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 March 31, 2019~~


			For the quarterly period ended March 31, 2020


¨☐			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)

~~Customers Bancorp, Inc.~~



~~Pennsylvania~~Customers Bancorp, Inc.

~~27-2290659~~

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbols

Name of Each Exchange on which Registered

Voting Common Stock, par value $1.00 per share

CUBI

New York Stock Exchange

Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series C, par value $1.00 per share

CUBI/PC

New York Stock Exchange

Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series D, par value $1.00 per share

CUBI/PD

New York Stock Exchange

Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series E, par value $1.00 per share

CUBI/PE

New York Stock Exchange

Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series F, par value $1.00 per share

CUBI/PF

New York Stock Exchange

5.375% Subordinated Notes due 2034

CUBB

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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 every Interactive Data File required to be submitted 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 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

Accelerated filer

~~Large accelerated filer~~

~~Accelerated filer~~

Non-accelerated filer

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

~~Securities registered pursuant to Section 12(b) of the Act:~~



~~Title of Each Class~~	~~Trading Symbols~~	~~Name of Each Exchange on which Registered~~
~~Voting Common Stock, par value $1.00 per share~~	~~CUBI~~	~~New York Stock Exchange~~
~~Fixed-to-Floating Rate Non-Cumulative Perpetual~~ ~~Preferred Stock, Series C, par value $1.00 per share~~	~~CUBI/PC~~	~~New York Stock Exchange~~
~~Fixed-to-Floating Rate Non-Cumulative Perpetual~~ ~~Preferred Stock, Series D, par value $1.00 per share~~	~~CUBI/PD~~	~~New York Stock Exchange~~
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, par value $1.00 per share	~~CUBI/PE~~	~~New York Stock Exchange~~
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, par value $1.00 per share	~~CUBI/PF~~	~~New York Stock Exchange~~

~~Securities registered pursuant to Section 12(g) of the Act: None~~

________________________________________

On ~~May 3, 2019, 31,145,896~~April 30, 2020, 31,470,026 shares of Voting Common Stock were outstanding.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Table of Contents


Part I

~~Part I~~

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of March 31, ~~2019~~2020 and for the three month ~~periods~~period ended March 31, 2020 and 2019 ~~and 2018~~ (unaudited)		45

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		4447

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		6267

Item 4.		Controls and Procedures		6469

PART II

Item 1.		Legal Proceedings		6570

Item 1A.		Risk Factors		6570

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		6570

Item 3.		Defaults Upon Senior Securities		6671

Item 4.		Mine Safety Disclosures		6671

Item 5.		Other Information		6671

Item 6.		Exhibits		6775

SIGNATURES					6877

Ex-31.1

Ex-31.2

Ex-32.1

Ex-32.2

Ex-101

Table of Contents

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

The following list of abbreviations and acronyms may be used throughout this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Unaudited Consolidated Financial Statements and the Notes to the Unaudited Consolidated Financial Statements.



~~ASC~~2004 Plan			2012 Amendment and Restatement of the Customers Bancorp, Inc. Amended and Restated 2004 Incentive Equity and Deferred Compensation Plan
2010 Plan			2010 Stock Option Plan
2019 Plan			2019 Stock Incentive Plan
ACL			Allowance for credit losses
ASC			Accountings Standards Codification
ALLL			Allowance for loan and lease losses
AOCI			Accumulated other comprehensive income
~~Bancorp~~ASU			Accounting Standards Update
ATM			Automated teller machine
Bancorp			Customers Bancorp, Inc.
Bank			Customers Bank
~~BOLI~~BBB spread			BBB rated corporate bond spreads to U.S. Treasury securities
BHCA			Bank Holding Company Act of 1956, as amended
BMT			BankMobile Technologies, Inc.
BOLI			Bank-owned life insurance
~~CCF~~BRRP			Bonus Recognition and Retention Program
CCF			Customers Commercial Finance, LLC
CECL			Current expected credit loss
~~CPI~~CEO			Chief Executive Officer
CFO			Chief Financial Officer
CFPB			Consumer Financial Protection Bureau
COSO			Committee of Sponsoring Organizations of the Treadway Commission
CRA			Community Reinvestment Act
CPI			Consumer Price Index
CUBI			Symbol for Customers Bancorp, Inc. common stock traded on the NYSE
Customers			Customers Bancorp, Inc. and Customers Bank, collectively
Customers Bancorp			Customers Bancorp, Inc.
Department			Pennsylvania Department of Banking and Securities
~~DOE~~DIF			Deposit Insurance Fund
Dodd-Frank Act			Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOE			United States Department of Education
EGRRCPA			The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018
EPS			Earnings per share
~~EVE~~ESPP			Employee Stock Purchase Plan
EVE			Economic value of equity
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
FDICIA			Federal Deposit Insurance Corporation Improvement Act of 1991
Federal Reserve Board			Board of Governors of the Federal Reserve System
~~FHA~~FERPA			Family Educational Rights and Privacy Act of 1975
FHA			Federal Housing Administration
FHLB			Federal Home Loan Bank
~~FMV~~			~~Fair Market Value~~
FPRD			Final Program Review Determination
FRB			Federal Reserve Bank of Philadelphia
~~GLBA~~FTC Act			Federal Trade Commission Act
GDP			Gross domestic product
GNMA			Government National Mortgage Association
GLBA			Gramm-Leach-Bliley Act of 1999
~~IRS~~HECM			Home Equity Conversion Mortgage
HTM			Held to maturity
Interest-only GNMA securities			Interest-only classes of Ginnie Mae guaranteed home equity conversation mortgage-backed securities
IRS			Internal Revenue Service
~~LIHTC~~Legacy Loans			Total 2009 and prior loans
LIBOR			London Interbank Offered Rate

Table of Contents


LIHTC			Low-Income Housing Tax Credit
LPO			Limited Purpose Office
MMDA			Money market deposit accounts
NIM			Net interest margin, tax equivalent
~~Non-QM~~NM			~~Non-qualified mortgage~~Not meaningful
~~NPA~~Non-QM			~~Non-performing asset~~Non-qualified mortgage
~~NPL~~NPA			Non-performing ~~loan~~asset
~~OCI~~NPL			Non-performing loan
NPRM			Notice of Proposed Rulemaking
NYSE			New York Stock Exchange
OCC			Office of the Comptroller of the Currency
OCI			Other comprehensive income
~~OREO~~OFAC			Office of Foreign Assets Control
OIS			Overnight index swap
Order			Federal Deposit Insurance Act, as amended
OREO			Other real estate owned
OTTI			Other-than-temporary impairment
~~PCI~~PATRIOT Act			Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
PCAOB			Public Accounting Oversight Board (United States)
PCD			Purchased ~~Credit-Impaired~~with Credit Deterioration
~~ROU~~PCI			~~Right-of-use~~Purchased Credit-Impaired
~~SBA~~PPP			SBA Paycheck Protection Program
ROU			Right-of-use
SAB			Staff Accounting Bulletin
SAG			Special Assets Group
Sales Agreement			At Market Issuance Sales Agreement between Customers Bancorp and FBR Capital Markets & Co., Keefe, Bruyette & Woods, Inc. and Maxim Group LLC
SBA			Small Business Administration
SBA loans			Loans originated pursuant to the rules and regulations of the SBA
SEC			U.S. Securities and Exchange Commission
~~TDR~~







TDR			Troubled debt restructuring
TRAC			Terminal Rental Adjustment Clause
~~UDAAP~~			~~Unfair, Deceptive or Abusive Acts and Practices~~
U.S. GAAP			Accounting principles generally accepted in the United States of America
VA			United States Department of Veterans Affairs

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

(amounts in thousands, except share and per share data)


	March 31, 2019			December 31, 2018				March 31, 2020			December 31, 2019
ASSETS							ASSETS
Cash and due from banks	$	41,723		$	17,696		Cash and due from banks	$	18,842		$	33,095
Interest-earning deposits	75,939			44,439
Interest earning deposits							Interest earning deposits	237,390			179,410
Cash and cash equivalents	117,662			62,135			Cash and cash equivalents	256,232			212,505
Investment securities, at fair value	678,142			665,012
Loans held for sale (includes $1,602 and $1,507, respectively, at fair value)	1,602			1,507
Investment securities available for sale, at fair value							Investment securities available for sale, at fair value	712,657			595,876

Loans held for sale (includes $1,388 and $2,130, respectively, at fair value)							Loans held for sale (includes $1,388 and $2,130, respectively, at fair value)	450,157			486,328
Loans receivable, mortgage warehouse, at fair value	1,480,195			1,405,420			Loans receivable, mortgage warehouse, at fair value	2,518,012			2,245,758
Loans and leases receivable	7,264,049			7,138,074			Loans and leases receivable	7,353,262			7,318,988
Allowance for loan and lease losses	(43,679		)	(39,972		)
Total loans and leases receivable, net of allowance for loan and lease losses	8,700,565			8,503,522
Allowance for credit losses on loans and leases							Allowance for credit losses on loans and leases	(149,283)			(56,379)
Total loans and leases receivable, net of allowance for credit losses on loans and leases							Total loans and leases receivable, net of allowance for credit losses on loans and leases	9,721,991			9,508,367
FHLB, Federal Reserve Bank, and other restricted stock	80,416			89,685			FHLB, Federal Reserve Bank, and other restricted stock	87,140			84,214
Accrued interest receivable	35,716			32,955			Accrued interest receivable	40,570			38,072

Bank premises and equipment, net	10,542			11,063			Bank premises and equipment, net	8,890			9,389
Bank-owned life insurance	266,740			264,559			Bank-owned life insurance	273,576		��	272,546
Other real estate owned	976			816			Other real estate owned	131			173
Goodwill and other intangibles	16,173			16,499			Goodwill and other intangibles	14,870			15,195

Other assets	235,360			185,672			Other assets	452,585			298,052
Total assets	$	10,143,894		$	9,833,425		Total assets	$	12,018,799		$	11,520,717
LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:							Liabilities:
Deposits:							Deposits:
Demand, non-interest bearing	$	1,372,358		$	1,122,171		Demand, non-interest bearing	$	1,435,151		$	1,343,391
Interest-bearing	6,052,960			6,020,065
Interest bearing							Interest bearing	6,978,492			7,305,545
Total deposits	7,425,318			7,142,236			Total deposits	8,413,643			8,648,936

FRB advances							FRB advances	175,000			—
Federal funds purchased	388,000			187,000			Federal funds purchased	705,000			538,000
FHLB advances	1,025,832			1,248,070			FHLB advances	1,260,000			850,000
Other borrowings	123,963			123,871			Other borrowings	123,732			123,630
Subordinated debt	109,002			108,977			Subordinated debt	181,185			181,115

Accrued interest payable and other liabilities	93,406			66,455			Accrued interest payable and other liabilities	195,603			126,241
Total liabilities	9,165,521			8,876,609			Total liabilities	11,054,163			10,467,922
Commitments and contingencies (NOTE 13)
Commitments and contingencies (NOTE 14)							Commitments and contingencies (NOTE 14)
Shareholders’ equity:							Shareholders’ equity:
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018	217,471			217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,411,866 and 32,252,488 shares issued as of March 31, 2019 and December 31, 2018; 31,131,247 and 31,003,028 shares outstanding as of March 31, 2019 and December 31, 2018	32,412			32,252
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of March 31, 2020 and December 31, 2019							Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of March 31, 2020 and December 31, 2019	217,471			217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,750,645 and 32,614,410 shares issued as of March 31, 2020 and December 31, 2019; 31,470,026 and 31,336,791 shares outstanding as of March 31, 2020 and December 31, 2019							Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,750,645 and 32,614,410 shares issued as of March 31, 2020 and December 31, 2019; 31,470,026 and 31,336,791 shares outstanding as of March 31, 2020 and December 31, 2019	32,751			32,617
Additional paid in capital	436,713			434,314			Additional paid in capital	446,840			444,218
Retained earnings	328,476			316,651			Retained earnings	319,529			381,519
Accumulated other comprehensive loss, net	(14,919		)	(22,663		)	Accumulated other comprehensive loss, net	(30,175)			(1,250)
Treasury stock, at cost (1,280,619 and 1,249,460 shares as of March 31, 2019 and December 31, 2018)	(21,780		)	(21,209		)
Treasury stock, at cost (1,280,619 shares as of March 31, 2020 and December 31, 2019)							Treasury stock, at cost (1,280,619 shares as of March 31, 2020 and December 31, 2019)	(21,780)			(21,780)
Total shareholders’ equity	978,373			956,816			Total shareholders’ equity	964,636			1,052,795
Total liabilities and shareholders’ equity	$	10,143,894		$	9,833,425		Total liabilities and shareholders’ equity	$	12,018,799		$	11,520,717

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) — UNAUDITED

(amounts in thousands, except per share data)


	Three Months Ended March 31,					Three Months Ended March 31,
	2019		2018			2020		2019
Interest income:					Interest income:
Loans and leases	$	93,116	$	85,931	Loans and leases	$	116,080	$	93,116

Investment securities	6,241		8,672		Investment securities	4,977		6,241
Other	1,718		2,361		Other	4,286		1,718
Total interest income	101,075		96,964		Total interest income	125,343		101,075
Interest expense:					Interest expense:
Deposits	31,225		19,793		Deposits	34,353		31,225
FHLB advances	5,293		7,080		FHLB advances	5,390		5,293
Subordinated debt	1,684		1,684		Subordinated debt	2,689		1,684
Other borrowings	3,569		3,376
Federal funds purchased and other borrowings					Federal funds purchased and other borrowings	1,590		3,569
Total interest expense	41,771		31,933		Total interest expense	44,022		41,771
Net interest income	59,304		65,031		Net interest income	81,321		59,304
Provision for loan and lease losses	4,767		2,117
Net interest income after provision for loan and lease losses	54,537		62,914
Provision for credit losses on loans and leases					Provision for credit losses on loans and leases	31,786		4,767
Net interest income after provision for credit losses on loans and leases					Net interest income after provision for credit losses on loans and leases	49,535		54,537
Non-interest income:					Non-interest income:

Interchange and card revenue	8,806		9,661		Interchange and card revenue	6,809		8,806

Deposit fees	2,209		2,092		Deposit fees	3,460		2,209
Commercial lease income	2,401		862		Commercial lease income	4,268		2,401
Bank-owned life insurance	1,816		2,031		Bank-owned life insurance	1,762		1,816
Mortgage warehouse transactional fees	1,314		1,887		Mortgage warehouse transactional fees	1,952		1,314
Gain (loss) on sale of SBA and other loans	—		1,361		Gain (loss) on sale of SBA and other loans	11		—
Mortgage banking income	167		121		Mortgage banking income	296		167

Gain (loss) on sale of investment securities					Gain (loss) on sale of investment securities	3,974		—
Unrealized gain (loss) on investment securities					Unrealized gain (loss) on investment securities	(1,378)		2
Other	3,005		2,895		Other	776		3,003
Total non-interest income	19,718		20,910		Total non-interest income	21,930		19,718
Non-interest expense:					Non-interest expense:
Salaries and employee benefits	25,823		24,925		Salaries and employee benefits	28,310		25,823
Technology, communication, and bank operations	11,953		9,943
Technology, communication and bank operations					Technology, communication and bank operations	13,050		11,953
Professional services	4,573		6,008		Professional services	7,670		4,573
Occupancy	2,903		2,834		Occupancy	3,032		2,903
Commercial lease depreciation	1,923		815		Commercial lease depreciation	3,427		1,923
FDIC assessments, non-income taxes, and regulatory fees	1,988		2,200		FDIC assessments, non-income taxes, and regulatory fees	2,867		1,988
Provision for operating losses	1,779		1,526		Provision for operating losses	912		1,779
Advertising and promotion	809		390		Advertising and promotion	1,641		809
Merger and acquisition related expenses	—		106		Merger and acquisition related expenses	50		—
Loan workout	320		659		Loan workout	366		320
Other real estate owned expenses	57		40
Other real estate owned					Other real estate owned	8		57
Other	1,856		2,834		Other	5,126		1,856
Total non-interest expense	53,984		52,280		Total non-interest expense	66,459		53,984
Income before income tax expense	20,271		31,544		Income before income tax expense	5,006		20,271
Income tax expense	4,831		7,402		Income tax expense	1,906		4,831

Net income	15,440		24,142		Net income	3,100		15,440
Preferred stock dividends	3,615		3,615		Preferred stock dividends	3,615		3,615
Net income available to common shareholders	$	11,825	$	20,527
Basic earnings per common share	$	0.38	$	0.65
Diluted earnings per common share	$	0.38	$	0.64
Net income (loss) available to common shareholders					Net income (loss) available to common shareholders	$	(515)	$	11,825

Basic earnings (loss) per common share					Basic earnings (loss) per common share	$	(0.02)	$	0.38

Diluted earnings (loss) per common share					Diluted earnings (loss) per common share	$	(0.02)	$	0.38

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED

(amounts in thousands)

Three Months Ended
March 31,
2019 2018
Net income $ 15,440
$ 24,142
Unrealized gains (losses) on available-for-sale debt securities:
Unrealized gains (losses) arising during the period 17,817
(34,098 )
Income tax effect (4,632 ) 8,865
Net unrealized gains (losses) on available-for-sale debt securities 13,185
(25,233 )
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period (6,939 ) 873
Income tax effect 1,804
(227 )
Reclassification adjustment for (gains) losses included in net income (413 ) 131
Income tax effect 107
(34 )
Net unrealized gains (losses) on cash flow hedges (5,441 ) 743
Other comprehensive income (loss), net of income tax effect 7,744
(24,490 )
Comprehensive income (loss) $ 23,184
$ (348 )


	Three Months Ended March 31,
	2020		2019


Net income	$	3,100	$	15,440
Unrealized gains (losses) on available for sale debt securities:
Unrealized gains (losses) arising during the period	(9,098)		17,817
Income tax effect	2,366		(4,632)
Reclassification adjustments for (gains) losses on securities included in net income	(3,974)		—
Income tax effect	1,033		—
Net unrealized gains (losses) on available for sale debt securities	(9,673)		13,185
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	(27,697)		(6,939)
Income tax effect	7,351		1,804
Reclassification adjustment for (gains) losses included in net income	1,478		(413)
Income tax effect	(384)		107
Net unrealized gains (losses) on cash flow hedges	(19,252)		(5,441)
Other comprehensive income (loss), net of income tax effect	(28,925)		7,744
Comprehensive income (loss)	$	(25,825)	$	23,184

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(amounts in thousands, except shares outstanding data)


	Three Months Ended March 31, 2019																						Three Months Ended March 31, 2020
	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 Income (Loss)		Treasury Stock		Total
Balance, December 31, 2018	9,000,000	$	217,471	31,003,028		$	32,252	$	434,314	$	316,651		$	(22,663	)	$	(21,209	)	$	956,816
Balance, December 31, 2019																						Balance, December 31, 2019	9,000,000	$	217,471	31,336,791	$	32,617	$	444,218	$	381,519	$	(1,250)	$	(21,780)	$	1,052,795

Cumulative effect from change in accounting principle - CECL																						Cumulative effect from change in accounting principle - CECL	—	—		—	—		—		(61,475)		—		—		(61,475)
Net income	—	—		—		—		—		15,440			—			—			15,440			Net income	—	—		—	—		—		3,100		—		—		3,100

Other comprehensive income (loss)	—	—		—		—		—		—			7,744			—			7,744			Other comprehensive income (loss)	—	—		—	—		—		—		(28,925)		—		(28,925)
Preferred stock dividends	—	—		—		—		—		(3,615		)	—			—			(3,615		)

Preferred stock dividends⁽¹⁾																						Preferred stock dividends⁽¹⁾	—	—		—	—		—		(3,615)		—		—		(3,615)
Share-based compensation expense	—	—		—		—		2,109		—			—			—			2,109			Share-based compensation expense	—	—		—	—		3,228		—		—		—		3,228

Issuance of common stock under share-based compensation arrangements	—	—		159,378		160		290		—			—			—			450			Issuance of common stock under share-based compensation arrangements	—	—		133,235	134		(606)		—		—		—		(472)
Repurchase of common shares	—	—		(31,159	)	—		—		—			—			(571		)	(571		)
Balance, March 31, 2019	9,000,000	$	217,471	31,131,247		$	32,412	$	436,713	$	328,476		$	(14,919	)	$	(21,780	)	$	978,373

Balance, March 31, 2020																						Balance, March 31, 2020	9,000,000	$	217,471	31,470,026	$	32,751	$	446,840	$	319,529	$	(30,175)	$	(21,780)	$	964,636

	Three Months Ended March 31, 2018																						Three Months Ended March 31, 2019
	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 Income (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, December 31, 2018																						Balance, December 31, 2018	9,000,000	$	217,471	31,003,028	$	32,252	$	434,314	$	316,651	$	(22,663)	$	(21,209)	$	956,816

Net income	—	—		—		—		—		24,142			—			—			24,142			Net income	—	—		—	—		—		15,440		—		—		15,440

Other comprehensive income (loss)	—	—		—		—		—		—			(24,490		)	—			(24,490		)	Other comprehensive income (loss)	—	—		—	—		—		—		7,744		—		7,744
Preferred stock dividends	—	—		—		—		—		(3,615		)	—						(3,615		)

Preferred stock dividends⁽¹⁾																						Preferred stock dividends⁽¹⁾	—	—		—	—		—		(3,615)		—				(3,615)
Share-based compensation expense	—	—		—		—		1,786		—			—			—			1,786			Share-based compensation expense	—	—		—	—		2,109		—		—		—		2,109
Exercise of warrants	—	—		5,242		5		107		—			—			—			112

Issuance of common stock under share-based compensation arrangements	—	—		78,526		79		110		—			—			—			189			Issuance of common stock under share-based compensation arrangements	—	—		159,378	160		290		—		—		—		450
Balance, March 31, 2018	9,000,000	$	217,471	31,466,271		$	31,997	$	424,099	$	279,942		$	(26,188	)	$	(8,233	)	$	919,088
Repurchase of common shares																						Repurchase of common shares	—	—		(31,159)	—		—		—		—		(571)		(571)
Balance, March 31, 2019																						Balance, March 31, 2019	9,000,000	$	217,471	31,131,247	$	32,412	$	436,713	$	328,476	$	(14,919)	$	(21,780)	$	978,373

(1)Dividends per share of $0.4375, $0.40625, $0.403125, and $0.375 per share were declared on Series C, D, E, and F preferred stock for the three months ended March 31, 2020 and 2019, respectively.

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)


	Three Months Ended March 31,							Three Months Ended March 31,
	2019			2018				2020		2019
Cash Flows from Operating Activities							Cash Flows from Operating Activities
Net income	$	15,440		$	24,142		Net income	$	3,100	$	15,440
Adjustments to reconcile net income to net cash provided by (used in) operating activities:							Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan and lease losses	4,767			2,117
Provision for credit losses on loan and lease losses							Provision for credit losses on loan and lease losses	31,786		4,767
Depreciation and amortization	4,287			3,344			Depreciation and amortization	7,406		4,287
Share-based compensation expense	2,381			2,218			Share-based compensation expense	3,463		2,381
Deferred taxes	1,878			2,684			Deferred taxes	(22,287)		1,878
Net amortization of investment securities premiums and discounts	191			375
Unrealized (gain) loss on equity securities	(2		)	(10		)
Net amortization (accretion) of investment securities premiums and discounts							Net amortization (accretion) of investment securities premiums and discounts	251		191
Unrealized (gain) loss on investment securities							Unrealized (gain) loss on investment securities	1,378		(2)
(Gain) loss on sale of investment securities							(Gain) loss on sale of investment securities	(3,974)		—

(Gain) loss on sale of SBA and other loans	(138		)	(1,477		)	(Gain) loss on sale of SBA and other loans	(170)		(138)
Origination of loans held for sale	(8,182		)	(4,280		)	Origination of loans held for sale	(7,046)		(8,182)
Proceeds from the sale of loans held for sale	8,225			5,599			Proceeds from the sale of loans held for sale	7,948		8,225
Amortization of fair value discounts and premiums	162			76
Valuation and other adjustments to other real estate owned	—			41

Amortization (accretion) of fair value discounts and premiums							Amortization (accretion) of fair value discounts and premiums	(378)		162
Net (gain) loss on sales of other real estate owned							Net (gain) loss on sales of other real estate owned	(4)		—

Earnings on investment in bank-owned life insurance	(1,816		)	(2,031		)	Earnings on investment in bank-owned life insurance	(1,762)		(1,816)
(Increase) decrease in accrued interest receivable and other assets	(28,109		)	(6,806		)	(Increase) decrease in accrued interest receivable and other assets	(93,856)		(28,109)
Increase (decrease) in accrued interest payable and other liabilities	(5,096		)	7,347			Increase (decrease) in accrued interest payable and other liabilities	39,004		(5,096)
Net Cash Provided By (Used In) Operating Activities	(6,012		)	33,339
Net Cash Used In Operating Activities							Net Cash Used In Operating Activities	(35,141)		(6,012)
Cash Flows from Investing Activities							Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of securities available for sale	4,498			11,489
Proceeds from maturities, calls and principal repayments of investment securities							Proceeds from maturities, calls and principal repayments of investment securities	24,079		4,498

Purchases of investment securities available for sale	—			(756,242		)	Purchases of investment securities available for sale	(158,782)		—
Origination of mortgage warehouse loans	(5,039,797		)	(6,804,177		)	Origination of mortgage warehouse loans	(9,791,820)		(5,039,797)
Proceeds from repayments of mortgage warehouse loans	4,965,022			6,722,732			Proceeds from repayments of mortgage warehouse loans	9,520,758		4,965,022
Net increase (decrease) in loans and leases, excluding mortgage warehouse loans	1,932			(46,969		)
Proceeds from sales of loans	—			16,468
Net (increase) decrease in loans and leases, excluding mortgage warehouse loans							Net (increase) decrease in loans and leases, excluding mortgage warehouse loans	174,971		1,932

Purchase of loans	(129,289		)	—			Purchase of loans	(193,363)		(129,289)
Proceeds from bank-owned life insurance	—			529

Net proceeds from (purchases of) FHLB, Federal Reserve Bank, and other restricted stock	9,269			(24,384		)	Net proceeds from (purchases of) FHLB, Federal Reserve Bank, and other restricted stock	(2,926)		9,269

Purchases of bank premises and equipment	(141		)	(268		)	Purchases of bank premises and equipment	(127)		(141)
Proceeds from sales of other real estate owned							Proceeds from sales of other real estate owned	77		—

Purchases of leased assets under lessor operating leases	(7,791		)	(2,755		)	Purchases of leased assets under lessor operating leases	(6,384)		(7,791)
Net Cash Provided By (Used In) Investing Activities	(196,297		)	(883,577		)
Net Cash Used In Investing Activities							Net Cash Used In Investing Activities	(433,517)		(196,297)
Cash Flows from Financing Activities							Cash Flows from Financing Activities
Net increase in deposits	283,082			242,317
Net (decrease) increase in deposits							Net (decrease) increase in deposits	(235,293)		283,082
Net increase (decrease) in short-term borrowed funds from the FRB							Net increase (decrease) in short-term borrowed funds from the FRB	175,000		—
Net increase (decrease) in short-term borrowed funds from the FHLB	(222,238		)	640,755			Net increase (decrease) in short-term borrowed funds from the FHLB	410,000		(222,238)
Net increase (decrease) in federal funds purchased	201,000			40,000			Net increase (decrease) in federal funds purchased	167,000		201,000

Preferred stock dividends paid	(3,615		)	(3,615		)	Preferred stock dividends paid	(3,615)		(3,615)
Exercise of warrants	—			112

Purchase of treasury stock	(571		)	—			Purchase of treasury stock	—		(571)
Payments of employee taxes withheld from share-based awards	(894		)	(587		)	Payments of employee taxes withheld from share-based awards	(932)		(894)
Proceeds from issuance of common stock	1,072			344			Proceeds from issuance of common stock	225		1,072
Net Cash Provided By (Used In) Financing Activities	257,836			919,326
Net Cash Provided By Financing Activities							Net Cash Provided By Financing Activities	512,385		257,836

Net Increase (Decrease) in Cash and Cash Equivalents	55,527			69,088			Net Increase (Decrease) in Cash and Cash Equivalents	43,727		55,527
Cash and Cash Equivalents – Beginning	62,135			146,323			Cash and Cash Equivalents – Beginning	212,505		62,135
Cash and Cash Equivalents – Ending	$	117,662		$	215,411		Cash and Cash Equivalents – Ending	$	256,232	$	117,662

								(continued)


	(continued)							Three Months Ended March 31,
								2020		2019
Supplementary Cash Flows Information:
Supplementary Cash Flow Information							Supplementary Cash Flow Information
Interest paid	$	38,916		$	29,746		Interest paid	$	42,167	$	38,916
Income taxes paid	1,204			4,174			Income taxes paid	661		1,204
Non-cash items:
Non-cash Operating and Investing Activities:							Non-cash Operating and Investing Activities:
Transfer of loans to other real estate owned	$	160		$	57		Transfer of loans to other real estate owned	$	31	$	160
Transfer of loans held for sale to held for investment	—			129,691
University relationship intangible purchased not settled	—			1,502

Unsettled sales of investment securities							Unsettled sales of investment securities	104,469		—
Unsettled purchases of investment securities							Unsettled purchases of investment securities	97,247		—

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF THE BUSINESS

Customers Bancorp, Inc. ~~(the “Bancorp” or “Customers~~(“Customers Bancorp”) is a bank holding company engaged in banking activities through its wholly owned subsidiary, Customers Bank ~~(the “Bank”~~("the Bank”), collectively referred to as “Customers” herein. ~~The consolidated financial statements have been prepared in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC.~~

Customers Bancorp ~~Inc.~~ and its wholly owned subsidiaries, ~~Customers~~the 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 ~~equipment leases~~ and other financial products, including equipment finance leases, to customers through its limited-purpose offices in Boston, ~~Massachusetts,~~Massachusetts; Providence, Rhode ~~Island,~~Island; Portsmouth, New ~~Hampshire,~~Hampshire; Manhattan and Melville, New ~~York,~~York; Philadelphia, ~~Pennsylvania,~~Pennsylvania; Washington, D.C.,; and Chicago, Illinois. The Bank also ~~provides liquidity to residential mortgage originators~~serves specialty niche businesses nationwide, ~~through~~including its commercial loans to mortgage banking businesses, commercial equipment financing, specialty lending and consumer loans through relationships with fintech companies. ~~Through~~In addition, BankMobile, a division of Customers Bank, ~~Customers~~ offers ~~state of the art high tech~~state-of-the-art high-tech digital banking services to consumers, students and the "under banked" nationwide, along with "Banking as a Service" offerings with white label partners.

~~Customers~~The Bank 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 — 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. The December 31, ~~2018~~2019 consolidated balance sheet presented in this report has been derived from Customers Bancorp’s audited ~~2018~~2019 consolidated financial statements. 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 ~~2018~~2019 consolidated financial statements of Customers Bancorp and subsidiaries included in Customers' Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC on March ~~1, 2019~~2, 2020 (the ~~"2018~~"2019 Form 10-K"). The ~~2018~~2019 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 - Mortgage Warehouse, at Fair Value; Loans and Leases Receivable; Purchased Loans; ALLL; Goodwill and Other Intangible Assets; FHLB, Federal Reserve Bank, and Other Restricted Stock; OREO; BOLI; Bank Premises and Equipment; Lessor Operating Leases; Treasury Stock; Income Taxes; Share-Based Compensation; Transfer of Financial Assets; Segment Information; Derivative Instruments and Hedging; Comprehensive Income (Loss); EPS; Loss Contingencies; and Collaborative Arrangements. There have been no material changes to Customers Bancorp's significant accounting policies noted above for the three months ended March 31, ~~2019, with the exception of~~2020, except for the adoption of ASU ~~2016-02,~~ ~~Leases~~ ~~as described~~2016-13 Financial Instruments - Credit Losses ("ASC 326"): Measurement of Credit Losses on Financial Instruments, which is discussed below in ~~accounting standards adopted in 2019. Results for interim periods are not necessarily indicative~~Adoption of ~~those that may be expected for the fiscal year.~~New Accounting Standard, and replaces our prior ALLL policy.

New Accounting Standards

Presented below are recently issued accounting standards that Customers has adopted as well as those that the FASB has issued but are not yet effective.

~~Recently Issued Accounting Standards~~

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Accounting Standards Adopted in 2020

Allowance for Credit Losses

On January 1, 2020, Customers adopted ASC 326, which replaced the incurred loss methodology with an expected loss methodology that is referred to as CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and net investments in leases recognized by Customers as a lessor in accordance with ASC 842. CECL also applies to off-balance sheet credit exposures not accounted for as insurance, such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. ASC 326 also made changes to the accounting for AFS debt securities, which now requires credit losses to be presented as an allowance, rather than as a write-down on AFS debt securities that management does not intend to sell or believes that it is more likely than not they will not be required to sell.

