Customers Bancorp(CUBI) - 2025 Q2 - Quarterly Results

Q2 2025 Performance Overview Second Quarter 2025 Highlights The company reported strong Q2 2025 results with GAAP net income of $55.8 million ($1.73 per diluted share) and core earnings of $58.1 million ($1.80 per diluted share), alongside a 14 basis point quarter-over-quarter increase in Net Interest Margin (NIM) to 3.27%, loan growth of 2.1%, an improved CET1 ratio of 12.0%, and growth in tangible book value per share to $56.24 Q2 2025 Key Performance Indicators | Metric | Q2 2025 Value | Change from Q1 2025 | | :--- | :--- | :--- | | Net Income (Common) | $55.8 million | - | | Diluted EPS | $1.73 | - | | Core Earnings* | $58.1 million | - | | Core Diluted EPS* | $1.80 | - | | Total Loans & Leases Growth | $319.0 million | +2.1% | | Net Interest Margin (NIM) | 3.27% | +14 bps | | Provision for Credit Losses | $20.8 million | Decreased from $28.3 million | | CET 1 Ratio | 12.0% | Increased from 11.7% | | Tangible Book Value/Share* | $56.24 | +2.7% | - The company redeemed all outstanding shares ($57.5 million) of its Series E Preferred Stock on June 16, 2025[3] CEO Commentary CEO Jay Sidhu emphasized the strength of the company's business model, evidenced by a 14 basis point Net Interest Margin (NIM) increase due to attractive loan yields and managed interest expenses, highlighting successful deposit gathering efforts and a strong liquidity position covering 150% of uninsured deposits, alongside robust asset quality with minimal exposure to office commercial real estate - Net interest margin increased by 14 basis points in Q2 2025 compared to Q1 2025, driven by sourcing loans at attractive yields and managing interest expenses[5] - Deposit-focused teams recruited since March 2023 manage $2.4 billion (13% of total deposits), contributing to a 60% increase in commercial deposit accounts since year-end 2022[6] - The company maintains a strong liquidity position of $8.6 billion, covering approximately 150% of uninsured deposits, with asset quality remaining strong as evidenced by a non-performing asset (NPA) ratio of 0.27% and minimal exposure (approx. 1% of loan portfolio) to the higher-risk commercial real estate office sector[7] Financial Highlights Quarter-over-quarter, GAAP net income surged 486.4% to $55.8 million, and diluted EPS rose to $1.73 from $0.29, largely due to the absence of prior-quarter impairment charges, while year-over-year, GAAP net income increased by 2.8%, and core earnings grew a robust 19.7% to $58.1 million, with the balance sheet expanding as total assets were up 7.7% and total loans up 13.1% Q2 2025 vs. Q1 2025 Financial Comparison | Metric | Q2 2025 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net Income (Common) | $55.8 million | $9.5 million | +486.4% | | Diluted EPS | $1.73 | $0.29 | +496.6% | | Core Earnings* | $58.1 million | $50.0 million | +16.3% | | Net Interest Margin | 3.27% | 3.13% | +14 bps | | Total Assets | $22.55 billion | $22.42 billion | +0.6% | | Total Loans & Leases | $15.41 billion | $15.10 billion | +2.1% | Q2 2025 vs. Q2 2024 Financial Comparison | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Income (Common) | $55.8 million | $54.3 million | +2.8% | | Diluted EPS | $1.73 | $1.66 | +4.2% | | Core Earnings* | $58.1 million | $48.6 million | +19.7% | | Total Assets | $22.55 billion | $20.94 billion | +7.7% | | Total Loans & Leases | $15.41 billion | $13.63 billion | +13.1% | | Tangible Book Value/Share* | $56.24 | $50.70 | +10.9% | Financial Condition Analysis Loan and Lease Portfolio Total loans and leases held for investment grew by $319 million (2.1%) quarter-over-quarter to $15.4 billion at the end of Q2 2025, primarily driven by increases in specialized lending (+$385 million) and mortgage finance loans (+$148 million), with the portfolio expanding by a significant $2.1 billion (16%) year-over-year, again led by specialized lending Loan Portfolio Composition (June 30, 2025) | Loan Category | Amount (in millions) | % of Total | | :--- | :--- | :--- | | Specialized lending | $6,454.7 | 42.0% | | Multifamily | $2,247.3 | 14.6% | | Mortgage finance | $1,625.8 | 10.6% | | Commercial real estate non-owner occupied | $1,497.4 | 9.7% | | Other Commercial | $2,201.3 | 14.3% | | Total Consumer Loans | $1,353.0 | 8.8% | | Total Loans Held for Investment | $15,379.4 | 100.0% | - Quarter-over-quarter loan growth was led by a $385 million (6%) increase in specialized lending and a $148 million (10%) increase