Customers Bancorp Reports First Quarter 2021 Results
Customers Bancorp, Inc. (NYSE: CUBI) reported Q1 2021 net income of $33.2 million ($1.01/share), reflecting a decline from Q4 2020's $52.8 million ($1.65/share). The quarter included a $38 million loss from discontinued operations, reducing GAAP earnings by $1.16/share. Core earnings rose to $70.3 million ($2.14/share). The net interest margin expanded to 3.00%. Total loans surged by 56.6% year-over-year to $16.2 billion, driven by significant PPP approvals. Total deposits increased by 48.2% to $12.5 billion, with a notable rise in demand deposits. Capital ratios improved significantly.
- Core earnings increased to $70.3 million, up from $54.6 million in Q4 2020.
- Net interest margin expanded by 22 basis points to 3.00%.
- Total loans increased by 56.6% year-over-year to $16.2 billion.
- Total deposits rose by 48.2% to $12.5 billion, with demand deposits up 96.4%.
- Tangible common equity rose by $235 million year-over-year to $967.3 million.
- Low non-performing loans at 0.3% of total loans and leases.
- Net income decreased by 37% from Q4 2020 due to a significant loss from discontinued operations.
- Total loans decreased in multi-family, residential mortgages, and commercial real estate non-owner occupied categories.
Customers Bancorp, Inc. (NYSE: CUBI), the parent company of Customers Bank (collectively "Customers" or "CUBI"), today reported first quarter 2021 ("Q1 2021") net income to common shareholders of
“We are extremely pleased with our financial results for the first quarter and are excited that 2021 is off to a great start,” remarked Customers Bancorp Chairman and CEO, Jay Sidhu. “At this time, we have close to 200,000 of loans approved by the SBA in Round 3 of the Paycheck Protection Program ("PPP") as we continue to support small businesses, not-for-profits, and the communities we serve while improving the financial position of Customers Bank at the same time. In total, we expect to generate approximately
Key Balance Sheet Trends
Total loans and leases increased
Total deposits increased
Very Strong Growth in Tangible Common Equity and Tangible Book Value Per Share
Customers experienced significant improvements in regulatory capital ratios in Q1 2021 as compared to a year ago. Customers Bancorp's tangible common equity (a non-GAAP measure) increased by
Loan Portfolio Management During the COVID-19 Crisis
Over the last decade, Customers has developed a suite of commercial and retail loan products with one particularly important common denominator: relatively low credit risk assumption. The Bank’s multifamily, mortgage warehouse, and specialty finance lines of business, 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 healthy despite a highly 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, Customers employs a bottom-up data driven approach to analyze its commercial portfolio.
Strong commercial loan portfolio with very low concentration in COVID-19 impacted industries and CRE
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Total commercial deferments declined to
$176.1 million , or1.6% of total loans and leases, excluding PPP loans (a non-GAAP measure), at March 31, 2021, down from$202.1 million , or1.8% of total loans and leases, excluding PPP loans, at December 31, 2020. Of the$176.1 million in total commercial deferments,$83.1 million , or47.2% , were principal only deferments. Customers' commercial deferments peaked at about$1.2 billion in July 2020. -
Exposure to industry segments significantly impacted by COVID-19 is not substantial. At March 31, 2021, Customers had
$84.6 million in energy and utilities exposure (with no deferments);$62.0 million in colleges and universities (no deferments requested);$66.2 million in CRE retail sales exposure (mostly auto sales; with no deferments);$30.4 million in franchise restaurants and dining (with no deferments); and$26.9 million in entertainment only businesses (with no deferments). -
At March 31, 2021, the hospitality portfolio was
$400.6 million , or3.6% of total loans and leases, excluding PPP loans, with$125.9 million in deferment. Approximately79.7% ($318.8 million ) represents “flagged” facilities, with the majority of the non-flagged being high-end destination hotels in Cape May (NJ), Avalon (NJ), and Long Island (NY). The majority of the hotels, based on our recent assessment, have sufficient cash resources to get through the COVID-19 crisis and, for those who may need assistance, the Bank is working with them to bridge any potential cash flow gaps. -
At March 31, 2021, the healthcare portfolio was approximately
$385 million , comprised predominantly of skilled nursing, which has been deemed an essential business and through a number of federal and state actions has been provided immunity from liability for COVID-19 related deaths. No deferments have been requested and there are no delinquencies. -
The multi-family portfolio is highly seasoned, with a weighted average loan to value of
62% as of quarter-end.55% of the portfolio was in New York City, of which71% was in rent controlled/regulated properties. As of March 31, 2021,$9.3 million of the portfolio was on deferment. -
At March 31, 2021, investment CRE had a weighted average loan to value of
64% , with approximately53% of the portfolio housed in the New York and Philadelphia and surrounding markets. As of March 31, 2021,$4.4 million of the portfolio was on deferment, with minimal exposure to the office market.
