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

Hello, everyone. Thank you for joining us, and welcome to Customers Bancorp, Inc. 2026 Q1 Earnings Webcast. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Phil Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Please, go ahead.

Thank you, Miriam, and good morning, everyone. The presentation you will see during today's webcast has been posted on the Investor's webpage of the bank's website at www.customersbank.com. You can scroll to 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 Investors 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.

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 McCollum. 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 Bancorp since 2021, January 1st marked my first day as CEO of Customers Bancorp. This was the result of a careful multi-year 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 eight 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 four, 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 non-interest 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 multi-year 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 five, 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 on the next two to three quarters and more on building the platform for performance over the next two to three years. This shift is what shapes our four 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 and 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 six 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 too 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 three 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 two dozen of those in the last two 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 non-interest 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 three 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 seven, 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 non-interest-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 eight. Banks by nature grow at roughly the pace of the broader economy. There are only two 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 off for 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 number one compounder of core EPS and a top compounder of tangible book value and revenue among peers over the last six 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 two new equity analysts joining our story we're pleased to have tony ellian from jp morgan and manuel novice 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 thanks sam and good morning everyone on slide nine you can see our gap 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 two dynamics in particular. First, non-interest-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 non-interest-bearing deposits reached a record 6.7 billion, or over 31 percent of total deposits. Not just top quartile, but about top decile of regional bank peers. Second, average total deposit costs declined again in the quarter by eight basis points to 2.46 percent 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 two-year anniversary with customers. The 10 teams launched in April of 2024 now manage over 2.1 billion in deposit balances across approximately 8,000 accounts with 32 percent of these balances being non-interest bearing and an average total deposit cost of around two percent. They've also generated a deposit to loan ratio of about 2.7 times. These economics are really compelling. These teams became profitable in approximately three 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 nine-figure balances of deposits and 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 percent of the accounts open 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 and loans total loans grew over 600 million to 17.4 billion representing 15 percent annualized growth we typically see the fourth 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 two primary factors. Approximately 10 million dollars 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 levers 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, non-interest 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 two times. As a result, our core efficiency ratio improved by 300 basis points, and core EPS grew 28% over the same period. That's very strong positive operating leverage, and we believe this is what disciplined, high-quality growth should look like. Our core non-interest 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 one of that initiative has been substantially achieved on a run rate basis, and we are now increasing our target by an additional 10 million in phase two, 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, tangible book value per share grew to $63.54, up 3% quarter over quarter and 16% year over year. This continues our multi-year 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 grace 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 maintained comfortable cushions to our internal capital targets in addition to the subordinated debt over the last year we've also redeemed over 140 million dollars 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 shareholders on slide 19 credit performance remains stable across the board mpas 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 ncos 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 of the year and our pipeline remained 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 percent over 2025. For non-interest expense, we are maintaining the range of $440 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.

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... The execution of this call itself is a live demonstration of what we mean when we say AI is not... 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... To wrap up, in the first quarter, we delivered strong growth across every major dimension of the franchise. Deposits grew 14% year over year. Non-interest-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 non-interest-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.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Anthony Elian of JPMorgan. Your line is open. Please go ahead.

Good morning. This is Mike Petrini on for Tony. So I'll start with a quick housekeeping one. And what were the Cubix total deposit balances for the period end as well as the averages versus that $4 billion number at 4Q?

Yeah, the period end numbers were right around $4 billion, and quarterly average numbers were right around $3.6 billion.

Okay, great. And then on slide seven, the mortgage finance and real estate deposits, they combine for about 20% of Cubix deposits. How much do you see, you know, both of those mortgage finance and real estate contributing in the next few quarters to Cubix? When could the capital markets sort of opportunity that you guys have identified on slide seven start factoring into Cubix deposit growth?

