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. 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 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.

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 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 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 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 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 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 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 and 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 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 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 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 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.

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 two 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 loan-to-deposit 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 two 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 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 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, 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 base 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 net charge-offs remain very low, and our consumer portfolio, which 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.

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.

Your first question comes from the line of Anthony Elian of JPMorgan. Please go ahead.

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?

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

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, and could the capital markets sort of opportunity that you guys have identified on Slide 7 start factoring into cubiX deposit growth?

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 wire and ACH in and out. And this has been a priority for us in 2026 to see broader use of cubiX much further beyond the digital asset industry and also creating diversification in our deposit base. So I'll get to 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 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 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 in the next 90 days. We'll continue to update 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 color on what that would be, but what I would say 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 funds 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 what are you seeing that would suggest a slight slowdown in balance sheet growth for the rest of 2026?

No, I don't think we're — I mean, we're still sticking to the guide for this year. As you know, there's certainly 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. 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 ended 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.

Your next question comes from the line of Kelly Motta of KBW. Please go ahead.

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 — 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 highlight additional revenue opportunities as well. I was hoping given your expertise and how far ahead of the curve you are on this front you could speak to what you mean by that and how we should be thinking about the potential revenue enhancements that AI could provide to Customers Bank and, more broadly, how we should think about it.

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 when you have an autonomous agent, you're essentially creating a digital worker. When you have end-to-end automation across your workflows, which is very easy to say and 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 is much more than creating what folks will call a GPT that can save a couple of hours or a chat prompt that can help you research faster. Really, the challenge here, the difficulty and the opportunity, 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-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 per employee KPIs. 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 a lower efficiency ratio. That's the net output. The use case is to get to the heart of your question: typical companies and banks will be focused on productivity as well as, in some cases, improving the client experience which is table stakes. 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 new revenue opportunities as well as reducing risk. We plan to start using AI-first business models to attract new customers and attack new verticals that will help drive new opportunities that don't exist today. These are things that are live and in production now that could result in impact as early as the end of the year, and definitely into 2027. Then we're also looking at redesigning first, second and third line processes to reduce risk across all of our operations. I think that's a unique way that we're approaching things. So it's not just loans, deposits and 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, the average cubiX deposits were down, though within range. 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 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.

Yes, Kelly, this is Mark. 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 were really pleased to only see average cubiX deposits go down from 3.8 to 3.6 billion on a quarterly average basis. Where you see on Slide 7 the mortgage finance, and more importantly the real estate, ties to our 2025 teams and some of the things we highlighted on commercial account growth. I would expect to see in the second and third quarters you'll start to see some of that account growth, which was only approximately 15% funded with deposits, start to take hold. So that provides a hedge for us in terms of our guidance. If we would continue to see a bit more of a drop in cubiX deposits, it's early to predict where those end up on an average balance basis in Q2. Also, we had really strong March results which led to our spot balances being significantly higher in both loans and deposits than our average balances for the quarter. When you look at loan yields, loan yields ended the quarter at 3.62%. SOFR yesterday was about 3.60%. Even if you're going to bring on new originations across most of our verticals at 225 to 300 basis points over SOFR, new production might still come in below the current loan yield on the commercial book, which is around 6.80% all in. So even at 300 basis points over SOFR, the majority of our asset production might still be coming in a little bit lower. So I would expect to see loan yields coming down a little bit more, and how much that impacts margin is really going to be how successful we are on the deposit front. Given the green shoots we're seeing in Q1, it feels like we're setting up well for the year, but it's still early. That's why we're not moving our guide yet for NII. As a growth company, we focus on NII. We understand the analyst community looks at margin as a shorthand, but NII drives earnings growth, not net interest margin. We're focused on NII and sticking to our guide at this point in the year.

Your next question comes from the line of Manuel Navas of Piper Sandler. Please go ahead.

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 deploying cubiX deposits. Has that shifted at all so far, given the somewhat more sticky deposits there and also some of the CRE customers coming on?

Happy to jump in here and welcome officially and formally. So I think what we've always said is that on the digital asset side, we've had the opportunity to learn customer behavior over the past couple of years, and we have — and we'll continue to hold these in cash for the time being. I think there are some things in the external environment that would give us more confidence and comfort to deploy more. 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 other banks without these advanced payment capabilities that cubiX can provide them. Those banks deploy the deposits. We'll do the same, but also offer those customers superior technology and really improve their operations experience. So I think that's a key differentiator. Those levels are already at 20% including existing customers, though that new vertical percentage is still a small portion, and we expect that to significantly increase in the coming months and quarters.

I appreciate that. Speaking to the 20 new roles that are being added, what products or regions are those focused on? I know they're kind of distributed, but is there any key product or regional focus to those additions? And what's the pipeline look like for more hires?

