Customers Bancorp Reports Strong Q1 2014 Net Income and Record Organic Loan and Deposit Growth

Marketwired

WYOMISSING, PA--(Marketwired - April 21, 2014) - Customers Bancorp, Inc. (CUBI), the parent company of Customers Bank (collectively "Customers"), reported earnings of $8.1 million for the quarter ended March 31, 2014 ("Q1 2014") compared to earnings of $7.2 million for the quarter ended March 31, 2013 ("Q1 2013"), an increase of 13.2%. Q1 2014 fully diluted earnings per share was $0.32. Total shares outstanding at March 31, 2014 were 24.3 million, up from 18.5 million shares outstanding at March 31, 2013. 

During Q1 2014 Customers funded loan balances (including mortgage warehouse loans held for sale) grew $841 million to $4.1 billion, an increase of 26.2% for the quarter. Deposits grew by $646 million to $3.6 billion, an increase of 21.8%. Loan growth was predominately in multi-family loans, up $495 million, adjustable rate 1-4 family residential mortgage loans, up $260 million, and commercial real estate and commercial and industrial loans, up $135 million.

Other financial highlights for Q1 2014 included:

  • Total assets at March 31, 2014 were $5.0 billion, up $0.9 billion (20.7%) from the December 31, 2013 balance of $4.2 billion, and up $1.6 billion (45.0%) from the March 31, 2013 balance of $3.5 billion.
  • Loans receivable (not covered by FDIC loss share) were $3.3 billion at March 31, 2014, an increase of $0.9 billion (37.4%) from the December 31, 2013 balance of $2.4 billion, and up $1.8 billion (117.2%) from the March 31, 2013 balance of $1.5 billion.
  • Loans held for sale (principally mortgage warehouse loans) were $698 million at March 31, 2014, down $50 million (6.7%) from the December 31, 2013 balance of $748 million, and down $662 million (48.7%) from the March 31, 2013 balance of $1.4 billion.
  • Total deposits increased $646 million (21.8%) during Q1 2014 to $3.6 billion as of March 31, 2014. Total deposits increased $1.1 billion (42.2%) from March 31, 2013.
  • Net interest income was $29.5 million for Q1 2014 compared to $22.5 million for Q1 2013, an increase of 31.0%.
  • Total revenues (net interest income plus non-interest income) before provisions for loan losses grew from $27.4 million in Q1 2013 to $37.1 million in Q1 2014, an increase of 35.3%.
  • Provision expense for Q1 2014 was $4.4 million, principally as a result of the provision recorded to reflect the first quarter loan growth. This compares with a recovery of $0.5 million in Q4 2013 and a recovery of $0.1 million in Q1 2013.
  • Q1 2014 pre-tax pre-provision income of $15.9 million was up $2.6 million, or 19.5%, from Q4 2013, and up $5.0 million, or 45.9%, from Q1 2013. The pre-tax pre-provision ratio remained relatively stable at approximately 1.5% of average assets.
  • Q1 2014 non-interest expense of $21.2 million declined $1.1 million (5.1%) from Q4 2013 non-interest expense and increased $4.7 million (28.5%) compared to Q1 2013 non-interest expense of $16.5 million.
  • Non-performing loans not covered by FDIC loss share agreements were $12.6 million at March 31, 2014, a decrease of $0.9 million (6.7%) from the December 31, 2013 non-performing non-covered amount of $13.5 million. Non-covered non-performing loans were 0.32% of total non-covered loans as of March 31, 2014.
  • Total reserves for loan losses on originated loans were 165.4% of non-performing loans and 0.89% of all loans held for investment.
  • Commercial and industrial loans, including owner occupied commercial real estate loans totaled $801 million as of March 31, 2014, up $38 million (4.9%) from December 31, 2013, and up $131 million (19.6%) from the March 31, 2013 balance of $670 million.
  • Capital ratios1 remained strong but declined during the period due to the increase in income producing assets. March 31, 2014 estimated Tier 1 Leverage was 9.10%, and Total Risk-Based Capital was 11.45%. The Company's capital ratios exceed the levels established for "well capitalized" banks.

