Customers Bancorp (CUBI) 25 Jul 252025 Q2 Earnings call transcript

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Customers Bancorp, Inc.

Second Quarter 2025 Earnings Webcast and Conference Call.

[Operator Instructions] I would now like to turn the conference over to David Patti with Customers Bank. Please go ahead.

Thank you, Regina, and good morning, everyone. Thank you for joining us for the Customer Bancorp Earnings Webcast for Q2 of 2025. The presentation deck you will see during today's webcast has been posted on the Investors web page of the bank's website at customersbank.com.

You can scroll to Q2 '25 results and click Download Presentation.

You can also download a PDF of the full press release at this spot.

Our 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-K 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.

Now at this time, it's my pleasure to introduce Customers Bancorp Chair, Jay Sidhu. Jay?

Thank you, Dave, and good morning, ladies and gentlemen. Welcome to Customers Bancorp's Second Quarter 2025 Earnings Call. I'm joined this morning by our President and Chief Executive Officer of the bank, Sam Sidhu; and Customers Bancorp CFO, Phil Watkins; and Customers Bank CFO, Mark McCollom.

First, I'm thrilled to welcome Mark on the call. Mark and I were partners at Sovereign Bancorp, and I'm thrilled he is now on the Customers team. And you know, Mark joined us in early June and will complete the transition to CFO of Customers Bancorp in the coming weeks.

We are very excited about the continued depth of leadership we are building as our franchise grows.

I also wish to thank Phil Watkins for his exceptional performance as Chief Financial Officer of Customers Bancorp over the past few quarters. He will continue to be a part of our top team.

We are pleased to report another strong quarter, reporting results that materially exceed the consensus Street estimates.

Before we dive into the results from the quarter, I'd like to take a few minutes to reflect on some of the incredible accomplishments of this organization.

As many of you know, we founded Customers Bank in 2009 and then a year later, Customers Bancorp, all with an objective of creating a company with a bold idea, to build a client-centric tech-forward, high-performing business bank that could compete and win in the fast-evolving industry.

Since then, we've grown from a small troubled $200 million asset bank in 2009, which had become a $3.2 billion asset bank by 2012 and today is a $22 billion commercial bank with national reach, high performing, and I'm incredibly proud of our team and what we've accomplished together.

As you can see from Slide 3, over the past 15 years, we've built a differentiated model, anchored in disciplined growth, innovation and exceptional client service. And over the last 5 years, since Sam Sidhu joined the executive team, our transformation has meaningfully continued to accelerate.

Under his leadership, Customers Bank team has expanded into high-growth verticals, launched cutting-edge payment platforms like cubiX and delivered industry-leading growth in tangible book value, revenue and earnings per share. And as expected, this has resulted in incredible value for our shareholders as our stock price has increased nearly 500% over the last 5 years.

Perhaps most importantly, we've attracted and developed what I believe is the best management team I've had a privilege to work with, and I was a CEO of a $90 billion asset company and served on the Board of a multinational top 5 bank in the world.

I am excited this morning to share that effective January 1, 2026, I will be transitioning to the role of Executive Chairman of Customers Bancorp, and Sam will assume the role of Chief Executive Officer of Customers Bancorp. Sam is a visionary leader with deep conviction in our strategy and culture, and we have every confidence in his ability to take this institution to even higher levels.

Six years ago, the Board of Directors of Customers Bancorp and Customers Bank embarked on its responsibilities for choosing a successor for our incredible COO at that time, Dick Ehst, who had expressed his desire to retire.

One of the best decisions, in my opinion, that Dick and the Board made at that time was to select and convince one of their fellow Directors, Sam Sidhu, to join the bank as Chief Operating Officer in 2020.

A year later, upon Dick's retirement, Sam was named the CEO of the bank, and we have been thrilled with Sam's leadership style, and we couldn't be more excited to have a thoughtful, strategic and dynamic leader like Sam to be the CEO of Customers Bancorp, Inc. and lead us into the future.

We are all convinced that our best years are ahead of us.

I remain the largest individual shareholder of the company. And for the past several years, I've even taken my short-term annual bonus completely in Customers Bancorp stock. Even our Board receives majority of their compensation in company stock.

Our interests are totally aligned with the interest of our long-term shareholders.

Our mission remains unchanged, to strive to deliver above-average, long-term value for shareholders and our communities by putting clients first and executing in a superb manner. The Board and I look forward to continuing to work closely and support and guide Sam and our exceptional management team as they take on tomorrow.

Please join me in congratulating Sam. And with that, I'll turn the call over to Sam on Slide 4.