Happy to take that. It's a combination of expansion of talent in existing geographies and one or two submarkets where we will be expanding into. There are also some new national deposit verticals. Not every one of these team members has fully started with the bank yet, so we'll come back to give a little more color, but it's consistent with the way we've approached team hiring to date. On pipeline, similar story: geographic and vertical focus, and these hires reflect that. Year-to-date we've had 20 hires; we had about 40 last year, 100 the year before, 40 the year before that — these are sales-first bankers and first-line bankers. We still expect to do more hiring based on our expense guide and as we reinvest savings from Operational Excellence Phase 2 into hiring and supporting new teams.

I appreciate that. One more: on marginal movements going forward — deposit costs are flattening out. I just want to understand how the marginal cost of new deposit flows is coming in. Should we expect deposit costs to be flat from here?

We're typically seeing new deposits and remix coming in about 150 basis points below the highest cost of our interest-bearing deposits. So the marginal cost is significantly lower than our average interest-bearing cost and below our overall cost of deposits.

Your next question comes from the line of Stephen Moss of Raymond James. Please go ahead.

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

Thanks, Steve. The simple answer is they're sticky and long duration. We're helping customers add payments capability, streamline operations, lower costs and in some cases increase revenue. That's why they're sticky. We have shown we can onboard customers and our 90-day pipeline indicates the $250 million you referenced for the next 90 days. We're at 31% noninterest-bearing deposits already, at the top end of the industry, and we believe the opportunity ahead will allow us to increase that further. Also, we grew our non-cubiX noninterest-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-cubiX deposits, you've historically said for quite some time a $2 billion type deposit pipeline. Where does that shake out these days?

It is significantly higher than it has been in the past. Historically we've operated around a $2 billion-ish pipeline; it is meaningfully higher now due to new teams who joined late last year and who are building momentum. The '25 teams are building momentum for '26 and the '26 teams will build momentum for '27. We're hiring earlier in the year, which is unique and reflects strong inbound interest.

Right. Appreciate that color. On loan growth mix, where are you seeing strength in the pipeline? I know you said it was solid, and fund finance was strong this quarter — any shifts across segments?

If you look at our loan growth slides, this quarter the strength was in fund finance, which is a combination of our capital call lines and lender finance business, and also mortgage warehouse and health care. Last quarter, fund finance was lower, and the quarter before that it was up. Within fund finance, our lender finance category was $2.8 billion earlier and dipped in Q4 then came back in Q1. We have a defined credit box — when certain segments get frothy, we will underperform a little. In Q1, there was a pullback in parts of the market and we benefited. We've added an extra slide on lender finance showing our strong risk controls — good LTV visibility, collateral substitution rights, diversification across facilities and obligors. We've been in the business a long time and historically have had no delinquencies or net charge-offs in lender finance.

Okay. Appreciate the color. On the $3.3 million in warrant gains this quarter — curious drivers: IPOs, private valuations, clients getting funding? How should we think about the episodic nature of those gains?

There's a combination of private valuations, Black-Scholes-style modeling for private warrants, and transactions that can be private or public like an IPO. In some cases, there are restrictions on selling shares for up to six months. We have a portfolio of these warrants across many loans originated over the past few years, and historically they've provided recurring gains that more than offset any small credit charges in the industry. These warrant gains have been recurring over the past several quarters, and we're proud of that.

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

Sam, you talked about one of the strengths being the investments you've made in risk management. 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?

Yes. I mentioned in my prepared remarks that we believe risk management is becoming a competitive edge. Professional services and insurance costs should continue to reduce over time as we progress our efforts. We materially completed work related to the written agreement at the end of last year, and in 2026 we want to put that behind us. Combined with technology, risk management, AI, a business line facing regulatory clarity and the diversification of cubiX into traditional markets, we believe we're uniquely positioned.

Got it. That's helpful. Separately, you added $10 million to reserves this quarter. Was that solely to support the strong loan growth? And can you give an update on your views on macro risk and how that factored into reserve setting this quarter?

Yes, Peter. We had strong loan growth this quarter. From an overall ACL as a percent of loans, we went up one basis point. Most of the increase was a function of that loan growth. We continue to watch geopolitical uncertainty and any potential impact on portfolios, but for this quarter we felt a small increase to the ACL percentage was appropriate.

Your next question comes from the line of Kyle Gierman of Hovde Group. Please go ahead.

This is Kyle on for Dave Bishop. Wanted to touch more on credit quality. It's been very good relative to peers, but you saw an increase in CRE and multifamily NPAs. Can you provide details around that increase?

