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Customers Bancorp Reports Fourth Quarter 2017 Net Income of $18.0 Million; Diluted EPS of $0.55


  • Community Business Banking Segment Net Income to Common Shareholders for 2017 Totaled $77.6 Million ($2.38 Per Diluted Share), an Increase of 4.1% From 2016.  In Q4 2017 Community Business Banking Segment Net Income to Common Shareholders Totaled $22.2 Million ($0.68 Per Diluted Share)
  • Assets at December 31, 2017 Totaled $9.8 Billion, Approximately $1 Billion Less Than at June 30, 2017.  Customers Reduced Total Assets to Under $10 Billion at December 31, 2017 to Improve Capital Ratios and Defer Potential Effects of the Durbin Amendment to July 1, 2019
  • Q4 2017 Net Interest Margin Increased 17 Basis Points to 2.79% From Q3 2017 Due to Favorable Mix Shift in Assets and Liabilities and Normalized Prepayment Fees
  • 2017 Shareholders' Equity Increased 7.6% From 2016 to $921 Million.  Estimated Tier 1 Leverage Capital Ratio Was Approximately 9% For Q4 2017 and the Tangible Common Equity to Tangible Assets Ratio (a Non-GAAP Measure) For Q4 2017 Was Approximately 7%
  • 2017 Book Value Per Common Share of $22.42, Up 6.36% From 2016.  2017 Tangible Book Value Per Common Share (a Non-GAAP Measure) of $21.90, Up 6.9% From 2016
  • Q4 2017 Results Included a Deferred Tax Asset Re-Measurement Charge to Income Tax Expense of $5.5 Million ($0.17 Per Diluted Share) as a Result of the Enactment of the Tax Cuts and Jobs Act of 2017 in December 2017 and a $7.3 Million Benefit ($0.23 Per Diluted Share) From Exercises of Employee Stock Options, Principally by Customers' CEO, and Vesting of Restricted Stock Units
  • BankMobile Spin-Off and Merger Tracking to Plan

WYOMISSING, Pa., Jan. 24, 2018 (GLOBE NEWSWIRE) -- Customers Bancorp, Inc. (NYSE:CUBI), the parent company of Customers Bank (collectively “Customers”), reported net income to common shareholders of $18.0 million for the fourth quarter of 2017 ("Q4 2017") compared to net income to common shareholders of $16.2 million for the fourth quarter of 2016 ("Q4 2016"), an increase of $1.8 million, or 11.0%. Fully diluted earnings per common share for Q4 2017 was $0.55 compared to $0.51 fully diluted earnings per common share for Q4 2016, an increase of $0.04, or 7.8%.

“2017 was a strong year for Customers, with the core Community Business Banking segment, the continuing business of Customers once the BankMobile spin-off has been completed, generating earnings of $2.60 per diluted share, excluding the Religare impairment and gains on sales of investment securities (a non-GAAP measure).  As we resume a moderate pace of growth in 2018, we are focused on our plans to divest BankMobile, build capital through retained earnings, and strengthen performance at the Community Business Banking segment with a further developing focus on core deposit funding, which we believe will drive above average shareholder value,” stated Jay Sidhu, CEO and Chairman of Customers Bank. “In the fourth quarter of 2017, we actively shrank the balance sheet to improve our capital ratios and continue to maintain our small issuer status under the Durbin Amendment until July 1, 2019, if needed. Tax reform required a reduction in the value of our deferred tax asset during the fourth quarter, the effect of which was offset by the elections by employees to exercise options and the vesting of restricted stock units.  More importantly for Customers, tax reform is expected to significantly increase our earnings power and internal capital generation in 2018 and beyond,” concluded Mr. Sidhu.

In Q4 2017, Customers recorded a deferred tax asset re-measurement charge to its income tax expense of $5.5 million ($0.17 per diluted share) as a result of the enactment of the Tax Cuts and Jobs Act of 2017.  The one-time tax effect was offset by a $7.3 million ($0.23 per diluted share) benefit from exercises of employee stock options, principally by Customers' CEO, and vesting of restricted stock units.

Customers also reported net income to common shareholders of $64.4 million for the full year of 2017 compared to net income to common shareholders of $69.2 million for the full year of 2016, a decrease of $4.8 million, or 7.0%. Fully diluted earnings per common share was $1.97 for the full year of 2017 compared to $2.31 for 2016, a decrease of 14.7%.  In addition to the Q4 2017 income tax impacts noted above, in 2017 Customers recorded impairment charges for its equity investment in Religare Enterprises Ltd. ("Religare") totaling $12.9 million, or approximately $0.40 per diluted share, which was mitigated in part by gains on sales of investment securities of $8.8 million, or approximately $0.17 per diluted share.

Outlook

“Looking to 2018, we understand that there is a need to provide greater transparency into our business given the planned divestiture of BankMobile and tax reform,” stated Mr. Sidhu. “To clarify our business expectations, Customers will provide more guidance for 2018.  Specifically, Customers is currently targeting moderate growth in 2018 and diluted EPS of $2.75 to $3.00 from the Community Business Banking segment, which is our core franchise which will remain as our continuing business after the spin-off and merger has been completed.”

Customers expects the Community Business Banking segment to grow total assets approximately 12% to 15% in 2018, and expects net interest margin will remain in a range between 2.70% to 2.80%. The efficiency ratio at the Community Business Banking segment in 2018 is expected to be in the mid to high 40%s, with expected fee income of approximately $35 million to $40 million. We estimate an effective consolidated tax rate of approximately 24%. Customers expects to continue to experience notable seasonality with first quarter earnings, which are impacted by lower average balances in the mortgage warehouse business, a shorter day count, and an increase in compensation expense.

Customers continues to expect to complete the divestiture of BankMobile sometime in mid-2018.  BankMobile’s business is seasonal, and the full year earnings impact of BankMobile on Customers' results of operations will depend on the exact time of divestiture; however, it is currently Customers’ expectation that BankMobile's segment results will range between a slight profit and a $4.5 million loss per quarter until its divestiture.

Strategic Priorities

Strengthen Capital

Total shareholders' equity at December 31, 2017 increased 7.6% from December 31, 2016 to $921 million.  The estimated Tier 1 leverage capital ratio was approximately 9% for Q4 2017 compared to 9.07% for Q4 2016.  The estimated total risk-based capital ratio was approximately 13% for Q4 2017 compared to 13.05% for Q4 2016.  The estimated common equity Tier 1 capital ratio was approximately 9% for Q4 2017 compared to 8.49% for Q4 2016.  The tangible common equity to tangible assets ratio (a non-GAAP measure) was approximately 7% at December 31, 2017 compared to 6.63% at December 31, 2016.

Customers recognizes the importance of not only being well capitalized in the current regulatory environment but to have adequate capital buffers to absorb any unexpected shocks.  "Our capital ratios all improved during Q4 2017 as growth in our core loan portfolios was offset by planned sales of lower yielding loans and securities, and seasonal declines in the mortgage warehouse portfolio," stated Mr. Sidhu.  "We continue to target a Tier I leverage capital ratio of 9.0% or higher and a total risk-based capital ratio of around 13.0%," Mr. Sidhu continued.  "As we go through 2018, we expect capital ratios to trend lower through mid-year given growth in the mortgage warehouse business, but then to rebuild by year end through retained earnings," concluded Mr. Sidhu.

Grow and Successfully Divest BankMobile in 2018

BankMobile operates a branchless digital bank offering very low cost banking services to its 1.1 million active deposit customers. BankMobile has opened around 536,000 new checking accounts, and converted over 374,000 checking accounts, to BankMobile since June 16, 2016.  Deposit balances were approximately $400 million at December 31, 2017, including approximately $395 million of non-interest bearing deposit accounts.

