Customers Bancorp Q3 2025 Earnings Transcript

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Date

Friday, October 24, 2025 at 9 a.m. ET

Call participants

Executive Chairman — Jay Sidhu

President and Chief Executive Officer — Samvir S. Sidhu

Chief Financial Officer — Mark McCollum

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Takeaways

Deposit growth -- $1.4 billion increase in total deposits, ending at $20.4 billion, driven by new commercial banking teams and Cubic's clients.

Non-interest bearing deposits -- Grew $900 million to a record $6.4 billion, now representing 31% of total deposits.

Loan growth -- $900 million, or 6% quarter-over-quarter increase, with broad-based contributions including Fund Finance, commercial real estate, and venture banking.

Net interest margin -- Expanded by 19 basis points sequentially to 3.46%, marking a fourth consecutive quarter of improvement.

Net interest income -- Rose by 14% to $202 million; excluding a $10 million loan accretion benefit, core net interest income was up 9% sequentially.

Core earnings metrics -- Core EPS of $2.20; core ROE at 15%, and core ROA at 1.25%.

Efficiency ratio -- Improved to 45.4%; non-interest expense to average assets declined to 1.74%.

Tangible book value -- Rose to $59.72 per share, up 6.2% sequentially or 25% annualized.

Capital position -- Common equity Tier 1 ratio increased by 100 basis points to 13%; $163 million equity raise completed at 10 times oversubscription.

Allowance for credit loss -- Stood at 1.03% of loans with reserve coverage at 534% of nonperforming loans.

Guidance revision -- Deposit growth guidance raised to 8%-10% for full year 2025 (from 5%-9%); loan growth guidance revised up to 13%-14% (from 8%-11%) for full year 2025; net interest income growth now projected at 13%-15% (from 7%-10%) for full year 2025.

Special loan accretion -- $10 million benefit to net interest income from repurchased loans, expected to recur once in 2025 and then drop off in 2026.

Deposit transformation -- Nearly $7 billion in new deposits onboarded in less than three years, now comprising about a third of the current deposit base.

Cubix platform activity -- Average balances and network volumes set new highs, with platform deposits about 19% of total deposits; October is on pace to exceed prior quarter volume for CUBICS network activity.

Team recruitment -- Four new deposit-focused teams onboarded in the quarter (totaling seven for 2025); new teams now manage approximately $2.8 billion in deposits, or 14% of total deposits.

Summary

Customers Bancorp (NYSE:CUBI) reported robust balance sheet expansion led by significant core deposit inflows and a substantial rise in non-interest bearing balances. Management completed an equity raise in early September 2025 described as "about 10 times oversubscribed," according to Jay Sidhu, materially boosting capital ratios. The company posted double-digit sequential growth in net interest income and revenues. Book value accretion continued at an industry-leading pace, underpinned by disciplined loan growth and risk-adjusted returns. Updated guidance reflects management’s expectation for stronger full-year deposit, loan, and net interest income growth for 2025 compared to prior projections, with operating leverage improvements expected to persist through year-end 2025.

Jay Sidhu stated, "we've been the number one performing bank stock in The United States for institutions over $10 billion in assets over a five-year period."

Capital raises and earnings resulted in shareholder equity growth of $263 million, equating to 14% sequentially.

Outperforming industry cost trends by 124 basis points over the same period, according to management, referring to the period from year-end 2022 to Q3 2025.

Allowance for credit loss provides 534% coverage of nonperforming loans.

The company completed off-balance sheet hedges totaling $800 million notional via fixed-receive swaps to manage asset sensitivity, anticipating margin support if rates fall further.

FDIC insurance and regulatory fees declined, partly due to risk-mitigating actions, and were retroactively adjusted for prior quarters, though management anticipates a partial rebound in these expenses next quarter.

Management expressed ongoing focus on technological advancement, particularly AI integration, stating, "about a 10% productivity lift," according to Samvir S. Sidhu, was already observed in targeted areas as of 2025, with further adoption and efficiency gains expected in the medium term.

Industry glossary

Cubix platform: An in-house developed payment and deposit platform providing high-value commercial clients with real-time operating accounts and transactional capabilities.

Capital call lending (Fund Finance): Loans extended to private capital funds secured against capital commitments of limited partners, typically with low credit risk profiles.

Received fixed swaps: Interest rate hedging contracts where the bank receives a fixed rate and pays a variable rate, used for managing exposure to interest rate movements.

Efficiency ratio: Non-interest expense divided by total revenue—a lower figure indicates greater operational efficiency by the bank.

Non-interest bearing deposits: Deposit balances on which no interest is paid, generally representing stable, low-cost funding for the bank.

Full Conference Call Transcript

Jay Sidhu: And welcome to Customers Bancorp's Third Quarter 2025 Earnings Call. I'm joined this morning by our President and CEO of the Bank, Sam Sidhu and Customers Bank and Customers Bancorp's CFO, Mark McCollum. We are very pleased to report another strong quarter. Once again, our results materially exceeded expectations. We experienced deposit-led growth in our balance sheet of more than $1.5 billion over the quarter. Delivered positive operating leverage, and strengthened our already robust capital levels through a very successful common equity offering that was oversubscribed by about 10 times. That speaks volumes about investor confidence in our franchise.

We also delivered top-tier earnings performance, continued to improve capital quality, and drove disciplined franchise-enhancing growth across deposits, loans, and also fee income. You will hear more from Sam and Mark on those results in a moment. It is exactly these sorts of financial results that gave me the confidence last quarter to announce my transition to Executive Chairman beginning in 2026 and for Sam to be named Chief Executive Officer of the holding company besides being the CEO of the bank. From this seat, the Board of Directors and I will continue to provide all the guidance to Sam and Art.

Awesome management team to ensure customers continues to build on its trajectory of growth consistency full transparency resilience and delivering the results to you on a regular consistent basis. From a financial perspective, Customers have been an industry-leading EPS and book value compounder over the last five years. For banks of our size, and that's translated into long-term results for our shareholders as we've been the number one performing bank stock in The United States for institutions over $10 billion in assets over a five-year period. Thank you. And kudos to all of you for being our long-term shareholders and I'm thrilled to be one of them. Our mission remains unchanged.

