Customers Bancorp, Inc. Price & Performance (CUBI)

Thank you, Sarah, good morning, everyone. Thank you for joining us for the Customers Bancorp's earnings webcast, which for Q1 twenty twenty five. Presentation deck you will see during today's webcast has been posted on the Investors webpage of the bank's website at customersbank.com. You can scroll to q one twenty twenty five results and click download presentation. Can also download a PDF of the full press release at the spot. Investor presentation includes important details that we will walk through on this morning's webcast I encourage you to download and use the document. Before we begin, we would like to remind you that some of the statements we make today may be considered forward looking. These forward looking statements are subject to 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 Form 10 ks and 10 Q for a more detailed description of the risk factors that may affect our results.

Copies may be obtained from the SEC or by visiting the investor relations section of our website. At this time, it's my pleasure to introduce Customers Bancorp chair, Jay Sidhu. Jay?

Thank you, Dave, and good morning. Ladies and gentlemen. And welcome to Customers Bancorp. First Quarter twenty twenty five Earnings Call. Joining me this morning are President and CEO of the bank, Sam Sidhu and Customers Bancorp's CFO, Phil Watkins. We are pleased with the way the company started the year with strong core performance from across the franchise. We will walk through those results in more detail. First, I'd like to take the stance to acknowledge the hard work by our incredible team members on four fronts that we have made an absolute priority at the company. First, the continued impressive transformation of our deposit franchise. Second, strong loan growth from well diversified sources all reflecting superior credit quality. Third, improved efficiency with execution of our operational excellence initiatives and last but not the least, significantly above average net promoter scores making us one of the top banks delivering superior service as viewed by our clients. The industry is currently facing as you all know complex and evolving macroeconomic landscape. Recent developments have led to increased market volatility and uncertainty. We believe that Customers' differentiated business model positions us well to navigate these challenges while they maintain flexible and and remain responsive to changes in this changing external environment.

And importantly, our customer centric mindset and commitment to service provided by our very experienced colleagues We are very well positioned to serve our clients as the environment continues to evolve. As you can see on slide three, we have built an incredible franchise combining the best of a large bank's technology and product offering with the nimbleness and service level of a smaller institution. That's a good segue for us to move to slide four. Where I'll cover why we believe we are building a company that you can almost call being built to last. What does it mean by building a bank that's built to last? And be able to deal with the complexities and opportunities available in this rapidly changing environment. For us, it comes down to maintaining an absolutely clear strategic direction having a deep understanding of our key drivers of financial performance, and always maintaining strong risk management and excellence in client service. Our strategy is anchored by a single point of contact service model that drives organic growth one relationship at a time by developing deeper relationships with our clients. Our proven model is infused with our commitment to exceptional client service. That commitment is the cornerstone of our culture.

And the key to our success. One where our goal each day is to have our clients say, [indiscernible] Our service model driven by exceptional and knowledgeable service oriented colleagues who are empowered to serve their clients' needs by delivering the entire bank to them. These relationships compound driving growth through repeat businesses and referrals. This unique model is a very important key differentiator. Our culture is inspired by the entrepreneurs we serve In this entrepreneurial mindset, that allows bankers to develop innovative solutions to address some of our clients' most pressing challenges. In addition to fostering loyalty and generating referrals, our entrepreneurial culture draws top talent to our organization In the past few years, we welcomed well over 100 client facing team members as well as leaders and team members in areas such as credit, risk management, marketing, technology and operations. Sam will talk more about those later in the presentation. We remain focused on providing the sophisticated products and services of a larger bank with the attention and service level of a private bank. We believe our differentiated service model and our continuous monitoring of the key drivers of our financial performance continue to help us lead to success over the long term as well as in the short term.

We've said many times before that we believe a strong and sticky core deposit and loan base results in sustainable growth in revenues, in EPS and intangible book value. We believe these are the key metrics for long term performance in bank stocks. Over the last five years, we are proud to have delivered above average annual growth rate of 15% in revenue 20% in core EPS and 16% intangible book value. This performance made us the number one bank of all banks between $20,000,000,000 and $100,000,000,000 in assets in earnings per share and tangible book value compounding. We have made significant investments in our risk management infrastructure across people, processes and technology. As we strive to meet and exceed our own and our shareholders' expectations. We believe risk management can be a strength and competitive advantage for us. And with the investments we are making, in risk management, this will give us the foundation and capabilities of a much larger complex organization. Hence, taken as a whole, our strengths are we have a clear strategic direction we have attracted above average experience talent We have a customer centric [indiscernible] That is very well viewed by our clients and we will never take our eye off of this.

Next, we have keen awareness of the external environment Next, we are making our investments in new products and technology and continuously improving upon that. And we have our absolute commitment to sound risk management and excellence in service. In our opinion, these trends have combined to enable us to deliver above average results that Sam will now share with you for the first quarter twenty twenty five. [indiscernible] Thanks, Jay. And good morning, everyone.

