CUBI - NYSE

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. [Operator Instructions] I will now hand the call over to Philip Watkins, Executive Vice President, Head of. Please go ahead.

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.

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 build 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 medium and so we performed over 5x better than the peer median and we performed over 3x better than the top quartile. Similarly, tangible book value per share compounding is the #2 among the entire peer group and represents outperformance of the peer medium 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. And 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, investments in technology, investments 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 as an industry. In fact, in the entire financial services industry. It is exactly these kinds of financial results and multiyear transformation that give us the 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, and that is to deliver long-term value for shareholders and our communities by putting clients first and continuing to innovate and build strong risk management and execute with excellence. We believe our best years are still ahead of us. With that, I'm going to turn it now over to Sam.

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 Max and VISA based on 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 a nearly 20% productivity gain 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 of the 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 multiyear 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. And 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.

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. And 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. And 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. And 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. And 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. And in the fourth quarter alone, they added $585 million in deposits, of which 40% was noninterest-bearing. And 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 highlight 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 increased 22% year-over-year to $204 million, and our net interest margin expanded by 29 basis points to 3.4% over the same period. Net interest income increased $2.5 million sequentially and was driven by the following core trends, an increase in average loan balances of nearly $800 million, an increase in average deposits of over $300 million, a decline in our blended cost of deposits from 2.77% last quarter to 2.54% in the fourth quarter and nearly $250 million of higher average noninterest-bearing balances despite flat average cubiX balances quarter-over-quarter. This performance highlights our ability to grow net interest income even in a falling rate environment. And with levers to pull on both sides of the balance sheet, we're optimistic about our ability to continue net interest income growth in 2026. Moving on to Slide 17. Our reported noninterest expense was $117 million in the quarter. The linked quarter increase was mostly driven by expenses that were either unique to the quarter or directly related to fee income or tax savings. To give some more color, we had a total of $4.8 million of unique expense in the quarter, which included $1.9 million in legal fees associated with the new team on boarding, $2.2 million of insurance expense on tax credit purchases, which had a corresponding direct benefit to our effective tax rate and $700,000 in compensation and benefits. Additionally, our commercial lease depreciation expense was $2.2 million higher quarter-over-quarter, but that came with higher volume in the business. So our noninterest income for that business was up $2.7 million linked quarter. It's also worth noting that our expenses last quarter benefited from a positive adjustment to our FDIC expense of about $1.8 million. But even with these discrete items, our efficiency ratio was 49.5% and our noninterest expense to average asset ratio was 1.88%, placing us firmly in the top quartile of peers even as we invest in growth. Now turning to Slide 18. Many of you recall that during our third quarter 2024 earnings call, we outlined our first operational excellence initiative. It was designed to identify revenue enhancement and cost saving opportunities that we could use to reinvest in the areas of strategic growth for our future while maintaining strong efficiency for our organization. Based on the success of that program, we're once again undertaking a similar program. Between revenue and expense initiatives, we are targeting $20 million in run rate proceeds, which we will again invest in our future. We believe this ongoing philosophy is reflected -- well, sorry, the results of this ongoing philosophy is reflected in the guidance I'll provide in a minute. And it's a key component to having 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 multiyear track record of double-digit tangible book value growth. And 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. And 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 had 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. And 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.

Thanks, Mark. In closing, Customers Bank is executing on its strategy, delivering exceptional client service, differentiated deposit gathering, diversified loan growth, the recruitment of top talent leading payments capabilities and maintain strong capital and credit. Our teams delivered a phenomenal deposit gathering year. Total deposits increased approximately $2 billion with $700 million of that being noninterest-bearing growth. Our commercial teams delivered over $500 million of that noninterest-bearing growth, which should be the floor for 2026 and with this momentum, we feel good about the growth in our guidance. Similarly, our loan teams are well positioned to build on the diversified loan growth we delivered in '25. Our team recruitment efforts are kicking into high gear. We're already in active discussions with half a dozen teams. That's on top of the long runway from our recently onboarded teams. We are seeing a big payoff from the investments we've made in our payments infrastructure. We did over $2 trillion of cubiX activity in 2025, strengthening our market position and competitive moat. Last Friday, we enabled a network of existing customers in the mortgage industry that could add $50 billion in transaction volume this year. We are further targeting additional networks of prospective clients within the real estate industry as a starting point that could be a meaningful driver of noninterest-bearing deposits in the next couple of quarters. As you heard, we delivered strong profitability with an ROA and ROE of 1.2% and 13.8% in the first quarter -- fourth quarter. We completed 2 successful capital transactions during the year, all while maintaining excellent credit performance. As you can imagine, we're incredibly excited about the prospects for this company in 2026 and beyond. We'll now open the line for questions.

