Nordnet AB (publ)

STO:SAVE

Hello, and welcome to the Customers Bancorp 2025 First Quarter Earnings Webcast. [Operator Instructions] I'll now turn the conference over to Dave. Please go ahead.

Thank you, Sarah, and good morning, everyone. Thank you for joining us for the Customer Bancorp's earnings webcast for Q1 2025. The presentation deck you will see during today's webcast has been posted on the Investors web page of the bank's website at customersbank.com. You can scroll the Q1 2025 results and click Download Presentation. You can also download a PDF of the full press release at the 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.

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

Thank you, Dave, and good morning, ladies and gentlemen, and welcome to Customers Bancorp First Quarter 2025 Earnings Call. Joining me this morning are President and CEO of the bank, Sam Sidhu; and Customers Bancorp CFO, Phil Watkins. We are pleased with the way the company started the year with strong core performance from across the franchise. We will walk through those results in more detail. First, I'd like to take this chance to acknowledge the hard work by our incredible team members on 4 fronts that we have made an absolute priority at the company. First, the continued impressive transformation of our deposit franchise; second, strong loan growth from well-diversified sources, all reflecting superior credit quality; third, improved efficiency with execution of our operational excellence initiatives; and last but not the least, significantly above-average Net Promoter Scores, making us one of the top banks delivering superior service as viewed by our clients.

The industry is currently facing, as you all know, complex and evolving macroeconomic landscape. Recent developments have led to increased market volatility and uncertainty. We believe that customers' differentiated business model positions us well to navigate these challenges while we maintain flexible and responsive -- and remain responsive to changes in this changing external environment.

And importantly, our customer-centric mindset and commitment to service provided by our very experienced colleagues, we are very well positioned to serve our clients as the environment continues to evolve. As you can see on Slide 3, we have built an incredible franchise, combining the best of a large bank's technology and product offering with the nimbleness and service level of a smaller institution.

That's a good segue for us to move to Slide 4, where I'll cover why we believe we are building a company that you can almost call being built to last. What does it mean by building a bank that's built to last and be able to deal with the complexities and opportunities available in this rapidly changing environment. For us, it comes down to maintaining an absolutely clear strategic direction, having a deep understanding of our key drivers of financial performance and always maintaining strong risk management and excellence in client service.

Our strategy is anchored by a single point of contact service model that drives organic growth, one relationship at a time by developing deeper relationships with our clients. Our proven model is infused with our commitment to exceptional client service. That commitment is the cornerstone of our culture and the key to our success, one where our goal each day is to have our clients say, wow.

Our service model, driven by exceptional and knowledgeable service-oriented colleagues who are empowered to serve their clients' needs by delivering the entire bank to them, these relationships compound driving growth through repeat businesses and referrals. This unique model is a very important key differentiator. Our culture is inspired by the entrepreneurs we serve, and this entrepreneurial mindset that allows bankers to develop innovative solutions to address some of our clients' most pressing challenges.

In addition to fostering loyalty and generating referrals, our entrepreneurial culture draws top talent to our organization. In the past few years, we welcomed well over 100 client-facing team members as well as leaders and team members in areas such as credit, risk management, marketing, technology and operations. Sam will talk more about those later in the presentation. We remain focused on providing the sophisticated products and services of a larger bank with the attention and service level of a private bank.

We believe our differentiated service model and our continuous monitoring of the key drivers of our financial performance continue to help us lead to success over the long term as well as in the short term. We've said many times before that we believe a strong and sticky core deposit and loan base results in sustainable growth in revenues, in EPS and in tangible book value. We believe these are the key metrics for long-term performance in banks delivered above average annual growth rate of 15% in revenue, 20% in core EPS and 16% in tangible book value.

This performance made us the #1 bank of all banks between $20 billion and $100 billion in assets in earnings per share and tangible book value compounding. We have made significant investments in our risk management infrastructure across people, processes and technology as we strive to meet and exceed our own and our shareholders' expectations.

We believe risk management can be a strength and competitive advantage for us. And with the investments we are making in risk management, this will give us the foundation and capabilities of a much larger complex organization. Hence, taken as a whole, our strengths are we have a clear strategic direction. We have attracted above-average experienced talent. We have a customer-centric culture that is very well viewed by our clients, and we will never take our eye off of this.

Next, we have keen awareness of the external environment. Next, we are making our investments in new products and technology and continuously improving upon that. And we have our absolute commitment to sound risk management and excellence in service. In our opinion, these trends have combined to enable us to deliver above-average results that Sam will now share with you for the first quarter 2025. Sam?

Thanks, Jay, and good morning, everyone. It's great to have an opportunity today to walk you through a very strong quarter for Customers Bank. Our business continued to perform well. Our core beat was driven by strong financial performance across the franchise. I'll walk you through some of the key accomplishments in the quarter, which provide an excellent start to the year. Our deposit transformation momentum continued as we once again saw significant low-cost granular deposit growth strengthen the quality of our deposit franchise.