It's great to have an opportunity today to walk you through a very strong quarter for Customers Bank. Our business continued to perform well. Our core beat was driven by strong financial performance across the franchise. I'll walk you through some of the key accomplishments in the quarter, which provide excellent start to the year. Our deposit transformation momentum continued as we once again saw significant low cost granular deposit growth strengthen the quality of our deposit franchise. This is evident with another 25 basis point reduction in our average cost deposits in the quarter. Combined with a strong performance last quarter, our average cost of deposits are down 64 points from their high in Q3 of twenty twenty four. For the second quarter in a row, our commercial teams ex Cubics had 9 figure noninterest bearing deposit growth with over $250,000,000 in this quarter alone. We We bucked the market trend, growing the loan portfolio at a 12% annualized pace. We were able to accomplish this while being selective on the credits we onboarded. This is because much of the growth came from our bankers bringing over their long standing trust relationships to Customers Bank. Our net interest margin increased by two basis points in the quarter.

Driven by interest expense reduction. We executed on our operational excellence initiatives surpassing the targets that we first outlined last year. These savings initiatives will provide us the headroom for the investments we are making in support of our future growth. We also decided to undertake an additional balance sheet optimization process by identifying a portfolio of corporate and asset backed securities for sale. This decision was driven by two main factors.

One, our bankers achieved strong loan growth in a typically soft quarter. And we are reinvesting a majority of the cash generated from this sale into loans. With this, we felt it was prudent to reduce the credit sensitive nature of our AFS portfolio to fund this growth. We feel even better about the balance sheet optimization decisions we made based on market developments recently. And at this point, you should not expect any additional securities reposition transactions. Last but not least, we continue to maintain extremely strong metrics across capital, liquidity and credit quality. Capital remains strong with CET1 above our internal targets at 11.7% our TCO ratio increased to 7.7%. Our coverage of immediately available liquidity to uninsured deposits is robust at 155%. Our NPA ratio remains low at 26 basis points, well below peer averages, and reserves to NPLs are strong at 324%. Advancing to slide six, you'll see our GAAP financials, And then moving to slide seven, I'll run you through the core financial highlights for the quarter and full year. As I mentioned, we had an incredibly strong performance across the board as we delivered core earnings per share of $1.5 in the quarter on net income of $50,000,000 This represented core ROCE and ROA of eleven point seven percent and ninety seven basis points respectively.

Credit metrics remain strong and these results represent a great start to the year and provide excellent momentum for the balance of 2025. Now on Slide eight, I'll cover our deposit transformation, which remains our top financial priority. We are once again thrilled by the work our team by our team to improve our deposit franchise, which continued to shine in the quarter. To recap some of the impressive results, total deposits increased to just under 19,000,000,000 The new teams brought on since mid twenty twenty three continue to execute exceptionally and increase their deposit balances by about $400,000,000 in the quarter. The quality of these deposits helped reduce our deposit costs as we remix these deposits at about a 200 basis point interest expense benefit. The new teams manage relationships with over $2,100,000,000 of granular, low cost relationship based deposits, representing about 11% of our deposit base. It's an incredible accomplishment in such a short time. The momentum on commercial deposit account opening is continuing with total commercial accounts up about 14% annualized in the quarter. And over 50% since the end of twenty twenty two. This highlights the franchise enhancing and granular nature of the growth. Noninterest bearing deposits remained at a healthy $5,600,000,000 or just under 30% of total deposits.

As I mentioned earlier, our traditional commercial banking franchise brought in over $50,000,000 of noninterest bearing deposits. Over the last two quarters, that is now nearly 400,000,000 of noninterest bearing deposit growth from the traditional commercial banking franchise alone. The power of the deposit remix was in full effect as evidenced by our ability to reduce our average cost of deposits by another 25 basis points this quarter. To date, this represents a 69% beta so far in the down cycle, in of the 60% deposit beta we had in the way up, demonstrating the power of the deposit remix tailwinds. With our ability to continue to take market share that a pipeline continues to rebuild. Even with this quarter's strong deposit performance, our go forward low cost granular deposit pipeline has been replenished at again over $2,000,000,000 and growing. Which I'll expand on in a minute. With that, let's turn to Slide nine for a bit of a deeper dive on the incredible success of our team recruitment strategy. Core to our strategy is our ability to consistently attract top talent from across the industry. Our recruitment efforts over the last few years showcase this and have added tremendous value to our franchise.

As a reminder, we entered the venture banking space about three years ago with a small team lift out. Then in June of twenty three, just months after the banking crisis, we took that business to the next level acquiring a loan portfolio from the FDIC and brought on 30 new bankers. Today, the business now has over $850,000,000 in deposits, is essentially self funded, and is a top five national competitor. Over the past two years, we've made significant we have significantly expanded our presence in the achieving more than a fivefold increase in our deposit accounts and growing deposits by three quarters of a billion dollars. Nearly a year later, we recruited 10 highly experienced commercial banking teams with deep industry expertise and strong regional market knowledge. These teams are fundamentally changing the profile of our commercial deposit base and enabling us to scale our existing relationship banking franchise. In less than a year, these teams are now profitable and managing approximately $1,300,000,000 in deposits and have added 5,000 accounts to our franchise. We've already demonstrated the power of our team based deposit acquisition strategy, and now we're building on that foundation to enter the next phase of franchise expansion.

