Customers Bancorp, Inc. (NYSE:CUBI) Q1 2026 Earnings Call Transcript

Customers Bancorp, Inc. (NYSE:CUBI) Q1 2026 Earnings Call Transcript April 24, 2026

Operator: Hello, everyone. Thank you for joining us, and welcome to Customers Bancorp, Inc. 2026 Q1 Earnings Webcast. [Operator Instructions]. I will now hand the conference over to Phil Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Please go ahead.

Philip Watkins: Thank you, Miriam, and good morning, everyone. The presentation you will see during today’s webcast has been posted on the Investors web page of the bank’s website at www.customersbank.com. You can scroll the first quarter 2026 results and click download presentation. You can also download a PDF of the full press release at this spot. Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking statements under applicable securities laws. These forward-looking statements are subject to change and involve a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated. Please note that these forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update those forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws.

Please refer to our SEC filings, including our most recent Form 10-K and our current reports on Form 8-K for a more detailed description of the assumptions and risk factors related to our business. Copies of these filings may be obtained from the SEC or by visiting the Investor Relations section of our website. We also reference non-GAAP financial measures, so it’s important to review our GAAP results in the presentation and the reconciliations in the appendix. At this time, it is my pleasure to introduce Customers Bancorp CEO, Sam Sidhu.

Samvir Sidhu: Thanks, Phil. Good morning, everyone, and welcome to Customers Bancorp’s First Quarter 2026 Earnings Call. I’m joined this morning by our Chief Financial Officer, Mark McCollom. Before we get into the results, I want to take a moment to share what makes this call meaningful to me. While I’ve been CEO of Customers Bank since 2021, January 1 marked my first day as CEO of Customers Bancorp. This was the result of a careful multiyear succession process that Jay, our Board and the leadership team built with intentionality. Jay is now our Executive Chairman, and having his guidance and engagement during this transition has been invaluable. I couldn’t be more grateful for what he built and for the confidence he and the board have placed in me.

And I want to be clear, the strategy, the culture and the principles that got us here are not changing, entrepreneurial urgency, a differentiated approach centered on service and technology, an obsession with earning the right to serve each client every day. Those don’t change. The clearest proof that this model is working is our Net Promoter Score. It came in at 81% this year, up 8 points from last year and nearly twice the banking industry average of 41%. That puts us in the company of the most admired service brands across any sector, not just banking. It’s the signal we look at very closely because it tells us whether the flywheel is humming. Great service drives retention and referrals, which drives financial performance, which attracts better teams, which makes the service even better.

That cycle is self-reinforcing. And right now, it’s not only working, it’s accelerating. Now I’ll take you through some highlights from the first quarter and our priorities then hand it over to Mark for the financial details. Turning to Slide 4. Q1 2026 was another clear demonstration of a model that is firing on all cylinders. I’ll walk you through some financial highlights. Total deposits grew 16% and total loans grew 15% on an annualized basis in the quarter. Total noninterest-bearing balances grew to a record $6.7 billion, driven by our new teams. We delivered significant positive operating leverage with year-over-year revenue growth far outpacing expense growth. Tangible book value per share grew 16% year-over-year, continuing a multiyear track record of 15% plus growth, which is among the very top in the industry and we accomplished all of this while maintaining strong credit performance and ample liquidity.

On Slide 5, you can see our top priorities. One of the questions I get asked most often since becoming CEO is what’s changed. My answer is simple. The last several years were about building the team, aligning around a shared direction and executing on foundational investments, including in our tech, payments and risk management infrastructure. That work is largely complete, and hopefully, that shows. Now I am able to focus my time less in the next 2 to 3 quarters and more on building the platform for performance over the next 2 to 3 years. This shift is what shapes our 4 priorities for 2026. First, AI and automation. We are moving fast and with real conviction toward a goal of workflow orchestration across the company. Second, payments in the cubiX ecosystem.

We built cubiX from scratch. And now by transaction volume, it is one of the largest commercial payments platforms in the country. Third, organic balance sheet growth and talent recruitment. Our past hiring supports our guidance of growth in loans and deposits that is well ahead of the industry. And our current team onboarding and recruitment pipeline sets up for continued growth in 2027 and beyond. And fourth, risk management excellence. This is not just a compliance posture. It is a competitive one. The regulatory environment around payments and digital assets is becoming more constructive, which plays directly to our existing strengths and widens our moat. We are appreciative of the increasingly collaborative relationship with our regulatory stakeholders and intend to be a bank that regulators view as a model for risk management.

We believe that risk management excellence is becoming an asset for us. Turning to Slide 6 on AI. I want to be direct. We are moving aggressively to operationalize AI across Customers Bank. We believe AI represents the biggest opportunity in a generation for a bank of our size and culture. We are small enough to move fast and large enough to invest with intent, which is a rare combination. Most organizations are focused on productivity gains, which we are to and will achieve but we’re most excited about the revenue generation and risk reduction opportunities from these tools. I am personally leading our AI transformation effort because I believe the bank in our tier that wins on AI will have compounding benefits and structural advantages that will be very difficult to match.

To walk you through the evolution, in 2023, we entered into initial enterprise partnerships with companies like OpenAI and Microsoft. In 2024, we established a foundation by implementing AI governance and beginning data transformation efforts. In 2025, we moved into production. We trained 100% of our team members. We piloted targeted use cases which are already delivering measurable results. AI began first testing then writing code, and we started building agents. Now in 2026, we are training our team members to be builders and managers of agents, and we are seeking to automate end-to-end workflows across our operating platform. The 3 key initial focus areas in the commercial bank are loan onboarding with a focus on credit underwriting, deposit customer onboarding and payments orchestration.

