Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
Form 10-Q10-Q/A
(Amendment No. 1)
 
 
xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2018

¨Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                     to                     .
001-35542
(Commission File number)
 
(Exact name of registrant as specified in its charter)

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Pennsylvania 27-2290659
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
1015 Penn Avenue
Suite 103
Wyomissing PA 19610
(Address of principal executive offices)
(610) 933-2000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer x  Accelerated filer ¨
     
Non-accelerated filer 
o  (Do not check if a smaller reporting company)
  Smaller Reporting Company ¨
       
    Emerging Growth Company ¨
       
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x
On May 4, 2018, 31,498,221 shares of Voting Common Stock were outstanding.
 



EXPLANATORY NOTE

This Amendment No. 1 to Customers Bancorp, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 (the "March 31, 2018 Form 10-Q/A") is being filed to amend and restate the following items presented in Customers Bancorp, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, which was initially filed with the Securities and Exchange Commission on May 9, 2018, (the "Original March 31, 2018 Form 10-Q"):

The Consolidated Balance Sheet (unaudited) included in Part I, Item 1 "Customers Bancorp, Inc. Consolidated Financial Statements as of March 31, 2018 and for the three month periods ended March 31, 2018 and 2017 (unaudited)" are being amended and restated as of March 31, 2018 as set forth in the Consolidated Balance Sheets (unaudited) and described in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION.
The Consolidated Statements of Cash Flows (unaudited) included in Part I, Item 1 are being amended and restated for the three months ended March 31, 2018 and 2017 as set forth in the Consolidated Statements of Cash Flows (unaudited) and described in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION.
NOTE 7 - LOANS HELD FOR SALE, NOTE 8 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES, AND NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS included in Part I, Item 1 are being amended and restated as set forth in the notes accompanying the unaudited consolidated financial statements and described in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION.
Part I, Item 4 "Controls and Procedures" is being amended to address management's re-evaluation of disclosure controls and procedures and reflect the identification of a material weakness in internal control over financial reporting in conjunction with the restatement.
Part II, Item 6 "Exhibits" also has been amended to include currently dated certifications from Customers Bancorp, Inc's Principal Executive Officer and Principal Financial Officer as required by sections 302 and 906 of the Sarbanes Oxley Act of 2002. The certifications are attached to this March 31, 2018 Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2. The Interactive Data Files have also been amended in conjunction with the restatement and are attached to this March 31, 2018 Form 10-Q/A as Exhibit 101.

This March 31, 2018 Form 10-Q/A also restates previously reported amounts included in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Original March 31, 2018 Form 10-Q to present the corrected classification of Customers Bancorp, Inc.'s commercial mortgage warehouse lending activities.

As previously reported on its Current Report on Form 8-K, which was filed with the SEC on November 13, 2018, Customers Bancorp, Inc. is restating its previously issued audited consolidated financial statements for 2017, 2016 and 2015 and its interim unaudited consolidated financial statements as of and for the three months ended March 31, 2018 and 2017 and the three and six months ended June 30, 2018 and 2017, because of misclassifications of cash flow activities associated with its commercial mortgage warehouse lending activities between operating and investing activities on the consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale rather than held for investment on the consolidated balance sheets. Accordingly, management has concluded that the control deficiency that resulted in these incorrect classifications constituted a material weakness in internal control over financial reporting. Solely as a result of this material weakness, management revised its earlier assessment and has now concluded that its disclosure controls and procedures were not effective at March 31, 2018.

These misclassifications had no effect on total cash balances, total loans, the allowance for loan losses, total assets, total capital, regulatory capital ratios, net interest income, net interest margin, net income to shareholders, basic or diluted earnings per share, return on average assets, return on average equity, the efficiency ratio, asset quality ratios or any other key performance metric, including non-GAAP performance metrics, that Customers routinely discusses with analysts and investors. This March 31, 2018 Form 10-Q/A has not been updated for other events or information subsequent to the date of the filing of the Original March 31, 2018 Form 10-Q, except as noted above, and should be read in conjunction with the Original March 31, 2018 Form 10-Q and our other filings with the SEC.





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Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
Table of Contents
 
  
   
Item 1.
   
Item 2.
Item 3.
   
Item 4.
   
  
   
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
  
   
Ex-31.1  
   
Ex-31.2  
   
Ex-32.1  
   
Ex-32.2  
   
Ex-101  


CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET — UNAUDITED
(amounts in thousands, except share and per share data)
March 31,
2018
 December 31,
2017
March 31,
2018
 December 31,
2017
(As Restated) (As Restated)
ASSETS      
Cash and due from banks$9,198
 $20,388
$9,198
 $20,388
Interest-earning deposits206,213
 125,935
206,213
 125,935
Cash and cash equivalents215,411
 146,323
215,411
 146,323
Investment securities, at fair value1,181,661
 471,371
1,181,661
 471,371
Loans held for sale (includes $1,875,515 and $1,795,294, respectively, at fair value)1,875,515
 1,939,485
Loans held for sale (includes $662 and $1,886, respectively, at fair value)662
 146,077
Loans receivable, mortgage warehouse, at fair value1,874,853
 1,793,408
Loans receivable6,943,566
 6,768,258
6,943,566
 6,768,258
Allowance for loan losses(39,499) (38,015)(39,499) (38,015)
Total loans receivable, net of allowance for loan losses6,904,067
 6,730,243
8,778,920
 8,523,651
FHLB, Federal Reserve Bank, and other restricted stock130,302
 105,918
130,302
 105,918
Accrued interest receivable31,812
 27,021
31,812
 27,021
Bank premises and equipment, net11,556
 11,955
11,556
 11,955
Bank-owned life insurance259,222
 257,720
259,222
 257,720
Other real estate owned1,742
 1,726
1,742
 1,726
Goodwill and other intangibles17,477
 16,295
17,477
 16,295
Other assets140,501
 131,498
140,501
 131,498
Total assets$10,769,266
 $9,839,555
$10,769,266
 $9,839,555
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Liabilities:      
Deposits:      
Demand, non-interest bearing$1,260,853
 $1,052,115
$1,260,853
 $1,052,115
Interest-bearing5,781,606
 5,748,027
5,781,606
 5,748,027
Total deposits7,042,459
 6,800,142
7,042,459
 6,800,142
Federal funds purchased195,000
 155,000
195,000
 155,000
FHLB advances2,252,615
 1,611,860
2,252,615
 1,611,860
Other borrowings186,735
 186,497
186,735
 186,497
Subordinated debt108,904
 108,880
108,904
 108,880
Accrued interest payable and other liabilities64,465
 56,212
64,465
 56,212
Total liabilities9,850,178
 8,918,591
9,850,178
 8,918,591
Shareholders’ equity:      
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of March 31, 2018 and December 31, 2017217,471
 217,471
217,471
 217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 31,996,531 and 31,912,763 shares issued as of March 31, 2018 and December 31, 2017; 31,466,271 and 31,382,503 shares outstanding as of March 31, 2018 and December 31, 201731,997
 31,913
31,997
 31,913
Additional paid in capital424,099
 422,096
424,099
 422,096
Retained earnings279,942
 258,076
279,942
 258,076
Accumulated other comprehensive loss, net(26,188) (359)(26,188) (359)
Treasury stock, at cost (530,260 shares as of March 31, 2018 and December 31, 2017)(8,233) (8,233)(8,233) (8,233)
Total shareholders’ equity919,088
 920,964
919,088
 920,964
Total liabilities and shareholders’ equity$10,769,266
 $9,839,555
$10,769,266
 $9,839,555
See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED
(amounts in thousands, except per share data)
 
Three Months Ended
March 31,
Three Months Ended
March 31,
2018 20172018 2017
Interest income:      
Loans receivable, including fees$66,879
 $61,461
Loans held for sale19,052
 13,946
Loans$85,931
 $75,407
Investment securities8,672
 5,887
8,672
 5,887
Other2,361
 1,800
2,361
 1,800
Total interest income96,964
 83,094
96,964
 83,094
Interest expense:      
Deposits19,793
 14,323
19,793
 14,323
Other borrowings3,376
 1,608
3,376
 1,608
FHLB advances7,080
 3,060
7,080
 3,060
Subordinated debt1,684
 1,685
1,684
 1,685
Total interest expense31,933
 20,676
31,933
 20,676
Net interest income65,031
 62,418
65,031
 62,418
Provision for loan losses2,117
 3,050
2,117
 3,050
Net interest income after provision for loan losses62,914
 59,368
62,914
 59,368
Non-interest income:      
Interchange and card revenue9,661
 13,511
9,661
 13,511
Deposit fees2,092
 3,127
2,092
 3,127
Bank-owned life insurance2,031
 1,367
2,031
 1,367
Mortgage warehouse transactional fees1,887
 2,221
1,887
 2,221
Gain on sale of SBA and other loans1,361
 1,328
1,361
 1,328
Mortgage banking income121
 155
121
 155
Impairment loss on investment securities
 (1,703)
 (1,703)
Other3,757
 2,748
3,757
 2,748
Total non-interest income20,910
 22,754
20,910
 22,754
Non-interest expense:      
Salaries and employee benefits24,925
 21,112
24,925
 21,112
Technology, communication and bank operations9,943
 9,916
9,943
 9,916
Professional services6,008
 7,512
6,008
 7,512
Occupancy2,834
 2,714
2,834
 2,714
FDIC assessments, non-income taxes, and regulatory fees2,200
 1,725
2,200
 1,725
Provision for operating losses1,526
 1,646
1,526
 1,646
Loan workout659
 521
659
 521
Advertising and promotion390
 326
390
 326
Merger and acquisition related expenses106
 
106
 
Other real estate owned expenses (income)40
 (55)40
 (55)
Other3,649
 3,949
3,649
 3,949
Total non-interest expense52,280
 49,366
52,280
 49,366
Income before income tax expense31,544
 32,756
31,544
 32,756
Income tax expense7,402
 7,009
7,402
 7,009
Net income24,142
 25,747
24,142
 25,747
Preferred stock dividends3,615
 3,615
3,615
 3,615
Net income available to common shareholders$20,527
 $22,132
$20,527
 $22,132
Basic earnings per common share$0.65
 $0.73
$0.65
 $0.73
Diluted earnings per common share$0.64
 $0.67
$0.64
 $0.67
See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED
(amounts in thousands)
 
 Three Months Ended
March 31,
 2018 2017
Net income$24,142
 $25,747
Unrealized losses on available-for-sale debt securities:   
Unrealized losses arising during the period(34,098) (1,123)
Income tax effect8,865
 438
Net unrealized losses on available-for-sale debt securities(25,233) (685)
Unrealized gains on cash flow hedges:   
Unrealized gains arising during the period873
 329
Income tax effect(227) (128)
Reclassification adjustment for losses included in net income131
 827
Income tax effect(34) (323)
Net unrealized gains on cash flow hedges743
 705
Other comprehensive (loss) income, net of income tax effect(24,490) 20
Comprehensive income (loss)$(348) $25,767
 See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED
(amounts in thousands, except shares outstanding data)
 
 Three Months Ended March 31, 2018
 Preferred Stock Common Stock          
 Shares of
Preferred
Stock
Outstanding
 Preferred
Stock
 Shares of
Common
Stock
Outstanding
 Common
Stock
 Additional
Paid in
Capital
 Retained
Earnings
 Accumulated
Other
Comprehensive
Loss
 Treasury
Stock
 Total
Balance, December 31, 20179,000,000
 $217,471
 31,382,503
 $31,913
 $422,096
 $258,076
 $(359) $(8,233) $920,964
Reclassification of the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive loss
 
 
 
 
 298
 (298) 
 
Reclassification of net unrealized gains on equity securities from accumulated other comprehensive loss
 
 
 
 
 1,041
 (1,041) 
 
Net income
 
 
 
 
 24,142
 
 
 24,142
Other comprehensive loss
 
 
 
 
 
 (24,490) 
 (24,490)
Preferred stock dividends
 
 
 
 
 (3,615) 
 
 (3,615)
Share-based compensation expense
 
 
 
 1,786
 
 
 
 1,786
Exercise of warrants
 
 5,242
 5
 107
 
 
 
 112
Issuance of common stock under share-based compensation arrangements
 
 78,526
 79
 110
 
 
 
 189
Balance, March 31, 20189,000,000
 $217,471
 31,466,271
 $31,997
 $424,099
 $279,942
 $(26,188) $(8,233) $919,088
                  
 Three Months Ended March 31, 2017
 Preferred Stock Common Stock          
 
Shares of
Preferred
Stock
Outstanding
 Preferred Stock 
Shares of
Common
Stock
Outstanding
 
Common
Stock
 
Additional
Paid in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 Total
Balance, December 31, 20169,000,000
 $217,471
 30,289,917
 $30,820
 $427,008
 $193,698
 $(4,892) $(8,233) $855,872
Net income
 
 
 
 
 25,747
 
 
 25,747
Other comprehensive income
 
 
 
 
 
 20
 
 20
Preferred stock dividends
 
 
 
 
 (3,615) 
   (3,615)
Share-based compensation expense
 
 
 
 1,413
 
 
 
 1,413
Exercise of warrants
 
 43,974
 44
 376
 
 
 
 420
Issuance of common stock under share-based compensation arrangements
 
 302,436
 303
 (343) 
 
 
 (40)
Balance, March 31, 20179,000,000
 $217,471
 30,636,327
 $31,167
 $428,454
 $215,830
 $(4,872) $(8,233) $879,817
See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(amounts in thousands) 

Three Months Ended
March 31,
Three Months Ended
March 31,
2018 2017
2018 2017(As Restated) (As Restated)
Cash Flows from Operating Activities      
Net income$24,142
 $25,747
$24,142
 $25,747
Adjustments to reconcile net income to net cash provided by (used in) operating activities:   
Adjustments to reconcile net income to net cash provided by operating activities:   
Provision for loan losses2,117
 3,050
2,117
 3,050
Depreciation and amortization3,344
 1,475
3,344
 1,475
Share-based compensation expense2,218
 1,829
2,218
 1,829
Deferred taxes2,684
 (284)2,684
 (284)
Net amortization of investment securities premiums and discounts375
 111
375
 111
Unrealized gain recognized on equity securities(10) 
(10) 
Impairment loss on investment securities
 1,703

 1,703
Gain on sale of SBA and other loans(1,477) (1,421)(1,477) (1,421)
Origination of loans held for sale(6,808,457) (6,401,005)(4,280) (6,327)
Proceeds from the sale of loans held for sale6,728,331
 6,834,060
5,599
 6,795
Amortization of fair value discounts and premiums76
 27
76
 27
Net loss on sales of other real estate owned
 (103)
 (103)
Valuation and other adjustments to other real estate owned41
 23
41
 23
Earnings on investment in bank-owned life insurance(2,031) (1,367)(2,031) (1,367)
Increase in accrued interest receivable and other assets(6,806) (10,827)(6,806) (10,827)
(Decrease) increase in accrued interest payable and other liabilities7,347
 (844)7,347
 (844)
Net Cash Provided By (Used In) Operating Activities(48,106) 452,174
Net Cash Provided By Operating Activities33,339
 19,587
Cash Flows from Investing Activities      
Proceeds from maturities, calls and principal repayments of securities available for sale11,489
 11,781
11,489
 11,781
Purchases of investment securities available for sale(756,242) (538,544)(756,242) (538,544)
Origination of mortgage warehouse loans(6,804,177) (6,394,678)
Proceeds from repayments of mortgage warehouse loans6,722,732
 6,827,265
Net increase in loans(46,969) (377,517)(46,969) (377,517)
Proceeds from sales of loans16,468
 105,448
16,468
 105,448
Purchase of loans
 (171,839)
 (171,839)
Purchases of bank-owned life insurance
 (50,000)
 (50,000)
Proceeds from bank-owned life insurance529
 
529
 
Net (purchases of) proceeds from FHLB, Federal Reserve Bank, and other restricted stock(24,384) (16,810)(24,384) (16,810)
Purchases of bank premises and equipment(268) (366)(268) (366)
Proceeds from sales of other real estate owned
 450

 450
Purchase of leased assets under operating leases(2,755) 
(2,755) 
Net Cash Used In Investing Activities(802,132) (1,037,397)(883,577) (604,810)
Cash Flows from Financing Activities      
Net increase in deposits242,317
 31,705
242,317
 31,705
Net increase in short-term borrowed funds from the FHLB640,755
 337,750
640,755
 337,750
Net increase in federal funds purchased40,000
 132,000
40,000
 132,000
Preferred stock dividends paid(3,615) (3,615)(3,615) (3,615)
Exercise of warrants112
 420
112
 420
Payments of employee taxes withheld from share-based awards(587) (2,172)(587) (2,172)
Proceeds from issuance of common stock344
 1,716
344
 1,716
Net Cash Provided By Financing Activities919,326
 497,804
919,326
 497,804
Net Increase (Decrease) in Cash and Cash Equivalents69,088
 (87,419)69,088
 (87,419)
Cash and Cash Equivalents – Beginning146,323
 264,709
146,323
 264,709
Cash and Cash Equivalents – Ending$215,411
 $177,290
$215,411
 $177,290
      
      
      
      
      
   (continued)
  
      
   
(continued)
  
   
Supplementary Cash Flows Information      
Interest paid$29,746
 $17,015
$29,746
 $17,015
Income taxes paid4,174
 2,348
4,174
 2,348
Non-cash items:      
Transfer of loans to other real estate owned$57
 $
$57
 $
Transfer of loans held for sale to held for investment
129,691
 
129,691
 
University relationship intangible purchased not settled1,502
 
1,502
 
See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF THE BUSINESS
Customers Bancorp, Inc. (the “Bancorp” or “Customers Bancorp”) is a bank holding company engaged in banking activities through its wholly owned subsidiary, Customers Bank (the “Bank”), collectively referred to as “Customers” herein.  The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Customers Bancorp, Inc. and its wholly owned subsidiaries, Customers Bank, and non-bank subsidiaries, serve residents and businesses in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Rye Brook, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan and Melville, New York; Washington, D.C.; Chicago, Illinois; and nationally for certain loan and deposit products.  The Bank has 13 full-service branches and provides commercial banking products, primarily loans and deposits. In addition, Customers Bank also administratively supports loan and other financial products to customers through its limited-purpose offices in Boston, Massachusetts, Providence, Rhode Island, Portsmouth, New Hampshire, Manhattan and Melville, New York, Philadelphia, Pennsylvania, Washington, D.C., and Chicago, Illinois. The Bank also provides liquidity to residential mortgage originators nationwide through commercial loans to mortgage companies.
Through BankMobile, a division of Customers Bank, Customers offers state of the art high tech digital banking services to consumers, students, and the "under banked" nationwide. In October 2017, Customers announced its intent to spin-off its BankMobile business directly to Customers’ shareholders, to be followed by a merger of BankMobile into Flagship Community Bank ("Flagship"), as the most favorable option for disposition of BankMobile to Customers' shareholders rather than selling the business directly to a third party. Until execution of the spin-off and merger transaction, the assets and liabilities of BankMobile will be reported as held and used for all periods presented. Previously, Customers had stated its intention to sell BankMobile and, accordingly, all BankMobile operating results and cash flows for the quarter ended March 31, 2017 were presented as discontinued operations. All prior period amounts have been reclassified to conform with the current period consolidated financial statement presentation. See NOTE 2 SPIN-OFF AND MERGER for more discussion regarding the spin-off and merger transaction.
Customers is subject to regulation of the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank and is periodically examined by those regulatory authorities. Customers Bancorp has made certain equity investments through its wholly owned subsidiaries CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd.

NOTE 2 – SPIN-OFF AND MERGER

In third quarter 2017, Customers decided that the best strategy for its shareholders to realize the value of the BankMobile business was to divest BankMobile through a spin-off of BankMobile to Customers’ shareholders to be followed by a merger with Flagship Community Bank ("Flagship"). An Amended and Restated Purchase and Assumption Agreement and Plan of Merger (the "Amended Agreement") with Flagship to effect the spin-off and merger and Flagship's related purchase of BankMobile deposits from Customers was executed on November 17, 2017. Per the provisions of the Amended Agreement, the spin-off will be followed by a merger of Customers' BankMobile Technologies, Inc. ("BMT") subsidiary into Flagship, with Customers' shareholders first receiving shares of BMT as a dividend in the spin-off and then receiving shares of Flagship common stock in the merger of BMT into Flagship in exchange for shares of BMT common stock they receive in the spin-off. Flagship will separately purchase BankMobile deposits directly from Customers for cash. Following completion of the spin-off and merger and other transactions contemplated in the Amended Agreement between Customers and Flagship, BMT's shareholders would receive collectively more than 50% of Flagship common stock. The common stock of the merged entities, expected to be called BankMobile, is expected to be listed on a national securities exchange after completion of the transactions. In connection with the signing of the Amended Agreement on November 17, 2017, Customers deposited $1.0 million in an escrow account with a third party to be reserved for payment to Flagship in the event the Amended Agreement is terminated for reasons described in the Amended Agreement. This $1.0 million is considered restricted cash and is presented in cash and cash equivalents in the accompanying March 31, 2018 consolidated balance sheet. The Amended Agreement provides that completion of the transactions will be subject to the receipt of all necessary closing conditions. Customers expects the transaction to close in the third quarter of 2018.


As of and for the three month period ended March 31, 2017, BankMobile met the criteria to be classified as held for sale, and accordingly the operating results and associated cash flows of BankMobile were presented as “Discontinued operations” for the three month period ended March 31, 2017. However, generally accepted accounting principles require that assets, liabilities, operating results, and cash flows associated with a business to be disposed of through a spin-off/merger transaction should not be reported as held for sale or discontinued operations until execution of the spin-off/merger transaction. As a result, beginning in third quarter 2017, the period in which Customers decided to spin-off BankMobile rather than selling directly to a third party, BankMobile's operating results and cash flows were no longer reported as held for sale or discontinued operations but instead will be reported as held and used. At September 30, 2017, Customers measured the business at the lower of its (i) carrying amount before it was classified as held for sale, adjusted for depreciation and amortization expense that would have been recognized had the business been continuously classified as held and used, or (ii) fair value at the date the decision not to sell was made.

Amounts previously reported as discontinued operations for the three month period ended March 31, 2017 have been reclassified to conform with the current period presentation within the accompanying consolidated financial statements as summarized below. Customers will continue reporting the Community Business Banking and BankMobile segment results. See NOTE 12 - BUSINESS SEGMENTS.