To deliver long-term and consistent value for our shareholders and our communities by putting clients first and executing with excellence. The numbers you see are the results of our leadership team executing superbly on our unique strategy of single point of contact banking, with the strongest risk management principles. Before we dive into the quarter, I'd like to take a moment to welcome Janet Lee and the TD Cowen team to coverage of Customers Bancorp. It's terrific to have you and Steve following our story. We appreciate your interest and look forward to your insights. As we continue to execute on our strategy.

With that, I'm going to turn it over to Sam to discuss in detail the quarter with you.

Samvir S. Sidhu: Thank you, Jay, and good morning, everyone. This quarter was yet another clear demonstration of the strength of Customers Bank's diversified model. Across the franchise, we delivered strong performance, disciplined growth, and continued transformation of our deposit base. We are firing on all cylinders. And our team is performing at an elite level. Q3 results represented another quarter of very strong financial performance. Here are a few of the highlights. We generated $1.4 billion of deposit growth led by our new commercial banking teams and Cubic's clients. Our loan growth was 6% quarter over quarter with diversified contributions across multiple verticals.

Our net interest margin expanded meaningfully by 19 basis points quarter over quarter and our net interest income increased by 14% in the quarter. Our efficiency ratio improved again even as we continue to invest in new teams, technology, and risk management. As you heard from Jay, we had a tremendously successful common stock offering in early September, which was about 10 times oversubscribed. The equity raise even further improved our capital quality and ratios meaningfully. And we compounded tangible book value at a 25% annualized pace in the quarter to nearly $60 per share continuing our multi-year trend of 15% annualized growth, which is number one for banks $20 billion to $100 billion in assets.

We accomplished all of this while maintaining strong credit performance and ample liquidity. Advancing to the next slide, you'll see our GAAP financials and moving to Slide six, I'll run through the core financial highlights for the quarter. Our beat relative to consensus expectations on both a GAAP and core basis was driven by strong results across the franchise. We delivered core EPS of $2.2 with a core ROE and ROA of 15.51.25% respectively. Both important profitability milestones. This reflects solid growth on both sides of the balance sheet resulting in total revenues of $232 million which was up 12% in the quarter. And our credit metrics also remained strong, which Mark will cover in more detail.

Our third quarter EPS grew by 22% in the quarter, which is on top of the 17% growth last quarter. As you may recall, a year ago, on our third quarter call, I said that we'd look to grow our core EPS by 30% or more this year. I'm incredibly pleased to say that we more than doubled that up 64% from the same period a year ago. And we believe that our $24 billion balance sheet is stronger than ever. With very robust capital ratios, strong credit quality and reserves, and ample liquidity to support our growing pipelines. Now let's turn to deposits on slide seven.

Where we continue to execute in our deposit transformation with a meaningful shift towards franchise enhancing granular high-quality deposits. As I mentioned, total deposits grew $1.4 billion in the quarter, ending at $20.4 billion This included an increase of $900 million in non-interest bearing deposits which was led by growth from existing institutional customers on our in-house developed Cubix platform. Our deposit growth was supported by several other areas including our new banking teams onboarded since June 2023, contributing nearly $350 million in high-quality deposits this quarter. These teams now manage approximately $2.8 billion in relationship-based granular funding, which is about 14% of our total deposits.

In just two years, is akin to buying a $3 billion bank but without the tangible book value dilution and integration risk of traditional bank M and A. The $900 million of growth in non-bearing deposits led to a record $6.4 billion in noninterest bearing deposit balances. In addition to Cubic's growth, our core commercial franchise again delivered nine figures of non-interest bearing growth, which is truly incredible. As a result, non-interest bearing deposits now represent about 31% of our total deposits at quarter end, placing us number one amongst our peers. Our team responded well to the Fed easing in September, and we were able to lower our deposit by 15 basis points post Fed action.

Which represents a deposit beta of approximately 59%. As a result of the combination of these two factors, our total average cost of deposits declined eight basis points in the quarter, And to emphasize this point further, our spot cost of deposits was another nine basis points lower at 2.68% at quarter end, or 17 basis points below our Q2 average. Now let's turn to slide eight where I'll provide more detail on the incredible success of our deposit transformation. We've talked a lot about our deposit gathering efforts on our calls in recent quarters, but we thought it would be helpful to look back and highlight just how much we have transformed our franchise over the past few years.

In less than three years, we have onboarded nearly $7 billion in deposits from our new banking teams and Cubic's clients. That represents nearly 40% of our deposit base at year end of 2022 and about a third of our deposits today. Hence, the quality of the transformation that really shines. The growth is very granular with nearly 8,000 accounts helping us to drive over 50% growth in our commercial client base. Incredibly, are very low cost at just 1.06%, This has allowed us to increase our non-interest bearing deposits to 31%, as I mentioned, from 10% while simultaneously reducing our wholesale CDs from 22% down from 22% to 9%.

Our average cost of deposits this quarter was essentially flat relative to the 2022. Over that time period, interest rates are 65 basis points higher on average today than they were at the 2022, The industry's deposit costs, however, are 128 basis points higher, which means that our outperformance is incredibly 124 points over that time period compared to peers. That shows the power of our deposit transformation. Moving to Slide nine. Central to our success has been our ability to consistently recruit top talent. In the first quarter of this year, we highlighted the exceptional results from the teams who joined us in 2023 and 2024.

And we also outlined a roadmap for the types of continued team recruitment we'd look to on in 2025. This included top performing bankers, to deepen our geographic presence and continue to enhance our national specialized deposit verticals. We had shared we would add at least two new teams this quarter. In fact, we were able to recruit and onboard four new teams in the quarter, This included two additional geographic C and I teams, as well as two national teams, one serving title companies and one in the sports and entertainment segment. This brings our 2025 total to seven deposit focused teams with approximately 30 new team members.

