Customers Bancorp Reports Net Income for Second Quarter 2017 and First Six Months of 2017

• Q2 2017 Net Income to Common Shareholders of $20.1 million Up 15.4% Over Q2 2016
  
• Q2 2017 Net Income Includes a Net Loss from Discontinued Operations of $5.2 million
• Q2 2017 Diluted Earnings Per Common Share of $0.62 Up 5.1% from Q2 2016
• Q2 2017 Net Income from Continuing Operations to Common Shareholders was $25.3 million Up 28.5% Over Q2 2016
• Q2 2017 Diluted Earnings Per Common Share from Continuing Operations was $0.78 Up 16.4% from Q2 2016
• First Six Months of 2017 Net Income to Common Shareholders of $42.2 million Up 23.1% Over First Six Months of 2016
• First Six Months of 2017 Diluted Earnings Per Common Share of $1.29 Up 10.3% Over First Six Months of 2016
• Q2 2017 Return on Average Assets of 0.93% Up from 0.85% for Q2 2016
• Q2 2017 Return on Average Common Equity of 11.84% Compared to 13.07% in Q2 2016
• Net Interest Margin Increased 0.05% in Q2 2017 to 2.78% from Q1 2017
• Q2 2017 Book Value Per Common Share of $22.54 Up 12.8% from Q2 2016
• June 30, 2017 Shareholders' Equity of $910 million Up 33.8% from June 30, 2016.  Estimated Tier 1 Risk Based Capital was 10.94% at June 30, 2017 Compared to 8.56% at June 30, 2016, and Tangible Common Equity to Average Tangible Assets (a Non-GAAP Measure) was 6.59% at June 30, 2017 Compared to 5.71% at June 30, 2016
• Total Assets Reached $10.9 billion at June 30, 2017 Up $1.0 billion from March 31, 2017
• Q2 2017 Total Loans Up 6.7% to $9.0 billion, and Total Deposits from Continuing Operations Up 7.8% to $7.0 billion, from Q2 2016
• Q2 2017 Efficiency Ratio from Continuing Operations was 40.6% Compared to Q2 2016 Efficiency Ratio from Continuing Operations of 46.5%
• BankMobile Classified as Held for Sale and Reported as Discontinued Operations in Financial Reports

WYOMISSING, Pa., July 26, 2017 (GLOBE NEWSWIRE) -- Customers Bancorp, Inc. (NYSE:CUBI), the parent company of Customers Bank (collectively “Customers”), reported net income to common shareholders of $20.1 million for the second quarter of 2017 ("Q2 2017") compared to net income to common shareholders of $17.4 million for the second quarter of 2016 ("Q2 2016"), an increase of $2.7 million, or 15.4%. The reported net income includes a net loss from discontinued operations of $5.2 million.  Fully diluted earnings per common share for Q2 2017 was $0.62 compared to $0.59 fully diluted earnings per common share for Q2 2016, an increase of $0.03, or 5.1%.  Average fully diluted shares for Q2 2017 were 32.6 million compared to average fully diluted shares for Q2 2016 of 29.5 million.  Net income from continuing operations to common shareholders after preferred stock dividends was $25.3 million for Q2 2017 compared to $19.7 million for Q2 2016, an increase of 28.5%.  Fully diluted earnings per common share from continuing operations after preferred stock dividends was $0.78 for Q2 2017 compared to $0.67 for Q2 2016, an increase of 16.4%.

Customers also reported net income to common shareholders of $42.2 million for the first six months of 2017 compared to net income to common shareholders of $34.3 million for the first six months of 2016, an increase of $7.9 million, or 23.1%.  The reported net income includes a net loss from discontinued operations of $6.4 million.  Customers' net income from continuing operations to common shareholders after preferred stock dividends was $48.6 million for the first six months of 2017 compared to net income from continuing operations to common shareholders after preferred stock dividends of $37.7 million for the first six months of 2016, an increase of 28.9%.  Fully diluted earnings per common share was $1.29 for the first six months of 2017 compared to $1.17 for the first six months of 2016, an increase of 10.3%. Fully diluted earnings per common share from continuing operations after preferred stock dividends was $1.49 for the first six months of  2017 compared to $1.28 for the first six months of 2016, an increase of 16.4%.

