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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			For the quarterly period ended ~~June~~September 30, 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

27-2290659

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

701 Reading Avenue

West Reading PA 19611

(Address of principal executive offices)

(610) 933-2000

(Registrant’s telephone number, including area code)

~~1015 Penn Avenue Suite 103 Wyomissing, PA 19610~~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

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

________________________________________

On ~~July 31,~~October 30, 2020, ~~31,514,485~~31,601,311 shares of Voting Common Stock were outstanding.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Table of Contents

Part I

Item 1.

Customers Bancorp, Inc. Consolidated Financial Statements as of ~~June~~September 30, 2020 and for the three and ~~six~~nine month periods ended ~~June~~September 30, 2020 and 2019 (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

8384

Item 4.

Controls and Procedures

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

8788

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

Ex-31.1

Ex-31.2

Ex-32.1

Ex-32.2

Ex-101

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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.


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			Accounting Standards Codification
ALLL			Allowance for loan and lease losses
AOCI			Accumulated other comprehensive income
ASU			Accounting Standards Update
ATM			Automated teller machine
Bancorp			Customers Bancorp, Inc.
Bank			Customers Bank
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.
BM Technologies			BM Technologies, Inc.
BOLI			Bank-owned life insurance
BRRP			Bonus Recognition and Retention Program
CARES Act			Coronavirus Aid, Relief and Economic Security Act
CCF			Customers Commercial Finance, LLC
CECL			Current expected credit loss
CEO			Chief Executive Officer
CFO			Chief Financial Officer
CFPB			Consumer Financial Protection Bureau
COSO			Committee of Sponsoring Organizations of the Treadway Commission
COVID-19			Coronavirus Disease 2019
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
DCF			Discounted cash flow
DIF			Deposit Insurance Fund
Dodd-Frank Act			Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
~~DOE~~ED			United States Department of Education
EGRRCPA			The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018
EPS			Earnings per share
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
FERPA			Family Educational Rights and Privacy Act of 1975
FHA			Federal Housing Administration
FHLB			Federal Home Loan Bank

FPRD			Final Program Review Determination
FRB			Federal Reserve Bank of Philadelphia
FTC Act			Federal Trade Commission Act
GDP			Gross domestic product
GNMA			Government National Mortgage Association
GLBA			Gramm-Leach-Bliley Act of 1999
HECM			Home Equity Conversion Mortgage

Table of Contents


HTM			Held to maturity
Interest-only GNMA securities			Interest-only classes of Ginnie Mae guaranteed home equity conversation mortgage-backed securities

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IRS			Internal Revenue Service
Legacy Loans			Total 2009 and prior loans
LIBOR			London Interbank Offered Rate
LIHTC			Low-Income Housing Tax Credit
LPO			Limited Purpose Office
MFAC			Megalith Financial Acquisition Corp.
MMDA			Money market deposit accounts
NIM			Net interest margin, tax equivalent
NM			Not meaningful
Non-QM			Non-qualified mortgage
NPA			Non-performing asset
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
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
PATRIOT Act			Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
PCAOB			Public Accounting Oversight Board (United States)
PCD			Purchased with Credit Deterioration
PCI			Purchased Credit-Impaired
PPP			Paycheck Protection Program
PPPLF			FRB Paycheck Protection Program Liquidity Facility
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			Troubled debt restructuring
TRAC			Terminal Rental Adjustment Clause

U.S. GAAP			Accounting principles generally accepted in the United States of America
VA			United States Department of Veterans Affairs

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

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


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	44,577	$	33,095	Cash and due from banks	$	5,822	$	33,095
Interest earning deposits	Interest earning deposits	1,022,753		179,410		Interest earning deposits	325,594		179,410
Cash and cash equivalents	Cash and cash equivalents	1,067,330		212,505		Cash and cash equivalents	331,416		212,505
Investment securities, at fair value	Investment securities, at fair value	681,382		595,876		Investment securities, at fair value	1,133,831		595,876

Loans held for sale (includes $21,107 and $2,130, respectively, at fair value)		464,164		486,328
Loans held for sale (includes $6,998 and $2,130, respectively, at fair value)						Loans held for sale (includes $6,998 and $2,130, respectively, at fair value)	26,689		486,328
Loans receivable, mortgage warehouse, at fair value	Loans receivable, mortgage warehouse, at fair value	2,793,164		2,245,758		Loans receivable, mortgage warehouse, at fair value	3,913,593		2,245,758
Loans receivable, PPP	Loans receivable, PPP	4,760,427		—		Loans receivable, PPP	4,964,105		0
Loans and leases receivable	Loans and leases receivable	7,272,447		7,318,988		Loans and leases receivable	7,700,892		7,318,988
Allowance for credit losses on loans and leases	Allowance for credit losses on loans and leases	(159,905)		(56,379)		Allowance for credit losses on loans and leases	(155,561)		(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	14,666,133		9,508,367		Total loans and leases receivable, net of allowance for credit losses on loans and leases	16,423,029		9,508,367
FHLB, Federal Reserve Bank, and other restricted stock	FHLB, Federal Reserve Bank, and other restricted stock	91,023		84,214		FHLB, Federal Reserve Bank, and other restricted stock	70,387		84,214
Accrued interest receivable	Accrued interest receivable	49,911		38,072		Accrued interest receivable	65,668		38,072

Bank premises and equipment, net	Bank premises and equipment, net	8,380		9,389		Bank premises and equipment, net	11,744		9,389
Bank-owned life insurance	Bank-owned life insurance	275,842		272,546		Bank-owned life insurance	277,826		272,546
Other real estate owned	Other real estate owned	131		173		Other real estate owned	131		173
Goodwill and other intangibles	Goodwill and other intangibles	14,575		15,195		Goodwill and other intangibles	14,437		15,195

Other assets	Other assets	584,247		298,052		Other assets	423,569		298,052
Total assets	Total assets	$	17,903,118	$	11,520,717	Total assets	$	18,778,727	$	11,520,717
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Demand, non-interest bearing	Demand, non-interest bearing	$	1,879,789	$	1,343,391	Demand, non-interest bearing	$	2,327,017	$	1,343,391
Interest bearing	Interest bearing	9,086,086		7,305,545		Interest bearing	8,512,060		7,305,545
Total deposits	Total deposits	10,965,875		8,648,936		Total deposits	10,839,077		8,648,936

Federal funds purchased	Federal funds purchased	—		538,000		Federal funds purchased	680,000		538,000
FHLB advances	FHLB advances	850,000		850,000		FHLB advances	850,000		850,000
Other borrowings	Other borrowings	123,833		123,630		Other borrowings	123,935		123,630
Subordinated debt	Subordinated debt	181,255		181,115		Subordinated debt	181,324		181,115
FRB PPP liquidity facility	FRB PPP liquidity facility	4,419,967		—		FRB PPP liquidity facility	4,811,009		0

Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	354,341		126,241		Accrued interest payable and other liabilities	241,891		126,241
Total liabilities	Total liabilities	16,895,271		10,467,922		Total liabilities	17,727,236		10,467,922
Commitments and contingencies (NOTE 15)	Commitments and contingencies (NOTE 15)					Commitments and contingencies (NOTE 15)
Shareholders’ equity:	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 June 30, 2020 and December 31, 2019		217,471		217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,790,906 and 32,614,410 shares issued as of June 30, 2020 and December 31, 2019; 31,510,287 and 31,336,791 shares outstanding as of June 30, 2020 and December 31, 2019		32,791		32,617
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of September 30, 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 September 30, 2020 and December 31, 2019	217,471		217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,835,743 and 32,617,410 shares issued as of September 30, 2020 and December 31, 2019; 31,555,124 and 31,336,791 shares outstanding as of September 30, 2020 and December 31, 2019						Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,835,743 and 32,617,410 shares issued as of September 30, 2020 and December 31, 2019; 31,555,124 and 31,336,791 shares outstanding as of September 30, 2020 and December 31, 2019	32,836		32,617
Additional paid in capital	Additional paid in capital	450,665		444,218		Additional paid in capital	452,965		444,218
Retained earnings	Retained earnings	338,665		381,519		Retained earnings	385,750		381,519
Accumulated other comprehensive loss, net	Accumulated other comprehensive loss, net	(9,965)		(1,250)		Accumulated other comprehensive loss, net	(15,751)		(1,250)
Treasury stock, at cost (1,280,619 shares as of June 30, 2020 and December 31, 2019)		(21,780)		(21,780)
Treasury stock, at cost (1,280,619 shares as of September 30, 2020 and December 31, 2019)						Treasury stock, at cost (1,280,619 shares as of September 30, 2020 and December 31, 2019)	(21,780)		(21,780)
Total shareholders’ equity	Total shareholders’ equity	1,007,847		1,052,795		Total shareholders’ equity	1,051,491		1,052,795
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	17,903,118	$	11,520,717	Total liabilities and shareholders’ equity	$	18,778,727	$	11,520,717

See accompanying notes to the unaudited consolidated financial statements.

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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 June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Interest income:	Interest income:									Interest income:
Loans and leases	Loans and leases	$	118,447	$	103,567	$	234,527	$	196,683	Loans and leases	$	132,107	$	118,444	$	366,634	$	315,126

Investment securities	Investment securities	6,155		6,481		11,132		12,722		Investment securities	6,297		5,867		17,429		18,589
Other	Other	616		1,902		4,902		3,620		Other	1,246		2,407		6,149		6,030
Total interest income	Total interest income	125,218		111,950		250,561		213,025		Total interest income	139,650		126,718		390,212		339,745
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	23,238		35,980		57,591		67,204		Deposits	18,347		38,267		75,939		105,472
FHLB advances	FHLB advances	4,736		7,607		10,127		12,900		FHLB advances	5,762		7,563		15,889		20,463
Subordinated debt	Subordinated debt	2,689		1,684		5,378		3,369		Subordinated debt	2,689		1,684		8,066		5,053
Federal funds purchased and other borrowings		2,573		2,000		4,163		5,569
FRB PPP liquidity facility, federal funds purchased and other borrowings										FRB PPP liquidity facility, federal funds purchased and other borrowings	5,413		3,469		9,576		9,039
Total interest expense	Total interest expense	33,236		47,271		77,259		89,042		Total interest expense	32,211		50,983		109,470		140,027
Net interest income	Net interest income	91,982		64,679		173,302		123,983		Net interest income	107,439		75,735		280,742		199,718
Provision for credit losses on loans and leases	Provision for credit losses on loans and leases	20,946		5,346		52,732		10,113		Provision for credit losses on loans and leases	12,955		4,426		65,688		14,539
Net interest income after provision for credit losses on loans and leases	Net interest income after provision for credit losses on loans and leases	71,036		59,333		120,570		113,870		Net interest income after provision for credit losses on loans and leases	94,484		71,309		215,054		185,179
Non-interest income:	Non-interest income:									Non-interest income:

Interchange and card revenue	Interchange and card revenue	6,478		6,760		13,287		15,565		Interchange and card revenue	4,081		6,869		17,368		22,435

Deposit fees	Deposit fees	3,321		3,348		6,782		5,557		Deposit fees	3,439		3,642		10,221		9,199
Commercial lease income	Commercial lease income	4,508		2,730		8,776		5,131		Commercial lease income	4,510		3,080		13,286		8,212
Bank-owned life insurance	Bank-owned life insurance	1,757		1,836		3,519		3,653		Bank-owned life insurance	1,746		1,824		5,265		5,477
Mortgage warehouse transactional fees	Mortgage warehouse transactional fees	2,582		1,681		4,533		2,995		Mortgage warehouse transactional fees	3,320		2,150		7,854		5,145
Gain (loss) on sale of SBA and other loans	Gain (loss) on sale of SBA and other loans	23		—		34		—		Gain (loss) on sale of SBA and other loans	286		0		320		0
Mortgage banking income	Mortgage banking income	38		250		334		417		Mortgage banking income	1,013		283		1,347		701
Loss upon acquisition of interest-only GNMA securities	Loss upon acquisition of interest-only GNMA securities	—		(7,476)		—		(7,476)		Loss upon acquisition of interest-only GNMA securities	0		0		0		(7,476)

Gain (loss) on sale of investment securities	Gain (loss) on sale of investment securities	4,353		—		8,328		—		Gain (loss) on sale of investment securities	11,707		1,001		20,035		1,001
Unrealized gain (loss) on investment securities	Unrealized gain (loss) on investment securities	1,200		(347)		(178)		(345)		Unrealized gain (loss) on investment securities	238		1,333		60		988
Other	Other	(2,024)		3,254		(1,248)		6,257		Other	3,453		3,187		2,203		9,443
Total non-interest income	Total non-interest income	22,236		12,036		44,167		31,754		Total non-interest income	33,793		23,369		77,959		55,125
Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and employee benefits	Salaries and employee benefits	31,296		26,920		59,607		52,743		Salaries and employee benefits	32,676		27,193		92,283		79,936
Technology, communication and bank operations	Technology, communication and bank operations	13,310		12,402		26,360		24,355		Technology, communication and bank operations	13,215		8,755		39,576		33,110
Professional services	Professional services	4,552		5,718		12,223		10,291		Professional services	7,253		8,348		19,476		18,639
Occupancy	Occupancy	3,025		3,064		6,057		5,967		Occupancy	3,632		3,661		9,689		9,628
Commercial lease depreciation	Commercial lease depreciation	3,643		2,252		7,070		4,174		Commercial lease depreciation	3,663		2,459		10,733		6,633
FDIC assessments, non-income taxes, and regulatory fees	FDIC assessments, non-income taxes, and regulatory fees	2,368		2,157		5,235		4,145		FDIC assessments, non-income taxes, and regulatory fees	3,784		(777)		9,019		3,368
Provision for operating losses	Provision for operating losses	1,068		2,446		1,980		4,225		Provision for operating losses	1,186		3,998		3,166		8,223
Advertising and promotion	Advertising and promotion	582		1,360		2,222		2,169		Advertising and promotion	0		976		2,221		3,145
Merger and acquisition related expenses	Merger and acquisition related expenses	25		—		75		—		Merger and acquisition related expenses	1,035		0		1,110		0
Loan workout	Loan workout	1,808		643		2,175		963		Loan workout	846		495		3,020		1,458
Other real estate owned	Other real estate owned	12		(14)		20		43		Other real estate owned	7		108		26		151
Other	Other	1,817		2,634		6,941		4,491		Other	(1,736)		4,376		5,206		8,869
Total non-interest expense	Total non-interest expense	63,506		59,582		129,965		113,566		Total non-interest expense	65,561		59,592		195,525		173,160
Income before income tax expense	Income before income tax expense	29,766		11,787		34,772		32,058		Income before income tax expense	62,716		35,086		97,488		67,144
Income tax expense	Income tax expense	7,048		2,491		8,955		7,323		Income tax expense	12,201		8,020		21,156		15,343

Net income	Net income	22,718		9,296		25,817		24,735		Net income	50,515		27,066		76,332		51,801
Preferred stock dividends	Preferred stock dividends	3,581		3,615		7,196		7,229		Preferred stock dividends	3,430		3,615		10,626		10,844
Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	19,137	$	5,681	$	18,621	$	17,506	Net income (loss) available to common shareholders	$	47,085	$	23,451	$	65,706	$	40,957

Basic earnings (loss) per common share	Basic earnings (loss) per common share	$	0.61	$	0.18	$	0.59	$	0.56	Basic earnings (loss) per common share	$	1.49	$	0.75	$	2.09	$	1.32

Diluted earnings (loss) per common share	Diluted earnings (loss) per common share	$	0.61	$	0.18	$	0.59	$	0.55	Diluted earnings (loss) per common share	$	1.48	$	0.74	$	2.07	$	1.30

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED

(amounts in thousands)


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

Net income	Net income	$	22,718	$	9,296	$	25,817	$	24,735	Net income	$	50,515	$	27,066	$	76,332	$	51,801
Unrealized gains (losses) on available for sale debt securities:	Unrealized gains (losses) on available for sale debt securities:									Unrealized gains (losses) on available for sale debt securities:
Unrealized gains (losses) arising during the period	Unrealized gains (losses) arising during the period	35,315		20,755		26,217		38,572		Unrealized gains (losses) arising during the period	(1,090)		7,858		25,127		46,430
Income tax effect	Income tax effect	(9,182)		(5,397)		(6,816)		(10,029)		Income tax effect	283		(2,043)		(6,533)		(12,072)
Reclassification adjustments for (gains) losses included in net income	Reclassification adjustments for (gains) losses included in net income	(4,353)		—		(8,328)		—		Reclassification adjustments for (gains) losses included in net income	(11,707)		(1,001)		(20,035)		(1,001)
Income tax effect	Income tax effect	1,131		—		2,165		—		Income tax effect	3,044		260		5,209		260
Net unrealized gains (losses) on available for sale debt securities	Net unrealized gains (losses) on available for sale debt securities	22,911		15,358		13,238		28,543		Net unrealized gains (losses) on available for sale debt securities	(9,470)		5,074		3,768		33,617
Unrealized gains (losses) on cash flow hedges:	Unrealized gains (losses) on cash flow hedges:									Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	Unrealized gains (losses) arising during the period	(6,369)		(14,102)		(34,066)		(21,041)		Unrealized gains (losses) arising during the period	580		(5,163)		(33,486)		(26,204)
Income tax effect	Income tax effect	1,684		3,667		9,035		5,471		Income tax effect	(151)		1,342		8,884		6,813
Reclassification adjustment for (gains) losses included in net income	Reclassification adjustment for (gains) losses included in net income	2,718		4		4,196		(409)		Reclassification adjustment for (gains) losses included in net income	4,400		764		8,596		355
Income tax effect	Income tax effect	(734)		(1)		(1,118)		106		Income tax effect	(1,145)		(198)		(2,263)		(92)
Net unrealized gains (losses) on cash flow hedges	Net unrealized gains (losses) on cash flow hedges	(2,701)		(10,432)		(21,953)		(15,873)		Net unrealized gains (losses) on cash flow hedges	3,684		(3,255)		(18,269)		(19,128)
Other comprehensive income (loss), net of income tax effect	Other comprehensive income (loss), net of income tax effect	20,210		4,926		(8,715)		12,670		Other comprehensive income (loss), net of income tax effect	(5,786)		1,819		(14,501)		14,489
Comprehensive income (loss)	Comprehensive income (loss)	$	42,928	$	14,222	$	17,102	$	37,405	Comprehensive income (loss)	$	44,729	$	28,885	$	61,831	$	66,290

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(amounts in thousands, except shares outstanding data)


		Three Months Ended June 30, 2020																															Three Months Ended September 30, 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 Income (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, March 31, 2020		9,000,000	$	217,471	31,470,026	$	32,751	$	446,840	$	319,529	$	(30,175)	$	(21,780)	$	964,636
Balance, June 30, 2020																		Balance, June 30, 2020	9,000,000	$	217,471	31,510,287	$	32,791	$	450,665	$	338,665	$	(9,965)	$	(21,780)	$	1,007,847

Net income	Net income	—	—		—	—		—		22,718		—		—		22,718		Net income	—	—		—	—		—		50,515		—		—		50,515

Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—	—		—		—		20,210		—		20,210		Other comprehensive income (loss)	—	—		—	—		—		—		(5,786)		—		(5,786)

Preferred stock dividends⁽¹⁾	Preferred stock dividends⁽¹⁾	—	—		—	—		—		(3,581)		—		—		(3,581)		Preferred stock dividends(1)	—	—		—	—		—		(3,430)		—		—		(3,430)
Share-based compensation expense	Share-based compensation expense	—	—		—	—		3,599		—		—		—		3,599		Share-based compensation expense	—	—		—	—		2,028		—		—		—		2,028

Issuance of common stock under share-based compensation arrangements	Issuance of common stock under share-based compensation arrangements	—	—		40,261	40		225		—		—		—		265		Issuance of common stock under share-based compensation arrangements	—	—		44,837	45		272		—		—		—		317
Balance, June 30, 2020		9,000,000	$	217,471	31,510,287	$	32,791	$	450,664	$	338,665	$	(9,965)	$	(21,780)	$	1,007,847
Balance, September 30, 2020																		Balance, September 30, 2020	9,000,000	$	217,471	31,555,124	$	32,836	$	452,965	$	385,750	$	(15,751)	$	(21,780)	$	1,051,491

		Three Months Ended June 30, 2019																															Three Months Ended September 30, 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 Income (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, March 31, 2019		9,000,000	$	217,471	31,131,247	$	32,412	$	436,713	$	328,476	$	(14,919)	$	(21,780)	$	978,373
Balance, June 30, 2019																		Balance, June 30, 2019	9,000,000	$	217,471	31,202,023	$	32,483	$	439,067	$	334,157	$	(9,993)	$	(21,780)	$	991,405
Net income	Net income	—	—		—	—		—		9,296		—		—		9,296		Net income	—	—		—	—		—		27,066		—		—		27,066

Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—	—		—		—		4,926		—		4,926		Other comprehensive income (loss)	—	—		—	—		—		—		1,819		—		1,819

Preferred stock dividends⁽¹⁾	Preferred stock dividends⁽¹⁾	—	—		—	—		—		(3,615)		—		—		(3,615)		Preferred stock dividends(1)	—	—		—	—		—		(3,615)		—		—		(3,615)
Share-based compensation expense	Share-based compensation expense	—	—		—	—		2,315		—		—		—		2,315		Share-based compensation expense	—	—		—	—		2,133		—		—		—		2,133

Issuance of common stock under share-based compensation arrangements	Issuance of common stock under share-based compensation arrangements	—	—		70,776	71		39		—		—		—		110		Issuance of common stock under share-based compensation arrangements	—	—		43,753	43		299		—		—		—		342
Balance, June 30, 2019		9,000,000	$	217,471	31,202,023	$	32,483	$	439,067	$	334,157	$	(9,993)	$	(21,780)	$	991,405
Balance, September 30, 2019																		Balance, September 30, 2019	9,000,000	$	217,471	31,245,776	$	32,526	$	441,499	$	357,608	$	(8,174)	$	(21,780)	$	1,019,150

(1)Dividends per share of $0.357778, $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 September 30, 2020. 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 ~~June~~September 30, ~~2020 and 2019, respectively.~~2019.

~~Tab~~le Table of Contents


		Six Months Ended June 30, 2020																															Nine Months Ended September 30, 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 Income (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, 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	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)		Cumulative effect from change in accounting principle - CECL	—	—		—	—		—		(61,475)		—		—		(61,475)
Net income	Net income	—	—		—	—		—		25,817		—		—		25,817		Net income	—	—		—	—		—		76,332		—		—		76,332

Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—	—		—		—		(8,715)		—		(8,715)		Other comprehensive income (loss)	—	—		—	—		—		—		(14,501)		—		(14,501)

Preferred stock dividends⁽¹⁾	Preferred stock dividends⁽¹⁾	—	—		—	—		—		(7,196)		—		—		(7,196)		Preferred stock dividends(1)	—	—		—	—		—		(10,626)		—		—		(10,626)
Share-based compensation expense	Share-based compensation expense	—	—		—	—		6,827		—		—		—		6,827		Share-based compensation expense	—	—		—	—		8,855		—		—		—		8,855

Issuance of common stock under share-based compensation arrangements	Issuance of common stock under share-based compensation arrangements	—	—		173,496	174		(380)		—		—		—		(206)		Issuance of common stock under share-based compensation arrangements	—	—		218,333	219		(108)		—		—		—		111

Balance, June 30, 2020		9,000,000	$	217,471	31,510,287	$	32,791	$	450,665	$	338,665	$	(9,965)	$	(21,780)	$	1,007,847
Balance, September 30, 2020																		Balance, September 30, 2020	9,000,000	$	217,471	31,555,124	$	32,836	$	452,965	$	385,750	$	(15,751)	$	(21,780)	$	1,051,491

		Six Months Ended June 30, 2019																															Nine Months Ended September 30, 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 Income (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	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, 2018	9,000,000	$	217,471	31,003,028	$	32,252	$	434,314	$	316,651	$	(22,663)	$	(21,209)	$	956,816

Net income	Net income	—	—		—	—		—		24,735		—		—		24,735		Net income	—	—		—	—		—		51,801		—		—		51,801

Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—	—		—		—		12,670		—		12,670		Other comprehensive income (loss)	—	—		—	—		—		—		14,489		—		14,489

Preferred stock dividends⁽¹⁾	Preferred stock dividends⁽¹⁾	—	—		—	—		—		(7,229)		—				(7,229)		Preferred stock dividends(1)	—	—		—	—		—		(10,844)		—				(10,844)
Share-based compensation expense	Share-based compensation expense	—	—		—	—		4,425		—		—		—		4,425		Share-based compensation expense	—	—		—	—		6,557		—		—		—		6,557

Issuance of common stock under share-based compensation arrangements	Issuance of common stock under share-based compensation arrangements	—	—		230,154	231		328		—		—		—		559		Issuance of common stock under share-based compensation arrangements	—	—		273,907	274		628		—		—		—		902
Repurchase of common shares	Repurchase of common shares	—	—		(31,159)	—		—		—		—		(571)		(571)		Repurchase of common shares	—	—		(31,159)	—		—		—		—		(571)		(571)
Balance, June 30, 2019		9,000,000	$	217,471	31,202,023	$	32,483	$	439,067	$	334,157	$	(9,993)	$	(21,780)	$	991,405
Balance, September 30, 2019																		Balance, September 30, 2019	9,000,000	$	217,471	31,245,776	$	32,526	$	441,499	$	357,608	$	(8,174)	$	(21,780)	$	1,019,150

(1)Dividends per share of ~~$0.8750, $0.81250, $0.806250,~~$1.232778, $1.21875, $1.209375, and ~~$0.750~~$1.125 per share were declared on Series C, D, E, and F preferred stock for the ~~six~~nine months ended ~~June~~September 30, ~~2020~~2020. Dividends per share of $1.3125, $1.21875, $1.209375, and ~~2019, respectively.~~$1.125 per share were declared on Series C, D, E, and F preferred stock for the nine months ended September 30, 2019.

See accompanying notes to the unaudited consolidated financial statements.

