Customers Bancorp(US:CUBI)2025-08-07 20:38Part I - Financial Information Item 1. Consolidated Financial Statements This section presents Customers Bancorp, Inc.'s unaudited consolidated financial statements and detailed accounting policy notes Consolidated Financial Statements Key Financial Highlights (Q2 2025 vs Q2 2024) | Financial Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Interest Income | $176.7 million | $167.7 million | | Net Income | $60.9 million | $58.1 million | | Net Income Available to Common Shareholders | $55.8 million | $54.3 million | | Diluted EPS | $1.73 | $1.66 | Key Financial Highlights (Six Months Ended June 30) | Financial Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Interest Income | $344.1 million | $328.0 million | | Net Income | $73.9 million | $107.8 million | | Net Income Available to Common Shareholders | $65.4 million | $100.2 million | | Diluted EPS | $2.02 | $3.06 | Consolidated Balance Sheet Summary (As of June 30, 2025) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $22.55 billion | $22.31 billion | | Total Loans and Leases, net | $15.23 billion | $14.31 billion | | Total Deposits | $18.98 billion | $18.85 billion | | Total Liabilities | $20.69 billion | $20.47 billion | | Total Shareholders' Equity | $1.86 billion | $1.84 billion | - For the six months ended June 30, 2025, net cash provided by operating activities was $256.3 million, a significant shift from the $12.7 million used in the same period of 2024. Net cash used in investing activities increased to $619.2 million, while financing activities provided $80.5 million in cash, compared to using $426.7 million in the prior year period2627 Notes to Consolidated Unaudited Financial Statements - Customers Bancorp is a bank holding company operating through its subsidiary, Customers Bank. It serves businesses and residents in several states including Pennsylvania, New York, New Jersey, Massachusetts, and California, and offers specialized loan and deposit products nationwide2930 - The company adopted ASU 2023-08 and ASU 2025-02 related to crypto assets on January 1, 2025, which did not have a material impact on its financial statements. The company is still evaluating the impact of new standards related to income tax disclosures (ASU 2023-09) and expense disaggregation (ASU 2024-03 & ASU 2025-01)3435 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, net income, income/expense drivers, and balance sheet analysis of loans, deposits, and capital Overview and Critical Accounting Policies - The company highlights macroeconomic uncertainties, including elevated inflation and interest rates, and geopolitical conflicts. In response, Customers has maintained high liquidity, strong capital ratios, and shifted its loan portfolio towards lower-risk, floating-rate commercial loans. As of June 30, 2025, the bank had $5.1 billion in immediate available liquidity and its exposure to the higher-risk commercial real estate office sector was minimal at approximately 1% of the loan portfolio184 - The Allowance for Credit Losses (ACL) is identified as a critical accounting policy requiring complex and subjective judgments. The ACL is estimated using macroeconomic forecasts from external sources (Moody's) and internal factors. The increase in the ACL as of June 30, 2025, was primarily due to a slight deterioration in macroeconomic forecasts and higher loan balances188189193 - A sensitivity analysis indicates that using a 100% adverse economic scenario instead of the baseline forecast would result in an incremental quantitative impact to the ACL of approximately $82 million at June 30, 2025, highlighting the significant influence of macroeconomic forecasts on the provision196 Results of Operations Condensed Statements of Income (Q2 & YTD) | (dollars in thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $176,703 | $167,653 | $344,149 | $328,038 | | Provision for credit losses | $20,781 | $18,121 | $49,078 | $35,191 | | Total non-interest income | $29,606 | $31,037 | $5,116 | $52,268 | | Total non-interest expense | $106,626 | $103,452 | $209,397 | $202,621 | | Net income | $60,939 | $58,085 | $73,851 | $107,811 | | Net income available to common shareholders | $55,846 | $54,300 | $65,369 | $100,226 | - Net interest income for Q2 2025 increased by $9.1 million YoY to $176.7 million, driven by lower deposit interest expense and higher income from specialized lending. The Net Interest Margin (NIM) decreased slightly by 2 basis points to 3.27%201218 - Non-interest income for the six months ended June 30, 2025, decreased by $47.2 million YoY. This was primarily due to a $51.3 million impairment loss on AFS debt securities sold to improve liquidity and the non-recurrence of an $11.0 million unrealized gain on an equity method investment recorded in 2024207 - Non-interest expense for the six months ended June 30, 2025, increased by $6.8 million YoY, mainly due to higher professional services ($13.3 million) and salaries ($7.6 million). This was partially offset by a $16.4 million decrease in technology and bank operations expense, which included a $7.1 million prior-period fee recorded in 2024209 Financial Condition Condensed Balance Sheet Data | (dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $22,550,800 | $22,308,241 | | Total