Earnings Call
Customers Bancorp, Inc. (CUBI)
Earnings Call Transcript - CUBI Q4 2025
Operator, Operator
Good morning. Thank you for joining us, and welcome to the Customers Bancorp 2025 Q4 and year-end earnings report. My name is Devin, and I will be your call moderator for today. I will now hand the call over to Philip Watkins, Executive Vice President, Head of. Please go ahead.
Philip Watkins, Executive Vice President
Thanks, Devin, and good morning, everyone. Thank you for joining us for the Customers Bancorp's Earnings Webcast for the Fourth Quarter and Full Year 2025. The presentation you will see during today's webcast has been posted on the Investors web page of the bank's website at www.customersbank.com. You can scroll to fourth quarter and full year 2025 results and click download presentation. You can also download a PDF of the full press release at this spot. 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 introduce Customers Bancorp Executive Chairman, Jay Sidhu.
Jay Sidhu, Executive Chairman
Thank you so much, Phil, and good morning, ladies and gentlemen. I too want to welcome you to the Customers Bancorp Fourth Quarter and Full Year 2025 Earnings Call. Hope you've all had a great start to 2026. I'm joined this morning by Customers Bank and Bancorp CEO, Sam Sidhu; and Customers Bank and Bancorp CFO, Mark McCollom. I'd like to start by congratulating Sam again, on his appointment as CEO and also to the Board of Directors of Customers Bancorp. The Board of Directors and I are delighted with this transition, which has been in the works since we began our succession planning exercise at the Board level over 5 years ago. We have every confidence that Sam and the team that he has assembled will continue to build upon the incredible results we have achieved over the past few years. Since we founded this bank in late 2009, the journey has been exciting. With a clear vision and a lot of determination, what began as an approximately $175 million troubled failing bank has now grown into a $25 billion asset institution recognized for its unique single point of contact strategy, its exceptional customer service focus and a forward-thinking approach to technology. That success did not happen by chance. It's the direct result of superior execution by a world-class team. We have consistently put customers first and built a best-in-class risk management infrastructure while embracing innovation and change. Moving to Slide 4. We are pleased to report another quarter and a very strong quarter and a very impressive full year of 2025, which Sam and Mark will talk through in more detail. As you know, our 2025 core EPS was $7.61 a share and up from $5.60 a share in 2024. Before they discuss the details of 2025 with you, I wanted to spend some time putting into perspective our performance over the past few years. Customers Bank has been one of the strongest organic growth stories in the entire industry, and we see no reason that will change in the years to come. We've had incredible deposit-led growth in our balance sheet with low-cost core deposits growing at a 16% compounded annual rate over the last 6 years. And we did this while materially improving the quality of our deposit franchise, as you will hear much more about that later from Sam and Mark. Moving to Slide 5. We highlight that we believe is the clearest way to evaluate sustainable franchise value creation, long-term compounding returns in revenue, earnings and tangible book value. We've been an industry leader in growing these metrics by a number of years now for a number of years. We are the #1 compounder of core earnings per share over the last 6 years, which represents outstanding performance against the peer median, and we performed over 5x better than the peer median and over 3x better than the top quartile. Similarly, tangible book value per share compounding is the #2 among the entire peer group, representing outperformance of the peer median by about 3x and the top quartile by over 2x. Finally, on Slide 6, our core strategy has translated into significantly improved profitability over the last several years. Our margin increased by 57 basis points and our return on assets increased by 33 basis points. Very importantly, our return on equity increased by 450 basis points while we simultaneously increased our capital level by 500 basis points. This profitability improvement has been achieved while making substantial investment for the future, investments in people, in technology, in processes, and huge investments in risk infrastructure for the future. These have turned into incredible results for our shareholders while helping us build a very strong foundation for the future. Our 5-year total shareholder return has been over 300%, placing us at the very top of our peers in the entire financial services industry. It is exactly these kinds of financial results and multi-year transformation that give us great confidence in Sam and the rest of the management team to continue building on our momentum and to take on tomorrow. Our mission will remain unchanged, delivering long-term value for shareholders and our communities by putting clients first and continuing to innovate while building strong risk management and executing with excellence. We believe our best years are still ahead of us. With that, I'm going to turn it now over to Sam.
