Customers Bancorp, Inc. Aktie

Inc. Third Quarter 2026 Earnings Webcast. [Operator Instructions] I will now hand the conference over to Phil Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Please go ahead.

Thank you, Ellen, and good morning, everyone. Thank you for joining us for the Customers Bancorp's earnings webcast for the third quarter of 2026. 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 also download a PDF of the full press release on the same page.

I'd like to remind you that today's presentation may contain forward-looking statements, which are subject to uncertainty and changes in circumstances. Actual results may differ materially from management's expectations due to a variety of factors, which are described in our earnings materials and our SEC filings. 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's my pleasure to introduce Customers Bancorp's CEO, Sam Sidhu.

Thanks, Phil. Good morning, everyone, and welcome to Customers Bancorp's Third Quarter 2026 Earnings Call. I'm joined this morning by our Chief Financial Officer, Mark McCollom. I'll take you through a few key highlights from the third quarter, give you an update on our strategic priorities, and then Mark will provide additional detail on our financials. Simply put, it was a great quarter. We delivered record deposits and loans, real wins in AI, a more diversified cubiX platform and continued success recruiting teams. On top of that, we have strong momentum to finish the year and a very positive outlook as we move to 2027.

Turning to Slide 4. Our third quarter results reflect strong execution across the franchise. To give a few highlights, deposits grew 4% in the quarter and 11% year-over-year to a record $22.6 billion. Noninterest-bearing deposits grew by $300 million to $7.2 billion, a third consecutive quarterly record. Total loans grew 3% in the quarter and 14% year-over-year to a record $18.5 billion. NII increased 8% quarter-over-quarter. EPS was $2.25, up 10% quarter-over-quarter. ROE rose to 14%, up more than 70 basis points quarter-over-quarter. Our efficiency ratio improved by approximately 340 basis points in the quarter and tangible book value per share increased 10% year-over-year.

That's 17 consecutive quarterly records for book value, 5 for loans and 8 for total deposits. We delivered these results with strong credit quality and solid capital while growing the balance sheet and returning capital through share buybacks. Slide 5 shows our priorities for 2026, which remain unchanged. I'll provide an update on each again this quarter, starting with AI on Slide 6. Over the past several quarters, we've shared our AI journey. We're currently in a phase of reimagining and automating end-to-end workflows, coupled with rapid product development. We're shipping new capabilities every quarter that make banking faster and simpler for our clients and free up our team to focus on higher-value work.

Everything we're doing is aimed at a better experience for our customers and importantly, our employees. In Q3, we advanced our top 3 -- top-down priorities. In lending, we scaled our AI-powered loan underwriting process, adding functionality and increasing utilization. The cycle time for this process is down 95%. This will allow the same team to handle significantly more loan throughput. In deposits, we piloted our rebuilt commercial deposit onboarding process in just 10 weeks. It allows us to open complex commercial accounts in minutes instead of days at other institutions.

That represents an over 90% reduction in cycle time. And in payments, we enabled programmable sub accounts on cubiX, enhancing our product offering for existing clients as well as broadening potential agentic payment use cases. Using AI and automation tools, we now have an ability to rapidly ship new products. Just to give you a few examples. We launched voice agents on our main customer service line and are now working on incorporating them into our customer onboarding journey. We're expanding an AI digital twin pilot to more members across the organization, and we piloted an automated savings sweep for consumers. To drive this progress, we now have over 60 people focused on AI transformation at the bank. And our engineering talent is increasing, too.

We have a dozen and growing forward deployed engineers from our partners working in pods alongside our in-house engineers and subject matter experts. And the results are tangible. Our team doubled the number of AI agents deployed. Cumulative estimated hours saved have now grown to 76,000. And we've unlocked an estimated $15 million plus of annualized capacity. In the last 6 months, revenue producers grew 6% and accounted for about 60% of the new positions we filled, while total headcount drifted lower. Even with the great results in the quarter and positive momentum for next year, if I had to leave you with one point, it is that productivity gains are showing up in our financial performance and are already above our investments to date.

Revenue per employee is up 13% and pretax profit per employee is up 34% on an annualized basis this quarter versus last year. We ranked #1 and #4, respectively, among all $10 billion to $100 billion asset banks on these metrics. A better equipped team helps us improve customer and employee experiences. This should enable us to grow revenue meaningfully faster than expenses and reach our goal of a low 40s run-rate efficiency ratio by the end of 2027. Turning to Slide 7 and cubiX. Diversification is expanding the opportunity for our payments franchise. CubiX accounts grew 19% in the third quarter with real estate and mortgage finance driving new client growth.

Those 2 verticals now represent more than 30% of cubiX deposit balances. That broader reach puts our payments capabilities into more of our clients' day-to-day operations and creates opportunities to deepen relationships and gather low-cost operating deposits. Network activity is on pace to hit another record this year, surpassing last year's $2 trillion volume and showcasing the value of the platform to our clients. And looking forward, we're developing extended hours trading capabilities for capital markets and correspondent banking services that support cross-border flows. At the end of last year, we did not expect cubiX to be a growth vertical. With this diversification, we believe there is substantial opportunity ahead to continue to increase low-cost deposits on the platform.

Turning to Slide 8. Our recruitment strategy, which is a unique part of our business model, continues to build a larger and more valuable deposit franchise. The teams we've recruited since 2023 now hold approximately $4.3 billion of deposits or 19% of our total deposit base. They added roughly $415 million in the third quarter alone and more than $1 billion so far this year. That's more than a sixfold increase in their share of our deposits in about 3 years, all through organic recruiting. The breadth of the franchise is also expanding.

We've added more than 3,000 commercial deposit accounts so far this year, which is more than we achieved in all of 2025. That's up 13% year-to-date, and accounts have roughly doubled since 2022. And our 2026 recruiting class keeps growing. 15 revenue producers joined us in the third quarter. That brings year-to-date revenue-producing hires to 50 and 12 teams represented. That's up 50% from last year. The success of these teams gives us confidence that we can sustain this pace of recruiting high-quality revenue producers in 2027 and beyond. With that, I'll turn it over to Mark to take you through the financials in more detail.

Thanks, Sam, and good morning, everyone. My comments will begin on Slide 9. We're only showing you GAAP earnings this quarter as we do not have any material adjustments to those GAAP results. I'm pleased to walk you through another quarter of consistent growth in the balance sheet, earnings and profitability. We delivered EPS of $2.25, up roughly 10% from last quarter. ROE and ROA came at 14% and 1.16%, respectively. We note that many of you tend to quote ROTCE instead of ROE when comparing relative profitability among your peer groups. However, because we've grown organically rather than buying other banks, our balance sheet carries virtually no goodwill.

As a result, our third quarter ROE of 14% is within the top quintile of all banks between $10 billion and $100 billion in assets. On Slide 10, we provide details on our deposit franchise. Total deposits ended the quarter at a record $22.6 billion, up 4% in the quarter and an increase of $2.2 billion year-over-year. Our total cost of deposits remained flat despite the increase in interest rates by the Federal Reserve during the quarter. The quality of our growth was strong, and I'll highlight a few stats. Noninterest-bearing deposits grew by about $300 million during the quarter, ending at $7.2 billion, which, as Sam noted, is another record for the third consecutive quarter.

That's 32% of total deposits, which is top quartile for regional bank peers and up more than $800 million, or 13% year-over-year, a direct result of team recruitment and payment strategies Sam just walked through. Our goal remains to have the highest percentage of noninterest-bearing deposits among our peers. One additional metric I want to emphasize, our broker deposits came in about $370 million lower for the quarter and now make up less than 20% of our deposits. Turning to Slide 11 and loans. Total loans grew nearly $500 million or 3%, in the quarter to $18.5 billion compared to 1% linked quarter growth for the industry. On a year-over-year basis, loans are up 14%.

Just as important as the pace of growth is the breadth. Growth was delivered, led by business units like fund finance, health care and commercial real estate, which more than offset lower mortgage warehouse and real estate specialty finance balances. As we always say, the mix of top contributors may shift from quarter-to-quarter, but the diversified nature of our origination platform helps us deliver strong growth while remaining disciplined on structure and pricing. Slide 12 covers net interest income and net interest margin. Net interest income exceeded $208 million, up $15 million or 8%, from the second quarter, driven by higher average loan and security balances and higher interest spread.

As we signaled last quarter, the second quarter was expected to be the low point for our margin in 2026. Our third quarter net interest margin expanded 2 basis points to 3.19%. Our margin would have expanded further but was impacted by the timing of our deposit growth, which occurred earlier in the quarter versus when we funded loan growth, which occurred later in the quarter. Our run rate net interest margin in September was approximately 3.25%. Additionally, our growth in the quarter was accretive to margin, as the spread between gross loan originations and deposit inflows was about 4%. When combined, these factors set us up well for further net interest margin expansion in the fourth quarter.

Looking ahead, our NIM and NII momentum are supported by a few factors. Our low-cost deposit pipeline, led by our new teams and our new business units on cubiX, the strength of our diversified loan origination platform, and we have a fixed asset repricing opportunity heading into 2027. With positive levers on both sides of the balance sheet, we expect continued net interest income and margin expansion going forward. Moving to Slide 13 and expenses. Noninterest expense was $113.4 million in the quarter, down $1.5 million from the second quarter. The story here continues to be long-term strength in our efficiency ratio.

Our efficiency ratio improved by approximately 340 basis points from the second quarter. Our noninterest expense as a percent of average assets was 1.68%, among the lowest of any regional bank peer. As you can see from our updated guidance, we do expect a step-up in expenses in the fourth quarter due to incentive compensation as well as investments in technology initiatives and deposit growth. I'd underscore that we're delivering very strong efficiency while investing in people and technology and redeploying the capacity that AI creates into revenue production, as Sam described. We remain confident the work underway will deliver sustainable positive operating leverage.

On Slide 14, tangible book value per share grew to $65.66, up 10% year-over-year. That's approximately 2.5x where we stood at the end of 2019, a CAGR of roughly 15% compared with about a 5% CAGR for regional bank peers over the same period. Without the industry-wide impact of interest rates on AOCI this quarter, our tangible book value per share would have increased 13% year-over-year. Given the short duration of our investment portfolio, our AOCI as a percent of TCE was just 5% compared to over 8% for our regional bank peer set. Further, our held-to-maturity portfolio is just 2% of total assets.

Turning to Slide 15. Our capital position remains strong and continues to provide meaningful strategic flexibility. Our estimated CET1 ratio was 12.6% and our tangible common equity to tangible assets ratio was 8%, while we grew our tangible assets by over 3% and repurchased nearly 500,000 shares or about 1.5% of our common stock during the quarter. Strong organic earnings position us to support continued balance sheet growth and when appropriate, to return capital to our shareholders.

On Slide 16, credit quality remains strong. Nonperforming assets were down 8% quarter-over-quarter. And NPAs as a percent of total assets were just 29 basis points, down 3 basis points quarter-over-quarter and well below the regional bank peer median of 36 basis points. Net charge-offs continue to perform well with total net charge-offs improving to 28 basis points from 34 basis points last quarter with commercial charge-offs of just 13 basis points. I'll finish with Slide 17, where we have a few updates to provide as we close out our 2026 guidance.

For loans, given the performance year-to-date and the strength and breadth of our platform, we are now raising our guidance and now expect loan growth to be 12% or higher for the year. For deposits, the momentum from our new teams and the new cubiX verticals continues to be strong, and we expect balances to finish up 9% or more in 2026 even after deliberately moving out about $1 billion of higher-cost deposits during the year.

The combination of loan and deposit growth opportunities should continue to drive solid growth in net interest income, and we are tightening our range to $805 million to $810 million for the year. On noninterest expenses, we update our range to $460 million to $465 million as we continue to invest in people and technology. And for income taxes, we now expect a range of 22% to 23% for the year. Taken as a whole, we believe this guidance sets us up for a strong finish to 2026 and a strong springboard for 2027. With that, I'll pass it back to Sam for closing remarks before we open the line for your questions.

Thanks, Mark. To wrap up, we delivered exceptional results across our priorities in the third quarter. AI is moving from pilot to production, and it's already showing up in our numbers with more opportunity ahead. cubiX is on track for record activity this year and is diversifying fast with mortgage finance and real estate now representing over 30% of balances. Loans grew 14% year-over-year to a record.

Deposits grew 11% year-over-year to a record. Noninterest-bearing deposits grew $300 million to a record. Our new teams added about $415 million in the quarter and over $1 billion so far this year. From the second quarter, our NII increased 8%, our EPS increased 10%, our ROE increased to 14% and our efficiency ratio improved by 340 basis points. We're building momentum heading into 2027, and we remain in the early innings of what this franchise can deliver. With that, we'll now open up the line for questions.

[Operator Instructions] Your first question comes from the line of Janet Lee with TD Cowen.

This is Noah Kasten on for Janet Lee. Can you just talk about what you're hearing from commercial borrowers today and how demand has evolved given the recent move in rates? And as you look at the pipeline, how are you thinking about the sustainability of the growth from here?

So, first of all, I think loan demand continues to remain strong at the franchise and frankly, in the industry as a whole. What we can see over the next 30 to 90 days, which is most tangible, as Mark, sort of, described, is we, sort of, have a pretty good sense of where fourth quarter is going to turn out. And in conversations more softly with the exception of, say, in the commercial real estate industry, where there's a little bit more tepid reaction, we generally are seeing strong interest in customer activity as well as their own customers' activity.

Yes. And then, Noah, I would also just add, as I said in my prepared comments, that our average loan balances for the quarter were less than kind of where we ended for the quarter. We had -- most of our loan growth occurred in the month of September. So, that also sets us up really well for fourth quarter average loan balances.

That's helpful. And then one follow-up on expenses. I know you mentioned comp and tech expenses possibly contributing to some pressure in 4Q. As we think about the exit rate into 2027, can you help frame the right quarterly expense base from here as we look ahead?

Yes. We're going to be giving -- Noah, this is Mark again. We're going to be giving expense guidance for 2027 as well as all other material metrics in our fourth quarter call in January.

Your next question comes from the line of Anthony Elian with JPMorgan.

This is Mike on for Tony. On NIM, you guys called out margins expected to improve further in 4Q given that the September rate or run rate NIM was 3.25%. I guess could you put a finer point on where you expect 4Q NIM to land and some of the puts and takes there? And then also maybe how we should think about that trending into 2027? I know you're not giving specific guidance, but maybe just a general trend.

Yes. We don't give specific guidance on margin, but we did obviously tighten our range, which you can impute from that where we expect NII to be for the fourth quarter. So, I would do that, and then you can use your own assumptions on balance sheet to translate into margin. But one data point I will give you is that our loan yields during the third quarter, our new volume on those loan yields came in at about 6.83%, which is about 50 basis points higher than our overall loan yield of 6.33% for the quarter. So, that should give you another data point and some comfort for further NIM expansion in the fourth quarter.

Great. That's helpful. And then you guys announced this partnership with Palantir. I guess what's the extent of this partnership? Is it just for account onboarding? Or could it result in Palantir, sort of, maybe one day replacing the bank's core?

First of all, let me, sort of, just zoom out, sort of, a bit of a high level. We see the bank, as you can tell, value in partnering with a broader range of companies, especially folks that are, sort of, the leading edge of technology, AI as well as services. Palantir, as you probably well know, are pioneers in the FDE or forward deployed engineer model as well as incredible experts on the data layer that sits on top of any LLM. So, as you can imagine, in complex commercial deposit account opening, it's incredibly useful to have them involved in, sort of, helping work with our teams side by side in AI pods with our own engineers as well as subject matter experts.

So, your broader question, we're not looking to, sort of, reinvent the world here. We're looking to, sort of, do the things that drive the most value for our employees and our customers. And that's really where our focus is today, which is how do you improve the employee experience -- and how do you improve -- how does that directly and indirectly improve the customer experience.

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

Nice quarter. Maybe starting on deposits here, continuing with that. You guys had really good deposit growth this quarter. Just kind of curious a little bit about the underlying mix here. I see the disclosures around cubiX. Just kind of wondering maybe where are cubiX balances these days and trying to get a sense for how much of the deposit growth this quarter may have been from title and just kind of how to think about that going forward here?

Sure. Broad-ranging question. I'll take a stab. And if something is missed, please feel free to ask a follow-up or Mark can, sort of, step in. As it relates to cubiX, I think we're really proud, as I mentioned on the call about the diversification at the end of last year, we were being, sort of, pressed on how we saw this as a potential growth vertical when it went from 100% in cash to -- sorry, 100% DA to 80% to now under 70%. I think that's really the testament to the team's success as well as the fact that the platform is being monetized by a broad range of customers.

So, there was contribution from title teams, I think, about $150 million or so on a spot basis. Importantly, that team continues to perform incredibly well, and we -- and their pipelines also remain strong. The total, sort of, non-DA cubiX balances are about $1.4 billion. And I think if you remember last quarter, I talked about a $1.5 billion goal by the end of the year.

Yes, Stephen, this is Mark. I would just add, we had said that the new teams contributed over $400 million of growth during the quarter. Title, as Sam mentioned, was one of the larger ones, but I mean, it was broad-based growth when you look throughout all of our teams.

Okay. Great. And maybe just curious also with regard to cubiX, what does the correspondent banking business look like for you guys? You guys mentioned cross-border transactions. Just kind of curious what's that type of customer or how to think about that market there?

Yes. So, I think the way to think about this -- we talked a little bit about this last quarter. This is something we're developing internally with existing as well as new customers. Just an ability as money moves to 24/7, how do you expand and leverage the technology capabilities, the customers that we have both directly on the network that are also can be in support of our other customers to allow us to provide 24/7 money movement. And that's really the way I would, sort of, describe how we also think about cross-border.

Okay. Okay. Appreciate that. And then just one other thing here in terms of -- just back on the expenses here. I know you guys tend to target an efficiency ratio. Obviously, very good trends here over the course of the current year. I'm just curious as to like as we look forward here, does that efficiency ratio trend from like, call it, 49% this year to maybe to the 46%, 47% range in '27?

So, I think as Mark said, we stay tuned for fourth quarter for us to be able to provide a lot more guidance. I would, sort of, the trend you're describing is obviously the trend we want to be on. Quarter-to-quarter matters a lot. We put out, sort of, an incredibly ambitious target of, sort of, low 40s, led by, sort of, some of our transformation efforts on the technology side. So, more to come. But you're right, we do -- we are incredibly focused on efficiency ratio. We also are incredibly focused on making investments, which we have done and will continue to do, but that's, sort of, in support of the growth of the franchise.

Your next question comes from the line of Brian Wilczynski with Morgan Stanley.

