Customers Bancorp(US:CUBI)2021-05-09 16:00Part I - Financial Information This section presents the company's financial statements and related analyses Consolidated Financial Statements (Unaudited) Unaudited consolidated financial statements for Q1 2021 reflect the BMT divestiture and significant PPP loan activity Consolidated Balance Sheet (Unaudited) | (amounts in thousands) | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $18,817,660 | $18,439,248 | | Cash and cash equivalents | $515,364 | $693,354 | | Investment securities, at fair value | $1,441,904 | $1,210,285 | | Loans receivable, PPP | $5,178,089 | $4,561,365 | | Total loans and leases receivable, net | $15,993,464 | $15,608,989 | | Assets of discontinued operations | — | $62,055 | | Total Liabilities | $17,628,939 | $17,322,162 | | Total deposits | $12,472,440 | $11,309,929 | | FRB PPP liquidity facility | $3,284,156 | $4,415,016 | | Liabilities of discontinued operations | — | $39,704 | | Total Shareholders' Equity | $1,188,721 | $1,117,086 | Consolidated Statements of Income (Unaudited) | (amounts in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net interest income | $132,731 | $81,321 | | Provision (benefit) for credit losses | ($2,919) | $31,786 | | Non-interest income | $18,468 | $11,160 | | Non-interest expense | $61,927 | $48,967 | | Net income from continuing operations | $74,631 | $8,454 | | Net loss from discontinued operations | ($38,036) | ($5,354) | | Net income | $36,595 | $3,100 | | Net income (loss) available to common shareholders | $33,204 | ($515) | Earnings Per Share (Unaudited) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Basic earnings (loss) per common share | $1.04 | ($0.02) | | Diluted earnings (loss) per common share | $1.01 | ($0.02) | Notes to Consolidated Financial Statements Detailed notes explain accounting policies, BMT divestiture, loan portfolio, and capital adequacy, confirming regulatory compliance - On January 4, 2021, the company completed the divestiture of BankMobile Technologies, Inc. (BMT) BMT's historical financial results are now reflected as discontinued operations4254 - The company is an active participant in the SBA's Paycheck Protection Program (PPP) PPP loans are carried at amortized cost, with net origination fees recognized over the loan's life No Allowance for Credit Losses (ACL) is recognized for these loans as they are 100% guaranteed by the SBA4683 - The net loss from discontinued operations (BMT) was $38.0 million for Q1 2021, compared to a loss of $5.4 million in Q1 202060 Allowance for Credit Losses (ACL) Activity | (in thousands) | Three Months Ended March 31, 2021 | | :--- | :--- | | Beginning Balance | $144,176 | | Charge-offs | ($14,646) | | Recoveries | $2,125 | | Provision (benefit) for credit losses | ($2,919) | | Ending Balance | $128,736 | - As of March 31, 2021, both Customers Bancorp, Inc. and Customers Bank satisfied all regulatory capital requirements and were considered well capitalized138140 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2021 financial performance, highlighting improved net income, increased net interest income, and enhanced asset quality driven by PPP loans Condensed Statement of Operations | (dollars in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net interest income | $132,731 | $81,321 | | Provision (benefit) for credit losses | ($2,919) | $31,786 | | Total non-interest income | $18,468 | $11,160 | | Total non-interest expense | $61,927 | $48,967 | | Net income from continuing operations | $74,631 | $8,454 | | Net loss from discontinued operations | ($38,036) | ($5,354) | | Net income available to common shareholders | $33,204 | ($515) | - Net interest income increased by $51.4 million YoY, driven by a $7.0 billion increase in average interest-earning assets, primarily from PPP loans Net interest margin (NIM) remained stable at 3.00%243261 - A benefit for credit losses of $2.9 million was recorded, a significant reversal from the $31.8 million provision in Q1 2020, reflecting improved macroeconomic forecasts since the start of the COVID-19 pandemic244269 - Non-interest income increased by $7.3 million, primarily due to a $19.6 million gain on the sale of investment securities, offset by a $24.5 million loss on the termination of cash flow hedge derivatives247 - Total assets increased by $378.4 million from year-end 2020 to $18.8 billion, driven by a $616.7 million increase in PPP loans302 Critical Accounting Policies The Allowance for Credit Losses (ACL) is the