Customers adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, net investments in leases, and off-balance sheet credit exposures. Results for reporting periods beginning after December 31, 2019 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. Customers recorded a net decrease to retained earnings of $61.5 million, net of deferred taxes of $21.5 million, as of January 1, 2020 for the cumulative effect of adopting ASC 326. Customers adopted ASC 326 using the prospective transition approach for PCD financial assets that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, Customers did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $0.2 million of the allowance for credit losses on PCD loans and leases. The remaining noncredit discount of $0.3 million, based on the adjusted amortized cost basis, will be accreted into interest income at the effective interest rate as of January 1, 2020.

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The following table illustrates the impact of adopting ASC 326:

(amounts in thousands)



	Pre-ASC 326 Adoption		Impact of ASC 326 Adoption		As Reported Under ASC 326
Assets
Loans receivable, mortgage warehouse, at fair value	$	2,245,758	$	—	$	2,245,758
Loans and leases receivable
Multi-family	1,907,331		7		1,907,338
Commercial and industrial	1,891,152		3		1,891,155
Commercial real estate owner occupied	551,948		100		552,048
Commercial real estate non-owner occupied	1,222,772		41		1,222,813
Construction	117,617		—		117,617
Total commercial loans and leases receivable	5,690,820		151		5,690,971
Residential real estate	382,634		32		382,666
Manufactured housing	71,359		37		71,396
Other consumer	1,174,175		12		1,174,187
Total consumer loans receivable	1,628,168		81		1,628,249
Loans and leases receivable	7,318,988		232		7,319,220
Allowance for credit losses on loans and leases	(56,379)		(79,829)		(136,208)
Total loans and leases receivable, net of allowance for credit losses on loans and leases	9,508,367		(79,596)		9,428,771
Liabilities
Allowance for credit losses on lending-related commitments	49		3,388		3,437
Net deferred tax (asset) liability	11,740		(21,510)		(9,770)
Equity
Retained earnings	$	381,519	$	(61,475)	$	320,044

Allowance for Credit Losses on Loans and Leases

The allowance for credit losses on loans and leases is a valuation account that is deducted from the loan or lease’s amortized cost basis to present the net amount expected to be collected on the loans and leases. Loans and leases deemed to be uncollectible are charged against the allowance for credit losses on loans and leases, and subsequent recoveries, if any, are credited to the allowance for credit losses on loans and leases. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Changes to the allowance for credit losses on loans and leases are recorded through the provision for credit losses on loans and leases. The allowance for credit losses on loans and leases is maintained at a level considered appropriate to absorb expected credit losses over the expected life of the portfolio as of the reporting date.

The allowance for credit losses on loans and leases is measured on a collective (pool) basis when similar risk characteristics exist. Customers' loan portfolio segments include commercial and consumer. Each of these two loan portfolio segments is comprised of multiple loan classes. Loan classes are characterized by similarities in loan type, collateral type, risk attributes and the manner in which credit risk is assessed and monitored. The commercial segment is composed of multi-family, commercial and industrial, commercial real estate owner occupied, commercial real estate non-owner occupied and construction loan classes. The consumer segment is composed of residential real estate, manufactured housing and other consumer. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. For individually assessed loans, see related details in the Individually Assessed Loans section below.

The allowance for credit losses on collectively assessed loans and leases is measured over the expected life of the loan or lease using lifetime loss rate models which consider historical loan performance, loan or borrower attributes and forecasts of future economic

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conditions in addition to information about past events and current conditions. Significant loan/borrower attributes utilized in the models include origination date, maturity date, collateral property type, internal risk rating, delinquency status, borrower state and FICO score at origination. Customers uses external sources in the creation of its forecasts, including current economic conditions and forecasts for macroeconomic variables over its reasonable and supportable forecast period (e.g., GDP growth rate, unemployment rate, BBB spread, commercial real estate and home price index). After the reasonable and supportable forecast period, which ranges from two to five years, the models revert the forecasted macroeconomic variables to their historical long-term trends, without specific predictions for the economy, over the expected life of the pool. The lifetime loss rate models also incorporate prepayment assumptions into estimated lifetime loss rates. Customers runs the CECL impairment models on a quarterly basis and qualitatively adjusts model results for risk factors that are not considered within the models but which are relevant in assessing the expected credit losses within the loan and lease pools. Management generally considers the following qualitative factors:

•Volume and severity of past-due loans, non-accrual loans and classified loans;

•Lending policies and procedures, including underwriting standards and historically based loss/collection, charge-off and recovery practices;

•Nature and volume of the portfolio;

•Existence and effect of any credit concentrations and changes in the level of such concentrations;

•Risk ratings;

•The value of the underlying collateral for loans that are not collateral dependent;

•Changes in the quality of the loan review system;

•Experience, ability and depth of lending management and staff;

•Other external factors, such as changes in legal, regulatory or competitive environment; and

•Model and data limitations.

Customers has elected to not estimate an allowance for credit losses on accrued interest receivable, as it already has a policy in place to reverse or write-off accrued interest, through interest income, in a timely manner. Accrued interest receivable is presented as part of other assets in the consolidated balance sheet.

Purchased Credit Deteriorated (“PCD”) Loans and Leases

PCD assets are acquired individual loans and leases (or acquired groups of loans and leases with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by an acquirer’s assessment. PCD loans and leases are recorded at their purchase price plus the allowance for credit losses expected at the time of acquisition, or “gross up” of the amortized cost basis. The January 1, 2020 transition adjustment discussed above was established for these loans and leases without affecting the income statement or retained earnings. Changes in the current estimate of the allowance for credit losses after acquisition from the estimated allowance previously recorded are reported in the income statement as provision for credit losses expense or reversal of provision for credit losses in subsequent periods as they arise. Purchased loans or leases that do not qualify as PCD assets are accounted for similar to originated assets, whereby an allowance for credit losses is recognized with a corresponding increase to the income statement provision for credit losses. Evidence that purchased loans and leases, measured at amortized cost, have more-than-insignificant deterioration in credit quality since origination and, therefore meet the PCD definition, may include loans and leases that are past-due, in non-accrual status, poor borrower credit score, recent loan-to-value percentages and other standard indicators (i.e., TDR, charge-offs and bankruptcy).

Allowance for Credit Losses on Lending-Related Commitments

Customers estimates expected credit losses over the contractual period in which it is exposed to credit risk on contractual obligations to extend credit, unless the obligation is unconditionally cancellable by Customers. The allowance for credit losses on lending-related commitments is recorded in accrued interest payable and other liabilities in the consolidated balance sheet and is recorded as a provision for credit losses within other non-interest expense in the consolidated income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. Customers estimates the expected credit losses for undrawn commitments using a usage given default calculation. The lifetime loss rates for off-balance sheet credit exposures are calculated in the same manner as on-balance sheet credit exposures, using the same models and economic forecasts, adjusted for the estimated likelihood that funding will occur.

Individually Assessed Loans and Leases

ASC 326 provides that a loan or lease is measured individually if it does not share similar risk characteristics with other financial assets. For Customers, loans and leases which are identified to be individually assessed under CECL typically would have been evaluated

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individually as impaired loans using accounting guidance in effect in periods prior to the adoption of CECL and include troubled debt restructurings (TDRs) and collateral dependent loans.

TDRs

A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties is considered to be a TDR. The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except in cases when the value of a concession cannot be measured using a method other than the discounted cash flow (“DCF”) method. When the value of a concession is measured using the DCF method, the allowance for credit loss is determined by discounting the expected future cash flows at the original effective interest rate of the loan.

Collateral Dependent Loans

Customers considers a loan to be collateral dependent when foreclosure of the underlying collateral is probable. Customers has also elected to apply the practical expedient to measure expected credit losses of a collateral dependent asset using the fair value of the collateral, less any estimated costs to sell, when foreclosure is not probable but repayment of the loan is expected to be provided substantially through the operation or sale of the collateral, and the borrower is experiencing financial difficulty.

Allowance for Credit Losses on Available for Sale Securities

For AFS debt securities in an unrealized loss position, Customers first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, Customers evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses on AFS securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses on AFS securities is recognized in other comprehensive income.

Changes in the allowance for credit losses on AFS securities are recorded as provision, or reversal of provision for credit losses on AFS securities in other non-interest income within the consolidated income statement. Losses are charged against the allowance for credit losses on AFS securities when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on AFS debt securities totaled $4.7 million at March 31, 2020 and is excluded from the estimate of credit losses.

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Other Accounting Standards Adopted in 2020

Standard

Summary of guidance

Effects on Financial Statements

~~Standard~~

~~Summary of guidance~~

~~Effects on Financial Statements~~

~~ASU 2016-02,~~

~~Leases~~

~~Issued February 2016~~

Ÿ ~~Supersedes the lease accounting guidance for both lessees and lessors under ASC 840,~~ ~~Leases.~~

Ÿ From the lessee's perspective, the new standard establishes a 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 requires 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 January 1, 2019.~~

Ÿ In 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. Prior to this ASU issuance, a modified retrospective transition approach was required.

Ÿ In December 2018, the FASB issued ASU 2018-20 "Leases (Topic 842): Narrow-Scope Improvements for Lessors," which provides lessors a policy election to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Additionally, the update requires certain lessors to exclude from variable payments lessor costs paid by lessees directly to third parties.

Ÿ In March 2019, the FASB issued ASU 2019-01 "Codification Improvements," which clarifies that lessors who are not manufacturers or dealers should use the original cost of the underlying asset in a lease as its fair value. Additionally, the update states that lessors who are depository or lending institutions within the scope of ASC 942 should present all principal payments received under leases under investing activities in their Statement of Cash Flows and that interim disclosures under ASC 250-10-50-3 are not required in the interim reports of issuers adopting ASC 842.

Ÿ ~~Customers adopted on January 1, 2019.~~

Ÿ ~~The adoption did not materially change Customers' recognition of operating lease expense in its consolidated statements of income.~~

Ÿ Customers adopted certain practical expedients available under the new guidance, which did 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, (3) reassess initial direct costs for any existing leases, (4) separate non-lease components from the associated lease components, (5) evaluate whether certain sales taxes and other similar taxes are lessor costs, and (6) capitalize short-term leases. Additionally, Customers elected to apply the new lease guidance at the adoption date, rather than at the beginning of the earliest period presented and will continue to present comparative periods prior to January 1, 2019 under Topic 840. Customers did not adopt the hindsight practical expedient.

Ÿ The adoption of the ASU for Customers' lessor equipment finance business did not have a significant impact on Customers' financial condition, results of operations, and consolidated financial statements.

Ÿ ~~See NOTE 7 - LEASES.~~

~~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 on January 1, 2019.~~
Ÿ  ~~Adoption of this new guidance must be applied on a modified retrospective approach.~~

Ÿ ~~Customers adopted on January 1, 2019.~~

Ÿ ~~The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.~~

~~Accounting Standards Adopted in 2019 (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 EPS. Ÿ ~~Effective January 1, 2019.~~	Ÿ ~~Customers adopted on January 1, 2019.~~ Ÿ ~~The adoption did not have a significant impact on Customers' 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 January 1, 2019.~~	Ÿ ~~Customers adopted on January 1, 2019.~~ Ÿ ~~The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.~~

~~Accounting Standards Issued But Not Yet Adopted~~

~~Standard~~

~~Summary of guidance~~

~~Effects on Financial Statements~~

ASU 2019-04,

Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

Issued April 2019

Ÿ• Clarifies the scope of the credit losses standard and addresses issues related to accrued interest receivable balances, recoveries, variable interest rates, and prepayments.

Ÿ• Addresses partial-term fair value hedges, fair value hedge basis adjustments and certain transition requirements.

Ÿ• Addresses recognizing and measuring financial instruments, specifically the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates.

Ÿ• Topic 326 Amendments - Effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption permitted. Topic 815 Amendments - Effective for first annual period beginning after the issuance date of this ASU (i.e., fiscal year 2020). Entities that have already adopted the amendments in ASU 2017-12 may elect either to retrospectively apply all the amendments or to prospectively apply all amendments as of the date of adoption. Topic 825 Amendments - Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Ÿ• Customers ~~is currently evaluating the expected impact~~adopted on January 1, 2020.

• The adoption of this ~~ASU~~guidance relating to Topics 815 and 825 did not have a material impact on ~~its~~Customers' financial condition, results of operations and consolidated financial statements.Please refer to ASU 2016-13 for further discussion on Customers' adoption of ASU 2016-13 (Topic 326).

ASU 2018-18,

Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606

Issued November 2018

Ÿ• Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements.

Ÿ• Adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within scope of Topic 606.

Ÿ• Requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer.

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~~adopted on January 1, 2020.

•The adoption of this ~~ASU~~guidance did not have a material impact on ~~its~~Customers' financial condition, results of operations and consolidated financial statements.

~~Accounting Standards Issued But Not Yet Adopted (continued)~~

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Other Accounting Standards Adopted in 2020 (continued)

~~Standard~~

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 adopted on January 1, 2020.

• The adoption of this guidance did not have a material impact on Customers' financial condition, results of operations and consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

Standard

Summary of guidance

Effects on Financial Statements

ASU 2020-04,
Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Issued March 2020

• Provides optional guidance for a limited period of time to ease the potential burden in accounting for (or derecognizing the effects of) reference rate reform on financial reporting. Specifically, the amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These relate only to those contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

• Effective as of March 12, 2020 and can be adopted anytime during the period of January 1, 2020 through December 31, 2022.

• Customers intends to adopt this guidance during adoption period and is currently evaluating the expected impact of this ASU on its financial condition, results of operations and consolidated 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 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 held to maturity 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 PCI 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.~~

~~ASC 842.~~

Ÿ  Customers has established a company-wide, cross-discipline governance structure, which provides implementation oversight and continues evaluating the impact of this ASU and reviewing the loss modeling requirements consistent with lifetime expected loss estimates.
Ÿ  Customers 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 contractual term adjusted for prepayments and will consider expected future changes in macroeconomic conditions.
Ÿ   Customers continues to evaluate data requirements, methodologies, and forecasting options to utilize within the new model. Additionally, Customers is evaluating how to properly segment its loan and lease portfolio.
Ÿ  ~~Customers has completed preliminary runs of the new model and continues to evaluate the results and assumptions as it prepares to run two methodologies parallel in the second half of 2019.~~
Ÿ   The adoption of this ASU may result in an increase to Customers' ALLL which will depend upon the nature and characteristics of Customers' loan and lease portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at that date.
Ÿ  ~~Customers does not intend to early adopt this new guidance.~~

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NOTE 3 — EARNINGS (LOSS) PER SHARE

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

Three Months Ended March 31,
(amounts in thousands, except share and per share data) 2019 2018
Net income available to common shareholders $ 11,825
$ 20,527

Weighted-average number of common shares outstanding - basic 31,047,191
31,424,496
Share-based compensation plans 435,676
840,561
Warrants —
8,916
Weighted-average number of common shares - diluted 31,482,867
32,273,973

Basic earnings per common share $ 0.38
$ 0.65
Diluted earnings per common share $ 0.38
$ 0.64


	Three Months Ended March 31,
(amounts in thousands, except share and per share data)	2020		2019


Net income (loss) available to common shareholders	$	(515)	$	11,825

Weighted-average number of common shares outstanding – basic	31,391,151		31,047,191
Share-based compensation plans	—		435,676

Weighted-average number of common shares – diluted	31,391,151		31,482,867



Basic earnings (loss) per common share	$	(0.02)	$	0.38


Diluted earnings (loss) per common share	$	(0.02)	$	0.38

The following ~~is a summary of~~are securities that could potentially dilute basic earnings (loss) per common share in future periods that were not included in the computation of diluted earnings (loss) 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 March 31,
	2020	2019
Share-based compensation awards	6,718,131	2,159,232

Three Months Ended March 31,
2019 2018
Share-based compensation awards 2,159,232
1,059,225

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NOTE 4 — CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT

The following tables present the changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. All amounts are presented net of tax. Amounts in parentheses indicate reductions to AOCI.


	Three Months Ended March 31, 2020
(amounts in thousands)	Unrealized Gains (Losses) on Available for Sale Securities ⁽¹⁾		Unrealized Gains (Losses) on Cash Flow Hedges ⁽²⁾		Total
Balance - December 31, 2019	$	14,287	$	(15,537)	$	(1,250)



Unrealized gains (losses) arising during period, before tax	(9,098)		(27,697)		(36,795)
Income tax effect	2,366		7,351		9,717
Other comprehensive income (loss) before reclassifications	(6,732)		(20,346)		(27,078)
Reclassification adjustments for losses (gains) included in net income, before tax	(3,974)		1,478		(2,496)
Income tax effect	1,033		(384)		649
Amounts reclassified from accumulated other comprehensive income (loss) to net income	(2,941)		1,094		(1,847)
Net current-period other comprehensive income (loss)	(9,673)		(19,252)		(28,925)
Balance - March 31, 2020	$	4,614	$	(34,789)	$	(30,175)

Three Months Ended March 31, 2019
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
Balance - December 31, 2018 $ (21,741 ) $ —
$ (21,741 ) $ (922 ) $ (22,663 )
Other comprehensive income (loss) before reclassifications 13,185
—
13,185
(5,135 ) 8,050
Amounts reclassified from accumulated other comprehensive income (loss) to net income ⁽¹⁾
—
—
—
(306 ) (306 )
Net current-period other comprehensive income 13,185
—
13,185
(5,441 ) 7,744
Balance - March 31, 2019 $ (8,556 ) $ —
$ (8,556 ) $ (6,363 ) $ (14,919 )


	Three Months Ended March 31, 2019

(amounts in thousands)	Unrealized Gains (Losses) on Available for Sale Securities ⁽¹⁾		Unrealized Gains (Losses) on Cash Flow Hedges ⁽²⁾		Total
Balance - December 31, 2018	$	(21,741)	$	(922)	$	(22,663)



Unrealized gains (losses) arising during period, before tax	17,817		(6,939)		10,878
Income tax effect	(4,632)		1,804		(2,828)
Other comprehensive income (loss) before reclassifications	13,185		(5,135)		8,050
Reclassification adjustments for losses (gains) included in net income, before tax	—		(413)		(413)
Income tax effect	—		107		107
Amounts reclassified from accumulated other comprehensive income (loss) to net income	—		(306)		(306)
Net current-period other comprehensive income (loss)	13,185		(5,441)		7,744
Balance - March 31, 2019	$	(8,556)	$	(6,363)	$	(14,919)

(1)Reclassification amounts for available for sale debt securities are reported as gain or loss on sale of investment securities on the consolidated statements of income.

(2)Reclassification amounts for cash flow hedges are reported as interest expense for the applicable hedged items on the consolidated statements of income.

Three Months Ended March 31, 2018
(amounts in thousands) Unrealized Gains (Losses) Foreign Currency Items Unrealized Gains (Losses) on Available-For-Sale Securities Unrealized Gains (Losses) on Cash Flow Hedges Total
Balance - December 31, 2017 $ (249 ) $ 88
$ (161 ) $ (198 ) $ (359 )
Reclassification of the income tax effects of the Tax Cuts and Jobs Act ⁽²⁾
(256 ) —
(256 ) (42 ) (298 )
Reclassification of net unrealized gains on equity securities ⁽²⁾
(953 ) (88 ) (1,041 ) —
(1,041 )
Balance after reclassification adjustments on January 1, 2018 (1,458 ) —
(1,458 ) (240 ) (1,698 )
Other comprehensive income (loss) before reclassifications (25,233 ) —
(25,233 ) 646
(24,587 )
Amounts reclassified from accumulated other comprehensive income (loss) to net income ⁽¹⁾
—
—
—
97
97
Net current-period other comprehensive income (loss) (25,233 ) —
(25,233 ) 743
(24,490 )
Balance - March 31, 2018 $ (26,691 ) $ —
$ (26,691 ) $ 503
$ (26,188 )


~~(1)~~			Reclassification amounts for available-for-sale debt securities are reported as gain or loss on sale of investment securities on the consolidated statements of income. During the three months ended March 31, 2019 and 2018, there were no sales of investment securities. Reclassification amounts for cash flow hedges are reported as interest expense on FHLB advances on the consolidated statements of income. During the three months ended March 31, 2019, a reclassification amount of $413 thousand ($306 thousand net of taxes) was reported as a reduction to interest expense on FHLB advances on the consolidated statements of income. During the three months ended March 31, 2018, a reclassification amount of $131 thousand ($97 thousand net of taxes) was reported as interest expense on FHLB advances on the consolidated statements of income.

~~(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 AOCI of $1.3 million and a corresponding increase in retained earnings for the same amount.

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NOTE 5 — INVESTMENT SECURITIES

The amortized cost and ~~approximate~~ fair value of investment securities as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 are summarized in the tables below:


	March 31, 2020 ⁽¹⁾
(amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	159,416	$	13,398	$	—	$	172,814


Agency-guaranteed collateralized mortgage obligations	153,952		—		—		153,952
State and political subdivision debt securities ⁽²⁾	15,157		—		—		15,157
Collateralized mortgage obligations	5,566		—		—		5,566
Corporate notes ⁽³⁾	356,027		1,471		(8,634)		348,864

Available for sale debt securities	$	690,118	$	14,869	$	(8,634)	696,353
Interest-only GNMA securities ⁽⁴⁾							15,276
Equity securities ⁽⁵⁾							1,028
Total investment securities, at fair value							$	712,657

March 31, 2019
(amounts in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities $ 306,651
$ 62
$ (2,569 ) $ 304,144
Corporate notes ⁽¹⁾
381,334
639
(9,695 ) 372,278
Available-for-sale debt securities $ 687,985
$ 701
$ (12,264 ) 676,422
Equity securities ⁽²⁾
1,720
Total investment securities, at fair value $ 678,142


	December 31, 2019
(amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	273,252	$	5,069	$	—	$	278,321

Corporate notes ⁽³⁾	284,639		14,238		—		298,877
Available for sale debt securities	$	557,891	$	19,307	$	—	577,198
Interest-only GNMA securities ⁽⁴⁾							16,272
Equity securities ⁽⁵⁾							2,406
Total investment securities, at fair value							$	595,876

December 31, 2018
(amounts in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities $ 311,267
$ —
$ (5,893 ) $ 305,374
Corporate notes ⁽¹⁾
381,407
920
(24,407 ) 357,920
Available-for-sale debt securities $ 692,674
$ 920
$ (30,300 ) 663,294
Equity securities ⁽²⁾

1,718
Total investment securities, at fair value

$ 665,012


~~(1)~~	~~Includes corporate securities issued by other bank holding companies.~~


~~(2)~~	~~Includes equity securities issued by a foreign entity.~~

~~There were no sales of available-for-sale~~(1)Accrued interest on AFS debt securities ortotaled $4.7 million at March 31, 2020 and is included in accrued interest receivable on the consolidated balance sheet.

(2)Includes both taxable and non-taxable municipal securities.

(3)Includes corporate securities issued by domestic bank holding companies.

(4)Reported at fair value with fair value changes recorded in non-interest income based on a fair value option election.

(5)Includes equity securities issued by a foreign entity.

On June 28, 2019, Customers obtained ownership of certain interest-only GNMA securities that served as the primary collateral for loans made to one commercial mortgage warehouse customer through a Uniform Commercial Code private sale transaction. In connection with the acquisition of the interest-only GNMA securities, Customers recognized a pre-tax loss of $7.5 million for the three months ended June 30, 2019 for the shortfall in the fair value of the interest-only GNMA securities compared to its credit exposure to this commercial mortgage warehouse customer. Upon acquisition, Customers elected the fair value option for these interest-only GNMA securities. The fair value of these securities at March 31, 2020 was $15.3 million.

During the three months ended March 31, 2020 and 2019, Customers recognized unrealized losses of $1.4 million and ~~2018.~~unrealized gains of $2 thousand, respectively, on its equity securities. These unrealized gains and losses are reported as unrealized gain (loss) on investment securities within non-interest income on the consolidated statements of income.

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For the three months ended March 31, 2020, realized gains from sales of available-for-sale securities were $4.0 million. Proceeds from these sales were received in April 2020. There were 0 sales during the three months ended March 31, 2019.

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

The following table shows ~~available-for-sale~~ debt securities by stated maturity. Debt securities backed by mortgages and interest-only GNMA securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and, therefore, these debt securities are classified separately with no specific maturity date:

March 31, 2019
(amounts in thousands)
Amortized
Cost

Fair
Value
Due in one year or less $ —
$ —
Due after one year through five years —
—
Due after five years through ten years 354,268
345,717
Due after ten years 27,066
26,561
Agency-guaranteed residential mortgage-backed securities 306,651
304,144
Total debt securities $ 687,985
$ 676,422


	March 31, 2020
(amounts in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	11,885	$	11,885
Due after one year through five years	57,611		57,723
Due after five years through ten years	282,528		275,182
Due after ten years	19,160		19,231
Agency-guaranteed residential mortgage-backed securities	159,416		172,814
Agency-guaranteed collateralized mortgage obligations	153,952		153,952
Collateralized mortgage obligations	5,566		5,566
Interest-only classes of agency-guaranteed home equity conversion mortgage-backed securities	—		15,276

Total debt securities	$	690,118	$	711,629

Gross unrealized losses and fair value of Customers' ~~available-for-sale~~available for sale debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, ~~2019 and December 31, 2018~~2020 were as follows:


	March 31, 2019																March 31, 2020
	Less Than 12 Months					12 Months or More					Total						Less Than 12 Months						12 Months or More						Total
(amounts in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			(amounts in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	—		$	211,098	$	(2,569	)	$	211,098	$	(2,569	)
Available for sale debt securities:																Available for sale debt securities:

Corporate notes	21,873		(93		)	314,767		(9,602		)	336,640		(9,695		)	Corporate notes	249,946		8,634		—		—		249,946		8,634

Total	$	21,873	$	(93	)	$	525,865	$	(12,171	)	$	547,738	$	(12,264	)	Total	$	249,946	$	8,634	$	—	$	—	$	249,946	$	8,634

December 31, 2018
Less Than 12 Months 12 Months or More Total
(amounts in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities $ 305,374
$ (5,893 ) $ —
$ —
$ 305,374
$ (5,893 )
Corporate notes 310,036
(24,407 ) —
—
310,036
(24,407 )
Total $ 615,410
$ (30,300 ) $ —
$ —
$ 615,410
$ (30,300 )

At March 31, ~~2019,~~2020, there were ~~four available-for-sale~~13 available for sale debt securities with unrealized losses in the less-than-twelve-month category and ~~twenty-two available-for-sale~~0 available for sale debt securities with unrealized losses 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 principally due to ~~an upward shift~~changes in market interest rates that resulted in a negative impact on the respective ~~note's~~notes' 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. At December 31, 2019, there were 0 available for sale debt securities in an unrealized loss position.

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Customers Bank had pledged investment securities aggregating ~~$22.9~~$20.0 million and ~~$23.0~~$20.4 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.

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, no securities holding of any one issuer, other than the U.S. Government and its agencies, amounted to greater than 10% of shareholders' equity.

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NOTE 6 – LOANS HELD FOR SALE

The composition of loans held for sale as of March 31, 2020 and December 31, 2019 was as follows:



(amounts in thousands)	March 31, 2020		December 31, 2019
Commercial loans:

Multi-family loans, at lower of cost or fair value	$	447,444	$	482,873
Total commercial loans held for sale	447,444		482,873
Consumer loans:
Home equity conversion mortgages, at lower of cost or fair value	1,325		1,325
Residential mortgage loans, at fair value	1,388		2,130
Total consumer loans held for sale	2,713		3,455
Loans held for sale	$	450,157	$	486,328

NOTE 7 — LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR ~~LOAN~~CREDIT LOSSES ON LOANS AND ~~LEASE LOSSES~~LEASES

The following table presents loans and leases receivable as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.


(amounts in thousands)	March 31, 2020		December 31, 2019
Loans and leases receivable, mortgage warehouse, at fair value	$	2,518,012	$	2,245,758
Loans receivable:
Commercial:
Multi-family	1,621,633		1,907,331
Commercial and industrial ⁽¹⁾	2,072,952		1,891,152
Commercial real estate owner occupied	543,945		551,948
Commercial real estate non-owner occupied	1,252,826		1,222,772
Construction	115,448		117,617
Total commercial loans and leases receivable	5,606,804		5,690,820
Consumer:
Residential real estate	362,047		382,634
Manufactured housing	69,240		71,359
Other consumer	1,315,171		1,174,175
Total consumer loans receivable	1,746,458		1,628,168
Loans and leases receivable ⁽²⁾	7,353,262		7,318,988

Allowance for credit losses	(149,283)		(56,379)
Total loans and leases receivable, net of allowance for credit losses	$	9,721,991	$	9,508,367

(amounts in thousands) March 31, 2019 December 31, 2018
Loans receivable, mortgage warehouse, at fair value $ 1,480,195
$ 1,405,420
Loans receivable:
Commercial:
Multi-family 3,212,312
3,285,297
Commercial and industrial (including owner occupied commercial real estate) ⁽¹⁾
2,038,229
1,951,277
Commercial real estate non-owner occupied 1,107,336
1,125,106
Construction 53,372
56,491
Total commercial loans and leases receivable 6,411,249
6,418,171
Consumer:
Residential real estate 625,066
566,561
Manufactured housing 77,778
79,731
Other 153,153
74,035
Total consumer loans receivable 855,997
720,327
Loans and leases receivable 7,267,246
7,138,498
Deferred (fees) costs and unamortized (discounts) premiums, net (3,197 ) (424 )
Allowance for loan and lease losses (43,679 ) (39,972 )
Total loans and leases receivable, net of allowance for loan and lease losses $ 8,700,565
$ 8,503,522

(1)Includes direct finance equipment leases of $96.6 million and $89.2 million at March 31, 2020 and December 31, 2019, respectively.


~~(1)~~	~~Includes direct finance equipment leases of $56.4 million and $54.5 million at March 31, 2019 and December 31, 2018, respectively.~~

(2)Includes deferred (fees) costs and unamortized (discounts) premiums, net of $3.2 million and $2.1 million at March 31, 2020 and December 31, 2019, respectively.

Customers' total loans and leases 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 and leases 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. The total amount of accrued interest recorded for total loans was $36.3 million and $34.8 million at March 31, 2020 and December 31, 2019, respectively, and is presented in accrued interest receivable in the consolidated balance sheet. At March 31, 2020, there were $56.5 million of individually evaluated loans that were collateral-dependent. Substantially all individually evaluated loans are collateral-dependent and consisted primarily of commercial and industrial, commercial real estate, and residential real estate loans. Collateral-dependent commercial and industrial loans were secured by accounts receivable, inventory and equipment; collateral-dependent commercial real estate loans were secured by commercial real estate assets; and residential real estate loans were secured by residential real estate assets. There were no significant changes in collateral values during the three months ended March 31, 2020.

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Subsequent to March 31, 2020, Customers decided to sell a commercial real estate loan collateralized by a Class A office building in northern New Jersey. At March 31, 2020, this collateral dependent loan has been charged down to its estimated fair value of $19.1 million.

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 20~~under 30 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, all of Customers' commercial mortgage warehouse loans were current in terms of payment. As these loans are reported at their fair value, they do not have an ~~allowance for loan and lease loss~~ACL and are therefore excluded from ~~ALLL related~~ACL-related disclosures.