The following summarizes the effect of the reclassification from held for sale classification to held and used classification on the previously reported consolidated statements of income for the three months ended March 31, 2017:
      
 Three Months Ended March 31, 2017
   Effect of Reclassification From Held For Sale to Held and Used  

(amounts in thousands)
As Previously Reported  After Reclassification
 Interest income$83,094
 $
 $83,094
 Interest expense20,670
 6
 20,676
 Net interest income62,424
 (6) 62,418
 Provision for loan losses3,050
 
 3,050
 Non-interest income5,427
 17,327
 22,754
 Non-interest expenses30,147
 19,219
 49,366
 Income from continuing operations before income taxes34,654
 (1,898) 32,756
 Provision for income taxes7,730
 (721) 7,009
 Net income from continuing operations26,924
 (1,177) 25,747
 Loss from discontinued operations before income taxes(1,898) 1,898
 
 Income tax benefit from discontinued operations(721) 721
 
 Net loss from discontinued operations(1,177)
1,177


 Net income25,747



25,747
 Preferred stock dividend3,615
 
 3,615
 Net income available to common shareholders$22,132
 $
 $22,132
      
      

NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION - As Restated
Basis of Presentation
The interim unaudited consolidated financial statements of Customers Bancorp and subsidiaries have been prepared in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC. These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Customers Bancorp and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted from these interim unaudited consolidated financial statements as permitted by SEC rules and regulations. On November 13, 2018, Customers Bancorp filed with the SEC a report on Form 8-K advising that its 2017, 2016, and 2015 audited consolidated financial statements and its interim unaudited consolidated financial statements as of and for the three months ended March 31, 2018 and 2017 and the three and six months ended June 30, 2018 and 2017, respectively, should no longer be relied upon because of incorrect classifications of the cash flows used in and provided by its commercial mortgage warehouse lending activities between operating and investing activities on the consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale instead of held for investment (i.e., loans receivable) on its consolidated balance sheets. These misclassifications have no impact on total cash balances, total loans, total assets, the allowance for loan losses, total capital, regulatory capital ratios, net interest income, net interest margin, net income to shareholders, basic or diluted earnings per share, return on average assets, return on average equity, the efficiency ratio, asset quality ratios or other key performance metrics, including non-GAAP performance metrics, that Customers routinely discusses with analysts and investors. The December 31, 2017 consolidated balance sheet presented in this report has been derived from Customers Bancorp’sCustomers' audited 2017 consolidated financial statements.statements included in its Annual Report on Form 10-K/A filed with the SEC on November 30, 2018 (the "2017 Form 10-K/A"). Because of a fair value option election that Customers made on July 1, 2012 that continues today, these loans are, and will continue to be, reported at their fair value and accordingly do not have an allowance for loan losses. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2017 consolidated financial statements of Customers Bancorp and subsidiaries included in Customers' Annual Report onthe 2017 Form 10-K for the year ended December 31,10-K/A. The 2017 filed with the SEC on February 23, 2018 (the "Form 10-K"). That Form 10-K10-K/A describes Customers Bancorp’s significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Restrictions on Cash and Amounts due from Banks; Business Combinations; Investment Securities; Loan Accounting Framework; Loans Held for Sale and Loans at Fair Value; Loans Receivable, Mortgage Warehouse, at Fair Value; Loans Receivable; Purchased Loans; Allowance for Loan Losses; Goodwill and Other Intangible Assets; Investments in FHLB, Federal Reserve Bank, and Other Restricted Stock; Other Real Estate Owned; Bank-Owned Life Insurance; Bank Premises and Equipment; Operating Leases; Treasury Stock; Income Taxes; Share-Based Compensation; Transfer of Financial Assets; Business Segments; Derivative Instruments and Hedging; Comprehensive Income (Loss); Earnings per Share; and Loss Contingencies. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year.year or any other period.

Restatement of Previously Issued Financial Statements

In November 2018, Customers determined that the cash flow activities associated with its commercial mortgage warehouse lending activities should have been reported as investing activities in its consolidated statements of cash flows because the related loan balances should have been classified as held for investment (i.e., loans receivable). Customers changed its accounting policies such that commercial mortgage warehouse loans are classified as held for investment and presented as "Loans receivable, mortgage warehouse, at fair value" on its consolidated balance sheets. The cash flow activities associated with these commercial mortgage warehouse lending activities are reported as investing activities in the consolidated statements of cash flows. Accordingly, Customers has restated the consolidated balance sheet as of March 31, 2018 and the consolidated statements of cash flows for the three months ended March 31, 2018 and 2017 herein.


The following tables set forth the effects of the correction on the consolidated balance sheet as of March 31, 2018 and the consolidated statements of cash flows for the three months ended March 31, 2018 and 2017.
 March 31, 2018
Consolidated Balance SheetAs Previously Reported Adjustments As Restated
(amounts in thousands)     
Loans held for sale$1,875,515
 $(1,874,853) $662
Loans receivable, mortgage warehouse, at fair value
 1,874,853
 1,874,853
Total loans receivable, net of allowance for loan losses$6,904,067
 $1,874,853
 $8,778,920

 Three Months Ended March 31,
 2018 2017
Consolidated Statements of Cash FlowsAs Previously Reported Adjustments As Restated As Previously Reported Adjustments As Restated
(amounts in thousands)           
Origination of loans held for sale$(6,808,457) $6,804,177
 $(4,280) $(6,401,005) $6,394,678
 $(6,327)
Proceeds from the sale of loans held for sale6,728,331
 (6,722,732) 5,599
 6,834,060
 (6,827,265) 6,795
Net Cash Provided by (Used in) Operating Activities(48,106) 81,445
 33,339
 452,174
 (432,587) 19,587
Origination of mortgage warehouse loans
 (6,804,177) (6,804,177) 
 (6,394,678) (6,394,678)
Proceeds from repayments of mortgage warehouse loans
 6,722,732
 6,722,732
 
 6,827,265
 6,827,265
Net Cash Used In Investing Activities$(802,132) $(81,445) $(883,577) $(1,037,397) $432,587
 $(604,810)

In addition to the restatement of Customers' consolidated balance sheet and statements of cash flows summarized above, the following notes to the consolidated financial statements have been restated to reflect the corrected classification of Customers' commercial warehouse lending activities:

NOTE 7 - LOANS HELD FOR SALE;
NOTE 8 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES; and
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS.

In addition, the comparative balances reported throughout Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 2 in this Quarterly Report on Form 10-Q/A, have been restated to present the corrected classification of Customers' commercial mortgage warehouse lending activities.


Reclassifications
As described in NOTE 2 - SPIN-OFF AND MERGER, beginning in third quarter 2017, Customers reclassified BankMobile, a segment previously classified as held for sale, to held and used as it no longer met the held-for-sale criteria. Certain prior period amounts and note disclosures (including NOTE 4, NOTE 8 and NOTE 10) have been reclassified to conform with the current period presentation. Except for these reclassifications, there have been no material changes to Customers' significant accounting policies as disclosed in Customers' Annual Report on2017 Form 10-K for the year ended December 31, 2017.10-K/A.

Presented below are recently issued accounting standards that Customers has adopted as well as those that the Financial Accounting Standards Board (“FASB”) has issued but are not yet effective or that Customers has not yet adopted.

Recently Issued Accounting Standards
Accounting Standards Adopted on January 1, 2018
Standard Summary of guidance Effects on Financial Statements
ASU 2018-02,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income/(Loss)

Issued February 2018
 
Ÿ  Allows for reclassification from AOCI to retained earnings for stranded tax effects resulting from the 2017 Tax Cut and Jobs Act.
Ÿ  Requires an entity to disclose whether it has elected to reclassify stranded tax effects from AOCI to retained earnings and its policy for releasing income tax effects from AOCI.
Ÿ  Effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted.

 
Ÿ  Customers early adopted on January 1, 2018.
Ÿ  The adoption resulted in the reclassification of $0.3 million in stranded tax effects in Customers' AOCI related to net unrealized losses on its available-for-sale securities and cash flow hedges.
Ÿ  The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.
Issued February 2018  
ASU 2017-12,
Targeted Improvements to Accounting for Hedging Activities

Issued August 2017
 
Ÿ  Aligns the entity's risk management activities and financial reporting for hedging relationships.
Ÿ  Amends the existing hedge accounting model and expands an entity's ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest-rate risk.
Ÿ  Eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line item as the hedge item.
Ÿ  Changes certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness.
Ÿ  Effective for fiscal years beginning after December 15, 2018. Early adoption is permitted.
 
Ÿ  Customers early adopted on January 1, 2018.
Ÿ  With the early adoption, Customers is now able to pursue additional hedging strategies including the ability to apply fair value hedge accounting to a specified pool of assets by excluding the portion of the hedged items related to prepayments, defaults and other events.
Ÿ  These additional hedging strategies will allow Customers to better align its accounting and the financial reporting of its hedging activities with its economic objectives thereby reducing the earnings volatility resulting from these hedging activities.
Ÿ  The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements. Customers has updated its disclosures in NOTE 11 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES as a result of early adopting this ASU.

Issued August 2017  
ASU 2017-09,
Compensation - Stock Compensation: Scope of Modification Accounting

Issued May 2017
 
Ÿ  Clarifies when to account for a change to the terms or conditions of a share-based-payment award as a modification in ASC 718.
Ÿ  Provides that modification accounting is only required if the fair value, vesting conditions, or the classification of the award as equity or a liability changes as a result of the change in terms or conditions.
Ÿ  Effective January 1, 2018 on a prospective basis for awards modified on or after the adoption date.
 
Ÿ  Customers adopted on January 1, 2018.
Ÿ  Customers generally does not modify the terms or conditions of its share-based-payment awards.
Ÿ  The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.
Issued May 2017  
ASU 2017-05,
Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

Issued February 2017
 
Ÿ  Clarifies the scope and application of the accounting guidance on the sale of nonfinancial assets to non-customers, including partial sales.
Ÿ  Clarifies that if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the scope of Subtopic 610-20.
Ÿ  Effective January 1, 2018 on a prospective basis.
 
Ÿ  Customers adopted on January 1, 2018.
Ÿ  The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.
Issued February 2017  
ASU 2017-01,
Clarifying the Definition of a Business

Issued January 2017
 
Ÿ  Narrows the definition of a business and clarifies that to be considered a business, the fair value of gross assets acquired (or disposed of) should not be concentrated in a single identifiable asset or a group of similar identifiable assets.
Ÿ  Also clarifies that in order to be considered a business, an acquisition would have to include an input and a substantive process that together will significantly contribute to the ability to create an output.
Ÿ  Effective January 1, 2018 on a prospective basis.
 
Ÿ  Customers adopted on January 1, 2018.
Ÿ  The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.
Issued January 2017  

Accounting Standards Adopted on January 1, 2018 (continued)
Standard Summary of guidance Effects on Financial Statements
ASU 2016-18,
Statement of Cash Flows: Restricted Cash

Issued November 2016
 
Ÿ  Requires inclusion of restricted cash in cash and cash equivalents when reconciling the beginning-of-period total amounts shown on the statement of cash flows.
Ÿ  Effective January 1, 2018 and requires retrospective application to all periods presented.
 
Ÿ  Customers adopted on January 1, 2018.
Ÿ  The adoption did not result in any significant impact on Customers' consolidated financial statements, including its consolidated statement of cash flows, and therefore did not result in a retrospective application.

Issued November 2016  
ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory

Issued October 2016
 
Ÿ  Requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.
Ÿ  Eliminates the current exception for all intra-entity transfers of an asset other than inventory that requires deferral of the tax effects until the asset is sold to a third party or otherwise recovered through use.
Ÿ  Effective January 1, 2018 on a modified retrospective basis.
 
Ÿ  Customers adopted on January 1, 2018.
Ÿ  The adoption of the ASU did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.
Issued October 2016  
ASU 2016-15,
Statement of Cash Flow: Classification of Certain Cash Receipts and Cash Payments

Issued August 2016
 
Ÿ  Aims to reduce the existing diversity in practice with regards to the classification of the following specific items in the statement of cash flows:
1.
Cash payments for debt prepayment or extinguishment costs will be classified as an operating activity, while the portion of the payment attributable to principal will be classified as a financing activity.
2.
Cash paid by an acquirer soon after a business combination for the settlement of a contingent consideration liability recognized at the acquisition date will be classified in investing activities.
3.
Cash proceeds received from the settlement of insurance claims will be classified on the basis of the related insurance coverage (i.e., the nature of the loss).
4.
Cash proceeds received from the settlement of bank-owned life insurance policies will be classified as cash inflows from investing activities.
5.
A transferor's beneficial interest obtained in a securitization of financial assets will be disclosed as a non-cash activity, and cash received from beneficial interests will be classified in investing activities.

Ÿ Effective January 1, 2018 and requires retrospective application to all periods presented.

 
Ÿ  Customers adopted on January 1, 2018.
Ÿ  The adoption did not result in any significant impact on Customers' consolidated financial statements, including its consolidated statement of cash flows, and therefore it did not result in a retrospective application.
Issued August 2016  

Accounting Standards Adopted on January 1, 2018 (continued)
Standard Summary of guidance Effects on Financial Statements
ASU 2016-04,
Liabilities - Extinguishment of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products

Issued March 2016
 
Ÿ  Requires issuers of prepaid stored-value products (such as gift cards, telecommunication cards, and traveler's checks), to derecognize the financial liability related to those products for breakage. Breakage is the value of prepaid stored-value products that is not redeemed by consumers for goods, services or cash.
Ÿ  The amendments in this ASU provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage be accounted for consistent with the breakage guidance in Topic 606.
Ÿ  Effective January 1, 2018 on a modified retrospective basis.
 
Ÿ  Customers adopted on January 1, 2018.
Ÿ  The adoption of this ASU did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.
Issued March 2016  
ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities

Issued January 2016
 
Ÿ  Requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income.
Ÿ  Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.
Ÿ  Eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.
Ÿ  Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
Ÿ  Requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
Ÿ  Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements.
Ÿ  Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities.
Ÿ  Effective January 1, 2018 on a modified retrospective basis.
 
Ÿ  Customers adopted on January 1, 2018 using a modified retrospective approach.
Ÿ  The adoption of this ASU resulted in a cumulative-effect adjustment that resulted in a $1.0 million reduction in AOCI and a corresponding increase in retained earnings for the same amount.
Ÿ  The $1.0 million represented the net unrealized gain on Customers' investment in Religare equity securities at December 31, 2017, as disclosed in NOTE 6 - INVESTMENT SECURITIES.
Ÿ  Customers also refined its calculation to determine the fair value of its held-for- investment loan portfolio for disclosure purposes using an exit price notion as part of adopting this ASU. The refined calculation did not have a significant impact on Customers' fair value disclosures.
Issued January 2016
     

Accounting Standards Adopted on January 1, 2018 (continued)
Standard Summary of guidance Effects on Financial Statements
ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)

Issued May 2014
                  
 
Ÿ  Supersedes the revenue recognition requirements in ASC 605.
Ÿ  Requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Ÿ  The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 605.
Ÿ Reframed the structure of the indicators of when an entity is acting as an agent and focused on evidence that an entity is acting as the principal or agent in a revenue transaction.
Ÿ Requires additional qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
Ÿ  Effective January 1 , 2018 and can be either applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption (modified retrospective approach).
 
Ÿ  Customers adopted on January 1, 2018 on a modified retrospective basis.
Ÿ  Because the ASU does not apply to revenue associated with leases and financial instruments (including loans and securities), Customers concluded that the new guidance did not have a material impact on the elements of its consolidated statements of operations most closely associated with leases and financial instruments (such as interest income, interest expense and securities gain).
Ÿ  Customers has identified its deposit-related fees, service charges, debit and prepaid card interchange income and university fees to be within the scope of the standard.
Ÿ  Customers has also completed its review of the related contracts and its evaluation of certain costs related to these revenue streams and determined that its debit and prepaid card interchange income, previously reported on a gross basis for periods prior to adoption, will need to be presented on a net basis under this ASU, as Customers is the agent.
Ÿ  The adoption of this ASU, did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements. Additional discussion related to the adoption and the required quantitative and qualitative disclosures are included in NOTE 13 - NON-INTEREST REVENUES.
  
     

Accounting Standards Issued But Not Yet Adopted
Standard Summary of guidance Effects on Financial Statements
ASU 2018-03
Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10)

Issued February 2018

 
Ÿ  Clarifies certain aspects of the guidance issued in ASU 2016-01 including: the ability to irrevocably elect to change the measurement approach for equity securities measured using the practical expedient (at cost plus or minus observable transactions less impairment) to a fair value method in accordance with ASC 820, Fair Value Measurement.
Ÿ  Provides clarification that if an observable transaction occurs for such securities, the adjustment is as of the observable transaction date.
Ÿ  Effective July 1, 2018 on a prospective basis with early adoption permitted.

 
Ÿ  Customers currently does not have any significant equity securities without readily determinable fair values and, accordingly, does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements; however, Customers will continue to evaluate the potential impact of this ASU through the adoption date.

Issued February 2018  
ASU 2017-11,
Accounting for Certain Financial Instruments with Down Round Features

Issued July 2017
 
Ÿ  Changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.
Ÿ  When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) would no longer be accounted for as a derivative liability at fair value as a result of the existence of a down round feature.
Ÿ  For freestanding equity-classified financial instruments, the amendments require entities to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of net income available to common shareholders in basic earnings per share ("EPS").
Ÿ  Effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
 
Ÿ  Customers currently does not have any equity-linked financial instruments (or embedded features) with down round features and, accordingly, does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements; however, Customers will continue to evaluate the potential impact of this ASU through the adoption date.
Issued July 2017  
ASU 2017-08,
Receivables-Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities

Issued March 2017
 
Ÿ  Requires that premiums for certain callable debt securities held be amortized to their earliest call date.
Ÿ  Effective for Customers beginning after December 15, 2018, with early adoption permitted.
Ÿ  Adoption of this new guidance must be applied on a modified retrospective approach.
 
Ÿ  Customers currently has an immaterial amount of callable debt securities purchased at a premium and, accordingly, does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements; however, Customers will continue to evaluate the potential impact through the adoption date.
Issued March 2017
     




Accounting Standards Issued But Not Yet Adopted (continued)

Standard Summary of guidance Effects on Financial Statements
ASU 2016-13
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments

Issued June 2016
 
Ÿ  Requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate lifetime expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset (including HTM securities), presents the net amount expected to be collected on the financial asset.
Ÿ  Replaces today's "incurred loss" approach and is expected to result in earlier recognition of credit losses.
Ÿ  For available-for-sale debt securities, entities will be required to record allowances for credit losses rather than reduce the carrying amount, as they do today under the OTTI model, and will be allowed to reverse previously established allowances in the event the credit of the issuer improves.
Ÿ  Simplifies the accounting model for purchased credit-impaired debt securities and loans.
Ÿ  Effective beginning after December 15, 2019 with early adoption permitted.
Ÿ  Adoption can be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

 
Ÿ  Customers is currently evaluating the impact of this ASU, initiating implementation efforts across the company and planning for loss modeling requirements consistent with lifetime expected loss estimates.
Ÿ  Customers expects that the new model will include different assumptions used in calculating credit losses, such as estimating losses over the estimated life of a financial asset and will consider expected future changes in macroeconomic conditions.
Ÿ  The adoption of this ASU may result in an increase to Customers' allowance for loan losses which will depend upon the nature and characteristics of Customers' loan portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at that date.
Ÿ  Customers currently does not intend to early adopt this new guidance.

Issued June 2016  
ASU 2016-02,
Leases

Issued February 2016
 
Ÿ  Supersedes the current lease accounting guidance for both lessees and lessors under ASC 840, Leases.
Ÿ  From the lessee's perspective, the new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.
Ÿ  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees.
Ÿ  This ASU will require lessors to account for leases using an approach that is substantially similar to the existing guidance for sales-type, direct financing leases and operating leases.
Ÿ  Effective beginning after December 15, 2018 with early adoption permitted.
Ÿ  A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
 
Ÿ  Customers is currently evaluating the impact of this ASU on its financial condition and results of operations and expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of unpaid lease payments as of the date of adoption.
Ÿ  Customers does not intend to early adopt this ASU.
Issued February 2016
     




NOTE 4 — EARNINGS PER SHARE
The following are the components and results of Customers' earnings per common share calculations for the periods presented.
 Three Months Ended
March 31,
 2018 2017
(amounts in thousands, except share and per share data)   
Net income available to common shareholders$20,527
 $22,132
    
Weighted-average number of common shares outstanding - basic31,424,496
 30,407,060
Share-based compensation plans840,561
 2,344,929
Warrants8,916
 37,171
Weighted-average number of common shares - diluted32,273,973
 32,789,160
    
Basic earnings per common share$0.65
 $0.73
Diluted earnings per common share$0.64
 $0.67

The following is a summary of securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the periods presented.
 Three Months Ended
March 31,
 2018 2017
Anti-dilutive securities:   
Share-based compensation awards1,059,225
 
Warrants
 52,242
Total anti-dilutive securities1,059,225
 52,242

NOTE 5 — CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT
The following tables present the changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2018 and 2017. All amounts are presented net of tax. Amounts in parentheses indicate reductions to accumulated other comprehensive income.
 Three Months Ended March 31, 2018
 Available-for-sale securities    
(amounts in thousands)Unrealized Gains (Losses)Foreign Currency ItemsTotal Unrealized Gains (Losses) Unrealized  
Gains (Losses) on Cash Flow  Hedges
 Total
Balance - December 31, 2017$(249)$88
$(161) $(198) $(359)
Reclassification of the income tax effects of the Tax Cuts and Jobs Act (1)(256)
(256) (42) (298)
Reclassification of net unrealized gains on equity securities (1)(953)(88)(1,041) 
 (1,041)
Balance after reclassification adjustments on January 1, 2018(1,458)
(1,458) (240) (1,698)
Other comprehensive income (loss) before reclassifications(25,233)
(25,233) 646
 (24,587)
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2)


 97
 97
Net current-period other comprehensive income (loss)(25,233)
(25,233) 743
 (24,490)
Balance - March 31, 2018$(26,691)$
$(26,691) $503
 $(26,188)
(1) Amounts reclassified from accumulated other comprehensive income (loss) on January 1, 2018 as a result of the adoption of ASU 2018-02 and ASU 2016-01 resulted in a decrease in accumulated other comprehensive income of $1.3 million and a corresponding increase in retained earnings for the same amount. See NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for more information.
(2) Reclassification amounts for available-for-sale securities are reported as gain (loss) on sale of investment securities on the consolidated statements of income. Reclassification amounts for cash flow hedges are reported as interest expense on FHLB advances on the consolidated statements of income.

      
 Three Months Ended March 31, 2017
 Available-for-sale securities    
(amounts in thousands)Unrealized Gains (Losses)Foreign Currency ItemsTotal Unrealized Gains (Losses) Unrealized  
Gains (Losses) on Cash Flow  Hedges
 Total
Balance - December 31, 2016$(2,681)$
$(2,681) $(2,211) $(4,892)
Other comprehensive income (loss) before reclassifications(685)
(685) 201
 (484)
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)


 504
 504
Net current-period other comprehensive income (loss)(685)
(685) 705
 20
Balance - March 31, 2017$(3,366)$
$(3,366) $(1,506) $(4,872)
(1)Reclassification amounts for available-for-sale securities are reported as gain (loss) on sale of investment securities on the consolidated statements of income. Reclassification amounts for cash flow hedges are reported as interest expense on FHLB advances on the consolidated statements of income.
        


NOTE 6 — INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities as of March 31, 2018 and December 31, 2017 are summarized in the tables below:
 March 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
(amounts in thousands)       
Available for Sale Debt Securities:       
Agency-guaranteed residential mortgage-backed securities$505,113
 $
 $(11,856) $493,257
Agency-guaranteed commercial real estate mortgage-backed securities334,643
 
 (10,109) 324,534
Corporate notes374,611
 947
 (15,050) 360,508
Available for Sale Debt Securities$1,214,367
 $947
 $(37,015) 1,178,299
Equity Securities (1)
      3,362
Total Investment Securities, at Fair Value      $1,181,661
(1) Includes equity securities issued by a foreign entity that are being measured at fair value with changes in fair value
recognized directly in earnings effective January 1, 2018 as a result of adopting ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (see NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for additional information related to the adoption of this new standard).


 December 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
(amounts in thousands)       
Available for Sale:       
Agency-guaranteed residential mortgage-backed securities$186,221
 $36
 $(2,799) $183,458
Agency-guaranteed commercial real estate mortgage-backed securities238,809
 432
 (769) 238,472
Corporate notes (1)44,959
 1,130
 
 46,089
Equity securities (2)2,311
 1,041
 
 3,352
Total Available for Sale Securities, at Fair Value$472,300
 $2,639
 $(3,568) $471,371
(1)Includes subordinated debt issued by other bank holding companies.
(2)Includes equity securities issued by a foreign entity.
There were no sales of securities during the three month periods ended March 31, 2018 and 2017.

