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DATE
Friday, July 25, 2025 at 1:00 p.m. ET
CALL PARTICIPANTS
Chairman — Jay Sidhu
President and Chief Executive Officer — Sam Sidhu
Chief Financial Officer — Phil Watkins
Chief Financial Officer, Customers Bank — Mark McCollum
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TAKEAWAYS
Core Earnings Per Share-- Core EPS was $1.80 for Q2 2025, supported by broad-based performance across the business.
Return on Equity-- 13.3% core ROE for Q2 2025, reflecting continued capital efficiency.
Return on Assets-- 1.1% core ROA for Q2 2025.
Net Interest Margin-- 3.27% for Q2 2025, a 14 basis point expansion in net interest margin over the previous quarter.
Net Interest Income-- $176.7 million net interest income for Q2 2025.
Loan Growth-- Net held-for-investment loans grew $320 million in Q2 2025, or 8% annualized, with diversified contributions by segment.
Deposit Growth-- Nearly $300 million in new commercial deposits contributed by recently onboarded banking teams during a typically slower Q2 2025.
Noninterest-Bearing Deposits-- Composed roughly 29% of total deposits at Q2 2025.
Tangible Book Value Per Share-- $56.24 tangible book value per share for Q2 2025, continuing a multi-year trend of double-digit annual growth in tangible book value per share.
Core Efficiency Ratio-- 51.6% core efficiency ratio for Q2 2025, marking the third consecutive quarter of improvement.
Cubix Payment Platform-- Processed $1.5 trillion in payments volume during calendar year 2024 and about $1 trillion year-to-date in 2025, positioning Customers Bank as a top-three network in commercial payments volume in 2024.
Cubix Deposits-- $3.2 billion spot basis at quarter-end Q2 2025, accounting for 16%-17% of total deposits as of June 30, 2025, and up about 20% in July 2025 through the 25th.
Stablecoin Issuer Deposits-- Represent approximately 10% of Cubix deposits as of Q2 2025.
Cubix Fee Income-- Fee revenue from Cubix platform at an $8 million annual run rate as of Q2 2025, with most income currently generated from interest.
Loan Pipeline-- Cited $500 million in current loan backlog as of the Q2 2025 earnings call.
Credit Quality-- Nonperforming assets at 27 basis points of total assets for Q2 2025; net charge-offs improved by 25% quarter-over-quarter; special mention and substandard loans down 7% for Q2 2025.
Capital-- Tangible common equity ratio increased by 20 basis points to 12% for Q2 2025; company remains above its CET1 capital target.
Guidance (Loan Growth)-- Full-year loan growth projection raised to 8%-11% for 2025, up from previous guidance of 7%-10%.
Guidance (Net Interest Income)-- Projected NII growth increased to a 7%-10% range for full year 2025, revised from 3%-7% for prior net interest income growth guidance.
Upcoming Interest Income-- Interest income is expected from a recently purchased loan portfolio interest buyout.
Professional Fees-- Professional fees are expected to decrease in the next 90 days.
Management Transition-- CEO role to transition to Sam Sidhu effective January 1, 2026, with Jay Sidhu moving to executive chairman.
New Team Onboarding-- Three new banking teams added year-to-date, two more expected soon, and advanced negotiations ongoing with additional teams.
Deposit Transformation-- Over $2.4 billion in granular, relationship-based deposits managed by teams onboarded since June 2023 as of Q2 2025, now representing 13% of total deposits.
BMTX Deposit Runoff-- Resulted in a three basis point increase in average deposit cost for Q2 2025 and a six basis point increase in interest-bearing deposit cost for Q2 2025; company stated this headwind is now behind them.
SUMMARY
Customers Bancorp(CUBI 1.12%) management delivered explicit upward revisions to both loan and net interest income guidance ranges for full-year 2025, underlining improved business momentum in the first half of the year. Strategic investments in commercial banking teams and the Cubix platform have generated meaningful growth in relationship-based deposits and transaction volume, which may drive further operating leverage, as highlighted by the completed redemption of Series E preferred stock. Executive succession plans were firmly articulated with clear timelines, indicating a planned, stable transition at the top of the organization.