I'd be happy to take that. You know, I think that, you know, what's really interesting about customers that are using our advanced payments capabilities, that we're using more traditional payments capabilities with us prior, sort of more traditional, think of it as sort of. And this has been a priority for us in 2026. to sort of see a bit of broad use of Cubix, not only, you know, much further beyond the digital asset industry in our deposit base. I'll get to sort of the new deposits in a second. But what I would say is we're thrilled, and we did not explain that you referenced on slide seven. So they currently represent about 20% of our deposits. The growth is really going to be coming from that 1%, you know, number you see there on the real estate transaction side, you know, which is really hugely valuable to customers that are currently banking with other banks that are looking for advanced payment capabilities, you know, 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, you know, AI remarks that, you know, we expected about $250 million or so of non-interest-bearing deposit growth related to, you know, new verticals and cubics just the next 90 days. We'll continue to update, you know, sort of on progress as the year progresses. Your last question was around the, you know, traditional capital markets use cases. That's still a little bit early days to add a little bit of color and what that would be is, you know, we, you know, we have markets in the traditional side that are open. And as you can imagine, there's a number of use cases to RTP and Cubix for after hours fiat reconciliation.

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 balancing growth for the rest of 2026?

No, I don't think we're, I mean, we're still sticking to the guide this year. As you know, there's certainly a lot of, you know, still geopolitical uncertainty out there in the market. You know, candidly, we were, you know, we were pleased by the level of loan growth we were able to generate in the first quarter. You know, we had, you know, a couple quarters ago, you know, we had a couple of deals that we thought were, you know, we're going to close and didn't close during the quarter and then you end up being a little below and then you start out, you know, the next quarter really hot you know in this case you know you saw that our average loan growth versus our spot loan growth you know was was pretty materially different you know which implies we had a lot of loan growth actually closing in the month of March you know so you know so we feel that you know obviously sets us up well for the second quarter but at this point we're still sticking to our our four-year numbers great thank you your next question comes from the line of kelly mata of kbw

your line is open hi please uh hi good morning thanks for the question i'm still um recovering from the shock of uh the ai clone uh aspect of the call that's uh quite remarkable um maybe a question for you and maybe your AI clone is, Sam, 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 slides 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, you know, potential, what you mean by that and how we should be thinking about the potential revenue enhancement that AI could provide to customers bank and, I guess, banking more broadly. Thank you.

Yeah, sure. Sure, Kelly. And I assure you, this is really, really me. You know, what I would say is that, you know, just, you know, on the prepared remarks, I talked about how we feel we can scale the company at significantly higher rates, then our headcount 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 a, you know, sort of a GPT that can save a couple of hours or a chat prompt that can help you, you know, research or write, you know, write faster. Really, the challenge here, the difficulty here, and the opportunity here is about having a 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, you know, commercial. You know, we teased a couple of KPIs of how it might show up in our financials with asset revenue and pre-tax profit, you know, 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, you know, 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, you know, where we are really focused and feel we're uniquely focused, as well as reducing risk, new customers to attack new verticals that will sort of help drive new opportunities that don't exist today. And these are, you know, things that are live and in production now that that could could result in, you know, impacts as early as the end of the year, but definitely into 2027. You know, and then, you know, 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.

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, you know, the average cubic 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, you know, perhaps QDIS coming down slightly, but growth in other areas. Just curious if we could parse that out a bit.

