Customers Bancorp Q3 2026 Earnings Call Transcript
Customers Bancorp (NYSE:CUBI) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
Access the full call at https://events.q4inc.com/attendee/218279058
Summary
Customers Bancorp reported a strong third quarter with record levels in deposits ($22.6 billion) and loans ($18.5 billion), alongside a 10% increase in EPS to $2.25 and a 14% ROE.
The company advanced its AI initiatives, reducing loan underwriting cycle times by 95% and commercial deposit onboarding by over 90%, while also launching new AI-driven capabilities like voice agents and automated savings sweeps.
Strategic growth was highlighted in the Cubic’s platform, with a 19% increase in accounts and diversification into real estate and mortgage finance, accounting for over 30% of deposit balances.
The company recruited 50 new revenue producers this year, contributing significantly to deposit growth, and aims to sustain this pace into 2027.
Financial guidance for 2026 expects loan growth of 12% or higher and deposit growth of 9% or more, with net interest income targeted between $805 to $810 million.
Operational efficiency improved with an efficiency ratio drop of 340 basis points, aiming for a low-40s run-rate efficiency by the end of 2027.
Management expressed confidence in sustained growth and financial performance, driven by AI transformations and recruitment strategies.
Full Transcript
Ellen (Operator)
2026 earnings webcast. After today’s prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Phil Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Please go ahead.
Phil Watkins (Executive Vice President, Head of Corporate Development and Investor Relations)
Thank you, Ellen, and good morning, everyone. Thank you for joining us for Customers Bancorp’s earnings webcast for the third quarter of 2026. The presentation you will see during today’s webcast has been posted on the investors webpage of the bank’s website at www.customersbank.com. You can also download a PDF of the full press release on the same page. I’d like to remind you that today’s presentation may contain forward-looking statements which are subject to uncertainty and changes in circumstances.
Actual results may differ materially from management’s expectations due to a variety of factors which are described in our earnings materials and our SEC filings. We also reference non-GAAP financial measures, so it’s important to review our GAAP results in the presentation and the reconciliations in the appendix. At this time, it’s my pleasure to introduce Customers Bancorp CEO Sam Sidhu.
Sam Sidhu (Chief Executive Officer)
Thanks, Phil. Good morning, everyone, and welcome to Customers Bancorp’s third quarter 2026 earnings call. I’m joined this morning by our Chief Financial Officer, Mark McCollum. I’ll take you through a few key highlights from the third quarter, give you an update on our strategic priorities, and then Mark will provide additional detail on our financials. Simply put, it was a great quarter. We delivered record deposits and loans, real wins in AI, a more diversified Cubic’s platform, and continued success recruiting teams.
On top of that, we have strong momentum to finish the year and a very positive outlook as we move to 2027. Turning to slide 4, our third quarter results reflect strong execution across the franchise. To give a few highlights, deposits grew 4% in the quarter and 11% year over year to a record $22.6 billion. Noninterest-bearing deposits grew by $300 million to $7.2 billion, a third consecutive quarterly record. Total loans grew 3% in the quarter and 14% year over year to a record $18.5 billion. NII increased 8% quarter over quarter. EPS was $2.25, up 10% quarter over quarter.
ROE rose to 14%, up more than 70 basis points quarter over quarter. Our efficiency ratio improved by approximately 340 basis points in the quarter, and tangible book value per share increased 10% year over year. That’s 17 consecutive quarterly records for book value, five for loans, and eight for total deposits. We delivered these results with strong credit quality and solid capital while growing the balance sheet and returning capital through share buybacks.
Slide 5 shows our priorities for 2026, which remain unchanged. I’ll provide an update on each again this quarter, starting with AI on slide 6. Over the past several quarters we’ve shared our AI journey. We’re currently in a phase of reimagining and automating end-to-end workflows coupled with rapid product development. We’re shipping new capabilities every quarter that make banking faster and simpler for our clients and free up our team to focus on higher-value work.
Everything we’re doing is aimed at a better experience for our customers and, importantly, our employees. In Q3 we advanced our top three top-down priorities. In lending, we scaled our AI-powered loan underwriting process, adding functionality and increasing utilization. The cycle time for this process is down 95%. This will allow the same team to handle significantly more loan throughput. In deposits, we piloted our rebuilt commercial deposit onboarding process in just 10 weeks. It allows us to open complex commercial accounts in minutes instead of days at other institutions.
That represents an over 90% reduction in cycle time. And in payments, we enabled programmable sub-accounts on Cubic’s, enhancing our product offering for existing clients as well as broadening potential agentic payment use cases. Using AI and automation tools, we now have an ability to rapidly ship new products. Just to give you a few examples, we launched voice agents on our main customer service line and are now working on incorporating them into our customer onboarding journey. We’re expanding an AI digital twin pilot to more members across the organization, and we piloted an automated savings sweep for consumers. To drive this progress, we now have over 60 people focused on AI transformation at the bank, and our engineering talent is increasing too.
