WEST READING, Pa.–(BUSINESS WIRE)–$CUBI #FinTech–Customers Bancorp, Inc. (NYSE:CUBI)
Third Quarter 2023 Highlights
- Q3 2023 net income available to common shareholders was $83.0 million, or $2.58 per diluted share; ROAA was 1.57% and ROCE was 23.97%.
- Q3 2023 core earnings* were $83.3 million, or $2.59 per diluted share; Core ROAA* was 1.57% and Core ROCE* was 24.06%.
- CET 1 capital ratio of 11.3%1 at September 30, 2023, compared to 10.3% at June 30, 2023, achieving goal of 11.0% – 11.5% one quarter earlier than expected.
- Q3 2023 net interest margin, tax equivalent (NIM) was 3.70%, an increase of 55 basis points over Q2 2023 NIM of 3.15%, largely resulting from higher than expected discount accretion on the Venture Banking portfolio acquired in Q2 2023.
- Total deposits grew by $244.9 million in Q3 2023 over Q2 2023 with a significant positive mix shift. Q3 2023 core deposit growth of $1.3 billion drove the repayment of maturing wholesale CDs of $937 million and callable FHLB advances of $510 million. Q3 2023 non-interest bearing deposits increased $268.5 million, or 6%, over Q2 2023.
- Total estimated insured deposits were 78%2 of total deposits at September 30, 2023, with immediately available liquidity covering uninsured deposits by approximately 239%.
- Q3 2023 adjusted pre-tax pre-provision net income* was $128.6 million; adjusted pre-tax pre-provision ROAA* was 2.32%; and adjusted pre-tax pre-provision ROCE* was 36.04%.
- Q3 2023 provision for credit losses on loans and leases of $17.1 million was lower compared to Q2 2023 largely driven by lower balances in loans held for investment.
- Non-performing assets were $30.0 million, or 0.14% of total assets, at September 30, 2023 compared to 0.13% at June 30, 2023. Allowance for credit losses on loans and leases equaled 466% of non-performing loans at September 30, 2023, compared to 494% at June 30, 2023.
- Q3 2023 book value per share and tangible book value per share* both grew by $3.31, or 7.9% over Q2 2023, driven by strong quarterly earnings combined with decreased AOCI losses of $18.4 million over the same time period.
|
____________________ |
||
|
* |
|
Non-GAAP measure. Customers’ reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document. |
|
1 |
|
Regulatory capital ratios as of September 30, 2023 are estimates. |
|
2 |
|
Uninsured deposits (estimate) of $4.8 billion to be reported on the Bank’s call report, less state and municipal deposits of $591.3 million collateralized by standby letters of credit from the FHLB and from our affiliates of $99.2 million. |
CEO Commentary
“We are pleased to share our third quarter results as we continued to execute on our strategic priorities and delivered another strong quarter for shareholders,” said Customers Bancorp Chairman and CEO Jay Sidhu. “While the banking industry has broadly stabilized following the events earlier this year, the headwinds of higher funding costs and net interest margin compression have not subsided for most banks. We demonstrated the sustainability of our differentiated deposit strategy by growing core deposits by $1.3 billion in the third quarter resulting in $245 million in total deposit growth. The remaining liquidity inflows, and a modest amount of balance sheet cash, were used to payoff maturing wholesale CDs of $937 million and $510 million in callable FHLB advances. The core deposit growth was broad-based with 13 different channels contributing $25 million or more and benefited from the onboarding of deposits from our new Venture Banking clients. Non-interest bearing deposits as a percentage of deposits increased modestly to 26%. Our net interest margin continued to expand in the quarter in contrast to the industry headwinds. Elevated payoffs and maturities in the acquired Venture Banking portfolio resulted in outsized discount accretion which contributed to our net interest income. Capital levels continued to increase substantially during the quarter as evidenced by a 50 basis point increase in our TCE ratio* and a 100 basis point increase in our CET 1 ratio to end the quarter at 11.3%. We remain well-positioned to continue strengthening our deposit franchise, improve our profitability, and increase our capital ratios,” stated Jay Sidhu.