Yeah, Kelly, this is Mark. Good morning. And that was me the whole time, by the way. But, you know, as we, as you think about NII, you're correct. You know, I think, you know, as the year, you know, is starting to play out, you know, we had a couple of shifts. You know, we did see, I mean, we were really pleased, you know, to only see, you know, average, you know, cubic deposits, you know, you know, going down from, you know, 3.8 per hour quarter to 3.6, you know, where you see, you know, on slide seven, and you see, you know, 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, you know, I would expect to see, you know, for in the second quarter and the third quarter, you'll start to see some of that account growth, which was only, you know, approximately 15% funded with deposits, some of that, you know, starting to take hold. You know, so then that provides, you know, a little bit of a hedge for us in terms of our guidance. You know, if we would, you know, continue to see a little bit more of a drop in cubic deposits. I think it's early, certainly in the second quarter, to be able to predict where those will 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 balances being significantly higher in both loans and deposits um you know than our than our average balances for the quarter um so you know when you look at um you know take loan yields uh you know loan yields end of the quarter at 362 um well so for you know yesterday was at about 360. right so even if you're gonna you know bring on new originations and across most of our verticals we bring on new originations at you know 225 to 300 basis points over. But even at 300 basis points, you know, over SOFR, you know, the majority, you know, of our asset production, you know, might still be coming in, you know, below, you know, where that current loan yield is on commercial because you can see, you know, on top of that margin table, you know, our commercial book today is kind of right around 680, you know, all in, you know, so even at 300 basis points over, which is really tough to do across all your verticals, you know, new production still coming in a little bit lower. You know, so I would expect to see, you know, on a margin basis, you know, to be, you know, you know, loan yields coming down a little bit more, how much that impacts margin is really going to be, you know, how successful are we on the deposit front? Again, given the green shoots we're seeing in the first quarter, you know, it feels like we're setting up well for the year, but it's still, 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 the day NII drives earnings growth not net interest margin you know and so we're really focused on that and you know we're sticking to our to our guide at this point in the year great I appreciate the caller all set back thank you your next question comes from the line of Manuel Navas of Piper Sandler your line is open please go ahead oh yeah I just want to follow up a little 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?

Yeah, no. Sure. Hey, Manuel. Happy to jump in here and welcome, you know, officially and formally. You know, so I think that, you know, we've always said is that on the digital asset side, we've been, you know, we've had an opportunity to really start to, you know, get a good amount of, you know, customer behavior over the past couple of years we have and will continue to sort of hold these in cash for the time being. I think there are some things that we would look to in the external environment that would give us, you know, 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 they're that where they, you know, without these advanced payment capabilities that Cubix can provide them. Those banks deploy the deposits. We're going to do the same. So I think that's really one of the interesting 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.

I appreciate that. Speaking of the 20 new people that are being added, what products are – 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?

Yeah, sure. Happy to take that. So, you know, it's a combination of expansion of talent and existing geographies. You know, there are, you know, one or two sub markets where we will be sort of, I call sort of adjacent, you know, expanding all the verticals. Given that not every one of these team members has fully started the bank, I'd sort of defer to come back to you to give you a little bit more color. But it's consistent with the way that we've approached, you know, team hiring to date. Your second part of your question was about the teams and the pipeline, so how we would approach geographic and vertical focus. But I would also add that 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. You know, so I think that, you know, we still expect to have some more hiring to do based upon the expense guide that we gave, you know, in the first half of call of the year and also, you know, had an opportunity to, you know, to share as we're calling it and from the extra savings and plan to reinvest those savings into the institution, which one of the big, you know, use cases and uses of that, of those savings will be into, you know, hiring and supporting new teams.

I appreciate that. I just want to add a question about going forward. Deposit costs are flattening out, and 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 costs to be flatter from here?

Yeah, so what we're typically seeing in new deposits, you know, and remixes, we're typically seeing them coming in about 150 basis points below the highest cost of our interest-bearing deposits, I think, which is interesting. So the marginal cost is significantly lower than our interest-bearing costs and also below our overall cost.

Great. I appreciate that. Thank you.

Your next question comes from the line of Steve Moss of Raymond James. Your line is open. Please go ahead.

Good morning. A nice quarter here. Sam, maybe just starting on the, you know, going back to the 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, you know, how are you thinking about how these deposits, you know, how long they stay on your balance sheet, how long they turn over, and any sense for, you know, the overall pipeline as you look a little further out? I know you said the 250 number, but just trying to think about the turnover of these deposits and where you're going to think you can grow here.

The simple answer is they're sticky in long duration with just helping them, you know, add payments capabilities, streamline their operations, lower the cost of their business, increase revenue opportunities for them that they otherwise wouldn't have. You know, coming back to, you know, Cubix deposit diversification, This is something we've been, you know, talking about for some time. We have now, you know, I think now we're really showing that we're able to sort of onboard, you know, customers en masse. You referenced the $250 million, you know, just in the next 90 days. What I would say is, you know, we're at 31% non-interest-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 non-interest-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-cubics non-interest-bearing deposits by $230 million in this quarter. And adding that to last quarter, that six-month total is almost $400 million from traditional commercial customers.

