UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~June~~September 30, 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)



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 ~~July 31,~~November 2, 2018, ~~31,669,839~~31,687,340 shares of Voting Common Stock were outstanding.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Table of Contents



Part I

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of ~~June~~September 30, 2018 and for the three months and ~~six~~nine months periods ended ~~June~~September 30, 2018 and 2017 (unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5254

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7883

Item 4.	Controls and Procedures	7984

PART II

Item 1.	Legal Proceedings	8085

Item 1A.	Risk Factors	8085

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8187

Item 3.	Defaults Upon Senior Securities	8187

Item 4.	Mine Safety Disclosures	8187

Item 5.	Other Information	8187

Item 6.	Exhibits	8187

SIGNATURES		8389

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)

June 30,
2018 December 31,
2017
ASSETS
Cash and due from banks $ 22,969
$ 20,388
Interest-earning deposits 228,757
125,935
Cash and cash equivalents 251,726
146,323
Investment securities, at fair value 1,161,000
471,371
Loans held for sale (includes $1,931,781 and $1,795,294, respectively, at fair value) 1,931,781
1,939,485
Loans receivable 7,181,726
6,768,258
Allowance for loan losses (38,288 ) (38,015 )
Total loans receivable, net of allowance for loan losses 7,143,438
6,730,243
FHLB, Federal Reserve Bank, and other restricted stock 136,066
105,918
Accrued interest receivable 33,956
27,021
Bank premises and equipment, net 11,224
11,955
Bank-owned life insurance 261,121
257,720
Other real estate owned 1,705
1,726
Goodwill and other intangibles 17,150
16,295
Other assets 143,679
131,498
Total assets $ 11,092,846
$ 9,839,555
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 1,090,744
$ 1,052,115
Interest-bearing 6,205,210
5,748,027
Total deposits 7,295,954
6,800,142
Federal funds purchased 105,000
155,000
FHLB advances 2,389,797
1,611,860
Other borrowings 186,888
186,497
Subordinated debt 108,929
108,880
Accrued interest payable and other liabilities 70,051
56,212
Total liabilities 10,156,619
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 June 30, 2018 and December 31, 2017 217,471
217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,199,903 and 31,912,763 shares issued as of June 30, 2018 and December 31, 2017; 31,669,643 and 31,382,503 shares outstanding as of June 30, 2018 and December 31, 2017 32,200
31,913
Additional paid in capital 428,796
422,096
Retained earnings 299,990
258,076
Accumulated other comprehensive loss, net (33,997 ) (359 )
Treasury stock, at cost (530,260 shares as of June 30, 2018 and December 31, 2017) (8,233 ) (8,233 )
Total shareholders’ equity 936,227
920,964
Total liabilities and shareholders’ equity $ 11,092,846
$ 9,839,555



	September 30, 2018			December 31, 2017
ASSETS				(As Restated)
Cash and due from banks	$	12,943		$	20,388
Interest-earning deposits	653,091			125,935
Cash and cash equivalents	666,034			146,323
Investment securities, at fair value	668,851			471,371
Loans held for sale (includes $1,383 and $1,886, respectively, at fair value)	1,383			146,077
Loans receivable, mortgage warehouse, at fair value	1,516,327			1,793,408
Loans receivable	7,239,950			6,768,258
Allowance for loan losses	(40,741		)	(38,015		)
Total loans receivable, net of allowance for loan losses	8,715,536			8,523,651
FHLB, Federal Reserve Bank, and other restricted stock	74,206			105,918
Accrued interest receivable	32,986			27,021
Bank premises and equipment, net	11,300			11,955
Bank-owned life insurance	263,117			257,720
Other real estate owned	1,450			1,726
Goodwill and other intangibles	16,825			16,295
Other assets	165,416			131,498
Total assets	$	10,617,104		$	9,839,555
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing	$	1,338,167		$	1,052,115
Interest-bearing	7,175,547			5,748,027
Total deposits	8,513,714			6,800,142
Federal funds purchased	—			155,000
FHLB advances	835,000			1,611,860
Other borrowings	123,779			186,497
Subordinated debt	108,953			108,880
Accrued interest payable and other liabilities	80,846			56,212
Total liabilities	9,662,292			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 September 30, 2018 and December 31, 2017	217,471			217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,217,600 and 31,912,763 shares issued as of September 30, 2018 and December 31, 2017; 31,687,340 and 31,382,503 shares outstanding as of September 30, 2018 and December 31, 2017	32,218			31,913
Additional paid in capital	431,205			422,096
Retained earnings	302,404			258,076
Accumulated other comprehensive loss, net	(20,253		)	(359		)
Treasury stock, at cost (530,260 shares as of September 30, 2018 and December 31, 2017)	(8,233		)	(8,233		)
Total shareholders’ equity	954,812			920,964
Total liabilities and shareholders’ equity	$	10,617,104		$	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 June 30,						Six Months Ended June 30,					Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018		2017			2018			2017			2018			2017
Interest income:
Loans receivable, including fees	$	74,238		$	67,036		$	141,117	$	128,497
Loans held for sale	21,002			17,524			40,054		31,470
Loans												$	97,815		$	88,740		$	278,986		$	248,708
Investment securities	9,765			7,823			18,437		13,710			8,495			7,307			26,932			21,017
Other	2,634			1,469			4,996		3,269			3,735			2,238			8,731			5,507
Total interest income	107,639			93,852			204,604		176,946			110,045			98,285			314,649			275,232
Interest expense:
Deposits	24,182			16,228			43,975		30,551			32,804			18,381			76,779			48,934
Other borrowings	3,275			1,993			6,651		3,600			2,431			3,168			9,082			6,767
FHLB advances	11,176			5,340			18,256		8,401			9,125			7,032			27,381			15,433
Subordinated debt	1,684			1,685			3,369		3,370			1,684			1,685			5,053			5,055
Total interest expense	40,317			25,246			72,251		45,922			46,044			30,266			118,295			76,189
Net interest income	67,322			68,606			132,353		131,024			64,001			68,019			196,354			199,043
Provision for loan losses	(784		)	535			1,333		3,585			2,924			2,352			4,257			5,937
Net interest income after provision for loan losses	68,106			68,071			131,020		127,439			61,077			65,667			192,097			193,106
Non-interest income:
Interchange and card revenue	6,382			8,648			16,043		22,158			7,084			9,570			23,127			31,729
Deposit fees												2,002			2,659			5,726			7,918
Bank-owned life insurance												1,869			1,672			5,769			5,297
Mortgage warehouse transactional fees	1,967			2,523			3,854		4,743			1,809			2,396			5,663			7,139
Bank-owned life insurance	1,869			2,258			3,900		3,624
Deposit fees	1,632			2,133			3,724		5,260
Gain on sale of SBA and other loans	947			573			2,308		1,901			1,096			1,144			3,404			3,045
Mortgage banking income	205			291			325		446			207			257			532			703
Gain on sale of investment securities	—			3,183			—		3,183
Impairment loss on investment securities	—			(2,882		)	—		(4,585		)	—			(8,349		)	—			(12,934		)
(Loss) gain on sale of investment securities												(18,659		)	5,349			(18,659		)	8,532
Other	3,125			1,664			6,883		4,414			6,676			3,328			13,558			7,741
Total non-interest income	16,127			18,391			37,037		41,144			2,084			18,026			39,120			59,170
Non-interest expense:
Salaries and employee benefits	27,748			23,651			52,673		44,763			25,462			24,807			78,135			69,569
Technology, communication and bank operations	11,322			8,910			21,266		18,827
Technology, communication, and bank operations												11,657			14,401			32,923			33,227
Professional services	3,811			6,227			9,820		13,739			4,743			7,403			14,563			21,142
Merger and acquisition related expenses												2,945			—			3,920			—
Occupancy	3,141			2,657			5,975		5,371			2,901			2,857			8,876			8,228
FDIC assessments, non-income taxes, and regulatory fees	2,135			2,416			4,335		4,141			2,415			2,475			6,750			6,615
Provision for operating losses	1,233			1,746			2,759		3,392			1,171			1,509			3,930			4,901
Merger and acquisition related expenses	869			—			975		—
Advertising and promotion												820			404			1,529			1,108
Loan workout	648			408			1,307		929			516			915			1,823			1,844
Advertising and promotion	319			378			709		704
Other real estate owned expenses	58			160			98		105			66			445			164			550
Other	2,466			3,860			6,114		7,807			4,408			5,824			10,521			13,634
Total non-interest expense	53,750			50,413			106,031		99,778			57,104			61,040			163,134			160,818
Income before income tax expense	30,483			36,049			62,026		68,805			6,057			22,653			68,083			91,458
Income tax expense	6,820			12,327			14,222		19,336			28			14,899			14,250			34,236
Net income	23,663			23,722			47,804		49,469			6,029			7,754			53,833			57,222
Preferred stock dividends	3,615			3,615			7,229		7,229			3,615			3,615			10,844			10,844
Net income available to common shareholders	$	20,048		$	20,107		$	40,575	$	42,240		$	2,414		$	4,139		$	42,989		$	46,378
Basic earnings per common share	$	0.64		$	0.66		$	1.29	$	1.38		$	0.08		$	0.13		$	1.36		$	1.52
Diluted earnings per common share	$	0.62		$	0.62		$	1.26	$	1.29		$	0.07		$	0.13		$	1.33		$	1.42

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED

(amounts in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,							Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017				2018			2017
Net income	$	23,663		$	23,722		$	47,804		$	49,469		$	6,029		$	7,754			$	53,833		$	57,222
Unrealized (losses) gains on available-for-sale debt securities:
Unrealized (losses) gains arising during the period	(12,190		)	19,885			(46,288		)	18,762			(1,629		)	(3,570		)		(47,917		)	15,192
Income tax effect	3,170			(7,755		)	12,035			(7,317		)	423			1,393				12,458			(5,924		)
Reclassification adjustments for gains on securities included in net income	—			(3,183		)	—			(3,183		)
Reclassification adjustments for losses (gains) on securities included in net income													18,659			(5,349		)		18,659			(8,532		)
Income tax effect	—			1,241			—			1,241			(4,851		)	2,086				(4,851		)	3,327
Net unrealized (losses) gains on available-for-sale debt securities	(9,020		)	10,188			(34,253		)	9,503
Net unrealized gains (losses) on available-for-sale debt securities													12,602			(5,440		)	��	(21,651		)	4,063
Unrealized gains on cash flow hedges:
Unrealized gains (losses) arising during the period	1,895			(689		)	2,768			(360		)	4,062			171				6,830			(189		)
Income tax effect	(492		)	269			(719		)	141			(1,056		)	(67		)		(1,775		)	74
Reclassification adjustment for (gains) losses included in net income	(259		)	767			(128		)	1,594			(2,519		)	572				(2,647		)	2,166
Income tax effect	67			(299		)	33			(622		)	655			(223		)		688			(845		)
Net unrealized gains on cash flow hedges	1,211			48			1,954			753			1,142			453				3,096			1,206
Other comprehensive (loss) income, net of income tax effect	(7,809		)	10,236			(32,299		)	10,256
Other comprehensive income (loss), net of income tax effect													13,744			(4,987		)		(18,555		)	5,269
Comprehensive income	$	15,854		$	33,958		$	15,505		$	59,725		$	19,773		$	2,767			$	35,278		$	62,491

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)


	Six Months Ended June 30, 2018																					Three Months Ended September 30, 2018
	Preferred Stock			Common Stock																		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			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, 2017	9,000,000	$	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		)	—			—
Balance, June 30, 2018																						9,000,000	$	217,471	31,669,643	$	32,200	$	428,796		$	299,990		$	(33,997	)	$	(8,233	)	$	936,227
Net income																						—	—		—	—		—			6,029			—			—			6,029
Other comprehensive income																						—	—		—	—		—			—			13,744			—			13,744
Preferred stock dividends																						—	—		—	—		—			(3,615		)	—			—			(3,615		)
Share-based compensation expense																						—	—		—	—		1,980			—			—			—			1,980
Issuance of common stock under share-based compensation arrangements																						—	—		17,697	18		429			—			—			—			447
Balance, September 30, 2018																						9,000,000	$	217,471	31,687,340	$	32,218	$	431,205		$	302,404		$	(20,253	)	$	(8,233	)	$	954,812

																						Three Months Ended September 30, 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 Income			Treasury Stock			Total
Balance, June 30, 2017																						9,000,000	$	217,471	30,730,784	$	31,261	$	428,488		$	235,938		$	5,364		$	(8,233	)	$	910,289
Net income	—	—		—	—		—			47,804			—			—			47,804			—	—		—	—		—			7,754			—			—			7,754
Other comprehensive loss	—	—		—	—		—			—			(32,299		)	—			(32,299		)	—	—		—	—		—			—			(4,987		)	—			(4,987		)
Preferred stock dividends	—	—		—	—		—			(7,229		)	—			—			(7,229		)	—	—		—	—		—			(3,615		)	—			—			(3,615		)
Share-based compensation expense	—	—		—	—		3,661			—			—			—			3,661			—	—		—	—		1,602			—			—			—			1,602
Exercise of warrants	—	—		5,242	5		107			—			—			—			112			—	—		6,413	6		131			—			—			—			137
Issuance of common stock under share-based compensation arrangements	—	—		281,898	282		2,932			—			—			—			3,214			—	—		50,435	51		(588		)	(1		)	—			—			(538		)
Balance, June 30, 2018	9,000,000	$	217,471	31,669,643	$	32,200	$	428,796		$	299,990		$	(33,997	)	$	(8,233	)	$	936,227

	Six Months Ended June 30, 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 Income/(Loss)			Treasury Stock			Total
Balance, December 31, 2016	9,000,000	$	217,471	30,289,917	$	30,820	$	427,008		$	193,698		$	(4,892	)	$	(8,233	)	$	855,872
Net income	—	—		—	—		—			49,469			—			—			49,469
Other comprehensive income	—	—		—	—		—			—			10,256			—			10,256
Preferred stock dividends	—	—		—	—		—			(7,229		)	—						(7,229		)
Share-based compensation expense	—	—		—	—		2,934			—			—			—			2,934
Exercise of warrants	—	—		43,974	44		376			—			—			—			420
Issuance of common stock under share-based compensation arrangements	—	—		396,893	397		(1,830		)	—			—			—			(1,433		)
Balance, June 30, 2017	9,000,000	$	217,471	30,730,784	$	31,261	$	428,488		$	235,938		$	5,364		$	(8,233	)	$	910,289
Balance, September 30, 2017																						9,000,000	$	217,471	30,787,632	$	31,318	$	429,633		$	240,076		$	377		$	(8,233	)	$	910,642

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED (CONTINUED)

(amounts in thousands, except shares outstanding data)



	Nine Months Ended September 30, 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, 2017	9,000,000	$	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	—	—		—	—		—			53,833			—			—			53,833
Other comprehensive loss	—	—		—	—		—			—			(18,555		)	—			(18,555		)
Preferred stock dividends	—	—		—	—		—			(10,844		)	—			—			(10,844		)
Share-based compensation expense	—	—		—	—		5,641			—			—			—			5,641
Exercise of warrants	—	—		5,242	5		107			—			—			—			112
Issuance of common stock under share-based compensation arrangements	—	—		299,595	300		3,361			—			—			—			3,661
Balance, September 30, 2018	9,000,000	$	217,471	31,687,340	$	32,218	$	431,205		$	302,404		$	(20,253	)	$	(8,233	)	$	954,812

	Nine Months Ended September 30, 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 Income/(Loss)			Treasury Stock			Total
Balance, December 31, 2016	9,000,000	$	217,471	30,289,917	$	30,820	$	427,008		$	193,698		$	(4,892	)	$	(8,233	)	$	855,872
Net income	—	—		—	—		—			57,222			—			—			57,222
Other comprehensive income	—	—		—	—		—			—			5,269			—			5,269
Preferred stock dividends	—	—		—	—		—			(10,844		)	—						(10,844		)
Share-based compensation expense	—	—		—	—		4,536			—			—			—			4,536
Exercise of warrants	—	—		50,387	50		507			—			—			—			557
Issuance of common stock under share-based compensation arrangements	—	—		447,328	448		(2,418		)	—			—			—			(1,970		)
Balance, September 30, 2017	9,000,000	$	217,471	30,787,632	$	31,318	$	429,633		$	240,076		$	377		$	(8,233	)	$	910,642

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)


	Six Months Ended June 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Cash Flows from Operating Activities										(As Restated)
Net income	$	47,804		$	49,469		$	53,833		$	57,222
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,333			3,585			4,257			5,937
Depreciation and amortization	6,716			2,393			10,235			7,476
Share-based compensation expense	4,384			3,562			6,595			5,377
Deferred taxes	4,172			(2,588		)	6,238			286
Net amortization of investment securities premiums and discounts	813			232			1,204			520
Unrealized loss recognized on equity securities	296			—			1,533			—
Gain on sale of investment securities	—			(3,183		)
Loss (gain) on sale of investment securities							18,659			(8,532		)
Impairment loss on investment securities	—			4,585			—			12,934
Gain on sale of SBA and other loans	(2,572		)	(2,183		)	(3,880		)	(3,553		)
Origination of loans held for sale	(14,272,175		)	(14,714,280		)	(22,978		)	(32,343		)
Proceeds from the sale of loans held for sale	14,135,931			14,727,734			23,936			31,718
Amortization of fair value discounts and premiums	85			98			164			93
Net gain on sales of other real estate owned	(28		)	(163		)
Net (gain) loss on sales of other real estate owned							(35		)	154
Valuation and other adjustments to other real estate owned	78			231			124			298
Earnings on investment in bank-owned life insurance	(3,900		)	(3,624		)	(5,769		)	(5,297		)
Increase in accrued interest receivable and other assets	(7,857		)	(9,003		)	(21,525		)	(27,862		)
Increase (decrease) in accrued interest payable and other liabilities	13,061			(29,357		)	25,774			(14,106		)
Net Cash (Used In) Provided By Operating Activities	(71,859		)	27,508
Net Cash Provided By Operating Activities							98,365			30,322
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of securities available for sale	26,216			22,843			38,926			36,461
Proceeds from sales of investment securities available for sale	—			115,982			476,182			670,522
Purchases of investment securities available for sale	(763,242		)	(644,011		)	(763,242		)	(796,594		)
Net increase in loans	(18,680		)	(572,253		)
Origination of mortgage warehouse loans							(21,739,744		)	(22,738,383		)
Proceeds from repayments of mortgage warehouse loans							22,016,825			22,893,950
Net increase in loans, excluding mortgage warehouse loans							(20,476		)	(921,049		)
Proceeds from sales of loans	29,038			112,927			42,211			124,703
Purchase of loans	(278,508		)	(262,641		)	(347,740		)	(262,641		)
Purchases of bank-owned life insurance	—			(50,000		)	—			(90,000		)
Proceeds from bank-owned life insurance	529			1,418			529			1,418
Net purchases of FHLB, Federal Reserve Bank, and other restricted stock	(30,148		)	(61,281		)
Net proceeds from (purchases of) FHLB, Federal Reserve Bank, and other restricted stock							31,712			(30,203		)
Purchases of bank premises and equipment	(608		)	(1,732		)	(1,344		)	(1,725		)
Proceeds from sales of other real estate owned	28			682			421			1,680
Purchase of university relationship intangible asset							(1,502		)	—
Purchase of leased assets under operating leases	(6,486		)	—			(21,849		)	—
Net Cash Used In Investing Activities	(1,041,861		)	(1,338,066		)	(289,091		)	(1,111,861		)
Cash Flows from Financing Activities
Net increase in deposits	495,812			171,587			1,713,572			293,301
Net increase in short-term borrowed funds from the FHLB	777,937			1,130,800
Net (decrease) increase in short-term borrowed funds from the FHLB							(776,860		)	593,543
Net (decrease) increase in federal funds purchased	(50,000		)	67,000			(155,000		)	64,000
Net proceeds from issuance of long-term debt	—			98,574
(Repayments of) proceeds from issuance of long-term debt							(63,250		)	98,564
Preferred stock dividends paid	(7,229		)	(7,229		)	(10,844		)	(10,844		)
Exercise of warrants	112			420			112			557
Payments of employee taxes withheld from share-based awards	(700		)	(3,961		)	(711		)	(4,923		)
Proceeds from issuance of common stock	3,191			1,900			3,418			2,112
Net Cash Provided By Financing Activities	1,219,123			1,459,091			710,437			1,036,310
Net Increase in Cash and Cash Equivalents	105,403			148,533
Net Increase (Decrease) in Cash and Cash Equivalents							519,711			(45,229		)
Cash and Cash Equivalents – Beginning	146,323			264,709			146,323			264,709
Cash and Cash Equivalents – Ending	$	251,726		$	413,242		$	666,034		$	219,480








	(continued)						(continued)

Supplementary Cash Flows Information:
Interest paid	$	73,162		$	44,983		$	114,973		$	70,706
Income taxes paid	4,174			21,715			4,156			31,545
Non-cash items:
Transfer of loans to other real estate owned	$	57		$	—		$	234		$	83
Transfer of loans held for investment to held for sale	—			150,758			—			150,638
Transfer of loans held for sale to held for investment	129,691			—			129,691			—
University relationship intangible purchased not settled	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 for the three and six months ended June 30, 2017 and cash flows for the six months ended June 30, 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 information 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 the BankMobile spin-off subsidiary into Flagship, with Customers' shareholders first receiving shares of the BankMobile spin-off subsidiary as a dividend in the spin-off and then receiving shares of Flagship common stock in the merger of the BankMobile spin-off subsidiary into Flagship in exchange for shares of the BankMobile spin-off subsidiary common stock they receive in the spin-off. Separately, Flagship will assume the deposits and purchase certain associated assets of BankMobile for $10 million. Following completion of the spin-off and merger and other transactions contemplated in the Amended Agreement between Customers and Flagship, the BankMobile spin-off subsidiary 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 June 30, 2018 consolidated balance sheet. The Amended Agreement provides that completion of the transactions will be subject to the receipt of all necessary closing conditions. Although the possibility still exits that the spin-off and merger could close by September 30, 2018, at this time, no assurance can be given that the spin-off and merger will occur by or shortly after September 30, 2018.

As of June 30, 2017, BankMobile met the criteria to be classified as held for sale and, accordingly, the operating results of BankMobile for the three and six month periods ended June 30, 2017, along with the associated cash flows of BankMobile for the six months ended June 30, 2017, were presented as "Discontinued operations." 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 were 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 and six month periods ended June 30, 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 tables summarize the effect of the reclassification of BankMobile from held for sale to held and used on the previously reported consolidated statements of income for the three and six months ended June 30, 2017:

Three Months Ended June 30, 2017

(amounts in thousands)
As Previously Reported Effect of Reclassification From Held For Sale to Held and Used After Reclassification
Interest income $ 93,852
$ —
$ 93,852
Interest expense 25,236
10
25,246
Net interest income 68,616
(10 ) 68,606
Provision for loan losses 535
—
535
Non-interest income 6,971
11,420
18,391
Non-interest expense 30,567
19,846
50,413
Income from continuing operations before income taxes 44,485
(8,436 ) 36,049
Provision for income taxes 15,533
(3,206 ) 12,327
Net income from continuing operations 28,952
(5,230 ) 23,722
Loss from discontinued operations before income taxes (8,436 ) 8,436
—
Income tax benefit from discontinued operations (3,206 ) 3,206
—
Net loss from discontinued operations (5,230 )
5,230

—
Net income 23,722

—

23,722
Preferred stock dividends 3,615
—
3,615
Net income available to common shareholders $ 20,107
$ —
$ 20,107

Six Months Ended June 30, 2017

(amounts in thousands)
As Previously Reported Effect of Reclassification From Held For Sale to Held and Used After Reclassification
Interest income $ 176,946
$ —
$ 176,946
Interest expense 45,906
16
45,922
Net interest income 131,040
(16 ) 131,024
Provision for loan losses 3,585
—
3,585
Non-interest income 12,398
28,746
41,144
Non-interest expense 60,714
39,064
99,778
Income from continuing operations before income taxes 79,139
(10,334 ) 68,805
Provision for income taxes 23,263
(3,927 ) 19,336
Net income from continuing operations 55,876
(6,407 ) 49,469
Loss from discontinued operations before income taxes (10,334 ) 10,334
—
Income tax benefit from discontinued operations (3,927 ) 3,927
—
Net loss from discontinued operations (6,407 ) 6,407
—
Net income 49,469
—
49,469
Preferred stock dividends 7,229
—
7,229
Net income available to common shareholders $ 42,240
$ —
$ 42,240

~~NOTE 3~~ — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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 and six month periods ended March 31, 2018 and 2017 and 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’s~~Customers' audited 2017 consolidated financial ~~statements.~~statements, restated to correct the classification of the mortgage warehouse loans as held for investment instead of held for sale. 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'~~its Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 23, 2018 (the "2017 Form 10-K"). except to the extent they are affected by the restatement. That Form 10-K 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; 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.~~

~~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, thereyear or any other period. There have been no material changes to Customers' significant accounting policies as disclosed in Customers' ~~Annual Report~~2017 Form 10-K, except for the accounting policies related to Cash and Cash Equivalents and Statements of Cash Flows and Loans Held for Sale and Loans at Fair Value as described below.

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). Effective with the filing of this quarterly report on Form ~~10-K~~10-Q, Customers changed its accounting policies such that commercial mortgage warehouse loans will be 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 will be reported as investing activities in the consolidated statements of cash flows.

The following tables set forth the effects of the correction on the consolidated balance sheet as of December 31, 2017 and the consolidated statements of cash flows for the ~~year~~nine months ended September 30, 2017.



	December 31, 2017
Consolidated Balance Sheet	As Previously Reported		Adjustments			As Restated
(amounts in thousands)
Loans held for sale	$	1,939,485	$	(1,793,408	)	$	146,077
Loans receivable, mortgage warehouse, at fair value	—		1,793,408			1,793,408
Total loans receivable, net of allowance for loan losses	6,730,243		1,793,408			8,523,651



	For the Nine Months Ended September 30, 2017
Consolidated Statements of Cash Flows	As Previously Reported			Adjustments			As Restated
(amounts in thousands)
Origination of loans held for sale	$	(22,770,726	)	$	22,738,383		$	(32,343	)
Proceeds from the sale of loans held for sale	22,925,668			(22,893,950		)	31,718
Net cash provided by operating activities	185,889			(155,567		)	30,322
Origination of mortgage warehouse loans	—			(22,738,383		)	(22,738,383		)
Proceeds from repayments of mortgage warehouse loans	—			22,893,950			22,893,950
Net cash used in investing activities	(1,267,428		)	155,567			(1,111,861		)

In addition, the December 31, ~~2017.~~2017 comparative balances disclosed in NOTE 6 - LOANS HELD FOR SALE, NOTE 7 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES, and NOTE 9 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, and the comparative balances reported throughout Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this quarterly report on Form 10-Q, have been restated to present the corrected classification.

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.~~effective.

Recently Issued Accounting Standards

Accounting Standards Adopted in 2018



Standard	Summary of guidance	Effects on Financial Statements
ASU 2018-13, Fair Value (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement Issued August 2018	Ÿ Eliminates disclosure requirements for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. Ÿ Clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Ÿ Expands disclosures to include unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Ÿ Certain amendments are applied prospectively and retrospectively. Ÿ Effective for fiscal year beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption permitted.	Ÿ Customers early adopted on September 30, 2018. Ÿ The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated 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 adopted on July 1, 2018 on a prospective basis. Ÿ The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements as Customers currently does not have any significant equity securities without readily determinable fair values.
~~Issued February 2018~~
ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income/(Loss) ("AOCI") 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 debt 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~~

Accounting Standards Adopted in 2018 (continued)



Standard	Summary of guidance	Effects on Financial Statements
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 In October 2018, the FASB issued ASU 2018-16 “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes," which permits the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes.	Ÿ Customers early adopted on January 1, 2018. Ÿ With the early adoption, Customers is 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 the accounting and financial reporting of its hedging activities with the 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 1110 - 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 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~~

~~Accounting Standards Adopted in 2018 (continued)~~



~~Standard~~	~~Summary of guidance~~	~~Effects on Financial Statements~~
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~~
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' financial condition, results of operations and consolidated financial statements, including its consolidated statement of cash flows, and therefore did not result in a retrospective application.
~~Issued November 2016~~

Accounting Standards Adopted in 2018 (continued)



Standard	Summary of guidance	Effects on Financial Statements
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 debt extinguishment costs ~~will be classified as an operating activity, while the portion of the payment attributable to principal will~~should 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' financial condition, results of operations and consolidated financial statements, including its consolidated statement of cash flows, and therefore it did not result in a retrospective application.
~~Issued August 2016~~
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. ŸEffective 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~~

Accounting Standards Adopted in 2018 (continued)



Standard	Summary of guidance	Effects on Financial Statements
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. ŸEffective 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 65 - 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~~
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 either 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)~~gains or losses). 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 1312 - NON-INTEREST REVENUES.

Accounting Standards Issued But Not Yet Adopted



Standard	Summary of guidance	Effects on Financial Statements
ASU 2018-15, Internal-Use Software (Subtopic 350-40): Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract Issued August 2018	Ÿ Clarifies that service contracts with hosting arrangements must follow internal-use software guidance Subtopic 350-40 when determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Ÿ Also clarifies that capitalized implementation costs of a hosting arrangement that is a service contract are to be amortized over the term of the hosting arrangement, which includes the noncancelable period of the arrangement plus options to extend the arrangement if reasonably certain to exercise. Ÿ Clarifies that existing impairment guidance in Subtopic 350-40 must be applied to the capitalized implementation costs as if they were long-lived assets. Ÿ Applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Ÿ Effective for fiscal year beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption permitted.	Ÿ Customers is currently evaluating the expected impact of this ASU on its financial condition, results of operations and consolidated financial statements.

ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting Issued June 2018	Ÿ Expands the scope of Topic 718, Compensation - Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Ÿ Applies to all share-based payment transactions in which a grantor acquires goods or services from non-employees to be used or consumed in a grantor's own operations by issuing share-based payment awards. Ÿ With the amended guidance from ASU 2018-07, non-employees share-based payments are measured with an estimate of the fair value of the equity the business is obligated to issue at the grant date (the date that the business and the stock award recipient agree to the terms of the award). Ÿ Compensation would be recognized in the same period and in the same manner as if the entity had paid cash for goods or services instead of stock. Ÿ Effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.	Ÿ Customers currently does not grant share-based payment awards to non-employees 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 June 2018~~

Accounting Standards Issued But Not Yet Adopted (continued)



Standard	Summary of guidance	Effects on Financial Statements
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.~~2018, with early adoption permitted.	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~~has established a company-wide, cross-discipline governance structure, which provides implementation oversight and continues evaluating the impact of this ASU ~~continuing its implementation efforts across the company~~ and reviewing the loss modeling requirements consistent with lifetime expected loss estimates. Ÿ Customers ~~expects that~~has selected a third-party vendor to assist in the implementation process of its new model, which 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~~

Accounting Standards Issued But Not Yet Adopted (continued)



Standard	Summary of guidance	Effects on Financial Statements
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. ŸIn July 2018, the FASB issued ASU 2018-11 “Leases (Topic 842): Targeted Improvements,” which provides lessees the option to apply the new leasing standard to all open leases as of the adoption date.	Ÿ Customers is ~~currently~~in the process of its implementation, which includes evaluating ~~the impact of this ASU on~~ its ~~financial condition~~leasing activities and ~~results of operations~~certain contracts for embedded leases. Customers will be utilizing a lease accounting software solution for its real estate leases and updating processing and internal controls for its leasing activities. Ÿ Customers expects to recognize a lease liability and a corresponding right-of-use ~~assets and lease liabilities for substantially~~asset, at their present value, to predominately all of ~~its~~the $22 million of future minimum payments required under operating leases as disclosed in Note 10 of Customers’ 2017 Form 10-K, along with any leases entered into or extended during 2018. However, the population of contracts subject to balance sheet recognition and their initial measurement remains under evaluation. Customers does not expect material changes to the recognition of operating lease ~~commitments based on the present value~~expense in its consolidated statements of ~~unpaid lease payments as of the date of adoption.~~income. ŸCustomers expects to adopt certain practical expedients available under the new guidance, which will not require it to (1) reassess whether any expired or existing contracts contain leases, (2) reassess the lease classification for any expired or existing leases, or (3) reassess initial direct costs for any existing leases. Additionally, Customers will elect to apply the new ~~transition option~~lease guidance at the adoption date, rather than at the beginning of the earliest period presented and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, while continuing to present the comparative periods under ~~ASU 2018-11.~~Topic 840. Ÿ Customers does not intend to early adopt this ~~ASU.~~new guidance.
~~Issued February 2016~~

NOTE 43 — EARNINGS PER SHARE

The following are the components and results of Customers' earnings per common share calculations for the periods presented.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2018		2017		2018		2017
(amounts in thousands, except share and per share data)
Net income available to common shareholders	$	20,048	$	20,107	$	40,575	$	42,240	$	2,414	$	4,139	$	42,989	$	46,378

Weighted-average number of common shares outstanding - basic	31,564,893		30,641,554		31,495,082		30,524,955		31,671,122		30,739,671		31,554,407		30,597,314
Share-based compensation plans	807,258		1,910,634		823,245		2,129,773		601,622		1,754,480		750,573		2,004,917
Warrants	8,511		17,464		8,566		27,318		4,846		18,541		7,475		24,392
Weighted-average number of common shares - diluted	32,380,662		32,569,652		32,326,893		32,682,046		32,277,590		32,512,692		32,312,455		32,626,623

Basic earnings per common share	$	0.64	$	0.66	$	1.29	$	1.38	$	0.08	$	0.13	$	1.36	$	1.52
Diluted earnings per common share	$	0.62	$	0.62	$	1.26	$	1.29	$	0.07	$	0.13	$	1.33	$	1.42

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 either the performance conditions for certain of the share-based compensation awards have not been met or to do so would have been anti-dilutive for the periods presented.


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018	2017	2018	2017	2018	2017
Anti-dilutive securities:
Share-based compensation awards	1,069,225	288,325	1,069,225	282,725	1,787,670	409,225	1,105,287	409,225
Warrants	—	52,242	—	52,242	—	52,242	—	52,242
Total anti-dilutive securities	1,069,225	340,567	1,069,225	334,967	1,787,670	461,467	1,105,287	461,467

NOTE 54 — 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 and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017. All amounts are presented net of tax. Amounts in parentheses indicate reductions to accumulated other comprehensive income.


	Three Months Ended June 30, 2018														Three Months Ended September 30, 2018
	Available-for-sale debt securities														Available-for-sale debt securities
(amounts in thousands)	Unrealized Gains (Losses)			Foreign Currency Items		Total Unrealized Gains (Losses)			Unrealized Gains (Losses) on Cash Flow Hedges			Total			Unrealized Gains (Losses)			Foreign Currency Items		Total Unrealized Gains (Losses)			Unrealized Gains (Losses) on Cash Flow Hedges			Total
Balance - March 31, 2018	$	(26,691	)	$	—	$	(26,691	)	$	503		$	(26,188	)
Balance - June 30, 2018															$	(35,711	)	$	—	$	(35,711	)	$	1,714		$	(33,997	)
Other comprehensive income (loss) before reclassifications	(9,020		)	—		(9,020		)	1,403			(7,617		)	(1,206		)	—		(1,206		)	3,006			1,800
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)	—			—		—			(192		)	(192		)	13,808			—		13,808			(1,864		)	11,944
Net current-period other comprehensive income (loss)	(9,020		)	—		(9,020		)	1,211			(7,809		)
Balance - June 30, 2018	$	(35,711	)	$	—	$	(35,711	)	$	1,714		$	(33,997	)
Net current-period other comprehensive income															12,602			—		12,602			1,142			13,744
Balance - September 30, 2018															$	(23,109	)	$	—	$	(23,109	)	$	2,856		$	(20,253	)


	Six Months Ended June 30, 2018															Nine Months Ended September 30, 2018
	Available-for-sale securities															Available-for-sale securities
(amounts in thousands)	Unrealized Gains (Losses)			Foreign Currency Items			Total Unrealized Gains (Losses)			Unrealized Gains (Losses) on Cash Flow Hedges			Total			Unrealized Gains (Losses)			Foreign Currency Items			Total Unrealized Gains (Losses)			Unrealized Gains (Losses) on Cash Flow Hedges			Total
Balance - December 31, 2017	$	(249	)	$	88		$	(161	)	$	(198	)	$	(359	)	$	(249	)	$	88		$	(161	)	$	(198	)	$	(359	)
Reclassification of the income tax effects of the Tax Cuts and Jobs Act (2)	(256		)	—			(256		)	(42		)	(298		)	(256		)	—			(256		)	(42		)	(298		)
Reclassification of net unrealized gains on equity securities (2)	(953		)	(88		)	(1,041		)	—			(1,041		)	(953		)	(88		)	(1,041		)	—			(1,041		)
Balance after reclassification adjustments on January 1, 2018	(1,458		)	—			(1,458		)	(240		)	(1,698		)	(1,458		)	—			(1,458		)	(240		)	(1,698		)
Other comprehensive income (loss) before reclassifications	(34,253		)	—			(34,253		)	2,049			(32,204		)	(35,459		)	—			(35,459		)	5,055			(30,404		)
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)	—			—			—			(95		)	(95		)	13,808			—			13,808			(1,959		)	11,849
Net current-period other comprehensive income (loss)	(34,253		)	—			(34,253		)	1,954			(32,299		)	(21,651		)	—			(21,651		)	3,096			(18,555		)
Balance - June 30, 2018	$	(35,711	)	$	—		$	(35,711	)	$	1,714		$	(33,997	)
Balance - September 30, 2018																$	(23,109	)	$	—		$	(23,109	)	$	2,856		$	(20,253	)

(1) Reclassification amounts for available-for-sale debt securities are reported as loss on sale of investment securities on the consolidated statements of income. During the three and nine months ended September 30, 2018, reclassification amounts of $18.7 million ($13.8 million net of taxes), respectively, were reported as loss on sale of investment securities on the consolidated statements of income. Reclassification amounts for cash flow hedges are reported as either interest expense on FHLB advances on the consolidated statements of income or other non-interest income on the consolidated statements of income for gains from the discontinuance of cash flow hedge accounting for certain interest rate swaps. During the three and nine months ended September 30, 2018, reclassification amounts of $303 thousand ($224 thousand net of taxes) and $175 thousand ($129 thousand net of taxes) were reported as interest expense on FHLB advances on the consolidated statements of income. During the three and nine months ended September 30, 2018, reclassification amounts of $2.8 million ($2.1 million net of taxes), respectively, were reported as other non-interest income on the consolidated statements of income from the discontinuance of cash flow hedge accounting for certain interest rate swaps.

(2) 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 32 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for more information.


	Three Months Ended June 30, 2017									Three Months Ended September 30, 2017
(amounts in thousands)	Unrealized Gains (Losses) on Available-For-Sale Debt Securities			Unrealized Gains (Losses) on Cash Flow Hedges			Total			Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Gains (Losses) on Cash Flow Hedges			Total
Balance - March 31, 2017	$	(3,366	)	$	(1,506	)	$	(4,872	)
Balance - June 30, 2017										$	6,822		$	(1,458	)	$	5,364
Other comprehensive income (loss) before reclassifications	12,130			(420		)	11,710			(2,177		)	104			(2,073		)
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)	(1,942		)	468			(1,474		)	(3,263		)	349			(2,914		)
Net current-period other comprehensive income	10,188			48			10,236
Balance - June 30, 2017	$	6,822		$	(1,458	)	$	5,364
Net current-period other comprehensive income (loss)										(5,440		)	453			(4,987		)
Balance - September 30, 2017										$	1,382		$	(1,005	)	$	377


	Six Months Ended June 30, 2017									Nine Months Ended September 30, 2017
(amounts in thousands)	Unrealized Gains (Losses) on Available-For-Sale Debt Securities			Unrealized Gains (Losses) on Cash Flow Hedges			Total			Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Gains (Losses) on Cash Flow Hedges			Total
Balance - December 31, 2016	$	(2,681	)	$	(2,211	)	$	(4,892	)	$	(2,681	)	$	(2,211	)	$	(4,892	)
Other comprehensive income (loss) before reclassifications	11,445			(219		)	11,226			9,268			(115		)	9,153
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)	(1,942		)	972			(970		)	(5,205		)	1,321			(3,884		)
Net current-period other comprehensive income	9,503			753			10,256			4,063			1,206			5,269
Balance - June 30, 2017	$	6,822		$	(1,458	)	$	5,364
Balance - September 30, 2017										$	1,382		$	(1,005	)	$	377

(1) Reclassification amounts for available-for-sale debt securities are reported as gain on sale of investment securities on the consolidated statements of income. During the three and nine months ended September 30, 2017, reclassification amounts of $5.3 million ($3.3 million net of taxes) and $8.5 million ($5.2 million net of taxes), respectively, were reported as gain 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. During the three and nine months ended September 30, 2017, reclassification amounts of $572 thousand ($349 thousand net of taxes) and $2.2 million ($1.3 million net of taxes) were reported as interest expense on FHLB advances on the consolidated statements of income.

NOTE 65 — INVESTMENT SECURITIES

The amortized cost and approximate fair value of investment securities as of ~~June~~September 30, 2018 and December 31, 2017 are summarized in the tables below:

June 30, 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 $ 490,425
$ —
$ (13,862 ) $ 476,563
Agency-guaranteed commercial real estate mortgage-backed securities 334,232
—
(13,859 ) 320,373
Corporate notes 381,545
798
(21,335 ) 361,008
Available-for-Sale Debt Securities $ 1,206,202
$ 798
$ (49,056 ) 1,157,944
Equity Securities (1) 3,056
Total Investment Securities, at Fair Value $ 1,161,000



	September 30, 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	$	316,785	$	—	$	(11,367	)	$	305,418
Corporate notes	381,475		347		(20,208		)	361,614
Available-for-sale debt securities	$	698,260	$	347	$	(31,575	)	667,032
Equity securities ⁽¹⁾								1,819
Total investment securities, at fair value								$	668,851

(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 32 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for additional information related to the adoption of this new standard).


	December 31, 2017									December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(amounts in thousands)
Available-for-Sale Securities:
Available-for-sale securities:
Agency-guaranteed residential mortgage-backed securities	$	186,221	$	36	$	(2,799	)	$	183,458	$	186,221	$	36	$	(2,799	)	$	183,458
Agency-guaranteed commercial real estate mortgage-backed securities	238,809		432		(769		)	238,472		238,809		432		(769		)	238,472
Corporate notes (1)	44,959		1,130		—			46,089		44,959		1,130		—			46,089
Equity securities (2)	2,311		1,041		—			3,352		2,311		1,041		—			3,352
Total Available-for-Sale Securities, at Fair Value	$	472,300	$	2,639	$	(3,568	)	$	471,371
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.

The following table presents proceeds from the sale of investment securities and gross gains and gross losses realized on those sales for the three and ~~six~~nine month periods ended ~~June~~September 30, 2018 and 2017:



	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017		2018		2017		2018			2017		2018			2017
(amounts in thousands)
Proceeds from sale of available-for-sale securities	$	—	$	115,982	$	—	$	115,982	$	476,182		$	554,540	$	476,182		$	670,522

Gross gains	$	—	$	3,183	$	—	$	3,183	$	—		$	5,349	$	—		$	8,532
Gross losses	—		—		—		—		(18,659		)	—		(18,659		)	—
Net gains (losses)	$	—	$	3,183	$	—	$	3,183
Net (losses)/gains									$	(18,659	)	$	5,349	$	(18,659	)	$	8,532

These (losses)/gains were determined using the specific identification method and were reported as ~~gains~~(loss) gain on sale of investment securities included in non-interest income on the consolidated statements of income.

The following table shows debt ~~investment~~ securities by stated maturity. ~~Investment~~Debt 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:


	June 30, 2018				September 30, 2018
	Amortized Cost		Fair Value		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 years	179,413		171,214		229,807		218,904
Due after ten years	202,132		189,794		151,668		142,710
Agency-guaranteed residential mortgage-backed securities	490,425		476,563		316,785		305,418
Agency-guaranteed commercial real estate mortgage-backed securities	334,232		320,373
Total debt securities	$	1,206,202	$	1,157,944	$	698,260	$	667,032

Gross unrealized losses and fair value of Customers' ~~available for sale~~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 ~~June~~September 30, 2018 and December 31, 2017 were as follows:


	June 30, 2018															September 30, 2018
	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(amounts in thousands)
Available-for-Sale Debt Securities:
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	416,002	$	(10,256	)	$	60,561	$	(3,606	)	$	476,563	$	(13,862	)	$	305,418	$	(11,367	)	$	—	$	—	$	305,418	$	(11,367	)
Agency-guaranteed commercial real estate mortgage-backed securities	314,525		(13,532		)	5,848		(327		)	320,373		(13,859		)
Corporate notes	315,249		(21,335		)	—		—			315,249		(21,335		)	321,303		(20,208		)	—		—		321,303		(20,208		)
Total	$	1,045,776	$	(45,123	)	$	66,409	$	(3,933	)	$	1,112,185	$	(49,056	)	$	626,721	$	(31,575	)	$	—	$	—	$	626,721	$	(31,575	)


	December 31, 2017															December 31, 2017
	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(amounts in thousands)
Available-for-Sale Debt Securities:
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	104,861	$	(656	)	$	66,579	$	(2,143	)	$	171,440	$	(2,799	)	$	104,861	$	(656	)	$	66,579	$	(2,143	)	$	171,440	$	(2,799	)
Agency-guaranteed commercial real estate mortgage-backed securities	115,970		(740		)	6,151		(29		)	122,121		(769		)	115,970		(740		)	6,151		(29		)	122,121		(769		)
Total	$	220,831	$	(1,396	)	$	72,730	$	(2,172	)	$	293,561	$	(3,568	)	$	220,831	$	(1,396	)	$	72,730	$	(2,172	)	$	293,561	$	(3,568	)

At ~~June~~September 30, 2018, there were ~~sixty-four~~twenty-eight available-for-sale debt ~~investment~~ securities in the less-than-twelve-month category and ~~sixteen~~no 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.~~note's fair value. 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 and ~~six~~nine month ~~period~~periods ended ~~June~~September 30, 2017, Customers recorded other-than-temporary impairment losses of ~~$2.9~~$8.3 million and ~~$4.6~~$12.9 million, respectively, related to its equity holdings in Religare Enterprises Ltd. ("Religare") for the full amount of the decline in fair value from the cost basis established at December 31, 2016 through ~~June~~September 30, 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 32 - 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 since adoption ~~were~~are recorded directly in earnings, which resulted in an unrealized loss of ~~$0.3~~$1.2 million and $1.5 million being recognized in other non-interest income in the accompanying consolidated statements of income for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively.

At ~~June~~September 30, 2018 and December 31, 2017, Customers Bank had pledged investment securities aggregating ~~$685.0~~$187.1 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 76 – LOANS HELD FOR SALE - As Restated

The composition of loans held for sale as of ~~June~~September 30, 2018 and December 31, 2017 was as follows:


	June 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
(amounts in thousands)							(As Restated)
Commercial loans:
Mortgage warehouse loans, at fair value	$	1,930,738	$	1,793,408
Multi-family loans at lower of cost or fair value	—		144,191		$	—	$	144,191
Total commercial loans held for sale	1,930,738		1,937,599		—		144,191
Consumer loans:
Residential mortgage loans, at fair value	1,043		1,886		1,383		1,886
Loans held for sale	$	1,931,781	$	1,939,485	$	1,383	$	146,077

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 20 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.

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 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for more information on the reclassification of loans previously reported as held for sale.

NOTE 87 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES - As Restated

The following table presents loans receivable as of ~~June~~September 30, 2018 and December 31, 2017.


	June 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
(amounts in thousands)										(As Restated)

Loans receivable, mortgage warehouse, at fair value							$	1,516,327		$	1,793,408
Loans receivable:
Commercial:
Multi-family	$	3,542,770		$	3,502,381		3,504,540			3,502,381
Commercial and industrial (including owner occupied commercial real estate)	1,811,751			1,633,818			1,841,704			1,633,818
Commercial real estate non-owner occupied	1,155,998			1,218,719			1,157,849			1,218,719
Construction	88,141			85,393			95,250			85,393
Total commercial loans	6,598,660			6,440,311
Total commercial loans receivable							6,599,343			6,440,311
Consumer:
Residential real estate	493,222			234,090			509,853			234,090
Manufactured housing	85,328			90,227			82,589			90,227
Other	3,874			3,547			51,210			3,547
Total consumer loans	582,424			327,864
Total loans receivable	7,181,084			6,768,175
Deferred costs and unamortized premiums, net	642			83
Total consumer loans receivable							643,652			327,864
Loans receivable							7,242,995			6,768,175
Deferred (fees)/costs and unamortized (discounts)/premiums, net							(3,045		)	83
Allowance for loan losses	(38,288		)	(38,015		)	(40,741		)	(38,015		)
Loans receivable, net of allowance for loan losses	$	7,143,438		$	6,730,243
Total loans receivable, net of allowance for loan losses							$	8,715,536		$	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 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 25 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.

At September 30, 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 ~~June~~September 30, 2018 and December 31, 2017:



	September 30, 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	$	—	$	—	$	—	$	1,343	$	3,501,450	$	1,747	$	3,504,540
Commercial and industrial	418		—		418		13,287		1,271,813		572		1,286,090
Commercial real estate owner occupied	—		—		—		1,298		545,647		8,669		555,614
Commercial real estate non-owner occupied	—		—		—		158		1,153,107		4,584		1,157,849
Construction	—		—		—		—		95,250		—		95,250
Residential real estate	2,321		—		2,321		5,522		497,211		4,799		509,853
Manufactured housing (5)	3,475		2,300		5,775		1,921		72,777		2,116		82,589
Other consumer	45		—		45		112		50,832		221		51,210
Total	$	6,259	$	2,300	$	8,559	$	23,641	$	7,188,087	$	22,708	$	7,242,995

	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 industrial	103		—		103		17,392		1,130,831		764		1,149,090
Commercial real estate owner occupied	202		—		202		1,453		472,501		10,572		484,728
Commercial real estate non-owner occupied	93		—		93		160		1,213,216		5,250		1,218,719
Construction	—		—		—		—		85,393		—		85,393
Residential real estate	7,628		—		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 consumer	116		—		116		31		3,184		216		3,547
Total	$	17,070	$	2,743	$	19,813	$	26,415	$	6,695,032	$	26,915	$	6,768,175

June 30, 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 $ —
$ —
$ —
$ 1,343
$ 3,539,640
$ 1,787
$ 3,542,770
Commercial and industrial 1,087
—
1,087
13,683
1,251,148
602
1,266,520
Commercial real estate - owner occupied —
—
—
718
534,923
9,590
545,231
Commercial real estate - non-owner occupied —
—
—
2,536
1,148,581
4,881
1,155,998
Construction —
—
—
—
88,141
—
88,141
Residential real estate 2,174
—
2,174
5,606
480,381
5,061
493,222
Manufactured housing (5) 2,977
2,661
5,638
2,015
75,250
2,425
85,328
Other consumer 56
—
56
94
3,496
228
3,874
Total $ 6,294
$ 2,661
$ 8,955
$ 25,995
$ 7,121,560
$ 24,574
$ 7,181,084

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 industrial 103
—
103
17,392
1,130,831
764
1,149,090
Commercial real estate - owner occupied 202
—
202
1,453
472,501
10,572
484,728
Commercial real estate - non-owner occupied 93
—
93
160
1,213,216
5,250
1,218,719
Construction —
—
—
—
85,393
—
85,393
Residential real estate 7,628
—
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 consumer 116
—
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~~Due to 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 ~~June~~September 30, 2018 and December 31, 2017, the Bank had $0.4 million and $0.3 million, respectively, of residential real estate held in other real estate owned. As of ~~June~~September 30, 2018 and December 31, 2017, the Bank had initiated foreclosure proceedings on ~~$2.2~~$2.1 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 and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, and the loans and allowance for loan losses by loan ~~class~~type based on impairment-evaluation method as of ~~June~~September 30, 2018 and December 31, 2017 are presented in the tables below.


Three Months Ended June 30, 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
Three Months Ended September 30, 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, March 31, 2018	$	12,545		$	11,737		$	3,525		$	7,233		$	921		$	3,179		$	176		$	183		$	39,499
Ending Balance, June 30, 2018																												$	12,069		$	12,258		$	2,988		$	6,698		$	992		$	2,908		$	149		$	226		$	38,288
Charge-offs	—			(174		)	(483		)	—			—			(42		)	—			(462		)	(1,161		)	—			(90		)	—			—			—			—			—			(437		)	(527		)
Recoveries	—			140			326			—			209			56			—			3			734			—			30			—			5			11			6			—			4			56
Provision for loan losses	(476		)	555			(380		)	(535		)	(138		)	(285		)	(27		)	502			(784		)	(240		)	516			164			(254		)	59			987			(55		)	1,747			2,924
Ending Balance, June 30, 2018	$	12,069		$	12,258		$	2,988		$	6,698		$	992		$	2,908		$	149		$	226		$	38,288
Six Months Ended June 30, 2018
Ending Balance, September 30, 2018																												$	11,829		$	12,714		$	3,152		$	6,449		$	1,062		$	3,901		$	94		$	1,540		$	40,741
Nine Months Ended September 30, 2018
Ending Balance, December 31, 2017	$	12,168		$	10,918		$	3,232		$	7,437		$	979		$	2,929		$	180		$	172		$	38,015		$	12,168		$	10,918		$	3,232		$	7,437		$	979		$	2,929		$	180		$	172		$	38,015
Charge-offs	—			(224		)	(501		)	—			—			(407		)	—			(718		)	(1,850		)	—			(314		)	(501		)	—			—			(407		)	—			(1,155		)	(2,377		)
Recoveries	—			175			326			—			220			63			—			6			790			—			205			326			5			231			69			—			10			846
Provision for loan losses	(99		)	1,389			(69		)	(739		)	(207		)	323			(31		)	766			1,333			(339		)	1,905			95			(993		)	(148		)	1,310			(86		)	2,513			4,257
Ending Balance, June 30, 2018	$	12,069		$	12,258		$	2,988		$	6,698		$	992		$	2,908		$	149		$	226		$	38,288
Ending Balance, September 30, 2018																												$	11,829		$	12,714		$	3,152		$	6,449		$	1,062		$	3,901		$	94		$	1,540		$	40,741

As of June 30, 2018
As of September 30, 2018
Loans:
Individually evaluated for impairment	$	1,343		$	13,750		$	759		$	2,536		$	—		$	8,775		$	10,372		$	94		$	37,629		$	1,343		$	13,353		$	1,335		$	158		$	—		$	8,581		$	10,378		$	112		$	35,260
Collectively evaluated for impairment	3,539,640			1,252,168			534,882			1,148,581			88,141			479,386			72,531			3,552			7,118,881			3,501,450			1,272,165			545,610			1,153,107			95,250			496,473			70,095			50,877			7,185,027
Loans acquired with credit deterioration	1,787			602			9,590			4,881			—			5,061			2,425			228			24,574			1,747			572			8,669			4,584			—			4,799			2,116			221			22,708
	$	3,542,770		$	1,266,520		$	545,231		$	1,155,998		$	88,141		$	493,222		$	85,328		$	3,874		$	7,181,084
Total loans receivable (1)																												$	3,504,540		$	1,286,090		$	555,614		$	1,157,849		$	95,250		$	509,853		$	82,589		$	51,210		$	7,242,995
Allowance for loan losses:
Individually evaluated for impairment	$	—		$	1,062		$	1		$	—		$	—		$	313		$	5		$	—		$	1,381		$	—		$	1,381		$	80		$	—		$	—		$	306		$	4		$	—		$	1,771
Collectively evaluated for impairment	12,069			10,749			2,987			4,334			992			2,106			81			154			33,472			11,829			10,881			3,072			4,298			1,062			3,072			88			1,471			35,773
Loans acquired with credit deterioration	—			447			—			2,364			—			489			63			72			3,435			—			452			—			2,151			—			523			2			69			3,197
	$	12,069		$	12,258		$	2,988		$	6,698		$	992		$	2,908		$	149		$	226		$	38,288
Allowance for loan losses																												$	11,829		$	12,714		$	3,152		$	6,449		$	1,062		$	3,901		$	94		$	1,540		$	40,741


Three Months Ended June 30, 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
Three Months Ended September 30, 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, March 31, 2017	$	12,283		$	13,009		$	2,394	$	7,847		$	885		$	3,080		$	284		$	101		$	39,883
Ending Balance, June 30, 2017																											$	12,028	$	11,585		$	2,976	$	7,786		$	716		$	2,995		$	268		$	104		$	38,458
Charge-offs	—			(1,849		)	—		(4		)	—			(69		)	—			(226		)	(2,148		)	—		(2,032		)	—		(77		)	—			(120		)	—			(356		)	(2,585		)
Recoveries	—			68			9		—			49			6			—			56			188			—		54			—		—			27			7			—			1			89
Provision for loan losses	(255		)	357			573		(57		)	(218		)	(22		)	(16		)	173			535			668		966			262		(53		)	104			72			(77		)	410			2,352
Ending Balance, June 30, 2017	$	12,028		$	11,585		$	2,976	$	7,786		$	716		$	2,995		$	268		$	104		$	38,458
Six Months Ended June 30, 2017
Ending Balance, September 30, 2017																											$	12,696	$	10,573		$	3,238	$	7,656		$	847		$	2,954		$	191		$	159		$	38,314
Nine Months Ended September 30, 2017
Ending Balance, December 31, 2016	$	11,602		$	11,050		$	2,183	$	7,894		$	840		$	3,342		$	286		$	118		$	37,315		$	11,602	$	11,050		$	2,183	$	7,894		$	840		$	3,342		$	286		$	118		$	37,315
Charge-offs	—			(2,047		)	—		(408		)	—			(290		)	—			(246		)	(2,991		)	—		(4,079		)	—		(485		)	—			(410		)	—			(602		)	(5,576		)
Recoveries	—			283			9		—			130			27			—			100			549			—		337			9		—			157			34			—			101			638
Provision for loan losses	426			2,299			784		300			(254		)	(84		)	(18		)	132			3,585			1,094		3,265			1,046		247			(150		)	(12		)	(95		)	542			5,937
Ending Balance, June 30, 2017	$	12,028		$	11,585		$	2,976	$	7,786		$	716		$	2,995		$	268		$	104		$	38,458
Ending Balance, September 30, 2017																											$	12,696	$	10,573		$	3,238	$	7,656		$	847		$	2,954		$	191		$	159		$	38,314
As of December 31, 2017
Loans:
Individually evaluated for impairment	$	—		$	17,461		$	1,448	$	160		$	—		$	9,247		$	10,089		$	30		$	38,435		$	—	$	17,461		$	1,448	$	160		$	—		$	9,247		$	10,089		$	30		$	38,435
Collectively evaluated for impairment	3,500,500			1,130,865			472,708		1,213,309			85,393			219,162			77,587			3,301			6,702,825			3,500,500		1,130,865			472,708		1,213,309			85,393			219,162			77,587			3,301			6,702,825
Loans acquired with credit deterioration	1,881			764			10,572		5,250			—			5,681			2,551			216			26,915			1,881		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
Total loans receivable																											$	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		$	—	$	650		$	642	$	—		$	—		$	155		$	4		$	—		$	1,451
Collectively evaluated for impairment	12,168			9,804			2,580		4,630			979			2,177			82			117			32,537			12,168		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			—		464			10		2,807			—			597			94			55			4,027
	$	12,168		$	10,918		$	3,232	$	7,437		$	979		$	2,929		$	180		$	172		$	38,015
Allowance for loan losses																											$	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 ~~June~~September 30, 2018 and December 31, 2017, funds available for reimbursement, if necessary, were $0.5 million and $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 ~~June~~September 30, 2018 and December 31, 2017 and the average recorded investment and interest income recognized for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017. Purchased-credit-impaired loans are considered to be performing and are not included in the tables below.