The following table summarizes the previously described financial results:

"Customers is pleased to continue to report strong earnings.  We have experienced positive operating leverage for over five years now, resulting in double digit annual average increases in both GAAP and core earnings.  Our asset quality continues at the highest level with non-performing loans improving during the quarter to just 0.21% of total loans, and reserves are ample at over 200% of non-performing loans.  Our net interest margin increased 0.05% in the quarter as market interest rates increased, and we achieved a return of common equity of nearly 12% for Q2 2017.  As we indicated to investors last quarter, Customers grew total assets through the $10 billion level during Q2 2017, reporting $10.9 billion in total assets, and $10.3 billion in average assets for Q2 2017, as of June 30, 2017," stated Jay Sidhu, Chairman and CEO of Customers. "Customers believes it is well positioned to continue growing our business organically and generate on average double digit growth in core earnings over the next five years," Mr. Sidhu continued.  "Our revenues have grown at a compound annual growth rate ("CAGR") of 37% over the past five years, and our core earnings have grown at a CAGR of 101% since 2011 while our efficiency ratio has declined from 78% in 2011 to 42% for the six months ended June 30, 2017," Mr. Sidhu continued.  "As a result, our book value and tangible book value per common share have both increased at a 12% CAGR since 2011," Mr. Sidhu concluded.

Other financial and business highlights for Q2 2017 compared to Q2 2016 include:

• Customers achieved a return on average assets of 0.93% in Q2 2017 compared to 0.85% in Q2 2016, and achieved a return on average common equity of 11.84% in Q2 2017 compared to 13.07% in Q2 2016.
  
  
• Total loans outstanding from continuing operations, including commercial loans held for sale, increased $0.6 billion, or 6.7%, to $9.0 billion as of June 30, 2017 compared to total loans of $8.4 billion as of June 30, 2016.  Commercial and industrial loans, excluding commercial loans to mortgage companies increased $305 million to $1.4 billion, multi-family loans increased $214 million to $3.6 billion, commercial non-owner-occupied real estate loans increased $76 million to $1.2 billion, consumer loans increased $170 million to $0.5 billion, and commercial loans to mortgage companies decreased $163 million to $2.2 billion.
  
  
• Total deposits from continuing operations increased by $511 million, or 7.8%, to $7.0 billion as of June 30, 2017 compared to total deposits of $6.5 billion as of June 30, 2016.  Non-interest bearing demand deposit accounts increased $150 million to $662 million, interest bearing demand deposit accounts increased $133 million to $359 million, money market deposit accounts increased $515 million to $3.5 billion, and certificates of deposit accounts decreased $288 million to $2.4 billion.  BankMobile deposits held for sale increased $213 million to $453 million as of June 30, 2017 compared to June 30, 2016.
  
  
• Q2 2017 net interest income from continuing operations of $68.6 million increased $5.5 million, or 8.6%, from comparable net interest income for Q2 2016 as average interest earning assets from continuing operations increased $0.9 billion. The Q2 2017 net interest margin decreased by 5 basis points from Q2 2016 to 278 basis points. The net interest margin compression largely resulted from a 24 basis point increase in the cost of total deposits and borrowings offset in part by a 19 basis point increase in yields on loans.  The net interest margin also compressed year over year in part due to increasing the securities portfolio with investments with yields lower than loan assets.
  