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Loans and leases receivable:

The following tables summarize loans and leases receivable by loan and lease type and performance status as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


	March 31, 2020
(amounts in thousands)	30-59 Days past due		60-89 Days past due		90 Days or more past due		Total past due		Loans and leases not past due ⁽²⁾		Total loans and leases⁽³⁾
Multi-family	$	2,378	$	—	$	4,021	$	6,399	$	1,615,234	$	1,621,633
Commercial and industrial	1,332		659		10,182		12,173		2,060,779		2,072,952
Commercial real estate owner occupied	4,391		971		2,740		8,102		535,843		543,945
Commercial real estate non-owner occupied	30,723		—		21,470		52,193		1,200,633		1,252,826
Construction	—		—		—		—		115,448		115,448
Residential real estate	5,253		68		6,248		11,569		350,478		362,047
Manufactured housing ⁽⁵⁾	2,138		962		5,089		8,189		61,051		69,240
Other consumer	6,502		3,725		2,527		12,754		1,302,417		1,315,171
Total	$	52,717	$	6,385	$	52,277	$	111,379	$	7,241,883	$	7,353,262

March 31, 2019
(amounts in thousands)
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 and Leases ⁽⁴⁾
Multi-family $ 3,794
$ —
$ 3,794
$ 1,997
$ 3,204,879
$ 1,642
$ 3,212,312
Commercial and industrial 1,271
—
1,271
12,225
1,441,679
417
1,455,592
Commercial real estate owner occupied 3,566
—
3,566
839
570,380
7,852
582,637
Commercial real estate non-owner occupied 1,976
—
1,976
102
1,101,129
4,129
1,107,336
Construction —
—
—
—
53,372
—
53,372
Residential real estate 5,612
—
5,612
5,574
609,874
4,006
625,066
Manufactured housing ⁽⁵⁾
3,686
1,936
5,622
1,924
68,362
1,870
77,778
Other consumer 491
—
491
108
152,348
206
153,153
Total $ 20,396
$ 1,936
$ 22,332
$ 22,769
$ 7,202,023
$ 20,122
$ 7,267,246

December 31, 2018
(amounts in thousands)
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 and Leases ⁽⁴⁾
Multi-family $ —
$ —
$ —
$ 1,155
$ 3,282,452
$ 1,690
$ 3,285,297
Commercial and industrial 1,914
—
1,914
17,764
1,353,586
536
1,373,800
Commercial real estate owner occupied 193
—
193
1,037
567,809
8,438
577,477
Commercial real estate non-owner occupied 1,190
—
1,190
129
1,119,443
4,344
1,125,106
Construction —
—
—
—
56,491
—
56,491
Residential real estate 5,940
—
5,940
5,605
550,679
4,337
566,561
Manufactured housing ⁽⁵⁾
3,926
2,188
6,114
1,693
69,916
2,008
79,731
Other consumer 200
—
200
111
73,503
221
74,035
Total $ 13,363
$ 2,188
$ 15,551
$ 27,494
$ 7,073,879
$ 21,574
$ 7,138,498


~~(1)~~	~~Includes past due loans and leases that are accruing interest because collection is considered probable.~~


~~(2)~~	~~Loans and leases 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. 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 ALLL.~~


~~(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.~~


	December 31, 2019
(amounts in thousands)	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 ⁽⁴⁾		Total loans and leases ⁽⁵⁾
Multi-family	$	2,133	—		$	2,133	$	4,117	$	1,901,336	$	1,688	$	1,909,274
Commercial and industrial	2,395		—		2,395		4,531		1,882,700		354		1,889,980
Commercial real estate owner occupied	5,388		—		5,388		1,963		537,992		6,664		552,007
Commercial real estate non-owner occupied	8,034		—		8,034		76		1,211,892		3,527		1,223,529
Construction	—		—		—		—		118,418		—		118,418
Residential real estate	5,924		—		5,924		6,128		359,491		3,471		375,014
Manufactured housing	3,699		1,794		5,493		1,655		61,649		1,601		70,398
Other consumer	5,756		$	—	5,756		1,551		1,170,793		183		1,178,283
Total	$	33,329	$	1,794	$	35,123	$	20,021	$	7,244,271	$	17,488	$	7,316,903

(1)Includes past due loans and leases that are accruing interest because collection is considered probable.

(2)Loans and leases where next payment due is less than 30 days from the report date.

(3)Includes purchased credit deteriorated loans of $16.6 million at March 31, 2020.

(4)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. 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.

(5)Amounts exclude deferred costs and fees and unamortized premiums and discounts.

As of both March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had ~~$0.4~~$0.1 million and $0.2 million, respectively, of residential real estate held in OREO. As of both March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had initiated foreclosure proceedings on ~~$1.4 million and $2.1~~$0.9 million, respectively, in loans secured by residential real estate.

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~~Allowance for loan~~Nonaccrual Loans and ~~lease losses~~Leases

The ~~changes in the ALLL~~following table provides amortized cost of loans and leases on nonaccrual status.


	March 31, 2020 ⁽¹⁾										December 31, 2020 ⁽²⁾
(amounts in thousands)	Nonaccrual loans with no related allowance		Nonaccrual loans with related allowance		Total nonaccrual loans		Nonaccrual loans with no related allowance		Nonaccrual loans with related allowance		Total nonaccrual loans
Multi-family	$	4,020	$	—	$	4,020	$	4,117	$	—	$	4,117
Commercial and industrial	8,967		1,026		9,993		3,083		1,448		4,531
Commercial real estate owner occupied	2,371		40		2,411		1,109		854		1,963
Commercial real estate non-owner occupied	21,479		—		21,479		76		—		76
Construction	—		—		—		—		—		—
Residential real estate	4,730		1,324		6,054		4,559		1,569		6,128
Manufactured housing	—		2,558		2,558		—		1,655		1,655
Other consumer	270		2,249		2,519		140		1,411		1,551
Total	$	41,837	$	7,197	$	49,034	$	13,084	$	6,937	$	20,021

(1) Presented at amortized cost basis. (2) Amounts exclude deferred costs and fees and unamortized premiums and discounts.

Interest income of $0.2 million and $0.2 million was recognized on nonaccrual loans for the three months ended March 31, 2020 and 2019, ~~and 2018, and the loans and ALLL by loan type based on impairment-evaluation method as of March 31, 2019 and December 31, 2018 are presented in the tables below.~~

Three Months Ended March 31, 2019 Multi-family Commercial and Industrial Commercial Real Estate Owner Occupied Commercial Real Estate Non-Owner Occupied Construction Residential Real Estate Manufactured Housing Other Consumer Total
(amounts in thousands)
Ending Balance,
December 31, 2018 $ 11,462
$ 12,145
$ 3,320
$ 6,093
$ 624
$ 3,654
$ 145
$ 2,529
$ 39,972
Charge-offs (541 ) —
(8 ) —
—
(40 ) —
(755 ) (1,344 )
Recoveries —
119
128
—
6
7
—
24
284
Provision for loan and lease losses (291 ) 383
(15 ) (78 ) (46 ) 2,951
(28 ) 1,891
4,767
Ending Balance,
March 31, 2019 $ 10,630
$ 12,647
$ 3,425
$ 6,015
$ 584
$ 6,572
$ 117
$ 3,689
$ 43,679

As of March 31, 2019
Loans and leases receivable:
Individually evaluated for impairment $ 1,997
$ 17,411
$ 867
$ 102
$ —
$ 8,567
$ 10,307
$ 108
$ 39,359
Collectively evaluated for impairment 3,208,673
1,437,764
573,918
1,103,105
53,372
612,493
65,601
152,839
7,207,765
Loans acquired with credit deterioration 1,642
417
7,852
4,129
—
4,006
1,870
206
20,122
Total loans and leases receivable $ 3,212,312
$ 1,455,592
$ 582,637
$ 1,107,336
$ 53,372
$ 625,066
$ 77,778
$ 153,153
$ 7,267,246
Allowance for loan and lease losses:
Individually evaluated for impairment $ —
$ 263
$ 36
$ —
$ —
$ 78
$ 3
$ —
$ 380
Collectively evaluated for impairment 10,630
12,116
3,389
4,019
584
6,105
89
3,537
40,469
Loans acquired with credit deterioration —
268
—
1,996
—
389
25
152
2,830
Total allowance for loan and lease losses $ 10,630
$ 12,647
$ 3,425
$ 6,015
$ 584
$ 6,572
$ 117
$ 3,689
$ 43,679

Three Months Ended March 31, 2018 Multi-family Commercial and Industrial Commercial Real Estate Owner Occupied Commercial Real Estate Non-Owner Occupied Construction Residential Real Estate Manufactured Housing Other Consumer Total
(amounts in thousands)
Ending Balance,
December 31, 2017 $ 12,168
$ 10,918
$ 3,232
$ 7,437
$ 979
$ 2,929
$ 180
$ 172
$ 38,015
Charge-offs —
(50 ) (18 ) —
—
(365 ) —
(256 ) (689 )
Recoveries —
35
—
—
11
7
—
3
56
Provision for loan and lease losses 377
834
311
(204 ) (69 ) 608
(4 ) 264
2,117
Ending Balance,
March 31, 2018 $ 12,545
$ 11,737
$ 3,525
$ 7,233
$ 921
$ 3,179
$ 176
$ 183
$ 39,499
As of December 31, 2018
Loans and leases receivable:
Individually evaluated for impairment $ 1,155
$ 17,828
$ 1,069
$ 129
$ —
$ 8,631
$ 10,195
$ 111
$ 39,118
Collectively evaluated for impairment 3,282,452
1,355,436
567,970
1,120,633
56,491
553,593
67,528
73,703
7,077,806
Loans acquired with credit deterioration 1,690
536
8,438
4,344
—
4,337
2,008
221
21,574
Total loans and leases receivable $ 3,285,297
$ 1,373,800
$ 577,477
$ 1,125,106
$ 56,491
$ 566,561
$ 79,731
$ 74,035
$ 7,138,498
Allowance for loan and lease losses:
Individually evaluated for impairment $ 539
$ 261
$ 1
$ —
$ —
$ 41
$ 3
$ —
$ 845
Collectively evaluated for impairment 10,923
11,516
3,319
4,161
624
3,227
89
2,390
36,249
Loans acquired with credit deterioration —
368
—
1,932
—
386
53
139
2,878
Total allowance for loan and lease losses $ 11,462
$ 12,145
$ 3,320
$ 6,093
$ 624
$ 3,654
$ 145
$ 2,529
$ 39,972

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 both March 31, 2019 and December 31, 2018, funds available for reimbursement, if necessary, were $0.5 million. Each quarter, these funds are evaluated to determine if they would be sufficient to absorb the probable incurred losses within the manufactured housing portfolio.

~~Impaired Loans - Individually Evaluated for Impairment~~

The following tables present the recorded investment (net of charge-offs), unpaid principal balance, and related allowance by loan type for impaired loans that were individually evaluated for impairment as of March 31, 2019 and December 31, 2018 and the average recorded investment and interest income recognized for the three months ended March 31, 2019 and 2018. Customers did not have any impaired lease receivables as of March 31, 2019 and December 31, 2018, respectively. ~~Purchased-credit-impaired~~PCD loans are considered to be performing and are not included in the table above.

Allowance for credit losses on loans and leases

The changes in the allowance for credit losses on loans and leases for the three months ended March 31, 2020 and 2019, is presented in the tables below.


Three Months Ended March 31, 2020	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)
Beginning balance, at December 31, 2019	$	6,157	$	15,556	$	2,235	$	6,243	$	1,262	$	3,218	$	1,060	$	20,648	$	56,379
Cumulative effect of change in accounting principle	2,171		759		5,773		7,918		(98)		1,518		3,802		57,986		79,829

Charge-offs	—		(97)		—		(12,797)		—		—		—		(6,246)		(19,140)
Recoveries	—		54		3		—		3		29		—		340		429
Provision for credit loss expense	422		2,534		516		17,166		767		(585)		125		10,841		31,786
Total ending allowance balance	$	8,750	$	18,806	$	8,527	$	18,530	$	1,934	$	4,180	$	4,987	$	83,569	$	149,283

March 31, 2019 Three Months Ended
March 31, 2019
(amounts in thousands) Recorded Investment Net of Charge-Offs Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized
With no related allowance recorded:
Multi-family $ 1,997
$ 2,538
$ —
$ 998
$ —
Commercial and industrial 11,185
12,749
—
12,422
2
Commercial real estate owner occupied 556
1,103
—
796
21
Commercial real estate non-owner occupied 102
214
—
115
—
Residential real estate 4,722
5,044
—
4,782
—
Manufactured housing 10,140
10,140
—
10,084
115
Other consumer 108
108
—
110
—
With an allowance recorded:
Multi-family —
—
—
578
—
Commercial and industrial 6,226
6,409
263
5,197
39
Commercial real estate owner occupied 311
498
36
172
1
Residential real estate 3,845
3,845
78
3,817
26
Manufactured housing 167
167
3
168
2
Total $ 39,359
$ 42,815
$ 380
$ 39,239
$ 206

December 31, 2018 Three Months Ended
March 31, 2018
(amounts in thousands) Recorded Investment Net of Charge-Offs Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized
With no related allowance recorded:
Commercial and industrial $ 13,660
$ 15,263
$ —
$ 7,484
$ —
Commercial real estate owner occupied 1,037
1,766
—
710
—
Commercial real estate non-owner occupied 129
241
—
201
—
Residential real estate 4,842
5,128
—
3,623
—
Manufactured housing 10,027
10,027
—
9,876
131
Other consumer 111
111
—
63
—
With an allowance recorded:
Multi-family 1,155
1,155
539
—
—
Commercial and industrial 4,168
4,351
261
8,390
1
Commercial real estate owner occupied 32
32
1
756
1
Residential real estate 3,789
3,789
41
5,122
25
Manufactured housing 168
168
3
223
—
Total $ 39,118
$ 42,031
$ 845
$ 36,448
$ 158

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Three Months Ended March 31, 2019	Multi-family		Commercial and industrial		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Construction		Residential real estate		Manufactured housing		Other consumer		Total
(amounts in thousands)
Ending Balance, December 31, 2018	$	11,462	$	12,145	$	3,320	$	6,093	$	624	$	3,654	$	145	$	2,529	$	39,972
Charge-offs	(541)		—		(8)		—		—		(40)		—		(755)		(1,344)

Recoveries	—		119		128		—		6		7		—		24		284
Provision for loan and lease losses	(291)		383		(15)		(78)		(46)		2,951		(28)		1,891		4,767
Ending Balance, March 31, 2019	$	10,630	$	12,647	$	3,425	$	6,015	$	584	$	6,572	$	117	$	3,689	$	43,679

At March 31, 2020, the ACL was $149.3 million, an increase of $13.1 million from the January 1, 2020 balance of $136.2 million. The increase resulted primarily from the impact of reserve build for the COVID-19 pandemic, an increase in net charge-offs, mostly attributed to the commercial real estate non-owner occupied and other consumer portfolios, and portfolio growth. Commercial real estate non-owner occupied charge-offs is attributable to one collateral dependent loan. Other consumer charge-offs is attributable to delinquencies and defaults of originated and purchased unsecured consumer loans through arrangements with fintech companies and other market place lenders.

Troubled Debt Restructurings

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, there were ~~$19.6~~$13.5 million and ~~$19.2~~$13.3 million, respectively, in loans reported as 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. ~~Modifications of PCI loans~~Customers had 0 lease receivables that are accounted for within loan pools in accordance with the accounting standards for PCI 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 forhad been restructured 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. Customers did not have any~~ TDR ~~lease receivables~~ as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

The ~~following table presents total~~CARES Act and certain regulatory agencies recently issued guidance stating certain loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by COVID-19 may not be required to be treated as TDRs ~~based on~~under U.S GAAP. For COVID-19 related loan ~~type~~modifications which occurred in March 2020, and ~~accrual status at March 31, 2019 and December 31, 2018. Nonaccrual TDRs are included in~~met the ~~reported amount of total non-accrual loans.~~

March 31, 2019 December 31, 2018
(amounts in thousands) Accruing TDRs Nonaccrual TDRs Total Accruing TDRs Nonaccrual TDRs Total
Commercial and industrial $ 5,186
$ 471
$ 5,657
$ 64
$ 5,273
$ 5,337
Commercial real estate owner occupied 28
—
28
32
—
32
Residential real estate 2,993
723
3,716
3,026
667
3,693
Manufactured housing 8,383
1,850
10,233
8,502
1,620
10,122
Other consumer —
11
11
—
12
12
Total TDRs $ 16,590
$ 3,055
$ 19,645
$ 11,624
$ 7,572
$ 19,196

loan modification criteria under either the CARES Act or the criteria specified by the regulatory agencies, Customers elected to suspend TDR accounting for such loan modifications.

The following table presents loans modified in a TDR by type of concession for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. There were no0 modifications that involved forgiveness of debt for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.


	Three Months Ended March 31,
	2020				2019
(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment
Extensions of maturity	4	$	245	2	$	514
Interest-rate reductions	12	530		10	385
Total	16	$	775	12	$	899

Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
(dollars in thousands) Number of Loans Recorded Investment Number of Loans Recorded Investment
Extensions of maturity 2
$ 514
—
$ —
Interest-rate reductions 10
385
9
322
Total 12
$ 899
9
$ 322

Table of Contents

~~The following table provides, by loan type, the number of loans modified in TDRs and the related recorded investment for the three months ended March 31, 2019 and 2018.~~

Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
(dollars in thousands) Number of Loans Recorded Investment Number of Loans Recorded Investment
Commercial and industrial 1
$ 431
—
$ —
Manufactured housing 10
385
9
322
Residential real estate 1
83
—
—
Total loans 12
$ 899
9
$ 322

As of ~~both~~ March 31, ~~2019 and December 31, 2018, except for one commercial and industrial loan with an outstanding commitment of $1.5 million,~~2020, there were ~~no other~~0 commitments to lend additional funds to debtors whose loans have been modified in TDRs.

As of December 31, 2019, there were 0 commitments to lend additional funds to debtors whose loans have been modified in TDRs.

The following table presents, by loan type, the number of loans modified in TDRs and the related recorded investment, for which there was a payment default within twelve months following the modification:

March 31, 2019 March 31, 2018
(dollars in thousands) Number of Loans Recorded Investment Number of Loans Recorded Investment
Manufactured housing 5
$ 137
1
$ 29
Commercial and industrial 1
431
—
—
Total loans $ 6
$ 568
1
$ 29


	March 31, 2020				March 31, 2019
(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment
Manufactured housing	—	$	—	5	$	137
Commercial and industrial	—	—		1	431
Commercial real estate owner occupied	1	8		—	—
Residential real estate	5	684		—	—
Total loans	6	$	692	6	$	568

Loans modified in TDRs 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 ~~ALLL. There~~ACL.

Purchased Credit-Deteriorated Loans

Customers adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration that wereno~~allowances recorded~~ previously classified as ~~a result~~PCI and accounted for under ASC 310-30. In accordance with the standard, Customers did not reassess whether PCI assets met the criteria of ~~TDR modifications during~~PCD assets as of the ~~three months ended~~date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $0.2 million of the allowance for credit losses on PCD loans and leases. The remaining noncredit discount of $0.3 million, based on the adjusted amortized cost basis, will be accreted into interest income at the effective interest rate as of January 1, 2020. As of March 31, ~~2019 and 2018.~~2020, the amortized cost basis of PCD assets amounted to $16.6 million.

~~Purchased-Credit-Impaired Loans~~

~~The changes in accretable yield related to PCI loans for the three months ended March 31, 2019 and 2018 were as follows:~~

Three Months Ended March 31,
(amounts in thousands) 2019 2018
Accretable yield balance, beginning of period $ 6,178
$ 7,825
Accretion to interest income (277 ) (338 )
Reclassification from nonaccretable difference and disposals, net 293
176
Accretable yield balance, end of period $ 6,194
$ 7,663

Credit Quality Indicators

The ~~ALLL~~ACL represents management's estimate of probable losses in Customers' loans and leases receivable portfolio, excluding commercial mortgage warehouse loans reported at fair value pursuant to a fair value option election. Multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, and construction loans are rated based on an internally assigned risk rating system which is assigned at the time of loan origination and reviewed on a periodic, or on an “as needed” basis. Residential real estate loans, manufactured housing and other consumer loans are evaluated based on the payment activity of the loan.

To facilitate the monitoring of credit quality within the multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, and construction loan portfolios, and ~~for purposes of analyzing historical loss rates used~~as an input in the ~~determination of the ALLL~~ACL lifetime loss rate model for the ~~respective loan portfolios,~~C&I portfolio, 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 and leases.

The 2019 Form 10-K describes Customers Bancorp’s risk rating ~~grades are defined as follows:~~grades.

~~“1” –~~ ~~Pass~~/~~Excellent~~Table of Contents

Loans and leases 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 and leases 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 and leases 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 and leases rated 3 are those loans and leases 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 and leases 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 and leases 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 and leases.

~~“5” –~~ ~~Satisfactory~~

Loans and leases 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 and leases 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 and leases 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 and leases 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 and leases where significant actual, not potential, weaknesses or problems are clearly evident are graded in the category below.

~~“8” –~~ ~~Substandard~~

Loans and leases are rated 8 when the loans and leases are inadequately protected by the current sound worth and payment capacity of the obligor or of the collateral pledged, if any. Loans and leases 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 and leases 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 or lease, 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 and leases 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 and leases receivable as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.


	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
As of March 31, 2020
Multi-family:
Risk rating
Pass	$	26,646	$	23,689	$	172,088	$	445,613	$	329,586	$	569,400	$	—	$	—	$	1,567,022
Special mention	—		—		—		19,510		1,968		—		—		—		21,478
Substandard	—		—		—		12,028		13,904		7,201		—		—		33,133
Doubtful	—		—		—		—		—		—		—		—		—
Total multi-family loans	$	26,646	$	23,689	$	172,088	$	477,151	$	345,458	$	576,601	$	—	$	—	$	1,621,633


	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
As of March 31, 2020
Commercial and industrial:
Risk rating
Pass	$	323,338	$	491,492	$	183,202	$	120,795	$	55,483	$	101,805	$	718,827	$	—	$	1,994,942
Special mention	—		7,788		2,403		17,652		120		26		20,800		—		48,789
Substandard	—		5,576		276		1,760		7,774		3,318		10,517		—		29,221
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans and leases	$	323,338	$	504,856	$	185,881	$	140,207	$	63,377	$	105,149	$	750,144	$	—	$	2,072,952

Table of Contents

March 31, 2019
(amounts in thousands) 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⁾
Pass/Satisfactory $ 3,164,722
$ 1,395,034
$ 565,631
$ 1,036,957
$ 53,372
$ —
$ —
$ —
$ 6,215,716
Special Mention 40,441
30,575
12,300
30,258
—
—
—
—
113,574
Substandard 7,149
29,983
4,706
40,121
—
—
—
—
81,959
Performing ⁽¹⁾
—
—
—
—
—
613,880
70,232
152,554
836,666
Non-performing ⁽²⁾
—
—
—
—
—
11,186
7,546
599
19,331
Total $ 3,212,312
$ 1,455,592
$ 582,637
$ 1,107,336
$ 53,372
$ 625,066
$ 77,778
$ 153,153
$ 7,267,246


	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
As of March 31, 2020
Commercial real estate owner occupied:
Risk rating
Pass	$	18,672	$	184,756	$	90,261	$	82,509	$	49,074	$	102,449	$	1,672	$	—	$	529,393
Special mention	—		—		483		114		—		399		—		—		996
Substandard	—		—		—		350		2,266		10,940		—		—		13,556
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate owner occupied loans	$	18,672	$	184,756	$	90,744	$	82,973	$	51,340	$	113,788	$	1,672	$	—	$	543,945


	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
As of March 31, 2020
Commercial real estate non-owner occupied:
Risk rating
Pass	$	74,905	$	118,164	$	118,424	$	249,784	$	201,214	$	412,250	$	—	$	—	$	1,174,741
Special mention	—		—		—		—		374		4,201		—		—		4,575
Substandard	—		—		30,772		—		2,080		21,608		—		—		54,460
Doubtful	—		—		—		—		19,050		—		—		—		19,050
Total commercial real estate non-owner occupied loans	$	74,905	$	118,164	$	149,196	$	249,784	$	222,718	$	438,059	$	—	$	—	$	1,252,826


	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
As of March 31, 2020
Construction:
Risk rating
Pass	$	451	$	83,774	$	20,241	$	—	$	9,886	$	—	$	1,096	$	—	$	115,448
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total construction loans	$	451	$	83,774	$	20,241	$	—	$	9,886	$	—	$	1,096	$	—	$	115,448

Table of Contents

December 31, 2018
(amounts in thousands) 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⁾
Pass/Satisfactory $ 3,201,822
$ 1,306,466
$ 562,639
$ 1,054,493
$ 56,491
$ —
$ —
$ —
$ 6,181,911
Special Mention 55,696
30,551
9,730
30,203
—
—
—
—
126,180
Substandard 27,779
36,783
5,108
40,410
—
—
—
—
110,080
Performing ⁽¹⁾
—
—
—
—
—
555,016
71,924
73,724
700,664
Non-performing ⁽²⁾
—
—
—
—
—
11,545
7,807
311
19,663
Total $ 3,285,297
$ 1,373,800
$ 577,477
$ 1,125,106
$ 56,491
$ 566,561
$ 79,731
$ 74,035
$ 7,138,498


	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
As of March 31, 2020
Residential real estate:
Payment performance
Performing	$	1,527	$	15,164	$	8,103	$	14,644	$	47,557	$	86,675	$	182,652	$	—	$	356,322
Non-performing	—		—		161		160		860		4,117		427		—		5,725
Total residential real estate loans	$	1,527	$	15,164	$	8,264	$	14,804	$	48,417	$	90,792	$	183,079	$	—	$	362,047


~~(1)~~	~~Includes residential real estate, manufactured housing, and other consumer loans not subject to risk ratings.~~


~~(2)~~	~~Includes residential real estate, manufactured housing, and other consumer loans that are past due and still accruing interest or on nonaccrual status.~~


~~(3)~~	~~Excludes commercial mortgage warehouse loans reported at fair value.~~


	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
As of March 31, 2020
Manufactured housing:
Payment performance
Performing	$	—	$	312	$	643	$	81	$	44	$	64,782	$	—	$	—	$	65,862
Non-performing	—		—		—		—		—		3,378		—		—		3,378
Total manufactured housing loans	$	—	$	312	$	643	$	81	$	44	$	68,160	$	—	$	—	$	69,240


	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
As of March 31, 2020
Other consumer:
Payment performance
Performing	$	122,726	$	1,034,536	$	147,669	$	7,004	$	762	$	55	$	—	$	—	$	1,312,752
Non-performing	—		1,785		618		16		—		—		—		—		2,419
Total other consumer loans	$	122,726	$	1,036,321	$	148,287	$	7,020	$	762	$	55	$	—	$	—	$	1,315,171


	December 31, 2019
(amounts in thousands)	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⁾
Pass/Satisfactory	$	1,816,200	$	1,841,074	$	536,777	$	1,129,838	$	118,418	$	—	$	—	$	—	$	5,442,307
Special Mention	69,637		26,285		8,286		6,949		—		—		—		—		111,157
Substandard	23,437		22,621		6,944		86,742		—		—		—		—		139,744
Performing ⁽¹⁾	—		—		—		—		—		362,962		63,250		1,170,976		1,597,188
Non-performing ⁽²⁾	—		—		—		—		—		12,052		7,148		7,307		26,507
Total	$	1,909,274	$	1,889,980	$	552,007	$	1,223,529	$	118,418	$	375,014	$	70,398	$	1,178,283	$	7,316,903

(1)Includes residential real estate, manufactured housing, and other consumer loans not assigned internal ratings.

(2)Includes residential real estate, manufactured housing, and other consumer loans that are past due and still accruing interest or on nonaccrual status.

(3)Excludes commercial mortgage warehouse loans reported at fair value.

Table of Contents

Loan Purchases and Sales

Purchases and sales of loans were as follows for the three months ended March 31, 2020 and 2019:


	Three Months Ended March 31,
(amounts in thousands)	2020		2019
Purchases ⁽¹⁾





Residential real estate	$	495	$	66,384

Other consumer ⁽²⁾	191,761		66,136
Total	$	192,256	$	132,520
Sales ⁽³⁾







Other consumer	1,822		—
Total	$	1,822	$	—

(1)Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was 100.6% and 97.6% of loans outstanding for the three months ended March 31, 2020 and 2019, ~~and 2018:~~respectively.

(2)Other consumer loan purchases for the three months ended March 31, 2020 consist of third-party originated unsecured consumer loans. None of the loans are considered sub-prime at the time of origination. Customers considers sub-prime borrowers to be those with FICO scores below 660.

Three Months Ended March 31,
(amounts in thousands) 2019 2018
Purchases ⁽¹⁾

Residential real estate $ 66,384
$ —
Other consumer 66,136
—
Total $ 132,520
$ —
Sales ⁽²⁾

Commercial and industrial ⁽³⁾
—
(6,842 )
Commercial real estate owner occupied ⁽³⁾
—
(8,151 )
Total $ —
$ (14,993 )


~~(1)~~	~~The purchase price was 97.6% of loans outstanding for the three months ended March 31, 2019. There were no loan purchases during the three months ended March 31, 2018.~~


~~(2)~~	~~There were no loan sales for the three months ended March 31, 2019. For the three months ended March 31, 2018, loan sales resulted in a net gain of $1.4 million.~~


~~(3)~~	~~Primarily sales of SBA loans.~~

(3)Amounts reported in the above table are the unpaid principal balance at time of sale. There were no loan sales in the three months ended March 31, 2019.

Loans Pledged as Collateral

Customers has pledged eligible real estate and commercial and industrial loans as collateral for ~~potential~~ borrowings from the FHLB and FRB in the amount of ~~$5.4~~$4.1 billion and $4.6 billion at ~~both~~ March 31, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively.

NOTE 78 — LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between ~~2 months~~1 month and 87 years. These operating leases comprise substantially all of Customers' obligations in which Customers ~~acts as~~is the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or right of use asset and are recognized in the period in which the obligation for those payments are incurred. Customers' operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. Pursuant to these agreements, Customers does not have any commitments that would meet the definition of a finance lease.

As most of Customers' operating leases do not provide an implicit rate, Customers utilized its incremental borrowing rate based on the information available at either the adoption of ASC 842 or the commencement date of the lease, whichever was later, when determining the present value of lease payments. ~~Accordingly, Customers does not present ROU assets and corresponding liabilities for operating leases for fiscal years prior to the adoption of this standard.~~

The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:


(amounts in thousands)	Classification	March 31, 2020		December 31, 2019
ASSETS
Operating lease ROU assets	Other assets	$	19,323	$	20,232
LIABILITIES
Operating lease liabilities	Other liabilities	$	20,483	$	21,358

(amounts in thousands) Classification March 31, 2019
ASSETS
Operating lease ROU assets Other assets $ 22,469
LIABILITIES
Operating lease liabilities Other liabilities $ 23,649

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The following table summarizes operating lease cost and its corresponding income statement ~~location:~~location for the periods presented:


		Three Months Ended March 31,				Three Months Ended March 31,
(amounts in thousands)	Classification	2019		(amounts in thousands)	Classification	2020		2019
Operating lease cost ⁽¹⁾	Occupancy expenses	$	1,469	Operating lease cost ⁽¹⁾	Occupancy expenses	$	1,480	$	1,469

(1) There were no0 variable lease costs for the three months ended March 31, 2020 and 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as ~~follows:~~follows at March 31, 2020:

(amounts in thousands) March 31, 2019
2019 $ 4,303
2020 5,135
2021 4,513
2022 3,885
2023 2,856
Thereafter 4,699
Total minimum payments 25,391
Less: interest 1,742
Present value of lease liabilities $ 23,649


(amounts in thousands)	March 31, 2020
2020	$	4,164
2021	4,914
2022	4,292
2023	3,303
2024	2,233
Thereafter	2,840
Total minimum payments	21,746
Less: interest	1,263
Present value of lease liabilities	$	20,483

Customers isdoes not ~~currently~~have leases where it is involved with the construction or design of an underlying ~~asset nor are there~~asset. Customers has legally binding minimum lease payments of $2.3 million for leases signed but not yet commenced as of March 31, ~~2019.~~2020. Cash paid ~~under the~~pursuant to operating lease liability was $1.5 million and $1.4 million for the three months ended March 31, 2020 and 2019, respectively, and is reported as cash flows ~~from~~used in operating activities in the statement of cash flows.

~~A ROU asset of $23.8 million, net of $1.1 million in accrued rent, was recognized in exchange for lease liabilities of $24.9 million with the adoption of ASU 2016-02 on January 1, 2019.~~

The following table summarizes the weighted average remaining lease term and discount rate ~~information~~ for Customers' operating ~~leases.~~



~~(amounts in thousands)~~	~~March 31, 2019~~
~~Weighted average remaining lease term (years)~~
~~Operating leases~~	~~5.6 years~~

~~Weighted average discount rate~~
~~Operating leases~~	~~2.74~~	%

~~Future minimum rental commitments pursuant to non-cancelable operating~~ leases ~~as of~~at March 31, 2020 and December 31, ~~2018, were as follows:~~2019:

(amounts in thousands) December 31, 2018
2019 $ 5,577
2020 5,135
2021 4,513
2022 3,885
2023 2,856
Thereafter 4,699
Total minimum payments $ 26,665

~~Rent expense was approximately $1.4 million for the three months ended March 31, 2018.~~

(amounts in thousands)

March 31, 2020

December 31, 2019

Weighted average remaining lease term (years)

Operating leases

4.9 years

5.0 years

Weighted average discount rate

Operating leases

2.89

2.90

Equipment Lessor

CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance ~~group.~~Group. CCF is primarily focused on originating equipment operating and direct finance equipment leases 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. Lease terms typically range from 24 months to 120 months. CCF offers the following lease products: Capital Lease, Purchase Upon Termination, TRAC, Split-TRAC, and FMV. Direct finance equipment leases are included in commercial and industrial ~~loans.~~loans and leases receivable.