“Our Q3 2023 GAAP earnings were $83.0 million, or $2.58 per diluted share, well above consensus estimates. At September 30, 2023, our deposit base was well diversified, with approximately 78%2 of total deposits insured. We maintain a strong liquidity position, with $9.7 billion of liquidity immediately available, which covers approximately 239% of uninsured deposits and our loan to deposit ratio was 75%. We continue to be selective on new loan production given the uncertain environment and our commitment to improve our capital ratios and are focusing new loan production where we have a holistic and primary relationship. We are seeing attractive new origination opportunities and we remain firmly committed to serving our clients. We have ample liquidity and capital to support their needs. At September 30, 2023, we had $3.4 billion of cash on hand, which we believe is prudent balance sheet and liquidity management in the current environment. Asset quality remains exceptional with our NPA ratio remaining roughly flat at just 0.14% of total assets and reserve levels are robust at over 465% of total non-performing loans at the end of Q3 2023. Our exposure to higher risk commercial real estate such as the office and retail sectors is minimal, each representing only 1% of the loan portfolio. Continued execution on our strategic priorities has positioned us favorably for success through the remainder of 2023 and into 2024 from a capital, credit, liquidity, interest rate risk and earnings perspective. We will remain disciplined, but opportunistic, with our balance sheet capacity to minimize risk and maintain robust capital levels. We are extremely proud of the progress we made in the quarter and are confident in our risk management capabilities and ability to provide excellent service to our clients in all operating environments. We are excited and optimistic about the opportunities ahead,” Jay Sidhu continued.
|
____________________ |
||
|
* |
|
Non-GAAP measure. Customers’ reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document. |
|
1 |
|
Regulatory capital ratios as of September 30, 2023 are estimates. |
|
2 |
|
Uninsured deposits (estimate) of $4.8 billion to be reported on the Bank’s call report, less state and municipal deposits of $591.3 million collateralized by standby letters of credit from the FHLB and from our affiliates of $99.2 million. |
|
Financial Highlights |
|||||||||||||||
|
(Dollars in thousands, except per share data) |
|
At or Three Months Ended |
|
Increase (Decrease) |
|||||||||||
|
|
September 30, 2023 |
|
June 30, 2023 |
|
|||||||||||
|
Profitability Metrics: |
|
|
|
|
|
|
|
|
|||||||
|
Net income available for common shareholders |
|
$ |
82,953 |
|
|
$ |
44,007 |
|
|
$ |
38,946 |
|
|
88.5 |
% |
|
Diluted earnings per share |
|
$ |
2.58 |
|
|
$ |
1.39 |
|
|
$ |
1.19 |
|
|
85.6 |
% |
|
Core earnings* |
|
$ |
83,294 |
|
|
$ |
52,163 |
|
|
$ |
31,131 |
|
|
59.7 |
% |
|
Core earnings per share* |
|
$ |
2.59 |
|
|
$ |
1.65 |
|
|
$ |
0.94 |
|
|
57.0 |
% |
|
Return on average assets (“ROAA”) |
|
|
1.57 |
% |
|
|
0.88 |
% |
|
|
0.69 |
|
|
|
|
|
Core ROAA* |
|
|
1.57 |
% |
|
|
1.03 |
% |
|
|
0.54 |
|
|
|
|
|
Return on average common equity (“ROCE”) |
|
|
23.97 |
% |
|
|
13.22 |
% |
|
|