Centered on growing what we've proven works, exceptional client service driven by the by entrepreneurial colleagues who are empowered to serve their clients' needs. The market for top tier talent remains highly dynamic, and our reputation as a high performance, tech forward institution is making Customers Bank a destination for relationship driven commercial bankers. The flywheel is turning, and our pipeline for deposit team recruitment is strong. We've already onboarded a new team this year. Two additional teams have accepted offers to join and more to come. Any new additions would add to the already significant $2,000,000,000 low cost deposit pipeline that I mentioned previously. Ultimately, this phase this next phase in our deposit transformation is about intelligent expansion, not just bigger, but better driving long term franchise value and delivering delivering differentiated results. Now let's turn to slide 10 to discuss how this how these team driven deposits are powering our strong loan growth results. This was another exceptional quarter of loan growth for us. We again delivered over $600,000,000 of HFI loan growth, which was well diversified across our platform. But what's more important is how that growth was achieved. Was diversified, strategic, and aligned with our franchise building model.

Top commercial verticals included the new commercial banking teams, commercial real estate, and healthcare with contributions from multiple other groups. Each vertical is focused on long term client engagement and brings with fulsome deposit led relationships. As an example, over the last three quarters, we've had nearly $500,000,000 of self funded net loan growth in the commercial real estate industry. As you can appreciate, is typically unheard of. And this comes with more than a 4% net spread between loans and deposits. In a muted lending environment where many peers remain on the sidelines or retrenching, we are winning client relationships often from much larger institutions. While they may be new to Customers Bank, these clients are not new. To our team members who often have decade long decades long relationships. Our ability to move decisively, offer certainty of execution, and deliver relationship banking through a single point of contact model is resonating in the market. This growth is achieved with discipline as a strong credit culture has always been a top priority for our institution. As many of you know, we tend to focus on verticals with inherently low credit risk, and where we have deep industry expertise. This is why we've continued to have excellent credit performance through the cycles.

Me take this opportunity to build off of what Jay covered earlier. We've talked a lot about deposit remix recently. But I don't wanna overlook the loan transformation that has occurred at our company. Over the last five years, we reduced our concentrations in mortgage finance from 25% to 10%. Multifamily from 20% to 15%, and consumer installment from 13% to 6%. At the same time, we lean to lower risk relationship based specialized verticals like fund finance with the growth of our subscription line business, regional c and I, and venture banking. Our pipeline and backlog heading into Q2 remains robust and we continue to prioritize capital efficient deposit accretive lending that strengthens client engagement and enhances the overall franchise. We With that, I'll turn the call over to Phil.

Thanks, Sam, and good morning, everyone.

Turning to slide 11, I'd like to walk through our net interest income and margin performance. Continue to reflect the strength of our balance sheet strategy and disciplined execution. In Q1, we delivered 167,400,000.0 in net interest income and our net interest margin expanded to three thirteen up two basis points sequentially. This marks our second consecutive quarter of margin expansion. The primary driver of this improvement was a significant reduction in interest expense which was lower by $14,600,000 quarter over quarter. This was achieved through deliberate and proactive deposit remixing. This helped offset a decline in loan yields from lower benchmark rates and demonstrates that the quality of our funding base is improving in ways that support earnings durability. The rate trajectory remains uncertain, the value added opportunities we have on both sides of the balance sheet provide the foundation for net interest income expansion across a range of rate scenarios. On slide 12, we'll cover noninterest expenses. We are incredibly proud of our performance on efficiency this quarter. In q one, our core noninterest expense declined 5% sequentially to $103,000,000 That decline came even as we continue to invest in technology, talent, our risk management infrastructure. Our core efficiency ratio improved to 52.7 with our with noninterest expense to average assets of 1.87% placing us at the top of banks in our peer group.

Moving to slide 13, I'll recap the progress of our operational excellence initiatives which is how we achieve those strong results. We previously outlined a target of $20,000,000 of annual efficiency, through a combination of fee income growth, and expense savings to reinvest in our business. I'm pleased to say that we've outperformed that target. As of q one, we've realized $30,000,000 in annualized impact exceeding our original $20,000,000 target. This includes approximately 22,000,000 in cost savings, and 8,000,000 in new recurring fee income primarily through treasury management fees enabled by our proprietary Cubic's platform. I would note that this does not include future professional services expense reductions we've discussed previously. These results reflect structural, scalable improvements across the organization. We've consolidated technology platforms, rationalized vendor spend, and made strategic decisions around our operations. At the same time, we've strengthened revenue generation through enhanced payments, treasury, and commercial deposit capabilities. As a result, we expect strong growth in core noninterest income this year compared to last year. Importantly, these savings give us tremendous headroom to reinvest in the franchise, targeting high impact areas such as risk management, and technology in addition to the team recruitment opportunities Sam outlined. This ensures we continue building a platform that is not only efficient, but differentiated and future ready.

Looking ahead, we continue to see opportunity to deepen this impact as we scale and drive operating leverage. Our commitment remains clear, to grow responsibly, invest strategically, and deliver long term value to shareholders. On slide 14, you can see the tangible book value per share ended the quarter at $4.74, up more than $5.50 year over year. This continues our track record of double digit annual growth. For us, tangible book value growth is a key long term performance indicator. Over the last five years, we've more than doubled TBB per share, even while navigating a global pandemic inflationary rate shock, and a regional banking crisis. And we're committed to continuing that trajectory. With that, I'll move to slide 15. Our capital ratios across the board remain robust, and provide us with substantial flexibility for organic growth opportunities. Our TCE ratio increased by about 10 basis points in the quarter, even with growth in the size of our balance sheet and the impact of the securities portfolio repositioning. At 11.7%, we remain in excess of our CET one target, while utilizing some risk based capital for loan growth in the quarter. On slide 16, continue to be pleased overall with our credit performance.