  
• Customers’ Q2 2017 provision for loan losses from continuing operations totaled $0.5 million compared to a provision expense of $0.8 million in Q2 2016.  The Q2 2017 provision expense included $0.4 million for loan portfolio growth and a $0.6 million increase for specifically identified loans offset in part by $0.5 million release resulting from improved asset quality and lower incurred losses than previously estimated.  There were no significant changes in Customers' methodology for estimating the allowance for loan losses in Q2 2017.
  
  
• Non-interest income from continuing operations increased $1.1 million in Q2 2017 to $7.0 million, a 19.1% increase over Q2 2016.  Included in non-interest income as gains (losses) on investment securities was a $3.2 million gain resulting from the sale of investment securities and a $2.9 million impairment charge related to equity securities.
  
  
• Non-interest expenses from continuing operations totaled $30.6 million, a decrease of $1.5 million from Q2 2016, or 4.7%.  Deposit insurance assessments and non-income taxes and regulatory fees decreased $2.0 million, partially offset by an increase in salaries and employee benefits of $0.3 million. The decrease in overall non-interest expenses is attributable to management efforts focused on controlling expenses and a lower assessment rate for deposit insurance.
  
  
• Q2 2017 income tax expense from continuing operations of $15.5 million on pre-tax income of $44.5 million represents an effective tax rate of 34.9% compared to Q2 2016 income tax expense of $14.4 million on pre-tax income of $36.1 million and an effective tax rate of 39.8%.  It is expected that Customers' effective tax rate will remain in the 35% to 39% range for the remainder of 2017.
  
  
• BankMobile, presented as discontinued operations in the financial statements as Customers has stated its intent to sell the business, reported non-interest income of $11.4 million, operating expenses of $19.8 million, and a tax benefit of $3.2 million from the operating losses resulting in a net loss of approximately $5.2 million for Q2 2017. The operating loss for BankMobile is notably larger on the consolidated income statements relative to the segment results, and is largely due to the modest funds transfer pricing benefit received by the segment for the originated deposits in the segment reporting results.
  
  
• The Q2 2017 efficiency ratio from continuing operations was 40.6%, compared to the Q2 2016 efficiency ratio from continuing operations of approximately 46.5%.
  
  
• The book value and tangible book value (a non-GAAP measure) per common share continued to increase, reaching $22.54 and $21.97 per share, respectively, at June 30, 2017, both reflecting a CAGR of 12% over the past five years.
  
  
• On June 30, 2017, Customers Bancorp, Inc. issued $100 million of five-year senior debt securities paying interest at 3.95%, the net proceeds of which were contributed as Tier 1 capital to Customers Bank.  As a result of this debt transaction and contribution of capital to the bank subsidiary, Customers Bank's regulatory capital ratios were increased by roughly 100 basis points.
  
  
• Based on Customers Bancorp, Inc.'s June 30, 2017 closing stock price of $28.28, Customers was trading at approximately 1.3 times tangible book value per common share.

Q2 2017 compared to Q1 2017:

Customers’ Q2 2017 net income to common shareholders decreased $2.0 million, or 9.1%, to $20.1 million from net income to common shareholders of $22.1 million for the first quarter of 2017 ("Q1 2017").  The $2.0 million decrease in Q2 2017 net income compared to Q1 2017 net income resulted primarily from a $7.8 million increase in income tax expense from continuing operations to $15.5 million and a $4.1 million increase in net loss from discontinued operations, partially offset by an increase in net interest income of $6.2 million to $68.6 million. Examining these quarter-over-quarter changes further:

• The $6.2 million increase in net interest income from continuing operations in Q2 2017 was largely attributable to an increase in average loan balances of approximately $0.7 billion and a five basis point increase in net interest margin as Customers' higher yielding variable commercial  loan portfolio increased period over period.
   
• The $2.5 million decrease in provision for loan losses from continuing operations in Q2 2017 compared to Q1 2017 resulted principally from lower provisions required for specifically identified loans as fewer loans were adversely classified during Q2 2017, and other loans were resolved with lower than previously estimated charge-offs. There was no significant change in the provision for loan loss methodology in Q2 2017. 
   