The estimated residual values for direct finance and operating leases are established by utilizing internally developed ~~analysis,~~analyses, external studies, and/or third-party appraisals to establish a residual position. The residual values are reviewed on an annual basis, and in the event of any impairment, the resulting reduction in the net investment shall be recognized as a loss in the period in which the impairment is charged. For the direct finance leases, only for a Split-TRAC is there a residual risk and the unguaranteed portions are typically nominal. Expected credit losses on direct financing leases and the related estimated residual values are included in the allowance for credit losses on loans and leases.

Leased assets under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges and are presented in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to ~~their~~the expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its operating leased assets for impairment. An impairment loss is recognized if the carrying amount of the operating leased asset exceeds its fair value and is not recoverable. The carrying amount of operating leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.

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The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet ~~location:~~location at March 31, 2020 and December 31, 2019:


(amounts in thousands)	Classification	March 31, 2020		December 31, 2019
ASSETS
Direct financing leases
Lease receivables	Loans and leases receivable	$	98,031	$	91,762
Guaranteed residual assets	Loans and leases receivable	7,440		7,435
Unguaranteed residual assets	Loans and leases receivable	3,283		1,260
Deferred initial direct costs	Loans and leases receivable	664		721
Unearned income	Loans and leases receivable	(12,164)		(11,300)
Net investment in direct financing leases		$	97,254	$	89,878

Operating leases
Investment in operating leases	Other assets	$	114,223	$	107,850
Accumulated depreciation	Other assets	(17,667)		(14,251)
Deferred initial direct costs	Other assets	1,088		1,052
Net investment in operating leases		97,644		94,651
Total lease assets		$	194,898	$	184,529

(amounts in thousands) Classification March 31, 2019
ASSETS
Direct financing leases
Lease receivables Loans and leases receivable $ 56,553
Guaranteed residual assets Loans and leases receivable 5,540
Unguaranteed residual assets Loans and leases receivable 622
Deferred initial direct costs Loans and leases receivable 745
Unearned income Loans and leases receivable (6,342 )
Net investment in direct financing leases $ 57,118

Operating leases
Investment in operating leases Other assets $ 67,093
Accumulated depreciation Other assets (6,705 )
Deferred initial direct costs Other assets 864
Net investment in operating leases 61,252
Total lease assets $ 118,370

COVID-19 Impact on Leases

The table below summarizes the concessions which Customers granted to lessees as a result of the business impact of the COVID-19 pandemic and their financial effect as of and for the three months ended March 31, 2020:


	As of March 31, 2020
(dollars in thousands)	Number of Contracts	Principal Balance
Payment forgiveness	—	$	—
Payment deferral	12	382

Total	12	$	382

All of the above concessions were for direct finance leases. None of the lessees receiving concessions were in past due status prior to receiving the concessions. Accordingly, the concessions did not impact interest income from leases for the three months ended March 31, 2020. No concessions were processed for operating leases during the three months ended March 31, 2020. Additionally, Customers did not receive any concessions on its operating leases in which Customers is the lessee.

NOTE 89 — 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.

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In first quarter 2020, U.S federal banking regulatory agencies permitted banking organizations to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 31, 2020, the U.S. federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows banking organizations to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. Customers has elected to adopt the interim final rule, which is reflected in the regulatory capital data presented below.

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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:
	Actual						Adequately Capitalized						Well Capitalized				Basel III Compliant
(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2020:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	827,884	7.560	%	$	492,760	4.500	%	N/A		N/A		$	766,515	7.000	%
Customers Bank	$	1,158,308	10.599	%	$	491,793	4.500	%	$	710,368	6.500	%	$	765,011	7.000	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,045,355	9.546	%	$	657,013	6.000	%	N/A		N/A		$	930,768	8.500	%
Customers Bank	$	1,158,308	10.599	%	$	655,724	6.000	%	$	874,298	8.000	%	$	928,942	8.500	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,277,340	11.665	%	$	876,017	8.000	%	N/A		N/A		$	1,149,773	10.500	%
Customers Bank	$	1,334,108	12.207	%	$	874,298	8.000	%	$	1,092,873	10.000	%	$	1,147,517	10.500	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	1,045,355	9.011	%	$	464,045	4.000	%	N/A		N/A		$	464,045	4.000	%
Customers Bank	$	1,158,308	9.992	%	$	463,680	4.000	%	$	579,600	5.000	%	$	463,680	4.000	%
As of December 31, 2019:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	821,810	7.984	%	$	463,211	4.500	%	N/A		N/A		$	720,551	7.000	%
Customers Bank	$	1,164,652	11.323	%	$	462,842	4.500	%	$	668,549	6.500	%	$	719,976	7.000	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,039,281	10.096	%	$	617,615	6.000	%	N/A		N/A		$	874,955	8.500	%
Customers Bank	$	1,164,652	11.323	%	$	617,122	6.000	%	$	822,829	8.000	%	$	874,256	8.500	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,256,309	12.205	%	$	823,487	8.000	%	N/A		N/A		$	1,080,827	10.500	%
Customers Bank	$	1,330,155	12.933	%	$	822,829	8.000	%	$	1,028,537	10.000	%	$	1,079,964	10.500	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	1,039,281	9.258	%	$	449,026	4.000	%	N/A		N/A		$	449,026	4.000	%
Customers Bank	$	1,164,652	10.379	%	$	448,851	4.000	%	$	561,064	5.000	%	$	448,851	4.000	%

Minimum Capital Levels to be Classified as:
Actual Adequately Capitalized Well Capitalized Basel III Compliant
(amounts in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2019:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 759,887
8.914 % $ 383,603
4.500 % N/A
N/A
$ 596,715
7.000 %
Customers Bank $ 1,070,664
12.574 % $ 383,186
4.500 % $ 553,491
6.500 % $ 596,068
7.000 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 977,339
11.465 % $ 511,470
6.000 % N/A
N/A
$ 724,583
8.500 %
Customers Bank $ 1,070,664
12.574 % $ 510,915
6.000 % $ 681,220
8.000 % $ 723,796
8.500 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 1,101,041
12.916 % $ 691,960
8.000 % N/A
N/A
$ 895,073
10.500 %
Customers Bank $ 1,223,727
14.371 % $ 681,220
8.000 % $ 851,525
10.000 % $ 894,101
10.500 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc. $ 977,339
10.006 % $ 390,685
4.000 % N/A
N/A
$ 390,685
4.000 %
Customers Bank $ 1,070,664
10.969 % $ 390,430
4.000 % $ 488,038
5.000 % $ 390,430
4.000 %
As of December 31, 2018:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 745,795
8.964 % $ 374,388
4.500 % N/A
N/A
$ 530,384
6.375 %
Customers Bank $ 1,066,121
12.822 % $ 374,160
4.500 % $ 540,453
6.500 % $ 530,059
6.375 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 963,266
11.578 % $ 499,185
6.000 % N/A
N/A
$ 655,180
7.875 %
Customers Bank $ 1,066,121
12.822 % $ 498,879
6.000 % $ 665,173
8.000 % $ 654,779
7.875 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 1,081,962
13.005 % $ 665,580
8.000 % N/A
N/A
$ 821,575
9.875 %
Customers Bank $ 1,215,522
14.619 % $ 665,173
8.000 % $ 831,466
10.000 % $ 821,072
9.875 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc. $ 963,266
9.665 % $ 398,668
4.000 % N/A
N/A
$ 398,668
4.000 %
Customers Bank $ 1,066,121
10.699 % $ 398,570
4.000 % $ 498,212
5.000 % $ 398,570
4.000 %

The Basel III ~~risk-based capital rules adopted effective January 1, 2015~~Capital Rules require that ~~banks and holding companies~~we 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. The2.500% capital conservation buffer ~~was phased in over four years beginning on January~~with respect to each of CET1, Tier 1 ~~2016,~~and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a ~~maximum~~conservation buffer of ~~0.625% of risk weighted assets for 2016, 1.250% for 2017, 1.875% for 2018, and 2.500% for 2019 and thereafter.~~

~~Effective January 1, 2019, 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 7.000%;~~

~~(ii) a Tier 1 risk-based capital ratio of 8.500%; and~~

~~(iii) a Total risk-based capital ratio of 10.500%.~~

~~Failure to maintain~~less than the required ~~capital conservation buffer will result in~~amount is subject to limitations on capital distributions, including dividend payments and onstock repurchases, and certain discretionary ~~bonuses~~bonus payments to executive officers.

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NOTE 910 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Customers uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose the fair value of its financial instruments. ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For Customers, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. Many of these ~~financial~~ instruments lack an available trading market as characterized by a willing buyer and a willing seller engaging in an exchange transaction. For fair value disclosure purposes, Customers utilized certain fair value measurement criteria under ASC ~~Topic~~ 820, Fair Value Measurements and Disclosures, as explained below.

In accordance with ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for Customers' various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, focusing on an exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

The fair value guidance also establishes a fair value hierarchy and describes the following three levels used to classify fair value measurements.

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require adjustments to inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used to estimate the fair values of Customers' financial instruments as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

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 and debt securities reported at fair value based on a fair value option election are determined by obtaining quoted market prices on nationally recognized and foreign securities exchanges (Level 1), quoted prices in markets that are not active (Level 2), 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 internally and 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.

Loans held for sale - ~~consumer residential~~Residential mortgage loans (fair value option):

Customers 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.

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Loans receivable - ~~commercial~~Commercial mortgage warehouse loans (fair value option):

The fair value of commercial 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 the mortgage loans and the finalization of the sale of the loans to an investor. Changes in fair value are not generally expected to be recognized because at inception of the transaction the underlying mortgage 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 20under 30 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, interest rate caps 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 Customers 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. Customers 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~~Customers' 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.

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 Customers' disclosures and those of other companies may not be meaningful.

Financial Instruments Recorded at Fair Value on a Nonrecurring Basis

~~Impaired~~Collateral-dependent loans:

~~Impaired~~Collateral-dependent loans are those loans that are accounted for under ASC ~~310, Receivables,~~326, Financial Instruments - Credit Losses, 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.~~proceeds, sales agreements or letters of intent with third parties. 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 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.

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The estimated fair values of Customers' financial instruments at March 31, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows.


					Fair Value Measurements at March 31, 2020
(amounts in thousands)	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)
Assets:
Cash and cash equivalents	$	256,232	$	256,232	$	256,232	$	—	$	—
Debt securities, available for sale	696,353		696,353		—		696,353		—
Interest-only GNMA securities	15,276		15,276		—		—		15,276
Equity securities	1,028		1,028		1,028		—		—
Loans held for sale	450,157		450,157		—		1,388		448,769

Total loans and leases receivable, net of allowance for credit losses on loans and leases	9,721,991		10,198,615		—		2,518,012		7,680,603
FHLB, Federal Reserve Bank and other restricted stock	87,140		87,140		—		87,140		—
Derivatives	66,449		66,449		—		66,234		215

Liabilities:
Deposits	$	8,413,643	$	8,425,067	$	7,014,296	$	1,410,771	$	—

FRB advances	175,000		175,000		175,000		—		—
Federal funds purchased	705,000		705,000		705,000		—		—
FHLB advances	1,260,000		1,266,251		410,000		856,251		—
Other borrowings	123,732		97,517		—		97,517		—
Subordinated debt	181,185		154,304		—		154,304		—
Derivatives	118,189		118,189		—		118,189		—

Fair Value Measurements at March 31, 2019
(amounts in thousands) 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)
Assets:
Cash and cash equivalents $ 117,662
$ 117,662
$ 117,662
$ —
$ —
Debt securities, available for sale 676,422
676,422
—
676,422
—
Equity securities 1,720
1,720
1,720
—
—
Loans held for sale 1,602
1,602
—
1,602
—
Total loans and leases receivable, net of allowance for loan and lease losses 8,700,565
8,774,518
—
1,480,195
7,294,323
FHLB, Federal Reserve Bank and other restricted stock 80,416
80,416
—
80,416
—
Derivatives 14,665
14,665
—
14,588
77
Liabilities:
Deposits $ 7,425,318
$ 7,422,232
$ 5,867,017
$ 1,555,215
$ —
Federal funds purchased 388,000
388,000
388,000
—
—
FHLB advances 1,025,832
1,025,830
500,832
524,998
—
Other borrowings 123,963
123,591
—
123,591
—
Subordinated debt 109,002
113,988
—
113,988
—
Derivatives 23,837
23,837
—
23,837
—

Fair Value Measurements at December 31, 2018
(amounts in thousands) 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)
Assets:
Cash and cash equivalents $ 62,135
$ 62,135
$ 62,135
$ —
$ —
Debt securities, available for sale 663,294
663,294
—
663,294
—
Equity securities 1,718
1,718
1,718
—
—
Loans held for sale 1,507
1,507
—
1,507
—
Total loans and leases receivable, net of allowance for loan and lease losses 8,503,522
8,481,128
—
1,405,420
7,075,708
FHLB, Federal Reserve Bank and other restricted stock 89,685
89,685
—
89,685
—
Derivatives 14,693
14,693
—
14,624
69
Liabilities:
Deposits $ 7,142,236
$ 7,136,009
$ 5,408,055
$ 1,727,954
$ —
Federal funds purchased 187,000
187,000
187,000
—
—
FHLB advances 1,248,070
1,248,046
998,070
249,976
—
Other borrowings 123,871
121,718
—
121,718
—
Subordinated debt 108,977
110,550
—
110,550
—
Derivatives 16,286
16,286
—
16,286
—


					Fair Value Measurements at December 31, 2019
(amounts in thousands)	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)
Assets:
Cash and cash equivalents	$	212,505	$	212,505	$	212,505	$	—	$	—
Debt securities, available for sale	577,198		577,198		—		577,198		—
Interest-only GNMA securities	16,272		16,272		—		—		16,272
Equity securities	2,406		2,406		2,406		—		—
Loans held for sale	486,328		486,328		—		2,130		484,198

Total loans and leases receivable, net of allowance for credit losses on loans and leases	9,508,367		9,853,037		—		2,245,758		7,607,279
FHLB, Federal Reserve Bank and other restricted stock	84,214		84,214		—		84,214		—
Derivatives	23,608		23,608		—		23,529		79

Liabilities:
Deposits	$	8,648,936	$	8,652,340	$	6,980,402	$	1,671,938	$	—

Federal funds purchased	538,000		538,000		538,000		—		—
FHLB advances	850,000		852,162		—		852,162		—
Other borrowings	123,630		127,603		—		127,603		—
Subordinated debt	181,115		192,217		—		192,217		—
Derivatives	45,939		45,939		—		45,939		—

Table of Contents

For financial assets and liabilities measured at fair value on a recurring and nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:


	March 31, 2020
	Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Measured at Fair Value on a Recurring Basis:
Assets
Available for sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	172,814	$	—	$	172,814
Agency-guaranteed collateralized mortgage obligations	—		153,952		—		153,952

State and political subdivision debt securities	—		15,157		—		15,157
Collateralized mortgage obligations	—		5,566		—		5,566
Corporate notes	—		348,864		—		348,864
Interest-only GNMA securities	—		—		15,276		15,276
Equity securities	1,028		—		—		1,028
Derivatives	—		66,234		215		66,449
Loans held for sale – fair value option	—		1,388		—		1,388
Loans receivable, mortgage warehouse – fair value option	—		2,518,012		—		2,518,012
Total assets – recurring fair value measurements	$	1,028	$	3,281,987	$	15,491	$	3,298,506
Liabilities
Derivatives	$	—	$	118,189	$	—	$	118,189
Measured at Fair Value on a Nonrecurring Basis:
Assets

Collateral-dependent loans, net of specific reserves of $854	$	—	$	—	$	28,923	$	28,923

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	March 31, 2019									December 31, 2019
	Fair Value Measurements at the End of the Reporting Period Using									Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)	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)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Measured at Fair Value on a Recurring Basis:									Measured at Fair Value on a Recurring Basis:
Assets									Assets
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	304,144	$	—	$	304,144
Available for sale debt securities:									Available for sale debt securities:
Agency-guaranteed residential mortgage–backed securities									Agency-guaranteed residential mortgage–backed securities	$	—	$	278,321	$	—	$	278,321

Corporate notes	—		372,278		—		372,278		Corporate notes	—		298,877		—		298,877
Interest-only GNMA securities									Interest-only GNMA securities	—		—		16,272		16,272
Equity securities	1,720		—		—		1,720		Equity securities	2,406		—		—		2,406
Derivatives	—		14,588		77		14,665		Derivatives	—		23,529		79		23,608
Loans held for sale – fair value option	—		1,602		—		1,602		Loans held for sale – fair value option	—		2,130		—		2,130
Loans receivable, mortgage warehouse – fair value option	—		1,480,195		—		1,480,195		Loans receivable, mortgage warehouse – fair value option	—		2,245,758		—		2,245,758
Total assets – recurring fair value measurements	$	1,720	$	2,172,807	$	77	$	2,174,604	Total assets – recurring fair value measurements	$	2,406	$	2,848,615	$	16,351	$	2,867,372
Liabilities									Liabilities
Derivatives	$	—	$	23,837	$	—	$	23,837	Derivatives	$	—	$	45,939	$	—	$	45,939
Measured at Fair Value on a Nonrecurring Basis:									Measured at Fair Value on a Nonrecurring Basis:
Assets									Assets
Impaired loans, net of reserves of $380	$	—	$	—	$	12,668	$	12,668
Impaired loans, net of specific reserves of $852									Impaired loans, net of specific reserves of $852	$	—	$	—	$	14,272	$	14,272
Other real estate owned	—		—		781		781		Other real estate owned	—		—		78		78
Total assets – nonrecurring fair value measurements	$	—	$	—	$	13,449	$	13,449	Total assets – nonrecurring fair value measurements	$	—	$	—	$	14,350	$	14,350

December 31, 2018
Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total
Measured at Fair Value on a Recurring Basis:
Assets
Available-for-sale securities:
Agency-guaranteed residential mortgage–backed securities $ —
$ 305,374
$ —
$ 305,374
Corporate notes —
357,920
—
357,920
Equity securities 1,718
—
—
1,718
Derivatives —
14,624
69
14,693
Loans held for sale – fair value option —
1,507
—
1,507
Loans receivable, mortgage warehouse – fair value option —
1,405,420
—
1,405,420
Total assets – recurring fair value measurements $ 1,718
$ 2,084,845
$ 69
$ 2,086,632
Liabilities
Derivatives $ —
$ 16,286
$ —
$ 16,286
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of reserves of $845 $ —
$ —
$ 10,876
$ 10,876
Other real estate owned —
—
621
621
Total assets – nonrecurring fair value measurements $ —
$ —
$ 11,497
$ 11,497

Table of Contents

The changes in ~~Level~~residential mortgage loan commitments (Level 3 ~~assets~~assets) measured at fair value on a recurring basis for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 are summarized in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 1011 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES.


	Residential Mortgage Loan Commitments
	Three Months Ended March 31,
(amounts in thousands)	2020		2019
Balance at December 31	$	79	$	69
Issuances	215		77
Settlements	(79)		(69)
Balance at March 31	$	215	$	77

Residential Mortgage Loan Commitments
Three Months Ended March 31,
(amounts in thousands) 2019 2018
Balance at December 31 $ 69
$ 60
Issuances 77
83
Settlements (69 ) (60 )
Balance at March 31 $ 77
$ 83

There were no transfers between levels during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

The following table summarizes financial assets and financial liabilities measured at fair value as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 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. The interest-only GNMA securities are Level 3 assets measured at fair value on a recurring basis under a fair value option election. For the three months ended March 31, 2020, cash settlements of $1.0 million were applied to the carrying value of the interest-only GNMA securities, net of premium amortization expense. At March 31, 2020, Customers used an internally developed discounted cash flow model to value the interest-only GNMA securities. The significant unobservable input used in the discounted cash flow model included prepayment speed. Significant increases (decreases) in this input would result in a significantly lower (higher) fair value measurement.

Quantitative Information about Level 3 Fair Value Measurements
March 31, 2019
Fair Value
Estimate
Valuation Technique Unobservable Input
Range
(Weighted Average)
(amounts in thousands)
Impaired loans - real estate $ 5,270

Collateral appraisal ⁽¹⁾

Liquidation expenses ⁽²⁾
8% - 8%
(8%)
Impaired loans - commercial & industrial 7,398

Business asset valuation ⁽³⁾

Business asset valuation adjustments ⁽⁴⁾
8% - 50%
(17%)
Other real estate owned 781

Collateral appraisal ⁽¹⁾

Liquidation expenses ⁽²⁾
8% - 13%
(9%)
Residential mortgage loan commitments 77
Adjusted market bid Pull-through rate 83% - 83%
(83%)

Quantitative Information about Level 3 Fair Value Measurements
December 31, 2018
Fair Value
Estimate
Valuation Technique Unobservable Input
Range
(Weighted Average)
(amounts in thousands)
Impaired loans - real estate $ 10,260

Collateral appraisal ⁽¹⁾

Liquidation expenses ⁽²⁾
8% - 8%
(8%)
Impaired loans - commercial & industrial 616

Business asset valuation ⁽³⁾

Business asset valuation adjustments ⁽⁴⁾
8% - 50%
(26%)
Other real estate owned 621

Collateral appraisal ⁽¹⁾

Liquidation expenses ⁽²⁾
8% - 8%
(8%)
Residential mortgage loan commitments 69
Adjusted market bid Pull-through rate 90% - 90%
(90%)

~~(1)~~

~~Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. Customers does not generally discount appraisals.~~Quantitative Information about Level 3 Fair Value Measurements

~~(2)~~March 31, 2020

~~Appraisals are adjusted by management for liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percentage of the appraisal.~~Fair Value
Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average) ⁽⁴⁾

(amounts in thousands)

~~(3)~~Collateral-dependent – real estate	$	27,735	Collateral appraisal ⁽¹⁾ Business asset valuation ~~obtained from independent party.~~⁽³⁾	Liquidation expenses ⁽²⁾ Business asset valuation⁽⁴⁾	8% - 10% (8%) 11% - 45% (20%)


~~(4)~~Collateral-dependent loans – commercial & industrial	1,188	Collateral appraisal ⁽¹⁾ 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~~valuation ⁽³⁾	Liquidation expenses⁽²⁾ Business asset valuation adjustments ~~are presented as a percent of the business asset valuation.~~⁽⁴⁾	8% - 8% (8%) 8% - 8% (8%)
Interest-only GNMA securities	15,276	Discounted cash flow	Constant prepayment rate	5% - 13% (12%)

Residential mortgage loan commitments	215	Adjusted market bid	Pull-through rate	80% - 80% (80%)

(1)Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. Customers does not generally discount appraisals.   Fair value is also estimated based on sale agreements or letters of intent with third parties.

(2)Appraisals are adjusted by management for liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percentage of the appraisal.

(3)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 percent of the business asset valuation.

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Quantitative Information about Level 3 Fair Value Measurements

December 31, 2019

Fair Value
Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average) ⁽⁴⁾

(amounts in thousands)

Impaired loans – real estate

12,767

Collateral appraisal ⁽¹⁾

Business asset valuation⁽³⁾

Liquidation expenses ⁽²⁾

Business asset valuation⁽⁴⁾

8% - 10%

(8%)

34% - 45%

(37%)

Impaired loans – commercial & industrial

1,505

Collateral appraisal ⁽¹⁾

Business asset valuation ⁽³⁾

Liquidation expenses ⁽²⁾

Business asset valuation adjustments ⁽⁴⁾

8% - 8%

(8%)

8% - 50%

(22%)

Interest-only GNMA securities

16,272

Discounted cash flow

Constant prepayment rate

9% - 14%

12%

Other real estate owned

Collateral appraisal ⁽¹⁾

Liquidation expenses ⁽²⁾

8% - 9%

(9%)

Residential mortgage loan commitments

Adjusted market bid

Pull-through rate

85% - 85%

(85%)

(1)Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. Customers does not generally discount appraisals.

(2)Appraisals are adjusted by management for liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percentage of the appraisal.

(3)Business asset valuation obtained from independent party.

NOTE 1011 — 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~~values of which are determined by interest rates. ~~Customers'~~Customers’ derivative financial instruments are used to manage differences in the amount, timing, and duration of ~~Customers'~~Customers’ known or expected cash receipts and its known or expected cash payments principally related to certain ~~borrowings.~~borrowings and deposits. Customers also has interest-rate derivatives resulting from a service provided to certain qualifying customers, and therefore, they are not used to manage ~~Customers'~~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~~Interest-Rate Risk

~~Customers'~~Customers’ objectives in using interest-rate derivatives are to add stability to interest expense and to manage exposure to ~~interest-rate~~interest rate movements. To accomplish this objective, Customers primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for Customers making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The changes in the fair value of derivatives designated and qualifying as cash flow hedges isare recorded in ~~AOCI~~accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged ~~forecasted transaction~~item affects earnings. To date, such derivatives were used to hedge the variable cash flows associated with the forecasted issuances of ~~debt.~~debt and a certain variable-rate deposit relationship.

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 ~~AOCI~~accumulated other comprehensive income (loss) are reclassified immediately into earnings and any subsequent changes in the fair value of such derivatives are recognized directly in earnings.

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Amounts reported in ~~AOCI~~accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on Customers' variable-rate ~~debt.~~debt and a variable-rate deposit relationship. Customers expects to reclassify ~~$1.0~~$14.6 million of losses from ~~AOCI~~accumulated other comprehensive income (loss) to interest expense during the next 12 months.

Customers is hedging its exposure to the variability in future cash flows for forecasted transactions (3-month FHLB ~~advances)~~advances and Fed fund purchases) and a variable-rate deposit relationship over a maximum period of 6373 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

At March 31, ~~2019,~~2020, Customers had ~~five~~5 outstanding interest rate derivatives with notional amounts totaling ~~$675.0~~$1.1 billion that were designated as cash flow hedges of interest-rate risk. At December 31, 2019, Customers had 4 outstanding interest rate derivatives with notional amounts totaling $725.0 million that were designated as cash flow hedges of interest ~~rate risk. At December 31, 2018, Customers had six outstanding interest rate derivatives with notional amounts totaling $750.0 million that were designated as cash flow hedges of interest rate risk.~~rate-risk. The outstanding cash flow hedges at March 31, ~~2019~~2020 expire between ~~April 2019~~June 2021 and ~~July 2024.~~May 2026.

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). and interest rate caps with commercial banking customers to facilitate their respective risk management strategies. The customer interest rate swaps and interest rate caps are simultaneously offset by interest rate swaps and interest rate caps that Customers executes with a third party in order to minimize ~~interest rate~~interest-rate risk exposure resulting from such transactions. As the interest rate swaps and interest rate caps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and caps and the offsetting third-party market swaps and caps are recognized directly in earnings. At March 31, ~~2019 and December 31, 2018,~~2020, Customers had 98152 interest rate swaps with an aggregate notional amount of ~~$1.0~~$1.5 billion and 4 interest rate caps with an aggregated notional amount of $77.6 million related to this program. At December 31, 2019, Customers had 140 interest rate swaps with an aggregate notional amount of $1.4 billion and 4 interest rate caps with an aggregate notional amount of $78.6 million related to this program.

Customers enters into residential mortgage loan commitments in connection with its consumer mortgage banking activities to fund mortgage loans at specified rates and times in the future. These commitments are short-term in nature and generally expire in 30 to 60 days. The residential mortgage loan commitments that relate to the origination of mortgage loans that will be held for sale are considered derivative instruments under ~~the~~ applicable accounting guidance and are reported at fair value, with changes in fair value recorded directly in earnings. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Customers had an outstanding notional balance of residential mortgage loan commitments of ~~$5.8~~$12.5 million and ~~$3.6~~$4.5 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~~reported directly in earnings. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Customers had outstanding notional balances of credit derivatives of ~~$115.8~~$172.4 million and ~~$94.9~~$167.1 million, respectively.

Fair Value of Derivative Instruments on the Balance Sheet

The following tables present the fair value of Customers' derivative financial instruments as well as their presentation on the balance sheet as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.


	March 31, 2020
	Derivative Assets				Derivative Liabilities
(amounts in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	578	Other liabilities	$	48,344
Total		$	578		$	48,344
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	65,207	Other liabilities	$	69,259
Interest rate caps	Other assets	18		Other liabilities	18
Credit contracts	Other assets	431		Other liabilities	568
Residential mortgage loan commitments	Other assets	215		Other liabilities	—
Total		$	65,871		$	69,845

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	March 31, 2019							December 31, 2019
	Derivative Assets			Derivative Liabilities				Derivative Assets				Derivative Liabilities
(amounts in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		(amounts in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:							Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	38	Other liabilities	$	8,636	Interest rate swaps	Other assets	$	—	Other liabilities	$	21,374
Total		$	38		$	8,636	Total		$	—		$	21,374
Derivatives not designated as hedging instruments:							Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	14,369	Other liabilities	$	15,136	Interest rate swaps	Other assets	$	23,301	Other liabilities	$	24,797
Interest rate caps							Interest rate caps	Other assets	9		Other liabilities	9
Credit contracts	Other assets	181		Other liabilities	65		Credit contracts	Other assets	219		Other liabilities	(241)
Residential mortgage loan commitments	Other assets	77		Other liabilities	—		Residential mortgage loan commitments	Other assets	79		Other liabilities	—
Total		$	14,627		$	15,201	Total		$	23,608		$	24,565

Effect of Derivative Instruments on Net Income

December 31, 2018
Derivative Assets Derivative Liabilities
(amounts in thousands) Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Derivatives designated as cash flow hedges:
Interest rate swaps Other assets $ 256
Other liabilities $ 1,502
Total $ 256
$ 1,502
Derivatives not designated as hedging instruments:
Interest rate swaps Other assets $ 14,300
Other liabilities $ 14,730
Credit contracts Other assets 68
Other liabilities 54
Residential mortgage loan commitments Other assets 69
Other liabilities —
Total $ 14,437
$ 14,784
The following tables present amounts included in the consolidated statements of income related to derivatives not designated as hedges for the three months ended March 31, 2020 and 2019.


		Amount of Income (Loss) Recognized in Earnings
		Three Months Ended March 31,
(amounts in thousands)	Income Statement Location	2020		2019
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	(1,015)	$	(287)
Interest rate caps	Other non-interest income	—		—
Credit contracts	Other non-interest income	(132)		102
Residential mortgage loan commitments	Mortgage banking income	137		8
Total		$	(1,010)	$	(177)

Effect of Derivative Instruments on Comprehensive Income

The following ~~tables present~~table presents the effect of Customers' derivative financial instruments on comprehensive income for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

Three Months Ended March 31, 2019
(amounts in thousands) Income Statement Location Amount of Income (Loss) Recognized in Earnings
Derivatives not designated as hedging instruments:
Interest rate swaps Other non-interest income $ (287 )
Credit contracts Other non-interest income 102
Residential mortgage loan commitments Mortgage banking income 8
Total $ (177 )

Three Months Ended March 31, 2018
(amounts in thousands) Income Statement Location Amount of Income (Loss) Recognized in Earnings
Derivatives not designated as hedging instruments:
Interest rate swaps Other non-interest income $ 385
Credit contracts Other non-interest income (23 )
Residential mortgage loan commitments Mortgage banking income 23
Total $ 385

Three Months Ended March 31, 2019
(amounts in thousands) 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
Derivatives in cash flow hedging relationships:
Interest rate swaps $ (5,135 ) Interest expense $ 413


								Three months ended March 31,								Three months ended March 31,
	Three Months Ended March 31, 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)	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)	2020		2019				2020		2019
Derivatives in cash flow hedging relationships:							Derivatives in cash flow hedging relationships:
Interest rate swaps	$	646	Interest expense	$	(131	)	Interest rate swaps	$	(20,346)	$	(5,135)	Interest expense		$	(1,478)	$	413

(1) Amounts presented are net of taxes. See NOTE 4 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) for the total effect on other comprehensive income (loss) from derivatives designated as cash flow hedges for the periods presented.

Credit-risk-related Contingent Features

By entering into derivative contracts, Customers is exposed to credit risk. The credit risk associated with derivatives executed with customers is the same as that involved in extending the related loans and is subject to the same standard credit policies. To mitigate the credit-risk exposure to major derivative dealer counterparties, Customers only enters into agreements with those counterparties that maintain credit ratings of high quality.

Agreements with major derivative dealer counterparties contain provisions whereby default on any of Customers' indebtedness would be considered a default on its derivative obligations. Customers also has entered into agreements that contain provisions under which the counterparty could require Customers to settle its obligations if Customers fails to maintain its status as a well/adequately capitalized

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institution. As of March 31, ~~2019,~~2020, the fair value of derivatives in a net liability position (which includes accrued interest but excludes any adjustment for ~~nonperformance risk)~~nonperformance-risk) related to these agreements was ~~$16.0~~$118.5 million. In addition, Customers, which has collateral posting thresholds with certain of these counterparties, ~~and at March 31, 2019,~~ had posted ~~$19.5~~$117.6 million of cash as ~~collateral.~~collateral at March 31, 2020. Customers records cash posted as collateral as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets.