Non performing assets remained low at 26 basis points of total assets, and reserves to NPLs stayed strong at 324%. Total net charge offs were in line with the average over the previous four quarters. And our commercial and consumer portfolios are both performing well. While we continue to closely monitor any emerging risks, we feel the portfolio is well positioned. With that, I'll pass the call back over to Sam before we open up the line for q and a.

For that, Phil. We look ahead of the rest of 2025, though there is increased market volatility, we're excited about our positioning. And confident in our ability to navigate the current environment. We are reaffirming our full year loan growth guidance with a bias towards the higher end of the range given our outsized performance, in the first quarter. Again, because this is in large part to we are onboarding our bankers' legacy relationships We are able to achieve this while remaining disciplined in our credit selection and underwriting. On the funding side, our deposit growth is driven by the expansion of the commercial franchise led by the new commercial banking teams, and deepening of relationships with our within our client base. Net interest income is projected to grow between 3% to 7% year over year. And as a reminder, we had a larger accretion income [indiscernible] 2024, and so this equates to 6% to 10% on a normalized basis. Our deposit remixing efforts and strong loan growth position well to drive NII expansion regardless of the rate environment. On the back of the success and the outperformance of our operational excellence initiatives, we are on track to achieve our core efficiency ratio target in the low to mid-50s for the full year.

And we remain committed to operating with higher levels of capital. With the clarity of of strategy and strong execution, our forward outlook reflects both optimism and discipline. As we wrap up today's presentation on slide 18, want to take a moment to recap what the first quarter demonstrated. Not just in terms of financial results, but in terms of strategic clarity execution. We delivered on a strong performance across the franchise. On funding, we had a 25 basis point reduction in deposit costs, driven by our successful remixing into lower cost deposits. On the loan side, we had 12% annualized loan growth, achieved through disciplined relationship based lending across diversified verticals. Our net interest margin expanded for the second consecutive quarter, signaling improved funding dynamics and continued momentum on both sides of the balance sheet. And we maintain strong credit metrics. What stands out is not what we accomplished, but how we did it. Our client centric culture, disciplined risk framework, and high performing teams continue to drive differentiated results. In closing, we're building on a strong foundation, one defined by disciplined execution, strategic growth, and a relentless focus on our clients. With the right talent, technology, and operating model in place, we're confident in our ability to sustain this momentum.

Strategy is clear. The team is aligned and we remain committed to delivering long term value for our clients, communities, and shareholders. With that, we'll open up the line for questions.

Thank you. Thank you. Your first question comes from Frank Schiraldi with Piper Sandler. Your line is open.

Good morning. Just in terms of the the new banking teams, the deposits coming over, Sam, sounds like that's still 25% of that is non interest bearing and that's still kind of the expectation going forward. And just if that's the case, just curious the offset in the quarter in terms of non interest bearing, is that just continued general pressure to move some funds and get some return overall?

Good morning, Frank. Thanks so much for the question. So you know, in terms of the the new teams, you're you're right. At least 25%. It's actually generally closer to to 30% compensating non interest bearing deposits. And, yes, we saw a couple hundred million dollars of increase, you know, from commercial teams. We also had about hundred million dollars in lower Cubic's balances, and that's sort of the netting out. And that's why it's slightly down for the quarter, but really from an operating you know, perspective, if you look at our average noninterest bearing deposit balances, they were up significantly quarter over quarter.

Okay.

And then just as a switching gears as a follow-up, just in terms of the restructuring in the quarter, Is there any does this kind of do it in terms of and you might have mentioned, I know you talked a little bit about the fact that you don't expect any additional restructuring, but does this kind of do it for any sort of credit sensitive instrument within the investment securities book at this point?

Yes. Hey, Frank. Good morning. Yeah. As as Sam said, we don't, you know, we're we don't see anything else that we would do on the restructuring front. And and just a little bit more detail know, we provided some some detail on the back, but, you know, as you saw, about 45% were corporate. Which takes that down in about half. With the remaining predominantly investment grade. 40% of it was ABS. And that was really CLO and nonagency CMBS. So with that, essentially, all of our CLOs that takes down essentially all of our CLOs. And all the remaining CMBS is agency backed. And then the CMOs were unrated privates. And all the remaining is is triple a.

Okay.

And and and just trying to to think about it from others' books, was there any anything specific you would call out in the quarter in terms of credit impairment within that stuff in terms of the loss you guys took to move that book?

Yes. Frank, as Phil mentioned, was really sort of a de rig derisking exercise, you know, for to support our our loan growth, and I think that's really the important thing. If you actually look at the last quarter, while we call these securities repositioning in q four, we we used majority for loan growth. Same thing here. So it's actually, I think, balance sheet optimization is a much better way you know, to consider this. So, you know, we thought in this environment, especially with what we saw towards the end of the of the first quarter, we wanted to you know, focus on our our deposit and loan growth, and that's where we would want to you know, have to focus on the asset side of the balance sheet.