We have a dozen and growing forward-deployed engineers from our partners working in pods alongside our in-house engineers and subject matter experts. And the results are tangible. Our team doubled the number of AI agents deployed. Cumulative estimated hours saved have now grown to 76,000, and we’ve unlocked an estimated $15 million plus of annualized capacity. In the last six months, revenue producers grew 6% and accounted for about 60% of the new positions we filled, while total headcount drifted lower.
Even with the great results in the quarter and positive momentum for next year, if I had to leave you with one point, it is that productivity gains are showing up in our financial performance and are already above our investments to date. Revenue per employee is up 13% and pretax profit per employee is up 34% on an annualized basis this quarter versus last year. We rank number one and number four, respectively, among all $10 to $100 billion asset banks on these metrics.
A better equipped team helps us improve customer and employee experiences. This should enable us to grow revenue meaningfully faster than expenses and reach our goal of a low-40s run-rate efficiency ratio by the end of 2027. Turning to slide 7, Cubic’s diversification is expanding the opportunity for our payments franchise. Cubic’s accounts grew 19% in the third quarter, with real estate and mortgage finance driving new client growth. Those two verticals now represent more than 30% of Cubic’s deposit balances. That broader reach puts our payments capabilities into more of our clients’ day-to-day operations and creates opportunities to deepen relationships and gather low-cost operating deposits.
Network activity is on pace to hit another record this year, surpassing last year’s $2 trillion volume and showcasing the value of the platform to our clients. And looking forward, we’re developing extended-hours trading capabilities for capital markets and correspondent banking services that support cross-border flows. At the end of last year we did not expect Cubic’s to be a growth vertical. With this diversification, we believe there’s substantial opportunity ahead to continue to increase low-cost deposits on the platform.
Turning to slide 8. Our recruitment strategy, which is a unique part of our business model, continues to build a larger and more valuable deposit franchise. The teams we’ve recruited since 2023 now hold approximately $4.3 billion in deposits, or 19% of our total deposit base. They added roughly $415 million in the third quarter alone and more than a billion dollars so far this year. That’s more than a six-fold increase in their share of our deposits in about three years, all through organic recruiting.
The breadth of the franchise is also expanding. We’ve added more than 3,000 commercial deposit accounts so far this year, which is more than we achieved in all of 2025. That’s up 13% year to date, and accounts have roughly doubled since 2022. And our 2026 recruiting class keeps growing. Fifteen revenue producers joined us in the third quarter. That brings year-to-date revenue-producing hires to 50 and 12 teams represented. That’s up 50% from last year.
The success of these teams gives us confidence that we can sustain this pace of recruiting high-quality revenue producers in 2027 and beyond. With that, I’ll turn it over to Mark to take you through the financials in more detail.
Mark McCollum (Chief Financial Officer)
Thanks, Sam, and good morning, everyone. My comments will begin on slide 9. We’re only showing you GAAP earnings this quarter as we did not have any material adjustments to those GAAP results. I’m pleased to walk you through another quarter of consistent growth in the balance sheet, earnings, and profitability. We delivered EPS of $2.25, up roughly 10% from last quarter. ROE and ROA came at 14% and 1.16%, respectively. We note that many of you tend to quote ROTCE instead of ROE when comparing relative profitability among your peer groups.
However, because we’ve grown organically rather than buying other banks, our balance sheet carries virtually no goodwill. As a result, our third quarter ROE of 14% is within the top quintile of all banks between $10 and $100 billion in assets. On Slide 10 we provide details on our deposit franchise. Total deposits ended the quarter at a record 22.6 billion, up 4% in the quarter and an increase of 2.2 billion. Year over year, our total cost of deposits remained flat despite the increase in interest rates by the Federal Reserve during the quarter. The quality of our growth was strong and I’ll highlight a few stats. Noninterest-bearing deposits grew by about 300 million during the quarter, ending at 7.2 billion, which, as Sam noted, is another record for the third consecutive quarter.
That’s 32% of total deposits, which is top quartile for regional bank peers, and up more than $800 million, or 13% year over year, a direct result of team recruitment and payment strategies Sam just walked through. Our goal remains to have the highest percentage of noninterest-bearing deposits among our peers. One additional metric I want to emphasize: our brokered deposits came in about $370 million lower for the quarter and now make up less than 20% of our deposits.
Turning to Slide 11 and loans. Total loans grew nearly 500 million, or 3%, in the quarter to 18.5 billion, compared to 1% linked-quarter growth for the industry. On a year-over-year basis, loans are up 14%. Just as important as the pace of growth is the breadth—growth was delivered, led by business units like fund finance, healthcare, and commercial real estate, which more than offset lower mortgage warehouse and real estate specialty finance balances.