Samvir Sidhu, CEO
Thank you, Jay, and good morning, everyone. I want to begin by expressing my deep gratitude and excitement to Jay and our Board of Directors as I lead the organization through its next phase of growth as CEO. It is truly an honor to step into this role and to build upon the extraordinary foundation Jay and the team have established since the bank's founding 16 years ago. What makes this moment especially meaningful is the opportunity to lead alongside such an extraordinary team. Across the organization, from our client-facing bankers to the team members in our operations, technology, risk finance, and many other areas, I see a shared drive to innovate, serve with purpose, and never settle for average. It's the efforts of this exceptional team and their relentless focus on the customer that has resulted in our Net Promoter Score increasing to 81, up 8 points from 73 last year. This is nearly double the industry average and places us among the very top of companies, not just in the banking industry but all service-oriented firms. With that, I'll turn to our top priorities for 2026. You'll notice in many ways, these look similar to last year, but evolved, highlighting our consistent strategic focus and entrepreneurial culture. First, our top financial priority is continuing our organic growth story on both sides of the balance sheet. With the hires we made in 2025 stacked on top of '23 and 2024 vintage teams hitting their stride, we have the pipeline in place for 2026, which brings me to our next priority. Our team recruitment strategy has been foundational to our recent success. On top of the previous team onboardings, we continue to have active discussions with top-performing teams that are looking to join an entrepreneurial and customer-centric bank. We will have more to share on this as the year develops. But if 2025 was any indication, top talent is excited about leveraging the unique platform here at Customers Bank. Third, we believe payments are a key driver of the future of banking. We have an ambitious goal of being a commercial payments leader in the industry. We are tirelessly working on expanding our payments offerings and capabilities to meet that target. Next, as a future-focused bank, we see an immense opportunity to leverage AI to deliver enhanced client experience and productivity gains across our organization. More importantly, we look to do all of this while not taking our eye off the risk management areas, ensuring we maintain strong capital, liquidity, and credit quality. We did an amazing job executing our priorities in 2025, and that was evidenced by the fact that we were one of the top-performing bank stocks of the year, as our stock price increased by over 50%. On Slide 8, I'll cover our priority to continue to enhance our payments capabilities and further establish Customers Bank as an industry leader across verticals. First, I want to provide some more insight into exactly what makes our approach so powerful. Core to our strategy was the in-house development of cubiX, which allows clients to communicate and operate seamlessly across all of our payment rails. cubiX allows our clients to digitally interact with and access both traditional products like wire and ACH, as well as more advanced systems like RTP, FedNow, and our 24/7 365 intra bank's instant payments platform, which gets a lot of the attention. Turning to our Instant Payments platform, 2025 was truly an exceptional year where we saw incredible scale and utilization. We had over $2 trillion of payments volume during the year, which was a 30% increase over last year's impressive $1.5 trillion. That level of payments activity now puts us as the #1 commercial payments network in the U.S., ahead of household names like Mastercard and VISA based on the latest publicly available data. That volume supported consistent average deposit balances quarter-over-quarter of $3.9 billion. As exceptional as these results have been, going forward in 2026, we will look to showcase the durability and unlock the franchise value of the network. We'll seek to achieve this by deepening and broadening our existing network and product offerings by expanding cubiX utilization to other existing commercial clients in traditional verticals and onboarding networks of new clients in verticals that can drive meaningful low-cost deposit growth. With that, let's move to our AI efforts on Slide 9. For us, AI represents an opportunity to elevate quality, customization, and responsiveness across the bank while continuing to deliver the high-touch, white-glove experience our clients expect. AI will redefine the banking industry and our organization. Given this, I'm personally leading our AI efforts and empowering and encouraging our team to effectively leverage this transformational technology. After building a strong foundation, 2025 became a year of broad enablement and adoption. Our company has trained every employee on AI. Over the last year, we began rolling out more focused AI training for each department to develop use cases from generative and agentic AI tools. As you can see from the chart here, our employees already report nearly 20% productivity gains using this technology, and over half of our firm is already using our enterprise-level AI operating platforms. As we continue to leverage this technology, we see the ability to orchestrate our workflow across our operating platform and deliver our products and services to our clients faster. Frankly, we're only in the early innings of unlocking the vast potential of AI for our clients in our organization. Moving to the next slide. We had an excellent quarter and an exceptional year. Let me start off by saying a big thank you to all of our team members. We really went above and beyond in 2025, and the entire executive team, our Board, and I'm sure our shareholders are so incredibly appreciative. We had a strong finish to 2025. This quarter and full year 2025 was yet another clear demonstration of the strength of customers' diversified model. Our results represent a very strong financial performance across the board. Here are a few highlights of the year's performance. Deposits grew by about $2 billion or 10%. This was led by our new commercial banking teams, which added $1.6 billion in deposits. Loans grew by 15%. We had record net interest income, which grew by 15%. Our efficiency ratio dropped by over 6 percentage points, and we grew tangible book value, as Jay mentioned, over 14% in the year, continuing our multi-year trend of 15% annualized growth, which is industry-leading. We accomplished all of this while maintaining strong credit performance and ample liquidity. Moving to Slide 11. You'll see our GAAP financials, and then moving to Slide 12. I'll run through a few core financial highlights for the quarter and full year. In the quarter, we delivered core EPS of $2.06, core ROE of 13.8%, and ROA of about 1.2%, respectively. For the full year, we achieved $7.61 in core EPS, which is up 36% from last year. With the highlights now covered, I'll turn it over to Mark to dive deeper into the details of the quarter.