10.75 |
|
|
|
|
|
Core ROCE* |
|
|
24.06 |
% |
|
|
15.67 |
% |
|
|
8.39 |
|
|
|
|
|
Adjusted pre-tax pre-provision net income* |
|
$ |
128,564 |
|
|
$ |
96,833 |
|
|
$ |
31,731 |
|
|
32.8 |
% |
|
Net interest margin, tax equivalent |
|
|
3.70 |
% |
|
|
3.15 |
% |
|
|
0.55 |
|
|
|
|
|
Loan yield |
|
|
7.87 |
% |
|
|
6.83 |
% |
|
|
1.04 |
|
|
|
|
|
Cost of deposits |
|
|
3.24 |
% |
|
|
3.11 |
% |
|
|
0.13 |
|
|
|
|
|
Efficiency ratio |
|
|
41.01 |
% |
|
|
49.25 |
% |
|
|
(8.24 |
) |
|
|
|
|
Core efficiency ratio* |
|
|
41.04 |
% |
|
|
47.84 |
% |
|
|
(6.80 |
) |
|
|
|
|
Balance Sheet Trends: |
|
|
|
|
|
|
|
|
|||||||
|
Total assets |
|
$ |
21,857,152 |
|
|
$ |
22,028,565 |
|
|
$ |
(171,413 |
) |
|
(0.8 |
)% |
|
Total loans and leases |
|
$ |
13,713,482 |
|
|
$ |
13,910,907 |
|
|
$ |
(197,425 |
) |
|
(1.4 |
)% |
|
Non-interest bearing demand deposits |
|
$ |
4,758,682 |
|
|
$ |
4,490,198 |
|
|
$ |
268,484 |
|
|
6.0 |
% |
|
Total deposits |
|
$ |
18,195,364 |
|
|
$ |
17,950,431 |
|
|
$ |
244,933 |
|
|
1.4 |
% |
|
Capital Metrics: |
|
|
|
|
|
|
|
|
|||||||
|
Common Equity |
|
$ |
1,423,813 |
|
|
$ |
1,318,858 |
|
|
$ |
104,955 |
|
|
8.0 |
% |
|
Tangible Common Equity* |
|
$ |
1,420,184 |
|
|
$ |
1,315,229 |
|
|
$ |
104,955 |
|
|
8.0 |
% |
|
Common Equity to Total Assets |
|
|
6.5 |
% |
|
|
6.0 |
% |
|
|
0.5 |
|
|
|
|
|
Tangible Common Equity to Tangible Assets* |
|
|
6.5 |
% |
|
|
6.0 |
% |
|
|
0.5 |
|
|
|
|
|
Book Value per common share |
|
$ |
45.47 |
|
|
$ |
42.16 |
|
|
$ |
3.31 |
|
|
7.9 |
% |
|
Tangible Book Value per common share* |
|
$ |
45.36 |
|
|
$ |
42.04 |
|
|
$ |
3.32 |
|
|
7.9 |
% |
|
Common equity Tier 1 capital ratio (1) |
|
|
11.3 |
% |
|
|
10.3 |
% |
|
|
1.0 |
|
|
|
|
|
Total risk based capital ratio (1) |
|
|
14.3 |
% |
|
|
13.2 |
% |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
(1) Regulatory capital ratios as of September 30, 2023 are estimates. |
|||||||||||||||
|
* Non-GAAP measure. Customers’ reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document. |
|||||||||||||||
|
Financial Highlights |
||||||||||||||||||||||||||||||
|
(Dollars in thousands, except per share data) |
|
At or Three Months Ended |
|
Increase (Decrease) |
|
Nine Months Ended |
|
Increase (Decrease) |
||||||||||||||||||||||
|
|
September 30, 2023 |
|
September 30, 2022 |
|
|
September 30, 2023 |
|
September 30, 2022 |
|
|||||||||||||||||||||
|
Profitability Metrics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Net income available for common shareholders |
|
$ |
82,953 |
|
|
$ |
61,364 |
|
|
$ |
21,589 |
|
|
35.2 |
% |
|
$ |
177,225 |
|
|
$ |
192,779 |
|
|
$ |
(15,554 |
) |
|
(8.1 |
)% |
|
Diluted earnings per share |
|
$ |
2.58 |
|
|
$ |
1.85 |
|
|
$ |
0.73 |
|
|
39.5 |
% |
|
$ |
5.53 |
|
|
$ |
5.72 |
|
|
$ |
(0.19 |
) |
|
(3.3 |
)% |
|
Core earnings* |
|
$ |
83,294 |
|
|
$ |
82,270 |
|
|
$ |
1,024 |
|
|
1.2 |
% |
|
$ |
186,600 |
|
|
$ |
217,047 |
|
|
$ |
(30,447 |
) |
|
(14.0 |
)% |
|
Core earnings per share* |
|
$ |
2.59 |
|
|
$ |
2.48 |
|
|
$ |
0.11 |
|
|
4.4 |
% |
|
$ |
5.82 |
|
|
$ |
6.44 |
|
|
$ |
(0.62 |
) |
|
(9.6 |
)% |
|
Return on average assets (“ROAA”) |
|
|
1.57 |
% |
|
|
1.24 |
% |
|
|
0.33 |
|
|
|
|
|
1.17 |
% |
|
|
1.34 |
% |
|
|
(0.17 |
) |
|
|
||
|
Core ROAA* |
|
|
1.57 |
% |
|
|
1.64 |
