Customers Bancorp Reports Record Fourth Quarter 2020 Results

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Net Income of $52.8 million, or $1.65 Per Diluted Share, up 121% over Fourth Quarter 2019

Record Full Year 2020 Net Income of $118.5 million or $3.74 Per Diluted Share, up 83% over Full Year 2019

Q4 2020: ROAA of 1.23%, ROCE of 24.26%, and Adjusted PTPP ROAA of 1.63%

  • BankMobile divestiture completed on January 4, 2021. Holders of Customers Bancorp's common stock as of December 18, 2020 received an aggregate of 4.9 million shares of BM Technologies, Inc. common stock as special distribution valued at $14.87 per share at the closing date of the transaction, or having a market value of approximately $73 million.

  • Q4 2020 core earnings (a non-GAAP measure) were $52.6 million or $1.65 per diluted share, up 121% over Q4 2019.

  • Adjusted pre-tax pre-provision net income (a non-GAAP measure) for Q4 2020 was $74.9 million, an increase of 67.6% over Q4 2019. Q4 2020 adjusted pre-tax pre-provision return on average assets (a non-GAAP measure) was 1.63%.

  • Q4 2020 results include a net benefit to (or release from) provision for credit losses on loans and leases of $2.9 million. At December 31, 2020, the coverage of credit loss reserves for loans and leases held for investment, excluding Paycheck Protection Program ("PPP") loans (a non-GAAP measure), was 1.90%, up from 0.77% at December 31, 2019.

  • Non-performing assets were 0.39% of total assets at December 31, 2020 compared to 0.34% at September 30, 2020. Our allowance for credit losses equaled 204% of non-performing loans at December 31, 2020, down from 245% at September 30, 2020.

  • Total revenues in Q4 2020 were up 3.9% linked-quarter and 41.9% on a year-over-year basis. Strong revenue growth was driven by an expansion in the net interest margin (excluding the impact of PPP loans (a non-GAAP measure), and the recognition of deferred origination fees and interest income on PPP loans).

  • Net interest income for Q4 2020 grew $15.5 million or 14.4% over the prior quarter and $45.4 million or 58.4% over Q4 2019. Net interest income, excluding the impact of PPP loans (a non-GAAP measure), increased by $10.3 million or 11.7% over Q3 2020 and $20.1 million or 25.9% over Q4 2019.

  • Q4 2020 net interest margin (a non-GAAP measure) increased 28 basis points from Q3 2020 to 2.78%, mostly due to PPP loans at an average yield of 2.45%. Q4 2020 net interest margin, excluding the impact of PPP loans (a non-GAAP measure), was 3.04%, an 18 basis point increase from Q3 2020 and a 15 basis point increase from Q4 2019.

  • Total loans and leases increased $5.8 billion or 57.5% year-over-year driven by PPP loans of $4.6 billion and strong growth in short-term commercial loans to mortgage companies of $1.4 billion. Total loans and leases, excluding PPP loans, increased $1.2 billion or 12.1% year-over-year.

  • Total deposits increased $2.7 billion or 30.8% year-over-year, which included a $2.2 billion or 83.9% increase in demand deposits. The total cost of deposits dropped to 0.58% in Q4 2020, a decline of 107 basis points from 1.65% in the year-ago quarter.

  • Total deferments declined to $218.5 million or 2.0% of total loans and leases excluding PPP loans (a non-GAAP measure) at December 31, 2020, down from $750.5 million or 7.3% of total loans and leases excluding PPP loans (a non-GAAP measure) at July 24, 2020.

  • Commercial criticized loans as a percent of total loans and leases, excluding PPP loans (a non-GAAP measure), remained relatively low at 4.05% at December 31, 2020.

Customers Bancorp, Inc. (NYSE: CUBI), the parent company of Customers Bank (collectively "Customers" or "CUBI"), today reported fourth quarter 2020 ("Q4 2020") net income to common shareholders of $52.8 million or $1.65 per diluted share, up from third quarter 2020 ("Q3 2020") net income to common shareholders of $47.1 million or $1.48 per diluted share. Core earnings for Q4 2020 totaled $52.6 million or $1.65 per diluted share, up from Q3 2020 core earnings of $38.2 million or $1.20 per diluted share (non-GAAP measures). Net interest margin, tax equivalent ("NIM") expanded 28 basis points during Q4 2020 to 2.78% from 2.50% in Q3 2020 (non-GAAP measures). NIM excluding PPP loans expanded 18 basis points to 3.04% in Q4 2020 from 2.86% in Q3 2020 (non-GAAP measures). ROAA for Q4 2020 was 1.23%, up 11 basis points from Q3 2020 ROAA of 1.12%. ROCE for Q4 2020 was 24.26%, up 121 basis points from Q3 2020 ROCE of 23.05%.

Full year 2020 ("FY 2020") net income to common shareholders was $118.5 million or $3.74 per diluted share, up from full year 2019 ("FY 2019") net income to common shareholders of $64.9 million or $2.05 per diluted share. Core earnings for FY 2020 totaled $110.6 million or $3.49 per diluted share, compared to core earnings of $72.0 million or $2.28 per diluted share for FY 2019 (non-GAAP measures). FY 2020 NIM declined 4 basis points to 2.71% from FY 2019 NIM of 2.75% (non-GAAP measures). FY 2020 NIM excluding PPP loans expanded 21 basis points to 2.96% from FY 2019 NIM of 2.75% (non-GAAP measures). ROAA for FY 2020 was 0.85%, up 11 basis points from FY 2019 ROAA of 0.74%. ROCE for FY 2020 was 14.55%, up 625 basis points from FY 2019 ROCE of 8.30%.

"In a year of extraordinary circumstances, our institution rose to the challenge of supporting our team members and their families, our communities and our clients by providing outstanding customer service and responsiveness at a time when it was needed most," remarked Customers Bancorp Chairman and CEO, Jay Sidhu. "In providing approximately 100,000 small businesses and nonprofits access to Paycheck Protection Program loans, we were able to help save thousands of jobs in the communities we serve and improve the financial position of Customers Bank at the same time. We generated record earnings in 2020, driven by expansion of NIM as well as PPP related income and expansion in our core net interest margin. We achieved these results while maintaining superior asset quality during the pandemic and significantly improving the quality of our funding mix. And in early January, as promised, we successfully completed the divestiture of BankMobile, and are pleased to provide a special distribution of BM Technologies, Inc. (BMTX) stock to our shareholders with current market value of about $75 million," Mr. Sidhu concluded.

Key Balance Sheet Trends

Total loans and leases increased $5.8 billion, or 57.5%, to $15.8 billion at December 31, 2020 compared to the year-ago period. PPP loans originated directly or through fintech partnerships were $4.6 billion at December 31, 2020. Additionally, the loan mix improved year-over-year as commercial loans to mortgage companies increased $1.4 billion to $3.7 billion, commercial and industrial loans and leases increased $473.1 million to $2.3 billion, construction loans increased $23.3 million to $140.9 million, and commercial real estate owner occupied loans increased $20.4 million to $572.3 million. The commercial loans to mortgage companies trend has been a function of greater refinance activity due to sharply lower interest rates, an increase in home purchase volumes, and market share gains from other banks. These increases in loans and leases were partially offset by planned decreases in multi-family loans of $628.9 million to $1.8 billion and residential mortgages of $62.8 million to $323.3 million. "Looking ahead, we see continued growth in core C&I loans offsetting some of the expected decreases in loans to mortgage companies," stated Sidhu.

