Customers Bancorp, Inc. is a Pennsylvania-based bank holding company that has evolved from a regional community bank into a specialized commercial and business bank with a national presence in select markets. The company operates through its wholly-owned subsidiary, Customers Bank, which provides a range of banking products and services to businesses and individuals across the Northeastern and Southeastern United States, as well as nationwide for certain loan and deposit products.
Business Overview and History Customers Bancorp was formed in 2010 as a bank holding company for Customers Bank, which was originally founded in 1997 as a community bank serving the Berks County and southeastern Pennsylvania region. Over the years, Customers Bank has expanded its geographic footprint and product offerings beyond its community banking roots, becoming one of the top-performing banking companies in the nation.
In the early 2010s, Customers Bank focused on building out its commercial lending business, particularly in areas like commercial and industrial loans, multifamily lending, and specialized lending. This helped drive growth and diversify the bank's revenue streams beyond more traditional community banking activities. The bank also began expanding into new markets like New York, New Jersey, and Massachusetts during this time period.
A key challenge the bank faced in the mid-2010s was the rise of financial technology companies disrupting parts of the banking industry. In response, Customers Bank developed partnerships with fintech firms and began offering more technology-enabled banking products and services to consumers and businesses. This helped the bank stay competitive and meet evolving customer needs.
Another milestone for Customers Bancorp was its initial public offering in 2011, which provided additional capital to support the bank's growth strategies. Since then, the company has continued to expand its franchise, with a focus on commercial and specialty lending, as well as building out its deposit gathering capabilities through a branch-light and technology-enabled model. Prudent risk management has been a hallmark of Customers Bancorp throughout its history as it has navigated various economic cycles.
The company's unique business model and dedication to exceptional customer service have been key drivers of its success. Customers Bancorp's strategy is anchored by a single point of contact service delivery model, which has allowed the company to build strong relationships with its clients and drive organic growth.
Financials Customers Bancorp has consistently delivered strong financial results, with a focus on driving profitability and shareholder value. As of the latest reporting period, the company had total assets of $21.5 billion, total deposits of $18.1 billion, and total loans and leases receivable, net of allowance for credit losses, of $13.6 billion.
The company's financial ratios demonstrate its strong financial position and risk management practices. As of September 30, 2024, Customers Bancorp had a Common Equity Tier 1 (CET1) capital ratio of 12.5% and a Tangible Common Equity (TCE) to Tangible Assets (TA) ratio of 7.7%, both well above regulatory requirements. These robust capital levels provide the company with the flexibility to continue growing its business and weathering potential economic headwinds.
For the most recent quarter ended September 30, 2024, Customers Bancorp reported revenue of $280,565,000, net income of $46,743,000, operating cash flow of $6,275,000, and free cash flow of $7,011,000. Compared to the same quarter in the previous year, revenue decreased by 23.2%, net income decreased by 46.1%, operating cash flow decreased by 68.6%, and free cash flow decreased by 67.8%. These decreases were primarily attributed to higher interest expense on deposits, lower interest income on loans, and a loss on the sale of equipment finance leases.
Liquidity Customers Bancorp has maintained a strong liquidity position, with a loan-to-deposit ratio of 76% as of September 30, 2024, compared to the industry average of 88%. The company's ample liquidity, coupled with its diversified funding sources, including deposits, FHLB advances, and other borrowings, position it well to manage interest rate and funding risks.
As of the latest reporting period, Customers Bancorp had a debt-to-equity ratio of 0.77 and held $3.09 billion in cash. The company's current ratio and quick ratio both stood at 1.14. Customers Bank has access to significant borrowing capacity, with $3.57 billion available from the Federal Home Loan Bank (FHLB) and $4.18 billion from the Federal Reserve Bank (FRB). These credit lines are secured by $9.51 billion of qualifying loans and securities serving as collateral.
Lending and Deposit Strategies One of Customers Bancorp's key strategic priorities has been the transformation of its deposit franchise, focusing on attracting high-quality, low-cost commercial deposits. In the third quarter of 2024, the company reported strong deposit growth, with $1.1 billion in gross inflows, primarily from its commercial client base. This momentum has enabled Customers Bancorp to remix its deposit base, replacing higher-cost, less strategic deposits with lower-cost, relationship-driven deposits.
The company's ability to generate robust deposit growth has been a significant competitive advantage, as it has allowed Customers Bancorp to fund its loan growth at attractive rates. In the third quarter, the company reported 16% annualized loan growth, driven by strong performance across its lending verticals, including mortgage finance, commercial and industrial lending, commercial real estate, and equipment finance.