% |
|
|
(0.07 |
) |
|
|
|
|
1.22 |
% |
|
|
1.50 |
% |
|
|
(0.28 |
) |
|
|
||
|
Return on average common equity (“ROCE”) |
|
|
23.97 |
% |
|
|
19.33 |
% |
|
|
4.64 |
|
|
|
|
|
17.84 |
% |
|
|
20.58 |
% |
|
|
(2.74 |
) |
|
|
||
|
Core ROCE* |
|
|
24.06 |
% |
|
|
25.91 |
% |
|
|
(1.85 |
) |
|
|
|
|
18.79 |
% |
|
|
23.17 |
% |
|
|
(4.38 |
) |
|
|
||
|
Adjusted pre-tax pre-provision net income* |
|
$ |
128,564 |
|
|
$ |
100,994 |
|
|
$ |
27,570 |
|
|
27.3 |
% |
|
$ |
314,679 |
|
|
$ |
319,335 |
|
|
$ |
(4,656 |
) |
|
(1.5 |
)% |
|
Net interest margin, tax equivalent |
|
|
3.70 |
% |
|
|
3.16 |
% |
|
|
0.54 |
|
|
|
|
|
3.28 |
% |
|
|
3.38 |
% |
|
|
(0.10 |
) |
|
|
||
|
Loan yield |
|
|
7.87 |
% |
|
|
5.08 |
% |
|
|
2.79 |
|
|
|
|
|
7.12 |
% |
|
|
4.77 |
% |
|
|
2.35 |
|
|
|
||
|
Cost of deposits |
|
|
3.24 |
% |
|
|
1.48 |
% |
|
|
1.76 |
|
|
|
|
|
3.23 |
% |
|
|
0.80 |
% |
|
|
2.43 |
|
|
|
||
|
Efficiency ratio |
|
|
41.01 |
% |
|
|
50.00 |
% |
|
|
(8.99 |
) |
|
|
|
|
45.62 |
% |
|
|
43.46 |
% |
|
|
2.16 |
|
|
|
||
|
Core efficiency ratio* |
|
|
41.04 |
% |
|
|
42.57 |
% |
|
|
(1.53 |
) |
|
|
|
|
45.03 |
% |
|
|
41.23 |
% |
|
|
3.80 |
|
|
|
||
|
Balance Sheet Trends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Total assets |
|
$ |
21,857,152 |
|
|
$ |
20,367,621 |
|
|
$ |
1,489,531 |
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
|||||||
|
Total loans and leases |
|
$ |
13,713,482 |
|
|
$ |
15,336,688 |
|
|
$ |
(1,623,206 |
) |
|
(10.6 |
)% |
|
|
|
|
|
|
|
|
|||||||
|
Non-interest bearing demand deposits |
|
$ |
4,758,682 |
|
|
$ |
2,993,793 |
|
|
$ |
1,764,889 |
|
|
59.0 |
% |
|
|
|
|
|
|
|
|
|||||||
|
Total deposits |
|
$ |
18,195,364 |
|
|
$ |
17,522,438 |
|
|
$ |
672,926 |
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|||||||
|
Capital Metrics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Common Equity |
|
$ |
1,423,813 |
|
|
$ |
1,249,137 |
|
|
$ |
174,676 |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|||||||
|
Tangible Common Equity* |
|
$ |
1,420,184 |
|
|
$ |
1,245,508 |
|
|
$ |
174,676 |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|||||||
|
Common Equity to Total Assets |
|
|
6.5 |
% |
|
|
6.1 |
% |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Tangible Common Equity to Tangible Assets* |
|
|
6.5 |
% |
|
|
6.1 |
% |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Book Value per common share |
|
$ |
45.47 |
|
|
$ |
38.46 |
|
|
$ |
7.01 |
|
|
18.2 |
% |
|
|
|
|
|
|
|
|
|||||||
|
Tangible Book Value per common share* |
|
$ |
45.36 |
|
|
$ |
38.35 |
|
|
$ |
7.01 |
|
|
18.3 |
% |
|
|
|
|
|
|
|
|
|||||||
|
Common equity Tier 1 capital ratio (1) |
|
|
11.3 |
% |
|
|
9.8 |
% |
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total risk based capital ratio (1) |
|
|
14.3 |
% |
|
|
12.5 |
% |
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(1) Regulatory capital ratios as of September 30, 2023 are estimates. |
||||||||||||||||||||||||||||||
|
* Non-GAAP measure. Customers’ reasons for the use of the non-GAAP measure and a detailed reconciliation between the non-GAAP measure and the comparable GAAP amount are included at the end of this document. |
||||||||||||||||||||||||||||||
| Key Balance Sheet Trends | ||||||||||||||||||
| Loans and Leases | ||||||||||||||||||