Total deposits increased $2.7 billion, or 30.8%, to $11.3 billion at December 31, 2020 compared to the year-ago period. Total demand deposits increased $2.2 billion, or 83.9%, to $4.7 billion, money market deposits increased $1.1 billion, or 32.1%, to $4.6 billion, and savings deposits increased $395.6 million, or 43.0%, to $1.3 billion. These increases were offset, in part, by a decrease in time deposits of $1.0 billion, or 60.9%, to $651.9 million. The total cost of deposits declined by 107 basis points to 0.58% in Q4 2020 from 1.65% in the year-ago quarter.

Customers' experienced moderate declines in regulatory capital ratios in 2020, driven by strong growth in commercial loans to mortgage companies of $1.4 billion. However, Customers Bancorp's tangible common equity (a non-GAAP measure) increased by $65.2 million to $885 million at December 31, 2020 from $820 million at December 31, 2019, and the tangible book value per common share (a non-GAAP measure) increased to $27.92 at December 31, 2020 from $26.17 at December 31, 2019. "This increase in tangible common equity and tangible book value per common share was achieved in spite of a decrease in retained earnings of $61 million recorded on January 1, 2020 upon the adoption of CECL," commented Mr. Sidhu. 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 11.9% and 6.4%, respectively, at December 31, 2020. At September 30, 2020, Customers Bancorp's total risk based capital ratio and TCE ratio, excluding PPP loans (a non-GAAP measure), were 11.3% and 5.9%, respectively. "As a consequence of PPP related income and a potential cyclical decline in residential mortgage activity, we expect our capital levels to increase sharply in 2021 and be in the 7.5% or higher range by December 31, 2021," commented Customers Bancorp CFO, Carla Leibold.

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 multifamily, mortgage warehouse, and specialty finance lines of business, 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 $202.1 million or 1.8% of total loans and leases, excluding PPP loans (a non-GAAP measure), at December 31, 2020, down from $277 million, or 2.4% of total loans and leases, excluding PPP loans, at September 30, 2020. Of the $202.1 million in total commercial deferments, $107.4 million or 53.1% were principal only deferments. Customers' commercial deferments peaked at about $1.2 billion earlier this year.

  • Exposure to industry segments significantly impacted by COVID-19 is not substantial. At December 31, 2020, Customers had $87 million in energy and utilities exposure; $62 million in colleges and universities (no deferments requested); $72 million in CRE retail sales exposure (mostly auto sales; with no deferments); $30 million in franchise restaurants and dining (with no deferments); and $27 million in entertainment only businesses (with no deferments).

  • At year-end, the hospitality portfolio was $406 million or 3.6% of total loans and leases excluding PPP loans, with $126 million in deferment. Approximately 79% ($318 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). The majority of the hotels, based on our recent assessment, have sufficient cash resources to get through the COVID-19 crisis and, for those who may need assistance, the Bank is working with them to bridge any potential cash flow gaps.

  • At December 31, 2020, the healthcare portfolio was approximately $359 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 an average loan to value of 61% as of quarter-end. 55% of the portfolio was in New York City, of which 69% was in rent controlled/regulated properties. As of December 31, 2020, $11 million of the portfolio was on deferment.

  • At December 31, 2020, investment CRE had a loan to value of 64%, with approximately 30% of the portfolio housed in the New York, Philadelphia, and Boston metro and surrounding markets. As of December 31, 2020, $29 million of the portfolio was on deferment.

Consumer installment, mortgage and home equity loan portfolio continues to perform well

  • Total consumer-related deferments declined to $16.4 million, or 0.1% of total loans and leases, excluding PPP loans (a non-GAAP measure), at December 31, 2020, down from $25 million, or 0.2% of total loans and leases, excluding PPP loans, at September 30, 2020.

  • The $1.2 billion consumer installment loan portfolio outperformed industry peers with deferments dropping to 0.8% and 30+ DPD delinquency at only 1.1%. 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 Q4 2020.

  • The consumer installment portfolio has been managed to moderate growth and strengthening credit quality, by replacing run-off with CB Direct originations with strong FICO scores.

Aggressively addressing non-performing assets

  • During January 2021, Customers sold a collateral dependent loan secured by a hotel property in Massachusetts. This loan made up approximately 24% of non-performing assets as of December 31, 2020. "We expect our credit quality to improve or stay unchanged over the next few quarters," stated Sidhu.

Key Profitability Trends

Net Interest Income

Net interest income totaled $122.9 million in Q4 2020, an increase of $15.5 million from Q3 2020, primarily due to a $480.9 million increase in average interest-earning assets. Earning assets were driven by increases in commercial loans to mortgage companies, commercial and industrial loans and leases, and investment securities. The benefit of this growth resulted in a 28 basis point linked-quarter increase in NIM (a non-GAAP measure) to 2.78%. Compared to Q3 2020, total loan yields increased 21 basis points to 3.62%. The increase is attributable to increased originations of commercial loans to mortgage companies, commercial and industrial loans and leases, and PPP loan forgiveness which accelerated the recognition of net deferred loan origination fees. This increase is partially offset by lower market interest rates due to the Federal Reserve's forecast of interest rates at zero through 2023. The cost of interest-bearing deposits in Q4 2020 decreased by 9 basis points to 0.76% due to the decline in market interest rates and strategic decisions to reallocate deposit funding to lower cost deposits. Borrowing costs decreased by 3 basis points to 0.94% primarily due to the utilization of the FRB PPP Liquidity Facility, costing 0.35%, to fund PPP loans.

Provision for Credit Losses

The provision for credit losses on loans and leases in Q4 2020, which was calculated under the CECL accounting standard effective January 1, 2020, was a $2.9 million benefit to (or release from) the provision, compared to a $13.0 million provision in Q3 2020. The decrease in Q4 2020 primarily resulted from an improvement in forecasts of macroeconomic conditions since Q3 2020. The allowance for credit losses on loans and leases represented 1.9% of total loans and leases receivable, excluding PPP loans (a non-GAAP measure) at December 31, 2020, compared to just over 2.0% at September 30, 2020, and 0.8% at December 31, 2019. Customers' non-performing loans at December 31, 2020 were only 0.45% of total loans and leases. Our Q4 2020 non-performing loans were impacted by one commercial real estate credit, which was resolved during January 2021, reducing the non performing asset ratio to 0.30% of the assets (a non-GAAP measure).

Non-Interest Income

Non-interest income totaled $23.8 million for Q4 2020, a decrease of $10.0 million compared to Q3 2020. The decrease in non-interest income primarily resulted from decreases of $11.7 million in gain on sale of investment securities, $0.7 million in mortgage banking income, $0.4 million in interchange and card revenue, and $0.7 million in other non-interest income, partially offset by increases of $1.4 million in gain on sale of SBA and other loans, a $1.1 million increase in unrealized gains on equity securities issued by a foreign entity, $0.4 million in mortgage warehouse transactional fees, and $0.3 million in commercial lease income.