This is evident with another 25 basis point reduction in our average cost of deposits in the quarter. Combined with the strong performance last quarter, our average cost of deposits are down 64 basis points from their high in Q3 of 2024. For the second quarter in a row, our commercial teams ex cubiX had 9-figure noninterest-bearing deposit growth with over $250 million in this quarter alone.

We bucked the market trend growing the loan portfolio at a 12% annualized pace. We were able to accomplish this while being selective on the credits we onboarded. This is because much of the growth came from our bankers bringing over their long-standing trusted relationships to Customers Bank. Our net interest margin increased by 2 basis points in the quarter, driven by interest expense reduction. We executed on our operational excellence initiatives surpassing the targets that we first outlined last year. These savings initiatives will provide us the headroom for the investments we are making in support of our future growth.

We also decided to undertake an additional balance sheet optimization process by identifying a portfolio of corporate and asset-backed securities for sale. This decision was driven by 2 main factors. One, our bankers achieved strong loan growth in a typically soft quarter, and we are reinvesting a majority of the cash generated from the sale into loans. With this, we felt it was prudent to reduce the credit-sensitive nature of our AFS portfolio to fund this growth. We feel even better about the balance sheet optimization decisions we made based on market developments recently. And at this point, you should not expect any additional securities repositioning transactions.

Last but not least, we continue to maintain extremely strong metrics across capital, liquidity and credit quality. Capital remained strong with CET1 above our internal targets at 11.7% and our TCO ratio increased to 7.7%. Our coverage of immediately available liquidity to uninsured deposits is robust at 155%. Our NPA ratio remains low at 26 basis points, well below peer averages and reserves to NPLs are strong at 324%.

Advancing to Slide 6, you'll see our GAAP financials. And then moving to Slide 7, I'll run you through the core financial highlights for the quarter and full year. As I mentioned, we had an incredibly strong performance across the board as we delivered core earnings per share of $1.54 in the quarter on net income of $50 million. This represented core ROCE and ROA of 11.7% and 97 basis points, respectively.

Credit metrics remain strong, and these results represent a great start to the year and provide excellent momentum for the balance of 2025.

Now on Slide 8, I'll cover our deposit transformation, which remains our top financial priority. We are once again thrilled by the work -- by our team to improve our deposit franchise, which continued to shine in the quarter. To recap some of the impressive results, total deposits increased to just under $19 billion. The new teams brought on since mid-2023 continue to execute exceptionally and increased their deposit balances by about $400 million in the quarter.

The quality of these deposits helped reduce our deposit costs as we remix these deposits at about a 200 basis point interest expense benefit. The new teams manage relationships with over $2.1 billion of granular low-cost relationship-based deposits, representing about 11% of our deposit base.

It's an incredible accomplishment in such a short time. The momentum on commercial deposit account opening is continuing with total commercial accounts up about 14% annualized in the quarter and over 50% since the end of 2022. This highlights the franchise-enhancing and granular nature of the growth. Our noninterest-bearing deposits remained at a healthy $5.6 billion or just under 30% of total deposits.

As I mentioned earlier, our traditional commercial banking franchise brought in over $250 million of noninterest-bearing deposits. Over the last 2 quarters, that is now nearly $400 million of noninterest-bearing deposit growth from the traditional commercial banking franchise alone. The power of the deposit remix was in full effect as evidenced by our ability to reduce our average cost of deposits by another 25 basis points this quarter.

To date, this represents a 69% beta so far in the down cycle in excess of the 60% deposit beta we had on the way up, demonstrating the power of the deposit remix tailwinds. With our ability to continue to take market share, the pipeline continues to rebuild. Even with this quarter's strong deposit performance, our go-forward, low-cost granular deposit pipeline has been replenished at again over $2 billion and growing, which I'll expand on in a minute.

With that, let's turn to Slide 9 for a bit of a deeper dive on the incredible success of our team recruitment strategy. Core to our strategy is our ability to consistently attract top talent from across the industry. Our recruitment efforts over the last few years showcased this and have added tremendous value to our franchise. As a reminder, we entered the venture banking space about 3 years ago with a small team lift out.

Then in June of '23, just months after the banking crisis, we took that business to the next level, acquiring a loan portfolio from the FDIC and brought on 30 new bankers. Today, the business now has over $850 million in deposits, is essentially self-funded and is a top 5 national competitor. Over the past 2 years, we've made significant -- we have significantly expanded our presence in the market, achieving more than a fivefold increase in our deposit accounts and growing deposits by [ $0.75 ] billion.

Nearly a year later, we recruited 10 highly experienced commercial banking teams with deep industry expertise and strong regional market knowledge. These teams are fundamentally changing the profile of our commercial deposit base and enabling us to scale our existing relationship banking franchise. In less than a year, these teams are now profitable in managing approximately $1.3 billion in deposits and have added 5,000 accounts to our franchise.