"In Q1 2014 we focused our energies on increasing earning assets and aggregating deposits, more fully utilizing the capital raised during 2013," stated Jay Sidhu, Chairman and CEO of Customers Bancorp, Inc. "We originated nearly $700 million of loans during the first quarter of 2014 while maintaining our underwriting standards, and grew our deposits by over $600 million. In doing so we positioned the Company to achieve great things in 2014 and future years. We will continue to focus on developing revenues and controlling our expenses to build shareholder value as we move deeper into 2014."

1 Tier 1 Leverage and Total Risk-Based Capital ratios as of March 31, 2014 are estimated.

             
EARNINGS SUMMARY - UNAUDITED         
          
(Dollars in thousands, except per-share data)         
   Q1  Q4  Q1
   2014  2013  2013
          
Net income available to common shareholders $8,136 $9,010 $7,189
Basic earnings per share "EPS" $0.34 $0.37 $0.39
Diluted EPS $0.32 $0.36 $0.38
Average shares outstanding  24,260,518  24,527,087  18,471,207
          
Pre-tax pre-provision return on average assets  1.5%  1.4%  1.5%
Return on average assets  0.8%  0.9%  1.0%
Return on average common equity  8.4%  9.1%  10.6%
Equity to assets at period end  8.0%  9.3%  8.0%
Net interest margin, tax equivalent  2.9%  3.1%  3.3%
Reserves to non performing loans (NPL's)  165.4%  152.9%  104.8%
          
Tangible book value per common share (period end) (1) $16.35 $15.81 $14.78
Period end stock price $20.87 $20.46 $16.75
          
(1) Calculated as total equity less goodwill and other intangibles divided by common shares outstanding at period end.
 

Net Income, Earnings Per Share and Tangible Book Value

Q1 2014 net income of $8.1 million is up $0.9 million, or 13.2%, from Q1 2013. Q1 2014 diluted earnings per share is $0.32 with 25.3 million diluted shares, compared to Q1 2013 earnings of $7.2 million and diluted earnings per share of $0.38 with 18.9 million diluted shares. Customers' tangible book value per share increased to $16.35 as of March 31, 2014 compared to $14.78 as of March 31, 2013, an increase of 10.6%. The increase in net income in Q1 2014 compared to Q1 2013 is primarily due to increased net interest income, fueled by strong loan growth, while maintaining outstanding asset quality and growing deposits. The increasing tangible book value reflects Customers' strategic commitment to consistently maintain and grow tangible book value per share with the expectation that it will eventually result in superior shareholder value creation.

Net Interest Margin

The net interest margin decreased 14 basis points to 2.93% in Q1 2014 compared to Q4 2013, and decreased 33 basis points from Q1 2013. The Q1 2014 net interest margin has decreased due to the run-off of maturing higher yielding loans, and addition of lower yielding loans as we grew the loan portfolio by $900 million in Q1 2014. In addition, certain deposits and borrowings were extended during the quarter with higher rates and longer terms to maturity to better insulate the bank from future movement in interest rates.

Non-Interest Income

Q1 2014 non-interest income of $7.6 million was down $0.3 million compared to $7.9 million in Q4 2013, and up $2.7 million compared to $4.9 million in Q1 2013. The Q1 2014 non-interest income decrease compared to Q4 2013 resulted from lower mortgage warehouse transaction fees (down $0.6 million) activity reflecting the seasonal decrease in volume, mortgage banking fees (down $0.7 million) as originations decreased in the period, and gains on sale of Small Business Administration ("SBA") loans (down $0.5 million), offset in part by an increase in gains on sales of securities (up $1.6 million) as Customers shortened the duration of the securities portfolio. 

Non-Interest Expense

Operating expenses in Q1 2014 of $21.2 million decreased $1.1 million compared to Q4 2013 operating expenses of $22.3 million. Q1 2014 operating expenses supported greater business activities as Customers grew its loan portfolio significantly during Q1 2014 and the Company continued to invest in its commercial and industrial lending teams while rightsizing its mortgage banking business. These investments resulted in a larger organization and increased occupancy, technology, and other operating costs. However, these increased needs were largely offset in the quarter by efforts to manage costs and increase operating efficiencies including strategic realignment of staffing and compensation, higher bonus accrual in Q4 2013, and deferral of direct origination costs on the large volume of new loan originations.

Provision for Loan Losses and Asset Quality

The Q1 2014 provision for loan losses was $4.4 million, compared to a Q4 2013 provision reversal of ($0.5) million, and a Q1 2013 provision reversal of ($0.1) million2. The Q1 2014 provision is primarily the result of $0.9 billion in loan growth during the quarter.