The decrease in gain on sale of investment securities primarily resulted from the sale of $58.4 million of agency-guaranteed mortgage-backed securities and $70.0 million in corporate notes in Q3 2020, compared to sales of $10 million in corporate notes during Q4 2020. The decrease in mortgage banking income was mainly related to unrealized losses on derivatives. The decrease in interchange and card revenue primarily resulted from lower debit card spending volume. The decrease in other non-interest income was driven by an unrealized loss on a loan held for sale of $1.1 million during Q4 2020, partially offset by a net derivative valuation adjustment of $0.2 million due to changes in market interest rates and increased SERP income of $0.3 million. The increase in gain on sale of SBA and other loans was driven by increased sales volume. The increase in unrealized gains on equity securities issued by a foreign entity primarily resulted from an increase in the valuation of those securities. The increase in mortgage warehouse transactional fees primarily resulted from an increase in transaction volume due to continued low market interest rates. The increase in commercial lease income was driven by continued organic growth in volume.

Non-Interest Expense

Non-interest expense totaled $71.2 million for Q4 2020, an increase of $5.6 million compared to Q3 2020. The increase in non-interest expense primarily resulted from increases of $5.3 million in other non-interest expense, $1.1 million in salaries and employee benefits, $0.9 million in provision for operating losses, and $0.3 million in commercial lease depreciation, partially offset by decreases of $1.1 million in FDIC assessments, $0.7 million in loan workout expenses, and $0.4 million in occupancy expenses. The increase in other non-interest expense primarily resulted from a decrease in operating cost reimbursements from Customers' white label partnership. The increase in salaries and employee benefits was primarily due to lower stock based compensation expense in Q3 2020. The increase in provision for operating losses primarily resulted from an increase in the estimate for fraud related losses. The increase in commercial lease depreciation was driven by continued organic growth in volume. The decrease in FDIC assessments, non-income taxes and regulatory fees was a function of an increase in FDIC assessment rates due to the temporary utilization of brokered deposits to fund PPP loans in Q3 2020. The decrease in loan workout expenses primarily resulted from lower costs related to the workout of two commercial relationships in Q3 2020. The decrease in occupancy expenses primarily resulted from a decrease in rent expense as we continue to reassess our office spaces and branches.

Taxes

Income tax expense increased by $10 million to $22.2 million in Q4 2020 from $12.2 million in Q3 2020 due to higher pre-tax income and effective tax rate. The effective tax rate increased to 28.3% for Q4 2020 compared to 19.5% for Q3 2020 primarily due to a lower annual benefit from investment tax credits than what was estimated in Q3 2020. Customers expects the full-year 2021 effective tax rate to be approximately 21% to 22%.

Outlook

"Looking ahead, we are very optimistic about the prospects of our company. The ongoing digital transformation of Customers Bancorp has positioned us well to be a major participant in the second round of PPP and to incubate new lines of businesses that leverage our fintech relationships. We expect our tangible common equity and regulatory capital levels to achieve targeted levels within the next 18 months and our credit quality to remain in line with or better than peers. The financial benefits of PPP aside, we project our recurring earnings power to expand well above the $4.00 level during 2021 and remain on track to achieve $6.00 in core EPS in 2026," concluded Mr. Sidhu.

Our updated financial guidance is as follows:

  • Loan growth, excluding PPP and mortgage warehouse balances, is expected to average in the mid-to-high single digits over the next several quarters.

  • The balance of commercial loans to mortgage companies is expected to decline to $2.8-$3.2 billion at March 31, 2021 and $1.6-$2.4 billion at December 31, 2021.

  • The Total Capital Ratio is expected to exceed 13.0% by year-end 2021. The TCE-to-TA ratio excluding PPP loans is expected to be 7.5-8.0% by year-end 2021.

  • We project the NIM excluding PPP loans to expand into the 3.10%-3.30% range by Q4 2021.

  • Impacted by the divestiture of BankMobile, we project non-interest income of $9.0-11.0 million and operating expenses of $59.0-$61.0 million in Q1 2021 (excluding BankMobile related severance expense).

  • We project an effective tax rate for 2021 of 21.0%-22.0%, down from 24.7% in 2020.

  • Our earnings trend is likely to be volatile over the next several quarters owing to our participation in PPP. We expect to earn at least $4.00 in core EPS in 2021, at least $4.50 in core EPS in 2023, and remain on track to earn $6.00 in core EPS in 2026. Our core EPS guidance includes the net interest income expected to be earned on the PPP loans.

2021 NIM expansion is expected to be achieved by:

  • Remixing the loan portfolio away from commercial loans to mortgage companies toward other C&I categories and consumer loans.

  • Bringing our cost of deposits to around 40 basis points during 2021.

BankMobile Technologies, Inc.:

  • On January 4, 2021, Customers completed the previously announced divestiture of BankMobile Technologies Inc. ("BMT"), the technology arm of the BankMobile segment, to Megalith Financial Acquisition Corp., a Delaware corporation ("Megalith"). In connection with the closing of the divestiture, Megalith changed its name to "BM Technologies, Inc." ("BMTX"). Beginning in first quarter of 2021, BMT’s historical financial results for periods prior to the divestiture will be reflected in Customers consolidated financial statements as discontinued operations.

  • All Customers Bancorp shareholders on record on December 18, 2020 received approximately $73 million in value of BMTX stock at closing date of the transaction in the form of special distribution.

Status Report on Main Strategic Priorities Articulated at Last Analysts Day

Goal #1: Top Quartile Profitability with 1.25% Core ROAA in 2-3 years.

Result: Achieved 1.22% in Core ROAA (a non-GAAP measure) in Q4 2020.

Goal #2: Achieve NIM expansion to 2.75% or greater by Q4 2019, with full year 2019 NIM above 2.70%, through an expected shift in asset and funding mix.

Result: Achieved NIM of 2.78% in Q4 2020. NIM, excluding PPP loans (a non-GAAP measure), was 3.04% in Q4 2020.

Goal #3: BankMobile growth and maturity was expected with profitability achieved by year end 2019.

Result: BankMobile was profitable, and BMT was divested on January 4, 2021 resulting in the special distribution of approximately 4.9 million shares of BMTX common stock to Customers Bancorp shareholders.

Goal #4: Efficiency improvement.

Result: Customers' efficiency ratio was 48.98% in Q4 2020, down from 50.71% in Q3 2020 and 56.98% in Q4 2019.

Goal #5: Growth in core deposits.

Result: Demand Deposit Accounts ("DDAs") grew 84% year-over-year.

Goal #6: Maintain strong credit quality and superior risk management.

Result: Non-performing loans ("NPLs") were only 0.45% of total loans and leases at December 31, 2020. NPLs decreased by $17 million in January 2021. We remain very focused on a strong Risk Management culture throughout our company.

Webcast

Date: Thursday, January 28, 2021

Time: 9:00 AM EDT

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 4th Quarter Earnings Webcast.

The fourth quarter 2020 earnings press release will be issued after the market close on Wednesday, January 27, 2021.

You may submit questions in advance of the live webcast by emailing Customers' Communications & Marketing Director, David Patti at dpatti@customersbank.com; 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. is a bank holding company located in West Reading, 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 $18.4 billion at December 31, 2020. 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 services to small and medium-sized businesses, professionals, individuals and families through offices in Pennsylvania, Illinois, New York, Rhode Island, Massachusetts, New Hampshire 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 Concierge Banking® by appointment at customers’ homes or offices 12 hours a day, seven days a week. Customers Bank offers a continually expanding portfolio of loans to small businesses, multi-family projects, mortgage companies and consumers.