Okay. Alright. Fair enough. Thank you.

The next question comes from David Bishop with Hovde Group. Your line is open.

Yes, good morning, gentlemen. Good morning, Doug. I'm curious, Sam, we've seen some good growth here lately, especially on the commercial real estate side. Remind us, the capacity to grow commercial real estate lending both on the non owner occupied and the multifamily space. You still plenty of capital room, correct?

That's right, Dave. So, you know, I think we we in in our book quarter and the quarter before, we talked about being under 200%, a 90% plus or minus in that quarter over quarter despite our loan growth typically stays flattish. So a ton of capacity compared to peers that are in sort of the three to 500% range. In our in our home markets. And I think what's really interesting is, you know, touching on the the fact that these are self funded with real estate deposits is is really the interesting part. And I said, you know, over 4%, I think, you know, sitting where we are today, it's 4.4%. Is what we've been able to achieve over the past year.

Got it. And then maybe on the income statement, noted the traction in some of the treasury management products. Is this a pretty good run rate for that I assume, the treasury management fees are in that other income? Do you think you can grow that off this $33,000,000 plus run rate? And from a tech spend perspective, is this a good run rate for the technology expenses? Or will there be more investment? Yes. Hey, Dave. So on the starting with the treasury fee income side, you know, we're up slightly from where we were on the new rollout quarter over quarter, couple hundred thousand dollars I think we feel like we're in a pretty good run rate to answer your question. I think, know, I'd caveat that by just saying, you know, these are, you know, the the successes of what we laid out in the middle of twenty twenty two and sort of building our treasury management platform, you know, building our Cubic's platform, and then rolling it out to our larger corporate clients than seeing, you know, the results of of that you know, lending to, which actually speaks to the the benefit that the customers are are achieving.

So I think that we're we're sitting at a pretty good run rate, you know, today. On the technology spend, the technology spend associated with these fees, absolutely, it's it's a it's pretty much behind us. So I think that's a I think that's the nature of where your question was get going from a from an ROI perspective.

Got it. And final question [indiscernible] continued decline in the cost of deposits It was $2.82 Do you have the spot cost at the end of the quarter? Thanks. And I'll hop back into the queue. [indiscernible] It was at $2.82. So spot spot's the the same as the average.

Great. Thank you.

The next question comes from Steve Moss with Raymond James. Your line is open.

Good morning.

Good morning, Steve. I guess, [indiscernible] [indiscernible] I apologize. But in terms of the Cubic's deposits here, it sounds like I think you said $300,000,000 down quarter over quarter. Sam, just kind of wondering what you're thinking for those balances, if you're going to grow them over time here. And just maybe just talk a little about where you see the opportunity going forward?

Yep. Sure. So they were at $3.03. I think what's important is the average was $3.03. And, again, these are payments deposits. And as a reminder, they're held entirely a % in cash. So as we think about the know, the the spot versus average, they typically, you know, have been oscillating between a a 10%, you know, band plus or minus. And we continue to support our clients how they need us, when they need us. We're not necessarily looking to directly expand these deposits. You know, we we have the entire institutional, you know, network base of of all of our digital asset customers. We have all the operating and transaction accounts that the industry really operates on. So, you know, if our customers need additional deposit headroom related to sort of their operating transactional accounts, you know, we will we will support that. Having said that, you know, we are holding these all in cash and and you know, and sitting where we are today, it's not it's not necessarily something we're looking to you know, lean into and to increase deposits because this is really payments float. And I would just contextualize that by saying that one of the things that I think that is underappreciated, number one, is that, you know, we've built this proprietary technology platform that that that the industry relies on.

You know? The second is really is that we hold about 1%, maybe slightly over 1%. Of the liquidity in the digital asset industry. And I think that that's also something that's a a really important call out. Is that a lot of the deposits are actually held at the large banks and by asset managers. So we hold the operating transactional accounts. And as you can appreciate, there's yield at being received, you know, on on those, you know, excess corporate in a or reserve accounts.

Great. I appreciate all the color there. And then in terms of the loan growth front, I guess the guide strikes me as conservative here given the quarter. I'm assuming you just kind of [indiscernible] makes you reluctant to to take it up. But just kind of curious as to how you think about the pipeline here and the pull through on that pipeline.

Yep. Absolutely. You know, Steve, I think if you had asked us on April 2, which is when we all sat down, it was a Wednesday, I believe. Monday was the the thirty first. We sat down on Wednesday, April 2. We talked a little bit about how the quarter the second quarter was was you know, looking, and we had sort of a soft close of of the books. You know, we had a very different outlook than we you know, just a couple hours later that afternoon. So, yes, there is volatility. Having said that, I think what's important is is that backlog is what it would have well, focus on, you know, as opposed to, you know, pipeline. Pipelines remain strong. That's, I think, generally consistent from the the the macro sentiment we've heard across the industry. But backlog is also, you know, strong and stronger than you know, what we would have anticipated, especially on the heels of the first quarter. I think what's really important is we talked about sort of the diversification over the last couple of quarters. We've been sharing a a much more granular breakout of of the loan growth that's coming by vertical.

