8-K: Customers Bancorp Reports Strong Q4 and Full Year 2023 Results, Exceeding Expectations

Customers Bancorp announced robust financial results for the fourth quarter and full year 2023, marked by significant core deposit growth, improved capital ratios, and strong asset quality.

Summary

• Customers Bancorp reported a net income of $58.2 million, or $1.79 per diluted share, for Q4 2023, and $235.4 million, or $7.32 per diluted share, for the full year.
• Core earnings for Q4 2023 were $61.6 million, or $1.90 per diluted share, and $248.2 million, or $7.72 per diluted share, for the full year.
• The company's CET 1 capital ratio reached 12.2% at the end of 2023, surpassing the target range of 11.0% 11.5%.
• The TCE / TA ratio also hit its target of 7.0% at the end of 2023.
• Net interest margin (NIM) was 3.31% in Q4 2023, compared to 3.70% in Q3 2023, but expanded by 11 basis points when normalized for outsized discount accretion in Q3.
• Core deposit growth was $1.1 billion in Q4 2023, which helped fund the repayment of $0.7 billion in maturing wholesale CDs and a $0.6 billion planned outflow of student-related deposits.
• Total estimated insured deposits were 77% of total deposits at the end of 2023, with immediately available liquidity covering uninsured deposits by approximately 202%.
• Non-performing assets were $27.2 million, or 0.13% of total assets, at the end of 2023.
• The allowance for credit losses on loans and leases was 499% of non-performing loans at the end of 2023.
• Book value per share and tangible book value per share both grew by approximately $2.26, or 5.0%, in Q4 2023.
• The company repurchased 1,379,883 common shares at a weighted-average price of $28.58 for $39.8 million in 2023.

Sentiment

Score: 9

Explanation: The document is overwhelmingly positive, highlighting strong financial performance, strategic execution, and a positive outlook. The company has exceeded expectations and is well-positioned for future growth.

Positives

• The company demonstrated the sustainability of its deposit franchise by growing core deposits by $1.1 billion in Q4.
• Capital levels increased substantially, with a 50 basis point increase in the TCE / TA ratio and a 90 basis point increase in the CET 1 ratio in the last quarter.
• Asset quality remains exceptional with a low NPA ratio of 0.13% of total assets.
• The company has ample liquidity and capital to support customer needs in 2024.
• The company is well-positioned for success in 2024 from a capital, credit, liquidity, interest rate risk, and earnings perspective.
• The company's net interest margin continued to expand in the fourth quarter, excluding the outsized accretion experienced in the third quarter.

Negatives

• Total deposits decreased by $275.1 million in Q4 2023.
• Net interest margin decreased from 3.70% in Q3 2023 to 3.31% in Q4 2023, although this was partially due to a one-off event.
• Net income available for common shareholders decreased by $24.73 million in Q4 2023 compared to Q3 2023.
• Diluted earnings per share decreased by $0.79 in Q4 2023 compared to Q3 2023.

Risks

• Higher interest rates and less liquidity in the banking system remain headwinds for all banks.
• The company is exposed to the general risks of the banking industry, including economic and regulatory changes.
• The company's performance could be affected by changes in the economy and customer behavior.
• The company's loan and lease portfolio could be impacted by changes in the economy.
• The market value of the company's investment securities could be affected by market conditions.

Future Outlook

The company is focused on managing risk, strengthening its deposit franchise, improving profitability, and maintaining higher capital ratios. Deposits are expected to grow modestly with continued improvement in quality, and the company sees opportunities to deploy cash into franchise-enhancing loan growth in 2024. The company is committed to maintaining a CET 1 ratio around 11.5% and growing the TCE / TA ratio to 7.5% in 2024.

Management Comments

• We are pleased to share our fourth quarter and full year 2023 results as we continued to execute on our strategic priorities and delivered again for shareholders, said Customers Bancorp Chairman and CEO Jay Sidhu.
• We again demonstrated the sustainability of our differentiated deposit franchise by growing core deposits by $1.1 billion in the fourth quarter which funded in part the repayment of maturing wholesale CDs of $743 million and the planned outflow of student-related deposit accounts serviced by BMTX totaling approximately $637 million.
• We remain well-positioned to continue strengthening our deposit franchise, improve our profitability, and maintain our capital ratios, stated Jay Sidhu.
• Continued execution on our strategic priorities has positioned us favorably for success in 2024 from a capital, credit, liquidity, interest rate risk and earnings perspective.
• Even though we remain well capitalized by all regulatory measures, we are committed to maintaining our CET 1 ratio around 11.5% and growing our TCE / TA ratio* to 7.5% in 2024, stated Jay Sidhu.
• Excluding the outsized accretion we experienced in the third quarter, our net interest margin continued to expand in the fourth quarter in contrast to the industry trends.
• Our Q4 2023 GAAP earnings were $58.2 million, or $1.79 per diluted share, and core earnings were $61.6 million, or $1.90 per diluted share, considerably above consensus estimates.
• We are excited and optimistic about the opportunities in 2024 and beyond, Jay Sidhu continued.
• Excluding the outsized accretion recognized in the third quarter on the acquired loan portfolio from the FDIC, our fourth quarter net interest income was in-line relative to the third quarter, stated Customers Bancorp President Sam Sidhu.
• We are committed to preserving superior credit quality, managing interest rate risk, maintaining robust liquidity, operating with higher capital ratios and generating positive operating leverage, concluded Sam Sidhu.

Industry Context

This announcement comes at a time when the banking industry is stabilizing after challenges in early 2023, but still faces headwinds from higher interest rates and reduced liquidity. Customers Bancorp's focus on core deposit growth and strong capital ratios positions it well compared to some regional banks.

Comparison to Industry Standards

• Customers Bancorp's tangible book value per share has grown at a 15% compound annual growth rate over the past 5 years, significantly higher than the regional bank peer median of 4%.
• The company's loan to deposit ratio is 72%, which is 17 percentage points lower than the regional bank peer median.
• The company's core non-interest expense as a percentage of average assets is the lowest among regional bank peers.
• The company's estimated insured deposits as a percentage of total deposits were 77%, among the best of regional bank peers.
• The company's CET1 adjusted for AOCI is in the top quartile for banks with $10-$100 billion in assets.

Stakeholder Impact

• Shareholders will benefit from the strong financial performance and increased book value.
• Employees will benefit from the company's continued growth and success.
• Customers will benefit from the company's strong capital and liquidity position.
• Creditors will benefit from the company's strong financial health and low risk profile.

Next Steps

• The company plans to continue strengthening its deposit franchise.
• The company plans to improve profitability.
• The company plans to maintain higher capital ratios.
• The company plans to deploy securities cash flows and cash into franchise-enhancing loan growth in 2024.
• The company plans to maintain a CET 1 ratio around 11.5% in 2024.
• The company plans to grow its TCE / TA ratio to 7.5% in 2024.

Key Dates

Keywords

core deposits, capital ratios, net interest margin, asset quality, liquidity, earnings, CET 1, TCE/TA, non-performing assets, book value, regional bank