Jay Sidhu has been forced to be patient and persistent with his long-term growth plans.
Sidhu, the chairman and CEO of Customers Bancorp, is taking a second shot at spinning off BankMobile, the Wyomissing, Pa., company’s digital-only bank, next year. The first attempt fizzled after the buyer, Flagship Community Bank, was unable to raise enough capital to make a deal fly.
He had more confidence that the new effort will be completed by Sept. 30. Once that happens, Flagship will become publicly traded and operate under BankMobile’s name.
The move is important to Sidhu for multiple reasons.
Customers had been curbing its growth — Sidhu expects the bank to end 2017 with less than $10 billion in assets — because the Durbin amendment’s cap on interchange fees would impede BankMobile's path to profitability.
Separating Customers from its consumer-oriented digital bank will also allow Sidhu to reposition his company as more of a business bank focused on fundamentals. There is optimism among industry observers that such a shift could spur a rebound in the company’s stock, which is down roughly 25% this year.
The looming spinoff and potential for commercial loan growth at Customers make Sidhu, who took over a predecessor bank in 2009 following a difficult split with Sovereign Bancorp, one of American Banker’s Community Bankers to Watch in 2018.
Sidhu says Customers’ investors, who will own a piece of a spun-off BankMobile, will benefit from the transaction. He expects BankMobile, which is losing money, to double in size in a few years, and says the digital bank should also benefit from Flagship’s forward-thinking management team.
“There’s a huge opportunity in digital banking,” he said. “We have a very successful business model, but the only way the model works is if it’s held by a company that has a lot of headroom for growth.”
Sidhu has what it takes to put up strong numbers at Customers, said Michael Diana, a managing director at Maxim Group.
“Since Jay took over, he’s done virtually everything he said he was going to do,” Diana said. “Now that the BankMobile spinoff has been delayed, there’s probably a bit more skepticism, but I think the stock price is overreacting.”
BankMobile, launched in 2015 to target millennials, has been a differentiator for Customers. Losing the buzzy digital bank, which frequently attracts press, raises the question of how Customers will stand apart from competitors.
Sidhu doesn’t have any special projects up his sleeves at the moment. Rather, he is relying on a belief that a focus on business banking will drive future growth.
“There’s nothing special about that, but it’s a different business model than most banks have and it’s proven it can produce good growth,” Diana said.
Sidhu’s strategy is similar to that of the $41 billion-asset Signature Bank in New York, which has succeeded with an emphasis on tightening expenses, having a minimum of branches and focusing on credit quality, Diana said. Sidhu learned from his tenure at Sovereign that an aggressive acquisition strategy isn’t always the best route to stable growth.
Sidhu “took over and had a plan based on his long experience in banking,” Diana said. “He saw things he thought worked and things that didn’t work. He basically has discarded the things he thinks doesn’t work, like serial acquisitions.”
Sidhu said he believes Customers will have $15 billion to $20 billion in assets in the next five years. The company added a private and commercial banking team in Chicago earlier this year, and Sidhu said a similar office in Washington should open by late January.
Customers also operates in Boston, New York, Philadelphia and Providence, R.I.
Sidhu touts a model that gives clients a point of contact for multiple products and services.
The strategy, which is also used by Signature, remains relatively uncommon, said Michael Perito, an analyst with Keefe, Bruyette & Woods.
Customers also stands to benefit from a lower corporate tax rate. Sidhu has estimated that tax reform could boost the company’s earnings by 18% to 24%.
For now, Sidhu is focused on refining his company’s approach to business banking by adding customer touch points and deepening relationships.
“We do not have any intentions of going outside of our focus on business banking,” he said. “Let BankMobile flourish as a consumer bank, separate and independent, and let Customers Bank flourish as a separate, independent business bank.”