The commercial banking teams continue to perform extremely well. I was wondering, as we think about the deposit cost outlook from here, can you give us some more color on the average cost of deposits among the commercial banking teams and cubiX and just how you see overall deposit betas playing out as we move into a rising rate environment?

Sure. Yes. A couple of things there, Brian. I'll try to take a stab at that. First, we'll go on the deposit betas. While it's still early, -- so far, from the first 30 days since the September rate hike, our deposit beta has been about 33%. And that compares to the last time there was an up cycle in rates, our beta was around 60%. So, I think that's a testament to some of the progress we've made in our deposit transformation. As we've said on prior calls, the overall cost of deposits that we bring in from our teams generally is in kind of the low 2s range all in, and that has continued this quarter. And then remind me if there's anything there I didn't answer.

No, no, you hit it. I appreciate that color. And then maybe just going back to AI, clearly, a big strategic priority for the bank. I think in the past, with the commercial banking teams, you had talked about how those teams typically ramp over about a 12- to 18-month time period. I'm wondering, given the investments you're making in AI, particularly on the deposit onboarding process, is there an opportunity for that time line to accelerate over time? How should we think about the benefit to deposit growth from your focus on AI?

Yes. Thanks so much for the question, Brian. So, just to kind of build off of what I mentioned earlier, the sort of, complex commercial deposit account opening in minutes versus days, think of this as multiple signers, background checks being done in parallel, multiplayer between an RM and a customer. We really believe this is going to be industry-leading and all in support of a better customer experience, but importantly, as you described, growing our commercial account at -- and supporting the growth as well as potentially helping accelerate future growth.

As you can imagine, if you have manual processes in the background, which we will eliminate as part of this process, that can slow down the account growth that we're talking about. And I think I mentioned in my prepared remarks, we are already at the growth in all of 2025 year-to-date so far this year.

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

Sam, I wanted to touch base on the cubiX digital asset deposits. When I think about one of the reasons clients came to you, you were at the time, one of the few banks that had this 24/7 settlement. But we've seen that one of the largest crypto exchanges now has a direct debt payment access and a settlement deal with another bank. So -- and we're seeing also some of the biggest banks have also launched this 24/7 and looking to serve exchanges in markets. So, the question is, are you seeing any of your larger clients start to move balances to these other rails? And if these clients now have a choice, is there a risk that the deposits that are zero cost, you might have to start paying interest on those deposits?

Yes. Peter, thanks for the question. So, I think our position here, sort of, remains the same, which is -- which we're very pleased by. There is really no material change in our customer activity as a result of perceived -- what I would describe as perceived competition. There's the large network effect and barrier to entry here of the 24/7 network that we've built.

Prior to -- over the past number of years, even prior to banking charters and FedNow has been available, we've had banks and custodians and investors and many other folks that are and continue to be incredibly active on our network. So, I think the value we bring is, sort of, an interbank network that has best-in-class technology with a broad, diverse network that is -- that continues to grow and is noninterest-bearing.

Got it. And if I could just follow up, the consent order was lifted. Congratulations. Does that impact your thoughts on how much digital assets you want to hold on the balance sheet? And would you start lending against those deposits? And then just third, just where were the deposits this quarter, digital deposits?

Sure. Yes. Thanks. On the Pennsylvania Department of Banking and Securities lifting its order, we're pleased. And I would also just add that the regulatory agreements, including with the Federal Reserve are essentially the same. And as I said earlier this year, we'd essentially put that -- materially put that work behind us at the end of last year. So, it is a very good recognition. It doesn't change to answer your question, the way that we are operating on a day-to-day basis.

And I think that's really the key of how we're approaching our current and future business. So, it's just an important milestone. But what I would say is, I think now I can confidently say that risk management is now becoming a real strength for us, and that is creating a further moat building off of your previous question as well around our payments business.

Your next question comes from the line of Matthew Breese with Stephens.

Sam, I'm sorry, I missed it. What was the digital asset deposits? I think you got a little garbled on my end.

Yes. Sure. About $3.1 billion.

Okay. Okay. And my follow-up there around cubiX deposits in general, all of which are in noninterest-bearing. Are there any associated earnings credit rates with the cubiX deposit base or waive fees? And to what extent did that play out this quarter or last quarter? I'm just trying to get a sense if there's anything flowing through expenses tied to the cubiX deposit base.

They're predominantly 100% noninterest-bearing. I would just, sort of, clarify that 70% of the title deposits are noninterest-bearing. So, there's a very small portion, tens of millions that there would b,e, sort of, a little bit of expense associated with them.

Got it. Okay. So, call it, 90-something percent of these are truly noninterest-bearing?

99%, maybe.

99%. Okay. All right. And then this is my bigger picture question for you. I heard a lot from investors and sell-siders and questions around agentic AI, the potential, the ability for a much more kind of volatile deposit environment as things like Muse came up. I wanted your thoughts there, and I couldn't help but think that maybe the partnership with Palantir was applicable to this, a defensive play. And yes, maybe that's a little bit of an open-ended question, but you get one going with this.

Yes. Sure. So, I think that the short answer is Muse is a consumer app, right? And at the end of the day, that we have limited exposure to sleepy consumer deposits as our clients are primarily sophisticated corporate customers that have treasury teams and are optimizing their liquidity. And they run their operating accounts pretty efficiently with, sort of, moving things into, sort of, interest-bearing accounts if they do have those excess deposits. I also mentioned in our prepared remarks, we launched a pilot of an automated sweep product.

So, while we don't have a huge consumer base, but for our consumer customers to help them, sort of, earn, this is something that we do plan to roll out more broadly in the future. And while this type of retail deposit is not a big part of our franchise today, to your point, this could be a potential product for us in the future. It is something that we want to make sure that we're prepared for as consumers may wake into the benefit of agentic money movement. But what I would say is the key here is going to be using this as a tool to a primary relationship, not just as a high-cost deposit gathering tool because that's not really Customers Bank's objective here.

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

I joined a little late, but I think at this point in the call, I don't know if anybody has asked about credit, which has been, to your credit, quite boring. In this higher rate, higher for longer, are you seeing anything incremental that you're watching? Any changes in early changes in customer demand? Just wondering both from just an overall asset quality perspective as well as how it's impacting borrower behavior?

Kelly, it's Mark. Yes, boring always better when talking about the credit story for our company and the industry. We had really strong credit performance this quarter. We continue to watch the entire portfolio. We will have some rate resets going into next year, which has a benefit both ways. It obviously picks up net interest income. But for certain borrowers that could put stress on capacity to pay and may end up having some of those borrowers restructured to create the necessary capacity for them to continue to pay, but we're monitoring it closely. But at this point, it's been steady as she goes.

Got it. I appreciate that. And maybe a nitpicky modeling question for you. If I look at the guide for expenses, it's mostly unchanged, but implies a step-up in Q4. I know you guys had kind of -- I believe it was somewhat of a true-up last Q4. I'm wondering if there's any, sort of, year-end housekeeping items that we should be mindful of when thinking about how we're thinking about the go-forward run rate?

Sure. Yes. And the step-up, I mean, obviously, we're not giving guidance beyond the fourth quarter. But for that fourth quarter guide, I mean, it was really -- it was a combination of factors. I mean we did have a couple of things that were just a little bit lower in the third quarter that we typically see that won't continue that will go back to their normal run rates.

We're having a good year. We just had a good quarter, which was maybe the step-up you're referring to last year. So, then in the fourth quarter, we would expect additional incentive compensation. And then also, as we've noted on the call here, we're investing in technology. So, you saw a step-up in some of our technology costs in the third quarter that would continue into 4Q as well.

Got it. That's helpful. And then I know you've covered your AI partnerships a bit. I may have missed some of the details, I apologize if this is repetitive, but you have this new exciting partnership with Palantir. I think the release cited like account opening. I'm just wondering about -- is this the first thing that they're working on if there's potential -- there's potential kind of like next step priorities, one? And then two, how this is different from what OpenAI has been working with you on?

Yes. Happy to take that, Kelly. And just to, sort of, recap a little bit of what I mentioned earlier is that we see value in partnering with a number of folks. Right now, Palantir is working with us, as I mentioned, on sort of, this deposit onboarding. They may continue to work with us, especially in areas where there's a benefit of using their expertise in some of the services side-by-side with our engineers as well as, sort of, a focus on, sort of, the data ontology, which is something they are really incredible experts on.

We are continuing to work on 3 top-down domains, so loans where we're really leaning in heavily with OpenAI deposits we just talked about and also on the payment side. So, those are the 3 domains we'll continue to, sort of, really -- and those are really kicking up into high gear and, sort of, working on each of them concurrently now as well, whereas they were, sort of, a focus in the second quarter on the loan and third quarter on deposits, but now we're starting to, sort of, build a big transformation project in the fourth quarter that will, sort of, lead and give us momentum into 2027.

Got it. That's helpful. And maybe just a quick follow-up. Banks have been mostly confined to a certain set of core providers. Over time, do you think AI is something that could be helpful in developing and improving upon and perhaps replacing the core?

Yes. I think you're absolutely right in terms of the benefit of some of these software tools. I think the real help is if you, sort of, think about the old world of data transformation and data maturation and data lineage and definitions and data keys, all of that is much easier today. There is an incredible amount of benefit to having systems of record across the organization that you can actually build on top of.

And also the real focus at our bank today is focusing on end-to-end automated workflows, whereas before you would, sort of, just have automated portions of workflows that, sort of, represented a bit of an 80-20. If you actually want to get to an AI-native regional bank, which is what our focus is, you have to have, sort of, end-to-end workflows. Our focus is on the workflows and using the technology tools to be able to assist in those workflows and not trying to, sort of, reinvent the software wheel.

Your next question comes from the line of Manuel Navas with Piper Sandler.

I just have a question on NIM dynamics. Kind of what are you seeing on new loan yields and the marginal cost of deposits? And do you see the September NIM 3.25% as the floor in the fourth quarter?

Manuel, it's Mark. Thanks for the questions. Yes. So, obviously, we have multiple lines of business. So, when you think about a spread, you really have to take that kind of business line by business line where we have some where it might be closer to 225 over -- but then we have other businesses where the index might be prime or it might be something other than SOFR. But when you equivalize that to a spread over SOFR, it could be over 400 basis points. over a common index. For the quarter, we had mentioned earlier that our third quarter loan originations were at 6.83% and our cost of deposits was 2.50%.

I will tell you that our spot balance on deposits, which as a CFO, I don't place as much emphasis on as the average balance, but our spot balance at Sep 30 was 2.47%. So, you can just take that marginal asset production over our spot balance on deposits and you get over 400 basis points of kind of on the margin expansion. As far as whether that 3.25% is a floor, we're not giving specific guidance for the fourth quarter, but just wanted to give you a sense of where we ended the third quarter, and you can build your own model and kind of project out from there.

I appreciate that. The 50 new team member hiring, is there any stats on that? Maybe you gave it earlier, but like do you have a thought on the prior book of business, maybe where they're coming from broadly in terms of what type of bank they're coming from? And you described on the slide what segments they're in, but which is like the most focused of those segments. Anything you could add on the new hires?

Sure. I think that it's really broad across a number of sectors, 50-plus team members. This is just like the new team members. We've also hired about 60 revenue producers in total this year across 12 teams. So, there's also, sort of, density that we're, sort of, increasing in the existing teams. So, there's no real direct answer. What I would say is that we hired more this year than we did last year, which I think is, sort of, a good indicator of where we are in our overall growth cycle. I also talked about the teams that we've hired this year last quarter that there was a 9-figure pipeline on both loans and deposits, which is great.

We're pleased by that's the benefit of getting folks joining the bank in as early as April of this year. But what I would leave you with is we are having a flurry of conversations now for 2027 hiring, which is the strongest hiring pipelines that we've had at Customers. And I think it's a testament to our own success. It's the flywheel we'll talk about that we have in the appendix and our own success, our customer success, our new team member success, their alumni networks allow us to kind of continue to hire and support the organic growth business model we have.

I appreciate that. Is that kind of bigger hiring pipeline, does that come from any one spot? Obviously, the referral network is working well. What do you think there's any other drivers there in the industry beyond your own success?

Yes. No, same answer as before. There's nothing specific that I would point to. I think we gave a pretty good snapshot of areas that are new to bank or accretive to, sort of, where we are, especially as you think about fee income. But these are predominantly, sort of, deposit-led and revenue-generating hires.

And then just one last question broadly, do you have -- can you give some thoughts for next year in terms of growth momentum, margin? You can't give fourth quarter, it sounds like, or OpEx trajectory. Anything thoughts on 2028 targets broadly?

We're going to be talking about -- you said 2028 targets. Definitely not.

2027. I am sorry.

But 2027, we'll be giving you all of our thoughts on guidance, obviously, on the January call.

We have reached the end of the Q&A session. I will now turn the call back to Sam Sidhu, CEO, for closing remarks.

Thanks, Ellen. Thank you, everyone, for your continued investment and support of Customers Bancorp. Have a great day and a great weekend.

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

Hello, everyone. Thank you for joining us, and welcome to the Customers Bancorp, Inc. Second Quarter 2026 Earnings Webcast. [Operator Instructions]

I will now hand the conference over to Phil Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Phil, please go ahead.

Thank you, Ellen, and good morning, everyone. Thank you for joining us for the Customers Bancorp's earnings webcast for the second quarter of 2026.

We'd like to remind you that today's presentation may contain forward-looking statements, which are subject to uncertainty and changes in circumstances. Actual results may differ materially from management's expectations due to a variety of factors, which are described in our earnings materials and our SEC filings. 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.

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 also download a PDF of the full press release. Please refer to our SEC filings, including our most recent Form 10-K and 10-Q 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.

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 Second Quarter 2026 Earnings Call. I'm joined this morning by our Chief Financial Officer, Mark McCollom. I'll take you through a few key highlights from the second quarter, give you an update on our strategic priorities, and then Mark will provide additional detail on our financials.

Customers Bank continues to deliver for our customers and shareholders with this quarter's results once again reflecting strong consistent financial results that come from disciplined execution of our differentiated strategy by a best-in-class team.

Turning to Slide 4. In the second quarter, we -- the second quarter was further evidence of our core strategy firing on all cylinders with consistent and reliable financial performance and growth. A few highlights. Total loans grew 4% in the quarter and 17% year-over-year to a record $18 billion. Total deposits grew over $140 million to a record $21.7 billion. Noninterest-bearing deposits hit a second consecutive record at $6.9 billion or 32% of total deposits. NII increased 9% year-over-year. Tangible book value per share crossed $65, a period-end record up 16% year-over-year, extending our industry-leading pace. That's 16 consecutive records for book value, 4 for loans and 7 for total deposits. And we did all of this while maintaining pristine credit quality and robust capital levels, even while growing the balance sheet and modestly buying back shares.

On Slide 5, you can see our priorities for 2026. The same 4 we've been executing against all year. I'll provide an update on each again this quarter, starting with AI on Slide 6.

Last quarter, we told you we were operationalizing AI and automation across Customers Bank. We're seeking transformational change with the goal of becoming the nation's leading AI-native regional bank. To give you some color on what that means, let me start by saying that none of this happens by chance, every use case we build moves through the same repeatable cycle. We create AI agentic pods by pairing our engineers with subject matter experts that own the work, shadow the real workflow and build agents on our own data and systems, starting with the highest impact opportunities. And we then validate and measure the real impact first and only then does it get absorbed into the operations of the bank.

We're driving this through 2 complementary tracks: top-down strategic initiatives and extensive bottoms-up use cases being built organically by our teams. Our top-down road map spans 3 domains: lending, deposits and payments. That top-down work took a huge step forward in April when we announced a strategic collaboration with OpenAI, an expansion of a relationship that began back in 2023. This isn't a typical enterprise licensing relationship with a frontier model provider. It's embedding OpenAI engineers side-by-side with our team, building custom capabilities bespoke for our processes.

Let me start by giving you an update on the first top-down initiative, loans. Our engineers have architected a multi-agentic credit underwriting process that can allow us to be ready to close commercial loans in 7 days or less versus industry norms of 30 to 60 days. I'm thrilled to say that we piloted this tool this quarter and successfully closed C&I and CRE loans that utilize this underwriting engine within a week. That's an 85% reduction in readiness to close, which should result in huge productivity and revenue gains through more business, but more importantly, it will deliver an enhanced client experience and confidence in our bank.

Moving to deposits. We kicked off an effort to rebuild our commercial onboarding process from scratch, with an ambitious target of opening complex commercial accounts in minutes, not hours. We expect to have real progress and an update for you on this next quarter.

On payments, we're way ahead of the curve here. We believe we were the first bank to publish an MCP or Model Context Protocol last year for our commercial payments customers. One revenue-generating use case we're advancing on is a modernized, fully-routable network for 24/7 cross-border payment settlement on our cubiX network that we'll share more detail as it develops.

Now for a few examples from the bottom-up side, which is reaching every corner of our institution. We're equipping bankers to drive increased conversion, which has led to 110% improvement in select front office areas prospecting success rates. To help make that tangible, just one commercial deposit group has averaged $2 million per month in noninterest-bearing deposit growth since the launch of the tool.

In the back office, we're using agentic orchestration to enable products for new deposit customers, reducing setup times from an hour down to a couple of minutes. In risk and compliance, we're leveraging AI-powered KYC screen, which allows our team to boost their productivity by 50%. And in corporate functions, we're reviewing legal documents in minutes, not hours, tracking accuracy across regulatory filings and have shortened our month-end closing cycle by 60%. Everything I've walked you through here is proprietary and purpose built in-house by Customers Bank employees.

To give you some context on the impact we're experiencing, our team has now saved at least 46,000 hours through AI-enabled workflow automation, up about 65% from last quarter and equivalent to 24 FTEs. They've built more than 600 agents and custom GPTs, up 20% in the last 60 days alone. 100% of our team members are now AI licensed, up from 75% last quarter, and we're providing extensive training and support to our entire organization. And I am personally leading a 40-person and growing team today, representing about 5% of our workforce focused on AI workflow transformation.

How will this translate financially for us? Well, we've set a goal of getting to a low 40s run rate efficiency ratio in 2027 versus the 50% or so we're at today through a combination of revenue growth and increased productivity. I've said it before, and I'll say it again, we believe AI is the most significant opportunity in a generation for a bank of our size, and we intend to be the one that proves what serious adoption looks like.

Now moving to Slide 7 and cubiX. We've said for some time that excelling in payments is critical to future success in our industry. Let me first frame where our cubiX industry expansion stands. DA 24/7 settlement was our foundation. Then we moved to mortgage finance clients. And now real estate has become a fast-growing vertical. To put it in perspective, from what was essentially a start-up vertical based on adoption and pipeline, we now project this vertical could represent 20% of all payment units.