Our brand reputation is a high performance, tech forward bank continues to attract top tier talent. The flywheel is turning and we have incredible tailwinds both from continuing to scale the portfolios of the teams that join us in 2023 and 2024 and now significant additional opportunities from the teams that have joined us this year in 2025. It is important to highlight that in almost every one of the bankers that have joined us have come through direct referrals from our existing team members. We look to continue to add to the roster of new teams each quarter. Let's turn to loan growth on Slide 10. Loans grew approximately $900 million or 6% quarter over quarter.

Growth was broad based and relationship driven led by Fund Finance, commercial real estate and venture banking. Our new commercial banking teams also contributed to loan growth. While maintaining strong deposit led economics. The portfolio remains diversified we continue to prioritize credit discipline and pricing. Given the depth and breadth of our platform, we continue to see opportunities to add franchise enhancing loans with an utmost focus on credit discipline. With that, I'll turn the call over to Mark on Slide 11.

Mark McCollum: Great. Thanks, Sam, and good morning, everyone. Thanks for joining on the call. I'm gonna start with our net interest margin where we reported strong results. Net interest margin expanded by 19 basis this quarter to 3.46%, marking the fourth consecutive quarter of improvement. Our net interest income increased by about 14% to $202 million for the quarter. As we noted last quarter, we did have a positive impact from loan accretion on a small pool of participated loans we repurchased at a significant discount last quarter. This added $10 million to net interest income this quarter, compared to the second quarter.

This net interest income benefit will repeat again in 2025 and then is expected to drop off in 2026. However, when excluding this $10 million from our third quarter results, our net interest income still increased 9% sequentially. Due to the following core trends. We had an increase in average deposits of over $1.4 billion at a blended cost of 2.77% for the quarter compared to 2.85% last quarter with nearly $800 million of higher average non-interest bearing balances. We also had an increase to average loan balances of $630 million And lastly, our overall funding needs declined as a result of the $163 million of net proceeds we received from our common equity offering in September.

As Sam noted, our team responded well to the first Fed funds rate cut. Within a week of that cut, our interest bearing deposits had declined by 15 basis points on a spot basis. Or a beta of almost 60% early on. We also executed off balance sheet strategies during the quarter, layering on $800 million in notional value of received fixed swaps on the asset side of the balance sheet in order to further neutralize our asset sensitivity. While we remain modestly asset sensitive, we think we have well positioned the bank to produce solid net interest income growth in future periods. Regardless of macro monetary policy.

Moving on to slide 12, our noninterest expenses declined $1.4 million to $105.2 million while we continue to invest in people, technology, and risk infrastructure. Compensation and occupancy were the categories that increased during the quarter, with reductions in our FDIC assessments and professional fees driving the bulk of the decrease. Importantly, our efficiency ratio improved again now at 45.4%, placing us firmly among the top quartile of peers, even as we continue to invest in this growth. And lastly, when just focusing on expenses, our noninterest expense to average asset ratio declined to 1.74%, which rates the best within our regional bank peer group.

On Slide 13, tangible book value per share grew to $59.72 up 6.2% sequentially or 25% annualized. We believe this represents one of the clearest markers of long term shareholder value creation and continues our multiyear track record of double digit tangible book value growth. Now let's move to Slide 14 to discuss capital. We significantly strengthened our capital position this quarter. Our successful common equity raise provided $163 million of net proceeds. Through the combination of this capital raise, strong quarterly earnings, and reductions in our AOCI, which is currently at a loss position, our shareholders' equity grew $263 million which is 14% sequentially.

As a result of this growth, our common equity Tier one ratio improved 100 basis points to 13% and tangible common equity grew 50 basis points to 8.4%, this was even after supporting more than $1.7 billion of balance sheet growth during the period. On Slide 15, our credit performance remains stable and well managed. A strong credit culture has always been a critical success factor of customers and the results bear this out as you can see from our metrics. Our nonperforming assets were just 25 basis points of total assets and have been consistently below peers. For each of the five quarters shown. Excluding our small consumer loan portfolio, net charge offs for commercial loans remain very low.

At 16 basis points annualized. Additionally, special mention and substandard loans were down about $14 million or about a 3% decline during the quarter. Overall, believe the loan portfolio is well positioned, we have strong reserve coverage within our allowance for credit loss. Currently, this allowance sits at a 103 basis points and represents 534% coverage. Of our nonperforming loans. Moving to Slide 16. As a result of the strong quarter, and emerging clarity on the remainder of the year, we are revising several of our guidance items for 2025. For deposits, we are increasing the full year growth range to 8% to 10% for the year, up from 5% to 9% given the momentum we experienced during the quarter.

For loans, we are increasing full year growth to 13% to 14%. Up from 8% to 11% previously. I would note that we had a very strong third quarter, which did pull forward some closings from the fourth quarter. Which is why we may see less growth next quarter. But we still feel very good about our ability to deliver above industry average loan growth with a disciplined and credit first mindset as we head into 2026. We are now projecting our net interest income to grow between 13-15% for the year up from seven to 10% previously.

This reflects the strong performance on both sides of the balance sheet and driving increased revenue as well as the margin benefits I discussed earlier. For efficiency, as a result of this stronger revenue growth and well managed expenses, we now believe our efficiency ratio will be below 50% for the year. Versus 56% in 2024. As a result of our common stock offering, our CET1 ratio is now projected to be around 13% at the end of 2025, consistent with third quarter levels. And with that, I'll now pass the call back to Sam for closing remarks before we open up the line for your Q and A.

Samvir S. Sidhu: Thanks, Mark. In closing, Customers Bank is delivering on its strategy. Disciplined deposit transformation, diversified loan growth, efficiency improvements, and a strong capital credit. And risk management. We increased deposits by $1.4 billion with most of the growth coming from noninterest bearing deposits. Our noninterest bearing deposits now stand at 31%, which is number one of our peers. We grew our loan portfolio with franchise enhancing relationships, We improved our net interest margin for the fourth consecutive quarter. Improved our efficiency ratio for the fourth consecutive quarter, delivered a 1.25 ROA, delivered a more than 15% ROE, increased our TCE ratio by 50 basis points to 8.4% all while maintaining excellent credit performance.