Loans and Leases Receivable | $13,719,829 | $13,127,634 | | Total Deposits | $18,976,018 | $18,846,461 | | Total Shareholders' Equity | $1,863,558 | $1,836,683 | - Total assets increased by $242.6 million since year-end 2024, driven by growth in various loan categories, partially offset by a $282.4 million decrease in cash and cash equivalents as excess cash was deployed into loans261264 - The loan portfolio grew, with commercial loans reaching $14.0 billion, representing 91.0% of the total loan portfolio. The growth was notable in specialized lending and mortgage finance276 - Total deposits increased by $129.6 million since year-end 2024, with growth in savings/MMDA and time deposits offsetting declines in demand deposits. Non-interest bearing demand deposits decreased by $127.2 million311312 - Shareholders' equity increased by $26.9 million to $1.9 billion. The increase was driven by retained earnings and a positive change in AOCI, partially offset by the redemption of $55.6 million in Series E Preferred Stock and $5.6 million in common stock repurchases325 Liquidity and Capital Resources - The company maintains a strong liquidity position with $8.6 billion immediately available, consisting of cash on hand and borrowing capacity from the FHLB and FRB. This liquidity covers approximately 115% of uninsured deposits335 - The loan-to-deposit ratio was 81% at June 30, 2025335 Regulatory Capital Ratios (Customers Bancorp, Inc.) | Ratio | June 30, 2025 | December 31, 2024 | Basel III Compliant Minimum | | :--- | :--- | :--- | :--- | | Common equity Tier 1 capital | 12.050% | 12.087% | 7.000% | | Tier 1 capital | 12.587% | 13.011% | 8.500% | | Total capital | 14.489% | 14.878% | 10.500% | | Tier 1 leverage | 8.583% | 8.694% | 4.000% | - As of June 30, 2025, the company's regulatory capital ratios reflected the full impact of the CECL transition provisions, having fully phased in the cumulative impact from its adoption127344 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk via income scenario modeling and EVE analysis, showing asset-sensitive net interest income and liability-sensitive EVE - In Q2 2025, the company transitioned to a new balance sheet forecasting model to enhance the modeling of interest rate sensitivity, which resulted in changes to principal assumptions for investment performance, loan prepayments, and deposit modeling351 Interest Rate Sensitivity Analysis (Net Interest Income) | Rate Shock | % Change from Base (June 30, 2025) | | :--- | :--- | | Up 3% | 6.7% | | Up 2% | 4.6% | | Up 1% | 2.2% | | Down 1% | (1.5)% | | Down 2% | (4.4)% | | Down 3% | (7.7)% | Interest Rate Sensitivity Analysis (Economic Value of Equity - EVE) | Rate Shock | % Change from Base (June 30, 2025) | | :--- | :--- | | Up 3% | (9.0)% | | Up 2% | (5.2)% | | Up 1% | (2.2)% | | Down 1% | 1.7% | | Down 2% | 3.1% | | Down 3% | 4.4% | Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2025, with no material changes to internal financial reporting controls - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025356 - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal controls357 Part II - Other Information Item 1. Legal Proceedings The company faces a federal securities class action lawsuit and formed a Special Litigation Committee to investigate alleged disclosure deficiencies - A federal securities class action complaint was filed against the company in December 2024. In June 2025, a court denied the plaintiff's motion for appointment as lead counsel. The company intends to defend itself against this action167 - In June 2025, the Board of Directors received a demand letter concerning alleged deficiencies in disclosures related to anti-money laundering and bank secrecy compliance. A Special Litigation Committee of independent directors was formed in July 2025 to investigate168 Item 1A. Risk Factors No material changes to risk factors previously disclosed in the company's Annual Report on Form 10-K - The company states there are no material changes from the risk factors included within its 2024 Form 10-K359 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company redeemed Series E Preferred Stock for $57.5 million and does not anticipate paying common stock dividends soon - On June 16, 2025, Customers redeemed all 2,300,000 outstanding shares of its Series E Preferred Stock at $25.00 per share, for a total of $57.5 million360 - The company has not historically paid cash dividends on its common stock and does not anticipate doing so in the foreseeable future361 Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None364 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable365 Item 5. Other Information No director or officer adopted, terminated, or modified any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q2 2025 - No director or officer adopted, terminated, or modified any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2025366 Item 6. Exhibits This section lists Form 10-Q exhibits, including corporate governance documents, employment agreements, and CEO/CFO certifications - The exhibits include certifications from the CEO and CFO pursuant to Sarbanes-Oxley Act Sections 302 and 906, an employment agreement with Mark R. McCollom, and the Form of Amended Long-Term Incentive Performance Stock Unit Award Agreement368