Mark McCollom, CFO
Thanks, Sam, and good morning, everyone. Turning to Slide 13. During the quarter, we continued to enhance the quality of our deposit franchise with a meaningful shift toward relationship-based granular, high-quality deposits. Total deposits grew almost $400 million during the quarter, ending at just under $21 billion. As you heard from Sam, these balances were up about $2 billion or 10% for the year. This was led by a great performance from our new teams, which I'll give more detail on shortly. This growth is also after giving effect to the fact that we averaged about $675 million of quarterly deposit remixing throughout 2025, which helped drive the strong deposit beta I'll detail shortly. For noninterest-bearing deposits, our core franchise again delivered 9 figures of growth at about $150 million for the fourth quarter. For the year, we had over $500 million of noninterest-bearing DDA growth apart from the large DDA increases we saw from our cubiX clients. Because of the momentum with our deposit teams, we think we have the potential to replicate or even beat this performance in 2026. Our team responded very well to the Fed rate cuts in October and December. Our deposit beta in the quarter was 54% and a very strong 71% on interest-bearing deposits only. Through the full easing cycle to date, our total deposit beta has been about 61%, which is a number that we're very proud of. The results of our deposit transformation over the last few years can be seen on the right-hand side of Page 13, which shows we've been steadily converging to peer median deposit costs from a spread of over 200 basis points in the fourth quarter of 2022 or 3 years ago to 165 basis points today. Now let's turn to Slide 14, where I'll provide more detail on the incredible success of our deposit gathering efforts with a particular focus on our new banking teams. Sam discussed earlier how critical recruitment is to our strategy. Here, you can see the results of that hard work. The teams we've recruited over the last 2.5 years now manage over $3.3 billion in deposits, excluding our cubiX payments business. That's a very granular book of business with over 8,000 commercial accounts. In 2025, the increased deposit balances by $1.6 billion, essentially doubling the balance from the prior year. In the fourth quarter alone, they added $585 million in deposits, of which 40% was noninterest-bearing. That's without any meaningful contribution from the teams that we onboarded in 2025, which we believe could be a meaningful driver of deposit growth in 2026. Now let's turn to loans on Slide 15. Loans grew approximately $500 million or 3% quarter-over-quarter. Growth was broad-based and led by commercial real estate, health care, and mortgage finance, while we saw net paydowns in our fund finance business. You can see the same diversification in loan growth when looking at the full-year view, as the majority of our businesses contributed to 2025 growth in some way. As we often say, the chart on loan growth can vary each quarter, but the diversified nature of our quarterly and annual results highlights the multifaceted nature of our asset generation capabilities. Given the depth and breadth of our platform, we see opportunities to add franchise-enhancing loans in 2026 with a continued focus on credit quality. Turning to Slide 16, net interest income rose 22% year-over-year to $204 million, and our net interest margin increased by 29 basis points to 3.4% for the same period. Sequentially, net interest income grew by $2.5 million, driven by core trends including an increase in average loan balances of nearly $800 million, a rise in average deposits of over $300 million, and a decrease in our blended cost of deposits from 2.77% last quarter to 2.54% in the fourth quarter. Additionally, we saw nearly $250 million of higher average noninterest-bearing balances, despite flat average cubiX balances quarter-over-quarter. This performance underscores our ability to grow net interest income even in a declining rate environment. With strategies to apply on both sides of the balance sheet, we are optimistic about continuing the growth of net interest income in 2026. Moving to Slide 17, our reported noninterest expense for the quarter was $117 million. The increase from the previous quarter was primarily due to expenses that were unique to this quarter or directly linked to fee income or tax savings. For more details, we encountered a total of $4.8 million in unique expenses for the quarter, which included $1.9 million in legal fees related to new team onboarding, $2.2 million in insurance expense for tax credit purchases with a corresponding direct benefit to our effective tax rate, and $700,000 in compensation and benefits. Furthermore, our commercial lease depreciation expense rose by $2.2 million quarter-over-quarter, coinciding with higher business volume. Our noninterest income from this business increased by $2.7 million linked quarter. It is also important to mention that our expenses last quarter benefited from a $1.8 million positive adjustment to our FDIC expense. Despite these specific items, our efficiency ratio stood at 49.5%, and our noninterest expense to average asset ratio was 1.88%, placing us solidly in the top quartile among our peers, even as we invest in growth. Now, turning to Slide 18, many of you may remember that during our third-quarter 2024 earnings call, we introduced our first operational excellence initiative. This initiative was aimed at identifying opportunities for revenue enhancement and cost savings that we could reinvest in strategic growth areas while maintaining strong efficiency. Given the success of that program, we are initiating another similar program. Between revenue and expense initiatives, we are aiming for $20 million in run-rate proceeds, which we will again reinvest in our future. We believe the results of this ongoing philosophy are reflected in the guidance I will provide shortly and are key to achieving sustainable, long-term positive operating leverage. On Slide 19, you can see our tangible book value per share grew to $61.77, up 3% sequentially or 14% annualized. 