|
The following table presents the composition of total loans and leases as of the dates indicated: |
||||||||||||||||||
|
(Dollars in thousands) |
September 30, 2023 |
|
% of Total |
|
June 30, 2023 |
|
% of Total |
|
September 30, 2022 |
|
% of Total |
|||||||
|
Loans and Leases Held for Investment |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Commercial & industrial: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Specialty lending |
$ |
5,422,161 |
|
40.0 |
% |
|
$ |
5,534,832 |
|
40.0 |
% |
|
$ |
5,103,974 |
|
33.3 |
% |
|
|
Other commercial & industrial |
|
1,115,364 |
|
8.2 |
|
|
|
1,052,145 |
|
7.6 |
|
|
|
1,064,332 |
|
7.0 |
|
|
|
Multifamily |
|
2,130,213 |
|
15.7 |
|
|
|
2,151,734 |
|
15.6 |
|
|
|
2,263,268 |
|
14.8 |
|
|
|
Loans to mortgage companies |
|
1,042,549 |
|
7.7 |
|
|
|
1,108,598 |
|
8.0 |
|
|
|
1,708,587 |
|
11.1 |
|
|
|
Commercial real estate owner occupied |
|
794,815 |
|
5.9 |
|
|
|
842,042 |
|
6.1 |
|
|
|
726,670 |
|
4.7 |
|
|
|
Loans receivable, PPP |
|
137,063 |
|
1.0 |
|
|
|
188,763 |
|
1.4 |
|
|
|
1,154,632 |
|
7.5 |
|
|
|
Commercial real estate non-owner occupied |
|
1,178,203 |
|
8.7 |
|
|
|
1,211,091 |
|
8.8 |
|
|
|
1,263,211 |
|
8.2 |
|
|
|
Construction |
|
252,588 |
|
1.8 |
|
|
|
212,214 |
|
1.5 |
|
|
|
136,133 |
|
0.9 |
|
|
|
Total commercial loans and leases |
|
12,072,956 |
|
89.0 |
|
|
|
12,301,419 |
|
89.0 |
|
|
|
13,420,807 |
|
87.5 |
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Residential |
|
483,133 |
|
3.6 |
|
|
|
487,199 |
|
3.5 |
|
|
|
465,772 |
|
3.1 |
|
|
|
Manufactured housing |
|
40,129 |
|
0.3 |
|
|
|
41,664 |
|
0.3 |
|
|
|
46,990 |
|
0.3 |
|
|
|
Installment: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Personal |
|
629,843 |
|
4.6 |
|
|
|
752,470 |
|
5.4 |
|
|
|
1,056,432 |
|
6.9 |
|
|
|
Other |
|
337,053 |
|
2.5 |
|
|
|
250,047 |
|
1.8 |
|
|
|
341,463 |
|
2.2 |
|
|
|
Total installment loans |
|
966,896 |
|
7.1 |
|
|
|
1,002,517 |
|
7.2 |
|
|
|
1,397,895 |
|
9.1 |
|
|
|
Total consumer loans |
|
1,490,158 |
|
11.0 |
|
|
|
1,531,380 |
|
11.0 |
|
|
|
1,910,657 |
|
12.5 |
|
|
|
Total loans and leases held for investment |
$ |
13,563,114 |
|
100.0 |
% |
|
$ |
13,832,799 |
|
100.0 |
% |
|
$ |
15,331,464 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Loans Held for Sale |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Multifamily |
$ |
— |
|
— |
% |
|
$ |
— |
|
— |
% |
|
$ |
4,108 |
|
78.6 |
% |
|
|
Commercial real estate non-owner occupied |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
Total commercial loans and leases |
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
4,108 |
|
78.6 |
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Residential |
|
1,005 |
|
0.7 |
|
|
|
1,234 |
|
1.6 |
|
|
|
1,116 |
|
21.4 |
|
|
|
Installment: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Personal |
|
124,848 |
|
83.0 |
|
|
|
76,874 |
|
98.4 |
|
|
|
— |
|
— |
|
|
|
Other |
|
24,515 |
|
16.3 |
|
|
|
— |
|
— |
|
|
|
— |
|
— |
|
|
|
Total installment loans |
|
149,363 |
|
99.3 |
|
|
|
76,874 |
|
98.4 |
|
|
|
— |
|
— |
|
|
|
Total consumer loans |
|
150,368 |
|
100.0 |
|
|
|
78,108 |
|
100.0 |
|
|
|
1,116 |
|
21.4 |
|
|
|
Total loans held for sale |
$ |
150,368 |
|
100.0 |
% |
|
$ |
78,108 |
|
100.0 |
