Customers Bancorp(US:CUBI)2021-11-07 16:00Part I Consolidated Financial Statements (Unaudited) This section presents Customers Bancorp, Inc.'s unaudited consolidated financial statements, including the balance sheet, income statements, and cash flows, along with detailed accounting notes Consolidated Balance Sheet Consolidated Balance Sheet Summary (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,052,054 | $693,354 | | Investment securities, at fair value | $1,866,697 | $1,210,285 | | Total loans and leases receivable, net | $15,354,084 | $15,608,989 | | Total Assets | $19,108,922 | $18,439,248 | | Liabilities & Equity | | | | Total deposits | $16,971,025 | $11,309,929 | | FRB PPP liquidity facility | $0 | $4,415,016 | | Total liabilities | $17,824,623 | $17,322,162 | | Total shareholders' equity | $1,284,299 | $1,117,086 | | Total Liabilities and Shareholders' Equity | $19,108,922 | $18,439,248 | Consolidated Statements of Income Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $219,892 | $107,439 | $491,380 | $280,742 | | Provision for Credit Losses | $13,164 | $12,955 | $13,536 | $65,688 | | Non-interest Income | $25,586 | $24,864 | $60,876 | $47,736 | | Non-interest Expense | $80,009 | $56,285 | $212,759 | $155,043 | | Net Income from Continuing Operations | $116,042 | $51,047 | $252,014 | $84,477 | | Net Income | $116,042 | $50,515 | $213,978 | $76,332 | | Net Income Available to Common Shareholders | $110,241 | $47,085 | $201,487 | $65,706 | | Diluted EPS | $3.25 | $1.48 | $6.02 | $2.07 | Notes to Consolidated Financial Statements - On January 4, 2021, the company completed the divestiture of BankMobile Technologies, Inc. (BMT), with BMT's historical financial results now reported as discontinued operations4350 - The company actively participates in the SBA's Paycheck Protection Program (PPP), originating 100% SBA-guaranteed loans for which no Allowance for Credit Losses (ACL) is recognized4445 - Customers Bancorp adopted the interim final rule by U.S. federal banking regulatory agencies, providing temporary relief related to CECL's effects on regulatory capital143 Management's Discussion and Analysis (MD&A) Management provides an in-depth analysis of the company's financial condition and operational results, covering key initiatives like the CBIT™ platform and the impact of the PPP loan program - The company launched the Customers Bank Instant Token (CBIT™) on the TassatPay™ blockchain platform on October 18, 2021, for real-time B2B payments, receiving $1.5 billion in non-interest bearing deposits from new customers by September 30, 2021216392 - Three new commercial verticals were added in 2021 within the Specialty Banking business: fund finance, technology and venture capital banking, and a financial institutions group217 - The company has funded approximately $10 billion in PPP loans, either directly or through fintech partnerships, as of September 30, 2021223 Results of Operations Q3 2021 vs Q3 2020 Performance (in thousands) | Metric | Q3 2021 | Q3 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $219,892 | $107,439 | $112,453 | 104.7% | | Provision for Credit Losses | $13,164 | $12,955 | $209 | 1.6% | | Net Income Available to Common Shareholders | $110,241 | $47,085 | $63,156 | 134.1% | - Net interest income for Q3 2021 increased by $112.5 million year-over-year, driven by a $1.9 billion increase in average interest-earning assets and a 209 basis point expansion in Net Interest Margin (NIM) to 4.59%, largely due to accelerated recognition of PPP loan fees upon forgiveness245269270 - Non-interest expense increased by $23.7 million in Q3 2021 compared to Q3 2020, primarily due to an $8.3 million increase in technology and operations costs and a $6.2 million one-time fee to amend a high-cost deposit contract251309320 Financial Condition - Total assets increased by $669.7 million to $19.1 billion at September 30, 2021, driven by increases in investment securities, PPP loans, and cash, partially offset by a $1.1 billion decrease in mortgage warehouse loans339 - Total deposits grew significantly by $5.7 billion (50.1%) to $17.0 billion, primarily from a $5.7 billion increase in non-time deposits, driven by initiatives to lower funding costs and the influx of deposits related to the new CBIT™ platform340392 - Total borrowings decreased substantially, with the $4.4 billion FRB PPP Liquidity Facility and $850 million in