Good morning, Jay. I want to begin by expressing my deep gratitude to you and our Board of Directors for their trust and confidence in appointing me as CEO of Customers Bancorp. It is truly an honor to step into this role and to build on the incredible foundation that Jay and his team have established since the bank's founding in 2009.

What makes this moment especially meaningful is this opportunity to lead alongside such an extraordinary team. Across the organization, from our commercial bankers to the team members in our operations, technology, risk, finance and many other areas, I see a shared drive to innovate, serve with purpose and never settle for average.

That entrepreneurial winning culture is what defines customers, and it's what gives me tremendous confidence in our future.

While we're proud of the progress we've made, as you heard from Jay and the momentum that we're carrying, we know the opportunity ahead is even larger.

We have the right foundation, a clear road map and an incredibly talented team.

And we're going to stay relentlessly focused on deepening client relationships, executing with discipline and delivering durable value for all of our stakeholders.

We are unwavering in our belief that long-term success will be defined in three things: a client-first approach, consistent financial performance and best-in-class risk and operating framework.

These are the principles that will make us built to last, and they will continue to guide us in everything we do as we move forward. These pillars are reinforced by our culture, one that's been entrepreneurial, client-centric and performance-driven. That's why we've been able to consistently attract and retain top talent. The proof is in the results and in the trust that we've earned from our clients, our team and our shareholders.

From a financial perspective, Customers Bank has been the #1 financial performer in EPS and in book value growth over the last 5 years, and that's translated into long-term returns for our shareholders.

We have also been, as you heard from Jay, the #1 performing U.S. bank stock over a 5-year period.

Moving to Slide 5. Q2 was another very strong quarter across the board.

Here's a quick look at the highlights. We had nearly $300 million in deposit growth from our new commercial banking teams in what is typically a slow quarter.

We also delivered annualized loan growth of 8% with diversified contributions across the franchise.

Our net interest margin expanded by 14 basis points quarter-over-quarter.

Our efficiency ratio improved again even as we continue to invest. And we continue to grow tangible book value crossing $56 per share. We accomplished all of this while maintaining strong credit quality and liquidity metrics.

Advancing to Slide 6, you'll see our GAAP financials. And then moving to Slide 7, I'll run through the core financials for the quarter.

Our beat relative to expectations on both a GAAP and core basis was driven by broad strong results.

We delivered core EPS of $1.80 with core ROE and ROA of 13.3% and 1.1%, respectively. This reflects broad-based strength across the business. And more importantly, our credit metrics remain strong, which Phil will cover in more detail later.

As you recall, on our third quarter 2024 earnings call, I stated that we could achieve 30% core EPS growth in 1 year if we executed on our strategic priorities. I'm incredibly proud to say that we've exceeded that with about 35% of core EPS growth from those levels 1 quarter early.

Now let's turn to deposits on the next slide, where we continue to execute on our deposit transformation with a meaningful shift towards franchise-enhancing high-quality deposits. Total deposits were steady at $19 billion, but it's under the hood -- but it's what's under the hood that matters.

Our new banking teams onboarded since June 2023 contributed nearly $300 million in high-quality deposits this quarter.

These teams now manage $2.4 billion in relationship-based granular funding. That's about 13% of our total deposits in less than 2 years, which is absolutely phenomenal. And to reinforce the granularity of this growth, commercial account openings remained strong, up 14% this quarter and over 60% since the end of 2022. The planned reduction in deposits serviced by BMTX had an approximately 3 basis point impact on total average cost of deposits and approximately a 6 basis point impact on total interest-bearing deposit costs in the quarter.

Adjusting for this impact, interest-bearing deposit costs would have declined by 5 basis points in the quarter. This shows the continued power of our deposit remix efforts. We reduced our broker deposits again by $350 million this quarter and have now reduced these balances by about $1 billion over the last year. Continuing to reduce these balances remains a top priority for us.

Noninterest-bearing deposits remained strong at about 29% of total deposits. At the heart of our deposit franchise transformation is one of our most powerful advantages, our ability to consistently recruit top-tier banking talent and giving them the resources and platform to excel and produce quickly.

When we talk about team recruitment, we're not just talking about adding headcount. We're talking about strategically growing the franchise by onboarding experienced professionals with deep market knowledge, existing client relationships and a proven track record of performance. I mentioned our commercial banking teams we onboarded over the last couple of years. And while these teams continue to have a lot of runway ahead, we are also focused on teams that will spearhead the next phase of Customers Bank's growth.

Year-to-date, we've onboarded three new teams to the bank and continue to recruit high-performing deposit-focused teams. Two additional teams will be starting soon this quarter, and we are in advanced negotiation with a few more.