We've already demonstrated the power of our team-based deposit acquisition strategy, and now we're building on that foundation to enter the next phase of franchise expansion, one centered on growing what we've proven works, exceptional client service driven by entrepreneurial colleagues who are empowered to serve their clients' needs. The market for top-tier talent remains highly dynamic, and our reputation as a high-performance, tech-forward institution is making Customers Bank a destination for relationship-driven commercial bankers.

The flywheel is turning and our pipeline for deposit team recruitment is strong. We've already onboarded a new team this year. 2 additional teams have accepted offers to join and more to come. Any new additions would add to the already significant $2 billion low-cost deposit pipeline that I mentioned previously.

Ultimately, this phase -- this next phase in our deposit transformation is about intelligent expansion, not just bigger but better driving long-term franchise value and delivering differentiated results. Now let's turn to Slide 10 to discuss how these team-driven deposits are powering our strong loan growth results. This was another exceptional quarter of loan growth for us. We again delivered over $600 million of HFI loan growth, which was well diversified across our platform.

But what's more important is how that growth was achieved. It was diversified, strategic and aligned with our franchise building model. Top commercial verticals included the new commercial banking teams, commercial real estate and health care with client engagement and brings with it fulsome deposit-led relationships.

As an example, over the last 3 quarters, we've had nearly $500 million of self-funded net loan growth in the commercial real estate industry, which, as you can appreciate, is typically unheard of. And this comes with more than a 4% net spread between loans and deposits. In a muted lending environment where many peers remain on the sidelines or retrenching, we are winning client relationships often for much larger institutions.

While they may be new to Customers Bank, these clients are not new to our team members who often have decades-long relationships. Our ability to move decisively, offer certainty of execution and deliver relationship banking through a single point of contact model is resonating in the market. This growth is achieved with discipline as a strong credit culture has always been a top priority for our institution.

As many of you know, we tend to focus on verticals with inherently low credit risk and where we have deep industry expertise. This is why we've continued to have excellent credit performance through the cycles. Let me take this opportunity to build off of what Jay covered earlier. We've talked a lot about deposit remix recently, but I don't want to overlook the loan transformation that has occurred at our company.

Over the last 5 years, we reduced our concentrations in mortgage finance from 25% to 10%, multifamily from 20% to 15% and consumer installment from 13% to 6%. At the same time, we leaned into lower risk relationship-based specialized verticals like fund finance with the growth of our subscription line business, regional C&I and venture banking. Our pipeline and backlog heading into Q2 remains robust, and we continue to prioritize capital-efficient deposit-accretive lending that strengthens client engagement and enhances the overall franchise.

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

Thanks, Sam, and good morning, everyone. Turning to Slide 11. I'd like to walk through our net interest income and margin performance, which continue to reflect the strength of our balance sheet strategy and disciplined execution. In Q1, we delivered $167.4 million in net interest income and our net interest margin expanded to 3.13%, up 2 basis points sequentially. This marks our second consecutive quarter of margin expansion.

The primary driver of this improvement was a significant reduction in interest expense, which was lower by $14.6 million quarter-over-quarter. This was achieved through deliberate and proactive deposit remixing. This helped offset a decline in loan yields from lower benchmark rates and demonstrates that the quality of our funding base is improving in ways that support earnings durability.

Though the rate trajectory remains uncertain, the value-added opportunities we have on both sides of the balance sheet provide the foundation for net interest income expansion across a range of rate scenarios.

On Slide 12, we'll cover noninterest expenses. We are incredibly proud of our performance on efficiency this quarter. In Q1, our core noninterest expense declined 5% sequentially to $103 million. That decline came even as we continue to invest in technology, talent and our risk management infrastructure.

Our core efficiency ratio improved to 52.7% with our -- with noninterest expense to average assets of 1.87%, placing us at the top of banks in our peer group. Moving to Slide 13, I'll recap the progress of our operational excellence initiatives, which is how we achieved those strong results.

We previously outlined a target of $20 million of annual efficiency through a combination of fee income growth and expense savings to reinvest in our business. I'm pleased to say that we've outperformed that target. As of Q1, we've realized $30 million in annualized impact, exceeding our original $20 million target. This includes approximately $22 million in cost savings and $8 million in new recurring fee income, primarily through treasury management fees enabled by our proprietary cubiX platform.

I would note that this does not include future professional services expense reductions we've discussed previously. These results reflect structural, scalable improvements across the organization. We've consolidated technology platforms, rationalized vendor spend and made strategic decisions around our operations. At the same time, we've strengthened revenue generation through enhanced payments, treasury and commercial deposit capabilities.