I’m thrilled to say that we’re already seeing tangible results. From an adoption standpoint, 75% of our team members have AI licenses. More than 500 agents and custom GPTs have been built by our workforce, approximately 2 dozen of those in the last 2 weeks alone. We have saved more than 28,000 hours through AI-enabled workflows, unlocking the equivalent of almost 15 FTEs. This strategic change should allow us to scale our operations far faster than we would need to scale our workforce. We already have best-in-class efficiency, as you can see from our noninterest expense to average asset ratio. Even so, we would expect that as we grow our asset revenue and earnings per employee ratios would increase meaningfully. We should be able to provide medium-term targets on those in the coming quarters.

At the same time, the value additive and strategic work conducted by our team members would go up immensely. To accomplish this, we are utilizing a broad range of tools. This includes strategic partnerships like one we just signed this week with a large frontier model provider that we are very excited about. We’ll have more details to share on that soon, but it shows that leaders in the industry view Customers Bank as being on the forefront of utilization of this technology and assisting them in advancing adoption in the regional bank space. This partnership will initially be focused on the 3 priorities I outlined earlier: loans, deposits and payments. We are only at the beginning of realizing the benefits from this technology, and we intend to be a leader in unlocking it.

Moving to Slide 7. We believe payments functionality is the future of banking, and cubiX is our platform for capturing that future. At its core, cubiX gives clients seamless access to all of our payments rails, from traditional wire and ACH to [ RTP FedNow ] and our proprietary 24/7 365 intrabank instant payments platform. We built it in-house. And today, it is one of the largest commercial payments platforms in the country by transaction volume. One item worth highlighting is that even though the digital asset industry saw meaningful declines in volume and prices over the last couple of quarters, our balances were relatively stable. Importantly, we processed $500 billion in transaction activity for our digital asset clients in the first quarter, a similar pace to 2025 despite the perceived market headwinds.

This reflects the mission-critical nature of the service we provide and the quality of the relationships we have built with our customers. As we previously stated, we are focused on deepening that engagement through enhanced product offerings that drive increased wallet share and stickiness. In 2026, our priority is to broaden the cubiX ecosystem beyond its digital asset beginnings. We have started enabling and see significant opportunity in mortgage finance and real estate transaction settlement where the demand for real-time bank-grade payments infrastructure is growing. While the mortgage finance deposits represent balances from existing clients today, we are in active discussions with networks of prospective clients in the real estate industry, and we believe they will be meaningful drivers of noninterest-bearing deposit growth in 2026.

To help make it real, our 90-day pipeline for cubiX’ customers from new industries is greater than the slight decline in average digital asset balances we saw in the first quarter. Additionally, we see strong opportunities to partner with large institutions in traditional capital markets as exchanges move to 23/5 and eventually 24/7. This could drive both deposits and fee income opportunities for us with even further diversification. While cubiX is highly profitable serving the digital asset industry, when we achieve broader industry adoption, we will get meaningful operating leverage and even more durable earnings. We believe we are still in the early innings of unlocking the full franchise value of this technology. Moving to Slide 8. Banks by nature, grow at roughly the pace of the broader economy.

There are only 2 ways to grow faster, acquire it or earn it. We earn it through our people, our platform and our culture. We are one of the top organic growth stories in the industry. We have not relied on acquisitions to build this franchise and have still delivered disciplined growth at rates that far surpass our peers. What we have done is continuously recruited top talent, giving them access to a strong balance sheet, a sophisticated product suite, best-in-class technology, and importantly, they gain a culture that empowers them to do more for their clients than they could elsewhere. I’m thrilled to say that year-to-date, we have already had 20 bankers join us or sign offer letters, and we’re in active discussions with half a dozen other team leaders.

These bankers represent a mix of geographic C&I and national specialized verticals. This is not a new playbook. It is the same strategy that has driven our long-term outperformance and that has produced results at the very top of our peer group. We are the #1 compounder of core EPS and a top compounder of tangible book value and revenue among peers over the last 6 years. They are the clearest long-term indicators of franchise value creation and share price performance. Before I hand the call over to Mark, I want to take a moment to welcome 2 new equity analysts joining our story. We’re pleased to have Tony Elian from JPMorgan and Manuel Navas from Piper Sandler covering Customers Bank. Welcome to both of you. We look forward to building strong relationships for years to come.

With that, I’ll pass it to you, Mark.

Mark McCollom: Thanks, Sam, and good morning, everyone. On Slide 9, you can see our GAAP financials, and I’ll start my comments on Slide 10. In the quarter, we delivered GAAP and core EPS of $1.97 as GAAP and core earnings were materially consistent. Core ROE and ROA came at 13.1% and 1.13%, respectively. Our consistent execution has led to core EPS increasing 28% from last year. Turning to Slide 11. Total deposits grew over $800 million in the quarter to $21.6 billion, up $2.7 billion or 14% year-over-year. The quality of our deposit franchise continued to improve, and I want to highlight 2 dynamics in particular. First, noninterest-bearing deposits grew by over $400 million in the quarter. Included in this total was a $200 million contribution from spot balance increases in our digital assets channel.

But what I really want to point out is the approximately $230 million contribution during the quarter from our traditional commercial franchise. These balances were up 9% quarter-over-quarter and 22% year-over-year. This is directly attributable to the success of our commercial banking team strategy and the strength of the relationships these bankers bring. As you heard from Sam total noninterest-bearing deposits reached a record $6.7 billion or over 31% of total deposits, not just top quartile but about decile of regional bank peers. Second, average total deposit costs declined again in the quarter by 8 basis points to 2.46% and our cost of interest-bearing deposits declined by 18 basis points. We are continuing to benefit from the positive mix shift of our deposit book as we grow lower cost relationship-based deposits.

Turning to Slide 12. It highlights the results of our commercial banking team strategy. And I’ll give you a spotlight on our 2024 vintage teams as they recently hit their 2-year anniversary with customers. The 10 teams launched in April 2024 now manage over $2.1 billion in deposit balances across approximately 8,000 accounts with 32% of these balances being noninterest-bearing at an average total deposit cost of around 2%. They’ve also generated a [ positive ] loan ratio of about 2.7x. These economics are really compelling. These teams became profitable in approximately 3 quarters and are generating a loan-to-deposit spread of over 400 basis points in addition to the significant excess deposits they generate. This slide also highlights the tremendous momentum we are seeing across our commercial businesses.