Customers Bancorp, Inc.'s voting common shares are listed on the New York Stock 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" 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 effect 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 changes in accounting standards or policies, including Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses ("CECL"). 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, 2019, 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.

Q4 2020 Overview

The following table presents a summary of key earnings and performance metrics for the quarter ended December 31, 2020 and the preceding four quarters:

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

EARNINGS SUMMARY - UNAUDITED

(Dollars in thousands, except per share data and stock price data)

Q4

Q3

Q2

Q1

Q4

Year Ended
December 31,

2020

2020

2020

2020

2019

2020

2019

GAAP Profitability Metrics:

Net income available to common shareholders

$

52,831

$

47,085

$

19,137

$

(515

)

$

23,911

$

118,537

$

64,868

Per share amounts:

Earnings per share - basic

$

1.67

$

1.49

$

0.61

$

(0.02

)

$

0.76

$

3.76

$

2.08

Earnings per share - diluted

$

1.65

$

1.48

$

0.61

$

(0.02

)

$

0.75

$

3.74

$

2.05

Book value per common share (1)

$

28.37

$

26.43

$

25.08

$

23.74

$

26.66

$

28.37

$

26.66

CUBI stock price (1)

$

18.18

$

11.20

$

12.02

$

10.93

$

23.81

$

18.18

$

23.81

CUBI stock price as % of book value (1)

64

%

42

%

48

%

46

%

89

%

64

%

89

%

Average shares outstanding - basic

31,638,447

31,517,504

31,477,591

31,391,151

31,306,813

31,506,699

31,183,841

Average shares outstanding - diluted

31,959,100

31,736,311

31,625,771

31,391,151

31,876,341

31,727,784

31,646,216

Shares outstanding (1)

31,705,088

31,555,124

31,510,287

31,470,026

31,336,791

31,705,088

31,336,791

Return on average assets ("ROAA")

1.23

%

1.12

%

0.62

%

0.11

%

0.97

%

0.85

%

0.74

%

Return on average common equity ("ROCE")

24.26

%

23.05

%

9.97

%

(0.26

)%

11.58

%

14.55

%

8.30

%

Efficiency ratio

48.98

%

50.71

%

58.44

%

66.03

%

56.98

%

55.11

%

65.15

%

Non-GAAP Profitability Metrics (2):

Core earnings

$

52,648

$

38,210

$

19,174

$

603

$

23,843

$

110,634

$

72,013

Adjusted pre-tax pre-provision net income

$

74,883

$

64,176

$

50,766

$

38,595

$

44,676

$

228,420

$

135,558

Per share amounts:

Core earnings per share - diluted

$

1.65

$

1.20

$

0.61

$

0.02

$

0.75

$

3.49

$

2.28

Tangible book value per common share (1)

$

27.92

$

25.97

$

24.62

$

23.27

$

26.17

$

27.92

$

26.17

CUBI stock price as % of tangible book value (1)

65

%

43

%

49

%

47

%

91

%

65

%

91

%

Core ROAA

1.22

%

0.93

%

0.62

%

0.15

%

0.97

%

0.80

%

0.81

%

Core ROCE

24.17

%

18.71

%

9.99

%

0.30

%

11.55

%

13.58

%

9.21

%

Adjusted ROAA - pre-tax and pre-provision

1.63

%

1.43

%

1.39

%

1.34

%

1.57

%

1.46

%

1.27

%

Adjusted ROCE - pre-tax and pre-provision

32.82

%

29.74

%

24.59

%

17.41

%

19.89

%

26.31

%

15.49

%

Net interest margin, tax equivalent

2.78

%

2.50

%

2.65

%

2.99

%

2.89

%

2.71

%

2.75

%

Net interest margin, tax equivalent, excluding PPP loans

3.04

%

2.86

%

2.97

%

2.99

%

2.89

%

2.96

%

2.75

%

Core efficiency ratio

47.97

%

49.81

%

55.39

%

63.33

%

56.76

%

53.40

%

62.78

%

Asset Quality:

Net charge-offs

$

8,472

$

17,299

$

10,325

$

18,711

$

4,362

$

54,807

$

7,820

Annualized net charge-offs to average total loans and leases

0.21

%

0.45

%

0.32

%

0.79

%

0.18

%

0.41

%

0.08

%

Non-performing loans ("NPLs") to total loans and leases (1)

0.45

%

0.38

%

0.56

%

0.49

%

0.21

%

0.45

%

0.21

%

Reserves to NPLs (1)

204.48

%

244.70

%

185.36

%

296.44

%

264.67

%

204.48

%

264.67

%

Non-performing assets ("NPAs") to total assets

0.39

%

0.34

%

0.48

%

0.53

%

0.19

%

0.39

%

0.19

%

Customers Bank Capital Ratios (3):

Common equity Tier 1 capital to risk-weighted assets

10.61

%

10.12

%

10.64

%

10.60

%

11.32

%

10.61

%

11.32

%

Tier 1 capital to risk-weighted assets

10.61

%

10.12

%

10.64

%

10.60

%

11.32

%

10.61

%

11.32

%

Total capital to risk-weighted assets

12.06

%

11.62

%

12.30

%

12.21

%

12.93

%

12.06

%

12.93

%

Tier 1 capital to average assets (leverage ratio)

9.21

%

9.29

%

9.59

%

9.99

%

10.38

%

9.21

%

10.38

%

(1) Metric is a spot balance for the last day of each quarter presented.

(2) Non-GAAP measures exclude unrealized gains (losses) on loans HFS, investment securities gains and losses, severance expense, merger and acquisition-related expenses, losses realized from the sale of non-QM residential mortgage loans, loss upon acquisition of interest-only GNMA securities, legal reserves, credit valuation adjustments on derivatives, risk participation agreement mark-to-market adjustments, and goodwill and intangible assets. These notable items are not included in Customers' disclosures of core earnings and other core profitability metrics. Please note that not each of the aforementioned adjustments affected the reported amount in each of the periods presented. Customers' reasons for the use of these non-GAAP measures and a detailed reconciliation between the non-GAAP measures and the comparable GAAP amounts are included at the end of this document.

(3) Regulatory capital ratios are estimated for Q4 2020 and actual for the remaining periods. In accordance with regulatory capital rules, Customers elected an option to delay the estimated impact of CECL on its regulatory capital over a five-year transition period ending January 1, 2025. As a result, capital ratios and amounts as of Q4 2020 exclude the impact of the increased allowance for credit losses on loans and leases and unfunded loan commitments attributed to the adoption of CECL and 25% of the quarterly provision for credit losses for subsequent quarters through Q4 2021.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(Dollars in thousands, except per share data)

Twelve Months Ended

Q4

Q3

Q2

Q1

Q4

December 31,

2020

2020

2020

2020

2019

2020

2019

Interest income:

Loans and leases

$

145,414

$

132,107

$

118,447

$

116,080

$

116,365

$

512,048

$

431,491

Investment securities

6,777

6,297

6,155

4,977

5,125

24,206

23,713

Other

902

1,246

616

4,286

2,505

7,050

8,535

Total interest income

153,093

139,650

125,218

125,343

123,995

543,304

463,739

Interest expense:

Deposits

16,107

18,347

23,238

34,353

35,992

92,045

141,464

FHLB advances

5,749

5,762

4,736

5,390

6,056

21,637

26,519

Subordinated debt

2,688

2,689

2,689

2,689

1,930

10,755

6,983

Federal funds purchased and other borrowings

5,603

5,413

2,573

1,590

2,424

15,179

11,463

Total interest expense

30,147

32,211

33,236

44,022

46,402

139,616

186,429

Net interest income

122,946

107,439

91,982

81,321

77,593

403,688

277,310

Provision for credit losses on loans and leases

(2,913

)

12,955

20,946

31,786

9,689

62,774

24,227

Net interest income after provision for credit losses on loans and leases

125,859

94,484

71,036

49,535

67,904

340,914

253,083

Non-interest income:

Interchange and card revenue

3,671

4,081

6,478

6,809

6,506

21,039

28,941

Deposit fees

3,615

3,439

3,321

3,460

3,616

13,835

12,815

Commercial lease income

4,853

4,510

4,508

4,268

3,839

18,139

12,051

Bank-owned life insurance

1,744

1,746

1,757

1,762

...

