Earnings Call Transcript - CUBI Q3 2025

Operator, Operator

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Customers Bancorp, Inc. Third Quarter 2025 Earnings Webcast and Conference Call. I would now like to turn the conference over to Philip Watkins, Executive Vice President, Head of Corporate Development and Investor Relations. Please go ahead.

Philip Watkins, Executive Vice President, Head of Corporate Development and Investor Relations

Thank you, Regina, and good morning, everyone. Thank you for joining us for Customers Bancorp's earnings webcast for the third quarter of 2025. Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking statements under applicable securities laws. These forward-looking statements are subject to change and involve 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 most recent Form 10-K and 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 turn the call over to Customers Bancorp Chair, Jay Sidhu. Jay?

Jay Sidhu, Chair

Thanks, Phil, and good morning, ladies and gentlemen, and welcome to Customers Bancorp's Third Quarter 2025 Earnings Call. I'm joined this morning by our President and CEO of the bank, Sam Sidhu; and Customers Bank and Customers Bancorp's CFO, Mark McCollom. We are very pleased to report another strong quarter. Once again, our results materially exceeded expectations. We experienced deposit-led growth in our balance sheet of more than $1.5 billion over the quarter, delivered positive operating leverage and strengthened our already robust capital levels through a very successful common equity offering that was oversubscribed by about 10x. That speaks volumes about investor confidence in our franchise. We also delivered top-tier earnings performance, continued to improve capital quality and drove disciplined franchise-enhancing growth across deposits, loans and also fee income. You'll hear more from Sam and Mark on those results in a moment. It is exactly these sorts of financial results that gave me the confidence last quarter to announce my transition to Executive Chairman beginning in 2026 and for Sam to be named Chief Executive Officer of the holding company besides being the CEO of the bank. From this seat, the Board of Directors and I will continue to provide all the guidance to Sam and our excellent management team to ensure Customers continues to build on its trajectory of growth, consistency, full transparency, resilience and delivering the results to you on a regular consistent basis. From a financial perspective, Customers has been an industry-leading EPS and book value compounder over the last 5 years for banks of our size, and that's translated into long-term results for our shareholders as we've been the #1 performing bank stock in the United States for institutions over $10 billion in assets over a 5-year period. Thank you for being our long-term shareholders, and I'm thrilled to be one of them. Our mission remains unchanged: to deliver long-term and consistent value for our shareholders and our communities by putting clients first and executing with excellence. The numbers you see are the result of our leadership team executing superbly on our unique strategy of single point of contact banking with the strongest risk management principles. Before we dive into the quarter, I'd like to take a moment to welcome Janet Lee and the TD Cowen team to coverage of Customers Bancorp. It's terrific to have you and Steve following our story. We appreciate your interest and look forward to your insights as we continue to execute on our strategy. With that, I'm going to turn it over to Sam to discuss in detail the quarter with you.