Our brand reputation as a high-performance, tech-forward institution with an entrepreneurial culture is attracting more and more top-tier bankers, those looking to leave behind bureaucratic legacy institutions for a platform where they can serve clients more effectively.

Team recruitment is not a tactic for Customers Bank. It is core to our strategy. It's how we win relationships. It's how we expand our franchise with purpose, and it's one of the clearest ways we continue to create long-term value for our shareholders.

Now turning to Slide 9. I'd like to illuminate cubiX, our proprietary in-house developed payments platform. cubiX is purpose-built for our institutional clients who are looking for a tech-forward, service-oriented and reliable banking partner. cubiX has become a mission-critical payments platform for our commercial clients. It's delivering value to our customers in three ways: 24/7, 365 instant payment capabilities, continuous product enhancements based on client feedback and a growing network effect with thousands of unique pairs -- trading pairs.

cubiX is not just a tech platform, it's a relationship deepener and a competitive edge. Today, it is primarily used by the digital asset industry as an on-off-ramp for institutional players looking to trade and settle on our network via APIs 24/7, providing a direct connection to all major exchanges, stablecoin providers, market makers and institutional investors.

To try and help put this in context, just how critical and utilized this network is, in 2024, we processed about $1.5 trillion in payments volume.

If you ranked us against household name payments networks, this would put us at #3 only behind Amex and Visa Commercial. This very much aligns with our philosophy of being a top 3 to 5 player in franchise businesses we participate in and being able to achieve industry-leading performance.

This summer, we have seen the beginning of regulatory clarity and institutional safeguards that the industry has long been awaiting. Institutional adoption began significantly increasing with ETF approvals last year. And with stablecoin legislation now coming out of Washington, we, as a leading stablecoin infrastructure and digital asset payments provider, believe we will be the bank that benefits the most from this post-genius landscape.

We are building a resilient, compliance-focused and scalable platform that is aligned with the long-term evolution of digital finance, one that positions Customers Bank as a partner of choice for the future of the industry. cubiX has been a hidden gem in our franchise, and we believe, frankly, has been a misunderstood and therefore, mispriced asset.

Let's turn to loan growth on Slide 10. We delivered roughly $320 million of net held-for-investment loan growth this quarter, translating to a strong 8% annualized pace.

Importantly, the growth was diversified, strategic and relationship-driven.

Here's what's driving that performance.

Our corporate and specialized verticals continue to outperform. Mortgage finance was a nice contributor, driven by our long-standing leadership in the space. Fund finance had a strong quarter and health care lending is gaining solid momentum.

Our equipment finance group continues to deliver consistent growth with strong yield and structure and credit.

And our commercial banking teams, while primarily deposit focused, have been also producing high-quality granular loan volume with strong relationship economics. And we're doing all this while maintaining pricing and credit discipline.

The depth and breadth of our platform means we're not overly reliant on any one geography, industry or client segment. That gives us the flexibility to go where the opportunity lies and where the right credit exists.

Looking ahead, our loan pipelines remain strong across multiple verticals. We believe we're well positioned to acquire high-quality clients and relationships often from much larger institutions.

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

Thanks, Sam, and good morning, everyone. I'll start on margin, where our disciplined execution continues to deliver meaningful results. In Q2, our net interest margin expanded by 14 basis points to 3.27%, marking the third consecutive quarter of NIM improvement, and our net interest income increased by about 6% to $176.7 million in the quarter.

On the asset side of the balance sheet, we saw positive impacts from an increase in average loan balances of more than $500 million in the quarter. This growth, along with slightly higher loan yields and the impacts from the balance sheet optimization efforts we undertook, collectively drove interest income higher.

And on the liability side, our interest expense was well managed. Thanks to our robust deposit and loan pipelines, we're well positioned to continue expanding net interest income.

One item to note was that late in the quarter, we bought out a participant at a discount in an existing portfolio of loans that will positively impact interest income and margin through the remainder of 2025. The purchase closed in mid-June, so there wasn't a significant benefit in Q2, but we expect this to increase to about $10 million in each of the next 2 quarters.

In short, we believe we've built a business that has positive drivers for NNI and NIM on both sides of the balance sheet.

Moving on to Slide 12, we'll cover noninterest expenses. In Q2, noninterest expenses were $106.6 million.

As we previously communicated, these increased as we reinvested a portion of the operational excellence proceeds back into the franchise. Even with this investment, our core efficiency ratio improved for the third consecutive quarter to 51.6% as we drove positive operating leverage in the business.

Our core efficiency ratio is well below the industry average, even with the investments we've made. And our noninterest expense to average asset ratio of 1.91% is top quartile of peers.

