Customers Bancorp (CUBI) Q3 2025 earnings call transcript

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 Seadu. Jay?

Thanks, Phil, and good morning, ladies and gentlemen, and welcome to Customers Bancorp's third quarter 2025 earnings call. I'm joined this morning by our President and CEO of the bank, Sam Sidhu, and Customers Bancorp 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 over the course of the year. oversubscribed by about 10 times. That speaks volumes about investor confidence in our franchise. We also delivered top-tier earnings performance, continued to improve capital quality, and drove disciplined franchise-enhancing growth across deposits, loans, and also fee income.

You'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 has been an industry-leading EPS and book value compounder over the last five years.

For banks of our size, and that's translated into long-term results for our shareholders, as we've been the number one performing bank stock in the United States for institutions over $10 billion in assets over a five-year period. Thank you and kudos to all of you for being our long-term shareholders, and I'm thrilled to be one of them. Our mission remains unchanged, to deliver long-term and consistent value for our shareholders and our communities by putting clients first and executing with excellence. The numbers you see are the 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 Leigh and the TD Coven 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 Banc's diversified model. Across the franchise, we delivered strong performance, disciplined growth, and continued transformation of our deposit base. We are firing on all cylinders, and our team is performing at an elite level. Q3 results represented another quarter of very strong financial performance. Here are a few of the highlights. We generated $1.4 billion of deposit growth, led by our new commercial banking teams and 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, and 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 10 times oversubscribed. The equity raise even further improved our capital quality and ratios meaningfully. And we compounded tangible book value at a 25% annualized pace in the quarter to nearly $60 per share, continuing our multi-year trend of 15% annualized growth, which is number one for banks' $20 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 gap financials, and moving to slide six, I'll run through the core financial highlights for the quarter.

Our beat relative to consensus expectations on both a GAAP and CORE basis was driven by strong results across the franchise. We delivered core EPS of $2.20 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 non-interest-bearing deposits, which was led by growth from existing institutional customers on our in-house developed Cubix platform. Our deposit growth was supported by several other areas, including our new banking teams onboarded since June 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 two years, which is akin to buying 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 non-interest-bearing deposits led to a record $6.4 billion in non-interest-bearing deposit balances. In addition to Cubix growth, our core commercial franchise again delivered nine figures of non-interest-bearing growth, which is truly incredible. As a result, non-interest-bearing deposits now represent about 31% of our total deposits at quarter end, placing us number one amongst our peers. Our team responded well to the Fed easing in September, and we were able to lower our deposit cost by 15 basis points post-Fed action, which represents a deposit beta of approximately 59%. As a result of the combination of these two factors, our total average cost of deposits declined 8 basis points in the quarter. And to emphasize this point further, our spot cost of deposits was another nine basis points lower at 2.68% at quarter end, or 17 basis points below our Q2 average.

Now let's turn to slide eight, where I'll provide more detail on the incredible success of our deposit transformation. We've talked a lot about our deposit gathering efforts on our calls in recent quarters, but we thought it would be helpful to look back and highlight just how much we have transformed our franchise over the past few years. In less than three years, we have onboarded nearly $7 billion in deposits from our new banking teams and Cubix clients. That represents nearly 40% of our deposit base at year-end of 22 and about a third 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 non-interest-bearing deposits to 31%, as I mentioned, from 10%, while simultaneously reducing our wholesale CDs 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 2022. 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 Pierce.

That shows the power of our deposit transformation. Moving to slide nine. Central to our success has been our ability to consistently recruit top talent. In the first quarter of this year, we highlighted the exceptional results from the teams who joined us in 2023 and 2024. And we also outlined a roadmap for the types of continued team recruitment we'd look to 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 two new teams this quarter. In fact, we were able to recruit and onboard four new teams in the quarter. This included two additional geographic C&I teams, as well as two national teams, one serving title companies, I'm going to turn the call over to management for the Customers Bancorp.

It's 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 making 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 add 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 non-interest bearing balances. We also had an increase to average loan balances of million And lastly our overall funding needs declined as a result of the 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 then interest income growth in future periods, regardless of macro monetary policy.

Moving on to slide 12, our non-interest 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 non-interest 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 multi-year track record of double-digit tangible book value gross.

