Company Overview
Customers Bancorp, Inc. (CUBB) is a forward-thinking bank with a strong risk management approach, providing commercial and consumer customers the stability and trust inherent in working with an established and regulated financial institution. The company has undergone significant transformation and expansion over the past decade, emerging as a digital-forward super community bank with a unique single-point-of-contact business model and a diversified loan portfolio that spans both local and national markets.
History and Expansion
Established in 2010, Customers Bancorp has its roots in Pennsylvania, where it was incorporated to facilitate the reorganization of Customers Bank into a bank holding company structure. Over the years, the company has strategically expanded its footprint and service offerings, leveraging its expertise in commercial and industrial (C&I) lending, specialized lending verticals, mortgage finance, and consumer lending through partnerships with financial technology (fintech) companies.
The company's growth trajectory has been impressive, starting with a presence primarily in Berks County and Southeastern Pennsylvania and expanding to include locations in New York, New Jersey, Massachusetts, Rhode Island, New Hampshire, Illinois, Texas, and other states. This expansion has been driven by both organic growth and strategic acquisitions, allowing Customers Bancorp to establish itself as a leading regional bank holding company.
Regulatory Challenges and Response
In 2013, Customers Bank faced regulatory challenges related to its relationship with Higher One, a college student financial services provider. The Federal Reserve Board and FDIC took regulatory enforcement action against Higher One, subjecting Customers Bank to increased scrutiny and potential regulatory action. In response, the bank proactively strengthened its compliance and risk management practices, enhancing policies, procedures, and controls, and investing in its compliance and internal audit functions. These measures allowed Customers Bank to successfully navigate the regulatory environment and continue its growth trajectory.
Loan Portfolio and Specialized Lending
One of Customers Bancorp's key strengths is its diversified loan portfolio, which accounted for $13.13 billion in loans and leases receivable as of December 31, 2024. The portfolio is primarily composed of C&I loans, including specialized lending activities, multifamily loans, commercial real estate (CRE) loans, and consumer installment loans. This diversification has helped the company navigate various economic cycles and mitigate concentration risks.
Customers Bancorp's specialized lending verticals, such as equipment finance, healthcare lending, real estate specialty finance, fund finance, technology and venture capital banking, and financial institutions group, have been instrumental in driving the company's growth and profitability. These higher-yielding loan segments now account for a significant portion of the company's loan portfolio, complementing its traditional community banking offerings.
Mortgage Finance Business
The company's mortgage finance business, which provides short-term financing solutions to mortgage companies, has also been a key contributor to its success. As of December 31, 2024, Customers Bancorp had $1.32 billion in mortgage finance loans on its balance sheet, reported at fair value.
Resilience During COVID-19
Despite the challenges posed by the COVID-19 pandemic, Customers Bancorp has demonstrated its resilience and adaptability. The company's participation in the Paycheck Protection Program (PPP) allowed it to support small businesses during the crisis, originating over $10 billion in PPP loans. While the forgiveness and guarantee claims process for these loans was substantially completed in early 2023, the company was able to maintain a strong capital position throughout the pandemic.
Recent Growth Initiatives
In 2024, Customers Bancorp continued to execute on its growth strategy, onboarding 10 experienced commercial and business banking teams in New York, California, and Nevada to accelerate its deposit growth potential. The new teams have enhanced the bank's presence in key markets, strengthening its commitment to its single-point-of-contact, relationship-oriented service approach.
Financials
Customers Bancorp's financial performance has remained stable, with the company reporting net income available to common shareholders of $166.43 million for the year ended December 31, 2024. However, the company has faced some headwinds, including a decrease in net interest income and higher non-interest expenses, which have impacted its profitability.
Net Interest Margin and Deposit Costs
The company's net interest margin (NIM) decreased by 14 basis points to 3.15% for the year ended December 31, 2024, primarily due to lower purchase discount accretion on the venture banking loan portfolio, reduced recognition of net deferred loan origination fees from PPP loans, and higher market interest rates on deposits. Customers Bancorp's total cost of deposits, including interest-bearing and non-interest-bearing deposits, increased to 3.34% in 2024 from 3.27% in 2023.
Non-Interest Expenses
On the expense side, Customers Bancorp experienced a $64.35 million increase in non-interest expense for the year ended December 31, 2024, primarily driven by higher salaries and employee benefits, FDIC assessments, and other non-interest expenses. The increase in FDIC assessments was partially offset by a credit for Pennsylvania bank shares taxes related to prior periods.