Samvir Sidhu, President and CEO

Thank you, Jay, and good morning, everyone. This quarter was yet another clear demonstration of the strength of Customers Bank's diversified model. Across the franchise, we delivered strong performance, disciplined growth and continued transformation of our deposit base. We are firing on all cylinders, and our team is performing at an elite level. Q3 results represented another quarter of very strong financial performance. Here are a few of the highlights. We generated $1.4 billion of deposit growth, led by our new commercial banking teams and cubiX clients. Our loan growth was 6% quarter-over-quarter with diversified contributions across multiple verticals. Our net interest margin expanded meaningfully by 19 basis points quarter-over-quarter, and our net interest income increased by 14% in the quarter. Our efficiency ratio improved again even as we continue to invest in new teams, technology and risk management. As you heard from Jay, we had a tremendously successful common stock offering in early September, which was about 10x oversubscribed. The equity raise even further improved our capital quality and ratios meaningfully. And we compounded tangible book value at a 25% annualized pace in the quarter to nearly $60 per share, continuing our multi-year trend of 15% annualized growth, which is #1 for banks $20 billion to $100 billion in assets. We accomplished all of this while maintaining strong credit performance and ample liquidity. Advancing to the next slide, you'll see our GAAP financials. And moving to Slide 6, I'll run through the core financial highlights for the quarter. Our beat relative to consensus expectations on both a GAAP and core basis was driven by strong results across the franchise. We delivered core EPS of $2.20 with a core ROE and ROA of 15.5% and 1.25%, respectively, both important profitability milestones. This reflects solid growth on both sides of the balance sheet, resulting in total revenues of $232 million, which was up 12% in the quarter. And our credit metrics also remained strong, which Mark will cover in more detail. Our third-quarter EPS grew by 22% in the quarter, which is on top of the 17% growth last quarter. As you may recall, a year ago, on our third-quarter call, I said that we'd look to grow our core EPS by 30% or more this year. I'm incredibly pleased to say that we more than doubled that, up 64% from the same period a year ago. And we believe that our $24 billion balance sheet is stronger than ever with very robust capital ratios, strong credit quality and reserves and ample liquidity to support our growing pipelines. Now let's turn to deposits on Slide 7, where we continue to execute in our deposit transformation with a meaningful shift towards franchise-enhancing granular high-quality deposits. As I mentioned, total deposits grew $1.4 billion in the quarter, ending at $20.4 billion. This included an increase of $900 million in noninterest-bearing deposits, which was led by growth from existing institutional customers on our in-house developed cubiX platform. Our deposit growth was supported by several other areas, including our new banking teams onboarded since June of 2023, contributing nearly $350 million in high-quality deposits this quarter. These teams now manage approximately $2.8 billion in relationship-based granular funding, which is about 14% of our total deposits in just 2 years, which is akin to buying a $3 billion bank, but without the tangible book value dilution and integration risk of traditional bank M&A. The $900 million of growth in noninterest-bearing deposits led to a record $6.4 billion in noninterest-bearing deposit balances. In addition to cubiX growth, our core commercial franchise again delivered 9 figures of noninterest-bearing growth, which is truly incredible. As a result, noninterest-bearing deposits now represent about 31% of our total deposits at quarter end, placing us #1 amongst our peers. Our team responded well to the Fed easing in September, and we were able to lower our deposit cost by 15 basis points post Fed action, which represents a deposit beta of approximately 59%. As a result of the combination of these two factors, our total average cost of deposits declined 8 basis points in the quarter. And to emphasize this point further, our spot cost of deposits was another 9 basis points lower at 2.68% at quarter end or 17 basis points below our Q2 average. Now let's turn to Slide 8, where I'll provide more detail on the incredible success of our deposit transformation. We've talked a lot about our deposit gathering efforts on our calls in recent quarters, but we thought it would be helpful to look back and highlight just how much we have transformed our franchise over the past few years. In less than 3 years, we have onboarded nearly $7 billion in deposits from our new banking teams and cubiX clients. That represents nearly 40% of our deposit base at year-end of '22 and about 1/3 of our deposits today. And it's the quality of the transformation that really shines. The growth is very granular with nearly 8,000 accounts helping us to drive over 50% growth in our commercial client base. Incredibly, they are very low cost at just 1.06%. This has allowed us to increase our noninterest-bearing deposits to 31%, as I mentioned, from 10%, while simultaneously reducing our wholesale CDs from down from 22% to 9%. Our average cost of deposits this quarter was essentially flat relative to the end of 2022. Over that time period, interest rates are 65 basis points higher on average today than they were at the end of '22. The industry's deposit costs, however, are 128 basis points higher, which means that our outperformance is incredibly 124 basis points over that time period compared to peers. That shows the power of our deposit transformation. Moving to Slide 9. Central to our success has been our ability to consistently recruit top talent. In the first quarter of this year, we highlighted the exceptional results from the teams who joined us in 2023 and 2024. We also outlined a road map for the types of continued team recruitment we look to execute on in 2025. This included top-performing bankers to deepen our geographic presence and continue to enhance our national specialized deposit verticals. We had shared we would add at least 2 new teams this quarter. In fact, we were able to recruit and onboard 4 new teams in the quarter. This included 2 additional geographic C&I teams as well as 2 national teams, one serving title companies and one in the sports and entertainment segment. This brings our 2025 total to 7 deposit-focused teams with approximately 30 new team members. Our brand reputation as a high-performance tech-forward bank continues to attract top-tier talent. The flywheel is turning, and we have incredible tailwinds both from continuing to scale the portfolios of the teams that join us in '23 and '24 and now significant additional opportunities from the teams that have joined us this year in 2025. It is important to highlight that in almost every one of the bankers that have joined us have come through direct referrals from our existing team members. We'll look to continue to add to the roster of new teams each quarter. Let's turn to loan growth on Slide 10. Loans grew approximately $900 million or 6% quarter-over-quarter. Growth was broad-based and relationship-driven led by fund finance, commercial real estate and venture banking. Our new commercial banking teams also contributed to loan growth while maintaining strong deposit-led economics. The portfolio remains diversified, and we continue to prioritize credit discipline and pricing. Given the depth and breadth of our platform, we continue to see opportunities to add franchise-enhancing loans with an utmost focus on credit discipline. With that, I'll turn the call over to Mark on Slide 11.