Customers separates its loan portfolio into "covered" and "non-covered" loans for purposes of analyzing and managing asset quality. Covered loans are those loans that are covered by FDIC purchase and assumption, or loss sharing, agreements, and for which Customers is reimbursed 80% of allowable incurred losses. Covered loans totaled $61.6 million as of March 31, 2014, $66.7 million as of December 31, 2013, and $102.0 million as of March 31, 2013. Non-accrual covered loans totaled $5.5 million at March 31, 2014, $5.6 million at December 31, 2013 and $10.4 million at March 31, 2013. Covered real estate owned totaled $9.3 million as of March 31, 2014, $7.0 million as of December 31, 2013 and $4.3 million as of March 31, 2013.

2 Beginning in Q4 2013, the provision for loan losses is being reported net of the amount of estimated credit losses on covered loans to be recovered from the Federal Deposit Insurance Corporation (the "FDIC") pursuant to specific purchase and assumption, or loss sharing, agreements. Prior period amounts have been reclassified to be consistent with the Q4 2013 presentation. Previously changes in the amount recoverable from the FDIC had been reported as a separate amount in non-interest income.

Non-covered loans are all loans not covered by the FDIC agreements. Non-covered loans includes loans accounted for as held for sale as well as loans accounted for as held for investment. Non-covered loans totaled $4.0 billion as of March 31, 2014, $3.1 billion as of December 31, 2013, and $2.9 billion as of March 31, 2013. Non-accrual non-covered loans totaled $12.6 million as of March 31, 2014 (0.32% of total non-covered loans), $13.5 million (0.43% of total non-covered loans) as of December 31, 2013 and $21.4 million (0.75% of total non-covered loans) as of March 31, 2013. Non-covered loans 30 to 89 days delinquent at March 31, 2014 totaled $10.3 million, or 0.26% of non-covered loans.

Conference Call

   
Date: April 21, 2014
Time: 4:15 pm ET
US Dial-in: 877-941-1427
International Dial-in: 480-629-9664
Conference ID: 4678335
Webcast: http://public.viavid.com/index.php?id=108593
   

Institutional Background

Customers Bancorp, Inc. is a bank holding company located in Wyomissing, 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 $5.0 billion. A member of the Federal Reserve System and deposits insured by the Federal Deposit Insurance Corporation ("FDIC"), Customers Bank provides a range of banking services to small and medium-sized businesses, professionals, individuals and families through offices in Pennsylvania, New York, Rhode Island, Massachusetts, 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 a continually expanding portfolio of loans to small businesses, multi-family projects, mortgage companies and consumers.

Customers Bancorp, Inc. is listed on the NASDAQ 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" which are made in good faith by Customers Bancorp, Inc., pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 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 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. 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. 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.

       
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED - UNAUDITED     
(Dollars in thousands, except per share data)             
      
   Q1   Q4   Q1  
   2014   2013   2013  
Interest income:             
  Loans receivable, including fees $28,355  $24,801  $16,099  
  Loans held for sale  5,083   6,604   10,884  
  Investment securities  3,040   2,980   829  
  Other  116   112   108  
   Total interest income  36,594   34,497   27,920  
              
Interest expense:             
  Deposits  5,415   5,279   5,136  
  Federal funds purchased  -   -   -  
  Borrowings  1,667   1,524   259  
  Total interest expense  7,082   6,803   5,395  
   Net interest income  29,512   27,694   22,525  
  Provision for loan losses  4,368   (512 ) (117 )
   Net interest income after provision for loan losses  25,144   28,206   22,642  
              
Non-interest income:             
Gain on sale of investment securities  2,832   1,274   -  
Mortgage warehouse transactional fees  1,759   2,335   3,668  
Bank-owned life insurance income  835   824   476  
Mortgage banking income  409   1,142   -  
Deposit fees  214   187   130  
Accretion of FDIC loss sharing receivable  -   -   -  
Gain/(loss) on sale of SBA loans  (1 ) 450   50  
Other  1,541   2,153   624  
   Total non-interest income  7,590   7,915   4,898  
              