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. We achieved 14% growth during the year in which we added 9% to our shares outstanding and enhanced our capital ratios across the board. Let's now turn to Slide 20 to discuss that capital growth. We further strengthened our capital position this quarter with a successful sub-debt issuance, which provided us with $100 million of additional Tier 2 capital. Our tangible common equity ratio continued to climb higher, now reaching 8.5% even after a quarter of strong balance sheet growth. This ratio was up 90 basis points year-over-year, growing meaningfully while still supporting 12% growth in our asset base. On Slide 21, credit performance remains stable across the board. A strong credit culture will always be a critical success factor for customers, and our results support this. NPAs were just 29 basis points of total assets and have been consistently below peers for the last 5 quarters. Total net charge-offs declined by 10% in the quarter as we saw strong performance from both our commercial and consumer portfolios. Excluding our small consumer portfolio, which represents only about 5% of our loans, commercial net charge-offs remained very low at 16 basis points annualized. Overall, we believe the loan portfolio is well positioned, and we have a strong reserve coverage within our allowance for credit loss. With that, I'll wrap up my comments with our 2026 outlook on Slide 22. As most of you on the call know, I've been with the company for about 8 months now. I went back and reviewed last year's guidance against what we delivered, and I was very impressed with the fact that we beat on every line item. We also raised our guidance a couple of times along the way as our execution panned out. So with another strong quarter and year in the books, we're pleased to share our initial guidance for 2026. With strong pipelines across the franchise, we are targeting loan growth of 8% to 12%. Led by the commercial teams we've onboarded and continue to recruit, we see deposit growth net of remixing of 8% to 12%. The result of this growth is expected net interest income of $800 million to $830 million for the year, or growth of 7% to 11%. On noninterest expenses, we project $440 million to $460 million for the year. This is growth of 2% to 6% as we continue to make investments in our future, largely in people and technology, but this range results in very significant positive operating leverage. On capital, we are targeting common equity Tier 1 of 11.5% to 12.5%, with our strong organic earnings potential positioning us well to support solid balance sheet growth. Lastly, we expect an effective tax rate of between 23% and 25%. 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, CEO
Thanks, Mark. In closing, Customers Bank is executing on its strategy, providing outstanding client service, attracting deposits, achieving diversified loan growth, recruiting top talent, leading in payments capabilities, and maintaining robust capital and credit. Our teams achieved remarkable deposit growth this year, with total deposits rising by about $2 billion, including $700 million in noninterest-bearing growth. Our commercial teams contributed over $500 million of that noninterest-bearing increase, which we expect to be the baseline for 2026. With this momentum, we are optimistic about our growth guidance. Additionally, our loan teams are well positioned to build on the diversified loan growth achieved in 2025. We are ramping up our recruitment efforts and are currently engaged in discussions with several teams, adding to our recently onboarded teams. We are beginning to see significant returns from our investments in payments infrastructure, having surpassed $2 trillion in cubiX activity in 2025, which strengthens our competitive position. Last Friday, we enabled a network of existing customers in the mortgage industry that could generate $50 billion in transaction volume this year. We are also targeting additional networks of potential clients in the real estate sector, which could significantly boost noninterest-bearing deposits in the upcoming quarters. As mentioned, we reported strong profitability with an ROA and ROE of 1.2% and 13.8% in the fourth quarter. We completed two successful capital transactions during the year while maintaining excellent credit performance. We are very excited about the company's prospects for 2026 and beyond. We'll now open the line for questions.
Operator, Operator
Your first question comes from the line of Janet Lee with TD Cowen.
Sun Young Lee, Analyst
Good morning, everyone. And congrats, Sam, on your new role. So if I were to, obviously, if I look at net interest income guide and expense, it's very good positive operating leverage for 2026 and 2025 was also a good year for fee income. If I were to look at 2026, is there a good level of expectations that you could set for fee income growth and were you're most optimistic about that fee income line?