Quarterly Performance
For the most recent quarter (Q4 2024), Customers Bancorp reported revenue of $150.04 million and net income of $46.74 million. However, year-over-year revenue growth figures were not provided in the available information.
Liquidity
Despite these challenges, Customers Bancorp remains focused on its strategic priorities, which include organic core loan and deposit growth, opportunistic acquisitions, and the continued expansion of its specialized lending verticals. The company's digital-forward, single-point-of-contact business model, coupled with its diversified loan portfolio and specialized lending expertise, positions it well to navigate the evolving financial services landscape.
Business Segments
Customers Bancorp operates in two primary business segments: Commercial Lending and Consumer Lending.
Commercial Lending
The Commercial Lending segment is Customers Bancorp's primary focus, comprising approximately 90.10% of the total loan and lease portfolio as of December 31, 2024. This segment includes several lending verticals:
1. Small and Middle Market Business Banking: Customers originates commercial and industrial (C&I) loans, including SBA loans, through its branch network and dedicated relationship managers. This platform has a centralized support structure for risk management, product management, marketing, and strategy.
2. Specialized Lending: This includes equipment finance, healthcare lending, real estate specialty finance, fund finance, technology and venture capital banking, and financial institutions group. The specialized lending verticals have experienced significant growth in recent years, with Customers expanding its capabilities in areas like capital call lines, technology and venture banking, and financial institutions lending.
3. Mortgage Finance: Customers provides short-term lending to mortgage companies, funding the pipelines from loan closing until the mortgages are sold into the secondary market. As of December 31, 2024, the mortgage finance loan portfolio totaled $1.32 billion.
4. Multifamily Lending: Customers maintains a portfolio of high-quality multifamily loans, primarily focused on refinancing existing loans held by other banks or providing purchase financing to borrowers. The multifamily loan portfolio was $2.25 billion as of the end of 2024.
5. Commercial Real Estate: Customers' commercial real estate lending includes both owner-occupied and non-owner-occupied commercial properties. The owner-occupied CRE portfolio was $1.10 billion and the non-owner-occupied CRE portfolio was $1.36 billion at December 31, 2024.
The commercial lending verticals have generally exhibited strong asset quality, with non-performing assets at just 0.20% of total commercial loans and leases as of the end of 2024. However, the commercial portfolio does carry higher credit risk compared to consumer lending, so prudent underwriting and risk management are critical.
Consumer Lending
The Consumer Lending segment is a smaller portion of Customers' overall loan portfolio, at 9.90% as of December 31, 2024. This includes:
1. Residential Real Estate: Customers originates traditional residential mortgage and home equity loans to consumers in its local markets. The residential real estate portfolio was $496.6 million at the end of 2024.
2. Installment Loans: Customers originates and purchases unsecured consumer installment loans, including personal loans, student loan refinancing, home improvement, and medical loans. The installment loan portfolio was $713.7 million at year-end 2024. Customers has been transitioning this portfolio to a held-for-sale strategy to reduce credit risk.
3. Manufactured Housing: Customers also has a small portfolio of loans secured by manufactured housing units, totaling $33.1 million at December 31, 2024.
The consumer loan portfolio has experienced higher net charge-off rates relative to the commercial portfolio, running at 56 basis points of average consumer loans in 2024. Consequently, Customers has been more selective in its consumer lending, avoiding subprime borrowers, and shifting the portfolio towards a held-for-sale model.
Geographic Presence
Customers Bancorp primarily operates in the Northeastern and Mid-Atlantic regions of the United States. As a small-cap company, it does not have significant operations or sales outside of the US.
Future Outlook and Strategic Focus
Looking ahead, Customers Bancorp's success will depend on its ability to maintain asset quality, effectively manage its funding costs, and continue to adapt to the changing regulatory and competitive environment. The company's management team, with its extensive experience in the banking industry, will play a crucial role in guiding the company through these challenges and capitalizing on emerging opportunities.
Conclusion
Overall, Customers Bancorp's transformation into a digital-forward super community bank with a differentiated business model and diversified loan portfolio has positioned the company for continued growth and resilience in the face of industry disruptions. The company's "high-tech, high-touch" branch-light strategy, focusing on commercial and corporate customers through a single-point-of-contact relationship banking model, sets it apart in the competitive banking landscape. As the company navigates the challenges and opportunities ahead, investors will be closely watching its ability to execute on its strategic initiatives and deliver sustainable financial performance.