Customers Bancorp Reports Results for Second Quarter 2023

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WEST READING, Pa., July 27, 2023--(BUSINESS WIRE)--Customers Bancorp, Inc. (NYSE:CUBI)

Second Quarter 2023 Highlights

  • Q2 2023 net income available to common shareholders was $44.0 million, or $1.39 per diluted share; ROAA was 0.88% and ROCE was 13.22%.

  • Q2 2023 core earnings* were $52.2 million, or $1.65 per diluted share; Core ROAA* was 1.03% and Core ROCE* was 15.67%.

  • CET 1 capital ratio of 10.3%1 at June 30, 2023, compared to 9.6% at March 31, 2023. Significant progress toward stated goal of 11.0% - 11.5% by year-end 2023.

  • Q2 2023 net interest margin, tax equivalent (NIM) was 3.15%, an increase of 19 basis points over Q1 2023 NIM of 2.96%. Q1 2023 NIM (excluding PPP)* was 2.80%

  • Significant positive deposit mix shift in Q2 2023 as total deposits grew by $226.8 million, with an increase in non-interest bearing deposits of $1.0 billion, or 29%, over Q1 2023. The average cost of deposits decreased 21 basis points in Q2 2023 while the June 30, 2023 spot cost of deposits declined one basis point from March 31, 2023 despite an increase in market interest rates in Q2 2023.

  • Total estimated insured deposits were 77%2 of total deposits at June 30, 2023, with immediately available liquidity covering uninsured deposits by approximately 222%.

  • Q2 2023 adjusted pre-tax pre-provision net income* was $96.8 million; adjusted pre-tax pre-provision ROAA* was 1.79%; and adjusted pre-tax pre-provision ROCE* was 28.01%.

  • Q2 2023 loans declined $1.2 billion or 7.6% over Q1 2023, with average loan yields up 13 basis points in Q2 2023, principally due to non-strategic loan sales.

  • Q2 2023 provision for credit losses on loans and leases of $22.4 million was largely driven by the recognition of weaker macroeconomic forecasts.

  • Non-performing assets were $28.4 million, or 0.13% of total assets, at June 30, 2023, down $3.9 million, or 12%, from March 31, 2023. Allowance for credit losses on loans and leases equaled 494% of non-performing loans at June 30, 2023, compared to 406% at March 31, 2023.

  • Q2 2023 book value per share and tangible book value per share* both grew by $1.08, or 2.6%, with increased AOCI losses of $11.9 million over the same time period.

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

1 Regulatory capital ratios as of June 30, 2023 are estimates.

2 Uninsured deposits (estimate) of $4.7 billion to be reported on the Bank's call report, less state and municipal deposits of $459.4 million collateralized by our line of credit from FHLB and from our affiliates of $92.0 million.

CEO Commentary

"We are very pleased with our second quarter results as we executed seamlessly on our strategic priorities and delivered one of our strongest quarters to date," said Customers Bancorp Chairman and CEO Jay Sidhu. "While the industry continues to face significant headwinds from rising funding costs, negative deposit mix shifts and net interest margin compression, we successfully grew total deposits by $226.8 million in Q2 2023, even after the payoff of net brokered CDs of $660 million, with an increase in non-interest bearing deposits of $1 billion, or 29%. We expanded our net interest margin significantly over Q1 2023 despite holding even higher cash balances for prudent risk management purposes. Notably, our average cost of deposits decreased 21 basis points during the quarter as we replaced higher cost wholesale deposits with lower cost core deposits and continued to strengthen our deposit franchise. Our average loan yields increased 13 basis points as a result of the increase in interest rates and the floating rate nature of our loan portfolio. Following through on the commitments we made last quarter, we successfully exited certain non-strategic loan portfolios by selling $670 million in short-term syndicated capital call lines of credit and $556.7 million in consumer installment loans. This provided balance sheet capacity for the previously announced $631 million Venture Banking portfolio acquired from the FDIC at a 15% discount and afforded us a significant opportunity to further grow and strengthen our deposit franchise, improve our profitability, and increase our capital ratios," stated Jay Sidhu.

"Our Q2 2023 GAAP earnings were $44.0 million, or $1.39 per diluted share. Core earnings* were $52.2 million, or $1.65 per diluted share, well above consensus estimates. At June 30, 2023, our deposit base was well diversified, with approximately 77%2 of total deposits insured. We maintain a strong liquidity position, with $9.1 billion of liquidity immediately available, which covers approximately 222% of uninsured deposits and our loan to deposit ratio was about 77%. We continued to purposely moderate loan growth and took other strategic actions in the second quarter 2023 to further improve our capital ratios. At June 30, 2023, we had $3.2 billion of cash on hand, which we believe was prudent given persisting levels of uncertainty. Asset quality remains exceptional and credit reserves are extremely robust at 494% of total non-performing loans at the end of Q2 2023. The prudent risk management strategic actions that we have taken over the past several quarters have us well positioned from a capital, credit, liquidity, interest rate risk, and earnings perspective as we enter the second half of 2023. With persisting levels of uncertainty, we believe it is prudent to continue to moderate growth, or even shrink the balance sheet somewhat, and focus on further strengthening the balance sheet and improving capital ratios. We remain committed to improving our CET 1 ratio to 11.0% - 11.5% by year-end 2023 and are extremely proud of the progress that we made in just one quarter. We are confident in our ability to manage our credit, interest rate, and liquidity risks, and superbly service our clients in all operating environments. We are incredibly optimistic about our future," Jay Sidhu continued.

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

1 Regulatory capital ratios as of June 30, 2023 are estimates.

2 Uninsured deposits (estimate) of $4.7 billion to be reported on the Bank's call report, less state and municipal deposits of $459.4 million collateralized by our line of credit from FHLB and from our affiliates of $92.0 million.

Financial Highlights

(Dollars in thousands, except per share data)

At or Three Months Ended

Increase (Decrease)

June 30, 2023

March 31, 2023

Profitability Metrics:

Net income available for common shareholders

$

44,007

$

50,265

$

(6,258

)

(12.5

)%

Diluted earnings per share

$

1.39

$

1.55

$

(0.16

)

(10.3

)%

Core earnings*

$

52,163

$

51,143

$

1,020

2.0

%

Core earnings per share*

$

1.65

$

1.58

$

0.07

4.4

%

Core earnings, excluding PPP*

$

54,231

$

41,537

$

12,694

30.6

%

Core earnings per share, excluding PPP*

$

1.72

$

1.28

$

0.44

34.4

%

Return on average assets ("ROAA")

0.88

%

1.03

%

(0.15

)

Core ROAA*

1.03

%

1.05

%

(0.02

)

Core ROAA, excluding PPP*

1.07

%

0.87

%

0.20

Return on average common equity ("ROCE")

13.22

%

16.00

%

(2.78

)

Core ROCE*

15.67

%

16.28

%

(0.61

)

Adjusted pre-tax pre-provision net income*

$

96,833

$

89,282

$

7,551

8.5

%

Adjusted pre-tax pre-provision net income ROAA, excluding PPP*

1.83

%

1.53

%

0.30

Net interest margin, tax equivalent

3.15

%

2.96

%

0.19

Net interest margin, tax equivalent, excluding PPP*

3.20

%

2.80

%

0.40

Loan yield

6.83

%

6.70

%

0.13

Loan yield, excluding PPP*

6.89

%

6.46

%

0.43

Cost of deposits

3.11

%

3.32

%

(0.21

)

Efficiency ratio

49.25

%

47.71

%

1.54

Core efficiency ratio*

47.84

%

47.09

%

0.75

Balance Sheet Trends:

Total assets

$

22,028,565

$

21,751,614

$

276,951

1.3

%

Total loans and leases

$

13,910,907

$

15,063,034

$

(1,152,127

)

(7.6

)%

Total loans and leases, excluding PPP*

$

13,722,144

$

14,816,776

$

(1,094,632

)

(7.4

)%

Non-interest bearing demand deposits

$

4,490,198

$

3,487,517

$

1,002,681

28.8

%

Total deposits

$

17,950,431

$

17,723,617

$

226,814

1.3

%

Capital Metrics:

Common Equity

$

1,318,858

$

1,283,226

$

35,632

2.8

%

Tangible Common Equity*

$

1,315,229

$

1,279,597

$

35,632

2.8

%

Common Equity to Total Assets

6.0

%

5.9

%

0.1

Tangible Common Equity to Tangible Assets*

6.0

%

5.9

%

0.1

Tangible Common Equity to Tangible Assets, excluding PPP*

6.0

%

6.0

%

0.0

Book Value per common share

$

42.16

$

41.08

$

1.08

2.6

%

Tangible Book Value per common share*

$

42.04

$

40.96

$

1.08

2.6

%

Common equity Tier 1 capital ratio (1)

10.3

%

9.6

%

0.7

Total risk based capital ratio (1)

13.1

%

12.3

%

0.8

(1) Regulatory capital ratios as of June 30, 2023 are estimates.

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

Financial Highlights

(Dollars in thousands, except per share data)

At or Three Months Ended

Increase (Decrease)

Six Months Ended

Increase (Decrease)

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Profitability Metrics:

Net income available for common shareholders

$

44,007

$

56,519

$

(12,512

)

(22.1

)%

$

94,272

$

131,415

$

(37,143

)

(28.3

)%

Diluted earnings per share

$

1.39

$

1.68

$

(0.29

)

(17.3

)%

$

2.95

$

3.87

$

(0.92

)

(23.8

)%

Core earnings*

$

52,163

$

59,367

$

(7,204

)

(12.1

)%

$

103,306

$

134,777

$

(31,471

)

(23.4

)%

Core earnings per share*

$

1.65

$

1.77

$

(0.12

)

(6.8

)%

$

3.22

$

3.97

$

(0.75

)

(18.9

)%

Core earnings, excluding PPP*

$

54,231

$

46,301

$

7,930

17.1

%

$

95,768

$

96,998

$

(1,230

)

(1.3

)%

Core earnings per share, excluding PPP*

$

1.72

$

1.38

$

0.34

24.6

%

$

2.99

$

2.86

$

0.13

4.5

%

Return on average assets ("ROAA")

0.88

%

1.17

%

(0.29

)

0.96

%

1.39

%

(0.43

)

Core ROAA*

1.03

%

1.23

%

(0.20

)

1.04

%

1.43

%

(0.39

)

Core ROAA, excluding PPP*

1.07

%

1.04

%

0.03

0.97

%

1.04

%

(0.07

)

Return on average common equity ("ROCE")

13.22

%

18.21

%

(4.99

)

14.57

%

21.23

%

(6.66

)

Core ROCE*

15.67

%

19.13

%

(3.46

)

15.97

%

21.77

%

(5.80

)

Adjusted pre-tax pre-provision net income*

$

96,833

$

105,692

$

(8,859

)

(8.4

)%

$

186,115

$

218,341

$

(32,226

)

(14.8

)%

Adjusted pre-tax pre-provision net income ROAA, excluding PPP*

1.83

%

1.85

%

(0.02

)

1.69

%

1.86

%

(0.17

)

