Customers Bancorp in Wyomissing, Pa., had a choppy third quarter tied to a pair of unique business ventures.
The $10.5 billion-asset company warned in a press release Monday that it will soon report that its quarterly profit fell by nearly 80% from a year earlier, to $4.1 million. Customers will officially announce its results on Wednesday.
Customers said the steep decline in profit was due to the accounting treatment for its planned spin-off of digital-banking unit BankMobile and losses associated with its investment in Religare Enterprises, an Indian financial services conglomerate.
A recent decision to spin BankMobile off in a tax-free exchange of shares with the $114 million-asset Flagship Community Bank in Clearwater, Fla., required Customers to add BankMobile’s results to its bottom line. The business, which will likely report a $6.9 million loss in the third quarter, had been accounted for as a discontinued operation.
The accounting change will result in a $10.4 million after-tax hit to third-quarter profit.
Customers also said it wrote off $8.3 million of its Religare investment during the last quarter, reducing the value of the original $22.5 million stake to $2.3 million. Religare, which is struggling to service a debt load reportedly in excess of $300 million, has seen the value of its shares plummet by more than 80% in the past 12 months.
The high hopes that accompanied Customers’ decision to invest in Religare back in 2013 “haven’t panned out,” said Bob Ramsey, the company’s head of corporate planning and investor relations. “I wouldn’t expect us to do anything similar. We’ve learned from the experience.”
Absent those items, Customers said its net income would have topped $19.7 million.
Customers also said its decision to spin off BankMobile, which will leave its investors holding shares in the new company valued at $110 million, offers more value than selling the business to another financial institution. The move came after management realized that the Durbin Amendment’s cap on interchange fees would have made it virtually impossible to run BankMobile profitably.
“At the end of the day, when we weigh the costs and benefits, the spinoff made the most sense,” Ramsey said.