Company Profile (excerpt from Reuters): Customers Bancorp, Inc. (Customers Bancorp), incorporated on April 7, 2010, is a bank holding company engaged in banking activities through its subsidiary, Customers Bank (the Bank). The Bank provides financial products and services to small and middle market businesses, not-for-profits, and consumers through its branches and offices in Southeastern Pennsylvania (Bucks, Berks, Chester, Delaware and Philadelphia Counties), Rye Brook, Melville and New York, New York (Westchester, Suffolk and New York Counties), Hamilton, New Jersey (Mercer County), Providence, Rhode Island (Providence County), Portsmouth, New Hampshire (Rockingham County) and Boston, Massachusetts (Suffolk County). The Bank also provides liquidity to the mortgage market nationwide through the operation of its loans to mortgage banking companies. The Bank offers a range of traditional loan and deposit banking products, and financial services. Customers Bank offers a range of lending products, including small business loans, mortgage warehouse loans, multi-family and commercial real estate loans, residential mortgage loans and other consumer loans. Customers Bank also offers traditional deposit products, including commercial and consumer checking accounts, non-interest-bearing demand accounts, money market deposit accounts, savings accounts and time deposit accounts, and cash management services.
Downloadable PDF version of this valuation:
ModernGraham Valuation of CUBI – September 2018
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass all 6 of the following tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $786,388,942 | Fail | |
| 2. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 3. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 4. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 79.25% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 11.53 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 0.85 | Pass | |
| Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor. | ||||
| 1. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 2. Dividend Record | Currently Pays Dividend | Fail | ||
| 3. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.14 |
| MG Growth Estimate | 7.18% |
| MG Value | $48.98 |
| Opinion | Undervalued |
| MG Grade | C+ |
| MG Value based on 3% Growth | $31.06 |
| MG Value based on 0% Growth | $18.21 |
| Market Implied Growth Rate | 1.52% |
| Current Price | $24.70 |
| % of Intrinsic Value | 50.42% |
Customers Bancorp Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.45 in 2014 to an estimated $2.14 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.52% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Customers Bancorp Inc revealed the company was trading below its Graham Number of $34.58. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 11.53, which was below the industry average of 19.22, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Customers Bancorp Inc receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
| Graham Number | $34.58 |
| PEmg | 11.53 |
| PB Ratio | 0.85 |
| Dividend Yield | 0.00% |
| TTM Dividend | $0.00 |
| Number of Consecutive Years of Dividend Growth | 0 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 6/1/2018 |
| Long-Term Debt & Capital Lease Obligation | $2,685,614,000 |
| Total Assets | $11,092,846,000 |
| Intangible Assets | $17,150,000 |
| Total Liabilities | $10,156,619,000 |
| Shares Outstanding (Diluted Average) | 32,381,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $2.37 |
| Dec2017 | $1.97 |
| Dec2016 | $2.31 |
| Dec2015 | $1.96 |
| Dec2014 | $1.55 |
| Dec2013 | $1.30 |
| Dec2012 | $1.57 |
| Dec2011 | $0.36 |
| Dec2010 | $3.36 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.14 |
| Dec2017 | $1.96 |
| Dec2016 | $1.88 |
| Dec2015 | $1.56 |
| Dec2014 | $1.45 |
| Dec2013 | $1.37 |
| Dec2012 | $1.29 |
| Dec2011 | $1.01 |
| Dec2010 | $1.12 |
Recommended Reading:
Other ModernGraham posts about the company
Customers Bancorp Inc Valuation – Initial Coverage $CUBI
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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