        


The following table shows debt investment securities by stated maturity.  Investment securities backed by mortgages have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and, therefore, these debt securities are classified separately with no specific maturity date:
 March 31, 2018
 
Amortized
Cost
 
Fair
Value
(amounts in thousands)   
Due in one year or less$
 $
Due after one year through five years
 
Due after five years through ten years119,980
 117,332
Due after ten years254,631
 243,176
Agency-guaranteed residential mortgage-backed securities505,113
 493,257
Agency-guaranteed commercial real estate mortgage-backed securities334,643
 324,534
Total debt securities$1,214,367
 $1,178,299

Gross unrealized losses and fair value of Customers' available for sale debt investment securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2018 and December 31, 2017 were as follows:
 March 31, 2018
 Less Than 12 Months 12 Months or More Total
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
(amounts in thousands)           
Available for Sale Debt Securities:           
Agency-guaranteed residential mortgage-backed securities$430,735
 $(8,161) $62,522
 $(3,695) $493,257
 $(11,856)
Agency-guaranteed commercial real estate mortgage-backed securities318,635
 (9,831) 5,899
 (278) 324,534
 (10,109)
Corporate notes309,601
 (15,050) 
 
 309,601
 (15,050)
Total$1,058,971
 $(33,042) $68,421
 $(3,973) $1,127,392
 $(37,015)

 December 31, 2017
 Less Than 12 Months 12 Months or More Total
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
 Fair Value 
Unrealized
Losses
(amounts in thousands)           
Available for Sale Debt Securities:           
Agency-guaranteed residential mortgage-backed securities$104,861
 $(656) $66,579
 $(2,143) $171,440
 $(2,799)
Agency-guaranteed commercial real estate mortgage-backed securities115,970
 (740) 6,151
 (29) 122,121
 (769)
Total$220,831
 $(1,396) $72,730
 $(2,172) $293,561
 $(3,568)
    
At March 31, 2018, there were sixty-two available-for-sale debt investment securities in the less-than-twelve-month category and sixteen available-for-sale debt investment securities in the twelve-month-or-more category.  The unrealized losses on the mortgage-backed securities are guaranteed by government-sponsored entities and primarily relate to changes in market interest rates. The unrealized losses on the corporate notes relate to securities with no company specific concentration. The unrealized losses were due to an upward shift in interest rates that resulted in a negative impact on the respective notes pricing. All amounts related to the mortgage-backed securities and the corporate notes are expected to be recovered when market prices recover or at maturity. Customers does not intend to sell these securities and it is not more likely than not that Customers will be required to sell the securities before recovery of the amortized cost basis.

During the three month period ended March 31, 2017, Customers recorded other-than-temporary impairment losses of $1.7 million related to its equity holdings in Religare for the full amount of the decline in fair value from the cost basis established at December 31, 2016 through March 31, 2017 because Customers no longer had the intent to hold these securities until a recovery in fair value. At December 31, 2017, the fair value of the Religare equity securities was $3.4 million which resulted in an unrealized gain of $1.0 million being recognized in accumulated other comprehensive income with no adjustment for deferred taxes as Customers currently does not have a tax strategy in place capable of generating sufficient capital gains to utilize any capital losses resulting from the Religare investment.
As described in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION, the adoption of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, on January 1, 2018 resulted in a cumulative effect adjustment to Customers' consolidated balance sheet with a $1.0 million reduction in accumulated other comprehensive income and a corresponding increase in retained earnings related to the December 31, 2017 unrealized gain on the Religare equity securities. In accordance with the new accounting guidance, changes in the fair value of the Religare equity securities from December 31, 2017 through March 31, 2018 were recorded directly in earnings, which resulted in an unrealized gain of $10 thousand being recognized in other non-interest income in the accompanying consolidated statements of income.
At March 31, 2018 and December 31, 2017, Customers Bank had pledged investment securities aggregating $701.5 million and $16.9 million in fair value, respectively, as collateral against its borrowings primarily with the FHLB and an unused line of credit with another financial institution. These counterparties do not have the ability to sell or repledge these securities.
NOTE 7 – LOANS HELD FOR SALE - As Restated
The composition of loans held for sale as of March 31, 2018 and December 31, 2017 was as follows:
 March 31, 2018 December 31, 2017
(amounts in thousands)   
Commercial loans:   
Mortgage warehouse loans, at fair value$1,874,853
 $1,793,408
Multi-family loans at lower of cost or fair value
 144,191
Total commercial loans held for sale1,874,853
 1,937,599
Consumer loans:   
Residential mortgage loans, at fair value662
 1,886
Loans held for sale$1,875,515
 $1,939,485

Commercial loans held for sale consists predominately of commercial loans to mortgage companies (i.e., mortgage warehouse loans). These mortgage warehouse lending transactions are subject to master repurchase agreements and are designated as held for sale and reported at fair value based on an election made to account for the loans at fair value. Pursuant to the agreements, Customers funds the pipelines for these mortgage lenders by sending payments directly to the closing agents for funded loans (i.e., the purchase event) and receives proceeds directly from third party investors when the loans are sold into the secondary market (i.e., the sale event). The fair value of the mortgage warehouse loans is estimated as the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The interest rates on these loans are variable, and the lending transactions are short-term, with an average life of 21 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.
 March 31, 2018 December 31, 2017
(amounts in thousands)(As Restated) (As Restated)
Commercial loans:   
Multi-family loans at lower of cost or fair value$
 $144,191
Total commercial loans held for sale
 144,191
Consumer loans:   
Residential mortgage loans, at fair value662
 1,886
Loans held for sale$662
 $146,077

Effective March 31, 2018, Customers Bank transferred $129.7 million of multi-family loans from loans held for sale to loan receivable (held for investment) because the Bank no longer has the intent to sell these loans. Customers Bank transferred these loans at their carrying value, which approximated their fair value at the time of transfer.

On June 30, 2017, Customers Bank transferred $150.6 million of multi-family loans from held for investment to loans held for sale. Customers Bank transferred these loans at their carrying value, which was lower than the estimated fair value at the time of transfer. At December 31, 2017, the carrying value of these loans approximated their fair value. Accordingly, a lower of cost or fair value adjustment was not recorded as of December 31, 2017. See NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for more information on the reclassification of loans previously reported as held for sale.


NOTE 8 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES - As Restated
The following table presents loans receivable as of March 31, 2018 and December 31, 2017.
March 31, 2018 December 31, 2017March 31, 2018 December 31, 2017
(amounts in thousands) (As Restated) (As Restated)
Loans receivable, mortgage warehouse, at fair value$1,874,853
 $1,793,408
Loans receivable:   
Commercial:      
Multi-family$3,645,374
 $3,502,381
3,645,374
 3,502,381
Commercial and industrial (including owner occupied commercial real estate)1,704,791
 1,633,818
1,704,791
 1,633,818
Commercial real estate non-owner occupied1,195,904
 1,218,719
1,195,904
 1,218,719
Construction81,101
 85,393
81,101
 85,393
Total commercial loans6,627,170
 6,440,311
Total commercial loans receivable6,627,170
 6,440,311
Consumer:      
Residential real estate225,839
 234,090
225,839
 234,090
Manufactured housing87,687
 90,227
87,687
 90,227
Other3,570
 3,547
3,570
 3,547
Total consumer loans317,096
 327,864
Total loans receivable6,944,266
 6,768,175
Total consumer loans receivable317,096
 327,864
Loans receivable6,944,266
 6,768,175
Deferred (fees)/costs and unamortized (discounts)/premiums, net(700) 83
(700) 83
Allowance for loan losses(39,499) (38,015)(39,499) (38,015)
Loans receivable, net of allowance for loan losses$6,904,067
 $6,730,243
Total loans receivable, net of allowance for loan losses$8,778,920
 $8,523,651

Customers' total loans receivable portfolio includes loans receivable which are reported at fair value based on an election made to account for these loans at fair value and loans receivable which are predominately reported at their outstanding unpaid principal balance, net of charge-offs and deferred costs and fees and unamortized premiums and discounts and are evaluated for impairment.

Loans receivable, mortgage warehouse, at fair value:

Mortgage warehouse loans consist of commercial loans to mortgage companies. These mortgage warehouse lending transactions are subject to master repurchase agreements. As a result of the contractual provisions, for accounting purposes control of the underlying mortgage loan has not transferred and the rewards and risks of the mortgage loans are not assumed by Customers. The commercial mortgage warehouse loans receivable are designated as loans held for investment and reported at fair value based on an election made to account for the loans at fair value. Pursuant to the agreements, Customers funds the pipelines for these mortgage lenders by sending payments directly to the closing agents for funded mortgage loans and receives proceeds directly from third party investors when the underlying mortgage loans are sold into the secondary market. The fair value of the mortgage warehouse loans is estimated as the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The interest rates on these loans are variable, and the lending transactions are short-term, with an average life of 21 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.

At March 31, 2018 and December 31, 2017, all of Customers' commercial mortgage warehouse loans were current in terms of payment. Because these loans are reported at their fair value, they do not have an allowance for loan loss and are therefore excluded from allowance for loan losses related disclosures.



Loans receivable:

The following tables summarize loans receivable by loan type and performance status as of March 31, 2018 and December 31, 2017:
 March 31, 2018
 
30-89 Days
Past Due (1)
 
90 Days
Or More
Past Due(1)
 
Total Past
Due (1)
 
Non-
Accrual
 Current (2) 
Purchased-
Credit-
Impaired
Loans (3)
 
Total
Loans (4)
(amounts in thousands)             
Multi-family$
 $
 $
 $
 $3,643,539
 $1,835
 $3,645,374
Commercial and industrial129
 
 129
 14,220
 1,187,571
 721
 1,202,641
Commercial real estate - owner occupied
 
 
 1,437
 490,277
 10,436
 502,150
Commercial real estate - non-owner occupied
 
 
 242
 1,190,591
 5,071
 1,195,904
Construction
 
 
 
 81,101
 
 81,101
Residential real estate4,490
 
 4,490
 5,216
 210,825
 5,308
 225,839
Manufactured housing (5)3,444
 2,746
 6,190
 1,979
 77,042
 2,476
 87,687
Other consumer75
 
 75
 97
 3,148
 250
 3,570
Total$8,138
 $2,746
 $10,884
 $23,191
 $6,884,094
 $26,097
 $6,944,266



December 31, 2017
 
30-89 Days
Past Due (1)
 
90 Days
Or More
Past Due(1)
 
Total Past
Due (1)
 
Non-
Accrual
 Current (2) 
Purchased-
Credit-
Impaired
Loans (3)
 
Total
Loans (4)
(amounts in thousands)             
Multi-family$4,900
 $
 $4,900
 $
 $3,495,600
 $1,881
 $3,502,381
Commercial and industrial103
 
 103
 17,392
 1,130,831
 764
 1,149,090
Commercial real estate - owner occupied202
 
 202
 1,453
 472,501
 10,572
 484,728
Commercial real estate - non-owner occupied93
 
 93
 160
 1,213,216
 5,250
 1,218,719
Construction
 
 
 
 85,393
 
 85,393
Residential real estate7,628
 
 7,628
 5,420
 215,361
 5,681
 234,090
Manufactured housing (5)4,028
 2,743
 6,771
 1,959
 78,946
 2,551
 90,227
Other consumer116
 
 116
 31
 3,184
 216
 3,547
Total$17,070
 $2,743
 $19,813
 $26,415
 $6,695,032
 $26,915
 $6,768,175
 
(1)Includes past due loans that are accruing interest because collection is considered probable.
(2)Loans where next payment due is less than 30 days from the report date.
(3)Purchased-credit-impaired loans aggregated into a pool are accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, and the past due status of the pools, or that of the individual loans within the pools, is not meaningful. Because of the credit impaired nature of the loans, the loans are recorded at a discount reflecting estimated future cash flows and the Bank recognizes interest income on each pool of loans reflecting the estimated yield and passage of time. Such loans are considered to be performing. Purchased-credit-impaired loans that are not in pools accrete interest when the timing and amount of their expected cash flows are reasonably estimable, and are reported as performing loans.
(4)Amounts exclude deferred costs and fees, unamortized premiums and discounts, and the allowance for loan losses.
(5)Manufactured housing loans purchased in 2010 are supported by cash reserves held at the Bank that are used to fund past-due payments when the loan becomes 90 days or more delinquent. Subsequent purchases are subject to varying provisions in the event of borrowers’ delinquencies.

As of March 31, 2018 and December 31, 2017, the Bank had $0.3 million, respectively, of residential real estate held in other real estate owned. As of March 31, 2018 and December 31, 2017, the Bank had initiated foreclosure proceedings on $1.2 million and $1.6 million, respectively, in loans secured by residential real estate.

Allowance for loan losses
The changes in the allowance for loan losses for the three months ended March 31, 2018 and 2017, and the loans and allowance for loan losses by loan class based on impairment-evaluation method as of March 31, 2018 and December 31, 2017 are presented in the tables below.
Three Months Ended
March 31, 2018
Multi-family Commercial and Industrial Commercial Real Estate Owner Occupied Commercial
Real Estate Non-Owner Occupied
 Construction Residential
Real Estate
 Manufactured
Housing
 Other Consumer Total
(amounts in thousands)                 
Ending Balance,
December 31, 2017
$12,168
 $10,918
 $3,232
 $7,437
 $979
 $2,929
 $180
 $172
 $38,015
Charge-offs
 (50) (18) 
 
 (365) 
 (256) (689)
Recoveries
 35
 
 
 11
 7
 
 3
 56
Provision for loan losses377
 834
 311
 (204) (69) 608
 (4) 264
 2,117
Ending Balance,
March 31, 2018
$12,545
 $11,737
 $3,525
 $7,233
 $921
 $3,179
 $176
 $183
 $39,499
                  
As of March 31, 2018                 
Loans:                 
Individually evaluated for impairment$
 $14,288
 $1,483
 $242
 $
 $8,242
 $10,108
 $97
 $34,460
Collectively evaluated for impairment3,643,539
 1,187,632
 490,231
 1,190,591
 81,101
 212,289
 75,103
 3,223
 6,883,709
Loans acquired with credit deterioration1,835
 721
 10,436
 5,071
 
 5,308
 2,476
 250
 26,097
 $3,645,374
 $1,202,641
 $502,150
 $1,195,904
 $81,101
 $225,839
 $87,687
 $3,570
 $6,944,266
Allowance for loan losses:                 
Individually evaluated for impairment$
 $986
 $764
 $
 $
 $365
 $4
 $
 $2,119
Collectively evaluated for impairment12,545
 10,300
 2,751
 4,512
 921
 2,274
 82
 125
 33,510
Loans acquired with credit deterioration
 451
 10
 2,721
 
 540
 90
 58
 3,870
 $12,545
 $11,737
 $3,525
 $7,233
 $921
 $3,179
 $176
 $183
 $39,499


Three Months Ended
March 31, 2017
Multi-family Commercial and Industrial Commercial Real Estate Owner Occupied Commercial
Real Estate Non-Owner Occupied
 Construction Residential
Real Estate
 Manufactured
Housing
 Other Consumer Total
(amounts in thousands)                 
Ending Balance,
December 31, 2016
$11,602
 $11,050
 $2,183
 $7,894
 $840
 $3,342
 $286
 $118
 $37,315
Charge-offs
 (198) 
 (404) 
 (221) 
 (20) (843)
Recoveries
 215
 
 
 81
 21
 
 44
 361
Provision for loan losses681
 1,942
 211
 357
 (36) (62) (2) (41) 3,050
Ending Balance,
March 31, 2017
$12,283
 $13,009
 $2,394
 $7,847
 $885
 $3,080
 $284
 $101
 $39,883
As of December 31, 2017                 
Loans:                 
Individually evaluated for impairment$
 $17,461
 $1,448
 $160
 $
 $9,247
 $10,089
 $30
 $38,435
Collectively evaluated for impairment3,500,500
 1,130,865
 472,708
 1,213,309
 85,393
 219,162
 77,587
 3,301
 6,702,825
Loans acquired with credit deterioration1,881
 764
 10,572
 5,250
 
 5,681
 2,551
 216
 26,915
 $3,502,381
 $1,149,090
 $484,728
 $1,218,719
 $85,393
 $234,090
 $90,227
 $3,547
 $6,768,175
Allowance for loan losses:                 
Individually evaluated for impairment$
 $650
 $642
 $
 $
 $155
 $4
 $
 $1,451
Collectively evaluated for impairment12,168
 9,804
 2,580
 4,630
 979
 2,177
 82
 117
 32,537
Loans acquired with credit deterioration
 464
 10
 2,807
 
 597
 94
 55
 4,027
 $12,168
 $10,918
 $3,232
 $7,437
 $979
 $2,929
 $180
 $172
 $38,015
Certain manufactured housing loans were purchased in August 2010.  A portion of the purchase price may be used to reimburse the Bank under the specified terms in the purchase agreement for defaults of the underlying borrower and other specified items. At March 31, 2018 and December 31, 2017, funds available for reimbursement, if necessary, were $0.6 million, respectively. Each quarter, these funds are evaluated to determine if they would be sufficient to absorb the probable incurred losses within the manufactured housing portfolio.



Impaired Loans - Individually Evaluated for Impairment
The following tables present the recorded investment (net of charge-offs), unpaid principal balance, and related allowance by loan type for impaired loans that were individually evaluated for impairment as of March 31, 2018 and December 31, 2017 and the average recorded investment and interest income recognized for the three months ended March 31, 2018 and 2017. Purchased-credit-impaired loans are considered to be performing and are not included in the tables below.
 March 31, 2018 
Three Months Ended
March 31, 2018
 
Recorded
Investment
Net of
Charge offs
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
(amounts in thousands)         
With no recorded allowance:         
Commercial and industrial$5,830
 $6,029
 $
 $7,484
 $
Commercial real estate owner occupied614
 614
 
 710
 
Commercial real estate non-owner occupied242
 353
 
 201
 
Other consumer97
 97
 
 63
 
Residential real estate3,617
 3,788
 
 3,623
 
Manufactured housing9,886
 9,886
 
 9,876
 131
With an allowance recorded:         
Commercial and industrial8,458
 8,642
 986
 8,390
 1
Commercial real estate owner occupied869
 869
 764
 756
 1
Residential real estate4,625
 4,662
 365
 5,122
 25
Manufactured housing222
 222
 4
 223
 
Total$34,460
 $35,162
 $2,119
 $36,448
 $158
 

 December 31, 2017 
Three Months Ended
March 31, 2017
 
Recorded
Investment
Net of
Charge offs
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
(amounts in thousands)         
With no recorded allowance:         
Commercial and industrial$9,138
 $9,287
 $
 $4,248
 $50
Commercial real estate owner occupied806
 806
 
 1,435
 15
Commercial real estate non-owner occupied160
 272
 
 1,794
 2
Other consumer30
 30
 
 57
 
Residential real estate3,628
 3,801
 
 4,502
 1
Manufactured housing9,865
 9,865
 
 9,833
 141
With an allowance recorded:         
Commercial and industrial8,323
 8,506
 650
 8,837
 81
Commercial real estate - owner occupied642
 642
 642
 844
 1
Commercial real estate non-owner occupied
 
 
 138
 
Residential real estate5,619
 5,656
 155
 2,597
 39
Manufactured housing224
 224
 4
 102
 3
Total$38,435
 $39,089
 $1,451
 $34,387
 $333
Troubled Debt Restructurings
At March 31, 2018 and December 31, 2017, there were $19.0 million and $20.4 million, respectively, in loans reported as troubled debt restructurings (“TDRs”). TDRs are reported as impaired loans in the calendar year of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent years, a TDR may be returned to accrual status if it satisfies a minimum performance requirement of six months, however, it will remain classified as impaired. Generally, the Bank requires sustained performance for nine months before returning a TDR to accrual status. Modification of purchased-credit-impaired loans that are accounted for within loan pools in accordance with the accounting standards for purchased-credit-impaired loans do not result in the removal of these loans from the pool even if the modifications would otherwise be considered a TDR. Accordingly, as each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, modifications of loans within such pools are not considered TDRs.
The following table presents total TDRs based on loan type and accrual status at March 31, 2018 and December 31, 2017. Nonaccrual TDRs are included in the reported amount of total non-accrual loans.

 March 31, 2018 December 31, 2017
 
Accruing
TDRs
Nonaccrual TDRsTotal Accruing TDRsNonaccrual TDRsTotal
(amounts in thousands)       
Commercial and industrial$68
$5,519
$5,587
 $63
$5,939
$6,002
Commercial real estate owner occupied45

45
 


Manufactured housing8,130
1,787
9,917
 8,130
1,766
9,896
Residential real estate3,026
463
3,489
 3,828
703
4,531
Total TDRs$11,269
$7,769
$19,038
 $12,021
$8,408
$20,429


The following table presents loans modified in a troubled debt restructuring by type of concession for the three months ended March 31, 2018 and 2017. There were no modifications that involved forgiveness of debt.
 
Three Months Ended
March 31, 2018
 
Three Months Ended
March 31, 2017
 Number
of Loans
 Recorded
Investment
 Number
of Loans
 Recorded
Investment
(dollars in thousands)       
Extensions of maturity
 $
 1
 $348
Interest-rate reductions9
 322
 20
 855
Total9
 $322
 21
 $1,203
The following table provides, by loan type, the number of loans modified in troubled debt restructurings, and the related recorded investment, during the three months ended March 31, 2018 and 2017.
 
Three Months Ended
March 31, 2018
 
Three Months Ended
March 31, 2017
 Number
of Loans
 Recorded
Investment
 Number
of Loans
 Recorded
Investment
(dollars in thousands)       
Commercial and industrial
 $
 1
 $348
Manufactured housing9
 322
 20
 855
Total loans9
 $322
 21
 $1,203

As of March 31, 2018, there were no additional commitments to lend additional funds to debtors whose loans have been modified in TDRs. As of December 31, 2017, except for one commercial and industrial loan with an outstanding commitment of $2.1 million, there were no other commitments to lend additional funds to debtors whose loans have been modified in TDRs.
As of March 31, 2018, one manufactured housing loan totaling $29 thousand that was modified in a TDR within the past twelve months, defaulted on payments. As of March 31, 2017, five manufactured housing loans totaling $0.2 million, that were modified in TDRs within the past twelve months, defaulted on payments.

Loans modified in troubled debt restructurings are evaluated for impairment. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses. There was no allowance recorded as a result of TDR modifications during the three months ended March 31, 2018. For the three months ended March 31, 2017, there was one allowance recorded resulting from TDR modifications, totaling $1 thousand for one manufactured housing loan.

Purchased Credit Impaired Loans
The changes in accretable yield related to purchased-credit-impaired loans for the three months ended March 31, 2018 and 2017 were as follows:
 Three Months Ended March 31,
 2018 2017
(amounts in thousands)   
Accretable yield balance as of December 31,$7,825
 $10,202
Accretion to interest income(338) (493)
Reclassification from nonaccretable difference and disposals, net176
 (333)
Accretable yield balance as of March 31,$7,663
 $9,376

Credit Quality Indicators
The allowance for loan losses represents management's estimate of probable losses in Customers' loans receivable portfolio, excluding commercial mortgage warehouse loans reported at fair value because of a fair value option election. Multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, and construction loans are rated based on an internally assigned risk rating system which is assigned at the time of loan origination and reviewed on a periodic, or on an “as needed” basis. Residential real estate loans, manufactured housing and other consumer loans are evaluated based on the payment activity of the loan.
To facilitate the monitoring of credit quality within the multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, construction and residential real estate classes, and for purposes of analyzing historical loss rates used in the determination of the allowance for loan losses for the respective loan portfolio class, the Bank utilizes the following categories of risk ratings: pass/satisfactory (includes risk rating 1 through 6), special mention, substandard, doubtful, and loss. The risk rating categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. Pass/satisfactory ratings, which are assigned to those borrowers who do not have identified potential or well-defined weaknesses and for whom there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis during the month preceding the end of the calendar quarter.  While assigning risk ratings involves judgment, the risk-rating process allows management to identify riskier credits in a timely manner and allocate the appropriate resources to manage those loans.

The risk rating grades are defined as follows:
“1” – Pass/Excellent
Loans rated 1 represent a credit extension of the highest quality. The borrower’s historic (at least five years) cash flows manifest extremely large and stable margins of coverage. Balance sheets are conservative, well capitalized, and liquid. After considering debt service for proposed and existing debt, projected cash flows continue to be strong and provide ample coverage. The borrower typically reflects broad geographic and product diversification and has access to alternative financial markets.
“2” – Pass/Superior
Loans rated 2 are those for which the borrower has a strong financial condition, balance sheet, operations, cash flow, debt capacity and coverage with ratios better than industry norms. The borrowers of these loans exhibit a limited leverage position, are virtually immune to local economies, and are in stable growing industries. The management team is well respected and the company has ready access to public markets.
“3” – Pass/Strong
Loans rated 3 are those loans for which the borrowers have above average financial condition and flexibility; more than satisfactory debt service coverage; balance sheet and operating ratios are consistent with or better than industry peers; operate in industries with little risk; move in diversified markets; and are experienced and competent in their industry. These borrowers’ access to capital markets is limited mostly to private sources, often secured, but the borrower typically has access to a wide range of refinancing alternatives.
“4” – Pass/Good
Loans rated 4 have a sound primary and secondary source of repayment. The borrower may have access to alternative sources of financing, but sources are not as widely available as they are to a higher grade borrower. These loans carry a normal level of risk, with very low loss exposure. The borrower has the ability to perform according to the terms of the credit facility. The margins of cash flow coverage are satisfactory but vulnerable to more rapid deterioration than the higher quality loans.