Capital markets is an opportunity ahead. Think traditional finance exchanges as the whole industry moves toward continuous around-the-clock trading. We are also looking at incubating new verticals, facilitating 24/7 cross-border and other 24/7 settlement transactions as customers and in some cases, their agents continue to expect faster payments.

The combination of a cutting-edge product with a best-in-class team is already producing strong results. Quarter-over-quarter in the real estate payments vertical, transaction volume is up roughly 7x, spot deposit balances are up more than 4x, reaching $400 million in just a few quarters, and we've added approximately 350 new deposit accounts. A major milestone in the quarter is that we surpassed $5 trillion in cumulative transaction activity. That is a truly staggering figure and shows just how mission-critical this payments network is to our clients.

And importantly, the unit count of transactions is continuing to accelerate. To put that in perspective, year-to-date, we've processed over 200,000 cubiX internal transfers, which has doubled from the same time last year, and we remain in the early innings of unlocking the full value of this platform. At the end of last year, I told you we did not expect this to be a growth vertical. However, based on tangible progress we are seeing through the end of this year, we now expect cubiX to be a growth area in 2027 as these new verticals continue to scale with granular diversified low-cost deposits.

Turning to Slide 8. I want to discuss what we believe is a driving engine behind our success, our organic growth flywheel. It starts with service. Our Net Promoter Score is 81, nearly double the industry benchmark of 41 and puts us at the top of the industry. That level of service drives deeper client engagement, stronger retention, more referrals. That engagement builds momentum and financial performance. That performance allows us to reinvest into people and technology. That investment helps us attract and retain top teams who bring clients and service expertise starting to cycle over again.

And you can see the output on the right of the slide. We're the #1 core EPS compounder and #2 in tangible book value per share compounder among our peers. And our organic growth deposit rate is roughly at 2x the peer median. None of this works, though, without the right people, and that brings me to our team recruitment strategy update, which I'll cover on the next slide.

The teams we've recruited since 2023 now represent 18% of our deposit base, about 1/5 of the entire franchise. Let that sink in. In just 36 months, entirely organically, we've built roughly 1/5 of this bank through recruiting. And these new teams are extremely accretive to the bank's efficiency ratio, with mature vintages operating at efficiency ratios in the 20% to 30% range. We want to spotlight the 2025 vintage hired in the last 12 months. These teams already hold more than $0.5 billion in deposits across 1,600 accounts or over 6% of our total commercial accounts. They're incredibly granular, today averaging about $340,000 per account. Due to the smaller balances and operational nature, 63% are noninterest-bearing at a spot cost of about 70 basis points.

And similar to last quarter, the noninterest-bearing deposit pipeline for new teams is incredibly around $250 million in the next 90 days or so. And the economics are compelling. Similar to our 2024 teams, our 2025 teams have already reached profitability in approximately 3 quarters. They run at roughly 1.7x deposits to loans, generating a spread of around 500 basis points on top of the excess low-cost deposits they bring.

And I'm happy to share a quick preview of what we've accomplished with our '26 vintage. Year-to-date, about 30 team members have joined and are in advanced discussions to join with 4 teams expected to join this quarter. These teams already have a 9-figure loan and deposit pipeline to capture by year-end. And we're optimistic that these teams could similarly turn profitable within 12 months.

With that, I'll turn it over to Mark to talk you through the financials in more detail.

Thanks, Sam, and good morning, everyone. My comments will begin on Slide 10. We're only showing you GAAP earnings this quarter as we do not have any material adjustments to these GAAP results.

We delivered EPS of $2.05, up roughly 4% from last quarter and 18% year-over-year, continuing the consistent high-quality earnings growth this franchise has delivered. ROE and ROA came in at 13.2% and 1.13%, respectively.

Turning to Slide 11 and the broader deposit franchise. Total deposits ended the quarter at $21.7 billion, an increase of $2.7 billion year-over-year. While total deposit growth for the quarter was more measured, this masks a lot of activity under the surface. First, we continue to remix less strategic deposits of over $600 million in the quarter, picking up 150 basis points in bucking industry trends. Second, the quality continued to improve, and I'll highlight a few stats. Noninterest-bearing deposits grew by about $175 million in the quarter to a second consecutive period end record of $6.9 billion.

As you can see on the top right chart, over the last 2 years, we've increased our noninterest-bearing deposit percentage from 25% to 29% to 32% of total deposits, top quartile among regional bank peers. Excluding our DA channel, noninterest-bearing balances grew approximately $375 million during the quarter. This is up 14% quarter-over-quarter and 37% year-over-year. In the last 12 months, we've added over $840 million of noninterest-bearing deposits outside of the DA channel, a direct result of the commercial team recruitment strategy Sam just walked through.

I want to be clear about our ambition here because it helps you understand the potential we see in the franchise. Our goal is to have the highest percentage of noninterest-bearing deposits within our peer group, and we're almost there.

Turning to Slide 12 and loans. Total loans grew $624 million or 4% in the quarter to $18 billion, double the 2% linked quarter growth for the industry. On a year-over-year basis, loans are up 17%. Just as important as the pace of growth is the breadth. Commercial growth was diversified across the franchise, led by verticals like commercial real estate, real estate specialty finance and community C&I, with smaller contributions from multiple other verticals. As we always say, the mix of top contributors may shift from quarter-to-quarter, but the diversified nature of our origination platform increases the confidence in our guidance as it lets us grow while remaining disciplined on structure and pricing.

Slide 13 covers our net interest income and margin. We view the second quarter as the inflection point for the year. Net interest income was over $193 million, up $16 million or 9% year-over-year, driven by higher average loan balances and a lower cost of funds. On a linked quarter annualized basis, net interest income grew about 4%. We remain focused on that NII growth, which continues to be strong, as I just outlined. As we signaled last quarter, our second quarter net interest margin of 3.17% is expected to be the low point for 2026. We expect our net interest margin to move back toward first quarter levels in the third quarter and to build from there. We also expect net interest income to be stronger in the back half of the year.

This NIM and NII trajectory is grounded in a few factors. Our deposit pipelines are robust and are expected to convert into continued low-cost deposit gathering. We have continued deposit remixing opportunities in the second half of the year. The 2025 teams have hit their stride and are helping to drive that momentum and a surge in loan growth in the second half of the second quarter creates momentum for the third quarter as well as a strong pipeline for the third quarter. Despite the headwinds the industry is facing, we continue to have levers on both sides of the balance sheet, and we remain optimistic about strong NII growth and steady margin tailwinds during the second half of 2026.

Moving to Slide 15 and expenses. Noninterest expense was $114.9 million in the quarter, which included about $1 million of severance. The story here continues to be positive operating leverage. Through the first 6 months of 2026, our core efficiency ratio improved by approximately 200 basis points and revenue growth outpaced expense growth, generating roughly 430 basis points of positive operating leverage over the same period last year. Our noninterest expense as a percent of average assets was 1.82%, among the lowest of any regional bank peer. I'd underscore that we're delivering this efficiency while investing heavily in people and technology. The ability to grow the franchise and improve efficiency at the same time is supported by our second Operational Excellence 2 initiative, or OE2, which I'll cover on Slide 16.

Coming into the year, OE2 targeted $20 million in annual run rate benefits. Last quarter, we raised that to $30 million by adding $10 million to Phase 2. I'm pleased to report that we have now achieved the full $30 million run rate target. Roughly $4 million of this comes from revenue initiatives and about $26 million came from expense initiatives. Stepping back, that makes 2 consecutive years of over $30 million in Operational Excellence accomplishments. These savings are being reinvested directly into the franchise. It's how we've been able to both hire 18 new teams, delivering $3.9 billion of deposit growth since 2023, while maintaining a top decile OpEx ratio compared to our peers. This has become a repeatable muscle for us and a key component of sustaining positive operating leverage.

On Slide 17, tangible book value per share grew to $65.20, up 3% quarter-over-quarter and 16% year-over-year. That's approximately 2.5x where we stood at the end of 2019, a CAGR of roughly 15% compared to about a 5% CAGR for regional bank peers over the same period. We view tangible book value compounding as the clearest long-term measure of shareholder value creation.

Turning to Slide 18. Our capital position remains strong and continues to provide meaningful strategic flexibility. Our CET1 ratio was 12.8%, and our TCE to TA ratio grew 40 basis points year-over-year to 8.3%, even as tangible assets grew 18% over the same period. Strong organic earnings position us to support continued balance sheet growth and when appropriate, to return capital to our shareholders.

On Slide 19, credit quality remained stable across the board. Nonperforming assets as a percent of total assets remain below the regional bank peer median. Net charge-offs continued to perform well with commercial charge-offs remaining low at just 18 basis points and our smaller consumer portfolio performing well. Reserve coverage was solid at 293%.

I'll close with our management guidance on Slide 20 in which we are reaffirming all key metrics. For loans, as I mentioned earlier, we continue to see good growth opportunities from many different verticals. For deposits, the account and balance momentum from our new teams and real estate payments vertical are looking strong going into the second half of the year. The combination of loan and deposit growth opportunities should result in solid growth in net interest income. On noninterest expense, we're maintaining our target even as we continue to invest significantly in people and technology. And lastly, on capital and taxes, we have no changes to our targets. Taken as a whole, we believe this guidance sets up for a strong second half to 2026.

And with that, I'll pass the call back to Sam for closing remarks before we open up the line for your questions.

Thanks, Mark. To wrap up, in the second quarter, we delivered strong consistent growth across every major dimension of the franchise. AI continues to integrate into the operating fabric of [indiscernible] our core lending, deposit onboarding and payments infrastructure. Our commercial payments platform surpassed $5 trillion in cumulative activity, and we're continuing to expand into new verticals and use cases.

Deposits grew 15% year-over-year and noninterest-bearing deposits hit another record. Our new teams added about $600 million so far this year, and our second wave of 2026 teams should be starting in the third quarter. Loans grew 17% year-over-year. NII increased 9% year-over-year, and our EPS grew 18% year-over-year. And lastly, we continue to deliver strong positive operating leverage while investing meaningfully, as you heard from Mark, in people and technology.

With that, we'll now open up the line for questions.

[Operator Instructions] Your first question comes from the line of Steve Moss with Raymond James.

Nice nice quarter here. Sam, maybe just starting off with your comments here. You mentioned you're looking to get the real estate payments -- real estate vertical to be about 20% of payments here. Just kind of curious as to how you're thinking about the timing of that 20% goal?

Steve, that is a 2027 goal. We sort of forecasted a little bit about operationally how we think about sort of units and payments volume. So we do think that's sort of a medium-term goal.

Okay. Got it. And then just kind of thinking about -- you have a lot of drivers here with regard to deposit growth. And clearly, a lot of noninterest-bearing added this quarter. Just kind of curious what are the -- what's the marginal cost of deposits these days that you're bringing on? It seems like it's probably lower than what we were thinking about in the past. And how much of a cadence maybe could we see in terms of funding cost declines if the short -- if the Fed holds rates steady at current levels?

Yes. So I'm happy to take that, Steve. So really, I think you hit the nail on the head. We are basically, I think, seeing a convergence of 2 of our top priorities. One is organic loan and deposit growth. So the teams that we're recruiting are bringing in 25% to 30% as high as sometimes 35% noninterest-bearing deposits and operating accounts. And then our payments-related commercial teams are bringing in almost exclusively noninterest-bearing deposits. And hence, you're getting that over 50%. And that's really what's driving this. And so we do continue to see this level of very high index noninterest-bearing deposit growth coming from our commercial teams, which I think is a testament to our heads down focus and dedication to our priorities.

As you think about that, what does that mean? Let's say the marginal cost of deposits, just for ease of simplicity, is at Fed funds and you're bringing in 60% at noninterest-bearing, majority of our loan growth is coming in at about a 6% NIM. So we'll see our interest-bearing cost of deposits did go down this quarter. We remixed about $600 million or so of higher cost funding, which is happening on the level of the deposits, and we'll continue to hopefully see tailwinds in our margin in addition to NII growth, which we've always sort of said is paramount for us.

Okay. Great. Appreciate that. And if I could just sneak one last one in. On the loan pipeline, good to see another quarter of loan growth. Just curious like, I mean, obviously, it's your strongest quarter. How is that loan pipeline these days? And I know it bounces from quarter-to-quarter, but any color you could give in terms of strength of verticals here.

Yes, Steve. This is Mark. Yes, as you know, we always say that quarter-to-quarter, different verticals are going to step to the forefront and be the leader in that loan growth. Our loan pipelines feel good. We have not changed our guidance here midyear, but we feel very optimistic about continuing strong loan growth in the back half of the year.

Your next question comes from Kelly Motta with KBW.

I guess kicking it off on the balance sheet. It looks like the average cash balances were down a bit, which weighed on your NII. Can you provide color? Was that related -- how much of this was related to declines in average cubiX? I apologize, I didn't see that in the deck.

Kelly, you were coming in and out a little bit, but I think I heard the full question. Let me know if I missed anything. I think that what I would sort of say as it relates to your question about noninterest-bearing deposits and linking it back to cubiX. As you are aware and maybe sort of also referenced in some of your notes, DA trading was down in the second quarter, especially in May and June. And so lower trading activity leads to lower payments float. In the presentation, we did reference the DA balances were $3.8 billion, but total cubiX balances were roughly flat in the quarter, and that's really a testament to sort of the growth in the real estate payments vertical.

So -- and I think I'd also just highlight that what's interesting about cubiX is Steve touched on in a little bit of percent of units as we look out in the next sort of 12 to 18 months, but also just on our existing platform, the number of transactions actually doubled year-over-year. So we continue to deepen and integrate with our customer base today.

Okay. And I see those spot balances in the deck for the footnote were about $3.8 billion, which didn't fall as much as I had expected. Do you have -- what happened with the average balances there?

Yes. So on a spot basis, it was about $200 million. I don't have the exact average. I think it's about $300 million on specific to that DA, but we made that up in granular real estate cubiX deposits by June 30.

Got it. That's helpful. And then with the NII guide reiterated, it implies a ramp in the second half of the year, given kind of this -- I think, Q2 is, what you've described as the low point kind of jumping off. What gives you confidence in being able to really ramp that NII to get into that range?

Yes. And that's right, Kelly. It's Mark. Yes, that's exactly right. It's really the exit point at June 30, both in the pipelines on the deposit side plus actual loan balances that we saw much of our loan growth in the second quarter came in the month of June. So the exit points of both loans and deposits plus just the momentum from our different verticals give us confidence for the back half of the year, both on an NII basis and on a margin basis.

Your next question comes from the line of Anthony Elian with JPMorgan.

This is Mike on for Tony. On cubiX, we saw some good traction with the real estate vertical this quarter, added about $300 million. I know you mentioned reaching the 20% goal is sort of a 2027 event. But you guys also mentioned that, that vertical has a 9-figure pipeline per quarter through year-end. So I guess, how much of that pipeline do you sort of expect to convert in 2026, more specifically into actual deposit growth?

Specifically, as we talked about earlier in the year, we sort of migrated some of our mortgage finance customers on to cubiX who are looking for sort of that operational payments lift, then we added new to the bank, real estate customers. Those 2 in aggregate are about $1 billion today, and we expect that we are hopeful our internal target is getting that to about $1.5 billion by the end of the year.

Okay. Great. And then on Slide 6, there's a lot of great metrics here on the AI efforts. On an expense basis, you guys already gave some good context on how it's benefiting the company today, but are you able to quantify at all how much of expense savings you've sort of recognized already from these AI efforts?

So I think that we're really -- these aren't software plug-ins. We're actually building proprietary software and some of the larger lifts actually take quarters, not weeks. The tech that we're sort of dealing with that has really helped us work on transformational workflow automation is really only about 6 months old or so. So we're seeing productivity lifts today. That will help us sort of think about reducing expense investment in the future. But really, our focus is decoupling our expense base from our revenue growth as we get into 2027. So I think we've put a very ambitious '27 run rate goal out there, and that kind of combines the 2 of those together.

Your next question comes from the line of Tyler Cacciatori with Stephens.

I guess just headed back to digital assets. I just wanted to clarify, that $3.8 billion, that's exclusive of the mortgage finance and real estate balances, right?

That's right.

And then those are all noninterest-bearing?

That's right.

Great. And then just moving to broker deposits. If you could update us on the balances at quarter end. Just looking at the call report last quarter, there seemed to be a large decline. And I was just wondering if there was a mix shift or reclassification of some items there.

Yes, that's correct. This is Mark. Yes, our balances for the end of the second quarter tracked pretty closely to where we ended the first quarter.

Okay. Helpful. And then just one more quick one for me. I was wondering if you had the spot total cost of deposits at quarter end.

Yes, this is Mark again. The spot cost would be pretty close to where we ended the quarter on an average balance basis as well within a couple of basis points.

Your next question comes from the line of Brian Wilczynski with Morgan Stanley.

Maybe just going back to the loan growth guidance for the year. You mentioned that you're reiterating the guidance range. If we look on a year-to-date basis, loans are already up about 7% versus the fourth quarter of 2025. I was wondering when you think about the outlook for the full year, does it seem like the higher end of the loan growth guidance is becoming more likely? Is there anything that you're seeing that could indicate a slowdown? Or does it feel like things are skewed towards the higher end of the range?

That is correct. It does seem at this point that the higher end of the range would be more likely.

Okay. And then maybe just on loan pricing, can you give any color on what new loans are coming on to the balance sheet at today? And how we should think about the trajectory of loan yields in the second half of the year?

Yes. I would say it's been consistent with what we've saw in the last quarter, where depending on the vertical, you could be anywhere from 200, 225 over SOFR to 300 over SOFR depending on the vertical.

Your next question comes from the line of Janet Lee with TD Securities.

Just following up on the loan yield question earlier. So the second quarter seems to have been impacted by, I guess, the new loan yields, new commercial loan yields coming on at a little lower yields versus what was on the book. So is it -- should we assume that loan yields are starting off better than 6.25% that was reported in the second quarter for the third quarter?

Yes, that's right. I think when you look at -- now being down at 6.25% for the total loan book in the second quarter, going into the third quarter, then you only need SOFR plus 2.50%, 2.60% to kind of equal that or -- and then to go up from there.

Okay. Got it. Maybe could you talk about what's your view is on the CLARITY Act and how that could impact Customers Bancorp, either on cubiX side or just any side of your bank, whether are you going to be a beneficiary of it? Or what's the prospect around the CLARITY Act for you?