Net interest margin, tax equivalent

3.15

%

3.39

%

(0.24

)

3.06

%

3.49

%

(0.43

)

Net interest margin, tax equivalent, excluding PPP*

3.20

%

3.32

%

(0.12

)

3.01

%

3.32

%

(0.31

)

Loan yield

6.83

%

4.54

%

2.29

6.77

%

4.60

%

2.17

Loan yield, excluding PPP*

6.89

%

4.56

%

2.33

6.67

%

4.50

%

2.17

Cost of deposits

3.11

%

0.54

%

2.57

3.22

%

0.44

%

2.78

Efficiency ratio

49.25

%

42.14

%

7.11

48.51

%

40.76

%

7.75

Core efficiency ratio*

47.84

%

41.74

%

6.10

47.49

%

40.59

%

6.90

Balance Sheet Trends:

Total assets

$

22,028,565

$

20,251,996

$

1,776,569

8.8

%

Total loans and leases

$

13,910,907

$

15,664,353

$

(1,753,446

)

(11.2

)%

Total loans and leases, excluding PPP*

$

13,722,144

$

14,094,193

$

(372,049

)

(2.6

)%

Non-interest bearing demand deposits

$

4,490,198

$

4,683,030

$

(192,832

)

(4.1

)%

Total deposits

$

17,950,431

$

16,944,719

$

1,005,712

5.9

%

Capital Metrics:

Common Equity

$

1,318,858

$

1,215,596

$

103,262

8.5

%

Tangible Common Equity*

$

1,315,229

$

1,211,967

$

103,262

8.5

%

Common Equity to Total Assets

6.0

%

6.0

%

0.0

Tangible Common Equity to Tangible Assets*

6.0

%

6.0

%

0.0

Tangible Common Equity to Tangible Assets, excluding PPP*

6.0

%

6.5

%

(0.5

)

Book Value per common share

$

42.16

$

37.46

$

4.70

12.5

%

Tangible Book Value per common share*

$

42.04

$

37.35

$

4.69

12.6

%

Common equity Tier 1 capital ratio (1)

10.3

%

9.7

%

0.6

Total risk based capital ratio (1)

13.1

%

12.6

%

0.5

(1) Regulatory capital ratios as of June 30, 2023 are estimates.

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

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)

June 30,
2023

% of
Total

March 31,
2023

% of
Total

June 30,
2022

% of
Total

Loans and Leases Held for Investment

Commercial:

Commercial & industrial:

Specialty lending

$

5,534,832

40.0

%

$

5,519,176

37.7

%

$

4,599,640

29.4

%

Other commercial & industrial

1,052,145

7.6

1,168,161

8.0

1,037,444

6.7

Multifamily

2,151,734

15.6

2,195,211

15.0

2,008,784

12.8

Loans to mortgage companies

1,108,598

8.0

1,374,894

9.4

1,975,189

12.6

Commercial real estate owner occupied

842,042

6.1

895,314

6.1

710,577

4.5

Loans receivable, PPP

188,763

1.4

246,258

1.7

1,570,160

10.0

Commercial real estate non-owner occupied

1,211,091

8.8

1,245,248

8.5

1,152,869

7.4

Construction

212,214

1.5

188,123

1.3

195,687

1.2

Total commercial loans and leases

12,301,419

89.0

12,832,385

87.7

13,250,350

84.6

Consumer:

Residential

487,199

3.5

494,815

3.4

457,768

3.0

Manufactured housing

41,664

0.3

43,272

0.3

48,570

0.3

Installment:

Personal

752,470

5.4

849,420

5.8

1,613,628

10.3

Other

250,047

1.8

419,085

2.8

287,442

1.8

Total installment loans

1,002,517

7.2

1,268,505

8.6

1,901,070

12.1

Total consumer loans

1,531,380

11.0

1,806,592

12.3

2,407,408

15.4

Total loans and leases held for investment

$

13,832,799

100.0

%

$

14,638,977

100.0

%

$

15,657,758

100.0

%

Loans Held for Sale

Commercial:

Multifamily

$

—

—

%

$

4,051

1.0

%

$

4,136

62.7

%

Commercial real estate non-owner occupied

—

—

16,000

3.7

—

—

Total commercial loans and leases

—

—

20,051

4.7

4,136

62.7

Consumer:

Residential

1,234

1.6

821

0.2

2,459

37.3

Installment:

Personal

76,874

98.4

307,336

72.5

—

—

Other

—

—

95,849

22.6

—

—

Total installment loans

76,874

98.4

403,185

95.1

—

—

Total consumer loans

78,108

100.0

404,006

95.3

2,459

37.3

Total loans held for sale

$

78,108

100.0

%

$

424,057

100.0

%

$

6,595

100.0

%

Total loans and leases portfolio

$

13,910,907

$

15,063,034

$

15,664,353

Loans and Leases Held for Investment

Loans and leases held for investment were $13.8 billion at June 30, 2023, down $806.2 million, or 5.5%, from March 31, 2023, consistent with our stated goal of purposely moderating loan growth and exiting non-strategic relationships. Loans held for investment decreased in every category, except for relatively small increases in construction loans and specialty lending activities within commercial and industrial ("C&I") loans quarter-over-quarter.

On June 15, 2023, Customers acquired $631.0 million of a Venture Banking loan portfolio at a discount from the FDIC. Customers has also recruited team members that originated these loans to service the venture-backed growth industry from seed-stage through late-stage. The newly recruited team gives clients access to the capital to grow from innovation to maturity and leverage a customized, best-in-class tech platform to support their growth. The team has long-standing relationships with these clients offering them premier end-to-end financial services meeting their needs. The addition of these team members creates venture banking client coverage in Austin, the Bay Area, Boston, Southern California, Chicago, Denver, Raleigh/Durham, and Washington, D.C. The technology and life sciences portfolio has been combined with Customers’ existing technology and venture capital banking vertical. The portfolio of capital call loans to venture capital firms has been combined with Customers' existing direct capital call lines vertical within fund finance. This acquisition was accomplished from exiting and selling all non strategic short-term syndicated capital call lines of credit and payoffs and sales of other loans, and contributed to the moderate growth in specialty lending verticals of $15.7 million, or 0.3% quarter-over-quarter. Other C&I loans decreased $116.0 million, or 9.9% quarter-over-quarter, to $1.1 billion. Loans to mortgage companies decreased $266.3 million, or 19.4% quarter-over-quarter due to lower mortgage activity. Consumer installment loans held for investment decreased $266.0 million, or 21.0% quarter-over-quarter, to $1.0 billion as we continue to execute on our held-for-sale strategy and de-risk the held-for-investment loan portfolio in 2023.

Loans and leases held for investment of $13.8 billion at June 30, 2023 was down $1.8 billion, or 11.7%, year-over-year, largely driven by reduced balances in PPP loans of $1.4 billion, consumer installment loans of $898.6 million, and loans to mortgage companies of $866.6 million, offset in part by net growth in the lower risk variable rate specialty lending verticals of $935.2 million.

Loans Held for Sale

Loans held for sale decreased $345.9 million quarter-over-quarter, and were only $78.1 million at June 30, 2023 as we continue to build out our held-for-sale strategy in 2023. On June 30, 2023, Customers sold consumer installment loans that were classified as held for sale with a carrying value of $556.7 million, inclusive of $154.0 million of other installment loans transferred from held for investment to held for sale during Q2 2023, accrued interest and unamortized deferred loan origination costs. As part of these sales, Customers recognized a net loss on sale of $1.0 million, which is presented within "Gain (loss) on sale of SBA and other loans" in the consolidated statement of income.

Allowance for Credit Losses on Loans and Leases

The following table presents the allowance for credit losses on loans and leases as of the dates and for the periods presented:

At or Three Months Ended

Increase
(Decrease)

At or Three Months Ended

Increase
(Decrease)

(Dollars in thousands)

June 30,
2023

March 31,
2023

June 30,
2023

June 30,
2022

Allowance for credit losses on loans and leases

$

139,656

$

130,281

$

9,375

$

139,656

$

156,530

$

(16,874

)

Provision for credit losses on loans and leases

$

22,363

$

18,008

$

4,355

$

22,363

$

24,164

$

(1,801

)

Net charge-offs from loans held for investment

$

15,564

$

18,651

$

(3,087

)

$

15,564

$

13,481

$

2,083

Annualized net charge-offs to average loans and leases

0.42

%

0.49

%

0.42

%

0.36

%

Coverage of credit loss reserves for loans and leases held for investment

1.09

%

0.97

%

1.09

%

1.14

%

Coverage of credit loss reserves for loans and leases held for investment, excluding PPP*

1.11

%

0.99

%

1.11

%

1.28

%

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

The decrease in net charge-offs in Q2 2023 compared to Q1 2023 was primarily due to a charge-off of a non-owner occupied commercial real estate loan in Q1 2023 and a decrease in consumer installment net charge-offs in Q2 2023 compared to Q1 2023. The net charge-offs of $15.6 million in Q2 2023 excludes $6.2 million of charge-offs for certain PCD loans acquired from FDIC applied against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of the loan portfolio on June 15, 2023.

The increase in net charge-offs in Q2 2023 compared to Q2 2022, excluding the charge-offs for certain PCD loans acquired from FDIC, was primarily due to an increase in consumer installment net charge-offs in Q2 2023 compared to Q2 2022.

Provision for Credit Losses

Three Months Ended

Increase
(Decrease)

Three Months Ended

Increase
(Decrease)

(Dollars in thousands)

June 30,
2023

March 31,
2023

June 30,
2023

June 30,
2022

Provision for credit losses on loans and leases

$

22,363

$

18,008

$

4,355

$

22,363

$

24,164

$

(1,801

)

Provision (benefit) for credit losses on available for sale debt securities

1,266

1,595

(329

)

1,266

(317

)

1,583

Provision for credit losses

23,629

19,603

4,026

23,629

23,847

(218

)

Provision (benefit) for credit losses on unfunded commitments

(304

)

280

(584

)

(304

)

608

(912

)

Total provision for credit losses

$

23,325

$

19,883

$

3,442

$

23,325

$

24,455

$

(1,130

)

The provision for credit losses on loans and leases in Q2 2023 was $22.4 million, compared to $18.0 million in Q1 2023. The provision in Q2 2023 was primarily due to our recognition of weaker macroeconomic forecasts, partially offset by lower consumer installment loans, as compared to provision in Q1 2023. The provision for credit losses on available for sale investment securities in Q2 2023 was $1.3 million compared to provision of $1.6 million in Q1 2023.

The provision for credit losses on loans and leases in Q2 2023 was $22.4 million, compared to $24.2 million in Q2 2022. The provision in Q2 2023 was primarily due to our recognition of weaker macroeconomic forecasts, partially offset by lower consumer installment loans, as compared to provision in Q2 2022, which was primarily to support loan growth. The provision for credit losses on available for sale investment securities in Q2 2023 was $1.3 million compared to a benefit to provision of $0.3 million in Q2 2022.