On Slide 13, we'll talk about tangible book value, which we believe is one of the clearest markers of long-term shareholder value creation in bank stocks. At the end of Q2, tangible book value per share reached $56.24, and continues our multiyear trend of double-digit annual growth.

To put that in perspective, since Q4 of 2019, we've more than doubled tangible book value per share, a 15% compound annual growth rate, significantly outperforming peers and positioning us at the top of the industry. And it's worth underscoring, we've achieved this level of compounding through a period marked by a global pandemic, historic rate volatility and a regional banking crisis.

We accomplished this as a result of our differentiated business model and by being strategically nimble in order to best capitalize on market opportunities.

Now let's move to Slide 12 to discuss capital.

Our capital ratios remain strong and provide us with substantial flexibility for organic growth opportunities.

As previously announced, we fully redeemed our Series E preferred stock in the quarter, utilizing a portion of our organically generated capital.

Our TCE ratio increased by about 20 basis points in the quarter, even with some growth in the size of our balance sheet. And at 12%, we remain in excess of our CET1 target, even while utilizing some risk-based capital for loan growth in the quarter.

On Slide 15, we continue to be pleased overall with our credit performance. Nonperforming assets remained low at 27 basis points of total assets.

Our commercial and consumer portfolios are both performing well.

You can see this as total net charge-offs improved, down about 25% quarter-over-quarter.

Additionally, special mention and substandard loans were down 7% in the quarter.

While we continue to closely monitor any emerging risk, we feel the portfolio is well positioned.

And with that, I'll pass the call back over to Sam before we open up the line for Q&A.

Thanks for that, Phil.

As we look ahead to the rest of 2025, though there is some continued market uncertainty, we're excited about our positioning and confident in our ability to navigate the current environment. We're positively updating a few of our guidance items this quarter as an outcome of the strong results we've achieved in the first half of the year.

On full year loan growth, we're raising the range to 8% to 11% from 7% to 10%. We now project net interest income to grow between 7% to 10%, up from 3% to 7% previously. This increase reflects a strong performance on both sides of the balance sheet and driving increased revenue and the benefits Phil discussed earlier.

And lastly, as a result of the stronger revenue growth and well-managed expenses, we now have a bias towards the low end of the efficiency ratio range. I'd also like to echo Jay's sentiment and thank Phil for his leadership as Customers Bancorp's CFO. We're excited for him to be spearheading strategic initiatives to support the company's long-term growth.

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, and we remain committed to delivering long-term value for our clients, communities and shareholders.

With that, I'd like to open up the line for questions, please.

[Operator Instructions] Our first question will come from the line of Peter Winter with D.A. Davidson.

Congratulations, Sam, on the promotion, and Jay, with your future plans. To start off if I could just -- first question, just, Bill, you mentioned the increase of about $10 million next 2 quarters. Can you just go over that one more time in your prepared remarks?

Yes, Peter, I hope you're doing well. Yes. it's really with a small portfolio of loans that we originated with the partner. We had the opportunity to purchase out the interest at a discount and did.

And so the results of that will flow through net interest income over the next couple of quarters.

And it's $10 million benefit each quarter?

Yes...

Over the next -- $10 million over the next 2 quarters.

We expect it to be around $10 million each of the next 2 quarters.

Got it. And then, Sam, if I could just ask just with this passage of the Genius Act, just how maybe are you thinking about crypto-related deposits going forward? And just -- it seems like it's going to be incredibly competitive with stablecoins. I mean we've seen JPMorgan step into this. PNC announced a joint partnership as well.

So I'm just curious if you could talk about this.

Yes. Sure, Peter. Thank you so much for your comments earlier.

So the net takeaway is this is incredibly exciting for Customers Bank. And what I would say about the recent legislation from Washington is that, first and foremost, it really just reinforces what we at Customers Bank have believed for a long time, which is that digital assets are here to stay. And I think that we have really established ourselves as the leaders in digital asset banking. And in this position, we will -- we have and will continue to benefit from regulatory clarity.

You heard me talk about the ETFs early last year.

You had a bump with the election last November.

You have Genius now from a stablecoin perspective. And then there's further market structure legislation that is penciled out for later this year. Each one of these milestones has resulted in increased activity, increased deposits, increased fee income at Customers Bank.

So to get a little bit more specific on your question about stablecoins, what I would say is that this legislation almost certainly benefits a number of our existing customers, as you can appreciate. They will likely benefit from more AUM today and in the future. It also is going to mean that there's going to be new institutional issuers, starting with nonbanks.