During 2017, the BankMobile segment reported net interest income of $12.9 million, non-interest income of $54.1 million, operating expenses of $87.0 million, provision for loan losses of $1.1 million and a tax benefit of $8.0 million from the operating losses, resulting in a net loss of $13.2 million. The BankMobile segment results include the funds transfer pricing benefit received by the segment for the originated deposits in the segment reporting results at a rate of approximately 2%. Deposits generated by the BankMobile business averaged $558 million for Q4 2017 and $603 million for full year of 2017.

During Q4 2017, the BankMobile segment reported net interest income of $3.2 million, non-interest income of $11.5 million, operating expenses of $20.9 million, provision for loan losses of $0.7 million and a tax benefit of $2.6 million from the operating losses, resulting in a net loss of $4.2 million.

During Q3 2017, Customers decided that the best strategy for its shareholders for divesting BankMobile was to spin-off BankMobile to Customers’ shareholders subject to an agreement with Flagship Community Bank ("Flagship") for Flagship to acquire the BankMobile business. The transaction is expected to be completed in mid-2018.  Customers expects Flagship to file an application with the FDIC for its acquisition of BankMobile’s deposits shortly.  Flagship has further informed Customers that it expects to file a registration statement in connection with its planned capital raise, which is a condition to completion of Flagship's acquisition of BankMobile, with the FDIC after completion of its 2017 financial statement audit.

Once Customers has completed its 2017 audited financial statements, it will file a Form 10 with the SEC with respect to the spin-off and the distribution of BankMobile Technologies, Inc. common stock to Customers’ shareholders. Once approvals of the transaction and documents are received from the FDIC and SEC as appropriate, Customers will announce the record date for the distribution of BankMobile Technologies, Inc. shares.  Following the spin-off of BankMobile from Customers and merger of BankMobile with Flagship, Customers and Flagship/BankMobile will be entirely separate entities.  Customers will retain no ownership in BankMobile, there will be no common employees, facilities, or functions beyond certain temporary support services to BankMobile according to the terms of a Transition Services Agreement and one common director.  Following the spin-off and merger, Customers shareholders are to receive tax-free, ownership of over 50% of Flagship common shares. 

Grow and Improve Financial Performance of the Community Business Banking Segment

Priorities for the Community Business Banking segment in 2018 include strong risk management, core deposit growth, positive operating leverage, a focus on net interest margin, and carefully managed credit risk.  Longer term, Customers targets a return on average assets ("ROAA") of approximately 1.1%, a return on tangible common equity ("ROTCE") (a non-GAAP measure) greater than 12%, net interest margin ranging between 2.80% to 3.00%, a compound annual growth rate ("CAGR") of 15% in EPS, and an efficiency ratio in the low 40%s.

During 2017, the Community Business Banking segment reported net income of $77.6 million ($2.38 per diluted share), which included the funds transfer pricing cost paid by the segment for use of BankMobile’s deposits at a rate of approximately 2% of those deposits. Adjusted to exclude both the after-tax impact of securities gains and Religare impairment, the segment generated net income of $84.9 million, or $2.60 per share, which included a deferred tax asset re-measurement charge to income tax expense of $5.5 million ($0.17 per diluted share) as a result of the enactment of the Tax Cuts and Jobs Act of 2017 in December 2017 and a $7.3 million benefit ($0.22 per diluted share) from exercises of employee stock options and vesting of restricted stock units.  For 2017, the segment reported an ROAA of 0.77%, ROTCE of 12.1% (a non-GAAP measure) and an efficiency ratio of 45.4%, compared to the respective 2016 metrics of 0.82%, 11.7% and 47.8%.

During Q4 2017, the Community Business Banking segment reported net income of $22.2 million ($0.68 per diluted share), which includes the above mentioned deferred tax asset re-measurement charge and benefit from exercises of employee stock options and vesting of restricted stock units. For Q4 2017, the segment reported an ROAA of 0.87%, ROTCE of 13.7% (a non-GAAP measure) and an efficiency ratio of 46.4% compared to the respective Q4 2016 metrics of 0.79%, 11.6% and 43.2%.

Credit quality at Customers Bank was very strong, as measured by the low level of net charge-offs (7 basis points of average loans in 2017) and nonperforming loans (0.30% of total loans at December 31, 2017), and Customers' lower risk appetite is also reflected in below average asset yields and a somewhat narrow net interest margin.

Customers' deposit strategy is to look at the total cost of deposits as the sum of operating and interest costs. Customers’ branch light model, with a focus on cost control, is reflected in dramatically lower operating expenses than the industry - operating expenses in the Community Business Banking segment were equal to 1.27% of average assets in 2017, which we believe is over 100 basis points lower than the industry overall, which enables us to pay somewhat more than our peers in interest rate.  Core deposit growth is a strategic priority for Customers. Of note, excluding BankMobile, the Community Business Banking segment grew non-interest bearing demand deposits by 28% in 2017 to $657 million. In 2018, Customers is developing new deposit products and incentives to support our drive to grow low cost core deposits.

Fourth Quarter and 2017 Overview

The following table presents a summary of key earnings and performance metrics for the years ended December 31, 2017 and 2016, and for the quarter ended December 31, 2017 and the preceding four quarters, respectively:

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
EARNINGS SUMMARY - UNAUDITED    
        
(Dollars in thousands, except per-share data)       
   Q4Q3Q2Q1Q4
 2017201620172017201720172016
        
Net income available to common shareholders$64,378 $69,187 $18,000 $4,139 $20,107 $22,132 $16,213 
Basic earnings per common share ("EPS")$2.10 $2.51 $0.58 $0.13 $0.66 $0.73 $0.56 
Diluted EPS$1.97 $2.31 $0.55 $0.13 $0.62 $0.67 $0.51 
Average common shares outstanding - basic30,659,320 27,596,020 30,843,319 30,739,671 30,641,554 30,407,060 28,978,115 
Average common shares outstanding - diluted32,596,677 30,013,650 32,508,030 32,512,692 32,569,652 32,789,160 31,581,811 
Shares outstanding period end31,382,503 30,289,917 31,382,503 30,787,632 30,730,784 30,636,327 30,289,917 
Return on average assets0.77%0.86%0.84%0.29%0.93%1.09%0.84%
Return on average common equity9.38%12.41%10.11%2.33%11.84%13.80%10.45%
Return on average assets - pre-tax and pre-provision (1)1.28%1.40%1.30%0.92%1.43%1.51%1.25%
Return on average common equity - pre-tax and pre-provision (2)16.94%21.19%16.64%12.04%19.42%20.07%16.58%
Net interest margin, tax equivalent (3)2.73%2.84%2.79%2.62%2.78%2.73%2.84%
Efficiency ratio61.53%56.92%62.42%68.55%58.15%56.82%57.70%
Non-performing loans (NPLs) to total loans (including held-for-sale loans)0.30%0.22%0.30%0.33%0.21%0.33%0.22%
Reserves to non-performing loans146.36%215.31%146.36%130.83%204.59%149.85%215.31%
Net charge-offs$6,067 $1,662 $1,130 $2,495 $1,960 $482 $770 
Tier 1 capital to average assets (leverage ratio) (4)8.91%9.29%8.94%8.35%8.66%9.04%9.07%
Common equity Tier 1 capital to risk-weighted assets (4)8.87%8.49%8.87%8.28%8.28%8.51%8.49%
Tier 1 capital to risk-weighted assets (4)11.67%11.41%11.67%10.94%10.96%11.35%11.41%
Total capital to risk-weighted assets (4)13.20%13.05%13.20%12.40%12.43%12.99%13.05%
Tangible common equity to tangible assets (5)7.00%6.63%7.00%6.47%6.21%6.52%6.63%
Book value per common share$22.42 $21.08 $22.42 $22.51 $22.54 $21.62 $21.08 
Tangible book value per common share (period end) (6)$21.90 $20.49 $21.90 $21.98 $21.97 $21.04 $20.49 
Period end stock price$25.99 $35.82 $25.99 $32.62 $28.28 $31.53 $35.82 
        
(1) Non-GAAP measure calculated as GAAP net income, plus provision for loan losses and income tax expense divided by average total assets.
(2) Non-GAAP measure calculated as GAAP net income available to common shareholders, plus provision for loan losses and income tax expense divided by average common equity.
(3) Non-GAAP measure calculated as GAAP net interest income, plus tax equivalent interest using a 35% statutory rate divided by average interest earning assets.
(4) Regulatory capital ratios are estimated for Q4 2017 and 2017.
(5) Non-GAAP measure calculated as GAAP total shareholders' equity less preferred stock and goodwill and other intangibles divided by total assets less goodwill and other intangibles.
(6) Non-GAAP measure calculated as GAAP total shareholders' equity less preferred stock and goodwill and other intangibles divided by common shares outstanding at period end.

