Customers Bancorp, Inc. (CUBI) Q3 2026 Earnings Call Transcript

Operator: Please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Philip Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Please go ahead.

Philip Watkins: Thank you, Ellen and good morning, everyone. Thank you for joining us for the Customers Bancorp's earnings webcast for the third quarter of 26. The presentation you will see during today's webcast has been posted on the Investors webpage of the bank's website at www.customersbank.com. You can also download a PDF of the full press release on the same page. I would like to remind you that today's presentation may contain forward-looking statements which are subject to uncertainty and changes in circumstances. Actual results may differ materially from management's expectations due to a variety of factors which are described in our earnings materials, and our SEC filings. We also reference non-GAAP financial measures, it is important to review our GAAP results in the presentation and the reconciliations in the appendix. At this time, it is my pleasure to introduce Customers Bancorp CEO. Samvir S. Sidhu.

Samvir S. Sidhu: Thanks, Philip. Good morning, everyone, and welcome to Customers Bancorp's third quarter 26 earnings call. I am joined this morning by our chief financial officer, Mark R. McCollom. I will take you through a few key highlights from the third quarter, give you an update on our strategic priorities, and then Mark will provide additional detail on our financials. Simply put, it was a great quarter. We delivered record deposits and loans, real wins in AI, a more diversified cubiX platform, and continued success recruiting teams. On top of that, we have strong momentum to finish the year and a very positive outlook as we move to 2027. Turning to Slide 4. Our third quarter results reflect strong execution across the franchise. To give a few highlights, Deposits grew 4% in the quarter and 11% year over year to a record $22.6 billion. Noninterest-bearing deposits grew by $300 million to $7.2 billion a third consecutive quarterly record. Total loans grew 3% in the quarter and 14% year over year to a record $18.5 billion. NII increased 8% quarter over quarter, EPS was $2.25, up 10% quarter over quarter. ROE rose to 14%, up more than 70 basis points quarter over quarter. Our efficiency ratio improved approximately 340 basis points in the quarter, and tangible book value per share increased 10% year over year. that is 17 consecutive quarterly records for book value, 5 for loans, and 8 for total deposits. We delivered these results with strong credit quality and solid capital, while growing the balance sheet and returning capital through share buybacks. Slide 5 shows our priorities for 2026 which remain unchanged. I will provide an update on each again this quarter starting with AI on Slide 6. Over the past several quarters, we have shared our AI journey. We are currently in a phase of reimagining and automating end to end workflows coupled with rapid product development. We are shipping new capabilities every quarter that make banking simpler for our clients and free up our team to focus on higher value work. Everything we are doing is aimed at a better experience for our customers, and, importantly, our employees. In Q3, we advanced our top 3 top-down priorities. In lending, we scaled our AI powered loan underwriting process adding functionality and increasing utilization. The cycle time for this process is down 95%. This will allow the same team to handle significantly more loan throughput. In deposits, we piloted our rebuilt commercial deposit onboarding process in just 10 weeks. It allows us to open complex commercial accounts in minutes instead of days at other institutions. That represents an >90% reduction in cycle time. And in payments, we enabled programmable subaccounts on cubiX enhancing our product offering for existing clients as well as broadening