“5” – Satisfactory
Loans rated 5 are extended to borrowers who are determined to be a reasonable credit risk and demonstrate the ability to repay the debt from normal business operations. Risk factors may include reliability of margins and cash flows, liquidity, dependence on a single product or industry, cyclical trends, depth of management, or limited access to alternative financing sources. The borrower’s historical financial information may indicate erratic performance, but current trends are positive and the quality of financial information is adequate, but is not as detailed and sophisticated as information found on higher grade loans. If adverse circumstances arise, the impact on the borrower may be significant.

“6” – Satisfactory/Bankable with Care
Loans rated 6 are those for which the borrower has higher than normal credit risk; however, cash flow and asset values are generally intact. These borrowers may exhibit declining financial characteristics, with increasing leverage and decreasing liquidity and may have limited resources and access to financial alternatives. Signs of weakness in these borrowers may include delinquent taxes, trade slowness and eroding profit margins.
“7” – Special Mention
Loans rated 7 are credit facilities that may have potential developing weaknesses and deserve extra attention from the account manager and other management personnel. In the event potential weaknesses are not corrected or mitigated, deterioration in the ability of the borrower to repay the debt in the future may occur. This grade is not assigned to loans that bear certain peculiar risks normally associated with the type of financing involved, unless circumstances have caused the risk to increase to a level higher than would have been acceptable when the credit was originally approved. Loans where significant actual, not potential, weaknesses or problems are clearly evident are graded in the category below.
“8” – Substandard
Loans are rated 8 when the loans are inadequately protected by the current sound worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the company will sustain some loss if the weaknesses are not corrected.
“9” – Doubtful
The Bank assigns a doubtful rating to loans that have all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage of and strengthen the credit quality of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting liens on additional collateral or refinancing plans.
“10” – Loss
The Bank assigns a loss rating to loans considered uncollectible and of such little value that their continuance as an active asset is not warranted. Amounts classified as loss are immediately charged off.
Risk ratings are not established for certain consumer loans, including residential real estate, home equity, manufactured housing, and installment loans, mainly because these portfolios consist of a larger number of homogeneous loans with smaller balances. Instead, these portfolios are evaluated for risk mainly based upon aggregate payment history through the monitoring of delinquency levels and trends and are classified as performing and non-performing.

The following tables present the credit ratings of loans receivable as of March 31, 2018 and December 31, 2017.
March 31, 2018March 31, 2018
Multi-family 
Commercial
and
Industrial
 
Commercial
Real Estate Owner Occupied
 Commercial Real Estate Non-Owner Occupied Construction 
Residential
Real Estate
 Manufactured Housing Other Consumer TotalMulti-family 
Commercial
and
Industrial
 
Commercial
Real Estate Owner Occupied
 Commercial Real Estate Non-Owner Occupied Construction 
Residential
Real Estate
 Manufactured Housing Other Consumer Total (3)
(amounts in thousands)(amounts in thousands)              (amounts in thousands)              
Pass/Satisfactory$3,608,179
 $1,161,401
 $485,423
 $1,178,454
 $81,101
 $
 $
 $
 $6,514,558
$3,608,179
 $1,161,401
 $485,423
 $1,178,454
 $81,101
 $
 $
 $
 $6,514,558
Special Mention29,634
 12,751
 8,208
 16,356
 
 
 
 
 66,949
29,634
 12,751
 8,208
 16,356
 
 
 
 
 66,949
Substandard7,561
 28,489
 8,519
 1,094
 
 
 
 
 45,663
7,561
 28,489
 8,519
 1,094
 
 
 
 
 45,663
Performing (1)
 
 
 
 
 216,133
 79,518
 3,398
 299,049

 
 
 
 
 216,133
 79,518
 3,398
 299,049
Non-performing (2)
 
 
 
 
 9,706
 8,169
 172
 18,047

 
 
 
 
 9,706
 8,169
 172
 18,047
Total$3,645,374
 $1,202,641
 $502,150
 $1,195,904
 $81,101
 $225,839
 $87,687
 $3,570
 $6,944,266
$3,645,374
 $1,202,641
 $502,150
 $1,195,904
 $81,101
 $225,839
 $87,687
 $3,570
 $6,944,266
December 31, 2017December 31, 2017
Multi-family Commercial
and
Industrial
 Commercial
Real Estate Owner Occupied
 Commercial Real Estate Non-Owner Occupied Construction Residential
Real Estate
 Manufactured
Housing
 Other Consumer TotalMulti-family Commercial
and
Industrial
 Commercial
Real Estate Owner Occupied
 Commercial Real Estate Non-Owner Occupied Construction Residential
Real Estate
 Manufactured
Housing
 Other Consumer Total (3)
(amounts in thousands)(amounts in thousands)              (amounts in thousands)              
Pass/Satisfactory$3,438,554
 $1,118,889
 $471,826
 $1,185,933
 $85,393
 

 $
 $
 $6,300,595
$3,438,554
 $1,118,889
 $471,826
 $1,185,933
 $85,393
 

 $
 $
 $6,300,595
Special Mention53,873
 7,652
 5,987
 31,767
 
 
 
 
 99,279
53,873
 7,652
 5,987
 31,767
 
 
 
 
 99,279
Substandard9,954
 22,549
 6,915
 1,019
 
 

 
 
 40,437
9,954
 22,549
 6,915
 1,019
 
 

 
 
 40,437
Performing (1)
 
 
 
 
 221,042
 81,497
 3,400
 305,939

 
 
 
 
 221,042
 81,497
 3,400
 305,939
Non-performing (2)
 
 
 
 
 13,048
 8,730
 147
 21,925

 
 
 
 
 13,048
 8,730
 147
 21,925
Total$3,502,381
 $1,149,090
 $484,728
 $1,218,719
 $85,393
 $234,090
 $90,227
 $3,547
 $6,768,175
$3,502,381
 $1,149,090
 $484,728
 $1,218,719
 $85,393
 $234,090
 $90,227
 $3,547
 $6,768,175
(1) Includes consumer and other installment loans not subject to risk ratings.
(2) Includes loans that are past due and still accruing interest and loans on nonaccrual status.
(1)Includes residential real estate, manufactured housing, and other consumer loans not subject to risk ratings.
(2)Includes residential real estate, manufactured housing, and other consumer loans that are past due and still accruing interest or on nonaccrual status.
(3)Excludes commercial mortgage warehouse loans at fair value.

Loan Purchases and Sales

Customers did not purchase any loans during first quarter 2018. During first quarter 2018, Customers sold $15.0 million of Small Business Administration (SBA) loans resulting in a gain on sale of $1.4 million. In first quarter 2017, Customers purchased $174.2 million of thirty-year fixed-rate residential mortgage loans from Florida-based Everbank. The purchase price was 98.5% of loans outstanding. In first quarter 2017, Customers sold $94.9 million of multi-family loans for $95.4 million resulting in a gain on sale of $0.5 million and $8.7 million of SBA loans resulting in a gain on sale of $0.8 million.

None of these purchases and sales during the three months ended March 31, 2018 and 2017 materially affected the credit profile of Customers’ related loan portfolio.

Loans Pledged as Collateral
Customers has pledged eligible real estate loans as collateral for potential borrowings from the Federal Home Loan Bank of Pittsburgh ("FHLB") in the amount of $5.5 billion at March 31, 2018 and December 31, 2017, respectively.

NOTE 9 — REGULATORY CAPITAL
The Bank and the Bancorp are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can result in certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on Customers' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Bancorp must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At March 31, 2018 and December 31, 2017, the Bank and the Bancorp satisfied all capital requirements to which they were subject.
Generally, to comply with the regulatory definition of adequately capitalized, or well capitalized, respectively, an institution must at least maintain the common equity Tier 1, Tier 1 and total risk-based capital ratios and the Tier 1 leverage ratio in excess of the related minimum ratios as set forth in the following table:
     Minimum Capital Levels to be Classified as:
 Actual Adequacy Capitalized Well Capitalized Basel III Compliant
(amounts in thousands)Amount Ratio Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2018:               
Common equity Tier 1 capital (to risk-weighted assets)               
Customers Bancorp, Inc.$710,156
 8.508% $375,609
 4.500% N/A
 N/A
 $532,113
 6.375%
Customers Bank$1,037,480
 12.448% $375,048
 4.500% $541,736
 6.500% $531,318
 6.375%
Tier 1 capital (to risk-weighted assets)               
Customers Bancorp, Inc.$927,627
 11.113% $500,812
 6.000% N/A
 N/A
 $657,316
 7.875%
Customers Bank$1,037,480
 12.448% $500,064
 6.000% $666,751
 8.000% $656,333
 7.875%
Total capital (to risk-weighted assets)               
Customers Bancorp, Inc.$1,047,698
 12.552% $667,749
 8.000% N/A
 N/A
 $824,253
 9.875%
Customers Bank$1,186,105
 14.231% $666,751
 8.000% $833,439
 10.000% $823,021
 9.875%
Tier 1 capital (to average assets)               
Customers Bancorp, Inc.$927,627
 9.031% $410,858
 4.000% N/A
 N/A
 $410,858
 4.000%
Customers Bank$1,037,480
 10.107% $410,612
 4.000% $513,265
 5.000% $410,612
 4.000%
As of December 31, 2017:               
Common equity Tier 1 capital (to risk-weighted assets)               
Customers Bancorp, Inc.$689,494
 8.805% $352,368
 4.500% N/A
 N/A
 $450,248
 5.750%
Customers Bank$1,023,564
 13.081% $352,122
 4.500% $508,621
 6.500% $449,934
 5.750%
Tier 1 capital (to risk-weighted assets)               
Customers Bancorp, Inc.$906,963
 11.583% $469,824
 6.000% N/A
 N/A
 $567,704
 7.250%
Customers Bank$1,023,564
 13.081% $469,496
 6.000% $625,994
 8.000% $567,307
 7.250%
Total capital (to risk-weighted assets)               
Customers Bancorp, Inc.$1,021,601
 13.047% $626,432
 8.000% N/A
 N/A
 $724,313
 9.250%
Customers Bank$1,170,666
 14.961% $625,994
 8.000% $782,493
 10.000% $723,806
 9.250%
Tier 1 capital (to average assets)               
Customers Bancorp, Inc.$906,963
 8.937% $405,949
 4.000% N/A
 N/A
 $405,949
 4.000%
Customers Bank$1,023,564
 10.092% $405,701
 4.000% $507,126
 5.000% $405,701
 4.000%

The risk-based capital rules adopted effective January 1, 2015 require that banks and holding companies maintain a "capital conservation buffer" of 250 basis points in excess of the "minimum capital ratio" or certain elective distributions would be limited. The minimum capital ratio is equal to the prompt corrective action adequately capitalized threshold ratio. The capital conservation buffer is being phased in over four years beginning on January 1, 2016, with a maximum buffer of 0.625% of risk weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter.


Effective January 1, 2018, the capital level required to avoid limitation on elective distributions applicable to the Bancorp and the Bank were as follows:

(i) a common equity Tier 1 risk-based capital ratio of 6.375%;
(ii) a Tier 1 risk-based capital ratio of 7.875%; and
(iii) a Total risk-based capital ratio of 9.875%.

Failure to maintain the required capital conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers.
NOTE 10 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - As Restated
Customers uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose the fair value of its financial instruments. ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For Customers, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. Many of these financial instruments lack an available trading market as characterized by a willing buyer and a willing seller engaging in an exchange transaction. For fair value disclosure purposes, Customers utilized certain fair value measurement criteria under ASC Topic 820, Fair Value Measurements and Disclosures, as explained below.
In accordance with ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value is best determined based upon quoted market prices.  However, in many instances, there are no quoted market prices for Customers' various financial instruments.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, focusing on an exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate.  In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.  The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
The fair value guidance also establishes a fair value hierarchy and describes the following three levels used to classify fair value measurements.
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require adjustments to inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The following methods and assumptions were used to estimate the fair values of Customers' financial instruments as of March 31, 2018 and December 31, 2017:

Financial Instruments Recorded at Fair Value on a Recurring Basis
Investment securities:
The fair values of equity securities and available for sale debt securities are determined by obtaining quoted market prices on nationally recognized and foreign securities exchanges (Level 1), matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). These assets are classified as Level 1, 2 or 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
The carrying amount of investments in FHLB, Federal Reserve Bank, and other restricted stock approximates fair value, and considers the limited marketability of such securities. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Loans held for sale - Consumer residential mortgage loans:loans (fair value option):
The BankCustomers generally estimates the fair values of residential mortgage loans held for sale based on commitments on hand from investors within the secondary market for loans with similar characteristics. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Loans held for salereceivable - Commercial mortgage warehouse loans:loans (fair value option):
The fair value of mortgage warehouse loans is the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The loan is used by mortgage companies as short-term bridge financing between the funding of mortgage loans and the finalization of the sale of the loans to an investor. Changes in fair value are not expected to be recognized because at inception of the transaction the underlying loans have already been sold to an approved investor. Additionally, the interest rate is variable, and the transaction is short-term, with an average life of 21 days from purchase to sale. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Derivatives (Assets and Liabilities):
The fair values of interest rate swaps and credit derivatives are determined using models that incorporate readily observable market data into a market standard methodology. This methodology nets the discounted future cash receipts and the discounted expected cash payments. The discounted variable cash receipts and payments are based on expectations of future interest rates derived from observable market interest rate curves. In addition, fair value is adjusted for the effect of nonperformance risk by incorporating credit valuation adjustments for the Bank and its counterparties. These assets and liabilities are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.
The fair values of the residential mortgage loan commitments are derived from the estimated fair values that can be generated when the underlying mortgage loan is sold in the secondary market. The Bank generally uses commitments on hand from third- party investors to estimate an exit price and adjusts for the probability of the commitment being exercised based on the Bank’s internal experience (i.e., pull-through rate). These assets and liabilities are classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Derivative assets and liabilities are presented in "Other assets" and "Accrued interest payable and other liabilities" on the consolidated balance sheet.
Financial Instruments Recorded at Fair Value on a Nonrecurring Basis
Impaired loans:
Impaired loans are those loans that are accounted for under ASC 310, Receivables, in which the Bank has measured impairment generally based on the fair value of the loan’s collateral or discounted cash flow analysis.  Fair value is generally determined based upon independent third-party appraisals of the properties that collateralize the loans or discounted cash flows based upon the expected proceeds.  These assets are generally classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Other real estate owned:
The fair value of other real estate owned ("OREO") is determined by using appraisals, which may be discounted based on management’s review and changes in market conditions or sales agreements with third parties.  All appraisals must be performed in accordance with the Uniform Standards of Professional Appraisal Practice.  Appraisals are certified to the Bank and performed by appraisers on the Bank’s approved list of appraisers.  Evaluations are completed by a person independent of management.  The content of the appraisal depends on the complexity of the property.  Appraisals are completed on a “retail value” and an “as is value”. These assets are classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
The following information should not be interpreted as an estimate of Customers' fair value in its entirety because fair value calculations are only provided for a limited portion of Customers' assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making these estimates, comparisons between Customer’s disclosures and those of other companies may not be meaningful.


The estimated fair values of Customers' financial instruments at March 31, 2018 and December 31, 2017 were as follows.
    Fair Value Measurements at March 31, 2018    Fair Value Measurements at March 31, 2018
Carrying
Amount
 
Estimated
Fair Value
 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) 
Significant
Unobservable
Inputs
(Level 3)
Carrying
Amount
 
Estimated
Fair Value
 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(amounts in thousands)         
(amounts in thousands) (as restated)         
Assets:                  
Cash and cash equivalents$215,411
 $215,411
 $215,411
 $
 $
$215,411
 $215,411
 $215,411
 $
 $
Debt securities, available for sale1,178,299
 1,178,299
 
 1,178,299
 
1,178,299
 1,178,299
 
 1,178,299
 
Equity securities3,362
 3,362
 3,362
 
 
3,362
 3,362
 3,362
 
 
Loans held for sale1,875,515
 1,875,515
 
 1,875,515
 
Loans receivable, net of allowance for loan losses6,904,067
 6,829,770
 
 
 6,829,770
Loans held for sale (as restated)662
 662
 
 662
 
Total loans receivable, net of allowance for loan losses (as restated)8,778,920
 8,704,623
 
 1,874,853
 6,829,770
FHLB, Federal Reserve Bank and other restricted stock130,302
 130,302
 
 130,302
 
130,302
 130,302
 
 130,302
 
Derivatives13,606
 13,606
 
 13,523
 83
13,606
 13,606
 
 13,523
 83
Liabilities:                  
Deposits$7,042,459
 $7,034,680
 $5,153,428
 $1,881,252
 $
$7,042,459
 $7,034,680
 $5,153,428
 $1,881,252
 $
Federal funds purchased195,000
 195,000
 195,000
 
 
195,000
 195,000
 195,000
 
 
FHLB advances2,252,615
 2,252,445
 1,687,615
 564,830
 
2,252,615
 2,252,445
 1,687,615
 564,830
 
Other borrowings186,735
 187,092
 64,262
 122,830
 
186,735
 187,092
 64,262
 122,830
 
Subordinated debt108,904
 114,950
 
 114,950
 
108,904
 114,950
 
 114,950
 
Derivatives12,673
 12,673
 
 12,673
 
12,673
 12,673
 
 12,673
 

    Fair Value Measurements at December 31, 2017    Fair Value Measurements at December 31, 2017
Carrying
Amount
 
Estimated
Fair Value
 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) 
Significant
Unobservable
Inputs
(Level 3)
Carrying
Amount
 
Estimated
Fair Value
 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
(amounts in thousands)         
(amounts in thousands) (as restated)         
Assets:                  
Cash and cash equivalents$146,323
 $146,323
 $146,323
 $
 $
$146,323
 $146,323
 $146,323
 $
 $
Investment securities, available for sale471,371
 471,371
 3,352
 468,019
 
471,371
 471,371
 3,352
 468,019
 
Loans held for sale1,939,485
 1,939,659
 
 1,795,294
 144,365
Loans receivable, net of allowance for loan losses6,730,243
 6,676,763
 
 
 6,676,763
Loans held for sale (as restated)146,077
 146,251
 
 1,886
 144,365
Total loans receivable, net of allowance for loan losses (as restated)8,523,651
 8,470,171
 
 1,793,408
 6,676,763
FHLB, Federal Reserve Bank and other restricted stock105,918
 105,918
 
 105,918
 
105,918
 105,918
 
 105,918
 
Derivatives9,752
 9,752
 
 9,692
 60
9,752
 9,752
 
 9,692
 60
Liabilities:                  
Deposits$6,800,142
 $6,796,095
 $4,894,449
 $1,901,646
 $
$6,800,142
 $6,796,095
 $4,894,449
 $1,901,646
 $
Federal funds purchased155,000
 155,000
 155,000
 
 
155,000
 155,000
 155,000
 
 
FHLB advances1,611,860
 1,611,603
 881,860
 729,743
 
1,611,860
 1,611,603
 881,860
 729,743
 
Other borrowings186,497
 193,557
 65,072
 128,485
 
186,497
 193,557
 65,072
 128,485
 
Subordinated debt108,880
 115,775
 
 115,775
 
108,880
 115,775
 
 115,775
 
Derivatives10,074
 10,074
 
 10,074
 
10,074
 10,074
 
 10,074
 

For financial assets and liabilities measured at fair value on a recurring and nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2018 and December 31, 2017 were as follows:
March 31, 2018March 31, 2018
Fair Value Measurements at the End of the Reporting Period UsingFair Value Measurements at the End of the Reporting Period Using
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) TotalQuoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total
(amounts in thousands)       
(amounts in thousands) (as restated)       
Measured at Fair Value on a Recurring Basis:              
Assets              
Available-for-sale debt securities:              
Agency-guaranteed residential mortgage-backed securities$
 $493,257
 $
 $493,257
$
 $493,257
 $
 $493,257
Agency guaranteed commercial mortgage-backed securities
 324,534
 
 324,534

 324,534
 
 324,534
Corporate notes
 360,508
 
 360,508

 360,508
 
 360,508
Equity securities3,362
 
 
 3,362
3,362
 
 
 3,362
Derivatives
 13,523
 83
 13,606

 13,523
 83
 13,606
Loans held for sale – fair value option
 1,875,515
 
 1,875,515
Loans held for sale – fair value option (as restated)
 662
 
 662
Loans receivable, mortgage warehouse – fair value option (as restated)
 1,874,853
 
 1,874,853
Total assets - recurring fair value measurements$3,362
 $3,067,337
 $83
 $3,070,782
$3,362
 $3,067,337
 $83
 $3,070,782
Liabilities              
Derivatives $
 $12,673
 $
 $12,673
$
 $12,673
 $
 $12,673
Measured at Fair Value on a Nonrecurring Basis:              
Assets              
Impaired loans, net of reserves of $2,119$
 $
 $12,588
 $12,588
$
 $
 $12,588
 $12,588
Other real estate owned
 
 1,408
 1,408

 
 1,408
 1,408
Total assets - nonrecurring fair value measurements$
 $
 $13,996
 $13,996
$
 $
 $13,996
 $13,996

December 31, 2017December 31, 2017
Fair Value Measurements at the End of the Reporting Period UsingFair Value Measurements at the End of the Reporting Period Using
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) TotalQuoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total
(amounts in thousands)       
(amounts in thousands) (as restated)       
Measured at Fair Value on a Recurring Basis:              
Assets              
Available-for-sale securities:              
Agency-guaranteed residential mortgage-backed securities$
 $183,458
 $
 $183,458
$
 $183,458
 $
 $183,458
Agency-guaranteed commercial mortgage-backed securities
 238,472
 
 238,472

 238,472
 
 238,472
Corporate notes
 46,089
 
 46,089

 46,089
 
 46,089
Equity securities3,352
 
 
 3,352
3,352
 
 
 3,352
Derivatives
 9,692
 60
 9,752

 9,692
 60
 9,752
Loans held for sale – fair value option
 1,795,294
 
 1,795,294
Loans held for sale – fair value option (as restated)
 1,886
 
 1,886
Loans receivable, mortgage warehouse – fair value option (as restated)
 1,793,408
 
 1,793,408
Total assets - recurring fair value measurements$3,352
 $2,273,005
 $60
 $2,276,417
$3,352
 $2,273,005
 $60
 $2,276,417
Liabilities              
Derivatives$
 $10,074
 $
 $10,074
$
 $10,074
 $
 $10,074
Measured at Fair Value on a Nonrecurring Basis:              
Assets              
Impaired loans, net of reserves of $1,451$
 $
 $13,902
 $13,902
$
 $
 $13,902
 $13,902
Other real estate owned
 
 1,449
 1,449

 
 1,449
 1,449
Total assets - nonrecurring fair value measurements$
 $
 $15,351
 $15,351
$
 $
 $15,351
 $15,351

The changes in Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2018 and 2017 are summarized as follows. Additional information about residential mortgage loan commitments can be found in NOTE 11 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES.
 Residential Mortgage Loan Commitments
 Three Months Ended March 31,
 2018 2017
(amounts in thousands)   
Balance at December 31$60
 $45
Issuances83
 95
Settlements(60) (45)
Balance at March 31$83
 $95
    
Customers' policy is to recognize transfers between fair value levels when events or circumstances warrant transfers. There were no transfers between levels during the three months ended March 31, 2018 and 2017.


The following table summarizes financial assets and financial liabilities measured at fair value as of March 31, 2018 and December 31, 2017 on a recurring and nonrecurring basis for which Customers utilized Level 3 inputs to measure fair value.
 