Net interest income

2017 net interest income of $267.3 million increased $17.8 million, or 7.2%, from 2016 as average interest earning assets increased $1.0 billion, or 11.7%, and the net interest margin narrowed 11 basis points to 2.73%.  Q4 2017 net interest income of $68.3 million increased $4.2 million, or 6.5%, from Q4 2016 as average interest earning assets increased $0.7 billion and the Q4 2017 net interest margin narrowed 5 basis points to 2.79% from Q4 2016.  Net interest margin compression reflected an increased cost of funds in money market and interest checking deposit accounts and increased borrowings, including the issuance of 3.95% senior notes on June 30, 2017.

"Customers' objective is to manage the estimated effect of future interest rate changes, up or down, to about a neutral effect on net interest income, so not speculating on whether interest rates go up or down," said Mr. Sidhu. "The net interest margin compression year over year was principally caused by rising funding costs.  To address the risk of rate compression and pressures of a flat yield curve, in Q4 2017 Customers increased loan pricing and sold certain lower yielding assets.  For example, in Q4 2017 Customers sold $98 million of securities with a weighted average yield of 2.91%, and in January 2018 it has already purchased $506 million of securities with a weighted average yield of 3.32%.  Similarly, in Q4 2017 Customers sold $132 million of multi-family loans with a weighted average yield of 3.32%, and the yield in the multi-family pipeline is currently 3.84%.  We will continue to focus on remixing our assets as we work to strengthen core deposit funding to combat margin pressure," concluded Mr. Sidhu.

Total loans outstanding, including commercial loans held for sale, increased $0.4 billion, or 5.3%, to $8.7 billion as of December 31, 2017 compared to total loans of $8.3 billion as of December 31, 2016.  Commercial and industrial loans increased $225 million to $1.6 billion, up 19.2% over December 31, 2016.  Commercial loans to mortgage companies decreased $326 million to $1.8 billion, down 15.0% over December 31, 2016. Multi-family loans increased $432 million to $3.6 billion, up 13.4% over December 31, 2016. Commercial non-owner-occupied real estate loans increased $25 million to $1.2 billion, up 2.1% over December 31, 2016.  Consumer loans increased by $29 million to $0.3 billion and make up less than 4% of the loan portfolio.  In Q4 2017, Customers sold $132 million of multi-family loans for realized gains of $0.2 million and $192 million of consumer residential loans for realized gains of $0.2 million. The weighted average yield on the consumer residential loans sold was 3.73%.

Total deposits decreased by $504 million, or 6.9%, to $6.8 billion as of December 31, 2017 compared to total deposits of $7.3 billion as of December 31, 2016.  Non-interest bearing demand deposit accounts increased by $86 million or 8.9% to $1.1 billion, interest bearing demand deposit accounts increased $184 million to $524 million, money market deposit accounts increased $157 million to $3.3 billion, and certificates of deposit accounts decreased $926 million to $1.9 billion, reflecting reductions in brokered, wholesale, and municipal categories.

Provision and Credit

Customers’ 2017 provision for loan losses totaled $6.8 million compared to a provision expense of $3.0 million in  2016.  The 2017 provision expense included $2.3 million for loan portfolio growth and $5.6 million for specifically identified loans, offset in part by a $1.1 million release resulting from improved asset quality and lower incurred losses than previously estimated. Net charge-offs for 2017 were $6.1 million, compared to 2016 net charge-offs of $1.7 million. There were no significant changes in Customers' methodology for estimating the allowance for loan losses in 2017.

Customers’ Q4 2017 provision for loan losses totaled $0.8 million compared to a provision expense of $0.2 million in Q4 2016.  Net charge-offs amounted to $1.1 million in Q4 2017, or 5 basis points of average loans on an annualized basis.

Risk management is a critical component of how Customers creates long-term shareholder value, and Customers believes that two of the most important risks of banking to be understood and managed in an uncertain economy are asset quality and interest rate risk.

Customers believes that asset quality risks must be diligently addressed during good economic times with prudent underwriting standards so that when the economy deteriorates the bank's capital is sufficient to absorb all losses without threatening its ability to operate and serve its community and other constituents. "Customers' non-performing loans at December 31, 2017 were only 0.30% of total loans, compared to our peer group non-performing loans of approximately 0.80% of total loans in the most recent period available, and industry average non-performing loans of 1.36% of total loans in the most recent period available.  Our expectation is superior asset quality performance in good times and in difficult years," said Mr. Sidhu.

Non-interest Income

Non-interest income increased $22.5 million in 2017 to $78.9 million, a 40.0% increase over 2016.  The increase mainly related to increases in interchange and card revenue of $16.8 million reflecting a full year of BankMobile Disbursements operations, an increase in gains on sales of investment securities of $8.8 million, an increase in deposit fees of $2.0 million and increased bank-owned life insurance income of $2.5 million. These increases were offset in part by the increase in other-than-temporary impairment charges of $5.7 million and decreases in mortgage warehouse transactional fees of $2.2 million.

Non-interest income increased $4.6 million in Q4 2017 to $19.7 million, a 30.5% increase over Q4 2016.  Included in Q4 2017 non-interest income was a $0.8 million increase in income from bank owned life insurance compared to Q4 2016, largely as a result of our investment in bank owned life insurance of $90.0 million made in 2017. Included in Q4 2016 non-interest income was a $7.3 million impairment charge related to Religare.

Non-interest expense

Non-interest expenses increased $37.4 million in 2017 from 2016, or 21.0%.  The increase primarily resulted from increased BankMobile expenses of $39.2 million due to the acquisition of the Disbursements business in June 2016 compared to the full year of operations in 2017.  The increase in BankMobile expenses, primarily the result of having a full year of expenses for the acquired Disbursements business, included a $10.4 million increase in salaries and employee benefits, a $20.2 million increase in technology, communication and bank operation expenses, and a $5.4 million increase in professional services.  These increases in total non-interest expenses were offset in part by decreased FDIC assessments, non-income taxes and regulatory fees of $5.2 million primarily due to lower FDIC assessments.  Excluding the effect of BankMobile, the Community Business Banking segment non-interest expense decreased by $1.8 million in 2017 when compared to 2016 as a result of management’s continued efforts to control expenses.

Non-interest expenses totaled $54.8 million, an increase of $4.9 million from Q4 2016, or 9.7%.  Salaries and employee benefits increased $3.4 million as Customers continues to hire new team members in the markets it serves.  Technology, communication, and bank operations increased $4.8 million, largely the result of our continued investment in our BankMobile segment infrastructure.  These increases were partially offset by decreases in professional services and FDIC assessments, non-income taxes and regulatory fees of $0.5 million and $0.6 million, respectively.  Q4 2017 included merger-related expenses of $0.4 million related to the previously announced planned spin-off and merger of the BankMobile segment with Flagship.  Excluding the effect of BankMobile, the Community Business Banking segment non-interest expenses increased by $3.8 million in Q4 2017 when compared to Q4 2016 primarily as a result of increased salaries and employee benefits of $3.0 million mainly due to salary increases and increased headcount, and increased technology, communication, and bank operations expenses of $1.6 million resulting primarily from the growth of the Bank over the past year, offset in part by reduced FDIC assessments, non-income taxes and regulatory fees of $0.6 million due to a Q4 2017 adjustment that reduced Pennsylvania shares tax expense.