Samvir Sidhu, CEO
Sure, Janet. When examining our noninterest income, much like our asset businesses, we have a solid mix of fee income sources. Different businesses have taken the lead at various times. In the third quarter of 2025, our venture business stood out, leading to higher loan fees. Reviewing our loan fee trends over the past five quarters shows some warrant income during that period. This quarter, our commercial finance business took the lead, resulting in increased commercial lease income and some gains from the sale of operating lease residuals. My recommendation is to recognize that while different businesses will lead at different times throughout the year, we have consistently averaged around $30 million on a quarterly basis from the second quarter to the fourth quarter. This seems like a solid starting point. Additionally, we believe some of our matured businesses now have a comprehensive product offering, and our focus in 2026 will be on finding better ways to monetize these assets.
Sun Young Lee, Analyst
Very helpful. And for your deposit growth, obviously, the new banking team hires, I think they brought in $600 million of deposit growth in the quarter and your deposit growth of 8% to 12% for 2026. I would assume a lot of that growth is driven by the new banking team hires continuing to bring in that lower-cost deposits. What level of deposit growth are you assuming from cubiX? I believe the balances on an average basis were pretty stable quarter-over-quarter. And what you're seeing on the institutional adoption of digital assets and how that's impacting the trend?
Samvir Sidhu, CEO
Yes. Sure, Mark, I'll jump in and take that. I think, Janet, conservatively, we're not assuming that there's any major contribution from our digital assets balances there. While I think you're right, we could see potential increased market activity if there's legislation that comes into the forefront. However, it's not something we're counting on. So deposit growth that you see there and sort of our guidance that Mark walked through is really going to be driven by the core commercial bank. I think that's really one of the highlights of this organization. There are potential levers that could be pulled or frankly, maybe it's another way of saying there are potential embedded upside that could be there if we continue to see sort of brought me to the network and sort of increased activity. But to that point, you touched on the $600 million in the quarter. We also talked about the $2 billion of growth for the year. But I think Mark also touched on the $675 million on average plus or minus throughout 2025 of remix that we did. If you put that all together, our $2 billion on a percentage basis was industry-leading in 2025. We would have more than doubled that had we just not remix and grown the balance sheet. I think that really shows the diversified power across the organization. It's not just the '23 and '24, and then the next year, the '25 team. The core bank is continuing to deliver great strength to the organization. As we continue to flex our payments expertise, you heard me highlight it in my prepared remarks that we could also see lifts in deposits related to traditional payment verticals that would be operating on the cubiX platform.
Operator, Operator
Your next question comes from the line of Steve Moss.
Stephen Moss, Analyst
Sam, Mark, great quarter. Regarding the teams you plan to hire this year, Sam, I think you mentioned that you're looking to add more real estate teams. I'm curious if these are new verticals or just additions to the existing ones. Also, about the $50 billion in transaction volumes you referenced, how might that translate into deposits?
Samvir Sidhu, CEO
Sure. So I'll tackle those, and let me know if I miss anything. So firstly, on future teams, I think was your first part of your question. Again, we're in discussions with half a dozen teams. It's difficult to sort of say where we'll land out. We do think it's a question of a little bit of bottoms-up as well as top-down. So top-down strategically, we think about different strategic areas that we'd like to be in that we aren't in today or we're already in a decentralized way, and it might be better to sort of centralize these and strengthen our overall go-to-market. From a bottoms-up perspective, we have inbounds that come from teams. That's actually where a lot of our teams came from in 2025, and we have to sort of prioritize and think about investments and align those for '26. We'll continue to keep you posted. The real focus is continuing on the low-cost deposit gathering in '26. As you can imagine, the hiring we do this year will really be for next year. The hiring we did last year is going to start picking up by the middle of this year. I think we're really excited about that based on the pipeline that we're seeing and the momentum that we're seeing.
Stephen Moss, Analyst
Okay. Appreciate that. And then just on the $50 billion transaction volume you mentioned, just kind of how do you think about that in terms of deposits?
Samvir Sidhu, CEO
The projected payment volume of up to $50 billion is linked to our existing customers. Currently, we are assisting these customers in conducting business on our platform, utilizing advanced payment systems, and enhancing our relationships with them while boosting their operational effectiveness on our platform. I also noted that we are looking into new sectors. This is an area where we made some hires last year and will continue to align our hiring efforts this year. We aim to expand our networks into more traditional sectors. As you know, payments and deposits generally come at low to no cost to the organization, and that's where our focus will be. Our goal, as I mentioned, is to achieve $500 million in non-digital asset cubiX-related deposit growth in 2025, and we hope this serves as a baseline for this year, which will help increase our noninterest-bearing deposit percentage of total deposits.