FHLB advances being fully repaid, funded by strong deposit growth340397 - Shareholders' equity increased by $167.2 million to $1.3 billion, driven by $214.0 million in net income, partially offset by the redemption of $82.5 million in Series C and D Preferred Stock401402404 Credit Risk and Asset Quality Asset Quality Metrics | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Non-Performing Loans (NPLs) | $52.0 million | $70.5 million | | NPLs as % of Total Loans & Leases | 0.34% | 0.45% | | ACL for Loans & Leases | $131.5 million | $144.2 million | | ACL as % of NPLs | 252.68% | 204.48% | | ACL as % of Loans & Leases (ex-PPP, Non-GAAP) | 1.65% | 1.90% | - The Allowance for Credit Losses (ACL) decreased, primarily due to improved macroeconomic forecasts affecting the commercial loan portfolio, partially offset by an increase in the consumer installment portfolio due to loan growth373 - COVID-19 related loan deferments decreased significantly to $80.1 million as of September 30, 2021, down from $218.5 million at December 31, 2020224385 Liquidity and Capital Resources - The company maintains a strong liquidity position, with principal sources being deposits, borrowings, and loan repayments, and as of September 30, 2021, borrowing capacity with the FHLB was $2.8 billion and with the FRB was $186.8 million408409 Regulatory Capital Ratios (Customers Bancorp, Inc.) | Ratio | Sep 30, 2021 | Dec 31, 2020 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 10.412% | 8.079% | N/A | | Tier 1 Capital | 11.607% | 9.919% | N/A | | Total Capital | 13.629% | 11.855% | N/A | | Tier 1 Leverage | 7.876% | 8.597% | N/A | - Both the Bank and the Bancorp met all capital adequacy requirements to which they were subject as of September 30, 2021426 Quantitative and Qualitative Disclosures about Market Risk The company primarily manages interest rate risk by analyzing income scenarios and the Economic Value of Equity (EVE), with the balance sheet positioned to benefit from rising interest rates as of September 30, 2021 Interest Rate Sensitivity Analysis (% Change from Base) | Rate Shock | Net Interest Income (12-mo forecast) | Economic Value of Equity (EVE) | | :--- | :--- | :--- | | As of Sep 30, 2021 | | | | Up 300 bps | +8.3% | +68.2% | | Up 200 bps | +5.2% | +53.5% | | Up 100 bps | +0.8% | +27.3% | | As of Dec 31, 2020 | | | | Up 300 bps | -2.7% | -18.9% | | Up 200 bps | -1.6% | -12.2% | | Up 100 bps | -0.8% | -6.1% | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021447 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting448 Part II Legal Proceedings The company is involved in legal actions arising in the ordinary course of business, including a settled matter with the U.S. Department of Education and an ongoing adversary complaint related to a PPP loan repayment - A matter with the U.S. Department of Education regarding fee-free ATM access was settled, reducing the assessed liability from $6.5 million to $3.0 million207208 - The company is defending against an adversary complaint from the Chapter 7 Trustee for Specialty's Café Bakery, Inc., who seeks to recover an $8.1 million PPP loan repayment made by the debtor prior to its bankruptcy filing209 Risk Factors New risk factors have been introduced related to the recently launched CBIT™ blockchain-based real-time payments platform, reflecting uncertainties in the digital currency industry - A new risk factor has been introduced related to the launch of the CBIT™ real-time B2B payments platform, whose success is subject to uncertainties in the digital currency industry, including technology adoption, competition, regulation, and price volatility453455 - The new customers for the CBIT™ platform are primarily concentrated in the digital currency industry, which could lead to the loss of non-interest bearing demand deposits if the initiative is adversely affected454455 Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a share repurchase program for up to 10% of outstanding common stock, with no shares repurchased under this program during the quarter ended September 30, 2021 - A new share repurchase program was authorized on August 25, 2021, allowing the company to buy back up to 3,235,326 shares of common stock456 - No shares were purchased under the new program during the third quarter of 2021; however, between October 1 and October 15, 2021, the company purchased 167,233 shares for $7.2 million457