potential Agentic payment use cases. Using AI and automation tools, we now have an ability to rapidly ship new products. Just to give you a few examples. We launched voice agents on our main customer service line and are now working on incorporating them into our customer-onboarding journey. We are expanding an AI digital twin pilot to more members across the organization, we piloted an automated savings sweep for consumers. To drive this progress, we now have over 60 people focused on AI transformation at the bank. And our engineering talent is increasing too. We have 12 and growing forward-deployed engineers from our partners working in pods alongside our in house engineers and subject matter experts. And the results are tangible. Our team doubled the number of AI agents deployed. Cumulative estimated hours saved have now grown to 76 thousand. And we have unlocked an estimated $15 million+ of annualized capacity. In the last 6 months, revenue producers grew 6% and accounted for about 60% of the new positions we filled, while total headcount drifted lower. Even with the great results in the quarter and positive momentum for the year, if I had to leave you with 1 point, it is that productivity gains are showing up in our financial performance. And are already above our investments today. Revenue per employee is up 13%, and pretax profit per employee is up 34% on an annualized basis this quarter versus last year. We ranked number 1 and number 4, respectively, among all $10 to $100 billion asset banks on these metrics. A better equipped team helps us improve customer and employee experiences. This should enable us to grow revenue meaningfully faster than expenses, and reach our goal of a low forties run rate efficiency ratio by the end of 2027. Turning to Slide 7 and cubiX. Diversification is expanding the opportunity for our payments franchise. cubiX accounts grew 19% in the third quarter, with real estate and mortgage finance driving new client growth. Those 2 verticals now represent more than 30% of cubiX deposit balances. That broader reach puts our payments capabilities in more of our clients' day to day operations and creates opportunities to deepen relationships and gather low cost operating deposits. Network activity is on pace to hit another record this year, surpassing last year's $2 trillion volume. And showcasing the value of the platform to our clients. And looking forward, we are developing extended hours trading capabilities for capital markets and correspondent banking services that support cross border flows. At the end of last year, we did not expect cubiX to be a growth vertical. With this diversification, we believe there is substantial opportunity ahead to continue to increase low cost deposits on the platform. Turning to Slide 8. Our recruitment strategy, which is a unique part of our business model continues to build a larger and more valuable deposit franchise. The teams we have recruited since 2023 now hold $4.3 billion in deposits or 19% of our total deposit base. They added roughly $415 million in the third quarter alone, and more than $1 billion so far this year. that is more than a 6-fold increase in their share of our deposits in about 3 years, all through organic recruiting. The breadth of the franchise is also expanding. We have added more than 3 thousand commercial deposits accounts so far this year, which is more than we achieved in all of 2025. that is up 13% year to date, and accounts have roughly doubled since 2022. And our 2026 recruiting class keeps growing. 15 revenue producers joined us in the third quarter. That brings year to date revenue producing hires to 50 and 12 teams represented. that is up 50% from last year. The success of these teams gives us confidence that we can sustain the space of recruiting high quality revenue producers in 2027 and beyond. With that, I will turn it over to Mark to take you through the financials in more detail.