Non-interest expense:             
Salaries and employee benefits  9,351   10,625   7,397  
Occupancy  2,637   2,520   1,910  
Professional services  2,282   2,399   706  
FDIC assessments, taxes, and regulatory fees  2,131   2,058   1,347  
Technology, communication and bank operations  1,560   1,307   841  
Loan workout expenses  441   570   674  
Advertising and promotion  414   301   115  
Other real estate owned expense  351   403   36  
Merger related expenses  -   132   -  
Stock offering expenses  -   -   -  
Other  2,002   2,118   3,454  
   Total non-interest expense  21,169   22,301   16,480  
Income before tax expense  11,565   13,820   11,060  
   Income tax expense  3,429   4,810   3,871  
    Net income $8,136  $9,010  $7,189  
              
Basic earnings per share $0.34  $0.37  $0.39  
Diluted earnings per share  0.32   0.36   0.38  
              
                   
                   
                       
CONSOLIDATED BALANCE SHEET - UNAUDITED               
(Dollars in thousands)               
                
   March 31,    December 31,    March 31,  
   2014    2013    2013  
ASSETS               
Cash and due from banks $73,544   $59,339   $6,731  
Interest earning deposits  216,923    173,729    174,409  
  Cash and cash equivalents  290,467    233,068    181,140  
Investment securities available for sale, at fair value  458,302    497,573    162,030  
Loans held for sale  697,532    747,593    1,359,817  
Loans receivable not covered by Loss Sharing Agreements with the FDIC  3,294,908    2,398,353    1,516,844  
Loans receivable covered under Loss Sharing Agreements with the FDIC  61,639    66,725    102,011  
Allowance for loan losses  (26,704 )  (23,998 )  (26,439 )
  Total loans receivable, net of allowance for loan losses  3,329,843    2,441,080    1,592,416  
FHLB, Federal Reserve Bank, and other stock  50,430    42,424    34,081  
Accrued interest receivable  9,629    8,362    6,119  
FDIC loss sharing receivable  8,272    10,046    12,043  
Bank premises and equipment, net  11,234    11,625    9,546  
Bank-owned life insurance  105,303    104,433    66,746  
Other real estate owned  15,670    12,265    9,414  
Goodwill and other intangibles  3,673    3,676    3,686  
Other assets  33,876    41,028    21,586  
  Total assets $5,014,231   $4,153,173   $3,458,624  
                
LIABILITIES AND SHAREHOLDERS' EQUITY               
Demand, non-interest bearing $634,578   $478,103   $242,509  
Interest Bearing Deposits  2,971,754    2,481,819    2,293,317  
Total deposits  3,606,332    2,959,922    2,535,826  
Federal funds purchased  -    13,000    90,000  
Other borrowings  970,250    771,750    539,000  
Accrued interest payable and other liabilities  36,711    21,878    16,888  
  Total liabilities  4,613,293    3,766,550    3,181,714  
                
Common stock  24,826    24,756    18,531  
Additional paid in capital  308,820    307,231    213,022  
Retained earnings  79,144    71,008    45,503  
Accumulated other comprehensive (loss) income, net  (3,598 )  (8,118 )  354  
Treasury stock, at cost  (8,254 )  (8,254 )  (500 )
  Total shareholders' equity  400,938    386,623    276,910  
   Total liabilities & shareholders' equity $5,014,231   $4,153,173   $3,458,624  
                           
                           
   
Average Balance Sheet / Net Interest Margin (Unaudited)  
(Dollars in thousands)                
   Three Months Ended March 31,  
   2014    2013  
   Average Balance   Average yield or cost (% )  Average Balance   Average yield or cost (% )
Assets                  
Interest earning deposits $187,085   0.25%   $174,637   0.25%  
Investment securities  516,902   2.35%    143,028   2.32%  
Loans held for sale  566,535   3.64%    1,123,420   3.93%  
Loans  2,842,050   4.03%    1,390,719   4.69%  
Less: Allowance for loan losses  (24,524 )      (26,299 )    
Total interest earning assets  4,088,048   3.62%    2,805,505   4.03%  
Non-interest earning assets  282,192        156,969      
  Total assets $4,370,240       $2,962,474      
                   
