the reasons the stock of Customers Bancorp fell 9.8% this week

What took place

S&P Global Market Intelligence reports that the share price of Customers Bancorp (CUBI 4.89%) is down 9.8% from last Friday’s finish as of 1:15 p.m. ET. As of January 27, the stock is down around 2.1% year to date and is now trading at roughly $28 per share.

As of 1:15 p.m., the S&P 500 was up 2.5 percent, the Dow Jones Industrial Average was up 2 percent, and the Nasdaq Composite was up 4.2% this week.

What then

Customers Bancorp, the parent company for Customers Bank, headquartered in West Reading, Pennsylvania, saw its stock price decline mostly as a result of the announcement of its fourth quarter and year-end earnings on January 25.

Core earnings, a non-GAAP statistic the bank employs, were $39.4 million in the fourth quarter, down 61% from Q4 2021 after adjusting for nonrecurring factors. Core profits per share fell by 60%, to $1.19, from the previous year. Core earnings for the entire year were $256.4 million, or $7.63 per share, a decrease of nearly 25% from the prior year.

Core earnings increased by 23% in the fourth quarter and by 46% for the entire year when PPP loans were excluded.

In total, loans increased by 3% in the fourth quarter and 8.4% overall, while the net interest margin declined, falling to 2.67% from 4.14% in the previous quarter and to 3.19% at the end of 2022 from 3.7% in the previous year.

Additionally, the provision for credit losses on loans and leases in Q4 increased from $13.9 million to $27.9 million. A projection for worse economic circumstances, loan growth, and one-time charge-offs of $11 million for some PPP loans that were found to be uncollectible were some of the factors contributing to the larger provision.

Additionally, the efficiency ratio increased from 40.4% to an impressive 44.8% at year’s end in 2022.

So what?

With a price-to-earnings (P/E) ratio of 3.65 and a price-to-book (P/B) ratio of 0.82, the company is now extremely undervalued. President and CEO Sam Sidhu stated that the company will be seeking to buy back shares in 2023 because the stock is currently selling below book value.

He anticipates low-to-mid single digit increase in loan volume this year, with higher margins in the second half of 2023. As the bank focuses on eliminating high-cost deposits, deposits are anticipated to remain essentially stable.

This year, net interest margin is anticipated to be in the range of 2.85% to 3.05%, and core EPS, excluding PPP loans, is aimed to be between $6.00 to $6.25, down from $6.51 at the end of 2022.

By year’s end in 2023, Sidhu stated, “We are committed to enhancing the quality of our balance sheet and deposit franchise, enhancing our net interest margin, and generating a book value in excess of $45.”