In total, we added over 1,100 net commercial accounts in the first quarter. That’s a 5% increase in our commercial account base in a single quarter, which is incredible. Notably, over 50% of that net growth came from the 2025 vintage teams. These teams have already produced low 9-figure balances of deposits at an extremely attractive blended cost of about 50 basis points. These accounts are operational in nature, and therefore, there’s a lag between account openings and deposit balances coming over to our company. You can see this in the fact that less than 15% of the accounts opened during the quarter were meaningfully funded with deposits. These are similar stats that we used to show you in 2024 to give you a sense of the deposit balance fundings to come in future periods.

This level of account activity gives us optimism for meaningful deposit balance growth from these 2025 vintage teams in the coming quarters. Turning to Slide 13 in loans. Total loans grew over $600 million to $17.4 billion, representing 15% annualized growth. We typically see the first quarter as the slowest growth quarter of the year so we’re very pleased with this performance. Growth was broad-based across the franchise, top contributors in the first quarter included fund finance, mortgage finance and health care. As we often say, the mix of contributors can shift from quarter to quarter, but what remains consistent is the diversified multi-vertical nature of our asset generation platform. On Slide 14, net interest income for the first quarter was $191.4 million.

Net interest income grew by $24 million year-over-year or 14%. The expected sequential decline in net interest income and net interest margin was driven by 2 primary factors. Approximately $10 million of accretion income in the fourth quarter, which did not repeat as well as a lower day count in the first quarter. If you account for those factors, we were essentially flat quarter-over-quarter despite the full impact of December’s rate cut. One other item impacting net interest income for the quarter was the planned redemption of $110 million of higher cost subordinated debt late in the quarter. This redemption will help our net interest income in the second quarter. We continue to have leverage on both sides of the balance sheet, including loan growth and deposit mix improvement opportunities.

With that, we remain optimistic about our ability to drive strong net interest income growth in 2026. Moving to Slide 15. Noninterest expense was $112 million for the quarter. As we highlighted on our previous call, we had about $5 million of expenses that were unique to the fourth quarter. And so expenses came in pretty much flat to the fourth quarter, excluding those discrete costs. We talk a lot about positive operating leverage. And I want to take a moment to show you what that means for our franchise. Year-over-year, core revenue growth outpaced core expense growth by nearly 2x. As a result, our core efficiency ratio improved by 300 basis points and core EPS grew 28% over the same period. That’s a very strong positive operating leverage, and we believe this is what disciplined high-quality growth should look like.

Our core noninterest expense as a percent of average assets was 1.82% once again placing us among the top decile of regional bank peers. On Slide 16, many of you recall that coming into 2026, we outlined our second operational excellence initiative, targeting $20 million in annual run rate proceeds across both revenue and expenses. I’m pleased to report that Phase 1 of that initiative has been substantially achieved on a run rate basis. and we are now increasing our target by an initial $10 million in Phase 2, bringing our total target to $30 million in run rate proceeds. On the revenue side, this was driven primarily by capital market sales within our existing SBA business, and you saw some of this in the first quarter of 2026. And the savings on the cost side were a mix of vendor, technology and risk management infrastructure improvements.

These savings are being reinvested into the franchise, in people, technology and the capabilities that differentiate us. We view this as a key component of sustaining positive operating leverage into the future. On Slide 17, a tangible book value per share grew to $63.54, up 3% quarter-over-quarter and 16% year-over-year. This continues our multiyear track record of double-digit tangible book value per share growth and represents a CAGR of over 15% since the fourth quarter of 2019. Turning to Slide 18. Our capital position remains robust and continues to provide significant strategic flexibility. Our TCE ratio of 8.3% was up 60 basis points year-over-year even as our tangible asset grades grew 15% over the same period. We also repurchased about 620,000 shares of our common stock during the quarter at a weighted average price of about $68.

Given the trajectory of our tangible book value I just described, that felt like an attractive price. During the quarter, as planned, we also redeemed the subordinated debt issuance I mentioned earlier, which explains some of the additional reductions in our risk-based ratios during the quarter. Even with these items, we still maintain a comfortable cushion to our internal capital targets. In addition to the subordinated debt over the last year, we’ve also redeemed over $140 million in preferred stock simplifying and improving the quality of our capital stock. We believe strong organic earnings position us well to support continued balance sheet growth and when appropriate, to return capital to shareholders. On Slide 19, credit performance remained stable across the board.

NPAs as a percent of total assets remain low and below our peers. Total net charge-offs declined modestly quarter-over-quarter with strong performance across both commercial and consumer portfolios. Commercial MCOs remain very low, and our consumer portfolio represents only a small portion of our total loans, continues to perform within expectations. Reserve coverage was solid, though we continue to monitor the geopolitical uncertainty that exists in the macroeconomic environment. With that, I’ll close with our 2026 outlook on Slide 20. We are reaffirming our full year 2026 management outlook across all key metrics. On loan growth, we had a strong start to the year, and our pipeline remains solid. For deposits, we also had a good start to the year, and both the newer teams and the franchise as a whole have good prospects to continue that momentum.

With respect to net interest income, we continue to project growth of 7% to 11% over 2025. For noninterest expense, we are maintaining the range of $440 million to $460 million for the year. That is growth of only 2% to 6% even as we continue to invest significantly in people and technology. And lastly, there are no changes currently to either our capital or our tax rate targets. With that, I’ll pass the call back to Sam for closing remarks before we open the line for Q&A.