	June 30, 2018						Three Months Ended June 30, 2018				Six Months Ended June 30, 2018				September 30, 2018						Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Recorded Investment Net of Charge offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Recorded Investment Net of Charge-offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
(amounts in thousands)
With no recorded allowance:
Multi-family	$	1,343	$	1,343	$	—	$	672	$	8	$	448	$	8	$	1,343	$	1,343	$	—	$	1,343	$	—	$	672	$	8
Commercial and industrial	5,642		5,889		—		5,736		2		6,870		2		9,888		10,224		—		7,765		166		7,623		168
Commercial real estate owner occupied	718		1,201		—		664		—		713		—		704		1,187		—		711		—		711		—
Commercial real estate non-owner occupied	2,536		2,648		—		1,390		8		980		8		158		271		—		1,347		—		774		8
Other consumer	94		94		—		96		—		74		—		112		112		—		103		1		83		1
Residential real estate	4,301		4,546		—		3,959		2		3,849		2		4,259		4,504		—		4,281		23		3,952		25
Manufactured housing	10,144		10,144		—		10,015		146		9,963		277		10,152		10,152		—		10,147		144		10,011		421
With an allowance recorded:
Commercial and industrial	8,108		8,292		1,062		8,283		11		8,296		12		3,465		3,648		1,381		5,787		27		7,089		39
Commercial real estate owner occupied	41		41		1		455		1		517		2		631		631		80		336		9		546		11
Residential real estate	4,474		4,479		313		4,550		38		4,906		63		4,322		4,329		306		4,398		61		4,760		124
Manufactured housing	228		228		5		225		6		225		6		226		226		4		227		4		225		10
Total	$	37,629	$	38,905	$	1,381	$	36,045	$	222	$	36,841	$	380	$	35,260	$	36,627	$	1,771	$	36,445	$	435	$	36,446	$	815


	December 31, 2017						Three Months Ended June 30, 2017				Six Months Ended June 30, 2017				December 31, 2017						Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
	Recorded Investment Net of Charge offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Recorded Investment Net of Charge-offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
(amounts in thousands)
With no recorded allowance:
Commercial and industrial	$	9,138	$	9,287	$	—	$	6,678	$	46	$	5,251	$	96	$	9,138	$	9,287	$	—	$	13,345	$	354	$	8,796	$	450
Commercial real estate owner occupied	806		806		—		1,739		—		1,563		3		806		806		—		1,744		15		1,589		18
Commercial real estate non-owner occupied	160		272		—		884		—		1,257		2		160		272		—		184		91		989		93
Other consumer	30		30		—		56		—		56		—		30		30		—		44		—		50		—
Residential real estate	3,628		3,801		—		2,660		—		4,001		1		3,628		3,801		—		5,228		125		4,865		126
Manufactured housing	9,865		9,865		—		10,074		152		9,937		293		9,865		9,865		—		10,243		164		10,038		457
With an allowance recorded:
Commercial and industrial	8,323		8,506		650		7,209		—		6,846		22		8,323		8,506		650		1,963		—		5,400		22
Commercial real estate - owner occupied	642		642		642		839		1		839		2
Commercial real estate owner occupied															642		642		642		1,056		1		950		3
Commercial real estate non-owner occupied	—		—		—		114		—		126		—		—		—		—		51		—		94		—
Other consumer															—		—		—		12		—		6		—
Residential real estate	5,619		5,656		155		4,953		45		3,399		84		5,619		5,656		155		2,862		—		2,729		84
Manufactured housing	224		224		4		216		5		144		8		224		224		4		114		—		108		8
Total	$	38,435	$	39,089	$	1,451	$	35,422	$	249	$	33,419	$	511	$	38,435	$	39,089	$	1,451	$	36,846	$	750	$	35,614	$	1,261

Troubled Debt Restructurings

At ~~June~~September 30, 2018 and December 31, 2017, there were $19.4 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~~Modifications 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 ~~June~~September 30, 2018 and December 31, 2017. Nonaccrual TDRs are included in the reported amount of total non-accrual loans.


	June 30, 2018						December 31, 2017						September 30, 2018						December 31, 2017
	Accruing TDRs		Nonaccrual TDRs		Total		Accruing TDRs		Nonaccrual TDRs		Total		Accruing TDRs		Nonaccrual TDRs		Total		Accruing TDRs		Nonaccrual TDRs		Total
(amounts in thousands)
Commercial and industrial	$	67	$	5,415	$	5,482	$	63	$	5,939	$	6,002	$	66	$	5,311	$	5,377	$	63	$	5,939	$	6,002
Commercial real estate owner occupied	41		—		41		—		—		—		37		—		37		—		—		—
Manufactured housing	8,357		1,875		10,232		8,130		1,766		9,896		8,457		1,781		10,238		8,130		1,766		9,896
Residential real estate	3,169		485		3,654		3,828		703		4,531		3,059		698		3,757		3,828		703		4,531
Other consumer	—		13		13		—		—		—		—		13		13		—		—		—
Total TDRs	$	11,634	$	7,788	$	19,422	$	12,021	$	8,408	$	20,429	$	11,619	$	7,803	$	19,422	$	12,021	$	8,408	$	20,429

The following table presents loans modified in a troubled debt restructuring by type of concession for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017. There were no modifications that involved forgiveness of ~~debt.~~debt for the three and nine months ended September 30, 2018 and 2017.


	Three Months Ended June 30, 2018			Three Months Ended June 30, 2017			Three Months Ended September 30, 2018			Three Months Ended September 30, 2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Extensions of maturity	1	$	56	2	$	5,855	—	$	—	1	$	60
Interest-rate reductions	15	607		9	320		8	473		3	122
Total	16	$	663	11	$	6,175	8	$	473	4	$	182


	Six Months Ended June 30, 2018			Six Months Ended June 30, 2017			Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Extensions of maturity	1	$	56	3	$	6,203	1	$	56	4	$	6,263
Interest-rate reductions	24	929		29	1,175		32	1,402		32	1,297
Total	25	$	985	32	$	7,378	33	$	1,458	36	$	7,560

The following table provides, by loan type, the number of loans modified in troubled debt restructurings, and the related recorded investment, during the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017.


	Three Months Ended June 30, 2018			Three Months Ended June 30, 2017			Three Months Ended September 30, 2018			Three Months Ended September 30, 2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Commercial and industrial	—	$	—	2	$	5,855
Manufactured housing	14	450		9	320		7	$	321	4	$	182
Residential real estate	1	200		—	—		1	152		—	—
Other consumer	1	13		—	—
Total loans	16	$	663	11	$	6,175	8	$	473	4	$	182


	Six Months Ended June 30, 2018			Six Months Ended June 30, 2017			Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Commercial and industrial	—	$	—	3	$	6,203	—	$	—	3	$	6,203
Manufactured housing	23	772		29	1,175		30	1,093		33	1,357
Residential real estate	1	200		—	—		2	352		—	—
Other consumer	1	13		—	—		1	13		—	—
Total loans	25	$	985	32	$	7,378	33	$	1,458	36	$	7,560

As of ~~June~~September 30, 2018 and December 31, 2017, except for one commercial and industrial loan with an outstanding commitment of ~~$1.6~~$1.5 million and $2.1 million, respectively, there were no other commitments to lend additional funds to debtors whose loans have been modified in TDRs.

As of ~~June~~September 30, 2018, there were no loans modified in a TDR within the past twelve months that defaulted on payments. As of ~~June~~September 30, 2017, ~~six~~ten manufactured housing loans totaling ~~$0.3~~$0.5 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 and ~~six~~nine months ended ~~June~~September 30, 2018. There was no allowance recorded as a result of TDR modifications during the three months ended ~~June~~September 30, 2017. For the ~~six~~nine months ended ~~June~~September 30, 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 and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 were as follows:


	Three Months Ended June 30,						Three Months Ended September 30,
	2018			2017			2018			2017
(amounts in thousands)
Accretable yield balance as of March 31,	$	7,663		$	9,376
Accretable yield balance as of June 30,							$	7,403		$	9,006
Accretion to interest income	(516		)	(465		)	(310		)	(368		)
Reclassification from nonaccretable difference and disposals, net	256			95			(4		)	(276		)
Accretable yield balance as of June 30,	$	7,403		$	9,006
Accretable yield balance as of September 30,							$	7,089		$	8,362


	Six Months Ended June 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
(amounts in thousands)
Accretable yield balance as of December 31,	$	7,825		$	10,202		$	7,825		$	10,202
Accretion to interest income	(854		)	(958		)	(1,164		)	(1,326		)
Reclassification from nonaccretable difference and disposals, net	432			(238		)	428			(514		)
Accretable yield balance as of June 30,	$	7,403		$	9,006
Accretable yield balance as of September 30,							$	7,089		$	8,362

Credit Quality Indicators

The allowance for loan losses represents management's estimate of probable losses in Customers loans receivable portfolio, excluding mortgage warehouse loans carried under the fair value option. 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, and construction loan portfolios, and for purposes of analyzing historical loss rates used in the determination of the allowance for loan losses for the respective loan portfolios, 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 considered 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 ~~June~~September 30, 2018 and December 31, 2017.


	June 30, 2018																		September 30, 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		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 (3)
(amounts in thousands)	(amounts in thousands)
Pass/Satisfactory	$	3,485,669	$	1,211,934	$	529,898	$	1,089,666	$	88,141	$	—	$	—	$	—	$	6,405,308	$	3,399,892	$	1,235,945	$	539,252	$	1,084,388	$	95,250	$	—	$	—	$	—	$	6,354,727
Special Mention	31,001		16,979		8,152		60,943		—		—		—		—		117,075		81,253		7,756		8,793		30,406		—		—		—		—		128,208
Substandard	26,100		37,607		7,181		5,389		—		—		—		—		76,277		23,395		42,389		7,569		43,055		—		—		—		—		116,408
Performing (1)	—		—		—		—		—		485,442		77,675		3,724		566,841		—		—		—		—		—		502,010		74,893		51,053		627,956
Non-performing (2)	—		—		—		—		—		7,780		7,653		150		15,583		—		—		—		—		—		7,843		7,696		157		15,696
Total	$	3,542,770	$	1,266,520	$	545,231	$	1,155,998	$	88,141	$	493,222	$	85,328	$	3,874	$	7,181,084	$	3,504,540	$	1,286,090	$	555,614	$	1,157,849	$	95,250	$	509,853	$	82,589	$	51,210	$	7,242,995


	December 31, 2017																		December 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		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 (3)
(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 Mention	53,873		7,652		5,987		31,767		—		—		—		—		99,279		53,873		7,652		5,987		31,767		—			—		—		—		99,279
Substandard	9,954		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 mortgage warehouse loans carried under the fair value option.

Loan Purchases and Sales

During third quarter 2018, Customers purchased $72.7 million of mortgage and consumer loans from third party financial institutions. The purchase price was 95.3% of loans outstanding. During third quarter 2018, Customers sold $12.1 million of Small Business Administration (SBA) loans resulting in a gain on sale of $1.1 million. There were no loan purchases during third quarter 2017. In third quarter 2017, Customers sold $11.0 million of SBA loans resulting in a gain on sale of $1.1 million.

In second quarter 2018, Customers purchased $277.4 million of thirty-year fixed-rate residential mortgage loans from ~~Third Federal Savings & Loan.~~a third party financial institution. The purchase price was 100.4% of loans outstanding. During second quarter 2018, Customers sold $11.7 million of SBA loans resulting in a gain on sale of $0.9 million. In second quarter 2017, Customers purchased ~~an additional $90.0~~$90 million of thirty-year fixed-rate residential mortgage loans from ~~Everbank.~~a third party financial institution. The purchase price was 101.0% of loans outstanding. In second quarter 2017, Customers sold $7.0 million of SBA loans resulting in a gain on sale of $0.6 million.

Customers did not purchase any loans during first quarter 2018. During first quarter 2018, Customers sold $15.0 million of ~~Small Business Administration (SBA)~~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.~~a third party financial institution. 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 the purchases and sales during the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 materially affected the credit profile of Customers’ 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") and Federal Reserve Bank of Philadelphia ("FRB") in the amount of ~~$5.6~~$5.5 billion at ~~June~~both September 30, 2018 and ~~$5.5 billion at~~ December 31, 2017.

NOTE 98 — 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 ~~June~~September 30, 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, or to comply with the 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 as set forth in the following table:


					Minimum Capital Levels to be Classified as:																Minimum Capital Levels to be Classified as:
	Actual				Adequacy Capitalized				Well Capitalized				Basel III Compliant				Actual				Adequately Capitalized				Well Capitalized				Basel III Compliant
(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2018:
As of September 30, 2018:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	735,609	8.611	%	$	384,418	4.500	%	N/A		N/A		$	544,591	6.375	%	$	740,968	8.703	%	$	383,113	4.500	%	N/A		N/A		$	542,744	6.375	%
Customers Bank	$	1,054,613	12.351	%	$	384,232	4.500	%	$	555,002	6.500	%	$	544,329	6.375	%	$	1,054,869	12.393	%	$	383,042	4.500	%	$	553,282	6.500	%	$	542,642	6.375	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	953,025	11.156	%	$	512,557	6.000	%	N/A		N/A		$	672,731	7.875	%	$	958,418	11.257	%	$	510,818	6.000	%	N/A		N/A		$	670,448	7.875	%
Customers Bank	$	1,054,613	12.351	%	$	512,309	6.000	%	$	683,079	8.000	%	$	672,406	7.875	%	$	1,054,869	12.393	%	$	510,722	6.000	%	$	680,963	8.000	%	$	670,323	7.875	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,072,072	12.550	%	$	683,409	8.000	%	N/A		N/A		$	843,583	9.875	%	$	1,080,245	12.688	%	$	681,090	8.000	%	N/A		N/A		$	840,721	9.875	%
Customers Bank	$	1,202,070	14.078	%	$	683,079	8.000	%	$	853,849	10.000	%	$	843,176	9.875	%	$	1,204,825	14.154	%	$	680,963	8.000	%	$	851,204	10.000	%	$	840,563	9.875	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	953,025	8.866	%	$	429,963	4.000	%	N/A		N/A		$	429,963	4.000	%	$	958,418	8.913	%	$	430,099	4.000	%	N/A		N/A		$	430,099	4.000	%
Customers Bank	$	1,054,613	9.822	%	$	429,471	4.000	%	$	536,839	5.000	%	$	429,471	4.000	%	$	1,054,869	9.814	%	$	429,939	4.000	%	$	537,423	5.000	%	$	429,939	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	%	$	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	%	$	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	%	$	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	%	$	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	%	$	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	%	$	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	%	$	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	%	$	1,023,564	10.092	%	$	405,701	4.000	%	$	507,126	5.000	%	$	405,701	4.000	%

The Basel III 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 109 — 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 ~~June~~September 30, 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~~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 (fair value option):

The Bank 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 sale~~receivable - Commercial mortgage warehouse 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 2025 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 ~~June~~September 30, 2018 and December 31, 2017 were as follows.


					Fair Value Measurements at June 30, 2018										Fair Value Measurements at September 30, 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)
Assets:
Cash and cash equivalents	$	251,726	$	251,726	$	251,726	$	—	$	—	$	666,034	$	666,034	$	666,034	$	—	$	—
Debt securities, available for sale	1,157,944		1,157,944		—		1,157,944		—		667,032		667,032		—		667,032		—
Equity securities	3,056		3,056		3,056		—		—		1,819		1,819		1,819		—		—
Loans held for sale	1,931,781		1,931,781		—		1,931,781		—		1,383		1,383		—		1,383		—
Loans receivable, net of allowance for loan losses	7,143,438		7,127,315		—		—		7,127,315
Total loans receivable, net of allowance for loan losses											8,715,536		8,646,346		—		1,516,327		7,130,019
FHLB, Federal Reserve Bank and other restricted stock	136,066		136,066		—		136,066		—		74,206		74,206		—		74,206		—
Derivatives	16,247		16,247		—		16,114		133		22,613		22,613		—		22,491		122
Liabilities:
Deposits	$	7,295,954	$	7,288,828	$	5,223,793	$	2,065,035	$	—	$	8,513,714	$	8,506,804	$	6,120,233	$	2,386,571	$	—
Federal funds purchased	105,000		105,000		105,000		—		—
FHLB advances	2,389,797		2,389,785		1,504,797		884,988		—		835,000		834,968		—		834,968		—
Other borrowings	186,888		185,364		63,554		121,810		—		123,779		124,724		—		124,724		—
Subordinated debt	108,929		114,675		—		114,675		—		108,953		114,400		—		114,400		—
Derivatives	13,698		13,698		—		13,698		—		15,684		15,684		—		15,684		—


					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 sale	471,371		471,371		3,352		468,019		—		471,371		471,371		3,352		468,019		—
Loans held for sale	1,939,485		1,939,659		—		1,795,294		144,365
Loans receivable, net of allowance for loan losses	6,730,243		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 stock	105,918		105,918		—		105,918		—		105,918		105,918		—		105,918		—
Derivatives	9,752		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 purchased	155,000		155,000		155,000		—		—		155,000		155,000		155,000		—		—
FHLB advances	1,611,860		1,611,603		881,860		729,743		—		1,611,860		1,611,603		881,860		729,743		—
Other borrowings	186,497		193,557		65,072		128,485		—		186,497		193,557		65,072		128,485		—
Subordinated debt	108,880		115,775		—		115,775		—		108,880		115,775		—		115,775		—
Derivatives	10,074		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 ~~June~~September 30, 2018 and December 31, 2017 were as follows:


	June 30, 2018								September 30, 2018
	Fair Value Measurements at the End of the Reporting Period Using								Fair 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)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(amounts in thousands)
Measured at Fair Value on a Recurring Basis:
Assets
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	476,563	$	—	$	476,563	$	—	$	305,418	$	—	$	305,418
Agency-guaranteed commercial mortgage-backed securities	—		320,373		—		320,373
Corporate notes	—		361,008		—		361,008		—		361,614		—		361,614
Equity securities	3,056		—		—		3,056		1,819		—		—		1,819
Derivatives	—		16,114		133		16,247		—		22,491		122		22,613
Loans held for sale – fair value option	—		1,931,781		—		1,931,781		—		1,383		—		1,383
Loans receivable, mortgage warehouse - fair value option									—		1,516,327		—		1,516,327
Total assets - recurring fair value measurements	$	3,056	$	3,105,839	$	133	$	3,109,028	$	1,819	$	2,207,233	$	122	$	2,209,174
Liabilities
Derivatives	$	—	$	13,698	$	—	$	13,698	$	—	$	15,684	$	—	$	15,684
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of reserves of $1,381	$	—	$	—	$	11,929	$	11,929
Impaired loans, net of reserves of $1,771									$	—	$	—	$	7,295	$	7,295
Other real estate owned	—		—		1,027		1,027		—		—		1,078		1,078
Total assets - nonrecurring fair value measurements	$	—	$	—	$	12,956	$	12,956	$	—	$	—	$	8,373	$	8,373


	December 31, 2017								December 31, 2017
	Fair Value Measurements at the End of the Reporting Period Using								Fair 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)		Total		Quoted 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 real estate mortgage-backed securities	—		238,472		—		238,472		—		238,472		—		238,472
Corporate notes	—		46,089		—		46,089		—		46,089		—		46,089
Equity securities	3,352		—		—		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 and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 are summarized in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 1110 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES.


	Residential Mortgage Loan Commitments						Residential Mortgage Loan Commitments
	Three Months Ended June 30,						Three Months Ended September 30,
	2018			2017			2018			2017
(amounts in thousands)
Balance at March 31	$	83		$	95
Balance at June 30							$	133		$	102
Issuances	133			102			122			103
Settlements	(83		)	(95		)	(133		)	(102		)
Balance at June 30	$	133		$	102
Balance at September 30							$	122		$	103


	Residential Mortgage Loan Commitments						Residential Mortgage Loan Commitments
	Six Months Ended June 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
(amounts in thousands)
Balance at December 31	$	60		$	45		$	60		$	45
Issuances	216			197			338			300
Settlements	(143		)	(140		)	(276		)	(242		)
Balance at June 30	$	133		$	102

Balance at September 30							$	122		$	103

~~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 and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017.

The following table summarizes financial assets and financial liabilities measured at fair value as of ~~June~~September 30, 2018 and December 31, 2017 on a recurring and nonrecurring basis for which Customers utilized Level 3 inputs to measure fair value. The unobservable Level 3 inputs noted below contain a level of uncertainty that may differ from what is realized in an immediate settlement of the assets. Therefore, Customers may realize a value higher or lower than the current estimated fair value of the assets.

Quantitative Information about Level 3 Fair Value Measurements

June 30, 2018

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range (Weighted

Average) (3)

September 30, 2018

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average)

(amounts in thousands)

Impaired loans

11,929

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

Impaired loans - Real Estate

5,211

Collateral appraisal (1)

Liquidation expenses (2)

8% - 8%
(8%)

Impaired loans - C&I

2,084

Business asset valuation (3)

Business asset valuation adjustments (4)

6% - 63%
(12%)

Other real estate owned

1,027

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

1,078

Collateral appraisal (1)

Liquidation expenses (2)

8% - 10%
(8%)

Residential mortgage loan commitments

133

Adjusted market bid

Pull-through rate

90%

122

Adjusted market bid

Pull-through rate

90% - 90%
(90%)

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2017

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range (Weighted

Average) (3)

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average)

(amounts in thousands)

Impaired loans

13,902

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

13,902

Collateral appraisal (1)

Liquidation expenses (2)

8% - 8%
(8%)

Other real estate owned

1,449

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

1,449

Collateral appraisal (1)

Liquidation expenses (2)

8% - 8%
(8%)

Residential mortgage loan commitments

Adjusted market bid

Pull-through rate

90%

Adjusted market bid

Pull-through rate

90% - 90%
(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~~Appraisals are adjusted by management for ~~estimated costs to sell based on~~liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percentage of ~~the value as determined by~~ the appraisal.


(3)	~~Presented~~Business asset valuation obtained from independent party.


(4)	Business asset valuations may be adjusted by management for qualitative factors including economic conditions and the condition of the business assets. The range and weighted average of the business asset adjustments are presented as a ~~percentage~~percent of the ~~value determined by appraisal for impaired loans and other real estate owned.~~business asset valuation.

NOTE 1110 — 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~~interest rate risk management strategy. ~~Interest-rate~~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.

Customers discontinues cash flow hedge accounting if it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in accumulated other comprehensive income are reclassified immediately into earnings and any subsequent changes in the fair value of such derivatives are recognized directly in earnings. During the three months ended September 30, 2018, Customers recognized gains of $2.8 million in other non-interest income on discontinued cash flow hedge accounting for three interest rate swaps with notional amounts totaling $500 million.

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 ~~$0.5~~$1.0 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 6033 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

At ~~June~~September 30, 2018, Customers had ~~thirteen~~eight outstanding interest rate derivatives with notional amounts totaling ~~$1.4 billion~~$835.0 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 ~~June~~September 30, 2018 expire between ~~July~~October 2018 and ~~June 2023.~~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~~As 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 ~~June~~September 30, 2018, Customers had 8298 interest rate swaps with an aggregate notional amount of ~~$779.0~~$956.8 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 ~~June~~September 30, 2018 and December 31, 2017, Customers had an outstanding notional balance of residential mortgage loan commitments of ~~$6.0~~$6.1 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 ~~June~~September 30, 2018 and December 31, 2017, Customers had outstanding notional balances of credit derivatives of ~~$92.6~~$95.5 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 ~~June~~September 30, 2018 and December 31, 2017.


	June 30, 2018						September 30, 2018
	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
(amounts in thousands)
Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	2,732	Other liabilities	$	416	Other assets	$	3,859	Other liabilities	$	—
Total		$	2,732		$	416		$	3,859		$	—
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	13,334	Other liabilities	$	13,148	Other assets	$	18,596	Other liabilities	$	15,653
Credit contracts	Other assets	48		Other liabilities	134		Other assets	36		Other liabilities	31
Residential mortgage loan commitments	Other assets	133		Other liabilities	—		Other assets	122		Other liabilities	—
Total		$	13,515		$	13,282		$	18,754		$	15,684



	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 and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017.


	Three Months Ended June 30, 2018				Three Months Ended September 30, 2018
	Income Statement Location	Amount of Income (Loss) Recognized in Earnings			Income Statement Location	Amount of Income (Loss) Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	(51	)	Other non-interest income	$	1,139
Credit contracts	Other non-interest income	(15		)	Other non-interest income	156
Residential mortgage loan commitments	Mortgage banking income	50			Mortgage banking income	(11		)
Total		$	(16	)		$	1,284



	Three Months Ended September 30, 2017
	Income Statement Location	Amount of Income (Loss) Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	91
Credit contracts	Other non-interest income	(6		)
Residential mortgage loan commitments	Mortgage banking income	1
Total		$	86



	Nine Months Ended September 30, 2018
	Income Statement Location	Amount of Income Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	1,472
Credit contracts	Other non-interest income	119
Residential mortgage loan commitments	Mortgage banking income	62
Total		$	1,653

Three Months Ended June 30, 2017
Income Statement Location
Amount of Income (Loss)
Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps Other non-interest income $ (145 )
Credit contracts Other non-interest income 1
Residential mortgage loan commitments Mortgage banking income 7
Total $ (137 )

Six Months Ended June 30, 2018
Income Statement Location
Amount of Income (Loss)
Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps Other non-interest income $ 334
Credit contracts Other non-interest income (38 )
Residential mortgage loan commitments Mortgage banking income 73
Total $ 369

Six Months Ended June 30, 2017
Income Statement Location
Amount of Income
Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps Other non-interest income $ 338
Credit contracts Other non-interest income 1
Residential mortgage loan commitments Mortgage banking income 57
Total $ 396

Three Months Ended June 30, 2018

Nine Months Ended September 30, 2017

Amount of Gain

Recognized in OCI on

Derivatives (1)

Location of Gain (Loss)

Reclassified from

Accumulated OCI into

Income

Amount of Gain

Reclassified from

Accumulated OCI into

Income

Income Statement Location

Amount of Income (Loss)

Recognized in Earnings

(amounts in thousands)

Derivatives in cash flow hedging relationships:

Derivatives not designated as hedging instruments:

Interest rate swaps

1,403

Interest expense

259

Other non-interest income

429

Credit contracts

Other non-interest income

)

Residential mortgage loan commitments

Mortgage banking income

Total

482


	Three Months Ended June 30, 2017							Three Months Ended September 30, 2018
	Amount of Loss 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			Amount of Gain (Loss) Recognized in OCI on Derivatives (1)		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
(amounts in thousands)
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	(420	)	Interest expense	$	(767	)	$	3,006	Interest expense	$	(303	)
										Other non-interest income (2)	2,822
Total											$	2,519

Six Months Ended June 30, 2018
Amount of Gain
Recognized in OCI on
Derivatives (1) Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income Amount of Gain
Reclassified from
Accumulated OCI into
Income
(amounts in thousands)
Derivative in cash flow hedging relationships:
Interest rate swaps $ 2,049
Interest expense $ 128


	Six Months Ended June 30, 2017							Three Months Ended September 30, 2017
	Amount of Loss 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			Amount of Gain (Loss) Recognized in OCI on Derivatives (1)		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
(amounts in thousands)
Derivative in cash flow hedging relationships:
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	(219	)	Interest expense	$	(1,594	)	$	104	Interest expense	$	(572	)



	Nine Months Ended September 30, 2018
	Amount of Gain (Loss) Recognized in OCI on Derivatives (1)		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
(amounts in thousands)
Derivative in cash flow hedging relationships:
Interest rate swaps	$	5,055	Interest expense	$	(175	)
			Other non-interest income (2)	2,822
Total				$	2,647



	Nine Months Ended September 30, 2017
	Amount of Gain (Loss) Recognized in OCI on Derivatives (1)			Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
(amounts in thousands)
Derivative in cash flow hedging relationships:
Interest rate swaps	$	(115	)	Interest expense	$	(2,166	)

(1) Amounts presented are net of taxes. See NOTE 54 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) for total effect on other comprehensive income (loss) from derivatives designated as cash flow hedges for the periods presented.

(2) Includes income recognized from discontinued cash flow hedges.

