Customers Bancorp Leans On Growth And AI In Call

Customers Bancorp ((CUBI)) has held its Q1 earnings call. Read on for the main highlights of the call.

Customers Bancorp’s latest earnings call struck a decidedly upbeat tone, as management highlighted strong organic growth, disciplined risk management, and early but tangible payoffs from its AI and efficiency initiatives. Executives acknowledged some margin pressure and macro uncertainty, but stressed that record noninterest-bearing deposits, double-digit earnings growth, and a rising tangible book value underpin confidence in the bank’s trajectory.

Deposits Surge With Higher Quality Mix

Period-end deposits climbed to $21.6 billion, up $2.7 billion, or about 14% year-over-year, with management also citing roughly 16% annualized growth. The mix improved meaningfully, as noninterest-bearing balances hit a record $6.7 billion, now over 31% of total deposits, fueled by more than $400 million of quarterly growth from both digital-asset clients and traditional commercial relationships.

Loan Growth Broad-Based Across Key Verticals

Total loans reached $17.4 billion, up more than $600 million in the quarter and tracking around 15% annualized growth. Origination was diversified, with fund finance, mortgage finance, and health care leading contributions, signaling that expansion is not overly reliant on any single sector and helping temper concentration risk.

Earnings Power And Capital Remain Solid

GAAP and core EPS came in at $1.97, with core earnings up 28% versus last year, underscoring strong profitability despite rate headwinds. Core ROE and ROA of 13.1% and 1.13%, respectively, paired with a tangible book value per share of $63.54, up 16% year-over-year and 3% sequentially, support a TCE ratio of 8.3%, 60 basis points higher than a year ago.

Net Interest Income Growing Despite Headwinds

Net interest income rose to $191.4 million, an increase of $24 million, or 14% year-over-year, as balance sheet growth more than offset modest margin compression. Management reiterated its full-year outlook for NII expansion of 7% to 11% versus 2025, suggesting volume growth and deposit mix improvements should outweigh yield pressure.

Efficiency Gains Drive Positive Operating Leverage

Core revenue growth nearly doubled the pace of core expense growth, delivering clear positive operating leverage in the quarter. The core efficiency ratio improved by 300 basis points, while noninterest expense was held to $112 million, with core costs at just 1.82% of average assets, placing Customers in the top decile of peers on this key efficiency metric.

Operational Excellence Program Upsized

Phase 1 of the Operational Excellence initiative has already achieved the targeted $20 million annual run-rate benefit, validating management’s cost and process playbook. Encouraged by this progress, the bank lifted its total program goal to $30 million by identifying additional opportunities in vendor management, technology optimization, and risk-management streamlining.

cubiX Platform Scales And Diversifies Funding

The cubiX payments platform processed roughly $500 billion of transaction volume in the quarter, similar to last year, underscoring its relevance in high-velocity payment flows. Deposits linked to cubiX ended the period around $4.0 billion, with average balances near $3.6 billion, and management expects about $250 million of incremental noninterest-bearing deposits from new verticals over the next 90 days.

AI Deployment Delivers Early Productivity Wins

Roughly three-quarters of employees now hold AI licenses, with more than 500 internal agents or custom GPTs built, including about two dozen in just the last two weeks. These tools have already saved over 28,000 hours, or about 15 full-time equivalents, as the bank prioritizes AI for loan onboarding, deposit onboarding, and payments orchestration under a strategic partnership with a frontier model provider.

Credit Metrics Stable With Prudent Reserving

Overall credit performance remained sound, as nonperforming assets as a share of total assets stayed low compared with peers, and total net charge-offs declined modestly from the prior quarter. Management modestly lifted the allowance for credit losses by about $10 million, nudging ACL coverage up roughly 1 basis point to reflect portfolio growth while maintaining a cautious stance amid macro and geopolitical uncertainty.

Shareholder Returns And Capital Simplification

The company repurchased roughly 620,000 shares at an average price of about $68, returning capital to shareholders while signaling confidence in intrinsic value. It also redeemed $110 million of subordinated debt and, over the past year, more than $140 million of preferred stock, simplifying the capital structure and improving the quality of capital even as some risk-based ratios dipped temporarily.

Margin Pressure And Loan Yield Mix Weigh On NIM

Management flagged a sequential decline in NII and net interest margin tied to roughly $10 million of nonrecurring accretion income in the prior quarter and a shorter day count in Q1. New loan production, often priced around 225 to 300 basis points over SOFR, typically comes in below the current blended loan yield, which can compress NIM even as overall NII continues to rise through volume growth.

cubiX Average Balances Edge Lower

Despite robust transaction throughput, average cubiX deposits slipped from roughly $3.8 billion in the fourth quarter to about $3.6 billion in Q1, while period-end balances stood near $4.0 billion. Management attributed the decline to modestly lower digital-asset balances but expects upcoming verticals on cubiX to more than offset this drift and support future growth in low-cost funding.

Isolated CRE NPA And Cautious Reserve Build

Nonperforming assets in CRE and multifamily ticked higher due mainly to a single loan moved to nonaccrual status, even though it remains current on payments and was written down to collateral value. This conservative classification, combined with the $10 million reserve add, underscores management’s low tolerance for surprises as it navigates a still-uncertain economic backdrop.

Timing Risk In Commercial Deposit Funding

Commercial account opening momentum stayed strong, with about 1,100 net new accounts in Q1, a roughly 5% quarterly increase that showcases the franchise’s expanding reach. However, less than 15% of those new accounts were meaningfully funded during the quarter, highlighting timing and execution risk between client acquisition and the conversion of new relationships into productive deposits.

Fee Income Volatility And Capital Ratio Dynamics

Management reminded investors that certain fee items, such as warrant gains and some securities yield adjustments, are episodic and can swing quarter to quarter, adding noise to noninterest income. Meanwhile, the redemption of subordinated debt and prior preferred stock buybacks improved capital quality but reduced some risk-based ratios, placing more emphasis on sustained organic earnings to preserve balance sheet flexibility.

Guidance Reaffirmed On Back Of Strong Q1

The bank reaffirmed its 2026 outlook, calling for 8% to 12% growth in loans and deposits and 7% to 11% NII growth versus 2025, while keeping noninterest expense guidance at $440 million to $460 million, or 2% to 6% growth. Management tied this confidence to Q1 momentum, citing core EPS of $1.97, double-digit return metrics, a 300-basis-point efficiency improvement, and healthy deposit and loan pipelines, including a near-term cubiX-driven boost to noninterest-bearing deposits.

Customers Bancorp’s call painted the picture of a bank leaning into growth while tightening its grip on costs, technology, and risk. For investors, the story centers on whether sustained deposit diversification, AI-enabled efficiency, and disciplined credit can offset margin pressures, but management’s tone and reaffirmed guidance suggest they see more runway ahead than roadblocks.