Samvir Sidhu: Thanks, Mark. Before I offer my closing remarks, I want to share something that I believe may be a first in the history of public company earnings calls. The prepared remarks you heard on my behalf today were delivered by my AI clone, not read by me directly. The execution of this call itself is a live demonstration of what we mean when we say AI is not an experiment at Customers Bank. We will be using it to transform our company. You can imagine use cases for this technology to support our relationship managers to drive revenue and enhance the client experience. To wrap up, in the first quarter, we delivered strong growth across every major dimension of the franchise. Deposits grew 14% year-over-year. Noninterest-bearing deposits hit a new record.

Loans grew 15% year-over-year. Our cubiX payments platform onboarded new clients, creating diversification and repositioning this as a noninterest-bearing deposit growth vertical. Finally, we delivered positive operating leverage with a 300 basis point decline in our efficiency ratio, leading to core EPS growing by 28% year-over-year. We’ll now open up the line for live questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Anthony Elian of JPMorgan. Please go ahead.

Unknown Analyst: This is [ Mike Petrini ] on for Tony. So I’ll start with a quick housekeeping one. What were the cubiX total deposit balances for the period end as well as the averages versus that $4 billion number at 4Q?

Unknown Executive: Yes. Period-end numbers were right around $4 billion, and quarterly average numbers were right around $3.6 billion.

Unknown Analyst: Okay. Great. And then on Slide 7, the mortgage finance and real estate deposits, they combined for about 20% of cubiX deposits. How much do you see both of those mortgage finance and real estate contributing in the next few quarters in cubiX, one could the capital markets sort of opportunity that you guys have identified on Slide 7 start factoring into cubiX deposit growth?

Samvir Sidhu: Yes, sure. I’d be happy to take that. I think that — what’s really interesting about the mortgage use case, as we discussed before, this is to date existing customers that are using our advanced payments capabilities that we’re using more traditional payments capabilities with us prior to sort of more traditional, think of it as sort of wire ACH in and out. And this has been a priority for us in 2026 to sort of see a bit of broad use of cubiX not only much further beyond the digital asset industry and also creating diversification in our deposit base. So I’ll get to sort of the new deposits in a second. But what I would say is we’re thrilled with the early progress on that goal, and we did not expect that as early as the first quarter, we’d be able to show you that slide that you referenced on Slide 7.

So they currently represent about 20% of our deposits. The growth is really going to be coming from that 1% number you see there on the real estate transaction side which is really hugely valuable to customers that are currently banking with other banks that are looking for advanced payment capabilities beyond what they’re able to get in addition to sort of the service that we offer. So we see that you heard in my scripted AI remarks that we expected about $250 million or so of noninterest-bearing deposit growth related to new verticals in cubiX just the next 90 days. We’ll continue to update sort of on progress as the year progresses. Your last question was around the traditional capital markets use cases. That’s still a little bit early days to add a little bit of color on what that would be is we have markets in the traditional side that are open 23/5 today, they will be open 24/7.

And as you can imagine, there’s a number of use cases to have [ FedNow RTP ] and cubiX for after-hours [indiscernible] reconciliation.

Unknown Analyst: Great. And then if I can sneak one more quick one in there. Period-end loans and deposits each increased about 15% annualized. This quarter, you guys left the full year guide at that 8% to 12% range. Is there a level of conservatism taken to that guidance? Or sort of what are you seeing that would suggest a slight slowdown in balance sheet growth for the rest of 2026?

Unknown Executive: No, I don’t think we’re I mean, we’re still sticking to the guide that this year. As you know, there’s certainly a lot of still geopolitical uncertainty out there in the market. Candidly, we were pleased by the level of loan growth we were able to generate in the first quarter. We had a couple of quarters ago, we had a couple of deals that we thought were going to close and didn’t close during the quarter and then end up being a little below and then you start out in the next quarter really hot. In this case, you saw that our average loan growth versus our spot loan growth was pretty materially different, which implies we had a lot of loan growth actually closing in the month of March. So we feel that obviously sets us up well for the second quarter. But at this point, we’re still sticking to our full year numbers.

Operator: Your next question comes from the line of Kelly Motta of KBW.

Kelly Motta: Please, I’m still recovering from the shock of the AI clone aspect of the call that’s quite remarkable. Maybe a question for you and maybe your AI clone is you’ve been obviously at the forefront of this AI transformation here. I think to us as analysts, the potential efficiencies are pretty clear. your prepared remarks and highlight additional revenue opportunities as well. I was hoping just given your expertise and how far ahead of the curve you are on this front. You could speak to potential, what you mean by that and how we should be thinking about the potential revenue enhancements that AI could provide to Customers Bank and, I guess, thinking more broadly.

Samvir Sidhu: Yes. Sure, Kelly, and then I assure you this is really me. What I would say is that just to add a bit more color, in the prepared remarks, I talked about how we feel we can scale the company at significantly higher rates than our head count will grow. And you can imagine sort of when you have an autonomous agent, you’re essentially creating a digital worker. And when you have end-to-end automation across your workflows, which is very easy to say, very difficult to achieve, you can deploy these digital workers under human supervision and they can work around the clock. So you can appreciate getting to the state as much more than creating what folks will call sort of a GPT they can save a couple of hours or a chat prompt that can help you research right faster.

Really, the challenge here, the difficulty here and the opportunity here is about having to change management strategy. It’s about training and enabling your team members. It’s about redesigning workflows and processes. It’s about having developers and process [ mavens ] that are on staff. It’s having broad-based AI frontier model and newer emerging commercial partnerships. We teased a couple of KPIs of how it might show up in our financials with the asset revenue and pretax profit employee KPIs. And I think we’ll have tailwinds on each of those if we’re successful and that’s something that we’ll be able to provide targets on in the future. At the end of the day, they kind of all come into lower efficiency ratio. That’s sort of the net output.