Our tangible book value has grown at 15% over the last five years. Number one in the industry for banks of our size. Importantly, our loan, deposit, and team recruitment pipelines are strong. And that is why we're incredibly excited about the prospects for this company to close the year and excel in 2026 and beyond. Operator, we'll now open the line for questions.

Regina: At this time, I'd like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. Our first question will come from the line of Janet Lee with TD Cowen. Please go ahead.

Janet Lee: Good morning.

Samvir S. Sidhu: Morning, Chad.

Regina: Hi.

Janet Lee: Thank you for the welcome. On the deposits, so if I were to look at obviously, you guys have been bringing in a lot of about $203,150,000,000 of deposit lower cost deposits from the new banking team hires. If I were to look at 2026, should we expect the pace of deposit growth from the new banking team hires to continue around this pace, or is that contemplating also the pace of new banking team hires is maintained and that like, four teams higher per quarter range. Just wanna just wanna get some color around the pace of deposit growth, how that could move versus what we saw in this quarter. As the as we're reaching that saturation point.

From the big banking team hires that you guys made in 2024.

Samvir S. Sidhu: Sure. Well, Jenna, thank you so much for that question. So to add a little bit of color, you rightfully sort of mentioned that we had sort of guided previously to about 300 to $400 million or of quarterly deposit growth from the new teams, which we, you know, this quarter, roughly achieved. Sometimes we're a little lower, sometimes we're a little higher, but we're kind of in that type of target. We would expect that pace to continue. 2026 based upon the twenty three and twenty four teams.

The 25 teams, you know, are really gonna start adding balances, you know, in the sort of end of the first half to the middle of next year and really ramp up. We expect over the course of the year that should give us about a 25% lift on that 300 to 400,000,000 So kinda gives you a sense of sort of the layering of the of the vintages of teams that are that are being onboarded. You know, one thing that I would mention the $350 million of growth that we saw this quarter it continued to maintain that sort of just, you know, at or under 30% non bearing deposits.

Those deposits also came in at less than 2%. Just under 2%, in fact. So I think that and that's prior to rate cuts. It just gives you a sense of the high quality nature you know, of those, you know, you know, sort of we call them the singles and double. You know, type deposits that our that our teams are bringing in from the CNIs and CRE side.

Janet Lee: Thank you. That's very helpful. And obviously, the q Cubic's deposits grew a lot, about 800,000,000 this quarter. About 19% of deposits Any changes to your sort of the internal target, maybe target is not even the right word, how big could this become? I know a lot all of these deposits from Cubic are get going into cash. What drove that much of an increase in cubics? Do you think that this Cubic deposits could sustain in terms of the growth? What is the strategic value that Cubic springs to your platform, aside from the NII. Maybe if you could touch on the fee income opportunities from the Cubic's Pike payments platform, that would also be very helpful.

Samvir S. Sidhu: Sure. Absolutely. And if I miss anything, Janet, because I think it was a couple of layers in the question please remind me, you know, after I'm done here. But, you know, I think on the on the Cubic side, just, you know, as a reminder, this is a this is a payment platform. Right? So at the of the day, our customers hold you know, transactional operating accounts with us. To support the that payments business. So there's a minimum amount of deposits that they hold with us at any given time.

What we if we actually had little bit of a slide on you know, the deck that showed this is what we've seen is especially since November, we've seen a continuous increase in the payments activity. As well as the you know, which translates into higher average deposit balances. So on the Q2 call, if you recall, I talked about balances being about 20% higher. As of July when we had our call relative to the second quarter. As you can see, we, you know, maintained or even slightly increased those balances. As the quarter continued post the sort of genius stable coin you know, legislation. So we're continuing to see increased institutional activity from our existing customer base.

We're also continuing to see increased institutional adoption. You also heard me say that, you know, about 20% of our deposits were coming from traditional finance customers. Even with the growth in our average deposit base, you know, we have continued to maintain that percentage, which sort of just gives you a sense of the growth is broad based, across all of our, you know, large core customers as opposed to a customer or two or three. It is it is universal. Know, across, you know, the overall customer base. And the low end of our top customers grew by, you know, 10%.

The rest, you know, we're sort of growing overall across the base, you know, to that 25% or so. Or so growth. One other thing that I would add just talking about you know, activity on the network and franchise value as you were asking about is we're continuing to sustain. So in October, our levels are about where they were you know, in the in the third quarter. I'd also say that October going back to activity, is on track to be our highest CUBICS month ever. In terms of network volume and activity. You know, as well with just three weeks, you know, of the quarter end.

You also, you know, got a sense that, you know, our activity and overall volume this year as of 09:30 or the third quarter is roughly at where we were for full year '24. Which just gives you a sense of how year over year you know, we're continuing to increase. So I think that was the first part of your question. I'll address the, you know, the fee income and then let me know if I missed anything. So on the fee income in, you know, late last year, we started instituting, you know, outbound wire fees and some modest fees. Know, to our overall customer base. That's to the tune of 8,000,000 or so of overall fee income.

At the end of the day, you know, we wanna make sure that we have a partnership. Approach you know, with our customer base that we're not that we're making sure that, you know, fees are aligned with driving value you know, to our customers and to our customers' customers. So right now, we're focused on continuing to you know, broaden the institutional breadth of our network. We're also really focused on product expansion.

And, you know, with our core customers and really, what's also important internally at Customers Bank is we're continuing to further enhance our risk and compliance going far above the expectations of what regulatory standards could be and, really, thinking about how we can continue to build you know, sort of a best in class North Star for the overall industry because, you know, you know, we and even our customers are gonna continue to see you know, more constant you know, more competition as there's broader, you know, institutional adoption in the industry, which is you know, rising tide will obviously lift all boats.

But at the same time, we wanna make sure that, you know, we truly have built a platform that we our customers, our and all of our stakeholders view as best in class.