 Quantitative Information about Level 3 Fair Value Measurements
March 31, 2018
Fair Value
Estimate
 Valuation Technique Unobservable Input 
Range (Weighted
Average) (3)
(amounts in thousands)       
Impaired loans$12,588
 Collateral appraisal (1) Liquidation expenses (2) (8)%
Other real estate owned1,408
 Collateral appraisal (1) Liquidation expenses (2) (11)%
Residential mortgage loan commitments83
 Adjusted market bid Pull-through rate 90%
 
 Quantitative Information about Level 3 Fair Value Measurements
December 31, 2017
Fair Value
Estimate
 Valuation Technique Unobservable Input 
Range (Weighted
Average) (3)
(amounts in thousands)       
Impaired loans$13,902
 Collateral appraisal (1) Liquidation expenses (2) (8)%
Other real estate owned1,449
 Collateral appraisal (1) Liquidation expenses (2) (8)%
Residential mortgage loan commitments60
 Adjusted market bid Pull-through rate 90%
(1)Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. The Bank does not generally discount appraisals.
(2)Fair value is adjusted for estimated costs to sell based on a percentage of the value as determined by the appraisal.
(3)Presented as a percentage of the value determined by appraisal for impaired loans and other real estate owned.


NOTE 11 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objectives of Using Derivatives
Customers is exposed to certain risks arising from both its business operations and economic conditions. Customers manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and durations of its assets and liabilities. Specifically, Customers enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Customers' derivative financial instruments are used to manage differences in the amount, timing, and duration of Customers' known or expected cash receipts and its known or expected cash payments principally related to certain borrowings. Customers also has interest-rate derivatives resulting from a service provided to certain qualifying customers, and therefore, they are not used to manage Customers' interest-rate risk in assets or liabilities. Customers manages a matched book with respect to its derivative instruments used in this customer service in order to minimize its net risk exposure resulting from such transactions.
Cash Flow Hedges of Interest Rate Risk
Customers' objectives in using interest-rate derivatives are to add stability to interest expense and to manage exposure to interest-rate movements. To accomplish this objective, Customers primarily uses interest rate swaps as part of its interest-rate-risk management strategy. Interest-rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for Customers making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. To date, such derivatives were used to hedge the variable cash flows associated with the forecasted issuances of debt.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on Customers' variable-rate debt. Customers expects to reclassify $0.8 million from accumulated other comprehensive income as a reduction to interest expense during the next 12 months.
Customers is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of 27 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).
At March 31, 2018, Customers had eleven outstanding interest rate derivatives with notional amounts totaling $960.0 million that were designated as cash flow hedges of interest rate risk. At December 31, 2017, Customers had nine outstanding interest rate derivatives with notional amounts totaling $550.0 million that were designated as cash flow hedges of interest rate risk. The outstanding cash flow hedges at March 31, 2018 expire between April 2018 and July 2021.
Derivatives Not Designated as Hedging Instruments
Customers executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies (typically the loan customers will swap a floating-rate loan for a fixed-rate loan). The customer interest rate swaps are simultaneously offset by interest rate swaps that Customers executes with a third party in order to minimize interest rate risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting third-party market swaps are recognized directly in earnings. At March 31, 2018, Customers had 84 interest rate swaps with an aggregate notional amount of $813.7 million related to this program. At December 31, 2017, Customers had 76 interest rate swaps with an aggregate notional amount of $800.5 million related to this program.
Customers enters into residential mortgage loan commitments in connection with its consumer mortgage banking activities to fund mortgage loans at specified rates and times in the future. These commitments are short-term in nature and generally expire in 30 to 60 days. The residential mortgage loan commitments that relate to the origination of mortgage loans that will be held for sale are considered derivative instruments under the applicable accounting guidance and are reported at fair value, with changes in fair value recorded directly in earnings. At March 31, 2018 and December 31, 2017, Customers had an outstanding notional balance of residential mortgage loan commitments of $3.6 million and $2.7 million, respectively.

Customers has also purchased and sold credit derivatives to either hedge or participate in the performance risk associated with some of its counterparties. These derivatives are not designated as hedging instruments and are reported at fair value, with changes in fair value recorded directly in earnings. At March 31, 2018 and December 31, 2017, Customers had outstanding notional balances of credit derivatives of $80.0 million and $80.5 million, respectively.
Fair Value of Derivative Instruments on the Balance Sheet
The following tables present the fair value of Customers' derivative financial instruments as well as their presentation on the balance sheet as of March 31, 2018 and December 31, 2017.
 
  March 31, 2018
  Derivative Assets Derivative Liabilities
  
Balance Sheet
Location
 Fair Value 
Balance Sheet
Location
 Fair Value
(amounts in thousands)        
Derivatives designated as cash flow hedges:        
Interest rate swaps Other assets $1,224
 Other liabilities $545
Total   $1,224
   $545
Derivatives not designated as hedging instruments:        
Interest rate swaps Other assets $12,235
 Other liabilities $12,104
Credit contracts Other assets 64
 Other liabilities 24
Residential mortgage loan commitments Other assets 83
 Other liabilities 
Total   $12,382
   $12,128
  December 31, 2017
  Derivative Assets Derivative Liabilities
  Balance Sheet   Balance Sheet  
  Location Fair Value Location Fair Value
(amounts in thousands)        
Derivatives designated as cash flow hedges:        
     Interest rate swaps Other assets $816
 Other liabilities $1,140
          Total   $816
   $1,140
Derivatives not designated as hedging instruments:        
     Interest rate swaps Other assets $8,776
 Other liabilities $8,897
     Credit contracts Other assets 100
 Other liabilities 37
     Residential mortgage loan commitments Other assets 60
 Other liabilities 
          Total   $8,936
   $8,934

Effect of Derivative Instruments on Comprehensive Income
The following tables present the effect of Customers' derivative financial instruments on comprehensive income for the three months ended March 31, 2018 and 2017.
 Three Months Ended March 31, 2018
 Income Statement Location 
Amount of Income (Loss)
Recognized in Earnings
(amounts in thousands)   
Derivatives not designated as hedging instruments:   
Interest rate swapsOther non-interest income $385
Credit contractsOther non-interest income (23)
Residential mortgage loan commitmentsMortgage banking income                 23
Total  $385

 Three Months Ended March 31, 2017
 Income Statement Location 
Amount of Income (Loss)
Recognized in Earnings
(amounts in thousands)   
Derivatives not designated as hedging instruments:   
Interest rate swapsOther non-interest income                 $483
Credit contractsOther non-interest income 
Residential mortgage loan commitmentsMortgage banking income                 50
Total  $533
    
    
 Three Months Ended March 31, 2018
 
Amount of Gain
Recognized in OCI on
Derivatives (1)
 
Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income 
 
Amount of Loss
Reclassified from
Accumulated OCI into
Income 
(amounts in thousands)     
Derivatives in cash flow hedging relationships:     
Interest rate swaps$646
 Interest expense $(131)

 Three Months Ended March 31, 2017
 
Amount of Gain
Recognized in OCI on
Derivatives (1)
 
Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income 
 
Amount of Loss
Reclassified from
Accumulated OCI into
Income 
(amounts in thousands)     
Derivatives in cash flow hedging relationships:     
Interest rate swaps$201
 Interest expense $(827)

(1) Amounts presented are net of taxes. See NOTE 5 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME for total effect on other comprehensive income from derivatives designated as cash flow hedges for the periods presented.
      
      
(1) Amounts presented are net of taxes. See NOTE 5 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME for total effect on other comprehensive income from derivatives designated as cash flow hedges for the periods presented.

Credit-risk-related Contingent Features
By entering into derivative contracts, Customers is exposed to credit risk. The credit risk associated with derivatives executed with customers is the same as that involved in extending the related loans and is subject to the same standard credit policies. To mitigate the credit-risk exposure to major derivative dealer counterparties, Customers only enters into agreements with those counterparties that maintain credit ratings of high quality.
Agreements with major derivative dealer counterparties contain provisions whereby default on any of Customers' indebtedness would be considered a default on its derivative obligations. Customers also has entered into agreements that contain provisions under which the counterparty could require Customers to settle its obligations if Customers fails to maintain its status as a well/adequately capitalized institution. As of March 31, 2018, the fair value of derivatives in a net liability position (which includes accrued interest but excludes any adjustment for nonperformance-risk) related to these agreements was $0.2 million. In addition, Customers has minimum collateral posting thresholds with certain of these counterparties and at March 31, 2018 had posted $0.4 million of cash as collateral. Customers records cash posted as collateral as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets.

Disclosures about Offsetting Assets and Liabilities
The following tables present derivative instruments that are subject to enforceable master netting arrangements. Customers' interest rate swaps with institutional counterparties are subject to master netting arrangements and are included in the table below. Interest rate swaps with commercial banking customers and residential mortgage loan commitments are not subject to master netting arrangements and are excluded from the table below. Customers has not made a policy election to offset its derivative positions.
Offsetting of Financial Assets and Derivative Assets
At March 31, 2018
 
Gross
Amount of
Recognized
Assets
 
Gross
Amounts
Offset in the
Consolidated
Balance
Sheet
 
Net
Amounts of
Assets
Presented
in the
Consolidated
Balance
Sheet
 
Gross Amounts
Not Offset in the
Consolidated
Balance Sheet
 
Net
Amount
 
Financial
Instruments
 
Cash
Collateral
Received
 
(amounts in thousands)           
Description           
Interest rate swap derivatives with institutional counterparties$11,716
 $
 $11,716
 $
 $9,240
 $2,476
Offsetting of Financial Liabilities and Derivative Liabilities
At March 31, 2018
 
Gross
Amount of
Recognized
Liabilities
 
Gross
Amounts
Offset in the
Consolidated
Balance
Sheet
 
Net
Amounts of
Liabilities
Presented
in the
Consolidated
Balance
Sheet
 Gross Amounts
Not Offset in the
Consolidated
Balance Sheet
  
 
Financial
Instruments
 
Cash
Collateral
Pledged
 
Net
Amount
(amounts in thousands)           
Description           
Interest rate swap derivatives with institutional counterparties$2,405
 $
 $2,405
 $
 $352
 $2,053
Offsetting of Financial Assets and Derivative Assets
At December 31, 2017
 
Gross
Amount of
Recognized
Assets
 
Gross
Amounts
Offset in the
Consolidated
Balance
Sheet
 
Net
Amounts of
Assets
Presented
in the
Consolidated
Balance
Sheet
 Gross Amounts
Not Offset in the
Consolidated
Balance Sheet
 
Net
Amount
 
Financial
Instruments
 
Cash
Collateral
Received
 
(amounts in thousands)           
Description           
Interest rate swap derivatives with institutional counterparties$5,930
 $
 $5,930
 $
 $5,070
 $860

Offsetting of Financial Liabilities and Derivative Liabilities
At December 31, 2017
 
Gross
Amount of
Recognized
Liabilities
 
Gross
Amounts
Offset in the
Consolidated
Balance
Sheet
 
Net
Amounts of
Liabilities
Presented
in the
Consolidated
Balance
Sheet
 Gross Amounts
Not Offset in the
Consolidated
Balance Sheet
 
Net
Amount
 
Financial
Instruments
 
Cash
Collateral
Pledged
 
(amounts in thousands)           
Description           
Interest rate swap derivatives with institutional counterparties$5,058
 $
 $5,058
 $
 $4,872
 $186

NOTE 12 — BUSINESS SEGMENTS
Customers' segment financial reporting reflects the manner in which its chief operating decision makers allocate resources and assess performance. Management has determined that Customers' operations consist of two reportable segments - Community Business Banking and BankMobile. Each segment generates revenues, manages risk, and offers distinct products and services to targeted customers through different delivery channels. The strategy, marketing, and analysis of these segments vary considerably.
The Community Business Banking segment is delivered predominately to commercial customers in Southeastern Pennsylvania, New York, New Jersey, Massachusetts, Rhode Island, New Hampshire, Washington D.C. and Illinois through a single-point-of-contact business model and provides liquidity to residential mortgage originators nationwide through commercial loans to mortgage companies. Lending and deposit gathering activities are focused primarily on privately held businesses, high-net-worth families, selected commercial real estate lending, and commercial mortgage companies. Revenues are generated primarily through net interest income (the difference between interest earned on loans, investments, and other interest earning assets and interest paid on deposits and other borrowed funds) and other non-interest income, such as mortgage warehouse transactional fees and bank owned life insurance.
The BankMobile segment provides state-of-the-art high-tech digital banking and disbursement services to consumers, students, and the "under banked" nationwide. BankMobile, as a division of Customers Bank, is a full-service banking platform that is accessible to customers anywhere and anytime through the customer's smartphone or other web-enabled device. Revenues are currently being generated primarily through interchange and card revenue, deposit and wire transfer fees and university fees. The majority of revenue and expenses for BankMobile are related to the segment's operation of the ongoing business acquired through the Disbursement business acquisition.
The following tables present the operating results for Customers' reportable business segments for the three month periods ended March 31, 2018 and 2017. The segment financial results include directly attributable revenues and expenses. Corporate overhead costs are assigned to the Community Business Banking segment as those expenses are expected to continue following the planned spin-off of BankMobile. Similarly, the preferred stock dividends have been allocated in their entirety to the Community Business Banking segment. The tax benefit assigned to BankMobile was based on an estimated effective tax rate of 24.57% for 2018 and 37.25% for 2017, respectively.



      
      
Three Months Ended March 31, 2018Three Months Ended March 31, 2018
Community Business Banking BankMobile ConsolidatedCommunity Business Banking BankMobile Consolidated
Interest income$92,554
 $4,410
(1 
) 
$96,964
$92,554
 $4,410
(1) 
$96,964
Interest expense31,917
 16
 31,933
31,917
 16
 31,933
Net interest income60,637
 4,394
 65,031
60,637
 4,394
 65,031
Provision for loan losses1,874
 243
 2,117
1,874
 243
 2,117
Non-interest income8,439
 12,471
 20,910
8,439
 12,471
 20,910
Non-interest expense34,331
 17,949
 52,280
34,331
 17,949
 52,280
Income before income tax expense (benefit)32,871
 (1,327) 31,544
32,871
 (1,327) 31,544
Income tax expense (benefit)7,728
 (326) 7,402
7,728
 (326) 7,402
Net income (loss)25,143
 (1,001) 24,142
25,143
 (1,001) 24,142
Preferred stock dividends3,615
 
 3,615
3,615
 
 3,615
Net income (loss) available to common shareholders$21,528
 $(1,001) $20,527
$21,528
 $(1,001) $20,527
          
As of March 31, 2018          
Goodwill and other intangibles$3,630
 $13,847
 $17,477
$3,630
 $13,847
 $17,477
Total assets$10,690,479
 $78,787
 $10,769,266
$10,690,479
 $78,787
 $10,769,266
Total deposits$6,418,810
 $623,649
 $7,042,459
$6,418,810
 $623,649
 $7,042,459
Total non-deposit liabilities$2,759,156
 $48,563
 $2,807,719
$2,759,156
 $48,563
 $2,807,719
    

    


Three Months Ended March 31, 2017Three Months Ended March 31, 2017
Community Business Banking BankMobile ConsolidatedCommunity Business Banking BankMobile Consolidated
Interest income$78,832
 $4,262
(1 
) 
$83,094
$78,832
 $4,262
(1) 
$83,094
Interest expense20,656
 20
 20,676
20,656
 20
 20,676
Net interest income58,176
 4,242
 62,418
58,176
 4,242
 62,418
Provision for loan losses3,050
 
 3,050
3,050
 
 3,050
Non-interest income5,427
 17,327
 22,754
5,427
 17,327
 22,754
Non-interest expense30,147
 19,219
 49,366
30,147
 19,219
 49,366
Income (loss) before income tax expense (benefit)30,406
 2,350
 32,756
30,406
 2,350
 32,756
Income tax expense (benefit)6,116
 893
 7,009
6,116
 893
 7,009
Net income (loss)24,290
 1,457
 25,747
24,290
 1,457
 25,747
Preferred stock dividends3,615
 
 3,615
3,615
 
 3,615
Net income (loss) available to common shareholders$20,675
 $1,457
 $22,132
$20,675
 $1,457
 $22,132
          
As of March 31, 2017          
Goodwill and other intangibles$3,636
 $13,982
 $17,618
$3,636
 $13,982
 $17,618
Total assets$9,833,721
 $72,915
 $9,906,636
$9,833,721
 $72,915
 $9,906,636
Total deposits$6,627,061
 $708,419
 $7,335,480
$6,627,061
 $708,419
 $7,335,480
Total non-deposit liabilities$1,660,967
 $30,372
 $1,691,339
$1,660,967
 $30,372
 $1,691,339
          
(1) - Amounts reported include funds transfer pricing of $4.4 million and $4.3 million for the three months ended March 31, 2018 and 2017, respectively, credited to BankMobile for the value provided to the Community Business Banking segment for the use of low/no cost deposits.



NOTE 13 - NON-INTEREST REVENUES

As provided in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION, Customers' adoption of ASU 2014-09, Revenue from Contracts with Customers (ASC 606), on January 1, 2018 did not have a significant impact to Customers' consolidated financial statements, as such, a cumulative effect adjustment to beginning retained earnings was not necessary. Customers determined that its debit and prepaid card interchange income, previously reported on a gross basis for periods prior to adoption will need to be presented on a net basis under this ASU. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the previous accounting guidance under ASC 605. Debit and prepaid card interchange expense for the three months ended March 31, 2018 and 2017 amounted to $1.5 million and $0.8 million, respectively.
      
In addition, as part of the enhanced disclosure requirements under the new guidance, Customers is presenting disaggregated revenue by business segment, nature of the revenue stream, and the pattern or timing of revenue recognition. The accounting treatment for interest-related revenues is covered under ASC-310 and is out of the scope of ASU 2014-09.

The following tables present Customers' non-interest revenues affected by ASU 2014-09 by business segment for the three months ended March 31, 2018 and 2017:
 Three Months Ended March 31, 2018
 Community Business Banking BankMobile Consolidated
Revenue from contracts with customers:     
Revenue recognized at point in time:     
Interchange and Card Revenue$223
 $9,438
 $9,661
Deposit Fees287
 1,805
 2,092
University Fees - Card and Disbursement Fees
 326
 326
Total revenue recognized at point in time510
 11,569
 12,079
Revenue recognized over time:     
University Fees - Subscription Revenue
 870
 870
Total revenue recognized over time
 870
 870
Total revenue from contracts with customers$510
 $12,439
 $12,949


 Three Months Ended March 31, 2017
 Community Business Banking BankMobile Consolidated
Revenue from contracts with customers:     
Revenue recognized at point in time:     
Interchange and Card Revenue$203
 $13,308
 $13,511
Deposit Fees324
 2,803
 3,127
University Fees - Card and Disbursement Fees
 392
 392
Total revenue recognized at point in time527
 16,503
 17,030
Revenue recognized over time:     
University Fees - Subscription Revenue
 795
 795
Total revenue recognized over time
 795
 795
Total revenue from contracts with customers$527
 $17,298
 $17,825

The following is a discussion of revenues within the scope of ASC 606:

Card revenue

Card revenue primarily relates to debit and prepaid card fees earned from interchange and ATM fees. Interchange fees are earned whenever Customers' issued debit and prepaid cards are processed through card payment networks. Interchange fees are recognized concurrent with the processing of the debit or prepaid card transaction.


Deposit Fees

Deposit fees relate to service charges on deposit accounts for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as stop-payment charges, wire transfer fees, cashier or money order fees are recognized at the time the transaction is executed. Account maintenance fees, which relate primarily to monthly maintenance and account analysis fees, are earned on a monthly basis representing the period over which Customers satisfies its performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposit accounts are withdrawn from the depositor's account balance.

The above revenues recognized at a point in time primarily consist of contracts with no specified terms, but which may be terminated at any time by the customer without penalty. Due to the transactional nature and indefinite term of these agreements, there were no related contract balances that were recorded for these revenue streams on Customers' consolidated balance sheets as of March 31, 2018 and December 31, 2017.

University Fees

University fees represent revenues from higher education institutions and is generated from fees charged for the services provided. For higher education institution clients, Customers through BankMobile facilitates the distribution of financial aid and other refunds to students, while simultaneously enhancing the ability of the higher education institutions to comply with the federal regulations applicable to financial aid transactions. For these services, higher education institution clients are charged an annual subscription fee and/or per-transaction fees (e.g. new card or card replacement fees) for certain transactions. The annual subscription fee is recognized ratably over the period of service and the transaction fees are recognized when the transaction is completed. BankMobile also enters into long-term (generally three- or five-year initial term) contracts with higher education institutions to provide these refund management disbursement services. Deferred revenue consists of amounts billed to or received from clients prior to the performance of services. The deferred revenues are earned over the service period on a straight line basis. As of March 31, 2018 and December 31, 2017, Customers recorded deferred revenue of $1.8 million and $2.0 million, respectively, related to these university subscription contracts. At March 31, 2018 and December 31, 2017, Customers had accounts receivable of $1.2 million and $1.1 million, respectively, related to the university fee arrangements.





ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations - As Restated.
Cautionary Note Regarding Forward-Looking Statements

This report and all attachments hereto, as well as other written or oral communications made from time to time by us, may contain forward-looking information within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to future events or future predictions, including events or predictions relating to future financial performance, and are generally identifiable by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “plan,” “intend,” or “anticipate” or the negative thereof or comparable terminology. Forward-looking statements reflect numerous assumptions, estimates and forecasts as to future events. No assurance can be given that the assumptions, estimates and forecasts underlying such forward-looking statements will accurately reflect future conditions, or that any guidance, goals, targets or projected results will be realized. The assumptions, estimates and forecasts underlying such forward-looking statements involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions, which may not be realized and which are inherently subject to significant business, economic, competitive and regulatory uncertainties and known and unknown risks, including the risks described under “Risk Factors” in Customers Bancorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017“Original Form 10-K”10-K Filing”), which was filed with the SEC on February 23, 2018, as such factors may be updated from time to time in our filings with the SEC, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Our actual results may differ materially from those reflected in the forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements we make, which speak only as of the date they are made. We do not undertake any obligation to release publicly or otherwise provide any revisions to any forward-looking statements we may make, including any forward-looking financial information, to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events, except as may be required under applicable law.

Management’s discussion and analysis represents an overview of the financial condition and results of operations, and highlights the significant changes in the financial condition and results of operations, as presented in the accompanying consolidated financial statements for Customers Bancorp, Inc. (the "Bancorp" or "Customers Bancorp"), a financial holding company, and its wholly owned subsidiaries, including Customers Bank (the "Bank"), collectively referred to as "Customers" herein. This information is intended to facilitate your understanding and assessment of significant changes and trends related to Customers' financial condition and results of operations as of and for the three months ended March 31, 2018. All quarterly information in this Management’s Discussion and Analysis is unaudited. You should read this section in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Customers' 2017 Form 10-K.10-K/A.
Restatement of Previously Issued Financial Statements

In November 2018, Customers determined that its commercial mortgage warehouse loans should have been classified as loans
receivable, rather than loans held for sale. The discussion and analysis included herein has been amended and restated to present the corrected classification of Customers' commercial mortgage warehouse lending activities. Additional discussion regarding the restatement of previously issued financial statements is included in the Explanatory Note to this Form 10-Q/A and NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION included in Part 1 of this Form 10-Q/A.



Critical Accounting Policies
Customers has adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America and that are consistent with general practices within the banking industry in the preparation of its financial statements. Customers' significant accounting policies are described in “NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION” in Customers' audited financial statements included in its 2017 Form 10-K10-K/A and updated in this reportForm 10-Q/A for the quarterly period ended March 31, 2018 in “NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" on Form 10-Q for the quarterly period ended March 31, 2018.PRESENTATION."
Certain accounting policies involve significant judgments and assumptions by Customers that have a material impact on the carrying value of certain assets and liabilities. Customers considers these accounting policies to be critical accounting policies. The judgment and assumptions used are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions management makes, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of Customers' assets and liabilities and its results of operations.
First Quarter Events of Note
Customers reported net income available to common shareholders of $20.5 million, or $0.64 per fully diluted common share, for first quarter 2018. Total assets were $10.8 billion at March 31, 2018, an increase of $0.9 billion from December 31, 2017, including $0.7 billion of investment securities growth and $111.3 million of total loan growth. Customers expects a more moderate pace of growth through the rest of the year with an emphasis on shifting from lower yielding to higher yielding assets, and the development of sustainable deposits to replace short-term borrowings and fund future growth.
Asset quality remained exceptional with non-performing loans of $23.2 million, or 0.26% of total loans, and total non-performing assets (non-performing loans and other real estate owned) only 0.23% of total assets at March 31, 2018, reflecting Customers' conservative lending practices and continued focus on credit risk management. Customers' level of non-performing loans to total loans at March 31, 2018 remained well below industry average non-performing loans to total loans of 1.30% and Customers' peer group non-performing loans to total loans of 0.80%. Customers' capital ratios at the holding company and its bank subsidiary continue to exceed the “well-capitalized” threshold established by regulation at the Bank and exceed the applicable Basel III regulatory threshold ratios for the Bancorp and the Bank at March 31, 2018. Customers Bancorp's Tier 1 leverage ratio was 9.03%, and its total risk-based capital ratio was 12.55% at March 31, 2018.