Liabilities                  
Interest checking $57,067   0.81%   $35,892   0.43%  
Money market  1,397,299   0.63%    994,464   0.69%  
Other savings  38,312   0.43%    26,699   0.52%  
Certificates of deposit  1,252,871   1.01%    1,192,330   1.15%  
Total interest bearing deposits (1)  2,745,549   0.80%    2,249,385   0.93%  
Other borrowings  551,339   1.22%    171,333   0.61%  
Total interest bearing liabilities  3,296,888   0.87%    2,420,718   0.90%  
Non-interest bearing deposits (1)  666,775        254,859      
Total deposits & borrowings  3,963,663   0.72%    2,675,577   0.82%  
Other non-interest bearing liabilities  11,619        12,550      
  Total liabilities  3,975,282        2,688,127      
Shareholders' equity  394,958        274,347      
Total liabilities and shareholders' equity $4,370,240       $2,962,474      
                   
Net interest margin      2.92%        3.25%  
Net interest margin tax equivalent      2.93%        3.26%  
                   
(1) Total costs of deposits (including interest bearing and non-interest bearing) were 0.64% and 0.83% for the three months ended March 31, 2014 and 2013, respectively.  
                   
                           
 
Asset Quality as of March 31, 2014 (Unaudited)
(Dollars in thousands)
Loan Type Total Loans Non Accrual /NPL's Other Real Estate Owned Non Performing Assets (NPA's) Allowance for loan losses Credit
Mark

Cash
Reserve
Total Credit
Reserves
NPL's/
Total Loans
Total Reserves to
Total NPL's
Pre September 2009 Originated Loans                    
  Legacy $67,244 $8,946 $5,197 $14,143 $2,095 $- $- $2,095 13.30% 23.42%
  Troubled debt restructurings (TDR's) 1,738 658 - 658 56 - - 56 37.86% 8.51%
Total Pre September 2009 Originated Loans 68,982 9,604 5,197 14,801 2,151 - - 2,151 13.92% 22.40%
                     
Originated Loans (Post 2009)                    
  Warehouse 5,386 - - - 40 - - 40 0.00% 0.00%
  Manufactured Housing 4,303 - - - 86 - - 86 0.00% 0.00%
  Commercial 958,709 493 - 493 7,111 - - 7,111 0.05% 1442.39%
  MultiFamily 1,553,426 - - - 6,219 - - 6,219 0.00% 0.00%
  Consumer/ Mortgage 128,559 - - - 518 - - 518 0.00% 0.00%
  TDR's 320 - - - - - - - 0.00% 0.00%
Total Originated Loans 2,650,703 493 - 493 13,974 - - 13,974 0.02% 2834.48%
           
Acquired Loans                    
  Berkshire 11,054 1,963 813 2,776 512 - - 512 17.76% 26.08%
  Total FDIC (covered and non covered) 39,400 5,456 9,329 14,785 857 - - 857 13.85% 15.71%
  Manufactured Housing 125,612 - 331 331 - - 3,177 3,177 0.00% 0.00%
  Flagstar (Commercial) 128,883 - - - - - - - 0.00% 0.00%
  Flagstar (Residential) 254,447 - - - - - - - 0.00% 0.00%
  TDR's 3,075 553 - 553 141 - - 141 17.98% 25.50%
Total Acquired Loans 562,471 7,972 10,473 18,445 1,510 - 3,177 4,687 1.42% 58.79%
                     
Acquired Purchased Credit Impaired Loans                    
  Berkshire 47,797 - - - 4,367 - - 4,367 0.00% 0.00%
  Total FDIC - Covered 21,709 - - - 4,195 - - 4,195 0.00% 0.00%
  Manufactured Housing 2011 5,175 - - - 507 - - 507 0.00% 0.00%
Total Acquired Purchased Credit Impaired Loans 74,681 - - - 9,069 - - 9,069 0.00% 0.00%
Unamortized fees/discounts -290               0.00% 0.00%
Total Loans Held for Investment 3,356,547 18,069 15,670 33,739 26,704 - 3,177 29,881 0.54% 165.37%
Total Loans Held for Sale 697,532 - - - - - - - 0.00% 0.00%
Total Portfolio $4,054,079 $18,069 $15,670 $33,739 $26,704 $- $3,177 $29,881 0.45% 165.37%
                     
Contact:
Jay Sidhu
Chairman & CEO 
610-935-8693

Richard Ehst
President & COO
610-917-3263

Investor
Robert Wahlman CFO
610-743-8074
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