The use case is to kind of get to the heart of your question that typical companies and banks will be focused on will be productivity as well as, in some cases, improving the client experience which is table stakes. And I think those are hard to do, and we feel very good about our ability to achieve success there. But where we are really focused and feel we are uniquely focused is on the new revenue opportunities as well as reducing risk. So to get to your question, we plan to start using AI first business models to attract new customers to attack new verticals that will sort of help drive new opportunities that don’t exist today. And these are things that are live and in production now that could result in impact as early as the end of the year, but definitely into 2027.

And then we’re also looking at really interestingly, completely redesigning the first, second and third line processes to reduce risk across all of our operations. And I think that’s really also a unique way that we’re approaching things. So it’s not just sort of the loans, the deposits and the payments orchestration life cycles we’re also thinking more broadly about areas within risk, compliance, audit, finance, marketing, legal, where we can really transform some of those risk and revenue enabling functions as well.

Kelly Motta: Got it. I really appreciate the thoughtful and detailed answer. Maybe turning to the NII guide. I appreciate it’s unchanged. I’m wondering, underneath the hood of that, the average cubiX deposits were down, though within range. And we didn’t really see it with the growth in other areas of core deposits. So I’m wondering if you’re able to provide — was there any shift in kind of the components of what gets you to that NII range, meaning perhaps cubiX coming down slightly by growth in other areas? Just curious if we could parse that out a bit.

Mark McCollom: Yes, Kelly, this is Mark. And that was me the whole time, by the way. But as we — as you think about NII, you’re correct. I think as the year is starting to play out, we had a couple of shifts. We did see — I mean, we were really pleased to only see average cubiX deposits going down from 3.8% to prior quarter to 3.6%. Where you see on Slide 7 and you see the mortgage finance, but more importantly, the real estate which really then ties to our 2025 teams and some of the things we highlighted on commercial account growth. I would expect to see for — in the second quarter and the third quarter, you’ll start to see some of that account growth, which was only approximately 15% funded with deposits, some of that starting to take hold.

So then that provides a little bit of a hedge for us in terms of our guidance. If we would continue to see a little bit more of a drop in cubiX deposits, I think it’s early. Certainly in the second quarter to be able to predict where those end up on an average balance basis. But then I’d also say that we had both really strong marches, which led to our spot balance is being significantly higher in both loans and deposits than our average balances for the quarter. So when you look at — take loan yields, loan yields ended the quarter at [ 3.62], SOFR yesterday was at about [ 360 ] right? So even if you’re going to bring on new originations and across most of our verticals, we bring on new originations at 225 to 300 basis points over. But even at 300 basis points over [ SFR ], the majority of our asset production might still be coming in below where that current loan yield is on commercial because you can see in the top of that margin table, our commercial book today is kind of right around 680 all in.

So even at 300 basis points over, which is really tough to do across all your verticals, new production is still coming in a little bit lower. So I would expect to see, on a margin basis to be — loan yields coming down a little bit more how much that impacts margin is really going to be how successful are we on the deposit front. Again, given the green shoots we’re seeing in the first quarter, it feels like we’re setting up well for the year, but it’s still early. So that’s why you put all that together, we’re saying, hey, we’re not going to move on our guide yet for the year for NII and the last comment I’ll make on all of that is that as a growth company, we focus on NII. We understand that you as an analyst community like to look at margin because that’s kind of a shortcut to help fill out an earnings model.

But at the end of the day, NII drives earnings growth, not net interest margin. And so we’re really focused on that, and we’re sticking to our guide at this point in the year.

Operator: Your next question comes from the line of Manuel Navas of Piper Sampler.

Manuel Navas: Yes. I just wanted to follow up a little bit on the cubiX deposits. Cash remains high on the balance sheet. And there was some conservatism on using cubiX or deploying cubiX deposits. Has that shifted at all so far, given kind of a little better more sticky deposits there and also some of the CRE customers coming on?

Samvir Sidhu: Happy to jump in here and welcome officially and formally. So I think that what we’ve always said is that on the digital asset side, we’ve been — we had an opportunity to really start to getting that amount of customer behavior over the past couple of years, we have and we’ll continue to sort of hold these in cash for the time being. I think there are some things that we would look to the external environment that would give us some more confidence and comfort. One of the things that’s interesting about the new verticals is these commercial customers come from traditional industries with long histories of operating account behavior. They’re currently at banks and that — where they without these advanced payment capabilities that cubiX can provide them.

Those banks deploy the deposits. We’re going to do the same, but also offer those customers superior technology and really improve their operations experience. So I think that’s really one of the net differentiating factors. Those levels are already at 20%, including existing customers, though that 1% is a very small portion, and we expect that to significantly increase in the coming months and quarters.

Manuel Navas: I appreciate that. Speaking to the 20 new role that are being added, what products or — can you discuss — I know they’re kind of distributed, but is there any kind of key product or regional focus to those additions? And what’s the pipeline look like for more hires?

Samvir Sidhu: Happy to take that. So it’s a combination of expansion of talent in existing geographies, there are one or 2 submarkets where we will be sort of, I call sort of adjacent expanding into. And there are some — actually some new national deposit verticals, given that not every one of these team members has fully started the bank had sort of deferred to come back to you to give you a little bit more color. But it’s consistent with the way that we’ve approached team hiring to date. Your second part of your question was about the teams and the pipeline. Similar story on the first part of your question in terms of how we would approach geographic and vertical focus. But I would also add that these while we’ve had 20 or so hired this year, we had about 40 last year, 100 the year before, 40 the year before, sales first-line bankers.

So I think that we still expect to have some more hiring to do based upon the expense guide that we gave in the first half of — sorry, in the first call of the year and also had an opportunity to share with you some of the benefits of [ OE 2 ], Operational Excellence [ 2 ], as we’re calling it, and from the extra savings and plan to reinvest those savings into the institution which one of the big use cases and uses of that — of those savings will be into hiring and supporting new teams.