Specifically within the multifamily nonperformers, we had one loan we made the decision to classify as nonperforming. When you move it to NPA, we've actually charged it down to its current collateral value. The loan is still performing according to contractual terms, but we took a conservative stance to classify it as nonperforming.

And then on capital deployment: you redeemed subordinated debt and repurchased shares in the quarter. What's the priority order for capital deployment going forward?

The priority order remains the same: first, support organic growth. Second, pursue inorganic opportunities when appropriate — historically that often means team lift-outs and related expenses rather than large cash M&A. Third, return capital to shareholders if excess capital is available. Our Board approved a $100 million share repurchase program in February and we repurchased shares in Q1 at a weighted average price of around $68, which we felt prudent.

Your next question comes from the line of Sun Young Lee of TD Cowen. Please go ahead.

Apologies if this was already asked, as I was on other calls. For the new banking teams, the 2024 teams on your slide have a spot deposit cost of 2% and they're bringing in a nice inflow of deposits driving the positive remix. Based on that, is it fair to assume that with ongoing inflows of lower-cost deposits, net interest margin could improve from here versus the first quarter? And can you confirm whether that $400 million-ish cadence of deposits from the new banking teams still holds or if there's any change in expectations?

Thanks, Sun Young. We are a growth organization focused on increasing NII. Prior calls emphasized NII trajectory and how that translates into NIM over time. You're right about deposit marginal costs for remix and funding incremental loan growth. That's a core part of our story and supports funding organic growth while maintaining margin. For banks with flatter balance sheets, NIM makes more sense as their main lever. For us, it's a combination of balance sheet growth and margin maintenance. We continue to focus on improving NII year-over-year independent of rate environment and competition.

Sun Young, to add: our commercial book blended yield in Q1 was about 6.80% all in. SOFR is around 3.60%. New originations are typically 225 to 300 basis points over SOFR, which implies new production will generally come in lower than the existing portfolio yield. That will likely exert some downward pressure on margin, but given the loan volume we put on in March, we feel comfortable with our NII guide for the year.

Got it. One follow-up on fee income: where do you see the biggest upside from here? Fee income items have been volatile — what presents the most growth opportunity and how should we think about trajectory?

If you look back a year, our commercial lease income has grown materially and is one of the more stable fee lines. That commercial lease income represents interest income on operating leases, which shows up on balance sheet and has offsetting depreciation expense. Our commercial lease income has grown from roughly $10.5 million a year ago to $15.4 million in Q1, almost 50% growth. Other lines can be episodic; for example, sales of SBA-originated loans show up in fee income and some banks might treat similar activities differently. We think a reasonable floor for fee income going forward is in the $30 million to $32 million annual range.

Your next question comes from the line of Tyler Cacciatori of Stephens, Inc. Please go ahead.

This is Tyler on for Matthew. Can you provide some idea on the mix of cubiX deposits from a customer standpoint in terms of exchanges, market makers and stablecoin providers — roughly the percentage mix?

Tyler, we've provided this in the past and the mix generally stays the same. Exchanges are the largest participants, followed by market makers, then stablecoin providers. I don't have the precise percentages on this call.

Understood. And securities yields were a bit higher than expected during the quarter — can you update us on the dynamics there and how to think about them going forward?

That's more a function of fourth quarter adjustments. In Q4 we had a couple of adjustments relating to prior quarters which pulled down that yield a bit artificially. The roughly 4.70% yield on investment securities in Q1 is a better run-rate going forward.

Okay. Great. And then if I could squeeze one more in: do you have the amount of brokered deposits at quarter end?

Brokered deposits were stable as a percentage of total deposits.

Your final question comes from the line of Brian Wilczynski of Morgan Stanley. Please go ahead.

The new commercial banking teams have been very successful in adding new low-cost deposits. Can you talk about what you're doing to deepen those relationships on the fee income side? Is there an opportunity to do more with those clients around treasury management, capital markets? How do you plan to execute on that over the next 12 months or so?

Great question, Brian. Over the years we've continuously expanded our treasury management capabilities — that's been a large initiative even prior to cubiX. New teams and new verticals often bring edge-case treasury needs that over time become our base case. We incorporate those capabilities into our product set and cross-sell them into our existing client base. So new teams bring new capabilities for the firm to scale. That expands treasury, payments, and other services for our broader client base.

Appreciate that. On the lending side, how are clients reacting to geopolitical uncertainty broadly? Any impact on demand on the loan side over the past few weeks? Does it vary across segments?

We spend a lot of time monitoring this. Generally, we haven't seen tangible changes we can point to. At year-end sometimes loans slip into early April that we'd expect to close by March 31; that happened in some cases but they still closed. Sitting here today, we don't see changes to pipelines or commitments versus closings, but we continue to monitor closely.

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 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.

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