Janet Lee: Thank you.

Regina: Our next question will come from the line of Steve Moss with Raymond James. Please go ahead.

Steve Moss: Hi, good morning.

Samvir S. Sidhu: Good morning, Steve. What can assist?

Philip S. Watkins: Morning, Sam. Mark, maybe following up on Cubic's here for the moment. You know, With the likelihood of additional rate cuts coming, just curious how to think about if there will be any potential increase in fees from the platform.

Samvir S. Sidhu: So Steve, it's a it's a sort of building off of the answer I gave to sort of the last question is that, you know, at the end of the day, as we're continuing to add new products, and continuing to, you know, partner with our customers on sort of more overall initiatives. We'll, you know, we will explore, you know, fees. Right now, deposit growth is far outpacing any type of quote unquote asset sensitivity of noninterest bearing deposits that are held in cash. So I think that for the time being right now, you know, we feel very good about the position that we're in.

You know, sort of cubics, let's say, all things equal, just with the growth that we've seen this quarter, you know, Cubix associated interest income would be higher, you know, based upon the balances today that we have relative to well over a hundred and fifty basis point rate cut. Relative to prior balances.

Steve Moss: Okay. Yeah. Yep.

Mark McCollum: Appreciate that color, Sam. And then in terms of, you know, the loan pipeline Mark, you know, you made a comment about a bit of a pull through. Just kind of curious where does the loan pipeline stand these days and maybe just kind of you know, what does that business mix look the current pipeline?

Samvir S. Sidhu: Yeah. The loan pipeline is broad based. And, you know, I think what you've seen, you know, throughout this year is that our gross from quarter to quarter will come from different segments. We have a good graphic depiction on that on Slide 10 you know, in the deck that shows where the growth came from this past quarter. You know, where fund finance and commercial real estate led, but we've had other quarters, you know, where commercial banking teams, health care, equipment finance, etcetera. You know, are all gonna be meaningful contributors.

You know, the point I was making was that the you know, almost 900,000,000 of growth that we saw in the third quarter did include some deals know, that a quarter ago, we may have thought were in a pipeline to maybe close in the fourth quarter. So our anticipation is that there will still be growth, in the fourth quarter, but we don't expect it you know, to approach third quarter levels.

Steve Moss: Right. Okay. And then maybe just one more for me here. Just kind of curious you know, you mentioned that less you know, you've reduced your asset sensitive to the sensitive position Just kind of curious what you're thinking about with regard to the margin pressure from a 25 basis point rate cut I mean, I realize there's a lot of noise with the Cubix deposits coming in here, but maybe just size that up a little bit.

Mark McCollum: Yeah. Sure. So for us, you know, when you go and look at our quarterly numbers, you know, we quote numbers for, you know, the impact of a 100 basis point, 200 basis point, you know, up or down rate move. That's at static view that can know, which is at least, you know, one measuring stick to compare us, you know, to relative asset sensitivity, to other peer banks. Obviously, the limitations on that are that no bank you know, experiences a static across all points of the curve and then sits on their hands and does nothing, you know, to react to that.

You know, what I would tell you is that you know, while we are still inherently asset sensitive, because we are a commercial bank, And as Sam pointed out, our asset sensitivity then also increases a little bit you know, because of our decision to hold all of the Cubic's balances. In cash. You know, but with some of the you know, just the mix of businesses that we have as well as some of the synthetic things that we've done with adding on some receipt fix swaps. We're now at a point where for a 25 basis point rate move, you know, it's around know, million and million and a half dollars. You know, annualized impact to our NII.

You know? But we think that, you know, my comment that we think we're positioned to still be able to produce net interest income growth, you know, regardless of monetary policy is that we think there will be sufficient growth you know, to, make up, any NIM compression we could see from that those 25 basis point rate moves.

Steve Moss: Okay. That's that's really helpful. Actually, maybe if I could just squeeze one last one in. Sam, you mentioned the title and sports entertainment teams here. You know, maybe and I hear you in terms of potential deposit growth. Is it gonna be a similar kind of loan to deposit type mix And you know, maybe kinda curious how many know, are there any additional verticals you may be looking at? Yep. Sure, Steve. So

Samvir S. Sidhu: I'd say that you know, it's it's difficult to fully project. I'd say broadly, the deposit to loan is a better way to think about it because they're mostly deposit focused team. Based upon sort of the teams that we've onboarded, we expect to actually that ratio to be higher than what we brought in last year. Remember last year, we also had stated that in the beginning as we were taking market share, we were doing more lines and onboarding sort of more existing relationships and refinancing, you know, which meant that our, you know, deposits to loans was three to one, you know, versus know, stabilized being at sort of four to one.

I'd say these teams are a little bit you know, lighter on, you know, on the lending side relative to especially some of these specialized national teams. And more heavy on the deposit side.

Steve Moss: Okay. Great. Appreciate all the color, and I'll step back in the queue.

Philip S. Watkins: Thanks, Steve.

Regina: Our next question will come from the line of Peter Winter with D. A. Davidson. Please go ahead.

Peter Winter: Thanks. Congratulations on great quarter. My question is on expenses. Mark, can you just give some context around the $3.4 million decline in FDIC assessment? Is there still room to lower it? And then secondly, with this $1.6 million decline in professional fees, is that a function of a lot of the work has been done to address So written agreement. Now you're expecting kind of just in the back testing? Phase?

Mark McCollum: Sure. And good morning. Yeah. I'll answer the second question first. On the professional fees, yes, we continue to you know, build out and invest, in our risk, infrastructure. And work through the agreement. And some of those some of that is hiring of people. Some of that is augmenting with professionals. Services. You know, some of that is starting to be completed. You know, so, we were pleased that we were we were able to kinda pull through some of that reduction, in the third quarter. You know, we would hope to be able to continue to see that progress being made in the fourth quarter, and in the twenty six, in that professional fees line.

