1.13	%			1.64	%			(0.51	)
Core ROAA*			0.81	%			2.13	%			(1.32	)						1.32	%			1.86	%			(0.54	)
Core ROAA, excluding PPP*			0.93	%			0.80	%			0.13							1.14	%			0.84	%			0.30
Return on average common equity («ROCE»)			8.05	%			33.18	%			(25.13	)						17.40	%			28.75	%			(11.35	)
Core ROCE*			12.36	%			34.04	%			(21.68	)						20.43	%			33.02	%			(12.59	)
Adjusted pre-tax pre-provision net income*		$	81,377			$	130,595			$	(49,218	)		(37.7	) %		$	400,712			$	471,046			$	(70,334	)		(14.9	) %
Adjusted pre-tax pre-provision net income ROAA, excluding PPP*			1.67	%			1.37	%			0.30							1.81	%			1.44	%			0.37
Net interest margin, tax equivalent			2.67	%			4.14	%			(1.47	)						3.19	%			3.70	%			(0.51	)
Net interest margin, tax equivalent, excluding PPP loans*			2.87	%			3.12	%			(0.25	)						3.16	%			3.16	%			—
Loan yield			5.64	%			5.48	%			0.16							5.00	%			4.73	%			0.27
Loan yield, excluding PPP*			5.86	%			4.41	%			1.45							5.05	%			4.37	%			0.68
Cost of deposits			2.73	%			0.36	%			2.37							1.31	%			0.44	%			0.87
Efficiency ratio			49.20	%			38.70	%			10.50							44.81	%			40.38	%			4.43
Core efficiency ratio*			49.12	%			38.14	%			10.98							43.02	%			37.54	%			5.48
Balance Sheet Trends:
Total assets		$	20,896,112			$	19,575,028			$	1,321,084			6.7	%
Total assets, excluding PPP*		$	19,897,959			$	16,325,020			$	3,572,939			21.9	%
Total loans and leases		$	15,794,671			$	14,568,885			$	1,225,786			8.4	%
Total loans and leases, excluding PPP*		$	14,796,518			$	11,318,877			$	3,477,641			30.7	%
Non-interest bearing demand deposits		$	1,885,045			$	4,459,790			$	(2,574,745	)		(57.7	) %
Total deposits		$	18,156,953			$	16,777,924			$	1,379,029			8.2	%
Capital Metrics:
Common Equity		$	1,265,167			$	1,228,423			$	36,744			3.0	%
Tangible Common Equity*		$	1,261,538			$	1,224,687			$	36,851			3.0	%
Common Equity to Total Assets			6.05	%			6.28	%			(0.23	)
Tangible Common Equity to Tangible Assets*			6.04	%			6.26	%			(0.22	)
Tangible Common Equity to Tangible Assets, excluding PPP*			6.34	%			7.50	%			(1.16	)
Book Value per common share		$	39.08			$	37.32			$	1.76			4.7	%
Tangible Book Value per common share*		$	38.97			$	37.21			$	1.76			4.7	%
Common equity Tier 1 capital ratio (1)			9.5	%			10.0	%			(0.5	)
Total risk based capital ratio (1)			12.0	%			12.9	%			(0.9	)

(1)		Regulatory capital ratios as of December 31, 2022 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.

Paycheck Protection Program (PPP)

We funded, either directly or indirectly, about 358,000 loans totaling $10.3 billion. Through the program, we earned close to $350 million of deferred origination fees from the SBA, which was significantly accretive to our earnings and capital levels as these loans were forgiven by the government. In Q4 2022, we recognized only $4 million of these fees in earnings as forgiveness levels were slower than expected, bringing total fees recognized to date to $322 million, and $26 million remaining to be recognized in 2023. «As we’ve stated previously, it is difficult to predict the timing of PPP forgiveness. We expect most of the fees to be recognized over the next two quarters; however, because we fully paid off the FRB PPP liquidity facility in third quarter 2021, these loans are currently being funded with higher cost funding, reducing their short-term profitability. This was particularly evident in Q4 2022 as higher PPP-related expenses resulted in a total negative impact to Q4 2022 earnings of $0.18 per diluted share. This included negative net interest income of $2.8 million resulting from higher funding costs, $11.0 million of one-time charge-offs increasing provision expense, and a $7.5 million gain resulting from a legal settlement with one of our third party PPP service providers. These one-time charge-offs are before the impact of any contractual indemnities or recoveries we may receive in future periods,» 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:

(Dollars in thousands)	December 31, 2022			% of Total			September 30, 2022			% of Total			December 31, 2021			% of Total
Commercial:
Commercial & industrial:
Specialty lending	$	5,412,887		34.3	%		$	5,103,974		33.3	%		$	2,403,991		16.5	%
Other commercial & industrial		1,135,336		7.2				1,064,332		7.0				942,679		6.5
Multifamily		2,217,098		14.0				2,267,376		14.8				1,486,308		10.2
Loans to mortgage companies		1,447,919		9.2				1,708,587		11.1				2,362,438		16.2
Commercial real estate owner occupied		885,339		5.6				726,670		4.7				654,922		4.5
Loans receivable, PPP		998,153		6.3				1,154,632		7.5				3,250,008		22.3
Commercial real estate non-owner occupied		1,290,730		8.2				1,263,211		8.2				1,121,238		7.7
Construction		162,009		1.0				136,133		0.9				198,981		1.4
Total commercial loans and leases		13,549,471		85.8				13,424,915		87.5				12,420,565		85.3
Consumer:
Residential		498,781		3.1				466,888		3.0				350,984		2.4
Manufactured housing		45,076		0.3				46,990		0.3				52,861		0.3
Installment:
Personal		1,306,376		8.3				1,056,432		6.9				1,392,862		9.6
Other		394,967		2.5				341,463		2.3				351,613		2.4
Total consumer loans		2,245,200		14.2				1,911,773		12.5				2,148,320		14.7
Total loans and leases	$	15,794,671		100.0	%		$	15,336,688		100.0	%		$	14,568,885		100.0	%

Commercial and industrial («C&I») loans and leases, including specialty lending, increased $3.2 billion, or 95.7% year-over-year, to $6.5 billion. Practically all of the increases in outstanding balances were in the low-risk variable rate secured categories of Capital Call Lines and Lender Finance (collectively referred to as Fund Finance). Multifamily loans increased $730.8 million, or 49.2%, to $2.2 billion, commercial real estate owner occupied loans increased $230.4 million, or 35.2%, to $885.3 million, commercial real estate non-owner occupied loans increased $169.5 million, or 15.1% to $1.3 billion and residential loans increased $147.8 million, or 42.1%, to $498.8 million year-over-year. These increases in loans and leases were partially offset by a decrease in total consumer installment loans of $43.1 million, or 2.5%, to $1.7 billion primarily due to the sale of $500.0 million of consumer installment loans in Q3 2022 offsetting new originations and originations and purchases of certain consumer installment loans with the intent to sell and a decrease in construction loans of $37.0 million, or 18.6%, to $162.0 million.

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):

	At or Three Months Ended								Increase (Decrease)			At or Three Months Ended								Increase (Decrease)
(Dollars in thousands)	December 31, 2022				September 30, 2022							December 31, 2022				December 31, 2021
Allowance for credit losses on loans and leases	$	130,924			$	130,197			$	727		$	130,924			$	137,804			$	(6,880	)
Provision (benefit) for credit losses on loans and leases	$	27,891			$	(7,836	)		$	35,727		$	27,891			$	13,890			$	14,001
Net charge-offs (recoveries) from loans held for investment	$	27,164			$	18,497			$	8,667		$	27,164			$	7,582			$	19,582
Annualized net charge-offs (recoveries) to average loans and leases		0.70	%			0.47	%						0.70	%			0.21	%
Coverage of credit loss reserves for loans and leases held for investment		0.93	%			0.95	%						0.93	%			1.12	%
Coverage of credit loss reserves for loans and leases held for investment, excluding PPP*		1.00	%			1.03	%						1.00	%			1.53	%

*		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.