• Non-interest income from continuing operations, excluding the $3.2 million gain realized from the sale of investment securities in Q2 2017 and the impairment charges of $2.9 million and $1.7 million recognized on the equity securities in Q2 2017 and Q1 2017, respectively, declined $0.5 million in Q2 2017 to $6.7 million, compared to $7.1 million in Q1 2017.  The Q2 2017 decline resulted primarily from lower gains realized from the sale of loans of $0.8 million and decreased income from derivative-and-hedging-related activity of $0.6 million.
   
• The $0.4 million increase in non-interest expenses from continuing operations in Q2 2017 compared to Q1 2017 resulted primarily from increases in expenses for salaries and employee benefits and regulatory assessment rates and Pennsylvania shares tax expense, offset in part by a decrease in technology and communications costs.
   
• The $7.8 million increase in income tax expense from continuing operations in Q2 2017 compared to Q1 2017 was primarily attributable to the $3.5 million tax benefit recognized in Q1 2017 as a result of the development of tax strategies that allow for the recognition of the tax benefit from losses recorded for impairment charges on equity securities. During Q2 2017, Customers recorded a tax benefit of $1.1 million related to impairment charges on equity securities and a lower tax benefit of $1.3 million from the increase in value for restricted stock units vesting and the exercise of stock options since the award date.
   
• BankMobile's net GAAP accounting loss increased by $4.1 million to $5.2 million in Q2 2017 compared to Q1 2017 as a result of lower seasonal activity for student spending and certain costs related to system conversions in Q2 2017.  BankMobile's student disbursement business is very seasonal with the second quarter as the lowest performing quarter when student enrollment is down for the summer months. Segment reporting results, which consider a transfer of interest income from the Community Business Banking segment to the BankMobile segment of $2.7 million in the second quarter for the use of low/no cost deposits, indicates a Q2 2017 BankMobile segment loss of $3.5 million.

The following table presents a summary of key earnings and performance metrics for the quarter ended June 30, 2017 and the preceding four quarters, respectively:

Capital

Customers recognizes the importance of not only being well capitalized in the current regulatory environment but to have adequate capital buffers to absorb any unexpected shocks.  "Our capital ratios declined during Q2 2017 largely due to the quarter end spike in the mortgage warehouse balances lasting typically just a few days as well as the strong growth experienced in our commercial and industrial loan portfolio and other loan portfolios," stated Mr. Sidhu.  "We continue to target a Tier I leverage capital ratio of 9.0% or higher and a total risk-based capital ratio of around 13.0%, but we also need to take advantage of strong loan growth opportunities when available to us," Mr. Sidhu continued.  For the quarter ending June 30, 2017, Customers is preliminarily calculating its Tier 1 leverage ratio at 8.66% and its total risk-based capital ratio at 12.42%.  "We expect to reach closer to targeted capital levels in 2017 and future years with the expected gain on sale of BankMobile, retaining earnings and raising capital when considered prudent," concluded Mr. Sidhu.

BankMobile

The BankMobile division serviced about 1.7 million checking accounts, including approximately 1.2 million active deposit accounts, as of June 30, 2017. Since the acquisition of the Disbursements business in June 2016, BankMobile has added over 325,000 new deposit accounts and converted over 374,000 deposit accounts to Customers.

Managing Commercial Real Estate Concentration Risks and Providing High Net Worth Families Loans for Their Multi-Family Holdings

Customers' loans collateralized by multi-family properties were approximately 39.5% of Customers' total loan portfolio and approximately 313% of total risk-based capital at June 30, 2017, down from approximately 39.6% and 401%, respectively, at June 30, 2016.  Recognizing the risks that accompany certain elements of commercial real estate ("CRE") lending, Customers has as part of its core strategies studiously sought to limit its risks and has concluded that it has appropriate risk management systems in place to manage this portfolio. Customers' total real estate construction and development exposure, arguably the riskiest area of CRE, was only $73 million at June 30, 2017.