Now let's move to slide 14 to discuss capital. We significantly strengthened our capital position this quarter. Our successful common equity raise provided $163 million of net proceeds. Through the combination of this capital raise, strong quarterly earnings, and reductions in our AOCI, which is currently at a loss position, our shareholders' equity grew $263 million, which is 14% sequentially. As a result of this growth, our common equity tier one ratio improved 100 basis points to 13%, and tangible common equity grew 50 basis points to 8.4%, 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 of customers, and the results bear this out, as you can see from our metrics.

Our non-performing assets were just 25 basis points of total assets and have been consistently below peers for each of the five quarters shown. Excluding our small consumer loan portfolio, net charge loss 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 non-performing 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 in driving increased revenue, as well as the margin benefits I discussed earlier. For efficiency, as a result of this stronger revenue growth and well-managed expenses, we now believe our efficiency ratio will be below 50% for the year versus 56% in 2024.

As a result of our common stock offering, our CET1 ratio is now projected to be around 13% at the end of 2025, consistent with third quarter levels. And with that, I'll now pass the call back to Sam for closing remarks before we open up the line for your Q&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 non-interest-bearing deposits. Our non-interest-paying deposits now stand at 31%, which is number one of our peers. We grew our loan portfolio with franchise-enhancing relationships. We improved our net interest margin for the fourth consecutive quarter, improved our efficiency ratio for the fourth consecutive quarter, delivered a 1.25 ROA, delivered a more than 15% ROE, increased our TCE ratio by 50 basis points to 8.4%, all while maintaining excellent credit performance. Our tangible book value has grown at 15% over the last five years, number one in the industry for banks of our size.

Importantly, our loan, deposit, and team recruitment pipelines are strong, and that is why we're incredibly excited about the prospects for this company to close the year and excel in 2026 and beyond. Operator, we'll now open the line for questions.

Good morning, Janet.

Sure. Well, Janet, thank you so much for that question. And, you know, so to add a little bit of color, you rightfully, you know, sort of, you know, 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, you know, this quarter roughly achieved. Sometimes we're a little lower, sometimes we're a little higher, but we're kind of in that type of target. We would expect that pace to continue in 2026 based upon the 23 and 24 teams.

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

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

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 cubic 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. So there's a minimum amount of deposits that they hold with us at any given time. So what we – we had a little bit of a slide on 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 balances being about 20 percent 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 two or three.

It is universal across the overall customer base. The low end of our top customers grew by 10%. The rest, we're 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 Cubics month ever in terms of network volume and activity, as well with just three weeks of the quarter in. And you also got a sense that our activity and overall volume this year as of 930 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, late last year, 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 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 with our core customers. And really what's also important internally at Customers Banc 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 for the overall industry.

Morning, Steve.

Steve, it's sort of building off of the answer I gave to 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, we will explore fees. Right now, deposit growth is far outpacing any type of, quote-unquote, asset sensitivity of non-interest-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. You know, sort of, Cubix, let's say all things equal just with the growth that we've seen this quarter, However, Cubic's 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.

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, healthcare, 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 were in a pipeline to maybe close in the fourth quarter. So our anticipation is that there will still be growth in the fourth quarter, but we don't expect it to approach third quarter levels.

Yeah, sure. So for us, when you go and look at our quarterly numbers, we quote numbers for the impact of 100 basis point, 200 basis point, up or down rate move. That's that static view, which is at least one 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 then also increases a little bit because of our decision to hold all of the Cubics balances In cash, you know, but with some of the you know just the mix of businesses that we have, as well as some of the synthetic things that we've done with adding on some receipt fixed swaps.

We're now at a point where for a 25 basis point rate move, you know, it's around a million and a half dollars, you know, annualized impact to our NII. I, you know, but we think that, you know, my comment that we think we're positioned to still be able to produce net interest income growth, you know, regardless of monetary policy is that we think there will be sufficient growth, you know, to make up any NIM compression we could see from that, those 25 basis point rating moves.