Mark R. McCollom: Thanks, Samvir, and good morning, everyone. My comments will begin on Slide 9. We are only showing you GAAP earnings this quarter, as we do not have any material adjustments to those GAAP results. I am pleased to walk you through another quarter of consistent growth in the balance sheet, earnings, and profitability. We delivered EPS of $2.25, up roughly 10% from last quarter. ROE and ROA came in at 14% and 1.16%, respectively. We note that many of you tend to quote ROTCE instead of ROE, comparing relative profitability among your peer groups. However, because we have grown organically, rather than buying other banks, our balance sheet carries virtually no goodwill. As a result, our third quarter ROE of 14% is within the top quintile of all banks between $10 and $100 billion in assets. On Slide 10, we provide details on our deposit franchise. Total deposits ended the quarter at a record $22.6 billion, up 4% in the quarter and an increase of $2.2 billion year-over-year. Our total cost of deposits remained flat despite the increase in interest rates by the Federal Reserve during the quarter. The quality of our growth was strong. And I will highlight a few stats. Noninterest bearing deposits grew by about $300 million during the quarter, ending at $7.2 billion, which as Samvir noted, is another record for the third consecutive quarter. that is 32% of total deposits which is top quartile for regional bank peers and up more than $800 million, or 13%, year over year. A direct result of team recruitment and payment strategy that Samvir just walked through. Our goal remains to have the highest percentage of noninterest bearing deposits among our peers. 1 additional metric I want to emphasize, our broker deposits came in about $370 million lower for the quarter and now make up less than 20% of our deposits. Turning to Slide 11 in loans. Total loans grew nearly $500 million or 3% in the quarter to $18.5 billion, compared to 1% linked quarter growth for the industry. On a year over year basis, loans are up 14%. Just as important as the pace of growth is the breadth. Growth was delivered, led by business units like fund finance, health care, and commercial real estate which more than offset lower mortgage warehouse and real estate specialty finance balances. As we always say, the mix of top contributors may shift from quarter to quarter, but the diversified nature of our origination platform helps us deliver strong growth while remaining disciplined on structure and pricing. Slide 12 covers net interest income and net interest margin. Net interest income exceeded $208 million, up $15 million or 8% from the second quarter driven by higher average loan and security balances and higher interest spread. As we signaled last quarter, the second quarter was expected to be the low point for our margin in 2026. Our third quarter net interest margin expanded 2 basis points to 3.19%. Our margin would have expanded further but was impacted by the timing of our deposit growth, which occurred earlier in the quarter, versus when we funded loan growth. Which occurred later in the quarter. Our run rate net interest margin in September was approximately 3.25%. Additionally, our growth in the quarter was accretive to margin as the spread between gross loan originations and deposit inflows was about 4%. When combined, these factors set us up well for further net interest margin expansion in the fourth quarter. Looking ahead, our NIM and NII momentum are supported by a few factors. Our low cost deposit pipeline led by our new teams and our new business units on cubiX, the strength of our diversified loan origination platform, and we have a fixed asset repricing opportunity heading into 2027. With positive levers on both sides of the balance sheet, we expect continued net interest income and margin expansion going forward. Moving to Slide 13 and expenses. Noninterest expense was $113.4 million in the quarter, down $1.5 million from the second quarter. The story here continues to be long term strength in our efficiency ratio. Our efficiency ratio improved by approximately 340 basis points from the second quarter. Our noninterest expense as a percent of average assets was 1.68% among the lowest of any regional bank peer. As you can see from our updated guidance, we do expect a step up in expenses in the fourth quarter due to incentive compensation as well as investment in technology initiatives and deposit growth. I would underscore that we are delivering very strong efficiency while investing in people and technology and redeploying the capacity that AI creates into revenue production. As Samvir described, We remain confident the work underway will deliver sustainable positive operating leverage. On Slide 14, tangible book value per share grew to $65.66 up 10% year over year. that is approximately 2.5x where we stood at the end of 2019, a CAGR of roughly 15%. Compared with about a 5% CAGR for regional bank peers over the same period. Without the industry wide impact of interest rates on AOCI this quarter, our tangible book value per share would have increased 13% year over year. Given the short duration of our investment portfolio, our AOCI as a percent of TCE was just 5% compared to over 8% for our regional bank peer set. Further, our held to maturity portfolio is just 2%, of total assets. Turning to Slide 15. Our capital position remains strong, and continues to provide meaningful strategic flexibility. Our estimated CET 1 ratio was 12.6%, and our tangible common equity to tangible assets ratio was 8% while we grew our tangible assets by over 3% and repurchased nearly 500 thousand shares or about 1.5% of our common stock during the quarter. Strong organic earnings position us to support continued balance sheet growth and, when appropriate, to return capital to our shareholders. On Slide 16, credit quality remains strong. Nonperforming assets were down 8% quarter over quarter. And NPAs as a percent of total assets were just 29 basis points, down 3 basis points quarter over quarter and well below the regional bank peer median of 36 basis points. Net charge offs continue to perform well, with total net charge offs improving to 28 basis points from 34 basis points last quarter with commercial charge offs of just 13 basis points. I will finish with slide 17 where we have a few updates to provide as we close out our 2026 guidance. For loans, given the performance year to date, and the strength and breadth of our platform, we are now raising our guidance and now expect loan growth to be 12% or higher for the year. For deposits, the momentum from our new teams and the new cubiX verticals continues to be strong and we expect balances to finish up 9% or more in 2026 even after deliberately moving out about $1 billion of higher-cost deposits during the year. The combination of loan and deposit growth opportunities should continue to drive solid growth in net interest income, and we are tightening our range to $805 million to $810 million for the year. On noninterest expenses, we update our range to $460 million to $465 million as we continue to invest in people and technology. And for income taxes, we now expect a range of 22% to 23% for the year. Taken as a whole, we believe this guidance sets us up for a strong finish to 2026 and a strong springboard 2027. With that, I will pass it back to Samvir for closing remarks. Before we open the line for questions.