Asset Quality

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

(Dollars in thousands)

June 30,
2023

March 31,
2023

Increase
(Decrease)

June 30,
2023

June 30,
2022

Increase
(Decrease)

Non-performing assets ("NPAs"):

Nonaccrual / non-performing loans ("NPLs")

$

28,244

$

32,124

$

(3,880

)

$

28,244

$

28,064

$

180

Non-performing assets

$

28,380

$

32,260

$

(3,880

)

$

28,380

$

28,150

$

230

NPLs to total loans and leases

0.20

%

0.21

%

0.20

%

0.18

%

Reserves to NPLs

494.46

%

405.56

%

494.46

%

557.76

%

NPAs to total assets

0.13

%

0.15

%

0.13

%

0.14

%

Loans and leases (1) risk ratings:

Commercial loans and leases (2)

Pass

$

10,667,619

$

10,928,620

$

(261,001

)

$

10,667,619

$

9,355,846

$

1,311,773

Special Mention (3)

166,468

136,986

29,482

166,468

106,566

59,902

Substandard (3)

272,301

273,154

(853

)

272,301

343,175

(70,874

)

Total commercial loans and leases

11,106,388

11,338,760

(232,372

)

11,106,388

9,805,587

1,300,801

Consumer loans

Performing

1,508,208

1,787,123

(278,915

)

1,508,208

2,392,852

(884,644

)

Non-performing

23,172

19,469

3,703

23,172

14,556

8,616

Total consumer loans

1,531,380

1,806,592

(275,212

)

1,531,380

2,407,408

(876,028

)

Loans and leases receivable (1)

$

12,637,768

$

13,145,352

$

(507,584

)

$

12,637,768

$

12,212,995

$

424,773

(1)

Risk ratings are assigned to loans and leases held for investment, and excludes loans held for sale and loans receivable, mortgage warehouse, at fair value.

(2)

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

(3)

Includes $24.3 million of C&I loans rated Special Mention and $2.1 million rated Substandard at June 30, 2023 that were acquired from the FDIC on June 15, 2023.

Over the last decade, we have developed a suite of commercial loan products with one particularly important common denominator: relatively low credit risk assumption. The Bank’s C&I, loans to mortgage companies, corporate and specialty lending lines of business, and multifamily loans for example, are characterized by conservative underwriting standards and low loss rates. Because of this emphasis, the Bank’s credit quality to date has been incredibly healthy despite an adverse economic environment. Maintaining strong asset quality also requires a highly active portfolio monitoring process. In addition to frequent client outreach and monitoring at the individual loan level, we employ a bottom-up data driven approach to analyze the commercial portfolio.

Total consumer installment loans held for investment at June 30, 2023 were less than 5% of total assets and approximately 7% of total loans and leases held for investment, and were supported by an allowance for credit losses of $57.6 million. At June 30, 2023, our consumer installment portfolio had the following characteristics: average original FICO score of 733, average debt-to-income of 19% and average borrower income of $105 thousand.

Non-performing loans at June 30, 2023 were essentially flat at 0.20% of total loans and leases, compared to 0.21% at March 31, 2023 and 0.18% at June 30, 2022.

Investment Securities

Our investment securities portfolio, including debt securities available for sale ("AFS") and held to maturity ("HTM") provides periodic cash flows through regular maturities and amortization, can be used as collateral to secure additional funding, and is an important component of our liquidity position.

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

(Dollars in thousands)

June 30,
2023

March 31,
2023

June 30,
2022

Debt securities, available for sale

$

2,797,940

$

2,900,259

$

3,120,111

Equity securities

26,698

26,710

24,771

Investment securities, at fair value

2,824,638

2,926,969

3,144,882

Debt securities, held to maturity

1,258,560

870,294

495,039

Total investment securities portfolio

$

4,083,198

$

3,797,263

$

3,639,921

Critically important to performance during the recent banking crisis are the characteristics of a bank’s securities portfolio. While there may be virtually no credit risk in some of these portfolios, holding longer term and lower yielding securities is creating challenges for many banks. Our securities portfolio is highly liquid, short in duration, and high in yield. At June 30, 2023, our AFS debt securities portfolio had a spot yield of 5.38%, an effective duration of approximately 1.5 years, and approximately 47% are variable rate. Additionally, 62% of our AFS securities portfolio was AAA rated at June 30, 2023.

At June 30, 2023, our HTM debt securities portfolio represented only 5.7% of our total assets at June 30, 2023, had a spot yield of 4.41% and an effective duration of approximately 3.0 years. Additionally, at June 30, 2023, approximately 36% of our HTM securities were AAA rated and 57% were credit enhanced asset backed securities with no current expectation of credit losses.

As a part of the sales of consumer installment loans that were classified as held for sale, Customers provided some financing to the purchaser for a portion of the sale price in the form of $436.8 million of asset-backed securities, collateralized by the sold loans, which accounted for the increase in HTM debt securities at June 30, 2023 as compared to the prior quarter.

Deposits

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

(Dollars in thousands)

June 30,
2023

% of
Total

March 31,
2023

% of
Total

June 30,
2022

% of
Total

Demand, non-interest bearing

$

4,490,198

25.0

%

$

3,487,517

19.7

%

$

4,683,030

27.6

%

Demand, interest bearing

5,551,037

30.9

5,791,302

32.7

6,644,398

39.2

Total demand deposits

10,041,235

55.9

9,278,819

52.4

11,327,428

66.8

Savings

1,048,229

5.8

924,359

5.2

640,062

3.8

Money market

2,004,264

11.2

2,019,633

11.4

4,254,205

25.1

Time deposits

4,856,703

27.1

5,500,806

31.0

723,024

4.3

Total deposits

$

17,950,431

100.0

%

$

17,723,617

100.0

%

$

16,944,719

100.0

%

Total deposits increased $226.8 million, or 1.3%, to $18.0 billion at June 30, 2023 as compared to the prior quarter. Importantly, non-interest bearing demand deposits increased $1.0 billion, or 28.8%, to $4.5 billion. Savings deposits increased $123.9 million, or 13.4%, to $1.0 billion. These increases were offset by decreases in time deposits of $644.1 million, or 11.7%, to $4.9 billion, interest bearing demand deposits of $240.3 million, or 4.1%, to $5.6 billion and money market deposits of $15.4 million, or 0.8%, to $2.0 billion. The total average cost of deposits decreased by 21 basis points to 3.11% in Q2 2023 from 3.32% in the prior quarter primarily due to a shift in deposit mix. Total estimated uninsured deposits was $4.1 billion1, or 23% of total deposits (inclusive of accrued interest) at June 30, 2023. We are also highly focused on total deposits with contractual term to manage our liquidity profile and the funding of loans and securities.

Total deposits increased $1.0 billion, or 5.9%, to $18.0 billion at June 30, 2023 as compared to a year ago. Time deposits increased $4.1 billion to $4.9 billion. Savings deposits increased $408.2 million, or 63.8%, to $1.0 billion. These increases were offset in part by decreases in money market deposits of $2.2 billion, or 52.9%, to $2.0 billion, interest bearing demand deposits of $1.1 billion, or 16.5%, to $5.6 billion and non-interest bearing demand deposits of $192.8 million, or 4.1%, to $4.5 billion. The total average cost of deposits increased by 257 basis points to 3.11% in Q2 2023 from 0.54% in the prior year primarily due to higher market interest rates and a shift in deposit mix.

__________________________________
1 Uninsured deposits (estimate) of $4.7 billion to be reported on the Bank's call report, less state and municipal deposits of $459.4 million collateralized by our line of credit from FHLB and from our affiliates of $92.0 million.

Borrowings

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

(Dollars in thousands)

June 30,
2023

March 31,
2023

June 30,
2022

Federal funds purchased

$

—

$

—

$

770,000

FHLB advances

2,046,142

2,052,143

635,000

Senior notes

123,710

123,645

123,450

Subordinated debt

182,091

182,021

181,812

Total borrowings

$

2,351,943

$

2,357,809

$

1,710,262

Total borrowings were $2.4 billion at June 30, 2023, relatively unchanged from the prior quarter. As of June 30, 2023, Customers' borrowing capacity with the FRB and FHLB was approximately $8.6 billion, of which $2.1 billion of available capacity was utilized in borrowings and $600.5 million was utilized to collateralize state and municipal deposits.

Total borrowings increased $641.7 million, or 37.5%, to $2.4 billion at June 30, 2023 as compared to a year ago. This increase primarily resulted from an increase in FHLB advances to ensure ample cash on hand given the heightened liquidity risk in the banking system, particularly among regional banks since early March 2023, net of repayments of federal funds purchased.

Capital

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

(Dollars in thousands except per share data)

June 30,
2023

March 31,
2023

June 30,
2022

Customers Bancorp, Inc.

Common Equity

$

1,318,858

$

1,283,226

$

1,215,596

Tangible Common Equity*

$

1,315,229

$

1,279,597

$

1,211,967

Common Equity to Total Assets

6.0

%

5.9

%

6.0

%

Tangible Common Equity to Tangible Assets*

6.0

%

5.9

%

6.0

%

Tangible Common Equity to Tangible Assets, excluding PPP*

6.0

%

6.0

%

6.5

%

Book Value per common share

$

42.16

$

41.08

$

37.46

Tangible Book Value per common share*

$

42.04

$

40.96

$

37.35

Common equity Tier 1 (CET 1) capital ratio (1)

10.3

%

9.6

%

9.7

%

Total risk based capital ratio (1)

13.1

%

12.3

%

12.6

%

(1) Regulatory capital ratios as of June 30, 2023 are estimates.

* Non-GAAP measure. Customers' reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document.

Customers Bancorp's common equity increased $35.6 million to $1.3 billion, and tangible common equity* increased $35.6 million to $1.3 billion, at June 30, 2023 compared to the prior quarter, respectively, as earnings of $44.0 million more than offset a negative impact of increased unrealized losses on investment securities of $11.9 million (net of taxes) deferred in accumulated other comprehensive income ("AOCI"). Similarly, book value per common share increased to $42.16 from $41.08, and tangible book value per common share* increased to $42.04 from $40.96, at June 30, 2023 and March 31, 2023, respectively.

Customers Bancorp's common equity increased $103.3 million to $1.3 billion, and tangible common equity* increased $103.3 million to $1.3 billion, at June 30, 2023 compared to a year ago, respectively, as earnings of $181.3 million more than offset a negative impact to AOCI from increased unrealized losses on investment securities of $43.3 million (net of taxes) and $45.1 million of common share repurchases. Similarly, book value per common share increased to $42.16 from $37.46, and tangible book value per common share* increased to $42.04 from $37.35, at June 30, 2023 and June 30, 2022, respectively.

At the Customers Bancorp level, the CET 1 capital ratio (estimate), total risk based capital ratio (estimate), common equity to total assets ratio and tangible common equity to tangible assets ratio ("TCE ratio") were 10.3%, 13.1%, 6.0%, and 6.0%, respectively, at June 30, 2023.

At the Customers Bank level, capital levels remained strong and well above regulatory minimums. At June 30, 2023, estimated Tier 1 capital (estimate) and total risk-based capital (estimate) were 11.9% and 13.3%, respectively.

