Customers Bancorp Reports Results for Full Year and Fourth Quarter 2022
WEST READING, Pa., January 25, 2023--(BUSINESS WIRE)--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, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||
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, | % of | September 30, | % of | December 31, | % of | |||||||||||
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 | |||||||||||||||