Results of Operations
Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017
Net income available to common shareholders decreased $1.6 million, or 7.3%, to $20.5 million for the three months ended March 31, 2018 when compared to net income available to common shareholders of $22.1 million for the three months ended March 31, 2017. The decreased net income available to common shareholders primarily resulted from an increase in non-interest expense of $2.9 million, or 5.9%, and a decrease in non-interest income of $1.8 million, or 8.1%, offset in part by an increase in net interest income of $2.6 million, or 4.2%, and a decrease in the provision for loan losses of $0.9 million.
Net interest income of $65.0 million increased $2.6 million, or 4.2%, for the three months ended March 31, 2018 when compared to net interest income of $62.4 million for the three months ended March 31, 2017. This increase resulted primarily from an increase in the average balance of interest-earning assets of $0.6 billion over the prior year period, offset in part by a 6 basis point decline in net interest margin (tax-equivalent) to 2.67% for first quarter 2018 from 2.73% for first quarter 2017.
The provision for loan losses of $2.1 million decreased $0.9 million for the three months ended March 31, 2018 when compared to the provision for loan losses of $3.1 million for the three months ended March 31, 2017. The first quarter 2018 provision expense included provisions of $0.9 million for loan portfolio growth and reserves of $1.3 million for impaired loans, offset in part by a $0.2 million release resulting from improved asset quality and lower incurred losses than previously estimated.

Non-interest income of $20.9 million decreased $1.8 million, or 8.1%, for the three months ended March 31, 2018 when compared to non-interest income of $22.8 million for the three months ended March 31, 2017. This decrease was primarily the result of decreases in interchange card revenues and deposit fees of $3.9 million and $1.0 million, or 28.5% and 33.1%, respectively, mostly driven by lower activity volumes in the BankMobile business segment. Interchange and card revenue of $9.7 million for the three months ended March 31, 2018 is presented net of $1.5 million of debit and prepaid interchange expenses in accordance with the adoption of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) as described in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION. Interchange and card revenue would have been $12.6 million for the three months ended March 31, 2017 if presented on a consistent basis with the three months ended March 31, 2018. These decreases in other non-interest income were partially offset by increases in other non-interest income of $1.0 million, primarily from commercial operating leases, and the recognition of other-than-temporary impairment charges of $1.7 million in first quarter 2017 related to the Religare equity securities.
Non-interest expense of $52.3 million increased $2.9 million, or 5.9%, for the three months ended March 31, 2018 when compared to non-interest expense of $49.4 million for the three months ended March 31, 2017. This increase resulted primarily from increases in salaries and employee benefits of $3.8 million, driven primarily by salary increases as well as increases in the average number of full-time equivalent employees as Customers continues to hire new team members in the markets that it serves. These increases in non-interest expense were partially offset by a decrease in professional services of $1.5 million. This decrease was primarily attributable to reductions in consulting, legal and other professional services as management continues its efforts to monitor and control expenses.
Income tax expense of $7.4 million increased $0.4 million, or 5.6%, for the three months ended March 31, 2018 when compared to income tax expense of $7.0 million for the three months ended March 31, 2017. The increase in income tax expense was driven primarily by the prior year period recognition of $6.1 million of deferred tax benefits related to the vesting of restricted shares and exercises of employee stock options and the adoption of a tax strategy to capture the benefit of other-than-temporary impairment losses on investment securities that reduced the first quarter 2017 tax rate to 21.4%, offset in large part by the lower federal tax rate from the adoption of the Tax Cut and Jobs Act of 2017, as well as by a decrease in pre-tax income of $1.2 million in first quarter 2018 compared to first quarter 2017.
Preferred stock dividends were $3.6 million for the three months ended March 31, 2018 and 2017, respectively.


NET INTEREST INCOME
Net interest income (the difference between the interest earned on loans, investments and interest-earning deposits with banks, and interest paid on deposits, borrowed funds and subordinated debt) is the primary source of Customers' earnings. 
The following table summarizes Customers' net interest income and related spread and margin for the periods indicated.
 Three Months Ended March 31,
 2018 2017
 
Average
Balance
 
Interest
Income or
Expense
 
Average
Yield or
Cost (%)
 
Average
Balance
 
Interest
Income or
Expense
 
Average
Yield or
Cost (%)
(dollars in thousands)           
Assets           
Interest-earning deposits$184,033
 $694
 1.53% $499,561
 $973
 0.79%
Investment securities (A)1,085,429
 8,672
 3.20% 829,730
 5,887
 2.88%
Loans:           
Commercial loans to mortgage companies1,591,749
 18,394
 4.69% 1,480,335
 14,563
 3.99%
Multifamily loans3,637,929
 33,312
 3.71% 3,337,334
 30,508
 3.71%
Commercial and industrial1,653,655
 17,687
 4.34% 1,350,720
 13,496
 4.05%
Non-owner occupied commercial real estate1,281,502
 12,413
 3.93% 1,277,286
 11,984
 3.81%
All other loans330,100
 4,125
 5.07% 415,693
 4,856
 4.74%
Total loans (B)8,494,935
 85,931
 4.10% 7,861,368
 75,407
 3.89%
Other interest-earning assets116,823
 1,667
 5.79% 75,980
 827
 4.41%
Total interest-earning assets9,881,220
 96,964
 3.97% 9,266,639
 83,094
 3.64%
Non-interest-earning assets394,487
     340,902
    
Total assets$10,275,707
     $9,607,541
    
Liabilities           
Interest checking accounts$499,245
 1,432
 1.16% $318,248
 497
 0.63%
Money market deposit accounts3,402,963
 11,471
 1.37% 3,155,674
 6,225
 0.80%
Other savings accounts37,496
 25
 0.27% 43,285
 28
 0.26%
Certificates of deposit1,872,351
 6,865
 1.49% 2,699,317
 7,573
 1.14%
Total interest-bearing deposits5,812,055
 19,793
 1.38% 6,216,524
 14,323
 0.93%
Borrowings2,182,463
 12,140
 2.25% 1,130,490
 6,353
 2.28%
Total interest-bearing liabilities7,994,518
 31,933
 1.62% 7,347,014
 20,676
 1.14%
Non-interest-bearing deposits1,278,947
     1,315,194
    
Total deposits and borrowings9,273,465
   1.39% 8,662,208
   0.97%
Other non-interest-bearing liabilities75,307
     77,339
    
Total liabilities9,348,772
     8,739,547
    
Shareholders’ Equity926,935
     867,994
    
Total liabilities and shareholders’ equity$10,275,707
     $9,607,541
    
Net interest earnings  65,031
     62,418
  
Tax-equivalent adjustment (C)  171
     93
  
Net interest earnings  $65,202
     $62,511
  
Interest spread    2.58%     2.67%
Net interest margin    2.66%     2.73%
Net interest margin tax equivalent (C)    2.67%     2.73%
(A)For presentation in this table, average balances and the corresponding average yields for investment securities are based upon historical cost, adjusted for other-than-temporary impairment and amortization of premiums and accretion of discounts.
(B)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.
(C)Non-GAAP tax-equivalent basis, using a 26% rate for the current period and a 35% rate for the other periods presented to approximate interest income as a taxable asset. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
 Three Months Ended March 31,
 2018 vs. 2017
 
Increase (Decrease) due
to Change in
  
 Rate Volume Total
(amounts in thousands)     
Interest income     
Interest-earning deposits$567
 $(846) $(279)
Investment securities808
 1,977
 2,785
Loans:     
Commercial loans to mortgage companies2,677
 1,154
 3,831
Multifamily loans52
 2,752
 2,804
Commercial and industrial1,002
 3,189
 4,191
Non-owner occupied commercial real estate389
 40
 429
All other loans321
 (1,052) (731)
Total loans4,441
 6,083
 10,524
Other interest-earning assets309
 531
 840
Total interest income6,125
 7,745
 13,870
Interest expense     
Interest checking accounts556
 379
 935
Money market deposit accounts4,724
 522
 5,246
Other savings accounts
 (3) (3)
Certificates of deposit1,969
 (2,677) (708)
Total interest-bearing deposits7,249
 (1,779) 5,470
Borrowings(63) 5,850
 5,787
Total interest expense7,186
 4,071
 11,257
Net interest income$(1,061) $3,674
 $2,613

Net interest income for the three months ended March 31, 2018 was $65.0 million, an increase of $2.6 million, or 4.2%, from net interest income of $62.4 million for the three months ended March 31, 2017, as average loan and security balances increased $0.9 billion. Net interest margin (tax equivalent) narrowed by 6 basis points to 2.67% for first quarter 2018 compared to 2.73% for first quarter 2017. The net interest margin (tax equivalent) compression largely resulted from a 45 basis point increase in the cost of interest bearing deposits, primarily reflecting higher interest rates offered by Customers on its money market deposit accounts and certificates of deposits in order to remain competitive and attract new and retain existing deposit customers. Prepayment fees for the three months ended March 31, 2018 also decreased by $0.6 million when compared to the same period of last year. The higher cost of funds and the decrease in prepayment fees was offset in part by a 33 basis point increase in the yield of interest-earning assets, primarily due to an increase in the yield of our portfolio of commercial loans to mortgage companies.
Interest expense on borrowings increased $5.8 million in first quarter 2018 compared to first quarter 2017. This increase was primarily driven by higher average balances of borrowings, which increased $1.1 billion for first quarter 2018 compared to first quarter 2017, primarily as a result of the increases in FHLB advances, federal funds purchased, and in the outstanding balance of senior note borrowings.


PROVISION FOR LOAN LOSSES
The provision for loan losses of $2.1 million decreased by $0.9 million for the three months ended March 31, 2018, compared to $3.1 million for the same period in 2017. The provision for loan losses in first quarter 2018 included $0.9 million for loan portfolio growth and $1.3 million for impaired loans, offset in part by a $0.2 million release resulting from improved asset quality and lower incurred losses than previously estimated. In first quarter 2017, the provision for loan losses of $3.1 million included provision of $0.5 million for new loan growth and $2.5 million for reserves on impaired loans.
For more information about the provision and allowance for loan losses and our loss experience, see “Credit Risk” and “Asset Quality” herein.

NON-INTEREST INCOME

The table below presents the components of non-interest income for the three months ended March 31, 2018 and 2017.
 Three Months Ended March 31,
 2018 2017
(amounts in thousands)   
Interchange and card revenue$9,661
 $13,511
Deposit fees2,092
 3,127
Bank-owned life insurance2,031
 1,367
Mortgage warehouse transactional fees1,887
 2,221
Gain on sale of SBA and other loans1,361
 1,328
Mortgage banking income121
 155
Impairment loss on investment securities
 (1,703)
Other3,757
 2,748
Total non-interest income$20,910
 $22,754
Non-interest income decreased $1.8 million during the three months ended March 31, 2018 to $20.9 million, compared to $22.8 million for the three months ended March 31, 2017. This decrease was primarily due to decreases in interchange and card revenue and deposit fees of $3.9 million and $1.0 million, respectively, driven by lower transactional volumes for the three months ended March 31, 2018 compared to the same period in 2017 in the BankMobile business segment. Interchange and card revenue of $9.7 million for the three months ended March 31, 2018 is presented net of $1.5 million of debit and prepaid interchange expenses in accordance with the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as described in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION. Interchange and card revenue would have been $12.6 million for the three months ended March 31, 2017 if presented on a consistent basis with the three months ended March 31, 2018. These decreases in non-interest income were offset in part by increases in other non-interest income of $1.0 million, primarily driven by commercial operating leases, income from bank-owned life insurance policies of $0.7 million, and the prior period recognition of other-than-temporary impairment losses of equity securities related to the Religare investment of $1.7 million for the three months ended March 31, 2017. No such impairment was recorded for the three months ended March 31, 2018.

NON-INTEREST EXPENSE
The table below presents the components of non-interest expense for the three months ended March 31, 2018 and 2017.
 Three Months Ended March 31,
 2018 2017
(amounts in thousands)   
Salaries and employee benefits$24,925
 $21,112
Technology, communication and bank operations9,943
 9,916
Professional services6,008
 7,512
Occupancy2,834
 2,714
FDIC assessments, non-income taxes, and regulatory fees2,200
 1,725
Provision for operating losses1,526
 1,646
Loan workout659
 521
Advertising and promotion390
 326
Merger and acquisition related expenses106
 
Other real estate owned expenses (income)40
 (55)
Other3,649
 3,949
Total non-interest expense$52,280
 $49,366
Non-interest expense was $52.3 million for the three months ended March 31, 2018, an increase of $2.9 million from non-interest expense of $49.4 million for the three months ended March 31, 2017.
Salaries and employee benefits, which represent the largest component of non-interest expense, increased $3.8 million, or 18.1%, to $24.9 million for the three months ended March 31, 2018 from $21.1 million for the three months ended March 31, 2017. The increase was primarily attributable to increases in compensation levels for existing employees reflecting higher costs to maintain our workforce, and increases in the average number of full-time equivalent employees by 35, as Customers continues to hire new team members in the markets it serves.
Professional services expenses decreased $1.5 million, or 20.0%, to $6.0 million for the three months ended March 31, 2018 from $7.5 million for the three months ended March 31, 2017. These decreases were primarily attributable to reductions in consulting, legal and other professional services as management continues its efforts to monitor and control expenses.

INCOME TAXES
Income tax expense of $7.4 million increased $0.4 million, or 5.6%, for the three months ended March 31, 2018 when compared to income tax expense of $7.0 million for the three months ended March 31, 2017. Customers did not experience the large tax benefit in first quarter 2018 compared to first quarter 2017 due to the December 22, 2017 adoption of the Tax Cuts and Jobs Act of 2017 because Customers recognized $6.1 million in deferred tax benefits in first quarter 2017, resulting in an effective tax rate for first quarter 2017 of 21.4%, which is comparable to the first quarter 2018 effective tax rate of 23.5%. This increase was offset in part by a decrease in pre-tax income of $1.2 million in first quarter 2018 compared to first quarter 2017.

PREFERRED STOCK DIVIDENDS
Preferred stock dividends were $3.6 million for the three months ended March 31, 2018 and 2017, respectively.

Financial Condition
General
Customers' total assets were $10.8 billion at March 31, 2018. This represented a $0.9 billion, or 9.4%, increase from total assets of $9.8 billion at December 31, 2017. At December 31, 2017, Customers had strategically reduced total assets to under $10 billion to improve capital ratios and to continue to maintain its small issuer status under the Durbin Amendment to maximize interchange revenue until the spin-off of BankMobile is completed, or until July 1, 2019. The change in Customers' financial position at March 31, 2018 compared to December 31, 2017 occurred primarily as the result of an increase in total investment securities of $0.7 billion, or 150.7%, to $1.2 billion at March 31, 2018 compared to $0.5 billion at December 31, 2017, primarily driven by growth in agency-guaranteed mortgage-backed securities and corporate bonds. The increase in total assets was also attributable to the increase in total loans outstanding, including loans held for sale, of $111.3 million since December 31, 2017, or 1.3%, primarily driven by growth in commercial loans to mortgage banking businesses of $86.7 million and commercial and industrial loans (including owner occupied commercial real estate loans) of $65.7 million. These increases were offset in part by a decrease in non-owner occupied commercial real estate loans of $22.8 million in first quarter 2018.
Total liabilities were $9.9 billion at March 31, 2018. This represented a $0.9 billion, or 10.4%, increase from $8.9 billion at December 31, 2017. The increase in total liabilities resulted primarily from FHLB borrowings, which increased by $0.6 billion, or 39.8%, to $2.3 billion at March 31, 2018 from $1.6 billion at December 31, 2017, and total deposits, which increased $242.3 million, or 3.6%, to $7.0 billion at March 31, 2018 from $6.8 billion at December 31, 2017. Federal funds purchased increased $40.0 million, or 25.8%, to $195.0 million at March 31, 2018 from $155.0 million at December 31, 2017.
The following table presents certain key condensed balance sheet data as of March 31, 2018 and December 31, 2017:
March 31,
2018
 December 31,
2017
March 31,
2018
 December 31,
2017
   
(amounts in thousands)      
Cash and cash equivalents$215,411
 $146,323
$215,411
 $146,323
Investment securities, at fair value1,181,661
 471,371
1,181,661
 471,371
Loans held for sale (includes $1,875,515 and $1,795,294, respectively, at fair value)1,875,515
 1,939,485
Loans held for sale (includes $662 and $1,886, respectively, at fair value) - as restated662
 146,077
Loans receivable, mortgage warehouse, at fair value - as restated1,874,853
 1,793,408
Loans receivable6,943,566
 6,768,258
6,943,566
 6,768,258
Allowance for loan losses(39,499) (38,015)(39,499) (38,015)
Total assets10,769,266
 9,839,555
10,769,266
 9,839,555
Total deposits7,042,459
 6,800,142
7,042,459
 6,800,142
Federal funds purchased195,000
 155,000
195,000
 155,000
FHLB advances2,252,615
 1,611,860
2,252,615
 1,611,860
Other borrowings186,735
 186,497
186,735
 186,497
Subordinated debt108,904
 108,880
108,904
 108,880
Total liabilities9,850,178
 8,918,591
9,850,178
 8,918,591
Total shareholders’ equity919,088
 920,964
919,088
 920,964
Total liabilities and shareholders’ equity10,769,266
 9,839,555
10,769,266
 9,839,555
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and interest-earning deposits. Cash and due from banks consists mainly of vault cash and cash items in the process of collection.  These balances totaled $9.2 million at March 31, 2018. This represents a $11.2 million decrease from $20.4 million at December 31, 2017.  These balances vary from day to day, primarily due to variations in customers’ deposits with Customers.

Interest-earning deposits consist of cash deposited at other banks, primarily the Federal Reserve Bank of Philadelphia. Interest-earning deposits were $206.2 million and $125.9 million at March 31, 2018 and December 31, 2017, respectively. This balance varies from day to day, depending on several factors, such as fluctuations in customers' deposits with Customers, payment of checks drawn on customers' accounts and strategic investment decisions made to maximize Customers' net interest income, while effectively managing interest-rate risk and liquidity. Customers targeted a lower cash balance at December 31, 2017 consistent with its objectives of reducing total assets below $10 billion as of year end 2017.

In connection with the June 2016 acquisition of the Disbursement business from Higher One, as of March 31, 2018 and December 31, 2017, Customers had $5 million in an escrow account restricted in use with a third party to be paid to Higher One upon the second anniversary of the transaction closing. Also, in connection with the planned spin-off and merger, Customers had $1.0 million in an escrow account with a third party that is reserved for payment to Flagship Community Bank in the event the amended and restated agreement with Flagship is terminated for reasons described in the agreement. See NOTE 2 - SPIN-OFF AND MERGER for additional details related to this escrow account. In connection with the purchase of certain university relationships in January 2018, Customers placed $1.5 million in an escrow account with a third party that is reserved for payment to a third party by June 30, 2018.
Investment Securities
The investment securities portfolio is an important source of interest income and liquidity. It consists of mortgage-backed securities (guaranteed by an agency of the United States government), corporate debt and marketable equity securities. In addition to generating revenue, the investment portfolio is maintained to manage interest-rate risk, provide liquidity, provide collateral for other borrowings and diversify the credit risk of interest-earning assets. The portfolio is structured to maximize net interest income, given changes in the economic environment, liquidity position and balance sheet mix.
At March 31, 2018, investment securities were $1.2 billion compared to $0.5 billion at December 31, 2017, an increase of $0.7 billion. The increase was primarily the result of purchases of agency-guaranteed mortgage-backed securities and corporate securities totaled $756.2 million during the three months ended March 31, 2018, offset in part by maturities, calls and principal repayments in the amount of $11.5 million during the three months ended March 31, 2018, consistent with Customers' goals to increase interest-earning assets in first quarter 2018.
For financial reporting purposes, available-for-sale debt securities are carried at fair value. Unrealized gains and losses on available-for-sale debt securities are included in other comprehensive income and reported as a separate component of shareholders’ equity, net of the related tax effect. Beginning January 1, 2018, changes in the fair value of marketable equity securities previously classified as available for sale will be recorded in earnings in the period in which they occur and will no longer be deferred in accumulated other comprehensive income. Amounts previously recorded to accumulated other comprehensive income were reclassified to retained earnings on January 1, 2018. See NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for additional details related to the adoption of ASU 2016-01.


LOANS
Existing lending relationships are primarily with small and middle market businesses and individual consumers primarily in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Rye Brook, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan and Melville, New York; Washington, D.C.; and Chicago, Illinois. The portfolio of loans to mortgage banking businesses is nationwide. The loan portfolio consists primarily of loans to support mortgage banking companies’ funding needs, multi-family/commercial real estate and commercial and industrial loans. Customers continues to focus on small and middle market business loans to grow its commercial lending efforts, expand its specialty mortgage warehouse lending business and expand its multi-family/commercial real estate lending business.
Commercial Lending
Customers' commercial lending is divided into five groups: Business Banking, Small and Middle Market Business Banking, Multi-Family and Commercial Real Estate Lending, Mortgage Banking Lending and Equipment Finance. This grouping is designed to allow for greater resource deployment, higher standards of risk management, strong asset quality, lower interest- rate risk and higher productivity levels.
The commercial lending group focuses primarily on companies with annual revenues ranging from $1 million to $100 million, which typically have credit requirements between $0.5 million and $10 million.
The small and middle market business banking platform originates loans, including Small Business Administration loans, through the branch network sales force and a team of dedicated relationship managers. The support administration of this platform is centralized including risk management, product management, marketing, performance tracking and overall strategy. Credit and sales training has been established for Customers' sales force, ensuring that it has small business experts in place providing appropriate financial solutions to the small business owners in its communities. A division approach focuses on industries that offer high asset quality and are deposit rich to drive profitability.
In 2009, Customers launched its lending to mortgage banking businesses products, which primarily provides financing to mortgage bankers for residential mortgage originations from loan closing until sale in the secondary market. Many providers of liquidity in this segment exited the business in 2009 during a period of market turmoil. Customers saw an opportunity to provide liquidity to this business segment at attractive spreads.  There was also the opportunity to attract escrow deposits and to generate fee income in this business. The goal of the mortgage banking business lending group is to originate loans that provide liquidity to mortgage banking companies. These loans are primarily used by mortgage companies to fund their pipelines from closing of individual mortgage loans until their sale into the secondary market. The underlying residential loans are taken as collateral for Customers' commercial loans to the mortgage companies. As of March 31, 2018 and December 31, 2017, commercial loans to mortgage banking businesses totaled $1.9 billion and $1.8 billion, respectively, and are reported as loans held for sale.receivable, mortgage warehouse, at fair value on the consolidated balance sheets.
The goal of Customers' multi-family lending group is to build a portfolio of high-quality multi-family loans within Customers' covered markets, while cross selling other products and services. These lending activities primarily target the refinancing of loans with other banks using conservative underwriting standards and provide purchase money for new acquisitions by borrowers. The primary collateral for these loans is a first lien mortgage on the multi-family property, plus an assignment of all leases related to such property. As of March 31, 2018, Customers had multi-family loans of $3.6 billion outstanding, comprising approximately 41.3% of the total loan portfolio, compared to $3.6 billion, or approximately 41.9% of the total loan portfolio, at December 31, 2017.
The equipment finance group offers equipment financing and leasing products and services for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. As of March 31, 2018 and December 31, 2017, Customers had $156.6 million and $152.5 million, respectively, of equipment finance loans outstanding. As of March 31, 2018 and December 31, 2017, Customers had $33.2 million and $26.6 million of finance leases, respectively. As of March 31, 2018 and December 31, 2017, Customers had $23.6 million and $21.7 million, respectively, of operating leases entered into under this program, net of accumulated depreciation of $1.3 million and $0.5 million, respectively.
As of March 31, 2018, Customers had $8.5 billion in commercial loans outstanding, totaling approximately 96.4% of its total loan portfolio, which includes loans held for sale, compared to commercial loans outstanding of $8.4 billion, comprising approximately 96.2% of its loan portfolio, at December 31, 2017.