Janet, I think that I've said this publicly a number of times, I think we're very, very supportive of market structure and clarity from a regulation, pun intended perspective. While the CLARITY Act sort of would require legislative approval in Washington, D.C., I think the signaling that you've heard from other agencies, including the SEC and the CFTC is that independent of whether the CLARITY Act passes through Congress, that those agencies would be ready with proposed rulemaking and guidance that should hopefully provide structure. So I think that either of those paths would be a net benefit to Customers Bank existing customer base, but also open up new channels of potential verticals that are adjacent to our core DA 24/7 trading.

Got it. Do you -- appreciate you reiterated all the guidance across different line items, including NII. Do you have any sense around whether it's coming in at -- do you have any bias around like lower end, higher end based on the trajectory so far in the first half of the year?

Yes. I think there's obviously still a lot of levers on both sides of the balance sheet that can impact that. I would say, right now, where the Street is at, it feels like a good place to start.

Your next question comes from the line of Manuel Navas with Piper Sandler.

Just to fine-tune the NIM expectation, do you have a June NIM or like end of period NIM to kind of get a sense for the jumping off point for the back half of the year rebound?

Well, yes, I mean, just -- I mean, we don't usually talk about monthly results, but even with that, because a lot of the growth and the pipeline that we saw really came in the second half of the month, even if we would quote those kind of numbers, I think that's not really indicative of the optimism we see for the third quarter. Again, we just feel -- and I'll reiterate that we feel confident in saying that our third quarter NIM is going to be closer to our first quarter net interest margin. And then the pipelines that we see plus the actual loan growth that we put on in the month of June gives us confidence for the commensurate NII growth as well.

I appreciate that. Remind me how you continue to handle cubiX funds. When do you become more comfortable with DA assets being deployable beyond cash? Are the CRE funds, real estate funds deployable from day 1? Just kind of your thoughts on how you -- to this point, have been very conservative with your handling of those funds, how that moves and develops going forward?

Yes, sure, Manuel, thanks for the question. I think that on the DA side, you rightfully have noted we have and continue -- have continued to be conservative there and have said that we'll evaluate over time how we think about a conservative approach on some maybe even minority deployment of cash. And also rightfully so on the real estate side, we -- those are incredibly granular. I think there are just a couple of hundred thousand dollars per account today and traditional business lines that many commercial banks have with the extra sort of payments edge that we have.

So we will plan to be deploying those. That sort of gets back to the 6% NIM on those deposits that I sort of mentioned as we continue to grow. And I think what's interesting is we're taking a portion of while we saw a little bit of quarter decline on one side of that business. The other side of the business saw an incredibly granular quarter-over-quarter increase.

I appreciate that color. I mean the balances even on the DA side have kind of held in better than folks had expected. And maybe at some point, that could become -- your conservatism could shift. How much closer are we to having that shift?

Yes. So I think that we've basically been flattish on the overall balances, including the new verticals. And I think that in the next quarter or 2, I'll be able to sort of give some more confidence. I think what you're saying -- what you're hearing from us right now is we feel very confident that by the end of the year and the turn, we should be able to get there. Maybe we get there a little bit sooner. But 2027 should be a growth year for cubiX related deposits.

We have reached the end of the Q&A session. I will now turn the call back to Sam Sidhu, CEO, for closing remarks.

Well, thank you, everyone, for your continued investment and support of Customers Bancorp. Have a great day and a great weekend.

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

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

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 to and will achieve but we're most excited about the revenue generation and risk reduction opportunities from these tools. I am personally leading our AI transformation effort because I believe the bank in our tier that wins on AI will have compounding benefits and structural advantages that will be very difficult to match.

To walk you through the evolution, in 2023, we entered into initial enterprise partnerships with companies like OpenAI and Microsoft. In 2024, we established a foundation by implementing AI governance and beginning data transformation efforts. In 2025, we moved into production. We trained 100% of our team members. We piloted targeted use cases which are already delivering measurable results. AI began first testing then writing code, and we started building agents.

Now in 2026, we are training our team members to be builders and managers of agents, and we are seeking to automate end-to-end workflows across our operating platform. The 3 key initial focus areas in the commercial bank are loan onboarding with a focus on credit underwriting, deposit customer onboarding and payments orchestration. I'm thrilled to say that we're already seeing tangible results.

From an adoption standpoint, 75% of our team members have AI licenses. More than 500 agents and custom GPTs have been built by our workforce, approximately 2 dozen of those in the last 2 weeks alone. We have saved more than 28,000 hours through AI-enabled workflows, unlocking the equivalent of almost 15 FTEs. This strategic change should allow us to scale our operations far faster than we would need to scale our workforce.

We already have best-in-class efficiency, as you can see from our noninterest expense to average asset ratio. Even so, we would expect that as we grow our asset revenue and earnings per employee ratios would increase meaningfully. We should be able to provide medium-term targets on those in the coming quarters. At the same time, the value additive and strategic work conducted by our team members would go up immensely. To accomplish this, we are utilizing a broad range of tools.

This includes strategic partnerships like one we just signed this week with a large frontier model provider that we are very excited about. We'll have more details to share on that soon, but it shows that leaders in the industry view Customers Bank as being on the forefront of utilization of this technology and assisting them in advancing adoption in the regional bank space. This partnership will initially be focused on the 3 priorities I outlined earlier: loans, deposits and payments. We are only at the beginning of realizing the benefits from this technology, and we intend to be a leader in unlocking it.

Moving to Slide 7. We believe payments functionality is the future of banking, and cubiX is our platform for capturing that future. At its core, cubiX gives clients seamless access to all of our payments rails, from traditional wire and ACH to [ RTP FedNow ] and our proprietary 24/7 365 intrabank instant payments platform. We built it in-house. And today, it is one of the largest commercial payments platforms in the country by transaction volume.

One item worth highlighting is that even though the digital asset industry saw meaningful declines in volume and prices over the last couple of quarters, our balances were relatively stable. Importantly, we processed $500 billion in transaction activity for our digital asset clients in the first quarter, a similar pace to 2025 despite the perceived market headwinds.

This reflects the mission-critical nature of the service we provide and the quality of the relationships we have built with our customers. As we previously stated, we are focused on deepening that engagement through enhanced product offerings that drive increased wallet share and stickiness.

In 2026, our priority is to broaden the cubiX ecosystem beyond its digital asset beginnings. We have started enabling and see significant opportunity in mortgage finance and real estate transaction settlement where the demand for real-time bank-grade payments infrastructure is growing. While the mortgage finance deposits represent balances from existing clients today, we are in active discussions with networks of prospective clients in the real estate industry, and we believe they will be meaningful drivers of noninterest-bearing deposit growth in 2026.

To help make it real, our 90-day pipeline for cubiX' customers from new industries is greater than the slight decline in average digital asset balances we saw in the first quarter. Additionally, we see strong opportunities to partner with large institutions in traditional capital markets as exchanges move to 23/5 and eventually 24/7.

This could drive both deposits and fee income opportunities for us with even further diversification. While cubiX is highly profitable serving the digital asset industry, when we achieve broader industry adoption, we will get meaningful operating leverage and even more durable earnings. We believe we are still in the early innings of unlocking the full franchise value of this technology.

Moving to Slide 8. Banks by nature, grow at roughly the pace of the broader economy. There are only 2 ways to grow faster, acquire it or earn it. We earn it through our people, our platform and our culture. We are one of the top organic growth stories in the industry. We have not relied on acquisitions to build this franchise and have still delivered disciplined growth at rates that far surpass our peers.

What we have done is continuously recruited top talent, giving them access to a strong balance sheet, a sophisticated product suite, best-in-class technology, and importantly, they gain a culture that empowers them to do more for their clients than they could elsewhere. I'm thrilled to say that year-to-date, we have already had 20 bankers join us or sign offer letters, and we're in active discussions with half a dozen other team leaders.

These bankers represent a mix of geographic C&I and national specialized verticals. This is not a new playbook. It is the same strategy that has driven our long-term outperformance and that has produced results at the very top of our peer group. We are the #1 compounder of core EPS and a top compounder of tangible book value and revenue among peers over the last 6 years. They are the clearest long-term indicators of franchise value creation and share price performance.

Before I hand the call over to Mark, I want to take a moment to welcome 2 new equity analysts joining our story. We're pleased to have Tony Elian from JPMorgan and Manuel Navas from Piper Sandler covering Customers Bank. Welcome to both of you. We look forward to building strong relationships for years to come. With that, I'll pass it to you, Mark.

Thanks, Sam, and good morning, everyone. On Slide 9, you can see our GAAP financials, and I'll start my comments on Slide 10. In the quarter, we delivered GAAP and core EPS of $1.97 as GAAP and core earnings were materially consistent. Core ROE and ROA came at 13.1% and 1.13%, respectively. Our consistent execution has led to core EPS increasing 28% from last year.

Turning to Slide 11. Total deposits grew over $800 million in the quarter to $21.6 billion, up $2.7 billion or 14% year-over-year. The quality of our deposit franchise continued to improve, and I want to highlight 2 dynamics in particular. First, noninterest-bearing deposits grew by over $400 million in the quarter. Included in this total was a $200 million contribution from spot balance increases in our digital assets channel.

But what I really want to point out is the approximately $230 million contribution during the quarter from our traditional commercial franchise. These balances were up 9% quarter-over-quarter and 22% year-over-year. This is directly attributable to the success of our commercial banking team strategy and the strength of the relationships these bankers bring.

As you heard from Sam total noninterest-bearing deposits reached a record $6.7 billion or over 31% of total deposits, not just top quartile but about decile of regional bank peers. Second, average total deposit costs declined again in the quarter by 8 basis points to 2.46% and our cost of interest-bearing deposits declined by 18 basis points. We are continuing to benefit from the positive mix shift of our deposit book as we grow lower cost relationship-based deposits.

Turning to Slide 12. It highlights the results of our commercial banking team strategy. And I'll give you a spotlight on our 2024 vintage teams as they recently hit their 2-year anniversary with customers. The 10 teams launched in April 2024 now manage over $2.1 billion in deposit balances across approximately 8,000 accounts with 32% of these balances being noninterest-bearing at an average total deposit cost of around 2%.

They've also generated a [ positive ] loan ratio of about 2.7x. These economics are really compelling. These teams became profitable in approximately 3 quarters and are generating a loan-to-deposit spread of over 400 basis points in addition to the significant excess deposits they generate.

This slide also highlights the tremendous momentum we are seeing across our commercial businesses. In total, we added over 1,100 net commercial accounts in the first quarter. That's a 5% increase in our commercial account base in a single quarter, which is incredible. Notably, over 50% of that net growth came from the 2025 vintage teams. These teams have already produced low 9-figure balances of deposits at an extremely attractive blended cost of about 50 basis points.

These accounts are operational in nature, and therefore, there's a lag between account openings and deposit balances coming over to our company. You can see this in the fact that less than 15% of the accounts opened during the quarter were meaningfully funded with deposits. These are similar stats that we used to show you in 2024 to give you a sense of the deposit balance fundings to come in future periods. This level of account activity gives us optimism for meaningful deposit balance growth from these 2025 vintage teams in the coming quarters.

Turning to Slide 13 in loans. Total loans grew over $600 million to $17.4 billion, representing 15% annualized growth. We typically see the first quarter as the slowest growth quarter of the year so we're very pleased with this performance. Growth was broad-based across the franchise, top contributors in the first quarter included fund finance, mortgage finance and health care. As we often say, the mix of contributors can shift from quarter to quarter, but what remains consistent is the diversified multi-vertical nature of our asset generation platform.

On Slide 14, net interest income for the first quarter was $191.4 million. Net interest income grew by $24 million year-over-year or 14%. The expected sequential decline in net interest income and net interest margin was driven by 2 primary factors. Approximately $10 million of accretion income in the fourth quarter, which did not repeat as well as a lower day count in the first quarter. If you account for those factors, we were essentially flat quarter-over-quarter despite the full impact of December's rate cut.

One other item impacting net interest income for the quarter was the planned redemption of $110 million of higher cost subordinated debt late in the quarter. This redemption will help our net interest income in the second quarter. We continue to have leverage on both sides of the balance sheet, including loan growth and deposit mix improvement opportunities. With that, we remain optimistic about our ability to drive strong net interest income growth in 2026.

Moving to Slide 15. Noninterest expense was $112 million for the quarter. As we highlighted on our previous call, we had about $5 million of expenses that were unique to the fourth quarter. And so expenses came in pretty much flat to the fourth quarter, excluding those discrete costs.

We talk a lot about positive operating leverage. And I want to take a moment to show you what that means for our franchise. Year-over-year, core revenue growth outpaced core expense growth by nearly 2x. As a result, our core efficiency ratio improved by 300 basis points and core EPS grew 28% over the same period. That's a very strong positive operating leverage, and we believe this is what disciplined high-quality growth should look like. Our core noninterest expense as a percent of average assets was 1.82% once again placing us among the top decile of regional bank peers.

On Slide 16, many of you recall that coming into 2026, we outlined our second operational excellence initiative, targeting $20 million in annual run rate proceeds across both revenue and expenses. I'm pleased to report that Phase 1 of that initiative has been substantially achieved on a run rate basis. and we are now increasing our target by an initial $10 million in Phase 2, bringing our total target to $30 million in run rate proceeds.

On the revenue side, this was driven primarily by capital market sales within our existing SBA business, and you saw some of this in the first quarter of 2026. And the savings on the cost side were a mix of vendor, technology and risk management infrastructure improvements. These savings are being reinvested into the franchise, in people, technology and the capabilities that differentiate us. We view this as a key component of sustaining positive operating leverage into the future.

On Slide 17, a tangible book value per share grew to $63.54, up 3% quarter-over-quarter and 16% year-over-year. This continues our multiyear track record of double-digit tangible book value per share growth and represents a CAGR of over 15% since the fourth quarter of 2019.

Turning to Slide 18. Our capital position remains robust and continues to provide significant strategic flexibility. Our TCE ratio of 8.3% was up 60 basis points year-over-year even as our tangible asset grades grew 15% over the same period. We also repurchased about 620,000 shares of our common stock during the quarter at a weighted average price of about $68. Given the trajectory of our tangible book value I just described, that felt like an attractive price.

During the quarter, as planned, we also redeemed the subordinated debt issuance I mentioned earlier, which explains some of the additional reductions in our risk-based ratios during the quarter. Even with these items, we still maintain a comfortable cushion to our internal capital targets. In addition to the subordinated debt over the last year, we've also redeemed over $140 million in preferred stock simplifying and improving the quality of our capital stock. We believe strong organic earnings position us well to support continued balance sheet growth and when appropriate, to return capital to shareholders.

On Slide 19, credit performance remained stable across the board. NPAs as a percent of total assets remain low and below our peers. Total net charge-offs declined modestly quarter-over-quarter with strong performance across both commercial and consumer portfolios. Commercial MCOs remain very low, and our consumer portfolio represents only a small portion of our total loans, continues to perform within expectations. Reserve coverage was solid, though we continue to monitor the geopolitical uncertainty that exists in the macroeconomic environment.

With that, I'll close with our 2026 outlook on Slide 20. We are reaffirming our full year 2026 management outlook across all key metrics. On loan growth, we had a strong start to the year, and our pipeline remains solid. For deposits, we also had a good start to the year, and both the newer teams and the franchise as a whole have good prospects to continue that momentum.

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

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.

[Operator Instructions] 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, one 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 sort of wire ACH in and out. And this has been a priority for us in 2026 to sort of see a bit of broad use of cubiX not only much further beyond the digital asset industry and also creating diversification in our deposit base. So I'll get to sort of the new deposits in a second.

But what I would say is we're thrilled with the early progress on that goal, and we did not expect that as early as the first quarter, we'd be able to show you that slide that you referenced on Slide 7. So they currently represent about 20% of our deposits. The growth is really going to be coming from that 1% number you see there on the real estate transaction side which is really hugely valuable to customers that are currently banking with other banks that are looking for advanced payment capabilities beyond what they're able to get in addition to sort of the service that we offer.

So we see that you heard in my scripted AI remarks that we expected about $250 million or so of noninterest-bearing deposit growth related to new verticals in cubiX just the next 90 days. We'll continue to update sort of on progress as the year progresses. Your last question was around the traditional capital markets use cases.

That's still a little bit early days to add a little bit of color on what that would be is we have markets in the traditional side that are open 23/5 today, they will be open 24/7. And as you can imagine, there's a number of use cases to have [ FedNow RTP ] and cubiX for after-hours [indiscernible] reconciliation.

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

No, I don't think we're I mean, we're still sticking to the guide that this year. As you know, there's certainly a lot of still geopolitical uncertainty out there in the market. Candidly, we were pleased by the level of loan growth we were able to generate in the first quarter. We had a couple of quarters ago, we had a couple of deals that we thought were going to close and didn't close during the quarter and then end up being a little below and then you start out in the next quarter really hot.

In this case, you saw that our average loan growth versus our spot loan growth was pretty materially different, which implies we had a lot of loan growth actually closing in the month of March. So we feel that obviously sets us up well for the second quarter. But at this point, we're still sticking to our full year numbers.

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

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

Yes. Sure, Kelly, and then I assure you this is really me. What I would say is that just to add a bit more color, in the prepared remarks, I talked about how we feel we can scale the company at significantly higher rates than our head count will grow. And you can imagine sort of when you have an autonomous agent, you're essentially creating a digital worker.

And when you have end-to-end automation across your workflows, which is very easy to say, very difficult to achieve, you can deploy these digital workers under human supervision and they can work around the clock. So you can appreciate getting to the state as much more than creating what folks will call sort of a GPT they can save a couple of hours or a chat prompt that can help you research right faster.

Really, the challenge here, the difficulty here and the opportunity here is about having to change management strategy. It's about training and enabling your team members. It's about redesigning workflows and processes. It's about having developers and process [ mavens ] that are on staff. It's having broad-based AI frontier model and newer emerging commercial partnerships.

We teased a couple of KPIs of how it might show up in our financials with the asset revenue and pretax profit employee KPIs. And I think we'll have tailwinds on each of those if we're successful and that's something that we'll be able to provide targets on in the future. At the end of the day, they kind of all come into lower efficiency ratio. That's sort of the net output.

The use case is to kind of get to the heart of your question that typical companies and banks will be focused on will be productivity as well as, in some cases, improving the client experience which is table stakes. And I think those are hard to do, and we feel very good about our ability to achieve success there. But where we are really focused and feel we are uniquely focused is on the new revenue opportunities as well as reducing risk.

