Customers Bancorp, Inc. (CUBI)

Executive Summary / Key Takeaways

• Customers Bancorp is executing a transformative strategy, leveraging its "single point of contact" service model and proprietary technology to drive superior financial performance and shareholder value.
• The cubiX payments platform is a core technological differentiator, processing trillions in volume and generating fee income, while attracting low-cost, non-interest-bearing deposits held entirely in cash.
• Strategic deposit remixing, fueled by successful team recruitment and cubiX, has significantly lowered funding costs and expanded net interest margin, positioning the bank for continued Net Interest Income (NII) growth.
• Diversified, relationship-driven loan growth in specialized verticals, coupled with strong capital ratios and improving efficiency, underscores a disciplined approach to balance sheet expansion.
• Management's updated 2025 guidance projects robust growth in deposits (8-10%), loans (13-14%), and NII (13-15%), alongside an efficiency ratio below 50%, signaling sustained momentum and a commitment to top-tier industry performance.

A Differentiated Banking Model for a Dynamic Era

Customers Bancorp, Inc. (NYSE:CUBI) has evolved significantly since its founding in 2009, transforming from a small, troubled institution into a thriving $24.26 billion commercial bank with a national footprint in specialized niche businesses. This journey, initiated by a $17 million equity infusion and accelerated under the leadership of Sam Sidhu since 2020, is anchored in a "single point of contact" service model that emphasizes client-centricity, technological innovation, and disciplined growth. The company's "built to last" philosophy combines the product breadth of a larger bank with the personalized service of a private institution, fostering deep client relationships and attracting top-tier talent. This strategic foundation positions Customers Bancorp to capitalize on market opportunities and respond effectively to a complex and evolving macroeconomic landscape.

Technological Edge: The cubiX Platform and AI Innovation

At the heart of Customers Bancorp's differentiation is its proprietary, in-house developed cubiX payments platform. This mission-critical technology is purpose-built for institutional clients, particularly within the digital asset industry, offering 24/7, 365 instant payment capabilities and continuous product enhancements. The platform serves as a vital on-off-ramp for institutional players to trade and settle via APIs, connecting major exchanges, stablecoin providers, market makers, and institutional investors. In 2024, cubiX processed approximately $1.5 trillion in payments volume, a figure that would rank it third among major household name payment networks, behind only Amex (AXP) and Visa (V) Commercial. This substantial volume demonstrates the network's critical role and growing influence.

The tangible benefits of cubiX are multifaceted and quantifiable. It has been instrumental in attracting low-cost, non-interest-bearing deposits, which reached a record $6.4 billion by September 30, 2025, representing 31% of total deposits and placing CUBI first among its peers. All cubiX deposits are held 100% in cash, a strategic decision that mitigates liquidity risk and allows the bank to support increased customer activity without a prior 15% concentration cap. The platform also generates recurring fee income, with an annual run rate of approximately $8 million from outbound wire and platform fees. This technological prowess creates a significant competitive moat, as management asserts that to be prevalent and relevant in the stablecoin ecosystem, issuers need to be on the cubiX network.

Beyond cubiX, Customers Bancorp is actively investing in Artificial Intelligence (AI). A cross-functional AI discovery team, formed in December 2023, has already yielded a roughly 10% productivity lift across various areas of the bank. The company plans to expand its Agentic AI systems in 2025, with stated goals to enhance platforms, workflows, and client experiences. This forward-looking R&D is expected to unlock further efficiencies and improve client engagement, contributing to the company's long-term competitive advantage and financial performance.

Strategic Pillars: Deposit Transformation and Specialized Lending

Customers Bancorp's strategic narrative is deeply intertwined with its successful deposit transformation. The company has consistently prioritized attracting high-quality, low-cost, and often non-interest-bearing deposits. In less than three years, CUBI has onboarded nearly $7 billion in deposits from new banking teams and cubiX clients, representing approximately 40% of its deposit base at year-end 2022 and about one-third today. This growth is highly granular, stemming from approximately 8,000 new accounts, and comes at a very low average cost of 1.06%. This focus has allowed CUBI to increase non-interest-bearing deposits to 31% from 10% while simultaneously reducing wholesale Certificates of Deposit (CDs) from 22% to 9%. The effectiveness of this strategy is evident in the company's deposit beta, which reached approximately 59% in the down cycle by Q3 2025, exceeding the 60% beta experienced in the up cycle.