Stephen Moss, Analyst
I appreciate that. Regarding the loan growth guidance, you had a really strong year for loan growth, and it seems the pipeline is strong as well. I'm curious about the factors influencing your expectations for loan growth, where you believe the best opportunities lie, and if there might be some potential upside to the number.
Mark McCollom, CFO
Yes, sure, I'll take that. Again, when you go back and look over the last couple of quarters, Steve, what you've seen is different groups step to the forefront. Commercial real estate was strong this quarter. Health care was a leader last quarter. We have a lot of room on commercial real estate relative to our peers to be able to add that selectively if the credit is right. I'd just say that there's no one particular segment that we're more bullish about than the rest. We just think that each group will continue to have its moments, probably to shine in 2026 as we saw in 2025. Obviously, that's an annual guide. First quarters are typically slow across the entire industry. Second and third quarters tend to ramp up. But we feel really good about the full-year guidance.
Operator, Operator
Your next question comes from the line of Kelly Motta with KBW.
Kelly Motta, Analyst
Nice quarter. I guess with your expense guidance for next year, as you noted, it allows for some decent positive operating leverage. Just wondering if that factors in any of this like additional team pipeline hiring, which presumably over time will drive stronger revenues, but comes with higher expenses. So part one of the expense question. And then part two, what's embedded in terms of professional fees, which presumably also should come down as you work through the right quarter?
Mark McCollom, CFO
Yes, you bet, Kelly. On the first question, yes, our expense guide assumes that we're going to continue investing in teams. That's part of why we put a specific slide in the deck highlighting our operational excellence initiative, where we're going to continue to find ways to be able to pay for that ongoing flywheel of recruitment of those new teams. The second question on professional services, yes, we've been signaling to you folks for a couple of quarters that we would expect to see that number come down. We've been right around that sort of $12.5 million to $13.5 million in that line item. We are starting to see some of that decline occur actually in the fourth quarter related to some of the build-out of our risk infrastructure. In that professional service fee as legal expenses, we highlighted that in the fourth quarter, we had what we think are more unique costs that should not continue of $1.9 million related to some of those 2025 teams that we've onboarded.
Kelly Motta, Analyst
Got it. That's really helpful. Circling back to the opportunity for cubiX, it seems like you're positioning yourself as a premier payments-driven bank. There appears to be a good opportunity from industries outside the digital asset space. Escrow makes sense, but could you provide a couple of use case examples of how you see that fitting in with your existing client base as an opportunity ahead?
Samvir Sidhu, CEO
Yes, sure, Kelly. I appreciate that. On the slide, we had highlighted a couple of them. I think the first 2 we mentioned were sort of mortgage finance, which is, as you can appreciate, existing business, then we also touched on sort of more broadly in the retail industry. Yes, you talked about title, but really, it's not just title and escrow; it's also broadly about the closings of commercial real estate transactions and how we could sort of help and facilitate our customers and their partners. We're seeing really good traction up there. As you can appreciate, with less tech-savvy industries, builds take longer, but the stickiness is even stronger. So we are really excited about this. Frankly, because these would be new customer relationships, the first part, such as mortgage finance, strengthens and deepens your existing relationships, helps you broaden customers around the edges, but de novo industries are really exciting for us.
Operator, Operator
Your next question comes from the line with Brian Wilczynski from Morgan Stanley.
Brian Wilczynski, Analyst
I was wondering if you could speak to the resiliency of the cubiX platform in light of some of the volatility in cryptocurrency prices that we saw in the fourth quarter. I understand the volatility does often drive trading activity. But can you just speak to what else drove the relative stability in cubiX-related deposits in the fourth quarter despite some of the volatility we saw in the market?
Samvir Sidhu, CEO
Yes, you made a great point. Price changes lead to increased volatility, similar to what we see in traditional markets with volatility trading. This phenomenon is also present in the digital asset ecosystem. On days with the highest volatility, we often observe significant network activity and balances. For instance, our spot balances were $100 million below the average on September 30 and $100 million above the Q3 average on December 31. We consistently operate within a general threshold of plus or minus 10%. For perspective, on New Year’s Eve and New Year’s Day, which fell on a Thursday, our balances reached $4.4 billion due to the market activity over the previous week. These transactions flow through our balance sheet across various customers, exchanges, custodians, and market makers. In the past couple of days, balances were slightly below the average. The key point is that we’ve seen substantial increases in balances since Q4 of last year, and there was another significant rise at the beginning of Q3 following the passing of GENIUS, establishing a new level within that higher range. We believe the strength of our platform lies in our ability to enhance product offerings and expand payment options for our existing customers while attracting more traditional players. Our objective is to establish a new baseline for payment spending.