Mark McCollom, CFO

Great. Thanks, Sam, and good morning, everyone. Thanks for joining us on the call. I'm going to start with our net interest margin, where we reported strong results. Net interest margin expanded by 19 basis points this quarter to 3.46%, marking the fourth consecutive quarter of improvement. Our net interest income increased by about 14% to $202 million for the quarter. As we noted last quarter, we did have a positive impact from loan accretion on a small pool of participated loans we repurchased at a significant discount last quarter. This added $10 million to net interest income this quarter compared to the second quarter. This net interest income benefit will repeat again in the fourth quarter of 2025 and then is expected to drop off in the first quarter of 2026. However, when excluding this $10 million from our third-quarter results, our net interest income still increased 9% sequentially due to the following core trends. We had an increase in average deposits of over $1.4 billion at a blended cost of 2.77% for the quarter compared to 2.85% last quarter with nearly $800 million of higher average noninterest-bearing balances. We also had an increase to average loan balances of $630 million. And lastly, our overall funding needs declined as a result of the $163 million of net proceeds we received from our common equity offering in September. As Sam noted, our team responded well to the first Fed funds rate cut. Within a week of that cut, our interest-bearing deposits had declined by 15 basis points on a spot basis or a beta of almost 60% early on. We also executed off-balance sheet strategies during the quarter, layering on $800 million in notional value of received fixed swaps on the asset side of the balance sheet in order to further neutralize our asset sensitivity. While we remain modestly asset-sensitive, we think we have well positioned the bank to produce solid net interest income growth in future periods regardless of macro monetary policy. Moving on to Slide 12. Our noninterest expenses declined $1.4 million to $105.2 million, while we continue to invest in people, technology, and risk infrastructure. Compensation and occupancy were the categories that increased during the quarter with reductions in our FDIC assessments and professional fees driving the bulk of the decrease. Importantly, our efficiency ratio improved again, now at 45.4%, placing us firmly among the top quartile of peers even as we continue to invest in this growth. And lastly, when just focusing on expenses, our noninterest expense to average asset ratio declined to 1.74%, which rates the best within our regional bank peer group. On Slide 13, tangible book value per share grew to $59.72, up 6.2% sequentially or 25% annualized. We believe this represents one of the clearest markers of long-term shareholder value creation and continues our multi-year track record of double-digit tangible book value growth. Now let's move to Slide 14 to discuss capital. We significantly strengthened our capital position this quarter. Our successful common equity raise provided $163 million of net proceeds. Through the combination of this capital raise, strong quarterly earnings and reductions in our AOCI, which is currently at a loss position, our shareholders' equity grew $263 million, which is 14% sequentially. As a result of this growth, our common equity Tier 1 ratio improved 100 basis points to 13% and tangible common equity grew 50 basis points to 8.4%, and this was even after supporting more than $1.7 billion of balance sheet growth during the period. On Slide 15, our credit performance remains stable and well managed. A strong credit culture has always been a critical success factor of Customers and the results bear this out, as you can see from our metrics. Our nonperforming assets were just 25 basis points of total assets and have been consistently below peers for each of the 5 quarters shown. Excluding our small consumer loan portfolio, net charge-offs for commercial loans remained very low at 16 basis points annualized. Additionally, special mention and substandard loans were down about $14 million or about a 3% decline during the quarter. Overall, we believe the loan portfolio is well positioned, and we have strong reserve coverage within our allowance for credit loss. Currently, this allowance sits at 103 basis points and represents 534% coverage of our nonperforming loans. Moving to Slide 16. As a result of the strong quarter and emerging clarity on the remainder of the year, we are revising several of our guidance items for 2025. For deposits, we are increasing the full-year growth range to 8% to 10% for the year, up from 5% to 9% given the momentum we experienced during the quarter. For loans, we are increasing full-year growth to 13% to 14%, up from 8% to 11% previously. I would note that we had a very strong third quarter, which did pull forward some closings from the fourth quarter, which is why we may see less growth next quarter. But we still feel very good about our ability to deliver above-industry average loan growth with a disciplined and credit-first mindset as we head into 2026. We are now projecting our net interest income to grow between 13% and 15% for the year, up from 7% to 10% previously. This reflects the strong performance on both sides of the balance sheet in driving increased revenue as well as the margin benefits I discussed earlier. For efficiency, as a result of the stronger revenue growth and well-managed expenses, we now believe our efficiency ratio will be below 50% for the year versus 56% in 2024. As a result of our common stock offering, our CET1 ratio is now projected to be around 13% at the end of 2025, consistent with third-quarter levels. And with that, I'll now pass the call back to Sam for closing remarks before we open up the line for your Q&A.