1,795

7,009

7,272

Mortgage warehouse transactional fees

3,681

3,320

2,582

1,952

1,983

11,535

7,128

Gain (loss) on sale of SBA and other loans

1,689

286

23

11

2,770

2,009

2,770

Mortgage banking income (loss)

346

1,013

38

296

(635

)

1,693

66

Loss upon acquisition of interest-only GNMA securities

(7,476

)

Gain (loss) on sale of investment securities

44

11,707

4,353

3,974

20,078

1,001

Unrealized gain (loss) on investment securities

1,387

238

1,200

(1,378

)

310

1,447

1,299

Other

2,745

3,453

(2,024

)

776

5,629

4,950

15,071

Total non-interest income

23,775

33,793

22,236

21,930

25,813

101,734

80,938

Non-interest expense:

Salaries and employee benefits

33,726

32,676

31,296

28,310

27,697

126,008

107,632

Technology, communication and bank operations

13,290

13,215

13,310

13,050

10,370

52,865

43,481

Professional services

7,490

7,253

4,552

7,670

6,470

26,965

25,109

Occupancy

3,188

3,632

3,025

3,032

3,470

12,877

13,098

Commercial lease depreciation

3,982

3,663

3,643

3,427

2,840

14,715

9,473

FDIC assessments, non-income taxes and regulatory fees

2,642

3,784

2,368

2,867

2,492

11,661

5,861

Provision for operating losses

2,115

1,186

1,068

912

1,415

5,281

9,638

Advertising and promotion

582

1,641

899

2,223

4,044

Merger and acquisition related expenses

996

1,035

25

50

100

2,106

100

Loan workout

123

846

1,808

366

230

3,143

1,687

Other real estate owned

52

7

12

8

247

79

398

Other

3,560

(1,736

)

1,817

5,126

2,510

8,767

11,380

Total non-interest expense

71,164

65,561

63,506

66,459

58,740

266,690

231,901

Income before income tax expense

78,470

62,716

29,766

5,006

34,977

175,958

102,120

Income tax expense

22,225

12,201

7,048

1,906

7,451

43,380

22,793

Net income

56,245

50,515

22,718

3,100

27,526

132,578

79,327

Preferred stock dividends

3,414

3,430

3,581

3,615

3,615

14,041

14,459

Net income available to common shareholders

$

52,831

$

47,085

$

19,137

$

(515

)

$

23,911

$

118,537

$

64,868

Basic earnings per common share

$

1.67

$

1.49

$

0.61

$

(0.02

)

$

0.76

$

3.76

$

2.08

Diluted earnings per common share

$

1.65

$

1.48

$

0.61

$

(0.02

)

$

0.75

$

3.74

$

2.05

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET - UNAUDITED

(Dollars in thousands)

December 31,

September 30,

June 30,

March 31,

December 31,

2020

2020

2020

2020

2019

ASSETS

Cash and due from banks

$

78,090

$

5,822

$

44,577

$

18,842

$

33,095

Interest earning deposits

615,264

325,594

1,022,753

237,390

179,410

Cash and cash equivalents

693,354

331,416

1,067,330

256,232

212,505

Investment securities, at fair value

1,210,285

1,133,831

681,382

712,657

595,876

Loans held for sale

79,086

26,689

464,164

450,157

486,328

Loans receivable, mortgage warehouse, at fair value

3,616,432

3,913,593

2,793,164

2,518,012

2,245,758

Loans receivable, PPP

4,561,365

4,964,105

4,760,427

Loans and leases receivable

7,575,368

7,700,892

7,272,447

7,353,262

7,318,988

Allowance for credit losses on loans and leases

(144,176

)

(155,561

)

(159,905

)

(149,283

)

(56,379

)

Total loans and leases receivable, net of allowance for credit losses on loans and leases

15,608,989

16,423,029

14,666,133

9,721,991

9,508,367

FHLB, Federal Reserve Bank, and other restricted stock

71,368

70,387

91,023

87,140

84,214

Accrued interest receivable

80,412

65,668

49,911

40,570

38,072

Bank premises and equipment, net

11,626

11,744

8,380

8,890

9,389

Bank-owned life insurance

280,067

277,826

275,842

273,576

272,546

Other real estate owned

57

131

131

131

173

Goodwill and other intangibles

14,298

14,437

14,575

14,870

15,195

Other assets

389,706

423,569

584,247

452,585

298,052

Total assets

$

18,439,248

$

18,778,727

$

17,903,118

$

12,018,799

$

11,520,717

LIABILITIES AND SHAREHOLDERS' EQUITY

Demand, non-interest bearing deposits

$

2,356,998

$

2,327,017

$

1,879,789

$

1,435,151

$

1,343,391

Interest bearing deposits

8,952,931

8,512,060

9,086,086

6,978,492

7,305,545

Total deposits

11,309,929

10,839,077

10,965,875

8,413,643

8,648,936

FRB advances

175,000

Federal funds purchased

250,000

680,000

705,000

538,000

FHLB advances

850,000

850,000

850,000

1,260,000

850,000

Other borrowings

124,037

123,935

123,833

123,732

123,630

Subordinated debt

181,394

181,324

181,255

181,185

181,115

FRB PPP liquidity facility

4,415,016

4,811,009

4,419,967

Accrued interest payable and other liabilities

191,786

241,891

354,341

195,603

126,241

Total liabilities

17,322,162

17,727,236

16,895,271

11,054,163

10,467,922

Preferred stock

217,471

217,471

217,471

217,471

217,471

Common stock

32,986

32,836

32,791

32,751

32,617

Additional paid in capital

455,592

452,965

450,665

446,840

444,218

Retained earnings

438,581

385,750

338,665

319,529

381,519

Accumulated other comprehensive loss

(5,764

)

(15,751

)

(9,965

)

(30,175

)

(1,250

)

Treasury stock, at cost

(21,780

)

(21,780

)

(21,780

)

(21,780

)

(21,780

)

Total shareholders' equity

1,117,086

1,051,491

1,007,847

964,636

1,052,795

Total liabilities & shareholders' equity

$

18,439,248

$

18,778,727

$

17,903,118

$

12,018,799

$

11,520,717

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

AVERAGE BALANCE SHEET / NET INTEREST MARGIN - UNAUDITED

(Dollars in thousands)

Three Months Ended

December 31, 2020

September 30, 2020

December 31, 2019

Average
Balance

Average
Yield or
Cost (%)

Average
Balance

Average
Yield or
Cost (%)

Average
Balance

Average
Yield or
Cost (%)