The 2017 efficiency ratio was 61.5% compared to the 2016 efficiency ratio of 56.9%. The Q4 2017 efficiency ratio was 62.4% compared to the Q4 2016 efficiency ratio of 57.7%.  The 2017 efficiency ratio for the Community Business Banking segment was 45.4% compared to the 2016 efficiency ratio of 47.8% for the segment.  The Q4 2017 efficiency ratio for the Community Business Banking segment was 46.4% compared to the Q4 2016 efficiency ratio of 43.2% for the segment.

Tax

The provision for income tax expense for Q4 2017 was $10.8 million, resulting in an effective tax rate of 33.3%, compared to 32.0% in Q4 2016.  In Q4 2017, Customers recorded a deferred tax asset re-measurement charge to its income tax expense of $5.5 million ($0.17 per diluted share) as a result of the enactment of the Tax Cuts and Jobs Act of 2017 in December 2017.  This adjustment was offset by the tax benefit recognized in Q4 2017 of $7.3 million ($0.23 per diluted share) resulting from exercises of employee stock options and vesting of restricted stock units.  Customers’ effective tax rate was 36.4% for 2017, compared to 36.8% for 2016; Customers currently estimates a 2018 effective tax rate of approximately 24%.

Profitability

Customers' return on average assets was 0.77% in 2017 compared to 0.86% in 2016, and its return on average common equity was 9.38% in 2017 compared to 12.41% in 2016.  The adjusted return on average assets, which excludes the notable items described above and gains on sales of investment securities (a non-GAAP measure) was 0.85% in 2017 and the adjusted return on average common equity, which excludes the notable items described above and gains on sales of securities (a non-GAAP measure) was 10.45% in 2017.

Customers' return on average assets was 0.84% in both Q4 2017 and Q4 2016, and its return on average common equity was 10.11% in Q4 2017 compared to 10.45% in Q4 2016.

Managing Commercial Real Estate Concentration Risks and Providing High Net Worth Families Loans for Their Multi-Family Holdings

Customers' total commercial real estate ("CRE") loan exposures subject to regulatory concentration guidelines of $4.9 billion as of December 31, 2017 included construction loans of $97.4 million, multi-family loans of $3.6 billion, and non-owner occupied commercial real estate loans of $1.2 billion, which represent 418% of total risk-based capital on a combined basis, compared to 437% at December 31, 2016 and 469% at December 31, 2015.  Customers' total CRE loan exposures were $4.4 billion at December 31, 2016 and $3.3 billion at December 31, 2015.  Customers' loans subject to regulatory CRE concentration guidelines had 3 year cumulative growth of 88% in 2017, a deceleration from 222% in 2016.

Recognizing the risks that accompany certain elements of commercial real estate lending, Customers has as part of its core strategies studiously sought to limit its risks and has concluded that it has appropriate risk management systems in place to manage this portfolio.  Customers' total real estate construction and development exposure, arguably the riskiest area of CRE, was only $97.4 million at December 31, 2017, less than 10% of total risk-based capital.

Customers' loans collateralized by multi-family properties were approximately 311% of total risk-based capital at December 31, 2017.  Customers' multi-family exposures are focused principally on loans to high net worth families collateralized by multi-family properties that are of modest size and subject to what Customers believes are conservative underwriting standards.  Customers believes it has a strong risk management process to manage the portfolio risks prospectively and that this portfolio will perform well even under a stressed scenario.  Following are some key characteristics of Customers' multi-family loan portfolio:

  • Principally concentrated in New York City with an emphasis on properties subject to some type of rent control; and principally to high net worth families;
  • Average loan size is $6.9 million;
  • Median annual debt service coverage ratio is 137%;
  • Median loan-to-value at origination is 67.33%;
  • All loans are individually stressed with an increase of 1% and 2% to the cap rate and an increase of 1.5% and 3% in loan interest rates;
  • All properties are inspected prior to a loan being granted and monitored thereafter on an annual basis by dedicated portfolio managers; and
  • Credit approval process is independent of customer sales and portfolio management process.
Conference Call
    
Date:  Thursday, January 25, 2018
Time:  9:00 AM ET
US Dial-in:  800-967-7154
International Dial-in:  719-457-1510
Participant Code:  874082

Please dial in at least 10 minutes before the start of the call to ensure timely participation.  Slides accompanying the presentation will be available on the Company's website at http://customersbank.com/investor_relations.php prior to the call.  A playback of the call will be available beginning January 25, 2018 at 12:00PM ET until 12:00PM ET on February 24, 2018. To listen, call within the United States 888-203-1112 or 719-457-0820 when calling internationally. Please use the replay pin number 7721739.

Institutional Background

Customers Bancorp, Inc. is a bank holding company located in Wyomissing, Pennsylvania engaged in banking and related businesses through its bank subsidiary, Customers Bank.  Customers Bank is a community-based, full-service bank with assets of approximately $9.8 billion.  A member of the Federal Reserve System with deposits insured by the Federal Deposit Insurance Corporation, Customers Bank is an equal opportunity lender that provides a range of banking services to small and medium-sized businesses, professionals, individuals and families through offices in Pennsylvania, New York, Rhode Island, Massachusetts, New Hampshire and New Jersey.  Committed to fostering customer loyalty, Customers Bank uses a High Tech/High Touch strategy that includes use of industry-leading technology to provide customers better access to their money, as well as Concierge Banking® by appointment at customers’ homes or offices 12 hours a day, seven days a week. Customers Bank offers a continually expanding portfolio of loans to small businesses, multi-family projects, mortgage companies and consumers.

Customers Bancorp, Inc.'s voting common shares are listed on the New York Stock Exchange under the symbol CUBI.  Additional information about Customers Bancorp, Inc. can be found on the Company’s website, www.customersbank.com.

“Safe Harbor” Statement

In addition to historical information, this press release may contain "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to Customers Bancorp, Inc.'s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words "may," "could," "should," "pro forma," "looking forward," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan," or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Customers Bancorp, Inc.'s control). Numerous competitive, economic, regulatory, legal and technological 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. In addition, important factors relating to the acquisition of the Disbursements business, the combination of Customers' BankMobile business with the acquired Disbursements business, the implementation of Customers Bancorp, Inc.'s strategy regarding BankMobile, the possibility of events, changes or other circumstances occurring or existing that could result in the planned spin-off and merger of BankMobile not being completed, the possibility that the planned spin-off and merger of BankMobile may be more expensive to complete than anticipated, the possibility that the expected benefits of the planned transactions to Customers and its shareholders may not be achieved, the possibility of Customers incurring liabilities relating to the disposition of BankMobile, or the possible effects on Customers' results of operations if the planned spin-off and merger of BankMobile are not completed in a timely fashion or at all also could cause Customers Bancorp's actual results to differ from those in the forward-looking statements.  Further, Customers' expectations with respect to the effects of the new tax law could be affected by future clarifications, amendments, and interpretations of such law.  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, 2016, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K 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.

