Customers Bancorp, Inc. [CUBI] Filings

10-Q 1 cubi-20220331.htm 10-Q cubi-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			For the quarterly period ended March 31, 2022


☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			For the transition period from to .

001-35542

(Commission File number)

(Exact name of registrant as specified in its charter)


Customers Bancorp, Inc.

Pennsylvania

27-2290659

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

701 Reading Avenue

West Reading, PA 19611

(Address of principal executive offices)

(610) 933-2000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbols

Name of Each Exchange on which Registered

Voting Common Stock, par value $1.00 per share

CUBI

New York Stock Exchange

Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series E, par value $1.00 per share

CUBI/PE

New York Stock Exchange

Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series F, par value $1.00 per share

CUBI/PF

New York Stock Exchange

5.375% Subordinated Notes due 2034

CUBB

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated Filer

☐

Non-accelerated filer

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No x

________________________________________

On May 6, 2022, 32,981,204 shares of Voting Common Stock were outstanding.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Table of Contents


Part I

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of March 3 1 , 202 2 and for the three month period ended March 3 1 , 202 2 and 202 1 (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	76

Item 4.	Controls and Procedures	77

PART II

Item 1.	Legal Proceedings	78

Item 1A.	Risk Factors	78

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78

Item 3.	Defaults Upon Senior Securities	79

Item 4.	Mine Safety Disclosures	79

Item 5.	Other Information	79

Item 6.	Exhibits	80

SIGNATURES		82

Table of Contents

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

The following list of abbreviations and acronyms may be used throughout this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Unaudited Consolidated Financial Statements and the Notes to the Unaudited Consolidated Financial Statements.





ACL			Allowance for credit losses
AFS			Available for sale
ASC			Accounting Standards Codification

AOCI			Accumulated other comprehensive income (loss)
ASU			Accounting Standards Update
ATM			Automated teller machine
Bancorp			Customers Bancorp, Inc.
Bank			Customers Bank
BBB spread			BBB rated corporate bond spreads to U.S. Treasury securities

BMT			BankMobile Technologies, Inc.
BM Technologies			BM Technologies, Inc.
BOLI			Bank-owned life insurance

CAA			Consolidated Appropriations Act, 2021
CARES Act			Coronavirus Aid, Relief and Economic Security Act
CBITTM			Customers Bank Instant Token
CCF			Customers Commercial Finance, LLC
CECL			Current expected credit losses
Commission			U.S. Securities and Exchange Commission
Company			Customers Bancorp, Inc. and subsidiaries




COVID-19			Coronavirus Disease 2019
CPI			Consumer Price Index
CRA			Community Reinvestment Act
CUBI			Symbol for Customers Bancorp, Inc. common stock traded on the NYSE
Customers			Customers Bancorp, Inc. and Customers Bank, collectively
Customers Bancorp			Customers Bancorp, Inc.
DCF			Discounted cash flow


Disbursement Business			One Account Student Checking and Refund Management Disbursement Services Business

ED			U.S. Department of Education

EPS			Earnings per share


EVE			Economic value of equity
Exchange Act			Securities Exchange Act of 1934

FDIC			Federal Deposit Insurance Corporation

Fed Funds			Federal Reserve Board's Effective Federal Funds Rate
Federal Reserve Board			Board of Governors of the Federal Reserve System


FHLB			Federal Home Loan Bank
FICO			Fair, Isaac and Company
Fintech			Third-Party Financial Technology
FMV			Fair Market Value
FPRD			Final Program Review Determination
FRB			Federal Reserve Bank of Philadelphia

GDP			Gross domestic product


Higher One			Higher One Holdings, Inc.



LIBOR			London Interbank Offered Rate
LPO			Limited Purpose Office
MFAC			Megalith Financial Acquisition Corp.
MMDA			Money market deposit accounts
NIM			Net interest margin, tax equivalent
NM			Not meaningful
NPA			Non-performing asset
NPL			Non-performing loan

NYSE			New York Stock Exchange

OCI			Other comprehensive income (loss)

OREO			Other real estate owned


PCD			Purchased Credit-Deteriorated

Table of Contents


PPP			Paycheck Protection Program
PPPLF			FRB Paycheck Protection Program Liquidity Facility
PUT			Purchase Upon Termination
Rate Shocks			Interest rates rising or falling immediately
ROU			Right-of-use