And then you also you sort of contextualize against that against the portfolio remix that had over the last five years. I think we're really, really proud of the efforts that we put together. And it is a unique differentiated model to not just be bringing an organic you know, commercial low cost commercial deposits, but then also sort of comp you know, complementing that that side of the balance sheets remix and growth with the ability to also deliver franchise enhancing granular loan growth. We're talking single digit millions type loan growth per average borrower here. Right.

Okay.

Appreciate that color. And then maybe just one last one for me. I assume you probably said it in your remarks and I missed it, but just where is the deposit pipeline for the new new the recent hires and just kind of where is the blended rate? These days? [indiscernible] So the pipeline is still over 2,000,000,000 despite the you know, I think we we called out the the 400,000,000 just from the new teams, you know, that came in approximately in the first quarter. Quarter. It's again at about two and a half percent. It's in the sort of high twenties around you know, to up to 30% non interest bearing. And it's granular continue to to be opening up more accounts waiting for those to fund. So we sort of have you know, continue to have an a parking lot of of opened accounts with we funded a number of accounts where applications are are out. And and then finally, I think also importantly, which which you may have missed, but just to put a little bit of a bow on it is that, you know, we have a couple teams already, you know, either onboarded or or signed up in advanced negotiations with about, you know, half a dozen or so you know, other deposit focused low cost deposit focused commercial banking teams either in expanding into our existing, you know, and in some cases, thinking about sort of unique specialty you know, verticals as well that would be interesting and adjacent products for Customers Bank.

Alright. Great. Really appreciate all the color. I'll step back. Thanks, Sam.

The next question comes from Kelly Moda with KBW. Your line is open. Hey, good morning. Thanks for the question. I would love to follow-up again on the deposit pipeline here. Obviously, the core deposit growth has been really strong and a testament to your new teams. And you just continue to replenish the pipeline in a way that almost has made it look easy. So I'm wondering, is there a certain point being, like, a year with the the 10 teams having brought in where the overall pipeline and so called low hanging fruit might start to diminish. I'm sure it's hand to hand combat, regardless. But just wondering how we should start thinking about that in terms of the outlook here.

Yes. Thanks, Kelly. Wish I could say it was easy. And for those, you know, 52 mem members that have joined us in the last year or two and the additional 50 or so in our sales teams that have been in hand to hand combat for the past couple of years. We commend your efforts such that, you know, our stakeholders feel that way. I think, you know, on the I'll start first on the the the new teams, you know, or the newest teams. We talked about venture banking that we expect that to be a two to one. A deposit to loan. Franchise over time. So I think that speaks a little bit to just the nature of the the the of continuing to build and harvest first deposit only customers. Then know, credit customers that are typically net depositors, and then, you know, finally, a little bit in the later stage sort of borrowers. And that's sort of how we think about the diversification. You know, if that business We also talked about the new commercial teams that were onboarded last year and the the size of their books you know, today is less than 20%.

You know, of of where they were when they were onboarded. And even if all of those direct customers don't come back on, they will replenish those books you know, given the high performance nature of of these teams, the markets in which they serve. And we expect to you know, expect that to happen, call it, over about a three year period. You know, plus or minus. So that hopefully gives you some color there. And then like I mentioned, we're we've established ourselves as a top recruiter of talent. You know, I think our employees, and team members that join us that find a a platform and a franchise has a single point of contact service model. It has a a ton of products and services to support some of your small customers, your medium sized customers, your large customer needs. And then you complement that with an incentive compensation model that is unique in the industry, and you look at sort of banks of the scale that we are at, you know, we're really the, you know, the largest, most successful, you know, regional bank in sort of recruiting these team members. In the markets that we serve.

So I think that at the end of the day, we've we've had an opportunity, for many teams that, have joined other institutions to have a, you know, first look or a last look, and we're really focused on the folks that are going to be the most accretive to adjacency in terms of products and services, adjacency in terms of geographies, and continuing to focus on something that is complementary into what we already have and continue to to to build these, you know, build these pipelines and continue to transform and remix and also grow. You know, our overall deposit franchise.

Great. That's helpful. And maybe maybe flipping, to the other side of the balance sheet. With loans you've grown at a double digit pace now for the past four quarters. Hoping to get a refresh as to the average size of a loan. I know you have good diversification. So I'm hoping to get a refresh on on kind of where that stands as well as where C and I utilization rates are currently and how that compares to recent history? Thank you.

Sure. Absolutely. So I'll give you some ranges. I don't have it for sort of every vertical, but I think predominantly the majority of our loan growth has been coming from you know, team members who are new to Customers Bank, but relationship that are long standing and decade in some cases, decades long. Sort of our new commercial banking teams have an average loan size of about $6,000,000, You know, our venture team is also sort of in that, you know, 6 to $10,000,000 range. The CRE side, we've actually know, closer to about 7 and a half million. You know, on the CRE side. So extremely, you know, granular across the board. And, again, these are the the the major loan categories that we've had, especially over the last two quarters.