Consumer Lending
Customers provides home equity and residential mortgage loans to customers. Underwriting standards for home equity lending are conservative and lending is offered to solidify customer relationships and grow relationship revenues in the long term. This lending is important in Customers' efforts to grow total relationship revenues for its consumer households. As of March 31, 2018, Customers had $317.8 million in consumer loans outstanding, or 3.6% of the total loan portfolio. Customers plans to expand its product offerings in real estate secured consumer lending in 2018.
Customers has launched a community outreach program in Philadelphia to finance homeownership in urban communities. As part of this program, Customers is offering an “Affordable Mortgage Product." This community outreach program is penetrating the underserved population, especially in low and moderate income neighborhoods. As part of this commitment, a loan production office was opened in Progress Plaza, 1501 North Broad Street, Philadelphia, PA. The program includes homebuyer seminars that prepare potential homebuyers for homeownership by teaching money management and budgeting skills, including the financial responsibilities that come with having a mortgage and owning a home. The “Affordable Mortgage Product” is offered throughout Customers' assessment areas.
Loans Held for Sale

The composition of loans held for sale as of March 31, 2018 and December 31, 2017 was as follows:
March 31, December 31,March 31, December 31,
2018 20172018 2017
(amounts in thousands) (As Restated) (As Restated)
Commercial loans:      
Mortgage warehouse loans, at fair value$1,874,853
 $1,793,408
Multi-family loans at lower of cost or fair value
 144,191

 144,191
Total commercial loans held for sale1,874,853
 1,937,599

 144,191
Consumer Loans:   
Consumer loans:   
Residential mortgage loans, at fair value662
 1,886
662
 1,886
Loans held for sale$1,875,515
 $1,939,485
$662
 $146,077
At March 31, 2018, loans held for sale totaled $1.9 billion,$0.7 million, or 21.3%less than 0.01% of the total loan portfolio, and $1.9 billion,$146.1 million, or 22.3%1.7% of the total loan portfolio, at December 31, 2017. Held-for-sale loansLoans held for sale are carried on the balance sheet at either fair value (due to the election of the fair value option) or at the lower of cost or fair value. An allowance for loan losses is not recorded on loans that are classified as held for sale.

Loans Receivable

Loans receivable (excluding loans held for sale)sale and loans reported at their fair value), net of the allowance for loan losses, increased by $173.8 million to $6.9 billion at March 31, 2018 from $6.7 billion at December 31, 2017. LoansTotal loans receivable as of March 31, 2018 and December 31, 2017 consisted of the following:
March 31, December 31,March 31, December 31,
2018 20172018 2017
(amounts in thousands) (As Restated) (As Restated)
Loans receivable, mortgage warehouse, at fair value$1,874,853
 $1,793,408
Loans receivable:   
Commercial:      
Multi-family$3,645,374
 $3,502,381
$3,645,374
 $3,502,381
Commercial and industrial (including owner occupied commercial real estate)1,704,791
 1,633,818
1,704,791
 1,633,818
Commercial real estate non-owner occupied1,195,904
 1,218,719
1,195,904
 1,218,719
Construction81,101
 85,393
81,101
 85,393
Total commercial loans6,627,170
 6,440,311
Total commercial loans receivable6,627,170
 6,440,311
Consumer:      
Residential real estate225,839
 234,090
225,839
 234,090
Manufactured housing87,687
 90,227
87,687
 90,227
Other3,570
 3,547
3,570
 3,547
Total consumer loans317,096
 327,864
Total loans receivable6,944,266
 6,768,175
Total consumer loans receivable317,096
 327,864
Loans receivable6,944,266
 6,768,175
Deferred (fees)/costs and unamortized (discounts)/premiums, net(700) 83
(700) 83
Allowance for loan losses(39,499) (38,015)(39,499) (38,015)
Loans receivable, net of allowance for loan losses$6,904,067
 $6,730,243
Total loans receivable, net of allowance for loan losses$8,778,920
 $8,523,651
Credit Risk
Customers manages credit risk by maintaining diversification in its loan portfolio, establishing and enforcing prudent underwriting standards and collection efforts and continuous and periodic loan classification reviews. Management also considers the effect of credit risk on financial performance by reviewing quarterly and maintaining an adequate allowance for loan losses. Credit losses are charged when they are identified, and provisions are added when it is estimated that a loss has occurred, to the allowance for loan losses at least quarterly. The allowance for loan losses is estimated at least quarterly.
The provision for loan losses was $2.1 million and $3.1 million for the three months ended March 31, 2018 and 2017, respectively. The allowance for loan losses maintained for loans receivable (excludes(excluding loans held for sale)sale and loans receivable, mortgage warehouse, at fair value) was $39.5 million, or 0.57% of loans receivable, at March 31, 2018 and $38.0 million, or 0.56% of loans receivable, at December 31, 2017. Net charge-offs were $0.6 million for the three months ended March 31, 2018, an increase of $0.2 million compared to the same period in 2017. The increase in net charge-offs in first quarter 2018 was mainly driven by increases in charge-off activities related to residential real estate and other consumer loan portfolios.

The table below presents changes in the Bank’s allowance for loan losses for the periods indicated.
Analysis of the Allowance for Loan Losses
 Three Months Ended
March 31,
 2018 2017
(amounts in thousands)   
Balance at the beginning of the period$38,015
 $37,315
Loan charge-offs (1)   
Commercial and industrial50
 198
Commercial real estate owner occupied18
 
Commercial real estate non-owner occupied
 404
Residential real estate365
 221
Other consumer256
 20
Total Charge-offs689
 843
Loan recoveries (1)   
Commercial and industrial35
 215
Construction11
 81
Residential real estate7
 21
Other consumer3
 44
Total Recoveries56
 361
Total net charge-offs633
 482
Provision for loan losses2,117
 3,050
Balance at the end of the period$39,499
 $39,883
(1)Charge-offs and recoveries on purchased-credit-impaired loans that are accounted for in pools are recognized on a net basis when the pool matures.
The allowance for loan losses is based on a quarterly evaluation of the loan portfolio and is maintained at a level that management considers adequate to absorb probable losses incurred as of the balance sheet date.  All commercial loans, with the exception of mortgage warehouse loans, at fair value, are assigned credit-risk ratings, based upon an assessment of the borrower, the structure of the transaction and the available collateral and/or guarantees.  All loans are monitored regularly by the responsible officer, and the risk ratings are adjusted when considered appropriate.  The risk assessment allows management to identify problem loans timely.  Management considers a variety of factors and recognizes the inherent risk of loss that always exists in the lending process.  Management uses a disciplined methodology to estimate an appropriate level of allowance for loan losses.  Refer to Critical Accounting Policies herein and NOTE 4 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' audited financial statements in its 2017 Form 10-K10-K/A for further discussion on management's methodology for estimating the allowance for loan losses.
Approximately 84% of Customers' commercial real estate, commercial and residential construction, consumer residential and commercial and industrial loan types have real estate as collateral (collectively, “the real estate portfolio”). Customers' lien position on the real estate collateral will vary on a loan-by-loan basis and will change as a result of changes in the value of the collateral.  Current appraisals providing current value estimates of the property are received when Customers' credit group determines that the facts and circumstances have significantly changed since the date of the last appraisal, including that real estate values have deteriorated.  The credit committee and loan officers review loans that are 15 or more days delinquent and all non-accrual loans on a periodic basis.  In addition, loans where the loan officers have identified a “borrower of interest” are discussed to determine if additional analysis is necessary to apply the risk-rating criteria properly. The risk ratings for the real estate loan portfolio are determined based upon the current information available, including but not limited to discussions with the borrower, updated financial information, economic conditions within the geographic area and other factors that may affect the cash flow of the loan.  If a loan is individually evaluated for impairment, the collateral value or discounted cash flow analysis is generally used to determine the estimated fair value of the underlying collateral, net of estimated selling costs, and compared to the outstanding loan balance to determine the amount of reserve necessary, if any.  Appraisals used in this evaluation process are typically less than two years aged. For loans where real estate is not the primary source of collateral, updated financial information is obtained, including accounts receivable and inventory aging reports and relevant supplemental financial data to estimate the fair value of the loan, net of estimated selling costs, and compared to the outstanding loan balance to estimate the required reserve.

These impairment measurements are inherently subjective as they require material estimates, including, among others, estimates of property values in appraisals, the amounts and timing of expected future cash flows on individual loans, and general considerations for historical loss experience, economic conditions, uncertainties in estimating losses and inherent risks in the various credit portfolios, all of which require judgment and may be susceptible to significant change over time and as a result of changing economic conditions or other factors.  Pursuant to ASC 310-10-35 Loan Impairment and ASC 310-40 Troubled Debt Restructurings by Creditors, impaired loans, consisting primarily of non-accrual and restructured loans, are considered in the methodology for determining the allowance for credit losses.  Impaired loans are generally evaluated based on the expected future cash flows or the fair value of the underlying collateral (less estimated costs to sell) if principal repayment is expected to come from the sale or operation of such collateral.
Asset Quality

Customers divides its loan portfolio into two categories to analyze and understand loan activity and performance: loans that were originated and loans that were acquired. Customers further segments the originated and acquired loan categories by loan product or other characteristic generally defining a shared characteristic with other loans in the same group. Customers' originated loans were subject to the current underwriting standards that were put in place in 2009. Management believes this segmentation better reflects the risk in the portfolio and the various types of reserves that are available to absorb loan losses that may emerge in future periods. Credit losses from originated loans are absorbed by the allowance for loan losses. Credit losses from acquired loans are absorbed by the allowance for loan losses, nonaccretable difference fair value marks, and cash reserves. As described below, the allowance for loan losses is intended to absorb only those losses estimated to have been incurred after acquisition, whereas the fair value mark and cash reserves absorb losses estimated to have been embedded in the acquired loans at acquisition. The schedule that follows includes both loans held for sale and loans held for investment.

Asset Quality at March 31, 2018
Loan TypeTotal Loans Current 
30-89
Days Past Due
 
90
Days or More Past Due and
Accruing
 
Non-
accrual/
NPL (a)
 
OREO
(b)
 
NPA
(a)+(b)
 
NPL
to
Loan
Type
(%)
 
NPA
to
Loans +
OREO
(%)
Total Loans Current 
30-89
Days Past Due
 
90
Days or More Past Due and
Accruing
 
Non-
accrual/
NPL (a)
 
OREO
(b)
 
NPA
(a)+(b)
 
NPL
to
Loan
Type
(%)
 
NPA
to
Loans +
OREO
(%)
(amounts in thousands)      
Originated Loans                                  
Multi-Family$3,642,808
 $3,642,808
 $
 $
 $
 $
 $
 % %$3,642,808
 $3,642,808
 $
 $
 $
 $
 $
 % %
Commercial & Industrial (1)1,618,845
 1,603,417
 129
 
 15,299
 667
 15,966
 0.95% 0.99%1,618,845
 1,603,417
 129
 
 15,299
 667
 15,966
 0.95% 0.99%
Commercial Real Estate Non-Owner Occupied1,176,949
 1,176,949
 
 
 
 
 
 % %1,176,949
 1,176,949
 
 
 
 
 
 % %
Residential107,920
 103,697
 2,456
 
 1,767
 57
 1,824
 1.64% 1.69%107,920
 103,697
 2,456
 
 1,767
 57
 1,824
 1.64% 1.69%
Construction81,102
 81,102
 
 
 
 
 
 % %81,102
 81,102
 
 
 
 
 
 % %
Other consumer1,339
 1,294
 45
 
 
 
 
 % %1,339
 1,294
 45
 
 
 
 
 % %
Total Originated Loans(2)6,628,963
 6,609,267
 2,630
 
 17,066
 724
 17,790
 0.26% 0.27%6,628,963
 6,609,267
 2,630
 
 17,066
 724
 17,790
 0.26% 0.27%
Loans Acquired                                  
Bank Acquisitions141,343
 133,716
 2,519
 962
 4,146
 741
 4,887
 2.93% 3.44%141,343
 133,716
 2,519
 962
 4,146
 741
 4,887
 2.93% 3.44%
Loan Purchases
173,960
 164,612
 3,509
 3,860
 1,979
 277
 2,256
 1.14% 1.29%173,960
 164,612
 3,509
 3,860
 1,979
 277
 2,256
 1.14% 1.29%
Total Loans Acquired315,303
 298,328
 6,028
 4,822
 6,125
 1,018
 7,143
 1.94% 2.26%315,303
 298,328
 6,028
 4,822
 6,125
 1,018
 7,143
 1.94% 2.26%
Deferred fees and unamortized discounts, net(700) (700) 
 
 
 
 
    (700) (700) 
 
 
 
 
    
Total Loans Receivable6,943,566
 6,906,895
 8,658
 4,822
 23,191
 1,742
 24,933
 0.33% 0.36%
Total Loans Held for Sale1,875,515
 1,875,515
 
 
 
 
 
 
 
Loans Receivable6,943,566
 6,906,895
 8,658
 4,822
 23,191
 1,742
 24,933
 0.33% 0.36%
Loans Receivable, Mortgage Warehouse, at Fair Value - As Restated1,874,853
 1,874,853
 
 
 
 
 
    
Total Loans Held for Sale - As Restated662
 662
 
 
 
 
 
    
Total Portfolio$8,819,081
 $8,782,410
 $8,658
 $4,822
 $23,191
 $1,742
 $24,933
 0.26% 0.28%$8,819,081
 $8,782,410
 $8,658
 $4,822
 $23,191
 $1,742
 $24,933
 0.26% 0.28%
(1) Commercial & industrial loans, including owner occupied commercial real estate loans.
(1)Commercial & industrial loans, including owner occupied commercial real estate loans.
(2)Does not include loans receivable, mortgage warehouse, at fair value.


Asset Quality at March 31, 2018 (continued)
Loan TypeTotal Loans NPL ALL 
Cash
Reserve
 
Total
Credit
Reserves
 
Reserves
to Loans
(%)
 
Reserves
to NPLs
(%)
Total Loans NPL ALL 
Cash
Reserve
 
Total
Credit
Reserves
 
Reserves
to Loans
(%)
 
Reserves
to NPLs
(%)
(amounts in thousands)  
Originated Loans                          
Multi-Family$3,642,808
 $
 $12,545
 $
 $12,545
 0.34% %$3,642,808
 $
 $12,545
 $
 $12,545
 0.34% %
Commercial & Industrial (1)1,618,845
 15,299
 14,353
 
 14,353
 0.89% 93.82%1,618,845
 15,299
 14,353
 
 14,353
 0.89% 93.82%
Commercial Real Estate Non-Owner Occupied1,176,949
 
 4,444
 
 4,444
 0.38% %1,176,949
 
 4,444
 
 4,444
 0.38% %
Residential107,920
 1,767
 2,111
 
 2,111
 1.96% 119.47%107,920
 1,767
 2,111
 
 2,111
 1.96% 119.47%
Construction81,102
 
 921
 
 921
 1.14% %81,102
 
 921
 
 921
 1.14% %
Other consumer1,339
 
 101
 
 101
 7.54% %1,339
 
 101
 
 101
 7.54% %
Total Originated Loans(2)6,628,963
 17,066
 34,475
 
 34,475
 0.52% 202.01%6,628,963
 17,066
 34,475
 
 34,475
 0.52% 202.01%
Loans Acquired                          
Bank Acquisitions141,343
 4,146
 4,848
 
 4,848
 3.43% 116.93%141,343
 4,146
 4,848
 
 4,848
 3.43% 116.93%
Loan Purchases
173,960
 1,979
 176
 627
 803
 0.46% 40.58%173,960
 1,979
 176
 627
 803
 0.46% 40.58%
Total Loans Acquired315,303
 6,125
 5,024
 627
 5,651
 1.79% 92.26%315,303
 6,125
 5,024
 627
 5,651
 1.79% 92.26%
Deferred fees and unamortized discounts, net(700) 
 
 
 
    (700) 
 
 
 
    
Total Loans Receivable6,943,566
 23,191
 39,499
 627
 40,126
 0.58% 173.02%
Total Loans Held for Sale1,875,515
 
 
 
 
    
Loans Receivable6,943,566
 23,191
 39,499
 627
 40,126
 0.58% 173.02%
Loans Receivable, Mortgage Warehouse, at Fair Value - As Restated1,874,853
 
 
 
 
    
Total Loans Held for Sale - As Restated662
 
 
 
 
    
Total Portfolio$8,819,081
 $23,191
 $39,499
 $627
 $40,126
 0.45% 173.02%$8,819,081
 $23,191
 $39,499
 $627
 $40,126
 0.45% 173.02%
(1) Commercial & industrial loans, including owner occupied commercial real estate.
(1)Commercial & industrial loans, including owner occupied commercial real estate loans.
(2)Does not include loans receivable, mortgage warehouse, at fair value.

Originated Loans
Post 2009 originated loans (excluding held-for-sale loans)loans held for sale and loans receivable, mortgage warehouse, at fair value) totaled $6.6 billion at March 31, 2018, compared to $6.4 billion, at December 31, 2017. The management team adopted new underwriting standards that management believes better limits risks of loss in 2009 and has worked to maintain these standards. Only $17.1 million, or 0.26% of post 2009 originated loans, were non-performing at March 31, 2018, compared to $20.0 million of post 2009 originated loans, or 0.31% of post 2009 loans, at December 31, 2017. The post 2009 loans were supported by an allowance for loan losses of $34.5 million (0.52% of post 2009 originated loans) and $33.3 million (0.52% of post 2009 originated loans), respectively, at March 31, 2018 and December 31, 2017. Total 2009 and prior loans ("legacy loans") were $23.6 million and $25.6 million at March 31, 2018 and December 31, 2017, respectively.
Loans Acquired
At March 31, 2018, total acquired loans were $315.3 million, or 4.5% of total loans held for investment,receivable, compared to $328.8 billion, or 4.9% of total loans held for investment,receivable, at December 31, 2017.  Non-performing acquired loans totaled $6.1 million and $6.4 million at March 31, 2018 and December 31, 2017, respectively. When loans are acquired, they are recorded on the balance sheet at fair value. Acquired loans include purchased portfolios, FDIC failed-bank acquisitions, and unassisted acquisitions. Of the manufactured housing loans purchased from Tammac prior to 2012, $50.7 million were supported by a $0.6 million cash reserve at March 31, 2018, compared to $51.9 million supported by a cash reserve of $0.6 million at December 31, 2017. The cash reserve was created as part of the purchase transaction to absorb losses and is maintained in a demand deposit account at the Bank. All current losses and delinquent interest are absorbed by this reserve and any recoveries of those losses as well as the proceeds from the sale of the repossessed properties securing the loans are placed back into the reserve.  For the manufactured housing loans purchased in 2012, Tammac has an obligation to pay the Bank the full payoff amount of the defaulted loan, including any principal, unpaid interest, or advances on the loans, once the borrower vacates the property. At March 31, 2018, $30.2 million of these loans were outstanding, compared to $31.4 million at December 31, 2017.
Many of the acquired loans were purchased at a discount. The price paid considered management’s judgment as to the credit and interest rate risk inherent in the portfolio at the time of purchase. Every quarter, management reassesses the risk and adjusts the cash flow forecast to incorporate changes in the credit outlook. Generally, a decrease in forecasted cash flows for a purchased loan will result in a provision for loan losses, and absent charge-offs, an increase in the allowance for loan losses. Acquired loans have a significantly higher percentage of non-performing loans than loans originated after September 2009. Management acquired these loans with the expectation that non-performing loan levels would be elevated, and therefore incorporated that expectation into the price paid. Customers has assigned these loans to its Special Assets Group, a team that

focuses on workouts for these acquired non-performing assets. Total acquired loans were supported by reserves (allowance for loan losses and cash reserves) of $5.7 million (1.79% of total acquired loans) and $5.4 million (1.64% of total acquired loans) at March 31, 2018 and December 31, 2017, respectively.

DEPOSITS
The Bank offers a variety of deposit accounts, including checking, savings, money market deposit accounts (“MMDA”) and time deposits.  Deposits are primarily obtained from the Bank's geographic service area and nationwide through deposit brokers, listing services and other relationships.  Total deposits were $7.0 billion at March 31, 2018, an increase of $0.2 billion, or 3.6%, from $6.8 billion at December 31, 2017. Transaction deposits increased by $0.3 billion, or 5.3%, to $5.2 billion at March 31, 2018, from $4.9 billion at December 31, 2017, with non-interest bearing deposits increasing by $0.2 billion. Savings, including MMDA, totaled $3.4 billion at March 31, 2018, an increase of $63.7 million, or 1.9%, from $3.3 billion at December 31, 2017. This increase was primarily attributed to an increase in money market deposit accounts. Total time deposits were $1.9 billion at March 31, 2018, a decrease of $16.7 million, or 0.9%, from $1.9 billion at December 31, 2017. At March 31, 2018, the Bank had $1.9 billion in state and municipal deposits to which it had pledged available borrowing capacity through the FHLB to the depositor through a letter of credit arrangement. At March 31, 2018, the balance of state and municipal deposits was $1.7 billion.
The components of deposits were as follows at the dates indicated:
 March 31,
2018
 December 31,
2017
(amounts in thousands)   
Demand, non-interest bearing$1,260,853
 $1,052,115
Demand, interest bearing510,418
 523,848
Savings, including MMDA3,382,157
 3,318,486
Time, $100,000 and over1,128,774
 1,284,855
Time, other760,257
 620,838
Total deposits$7,042,459
 $6,800,142

BORROWINGS
Borrowed funds from various sources are generally used to supplement deposit growth and meet other operating needs. Customers' borrowings generally include short-term and long-term advances from the FHLB, federal funds purchased, senior unsecured notes and subordinated debt. Subordinated debt is also considered as Tier 2 capital for certain regulatory calculations. As of March 31, 2018 and December 31, 2017, total outstanding borrowings were $2.7 billion and $2.1 billion, respectively, which represented an increase of $0.7 billion, or 33.0%. This increase was primarily the result of an increase in investments and loans receivable increasing the need for short-term borrowings.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity for a financial institution is a measure of that institution’s ability to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes. Ensuring adequate liquidity is an objective of the asset/liability management process. Customers coordinates its management of liquidity with its interest rate sensitivity and capital position, and strives to maintain a strong liquidity position.
Customers' investment portfolio provides periodic cash flows through regular maturities and amortization and can be used as collateral to secure additional liquidity funding.  As of March 31, 2018 and December 31, 2017, Customers had unpledged marketable investments of $480.2 million and $454.4 million, respectively. Customers' principal sources of funds are deposits, borrowings, principal and interest payments on loans, other funds from operations, and proceeds from common and preferred stock issuances.  Borrowing arrangements are maintained with the Federal Home Loan Bank and the Federal Reserve Bank of Philadelphia to meet short-term liquidity needs.  Longer-term borrowing arrangements are also maintained with the Federal Home Loan Bank. As of March 31, 2018, Customers' borrowing capacity with the Federal Home Loan Bank was $4.8 billion, of which $2.3 billion was utilized in borrowings and $1.9 billion of available capacity was utilized to collateralize state and municipal deposits. As of December 31, 2017, Customers' borrowing capacity with the Federal Home Loan Bank was $4.3 billion, of which $1.6 billion was utilized in borrowings and $1.8 billion of available capacity was utilized to collateralize state and municipal deposits. As of March 31, 2018 and December 31, 2017, Customers' borrowing capacity with the Federal Reserve Bank of Philadelphia was $133.2 million and $142.5 million, respectively.