On the asset side, CUBI has executed a deliberate loan portfolio transformation. Over the last five years, the company strategically reduced concentrations in mortgage finance (from 25% to 10%), multifamily (from 20% to 15%), and consumer installment loans (from 13% to 6%). This shift has enabled a focus on lower-risk, relationship-based specialized verticals such as fund finance, venture banking, and regional Commercial & Industrial (C&I) lending. The company has also opportunistically stepped into voids in the commercial real estate (CRE) lending market, providing "fulsome relationship-based loans accompanied by significant deposits." Notably, a $340 million increase in the multifamily and CRE loan book over two quarters was "more than self-funded with real estate industry related deposits," a phenomenon described by management as "unheard of" in the industry. This disciplined approach ensures that loan growth is capital-efficient and deposit-accretive, strengthening client engagement and enhancing the overall franchise.

Competitive Landscape: Outperforming in a Dynamic Market

Customers Bancorp operates in a competitive banking landscape, facing both traditional regional banks and agile fintech innovators. Its strategic positioning, underpinned by its unique service model and technological advantages, allows it to effectively compete and, in many aspects, outperform its peers.

Against traditional regional competitors like WSFS Financial Corporation (WSFS) and Fulton Financial Corporation (FULT), CUBI differentiates itself through specialized lending expertise and a more nimble approach. While WSFS and FULT maintain strong community presences and focus on broader banking services, CUBI's targeted offerings in areas like commercial equipment finance, fund finance, and venture banking provide tailored solutions that can attract specific client segments. CUBI's ability to attract top-tier banking talent, often from larger, more bureaucratic institutions, further enhances its competitive edge in relationship-driven banking.

When compared to larger regional players such as M&T Bank Corporation (MTB) and Citizens Financial Group, Inc. (CFG), CUBI's advantages lie in its agility and specialized focus. While MTB and CFG benefit from greater scale and broader market reach, CUBI's "single point of contact" model offers a more personalized experience, particularly for small and middle-market businesses. CUBI's relatively low Commercial Real Estate (CRE) concentration, remaining under 200%, is a significant competitive advantage against peers who may face higher regulatory scrutiny or market pressures in this segment.

The cubiX platform provides a unique moat against both traditional banks and emerging fintechs. While large banks like JPMorgan (JPM) and PNC (PNC) are exploring digital asset solutions, CUBI's established 24/7 network and deep integration with institutional digital asset players give it a first-mover advantage that is difficult to replicate. Management notes that large banks often profit from friction in the banking system, which stablecoins aim to reduce, potentially creating a disincentive for aggressive adoption by incumbents. CUBI's continuous investment in risk and compliance for cubiX also aims to set a "best-in-class North Star" for the industry, further solidifying its leadership. This technological differentiation, combined with its strong deposit-gathering capabilities and disciplined lending, positions Customers Bancorp to capture market share and drive superior financial results in a rapidly evolving industry.

Financial Performance: Delivering Consistent Value

Customers Bancorp's strategic initiatives have translated into robust financial performance. For the three months ended September 30, 2025, the company reported core Earnings Per Share (EPS) of $2.20, a core Return on Equity (ROE) of 15.5%, and a core Return on Assets (ROA) of 1.25%. These figures reflect solid growth across both sides of the balance sheet. Net Interest Income (NII) increased by $43.4 million, or 27.4%, to $201.9 million for the quarter compared to the prior year, primarily driven by lower interest expense on deposits and increased interest income from higher average loan balances. The Net Interest Margin (NIM) expanded by 40 basis points quarter-over-quarter to 3.46%, largely due to a favorable shift in deposit mix and lower market interest rates on deposits. The total cost of funds, including non-interest-bearing deposits, decreased to 2.91% for the quarter.

Operational efficiency has also seen significant improvement, with the efficiency ratio declining to 45.4% in Q3 2025, placing CUBI among the top quartile of its peers. This was achieved even while the company continued to invest in new teams, technology, and risk management infrastructure. The noninterest expense to average asset ratio further declined to 1.74%, ranking as the best within its regional bank peer group. These efficiency gains are partly attributable to the "operational excellence initiatives," which have realized a $30 million annualized impact through cost savings and new recurring fee income.