Disclosures about Offsetting Assets and Liabilities

The following tables present derivative instruments that are subject to enforceable master netting arrangements. Customers' interest rate swaps and interest rate caps with institutional counterparties are subject to master netting arrangements and are included in the table below. Interest rate swaps and interest rate caps 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.


	Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)					Financial Instruments		Cash Collateral Received/(Posted)		Net Amount
March 31, 2020
Interest rate derivative assets with institutional counterparties	$	578	$	—	$	—	$	578

Interest rate derivative liabilities with institutional counterparties	$	117,602	$	—	$	(117,602)	$	—

~~Offsetting of Financial Assets and Derivative Assets~~

~~At March 31, 2019~~

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
(amounts in thousands) Financial Instruments Cash Collateral Received Net Amount
Description
Interest rate swap derivatives with institutional counterparties $ 3,816
$ —
$ 3,816
$ —
$ —
$ 3,816

~~Offsetting of Financial Assets and Derivative Assets~~


	Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)					Financial Instruments		Cash Collateral Received/(Posted)		Net Amount
December 31, 2019
Interest rate derivative assets with institutional counterparties	$	432	$	—	$	—	$	432

Interest rate derivative liabilities with institutional counterparties	$	45,727	$	—	$	(45,727)	$	—

~~At December 31, 2018~~

~~Offsetting of Financial Liabilities and Derivative Liabilities~~

~~At March 31, 2019~~

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
(amounts in thousands) Financial Instruments Cash Collateral Pledged Net Amount
Description
Interest rate swap derivatives with institutional counterparties $ 20,036
$ —
$ 20,036
$ —
$ 19,462
$ 574

~~Offsetting of Financial Liabilities and Derivative Liabilities~~

~~At December 31, 2018~~

Gross Amount of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Liabilities Presented in the Consolidated Balance Sheet Gross Amounts Not Offset in the Consolidated Balance Sheet Net Amount
(amounts in thousands) Financial Instruments Cash Collateral Pledged
Description
Interest rate swap derivatives with institutional counterparties $ 9,077
$ —
$ 9,077
$ —
$ 702
$ 8,375

NOTE 1112 — BUSINESS SEGMENTS

~~Customers'~~Customers’ segment financial reporting reflects the manner in which its chief operating decision makers allocate resources and assess performance. Management has determined that ~~Customers'~~Customers’ operations consist of ~~two~~2 reportable segments - Customers Bank 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 Customers Bank 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, commercial mortgage companies, and equipment finance. Revenues are generated primarily through net interest income (the difference between interest earned on loans and leases, 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 BOLI.

The BankMobile segment provides state-of-the-art high-tech digital banking and disbursement services to consumers, students, and the "under banked" nationwide, along with "Banking as a Service" offerings with white label partners. BankMobile is a full-service fintech 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 interest income on other consumer loans, 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

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ongoing business acquired through the Disbursement business acquisition and costs associated with the development of white label products for its ~~partners.~~partner.

The following tables present the operating results for Customers' reportable business segments for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. The segment financial results include directly attributable revenues and expenses. Consistent with the presentation of segment results to Customers' chief operating decision makers, overhead costs and preferred stock dividends are assigned to the Customers Bank Business Banking segment. The tax benefit assigned to BankMobile was based on an estimated effective tax rate of 20.35% for 2020 and 23.15% for 2019, ~~and 24.56% for 2018,~~ respectively.

Three Months Ended March 31, 2019
(amounts in thousands) Customers Bank Business Banking BankMobile Consolidated
Interest income ⁽¹⁾
$ 92,871
$ 8,204
$ 101,075
Interest expense 41,605
166
41,771
Net interest income 51,266
8,038
59,304
Provision for loan losses 2,976
1,791
4,767
Non-interest income 7,577
12,141
19,718
Non-interest expense 35,384
18,600
53,984
Income (loss) before income tax expense (benefit) 20,483
(212 ) 20,271
Income tax expense (benefit) 4,880
(49 ) 4,831
Net income (loss) 15,603
(163 ) 15,440
Preferred stock dividends 3,615
—
3,615
Net income (loss) available to common shareholders $ 11,988
$ (163 ) $ 11,825

As of March 31, 2019
Goodwill and other intangibles $ 3,629
$ 12,544
$ 16,173
Total assets $ 9,916,308
$ 227,586
$ 10,143,894
Total deposits $ 6,798,562
$ 626,756
$ 7,425,318
Total non-deposit liabilities $ 1,719,469
$ 20,734
$ 1,740,203


	Three Months Ended March 31, 2020
(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated
Interest income ⁽¹⁾	$	112,717	$	12,626	$	125,343
Interest expense	43,678		344		44,022
Net interest income	69,039		12,282		81,321
Provision for credit losses on loans and leases	27,298		4,488		31,786
Non-interest income	11,136		10,794		21,930
Non-interest expense	43,860		22,599		66,459
Income (loss) before income tax expense (benefit)	9,017		(4,011)		5,006
Income tax expense (benefit)	2,722		(816)		1,906
Net income (loss)	6,295		(3,195)		3,100
Preferred stock dividends	3,615		—		3,615
Net income (loss) available to common shareholders	$	2,680	$	(3,195)	$	(515)

As of March 31, 2020
Goodwill and other intangibles	$	3,629	$	11,241	$	14,870
Total assets ⁽²⁾	$	11,418,000	$	600,799	$	12,018,799
Total deposits	$	7,803,878	$	609,765	$	8,413,643
Total non-deposit liabilities ⁽²⁾	$	2,611,684	$	28,836	$	2,640,520


	Three Months Ended March 31, 2019
(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated
Interest income ⁽¹⁾	$	92,871	$	8,204	$	101,075
Interest expense	41,605		166		41,771
Net interest income	51,266		8,038		59,304
Provision for credit losses on loans and leases	2,976		1,791		4,767
Non-interest income	7,577		12,141		19,718
Non-interest expense	35,384		18,600		53,984
Income (loss) before income tax expense (benefit)	20,483		(212)		20,271
Income tax expense (benefit)	4,880		(49)		4,831
Net income (loss)	15,603		(163)		15,440
Preferred stock dividends	3,615		—		3,615
Net income (loss) available to common shareholders	$	11,988	$	(163)	$	11,825

As of March 31, 2019
Goodwill and other intangibles	$	3,629	$	12,544	$	16,173
Total assets ⁽²⁾	$	9,916,308	$	227,586	$	10,143,894
Total deposits	$	6,798,562	$	626,756	$	7,425,318
Total non-deposit liabilities ⁽²⁾	$	1,719,469	$	20,734	$	1,740,203

(1) Amounts reported include funds transfer pricing of $1.4 million and $5.6 million, for the three months ended March 31, 2020 and 2019, respectively, credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of excess low/no cost deposits.

Three Months Ended March 31, 2018
(amounts in thousands) Customers Bank Banking BankMobile Consolidated
Interest income ⁽²⁾
$ 92,554
$ 4,410
$ 96,964
Interest expense 31,917
16
31,933
Net interest income 60,637
4,394
65,031
Provision for loan losses 1,874
243
2,117
Non-interest income 8,439
12,471
20,910
Non-interest expense 34,331
17,949
52,280
Income (loss) before income tax expense (benefit) 32,871
(1,327 ) 31,544
Income tax expense (benefit) 7,728
(326 ) 7,402
Net income (loss) 25,143
(1,001 ) 24,142
Preferred stock dividends 3,615
—
3,615
Net income (loss) available to common shareholders $ 21,528
$ (1,001 ) $ 20,527

As of March 31, 2018
Goodwill and other intangibles $ 3,630
$ 13,847
$ 17,477
Total assets $ 10,690,479
$ 78,787
$ 10,769,266
Total deposits $ 6,418,810
$ 623,649
$ 7,042,459
Total non-deposit liabilities $ 2,759,156
$ 48,563
$ 2,807,719

(2) Amounts reported ~~include funds transfer pricing~~exclude inter-segment receivables/payables.

Table of ~~$4.4 million for the three months ended March 31, 2018 credited to BankMobile for the value provided to the Customers Bank Business Banking segment for the use of low/no cost deposits.~~Contents

NOTE 1213 - NON-INTEREST REVENUES

Customers' revenue from contracts with customers in scope of ASC 606 is recognized within non-interest income.

The following ~~tables present~~table presents Customers' non-interest revenues affected by ASC 606 by business segment for the three months ended March 31, ~~2019~~2020 and ~~2018:~~

2019:


	Three Months Ended March 31, 2020										Three Months Ended March 31, 2019
(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated











Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and card revenue	$	270	$	6,539	$	6,809	$	180	$	8,626	$	8,806
Deposit fees	552		2,908		3,460		300		1,909		2,209
University fees - card and disbursement fees	—		292		292		—		355		355


Total revenue recognized at point in time	822		9,739		10,561		480		10,890		11,370
Revenue recognized over time:
University fees - subscription revenue	—		992		992		—		979		979
Total revenue recognized over time	—		992		992		—		979		979
Total revenue from contracts with customers	$	822	$	10,731	$	11,553	$	480	$	11,869	$	12,349

Three Months Ended March 31, 2019
(amounts in thousands) Community Business Banking BankMobile Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and card revenue $ 180
$ 8,626
$ 8,806
Deposit fees 300
1,909
2,209
University fees - card and disbursement fees —
355
355
Total revenue recognized at point in time 480
10,890
11,370
Revenue recognized over time:
University fees - subscription revenue —
979
979
Total revenue recognized over time —
979
979
Total revenue from contracts with customers $ 480
$ 11,869
$ 12,349
NOTE 14 — LOSS CONTINGENCIES

Three Months Ended March 31, 2018
(amounts in thousands) Community Business Banking BankMobile Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and card revenue $ 223
$ 9,438
$ 9,661
Deposit fees 287
1,805
2,092
University fees - card and disbursement fees —
326
326
Total revenue recognized at point in time 510
11,569
12,079
Revenue recognized over time:
University fees - subscription revenue —
870
870
Total revenue recognized over time —
870
870
Total revenue from contracts with customers $ 510
$ 12,439
$ 12,949

~~NOTE 13 — LEGAL CONTINGENCIES~~

~~Halbreiner Matter~~

~~On December 16, 2016, Elizabeth Halbreiner~~Loss contingencies, including claims and ~~Robert Halbreiner (“Plaintiffs”) filed a Second Amended Complaint captioned~~ Elizabeth Halbreiner and Robert Halbreiner, v. Customers Bank, Robert B.White, Richard A. Ehst, Thomas Jastrem, Timothy D. Romig, Andrew Bowman, Michael Fuoco, Saldutti Law Group f/k/a Saldutti, LLC a/k/a Saldutti Law, LLC, Robert L. Saldutti, LLC, Robert L. Saldutti, Esquire, Brian J. Schaffer, Esquire, Robert Lieber, Jr., Esquire, Jay Sidhu, James Zardecki, Zardecki Associates LLC, No. 01419legal actions arising in the ~~First Judicial District~~ordinary course of ~~Pennsylvania, Court of Common Pleas of Philadelphia, Trial Division~~. In this Second Amended Complaint, the Plaintiffs generally allege that Customers Bank, and the other named defendants, conspired to misuse the legal system for improper purposes and it also alleges defamation, false light, tortious interference with contractual relations, infliction of emotional distress, negligent infliction of emotional distress and loss of consortium. ~~On January 6, 2017, Customers Bank filed Preliminary Objections to the Complaint seeking dismissal of the Plaintiff’s claims against Customers Bank and the employees of Customers Bank named~~business, are recorded as ~~co-defendants.~~On April 6, 2017, the Court dismissed certain counts and determined to allow certain other counts to proceed. Customers Bank intends to vigorously defend itself against these allegations but is currently unable to predict the outcome of this lawsuit and therefore cannot determineliabilities when the likelihood of loss ~~nor estimate a~~is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the consolidated financial statements that are not currently accrued for. However, in light of the uncertainties inherent in these matters, it is possible ~~loss.~~

that the ultimate resolution may have a material adverse effect on Customers’ results of operations for a particular period, and future changes in circumstances or additional information could result in accruals or resolution in excess of established accruals, which could adversely affect Customers’ results of operations, potentially materially.

Lifestyle Healthcare Group, Inc. Matter

On January 9, 2017, Lifestyle Healthcare Group, Inc., et al (“Plaintiffs”) filed a Complaint captioned Lifestyle Healthcare Group, Inc.; Fred Rappaport; Victoria Rappaport; Lifestyle Management Group, LLC Trading as Lifestyle Real Estate I, LP; Lifestyle Real Estate I GP, LLC; Daniel Muck; Lifestyle Management Group, LLC; Lifestyle Management Group, LLC Trading as Lifestyle I, LP D/B/A Lifestyle Medspa, Plaintiffs v. Customers Bank, Robert White; Saldutti Law, LLC a/k/a Saldutti Law Group; Robert L. Saldutti, Esquire; and Michael Fuoco, Civil Action No. 01206, in the First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia. In this Complaint, ~~which is related to the Halbreiner Matter described above,~~ the Plaintiffs generally allege wrongful use of civil proceedings and abuse of process in connection with a case filed and later dismissed in federal court, titled, Customers Bank v. Fred Rappaport, et al., U.S.D.C.E.D. Pa., No. 15-6145. On January 30, 2017, Customers Bank filed Preliminary Objections to the Complaint seeking dismissal of Plaintiff’s claims against Customers Bank and Robert White, named as co-defendants. In response to the Preliminary Objections, Lifestyle filed an Amended Complaint against Customers Bank and Robert White. Customers Bank has filed Preliminary Objections to the Second Amended Complaint seeking dismissal of Plaintiff's claim against Customers Bank and Robert White, named as co-defendants. The Court has dismissed certain counts and determined to allow certain other counts to proceed. Customers Bank intends to vigorously defend itself against these allegations but is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

United States Department of Education Matter

In third quarter 2018, Customers received a ~~FPRD~~Final Program Review Determination ("FPRD") letter dated September 5, 2018 from the DOE regarding a focused program review of Higher One's/Customers Bank's administration, as a third party servicer, of the programs

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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~~disagreed with the FPRD and ~~has elected to appeal the FPRD, including~~appealed the asserted financial liabilities of $6.5 million, and a request for review has been submitted to trigger an administrative process before the DOE’s Office of Hearing and Appeals.

On March 26, 2020, the DOE and Customers ~~intends~~filed a Joint Motion to ~~vigorously defend itself against~~Dismiss with Prejudice (the "Joint Motion") with the ~~financial~~United States Department of Education. The Joint Motion states that the DOE and Customers reached an agreement that resolves the liabilities ~~established~~at issue in the appeal. The Joint Motion was granted on April 27, 2020. As part of the settlement, the liabilities assessed in the FPRD ~~through that administrative appeals process~~were reduced to $3.0 million (the "settlement amount"). Customers had previously recorded a liability in the amount of $1.0 million during third quarter 2019 and ~~it further intends~~increased its liability by an additional $1.0 million in first quarter 2020. The remaining $1.0 million is expected to ~~pursue resolution~~be funded from funds in an escrow account set-up at the time of Customers' acquisition of the ~~FPRD’s prospective action requirements during the appeals resolution process. The matter is~~Disbursement business from Higher One in ~~its early stages. Customers is currently unable to predict the outcome~~2016.

Bureau of the ~~appeal and resolution efforts, and therefore cannot determine~~Fiscal Service Notice of Direct Debit (U.S. Treasury Check Reclamation)

On June 21, 2019, Customers received a Notice of Direct Debit (U.S. Treasury Check Reclamation) from the ~~likelihood~~Bureau of ~~loss nor estimate~~the Fiscal Service (“Reclamation Notice”). The Reclamation Notice represented a ~~range~~demand to Customers for the return of ~~possible loss.~~funds on a U.S. Treasury check for approximately $5.4 million. Customers ~~does~~filed a written protest pursuant to Code of Federal Regulations, Title 31, Chapter II, Part 240, which resulted in a suspension of the direct debit by the Bureau of the Fiscal Service. On January 31, 2020, Customers received an Abandonment Notice from the Bureau of Fiscal Service instructing Customers to disregard the Notice of Direct Debit as the Bureau of Fiscal Service would not ~~believe that this matter will have a material effect on the consolidated financial statements.~~be seeking reclamation of these funds.

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 forward-looking statements ~~relate~~include statements with respect to Customers Bancorp, Inc.’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words ”may,” ”could,” ”should,” ”pro forma,” ”looking forward,” ”would,” ”believe,” ”expect,” ”anticipate,” ”estimate,” ”intend,” ”plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Customers Bancorp, Inc.’s control). Numerous competitive, economic, regulatory, legal and technological events ~~or future predictions, including events or predictions relating to future~~and factors, among others, could cause Customers Bancorp, Inc.’s financial performance to differ materially from the goals, plans, objectives, intentions 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 underlyingexpectations expressed in such forward-looking statements, ~~will accurately reflect future~~including: the adverse impact on the U.S. economy, including the markets in which we operate, of the coronavirus outbreak, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan and lease portfolio, the market value of our investment securities, the demand for our products and services and the availability of sources of funding; the effects of actions by the federal government, including the Board of Governors of the Federal Reserve System and other government agencies, that affect market interest rates and the money supply; actions that we and our customers take in response to these developments and the effects such actions have on our operations, products, services and customer relationships; the effects of changes in accounting standards or policies, including Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (CECL); and, our ability to divest BankMobile on terms and conditions acceptable to us, in the timeframe we currently intend, and the possible effects on our business and results of operations of a divestiture of BankMobile or if we are unable to divest BankMobile for an extended period of time. Customers Bancorp, Inc. cautions that ~~any guidance, goals, targets or projected results will be realized. The assumptions, estimates~~the foregoing factors are not exclusive, and ~~forecasts underlying~~neither such factors nor any such forward-looking ~~statements involve judgments with respect to, among other things,~~statement takes into account the impact of any 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, 2018 (the “2018 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 anyevents. All forward-looking statements ~~we make, which~~and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. ~~We do~~For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Customers Bancorp, Inc.’s filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K for the year ended December 31, 2019, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments thereto, that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Customers Bancorp, Inc.

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does not undertake ~~any obligation~~ to ~~release publicly or otherwise provide any revisions to~~update any forward-looking ~~statements we~~statement whether written or oral, that may ~~make, including any forward-looking financial information,~~be made from time to ~~reflect events~~time by Customers Bancorp, Inc. or ~~circumstances occurring after the date hereof~~by or ~~to reflect the occurrence~~on behalf of ~~unanticipated events,~~Customers Bank, except as may be required under applicable law.

Management’s discussion and analysis represents an overview of the financial condition and results of operations, and highlights the significant changes in the financial condition and results of operations, as presented in the accompanying consolidated financial statements for Customers Bancorp, Inc. (the "Bancorp" or "Customers Bancorp"), a financial holding company, and its wholly owned subsidiaries, including Customers Bank (the "Bank"), collectively referred to as "Customers" herein. This information is intended to facilitate your understanding and assessment of significant changes and trends related to Customers' financial condition and results of operations as of and for the three months ended March 31, ~~2019.~~2020. 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' ~~2018~~2019 Form 10-K.

Overview

Like most financial institutions, Customers derives the majority of its income from interest it receives on its interest-earning assets, such as loans, leases and investments. Customers' primary source of funds for making these loans, leases and investments are its deposits and borrowings, on which it pays interest. Consequently, one of the key measures of Customers' success is the amount of its net interest income, or the difference between the income on its interest-earning assets and the expense on its interest-bearing liabilities, such as deposits and borrowings. Another key measure is the difference between the interest income generated by interest earning assets and the interest expense on interest-bearing liabilities, relative to the amount of average interest earning assets, which is referred to as net interest margin.

BankMobile, a division of Customers Bank, derives a majority of its revenue from interest income on other consumer loans, interchange and card revenue and deposit fees.

There is credit risk inherent in all loans and leases requiring Customers to maintain an ACL to absorb credit losses on existing loans and leases that may become uncollectible. Customers maintains this allowance by charging a provision for credit losses on loan and lease losses against its operating earnings. Customers has included a detailed discussion of this process, as well as several tables describing its ACL, in NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION and NOTE 7 - LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOAN AND LEASE LOSSES to Customers' unaudited quarterly financial statements.

Impact of COVID-19

In March 2020, the outbreak of the novel Coronavirus Disease 2019 ("COVID-19") was recognized as a pandemic by the World Health Organization. The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that Customers serves. Governmental responses to the pandemic have included orders closing businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future.

Customers has taken deliberate actions to ensure that it has the necessary balance sheet strength to serve its clients and communities, including increases in liquidity and reserves supported by a strong capital position. Customers' business and consumer customers are experiencing varying degrees of financial distress, which is expected to increase in coming months. In order to protect the health of its customers and team members, and to comply with applicable government directives, Customers has modified its business practices, including restricting team member travel, directing team members to work from home insofar as is possible and implementing its business continuity plans and protocols to the extent necessary. Customers also has made donations that have resulted in more than $1 million, either directly or indirectly, to communities in its footprint for urgent basic needs and has been re-targeting existing sponsorship and grants to non-profit organizations to support COVID-19 related activities.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act includes the SBA Paycheck Protection Program ("PPP"), a nearly $350 billion program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. On April 16, 2020, the SBA announced that all available funds had

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been exhausted and applications were no longer being accepted. As of that date, Customers had obtained approvals for approximately 1,267 clients totaling approximately $385 million in approved PPP loans. On April 22, 2020, an additional $310 billion of funds for the PPP was signed into law. As of May 2, 2020, Customers has helped thousands of small businesses by originating about $5 billion in SBA PPP loans directly or through fintech partnerships.

In response to the COVID-19 pandemic, Customers has also implemented a short-term loan modification program to provide temporary payment relief to certain of its borrowers who meet the program's qualifications. This program allows for a deferral of payments for a maximum of 90 days at a time. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. As of March 31, 2020, Customers had granted temporary modifications on approximately 1,800 loans and leases with outstanding balances of $64 million. Through April 24, 2020, Customers had granted approximately 2,000 additional temporary modifications with outstanding balances of $490 million.

Significant uncertainties as to future economic conditions exist, and Customers has taken deliberate actions in response, including higher levels of on-balance sheet liquidity and maintaining strong capital ratios. Additionally, the economic pressures, coupled with the implementation of an expected lifetime loss methodology for determining our provision for credit losses as required by CECL have contributed to an increased provision for credit losses on loans and leases and off-balance sheet credit exposures in first quarter 2020. Customers continues to monitor the impact of COVID-19 closely, as well as any effects that may result from the CARES Act; however, the extent to which the COVID-19 pandemic will impact Customers' operations and financial results during the remainder of 2020 is highly uncertain.

New Accounting Pronouncements

For information about the impact that recently adopted, including CECL, or issued accounting guidance will have on us, please refer to NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' interim unaudited financial statements.

Critical Accounting Policies

Customers has adopted various accounting policies that govern the application of ~~accounting principles generally accepted in the United States of America~~U.S. GAAP and that are consistent with general practices within the banking industry in the preparation of its consolidated financial statements. Customers' significant accounting policies are described in “NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION” in Customers' audited financial statements included in its ~~2018~~2019 Form 10-K and updated in this Form 10-Q for the quarterly period ended March 31, ~~2019~~2020 in “NOTE 2 - 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.~~assets. 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~~assets.

The critical accounting policies that are both important to the portrayal of Customers' financial condition and ~~liabilities~~results of operations and require complex, subjective judgments are the accounting policies for the following: ACL and the Valuation of Interest-Only GNMA Securities. These critical accounting policies and material estimates, along with the related disclosures, are reviewed by Customers' Audit Committee of the Board of Directors.

Allowance for Credit Losses

Customers' ACL at March 31, 2020 represents Customers' current estimate of the lifetime credit losses expected from its loan

and lease portfolio and its ~~results~~unfunded lending-related commitments that are not unconditionally cancellable. Management estimates the ACL by projecting a lifetime loss rate conditional on a forecast of ~~operations.~~economic parameters and other qualitative adjustments, for the loans and leases' expected remaining term.

~~Overview~~

Customers uses external sources in the creation of its forecasts, including current economic conditions and forecasts for macroeconomic variables over its reasonable and supportable forecast period (e.g., GDP growth rate, unemployment rate, BBB spread, commercial real estate and home price index). After the reasonable and supportable forecast period, which ranges from two to five years, the models revert the forecasted macroeconomic variables to their historical long-term trends, without specific predictions for the economy, over the expected life of the pool, while also incorporating prepayment assumptions into its lifetime loss rates. Internal factors that impact the quarterly allowance estimate include the level of outstanding balances, portfolio performance and assigned risk ratings. Significant loan/

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borrower attributes utilized in the models include property type, initial loan to value, assigned risk ratings, delinquency status, origination date, maturity date, initial FICO scores, and borrower state.

The ACL may be affected materially by a variety of qualitative factors that Customers considers to reflect its current judgement of various events and risks that are not measured in our statistical procedures, including uncertainty related to the economic forecasts used in the modeled credit loss estimates, nature and volume, credit underwriting policy exceptions, peer comparison, industry data, and model and data limitations. The qualitative allowance for economic forecast risk is further informed by multiple alternative scenarios to arrive at a composite scenario supporting the period-end ACL balance. The evaluation process is inherently imprecise and subjective as it requires significant management judgment based on underlying factors that are susceptible to changes, sometimes materially and rapidly. Customers recognizes that this approach may not be suitable in certain economic environments such that additional analysis may be performed at management's discretion. Due in part to its subjectivity, the qualitative evaluation may be materially impacted during periods of economic uncertainty and late breaking events that could lead to revision of reserves to reflect management's best estimate of expected credit losses.

The ACL is established in accordance with our ACL policy. The ACL Committee, which includes the Chief Financial Officer, Chief Risk Officer, and Chief Credit Officer, among others, reviews the adequacy of the ACL each quarter, together with Customers' strategic priorities include creating shareholder value through improved profitability, targeting a return on average assets of approximately 1.25% and a double-digit return on tangible common equity within the next 2 - 3 years. Customers is also targeting NIM expansion to 2.75% or greater by fourth quarter 2019, with a full year 2019 NIM above 2.70%, through an expected shift in asset and funding mix. Total assets at year-end 2019 are expected to be under $10 billion, while the average balance of interest-earnings assets for 2019 are expected to be comparable to 2018 average interest-earning assets,risk management team. The ACL policy, significant judgements and the ~~BankMobile segment is expected~~related disclosures are reviewed by Customers' Audit Committee of the Board of Directors.

The significant increase in our estimated ACL as of March 31, 2020 as compared to ~~become profitable~~our January 1, 2020 estimate was primarily attributable to the significant economic impact of COVID-19, along with loan growth in ~~the fourth quarter 2019. Customers intends to deemphasize its lower-yielding multi-family loan portfolio, and invest in higher-yielding~~Customers' commercial ~~and industrial~~ and consumer loan ~~portfolios with~~portfolios. The total reserve build for the ~~multi-family loan portfolio run-off. Similarly, Customers plans to replace higher-rate non-core deposits and borrowings with less expensive core deposits.~~

In late November 2018, BankMobile's first White Label banking partnership went live in beta test phase, offering BankMobile's best in class banking products to the partner's broad customer base. At March 31, 2019, the partnership had generated over $11.0 million in total deposits during the beta test phase with no advertising. On April 18, 2019, T-Mobile "launched" the first phase of its national marketing plan and, in the first weeks, new account openings have exceeded expectations. Customers expects significant account openings and deposit growth through the remainder of 2019.

~~First Quarter Events of Note~~

~~Customers reported net income available to common shareholders of $11.8 million, or $0.38 per diluted share~~ACL for the three months ended March 31, ~~2019. Total assets were $10.1 billion at March 31, 2019,~~2020 was $31.8 million, with an ~~increase~~ending balance of $0.3 billion from December 31, 2018. The increase in total assets was primarily driven by a $0.2 billion increase in total loans and leases. Commercial and industrial loans (including owner occupied commercial real estate) increased $87.0$153.5 million ~~or 4.5%, residential real estate loans increased $58.5~~($149.3 million ~~or 10.3%, and other consumer loans increased $79.1 million, or 107%. As planned, multi-family loans decreased $73.0 million.~~

~~Asset quality remained exceptional with NPLs of $22.8 million, or 0.26% of total~~for loans and leases and ~~total non-performing assets (NPLs and OREO) only 0.23%~~$4.2 million for unfunded lending-related commitments) as of ~~total assets at~~ March 31, ~~2019, reflecting Customers' conservative lending practices and continued focus on credit risk management. Customers' level~~2020.

To determine the ACL as of ~~NPLs to total loans and leases at~~ March 31, ~~2019 remained well below~~2020, Customers utilized the Moody's March 27, 2020 Baseline forecast to integrate the effects of COVID-19 in its loss estimates. The Baseline forecast assumed a deep recession in second quarter 2020 with significantly declining GDP and elevated unemployment followed by a strong recovery in the second half of 2020. Customers continues to monitor the impact of the COVID-19 pandemic and related policy measures on the economy and, if the depth of the recession or pace of the expected recovery is worse than expected, further meaningful provisions for credit losses could be required.

There is no certainty that Customers' ACL will be appropriate over time to cover losses in our portfolio as economic and market conditions may ultimately differ from our reasonable and supportable forecast. Additionally, events adversely affecting specific customers, industries, or Customers' markets, such as the current COVID-19 pandemic, could severely impact our current expectations. If the credit quality of Customers' customer base materially deteriorates or the risk profile of a market, industry, ~~average NPLs~~or group of customers changes materially, Customers' net income and capital could be materially adversely affected which, in turn could have a material adverse effect on Customers' financial condition and results of operations. The extent to ~~total loans~~which the current COVID-19 pandemic has and leases of 1.11% and Customers' peer group NPLs to total loans and leases of 0.74% (peer data is the most recent period available from S&P Global Market Intelligence). Customers' capital ratios at the holding company and its bank subsidiarywill continue to ~~exceed~~negatively impact Customers' businesses, financial condition, liquidity and results will depend on future developments, which are highly uncertain and cannot be forecasted with precision at this time.

For more information, see NOTE 7 LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES of the ~~“well-capitalized” threshold established by regulation at~~notes to the Bank and exceed the applicable Basel III regulatory threshold ratios for the Bancorp and the Bank at March 31, 2019. Customers Bancorp's Tier 1 leverage ratio was 10.01%, and its total risk-based capital ratio was 12.92%, at March 31, 2019.Unaudited Condensed Consolidated Financial Statements.

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Results of Operations

The following table sets forth the condensed statements of income (loss) for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended March 31,										Three Months Ended March 31,
(dollars in thousands)	2019		2018		Change			Percentage Change		(dollars in thousands)	2020		2019		Change		% Change
Net interest income	$	59,304	$	65,031	$	(5,727	)	(8.8	)%	Net interest income	$	81,321	$	59,304	$	22,017	37.1	%
Provision for loan and lease losses	4,767		2,117		2,650			125.2	%
Provision for credit losses										Provision for credit losses	31,786		4,767		27,019		566.8	%
Total non-interest income	19,718		20,910		(1,192		)	(5.7	)%	Total non-interest income	21,930		19,718		2,212		11.2	%
Total non-interest expense	53,984		52,280		1,704			3.3	%	Total non-interest expense	66,459		53,984		12,475		23.1	%
Income before income taxes	20,271		31,544		(11,273		)	(35.7	)%
Income before income tax expense										Income before income tax expense	5,006		20,271		(15,265)		(75.3)	%
Income tax expense	4,831		7,402		(2,571		)	(34.7	)%	Income tax expense	1,906		4,831		(2,925)		NM
Net income	15,440		24,142		(8,702		)	(36.0	)%	Net income	3,100		15,440		(12,340)		(79.9)	%
Preferred stock dividends	3,615		3,615		—			—	%	Preferred stock dividends	3,615		3,615		—		—	%
Net income available to common shareholders	$	11,825	$	20,527	$	(8,702	)	(42.4	)%
Net income (loss) available to common shareholders										Net income (loss) available to common shareholders	$	(515)	$	11,825	$	(12,340)	(104.4)	%

Customers reported a net loss available to common shareholders of $0.5 million for the three months ended March 31, 2020, compared to net income available to common shareholders of $11.8 million for the three months ended March 31, ~~2019, compared to $20.5 million for the three months ended March 31, 2018.~~2019. Factors contributing to the change in net income available to common shareholders for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 were as follows:

Net interest income

~~The $5.7 million decrease in net~~Net interest income increased $22.0 million for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018 primarily resulted from a reduction of $0.6 billion in~~2019 as average interest-earning assets increased by $1.7 billion and ~~the narrowing of~~ NIM expanded by ~~eight~~40 basis points to 2.99% for the three months ended March 31, 2020 from 2.59% for the three months ended March 31, 2019 ~~from 2.67%~~as the shift in the mix of interest-earning assets drove an 18 basis point increase in the yield on interest-earnings assets for the three months ended March 31, ~~2018. The NIM compression was primarily driven by higher~~2020 and funding costs declined as the cost of interest-bearing liabilities ~~increased~~decreased by 6930 basis points for the three months ended March 31, 2020 due to Federal Reserve interest rate cuts in 2019 ~~partially offset by a 44 basis point~~and 2020. Customers' total cost of funds, including non-interest bearing deposits was 1.70% and 1.95% for the three months ended March 31, 2020 and 2019, respectively.