Samvir Sidhu, President and CEO

Thanks, Mark. In closing, Customers Bank is delivering on its strategy: disciplined deposit transformation, diversified loan growth, efficiency improvements and a strong capital, credit, and risk management. We increased deposits by $1.4 billion with most of the growth coming from noninterest-bearing deposits. Our noninterest-bearing deposits now stand at 31%, which is #1 of our peers. We grew our loan portfolio with franchise-enhancing relationships. We improved our net interest margin for the fourth consecutive quarter, improved our efficiency ratio for the fourth consecutive quarter, delivered a 1.25% ROA, delivered more than 15% ROE, increased our TCE ratio by 50 basis points to 8.4%, all while maintaining excellent credit performance. Our tangible book value has grown at 15% over the last 5 years, #1 in the industry for banks of our size. Importantly, our loan, deposit and team recruitment pipelines are strong, and that is why we're incredibly excited about the prospects for this company to close the year and excel in 2026 and beyond. Operator, we'll now open the line for questions.

Operator, Operator

Our first question will come from Janet Lee with TD Cowen.

Sun Young Lee, Analyst

Regarding deposits, I see that you've been acquiring a significant amount of lower-cost deposits, approximately between $200 million and $350 million, due to new hires in the banking team. Looking ahead to 2026, can we expect deposit growth from these new hires to continue at this rate? Or does this assume that the pace of hiring is maintained at around four new teams per quarter? I'm interested in understanding the potential movement of deposit growth in comparison to what we observed this quarter, especially as we approach the saturation point from the major banking team hires you made in 2024.

Samvir Sidhu, President and CEO

Thank you for your question, Janet. To provide some context, we previously guided for quarterly deposit growth of approximately $300 million to $400 million from the new teams, and we achieved around that this quarter. At times our results may be slightly below or above that target, but we’ve been generally in that range. We anticipate this growth pace to continue into 2026, based on the teams onboarded in 2023 and 2024. The teams from 2025 will begin contributing significantly to balances towards the end of the first half of next year, leading to a ramp-up in growth. For the year, we expect an overall increase of about 25% on that $300 million to $400 million figure, highlighting the gradual contributions from different team vintages. It's worth noting that the $350 million growth we experienced this quarter kept noninterest-bearing deposits close to 30%. These deposits were under 2%, just shy of that mark, before any rate cuts, showcasing the high quality of the deposits being generated by our teams from the C&I and CRE sectors.

Sun Young Lee, Analyst

That's very helpful. And obviously, the cubiX deposits grew a lot, about $800 million this quarter, about 19% of deposits. Any changes to your sort of internal target, maybe target is not even the right word. How big could this become? I know all of these deposits from cubiX are going into cash. What drove that much of an increase in cubiX? Do you think that these cubiX deposits could sustain in terms of the growth? What is the strategic value that cubiX brings to your platform aside from the net interest income? Maybe if you could touch on the fee income opportunities from the cubiX payments platform, that would also be very helpful.

Samvir Sidhu, President and CEO

Sure. If I miss anything, please remind me afterward. Regarding cubiX, this is a payments platform where our customers maintain transactional operating accounts to support their payment activities. They are required to hold a certain minimum deposit amount with us. Since November of last year, we have observed a consistent increase in payment activities, which has led to higher average deposit balances. During the Q2 call, I mentioned that balances had risen about 20% by the end of July compared to the second quarter. We have sustained or slightly increased those balances even after the recent stablecoin legislation. We continue to see higher institutional activity from our existing customers and an increase in institutional adoption overall. Approximately 20% of our deposits come from traditional finance customers, and this percentage has remained stable despite growth in our average deposit base. This indicates broad-based growth among our major customers rather than just a select few. Our lower-tier customers grew by 10%, while overall, growth across the base is around 25%. As for activity on the network, in October, our levels are consistent with the third quarter. Activity in October is projected to make it our highest cubiX month ever in terms of network volume, even with only three weeks of the quarter left. Our current activity and volume as of September 30 is in line with our total for the full year '24, demonstrating year-over-year growth. Concerning fee income, we introduced outbound wire fees and some modest charges to our customer base late last year, generating around $8 million in total fee income. Our goal remains to foster a partnership with our customers, ensuring that fees help drive value for them and their clients. Presently, we are focused on broadening the institutional aspects of our network and expanding our product offerings with core customers. Internally at Customers Bank, we are enhancing our risk and compliance efforts beyond regulatory standards. We aim to create a best-in-class platform for the industry, anticipating increased competition as institutional adoption rises, which should benefit all participants, while ensuring our platform meets the highest standards for our customers and stakeholders.