Manuel Navas: I appreciate that. I just want to add a question about mid movements going forward. Deposit costs are flattening out. I just want to kind of understand how the marginal cost of new deposit flows, how is it coming in? Or should we kind of expect deposit cost of the [indiscernible] from here?

Samvir Sidhu: We’re typically seeing in new deposits and remix is we’re typically seeing them coming in about 150 basis points below the highest cost of our interest-bearing deposits, I think, which is which is interesting. So the marginal cost is significantly lower than our interest-bearing costs and also below our overall cost of deposits.

Operator: Your next question comes from the line of Steve Moss of Raymond James.

Stephen Moss: Nice quarter here. Sam, maybe just starting on the — going back to deposits, again, not to beat a dead horse, but definitely struck by the step-up here in the mortgage finance and real estate and your short-term 90-day pipeline. Just kind of curious maybe how are you thinking about how these deposits — how long they stay on your balance sheet, how long we turn over? And any sense for the overall pipeline as you look a little further out? I know you said the [ $250 million ] number, but — just trying to think about the turnover of these deposits and where you’re going to think you can grow here?

Samvir Sidhu: Yes, sure. Thanks, Steve. And so — the simple answer is they’re sticky and long duration with deposits where we’re really just helping them add payments capability, streamline their operations, lower the cost of their business, increase revenue opportunities for them that they otherwise wouldn’t have. Coming back to cubiX deposit diversification, this is something we’ve been talking about for some time. We have now I think now we’re really showing that we’re able to sort of onboard customers on [indiscernible] that you referenced the $250 million just in the next 90 days. What I would say is we — we’re at 31% noninterest-bearing deposits, which is already at the top end of the industry. And we believe the opportunity ahead of us will allow us to keep taking this up even further.

You look at the percentage of noninterest-bearing deposits of our total net deposit growth for the quarter. That’s pretty impressive and staggering. Let’s also not lose sight of the fact that — we grew our non-cubiX noninterest-bearing deposits by $230 million in this quarter and adding that to last quarter, that 6-month totals almost $400 million from traditional commercial customers.

Stephen Moss: Right. And then on those non-cubiX deposits, you’ve historically said for quite some time, a $2 billion type deposit pipeline. Just kind of curious as to where that shakes out these days.

Samvir Sidhu: Yes, Mark would kill me, but it is significantly higher than it has been in the past. And I think that typically, we’ve been operating about that $2 billion-ish or so pipeline and it is significantly higher just by nature of the fact that you have new teams who joined us late last year, middle summer to Q3 of last year, who have had an opportunity. Mark shared some stats on over 50% of the account openings were from 25 teams, right? So these are folks who have been with us for less than a year, in some cases, only 6 months. And what I would also say is that as you think about sort of what — going forward, hiring new teams for ’27 is going to be really important as well. So the ’25 teams are building momentum for ’26.

The ’26 teams will build momentum for ’27. And we’re doing it earlier in the year from a hiring perspective, which I think is very unique, and it just shows that there’s a lot more inbound requests and inbound conversations and in some cases, start well beyond the beginning of this year and bonus season really started last year.

Stephen Moss: Right. Okay. Appreciate that color there. And then on the loan growth mix here, I definitely appreciate the chart as you can see the shift underneath here. Just kind of curious where you’re seeing the strength in the pipeline? I know you said it was solid — so obviously, that bodes well, but I’m assuming there’s probably some sort of mix shift versus fund finance, which we saw was strong this quarter.

Mark McCollom: Yes, I’ll take that. This is Mark. If you think and we have provided — if you look at our loan growth slides, this quarter, it happened at fund finance, which is a combination of both our capital call lines and our lender finance business. fund finance, mortgage warehouse and health care in the forefront. Last quarter, fund finance was down at the very bottom. But then the quarter before that, fund finance was actually up. So the look within fund finance, our lender finance category was $2.8 billion back in the third quarter of $25 million. It dipped about $300 million in the fourth quarter and then it came back again in the first quarter. What I would say about that is that we have a very defined credit box that we like to operate in.

And at certain times, then that will mean when certain segments get a little bit more frothy, we’re probably going to underperform a little bit. But then in cases like the first quarter, where I think there was a pullback in MFI and specifically in the lender finance space, we just stay in our credit box. And in periods like that, we’re going to benefit a little bit. but the performance in that segment, which we — because of some of the additional questions around NDFI and lender finance, in particular, we added an extra slide, Steve, which you can see on Page 23 in the deck, we’ve been in this business for a long time. And as we commented after the third quarter call, have really good looks through LTVs. We have collateral substitution rights and maybe most importantly, we have incredible diversification, both in terms of the total number of facilities that we participate in.

And then within those facilities, the weighted average number of obligors and our low largest obligor within each facility gives us comfort and diversification. And then lastly, just being in the business for 10 years, we’ve never had a delinquency or a net charge-off. And that doesn’t mean that it will always stay that way, obviously, banks run the business to take risk and credit risk. But — this has been a business for us that’s been actually a very strong performer.

Stephen Moss: Okay. I appreciate all the color there. And if I could sneak one more in. On the, call it, $3.3 million, I think it was in warrant gains here for the quarter. Just curious the drivers of those warrant gains, was it from IPOs or clients getting additional venture funding or maybe just modeling just with valuation? Just kind of curious how to think about those warrant gains with — and the episodic nature of them, obviously.

Samvir Sidhu: Yes. So I’ll sort of just jump in. I think that there’s a combination of sort of private valuations, as you know, in sort of [ Black Scholes ] model, et cetera, for private market warrant valuation is also transactions that can happen that could be private or public like an IPO in nature and believe it or not, been — in some cases, you have restrictions on when you can sell your shares for up to 6 months. So there’s a lot — that’s sort of the way to think about it. What’s really interesting is as we have a portfolio of these warrants that are dozens and dozens and dozens related to how many loans that we’ve sort of originated over the past couple of years. And one of the things that we say really interestingly here is we have very, very low historical over multiple decades of credit charges lower than traditional C&I in this business, and these warrant gains more than make up for any sort of net reductions that this industry has seen despite some of the potential perception.

