Customers Bancorp is launching a Dallas-based financial institutions group to serve broker-dealers, future commissions merchants, market makers, insurance companies and other nonbanks.
The new unit’s debut comes about five weeks after Customers announced the launch of a technology and venture banking group out of the $19.6 billion-asset company’s headquarters in West Reading, Pennsylvania. Customers also created a funds finance business in June.
These additions are already paying off. Specialty lending contributed to strong fourth-quarter loan growth for Customers, and the company's president, Sam Sidhu, expects the momentum to carry over into 2022, driven in large part by the new lines of business. Sidhu told analysts that funds finance, technology and venture banking and financial institutions would combine to produce $1 billion in outstanding loans in 2022 and eventually grow into $1 billion-plus business lines on their own.
Customers, the holding company for Customers Bank, isn’t new to serving nonbank financial services institutions, including some “very large broker-dealer firms,” Jake Danielski, the bank's senior vice president and Texas market executive, said in an interview. The goal now is to do it in a more in-depth way.
“We’ve had sort of a disparate business development and relationship management effort when it comes to financial institutions,” Danielski said. “We’ve had multiyear relationships with very large broker-dealers and other financial institutions in general that have been managed through several groups at the bank.”
Most of those relationships never progressed beyond holding clients’ deposits, Danielski added. The new Financial Institutions Group’s mission, in a nutshell, is to deepen relationships with new and existing clients, adding loans and fee-income-generating products to the existing deposit accounts.
As a start, Customers hired veteran banker Brandon Troster to lead a team focused on serving broker-dealers. Troster held a similar position at the $34.7 billion-asset Texas Capital Bancshares for eight years before joining Customers. Before that, Troster worked for eight years at two Dallas-based broker-dealer firms.
“I wanted to be a part of something that is not necessarily on the ground floor, to come over here and help build something,” Troster said.
Broker-dealers make an excellent entry point into the wider financial services marketplace because “we don’t see a ton of banks in this space,” Troster said. It’s a heavily regulated field where the players are eager to establish the kind of in-depth relationships with banks that Customers wants to begin cultivating.
“We see it as an underserved market, a place that Customers Bank can step in and build long-term partnerships,” Troster said. “Broker-dealers want to work with banks that understand what they’re trying to do, how they’re trying to build their business and grow.”
In addition to continuing to expand its existing operations, Customers is weighing expansion into digital-asset lending.
Customers reported total loans of $15.6 billion on Dec. 31, up 4% year over year. But commercial-and-industrial loans totaling $3.46 billion grew by 45% over the same span. On a linked-quarter basis, the commercial-and-industrial balance grew by 29%. That expansion was “led by our specialty businesses,” Sidhu said.
In a Jan. 27 research note, Will Curtiss, an analyst at Hovde, called Customers’ new specialty business lines a significant contributor” to the outsize fourth-quarter loan growth. Curtiss forecast continued expansion “in the low double-digits in 2022.”
Both Danielski and Troster seemed confident that the financial institutions group, led by the broker-dealer team, would hit the company’s growth targets for 2022 and beyond.
“Brandon’s expertise in broker-dealer relationships, in the inner workings of how a broker-dealer works and how to lend money to them really opened our eyes to [the opportunities in] taking some of those relationships that have been managed in a couple different places and bringing them into a central location to sell deeper into,” Danielski said.