The company's capital position is strong and growing. Shareholders' equity increased by $289.4 million, or 15.8%, to $2.13 billion at September 30, 2025. A successful common equity offering in early September 2025, which was oversubscribed by approximately 10 times, provided $163 million in net proceeds, further strengthening capital quality. The Common Equity Tier 1 (CET1) ratio improved by 100 basis points to 13%, and the Tangible Common Equity (TCE) ratio grew by 50 basis points to 8.4% in the quarter. This robust capital base supports continued organic growth and strategic initiatives.

Outlook and Guidance: Sustaining Momentum

Customers Bancorp's management has provided an optimistic and disciplined outlook for 2025, reflecting confidence in its strategic execution. The company has revised its full-year 2025 guidance upwards:

• Deposit Growth: Expected to be between 8% and 10%, an increase from the previous range of 5% to 9%. This reflects strong momentum from new banking teams and the cubiX platform.
• Loan Growth: Projected to be between 13% and 14%, up from 8% to 11% previously. While a strong Q3 2025 pulled forward some closings, management remains confident in delivering above-industry-average loan growth with a credit-first mindset.
• Net Interest Income (NII) Growth: Anticipated to grow between 13% and 15%, an increase from 7% to 10%. This reflects strong performance on both sides of the balance sheet and continued margin benefits, including a $10 million positive impact from loan accretion expected in Q4 2025.
• Efficiency Ratio: Expected to be below 50% for the full year, a significant improvement from 56% in 2024. This is driven by stronger revenue growth and well-managed expenses.
• CET1 Ratio: Projected to be around 13% by the end of 2025, consistent with Q3 2025 levels.

Management anticipates that the pace of deposit growth from new banking teams will continue into 2026, with 2025 hires contributing more significantly from late Q1 to mid-2026. The cubiX platform is expected to maintain its high activity levels, with October 2025 on track to be its highest month ever in terms of network volume. The company also plans to redeem all outstanding shares of Series F Preferred Stock on December 15, 2025, utilizing proceeds from its recent common stock offering.

Risks and Challenges

Despite the positive outlook, Customers Bancorp faces several pertinent risks. Macroeconomic uncertainties, including the extent and timing of future interest rate cuts, elevated inflation, and changes in U.S. trade policies, could impact economic conditions and the demand for banking products. Geopolitical conflicts, such as those in Russia-Ukraine and the Middle East, also pose risks to global supply chains and commodity prices.

The banking system continues to face elevated liquidity risk, particularly for regional banks, and exposure to the U.S. commercial real estate market remains a concern. While CUBI actively manages its credit risk through diversification and prudent underwriting, the Allowance for Credit Losses (ACL) is sensitive to macroeconomic forecasts. A hypothetical adverse economic scenario could result in an incremental quantitative impact to the ACL of approximately $88 million at September 30, 2025. Regulatory capital requirements are stringent, and failure to meet minimums could lead to supervisory actions. Interest rate risk, stemming from timing differences in asset and liability repricing, is actively managed through simulation analysis and derivative instruments. Legal proceedings, such as the recently dismissed securities class action, and ongoing investigations, like the demand letter regarding anti-money laundering compliance, also present potential challenges.

Conclusion

Customers Bancorp's journey from a troubled community bank to a high-performing, tech-forward regional institution is a testament to its strategic vision and disciplined execution. The company's core investment thesis is firmly rooted in its ability to leverage a differentiated "single point of contact" service model, a robust deposit transformation strategy, and innovative technological platforms like cubiX. These foundational strengths, coupled with diversified specialized lending and a strong commitment to risk management, are driving consistent earnings and tangible book value growth.

The company's proactive approach to deposit remixing, successful talent recruitment, and the strategic deployment of its cubiX platform have not only enhanced its financial performance but also solidified its competitive standing in a dynamic industry. With a clear strategic direction, a proven ability to deliver on guidance, and a forward-looking embrace of technologies like AI, Customers Bancorp is well-positioned to continue its trajectory of value creation for shareholders. While macroeconomic headwinds and regulatory scrutiny persist, CUBI's strong capital, liquidity, and credit quality, combined with its unique competitive advantages, suggest a compelling investment opportunity for discerning audiences.