Proprietary cubiX Platform Will Expand Non-Interest Revenue Opportunities

Key Takeaways

• Strategic shift to a regional business model is poised to enhance revenue growth and national presence.
  
• Investments in risk management and operational excellence could improve efficiency and boost future earnings.
  
• Reliance on noninterest-bearing deposits and regulatory pressures could impact margins, while concentrated growth in commercial real estate raises asset quality risks amidst economic uncertainties.

Catalysts

Operates as the bank holding company for Customers Bank that provides financial products and services to individual consumers, and small and middle market businesses.

• Customers Bancorp is strategically transforming from a community bank to a diversified regional business bank with a national presence, which is expected to drive future revenue growth.
  
• The bank's focus on enhancing its deposit franchise and reducing interest expenses suggests improved net margins in the future.
  
• Customers Bancorp's investments in risk management enhancements and operational excellence initiatives aim to improve efficiency ratios, potentially boosting future earnings.
  
• The continued growth in loan portfolios, supported by a pro-business government agenda, points to increased future net interest income and revenue.
  
• The bank's proprietary cubiX platform boosts fee income, indicating potential growth in non-interest revenue streams.

Customers Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Customers Bancorp's revenue will grow by 8.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 25.9% today to 33.2% in 3 years time.
• Analysts expect earnings to reach $270.8 million (and earnings per share of $8.31) by about January 2028, up from $166.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.5x on those 2028 earnings, down from 10.7x today. This future PE is lower than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 1.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.55%, as per the Simply Wall St company report.

Customers Bancorp Future Earnings Per Share Growth

Risks

• The reliance on noninterest-bearing deposits from the digital asset business could pose a risk if market conditions or regulations change, which may impact net interest margins if these high balances decrease.
  
• The costs and resources dedicated to complying with regulatory requirements and risk management enhancements could put pressure on net margins and profitability if they exceed anticipated levels.
  
• The planned transition and reduction of higher-cost brokered deposits rely on maintaining strong core deposit growth; any slowdown in this area could lead to increased funding costs, impacting overall net interest income.
  
• Concentrated growth in the commercial real estate sector, despite appearing self-funded, could pose asset quality and concentration risks, potentially impacting future charge-offs and earnings stability.
  
• The potential for macroeconomic uncertainty and interest rate volatility may impact loan and deposit growth targets, which could affect both revenue and net interest income projections.

Valuation

• The analysts have a consensus price target of $66.11 for Customers Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $81.0, and the most bearish reporting a price target of just $50.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $815.2 million, earnings will come to $270.8 million, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of $57.02, the analyst's price target of $66.11 is 13.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.