At a quick glance, Customers Bancorp (CUBI +0.90%) may look like another traditional regional bank in Pennsylvania. But the company has been executing a playbook that has driven similar companies to much higher valuations and market capitalizations. And this playbook also involves getting into the crypto space. The market has taken notice, driving up the stock more than 225% so far this year. But given the bank's potential and other banks that have made similar moves, I think this stock could have a lot of runway left. Here's why.
Developing great lines of business
Customers is already at the forefront of technology in the banking sector. One of its strengths is lending in tandem with the U.S. Small Business Administration (SBA) allowing banks to make loans to riskier businesses that are partially guaranteed by the government. The bank built an end-to-end platform that combines loan origination, funding, servicing, and forgiveness for businesses across the country. Customers asserts that this platform has enabled borrowers to close on SBA loans in as little as 30 days, which is very fast in the SBA world -- some SBA loan applications require 148 documents.
When Congress passed the Paycheck Protection Program (PPP) as part of broader stimulus bills to quickly aid businesses negatively impacted by the pandemic, it presented a phenomenal opportunity for Customers because, while different, the PPP program is based on the traditional SBA program. Customers did not miss a beat, funding roughly 350,000 PPP loans for a whopping $10 billion in total volume. When all is said and done, Customers will reap $346 million in fees from its PPP originations.
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Now the bank is continuing to innovate, turning its attention to the crypto space. Since the very start of this year, the bank has been developing a real-time, blockchain-based payments system for businesses called the Customers Bank Instant Token (CBIT). This allows parties on the network to instantly send and settle payments between one another at any time. The platform plans to serve a variety of businesses such as over-the-counter trading desks, crypto exchanges, market makers, institutional funds, and other sectors such as real estate, manufacturing, and logistics. But the clear use case right now is to facilitate the trading of digital assets, which, unlike traditional stocks, never stop trading. And it looks like CBIT is off to a very promising start, bringing in $1.5 billion of non-interest-bearing deposits from clients during the soft launch. Real-time payments systems like CBIT can be great for banks because they encourage exchanges and institutional traders to bring in large sums of deposits that the bank doesn't have to pay any interest on.
Management is also launching new lending lines and continuing to build out its digital small business banking SBA platform. The new specialty commercial lending lines of business include fund finance, tech, and venture capital banking, and financial institutions lending. These lending lines largely make loans to venture capital and private equity firms, which can be a great business when done right. In addition, Customers is building new capabilities on its SBA platform including term loans, revolving lines of credit, and commercial credit cards.
Still an attractive entry point
Despite rising more than 225% this year, Customers still doesn't look that expensive when you look at other competitors that have done what Customers is looking to do with CBIT and the digital small business and SBA platform.
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On a price-to-tangible-book basis, which looks at a bank's stock price relative to the value of the bank if it were immediately liquidated, Customers is well behind several banks that have successfully done what it is planning to do. Silvergate Capital (SI 0.31%) and Signature Bank (SBNY +0.00%) were the first banks to develop real-time payments systems to facilitate crypto trading, while Live Oak Bancshares (LOB +2.29%) is an SBA leader and has developed a national digital small banking platform. The gap when you look at earnings multiples is also very wide.
Data by YCharts.
Right now, I'd say Customers is most like Signature, which also has a real-time payments network as well as a large banking operation with a growing and diverse array of different lending verticals. But Customers has also been really good at leveraging technology to become a leader in regards to SBA lending like Live Oak. Customers is still near the beginning of its journey with real-time payments, so I wouldn't expect it to trade at the same multiples as Signature just yet.
Watch for progress
Customers has a lot going on right now, with the launch of CBIT, new lending lines, and enhancements to its digital SBA platform. Things you can watch: if CBIT keeps onboarding new customers and growing non-interest-bearing deposit balances, the growth of Customers' new lending lines, and more progress on the SBA front, which I think will be strong because of all the new businesses Customers likely met during the PPP process. Still, there has already been proof of some success on these fronts, and if Customers can keep executing its exciting playbook, I certainly think the bank can be a big winner with much more stock price appreciation to come.