As we always say, the mix of top contributors may shift from quarter to quarter, but the diversified nature of our origination platform helps us deliver strong growth while remaining disciplined on structure and pricing. Slide 12 covers net interest income and net interest margin. Net interest income exceeded $208 million, up 15 million, or 8%, from the second quarter, driven by higher average loan and security balances and higher interest spread. As we signaled last quarter, the second quarter was expected to be the low point for our margin. Our third quarter net interest margin expanded 2 basis points to 3.19%. Our margin would have expanded further but was impacted by the timing of our deposit growth, which occurred earlier in the quarter, versus when we funded loan growth, which occurred later in the quarter.
Our run-rate net interest margin in September was approximately 3.25%. Additionally, our growth in the quarter was accretive to margin, as the spread between gross loan originations and deposit inflows was about 4%. When combined, these factors set us up well for further net interest margin expansion in the fourth quarter. Looking ahead, our NIM and NII momentum are supported by a few factors: our low-cost deposit pipeline led by our new teams and our new business units on Cubix, the strength of our diversified loan origination platform, and we have a fixed asset repricing opportunity heading into 2027. With positive levers on both sides of the balance sheet, we expect continued net interest income and margin expansion going forward.
Moving to Slide 13 and expenses. Noninterest expense was $113.4 million in the quarter, down $1.5 million from the second quarter. The story here continues to be long-term strength in our efficiency ratio. Our efficiency ratio improved by approximately 340 basis points from the second quarter. Our noninterest expense as a percent of average assets was 1.68%, among the lowest of any regional bank peer. As you can see from our updated guidance, we do expect a step-up in expenses in the fourth quarter due to incentive compensation as well as investments in technology initiatives and deposit growth.
I’d underscore that we’re delivering very strong efficiency while investing in people and technology and redeploying the capacity that AI creates into revenue production. As Sam described, we remain confident the work underway will deliver sustainable positive operating leverage. On Slide 14, tangible book value per share grew to $65.66, up 10% year over year. That’s approximately two and a half times where we stood at the end of 2019, a CAGR of roughly 15% compared with about a 5% CAGR for regional bank peers over this same period. Without the industry-wide impact of interest rates on AOCI this quarter, our tangible book value per share would have increased 13% year over year. Given the short duration of our investment portfolio, our AOCI as a percent of TCE was just 5% compared to over 8% for our regional bank peer set.
Further, our held-to-maturity portfolio is just 2% of total assets. Turning to Slide 15, our capital position remains strong and continues to provide meaningful strategic flexibility. Our estimated CET1 ratio was 12.6% and our tangible common equity to tangible assets ratio was 8%, while we grew our tangible assets by over 3% and repurchased nearly 500,000 shares, or about 1.5% of our common stock during the quarter. Strong organic earnings position us to support continued balance sheet growth and, when appropriate, to return capital to our shareholders.
On Slide 16, credit quality remains strong. Nonperforming assets were down 8% quarter over quarter, and NPAs as a percent of total assets were just 29 basis points, down 3 basis points quarter over quarter and well below the regional bank peer median of 36 basis points. Net charge-offs continue to perform well, with total net charge-offs improving to 28 basis points from 34 basis points last quarter, with commercial charge-offs of just 13 basis points.
I’ll finish with Slide 17 where we have a few updates to provide as we close out our 2026 guidance. For loans, given the performance year to date and the strength and breadth of our platform, we are now raising our guidance and now expect loan growth to be 12% or higher for the year. For deposits, the momentum from our new teams and the new Cubix verticals continues to be strong and we expect balances to finish up 9% or more in 2026, even after deliberately moving out about $1 billion of higher-cost deposits during the year.
The combination of loan and deposit growth opportunities should continue to drive solid growth in net interest income and we are tightening our range to 805 to 810 million for the year. On noninterest expenses, we update our range to 460 to 465 million as we continue to invest in people and technology, and for income taxes we now expect a range of 22% to 23% for the year. Taken as a whole, we believe this guidance sets us up for a strong finish to 2026 and a strong springboard for 2027. With that, I’ll pass it back to Sam for closing remarks before we open the line for your questions.
Sam Sidhu (Chief Executive Officer)
Thanks, Mark. To wrap up, we delivered exceptional results across our priorities in the third quarter. AI is moving from pilot to production and it’s already showing up in our numbers with more opportunity ahead. Cubix is on track for record activity this year and is diversifying fast, with mortgage finance and real estate now representing over 30% of balances. Loans grew 14% year over year to a record. Deposits grew 11% year over year to a record.