SBA			U.S. Small Business Administration
SBA loans			Loans originated pursuant to the rules and regulations of the SBA
SEC			U.S. Securities and Exchange Commission
Securities Act			Securities Act of 1933, as amended
Series C Preferred Stock			Fixed-to-floating rate non-cumulative perpetual preferred stock, series C
Series D Preferred Stock			Fixed-to-floating rate non-cumulative perpetual preferred stock, series D
Series E Preferred Stock			Fixed-to-floating rate non-cumulative perpetual preferred stock, series E
Series F Preferred Stock			Fixed-to-floating rate non-cumulative perpetual preferred stock, series F
SERP			Supplemental Executive Retirement Plan
Share Repurchase Program			Share repurchase program authorized by the Board of Directors of Customers Bancorp in 2021
SOFR			Secured Overnight Financing Rate

TDR			Troubled debt restructuring
TRAC			Terminal Rental Adjustment Clause


U.S. GAAP			Accounting principles generally accepted in the United States of America
VIE			Variable interest entity
VOE			Voting interest entity

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

(amounts in thousands, except share and per share data)


	March 31, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	55,515	$	35,238
Interest earning deposits	219,085		482,794
Cash and cash equivalents	274,600		518,032
Investment securities, at fair value (includes allowance for credit losses of $728 at March 31, 2022)	4,169,853		3,817,150

Loans held for sale (includes $2,496 and $15,747, respectively, at fair value)	3,003		16,254
Loans receivable, mortgage warehouse, at fair value	1,755,758		2,284,325

Loans receivable, PPP	2,195,902		3,250,008
Loans and leases receivable	10,118,855		9,018,298
Allowance for credit losses on loans and leases	(145,847)		(137,804)
Total loans and leases receivable, net of allowance for credit losses on loans and leases	13,924,668		14,414,827
FHLB, Federal Reserve Bank, and other restricted stock	54,553		64,584
Accrued interest receivable	94,669		92,239

Bank premises and equipment, net	8,233		8,890
Bank-owned life insurance	332,239		333,705

Goodwill and other intangibles	3,678		3,736
Other assets	298,212		305,611

Total assets	$	19,163,708	$	19,575,028
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing	$	4,594,428	$	4,459,790
Interest bearing	11,821,132		12,318,134
Total deposits	16,415,560		16,777,924


Federal funds purchased	700,000		75,000
FHLB advances	—		700,000
Other borrowings	223,230		223,086
Subordinated debt	181,742		181,673

Accrued interest payable and other liabilities	265,770		251,128

Total liabilities	17,786,302		18,208,811
Commitments and contingencies (NOTE 15)
Shareholders’ equity:
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 5,700,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021	137,794		137,794
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 34,881,580 and 34,721,675 shares issued as of March 31, 2022 and December 31, 2021; 32,957,847 and 32,913,267 shares outstanding as of March 31, 2022 and December 31, 2021	34,882		34,722
Additional paid in capital	542,402		542,391
Retained earnings	780,628		705,732
Accumulated other comprehensive income (loss), net	(62,548)		(4,980)
Treasury stock, at cost (1,923,732 and 1,808,408 shares as of March 31, 2022 and December 31, 2021)	(55,752)		(49,442)
Total shareholders’ equity	1,377,406		1,366,217
Total liabilities and shareholders’ equity	$	19,163,708	$	19,575,028

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) — UNAUDITED

(amounts in thousands, except per share data)


	Three Months Ended March 31,
	2022		2021
Interest income:
Loans and leases	$	157,175	$	152,117

Investment securities	20,295		7,979
Other	6,006		1,019
Total interest income	183,476		161,115
Interest expense:
Deposits	13,712		15,658
FHLB advances	—		5,192
Subordinated debt	2,689		2,689
FRB PPP liquidity facility, federal funds purchased and other borrowings	2,376		4,845
Total interest expense	18,777		28,384
Net interest income	164,699		132,731
Provision (benefit) for credit losses	15,997		(2,919)
Net interest income after provision (benefit) for credit losses	148,702		135,650
Non-interest income:


Interchange and card revenue	76		85

Deposit fees	940		863
Commercial lease income	5,895		5,205
Bank-owned life insurance	8,326		1,679
Mortgage warehouse transactional fees	2,015		4,247
Gain (loss) on sale of SBA and other loans	1,507		1,575
Loan fees	2,545		1,436
Mortgage banking income	481		463