Yeah, sure, Steve. So I'd say that, you know, it's difficult to fully project. I'd say broadly, the deposit to loan is a better way to think about it, because they're mostly deposit-focused team. Based upon sort of the teams that we've onboarded, we expect actually that ratio to be higher than what we brought in last year. Remember last year, we also had stated that in the beginning, as we were taking market share, we were doing more lines and onboarding sort of more existing relationships and refinancing, you know, which is a lot of things. Which meant that our deposits to loans was 3 to 1 versus stabilized being at sort of 4 to 1. I'd say these teams are a little bit lighter on the lending side relative to especially some of these specialized national teams and more heavy on the deposit side.

Thanks, Steve.

Dave? Sure. Good morning. Yeah, I'll answer the second question first. On the professional fees, yes, we continue to, you know, build out and invest in our risk infrastructure and work through the agreement. And some of those, you know, some of that is hiring of people. Some of that is augmenting with professional services. You know, some of that is starting to be completed. We were pleased that we were able to 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 26th 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, you know, as we continue to work through, you know, and de-risk our balance sheet, you know, we are making progress in ultimately getting reductions in our FDA insurance. In this past quarter, I will say that, you know, we were pleased that not only did we see a reduction when we go through the calculation, but that reduction was actually retroactively applied to the 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, 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 worked, it does include more than just FDIC insurance. It also includes other above the line where us as a Pennsylvania bank, we have a PPA 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.

Well, Peter, thank you. It's great to get a strategy question, and it's probably our first non-modeling question in a couple quarters. So thank you so much for allowing us to not look necessarily 90 days back, but look a couple years forward. But, you know, AI is going to be, you know, one of the biggest efficiency and client experience unlocks that, you know, we as an industry and country and a nation and a globe have seen since mobile banking.

You know, our journey, I'll give you just a little bit of history. So in December of 2023, we formed a cross-functional AI discovery team. We use it to learn about AI, buy the first wave of tools, test and build solutions, train, and figure out how to democratize 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 set 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 is set a different way of 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, you know, 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, you know, more client experiences. It's not a side project for us. I'm leading the efforts. We see it as a foundation for the next phase of We've mobilized incredibly early, as you can tell by looking at the timeline of when we formed our team and our governance process, and it's proving value. And so just to kind of put a finer point on it, we've developed over 100 use cases for Agentec AI, and we're gearing up to start beginning to test and implement.

Good morning, David.

Yeah. Sorry, Mark, I'll take that. 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 quarters ago, we'd sort of talked about how our deposit to loan ratio was said differently. Our CRE loan growth, since we onboarded new teams, was fully funded by deposit growth. Well, that's continued. In fact, our deposits are greater than loans since the third quarter of last year when the team started originating.

So we have about 700 million or so deposits we've brought in across the franchise at 1.7%, and less than that in loan growth at loan yields of north of 6.3%, which is about a 4.5% spread. And what's interesting is, you know, the sort of 200 million-plus of loan growth in the third quarter, it's incredibly granular. So our average loan size is less than $10 million.

I don't have that right in front of me on the details of that notion. I mean, it ended up being two separate transactions that we did at different times of the quarter, but I can follow up with the actual each side of that leg for you.

Yep. So, Dave, it's a bit early to sort of 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 at the existing bank. And, you know, what I would say about this is, you know, these types of, you know, team recruitment initiatives, I think we've stated this before when folks have come to us and asked about sort of the types of teams that we look for. If you go back to 2023, the team that we brought on in 2023 had a multi-billion dollar book. The teams we brought in in 2024, most of the teams had individually about a billion dollars or more of book.

And similarly, as we sort of look to acquire and recruit sort of larger teams, you know, in 25, we've also looked for that similar type of threshold. So we see it as an interesting opportunity for us to leverage our operational strength, our technology strength, as well as sort of the single point of contact, you know, commercial delivery model.

Sure, Kelly. It's Mark. Good morning. Yeah, we do think, you know, 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 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 NDFI loans generally fall into three categories Mortgage warehouse and what we call fund finance or capital call lending those two categories make up just a little less than half percent of our overall exposure And then the lender finance piece makes up the other half The first two categories mortgage warehouse and capital call lending I think most people understand those businesses and understand that they have inherently very low credit risk Most of the recent attention this This past quarter has been on the lender finance space.