The increase in net charge-offs in Q4 2022 compared to Q3 2022 was primarily due to one-time charge-offs of $11.0 million for certain loans originated under the PPP program that were subsequently determined to be ineligible for SBA forgiveness and guarantee and were deemed uncollectible.

Provision (Benefit) for Credit Losses

			Three Months Ended							Increase (Decrease)				Three Months Ended						Increase (Decrease)
(Dollars in thousands)			December 31, 2022			September 30, 2022								December 31, 2022			December 31, 2021
Provision (benefit) for credit losses on loans and leases			$	27,891		$	(7,836	)		$	35,727			$	27,891		$	13,890		$	14,001
Provision (benefit) for credit losses on available for sale debt securities				325			(158	)			483				325			—			325
Provision (benefit) for credit losses				28,216			(7,994	)			36,210				28,216			13,890			14,326
Provision (benefit) for credit losses on unfunded commitments				153			254				(101	)			153			352			(199	)
Total provision (benefit) for credit losses			$	28,369		$	(7,740	)		$	36,109			$	28,369		$	14,242		$	14,127

The provision for credit losses on loans and leases in Q4 2022 was $27.9 million, compared to a benefit to provision of $7.8 million in Q3 2022. The provision in Q4 2022 was primarily due to loan growth, one-time charge-offs of $11.0 million for certain loans originated under the PPP program that were subsequently determined to be ineligible for SBA forgiveness and guarantee and ultimately deemed uncollectible and our recognition of weaker macroeconomic forecasts, as compared to a benefit to provision in Q3 2022 primarily from the sale of $500.0 million of consumer installment loans in connection with the Company’s balance sheet optimization initiatives. The sale transaction resulted in approximately $36.8 million of release in allowance for credit losses in Q3 2022, which was included in core earnings* and contributed approximately $0.86 per diluted share. The provision for credit losses on available for sale investment securities in Q4 2022 was $0.3 million compared to a benefit to provision of $0.2 million in Q3 2022.

The provision for credit losses on loans and leases in Q4 2022 was $27.9 million, compared to a provision of $13.9 million in Q4 2021. The provision in Q4 2022 was primarily due to loan growth, one-time charge-offs of $11.0 million for certain loans originated under the PPP program that were subsequently determined to be ineligible for SBA forgiveness and guarantee and ultimately deemed uncollectible and our recognition of weaker macroeconomic forecasts. The provision for credit losses on available for sale investment securities in Q4 2022 was $0.3 million compared to no provision in Q4 2021.

Asset Quality

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

(Dollars in thousands)			December 31, 2022				September 30, 2022				Increase (Decrease)				December 31, 2022				December 31, 2021				Increase (Decrease)
Non-performing assets («NPAs»):
Nonaccrual / non-performing loans («NPLs»)			$	30,737			$	27,919			$	2,818			$	30,737			$	49,620			$	(18,883	)
Non-performing assets			$	30,783			$	27,965			$	2,818			$	30,783			$	49,760			$	(18,977	)
NPLs to total loans and leases				0.19	%			0.18	%							0.19	%			0.34	%
Reserves to NPLs				425.95	%			466.34	%							425.95	%			277.72	%
NPAs to total assets				0.15	%			0.14	%							0.15	%			0.25	%
Loans and leases risk ratings:
Commercial loans and leases (1)
Pass			$	10,793,980			$	10,262,647			$	531,333			$	10,793,980			$	6,389,228			$	4,404,752
Special Mention				138,829				104,560				34,269				138,829				230,065				(91,236	)
Substandard				291,118				329,878				(38,760	)			291,118				266,939				24,179
Total commercial loans and leases				11,223,927				10,697,085				526,842				11,223,927				6,886,232				4,337,695
Consumer loans
Performing				1,899,376				1,893,977				5,399				1,899,376				2,114,950				(215,574	)
Non-performing				21,591				16,680				4,911				21,591				17,116				4,475
Total consumer loans				1,920,967				1,910,657				10,310				1,920,967				2,132,066				(211,099	)
Loans and leases receivable			$	13,144,894			$	12,607,742			$	537,152			$	13,144,894			$	9,018,298			$	4,126,596

(1) Excludes loan receivable, PPP, as eligible PPP loans are fully guaranteed by the Small Business Administration.