Brian Wilczynski, Analyst
That's really helpful color. Earlier in the call, when you were talking about the 2026 priorities, one of the things that you've talked about was deepening relationships with the existing client base, adding additional products and services. I was wondering if you could just give us a few examples of some of the key focus areas that you have additional products and capabilities you're adding and how that translates into deeper relationships with cubiX?
Samvir Sidhu, CEO
Yes, sure. We talked about new payment rails. That's obviously incredibly important. What we're also looking to do is consider not all of our customers use all the payment rails that we offer. Secondly, while we're the on-off-ramp to the digital asset ecosystem from fiat to the digital asset ecosystem, we're not always the on-off ramp for our customers onto the fiat rails as well. Then there are bespoke market-specific and in many cases trade secret specific type functionality that clients ask for from us that we also enable. We are continuing within each major customer; we're focused on building and strengthening our relationship with them. We're helping them run their business more effectively. Many of our customers have been very focused on driving regulatory clarity, as well as legislation. They are also very focused on product, and to be effective on product, they need us and the traditional fiat rails to assist them with that. A lot of activity has been going on, especially beginning in Q3, Q4 of last year.
Operator, Operator
Your next question comes from the line of Peter Winter with D.A. Davidson.
Peter Winter, Analyst
I wanted to start with credit quality. Obviously, it's been very good. It's low nonperforming loans relative to peers, but there was a $15 million increase in C&I and $2 million in multifamily. Just could you provide some details around the increase and maybe give an update on the credit outlook?
Mark McCollom, CFO
Peter. Yes, I would say that our credit quality was, as you pointed out, starting from a very low base. It doesn't take many deals to move the needle for us. On the nonperforming side, it was largely one transaction, about a $10 million, $11 million credit. It is currently under agreement, and we're hoping to have either a restructuring or a resolution of that asset in the first quarter. I would continue to say that when you look back, we had 2 quarters, 3Q and 4Q, that were extraordinarily low in terms of NPA and NPL ratios. So I think what you see here in the fourth quarter is certainly not unusual and still puts us feeling really good about overall credit quality.
Peter Winter, Analyst
And the multifamily, was that New York City rent-controlled property? Just curious around that.
Mark McCollom, CFO
I don't have the stats to know specifically what it was because, as you pointed out, it was a $2 million credit. I'm not sure if that came from primarily rent-regulated multifamily or just our broader multifamily, which is the majority of our multifamily in sort of a 4-state region around the Mid-Atlantic.
Peter Winter, Analyst
Right. And then if I could just ask; I believe from the deferred loan fees ends this quarter. What's a good starting point for the first quarter margin? How do you think about the trajectory of the margin this year?
Mark McCollom, CFO
Yes, sure. If you go back to the second quarter of '25 and kind of project forward from there, I think that's kind of a good place to start. The second quarter margin was 3.7%. We had just a bit of about half of a month of accretion in the second quarter. With the deposit remix we've done, I think that kind of 3.25%, 3.27% level might be a good place to start and then build from there throughout 2026. One other thing I would add is that in the first quarter here, we are modestly asset sensitive. We did see a couple of basis points decline linked quarter from 3Q to 4Q. I think somewhere around that 3.25% plus or minus a couple of basis points would be a good place to start from and then build out from there.
Operator, Operator
Your next question comes from the line of Tyler Cacciatori from Stephens Inc.
Tyler Cacciatori, Analyst
This is Tyler on for Matt Breese. Most of my questions have already been answered, but I guess just starting on cubiX, and I appreciate a lot of the color you've provided there. Can you just provide us some context on the size of the customer base in that business?
Samvir Sidhu, CEO
We have hundreds of customers operating in that industry. As I mentioned a couple of quarters ago, there hasn't been a significant change to our customer base since we are the market leader. We are adding some counterparties for our existing customers that are already on the network. We are also incorporating new traditional finance nodes that are less active compared to our more digital asset-focused customers. Expanding the network with these players helps connect to many of our current customers. Although we don't generate large deposit balances, they greatly enhance the breadth, quality, and loyalty of the network.
Tyler Cacciatori, Analyst
If you could just update us on the regulatory order and where you stand in terms of items that need to be addressed there?
Samvir Sidhu, CEO
Yes, sure. As of the end of the year, we are substantially done with our plan, and I'm excited to say that in 2026, our focus is to put this behind us. The work is now a massive competitive advantage, and the moat is a result of this as big as the benefit of the network effects.
Operator, Operator
Your next question comes from the line of David Bishop with HOVD Group LLC.
Kyle Gierman, Analyst
This is Kyle Gierman on for Dave Bishop, and congratulations, Sam, on the transition. Most of my questions have already been answered, but I was wondering if you could provide some color on the yields at which new loans were originated and add to the books this quarter and also your current read on the competition in your lending markets?