[Operator Instructions] Your first question comes from the line of Janet Lee with TD Cowen.

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?

Sure, Janet. When you look at our noninterest income, similar to our asset businesses that we built, we have a nice portfolio of fee income businesses. And at different quarters, different businesses stepped to the forefront. In the third quarter of 2025, our venture business is stepped to the forefront, and we had outsized loan fees. If you look at our loan fee line on our 5-quarter progression, that's where we had some warrant income. This quarter, our commercial finance business stepped to the forefront, where we have a stronger commercial lease income and then also down in the other line, we had some sales on operating -- some operating leases that we have sold residuals, lease residuals at a gain. So my advice would be that while there will be different businesses that step to the forefront throughout the course of the year, on a quarterly basis, if you go back and look, we've averaged about $30 million. So from 2Q to [ Q4 ] in the average is right around $30 million. So I think that's a good place to start. And then on top of that, we now think we have some businesses that have matured that have a good full product set around them. And now we know a focus in 2026 will be how to better monetize that.

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?

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 sort of 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. And 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 is 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. And I think that really shows the diversified power across the organization. It's not just the '23 and '24, then the next year, the '25 team. The core bank is delivering -- is continuing to deliver great strength to the organization. And I think given the investments we made, we focused on the -- highlighting the return on those investments with the '23 and '24 teams. But really, I think that the commercial bank is firing on all cylinders. And 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.

Your next question comes from the line of Steve Moss.

Sam, Mark, nice quarter here. And maybe just starting -- going back to the teams you're looking to hire this upcoming year. I think, Sam, you kind of touched on part of it at least, that with looking to hire additional real estate teams, I think is what I heard, they were a little static for me. But just kind of curious, are they new verticals or just additive to existing verticals? And then kind of with the $50 billion in transaction volumes you touched on, Sam, just kind of curious as to how we could translate that to deposits?

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, it's -- 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. And then from a bottoms-up perspective, we have inbounds that kind of come from teams. So that's actually where a lot of our teams came from 2025, and we have to sort of prioritize and think about investments and align those for '26. So we'll continue to keep you posted. The real focus is continuing on the low-cost deposit gathering in '26. And 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. And I think we're really excited about that based on the pipeline that we're seeing and the momentum that we're seeing. So that was the first part of your question. Can you remind me the second part, the last part?

Yes. On the $50 billion transaction volume you mentioned, just kind of how do you think about that in terms of deposits?

Sure. So the projected sort of up to $50 billion of payment volume is related to existing customers. So today, it's really sort of helping customers do business on our operating platform, on advanced payments rails and strengthening our relationship with those customers and also strengthening their -- the effectiveness of the way that they sort of currently operate and use our platform. I also mentioned that we'll be looking to new verticals. I think that's also something that we did some hiring for last year, and we're also continuing to align with hiring this year. We're just trying to bring on networks from more traditional verticals -- and as you can appreciate, payments, deposits typically will be low to no cost to the organization and that's really going to be our focus. And our goal, I think you heard me say this, we had $500 million of non-digital asset cubiX related deposit growth in '25. We hope that's the floor for this year, which would continue to increase our noninterest-bearing deposit percentages of overall deposits.

Okay. Appreciate that. And then just on the loan growth guide here. I just wanted to -- you had a really strong year for loan growth. It sounds like the pipeline is strong as well. Just kind of wondering kind of what the puts and takes are for your expectations around loan growth here, where you see potentially the best opportunities and maybe if there's some upside to the number here.

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 it 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. And so I would 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. And there's obviously -- that's an annual guide. First quarters are typically slow, across the entire industry. Second and third quarters tend to ramp up. And -- but we feel really good about the full year guidance.

Your next question comes from the line of Kelly Motta with KBW.

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?

Yes. You bet, Kelly. On the first question, yes, our expense guide assumes that we're going to continue investing in teams. And 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. And then on 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. But in that professional service fee as legal expenses, and 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.

Got it. That's really helpful. And maybe circling back to the opportunity for cubiX. It seems like it's a nice -- you're positioning yourself as premier payments driven bank. And it looks like there's a good opportunity from industries outside the digital asset space. I think escrow makes sense. But maybe you could just provide us with a couple of use case examples of how you see that fitting in with your existing client base as an opportunity ahead?

Yes. Sure, Kelly. I appreciate that. And I think 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. And yes, you talked about title. But really, it's not just sort of title and escrow, it's also sort of broadly thinking about the closings of commercial real estate transactions and how we could sort of help and facilitate our customers and their partners. And we're seeing really good traction up there. And as you can appreciate, would be less tech-savvy industries, builds take longer, but the stickiness is even stronger. And so we are really excited about this. And frankly, because these would be new customer relationships, the first part, sort of like say, on mortgage finance, it really helps you strengthen and deepen your existing relationships, helps you broaden customers around the edges, but de novo industries are really exciting for us.