Over the last decade, we have developed a suite of commercial loan products with one particularly important common denominator: relatively low credit risk assumption. The Bank’s C&I, loans to mortgage companies, corporate and specialty lending lines of business, and multifamily loans for example, are characterized by conservative underwriting standards and low loss rates. Because of this emphasis, the Bank’s credit quality to date has been incredibly healthy despite an adverse economic environment. Maintaining strong asset quality also requires a highly active portfolio monitoring process. In addition to frequent client outreach and monitoring at the individual loan level, we employ a bottom-up data driven approach to analyze the commercial portfolio. Exposure to industry segments and CRE significantly impacted by COVID-19 initially is not substantial.

Total consumer installment loans were approximately 8.1% of total assets at December 31, 2022, 10.8% of total loans and leases and 11.5% of core loans*, and were supported by an allowance for credit losses of $68.7 million. At December 31, 2022, our consumer installment portfolio had the following characteristics: average original FICO score of 740, average debt-to-income of 19.0% and average borrower income of $107 thousand.

Non-performing loans at December 31, 2022 were essentially flat at 0.19% of total loans and leases, compared to 0.18% at September 30, 2022 and 0.34% at December 31, 2021.

Deposits

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

(Dollars in thousands)				December 31, 2022			% of Total			September 30, 2022			% of Total			December 31, 2021			% of Total
Demand, non-interest bearing				$	1,885,045		10.4	%		$	2,993,793		17.1	%		$	4,459,790		26.6	%
Demand, interest bearing					8,476,027		46.7				7,124,663		40.7				6,488,406		38.7
Total demand deposits					10,361,072		57.1				10,118,456		57.8				10,948,196		65.3
Savings					811,798		4.5				592,002		3.4				973,317		5.8
Money market					2,734,217		15.1				4,913,967		28.0				4,349,073		25.9
Time deposits					4,249,866		23.3				1,898,013		10.8				507,338		3.0
Total deposits				$	18,156,953		100.0	%		$	17,522,438		100.0	%		$	16,777,924		100.0	%

Total deposits increased $1.4 billion, or 8.2%, to $18.2 billion at December 31, 2022 as compared to a year ago. Time deposits increased $3.7 billion, or 737.7%, to $4.2 billion. This increase was offset partially by decreases in money market deposits of $1.6 billion, or 37.1%, to $2.7 billion, total demand deposits of $587.1 million, or 5.4%, to $10.4 billion and savings deposits of $161.5 million, or 16.6%, to $811.8 million. The total cost of deposits increased by 237 basis points to 2.73% in Q4 2022 from 0.36% in the prior year primarily due to higher market interest rates and a shift in deposit mix.

Capital

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

(Dollars in thousands except per share data)		December 31, 2022				September 30, 2022				December 31, 2021
Customers Bancorp, Inc.
Common Equity		$	1,265,167			$	1,249,137			$	1,228,423
Tangible Common Equity*		$	1,261,538			$	1,245,508			$	1,224,687
Common Equity to Total Assets			6.05	%			6.13	%			6.28	%
Tangible Common Equity to Tangible Assets*			6.04	%			6.12	%			6.26	%
Tangible Common Equity to Tangible Assets, excluding PPP*			6.34	%			6.48	%			7.50	%
Book Value per common share		$	39.08			$	38.46			$	37.32
Tangible Book Value per common share*		$	38.97			$	38.35			$	37.21
Common equity Tier 1 capital ratio (1)			9.5	%			9.8	%			10.0	%
Total risk based capital ratio (1)			12.0	%			12.5	%			12.9	%

Contacts

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

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