What happened
Customers Bancorp (CUBI -1.04%) saw its share price fall 9.8% this week, as of 1:15 p.m. ET, from last Friday's close, according to S&P Global Market Intelligence. The stock is trading at about $28 per share and is down about 2.1% year to date as of Jan. 27.
The drop is in contrast to the overall markets, which were up this week. The S&P 500 climbed 2.5%, the Dow Jones Industrial Average gained 2%, and the Nasdaq Composite jumped 4.2% this week, as of 1:15 p.m. ET today.
So what
The downward movement of Customers Bancorp, the holding company for West Reading, Pennsylvania-based Customers Bank, was due mainly to the release of its fourth quarter and year-end earnings on Jan. 25. The company missed both fourth-quarter and full-year analyst estimates for both revenue and earnings.
Core earnings, a non-GAAP metric the bank uses, adjusted for nonrecurring items, were $39.4 million in the fourth quarter, off 61% from Q4 2021. Core earnings per share were $1.19, off 60% year over year. For the full year, core earnings were $256.4 million, or $7.63 per share, down about 25% from the previous year.
The numbers were skewed somewhat by Paycheck Protection Program (PPP) loans. Excluding PPP loans, core earnings were up 23% in the fourth quarter and 46% for the full year, year over year.
Overall, loans grew 3% in the quarter and 8.4% for the full year, year over year, but net interest margin dropped to 2.67% from 4.14% in the fourth quarter, and to 3.19% at the end of 2022 from 3.7% at the end of 2021.
Also, the provision for credit losses on loans and leases in Q4 was $27.9 million, up from $13.9 million a year ago. The higher provision was related in part to loan growth, a forecast for weakening economic conditions, and one-time charge-offs of $11 million for certain PPP loans that were determined to be uncollectible.
Further, the efficiency ratio was an excellent 44.8% at year-end 2022, up from 40.4% the previous year.
Now what
The stock is really cheap right now, with a price-to-earnings (P/E) ratio of 3.65 and a price-to-book (P/B) ratio of 0.82. As the stock is trading below book value, president and CEO Sam Sidhu said the firm will be looking to buy back shares in 2023.
Regarding loan growth, he expects low-to-mid-single-digit growth this year, with wider margins in the second half of 2023. Deposits are expected to stay relatively flat, as the bank will focus on reducing high-cost deposits.
Net interest margin is projected to be in the 2.85% to 3.05% range this year, while core EPS, excluding PPP loans, is targeted to be between $6.00 and $6.25, compared to $6.51 at the end of 2022.
"We are focused on improving the quality of our balance sheet and deposit franchise, improving our net interest margin, and achieving a book value in excess of $45 by year-end 2023," Sidhu said.
Customers Bancorp is cheap and efficient, so keep an eye on it. While banks are a good place to be right now, there might be better options out there.