Customers Bank ushers in 'new guard' with CEO appointment

Phoenixville, Pa.-based Customers Bank is executing on its succession plan with the appointment of Sam Sidhu as president and CEO of the banking subsidiary, a move analysts said would be well-received by the Street.

Sam Sidhu is the son of Jay Sidhu, CEO of the bank's parent company, Customers Bancorp Inc. Analysts said investors should welcome the move, which will become effective July 1, considering Sam Sidhu's promotion was telegraphed with a January 2020 appointment to the positions of vice chairman and COO of the banking unit.

"Most of the lines of business have already been starting to report into Sam, and he's had a lot of early success already," said Peter Winter, an analyst with Wedbush Securities, in an interview. Winter said that Sam Sidhu's education and background working at The Goldman Sachs Group Inc. and founding Megalith Financial Acquisition Corp., a special purpose acquisition company, make him "extremely well-qualified" for the job.

Late last year, Megalith Financial bought BankMobile, a digital banking unit owned by Customers Bancorp and led by Luvleen Sidhu, Jay Sidhu's daughter. Following news of Sam Sidhu's promotion, the holding company's stock price increased by 2.7% on March 30, compared to a 1.7% gain in the SNL U.S. Bank and Thrift index.

Michael Perito, an analyst at Keefe Bruyette & Woods, wrote in a note that Sam Sidhu's new role should not be a surprise to the market and that his experience as COO should offer strong familiarity with the bank's day-to-day operations.

"The board went through a fairly rigorous process, of trying to find suitable successors, and that Sam's skillset and familiarity with the company suggested that he was the best fit," said Perito in an interview. "Sam has really done a pretty nice job since he's taken over."

Sam Sidhu said the management team has built mutual trust and respect with him over his years working on the board and more recently directly with management.

"There's a very interesting opportunity ... especially in a regulated industry built on legacy technology, that is now entering a new wave of a technology revolution, to be having both the old guard and the new guard working together," Sam Sidhu said in an interview.

Sam Sidhu is on tap to become CEO of the holding company when his father retires, "subject to his eventual retirement, and also subject to the board's approval of my performance," he said. But Jay Sidhu is not anticipated to retire until 2025 or 2026, Sam Sidhu said.

During Sam Sidhu's tenure last year, Customers Bank established itself as leader in originating Paycheck Protection Program loans, booking the 10th-highest dollar amount in loans among U.S. banks, according to SBA data. By number of loans approved, the bank ranks fifth.

PPP has provided an opportunity for the bank to grow its revenue and show its ability to pair technology with community banking, analysts said. "They're trying to find niches where their technological approach and expertise to banking can help them generate fees and revenue. That's what I expect them to do going forward," said Perito. "The PPP program was a good example of that near-term."

The third round of PPP provides more opportunity for Customers to increase revenue, wrote Steve Moss, an analyst with B. Riley Securities, in a note on the bank. "With originations volumes likely to increase further in the coming weeks, we believe well over $4.00 of [tangible book value] accretion is likely as originations continue," wrote Moss.

Customers Bancorp is trading at a lower price to tangible book ratio than peers at 113.99% as of March 30, compared to 190.59% for the SNL U.S. Bank and Thrift Index.

According to Perito, the bank's low capital ratios are the main reason for the low trading position, and Sam Sidhu is poised to grow that capital. The bank's capital is low partly due to its high growth rate, Perito said, and revenue from the PPP loans will help lift those capital levels.

"Customers Bank over the last 24 months or so has traded at a little bit of a discount," said Sam Sidhu. "A lot of that had to do with the overhang of being a bank that was staying below $10 billion, because of the Durbin amendment and interchange revenue related to its BankMobile investment."

But now that BankMobile has been divested and the bank has crossed over the $10 billion mark, the bank can resume its growth, build capital and narrow the pricing gap with its peers, Sam Sidhu said. The bank's focus on digitalization and technology has helped it create niche opportunities with strong lending quality, said Winter.

"[PPP is] proof of concept, in a way, that their digital banking efforts are working," said Winter. "It's a great value, where it is. I think people should take a look at the stock."