By Vanessa Mambrino, consultant & Nick Robin, business analyst, Capital Performance Group LLC, Washington, D.C., a firm providing advisory, planning, analytic, and project management support to the financial services industry.  www.capitalperform.com

 

 

Customers Bank of Phoenixville, Pa., (previously named New Century Bank) experienced one of the largest year-over-year improvements in earnings performance among non-subchapter-S corporations with total assets of between $100 million and $3 billion. In 2009, the bank reported an ROAE of -66.15% and was ranked at #3,002 within its category. In 2010, the bank markedly improved earnings, reporting an ROAE of 31.78% at year-end. This was enough to move Customers Bank to a rank of #4 in this year’s community bank rankings. 

The impetus behind this performance was a change in management—and, therefore, in strategy. Both the CEO, Jay Sidhu, formerly CEO of Sovereign Bank, and the CFO, Tom Brugger (as well as many other senior executives), joined the bank in 2009 and set aggressive performance goals of a 12% to 15% ROAE and 1.00% to 1.25% ROAA for 2010. To meet these goals, the new management team set out to identify a niche where the bank could excel. On the commercial side, the niche was small business lending; while on the consumer side, the niche was residential mortgages—and specifically, warehouse lending.

Growth in these businesses has occurred both through acquisition and organically. During 2010, Customers Bank was an active acquirer, purchasing a $105.4 million seasoned manufactured housing loan portfolio in August of that year. The bank also engaged in two separate FDIC-assisted acquisitions, one in July 2010 and another in September 2010, which allowed it to enter the markets of Westchester County, NY, and Camden County, NJ, respectively. These acquisitions also brought Customers Bank pre-tax bargain purchase gains of $40.3 million and contributed to year-over-year deposit and loan growth of 296.81% and 281.66%, respectively (these rates were based on estimated volumes of acquired loans and deposits reported at year-end 2010—as the bank has been able to refine those estimates in the time since the acquisition, it believes that loan growth may truly have occurred at a rate of 292.17% during the past year).

Nevertheless, most of this strong growth was achieved organically—together, the two acquisitions brought only $251.2 million of the $931.8 million of deposits raised in 2010 to Customers Bank. The remainder were raised through a strategy that Sidhu describes as “high touch supported by high tech.” Customers Bank’s eight branches are viewed as centers for sales and service, not transactions. The bank holds “midnight madness” sales when opening a new branch and uses other tactics to steal market share from larger competitors.  For example, sales personnel are encouraged to engage in outreach efforts and to leave the branch, if necessary, to make house calls on prospects. 

Customers Bank has invested in mobile banking, text banking, and other alternative delivery channels to provide convenient access to funds and information for their customers without having to build a vast branch network. This has helped the bank to maintain an efficiency ratio of 41.23%, significantly lower than either the average across all top performing large non-S-corps (57.37%) or the average across all banks and thrifts in this category (82.01%).

In 2011, Customers Bank plans to continue to seek opportunities for future growth over its target three to five year planning horizon. It is in the process of acquiring Berkshire Bancorp, Inc., a bank with total assets of $147 million and five branches in Berks County, Pa. (the acquisition, announced in August 2010, has not yet been consummated).

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[This article was posted on June 10, 2011, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2011 by the American Bankers Association.] 

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