Provision for credit losses

The $27.0 million increase in the ~~yield of interest-earnings assets~~provision for credit losses for the three months ended March 31, 2020 compared to the three months ended March 31, ~~2018. Given the four Federal Reserve interest rate hikes in 2018~~2019, reflects Customers' adoption of CECL and the ~~associated increases~~impact of COVID-19. Upon adoption of the CECL standard on January 1, 2020, the allowance for credit losses for loans and leases and off-balance sheet credit exposures increased by $79.8 million and $3.4 million, respectively. The allowance for credit losses on off-balance sheet credit exposures is presented within accrued interest payable and other liabilities in ~~market interest rates,~~ the ~~cost~~consolidated balance sheet and the related provision is presented as part of other non-interest expense on the consolidated income statement. The allowance for credit losses on loans and leases held for investment represented 2.0% of total ~~deposits increased 62 basis points to 1.75 %~~loans and ~~borrowing costs increased 73 basis points to 2.98% for the three months ended~~leases receivable at March 31, ~~2019.~~

~~Provision for loan and lease losses~~

~~The $2.7 million increase in the provision for loan and lease losses for the three months ended~~2020, compared to 0.6% at March 31, 2019 compared to the three months ended March 31, 2018, reflects Customers' initiative to increase consumer and commercial and industrial loans. The provision for loan and lease losses for the three months ended March 31, 2019 included $4.2 million for loan growth in the consumer and commercial and industrial loan and lease portfolios, net of the multi-family and commercial real estate loan run-off (including $4.0 million relating to increases in residential mortgages and consumer loans) and $0.6 million for impaired loan provisions. The provision for loan and lease losses in the three months ended March 31, 2018 included provisions of $0.9 million for loan and lease portfolio growth and $1.3 million for impaired loan provisions, offset in part by a $0.2 million release resulting from improved asset quality and lower incurred losses than previously estimated.2019. Net charge-offs for the three months ended March 31, ~~2019~~2020 were ~~$1.1~~$18.7 million, or 579 basis points of average loans and leases on an annualized basis, compared to net charge-offs of ~~$0.6~~$1.1 million, or 35 basis points on an annualized basis for the three months ended March 31, ~~2018.~~2019. The increase in net charge-offs for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was primarily due to a partial charge off of $12.8 million for one commercial real estate collateral dependent loan during the three months ended March 31, 2020, which Customers decided to sell subsequent to March 31, 2020. This commercial real estate loan, which is collateralized by Class A office space in northern New Jersey, differs from Customers' other commercial real estate loans in that it had a single tenant leasing a significant amount of square footage. As a result, Customers does not believe that this loss is indicative of the credit losses inherent in its overall commercial real estate loan portfolio.

Non-interest income

The ~~$1.2~~$2.2 million ~~decrease~~increase in non-interest income for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from ~~decreases~~$4.0 million of ~~$1.4~~gains realized from the sale of $100.5 million of agency-guaranteed residential mortgage-backed securities during the three months ended March 31, 2020 and increases of $1.9 million in ~~gains on sales~~commercial lease income, $1.3 million in deposit fees, and $0.6 million in mortgage warehouse transactions fees. These increases were offset in part by decreases

Table of ~~SBA loans, $0.9~~Contents

of $2.2 million in other non-interest income, $2.0 million in interchange and card revenue, and ~~a reduction~~$1.3 million in ~~mortgage warehouse transaction fees of $0.6 million. These decreases were offset in part by an increase in commercial lease income of $1.5 million~~unrealized losses on investment securities for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018.~~

2019.

Non-interest expense

The ~~$1.7~~$12.5 million increase in non-interest expense for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from increases of ~~$2.0~~$3.3 million in ~~technology, communication, and bank operations, $1.1~~other non-interest expense, $3.1 million in ~~commercial lease depreciation, $0.9~~professional services, $2.5 million in salaries and employee benefits, $1.5 million in commercial lease depreciation, $1.1 million in technology, communications, and ~~$0.4~~bank operations, $0.9 million in FDIC assessments, non-income taxes and regulatory fees, and $0.8 million in advertising and promotion. These increases were offset in part by ~~decreases~~a decrease of ~~$1.4~~$0.9 million in ~~professional services, and $1.0 million in other non-interest expense~~provision for operating losses for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018.~~2019.

Income tax expense

Customers' effective tax rate was 38.1% for the three months ended March 31, 2020 compared to 23.8% for the three months ended March 31, ~~2019 compared to 23.5% for the three months ended March 31, 2018.~~2019. The increase in the effective tax rate primarily resulted from ~~the~~discrete provision items, which increased income tax expense ~~from restricted stock units that vested during~~for the three months ended March 31, ~~2019.~~2020.

Preferred stock dividends

Preferred stock dividends were $3.6 million for both the three months ended March 31, ~~2019~~2020 and ~~2018, respectively.~~2019. There were no changes to the amount of preferred stock outstanding or the dividends paid during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

NET INTEREST INCOME

Net interest income (the difference between the interest earned on loans and leases, 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~~tables summarize Customers' net interest income, ~~and~~ related interest spread, ~~and~~ net interest margin ~~for the three months ended March 31, 2019~~ and ~~2018.~~

Three Months Ended March 31,
2019 2018
(amounts in thousands) Average balance Interest income or expense Average yield or cost Average balance Interest income or expense Average yield or cost
Assets
Interest-earning deposits $ 85,263
$ 530
2.52 % $ 184,033
$ 694
1.53 %
Investment securities ⁽¹⁾
691,823
6,241
3.61 % 1,085,429
8,672
3.20 %
Loans and leases:
Commercial loans to mortgage companies 1,264,478
15,753
5.05 % 1,591,749
18,394
4.69 %
Multi-family loans 3,253,792
30,376
3.79 % 3,637,929
33,312
3.71 %
Commercial and industrial loans and leases ⁽²⁾
1,921,139
24,332
5.14 % 1,653,655
17,687
4.34 %
Non-owner occupied commercial real estate loans 1,169,333
12,896
4.47 % 1,281,502
13,200
4.18 %
All other loans 812,043
9,759
4.87 % 330,100
3,338
4.10 %
Total loans and leases ⁽³⁾
8,420,785
93,116
4.48 % 8,494,935
85,931
4.10 %
Other interest-earning assets 80,542
1,188
5.98 % 116,823
1,667
5.79 %
Total interest-earning assets 9,278,413
101,075
4.41 % 9,881,220
96,964
3.97 %
Non-interest-earning assets 481,116
394,487

Total assets $ 9,759,529
$ 10,275,707

Liabilities
Interest checking accounts $ 815,072
3,815
1.90 % $ 499,245
1,432
1.16 %
Money market deposit accounts 3,144,888
17,338
2.24 % 3,402,963
11,471
1.37 %
Other savings accounts 380,911
1,900
2.02 % 37,496
25
0.27 %
Certificates of deposit 1,552,153
8,172
2.14 % 1,872,351
6,865
1.49 %
Total interest-bearing deposits 5,893,024
31,225
2.15 % 5,812,055
19,793
1.38 %
Borrowings 1,432,685
10,546
2.98 % 2,182,463
12,140
2.25 %
Total interest-bearing liabilities 7,325,709
41,771
2.31 % 7,994,518
31,933
1.62 %
Non-interest-bearing deposits 1,360,815
1,278,947

Total deposits and borrowings 8,686,524
1.95 % 9,273,465
1.39 %
Other non-interest-bearing liabilities 104,401
75,307

Total liabilities 8,790,925
9,348,772

Shareholders’ equity 968,604
926,935

Total liabilities and shareholders’ equity $ 9,759,529
$ 10,275,707

Net interest earnings 59,304
65,031

Tax-equivalent adjustment ⁽⁴⁾
181
171

Net interest earnings $ 59,485
$ 65,202

Interest spread 2.46 % 2.58 %
Net interest margin 2.59 % 2.66 %
Net interest margin tax equivalent ⁽⁴⁾
2.59 % 2.67 %


~~(1)~~	For presentation in this table, average balances and the corresponding average yields for investment securities are based upon historical cost, adjusted for OTTI 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 leases, and deferred loan fees.~~

~~(4)~~

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the three months ended March 31, 2019 and 2018, 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.~~liabilities for the three months ended March 31, 2020 and 2019. 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.

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											Three Months Ended March 31,																			Three Months Ended March 31,
	Three Months Ended March 31,										2020										2019								2020 vs. 2019
	2019 vs. 2018
	Increase (decrease) due to change in
(amounts in thousands)	Rate			Volume			Total
Interest income:
(dollars in thousands)										(dollars in thousands)	Average balance		Interest income or expense		Average yield or cost		Average balance		Interest income or expense		Average yield or cost		Due to rate		Due to volume		Total
Assets										Assets
Interest-earning deposits	$	318		$	(482	)	$	(164	)	Interest-earning deposits	$	772,249	$	2,860	1.49	%	$	85,263	$	530	2.52	%	$	(303)	$	2,633	$	2,330
Investment securities	987			(3,418		)	(2,431		)
Investment securities ⁽¹⁾										Investment securities ⁽¹⁾	566,287		4,977		3.52	%	691,823		6,241		3.61	%	(153)		(1,111)		(1,264)
Loans and leases:										Loans and leases:
Commercial loans to mortgage companies	1,340			(3,981		)	(2,641		)	Commercial loans to mortgage companies	1,841,659		17,514		3.82	%	1,264,478		15,753		5.05	%	(4,430)		6,191		1,761
Multi-family loans	694			(3,630		)	(2,936		)	Multi-family loans	2,213,858		22,367		4.06	%	3,253,792		30,376		3.79	%	2,112		(10,121)		(8,009)
Commercial and industrial loans and leases	3,539			3,106			6,645
Commercial and industrial loans and leases ⁽²⁾										Commercial and industrial loans and leases ⁽²⁾	2,460,811		28,738		4.70	%	1,921,139		24,332		5.14	%	(2,193)		6,599		4,406
Non-owner occupied commercial real estate loans	888			(1,192		)	(304		)	Non-owner occupied commercial real estate loans	1,335,459		14,437		4.35	%	1,169,333		12,896		4.47	%	(342)		1,883		1,541
All other loans	732			5,689			6,421
Total loans and leases	7,193			(8		)	7,185
Residential mortgages										Residential mortgages	445,953		4,401		3.97	%	695,748		7,136		4.16	%	(309)		(2,426)		(2,735)
Other consumer loans										Other consumer loans	1,259,051		28,623		9.14	%	116,295		2,623		9.15	%	(3)		26,003		26,000
Total loans and leases ⁽³⁾										Total loans and leases ⁽³⁾	9,556,791		116,080		4.89	%	8,420,785		93,116		4.48	%	9,281		13,683		22,964
Other interest-earning assets	53			(532		)	(479		)	Other interest-earning assets	81,404		1,426		7.04	%	80,542		1,188		5.98	%	224		14		238
Total interest income	8,551			(4,440		)	4,111
Interest expense:
Total interest-earning assets										Total interest-earning assets	10,976,731		125,343		4.59	%	9,278,413		101,075		4.41	%	4,424		19,844		24,268
Non-interest-earning assets										Non-interest-earning assets	596,675						481,116
Total assets										Total assets	$	11,573,406					$	9,759,529
Liabilities										Liabilities
Interest checking accounts	1,196			1,187			2,383			Interest checking accounts	$	1,294,098	4,616		1.43	%	$	815,072	3,815		1.90	%	(1,103)		1,904		801
Money market deposit accounts	6,798			(932		)	5,866			Money market deposit accounts	3,635,554		16,214		1.79	%	3,144,888		17,338		2.24	%	(3,709)		2,585		(1,124)
Other savings accounts	777			1,098			1,875			Other savings accounts	1,141,406		5,806		2.05	%	380,911		1,900		2.02	%	28		3,878		3,906
Certificates of deposit	2,629			(1,322		)	1,307			Certificates of deposit	1,524,770		7,717		2.04	%	1,552,153		8,172		2.14	%	(330)		(125)		(455)
Total interest-bearing deposits	11,400			31			11,431
Total interest-bearing deposits ⁽⁴⁾										Total interest-bearing deposits ⁽⁴⁾	7,595,828		34,353		1.82	%	5,893,024		31,225		2.15	%	(5,230)		8,358		3,128
Borrowings	3,267			(4,860		)	(1,593		)	Borrowings	1,229,399		9,669		3.16	%	1,432,685		10,546		2.98	%	637		(1,514)		(877)
Total interest expense	14,667			(4,829		)	9,838
Total interest-bearing liabilities										Total interest-bearing liabilities	8,825,227		44,022		2.01	%	7,325,709		41,771		2.31	%	(5,812)		8,063		2,251
Non-interest-bearing deposits ⁽⁴⁾										Non-interest-bearing deposits ⁽⁴⁾	1,573,371						1,360,815
Total deposits and borrowings										Total deposits and borrowings	10,398,598				1.70	%	8,686,524				1.95	%
Other non-interest-bearing liabilities										Other non-interest-bearing liabilities	149,453						104,401
Total liabilities										Total liabilities	10,548,051						8,790,925
Shareholders' equity										Shareholders' equity	1,025,355						968,604
Total liabilities and shareholders' equity										Total liabilities and shareholders' equity	$	11,573,406					$	9,759,529
Net interest income	$	(6,116	)	$	389		$	(5,727	)	Net interest income			81,321						59,304				$	10,236	$	11,781	$	22,017
Tax-equivalent adjustment ⁽⁵⁾										Tax-equivalent adjustment ⁽⁵⁾			205						181
Net interest earnings										Net interest earnings			$	81,526					$	59,485
Interest spread										Interest spread					2.89	%					2.46	%
Net interest margin										Net interest margin					2.98	%					2.59	%
Net interest margin tax equivalent ⁽⁵⁾										Net interest margin tax equivalent ⁽⁵⁾					2.99	%					2.59	%

(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 leases, and deferred loan fees.

(4)Total costs of deposits (including interest bearing and non-interest-bearing) were 1.51% and 1.75% for the three months ended March 31, 2020 and 2019, respectively.

(5)Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the three months ended March 31, 2020 and 2019, 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.

Net interest income increased $22.0 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 as average interest-earning assets increased by $1.7 billion and NIM expanded by 40 basis points to 2.99% for the three months ended March 31, 2020 from 2.59% for the three months ended March 31, 2019, ~~was $59.3 million, a decrease~~as the shift in the mix of ~~$5.7 million, or 8.8%, from net interest income of $65.0 million~~interest-earning assets drove an 18 basis point increase in the yield on interest-earnings assets for the three months ended March 31, ~~2018,~~2020. In addition, funding costs declined as ~~NIM narrowed by eight basis points to 2.59% for first quarter 2019 compared to 2.67% for first quarter 2018. The NIM compression largely resulted from a 69 basis point increase in~~ the cost of interest-bearing liabilities ~~partially offset~~decreased by 30 basis points for the three months ended March 31, 2020 due to Federal

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Reserve interest rate cuts in 2019 and 2020. Compared to the three months ended March 31, 2019, total loan and lease yields increased 41 basis points to 4.89% primarily as a ~~44 basis point increase~~result of the remix in the ~~yield of interest-earning assets.~~loan portfolio in 2019 and 2020. Given the ~~four~~ Federal Reserve interest rate ~~hikes~~cuts in ~~2018~~2019 and 2020 and the associated ~~increase~~decreases in market interest rates, the cost of ~~total~~interest-bearing deposits ~~increased 62~~decreased 33 basis points to ~~1.75% and borrowings~~1.82%. Borrowing costs increased 7318 basis points to ~~2.98%. The yield on commercial~~3.16% for the three months ended March 31, 2020 due to the issuance of $25.0 million of senior notes in September 2019 and industrial loans and leases increased 80 basis points given higher market interest rates. The 77 basis point increase in the yield on "all other loans" principally reflects the purchase of residential mortgages and consumer loans totaling $132.5$74.8 million in ~~first quarter~~subordinated notes in December 2019.

~~Total loans~~ Customers' total costs of deposits (including interest-bearing and ~~leases decreased $73.2 million, or 0.8%, to $8.7 billion at~~non-interest-bearing) were 1.51% and 1.75% for the three months ended March 31, 2020 and 2019, ~~compared to the year-ago period, reflecting Customers' efforts to favorably mix the composition~~respectively, a decrease of its loan and lease portfolio. Commercial and industrial loans and leases, excluding commercial loans to mortgage companies, increased $334.8 million, or 20.3%, to $2.0 billion; residential mortgages and other consumer loans increased $549.8 million, or 238.9%, to $779.8 million; multi-family loans decreased $433.1 million, or 11.9%, to $3.2 billion; commercial real estate non-owner-occupied loans decreased $88.6 million, or 7.4%, to $1.1 billion; and commercial loans to mortgage companies decreased $396.0 million, or 20.5%, to $1.5 billion.24 basis points.

Total deposits increased $382.9 million, or 5.4%, to $7.4 billion at March 31, 2019 compared to the year-ago period. Total demand deposits increased $412.6 million, or 23.3%, to $2.2 billion; savings and money market deposits increased $301.0 million, or 8.9%, to $3.7 billion; and certificates of deposit accounts decreased $330.7 million, or 17.5%, to $1.6 billion. In July 2018, Customers launched a new digital, on-line banking product with a goal of gathering retail deposits. As of March 31, 2019, this new business generated $360.8 million in retail deposits, an increase of $27.5 million since December 31, 2018.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for ~~loan and lease~~credit losses ~~increased $2.7 million~~is a charge to ~~$4.8 million~~earnings to maintain the allowance for the three months ended March 31, 2019, compared to $2.1 million for the same period in 2018, reflecting Customers' initiatives to increase consumer and commercial and industrial loans and leases. The provision for loan and leasecredit losses at a level consistent with management’s assessment of expected lifetime losses in ~~first quarter 2019 included $4.2 million for growth in~~ the consumer and commercial and industrial loan and lease portfolios, net of the multi-family and commercial real estate loan run-off (including $4.0 million relating to increases in residential mortgages and consumer loans) and $0.6 million for impaired loan provisions. The provision for loan and lease losses in first quarter 2018 included provisions of $0.9 million for loan and lease portfolio ~~growth~~at the balance sheet date. During first quarter 2020, Customers adopted ASU 2016-13. Upon adoption, the allowance for credit losses for loans and ~~$1.3~~leases and lending-related unfunded commitments increased by $79.8 million and $3.4 million, respectively, with the after-tax cumulative effect recorded to retained earnings. Customers recorded a $31.8 million and $0.8 million of provision for ~~impaired loan provisions, offset~~credit losses for loans and leases and lending-related commitments, respectively, for first quarter 2020 utilizing the CECL methodology, a significant increase from prior quarters. The increase resulted primarily from the impact of reserve build for the COVID-19 pandemic, an increase in ~~part by a $0.2 million release resulting from improved asset quality~~net charge-offs, and ~~lower incurred losses than previously estimated.~~portfolio growth.

For more information about the provision and ~~ALLL~~ACL and our loss experience, see “Credit Risk” and “Asset Quality” herein.

NON-INTEREST INCOME

The table below presents the components of non-interest income for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.


	Three Months Ended March 31,										Three Months Ended March 31,						QTD
(dollars in thousands)	2019		2018		Change			Percentage Change		(dollars in thousands)	2020		2019		Change		% Change
Interchange and card revenue	$	8,806	$	9,661	$	(855	)	(8.9	)%	Interchange and card revenue	$	6,809	$	8,806	$	(1,997)	(22.7)	%
Deposit fees	2,209		2,092		117			5.6	%	Deposit fees	3,460		2,209		1,251		56.6	%
Commercial lease income	2,401		862		1,539			178.5	%	Commercial lease income	4,268		2,401		1,867		77.8	%
Bank-owned life insurance	1,816		2,031		(215		)	(10.6	)%	Bank-owned life insurance	1,762		1,816		(54)		(3.0)	%
Mortgage warehouse transactional fees	1,314		1,887		(573		)	(30.4	)%	Mortgage warehouse transactional fees	1,952		1,314		638		48.6	%
Gain (loss) on sale of SBA and other loans	—		1,361		(1,361		)	(100.0	)%	Gain (loss) on sale of SBA and other loans	11		—		11		NM
Mortgage banking income	167		121		46			38.0	%	Mortgage banking income	296		167		129		77.2	%

Gain (loss) on sale of investment securities										Gain (loss) on sale of investment securities	3,974		—		3,974		NM
Unrealized gain (loss) on investment securities										Unrealized gain (loss) on investment securities	(1,378)		2		(1,380)		NM
Other	3,005		2,895		110			3.8	%	Other	776		3,003		(2,227)		(74.2)	%
Total non-interest income	$	19,718	$	20,910	$	(1,192	)	(5.7	)%	Total non-interest income	$	21,930	$	19,718	$	2,212	11.2	%

Interchange and card revenue

The ~~$0.9~~$2.0 million decrease in interchange and card revenue for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from lower activity volumes at the BankMobile segment.

Deposit fees

The $1.3 million increase in deposit fees for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily resulted from higher activity volumes and an increase in service charges on certain deposit accounts relating to a change in the fee structure at the BankMobile segment.

Commercial lease income

Commercial lease income represents income earned on commercial operating leases originated by Customers' Equipment Finance Group in which Customers is the lessor. The ~~$1.5~~$1.9 million increase in commercial lease income for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from the continued growth of Customers' equipment finance business.

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Mortgage warehouse transactional fees

The $0.6 million ~~decrease~~increase in mortgage warehouse transactional fees for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from ~~a 30% decrease~~an increase in refinancing activity driven by the ~~number of loans funded~~decline in market interest rates during the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018, as increasing interest rates reduced the volume of mortgage loan originations and refinancings.~~2019.

Gain (loss) on sale of ~~SBA and other loans~~investment securities

The ~~$1.4~~$4.0 million ~~decrease~~increase in ~~gains~~gain (loss) on ~~sales~~sale of ~~SBA and other loans~~investment securities for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 reflects $4.0 million of gains realized from the sale of $100.5 million of agency-guaranteed residential mortgage-backed securities during the three months ended March 31, 2020.

Unrealized gain (loss) on investment securities

The $1.4 million decrease in unrealized gain (loss) on investment securities for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 reflects a ~~strategic shift~~decline in the fair value of equity securities issued by a foreign entity for the three months ended March 31, 2020.

Other non-interest income

The $2.2 million decrease in other non-interest income for the three months ended March 31, 2020 compared to ~~retain SBA loans on our balance sheet.~~the three months ended March 31, 2019 primarily resulted from a negative mark-to-market derivative credit valuation adjustment of $2.2 million for the three months ended March 31, 2020 due to changes in market interest rates.

NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.


	Three Months Ended March 31,										Three Months Ended March 31,						QTD
(dollars in thousands)	2019		2018		Change			Percentage Change		(dollars in thousands)	2020		2019		Change		% Change
Salaries and employee benefits	$	25,823	$	24,925	$	898		3.6	%	Salaries and employee benefits	$	28,310	$	25,823	$	2,487	9.6	%
Technology, communication, and bank operations	11,953		9,943		2,010			20.2	%
Technology, communication and bank operations										Technology, communication and bank operations	13,050		11,953		1,097		9.2	%
Professional services	4,573		6,008		(1,435		)	(23.9	)%	Professional services	7,670		4,573		3,097		67.7	%
Occupancy	2,903		2,834		69			2.4	%	Occupancy	3,032		2,903		129		4.4	%
Commercial lease depreciation	1,923		815		1,108			136.0	%	Commercial lease depreciation	3,427		1,923		1,504		78.2	%
FDIC assessments, non-income taxes, and regulatory fees	1,988		2,200		(212		)	(9.6	)%
FDIC assessments, non-income taxes and regulatory fees										FDIC assessments, non-income taxes and regulatory fees	2,867		1,988		879		30.7	%
Provision for operating losses	1,779		1,526		253			16.6	%	Provision for operating losses	912		1,779		(867)		(48.7)	%
Advertising and promotion	809		390		419			107.4	%	Advertising and promotion	1,641		809		832		102.8	%
Merger and acquisition related expenses	—		106		(106		)	(100.0	)%	Merger and acquisition related expenses	50		—		50		NM
Loan workout	320		659		(339		)	(51.4	)%	Loan workout	366		320		46		14.4	%
Other real estate owned expenses	57		40		17			42.5	%
Other real estate owned										Other real estate owned	8		57		(49)		(86.0)	%
Other	1,856		2,834		(978		)	(34.5	)%	Other	5,126		1,856		3,270		176.2	%
Total non-interest expense	$	53,984	$	52,280	$	1,704		3.3	%	Total non-interest expense	$	66,459	$	53,984	$	12,475	23.1	%

Salaries and employee benefits

The ~~$0.9~~$2.5 million increase in salaries and employee benefits for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from an increase in average full-time equivalent ~~employees~~team members and annual merit increases.

Technology, communication, and bank operations

The ~~$2.0~~$1.1 million increase in technology, communication, and bank operations expense for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from the continued investment ~~to improve and maintain~~in Customers' digital ~~information technology infrastructure.~~transformation initiatives.

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Professional services

The ~~$1.4~~$3.1 million ~~decrease~~increase in professional services for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from ~~management's continued efforts to monitor~~consulting services associated with supporting our white label partnership and ~~control expenses.~~digital transformation efforts.

Commercial lease depreciation

The ~~$1.1~~$1.5 million increase in commercial lease depreciation for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from the continued growth of the operating lease arrangements originated by Customers' Equipment Finance ~~Group.~~Group in which Customers is the lessor.

~~Advertising~~FDIC assessments, non-income taxes, and ~~promotion~~regulatory fees

The ~~$0.4~~$0.9 million increase in ~~advertising~~FDIC assessments, non-income taxes, and ~~promotion~~regulatory fees for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from higher fees resulting from management's decision to grow the balance sheet beyond $10 billion in assets, as higher premiums become applicable.

Provision for operating losses

The provision for operating losses primarily consists of losses resulting from fraud or theft-based transactions that have generally been disputed by deposit account holders. The $0.9 million decrease in provision for operating losses for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily resulted from initiatives implemented by management to reduce fraud and theft-based losses during the three months ended March 30, 2020.

Advertising and promotion expenses

The $0.8 million increase in advertising and promotion expenses for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily resulted from the promotion of Customers' digital banking ~~products.~~products and service offerings available through BankMobile and its White Label partnership.

Other non-interest expense

The ~~$1.0~~$3.3 million ~~decrease~~increase in other non-interest expense for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily resulted from ~~management's continued efforts~~a legal contingency accrual of $1.0 million related to ~~monitor~~the settlement of the previously disclosed DOE matter, certain product development costs related to our white label partnership, and ~~control expenses.~~an increase in the provision for credit losses on off-balance sheet credit exposures of $0.8 million coinciding with the adoption of CECL and the impact of COVID-19.

INCOME TAXES

The table below presents income tax expense and the effective tax rate for the three months ended March 31, ~~2019~~2020 and ~~2018.~~

2019.


	Three Months Ended March 31,												Three Months Ended March 31,								QTD
(dollars in thousands)	2019			2018			Change			Percentage Change		(dollars in thousands)	2020			2019			Change		% Change
Income before income tax expense	$	20,271		$	31,544		$	(11,273	)	(35.7	)%	Income before income tax expense	$	5,006		$	20,271		$	(15,265)	(75.3)	%
Income tax expense	4,831			7,402			(2,571		)	(34.7	)%	Income tax expense	$	1,906		$	4,831		$	(2,925)	(60.5)	%
Effective tax rate	23.83		%	23.47		%						Effective tax rate	38.07		%	23.83		%

The ~~$2.6~~$2.9 million decrease in income tax expense for the three months ended March 31, ~~2019~~2020, when compared to the same period in the prior year, primarily resulted from a ~~decrease~~decline in pre-tax income, ~~of $11.3 million~~partially offset by discrete provision items which increased income tax expense for the three months ended March 31, ~~2019 compared to~~2020. The increase in the effective tax for the three months ended March 31, ~~2018.~~2020, when compared to the same period in the prior year, primary resulted from the discrete provision items, which increased income tax expense for the three months ended March 31, 2020.

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PREFERRED STOCK DIVIDENDS

Preferred stock dividends were $3.6 million for both the three months ended March 31, ~~2019~~2020 and ~~the three months ended March 31, 2018.~~2019. There were no changes to the amount of preferred stock outstanding or the dividend rates from first quarter ~~2018~~2019 to first quarter ~~2019.~~2020.

Financial Condition

General

Customers' total assets were ~~$10.1~~$12.0 billion at March 31, ~~2019.~~2020. This represented a ~~$0.3~~$0.5 billion increase from total assets of ~~$9.8~~$11.5 billion at December 31, ~~2018.~~2019. The increase in total assets was primarily ~~resulted from~~driven by increases ~~in loans and leases receivable~~ of ~~$126.0 million;~~$272.3 million in loans receivable, mortgage warehouse, at fair value, $154.5 million in other assets, and $116.8 million in investment securities, partially offset by an increase in allowance for loan and lease losses of ~~$74.8 million; and cash and cash equivalents of $55.5~~$92.9 million.

Total liabilities were ~~$9.2~~$11.1 billion at March 31, ~~2019.~~2020. This represented a ~~$0.3~~$0.6 billion increase from ~~$8.9~~$10.5 billion at December 31, ~~2018.~~2019. The increase in total liabilities primarily resulted from increases in ~~total deposits~~FHLB advances of ~~$0.3 billion and~~$410.0 million, FRB advances of $175.0 million, federal funds purchased of ~~$0.2 billion,~~$167.0 million, and accrued interest payable and other liabilities of $69.4 million, partially offset in part by a reduction in ~~FHLB advances~~total deposits of ~~$0.2 billion.~~$235.3 million.

The following table presents certain key condensed balance sheet data as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

(dollars in thousands) March 31,
2019 December 31,
2018 Change Percentage Change
Cash and cash equivalents $ 117,662
$ 62,135
$ 55,527
89.4 %
Investment securities, at fair value 678,142
665,012
13,130
2.0 %
Loans held for sale (includes $1,602 and $1,507, respectively, at fair value) 1,602
1,507
95
6.3 %
Loans receivable, mortgage warehouse, at fair value 1,480,195
1,405,420
74,775
5.3 %
Loans and leases receivable 7,264,049
7,138,074
125,975
1.8 %
Allowance for loan and lease losses (43,679 ) (39,972 ) (3,707 ) 9.3 %
Total assets 10,143,894
9,833,425
310,469
3.2 %
Total deposits 7,425,318
7,142,236
283,082
4.0 %
Federal funds purchased 388,000
187,000
201,000
107.5 %
FHLB advances 1,025,832
1,248,070
(222,238 ) (17.8 )%
Other borrowings 123,963
123,871
92
0.1 %
Subordinated debt 109,002
108,977
25
— %
Total liabilities 9,165,521
8,876,609
288,912
3.3 %
Total shareholders’ equity 978,373
956,816
21,557
2.3 %
Total liabilities and shareholders’ equity 10,143,894
9,833,425
310,469
3.2 %


(dollars in thousands)	March 31, 2020		December 31, 2019		Change		% Change
Cash and cash equivalents	$	256,232	$	212,505	$	43,727	20.6	%
Investment securities, at fair value	712,657		595,876		116,781		19.6	%
Loans held for sale	450,157		486,328		(36,171)		(7.4)	%
Loans receivable, mortgage warehouse, at fair value	2,518,012		2,245,758		272,254		12.1	%
Loans and leases receivable	7,353,262		7,318,988		34,274		0.5	%
Allowance for credit losses on loan and lease losses	(149,283)		(56,379)		(92,904)		164.8	%
Total assets	12,018,799		11,520,717		498,082		4.3	%
Total deposits	8,413,643		8,648,936		(235,293)		(2.7)	%
FRB advances	175,000		—		175,000		NM
Federal funds purchased	705,000		538,000		167,000		31.0	%
FHLB advances	1,260,000		850,000		410,000		48.2	%
Other borrowings	123,732		123,630		102		0.1	%
Subordinated debt	181,185		181,115		70		—	%
Total liabilities	11,054,163		10,467,922		586,241		5.6	%
Total shareholders’ equity	964,636		1,052,795		(88,159)		(8.4)	%
Total liabilities and shareholders’ equity	$	12,018,799	$	11,520,717	$	498,082	4.3	%

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. Cash and due from banks were ~~$41.7~~$18.8 million and ~~$17.7~~$33.1 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Cash and due from banks balances vary from day to day, primarily due to variations in customers’ deposit activities with the Bank.