As you can appreciate, if you continue to pull this thread, all major institutional issuers that launch a stablecoin are likely going to need to be a customer of Customers Bank.

We are the leading stablecoin infrastructure and payments provider in the country. And a little bit more on cubiX. I don't know if we've shared this before, but we only have about 10% or so of our deposits that come from stablecoin issuers today out of our overall cubiX deposits.

So we could very well see that increase over time.

And getting back to your question about big banks, at the end of the day, if you're a large bank, this is something that you have to be involved in.

If you have a large network of customers that need to move money, whether there's pull from your customers today, you will need to have this as a means of payment. But at the end of the day, large banks make money when there's friction and inefficient flow in the banking system, whether that's FX, payments, capital markets and a stablecoin, if it truly proves out to be more efficient, cheaper, faster, you're really cannibalizing your existing revenue.

So there's a lot of pros and cons and a lot to be determined but I think there's going to be a long runway over the medium to long term. But the most important thing is that this is going to be a huge benefit for Customers Bank in the near to medium and to long term. The pie is going to increase. And regardless of increased competition, we have the strongest payments network. We laid out some of those stats there to kind of put that in perspective.

We are continuing to trend and grow that business. July, as I mentioned, will actually be our most active month to date on the platform.

Got it. That's helpful. And just one last quick question.

Just the professional fees increased $2 million this quarter, quarter-to-quarter. Could you just talk about that and maybe the outlook?

Yes. Peter, yes, I'd say, generally, the -- if you look back, they were actually pretty consistent with where they were sort of 2 quarters ago.

So Q1 was probably a bit lower. We actually saw some increases kind of broadly across the platform. But from the risk management sort of investment side, they were largely consistent quarter-over-quarter.

And I would just add, Peter, if you're asking about sort of regulatory expenses, I'd say that we are largely on track with what we prior guided towards and expect those really -- that portion, which is not contributing to the growth this quarter, but that portion to drop off significantly, if not completely in the next 90 days.

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

I would like to continue on with the topic of cubiX. Notably, I think investors are interested as to how big of a contributor this could be to your business. I know you had previously capped these deposits at 15% of total, which has been lifted a bit. Can you, one, provide how -- what the size of the cubiX deposits were this quarter?

And two, just from a high level, as you think about the potential opportunity as well as risk management and thinking through concentrations, is there a way to think about how this business could grow with the industry? Just any high-level thoughts there.

Yes. Kelly, happy to take that.

So first of all, I think you asked about where we were at the end of the quarter. From a spot basis perspective, we were at $3.2 billion, which is roughly in line with where we were last quarter. It's actually about $100 million lower.

What I would say is that a spot basis is not really the best indicator of thinking about where that is. That puts it probably at 16% or 17% as of 6/30, which is above the prior cap that we had talked about. But really when we had that cap, we were not initially in February 23, we were not holding these all in cash, which is what we're doing today.

So as we discussed earlier this year, that cap has been removed.

I referenced July activity a little bit earlier to kind of put that in perspective, if as of the 25th of July, we've had the most active month on cubiX to date.

So it's still almost a week to go in the month.

Our deposit balances are up about 20% in the month of July to kind of put that perspective, increased activity leads to increased deposits. and increased deposits leads to higher interest income as well as increased activity, which leads to fee income.

So over time, we expect that these deposit balances will -- could potentially increase as we get more institutional flow.

I think one of the things that's not fully understood and appreciated is we have about 20% of our flow today, which was not the case 2 years ago. comes from traditional finance players who are active in the digital asset trading and settlement space. and we expect that percentage to increase over time.

And as that percentage increases over time, we may see increased -- slightly increased balances as we continue to grow. But again, our goal is not to grow the deposits first. It's actually to grow the strength of the network, it's the additional products and services, payment rails that we offer to our customers. With that, we will likely continue to have sort of our modest deposit growth as activity increases.

So hopefully, that answers your question, but happy to answer any follow-ups.

That's really helpful. I guess, as a follow-up here, as you mentioned several times now, you hold these deposits in cash.

I think some larger players are considering lending against such related deposits.

Given the softening regulatory tone in the industry, is this something that's coming up with discussions on the Board? And any change in terms of how you're viewing it potentially longer term with regards to how you hold these deposits?

Sure.

So the short answer is we're not looking to change the way that we approach and hold on these deposits.

I think the longer answer is over time, as you can probably appreciate over a multiyear period, we'll continue to get more internal data on how these deposits operate and fluctuate. We'll continue to have longer-term relationships with our customers and can work on structure and you just have a sense of sort of a minimum amount of payment flow.

So the answer over the medium term is that we will likely consider but this will be customer driven, and it will be business driven. And sitting where we are today, it is entirely appropriate to hold these in cash, especially where rates are.