 

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED - UNAUDITED
(Dollars in thousands, except per share data)         
 Q4 Q3 Q2 Q1 Q4
 2017 2017 2017 2017 2016
Interest income:         
Loans receivable, including fees$70,935  $67,107  $67,036  $61,461  $59,502 
Loans held for sale20,294  21,633  17,524  13,946  19,198 
Investment securities4,136  7,307  7,823  5,887  3,418 
Other2,254  2,238  1,469  1,800  1,491 
   Total interest income97,619  98,285  93,852  83,094  83,609 
          
Interest expense:         
Deposits18,649  18,381  16,228  14,323  13,903 
Other borrowings3,288  3,168  1,993  1,608  1,571 
FHLB advances5,697  7,032  5,340  3,060  2,322 
Subordinated debt1,685  1,685  1,685  1,685  1,685 
   Total interest expense29,319  30,266  25,246  20,676  19,481 
      Net interest income68,300  68,019  68,606  62,418  64,128 
Provision for loan losses831  2,352  535  3,050  187 
      Net interest income after provision for loan losses67,469  65,667  68,071  59,368  63,941 
          
Non-interest income:         
Interchange and card revenue9,780  9,570  8,648  13,511  10,875 
Mortgage warehouse transactional fees2,206  2,396  2,523  2,221  2,845 
Deposit fees2,121  2,659  2,133  3,127  2,807 
Bank-owned life insurance1,922  1,672  2,258  1,367  1,106 
Gain on sale of SBA and other loans1,178  1,144  573  1,328  1,549 
Gains on sale of investment securities268  5,349  3,183     
Mortgage banking income173  257  291  155  232 
Impairment loss on investment securities  (8,349) (2,882) (1,703) (7,262)
Other2,092  3,328  1,664  2,748  2,979 
   Total non-interest income19,740  18,026  18,391  22,754  15,131 
          
Non-interest expense:         
Salaries and employee benefits25,948  24,807  23,651  21,112  22,590 
Technology, communication and bank operations12,637  14,401  8,910  9,916  7,818 
Professional services7,010  7,403  6,227  7,512  7,471 
Occupancy2,937  2,857  2,657  2,714  3,078 
FDIC assessments, non-income taxes, and regulatory fees1,290  2,475  2,416  1,725  1,906 
Loan workout522  915  408  521  566 
Merger and acquisition related expenses410         
Advertising and promotion361  404  378  326  371 
Other real estate owned expense (income)20  445  160  (55) 290 
Other3,653  7,333  5,606  5,595  5,834 
   Total non-interest expense54,788  61,040  50,413  49,366  49,924 
Income before income tax expense32,421  22,653  36,049  32,756  29,148 
Income tax expense10,806  14,899  12,327  7,009  9,320 
Net income21,615  7,754  23,722  25,747  19,828 
Preferred stock dividends3,615  3,615  3,615  3,615  3,615 
Net income available to common shareholders$18,000  $4,139  $20,107  $22,132  $16,213 
          
 Basic earnings per common share$0.58  $0.13  $0.66  $0.73  $0.56 
 Diluted earnings per common share$0.55  $0.13  $0.62  $0.67  $0.51 
                    

 

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED - UNAUDITED
(Dollars in thousands, except per share data)   
 December 31, December 31,
 2017 2016
Interest income:   
Loans receivable, including fees$266,539  $233,349 
Loans held for sale73,397  69,469 
Investment securities25,153  14,293 
Other7,761  5,428 
Total interest income372,850  322,539 
    
Interest expense:   
Deposits67,582  48,268 
Other borrowings10,056  6,438 
FHLB advances21,130  11,597 
Subordinated debt6,739  6,739 
   Total interest expense105,507  73,042 
      Net interest income267,343  249,497 
Provision for loan losses6,768  3,041 
      Net interest income after provision for loan losses260,575  246,456 
    
Non-interest income:   
Interchange and card revenue41,509  24,681 
Deposit fees10,039  8,067 
Mortgage warehouse transactional fees9,345  11,547 
Gains on sale of investment securities8,800  25 
Bank-owned life insurance7,219  4,736 
Gain on sale of SBA and other loans4,223  3,685 
Mortgage banking income875  969 
Impairment loss on investment securities(12,934) (7,262)
Other9,834  9,922 
   Total non-interest income78,910  56,370 
    
Non-interest expense:   
Salaries and employee benefits95,518  80,641 
Technology, communication and bank operations45,885  26,839 
Professional services28,051  20,684 
Occupancy11,161  10,327 
FDIC assessments, non-income taxes, and regulatory fees7,906  13,097 
Loan workout2,366  2,063 
Advertising and promotion1,470  1,549 
Other real estate owned570  1,953 
Merger and acquisition related expenses410  1,195 
Other22,269  19,883 
   Total non-interest expense215,606  178,231 
Income before income tax expense123,879  124,595 
Income tax expense45,042  45,893 
Net income78,837  78,702 
Preferred stock dividends14,459  9,515 
Net income available to common shareholders$64,378  $69,187 
    
 Basic earnings per common share$2.10  $2.51 
 Diluted earnings per common share$1.97  $2.31 
        

 

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - UNAUDITED
(Dollars in thousands)
 December 31, September 30, June 30, March 31, December 31,
 2017 2017 2017 2017 2016
ASSETS         
Cash and due from banks$20,388  $13,318  $28,502  $25,004  $37,485 
Interest-earning deposits125,935  206,162  384,740  152,286  227,224 
Cash and cash equivalents146,323  219,480  413,242  177,290  264,709 
Investment securities available for sale, at fair value471,371  584,823  1,012,605  1,017,300  493,474 
Loans held for sale1,939,485  2,113,293  2,255,096  1,684,548  2,117,510 
Loans receivable6,768,258  7,061,338  6,725,208  6,599,443  6,154,637 
Allowance for loan losses(38,015) (38,314) (38,458) (39,883) (37,315)
Total loans receivable, net of allowance for loan losses6,730,243  7,023,024  6,686,750  6,559,560  6,117,322 
FHLB, Federal Reserve Bank, and other restricted stock105,918  98,611  129,689  85,218  68,408 
Accrued interest receivable27,021  27,135  26,165  25,603  23,690 
Bank premises and equipment, net11,955  12,369  12,996  12,512  12,769 
Bank-owned life insurance257,720  255,683  213,902  213,005  161,494 
Other real estate owned1,726  1,059  2,358  2,738  3,108 
Goodwill and other intangibles16,295  16,604  17,615  17,618  17,621 
Other assets131,498  119,748  113,130  111,244  102,631 
   Total assets$9,839,555  $10,471,829  $10,883,548  $9,906,636  $9,382,736 
          
LIABILITIES AND SHAREHOLDERS' EQUITY         
Demand, non-interest bearing deposits$1,052,115  $1,427,304  $1,109,239  $1,209,688  $966,058 
Interest-bearing deposits5,748,027  6,169,772  6,366,124  6,125,792  6,337,717 
Total deposits6,800,142  7,597,076  7,475,363  7,335,480  7,303,775 
Federal funds purchased155,000  147,000  150,000  215,000  83,000 
FHLB advances1,611,860  1,462,343  1,999,600  1,206,550  868,800 
Other borrowings186,497  186,258  186,030  87,289  87,123 
Subordinated debt108,880  108,856  108,831  108,807  108,783 
Accrued interest payable and other liabilities56,212  59,654  53,435  73,693  75,383 
   Total liabilities8,918,591  9,561,187  9,973,259  9,026,819  8,526,864 
          
Preferred stock217,471  217,471  217,471  217,471  217,471 
Common stock31,913  31,318  31,261  31,167  30,820 
Additional paid in capital422,096  429,633  428,488  428,454  427,008 
Retained earnings258,076  240,076  235,938  215,830  193,698 
Accumulated other comprehensive (loss) income(359) 377  5,364  (4,872) (4,892)
Treasury stock, at cost(8,233) (8,233) (8,233) (8,233) (8,233)
Total shareholders' equity920,964  910,642  910,289  879,817  855,872 
   Total liabilities & shareholders' equity$9,839,555  $10,471,829  $10,883,548  $9,906,636  $9,382,736 

 

  
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES 
AVERAGE BALANCE SHEET / NET INTEREST MARGIN (UNAUDITED) 
(Dollars in thousands)      
 Three months ended 
 December 31, September 30, December 31, 
 2017
 2017
 2016 
 Average
Balance
Average
yield or cost
(%)
 Average
Balance
Average
yield or cost
(%)
 Average
Balance
Average
yield or cost
(%)
 