Interest-earning deposits consist of cash deposited at other banks, primarily the FRB. Interest-earning deposits were ~~$75.9~~$237.4 million and ~~$44.4~~$179.4 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. 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.

Investment Securities

The investment securities portfolio is an important source of interest income and liquidity. It consists primarily of mortgage-backed

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securities (guaranteed by an agency of the United States government), state and political subdivision debt securities, corporate securities, interest-only GNMA securities, and marketable equity securities. In addition to generating revenue, the investment portfolio is maintained to manage interest-rate risk, provide liquidity, ~~provide~~serve as 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 March 31, ~~2019,~~2020, investment securities totaled ~~$678.1~~$712.7 million compared to ~~$665.0~~$595.9 million at December 31, ~~2018.~~2019. The increase in investment securities primarily resulted from ~~a market-driven recovery in~~ the ~~fair value~~purchases of agency-guaranteed mortgage-backed securities, state and political subdivision debt securities, and corporate ~~securities.~~securities totaling $256.1 million, partially offset by the sale of $100.5 million of agency-guaranteed mortgage-backed securities, maturities, calls and principal repayments totaling $24.1 million, and unrealized losses of $13.1 million for three month ended March 31, 2020.

For financial reporting purposes, ~~available-for-sale~~available for sale debt securities are carried at fair value. Unrealized gains and losses on ~~available-for-sale~~available for sale debt securities are included in ~~OCI~~other comprehensive income (loss) and reported as a separate component of shareholders’ equity, net of the related tax effect. Changes in the fair value of marketable equity securities and securities reported at fair value based on a fair value option election are recorded in ~~earnings~~non-interest income in the period in which they occur.

LOANS AND LEASES

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 and lease portfolio and its specialty mortgage lending ~~business,~~business. Customers also focuses its lending efforts on local-market mortgage and ~~has announced its entry into non-QM residential mortgage~~home equity lending and ~~plans to increase its~~the origination and purchase of unsecured consumer ~~lending activities. In addition,~~loans (other consumer loans), including personal, student loan refinancing, and home improvement loans through arrangements with fintech companies and other market place lenders for both the Customers ~~has been deemphasizing its multi-family business~~Bank Business Banking and ~~has significantly limited originations of loans yielding less than 5.25% in order to reduce net interest margin compression.~~BankMobile segments nationwide.

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.

As of March 31, ~~2019,~~2020, Customers had ~~$7.9~~$8.6 billion in commercial loans outstanding, totaling approximately ~~90.2%~~83.1% of its total loan and lease portfolio, which includes loans held for sale and loans receivable, mortgage warehouse, at fair value, compared to commercial loans outstanding of ~~$7.8~~$8.4 billion, comprising approximately ~~91.6%~~83.8% of its total loan and lease portfolio, at December 31, ~~2018.~~2019.

The small and middle market business banking platform originates loans, including SBA 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~~Customers' 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~~spreads, generate fee income ~~in this business.~~and attract escrow deposits. The underlying residential loans are taken as collateral for Customers' commercial loans to the mortgage companies. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, commercial loans to mortgage banking businesses totaled ~~$1.5~~$2.5 billion and ~~$1.4~~$2.2 billion, respectively, and are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance sheet.

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Customers intends to continue to deemphasize its lower-yielding multi-family loan portfolio, and invest in high credit quality higher-yielding commercial and industrial ~~and consumer loan portfolios~~loans with the multi-family run-off. ~~However,~~ Customers' multi-family lending group continues to focus on retaining a portfolio of high-quality multi-family loans within Customers' covered markets while cross-selling other products and services. These lending activities primarily target the refinancing of loans with other banks using conservative underwriting standards and provide purchase money for new acquisitions by borrowers. The primary collateral for these loans is a first lien mortgage on the multi-family property, plus an assignment of all leases related to such property. As of March 31, ~~2019,~~2020, Customers had multi-family loans of ~~$3.2~~$2.1 billion outstanding, comprising approximately ~~36.7%~~20.0% of the total loan and lease portfolio, compared to ~~$3.3~~$2.4 billion, or approximately ~~38.4%~~23.8% of the total loan and lease portfolio, at December 31, ~~2018.~~2019.

The ~~equipment finance group~~Equipment Finance Group offers equipment financing and leasing products and services for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Customers had ~~$187.8~~$263.9 million and ~~$172.9~~$257.9 million, respectively, of equipment finance loans outstanding. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Customers had ~~$56.4~~$96.6 million and ~~$54.5~~$89.2 million of equipment finance leases, respectively. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Customers had ~~$60.4~~$96.6 million and ~~$54.5~~$93.6 million, respectively, of operating leases entered into under this program, net of accumulated depreciation of ~~$6.7~~$17.7 million and ~~$4.8~~$14.3 million, respectively.

Consumer Lending

Customers provides unsecured consumer loans, residential mortgage, and home equity ~~and residential mortgage~~ loans to customers. ~~Underwriting standards for~~The other consumer loan portfolio consists largely of originated and purchased personal, student loan refinancing and home ~~equity lending~~improvement loans. None of the loans are ~~conservative, and~~considered sub-prime at the time of origination. Customers considers sub-prime borrowers to be those with FICO scores below 660. Customers has been selective in the consumer loans it has been purchasing. Home equity 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. ~~Customers plans to expand its product offerings in real estate secured, as well as other consumer lending activities, including unsecured consumer lending.~~ As of March 31, ~~2019,~~2020, Customers had ~~$857.6 million~~$1.7 billion in consumer loans outstanding, or ~~9.8%~~16.9% of the total loan and lease portfolio, compared to ~~$721.8 million,~~$1.6 billion, or ~~8.4%~~16.2% of the total loan and lease portfolio, as of December 31, ~~2018. During first quarter 2019,~~2019. Customers purchased ~~a total~~$191.8 million and $66.1 million of ~~$132.5~~other consumer loans through arrangements with third-party fintech companies during the three months ended March 31, 2020 and March 31, 2019, respectively. Customers purchased $0.5 million and $66.4 million of residential mortgage loans from third-party financial institutions during the three months ended March 31, 2020 and ~~other~~2019, respectively. Customers intends to temper its growth in consumer loans ~~from third party financial institutions or through arrangements with fintech companies.~~for the remainder of 2020.

Loans Held for Sale

The composition of loans held for sale as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 was as follows:


(amounts in thousands)	March 31, 2019		December 31, 2018		(amounts in thousands)	March 31, 2020		December 31, 2019
Commercial loans:					Commercial loans:
Multi-family loans at lower of cost or fair value					Multi-family loans at lower of cost or fair value	$	447,444	$	482,873
Total commercial loans held for sale					Total commercial loans held for sale	447,444		482,873
Consumer loans:					Consumer loans:
Home equity conversion mortgages, at lower of cost or fair value					Home equity conversion mortgages, at lower of cost or fair value	1,325		1,325
Residential mortgage loans, at fair value	$	1,602	$	1,507	Residential mortgage loans, at fair value	1,388		2,130
Total consumer loans held for sale					Total consumer loans held for sale	2,713		3,455
Loans held for sale	$	1,602	$	1,507	Loans held for sale	$	450,157	$	486,328

At March 31, ~~2019,~~2020, loans held for sale totaled ~~$1.6~~$450.2 million, or ~~0.02%~~4.36% of the total loan and lease portfolio, and ~~$1.5~~$486.3 million, or ~~0.02%~~4.84% of the total loan and lease portfolio, at December 31, ~~2018.~~2019. 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 ~~ALLL~~ACL is not recorded on loans that are classified as held for sale.

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Total Loans and Leases Receivable

The composition of total loans and leases receivable (excluding loans held for sale) was as follows:


(amounts in thousands)	March 31, 2020		December 31, 2019
Loans and leases receivable, mortgage warehouse, at fair value	$	2,518,012	$	2,245,758
Loans receivable:
Commercial:
Multi-family	1,621,633		1,907,331
Commercial and industrial ⁽¹⁾	2,072,952		1,891,152
Commercial real estate owner occupied	543,945		551,948
Commercial real estate non-owner occupied	1,252,826		1,222,772
Construction	115,448		117,617
Total commercial loans and leases receivable	5,606,804		5,690,820
Consumer:
Residential real estate	362,047		382,634
Manufactured housing	69,240		71,359
Other consumer	1,315,171		1,174,175
Total consumer loans receivable	1,746,458		1,628,168
Loans and leases receivable ⁽²⁾	7,353,262		7,318,988
Allowance for credit losses	(149,283)		(56,379)
Total loans and leases receivable, net of allowance for credit losses	$	9,721,991	$	9,508,367

(amounts in thousands) March 31, 2019 December 31, 2018
Loans receivable, mortgage warehouse, at fair value $ 1,480,195
$ 1,405,420
Loans receivable:
Commercial:
Multi-family 3,212,312
3,285,297
Commercial and industrial (including owner occupied commercial real estate) 2,038,229
1,951,277
Commercial real estate non-owner occupied 1,107,336
1,125,106
Construction 53,372
56,491
Total commercial loans and leases receivable 6,411,249
6,418,171
Consumer:
Residential real estate 625,066
566,561
Manufactured housing 77,778
79,731
Other 153,153
74,035
Total consumer loans receivable 855,997
720,327
Loans and leases receivable 7,267,246
7,138,498
Deferred (fees) costs and unamortized (discounts) premiums, net (3,197 ) (424 )
Allowance for loan and lease losses (43,679 ) (39,972 )
Total loans and leases receivable, net of allowance for loan and lease losses $ 8,700,565
$ 8,503,522
(1)Includes direct finance equipment leases of $96.6 million and $89.2 million at March 31, 2020 and December 31, 2019, respectively.

~~Customers' total loans~~(2)Includes deferred (fees) costs and leases receivable portfolio includes loans receivable which are reported at fair value based on an election made to account for these loans at their fair value and loans and leases receivable which are primarily reported at their outstanding unpaid principal balance,unamortized (discounts) premiums, net of ~~charge-offs, deferred costs~~$3.2 million and ~~fees,~~$2.1 million at March 31, 2020 and ~~unamortized premiums and discounts and are evaluated for impairment.~~December 31, 2019, respectively.

Loans receivable, mortgage warehouse, at fair value

The mortgage warehouse product line primarily provides financing to mortgage companies nationwide from the time of origination of the underlying mortgage loans until the mortgage loans are sold into the secondary market. As a mortgage warehouse lender, Customers provides a form of financing to mortgage bankers by purchasing for resale the underlying residential mortgages on a short-term basis under a master repurchase agreement. These loans are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance sheets. Because these loans are reported at their fair value, they do not have an ~~allowance for loan and lease losses~~ACL and are therefore excluded from ~~allowance for loan and lease losses related~~ACL-related disclosures. At March 31, ~~2019,~~2020, all of Customers' commercial mortgage warehouse loans were current in terms of payment.

Customers is subject to the risks associated with such lending, including, but not limited to, the risks of fraud, bankruptcy and default of the mortgage banker or of the underlying residential borrower, any of which could result in credit losses. Customers' mortgage warehouse lending team members monitor these mortgage originators by obtaining financial and other relevant information to reduce these risks during the lending period. Loans receivable, mortgage warehouse, at fair value totaled ~~$1.5~~$2.5 billion and ~~$1.4~~$2.2 billion at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Credit Risk

Customers manages credit risk by maintaining diversification in its loan and lease portfolio, establishing and enforcing prudent underwriting standards and collection efforts, and continuous and periodic loan and lease classification reviews. Management also considers the effect of credit risk on financial performance by reviewing quarterly and maintaining an adequate ~~ALLL.~~ACL. Credit losses are charged-off when they are identified, and provisions are added when it is estimated that a loss has occurred, to the ~~ALLL~~ACL at least quarterly. The ~~ALLL~~ACL is estimated at least quarterly.

The provision for ~~loan~~credit losses on loans and ~~lease losses~~leases was ~~$4.8~~$31.8 million and ~~$2.1~~$4.8 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~ALLL~~ACL maintained for loans and leases receivable (excluding loans held for sale and loans receivable, mortgage warehouse, at fair value) was ~~$43.7~~$149.3 million, or ~~0.60%~~2.03% of loans and leases receivable, at March 31, ~~2019~~2020 and ~~$40.0~~$56.4 million, or ~~0.56%~~0.77% of loans and leases receivable, at December 31, ~~2018.~~2019. Net charge-offs were ~~$1.1~~$18.7 million for the three months ended March 31, ~~2019,~~2020, an increase of ~~$0.4~~$17.7 million compared to the same period in ~~2018.~~2019. The increase in the ACL resulted primarily from the impact of reserve build for the COVID-19 pandemic, an increase in net charge-offs, ~~period over period was mainly driven by~~

~~higher net charge-offs in~~mostly attributable to the ~~multi-family~~commercial real estate non-owner occupied and other consumer ~~loan~~ portfolios, ~~partially offset by lower net charge-offs in the residential~~and portfolio growth. Commercial real estate non-owner occupied charge-offs were attributable to the

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partial charge-off of one collateral dependent loan, which is not indicative of the overall commercial real estate portfolio. Other consumer charge-offs were attributable to originated and purchased unsecured consumer loans through arrangements with fintech companies and other market place lenders.

The table below presents changes in the Bank’s ~~ALLL~~ACL for the periods indicated.

Analysis of the Allowance for Credit Losses on Loan and Lease Losses


	Three Months Ended March 31,
(amounts in thousands)	2020		2019
Balance at beginning of the period	$	56,379	$	39,972
Cumulative effect of change in accounting principle	79,829		—
Loan and lease charge-offs ⁽¹⁾
Multi-family	—		541
Commercial and industrial	97		—
Commercial real estate owner occupied	—		8
Commercial real estate non-owner occupied	12,797		—

Residential real estate	—		40
Other consumer	6,246		755
Total Charge-offs	19,140		1,344
Loan and lease recoveries ⁽¹⁾

Commercial and industrial	54		119
Commercial real estate owner occupied	3		128

Construction	3		6
Residential real estate	29		7
Other consumer	340		24
Total Recoveries	429		284
Total net charge-offs	18,711		1,060
Provision for loan and lease losses	31,786		4,767
Balance at the end of the period	$	149,283	$	43,679

Three Months Ended March 31,
(amounts in thousands) 2019 2018
Balance at the beginning of the period $ 39,972
$ 38,015
Loan and lease charge-offs ⁽¹⁾

Multi-family 541
—
Commercial and industrial —
50
Commercial real estate owner occupied 8
18
Residential real estate 40
365
Other consumer 755
256
Total Charge-offs 1,344
689
Loan and lease recoveries ⁽¹⁾

Commercial and industrial 119
35
Commercial real estate owner occupied 128
—
Construction 6
11
Residential real estate 7
7
Other consumer 24
3
Total Recoveries 284
56
Total net charge-offs 1,060
633
Provision for loan and lease losses 4,767
2,117
Balance at the end of the period $ 43,679
$ 39,499
(1)Charge-offs and recoveries on PCD loans that are accounted for in pools are recognized on a net basis when the pool matures.


~~(1)~~	~~Charge-offs and recoveries on PCI loans that are accounted for in pools are recognized on a net basis when the pool matures.~~

The ~~ALLL~~ACL is based on a quarterly evaluation of the loan and lease portfolio and is maintained at a level that management considers adequate to absorb ~~probable~~expected lifetime credit losses ~~incurred~~ as of the balance sheet date. All commercial loans, with the exception of commercial mortgage warehouse loans, which are reported 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 and leases 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 and leases 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 ~~ALLL.~~ACL. Refer to Critical Accounting Policies herein and NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' interim unaudited financial statements for Customers' adoption of CECL, also, refer to NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' audited financial statements in its ~~2018~~2019 Form 10-K for further discussion on management's prior incurred loss methodology for estimating the ALLL.

Approximately ~~80%~~75% 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~~, primarily in the ~~value~~form of ~~the collateral.~~a first lien position. 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

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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~~326, individually assessed loans, consisting primarily of non-accrual and restructured loans, are considered in the methodology for determining the ~~ALLL. Impaired~~ACL. Individually assessed 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~~operation or ~~operation~~sale of such collateral.

Asset Quality

Customers segments the loan and lease receivables by loan product or other characteristic generally defining a shared characteristic with other loans in the same group. ~~Credit losses~~Charge-offs from originated loans and leases are absorbed by the ~~ALLL. Credit losses~~ACL. Charge-offs from acquired loans are absorbed by the ~~ALLL, nonaccretable difference fair value marks and cash reserves.~~ACL. The schedule that follows includes both loans held for sale and loans held for investment.

Asset Quality at March 31, ~~2019~~2020


(dollars in thousands)	Total Loans and Leases		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 and Lease Type (%)		NPA to Loans and Leases + OREO (%)
Loan and Lease Type
Multi-family	$	1,623,155	$	1,616,757	$	2,378	$	—	$	4,020	$	—	$	4,020	0.25	%	0.25	%
Commercial & industrial ⁽¹⁾	2,071,913		2,059,964		1,956		—		9,993		—		9,993		0.48	%	0.48	%
Commercial real estate owner occupied	543,961		535,869		5,358		323		2,411		—		2,411		0.44	%	0.44	%
Commercial real estate non-owner occupied	1,253,608		1,201,328��		30,801		—		21,479		—		21,479		1.71	%	1.71	%
Construction	116,068		116,068		—		—		—		—		—		—	%	—	%
Total commercial loans and leases receivable	5,608,705		5,529,986		40,493		323		37,903		—		37,903		0.68	%	0.68	%
Residential	355,306		343,849		5,286		117		6,054		35		6,089		1.70	%	1.71	%
Manufactured housing	68,314		60,124		3,100		2,532		2,558		96		2,654		3.74	%	3.88	%
Other consumer	1,317,737		1,304,972		10,227		19		2,519		—		2,519		0.19	%	0.19	%
Total consumer loans receivable	1,741,357		1,708,945		18,613		2,668		11,131		131		11,262		0.64	%	0.65	%
Deferred (fees) costs and unamortized (discounts) premiums, net	3,199		3,199		—		—		—		—
Loans and Leases Receivable	7,353,261		7,242,130		59,106		2,991		49,034		131		49,165		0.67	%	0.67	%
Loans Receivable, Mortgage Warehouse, at Fair Value	2,518,012		2,518,012		—		—		—		—		—
Total Loans Held for Sale	450,157		448,832		—		—		1,325		—		1,325		0.29	%	0.29	%
Total Portfolio	$	10,321,430	$	10,208,974	$	59,106	$	2,991	$	50,359	$	131	$	50,490	0.49	%	0.49	%

(dollars in thousands) 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 (%)
Loan Type
Multi-family $ 3,212,312
$ 3,206,521
$ 3,794
$ —
$ 1,997
$ —
$ 1,997
0.06 % 0.06 %
Commercial & Industrial ⁽¹⁾
2,038,229
2,020,002
4,837
326
13,064
739
13,803
0.64 % 0.68 %
Commercial Real Estate Non-Owner Occupied 1,107,336
1,105,226
2,008
—
102
—
102
0.01 % 0.01 %
Construction 53,372
53,372
—
—
—
—
—
— % — %
Total commercial loans and leases receivable 6,411,249
6,385,121
10,639
326
15,163
739
15,902
0.24 % 0.25 %
Residential 625,066
613,584
5,856
52
5,574
42
5,616
0.89 % 0.90 %
Manufactured housing 77,778
69,309
3,845
2,700
1,924
195
2,119
2.47 % 2.72 %
Other consumer 153,153
152,519
507
19
108
—
108
0.07 % 0.07 %
Total consumer loans receivable 855,997
835,412
10,208
2,771
7,606
237
7,843
0.89 % 0.92 %
Deferred (fees) costs and unamortized (discounts) premiums, net (3,197 ) (3,197 ) —
—
—
—
—

Loans and Leases Receivable 7,264,049
7,217,336
20,847
3,097
22,769
976
23,745
0.31 % 0.33 %
Loans Receivable, Mortgage Warehouse, at Fair Value 1,480,195
1,480,195
—
—
—
—
—

Total Loans Held for Sale 1,602
1,602
—
—
—
—
—

Total Portfolio $ 8,745,846
$ 8,699,133
$ 20,847
$ 3,097
$ 22,769
$ 976
$ 23,745
0.26 % 0.27 %

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~~(1)~~	~~Commercial & industrial loans, including owner occupied commercial real estate loans.~~

Asset Quality at March 31, ~~2019~~2020 (continued)


(dollars in thousands)	Total Loans and Leases		Non-accrual / NPL		ACL		Reserves to Loans and Leases (%)		Reserves to NPLs (%)
Loan and Lease Type
Multi-family	$	1,623,155	$	4,020	$	8,750	0.54	%	217.66	%
Commercial & industrial ⁽¹⁾	2,071,913		9,993		18,806		0.91	%	188.19	%
Commercial real estate owner occupied	543,961		2,411		8,527		1.57	%	353.67	%
Commercial real estate non-owner occupied	1,253,608		21,479		18,530		1.48	%	86.27	%
Construction	116,068		—		1,934		1.67	%	—	%
Total commercial loans and leases receivable	5,608,705		37,903		56,547		1.01	%	149.19	%
Residential	355,306		6,054		4,180		1.18	%	69.05	%
Manufactured housing	68,314		2,558		4,987		7.30	%	194.96	%
Other consumer	1,317,737		2,519		83,569		6.34	%	3317.55	%
Total consumer loans receivable	1,741,357		11,131		92,736		5.33	%	833.13	%
Deferred (fees) costs and unamortized (discounts) premiums, net	3,199		—		—
Loans and Leases Receivable	7,353,261		49,034		149,283		2.03	%	304.45	%
Loans Receivable, Mortgage Warehouse, at Fair Value	2,518,012		—		—
Total Loans Held for Sale	450,157		1,325		—		—	%	—	%
Total Portfolio	$	10,321,430	$	50,359	$	149,283	1.45	%	296.44	%

(dollars in thousands) Total Loans NPL ALL Cash Reserve Total Credit Reserves Reserves to Loans (%) Reserves to NPLs (%)
Loan Type
Multi-family $ 3,212,312
$ 1,997
$ 10,630
$ —
$ 10,630
0.33 % 532.30 %
Commercial & Industrial ⁽¹⁾
2,038,229
13,064
16,072
—
16,072
0.79 % 123.03 %
Commercial Real Estate Non-Owner Occupied 1,107,336
102
6,015
—
6,015
0.54 % 5897.06 %
Construction 53,372
—
584
—
584
1.09 % — %
Total commercial loans and leases receivable 6,411,249
15,163
33,301
—
33,301
0.52 % 219.62 %
Residential 625,066
5,574
6,572
—
6,572
1.05 % 117.90 %
Manufactured housing 77,778
1,924
117
527
644
0.83 % 33.47 %
Other consumer 153,153
108
3,689
—
3,689
2.41 % 3415.74 %
Total consumer loans receivable 855,997
7,606
10,378
527
10,905
1.27 % 143.37 %
Deferred (fees) costs and unamortized (discounts) premiums, net (3,197 ) —
—
—
—

Loans and Leases Receivable 7,264,049
22,769
43,679
527
44,206
0.61 % 194.15 %
Loans Receivable, Mortgage Warehouse, at Fair Value 1,480,195
—
—
—
—

Total Loans Held for Sale 1,602
—
—
—
—

Total Portfolio $ 8,745,846
$ 22,769
$ 43,679
$ 527
$ 44,206
0.51 % 194.15 %


~~(1)~~	~~Commercial & industrial loans, including owner occupied commercial real estate loans.~~

The total loan and lease ~~loan~~ portfolio was ~~$8.7~~$10.3 billion at March 31, ~~2019~~2020 compared to ~~$8.5~~$10.1 billion at December 31, ~~2018, $22.8~~2019 and $50.4 million, or ~~0.26%~~0.49% of loans and leases, were non-performing at March 31, ~~2019~~2020 compared to ~~$27.5~~$21.3 million, or ~~0.32%~~0.21% of loans and leases, at December 31, ~~2018.~~2019. The loan and lease portfolio was supported by ~~credit reserves~~an ACL of ~~$44.2~~$149.3 million ~~(194.15%~~(296.44% of NPLs and ~~0.51%~~1.45% of total loans and leases) and ~~$40.5~~$56.5 million ~~(147.16%~~(264.67% of NPLs and ~~0.47%~~0.56% of total loans and leases), at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

DEPOSITS

Customers offers a variety of deposit accounts, including checking, savings, MMDA, and time deposits. Deposits are primarily obtained from Customers' geographic service area and nationwide through branchless digital banking, our white label relationship, deposit brokers, listing services and other relationships.

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


(dollars in thousands)	March 31, 2020		December 31, 2019		Change		% Change
Demand, non-interest bearing	$	1,435,151	$	1,343,391	$	91,760	6.8	%
Demand, interest bearing	1,577,034		1,235,292		341,742		27.7	%
Savings, including MMDA	4,002,110		4,401,719		(399,609)		(9.1)	%
Non-time deposits	7,014,295		6,980,402		33,893		0.5	%
Time, $100,000 and over	444,253		402,161		42,092		10.5	%
Time, other	955,095		1,266,373		(311,278)		(24.6)	%
Time deposits	1,399,348		1,668,534		$	(269,186)	(16.1)	%
Total deposits	$	8,413,643	$	8,648,936	$	(235,293)	(2.7)	%

(dollars in thousands) March 31, 2019 December 31, 2018 Change Percentage Change
Demand, non-interest bearing $ 1,372,358
$ 1,122,171
$ 250,187
22.3 %
Demand, interest bearing 811,490
803,948
7,542
0.9 %
Savings, including MMDA 3,683,169
3,481,936
201,233
5.8 %
Time, $100,000 and over 586,130
792,370
(206,240 ) (26.0 )%
Time, other 972,171
941,811
30,360
3.2 %
Total deposits $ 7,425,318
$ 7,142,236
$ 283,082
4.0 %

Total deposits were ~~$7.4~~$8.4 billion at March 31, ~~2019, an increase~~2020, a decrease of ~~$0.3~~$0.2 billion, or ~~4.0%~~2.7%, from ~~$7.1~~$8.6 billion at December 31, ~~2018. Transaction~~2019. Non-time deposits increased by ~~$0.5 billion,~~$33.9 million, or ~~8.5%~~0.5%, to ~~$5.9~~$7.0 billion at March 31, ~~2019,~~2020, from ~~$5.4~~$7.0 billion at December 31, ~~2018.~~2019. This increase ~~was~~ primarily ~~driven by~~resulted from Customers' initiative to improve its net interest margin by expanding its sources of lower-cost funding. These efforts led to increases in non-interest bearing demand deposits of ~~$0.3~~$0.1 billion, and interest bearing demand deposits of ~~$7.5 million, and savings,~~$0.3 billion. Savings, including MMDA ~~by $0.2 billion. These increases were offset in part by a decrease in time deposits of $0.2~~decreased $0.4 billion, or ~~10.1%~~9.1%, to ~~$1.6~~$4.0 billion at March 31, ~~2019,~~2020, from $4.4 billion at December 31, 2019. Time deposits decreased $0.3 billion, or 16.1%, to $1.4 billion at March 31, 2020, from $1.7 billion at December 31, ~~2018.~~2019.

At March 31, ~~2019,~~2020, the Bank had ~~$1.3~~$1.0 billion in state and municipal deposits to which it had pledged ~~$1.3~~$1.0 billion of available borrowing capacity through the FHLB to the depositor through a letter of credit arrangement.

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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, FRB, federal funds purchased, senior unsecured notes and subordinated debt. Subordinated debt is also considered as Tier 2 capital for certain regulatory calculations. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, total outstanding borrowings were ~~$1.6~~$2.4 billion and $1.7 billion, respectively, which represented ~~a decrease~~an increase of ~~$21.1 million,~~$0.8 billion, or ~~1.3%~~44.4%.

SHAREHOLDERS' EQUITY

The components of shareholder's equity were as follows at the dates indicated:


(dollars in thousands)	March 31, 2020		December 31, 2019		Change		% Change
Preferred stock	$	217,471	$	217,471	$	—	—	%
Common stock	32,751		32,617		134		0.4	%
Additional paid in capital	446,840		444,218		2,622		0.6	%
Retained earnings	319,529		381,519		(61,990)		(16.2)	%
Accumulated other comprehensive loss, net	(30,175)		(1,250)		(28,925)		2,314.0	%
Treasury stock	(21,780)		(21,780)		—		—	%
Total shareholders' equity	$	964,636	$	1,052,795	$	(88,159)	(8.4)	%

Shareholders’ equity ~~increased $21.6~~decreased $88.2 million, or ~~2.3%~~8.4%, to ~~$978.4 million~~$1.0 billion at March 31, ~~2019~~2020 when compared to shareholders' equity of ~~$956.8 million~~$1.1 billion at December 31, ~~2018.~~2019. The ~~primary components~~decrease primarily resulted from a decrease in retained earnings of $62.0 million and an increase in accumulated other comprehensive loss, net of $28.9 million, partially offset by an increase of $2.6 million in additional paid in capital. The decrease in retained earnings primarily resulted from the ~~net increase were as follows:~~

adoption of CECL on January 1, 2020, which reduced retained earnings by $61.5 million, and $3.6 million in preferred stock dividends, partially offset by net income of ~~$15.4 million~~$3.1 million. The increase in accumulated other comprehensive loss, net primarily resulted from a decline in the fair value of available for sale debt securities and in the fair value of cash flow hedges, both due to changes in market interest rates during the three months ended March 31, ~~2019;~~

~~OCI of $7.7 million for the three months ended March 31, 2019, arising~~2020. The increase in additional paid in capital resulted primarily from ~~unrealized gains on available-for-sale debt securities;~~

~~share-based compensation expense of $2.1 million for~~ the ~~three months ended March 31, 2019; and~~

issuance of common stock under share-based compensation arrangements ~~of $0.5 million~~ for the three months ended March 31, ~~2019.~~2020.

~~The increases were offset in part by:~~

~~preferred stock dividends of $3.6 million for the three months ended March 31, 2019; and~~

~~repurchases of shares of Customers' common stock totaling $0.6 million.~~

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 and lease 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. Customers' principal sources of funds are deposits, borrowings, principal and interest payments on loans and leases, other funds from operations, and proceeds from common and preferred stock issuances. Borrowing arrangements are maintained with the FHLB and the FRB to meet short-term liquidity needs. Longer-term borrowing arrangements are also maintained with the FHLB. As of March 31, 2020, Customers' borrowing capacity with the FHLB was $3.1 billion, of which $1.3 billion was utilized in borrowings and $1.0 billion of available capacity was utilized to collateralize state and municipal deposits. As of December 31, 2019, Customers' borrowing capacity with the FHLB was ~~$4.2~~$3.4 billion, of which ~~$1.0~~$0.9 billion was utilized in borrowings and $1.4 billion of available capacity was utilized to collateralize state and municipal deposits. As of December 31, 2018, Customers' borrowing capacity with the FHLB was $4.1 billion, of which $1.2 billion was utilized in borrowings and $1.7 billion of available capacity was utilized to collateralize state and municipal deposits. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Customers' borrowing capacity with the FRB was ~~$148.3~~$184.9 million and ~~$102.5~~$136.8 million, respectively.

The table below summarizes Customers' cash flows for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended March 31,
(amounts in thousands)	2020		2019		Change		% Change
Net cash provided by (used in) operating activities	$	(35,141)	$	(6,012)	$	(29,129)	484.5	%
Net cash provided by (used in) investing activities	(433,517)		(196,297)		(237,220)		120.8	%
Net cash provided by (used in) financing activities	512,385		257,836		254,549		98.7	%
Net increase (decrease) in cash and cash equivalents	$	43,727	$	55,527	$	(11,800)	(21.3)	%

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Three Months Ended March 31,
(amounts in thousands) 2019 2018 Change Percentage Change
Net cash provided by (used in) operating activities $ (6,012 ) $ 33,339
$ (39,351 ) (118.0 )%
Net cash provided by (used in) investing activities (196,297 ) (883,577 ) 687,280
(77.8 )%
Net cash provided by (used in) financing activities 257,836
919,326
(661,490 ) (72.0 )%
Net increase (decrease) in cash and cash equivalents $ 55,527
$ 69,088
$ (13,561 ) (19.6 )%

Cash flows provided by (used in) operating activities

Cash used in operating activities of $35.1 million for the three months ended March 31, 2020 primarily resulted from an increase of $93.9 million in accrued interest receivable and other assets, partially offset by an increase in accrued interest payable and other liabilities of $39.0 million, net non-cash operating adjustments of $16.6 million, and net income of $3.1 million.