As a result, we expect strong growth in core noninterest income this year compared to last year. Importantly, these savings give us tremendous headroom to reinvest in the franchise, targeting high-impact areas such as risk management and technology in addition to the team recruitment opportunities Sam outlined. This ensures we continue building a platform that is not only efficient, but differentiated and future-ready.

Looking ahead, we continue to see opportunity to deepen this impact as we scale and drive operating leverage. Our commitment remains clear to grow responsibly, invest strategically and deliver long-term value to shareholders.

On Slide 14, you can see that tangible book value per share ended the quarter at $54.74, up more than $5.50 year-over-year. This continues our track record of double-digit annual growth. For us, tangible book value growth is a key long-term performance indicator. Over the last 5 years, we've more than doubled TBV per share even while navigating a global pandemic and inflationary rate shock and a regional banking crisis, and we're committed to continuing that trajectory.

With that, I'll move to Slide 15. Our capital ratios across the board remain robust and provide us with substantial flexibility for organic growth opportunities. Our TCE ratio increased by about 10 basis points in the quarter, even with growth in the size of our balance sheet and the impact of the securities portfolio repositioning. At 11.7%, we remain in excess of our CET1 target while utilizing some risk-based capital for loan growth in the quarter.

On Slide 16, we continue to be pleased overall with our credit performance. Nonperforming assets remained low at 26 basis points of total assets and reserves to NPLs stayed strong at 324%. Total net charge-offs were in line with the average over the previous 4 quarters, and our commercial and consumer portfolios are both performing well. While we continue to closely monitor any emerging risks, we feel the portfolio is well positioned.

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

Thanks for that, Phil. As we look ahead to the rest of 2025, though there is increased market volatility, we're excited about our positioning and confident in our ability to navigate the current environment. We're reaffirming our full year loan growth guidance with a bias towards the higher end of the range given our outsized performance in the first quarter. Again, because this is in large part to -- we are onboarding our bankers' legacy relationships. We are able to achieve this while remaining disciplined in our credit selection and underwriting.

On the funding side, our deposit growth is driven by the expansion of the commercial franchise led by the new commercial banking teams and deepening of relationships within our client base. Net interest income is projected to grow between 3% to 7% year-over-year. And as a reminder, we had a larger accretion income in 2024, and so this equates to 6% to 10% on a normalized basis.

Our deposit remixing efforts and strong loan growth position us well to drive NII expansion regardless of the rate environment. On the back of the success and the outperformance of our operational excellence initiatives, we are on track to achieve our core efficiency ratio target in the low to mid-50s for the full year. And we remain committed to operating with higher levels of capital.

With the clarity of strategy and strong execution, our forward outlook reflects both optimism and discipline. As we wrap up today's presentation on Slide 18, I want to take a moment to recap what the first quarter demonstrated, not just in terms of financial results, but in terms of strategic clarity and execution.

We delivered on a strong performance across the franchise. On funding, we had a 25 basis point reduction in deposit costs, driven by our successful remixing into lower-cost deposits. On the loan side, we had 12% annualized loan growth achieved through disciplined relationship-based lending across diversified verticals. Our net interest margin expanded for the second consecutive quarter, signaling improved funding dynamics and continued momentum on both sides of the balance sheet, and we maintained strong credit metrics.

What stands out is not what we accomplished, but how we did it. Our client-centric culture, disciplined risk framework and high-performing teams continue to drive differentiated results. 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. Our strategy is clear. The team is aligned, and we remain committed to delivering long-term value for our clients, communities and shareholders.

With that, we'll open up the line for questions.

Your first question comes from Frank Schiraldi with Piper Sandler.

Just in terms of the new banking teams, the deposits coming over, Sam, it sounds like that's still -- 25% of that is noninterest-bearing and that's still kind of the expectation going forward. And just if that's the case, just curious the offset in the quarter in terms of noninterest-bearing, is that just continued general pressure to move some funds and get some returns overall?

Frank, thanks so much for the question. So in terms of the new teams, you're right, it's at least 25%. It's actually generally closer to 30% compensating noninterest-bearing deposits. And yes, we saw a couple of hundred million dollars of increase from our commercial teams. We also had about $300 million in lower cubiX balances, and that's sort of the netting out, and that's why it's slightly down for the quarter. But really from an operating perspective, if you look at our average noninterest-bearing deposit balances, they were up significantly quarter-over-quarter.

Okay. And then just as a -- just switching gears as a follow-up, just in terms of the restructuring in the quarter, is there any -- does this kind of do it in terms of -- and you might have mentioned it, I know you talked a little bit about the fact that you don't expect any additional restructuring. But does this kind of do it for any sort of credit-sensitive instrument within the investment securities book at this point?

Yes. Frank, yes, as Sam said, we don't see anything else that we would do on the restructuring front. And just a little bit more detail. We provided some detail in the back. But as you saw, about 45% were corporates, which takes that down in about half with the remaining predominantly investment grade. 40% of it was ABS, and that was really CLO and non-agency CMBS. And so with that, essentially all of our CLOs, that takes down essentially all of our CLOs and all the remaining CMBS is agency backed. And then the CMOs were unrated privates and all the remaining is AAA.