Gain (loss) on sale of investment securities	(1,063)		23,566

Unrealized gain (loss) on investment securities	(276)		974


Unrealized gain (loss) on derivatives	964		2,537
Loss on cash flow hedge derivative terminations	—		(24,467)
Other	(212)		305
Total non-interest income	21,198		18,468
Non-interest expense:
Salaries and employee benefits	26,607		23,971
Technology, communication and bank operations	24,068		19,988
Professional services	6,956		5,877
Occupancy	3,050		2,621
Commercial lease depreciation	4,942		4,291
FDIC assessments, non-income taxes and regulatory fees	2,383		2,719
Loan servicing	2,371		437
Advertising and promotion	315		561
Merger and acquisition related expenses	—		418
Loan workout	(38)		(261)


Other	3,153		1,305
Total non-interest expense	73,807		61,927
Income before income tax expense	96,093		92,191
Income tax expense	19,332		17,560
Net income from continuing operations	$	76,761	$	74,631

	(continued)

Table of Contents


	Three Months Ended March 31,
	2022		2021
Loss from discontinued operations before income taxes	$	—	$	(20,354)
Income tax expense from discontinued operations	—		17,682
Net loss from discontinued operations	—		(38,036)
Net income	76,761		36,595
Preferred stock dividends	1,865		3,391

Net income available to common shareholders	$	74,896	$	33,204

Basic earnings per common share from continuing operations	$	2.27	$	2.23
Basic earnings per common share	2.27		1.04
Diluted earnings per common share from continuing operations	2.18		2.17
Diluted earnings per common share	2.18		1.01

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED

(amounts in thousands)


	Three Months Ended March 31,
	2022		2021


Net income	$	76,761	$	36,595
Unrealized gains (losses) on available for sale debt securities:
Unrealized gains (losses) arising during the period	(78,858)		400
Income tax effect	20,503		(104)
Reclassification adjustments for (gains) losses included in net income	1,063		(23,566)
Income tax effect	(276)		6,127
Net unrealized gains (losses) on available for sale debt securities	(57,568)		(17,143)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	—		12,315
Income tax effect	—		(3,202)
Reclassification adjustment for (gains) losses included in net income	—		25,926
Income tax effect	—		(6,741)
Net unrealized gains (losses) on cash flow hedges	—		28,298
Other comprehensive income (loss), net of income tax effect	(57,568)		11,155
Comprehensive income (loss)	$	19,193	$	47,750

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(amounts in thousands, except shares outstanding data)



	Three Months Ended March 31, 2022
	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance, December 31, 2021	5,700,000	$	137,794	32,913,267	$	34,722	$	542,391	$	705,732	$	(4,980)	$	(49,442)	$	1,366,217


Net income	—	—		—	—		—		76,761		—		—		76,761

Other comprehensive income (loss)	—	—		—	—		—		—		(57,568)		—		(57,568)


Preferred stock dividends (1)	—	—		—	—		—		(1,865)		—		—		(1,865)





Share-based compensation expense	—	—		—	—		3,703		—		—		—		3,703

Issuance of common stock under share-based compensation arrangements	—	—		159,904	160		(3,692)		—		—		—		(3,532)
Repurchase of common shares	—	—		(115,324)	—		—		—		—		(6,310)		(6,310)
Balance, March 31, 2022	5,700,000	$	137,794	32,957,847	$	34,882	$	542,402	$	780,628	$	(62,548)	$	(55,752)	$	1,377,406

	Three Months Ended March 31, 2021
	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance, December 31, 2020	9,000,000	$	217,471	31,705,088	$	32,986	$	455,592	$	438,581	$	(5,764)	$	(21,780)	$	1,117,086

Net income	—	—		—	—		—		36,595		—		—		36,595

Other comprehensive income (loss)	—	—		—	—		—		—		11,155		—		11,155


Preferred stock dividends (1)	—	—		—	—		—		(3,391)		—		—		(3,391)
Sale of non-controlling interest in BMT (2)	—	—		—	—		31,893		—		—		—		31,893
Distribution of investment in BM Technologies (3)	—	—		—	—		—		(32,983)		—		—		(32,983)
Restricted stock awards to certain BMT team members (4)	—	—		—	—		19,592		—		—		—		19,592
Share-based compensation expense	—	—		—	—		3,609		—		—		—		3,609

Issuance of common stock under share-based compensation arrangements	—	—		533,674	533		4,632		—		—		—		5,165

Balance, March 31, 2021	9,000,000	$	217,471	32,238,762	$	33,519	$	515,318	$	438,802	$	5,391	$	(21,780)	$	1,188,721

(1)Dividends per share of $0.333922 and $0.310297 per share were declared on Series E and F preferred stock for the three months ended March 31, 2022. Dividends per share of $0.34478125, $0.40625, $0.403125, and $0.375 per share were declared on Series C, D, E, and F preferred stock for the three months ended March 31, 2021.