Assets         
Interest earning deposits$204,762 1.33% $280,845 1.30% $265,432 0.56% 
Investment securities572,071 2.89% 1,017,065 2.87% 515,549 2.65% 
Loans:         
Commercial loans to mortgage companies1,789,230 4.36% 1,956,587 4.28% 2,145,138 3.62% 
Multifamily loans3,716,104 3.81% 3,639,548 3.63% 3,186,738 3.83% 
Commercial and industrial1,560,778 4.21% 1,491,833 4.20% 1,267,213 3.97% 
Non-owner occupied commercial real estate1,300,329 4.14% 1,294,996 3.89% 1,241,154 3.74% 
All other loans508,680 4.49% 546,172 4.24% 324,184 5.08% 
Total loans8,875,121 4.08% 8,929,136 3.94% 8,164,427 3.83% 
Other interest-earning assets107,033 5.81% 125,341 4.16% 66,587 6.68% 
Total interest earning assets9,758,987 3.97% 10,352,387 3.77% 9,011,995 3.69% 
Non-interest earning assets404,694   389,804   327,163   
Total assets$10,163,681   $10,742,191   $9,339,158   
          
Liabilities         
Total interest bearing deposits (1)$5,982,054 1.24% $6,180,483 1.18% $6,384,983 0.87% 
Borrowings1,990,497 2.13% 2,414,086 1.96% 919,462 2.42% 
Total interest bearing liabilities7,972,551 1.46% 8,594,569 1.40% 7,304,445 1.06% 
Non-interest bearing deposits (1)1,194,038   1,158,911   1,091,727   
Total deposits & borrowings9,166,589 1.27% 9,753,480 1.23% 8,396,172 0.92% 
Other non-interest bearing liabilities72,986   66,220   108,506   
Total liabilities9,239,575   9,819,700   8,504,678   
Shareholders' equity924,106   922,491   834,480   
Total liabilities and shareholders' equity$10,163,681   $10,742,191   $9,339,158   
          
Net interest margin 2.78%  2.61%  2.83% 
Net interest margin tax equivalent 2.79%  2.62%  2.84% 
          
(1) Total costs of deposits (including interest bearing and non-interest bearing) were 1.03%, 0.99% and 0.74% for the three months ended December 31, 2017, September 30, 2017, and December 31, 2016, respectively. 
 

 

  
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES 
AVERAGE BALANCE SHEET / NET INTEREST MARGIN (UNAUDITED) 
(Dollars in thousands)   
 Twelve months ended 
 December 31, December 31, 
 2017
 2016
 
 Average
Balance
Average
yield or cost
(%)
 Average
Balance
Average
yield or cost
(%)
 
Assets      
Interest earning deposits$296,305 1.06% $225,409 0.54% 
Investment securities870,979 2.89% 540,532 2.64% 
Loans:      
Commercial loans to mortgage companies1,748,575 4.20% 1,985,495 3.54% 
Multifamily loans3,551,683 3.72% 3,223,122 3.79% 
Commercial and industrial1,452,805 4.17% 1,172,655 3.94% 
 Non-owner occupied commercial real estate1,293,173 3.96% 1,188,631 3.82% 
All other loans503,532 4.44% 370,663 4.99% 
Total loans8,549,768 3.98% 7,940,566 3.81% 
Other interest-earning assets103,710 4.46% 84,797 4.96% 
Total interest earning assets9,820,762 3.80% 8,791,304 3.67% 
Non-interest earning assets376,948   310,813   
Total assets$10,197,710   $9,102,117   
       
Liabilities      
Total interest bearing deposits (1)$6,158,758 1.10% $5,947,966 0.81% 
Borrowings1,875,431 2.02% 1,498,899 1.65% 
Total interest-bearing liabilities8,034,189 1.31% 7,446,865 0.98% 
Non-interest-bearing deposits (1)1,187,324   873,599   
Total deposits & borrowings9,221,513 1.14% 8,320,464 0.88% 
Other non-interest bearing liabilities72,714   84,752   
Total liabilities9,294,227   8,405,216   
Shareholders' equity903,483   696,901   
Total liabilities and shareholders' equity$10,197,710   $9,102,117   
       
Net interest margin 2.72%  2.84% 
Net interest margin tax equivalent 2.73%  2.84% 
       
(1) Total costs of deposits (including interest bearing and non-interest bearing) were 0.99% and 0.71% for the twelve months ended December 31, 2017 and 2016, respectively. 
 

 

 
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES    
PERIOD END LOAN COMPOSITION
(UNAUDITED)
        
(Dollars in thousands)         
 December 31, September 30, June 30, March 31, December 31,
 2017 2017 2017 2017 2016
          
Commercial:         
Multi-family$3,646,572  $3,769,206  $3,550,375  $3,438,483  $3,214,999 
Mortgage warehouse1,844,607  2,012,864  2,158,631  1,739,377  2,171,086 
Commercial & industrial1,582,667  1,550,210  1,449,400  1,337,265  1,328,091 
Commercial real estate- non-owner occupied1,218,719  1,237,849  1,216,012  1,230,738  1,193,715 
Construction85,393  73,203  61,226  74,956  64,789 
Total commercial loans8,377,958  8,643,332  8,435,644  7,820,819  7,972,680 
          
Consumer:         
Residential235,928  436,979  447,150  363,584  194,179 
Manufactured housing90,227  92,938  96,148  99,182  101,730 
Other consumer3,547  3,819  3,588  3,240  3,482 
Total consumer loans329,702  533,736  546,886  466,006  299,391 
Deferred (fees)/costs and unamortized (discounts)/premiums, net83  (2,437) (2,226) (2,834) 76 
Total loans$8,707,743  $9,174,631  $8,980,304  $8,283,991  $8,272,147 
          
 
     

 

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
ASSET QUALITY - UNAUDITED     
(Dollars in thousands)As of December 31, 2017As of December 31, 2016
 Total LoansNon Accrual
/NPLs
Total Credit
Reserves
NPLs / Total
Loans
Total Reserves to
Total NPLs
Total LoansNon Accrual
/NPLs
Total Credit
Reserves
NPLs / Total
Loans
Total Reserves to
Total NPLs
              Loan Type
Originated Loans          
Multi-Family$3,499,760 $ $12,169 %%$3,211,516 $ $11,602 %%
Commercial & Industrial (1)1,546,109 18,478 13,369 1.20%72.35%1,282,727 10,185 12,560 0.79%123.32%
Commercial Real Estate- Non-Owner Occupied1,199,053  4,564 %%1,158,531  4,569 %%
Residential107,742 1,506 2,119 1.40%140.70%114,510 341 2,270 0.30%665.69%
Construction85,393  979 %%64,789  772 %%
Other Consumer (2)1,292  77 %%947  12 %%
Total Originated Loans6,439,349 19,984 33,277 0.31%166.52%5,833,020 10,526 31,785 0.18%301.97%
Loans Acquired          
Bank Acquisitions149,400 4,472 4,558 2.99%101.92%167,946 5,030 5,244 3.00%104.25%
Loan Purchases179,426 1,959 825 1.09%42.11%153,595 2,236 1,279 1.46%57.20%
Total Acquired Loans328,826 6,431 5,383 1.96%83.70%321,541 7,266 6,523 2.26%89.77%
Deferred (fees) costs and unamortized (discounts) premiums, net83   %%76   %%
Total Loans Held for Investment6,768,258 26,415 38,660 0.39%146.36%6,154,637 17,792 38,308 0.29%215.31%
Total Loans Held for Sale1,939,485   %%2,117,510   %%
Total Portfolio$8,707,743 $26,415 $38,660 0.30%146.36%$8,272,147 $17,792 $38,308 0.22%215.31%
           
(1) Commercial & industrial loans, including owner occupied commercial real estate.  
(2) Includes activity for BankMobile related loans, primarily overdrawn deposit accounts.  
   