Noninterest-bearing deposits grew 300 million to a record. Our new teams added about $415 million in the quarter and over a billion so far this year. From the second quarter, our NII increased 8%, our EPS increased 10%, our ROE increased to 14%, and our efficiency ratio improved by 340 basis points. We’re building momentum heading into 2027 and we remain in the early innings of what this franchise can deliver. With that, we’ll now open up the line for questions.
Ellen (Operator)
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand, and to withdraw your question, press star one again. We ask that you pick up your handset when asking a question for optimum sound quality, and if muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Janet Lee with TD Cowen.
Your line is open. Please go ahead.
Noah Kastanon (Analyst at TD Cowen)
Good morning, this is Noah Kastanon for Janet Lee. Can you just talk about what you’re hearing from commercial borrowers today and how demand has evolved given the recent move in rates? And as you look at the pipeline, how are you thinking about the sustainability of the growth from here?
Sam Sidhu (Chief Executive Officer)
Hi, good morning. So first of all, I think loan demand continues to remain strong at the franchise and, frankly, in the industry as a whole. What we can see over the next 30 to 90 days, which is most tangible, as Mark sort of described, is we sort of have a pretty good sense of where fourth quarter is going to turn out. And in conversations more softly, with the exception of, say, in the commercial real estate industry, where there’s a little bit more tepid, you know, of a reaction, we generally are seeing, you know, strong interest in customer activity as well as their own customers’ activity.
Mark McCollum (Chief Financial Officer)
Yeah, and then, Noah, I would also just add, you know, as I said in my prepared comments, that our average, you know, loan balances for the quarter were less than kind of where we ended for the quarter. We had, you know, most of our loan growth occur in the month of September, you know, so that also sets us up really well for fourth quarter average loan balances.
Noah Kastanon (Analyst at TD Cowen)
That’s helpful, thank you. And then one follow-up on expenses. I know you mentioned comp and tech expenses possibly contributing to some pressure in 4Q. As we think about the exit rate into 2027, can you help frame the right quarterly expense base from here as we look ahead?
Mark McCollum (Chief Financial Officer)
Yeah, we’re going to be giving—Noah, this is Mark again—we’re going to be giving expense guidance for 2027 as well as all other material metrics in our fourth quarter call in January.
Noah Kastanon (Analyst at TD Cowen)
Okay, thank you.
Ellen (Operator)
Your next question comes from the line of Anthony Ellian with J.P. Morgan. Your line is open. Please go ahead.
Mike (Analyst at J.P. Morgan)
Good morning, this is Mike on for Tony. On NIM, you guys called out margins expected to improve further in 4Q. Given that the September run-rate NIM was 3.25%, I guess, could you put a finer point on where you expect 4Q NIM to land and some of the puts and takes there? And then also maybe how we should think about that trending into 2027. I know you’re not giving specific guidance, but maybe just a general trend.
Mark McCollum (Chief Financial Officer)
Yeah, we don’t give specific guidance on margin, but we did obviously tighten our range, which you can impute from that where we expect NII to be for the fourth quarter. So I would do that, and then you can use your own assumptions on balance sheet to, you know, translate into a margin. But, you know, one data point, you know, I will give you is that our loan yields during the third quarter—you know, our new volume on those loan yields came in at about 6.83%, which is about 50 basis points higher than our overall loan yield of 6.33% for the quarter, you know, so that should give you another data point and some comfort for further NIM expansion in the fourth quarter.
Mike (Analyst at J.P. Morgan)
Great, that’s helpful. And then you guys announced this partnership with Palantir. I guess, what’s the extent of this partnership? Is it just for account onboarding or could it result in Palantir sort of, you know, maybe one day replacing the bank’s core?
Sam Sidhu (Chief Executive Officer)
You know, I said first of all, let me sort of just zoom out, sort of a bit of a high level. You know, we see the bank, as you can tell, value in partnering with a broader range of companies, especially folks that are sort of the leading edge of technology, AI as well as services. Palantir, as you probably well know, are pioneers in the FD, or forward-deployed engineer, model as well as incredible experts on the data layer that sits on top of any LLM.
So as you can imagine, in complex commercial deposit account opening, it’s incredibly useful to have them involved in helping work with our teams side by side in AI pods with our own engineers as well as subject matter experts. So in your broader question, you know, we’re not looking to sort of reinvent the world here. We’re looking to sort of do the things that drive the most value for ourselves, our employees, and our customers. And that’s really where our focus is today, which is: how do you improve the employee experience and how does that directly and indirectly improve the customer experience.
Ellen (Operator)
Your next question comes from the line of Steve Moss with Raymond James. Your line is open, please go ahead.