Consumer installment, mortgage and home equity loan portfolios continue to perform well
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Total consumer-related deferments declined to
$13.0 million , or0.1% of total loans and leases, excluding PPP loans (a non-GAAP measure), at March 31, 2021, down from$16.4 million at December 31, 2020. -
The
$1.4 billion consumer installment loan portfolio outperformed industry peers with deferments dropping to0.5% and 30+ DPD delinquency at only0.8% . Strong credit quality (avg. FICO at origination: 740), low concentration in at-risk job segments, and outstanding performance of CB Direct originations have resulted in solid results through the end of Q1 2021. - The consumer installment portfolio has been managed to moderate growth and strengthening credit quality, by replacing run-off with CB Direct originations with strong FICO scores.
Key Profitability Trends
Net Interest Income
Net interest income totaled
Provision for Credit Losses
The provision for credit losses on loans and leases in Q1 2021 was a
Non-Interest Income
Non-interest income totaled
The increase in gain on sale of investment securities primarily resulted from the sales of approximately
Non-Interest Expense
Non-interest expense totaled
The increase in technology, communication and bank operations resulted from higher deposit servicing fees and interchange maintenance fees paid to BM Technologies, Inc., the successor entity of BMT that was divested on January 4, 2021, due to increased deposit balances and debit card transactions. The increase in professional services was primarily due to outside professional services used to support the PPP forgiveness process and our participation in PPP round 3. The increase in advertising and promotion was due to lower spend and credits from advertising agencies in 2020. The increase in commercial lease depreciation was driven by continued organic growth. The decrease in salaries and employee benefits was primarily due to lower incentives, sales commissions, and stock based compensation expense, partially offset by higher employee benefits and payroll taxes in Q1 2021. The decrease in loan workout expenses primarily resulted from a recovery from a commercial relationship. The decrease in merger and acquisition related expenses primarily resulted from a decrease in the Bank's direct costs incurred as the divestiture of BMT was completed on January 4, 2021.
Taxes
Income tax expense from continuing operations decreased by
Net Loss From Discontinued Operations
The divestiture of BMT was completed on January 4, 2021, and BMT's historical financial results are presented as discontinued operations. The net loss from discontinued operations of
Outlook
“Looking ahead, we are very optimistic about the prospects of our company. The ongoing digital transformation of Customers Bancorp has allowed us to be a major participant in the third round of PPP and to incubate new lines of businesses that leverage our fintech relationships. We expect to launch a private real-time, blockchain-based B2B payments platform with integration of digital and legacy payment rails. The platform will deliver enhanced payments functionality for our business clients and is expected to generate additional deposit growth in targeted niches, such as real estate, monetary and currency exchanges and institutional investments. We also expect our tangible common equity and regulatory capital levels to achieve targeted levels within the next 12 months and our credit quality to remain in line with or better than peers. The financial benefits of PPP aside, we project our recurring earnings power to expand to about the
Our updated financial guidance is as follows:
- Loan growth, excluding PPP and mortgage warehouse balances, is expected to average in the mid-to-high single digits over the next several quarters.