Okay. And just trying to think about it from others' books, was there anything specific you would call out in the quarter in terms of credit impairment within that stuff in terms of the loss you guys took to move that book?

Yes, Frank, as Phil mentioned, it was really sort of a derisking exercise for -- to support our loan growth. And I think that's really the important thing. If you actually look at the last quarter, while we called these securities repositioning in Q4, we used majority for loan growth. Same thing here. So it's actually, I think, balance sheet optimization is a much better way to consider this. So we thought in this environment, especially with what we saw towards the end of the first quarter, we wanted to focus on our deposit and loan growth, and that's where we would want to have the focus on the asset side of the balance sheet.

The next question comes from David Bishop with Hovde Group.

I'm curious, [indiscernible] some good growth here lately, especially on the commercial real estate side. Remind us the capacity to grow commercial real estate lending, both on the nonowner-occupied and the multifamily space. You still have plenty of capital room, correct?

That's right, Dave. So I think we -- in our book last quarter and the quarter before, we talked about being under 200%, 190% plus or minus in that quarter-over-quarter, despite our loan growth typically stays flattish. So a ton of capacity compared to peers that are in sort of the 300% to 500% range in our home markets. And I think what's really real estate deposits is really the interesting part. And I said over 4%. I think sitting where we are today, it's 4.4% is what we've been able to achieve over the past year.

Got it. And then maybe on the income statement, you noted the traction in some of the treasury management products. Is this a pretty good run rate for that -- I assume the treasury management fees are in that other income. Do you think you can grow that off this $3 million-plus run rate? And from a tech spend perspective, is this a good run rate for the technology expenses? Or will there be more investments?

Dave, so on the -- starting with the treasury fee income side, we're up slightly from where we were on the new rollout quarter-over-quarter, a couple of hundred thousand dollars. I think we feel like we're in a pretty good run rate to answer your question. I think I'd caveat that by just saying these are the successes of what we laid out in the middle of 2022 and sort of building our treasury management platform, building our cubiX platform and then rolling it out to our larger corporate clients and then seeing the results of that lending to, which actually speaks to the benefit the customers are achieving.

So I think that we're sitting at a pretty good run rate today. On the technology spend, the technology spend associated with the fees, absolutely, it's pretty much behind us. So I think that's the nature of where your question was going from an ROI perspective.

Got it. And final question. Curious -- saw the continued decline in the cost of deposits, it was [ 2.82% ]. Do you have the spot cost at the end of the quarter? I'll hop back in the queue.

Yes. It was at [ 2.82% ]. So spot is the same as the average.

The next question comes from Steve Moss with Raymond James.

I apologize, I hopped on late. So if you addressed this, I apologize. But in terms of the cubiX deposits here, it sounds like, I think you said $300 million down quarter-over-quarter, Sam. Just kind of wondering what you're thinking for those balances, if you're going to grow them over time here? And just maybe just talk a little bit about where you see the opportunity going forward.

Yes, sure. So they were at [ 3.3 ]I think what's important is the average was also [ 3.3 ]. And again, these are payments deposits. And as a reminder, they're held entirely 100% in cash. So as we think about the spot versus average, they typically have been oscillating between a 10% band, plus or minus. And we continue to support our clients how they need us, when they need us. We're not necessarily looking to directly expand these deposits. We have the entire institutional network base of all of our digital asset customers.

We have all the operating and transactional accounts that the industry really operates on. So if our customers need additional deposit headroom related to sort of their operating transactional accounts, we will support that. Having said that, we are holding these all in cash and sitting where we are today, it's not necessarily something we're looking to lean into to increase deposits because this is really payments flow.

And I would just contextualize that by saying that one of the things that I think that is underappreciated, number one, is that we've built this proprietary technology platform that the industry relies on. The second is really is that we hold about 1%, maybe slightly over 1% of the liquidity in the digital asset industry. And I think that, that's also something that's a really important call out is that a lot of the deposits are actually held at the large banks and by asset managers. So we hold the operating transactional accounts. And as you can appreciate, there's yield that's being received on those excess corporate or reserve accounts.

Great. I appreciate all the color there. And then in terms of the loan growth front, I guess the guide strikes me as conservative here given this quarter. I'm assuming you just kind of a little bit of uncertainty of the outlook makes you reluctant to take it up. But just kind of curious as to how you're thinking about the pipeline here and the pull-through on that pipeline.

Yes. Absolutely, Steve, I think if you had asked us on April 2, which is when we all sat down, it was a Wednesday, I believe, Monday was the 31st. We sat down on Wednesday, April 2. We talked a little bit about how the quarter -- the second quarter was looking and we had sort of a soft close of the books. We had a very different outlook than we did just a couple of hours later that afternoon. So yes, there is market volatility. Having said that, I think what's important is that backlog, that's the focus on as opposed to pipeline, pipelines remain strong. That's, I think, generally consistent from the macro sentiment we've heard across the industry.