Operator, Operator

Our next question will come from the line of Steve Moss with Raymond James.

Stephen Moss, Analyst

Maybe following up on cubiX here for the moment. With the likelihood of additional rate cuts coming, just curious how to think about if there will be any potential increase in fees from the platform.

Samvir Sidhu, President and CEO

Yes. So Steve, building off of the answer I gave to the last question, at the end of the day, as we're continuing to add new products and continuing to partner with our customers on overall initiatives, we will explore fees. Right now, deposit growth is far outpacing any type of asset sensitivity of noninterest-bearing deposits that are held in cash. So I think that for the time being, we feel very good about the position that we're in, sort of cubiX, let's say, all things equal, just with the growth that we've seen this quarter. cubiX's associated interest income would be higher based upon the balances today that we have relative to well over a 100, 150 basis point rate cut relative to prior balances.

Stephen Moss, Analyst

Okay. Got you. Appreciate that color, Sam. And then in terms of the loan pipeline, Mark, you made a comment about a bit of a pull-through. Just kind of curious where does the loan pipeline stand these days? And maybe just kind of what does that business mix look like in the current pipeline?

Mark McCollom, CFO

Yes. The loan pipeline is broad-based. And I think what you've seen throughout this year is that our growth from quarter-to-quarter will come from different segments. We have a good graphic depiction on that on Slide 10 in the deck that shows where the growth came from this past quarter, where fund finance and commercial real estate led, but we've had other quarters where the commercial banking teams, healthcare, equipment finance, et cetera, are all going to be meaningful contributors. The point I was making was that the almost $900 million of growth that we saw in the third quarter did include some deals that a quarter ago we may have thought were in a pipeline to maybe close in the fourth quarter. So our anticipation is that there will still be growth in the fourth quarter, but we don't expect it to approach third quarter levels.

Stephen Moss, Analyst

Right. Okay. And then maybe just one more question from me. I'm curious about your comments regarding the reduction in your asset-sensitive position. What are your thoughts on the margin pressure expected from a 25 basis-point rate cut? I understand there is a lot of variability with the cubiX deposits coming in, but could you elaborate on that a bit?

Mark McCollom, CFO

Yes, sure. So for us, when you go and look at our quarterly numbers, we quote numbers for the impact of 100 basis points, 200 basis points up or down rate move. That's that static view, which is at least one measuring stick to compare us to relative asset sensitivity to other peer banks. Obviously, the limitations on that are that no bank experiences a static across all points of the curve and then sits on their hands and does nothing to react to that. What I would tell you is that while we are still inherently asset sensitive because we are a commercial bank, and as Sam pointed out, our asset sensitivity then also increases a little bit because of our decision to hold all of the cubiX balances in cash. But with some of the just the mix of businesses that we have as well as some of the synthetic things that we've done with adding on some received fixed swaps, we're now at a point where for a 25 basis-point rate move, it's around $1.5 million annualized impact to our NII. But we think that our commentary that we think we're positioned to still be able to produce net interest income growth regardless of monetary policy is that we think there will be sufficient growth to make up any NIM compression we could see from those 25-basis-point rate moves.

Stephen Moss, Analyst

Okay, that's really helpful. If I could ask one last question. Sam, you mentioned the title and sports entertainment teams. I'm curious if the loan-to-deposit mix will be similar in terms of potential deposit growth. Are there any additional verticals you might be considering?

Samvir Sidhu, President and CEO

Yes. Sure, Steve. So I'd say that it's difficult to fully project without seeing the actual output yet. I'd say broadly, the deposit to loan is a better way to think about it because these are mostly deposit-focused teams. Based upon the sorts of teams that we've onboarded, we expect actually that ratio to be higher than what we brought in last year. Remember, last year, we also stated that in the beginning, as we were taking market share, we were doing more lines and onboarding more existing relationships and refinancing, which meant that our deposits to loans was 3:1 versus stabilized being sort of 4:1. I'd say these teams are a little bit lighter on the lending side relative to especially some of the specialized national teams and more heavy on the deposit side.

Operator, Operator

Our next question will come from the line of Peter Winter with D.A. Davidson.

Peter Winter, Analyst

Congratulations on a great quarter. My question is on expenses. Mark, can you just give some context around the $3.4 million decline in FDIC assessment? Is there still room to lower it? And then secondly, with this $1.6 million decline in professional fees, is that a function of a lot of the work has been done to address the written agreement now you're expecting kind of just in the back testing phase?