~~Tab~~le Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)


		Six Months Ended June 30,							Nine Months Ended September 30,
		2020		2019			2020		2019
Cash Flows from Operating Activities	Cash Flows from Operating Activities					Cash Flows from Operating Activities
Net income	Net income	$	25,817	$	24,735	Net income	$	76,332	$	51,801
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:					Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses on loan and lease losses	Provision for credit losses on loan and lease losses	52,732		10,113		Provision for credit losses on loan and lease losses	65,688		14,539
Depreciation and amortization	Depreciation and amortization	15,009		8,884		Depreciation and amortization	22,557		15,167
Share-based compensation expense	Share-based compensation expense	7,278		4,900		Share-based compensation expense	9,474		7,289
Deferred taxes	Deferred taxes	(28,104)		(681)		Deferred taxes	(26,188)		8,701
Net amortization (accretion) of investment securities premiums and discounts	Net amortization (accretion) of investment securities premiums and discounts	(364)		421		Net amortization (accretion) of investment securities premiums and discounts	(449)		691
Unrealized (gain) loss on investment securities	Unrealized (gain) loss on investment securities	178		345		Unrealized (gain) loss on investment securities	(60)		(988)
(Gain) loss on sale of investment securities	(Gain) loss on sale of investment securities	(8,328)		—		(Gain) loss on sale of investment securities	(20,035)		(1,001)

Loss upon acquisition of interest-only GNMA securities	Loss upon acquisition of interest-only GNMA securities	—		7,476		Loss upon acquisition of interest-only GNMA securities	0		7,476
(Gain) loss on sale of SBA and other loans	(Gain) loss on sale of SBA and other loans	(426)		(304)		(Gain) loss on sale of SBA and other loans	194		(602)
Fair value adjustment on loans held for sale		1,450		—

Origination of loans held for sale	Origination of loans held for sale	(22,730)		(22,152)		Origination of loans held for sale	(50,941)		(35,760)
Proceeds from the sale of loans held for sale	Proceeds from the sale of loans held for sale	21,745		19,591		Proceeds from the sale of loans held for sale	47,009		36,115

Amortization (accretion) of fair value discounts and premiums	Amortization (accretion) of fair value discounts and premiums	(1,137)		232		Amortization (accretion) of fair value discounts and premiums	(2,106)		561
Net (gain) loss on sales of other real estate owned	Net (gain) loss on sales of other real estate owned	(4)		—		Net (gain) loss on sales of other real estate owned	(4)		137
Valuation and other adjustments to other real estate owned	Valuation and other adjustments to other real estate owned	—		31		Valuation and other adjustments to other real estate owned	0		31
Earnings on investment in bank-owned life insurance	Earnings on investment in bank-owned life insurance	(3,519)		(3,653)		Earnings on investment in bank-owned life insurance	(5,265)		(5,477)
(Increase) decrease in accrued interest receivable and other assets	(Increase) decrease in accrued interest receivable and other assets	(108,325)		(63,311)		(Increase) decrease in accrued interest receivable and other assets	(124,378)		(79,299)
Increase (decrease) in accrued interest payable and other liabilities	Increase (decrease) in accrued interest payable and other liabilities	88,305		16,502		Increase (decrease) in accrued interest payable and other liabilities	81,640		15,302
Net Cash Provided By Operating Activities	Net Cash Provided By Operating Activities	39,577		3,129		Net Cash Provided By Operating Activities	73,468		34,683
Cash Flows from Investing Activities	Cash Flows from Investing Activities					Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of investment securities	Proceeds from maturities, calls and principal repayments of investment securities	78,485		11,616		Proceeds from maturities, calls and principal repayments of investment securities	156,759		22,627
Proceeds from sales of investment securities available for sale	Proceeds from sales of investment securities available for sale	109,207		—		Proceeds from sales of investment securities available for sale	377,767		97,555
Purchases of investment securities available for sale	Purchases of investment securities available for sale	(280,410)		—		Purchases of investment securities available for sale	(1,024,345)		0
Origination of mortgage warehouse loans	Origination of mortgage warehouse loans	(23,573,962)		(12,246,471)		Origination of mortgage warehouse loans	(41,764,787)		(22,167,517)
Proceeds from repayments of mortgage warehouse loans	Proceeds from repayments of mortgage warehouse loans	23,033,058		11,624,062		Proceeds from repayments of mortgage warehouse loans	40,106,032		21,049,044
Net (increase) decrease in loans and leases, excluding mortgage warehouse loans	Net (increase) decrease in loans and leases, excluding mortgage warehouse loans	(4,515,097)		(22,665)		Net (increase) decrease in loans and leases, excluding mortgage warehouse loans	(4,733,097)		(6,808)

Proceeds from sales of loans and leases						Proceeds from sales of loans and leases	23,390		0
Purchase of loans	Purchase of loans	(211,096)		(555,587)		Purchase of loans	(226,498)		(636,366)

Net proceeds from sale of (purchases of) FHLB, Federal Reserve Bank, and other restricted stock	Net proceeds from sale of (purchases of) FHLB, Federal Reserve Bank, and other restricted stock	(6,809)		(12,262)		Net proceeds from sale of (purchases of) FHLB, Federal Reserve Bank, and other restricted stock	13,827		7,832

Purchases of bank premises and equipment	Purchases of bank premises and equipment	(214)		(345)		Purchases of bank premises and equipment	(4,231)		(5,397)
Proceeds from sales of other real estate owned	Proceeds from sales of other real estate owned	77		—		Proceeds from sales of other real estate owned	77		735

Purchases of leased assets under lessor operating leases	Purchases of leased assets under lessor operating leases	(9,011)		(11,672)		Purchases of leased assets under lessor operating leases	(11,432)		(27,239)
Net Cash Used In Investing Activities	Net Cash Used In Investing Activities	(5,375,772)		(1,213,324)		Net Cash Used In Investing Activities	(7,086,538)		(1,665,534)
Cash Flows from Financing Activities	Cash Flows from Financing Activities					Cash Flows from Financing Activities
Net increase in deposits	Net increase in deposits	2,316,939		1,043,541		Net increase in deposits	2,190,141		1,783,449

Net increase (decrease) in short-term borrowed funds from the FHLB	Net increase (decrease) in short-term borrowed funds from the FHLB	—		(335,970)		Net increase (decrease) in short-term borrowed funds from the FHLB	0		(557,270)

Net increase (decrease) in federal funds purchased	Net increase (decrease) in federal funds purchased	(538,000)		219,000		Net increase (decrease) in federal funds purchased	142,000		186,000
Proceeds from borrowed funds from PPP liquidity facility		4,419,967		—
Net increase (decrease) in borrowed funds from PPP liquidity facility						Net increase (decrease) in borrowed funds from PPP liquidity facility	4,811,009		0
Proceeds from long-term borrowed funds from the FHLB	Proceeds from long-term borrowed funds from the FHLB	—		350,000		Proceeds from long-term borrowed funds from the FHLB	0		350,000

Proceeds from issuance of subordinated long-term debt						Proceeds from issuance of subordinated long-term debt	0		25,000

Repayments of other borrowings	Repayments of other borrowings	—		(25,000)		Repayments of other borrowings	0		(25,000)

Preferred stock dividends paid	Preferred stock dividends paid	(7,229)		(7,229)		Preferred stock dividends paid	(10,661)		(10,844)

Purchase of treasury stock	Purchase of treasury stock	—		(571)		Purchase of treasury stock	0		(571)
Payments of employee taxes withheld from share-based awards	Payments of employee taxes withheld from share-based awards	(1,067)		(1,210)		Payments of employee taxes withheld from share-based awards	(1,143)		(1,366)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	410		1,294		Proceeds from issuance of common stock	635		1,536
Net Cash Provided By Financing Activities	Net Cash Provided By Financing Activities	6,191,020		1,243,855		Net Cash Provided By Financing Activities	7,131,981		1,750,934

Net Increase (Decrease) in Cash and Cash Equivalents	Net Increase (Decrease) in Cash and Cash Equivalents	854,825		33,660		Net Increase (Decrease) in Cash and Cash Equivalents	118,911		120,083
Cash and Cash Equivalents – Beginning	Cash and Cash Equivalents – Beginning	212,505		62,135		Cash and Cash Equivalents – Beginning	212,505		62,135
Cash and Cash Equivalents – Ending	Cash and Cash Equivalents – Ending	$	1,067,330	$	95,795	Cash and Cash Equivalents – Ending	$	331,416	$	182,218

		(continued)					(continued)

		Six Months Ended June 30,							Nine Months Ended September 30,
		2020		2019			2020		2019

Non-cash Operating and Investing Activities:	Non-cash Operating and Investing Activities:					Non-cash Operating and Investing Activities:
Transfer of loans to other real estate owned	Transfer of loans to other real estate owned	$	31	$	291	Transfer of loans to other real estate owned	$	31	$	291
Transfer of loans held for investment to held for sale						Transfer of loans held for investment to held for sale	18,336		499,774

Transfer of loans held for investment to held for sale		19,050		—
Unsettled sales of investment securities		33,615		—
Unsettled purchases of investment securities						Unsettled purchases of investment securities	22,500		0

Transfer of multi-family loans held for sale to held for investment						Transfer of multi-family loans held for sale to held for investment	401,144		0

Acquisition of interest-only GNMA securities securing a mortgage warehouse loan	Acquisition of interest-only GNMA securities securing a mortgage warehouse loan	—		17,157		Acquisition of interest-only GNMA securities securing a mortgage warehouse loan	0		17,157
Acquisition of residential reverse mortgage loans securing a mortgage warehouse loan	Acquisition of residential reverse mortgage loans securing a mortgage warehouse loan	—		1,325		Acquisition of residential reverse mortgage loans securing a mortgage warehouse loan	0		1,325

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. (“Customers Bancorp”) is a bank holding company engaged in banking activities through its wholly owned subsidiary, Customers Bank ("the Bank”), collectively referred to as “Customers” herein.

Customers Bancorp and its wholly owned subsidiaries, 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 and other financial products, including equipment finance leases, to customers through its limited-purpose offices in Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire; Manhattan and Melville, New York; Philadelphia, Pennsylvania; Washington, D.C.; and Chicago, Illinois. The Bank also serves specialty niche businesses nationwide, including its commercial loans to mortgage banking businesses, commercial equipment financing, SBA lending, specialty lending and consumer loans through relationships with fintech companies. In addition, BankMobile, a division of Customers Bank, offers 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.

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 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, 2019 consolidated balance sheet presented in this report has been derived from Customers Bancorp’s audited 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 2019 consolidated financial statements of Customers Bancorp and subsidiaries included in Customers' Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 2, 2020 (the "2019 Form 10-K"). The 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 and ~~six~~nine months ended ~~June~~September 30, 2020, except for the adoption of ASU 2016-13 Financial Instruments - Credit Losses ("ASC 326"): Measurement of Credit Losses on Financial Instruments, which is discussed below in Adoption of 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.

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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 the 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



	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	$	0	$	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		0		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
Installment	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.~~installment. 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

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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)~~indices). 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 a separate financial statement line item 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)~~TDRs and collateral dependent loans.

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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”)~~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.

The 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 under U.S GAAP. For COVID-19 related loan modifications which met the 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.

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 ~~$3.2~~$4.2 million at ~~June~~September 30, 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

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

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

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

• 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.

• 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.

• Customers adopted on January 1, 2020.

• The adoption of this guidance relating to Topics 815 and 825 did not have a material impact on 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

• 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.

• 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.

• 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.

• Effective for fiscal year beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption permitted.

• 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.

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Other Accounting Standards Adopted in 2020 (continued)

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

• 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.
• 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.
• Clarifies that existing impairment guidance in Subtopic 350-40 must be applied to the capitalized implementation costs as if they were long-lived assets.
• Applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.
• Effective for fiscal year beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption permitted.

• 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.

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Accounting and Reporting Considerations related to COVID-19

On March 27, 2020, the CARES Act was signed into law and contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic and stimulate the economy. The CARES Act includes the PPP designed to aid small-and medium-sized businesses through federally guaranteed loans distributed through banks. Customers is a participant in the PPP. Section 4013 of the CARES act also gives entities temporary relief from the accounting and disclosure requirements for TDRs under ASC 310-40 in certain situations.

Accounting for PPP Loans

In April 2020, Customers began to originate loans to qualified small businesses under the PPP administered by the SBA. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and terms of two or five years, if not forgiven, in whole or in part. Payments are deferred for the first six months of the loan. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5% based on the size of the loan. Customers classified the PPP loans as held for investment and these loans are carried at amortized cost and interest income is recognized using the interest method. The origination fees, net of direct origination costs, are deferred and recognized as an adjustment to the yield of the related loans over their contractual life using the interest method. As PPP is newly created, Customers does not have historical prepayment data to accurately estimate principal prepayments and therefore has elected to not estimate prepayments as a policy election. No allowance for credit losses has been recognized for PPP loans as these loans are 100% guaranteed by the SBA. See Note 7 - Loans and Leases Receivable and Allowance for Credit Losses on Loans and Leases for additional information.

Loan Modifications

As mentioned above, Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for TDRs. In addition, on April 7, 2020, certain regulatory banking agencies issued an interagency statement that offers practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic are TDRs. To qualify for TDR accounting and disclosure relief under the CARES Act, the applicable loan must not have been more than 30 days past due as of December 31, 2019, and the modification must be executed during the period beginning on March 1, 2020, and ending on the earlier of December 31, 2020, or the date that is 60 days after the termination date of the national emergency declared by the president on March 13, 2020, under the National Emergencies Act related to the outbreak of COVID-19. The CARES Act applies to modifications made as a result of COVID-19 including: forbearance agreements, interest rate modifications, repayment plans, and other arrangements to defer or delay payment of principal or interest. The interagency statement does not require the modification to be completed within a certain time period if it is related to COVID-19 and can be provided to borrowers either individually or as part of a loan modification program. Moreover, the interagency statement applies to short-term modifications (e.g. not more than six months deferral) including payment deferrals, fee waivers, extensions of repayment terms, or other insignificant payment delays as a result of COVID-19.

Customers applied Section 4013 of the CARES Act and the interagency statement in connection with applicable modifications. For modifications that qualify under either the CARES Act or the interagency statement, TDR accounting and reporting is suspended. These modifications generally involve principal and/or interest payment deferrals for a period of 90 days at a time and can be extended to six months or longer for modifications that qualified under the Section 4013 of the CARES Act if requested by the borrower as long as the reason is still related to COVID-19. These modified loans would not also be reported as past due or nonaccrual during the deferral period. See Note 7 - Loans and Leases Receivable and Allowance for Credit Losses on Loans and Leases for additional information.

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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 June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(amounts in thousands, except share and per share data)	(amounts in thousands, except share and per share data)	2020		2019		2020		2019		(amounts in thousands, except share and per share data)	2020		2019		2020		2019

Net income available to common shareholders	Net income available to common shareholders	$	19,137	$	5,681	$	18,621	$	17,506	Net income available to common shareholders	$	47,085	$	23,451	$	65,706	$	40,957

Weighted-average number of common shares outstanding – basic	Weighted-average number of common shares outstanding – basic	31,477,591		31,154,292		31,434,371		31,101,037		Weighted-average number of common shares outstanding – basic	31,517,504		31,223,777		31,462,284		31,142,400
Share-based compensation plans	Share-based compensation plans	148,180		471,449		191,298		446,985		Share-based compensation plans	218,807		420,951		203,743		438,629

Weighted-average number of common shares – diluted	Weighted-average number of common shares – diluted	31,625,771		31,625,741		31,625,669		31,548,022		Weighted-average number of common shares – diluted	31,736,311		31,644,728		31,666,027		31,581,029

Basic earnings (loss) per common share	Basic earnings (loss) per common share	$	0.61	$	0.18	$	0.59	$	0.56	Basic earnings (loss) per common share	$	1.49	$	0.75	$	2.09	$	1.32

Diluted earnings (loss) per common share	Diluted earnings (loss) per common share	$	0.61	$	0.18	$	0.59	$	0.55	Diluted earnings (loss) per common share	$	1.48	$	0.74	$	2.07	$	1.30

The following are securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because either the performance conditions for certain of the share-based compensation awards have not been met or to do so would have been anti-dilutive for the periods presented.

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Share-based compensation awards 3,813,959 2,246,181 3,674,506 2,301,663


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Share-based compensation awards	862,417	2,181,195	862,417	2,233,160

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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 and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019. All amounts are presented net of tax. Amounts in parentheses indicate reductions to AOCI.


		Three Months Ended June 30, 2020											Three Months Ended September 30, 2020
(amounts in thousands)	(amounts in thousands)	Unrealized Gains (Losses) on Available for Sale Securities ⁽¹⁾		Unrealized Gains (Losses) on Cash Flow Hedges ⁽²⁾		Total		(amounts in thousands)	Unrealized Gains (Losses) on Available for Sale Securities (1)		Unrealized Gains (Losses) on Cash Flow Hedges (2)		Total
Balance - March 31, 2020		$	4,614	$	(34,789)	$	(30,175)
Balance - June 30, 2020								Balance - June 30, 2020	$	27,525	$	(37,490)	$	(9,965)

Unrealized gains (losses) arising during period, before tax	Unrealized gains (losses) arising during period, before tax	35,315		(6,369)		28,946		Unrealized gains (losses) arising during period, before tax	(1,090)		580		(510)
Income tax effect	Income tax effect	(9,182)		1,684		(7,498)		Income tax effect	283		(151)		132
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	26,133		(4,685)		21,448		Other comprehensive income (loss) before reclassifications	(807)		429		(378)
Reclassification adjustments for (gains) losses included in net income, before tax	Reclassification adjustments for (gains) losses included in net income, before tax	(4,353)		2,718		(1,635)		Reclassification adjustments for (gains) losses included in net income, before tax	(11,707)		4,400		(7,307)
Income tax effect	Income tax effect	1,131		(734)		397		Income tax effect	3,044		(1,145)		1,899
Amounts reclassified from accumulated other comprehensive income (loss) to net income	Amounts reclassified from accumulated other comprehensive income (loss) to net income	(3,222)		1,984		(1,238)		Amounts reclassified from accumulated other comprehensive income (loss) to net income	(8,663)		3,255		(5,408)
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	22,911		(2,701)		20,210		Net current-period other comprehensive income (loss)	(9,470)		3,684		(5,786)
Balance - June 30, 2020		$	27,525	$	(37,490)	$	(9,965)
Balance - September 30, 2020								Balance - September 30, 2020	$	18,055	$	(33,806)	$	(15,751)


		Six Months Ended June 30, 2020											Nine Months Ended September 30, 2020
(amounts in thousands)	(amounts in thousands)	Unrealized Gains (Losses) Available for Sale Securities ⁽¹⁾		Unrealized Gains (Losses) on Cash Flow Hedges ⁽²⁾		Total		(amounts in thousands)	Unrealized Gains (Losses) Available for Sale Securities (1)		Unrealized Gains (Losses) on Cash Flow Hedges (2)			Total
Balance - December 31, 2019	Balance - December 31, 2019	$	14,287	$	(15,537)	$	(1,250)	Balance - December 31, 2019	$	14,287	$	(15,537)		$	(1,250)

Unrealized gains (losses) arising during period, before tax	Unrealized gains (losses) arising during period, before tax	26,217		(34,066)		(7,849)		Unrealized gains (losses) arising during period, before tax	25,127		(33,486)			(8,359)
Income tax effect	Income tax effect	(6,816)		9,035		2,219		Income tax effect	(6,533)		8,884			2,351
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	19,401		(25,031)		(5,630)		Other comprehensive income (loss) before reclassifications	18,594		(24,602)			(6,008)
Reclassification adjustments for (gains) losses included in net income, before tax	Reclassification adjustments for (gains) losses included in net income, before tax	(8,328)		4,196		(4,132)		Reclassification adjustments for (gains) losses included in net income, before tax	(20,035)		8,596			(11,439)
Income tax effect	Income tax effect	2,165		(1,118)		1,047		Income tax effect	5,209		(2,263)			2,946
Amounts reclassified from accumulated other comprehensive income (loss) to net income	Amounts reclassified from accumulated other comprehensive income (loss) to net income	(6,163)		3,078		(3,085)		Amounts reclassified from accumulated other comprehensive income (loss) to net income	(14,826)		6,333			(8,493)
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	13,238		(21,953)		(8,715)		Net current-period other comprehensive income (loss)	3,768		(18,269)			(14,501)
Balance - June 30, 2020		$	27,525	$	(37,490)	$	(9,965)
Balance - September 30, 2020								Balance - September 30, 2020	$	18,055	$	(33,806)		$	(15,751)

(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.

~~Tab~~le Table of Contents


		Three Months Ended June 30, 2019											Three Months Ended September 30, 2019

(amounts in thousands)	(amounts in thousands)	Unrealized Gains (Losses) on Available for Sale Securities ⁽¹⁾		Unrealized Gains (Losses) on Cash Flow Hedges ⁽²⁾		Total		(amounts in thousands)	Unrealized Gains (Losses) on Available for Sale Securities (1)		Unrealized Gains (Losses) on Cash Flow Hedges (2)		Total
Balance - March 31, 2019		$	(8,556)	$	(6,363)	$	(14,919)
Balance - June 30, 2019								Balance - June 30, 2019	$	6,802	$	(16,795)	$	(9,993)

Unrealized gains (losses) arising during period, before tax	Unrealized gains (losses) arising during period, before tax	20,755		(14,102)		6,653		Unrealized gains (losses) arising during period, before tax	7,858		(5,163)		2,695
Income tax effect	Income tax effect	(5,397)		3,667		(1,730)		Income tax effect	(2,043)		1,342		(701)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	15,358		(10,435)		4,923		Other comprehensive income (loss) before reclassifications	5,815		(3,821)		1,994
Reclassification adjustments for losses (gains) included in net income, before tax	Reclassification adjustments for losses (gains) included in net income, before tax	—		4		4		Reclassification adjustments for losses (gains) included in net income, before tax	(1,001)		764		(237)
Income tax effect	Income tax effect	—		(1)		(1)		Income tax effect	260		(198)		62
Amounts reclassified from accumulated other comprehensive income (loss) to net income	Amounts reclassified from accumulated other comprehensive income (loss) to net income	—		3		3		Amounts reclassified from accumulated other comprehensive income (loss) to net income	(741)		566		(175)
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	15,358		(10,432)		4,926		Net current-period other comprehensive income (loss)	5,074		(3,255)		1,819
Balance - June 30, 2019		$	6,802	$	(16,795)	$	(9,993)
Balance - September 30, 2019								Balance - September 30, 2019	$	11,876	$	(20,050)	$	(8,174)


		Six Months Ended June 30, 2019											Nine Months Ended September 30, 2019

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

Unrealized gains (losses) arising during period, before tax	Unrealized gains (losses) arising during period, before tax	38,572		(21,041)		17,531		Unrealized gains (losses) arising during period, before tax	46,430		(26,204)		20,226
Income tax effect	Income tax effect	(10,029)		5,471		(4,558)		Income tax effect	(12,072)		6,813		(5,259)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	28,543		(15,570)		12,973		Other comprehensive income (loss) before reclassifications	34,358		(19,391)		14,967
Reclassification adjustments for losses (gains) included in net income, before tax	Reclassification adjustments for losses (gains) included in net income, before tax	—		(409)		(409)		Reclassification adjustments for losses (gains) included in net income, before tax	(1,001)		355		(646)
Income tax effect	Income tax effect	—		106		106		Income tax effect	260		(92)		168
Amounts reclassified from accumulated other comprehensive income (loss) to net income	Amounts reclassified from accumulated other comprehensive income (loss) to net income	—		(303)		(303)		Amounts reclassified from accumulated other comprehensive income (loss) to net income	(741)		263		(478)
Net current-period other comprehensive income	Net current-period other comprehensive income	28,543		(15,873)		12,670		Net current-period other comprehensive income	33,617		(19,128)		14,489
Balance - June 30, 2019		$	6,802	$	(16,795)	$	(9,993)
Balance - September 30, 2019								Balance - September 30, 2019	$	11,876	$	(20,050)	$	(8,174)

(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.

~~Tab~~le Table of Contents

NOTE 5 — INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of ~~June~~September 30, 2020 and December 31, 2019 are summarized in the tables below:


		June 30, 2020 ⁽¹⁾															September 30, 2020 (1)
(amounts in thousands)	(amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
Asset-backed securities										Asset-backed securities	$	374,151	$	1,404	$	(174)	$	375,381
U.S. government agencies securities										U.S. government agencies securities	40,000		8		0		40,008
Agency-guaranteed residential mortgage-backed securities	Agency-guaranteed residential mortgage-backed securities	$	140,019	$	4,291	$	—	$	144,310	Agency-guaranteed residential mortgage-backed securities	59,013		2,066		0		61,079

Agency-guaranteed collateralized mortgage obligations	Agency-guaranteed collateralized mortgage obligations	145,061		765		—		145,826		Agency-guaranteed collateralized mortgage obligations	153,088		771		(80)		153,779
State and political subdivision debt securities ⁽²⁾	State and political subdivision debt securities ⁽²⁾	17,496		893		—		18,389		State and political subdivision debt securities (2)	17,391		868		0		18,259

Private label collateralized mortgage obligations										Private label collateralized mortgage obligations	118,979		8		0		118,987
Corporate notes ⁽³⁾	Corporate notes ⁽³⁾	324,986		31,286		(39)		356,233		Corporate notes (3)	344,344		19,632		(104)		363,872

Available for sale debt securities	Available for sale debt securities	$	627,562	$	37,235	$	(39)	664,758		Available for sale debt securities	$	1,106,966	$	24,757	$	(358)	1,131,365
Interest-only GNMA securities ⁽⁴⁾								14,396

Equity securities ⁽⁵⁾	Equity securities ⁽⁵⁾							2,228		Equity securities (5)							2,466
Total investment securities, at fair value	Total investment securities, at fair value							$	681,382	Total investment securities, at fair value							$	1,133,831


		December 31, 2019															December 31, 2019
(amounts in thousands)	(amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
Agency-guaranteed residential mortgage-backed securities	Agency-guaranteed residential mortgage-backed securities	$	273,252	$	5,069	$	—	$	278,321	Agency-guaranteed residential mortgage-backed securities	$	273,252	$	5,069	$	0	$	278,321

Corporate notes ⁽³⁾	Corporate notes ⁽³⁾	284,639		14,238		—		298,877		Corporate notes (3)	284,639		14,238		0		298,877
Available for sale debt securities	Available for sale debt securities	$	557,891	$	19,307	$	—	577,198		Available for sale debt securities	$	557,891	$	19,307	$	0	577,198
Interest-only GNMA securities ⁽⁴⁾	Interest-only GNMA securities ⁽⁴⁾							16,272		Interest-only GNMA securities (4)							16,272
Equity securities ⁽⁵⁾	Equity securities ⁽⁵⁾							2,406		Equity securities (5)							2,406
Total investment securities, at fair value	Total investment securities, at fair value							$	595,876	Total investment securities, at fair value							$	595,876

(1)Accrued interest on AFS debt securities totaled ~~$3.2~~$4.2 million at ~~June~~September 30, 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~~These securities were sold for $15.4 million with a realized gain of ~~these securities at June~~$1.0 million during the three months ended September 30, ~~2020 was $14.4 million.~~2020.