Even though Customers remains well capitalized by all regulatory measures, its goal is to increase its CET 1 ratio at year-end 2023 to be between 11.0% - 11.5%. "It is prudent to continue to moderate or even shrink our balance sheet in this uncertain environment and have strong capital ratios," stated Jay Sidhu.

Key Profitability Trends

Net Interest Income

Net interest income totaled $165.3 million in Q2 2023, an increase of $15.4 million from Q1 2023, primarily due to higher interest income from interest earning deposits of $17.2 million maintained in response to heightened liquidity risk in the banking system, particularly among regional banks since early March 2023, variable rate lower credit risk specialty lending of $18.1 million, and commercial loans to mortgage companies of $2.2 million, reflecting higher average balances and market interest rates. These increases were partially offset by lower interest income on consumer installment loans of $2.3 million reflecting the impact of the sales transactions that occurred late in Q2 2023 and reduced PPP interest income of $21.9 million resulting primarily from reduced recognition of deferred fees as the PPP program was substantially completed in Q1 2023. In addition, interest expense on deposits and other borrowings decreased by $0.2 million in Q2 2023 largely resulting from the positive shift in deposit mix towards no to lower-interest bearing deposits despite higher interest rates during Q2 2023, mostly offset by increased borrowing costs reflecting a full quarter impact of FHLB advances drawn in Q1 2023.

Net interest income totaled $165.3 million in Q2 2023, an increase of $0.4 million from Q2 2022. This increase was due to higher interest income of $133.8 million resulting from increased average balance of interest earning assets of $1.5 billion and higher market interest rates on variable rate loans and investments, offset in part by higher interest expenses on deposits and other borrowings of $133.4 million primarily resulting from higher average balances of interest bearing deposits and other borrowings and increased market rates. Interest-earning asset growth was primarily driven by increases in C&I loans and leases, mostly in the variable rate lower credit risk specialty lending verticals and multifamily loans, offset in part by decreases in commercial loans to mortgage companies due to lower mortgage activity from rising interest rates, PPP loans as the PPP program was substantially completed in Q1 2023 and consumer installment loans. Total consumer installment loans decreased in Q2 2023 as compared to Q2 2022, as installment loans held for investment decreased primarily for risk management purposes and implementation of our held-for-sale strategy.

Non-Interest Income

The following table presents details of non-interest income for the periods indicated:

Three Months Ended

Increase
(Decrease)

Three Months Ended

Increase
(Decrease)

(Dollars in thousands)

June 30,
2023

March 31,
2023

June 30,
2023

June 30,
2022

Commercial lease income

$

8,917

$

9,326

$

(409

)

$

8,917

$

6,592

$

2,325

Loan fees

4,271

3,990

281

4,271

2,618

1,653

Bank-owned life insurance

4,997

2,647

2,350

4,997

1,947

3,050

Mortgage warehouse transactional fees

1,376

1,074

302

1,376

1,883

(507

)

Gain (loss) on sale of SBA and other loans

(761

)

—

(761

)

(761

)

1,542

(2,303

)

Loss on sale of capital call lines of credit

(5,037

)

—

(5,037

)

(5,037

)

—

(5,037

)

Net gain (loss) on sale of investment securities

—

—

—

—

(3,029

)

3,029

Other

2,234

1,084

1,150

2,234

1,193

1,041

Total non-interest income

$

15,997

$

18,121

$

(2,124

)

$

15,997

$

12,746

$

3,251

Non-interest income totaled $16.0 million for Q2 2023, a decrease of $2.1 million compared to Q1 2023. The decrease was primarily due to a loss of $5.0 million realized from the sale of non-strategic short-term syndicated capital call lines of credit within our Specialty Lending vertical that the Bank exited completely and $0.8 million of net loss on sales of SBA loans and consumer installment loans that were classified as held for sale. These decreases were offset in part by increases in death benefits paid by insurance carriers under the bank-owned life insurance policies of $2.4 million and other income of $1.2 million mostly related to income from CRA-qualified investments in small business investment companies and tax interest and penalties refunds.

Non-interest income totaled $16.0 million for Q2 2023, an increase of $3.3 million compared to Q2 2022. The increase was primarily due to lower loss on securities sales of $3.0 million as there were no such sales in Q2 2023, and increases in death benefits paid by insurance carriers under the bank-owned life insurance policies of $3.1 million, commercial lease income of $2.3 million, loan fees of $1.7 million resulting from growth and other income of $1.0 million. These increases were offset partially by a $5.0 million loss realized from the sale of non-strategic short-term syndicated capital call lines of credit that the Bank exited completely and a decrease in net gain on sale of SBA and other loans of $2.3 million due to lower gains on sales of SBA loans and losses on sales of consumer installment loans that were classified as held for sale.

Non-Interest Expense

The following table presents details of non-interest expense for the periods indicated:

Three Months Ended

Increase
(Decrease)

Three Months Ended

Increase
(Decrease)

(Dollars in thousands)

June 30,
2023

March 31,
2023

June 30,
2023

June 30,
2022

Salaries and employee benefits

$

33,120

$

32,345

$

775

$

33,120

$

25,334

$

7,786

Technology, communication and bank operations

16,407

16,589

(182

)

16,407

22,738

(6,331

)

Commercial lease depreciation

7,328

7,875

(547

)

7,328

5,552

1,776

Professional services

9,192

7,596

1,596

9,192

7,415

1,777

Loan servicing

4,777

4,661

116

4,777

4,341

436

Occupancy

2,519

2,760

(241

)

2,519

4,279

(1,760

)

FDIC assessments, non-income taxes and regulatory fees

9,780

2,728

7,052

9,780

1,619

8,161

Advertising and promotion

546

1,049

(503

)

546

353

193

Other

5,628

4,530

1,098

5,628

4,574

1,054

Total non-interest expense

$

89,297

$

80,133

$

9,164

$

89,297

$

76,205

$

13,092

The management of non-interest expenses remains a priority for us. However, this will not deter us from making investments in new technologies to support efficient and responsible growth in the future.

Non-interest expenses totaled $89.3 million in Q2 2023, an increase of $9.2 million compared to Q1 2023. The increase was primarily attributable to higher FDIC assessments, non-income taxes and regulatory fees of $7.1 million resulting from higher FDIC assessment rates, higher professional fees of $1.6 million to enhance our technology, compliance and risk management capabilities, other expenses of $1.1 million primarily due to higher provision for operating losses and increased salaries and employee benefits of $0.8 million driven by higher incentives and stock based awards offset by lower benefits and severance.

Non-interest expenses totaled $89.3 million in Q2 2023, an increase of $13.1 million compared to Q2 2022. The increase was primarily attributable to increases of $8.2 million of FDIC assessments, non-income taxes and regulatory fees resulting from higher FDIC assessment rates, $7.8 million in salaries and employee benefits due to higher headcount, annual merit increases, incentives and SERP expenses, $1.8 million in professional fees mostly for transaction related legal fees, $1.8 million in commercial lease depreciation from growth and $1.1 million in other expenses primarily due to higher provision for operating losses. These increases were offset in part by decreases of $6.3 million in deposit servicing-related expenses mostly due to lower servicing fees and the discontinuation of interchange maintenance fees paid to BM Technologies offset by higher fees paid for software as a service and $1.8 million in occupancy mostly due to impairments associated with consolidation of branch locations in Q2 2022.

Taxes

Income tax expense increased by $6.2 million to $20.8 million in Q2 2023 from $14.6 million in Q1 2023 primarily due to tax expense of $4.1 million recognized in Q2 2023 on surrendered bank-owned life insurance policies.

Income tax expense increased by $1.9 million to $20.8 million in Q2 2023 from $18.9 million in Q2 2022 primarily due to tax expense on surrendered bank-owned life insurance policies, offset in part by lower pre-tax income and increased income tax credits.

The effective tax rate for Q2 2023 was 30%, primarily due to tax on surrendered bank-owned life insurance policies. Excluding the tax on surrendered bank-owned life insurance policies, the effective tax rate for Q2 2023 was 24%. Customers expects the full-year 2023 effective tax rate to be approximately 22% to 24%.

Outlook

"Looking ahead, we will continue to moderate growth, or even reduce the size of the balance sheet, as we optimize the balance sheet and materially improve our capital ratios, maintain positive operating leverage with prudent expense management, and continue to improve deposits and liquidity. We expect 2023 core loans to be essentially flat to down. Deposits are expected to remain relatively flat with a focus on improving our funding profile and reducing high cost deposits. We expect full year 2023 net interest margin, excluding PPP* to be at the upper end of the previously guided range of 2.85% - 3.05%. 2023 Core EPS (excluding PPP)* is still expected to be about $6.00 with a core return on common equity* of over 15%. Core non-interest expense* is now expected to increase about 15% in 2023 as a result of higher FDIC assessments and the newly recruited Venture Banking team. We are still targeting a CET 1 ratio of approximately 11.0% - 11.5% by year-end 2023, following up on the 70 basis point increase we achieved during Q2 2023. We are focused on improving the quality of our balance sheet and deposit franchise, improving capital and liquidity, maintaining superior credit quality, expanding our net interest margin, and achieving our tangible book value guidance in excess of $45 by year-end 2023," concluded Customers Bancorp President Sam Sidhu.

* 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.

Webcast

Date:

Friday, July 28, 2023

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 2nd Quarter Earnings Webcast.

You may submit questions in advance of the live webcast by emailing our Communications 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 Bank Investor Relations page and available beginning approximately two hours after the conclusion of the live event.

Institutional Background

Customers Bancorp, Inc. (NYSE:CUBI) is one of the nation’s top-performing banking companies with over $22 billion in assets, making it the 81 largest bank holding companies in the US. Through its primary subsidiary, Customers Bank, commercial and consumer clients benefit from a full suite of technology-enabled tailored product experiences delivered by best-in-class customer service. In addition to traditional lines such as C&I lending, commercial real estate lending, and multifamily lending, Customers Bank also provides a number of national corporate banking services to Specialty Lending clients. Major accolades include:

  • #5 in top-performing banks with assets between $10 billion and $50 billion in 2022 per American Banker;

  • #34 out of the 100 largest publicly traded banks in 2023 per Forbes; and

  • #64 on Fortune Magazine’s 2022 list of the 100 fastest growing companies in America.

A member of the Federal Reserve System with deposits insured by the Federal Deposit Insurance Corporation, Customers Bank is an equal opportunity lender. Learn more: 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," "project," 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: a continuation of the recent turmoil in the banking industry, responsive measures taken by us and regulatory authorities to mitigate and manage related risks, regulatory actions taken that address related issues and the costs and obligations associated therewith, the impact of COVID-19 and its variants on the U.S. economy and customer behavior, the impact that changes in the economy have on the performance of our loan and lease portfolio, the market value of our investment securities, the continued success and acceptance of our blockchain payments system, 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 affect 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, higher inflation and its impacts, and the effects of any changes in accounting standards or policies. 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, 2022, 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.