 

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
NET CHARGE-OFFS/(RECOVERIES) - UNAUDITED
(Dollars in thousands)         
 Q4 Q3 Q2 Q1 Q4
 2017 2017 2017 2017 2016
Originated Loans         
Commercial & Industrial (1)$(109) $2,025  $1,840  $(45) $2,046 
Commercial Real Estate- Non-Owner Occupied731  77       
Residential3  125  69  31   
Other Consumer (2)686  348  172  (22) 347 
Total Net Charge-offs (Recoveries) from Originated Loans1,311  2,575  2,081  (36) 2,393 
Loans Acquired         
Bank Acquisitions(181) (80) (121) 518  (1,629)
Loan Purchases        6 
Total Net Charge-offs (Recoveries) from Acquired Loans(181) (80) (121) 518  (1,623)
Total Net Charge-offs from Loans Held for Investment$1,130  $2,495  $1,960  $482  $770 
          
(1) Commercial & industrial loans, including owner occupied commercial real estate.
(2) Includes activity for BankMobile related loans, primarily overdrawn deposit accounts.
          

                                               

                                                               

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
SEGMENT REPORTING - UNAUDITED

(Dollars in thousands)

 Three months ended December 31, 2017 Three Months Ended December 31, 2016
 Community
Business
Banking
 BankMobile Consolidated Community
Business
Banking
 BankMobile Consolidated
Interest income (1)$94,407  $3,212  $97,619  $81,132  $2,477  $83,609 
Interest expense29,304  15  29,319  19,464  17  19,481 
Net interest income65,103  3,197  68,300  61,668  2,460  64,128 
Provision for loan losses179  652  831  (359) 546  187 
Non-interest income8,200  11,540  19,740  921  14,210  15,131 
Non-interest expense33,900  20,888  54,788  30,141  19,783  49,924 
Income (loss) before income tax expense (benefit)39,224  (6,803) 32,421  32,807  (3,659) 29,148 
Income tax expense (benefit)13,369  (2,563) 10,806  10,710  (1,390) 9,320 
Net income (loss)25,855  (4,240) 21,615  22,097  (2,269) 19,828 
Preferred stock dividends3,615    3,615  3,615    3,615 
Net income (loss) available to common shareholders$22,240  $(4,240) $18,000  $18,482  $(2,269) $16,213 
            

(1) - Amounts reported include funds transfer pricing of $3.2 million and $2.5 million for the three months ended December 31, 2017 and 2016, respectively, as an allocation of interest income credited to BankMobile for the value provided to the Community Business Banking segment for the use of low/no cost deposits.

    
 Twelve months ended December 31, 2017 Twelve Months Ended December 31, 2016
 Community
Business
Banking
 BankMobile Consolidated Community
Business
Banking
 BankMobile Consolidated
Interest income (1)$359,931  $12,919  $372,850  $315,643  $6,896  $322,539 
Interest expense105,438  69  105,507  73,004  38  73,042 
Net interest income254,493  12,850  267,343  242,639  6,858  249,497 
Provision for loan losses5,638  1,130  6,768  2,246  795  3,041 
Non-interest income24,788  54,122  78,910  23,165  33,205  56,370 
Non-interest expense128,604  87,002  215,606  130,394  47,837  178,231 
Income (loss) before income tax expense (benefit)145,039  (21,160) 123,879  133,164  (8,569) 124,595 
Income tax expense (benefit)53,013  (7,971) 45,042  49,149  (3,256) 45,893 
Net income (loss)92,026  (13,189) 78,837  84,015  (5,313) 78,702 
Preferred stock dividends14,459    14,459  9,515    9,515 
Net income (loss) available to common shareholders$77,567  $(13,189) $64,378  $74,500  $(5,313) $69,187 
            
As of December 31, 2017           
Goodwill and other intangibles$3,630  $12,665  $16,295  $3,639  $13,982  $17,621 
Total assets$9,771,573  $67,982  $9,839,555  $9,303,465  $79,271  $9,382,736 
Total deposits$6,400,310  $399,832  $6,800,142  $6,846,980  $456,795  $7,303,775 
Total non-deposit liabilities$2,108,496  $9,953  $2,118,449  $1,195,087  $28,002  $1,223,089 

(1) - Amounts reported include funds transfer pricing of $12.9 million, and $6.9 million for the twelve months ended December 31, 2017 and 2016, respectively, as an allocation of interest income credited to BankMobile for the value provided to the Community Business Banking segment for the use of low/no cost deposits.

The following tables present Customers' business segment results for the quarter ended December 31, 2017 and the preceding four quarters:

Community Business Banking:          
  Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016
Interest income (1) $94,407  $95,585  $91,107  $78,832  $81,132 
Interest expense 29,304  30,250  25,228  20,656  19,464 
Net interest income 65,103  65,335  65,879  58,176  61,668 
Provision for loan losses 179  1,874  535  3,050  (359)
Non-interest income 8,200  4,190  6,971  5,427  921 
Non-interest expense 33,900  33,990  30,567  30,147  30,141 
Income before income tax expense 39,224  33,661  41,748  30,406  32,807 
Income tax expense 13,369  18,999  14,493  6,116  10,710 
Net income 25,855  14,662  27,255  24,290  22,097 
Preferred stock dividends 3,615  3,615  3,615  3,615  3,615 
Net income available to common shareholders $22,240  $11,047  $23,640  $20,675  $18,482 
           

(1) - Amounts reported include funds transfer pricing of $3.2 million, $2.7 million, $2.7 million, $4.3 million and $2.5 million for the three months ended December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

           
BankMobile:          
  Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016
Interest income (1) $3,212  $2,700  $2,745  $4,262  $2,477 
Interest expense 15  16  18  20  17 
Net interest income 3,197  2,684  2,727  4,242  2,460 
Provision for loan losses 652  478      546 
Non-interest income 11,540  13,836  11,419  17,327  14,210 
Non-interest expense 20,888  27,050  19,845  19,219  19,783 
(Loss)/income before income tax (benefit)/expense (6,803) (11,008) (5,699) 2,350  (3,659)
Income tax (benefit)/expense (2,563) (4,100) (2,166) 893  (1,390)
Net (loss)/income available to common shareholders $(4,240) $(6,908) $(3,533) $1,457  $(2,269)
           

(1) - Amounts reported include funds transfer pricing of $3.2 million, $2.7 million, $2.7 million, $4.3 million and $2.5 million for the three months ended December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

 

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES - UNAUDITED

 (Dollars in thousands, except per share data)

Customers believes that the non-GAAP measurements disclosed within this document are useful for investors, regulators, management and others to evaluate our results of operations and financial condition relative to other financial institutions. These non-GAAP financial measures exclude from corresponding GAAP measures the impact of certain elements that we do not believe are representative of our financial results, which we believe enhance an overall understanding of our performance. Investors should consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. 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.