During the three and ~~six~~nine months ended ~~June~~September 30, 2020, Customers recognized unrealized gains of ~~$1.2~~$0.2 million and ~~unrealized losses of $0.2~~$0.1 million, respectively, on its equity securities. During the three and ~~six~~nine months ended ~~June~~September 30, 2019, Customers recognized unrealized ~~losses~~gains of ~~$0.3~~$1.3 million and ~~$0.3~~$1.0 million, 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.

~~Tab~~le Table of Contents

Proceeds from the sale of available for sale debt securities were ~~$109.2~~$268.6 million and $377.8 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020. Realized gains from the sale of available for sale debt securities were ~~$4.4~~$11.7 million and ~~$8.3~~$20.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively. ~~There were 0 sales~~Proceeds from the sale of available for sale debt securities were $97.6 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019. Realized gains from the sale of available for sale debt securities were $1.0 million for the three and nine months ended September 30, 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 debt securities by stated maturity. Debt securities backed by mortgages and ~~interest-only GNMA~~other assets 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:


		June 30, 2020							September 30, 2020
(amounts in thousands)	(amounts in thousands)	Amortized Cost		Fair Value		(amounts in thousands)	Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	7,954	$	8,003	Due in one year or less	$	8,000	$	8,000
Due after one year through five years	Due after one year through five years	62,687		64,280		Due after one year through five years	83,209		84,275
Due after five years through ten years	Due after five years through ten years	252,845		282,450		Due after five years through ten years	274,135		292,605
Due after ten years	Due after ten years	18,996		19,889		Due after ten years	36,391		37,259
Asset-backed securities						Asset-backed securities	374,151		375,381
Agency-guaranteed residential mortgage-backed securities	Agency-guaranteed residential mortgage-backed securities	140,019		144,310		Agency-guaranteed residential mortgage-backed securities	59,013		61,079
Agency-guaranteed collateralized mortgage obligations	Agency-guaranteed collateralized mortgage obligations	145,061		145,826		Agency-guaranteed collateralized mortgage obligations	153,088		153,779
Private label collateralized mortgage obligations						Private label collateralized mortgage obligations	118,979		118,987

Interest-only GNMA securities		—		14,396

Total debt securities	Total debt securities	$	627,562	$	679,154	Total debt securities	$	1,106,966	$	1,131,365

Gross unrealized losses and fair value of Customers' 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 ~~June~~September 30, 2020 were as follows:


		June 30, 2020																							September 30, 2020
		Less Than 12 Months						12 Months or More								Total					Less Than 12 Months				12 Months or More		Total
(amounts in thousands)	(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:	Available for sale debt securities:													Available for sale debt securities:

Asset-backed securities														Asset-backed securities	$	107,610	$	(174)	$	0	$	0	$	107,610	$	(174)
Agency-guaranteed residential mortgage-backed securities														Agency-guaranteed residential mortgage-backed securities	19,019		(80)		0		0		19,019		(80)

Corporate notes	Corporate notes	4,961		(39)		—		—		4,961		(39)		Corporate notes	40,409		(104)		0		0		40,409		(104)

Total	Total	$	4,961	$	(39)	$	—	$	—	$	4,961	$	(39)	Total	$	167,038	$	(358)	$	0	$	0	$	167,038	$	(358)

At ~~June~~September 30, 2020, there ~~was 1~~were 15 available for sale debt ~~security~~securities with unrealized losses in the less-than-twelve-month category and 0 available for sale debt securities with unrealized losses in the twelve-month-or-more category. The unrealized ~~loss was~~losses were principally due to changes in market interest rates that resulted in a negative impact on the respective ~~note's~~securities' fair value. All amounts related to ~~the corporate notes~~these securities are expected to be recovered when market prices recover or at maturity. Customers does not intend to sell any of the ~~security,~~15 securities, and it is not more likely than not that Customers will be required to sell any of the ~~security~~15 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 ~~June~~September 30, 2020 and December 31, 2019, Customers Bank had pledged investment securities aggregating ~~$16.9~~$20.1 million and $20.4 million in fair value, respectively, as collateral against its borrowings primarily with an unused line of credit with another financial institution. These counterparties do not have the ability to sell or repledge these securities.

At ~~June~~September 30, 2020 and December 31, 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.

~~Tab~~le Table of Contents

NOTE 6 – LOANS HELD FOR SALE

The composition of loans held for sale as of ~~June~~September 30, 2020 and December 31, 2019 was as follows:


(amounts in thousands)	(amounts in thousands)	June 30, 2020		December 31, 2019		(amounts in thousands)	September 30, 2020		December 31, 2019
Commercial loans:	Commercial loans:					Commercial loans:

Multi-family loans, at lower of cost or fair value	Multi-family loans, at lower of cost or fair value	$	441,732	$	482,873	Multi-family loans, at lower of cost or fair value	$	0	$	482,873
Commercial mortgage loans, at lower of cost or fair value		17,600		—
Commercial real estate non-owner occupied loans, at lower of cost or fair value						Commercial real estate non-owner occupied loans, at lower of cost or fair value	18,366		0
Total commercial loans held for sale	Total commercial loans held for sale	459,332		482,873		Total commercial loans held for sale	18,366		482,873
Consumer loans:	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		Home equity conversion mortgages, at lower of cost or fair value	1,325		1,325
Residential mortgage loans, at fair value	Residential mortgage loans, at fair value	3,507		2,130		Residential mortgage loans, at fair value	6,998		2,130
Total consumer loans held for sale	Total consumer loans held for sale	4,832		3,455		Total consumer loans held for sale	8,323		3,455
Loans held for sale	Loans held for sale	$	464,164	$	486,328	Loans held for sale	$	26,689	$	486,328

Effective September 30, 2020, Customers transferred $401.1 million of multi-family loans from loans held for sale to loans receivable (held for investment) because it no longer has the intent to sell these loans. Customers transferred these loans at their carrying value, which approximated their fair value at the time of transfer. Total loans held for sale as of ~~June~~September 30, 2020 and December 31, 2019 included NPLs of ~~$18.9~~$19.7 million and $1.3 million, respectively.

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

The following table presents loans and leases receivable as of ~~June~~September 30, 2020 and December 31, 2019.


(amounts in thousands)	(amounts in thousands)	June 30, 2020		December 31, 2019		(amounts in thousands)	September 30, 2020		December 31, 2019
Loans and leases receivable, mortgage warehouse, at fair value	Loans and leases receivable, mortgage warehouse, at fair value	$	2,793,164	$	2,245,758	Loans and leases receivable, mortgage warehouse, at fair value	$	3,913,593	$	2,245,758
Loans receivable, PPP	Loans receivable, PPP	4,760,427		—		Loans receivable, PPP	4,964,105		0
Loans receivable:	Loans receivable:					Loans receivable:
Commercial:	Commercial:					Commercial:
Multi-family	Multi-family	1,581,839		1,907,331		Multi-family	1,950,300		1,907,331
Commercial and industrial ⁽¹⁾	Commercial and industrial ⁽¹⁾	2,099,442		1,891,152		Commercial and industrial (1)	2,220,715		1,891,152
Commercial real estate owner occupied	Commercial real estate owner occupied	544,772		551,948		Commercial real estate owner occupied	557,595		551,948
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	1,244,773		1,222,772		Commercial real estate non-owner occupied	1,215,516		1,222,772
Construction	Construction	128,834		117,617		Construction	122,963		117,617
Total commercial loans and leases receivable	Total commercial loans and leases receivable	5,599,660		5,690,820		Total commercial loans and leases receivable	6,067,089		5,690,820
Consumer:	Consumer:					Consumer:
Residential real estate	Residential real estate	348,109		382,634		Residential real estate	335,452		382,634
Manufactured housing	Manufactured housing	66,865		71,359		Manufactured housing	64,638		71,359
Other consumer		1,257,813		1,174,175
Installment						Installment	1,233,713		1,174,175
Total consumer loans receivable	Total consumer loans receivable	1,672,787		1,628,168		Total consumer loans receivable	1,633,803		1,628,168
Loans and leases receivable ⁽²⁾	Loans and leases receivable ⁽²⁾	7,272,447		7,318,988		Loans and leases receivable (2)	7,700,892		7,318,988

Allowance for credit losses	Allowance for credit losses	(159,905)		(56,379)		Allowance for credit losses	(155,561)		(56,379)
Total loans and leases receivable, net of allowance for credit losses	Total loans and leases receivable, net of allowance for credit losses	$	14,666,133	$	9,508,367	Total loans and leases receivable, net of allowance for credit losses	$	16,423,029	$	9,508,367

(1)Includes direct finance equipment leases of ~~$96.4~~$106.5 million and $89.2 million at ~~June~~September 30, 2020 and December 31, 2019, respectively.

(2)Includes deferred (fees) costs and unamortized (discounts) premiums, net of ~~$(83.1)~~$(74.7) million and $2.1 million at ~~June~~September 30, 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 ~~$47.1~~$61.9 million and $34.8 million at ~~June~~September 30, 2020

Table of Contents

and December 31, 2019, respectively, and is presented in accrued interest receivable in the consolidated balance sheet. At ~~June~~September 30, 2020, there were ~~$55.9~~$32.1 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.

~~Tab~~le ~~of Content~~s

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.

Loans receivable, PPP:

On March 27, 2020, the CARES Act was signed into law and created funding for a new product called the PPP. The PPP is administered by the SBA and is intended to assist organizations with payroll related expenses. Customers had ~~$4.8~~$5.0 billion of PPP loans outstanding as of ~~June~~September 30, 2020, which are fully guaranteed by the SBA and earn a fixed interest rate of 1.00%. Customers recognized interest income, including origination fees, of ~~$11.7~~$24.3 million and $36.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively.

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

At ~~June~~September 30, 2020 and December 31, 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 ACL and are therefore excluded from ACL-related disclosures.

~~Tab~~le Table of Contents

Loans and leases receivable:

The following tables summarize loans and leases receivable by loan and lease type and performance status as of ~~June~~September 30, 2020 and December 31, 2019:


		June 30, 2020																							September 30, 2020
(amounts in thousands)	(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⁾		(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	Multi-family	$	—	$	16,790	$	7,013	$	23,803	$	1,558,036	$	1,581,839	Multi-family	$	0	$	15,446	$	4,790	$	20,236	$	1,930,064	$	1,950,300
Commercial and industrial	Commercial and industrial	523		123		9,974		10,620		2,088,822		2,099,442		Commercial and industrial	0		2,072		7,695		9,767		2,210,948		2,220,715

Commercial real estate owner occupied	Commercial real estate owner occupied	—		4,888		4,022		8,910		535,862		544,772		Commercial real estate owner occupied	0		952		2,436		3,388		554,207		557,595
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	97		—		30,257		30,354		1,214,419		1,244,773		Commercial real estate non-owner occupied	0		0		2,356		2,356		1,213,160		1,215,516
Construction	Construction	—		—		—		—		128,834		128,834		Construction	0		0		0		0		122,963		122,963
Residential real estate	Residential real estate	8,631		441		7,857		16,929		331,180		348,109		Residential real estate	436		3,160		6,327		9,923		325,529		335,452
Manufactured housing ⁽⁵⁾	Manufactured housing ⁽⁵⁾	1,172		—		5,069		6,241		60,624		66,865		Manufactured housing ⁽⁵⁾	784		608		4,463		5,855		58,783		64,638
Other consumer		11,415		—		4,887		16,302		1,241,511		1,257,813
Installment														Installment	5,468		4,609		3,098		13,175		1,220,538		1,233,713
Total	Total	$	21,838	$	22,242	$	69,079	$	113,159	$	7,159,288	$	7,272,447	Total	$	6,688	$	26,847	$	31,165	$	64,700	$	7,636,192	$	7,700,892


		December 31, 2019																											December 31, 2019
(amounts in thousands)	(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⁾		(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	Multi-family	$	2,133	—		$	2,133	$	4,117	$	1,901,336	$	1,688	$	1,909,274	Multi-family	$	2,133	0		$	2,133	$	4,117	$	1,901,336	$	1,688	$	1,909,274
Commercial and industrial	Commercial and industrial	2,395		—		2,395		4,531		1,882,700		354		1,889,980		Commercial and industrial	2,395		0		2,395		4,531		1,882,700		354		1,889,980
Commercial real estate owner occupied	Commercial real estate owner occupied	5,388		—		5,388		1,963		537,992		6,664		552,007		Commercial real estate owner occupied	5,388		0		5,388		1,963		537,992		6,664		552,007
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	8,034		—		8,034		76		1,211,892		3,527		1,223,529		Commercial real estate non-owner occupied	8,034		0		8,034		76		1,211,892		3,527		1,223,529
Construction	Construction	—		—		—		—		118,418		—		118,418		Construction	0		0		0		0		118,418		0		118,418
Residential real estate	Residential real estate	5,924		—		5,924		6,128		359,491		3,471		375,014		Residential real estate	5,924		0		5,924		6,128		359,491		3,471		375,014
Manufactured housing	Manufactured housing	3,699		1,794		5,493		1,655		61,649		1,601		70,398		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
Installment																Installment	5,756		$	0	5,756		1,551		1,170,793		183		1,178,283
Total	Total	$	33,329	$	1,794	$	35,123	$	20,021	$	7,244,271	$	17,488	$	7,316,903	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. The ~~June~~September 30, 2020 table excludes PPP loans of ~~$4.8~~$5.0 billion which are all current as of ~~June~~September 30, 2020.

(3)Includes purchased credit deteriorated loans of ~~$15.7~~$14.4 million at ~~June~~September 30, 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 ~~June~~September 30, 2020 and December 31, 2019, the Bank had $0.1 million and $0.2 million, respectively, of residential real estate held in OREO. As of ~~June~~September 30, 2020 and December 31, 2019, the Bank had initiated foreclosure proceedings on ~~$0.7~~$0.5 million and $0.9 million, respectively, in loans secured by residential real estate.

~~Tab~~le Table of Contents

Nonaccrual Loans and Leases

The following table presents the amortized cost of loans and leases on nonaccrual status.


		June 30, 2020 ⁽¹⁾										December 31, 2019 ⁽²⁾											September 30, 2020 (1)				December 31, 2019 (2)
(amounts in thousands)	(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		(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	Multi-family	$	4,004	$	3,009	$	7,013	$	4,117	$	—	$	4,117	Multi-family	$	8,749	$	2,961	$	11,710	$	4,117	$	0	$	4,117
Commercial and industrial	Commercial and industrial	9,000		974		9,974		3,083		1,448		4,531		Commercial and industrial	8,749		884		9,633		3,083		1,448		4,531

Commercial real estate owner occupied	Commercial real estate owner occupied	3,933		89		4,022		1,109		854		1,963		Commercial real estate owner occupied	3,399		200		3,599		1,109		854		1,963
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	30,257		—		30,257		76		—		76		Commercial real estate non-owner occupied	2,408		0		2,408		76		0		76
Construction		—		—		—		—		—		—

Residential real estate	Residential real estate	7,857		—		7,857		4,559		1,569		6,128		Residential real estate	10,634		0		10,634		4,559		1,569		6,128
Manufactured housing	Manufactured housing	536		2,795		3,331		—		1,655		1,655		Manufactured housing	0		2,778		2,778		0		1,655		1,655
Other consumer		1,808		3,079		4,887		140		1,411		1,551
Installment														Installment	0		3,118		3,118		140		1,411		1,551
Total	Total	$	57,395	$	9,946	$	67,341	$	13,084	$	6,937	$	20,021	Total	$	33,939	$	9,941	$	43,880	$	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 $0.6 million and $0.3 million was~~ recognized on nonaccrual loans ~~for~~was insignificant during the three and nine months ended ~~June~~September 30, ~~2020 and 2019, respectively. Interest income~~2020. Accrued interest of ~~$0.7 million and $0.5~~$1.2 million was ~~recognized on~~reversed when the loans went to nonaccrual ~~loans for~~status during the ~~six~~nine months ended ~~June~~September 30, ~~2020 and 2019, respectively.~~2020.

Allowance for credit losses on loans and leases

The changes in the allowance for credit losses on loans and leases for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 are presented in the tables below.


Three Months Ended June 30, 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
Three Months Ended September 30, 2020																				Three Months Ended September 30, 2020	Multi-family		Commercial and industrial		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Construction		Residential real estate		Manufactured housing		Installment		Total
(amounts in thousands)	(amounts in thousands)																			(amounts in thousands)
Beginning balance, at March 31, 2020		$	8,750	$	18,806	$	8,527	$	18,530	$	1,934	$	4,180	$	4,987	$	83,569	$	149,283
Ending Balance, June 30, 2020																				Ending Balance, June 30, 2020	$	14,697	$	12,302	$	11,405	$	26,493	$	5,297	$	4,550	$	6,014	$	79,147	$	159,905

Charge-offs	Charge-offs	—		(20)		—		(2,801)		—		—		—		(8,304)		(11,125)		Charge-offs	0		(2,527)		(44)		(10,181)		0		0		0		(9,194)		(21,946)
Recoveries	Recoveries	—		25		2		—		113		26		—		635		801		Recoveries	0		2,582		0		1,258		6		17		0		784		4,647
Provision for credit loss expense	Provision for credit loss expense	5,947		(6,509)		2,876		10,764		3,250		344		1,027		3,247		20,946		Provision for credit loss expense	329		569		(1,809)		2,630		1,120		82		(389)		10,423		12,955
Ending Balance, June 30, 2020		$	14,697	$	12,302	$	11,405	$	26,493	$	5,297	$	4,550	$	6,014	$	79,147	$	159,905
Six Months Ended June 30, 2020
Ending Balance, September 30, 2020																				Ending Balance, September 30, 2020	$	15,026	$	12,926	$	9,552	$	20,200	$	6,423	$	4,649	$	5,625	$	81,160	$	155,561
Nine Months Ended September 30, 2020																				Nine Months Ended September 30, 2020
Ending Balance, December 31, 2019	Ending Balance, December 31, 2019	$	6,157	$	15,556	$	2,235	$	6,243	$	1,262	$	3,218	$	1,060	$	20,648	$	56,379	Ending Balance, 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	Cumulative effect of change in accounting principle	2,171		759		5,773		7,918		(98)		1,518		3,802		57,986		79,829		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	Charge-offs	—		(117)		—		(15,598)		—		—		—		(14,550)		(30,265)		Charge-offs	0		(2,645)		(44)		(25,779)		0		0		0		(23,744)		(52,212)
Recoveries	Recoveries	—		79		5		—		116		55		—		975		1,230		Recoveries	0		2,661		5		1,258		122		72		0		1,759		5,877
Provision for loan and lease losses	Provision for loan and lease losses	6,369		(3,975)		3,392		27,930		4,017		(241)		1,152		14,088		52,732		Provision for loan and lease losses	6,698		(3,405)		1,583		30,560		5,137		(159)		763		24,511		65,688
Ending Balance, June 30, 2020		$	14,697	$	12,302	$	11,405	$	26,493	$	5,297	$	4,550	$	6,014	$	79,147	$	159,905
Ending Balance, September 30, 2020																				Ending Balance, September 30, 2020	$	15,026	$	12,926	$	9,552	$	20,200	$	6,423	$	4,649	$	5,625	$	81,160	$	155,561

~~Tab~~le Table of Contents


Three Months Ended June 30, 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
Three Months Ended September 30, 2019																				Three Months Ended September 30, 2019	Multi-family		Commercial and industrial		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Construction		Residential real estate		Manufactured housing		Installment		Total
(amounts in thousands)	(amounts in thousands)																			(amounts in thousands)
Ending Balance, March 31, 2019		$	10,630	$	12,647	$	3,425	$	6,015	$	584	$	6,572	$	117	$	3,689	$	43,679
Ending Balance, June 30, 2019																				Ending Balance, June 30, 2019	$	9,926	$	13,736	$	3,360	$	6,159	$	649	$	4,168	$	123	$	10,267	$	48,388
Charge-offs	Charge-offs	—		(183)		(66)		—		—		(69)		—		(932)		(1,250)		Charge-offs	0		(349)		(45)		0		0		0		0		(1,806)		(2,200)

Recoveries	Recoveries	7		338		97		—		114		8		—		49		613		Recoveries	0		369		10		0		8		5		0		47		439
Provision for loan and lease losses	Provision for loan and lease losses	(711)		934		(96)		144		(49)		(2,343)		6		7,461		5,346		Provision for loan and lease losses	(2,428)		2,119		(435)		281		1		(90)		904		4,074		4,426
Ending Balance, June 30, 2019		$	9,926	$	13,736	$	3,360	$	6,159	$	649	$	4,168	$	123	$	10,267	$	48,388
Six Months Ended June 30, 2019
Ending Balance, September 30, 2019																				Ending Balance, September 30, 2019	$	7,498	$	15,875	$	2,890	$	6,440	$	658	$	4,083	$	1,027	$	12,582	$	51,053
Nine Months Ended September 30, 2019																				Nine Months Ended September 30, 2019
Ending Balance, December 31, 2018	Ending Balance, December 31, 2018	$	11,462	$	12,145	$	3,320	$	6,093	$	624	$	3,654	$	145	$	2,529	$	39,972	Ending Balance, December 31, 2018	$	11,462	$	12,145	$	3,320	$	6,093	$	624	$	3,654	$	145	$	2,529	$	39,972
Charge-offs	Charge-offs	(541)		(183)		(74)		—		—		(109)		—		(1,687)		(2,594)		Charge-offs	(541)		(532)		(119)		0		0		(109)		0		(3,493)		(4,794)

Recoveries	Recoveries	7		457		225		—		120		15		—		73		897		Recoveries	7		826		235		0		128		20		0		120		1,336
Provision for loan and lease losses	Provision for loan and lease losses	(1,002)		1,317		(111)		66		(95)		608		(22)		9,352		10,113		Provision for loan and lease losses	(3,430)		3,436		(546)		347		(94)		518		882		13,426		14,539
Ending Balance, June 30, 2019		$	9,926	$	13,736	$	3,360	$	6,159	$	649	$	4,168	$	123	$	10,267	$	48,388
Ending Balance, September 30, 2019																				Ending Balance, September 30, 2019	$	7,498	$	15,875	$	2,890	$	6,440	$	658	$	4,083	$	1,027	$	12,582	$	51,053

At ~~June~~September 30, 2020, the ACL was ~~$159.9~~$155.6 million, an increase of ~~$23.7~~$19.4 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 including the change in macroeconomic forecasts, an increase in net charge-offs, mostly attributed to the commercial real estate non-owner occupied and ~~other consumer~~installment portfolios, and portfolio growth mainly in the ~~other consumer~~installment portfolio. Commercial real estate non-owner occupied charge-offs are attributable to two collateral dependent loans. ~~Other consumer~~Installment charge-offs are attributable to delinquencies and defaults of originated and purchased unsecured ~~other~~ consumer installment loans through arrangements with fintech companies and other market place lenders.

PPP loans include an embedded credit enhancement guarantee from the SBA, which guarantees 100% of all principal and interest owed by the borrower. Therefore, Customers did not include an ACL for PPP loans as of ~~June~~September 30, 2020.

Troubled Debt Restructurings

At ~~June~~September 30, 2020 and December 31, 2019, there were ~~$14.8~~$16.1 million and $13.3 million, respectively, in loans reported as TDRs. TDRs are reported as impaired loans in the ~~calendar year~~quarter of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent ~~years,~~quarters, 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. Customers had 0 lease receivables that had been restructured as a TDR as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

Table of Contents

The following table presents loans modified in a TDR by type of concession for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019. There were 0 modifications that involved forgiveness of debt for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.


		Three Months Ended June 30,										Six Months Ended June 30,												Three Months Ended September 30,				Nine Months Ended September 30,
		2020				2019					2020						2019				2020			2019			2020	2019
(dollars in thousands)	(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment		(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment
Extensions of maturity	Extensions of maturity	2	$	140	—	$	—	6	$	385	2	$	514	Extensions of maturity	0	$	0	0	$	0	6	$	385	2	$	514
Interest-rate reductions	Interest-rate reductions	20	843		2	47		32	1,373		12	432		Interest-rate reductions	2	88		7	196		34	1,461		19	628
Other (1)														Other (1)	65	1,385		0	0		65	1,385		0	0
Total	Total	22	$	983	2	$	47	38	$	1,758	14	$	946	Total	67	$	1,473	7	$	196	105	$	3,231	21	$	1,142

~~Tab~~le ~~of Content~~s

(1) Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.

As of ~~June~~September 30, 2020 ~~there were 0 commitments to lend additional funds to debtors whose loans have been modified in TDRs. As of~~and 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:


		June 30, 2020				June 30, 2019						September 30, 2020			September 30, 2019
(dollars in thousands)	(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment		(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment
Manufactured housing	Manufactured housing	—	$	—	3	$	108	Manufactured housing	5	$	201	3	$	76
Commercial and industrial		—	—		1	—

Commercial real estate owner occupied	Commercial real estate owner occupied	1	958		—	—		Commercial real estate owner occupied	1	952		0	0
Residential real estate	Residential real estate	4	313		—	—		Residential real estate	1	95		1	82

Installment								Installment	8	$	126	0	$	0
Total loans	Total loans	5	$	1,271	4	$	108	Total loans	15	$	1,374	4	$	158

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 ACL.

Purchased Credit-Deteriorated Loans

Customers adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration 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. As of ~~June~~September 30, 2020, the amortized cost basis of PCD assets amounted to ~~$15.7~~$14.4 million.

Credit Quality Indicators

The ACL represents management's estimate of expected losses in Customers' loans and leases receivable portfolio, excluding commercial mortgage warehouse loans reported at fair value pursuant to a fair value option election and PPP loans receivable. 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~~installment 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 as an input in the ACL lifetime loss rate model for the 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

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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.

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 ~~June~~September 30, 2020 and December 31, 2019. PPP loans are excluded in the tables below as these loans are fully guaranteed by the SBA.