On the FDIC expenses, as I'm sure you're aware, you know, that calculation which used to be fairly straightforward, you know, is now a very complex calculation on a quarterly basis, which incorporates several factors. You know, but ultimately is a risk based calculation. And you know, as we continue to work through you know, and derisk our balance sheet, you know, we are making progress. In ultimately getting reductions in our FDIC insurance. In this past quarter, I will say that you know, we were pleased that not only did we see a reduction, when we go through the calculation, but that reduction was actually retroactively applied to the 2025.

So of that $3.4 million reduction, about $1.9 million of that actually related to first and second quarter adjustments. You know? So when you see the total line, you know, sitting there at about $8.485 million. I would expect that line in the fourth quarter to come back up. To be closer to $9.5 million to $10 million but, but down, you know, significantly from where it was in the second and third quarters. I'd also remind you that in that line, you know, the way it's worded, it does include more than just FDIC insurance.

I mean, it also includes other above the line where us as a Pennsylvania bank, we have a p a shares tax, which also rolls through that line as well, plus a couple of other more minor regulatory fees. But know, good progress being made. We will continue to see progress being made going forward you know, into next year.

Peter Winter: That's great. Thank you. And then Sam, big picture question. Just you know, we're seeing more prevalent use of AI industry wide. I'm just wondering, can you talk about maybe outline how AI is helping the bank today? And maybe how it can help the business going forward.

Samvir S. Sidhu: Well, Peter, thank you. It's great to get a strategy question, and it's probably our first non modeling question in a couple of quarters. So thank you so much for allowing us to not look necessarily ninety days back, but look a couple years forward. But, you know, you know, AI is gonna be, you know, of the biggest efficiency in client experience. Unlocks that, you know, we as an industry and country and a nation and a globe have seen since mobile banking. You know, our journey I'll give you just a little bit of history.

So in December 2023, we formed a cross functional AI discovery team We use it to learn about AI, buy the first wave of tools, test and build solutions, train, and figure out how to democratize, you know, it for everyone. You know, at the bank. You know, since then, you know, we've had various areas of the bank that have seen about a 10% productivity lift or set a different way, 1010% savings lift. However, when you wanna think about And we see in 2025, that we're gonna continue to drive further adoption throughout the bank and begin expanding our planning of AgenTik AI. Systems. Which is set a different way.

It's sort of AI that can observe and decide and act across our platforms and workflows. And that's also gonna be sort of how we think about sort of the overall client experience and client onboarding over time as well. That's sort of our medium to long term plan. So again, over the next couple of years, we're gonna expect AI to lift our productivity significantly. We're gonna have it unlock, you know, more client experiences. It's not a side project for us. I'm leading the efforts. We see it as a foundation for the next phase of Customers Bank. You know, we've mobilized incredibly early as you can tell by looking at that timeline.

Of when we formed our you know, our team and our governance you know, process, and it's proving value. And so just to kinda put a finer point on it, we've developed over a 100 use cases for AgenTik AI. And, you know, we're gearing up to start you know, beginning to test and implement.

Peter Winter: That's great. Thanks, Sam. Appreciate it.

Regina: Our next question comes from the line of David Bishop with Hovde Group. Please go ahead.

David Bishop: Hey, good morning, gentlemen. Good morning, Dave. Hey, Dave.

Mark McCollum: Hey, Mark. Just curious, you know, you've you've you've seen some good growth here of late.

Samvir S. Sidhu: Especially in the nonuninterpreted commercial real estate, commercial real estate segment. Remind me where your concentration ratio is. I need to quarter and appetite to grow those verticals.

Samvir S. Sidhu: Yeah. Yeah. Sorry. Sorry, Mark. I'll I'll take that. So we're still you know, we still remain below 200% Dave. I think that's sort of the core of your question. What I would also like to add beyond sort of the actual question is I think a couple quarters ago, we sort of talked about how our deposit to loan ratio was set differently. Our CRE loan growth since we onboarded new teams was fully funded by deposit growth. Well, that's continued. In fact, our deposits are greater than loans since the third quarter of last year. When the team started originating.

So, you know, we have, you know, about 700,000,000 or so deposits we've you know, brought in across the franchise. At 1.7% and less than that in loan growth of at loan yields of north of 6.3%, which is about a four and a half percent spread. And what's interesting is, you know, that the sort of $200,000,000 plus of loan growth in the third quarter incredibly granular. So our average loan size is less than $10,000,000.

David Bishop: Got it. Great color. And Mark, you noted the swaps, the six first received. Just curious any granularity you can give us just in terms of maybe, you know, rates on receive versus fixed? Just curious if you have that. Handy.

Mark McCollum: I don't I don't have that right in front of me on the details of that notional. I mean, it would it ended up being two separate transactions that we did at different times of the quarter. But I can follow-up with the you know, actual each side of that leg for you.

David Bishop: Got it. And then Sam, turn it back to the especially on the Tidal team, you said that was a national basis. Anyway, rings best the deposit opportunity there, but just curious maybe how big of a book they manage at their prior shop and what the potential is there to move the needle from a deposit base

Samvir S. Sidhu: Yep. So, David, you know, a bit a bit early to of tell think of this as sort of a payment platform. That is, you know, sort of supported on top of our existing you know, retail and commercial title you know, team efforts and platform that we have at the existing bank. And, you know, I would say about this is, you know, these types of you know, team recruitment initiatives, I think we've stated this before when folks have come to us and asked about sort of the types teams that we look for.

If you go back to 2020, '3, you know, the team that we brought on in '23 had you know, a, you know, multibillion dollar book. The team that we brought in the teams we brought in '24, most of the teams had individually you know, about a billion dollars or more of book. And, and similarly, as we sort of look to acquire and recruit sort of larger teams, you know, in '25. We've also looked for that similar type of threshold. So we see it as an interesting opportunity. For us to leverage our operational strength our technology strength, as well as sort of the single point of contact you know, commercial delivery model.