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 ~~June~~September 30, 2018, all derivatives with major derivative dealer counterparties were in a net asset position.

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 ~~June~~September 30, 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		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										Financial Instruments		Cash Collateral Received
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties	$	14,921	$	—	$	14,921	$	—	$	11,170	$	3,751	$	20,688	$	—	$	20,688	$	—	$	19,330	$	1,358

Offsetting of Financial Liabilities and Derivative Liabilities

At ~~June~~September 30, 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						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								Financial Instruments		Cash Collateral Pledged		Net Amount
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties	$	1,639	$	—	$	1,639	$	—	$	2	$	1,637	$	1,924	$	—	$	1,924	$	—	$	2	$	1,922

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
	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet				Financial Instruments		Cash Collateral Received		Net Amount
(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
	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet				Financial Instruments		Cash Collateral Pledged		Net Amount
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties	$	5,058	$	—	$	5,058	$	—	$	4,872	$	186

NOTE 1211 — 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 and ~~six~~nine month periods ended ~~June~~September 30, 2018 and 2017. The segment financial results include directly attributable revenues and expenses. Corporate overhead costs ~~are~~were assigned to the Community Business Banking segment as those expenses ~~are~~were 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 ~~38.00%~~37.25% for 2017, respectively.

Please refer to NOTE 13 - SUBSEQUENT EVENTS for more information on the spin-off of BankMobile.


	Three Months Ended June 30, 2018									Three Months Ended September 30, 2018
(amounts in thousands)	Community Business Banking			BankMobile			Consolidated			Community Business Banking			BankMobile			Consolidated
Interest income ⁽¹⁾	$	104,110		$	3,529		$	107,639		$	106,156		$	3,889		$	110,045
Interest expense	40,182			135			40,317			45,982			62			46,044
Net interest income	63,928			3,394			67,322			60,174			3,827			64,001
Provision for loan losses	(1,247		)	463			(784		)	2,502			422			2,924
Non-interest income	7,465			8,662			16,127			(7,756		)	9,840			2,084
Non-interest expense	37,721			16,029			53,750			36,115			20,989			57,104
Income (loss) before income tax expense (benefit)	34,919			(4,436		)	30,483			13,801			(7,744		)	6,057
Income tax expense (benefit)	7,910			(1,090		)	6,820			1,930			(1,902		)	28
Net income (loss)	27,009			(3,346		)	23,663			11,871			(5,842		)	6,029
Preferred stock dividends	3,615			—			3,615			3,615			—			3,615
Net income (loss) available to common shareholders	$	23,394		$	(3,346	)	$	20,048		$	8,256		$	(5,842	)	$	2,414


	Three Months Ended June 30, 2017							Three Months Ended September 30, 2017
(amounts in thousands)	Community Business Banking		BankMobile			Consolidated		Community Business Banking		BankMobile			Consolidated
Interest income ⁽¹⁾	$	91,107	$	2,745		$	93,852	$	95,585	$	2,700		$	98,285
Interest expense	25,228		18			25,246		30,250		16			30,266
Net interest income	65,879		2,727			68,606		65,335		2,684			68,019
Provision for loan losses	535		—			535		1,874		478			2,352
Non-interest income	6,971		11,420			18,391		4,190		13,836			18,026
Non-interest expense	30,567		19,846			50,413		33,990		27,050			61,040
Income (loss) before income tax expense (benefit)	41,748		(5,699		)	36,049		33,661		(11,008		)	22,653
Income tax expense (benefit)	14,493		(2,166		)	12,327		18,999		(4,100		)	14,899
Net income (loss)	27,255		(3,533		)	23,722		14,662		(6,908		)	7,754
Preferred stock dividends	3,615		—			3,615		3,615		—			3,615
Net income (loss) available to common shareholders	$	23,640	$	(3,533	)	$	20,107	$	11,047	$	(6,908	)	$	4,139

(1) - Amounts reported include funds transfer pricing of ~~$3.5~~$3.9 million and ~~$2.7~~$2.7 million for the three months ended ~~June~~September 30, 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.



	Nine Months Ended September 30, 2018
(amounts in thousands)	Community Business Banking		BankMobile			Consolidated
Interest income ⁽²⁾	$	302,820	$	11,829		$	314,649
Interest expense	118,081		214			118,295
Net interest income	184,739		11,615			196,354
Provision for loan losses	3,128		1,129			4,257
Non-interest income	8,147		30,973			39,120
Non-interest expense	108,168		54,966			163,134
Income (loss) before income tax expense (benefit)	81,590		(13,507		)	68,083
Income tax expense (benefit)	17,567		(3,317		)	14,250
Net income (loss)	64,023		(10,190		)	53,833
Preferred stock dividends	10,844		—			10,844
Net income (loss) available to common shareholders	$	53,179	$	(10,190	)	$	42,989

As of September 30, 2018
Goodwill and other intangibles	$	3,629	$	13,196		$	16,825
Total assets	$	10,542,175	$	74,929		$	10,617,104
Total deposits	$	7,781,225	$	732,489		$	8,513,714
Total non-deposit liabilities	$	1,134,251	$	14,327		$	1,148,578


	Six Months Ended June 30, 2018							Nine Months Ended September 30, 2017
(amounts in thousands)	Community Business Banking		BankMobile			Consolidated		Community Business Banking		BankMobile			Consolidated
Interest income ⁽¹⁾⁽²⁾	$	196,664	$	7,940		$	204,604	$	265,524	$	9,708		$	275,232
Interest expense	72,100		151			72,251		76,134		55			76,189
Net interest income	124,564		7,789			132,353		189,390		9,653			199,043
Provision for loan losses	627		706			1,333		5,459		478			5,937
Non-interest income	15,904		21,133			37,037		16,587		42,583			59,170
Non-interest expense	72,052		33,979			106,031		94,704		66,114			160,818
Income (loss) before income tax expense (benefit)	67,789		(5,763		)	62,026		105,814		(14,356		)	91,458
Income tax expense (benefit)	15,638		(1,416		)	14,222		39,584		(5,348		)	34,236
Net income (loss)	52,151		(4,347		)	47,804		66,230		(9,008		)	57,222
Preferred stock dividends	7,229		—			7,229		10,844		—			10,844
Net income (loss) available to common shareholders	$	44,922	$	(4,347	)	$	40,575	$	55,386	$	(9,008	)	$	46,378

As of June 30, 2018
As of September 30, 2017
Goodwill and other intangibles	$	3,629	$	13,521		$	17,150	$	3,632	$	12,972		$	16,604
Total assets	$	11,017,272	$	75,574		$	11,092,846	$	10,405,452	$	66,377		$	10,471,829
Total deposits	$	6,876,688	$	419,266		$	7,295,954	$	6,815,994	$	781,082		$	7,597,076
Total non-deposit liabilities	$	2,843,360	$	17,305		$	2,860,665	$	1,947,213	$	16,898		$	1,964,111

Six Months Ended June 30, 2017
(amounts in thousands) Community Business Banking BankMobile Consolidated
Interest income ⁽¹⁾
$ 169,938
$ 7,008
$ 176,946
Interest expense 45,883
39
45,922
Net interest income 124,055
6,969
131,024
Provision for loan losses 3,585
—
3,585
Non-interest income 12,398
28,746
41,144
Non-interest expense 60,714
39,064
99,778
Income (loss) before income tax expense (benefit) 72,154
(3,349 ) 68,805
Income tax expense (benefit) 20,609
(1,273 ) 19,336
Net income (loss) 51,545
(2,076 ) 49,469
Preferred stock dividends 7,229
—
7,229
Net income (loss) available to common shareholders $ 44,316
$ (2,076 ) $ 42,240

As of June 30, 2017
Goodwill and other intangibles $ 3,633
$ 13,982
$ 17,615
Total assets $ 10,815,752
$ 67,796
$ 10,883,548
Total deposits $ 7,021,922
$ 453,441
$ 7,475,363
Total non-deposit liabilities $ 2,481,618
$ 16,278
$ 2,497,896

~~(1) -~~(2) Amounts reported include funds transfer pricing of ~~$7.9~~$11.8 million and ~~$7.0~~$9.7 million for the ~~six~~nine months ended ~~June~~September 30, 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 1312 - NON-INTEREST REVENUES

As provided in NOTE 32 - 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 and, 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 ~~June~~September 30, 2018 and 2017 amounted to $1.2 million and ~~$1.3~~$1.2 million, respectively. Debit and prepaid card interchange expense for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 amounted to ~~$2.7~~$3.9 million and ~~$3.2~~$4.4 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~~ASC 310 and is out of the scope of ~~ASU 2014-09.~~ASC 606.

The following tables present Customers' non-interest revenues affected by ~~ASU 2014-09~~ASC 606 by business segment for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017:


	Three Months Ended June 30, 2018						Three Months Ended September 30, 2018
(amounts in thousands)	Community Business Banking		BankMobile		Consolidated		Community Business Banking		BankMobile		Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and Card Revenue	$	183	$	6,199	$	6,382	$	181	$	6,903	$	7,084
Deposit Fees	294		1,338		1,632		311		1,691		2,002
University Fees - Card and Disbursement Fees	—		185		185		—		261		261
Total revenue recognized at point in time	477		7,722		8,199		492		8,855		9,347
Revenue recognized over time:
University Fees - Subscription Revenue	—		907		907		—		950		950
Total revenue recognized over time	—		907		907		—		950		950

Total revenue from contracts with customers	$	477	$	8,629	$	9,106	$	492	$	9,805	$	10,297


	Three Months Ended June 30, 2017						Three Months Ended September 30, 2017
(amounts in thousands)	Community Business Banking		BankMobile		Consolidated		Community Business Banking		BankMobile		Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and Card Revenue	$	126	$	8,522	$	8,648	$	215	$	9,355	$	9,570
Deposit Fees	258		1,875		2,133		321		2,338		2,659
University Fees - Card and Disbursement Fees	—		206		206		—		283		283
Total revenue recognized at point in time	384		10,603		10,987		536		11,976		12,512
Revenue recognized over time:
University Fees - Subscription Revenue	—		784		784		—		829		829
Total revenue recognized over time	—		784		784		—		829		829
Total revenue from contracts with customers	$	384	$	11,387	$	11,771	$	536	$	12,805	$	13,341


	Six Months Ended June 30, 2018						Nine Months Ended September 30, 2018
(amounts in thousands)	Community Business Banking		BankMobile		Consolidated		Community Business Banking		BankMobile		Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and Card Revenue	$	406	$	15,637	$	16,043	$	588	$	22,539	$	23,127
Deposit Fees	580		3,144		3,724		892		4,834		5,726
University Fees - Card and Disbursement Fees	—		512		512		—		772		772
Total revenue recognized at point in time	986		19,293		20,279		1,480		28,145		29,625
Revenue recognized over time:
University Fees - Subscription Revenue	—		1,777		1,777		—		2,727		2,727
Total revenue recognized over time	—		1,777		1,777		—		2,727		2,727

Total revenue from contracts with customers	$	986	$	21,070	$	22,056	$	1,480	$	30,872	$	32,352


	Six Months Ended June 30, 2017						Nine Months Ended September 30, 2017
(amounts in thousands)	Community Business Banking		BankMobile		Consolidated		Community Business Banking		BankMobile		Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and Card Revenue	$	328	$	21,830	$	22,158	$	544	$	31,185	$	31,729
Deposit Fees	582		4,678		5,260		902		7,016		7,918
University Fees - Card and Disbursement Fees	—		595		595		—		878		878
Total revenue recognized at point in time	910		27,103		28,013		1,446		39,079		40,525
Revenue recognized over time:
University Fees - Subscription Revenue	—		1,579		1,579		—		2,408		2,408
Total revenue recognized over time	—		1,579		1,579		—		2,408		2,408
Total revenue from contracts with customers	$	910	$	28,682	$	29,592	$	1,446	$	41,487	$	42,933

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~~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 orand 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 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 ~~June~~September 30, 2018 and December 31, 2017.

University ~~Fees~~fees

University fees represent revenues from higher education institutions and isare 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 fee (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~~straight-line basis. As of ~~June~~September 30, 2018 and December 31, 2017, Customers recorded deferred revenue of ~~$3.1~~$2.8 million and $2.0 million, respectively, related to these university subscription contracts. At ~~June~~September 30, 2018 and December 31, 2017, Customers had accounts receivable of ~~$2.5~~$1.5 million and $1.1 million, respectively, related to the university fee arrangements.

NOTE 13 – SUBSEQUENT EVENTS

On October 18, 2018, the Amended and Restated Purchase and Assumption Agreement and Plan of Merger (the "Agreement"), dated November 17, 2017 by and among Customers Bancorp, its subsidiary, Customers Bank, and Customers Bank's subsidiary, BankMobile Technologies, Inc. ("BMT") and Flagship Community Bank ("Flagship"), was terminated. In connection with the termination of the Agreement, Customers Bancorp recognized merger and acquisition related expenses of $2.7 million during third quarter 2018 for amounts that, under the terms of the Agreement, would have been reimbursed by Flagship only upon completion of the spin-off and merger.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 Form 10-K”), 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 and ~~six~~nine months ended ~~June~~September 30, 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.

Restatement of Previously Issued Financial Statements

In November 2018, Customers determined that commercial mortgage warehouse loans should have been classified as loans receivable, rather than loans held for sale. Additional discussion regarding the correction in classification error of mortgage warehouse loans is included in NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION.

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-K and updated in this Form 10-Q for the quarterly period ended ~~June~~September 30, 2018 in “NOTE 32 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF 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.

~~Second~~

Overview

As previously disclosed, Customers intends to retain and operate BankMobile for the next 2 - 3 years while its spin-off plans are put on hold as a result of regulatory complications. Management recently announced its first White-Label partnership with T-Mobile, which is expected to be launched in fourth quarter 2018 and provide significant benefits to the overall profitability of BankMobile, beginning as early as the end of 2019.

Customers' strategic priorities include maintaining a balance sheet below $10 billion in total assets to improve capital ratios, enhance liquidity, expand net interest margin, and maximize the return of average assets. Longer-term goals include a net interest margin target of 2.75% within the next 12 - 18 months, which is expected to be achieved through a shift in the mix of assets and liabilities maintained on the balance sheet. Customers intends to deemphasize its lower-yielding multi-family loan portfolio, with multi-family balances expected to be around $3.3 billion by the end of 2018 and continue to trend lower over time if spreads remain at the current level, and fund future growth in higher-yielding commercial and industrial and consumer loan portfolios with the multi-family run-off. Similarly, Customers plans to replace higher-rate non-core deposits and borrowings with less expensive core deposits. Customers plans to remain predominately a small business bank, with higher-quality consumer loans making up about 15% - 20% of total assets, multi-family loans comprising about 10% of total assets, and core commercial lending activities, including specialty lending and loans to mortgage banking businesses totaling approximately 70% - 75% of total assets.

Third Quarter Events of Note

Customers reported net income available to common shareholders of ~~$20.0~~$2.4 million, or ~~$0.62~~$0.07 per diluted share, for ~~second~~third quarter ~~2018. Customers' net income to common shareholders was $40.6~~2018 and $43.0 million, or ~~$1.26~~$1.33 per diluted share, for the ~~six~~nine months ended ~~June~~September 30, 2018. The financial results for third quarter 2018 included $18.7 million of losses realized from the sale of $495 million of lower-yielding investment securities, $2.9 million of merger and acquisition related expenses resulting primarily from the termination of the spin-off and merger agreement between Customers and Flagship Community Bank ("Flagship") on October 18, 2018, and a negative mark-to-market adjustment of $1.2 million on an equity investment. These notable charges negatively affected GAAP earnings by $0.55 per diluted share in third quarter 2018 and $0.57 per diluted share for the nine months ended September 30, 2018.

Total assets were ~~$11.1~~$10.6 billion at ~~June~~September 30, 2018, an increase of ~~$1.3~~$0.8 billion from December 31, ~~2017, including $405.8 million~~2017. The increase in total assets was primarily driven by increased cash held at the Federal Reserve Bank of ~~total loan growth~~$0.5 billion and ~~$689.6 million of~~increased investment securities, ~~growth.~~even after the securities sale of $495 million executed in the third quarter of 2018 generated the $18.7 million loss, of $0.2 billion. Customers expects ~~a more moderate pace~~to have total assets of ~~growth through~~under $10 billion by the ~~rest~~end of ~~the year~~2018, with an emphasis on ~~shifting from lower yielding to higher yielding~~higher-yielding assets replacing lower-yielding assets and ~~the development of sustainable deposits to replace short-term borrowings and fund future growth.~~lower-cost core deposit growth replacing higher-cost funding.

Asset quality remained exceptional with non-performing loans of ~~$26.0~~$23.6 million, or ~~0.29%~~0.27% of total loans, and total non-performing assets (non-performing loans and other real estate owned) only ~~0.25%~~0.24% of total assets at ~~June~~September 30, 2018, reflecting Customers' conservative lending practices and continued focus on credit risk management. Customers' level of non-performing loans to total loans at ~~June~~September 30, 2018 remained well below industry average non-performing loans to total loans of ~~1.26%~~1.21% and Customers' peer group non-performing loans to total loans of ~~0.82%~~0.78%. 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 ~~June~~September 30, 2018. Customers Bancorp's Tier 1 leverage ratio was ~~8.87%~~8.91%, and its total risk-based capital ratio was ~~12.55%~~12.69%, at ~~June~~September 30, 2018.

Results of Operations

Three Months Ended ~~June~~September 30, 2018 Compared to Three Months Ended ~~June~~September 30, 2017

Net income available to common shareholders decreased ~~$0.1~~$1.7 million, or ~~0.3%~~41.7%, to ~~$20.0~~$2.4 million for the three months ended ~~June~~September 30, 2018 when compared to net income available to common shareholders of ~~$20.1~~$4.1 million for the three months ended ~~June~~September 30, 2017. The decreased net income available to common shareholders primarily resulted from ~~an increase in non-interest expense of $3.3 million, or 6.6%, a decrease in non-interest income of $2.3 million, or 12.3%, and~~ a decrease in net interest income of ~~$1.3~~$4.0 million, or ~~1.9%~~5.9%, an increase in the provision for loan losses of $0.6 million, and a decrease in non-interest income of $15.9 million, or 88.4%, offset in part by a decrease in non-interest expense of $3.9 million, or 6.4%, and a decrease in income tax expense of ~~$5.5~~$14.9 million, ~~and a decrease in the provision for loan losses of $1.3 million.~~or 99.8%.

Net interest income of ~~$67.3~~$64.0 million decreased ~~$1.3~~$4.0 million, or ~~1.9%~~5.9%, for the three months ended ~~June~~September 30, 2018 when compared to net interest income of ~~$68.6~~$68.0 million for the three months ended ~~June~~September 30, 2017. This decrease resulted primarily from ~~an increase in the cost of funds, primarily in money market deposit accounts, certificates of deposit, and short term borrowings, driving~~ a 16 basis point decline in net interest margin (tax-equivalent) to 2.62% for second quarter 2018 from 2.78% for second quarter 2017. The 58 basis point higher cost of funds was offset in part by an increasedecrease in the average balance of ~~interest-earning~~interest earning assets of ~~$0.4 billion over the prior year period~~$33.5 million and a 3715 basis point decrease in net interest margin (tax equivalent) to 2.47% for third quarter 2018 from 2.62% for third quarter 2017. The total cost of deposits and borrowings increased 66 basis points, which was mitigated in part by a 47 basis point increase in ~~the~~ yield on ~~loans.~~interest earning assets over the prior period, primarily due to an increase in yield on loans of 44 basis points and a 43 basis point increase in yield on investment securities.

The provision for loan losses ~~decreased $1.3~~of $2.9 million increased $0.6 million for the three months ended ~~June~~September 30, 2018 when compared to the provision for loan losses of ~~$0.5~~$2.4 million for the three months ended ~~June~~September 30, ~~2017.~~2017, reflecting Customers' initiative to increase consumer loans. The ~~second~~third quarter 2018 provision for loan losses included $2.3 million for growth in the consumer loan portfolio and a $0.9 million increase for impaired loans, offset in part by a release of ~~$0.8~~reserves of $0.2 million ~~that resulted~~resulting from ~~continued strong~~improved asset quality and lower incurred losses than previously ~~estimated and a release of $0.3 million for impaired loans, offset in part by $0.3 million of provision for loan growth.~~

estimated.

Non-interest income of ~~$16.1~~$2.1 million decreased ~~$2.3~~$15.9 million, or ~~12.3%~~88.4%, for the three months ended ~~June~~September 30, 2018 when compared to non-interest income of ~~$18.4~~$18.0 million for the three months ended ~~June~~September 30, 2017. Included within non-interest income for the three months ended ~~June~~September 30, 2018 was an $18.7 million loss realized from the sale of $495 million of lower-yielding investment securities and a $1.2 million negative mark-to-market adjustment on an equity investment. Also included within non-interest income for the three months ended September 30, 2018 was $1.2 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of ~~$7.6~~$8.3 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 32 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior to the adoption of the new revenue recognition guidance, these expenses were included within non-interest expense and reported as technology, communication and bank operations expense. For the three months ended ~~June~~September 30, 2017, debit and prepaid card interchange expense was ~~$1.3~~$1.2 million. If the three months ended ~~June~~September 30, 2017 was presented on a consistent basis with the three months ended ~~June~~September 30, 2018, the reported amount of ~~non-interest income of $18.4 million would have been $17.1 million and~~ the gross interchange and card revenue of ~~$8.6~~$9.6 million would have been presented net of the debit and prepaid card interchange expense of ~~$1.3~~$1.2 million, or ~~$7.4~~$8.4 million. When presented on a consistent basis, ~~the $1.0 million decline in~~ interchange and card revenue ~~was largely~~decreased $1.3 million over the ~~result of~~year-ago period resulting from lower activity volumes in the BankMobile business segment. Other decreases in total non-interest income for the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017 included decreases in mortgage warehouse transactional fees and deposit fees of $0.6 million and ~~$0.5~~$0.7 million, respectively, primarily resulting from reduced transaction volumes. These decreases in non-interest income were offset in part by a $2.8 million gain recognized from the discontinuance of cash flow hedge accounting for three interest rate swaps, which Customers now believes are not needed due to strong core deposit growth, and an increase in income on commercial operating leases of $1.3 million. For the three months ended ~~June~~September 30, 2017, Customers ~~also~~ realized ~~$3.2~~$5.3 million of gains from the sale of investment ~~securities. The decreases in non-interest income for the three months ended June 30, 2018 were partially offset by~~securities and an ~~increase in other non-interest income of $1.5~~$8.3 million ~~primarily from increased income~~impairment loss on ~~commercial operating leases of $1.1 million, and a decline in other-than temporary impairment losses from the $2.9 million recognized in second quarter 2017.~~an equity investment.

Non-interest expense of ~~$53.8~~$57.1 million ~~increased $3.3~~decreased $3.9 million, or ~~6.6%~~6.4%, for the three months ended ~~June~~September 30, 2018 when compared to non-interest expense of ~~$50.4~~$61.0 million for the three months ended ~~June~~September 30, 2017. ~~This increase resulted from increases in salaries and employee benefits of $4.1 million as Customers continues to hire new team members in the markets that it serves.~~ Total non-interest expense for the three months ended ~~June~~September 30, 2018 excludes $1.2 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. If the three months ended ~~June~~September 30, 2017 was presented on a consistent basis with the three months ended ~~June~~September 30, 2018, the reported amount of non-interest expense of ~~$50.4~~$61.0 million would have been ~~$49.1~~$59.8 million and technology, communication, and bank operations expense of ~~$8.9~~$14.4 million would have been ~~$7.6~~$13.2 million. When presented on a consistent basis, technology, communication and bank operations expense ~~increased $3.7~~decreased $1.5 million ~~or 48.7%,~~ to ~~$11.3~~$11.7 million for the three months ended ~~June~~September 30, 2018 from ~~$7.6~~$13.2 million for the three months ended ~~June~~September 30, ~~2017 given~~2017. Professional services decreased $2.7 million to $4.7 million for the ~~continued investment in~~three months ended September 30, 2018 compared to $7.4 million for the ~~BankMobile segment infrastructure and Customers' recent system conversion. These increases in non-interest expense were partially offset by a decrease in professional services of $2.4 million,~~three months ended September 30, 2017 primarily attributable to reductions in consulting, legal, and other outside professional services as management continues its efforts to monitor and control expenses. Included in non-interest expenses for the three months ended September 30, 2017 was $2.8 million in catch-up depreciation and amortization for BankMobile assets that were previously classified as held for sale. These decreases in non-interest expense were partially offset by a $2.9 million increase in merger and acquisition related expenses due primarily to the termination of the spin-off and merger agreement with Flagship, a $0.7 million increase in salaries and employee benefits and a $1.0 million increase in depreciation on commercial operating leases for the three months ended September 30, 2018 compared the three months ended September 30, 2017.

Income tax expense of ~~$6.8 million~~$28,000 decreased ~~$5.5~~$14.9 million, or ~~44.7%~~99.8%, for the three months ended ~~June~~September 30, 2018 when compared to income tax expense of ~~$12.3~~$14.9 million for the three months ended ~~June~~September 30, 2017. The decrease in income tax expense was driven primarily by a lower federal income 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 ~~$5.6~~$16.6 million, and a $1.7 million return to provision adjustment, which included the benefit of a research and development tax credit, recorded in ~~second~~third quarter 2018 ~~compared to second quarter 2017.~~upon completion of the 2017 income tax returns. Customers' effective tax rate decreased to ~~22.37%~~0.46% for the three months ended ~~June~~September 30, 2018, compared to ~~34.20%~~65.8% for the same period in 2017. Income tax expense for the three months ended September 30, 2017 included an elimination of deferred tax benefits from the other-than-temporary impairment losses on investment securities totaling $7.7 million.

Preferred stock dividends were $3.6 million for the three months ended ~~June~~September 30, 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 interest spread and net interest margin for the periods indicated.


	Three Months Ended June 30,												Three Months Ended September 30,
	2018						2017						2018						2017
	Average Balance		Interest Income or Expense		Average Yield or Cost (%)		Average Balance		Interest Income or Expense		Average Yield or Cost (%)		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	$	188,880	$	839	1.78	%	$	203,460	$	549	1.08	%	$	309,588	$	1,538	1.97	%	$	280,845	$	923	1.30	%
Investment securities (1)	1,213,989		9,765		3.22	%	1,066,277		7,823		2.94	%	1,029,857		8,495		3.30	%	1,017,065		7,307		2.87	%
Loans:
Commercial loans to mortgage companies	1,760,519		21,626		4.93	%	1,762,469		18,198		4.14	%	1,680,441		21,274		5.02	%	1,956,587		21,099		4.28	%
Multi-family loans	3,561,679		34,646		3.90	%	3,508,619		32,762		3.75	%	3,555,223		34,901		3.89	%	3,639,566		33,301		3.63	%
Commercial and industrial loans (2)	1,713,150		20,303		4.75	%	1,405,150		14,746		4.21	%	1,782,500		21,692		4.83	%	1,491,833		15,792		4.20	%
Non-owner occupied commercial real estate	1,269,373		12,830		4.05	%	1,299,809		12,964		4.00	%	1,255,206		12,753		4.03	%	1,294,996		12,706		3.89	%
All other loans	482,098		5,835		4.85	%	542,093		5,890		4.36	%	594,528		7,195		4.80	%	546,161		5,842		4.24	%
Total loans (3)	8,786,819		95,240		4.35	%	8,518,140		84,560		3.98	%	8,867,898		97,815		4.38	%	8,929,143		88,740		3.94	%
Other interest-earning assets	139,842		1,795		5.15	%	105,908		920		3.48	%	111,600		2,197		7.81	%	125,341		1,315		4.16	%
Total interest-earning assets	10,329,530		107,639		4.18	%	9,893,785		93,852		3.80	%	10,318,943		110,045		4.24	%	10,352,394		98,285		3.77	%
Non-interest-earning assets	391,660						371,548						409,396						389,797
Total assets	$	10,721,190					$	10,265,333					$	10,728,339					$	10,742,191
Liabilities
Interest checking accounts	$	554,441	2,183		1.58	%	$	346,940	634		0.73	%	$	696,827	2,690		1.53	%	$	351,422	708		0.80	%
Money market deposit accounts	3,310,979		13,444		1.63	%	3,456,638		8,369		0.97	%	3,564,148		17,855		1.99	%	3,427,682		9,866		1.14	%
Other savings accounts	36,784		25		0.27	%	41,491		30		0.29	%	116,172		464		1.59	%	40,310		29		0.28	%
Certificates of deposit	1,960,007		8,530		1.75	%	2,413,241		7,195		1.20	%	2,288,237		11,795		2.05	%	2,361,069		7,778		1.31	%
Total interest-bearing deposits	5,862,211		24,182		1.65	%	6,258,310		16,228		1.04	%	6,665,384		32,804		1.95	%	6,180,483		18,381		1.18	%
Borrowings	2,736,644		16,135		2.36	%	1,951,282		9,018		1.85	%	1,918,577		13,240		2.74	%	2,414,086		11,885		1.96	%
Total interest-bearing liabilities	8,598,855		40,317		1.88	%	8,209,592		25,246		1.23	%	8,583,961		46,044		2.13	%	8,594,569		30,266		1.40	%
Non-interest-bearing deposits	1,109,527						1,082,799						1,109,819						1,158,911
Total deposits and borrowings	9,708,382				1.67	%	9,292,391				1.09	%	9,693,780				1.89	%	9,753,480				1.23	%
Other non-interest-bearing liabilities	84,788						74,429						84,786						66,220
Total liabilities	9,793,170						9,366,820						9,778,566						9,819,700
Shareholders’ Equity	928,020						898,513						949,773						922,491
Total liabilities and shareholders’ equity	$	10,721,190					$	10,265,333					$	10,728,339					$	10,742,191
Net interest income			67,322						68,606						64,001						68,019
Tax-equivalent adjustment (4)			171						104						172						203
Net interest earnings			$	67,493					$	68,710					$	64,173					$	68,222
Interest spread					2.51	%					2.71	%					2.35	%					2.54	%
Net interest margin					2.61	%					2.78	%					2.46	%					2.61	%
Net interest margin tax equivalent (4)					2.62	%					2.78	%					2.47	%					2.62	%


(1)	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.