Steve Moss (Analyst at Raymond James)
Good morning, guys. Nice quarter. Maybe starting on deposits here, continuing with that. You know, you guys had really good deposit growth this quarter. Just kind of curious a little bit about, you know, the underlying mix here. I see the disclosures around cubics. Kind of wondering maybe, you know, where are cubics balances these days and trying to get a sense for how much of the deposit growth this quarter may have been from title and just kind of how to think about that going forward here.
Sam Sidhu (Chief Executive Officer)
Sure. Broad ranging question, I’ll take a stab and if something is missed, please feel free to ask a follow-up or Mark can sort of step in. As it relates to cubics, I think we’re really proud, as I mentioned on the call, about the diversification. At the end of last year, we were being sort of pressed on how we saw this as a potential growth vertical when it went from 100% in DA to 80% to now, you know, under 70%. I think that’s really the testament to the team’s success as well as the fact that the platform has been monetized by a broad range of customers.
So, you know, there was contribution from title teams — I think about 150 million or so on a spot basis. Importantly, that team continues to perform incredibly well and their pipelines also remain strong. The total sort of non-DA cubics balances are about 1.4 billion. And I think you remember last quarter I talked about a one and a half billion dollar goal by the end of the year.
Mark McCollum (Chief Financial Officer)
Yeah, Stephen, this is Mark. You know, I would just add we had said that the new teams contributed over 400 million of growth during the quarter. Title, as Sam mentioned, was one of the larger ones. But, I mean, it was broad-based growth when you look throughout all of our teams.
Steve Moss (Analyst at Raymond James)
Okay, great. And maybe just curious also with regard to cubics, what does the correspondent banking business look like for you guys? You guys mentioned cross-border transactions. Just kind of curious, what’s that type of customer or how to think about that market?
Sam Sidhu (Chief Executive Officer)
So, you know, I think the way to think about this — we talked a little bit about this last quarter — this is something that we’re developing internally with existing as well as new customers. Just an ability, as money moves to 24/7, how do you expand and leverage the technology capabilities, the customers that we have both directly on the network, that also can be in support of other customers, to allow us to provide 24/7 money movement. And that’s really the way I would sort of describe how we also think about cross-border.
Steve Moss (Analyst at Raymond James)
Okay, okay, appreciate that. And then just one other thing here in terms of just back on the expenses here. I know you guys tend to target an efficiency ratio, you know, obviously very good trends here over the course of the current year. I’m just curious as to, like, as we look forward here, does that efficiency ratio trend from, like, call it 49 this year to maybe to the 46, 47 range in ’27?
Sam Sidhu (Chief Executive Officer)
So I think, as Mark said, stay tuned for fourth quarter for us to be able to provide a lot more guidance. But I would say the trend you’re describing is obviously the trend we want to be on. Quarter to quarter matters a lot. We put out an incredibly ambitious target of sort of low 40s, led by some of our transformation efforts on the technology side. So more to come. But you’re right, we are incredibly focused on efficiency ratio. We also are incredibly focused on making investments, which we have done and will continue to do, in support of the growth of the franchise.
Steve Moss (Analyst at Raymond James)
All right, great. Appreciate all the color there. I’ll step back.
Ellen (Operator)
Your next question comes from the line of Brian Wilczynski with Morgan Stanley. Your line is open. Please go ahead.
Brian Wilczynski (Analyst at Morgan Stanley)
Hi, good morning. Thank you for taking my questions. The commercial banking teams continue to perform extremely well. I was wondering, as we think about the deposit cost outlook from here, can you give us some more color on the average cost of deposits among the commercial banking teams and cubics, and just how you see overall deposit betas playing out as we move into a rising rate environment? Thank you.
Mark McCollum (Chief Financial Officer)
Sure. Yeah, a couple of things there, Brian. I’ll try to take a stab at that. First we’ll go on the deposit betas. While it’s still early so far, from the first 30 days since the September rate hike, our deposit beta has been about 33%, and that compares to the last time there was an upcycle in rates — our beta was around 60%. So I think that’s a testament to some of the progress we’ve made in our deposit transformation. As we’ve said on prior calls, the overall cost of deposits that we bring in from our teams generally is in kind of the low twos range, all in, and that has continued this quarter. And then remind me if there’s anything there I didn’t answer.
Brian Wilczynski (Analyst at Morgan Stanley)
No, no, you hit it. Thank you. Appreciate that color. And then maybe just going back to AI — clearly a big strategic priority for the bank. I think in the past with the commercial banking teams, you had talked about how those teams typically ramp over about a 12 to 18 month time period. I’m wondering, given the investments you’re making in AI, particularly on the deposit onboarding process, is there an opportunity for that timeline to accelerate over time?
How should we think about the benefit to deposit growth from your focus on AI? Thank you.