Customers Bancorp's specialized lending approach, combined with its focus on building deep customer relationships, has enabled the company to generate high-quality loan growth while maintaining a strong credit profile. As of September 30, 2024, the company's non-performing asset ratio stood at just 22 basis points, a testament to its disciplined underwriting and portfolio management practices.
Product Segments Customers Bancorp's business is primarily divided into two main segments: Commercial Lending and Consumer Lending.
Commercial Lending, which represents the majority of the company's loan portfolio, is further divided into several groups including small and middle market business banking, specialized banking, multifamily and commercial real estate lending, mortgage finance, and SBA lending. As of September 30, 2024, commercial loans and leases totaled $11.27 billion, accounting for approximately 89.1% of Customers Bancorp's total loan and lease portfolio. The commercial lending group focuses on companies with annual revenues ranging from $1 million to $100 million, typically with credit requirements between $0.5 million and $10 million.
The specialized banking division includes equipment finance, healthcare lending, real estate specialty finance, fund finance, technology and venture capital banking, and financial institutions group. A significant part of the commercial lending segment is the mortgage finance business, which primarily provides financing to mortgage companies nationwide from loan origination until the loans are sold into the secondary market.
Consumer Lending, which comprised 10.9% of the total loan and lease portfolio as of September 30, 2024, totaling $1.26 billion, provides unsecured consumer installment loans, residential mortgages, and home equity loans to customers nationwide. This is primarily achieved through relationships with fintech companies. The consumer loan portfolio consists largely of personal, student loan refinancing, home improvement, and medical loans.
Technology and Innovation Customers Bancorp has been at the forefront of leveraging technology to enhance its service delivery and competitive positioning. The company's branchless digital banking platform and its CBIT instant payments solution have been key differentiators, allowing it to provide sophisticated banking services to its clients while maintaining a lean operating model.
In addition to its digital banking capabilities, Customers Bancorp has also been investing in its risk management and compliance infrastructure, recognizing the importance of these functions in navigating the evolving regulatory landscape. The company's recent hiring of experienced risk management and compliance professionals underscores its commitment to maintaining a strong control environment and positioning itself for long-term success.
Regulatory Considerations and Risks Like all financial institutions, Customers Bancorp operates in a highly regulated environment. In 2023, the company entered into a written agreement with its primary regulator, the Federal Reserve Bank of Philadelphia, to enhance its anti-money laundering and Bank Secrecy Act compliance programs. The company has taken swift action to address the regulator's concerns, hiring seasoned professionals and investing in technology and process improvements to strengthen its risk management capabilities.
While the regulatory agreement represents a near-term challenge for Customers Bancorp, the company's management team is committed to resolving the issues in a timely manner and emerging as a stronger, more resilient institution. The company's robust capital and liquidity positions, as well as its diversified business model, provide a solid foundation to weather this transition.
Looking Ahead Customers Bancorp's strategic positioning, strong financial performance, and commitment to innovation position the company well for continued growth and success. The company's focus on building deep customer relationships, generating high-quality loan and deposit growth, and leveraging technology to enhance its service delivery have been key drivers of its performance.
For the upcoming year, Customers Bancorp has provided guidance indicating expected full-year loan growth of 10-15% in 2024, translating to approximately $400-500 million of loan growth in Q4 2024. The company remains focused on transforming its deposit franchise, aiming to continue remixing its deposit base after already remixing $700 million of less strategic deposits in Q3 2024.
Management expects new banking teams to generate approximately $500 million or more of deposit growth per quarter, providing a boost to the franchise. These deposit transformation efforts are anticipated to be a key driver of net interest margin expansion over the medium term. Expenses related to new banking teams are expected to transition to a performance-based model by the end of 2024, with expenses tied to revenue generation as the business matures.
Looking further ahead, Customers Bancorp is optimistic about achieving ROE in the mid-teens and ROA above 1% as new banking teams become profitable in early 2025 and elevated risk management investments taper off. The company plans to provide a full management outlook for 2025 in its next earnings call in January.
As Customers Bancorp navigates the evolving regulatory landscape and addresses the challenges presented by the recent written agreement, investors will be closely watching the company's progress in strengthening its risk management and compliance functions. The successful resolution of these issues, coupled with the company's ongoing strategic initiatives, could unlock significant value for shareholders in the years to come.
Overall, Customers Bancorp's unique business model, specialized lending expertise, and dedication to exceptional customer service make it a compelling investment opportunity in the regional banking space. The company's ability to adapt to changing market conditions and leverage technology for growth positions it well for future success in the dynamic banking industry.