Q2 2023 Overview

The following table presents a summary of key earnings and performance metrics for the quarter ended June 30, 2023 and the preceding four quarters:

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

EARNINGS SUMMARY - UNAUDITED

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

Q2

Q1

Q4

Q3

Q2

Six Months Ended
June 30,

2023

2023

2022

2022

2022

2023

2022

GAAP Profitability Metrics:

Net income available to common shareholders

$

44,007

$

50,265

$

25,623

$

61,364

$

56,519

$

94,272

$

131,415

Per share amounts:

Earnings per share - basic

$

1.41

$

1.58

$

0.79

$

1.89

$

1.73

$

2.99

$

4.00

Earnings per share - diluted

$

1.39

$

1.55

$

0.77

$

1.85

$

1.68

$

2.95

$

3.87

Book value per common share (1)

$

42.16

$

41.08

$

39.08

$

38.46

$

37.46

$

42.16

$

37.46

CUBI stock price (1)

$

30.26

$

18.52

$

28.34

$

29.48

$

33.90

$

30.26

$

33.90

CUBI stock price as % of book value (1)

72

%

45

%

73

%

77

%

90

%

72

%

90

%

Average shares outstanding - basic

31,254,125

31,819,203

32,413,459

32,455,814

32,712,616

31,535,103

32,834,150

Average shares outstanding - diluted

31,591,142

32,345,017

33,075,422

33,226,607

33,579,013

31,965,997

33,950,973

Shares outstanding (1)

31,282,318

31,239,750

32,373,697

32,475,502

32,449,486

31,282,318

32,449,486

Return on average assets ("ROAA")

0.88

%

1.03

%

0.55

%

1.24

%

1.17

%

0.96

%

1.39

%

Return on average common equity ("ROCE")

13.22

%

16.00

%

8.05

%

19.33

%

18.21

%

14.57

%

21.23

%

Net interest margin, tax equivalent

3.15

%

2.96

%

2.67

%

3.16

%

3.39

%

3.06

%

3.49

%

Efficiency ratio

49.25

%

47.71

%

49.20

%

50.00

%

42.14

%

48.51

%

40.76

%

Non-GAAP Profitability Metrics (2):

Core earnings

$

52,163

$

51,143

$

39,368

$

82,270

$

59,367

$

103,306

$

134,777

Adjusted pre-tax pre-provision net income

$

96,833

$

89,282

$

81,377

$

100,994

$

105,692

$

186,115

$

218,341

Per share amounts:

Core earnings per share - diluted

$

1.65

$

1.58

$

1.19

$

2.48

$

1.77

$

3.22

$

3.97

Tangible book value per common share (1)

$

42.04

$

40.96

$

38.97

$

38.35

$

37.35

$

42.04

$

37.35

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

72

%

45

%

73

%

77

%

91

%

72

%

91

%

Core ROAA

1.03

%

1.05

%

0.81

%

1.64

%

1.23

%

1.04

%

1.43

%

Core ROCE

15.67

%

16.28

%

12.36

%

25.91

%

19.13

%

15.97

%

21.77

%

Adjusted ROAA - pre-tax and pre-provision

1.79

%

1.72

%

1.56

%

1.95

%

2.11

%

1.76

%

2.25

%

Adjusted ROCE - pre-tax and pre-provision

28.01

%

27.33

%

24.59

%

31.01

%

33.37

%

27.68

%

34.62

%

Net interest margin, tax equivalent, excluding PPP loans

3.20

%

2.80

%

2.87

%

3.18

%

3.32

%

3.01

%

3.32

%

Core efficiency ratio

47.84

%

47.09

%

49.12

%

42.57

%

41.74

%

47.49

%

40.59

%

Asset Quality:

Net charge-offs

$

15,564

$

18,651

$

27,164

$

18,497

$

13,481

$

34,215

$

20,707

Annualized net charge-offs to average total loans and leases

0.42

%

0.49

%

0.70

%

0.47

%

0.36

%

0.46

%

0.29

%

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

0.20

%

0.21

%

0.19

%

0.18

%

0.18

%

0.20

%

0.18

%

Reserves to NPLs (1)

494.46

%

405.56

%

425.95

%

466.34

%

557.76

%

494.46

%

557.76

%

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

0.13

%

0.15

%

0.15

%

0.14

%

0.14

%

0.13

%

0.14

%

Customers Bank Capital Ratios (3):

Common equity Tier 1 capital to risk-weighted assets

11.9

%

11.31

%

11.21

%

11.42

%

11.46

%

11.9

%

11.46

%

Tier 1 capital to risk-weighted assets

11.9

%

11.31

%

11.21

%

11.42

%

11.46

%

11.9

%

11.46

%

Total capital to risk-weighted assets

13.3

%

12.64

%

12.40

%

12.65

%

12.91

%

13.3

%

12.91

%

Tier 1 capital to average assets (leverage ratio)

8.0

%

8.09

%

8.15

%

8.10

%

8.09

%

8.0

%

8.09

%

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

(2) 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 Q2 2023 and actual for the remaining periods. In accordance with regulatory capital rules, Customers elected to apply the CECL capital transition provisions which delayed the effects of CECL on regulatory capital for two years until January 1, 2022, followed by a three-year transition period. The cumulative CECL capital transition impact as of December 31, 2021 which amounted to $61.6 million will be phased in at 25% per year beginning on January 1, 2022 through December 31, 2024. As of June 30, 2023, our regulatory capital ratios reflected 50%, or $30.8 million, benefit associated with the CECL transition provisions.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(Dollars in thousands, except per share data)

Six Months Ended

Q2

Q1

Q4

Q3

Q2

June 30,

2023

2023

2022

2022

2022

2023

2022

Interest income:

Loans and leases

$

241,745

$

244,212

$

217,471

$

200,438

$

168,920

$

485,957

$

326,040

Investment securities

48,026

47,316

42,953

30,546

25,442

95,342

45,737

Loans held for sale

11,149

11,701

1,269

19

21

22,850

76

Interest earning deposits

27,624

10,395

6,754

2,949

919

38,019

1,248

Other

1,616

1,321

1,200

1,964

1,032

2,937

6,709

Total interest income

330,160

314,945

269,647

235,916

196,334

645,105

379,810

Interest expense:

Deposits

136,375

143,930

124,366

65,380

22,781

280,305

36,493

FHLB advances

24,285

10,370

4,464

4,684

2,316

34,655

2,316

FRB advances

—

6,286

—

—

—

6,286

—

Subordinated debt

2,689

2,689

2,688

2,689

2,689

5,378

5,378

Other borrowings

1,540

1,771

2,992

4,131

3,696

3,311

6,072

Total interest expense

164,889

165,046

134,510

76,884

31,482

329,935

50,259

Net interest income

165,271

149,899

135,137

159,032

164,852

315,170

329,551

Provision (benefit) for credit losses

23,629

19,603

28,216

(7,994

)

23,847

43,232

39,844

Net interest income after provision (benefit) for credit losses

141,642

130,296

106,921

167,026

141,005

271,938

289,707

Non-interest income:

Commercial lease income

8,917

9,326

8,135

7,097

6,592

18,243

12,487

Loan fees

4,271

3,990

4,017

3,008

2,618

8,261

5,163

Bank-owned life insurance

4,997

2,647

1,975

3,449

1,947

7,644

10,273

Mortgage warehouse transactional fees

1,376

1,074

1,295

1,545

1,883

2,450

3,898

Gain (loss) on sale of SBA and other loans

(761

)

—

—

106

1,542

(761

)

3,049

Loss on sale of capital call lines of credit

(5,037

)

—

—

—

—

(5,037

)

—

Loss on sale of consumer installment loans

—

—

—

(23,465

)

—

—

—

Net gain (loss) on sale of investment securities

—

—

(16,937

)

(2,135

)

(3,029

)

—

(4,092

)

Legal settlement gain

—

—

7,519

—

—

—

—

Other

2,234

1,084

1,341

1,378

1,193

3,318

3,166

Total non-interest income

15,997

18,121

7,345

(9,017

)

12,746

34,118

33,944

Non-interest expense:

Salaries and employee benefits

33,120

32,345

29,194

31,230

25,334

65,465

51,941

Technology, communication and bank operations

16,407

16,589

18,604

19,588

22,738

32,996

46,806

Commercial lease depreciation

7,328

7,875

6,518

5,966

5,552

15,203

10,494

Professional services

9,192

7,596

6,825

6,269

7,415

16,788

14,371

Loan servicing

4,777

4,661

4,460

3,851

4,341

9,438

6,712

Occupancy

2,519

2,760

3,672

2,605

4,279

5,279

7,329

FDIC assessments, non-income taxes and regulatory fees

9,780

2,728

2,339

2,528

1,619

12,508

4,002

Advertising and promotion

546

1,049

1,111

762

353

1,595

668

Other

5,628

4,530

5,696

3,399

4,574

10,158

7,689

Total non-interest expense

89,297

80,133

78,419

76,198

76,205

169,430

150,012

Income before income tax expense

68,342

68,284

35,847

81,811

77,546

136,626

173,639

Income tax expense

20,768

14,563

7,136

17,899

18,896

35,331

38,228

Net income

47,574

53,721

28,711

63,912

58,650

101,295

135,411

Preferred stock dividends

3,567

3,456

3,088

2,548

2,131

7,023

3,996

Net income available to common shareholders

$

44,007

$

50,265

$

25,623

$

61,364

$

56,519

$

94,272

$

131,415

Basic earnings per common share

$

1.41

$

1.58

$

0.79

$

1.89

$

1.73

$

2.99

$

4.00

Diluted earnings per common share

1.39

1.55

0.77

1.85

1.68

2.95

3.87

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET - UNAUDITED

(Dollars in thousands)

June 30,

March 31,

December 31,

September 30,

June 30,

2023

2023

2022

2022

2022

ASSETS

Cash and due from banks

$

54,127

$

77,251

$

58,025

$

41,520

$

66,703

Interest earning deposits

3,101,097

1,969,434

397,781

362,945

178,475

Cash and cash equivalents

3,155,224

2,046,685

455,806

404,465

245,178

Investment securities, at fair value

2,824,638

2,926,969

2,987,500

2,943,694

3,144,882

Investment securities held to maturity

1,258,560

870,294

840,259

886,294

495,039

Loans held for sale

78,108

424,057

328,312

5,224

6,595

Loans receivable, mortgage warehouse, at fair value

1,006,268

1,247,367

1,323,312

1,569,090

1,874,603

Loans receivable, PPP

188,763

246,258

998,153

1,154,632

1,570,160

Loans and leases receivable

12,637,768

13,145,352

13,144,894

12,607,742

12,212,995

Allowance for credit losses on loans and leases

(139,656

)

(130,281

)

(130,924

)

(130,197

)

(156,530

)