Your next question comes from the line with Brian Wilczynski from Morgan Stanley.

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?

Yes. So I think that you hit the nail on the head. I think that changes in prices actually mean increased volatility, just like you see in traditional markets with volatility trading-related type traditional players, and it's a similar in the digital asset ecosystem. So on days of the highest amount of volatility, you may see the highest amounts of network activity and balances. And I think that's really speaks to that. So say our spot balances were $100 million below the average on 12/31 on 9/30, they were $100 million above the Q3 average. And we've always said they operate sort of within a plus or minus -- generally operate within a plus or minus 10% type thresholds. And so to put in perspective, while New Year's Eve and New Year's Day was on a Thursday, last Thursday, as an example, we were at $4.4 billion in balances and based upon market activity that was occurring over the prior week or so, which all ends up going through our balance sheet through multiple customers and exchanges and custodians and market makers. So -- and then over the last couple of days, a little bit less than the sort of the average that you're seeing there. So I think that that's really the power. But to sort of step back, we've seen balances dramatically increase since Q4 of last year, and then we saw another step function in -- beginning of Q3 with the passing of GENIUS and then maintaining a new band within that higher step function. And I think that's really how we see the strength of this platform is as we continue to strengthen product offerings as we continue to enable more payment rails for our existing customers as we continue to bring on more traditional players. We'll -- our goal is to sort of see a new floor to sort of operate within that sort of payment spend.

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?

Yes, sure. So I think that we -- I talked about new payment rails. That's obviously incredibly important. And I think that what we're also looking to do is consider not all of our -- so to put it in perspective, 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 digital asset ecosystem, we're not always the on-off ramp for our customers on to the sort of the fiat rails as well. And then there's sort of bespoke sort of market-specific and in many cases, sort of trade secret specific type functionality that clients ask for from us that we also sort of enable. So we are continuing within each major customer, we're sort of very focused on building and strengthening our relationship with them. And frankly, what we're doing is we're helping them to run their business more effectively. And as you can appreciate, a lot of our customers have been very focused on driving sort of regulatory clarity, no pun intended as well as sort of legislation. And they're also very focused on product and to sort of be very, very effective on product, they need us and sort of the traditional fiat rails to sort of help them with that. So there's lot of activity going on, especially sort of beginning in sort of Q3, Q4 of last year.

Your next question comes from the line of Peter Winter with D.A. Davidson.

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?

Peter. Yes, I would say that our credit quality was, as you pointed out, starting from a very, very low base. So it doesn't take many deals to actually move the needle for us. On the nonperforming side, I mean, 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. But 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.

And the multifamily, was that New York City rent-controlled property? Just curious around that.

I don't have the stats to know specifically what it was because as you pointed out, it was a $2 million credit. So I'm not sure if that came from primarily rent-regulated multifamily or just our broader multifamily, which is the majority of our multifamily is in sort of a 4-state region around the Mid-Atlantic.

Right. And then if I could just ask the benefit, I believe, from the deferred loan fees ends this quarter, what's a good starting point for the first quarter margin? And maybe talk about how you think about the trajectory of the margin this year?

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. Second quarter margin was 3.7%. And we had just a little bit of -- about half of a month of accretion in the second quarter. But with some of the deposit remix that 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. Yes. One other thing I would add is that in the first quarter here, I mean, we are modestly obviously, asset sensitive. And so we did see a couple of bp decline linked quarter from 3Q to 4Q. But 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.

Your next question comes from the line of Tyler Cacciatori from Stephens Inc.

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?

Tyler, Sam here. So we have hundreds of customers that are -- that operate within that industry. And I think one of the things that I mentioned a couple of quarters ago is there's no real material change to our customer base because we actually are the market leader. We are around the edges, adding for existing customers, some of their counterparties -- edge counterparties that are already on the network. And then we're also adding sort of new traditional finance nodes, which are less active as sort of the more digital asset first type customers. So we're broadening the network with some of those players who connect to a lot of our existing customers. We don't drive huge deposit balances, but they tremendously strengthen both the breadth, the quality and the stickiness of the network.

And then if you could just update us on the regulatory order and where you stand in terms of items that need to be addressed there?

Yes, sure. So 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. So one of the things kind of just building off of what I just talked about with cubiX and the network. Frankly, the work is now a massive competitive advantage and the moat is, frankly, as a result of this is as big as the benefit of the network effects.

Your next question comes from the line of David Bishop with HOVD Group LLC.

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?

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 cost of funds.