Got it. Maybe last question for me, and then I'll step back into the queue is this Slide 9, where you draw the payment volume is super powerful. I know this is a huge benefit of this platform is the payments related fee income potentially generated. Can you elaborate how much that contributed to 2Q? And any commentary about the potential for further monetization of payment fees longer term?

Yes.

So late last year, we instituted sort of traditional fees and platform fees to some of our customers. That has resulted in about an $8 million run rate of fees. It was about similar in the second quarter.

So nothing necessarily material in the second quarter. But going forward, we could see that increase over time. Again, our objective is not to continue to materially drive fees.

Our -- majority of our income today is coming from interest income. Over time, we'll likely see that shift from a mix perspective, especially as there's a potentially changing rate environment over the medium term.

So one of the things that is important about that overall volume is it really just shows the incredible strength of the network.

And while it was $1.5 trillion last year, we're at about $1 trillion year-to-date.

So it kind of puts it in perspective that this is growing, activity is growing and the strength of the network is only growing and our lead in our moat is increasing.

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

Congratulations for all the changes in the leadership there. I hope you all succeed and are happy with where things are heading, congratulations. And my question is still on the cubiX in the payment flows across the rails are just enormous. The monetization is quite low. I mean, I guess, is this really a vehicle outside of even digital assets, just increased banking relationships and the size of connections to many commercial accounts because it seems like -- I appreciate your comment on how banks -- big banks make money, they make it through friction. And this seems to be very low -- almost a low-cost producer or a low-cost option. And because of that, volume is coming your way. Could you just kind of comment on your strategy with your current pricing and the related volume gains you're getting?

Yes. Happy to take that.

So as we think about the cubiX platform. It's helpful to kind of just remind folks what it is. It's really just software that sits on top of our existing core and payment infrastructure at the bank that allows our customers, commercial customers who are more institutional and in many cases, tech savvy to operate.

So prior to Cubic, we had something called which was a blockchain tokenized deposit. From a traditional finance perspective, I will admit that was a lot tougher of a sell to get some of the traditional commercial customers to interact with that. When you're talking about the digital deposit sort of format that we're using today, 24/7, 365, along with a ton of other additional, not just intra-bank type transfers, but really a full suite of products in payment rails and services and connectivity and data and information.

We are seeing a tremendous amount of use cases. from commercial customers. I was just sitting in someone's office yesterday, and we have a real estate customer who has hundreds of accounts with us that's now going to be using this for some of their internal GL ledger type activity. And again, this is not necessarily driving new deposits to that customer, but it is actually strengthening our relationship.

It's providing incremental service and think of it as sort of a software-as-a-service type solution.

So we continue to see it as an opportunity to strengthen relationships, drive incremental deposits with our existing customer but also importantly, open up more traditional finance type opportunities that many of the big banks have these types of capabilities, but on a one-off basis and a very clunky basis and an inability to do it in the incredibly streamlined format that we have.

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

Yes. A quick question, Sam.

In terms of the loan mix here, you guys have been pretty successful past couple of quarters and growing commercial real estate may be taking some share, given your capacity, just curious your appetite to grow some of those commercial real estate segment. And as we look at the loan mix in terms of the breakdown segment, does that stay relatively consistent? You think, over the next year you continue to see sort of specialty lending, C&I build as a percent of loans?

Yes. Dave, it's Phil. I'll take that for you. I mean, I think, yes, we've talked about over the last 2 or 3 quarters, we somewhat opportunistically stepped into a bit of a void especially here in our New York markets or in the Northeast markets in real estate as others pulled back in Q4 and Q1, we were really able to win, again, not transactional but full relationship-based opportunities where we were able to perform for clients when other weren't.

We still definitely see some opportunities there in the pipeline. We've got a nice pipeline on the commercial real estate side. But we're being very disciplined, again, not seeking out just transactional interest-earning assets. It's got to be full relationship driven.

And so we have seen some of the participants that had stepped out for a few quarters start to step back in.

So again, we're not going to chase transactions there are just for the sake of it, but we are still seeing some good opportunities.

As we look across the rest of the franchise, as Sam mentioned in his comments, that is part of -- that is one of the real strengths here is that we have the ability to dial up or down, especially across the various specialty lenders, but even as you just highlighted in areas like commercial real estate over the last couple of quarters.

So we will continue to do that and go where we see the best opportunities for that franchise enhancing growth.

So we can give you the lookout of the pipeline, call it, 90 days out, which does some commercial real estate but also some, again, continued contributions from the specialized C&I. But as we look 3, 4 quarters out, it will be very dependent on the opportunities, but we're incredibly well positioned for that.