(2)Refer to NOTE 3 – DISCONTINUED OPERATIONS for additional information about the sale of non-controlling interest in BMT including the reverse recapitalization of MFAC.

(3)Immediately after the closing of the BMT divestiture, Customers distributed all of its remaining investment in BM Technologies' common stock to its shareholders as special dividends, equivalent to 0.15389 of BM Technologies common stock for each share of Customers common stock. Refer to NOTE 3 – DISCONTINUED OPERATIONS.

(4)At the closing of the BMT divestiture, certain team members of BMT received restricted stock awards in BM Technologies' common stock. Refer to NOTE 3 – DISCONTINUED OPERATIONS.

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)


	Three Months Ended March 31,
	2022		2021
Cash Flows from Operating Activities
Net income from continuing operations	$	76,761	$	74,631
Adjustments to reconcile net income to net cash provided by (used in) by continuing operating activities:
Provision (benefit) for credit losses	15,997		(2,919)
Depreciation and amortization	6,055		5,321

Share-based compensation expense	3,718		3,082
Deferred taxes	(22,810)		(6,198)
Net amortization (accretion) of investment securities premiums and discounts	918		(14)
Unrealized (gain) loss on investment securities	276		(974)
(Gain) loss on sale of investment securities	1,063		(23,566)


Unrealized (gain) loss on derivatives	(964)		(2,537)
Loss on cash flow hedge derivative terminations	—		24,467
Settlement of terminated cash flow hedge derivatives	—		(27,156)

Fair value adjustment on loans held for sale	—		(1,115)
(Gain) loss on sale of loans	(2,070)		(2,071)
Origination of loans held for sale	(10,999)		(12,323)
Proceeds from the sale of loans held for sale	24,813		17,122

Amortization (accretion) of loan net deferred fees, discounts and premiums	(27,907)		(345)


Earnings on investment in bank-owned life insurance	(8,326)

Customers Bancorp, Inc. [CUBI] Filings
Customers Bancorp, Inc. [CUBB] Filings
Customers Bancorp, Inc. [CUBI-PE] Filings
Customers Bancorp, Inc. [CUBI-PF] Filings
10-Q	[2022-05-09]
10-K	[2022-02-28]
10-Q	[2021-11-08]
10-Q	[2021-08-09]
10-Q	[2021-05-10]
10-K	[2021-03-02]
10-Q	[2020-11-06]
10-Q	[2020-08-10]
10-Q	[2020-05-11]
10-K	[2020-03-02]
10-Q	[2019-11-07]
10-Q	[2019-08-08]
10-Q	[2019-05-09]
10-K	[2019-03-01]
10-Q	[2018-11-13]
10-Q	[2018-08-09]
10-Q	[2018-05-09]
10-K	[2018-02-23]
10-Q	[2017-11-03]
10-Q	[2017-08-04]
10-Q	[2017-05-10]
10-K	[2017-03-08]
10-Q	[2016-11-07]
10-Q	[2016-08-05]
10-Q	[2016-05-05]
10-K	[2016-02-26]
10-Q	[2015-11-04]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-02-27]
10-Q	[2014-11-07]
10-Q	[2014-08-08]
10-Q	[2014-05-08]
10-K	[2014-03-12]
10-Q	[2013-11-07]
10-Q	[2013-08-09]
10-Q	[2013-05-09]
10-K	[2013-03-18]
10-Q	[2012-11-14]
10-Q	[2012-08-14]
10-Q	[2012-05-15]
S-1	[2012-03-28]
10-K	[2012-03-21]

Customers Bancorp, Inc. [CUBI] Filings

Customers Bancorp, Inc. [CUBB] Filings

Customers Bancorp, Inc. [CUBI-PE] Filings

Customers Bancorp, Inc. [CUBI-PF] Filings