But backlog is also strong and stronger than what we would have anticipated, especially on the heels of the first quarter. And I think what's really important is we talked about sort of the diversification -- over the last couple of quarters, we've been sharing a much more granular breakout of the loan growth that's coming by vertical. And then you also you sort of contextualize against that -- against the portfolio remix that we've had over the last 5 years. I think we're really, really proud of the efforts that we put together. And it is a unique differentiated model to not just be bringing in organic commercial -- low-cost commercial deposits, but then also sort of complementing that side of the balance sheet remix and growth with the ability to also deliver franchise-enhancing granular loan growth. We're talking single-digit millions type loan growth per average borrower here.

Right. Okay. Appreciate that color. And then maybe just one last one for me. I think you probably said this in your prepared remarks and I missed it, but just where is the deposit pipeline for the new recent hires? And just kind of where is the blended rate these days?

Yes. So the pipeline is still over $2 billion despite the -- I think we called out the $400 million just from the new teams that came in approximately in the first quarter. It's again at about 2.5%. It's in the sort of high 20s around -- up to 30% noninterest-bearing. And it's granular. We continue to be opening up more accounts waiting for those to fund. So we sort of have -- continue to have a parking lot of opened accounts waiting to be funded, a number of accounts where applications are out.

And then finally, I think also importantly, which you may have missed, but just to put a little bit of a bow on it is that we have a couple of teams already in negotiations with about half a dozen or so other deposit-focused -- low-cost deposit-focused commercial banking teams, either in expanding into our existing footprint and in some cases, also thinking about sort of unique specialty verticals as well that would be interesting and adjacent products for Customers Bank.

The next question comes from Kelly Motta with KBW.

I would love to follow up again on the deposit pipeline here. Obviously, the core deposit growth has been really strong and a testament to your new teams. And you just continue to replenish the pipeline in a way that almost has made it look easy. So I'm wondering, is there a certain point being a year with the 10 teams having brought in where the overall pipeline and so-called low-hanging fruit might start to diminish. I'm sure it's hand to hand combat regardless. But just wondering how we should start thinking about that in terms of the outlook here.

Yes. Thanks, Kelly. I wish I could say it was easy. And for those 152 members that have joined us in the last year or 2 and the additional 150 or so in our sales teams that have been in hand-to-hand combat for the past couple of years, we commend your efforts such that our external stakeholders feel that way.

I think on the -- I'll start first on the new teams, the newest teams. We talked about venture banking, we expect that to be a 2:1 deposit to loan franchise over time. So I think that speaks a little bit to just the nature of the -- of continuing to build and harvest first deposit-only customers, then credit customers that are typically net depositors and then finally, a little bit in the later stage sort of [ net ] borrowers. And that's sort of how we think about the diversification of that business.

We also talked about the new commercial teams that were onboarded last year and the size of their books today is less than 20% of where they were when they were onboarded. And even if all of those direct customers don't come back on, they will replenish those books given the high-performance nature of these teams, the markets in which they serve. And we expect that to happen, call it, over about a 3-year period, plus or minus.

So that hopefully gives you some color there. And then like I mentioned, we've established ourselves as a top recruiter of talent. I think our employees and team members that join us that find a platform and a franchise that has a single point of contact service model. It has a ton of products and services to support some of your small customers, your medium-sized customers, your large customer needs. And then you complement that with an incentive sort of banks of the scale that we are at. We're really the largest, most successful regional bank in sort of recruiting these team members in the markets that we serve.

So I think that at the end of the day, we've had an opportunity for many teams that have joined other institutions to have a first look or a last look, and we're really focused on the folks that are going to be the most accretive to adjacency in terms of products and services, adjacency in terms of geographies and continuing to focus on something that is complementary to what we already have and continue to build these pipelines and continue to transform and remix and also grow our overall deposit franchise.

Great. That's helpful. And maybe flipping to the other side of the balance sheet with loans, you've grown at a double-digit pace now for the past 4 quarters. Hoping to get a refresh as to the average size of a loan. I know you have good diversification. So I'm hoping to get a refresh on kind of where that stands as well as where C&I utilization rates are currently and how that compares to recent history?

Sure, absolutely. So I'll give you some ranges. I don't have it for sort of every vertical, but I think predominantly, the vast majority of our loan growth has been coming from team members who are new to Customers Bank but relationships that are long-standing and decade -- in some cases, decades long. So sort of our new commercial banking teams have an average loan size of about $6 million. Our venture team is also sort of in that $6 million to $10 million range. The CRE side, we've actually closer to about $7.5 million, on the CRE side. So extremely granular across the board. And again, these are the major loan categories that we've had, especially over the last 2 quarters.