I would just add, Dave, I mentioned we have about $500 million or so in the loan backlog right now.

Got it. I appreciate the guidance there. And then just curious in terms of the VMC deposit runoff. Is there any more plans in the near future? Will that be a headwind or is that mostly behind you?

I think we well telegraphed that. That was a Q2 headwind and anything like it is behind us.

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

Sam, congratulations on the promotion here. Maybe just on the deposit side, with the pipeline remain strong there.

Just curious if -- would the expectation rates will be coming down here at some point over the short to medium term. is that entering the conversation with the deposit customers you're bringing on these days? And just kind of where is -- what's the blended cost of those deposits today?

Yes.

So I think the good news is that we're continuing to bring on new deposit customers at similar levels that we were sort of high 20s, 30% noninterest-bearing component blending at about that 2.5% plus or minus type basis, which we feel pretty privileged to be doing and then a lot of that credit goes to our existing and as well as sort of new teams of the bank as well as future teams to the bank.

When you're in competition, taking market share, in some cases, you have to sort of match the top dollar as rates decline, a receding tide sort of brings all boats down. And I think that many of those conversations are or had and expected by customers, especially when it's not connected with the migration of an account.

Okay. Appreciate that. And just in terms of the teams you hired here same the ones you're about to bring on, just kind of curious if you could size up the potential those deposit books?

I don't want to get premature in sizing of the deposit books. But what I would say is that it looks like we'll have about half a dozen or so teams this year based upon sort of where we are in discussions with 5 already, 3 onboarded, 2 this quarter and another 1 or 2 plus or minus even more.

The goal would be to start building for '26 and '27.

One of the things that's worth mentioning about our prior team, as a reminder, they were breakeven in the first half of this year, call that a 100% efficiency ratio, right? So there's a lot of opportunity for that to come down, first, by having the revenues be 2x expenses. Eventually, we'd like to get that to a minimum of 3.

And that's going to provide us a tremendous amount of operating leverage over the next 12 to 24 months on the old teams. On new teams, we're working on a similar 12- to 18-month type breakeven and safe to say each one of our teams, we would expect to be at a minimum in sort of that couple of hundred million dollars or so book on the high end, they do get to 10 figure.

Okay. Appreciate that. And in terms of -- I know you guys have gotten to NII growth, but just curious how you guys are thinking about the margin here. I realize there's a lot of moving pieces. But is it relative stability at current levels? Or could we see some more margin expansion just given new deposit base should continue to get better here?

Yes. Steve, so I'd say, overall, there are -- as you said, there are moving pieces on both sides. I mean we've got the positive on the loan growth side and we continue to have some positive momentum opportunities on the remix side.

Some of it does continue to depend on the rate outlook.

We do continue to be modestly asset sensitive though, as you know, we've taken meaningful steps and method -- measured steps over the last year plus to continue to bring that closer to neutral.

So I'd say overall, on a net basis, we probably have a little bit of an upward bias, but it will be a bit dependent on that outlook.

I guess the one thing I would highlight, as I noted earlier, you will see clearly some benefits in Q3 and Q4 from that additional interest income flowing through.

Great Okay. And then I guess just maybe I hear you guys in terms of you're going to be bringing on more customers with regard to and definitely a potential for loan growth -- deposit growth out of that -- out of the platform.

In terms of -- I realize it's kind of difficult to see shake out, but just kind of curious as to how you're thinking about managing those deposit balances or are you just willing to let it ramp up. And how do we think about concentration with regard to that? And if you guys have any thoughts over the medium term?

It's a very valid question, Steve. And from a liquidity risk perspective, I think we've well contained it.

I think as you think about strategic risk, you also don't want a lot of concentration from any one vertical.

And so these are consultations that we're having and that we're thinking about, and that's why I've stated before, our goal is not to sit here and drive deposits, it's to increase the strength of the network, increase the strength of the network increases sort of activity and associated deposit balances.

And we view those as the high-quality value the franchise, not spot balances with sort of a new account funding that's not active.

Great.

Okay. Well, I appreciate all the call here today, and thank you very much.

And what I would like to say is, I forgot to say at the beginning, congratulations on the new baby.

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

I had a few questions.

First of all, how much more room do you have to remix securities into loans? And how should we be thinking about kind of overall balance sheet size over the next year?

Yes. Matt, I'd say overall, we probably feel pretty good about where our securities portfolio as a percent of average assets is. Obviously, we did -- we were able to reinvest a portion of those proceeds as we talked about from some of the sales. But at this point, it would all be more cash flow driven.