% |
|
$ |
5,224 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Total loans and leases portfolio |
$ |
13,713,482 |
|
|
|
$ |
13,910,907 |
|
|
|
$ |
15,336,688 |
|
|
||||
Loans and Leases Held for Investment
Loans and leases held for investment were $13.6 billion at September 30, 2023, down $269.7 million, or 1.9%, from June 30, 2023, consistent with our stated goal of purposely moderating loan growth and exiting non-strategic relationships. Loans held for investment decreased modestly in every category, except for relatively small increases in construction loans and in other commercial and industrial (“C&I”) loans quarter-over-quarter. Other C&I loans increased $63.2 million, or 6.0% quarter-over-quarter, to $1.1 billion. Loans to mortgage companies decreased $66.0 million, or 6.0% quarter-over-quarter due to lower mortgage activity. Consumer installment loans held for investment decreased $35.6 million, or 3.6% quarter-over-quarter, to $1.0 billion as we continue to execute on our held-for-sale strategy and de-risk the held-for-investment loan portfolio in 2023.
Loans and leases held for investment of $13.6 billion at September 30, 2023 was down $1.8 billion, or 11.5%, year-over-year, largely driven by reduced balances in PPP loans of $1.0 billion, loans to mortgage companies of $666.0 million and consumer installment loans of $431.0 million, offset in part by net growth in the lower risk variable rate specialty lending verticals of $318.2 million. Consumer installment loans held for investment decreased $431.0 million, or 30.8% year-over-year, to $966.9 million as we continue to execute on our held-for-sale strategy and de-risk the held-for-investment loan portfolio in 2023.
Loans Held for Sale
Loans held for sale increased $72.3 million quarter-over-quarter, and were $150.4 million at September 30, 2023 as we continue to build out our held-for-sale strategy in 2023.
Allowance for Credit Losses on Loans and Leases
|
The following table presents the allowance for credit losses on loans and leases as of the dates and for the periods presented: |
||||||||||||||||||||||||
|
|
At or Three Months Ended |
|
Increase (Decrease) |
|
At or Three Months Ended |
|
Increase (Decrease) |
|||||||||||||||||
|
(Dollars in thousands) |
September 30, 2023 |
|
June 30, 2023 |
|
|
September 30, 2023 |
|
September 30, 2022 |
|
|||||||||||||||
|
Allowance for credit losses on loans and leases |
$ |
139,213 |
|
|
$ |
139,656 |
|
|
$ |
(443 |
) |
|
$ |
139,213 |
|
|
$ |
130,197 |
|
|
$ |
9,016 |
|
|
|
Provision (benefit) for credit losses on loans and leases |
$ |
17,055 |
|
|
$ |
22,363 |
|
|
$ |
(5,308 |
) |
|
$ |
17,055 |
|
|
$ |
(7,836 |
) |
|
$ |
24,891 |
|
|
|
Net charge-offs from loans held for investment |
$ |
17,498 |
|
|
$ |
15,564 |
|
|
$ |
1,934 |
|
|
$ |
17,498 |
|
|
$ |
18,497 |
|
|
$ |
(999 |
) |
|
|
Annualized net charge-offs to average loans and leases |
|
0.50 |
% |
|
|
0.42 |
% |
|
|
|
|
0.50 |
% |
|
|
0.47 |
% |
|
|
|||||
|
Coverage of credit loss reserves for loans and leases held for investment |
|
1.10 |
% |
|
|
1.09 |
% |
|
|
|
|
1.10 |
% |
|
|
0.95 |
% |
|
|
|||||
Net charge-offs were relatively stable with $17.5 million in Q3 2023, compared to $15.6 million in Q2 2023 and $18.5 million in Q3 2022.