Assets

Interest earning deposits

$

413,381

0.12%

$

686,928

0.12%

$

150,382

2.21%

Investment securities (1)

1,120,491

2.42%

950,723

2.65%

584,955

3.50%

Loans and leases:

Commercial loans to mortgage companies

3,518,371

3.06%

2,847,169

2.90%

2,158,626

4.16%

Multi-family loans

1,871,956

3.70%

1,989,074

3.72%

2,654,919

3.96%

Commercial and industrial loans and leases (2)

2,801,172

3.96%

2,599,806

3.82%

2,318,313

4.79%

Loans receivable, PPP

4,782,606

2.45%

4,909,197

1.97%

—%

Non-owner occupied commercial real estate loans

1,358,541

3.80%

1,388,306

3.70%

1,325,630

4.55%

Residential mortgages

400,771

3.80%

414,781

3.97%

631,370

4.05%

Installment loans

1,253,679

8.50%

1,255,505

8.37%

765,765

9.11%

Total loans and leases (3)

15,987,096

3.62%

15,403,838

3.41%

9,854,623

4.68%

Other interest-earning assets

81,031

3.80%

79,656

5.23%

86,770

7.63%

Total interest-earning assets

17,601,999

3.46%

17,121,145

3.25%

10,676,730

4.61%

Non-interest-earning assets

648,720

744,429

580,477

Total assets

$

18,250,719

$

17,865,574

$

11,257,207

Liabilities

Interest checking accounts

$

2,240,959

0.86%

$

2,370,709

0.78%

$

1,152,349

1.65%

Money market deposit accounts

4,166,635

0.60%

3,786,032

0.65%

3,190,543

2.01%

Other savings accounts

1,205,592

0.74%

1,125,273

1.06%

722,487

2.09%

Certificates of deposit

833,689

1.30%

1,344,134

1.35%

2,012,497

2.21%

Total interest-bearing deposits (4)

8,446,875

0.76%

8,626,148

0.85%

7,077,876

2.02%

FRB PPP liquidity facility

4,684,756

0.35%

4,479,036

0.35%

—%

Borrowings

1,276,212

3.09%

1,236,127

3.19%

1,424,550

2.91%

Total interest-bearing liabilities

14,407,843

0.83%

14,341,311

0.89%

8,502,426

2.17%

Non-interest-bearing deposits (4)

2,543,529

2,194,689

1,580,050

Total deposits and borrowings

16,951,372

0.71%

16,536,000

0.78%

10,082,476

1.83%

Other non-interest-bearing liabilities

215,465

299,526

138,242

Total liabilities

17,166,837

16,835,526

10,220,718

Shareholders' equity

1,083,882

1,030,048

1,036,489

Total liabilities and shareholders' equity

$

18,250,719

$

17,865,574

$

11,257,207

Interest spread

2.75%

2.47%

2.78%

Net interest margin

2.78%

2.50%

2.89%

Net interest margin tax equivalent (5)

2.78%

2.50%

2.89%

Net interest margin tax equivalent excl. PPP (6)

3.04%

2.86%

2.89%

(1) For presentation in this table, average balances and the corresponding average yields for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.

(2) Includes owner occupied commercial real estate loans.

(3) Includes non-accrual loans, the effect of which is to reduce the yield earned on loans and leases, and deferred loan fees.

(4) Total costs of deposits (including interest bearing and non-interest bearing) were 0.58%, 0.67% and 1.65% for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

(5) Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, presented to approximate interest income as a taxable asset. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

(6) Non-GAAP tax-equivalent basis, as described in note (5) for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

AVERAGE BALANCE SHEET / NET INTEREST MARGIN - UNAUDITED

(Dollars in thousands)

Twelve Months Ended

December 31, 2020

December 31, 2019

Average
Balance

Average
Yield or
Cost (%)

Average
Balance

Average
Yield or
Cost (%)

Assets

Interest earning deposits

$

564,218

0.59%

$

103,833

2.68%

Investment securities (1)

836,815

2.89%

653,694

3.63%

Loans and leases:

Commercial loans to mortgage companies

2,668,642

3.11%

1,799,489

4.58%

Multi-family loans

2,020,640

3.85%

2,982,185

3.87%

Commercial and industrial loans and leases (2)

2,581,119

4.12%

2,111,181

5.08%

Loans receivable, PPP

3,121,157

2.10%

—%

Non-owner occupied commercial real estate loans

1,368,684

3.91%

1,243,236

4.53%

Residential mortgages

422,696

3.82%

694,889

4.15%

Installment loans

1,264,255

8.68%

445,166

9.28%

Total loans and leases (3)

13,447,193

3.81%

9,276,146

4.65%

Other interest-earning assets

85,091

4.41%

90,035

6.39%

Total interest-earning assets

14,933,317

3.64%

10,123,708

4.58%

Non-interest-earning assets

671,484

543,962

Total assets

$

15,604,801

$

10,667,670

Liabilities

Interest checking accounts

$

2,098,138

0.89%

$

955,630

1.82%

Money market deposit accounts

3,657,422

0.96%

3,151,328

2.18%

Other savings accounts

1,162,472

1.44%

538,375

2.12%

Certificates of deposit

1,357,688

1.58%

1,943,361

2.26%

Total interest-bearing deposits (4)

8,275,720

1.11%

6,588,694

2.15%

FRB PPP liquidity facility

2,537,744

0.35%

—%

Borrowings

1,504,760

2.57%

1,523,171

2.95%

Total interest-bearing liabilities

12,318,224

1.13%

8,111,865

2.30%

Non-interest-bearing deposits (4)

2,052,376

1,430,149

Total deposits and borrowings

14,370,600

0.97%

9,542,014

1.95%

Other non-interest-bearing liabilities

201,961

126,325

Total liabilities

14,572,561

9,668,339

Shareholders' equity

1,032,240

999,331

Total liabilities and shareholders' equity

$

15,604,801

$

10,667,670

Interest spread

2.67%

2.63%

Net interest margin

2.70%

2.74%

Net interest margin tax equivalent (5)

2.71%

2.75%

Net interest margin tax equivalent (6)

2.96%

2.75%

(1) For presentation in this table, average balances and the corresponding average yields for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.

(2) Includes owner occupied commercial real estate loans.

(3) Includes non-accrual loans, the effect of which is to reduce the yield earned on loans and leases, and deferred loan fees.

(4) Total costs of deposits (including interest bearing and non-interest bearing) were 0.89% and 1.76% for the twelve months ended December 31, 2020 and December 31, 2019, respectively.