And on the Yeah. And, Kelly, I I can good morning. I can jump in on the utilization. Yeah. I would say, again, it it it obviously varies a bit by business line as Sam was saying. So as an example, I would say in our traditional C and I, we're not seeing anything sort of unusual from a line perspective. Certain of the verticals actually, like, in our fund finance business, sort of lender financing capital calls, probably seeing lower than than normal utilization. And, also, with the the strong CLO market, we actually saw, think, you you saw in the material, some increased payoffs. And so that's a, you know, just a sign because our our typical takeout there is is often when they would move to a CLO. So it varies a bit by by vertical, but nothing, out of the ordinary there.

Great. Last question for me, if I can just flip it in, is, on the Cubist deposits, you've you've framed it more as like a payment a a payment play. So I'm hoping to get an update as to the the fee income contribution there and if if that's fully realized or if there's other tweaks you're making that could drive drive those those revenues higher? Thanks. A lot. [indiscernible] Absolutely. Kelly, so we had, I think, fourth quarter we'd mentioned $1,900,000 on a sort of a full quarter basis. In the first quarter, it was $2,100,000 That's sort of that couple hundred thousand of increase that I was sort of referring to earlier. So we feel we're at a pretty good plus or minus, you know, $8,000,000 run rate. We sort of guided to a little bit lower last quarter with a bit of conservatism, you know, at sort of five plus. But I think we feel pretty good about the the ramp up there. Again, we're we are we are charging traditional commercial banking, you know, you know, fees here. Nothing that is out of the ordinary, and our customers have been very receptive.

Great. Thank you so much. I will step back.

The next question comes from Matthew Breese with Stephens Inc. Your line is open.

Good morning. I was hoping to stay on Cubic's How much of those deposits reside within non interest bearing And do you think there's any risk to that just particularly given the openness of the regulators and inviting banks back into the industry, do you see any risk of transition of Cubic into interest bearing deposits? We also know that from other banks in the industry, they tended to command higher betas at some houses? Thanks.

Sure. Absolutely, Matt. So the the answer, again, just to be very consistent, is a % of these deposits, sir. Are are noninterest bearing, and and that's really the you know, speaks to the differentiation. You know, I, you know, I would sort of venture that we have the vast majority of all all nonyielding deposits. You know, that exist in in sort of The US banking, you know, industry So, you know, to your point about regulatory clarity and, you know, etcetera, I mean, this certainty is really gonna bring consistency the space. It's gonna bring in new institutional investors. It's gonna increase interest in the asset class. More banks, you know, will be interested Having said that, the banks don't have sort of the network, the technology, the industry knowledge, the know how, the connectivity, the customer service, the support, the risk management framework, the transaction monitoring, that that we have. So, you know, banks are expected to enter, and we think it very much legitimizes the industry and further strengthens the controls around the industry. And with that, you know, comes with that comes greater interest. With that comes a bigger pie, and so we will you know, expect to have and actually welcome you know, more banks in the industry.

Having said that, you know, we're gonna continue to be the primary transactional operating account. And as the as they enter, the pie will also be growing. And, again, like I said earlier, think the really important thing is we have about 1% of the liquidity.

Got it. And are there any updates historically you've had about a 15% cap Has that been updated in any ways? Or is there a cap in place? Or does it still remain in flux Yes. Good question, Matt. So $3,300,000,000 sitting where we are at $3.31 is about 17%, so above the the old cap. When we set that initial cap back in in February of twenty three, we, you know, we didn't have a policy to hold all these deposits in cash, you know, since we have since that time been holding all of these deposits in cash, you know, we thought it was prudent to make sure we're there to support our customers and and no longer have that liquidity risk concentration cap.

Okay.

Alright. And then on the security repositioning, [indiscernible] any of what was sold because we've talked a little bit about the the credit risk here. Any of what was sold include the consumer installment loans that were securitized? I believe back in 2023, And if not, could you just remind us how much of the securities book are the securitized installment loans? I know they had a shorter life and duration.

Yep.

So the they do not exit. This has nothing to do with anything on on the consumer side. Those are actually sitting in our HTM portfolio. It was over a billion plus or minus at the various stages, and it's a couple hundred billion. I think less than 400,000,000 and performing incredibly well with credit enhancement. And no issues.

Understood. So what was the I think you had mentioned CLOs. What was the underlying nature of the collateral that was sold?

Yes. Hey, Matt. As outlined, you know, about 45% of it was corporates. 40% of it the ABS was CLOs and nonagency. CMBS. And then there was a about a 15% tranche that was unrated privates. And, again, as I mentioned, the on that tranche, all everything remaining is triple a. Essentially takes down the CLOs, and the remaining CMBS is agency backed.

Got it. But underneath the the non agent CMBS, was it office or multifamily? What was it that that was driving the credit mark?

Well, you know, Matt, to be clear, these are these are AOCI marks, which include interest rate risk marks. They include know, spreads and credit marks. So it's a it's a broad base. Know, I don't have the specific breakout in front of me. I don't know if you do, Phil. Though Phil also says he doesn't have the specifics on that. But, really, I think the important here is what's what's remaining in corporate is predominantly investment grade. No no more real, you know, CLOs essentially all sold. And and on the CMBS side, what we have is now all agency backed Ginnie Mae. And what and on the CMO side, what's, you know, what we what we could what we exited was was unrated privates, and what's remaining is triple Okay. Understood. I'll leave that there. The the last question I had is just we're now just tripping over the two year mile marker post March Madness of twenty three Does that mile marker represent any sort of significant milestone in terms of expiration of employee lockup agreements that'll provide additional hiring opportunities? You know, is there anything kind of broken loose just because of timing? Thank you.