Management attributed this performance to accelerated transformation and innovative platform launches.
Commercial account openings remain strong, up 14% this quarter and over 60% since the end of 2022, evidencing continuing franchise momentum.
Management described Cubix as "has been a misunderstood, therefore mispriced asset," and revealed plans to grow revenue via both interest and fee streams as the network matures.
Rate sensitivity remains modestly asset sensitive, but recent risk positioning efforts have partially neutralized the impact; Phil Watkins noted a "little bit of an upward bias" for net interest margin going forward, subject to rate outlook, during the Q2 2025 earnings call.
Stablecoin-related deposit inflows could increase significantly over time due to new regulatory clarity and institutional adoption, but management reiterated a focus on balance and risk management over simply expanding balances.
Brokered deposits are targeted to remain below 30% of total deposits in the near to medium term, reflecting ongoing strategic funding remix priorities.
INDUSTRY GLOSSARY
Cubix: Customers Bank's in-house-developed payments platform, delivering 24/7 API-based payments capabilities, primarily for institutional clients in the digital asset sector.
BMTX: A fintech partner whose deposited funds were previously serviced by Customers Bancorp and have since been intentionally reduced or run off.
Stablecoin: A digital asset whose value is typically pegged to a sovereign currency or high-quality liquid asset and requires designated reserves under pending legislation, often used in institutional payment and settlement.
Brokered Deposits: Deposits sourced through third-party brokers rather than direct client relationships, considered less granular and often more volatile in banking funding structures.
Full Conference Call Transcript
David Patti: Thank you, Regina, and good morning, everyone. Thank you for joining us for the Customers Bancorp earnings webcast for Q2 of 2025. The presentation deck you will see during today's webcast has been posted on the Investors webpage of the bank's website at customersbank.com. You can scroll to Q2 2025 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?
Jay Sidhu: Thank you, Dave, and good morning, ladies and gentlemen. Welcome to Customers Bancorp Second Quarter 2025 Earnings Call. I'm joined this morning by our president and chief executive officer of the bank, Sam Sidhu, Customers Bancorp CFO, Phil Watkins, and Customers Bank CFO, Mark McCollum. First, I'm thrilled to welcome Mark on the call. Mark and I were partners at Southern Bancorp, and I'm thrilled he is now on the customer's team. 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 the 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 three, over the past fifteen years, we've built a differentiated model anchored in disciplined growth, innovation, and exceptional client service. And over the last five 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 five years.
Perhaps most importantly, we've attracted and developed what I believe is the best management team I've had the privilege to work with, and I was a CEO of a $90 billion asset company and served on the board of a multinational top five 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 East, 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 the 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 four. Good morning, Jay.
Sam Sidhu: 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, 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 number one financial performer in EPS and in book value growth over the last five years. And that's translated into long-term returns for our shareholders. We have also been, as you heard from Jay, the number one performing US bank stock over a five-year period.
Moving to slide five, 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 continued to invest. And we continued 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 six, you'll see our GAAP financials, then moving to slide seven, I'll run through the core financials for the quarter. Our beat relative to expectations on both the GAAP and core base was driven by broad, strong results. We delivered core EPS of $1.8 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 one year if we executed in strategic priorities.
I'm incredibly proud to say that we've exceeded that with about 35% of core EPS growth from those levels one quarter early. Now let's turn to deposits in 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 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 two years, which is absolutely phenomenal.
And to reinforce the granularity of this growth, commercial account openings remain strong, up 14% this quarter and over 60% since the end of 2022. The planned reduction in deposit service by BMTX had an approximately three basis point impact on total average cost of deposits and approximately a six basis point impact on total interest-bearing deposit costs in the quarter. Adjusting for this impact, interest-bearing deposit costs would have declined by five 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 a billion dollars over the last year.
Continuing to reduce these balances remains a top priority for us. Noninterest-bearing deposits remain strong, 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 and existing client relationships, 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. It's one of the clearest ways we continue to create long-term value for our shareholders. Now turning to slide nine. 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 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, 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 number three. Only behind Amex and Visa commercial. This very much aligns with our philosophy of being a top three to five 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, 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. 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 healthcare 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.