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

Yep. Mark would kill me, but it is significantly higher, you know, than it has been, you know, in the past. And I think that, you know, typically we've been operating about that $2 billion or so pipeline. It is significantly higher just by nature of the fact that you have new teams who joined us, you know, late last year, you know, middle summer to Q3 of last year, who have had an opportunity. You know, Mark shared some stats on, you know, over 50% of the account openings were from 25 teams, right? So, these are folks who have been with us for, you know, less than a year, in some cases only six months. And what I would also say, you know, is that, And, you know, as you think about sort of what, you know, going forward, you know, hiring new teams for 27 is going to be really important, you know, 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, you know, very unique. and it just shows that there's a lot more inbound requests and inbound conversations that in some cases start you know well beyond you know the the beginning of this year and bonus season really started last year right okay appreciate that color there and then on on the loan uh growth mix here you know definitely appreciate the chart as you can see the the shift underneath here just kind curious you know where you're seeing the strength in the pipeline I know you said it was solid um so obviously that bodes well but I'm assuming there's probably some sort of mixed shift versus

fund finance which we saw the strongest quarter yeah I'll take that this is Mark um you know if you think and um we had provided if you look at our loan growth slides you know this quarter you know it happened at fund finance which you know is a combination both our capital call lines and our lender finance business, fund finance, mortgage, warehouse, and healthcare were 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 if you look within fund finance, our lender finance category was $2.8 billion back in the third quarter of 25. It dipped about $300 million in the fourth quarter and then it came back again in the first quarter. You know, what I would say about that is that, you know, we have a very defined credit box that we like to operate in. And, you know, at certain times, then that will mean when certain segments get a little bit more frothy, you know, we're probably going to underperform a little bit. But then, you know, in cases like the first quarter, you know, where I think there, you know, was a pullback, you know, in NDFI and specifically in the lender finance space, we just, you know, stay in our credit box. And in periods like that, you know, we're going to benefit a little bit, you know, but the performance in that segment, which we, you know, because of some of the additional questions around NDFI and lender finance in particular, you know, we added an extra slide, Steve, which you can see on page 25, 23 in the deck. You know, we've been in this business for a long time. And, you know, as we, you know, commented after the third quarter call, you know, have really, you know, good look through LTVs. We have collateral substitution rights. And maybe most importantly, we have, you know, incredible diversification, both in terms of the total number of facilities, you know, that we participate in. And within those facilities, the weighted average number of obligors and our, our, you know, low, largest, you know, obligor within each facility, you know, gives us comfort and diversification. And then, you know, lastly, just being in the business for 10 years, we've never had a delinquency or a net charge off, you know, and that doesn't mean that, you know, it will always stay that way, obviously, you know, banks are in the business to take, take, take risk and credit risk.

But, you know, this has been a business for us that's been uh actually a very strong performer okay appreciate all that color there and if I could sneak one more in on the uh call it 3.3 million I think it was in warrant gains here for the quarter you know just curious you know the the drivers of those warrant gains whether from uh IPOs or clients getting additional uh venture funding or maybe just modeling just with valuations just kind of curious you know how to think about those uh warrant gains and the episodic nature of them, obviously.

Yeah, so, yeah, I'll sort of just jump in. You know, I think that, you know, there's a combination of sort of private valuations and, as you know, and sort of black market warrant valuations also can happen that could be, you know, private or public like an IPO in nature. And believe it or not, then in some cases you have restrictions on when you can sell your shares for up to six months. So there's a lot – that's sort of the way to think about it. what's really interesting is we have a portfolio of these, you know, warrants that are dozens and dozens and dozens related to, you know, how many, you know, loans that we've sort of originated, you know, over the past couple of years. And one of the things that we say really interestingly here is we have very, very low, you know, historical over multiple decades of credit charges lower than traditional C&I in this business. And these warrant gains more than make up for, you know, for any sort of, you know, 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, you know, we have, you know, these are, these have been recurring over the past couple of quarters. And I think that's, you know, what we're proud about.