Customers' multifamily exposures are focused principally on loans to high net worth families collateralized by multi-family properties that are of modest size and subject to what Customers believes are conservative underwriting standards. Customers believes it has a strong risk management process to manage the portfolio risks prospectively and that this portfolio will perform well even under a stressed scenario. Following are some unique characteristics of Customers' multi-family loan portfolio:

• Principally concentrated in New York City and principally to high net worth families;
  
  
• Average loan size is $6.8 million;
  
  
• Median annual debt service coverage ratio is 137%;
  
  
• Median loan-to-value is 68.09%;
  
  
• All loans are individually stressed with an increase of 1% and 2% to the cap rate and an increase of 1.5% and 3% in loan interest rates;
  
  
• All properties are inspected prior to a loan being granted and monitored thereafter on an annual basis by dedicated portfolio managers; and
  
  
• Credit approval process is independent of customer sales and portfolio management process.

Customers' total CRE loan exposures subject to regulatory concentration guidelines include construction loans of $73 million, multi-family loans of $3.6 billion, and non-owner occupied commercial real estate loans of $1.2 billion, which represent 421% of total risk-based capital on a combined basis.

Asset Quality and Interest Rate Risk

Risk management is a critical component of how Customers creates long-term shareholder value, and Customers believes that two of the most important risks of banking to be understood and managed in an uncertain economy are asset quality and interest rate risk.

Customers believes that asset quality risks must be diligently addressed during good economic times with prudent underwriting standards so that when the economy deteriorates the bank's capital is sufficient to absorb all losses without threatening its ability to operate and serve its community and other constituents. "Customers adopted prudent underwriting standards in 2010 when the current management team assumed responsibility for building the Bank and has not compromised those standards," stated Mr. Sidhu. "Customers' non-performing loans at June 30, 2017 were only 0.21% of total loans, compared to our peer group non-performing loans of approximately 0.94% of total loans at March 31, 2017, and industry average non-performing loans of 1.50% of total loans at March 31, 2017.  Our expectation is superior asset quality performance in good times and in difficult years," said Mr. Sidhu.

Interest rate risk is another critical element for banks to manage. A significant shift in interest rates can have a devastating effect on a bank's profitability for multiple years. Banks can position their assets and liabilities to speculate on future interest rate changes with the hope of gaining earnings by guessing the next movement in interest rates. "Customers' objective is to manage the estimated effect of future interest rate changes, up or down, to about a neutral effect on net interest income, so not speculating on whether interest rates go up or down.  At June 30, 2017, we were approximately neutral in our likely interest rate forecasts," said Mr. Sidhu.

Diversified Loan Portfolio

Customers is a Business Bank that principally focuses on private banking for loan and deposit services, covering four lending activities; commercial and industrial loans to privately held businesses, multi-family loans principally to high net worth families, selected commercial real estate loans, and commercial loans and banking services to privately held mortgage companies. Commercial and industrial loans, including owner-occupied commercial real estate loans, and commercial loans to mortgage companies, were approximately $3.6 billion at June 30, 2017. Multi-family loans, or loans to high net worth families, were also approximately $3.6 billion at June 30, 2017. Non-owner occupied commercial real estate loans were approximately $1.2 billion at June 30, 2017. Consumer and residential mortgage loans make up only about 6% of the loan portfolio.

Conference Call

Date:  Thursday, July 27, 2017                     
Time:  9:00 AM ET                
US Dial-in:  877-397-0300
International Dial-in:  913-312-1229
Participant Code:  531205

Please dial in at least 10 minutes before the start of the call to ensure timely participation. Slides accompanying the presentation will be available on the Company's website at http://customersbank.com/investor_relations.php prior to the call.  A playback of the call will be available beginning July 27, 2017 at 12:00 noon ET until 12:00 noon ET on August 26, 2017. To listen, call within the United States (888)-203-1112 or 719-457-0820 when calling internationally. Please use the replay pin number 9328644.