Phil Watkins: 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. 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 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 two 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.
Noninterest expenses in Q2 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 or 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. 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, continue to be pleased overall with our credit performance. 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 risks, 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.
Sam Sidhu: 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 in 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 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: We will now begin the question and answer session. In order to ask a question, press star followed by the number one on your telephone keypad. Our first question will come from the line of Peter Winter with D.A. Davidson. Please go ahead.
Peter Winter: Good morning. Congratulations, Sam, on the promotion. And, Jay, with your future plans to start off. But if I could just first question, just so you mentioned the increase of about $10 million next two quarters. Can you just go over that one more time? In your prepared remarks?
Phil Watkins: Yeah. Hey. Hey. Good morning, Peter. I hope you're doing well. Yeah. It's you know, really, it was a small portfolio of loans that we originate 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 quarters.
Peter Winter: And it's it's $10 million benefit each quarter?
Phil Watkins: Yeah. We Or over the next ten million over the next two quarters? We expect it to be around $10 million each of the next two quarters.
Peter Winter: Got it. Thank you. And then, Sam, if I could just ask, you know, just with this passage of the Genius Act, just how maybe are you thinking about crypto-related deposits going forward? And just you know, it seems like it's gonna 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.
Sam Sidhu: Yeah. Sure. Sure, Peter. Thank you so much for your comments earlier. So you know, the net takeaway is this is incredibly exciting, you know, for, you know, for Customers Bank and you know, what I would say about the recent legislation from Washington is it is 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 are here to stay. You know? 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 know, you had a, you know, a bump with the election, you know, last November. You have Genius now from a stablecoin perspective, and then there's further market structure legislation that is penciled out, you know, for later this year. Each one of these milestones has resulted in you know, increased activity, increased, you know, deposits, increased fee income, you know, at Customers Bank. So, you know, to get a little bit more specific on your question, about stablecoins, you know, what I would say is that you know, this legislation almost certainly benefits a number of our existing customers, as you could appreciate. They will likely benefit from more AUM today and in the future.
It also is gonna mean that there's gonna be, you know, new institutional issuers, you know, starting with nonbanks. As you can appreciate, if you continue to pull this thread, all major institutional issuers launch a stablecoin are likely gonna need to be a customer of Customers Bank. You know, we are the leading stablecoin infrastructure and payments provider, you know, in the country. You know? And a little bit more on I don't know if we've shared this before, but, know, we only have about 10% or so of our deposits that come from stablecoin issuers today out of our, you know, overall Cubix deposits. So we could very well see that increase over time. You know?
And you know, getting back to your question about big banks, you know, at the end of the day, if you're a large bank, this is something that you, you know, 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. You know, you know, have this as a means of payment. But at the end of the day, large banks make money when there's friction. Inefficient flow in the banking system. You know, 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. I think gonna be a, you know, a long runway over the medium to long term, but the most important thing is that is that this is gonna be a huge benefit for Customers Bank in the near to medium and to long term. The pie is gonna increase in regardless of increased competition. You know, we have the strongest payments network. We laid out we laid out some of those stats there to kinda put that in perspective. You know, we are continuing to trend and grow that business.
You know, July, as I mentioned, you know, was will actually be our most active month to date on the platform.
Peter Winter: Got it. That's helpful. I mean, 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?
Phil Watkins: Yes. Peter, good morning again. Yeah. You know, I'd I'd say generally, the if you look back, they were actually pretty consistent with where they were sort of two quarters ago. So, you know, Q1 was probably a bit lower. We actually saw some, you know, some increases kind of broadly across the you know, across the platform. But from the risk management sort of investment side, they were they were largely consistent quarter over quarter.
Sam Sidhu: I would just add, Peter, if you're asking about sort of regulatory expenses, I'd say that we, you know, are largely on track with what prior, you know, prior guided towards and expect those really that portion, which is not contributing to the growth this quarter, but that portion you know, to, you know, to drop off significantly if not completely in the next ninety days.