So to get to your question, we plan to start using AI first business models to attract new customers to attack new verticals that will sort of help drive new opportunities that don't exist today. And these are things that are live and in production now that could result in impact as early as the end of the year, but definitely into 2027. And then we're also looking at really interestingly, completely redesigning the first, second and third line processes to reduce risk across all of our operations.

And I think that's really also a unique way that we're approaching things. So it's not just sort of the loans, the deposits and the payments orchestration life cycles we're also thinking more broadly about areas within risk, compliance, audit, finance, marketing, legal, where we can really transform some of those risk and revenue enabling functions as well.

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

Yes, Kelly, this is Mark. And that was me the whole time, by the way. But as we -- as you think about NII, you're correct. I think as the year is starting to play out, we had a couple of shifts. We did see -- I mean, we were really pleased to only see average cubiX deposits going down from 3.8% to prior quarter to 3.6%.

Where you see on Slide 7 and you see the mortgage finance, but more importantly, the real estate which really then ties to our 2025 teams and some of the things we highlighted on commercial account growth. I would expect to see for -- in the second quarter and the third quarter, you'll start to see some of that account growth, which was only approximately 15% funded with deposits, some of that starting to take hold.

So then that provides a little bit of a hedge for us in terms of our guidance. If we would continue to see a little bit more of a drop in cubiX deposits, I think it's early. Certainly in the second quarter to be able to predict where those end up on an average balance basis. But then I'd also say that we had both really strong marches, which led to our spot balance is being significantly higher in both loans and deposits than our average balances for the quarter.

So when you look at -- take loan yields, loan yields ended the quarter at [ 3.62], SOFR yesterday was at about [ 360 ] right? So even if you're going to bring on new originations and across most of our verticals, we bring on new originations at 225 to 300 basis points over. But even at 300 basis points over [ SFR ], the majority of our asset production might still be coming in below where that current loan yield is on commercial because you can see in the top of that margin table, our commercial book today is kind of right around 680 all in.

So even at 300 basis points over, which is really tough to do across all your verticals, new production is still coming in a little bit lower. So I would expect to see, on a margin basis to be -- loan yields coming down a little bit more how much that impacts margin is really going to be how successful are we on the deposit front. Again, given the green shoots we're seeing in the first quarter, it feels like we're setting up well for the year, but it's still early.

So that's why you put all that together, we're saying, hey, we're not going to move on our guide yet for the year for NII and the last comment I'll make on all of that is that as a growth company, we focus on NII. We understand that you as an analyst community like to look at margin because that's kind of a shortcut to help fill out an earnings model. But at the end of the day, NII drives earnings growth, not net interest margin. And so we're really focused on that, and we're sticking to our guide at this point in the year.

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

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

Happy to jump in here and welcome officially and formally. So I think that what we've always said is that on the digital asset side, we've been -- we had an opportunity to really start to getting that amount of customer behavior over the past couple of years, we have and we'll continue to sort of hold these in cash for the time being. I think there are some things that we would look to the external environment that would give us some more confidence and comfort.

One of the things that's interesting about the new verticals is these commercial customers come from traditional industries with long histories of operating account behavior. They're currently at banks and that -- where they without these advanced payment capabilities that cubiX can provide them. Those banks deploy the deposits. We're going to do the same, but also offer those customers superior technology and really improve their operations experience.

So I think that's really one of the net differentiating factors. Those levels are already at 20%, including existing customers, though that 1% is a very small portion, and we expect that to significantly increase in the coming months and quarters.

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

Happy to take that. So it's a combination of expansion of talent in existing geographies, there are one or 2 submarkets where we will be sort of, I call sort of adjacent expanding into. And there are some -- actually some new national deposit verticals, given that not every one of these team members has fully started the bank had sort of deferred to come back to you to give you a little bit more color. But it's consistent with the way that we've approached team hiring to date.

Your second part of your question was about the teams and the pipeline. Similar story on the first part of your question in terms of how we would approach geographic and vertical focus. But I would also add that these while we've had 20 or so hired this year, we had about 40 last year, 100 the year before, 40 the year before, sales first-line bankers. So I think that we still expect to have some more hiring to do based upon the expense guide that we gave in the first half of -- sorry, in the first call of the year and also had an opportunity to share with you some of the benefits of [ OE 2 ], Operational Excellence [ 2 ], as we're calling it, and from the extra savings and plan to reinvest those savings into the institution which one of the big use cases and uses of that -- of those savings will be into hiring and supporting new teams.

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

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

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

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

Yes, sure. Thanks, Steve. And so -- the simple answer is they're sticky and long duration with deposits where we're really just helping them add payments capability, streamline their operations, lower the cost of their business, increase revenue opportunities for them that they otherwise wouldn't have. Coming back to cubiX deposit diversification, this is something we've been talking about for some time.

We have now I think now we're really showing that we're able to sort of onboard customers on [indiscernible] that you referenced the $250 million just in the next 90 days. What I would say is we -- we're at 31% noninterest-bearing deposits, which is already at the top end of the industry. And we believe the opportunity ahead of us will allow us to keep taking this up even further.

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

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

Yes, Mark would kill me, but it is significantly higher than it has been in the past. And I think that typically, we've been operating about that $2 billion-ish or so pipeline and it is significantly higher just by nature of the fact that you have new teams who joined us late last year, middle summer to Q3 of last year, who have had an opportunity.

Mark shared some stats on over 50% of the account openings were from 25 teams, right? So these are folks who have been with us for less than a year, in some cases, only 6 months. And what I would also say is that as you think about sort of what -- going forward, hiring new teams for '27 is going to be really important as well. So the '25 teams are building momentum for '26. The '26 teams will build momentum for '27.

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

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

Yes, I'll take that. This is Mark. If you think and we have provided -- if you look at our loan growth slides, this quarter, it happened at fund finance, which is a combination of both our capital call lines and our lender finance business. fund finance, mortgage warehouse and health care in the forefront. Last quarter, fund finance was down at the very bottom. But then the quarter before that, fund finance was actually up.

So the look within fund finance, our lender finance category was $2.8 billion back in the third quarter of $25 million. It dipped about $300 million in the fourth quarter and then it came back again in the first quarter. What I would say about that is that we have a very defined credit box that we like to operate in. And at certain times, then that will mean when certain segments get a little bit more frothy, we're probably going to underperform a little bit.

But then in cases like the first quarter, where I think there was a pullback in MFI and specifically in the lender finance space, we just stay in our credit box. And in periods like that, we're going to benefit a little bit. but the performance in that segment, which we -- because of some of the additional questions around NDFI and lender finance, in particular, we added an extra slide, Steve, which you can see on Page 23 in the deck, we've been in this business for a long time.

And as we commented after the third quarter call, have really good looks through LTVs. We have collateral substitution rights and maybe most importantly, we have incredible diversification, both in terms of the total number of facilities that we participate in. And then within those facilities, the weighted average number of obligors and our low largest obligor within each facility gives us comfort and diversification.

And then lastly, just being in the business for 10 years, we've never had a delinquency or a net charge-off. And that doesn't mean that it will always stay that way, obviously, banks run the business to take risk and credit risk. But -- this has been a business for us that's been actually a very strong performer.

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

Yes. So I'll sort of just jump in. I think that there's a combination of sort of private valuations, as you know, in sort of [ Black Scholes ] model, et cetera, for private market warrant valuation is also transactions that can happen that could be private or public like an IPO in nature and believe it or not, been -- in some cases, you have restrictions on when you can sell your shares for up to 6 months.

So there's a lot -- that's sort of the way to think about it. What's really interesting is as we have a portfolio of these warrants that are dozens and dozens and dozens related to how many loans that we've sort of originated over the past couple of years. And one of the things that we say really interestingly here is we have very, very low historical over multiple decades of credit charges lower than traditional C&I in this business, and these warrant gains more than make up for any sort of net reductions that this industry has seen despite some of the potential perception.

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

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

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

Yes. Sure, Peter. Thanks so much. So I think that the -- I'll start with sort of the high level sort of point that you made is that I think that I mentioned this in my prepared remarks as well, is that we really truly feel and believe that risk management is becoming a competitive edge for the organization and also for sort of simplistic business unit perspective.

A competitive moat per se, our cubiX business. We have said that professional services and insurance costs will continue to reduce over time as we progress our efforts there. I did say on the last call, which I think went a little bit unnoticed that we materially completed our work related to the written agreement at the end of last year.

And then in 2026, we want to put that behind us. And that's really the interesting part about the whole story is when you add sort of technology plus risk management plus AI plus a business line that is facing sort of regulatory clarity and tailwinds plus the diversification of using that technology from that business line into new traditional markets that are also seen the need to go into after hours and 24/7 or 23/5 type payments capabilities. It is really interesting how uniquely positioned we are today.

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

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

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

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

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

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

Yes, the priority order for capital really remains the same. And that's, first and foremost, it's organic growth. And to the extent that we have excess capital generation after supporting that organic growth, then number two, would be inorganic growth opportunities. And for us, you really need to think about that more in terms of expenses necessarily in terms of capital because for us, inorganic growth has historically been a lot of these team lift-outs.

And -- but the team without cost money, which ultimately impacts capital. And then number three, if we have excess capital after those, then our Board had approved a $100 million share our share repurchase authorization back in February. And we felt in the first quarter at a weighted average price of around $68 we felt that was a prudent use of capital there as well.

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

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

Yes. Thanks, Janet. It has not been directly asked. And I think that one of the things that Mark did sort of refer, which I'll sort of focus on is, is that we're a growth organization, and we're focused on increasing NII. And I think that prior to you sort of joining the coverage, we sort of going back a couple of years, we really also sort of showcased NII trajectory and how that would sort of translate into NIM trajectory over time.

We gave sort of NII growth guidance for this year. You're absolutely right on sort of the deposit, the marginal cost of deposits, whether they use for remix or whether they use to fund incremental loan growth. And I think that's something that we are and we'll continue to be proud of, and that's really what's unique about our overall story as we think out sort of the improvement as well as the funding of our organic growth.

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

Got it. And -- sorry, go ahead.

Yes. Janet, this is Mark. I was just going to add that I made this point earlier in the Q&A is that if you look at our commercial business today, which makes up, obviously, the majority of our loan book, that's at a blended average cost in the first quarter of about 680. Current SOFR is at about $360 million, right? So in a commercial business, most of our commercial businesses tend to be kind of 225, maybe for commercial real estate up to 275 approaching 300 for some of our other verticals over SOFR.

But that then implies that new loan volumes in both the first quarter and continuing into the second quarter, will continue to come on at a little bit lower yields than our overall commercial portfolio yield. So that's going to continue to have maybe a little bit of downward pressure on NIM, but again, given the amount of loan volume that we put on in the month of March, we still feel comfortable with the NII guide that we put out. That makes sense?

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

Well, I think if you look back to where we were maybe a year ago when some of the discrete line items to today, our commercial lease income is about 50% and I would say that of the different line items of fee income we have, it's probably the least episodic because really what that commercial lease income represents, it represents interest income on operating leases.

Those operating leases put -- actually put some pressure back to part conversation, put some pressure on margin because it shows up on your balance sheet as a noninterest-earning asset. But then you have both commercial lease income, but then also commercial lease depreciation on the expense line. But for fee income, you can see that our trajectory is going from $10.5 million a year ago to $15.4 million in the first quarter of this year, so almost 50% growth in that line.

So when you look at the other lines, I mean things like for this quarter, I did see, I think one analyst maybe pulled out our sales of loans out of core earnings. And I would say, well, gosh, to us, that feels like core earnings because that's actually sales of just SBA loan originations which some banks might have a mortgage banking operation sell off their mortgage loans.

We're just making a decision to sell and set a portfolio in some of our SBA loans going forward. So when you look to how we've grown overall fee income, we think it's now appropriate to think about a good floor for fee income is going to be somewhere in the $30 million to $32 million range.

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

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

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

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

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

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

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

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

Stable as a percentage of deposits.

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

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

Yes. Sure. It's a great question, Brian. And I think that over the years, we have continuously expanded our treasury management capabilities, and that's really the big driver. And even prior to cubiX, that was one of the large initiatives a number of years ago. The organization is sometimes new teams or new verticals or new sort of sub verticals come on that have what we call sort of edge case treasury management capabilities.

We continue to expand and broaden the edge case becomes our base case as we to expand. And over time, we've also thought about an incorporated parts of our team members that allow us to expand into new products and services to service customers. So what ends up happening is the new teams, the edge case for our overall company becomes their base case and that, that becomes something that we can then sort of cross-sell into our existing client base as well.

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

Yes, I'm happy to jump in on that, Brian. It's obviously something that we spend a lot of time thinking about and trying to, in some cases, create connections. I think what I would sort of say just generally we haven't seen anything tangible that we can put our finger on. At the end of the year, you usually see folks who try to sort of close loans quickly by the end of the year 1 some loans slipped into April that we would have normally expected to close into 331.

Why those happened? Difficult to say, but they still closed. So I'd say that sitting where we are today, we don't see any changes to go forward pipelines. We didn't really see any changes to commitments to closings, but it's something we continue to sort of stay close on.

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.

Good morning. Thank you for joining us, and welcome to the Customers Bancorp 2025 Q4 and year-end earnings report. My name is Devin, and I will be your call moderator for today. [Operator Instructions]

I will now hand the call over to Philip Watkins, Executive Vice President, Head of. Please go ahead.

Thanks, Devin, and good morning, everyone. Thank you for joining us for the Customers Bancorp's Earnings Webcast for the Fourth Quarter and Full Year 2025. 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 to fourth quarter and full year 2025 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 these 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 10-Q 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. At this time, it is my pleasure to introduce Customers Bancorp Executive Chairman, Jay Sidhu.

Thank you so much, Phil, and good morning, ladies and gentlemen. I too want to welcome you to the Customers Bancorp Fourth Quarter and Full Year 2025 Earnings Call. Hope you've all had a great start to 2026. .

I'm joined this morning by Customers Bank and Bancorp CEO, Sam Sidhu; and Customers Bank and Bancorp CFO, Mark McCollom. I'd like to start by congratulating Sam again, on his appointment as CEO and also to the Board of Directors of Customers Bancorp. The Board of Directors and I are delighted with this transition, which has been in the works since we began our succession planning exercise at the Board level over 5 years ago. We have every confidence that Sam and the team that he has assembled will continue to build upon the incredible results we have achieved over the past few years. Since we founded this bank in late 2009, the journey has been exciting. With a clear vision and a lot of determination, what began as an approximately $175 million troubled failing bank has now grown into a $25 billion asset institution recognized for its unique single point of contact strategy, its exceptional customer service focus and a forward-thinking approach to technology. That success did not happen by chance.

It's the direct result of superior execution by a world-class team. We have consistently put customers first and build a best-in-class risk management infrastructure while embracing innovation and change.

Moving to Slide 4. We are pleased to report another quarter and a very strong quarter and a very impressive full year of 2025, which Sam and Mark will talk through in more detail. As you know, our 2025 core EPS was $7.61 a share and up from $5.60 a share in 2024. Before they discuss the details of 2025 with you, I wanted to spend some time putting into perspective our performance over the past few years. Customers Bank has been one of the strongest organic growth stories in the entire industry, and we see no reason that will change in the years to come.

We've had incredible deposit-led growth in our balance sheet with low-cost core deposits growing at a 16% compounded annual rate over the last 6 years. And we did this while materially improving the quality of our deposit franchise, as you will hear much more about that later from Sam and Mark.

Moving to Slide 5. We highlight that we believe is the clearest way to evaluate sustainable franchise value creation, long-term compounding returns in revenue, earnings and tangible book value. We've been an industry leader in growing these metrics by a number of years now for a number of years. We are the #1 compounder of core earnings per share over the last 6 years, which represents outstanding performance against the peer medium and so we performed over 5x better than the peer median and we performed over 3x better than the top quartile.

Similarly, tangible book value per share compounding is the #2 among the entire peer group and represents outperformance of the peer medium by about 3x and the top quartile by over 2x.

Finally, on Slide 6, our core strategy has translated into significantly improved profitability over the last several years. Our margin increased by 57 basis points and our return on assets increased by 33 basis points. And very importantly, our return on equity increased by 450 basis points, while we simultaneously increased our capital level by 500 basis points. This profitability improvement has been achieved while making substantial investment for the future, investments in people, investments in technology, investments in processes and huge investments in risk infrastructure for the future.

These have turned into incredible results for our shareholders while helping us build a very strong foundation for the future. Our 5-year total shareholder return has been over 300%, placing us at the very top of our peers as an industry. In fact, in the entire financial services industry. It is exactly these kinds of financial results and multiyear transformation that give us the great confidence in Sam and the rest of the management team to continue building on our momentum and to take on tomorrow.

Our mission will remain unchanged, and that is to deliver long-term value for shareholders and our communities by putting clients first and continuing to innovate and build strong risk management and execute with excellence. We believe our best years are still ahead of us.

With that, I'm going to turn it now over to Sam.

Thank you, Jay, and good morning, everyone. I want to begin by expressing my deep gratitude and excitement to Jay and our Board of Directors as I lead the organization through its next phase of growth as CEO. It is truly an honor to step into this role and to build upon the extraordinary foundation Jay and the team have established since the bank's founding 16 years ago.

What makes this moment especially meaningful is the opportunity to lead alongside such an extraordinary team. Across the organization, from our client-facing bankers to the team members in our operations, technology, risk finance and many other areas, I see a shared drive to innovate, serve with purpose and never settle for average. It's the efforts of this exceptional team and their relentless focus on the customer that has resulted in our Net Promoter Score, increasing to 81, up 8 points from 73 last year. This is nearly double the industry average and places us among the very top of companies not just in the banking industry but all service-oriented firms.

With that, I'll turn to our top priorities for 2026. You'll notice in many ways, these look similar to last year, but evolved, highlighting our consistent strategic focus and entrepreneurial culture. First, our top financial priority is continuing our organic growth story on both sides of the balance sheet. With the hires we made in 2025 stacked on top of '23 and 2024 vintage teams hitting their stride, we have the pipeline in place for 2026, which brings me to our next priority.

Our team recruitment strategy has been foundational to our recent success. On top of the previous team onboardings, we continue to have active discussions with top-performing teams that are looking to join a entrepreneurial and customer-centric bank. We will have more to share on this as the year develops. But if 2025 was any indication, top talent is excited about leveraging the unique platform here at Customers Bank. Third, we believe payments are a key driver of the future of banking. We have an ambitious goal of being a commercial payments leader in the industry. We are tirelessly working on expanding our payments offerings and capabilities to meet that target.

