Business Overview and History
Customers Bancorp, Inc. (CUBI) is a forward-thinking bank that has successfully transformed itself from a regional community bank into a high-performing specialized commercial and business bank with a national presence. The company's unique and differentiated business model, coupled with its commitment to exceptional customer service, has positioned it as a formidable player in the financial services industry.
Customers Bancorp, Inc. was founded in 2009 and is headquartered in West Reading, Pennsylvania. The company operates through its wholly-owned subsidiary, Customers Bank, which provides financial products and services to small and middle market businesses, not-for-profits, and consumers. In its early years, Customers Bancorp focused on building a strong commercial lending business, particularly in small and middle market commercial and industrial loans. The company also established a mortgage finance division to provide short-term bridge financing to mortgage companies, allowing it to diversify its revenue streams beyond traditional community banking.
Over the years, Customers Bancorp expanded its specialized lending capabilities, adding verticals such as equipment finance, healthcare lending, and fund finance. The company also invested in its technology infrastructure and digital banking offerings to serve customers nationwide, enabling it to operate with a more limited branch network compared to traditional community banks.
In 2016, Customers Bancorp faced a challenge when it encountered issues with the FDIC regarding its BSA/AML compliance program. The company worked closely with regulators to enhance its risk management and compliance practices, and after several years of diligent efforts, was able to resolve the regulatory issues.
Despite this regulatory hurdle, Customers Bancorp continued to grow, both organically and through strategic hires and acquisitions. The company established new regional offices and assembled experienced commercial banking teams to drive deposit and loan growth across the country. Customers Bancorp also cultivated its equipment finance and mortgage finance businesses, which have become important contributors to the company's success.
In 2024, the company made significant investments to strengthen its foundation for future growth. This included hiring experienced deposit-focused teams, enhancing its technology and product offerings, and bolstering its risk management infrastructure. These strategic initiatives have set the stage for Customers Bancorp to capitalize on the evolving banking landscape and deliver sustainable long-term value for its shareholders.
Financial Performance and Ratios
Customers Bancorp has consistently delivered strong financial results, showcasing its ability to navigate challenging market conditions. As of September 30, 2024, the company reported total assets of $21.46 billion, an increase of 0.7% from the previous year. Net income available to common shareholders for the nine months ended September 30, 2024, was $143.16 million, with a return on average assets (ROAA) of 0.89% and a return on average common equity (ROCE) of 10.66%.
The company's capital position remains robust, with a Common Equity Tier 1 (CET1) ratio of 12.5% and a Tangible Common Equity (TCE) to Tangible Assets (TA) ratio of 7.7% as of September 30, 2024. These ratios exceed the company's internal targets of 11.5% for CET1 and 7.5% for TCE/TA, providing Customers Bancorp with the financial flexibility to support its growth initiatives.
For the most recent quarter (Q3 2024), Customers Bancorp reported revenue of $150,036,000, net income of $46,743,000, operating cash flow of $24,398,000, and free cash flow of $12,444,000. These figures demonstrate the company's ability to generate strong financial results and maintain a healthy cash flow position.
Deposit Transformation and Loan Growth
Deposit growth and transformation have been a top priority for Customers Bancorp. In the third quarter of 2024, the company reported $1.1 billion in deposit inflows, primarily from its commercial client base. This enabled the company to pay down $700 million in higher-cost, less strategic deposits, further enhancing the quality of its deposit franchise.
Alongside its deposit transformation, Customers Bancorp has also demonstrated impressive loan growth. During the third quarter of 2024, the company's total loans and leases held for investment grew by $520.8 million, or 16% on an annualized basis. This growth was broad-based, with contributions from the company's mortgage finance, commercial real estate, and equipment finance divisions, among others.
Navigating Regulatory Challenges
In 2024, Customers Bancorp faced a regulatory challenge with the issuance of a written agreement by the Federal Reserve. This agreement was related to the company's digital asset business and required Customers Bancorp to enhance its risk management and compliance infrastructure. The company has taken proactive steps to address the concerns raised and is committed to working closely with its regulatory partners to resolve the matter. While this process has resulted in elevated expenses in the short term, Customers Bancorp believes that the investments made will strengthen its risk management capabilities and provide a regulatory moat around its digital asset business in the medium to long term.
Outlook and Growth Strategies
Looking ahead, Customers Bancorp remains optimistic about its future prospects. The company's strong deposit and loan pipelines, coupled with its focus on enhancing its commercial banking franchise, position it well for continued growth. The company expects its new banking teams, added in early 2024, to break even by the end of the first quarter of 2025 and contribute meaningfully to the company's profitability thereafter.
Additionally, Customers Bancorp is poised to benefit from net interest margin expansion in 2025 as the effects of its deposit remix and balance sheet optimization initiatives take hold. The company is also exploring opportunities to generate additional fee income and achieve cost savings, all while maintaining its commitment to disciplined risk management and operational excellence.
For full-year 2024, Customers Bancorp expects to achieve loan growth of 10-15%, which translates to approximately $400-$500 million of loan growth in Q4 2024. The company is confident in returning its ROE and ROA to the mid-teens and north of 1% respectively. Looking further ahead, Customers Bancorp anticipates generating EPS growth of 30% or more in 2025 off a low base in 2024, as its new banking teams break even and become profitable early next year and the company tapers its elevated risk management investments.
Risks and Challenges
While Customers Bancorp has demonstrated its resilience, the company is not immune to the challenges facing the banking industry. Macroeconomic conditions, such as rising inflation and interest rates, could impact the company's loan portfolio and net interest margin. Additionally, the ongoing regulatory oversight and the need to address the written agreement could result in elevated expenses in the short term.
The company's exposure to the digital asset business also presents certain risks, despite its efforts to establish a regulatory moat. Continued uncertainty in this rapidly evolving industry could pose challenges for Customers Bancorp's operations and financial performance.
Conclusion
Customers Bancorp, Inc. has established itself as a forward-thinking bank with a unique and differentiated business model. The company's strategic investments in people, technology, and risk management infrastructure have positioned it for long-term success, even as it navigates the evolving banking landscape and regulatory challenges. With robust financial metrics, a focused growth strategy, and a commitment to exceptional customer service, Customers Bancorp is poised to continue delivering value for its shareholders in the years to come.
The company's optimism about its future is supported by strong deposit and loan pipelines, and it believes it is in a unique position to continue taking commercial market share on a national scale. As Customers Bancorp continues to execute on its strategic initiatives and navigate the challenges in the banking industry, it remains well-positioned to capitalize on growth opportunities and drive long-term shareholder value.