CUSTOMERS BANCORP INC Q2 2026 Earnings Call

Hello, everyone. Thank you for joining us, and welcome to the Customers Bancorp, Inc. second quarter 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. Phil, please go ahead. Thank you, Ellen, and good morning, everyone.

Thank you for joining us for the Customers Bancorp's earnings webcast for the second quarter of 2026. We'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. 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.

Please refer to our SEC filings, including our most recent Form 10-K and Form 10-Q, and our current reports on Form 8-K for a more detailed description of the assumptions and risk factors related to our business. Copies of these filings may be obtained from the SEC or by visiting the investor relations section of our website. At this time, it is my pleasure to introduce Customers Bancorp CEO, Samuel Sidhu.

Thanks, Phil. Good morning, everyone, and welcome to Customers Bancorp's second quarter 2026 earnings call. I'm joined this morning by our Chief Financial Officer, Mark McCollom. I'll take you through a few key highlights from the second quarter, give you an update on our strategic priorities, and then Mark will provide additional detail on our financials. Customers Bank continues to deliver for our customers and shareholders with this quarter's results once again reflecting strong, consistent financial results that come from disciplined execution of our differentiated strategy by a best-in-class team. Turning to slide four. The second quarter was further evidence of our core strategy firing on all cylinders with consistent and reliable financial performance and growth. A few highlights. Total loans grew 4% in the quarter and 17% year-over-year to a record $18 billion. Total deposits grew over $140 million to a record $21.7 billion.

Non-interest-bearing deposits hit a second consecutive record at $6.9 billion or 32% of total deposits. NII increased 9% year-over-year. Tangible book value per share across $65, a period end record, up 16% year-over-year, extending our industry-leading pace. That's 16 consecutive records for book value, four for loans, and seven for total deposits. We did all of this while maintaining pristine credit quality and robust capital levels, even while growing the balance sheet and modestly buying back shares. On slide five, you can see our priorities for 2026, the same four we've been executing against all year. I'll provide an update on each again this quarter, starting with AI on slide six. Last quarter, we told you we were operationalizing AI and automation across Customers Bank. We're seeking transformational change with a goal of becoming the nation's leading AI native regional bank.

To give you some color on what that means, let me start by saying that none of this happens by chance. Every use case we build moves through the same repeatable cycle. We create AI agentic pods by pairing our engineers with subject matter experts that own the work, shadow the real workflow, then build agents in our own data and systems, starting with the highest impact opportunities. We then validate and measure the real impact first, and only then does it get absorbed into the operations of the bank. We're driving this through two complementary tracks, top-down strategic initiatives and extensive bottoms-up use cases being built organically by our teams. Our top-down roadmap spans three domains, lending, deposits, and payments. That top-down work took a huge step forward in April when we announced a strategic collaboration with OpenAI, an expansion of a relationship that began back in 2023.

This isn't a typical enterprise licensing relationship with a frontier model provider. It's embedding OpenAI engineers side by side with our team, building custom capabilities bespoke for our processes. Let me start by giving you an update on the first top-down initiative, loans. Our engineers have architected a multi-agentic credit underwriting process that can allow us to be ready to close commercial loans in seven days or less versus industry norms of 30-60 days. I'm thrilled to say that we piloted this tool this quarter and successfully closed C&I and CRE loans that utilized this underwriting engine within a week. That's an 85% reduction in readiness to close, which should result in huge productivity and revenue gains through more business, but more importantly, it will deliver an enhanced client experience and confidence in our bank. Moving to deposits. We kicked off an effort to rebuild our commercial onboarding process from scratch with an ambitious target of opening complex commercial accounts in minutes, not hours.

We expect to have real progress and an update for you on this next quarter. On payments, we're way ahead of the curve here. We believe we were the first bank to publish an MCP or Model Context Protocol last year for our commercial payments customers. One revenue-generating use case we're advancing on is a modernized, fully routable network for 24/7 cross-border payment settlement on our cubiX network that we'll share more detail as it develops. Now for a few examples from the bottom-up side, which is reaching every corner of our institution. We're equipping bankers to drive increased conversion, which has led to 110% improvement in select front-office areas' prospecting success rates.

To help make that tangible, just one commercial deposit group has averaged $2 million per month in non-interest-bearing deposit growth since the launch of the tool. In the back office, we're using agentic orchestration to enable products for new deposit customers, reducing setup times from an hour down to a couple of minutes. In risk and compliance, we're leveraging AI-powered KYC screening, which allows our team to boost their productivity by 50%. In corporate functions, we're reviewing legal documents in minutes, not hours, tracking accuracy across regulatory filings, and have shortened our month-end closing cycle by 60%. Everything I've walked you through here is proprietary and purpose-built in-house by Customers Bank employees. To give you some context on the impact we're experiencing, our team has now saved at least 46,000 hours through AI-enabled workflow automation, up about 65% from last quarter and equivalent to 24 FTEs.

They've built more than 600 agents and custom GPTs, up 20% in the last 60 days alone. 100% of our team members are now AI licensed, up from 75% last quarter, and we're providing extensive training and support to our entire organization. I'm personally leading a 40-person and growing team today representing about 5% of our workforce focused on AI workflow transformation. How will this translate financially for us? Well, we've set a goal of getting to a low 40s run rate efficiency ratio in 2027 versus the 50% or so we're at today through a combination of revenue growth and increased productivity.