(2)	Includes owner occupied commercial real estate loans.


(3)	Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.

(4)

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the three months ended ~~June~~September 30, 2018 and 35% for the three months ended ~~June~~September 30, 2017, 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 June 30,									Three Months Ended September 30,
	2018 vs. 2017									2018 vs. 2017
	Increase (Decrease) due to Change in									Increase (Decrease) due to Change in
	Rate			Volume			Total			Rate			Volume			Total
(amounts in thousands)
Interest income
Interest-earning deposits	$	332		$	(42	)	$	290		$	513		$	102		$	615
Investment securities	797			1,145			1,942			1,095			93			1,188
Loans:
Commercial loans to mortgage companies	3,448			(20		)	3,428			3,385			(3,210		)	175
Multi-family loans	1,383			501			1,884			2,385			(785		)	1,600
Commercial and industrial loans, including owner occupied commercial real estate	2,062			3,495			5,557			2,563			3,337			5,900
Non-owner occupied commercial real estate	172			(306		)	(134		)	444			(397		)	47
All other loans	634			(689		)	(55		)	808			545			1,353
Total loans	7,699			2,981			10,680			9,585			(510		)	9,075
Other interest-earning assets	524			351			875			1,040			(158		)	882
Total interest income	9,352			4,435			13,787			12,233			(473		)	11,760
Interest expense
Interest checking accounts	1,021			528			1,549			956			1,026			1,982
Money market deposit accounts	5,442			(367		)	5,075			7,581			408			7,989
Other savings accounts	(2		)	(3		)	(5		)	308			127			435
Certificates of deposit	2,867			(1,532		)	1,335			4,264			(247		)	4,017
Total interest-bearing deposits	9,328			(1,374		)	7,954			13,109			1,314			14,423
Borrowings	2,894			4,223			7,117			4,128			(2,773		)	1,355
Total interest expense	12,222			2,849			15,071			17,237			(1,459		)	15,778
Net interest income	$	(2,870	)	$	1,586		$	(1,284	)	$	(5,004	)	$	986		$	(4,018	)

Net interest income for the three months ended ~~June~~September 30, 2018 was ~~$67.3~~$64.0 million, a decrease of ~~$1.3~~$4.0 million, or ~~1.9%~~5.9%, from net interest income of ~~$68.6~~$68.0 million for the three months ended ~~June~~September 30, 2017, as net interest margin (tax equivalent) narrowed by 1615 basis points to ~~2.62%~~2.47% for ~~second~~third quarter 2018 compared to ~~2.78%~~2.62% for ~~second~~third quarter 2017. The net interest margin (tax equivalent) compression largely resulted from a 6177 basis point increase in the cost of interest-bearing deposits, reflecting higher interest rates offered by Customers on its ~~money market~~ deposit ~~accounts and certificates of deposits~~products in order to remain competitive and attract new and retain existing deposit customers, and a 5178 basis point increase in borrowing costs, reflecting higher short-term funding ~~rates and a full-quarter effect of the $100 million 3.95% senior debt securities issued on June 30, 2017.~~rates. The higher cost of funds was offset in part by a 3847 basis point increase in the yield on interest-earning assets, primarily resulting from increased yields on ~~commercial loans to mortgage companies, multi-family loans, and commercial and industrial loans,~~all loan categories, reflecting higher short-term interest rates and increased prepayment fees of ~~$1.0~~$1.5 million in ~~second~~third quarter 2018 compared to ~~second~~third quarter 2017.

Interest expense on borrowings increased ~~$7.1~~$1.4 million for the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017. This increase was primarily driven by higher federal fund rates, partially offset by lower average balances of borrowings, which ~~increased $0.8~~decreased $0.5 billion for the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017, ~~primarily~~ as a result of ~~increases~~decreases in the average balances of FHLB advances and federal funds purchased, as well as senior note borrowings due to ~~fund~~ the ~~growth~~maturity and payment in ~~interest-earning assets.~~full of $63.3 million of senior notes in third quarter 2018.

PROVISION FOR LOAN LOSSES

The provision for loan losses ~~decreased~~increased by ~~$1.3~~$0.6 million to ~~a benefit of $0.8~~$2.9 million for the three months ended ~~June~~September 30, 2018, compared to ~~expense of $0.5~~$2.4 million for the same period in ~~2017.~~2017, reflecting Customers' initiatives to increase consumer loans. The provision for loan losses in ~~second~~third quarter 2018 included $2.3 million for growth in the consumer loan portfolio and a $0.9 million increase for impaired loans, offset in part by a release of ~~$0.8~~reserve of $0.2 million ~~that resulted~~resulting from improved asset quality and lower incurred losses than previously ~~estimated and a release of $0.3 million for impaired loans, offset in part by $0.3 million of provision for loan growth.~~estimated. The provision for loan losses in ~~second~~third quarter 2017 included ~~a release~~provisions of ~~$0.5~~$1.4 million ~~from improved asset quality~~for loan portfolio growth and ~~lower incurred losses than previously estimated, offset by $0.6~~reserves of $0.8 million ~~of provision~~ for impaired ~~loans, and $0.4 million of provision for loan growth.~~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 ~~June~~September 30, 2018 and 2017.


	Three Months Ended June 30,					Three Months Ended September 30,
	2018		2017			2018			2017			Change			Percentage Change
(amounts in thousands)
(dollars in thousands)
Interchange and card revenue	$	6,382	$	8,648		$	7,084		$	9,570		$	(2,486	)	(26.0	)%
Deposit fees						2,002			2,659			(657		)	(24.7	)%
Bank-owned life insurance						1,869			1,672			197			11.8	%
Mortgage warehouse transactional fees	1,967		2,523			1,809			2,396			(587		)	(24.5	)%
Bank-owned life insurance	1,869		2,258
Deposit fees	1,632		2,133
Gain on sale of SBA and other loans	947		573			1,096			1,144			(48		)	(4.2	)%
Mortgage banking income	205		291			207			257			(50		)	(19.5	)%
Gain on sale of investment securities	—		3,183
(Loss) gain on sale of investment securities						(18,659		)	5,349			(24,008		)	(448.8	)%
Impairment loss on investment securities	—		(2,882		)	—			(8,349		)	8,349			(100.0	)%
Other	3,125		1,664			6,676			3,328			3,348			100.6	%
Total non-interest income	$	16,127	$	18,391		$	2,084		$	18,026		$	(15,942	)	(88.4	)%

~~Non-interest income of $16.1 million decreased $2.3 million, or 12.3%,~~Interchange and card revenue

Included within interchange and card revenue for the three months ended ~~June 30, 2018 when compared to non-interest income of $18.4 million for the three months ended June 30, 2017. Included within non-interest income for the three months ended June~~September 30, 2018 was $1.2 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of ~~$7.6~~$8.3 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 32 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior to the adoption of the new revenue recognition guidance, these expenses were included within non-interest expense and reported as technology, communication, and bank operations expense. For the three months ended ~~June~~September 30, 2017, debit and prepaid card interchange expense was ~~$1.3~~$1.2 million. If the three months ended ~~June~~September 30, 2017 was presented on a consistent basis with the three months ended ~~June~~September 30, 2018, the reported amount of ~~non-interest income of $18.4 million would have been $17.1 million and~~ the gross interchange and card revenue of ~~$8.6~~$9.6 million would have been presented net of the debit and prepaid card interchange expense of ~~$1.3~~$1.2 million, or ~~$7.4~~$8.4 million. When presented on a consistent basis, the ~~$1.0~~$1.3 million decline in interchange and card revenue was largely the result of lower activity volumes in the BankMobile business segment. ~~Other decreases~~

Deposit fees

The $0.7 million decrease in ~~total non-interest income~~deposit fees for the three months ended ~~June~~September 30, 2018 compared to the three months ended ~~June~~September 30, 2017 ~~included decreases~~primarily resulted from reduced transaction volumes in the BankMobile business segment.

Mortgage warehouse transactional fees

The $0.6 million decrease in mortgage warehouse transactional fees ~~and deposit fees of $0.6 million and $0.5 million, or 22.0% and 23.5%, respectively,~~for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 primarily ~~resulting~~resulted from reduced transaction ~~volumes. BankMobile continues to focus~~volumes and reduced per transaction fees in Customers' mortgage warehouse business.

(Loss) gain on ~~implementing its "Customers for Life" model and decrease its reliance on Disbursement related deposits.~~ sale of investment securities

For the three months ended ~~June~~September 30, ~~2017, Customers also~~2018, there was an $18.7 million loss realized ~~$3.2 million of gains~~ from the sale of $495 million of lower-yielding debt securities, compared to a gain of $5.3 million realized from the sale of $549 million of debt securities for the three months ended September 30, 2017.

Impairment loss on investment ~~securities.~~ securities

There were no other-than-temporary impairment losses on investment securities for the three months ended September 30, 2018. Customers recorded an other-than-temporary impairment loss of $8.3 million for the three months ended September 30, 2017 for the full amount of decline in fair value of an equity investment below the cost basis established at June 30, 2017.

Other non-interest income

The ~~decreases~~$3.3 million increase in other non-interest income for the three months ended ~~June~~September 30, 2018 ~~were partially offset by an~~compared to the three months ended September 30, 2017 was primarily due to a $2.8 million gain recognized from discontinuing cash flow hedge accounting for three interest rate swaps as of September 30, 2018 and a $1.3 million increase in ~~other non-interest~~ income ~~of $1.5 million, primarily~~ from ~~increased income on~~ commercial operating ~~leases of $1.1~~leases. These increases were offset in part by a $1.2 million ~~and a decline in other-than temporary impairment losses from the $2.9 million recognized in second quarter 2017.~~negative mark-to-market adjustment on an equity investment.

NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the three months ended ~~June~~September 30, 2018 and 2017.


	Three Months Ended June 30,				Three Months Ended September 30,
	2018		2017		2018		2017		Change			Percentage Change
(amounts in thousands)
(dollars in thousands)
Salaries and employee benefits	$	27,748	$	23,651	$	25,462	$	24,807	$	655		2.6	%
Technology, communication and bank operations	11,322		8,910
Technology, communication, and bank operations					11,657		14,401		(2,744		)	(19.1	)%
Professional services	3,811		6,227		4,743		7,403		(2,660		)	(35.9	)%
Merger and acquisition related expenses					2,945		—		2,945			N/A
Occupancy	3,141		2,657		2,901		2,857		44			1.5	%
FDIC assessments, non-income taxes, and regulatory fees	2,135		2,416		2,415		2,475		(60		)	(2.4	)%
Provision for operating losses	1,233		1,746		1,171		1,509		(338		)	(22.4	)%
Merger and acquisition related expenses	869		—
Advertising and promotion					820		404		416			103.0	%
Loan workout	648		408		516		915		(399		)	(43.6	)%
Advertising and promotion	319		378
Other real estate owned expenses	58		160		66		445		(379		)	(85.2	)%
Other	2,466		3,860		4,408		5,824		(1,416		)	(24.3	)%
Total non-interest expense	$	53,750	$	50,413	$	57,104	$	61,040	$	(3,936	)	(6.4	)%

~~Non-interest expense was $53.8~~Salaries and employee benefits

The $0.7 million increase in salaries and employee benefits for the three months ended ~~June~~September 30, 2018 ~~an increase of $3.3 million, or 6.6% from non-interest expense of $50.4 million for~~compared to the three months ended ~~June~~September 30, 2017. As described above, total non-interest expense for the three months ended June 30, 2018 excludes $1.2 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. If the three months ended June 30, 2017 was presented on a consistent basis with the three months ended June 30, 2018, the reported amount of non-interest expense of $50.4 million would have been $49.1 million and technology, communication, and bank operations expense of $8.9 million would have been $7.6 million.

Salaries and employee benefits, which represent the largest component of non-interest expense, increased $4.1 million, or 17.3%, to $27.7 million for the three months ended June 30, 2018 from $23.7 million for the three months ended June 30, 2017. The increase was primarily attributable to increases in compensation levels for existing team members, reflecting higher costs to maintain our workforce, and an increase in headcount as Customers continues to hire new team members in the markets it serves.

Technology, communication, and bank operations

Technology, communication, and bank operations expense for the three months ended September 30, 2018 excludes $1.2 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. If the three months ended September 30, 2017 was presented on a consistent basis with the three months ended September 30, 2018, the reported amount of technology, communication, and bank operations expense of $14.4 million would have been $13.2 million. When presented on a consistent basis, technology, communication, and bank operations expense ~~increased $3.7~~decreased $1.5 million ~~or 48.7%,~~primarily due to ~~$11.3~~lower activity volumes in the BankMobile business segment.

Professional services

The $2.7 million decrease in professional services for the three months ended ~~June~~September 30, 2018 ~~from $7.6 million for~~compared to the three months ended ~~June~~September 30, 2017 ~~given the continued investment in the BankMobile segment infrastructure and Customers' recent system conversion.~~

Merger and acquisition related expenses were $0.9 million for the three months ended June 30, 2018, compared to no similar expenses for the three months ended June 30, 2017. These charges include professional services expenses incurred in connection with the planned spin-off of the BankMobile business as well as a residual expense resulting from the 2016 acquisition of the Disbursements business.

These increases were partially offset by a decrease in professional services expense of $2.4 million, or 38.8%, to $3.8 million for the three months ended June 30, 2018 from $6.2 million for the three months ended June 30, 2017. This decrease was primarily attributable to reductions in consulting, legal, and other outside professional services as management continues its efforts to monitor and control expenses.

~~INCOME TAXES~~Merger and acquisition related expenses

~~Income tax expense of $6.8~~

The $2.9 million ~~decreased $5.5 million, or 44.7%, resulting~~increase in ~~an effective tax rate of 22.4%~~merger and acquisition related expenses for the three months ended June 30, 2018 when compared to income tax expense of $12.3 million and an effective tax rate of 34.2% for the three months ended June 30, 2017. The decrease in income tax expense and effective rate was driven by the lower corporate tax rate as a result of the Tax Cuts and Jobs Act enacted in December 2017, as well as a decrease in pre-tax income of $5.6 million in the three months ended JuneSeptember 30, 2018 compared to the three months ended ~~June~~September 30, ~~2017.~~2017 was primarily due to the termination of the spin-off and merger agreement between Customers and Flagship on October 18, 2018. In connection with the termination of that agreement, Customers recognized expenses of $2.7 million during third quarter 2018 for amounts that, under the terms of the agreement, would have been reimbursed by Flagship only upon completion of the spin-off and merger.

Other non-interest expense

The $1.4 million decrease in other non-interest expense for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was primarily attributable to $0.7 million in catch-up depreciation and amortization expense recorded in third quarter 2017 for BankMobile assets that were previously classified as held for sale as well as decreases in other miscellaneous expenses as management continues its efforts to monitor and control expenses.

INCOME TAXES

The table below presents income tax expense and the effective tax rate for the three months ended September 30, 2018 and 2017.



	Three Months Ended September 30,
	2018			2017			Change			Percentage Change
(dollars in thousands)
Income before income tax expense	$	6,057		$	22,653		$	(16,596	)	(73.3	)%
Income tax expense	28			14,899			(14,871		)	(99.8	)%
Effective tax rate	0.46		%	65.77		%

The $14.9 million decrease in income tax expense for the three months ended September 30, 2018 was primarily attributable to the elimination of deferred tax benefits from the other-than-temporary impairment loss on investment securities totaling $7.7 million for the three months ended September 30, 2017, the lowering of the corporate federal income tax rate from 35% to 21% due to the adoption of the Tax Cut and Jobs Act of 2017, a decrease in pre-tax income of $16.6 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017, and a $1.7 million favorable return to provision adjustment, which included the benefit of a research and development tax credit, recorded in third quarter 2018 upon completion of the 2017 income tax returns.

~~PREFERRED STOCK DIVIDENDS~~PROVISION FOR LOAN LOSSES

~~Preferred stock dividends were $3.6~~The provision for loan losses increased by $0.6 million to $2.9 million for the three months ended ~~June~~September 30, 2018, ~~and 2017, respectively. There were no changes to the amount of preferred stock outstanding or the dividend rates from second quarter 2017 to second quarter 2018.~~

~~Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017~~

~~Net income available to common shareholders decreased $1.7 million, or 3.9%, to $40.6 million for the six months ended June 30, 2018 when~~ compared to net income available to common shareholders of $42.2 million for the six months ended June 30, 2017. The decreased net income available to common shareholders resulted primarily from an increase in non-interest expense of $6.3 million and a decrease in non-interest income of $4.1 million, offset in part by decreases in income tax expense of $5.1 million and the provision for loan losses of $2.3 million and an increase in net interest income of $1.3 million.

Net interest income increased $1.3 million, or 1.0%, for the six months ended June 30, 2018 to $132.4 million when compared to net interest income of $131.0 million for the six months ended June 30, 2017. This increase resulted primarily from an increase in the average balance of loans of $0.5 billion and a 29 basis point increase in the yield on loans. These increases were offset in part by a 53 basis point increase in the cost of interest-bearing deposits and a 30 basis point increase in the cost of borrowings for the first six months of 2018 when compared to the first six months of 2017.

~~The provision for loan losses decreased $2.3 million to $1.3 million for the six months ended June 30, 2018 when compared to the provision for loan losses of $3.6~~$2.4 million for the same period in ~~2017.~~2017, reflecting Customers' initiatives to increase consumer loans. The provision for loan losses ~~of $1.3 million~~in third quarter 2018 included ~~$1.2~~$2.3 million for growth in the consumer loan portfolio ~~growth~~ and ~~$1.1~~a $0.9 million increase for impaired loans, offset in part by a ~~$0.9~~release of reserve of $0.2 million ~~release that resulted~~resulting from improved asset quality and lower incurred losses than previously estimated. The provision for loan losses in third quarter 2017 included provisions of $1.4 million for loan portfolio growth and reserves of $0.8 million for 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 decreased $4.1 million during~~NON-INTEREST INCOME

The table below presents the ~~six months ended June 30, 2018 to $37.0 million, compared to $41.1 million for the six months ended June 30, 2017. Included within~~components of non-interest income for the ~~six~~three months ended ~~June~~September 30, 2018 and 2017.



	Three Months Ended September 30,
	2018			2017			Change			Percentage Change
(dollars in thousands)
Interchange and card revenue	$	7,084		$	9,570		$	(2,486	)	(26.0	)%
Deposit fees	2,002			2,659			(657		)	(24.7	)%
Bank-owned life insurance	1,869			1,672			197			11.8	%
Mortgage warehouse transactional fees	1,809			2,396			(587		)	(24.5	)%
Gain on sale of SBA and other loans	1,096			1,144			(48		)	(4.2	)%
Mortgage banking income	207			257			(50		)	(19.5	)%
(Loss) gain on sale of investment securities	(18,659		)	5,349			(24,008		)	(448.8	)%
Impairment loss on investment securities	—			(8,349		)	8,349			(100.0	)%
Other	6,676			3,328			3,348			100.6	%
Total non-interest income	$	2,084		$	18,026		$	(15,942	)	(88.4	)%

Interchange and card revenue

Included within interchange and card revenue for the three months ended September 30, 2018 was ~~$2.7~~$1.2 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of ~~$18.8~~$8.3 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 32 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior to the adoption of the new revenue recognition guidance, these expenses were included within non-interest expense and reported as technology, communication, and bank operations expense. For the ~~six~~three months ended ~~June~~September 30, 2017, debit and prepaid card interchange expense was ~~$3.2~~$1.2 million. If the ~~six~~three months ended ~~June~~September 30, 2017 was presented on a consistent basis with the ~~six~~three months ended ~~June~~September 30, 2018, the reported amount of ~~non-interest income of $41.1 million would have been $38.0 million and~~ the gross interchange and card revenue of ~~$22.2~~$9.6 million would have been presented net of the debit and prepaid card interchange expense of ~~$3.2~~$1.2 million, or ~~$19.0~~$8.4 million. When presented on a consistent basis, the ~~$3.0~~$1.3 million decline in interchange and card revenue was largely the result of lower activity volumes in the BankMobile business segment.

Deposit fees ~~of $3.7~~

The $0.7 million decrease in deposit fees for the ~~six~~three months ended ~~June~~September 30, 2018 ~~decreased $1.5 million~~ compared to ~~$5.3 million for~~ the ~~six~~three months ended ~~June~~September 30, 2017 ~~mostly driven by lower activity~~primarily resulted from reduced transaction volumes in the BankMobile business segment. ~~There~~

Mortgage warehouse transactional fees

The $0.6 million decrease in mortgage warehouse transactional fees for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 primarily resulted from reduced transaction volumes and reduced per transaction fees in Customers' mortgage warehouse business.

(Loss) gain on sale of investment securities

For the three months ended September 30, 2018, there was ~~also a decrease of $3.2~~an $18.7 million ~~in gains~~loss realized from the sale of $495 million of lower-yielding debt securities, compared to a gain of $5.3 million realized from the sale of $549 million of debt securities for the three months ended September 30, 2017.

Impairment loss on investment securities

There were no other-than-temporary impairment losses on investment securities for the ~~six~~three months ended September 30, 2018. Customers recorded an other-than-temporary impairment loss of $8.3 million for the three months ended September 30, 2017 for the full amount of decline in fair value of an equity investment below the cost basis established at June 30, 2017.

Other non-interest income

NON-INTEREST EXPENSE

The table below presents the components of non-interest ~~income of $2.5 million, primarily driven by increased income on commercial operating leases, and a decline in other-than-temporary impairment losses from~~expense for the ~~$4.6 million recognized during the six~~three months ended ~~June 30, 2017.~~

~~Non-interest expense increased $6.3 million, or 6.3%, for the six months ended June~~September 30, 2018 ~~to $106.0~~and 2017.



	Three Months Ended September 30,
	2018		2017		Change			Percentage Change
(dollars in thousands)
Salaries and employee benefits	$	25,462	$	24,807	$	655		2.6	%
Technology, communication, and bank operations	11,657		14,401		(2,744		)	(19.1	)%
Professional services	4,743		7,403		(2,660		)	(35.9	)%
Merger and acquisition related expenses	2,945		—		2,945			N/A
Occupancy	2,901		2,857		44			1.5	%
FDIC assessments, non-income taxes, and regulatory fees	2,415		2,475		(60		)	(2.4	)%
Provision for operating losses	1,171		1,509		(338		)	(22.4	)%
Advertising and promotion	820		404		416			103.0	%
Loan workout	516		915		(399		)	(43.6	)%
Other real estate owned expenses	66		445		(379		)	(85.2	)%
Other	4,408		5,824		(1,416		)	(24.3	)%
Total non-interest expense	$	57,104	$	61,040	$	(3,936	)	(6.4	)%

Salaries and employee benefits

The $0.7 million ~~when compared to non-interest expense of $99.8 million for the six months ended June 30, 2017. The~~ increase ~~was mostly driven by increases~~ in salaries and employee benefits ~~of $7.9 million resulting from salary~~for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was primarily attributable to increases toin compensation levels for existing team members, ~~as well as~~reflecting higher costs to maintain our workforce, and an increase in headcount as Customers continues to hire new team members in the markets ~~that~~ it serves. ~~Total non-interest~~

Technology, communication, and bank operations

Technology, communication, and bank operations expense for the ~~six~~three months ended ~~June~~September 30, 2018 excludes ~~$2.7~~$1.2 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. If the ~~six~~three months ended ~~June~~September 30, 2017 was presented on a consistent basis with the ~~six~~three months ended ~~June~~September 30, 2018, the reported amount of ~~non-interest expense of $99.8 million would have been $96.6 million and~~ technology, communication, and bank operations expense of ~~$18.8~~$14.4 million would have been ~~$15.7~~$13.2 million. When presented on a consistent basis, technology, communication, and bank operations expense ~~increased $5.6~~decreased $1.5 million ~~or 35.7%,~~primarily due to ~~$21.3 million for the six months ended June 30, 2018 from $15.7 million for the six months ended June 30, 2017 given the continued investment~~lower activity volumes in the BankMobile ~~segment infrastructure and Customers' recent system conversion. Merger and acquisition related expenses were $1.0~~business segment.

Professional services

The $2.7 million decrease in professional services for the ~~six~~three months ended ~~June~~September 30, 2018 compared to ~~no similar expenses for~~ the ~~six~~three months ended ~~June~~September 30, 2017. These expenses include professional services expenses incurred in connection with the planned spin-off of the BankMobile business as well as a residual expense resulting from the 2016 acquisition of the Disbursements business. These increases in non-interest expense were partially offset by a

~~decrease in professional services expense of $3.9 million,~~2017 was primarily attributable to reductions in consulting, legal, and other outside professional services as management continues its efforts to monitor and control expenses.

~~Income tax expense decreased $5.1~~

Merger and acquisition related expenses

The $2.9 million increase in merger and acquisition related expenses for the ~~six~~three months ended ~~June~~September 30, 2018 ~~to $14.2 million when~~ compared to the three months ended September 30, 2017 was primarily due to the termination of the spin-off and merger agreement between Customers and Flagship on October 18, 2018. In connection with the termination of that agreement, Customers recognized expenses of $2.7 million during third quarter 2018 for amounts that, under the terms of the agreement, would have been reimbursed by Flagship only upon completion of the spin-off and merger.

Other non-interest expense

INCOME TAXES

The table below presents income tax expense ~~of $19.3 million~~and the effective tax rate for the ~~same period in~~three months ended September 30, 2018 and 2017.



	Three Months Ended September 30,
	2018			2017			Change			Percentage Change
(dollars in thousands)
Income before income tax expense	$	6,057		$	22,653		$	(16,596	)	(73.3	)%
Income tax expense	28			14,899			(14,871		)	(99.8	)%
Effective tax rate	0.46		%	65.77		%

The $14.9 million decrease in income tax expense for the three months ended September 30, 2018 was ~~driven~~ primarily ~~by a decrease in pre-tax income~~attributable to the elimination of ~~$6.8~~deferred tax benefits from the other-than-temporary impairment loss on investment securities totaling $7.7 million infor the ~~first six~~three months ended September 30, 2017, the lowering of ~~2018, as well as a lower~~the corporate federal income tax rate ~~resulting~~ from 35% to 21% due to the adoption of the Tax Cut and Jobs Act of ~~2017. Customers' effective tax rate decreased to 22.9% for the six months ended June 30, 2018, compared to 28.1% for the same period~~2017, a decrease in ~~2017. Income tax expense for the six months ended June 30, 2017 included the recognition~~pre-tax income of ~~a tax benefit of $4.6~~$16.6 million for the ~~development of tax strategies that would have allowed for the recognition of the tax benefit from losses that had been recorded for impairment charges on the Religare equity securities.~~

~~Preferred stock dividends were $7.2 million for the six~~three months ended ~~June 30, 2018 and 2017, respectively.~~

~~NET INTEREST INCOME~~

~~The following table summarizes Customers' net interest income and related interest spread and net interest margin for the periods indicated.~~

Six Months Ended June 30,
2018 2017
Average
Balance Interest
Income or
Expense Average
Yield or
Cost (%) Average
Balance Interest
Income or
Expense Average
Yield or
Cost (%)
(amounts in thousands)
Assets
Interest-earning deposits $ 186,470
$ 1,533
1.66 % $ 350,693
$ 1,523
0.88 %
Investment securities (1) 1,150,064
18,437
3.21 % 948,657
13,710
2.91 %
Loans:
Commercial loans to mortgage companies 1,676,601
40,021
4.81 % 1,622,182
32,761
4.07 %
Multi-family loans 3,599,593
67,958
3.81 % 3,423,449
63,270
3.73 %
Commercial and industrial loans (2) 1,683,566
37,990
4.55 % 1,378,085
28,241
4.13 %
Non-owner occupied commercial real estate 1,275,404
25,243
3.99 % 1,288,610
24,948
3.90 %
All other loans 406,519
9,959
4.94 % 479,242
10,747
4.52 %
Total loans (3) 8,641,683
181,171
4.23 % 8,191,568
159,967
3.94 %
Other interest-earning assets 128,396
3,463
5.44 % 91,026
1,746
3.87 %
Total interest earning assets 10,106,613
204,604
4.08 % 9,581,944
176,946
3.72 %
Non-interest-earning assets 393,066
356,311

Total assets $ 10,499,679
$ 9,938,255

Liabilities
Interest checking accounts $ 526,995
3,615
1.38 % $ 332,673
1,131
0.69 %
Money market deposit accounts 3,356,717
24,914
1.50 % 3,306,988
14,595
0.89 %
Other savings accounts 37,138
50
0.27 % 42,383
58
0.28 %
Certificates of deposit 1,916,421
15,396
1.62 % 2,555,488
14,767
1.17 %
Total interest-bearing deposits 5,837,271
43,975
1.52 % 6,237,532
30,551
0.99 %
Borrowings 2,461,085
28,276
2.31 % 1,543,154
15,371
2.01 %
Total interest-bearing liabilities 8,298,356
72,251
1.75 % 7,780,686
45,922
1.19 %
Non-interest-bearing deposits 1,193,769
1,198,355

Total deposits and borrowings 9,492,125
1.53 % 8,979,041
1.03 %
Other non-interest-bearing liabilities 80,074
75,876

Total liabilities 9,572,199
9,054,917

Shareholders’ Equity 927,480
883,338

Total liabilities and shareholders’ equity $ 10,499,679
$ 9,938,255

Net interest income 132,353
131,024

Tax-equivalent adjustment (4) 342
197

Net interest earnings $ 132,695
$ 131,221

Interest spread 2.55 % 2.69 %
Net interest margin 2.64 % 2.75 %
Net interest margin tax equivalent (4) 2.64 % 2.76 %


~~(1)~~	For presentation in this table, average balances and the corresponding average yields for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.