Yeah, Matt. So the short answer is yes. The long answer is is actually interesting for Customers Bank. So yes, they're about two years sort of agreements for, you know, some of the institutions that we're majorly impacted. You know, in March, which is sometime in this quarter or early next quarter. Having said that, I think that the opportunity we had last year to really pick off what we felt were the top 10 teams that were you know, available to us. We had an opportunity, as you can probably appreciate, to evaluate significantly more at that time and since then. And like I said, we've we we really do have an opportunity to have sort of a first look and look. So, yes, we may have additional know, team or two that is incredibly high quality that that hasn't necessarily moved around because moving around creates disruption. In the client experience and service of of a different logo every year. So what's but what's really important about the bank is that the vast majority of the teams that we're talking to are not the types of banks that you're referring to that had backups. They're actually coming from folks the high quality teams, market presidents, state or geographic leaders are reaching out to myself, our chief banking officer, and many of our senior executives and and wanting to join Bank, wanna join a high performing team, want to, you know, sort of the the the depth of the products and services, the technology, and the incentive compensation model that we offer.

Got it. I appreciate all that clarity. I'll leave it there. Thank you.

The next question comes from Hal Goch with B. Riley Securities. Your line is open.

Hey, thank you. My question is on the the teams and maybe the pipeline of new professionals you can add. Obviously, you hire experienced teams, they're going to bring over existing clients and that's an immediate impact maybe in the first twelve to eighteen months. But like, could you could you show us your expectations on what those teams that are highly confident know, kind of bringing years two, three, and four. Are they still building their book of business? And and is that an expectation of of their agreement to come over? Just tell us a little bit more about this.

How this works and the runway it gives you when you hire a team not just in year one, but beyond. Thanks.

Sure. Absolutely. Thanks for the question, Hal. So you know, we've because of some of the market know, volatility and disruption and and, you know, bringing on teams on mass, I think we're a little bit spoiled by our, you know, success in a short period of time just because customers were a more receptive to, you know, to moving. You know, breaking even in in in less than a year is is really quite incredible accomplishment, you know, especially given this the the the scale of the investment that we made last year. So as I mentioned earlier, we expect these teams will continue at a similar type pace. They're at about a, you know, hundred million plus or minus on a an average month over the course of the year. There are obviously some typical months that are a little slower like a January or an April. As an example. But, you know, at least at that type of level, then we have sort of venture bank and continuing to contribute you know, over time. We expect sort of maturity to happen over a three to five year period. And then that sort of becomes more sort of maintaining, you know, and servicing your your overall you know, client base.

You know? And then pivoting to as we look at new teams, having said having said sort of the that related to the success that we had, you know, over the last year, we're still looking at about a year or less. You know, breakeven. You know, on the teams that we're looking to bring in. And while you may have sort of this the big pops, you know, that we've over the past year, you'll continue to have about that three year plus or minus you know, of rebuilding a portfolio of about the size that you know, you as a team leader and you as a team member use sort of maintain and service at your your prior institution even if the constitution of that portfolio may be only 60, 70% the same as it used to be. If I could ask one follow-up. I I didn't you wouldn't have to bring up the t word, like, every conference call I'm on and payments and fintech and banking is how tariffs impacting you?

Pleased to see that the word wasn't even really mentioned as I look at your business lines in commercial in venture banking, fund finance, healthcare, would you raise your exposure to you know, tariffs as basically mostly just broad economically or secondary or tertiary, you really don't have say, I don't know, manufacturing clients or might be tied up in locked down and uncertain about production schedule that require lending right now. Could you give us your thoughts on on your direct exposure then and then maybe your thoughts on indirect exposure to [indiscernible] Yes, Hal. Absolutely. I think that the the short answer is absolutely what you described as as de minimis, you know, direct exposure, you know, to tariffs. And and, you know, we have very you know, low, you know, thankfully, you know, sort of balance and verticals that that would have, you know, exposure a in a very short term basis. As you rightfully said, sort of in a medium to long term basis, there are you know, credit sensitive portions of any bank's portfolio that could have, you know, sort of de minimis, you know, exposure in a mild, you know, type recession. I really think that while the the r word is continuing, you know, to be used the end of the day, this is sort of a policy driven, you know, commercially sorry, politically, you know, sort of policy driven economic macroeconomic type you know, effort, that volatility can be created in a number of weeks.

It can also be rolled back a number of weeks, and it would be a shame for anything, you know, beyond a perception of a mile to even be on the table. But our hope is that you know, our administration and policymakers, you know, have the, you know, things, you know, in under control, and and we expect there'll be some stability with At the end of the day, market volatility comes from a lack of clarity. And we are seeing the beginnings of of at least confidence and clarity, and, hopefully, clarity will come soon.

Appreciate you for that. Thank you.

This concludes the question and answer session. I'll turn the call to President and CEO, Sam Sidhu for closing remarks.

Thank you, everyone, for your continued interest in and support of Customers Bancorp. We appreciate you being a part of the incredible franchise we're building and we look forward to speaking to you next quarter. Thank you, and have a great day and weekend.

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