Great. I appreciate all the call there. And thank you very much, guys.

Your next question comes from the line of Peter Winter of D.A. Davidson. Your line is open. Please go ahead.

Thank you. 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 could give an update if that should continue and, you know, anything you can provide in terms of an update on the written agreement.

Sure, Peter. Thanks so much. So I think that 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, you know, we really truly feel and believe that risk management, you know, a competitive edge for the organization and also for sort of simplistic, you know, business unit perspective, competitive moat, per se, our cubics business. We have said that 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, you know, the interesting part about the whole story is when you add sort of technology plus risk management plus, you know, AI plus a, you know, a business line, you know, 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 seeing the need to go into after hours and 24-7 or 23-5, you know, type payments capabilities. It is how uniquely positioned we are today.

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 reserves setting process this quarter.

Yeah, Peter, this is Mark. you know, we obviously had a really strong growth for loans this quarter. You know, from an overall ACL as a percent of loans, you know, we went up one basis point. You know, so, yes, I would say that, you know, most of our kind of over-provision to charge off was just a function of that. You know, I mean, we continue to definitely watch, you know, the geopolitical uncertainty out there and are continuing 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.

All right. Thanks, Mark.

Your next question comes from the line of Kyle Gehrman of Havdi Group. Your line is open. Please go ahead.

Hi, 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 just saw the increase in CRE and multifamily. I was wondering if you can provide some details surrounding that increase and yeah.

Yeah, so specifically within the multifamily, you know, non-performers, I mean, we had one loan, you know, that we made the decision to put on to NPA. It's, you know, when you move it to NPA, I mean, we've actually charged down to its you know current uh collateral value uh the loan is still performing uh you know according to its contractual terms um but you know we just made you know took a conservative stance to put on a non-performing uh although it is still paying uh you know you know according to its contractual terms thank you and then maybe uh final question uh saw you redeem the sub subordinated debt and repurchase the shares in the quarter i'm just wondering what the priority order for capital deployment is going forward? Yeah, the priority order for capital, you know, really, really remains the same, you know, and that's, you know, first and foremost, it's organic growth. And, you know, to the extent that we have excess capital generation, you know, after supporting that organic growth, then number two, you know, would be inorganic growth opportunities. And, you know, for us, you know, you really need to think about that, you know, more in terms of expenses, you know, necessarily in terms of capital, you know, because for us, inorganic growth has historically been a lot of these team lift outs. And, you know, but those team lift outs cost money, you know, which ultimately impacts capital. And then number three, you know, if we have excess capital after those, you know, then, you know, our board had approved $100 million, you know, share repurchase authorization back in February. And, you know, we felt in the first quarter, at a weighted average price of around $68. You know, we felt that was a prudent use of capital there as well.

Thanks for taking my question.

You bet.

Your next question comes from the line of Janet Lee of TD Cowan. Your line is open. Please go ahead. Good morning.

Hey, good morning, Janet.

Apology if this was already asked because I was handling a few calls and I don't have an AI agent. But for the new banking teams, you know, for the 2024 teams on your side, their spot deposit cost is 2%, and they're still bringing in a nice inflow of deposits into the bank, the striving deposit of remix and deposits. Based on that, is it fair to assume that, you know, With the ongoing deposit inflows of the slower-cost deposits, that 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?

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 that, you know, we're a growth organization, and we're focused on increasing NII, and I think that, you know, prior to you sort of joining the coverage, we, you know, sort of going back a couple of years, we really, you know, also sort of showcased trajectory and how that would sort of translate into NIM trajectory over time. We gave sort of NAI growth, you know, 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, you know, are and will continue to be proud of. And that's really what's unique about our overall story as we think about sort of, you know, the improvement as well as the funding of our organic growth. You know, 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 a value proposition of Cubby, and I think that it's really around our ability to year-over-year, independent of rate environment, independent of competitive environments.