Adjusted Net Income to Common ShareholdersTwelve Months Ended
December 31, 2017
   
  Q4 2017
 USDPer share USDPer share
GAAP net income to common shareholders$64,378 $1.97  $18,000 $0.55 
Reconciling items (after tax):     
Loss of deferred tax asset for Religare impairment4,898 0.15    
Religare impairment - excluding loss of deferred tax asset considered above8,036 0.25    
Gains on sales of investment securities(5,597)(0.17) (170) 
Adjusted net income to common shareholders$71,715 $2.20  $17,830 $0.55 

 

Adjusted Net Income to Common
Shareholders - Community Business
Banking Segment Only
Twelve Months Ended
December 31, 2017
    Twelve Months Ended
December 31, 2016
   
 Q4 2017  Q4 2016
 USDPer share USDPer share USDPer share USDPer share
GAAP net income to common shareholders$77,567 $2.38  $22,240 $0.68  $74,500 $2.48  $18,482 $0.58 
Reconciling items (after tax):           
Loss of deferred tax asset for Religare impairment4,898 0.15          
Religare impairment - excluding loss of deferred tax asset considered above8,036 0.25     7,262 0.24  7,262 0.24 
Gains on sales of investment securities(5,597)(0.17) (170)  (16)$    
Adjusted net income to common shareholders$84,904 $2.60  $22,070 $0.68  $81,746 $2.72  $25,744 $0.82 

 

Return on Tangible Common Equity - Community
Business Banking Segment Only
Twelve Months Ended
December 31, 2017
   Twelve Months Ended
December 31, 2016
  
 Q4 2017  Q4 2016
GAAP net income to common shareholders$77,567  $22,240  $74,500  $18,482 
        
Total shareholders' equity863,994  863,994  855,445  855,445 
Reconciling Items:       
Preferred stock(217,471) (217,471) (217,471) (217,471)
Goodwill & other intangibles(3,630) (3,630) (3,639) (3,639)
Tangible common equity$642,893  $642,893  $634,335  $634,335 
        
Return on tangible common equity12.07% 13.72% 11.74% 11.59%
        

 

    
Adjusted Return on Average AssetsTwelve Months Ended
December 31, 2017
 Q4 2017
GAAP net income$78,837  $21,615 
Reconciling items (after tax):   
Loss of deferred tax asset for Religare impairment4,898   
Religare impairment - excluding loss of deferred tax asset considered above8,036   
Gains on sales of investment securities(5,597) (170)
Adjusted net income$86,174  $21,445 
    
Average Total Assets$10,197,710  $10,163,681 
    
Adjusted Return on Average Assets0.85% 0.84%

 

    
Adjusted Return on Average Common EquityTwelve Months Ended
December 31, 2017
 Q4 2017
  
GAAP net income to common shareholders$64,378  $18,000 
Reconciling items (after tax):   
Loss of deferred tax asset for Religare impairment4,898   
Religare impairment - excluding loss of deferred tax asset considered above8,036   
Gains on sales of investment securities(5,597) (170)
Adjusted net income to common shareholders$71,715  $17,830 
    
Average Total Common Shareholders' Equity$686,012  $706,635 
    
Adjusted Return on Average Common Equity10.45% 10.01%

 

Pre-tax Pre-provision Return on
Average Assets
             
 Twelve Months Ended
December 31,
          
 2017 2016 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016
GAAP Net Income$78,837  $78,702  $21,615  $7,754  $23,722  $25,747  $19,828 
Reconciling Items:             
  Provision for loan losses6,768  3,041  831  2,352  535  3,050  187 
  Income tax expense45,042  45,893  10,806  14,899  12,327  7,009  9,320 
Pre-Tax Pre-provision Net Income$130,647  $127,636  $33,252  $25,005  $36,584  $35,806  $29,335 
              
Average Total Assets$10,197,710  $9,102,117  $10,163,681  $10,742,191  $10,265,333  $9,607,541  $9,339,158 
              
Pre-tax Pre-provision Return on Average Assets1.28% 1.40% 1.30% 0.92% 1.43% 1.51% 1.25%

 

Pre-tax Pre-provision Return on
Average Common Equity
             
 Twelve Months Ended
December 31,
          
 2017 2016 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016
GAAP Net Income Available to Common Shareholders$64,378  $69,187  $18,000  $4,139  $20,107  $22,132  $16,213 
Reconciling Items:             
  Provision for loan losses6,768  3,041  831  2,352  535  3,050  187 
  Income tax expense45,042  45,893  10,806  14,899  12,327  7,009  9,320 
Pre-tax Pre-provision Net Income
Available to Common
Shareholders
$116,188  $118,121  $29,637  $21,390  $32,969  $32,191  $25,720 
              
Average Total Shareholders' Equity$903,483  $696,901  $924,106  $922,491  $898,513  $867,994  $834,480 
Reconciling Item:             
  Average Preferred Stock(217,471) (139,554) (217,471) (217,471) (217,471) (217,471) (217,493)
Average Common Equity$686,012  $557,347  $706,635  $705,020  $681,042  $650,523  $616,987 
              
Pre-tax Pre-provision Return on Average Common Equity16.94% 21.19% 16.64% 12.04% 19.42% 20.07% 16.58%

 

Net Interest Margin, tax equivalent           
 Twelve months ended
December 31,
          
 2017 2016 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016
GAAP Net interest income$267,343  $249,497  $68,300  $68,019  $68,606  $62,418  $64,128 
Tax-equivalent adjustment645  390  245  203  104  93  92 
Net interest income tax equivalent$267,988  $249,887  $68,545  $68,222  $68,710  $62,511  $64,220 
              
Average total interest earning assets$9,820,762  $8,791,304  $9,758,987  $10,352,394  $9,893,785  $9,266,638  $9,011,995 
              
Net interest margin, tax equivalent2.73% 2.84% 2.79% 2.62% 2.78% 2.73% 2.84%
              

 

Tangible Common Equity to
Tangible Assets
             
 2017 2016 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016
GAAP - Total Shareholders' Equity$920,964  $855,872  $920,964  $910,642  $910,289  $879,817  $855,872 
Reconciling Items:             
  Preferred Stock(217,471) (217,471) (217,471) (217,471) (217,471) (217,471) (217,471)
  Goodwill and Other Intangibles(16,295) (17,621) (16,295) (16,604) (17,615) (17,618) (17,621)
Tangible Common Equity$687,198  $620,780  $687,198  $676,567  $675,203  $644,728  $620,780 
              
Total Assets$9,839,555  $9,382,736  $9,839,555  $10,471,829  $10,883,548  $9,906,636  $9,382,736 
Reconciling Items:             
Goodwill and Other Intangibles(16,295) (17,621) (16,295) (16,604) (17,615) (17,618) (17,621)
Tangible Assets$9,823,260  $9,365,115  $9,823,260  $10,455,225  $10,865,933  $9,889,018  $9,365,115 
              
Tangible Common Equity to Tangible Assets7.00% 6.63% 7.00% 6.47% 6.21% 6.52% 6.63%

 

Tangible Book Value per Common
Share
             
 2017 2016 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016
GAAP - Total Shareholders' Equity$920,964  $855,872  $920,964  $910,642  $910,289  $879,817  $855,872 
Reconciling Items:             
  Preferred Stock(217,471) (217,471) (217,471) (217,471) (217,471) (217,471) (217,471)
  Goodwill and Other Intangibles(16,295) (17,621) (16,295) (16,604) (17,615) (17,618) (17,621)
Tangible Common Equity$687,198  $620,780  $687,198  $676,567  $675,203  $644,728  $620,780 
              
Common shares outstanding31,382,503  30,289,917  31,382,503  30,787,632  30,730,784  30,636,327  30,289,917 
              
Tangible Book Value per Common Share$21.90  $20.49  $21.90  $21.98  $21.97  $21.04  $20.49 
              

 

Tangible Book Value per Common Share - CAGR           
 2017 2016 2015 2014 2013 2012 2011
GAAP - Total Shareholders' Equity$920,964  $855,872  $553,902  $443,145  $386,623  $269,475  $147,748 
Reconciling Items:             
  Preferred Stock(217,471) (217,471) (55,569)        
  Goodwill and Other Intangibles(16,295) (17,621) (3,651) (3,664) (3,676) (3,689) (3,705)
Tangible Common Equity$687,198  $620,780  $494,682  $439,481  $382,947  $265,786  $144,043 
              
              
Tangible Book Value per Common Share$21.90  $20.49  $18.39  $16.43  $14.37  $13.09  $11.54 
CAGR11%            

Contacts:
Jay Sidhu, Chairman & CEO 610-935-8693
Robert Wahlman, CFO 610-743-8074
Bob Ramsey, Director of Investor Relations and Strategic Planning 484-926-7118