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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
Multi-family loans:
Pass $ 124,920 $ 23,534 $ 170,856 $ 417,942 $ 264,780 $ 507,568 $ — $ — $ 1,509,600
Special mention — — — 19,509 1,960 17,753 — — 39,222
Substandard — — — 12,006 13,862 7,149 — — 33,017
Doubtful — — — — — — — — —
Total multi-family loans $ 124,920 $ 23,534 $ 170,856 $ 449,457 $ 280,602 $ 532,470 $ — $ — $ 1,581,839
Commercial and industrial loans and leases:
Pass $ 439,083 $ 462,717 $ 152,557 $ 109,701 $ 52,470 $ 94,383 $ 698,721 $ — $ 2,009,632
Special mention — 7,258 2,297 17,402 116 25 17,957 — 45,055
Substandard 6,360 5,327 12,776 1,663 7,530 3,042 8,057 — 44,755
Doubtful — — — — — — — — —
Total commercial and industrial loans and leases $ 445,443 $ 475,302 $ 167,630 $ 128,766 $ 60,116 $ 97,450 $ 724,735 $ — $ 2,099,442
Commercial real estate owner occupied loans:
Pass $ 31,240 $ 184,684 $ 86,611 $ 72,708 $ 48,643 $ 95,921 $ 1,628 $ — $ 521,435
Special mention — — 480 9,484 — 392 — — 10,356
Substandard — — — 350 2,255 10,376 — — 12,981
Doubtful — — — — — — — — —
Total commercial real estate owner occupied loans $ 31,240 $ 184,684 $ 87,091 $ 82,542 $ 50,898 $ 106,689 $ 1,628 $ — $ 544,772
Commercial real estate non-owner occupied:
Pass $ 117,101 $ 117,140 $ 117,600 $ 249,173 $ 199,822 $ 376,641 $ — $ — $ 1,177,477
Special mention — — — — — 10,477 — — 10,477
Substandard — — — — 2,437 26,461 — — 28,898
Doubtful — — 27,921 — — — — — 27,921
Total commercial real estate non-owner occupied loans $ 117,101 $ 117,140 $ 145,521 $ 249,173 $ 202,259 $ 413,579 $ — $ — $ 1,244,773
Construction:
Pass $ 4,862 $ 88,550 $ 23,358 $ — $ 9,803 $ — $ 2,261 $ — $ 128,834
Special mention — — — — — — — — —
Substandard — — — — — — — — —
Doubtful — — — — — — — — —
Total construction loans $ 4,862 $ 88,550 $ 23,358 $ — $ 9,803 $ — $ 2,261 $ — $ 128,834
Total commercial loans and leases receivable $ 723,566 $ 889,210 $ 594,456 $ 909,938 $ 603,678 $ 1,150,188 $ 728,624 $ — $ 5,599,660
Residential real estate loans:
Performing $ 2,349 $ 54,663 $ 64,362 $ 67,128 $ 46,654 $ 83,669 $ 21,803 $ — $ 340,628
Non-performing 66 — 857 823 865 4,441 429 — 7,481
Total residential real estate loans $ 2,415 $ 54,663 $ 65,219 $ 67,951 $ 47,519 $ 88,110 $ 22,232 $ — $ 348,109
Manufactured housing loans:
Performing $ — $ 311 $ 640 $ 80 $ 43 $ 62,072 $ — $ — $ 63,146
Non-performing — — — — — 3,719 — — 3,719
Total manufactured housing loans $ — $ 311 $ 640 $ 80 $ 43 $ 65,791 $ — $ — $ 66,865
Other consumer loans:
Performing $ 165,436 $ 943,581 $ 135,926 $ 6,034 $ 648 $ 1,292 $ 32 $ — $ 1,252,949
Non-performing 243 3,610 853 23 — 135 — — 4,864
Total other consumer loans $ 165,679 $ 947,191 $ 136,779 $ 6,057 $ 648 $ 1,427 $ 32 $ — $ 1,257,813
Total consumer loans $ 168,094 $ 1,002,165 $ 202,638 $ 74,088 $ 48,210 $ 155,328 $ 22,264 $ — $ 1,672,787
Loans and leases receivable $ 891,660 $ 1,891,375 $ 797,094 $ 984,026 $ 651,888 $ 1,305,516 $ 750,888 $ — $ 7,272,447


	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






Multi-family loans:
Pass	$	139,734	$	23,396	$	305,351	$	626,402	$	271,981	$	485,023	$	0	$	0	$	1,851,887
Special mention	0		0		0		22,430		10,424		26,836		0		0		59,690
Substandard	0		0		0		17,859		13,799		7,065		0		0		38,723
Doubtful	0		0		0		0		0		0		0		0		0
Total multi-family loans	$	139,734	$	23,396	$	305,351	$	666,691	$	296,204	$	518,924	$	0	$	0	$	1,950,300
Commercial and industrial loans and leases:
Pass	$	564,313	$	418,961	$	153,659	$	118,548	$	48,470	$	81,179	$	739,151	$	0	$	2,124,281
Special mention	13,200		1,193		222		14,739		112		15,348		1,315		0		46,129
Substandard	6,421		9,037		14,343		1,611		8,084		2,925		7,884		0		50,305
Doubtful	0		0		0		0		0		0		0		0		0
Total commercial and industrial loans and leases	$	583,934	$	429,191	$	168,224	$	134,898	$	56,666	$	99,452	$	748,350	$	0	$	2,220,715
Commercial real estate owner occupied loans:
Pass	$	46,303	$	185,921	$	88,291	$	71,438	$	48,202	$	93,679	$	741	$	0	$	534,575
Special mention	0		0		478		9,260		0		245		0		0		9,983
Substandard	0		0		0		347		2,243		10,447		0		0		13,037
Doubtful	0		0		0		0		0		0		0		0		0
Total commercial real estate owner occupied loans	$	46,303	$	185,921	$	88,769	$	81,045	$	50,445	$	104,371	$	741	$	0	$	557,595






Commercial real estate non-owner occupied:
Pass	$	135,589	$	113,247	$	116,794	$	225,952	$	197,116	$	346,107	$	0	$	0	$	1,134,805
Special mention	0		0		0		0		0		10,559		0		0		10,559
Substandard	0		0		0		20,611		2,419		47,122		0		0		70,152
Doubtful	0		0		0		0		0		0		0		0		0
Total commercial real estate non-owner occupied loans	$	135,589	$	113,247	$	116,794	$	246,563	$	199,535	$	403,788	$	0	$	0	$	1,215,516
Construction:
Pass	$	8,679	$	98,231	$	4,571	$	0	$	9,768	$	0	$	1,714	$	0	$	122,963
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total construction loans	$	8,679	$	98,231	$	4,571	$	0	$	9,768	$	0	$	1,714	$	0	$	122,963
Total commercial loans and leases receivable	$	914,239	$	849,986	$	683,709	$	1,129,197	$	612,618	$	1,126,535	$	750,805	$	0	$	6,067,089
Residential real estate loans:
Performing	$	7,514	$	15,252	$	7,647	$	12,246	$	42,883	$	78,365	$	161,575	$	0	$	325,482
Non-performing	0		0		160		785		1,350		4,395		3,280		0		9,970
Total residential real estate loans	$	7,514	$	15,252	$	7,807	$	13,031	$	44,233	$	82,760	$	164,855	$	0	$	335,452
Manufactured housing loans:
Performing	$	0	$	307	$	632	$	79	$	42	$	59,193	$	0	$	0	$	60,253
Non-performing	0		0		0		0		0		4,385		0		0		4,385
Total manufactured housing loans	$	0	$	307	$	632	$	79	$	42	$	63,578	$	0	$	0	$	64,638
Installment loans:
Performing	$	318,780	$	790,192	$	115,024	$	4,726	$	513	$	1,201	$	0	$	0	$	1,230,436
Non-performing	305		2,326		485		41		2		118		0		0		3,277
Total installment loans	$	319,085	$	792,518	$	115,509	$	4,767	$	515	$	1,319	$	0	$	0	$	1,233,713
Total consumer loans	$	326,599	$	808,077	$	123,948	$	17,877	$	44,790	$	147,657	$	164,855	$	0	$	1,633,803
Loans and leases receivable	$	1,240,838	$	1,658,063	$	807,657	$	1,147,074	$	657,408	$	1,274,192	$	915,660	$	0	$	7,700,892

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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


	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		Installment		Total (3)
Pass/Satisfactory	$	1,816,200	$	1,841,074	$	536,777	$	1,129,838	$	118,418	$	0	$	0	$	0	$	5,442,307
Special Mention	69,637		26,285		8,286		6,949		0		0		0		0		111,157
Substandard	23,437		22,621		6,944		86,742		0		0		0		0		139,744
Performing (1)	0		0		0		0		0		362,962		63,250		1,170,976		1,597,188
Non-performing (2)	0		0		0		0		0		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~~installment loans not assigned internal ratings.

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

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

Loan Purchases and Sales

Purchases and sales of loans were as follows for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(amounts in thousands)	(amounts in thousands)	2020		2019		2020		2019		(amounts in thousands)	2020		2019		2020		2019
Purchases ⁽¹⁾	Purchases ⁽¹⁾									Purchases (1)

Residential real estate	Residential real estate	$	—	$	39,474	$	495	$	105,858	Residential real estate	$	0	$	0	$	495	$	105,858

Other consumer ⁽²⁾		18,008		384,116		209,768		450,252
Installment (2)										Installment (2)	15,700		83,898		225,468		534,150
Total	Total	$	18,008	$	423,590	$	210,263	$	556,110	Total	$	15,700	$	83,898	$	225,963	$	640,008
Sales ⁽³⁾	Sales ⁽³⁾									Sales (3)

Commercial and industrial										Commercial and industrial	$	3,968	$	0	$	3,968	$	0

Commercial real estate non-owner occupied										Commercial real estate non-owner occupied	$	17,600	$	0	$	17,600	$	0

Other consumer		—		—		1,822		—
Installment										Installment	0		0		1,822		0
Total	Total	$	—	$	—	$	1,822	$	—	Total	$	21,568	$	0	$	23,390	$	0

(1)Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was ~~98.5%~~98.1% and ~~100.6%~~96.3% of loans outstanding for the three months ended ~~June~~September 30, 2020 and 2019, respectively. The purchase price was ~~100.4%~~100.2% and ~~99.9%~~99.4% of loans outstanding for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

(2)~~Other consumer~~Installment loan purchases for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 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.

(3)Amounts reported in the above table are the unpaid principal balance at time of sale. There were no loan sales in the three and ~~six~~nine months ended ~~June~~September 30, 2019.

During September 2020, Customers sold a collateral dependent loan secured by a Class A office building in northern New Jersey for $17.6 million equal to the loan's carrying value at the date of sale.

Loans Pledged as Collateral

Customers has pledged eligible real estate and commercial and industrial loans as collateral for borrowings from the FHLB and FRB in the amount of ~~$8.5~~$8.9 billion and $4.6 billion at ~~June~~September 30, 2020 and December 31, 2019, respectively. The increase in loans pledged as collateral relates to ~~$4.4~~$4.8 billion of PPP loans that were pledged to the FRB in accordance with borrowing from the PPPLF.

NOTE 8 — LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 12 month and 7 years. These operating leases comprise substantially all of Customers' obligations in which Customers 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

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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.

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

(amounts in thousands)

Classification

June 30, 2020

December 31, 2019

(amounts in thousands)

Classification

September 30, 2020

December 31, 2019

ASSETS

Operating lease ROU assets

Other assets

20,570

20,232

Operating lease ROU assets

Other assets

18,419

20,232

LIABILITIES

Operating lease liabilities

Other liabilities

21,725

21,358

Operating lease liabilities

Other liabilities

19,813

21,358

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


			Three Months Ended June 30,						Six Months Ended June 30,								Three Months Ended September 30,				Nine Months Ended September 30,
(amounts in thousands)	(amounts in thousands)	Classification	2020		2019		2020		2019		(amounts in thousands)	Classification	2020		2019		2020		2019
Operating lease cost ⁽¹⁾	Operating lease cost ⁽¹⁾	Occupancy expenses	$	1,474	$	1,462	$	2,954	$	2,931	Operating lease cost (1)	Occupancy expenses	$	1,643	$	1,470	$	4,597	$	4,400

(1) There were 0 variable lease costs for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as follows at ~~June~~September 30, 2020:


(amounts in thousands)	(amounts in thousands)	June 30, 2020		(amounts in thousands)	September 30, 2020
2020	2020	$	2,794	2020	$	2,610
2021	2021	5,357		2021	5,134
2022	2022	4,744		2022	4,653
2023	2023	3,702		2023	3,759
2024	2024	2,613		2024	2,673
Thereafter	Thereafter	3,001		Thereafter	3,026
Total minimum payments	Total minimum payments	22,211		Total minimum payments	21,855
Less: interest	Less: interest	486		Less: interest	2,042
Present value of lease liabilities	Present value of lease liabilities	$	21,725	Present value of lease liabilities	$	19,813

Customers does not have leases where it is involved with the construction or design of an underlying asset. Customers has no legally binding minimum lease payments ~~of $0.3 million~~ for leases signed but not yet commenced as of ~~June~~September 30, 2020. Cash paid pursuant to the operating lease liability was ~~$1.5~~$1.4 million and ~~$3.0~~$4.4 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively. Cash paid pursuant to the operating lease liability was $1.4 million and ~~$2.8~~$4.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively. These payments were reported as cash flows used in operating activities in the statement of cash flows.

The following table summarizes the weighted average remaining lease term and discount rate for Customers' operating leases at ~~June~~September 30, 2020 and December 31, 2019:

(amounts in thousands)

June 30, 2020

December 31, 2019

(amounts in thousands)

September 30, 2020

December 31, 2019

Weighted average remaining lease term (years)

Operating leases

5.1 years

5.0 years

Operating leases

4.6 years

5.0 years

Weighted average discount rate

Operating leases

2.96

2.90

Operating leases

2.69

2.90

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Equipment Lessor

CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance 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 and leases receivable.

The estimated residual values for direct finance and operating leases are established by utilizing internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. For the direct finance leases, only ~~for a~~Customers' Split-TRAC ~~is there a~~

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leases have 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 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.

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at ~~June~~September 30, 2020 and December 31, 2019:


(amounts in thousands)	(amounts in thousands)	Classification	June 30, 2020		December 31, 2019		(amounts in thousands)	Classification	September 30, 2020		December 31, 2019
ASSETS	ASSETS						ASSETS
Direct financing leases	Direct financing leases						Direct financing leases
Lease receivables	Lease receivables	Loans and leases receivable	$	96,924	$	91,762	Lease receivables	Loans and leases receivable	$	105,712	$	91,762
Guaranteed residual assets	Guaranteed residual assets	Loans and leases receivable	7,730		7,435		Guaranteed residual assets	Loans and leases receivable	6,723		7,435
Unguaranteed residual assets	Unguaranteed residual assets	Loans and leases receivable	3,271		1,260		Unguaranteed residual assets	Loans and leases receivable	5,822		1,260
Deferred initial direct costs	Deferred initial direct costs	Loans and leases receivable	666		721		Deferred initial direct costs	Loans and leases receivable	654		721
Unearned income	Unearned income	Loans and leases receivable	(11,569)		(11,300)		Unearned income	Loans and leases receivable	(11,709)		(11,300)
Net investment in direct financing leases	Net investment in direct financing leases		$	97,022	$	89,878	Net investment in direct financing leases		$	107,202	$	89,878

Operating leases	Operating leases						Operating leases
Investment in operating leases	Investment in operating leases	Other assets	$	116,850	$	107,850	Investment in operating leases	Other assets	$	119,271	$	107,850
Accumulated depreciation	Accumulated depreciation	Other assets	(21,310)		(14,251)		Accumulated depreciation	Other assets	(24,973)		(14,251)
Deferred initial direct costs	Deferred initial direct costs	Other assets	1,148		1,052		Deferred initial direct costs	Other assets	1,070		1,052
Net investment in operating leases	Net investment in operating leases		96,688		94,651		Net investment in operating leases		95,368		94,651
Total lease assets	Total lease assets		$	193,710	$	184,529	Total lease assets		$	202,570	$	184,529

COVID-19 Impact on Leases

Customers granted concessions to lessees as a result of the business impact of the COVID-19 pandemic. At ~~June~~September 30, 2020, the book value of finance and operating leases with payment deferments were ~~$31.7~~$31.0 million and ~~$16.7~~$16.0 million, respectively. The concessions did not have a material impact in interest income from leases for the three months and nine months ended ~~June~~September 30, 2020. Additionally, Customers did not receive any concessions on its operating leases in which Customers is the lessee.

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NOTE 9 - BORROWINGS

Short-term debt

Short-term debt at ~~June~~September 30, 2020 and December 31, 2019 was as follows:


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
(dollars in thousands)	(dollars in thousands)	Amount		Rate		Amount		Rate		(dollars in thousands)	Amount		Rate		Amount		Rate
												(dollars in thousands)
FHLB advances	FHLB advances	$	850,000	1.48	%	$	500,000	2.15	%	FHLB advances	$		1.24	%	$	500,000	2.15	%
Federal funds purchased	Federal funds purchased	—		—	%	538,000		1.60	%	Federal funds purchased	680,000		0.14	%	538,000		1.60	%
Total short-term debt	Total short-term debt	$	850,000			$	1,038,000			Total short-term debt	$	1,530,000			$	1,038,000

The following is a summary of additional information relating to Customers' short-term debt:



		June 30, 2020			December 31, 2019				September 30, 2020			December 31, 2019
(dollars in thousands)	(dollars in thousands)							(dollars in thousands)
FHLB advances	FHLB advances							FHLB advances
Maximum outstanding at any month end	Maximum outstanding at any month end	$	910,000		$	1,190,150		Maximum outstanding at any month end	$	910,000		$	1,190,150
Average balance during the year		667,212			793,304
Weighted-average interest rate during the year		0.89		%	2.66		%
Average balance during the period								Average balance during the period	796,286			793,304
Weighted-average interest rate during the period								Weighted-average interest rate during the period	2.17		%	2.66		%
Federal funds purchased	Federal funds purchased							Federal funds purchased
Maximum outstanding at any month end	Maximum outstanding at any month end	842,000			600,000			Maximum outstanding at any month end	842,000			600,000
Average balance during the year		379,549			271,400
Weighted-average interest rate during the year		0.21		%	2.28		%
Average balance during the period								Average balance during the period	279,299			271,400
Weighted-average interest rate during the period								Weighted-average interest rate during the period	0.20		%	2.28		%

At ~~June~~September 30, 2020 and December 31, 2019, Customers Bank had aggregate availability under federal funds lines totaling ~~$1.2~~$0.5 billion and $0.6 billion, respectively.

Long-term debt

FHLB and FRB advances

Long-term FHLB and FRB advances at ~~June~~September 30, 2020 and December 31, 2019 were as follows:



		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
(dollars in thousands)	(dollars in thousands)	Amount		Rate		Amount		Rate		(dollars in thousands)	Amount		Rate		Amount		Rate
												(dollars in thousands)
FHLB advances	FHLB advances	$	—	0.00	%	$	350,000	2.36	%	FHLB advances	$		0	%	$	350,000	2.36	%
FRB PPP Liquidity Facility advances	FRB PPP Liquidity Facility advances	4,419,967		0.35	%	—		—	%	FRB PPP Liquidity Facility advances	4,811,009		0.35	%	0		0	%
Total long-term FHLB and FRB advances	Total long-term FHLB and FRB advances	$	4,419,967			$	350,000			Total long-term FHLB and FRB advances	$	4,811,009			$	350,000

Beginning in second quarter 2020, Customers began participating in the PPPLF, in which Federal Reserve Banks extend non-recourse loans to institutions that are eligible to make PPP loans. Only PPP loans that are guaranteed by the SBA under the PPP, with respect to both principal and interest that are originated by an eligible institution, may be pledged as collateral to the Federal Reserve Banks.

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The maximum borrowing capacity with the FHLB and FRB at ~~June~~September 30, 2020 and December 31, 2019 was as follows:



(amounts in thousands)	(amounts in thousands)	June 30, 2020		December 31, 2019		(amounts in thousands)	September 30, 2020		December 31, 2019
Total maximum borrowing capacity with the FHLB	Total maximum borrowing capacity with the FHLB	$	2,958,717	$	3,445,416	Total maximum borrowing capacity with the FHLB	$	2,851,496	$	3,445,416
Total maximum borrowing capacity with the FRB ⁽¹⁾	Total maximum borrowing capacity with the FRB ⁽¹⁾	152,410		136,842		Total maximum borrowing capacity with the FRB (1)	214,766		136,842
Qualifying loans serving as collateral against FHLB and FRB advances(1)	Qualifying loans serving as collateral against FHLB and FRB advances(1)	3,814,247		4,496,983		Qualifying loans serving as collateral against FHLB and FRB advances(1)	4,092,732		4,496,983

(1) Amounts reported in the above table exclude borrowings under the PPPLF, which are limited to the face value of the loans originated under the PPP. At ~~June~~September 30, 2020, Customers had ~~$4.4~~$4.8 billion of borrowings under the PPPLF, with a borrowing capacity of up to ~~$4.8~~$5.0 billion, which is the face value of the qualifying loans Customers has originated under the PPP.

~~Tab~~le ~~of Content~~s

Senior and Subordinated Debt

Long-term senior notes and subordinated debt at ~~June~~September 30, 2020 and December 31, 2019 were as follows:


			June 30, 2020			December 31, 2019																					September 30, 2020			December 31, 2019
(dollars in thousands)	(dollars in thousands)																									(dollars in thousands)						September 30, 2020				December 31, 2019
Issued by	Issued by	Ranking			Amount			Amount				Rate			Issued Amount		Date Issued		Maturity			Price	Issued by			Ranking			Amount				Amount							Date Issued		Maturity			Price
Customers Bancorp	Customers Bancorp	Senior	$	24,492		$	24,432		4.500		%		$	25,000		September 2019		September 2024		100.000	%	Customers Bancorp		Senior			$	24,522		$	24,432		4.500		%		$	25,000	September 2019		September 2024		100.000	%
Customers Bancorp	Customers Bancorp	Senior	99,341			99,198			3.950		%		100,000			June 2017		June 2022		99.775	%	Customers Bancorp		Senior			99,413			99,198			3.950		%		100,000		June 2017		June 2022		99.775	%

Total other borrowings	Total other borrowings		123,833			123,630																Total other borrowings					123,935			123,630

Customers Bancorp	Customers Bancorp	Subordinated ⁽¹⁾⁽²⁾	72,131			72,040			5.375		%		74,750			December 2019		December 2034		100.000	%	Customers Bancorp		Subordinated (1)(2)			72,176			72,040			5.375		%		74,750		December 2019		December 2034		100.000	%
Customers Bank	Customers Bank	Subordinated ⁽¹⁾⁽³⁾	109,124			109,075			6.125		%		110,000			June 2014		June 2029		100.000	%	Customers Bank		Subordinated (1)(3)			109,148			109,075			6.125		%		110,000		June 2014		June 2029		100.000	%
Total subordinated debt	Total subordinated debt					$	181,255		$	181,115															Total subordinated debt					$	181,324		$	181,115

(1)The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.

(2)Customers Bancorp has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after December 30, 2029.

(3)The subordinated notes will bear an annual fixed rate of 6.125% until June 26, 2024. From June 26, 2024 until maturity, the notes will bear an annual interest rate equal to the three-month LIBOR plus 344.3 basis points. Customers Bank has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after June 26, 2024.

NOTE 10 — 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.

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.

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In April 2020, the U.S. federal banking regulatory agencies issued an interim final rule that permits banks to exclude the impact of participating in the SBA PPP program in their regulatory capital ratios. Specifically, PPP loans are zero percent risk weighted and a bank can exclude all PPP loans pledged as collateral to the PPPLF from its average total consolidated assets for purposes of calculating the Tier 1 capital to average assets ratio (i.e. leverage ratio). Customers applied this regulatory guidance in the calculation of its regulatory capital ratios 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 ~~June~~September 30, 2020 and December 31, 2019, the Bank and the Bancorp satisfied all capital requirements to which they were subject.

~~Tab~~le ~~of Content~~s

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 June 30, 2020:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 853,818 7.765 % $ 494,780 4.500 % N/A N/A $ 769,657 7.000 %
Customers Bank $ 1,168,276 10.636 % $ 494,291 4.500 % $ 713,976 6.500 % $ 768,897 7.000 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 1,071,289 9.743 % $ 659,706 6.000 % N/A N/A $ 934,584 8.500 %
Customers Bank $ 1,168,276 10.636 % $ 659,055 6.000 % $ 878,740 8.000 % $ 933,661 8.500 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 1,311,527 11.928 % $ 879,608 8.000 % N/A N/A $ 1,154,486 10.500 %
Customers Bank $ 1,351,665 12.305 % $ 878,740 8.000 % $ 1,098,424 10.000 % $ 1,153,346 10.500 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc. $ 1,071,289 8.790 % $ 487,512 4.000 % N/A N/A $ 487,512 4.000 %
Customers Bank $ 1,168,276 9.593 % $ 487,151 4.000 % $ 608,938 5.000 % $ 487,151 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 September 30, 2020:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	902,174	7.488	%	$	542,199	4.500	%	N/A		N/A		$	843,420	7.000	%
Customers Bank	$	1,217,159	10.120	%	$	541,217	4.500	%	$	781,757	6.500	%	$	841,892	7.000	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,119,645	9.293	%	$	722,932	6.000	%	N/A		N/A		$	1,024,153	8.500	%
Customers Bank	$	1,217,159	10.120	%	$	721,622	6.000	%	$	962,163	8.000	%	$	1,022,298	8.500	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,361,237	11.298	%	$	963,909	8.000	%	N/A		N/A		$	1,265,130	10.500	%
Customers Bank	$	1,397,059	11.616	%	$	962,163	8.000	%	$	1,202,704	10.000	%	$	1,262,839	10.500	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	1,119,645	8.534	%	$	524,799	4.000	%	N/A		N/A		$	524,799	4.000	%
Customers Bank	$	1,217,159	9.288	%	$	524,203	4.000	%	$	655,254	5.000	%	$	524,203	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	%

The Basel III Capital Rules require that we maintain a 2.500% capital conservation buffer with respect to each of CET1, Tier 1 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 conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.

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NOTE 11 — 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 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 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.

~~Tab~~le ~~of Content~~s

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

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

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

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

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

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

The following methods and assumptions were used to estimate the fair values of Customers' financial instruments as of ~~June~~September 30, 2020 and December 31, 2019:

Financial Instruments Recorded at Fair Value on a Recurring Basis

Investment securities:

The fair values of equity securities, 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 - 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 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 under 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.