Provision (benefit) for Credit Losses
|
|
Three Months Ended |
|
Increase (Decrease) |
|
Three Months Ended |
|
Increase (Decrease) |
|||||||||||||||
|
(Dollars in thousands) |
September 30, 2023 |
|
June 30, 2023 |
|
|
September 30, 2023 |
|
September 30, 2022 |
|
|||||||||||||
|
Provision (benefit) for credit losses on loans and leases |
$ |
17,055 |
|
$ |
22,363 |
|
|
$ |
(5,308 |
) |
|
$ |
17,055 |
|
$ |
(7,836 |
) |
|
$ |
24,891 |
|
|
|
Provision (benefit) for credit losses on available for sale debt securities |
|
801 |
|
|
1,266 |
|
|
|
(465 |
) |
|
|
801 |
|
|
(158 |
) |
|
|
959 |
|
|
|
Provision for credit losses |
|
17,856 |
|
|
23,629 |
|
|
|
(5,773 |
) |
|
|
17,856 |
|
|
(7,994 |
) |
|
|
25,850 |
|
|
|
Provision (benefit) for credit losses on unfunded commitments |
|
48 |
|
|
(304 |
) |
|
|
352 |
|
|
|
48 |
|
|
254 |
|
|
|
(206 |
) |
|
|
Total provision for credit losses |
$ |
17,904 |
|
$ |
23,325 |
|
|
$ |
(5,421 |
) |
|
$ |
17,904 |
|
$ |
(7,740 |
) |
|
$ |
25,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
The provision for credit losses on loans and leases in Q3 2023 was $17.1 million, compared to $22.4 million in Q2 2023 and a benefit to provision of $7.8 million in Q3 2022. The lower provision in Q3 2023 was primarily due to lower balances in loans held for investment. The benefit to provision in Q3 2022 was primarily due to the sale of $500.0 million of unsecured consumer installment loans, partially offset by loan growth and the recognition of weaker macroeconomic forecasts. The sale transaction resulted in approximately $36.8 million of release in allowance for credit losses, which was included in core earnings* in Q3 2022.
The provision for credit losses on available for sale investment securities in Q3 2023 was $0.8 million, compared to provision of $1.3 million in Q2 2023 and a benefit to provision of $0.2 million in Q3 2022.
Asset Quality
The following table presents asset quality metrics as of the dates indicated:
|
(Dollars in thousands) |
September 30, 2023 |
|
June 30, 2023 |
|
Increase (Decrease) |
|
September 30, 2023 |
|
September 30, 2022 |
|
Increase (Decrease) |
|||||||||||||
|
Non-performing assets (“NPAs”): |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Nonaccrual / non-performing loans (“NPLs”) |
$ |
29,867 |
|
|
$ |
28,244 |
|
|
$ |
1,623 |
|
|
$ |
29,867 |
|
|
$ |
27,919 |
|
|
$ |
1,948 |
|
|
|
Non-performing assets |
$ |
29,970 |
|
|
$ |
28,380 |
|
|
$ |
1,590 |
|
|
$ |
29,970 |
|
|
$ |
27,965 |
|
|
$ |
2,005 |
|
|
|
NPLs to total loans and leases |
|
0.22 |
% |
|
|
0.20 |
% |
|
|
|
|
0.22 |
% |
|
|
0.18 |
% |
|
|
|||||
|
Reserves to NPLs |
|
466.11 |
% |
|
|
494.46 |
% |
|
|
|
|
466.11 |
% |
|
|
466.34 |
% |
|
|
|||||
|
NPAs to total assets |
|
0.14 |
% |
|
|
0.13 |
% |
|
|
|
|
0.14 |
% |
|
|
0.14 |
% |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Loans and leases (1) risk ratings: |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Commercial loans and leases (2) |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Pass |
$ |
10,503,731 |
|
|
$ |
10,667,619 |
|
|
$ |
(163,888 |
) |
|
$ |
10,503,731 |
|
|
$ |
10,262,647 |
|
|
$ |
241,084 |
|
|
|
Special Mention |
|
189,329 |
|
|
|
166,468 |
|
|
|
22,861 |
|
|
|
189,329 |
|
|
|
104,560 |
|
|
|
84,769 |
|
|
|
Substandard |
|
280,267 |
|
|
|
272,301 |
|
|
|
7,966 |
|
|
|
280,267 |
|
|
|
329,878 |
|
|
|
(49,611 |
) |
|
|
Total commercial loans and leases |
|
10,973,327 |
|
|
|
11,106,388 |
|
|
|
(133,061 |
) |
|
|
10,973,327 |
|
|
|
10,697,085 |
|
|
|
276,242 |
|
|
|
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Performing |
|
1,473,493 |
|
|
|
1,508,208 |
|
|
|
(34,715 |
) |
|
|
1,473,493 |
|
|
|
1,893,977 |
|
|
|
(420,484 |
) |
|
|
Non-performing |
|
16,665 |
|
|
|
23,172 |
|
|
|
(6,507 |
) |
|
|
16,665 |
|
|
|
16,680 |
|
|
|
(15 |
) |
|
|
Total consumer loans |
|
1,490,158 |
|
|
|
1,531,380 |
|
|
|
(41,222 |
) |
|
|
1,490,158 |
|
|
|
1,910,657 |
|
|
|
(420,499 |
) |
|
|
