Customers Bancorp, Inc. (CUBI) is a financial holding company that has been making significant strides in the banking industry, particularly in the realm of financial technology (fintech). With a focus on providing innovative banking solutions and exceptional customer service, Customers Bancorp has positioned itself as a formidable player in the rapidly evolving financial landscape.
Business Overview and History
Customers Bancorp, Inc. is a bank holding company founded in 1997, operating through its wholly-owned subsidiary Customers Bank. The company was originally chartered as a state-chartered bank in Pennsylvania, focusing on serving small and middle market businesses in Berks County and Southeastern Pennsylvania. Over the years, Customers Bancorp has grown steadily through organic expansion and strategic acquisitions, expanding its presence into new geographic markets such as New York, New Jersey, and Massachusetts.
A significant milestone in the company’s history came in 2011 when it acquired Berkshire Bancorp, substantially expanding its footprint in the Pennsylvania market. This acquisition allowed Customers Bank to leverage its commercial banking expertise and offer a broader range of products and services to its growing customer base.
Throughout its history, Customers Bancorp has faced various challenges common to the banking industry, including navigating changes in regulations, interest rate environments, and economic conditions. The 2008 financial crisis posed a notable challenge, putting significant stress on the bank’s loan portfolio. However, the company’s management team effectively steered through this difficult period, allowing the bank to emerge stronger and more resilient.
Today, Customers Bancorp has evolved into a diversified financial services company with nearly $21 billion in assets, making it one of the 80 largest bank holding companies in the United States. The company has continued to expand its geographic footprint and product offerings, serving a wide range of commercial and consumer customers through its innovative and technology-driven banking solutions.
In its early years, Customers Bancorp primarily served the local community in Berks County, Pennsylvania, offering traditional banking services to individuals and small businesses. However, the company’s strategic vision soon shifted towards a more diversified and technology-driven approach, setting the stage for its transformation into a leading fintech-focused bank.
One of Customers Bancorp’s key milestones was the launch of its digital banking platform in 2015, which allowed the company to offer a suite of innovative products and services to its clients nationwide. This move positioned Customers Bancorp as a pioneer in the fintech space, leveraging cutting-edge technology to provide a seamless and personalized banking experience.
Over the past decade, Customers Bancorp has further strengthened its fintech capabilities through strategic acquisitions and partnerships. In 2020, the company acquired BankMobile Technologies, a leading digital banking platform, solidifying its position as a tech-forward financial institution. Additionally, Customers Bancorp has forged partnerships with various fintech companies, enabling it to offer a diverse range of financial solutions to its growing customer base.
Financial Performance and Ratios
Customers Bancorp has demonstrated robust financial performance in recent years, showcasing its ability to navigate the rapidly changing banking landscape. As of the latest financial statements available (Q3 2024), the company reported quarterly revenue of $150,036,000, quarterly net income of $46,743,000, quarterly operating cash flow of $24,398,000, and quarterly free cash flow of $12,444,000.
The company’s key financial ratios paint a picture of its financial health and growth trajectory. While specific ROA and ROE figures are not available, Customers Bancorp’s performance indicates its ability to efficiently utilize its assets and generate strong returns for its shareholders.
Quarterly Financial Highlights
In the most recent quarter (Q3 2024), Customers Bancorp reported quarterly net income of $42.9 million, or $1.31 per diluted share. This represents a decline compared to the year-ago quarter, where the company reported earnings of $2.59 per share. The decrease in earnings was primarily attributable to changes in the interest rate environment and increased investments in risk management and compliance infrastructure.
Despite the quarterly decline, Customers Bancorp continued to demonstrate strong growth in its key business segments. Total loans and leases held for investment grew by $520.8 million, or 16% on an annualized basis, during the quarter. The company also reported robust deposit inflows of $1.1 billion from commercial customers, which were used to pay down $700 million in higher-cost deposits, further strengthening its funding profile.
As of September 30, 2024, Customers Bancorp had $21.46 billion in total assets and $18.07 billion in total deposits. The company’s loan portfolio, excluding loans held for sale and mortgage finance loans, totaled $12.53 billion. Customers Bank also provides blockchain-based digital payments services through its CBIT platform, which had $2.80 billion in associated deposits as of September 30, 2024.