~~Tab~~le ~~of Content~~s

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 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

Collateral-dependent loans:

Collateral-dependent loans are those loans that are accounted for under ASC 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, discounted cash flows based upon the expected 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.

~~Tab~~le Table of Contents

The estimated fair values of Customers' financial instruments at ~~June~~September 30, 2020 and December 31, 2019 were as follows.


						Fair Value Measurements at June 30, 2020															Fair Value Measurements at September 30, 2020
(amounts in thousands)	(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)		(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:	Assets:											Assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,067,330	$	1,067,330	$	1,067,330	$	—	$	—	Cash and cash equivalents	$	331,416	$	331,416	$	331,416	$	0	$	0
Debt securities, available for sale	Debt securities, available for sale	664,758		664,758		—		664,758		—		Debt securities, available for sale	1,131,365		1,131,365		0		1,131,365		0
Interest-only GNMA securities		14,396		14,396		—		—		14,396

Equity securities	Equity securities	2,228		2,228		2,228		—		—		Equity securities	2,466		2,466		2,466		0		0
Loans held for sale	Loans held for sale	464,164		464,164		—		21,107		443,057		Loans held for sale	26,689		26,689		0		6,998		19,691

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	14,666,133		15,287,585		—		2,793,164		12,494,421		Total loans and leases receivable, net of allowance for credit losses on loans and leases	16,423,029		17,070,867		0		3,913,593		13,157,274
FHLB, Federal Reserve Bank and other restricted stock	FHLB, Federal Reserve Bank and other restricted stock	91,023		91,023		—		91,023		—		FHLB, Federal Reserve Bank and other restricted stock	70,387		70,387		0		70,387		0
Derivatives	Derivatives	65,127		65,127		—		65,075		52		Derivatives	60,810		60,810		0		60,355		455

Liabilities:	Liabilities:											Liabilities:
Deposits	Deposits	$	10,965,875	$	10,972,163	$	9,095,495	$	1,876,668	$	—	Deposits	$	10,839,077	$	10,843,133	$	9,866,651	$	976,482	$	0

FRB advances	FRB advances	4,419,967		4,419,967		—		4,419,967		—		FRB advances	4,811,009		4,811,009		0		4,811,009		0

Federal funds purchased												Federal funds purchased	680,000		680,000		680,000		0		0
FHLB advances	FHLB advances	850,000		855,519		—		855,519		—		FHLB advances	850,000		854,104		0		854,104		0
Other borrowings	Other borrowings	123,833		100,200		—		100,200		—		Other borrowings	123,935		102,594		0		102,594		0
Subordinated debt	Subordinated debt	181,255		174,572		—		174,572		—		Subordinated debt	181,324		178,958		0		178,958		0
Derivatives	Derivatives	125,304		125,304		—		125,304		—		Derivatives	110,649		110,649		0		110,649		0


						Fair Value Measurements at December 31, 2019															Fair Value Measurements at December 31, 2019
(amounts in thousands)	(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)		(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:	Assets:											Assets:
Cash and cash equivalents	Cash and cash equivalents	$	212,505	$	212,505	$	212,505	$	—	$	—	Cash and cash equivalents	$	212,505	$	212,505	$	212,505	$	0	$	0
Debt securities, available for sale	Debt securities, available for sale	577,198		577,198		—		577,198		—		Debt securities, available for sale	577,198		577,198		0		577,198		0
Interest-only GNMA securities	Interest-only GNMA securities	16,272		16,272		—		—		16,272		Interest-only GNMA securities	16,272		16,272		0		0		16,272
Equity securities	Equity securities	2,406		2,406		2,406		—		—		Equity securities	2,406		2,406		2,406		0		0
Loans held for sale	Loans held for sale	486,328		486,328		—		2,130		484,198		Loans held for sale	486,328		486,328		0		2,130		484,198

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	9,508,367		9,853,037		—		2,245,758		7,607,279		Total loans and leases receivable, net of allowance for credit losses on loans and leases	9,508,367		9,853,037		0		2,245,758		7,607,279
FHLB, Federal Reserve Bank and other restricted stock	FHLB, Federal Reserve Bank and other restricted stock	84,214		84,214		—		84,214		—		FHLB, Federal Reserve Bank and other restricted stock	84,214		84,214		0		84,214		0
Derivatives	Derivatives	23,608��		23,608		—		23,529		79		Derivatives	23,608		23,608		0		23,529		79

Liabilities:	Liabilities:											Liabilities:
Deposits	Deposits	$	8,648,936	$	8,652,340	$	6,980,402	$	1,671,938	$	—	Deposits	$	8,648,936	$	8,652,340	$	6,980,402	$	1,671,938	$	0

Federal funds purchased	Federal funds purchased	538,000		538,000		538,000		—		—		Federal funds purchased	538,000		538,000		538,000		0		0
FHLB advances	FHLB advances	850,000		852,162		—		852,162		—		FHLB advances	850,000		852,162		0		852,162		0
Other borrowings	Other borrowings	123,630		127,603		—		127,603		—		Other borrowings	123,630		127,603		0		127,603		0
Subordinated debt	Subordinated debt	181,115		192,217		—		192,217		—		Subordinated debt	181,115		192,217		0		192,217		0
Derivatives	Derivatives	45,939		45,939		—		45,939		—		Derivatives	45,939		45,939		0		45,939		0

~~Tab~~le 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 ~~June~~September 30, 2020 and December 31, 2019 were as follows:


		June 30, 2020															September 30, 2020
		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)	(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:									Measured at Fair Value on a Recurring Basis:
Assets	Assets									Assets
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
Asset-backed securities										Asset-backed securities	$	0	$	375,381	$	0	$	375,381
U.S. government agencies securities										U.S. government agencies securities	0		40,008		0		40,008
Agency-guaranteed residential mortgage-backed securities	Agency-guaranteed residential mortgage-backed securities	$	—	$	144,310	$	—	$	144,310	Agency-guaranteed residential mortgage-backed securities	0		$	61,079	0		$	61,079
Agency-guaranteed collateralized mortgage obligations		—		145,826		—		145,826
Agency guaranteed collateralized mortgage obligations										Agency guaranteed collateralized mortgage obligations	0		153,779		0		153,779

State and political subdivision debt securities	State and political subdivision debt securities	—		18,389		—		18,389		State and political subdivision debt securities	0		18,259		0		18,259
Private label collateralized mortgage obligations										Private label collateralized mortgage obligations	0		118,987		0		118,987
Corporate notes										Corporate notes	0		363,872		0		363,872

Corporate notes		—		356,233		—		356,233
Interest-only GNMA securities		—		—		14,396		14,396
Equity securities	Equity securities	2,228		—		—		2,228		Equity securities	2,466		0		0		2,466
Derivatives	Derivatives	—		65,075		52		65,127		Derivatives	0		60,355		455		60,810
Loans held for sale – fair value option	Loans held for sale – fair value option	—		3,507		—		3,507		Loans held for sale – fair value option	0		6,998		0		6,998
Loans receivable, mortgage warehouse – fair value option	Loans receivable, mortgage warehouse – fair value option	—		2,793,164		—		2,793,164		Loans receivable, mortgage warehouse – fair value option	0		3,913,593		0		3,913,593
Total assets – recurring fair value measurements	Total assets – recurring fair value measurements	$	2,228	$	3,526,504	$	14,448	$	3,543,180	Total assets – recurring fair value measurements	$	2,466	$	5,112,311	$	455	$	5,115,232
Liabilities	Liabilities									Liabilities
Derivatives	Derivatives	$	—	$	125,304	$	—	$	125,304	Derivatives	$	0	$	110,649	$	0	$	110,649
Measured at Fair Value on a Nonrecurring Basis:	Measured at Fair Value on a Nonrecurring Basis:									Measured at Fair Value on a Nonrecurring Basis:
Assets	Assets									Assets

Loans held for sale	Loans held for sale	$	—	$	17,600	$	—	$	17,600	Loans held for sale	$	0	$	0	$	18,366	$	18,366
Collateral-dependent loans	Collateral-dependent loans	—		—		45,208		45,208		Collateral-dependent loans	0		0		22,539		22,539

Total assets – nonrecurring fair value measurements	Total assets – nonrecurring fair value measurements	$	—	$	17,600	$	45,208	$	62,808	Total assets – nonrecurring fair value measurements	$	0	$	0	$	40,905	$	40,905

~~Tab~~le Table of Contents


		December 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)	(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:									Measured at Fair Value on a Recurring Basis:
Assets	Assets									Assets
Available for sale debt securities:	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	Agency-guaranteed residential mortgage–backed securities	$	0	$	278,321	$	0	$	278,321

Corporate notes	Corporate notes	—		298,877		—		298,877		Corporate notes	0		298,877		0		298,877
Interest-only GNMA securities	Interest-only GNMA securities	—		—		16,272		16,272		Interest-only GNMA securities	0		0		16,272		16,272
Equity securities	Equity securities	2,406		—		—		2,406		Equity securities	2,406		0		0		2,406
Derivatives	Derivatives	—		23,529		79		23,608		Derivatives	0		23,529		79		23,608
Loans held for sale – fair value option	Loans held for sale – fair value option	—		2,130		—		2,130		Loans held for sale – fair value option	0		2,130		0		2,130
Loans receivable, mortgage warehouse – fair value option	Loans receivable, mortgage warehouse – fair value option	—		2,245,758		—		2,245,758		Loans receivable, mortgage warehouse – fair value option	0		2,245,758		0		2,245,758
Total assets – recurring fair value measurements	Total assets – recurring fair value measurements	$	2,406	$	2,848,615	$	16,351	$	2,867,372	Total assets – recurring fair value measurements	$	2,406	$	2,848,615	$	16,351	$	2,867,372
Liabilities	Liabilities									Liabilities
Derivatives	Derivatives	$	—	$	45,939	$	—	$	45,939	Derivatives	$	0	$	45,939	$	0	$	45,939
Measured at Fair Value on a Nonrecurring Basis:	Measured at Fair Value on a Nonrecurring Basis:									Measured at Fair Value on a Nonrecurring Basis:
Assets	Assets									Assets
Impaired loans, net of specific reserves of $852	Impaired loans, net of specific reserves of $852	$	—	$	—	$	14,272	$	14,272	Impaired loans, net of specific reserves of $852	$	0	$	—	$	14,272	$	14,272
Other real estate owned	Other real estate owned	—		—		78		78		Other real estate owned	0		0		78		78
Total assets – nonrecurring fair value measurements	Total assets – nonrecurring fair value measurements	$	—	$	—	$	14,350	$	14,350	Total assets – nonrecurring fair value measurements	$	0	$	0	$	14,350	$	14,350

~~Tab~~le Table of Contents

The changes in residential mortgage loan commitments (Level 3 assets) measured at fair value on a recurring basis for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 are summarized in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 12 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES.


		Residential Mortgage Loan Commitments							Residential Mortgage Loan Commitments
		Three Months Ended June 30,							Three Months Ended September 30,
(amounts in thousands)	(amounts in thousands)	2020		2019		(amounts in thousands)	2020		2019
Balance at March 31		$	215	$	77
Balance at June 30						Balance at June 30	$	52	$	145
Issuances	Issuances	52		145		Issuances	455		150
Settlements	Settlements	(215)		(77)		Settlements	(52)		(145)
Balance at June 30		$	52	$	145
Balance at September 30						Balance at September 30	$	455	$	150


		Residential Mortgage Loan Commitments							Residential Mortgage Loan Commitments
		Six Months Ended June 30,							Nine Months Ended September 30,
(amounts in thousands)	(amounts in thousands)	2020		2019		(amounts in thousands)	2020		2019

Balance at December 31	Balance at December 31	$	79	$	69	Balance at December 31	$	79	$	69
Issuances	Issuances	267		222		Issuances	722		372
Settlements	Settlements	(294)		(146)		Settlements	(346)		(291)
Balance at June 30		$	52	$	145
Balance at September 30						Balance at September 30	$	455	$	150

There were no transfers between levels during the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.

~~Tab~~le ~~of Content~~s

The following table summarizes financial assets and financial liabilities measured at fair value as of ~~June~~September 30, 2020 and December 31, 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 and six months ended June 30, 2020, cash settlements of $0.9 million and $1.9 million were applied to the carrying value of the interest-only GNMA securities, net of premium amortization expense. At June 30, 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

~~June~~September 30, 2020

Fair Value
Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average) ⁽⁴⁾

(amounts in thousands)

Collateral-dependent loans – real estate

~~44,244~~21,572

Collateral appraisal ⁽¹⁾

~~Business asset valuation~~⁽³⁾

Liquidation expenses ⁽²⁾

~~Business asset valuation~~⁽⁴⁾

8% - ~~10%~~8%

(8%)

~~11% - 45%~~

~~(20%~~)

Collateral-dependent loans – commercial & industrial

~~964~~967

Collateral appraisal ⁽¹⁾

Business asset valuation ⁽³⁾

Liquidation expenses⁽²⁾

Business asset valuation adjustments ⁽⁴⁾

8%7% - 8%

(8%)

8%60% - ~~45%~~60%

~~(25%~~(60%)

~~Interest-only GNMA securities~~

~~14,396~~

~~Discounted cash flow~~

~~Constant prepayment rate~~

~~4% - 15%~~

~~(10%)~~

Residential mortgage loan commitments

52455

Adjusted market bid

Pull-through rate

~~78%~~81% - ~~78%~~81%

~~(78%~~(81%)

(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 12 — 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 values of which are determined by interest rates. Customers’ derivative financial instruments are used to manage differences in the amount, timing, and duration of Customers’ known or expected cash receipts and its known or expected cash payments principally related to certain borrowings 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’ interest-rate risk in assets or liabilities. Customers manages a matched book with respect to its derivative instruments used in this customer service in order to minimize its net risk exposure resulting from such transactions.

Cash Flow Hedges of Interest-Rate Risk

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

The changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged item affects earnings. To date, such derivatives were used to hedge the variable cash flows associated with the forecasted issuances of 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 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.

~~Tab~~le ~~of Content~~s

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on Customers' variable-rate debt and a variable-rate deposit relationship. Customers expects to reclassify ~~$16.8~~$15.9 million of losses from accumulated other comprehensive income (loss) to interest expense during the next 12 months.

Table of Contents

Customers is hedging its exposure to the variability in future cash flows for forecasted transactions (3-month FHLB advances and federal funds purchased) and a variable-rate deposit relationship over a maximum period of 7067 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

At ~~June~~September 30, 2020, Customers had 5 outstanding interest rate derivatives with notional amounts totaling $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. The outstanding cash flow hedges at ~~June~~September 30, 2020 expire between June 2021 and May 2026.

Derivatives Not Designated as Hedging Instruments

Customers executes interest rate swaps (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 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 ~~June~~September 30, 2020, Customers had ~~158~~154 interest rate swaps with an aggregate notional amount of ~~$1.6~~$1.4 billion and 46 interest rate caps with an aggregated notional amount of ~~$76.6~~$122.1 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 applicable accounting guidance and are reported at fair value, with changes in fair value recorded directly in earnings. At ~~June~~September 30, 2020 and December 31, 2019, Customers had an outstanding notional balance of residential mortgage loan commitments of ~~$3.6~~$19.4 million and $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 reported directly in earnings. At ~~June~~September 30, 2020 and December 31, 2019, Customers had outstanding notional balances of credit derivatives of ~~$171.3~~$172.9 million and $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 ~~June~~September 30, 2020 and December 31, 2019.


		June 30, 2020											September 30, 2020
		Derivative Assets				Derivative Liabilities						Derivative Assets			Derivative Liabilities
(amounts in thousands)	(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:							Derivatives designated as cash flow hedges:
Interest rate swaps	Interest rate swaps	Other assets	$	—	Other liabilities	$	51,589	Interest rate swaps	Other assets	$	0	Other liabilities	$	46,785
Total	Total		$	—		$	51,589	Total		$	0		$	46,785
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:							Derivatives not designated as hedging instruments:
Interest rate swaps	Interest rate swaps	Other assets	$	63,224	Other liabilities	$	73,067	Interest rate swaps	Other assets	$	59,962	Other liabilities	$	63,340
Interest rate caps	Interest rate caps	Other assets	18		Other liabilities	18		Interest rate caps	Other assets	9		Other liabilities	9
Credit contracts	Credit contracts	Other assets	1,833		Other liabilities	630		Credit contracts	Other assets	384		Other liabilities	515
Residential mortgage loan commitments	Residential mortgage loan commitments	Other assets	52		Other liabilities	—		Residential mortgage loan commitments	Other assets	455		Other liabilities	0
Total	Total		$	65,127		$	73,715	Total		$	60,810		$	63,864

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		December 31, 2019											December 31, 2019
		Derivative Assets				Derivative Liabilities						Derivative Assets			Derivative Liabilities
(amounts in thousands)	(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:							Derivatives designated as cash flow hedges:
Interest rate swaps	Interest rate swaps	Other assets	$	—	Other liabilities	$	21,374	Interest rate swaps	Other assets	$	0	Other liabilities	$	21,374
Total	Total		$	—		$	21,374	Total		$	0		$	21,374
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:							Derivatives not designated as hedging instruments:
Interest rate swaps	Interest rate swaps	Other assets	$	23,301	Other liabilities	$	24,797	Interest rate swaps	Other assets	$	23,301	Other liabilities	$	24,797
Interest rate caps	Interest rate caps	Other assets	9		Other liabilities	9		Interest rate caps	Other assets	9		Other liabilities	9
Credit contracts	Credit contracts	Other assets	219		Other liabilities	(241)		Credit contracts	Other assets	219		Other liabilities	(241)
Residential mortgage loan commitments	Residential mortgage loan commitments	Other assets	79		Other liabilities	—		Residential mortgage loan commitments	Other assets	79		Other liabilities	0
Total	Total		$	23,608		$	24,565	Total		$	23,608		$	24,565

Effect of Derivative Instruments on Net Income

The following tables present amounts included in the consolidated statements of income related to derivatives not designated as hedges for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.


			Amount of Income (Loss) Recognized in Earnings																	Amount of Income (Loss) Recognized in Earnings
			Three Months Ended June 30,						Six Months Ended June 30,									Three Months Ended September 30,				Nine Months Ended September 30,
(amounts in thousands)	(amounts in thousands)	Income Statement Location	2020		2019		2020		2019		(amounts in thousands)	Income Statement Location		2020		2019		2020		2019
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:												Derivatives not designated as hedging instruments:
Interest rate swaps	Interest rate swaps	Other non-interest income	$	(5,563)	$	386	$	(6,578)	$	98	Interest rate swaps	Other non-interest income		$	387	$	(35)	$	(6,191)	$	63
Interest rate caps	Interest rate caps	Other non-interest income	—		—		—		—		Interest rate caps	Other non-interest income		0		0		0		0
Credit contracts	Credit contracts	Other non-interest income	1,405		41		1,274		144		Credit contracts	Other non-interest income		162		85		1,436		228
Residential mortgage loan commitments	Residential mortgage loan commitments	Mortgage banking income	(164)		68		(27)		76		Residential mortgage loan commitments	Mortgage banking income		403		5		376		82
Total	Total		$	(4,322)	$	495	$	(5,331)	$	318	Total			$	952	$	55	$	(4,379)	$	373

Effect of Derivative Instruments on Comprehensive Income

The following table presents the effect of Customers' derivative financial instruments on comprehensive income for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.


		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							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
		Three Months Ended June 30,							Three Months Ended June 30,							Three Months Ended September 30,					Three Months Ended September 30,
(amounts in thousands)	(amounts in thousands)	2020		2019			2020		2019		(amounts in thousands)	2020		2019			2020		2019
Derivatives in cash flow hedging relationships:	Derivatives in cash flow hedging relationships:										Derivatives in cash flow hedging relationships:
Interest rate swaps	Interest rate swaps	$	(4,685)	$	(10,435)	Interest expense	$	(2,718)	$	(4)	Interest rate swaps	$	429	$	(3,821)	Interest expense	$	(4,400)	$	(764)

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		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							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
		Six Months Ended June 30,								Six Months Ended June 30,							Nine Months Ended September 30,						Nine Months Ended September 30,
(amounts in thousands)	(amounts in thousands)	2020		2019				2020		2019		(amounts in thousands)	2020		2019				2020		2019
Derivatives in cash flow hedging relationships:	Derivatives in cash flow hedging relationships:											Derivatives in cash flow hedging relationships:
Interest rate swaps	Interest rate swaps	$	(25,031)	$	(15,570)	Interest expense		$	(4,196)	$	409	Interest rate swaps	$	(24,602)	$	(19,391)	Interest expense		$	(8,596)	$	(355)

(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 institution. As of ~~June~~September 30, 2020, the fair value of derivatives in a net liability position (which includes accrued interest but excludes any adjustment for nonperformance-risk) related to these agreements was ~~$127.7~~$114.5 million. In addition, Customers, which has collateral posting thresholds with certain of these counterparties, had posted ~~$124.6~~$110.0 million of cash as collateral at ~~June~~September 30, 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										Gross Amounts Recognized on the Consolidated Balance Sheets				Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)	(amounts in thousands)					Financial Instruments		Cash Collateral Received/(Posted)				Net Amount	(amounts in thousands)		Financial Instruments	Cash Collateral Received/(Posted)		Net Amount
June 30, 2020
September 30, 2020										September 30, 2020
Interest rate derivative assets with institutional counterparties	Interest rate derivative assets with institutional counterparties	$	—	$	—	$	—	$	—	Interest rate derivative assets with institutional counterparties	$	0				$	0	$	0	$	0

Interest rate derivative liabilities with institutional counterparties	Interest rate derivative liabilities with institutional counterparties	$	124,561	$	—	$	(124,561)	$	—	Interest rate derivative liabilities with institutional counterparties	$	110,039				$	0	$	(110,039)	$	0

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		Gross Amounts Recognized on the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheet										Gross Amounts Recognized on the Consolidated Balance Sheets				Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)	(amounts in thousands)					Financial Instruments		Cash Collateral Received/(Posted)				Net Amount	(amounts in thousands)		Financial Instruments	Cash Collateral Received/(Posted)		Net Amount
December 31, 2019	December 31, 2019									December 31, 2019
Interest rate derivative assets with institutional counterparties	Interest rate derivative assets with institutional counterparties	$	432	$	—	$	—	$	432	Interest rate derivative assets with institutional counterparties	$	432				$	0	$	0	$	432

Interest rate derivative liabilities with institutional counterparties	Interest rate derivative liabilities with institutional counterparties	$	45,727	$	—	$	(45,727)	$	—	Interest rate derivative liabilities with institutional counterparties	$	45,727				$	0	$	(45,727)	$	0

NOTE 13 — BUSINESS SEGMENTS

Customers’ segment financial reporting reflects the manner in which its chief operating decision makers allocate resources and assess performance. Management has determined that Customers’ operations consist of 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 installment loans, interchange and card revenue, deposit and wire transfer fees and university fees. The majority of expenses for BankMobile are related to the segment's operation of the ongoing business acquired through the Disbursement business acquisition and costs associated with the development of white label products for its ~~partner.~~partners.

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The following tables present the operating results for Customers' reportable business segments for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 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 ~~23.20%~~20.61% for 2020 and 23.15% for 2019, respectively.


		Three Months Ended June 30, 2020										Three Months Ended June 30, 2019											Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
(amounts in thousands)	(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated		(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated
Interest income ⁽¹⁾	Interest income ⁽¹⁾	$	112,455	$	12,763	$	125,218	$	103,014	$	8,936	$	111,950	Interest income (1)	$	126,648	$	13,002	$	139,650	$	113,995	$	12,723	$	126,718
Interest expense	Interest expense	32,856		380		33,236		47,061		210		47,271		Interest expense	31,718		493		32,211		50,734		249		50,983
Net interest income	Net interest income	79,599		12,383		91,982		55,953		8,726		64,679		Net interest income	94,930		12,509		107,439		63,261		12,474		75,735
Provision for credit losses on loans and leases	Provision for credit losses on loans and leases	19,623		1,323		20,946		(2,206)		7,552		5,346		Provision for credit losses on loans and leases	8,699		4,256		12,955		2,475		1,951		4,426
Non-interest income	Non-interest income	11,683		10,553		22,236		970		11,066		12,036		Non-interest income	21,603		12,190		33,793		11,757		11,612		23,369
Non-interest expense	Non-interest expense	44,270		19,236		63,506		38,107		21,475		59,582		Non-interest expense	48,926		16,635		65,561		38,347		21,245		59,592
Income (loss) before income tax expense (benefit)	Income (loss) before income tax expense (benefit)	27,389		2,377		29,766		21,022		(9,235)		11,787		Income (loss) before income tax expense (benefit)	58,908		3,808		62,716		34,196		890		35,086
Income tax expense (benefit)	Income tax expense (benefit)	6,611		437		7,048		4,629		(2,138)		2,491		Income tax expense (benefit)	11,374		827		12,201		7,814		206		8,020
Net income (loss)	Net income (loss)	20,778		1,940		22,718		16,393		(7,097)		9,296		Net income (loss)	47,534		2,981		50,515		26,382		684		27,066
Preferred stock dividends	Preferred stock dividends	3,581		—		3,581		3,615		—		3,615		Preferred stock dividends	3,430		0		3,430		3,615		0		3,615
Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	17,197	$	1,940	$	19,137	$	12,778	$	(7,097)	$	5,681	Net income (loss) available to common shareholders	$	44,104	$	2,981	$	47,085	$	22,767	$	684	$	23,451

(1) Amounts reported include funds transfer pricing of ~~$1.6~~$2.2 million and ~~$2.2~~$0.3 million, for the three months ended ~~June~~September 30, 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.