For customers, this is one of the oldest specialized lending businesses we've been in. It's one we've been in for over a decade, and we've not only had zero losses, but zero loan defaults. In this business, this is typically lending to a private credit fund where the collateral is a broadly diversifies pool of loans to middle market companies. You know, there's significant over collateralization. We have low advance rates, and there is, you know, it's very diversified, so our single obligor exposure is very low, kind of mid-single digit.

So when you put all those things together, you know, it's translated into, again, zero losses, zero defaults. The last comment I'll make on that space, you know, is that it's always really important to understand who you're lending to. You know, so, you know, depth of relationship is key. Again, we've been in the business for 10 years, and we have, you know, on average about a five-year track record with the managers that we do business with.

Yep, sure. You know, I think that just to sort of highlight, you know, Kelly, at the end of the day, I think we've done a pretty good job of highlighting the strength of the existing, you know, sustainable, stable, you know, large-scale network and the 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 brand loyalty, and we've made significant investments in technology and risk management. So I think that's what I would just sort of recap a little bit with. But to your question about competition from fintechs, there's a host of reasons that companies may want to get banking or trust licenses like trust custody.

You do consolidate under a national charter, engage in international activities beyond typical state borders, and offer 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 are a license holder of a 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. 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.

Mark Leach Yeah, 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 The Customers Bancorp 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, reduce and 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 had made in the prior two 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, you know, at a very small level of accretion benefit in the second quarter. But then, you know, we had highlighted on that call that we would then see a $10 million benefit from that discount accretion in the third quarter. We would see another $10 million incremental benefit in the fourth quarter.

And then 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 and $360. And then we're paying one month sofa on that. So, you know, when you put on those kind of swaps, that's actually a negative to our net interest income right now. But again, you don't put on swaps to earn money or not earn money. You know, it's for risk management purposes. And, you know, if rates would fall, you know, more than 75 basis points from where we are today, which the forward, you know, forecast would certainly predict, you know, at some point in 2026, those swaps would actually turn positive on us.

Sure.

Hey, good morning, Matt.

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, you know, your question is a good one. I think the Treasury put out some incredibly lofty, you know, targets, and I think the perspective 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, you know, for U. S. Treasuries. So, you know, this is sort of a bit of my view in early stages. You know, what I would say is that you're absolutely right.

Somewhere between 85% to 95% plus of current, you know, stablecoin, you know, activity is related to digital asset, you know, trading and settlement. And that's something that we see, you know, on our platform as well. So, you know, what I would say, you know, is that there are a tremendous amount of, you know, obvious use cases for stable coins as you think about cross-border NFX. It just, it's reasonably intuitive and easy to kind of, you know, reconcile that for anyone who's tried to, you know, operate with sort of U. S. cards or U. S. fiats 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 stablecoins in a lot of their businesses as you think about the utilization specifically of blockchain beyond just sort of the U. S. dollar, you know, 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 a point-of-sale perspective and really utilize the D-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 stablecoin, to U. S. dollar sort of stablecoin issuers, And, you know, and to really be prevalent and relevant, you know, you really need to be on our network and present in our bank. And that's really what we think we've done in a very unique way.

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

One of the things that's a little bit, you know, perspective that's more internal that we haven't necessarily highlighted as much is, you know, a number of our large institutional customers, you know, sort of give us, you know, minimum target thresholds that they want to sort of operate in, and average balance thresholds that they sort of want to operate in that they adhere to, which is incredibly helpful for us from sort of a stability perspective. And that's seen in that, you know, 30-day rolling average deposit balance, you know, chart that we've provided to you there. And I think that's really important.

So that's sort of the way that we think about the $900 million that we, you know, 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 earning space. 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.

Yeah, so Matt, I think that in the end, I don't have the exact sort of number on, you know, uninsured deposits, but, you know, I think our overall uninsured deposits or insured deposits and sort of collateralized deposits is, you know, is well above sort of industry averages, which I think is incredibly important. And sort of large, you know, Cubix depositors, I mentioned this, you know, before is, yes, the, you know, we have large exchanges that are incredibly critical, you know, to the industry and to customers bank and to the network. And at times, these, you know, these deposits do get into sort of the multiple nine-figure type, you know, territory. But what's important about the network, which is helpful, and I mentioned this earlier, is broad-based.

Nearly every customer increased, of the hundreds of customers that are on the platform, increased 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.

Thank you, Sam. Thanks, Matt.

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