Peter Winter: Got it. Thanks, Sam. Thanks, Phil.
Operator: Our next question comes from the line of Kelly Motta with KBW. Please go ahead.
Kelly Motta: 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 you know, risk management thinking through concentrations, is there a way to think about a how your this business could grow with the industry? Just any high level thoughts there.
Sam Sidhu: Yep. Good morning, Kelly. Happy to happy to take that. So first of all, I think you asked about you know, 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 a $100 million lower. What I would say is that a spot basis is not really the best indicator, you know, of thinking about where that is. That puts it probably at 16% or 17% as of June 30, which is above the prior cap that you know, that we had talked about.
But, really, we had that cap, we were not initially in February 2023, 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 kinda put that in perspective. If as of the 25th of July, we've had the most active month, you know, on Cubix to date. So with still, you know, almost a week to go, you know, in the month, our deposit balances are up about 20%. You know, in the month of July to kinda put that perspective.
Increased activity, it's increased deposits, and increased deposits leads to lot higher interest income as well as, you know, increased activity, which leads to fee income. So over time, we expect that, you know, these deposit balances will could potentially, you know, increase as we get more institutional flow. 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 two 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 increase over time, we may see increased, you know, 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 that'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 you know, you know, modest, you know, deposit growth as activity increases. Hopefully, that answers your question, but happy to answer any follow-ups.
Kelly Motta: That's really helpful, I guess. As a follow-up here, as you've 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 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.
Sam Sidhu: Sure. So the short answer is we're we're not you know, looking to change, you know, the way that we approach and hold on these deposits. I think the, you know, longer answer is over time, as you can probably appreciate over a multiyear period, continue to get more, you know, more internal, you know, data on how these you know, deposits operate and fluctuate. We'll continue to have longer term relationships with our customers and can work on structure. And, you know, just have a sense of sort of a minimum amount of payments float. So the answer over the medium term is that we will likely, you know, consider You know?
But this will be customer driven, and it'll be business driven. And sitting where we are today, it is entirely appropriate to hold these in cash, especially where rates are.
Kelly Motta: Got it. May maybe last question for me, and then I'll step back into the queue is, you know, this slide nine where you draw out the payment volume is super powerful. I know this is you know, 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?
Sam Sidhu: Yep. So late last year, we, you know, we instituted sort traditional, you know, wire 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, you know, necessarily, you know, material in the second quarter. But going forward, we could see that increase over time. Again, our objective is not to continue to you know, 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, you know, changing rate environment over the medium term.
So, you know, one of the things that's that is important about that overall volume is it really just shows the incredible strength of the network. And know, while it was $1.5 trillion last year, you know, we're at about a 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 in our in our lead and our moat is increasing.
Kelly Motta: Got it. Thank you for so much for all the color.
Operator: Step back. Our next question comes from the line of Harold Goetsch with Riley Securities. Please go ahead.
Harold Goetsch: Hey. Thank you. Congratulations for all the changes and the leadership there. I hope you all succeed and are happy with where things are headed, and congratulations. And my question is still on the know, Cubix and you know, payment flows across the rails are just enormous. The monetization is you know, it's quite low. I mean, I guess, is this really a vehicle outside of even digital assets just to increase banking relationships and the size of connections to many commercial accounts because seems like, you know, I appreciate your comment on you know, 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, you know, volume is coming your way. Could you just kinda comment on your strategy with your current pricing and the related volume gains you're getting.
Sam Sidhu: Yeah. Good morning, Hal. Happy to take that. So you know, as we, you know, think about the you know, the Cubix, you know, platform, it's it's to kind of just remind folks what it is. It's really just know, software that sits on top of our you know, existing, you know, core and payments infrastructure at the bank. It allows our customers, commercial customers, who are more institutional and, in many cases, tech savvy, you know, to operate. So you know, prior to Cubix, we had something called CBit, which was a blockchain, you know, tokenized deposit.
You know, from a traditional finance perspective, I will admit that was a lot tougher of a sell to get some of the, you know, traditional commercial customers, you know, 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 you know, intra bank type transfers, but really a full suite of products and payment rails and services and connect and data and information, you know, we are seeing, you know, you know, tremendous amount of use cases. You know, from commercial customers.