Sam Sidhu (Chief Executive Officer)
Yeah, thanks so much for the question, Brian. So just to kind of build off of what I mentioned earlier, this sort of complex commercial deposit account opening in minutes versus days — think of this as multiple signers, background checks being done in parallel, multiplayer between an RM and a customer. We really believe this is going to be industry-leading and all in support of a better customer experience. But importantly, as you described, growing our commercial account deposit deposits and supporting the growth, as well as potentially helping accelerate future growth.
As you can imagine, if you have manual processes in the background, which we will eliminate as a part of this process, that can slow down the account growth that we’re talking about. And I think I mentioned in my prepared remarks, we are already at the growth in all of 2025 year to date so far this year.
Brian Wilczynski (Analyst at Morgan Stanley)
Got it. Really appreciate all the detail and thank you for taking my questions.
Ellen (Operator)
Your next question comes from the line of Peter Winter with D.A. Davidson. Your line is open. Please go ahead.
Peter Winter (Analyst at D.A. Davidson)
Thanks. Good morning, Sam. I wanted to touch base on the cubic digital asset deposits. When I think about one of the reasons clients came to you, you were at the time one of the few banks that had this 24/7 settlement. But we’ve seen that one of the largest crypto exchanges now has a direct Fed payment access and a settlement deal with another bank. And we’re seeing also some of the biggest banks have also launched this 24/7 and are looking to serve exchanges and markets.
So the question is, are you seeing any of your larger clients start to move balances to these other rails? And if these clients now have a choice, is there a risk that the deposits that are zero cost you might have to start paying interest on those deposits?
Sam Sidhu (Chief Executive Officer)
Yep. Hey Peter, thanks for the question. So I think our position here sort of remains the same, which we’re very pleased by. There is really no material change in our customer activity as a result of what I would describe as perceived competition. There’s a large network effect and barrier to entry here of the 24/7 network that we built over the past number of years. Even prior to banking charters and Fed access being available, we’ve had banks and custodians and investors and many other folks that continue to be incredibly active on our network.
So I think the value we bring is an intra-bank network that has best-in-class technology with a broad, diverse network that continues to grow and is non-interest-bearing.
Peter Winter (Analyst at D.A. Davidson)
Got it. And if I could just follow up, the consent order was lifted — congratulations. Does that impact your thoughts on how much digital assets you want to hold on the balance sheet, and would you start lending against those deposits? And then just where were the deposits this quarter — digital deposits?
Sam Sidhu (Chief Executive Officer)
Sure. Yeah. Thanks. On the PA Department of Banking and Securities lifting its order, we’re pleased, and I would also just add that the regulatory agreements, including with the Federal Reserve, are essentially the same. And as I said earlier this year, we’d essentially put that — materially put that — work behind us at the end of last year. So it is a very good, big recognition. It doesn’t change, to answer your question, the way that we are operating on a day-to-day basis.
And I think that’s really the key of how we’re approaching our current and future business. So it’s just an important milestone. But what I would say is I think now I can confidently say that risk management is now becoming a real strength for us and creating a further moat, building off of your previous question as well around our payments business.
Peter Winter (Analyst at D.A. Davidson)
Got it. Thanks, Sam. Congrats on a great quarter.
Sam Sidhu (Chief Executive Officer)
Thank you.
Ellen (Operator)
Your next question comes from the line of Matthew Brees with Stephens. Your line is open. Please go ahead.
Matthew Brees (Analyst at Stephens)
Hey, good morning.
Sam Sidhu (Chief Executive Officer)
Hey, good morning, man.
Matthew Brees (Analyst at Stephens)
Sam, I’m sorry I missed it. What was the digital asset deposits? I think you got a little garbled on my end.
Sam Sidhu (Chief Executive Officer)
Yep, sure. About 3.1 billion.
Matthew Brees (Analyst at Stephens)
Okay. And my follow-up there around cubics deposits in general, all of which are in non-interest-bearing. Are there any associated, you know, earnings credit rates with the cubics deposit base, or waived fees, and to what extent did that play out this quarter, last quarter? I’m just trying to get a sense of if there’s anything flowing through expenses tied to the cubics deposit base.
Sam Sidhu (Chief Executive Officer)
I mean, they’re predominantly 100% non-interest-bearing. I would just sort of clarify that 70% of the title deposits are non-interest-bearing. There’s a very small portion, tens of millions, that there would be a little bit of expense associated with them. Yeah, sure. You know, so I think that the short answer is, Muse is a consumer app. Right. And, and at the end of the day that, you know, we have limited exposure to sleepy, you know, consumer deposits. You know, as you know, our clients are primarily sophisticated corporate customers that, you know, have treasury teams and are optimizing their liquidity, and they run their operating accounts, you know, pretty efficiently, you know, with sort of moving things, you know, into sort of interest-bearing accounts if they do have those excess deposits.