David Bishop: Great. Appreciate the color, guys. Guys. Our next question comes from the line of

Regina: Kelly Motta with KBW. Please go ahead. Hey. Good morning. Thanks for the questions and congrats on the quarter. Maybe hitting on asset quality, you know, your track record has been really strong. And just in light of the really strong growth you've been seeing and the earlier focus during earnings season towards NDFI lending. Can you just provide some comments as to you know, clearly, you've you've been very thoughtful in your approach, just how what are the biggest verticals within that for you? And what gives you comfort on those? Thank you.

Mark McCollum: Sure, Kelly. It's Mark. Good morning. Yeah. We do think as I mentioned earlier, credit quality has always been a critical success factor for us. And when we focus on our NDFI exposure, we think that's also a credit strength of our franchise, and we believe arguably one of the lower risk credit risk portions of our overall C and I portfolio. Know, I'm sure as, you know, the analyst community you know, has learned, when you look at that category on a call report, not all NDFI lending, is created equal. There are several different categories that roll up to that. For customers, NDFI loans generally fall into three categories.

Mortgage warehouse and what we call fund finance or capital call lending those two categories, make up just a little less than half percent of our overall exposure. And then the lender finance piece makes up the other half. The first two categories, mortgage warehouse and capital call lending, I think most people understand those businesses and understand that they have inherently very low credit risk. Most of the recent attention this past quarter has been on the lender finance space. For customers, this is one of the oldest specialized lending businesses we've been in. It's one we've been in for over a decade, and we've not only had zero losses but zero loan defaults.

You know, in this business, this is typically lending to a private credit fund where the collateral, is it broadly diversifies pool of loans out to middle market companies. You know, there's significant overcollateralization We have low advance rates. And there is you know, it's very diversified. So our single obligor exposure is very low. Kind of mid single digit. So when you put all those things together, you know, it's translated into, again, zero losses, zero defaults. The last comment I'll I'll make on that space you know, is that it's always really important to understand who you're lending to. You know? So you know, depth of relationship is key.

Again, we've been in the business for ten years, and we have you know, on average about a five year track record with the with the managers, that we do business with.

Regina: That's really helpful color, Mark. Thank you. Thank you for that. And then, you know, I know we've covered Cubic. Quite in-depth here. And it's been a source of strength for you guys. Wondering you know, given the news of de novo entering the digital asset space, any updated thoughts in terms of the competitive moat here?

Samvir S. Sidhu: Yep. Sure. You know, I think that just to sort of highlight, you know, Kelly, at the end the day, we've we've I think we've done a pretty good job of highlighting the strength of the existing, you know, sustainable, stable you know, large scale network and the and the benefits of network effect. We've also you know, made sure that we're fully integrated in you know, and broadening our relationship with our existing customers. We built an incredible amount of brand loyalty and we made significant investments in technology and risk management. So I think that's I would sort of just sort of recap know, a little bit with.

But you know, to your question about sort of, you know, competition, from fintechs and, you know, there's a there's a host of reasons that you know, companies may wanna get banking or trust licenses, like trust and custody. You'd do consolidate under a national charter, you know, engage in international activities beyond sort of typical state borders. And offer sort of consumer products and services. So all of these are complementary.

You know, to Cubic's and you know, one of the things that's really interesting is that you know, we have a you know, a significant number of customers that either you know, directly are a license holder you know, of a charter, or are hold, you know, subsidiaries that have a charter already. And they hold their primary accounts at customer's bank because value of our network. And I think that's one of the most important things is we have you know, a very, you know, robust twenty four seven network that our customers our customers' customers in the industry relies on.

Regina: Thank you for that, Sam. I will step back.

Hal Goetsch: Our next question will come from the line of Hal Getsch with B. Riley Securities. Please go ahead.

Hal Goetsch: Hey. First question is, you just go over the details of the of the $10 million net income kind of benefit in the quarter? And I think you said it was going to benefit the fourth quarter as well. It's kind of a housekeeping item to better understand that. And then two, back to second question is on the FDIC insurance. Is there any way to say that hey. Your equity raise helped lower derisk company a little bit. That helps lower your FDIC assessment. Is there any way of quantifying what that might have been as part of the formulas this week this for our own edification? Thanks. Yeah. Yeah. Sure, Hal. This is Mark.

So for the FDIC insurance, yeah, so the capital raise, you know, would have helped that somewhat. You know, again, it is a very complex calculation with multiple factors, but you know, but your common equity tier one ratio you know, is one of the factors that goes into that. You know, however, I would say that you know, some of this is also just more broader based progress we've made you know, across you know, just deposit growth, you know, reducing broker deposits, There are there are multiple factors that play into it. And the capital raise impacted our third quarter assessment.

But as I said, some of the reliefs that we received, you know, was due to was retroactive to the first quarter. So it really reflects you know, the progress we had made, in the prior two quarters as well. Moving to the you know, net interest income benefit in the second quarter, We had previously originated some loans and had participated those loans to a partner, you know, we had an opportunity, you know, where that partner approached us in the second quarter to repurchase those loans And it was a small pool of loans, but we had an opportunity to repurchase them at a pretty significant discount.

So we executed on that transaction in June, you know, had a had a, you know, very small level of accretion benefit in the second quarter. But then know, we had highlighted on that call that we would then see a $10 million benefit from that discount accretion in the third quarter we would see another $10 million incremental benefit in the fourth quarter. And then and then that discount accretion would largely go away for the 2026. Hope that explains that. And while I also have the benefit here, I'll I'll answer Dave Bishop's earlier question.

On the received fixed swaps that we put on, we put on know, those at a at a received fixed rate between $3.50 and $3.60. And then we're we're paying one month's over on that. So you know, when you put on those kind of swaps, so that's actually a negative to our net interest income right now. But, again, you don't put on swaps to earn money or not earn money. You know, it's for risk management purposes. And, you know, if rates would fall, you know, more than 75 basis points from where we are today, which the forward you know, forecast would certainly predict, you know, at some point in 2026.

Those swaps would actually turn positive on us.

Hal Goetsch: K. Thank you very much.

Mark McCollum: Sure.

Regina: Our final question will come from the line of Matthew Breese with Stephens. Please go ahead.