Got it. Thank you. Sorry, go ahead.

No. Yeah, Janet, this is Mark. I was just going to add that, you know, I made this point earlier in the Q&A that, you know, if you look at our commercial business today, you know, which makes up obviously the majority of our loan book, you know, that's at a blended average cost in the first quarter of about, you know, 680. You know, current SOFR is at about 360, right? So, you know, in a commercial business, you know, most of our commercial businesses tend to be, you know, kind of 225, maybe for commercial real estate, you know, up to 275, approaching 300 for some of our other verticals over SOFR, you know, but, you know, that then implies that, you know, new loan volumes, you know, in both the first quarter and continuing into the second quarter, you know, will continue to come on, you know, at a little bit lower yields, you know, than our overall commercial portfolio yield, you know, so that's going to continue to have, you know, maybe a little bit of downward, you know, pressure on NIM. But again, given the amount of loan volume that we put on in the month of March, you know, we still feel comfortable with the NII guide, you know, that we put out. That make sense?

Yep, 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, it's 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?

Well, I think if you look, you know, back to where we were maybe a year ago, you know, with some of the discrete line items to today, you know, our commercial lease income is about 50%, you know, and, and I would say that, you know, 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, you know, those operating leases, you know, put, actually put some pressure, you know, back to our conversation, put some pressure on margin because it shows up on your balance sheet as a non-interest earning asset, you know, but then you have both commercial lease income, but then also commercial lease depreciation on the expense line, you know, but, you know, but for fee income, you know, you can see that, you know, our trajectory is going from, you know, 10, 10 and a half million a year ago to 15.4 million, you know, in the first quarter of this year. So almost 50% growth in that line. You know, so when you when you look at the other lines, maybe things like, you know, for this quarter, you know, I did see, you know, 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, you know, which some banks might have a mortgage banking operation sell off their mortgage loans. We're just making a decision, you know, to sell instead of portfolio in some of our SBA loans going forward. you know so when you look to you know how we've grown uh overall fee income you know we think it's now appropriate to think about you know a good floor uh for fee income is going to be somewhere in the 30 to 32 million range got it thank you you bet your next question comes from the line of tyler cacciatore of stevens inc your line is open please go ahead Good morning.

This is Tyler. I'm from AdBreeze.

Hey, Tyler. Good morning.

Can you just provide us some idea on the mix of Cubix deposits from a customer standpoint in terms of exchanges, stablecoin 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.

You know, Tyler, I think that Mark could make.

Understood. And then security 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?

I'm sorry, I didn't catch the beginning of that. What was the question?

Security yields were a bit higher than what we were expecting during the quarter and we're just looking for an outlook there.

Yeah, 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 yield that we had in investment securities, I feel like that's going to be a better kind of run rate going forward.

Okay, great. That's very helpful. And then if I could just squeeze one more in, do you have the amount of broker deposits at quarter-end? Great. Thank you very much. That'll be all for me.

Your final question comes from the line of Brian Mulchinsky of Morgan Stanley. Your line is open. Please go ahead.

Hi. 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?

Yeah, and I think that, you know, over the years we have, you know, continuously expanded our treasury management capabilities, and that's really, you know, the big driver. And, you know, even prior to Cubix, you know, that was one of the large initiatives a number of years ago. You know, the organization has sometimes new teams or new verticals, you know, or new sort of sub-verticals come on that have, you know, what we call sort of edge case treasury management capabilities. as we continue to expand and broaden, the edge case becomes our base case as we continue to expand. And over time, we've also thought about and 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 becomes something that we can then sort of cross-sell into our existing client base as well.

I 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 could 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.

See something that trying to, in some cases, say, just generally on at the end of the year, usually by the end of the year at 1231, you know, some some loans slipped into into April, that into 331. Why those happened? Difficult to say. But we don't see any changes to go for closings. But it's something we continue to sort of stay stay close on.

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.

Thank you to everyone for your continued investment in and support of Customers Bank Corp. 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.

This concludes today's call. Thank you for attending. You may now disconnect.