Next, as a future focused bank, we see an immense opportunity to leverage AI to deliver enhanced client experience and productivity gains across our organization. More importantly, we look to do all of this while not taking our eye off the risk management areas, ensuring we maintain strong capital, liquidity and credit quality. We did an amazing job executing our priorities in 2025, and that was evidenced by the fact that we were one of the top-performing bank stocks of the year as our stock price increased by over 50%.

On Slide 8, I'll cover our priority to continue to enhance our payments capabilities and further establish Customers Bank as an industry leader across verticals. First, I want to provide some more insight into exactly what makes our approach so powerful. Core to our strategy was the in-house development of cubiX, which allows clients to communicate and operate seamlessly across all of our payment rails. cubiX allows our clients to digitally interact with and access both traditional products like wire and ACH as well as more advanced systems like RTP, FedNow and our 24/7 365 intra bank's instant payments platform, which gets a lot of the attention.

Turning to our Instant Payments platform. 2025 was truly an exceptional year where we saw incredible scale and utilization. We had over $2 trillion of payments volume during the year, which was a 30% increase over last year's impressive $1.5 trillion. That level of payments activity now puts us as the #1 commercial payments network in the U.S. ahead of household names like Max and VISA based on latest publicly available data. That volume supported consistent average deposit balances quarter-over-quarter of $3.9 billion. As exceptional as these results have been going forward in 2026, we will look to showcase the durability and unlock the franchise value of the network. We'll seek to achieve this by deepening and broadening our existing network and product offerings by expanding cubiX utilization to other existing commercial clients in traditional verticals and onboarding networks of new clients in verticals that can drive meaningful low-cost deposit growth.

With that, let's move to our AI efforts on Slide 9. For us, AI represents an opportunity to elevate quality, customization and responsiveness across the bank while continuing to deliver the high touch, white glove experience our clients expect. AI will redefine the banking industry and our organization. Given this, I'm personally leading our AI efforts and empowering and encouraging our team to effectively leverage this transformational technology. After building a strong foundation, 2025 became a year of broad enablement and adoption. Our company has trained every employee on AI.

Over the last year, we began rolling out more focused AI training for each department to develop use cases from generative and agentic AI tools. As you can see from the chart here, our employees already report a nearly 20% productivity gain using this technology, and over half of our firm is already using our enterprise-level AI operating platforms. As we continue to leverage this technology, we see the ability to orchestrate our workflow across our operating platform and deliver our products and services to our clients faster. Frankly, we're only in the early innings of unlocking the vast potential of AI for our clients in our organization.

Moving to the next slide. We had an excellent quarter and an exceptional year. Let me start off by saying a big thank you to all of our team members. We really went above and beyond in 2025 and the entire executive team, our Board and I'm sure our shareholders are so incredibly appreciative. We had a strong finish to 2025. This quarter and full year 2025 was yet another clear demonstration of the strength of customers' diversified model.

Our results represent a very strong financial performance across the board. Here are a few of the highlights of the year's performance. Deposits grew by about $2 billion or 10%. This was led by our new commercial banking teams, which added $1.6 billion in deposits. Loans grew by 15%. We had record net interest income, which grew by 15%. Our efficiency ratio dropped by over 6 percentage points and we grew tangible book value, as Jay mentioned, over 14% in the year, continuing our multiyear trend of 15% annualized growth, which is industry leading.

We accomplished all of this while maintaining strong credit performance and ample liquidity.

Moving to Slide 11. You'll see our GAAP financials, and then moving to Slide 12. I'll run through a few core financial highlights for the quarter and full year. In the quarter, we delivered core EPS of $2.06 and core ROE of 13.8% and ROA of about 1.2%, respectively. And for the full year, we achieved $7.61 in core EPS, which is up 36% from last year.

With the highlights now covered, I'll turn it over to Mark to dive deeper into the details of the quarter.

Thanks, Sam, and good morning, everyone. Turning to Slide 13. During the quarter, we continued to enhance the quality of our deposit franchise with a meaningful shift toward relationship-based granular, high-quality deposits. Total deposits grew almost $400 million during the quarter, ending at just under $21 billion. And as you heard from Sam, these balances were up about $2 billion or 10% for the year. This was led by a great performance from our new teams, which I'll give more detail on shortly. This growth is also after giving effect to the fact that we averaged about $675 million of quarterly deposit remixing throughout 2025, which helped drive the strong deposit beta I'll detail shortly.

For noninterest-bearing deposits, our core franchise again delivered 9 figures of gross at about $150 million for the fourth quarter. And for the year, we had over $500 million of noninterest-bearing DDA growth apart from the large DDA increases we saw from our cubiX clients. Because of the momentum with our deposit teams, we think we have the potential to replicate or even beat this performance in 2026.

Our team responded very well to the Fed rate cuts in October and December. Our deposit beta in the quarter was 54% and a very strong 71% on interest-bearing deposits only. Through the full easing cycle to date, our total deposit beta has been about 61%, which is a number that we're very proud of. The results of our deposit transformation over the last few years can be seen on the right-hand side of Page 13, which shows we've been steadily converging to peer median deposit costs from a spread of over 200 basis points in the fourth quarter of 2022 or 3 years ago to 165 basis points today.

Now let's turn to Slide 14, where I'll provide more detail on the incredible success of our deposit gathering efforts with a particular focus on our new banking teams. Sam discussed earlier how critical recruitment is to our strategy. And here, you can see the results of that hard work. The teams we've recruited over the last 2.5 years now manage over $3.3 billion in deposits, excluding our cubiX payments business. And that's a very granular book of business with over 8,000 commercial accounts. In 2025, the increased deposit balances by $1.6 billion, essentially doubling the balance from the prior year. And in the fourth quarter alone, they added $585 million in deposits, of which 40% was noninterest-bearing. And that's without any meaningful contribution from the teams that we onboarded in 2025, which we believe could be a meaningful driver of deposit growth in 2026.

Now let's turn to loans on Slide 15. Loans grew approximately $500 million or 3% quarter-over-quarter. Growth was broad-based and led by commercial real estate, health care and mortgage finance while we saw net paydowns in our fund finance business. You can see the same diversification in loan growth when looking at the full year view as the majority of our businesses contributed to 2025 growth in some way. As we often say, the chart on loan growth can vary each quarter, but the diversified nature of our quarterly and annual results highlight the multifaceted nature of our asset generation capabilities.

Given the depth and breadth of our platform, we see opportunities to add franchise-enhancing loans in 2026 with a continued focus on credit quality.

Turning to Slide 16. Net interest income increased 22% year-over-year to $204 million, and our net interest margin expanded by 29 basis points to 3.4% over the same period. Net interest income increased $2.5 million sequentially and was driven by the following core trends, an increase in average loan balances of nearly $800 million, an increase in average deposits of over $300 million, a decline in our blended cost of deposits from 2.77% last quarter to 2.54% in the fourth quarter and nearly $250 million of higher average noninterest-bearing balances despite flat average [ cubiX ] balances quarter-over-quarter.

This performance highlights our ability to grow net interest income even in a falling rate environment. And with levers to pull on both sides of the balance sheet, we're optimistic about our ability to continue net interest income growth in 2026.

Moving on to Slide 17. Our reported noninterest expense was $117 million in the quarter. The linked quarter increase was mostly driven by expenses that were either unique to the quarter or directly related to fee income or tax savings. To give some more color, we had a total of $4.8 million of unique expense in the quarter, which included $1.9 million in legal fees associated with the new team on boarding, $2.2 million of insurance expense on tax credit purchases, which had a corresponding direct benefit to our effective tax rate and $700,000 in compensation and benefits.

Additionally, our commercial lease depreciation expense was $2.2 million higher quarter-over-quarter, but that came with higher volume in the business. So our noninterest income for that business was up $2.7 million linked quarter. It's also worth noting that our expenses last quarter benefited from a positive adjustment to our FDIC expense of about $1.8 million. But even with these discrete items, our efficiency ratio was 49.5% and our noninterest expense to average asset ratio was 1.88%, placing us firmly in the top quartile of peers even as we invest in growth.

Now turning to Slide 18. Many of you recall that during our third quarter 2024 earnings call, we outlined our first operational excellence initiative. It was designed to identify revenue enhancement and cost saving opportunities that we could use to reinvest in the areas of strategic growth for our future while maintaining strong efficiency for our organization. Based on the success of that program, we're once again undertaking a similar program. Between revenue and expense initiatives, we are targeting $20 million in run rate proceeds, which we will again invest in our future.

We believe this ongoing philosophy is reflected -- well, sorry, the results of this ongoing philosophy is reflected in the guidance I'll provide in a minute. And it's a key component to having sustainable, long-term positive operating leverage.

On Slide 19, you can see our tangible book value per share grew to $61.77, up 3% sequentially or 14% annualized. This represents 1 of the clearest markers of long-term shareholder value creation and continues our multiyear track record of double-digit tangible book value growth. And we achieved 14% growth during the year in which we added 9% to our shares outstanding and enhanced our capital ratios across the board.

Let's now turn to Slide 20 to discuss that capital growth. We further strengthened our capital position this quarter with a successful sub debt issuance, which provided us with $100 million of additional Tier 2 capital. Our tangible common equity ratio continued to climb higher, now reaching 8.5% even after a quarter of strong balance sheet growth. And this ratio was up 90 basis points year-over-year, growing meaningfully while still supporting 12% growth in our asset base.

On Slide 21, credit performance remains stable across the board. A strong credit culture will always be a critical success factor for customers and our results support this. NPAs were just 29 basis points of total assets and have been consistently below peers for the last 5 quarters. Total net charge-offs declined by 10% in the quarter as we saw strong performance from both our commercial and consumer portfolios. Excluding our small consumer portfolio, which represents only about 5% of our loans, commercial net charge-offs remained very low at 16 basis points annualized.

Overall, we believe the loan portfolio is well positioned, and we have a strong reserve coverage within our allowance for credit loss. With that, I'll wrap up my comments with our 2026 outlook on Slide 22.

As most of you on the call know, I've been with the company for about 8 months now. I went back and reviewed last year's guidance against what we delivered, and I was very impressed with the fact that we beat on every line item. We had also raised our guidance a couple of times along the way as our execution panned out. So with another strong quarter and year in the books, we're pleased to share our initial guidance for 2026.

With strong pipelines across the franchise, we are targeting loan growth of 8% to 12%. Led by the commercial teams we've onboarded and continue to recruit, we see deposit growth net of remixing of 8% to 12%. The result of this growth is expected net interest income of $800 million to $830 million for the year or growth of 7% to 11%. On noninterest expenses, we project $440 million to $460 million for the year. This is growth of 2% to 6% as we continue to make investments in our future, largely in people and technology, but this range results in very significant positive operating leverage.

On capital, we are targeting common equity Tier 1 of 11.5% to 12.5% with our strong organic earnings potential positioning us well to support solid balance sheet growth. And lastly, we expect an effective tax rate of between 23% and 25%.

With that, I'll now pass the call back to Sam for closing remarks before we open up the line for your Q&A.

Thanks, Mark. In closing, Customers Bank is executing on its strategy, delivering exceptional client service, differentiated deposit gathering, diversified loan growth, the recruitment of top talent leading payments capabilities and maintain strong capital and credit.

Our teams delivered a phenomenal deposit gathering year. Total deposits increased approximately $2 billion with $700 million of that being noninterest-bearing growth. Our commercial teams delivered over $500 million of that noninterest-bearing growth, which should be the floor for 2026 and with this momentum, we feel good about the growth in our guidance.

Similarly, our loan teams are well positioned to build on the diversified loan growth we delivered in '25. Our team recruitment efforts are kicking into high gear. We're already in active discussions with half a dozen teams. That's on top of the long runway from our recently onboarded teams. We are seeing a big payoff from the investments we've made in our payments infrastructure. We did over $2 trillion of cubiX activity in 2025, strengthening our market position and competitive moat.

Last Friday, we enabled a network of existing customers in the mortgage industry that could add $50 billion in transaction volume this year. We are further targeting additional networks of prospective clients within the real estate industry as a starting point that could be a meaningful driver of noninterest-bearing deposits in the next couple of quarters.

As you heard, we delivered strong profitability with an ROA and ROE of 1.2% and 13.8% in the first quarter -- fourth quarter. We completed 2 successful capital transactions during the year, all while maintaining excellent credit performance. As you can imagine, we're incredibly excited about the prospects for this company in 2026 and beyond. We'll now open the line for questions.

[Operator Instructions] Your first question comes from the line of Janet Lee with TD Cowen.

Good morning, everyone. And congrats, Sam, on your new role. So if I were to, obviously, if I look at net interest income guide and expense, it's very good positive operating leverage for 2026 and 2025 was also a good year for fee income. If I were to look at 2026, is there a good level of expectations that you could set for fee income growth and where you're most optimistic about that fee income line?

Sure, Janet. When you look at our noninterest income, similar to our asset businesses that we built we have a nice portfolio of fee income businesses. And at different quarters, different businesses stepped to the forefront. In the third quarter of 2025, our venture business is a step to the forefront, and we had outsized loan fees. If you look at our loan fee line on our 5-quarter progression, that's where we had some warrant income.

This quarter, our commercial finance business stepped to the forefront, where we have a stronger commercial lease income and then also down in the other line, we had some sales on operating some operating leases that we have sold residuals, lease residuals at a game. So my advice would be that while there will be different businesses that stepped to the forefront throughout the course of the year, on a quarterly basis, if you go back and look, we've averaged about $30 million. So from 2Q to Q4 in the average is right around $30 million. So I think that's a good place to start. And then on top of that, we now think we have some businesses that have matured and have a good full product set around them. And now we know a focus in 2026 will be how to better monetize that.

Very helpful. And for your deposit growth, obviously, the new banking team hires think they brought in $600 million of deposit growth in the quarter and your deposit growth of 8% to 12% for 2026. I would assume a lot of that growth is driven by the new banking team hires continuing to bring in that lower cost deposits. What level of deposit growth are you assuming from cubiX, I believe the balance is on an average basis were pretty stable quarter-over-quarter. And what you're seeing on the institutional adoption of digital assets and how that's impacting the trend?

Yes. Sure, Mark, I'll jump in and take that. I think, Janet, conservatively, we're not assuming that there's any major contribution from our digital assets balances there. Well, I think you're right, we could see potential increased market activity if there's sort of legislation that comes into the forefront. However, it's not something we're counting on. So deposit growth that you see there and sort of our guidance that Mark walked through is really going to be driven by the core commercial bank. And I think that's really one of the highlights of this organization. There are potential levers that could be pulled or frankly, maybe it's another way of saying is there a potential embedded upside that could be there if we continue to see sort of brought me to the network and sort of increased activity.

But to that point, you touched on the $600 million in the quarter. We also talked about the $2 billion of growth for the year. But I think Mark also touched on the $675 million on average plus or minus throughout 2025 of remix that we did. If you put that all together, our $2 billion on a percentage basis was industry-leading in 2025. We would have more than doubled that had we just not remix and grown the balance sheet. And I think that really shows the diversified power across the organization. It's not just the '23 and '24, then the next year, the 25 team. The core bank is delivering -- is continuing to deliver great strength of the organization. And I think given the investments we made, we focused on the -- highlighting the return on those investments with the '23 and '24 teams. But really, I think that the commercial bank is firing on all cylinders and as we continue to flex our payments expertise, you heard me highlight it in my prepared remarks that we could also see lifts in deposits related to traditional not payment verticals that would the end of the operating in the cubiX platform.

Your next question comes from the line of Steve Moss.

Mark, nice quarter here. And maybe just starting -- going back to the teams you're looking to hire this upcoming year. I think, Sam, you kind of touched on part of it at least, that with looking to hire additional real estate teams, I think is what I heard it was a little stating for me. But just kind of curious, are they new verticals or just additive to existing verticals? And then kind of with the $50 billion in transaction volumes you touched on Sam. Just kind of curious as to how we could translate that to deposits?

Sure. So I'll tackle those, and let me know if I missed anything. So firstly, on future teams, I think was your first part of your question. Again, it's -- we're in discussions with half a dozen teams. It's difficult to sort of say where we'll land out. We do think it's a question of a little bit of bottoms-up as well as top-down. So top-down strategically, we think about different strategic areas that we'd like to be in that we aren't in today or we're already in a decentralized way, it might be better to sort of centralize these and strengthen our overall go-to market. .

And then from a bottoms-up perspective, we have inbounds that kind of come from teams. So that's actually where a lot of our teams came from 2025, and we have to sort of prioritize and think about investments and align those for '26. So we'll continue to keep you posted. The real focus is continuing on the low-cost deposit gathering in '26. And as you can imagine, the hiring we do this year will really be for next year. The hiring we did last year is going to start picking up by the middle of this year. And I think we're really excited about that based on the pipeline that we're seeing and the momentum that we're seeing. So that was the first part of your question. Can you remind me the second part, the last part.

Yes. On the $50 billion transaction volume you mentioned, just kind of how do you think about that in terms of deposits.

Sure. So the projected sort of up to $50 billion of payment volume is related to existing customers. So today, it's really sort of helping customers do business on our operating platform, on advanced payments rails and strengthening our relationship with those customers and also strengthening there the effectiveness of the way that they sort of currently operate and use our platform. .

I also mentioned that we'll be looking to new verticals. And I think that's also something that we did some hiring for last year, and we're also continuing to align with hiring this year. We're just trying to bring on networks from more traditional verticals. And as you can appreciate, payments, deposits typically will be low to no cost to the organization and that's really going to be our focus. And our goal, I think you heard me say this, we had $500 million of non-digital asset cubiX related deposit growth in '25. We hope that's the floor for this year, which would continue to increase our noninterest-bearing deposit percentages of overall deposits.

Okay. Appreciate that. And then just on the loan growth guide here. I just wanted to -- you had a really strong year for loan growth. It sounds like the pipeline is strong as well. Just kind of wondering kind of what the puts and takes are for your expectations around loan growth here, where you see postal the best opportunities? And maybe if there's some upside to the number here.

Yes, sure, I'll take that. Again, when you go back and look over the last couple of quarters, Steve, what you've seen is it different groups step to the forefront. Commercial real estate was strong this quarter. Health care was a leader last quarter. We have a lot of room on commercial real estate relative to our peers to be able to add that selectively if the credit is right. And so I would just say that there's no one particular segment that we're more bullish about than the rest.

We just think that each group will continue to have its moments, probably to shine in 2026 as we saw in 2025. And there's -- obviously, that's an annual guide. First quarters are typically slow across the entire industry. Second and third quarters tend to ramp up. And -- but we feel really good about the full year guidance.