Mark McCollom, CFO

Sure. Yes, I'll answer the second question first. On the professional fees, yes, we continue to build out and invest in our risk infrastructure and work through the agreement. Some of that is hiring of people. Some of that is augmenting with professional services. Some of that is starting to be completed. So we were pleased that we were able to kind of pull through some of that reduction in the third quarter. We would hope to be able to continue to see that progress being made in the fourth quarter and into '26 in that professional fees line. On the FDIC expenses, as I'm sure you're aware, that calculation, which used to be fairly straightforward, is now a very complex calculation on a quarterly basis, which incorporates several factors, but ultimately is a risk-based calculation. And as we continue to work through and derisk our balance sheet, we are making progress in ultimately getting reductions in our FDIC insurance. In this past quarter, I will say that we were pleased that not only did we see a reduction when we go through the calculation, but that reduction was actually retroactively applied to the first quarter of 2025. So of that $3.4 million reduction, about $1.9 million of that actually related to first and second-quarter adjustments. So when you see the total line sitting there at about $8.4 million, $8.5 million, I would expect that line in the fourth quarter to come back up to be closer to $9.5 million to $10 million, but down significantly from where it was in the second and third quarters. I'd also remind you that in that line, the way it's working, it does include more than just FDIC insurance. I mean it also includes other above the line where as a Pennsylvania bank, we have a PA shares tax, which also rolls through that line as well, plus a couple of other more minor regulatory fees. But good progress is being made. We would continue to see progress being made going forward into next year.

Peter Winter, Analyst

That's great. Sam, as a broader question, we're noticing an increased use of AI across the industry. Can you discuss how AI is currently benefiting the bank and how it might assist the business in the future?

Samvir Sidhu, President and CEO

Well, Peter, thank you. It's great to get a strategy question, and it's probably our first non-modeling question in a couple of quarters. So thank you so much for allowing us to not look necessarily 90 days back, but look a couple of years forward. AI is going to be one of the biggest efficiency and client experience unlocks that we as an industry and a country and a globe have seen since mobile banking. Our journey, I'll give you just a little bit of history. So in December of 2023, we formed a cross-functional AI discovery team. We use it to learn about AI, buy the first wave of tools, test and build solutions, train and figure out how to democratize it for everyone at the bank. Since then, we've had various areas of the bank that have seen about a 10% productivity lift or said a different way, 10% savings lift, however you want to think about it. And we see in 2025 that we're going to continue to drive further adoption throughout the bank and begin expanding our planning of Agentic AI systems, which is said a different way, it sort of AI that can observe and decide and act across our platforms and workflows. And that's also going to be sort of how we think about overall client experience and client onboarding over time as well. That's sort of our medium- to long-term plan. Over the next couple of years, we expect AI to lift our productivity significantly. We're going to have it unlock more client experiences. It's not a side project for us. I'm leading the efforts. We see it as a foundation for the next phase of Customers Bank. We've mobilized incredibly early, as you can tell, by looking at that timeline of when we formed our team and our governance process, and it's proving value. Just to kind of put a finer point on it, we've developed over 100 use cases for Agentic AI, and we're gearing up to start beginning to test and implement.

Operator, Operator

Our next question comes from the line of David Bishop with Hovde Group.

David Bishop, Analyst

Mark, just curious, you've seen some good growth here of late, especially in the commercial real estate segment. Remind me where your concentration ratio is ending the quarter and appetite to grow those verticals?

Samvir Sidhu, President and CEO

Yes. Sorry, Mark, I'll take that. We still remain below 200%, which is central to your question. Additionally, a couple of quarters ago, we mentioned that our deposit-to-loan ratio showed our commercial real estate loan growth since onboarding the new teams was fully funded by deposit growth. That trend continues, as our deposits have exceeded loans since the third quarter of last year when the team began originating. We have brought in approximately $700 million in deposits across the franchise at an average of 1.7%, while the loan growth has been less than that with loan yields exceeding 6.3%, resulting in about a 4.5% spread. Notably, the loan growth exceeding $200 million in the third quarter is comprised of smaller amounts, with our average loan size being under $10 million.

David Bishop, Analyst

Got it. Great color. And Mark, you noted the swaps, the fixed versus received. Just curious, any granularity you can give us just in terms of maybe rates on received versus fixed? Just curious if you have that handy.

Mark McCollom, CFO

I don't have that right in front of me on the details of that notional. I mean, it ended up being two separate transactions that we did at different times of the quarter. But I can follow up with the actual each side of that leg for you.