And I think that’s really the interesting part about this is that we have — these are — these have been recurring over the past couple of quarters. I think that’s what we’re proud about.

Operator: Your next question comes from the line of Peter Winter of D.A. Davidson.

Peter Winter: Sam, you talked about one of the strengths is the investments you’ve made in risk management. And I saw both declines in professional fees and FDIC costs also came down. I was wondering if you can give an update if that should continue? And anything you can provide in terms of an update on the written agreement.

Samvir Sidhu: Yes. Sure, Peter. Thanks so much. So I think that the — I’ll start with sort of the high level sort of point that you made is that I think that I mentioned this in my prepared remarks as well, is that we really truly feel and believe that risk management is becoming a competitive edge for the organization and also for sort of simplistic business unit perspective. A competitive moat per se, our cubiX business. We have said that professional services and insurance costs will continue to reduce over time as we progress our efforts there. I did say on the last call, which I think went a little bit unnoticed that we materially completed our work related to the written agreement at the end of last year. And then in 2026, we want to put that behind us.

And that’s really the interesting part about the whole story is when you add sort of technology plus risk management plus AI plus a business line that is facing sort of regulatory clarity and tailwinds plus the diversification of using that technology from that business line into new traditional markets that are also seen the need to go into after hours and 24/7 or 23/5 type payments capabilities. It is really interesting how uniquely positioned we are today.

Peter Winter: Got it. That’s helpful. And then separately, you added $10 million to reserves this quarter. Was that solely to support the strong loan growth? And maybe if you can give an update on your views on the macro risk and how that is factoring into your reserve setting process this quarter.

Mark McCollom: Yes, Peter, this is Mark. We obviously had a really strong growth for loans this quarter. From an overall ACL as a percent of loans, we went up 1 basis point. So yes, I would say that most of our kind of over provision to charge off was just a function of that. I mean we continue to definitely watch the geopolitical uncertainty out there and continue to watch on if that could have any impact on any of our portfolios in coming quarters. But for this quarter, we felt that was appropriate to just have a very small increase to our ACL percentage overall.

Operator: Your next question comes from the line of Kyle Gierman of Hovde Group.

Kyle Gierman: This is Kyle on for Dave Bishop. Just wanted to touch more on credit quality. Obviously, it’s been very good relative to peers, but you saw the increase in CRE and multifamily. I was wondering if you can provide some details surrounding that increase?

Unknown Executive: Yes. So specifically within the multifamily nonperformers, I mean we had 1 loan that we made the decision to put on to NPA. It’s — when you move it to NPA, I mean we’ve actually charged down to its current collateral value. The loan is still performing according to its contractual terms. But we just made — took a conservative stance to put on a nonperforming, although it is still paying according to its contractual terms.

Kyle Gierman: And then maybe a final question. I saw you redeemed subordinated debt and repurchase of shares in the quarter. I was just wondering what the priority order for capital deployment is going forward?

Unknown Executive: Yes, the priority order for capital really remains the same. And that’s, first and foremost, it’s organic growth. And to the extent that we have excess capital generation after supporting that organic growth, then number two, would be inorganic growth opportunities. And for us, you really need to think about that more in terms of expenses necessarily in terms of capital because for us, inorganic growth has historically been a lot of these team lift-outs. And — but the team without cost money, which ultimately impacts capital. And then number three, if we have excess capital after those, then our Board had approved a $100 million share our share repurchase authorization back in February. And we felt in the first quarter at a weighted average price of around $68 we felt that was a prudent use of capital there as well.

Operator: Your next question comes from the line of Janet Lee of TD Cowen.

Sun Young Lee: Apologies if this was already asked as I was handling a few calls, and I don’t have an AI agent. But for the — for the new banking teams, for the 2024 teams on your slide, their spot deposit cost is 2%, and they’re still bringing in a nice inflow of deposits into the bank that’s driving the positive remix in deposits. Based on that, is it fair to assume that with the ongoing deposit inflows of the lower-cost deposits, net interest margin could improve from here versus the first quarter? And could you confirm whether that $400 million-ish cadence of deposits from the new banking team still holds? Or is there any change in expectations?

Samvir Sidhu: Yes. Thanks, Janet. It has not been directly asked. And I think that one of the things that Mark did sort of refer, which I’ll sort of focus on is, is that we’re a growth organization, and we’re focused on increasing NII. And I think that prior to you sort of joining the coverage, we sort of going back a couple of years, we really also sort of showcased NII trajectory and how that would sort of translate into NIM trajectory over time. We gave sort of NII growth guidance for this year. You’re absolutely right on sort of the deposit, the marginal cost of deposits, whether they use for remix or whether they use to fund incremental loan growth. And I think that’s something that we are and we’ll continue to be proud of, and that’s really what’s unique about our overall story as we think out sort of the improvement as well as the funding of our organic growth.

Banks with the flatter balance sheets that don’t have the growth opportunities that we have, NIM makes a lot more sense for them, and this is the point that I would sort of continue to make [ that’s ] their main lever for growing NII, where ours is really a combination of balance sheet growth and maintaining margin, maintaining margin, I think, is really important. And that’s really the value proposition of [indiscernible], and I think that is really around our ability to grow net interest income year-over-year independent of rate environment independent of competitive environments.

Sun Young Lee: Got it. And — sorry, go ahead.

Mark McCollom: Yes. Janet, this is Mark. I was just going to add that I made this point earlier in the Q&A is that if you look at our commercial business today, which makes up, obviously, the majority of our loan book, that’s at a blended average cost in the first quarter of about 680. Current SOFR is at about $360 million, right? So in a commercial business, most of our commercial businesses tend to be kind of 225, maybe for commercial real estate up to 275 approaching 300 for some of our other verticals over SOFR. But that then implies that new loan volumes in both the first quarter and continuing into the second quarter, will continue to come on at a little bit lower yields than our overall commercial portfolio yield. So that’s going to continue to have maybe a little bit of downward pressure on NIM, but again, given the amount of loan volume that we put on in the month of March, we still feel comfortable with the NII guide that we put out. That makes sense?