-
The balance of commercial loans to mortgage companies is expected to decline to
$1.6 -$2.4 billion at December 31, 2021. -
The Total Capital Ratio is expected to be about
14.0% by year-end 2021. The TCE ratio excluding PPP loans is expected to be about8.5% by year-end 2021. -
We project the NIM excluding PPP loans to expand into the
3.10% -3.30% range by Q4 2021. -
We project an effective tax rate from continuing operations for 2021 of
23.0% -24.0% . -
We expect to earn at least
$5.00 in core EPS in 2021 and 2022 and remain on track to earn$6.00 in core EPS in 2026. Our core EPS guidance includes the net interest income expected to be earned on the PPP loans.
2021 NIM expansion is expected to be achieved by:
- Remixing the loan portfolio away from commercial loans to mortgage companies toward other C&I categories and consumer loans.
- Restructuring of the asset and liability side of the balance sheet that was completed in Q1 2021.
- Bringing our total cost of deposits down to around 40 basis points by Q2 2021.
BankMobile Technologies, Inc.:
- On January 4, 2021, Customers completed the previously announced divestiture of BMT, the technology arm of the BankMobile segment, to Megalith Financial Acquisition Corp., a Delaware corporation ("Megalith"). In connection with the closing of the divestiture, Megalith changed its name to “BM Technologies, Inc.” ("BMTX"). Following the completion of the divestiture of BMT, BankMobile segment's serviced deposits and loans and the related net interest income have been combined with Customers’ financial condition and the results of operations as a single reportable segment. BMT’s historical financial results for periods prior to the divestiture have been reflected in Customers' consolidated financial statements as discontinued operations. The assets and liabilities of BMT have been presented as "Assets of discontinued operations" and "Liabilities of discontinued operations" on the consolidated balance sheets. BMT's operating results have been presented as "Discontinued operations" within the consolidated financial statements and prior period amounts have been reclassified to conform with the current period presentation.
-
All Customers Bancorp shareholders on record on December 18, 2020 received approximately
$73 million in value of BMTX stock at closing date of the transaction in the form of a special distribution.
Webcast |
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Date: |
Thursday, April 29, 2021 |
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Time: |
9:00 AM EDT |
The live audio webcast, presentation slides, and earnings press release will be made available at https://www.customersbank.com/investor-relations/ and at the Customers Bancorp 1st Quarter Earnings Webcast.
You may submit questions in advance of the live webcast by emailing Customers' Communications & Marketing Director, David Patti at dpatti@customersbank.com; questions may also be asked during the webcast through the webcast application.
The webcast will be archived for viewing on the Customers Bancorp Investor Relations page and available beginning approximately two hours after the conclusion of the live event.
Institutional Background
Customers Bancorp, Inc. (NYSE:CUBI) is a bank holding company located in West Reading, Pennsylvania engaged in banking and related businesses through its bank subsidiary, Customers Bank, a full-service bank with
“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 events and 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, including: the adverse impact on the U.S. economy, including the markets in which we operate, of the coronavirus outbreak, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan and lease portfolio, the market value of our investment securities, the demand for our products and services and the availability of sources of funding; the effects of actions by the federal government, including the Board of Governors of the Federal Reserve System and other government agencies, that effect market interest rates and the money supply; actions that we and our customers take in response to these developments and the effects such actions have on our operations, products, services and customer relationships; and the effects of changes in accounting standards or policies, including Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses ("CECL"). 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, 2020, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments thereto, 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, except as may be required under applicable law.