Institutional Background

Customers Bancorp, Inc. is a bank holding company located in Wyomissing, Pennsylvania engaged in banking and related business through its bank subsidiary, Customers Bank.  Customers Bank is a community-based, full-service bank with assets of approximately $10.9 billion that was named by Forbes magazine as the 35th Best Bank in America (there are over 6,200 banks in the United States).  A member of the Federal Reserve System with deposits insured by the Federal Deposit Insurance Corporation, Customers Bank is an equal opportunity lender that provides a range of banking services to small and medium-sized businesses, professionals, individuals and families through offices in Pennsylvania, New York, Rhode Island, Massachusetts, New Hampshire and New Jersey.  Committed to fostering customer loyalty, Customers Bank uses a High Tech/High Touch strategy that includes use of industry-leading technology to provide customers better access to their money, as well as Concierge Banking® by appointment at customers’ homes or offices 12 hours a day, seven days a week. Customers Bank offers a continually expanding portfolio of loans to small businesses, multi-family projects, mortgage companies and consumers.

Customers Bancorp, Inc.'s voting common shares are listed on the New York Stock Exchange under the symbol CUBI.  Additional information about Customers Bancorp, Inc. can be found on the Company’s website, www.customersbank.com.

“Safe Harbor” Statement

In addition to historical information, this press release may contain "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to Customers Bancorp, Inc.'s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words "may," "could," "should," "pro forma," "looking forward," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan," or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Customers Bancorp, Inc.'s control). Numerous competitive, economic, regulatory, legal and technological factors, among others, could cause Customers Bancorp, Inc.'s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements. In addition, important factors relating to the acquisition of the Disbursements business, the combination of Customers’ BankMobile business with the acquired Disbursements business, the implementation of Customers Bancorp, Inc.'s strategy regarding BankMobile, the possibility of events, changes or other circumstances occurring or existing that could result in Customers completing the planned sale of BankMobile on terms materially different than those currently being contemplated or failing to complete the planned sale of BankMobile in the time-frame anticipated by Customers or at all, the possibility that the sale of BankMobile may be more expensive to complete than anticipated, the possibility that the expected benefits of the transaction may not be achieved, the possibility of Customers incurring liabilities relating to any sale of BankMobile, and the possible effects on Customers results of operations if the sale of BankMobile is not completed in a timely fashion or at all now that Customers assets are in excess of $10 billion also could cause Customers Bancorp's actual results to differ from those in the forward-looking statements. Customers Bancorp, Inc. cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management's current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Customers Bancorp, Inc.'s filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K for the year ended December 31, 2016, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Customers Bancorp, Inc. does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Customers Bancorp, Inc. or by or on behalf of Customers Bank.

BankMobile has been reported as discontinued operations in Customers’ 2017 and 2016 consolidated financial results.

At June 30, 2017, Customers anticipates that cash, securities, or loans (or a combination thereof) with a market value equal to the amount of BankMobile deposits at the time the anticipated sale closes will be included in the net assets transferred pursuant to the terms of the contemplated purchase and sale agreement.

BankMobile segment results were not material to Customers’ consolidated financial results for the three and six months ended June 30, 2016.

(Dollars in thousands, except per share data)

Customers believes that the non-GAAP measurements disclosed within this document are useful for investors, regulators, management and others to evaluate our results of operations and financial condition relative to other financial institutions. These non-GAAP financial measures exclude from corresponding GAAP measures the impact of certain elements that we do not believe are representative of our financial results, which we believe enhance an overall understanding of our performance. Investors should consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. Although non-GAAP financial measures are frequently used in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results of operations or financial condition as reported under GAAP.

The following tables present reconciliations of GAAP to Non-GAAP measures disclosed within this document.