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

13,693,143

14,508,696

15,335,435

15,201,267

15,501,228

FHLB, Federal Reserve Bank, and other restricted stock

126,240

124,733

74,196

64,112

74,626

Accrued interest receivable

119,501

123,754

123,374

107,621

98,727

Bank premises and equipment, net

8,031

8,581

9,025

6,610

6,755

Bank-owned life insurance

290,322

339,607

338,441

336,130

335,153

Goodwill and other intangibles

3,629

3,629

3,629

3,629

3,629

Other assets

471,169

374,609

400,135

408,575

340,184

Total assets

$

22,028,565

$

21,751,614

$

20,896,112

$

20,367,621

$

20,251,996

LIABILITIES AND SHAREHOLDERS' EQUITY

Demand, non-interest bearing deposits

$

4,490,198

$

3,487,517

$

1,885,045

$

2,993,793

$

4,683,030

Interest bearing deposits

13,460,233

14,236,100

16,271,908

14,528,645

12,261,689

Total deposits

17,950,431

17,723,617

18,156,953

17,522,438

16,944,719

Federal funds purchased

—

—

—

365,000

770,000

FHLB advances

2,046,142

2,052,143

800,000

500,000

635,000

Other borrowings

123,710

123,645

123,580

123,515

123,450

Subordinated debt

182,091

182,021

181,952

181,882

181,812

Accrued interest payable and other liabilities

269,539

249,168

230,666

287,855

243,625

Total liabilities

20,571,913

20,330,594

19,493,151

18,980,690

18,898,606

Preferred stock

137,794

137,794

137,794

137,794

137,794

Common stock

35,301

35,258

35,012

34,948

34,922

Additional paid in capital

555,737

552,255

551,721

549,066

545,670

Retained earnings

1,018,406

974,399

924,134

898,511

837,147

Accumulated other comprehensive income (loss), net

(168,176

)

(156,276

)

(163,096

)

(156,126

)

(124,881

)

Treasury stock, at cost

(122,410

)

(122,410

)

(82,604

)

(77,262

)

(77,262

)

Total shareholders' equity

1,456,652

1,421,020

1,402,961

1,386,931

1,353,390

Total liabilities and shareholders' equity

$

22,028,565

$

21,751,614

$

20,896,112

$

20,367,621

$

20,251,996

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

AVERAGE BALANCE SHEET / NET INTEREST MARGIN - UNAUDITED

(Dollars in thousands)

Three Months Ended

June 30, 2023

March 31, 2023

June 30, 2022

Average
Balance

Interest
Income or
Expense

Average
Yield or
Cost (%)

Average
Balance

Interest
Income or
Expense

Average
Yield or
Cost (%)

Average
Balance

Interest
Income or
Expense

Average
Yield or
Cost (%)

Assets

Interest earning deposits

$

2,150,154

$

27,624

5.15

%

$

914,149

$

10,395

4.61

%

$

434,950

$

919

0.85

%

Investment securities (1)

3,949,732

48,026

4.86

%

4,031,247

47,316

4.69

%

4,104,463

25,442

2.48

%

Loans and leases:

Commercial & industrial:

Specialty lending loans and leases (2)

5,832,485

121,779

8.37

%

5,694,168

103,688

7.38

%

4,068,175

39,160

3.86

%

Other commercial & industrial loans (2)

1,672,668

26,028

6.24

%

1,705,205

25,570

6.08

%

1,509,655

14,706

3.91

%

Commercial loans to mortgage companies

1,300,496

19,606

6.05

%

1,262,139

17,412

5.59

%

1,898,554

15,615

3.30

%

Multifamily loans

2,181,617

21,095

3.88

%

2,206,600

20,470

3.76

%

1,845,527

17,313

3.76

%

Loans receivable, PPP

207,127

1,633

3.16

%

889,235

23,551

10.74

%

1,863,429

20,572

4.43

%

Non-owner occupied commercial real estate loans

1,428,086

19,877

5.58

%

1,449,722

20,199

5.65

%

1,307,995

12,749

3.91

%

Residential mortgages

535,739

5,735

4.28

%

542,909

5,598

4.18

%

515,612

4,898

3.81

%

Installment loans

1,684,215

37,141

8.84

%

1,727,995

39,425

9.25

%

1,909,551

43,928

9.23

%

Total loans and leases (3)

14,842,432

252,894

6.83

%

15,477,973

255,913

6.70

%

14,918,498

168,941

4.54

%

Other interest-earning assets

131,362

1,616

4.93

%

91,308

1,321

5.87

%

68,025

1,032

6.09

%

Total interest-earning assets

21,073,680

330,160

6.28

%

20,514,677

314,945

6.21

%

19,525,936

196,334

4.03

%

Non-interest-earning assets

581,055

538,243

530,084

Total assets

$

21,654,735

$

21,052,920

$

20,056,020

Liabilities

Interest checking accounts

$

5,309,775

$

49,862

3.77

%

$

7,494,379

$

70,485

3.81

%

$

6,409,617

$

13,644

0.85

%

Money market deposit accounts

1,978,546

19,678

3.99

%

2,470,004

20,783

3.41

%

4,704,767

7,523

0.64

%

Other savings accounts

997,205

9,839

3.96

%

822,312

6,286

3.10

%

695,176

758

0.44

%

Certificates of deposit

5,020,205

56,996

4.55

%

4,504,333

46,376

4.18

%

530,180

856

0.65

%

Total interest-bearing deposits (4)

13,305,731

136,375

4.11

%

15,291,028

143,930

3.82

%

12,339,740

22,781

0.74

%

Federal funds purchased

—

—

—

%

15,333

188

4.97

%

642,747

1,429

0.89

%

Borrowings

2,357,981

28,514

4.85

%

1,788,116

20,928

4.75

%

940,068

7,272

3.10

%

Total interest-bearing liabilities

15,663,712

164,889

4.22

%

17,094,477

165,046

3.91

%

13,922,555

31,482

0.91

%

Non-interest-bearing deposits (4)

4,258,711

2,299,295

4,491,574

Total deposits and borrowings

19,922,423

3.32

%

19,393,772

3.45

%

18,414,129

0.69

%

Other non-interest-bearing liabilities

259,111

247,575

259,279

Total liabilities

20,181,534

19,641,347

18,673,408

Shareholders' equity

1,473,201

1,411,573

1,382,612

Total liabilities and shareholders' equity

$

21,654,735

$

21,052,920

$

20,056,020

Net interest income

165,271

149,899

164,852

Tax-equivalent adjustment

390

375

270

Net interest earnings

$

165,661

$

150,274

$

165,122

Interest spread

2.96

%

2.76

%

3.35

%

Net interest margin

3.14

%

2.95

%

3.38

%

Net interest margin tax equivalent

3.15

%

2.96

%

3.39

%

Net interest margin tax equivalent excl. PPP (5)

3.20

%

2.80

%

3.32

%

(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 3.11%, 3.32% and 0.54% for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022, respectively.

(5) Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022, presented to approximate interest income as a taxable asset and 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 (CONTINUED)

(Dollars in thousands)

Six Months Ended

June 30, 2023

June 30, 2022

Average
Balance

Interest
Income or
Expense

Average
Yield or
Cost (%)

Average
Balance

Interest
Income or
Expense

Average
Yield or
Cost (%)

Assets

Interest earning deposits

$

1,535,566

$

38,019

4.99

%

$

629,514

$

1,248

0.40

%

Investment securities (1)

3,990,265

95,342

4.78

%

4,070,901

45,737

2.25

%

Loans and leases:

Commercial & industrial:

Specialty lending loans and leases (2)

5,763,708

225,467

7.89

%

3,403,276

62,551

3.71

%

Other commercial & industrial loans (2)

1,688,847

51,598

6.16

%

1,451,858

27,974

3.89

%

Commercial loans to mortgage companies

1,281,424

37,018

5.83

%

1,867,772

29,620

3.20

%

Multifamily loans

2,194,039

41,565

3.82

%

1,689,553

31,079

3.71

%

Loans receivable, PPP

546,297

25,184

9.30

%

2,250,224

57,466

5.15

%

Non-owner occupied commercial real estate loans

1,438,844

40,076

5.62

%

1,310,091

24,956

3.84

%

Residential mortgages

539,304

11,333

4.24

%

466,288

8,578

3.71

%

Installment loans

1,705,984

76,566

9.05

%

1,852,167

83,892

9.13

%

Total loans and leases (3)

15,158,447

508,807

6.77

%

14,291,229

326,116

4.60

%

Other interest-earning assets

111,446

2,937

5.32

%

60,113

6,709

NM (6)

Total interest-earning assets

20,795,724

645,105

6.25

%

19,051,757

379,810

4.02

%

Non-interest-earning assets

559,766

543,479

Total assets

$

21,355,490

$

19,595,236

Liabilities

Interest checking accounts

$

6,396,042

$

120,347

3.79

%

$

6,091,263

$

21,374

0.71

%

Money market deposit accounts

2,222,917

40,461

3.67

%

4,791,925

12,197

0.51

%

Other savings accounts

910,241

16,125

3.57

%

787,134

1,542

0.39

%

Certificates of deposit

4,763,694

103,372

4.38

%

490,632

1,380

0.57

%

Total interest-bearing deposits (4)

14,292,894

280,305

3.95

%

12,160,954

36,493

0.61

%

Federal funds purchased

7,624

188

4.97

%

367,210

1,502

0.82

%

Borrowings

2,074,623

49,442

4.81

%

737,464

12,264

3.35

%

Total interest-bearing liabilities

16,375,141

329,935

4.06

%

13,265,628

50,259

0.76

%

Non-interest-bearing deposits (4)

3,284,416

4,695,148

Total deposits and borrowings

19,659,557

3.38

%

17,960,776

0.56

%

Other non-interest-bearing liabilities

253,376

248,266

Total liabilities

19,912,933

18,209,042

Shareholders' equity

1,442,557

1,386,194

Total liabilities and shareholders' equity

$

21,355,490

$

19,595,236

Net interest income

315,170

329,551

Tax-equivalent adjustment

765

509

Net interest earnings

$

315,935

$

330,060

Interest spread

2.86

%

3.45

%

Net interest margin

3.05

%

3.48

%

Net interest margin tax equivalent

3.06

%

3.49

%

Net interest margin tax equivalent excl. PPP (5)

3.01

%

3.32

%

(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 3.22% and 0.44% for the six months ended June 30, 2023 and 2022, respectively.

(5) Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the six months ended June 30, 2023 and 2022, presented to approximate interest income as a taxable asset and 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.