Samvir S. Sidhu: Thanks, Mark. To wrap up, we delivered exceptional results across our priorities in the third quarter. AI is moving from pilot to production, and it is already showing up in our numbers with more opportunity ahead. cubiX is on track for record activity this year and is diversifying fast with mortgage finance and real estate now representing over 30% of balances. Loans grew 14% year over year to a record. Deposits grew 11% year over year to a record. Noninterest bearing deposits grew by $300 million to a record. Our new teams added about $415 million in the quarter and over $1 billion so far this year. From the second quarter, our NII increased 8%. Our EPS increased 10%, Our ROE increased to 14%, and our efficiency ratio improved by 340 basis points. We are building momentum heading into 2027, and we remain in the early innings of what this franchise can deliver. With that, we will now open up the line for questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press star 1 to raise your hand. And to withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question for optimum sound quality. And if muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Janet Lee with TD Cowen. Your line is open. Please go ahead.

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

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

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

Janet Lee: that is helpful. Thank you. And then 1 follow-up on expenses. I know you mentioned comp and tech expenses. Possibly contributing to some pressure in 4Q. As we think about the exit rate into 2027, can you help frame the right quarterly expense base from here as we look ahead?

Mark R. McCollom: Yeah. We are gonna be giving. Noah, this is Mark again. We are gonna be giving expense guidance for 2027 as well as all other material metrics in our fourth quarter call in January. Okay. Thank you.

Operator: Next question comes from the line of Anthony Elian with JPMorgan.

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

Mark R. McCollom: Yeah. You know, we do not give specific guidance on margin, but we did, obviously, tighten our range, you know, which you can impute from that, you know, where we expect NII to be for the fourth quarter. You know? So I would do that, and then you can use your own assumptions on balance sheet to, you know, translate into a margin. But you know, 1 data point, you know, I will give you is that our loan yields during the third quarter you know, our new volume on those loan yields came in at about 6.83, which is about 50 basis points higher than our overall loan yield of 33 for the quarter. You know? So that should give you another data point and some comfort for further NIM expansion in the fourth quarter.

Analyst: Great. that is helpful. And then you guys announced this partnership with Palantir. I guess, what is the extent of this partnership Is it just for account onboarding, or could it result in Palantir, sort of, you know, maybe 1 day replacing the bank's core?

Samvir S. Sidhu: You know, You know, as I said-- First of all, let me sort of zoom out sort of a bit of a high level. You know, we see, you know, the bank, as you can, you know, tell, value in partnering with a broader range of companies, especially folks that are sort of the leading edge of technology AI, you know, as well as services. You know, Palantir, as you probably well know, are pioneers in the, you know, FDE or forward-deployed engineer model, as well as incredible experts on the data layer that sits on top of any LLM. So as you can imagine, in complex commercial deposit account opening, it is incredibly useful to have them, you know, involved sort of helping work with our teams side by side. You know, in AI pods with our own engineers as well as subject matter experts. So in your broader question, you know, we are not looking to sort of reinvent the world here. We are looking to do the things that drive the most value for our employees and our customers. And that is really where our focus is today, which is how do you improve the employee experience and how do you improve. How does that you know, directly and indirectly, you know, improve the customer experience? Got it. Thanks.

Operator: Next question comes from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.