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

Nice quarter. I guess with your expense guidance for next year, as you noted, it allows for some decent positive operating leverage. Just wondering if that factors in any of this like additional team pipeline hiring, which presumably over time will drive stronger revenues, but comes with higher expenses. So part one of the expense question. And then part two, what's embedded in terms of professional fees, which presumably also should come down as you work through the right order?

Yes. You bet, Kelly. On the first question, yes, our expense guide assumes that we're going to continue investing in teams and that's part of why we put a specific slide in the deck, highlighting our operational excellence initiative, where we're going to continue to find ways to be able to pay for that ongoing flywheel of recruitment of those new teams.

And then on the second question on professional services, yes, we've been signaling to you folks for a couple of quarters, that we would expect to see that number come down. We've been right around that sort of $12.5 million to $13.5 million in that line item. We are starting to see some of that decline occur actually in the fourth quarter related to some of the build-out of our risk infrastructure. But in that professional service fee as legal expenses, and we highlighted that in the fourth quarter, we had what we think are more unique costs that should not continue of $1.9 million related to some of those 2025 teams that we've onboarded.

Got it. That's really helpful. And maybe circling back to the opportunity for cubiX. It seems like it's a nice you're positioning yourself as premier payments driven bank. And it looks like there's a good opportunity from industries outside the digital asset space. Like think escrow makes sense, but maybe you could just provide us with a couple of use case examples of how you see that fitting in with your existing client base as an opportunity ahead.

Yes. Sure, Kelly. I appreciate that. And I think that on the slide, we had highlighted a couple of them. I think the first 2 we mentioned were sort of mortgage nets, which is, as you can appreciate, existing business, then we also touched on sort of more broadly in the retail industry. And yes, you talked about title. But really, it's not just sort of title and escrow, it's also sort of broadly thinking about the closings of commercial real estate transactions and how we could sort of help and facilitate our customers and their partners, and we're seeing really good traction up there.

And as you can appreciate, would be less tech savvy industries builds take longer, but the stickiness is even stronger. And so we are really excited about this. And frankly, because these would be new customer relationships, the first part, sort of like say, on mortgage finance, it really helps you strengthen and deepen your existing relationships helps you broaden customers around the edges. but de novo industries are really exciting for us.

Your next question comes from the line with Brian Wilczynski from Morgan Stanley.

I was wondering if you could speak to the resiliency of the cubiX platform in light of some of the volatility in cryptocurrency prices that we saw in the fourth quarter. I understand the volatility does often drive trading activity. But can you just speak to what else drove the relative stability in cubiX related deposits in the fourth quarter despite some of the volatility we saw in the market.

Yes, so I think that you hit the nail on the head. I think that changes in prices actually mean increased volatility, just like you see in traditional markets with volatility trading-related type traditional players, and it's a similar in the digital asset ecosystem. So on days of the highest amount of volatility, you the highest amounts of network activity and balances. And I think that's really speaks to that. So say our spot balances were $100 million below the average on 12/31 on 9/30, they were $100 million above the Q3 average. And we've always said they operate sort of within a plus or minus -- generally operate within a plus or minus 10% type thresholds. And so to put in perspective, while New Year's Eve and New Year's Day was on a Thursday, last Thursday, as an example, we were at $4.4 billion in balances and based upon market activity that was occurring over the prior week or so, which all ends up going through our balance sheet through multiple customers and exchanges and custodians and market makers. So -- and then over the last couple of days, a little bit less than the sort of the average that you're seeing there. So I think that that's really the power. But to sort of step back, we've seen balances dramatically increase since in Q4 of last year, and then we saw another step function in -- beginning of Q3 with the passing of Genius and then maintaining a new band within that higher step function. And I think that's really how we see the strength of this platform is as we continue to strengthen product offerings as we continue to enable more payment rails for our existing customers as we continue to bring on more traditional players. We'll -- our goal is to sort of see a new floor to sort of operate within that sort of payment spend.

That's really helpful color. Earlier in the call when you were talking about the 2026 priorities, one of the things that you've talked about was relationships with the existing client base, adding additional products and services. I was wondering if you could just give us a few examples of some of the key focus areas that you have additional products and capabilities you're adding and how that translates into deeper relationships with cubiX.

Yes, sure. So I think that we -- I talked about new payment rails. That's obviously incredibly important. And I think that what we're also looking to do is consider not all of our -- so to put it in perspective, not all of our customers use all the payment rails that we offer. Secondly, while we're the on-off ramp to the digital asset ecosystem from fiat to digital asset ecosystem, we're not always the on-off ramp for our customers on to the sort of the fiat rails as well.

And then there's sort of bespoke sort of market-specific and in many cases, sort of trade secret specific type functionality that clients ask for from us that we also sort of enable. So we are continuing within each major customer, we're sort of very focused on building and strengthening our relationship with them. And frankly, what we're doing is we're helping them to run their business more effectively. And as you can appreciate, a lot of our customers have been very focused on driving sort of regulatory clarity, no pun intended as well as sort of legislation. And they're also very focused on product and to sort of be very, very effective on product, they need us and sort of the traditional fiat rails to sort of help them with that. So there's lot of activity going on, especially sort of beginning in sort of Q3, Q4 of last year.

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

I wanted to start with credit quality. Obviously, it's been very good. It's low nonperforming loans relative to peers, but there was a $15 million increase in C&I and $2 million in multifamily. Just could you provide some details around the increase and maybe give an update on the credit outlook?

Peter. Yes, I would say that our credit quality was, as you pointed out, starting from a very, very low base. So it doesn't take many deals to actually move moved the needle for us. On the nonperforming side, I mean, it was largely one transaction, about a $10 million, $11 million credit. It is currently under agreement, and we're hoping to have either a restructuring or a resolution of that asset in the first quarter. But I would continue to say that when you look back, we had 2 quarters, 3Q and 4Q that were extraordinarily low in terms of NPA and NPL ratios. So I think what you see here in the fourth quarter is certainly not unusual and still puts us feeling really good about overall credit quality.

And the multi multifamily, was that New York City rent controlled property. Just curious around that.

I don't have this to know specific what it was because as you pointed out, it was a $2 million credit. So I'm not sure if that came from primarily regulated multifamily or just our broader multifamily, which is the majority of our multifamily is in sort of a 4-state region around the Mid-Atlantic.

Right. And then if I could just ask the benefit, I believe, from the deferred loan fees ends this quarter, what's a good starting point for the first quarter margin? And maybe talk about how you think about the trajectory of the margin this year.

Yes, sure. If you go back to the second quarter of '25 and kind of project forward from there, I think that's kind of a good place to start. Second quarter margin was 3.7%. And we had just a little bit of -- about half of a month of accretion in the second quarter. But with some of the deposit remix that we've done, I think that kind of 3.25, 3.27 level might be a good place to start and then build from there throughout 2026.

One other thing I would add is that in the first quarter here, I mean, we are modestly obviously, asset sensitive. And so we did see a couple of bit decline linked quarter from 3Q to 4Q. But I think somewhere around that 3.25% plus or minus a couple of basis points would be a good place to start from and then build out from there.

Your next question comes from the line of Tyler Cachatori from Stephens Inc.

This is Tyler on for Matt Breese. Most of my questions have already been answered, but I guess just starting on cubiX and I appreciate a lot of the color you've provided there. Can you just provide us some context on the size of the customer base in that business?

Tyler, Sam here. So we have hundreds of customers that are -- that operate within that industry. And I think one of the things that I mentioned a couple of quarters ago is there's no real material change to our customer base because we actually are the market leader. We are around the edges, adding for existing customers, some of their counterparties, edge counterparties that are already on the network. And then we're also adding sort of new traditional finance nodes, which are less active as sort of the more digital asset first tech customers. .

So we're broadening the network with some of those players who connect to a lot of our existing customers. We don't drive huge deposit balances, but they tremendously strengthen both the breadth, the quality and the stickiness of the network.

And then if you could just update us on the regulatory order and where you stand in terms of items that need to be addressed there?

Yes, sure. So as of the end of the year, we are substantially done with our plan and I'm excited to say that 2026 our focus is to put this behind us. So one of the things kind of just building off of what I just talked about with cubiX in the network. Frankly, the work is now a massive competitive advantage and the moat is, frankly, as a result of this is as big as the benefit of the network effects. .

Your next question comes from the line of David Bishop with HOVD Group LLC.

This is Kyle German on for Dave Bishop, and congratulations, Sam, on the transition. Most of my questions have already been answered, but I was wondering if you could provide some color on the yields at which new loans were originated and add to the books this quarter and also your current read on the competition in your lending markets.

Yes. Yes, I'll take the first one and then Sam can comment on competition or markets. For new loan originations, principally, we're a commercial bank, so I'll just focus on the commercial yields we are going to be anywhere between 225 and 275 basis points over Fed funds or SOFR depending on the business line. A couple of our business lines might approach 300 basis points, but the majority of new originations are between 225 and 275 basis points over cost of funds.

Yes. And just in terms of competition, what I would just say is that I think you can see on the loan growth side, but not only for the quarter. But also for the year that there's just a broad base of diversified loan growth across a number of commercial verticals. So the benefit we have is that as both sort of supply and demand dynamics in each of those verticals change, we're able to lean in. And in some quarters, you'll have health care stepping up a little bit more in other quarters, you'll have mortgage warehouse refinance activity step up. So generally, we're seeing a good, diversified durable loan growth.

As you can appreciate, in '25, generally the broad-based industry saw a bit of pricing pressure. But as you saw from sort of our NII growth and sort of Mark's comments related to margin, we continue to see the benefit. There was a great chart that the team kind of pulled together on the driving down of the delta between our interestbearing cost deposits relative to our peer group relative versus -- from end of '22 versus where we are today. And that's really a much bigger driver than sort of changes on loan yields and competition.

Your next question comes from the line of Harold Goetsch with B. Riley Securities.

Great quarter and great year. Just wanted to ask you a couple of quick questions back to cubiX just for more general information. When you just it's a great slide on Slide that I just wanted to know if the addition of instant payment platform built on payments and FedNow are those payment rails cannibalizing the traditional wire and ACH business or most of these new capabilities incremental to volumes? Or that's my first question.

Yes, sure. Right now, we're sort of seeing an additional incremental to sort of more traditional rails. So it's not necessarily sort of a big tectonic shift but there are different ways that some of our customers like to utilize different channels, both for them as well as our counterparties. And we're helping them think about sort of also sort of next-gen type ways to sort of utilize pushes and pulls within our network as well as sort of outside and sort of bringing in new dollars as well.

So there's a lot of interesting things that are happening in the industry, and we continue to see evolution we really are at the forefront of advancing many of these technologies because we haven't established existing tech forward payment focused customer base.

And when you use a terminal large or massive competitive management in this platform now. How would you describe that competitive advantage? Is it a -- is the barrier to entry now? Is it network effects you're generating before anybody else just try to start a new platform, they were looking there or, like, for example, was this a narrow window to innovate like this? And now that you're up and running, you're garnering a lot of network effects that prevent others from trying something similar? What are the sources? Or how would you describe the competitive advantages?

Sure. So it absolutely is sort of a barrier to entry and the way that we sort of see the strengthening of that mode is sort of like you talked about what the network effect is. As you can appreciate in '24 and early '25, we were heads down and sort of making sure that we were focused on how we satisfy sort of regulatory requirements. And now at this point in time, we're really importantly focused on broadening the way that these guys and our customers do business. .

So to answer your question is, does that flywheel of network effect just kept getting stronger and stronger, which creates a lot more stickiness. And then you also just think about it operationally. Operationally, the volume that we are sort of operating under is really at levels of category 3, category 4 type banks institutions. So when you think about the competition and then you add in sort of the risk and compliance vote that we talked about that we've sort of invested a tremendous amount of people process and technology on.

You put all that together, the types of institutions that could even compete, you can come on one hand with us and then how many of those are actually focused on the space, et cetera, it's very de minimis. And I think that's really the interesting position that we're in. We're more confident in our market position today than we were 6 months ago.

Great. I got one quick follow-up on you're leading the AI efforts. Can you give us like a couple of anecdotes on how AI is making processes more efficient, saving money, improving underwriting, let me know.

Yes, sure. So we, and frankly, the banking industry has been slow to discuss AI because there's actually -- as you can understand, a monumental amount of work that you need to do behind the scenes to really get going. So we started our journey with like AI governance, training. We did a lot of data transformation. We are advanced and sort of fully digital onboarding for very complex commercial clients. Now as we sort of look forward, we're focused on full complete loan deposit automated onboarding.

We're looking to build an AI layer on top of our CRM. We touched on credit. We're automating sort of CAM draft creation and underwriting support. We are working on sort of risk and compliance automation. And then in parallel to that, we're also in the process of building a workflow orchestration layer to conduct all of this across the bank. So only then are you able to deploy AI agents across your operating platform. That's really where you transform the bank and the way that we work internally, our team members work and then also the way that we do business and really transform the way our customers see it.

So right now, today, how the work is sort of siloed where we're doing sort of AI and agentic work gets used for micro use cases, which is nice, but not really transformational. Tomorrow, it's going to be across the overall bank, and it's really going to differentiate us and agents working all the time versus working on to our projects to kind of help advance a specific use case, which is nice to have, but not really needed to transform the way that we do business. And that's really sort of where we are in our journey. So I hope that gives you a little bit of color.

And if we get to the -- to sort of our initial sort of Phase 2, that stage, it's really going to transform the way that we do business. And my guess is also potentially just given even the size of our organization relative to much larger complex organizations, while they may have much bigger budgets that they don't have the operational flexibility and visibility that we have.

There are no further questions at this time. I will now turn the call back to Sam Sidhu, CEO, for closing remarks.

Thank you to everyone for your continued interest and support of Customers Bancorp. We appreciate you being a part of the incredible franchise we're building, and we're excited about 2026. Thank you, and have a great day.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Customers Bancorp, Inc. Third Quarter 2025 Earnings Webcast and Conference Call. [Operator Instructions]

I would now like to turn the conference over to Philip Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Please go ahead.

Thank you, Regina, and good morning, everyone. Thank you for joining us for the Customer Bancorp's earnings webcast for the third quarter of 2025.

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 these 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 10-Q 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.

At this time, it is my pleasure to turn the call over to Customers Bancorp, Chair, Jay Sidhu. Jay?

Thanks, Phil, and good morning, ladies and gentlemen, and welcome to Customers Bancorp's third quarter 2021 earnings call.

I'm joined this morning by our President and CEO of the bank, Sam Sidhu; and Customers Bank and Customers Bancorp 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, continue to improve capital quality and drove disciplined franchise-enhancing growth across deposits, loans and also fee income. You'll 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 our 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 5 years for banks of our size and that's translated into long-term results for our shareholders as we've been the #1 performing bank stock in United States for institutions over $10 billion in assets over a 5-year period. Thank you for -- and kudos to all of you for being our long-term shareholders, and I'm thrilled to be one other.

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 result 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. Sam?

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 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 cubiX 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, our net interest income increased by 14% in the quarter. Our efficiency ratio improved again, even as we continued 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 10x 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 multiyear trend of 15% annualized growth, which is #1 for bank's $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 6, 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 $2.20 with a core ROE and ROA of 15.5% and 1.25%, 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 remain 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 7, 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 noninterest-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 of 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 2 years, which is akin to bind a $3 billion bank, but without the tangible book value dilution and integration risk of traditional bank M&A. The $900 million of growth in noninterest-bearing deposits led to a record $6.4 billion in noninterest-bearing deposit balances.

In addition to cubiX growth, our core commercial franchise again delivered 9 figures of noninterest-bearing growth, which is truly incredible. As a result, noninterest-bearing deposits now represent about 31% of our total deposits at quarter end, placing us #1 amongst our peers. Our team responded well to the Fed easing in September, and we were able to lower our deposit costs by 15 basis points post Fed action, which represents a deposit beta of approximately 59%. As a result of the combination of these 2 factors, our total average cost of deposits declined 8 basis points in the quarter. And to emphasize this point further, our spot cost of deposits was another 9 basis points lower at 2.68% at quarter end or 17 basis points below our Q2 average.

Now let's turn to Slide 8, 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 3 years, we have onboarded nearly $7 billion in deposits from our new banking teams and cubiX clients. That represents nearly 40% of our deposit base at year-end of '22 and about 1/3 of our deposits today, and it's 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, they are very low cost at just 1.06%. This has allowed us to increase our noninterest-bearing deposits to 31%, as I mentioned, from 10%, while simultaneously reducing our wholesale CDs from -- down from 22% to 9%. Our average cost of deposits this quarter was essentially flat relative to the end of 2022. Over that time period, interest rates are 65 basis points higher on average today than they were at the end of '22. The industry's deposit costs, however, are 128 basis points higher, which means that our outperformance is incredibly 124 basis points over that time period compared to peers. That shows the power of our deposit transformation.

Moving to Slide 9. 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 road map for the types of continued team recruitment we look to execute 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 2 new teams this quarter. In fact, we were able to recruit and onboard 4 new teams in the quarter. This included 2 additional geographic C&I teams as well as 2 national teams, 1 serving title companies and 1 in the Sports and Entertainment segment. This brings our 2025 total to 7 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 terrorist the teams that join us in '23 and '24 and now significant additional opportunities from the teams that have joined us this year in 2025.

It is important to highlight that almost every one of the bankers that have joined us have come through direct referrals from our existing team members. We'll 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, and we continue to prioritize credit discipline and pricing. Given the depth and breadth of our platform, we continue to see opportunities to franchise-enhancing loans with an utmost focus on credit discipline.

With that, I'll turn the call over to Mark on Slide 11.

Great. Thanks, Sam, and good morning, everyone. Thanks for joining us on the call.

I'm going to start with our net interest margin, where we reported strong results. Net interest margin expanded by 19 basis points 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 the fourth quarter of 2025 and then is expected to drop off in the first quarter of 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 noninterest-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 1 ratio improved 100 basis points to 13% and tangible common equity grew 50 basis points to 8.4%, and 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 for 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 5 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, we believe the loan portfolio is well positioned, and we have strong reserve coverage within our allowance for credit loss. Currently, this allowance sits at 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% and 15% for the year, up from 7% 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 the 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&A.

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 #1 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 5 years, #1 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.

[Operator Instructions] Our first question will come from the line of Janet Lee with TD Cowen.

On the deposits, so if I were to look at -- obviously, you guys have been bringing in a lot of -- about $200 million to $350 million of 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 in that like 14 higher per quarter range. I just want to 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 the saturation point from the big banking team hires that you guys made in 2024?

