Customers Bancorp, Inc. Subordinated Notes to Convert from Fixed to Floating Rate
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Insights
The conversion of Customers Bancorp's subordinated notes from a fixed to floating rate is significant for investors as it impacts the cost of capital and the interest expense on the company's balance sheet. The transition from the three-month LIBOR to the three-month term SOFR, as per the Adjustable Interest Rate (LIBOR) Act, is a critical shift in financial benchmarks following the LIBOR scandal and its subsequent phase-out. The SOFR is considered to be a more reliable and transparent rate, reflecting the cost of borrowing cash overnight collateralized by Treasury securities.
This change will affect the yield that investors receive from these notes and could influence the bank's stock performance depending on market reaction to the new rate. The ability of the bank to call the notes at 100% of the principal balance provides flexibility in managing its debt portfolio, which could be beneficial if interest rates fall. However, it also introduces reinvestment risk for note holders. The bank's position as a top performer with significant assets suggests that it is well-regarded in the industry, which could help maintain investor confidence during this transition.
From a market perspective, the announcement by Customers Bancorp regarding the interest rate conversion of its subordinated notes could signal a proactive approach to managing its debt in a changing rate environment. The floating rate offers potential advantages in a declining interest rate scenario, allowing the bank to incur lower interest expenses over time. Conversely, in a rising rate environment, the cost could increase, affecting the bank's net interest margin and profitability.
The bank's accolades and ranking among the top-performing banks may provide a cushion against market volatility. However, investors and analysts will likely monitor the bank's interest expense and cost of capital closely, as these are key metrics that influence a financial institution's performance. The quarterly interest payments post-conversion could affect cash flow forecasts and valuation models used by investors to assess the bank's stock.
Understanding the legal implications of the Adjustable Interest Rate (LIBOR) Act is essential for stakeholders of Customers Bancorp. The act's enactment has mandated the transition from LIBOR to SOFR, which reflects broader changes in the financial industry towards more stable and less manipulable benchmarks. The legal stipulations allowing the bank to call the notes provide a strategic tool for debt management, but also require careful consideration of the rights and expectations of note holders.
It's important to review the terms of the Subordinated Note Certificate to fully understand the conditions under which the bank can exercise the call option. This will have implications for both the bank's financial strategy and the investors' returns. The legal framework surrounding these financial instruments is complex and the transition to SOFR is a significant legal and operational undertaking for financial institutions.
On June 24, 2014, Customers Bancorp, Inc. (“Customers”) and its wholly-owned subsidiary, Customers Bank, (the “Bank”) entered into subscription agreements with accredited investors under which the Bank issued
Pursuant to the terms of the original Subordinated Note Certificate, from June 26, 2024, until maturity, the Subordinated Notes were to bear an annual interest rate equal to the three-month LIBOR plus 344.3 basis points. Pursuant to the Adjustable Interest Rate (LIBOR) Act enacted by Congress on March 15, 2022, the three-month term SOFR plus a tenor spread adjustment of 26.161 basis points will replace the three-month LIBOR rate as the benchmark reference rate used to calculate the annual interest rate for the Subordinated Notes on and after June 26, 2024. After June 26, 2024 and until maturity or redemption, interest on the Subordinated Notes will be payable quarterly in arrears on each March 26, June 26, September 26 and December 26 (or, if such date is not a Business Day (as defined in the Subordinated Note Certificate), on the next succeeding Business Day).
The Bank has the ability to call the Subordinated Notes, in whole, or in part, at a redemption price equal to
Institutional Background
Customers Bancorp, Inc. (NYSE:CUBI) is one of the nation’s top-performing banking companies with over
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#5 in top-performing banks with assets between
$10 billion $50 billion - #34 out of the 100 largest publicly traded banks in 2023 per Forbes; and
- #64 on Fortune Magazine’s 2022 list of the 100 fastest growing companies in America; and
A member of the Federal Reserve System with deposits insured by the Federal Deposit Insurance Corporation, Customers Bank is an equal opportunity lender. Learn more: www.customersbank.com.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240304764060/en/
David Patti, Communications Director 610-451-9452
Source: Customers Bancorp, Inc.
FAQ
What is the conversion date for the subordinated notes issued by Customers Bancorp, Inc. (NYSE:CUBI)?
What benchmark reference rate will replace the three-month LIBOR rate for calculating the annual interest rate on the Subordinated Notes after June 26, 2024?
What are the major accolades received by Customers Bancorp, Inc. (NYSE:CUBI)?
What type of banking services does Customers Bancorp, Inc. (NYSE:CUBI) offer?