Matthew Breese: Hey, good morning. Hey. Good morning, Matt. A few questions for me. Maybe big picture. Sam, for you. In April, the treasury put out a report looking at potential growth of stable coin, and they set some really lofty targets. I think they said stablecoin outstanding could hit $2.8 trillion by 2028, longer term north of $6 trillion balances today around $300 billion The use cases in crypto stablecoin are still very heavily tilted towards crypto. So you know, maybe one do you agree with these longer term targets And two, how do you expect stable point usage to kind of break out of its current pie chart being so heavily filtered towards crypto trading and hit the masses.

Samvir S. Sidhu: Good morning, Matt, and thanks the question. It's helpful. To have an analyst like you who's been, you know, covering and following you know, the industry for such a you know, a long period of time. So, you know, your question is a is a good one. I think the treasury put out some incredibly lofty you know, targets, and I think the perspective for the from treasury's perspective as I understand it, was to sort of give a little bit of a reference point and just for genius, but then also sort of a sense of demand, you know, for US treasuries. So you know, this is sort of a bit of my view in early stages.

You know, what I would say is that you're you're absolutely right. Somewhere 85 to 95%. Plus. Of current you know, stablecoin you know, activity is related to digital asset you know, trading and settlement. And that's something that we see, you know, in our on our platform as well.

You know, what I would say, you know, is that there are tremendous amount of, you know, obvious use cases for stablecoins as you think about cross border and FX It just it's reasonably intuitive and easy to kind of, you know, reconcile that for anyone who's tried to you know, operate with sort of US cards or US fiats just physically going as a tourist, but then also imagine that from a commercial perspective and sort of engaging in and holding working capital and transacting with folks across the border. There I expect that some of the large banks that have capital markets divisions will find some interesting use cases.

For stable coins in a lot of their businesses as you think about the utilization, specifically a blockchain. Beyond just sort of the US dollar, you know, sort of movement. Across. And then finally, think the biggest demand from my perspective is gonna come from non US domiciled, you know, customers and countries where there could high inflation, there's an opportunity to leapfrog from point of sale perspective. And really utilize the Staples coin as a transactional Staples coin. You know, to you know, to transact off of and sort of pay off of. I think those are sort of where I see some of that sort of non US growth potentially coming.

That would sort of flow into, you know, straight into treasuries you know, more locally. But what I would just remind you and everyone is that you know, we have designed our platform to be really the infrastructure provider. Just to know, the stable coin to US dollar sort of stable coin issuers. And, you know, and to really to really be prevalent and relevant You know, you really need to be on our network and present in our bank, and that's really you know, what we think we've done in a very unique way.

Matthew Breese: Appreciate all that. Couple more for me on Kubix. You know, I think someone asked else asked it earlier, but you know, you're you're now up to you know, knocking on 20% of total deposits north of 60% of your demand deposits. Are in cubic Where do you draw the line in terms of you know, safe balance sheet exposure to this industry? You know, I know historically, you had a 15% cap Where do we stand in terms of updating that cap or putting some limitations especially given the volatile nature of the industry and the history of banks that catered here. Sure.

Samvir S. Sidhu: I'm happy to take that. So I think that, Matt, this question was asked last quarter in our view. Doesn't change and hasn't changed quarter to quarter. You know, what I would say is that just as a reminder, even, you know, prior to March '23, the industry did not you know, hold these deposits in cash, ourselves included. And I think that's a really important you know, change that we decided to make until we sort of had really strong operating history and that we could rely on.

One of the things that's a little bit, you know, you know, perspective that's more internal that we haven't necessarily highlighted as much is, you know, number of our large institutional customers, you know, sort of give us you know, minimum target thresholds that they wanna sort of operate in, average balance thresholds, that they sort of wanna operate in. That they adhere to. Which is incredibly helpful for us from sort of a stability perspective. And that scene in that, you know, thirty day rolling average deposit balance, you know, chart that we provided you there. I think that's really important.

So that's sort of the way that we think about the 900,000,000 that we you know, or 800,000,000 rather, I should say that we grew in this quarter. been held in cash. It's adding interest income to, you know, to our platform. You know, and continuing to you know, strengthen the value of our overall franchise. And sort of earnings space. And right now, think as I mentioned earlier, we're really focused on institutional breadth of the network and product expansion, which will bring additional on the fee side and really also know, bring additional, you know, competitive mode to the overall infrastructure, especially when you sort of layer on the risk compliance. Investments. Got it.

And then you know, I did notice that you know, the dollar amount of uninsured deposits ticked up. This quarter? And I asked a similar question last quarter, but I was curious about what the average size of deposits are on the Qbix network and you know, are there any that are or how many are north of, call it, you know, 250,000,000 in kinda average balances?

Samvir S. Sidhu: Yes. So, Matt, I think that in advance, I don't have the exact sort of number on, you know, uninsured deposits, I think our overall uninsured deposit or insured deposits and sort of collateralized deposits. Is you know, is well above sort of industry averages, but I think this was is incredibly important. On in sort of large you know, cubic depositors, I mentioned this you know, before is, yes, the you know, we have large exchanges that are incredibly critical you know, to the industry and to customers bank and to the network. And at times, these, you know, these deposits do get in sort of the multiple nine figure type you know, territory.

But what's important about the network, which is helpful when I mentioned this earlier, is broad based Nearly every customer you know, increased, you know, of the hundreds of customers that are on the on the platform, increase their deposits based upon activity in the third quarter. And I think that's sort of how to think about the overall you know, growth of our platform and strength of the network.

Matthew Breese: I appreciate all that. I'll leave it there. Thank you, Sam.

Samvir S. Sidhu: Thanks, man.

Regina: That will conclude our question and answer session. I'll hand the call back over to Sam Sadu for any closing comments.

Samvir S. Sidhu: Thank you everyone for your interest in and of Customers Bank. We really appreciate you being a part of this incredible franchise. That we're building. And I really wanna give special shout out and thank you to our incredible team Have a great day and a great weekend.

Regina: That will conclude today's call. Thank you all for joining. You may now disconnect.

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