Customers Bancorp just delivered a stellar 2023, cementing its position as a top performer in the banking industry. The company exceeded expectations, delivering record net interest income and a tangible book value per share growth that left its peers in the dust. Yet, buried within the transcript of their recent earnings call lies a tantalizing hint that could signal a bold move – a strategic acquisition that could propel CUBI into the upper echelons of the banking world.

While the focus has been on CUBI's impressive deposit transformation and loan growth projections for 2024, a key phrase uttered by Sam Sidhu, President and CEO of Customers Bank, suggests a different play altogether. During the Q&A session, Sidhu, discussing long-term growth beyond 2024, remarked: "We'd like to continue to improve the mix and reduce the cost and the cost sensitivity of those deposit customers over the course of the coming quarters and years, and that's really what our focus is going to be on. You heard me talk about deposit-led growth. I think the real differentiator for Customers Bank today is the customers and the teams that are in motion that are going to really help us enter 2025 and beyond are going to help us build deposits first internally, and then a deposit-led growth in '25 and beyond, maintaining our current capital goals, which we hope to achieve pretty quickly." The emphasis here is on "deposit-led growth in '25 and beyond." While this could imply continued organic deposit growth strategies, it also raises the distinct possibility of CUBI using its robust capital position, which they expect to reach their 7.5% TCE target "pretty quickly," as a springboard for an acquisition. This wouldn't be entirely out of character for the company. In 2023, CUBI acquired the venture banking loan portfolio from the FDIC, demonstrating their willingness to capitalize on market disruption through strategic purchases.

The recent onboarding of 10 new banking teams from legacy Signature Bank further bolsters this hypothesis. These teams, boasting over $10 billion in deposit balances prior to the 2023 banking crisis, signify CUBI's commitment to strengthening their deposit franchise. However, these teams also bring an inherent lending opportunity, with a typical loan-to-deposit ratio of 20% to 30%. This means a potential $2 billion to $3 billion in loan book could be added to CUBI's portfolio in the coming years.

While CUBI has committed to funding their projected 10% to 15% loan growth in 2024 with excess cash and securities, this influx of loans from the newly acquired teams combined with their already robust organic loan pipeline points to a future where balance sheet expansion becomes inevitable. Could this be the catalyst for an acquisition? The timing certainly aligns. CUBI expects to achieve its capital goals quickly, the new teams are primed to bolster their loan and deposit base, and the market continues to offer opportunities in the wake of last year's banking turmoil.

Furthermore, CUBI's operational efficiency, highlighted by a 20% reduction in employee count since 2018 despite doubling their balance sheet, demonstrates their ability to effectively integrate new businesses and teams.

Potential Acquisition Targets

Let's look at some potential targets. CUBI has a history of success in specialty lending verticals like venture banking, fund finance, and equipment finance. A strategic acquisition could involve a bank with a complementary portfolio or one that expands their geographic footprint beyond their current northeast focus. CUBI could also target banks with a strong community banking presence, leveraging their operational efficiency to enhance profitability in those areas.

Deposit Growth: A Key Indicator

Customers Bancorp has consistently grown its business unit deposits. This chart shows the growth over the past four quarters, indicating their strength in attracting deposits.

The evidence, while subtle, suggests that CUBI is laying the groundwork for a strategic acquisition in the near future. Their deposit-focused approach, combined with a healthy appetite for growth and a robust capital position, makes them a prime candidate to leverage the current market disruption for a transformative purchase. If executed successfully, this acquisition could solidify CUBI's position as a true banking powerhouse.

"Fun Fact: Did you know that Customers Bancorp's headquarters is located in West Reading, Pennsylvania, a town known for its vibrant arts and culture scene? Perhaps this artistic spirit is what drives CUBI's innovative approach to banking."