~~(2)~~	~~Includes owner occupied commercial real estate loans.~~


~~(3)~~	~~Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.~~

~~(4)~~

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the six months ended June 30, 2018 and 35% for the six months ended June 30, 2017 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.

Six Months Ended June 30,
2018 vs. 2017
Increase (Decrease) due
to Change in
Rate Volume Total
(amounts in thousands)
Interest income
Interest-earning deposits $ 942
$ (932 ) $ 10
Investment securities 1,606
3,121
4,727
Loans:
Commercial loans to mortgage companies 6,130
1,130
7,260
Multi-family loans 1,383
3,305
4,688
Commercial and industrial loans, including owner occupied commercial real estate 3,054
6,695
9,749
Non-owner occupied commercial real estate 552
(257 ) 295
All other loans 935
(1,723 ) (788 )
Total loans 12,054
9,150
21,204
Other interest-earning assets 855
862
1,717
Total interest income 15,457
12,201
27,658
Interest expense
Interest checking accounts 1,578
906
2,484
Money market deposit accounts 10,096
223
10,319
Other savings accounts (1 ) (7 ) (8 )
Certificates of deposit 4,884
(4,255 ) 629
Total interest-bearing deposits 16,557
(3,133 ) 13,424
Borrowings 2,649
10,256
12,905
Total interest expense 19,206
7,123
26,329
Net interest income $ (3,749 ) $ 5,078
$ 1,329

Net interest income for the six months ended June 30, 2018 was $132.4 million, an increase of $1.3 million, or 1.0%, when compared to net interest income of $131.0 million for the six months ended June 30, 2017. This increase was primarily driven by increased average loan and security balances of $0.7 billion and higher yields on commercial loans to mortgage companies.

Net interest margin (tax equivalent) narrowed by 12 basis points to 2.64% for the six months ended June 30, 2018, compared to 2.76% for the six months ended June 30, 2017. The net interest margin compression largely resulted from a 53 basis point increase in the cost of interest-bearing deposits, 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. The higher cost of funds was offset in part by a 36 basis point increase in the yield on interest-earning assets, primarily due to an increase in the yield on commercial loans to mortgage companies, reflecting higher short-term interest rates.

~~Interest expense on total interest-bearing deposits increased $13.4 million for the six months ended June~~September 30, 2018 compared to the ~~six~~three months ended ~~June~~September 30, ~~2017. This increase primarily resulted from~~2017, and a $1.7 million favorable return to provision adjustment, which included the ~~aforementioned increase~~benefit of a research and development tax credit, recorded in ~~rates offered on money market deposit accounts and certificates~~third quarter 2018 upon completion of ~~deposit.~~the 2017 income tax returns.

Interest expense on borrowings increased $12.9 million for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This increase was driven by increased volume as average borrowings increased by $917.9 million when compared to average borrowings for the six months ended June 30, 2017, mostly due to higher average outstanding balances of short-term FHLB advances and senior note borrowings to fund the growth in interest-earning assets.

PROVISION FOR LOAN LOSSES

The provision for loan losses ~~decreased~~increased by ~~$2.3~~$0.6 million to ~~$1.3~~$2.9 million for the ~~six~~three months ended ~~June~~September 30, 2018, compared to ~~$3.6~~$2.4 million for the same period in ~~2017.~~2017, reflecting Customers' initiatives to increase consumer loans. The provision for loan losses ~~for the six months ended June 30,~~in third quarter 2018 included ~~$1.2~~$2.3 million for growth in the consumer loan portfolio ~~growth, $1.1~~and a $0.9 million increase for impaired loans, offset in part by a release of ~~$0.9~~reserve of $0.2 million resulting from improved asset quality and lower incurred losses than previously estimated. The provision for loan losses ~~for the six months ended June 30,~~in third quarter 2017 included ~~$3.1 million for impaired loans and $0.9~~provisions of $1.4 million for loan portfolio growth ~~offset in part by a release~~and reserves of ~~$0.5~~$0.8 million ~~resulting from improved asset quality and lower incurred losses than previously estimated.~~for 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 ~~six~~three months ended ~~June~~September 30, 2018 and 2017.


	Six Months Ended June 30,					Three Months Ended September 30,
	2018		2017			2018			2017			Change			Percentage Change
(amounts in thousands)
(dollars in thousands)
Interchange and card revenue	$	16,043	$	22,158		$	7,084		$	9,570		$	(2,486	)	(26.0	)%
Deposit fees						2,002			2,659			(657		)	(24.7	)%
Bank-owned life insurance	3,900		3,624			1,869			1,672			197			11.8	%
Mortgage warehouse transactional fees	3,854		4,743			1,809			2,396			(587		)	(24.5	)%
Deposit fees	3,724		5,260
Gain on sale of SBA and other loans	2,308		1,901			1,096			1,144			(48		)	(4.2	)%
Mortgage banking income	325		446			207			257			(50		)	(19.5	)%
Gain on sale of investment securities	—		3,183
(Loss) gain on sale of investment securities						(18,659		)	5,349			(24,008		)	(448.8	)%
Impairment loss on investment securities	—		(4,585		)	—			(8,349		)	8,349			(100.0	)%
Other	6,883		4,414			6,676			3,328			3,348			100.6	%
Total non-interest income	$	37,037	$	41,144		$	2,084		$	18,026		$	(15,942	)	(88.4	)%

Interchange and card revenue

~~Non-interest income decreased $4.1 million during~~Included within interchange and card revenue for the ~~six~~three months ended ~~June 30, 2018 to $37.0 million, compared to $41.1 million for the six months ended June 30, 2017. Included within non-interest income for the six months ended June~~September 30, 2018 was ~~$2.7~~$1.2 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of ~~$18.8~~$8.3 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 32 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior to the adoption of the new revenue recognition guidance, these expenses were included within non-interest expense and reported as technology, communication, and bank operations expense. For the ~~six~~three months ended ~~June~~September 30, 2017, debit and prepaid card interchange expense was ~~$3.2~~$1.2 million. If the ~~six~~three months ended ~~June~~September 30, 2017 was presented on a consistent basis with the ~~six~~three months ended ~~June~~September 30, 2018, the reported amount of ~~non-interest income of $41.1 million would have been $38.0 million and~~ the gross interchange and card revenue of ~~$22.2~~$9.6 million would have been presented net of the debit and prepaid card interchange expense of ~~$3.2~~$1.2 million, or ~~$19.0~~$8.4 million. When presented on a consistent basis, the ~~$3.0~~$1.3 million decline in interchange and card revenue was largely the result of lower activity volumes in the BankMobile business segment.

Deposit fees ~~of $3.7~~

Mortgage warehouse transactional fees

(Loss) gain on sale of investment securities

Impairment loss on investment securities

Other non-interest income

The $3.3 million increase in other non-interest income for the three months ended September 30, 2018 compared to the ~~six~~three months ended ~~June~~September 30, ~~2017.~~2017 was primarily due to a $2.8 million gain recognized from discontinuing cash flow hedge accounting for three interest rate swaps as of September 30, 2018 and a $1.3 million increase in income from commercial operating leases. These ~~decreases in non-interest income~~increases were offset in part by a $1.2 million negative mark-to-market adjustment on an increase in other non-interest income of $2.5 million, primarily driven by increased income on commercial operating leases, and a decline in other-than-temporary impairment losses from the $4.6 million recognized during the six months ended June 30, 2017 for the decline in market value of the Religare equity ~~securities.~~investment.

NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the ~~six~~three months ended ~~June~~September 30, 2018 and 2017.


	Six Months Ended June 30,				Three Months Ended September 30,
	2018		2017		2018		2017		Change			Percentage Change
(amounts in thousands)
(dollars in thousands)
Salaries and employee benefits	$	52,673	$	44,763	$	25,462	$	24,807	$	655		2.6	%
Technology, communication and bank operations	21,266		18,827
Technology, communication, and bank operations					11,657		14,401		(2,744		)	(19.1	)%
Professional services	9,820		13,739		4,743		7,403		(2,660		)	(35.9	)%
Merger and acquisition related expenses					2,945		—		2,945			N/A
Occupancy	5,975		5,371		2,901		2,857		44			1.5	%
FDIC assessments, non-income taxes, and regulatory fees	4,335		4,141		2,415		2,475		(60		)	(2.4	)%
Provision for operating losses	2,759		3,392		1,171		1,509		(338		)	(22.4	)%
Advertising and promotion					820		404		416			103.0	%
Loan workout	1,307		929		516		915		(399		)	(43.6	)%
Merger and acquisition related expenses	975		—
Advertising and promotion	709		704
Other real estate owned expenses	98		105		66		445		(379		)	(85.2	)%
Other	6,114		7,807		4,408		5,824		(1,416		)	(24.3	)%
Total non-interest expense	$	106,031	$	99,778	$	57,104	$	61,040	$	(3,936	)	(6.4	)%

~~Non-interest expense was $106.0~~Salaries and employee benefits

The $0.7 million increase in salaries and employee benefits for the ~~six~~three months ended ~~June~~September 30, 2018 compared to the three months ended September 30, 2017 was primarily attributable to increases in compensation levels for existing team members, reflecting higher costs to maintain our workforce, and an increase ~~of $6.3 million from non-interest expense of $99.8 million for~~in headcount as Customers continues to hire new team members in the ~~six months ended June 30, 2017. As described above, total non-interest~~markets it serves.

Technology, communication, and bank operations

Salaries and employee benefits, which represent the largest component of non-interest expense, increased $7.9 million, or 17.7%, to $52.7 million for the six months ended June 30, 2018, reflecting salary increases for existing team members and increased headcount as Customers continues to hire new team members in the markets it serves.

When presented on a consistent basis, technology, communication, and bank operations expense ~~increased $5.6~~decreased $1.5 million ~~or 35.7%,~~primarily due to ~~$21.3 million for the six months ended June 30, 2018 from $15.7 million for the six months ended June 30, 2017 given the continued investment~~lower activity volumes in the BankMobile ~~segment infrastructure and Customers' recent system conversion.~~business segment.

~~Merger and acquisition related expenses were $1.0~~

Professional services

The $2.7 million decrease in professional services for the ~~six~~three months ended ~~June~~September 30, 2018 compared to ~~no similar expenses for~~ the ~~six~~three months ended June 30, 2017. These expenses include professional services expenses incurred in connection with the planned spin-off of the BankMobile business as well as a residual expense resulting from the 2016 acquisition of the Disbursements business.

~~Occupancy expense increased $0.6 million, or 11.2%, to $6.0 million for the six months ended June 30, 2018 from $5.4 million for the six months ended June~~September 30, 2017 ~~as Customers expanded into different geographical markets.~~

~~Professional services expense decreased by $3.9 million, or 28.5%, to $9.8 million for the six months ended June 30, 2018 from $13.7 million for the six months ended June 30, 2017. This decrease~~ was primarily ~~driven by a reduction~~attributable to reductions in ~~expenses for~~ consulting, legal, and other outside professional ~~fees~~services as management continues its efforts to monitor and control expenses.

~~Provision for operating losses decreased by $0.6~~

Merger and acquisition related expenses

The $2.9 million ~~or 18.7%, to $2.8 million~~increase in merger and acquisition related expenses for the ~~six~~three months ended ~~June~~September 30, 2018 ~~from $3.4~~compared to the three months ended September 30, 2017 was primarily due to the termination of the spin-off and merger agreement between Customers and Flagship on October 18, 2018. In connection with the termination of that agreement, Customers recognized expenses of $2.7 million during third quarter 2018 for amounts that, under the terms of the agreement, would have been reimbursed by Flagship only upon completion of the spin-off and merger.

Other non-interest expense

The $1.4 million decrease in other non-interest expense for the ~~six~~three months ended ~~June~~September 30, ~~2017. The provision~~2018 compared to the three months ended September 30, 2017 was primarily attributable to $0.7 million in catch-up depreciation and amortization expense recorded in third quarter 2017 for ~~operating losses represents Customers' estimated liability~~BankMobile assets that were previously classified as held for ~~losses resulting from fraud or theft-based transactions that have generally been disputed by deposit account holders mainly from~~sale as well as decreases in other miscellaneous expenses as management continues its ~~BankMobile Disbursements business but where such disputes have not been resolved as of the end of the reporting period. The reserve is based on historical rates of loss on such transactions.~~efforts to monitor and control expenses.

INCOME TAXES

The table below presents income tax expense and the effective tax rate for the three months ended September 30, 2018 and 2017.



	Three Months Ended September 30,
	2018			2017			Change			Percentage Change
(dollars in thousands)
Income before income tax expense	$	6,057		$	22,653		$	(16,596	)	(73.3	)%
Income tax expense	28			14,899			(14,871		)	(99.8	)%
Effective tax rate	0.46		%	65.77		%

PREFERRED STOCK DIVIDENDS

Preferred stock dividends were $3.6 million for the three months ended September 30, 2018 and 2017, respectively. There were no changes to the amount of preferred stock outstanding or the dividend rates from third quarter 2017 to third quarter 2018.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

Net income available to common shareholders decreased $3.4 million, or 7.3%, to $43.0 million for the nine months ended September 30, 2018 when compared to net income available to common shareholders of $46.4 million for the nine months ended September 30, 2017. The decreased net income available to common shareholders resulted primarily from a decrease in net interest income of $2.7 million, or 1.4%, a decrease in non-interest income of $20.1 million, or 33.9%, and an increase in non-interest expense of $2.3 million, or 1.4%, offset in part by a decrease in the provision for loan losses of $1.7 million and a decrease in income tax expense of $20.0 million, or 58.4%.

Net interest income of $196.4 million decreased $2.7 million, or 1.4%, for the nine months ended September 30, 2018 when compared to net interest income of $199.0 million for the nine months ended September 30, 2017. This decrease resulted primarily from a 13 basis point decrease in net interest margin (tax equivalent) to 2.58% for the nine months ended September 30, 2018 from 2.71% for the nine months ended September 30, 2017. The total cost of deposits and borrowings increased 55 basis points, which was mitigated in part by a 39 basis point increase in yield on interest-earning assets, primarily due to an increase in yield on loans of 34 basis points and a 36 basis point increase in yield on investment securities.

The provision for loan losses decreased $1.7 million to $4.3 million for the nine months ended September 30, 2018 when compared to the provision for loan losses of $5.9 million for the same period in 2017. The provision for loan losses for the nine months ended September 30, 2018 included $3.5 million for loan portfolio growth and $1.9 million for impaired loans, offset in part by a $1.2 million release that resulted from improved asset quality and lower incurred losses than previously estimated.

Non-interest income of $39.1 million decreased $20.1 million, or 33.9%, during the nine months ended September 30, 2018 when compared to non-interest income of $59.2 million for the nine months ended September 30, 2017. Included within non-interest income for the nine months ended September 30, 2018 was an $18.7 million loss realized from the sale of $495 million of lower-yielding investment securities and a $1.5 million negative mark-to-market adjustment on an equity investment. Also included within non-interest income for the nine months ended September 30, 2018 was $3.9 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of $27.1 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior to the adoption of the new revenue recognition guidance, these expenses were included within non-interest expense and reported as technology, communication, and bank operations expense. For the nine months ended September 30, 2017, debit and prepaid card interchange expense was $4.4 million. If the nine months ended September 30, 2017 was presented on a consistent basis with the nine months ended September 30, 2018, the reported amount of non-interest income of $59.2 million would have been $54.8 million and the gross interchange and card revenue of $31.7 million would have been presented net of the debit and prepaid card interchange expense of $4.4 million, or $27.4 million. When presented on a consistent basis, interchange and card revenue decreased $4.2 million in 2018 as compared to the same period in 2017 due to lower activity volumes in the BankMobile business segment. Other decreases in total non-interest income for the nine months ended September 30, 2018 included decreases in deposit fees and mortgage warehouse transactional fees of $2.2 million and $1.5 million, respectively, primarily resulting from reduced transaction volumes. These decreases in non-interest income were offset in part by an increase in other non-interest income of $5.8 million, primarily due to a $3.3 million increase in revenue from commercial operating leases and a $2.8 million gain recognized from discontinuing cash flow hedge accounting for three interest rate swaps. For the nine months ended September 30, 2017, Customers realized $8.5 million of gains from the sale of investment securities and recognized a $12.9 million impairment loss on an equity investment.

Non-interest expense of $163.1 million increased $2.3 million, or 1.4%, for the nine months ended September 30, 2018 when compared to non-interest expense of $160.8 million for the nine months ended September 30, 2017. Total non-interest expense for the nine months ended September 30, 2018 excludes $3.9 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. If the nine months ended September 30, 2017 was presented on a consistent basis with the nine months ended September 30, 2018, the reported amount of non-interest expense of $160.8 million would have been $156.5 million, and technology, communication, and bank operations expense of $33.2 million would have been $28.9 million. When presented on a consistent basis, technology, communication and bank operations expense increased $4.1 million, or 14.1%, to $32.9 million for the nine months ended September 30, 2018 from $28.9 million for the nine months ended September 30, 2017, given the continued investment in the BankMobile segment infrastructure and Customers' 2018 system conversion. Salaries and employee benefits increased $8.6 million resulting from salary increases to existing team members and an increase in headcount. Merger and acquisition related expenses were $3.9 million for the nine months ended September 30, 2018, compared to no similar expenses for the nine months ended September 30, 2017. These increases in non-interest expense were partially offset by a decrease in professional services expense of $6.6 million, 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 $14.3 million decreased ~~$5.1~~$20.0 million, or 58.4%, for the ~~six~~nine months ended ~~June~~September 30, 2018 ~~to $14.2 million~~ when compared to income tax expense of ~~$19.3~~$34.2 million for the ~~same period in~~nine months ended September 30, 2017. The decrease in income tax expense was driven primarily by a lower federal income tax rate from the adoption of the Tax Cut and Jobs Act of 2017, a decrease in pre-tax income of ~~$6.8~~$23.4 million, and a $1.7 million return to provision adjustment, which included the benefit of a research and development tax credit, recorded in third quarter 2018 upon completion of the ~~first six months of 2018.~~2017 income tax returns. Customers' effective tax rate decreased to ~~22.9%~~20.9% for the ~~six~~nine months ended ~~June~~September 30, 2018, compared to ~~28.1%~~37.4% for the same period in 2017. Income tax expense included $0.8 million and $4.6 million of tax benefits recognized for the increase in the value of restricted stock units vesting and the exercise of stock options since the award date for the nine months ended September 30, 2018 and 2017, respectively.

Preferred stock dividends were $10.8 million for the nine months ended September 30, 2018 and 2017, respectively.

NET INTEREST INCOME

The following table summarizes Customers' net interest income and related interest spread and net interest margin for the periods indicated.



	Nine Months Ended September 30,
	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	$	227,960	$	3,071	1.80	%	$	327,154	$	2,446	1.00	%
Investment securities (1)	1,109,555		26,932		3.24	%	971,710		21,017		2.88	%
Loans:
Commercial loans to mortgage companies	1,677,895		61,294		4.88	%	1,734,874		53,860		4.15	%
Multi-family loans	3,584,640		102,859		3.84	%	3,496,276		96,570		3.69	%
Commercial and industrial loans (2)	1,716,907		59,682		4.65	%	1,416,418		44,034		4.16	%
Non-owner occupied commercial real estate	1,268,597		37,996		4.00	%	1,290,762		37,654		3.90	%
All other loans	469,877		17,155		4.88	%	501,799		16,590		4.42	%
Total loans (3)	8,717,916		278,986		4.28	%	8,440,129		248,708		3.94	%
Other interest-earning assets	122,736		5,660		6.17	%	102,590		3,061		3.99	%
Total interest earning assets	10,178,167		314,649		4.13	%	9,841,583		275,232		3.74	%
Non-interest-earning assets	398,570						367,595
Total assets	$	10,576,737					$	10,209,178
Liabilities
Interest checking accounts	$	584,228	6,305		1.44	%	$	338,991	1,839		0.73	%
Money market deposit accounts	3,426,620		42,769		1.67	%	3,347,661		24,462		0.98	%
Other savings accounts	63,772		514		1.08	%	41,685		87		0.28	%
Certificates of deposit	2,041,721		27,191		1.78	%	2,489,970		22,546		1.21	%
Total interest-bearing deposits	6,116,341		76,779		1.68	%	6,218,307		48,934		1.05	%
Borrowings	2,278,262		41,516		2.44	%	1,836,654		27,255		1.98	%
Total interest-bearing liabilities	8,394,603		118,295		1.88	%	8,054,961		76,189		1.26	%
Non-interest-bearing deposits	1,165,478						1,185,062
Total deposits and borrowings	9,560,081				1.65	%	9,240,023				1.10	%
Other non-interest-bearing liabilities	81,663						72,622
Total liabilities	9,641,744						9,312,645
Shareholders’ Equity	934,993						896,533
Total liabilities and shareholders’ equity	$	10,576,737					$	10,209,178
Net interest income			196,354						199,043
Tax-equivalent adjustment (4)			514						399
Net interest earnings			$	196,868					$	199,442
Interest spread					2.48	%					2.64	%
Net interest margin					2.58	%					2.70	%
Net interest margin tax equivalent (4)					2.58	%					2.71	%


(1)	For presentation in this table, average balances and the corresponding average yields for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.


(2)	Includes owner occupied commercial real estate loans.


(3)	Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.

(4)

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the nine months ended September 30, 2018 and 35% for the nine months ended September 30, 2017 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.



	Nine Months Ended September 30,
	2018 vs. 2017
	Increase (Decrease) due to Change in
	Rate			Volume			Total
(amounts in thousands)
Interest income
Interest-earning deposits	$	1,530		$	(905	)	$	625
Investment securities	2,738			3,177			5,915
Loans:
Commercial loans to mortgage companies	9,252			(1,818		)	7,434
Multi-family loans	3,811			2,478			6,289
Commercial and industrial loans, including owner occupied commercial real estate	5,597			10,051			15,648
Non-owner occupied commercial real estate	995			(653		)	342
All other loans	1,662			(1,097		)	565
Total loans	21,317			8,961			30,278
Other interest-earning assets	1,911			688			2,599
Total interest income	27,496			11,921			39,417
Interest expense
Interest checking accounts	2,580			1,886			4,466
Money market deposit accounts	17,717			590			18,307
Other savings accounts	360			67			427
Certificates of deposit	9,232			(4,587		)	4,645
Total interest-bearing deposits	29,889			(2,044		)	27,845
Borrowings	6,943			7,318			14,261
Total interest expense	36,832			5,274			42,106
Net interest income	$	(9,336	)	$	6,647		$	(2,689	)

Net interest income for the nine months ended September 30, 2018 was $196.4 million, a decrease of $2.7 million, or 1.4%, when compared to net interest income of $199.0 million for the nine months ended September 30, 2017, as net interest margin (tax equivalent) narrowed by 13 basis points to 2.58% for the nine months ended September 30, 2018 compared to 2.71% for the nine months ended September 30, 2017. The net interest margin (tax equivalent) compression largely resulted from a 63 basis point increase in the cost of interest-bearing deposits, reflecting higher interest rates offered by Customers on its deposit products in order to remain competitive and attract new and retain existing deposit customers, and a 46 basis point increase in borrowing costs, reflecting higher short-term funding rates. The higher cost of funds was offset in part by a 39 basis point increase in the yield on interest-earning assets, primarily resulting from increased yields on all loan categories, reflecting higher short-term interest rates and increased prepayment fees of $2.0 million for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017.

Interest expense on total interest-bearing deposits increased $27.8 million for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. This increase primarily resulted from the aforementioned increase in rates offered on all deposit categories. Interest expense on borrowings increased $14.3 million for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. This increase was driven by increased volume as average borrowings increased by $441.6 million when compared to average borrowings for the nine months ended September 30, 2017, mostly due to higher average outstanding balances of short-term FHLB advances to fund the growth in interest-earning assets.

PROVISION FOR LOAN LOSSES

The provision for loan losses decreased by $1.7 million to $4.3 million for the nine months ended September 30, 2018, compared to $5.9 million for the same period in 2017. The provision for loan losses for the nine months ended September 30, 2018 included $3.5 million for loan portfolio growth and $1.9 million for impaired loans, offset in part by a release of $1.2 million resulting from improved asset quality and lower incurred losses than previously estimated. The provision for loan losses for the nine months ended September 30, 2017 included $2.3 million for loan portfolio growth and $3.9 million for impaired loans, offset in part by a release of $0.8 million resulting from improved asset quality and lower incurred losses than previously estimated.

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 nine months ended September 30, 2018 and 2017.



	Nine Months Ended September 30,
	2018			2017			Change			Percentage Change
(dollars in thousands)
Interchange and card revenue	$	23,127		$	31,729		$	(8,602	)	(27.1	)%
Bank-owned life insurance	5,769			5,297			472			8.9	%
Deposit fees	5,726			7,918			(2,192		)	(27.7	)%
Mortgage warehouse transactional fees	5,663			7,139			(1,476		)	(20.7	)%
Gain on sale of SBA and other loans	3,404			3,045			359			11.8	%
Mortgage banking income	532			703			(171		)	(24.3	)%
(Loss) gain on sale of investment securities	(18,659		)	8,532			(27,191		)	(318.7	)%
Impairment loss on investment securities	—			(12,934		)	12,934			(100.0	)%
Other	13,558			7,741			5,817			75.1	%
Total non-interest income	$	39,120		$	59,170		$	(20,050	)	(33.9	)%

Interchange and card revenue

Included within interchange and card revenue for the nine months ended September 30, 2018 was $3.9 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of $27.1 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior to the adoption of the new revenue recognition guidance, these expenses were included within non-interest expense and reported as technology, communication, and bank operations expense. For the nine months ended September 30, 2017, debit and prepaid card interchange expense was $4.4 million. If the nine months ended September 30, 2017 was presented on a consistent basis with the nine months ended September 30, 2018, the reported amount of gross interchange and card revenue of $31.7 million would have been presented net of the debit and prepaid card interchange expense of $4.4 million, or $27.4 million. When presented on a consistent basis, interchange and card revenue decreased $4.2 million as a result of lower activity volumes in the BankMobile business segment.

Deposit fees

The $2.2 million decrease in deposit fees for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily resulted from reduced transaction volumes at BankMobile.

Mortgage warehouse transactional fees

The $1.5 million decrease in mortgage warehouse transactional fees for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily resulted from reduced transaction volumes and reduced per transaction fees in Customers' mortgage warehouse business due to the general slowdown of mortgage originations across the United States.

(Loss) gain on sale of investment securities

For the nine months ended September 30, 2018, Customers realized a loss of $18.7 million from the sale of $495 million of lower-yielding investment securities, compared to a gain of $8.5 million from the sale of $662 million of investment securities for the nine months ended September 30, 2017. The 2018 loss results from the fixed rate nature of the bonds relative to the higher market interest rates for those bonds in the third quarter of 2018.

Impairment loss on investment securities

There were no other-than-temporary impairment losses on investment securities for the nine months ended September 30, 2018. Customers recorded an other-than-temporary impairment loss of $12.9 million for the nine months ended September 30, 2017 for the full amount of decline in fair value of an equity investment below the cost basis established at December 31, 2016.

Other non-interest income

The $5.8 million increase in other non-interest income for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was primarily due to a $2.8 million gain recognized from discontinuing cash flow hedge accounting for three interest rate swaps as of September 30, 2018 and a $3.3 million increase in income from commercial operating leases. These increases were offset in part by a $1.5 million negative mark-to-market adjustment on an equity investment.

NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the nine months ended September 30, 2018 and 2017.



	Nine Months Ended September 30,
	2018		2017		Change			Percentage Change
(dollars in thousands)
Salaries and employee benefits	$	78,135	$	69,569	$	8,566		12.3	%
Technology, communication, and bank operations	32,923		33,227		(304		)	(0.9	)%
Professional services	14,563		21,142		(6,579		)	(31.1	)%
Occupancy	8,876		8,228		648			7.9	%
FDIC assessments, non-income taxes, and regulatory fees	6,750		6,615		135			2.0	%
Provision for operating losses	3,930		4,901		(971		)	(19.8	)%
Merger and acquisition related expenses	3,920		—		3,920			N/A
Loan workout	1,823		1,844		(21		)	(1.1	)%
Advertising and promotion	1,529		1,108		421			38.0	%
Other real estate owned expenses	164		550		(386		)	(70.2	)%
Other	10,521		13,634		(3,113		)	(22.8	)%
Total non-interest expense	$	163,134	$	160,818	$	2,316		1.4	%

Salaries and employee benefits

The $8.6 million increase in salaries and employee benefits for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was primarily due to salary increases for existing team members and increased headcount as Customers continues to hire new team members in the markets it serves.