		Six Months Ended June 30, 2020										Six Months Ended June 30, 2019											Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
(amounts in thousands)	(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated		(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated
Interest income ⁽¹⁾	Interest income ⁽¹⁾	$	225,171	$	25,390	$	250,561	$	195,885	$	17,140	$	213,025	Interest income (1)	$	351,819	$	38,393	$	390,212	$	309,882	$	29,863	$	339,745
Interest expense	Interest expense	76,533		726		77,259		88,666		376		89,042		Interest expense	108,251		1,219		109,470		139,402		625		140,027
Net interest income	Net interest income	148,638		24,664		173,302		107,219		16,764		123,983		Net interest income	243,568		37,174		280,742		170,480		29,238		199,718
Provision for credit losses on loans and leases	Provision for credit losses on loans and leases	46,921		5,811		52,732		770		9,343		10,113		Provision for credit losses on loans and leases	55,620		10,068		65,688		3,245		11,294		14,539
Non-interest income	Non-interest income	22,819		21,348		44,167		8,547		23,207		31,754		Non-interest income	44,422		33,537		77,959		20,304		34,821		55,125
Non-interest expense	Non-interest expense	88,130		41,835		129,965		73,491		40,075		113,566		Non-interest expense	137,055		58,470		195,525		111,840		61,320		173,160
Income (loss) before income tax expense (benefit)	Income (loss) before income tax expense (benefit)	36,406		(1,634)		34,772		41,505		(9,447)		32,058		Income (loss) before income tax expense (benefit)	95,315		2,173		97,488		75,699		(8,555)		67,144
Income tax expense (benefit)	Income tax expense (benefit)	9,334		(379)		8,955		9,510		(2,187)		7,323		Income tax expense (benefit)	20,708		448		21,156		17,324		(1,981)		15,343
Net income (loss)	Net income (loss)	27,072		(1,255)		25,817		31,995		(7,260)		24,735		Net income (loss)	74,607		1,725		76,332		58,375		(6,574)		51,801
Preferred stock dividends	Preferred stock dividends	7,196		—		7,196		7,229		—		7,229		Preferred stock dividends	10,626		0		10,626		10,844		0		10,844
Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	19,876	$	(1,255)	$	18,621	$	24,766	$	(7,260)	$	17,506	Net income (loss) available to common shareholders	$	63,981	$	1,725	$	65,706	$	47,531	$	(6,574)	$	40,957

As of June 30, 2020 and 2019
As of September 30, 2020 and 2019														As of September 30, 2020 and 2019
Goodwill and other intangibles	Goodwill and other intangibles	$	3,629	$	10,946	$	14,575	$	3,629	$	12,218	$	15,847	Goodwill and other intangibles	$	3,629	$	10,808	$	14,437	$	3,629	$	11,892	$	15,521
Total assets ⁽²⁾	Total assets ⁽²⁾	$	17,316,394	$	586,724	$	17,903,118	$	10,555,141	$	627,286	$	11,182,427	Total assets (2)	$	18,203,784	$	574,943	$	18,778,727	$	11,131,914	$	591,876	$	11,723,790
Total deposits	Total deposits	$	10,303,112	$	662,763	$	10,965,875	$	7,729,580	$	456,197	$	8,185,777	Total deposits	$	9,895,328	$	943,749	$	10,839,077	$	8,260,080	$	665,605	$	8,925,685
Total non-deposit liabilities ⁽²⁾	Total non-deposit liabilities ⁽²⁾	$	5,895,690	$	33,706	$	5,929,396	$	1,970,391	$	34,854	$	2,005,245	Total non-deposit liabilities (2)	$	6,853,184	$	34,975	$	6,888,159	$	1,747,846	$	31,109	$	1,778,955

(1) Amounts reported include funds transfer pricing of ~~$3.1~~$5.3 million and ~~$7.8~~$8.1 million, for the ~~six~~nine months ended ~~June~~September 30, 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.

(2) Amounts reported exclude inter-segment receivables/payables.

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NOTE 14 - NON-INTEREST REVENUES

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

The following table presents Customers' non-interest revenues affected by ASC 606 by business segment for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019:


		Three Months Ended June 30, 2020										Three Months Ended June 30, 2019											Three Months Ended September 30, 2020				Three Months Ended September 30, 2019
(amounts in thousands)	(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated		(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated

Revenue from contracts with customers:	Revenue from contracts with customers:													Revenue from contracts with customers:
Revenue recognized at point in time:	Revenue recognized at point in time:													Revenue recognized at point in time:
Interchange and card revenue(1)	Interchange and card revenue(1)	$	193	$	6,285	$	6,478	$	219	$	6,541	$	6,760	Interchange and card revenue(1)	$	(3,148)	$	7,229	$	4,081	$	181	$	6,688	$	6,869
Deposit fees	Deposit fees	502		2,819		3,321		433		2,915		3,348		Deposit fees	651		2,788		3,439		457		3,185		3,642
University fees - card and disbursement fees	University fees - card and disbursement fees	—		389		389		—		167		167		University fees - card and disbursement fees	0		310		310		0		262		262

Total revenue recognized at point in time	Total revenue recognized at point in time	695		9,493		10,188		652		9,623		10,275		Total revenue recognized at point in time	(2,497)		10,327		7,830		638		10,135		10,773
Revenue recognized over time:	Revenue recognized over time:													Revenue recognized over time:
University fees - subscription revenue	University fees - subscription revenue	—		1,007		1,007		—		968		968		University fees - subscription revenue	0		1,039		1,039		0		1,006		1,006
Total revenue recognized over time	Total revenue recognized over time	—		1,007		1,007		—		968		968		Total revenue recognized over time	0		1,039		1,039		—		1,006		1,006
Total revenue from contracts with customers	Total revenue from contracts with customers	$	695	$	10,500	$	11,195	$	652	$	10,591	$	11,243	Total revenue from contracts with customers	$	(2,497)	$	11,366	$	8,869	$	638	$	11,141	$	11,779

Six Months Ended June 30, 2020 Six Months Ended June 30, 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 $ 463 $ 12,824 $ 13,287 $ 398 $ 15,167 $ 15,565
Deposit fees 1,054 5,728 6,782 733 4,824 5,557
University fees - card and disbursement fees — 681 681 — 522 522
Total revenue recognized at point in time 1,517 19,233 20,750 1,131 20,513 21,644
Revenue recognized over time:
University fees - subscription revenue — 1,999 1,999 — 1,947 1,947
Total revenue recognized over time — 1,999 1,999 — 1,947 1,947
Total revenue from contracts with customers $ 1,517 $ 21,232 $ 22,749 $ 1,131 $ 22,460 $ 23,591


	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 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 (1)	$	(2,685)	$	20,053	$	17,368	$	580	$	21,855	$	22,435
Deposit fees	1,704		8,517		10,221		1,190		8,009		9,199
University fees - card and disbursement fees	0		990		990		0		783		783


Total revenue recognized at point in time	(981)		29,560		28,579		1,770		30,647		32,417
Revenue recognized over time:
University fees - subscription revenue	0		3,038		3,038		0		2,953		2,953
Total revenue recognized over time	0		3,038		3,038		0		2,953		2,953
Total revenue from contracts with customers	$	(981)	$	32,598	$	31,617	$	1,770	$	33,600	$	35,370

(1) Beginning on July 1, 2020, Customers Bank became subject to the Federal Reserve's regulation limits on interchange fees for banks over $10 billion in assets. Customers Bank Business Banking has agreed to pay BankMobile the difference between the regulated and unregulated interchange rates. For the three and nine months ended September 30, 2020, BankMobile received $3.2 million for the difference between the regulated and unregulated interchange rates.

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NOTE 15 — LOSS CONTINGENCIES

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss 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 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 (“Lifestyle Parties”) 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, 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. On September 17, 2020, a Stipulation of Dismissal with Prejudice was filed with the Court as a result of the voluntary resolution of the matter by and between Plaintiffs and defendants, Customers Bank, ~~intends to vigorously defend itself against these allegations but is currently unable to predict the outcome of this lawsuit~~Robert White and ~~therefore cannot determine the likelihood of loss nor estimate a range of possible loss.~~Michael Fuoco only.

United States Department of Education Matter

In third quarter 2018, Customers received a Final Program Review Determination ("FPRD") letter dated September 5, 2018 from the ~~DOE~~ED regarding a focused program review of Higher One's/Customers Bank's administration, as a third party servicer, of the programs authorized pursuant to Title IV of the Higher Education Act of 1965. The ~~DOE~~ED 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~~ED’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 disagreed with the FPRD and 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~~ED’s Office of Hearing and Appeals.

On March 26, 2020, the ~~DOE~~ED and Customers filed a Joint Motion to Dismiss with Prejudice (the "Joint Motion") with the United States Department of Education. The Joint Motion states that the ~~DOE~~ED and Customers reached an agreement that resolves the liabilities 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 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 increased its liability by an additional $1.0 million in first quarter 2020. The remaining $1.0 million is expected to be funded from funds in an escrow account set-up at the time of Customers' acquisition of the Disbursement business from Higher One in 2016.

Bureau of the 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 Bureau of the Fiscal Service (“Reclamation Notice”). The Reclamation Notice represented a demand to Customers for the return of funds on a U.S. Treasury check for approximately $5.4 million. Customers 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 be seeking reclamation of these funds.

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NOTE 16 ~~– SUBSEQUENT EVENTS~~— BANKMOBILE TECHNOLOGIES, INC. MERGER

On August 6, 2020, ~~BankMobile Technology, Inc. ("BMT"),~~Customers Bank, BMT, a subsidiary of Customers Bank, and ~~Megalith Financial Acquisition Corp. (“MFAC”),~~MFAC, a special purpose acquisition company, entered into a definitive merger agreement. BMT is the technology arm of Customers' BankMobile reporting segment. Upon closing of the transaction, the combined company will operate as BM Technologies ~~Inc. (the "Company")~~ and expects to be listed on the New York Stock Exchange. All BMT serviced deposits and loans will remain at ~~Customers~~the Bank immediately after the closing of the transaction. Upon the closing of the transaction, BM Technologies will be a financial technology company bringing banks and business partners together through its digital banking platform.

Merger Consideration

The aggregate consideration to be paid ~~pursuant to~~in connection with the merger ~~to the Bank~~ will be an amount (the “Merger Consideration”) equal to: (i) $140.0 million minus (ii) $9.3 million (representing a sponsor equity adjustment), plus (or minus, if negative) (iii) BMT’s net working capital less a target net working capital of $10.0 million, minus (iv) the aggregate amount of any outstanding indebtedness of BMT at closing, and minus (v) the amount of any unpaid transaction expenses of BMT, ~~Megalith’s~~MFAC’s transaction expenses and other liabilities of ~~Megalith~~MFAC due and owing at the ~~closing.~~closing of the transaction.

The Merger Consideration will consist of cash and stock. The cash portion of the Merger Consideration (“Cash Consideration”) will be equal to (i) the amount of any proceeds of the PIPE Investment; plus (ii) an amount equal to one-half (1/2) of the difference between the (A) cash and cash equivalents of ~~Megalith,~~MFAC, including any funds in the trust account after giving effect to the completion of the redemption of shares of ~~Megalith’s~~MFAC’s public stockholders (“Redemption”), less (B) a cash reserve to be used for the benefit of ~~the Company~~BM Technologies in the Merger, in the amount of $10.0 million (such difference between clause (A) and (B) which resulting amount if otherwise negative shall be equal to zero, being which resulting amount if otherwise negative shall be equal to zero, being the “Remaining Trust Account Amount”); minus (iii) ~~Megalith’s~~MFAC’s transaction expenses and other liabilities of ~~Megalith~~MFAC due and owing at the ~~closing;~~Business Combination Closing; plus (iv) the cash and cash equivalents of BMT; minus (v) BMT’s unpaid transaction expenses; minus (vi) a cash reserve in the amount of $5.0 million. The stock portion of the Merger Consideration consists of a number of shares of ~~Megalith’s~~MFAC’s Class A common stock with an aggregate value (the “Merger Consideration Share Amount”) equal to (a) the Merger Consideration, minus (b) the Cash Consideration, with ~~the Bank~~Customers Bancorp's stockholders receiving a number of shares of ~~Megalith~~MFAC Class A common stock equal to the Merger Consideration Share Amount, divided by $10.38 (the “Per Share Price”).

The Merger Consideration is subject to adjustment after the closing date based on confirmed amounts of the net working capital of BMT, the outstanding indebtedness of BMT and any unpaid transaction expenses of BMT, as of the closing date. The adjustment amount shall be the Merger Consideration as finally determined minus the estimated Merger Consideration that was issued at the closing date of the transaction. If the adjustment is a negative adjustment in favor of ~~Megalith,~~MFAC, the Bank will ~~deliver to Megalith a number of shares of Class A common stock of Megalith with a value equal to~~pay MFAC the absolute value of the adjustment amount ~~(with each share valued at the Per Share Price).~~in cash. If the adjustment is a positive adjustment in favor of BMT, ~~Megalith~~MFAC will issue to the Bank an additional number of shares of Class A ~~common~~Common Stock of ~~Megalith~~MFAC with a value equal to the adjustment amount (with each share valued at the ~~Per Share Price)~~per share price). The Merger Consideration is also subject to reduction for the indemnification obligations of the Bank.

Certain Relationships

Mr. Jay Sidhu, who currently serves as Chief Executive Officer and Chairman of the Board of Customers Bancorp and Executive Chairman of the Bank, also serves as ~~Executive Chairman~~a director of ~~Megalith,~~MFAC, is one of the managing members of ~~Megalith’s~~MFAC’s sponsor and is a ~~Megalith stockholder.~~MFAC stockholder and also served as Executive Chairman of MFAC through August 7, 2020. Mr. Bhanu Choudhrie, who currently serves as a member of the board of directors of Customers Bancorp and the Bank also serves as a director of ~~Megalith,~~MFAC, is one of the managing members of ~~Megalith’s~~MFAC’s sponsor and is a ~~Megalith~~MFAC stockholder. Mr. Samvir Sidhu, the son of Jay Sidhu, currently serves as the Bank’s Vice Chairman and Chief Operating Officer and as Customers Bancorp’s Head of Corporate Development, previously served as the Chief Executive Officer of ~~Megalith,~~MFAC, currently serves as a director of ~~Megalith~~MFAC and is a ~~Megalith~~MFAC stockholder. Ms. Luvleen Sidhu, the daughter of Jay Sidhu, currently serves as the Chief Executive Officer and as a director of BMT and is expected to continue to serve in those roles with ~~the Company.~~BM Technologies. Certain of these individuals also expect to participate in the private placement by ~~Megalith~~MFAC of shares of its Class A common stock to be completed in connection with the closing.

In light of these relationships, Customers Bancorp appointed a special committee consisting of independent directors with their own counsel and financial advisors. The special committee reviewed the transaction, obtained a fairness opinion in connection with the transaction, and made a unanimous recommendation to Customers Bancorp’s board of directors for approval. Customers Bancorp’s board of directors approved the transaction by a majority vote, with the above-mentioned directors recusing themselves from the deliberation and voting process and no director voting against the transaction.

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Amendment to the Merger Agreement

On November 2, 2020, the Bank, BMT and MFAC amended the merger agreement to provide, among other things, that the stock portion of the Merger Consideration will be distributed to Customers Bancorp's stockholders at the closing of the transaction and that there will be restrictions on the sale of these shares for twelve months after the closing of the merger, provided that these restrictions will end prior to such time upon the earlier of (1) the date after the closing date on which MFAC consummates a liquidation, merger, capital stock exchange, reorganization or other similar transaction with an unaffiliated third-party that results in all of MFAC’s stockholders having the right to exchange their shares of common stock for cash, securities or other property, and (2) the date on which the closing sale price of MFAC’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations and the like) for any 20 trading days within any 30 trading day period commencing at least 150 days after the closing date.

The ~~business combination~~merger is expected to close in the fourth quarter 2020, pending MFAC ~~stockholder~~stockholders' approval, regulatory approval and the satisfaction or waiver of additional conditions to closing.

As of September 30, 2020, BMT had an outstanding borrowing with the Bank totalling $40 million. All or a portion of this borrowing is expected to remain outstanding after the merger transaction. As of September 30, 2020, Customers has determined that the planned divestiture of BMT through this merger transaction did not qualify for reporting as a discontinued operation. BMT, as a component of the BankMobile segment, did not meet the criteria to be classified as held for sale as the merger transaction is subject to MFAC shareholders' approval, regulatory approval, and other required conditions to closing as discussed above. Accordingly, Customers continues to report the operating results of BMT within the BankMobile segment. See NOTE 13 - BUSINESS SEGMENTS.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~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 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,~~“may,” ~~”could,~~“could,” ~~”should,~~“should,” ~~”pro~~“pro forma,” ~~”looking~~“looking forward,” ~~”would,~~“would,” ~~”believe,~~“believe,” ~~”expect,~~“expect,” ~~”anticipate,~~“anticipate,” ~~”estimate,~~“estimate,” ~~”intend,~~“intend,” ~~”plan,~~“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 and factors, among others, could cause Customers Bancorp, Inc.’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements, 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)~~ASU 2016-13, Financial Instruments—~~Credit Losses (CECL)~~CECL and matters relating to the announced merger of ~~BankMobile Technologies, Inc. (“BMT”),~~BMT, including the possibility of events, changes or other circumstances occurring or existing that could result in the planned merger of BMT not being completed, the possibility that the planned merger of BMT may be more expensive to complete than anticipated, the risks associated with Customers' significant ownership of BM Technologies, Inc. common stock and BM Technologies, Inc.'s ability to service its debt following completion of the merger, the possibility that the expected benefits to Customers and our shareholders of the planned merger may not be achieved, the possibility of Customers incurring liabilities relating to the disposition of BMT, the costs of providing certain ongoing services to BM Technologies, Inc. following completion of the merger, including the time commitment of Customers' management and other personnel in providing such services, or the possible effects on Customers' results of operations if the planned merger of BMT is not completed in a timely fashion or at all. Customers Bancorp, Inc. cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements 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. 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. does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Customers Bancorp, Inc. or by or on behalf of 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 and ~~six~~nine months ended ~~June~~September 30, 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' 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 interest income on its interest-earning assets and the interest 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 installment loans, interchange and card revenue and deposit fees.

On August 6, 2020, BMT, a subsidiary of Customers Bank, and MFAC, a special purpose acquisition company, entered into a definitive merger agreement. BMT is the technology arm of Customers' BankMobile reporting segment. Upon closing of the transaction, the combined company will operate as BM Technologies and expects to be listed on the New York Stock Exchange. All BMT serviced deposits and loans will remain at the Bank immediately after the closing of the

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transaction. Upon the closing of the transaction, BM Technologies will be a financial technology company bringing banks and business partners together through its digital banking platform. Customers has included a detailed discussion of the definitive merger agreement in NOTE 16 - BANKMOBILE TECHNOLOGIES, INC. MERGER to Customers' unaudited quarterly financial statements.

There is credit risk inherent in 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 LOANS AND LEASES to Customers' unaudited quarterly financial statements.

Impact of COVID-19

In March 2020, the outbreak of 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 toduring 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 continue in the 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")~~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"),~~SBA's 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 an eight-week or 24-week period 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 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. On August 8, 2020, the SBA announced that the PPP was closed and no longer accepting PPP applications from participating lenders. As of ~~June~~September 30, 2020, Customers has helped thousands of small businesses by originating about ~~$4.8~~$5.0 billion in 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. ~~Through July 24,~~As of September 30, 2020, total commercial deferments declined to ~~less than $700~~$79 million, or ~~down to about 8.0%,~~0.7% of total loans and leases, excluding PPP loans, from a peak of $1.2 billion and total consumer deferments declined to ~~$60~~$25 million, or ~~3.7%,~~0.2% of total loans and leases, excluding PPP loans, from a peak of $108 million. As of September 30, 2020, Customers had $198.5 million of pending commercial loan deferment requests.

The FRB has taken a range of actions to support the flow of credit to households and businesses. For example, on March 15, 2020, the FRB reduced the target range for the federal funds rate to 00.00% to 0.25% and announced that it would increase its holdings of U.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. Additionally, on September 16, 2020, the FRB pledged to keep interest rates near zero until 2023 to support the economy through the COVID-19 recession. The FRB has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as of March 26, 2020. The FRB has also established, or has taken steps to establish, a range of facilities and programs to support the U.S. economy and U.S. marketplace participants in response to economic disruptions associated with

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COVID-19, including among others, Main Street Lending facilities to purchase loan participations, under specified conditions, from banks lending to small and medium U.S. businesses and the PPPLF, which was created to bolster the effectiveness of the PPP by taking loans as collateral at face value. While Customers has not participated in all of these facilities or programs to date, it may participate in some or all of these facilities or programs, including as a lender, agent, or intermediary on behalf of clients or customers at various times in the future. As of ~~June~~September 30, 2020, Customers borrowed ~~$4.4~~$4.8 billion from the PPPLF to fund ~~the origination of about $4.8~~$5.0 billion of PPP ~~loans.~~loans outstanding as of September 30, 2020.

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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 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 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 2019 Form 10-K and updated in this Form 10-Q for the quarterly period ended ~~June~~September 30, 2020 in “NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION."

Certain accounting policies may involve significant judgments and assumptions by Customers that have a material impact on the carrying value of certain 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.

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

Allowance for Credit Losses

Customers' ACL at ~~June~~September 30, 2020 represents Customers' current estimate of the lifetime credit losses expected from its loan and lease portfolio and its unfunded lending-related commitments that are not unconditionally cancellable. Management estimates the ACL by projecting a lifetime loss rate conditional on a forecast of economic parameters and other qualitative adjustments, for the loans and leases' expected remaining term.

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/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 of loan and lease portfolio, credit underwriting policy exceptions, peer comparison, industry data, and model and data limitations. The qualitative allowance for economic forecast risk is further informed by

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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.

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The ACL is established in accordance with our ACL policy. The ACL Committee, which includes the Chief Financial Officer, Chief Accounting Officer, Chief Risk Officer, and Chief Credit Officer, among others, reviews the adequacy of the ACL each quarter, together with Customers' risk management team. The ACL policy, significant judgements and the related disclosures are reviewed by Customers' Audit Committee of the Board of Directors.

The significant increase in our estimated ACL as of ~~June~~September 30, 2020 as compared to our January 1, 2020 estimate was primarily attributable to the significant economic impact of COVID-19, along with loan growth in Customers' commercial and consumer loan portfolios. The total reserve build for the ACL for the ~~three months and six~~nine months ended ~~June~~September 30, 2020 was ~~$20.4~~$19.2 million, ~~and $53.1~~with a reduction of reserve for the ACL of $4.9 million ~~with~~for the three months ended September 30, 2020, for an ending balance of ~~$163.7~~$158.9 million ($~~159.9~~155.6 million for loans and leases and ~~$3.8~~$3.3 million for unfunded lending-related commitments) as of ~~June~~September 30, 2020.

To determine the ACL as of ~~June~~September 30, 2020, Customers utilized the Moody's ~~June~~September 2020 Baseline forecast to generate its modelled expected losses ~~and considered Moody's other alternative economic forecast scenarios to qualitatively adjust the modelled ACL by loan portfolio in order~~ to reflect management's reasonable expectations of current and future economic conditions. The Baseline forecast assumed ~~a deep recession~~improvement in ~~second quarter 2020, which included a significant drop in GDP and elevated unemployment~~forecasts of macroeconomic conditions compared to the ~~first~~second quarter forecast of macroeconomic conditions used by Customers; the Federal Reserve maintaining a target range for the fed funds rate at 0.00% to 0.25% into 2023; the FRB's emergency lending facilities remaining operational through the end of 2020, ~~forecast for current market conditions, followed by a strong recovery in~~with the ~~second half~~tapering of quantitative easing not beginning until 2021; and an additional $1.5 trillion of stimulus from the federal government, which is now anticipated before the end of 2020. ~~The qualitative adjustment considered a more optimistic scenario that aligned with management's expectation of expected credit losses that resulted in a reduction to the modelled ACL.~~ 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, 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 which the current COVID-19 pandemic has and will continue to 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 to the unaudited consolidated financial statements.

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Results of Operations

The following table sets forth the condensed statements of income for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019:


		Three Months Ended June 30,						QTD						Six Months Ended June 30,								YTD					Three Months Ended September 30,				QTD				Nine Months Ended September 30,	YTD
(dollars in thousands)	(dollars in thousands)	2020		2019		Change		% Change		2020		2019		Change		% Change		(dollars in thousands)	2020		2019		Change		% Change		2020		2019		Change		% Change
Net interest income	Net interest income	$	91,982	$	64,679	$	27,303	42.2	%	$	173,302	$	123,983	$	49,319	39.8	%	Net interest income	$	107,439	$	75,735	$	31,704	41.9	%	$	280,742	$	199,718	$	81,024	40.6	%
Provision for credit losses	Provision for credit losses	20,946		5,346		15,600		291.8	%	52,732		10,113		42,619		421.4	%	Provision for credit losses	12,955		4,426		8,529		192.7	%	65,688		14,539		51,149		351.8	%
Total non-interest income	Total non-interest income	22,236		12,036		10,200		84.7	%	44,167		31,754		12,413		39.1	%	Total non-interest income	33,793		23,369		10,424		44.6	%	77,959		55,125		22,834		41.4	%
Total non-interest expense	Total non-interest expense	63,506		59,582		3,924		6.6	%	129,965		113,566		16,399		14.4	%	Total non-interest expense	65,561		59,592		5,969		10.0	%	195,525		173,160		22,365		12.9	%
Income before income tax expense	Income before income tax expense	29,766		11,787		17,979		152.5	%	34,772		32,058		2,714		8.5	%	Income before income tax expense	62,716		35,086		27,630		78.7	%	97,488		67,144		30,344		45.2	%
Income tax expense	Income tax expense	7,048		2,491		4,557		182.9	%	8,955		7,323		1,632		22.3	%	Income tax expense	12,201		8,020		4,181		52.1	%	21,156		15,343		5,813		37.9	%
Net income	Net income	22,718		9,296		13,422		144.4	%	25,817		24,735		1,082		4.4	%	Net income	50,515		27,066		23,449		86.6	%	76,332		51,801		24,531		47.4	%
Preferred stock dividends	Preferred stock dividends	3,581		3,615		(34)		(0.9)	%	7,196		7,229		(33)		(0.5)	%	Preferred stock dividends	3,430		3,615		(185)		(5.1)	%	10,626		10,844		(218)		(2.0)	%
Net income available to common shareholders	Net income available to common shareholders	$	19,137	$	5,681	$	13,456	236.9	%	$	18,621	$	17,506	$	1,115	6.4	%	Net income available to common shareholders	$	47,085	$	23,451	$	23,634	100.8	%	$	65,706	$	40,957	$	24,749	60.4	%

Customers reported net income available to common shareholders of ~~$19.1~~$47.1 million and ~~$18.6~~$65.7 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively, compared to net income available to common shareholders of ~~$5.7~~$23.5 million and ~~$17.5~~$41.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively. Factors contributing to the change in net income available to common shareholders for the three and ~~six~~nine months ended ~~June~~September 30, 2020 compared to the three and ~~six~~nine months ended ~~June~~September 30, 2019 were as follows:

Net interest income

Net interest income increased ~~$27.3~~$31.7 million for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 as average interest-earning assets increased by ~~$4.1~~$6.5 billion, ~~and NIM expanded~~partially offset by ~~one~~a 33 basis point decline in NIM to ~~2.65%~~2.50% for the three months ended ~~June~~September 30, 2020 from ~~2.64%~~2.83% for the three months ended ~~June~~September 30, ~~2019 resulting~~2019. The decline in NIM resulted from the Federal Reserve interest rate cuts of 225 basis points beginning in August 2019 and the shift in the mix of interest-earning assets and interest-bearing liabilities drove a 96147 basis point decline in the yield on interest-earning assets and a ~~124~~144 basis point decline in the cost of interest-bearing liabilities for the three months ended ~~June~~September 30, 2020. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was ~~the origination of $4.8~~$5.0 billion ($~~2.8~~4.9 billion average balance) inof PPP loans yielding ~~1.71%~~1.97% and related PPPLF borrowings of ~~$4.4~~$4.8 billion ($~~0.9~~4.5 billion average balance) costing 0.35%. Customers' total cost of funds, including non-interest bearing deposits was ~~0.99%~~0.78% and ~~2.04%~~2.00% for the three months ended ~~June~~September 30, 2020 and 2019, respectively.

