Customers Bancorp's Strategic Redemption and Index Inclusion Fuel Growth and Value Creation

Customers Bancorp (NYSE: CUBI) is executing a dual-pronged strategy to bolster its financial profile: redeeming high-cost preferred stock and securing inclusion in a major equity index. These moves position the regional bank as a compelling investment for investors seeking exposure to a high-growth, well-capitalized institution. Here's why the combination of strategic capital optimization and institutional inflows could drive outsized returns.

The Redemption: Cutting Costs to Fuel Earnings

On June 16, 2025, Customers Bancorp will fully redeem its Series E Preferred Stock—a move that will slash its interest expenses and improve capital structure efficiency. The 2,300,000 shares of the Series E Preferred, which carried a 9.70% dividend rate, will be called at $25 per share, eliminating $57.5 million in high-cost debt. This action is accretive to earnings per share (EPS) by $0.12 annually, according to management.

The redemption is particularly impactful because the Series E's dividend rate had risen sharply since its 2016 issuance, when it carried a 6.45% coupon. As rates climbed, the floating-rate feature of the Series E pushed its cost to 9.70%—far above CUBI's current 2.82% average deposit cost. By retiring this debt, the bank reduces its funding costs, freeing capital to support higher-margin loans and investments.

Index Inclusion: Unlocking Liquidity and Institutional Attention

In addition to the redemption, Customers Bancorp was recently added to the Russell 3000E Growth Index, a move that could attract passive institutional investors and boost liquidity. The Russell 3000E Growth Index targets companies with strong earnings momentum and growth profiles, and CUBI's inclusion reflects its outperformance in a challenging banking environment.

The addition is a catalyst for two key reasons:
1. Increased Visibility: The index's constituents often see heightened analyst coverage and investor interest.
2. Passive Buying: Funds tracking the Russell 3000E Growth Index will be compelled to purchase CUBI shares, potentially narrowing its $0.35 discount to book value ($54.85 as of Q1 2025 vs. a recent stock price of $54.50).

Financial Fortitude: A Strong Foundation for Growth

Customers Bancorp's capital metrics are robust, even after the redemption. Its Common Equity Tier 1 (CET1) ratio stands at 11.7%, well above regulatory minimums, and its non-performing assets (NPA) ratio is just 0.26%, reflecting disciplined credit underwriting. Meanwhile, loan growth of $611.7 million in Q1 2025 underscores the bank's ability to expand its core business while reducing deposit costs.

The bank's track record speaks to its management's acumen:
- Ranked #1 in profitability among U.S. banks by American Banker (2024).
- Recognized as a “Best Bank for Tech Lending” by Forbes (2024).
- Maintained a Tangible Common Equity to Tangible Assets (TCE/TA) ratio of 7.7%, signaling efficient capital deployment.

Investment Thesis: A Compelling Buy at Current Levels

Customers Bancorp's combination of strategic capital moves and index inclusion creates a compelling risk-reward profile. Key takeaways for investors:

1. EPS Accretion: The $0.12 annual boost from the redemption adds ~2% to its current EPS run rate, with further upside if deposit costs continue to decline.
2. Valuation Attractiveness: At $54.50, the stock trades at a 96% of book value, a discount that could narrow as institutional investors enter the fray.
3. Growth Catalysts: Loan growth in specialized sectors (e.g., multifamily and commercial lending) and a $8.7 billion liquidity buffer position the bank to capitalize on opportunities in 2025 and beyond.

The risks? Rising interest rates could pressure net interest margins, though CUBI has already taken steps to reposition its securities portfolio and reduce rate sensitivity.

Conclusion: A Bank Poised to Outperform

Customers Bancorp is executing flawlessly: reducing high-cost liabilities, benefiting from index inclusion, and maintaining a fortress balance sheet. With its stock trading at a discount to book value and a clear path to EPS growth, CUBI is a buy for investors seeking exposure to a high-quality regional bank. The redemption and Russell inclusion aren't just strategic moves—they're signals of a management team that consistently delivers value.

Final Note: Monitor CUBI's Q2 2025 earnings for further details on the redemption's impact and loan pipeline momentum. This could be a breakout quarter for the stock.