Customers Bancorp Navigates Headwinds with Strategic Discipline in Q1 2025

Customers Bancorp (CUBI) delivered a mixed yet strategically instructive Q1 2025 earnings report, balancing operational resilience against macroeconomic uncertainty. While GAAP net income fell sharply due to a one-time securities portfolio adjustment, core earnings surged, underscoring the bank’s focus on sustainable growth and risk management.

Financial Resilience Amid One-Time Charges

The quarter’s headline GAAP net income of $9.5 million ($0.29 per share) dropped 59% sequentially, primarily due to a $39.9 million post-tax impairment loss from repositioning its securities portfolio. This move, though costly, aimed to extend liquidity and reduce credit risk in volatile markets. Beneath this noise, core earnings (non-GAAP) rose 13.2% to $1.54 per share, reflecting improved deposit management, loan growth, and disciplined cost control. The core return on average assets (ROAA) hit 0.97%, while return on common equity (ROCE) climbed to 11.72%, signaling operational efficiency.

Deposit Strategy Pays Off

Customers Bancorp’s focus on optimizing its deposit mix bore fruit. The average cost of deposits dropped 25 basis points to 2.82%, driven by a shift toward lower-cost, sticky commercial deposits. Non-interest-bearing deposits now account for 29.3% of total deposits, a stable base that reduces funding volatility. Management highlighted the success of new deposit teams, which added $2.1 billion (11% of total deposits) since 2023, boosting commercial accounts by 53% since late 2022. This strategy aims to insulate the bank from rising competition for retail deposits.

Loan Growth Driven by Strategic Sectors

Loans and leases surged $612 million (4.2%) sequentially to $15.1 billion, with specialized lending (e.g., corporate and mortgage finance) leading growth (+3.9%). Multifamily loans also expanded, while consumer installment loans jumped 21% after a fintech partner’s acquisition. Year-over-year, total loans grew 16.8%, showcasing the bank’s ability to scale in select high-margin segments. Management emphasized conservative underwriting, with low delinquency rates and strong credit metrics in consumer loans (e.g., average FICO scores of 739).

Liquidity and Asset Quality Remain Strong

The bank’s liquidity buffer remains robust, with $8.7 billion immediately available, covering 155% of uninsured deposits. Non-performing assets (NPAs) stayed negligible at 0.26% of total assets, while the allowance for loan losses stood at 324% of non-performing loans—a cushion far exceeding regulatory requirements. Despite a modest rise in net charge-offs to $17.1 million, this figure remains below year-ago levels, reinforcing asset quality resilience.

Challenges Ahead: Capital and Economic Uncertainty

While the CET1 capital ratio dipped to 11.7% (from 12.1% in Q4 2024), it remains comfortably above regulatory minima. Management acknowledged rising macroeconomic risks, increasing provisions for credit losses by 33% sequentially to $28.3 million. This caution reflects uncertainty around consumer and small-business borrowing trends in a slowing economy.

CEO Sidhu’s Vision: Prudent Growth Over Aggressive Expansion

CEO Jay Sidhu framed the quarter as a testament to the bank’s “customer-centric mindset,” prioritizing deposit franchise value and balance sheet discipline over rapid asset growth. The securities repositioning, though costly, aligns with long-term liquidity needs. Sidhu emphasized maintaining a loan-to-deposit ratio of 80%, signaling a preference for conservative leverage over speculative expansion.

Conclusion: A Steady Hand in Volatile Markets

Customers Bancorp’s Q1 results reveal a bank navigating headwinds with deliberate strategy. While one-time charges clouded GAAP earnings, the 13% core EPS growth, robust liquidity, and low NPAs highlight operational strength. The deposit optimization and loan diversification efforts position CUBI to weather macroeconomic turbulence while capitalizing on opportunities in commercial and specialized lending.

Investors should monitor CUBI’s ability to sustain NIM expansion—currently at 3.13%—as deposit costs continue to trend downward. With a tangible book value per share up 1.2% to $54.74 and share repurchases underway, the bank appears well-equipped to deliver steady returns. For those seeking a conservative regional bank with a focus on franchise value over quick wins, Customers Bancorp’s disciplined approach offers a compelling investment thesis.