Sure. Well, Janet, thank you so much for that question. So to add a little of color, you rightfully sort of mentioned that we had sort of guided previously to about $300 million to $400 million or so of quarterly deposit growth from the new teams, which we, 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 in 2026 based upon the '23 and '24 teams. The '25 teams are really going to start adding balances 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 million to $400 million. So it kind of gives you a sense of sort of the layering of the vintages of teams that are being onboarded. One thing that I would mention the $350 million of growth that we saw this quarter, it continued to maintain that sort of just at or under 30% noninterest-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. So it just gives you a sense of the high-quality nature of those sort of we call them the singles and double type deposits that our teams are bringing in from the C&I and CRE side.

That's very helpful. And obviously, the cubiX deposits grew a lot about $800 million 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 all of these deposits from cubiX are going into cash. what drove that much of an increase in cubiX. Do you think that this cubiX deposits could sustain in terms of the growth? What is the strategic value that cubiX brings to your platform aside from the NII. Maybe if you could touch on the fee income opportunities from the cubiX payments platform, that would also be very helpful.

Sure. Absolutely. And if I miss anything, Janet, because I think there's a couple of layers in the question, please remind me after I'm done here. But I think on the cubiX side, just as a reminder, this is a payments platform, right? So at the end of the day, our customers hold transactional operating accounts with us to support that payments business. There's a minimum amount of deposits that they hold with us at any given time. What we [ encode ] a little bit of a slide in the deck that showed this is what we've seen is, especially since November of last year, we've seen a continuous increase in the payments activity as well as the -- which translates into higher average deposit balances. So on the Q2 call, if you recall, I talked about balance has been about 20% higher as of end of July when we had our call relative to the second quarter. As you can see, we maintained or even slightly increased those balances as the quarter continued post the sort of Genius stablecoin 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 about 20% of our deposits were coming from traditional finance customers even with the growth in our average deposit base, 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 large core customers as opposed to a customer or 2 or 3. It is universal across the overall customer base. The low end of our top customers grew by 10%. The rest were sort of growing overall across the base to that 25% or so growth. One other thing that I would add, just talking about 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 in the third quarter. I'd also say that October, going back to activity is on track to be our highest cubic month ever in terms of network volume and activity as well with just 3 weeks of the quarter end. You also got a sense that our activity in overall volume this year as of 9/30 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, we're continuing to increase. So I think that was the first part of your question. I'll address the fee income, and then let me know if I missed anything. So on the fee income in late last year, we we started instituting outbound wire fees and some modest fees to our overall customer base. That's to the tune of $8 million or so of overall fee income. At the end of the day, we want to make sure that we have a partnership approach with our customer base that we're not -- that we're making sure that fees are aligned with driving value to our customers and to our customers' customers. So right now, we're focused on continuing to broaden the institutional breadth of our network. We're also really focused on product expansion and 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 sort of a best-in-class North Star, not for the overall industry because we and even our customers are going to continue to see more competition as there's broader institutional adoption in the industry, which is a rising tide will obviously lift all boats. But at the same time, we want to make sure that we truly have built a platform that we -- our customers and all of our stakeholders' view as best-in-class.

Our next question will come from the line of Steve Moss with Raymond James.

Maybe following up on cubiX here for the moment. With the likelihood of additional rate rate cuts coming, just curious how to think about if there will be any potential increase in fees from the platform.

So Steve, it's sort of building off of the answer I gave to sort of the last question is that at the end of the day, as we're continuing to add new products and continuing to partner with our customers on sort of more overall initiatives, will -- we will explore fees. Right now, deposit growth is far outpacing any type of "asset" sensitivity of noninterest-bearing deposits that are held in cash. So I think that for the time being, right now, we feel very good about the position that we're in, sort of cubiX, let's say, all things equal, just with the growth that we've seen this quarter, cubiX associated interest income would be higher based upon the balances today that we have relative to well over 100, 150 basis point rate cut relative to prior balances.

Okay, got you. I appreciate that color, Steve. And then in terms of the loan pipeline, Mark, 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 what does that business mix look in the current pipeline?

Yes. The loan pipeline is broad-based. And I think what you've seen throughout this year is that our growth from quarter-to-quarter will come from different segments. We have a good graphic depiction on that on Slide 10 in the deck that shows where the growth came from this past quarter, where fund finance and commercial real estate led, but we've had other quarters where the commercial banking teams, health care, equipment finance, et cetera. are all going to be meaningful contributors. The point I was making was that the almost $900 million of growth that we saw in the third quarter did include some deals that a quarter ago, we may have thought we're 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 to approach to quarter levels

Right. Okay. And then maybe just one more for me here. Just kind of curious, you mentioned less you've reduced your asset-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.

Yes, sure. So for us, when you go and let our quarterly numbers, we numbers for the impact of 100 basis points, 200 basis points up or down rate move that's that static view which is at least 1 measuring stick to compare us to relative asset sensitivity to other peer banks obviously, the limitations on that are that no bank experiences a static across all points of the curve and then sits on their hands and does nothing to react to that. What I would tell you is that while we are still inherently asset-sensitive because we are a commercial bank, and as Sam pointed out, our asset sensitivity that also increases a little bit because of our decision to hold all of the Cubic's balances in cash. But with some of the -- just the mix of businesses that we have as well as some of the synthetic things that we've done with adding on some received fixed swaps, we're now at a point where for a 25 basis point rate move. It's around $1.5 million annualized impact to our NII. But we think that my comment that we think we're positioned to still be able to produce net interest income growth regardless of monetary policy is that we think there will be sufficient growth to make up any NIM compression we could see from that -- those 25 basis point rate is.

Okay. 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. Maybe -- and I hear you in terms of potential deposit growth, is it going to be a similar kind of low new deposit type mix? And maybe kind of curious how many -- are there any additional verticals you may be looking at?

Yes. Sure, Steve. So I'd say that it's difficult to fully project let's say, broadly the deposit to loan is a better way to think about it because they are mostly deposit-focused team, based upon sort of the teams that we've onboarded, we expect 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, which meant that our deposits to loans was 3:1 versus stabilized being at sort of I'd say these teams are a little bit lighter on the lending side relative to, especially some of the specialized national teams and more heavy on the deposit side.

Our next question will come from the line of Peter Winter with D.A. Davidson.

Congratulations on a 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 the $1.6 million decline in professional fees, is that a function of a lot of the work has been done to address the written agreement now you're expecting kind of just in the back flip thing, phase?

Sure. Yes, I'll answer the second question first. On the professional fees, yes, we continue to build out and invest in our risk in structure and work through the agreement. And some of those -- some of that is hiring of people. Some of that is again with professional services. Some of that is starting to be completed. So we were pleased that we were able to kind of pull through some of that reduction in the third quarter. We would hope to be able to continue to see that progress being made in the fourth quarter and in the '26 in that professional fees line. On the FDIC expenses, as I'm sure you're aware, that calculation, which used to be fairly straightforward, is now a very complex calculation on a quarterly basis, which incorporates several factors, but ultimately is a risk-based calculation. And as we continue to work through and derisk our balance sheet, we are making progress in ultimately getting reductions in our FDIC insurance. In this past quarter, I will say that 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 first quarter of 2025. So of that $3.4 million reduction, about $1.9 million of that actually related to first and second quarter adjustments. So when you see the total line sitting there at about $8.4 million, $8.5 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 down significantly from where it was in the second and third quarters. I'd also remind you that in that line, the way it's worried, it does include more than just FDIC insurance. I mean it also includes other above the line for us as a Pennsylvania bank, we have a shares tax, which also rolls through that line as well, plus a couple of other more minor regulatory fees. But good progress being made. We will continue to see progress being made going forward into next year.

That's great. And then, Sam, big picture question. Just 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.

Well, Peter, thank you. It's great to get a strategy question, and that's probably our first non-modeling question in a couple of quarters. So thank you so much for allowing us to not look necessarily 90 days back, but look, a couple of years forward. But AI is going to be one of the biggest efficiency and client experience unlocks that we as an industry in a country and a globe have seen since mobile banking. Our journey, I'll give you just a little bit of history. So in December of 2023, we formed a cross-functional AI discovery team. We use it to learn about AI, by the first wave of tools, test and build solutions, train and figure out how to democratize it for everyone at the bank. Since then, we've had various areas of the bank that have seen about a 10% productivity lift or said a different way, 10% savings lift, however you want to think about it. And we see in 2025 that we're going to continue to drive further adoption throughout the bank and begin expanding our planning of agentic AI systems, which has said a different way, it's sort of AI that can observe and decide and act across our platforms and workflows. And that's also going to 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 going to expect AI to lift our productivity significantly. We're going to have it unlock 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. We've mobilized incredibly early, as you can tell by looking at the time line of when we formed our team and our governance process, and it's proven value. And so just to kind of put a finer point on it, we've developed over 100 use cases for agentic AI, and we're gearing up to start beginning to test and implement.

Our next question comes from the line of David Bishop with Hovde Group.

Yes, Mark, just curious, you've seen some good growth here of late, especially in the none commercial real estate, commercial real estate segment. Remind me where your concentration ratio is ending the quarter and appetite to grow those verticals?

Yes...

Sorry, Mark. I'll take that. So we're still -- we still remain below 200%, Dave. I think that's sort of the core of your question. But what I would also like to add beyond sort of the actual question is, I think a couple of quarters ago, we sort of talked about how our deposit to loan ratio was it differently, our CRE loan growth since we onboard the new teams was fully funded by deposit growth. Well, that's continued. In fact, our deposits are greater than loan since the third quarter of last year when the team started originating. So we have about $700 million or so of deposits we brought in across the franchise at 1.7% and less than that in loan growth of loan yields of north of 6.3%, which is about a 4.5% spread. And what's interesting is that the sort of $200 million positive loan growth in the third quarter, it's incredibly granular. So our average loan size is less than $10 million.

Got it. And Mark, you noted the swaps, the first received. Just curious, any granularity you can give us just in terms of maybe rates loan received versus fixed. Just curious if you have that handy.

I don't have that right in front of me on the details of that notional. I mean, [indiscernible] 2 separate transactions that we did at different times of the quarter. But I can follow up with the actual each side of that led for you.

Got it. And then, Sam, turning back to the -- especially on the [ total ] team, you said that was a national basis. Any way to ring-fence the deposit opportunity there, but just curious maybe how big of a book they managed at their broader shop, and what the potential is there to move the needle from a deposit basis.

Yes. So David, it's a bit early to sort of tell think of this as sort of a payments platform that is sort of supported on top of our existing retail and commercial title team efforts and platform that we have with the existing bank. And what I would say about this is these types of team recruitment initiatives, I think we've stated this before when folks have come to us and asked about sort of the types of teams that we look for. If you go back to 2023, the team that we brought on in '23 had a multibillion dollar book. The team that we brought in -- the teams we brought in '24, most of the teams had individually about $1 billion or more of book. And similarly, as we sort of look to acquire and recruit sort of larger teams 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 commercial delivery model.

Our next question comes from the line of Kelly Motta with KBW.

Congrats on the quarter. Maybe hitting on asset quality. 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 the earnings season towards NDFI lending. Can you just provide some comments as to clearly, 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?

Sure, Kelly. It's Mark. Yes. 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, 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&I portfolio. I'm sure as the analyst community 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, loans generally fall into 3 categories: Mortgage warehouse and what we call fund finance or capital call lending, those 2 categories make up just a little less than 0.5% of our overall exposure. And then the lender finance piece makes up the other half. The first 2 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 0 losses, but 0 loan defaults. In this business, this is typically lending to a private credit fund where the collateral -- is it broadly diversified pool of loans to middle market companies. There's significant overcollateralization. We have low advance rates, and there is 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, it's translated into, again, 0 losses, 0 defaults. The last comment I'll make on that space is that it's always really important to understand who you're lending to. So depth of relationship is key. Again, we've been in the business for 10 years, and we have on average, about a 5-year track record with the managers that we do business with.

That's really helpful color, Mark. And then I know we've covered cubiX quite in depth here. And it's been a source of strain for you guys. Wondering given the news of de novo entering the digital acid space, any updated thoughts in terms of the competitive moat here?

Yes, sure. And I think that just to sort of highlight, Kelly, at the end of the day, we've -- I think we've done a pretty good job of highlighting the strength of the existing sustainable, stable large-scale network and the benefits of network effect. We've also made sure that we're fully integrated and broadening our relationship with our existing customers. We've built an incredible amount of of brand loyalty, and we've made significant investments in technology and risk management. So I think that's what I would sort of just sort of recap a little bit with. But to your question about sort of competition, from fintechs, there's a host of reasons that companies may want to get banking or trust licenses like trusted custody you do consolidate under a national charter, engage in international activities beyond sort of typical state borders and offer sort of consumer products and services. So all of these are complementary to cubiX. And one of the things that's really interesting is that we have a significant number of customers that either directly or a license holder over charter or hold subsidiaries that have a charter already, and they hold their primary accounts at Customers Bank because of the value of our network. And I think that's one of the most important things is we have a very robust 24/7 network that our customers, our customers' customers and the industry relies on.

Our next question will come from the line of Hal Goetsch with B. Riley Securities.

First question is, could you just go over the details 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 loss kind of house guidance to understand that? And then two, back to second question is on the FDIC insurance. Is there any way to say that your equity raise helps lower -- de-risk the company a little bit that help lower your FDIC? Any way of quantifying what that might have been as part of the formula is just for our own education.

Sure, Hal. This is Mark. So for the FDIC insurance, yes, the capital raise would have helped that somewhat. Again, it is a very complex calculation with multiple factors, but your common equity Tier 1 ratio is one of the factors that goes into that However, I would say that some of this is also just more broader-based progress we've made across just deposit growth, reducing broker deposits, there are multiple factors that play into it. And the capital raise impacted our third quarter assessment. But as I said, some of the relief that we received was due to -- was retroactive to the first quarter. So it really reflects the progress we have made in the prior 2 quarters as well. Moving to the net interest income benefit in the second quarter, we had previously originated some loans and had participated those loans to a partner we had an opportunity 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 at a very small level of accretion benefit in the second quarter. But then 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 that discount accretion would largely go away for the first quarter of 2026. I hope that explains that. And while I also have the benefit here, I'll answer Dave Bishop's earlier question. On the received fixed swaps that we put on, we put on those at a received fixed rate between $350 million and $360 million. And then we're paying 1 month over on that. So when you put on these 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. It's for risk management purposes. And if rates would fall more than 75 basis points from where we are today, which the forward forecast would certainly predict at some point in 2026, those swaps would actually turn positive on us.

Our final question will come from the line of Matthew Breese with Stephens.

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 point and they set some really lofty targets I think they said stable coin outstanding could hit $2.8 trillion by 2028, longer term, north of $6 trillion, balances today around $300 billion. The use cases in stable corn are still very heavily tilted towards crypto. So maybe one, do you agree with these longer-term targets? And two, how do you expect StablePoint usage to kind of break out of its current pie chart being heavily filed towards crypto trading and hit the masses.

Good morning, Matt, and thanks for the question. It's helpful to have an analyst like you who's been covering and following the industry for such a long period of time. So your question is a good one. I think the treasury put out some incredibly lofty targets. And I think the perspective for the -- from treasury's perspective, as I understand it, was to sort of give it a little bit of a reference point and justification for Genius, but then also sort of a sense of demand for U.S. treasuries. So this is sort of a bit of my view in early stages. What I would say is that you're absolutely right, somewhere between 85% to 95% plus of current stable coin activity is related to digital asset trading and settlement, and that's something that we see on our platform as well. What I would say is that -- there are a tremendous amount of obvious use cases for stable coins as you think of cross-border and FX. It just it's reasonably intuitive and easy to kind of reconcile that. for anyone who's tried to operate with sort of U.S. cards or U.S. feats just physically going as a tourist, but then also imagine that from a commercial perspective and sort of engaging and holding working capital and transacting with folks across the border. 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 blockchain beyond just sort of the U.S. dollar sort of movement across. And then finally, I think the biggest demand from my perspective is going to come from non-U.S. domiciled customers and countries where there could be high inflation, there's an opportunity to leapfrog from point-of-sale perspective and really utilize the staple coin as a transactional stable coin 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-U.S. growth potentially coming, and that would sort of flow into treasuries more locally. But what I would just remind you and everyone is that we have designed our platform to be really the infrastructure provider just to the stable going to U.S. dollar sort of stable on issuers and to really be prevalent and relevant you really need to be on our network and then present in our bank, and that's really what we think we've done in a very unique way.

I appreciate all that. A couple more for me on Cubic. I think someone else asked it earlier, but you're now up to knocking on 20% of total deposits north of 60% of your demand deposits aren't in cubic. Where do you draw the line in terms of safe balance sheet exposure to this industry. 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 have dedicated here

Sure. I'm happy to take that. So I think that, Matt, this question was asked last quarter and our view doesn't change and hasn't changed quarter-to-quarter. What I would say is that just as a reminder, even prior to March of '23, the industry did not hold these deposits in cash ourselves included. And I think that's a really important 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 perspective, it's more internal that we haven't necessarily highlighted as much as a number of our large institutional customers sort of give us minimum target thresholds that they want to sort of operate in an average balance thresholds that they sort of want to operate in. that they adhere to, which is incredibly helpful for us from a sort of a stability perspective. And that's seen in that 30-day rolling average deposit balance chart that we provided to you there. I think that's really important. So that's sort of the way that we think about the $900 million that we -- or $800 million rather, I should say that we grew in this quarter. It's being held in cash. It's adding interest income to our platform and continuing to strengthen the value of our overall franchise and sort of earnings base. And right now, I think, as I mentioned earlier, we're really focused on institutional breadth of the network and product expansion, which will bring additional opportunities on the fee side and really also bring additional competitive moat to the overall infrastructure, especially when you sort of layer on the risk and compliance investments.

Got it. And then I did notice that the dollar amount of uninsured deposits ticked up this quarter. And I had a similar question last quarter, but I was curious about what the average size of deposits are on the cubiX network and are there any that are -- or how many are north of, call it, $250 million in kind of average balances?

Yes. So Matt, I think that -- I don't have the exact sort of number on uninsured deposits, but I think our overall uninsured deposit -- insured deposits and sort of collateralized deposits is is well above sort of industry averages, where I think is incredibly important. And sort of large cubiX depositors, I mentioned this before is, yes, the -- we have large exchanges that are incredibly critical to the industry and to customers' bank into the network. At times, these deposits do get in sort of the multiple line figure type territory. But what's important about the network, which is helpful and I mentioned this earlier, broad-based nearly every customer increased of the hundreds of customers that are 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 growth of our platform and strength of the network.

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

Thank you, everyone, for your interest and support of Customers Bank. We really appreciate you being a part of this incredible franchise that we're building. And I really want to give a special shout on thank you to our incredible team. Have a great day and a great weekend.

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