Yes. And Kelly, I can jump in on the utilization. Yes, I would say, again, it obviously varies a bit by business line, as Sam was saying. So as an example, I would say in our traditional C&I, we're not seeing anything sort of unusual from a line perspective. Certain of the verticals, actually like in our fund finance business, sort of lender finance and capital calls, probably seeing lower than normal utilization and also with the the strong CLO market, we actually saw, I think, as you saw in the materials, some increased payoffs. And so that's just a sign because our typical takeout there is often when they would move to a CLO. So it varies a bit by vertical, but nothing out of the ordinary there.

Great. Last question for me, if I can just slip it in, is on the cubiX deposits, you framed it more as like a payment play. So I'm hoping to get an update as to the fee income contribution there and if that's fully realized or if there's other tweaks you're making that could drive those revenues higher.

Yes, absolutely, Kelly. So we had -- I think in the fourth quarter, we'd mentioned $1.9 million on a sort of a full quarter basis. In the first quarter, it was $2.1 million. That's sort of that couple of hundred thousand of increase that I was sort of referring to earlier. So we feel we're at a pretty good plus or minus $8 million run rate. We sort of guided to a little bit lower last quarter with a bit of conservatism at sort of $5 million plus. But I think we feel pretty good about the ramp-up there. Again, we are charging traditional commercial banking fees here, nothing that is out of the ordinary, and our customers have been very receptive.

The next question comes from Matthew Breese with Stephens Inc.

I was hoping to stay on cubiX. How much of those deposits reside within noninterest-bearing? And do you think there's any risk to that, just particularly given the openness of the regulators and inviting banks back into the industry? Do you see any risk of transition of cubiX into interest-bearing deposits? We also know that from other banks in the industry, they tended to command higher betas at some houses.

Sure. Absolutely, Matt. So the answer again, just to be very consistent is 100% of these deposits are noninterest-bearing. And that's really speaks to the differentiation. I would sort of venture that we have the vast majority of all non-yielding deposits that exist in sort of the U.S. banking industry.

So to your point about regulatory clarity and et cetera, I mean, this certainty is really going to bring consistency to the space. It's going to bring in new institutional investors. It's going to increase interest in the asset class. More banks will be interested. Having said that, the banks don't have sort of the network, the technology, the industry knowledge, the know-how, the connectivity, the customer service, the support, the risk management framework, the transaction monitoring that we have.

So banks are expected to enter, and we think it very much legitimizes the industry and further strengthens the controls around the industry. And with that comes greater interest, with that comes a bigger pie. And so we will expect to have and actually welcome more banks in the industry. Having said that, we're going to continue to be the primary transactional operating account. And as they enter the pie we'll also be growing. And again, like I said earlier, I think the really important thing is we have about 1% of the liquidity.

Got it. And are there any updates? Historically, you've had about a 15% cap. Has that been updated in any ways? Or is there a cap in place or does it still remain in flux?

Yes. Good question, Matt. So $3.3 billion -- sitting where we are at [ 331 ] is about 17%, so above the old cap. When we set that initial cap back in February of '23, we didn't have a policy to hold all these deposits in cash. But since we have, since that time, been holding all of these deposits in cash, we thought it was prudent to make sure we're there to support our customers and no longer have that liquidity risk concentration cap.

Okay. And then on the securities repositioning, did any of what was sold because we've talked a little bit about the credit risk here. Did any of what was sold include the consumer installment loans that were securitized, I believe, back in 2023? And if not, could you just remind us how much of the securities book are the securitized installment loans? I know they had a shorter life and duration.

Yes. So they do not exist -- this has nothing to do with anything on the consumer side. Those are actually sitting in our HTM portfolio. It was over $1 billion, plus or minus at the various stages, and it's down to a couple of hundred million, I think, less than $400 million today and performing incredibly well with credit enhancement and no issues.

Understood. So what was the -- I think you had mentioned CLOs. What was the underlying nature of the collateral that was sold?

Yes. Matt, as outlined, about 45% of it was corporates; 40% of it the ABS was CLOs and non-agency CMBS. And then there was about a 15% tranche that was unrated privates. And again, as I mentioned, on that tranche, everything remaining is AAA essentially takes down the CLOs and the remaining CMBS is agency backed.

Got it. But underneath the non-Agency CMBS, was it office or multifamily? What was it that was driving the credit mark?

Well, Matt, to be clear, these are AOCI marks, which include interest rate marks, they include credit spreads and credit marks. So it's a broad base. I don't have the specific breakout in front of me. I don't know if you do, Phil. Phil also says he doesn't have the specifics on that. But really, I think the important here is what's remaining in corporates is predominantly investment grade. No more real CLOs, essentially all sold. And on the CMBS side, what we have is now all agency-backed Ginnie Mae. And on the CMO side, what we exited was unrated privates and what's remaining is AAA.