Guidance and Outlook
Customers Bancorp has provided a positive outlook for the future, with management highlighting the company’s strategic initiatives and growth opportunities. The company expects to continue its deposit transformation efforts, aiming to replace less strategic and higher-cost deposits with higher-quality, relationship-based deposits. This initiative is expected to drive net interest margin expansion and improved profitability in the coming years.
For the full year 2024, Customers Bancorp anticipates loan growth of 10-15%, which translates to approximately $400-$500 million of loan growth in Q4 2024. The company expects net interest margin to remain roughly flat in Q4 2024 and then expand in 2025 as the effects of the continued deposit remix take hold.
Expenses associated with the new banking teams are expected to remain elevated for the next two quarters before normalizing. Looking ahead to 2025, Customers Bancorp has expressed optimism about generating EPS growth of 30% or more as the new banking teams break even and become profitable early in the year, and the company tapers its elevated risk management investments.
Furthermore, Customers Bancorp’s investment in talent, technology, and risk management infrastructure is expected to position the company for long-term success. The company’s recent hires of experienced banking professionals and the enhancement of its compliance and anti-money laundering practices underscore its commitment to building a strong foundation for sustainable growth.
Risks and Challenges
While Customers Bancorp has demonstrated impressive growth and resilience, the company is not without its fair share of risks and challenges. The highly competitive and rapidly evolving nature of the banking and fintech industries presents ongoing risks to the company’s market share and profitability.
The company’s exposure to the digital asset and cryptocurrency space has also been a point of scrutiny, with the recent regulatory oversight and enforcement actions highlighting the need for robust risk management and compliance controls. Customers Bancorp has acknowledged these challenges and is actively working to enhance its risk management practices to mitigate potential vulnerabilities.
Additionally, the macroeconomic environment, including factors such as interest rate fluctuations, inflation, and potential economic downturns, can have a significant impact on Customers Bancorp’s performance and growth prospects. The company’s ability to navigate these external challenges will be crucial in maintaining its competitive edge and delivering long-term value to shareholders.
Competitive Landscape and Growth Opportunities
Customers Bancorp operates in a highly competitive banking and fintech landscape, facing formidable rivals ranging from large national banks to nimble fintech startups. However, the company’s unique positioning as a tech-forward, relationship-driven financial institution has allowed it to carve out a distinct niche in the market.
One of Customers Bancorp’s key strengths lies in its specialized lending and deposit-gathering capabilities. The company’s focus on serving the needs of mortgage companies, commercial real estate investors, and various specialized industries has enabled it to capitalize on growth opportunities and build a diversified loan portfolio.
Furthermore, Customers Bancorp’s investment in its digital banking platform and its strategic partnerships with fintech companies have positioned the company as an attractive provider of innovative financial solutions. The company’s ability to cater to the evolving needs of its client base, from individuals to small and medium-sized businesses, has been a critical driver of its success.
Looking ahead, Customers Bancorp remains well-positioned to capitalize on the ongoing digitalization and transformation of the banking industry. The company’s strong pipeline of deposit and loan growth, coupled with its focus on enhancing its risk management and compliance frameworks, suggest a promising outlook for the company’s future performance.
Conclusion
Customers Bancorp’s journey from a local community bank to a leading fintech-focused institution has been a testament to its strategic vision, innovative mindset, and commitment to exceptional customer service. The company’s ability to adapt to the ever-changing banking landscape, while maintaining a strong financial foundation, positions it as a compelling investment opportunity in the rapidly evolving financial services sector.
As Customers Bancorp continues to execute on its growth initiatives and strengthen its technological capabilities, investors should closely monitor the company’s progress and its ability to navigate the challenges and opportunities that lie ahead. With its robust financial performance, diverse product offerings, and experienced management team, Customers Bancorp appears well-equipped to drive long-term value for its shareholders.
It’s worth noting that Customers Bancorp has issued Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F (CUBI-PF). As of September 30, 2024, there were 3.40 million shares of CUBI-PF outstanding, with a total carrying value of $82.20 million. The preferred stock pays a fixed-to-floating rate dividend, with the floating rate based on three-month SOFR plus 4.76% beginning December 15, 2021. Dividends per share of $1.99 were declared on the CUBI-PF preferred stock for the nine months ended September 30, 2023.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.