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

Samvir S. Sidhu: Sure. Broad-ranging question. I will take a stab, and then if something is missed, you know, you know, please feel free to ask a follow-up or Mark can sort of step in. You know, as it relates to cubiX, I think we are really proud, as I mentioned on the call, about the diversification. The end of last year, you know, we were being sort of pressed on how we saw the this as a potential growth vertical when it was. Went from 100% in cash to 100% in DA to 80% to now, you know, under 70%. I think that is really, you know, the testament to you know, to the team's success as well as the fact that the platform has been monetized you know, by a broad range of customers. So, you know, there was contribution from title teams. I think, you know, about $150 million so, you know, or so on a spot basis. Importantly, that team continues to perform incredibly well and we. And their pipelines also remain strong. Total sort of non DA cubic balances are about $1.4 billion. And I think you remember last quarter, I talked about a $1.5 billion, you know, goal by the end the year.

Mark R. McCollom: Steve, this is Mark. I. My. You know, I would just add we had said that the new teams, you know, contributed over $400 million you know, growth during the quarter. You know, title, as Samvir mentioned, was 1 of the larger ones, but, I mean, it was broad based growth when you when you look throughout all of our teams.

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

Samvir S. Sidhu: Yep. So, you know, I think the way to think about, you know, this. We talked a little bit about this last quarter. This is something that is we are developing internally with existing as well as new customers. Just an ability as money moves to 27, how do you expand and leverage the technology capabilities, the customers that we have, both directly, you know, on the network that are also can be in support of other customers to allow us to, you know, provide 24/7 money movement. And that is really, you know, the way I would describe how we also think about cross border. Okay. Okay. Appreciate that.

Steve Moss: And then just 1 other thing here in terms of just back on the expenses here. I know you guys tend to target an efficiency ratio, you know, obviously, very good trends here over the course of the current year. I am just, you know, curious as to, like, as we look forward here, does that efficiency ratio trend from, like, call it 49 this year to maybe to the 47, 46, 47 range. In 2027.

Samvir S. Sidhu: So I think as Mark said, you know, we will. Wait. Stay tuned, you know, for fourth quarter for us to be able to, you know, provide a lot more guidance. What I would sort of, you know, the trend you are describing is obviously the trend we wanna be on. Quarter to quarter matters a lot. We put out sort of a incredibly ambitious, you know, target of sort of low forties led by sort of some of our transformation efforts on the technology side. So more to come, but you are right. We are incredibly focused on efficiency ratio. We also are incredibly focused on making investments, which we have done and will continue to do. But, you know, that is sort of in support of the growth of the franchise. Alright. Great. Appreciate all the color. I will step back.

Operator: Next question comes from the line of Brian Wilczynski with Morgan Stanley. Your line is open. Please go ahead.

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

Mark R. McCollom: Sure. Yeah. A couple of things there, Brian. I will try to take a stab at that. First, we will go on the deposit betas. You know, while you know, it is still early. So far, you know, from the first 30 days since the September rate hike, our deposit beta has been about 33%. And that compares to, you know, the last time there was an upcycle in rates Our beta was around 60%. So I think that is a testament to some of the progress we have made in our deposit transformation. You know, as we have said on prior calls, you know, the overall cost of deposits that we bring in from our teams you know, generally is in kind of the low twos range all in. You know? And that has continued this quarter. And then remind me if there is anything there I did not answer.

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

Samvir S. Sidhu: Yeah. Thanks so much for the question, Brian. So just to kinda build off of what I mentioned earlier, the sort of complex commercial deposit account opening in minutes. You know, versus days. Think of this as multiple signers, background checks being done in parallel, multiplayer between an RM and a customer. You know, we really believe this is going to be industry leading. And in. All in of a better customer experience, but importantly, as you described, you know, growing our commercial account deposit at. And supporting the growth as well as potentially helping accelerate future growth. As you can imagine, if you have manual processes in the background, you know, which we will, you know, eliminate as part of this process, that can slow down, you know, the account growth that we are talking about. And I think I mentioned in my prepared remarks we are already at the growth in all of 2025. You know, year to date, you know, so far this year. Got it. Really appreciate all the and thank you for taking my questions.