I was just sitting in someone's office yesterday, and we have you know, a real estate customer who has hundreds of accounts with us that's now gonna be using this for some of their internal, you know, GL ledger type activity. And, again, this is not necessarily driving know, new deposits with that customer, but it is actually strengthening our relationship. It's providing an incremental service. And, you know, think of it as sort of a, you know, software as a service type solution.
So we continue to see it, you know, as a as an opportunity to strengthen relationships, drive incremental deposits with our existing customer, but also importantly, open up, you know, more traditional finance type you know, you know, opportunities that you know, 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 you know, incredibly streamlined format that we have.
Harold Goetsch: Thank you very much.
Operator: Our next question comes from the line of David Bishop with Day Group. Please go ahead.
David Bishop: Hey. A quick question, Sam. In terms of the loan mix here, you guys have been pretty successful. Past couple quarters and growing commercial real estate, maybe taking some share. Given your capacity. Just curious your appetite to grow some of those commercial real estate segments and as we look at the loan mix, in terms of the breakdown per segment, does that stay relatively consistent, do think, over the next year? Or you continue to see you know, sort of specialty lending C&I billed as a percent of loan? Thanks.
Phil Watkins: Yeah. Hey, Dave. Good morning. It's Phil. I'll I'll take that for you. I mean, I think, yeah, we've we've talked about over last two or three quarters, we you know, somewhat opportunistically stepped into a bit of a void, especially here in our New York markets. Or in the Northeast markets in commercial real estate. You know, as others pulled back in Q4 and Q1. We were really able to win, again, not transactional, but full relationship-based off opportunities where we, you know, were able to perform for clients when others weren't. We still definitely see some opportunities there in the pipeline. You know, we've got a nice pipeline on the commercial real estate side.
But we're being very disciplined again, not sit not, you know, seeking out just transactional interest earning assets. It's gotta be full relationship driven. And so you know, we have seen some of the participants that had stepped out for a few quarters start to step back in. So, again, we're we're not going to chase transactions there just for the sake of it, but we are still seeing, you know, some good opportunities.
As we look across the rest of the franchise, you know, as Sam mentioned in his comments, that is part of that is one of the real strengths here is that you know, 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, you know, we will continue to do that and go where we see the best opportunities. For that franchise enhancing growth.
So, yeah, we can give you the look out of the pipeline, you know, call it, you know, ninety days out, which does have some commercial real estate, but also some, again, continued contributions from the specialized C&I. But as we look, you know, three, four quarters out, it'll be very dependent on the opportunities, but we're incredibly well positioned for that.
Sam Sidhu: I would just add, you know, David mentioned, you know, we have about, you know, $500 million or so in the, you know, the loan backlog, you know, right now.
David Bishop: Got it. Appreciate the guidance there. And then just curious in terms of the BMT deposit to run off. Is there any more, plans in the near future? Will that be a headwind, or is that mostly behind you? Thanks.
Sam Sidhu: I think we well telegraphed that was a Q2 headwind, and it and anything like it is behind us.
David Bishop: Great. Thank you.
Operator: Our next question comes from the line of Steve Moss with Raymond James. Please go ahead.
Steve Moss: And, Sam, congratulations on the promotion here. Maybe just on the deposit side, with, you know, the pipeline remaining strong there, just curious you know, if you know, with the expectation rates will be coming down here at some point over the short to medium term, you know, is that entering the conversation with the deposit customers you're bringing on these days? And just kind of where is you know, what's the blended cost of deposits today?
Sam Sidhu: Yep. So I think the good news is that, you know, we're we're continuing to bring on you know, new deposit customers at similar levels. So we were sort of high twenties, 30% non-interest bearing, you know, component blending at about that two and a half percent plus or minus, you know, type basis, which we feel, you know, pretty you know, privileged to be doing. And then a lot of that credit goes to, you know, our existing and as well as sort of new, you know, teams of the bank as well as future teams of the bank.