Net interest income increased ~~$49.3~~$81.0 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 as average interest-earning assets increased by ~~$2.9~~$4.1 billion, ~~and~~partially offset by a one basis point decline in NIM ~~expanded by 18 basis points~~ to ~~2.80%~~2.68% for the ~~six~~nine months ended ~~June~~September 30, 2020 from ~~2.62%~~2.69% for the ~~six~~nine months ended ~~June~~September 30, ~~2019 resulting~~2019. The decline in NIM resulted from the Federal Reserve interest rate cuts of 225 basis points beginning in August 2019 and the shift in the mix of interest-earning assets and interest-bearing liabilities drove a 4586 basis point decline in the yield on interest-earning assets and ~~an 83~~a 109 basis point decline in the cost of interest-bearing liabilities for the ~~six~~nine months ended ~~June~~September 30, 2020. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was the origination of ~~$4.8~~$5.0 billion ($~~1.4~~2.6 billion average balance) in PPP loans yielding ~~1.71%~~1.88% and related PPPLF borrowings of ~~$4.4~~$4.8 billion ($~~0.5~~1.8 billion average balance) costing 0.35%. Customers' total cost of funds, including non-interest bearing deposits was ~~1.30%~~1.08% and 2.00% for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

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Provision for credit losses

The ~~$15.6~~$8.5 million increase in the provision for credit losses for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019, reflects Customers' adoption of CECL and the 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 the 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 ~~2.20%~~2.02% of total loans and leases receivable, excluding PPP loans (non-GAAP measure, please refer to the non-GAAP reconciliation within Loans and Leases - Asset Quality), at ~~June~~September 30, 2020, compared to ~~0.63%~~0.70% at ~~June~~September 30, 2019. Net charge-offs for the three months ended ~~June~~September 30, 2020 were ~~$10.3~~$17.3 million, or 3245 basis points of average loans and leases on an annualized basis, compared to net charge-offs of ~~$0.6~~$1.8 million, or ~~three~~seven basis points on an annualized basis, for the three months ended ~~June~~September 30, 2019. The increase in net charge-offs for the three months ended ~~June~~September 30, 2020, compared to the three months ended ~~June~~September 30, 2019, was primarily due to a partial charge-off of ~~$2.8~~$9.6 million for one commercial real estate collateral dependent loan during the three months ended ~~June~~September 30, 2020 and an increase in charge-offs of ~~other consumer~~installment loans, coinciding with the growth of the portfolio year-over-year.

The ~~$42.6~~$51.1 million increase in the provision for credit losses for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019, reflects Customers' adoption of CECL and the impact of COVID-19. Net charge-offs for the ~~six~~nine months ended ~~June~~September 30, 2020 were ~~$29.0~~$46.3 million, or 5249 basis points of average loans and leases on an annualized basis, compared to net charge-offs of ~~$1.7~~$3.5 million, or 4five basis points on an annualized basis, for the ~~six~~nine months ended ~~June~~September 30, 2019. The increase in net charge-offs for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to the ~~six~~nine months ended ~~June~~September 30, 2019, was primarily due to partial charge-offs of ~~$15.6~~$25.2 million for two commercial real estate collateral dependent loans during the ~~six~~nine months ended ~~June~~September 30, 2020 and an increase in charge-offs of ~~other consumer~~installment loans, coinciding with the growth of the portfolio year-over-year.

Non-interest income

The ~~$10.2~~$10.4 million increase in non-interest income for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from ~~a $7.5~~increases of $10.7 million ~~loss realized upon the acquisition of certain interest-only GNMA securities during the three months ended June 30, 2019, $4.4 million~~ in ~~realized~~ gain on sale of investment securities, ~~during the three months ended June 30, 2020 and increases of $1.7~~$1.4 million in commercial lease income, ~~$1.5 million in unrealized gain on equity securities issued by a foreign entity and $0.9~~$1.2 million in mortgage warehouse ~~transactions fees.~~transactional fees, and $0.7 million in mortgage banking income. These increases were offset in part by decreases of ~~$5.3 million in other non-interest income and $0.3~~$2.8 million in interchange and card revenue and $1.1 million in unrealized gain on investment securities for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019.

The ~~$12.4~~$22.8 million increase in non-interest income for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from ~~a $7.5~~increases of $19.0 million ~~loss realized upon the acquisition of certain interest-only GNMA securities during the six months ended June 30, 2019, $8.3 million of gains realized from the~~in gain on sale of investment securities, ~~during the six months ended June 30, 2020 and increases of $3.6~~$5.1 million in commercial lease income, ~~$1.5~~$2.7 million in mortgage warehouse transactional fees, and ~~$1.2~~$1.0 million in deposit ~~fees.~~fees, along with a $7.5 million reduction in loss upon acquisition of interest-only GNMA securities. These increases were offset in part by decreases of ~~$7.5~~$7.2 million in other non-interest income and ~~$2.3~~$5.1 million in interchange and card revenue for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, ~~2020.~~2019.

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Non-interest expense

The ~~$3.9~~$6.0 million increase in non-interest expense for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from increases of ~~$4.4~~$5.5 million in salaries and employee benefits, ~~$1.4~~$4.6 million in ~~commercial lease depreciation, $1.2 million in loan workout,~~FDIC assessments, non-income taxes and ~~$0.9~~regulatory fees, $4.5 million in technology, communication and bank ~~operations.~~operations, $1.2 million in commercial lease depreciation, $1.0 million in merger and acquisition related expenses, and $0.4 million in loan workout. These increases were offset in part by decreases of ~~$1.4~~$6.1 million in other non-interest expense, $2.8 million in provision for operating losses, ~~$1.2~~$1.1 million in professional services, ~~$0.8 million in other non-interest expense,~~ and ~~$0.8~~$1.0 million in advertising and promotion for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019.

The ~~$16.4~~$22.4 million increase in non-interest expense for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from increases of ~~$6.9~~$12.3 million in salaries and employee benefits, ~~$2.9 million in commercial lease depreciation, $2.5 million in other non-interest expense, $2.0~~$6.5 million in technology, communication and bank operations, ~~$1.9~~$5.7 million in ~~professional services, $1.2~~FDIC assessments, non-income taxes and regulatory fees, $4.1 million in commercial lease depreciation, $1.6 million in loan workout, and $1.1 million in ~~FDIC assessments, taxes~~merger and ~~regulatory fees.~~acquisition related expenses. These increases were offset in part by ~~a decrease~~decreases of ~~$2.2~~$5.1 million in provision for operating losses and $3.7 million in other non-interest expense for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019.

Income tax expense

Customers' effective tax rate was ~~23.7%~~19.45% for the three months ended ~~June~~September 30, 2020 compared to ~~21.1%~~22.86% for the three months ended ~~June~~September 30, 2019. The ~~increase~~decrease in the effective tax rate primarily resulted from ~~a favorable return to provision adjustment~~an increase in the estimated annual benefit of investment tax credits for the three months ended ~~June~~September 30, 2020, compared to the three months ended September 30, 2019.

Customers' effective tax rate was ~~25.75%~~21.70% for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~22.84%~~22.85% for the ~~six~~nine months ended ~~June~~September 30, 2019. The ~~increase~~decrease in the effective tax rate primarily resulted from ~~discrete provision items, which increased income~~an increase in the estimated annual benefit of investment tax ~~expense,~~credits for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to ~~a favorable return to provision adjustment, which lowered income tax expense, for~~ the ~~six~~nine months ended ~~June~~September 30, 2019.

Preferred stock dividends

Preferred stock dividends were $3.4 million and $3.6 million for ~~both~~ the three months ended ~~June~~September 30, 2020 and ~~2019.~~2019, respectively. There were no changes to the amount of preferred stock outstanding ~~or the dividends paid~~ during the three months ended ~~June~~September 30, 2020 and 2019. On June 15, 2020, the Series C preferred stock became floating at three-month LIBOR plus 5.300%, or 5.60%, compared to a fixed rate of 7.00%.

Preferred stock dividends were ~~$7.2~~$10.6 million and $10.8 million for ~~both~~ the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~2019.~~2019, respectively. There were no changes to the amount of preferred stock outstanding ~~or the dividends paid~~ during the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019. On June 15, 2020, the Series C preferred stock became floating at three-month LIBOR plus 5.300%, or 5.60%, compared to a fixed rate of 7.00%.

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 tables summarize Customers' net interest income, related interest spread, net interest margin and the dollar amount of changes in interest income and interest expense for the major categories of interest-earning assets and interest-bearing liabilities for the three and ~~six~~nine months ended ~~June~~September 30, 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 June 30,																								Three Months Ended June 30,										Three Months Ended September 30,						Three Months Ended September 30,
		2020										2019												2020 vs. 2019										2020						2019	2020 vs. 2019
(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		(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																			Assets
Interest-earning deposits	Interest-earning deposits	$	384,622	$	113	0.12	%	$	78,666	$	590	3.01	%	$	(1,001)	$	524	$	(477)	Interest-earning deposits	$	686,928	$	199	0.12		%	$	100,343	$	826	3.26	%	$	(1,449)	$	822	$	(627)
Investment securities ⁽¹⁾	Investment securities ⁽¹⁾	705,389		6,155		3.49	%	687,048		6,481		3.77	%	(493)		167		(326)		Investment securities (1)	950,723		6,297		2.65		%	652,142		5,867		3.60	%	(1,818)		2,248		430
Loans and leases:	Loans and leases:																			Loans and leases:
Commercial loans to mortgage companies	Commercial loans to mortgage companies	2,456,067		17,740		2.91	%	1,658,070		19,678		4.76	%	(9,305)		7,367		(1,938)		Commercial loans to mortgage companies	2,847,169		20,750		2.90		%	2,103,612		24,260		4.58	%	(10,506)		6,996		(3,510)
Multi-family loans	Multi-family loans	2,009,847		19,345		3.87	%	3,097,537		29,630		3.84	%	228		(10,513)		(10,285)		Multi-family loans	1,989,074		18,615		3.72		%	2,929,650		28,871		3.91	%	(1,348)		(8,908)		(10,256)
Commercial and industrial loans and leases ⁽²⁾	Commercial and industrial loans and leases ⁽²⁾	2,460,060		24,775		4.05	%	2,041,315		26,411		5.19	%	(6,434)		4,798		(1,636)		Commercial and industrial loans and leases (2)	2,599,806		24,958		3.82		%	2,159,067		28,522		5.24	%	(8,655)		5,091		(3,564)
PPP loans	PPP loans	2,754,920		11,706		1.71	%	—		—		—	%	—		11,706		11,706		PPP loans	4,909,197		24,337		1.97		%	—		—		—	%	—		24,337		24,337
Non-owner occupied commercial real estate loans	Non-owner occupied commercial real estate loans	1,392,131		13,179		3.81	%	1,181,455		13,329		4.53	%	(2,307)		2,157		(150)		Non-owner occupied commercial real estate loans	1,388,306		12,901		3.70		%	1,294,246		14,902		4.57	%	(3,023)		1,022		(2,001)
Residential mortgages	Residential mortgages	429,609		3,771		3.53	%	723,160		7,724		4.28	%	(1,192)		(2,761)		(3,953)		Residential mortgages	414,781		4,139		3.97		%	729,603		7,565		4.11	%	(251)		(3,175)		(3,426)
Other consumer loans		1,288,999		27,931		8.72	%	289,511		6,795		9.41	%	(533)		21,669		21,136
Installment loans																				Installment loans	1,255,505		26,407		8.37		%	600,256		14,324		9.47	%	(1,838)		13,921		12,083
Total loans and leases ⁽³⁾	Total loans and leases ⁽³⁾	12,791,633		118,447		3.72	%	8,991,048		103,567		4.62	%	(22,850)		37,730		14,880		Total loans and leases (3)	15,403,838		132,107		3.41		%	9,816,434		118,444		4.79	%	(40,625)		54,288		13,663
Other interest-earning assets	Other interest-earning assets	98,377		503		2.06	%	94,388		1,312		5.58	%	(862)		53		(809)		Other interest-earning assets	79,656		1,047		5.23		%	98,279		1,581		6.39	%	(262)		(272)		(534)
Total interest-earning assets	Total interest-earning assets	13,980,021		125,218		3.60	%	9,851,150		111,950		4.56	%	(26,868)		40,136		13,268		Total interest-earning assets	17,121,145		139,650		3.25		%	10,667,198		126,718		4.72	%	(47,648)		60,580		12,932
Non-interest-earning assets	Non-interest-earning assets	695,563						520,692												Non-interest-earning assets	744,429							591,946
Total assets	Total assets	$	14,675,584					$	10,371,842											Total assets	$	17,865,574						$	11,259,144
Liabilities	Liabilities																			Liabilities
Interest checking accounts	Interest checking accounts	$	2,482,222	4,605		0.75	%	$	836,154	4,078		1.96	%	(3,705)		4,232		527		Interest checking accounts	$	2,370,709	4,640		0.78		%	$	1,014,590	4,687		1.83	%	(3,761)		3,714		(47)
Money market deposit accounts	Money market deposit accounts	3,034,457		6,449		0.85	%	3,168,957		17,842		2.26	%	(10,667)		(726)		(11,393)		Money market deposit accounts	3,786,032		6,156		0.65		%	3,100,975		17,344		2.22	%	(14,351)		3,163		(11,188)
Other savings accounts	Other savings accounts	1,177,554		5,677		1.94	%	484,303		2,608		2.16	%	(291)		3,360		3,069		Other savings accounts	1,125,273		2,997		1.06		%	561,790		3,108		2.19	%	(2,145)		2,034		(111)
Certificates of deposit	Certificates of deposit	1,734,062		6,507		1.51	%	1,972,792		11,452		2.33	%	(3,680)		(1,265)		(4,945)		Certificates of deposit	1,344,134		4,554		1.35		%	2,227,817		13,128		2.34	%	(4,425)		(4,149)		(8,574)
Total interest-bearing deposits ⁽⁴⁾	Total interest-bearing deposits ⁽⁴⁾	8,428,295		23,238		1.11	%	6,462,206		35,980		2.23	%	(21,512)		8,770		(12,742)		Total interest-bearing deposits (4)	8,626,148		18,347		0.85		%	6,905,172		38,267		2.20	%	(27,703)		7,783		(19,920)
FRB PPP liquidity facility	FRB PPP liquidity facility	942,258		822		0.35	%	—		—		—	%	—		822		822		FRB PPP liquidity facility	4,479,036		3,951		0.35		%	—		—		—	%	—		3,951		3,951
Borrowings	Borrowings	2,282,761		9,176		1.62	%	1,462,362		11,291		3.09	%	(6,755)		4,640		(2,115)		Borrowings	1,236,127		9,913		3.19		%	1,770,459		12,716		2.86	%	1,358		(4,161)		(2,803)
Total interest-bearing liabilities	Total interest-bearing liabilities	11,653,314		33,236		1.15	%	7,924,568		47,271		2.39	%	(30,600)		16,565		(14,035)		Total interest-bearing liabilities	14,341,311		32,211		0.89		%	8,675,631		50,983		2.33	%	(41,395)		22,623		(18,772)
Non-interest-bearing deposits ⁽⁴⁾	Non-interest-bearing deposits ⁽⁴⁾	1,890,955						1,345,494												Non-interest-bearing deposits (4)	2,194,689							1,431,810
Total deposits and borrowings	Total deposits and borrowings	13,544,269				0.99	%	9,270,062				2.04	%							Total deposits and borrowings	16,536,000				0.78		%	10,107,441				2.00	%
Other non-interest-bearing liabilities	Other non-interest-bearing liabilities	142,181						115,717												Other non-interest-bearing liabilities	299,526							146,347
Total liabilities	Total liabilities	13,686,450						9,385,779												Total liabilities	16,835,526							10,253,788
Shareholders' equity	Shareholders' equity	989,134						986,063												Shareholders' equity	1,030,048							1,005,356
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	14,675,584					$	10,371,842											Total liabilities and shareholders' equity	$	17,865,574						$	11,259,144
Net interest income	Net interest income			91,982						64,679				$	3,732	$	23,571	$	27,303	Net interest income			107,439							75,735				$	(6,253)	$	37,957	$	31,704
Tax-equivalent adjustment ⁽⁵⁾	Tax-equivalent adjustment ⁽⁵⁾			225						183										Tax-equivalent adjustment (5)			225							184
Net interest earnings	Net interest earnings			$	92,207					$	64,862									Net interest earnings			$	107,664						$	75,919
Interest spread	Interest spread					2.61	%					2.51	%							Interest spread					2.47		%					2.71	%
Net interest margin	Net interest margin					2.65	%					2.63	%							Net interest margin					2.50		%					2.82	%
Net interest margin tax equivalent ⁽⁵⁾	Net interest margin tax equivalent ⁽⁵⁾					2.65	%					2.64	%							Net interest margin tax equivalent (5)					2.50		%					2.83	%
Net interest margin tax equivalent, excluding PPP loans ⁽⁶⁾	Net interest margin tax equivalent, excluding PPP loans ⁽⁶⁾					2.97	%					2.64	%							Net interest margin tax equivalent, excluding PPP loans (6)					2.86		%					2.83	%

(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 ~~0.91%~~0.67% and ~~1.85%~~1.82% for the three months ended ~~June~~September 30, 2020 and 2019, respectively.

(5)Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the three months ended ~~June~~September 30, 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.

~~Tab~~le Table of Contents

(6)Non-GAAP tax-equivalent basis, as described in note (5) for the three months ended ~~June~~September 30, 2020 and 2019, excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. 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 ~~$27.3~~$31.7 million for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 as average interest-earning assets increased by ~~$4.1~~$6.5 billion, primarily related to PPP loan originations, increases in installment loans, commercial loans to mortgage companies, commercial and ~~NIM expanded~~industrial loans, investment securities, and interest-earning deposits, partially offset by ~~one~~a 33 basis point decline in NIM to ~~2.65%~~2.50% for the three months ended ~~June~~September 30, 2020 from ~~2.64%~~2.83% for the three months ended ~~June~~September 30, 2019 resulting from the Federal Reserve interest rate cuts of 225 basis points beginning in August 2019 and the shift in the mix of interest-earning assets and interest-bearing liabilities drove a 96147 basis point decline in the yield on interest-earning assets and a ~~124~~144 basis point decline in the cost of interest-bearing liabilities for the three months ended ~~June~~September 30, 2020. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was ~~the origination of $4.8~~$5.0 billion ($~~2.8~~4.9 billion average balance) inof PPP loans yielding ~~1.71%~~1.97% and related PPPLF borrowings of ~~$4.4~~$4.8 billion ($~~0.9~~4.5 billion average balance) costing 0.35%. Customers' total cost of funds, including non-interest bearing deposits was ~~0.99%~~0.78% and ~~2.04%~~2.00% for the three months ended ~~June~~September 30, 2020 and 2019, respectively.

~~Tab~~le Table of Contents


		Six Months Ended June 30,																								Six Months Ended June 30,										Nine Months Ended September 30,						Nine Months Ended September 30,
		2020										2019												2020 vs. 2019										2020						2019	2020 vs. 2019
(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		(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																			Assets
Interest-earning deposits	Interest-earning deposits	$	578,435	$	2,974	1.03	%	$	81,947	$	1,120	2.76	%	(1,104)		2,958		1,854		Interest-earning deposits	$	614,863	$	3,173	0.69		%	$	88,146	$	1,945	2.95	%	$	(2,504)	$	3,732	$	1,228
Investment securities ⁽¹⁾	Investment securities ⁽¹⁾	635,838		11,132		3.50	%	689,422		12,722		3.69	%	(633)		(957)		(1,590)		Investment securities (1)	741,566		17,429		3.13		%	676,859		18,589		3.66	%	(2,835)		1,675		(1,160)
Loans and leases:	Loans and leases:																			Loans and leases:
Commercial loans to mortgage companies	Commercial loans to mortgage companies	2,148,863		35,254		3.30	%	1,462,362		35,430		4.89	%	(13,734)		13,558		(176)		Commercial loans to mortgage companies	2,383,331		56,004		3.14		%	1,678,461		59,691		4.75	%	(24,036)		20,349		(3,687)
Multi-family loans	Multi-family loans	2,111,853		41,712		3.97	%	3,175,233		60,006		3.81	%	2,451		(20,745)		(18,294)		Multi-family loans	2,070,564		60,327		3.89		%	3,092,473		88,877		3.84	%	1,145		(29,695)		(28,550)
Commercial and industrial loans and leases ⁽²⁾	Commercial and industrial loans and leases ⁽²⁾	2,460,435		53,513		4.37	%	1,981,559		50,744		5.16	%	(8,456)		11,225		2,769		Commercial and industrial loans and leases (2)	2,507,231		78,471		4.18		%	2,041,379		79,265		5.19	%	(17,027)		16,233		(794)
PPP loans	PPP loans	1,377,460		11,706		1.71	%	—		—		—	%	—		11,706		11,706		PPP loans	2,563,299		36,043		1.88		%	—		—		—	%	—		36,043		36,043
Non-owner occupied commercial real estate loans	Non-owner occupied commercial real estate loans	1,363,795		27,616		4.07	%	1,175,428		26,225		4.50	%	(2,629)		4,020		1,391		Non-owner occupied commercial real estate loans	1,372,090		40,517		3.94		%	1,215,469		41,127		4.52	%	(5,593)		4,983		(610)
Residential mortgages	Residential mortgages	437,782		8,171		3.75	%	709,529		14,859		4.22	%	(1,506)		(5,182)		(6,688)		Residential mortgages	430,058		12,310		3.82		%	716,294		22,423		4.19	%	(1,830)		(8,283)		(10,113)
Other consumer loans		1,274,024		56,555		8.93	%	203,381		9,419		9.34	%	(433)		47,569		47,136
Installment loans																				Installment loans	1,267,806		82,962		8.74		%	337,126		23,743		9.42	%	(1,836)		61,055		59,219
Total loans and leases ⁽³⁾	Total loans and leases ⁽³⁾	11,174,212		234,527		4.22	%	8,707,492		196,683		4.55	%	(15,039)		52,883		37,844		Total loans and leases (3)	12,594,379		366,634		3.89		%	9,081,202		315,126		4.64	%	(56,747)		108,255		51,508
Other interest-earning assets	Other interest-earning assets	89,890		1,928		4.31	%	87,503		2,500		5.76	%	(639)		67		(572)		Other interest-earning assets	86,454		2,976		4.60		%	91,135		4,085		5.99	%	(908)		(201)		(1,109)
Total interest-earning assets	Total interest-earning assets	12,478,375		250,561		4.04	%	9,566,364		213,025		4.49	%	(22,912)		60,448		37,536		Total interest-earning assets	14,037,262		390,212		3.71		%	9,937,342		339,745		4.57	%	(72,068)		122,535		50,467
Non-interest-earning assets	Non-interest-earning assets	646,120						501,013												Non-interest-earning assets	679,128							531,656
Total assets	Total assets	$	13,124,495					$	10,067,377											Total assets	$	14,716,390						$	10,468,998
Liabilities	Liabilities																			Liabilities
Interest checking accounts	Interest checking accounts	$	1,888,160	9,221		0.98	%	$	825,672	7,893		1.93	%	(5,276)		6,604		1,328		Interest checking accounts	$	2,050,184	13,861		0.90		%	$	889,336	12,580		1.89	%	(9,040)		10,321		1,281
Money market deposit accounts	Money market deposit accounts	3,335,006		22,662		1.37	%	3,156,988		35,179		2.25	%	(14,422)		1,905		(12,517)		Money market deposit accounts	3,486,445		28,818		1.10		%	3,138,112		52,523		2.24	%	(29,051)		5,346		(23,705)
Other savings accounts	Other savings accounts	1,159,479		11,483		1.99	%	432,893		4,508		2.10	%	(248)		7,223		6,975		Other savings accounts	1,147,994		14,480		1.68		%	476,331		7,616		2.14	%	(1,938)		8,802		6,864
Certificates of deposit	Certificates of deposit	1,629,416		14,225		1.76	%	1,763,634		19,624		2.24	%	(3,984)		(1,415)		(5,399)		Certificates of deposit	1,533,628		18,780		1.64		%	1,920,063		32,753		2.28	%	(8,138)		(5,835)		(13,973)
Total interest-bearing deposits ⁽⁴⁾	Total interest-bearing deposits ⁽⁴⁾	8,012,061		57,591		1.45	%	6,179,187		67,204		2.19	%	(26,378)		16,765		(9,613)		Total interest-bearing deposits (4)	8,218,251		75,939		1.23		%	6,423,842		105,472		2.20	%	(54,263)		24,730		(29,533)
FRB PPP liquidity facility	FRB PPP liquidity facility	471,129		822		0.35	%	—		—		—	%	—		822		822		FRB PPP liquidity facility	1,816,849		4,774		0.35		%	—		—		—	%	—		4,774		4,774
Borrowings	Borrowings	1,756,080		18,846		2.16	%	1,447,606		21,838		2.19	%	(7,095)		4,103		(2,992)		Borrowings	1,581,498		28,757		2.43		%	1,556,405		34,555		2.97	%	(7,448)		1,650		(5,798)
Total interest-bearing liabilities	Total interest-bearing liabilities	10,239,270		77,259		1.52	%	7,626,793		89,042		2.35	%	(36,978)		25,195		(11,783)		Total interest-bearing liabilities	11,616,598		109,470		1.26		%	7,980,247		140,027		2.35	%	(79,956)		49,399		(30,557)
Non-interest-bearing deposits ⁽⁴⁾	Non-interest-bearing deposits ⁽⁴⁾	1,732,163						1,353,112												Non-interest-bearing deposits (4)	1,887,463							1,379,633
Total deposits and borrowings	Total deposits and borrowings	11,971,433				1.30	%	8,979,905				2.00	%							Total deposits and borrowings	13,504,061				1.08		%	9,359,880				2.00	%
Other non-interest-bearing liabilities	Other non-interest-bearing liabilities	145,818						110,090												Other non-interest-bearing liabilities	197,428							122,309
Total liabilities	Total liabilities	12,117,251						9,089,995												Total liabilities	13,701,489							9,482,189
Shareholders' equity	Shareholders' equity	1,007,244						977,382												Shareholders' equity	1,014,901							986,809
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	13,124,495					$	10,067,377											Total liabilities and shareholders' equity	$	14,716,390						$	10,468,998
Net interest income	Net interest income			173,302						123,983				$	14,066	$	35,253	$	49,319	Net interest income			280,742							199,718				$	7,888	$	73,136	$	81,024
Tax-equivalent adjustment ⁽⁵⁾	Tax-equivalent adjustment ⁽⁵⁾			430						364										Tax-equivalent adjustment (5)			655							548
Net interest earnings	Net interest earnings			$	173,732					$	124,347									Net interest earnings			$	281,397						$	200,266
Interest spread	Interest spread					2.74	%					2.49	%							Interest spread					2.63		%					2.57	%
Net interest margin	Net interest margin					2.79	%					2.61	%							Net interest margin					2.67		%					2.69	%
Net interest margin tax equivalent ⁽⁵⁾	Net interest margin tax equivalent ⁽⁵⁾					2.80	%					2.62	%							Net interest margin tax equivalent (5)					2.68		%					2.69	%
Net interest margin tax equivalent, excluding PPP loans ⁽⁶⁾	Net interest margin tax equivalent, excluding PPP loans ⁽⁶⁾					2.98	%					2.62	%							Net interest margin tax equivalent, excluding PPP loans (6)					2.93		%					2.69	%

(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 ~~1.19%~~1.00% and ~~1.80%~~1.81% for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

(5)Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the ~~six~~nine months ended ~~June~~September 30, 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. Please refer to the reconciliation schedule that follows this table.