Sun Young Lee: Yes, that’s helpful. And just one follow-up on fee income. Where do you see the biggest upside from here? Or how should we think about the growth cadence that things are off a lower base and it’s a little volatile, your fee income items. So how should we think about where which area presents the most growth opportunities and how we should think about the trajectory from here?

Unknown Executive: Well, I think if you look back to where we were maybe a year ago when some of the discrete line items to today, our commercial lease income is about 50% and I would say that of the different line items of fee income we have, it’s probably the least episodic because really what that commercial lease income represents, it represents interest income on operating leases. Those operating leases put — actually put some pressure back to part conversation, put some pressure on margin because it shows up on your balance sheet as a noninterest-earning asset. But then you have both commercial lease income, but then also commercial lease depreciation on the expense line. But for fee income, you can see that our trajectory is going from $10.5 million a year ago to $15.4 million in the first quarter of this year, so almost 50% growth in that line.

So when you look at the other lines, I mean things like for this quarter, I did see, I think one analyst maybe pulled out our sales of loans out of core earnings. And I would say, well, gosh, to us, that feels like core earnings because that’s actually sales of just SBA loan originations which some banks might have a mortgage banking operation sell off their mortgage loans. We’re just making a decision to sell and set a portfolio in some of our SBA loans going forward. So when you look to how we’ve grown overall fee income, we think it’s now appropriate to think about a good floor for fee income is going to be somewhere in the $30 million to $32 million range.

Operator: Your next question comes from the line of Tyler Cacciatori of Stephens, Inc.

Tyler Cacciatori: This is Tyler on for Matthew. Can you just provide us some idea on the mix of cubiX deposits from a customer standpoint in terms of exchanges, stable coin providers and investors? Just really trying to see how much of each of those in a percentage of overall mix, if you have that detail.

Samvir Sidhu: Yes, Tyler, I think that we have provided this a couple of years ago, and it generally stays — it stays the same. Exchanges are sort of the biggest participants, as you can imagine, then followed by market makers and followed by stable coins. I don’t have the percentages.

Tyler Cacciatori: Understood. And then securities yields were a bit higher than what we were expecting during the quarter. Can you just update us on the dynamics there and how to think of those going forward?

Samvir Sidhu: I’m sorry, I didn’t catch the beginning of that. What was the question?

Tyler Cacciatori: Securities yields were a bit higher than what we were expecting during the quarter, and we’re just looking for an outlook there.

Unknown Executive: Yes. Yes. I think that’s really more a function of the fourth quarter than the first quarter. In the fourth quarter, we did have a couple of adjustments relating to prior quarters, which actually pulled down that yield a little bit artificially. So I think when you look at that [ $470 million ] yield that we had in investment securities, I feel like that’s going to be a better kind of run rate going forward.

Tyler Cacciatori: Okay. Great. That’s very helpful. And then if I could just squeeze one more in. Do you have the amount of brokered deposits at quarter end?

Samvir Sidhu: Stable as a percentage of deposits.

Operator: Your final question comes from the line of Brian Wilczynski of Morgan Stanley.

Brian Wilczynski: So the new commercial banking teams have been very successful again in terms of adding new low-cost deposits. It’s great to see the 2025 teams ramping up, as you showed on the slide. Can you talk a little bit about what you’re doing to deepening those relationships on the fee income side? Is there an opportunity to do more with those clients around treasury management, capital markets? And how do you plan to execute on that over the next 12 months or so?

Samvir Sidhu: Yes. Sure. It’s a great question, Brian. And I think that over the years, we have continuously expanded our treasury management capabilities, and that’s really the big driver. And even prior to cubiX, that was one of the large initiatives a number of years ago. The organization is sometimes new teams or new verticals or new sort of sub verticals come on that have what we call sort of edge case treasury management capabilities. We continue to expand and broaden the edge case becomes our base case as we to expand. And over time, we’ve also thought about an incorporated parts of our team members that allow us to expand into new products and services to service customers. So what ends up happening is the new teams, the edge case for our overall company becomes their base case and that, that becomes something that we can then sort of cross-sell into our existing client base as well.

Brian Wilczynski: Really appreciate that color. And then maybe one on the lending side. It was another strong quarter for loan growth remains very well diversified. I was wondering if you can maybe just talk about how your clients are reacting to the geopolitical uncertainty broadly. Has there been any impact at all over the past few weeks on client demand on the loan side? Does that vary at all maybe across the different segments? If you could just speak to what you’re seeing over the past few weeks, that would be really helpful.

Samvir Sidhu: Yes, I’m happy to jump in on that, Brian. It’s obviously something that we spend a lot of time thinking about and trying to, in some cases, create connections. I think what I would sort of say just generally we haven’t seen anything tangible that we can put our finger on. At the end of the year, you usually see folks who try to sort of close loans quickly by the end of the year 1 some loans slipped into April that we would have normally expected to close into 331. Why those happened? Difficult to say, but they still closed. So I’d say that sitting where we are today, we don’t see any changes to go forward pipelines. We didn’t really see any changes to commitments to closings, but it’s something we continue to sort of stay close on.

Operator: There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Sam Sidhu, CEO, for closing remarks.

Samvir Sidhu: Thank you to everyone for your continued investment in and support of Customers Bancorp. We believe Customers Bank can be the most admired commercial bank of its size in the United States, not the biggest, but the most admired. We’re grateful for the confidence of our Board, the dedication of our nearly 900 team members and the trust of our shareholders. Thank you, everyone. Have a great day and a great weekend.

Operator: This concludes today’s call. Thank you for attending. You may now disconnect.