Customers Bancorp (CUBI): A Differentiated Franchise Delivering Consistent Shareholder Value

Published on September 24, 2024 | Ticker: CUBI

Customers Bancorp, Inc. (NASDAQ:CUBI) is a bank holding company that has established itself as a unique and differentiated franchise in the regional banking space. With a focus on exceptional customer service, an entrepreneurial culture, and a diversified business model, Customers Bancorp has consistently delivered strong financial performance, outpacing its peers across key metrics.

Financials

For the full year 2023, Customers Bancorp reported annual net income of $250.14 million and annual revenue of $1.44 billion. The company's annual operating cash flow was $330.82 million, while its annual free cash flow stood at $330.23 million. These robust financial results underscore the strength and resilience of Customers Bancorp's business model.

In the second quarter of 2024, the company continued to demonstrate its ability to navigate the current economic environment. Customers Bancorp reported GAAP earnings per share of $1.66 and core earnings per share of $1.49, both of which exceeded consensus estimates. The company's net interest margin expanded by 19 basis points to 3.29%, outpacing industry trends, while its non-performing asset ratio remained low at just 23 basis points.

Deposit Franchise Transformation

One of the key drivers of Customers Bancorp's performance has been its focus on deposit franchise transformation. The company generated approximately $600 million in commercial deposit inflows during the quarter, which it used to remix and strengthen its deposit base. This strategy has allowed Customers Bancorp to reduce its reliance on higher-cost deposits, leading to a decline in its average cost of deposits by 5 basis points to 3.4%.

Loan Growth

The company's loan growth also remained strong, with net loan growth of $358 million, or an 11% annualized pace, during the second quarter. This growth was primarily driven by the company's corporate and specialized banking verticals, including fund finance, healthcare, and equipment finance. Customers Bancorp's loan pipeline remains robust, and the company maintains its outlook of 10% to 15% loan growth for the full year 2024.

Tangible Book Value Growth

Customers Bancorp's differentiated business model is further evidenced by its impressive tangible book value per share growth. The company's tangible book value exceeded $50 per share in the second quarter, representing a 20% year-over-year increase. This growth rate ranks Customers Bancorp among the top 5 U.S. banks with assets between $10 billion and $100 billion.

Capital Position

The company's capital position also remains strong, with a common equity Tier 1 ratio of 12.8% and a tangible common equity to tangible assets ratio of 7.5% as of the end of the second quarter. Customers Bancorp has achieved these capital targets ahead of schedule, providing it with ample capacity to deploy capital into strategic, franchise-enhancing loan growth opportunities.

Liquidity

Customers Bancorp's liquidity position is also robust, with coverage of immediately available liquidity to uninsured deposits at a strong 193%. The company's loan-to-deposit ratio of 75% provides it with significant funding flexibility compared to its regional bank peers.

Credit Quality

The company's credit quality remains a standout, with a non-performing asset ratio of just 23 basis points, well below the 43 basis point average of its regional bank peers. Customers Bancorp's exposure to higher-risk commercial real estate, such as the office sector, is minimal, representing only approximately 1% of its total loan portfolio.

Business Overview

Customers Bancorp's unique operating model, anchored in a culture of exceptional customer service and an entrepreneurial mindset, has been a key driver of its success. The company's recent addition of 10 new banking teams, which generated over $250 million in new deposit balances with a 30% non-interest bearing mix, is a testament to the strength of its franchise and the appeal of its value proposition to both clients and top-tier talent.

Outlook

Looking ahead, Customers Bancorp remains optimistic about its growth prospects. The company's strong loan and deposit pipelines, combined with its disciplined approach to capital deployment and risk management, position it well to continue delivering consistent shareholder value. The company's recent authorization of a share repurchase program further underscores its commitment to enhancing shareholder returns.

Conclusion

In conclusion, Customers Bancorp's differentiated business model, strong financial performance, and prudent risk management make it a compelling investment opportunity in the regional banking space. The company's focus on exceptional customer service, entrepreneurial culture, and diversified business mix have allowed it to consistently outperform its peers, and its robust outlook suggests that this trend is likely to continue.

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