Samvir Sidhu, President and CEO

Yes. It's a little early to provide a definitive answer. You can think of this as a payments platform that is built on our existing retail and commercial team efforts and the platform we have at the current bank. Regarding our team recruitment initiatives, we have mentioned before what types of teams we seek. In 2023, the team we added had a multibillion-dollar portfolio. The teams we brought in 2024 also typically had around $1 billion or more in their portfolios. As we look to acquire and recruit larger teams in 2025, we are targeting similar thresholds. We see this as a significant opportunity to utilize our operational strengths, technology capabilities, and our single point of contact commercial delivery model.

Operator, Operator

Our next question will come from the line of Kelly Motta with KBW.

Kelly Motta, Analyst

Congratulations on a great quarter. I'd like to touch on asset quality. Your performance has been impressive. Given the significant growth you've been experiencing and the earlier emphasis on NDFI lending during this earnings season, could you share your insights? Clearly, you've been very strategic in your approach. What are the main areas of focus for you, and what reassures you about those areas?

Mark McCollom, CFO

Sure, Kelly. It's Mark. We believe that credit quality has always been vital to our success. When we examine our NDFI exposure, we consider it a credit strength of our franchise and one of the lower-risk areas within our overall C&I portfolio. The analyst community has probably realized that not all NDFI lending is the same, as there are several segments within that category. For our Customers, NDFI loans are typically divided into three types: mortgage warehouse, fund finance, or capital call lending, which together account for just under 0.5% of our total exposure. The lender finance segment makes up the remaining portion. Most people understand mortgage warehouse and capital call lending as having very low credit risk. Recently, attention has shifted to the lender finance area, which has been one of our oldest specialized lending businesses for over a decade. We have experienced 0 losses and 0 loan defaults in this sector. This kind of lending usually involves private credit funds backed by a diverse pool of loans to middle-market companies, with significant overcollateralization and low advance rates. Our single obligor exposure is minimal, in the mid-single digits. Considering all these factors, we continue to maintain 0 losses and 0 defaults. It's crucial to understand who you're lending to, so building strong relationships is essential. We've been in this business for 10 years, and we typically have about a 5-year track record with the managers we work with.

Kelly Motta, Analyst

That's really helpful color, Mark. And then I know we've covered cubiX quite in depth here, and it's been a source of strength for you guys. Wondering, given the news of de novo entering the digital asset space, any updated thoughts in terms of the competitive moat here?

Samvir Sidhu, President and CEO

Yes, I think we've effectively highlighted the strength of our large-scale network and the advantages of network effects. We have also ensured that we are fully integrated and strengthening our relationships with existing customers. Our brand loyalty has grown significantly, and we've made important investments in technology and risk management. Regarding competition from fintechs, there are several reasons companies seek banking or trust licenses, such as the ability to consolidate under a national charter, engage in international activities beyond state borders, and offer consumer products and services, all of which complement cubiX. Notably, many of our customers either directly hold a charter or have subsidiaries that do, and they keep their primary accounts at Customers Bank because of the value our network provides. Having a robust 24/7 network is crucial for us, our customers, and their clients in the industry.

Operator, Operator

Our next question will come from the line of Hal Get with B. Riley Securities.

Hal Get, Analyst

Could you go over the details of the $10 million net income benefit for the quarter? I believe you mentioned it would also benefit the fourth quarter, and I would like to understand that better. Additionally, regarding the FDIC insurance, is there a way to explain how your equity raise has helped to lower the company's risk, potentially reducing your FDIC assessment? Can you quantify what that might have been as part of the formula for our understanding?

Mark McCollom, CFO

Yes, sure, Hal. This is Mark. So for the FDIC insurance, yes, the capital raise would have helped that somewhat. Again, it is a very complex calculation with multiple factors, but your common equity Tier 1 ratio is one of the factors that goes into that. However, I would say that some of this is also just broader-based progress we've made across deposit growth, reducing broker deposits. There are multiple factors that play into it. The capital raise impacted our third-quarter assessment. But as I said, some of the relief that we received was due to retroactive to the first quarter. So it really reflects the progress we had made in the prior two quarters as well. Moving to the net interest income benefit. In the second quarter, we had previously originated some loans and had participated those loans to a partner. We had an opportunity where that partner approached us in the second quarter to repurchase those loans and it was a small pool of loans, but we had an opportunity to repurchase them at a pretty significant discount. So we executed on that transaction in June, had a very small level of accretion benefit in the second quarter. We highlighted on that call that we would then see a $10 million benefit from that discount accretion in the third quarter. We would see another $10 million incremental benefit in the fourth quarter. That discount accretion would largely go away for the first quarter of 2026. I hope that explains that. While I also have the benefit here, I'll answer Dave Bishop's earlier question. On the received fixed swaps that we put on, we put on those at a received fixed rate between 350 and 360 and then we're paying 1 month SOFR on that. So when you put on those kinds of swaps, that's actually a negative to our net interest income right now. But again, you don't put on swaps to earn money or not earn money. It's for risk management purposes. If rates fall more than 75 basis points from where we are today, which the forward forecast would certainly predict at some point in 2026, those swaps would actually turn positive on us.