Operator: Your next question comes from the line of Peter Winter with D.A. Davidson. Your line is open. Please go ahead.

Peter Winter: Samvir, I wanted to touch base on the Cubic's digital asset deposits. When I think about 1 of the reasons clients came to you were, at the time, 1 of the few banks that had this 24/7 settlement. But we have seen that 1 of the largest crypto exchanges now has a direct bed payment access and a settlement deal with another bank. So and we are seeing also some of the biggest banks have also launched this 24/7 and looking to serve exchanges and markets. The question is, are you seeing any of your larger clients start to move balances to these other rails? And if these clients now have a choice, is there a risk that the deposits that are zero cost you might have to start paying interest on those deposits.

Samvir S. Sidhu: Yep. Hey, Peter. Thanks for the question. So I think our position here sort of remains same, which is, you know, which we are very pleased by. There is really no, material change, you know, in our customer activity as a result of perceived, what I would describe as perceived competition. there is a large network effect and barrier to entry here of the 27 network that we built. You know, prior to. You know, over the past number of years, even prior to, you know, banking charters and Fed access being available, we have had banks and custodians and investors and many other folks have that are and continue to be incredibly active on our network. So I think the value we bring is sort of a intra bank network that has best in class technology with a broad diverse network that is that continues to grow. And is non interest bearing.

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

Samvir S. Sidhu: Sure. Yeah. Thanks. We are. You know, on the on the on the, you know, PA department of banking and securities lifting its order, we are you know, we are we are pleased. You know? And I would also just add that, you know, the regulatory agreements including, you know, with the Federal Reserve, are essentially the same. And as I said earlier this year, we would essentially put that. Materially put that work behind us at end of last year. So it is. It is a very good big recognition. It does not change, to answer your question, the way that we know, are operating on a day to day basis, and I think that is really you know, the key of how we are approaching our current, you know, and future business. So it is just an important milestone. But what I would say is, I think now I can confidently say that risk management is now becoming a real strength for us, and that there is creating a further moat building off of your previous question as well around our payments business. Got it. Thanks, Samvir. Congrats on a great quarter.

Operator: Your next question comes from the line of Matthew Breese with Stephens. Your line is open. Please go ahead.

Matthew Breese: Hey. Good morning. Hey. Good morning, Matthew.

Samvir S. Sidhu: Samvir, I. I am sorry. I missed it. What was the digital asset deposit I think you got a little garbled on my end. Yep. Sure. About $3.1 billion.

Matthew Breese: Okay. Okay. And my follow-up there around cubiX deposits in general, all of which are in non interest bearing Are there any associated know, earnings credit rates with the Cubic's deposit base? Or waive fees, and to what extent did that play out this quarter, last quarter? I am just trying to get a sense of if there is anything flowing through expenses tied to the Cubix deposit base.

Samvir S. Sidhu: Mean, they are they are predominantly, you know, 100% on interest bearing. I would just sort of clarify that you know, 70% of the title bought. You know, deposits are non interest bearing. They are the very small portion, tens of millions that there would be sort of a little bit of you know, expense associated with them. Got it. Okay. So, Paul, You know? 90 something percent of these are truly non-interest-bearing. 99 maybe. 99. Okay. Alright.

Matthew Breese: And then this is my bigger picture question for you. You know, I heard a lot from investors and sell-siders and questions around agentic AI the potential, the ability for a much more kind of volatile deposit environment as, you know, things like Muse came up. I wanted your thoughts there, and I could not help but think you know, maybe the partnership with Palantir was applicable to this. A defensive play. And yeah, maybe that is a little bit of an open ended question, but you get where I am going with this.