You know, when you're when you're in competition and taking market share, in some cases, you have to sort of match you know, the top dollar as rates, you know, to decline, you know, a receding tide sort of, you know, brings all boats down. And I think that many of those conversations are had and expected, you know, by customers, especially when it's not connected with, you migration of accounts.
Steve Moss: Okay. Appreciate that. And just in terms of the teams you hired here, same in the ones you're about to bring on, just kinda curious if you could size up, the potential those deposit books.
Sam Sidhu: Get premature in sizing up the deposit books, but what I would say is that you know, it looks like we'll have about half a dozen or so teams, you know, this year based upon sort of where we are in discussions with you know, you know, five already, you know, three on onboarded to, you know, the quarter and, you know, another one or two plus or minus even more. You know, the goal would be to start building for 2027. You know, one of the things that's worth mentioning about our prior teams 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. You know, first by, you know, having, you know, the revenues be two times expenses. Eventually, we'd like to get that to a minimum of three, and that's gonna provide tremendous amount of operating leverage, you know, over the next twelve to twenty four months on the on the on the old teams. On new teams, we're consider you know, we're we're working on similar twelve to eighteen months type you know, breakeven. And, you know, safe to say, you know, each one of our teams, you know, we would expect to be at a minimum in sort of that couple $100 million or so.
You know, book on the high end. They do get to 10 figure.
Steve Moss: Okay. Appreciate that. And in terms of you know, 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 to that current levels, or, you know, could we see some more margin expansion just given your deposit base should continue to get better here?
Phil Watkins: Yeah. Hey, Steve. Good morning. So I you know, I'd say, overall, you know, 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, you know, opportunities on the remix side. Some of it, you know, some of it does continue to depend on the rate outlook. You know, we do continue to be modestly asset sensitive. Though, as you know, we've taken, you know, meaningful steps, you know, 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 a an upward bias, but it will be a bit dependent on that outlook. I guess the one thing I would highlight as I as I noted earlier, we you will see, you know, clearly some benefits in Q3 and Q4 from that additional interest income flowing through.
Steve Moss: Great. Okay. Thanks for that, Bill. And then I guess, just maybe I hear you guys in terms of you know, gonna be bringing on more customers with regard to Cubix and, you know, definitely a potential for loan growth deposit growth out of that out of the platform. You know, in terms of I realized it's difficult to see where it could shake out, but just kinda curious as to you know, how you're thinking about managing those deposit balances or are you just willing to let it ramp up and you know, how do I think about concentration with regard to that? And if you guys have any thoughts over the medium term?
Sam Sidhu: It's it's a very valid question, Steve. And, know, 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, you know, these are conversations we're having and that we're thinking about, and that's why you know, I've stated before, our goal is not to sit here and drive, you know, deposits. It's to increase the strength of the network, increasing the strength of the network, increases, you know, sort of activity and associated, you know, deposit balances.
And we view those as the high quality know, value of the franchise, not spot balances with sort of a new account funding that's not active.
Steve Moss: Right. Okay. Well, appreciate all the color here today, and thank you very much.
Sam Sidhu: Thanks, Steve. And what I would like to say to you know, is, I to say at the beginning, congratulations on the new baby.
Steve Moss: Thanks, Sam.
Operator: Our final question comes from the line of Matthew Breese with Stephens. Please go ahead.
Matthew Breese: 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?
Phil Watkins: Yeah. Hey. Hey, Matt. Good morning. You know, I'd say overall, we probably feel you know, pretty good about where our securities portfolio is percent of average assets is. Obviously, you know, we did we were able to reinvest a portion of proceeds as we talked about from some of the sales. But, you know, at this point, it would probably be you know, be more be more cash flow driven.
And then, you know, as far as balance sheet a balance sheet growth perspective, excuse me, as I said, I you know, as we've said before, know, we 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 know, you wouldn't see a lot of balance sheet growth, which is which is what occurred. But then as we got into the back half of the year and certainly into '26, you know, while we still have, you know, some opportunities on the remix side, we would expect more growth in overall in the balance sheet.
Matthew Breese: Okay. Is it safe to say that we should expect more of the, you know, the loan growth transition into total asset growth at this point? That's a fair statement.