I also mentioned in our prepared remarks we launched a pilot of an automated sweep product. You know, so while we don’t have a huge consumer base, but for our consumer customers, to help them sort of earn, this is something that we do plan to roll out more broadly in the future. And while this type of retail deposit is not a big part of our franchise today, to your point, you know, this could be, you know, a potential product for us in the future.
It’s a, you know, it is something that we want to make sure that we’re prepared for as consumers, you know, may wake into the benefit of agentic money movement. But what I would say is the key here is going to be using this as a tool to a primary relationship, not just as a high-cost deposit, you know, gathering tool, because that’s not really Customers Bancorp’s objective here.
Ellen (Operator)
Your next question comes from the line of Kelly Mata with KBW. Your line is open. Please go ahead.
Kelly Mata (Analyst at KBW)
Hey, good morning. Thanks for the question. I joined a little late, but I think at this point in the call, I don’t know if anybody’s asked about credit, which has been, to your credit, quite boring in this higher-rate, you know, higher-for-longer. Are you seeing anything incremental that you’re watching? Any changes in early changes in customer demand? Just wondering. Both from just an overall asset quality perspective as well as how it’s impacting borrower behavior.
Mark McCollum (Chief Financial Officer)
Hey Kelly, it’s Mark. Yes, boring. Always better. When talking about the credit story for our company and the industry, we had really strong credit performance this quarter. We continue to watch the entire portfolio. We will have some rate resets going into next year, you know, which has a benefit both ways. You know, it obviously picks up net interest income, but for certain borrowers that could, you know, put stress on capacity to pay, you know, and may, you know, end up having some of those borrowers restructured, you know, to create the necessary capacity for them to continue to pay.
But we’re monitoring it closely, you know, but at this point, you know, it’s been steady as she goes.
Kelly Mata (Analyst at KBW)
Got it. I appreciate that. And maybe a nitpicky modeling question for you. If I look at the guide for expenses, it’s mostly unchanged, but implies a step up in Q4. I know you guys had kind of a, I believe it was somewhat of a true-up last Q4. I’m wondering if there’s any sort of year-end housekeeping items that we should be mindful of when thinking about how we’re thinking about the go-forward run rate. Thanks.
Mark McCollum (Chief Financial Officer)
Sure. Yeah. And the step up, I mean obviously we’re not giving guidance beyond the fourth quarter, you know, but for that fourth quarter guide, I mean it was really, it was a combination of factors. I mean, we did have a couple of things that were just a little bit lower in the third quarter that we typically see that won’t continue that will go back to their normal run rates. We’re having a good year. We just had a good quarter, which was, you know, maybe the step up you’re referring to last year. So then in the fourth quarter we would expect additional incentive compensation. And then also, you know, as we’ve noted, you know, on the call here, we’re investing in technology. So, you know, you saw a step up in some of our technology costs in the third quarter that would continue into Q4 as well.
Kelly Mata (Analyst at KBW)
Got it. That’s helpful. And then I know you’ve covered your AI partnerships a bit. I may have missed some of the details. I apologize if this is repetitive, but you have this new exciting partnership with Palantir. I think the release cited account opening. I’m just wondering about, you know, is this the first thing that they’re working on? If there’s potential, kind of like next-step priorities, one, and then two, how this is different from what OpenAI has been working with you on.
Sam Sidhu (Chief Executive Officer)
Yep, happy to take that, Kelly. And just to sort of recap a little bit of what I mentioned earlier is that, you know, we see value in partnering with a number of folks. You know, right now Palantir is working with us, as I mentioned, on sort of this deposit onboarding. You know, they may continue to work with us, especially in areas where there’s a better benefit of using their expertise and, you know, some of the services side by side with our engineers, as well as sort of a focus on sort of the data ontology, which is something they are really, you know, incredible experts on.
You know, we are continuing to work on the top three, top-down, you know, domains, so loans where we’re really leaning in heavily with OpenAI, deposits we just talked about, and also on the payment side. So those are the three domains we’ll continue to sort of, you know, really. And those are really kicking up into high gear and sort of working on each of them concurrently, you know, now as well. Whereas they were sort of a focus in the second quarter on the loan and third quarter on deposits.
But now we’re starting to sort of build a big transformation project in the fourth quarter that will sort of lead and give us momentum into 2027.
Kelly Mata (Analyst at KBW)
Got it. That’s helpful. And maybe just a quick follow up. You know, banks have been mostly confined to a certain set of core providers over time. Do you think AI is something that could be helpful in developing and improving upon and perhaps replacing the core? Thanks.