in mortgage finance loans[14] - Year-over-year, loans held for investment grew by $2.1 billion (16%), with specialized lending increasing by $926 million and mortgage finance loans by $503 million[15] Credit Quality and Allowances Asset quality remained strong and improved during the quarter, with the non-performing loan (NPL) ratio decreasing to 0.18% of total loans from 0.29% in Q1 2025, while the provision for credit losses was $18.5 million for loans and leases, a decrease from the prior quarter, and the allowance for credit losses provides robust coverage at 518% of non-performing loans, a significant increase from 324% in the previous quarter Asset Quality Metrics | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | NPLs to total loans and leases | 0.18% | 0.29% | 0.35% | | Reserves to NPLs | 518.29% | 324.22% | 279.52% | | NPAs to total assets | 0.27% | 0.26% | 0.23% | - The provision for credit losses on loans and leases was $18.5 million in Q2 2025, down from $21.4 million in Q1 2025, primarily due to lower balances in the consumer installment loan portfolio[18] - Net charge-offs decreased to $13.1 million in Q2 2025, compared to $17.1 million in Q1 2025 and $18.7 million in Q2 2024[17] Investment Securities The total investment securities portfolio was $2.7 billion as of June 30, 2025, down from $3.0 billion in the prior quarter, with the Available for Sale (AFS) debt portfolio of $1.8 billion having a spot yield of 5.78% and an effective duration of 3.0 years, while the Held to Maturity (HTM) portfolio was smaller at $0.9 billion, representing only 3.8% of total assets, with a spot yield of 3.79% and a duration of 4.2 years Investment Securities Portfolio Composition | Security Type | June 30, 2025 (in millions) | March 31, 2025 (in millions) | | :--- | :--- | :--- | | Debt securities, available for sale | $1,846.6 | $2,024.4 | | Debt securities, held to maturity | $853.1 | $938.2 | | Equity securities | $30.8 | $33.1 | | Total Investment Securities | $2,730.5 | $2,995.7 | - The AFS debt securities portfolio has a spot yield of 5.78%, an effective duration of approximately 3.0 years, and is 64% AAA rated[26] - The HTM debt securities portfolio represents only 3.8% of total assets, with a spot yield of 3.79% and an effective duration of approximately 4.2 years[27] Deposits and Borrowings Total deposits increased slightly by $43 million quarter-over-quarter to $19.0 billion, with non-interest bearing demand deposits constituting 28.9% of the total, and the average cost of deposits rising by 3 basis points to 2.85%, while the bank maintains strong liquidity, with immediately available funds covering approximately 150% of its $5.7 billion in estimated uninsured deposits, and total borrowings increased by $62 million to $1.5 billion, primarily from FHLB advances Deposit Composition (June 30, 2025) | Deposit Type | Amount (in millions) | % of Total | | :--- | :--- | :--- | | Demand, non-interest bearing | $5,481.1 | 28.9% | | Demand, interest bearing | $4,912.8 | 25.9% | | Money market | $4,206.5 | 22.2% | | Time deposits | $3,000.5 | 15.8% | | Savings | $1,375.1 | 7.2% | | Total Deposits | $18,976.0 | 100.0% | - Total estimated uninsured deposits were $5.7 billion, or 30% of total deposits, with immediately available liquidity covering approximately 150% of this amount[28][30] - Total borrowings increased by $62 million (4%) QoQ to $1.5 billion, mainly from a $60 million draw in FHLB advances[31] Capital Position The company's capital position strengthened in Q2 2025, with the Common Equity Tier 1 (CET1) ratio increasing to an estimated 12.0% from 11.7% in the prior quarter, and the Tangible Common Equity to Tangible Assets (TCE/TA) ratio rising to 7.9%, while tangible book value per common share grew by $1.50, or 2.7%, during the quarter to $56.24, driven by earnings Key Capital Ratios | Ratio | June 30, 2025 (est.) | March 31, 2025 | | :--- | :--- | :--- | | Common Equity to Total Assets | 7.9% | 7.7% | | Tangible Common Equity to Tangible Assets* | 7.9% | 7.7% | | CET 1 Capital Ratio | 12.0% | 11.7% | | Total Risk Based Capital Ratio | 14.5% | 14.6% | - Tangible book value per common share increased to $56.24 from $54.74 in the prior quarter, a growth of 2.7% QoQ or 11% annualized[3][35] - The increase in common equity was primarily driven by earnings of $56 million, partially offset by a $4 million increase in unrealized losses on investment securities[35] Profitability Analysis Net Interest