Operator, Operator

Our final question will come from the line of Matthew Breese with Stephens.

Matthew Breese, Analyst

A few questions for me. Maybe big picture, Sam, for you. In April, the Treasury put out a report looking at potential growth of stablecoin, and they set some really lofty targets. I think they said stablecoin outstanding could hit $2.8 trillion by 2028, longer term, north of $6 trillion, balances today around $300 billion. The use cases in stablecoin are still very heavily tilted towards crypto. So maybe, one, do you agree with these longer-term targets? And two, how do you expect stablecoin usage to kind of break out of its current pie chart being so heavily tilted towards crypto trading and hit the masses?

Samvir Sidhu, President and CEO

Matt, I appreciate your question. It's great to hear from an analyst like you who has been involved in the industry for such a long time. I think the Treasury has set some ambitious targets, and from what I understand, their intent was to provide a reference point for GENIUS and indicate the demand for U.S. treasuries. There are many clear applications for stablecoins, especially in cross-border transactions and foreign exchange. Anyone who has tried using U.S. cards or currencies as a tourist will find this intuitive, and the same applies for businesses dealing with working capital and transactions across borders. I believe that large banks with capital markets divisions will discover interesting applications for stablecoins in various aspects of their operations, particularly in utilizing blockchain technology beyond simple dollar transfers. I see the highest demand coming from customers based outside the U.S. and from countries experiencing high inflation. There is a chance to enhance point-of-sale solutions by using stablecoins for transactions. I want to remind everyone that our platform is designed to be the infrastructure for stablecoin issuers, and to be effective and relevant, you need to be on our network and associated with our banking system. We believe we have achieved this in a distinctive way.

Matthew Breese, Analyst

Appreciate all that. A couple more for me on cubiX. I think someone else asked it earlier, but you're now up to knocking on 20% of total deposits, north of 60% of your demand deposits are in cubiX. Where do you draw the line in terms of safe balance sheet exposure to this industry? I know historically, you had a 15% cap. Where do we stand in terms of updating that cap or putting some limitations, especially given the volatile nature of the industry and the history of banks that have catered here?

Samvir Sidhu, President and CEO

Sure. I'm happy to take that. I think that, Matt, this question was asked last quarter, and our view hasn't changed quarter-to-quarter. Even prior to March of '23, the industry did not hold these deposits in cash, ourselves included. One of the things that's a little bit more internal that we haven't necessarily highlighted as much is a number of our large institutional customers give us minimum target thresholds for operational average balances they must adhere to, which is incredibly helpful from stability. That's seen in the 30-day rolling average deposit balance chart we provided there. That's how to think about the $900 million that we grew in this quarter. It's being held in cash, adding interest income to our platform, strengthening the value of our overall franchise and earnings base. We're really focused on the institutional breadth of the network and product expansion, which brings additional opportunities on the fee side and competitive moat to the overall infrastructure, especially when you layer on the risk and compliance investments.

Matthew Breese, Analyst

Got it. And then I noticed that the dollar amount of uninsured deposits ticked up this quarter. I asked a similar question last quarter, but I was curious about what the average size of deposits are on the cubiX network. And how many are north of $250 million in average balances?

Samvir Sidhu, President and CEO

Yes. I don't have the exact sort of number on uninsured deposits, but I think our overall uninsured deposits and sort of collateralized deposits are well above industry averages, which is incredibly important. In terms of large cubiX depositors, I mentioned before is we have large exchanges that are incredibly critical to the industry and to Customers Bank and to the network. At times, these deposits do get into multiple 9-figure type territory. But what's important about the network is broad-based; nearly every customer increased deposits based on activity in the third quarter. I think that's how to think about the overall growth of our platform and strength of the network.

Operator, Operator

That will conclude our question-and-answer session. I'll hand the call back over to Sam Sidhu for any closing comments.

Samvir Sidhu, President and CEO

Thank you, everyone, for your interest in and support of Customers Bank. We really appreciate you being a part of this incredible franchise that we're building. I want to give a special shout out and thank you to our incredible team. Have a great day and a great weekend.

Operator, Operator

That will conclude today's call. Thank you all for joining. You may now disconnect.