(5) Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the years ended December 31, 2020 and 2019, presented to approximate interest income as a taxable asset. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

(6) Non-GAAP tax-equivalent basis as described in noted (5), for the years ended December 31, 2020 and 2019, excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

SEGMENT REPORTING - UNAUDITED

(Dollars in thousands, except per share amounts)

The following tables present Customers' business segment results for the three and twelve months ended December 31, 2020 and 2019:

Three Months Ended December 31, 2020

Three Months Ended December 31, 2019

Customers
Bank Business
Banking

BankMobile

Consolidated

Customers
Bank Business
Banking

BankMobile

Consolidated

Interest income (1)

$

138,209

$

14,884

$

153,093

$

112,212

$

11,783

$

123,995

Interest expense

29,230

917

30,147

46,111

291

46,402

Net interest income

108,979

13,967

122,946

66,101

11,492

77,593

Provision for credit losses on loans and leases

(3,912

)

999

(2,913

)

6,846

2,843

9,689

Non-interest income

13,413

10,362

23,775

14,964

10,849

25,813

Non-interest expense

50,098

21,066

71,164

41,494

17,246

58,740

Income (loss) before income tax expense (benefit)

76,206

2,264

78,470

32,725

2,252

34,977

Income tax expense (benefit)

21,600

625

22,225

6,892

559

7,451

Net income (loss)

54,606

1,639

56,245

25,833

1,693

27,526

Preferred stock dividends

3,414

3,414

3,615

3,615

Net income (loss) available to common shareholders

$

51,192

$

1,639

$

52,831

$

22,218

$

1,693

$

23,911

Basic earnings (loss) per common share

$

1.62

$

0.05

$

1.67

$

0.71

$

0.05

$

0.76

Diluted earnings (loss) per common share

$

1.60

$

0.05

$

1.65

$

0.70

$

0.05

$

0.75

(1) Amounts reported include funds transfer pricing of $3.9 million and $0.7 million for the three months ended December 31, 2020 and 2019, respectively, credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of excess low/no cost deposits.

Twelve Months Ended December 31, 2020

Twelve Months Ended December 31, 2019

Customers
Bank Business
Banking

BankMobile

Consolidated

Customers
Bank Business
Banking

BankMobile

Consolidated

Interest income (1)

$

490,028

$

53,276

$

543,304

$

422,094

$

41,645

$

463,739

Interest expense

137,480

2,136

139,616

185,513

916

186,429

Net interest income

352,548

51,140

403,688

236,581

40,729

277,310

Provision for credit losses on loans and leases

51,708

11,066

62,774

10,091

14,136

24,227

Non-interest income

57,834

43,900

101,734

35,268

45,670

80,938

Non-interest expense

187,153

79,537

266,690

153,333

78,568

231,901

Income (loss) before income tax expense (benefit)

171,521

4,437

175,958

108,425

(6,305

)

102,120

Income tax expense (benefit)

42,307

1,073

43,380

24,215

(1,422

)

22,793

Net income (loss)

129,214

3,364

132,578

84,210

(4,883

)

79,327

Preferred stock dividends

14,041

14,041

14,459

14,459

Net income (loss) available to common shareholders

$

115,173

$

3,364

$

118,537

$

69,751

$

(4,883

)

$

64,868

Basic earnings (loss) per common share

$

3.65

$

0.11

$

3.76

$

2.24

$

(0.16

)

$

2.08

Diluted earnings (loss) per common share

$

3.63

$

0.11

$

3.74

$

2.20

$

(0.15

)

$

2.05

As of December 31, 2020 and 2019

Goodwill and other intangibles

$

3,629

$

10,669

$

14,298

$

3,629

$

11,566

$

15,195

Total assets (2)

$

17,821,665

$

617,583

$

18,439,248

$

10,990,550

$

530,167

$

11,520,717

Total deposits

$

10,350,028

$

959,901

$

11,309,929

$

8,247,836

$

401,100

$

8,648,936

Total non-deposit liabilities (2)

$

5,982,010

$

30,223

$

6,012,233

$

1,789,329

$

29,657

$

1,818,986

(1) Amounts reported include funds transfer pricing of $9.3 million and $8.8 million for the twelve months ended December 31, 2020 and 2019, respectively, credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of excess low/no cost deposits.

(2) Amounts reported exclude inter-segment receivables and payables.

The following tables present Customers' business segment results for the quarter ended December 31, 2020, the preceding four quarters, and the twelve months ended December 31, 2020 and 2019, respectively:

Customers Bank Business Banking:

Twelve Months Ended
December 31,

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Q4 2019

2020

2019

Interest income (1)

$

138,209

$

126,648

$

112,455

$

112,717

$

112,212

$

490,028

$

422,094

Interest expense

29,230

31,718

32,856

43,678

46,111

137,480

185,513

Net interest income

108,979

94,930

79,599

69,039

66,101

352,548

236,581

Provision for credit losses on loans and leases

(3,912

)

8,699

19,623

27,298

6,846

51,708

10,091

Non-interest income

13,413

21,603

11,683

11,136

14,964

57,834

35,268

Non-interest expense

50,098

48,926

44,270

43,860

41,494

187,153

153,333

Income (loss) before income tax expense (benefit)

76,206

58,908

27,389

9,017

32,725

171,521

108,425

Income tax expense (benefit)

21,600

11,374

6,611

2,722

6,892

42,307

24,215

Net income (loss)

54,606

47,534

20,778

6,295

25,833

129,214

84,210

Preferred stock dividends

3,414

3,430

3,581

3,615

3,615

14,041

14,459

Net income (loss) available to common shareholders

$

51,192

$

44,104

$

17,197

$

2,680

$

22,218

$

115,173

$

69,751

Basic earnings (loss) per common share

$

1.62

$

1.40

$

0.55

$

0.09

$

0.71

$

3.65

$

2.24

Diluted earnings (loss) per common share

$

1.60

$

1.39

$

0.54

$

0.09

$

0.70

$

3.63

$

2.20

(1) Amounts reported include funds transfer pricing of $3.9 million, $2.2 million, $1.6 million, $1.4 million and $0.7 million for the three months ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019, respectively. Amounts reported also include funds transfer pricing of $9.3 million and $8.8 million for the twelve months ended December 31, 2020 and 2019, respectively. These amounts are credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of excess low/no cost deposits.

BankMobile:

Twelve Months Ended
December 31,

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Q4 2019

2020

2019

Interest income (2)

$

14,884

$

13,002

$

12,763

$

12,626

$

11,783

$

53,276

$

41,645

Interest expense

917

493

380

344

291

2,136

916

Net interest income

13,967

12,509

12,383

12,282

11,492

51,140

40,729

Provision for credit losses on loans and leases

999

4,256

1,323

4,488

2,843

11,066

14,136

Non-interest income

10,362

12,190

10,553

10,794

10,849

43,900

45,670

Non-interest expense

21,066

16,635

19,236

22,599

17,246

79,537

78,568

Income (loss) before income tax expense (benefit)

2,264

3,808

2,377

(4,011

)

2,252

4,437

(6,305

)

Income tax expense (benefit)

625

827

437

(816

)

559

1,073

(1,422

)

Net income (loss) available to common shareholders

$

1,639

$

2,981

$

1,940

$

(3,195

)

$

1,693

$

3,364

$

(4,883

)

Basic income (loss) per common share

$

0.05

$

0.09

$

0.06

$

(0.10

)

$

0.05

$

0.11

$

(0.16

)

Diluted income (loss) per common share

$

0.05

$

0.09

$

0.06

$

(0.10

)

$

0.05

$

0.11

$

(0.15

)

Deposit balances (3)

Disbursements business deposits

$

404,601

$

644,658

$

500,072

$

502,711

$

319,263

White label deposits

555,300

299,091

162,691

107,054

81,837

Total deposits

$

959,901

$

943,749

$

662,763

$

609,765

$

401,100

(2) Amounts reported include funds transfer pricing of $3.9 million, $2.2 million, $1.6 million, $1.4 million and $0.7 million for the three months ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019, respectively. Amounts reported also include funds transfer pricing of $9.3 million and $8.8 million for the twelve months ended December 31, 2020 and 2019, respectively. These amounts are credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of excess low/no cost deposits.