Technology, communication, and bank operations

Technology, communication, and bank operations for the nine months ended September 30, 2018 excludes $3.9 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. For the nine months ended September 30, 2017, debit and prepaid card interchange expense was $4.4 million. If the nine months ended September 30, 2017 was presented on a consistent basis with the nine months ended September 30, 2018, the reported amount of technology, communication, and bank operations expense of $33.2 million would have been $28.9 million. When presented on a consistent basis, technology, communication and bank operations expense increased $4.1 million to $32.9

million for the nine months ended September 30, 2018 from $28.9 million for the nine months ended September 30, 2017, as a result of the continued investment in the BankMobile segment infrastructure and Customers' 2018 system conversion.

Professional services

The $6.6 million decrease in professional services for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was primarily driven by a reduction in expenses for consulting, legal, and other professional fees as management continues its efforts to monitor and control expenses.

Provision for operating losses

The $3.9 million provision for operating losses represents Customers' estimated liability for losses resulting from fraud or theft-based transactions that have generally been disputed by deposit account holders mainly from its BankMobile Disbursements business but where such disputes have not been resolved as of the end of the reporting period. The reserve is based on historical rates of loss on such transactions and the provision adjusts the reserve to the estimated liability.

Merger and acquisition related expenses

The $3.9 million increase in merger and acquisition related expenses for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily related to the planned spin-off and merger of BankMobile and a residual expense resulting from the 2016 acquisition of the Disbursement business. Upon termination of the spin-off and merger agreement between Customers and Flagship on October 18, 2018, Customers recognized expenses of $2.7 million during third quarter 2018 for amounts that, under the terms of that agreement, would have been reimbursed by Flagship only upon completion of the spin-off and merger.

Other non-interest expense

The $3.1 million decrease in other non-interest expense for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was generated by numerous specific cost saves and reflects management's continued efforts to monitor and control expenses.

INCOME TAXES

The table below presents income tax expense and the effective tax rate for the nine months ended September 30, 2018 and 2017.



	Nine Months Ended September 30,
	2018			2017			Change			Percentage Change
(dollars in thousands)
Income before income tax expense	$	68,083		$	91,458		$	(23,375	)	(25.6	)%
Income tax expense	14,250			34,236			(19,986		)	(58.4	)%
Effective tax rate	20.93		%	37.43		%

The $20.0 million decrease in income tax expense for the nine months ended September 30, 2018 was primarily ~~driven by lower~~attributable to the lowering of the corporate federal income tax ~~tax rates following~~rate from 35% to 21% due to the ~~enactment~~adoption of the Tax ~~Cuts~~Cut and Jobs Act of 2017, a decrease in ~~December 2017~~pre-tax income of $23.4 million, and a $1.7 million favorable return to provision adjustment, which included the benefit of a research and development tax credit, recorded in third quarter 2018 upon completion of the 2017 income tax returns. Offsetting these items was a lower ~~taxable income for~~tax benefit of $3.8 million recognized during the ~~six~~nine months ended ~~June~~September 30, 2018 compared to the same period in ~~2017. In~~2017 for an increase in the ~~six months ended June 30, 2017, there was a recognition~~fair value of ~~a tax benefit~~restricted stock units vesting and the exercise of ~~$4.6 million for~~stock options since the ~~development of tax strategies that would have allowed for the recognition of the tax benefit from losses that had been recorded for impairment charges on the Religare equity securities.~~

award date.

PREFERRED STOCK DIVIDENDS

Preferred stock dividends were ~~$7.2~~$10.8 million for the ~~six~~nine months ended ~~June~~September 30, 2018 and ~~June 30,~~ 2017, respectively. There were no changes to the amount of preferred stock outstanding or the dividend rates for the first ~~six~~nine months of 2018 compared to the first ~~six~~nine months of 2017.

Financial Condition

General

Customers' total assets were ~~$11.1~~$10.6 billion at ~~June~~September 30, 2018. This represented a ~~$1.3~~$0.8 billion ~~or 12.7%,~~ 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 July 1, 2019. The change in Customers' financial position at June 30, 2018 compared to December 31, 2017 occurred primarily as a result of an increase in total investment securities of $0.7 billion, or 146.3%, to $1.2 billion at June 30, 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~~primarily attributable to ~~an increase~~increases in ~~total loans outstanding, including loans held for~~cash and cash equivalents of $0.5 billion, largely resulting from proceeds received from the sale of ~~$405.8 million, or 4.7%, since December 31, 2017, primarily driven~~lower-yielding investment securities during third quarter 2018, and investment securities of $0.2 billion. Customers expects total assets to be under $10 billion by ~~growth in commercial~~the end of 2018 as management focuses on optimizing balance sheet mix, enhancing liquidity, improving capital, expanding net interest margin, and industrial loans (including owner occupied commercial real estate loans) of $172.5 million, commercial loans to mortgage banking business of $142.7 million, and consumer loans of $253.8 million. These increases were offset in part by a decrease in multi-family loans of $103.8 million.maximizing the return on average assets.

Total liabilities were ~~$10.2~~$9.7 billion at ~~June~~September 30, 2018. This represented a ~~$1.2~~$0.7 billion ~~or 13.9%,~~ increase from $8.9 billion at December 31, 2017. The increase in total liabilities resulted primarily from ~~FHLB borrowings, which increased by $0.8 billion, or 48.3%, to $2.4 billion at June 30, 2018 from $1.6 billion at December 31, 2017, and~~an increase in total deposits ~~which increased $495.8 million, or 7.3%, to $7.3~~of $1.7 billion, ~~at June 30, 2018 from $6.8 billion at December 31, 2017. These increases were~~ offset in part by ~~a decrease~~reductions in ~~Federal~~FHLB advances of $0.8 billion and federal funds purchased of ~~$50.0 million, or 32.3%, to $105.0 million at June 30, 2018 from $155.0 million at December 31, 2017.~~

$0.2 billion.

The following table presents certain key condensed balance sheet data as of ~~June~~September 30, 2018 and December 31, 2017:


	June 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017			Change			Percentage Change
(amounts in thousands)
(dollars in thousands)										(As Restated)
Cash and cash equivalents	$	251,726		$	146,323		$	666,034		$	146,323		$	519,711		355.2	%
Investment securities, at fair value	1,161,000			471,371			668,851			471,371			197,480			41.9	%
Loans held for sale (includes $1,931,781 and $1,795,294, respectively, at fair value)	1,931,781			1,939,485
Loans held for sale (includes $1,383 and $1,886, respectively, at fair value)							1,383			146,077			(144,694		)	(99.1	)%
Loans receivable, mortgage warehouse, at fair value							1,516,327			1,793,408			(277,081		)	(15.4	)%
Loans receivable	7,181,726			6,768,258			7,239,950			6,768,258			471,692			7.0	%
Allowance for loan losses	(38,288		)	(38,015		)	(40,741		)	(38,015		)	(2,726		)	7.2	%
Total assets	11,092,846			9,839,555			10,617,104			9,839,555			777,549			7.9	%
Total deposits	7,295,954			6,800,142			8,513,714			6,800,142			1,713,572			25.2	%
Federal funds purchased	105,000			155,000			—			155,000			(155,000		)	(100.0	)%
FHLB advances	2,389,797			1,611,860			835,000			1,611,860			(776,860		)	(48.2	)%
Other borrowings	186,888			186,497			123,779			186,497			(62,718		)	(33.6	)%
Subordinated debt	108,929			108,880			108,953			108,880			73			0.1	%
Total liabilities	10,156,619			8,918,591			9,662,292			8,918,591			743,701			8.3	%
Total shareholders’ equity	936,227			920,964			954,812			920,964			33,848			3.7	%
Total liabilities and shareholders’ equity	11,092,846			9,839,555			10,617,104			9,839,555			777,549			7.9	%

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 ~~$23.0~~$12.9 million at ~~June~~September 30, 2018. This represented a ~~$2.6~~$7.4 million ~~increase~~decrease from $20.4 million at December 31, 2017. These balances vary from day to day, primarily due to variations in customers’ ~~deposits~~deposit activities with Customers.

Interest-earning deposits consist of cash deposited at other banks, primarily the Federal Reserve Bank of Philadelphia. Interest-earning deposits were ~~$228.8~~$653.1 million and $125.9 million at ~~June~~September 30, 2018 and December 31, 2017, respectively. ~~This~~The increase in interest-earning deposits can be mostly attributed to proceeds received from the sale of lower-yielding investment securities in third quarter 2018, which were subsequently used to pay down FHLB advances in October 2018. Additionally, the balance of interest-earning deposits 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 at December 31, 2017.~~

In connection with the June 2016 acquisition of the Disbursement business from Higher One, as of June 30, 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, or at a later date as otherwise agreed to by both parties. 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 December 31, 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 optimize net interest income, given changes in the economic environment, liquidity position and balance sheet mix.

~~At June~~Investment securities totaled $668.9 million at September 30, 2018 ~~investment securities were $1.2 billion,~~ compared to ~~$0.5 billion~~$471.4 million at December 31, ~~2017, an~~2017. The increase ~~of $0.7 billion. The increase~~in investment securities was primarily the result of purchases of agency-guaranteed mortgage-backed securities and corporate securities totaling $763.2 million, largely during the ~~six months ended June 30,~~first quarter of 2018, offset in part by the sale of $494.8 million of lower-yielding securities during the third quarter of this year, and maturities, calls and principal repayments ~~in the amount of $26.2~~totaling $38.9 million during the ~~six~~nine months ended ~~June~~September 30, 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~~are recorded in earnings in the period in which they occur and ~~will~~are 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 32 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for additional details related to the adoption of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities.

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, particularly its commercial and industrial loan portfolio and its specialty mortgage ~~warehouse~~ lending business, and has ~~recently~~ announced its entry into non-QM residential mortgage ~~lending.~~lending and plans to increase its consumer lending activities. In addition, Customers has been deemphasizing its multi-family business and has significantly limited originations of loans yielding less than 5%5.25% in order to reduce net interest margin compression.

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 ~~June~~September 30, 2018 and December 31, 2017, commercial loans to mortgage banking businesses totaled ~~$1.9~~$1.5 billion and $1.8 billion, respectively, and are reported as loans ~~held for sale.~~receivable, mortgage warehouse, at fair value.

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 ~~June~~September 30, 2018, Customers had multi-family loans of $3.5 billion outstanding, comprising approximately ~~38.9%~~40.0% 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 ~~June~~September 30, 2018 and December 31, 2017, Customers had ~~$167.2~~$157.4 million and $152.5 million, respectively, of equipment finance loans outstanding. As of ~~June~~September 30, 2018 and December 31, 2017, Customers had ~~$35.1~~$39.3 million and $26.6 million of equipment finance leases, respectively. As of ~~June~~September 30, 2018 and December 31, 2017, Customers had ~~$26.5~~$40.7 million and $21.7 million, respectively, of operating leases entered into under this program, net of accumulated depreciation of ~~$2.3~~$3.4 million and $0.5 million, respectively.

As of ~~June~~September 30, 2018, Customers had ~~$8.5~~$8.1 billion in commercial loans outstanding, totaling approximately ~~93.6%~~92.6% of its total loan portfolio, which includes loans held for sale and loans receivable mortgage warehouse at fair value, 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 ~~June~~September 30, 2018, Customers had ~~$583.5~~$645.0 million in consumer loans outstanding, or ~~6.4%~~7.4% of the total loan portfolio, compared to $329.8 million, or 3.8% of the total loan portfolio, as of December 31, 2017. ~~In second~~During third quarter 2018, Customers purchased ~~$277.4~~$72.7 million of ~~thirty-year fixed-rate~~ residential mortgage and other consumer loans from ~~Third Federal Savings & Loan.~~third party financial institutions. Customers plans to expand its product offerings in real estate secured consumer lending, ~~in 2018~~as well as other consumer lending activities, and has announced its entry into the non-QM residential mortgage market.

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 ~~June~~September 30, 2018 and December 31, 2017 was as follows:


	June 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
(amounts in thousands)							(As Restated)
Commercial loans:
Mortgage warehouse loans, at fair value	$	1,930,738	$	1,793,408
Multi-family loans at lower of cost or fair value	—		144,191		$	—	$	144,191
Total commercial loans held for sale	1,930,738		1,937,599		—		144,191
Consumer Loans:
Consumer loans:
Residential mortgage loans, at fair value	1,043		1,886		1,383		1,886
Loans held for sale	$	1,931,781	$	1,939,485	$	1,383	$	146,077

At ~~June~~September 30, 2018, loans held for sale totaled ~~$1.9 billion,~~$1.4 million, or ~~21.2%~~0.02% 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 loans~~Loans 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 ~~$413.2~~$469.0 million to ~~$7.1~~$7.2 billion at ~~June~~September 30, 2018 from $6.7 billion at December 31, 2017. Loans receivable as of ~~June~~September 30, 2018 and December 31, 2017 consisted of the following:


	June 30,			December 31,			September 30,			December 31,
	2018			2017			2018			2017
(amounts in thousands)										(As Restated)
Loans receivable, mortgage warehouse, at fair value							$	1,516,327		$	1,793,408
Loans receivable:
Commercial:
Multi-family	$	3,542,770		$	3,502,381		3,504,540			3,502,381
Commercial and industrial (including owner occupied commercial real estate)	1,811,751			1,633,818			1,841,704			1,633,818
Commercial real estate non-owner occupied	1,155,998			1,218,719			1,157,849			1,218,719
Construction	88,141			85,393			95,250			85,393
Total commercial loans	6,598,660			6,440,311
Total commercial loans receivable							6,599,343			6,440,311
Consumer:
Residential real estate	493,222			234,090			509,853			234,090
Manufactured housing	85,328			90,227			82,589			90,227
Other	3,874			3,547			51,210			3,547
Total consumer loans	582,424			327,864
Total loans receivable	7,181,084			6,768,175
Deferred costs and unamortized premiums, net	642			83
Total consumer loans receivable							643,652			327,864
Loans receivable							7,242,995			6,768,175
Deferred (fees)/costs and unamortized (discounts)/premiums, net							(3,045		)	83
Allowance for loan losses	(38,288		)	(38,015		)	(40,741		)	(38,015		)
Loans receivable, net of allowance for loan losses	$	7,143,438		$	6,730,243
Total loans receivable, net of allowance for loan losses							$	8,715,536		$	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 ~~$(0.8)~~$2.9 million and ~~$0.5~~$2.4 million for the three months ended ~~June~~September 30, 2018 and 2017, respectively, and ~~$1.3~~$4.3 million and ~~$3.6~~$5.9 million for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. The allowance for loan losses maintained for loans receivable (excluding loans held for ~~sale)~~sale and loans receivable mortgage warehouse loans, at fair value) was ~~$38.3~~$40.7 million, or ~~0.53%~~0.56% of loans receivable, at ~~June~~September 30, 2018 and $38.0 million, or 0.56% of loans receivable, at December 31, 2017. Net charge-offs were ~~$0.4~~$0.5 million for the three months ended ~~June~~September 30, 2018, a decrease of ~~$1.5~~$2.0 million compared to the same period in 2017. The decrease in net charge-offs period over period was mainly driven by a decrease in net charge-off activities in the commercial and industrial loan ~~portfolio and an increase in recoveries in the commercial real estate owner occupied and construction loan portfolios.~~portfolio. Net charge-offs were ~~$1.1~~$1.5 million for the ~~six~~nine months ended ~~June~~September 30, 2018, a decrease of ~~$1.4~~$3.4 million compared to the same period in 2017. The decrease in net charge-offs period over period was mainly driven by ~~decreases~~a decrease in net charge-off activities related to the commercial and industrial loan ~~portfolio and the commercial real estate non-owner occupied loan portfolio,~~portfolio. This decrease was partially offset by an increase in net charge-off activities ~~in the commercial real estate owner occupied portfolio and~~ in the other consumer loan portfolio.

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 June 30,					Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018			2017		2018		2017		2018		2017		2018		2017
(amounts in thousands)
Balance at the beginning of the period	$	39,499		$	39,883	$	38,015	$	37,315	$	38,288	$	38,458	$	38,015	$	37,315
Loan charge-offs (1)
Commercial and industrial	174			1,849		224		2,047		90		2,032		314		4,079
Commercial real estate owner occupied	483			—		501		—		—		—		501		—
Commercial real estate non-owner occupied	—			4		—		408		—		77		—		485
Residential real estate	42			69		407		290		—		120		407		410
Other consumer	462			226		718		246		437		356		1,155		602
Total Charge-offs	1,161			2,148		1,850		2,991		527		2,585		2,377		5,576
Loan recoveries (1)
Commercial and industrial	140			68		175		283		30		54		205		337
Commercial real estate owner occupied	326			9		326		9		—		—		326		9
Commercial real estate non-owner occupied										5		—		5		—
Construction	209			49		220		130		11		27		231		157
Residential real estate	56			6		63		27		6		7		69		34
Other consumer	3			56		6		100		4		1		10		101
Total Recoveries	734			188		790		549		56		89		846		638
Total net charge-offs	427			1,960		1,060		2,442		471		2,496		1,531		4,938
Provision for loan losses	(784		)	535		1,333		3,585		2,924		2,352		4,257		5,937
Balance at the end of the period	$	38,288		$	38,458	$	38,288	$	38,458	$	40,741	$	38,314	$	40,741	$	38,314


(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 internal 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-K for further discussion on management's methodology for estimating the allowance for loan losses.

Approximately 83% 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 loan 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 ~~June~~September 30, 2018


Loan Type	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 (%)		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)
(dollars in thousands)
Originated Loans
Multi-Family	$	3,540,261	$	3,538,918	$	—	$	—	$	1,343	$	—	$	1,343	0.04	%	0.04	%	$	3,502,079		$	3,500,736		$	—	$	—	$	1,343	$	—	$	1,343	0.04	%	0.04	%
Commercial & Industrial (1)	1,728,577		1,713,369		1,087		—		14,121		667		14,788		0.82	%	0.86	%	1,760,668			1,746,352			—		—		14,316		621		14,937		0.81	%	0.85	%
Commercial Real Estate Non-Owner Occupied	1,140,483		1,138,133		—		—		2,350		—		2,350		0.21	%	0.21	%	1,144,214			1,144,214			—		—		—		—		—		—	%	—	%
Residential	106,076		103,426		748		—		1,902		57		1,959		1.79	%	1.85	%	106,052			103,018			979		—		2,055		57		2,112		1.94	%	1.99	%
Construction	88,141		88,141		—		—		—		—		—		—	%	—	%	95,250			95,250			—		—		—		—		—		—	%	—	%
Other consumer	1,752		1,716		36		—		—		—		—		—	%	—	%	1,359			1,322			37		—		—		—		—		—	%	—	%
Total Originated Loans(2)	6,605,290		6,583,703		1,871		—		19,716		724		20,440		0.30	%	0.31	%	6,609,622			6,590,892			1,016		—		17,714		678		18,392		0.27	%	0.28	%
Loans Acquired
Bank Acquisitions	136,070		130,316		1,015		475		4,264		704		4,968		3.13	%	3.63	%	131,854			125,399			1,969		480		4,006		400		4,406		3.04	%	3.33	%
Loan Purchases	439,724		430,415		3,517		3,777		2,015		277		2,292		0.46	%	0.52	%	501,519			492,971			3,518		3,109		1,921		372		2,293		0.38	%	0.46	%
Total Loans Acquired	575,794		560,731		4,532		4,252		6,279		981		7,260		1.09	%	1.26	%	633,373			618,370			5,487		3,589		5,927		772		6,699		0.94	%	1.06	%
Deferred costs and unamortized premiums, net	642		642		—		—		—		—		—						(3,045		)	(3,045		)	—		—		—		—		—
Total Loans Receivable	7,181,726		7,145,076		6,403		4,252		25,995		1,705		27,700		0.36	%	0.39	%
��Loans Receivable																			7,239,950			7,206,217			6,503		3,589		23,641		1,450		25,091		0.33	%	0.35	%
Loans Receivable, Mortgage Warehouse, at Fair Value																			1,516,327			1,516,327			—		—		—		—		—
Total Loans Held for Sale	1,931,781		1,931,781		—		—		—		—		—						1,383			1,383			—		—		—		—		—
Total Portfolio	$	9,113,507	$	9,076,857	$	6,403	$	4,252	$	25,995	$	1,705	$	27,700	0.29	%	0.30	%	$	8,757,660		$	8,723,927		$	6,503	$	3,589	$	23,641	$	1,450	$	25,091	0.27	%	0.29	%

(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 ~~June~~September 30, 2018 (continued)


Loan Type	Total 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)
(dollars in thousands)
Originated Loans
Multi-Family	$	3,540,261	$	1,343	$	12,072	$	—	$	12,072	0.34	%	898.88	%	$	3,502,079		$	1,343	$	11,829	$	—	$	11,829	0.34	%	880.79	%
Commercial & Industrial (1)	1,728,577		14,121		14,643		—		14,643		0.85	%	103.70	%	1,760,668			14,316		15,268		—		15,268		0.87	%	106.65	%
Commercial Real Estate Non-Owner Occupied	1,140,483		2,350		4,260		—		4,260		0.37	%	181.28	%	1,144,214			—		4,246		—		4,246		0.37	%	—	%
Residential	106,076		1,902		2,047		—		2,047		1.93	%	107.62	%	106,052			2,055		2,048		—		2,048		1.93	%	99.66	%
Construction	88,141		—		992		—		992		1.13	%	—	%	95,250			—		1,062		—		1,062		1.11	%	—	%
Other consumer	1,752		—		131		—		131		7.48	%	—	%	1,359			—		103		—		103		7.58	%	—	%
Total Originated Loans(2)	6,605,290		19,716		34,145		—		34,145		0.52	%	173.18	%	6,609,622			17,714		34,556		—		34,556		0.52	%	195.08	%
Loans Acquired
Bank Acquisitions	136,070		4,264		3,990		—		3,990		2.93	%	93.57	%	131,854			4,006		3,773		—		3,773		2.86	%	94.18	%
Loan Purchases	439,724		2,015		153		510		663		0.15	%	32.90	%	501,519			1,921		2,412		527		2,939		0.59	%	152.99	%
Total Loans Acquired	575,794		6,279		4,143		510		4,653		0.81	%	74.10	%	633,373			5,927		6,185		527		6,712		1.06	%	113.24	%
Deferred costs and unamortized premiums, net	642		—		—		—		—						(3,045		)	—		—		—		—
Total Loans Receivable	7,181,726		25,995		38,288		510		38,798		0.54	%	149.25	%
Loans Receivable															7,239,950			23,641		40,741		527		41,268		0.57	%	174.56	%
Loans Receivable, Mortgage Warehouse, at Fair Value															1,516,327			—		—		—		—
Total Loans Held for Sale	1,931,781		—		—		—		—						1,383			—		—		—		—
Total Portfolio	$	9,113,507	$	25,995	$	38,288	$	510	$	38,798	0.43	%	149.25	%	$	8,757,660		$	23,641	$	40,741	$	527	$	41,268	0.47	%	174.56	%

(1) Commercial & industrial loans, including owner occupied commercial real ~~estate.~~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 ~~June~~September 30, 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 ~~$19.7~~$17.7 million, or ~~0.30%~~0.27% of post 2009 originated loans, were non-performing at ~~June~~September 30, 2018, compared to $20.0 million of post 2009 originated loans, or 0.31% of post 2009 originated loans, at December 31, 2017. The post 2009 originated loans were supported by an allowance for loan losses of ~~$34.1~~$34.6 million (0.52% of post 2009 originated loans) and $33.3 million (0.52% of post 2009 originated loans), respectively, at ~~June~~September 30, 2018 and December 31, 2017. Total 2009 and prior loans ("legacy loans") were ~~$22.5~~$23.4 million and $25.6 million at ~~June~~September 30, 2018 and December 31, 2017, respectively.

Loans Acquired

At ~~June~~September 30, 2018, total acquired loans were $~~575.8~~633.4 million, or ~~8.0%~~8.7% of ~~total~~ loans ~~held for investment,~~receivable, compared to $328.8 million, or 4.9% of ~~total~~ loans ~~held for investment,~~receivable, at December 31, 2017. Non-performing acquired loans totaled $~~6.3~~5.9 million and $6.4 million at ~~June~~September 30, 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, ~~$49.4~~$48.0 million were supported by a $0.5 million cash reserve at ~~June~~September 30, 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~~the seller 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 ~~June~~September 30, 2018, ~~$29.2~~$27.8 million of these loans were outstanding, compared to $31.4 million at December 31, 2017.

The price paid for acquired loans 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 ~~$4.7~~$6.7 million ~~(0.81%~~(1.06% of total acquired loans) and $5.4 million (1.64% of total acquired loans) at ~~June~~September 30, 2018 and December 31, 2017, respectively.

DEPOSITS

The components of deposits were as follows at the dates indicated:



	September 30, 2018		December 31, 2017		Change			Percentage Change
(dollars in thousands)
Demand, non-interest bearing	$	1,338,167	$	1,052,115	$	286,052		27.2	%
Demand, interest bearing	833,176		523,848		309,328			59.0	%
Savings, including MMDA	3,948,890		3,318,486		630,404			19.0	%
Time, $100,000 and over	1,271,783		1,284,855		(13,072		)	(1.0	)%
Time, other	1,121,698		620,838		500,860			80.7	%
Total deposits	$	8,513,714	$	6,800,142	$	1,713,572		25.2	%

Customers offers a variety of deposit accounts, including checking, savings, money market deposit accounts (“MMDA”), and time deposits. Deposits are primarily obtained from Customers' geographic service area and nationwide through branchless digital banking, deposit brokers, listing services and other relationships. Transaction deposits increased by $1.2 billion, or 25.0%, to $6.1 billion at September 30, 2018, from $4.9 billion at December 31, 2017. This increase is primarily driven by Customers' initiative to improve its net interest margin by expanding its sources of lower-cost funding. These efforts, along with the seasonality of the Disbursement business, resulted in increases to nearly all deposit categories. Total time deposits were ~~$7.3~~$2.4 billion at ~~June~~September 30, 2018, an increase of $0.5 billion, or 7.3%, from $6.8 billion at December 31, 2017. Transaction deposits increased by $0.3 billion, or 6.7%, to $5.2 billion at June 30, 2018, from $4.9 billion at December 31, 2017, with non-interest bearing deposits increasing by $38.6 million. Interest-bearing demand deposits were $0.6 billion at June 30, 2018, an increase of $99.5 million, or 19.0%, from $0.5 billion at December 31, 2017. Savings, including MMDA, totaled $3.5 billion at June 30, 2018, an increase of $191.2 million, or 5.8%, 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 $2.1 billion at June 30, 2018, an increase of $166.5 million, or 8.7%25.6%, from $1.9 billion at December 31, 2017.

At ~~June~~September 30, 2018, the Bank had ~~$1.6~~$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 ~~June~~September 30, 2018, the balance of state and municipal deposits was ~~$1.5~~$1.9 billion.

~~The components of deposits were as follows at the dates indicated:~~

June 30,
2018 December 31,
2017
(amounts in thousands)
Demand, non-interest bearing $ 1,090,744
$ 1,052,115
Demand, interest bearing 623,343
523,848
Savings, including MMDA 3,509,706
3,318,486
Time, $100,000 and over 1,055,341
1,284,855
Time, other 1,016,820
620,838
Total deposits $ 7,295,954
$ 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 ~~June~~September 30, 2018 and December 31, 2017, total outstanding borrowings were ~~$2.8~~$1.1 billion and $2.1 billion, respectively, which represented ~~an increase~~a decrease of ~~$0.7~~$1.0 billion, or ~~35.3%~~48.2%. ~~This increase was primarily~~These repayments of borrowings are in line with Customers' strategy to reduce its cost of funding and focus on deposit growth in order to improve net interest margins. On July 31, 2018, the ~~result~~6.375% senior notes with an aggregate principal amount of ~~an increase~~$63.3 million issued by Customers Bancorp in ~~investments~~July 2013 matured and ~~loans receivable increasing the need for short-term borrowings.~~

were paid in full.

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 ~~June~~September 30, 2018 and December 31, 2017, Customers had unpledged marketable investments of ~~$476.0~~$481.8 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 ~~June~~September 30, 2018, Customers' borrowing capacity with the Federal Home Loan Bank was ~~$4.9~~$4.5 billion, of which ~~$2.4~~$0.8 billion was utilized in borrowings and ~~$1.6~~$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 ~~June~~September 30, 2018 and December 31, 2017, Customers' borrowing capacity with the Federal Reserve Bank of Philadelphia was ~~$136.9~~$90.8 million and $142.5 million, respectively.

Net cash flows ~~used in~~provided by operating activities were ~~$71.9~~$98.4 million during the ~~six~~nine months ended ~~June~~September 30, 2018, compared to ~~net cash flows provided by operating activities of $27.5~~$30.3 million during the ~~six~~nine months ended ~~June~~September 30, 2017. During the six months ended June 30, 2018, originations of loans held for sale in excess of the proceeds from the sales of loans held for sale required $136.2 million of cash flows used in operating activities. During the six months ended June 30, 2017, proceeds from sales of loans held for sale in excess of funds required to originate loans held for sale contributed $13.5 million to cash flows provided by operating activities.

Net cash flows used in investment activities were ~~$1.0~~$0.3 billion during the ~~six~~nine months ended ~~June~~September 30, 2018, compared to ~~net cash flows used in investing activities of $1.3~~$1.1 billion during the ~~six~~nine months ended ~~June~~September 30, 2017.