(6) Not meaningful.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

PERIOD END LOAN AND LEASE COMPOSITION - UNAUDITED

(Dollars in thousands)

June 30,

March 31,

December 31,

September 30,

June 30,

2023

2023

2022

2022

2022

Loans and leases held for investment

Commercial:

Commercial & industrial:

Specialty lending

$

5,534,832

$

5,519,176

$

5,412,887

$

5,103,974

$

4,599,640

Other commercial & industrial

1,052,145

1,168,161

1,135,336

1,064,332

1,037,444

Multifamily

2,151,734

2,195,211

2,213,019

2,263,268

2,008,784

Loans to mortgage companies

1,108,598

1,374,894

1,447,919

1,708,587

1,975,189

Commercial real estate owner occupied

842,042

895,314

885,339

726,670

710,577

Loans receivable, PPP

188,763

246,258

998,153

1,154,632

1,570,160

Commercial real estate non-owner occupied

1,211,091

1,245,248

1,290,730

1,263,211

1,152,869

Construction

212,214

188,123

162,009

136,133

195,687

Total commercial loans and leases

12,301,419

12,832,385

13,545,392

13,420,807

13,250,350

Consumer:

Residential

487,199

494,815

497,952

465,772

457,768

Manufactured housing

41,664

43,272

45,076

46,990

48,570

Installment:

Personal

752,470

849,420

964,641

1,056,432

1,613,628

Other

250,047

419,085

413,298

341,463

287,442

Total installment loans

1,002,517

1,268,505

1,377,939

1,397,895

1,901,070

Total consumer loans

1,531,380

1,806,592

1,920,967

1,910,657

2,407,408

Total loans and leases held for investment

$

13,832,799

$

14,638,977

$

15,466,359

$

15,331,464

$

15,657,758

Loans held for sale

Commercial:

Multifamily

$

—

$

4,051

$

4,079

$

4,108

$

4,136

Commercial real estate non-owner occupied

—

16,000

—

—

—

Total commercial loans and leases

—

20,051

4,079

4,108

4,136

Consumer:

Residential

1,234

821

829

1,116

2,459

Installment:

Personal

76,874

307,336

133,801

—

—

Other

—

95,849

189,603

—

—

Total installment loans

76,874

403,185

323,404

—

—

Total consumer loans

78,108

404,006

324,233

1,116

2,459

Total loans held for sale

$

78,108

$

424,057

$

328,312

$

5,224

$

6,595

Total loans and leases portfolio

$

13,910,907

$

15,063,034

$

15,794,671

$

15,336,688

$

15,664,353

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

PERIOD END DEPOSIT COMPOSITION - UNAUDITED

(Dollars in thousands)

June 30,

March 31,

December 31,

September 30,

June 30,

2023

2023

2022

2022

2022

Demand, non-interest bearing

$

4,490,198

$

3,487,517

$

1,885,045

$

2,993,793

$

4,683,030

Demand, interest bearing

5,551,037

5,791,302

8,476,027

7,124,663

6,644,398

Total demand deposits

10,041,235

9,278,819

10,361,072

10,118,456

11,327,428

Savings

1,048,229

924,359

811,798

592,002

640,062

Money market

2,004,264

2,019,633

2,734,217

4,913,967

4,254,205

Time deposits

4,856,703

5,500,806

4,249,866

1,898,013

723,024

Total deposits

$

17,950,431

$

17,723,617

$

18,156,953

$

17,522,438

$

16,944,719

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

ASSET QUALITY - UNAUDITED

(Dollars in
thousands)

As of June 30, 2023

As of March 31, 2023

As of June 30, 2022

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

Commercial & industrial, including specialty lending (1)

$

6,689,307

$

4,441

$

29,092

0.07

%

655.08

%

$

6,814,864

$

3,886

$

20,050

0.06

%

515.95

%

$

5,737,670

$

4,061

$

11,081

0.07

%

272.86

%

Multifamily

2,151,734

4,022

15,400

0.19

%

382.89

%

2,195,211

881

15,084

0.04

%

1712.15

%

2,008,784

1,153

9,765

0.06

%

846.92

%

Commercial real estate owner occupied

842,042

3,304

10,215

0.39

%

309.17

%

895,314

3,621

8,472

0.40

%

233.97

%

710,577

2,913

4,745

0.41

%

162.89

%

Commercial real estate non-owner occupied

1,211,091

—

13,495

—

%

—

%

1,245,248

—

11,032

—

%

—

%

1,152,869

—

8,880

—

%

—

%

Construction

212,214

—

2,639

—

%

—

%

188,123

—

2,336

—

%

—

%

195,687

—

1,179

—

%

—

%

Total commercial loans and leases receivable

11,106,388

11,767

70,841

0.11

%

602.03

%

11,338,760

8,388

56,974

0.07

%

679.23

%

9,805,587

8,127

35,650

0.08

%

438.66

%

Residential

487,199

7,306

6,846

1.50

%

93.70

%

494,815

6,473

6,853

1.31

%

105.87

%

457,768

6,258

5,578

1.37

%

89.13

%

Manufactured housing

41,664

2,634

4,338

6.32

%

164.69

%

43,272

2,568

4,339

5.93

%

168.96

%

48,570

3,071

4,080

6.32

%

132.86

%

Installment

1,002,517

6,537

57,631

0.65

%

881.61

%

1,268,505

8,720

62,115

0.69

%

712.33

%

1,901,070

5,965

111,222

0.31

%

1864.58

%

Total consumer loans receivable

1,531,380

16,477

68,815

1.08

%

417.64

%

1,806,592

17,761

73,307

0.98

%

412.74

%

2,407,408

15,294

120,880

0.64

%

790.38

%

Loans and leases receivable (1)

12,637,768

28,244

139,656

0.22

%

494.46

%

13,145,352

26,149

130,281

0.20

%

498.23

%

12,212,995

23,421

156,530

0.19

%

668.33

%

Loans receivable, PPP

188,763

—

—

—

%

—

%

246,258

—

—

—

%

—

%

1,570,160

—

—

—

%

—

%

Loans receivable, mortgage warehouse, at fair value

1,006,268

—

—

—

%

—

%

1,247,367

—

—

—

%

—

%

1,874,603

—

—

—

%

—

%

Total loans held for sale

78,108

—

—

—

%

—

%

424,057

5,975

—

1.41

%

—

%

6,595

4,643

—

70.40

%

—

%

Total portfolio

$

13,910,907

$

28,244

$

139,656

0.20

%

494.46

%

$

15,063,034

$

32,124

$

130,281

0.21

%

405.56

%

$

15,664,353

$

28,064

$

156,530

0.18

%

557.76

%

(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)

Q2

Q1

Q4

Q3

Q2

Six Months Ended
June 30,

2023 (1)

2023

2022 (2)

2022

2022

2023

2022

Loan type

Commercial & industrial, including specialty lending

$

258

$

(71

)

$

12,960

$

2,581

$

(416

)

$

187

$

(475

)

Multifamily

1,448

—

—

—

1,990

1,448

1,653

Commercial real estate owner occupied

(34

)

—

(2

)

—

(42

)

(34

)

(49

)

Commercial real estate non-owner occupied

266

4,234

972

4,831

159

4,500

151

Construction

—

(116

)

(10

)

(10

)

(103

)

(116

)

(216

)

Residential

24

(2

)

7

(13

)

(39

)

22

(41

)

Installment

13,602

14,606

13,237

11,108

11,932

28,208

19,684

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

$

15,564

$

18,651

$

27,164

$

18,497

$

13,481

$

34,215

$

20,707

(1)

Excludes $6.2 million of charge-offs for certain PCD loans acquired from FDIC during the three months ended June 30, 2023 that were applied against $8.7 million of allowance for credit losses on PCD loans recognized upon the acquisition of the loan portfolio on June 15, 2023.

(2)

Includes $11.0 million of one-time charge-offs from certain C&I loans originated under the PPP program that were subsequently determined to be ineligible for SBA forgiveness and guarantee and were deemed uncollectible during the three months ended December 31, 2022.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP MEASURES - UNAUDITED

We believe 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 our industry. These non-GAAP financial measures exclude from corresponding GAAP measures the impact of certain elements that we do not believe are representative of our ongoing financial results, which we believe enhance an overall understanding of our performance and increases comparability of our period to period results. Investors should consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. The non-GAAP measures presented are not necessarily comparable to non-GAAP measures that may be presented by other financial institutions. Although non-GAAP financial measures are frequently used in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results of operations or financial condition as reported under GAAP.

The following tables present reconciliations of GAAP to non-GAAP measures disclosed within this document.

Core Earnings - Customers Bancorp

Six Months Ended
June 30,

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

(Dollars in thousands, except per share data)

USD

Per
share

USD

Per
share

USD

Per
share

USD

Per
share

USD

Per
share

USD

Per
share

USD

Per
share

GAAP net income to common shareholders

$

44,007

$

1.39

$

50,265

$

1.55

$

25,623

$

0.77

$

61,364

$

1.85

$

56,519

$

1.68

$

94,272

$

2.95

$

131,415

$

3.87

Reconciling items (after tax):

Severance expense

141

0.00

637

0.02

—

—

1,058

0.03

—

—

778

0.02

—

—

Impairments on fixed assets and leases

12

0.00

86

0.00

—

—

126

0.00

705

0.02

98

0.00

925

0.03

Loss on sale of consumer installment loans

—

—

—

—

—

—

18,221

0.55

—

—

—

—

—

—

Loss on sale of capital call lines of credit

3,914

0.12

—

—

—

—

—

—

—

—

3,914

0.12

—

—

(Gains) losses on investment securities

49

0.00

(49

)

0.00

13,543

0.41

1,859

0.06

2,494

0.07

0

0.00

3,524

0.10

Derivative credit valuation adjustment

(101

)

0.00

204

0.01

202

0.01

(358

)

(0.01

)

(351

)

(0.01

)

103

0.00

(1,087

)

(0.03

)

Tax on surrender of bank-owned life insurance policies

4,141

0.13

—

—

—

—

—

—

—

—

4,141

0.13

—

—

Core earnings

$

52,163

$

1.65

$

51,143

$

1.58

$

39,368

$

1.19

$

82,270

$

2.48

$

59,367

$

1.77

$

103,306

$

3.22

$

134,777

$

3.97

Core Earnings, excluding PPP - Customers Bancorp

Six Months Ended
June 30,

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

(Dollars in thousands, except per share data)

USD

Per
share

USD

Per
share

USD

Per
share

USD

Per
share

USD

Per
share

USD

Per
share

USD

Per
share

GAAP net income to common shareholders

$

44,007

$

1.39

$

50,265

$

1.55

$

25,623

$

0.77

$

61,364

$

1.85

$

56,519

$

1.68

$

94,272

$

2.95

$

131,415

$

3.87

Less: PPP net income (loss) (after tax)

(2,068

)

(0.07

)

9,606

0.30

(5,956

)

(0.18

)

5,846

0.18

13,066

0.39

7,538

0.24

37,779

1.11

Net income to common shareholders, excluding PPP

46,075

1.46

40,659

1.26

31,579

0.95

55,518

1.67

43,453

1.29

86,734

2.71

93,636

2.76

Reconciling items (after tax):

Severance expense

141

0.00

637

0.02

—

—

1,058

0.03

—

—

778

0.02

—

—

Impairments on fixed assets and leases

12

0.00

86

0.00

—

—

126

0.00

705

0.02

98

0.00

925

0.03

Loss on sale of consumer installment loans

—

—

—

—

—

—

18,221

0.55

—

—

—

—

—

—

Loss on sale of capital call lines of credit

3,914

0.12

—

—

—

—

—

—

—

—

3,914

0.12

—

—

(Gains) losses on investment securities

49

0.00

(49

)

0.00

13,543

0.41

1,859

0.06

2,494

0.07

0

0.00

3,524

0.10

Derivative credit valuation adjustment

(101

)