(3) As of December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

PERIOD END LOAN AND LEASE COMPOSITION - UNAUDITED

(Dollars in thousands)

December 31,

September 30,

June 30,

March 31,

December 31,

2020

2020

2020

2020

2019

Commercial:

Multi-family

$

1,761,301

$

1,950,300

$

2,023,571

$

2,069,077

$

2,390,204

Mortgage warehouse

3,657,350

3,947,828

2,832,112

2,573,397

2,305,784

Commercial & industrial

2,304,206

2,186,480

2,060,494

2,017,567

1,831,126

Commercial real estate owner occupied

572,338

557,595

544,772

543,945

551,948

Loans receivable, PPP

4,561,365

4,964,105

4,760,427

Commercial real estate non-owner occupied

1,213,815

1,233,882

1,262,373

1,252,826

1,222,772

Construction

140,905

122,963

128,834

115,448

117,617

Total commercial loans and leases

14,211,280

14,963,153

13,612,583

8,572,260

8,419,451

Consumer:

Residential

323,322

343,775

352,941

364,760

386,089

Manufactured housing

62,243

64,638

66,865

69,240

71,359

Installment

1,235,406

1,233,713

1,257,813

1,315,171

1,174,175

Total consumer loans

1,620,971

1,642,126

1,677,619

1,749,171

1,631,623

Total loans and leases

$

15,832,251

$

16,605,279

$

15,290,202

$

10,321,431

$

10,051,074

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

PERIOD END DEPOSIT COMPOSITION - UNAUDITED

(Dollars in thousands)

December 31,

September 30,

June 30,

March 31,

December 31,

2020

2020

2020

2020

2019

Demand, non-interest bearing

$

2,356,998

$

2,327,017

$

1,879,789

$

1,435,151

$

1,343,391

Demand, interest bearing

2,384,691

2,308,627

2,666,209

1,577,034

1,235,292

Total demand deposits

4,741,689

4,635,644

4,545,998

3,012,185

2,578,683

Savings

1,314,817

1,173,641

1,144,788

1,168,121

919,214

Money market

4,601,492

4,057,366

3,404,709

2,833,990

3,482,505

Time deposits

651,931

972,426

1,870,380

1,399,347

1,668,534

Total deposits

$

11,309,929

$

10,839,077

$

10,965,875

$

8,413,643

$

8,648,936

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

ASSET QUALITY - UNAUDITED

(Dollars in thousands)

As of December 31, 2020

As of September 30, 2020

As of December 31, 2019

Total loans

Non
accrual
/NPLs

Allowance
for credit
losses

Total NPLs
to total
loans

Total
reserves to
total NPLs

Total loans

Non
accrual
/NPLs

Allowance
for credit
losses

Total NPLs
to total
loans

Total
reserves to
total NPLs

Total loans

Non
accrual
/NPLs

Allowance
for credit
losses

Total NPLs
to total
loans

Total
reserves to
total NPLs

Loan type

Multi-family

$

1,761,301

$

21,728

$

12,620

1.23

%

58.08

%

$

1,950,300

$

11,710

$

15,026

0.60

%

128.32

%

$

1,907,331

$

4,117

$

6,157

0.22

%

149.55

%

Commercial & industrial(1)

2,289,441

8,453

12,239

0.37

%

144.79

%

2,220,715

9,633

12,926

0.43

%

134.18

%

1,891,152

4,531

16,010

0.24

%

353.34

%

Commercial real estate owner occupied

572,338

3,411

9,512

0.60

%

278.86

%

557,595

3,599

9,552

0.65

%

265.41

%

551,948

1,963

1,781

0.36

%

90.73

%

Commercial real estate non-owner occupied

1,196,564

2,356

19,452

0.20

%

825.64

%

1,215,516

2,408

20,200

0.20

%

838.87

%

1,222,772

76

6,243

0.01

%

8214.47

%

Construction

140,905

5,871

%

%

122,963

6,423

%

%

117,617

1,262

%

%

Total commercial loans and leases receivable

5,960,549

35,948

59,694

0.60

%

166.06

%

6,067,089

27,350

64,127

0.45

%

234.47

%

5,690,820

10,687

31,453

0.19

%

294.31

%

Residential

317,170

9,911

3,977

3.12

%

40.13

%

335,452

10,634

4,649

3.17

%

43.72

%

382,634

6,128

3,218

1.60

%

52.51

%

Manufactured housing

62,243

2,969

5,189

4.77

%

174.77

%

64,638

2,778

5,625

4.30

%

202.48

%

71,359

1,655

1,178

2.32

%

71.18

%

Installment

1,235,406

3,211

75,316

0.26

%

2345.56

%

1,233,713

3,118

81,160

0.25

%

2602.95

%

1,174,175

1,551

20,648

0.13

%

1331.27

%

Total consumer loans receivable

1,614,819

16,091

84,482

1.00

%

525.03

%

1,633,803

16,530

91,434

1.01

%

553.14

%

1,628,168

9,334

25,044

0.57

%

268.31

%

Loans and leases receivable(1)

7,575,368

52,039

144,176

0.69

%

277.05

%

7,700,892

43,880

155,561

0.57

%

354.51

%

7,318,988

20,021

56,497

0.27

%

282.19

%

Loans receivable, PPP

4,561,365

%

%

4,964,105

%

%

%

%

Loans receivable, mortgage warehouse, at fair value

3,616,432

%

%

3,913,593

2,245,758

Total loans held for sale

79,086

18,469

23.35

%

%

26,689

19,691

73.78

%

%

486,328

1,325

0.27

%

%

Total portfolio

$

15,832,251

$

70,508

$

144,176

0.45

%

204.48

%

$

16,605,279

$

63,571

$

155,561

0.38

%

244.70

%

$

10,051,074

$

21,346

$

56,497

0.21

%

264.67

%

(1) Excluding loans receivable, PPP from total loans and leases receivable is a non-GAAP measure. Management believes the use of these non-GAAP measures provides additional clarity when assessing Customers' financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Please refer to the reconciliation schedules that follow this table.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NET CHARGE-OFFS/(RECOVERIES) - UNAUDITED

(Dollars in thousands)

Q4

Q3

Q2

Q1

Q4

Twelve Months Ended
December 31,

2020

2020

2020

2020

2019

2020

2019

Loan type

Multi-family

$

$

$

$

$

$

$

534

Commercial & industrial

155

(55

)

(4

)

43

(224

)

139

(518

)

Commercial real estate owner occupied

12

44

(2

)

(3

)

(1

)

51

(117

)

Commercial real estate non-owner occupied

(35

)

8,923

2,801

12,797

24,486

Construction

(6

)

(6

)

(113

)

(3

)

(8

)

(128

)

(136

)

Residential

46

(17

)

(26

)

(29

)

181

(26

)

270

Installment

8,300

8,410

7,669

5,906

4,414

30,285

7,787

Total net charge-offs (recoveries) from loans held for investment

$

8,472

$

17,299

$

10,325

$

18,711

$

4,362

$

54,807

$

7,820

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES - UNAUDITED


Customers believes that the non-GAAP measurements disclosed within this document are useful for investors, regulators, management and others to evaluate our core results of operations and financial condition relative to other financial institutions. These non-GAAP financial measures are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in Customers' industry. These non-GAAP financial measures exclude from corres