Yes. And just in terms of competition, what I would just say is that I think you can see on the loan growth side, but not only for the quarter. But also for the year that there's just a broad base of diversified loan growth across a number of commercial verticals. So the benefit we have is that as both sort of supply and demand dynamics in each of those verticals change, we're able to lean in. And in some quarters, you'll have health care stepping up a little bit more in other quarters, you'll have mortgage warehouse refinance activity step up. So generally, we're seeing a good, diversified durable loan growth. As you can appreciate, in '25, generally the broad-based industry saw a bit of pricing pressure. But as you saw from sort of our NII growth and sort of Mark's comments related to margin, we continue to see the benefit. There was a great chart that the team kind of pulled together on the driving down of the delta between our interest bearing cost deposits relative to our peer group relative versus -- from end of '22 versus where we are today. And that's really a much bigger driver than sort of changes on loan yields and competition.

Your next question comes from the line of Harold Goetsch with B. Riley Securities.

Great quarter and great year. Just wanted to ask a couple of quick questions back to cubiX just for more general information. When you just -- it's a great slide on Slide 8 and that you for that. I just wanted to know if the addition of instant payment platform, real-time payments and FedNow, are those payment rails cannibalizing the traditional wire and ACH business? Or is most of these new capabilities incremental to volumes? Or -- that's my first question.

Yes, sure. Right now, we're sort of seeing an additional incremental to sort of more traditional rails. So it's not necessarily sort of a big tectonic shift. But there are different ways that some of our customers like to utilize different channels, both for them as well as their counterparties. And we're helping them think about sort of also sort of next-gen type ways to sort of utilize pushes and pulls within our network as well as sort of outside and sort of bringing in new dollars as well. So there's a lot of interesting things that are happening in the industry, and we continue to see evolution we really are at the forefront of advancing many of these technologies because we haven't established existing tech forward payment focused customer base.

And when you use a terminal large or massive competitive management in this platform now. How would you describe that competitive advantage? Is it a -- is the barrier to entry now? Is it network effects that you're generating before anybody else just try to start a new platform, they were like a -- or like, for example, is this a narrow window to innovate like this? And now that you're up and running, you're garnering a lot of network effects that prevent others from trying something similar? What are the sources? Or how would you describe the competitive advantages?

Sure. So it absolutely is sort of a barrier to entry and the way that we sort of see the strengthening of that mode is sort of like you talked about what the network effect is. As you can appreciate in '24 and early '25, we were heads down and sort of making sure that we were focused on making sure we satisfied sort of regulatory requirements. And now at this point in time, we're really importantly focused on broadening the way that these guys and our customers do business. So to answer your question is that flywheel of network effect just keeps getting stronger and stronger, which creates a lot more stickiness. And then you also just think about it operationally. Operationally, the volume that we are sort of operating under is really at levels of category 3, category 4 type banks and institutions. So when you think about the competition and then you add in sort of the risk and compliance book that we talked about that we've sort of invested a tremendous amount of people process and technology on. You put all that together, the types of institutions that could even compete, you can count on one hand with us and then how many of those are actually focused in the space, et cetera, it's very de minimis. And I think that's really the interesting position that we're in. We're more confident in our market position today than we were 6 months ago.

Great. And I got one quick follow-up around -- on you leading the AI efforts. Can you give us like a couple of anecdotes on how AI is making processes more efficient, saving money, improving underwriting, let me know.

Yes, sure. So we, and frankly, the banking industry has been slow to discuss AI because there's actually, as you can understand, a monumental amount of work that you need to do behind the scenes to really get going. So we started our journey with like AI governance, training. We did a lot of data transformation. We are advanced in sort of fully digital onboarding for very complex commercial clients. Now as we sort of look forward, we're focused on full complete loan deposit automated onboarding. We're looking to build an AI layer on top of our CRM. We touched on credit. We're automating sort of CAM draft creation and underwriting support. We are working on sort of risk and compliance automation. And then in parallel to that, we're also in the process of building a workflow orchestration layer to conduct all of this across the bank. So only then are you able to deploy AI agents across your operating platform. That's really where you transform the bank and the way that we work internally, our team members work and then also the way that we do business and really transform the way our customers see it. So right now, today, how the work is sort of siloed where we're doing sort of AI and agentic work gets used for micro use cases, which is nice, but not really transformational. Tomorrow, it's going to be across the overall bank, and it's really going to differentiate us and agents working all the time versus working on 2-hour projects to kind of help advance a specific use case, which is nice to have, but not really needed to transform the way that we do business. And that's really sort of where we are in our journey. So hopefully, that gives you a little bit of color. And if we get to the -- to sort of our initial sort of Phase 2, end state, it's really going to transform the way that we do business. And my guess is also potentially just given in the size of our organization relative to much larger complex organizations. While they may have much bigger budgets, they don't have the operational flexibility and visibility that we have.

There are no further questions at this time. I will now turn the call back to Sam Sidhu, CEO, for closing remarks.

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.