Cash used in investment activities consisted of the following:

Originations of mortgage warehouse loans totaled $21.7 billion during the nine months ended September 30, 2018, compared to $22.7 billion during the nine months ended September 30, 2017.

Purchases of investment securities available for sale totaled $763.2 million during the ~~six~~nine months ended ~~June~~September 30, 2018, compared to ~~$644.0~~$796.6 million during the ~~six~~nine months ended ~~June~~September 30, 2017.

Cash flows used to fund new loans held for investment totaled ~~$18.7~~$20.5 million and ~~$572.3~~$921.0 million during the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively.

Cash flows used to purchase loans ~~was $278.5~~totaled $347.7 million and $262.6 million during the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively.

Purchases of bank owned life insurance policies were ~~$50.0~~$90.0 million during the ~~six~~nine months ended ~~June~~September 30, 2017. There were no such purchases of bank owned life insurance policies during the ~~six~~nine months ended ~~June~~September 30, 2018.

Net purchases of FHLB, Federal Reserve Bank, and other restricted stock totaled ~~$30.1 million and $61.3~~$30.2 million during the ~~six~~nine months ended ~~June~~September 30, ~~2018 and 2017, respectively.~~2017.

Purchases of leased assets under operating leases were ~~$6.5~~$21.8 million during the ~~six~~nine months ended ~~June~~September 30, 2018. There were no such purchases of leased assets under operating leases during the ~~six~~nine months ended ~~June~~September 30, 2017.

Cash provided by investment activities consisted of the following:

Proceeds from repayments of mortgage warehouse loans totaled $22.0 billion during the nine months ended September 30, 2018, compared to $22.9 billion during the nine months ended September 30, 2017.

Proceeds from maturities, calls and principal repayments of securities available for sale totaled ~~$26.2~~$38.9 million for the ~~six~~nine months ended ~~June~~September 30, 2018, compared to ~~$22.8~~$36.5 million for the ~~six~~nine months ended ~~June~~September 30, 2017.

Proceeds from sales of investment securities available for sale amounted to ~~$116.0~~$476.2 million during the ~~six~~nine months ended ~~June~~September 30, ~~2017. There were no such sales of investments securities during~~2018, compared to $670.5 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2017.

Proceeds from the sale of loans held for investment totaled ~~$29.0~~$42.2 million during the ~~six~~nine months ended ~~June~~September 30, 2018, compared to ~~$112.9~~$124.7 million during the ~~six~~nine months ended ~~June~~September 30, 2017.

Proceeds from FHLB, Federal Reserve Bank and other restricted stock totaled $31.7 million during the nine months ended September 30, 2018.

Net cash flows provided by financing activities were ~~$1.2~~$0.7 billion during the ~~six~~nine months ended ~~June~~September 30, 2018, compared to ~~$1.5~~$1.0 billion for the ~~six~~nine months ended ~~June~~September 30, 2017. During the ~~six~~nine months ended ~~June~~September 30, 2018, a net increase in ~~short-term borrowed funds from the FHLB~~deposits provided ~~net~~ cash flows of ~~$777.9 million~~$1.7 billion, and ~~an increase in deposits~~proceeds from issuance of common stock provided ~~net cash flows of $495.8~~$3.4 million. These cash flow increases were partially offset by ~~a net cash flow usage in~~repayments of short-term borrowed funds from the FHLB totaling $776.9 million, federal funds purchased of ~~$50.0~~$155.0 million, and long-term debt of $63.3 million, and preferred stock dividends paid of ~~$7.2~~$10.8 million. During the ~~six~~nine months ended ~~June~~September 30, 2017, a net increase in short-term borrowed funds from the FHLB provided net cash flows of ~~$1.1~~$0.6 billion, a net increase in deposits provided ~~net~~ cash flows of ~~$171.6~~$293.3 million, proceeds from the issuance of five-year senior notes provided $98.6 million, and a net increase in federal funds purchased provided net cash flows of ~~$67.0~~$64.0 million, partially offset by the payment of preferred stock dividends of ~~$7.2~~$10.8 million. These financing activities provided sufficient cash flows to support Customers' investing and operating activities.

On July 31, 2018, the 6.375% senior notes with an aggregate principal amount of $63.3 million issued by Customers Bancorp in July 2013 matured. Customers had sufficient funds accumulated at the Bancorp to make payment to the debtholders upon maturity of the senior notes. 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 increased ~~$15.3~~$33.8 million, or 3.7%, to ~~$936.2~~$954.8 million at ~~June~~September 30, 2018 when compared to shareholders' equity of $921.0 million at December 31, ~~2017, an increase of 1.7% .~~2017. The primary components of the net increase were as follows:

net income of ~~$47.8~~$53.8 million for the ~~six~~nine months ended ~~June~~September 30, 2018;

share-based compensation expense of ~~$3.7~~$5.6 million for the ~~six~~nine months ended ~~June~~September 30, 2018; and

issuance of common stock under share-based compensation arrangements of ~~$3.2~~$3.7 million for the ~~six~~nine months ended ~~June~~September 30, 2018.

The increases were offset in part by:

other comprehensive loss of ~~$32.3~~$18.6 million for the ~~six~~nine months ended ~~June~~September 30, 2018, arising primarily from unrealized fair value losses recognized on available-for-sale debt securities; and

preferred stock dividends of ~~$7.2~~$10.8 million for the ~~six~~nine months ended ~~June~~September 30, 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 ~~June~~September 30, 2018 and December 31, 2017, the Bank and the Bancorp met all capital adequacy requirements to which they were subject.

Generally, to comply with the regulatory definition of adequately capitalized, or well capitalized, respectively, or to comply with the 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:																Minimum Capital Levels to be Classified as:
	Actual				Adequately Capitalized				Well Capitalized				Basel III Compliant				Actual				Adequately Capitalized				Well Capitalized				Basel III Compliant
(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2018:
(dollars in thousands)																	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2018:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	735,609	8.611	%	$	384,418	4.500	%	N/A		N/A		$	544,591	6.375	%	$	740,968	8.703	%	$	383,113	4.500	%	N/A		N/A		$	542,744	6.375	%
Customers Bank	$	1,054,613	12.351	%	$	384,232	4.500	%	$	555,002	6.500	%	$	544,329	6.375	%	$	1,054,869	12.393	%	$	383,042	4.500	%	$	553,282	6.500	%	$	542,642	6.375	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	953,025	11.156	%	$	512,557	6.000	%	N/A		N/A		$	672,731	7.875	%	$	958,418	11.257	%	$	510,818	6.000	%	N/A		N/A		$	670,448	7.875	%
Customers Bank	$	1,054,613	12.351	%	$	512,309	6.000	%	$	683,079	8.000	%	$	672,406	7.875	%	$	1,054,869	12.393	%	$	510,722	6.000	%	$	680,963	8.000	%	$	670,323	7.875	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,072,072	12.550	%	$	683,409	8.000	%	N/A		N/A		$	843,583	9.875	%	$	1,080,245	12.688	%	$	681,090	8.000	%	N/A		N/A		$	840,721	9.875	%
Customers Bank	$	1,202,070	14.078	%	$	683,079	8.000	%	$	853,849	10.000	%	$	843,176	9.875	%	$	1,204,825	14.154	%	$	680,963	8.000	%	$	851,204	10.000	%	$	840,563	9.875	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	953,025	8.866	%	$	429,963	4.000	%	N/A		N/A		$	429,963	4.000	%	$	958,418	8.913	%	$	430,099	4.000	%	N/A		N/A		$	430,099	4.000	%
Customers Bank	$	1,054,613	9.822	%	$	429,471	4.000	%	$	536,839	5.000	%	$	429,471	4.000	%	$	1,054,869	9.814	%	$	429,939	4.000	%	$	537,423	5.000	%	$	429,939	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	%	$	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	%	$	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	%	$	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	%	$	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	%	$	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	%	$	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	%	$	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	%	$	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" adopted effective ~~during~~ first quarter 2015 and the capital conservation buffer ~~effective~~phased in beginning 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 ~~June~~September 30, 2018, the Bank and Customers Bancorp were in compliance with the Basel III requirements. See "NOTE 98 - 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 ~~June~~September 30, 2018 and December 31, 2017, the following off-balance sheet commitments, financial instruments and other arrangements were outstanding:


	June 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
(amounts in thousands)
Commitments to fund loans	$	346,648	$	333,874	$	171,538	$	333,874
Unfunded commitments to fund mortgage warehouse loans	1,268,637		1,567,139		1,535,720		1,567,139
Unfunded commitments under lines of credit	759,100		485,345
Unfunded commitments under lines of credit and credit card					821,601		485,345
Letters of credit	38,718		39,890		45,188		39,890
Other unused commitments	6,319		6,679		5,104		6,679

Commitments to fund loans, unfunded commitments to fund mortgage warehouse loans, unfunded commitments under lines of credit ~~and~~ letters of credit and credit cards 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 ~~June~~September 30, 2019, based upon the assets, liabilities and off-balance sheet financial instruments in existence at ~~June~~September 30, 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 ~~June~~September 30, 2019, resulting from changes in interest rates.

Net change in net interest income



Rate Shocks	% Change
Up 3%	(~~13.4~~3.0	)%
Up 2%	(~~8.4~~1.4	)%
Up 1%	(~~3.9~~0.4	)%
Down 1%	(~~1.2~~4.4	)%

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 ~~June~~September 30, 2018, resulting from shocks to interest rates.



Rate Shocks	From base
Up 3%	(~~26.3~~21.2	)%
Up 2%	(~~16.4~~12.8	)%
Up 1%	(~~7.6~~5.7	)%
Down 1%	~~2.9~~1.2	%

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

(a) Management's Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, 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 the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Customers Bancorp’s disclosure controls and procedures were not effective at September 30, 2018 because of 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 investing on the consolidated balance sheets.

Revised Management's Report from the 2017 Form 10-K. Under the supervision and with the participation ofCustomers Bancorp’s Chief Executive Officer and Chief Financial Officer, Customers Bancorp's management assessed the effectiveness of Customers Bancorp's internal control over financial reporting as of December 31, 2017. In making that assessment, management used the criteria set forth in the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on its initial evaluation under the COSO criteria, management concluded that Customers Bancorp's internal control over financial reporting was effective as of December 31, 2017. Subsequently, in November 2018, management concluded that Customers Bancorp did not maintain effective controls over the appropriate classifications of cash flows used in and provided by its 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 its consolidated balance sheets. On November 12, 2018, Customers Bancorp's Audit Committee of the Board of Directors authorized management to restate its previously issued audited consolidated financial statements for 2017, 2016, and 2015 and the interim unaudited consolidated financial statements as of and for the three month periods ended March 31, 2018 and 2017 and the three and six month periods ended June 30, ~~2018.~~2018 and 2017, respectively. Accordingly, management has concluded that the control deficiency that resulted in the incorrect classifications of the cash flows used in and provided by its 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 its consolidated balance sheets constituted a material weakness as of December 31, 2017. Solely as a result of this material weakness, management has revised its earlier assessment and has now concluded that Customers Bancorp's internal control over financial reporting was not effective as of December 31, 2017.

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 mortgage warehouse lending transactions on the consolidated balance sheet 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 ~~June~~September 30, 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 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~~The following information supplements and amends our discussion set forth under Part I, Item 3. "Legal Proceedings" in our 2017 Form 10-K.

Edelman Matter

On April 13, 2017, a class action complaint captioned Shaya Edelman, individually, and on behalf of all others similarly situated v. Higher One Holdings, Inc., WEX Bank, Inc., and Customers Bancorp, Inc., Case 2:17-cv-01700-RBS, was filed in the United States District Court for the Eastern District of Pennsylvania. The plaintiff generally alleged, among other things, violations of state consumer protection statutes and federal public policy promulgated in the Higher Education Act, Department of Education Regulations, the Electronic Funds Transfer Act, Regulation E and various common law violations through the offering and use of the Higher One checking account and debit card. Customers Bank, Higher One Holdings, Inc. and Wex Bank, Inc. filed a motion to compel arbitration and stay proceedings. On August 28, 2018, as a result of the Parties’ voluntary resolution of the matter, the Court entered an order dismissing the case pursuant to Federal Rule of Civil Procedure 41(A).

United States Department of Education Matter

In third quarter 2018, Customers received a Final Program Review Determination ("FPRD") letter dated September 5, 2018 from the United States Department of Education (the "DOE") regarding a focused program review of Higher One's/Customers Bank's administration, as a third party servicer, of the programs authorized pursuant to Title IV of the Higher Education Act of 1965. The DOE program review covered the award years beginning in 2013 through the FPRD issuance date, including the time period when Higher One was acting as the third party servicer prior to Customers' acquisition of the Disbursement business on June 15, 2016. The FPRD determined that, with respect to students enrolled at specified partner institutions, Higher One/Customers did not provide convenient fee-free access to ATMs or bank branch offices in such locations as required by the DOE’s cash management regulations. Those regulations, which were in effect during the period covered by the program review and were revised during that period, seek, among other purposes, to ensure that students can make fee-free cash withdrawals. The FPRD determined that students incurred prohibited costs in accessing Title IV credit balance funds, and the FPRD classifies those costs as financial liabilities of Customers. The FPRD also requires Customers to take prospective action to increase ATM access for students at certain of its partner institutions. Customers disagrees with the FPRD and has elected to appeal the FPRD, including the asserted financial liabilities, and a request for review has been submitted to trigger an administrative process before the DOE’s Office of Hearing and Appeals. Customers intends to vigorously defend itself against the financial liabilities established in the FPRD through that administrative appeals process and it further intends to pursue resolution of the FPRD’s prospective action requirements during the appeals resolution process. Customers is currently unable to predict the outcome of the appeal and resolution efforts, and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

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~~Set forth below are ~~no material changes from the risk~~ factors that supplement or amend certain factors discussed in “Risk Factors” included within the 2017 Form 10-K ~~other than~~and additional factors that you should carefully consider. As previously disclosed, the ~~risk described below.~~ agreement between Customers and Flagship relating to the planned spin-off and merger of BankMobile was terminated on October 18, 2018. As a result, the risks discussed in the Form 10-K relating to the planned spin-off and merger of BankMobile should be considered in the context of such termination and Customers’ current intention to retain and operate BankMobile, as discussed elsewhere in this Form 10-Q.

The risks described within the 2017 Form 10-K and below 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.”

Our business and future success may suffer if we are unable to continue to successfully implement our strategy for BankMobile.

The ~~Federal Reserve~~effective use of technology can increase efficiency and enable financial institutions to better serve customers and to reduce costs. However, some new technologies, including BankMobile, are not fully tested, and we may ~~conclude~~incur substantial expenses and devote significant management time and resources in order for BankMobile to compete effectively. Revenue generated from BankMobile’s no-fee or very-low-fee banking strategy may not perform as well as we expect or enhance the value of our business as a whole, and it could materially and adversely affect our financial condition and results of operations. Additionally, the anticipated benefits of our White Label program may not be realized to the extent forecasted, or Customers may incur substantial expenses in the operation of the White Label program that ~~following~~outweigh the ~~Merger~~benefits realized, if any, which could have a material and adverse affect on our financial condition and results of ~~Flagship Community Bank~~operations. Also, if the benefits of BankMobile do not meet the expectations of financial or industry analysts, the market price of our common stock may decline.

While we retain and operate BankMobile, we will continue to face the risks and challenges associated with the BankMobile business.

As long as we retain and operate BankMobile, we will continue to face the risks and challenges associated with the BankMobile business, including those relating to the integration of the Disbursement business and the successful launch and operation of the White Label program. We cannot assure you that we will be able to address and manage these risks so as to preserve or increase the value of BankMobile, and any failure to preserve or increase the value of BankMobile could adversely affect the business of Customers as a whole and our ability to otherwise dispose of BankMobile on favorable terms, or at all.

If our total assets exceed $10 billion while we retain and operate BankMobile, our business and potential for future success could be materially adversely affected.

Under federal law and regulation, if ~~completed prior~~our total assets exceed $10 billion as of December 31 of each year, we will no longer qualify as a small issuer of debit cards and we will not receive the optimal debit card processing fee. Failure to qualify for the small issuer exception would result in a significant reduction in interchange fee income could result in the BankMobile segment operating unprofitably or charging additional fees to students to replace the lost revenue. Customers expects total assets to be under $10 billion by December 31, 2018 ~~will be an affiliate~~through the normal seasonality of ~~Customers Bancorp~~the mortgage warehouse business, which tends to decline in the winter months. If our total assets exceed $10 billion as of December 31, 2018, ~~for purposes~~our financial condition and results of ~~applying the small issuer exemption contained~~operations could be adversely affected.

Planned changes in the ~~Durbin Amendment. Failure~~composition of our loan portfolio may expose us to increased lending risks.

As we continue to maintain our assets at $10 billion or less, we intend to continue emphasizing the ~~combined company~~origination of commercial loans, including specialty loans and loans to ~~qualify for~~mortgage banking businesses while deemphasizing our multi-family loan portfolio. Our focus will be on funding commercial and industrial and consumer loan growth with the ~~Durbin Amendment small issuer exemption would~~run-off of our multi-family loan portfolio. Changes in the composition of our loan portfolio could have a significant adverse effect on our overall credit profile, which could result in a higher percentage of non-accrual loans, increased provision for loan losses, and an increased level of net charge-offs, all of which could have a material ~~reduction~~and adverse effect on our financial condition and results of operations. Consumer loans are particularly affected by economic conditions, including interest rates, the rate of unemployment, housing prices, the level of consumer confidence, changes in ~~interchange revenue~~consumer spending, and ~~may~~the number of personal bankruptcies. A weakening in business or economic conditions, including higher unemployment levels or declines in home prices could adversely ~~impact the~~affect borrowers' ability to ~~attract or retain certain white label partners.~~

The Federal Reserve has indicated that following the acquisition of the BankMobile business by Flagship in the Merger, the combined company may be considered an affiliate of Customers Bancorp for purposes of calculating the applicability of the Federal Reserve Act Sections 23A and 23B, Regulation W, Regulation EE, and the Durbin Amendment by the fact that Customers Bancorp's shareholders will hold approximately 51% of the stock of the combined company after giving effect to the Distribution and the Merger. Unless the combined company can reasonably demonstrate that, as a result of shareholder turnover from regular market trading, the shareholders of Customers Bancorp receiving Flagship shares in the Merger may control 24.9% or less of the combined company's common shares on a combined basis as of December 31, 2018, and that other subjective elements of Customers Bancorp's control or significant influence over the post-Merger company are not present, the Federal Reserve may determine that the combined company and Customers Bancorp are affiliates for purposes of the Federal Reserve Act Section 23A and 23B, Regulation W, Regulation EE, and the Durbin Amendment. None of Customers Bancorp, Customers Bank, Flagship Community Bank, or any affiliate thereof, nor anyone acting onrepay their behalf, intends to take any action or engage in any efforts to cause, encourage or otherwise influence any Customers Bancorp shareholders who receive shares of Flagship Community Bank (if the spin-off and merger is completed) to sell or otherwise dispose of their shares. The determination that the combined company and Customers Bancorp are affiliates for purposes of the Durbin Amendment would require the combined company and Customers Bancorp to combine the combined company's and Customers Bancorp's assets for the purpose of calculating the $10 billion asset threshold in determining whether the combined company qualifies for the small debit card issuer exemption to the Durbin Amendment. If the combined company is not able to qualify for the small debit card issuer exemption to the Durbin Amendment, the BankMobile/Flagship company would face a material loss of interchange revenue, and may adverselyloans, which could negatively impact the combined company's ability to attract or retain other white label partners. While management believes it can successfully demonstrate that, as a result of shareholder turnover from regular market trading, the ownership of Flagship by holders of Customers Bancorp common stock receiving Flagship common stock in the Merger will decline to 24.9% or less through natural turnover of common stock ownership within three to four months after the transactions are completed, and that other qualitative conditions that could lead to a separate qualitative determination of control or significant influence are not present, a failure to qualify for the small debit card issuer exemption in the Durbin Amendment at December 31, 2018 would materially and adversely affect the combined company's revenues, ongoing business and ability to achieve BankMobile/Flagship’s future business plans. Furthermore, if BankMobile/Flagship does not qualify for the small debit card issuer exemption as of December 31, 2018, the combined company may not be able to qualify for the small debit card issuer exemption until at least the next measurement date, December 31, 2019, and may not be able to reinstitute the combined company's interchange fee levels until at least January 1, 2020.

our credit performance.

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 then 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 and ~~six~~nine months ended ~~June~~September 30, 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

On August 7, 2018, Customers Bancorp, Inc., Customers Bank, and BankMobile Technologies, Inc. agreed to a request from Flagship Community Bank (“Flagship”) for Flagship to withdraw their Bank Merger Act application (the “Application”) previously filed pursuant to the Amended and Restated Purchase and Assumption Agreement and Plan of Merger (the “Agreement”) from the Federal Deposit Insurance Corporation (“FDIC”) in order to address certain questions and comments expected to be received from the FDIC regarding the Application. Flagship also committed to complete and resubmit the Application to the FDIC as soon as practicable, which Flagship hopes to complete by September 30, 2018, with the understanding that Flagship has no obligation to proceed with the application beyond September 30, 2018 without an amendment to the Agreement extending the expiration date of the Agreement beyond September 30, 2018.None.

Item 6. Exhibits



Exhibit No.		Description

2.1		Letter Agreement, dated as of August 7, 2018, by and between Flagship Community Bank, BankMobile Technologies, Inc., Customers Bank and Customers Bancorp, Inc., incorporated by reference to Exhibit 3.8 to the Customers Bancorp Form 10Q filed with the SEC on August 9, 2018

3.1		Amended and Restated Articles of Incorporation of Customers Bancorp, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on April 30, 2012

3.2		Amended and Restated Bylaws of Customers Bancorp, incorporated by reference to Exhibit 3.2 to the Customers Bancorp Form 8-K filed with the SEC on April 30, 2012

3.3		Articles of Amendment to the Amended and Restated Articles of Incorporation of Customers Bancorp, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on July 2, 2012

3.4		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on May 18, 2015

3.5		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on January 29, 2016

3.6		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on April 28, 2016

3.7		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on September 16, 2016

~~3.8~~		~~Letter Agreement, dated as of August 7, 2018, by and between Flagship Community Bank, BankMobile Technologies, Inc., Customers Bank and Customers Bancorp, Inc.~~



4.1		Indenture, dated as of July 30, 2013, by and between Customers Bancorp, Inc., as Issuer, and Wilmington Trust, National Association, as Trustee, incorporated by reference to Exhibit 4.1 to the Customers Bancorp Form 8-K filed with the SEC on July 31, 2013

4.2		First Supplemental Indenture, dated as of July 30, 2013, by and between Customers Bancorp, Inc., as Issuer, and Wilmington Trust, National Association, as Trustee, incorporated by reference to Exhibit 4.2 to the Customers Bancorp Form 8-K filed with the SEC on July 31, 2013



4.3		6.375% Global Note in aggregate principal amount of $55,000,000, incorporated by reference to Exhibit 4.3 to the Customers Bancorp Form 8-K filed with the SEC on July 31, 2013

4.4		Amendment to First Supplemental Indenture, dated August 27, 2013, by and between Customers Bancorp, Inc. and Wilmington Trust Company, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Customers Bancorp Form 8-K filed with the SEC on August 29, 2013

4.5		6.375% Global Note in aggregate principal amount of $8,250,000, incorporated by reference to Exhibit 4.2 to the Customers Bancorp Form 8-K filed with the SEC on August 29, 2013

4.6		Form of Note Subscription Agreement (including form of Subordinated Note Certificate and Senior Note Certificate), incorporated by reference to Exhibit 10.1 to the Customers Bancorp Form 8-K filed with the SEC on June 26, 2014

4.7		Form of Warrant issued by Berkshire Bancorp, Inc., incorporated by reference to Exhibit 10.23 to the Customers Bancorp Form S-1/A filed with the SEC on April 25, 2012

4.8		Second Supplemental Indenture, dated as of June 30, 2017, by and between Customers Bancorp, Inc, as Issuer, and Wilmington Trust, National Association, As Trustee, incorporated by reference to Exhibit 4.1 to the Customers Bancorp Form 8-K filed with the SEC on June 30, 2017

31.1		Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule15d-14(a)

31.2		Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule15d-14(a)

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

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 report to be signed on its behalf by the undersigned thereunto duly authorized.



	Customers Bancorp, Inc.

~~August 8,~~November 13, 2018	By:	/s/ Jay S. Sidhu
	Name:	Jay S. Sidhu
	Title:	Chairman and Chief Executive Officer (Principal Executive Officer)



~~August 8,~~November 13, 2018	By:	/s/ Robert E. Wahlman
	Name:	Robert E. Wahlman
	Title:	Chief Financial Officer (Principal Financial Officer)

Exhibit Index



Exhibit No.		Description

2.1		Letter Agreement, dated as of August 7, 2018, by and between Flagship Community Bank, BankMobile Technologies, Inc., Customers Bank and Customers Bancorp, Inc., incorporated by reference to Exhibit 3.8 to the Customers Bancorp Form 10Q filed with the SEC on August 9, 2018

3.1		Amended and Restated Articles of Incorporation of Customers Bancorp, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on April 30, 2012

3.2		Amended and Restated Bylaws of Customers Bancorp, incorporated by reference to Exhibit 3.2 to the Customers Bancorp Form 8-K filed with the SEC on April 30, 2012

3.3		Articles of Amendment to the Amended and Restated Articles of Incorporation of Customers Bancorp, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on July 2, 2012

3.4		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on May 18, 2015

3.5		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on January 29, 2016

3.6		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on April 28, 2016

3.7		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on September 16, 2016

~~3.8~~		~~Letter Agreement, dated as of August 7, 2018, by and between Flagship Community Bank, BankMobile Technologies, Inc., Customers Bank and Customers Bancorp, Inc.~~

4.1		Indenture, dated as of July 30, 2013, by and between Customers Bancorp, Inc., as Issuer, and Wilmington Trust, National Association, as Trustee, incorporated by reference to Exhibit 4.1 to the Customers Bancorp Form 8-K filed with the SEC on July 31, 2013

4.2		First Supplemental Indenture, dated as of July 30, 2013, by and between Customers Bancorp, Inc., as Issuer, and Wilmington Trust, National Association, as Trustee, incorporated by reference to Exhibit 4.2 to the Customers Bancorp Form 8-K filed with the SEC on July 31, 2013

4.3		6.375% Global Note in aggregate principal amount of $55,000,000, incorporated by reference to Exhibit 4.3 to the Customers Bancorp Form 8-K filed with the SEC on July 31, 2013

4.4		Amendment to First Supplemental Indenture, dated August 27, 2013, by and between Customers Bancorp, Inc. and Wilmington Trust Company, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Customers Bancorp Form 8-K filed with the SEC on August 29, 2013

4.5		6.375% Global Note in aggregate principal amount of $8,250,000, incorporated by reference to Exhibit 4.2 to the Customers Bancorp Form 8-K filed with the SEC on August 29, 2013

4.6		Form of Note Subscription Agreement (including form of Subordinated Note Certificate and Senior Note Certificate), incorporated by reference to Exhibit 10.1 to the Customers Bancorp Form 8-K filed with the SEC on June 26, 2014

4.7		Form of Warrant issued by Berkshire Bancorp, Inc., incorporated by reference to Exhibit 10.23 to the Customers Bancorp Form S-1/A filed with the SEC on April 25, 2012

4.8		Second Supplemental Indenture, dated as of June 30, 2017, by and between Customers Bancorp, Inc, as Issuer, and Wilmington Trust, National Association, As Trustee, incorporated by reference to Exhibit 4.1 to the Customers Bancorp Form 8-K filed with the SEC on June 30, 2017

31.1		Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule15d-14(a)

31.2		Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or Rule15d-14(a)

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002




32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

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.

8591



	June 30, 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	$	—	$	—	$	—	$	1,343	$	3,539,640	$	1,787	$	3,542,770
Commercial and industrial	1,087		—		1,087		13,683		1,251,148		602		1,266,520
Commercial real estate - owner occupied	—		—		—		718		534,923		9,590		545,231
Commercial real estate - non-owner occupied	—		—		—		2,536		1,148,581		4,881		1,155,998
Construction	—		—		—		—		88,141		—		88,141
Residential real estate	2,174		—		2,174		5,606		480,381		5,061		493,222
Manufactured housing (5)	2,977		2,661		5,638		2,015		75,250		2,425		85,328
Other consumer	56		—		56		94		3,496		228		3,874
Total	$	6,294	$	2,661	$	8,955	$	25,995	$	7,121,560	$	24,574	$	7,181,084
	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 industrial	103		—		103		17,392		1,130,831		764		1,149,090
Commercial real estate - owner occupied	202		—		202		1,453		472,501		10,572		484,728
Commercial real estate - non-owner occupied	93		—		93		160		1,213,216		5,250		1,218,719
Construction	—		—		—		—		85,393		—		85,393
Residential real estate	7,628		—		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 consumer	116		—		116		31		3,184		216		3,547
Total	$	17,070	$	2,743	$	19,813	$	26,415	$	6,695,032	$	26,915	$	6,768,175



	Six Months Ended June 30, 2018
	Amount of Gain Recognized in OCI on Derivatives (1)		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain Reclassified from Accumulated OCI into Income
(amounts in thousands)
Derivative in cash flow hedging relationships:
Interest rate swaps	$	2,049	Interest expense	$	128