Phil Watkins: That's right.
Matthew Breese: 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 brokered deposits. For 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 broker deposit total deposits?
Sam Sidhu: That's the simple math, you know, Matt. And so, yes, they have to declined, and they declined by about a billion over the last year. I think we've been pretty, you know, vocal about you know, 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 you know, where do we want those deposits to be? You know, we are not a traditional sort of branch based you know, bank that has a broad base of, you know, branch based retail deposits.
Having said that, I think we've always said we'll we'll we expect to sort of operate a little bit on the higher end of a of a traditional bank. You know, whether that's, you know, 25 or 20, it's to be determined. We definitely want these below. 30% in the near to medium term.
Matthew Breese: Thank you. Okay. And then I had a couple questions on Cubix myself. I guess the first one is just on the stable coin bill, and I was hoping you could help me better understand you know, one of the inherent things is that all stablecoins will need to be backed by US treasuries, which inherently invites global usage, and I and I think there's some strong UK use cases around that. But you know, 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, you know, good incremental actors into the system, especially if this now becomes something that, you know, extends beyond The US borders.
Sam Sidhu: Yep. So, you know, I think that it from first and foremost, I think I mentioned this earlier on the call, it is incredibly helpful to have you know, our customers come in customers come into you know, formal federal regulatory you know, framework, you know, while all of our customers are regulated in some way, shape, or form, and in some cases, many, you know, shapes and form. This provides, you know, sort of a very, you know, constructive and cohesive road map, not only on the you know, compliance side and BSAAML, but also, you know, importantly, on sort of the liquidity management and sort of the consumer protection as you were sort of referencing. You know, before.
You know, it there's about a plus or minus eighteen month implementation phase where a lot of detail, you know, will be you know, will be coming out, you know, for a number of our you know, customers. As I mentioned, this is about 10% plus or minus of our existing, you know, deposits today. And we're we're thrilled that there's now gonna be a federal framework that also you know, includes, you know, much more comprehensive PSA AML, and we'll look to really just partner you know, with the with the structure that our customers are in and what we're looking to do at Customers Bank on the PSA, AML side is we've already invested significant sums of money.
You know, 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 gonna be leveling up and entering a US federal framework is gonna you know, even further, you know, strengthen the overall institutional flow of the bank, but also really increase the moat around our business.
Matthew Breese: And you said Stablecoin is 10% of existing. Is that total deposits or just the Cubix deposit?
Sam Sidhu: Cubix deposits.
Matthew Breese: Okay. Okay. And then the other thing I was curious about is just in terms of your Cubix customers. You know, could you talk a little bit about the granularity of those deposits and how many accounts, you know, you know, are frequent users of Cubix. I just wanted to get a sense for, you know, is this is this kind of a, you know, an upside down pyramid where there's there's a small number of really big kind of deposit holders, or is it pretty granular across the board? You know, frame for us what kind of know, customers are actually within your system.
Sam Sidhu: Yep. So, you know, we have essentially all major exchanges, all major stablecoin providers, all major market makers, all major investors, you know, digital asset specific as well as institutional investors, you know, who operate in the digital asset space. So, really, you know, it is a wide swath of market share, and, really, the folks that bank with us come to us for the payments network you know, 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 you know, customers of the bank.
The longer answer is that as you can appreciate, the larger the exchange, the larger the AUM of the stablecoin provider and the, you know, larger the network Even when someone is new to the bank, it takes time for them to build a larger network. You know, they do build you know, in many cases, larger activity, which comes from know, larger deposit balances, and the deposit balances are, you know, diversified across those major, you know, thresholds. But you will see you know, say, you know, a 9 figure deposit with an exchange, and you will see maybe a $5 million deposit, you know, with you know, a medium-sized investor.
Matthew Breese: I'll leave it there. Thanks for taking my questions, Sam. Appreciate it.
Operator: And that will conclude our question and answer session. I will hand the call back over to Sam Sidhu for any closing remarks.
Sam Sidhu: 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.
Operator: This concludes today's call. Thank you all for joining. You may now disconnect.