Income and Margin Net interest income (NII) for Q2 2025 was $176.7 million, an increase of $9.3 million from the previous quarter, primarily driven by higher interest income from loan growth, particularly in specialized lending and mortgage finance, consequently, the net interest margin (NIM) expanded by 14 basis points to 3.27% compared to Q1 2025 - Q2 2025 Net Interest Income increased by $9.3 million from Q1 2025, driven by a $13.1 million increase in interest income from loan growth[39] - The Net Interest Margin (NIM) expanded by 14 basis points quarter-over-quarter to 3.27%, reflecting the benefits of strong loan growth and well-managed deposit costs[3][40] - Compared to Q2 2024, NII increased by $9.1 million, primarily due to lower interest expense from a favorable shift in deposit mix and higher interest income from loan growth[41] Non-Interest Income Non-interest income for Q2 2025 was $29.6 million, a significant recovery from a loss of $24.5 million in Q1 2025, with the substantial quarter-over-quarter increase primarily due to the absence of a $51.3 million impairment loss on AFS debt securities that was recorded in the prior quarter, while year-over-year, non-interest income decreased slightly due to a large one-time gain on equity method investments in Q2 2024 Non-Interest Income Breakdown (Q2 2025) | Category | Amount (in millions) | | :--- | :--- | | Commercial lease income | $11.1 | | Loan fees | $9.1 | | Other | $7.8 | | Bank-owned life insurance | $2.2 | | Net loss on sale of investment securities | ($1.8) | | Total Non-Interest Income | $29.6 | - The $54.1 million QoQ increase in non-interest income was primarily due to a $51.3 million impairment loss on certain AFS debt securities recorded in Q1 2025 that did not recur[42] Non-Interest Expense Total non-interest expense was $106.6 million in Q2 2025, an increase of $3.9 million from the prior quarter, primarily driven by higher salaries and employee benefits (+$3.2 million) due to increased headcount and incentives, and a $2.0 million increase in professional fees, despite these investments in the franchise, the company achieved positive operating leverage and a lower efficiency ratio Non-Interest Expense Breakdown (Q2 2025) | Category | Amount (in millions) | | :--- | :--- | | Salaries and employee benefits | $45.8 | | Professional services | $13.9 | | FDIC assessments, non-income taxes and regulatory fees | $11.9 | | Technology, communication and bank operations | $10.4 | | Commercial lease depreciation | $8.7 | | Total Non-Interest Expense | $106.6 | - The QoQ increase in expenses was mainly due to a $3.2 million rise in salaries and benefits and a $2.0 million increase in professional fees[44] - Despite increased investment, the efficiency ratio declined, indicating positive operating leverage[45] Income Taxes The company recorded an income tax provision of $18.0 million in Q2 2025, a significant shift from a $1.0 million benefit in Q1 2025, primarily due to higher pre-tax income, with the effective tax rate for the quarter being 22.8% - The effective tax rate for Q2 2025 was 22.8%[47] - Income tax expense increased by $19.0 million from Q1 2025, mainly due to higher pre-tax income and fewer discrete tax benefits from share-based compensation[47] Outlook and Corporate Information Full Year 2025 Outlook Following strong performance in the first half of the year, the company has raised its full-year 2025 targets, now expecting to increase the loan portfolio by 8% to 11% and net interest income by 7% to 10%, with the core efficiency ratio anticipated to be at the low end of the low to mid 50's range, as the strategic focus remains on transforming the deposit franchise, strengthening risk management, and improving profitability Updated Full Year 2025 Targets | Metric | Updated 2025 Target | | :--- | :--- | | Loan Portfolio Growth | 8% to 11% | | Net Interest Income Growth | 7% to 10% | | Core Efficiency Ratio | Bias to the low end of the low to mid 50's range | - Strategic priorities include continuing the transformation of the deposit franchise, strengthening risk management and compliance, improving profitability, and maintaining strong capital and liquidity[48] Corporate Profile and Events Customers Bancorp, Inc. is a major U.S. bank holding company with over $22 billion in assets, ranking it among the 80 largest in the country, and has received several accolades, including being named the No. 1 top-performing bank in its asset class by