Samvir S. Sidhu: Yeah. Sure. You know, so I think that the. The short answer is Muse is a consumer app. Right? And at the end of the day, that, you know, we have limited exposure to sleepy, you know, consumer deposits. You know, as, you know, our clients are primarily sophisticated corporate customers that, you know, have treasury teams and are optimizing their liquidity. And they run their operating accounts, you know, pretty efficiently, you know, with sort of moving things, you know, into sort of interest bearing accounts if they do have those excess deposits. I also mentioned in our. My prepared remarks, we launched a pilot of an automated sweep product. Know? So while we do not have a huge consumer base, but for our consumer customers, to help them sort of earn interest, this is something that we do plan to roll out more broadly in the future. And while this type of retail deposit is not a big part of our franchise today, to your point, you know, this could be, you know, a potential product for us in the future. it is a you know, it is something that we wanna make sure that we are prepared for as consumers, you know, may waken to the benefit of Agentic money movement. What I would say is the key here is going to be using this as a tool to have a primary relationship, not just as a high cost deposit, you know, gathering tool because that is not really, you know, a customer's bank's objective here. I appreciate all that. I will leave it there. Thank you.

Operator: Your next question comes from the line of Kelly Motta with KBW. Your line is open. Please go ahead.

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

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

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

Mark R. McCollom: Sure. Yeah. And the step up, I mean, obviously, we are not giving guidance, beyond the fourth quarter. You know? But for that fourth quarter guide, I mean, it was really it was it was a combination of factors. I mean, I mean, we did have a couple things that were just a little bit lower in the third quarter that we typically see that will not continue. Will go back to their normal run rates. We are having a good year. We just had a good quarter, which was, you know, maybe the step up you are referring to last year. So then in the fourth quarter, we would expect additional incentive compensation And then, also, you know, as we have noted, you know, on the call here, we are investing in technology. So, you know, you saw a step up in some of our technology costs in the third quarter that we continue in the 4 q as well. Got it.

Kelly Motta: that is helpful. And then I know you have covered your AI partnerships a bit. I may have missed some of the details. I apologize if this is repetitive, but you have this new exciting partnership with Palantir. I think the release cited, like, account opening. I am just wondering about you know, is this the first thing that they are they are working on, if there is potential. If potential kind of, like, next step priorities, 1, and then, 2, how this is different from what OpenAI has been working with you on. Thanks.

Samvir S. Sidhu: Yep. Happy to take that, Kelly. And just to sort of recap a little bit of what I mentioned earlier is that, you know, we see value in partnering with you know, a number of folks. You know? Right now, Palantir working with us, as I mentioned, on sort of this deposit onboarding, and they may continue to work with us, especially in areas where there is a benefit of using their expertise and, you know, some of the services side by side with our engineers as sort of a focus on sort of the data ontology, which is something they are really are, I know, incredible experts on. You know, we are continuing to work on the top 3 top-down you know, domains. So loans where we are really leaning in heavily with OpenAI deposits. We just talked about, and also on the payment side. So those are the 3 domains we will continue to sort of you know, really. And those are really kicking up into high gear and sort of working on each of them concurrently, you know, now as well, whereas they were sort of a focus in the second quarter on the loan and third quarter on deposits. But now we are starting to sort of build a big transformation project in the fourth quarter that will sort of lead and give us momentum into 2027.

Kelly Motta: Got it. that is helpful. And maybe just a quick follow-up. You know, bank. Banks have been mostly confined to us as certain set of core providers over time, do you think AI is something that could be helpful in, you know, developing and improving upon and perhaps replacing the core? Thanks.

Samvir S. Sidhu: Yeah. I think you are absolutely right in terms of the benefit of some of these software tools. I think the real help is if you sort of think about the old world of data transformation and data maturation and data lineage and definitions and data keys, all of that is much easier today. There is an incredible amount of benefit to having systems of record across your organization that you can actually build on top of, you know, and also the real focus at our bank today is focusing on end to end automated workflows, whereas before you would sort of just have automated portions of workflows that sort of represented a bit of an 20. You know, if you actually wanna get to a, you know, an AI-native reach bank, which is what our focus is, you have to have sort of end to end workflows. Our focus is on the workflows. And the. And using the technology tools to be able to assist in those workflows. And not trying to sort of reinvent, you know, the software wheel. Great. Thank you so much for entertaining the question. Nice quarter off the back.