And then as far as balance sheet -- from a balance sheet growth perspective, as I said, as we've said before, the first half of this year, we would continue to expect to be heavier on the deposit remix side.

And so as a result, you wouldn't see a lot of balance sheet growth, which is what occurred.

But that as we got into the back half of the year and certainly into '26 while we still have some opportunities on the remix side, we would expect more growth overall on the balance sheet.

Okay. Is it safe to say that we should expect more of the loan growth transition into total asset growth at this point. That's a fair statement.

That's right.

Okay. And then in the presentation and in the earnings release, you noted that part of the deposit mix shift resulted in, I think, $350 million less broker deposits. Per the call report last quarter, I thought you had around $6.6 billion brokered. Is it fair to take those two numbers and figure out the net number or what is your broker deposit balances today? And is there a targeted goal there? Where would you like to be brokered deposits to total deposits?

Yes. That's the simple math, Matt.

And so yes, they have declined and they declined by about $1 billion over the last year.

I think we've been pretty vocal about some of the changes in categorization, some of the deposits that happened over time that -- but it is consistent that those changes have been made sort of more broadly across the industry. Those deposits are now being deemphasized and remixed out.

So where do we want those deposits to be, we are not a traditional sort of branch-based bank that has a broad base of branch-based retail deposits. Having said that, I think we've always said we expect to sort of operate a little bit on the higher range of a traditional bank, whether that's 25% or 20%, it's to be determined, we definitely want these below 30% in the near to medium term.

Okay. And then I had a couple of questions on myself. I guess the first one is just on the scale point, Bill, and I was hoping you could help me better understand one of the inherent things is that all stable coins will need to be backed by U.S. treasuries, which inherently invites global usage, and I think there's some strong U.K. use cases around that. But for yourselves and others in the banking system, how do you protect yourself from a BSA AML, know your customer standpoint? Who bears responsibility for making sure that there's good incremental actors into the system, especially if this now becomes something that extends beyond the U.S. borders?

Yes.

So I think that it -- first and foremost, I think I mentioned this earlier on the call, it is incredibly helpful to have our customers come into formal federal regulatory framework while all of our customers are regulated in some way, shape or form and in some cases, many shapes and form. This provides sort of a very constructive and cohesive road map not only on the compliance side BSA, AML, but also importantly on sort of the liquidity management and sort of the consumer protection as you were sort of referencing before.

There's about a plus or minus 18-month implementation phase where a lot of detail will be coming out for a number of our customers.

As I mentioned, this is about 10% plus or minus of our existing deposits today. And we're thrilled that there's now going to be a federal framework that also includes much more comprehensive BSA, AML, and we'll look to really just partner with the structure that our customers are in.

And what we're looking to do at Customers Bank on the BSA AML side is we've already invested significant sums of money to build up our infrastructure and our technology, and we view it as a strength of the organization and the fact that our customers are also going to be leveling up and entering a U.S. federal framework is going to even further strengthen the overall institutional flow of the bank, but also really increase the moat around our business.

And you said stablecoin is 10% of the existing deposits. Is that total deposits or just the deposits?

Cubic deposits.

Okay. And then the other thing I was curious about is just in terms of your customers, could you talk a little bit about the granularity of those deposits? And how many accounts are frequent users of? I just wanted to get a sense for is this kind of an upside down pyramid where there's a small number of really big kind of deposit holders or is it pretty granular across the board? Frame for us what kind of customers are actually within your system? .

Yes.

So we have essentially all major exchanges, all major stablecoin providers, all major market makers, all major investors, digital asset specific as well as traditional institutional investors who operate in the digital asset space.

So really, it is a wide swath of market share. And really, the folks at bank with us come to us for the payments network first and foremost, and that's really where our focus has been.

So the short answer to your question is everyone is looking to be active on the network, and that's also why they're customers of the bank. The longer answer is that, as you can appreciate, the larger the exchange, the larger the AUM with the stablecoin provider and the larger the network even when someone is new to the bank, it takes time for them to build a larger network.

They do build in many cases larger activity, which comes from larger deposit balances and the deposit balances are diversified across those major thresholds, but you will see, say, a 9-figure deposit with an exchange and you will see maybe a $5 million deposit with a medium-sized investor.

And that will conclude our question-and-answer session. I will hand the call back over to Sam Sidhu for any closing remarks. .

Thanks so much, everyone, for your continued interest and support of Customers Bancorp. We really appreciate you being a part of this incredible franchise that we're building, and we look forward to speaking with you next quarter. Thank you so much, and have a great day and weekend.

And this concludes today's call. Thank you all for joining.

You may now disconnect.