Q1 2021 Overview
The following table presents a summary of key earnings and performance metrics for the quarter ended March 31, 2021 and the preceding four quarters:
CUSTOMERS BANCORP, INC. AND SUBSIDIARIES |
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EARNINGS SUMMARY - UNAUDITED |
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(Dollars in thousands, except per share data and stock price data) |
Q1 |
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Q4 |
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Q3 |
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Q2 |
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Q1 |
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2021 |
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2020 |
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2020 |
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2020 |
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2020 |
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GAAP Profitability Metrics: |
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Net income available to common shareholders
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$ |
33,204 |
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$ |
52,831 |
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$ |
47,085 |
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$ |
19,137 |
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$ |
(515) |
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Per share amounts: |
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Earnings per share - basic |
$ |
1.04 |
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$ |
1.67 |
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$ |
1.49 |
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$ |
0.61 |
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$ |
(0.02) |
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Earnings per share - diluted |
$ |
1.01 |
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$ |
1.65 |
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$ |
1.48 |
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$ |
0.61 |
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$ |
(0.02) |
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Book value per common share (1) |
$ |
30.13 |
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$ |
28.37 |
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$ |
26.43 |
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$ |
25.08 |
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$ |
23.74 |
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CUBI stock price (1) |
$ |
31.82 |
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$ |
18.18 |
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$ |
11.20 |
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$ |
12.02 |
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$ |
10.93 |
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CUBI stock price as % of book value (1) |
106 |
% |
64 |
% |
42 |
% |
48 |
% |
46 |
% |
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Average shares outstanding - basic |
31,883,946 |
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31,638,447 |
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31,517,504 |
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31,477,591 |
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31,391,151 |
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Average shares outstanding - diluted |
32,841,711 |
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31,959,100 |
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31,736,311 |
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31,625,771 |
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31,391,151 |
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Shares outstanding (1) |
32,238,762 |
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31,705,088 |
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31,555,124 |
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31,510,287 |
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31,470,026 |
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Return on average assets ("ROAA") |
0.80 |
% |
1.23 |
% |
1.12 |
% |
0.62 |
% |
0.11 |
% |
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Return on average common equity ("ROCE") |
14.66 |
% |
24.26 |
% |
23.05 |
% |
9.97 |
% |
(0.26) |
% |
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Efficiency ratio |
48.89 |
% |
43.56 |
% |
46.76 |
% |
50.73 |
% |
54.48 |
% |
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Non-GAAP Profitability Metrics (2): |
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Core earnings |
$ |
70,308 |
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$ |
54,588 |
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$ |
38,439 |
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$ |
21,413 |
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$ |
5,087 |
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Adjusted pre-tax pre-provision net income |
$ |
86,769 |
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$ |
77,896 |
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$ |
64,146 |
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$ |
53,931 |
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$ |
44,225 |
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Per share amounts: |
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Core earnings per share - diluted |
$ |
2.14 |
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$ |
1.71 |
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$ |
1.21 |
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$ |
0.68 |
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$ |
0.16 |
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Tangible book value per common share (1) |
$ |
30.01 |
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$ |
27.92 |
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$ |
25.97 |
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$ |
24.62 |
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$ |
23.27 |
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CUBI stock price as % of tangible book value (1) |
106 |
% |
65 |
% |
43 |
% |
49 |
% |
47 |
% |
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Core ROAA |
1.61 |
% |
1.26 |
% |
0.93 |
% |
0.68 |
% |
0.30 |
% |
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Core ROCE |
31.03 |
% |
25.06 |
% |
18.82 |
% |
11.16 |
% |
2.53 |
% |
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Adjusted ROAA - pre-tax and pre-provision |
1.90 |
% |
1.70 |
% |
1.43 |
% |
1.48 |
% |
1.54 |
% |
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Adjusted ROCE - pre-tax and pre-provision |
36.80 |
% |
34.20 |
% |
29.73 |
% |
26.24 |
% |
20.22 |
% |
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Net interest margin, tax equivalent |
3.00 |
% |
2.78 |
% |
2.50 |
% |
2.65 |
% |
2.99 |
% |
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Net interest margin, tax equivalent, excluding PPP loans |
2.99 |
% |
3.04 |
% |
2.86 |
% |
2.97 |
% |
2.99 |
% |
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Core efficiency ratio |
41.13 |
% |
42.89 |
% |
46.10 |
% |
47.84 |
% |
52.97 |
% |
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Asset Quality: |
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Net charge-offs |
$ |
12,521 |
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$ |
8,472 |
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$ |
17,299 |
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$ |
10,325 |
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$ |
18,711 |
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Annualized net charge-offs to average total loans and leases |
0.33 |
% |
0.21 |
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