American Banker in 2024, with a webcast to discuss the Q2 2025 earnings scheduled for July 25, 2025, at 9:00 AM EDT - The company is one of the 80 largest bank holding companies in the U.S. with over $22 billion in assets[52] - An earnings webcast is scheduled for Friday, July 25, 2025, at 9:00 AM EDT[50] - Recent accolades include being ranked No. 1 on American Banker's 2024 list of top-performing banks with assets between $10 billion and $50 billion[54] Detailed Financial Statements (Unaudited) This section provides the detailed unaudited consolidated financial statements for Customers Bancorp, Inc., including statements of operations, balance sheets, and breakdowns of key financial metrics and portfolio compositions for the periods presented Consolidated Statements of Operations The Consolidated Statements of Operations details the company's revenues, expenses, and profits over the specified periods, showing total interest income of $328.0 million, total interest expense of $151.3 million, resulting in net interest income of $176.7 million, and after provisions and non-interest items, net income available to common shareholders was $55.8 million Consolidated Balance Sheet The Consolidated Balance Sheet presents a snapshot of the company's financial position at the end of the quarter, with total assets of $22.55 billion, supported by total liabilities of $20.69 billion and total shareholders' equity of $1.86 billion, and key assets including $15.23 billion in net loans and leases and $3.50 billion in cash and cash equivalents Average Balance Sheet and Net Interest Margin Analysis This section breaks down the average balances of interest-earning assets and interest-bearing liabilities to analyze yields, costs, and the resulting net interest margin (NIM), with the average yield on interest-earning assets at 6.07%, and the average cost of interest-bearing liabilities at 4.14%, contributing to a tax-equivalent NIM of 3.27% Loan, Deposit, and Asset Quality Details These tables provide granular, period-end data on the composition of the loan and deposit portfolios, as well as detailed asset quality metrics by loan type, including allowances, non-performing loans, and net charge-offs, showing that as of June 30, 2025, commercial loans represented 91.2% of the held-for-investment portfolio, and non-interest bearing deposits made up 28.9% of total deposits Reconciliation of GAAP to Non-GAAP Measures This section provides detailed reconciliations of reported GAAP financial measures to non-GAAP measures such as Core Earnings, Core ROAA, Core ROCE, Core Efficiency Ratio, and Tangible Book Value, with these adjustments made to exclude items management believes are not representative of ongoing financial results, such as impairment losses, gains/losses on securities, and severance expenses, to enhance comparability between periods Core Earnings and Performance Metrics Reconciliation For Q2 2025, GAAP net income of $55.8 million is reconciled to Core Earnings of $58.1 million by adjusting for items such as a $1.4 million after-tax gain on investment securities, a $1.9 million loss on redemption of preferred stock, and a $0.8 million benefit from loan program termination fees, with these adjustments used to calculate non-GAAP performance ratios like Core ROAA (1.10%) and Core ROCE (13.32%) Q2 2025 GAAP to Core Earnings Reconciliation | Item | Amount (in millions) | | :--- | :--- | | GAAP Net Income (Common) | $55.8 | | (Gains) losses on investment securities (after-tax) | $1.4 | | Loss on redemption of preferred stock (after-tax) | $1.9 | | Unrealized (gain) loss on loans held for sale (after-tax) | ($0.2) | | Loan program termination fees (after-tax) | ($0.8) | | Core Earnings | $58.1 | Tangible Common Equity and Book Value Reconciliation This reconciliation adjusts total shareholders' equity to derive tangible common equity, which is used to calculate tangible book value per share and the TCE/TA ratio, showing that for Q2 2025, GAAP shareholders' equity of $1.86 billion is reduced by preferred stock ($82.2 million) and goodwill/intangibles ($3.6 million) to arrive at tangible common equity of $1.78 billion, resulting in a tangible book value per common share of $56.24 Q2 2025 Tangible Common Equity Reconciliation | Item | Amount (in millions) | | :--- | :--- | | GAAP Total Shareholders' Equity | $1,863.6 | | Less: Preferred stock | ($82.2) | | Less: Goodwill and other intangibles | ($3.6) | | Tangible Common Equity | $1,777.7 |