Mark McCollom, CFO
Yes. Yes, I'll take the first one, and then Sam can comment on competition or markets. For new loan originations, principally, we're a commercial bank, so I'll just focus on the commercial yields. We are going to be anywhere between 225 and 275 basis points over Fed funds or SOFR depending on the business line. A couple of our business lines might approach 300 basis points, but the majority of new originations are between 225 and 275 basis points over the cost of funds.
Samvir Sidhu, CEO
Yes. Regarding competition, there's a noticeable trend in loan growth, reflecting a broad base of diversified growth across several commercial sectors, not just for the quarter but for the entire year. Our advantage lies in our ability to adapt to changing supply and demand dynamics within these sectors. Some quarters may see healthcare activity increase, while others may experience a rise in mortgage warehouse refinance activity. Overall, we are witnessing solid, diversified, and sustainable loan growth. As you may be aware, the industry faced pricing pressure in '25; however, our net interest income growth and comments about margins indicate that we continue to benefit from this situation. A significant chart created by our team illustrates the reduction in the gap between our interest-bearing cost deposits and those of our peers from the end of '22 to now, which has a more substantial impact than fluctuations in loan yields and competition.
Operator, Operator
Your next question comes from the line of Harold Goetsch with B. Riley Securities.
Harold Goetsch, Analyst
Great quarter and great year. I wanted to ask a couple of quick questions about cubiX for more general information. The slide on Slide 8 is excellent, thank you for that. I'm curious if the addition of the instant payment platform, real-time payments, and FedNow are impacting the traditional wire and ACH business, or if these new capabilities are mostly adding to the volumes. That's my first question.
Samvir Sidhu, CEO
Yes, sure. Right now, we're seeing additional increments to traditional rails. There aren't necessarily big tectonic shifts. But there are different ways that some of our customers like to utilize different channels, both for them and their counterparties. We're helping them think about next-gen type ways to utilize pushes and pulls within our network as well as bringing in new dollars as well. There are a lot of interesting things that are happening in the industry, and we continue to see evolution. We are really at the forefront of advancing many of these technologies because we have an established tech-forward payment-focused customer base.
Harold Goetsch, Analyst
When you use a large competitive management system on this platform, how would you describe that competitive advantage? Is it a barrier to entry now? Is it the network effects you are creating that deter others from starting a new platform? Is there a narrow window for innovation now that you are operational and achieving significant network effects that hinder similar ventures? What are the sources of your competitive advantages?
Samvir Sidhu, CEO
Sure. It absolutely is a barrier to entry. The way that we see the strengthening of that mode is the network effect you mentioned. As you can appreciate, in '24 and early '25, we were heads down ensuring that we satisfied regulatory requirements. We're now focusing on broadening how those guys and our customers do business. To answer your question, the flywheel of network effect keeps getting stronger and stronger, creating a lot more stickiness. Operationally, the volume we're operating under is really at the level of category 3, category 4 type banks and institutions. The competition that could even compete can be counted on one hand, and how many of those are actually focused in the space is very minimal. This is the interesting position that we're in. We're more confident in our market position today than we were 6 months ago.
Harold Goetsch, Analyst
I have a quick follow-up regarding your leadership in the AI initiatives. Can you share a few examples of how AI is enhancing efficiency, reducing costs, and improving underwriting?
Samvir Sidhu, CEO
Yes, sure. The banking industry has been slow to discuss AI because there's a monumental amount of work that you need to do behind the scenes to get going. We started our journey with AI governance and training. We did a lot of data transformation. We're advanced in fully digital onboarding for complex commercial clients. Now as we look forward, we're focused on complete loan deposit automated onboarding. We're looking to build an AI layer on top of our CRM, automating CAM draft creation and underwriting support, and working on risk and compliance automation. In parallel, we are building a workflow orchestration layer to conduct all of this across the bank. This is where you transform the bank and the way we work internally, and the way we conduct business, transforming how our customers perceive us. Currently, our work is siloed, with AI and agentic work used for micro use cases, which is nice but not really transformational. In the future, we'll deploy AI agents across our operating platform, which will really differentiate us versus larger, complex organizations that may have bigger budgets but lack operational flexibility and visibility that we have.
Operator, Operator
There are no further questions at this time. I will now turn the call back to Sam Sidhu, CEO, for closing remarks.
Samvir Sidhu, CEO
Thank you to everyone for your continued interest and support of Customers Bancorp. We appreciate you being a part of the incredible franchise we're building, and we're excited about 2026. Thank you, and have a great day and great weekend.
Operator, Operator
This concludes today's call. Thank you for attending. You may now disconnect.