To adapt from Mark Twain, financial history may not literally repeat itself, but it often rhymes. A key element of the growth strategy of the failed Signature Bank was the “liftout” — it hired entire teams of highly experienced bankers from other institutions to benefit from their established relationships and the accounts that came with them. This raider philosophy worked for many years, giving Signature more than a running start as it entered new business lines and new markets around the country.
Now, in the aftermath of the New York bank’s failure earlier this year, Customers Bank has acquired a specialized loan portfolio from the Federal Deposit Insurance Corp. and, in a separate move, hired the 30 team members from the group that originated those loans.
In a sense, Customers is not only getting the band back together, but reuniting it with its book of business. With this, the $21 billion-asset bank has put its own twist on the liftout, complete with the FDIC subsidizing the loan purchase.
The “genealogy” of the Signature venture capital team goes a ways back, and this marks the third time the team members are moving to a new institution as a group. Signature formed a national “venture banking group” to serve the needs of venture capital firms and their portfolio companies in 2019, after snatching up a team of 24 bankers from Pacific Western Bank. The team got its start at Square 1 Bank, which Pac West had acquired in 2015.
For Customers, the acquisition of the loans and the team fits into a bigger strategy already underway. The bank has been expanding into business lines that, besides being profitable, tend to generate low-cost deposits.
“This deal looks both financially and strategically compelling at first blush,” Michael Perito and other Keefe, Bruyette & Woods analysts wrote in a “flash note” issued shortly after Customers’ announcement Friday.
Venture Capital Loans from the Former Signature Bank
After Signature failed, New York Community Bancorp acquired $12.9 billion of its loans in a deal with the FDIC. But about $60 billion of Signature’s loans remained in receivership for later disposition by the FDIC.
This included a $631 million venture banking loan portfolio, which Customers Bank has acquired at approximately 85% of book value.
• Some of the loans are in the technology and life sciences sector. Customers said those will be combined with the portfolio of its existing technology and venture capital banking group. The bank’s annual report describes the group’s activities as providing loans to businesses with “mission critical software products, recurring software revenues and funded by well-known venture capital firms.”
• Some are “capital call loans” to venture capital firms. Those will be combined with Customers’ own capital call line portfolio. Its fund finance group, which is based in New York and Chicago, is responsible for that portfolio.
The KBW analyst note indicated that capital call lines are considered a low-yield, low-risk product. These specialized lines of credit are issued to limited partners in investment deals. They are tapped when an investment firm requests a portion of committed capital from a limited partner in order to make investments or to pay fees and expenses.
Customers said in a press release that the former Signature team it is hiring has longstanding relationships with the borrowers in the loan portfolio it acquired from the FDIC.
It said the new hires, to be onboarded within a few weeks, would establish venture banking client coverage in Austin, Texas; Boston; Chicago; the San Francisco Bay area; southern California; Denver; Raleigh-Durham, N.C.; and Washington, D.C. While Customers is headquartered in West Reading, Pa., its tech and venture group is based in Boston.
Read more about Customers Bank:
- Customers Bank Pursues High-Tech, Branch-Light National Strategy
- New Consortium Seeks to Accelerate Small-Bank Tech Innovation
- Banks and Credit Unions Wade Into Crypto Banking — But Why?
A Pipeline of Cheap Deposits for Customers Bank
Customers Bank created its tech and venture group in January 2022, as an addition to its growing specialty business lines. The group already accounted for $432 million in loans, or about 3% of Customers’ total loan portfolio, as of yearend 2022.
In remarks to analysts in late 2022, Sam Sidhu, president and chief operating officer at Customers, said that the fund finance and tech and venture groups, as well as a financial institutions group, are leading the growth of the bank’s “lower-cost deposit pipelines.” Sidhu also later credited these groups with bringing in sticky deposit relationships “at or below market rates.”
In an announcement about the FDIC deal, Sidhu underscored the bank’s commitment to maintaining strong liquidity and improving key ratios.
“This loan pool purchase was extremely attractive to us considering the historical customer deposit to loan ratio in this vertical of over two to one,” he said. “With the recruitment of this highly experienced team, we are extremely confident in our ability to build primacy of relationships with these new clients and further improve our liquidity profile with the addition of low-cost, core deposits.”
KBW estimates that, as the team finishes coming aboard, its tech and venture relationships alone could bring in more than $1 billion in new deposits.