KBRA Affirms Ratings for Customers Bancorp, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Customers Bancorp, Inc. (NYSE: CUBI), a bank holding company headquartered in West Reading, PA. KBRA also affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for the bank subsidiary, Customers Bank ("the bank"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings continue to benefit from the sustained growth in the bank’s and consolidated regulatory capital ratios that are commensurate with KBRA rated peer levels; management is committed to a minimum consolidated CET1 ratio of 11.5% and is focused on continuing to build the TCE Ratio.

Investment portfolio re-balancing in 1Q25 and 4Q24 weighed on earnings performance recently, but on an adjusted basis, the ROAA in both quarters was about 1.15%, pre-tax. KBRA believes that bottom line earnings performance, anchored by the solid NIM, is trending to a bottom line ROAA level of roughly 1% that should be more stable in the near- to intermediate-term, buoyed by management’s ongoing efforts to improve the deposit funding mix and raise noninterest income levels.

A key management objective is to reduce wholesale deposits and borrowings, lower potential deposit volatility due to exogenous factors, and lower the cost of deposits compared to rated peers. The deposit mix has shown steady improvement in diversification, including the proportion of noninterest-bearing deposits (29% as of 1Q25). The overall granularity of deposits – by deposit type and depositor – has also improved.

Asset liquidity in the form of short-term investments and the AFS investment portfolio remain plentiful (25% of total deposits net of securities pledged), which is prudent in KBRA’s view, given the current funding profile. Contingent sources of funding are also substantial, and management disclosed $8.7 billion of immediate liquidity (net of encumbered securities) as of 1Q25.

Rating Sensitivities

Management has made demonstrable progress in diversifying revenues, improving the deposit base, and strengthening regulatory capital. The ratings would benefit from further improvement in deposit characteristics and granularity, more commensurate with peer levels. Conversely, a deterioration in loan quality that has the potential to compromise annual earnings would most likely trigger a reassessment of the ratings. In addition, a deterioration in funding would result in a ratings reassessment, if KBRA believed asset liquidity and contingent sources of liquidity were insufficient to offset any erosion in deposit funding.

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Methodologies