Okay. Understood. I'll leave that there. The last question I had is just we're now just tripping over the 2-year mile marker post March Madness of '23. Does that mile marker represent any sort of significant milestone in terms of expiration of employee lockup agreements that will provide additional hiring opportunities? Is anything kind of broken loose just because of timing?

Yes, Matt. So the short answer is, yes, the long answer is actually interesting for Customers Bank. So yes, there are about 2-year sort of agreements for some of the institutions that were majorly impacted in March, which is sometime in this quarter or early next quarter. Having said that, I think that the opportunity we had last year to really pick off what we felt were the top 10 teams that were available to us, we had an opportunity, as you can probably appreciate, to evaluate significantly more at that time and since then. And like I said, we really do have an opportunity to have sort of a first look and last look.

So yes, we may have additional team or 2 that is incredibly high quality that hasn't necessarily moved around because moving around creates disruption in the client experience and service of different logo every year. So -- but what's really important about the bank is that the vast majority of the teams that we're talking to are not from the types of banks that you're referring to that had backups. They're actually coming from folks, the high-quality teams, market presidents, state or geographic leaders are reaching out to myself, our Chief Banking Officer and many of our senior executives and wanting to join customers bank, want to join a high-performing team, want sort of the depth of the products and services and technology and the incentive compensation model that we offer.

The next question comes from Hal Goetsch with B. Riley Securities.

My question is on the teams and maybe the pipeline of new professionals you can add. Obviously, when you hire experienced team, they're going to bring over existing clients, and that's an immediate impact maybe in the first 12 to 18 months. But like could you share with us your expectations on what those teams are highly confident kind of bring in years 2, 3 and 4? Are they still building their book of business? And is that an expectation of their agreement to come over? Just tell us a little bit more about how this works and the runway it gives you when you hire a team, not just in year 1 but beyond.

Sure. Absolutely. Thanks for the question, Hal. So we -- because of some of the market volatility and disruption and bringing on teams on that, I think we're a little bit spoiled by our success in a short period of time just because customers were a lot more receptive to moving. Breaking even in less than a year is really quite an incredible accomplishment, especially given the scale of the investment that we made last year.

So as I mentioned earlier, we expect these teams will continue at a similar type pace. They're at about $100 million plus or minus on an average month over the course of the year. There are obviously some typical months that a little slower like a January or an April as an example. But at least at that type of level, then we have sort of venture banking continuing to contribute over time, we expect sort of maturity to happen over a 3- to 5-year period. And then that sort of becomes more sort of maintaining and servicing your overall client base.

And then pivoting to as we look at new teams, having said sort of that related to the success that we had over the last year, we're still looking at about a year or less breakeven on the teams that we're looking to bring in. And while you may not have sort of this -- the big pops that we've had over the past year, you'll continue to have about that 3-year plus or minus of rebuilding a portfolio of about the size that you as a team leader and you as a team member used to sort of maintain and service at your prior institution, even if the constitution of that portfolio may be only 60%, 70% the same as it used to be.

If I could ask one follow-up. I didn't want to have to bring up the [ keyword ], but like every conference call I'm on in payments and fintech and banking is how are tariffs impacting? I'm pleased to see that the word wasn't even really mentioned. And as I look at your business lines in venture banking, fund finance, health care, would you rate your exposure to tariffs as basically mostly just broad economically or secondary or tertiary where you really don't have, say, I don't know, manufacturing clients or might be tied up and locked down and uncertain about production schedules that might require lending right now. Could you give us your thoughts on your direct exposure and then maybe your thoughts on indirect exposure to tariffs?

Yes, Hal, absolutely. I think that the short answer is absolutely what you described as de minimis direct exposure to tariffs, and we have very low, thankfully, sort of balances in verticals that would have exposure in a very short-term basis. But as you rightfully said, sort of on a medium- to longer-term basis, there are credit-sensitive portions of any bank's portfolio that could have a potential sort of de minimis exposure in a mild-type recession.

And I really think that while the R word is continuing to be used at the end of the day, this is sort of a policy-driven commercially -- sorry, politically sort of policy-driven macroeconomic type effort that volatility can be created in a number of weeks. It can also be rolled back in a number of weeks, and it would be a shame for anything beyond a perception of a mile to even be on the table.

But our hope is that our administration and policymakers have things under control, and we expect there will be some stability with clarity. At the end of the day, market volatility comes from a lack of clarity. And we are seeing the beginnings of at least confidence in clarity and hopefully, clarity will come soon.

This concludes the question-and-answer session. I'll turn the call to President and CEO, Sam Sidhu, for closing remarks.

Thank you, everyone, for your continued interest in and support of Customers Bancorp. We appreciate you being a part of the incredible franchise we're building, and we look forward to speaking to you next quarter. Thank you, and have a great day and weekend.

This concludes today's conference call. Thank you for joining. You may now disconnect.