Cash used in operating activities of $6.0 million for the three months ended March 31, 2019 primarily resulted from an increase of $28.1 million in accrued interest receivable and other assets, and a decrease of $5.1 million in accrued interest payable and other liabilities, offset in part by net income of $15.4 ~~million. Cash provided by~~million, and non-cash operating ~~activities~~adjustments of ~~$33.3 million for the three months ended March 31, 2018 primarily resulted in net income of $24.1~~$11.8 million.

Cash flows provided by (used in) investing activities

Cash used in investing activities of $433.5 million for the three months ended March 31, 2020 primarily resulted from net originations of mortgage warehouse loans of $271.1 million, purchases of loans of $193.4 million, and purchases of investment securities available for sale of $158.8 million, partially offset by a decrease in loans and leases, excluding mortgage warehouse loans of $175.0 million.

Cash used in investing activities of $196.3 million for the three months ended March 31, 2019 resulted from purchases of loans of $129.3 million, net originations of mortgage warehouse loans of $74.8 million, and purchases of leased assets under operating leases of $7.8 million. These uses of cash were offset in part by cash provided by net proceeds from FHLB, FRB, and other restricted stock of $9.3 million.

Cash ~~used in investing~~flows provided by (used in) financing activities

Cash provided by financing activities of ~~$883.6~~$512.4 million for the three months ended March 31, ~~2018~~2020 primarily resulted from ~~purchases~~net increase in short-term borrowed funds from the FHLB of ~~investment securities available for sale of $756.2~~$410.0 million, net ~~originations~~increase in short-term borrowed funds from the FRB of ~~mortgage warehouse loans~~$175.0 million, and federal funds purchased of ~~$81.4~~$167.0 million, partially offset by a ~~net~~ decrease in ~~loans and leases~~deposits of ~~$47.0 million, net purchases of FHLB, FRB, and other restricted stock of $24.4~~$235.3 million, and ~~purchases~~preferred stock dividends paid of ~~leased assets under operating leases of $2.8~~$3.6 million. These uses of cash were offset in part by proceeds from loan sales of $16.5 million, and proceed from maturities, calls and principal repayments of securities available for sale totaling $11.5 million.

~~Cash flows provided by (used in) financing activities~~

Cash provided by financing activities of $257.8 million for the three months ended March 31, 2019 primarily resulted from increases in deposits of $283.1 million and federal funds purchased of $201.0 million, partially offset by repayments of short-term borrowed funds from the FHLB of $222.2 million and ~~preferred stock dividends paid of $3.6 million.~~

Cash provided by financing activities of $919.3 million for the three months ended March 31, 2018 primarily resulted from increases in short-term borrowed funds from the FHLB of $640.8 million, deposits of $242.3 million, and federal funds purchased of $40.0 million, partially offset by preferred stock dividends paid of $3.6 million.

CAPITAL ADEQUACY

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank and the Bancorp met all capital adequacy requirements to which they were subject.

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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
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2019:
As of March 31, 2020:																	As of March 31, 2020:
Common equity Tier 1 capital (to risk-weighted assets)																	Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	759,887	8.914	%	$	383,603	4.500	%	N/A		N/A		$	596,715	7.000	%	Customers Bancorp, Inc.	$	827,884	7.560	%	$	492,760	4.500	%	N/A		N/A		$	766,515	7.000	%
Customers Bank	$	1,070,664	12.574	%	$	383,186	4.500	%	$	553,491	6.500	%	$	596,068	7.000	%	Customers Bank	$	1,158,308	10.599	%	$	491,793	4.500	%	$	710,368	6.500	%	$	765,011	7.000	%
Tier 1 capital (to risk-weighted assets)																	Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	977,339	11.465	%	$	511,470	6.000	%	N/A		N/A		$	724,583	8.500	%	Customers Bancorp, Inc.	$	1,045,355	9.546	%	$	657,013	6.000	%	N/A		N/A		$	930,768	8.500	%
Customers Bank	$	1,070,664	12.574	%	$	510,915	6.000	%	$	681,220	8.000	%	$	723,796	8.500	%	Customers Bank	$	1,158,308	10.599	%	$	655,724	6.000	%	$	874,298	8.000	%	$	928,942	8.500	%
Total capital (to risk-weighted assets)																	Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,101,041	12.916	%	$	691,960	8.000	%	N/A		N/A		$	895,073	10.500	%	Customers Bancorp, Inc.	$	1,277,340	11.665	%	$	876,017	8.000	%	N/A		N/A		$	1,149,773	10.500	%
Customers Bank	$	1,223,727	14.371	%	$	681,220	8.000	%	$	851,525	10.000	%	$	894,101	10.500	%	Customers Bank	$	1,334,108	12.207	%	$	874,298	8.000	%	$	1,092,873	10.000	%	$	1,147,517	10.500	%
Tier 1 capital (to average assets)																	Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	977,339	10.006	%	$	390,685	4.000	%	N/A		N/A		$	390,685	4.000	%	Customers Bancorp, Inc.	$	1,045,355	9.011	%	$	464,045	4.000	%	N/A		N/A		$	464,045	4.000	%
Customers Bank	$	1,070,664	10.969	%	$	390,430	4.000	%	$	488,038	5.000	%	$	390,430	4.000	%	Customers Bank	$	1,158,308	9.992	%	$	463,680	4.000	%	$	579,600	5.000	%	$	463,680	4.000	%
As of December 31, 2018:
As of December 31, 2019:																	As of December 31, 2019:
Common equity Tier 1 capital (to risk-weighted assets)																	Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	745,795	8.964	%	$	374,388	4.500	%	N/A		N/A		$	530,384	6.375	%	Customers Bancorp, Inc.	$	821,810	7.984	%	$	463,211	4.500	%	N/A		N/A		$	720,551	7.000	%
Customers Bank	$	1,066,121	12.822	%	$	374,160	4.500	%	$	540,453	6.500	%	$	530,059	6.375	%	Customers Bank	$	1,164,652	11.323	%	$	462,842	4.500	%	$	668,549	6.500	%	$	719,976	7.000	%
Tier 1 capital (to risk-weighted assets)																	Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	963,266	11.578	%	$	499,185	6.000	%	N/A		N/A		$	655,180	7.875	%	Customers Bancorp, Inc.	$	1,039,281	10.096	%	$	617,615	6.000	%	N/A		N/A		$	874,955	8.500	%
Customers Bank	$	1,066,121	12.822	%	$	498,879	6.000	%	$	665,173	8.000	%	$	654,779	7.875	%	Customers Bank	$	1,164,652	11.323	%	$	617,122	6.000	%	$	822,829	8.000	%	$	874,256	8.500	%
Total capital (to risk-weighted assets)																	Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,081,962	13.005	%	$	665,580	8.000	%	N/A		N/A		$	821,575	9.875	%	Customers Bancorp, Inc.	$	1,256,309	12.205	%	$	823,487	8.000	%	N/A		N/A		$	1,080,827	10.500	%
Customers Bank	$	1,215,522	14.619	%	$	665,173	8.000	%	$	831,466	10.000	%	$	821,072	9.875	%	Customers Bank	$	1,330,155	12.933	%	$	822,829	8.000	%	$	1,028,537	10.000	%	$	1,079,964	10.500	%
Tier 1 capital (to average assets)																	Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	963,266	9.665	%	$	398,668	4.000	%	N/A		N/A		$	398,668	4.000	%	Customers Bancorp, Inc.	$	1,039,281	9.258	%	$	449,026	4.000	%	N/A		N/A		$	449,026	4.000	%
Customers Bank	$	1,066,121	10.699	%	$	398,570	4.000	%	$	498,212	5.000	%	$	398,570	4.000	%	Customers Bank	$	1,164,652	10.379	%	$	448,851	4.000	%	$	561,064	5.000	%	$	448,851	4.000	%

The capital ratios above reflect the capital requirements under "Basel III" adopted effective first quarter 2015 and the capital conservation buffer 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 March 31, ~~2019,~~2020, the Bank and Customers Bancorp were in compliance with the Basel III requirements. See "NOTE 89 - 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.~~sheet.

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With commitments to extend credit, ~~exposures~~exposure 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 orand lease, ~~commitments to extend credit~~these financial instruments are subject to the Bank’s credit policy and other underwriting standards.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the following off-balance sheet commitments, financial instruments and other arrangements were outstanding:


(amounts in thousands)	March 31, 2019		December 31, 2018		(amounts in thousands)	March 31, 2020		December 31, 2019
Commitments to fund loans and leases	$	181,385	$	345,608	Commitments to fund loans and leases	$	259,134	$	261,902
Unfunded commitments to fund mortgage warehouse loans	1,494,055		1,537,900		Unfunded commitments to fund mortgage warehouse loans	1,321,818		1,378,364
Unfunded commitments under lines of credit and credit card	949,087		867,131
Unfunded commitments under lines of credit and credit cards					Unfunded commitments under lines of credit and credit cards	977,048		1,065,474
Letters of credit	40,453		55,659		Letters of credit	39,789		48,856
Other unused commitments	4,822		4,822		Other unused commitments	2,466		2,736

Commitments to fund loans and leases, unfunded commitments to fund mortgage warehouse loans, unfunded commitments under lines of credit, 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 leases 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 and lease 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 and leases, investments, and deposits, and their use may also affect rates charged on loans and leases 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~~optimize 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~~interest rate sensitivity as part of the overall management of interest rate risk; they are income simulation modeling and estimates of EVE. The combination of these two methods provides a

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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~~periods ending March 31, 2021 and December 31, 2020, based upon the assets, liabilities and off-balance sheet financial instruments in existence at March 31, 2020 and December 31, 2019. 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 at March 31, 2020, current market interest rates were only increased immediately by 100 and 200 ~~and~~basis points due to the unlikely nature that interest rates would increase by 300 basis ~~points.~~points in the current interest rate environment. For downward rate shocks modeling a falling rate environment, current market rates were only decreased immediately by 100 ~~and 200~~ 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~~periods ending March 31, 2020 and December 31, 2019, resulting from changes in interest rates.

Net change in net interest income



~~Rate Shocks~~	~~% Change~~
~~Up 3%~~	~~(10.6~~	)%
~~Up 2%~~	~~(6.5~~	)%
~~Up 1%~~	~~(2.9~~	)%
~~Down 1%~~	~~2.5~~	%
~~Down 2%~~	~~4.3~~	%


	% Change
Rate Shocks	March 31, 2020	December 31, 2019
Up 3%	N/A	3.3%
Up 2%	1.3%	2.7%
Up 1%	0.9%	1.6%
Down 1%	(0.5)%	(1.9)%

The net changes in net interest income in all scenarios are within Customers Bank's interest rate risk policy guidelines.

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 at March 31, 2020, current market interest rates were were only increased immediately by 100 and 200 ~~and~~basis points due to the unlikely nature that interest rates would increase by 300 basis ~~points.~~points in the current interest rate environment. For downward rate shocks modeling a falling rate environment, current market rates were decreased immediately by 100 ~~and 200~~ basis points due to the limitations of the current low interest rate environment that renders the Down 200 and Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. This method of measurement primarily evaluates the longer term repricing risks and options in Customers Bank’s balance sheet. The following table reflects the estimated EVE at risk and the ratio of EVE to EVE adjusted assets at March 31, 2020 and December 31, 2019, resulting from shocks to interest rates.



~~Rate Shocks~~	~~From base~~
~~Up 3%~~	~~(18.7~~	)%
~~Up 2%~~	~~(10.6~~	)%
~~Up 1%~~	~~(4.3~~	)%
~~Down 1%~~	~~2.5~~	%
~~Down 2%~~	~~4.5~~	%


	From base
Rate Shocks	March 31, 2020	December 31, 2019
Up 3%	N/A	(5.6)%
Up 2%	(6.1)%	(2.0)%
Up 1%	2.8%	(1.0)%
Down 1%	4.0%	(1.1)%

The net changes in EVE 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.

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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 effective as of March 31, ~~2019.~~2020.

(b) Changes in Internal Control Over Financial Reporting. During the quarter ended March 31, ~~2019, there have been~~2020, Customers Bancorp adopted a new accounting standard that significantly changed its process for calculating the allowance for credit losses and, as a result, materially modified its control activities associated with the determination of this critical accounting estimate. The revised processes and controls reflect the incorporation of lifetime loss rate models and macro-economic forecasts for purposes of estimating expected loss amounts over a reasonable and supportable forecast period. There were no other 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.

The emergence of the COVID-19 pandemic during first quarter 2020 necessitated the execution of several Customers Bancorp contingency plans. Beginning in March 2020 and continuing through this filing date, Customers Bancorp had a substantial number of its team members working remotely under such contingency plans.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

For information on Customers' legal proceedings, refer to “NOTE 1314 – ~~LEGAL~~LOSS CONTINGENCIES” to the unaudited consolidated financial statements.

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 ~~2018~~2019 Form 10-K. There are no material changes from the risk factors included within the ~~2018~~2019 Form ~~10-K.~~10-K, other than the risk described below. The risks described within the ~~2018~~2019 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition and/or operating results. See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Note Regarding Forward-Looking Statements.”

The COVID-19 pandemic has impacted our business, and the ultimate impact on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. As a result, the demand for our products and services may be significantly impacted. Furthermore, the pandemic has influenced and could further influence the recognition of credit losses in our loan and lease portfolios and has increased and could further increase our allowance for credit losses, particularly as businesses remain closed and as more customers may draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, the securities we hold may lose value. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. In response to the pandemic, we have also enacted hardship relief assistance for customers experiencing financial difficulty as a result of COVID-19, including fee and penalty waivers, loan deferrals or other scenarios that may help our customers. In addition, we are a lender for the Small Business Administration's Paycheck Protection Program ("PPP") and other SBA, Federal Reserve or United States Treasury programs that have been or may be created in the future in response to the pandemic. These programs are new and their effects on Customers' business are uncertain. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

To the extent the COVID-19 pandemic continues to adversely affect the economy, and/or adversely affects our business, results of operations or financial condition, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in the section captioned "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019, including those risks related to business operations, industry/market, our securities and credit, or risks described in our other filings with the SEC.

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

On November 26, 2013, the Bancorp's board of directors authorized a stock repurchase plan in which the Bancorp could acquire up to 5% of its current outstanding shares not to exceed a 20% premium over the then current book value. On December 11, 2018, the Bancorp's board of directors amended the terms of the 2013 stock repurchase plan to adjust the repurchase terms and book value measurement date such that Customers iswas authorized to purchase shares of common stock at prices not to exceed the book value per share of Customers' common stock measured as of September 30, 2018. 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. As of March 31, 2019, there are noCustomers repurchased all remaining authorized shares ~~for stock repurchases under~~pursuant to this ~~program.~~

~~Common stock repurchase activity~~program in January 2019. Accordingly, there were no common shares repurchased during ~~the~~ first quarter ~~2019 was as follow:~~

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased As Part of of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
January 1 - January 31, 2019 31,159
$ 18.35
31,159
—
February 1 - February 28, 2019 —
—
—
—
March 1 - March 31, 2019 —
—
—
—
Total 31,159
$ 18.35
31,159

2020.

Dividends ofon Common Stock

Customers Bancorp historically has not paid any cash dividends on its shares of common stock and does not expect to do so in the foreseeable future.

Any future determination relating to our dividend policy will be made at the discretion of Customers Bancorp’s board of directors and will depend on a number of factors, including earnings and financial condition, liquidity and capital requirements, the general economic

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and regulatory climate, ability to service any equity or debt obligations senior to our common stock, including obligations to pay dividends to the holders of Customers Bancorp's issued and outstanding shares of preferred stock and other factors deemed relevant by the Board of Directors.

In addition, as a bank holding company, Customers Bancorp is subject to general regulatory restrictions on the payment of cash dividends. Federal bank regulatory agencies have the authority to prohibit bank holding companies from engaging in unsafe or unsound practices in conducting their business, which, depending on the financial condition and liquidity of the holding company at the time, could include the payment of dividends. Further, various federal and state statutory provisions limit the amount of dividends that bank subsidiaries can pay to their parent holding company without regulatory approval. Generally, subsidiaries are prohibited from paying dividends when doing so would cause them to fall below the regulatory minimum capital levels, and limits exist on paying dividends in excess of net income for specified periods.

Beginning January 1, 2015, the ability to pay dividends and the amounts that can be paid will be limited to the extent the Bank's capital ratios do not exceed the minimum required levels plus 250 basis points, as these requirements ~~are~~were phased in through January 1, 2019.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~

Subsequent to March 31, 2020, Customers decided to sell a commercial real estate loan collateralized by a Class A office building in northern New Jersey. After careful review and consideration of the rapidly changing COVID-19 environment, management decided to pursue the sale of the note during second quarter 2020. Management received two separate agreements to purchase the note during second quarter 2020. The second agreement, executed after May 4, 2020, includes a sales price of $19.1 million and is subject to certain closing conditions. Management believes it is prudent to sell the note given the current COVID-19 uncertainty and expects the sale to occur late in the second quarter 2020 or third quarter 2020. Based on the expected sales price of $19.1 million, Customers recognized $9.6 million of additional provision for credit losses on loans and leases during the three months ended March 31, 2020 and charged-off the loan to its estimated fair value of $19.1 million. In its May 4, 2020 Form 8-K, Customers furnished certain unaudited financial information pursuant to Item 2.02, which information was included in Exhibit 99.1 thereto. The unaudited consolidated statements of operations for the three months ended March 31, 2020, the unaudited consolidated balance sheet as of March 31, 2020 and the unaudited net charge-offs/(recoveries) schedule for the three months ended March 31, 2020 furnished in Exhibit 99.1 did not reflect the additional provision for credit losses and the charge-off given the timing of this new information. The unaudited consolidated financial statements and the accompanying disclosures presented in this quarterly report on Form 10-Q reflect this adjustment.

The following tables present Customers' unaudited condensed consolidated statements of operations for the three months ended March 31, 2020, the unaudited condensed consolidated balance sheet as of March 31, 2020 and the unaudited net charge-offs/(recoveries) schedule for the three months ended March 31, 2020 adjusted for the additional provision for credit losses on loans and leases, the increase in the allowance for credit losses on loans and leases, and the charge-off of the commercial real estate collateral dependent loan to its fair value.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) — UNAUDITED

(amounts in thousands, except per share data)


	Three Months Ended March 31, 2020
	As Adjusted		Previously Reported





Total interest income	125,343		125,343





Total interest expense	44,022		44,022
Net interest income	81,321		81,321
Provision for credit losses on loans and leases	31,786		22,316
Net interest income after provision for credit losses on loans and leases	49,535		59,005
















Total non-interest income	21,930		21,930













Total non-interest expense	66,459		66,459
Income before income tax expense	5,006		14,476
Income tax expense	1,906		3,834




Net income	3,100		10,642
Preferred stock dividends	3,615		3,615
Net income (loss) available to common shareholders	$	(515)	$	7,027

Basic earnings (loss) per common share	$	(0.02)	$	0.22

Diluted earnings (loss) per common share	$	(0.02)	$	0.22

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

(amounts in thousands, except share and per share data)


	March 31, 2020 As Adjusted		March 31, 2020 As Previously Reported
ASSETS


Cash and cash equivalents	256,232		256,232
Investment securities available for sale, at fair value	712,657		712,657

Loans held for sale (includes $1,388 and $2,130, respectively, at fair value)	450,157		450,157
Loans receivable, mortgage warehouse, at fair value	2,518,012		2,518,012
Loans and leases receivable	7,353,262		7,366,058
Allowance for credit losses on loans and leases	(149,283)		(152,610)
Total loans and leases receivable, net of allowance for credit losses on loans and leases	9,721,991		9,731,460
FHLB, Federal Reserve Bank, and other restricted stock	87,140		87,140
Accrued interest receivable	40,570		40,570

Bank premises and equipment, net	8,890		8,890
Bank-owned life insurance	273,576		273,576
Other real estate owned	131		131
Goodwill and other intangibles	14,870		14,870

Other assets	452,585		450,659
Total assets	$	12,018,799	$	12,026,342
LIABILITIES AND SHAREHOLDERS’ EQUITY













Total liabilities	11,054,163		11,054,163

Shareholders’ equity:
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of March 31, 2020 and December 31, 2019	217,471		217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,750,645 and 32,614,410 shares issued as of March 31, 2020 and December 31, 2019; 31,470,026 and 31,336,791 shares outstanding as of March 31, 2020 and December 31, 2019	32,751		32,751
Additional paid in capital	446,840		446,840
Retained earnings	319,529		327,072
Accumulated other comprehensive loss, net	(30,175)		(30,175)
Treasury stock, at cost (1,280,619 shares as of March 31, 2020 and December 31, 2019)	(21,780)		(21,780)
Total shareholders’ equity	964,636		972,179
Total liabilities and shareholders’ equity	$	12,018,799	$	12,026,342

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NET CHARGE-OFF/(RECOVERIES) — UNAUDITED

(amounts in thousands)


	March 31, 2020 As Adjusted		March 31, 2020 As Previously Reported

Loan type
Multi-family	$	—	$	—
Commercial & industrial	43		43
Commercial real estate owner occupied	(3)		(3)
Commercial real estate non-owner occupied	12,797		—
Construction	(3)		(3)
Residential	(29)		(29)
Other consumer	5,906		5,906
Total net charge-offs (recoveries) from loans held for investment	$	18,711	$	5,914

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Item 6. Exhibits


Exhibit No.			Description

~~Exhibit No.~~		~~Description~~

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			Articles of Amendment to the Amended and Restated Articles of Incorporation of Customers Bancorp, Inc., incorporated by reference to Exhibit 3.1 to the Customers Bancorp’s Form 8-K filed with the SEC on June 3, 2019

3.5			Amendment to Amended and Restated Bylaws of Customers Bancorp, Inc., incorporated by reference to Exhibit 3.1 to the Customers Bancorp’s Form 8-K filed with the SEC on June 19, 2019

3.6			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~~3.7			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~~3.8			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~~3.9			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

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			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

4.3			~~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~~

~~4.4~~	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~~4.4			Third Supplemental Indenture, dated as of September 25, 2019, 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 September 25, 2019

4.5			Form of 4.50% Senior Note due 2024, incorporated by reference to Exhibit 4.2 to the Customers Bancorp Form 8-K filed with the SEC on September 25, 2019

4.6			Subordinated I ndenture, dated as of December 9, 2019, between the Registrant and Wilmington Trust, National Association, as Trustee incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed December 9, 2019

4.7			First Supplemental Indenture, dated as of December 9, 2019, 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 December 9, 2019

4.8			Form of 5.375% Subordinated Note due 2034, incorporated by reference to Exhibit 4.3 to the Customers Bancorp Form 8-K filed with the SEC on December 9, 2019

10.1			Employment Agreement, dated as of January 22, 2020, by and between Customers Bancorp, Inc. and Samvir Sidhu , incorporated by reference to Exhibit 10.18 to Customers Bancorp’s Form 10-K filed with the SEC on March 2, 2020







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)

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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~~following financial statements from the Customers’ Annual Report on Form 10-Q as ~~part~~ of ~~this report are as follows:~~and for the year ended March 31, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.

~~101.INS~~104		~~XBRL Instance Document~~Cover Page Interactive Data File - ~~The instance document does not appear in~~ the ~~interactive data file because its~~cover page XBRL tags are embedded within the ~~inline~~Inline XBRL document

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

~~101.LAB~~101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

~~101.DEF~~	~~XBRL Taxonomy Extension Definitions Linkbase Document.~~

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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.

May 11, 2020

~~Customers Bancorp, Inc.~~

By:

~~May 9, 2019~~

~~By:~~

/s/ Jay S. Sidhu

Name:

Jay S. Sidhu

Title:

Chairman and Chief Executive Officer

(Principal Executive Officer)

May ~~9, 2019~~11, 2020

By:

/s/ Carla A. Leibold

Name:

Carla A. Leibold

Title:

Chief Financial Officer ~~and Treasurer~~

(Principal Financial Officer)

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Exhibit Index


Exhibit No.			Description

~~Exhibit No.~~		~~Description~~

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			Articles of Amendment to the Amended and Restated Articles of Incorporation of Customers Bancorp, Inc., incorporated by reference to Exhibit 3.1 to the Customers Bancorp’s Form 8-K filed with the SEC on June 3, 2019

3.5			Amendment to Amended and Restated Bylaws of Customers Bancorp, Inc., incorporated by reference to Exhibit 3.1 to the Customers Bancorp’s Form 8-K filed with the SEC on June 19, 2019

3.6			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~~3.7			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~~3.8			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~~3.9			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

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			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

4.3			~~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~~

~~4.4~~	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~~4.4			Third Supplemental Indenture, dated as of September 25, 2019, 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 September 25, 2019

4.5			Form of 4.50% Senior Note due 2024, incorporated by reference to Exhibit 4.2 to the Customers Bancorp Form 8-K filed with the SEC on September 25, 2019

4.6			Subordinated I ndenture, dated as of December 9, 2019, between the Registrant and Wilmington Trust, National Association, as Trustee incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed December 9, 2019

4.7			First Supplemental Indenture, dated as of December 9, 2019, 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 December 9, 2019

4.8			Form of 5.375% Subordinated Note due 2034, incorporated by reference to Exhibit 4.3 to the Customers Bancorp Form 8-K filed with the SEC on December 9, 2019

10.1			Employment Agreement, dated as of January 22, 2020, by and between Customers Bancorp, Inc. and Samvir Sidhu, incorporated by reference to Exhibit 10.18 to Customers Bancorp’s Form 10-K filed with the SEC on March 2, 2020







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

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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~~following financial statements from the Customers’ Annual Report on Form 10-Q as ~~part~~ of ~~this report are as follows:~~and for the year ended March 31, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.

~~101.INS~~104		~~XBRL Instance Document~~Cover Page Interactive Data File - ~~The instance document does not appear in~~ the ~~interactive data file because its~~cover page XBRL tags are embedded within the ~~inline~~Inline XBRL document

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

~~101.LAB~~101.DEF		XBRL Taxonomy Extension Definitions 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.~~



	Three Months Ended March 31, 2019
	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
Balance - December 31, 2018	$	(21,741	)	$	—	$	(21,741	)	$	(922	)	$	(22,663	)
Other comprehensive income (loss) before reclassifications	13,185			—		13,185			(5,135		)	8,050
Amounts reclassified from accumulated other comprehensive income (loss) to net income ⁽¹⁾	—			—		—			(306		)	(306		)
Net current-period other comprehensive income	13,185			—		13,185			(5,441		)	7,744
Balance - March 31, 2019	$	(8,556	)	$	—	$	(8,556	)	$	(6,363	)	$	(14,919	)



	March 31, 2019						Three Months Ended March 31, 2019
(amounts in thousands)	Recorded Investment Net of Charge-Offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Multi-family	$	1,997	$	2,538	$	—	$	998	$	—
Commercial and industrial	11,185		12,749		—		12,422		2
Commercial real estate owner occupied	556		1,103		—		796		21
Commercial real estate non-owner occupied	102		214		—		115		—
Residential real estate	4,722		5,044		—		4,782		—
Manufactured housing	10,140		10,140		—		10,084		115
Other consumer	108		108		—		110		—
With an allowance recorded:
Multi-family	—		—		—		578		—
Commercial and industrial	6,226		6,409		263		5,197		39
Commercial real estate owner occupied	311		498		36		172		1
Residential real estate	3,845		3,845		78		3,817		26
Manufactured housing	167		167		3		168		2
Total	$	39,359	$	42,815	$	380	$	39,239	$	206



	December 31, 2018						Three Months Ended March 31, 2018
(amounts in thousands)	Recorded Investment Net of Charge-Offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	13,660	$	15,263	$	—	$	7,484	$	—
Commercial real estate owner occupied	1,037		1,766		—		710		—
Commercial real estate non-owner occupied	129		241		—		201		—
Residential real estate	4,842		5,128		—		3,623		—
Manufactured housing	10,027		10,027		—		9,876		131
Other consumer	111		111		—		63		—
With an allowance recorded:
Multi-family	1,155		1,155		539		—		—
Commercial and industrial	4,168		4,351		261		8,390		1
Commercial real estate owner occupied	32		32		1		756		1
Residential real estate	3,789		3,789		41		5,122		25
Manufactured housing	168		168		3		223		—
Total	$	39,118	$	42,031	$	845	$	36,448	$	158



	March 31, 2019				March 31, 2018
(dollars in thousands)	Number of Loans		Recorded Investment		Number of Loans	Recorded Investment
Manufactured housing	5		$	137	1	$	29
Commercial and industrial	1		431		—	—
Total loans	$	6	$	568	1	$	29



	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
(amounts in thousands)	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet				Financial Instruments		Cash Collateral Received		Net Amount
Description
Interest rate swap derivatives with institutional counterparties	$	3,816	$	—	$	3,816	$	—	$	—	$	3,816



	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
(amounts in thousands)	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet				Financial Instruments		Cash Collateral Pledged		Net Amount
Description
Interest rate swap derivatives with institutional counterparties	$	20,036	$	—	$	20,036	$	—	$	19,462	$	574



	Three Months Ended March 31, 2018
(amounts in thousands)	Customers Bank Banking		BankMobile			Consolidated
Interest income ⁽²⁾	$	92,554	$	4,410		$	96,964
Interest expense	31,917		16			31,933
Net interest income	60,637		4,394			65,031
Provision for loan losses	1,874		243			2,117
Non-interest income	8,439		12,471			20,910
Non-interest expense	34,331		17,949			52,280
Income (loss) before income tax expense (benefit)	32,871		(1,327		)	31,544
Income tax expense (benefit)	7,728		(326		)	7,402
Net income (loss)	25,143		(1,001		)	24,142
Preferred stock dividends	3,615		—			3,615
Net income (loss) available to common shareholders	$	21,528	$	(1,001	)	$	20,527

As of March 31, 2018
Goodwill and other intangibles	$	3,630	$	13,847		$	17,477
Total assets	$	10,690,479	$	78,787		$	10,769,266
Total deposits	$	6,418,810	$	623,649		$	7,042,459
Total non-deposit liabilities	$	2,759,156	$	48,563		$	2,807,719



	Three Months Ended March 31, 2019
(amounts in thousands)	Community Business Banking		BankMobile		Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and card revenue	$	180	$	8,626	$	8,806
Deposit fees	300		1,909		2,209
University fees - card and disbursement fees	—		355		355
Total revenue recognized at point in time	480		10,890		11,370
Revenue recognized over time:
University fees - subscription revenue	—		979		979
Total revenue recognized over time	—		979		979
Total revenue from contracts with customers	$	480	$	11,869	$	12,349



(dollars in thousands)	Total Loans			NPL		ALL		Cash Reserve		Total Credit Reserves		Reserves to Loans (%)		Reserves to NPLs (%)
Loan Type
Multi-family	$	3,212,312		$	1,997	$	10,630	$	—	$	10,630	0.33	%	532.30	%
Commercial & Industrial ⁽¹⁾	2,038,229			13,064		16,072		—		16,072		0.79	%	123.03	%
Commercial Real Estate Non-Owner Occupied	1,107,336			102		6,015		—		6,015		0.54	%	5897.06	%
Construction	53,372			—		584		—		584		1.09	%	—	%
Total commercial loans and leases receivable	6,411,249			15,163		33,301		—		33,301		0.52	%	219.62	%
Residential	625,066			5,574		6,572		—		6,572		1.05	%	117.90	%
Manufactured housing	77,778			1,924		117		527		644		0.83	%	33.47	%
Other consumer	153,153			108		3,689		—		3,689		2.41	%	3415.74	%
Total consumer loans receivable	855,997			7,606		10,378		527		10,905		1.27	%	143.37	%
Deferred (fees) costs and unamortized (discounts) premiums, net	(3,197		)	—		—		—		—
Loans and Leases Receivable	7,264,049			22,769		43,679		527		44,206		0.61	%	194.15	%
Loans Receivable, Mortgage Warehouse, at Fair Value	1,480,195			—		—		—		—
Total Loans Held for Sale	1,602			—		—		—		—
Total Portfolio	$	8,745,846		$	22,769	$	43,679	$	527	$	44,206	0.51	%	194.15	%



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased As Part of of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
January 1 - January 31, 2019	31,159	$	18.35	31,159	—
February 1 - February 28, 2019	—	—		—	—
March 1 - March 31, 2019	—	—		—	—
Total	31,159	$	18.35	31,159