Sam Sidhu (Chief Executive Officer)
Yeah, I think you’re absolutely right in terms of the benefit of some of these software tools. I think the real help is if you sort of think about the old world of data transformation and data maturation and data lineage and definitions and data keys, all of that is much easier today. There is an incredible amount of benefit to having systems of record across the organization that you can actually build on top of, you know, and also the real focus at our bank today is focusing on end-to-end automated workflows.
Whereas before you would sort of just have automated portions of workflows that sort of represented a bit of an 80/20, you know, if you actually want to get to a, you know, AI-native regional bank, which is what our focus is, you have to have sort of end-to-end workflow. So our focus is on the workflows and using the technology tools to be able to assist in those workflows and not trying to sort of reinvent, you know, the software wheel.
Kelly Mata (Analyst at KBW)
Great. Thank you so much for entertaining the question. Nice quarter off the back.
Ellen (Operator)
Your next question comes from the line of Manuel Navis with Piper Sandler. Your line is open. Please go ahead.
Manuel Navis (Analyst at Piper Sandler)
Hey, good morning. I just have a question on NIM dynamics, kind of what are you seeing on new loan yields and the marginal cost of deposits? And do you see the September NIM 3.25% as the floor in the fourth quarter?
Mark McCollum (Chief Financial Officer)
Hey Manuel, it’s Mark. Thanks for the questions. Yeah, so obviously we have multiple lines of business and so when you think about a spread, you know, you really have to take that kind of business line by business line where we have some where it might be closer to 225 over, you know, but then we have other businesses where, you know, the index might be prime or it might be something other than SOFR. But when you equivalize that to a spread over SOFR, it could be over 400 basis points, you know, over, you know, a common index.
For the quarter, we had mentioned earlier, you know, that our third-quarter loan originations were at 6.83%, you know, and our cost of deposits was 2.50%. You know, I will tell you that our spot balance on deposits, which as a CFO I don’t place as much emphasis on as the average balance, but our spot balance at Sep 30 was 2.47%, you know, so you can just take that marginal, you know, asset production, you know, over our spot balance on deposits and you get over 400 basis points, you know, of kind of, you know, on-the-margin expansion.
As far as, you know, whether that 3.25% is a floor, you know, we’re not giving specific guidance for the fourth quarter, you know, but just wanted to give you a sense of where we ended the third quarter and you can build your own model, you know, and kind of project out from there.
Manuel Navis (Analyst at Piper Sandler)
I appreciate that. But the 50 new team member hiring, is there any stats on that? Maybe you gave it earlier but like do you have a thought on their prior book of business? Maybe where they’re coming from broadly in terms of what type of bank they’re coming from, and you describe on the slide what segments they’re in, but which is like the most focused of those segments. Anything you could add on the new hires?
Sam Sidhu (Chief Executive Officer)
You know, sure, I think that it’s really broad across a number of sectors. You know, 50-plus team members. This is just like the new team members. You know, we’ve also hired about 60 revenue producers in total, you know, this year across 12 teams. So there’s also sort of density that we’re sort of increasing in existing teams. So there’s no real direct answer. What I would say is that we hired more this year than we did last year, which I think is sort of a good indicator of where we are in our overall, you know, growth cycle.
I had also talked about the teams that we’ve hired this year last quarter that there was a nine-figure pipeline on both loans and deposits, which is great. We’re pleased by. That’s the benefit of getting, you know, folks joining the bank in, you know, as early as April of this year. But what I would leave you with is we are having a flurry of conversations now for 2027 hiring, which is the strongest hiring by plans to that we’ve had and counted. I think it’s a testament to our own success.
It’s the flywheel we’ll talk about that we have in the appendix and, you know, our own success, our customers’ success, our new team members’ success, their alumni networks that allow us to kind of continue, you know, to hire and support the organic growth business model we have.
Manuel Navis (Analyst at Piper Sandler)
I appreciate that. Is that kind of bigger hiring pipeline, does that come from any one spot? Obviously the referral network is working well. Do you think there’s any other drivers there in the industry beyond your own success?
Sam Sidhu (Chief Executive Officer)
Yeah, no. Same answer as before. There’s nothing specific that I would point to. I think we give a pretty good snapshot of areas that are new to the bank or accretive to sort of where we are, especially as you think about fee income. But these are predominantly sort of deposit-led and revenue-generating hires.
Mark McCollum (Chief Financial Officer)
We’re going to be talking about—oh, you said 2028 targets. Definitely not, but 2027, you know, we’ll be giving you all of our thoughts on guidance, you know, obviously on the January call.
Ellen (Operator)
We have reached the end of the Q and A session. I will now turn the call back to Sam Sidhu, CEO, for closing remarks.
Sam Sidhu (Chief Executive Officer)
Thanks, Ellen. Thank you, everyone, for your continued investment and support of Customers Bancorp. Have a great day and a great weekend.
Ellen (Operator)
This does conclude today’s call. Thank you for attending. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.