Net cash flows used inprovided by operating activities were $48.1$33.3 million during the three months ended March 31, 2018, compared to net cash flows provided by operating activities of $452.2$19.6 million during the three months ended March 31, 2017. During the three months ended March 31, 2018, originations of loans held for sale in excess of the proceeds from the sales of loans held for sale

required $80.1 million of cash flows used in operating activities. During the three months ended March 31, 2017, proceeds from sales of loans held for sale in excess of funds required to originate loans held for sale contributed $433.1 million to cash flows provided by operating activities.
Net cash flows used in investmentinvesting activities were $0.8$0.9 billion during the three months ended March 31, 2018, compared to net cash flows used in investing activities of $1.0$0.6 billion during the three months ended March 31, 2017.
Cash used in investing activities consisted of the following:
The origination of mortgage warehouse loans totaled $6.8 billion during the three months ended March 31, 2018, compared to $6.4 billion during the three months ended March 31, 2017.
Purchases of investment securities available for sale totaled $756.2 million during the three months ended March 31, 2018, compared to $538.5 million during the three months ended March 31, 2017.
Cash flows used to fund new loans held for investment totaled $47.0 million and $377.5 million during the three months ended March 31, 2018 and 2017, respectively.
Cash flows used to purchase loans and bank-owned life insurance policies weretotaled $171.8 million and $50.0 million, respectively, during the three months ended March 31, 2017, compared to no such similar purchases during the three months ended March 31, 2018.
Net purchases of FHLB, Federal Reserve Bank and other restricted stock totaled $24.4 million and $16.8 million during the three months ended March 31, 2018 and 2017, respectively.
Purchases of leased assets under operating leases were $2.8 million during the three months ended March 31, 2018. There were no such purchases of leased assets under operating leases during the three months ended March 31, 2017.
Cash provided by investing activities consisted of the following:
Proceeds from repayments of mortgage warehouse loans totaled $6.7 billion during the three months ended March 31, 2018, compared to $6.8 billion during the three months ended March 31, 2017.
Proceeds from maturities, calls and principal repayments of securities available for sale totaled $11.5 million during the three months ended March 31, 2018, compared to $11.8 million during the three months ended March 31, 2017.
Proceeds from the sale of loans held for investment totaled $16.5 million during the three months ended March 31, 2018, compared to $105.4 million during the three months ended March 31, 2017.
Net cash flows provided by financing activities were $0.9 billion during the three months ended March 31, 2018, compared to $0.5 billion for the three months ended March 31, 2017. During the three months ended March 31, 2018, a net increase in short-term borrowed funds provided net cash flows of $640.8 million, an increase in deposits provided net cash flows of $242.3 million, and a net increase in federal funds purchased provided net cash flows of $40.0 million, partially offset by preferred stock dividends paid of $3.6 million. During the three months ended March 31, 2017, a net increase in short-term borrowed funds provided net cash flows of $337.8 million, a net increase in federal funds purchased provided net cash flows of $132.0 million, and a net increase in deposits provided net cash flows of $31.7 million, partially offset by the payment of preferred stock dividends of $3.6 million. These financing activities provided sufficient cash flows to support Customers' investing and operating activities.
Overall, based on our core deposit base and available sources of borrowed funds, management believes that Customers has adequate resources to meet its short-term and long-term cash requirements for the foreseeable future.

CAPITAL ADEQUACY AND SHAREHOLDERS' EQUITY
Shareholders’ equity decreased $1.9 million to $919.1 million at March 31, 2018 when compared to shareholders' equity of $921.0 million at December 31, 2017, a 0.2% decrease in first quarter 2018. The primary components of the net decrease were as follows:
other comprehensive loss of $24.5 million for the three months ended March 31, 2018, arising primarily from unrealized fair value losses recognized on available-for-sale debt securities;
preferred stock dividends of $3.6 million for the three months ended March 31, 2018;
The decreases were offset in part by:

net income of $24.1 million for the three months ended March 31, 2018;
share-based compensation expense of $1.8 million for the three months ended March 31, 2018;
issuance of common stock under share-based compensation arrangements of $0.2 million for the three months ended March 31, 2018.
The Bank and Customers Bancorp are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on Customers' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and Bancorp must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and Total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At March 31, 2018 and December 31, 2017, the Bank and the Bancorp met all capital adequacy requirements to which they were subject to.

Generally, to comply with the regulatory definition of adequately capitalized, or well capitalized, respectively, or comply with Basel III capital requirements, an institution must at least maintain the common equity Tier 1, Tier 1 and total risk-based capital ratios and the Tier 1 leverage ratio in excess of the related minimum ratios set forth in the following table:
     Minimum Capital Levels to be Classified as:
 Actual Adequately Capitalized Well Capitalized Basel III Compliant
(amounts in thousands)Amount Ratio Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2018:               
Common equity Tier 1 capital (to risk-weighted assets)               
Customers Bancorp, Inc.$710,156
 8.508% $375,609
 4.500% N/A
 N/A
 $532,113
 6.375%
Customers Bank$1,037,480
 12.448% $375,048
 4.500% $541,736
 6.500% $531,318
 6.375%
Tier 1 capital (to risk-weighted assets)               
Customers Bancorp, Inc.$927,627
 11.113% $500,812
 6.000% N/A
 N/A
 $657,316
 7.875%
Customers Bank$1,037,480
 12.448% $500,064
 6.000% $666,751
 8.000% $656,333
 7.875%
Total capital (to risk-weighted assets)               
Customers Bancorp, Inc.$1,047,698
 12.552% $667,749
 8.000% N/A
 N/A
 $824,253
 9.875%
Customers Bank$1,186,105
 14.231% $666,751
 8.000% $833,439
 10.000% $823,021
 9.875%
Tier 1 capital (to average assets)               
Customers Bancorp, Inc.$927,627
 9.031% $410,858
 4.000% N/A
 N/A
 $410,858
 4.000%
Customers Bank$1,037,480
 10.107% $410,612
 4.000% $513,265
 5.000% $410,612
 4.000%
As of December 31, 2017:               
Common equity Tier 1 capital (to risk-weighted assets)               
Customers Bancorp, Inc.$689,494
 8.805% $352,368
 4.500% N/A
 N/A
 $450,248
 5.750%
Customers Bank$1,023,564
 13.081% $352,122
 4.500% $508,621
 6.500% $449,934
 5.750%
Tier 1 capital (to risk-weighted assets)               
Customers Bancorp, Inc.$906,963
 11.583% $469,824
 6.000% N/A
 N/A
 $567,704
 7.250%
Customers Bank$1,023,564
 13.081% $469,496
 6.000% $625,994
 8.000% $567,307
 7.250%
Total capital (to risk-weighted assets)               
Customers Bancorp, Inc.$1,021,601
 13.047% $626,432
 8.000% N/A
 N/A
 $724,313
 9.250%
Customers Bank$1,170,666
 14.961% $625,994
 8.000% $782,493
 10.000% $723,806
 9.250%
Tier 1 capital (to average assets)               
Customers Bancorp, Inc.$906,963
 8.937% $405,949
 4.000% N/A
 N/A
 $405,949
 4.000%
Customers Bank$1,023,564
 10.092% $405,701
 4.000% $507,126
 5.000% $405,701
 4.000%

The capital ratios above reflect the capital requirements under "Basel III" effective during first quarter 2015 and the capital conservation buffer effective January 1, 2016. Failure to maintain the required capital conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers. As of March 31, 2018, the Bank and Customers Bancorp were in compliance with the Basel III requirements. See "NOTE 9 - REGULATORY CAPITAL" to Customers' unaudited financial statements for additional discussion regarding regulatory capital requirements.


OFF-BALANCE SHEET ARRANGEMENTS
Customers is involved with financial instruments and other commitments with off-balance sheet risks. Financial instruments with off-balance sheet risks are incurred in the normal course of business to meet the financing needs of the Bank's customers. These financial instruments include commitments to extend credit, including unused portions of lines of credit, and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the balance sheets.
With commitments to extend credit, exposures to credit loss in the event of non-performance by the other party to the financial instrument is represented by the contractual amount of those instruments. The same credit policies are used in making commitments and conditional obligations as for on-balance sheet instruments. Because they involve credit risk similar to extending a loan, commitments to extend credit are subject to the Bank’s credit policy and other underwriting standards.
As of March 31, 2018 and December 31, 2017, the following off-balance sheet commitments, financial instruments and other arrangements were outstanding:
 March 31, 2018 December 31, 2017
(amounts in thousands) 
Commitments to fund loans$213,915
 $333,874
Unfunded commitments to fund mortgage warehouse loans1,548,629
 1,567,139
Unfunded commitments under lines of credit712,009
 485,345
Letters of credit39,732
 39,890
Other unused commitments6,679
 6,679
Commitments to fund loans, unfunded commitments to fund mortgage warehouse loans, unfunded commitments under lines of credit and letters of credit are agreements to extend credit to or for the benefit of a customer in the ordinary course of the Bank's business.
Commitments to fund loans and unfunded commitments under lines of credit may be obligations of the Bank as long as there is no violation of any condition established in the contract. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if the Bank deems it necessary upon extension of credit, is based upon management’s credit evaluation. Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment.
Mortgage warehouse loan commitments are agreements to fund the pipelines of mortgage banking businesses from closing of individual mortgage loans until their sale into the secondary market. Most of the individual mortgage loans are insured or guaranteed by the U.S. government through one of its programs such as FHA, VA, or are conventional loans eligible for sale to Fannie Mae and Freddie Mac. These commitments generally fluctuate monthly based on changes in interest rates, refinance activity, new home sales and laws and regulation.
Outstanding letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Letters of credit may obligate the Bank to fund draws under those letters of credit whether or not a customer continues to meet the conditions of the extension of credit. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Effect of Government Monetary Policies
Our earnings are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve Board is to regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect rates charged on loans or paid for deposits.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity
The largest component of Customers' net income is net interest income, and the majority of its financial instruments are interest-rate sensitive assets and liabilities with various term structures and maturities.  One of the primary objectives of management is to maximize net interest income while minimizing interest-rate risk.  Interest-rate risk is derived from timing differences in the repricing of assets and liabilities, loan prepayments, deposit withdrawals and differences in lending and funding rates.  Customers' asset/liability committee actively seeks to monitor and control the mix of interest-rate sensitive assets and interest-rate sensitive liabilities.
Customers uses two complementary methods to analyze and measure interest-rate sensitivity as part of the overall management of interest-rate risk; they are income simulation modeling and estimates of economic value of equity.  The combination of these two methods provides a reasonably comprehensive summary of the levels of interest-rate risk of Customers' exposure to time factors and changes in interest-rate environments.
Income simulation modeling is used to measure interest-rate sensitivity and manage interest-rate risk.  Income simulation considers not only the impact of changing market interest rates upon forecasted net interest income but also other factors such as yield-curve relationships, the volume and mix of assets and liabilities, customer preferences and general market conditions.
Through the use of income simulation modeling, Customers has estimated the net interest income for the period ending March 31, 2019, based upon the assets, liabilities and off-balance sheet financial instruments in existence at March 31, 2018. Customers has also estimated changes to that estimated net interest income based upon interest rates rising or falling immediately (“rate shocks”). For upward rate shocks modeling a rising rate environment, current market interest rates were increased immediately by 100, 200, and 300 basis points. For downward rate shocks modeling a falling rate environment, current market rates were only decreased immediately by 100 basis points due to the limitations of the current low interest rate environment that renders the Down 200 and Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. The following table reflects the estimated percentage change in estimated net interest income for the period ending March 31, 2019, resulting from changes in interest rates.
Net change in net interest income
Rate Shocks% Change
Up 3%(14.8)%
Up 2%(7.5)%
Up 1%(2.5)%
Down 1%(1.8)%
The net changes in net interest income in all scenarios are within Customers Bank's interest rate risk policy guidelines.
Economic Value of Equity (“EVE”) estimates the discounted present value of asset and liability cash flows. Discount rates are based upon market prices for comparable assets and liabilities. Upward and downward rate shocks are used to measure volatility of EVE in relation to a constant rate environment. For upward rate shocks modeling a rising rate environment, current market interest rates were increased immediately by 100, 200, and 300 basis points. For downward rate shocks modeling a falling rate environment, current market rates were only decreased immediately by 100 basis points due to the limitations of the current low interest rate environment that renders the Down 200 and Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. This method of measurement primarily evaluates the longer term repricing risks and options in Customers Bank’s balance sheet. The following table reflects the estimated EVE at risk and the ratio of EVE to EVE adjusted assets at March 31, 2018, resulting from shocks to interest rates.
Rate ShocksFrom base
Up 3%(28.8)%
Up 2%(17.0)%
Up 1%(7.3)%
Down 1%2.7 %
The net changes in economic value of equity in all scenarios are within Customers Bank's interest rate risk policy guidelines.

Management believes that the assumptions and combination of methods utilized in evaluating estimated net interest income are reasonable. However, the interest rate sensitivity of our assets, liabilities and off-balance sheet financial instruments, as well as the estimated effect of changes in interest rates on estimated net interest income, could vary substantially if different assumptions are used or actual experience differs from the assumptions used in the model.
Item 4. Controls and Procedures
As
(a) Management's Evaluation of Disclosure Controls and Procedures. Customers Bancorp maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its periodic filings under the end of the period covered by this report,Exchange Act is accumulated and communicated to its management on a timely basis to allow decisions regarding required disclosure. Customers Bancorp carried out an evaluation, under the supervision and with the participation of Customers Bancorp’s management, including Customers Bancorp’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Customers Bancorp’s disclosure controls and procedures as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon as of March 31, 2018. In connection with the evaluation,restatement discussed in the Explanatory Note to this Quarterly Report on Form 10-Q/A and in Note 3 to the consolidated financial statements, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, concluded thatmanagement re-evaluated Customers Bancorp’s disclosure controls and procedures were effective atas of March 31, 2018. During its re-evaluation, management identified a material weakness in internal control over financial reporting that resulted in the incorrect classification of cash flows used in and provided by Customers' commercial mortgage warehouse lending activities between operating and investing activities on the consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale instead of held for investment on the consolidated balance sheets. Solely as a result of this material weakness, Customers Bancorp concluded that its disclosure controls and procedures were not effective as of March 31, 2018.

Remediation Plan. Customers Bancorp conducted a comprehensive analysis of the classifications of cash flows within its consolidated statements of cash flows and established new accounting policies and disclosure control procedures for the classification and reporting of its commercial mortgage warehouse lending transactions on the consolidated balance sheets and statements of cash flows. Management expects these efforts to remediate the identified material weakness and strengthen internal control over financial reporting. As management continues to evaluate and work to enhance internal control over financial reporting, it may determine that additional measures are required to address control deficiencies, strengthen internal control over financial reporting, or it may determine to modify the remediation plan described above.

(b) Changes in Internal Control Over Financial Reporting. During the quarter ended March 31, 2018, there have been no changes in Customers Bancorp’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Customers Bancorp’s internal control over financial reporting. However, as described above, management did implement changes in internal control over financial reporting during fourth quarter 2018 designed to remediate a material weakness related to the classification and reporting of its commercial mortgage warehouse lending transactions on its consolidated balance sheets and statements of cash flows.


Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes to the legal proceedings disclosed within our 2017 Form 10-K.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in “Risk Factors” included within the 2017 Form 10-K. There are no material changes from the risk factors included within the 2017 Form 10-K. The risks described within the 2017 Form 10-K are not the only risks facing us.  Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition and/or operating results.  See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Note Regarding Forward-Looking Statements.”



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 26, 2013, Customers announced that the Board of Directors had authorized a stock repurchase plan in which the Bancorp could acquire up to 5% of its current outstanding shares at prices not to exceed a 20% premium over the then current book value. The repurchase program has no expiration date but may be suspended, modified or discontinued at any time, and the Bancorp has no obligation to repurchase any amount of its common stock under the program.
During the three months ended March 31, 2018, Customers did not repurchase any of its shares. The maximum number of shares available to be purchased under the plan is 750,551 shares.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information

Reclassification of Previously Reported Financial Information

On April 30, 2018, Customers filed a current report on Form 8-K with certain unaudited financial information included in Exhibit 99.1. The unaudited consolidated statements of operations for the three months ended December 31, 2017 ("Q4 2017"), the three months ended September 30, 2017 ("Q3 2017"), the three months June 30, 2017 ("Q2 2017"), and the three months ended March 31, 2017 ("Q1 2017") and the unaudited BankMobile segment results for Q4 2017, Q3 2017, Q2 2017, and Q1 2017 included in Exhibit 99.1 were presented for comparative purposes with the unaudited consolidated statements of operations and BankMobile segment results for the three months ended March 31, 2018 ("Q1 2018") as if the adoption of Accounting Standards Codification ("ASU") 2014-09, Revenues from Contracts with Customers (Topic 606), was done on a retrospective basis. As disclosed in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' unaudited interim consolidated financial statements, Customers adopted ASU 2014-09 on a modified retrospective basis and, accordingly, presented debit and prepaid card interchange expense as a reduction to interchange and card revenue (a component of non-interest income) instead of an increase to technology, communication and bank operations (a component of non-interest expense) for Q1 2018. The unaudited consolidated statement of operations and BankMobile segment results for Q1 2017 presented elsewhere in this quarterly report on Form 10-Q do not reflect this reclassification.

The following tables present Customers' unaudited consolidated statements of operations for Q4 2017, Q3 2017, and Q2 2017 and the unaudited BankMobile segment results for Q4 2017, Q3 2017, and Q2 2017 with the adoption of this ASU done on a modified retrospective basis:


CUSTOMERS BANCORP, INC. AND SUBSIDIARIES     
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED - UNAUDITED     
(Dollars in thousands, except per share data)     
 Q4 Q3 Q2
 2017 2017 2017
Interest income:     
Loans receivable, including fees$70,935
 $67,107
 $67,036
Loans held for sale20,294
 21,633
 17,524
Investment securities4,136
 7,307
 7,823
Other2,254
 2,238
 1,469
Total interest income97,619
 98,285
 93,852
Interest expense:     
Deposits18,649
 18,381
 16,228
Other borrowings3,288
 3,168
 1,993
FHLB advances5,697
 7,032
 5,340
Subordinated debt1,685
 1,685
 1,685
Total interest expense29,319
 30,266
 25,246
Net interest income68,300
 68,019
 68,606
Provision for loan losses831
 2,352
 535
Net interest income after provision for loan losses67,469
 65,667
 68,071
Non-interest income:     
Interchange and card revenue (1)
9,780
 9,570
 8,648
Deposit fees2,121
 2,659
 2,133
Bank-owned life insurance1,922
 1,672
 2,258
Mortgage warehouse transactional fees2,206
 2,396
 2,523
Gain on sale of SBA and other loans1,178
 1,144
 573
Mortgage banking income173
 257
 291
Gain on sale of investment securities268
 5,349
 3,183
Impairment loss on investment securities
 (8,349) (2,882)
Other2,092
 3,328
 1,664
Total non-interest income19,740
 18,026
 18,391
Non-interest expense:     
Salaries and employee benefits25,948
 24,807
 23,651
Technology, communication and bank operations (2)
12,637
 14,401
 8,910
Professional services7,010
 7,403
 6,227
Occupancy2,937
 2,857
 2,657
FDIC assessments, non-income taxes, and regulatory fees1,290
 2,475
 2,416
Loan workout522
 915
 408
Merger and acquisition related expenses410
 
 
Advertising and promotion361
 404
 378
Other real estate owned expense (income)20
 445
 160
Other3,653
 7,333
 5,606
Total non-interest expense54,788
 61,040
 50,413
Income before income tax expense32,421
 22,653
 36,049
Income tax expense10,806
 14,899
 12,327
Net income21,615
 7,754
 23,722
Preferred stock dividends3,615
 3,615
 3,615
Net income available to common shareholders$18,000
 $4,139
 $20,107
 Basic earnings per common share$0.58
 $0.13
 $0.66
 Diluted earnings per common share$0.55
 $0.13
 $0.62
(1)Does not include the netting of debit and prepaid card interchange expense of $1.5 million, $1.2 million and $0.6 million for Q4 2017, Q3 2017 and Q2 2017, respectively.
(2)Includes debit and prepaid card interchange expense of $1.5 million, $1.2 million and $0.6 million for Q4 2017, Q3 2017 and Q2 2017, respectively.


CUSTOMERS BANCORP, INC. AND SUBSIDIARIES      
SEGMENT REPORTING - UNAUDITED      
BankMobile:      
(Dollars in thousands, except per share data) Q4 2017 Q3 2017 Q2 2017
Interest income $3,212
 $2,700
 $2,745
Interest expense 15
 16
 18
Net interest income 3,197
 2,684
 2,727
Provision for loan losses 652
 478
 
Non-interest income (1)
 11,540
 13,836
 11,419
Non-interest expense (2)
 20,888
 27,050
 19,845
Loss before income tax benefit (6,803) (11,008) (5,699)
Income tax benefit (2,563) (4,100) (2,166)
Net loss available to common shareholders $(4,240) $(6,908) $(3,533)
Basic loss per common share $(0.14) $(0.23) $(0.11)
Diluted loss per common share $(0.13) $(0.21) $(0.11)
       
(1)Does not include the netting of debit and prepaid card interchange expense of $1.5 million, $1.2 million and $0.6 million for Q4 2017, Q3 2017 and Q2 2017, respectively.
(2)Includes debit and prepaid card interchange expense of $1.5 million, $1.2 million and $0.6 million for Q4 2017, Q3 2017 and Q2 2017, respectively.

Other Matters

On December 30, 2016, Customers entered into a letter agreement (the “Agreement”) with Jay Sidhu, our Chairman and Chief Executive Officer, which, subject to certain conditions, provided for the payment of a one-time cash bonus to Mr. Sidhu equal to 10 percent of the gross sales price of the BankMobile business segment.  On November 17, 2017, Customers entered into an Amended and Restated Purchase and Assumption Agreement and Plan of Merger in which Customers agreed to spin-off the BankMobile business to Customers’ shareholders, to be followed by a merger between the BankMobile Technologies, Inc. subsidiary and Flagship Community Bank.  As a spin-off and merger transaction of this type would not be considered a sale under the Agreement, no amounts would be due to Mr. Sidhu pursuant to the Agreement.  On March 30, 2018, Mr. Sidhu offered to terminate the Agreement, and such offer was accepted by Customers. A written termination agreement was not entered into by the parties.

In Customers’ definitive proxy statement for its 2018 Annual Meeting of Shareholders, filed with the SEC on April 10, 2018, Customers provided substantive descriptions of the performance metrics and relative weightings to be used to determine the annual performance awards and long-term incentive plan awards for the Chief Executive Officer, President, and Chief Financial Officer for 2018. The disclosed metrics and weightings changed from the prior year for the annual performance award and long term incentive plan, and the long term incentive plan was modified from a subjective award to a more quantitative award. The disclosure in the section of the definitive proxy statement captioned “V. New Compensation Plan for 2018” is incorporated into this Item 5 by reference.




Item 6. Exhibits
 
Exhibit
No.
  Description
   
  
   
  
   
  
   
 
   
 
   
 
   
 
   
  
   
  
   
  
   
  
   
  
   
  
   
 
   
 
   
  
   
  
   
  
   
  
   

101  The Exhibits filed as part of this report are as follows:
   
101.INS  XBRL Instance Document.
   
101.SCH  XBRL Taxonomy Extension Schema Document.
   
101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document.
   
101.LAB  XBRL Taxonomy Extension Label Linkbase Document.
   
101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document.
   
101.DEF  XBRL Taxonomy Extension Definitions Linkbase Document.


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 Customers Bancorp, Inc.
   
May 9,November 30, 2018By: /s/ Jay S. Sidhu
 Name: Jay S. Sidhu
 Title: 
Chairman and Chief Executive Officer
(Principal Executive Officer)
    
  
   
May 9,November 30, 2018By: /s/ Robert E. WahlmanCarla A. Leibold
 Name: Robert E. WahlmanCarla A. Leibold
 Title: 
Chief Financial Officer
(Principal Financial Officer)

Exhibit Index
 
Exhibit
No.
  Description
   
  
   
  
   
  
   
 
   
 
   
 
   
 
   
  
   
  
   
  
   
  
   
  
   
  
   
 
   
 
   
  
   
  
   
  
   
  
   

101  The Exhibits filed as part of this report are as follows:
   
101.INS  XBRL Instance Document.
   
101.SCH  XBRL Taxonomy Extension Schema Document.
   
101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document.
   
101.LAB  XBRL Taxonomy Extension Label Linkbase Document.
   
101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document.
   
101.DEF  XBRL Taxonomy Extension Definitions Linkbase Document.

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