Operator: Your next question comes from the line of Manuel Navas with Piper Sandler. Your line is open. Please go ahead.

Manuel Navas: Hey. Good morning. Just have a question on NIM dynamics. Kind of what are you seeing on new loan yields and the marginal cost of deposits And do you see the September NIM of 3.25% as the floor in the fourth quarter?

Mark R. McCollom: Hey, Manuel. it is Mark. Thanks for the questions. Yeah. So, obviously, we have multiple lines of business. And when you think about a spread you know, you really have to take that kind of business line by business line where we have somewhere it might be closer to 25 over. You know? But then we have other businesses where, you know, the index might be prime or it might be something other than SOFR. But when you equivalize that to a spread over SOFR, it could be over 400 basis points you know, over, you know, a common index. For the quarter, we had mentioned earlier you know, that our third quarter loan originations were at $6.83. You know? And our cost of deposits was $2.50. Know, I will tell you that our spot balance on deposits, which as a CFO, I do not place as much emphasis on as the average balance, but our spot balance at September 30 was $2.47. You know? So you can just take that marginal you know, asset production, you know, over our spot balance on deposits and you get over 400 basis points, you know, of, you know, on the margin expansion. You know, as far as, you know, whether that $3.25 is a floor, you know, I. What we. We are not giving specific guidance for the fourth quarter, you know, but just wanted to give you a sense of where we ended the third quarter, and you can build your own model you know, and kinda project out from there.

Manuel Navas: Appreciate that. The 15 new team member hiring, is there any staff on that? Maybe you gave it earlier, but, like, do you have a thought on their prior book of business? Maybe where they are coming from broadly in terms of what type of bank they are coming from, and you did. You described on the slide what segments they are in, but which is, like, the most focused of those segments? Anything you could add on the new hires.

Samvir S. Sidhu: You know, sure. I think I think that it is really broad across a number of sectors, you know, 50 plus team members. This is just like the new team members. You know, we have also hired about 60 revenue producers in total. You know, this year, across 12 teams. So there is also sort of density that we are sort of increasing in existing teams. So there is no real direct answer. What I would say is that we are hired more this year than we did last year, which I think is sort of a good indicator of where we are in our overall you know, growth cycle. I would also talked about the teams that we have hired this year. Last quarter that there was a 9 figure pipeline on both loans and deposits, which is which is great. We are pleased by that. it is the benefit of getting, you know, folks joining the bank in, you know, as early as April of this year. But what I would leave you with is we are having a flurry of conversations now for 2027 hiring. Which is the strongest hiring pipelines that we have had and counted. I think it is a testament to our own success. it is the flywheel we talk about that we have in the appendix. And, you know, our own success, our customer success, our new team member success, their alumni networks, allow us to kind of continue, you know, to hire and support the organic growth business model we have.

Manuel Navas: I appreciate that. Is that kind of bigger hiring pipeline? Is that come from any 1 spot? Obviously, the referral network is working well. Is what do you think there is any other drivers there in the industry beyond your own success?

Samvir S. Sidhu: Yeah. No. Same answer as before. there is there is nothing, nothing specific that I would I would point to. I think we give a pretty good snapshot of areas that are you know, new to the bank or accretive, you know, to sort of where we are, as you think about fee income. But these are predominantly sort of deposit led and revenue generating hires.

Manuel Navas: And then just 1 last question broadly. Do you have can you give some thoughts for next year in terms of growth momentum, margin? You cannot get fourth quarter, it sounds like. Or OpEx trajectory? Anything thoughts on 2028 targets broadly?

Mark R. McCollom: We are gonna be talking about Oh, you said 2028 targets. Definitely not. Great. Great. I am sorry. But, 2027, you know, we will be giving you all of our thoughts on guidance, you know, obviously, on the January call.

Manuel Navas: Understood. Thank you very much. Thank you for the commentary.

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

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

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