Loans and leases receivable (1) |
$ |
12,463,485 |
|
|
$ |
12,637,768 |
|
|
$ |
(174,283 |
) |
|
$ |
12,463,485 |
|
|
$ |
12,607,742 |
|
|
$ |
(144,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
(1) Risk ratings are assigned to loans and leases held for investment, and excludes loans held for sale and loans receivable, mortgage warehouse, at fair value. |
||||||||||||||||||||||||
|
(2) Excludes loan receivable, PPP, as eligible PPP loans are fully guaranteed by the Small Business Administration. |
||||||||||||||||||||||||
Over the last decade, we have developed a suite of commercial loan products with one particularly important common denominator: relatively low credit risk assumption. The Bank’s C&I, loans to mortgage companies, corporate and specialty lending lines of business, and multifamily loans for example, are characterized by conservative underwriting standards and low loss rates. Because of this emphasis, the Bank’s credit quality to date has been incredibly healthy despite an adverse economic environment. Maintaining strong asset quality also requires a highly active portfolio monitoring process. In addition to frequent client outreach and monitoring at the individual loan level, we employ a bottom-up data driven approach to analyze the commercial portfolio.
Total consumer installment loans held for investment at September 30, 2023 were less than 5% of total assets and approximately 7% of total loans and leases held for investment, and were supported by an allowance for credit losses of $58.2 million. At September 30, 2023, our consumer installment portfolio had the following characteristics: average original FICO score of 734, average debt-to-income of 19% and average borrower income of $106 thousand.
Non-performing loans at September 30, 2023 remained relatively stable at 0.22% of total loans and leases, compared to 0.20% at June 30, 2023 and 0.18% at September 30, 2022.
Investment Securities
Our investment securities portfolio, including debt securities classified as available for sale (“AFS”) and held to maturity (“HTM”) provides periodic cash flows through regular maturities and amortization, can be used as collateral to secure additional funding, and is an important component of our liquidity position.
The following table presents the composition of our investment securities portfolio as of the dates indicated:
|
(Dollars in thousands) |
September 30, 2023 |
|
June 30, 2023 |
|
September 30, 2022 |
||||
|
Debt securities, available for sale |
$ |
2,746,729 |
|
$ |
2,797,940 |
|
$ |
2,918,830 |
|
|
Equity securities |
|
26,478 |
|
|
26,698 |
|
|
24,864 |
|
|
Investment securities, at fair value |
|
2,773,207 |
|
|
2,824,638 |
|
|
2,943,694 |
|
|
Debt securities, held to maturity |
|
1,178,370 |
|
|
1,258,560 |
|
|
886,294 |
|
|
Total investment securities portfolio |
$ |
3,951,577 |
|
$ |
4,083,198 |
|
$ |
3,829,988 |
|
Critically important to performance during the recent banking crisis are the characteristics of a bank’s securities portfolio. While there may be virtually no credit risk in some of these portfolios, holding longer term and lower yielding securities is creating challenges for many banks. Our securities portfolio is highly liquid, short in duration, and high in yield. At September 30, 2023, our AFS debt securities portfolio had a spot yield of 5.43%, an effective duration of approximately 1.6 years, and approximately 48% are variable rate. Additionally, 64% of our AFS securities portfolio was AAA rated at September 30, 2023.
At September 30, 2023, our HTM debt securities portfolio represented only 5.4% of our total assets at September 30, 2023, had a spot yield of 4.34% and an effective duration of approximately 3.0 years. Additionally, at September 30, 2023, approximately 38% of our HTM securities were AAA rated and 55% were credit enhanced asset backed securities with no current expectation of credit losses.
Contacts
David W. Patti, Communications Director 610-451-9452