0.00

204

0.01

202

0.01

(358

)

(0.01

)

(351

)

(0.01

)

103

0.00

(1,087

)

(0.03

)

Tax on surrender of bank-owned life insurance policies

4,141

0.13

—

—

—

—

—

—

—

—

4,141

0.13

—

—

Core earnings, excluding PPP

$

54,231

$

1.72

$

41,537

$

1.28

$

45,324

$

1.37

$

76,424

$

2.30

$

46,301

$

1.38

$

95,768

$

2.99

$

96,998

$

2.86

Core Return on Average Assets - Customers Bancorp

Six Months Ended
June 30,

(Dollars in thousands, except per share data)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

GAAP net income

$

47,574

$

53,721

$

28,711

$

63,912

$

58,650

$

101,295

$

135,411

Reconciling items (after tax):

Severance expense

141

637

—

1,058

—

778

—

Impairments on fixed assets and leases

12

86

—

126

705

98

925

Loss on sale of consumer installment loans

—

—

—

18,221

—

—

—

Loss on sale of capital call lines of credit

3,914

—

—

—

—

3,914

—

(Gains) losses on investment securities

49

(49

)

13,543

1,859

2,494

0

3,524

Derivative credit valuation adjustment

(101

)

204

202

(358

)

(351

)

103

(1,087

)

Tax on surrender of bank-owned life insurance policies

4,141

—

—

—

—

4,141

—

Core net income

$

55,730

$

54,599

$

42,456

$

84,818

$

61,498

$

110,329

$

138,773

Average total assets

$

21,654,735

$

21,052,920

$

20,717,362

$

20,514,366

$

20,056,020

$

21,355,490

$

19,595,236

Core return on average assets

1.03

%

1.05

%

0.81

%

1.64

%

1.23

%

1.04

%

1.43

%

Core Return on Average Assets, excluding PPP - Customers Bancorp

Six Months Ended
June 30,

(Dollars in thousands, except per share data)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

GAAP net income

$

47,574

$

53,721

$

28,711

$

63,912

$

58,650

$

101,295

$

135,411

Less: PPP net income (loss) (after tax)

(2,068

)

9,606

(5,956

)

5,846

13,066

7,538

37,779

Net income, excluding PPP

49,642

44,115

34,667

58,066

45,584

93,757

97,632

Reconciling items (after tax):

Severance expense

141

637

—

1,058

—

778

—

Impairments on fixed assets and leases

12

86

—

126

705

98

925

Loss on sale of consumer installment loans

—

—

—

18,221

—

—

—

Loss on sale of capital call lines of credit

3,914

—

—

—

—

3,914

—

(Gains) losses on investment securities

49

(49

)

13,543

1,859

2,494

0

3,524

Derivative credit valuation adjustment

(101

)

204

202

(358

)

(351

)

103

(1,087

)

Tax on surrender of bank-owned life insurance policies

4,141

—

—

—

—

4,141

—

Core net income, excluding PPP

$

57,798

$

44,993

$

48,412

$

78,972

$

48,432

$

102,791

$

100,994

Average total assets

$

21,654,735

$

21,052,920

$

20,717,362

$

20,514,366

$

20,056,020

$

21,355,490

$

19,595,236

Core return on average assets, excluding PPP

1.07

%

0.87

%

0.93

%

1.53

%

0.97

%

0.97

%

1.04

%

Adjusted Net Income and Adjusted ROAA - Pre-Tax Pre-Provision - Customers Bancorp

Six Months Ended
June 30,

(Dollars in thousands, except per share data)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

GAAP net income

$

47,574

$

53,721

$

28,711

$

63,912

$

58,650

$

101,295

$

135,411

Reconciling items:

Income tax expense

20,768

14,563

7,136

17,899

18,896

35,331

38,228

Provision (benefit) for credit losses

23,629

19,603

28,216

(7,994

)

23,847

43,232

39,844

Provision (benefit) for credit losses on unfunded commitments

(304

)

280

153

254

608

(24

)

499

Severance expense

182

809

—

1,363

—

991

—

Impairments on fixed assets and leases

15

109

—

162

914

124

1,200

Loss on sale of consumer installment loans

—

—

—

23,465

—

—

—

Loss on sale of capital call lines of credit

5,037

—

—

—

—

5,037

—

(Gains) losses on investment securities

62

(62

)

16,909

2,394

3,232

0

4,571

Derivative credit valuation adjustment

(130

)

259

252

(461

)

(455

)

129

(1,412

)

Adjusted net income - pre-tax pre-provision

$

96,833

$

89,282

$

81,377

$

100,994

$

105,692

$

186,115

$

218,341

Average total assets

$

21,654,735

$

21,052,920

$

20,717,362

$

20,514,366

$

20,056,020

$

21,355,490

$

19,595,236

Adjusted ROAA - pre-tax pre-provision

1.79

%

1.72

%

1.56

%

1.95

%

2.11

%

1.76

%

2.25

%

Adjusted Net Income and Adjusted ROAA - Pre-Tax Pre-Provision, excluding PPP - Customers Bancorp

Six Months Ended
June 30,

(Dollars in thousands, except per share data)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

GAAP net income

$

47,574

$

53,721

$

28,711

$

63,912

$

58,650

$

101,295

$

135,411

Less: PPP net income (loss) (after tax)

(2,068

)

9,606

(5,956

)

5,846

13,066

7,538

37,779

Net income, excluding PPP

49,642

44,115

34,667

58,066

45,584

93,757

97,632

Reconciling items:

Income tax expense

20,768

14,563

7,136

17,899

18,896

35,331

38,228

Provision (benefit) for credit losses

23,629

19,603

28,216

(7,994

)

23,847

43,232

39,844

Provision (benefit) for credit losses on unfunded commitments

(304

)

280

153

254

608

(24

)

499

Severance expense

182

809

—

1,363

—

991

—

Impairments on fixed assets and leases

15

109

—

162

914

124

1,200

Loss on sale of consumer installment loans

—

—

—

23,465

—

—

—

Loss on sale of capital call lines of credit

5,037

—

—

—

—

5,037

—

(Gains) losses on investment securities

62

(62

)

16,909

2,394

3,232

0

4,571

Derivative credit valuation adjustment

(130

)

259

252

(461

)

(455

)

129

(1,412

)

Adjusted net income - pre-tax pre-provision, excluding PPP

$

98,901

$

79,676

$

87,333

$

95,148

$

92,626

$

178,577

$

180,562

Average total assets

$

21,654,735

$

21,052,920

$

20,717,362

$

20,514,366

$

20,056,020

$

21,355,490

$

19,595,236

Adjusted ROAA - pre-tax pre-provision, excluding PPP

1.83

%

1.53

%

1.67

%

1.84

%

1.85

%

1.69

%

1.86

%

Core Return on Average Common Equity - Customers Bancorp

Six Months Ended
June 30,

(Dollars in thousands, except per share data)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

GAAP net income to common shareholders

$

44,007

$

50,265

$

25,623

$

61,364

$

56,519

$

94,272

$

131,415

Reconciling items (after tax):

Severance expense

141

637

—

1,058

—

778

—

Impairments on fixed assets and leases

12

86

—

126

705

98

925

Loss on sale of consumer installment loans

—

—

—

18,221

—

—

—

Loss on sale of capital call lines of credit

3,914

—

—

—

—

3,914

—

(Gains) losses on investment securities

49

(49

)

13,543

1,859

2,494

0

3,524

Derivative credit valuation adjustment

(101

)

204

202

(358

)

(351

)

103

(1,087

)

Tax on surrender of bank-owned life insurance policies

4,141

—

—

—

—

4,141

—

Core earnings

$

52,163

$

51,143

$

39,368

$

82,270

$

59,367

$

103,306

$

134,777

Average total common shareholders' equity

$

1,335,408

$

1,273,780

$

1,263,190

$

1,259,711

$

1,244,819

$

1,304,764

$

1,248,400

Core return on average common equity

15.67

%

16.28

%

12.36

%

25.91

%

19.13

%

15.97

%

21.77

%

Adjusted ROCE - Pre-Tax Pre-Provision - Customers Bancorp

Six Months Ended
June 30,

(Dollars in thousands, except per share data)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

GAAP net income to common shareholders

$

44,007

$

50,265

$

25,623

$

61,364

$

56,519

$

94,272

$

131,415

Reconciling items:

Income tax expense

20,768

14,563

7,136

17,899

18,896

35,331

38,228

Provision (benefit) for credit losses

23,629

19,603

28,216

(7,994

)

23,847

43,232

39,844

Provision (benefit) for credit losses on unfunded commitments

(304

)

280

153

254

608

(24

)

499

Severance expense

182

809

—

1,363

—

991

—

Impairments on fixed assets and leases

15

109

—

162

914

124

1,200

Loss on sale of consumer installment loans

—

—

—

23,465

—

—

—

Loss on sale of capital call lines of credit

5,037

—

—

—

—

5,037

—

(Gains) losses on investment securities

62

(62

)

16,909

2,394

3,232

0

4,571

Derivative credit valuation adjustment

(130

)

259

252

(461

)

(455

)

129

(1,412

)

Pre-tax pre-provision adjusted net income available to common shareholders

$

93,266

$

85,826

$

78,289

$

98,446

$

103,561

$

179,092

$

214,345

Average total common shareholders' equity

$

1,335,408

$

1,273,780

$

1,263,190

$

1,259,711

$

1,244,819

$

1,304,764

$

1,248,400

Adjusted ROCE - pre-tax pre-provision

28.01

%

27.33

%

24.59

%

31.01

%

33.37

%

27.68

%

34.62

%

Net Interest Margin, Tax Equivalent, excluding PPP - Customers Bancorp

Six Months Ended
June 30,

(Dollars in thousands, except per share data)

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

2023

2022

GAAP net interest income

$

165,271

$

149,899

$

135,137

$

159,032

$

164,852

$

315,170

$

329,551

PPP net interest (income) expense

765

(14,106

)

2,791

(9,632

)

(18,946

)

(13,341

)

(53,561

)

Tax-equivalent adjustment

390

375

342

334

270

765

509

Net interest income, tax equivalent, excluding PPP

$

166,426

$

136,168

$

138,270

$

149,734

$

146,176

$

302,594

$

276,499

GAAP average total interest earning assets

$

21,073,680

$

20,514,677

$

20,211,028

$

20,021,455

$

19,525,936

$

20,795,724

$

19,051,757

Average PPP loans

(207,127

)

(889,235

)

(1,065,919

)

(1,349,403

)

(1,863,429

)

(546,297

)

(2,250,224

)

Adjusted average total interest earning assets, excluding PPP

$

20,866,553

$

19,625,442

$

19,145,109

$

18,672,052

$

17,662,507

$

20,249,427

$

16,801,533

Net interest margin, tax equivalent, excluding PPP

3.20

%

2.80

%

2.87

%

3.18

%

3.32

%

3.01

%

3.32

%

Loan Yield, excluding PPP

Six Months Ended
June 30,

(Dollars in thou

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