most critical accounting policy, requiring significant judgment based on macroeconomic forecasts and portfolio performance - The ACL is the most critical accounting policy, requiring complex and subjective judgments based on economic forecasts and other factors230231 - The net decrease in the ACL as of March 31, 2021, was primarily attributable to the continuing improvement in macroeconomic forecasts from Moody's March 2021 Baseline236237 - A sensitivity analysis showed that using a 100% adverse economic scenario weighting (instead of the baseline) would result in a hypothetical incremental quantitative impact to the ACL of approximately $39.0 million238 Financial Condition Analysis Total assets grew to $18.8 billion driven by PPP loans, with improved asset quality and a strategic shift towards lower-cost deposits Key Balance Sheet Changes (Q1 2021 vs YE 2020) | (dollars in thousands) | Change | % Change | | :--- | :--- | :--- | | Loans receivable, PPP | $616,724 | 13.5% | | Investment securities, at fair value | $231,619 | 19.1% | | Cash and cash equivalents | ($177,990) | (25.7)% | | Loans receivable, mortgage warehouse | ($208,810) | (5.8)% | | Total deposits | $1,162,511 | 10.3% | | FRB PPP liquidity facility | ($1,130,860) | (25.6)% | - Non-performing loans (NPLs) as a percentage of total loans and leases decreased to 0.30% at March 31, 2021, from 0.45% at December 31, 2020352 - COVID-19 related loan deferments declined significantly to $176.1 million for commercial loans and $13.0 million for consumer loans as of March 31, 2021346 - Non-time deposits grew by $1.1 billion, or 10.8%, during the quarter, supporting the company's initiative to improve its funding mix with lower-cost sources354 Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk through income scenario modeling and EVE analysis, indicating a slightly asset-sensitive position within policy guidelines Net Interest Income Sensitivity Analysis (For 12 Months) | Rate Shocks | % Change (as of March 31, 2021) | | :--- | :--- | | Up 3% | 1.5% | | Up 2% | 1.4% | | Up 1% | 0.8% | | Down 1% | (0.1)% | Economic Value of Equity (EVE) Sensitivity Analysis | Rate Shocks | % Change From Base (as of March 31, 2021) | | :--- | :--- | | Up 3% | (4.0)% | | Up 2% | (0.8)% | | Up 1% | 0.5% | | Down 1% | (9.4)% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2021408 - There were no changes in internal control over financial reporting during Q1 2021 that have materially affected, or are reasonably likely to materially affect, internal controls409 Part II - Other Information This section provides other required information, including legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings The company is involved in ordinary legal actions, notably defending against an $8.1 million PPP loan repayment claim from a Chapter 7 Trustee - The company is defending against an adversary complaint from the trustee of Specialty's Café Bakery, Inc. seeking to avoid and recover an $8.1 million PPP loan repayment The company is unable to determine the likelihood or range of loss209 - A matter with the U.S. Department of Education regarding ATM access was settled, reducing liabilities from $6.5 million to a settlement amount of $3.0 million206207 Risk Factors No material changes have occurred from the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - There are no material changes from the risk factors included within the 2020 Form 10-K413 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock in Q1 2021, does not expect cash dividends, but distributed a special BMTX common stock dividend - The company did not purchase any of its common stock during the three months ended March 31, 2021414 - A special dividend of 0.15389 shares of BM Technologies' common stock was distributed for each share of Customers' common stock held as of the record date of December 18, 2020, in connection with the BMT divestiture420 Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported for the period422 Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company422 Other Information No other information was reported under this item - No other information was reported under this item423 Exhibits This section lists all exhibits filed with the Form 10-Q, including BMT divestiture agreements, service agreements, and required officer certifications - The report includes a list of filed exhibits, such as the Agreement and Plan of Merger for the BMT divestiture, subsequent service agreements, and officer certifications424426