~~Tab~~le Table of Contents

(6)Non-GAAP tax-equivalent basis, as described in note (5) for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. 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. Please refer to the reconciliation schedule that follows this table.

Net interest income increased ~~$49.3~~$81.0 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 as average interest-earning assets increased by ~~$2.9~~$4.1 billion, primarily related to PPP loan originations, increases in installment loans, commercial loans to mortgage companies, commercial and industrial loans, investment securities, and interest earning deposits, partially offset by a 1 basis point decline in NIM ~~expanded by 18 basis points~~ to ~~2.80%~~2.68% for the ~~six~~nine months ended ~~June~~September 30, 2020 from ~~2.62%~~2.69% for the ~~six~~nine months ended ~~June~~September 30, 2019, resulting from the Federal Reserve interest rate cuts of 225 basis points beginning in August 2019 and the shift in the mix of interest-earning assets drove a 4586 basis point decline in the yield on interest-earnings assets and an 83109 basis point decline in the cost of interest-bearing liabilities for the ~~six~~nine months ended ~~June~~September 30, 2020. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was the origination of ~~$4.8~~$5.0 billion ($~~1.4~~2.6 billion average balance) in PPP loans yielding ~~1.71%~~1.88% and related PPPLF borrowings of ~~$4.4~~$4.8 billion ($~~0.5~~1.8 billion average balance) costing 0.35%. Customers' total cost of funds, including non-interest bearing deposits was ~~1.30%~~1.08% and 2.00% for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

Customers’ net interest margin tables contain non-GAAP financial measures calculated using non-GAAP amounts. These measures include net interest margin tax equivalent and net interest margin tax equivalent, excluding PPP loans. Management uses these non-GAAP measures to present the current period presentation to historical periods in prior filings. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing ~~the Bancorp’s~~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.

A reconciliation of net interest margin tax equivalent and net interest margin tax equivalent, excluding PPP loans for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 are set forth below.


		Three Months Ended June 30,									Six Months Ended June 30,										Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2020			2019			2020			2019			(dollars in thousands)	2020			2019			2020			2019
Net interest income (GAAP)	Net interest income (GAAP)	$	91,982		$	64,679		$	173,302		$	123,983		Net interest income (GAAP)	$	107,439		$	75,735		$	280,742		$	199,718
Tax-equivalent adjustment	Tax-equivalent adjustment	225			183			430			364			Tax-equivalent adjustment	225			184			655			548
Net interest income tax equivalent (Non-GAAP)	Net interest income tax equivalent (Non-GAAP)	$	92,207		$	64,862		$	173,732		$	124,347		Net interest income tax equivalent (Non-GAAP)	$	107,664		$	75,919		$	281,397		$	200,266
Loans receivable, PPP net interest income	Loans receivable, PPP net interest income	(9,308)			—			(9,308)			—			Loans receivable, PPP net interest income	(20,018)			—			(29,326)			—
Net interest income tax equivalent, excluding PPP loans (Non-GAAP)	Net interest income tax equivalent, excluding PPP loans (Non-GAAP)	$	82,899		$	64,862		$	164,424		$	124,347		Net interest income tax equivalent, excluding PPP loans (Non-GAAP)	$	87,646		$	75,919		$	252,071		$	200,266

Average total interest-earning assets (GAAP)	Average total interest-earning assets (GAAP)	$	13,980,021		$	9,851,150		$	12,478,375		$	9,566,364		Average total interest-earning assets (GAAP)	$	17,121,145		$	10,667,198		$	14,037,262		$	9,937,342
Average PPP loans	Average PPP loans	(2,754,920)			—			(1,377,460)			—			Average PPP loans	(4,909,197)			—			(2,563,299)			—
Adjusted average total interest-earning assets (Non-GAAP)	Adjusted average total interest-earning assets (Non-GAAP)	$	11,225,101		$	9,851,150		$	11,100,915		$	9,566,364		Adjusted average total interest-earning assets (Non-GAAP)	$	12,211,948		$	10,667,198		$	11,473,963		$	9,937,342

Net interest margin (GAAP)	Net interest margin (GAAP)	2.65		%	2.63		%	2.79		%	2.61		%	Net interest margin (GAAP)	2.50		%	2.82		%	2.67		%	2.69		%
Net interest margin tax equivalent (Non-GAAP)	Net interest margin tax equivalent (Non-GAAP)	2.65		%	2.64		%	2.80		%	2.62		%	Net interest margin tax equivalent (Non-GAAP)	2.50		%	2.83		%	2.68		%	2.69		%
Net interest margin tax equivalent, excluding PPP loans (Non-GAAP)	Net interest margin tax equivalent, excluding PPP loans (Non-GAAP)	2.97		%	2.64		%	2.98		%	2.62		%	Net interest margin tax equivalent, excluding PPP loans (Non-GAAP)	2.86		%	2.83		%	2.93		%	2.69		%

PROVISION FOR CREDIT LOSSES

The provision for credit losses is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected lifetime losses in the loan and lease portfolio at the balance sheet date. During first quarter 2020, Customers adopted ASU 2016-13. Upon adoption, the allowance for credit losses for loans and 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 ~~$20.9~~$13.0 million and a credit of ~~$0.4~~$0.5 million of provision for credit losses for loans and leases and lending-related commitments, respectively, for the three months ended ~~June~~September 30, 2020 utilizing the CECL methodology. The additional provision for credit losses during the three months ended ~~June~~September 30, 2020 resulted primarily from ~~the impact~~net charge-offs and portfolio growth, partially offset by

Table of ~~the reserve build due to~~ Contents

changes in management's economic forecast since ~~March 31,~~June 30, 2020, due to ~~the COVID-19 pandemic, portfolio growth, and net charge-offs.~~improved forecasts of macroeconomic conditions. Customers recorded ~~$52.7~~$65.7 million and ~~$0.4~~a $0.1 million ofcredit for provision for credit losses for loans and leases and lending-related commitments, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2020. The increase resulted primarily from the impact of reserve build for the COVID-19 pandemic,

~~Tab~~le ~~of Content~~s

portfolio growth, and net-charge-offs.

For more information about the provision and 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 and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.


		Three Months Ended June 30,						QTD						Six Months Ended June 30,								YTD					Three Months Ended September 30,				QTD				Nine Months Ended September 30,	YTD
(dollars in thousands)	(dollars in thousands)	2020		2019		Change		% Change		2020		2019		Change		% Change		(dollars in thousands)	2020		2019		Change		% Change		2020		2019		Change		% Change
Interchange and card revenue	Interchange and card revenue	$	6,478	$	6,760	$	(282)	(4.2)	%	$	13,287	$	15,565	$	(2,278)	(14.6)	%	Interchange and card revenue	$	4,081	$	6,869	$	(2,788)	(40.6)	%	$	17,368	$	22,435	$	(5,067)	(22.6)	%
Deposit fees	Deposit fees	3,321		3,348		(27)		(0.8)	%	6,782		5,557		1,225		22.0	%	Deposit fees	3,439		3,642		(203)		(5.6)	%	10,221		9,199		1,022		11.1	%
Commercial lease income	Commercial lease income	4,508		2,730		1,778		65.1	%	8,776		5,131		3,645		71.0	%	Commercial lease income	4,510		3,080		1,430		46.4	%	13,286		8,212		5,074		61.8	%
Bank-owned life insurance	Bank-owned life insurance	1,757		1,836		(79)		(4.3)	%	3,519		3,653		(134)		(3.7)	%	Bank-owned life insurance	1,746		1,824		(78)		(4.3)	%	5,265		5,477		(212)		(3.9)	%
Mortgage warehouse transactional fees	Mortgage warehouse transactional fees	2,582		1,681		901		53.6	%	4,533		2,995		1,538		51.4	%	Mortgage warehouse transactional fees	3,320		2,150		1,170		54.4	%	7,854		5,145		2,709		52.7	%
Gain (loss) on sale of SBA and other loans	Gain (loss) on sale of SBA and other loans	23		—		23		NM		34		—		34		NM		Gain (loss) on sale of SBA and other loans	286		—		286		NM		320		—		320		NM
Mortgage banking income	Mortgage banking income	38		250		(212)		(84.8)	%	334		417		(83)		(19.9)	%	Mortgage banking income	1,013		283		730		258.0	%	1,347		701		646		92.2	%
Loss upon acquisition of interest-only GNMA securities	Loss upon acquisition of interest-only GNMA securities	—		(7,476)		7,476		NM		—		(7,476)		7,476		NM		Loss upon acquisition of interest-only GNMA securities	—		—		—		NM		—		(7,476)		7,476		(100.0)	%
Gain (loss) on sale of investment securities	Gain (loss) on sale of investment securities	4,353		—		4,353		NM		8,328		—		8,328		NM		Gain (loss) on sale of investment securities	11,707		1,001		10,706		1,069.5	%	20,035		1,001		19,034		1,901.5	%
Unrealized gain (loss) on investment securities	Unrealized gain (loss) on investment securities	1,200		(347)		1,547		NM		(178)		(345)		167		NM		Unrealized gain (loss) on investment securities	238		1,333		(1,095)		(82.1)	%	60		988		(928)		(93.9)	%
Other	Other	(2,024)		3,254		(5,278)		(162.2)	%	(1,248)		6,257		(7,505)		(119.9)	%	Other	3,453		3,187		266		8.3	%	2,203		9,443		(7,240)		(76.7)	%
Total non-interest income	Total non-interest income	$	22,236	$	12,036	$	10,200	84.7	%	$	44,167	$	31,754	$	12,413	39.1	%	Total non-interest income	$	33,793	$	23,369	$	10,424	44.6	%	$	77,959	$	55,125	$	22,834	41.4	%

Interchange and card revenue

The ~~$0.3~~$2.8 million decrease in interchange and card revenue for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from ~~lower activity volumes at~~Customers becoming subject to the ~~BankMobile segment, primarily due to COVID-19.~~Federal Reserve's regulation limits on interchange fees for banks over $10 billion in assets beginning on July 1, 2020.

The ~~$2.3~~$5.1 million decrease in interchange and card revenue for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from Customers becoming subject to the Federal Reserve's regulation limits on interchange fees for banks over $10 billion in assets beginning on July 1, 2020 and lower activity volumes at the BankMobile segment, primarily due to COVID-19.

Deposit fees

The ~~$27 thousand~~$0.2 million decrease in deposit fees for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from lower activity volumes.

The ~~$1.2~~$1.0 million increase in deposit fees for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from an increase in service charges on certain deposit accounts relating to a change in the fee structure at the BankMobile ~~segment.~~segment, partially offset by lower activity volumes.

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 ~~$1.8~~$1.4 million increase in commercial lease income for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from the continued growth of Customers' equipment finance business.

Table of Contents

The ~~$3.6~~$5.1 million increase in commercial lease income for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from the continued growth of Customers' equipment finance business.

Mortgage warehouse transactional fees

The ~~$0.9~~$1.2 million increase in mortgage warehouse transactional fees for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from an increase in refinancing activity driven by the decline in market interest rates during the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019.

~~Tab~~le ~~of Content~~s

The ~~$1.5~~$2.7 million increase in mortgage warehouse transactional fees for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from an increase in refinancing activity driven by the decline in market interest rates during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019.

~~Gain (loss) on sale of investment securities~~Mortgage banking income

The ~~$4.4~~$0.7 million increase in ~~gain (loss) on sale of investment securities~~mortgage banking income for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 ~~reflects $4.4 million~~primarily resulted from an increase in unrealized gains on derivatives and gains on sales of ~~gains realized from the sale of $30.0 million of corporate bonds and $6.3 million in non-agency-guaranteed collateralized~~ mortgage ~~obligations~~servicing rights during the three months ended ~~June 30, 2020.~~

The $8.3 million increase in gain (loss) on sale of investment securities for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 reflects the gains realized from the sale of $100.5 million of agency-guaranteed residential mortgage-backed securities, $30.0 million of corporate bonds, and $6.3 million in non-agency-guaranteed collateralized mortgage obligations during the six months ended June 30, 2020.

~~Unrealized gain (loss) on investment securities~~

~~The $1.5 million increase in unrealized gain (loss) on investment securities for the three months ended June~~September 30, 2020 compared to the three months ended ~~June~~September 30, ~~2019 reflects an~~2019.

The $0.6 million increase in ~~the fair value of equity securities issued by a foreign entity~~mortgage banking income for the ~~three~~nine months ended ~~June 30, 2020, respectively.~~

~~The $0.2 million decrease in unrealized gain (loss) on investment securities for the six months ended June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 ~~reflects a smaller decline~~primarily resulted from an increase in unrealized gains on derivatives and gains on sales of mortgage servicing rights during the ~~fair value of equity securities issued by a foreign entity for the six~~nine months ended ~~June~~September 30, ~~2020.~~2020 compared to the nine months ended September 30, 2019.

Loss on acquisition of interest-only GNMA securities

The $7.5 million decrease in loss ~~realized upon the~~on acquisition of ~~certain~~ interest-only GNMA ~~securities during~~for the ~~three and six~~nine months ended ~~June~~September 30, 2020 compared to the nine months ended September 30, 2019 resulted from a mortgage warehouse customer that unexpectedly ceased operations in the second quarter 2019. Customers took possession of the interest-only GNMA securities that served as the primary collateral for loans made to this mortgage warehouse customer. The shortfall in the fair value of the interest-only GNMA securities upon acquisition resulted in a write-down of $7.5 million in second quarter 2019. Customers views this as an isolated event that is not indicative of the overall credit quality of the mortgage warehouse portfolio. There are no other loans in the mortgage warehouse portfolio secured by interest-only securities. These securities were sold for $15.4 million with a realized gain of $1.0 million during the three months ended September 30, 2020.

Gain (loss) on sale of investment securities

The $10.7 million increase in gain (loss) on sale of investment securities for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 reflects the gains realized from the sale of $58.4 million of agency-guaranteed mortgage-backed securities and $70.0 million in corporate notes during the three months ended September 30, 2020.

The $19.0 million increase in gain (loss) on sale of investment securities for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 reflects the gains realized from the sale of $158.9 million of agency-guaranteed mortgage-backed securities, $70.0 million in corporate notes, $30.0 million of corporate bonds, and $6.3 million in non-agency-guaranteed collateralized mortgage obligations during the nine months ended September 30, 2020.

Unrealized gain (loss) on investment securities

The $1.1 million decrease in unrealized gain (loss) on investment securities for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 reflects a decline in the unrealized gain of equity securities issued by a foreign entity for the three months ended September 30, 2020.

The $0.9 million decrease in unrealized gain (loss) on investment securities for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 reflects a decline in the unrealized gain of equity securities issued by a foreign entity for the nine months ended September 30, 2020.

Other non-interest income

The ~~$5.3~~$0.3 million ~~decrease~~increase in other non-interest income for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from a ~~negative~~net positive mark-to-market derivative ~~credit~~ valuation adjustment of ~~$3.3~~$1.0 million, ~~mostly resulting~~due to market interest rates, partially offset by a decrease of $0.5 million in swap premiums.

Table of Contents

The $7.2 million decrease in other non-interest income for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily resulted from a net negative derivative valuation adjustment of $5.2 million, due to changes in market interest rates and a negative credit valuation adjustment from an interest rate swap associated with a non-performing borrower ~~a market value adjustment loss on one loan held for sale of $1.5 million, and a decline~~ in ~~swap premiums of $0.9 million.~~

~~The $7.5 million decrease in other non-interest income for the six months ended June 30,~~second quarter 2020, compared to the six months ended June 30, 2019 primarily resulted from a negative credit value adjustment of $6.2 million, due to changes in market interest rates and from an interest rate swap associated with a non-performing borrower, and a market value adjustment loss on one loan held for sale of $1.5 million ~~partially offset by an increase~~ in ~~swap premiums of $0.6 million.~~second quarter 2020.

~~Tab~~le ~~of Content~~s

NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.


		Three Months Ended June 30,						QTD						Six Months Ended June 30,								YTD					Three Months Ended September 30,				QTD				Nine Months Ended September 30,	YTD
(dollars in thousands)	(dollars in thousands)	2020		2019		Change		% Change		2020		2019		Change		% Change		(dollars in thousands)	2020		2019		Change		% Change		2020		2019		Change		% Change
Salaries and employee benefits	Salaries and employee benefits	$	31,296	$	26,920	$	4,376	16.3	%	$	59,607	$	52,743	$	6,864	13.0	%	Salaries and employee benefits	$	32,676	$	27,193	$	5,483	20.2	%	$	92,283	$	79,936	$	12,347	15.4	%
Technology, communication and bank operations	Technology, communication and bank operations	13,310		12,402		908		7.3	%	26,360		24,355		2,005		8.2	%	Technology, communication and bank operations	13,215		8,755		4,460		50.9	%	39,576		33,110		6,466		19.5	%
Professional services	Professional services	4,552		5,718		(1,166)		(20.4)	%	12,223		10,291		1,932		18.8	%	Professional services	7,253		8,348		(1,095)		(13.1)	%	19,476		18,639		837		4.5	%
Occupancy	Occupancy	3,025		3,064		(39)		(1.3)	%	6,057		5,967		90		1.5	%	Occupancy	3,632		3,661		(29)		(0.8)	%	9,689		9,628		61		0.6	%
Commercial lease depreciation	Commercial lease depreciation	3,643		2,252		1,391		61.8	%	7,070		4,174		2,896		69.4	%	Commercial lease depreciation	3,663		2,459		1,204		49.0	%	10,733		6,633		4,100		61.8	%
FDIC assessments, non-income taxes and regulatory fees	FDIC assessments, non-income taxes and regulatory fees	2,368		2,157		211		8.9	%	5,235		4,145		1,090		26.3	%	FDIC assessments, non-income taxes and regulatory fees	3,784		(777)		4,561		NM		9,019		3,368		5,651		167.8	%
Provision for operating losses	Provision for operating losses	1,068		2,446		(1,378)		(56.3)	%	1,980		4,225		(2,245)		(53.1)	%	Provision for operating losses	1,186		3,998		(2,812)		(70.3)	%	3,166		8,223		(5,057)		(61.5)	%
Advertising and promotion	Advertising and promotion	582		1,360		(778)		(57.2)	%	2,222		2,169		53		2.4	%	Advertising and promotion	—		976		(976)		(100.0)	%	2,221		3,145		(924)		(29.4)	%
Merger and acquisition related expenses	Merger and acquisition related expenses	25		—		25		NM		75		—		75		NM		Merger and acquisition related expenses	1,035		—		1,035		NM		1,110		—		1,110		NM
Loan workout	Loan workout	1,808		643		1,165		181.2	%	2,175		963		1,212		125.9	%	Loan workout	846		495		351		70.9	%	3,020		1,458		1,562		107.1	%
Other real estate owned	Other real estate owned	12		(14)		26		(185.7)	%	20		43		(23)		(53.5)	%	Other real estate owned	7		108		(101)		(93.5)	%	26		151		(125)		(82.8)	%
Other	Other	1,817		2,634		(817)		(31.0)	%	6,941		4,491		2,450		54.6	%	Other	(1,736)		4,376		(6,112)		(139.7)	%	5,206		8,869		(3,663)		(41.3)	%
Total non-interest expense	Total non-interest expense	$	63,506	$	59,582	$	3,924	6.6	%	$	129,965	$	113,566	$	16,399	14.4	%	Total non-interest expense	$	65,561	$	59,592	$	5,969	10.0	%	$	195,525	$	173,160	$	22,365	12.9	%

Salaries and employee benefits

The ~~$4.4~~$5.5 million increase in salaries and employee benefits for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from an increase in average full-time equivalent team members ~~and~~needed for future growth, annual merit ~~increases.~~increases, and an increase in incentive accruals tied to Customers' overall performance.

The ~~$6.9~~$12.3 million increase in salaries and employee benefits for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from an increase in average full-time equivalent team members ~~and~~needed for future growth, annual merit ~~increases.~~increases, and an increase in incentive accruals tied to Customers' overall performance.

Technology, communication, and bank operations

The ~~$0.9~~$4.5 million increase in technology, communication, and bank operations expense for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from the continued investment in Customers' white label partnership and digital transformation efforts.

The ~~$2.0~~$6.5 million increase in technology, communication, and bank operations expense for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from the continued investment in Customers' white label partnership and digital transformation efforts.

Professional services

The ~~$1.2~~$1.1 million decrease in professional services for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from management's continued efforts to monitor and control expenses.

Table of Contents

The ~~$1.9~~$0.8 million increase in professional services for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from consulting services associated with supporting Customers' white label partnership and digital transformation efforts, partially offset by management's continued efforts to monitor and control expenses.

Commercial lease depreciation

The ~~$1.4~~$1.2 million increase in commercial lease depreciation for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from the continued growth of the operating lease arrangements originated by Customers' Equipment Finance Group in which Customers is the lessor.

~~Tab~~le ~~of Content~~s

The ~~$2.9~~$4.1 million increase in commercial lease depreciation for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from the continued growth of the operating lease arrangements originated by Customers' Equipment Finance Group in which Customers is the lessor.

FDIC assessments, non-income taxes, and regulatory fees

The ~~$0.2~~$4.6 million increase in FDIC assessments, non-income taxes, and regulatory fees for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from ~~higher fees~~an increase in FDIC assessment rates resulting from management's decision to grow the balance sheet beyond $10 billion in assets, as higher premiums become ~~applicable.~~applicable, and the temporary utilization of brokered deposits to fund PPP loans.

The ~~$1.1~~$5.7 million increase in FDIC assessments, non-income taxes, and regulatory fees for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from ~~higher fees~~an increase in FDIC assessment rates resulting from management's decision to grow the balance sheet beyond $10 billion in assets, as higher premiums become ~~applicable.~~applicable, and the temporary utilization of brokered deposits to fund PPP loans.

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 ~~$1.4~~$2.8 million decrease in provision for operating losses for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from an internet-based organized crime ring that was identified during the three months ended September 30, 2019 and initiatives implemented by management to reduce fraud and theft-based losses during the three months ended ~~June~~September 30, 2020.

The ~~$2.2~~$5.1 million decrease in provision for operating losses for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from an internet-based organized crime ring that was identified during the three months ended September 30, 2019 and initiatives implemented by management to reduce fraud and theft-based losses during the ~~six~~nine months ended ~~June~~September 30, 2020.

Advertising and promotion expenses

The ~~$0.8~~$1.0 million decrease in advertising and promotion expenses for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from a reduction in the promotion of Customers' digital banking products and service offerings available through BankMobile and its white label partnership.

The ~~$0.1~~$0.9 million ~~increase~~decrease in advertising and promotion expenses for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from a reduction in the promotion of Customers' digital banking products and service offerings available through BankMobile and its white label ~~partnership,~~partnership.

Merger and acquisition related expenses

The $1.0 million increase in merger and acquisition related expenses for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from the pending merger of BankMobile Technologies, Inc. and Megalith Financial Acquisition Corp.

The $1.1 million increase in ~~first quarter 2020.~~merger and acquisition related expenses for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily resulted from the pending merger of BankMobile Technologies, Inc. and Megalith Financial Acquisition Corp.

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Loan workout

The $0.4 million increase in loan workout for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from the workout of two commercial relationships.

The $1.6 million increase in loan workout for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily resulted from the workout of two commercial relationships.

Other non-interest expense

The ~~$0.8~~$6.1 million decrease in other non-interest expense for the three months ended ~~June~~September 30, 2020 compared to the three months ended ~~June~~September 30, 2019 primarily resulted from ~~a reduction~~an increase in ~~certain product development costs related to~~operating cost reimbursements from Customers' white label partnership.

The ~~$2.5~~$3.7 million ~~increase~~decrease in other non-interest expense for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from an increase in operating cost reimbursements from Customers' white label partnership, partially offset by a legal contingency accrual of $1.0 million related to the settlement of the previously disclosed ~~DOE~~ED matter during the three months ended March 31, 2020, certain product development costs related to our white label partnership, and an increase in the provision for credit losses on off-balance sheet credit exposures of $0.4 million coinciding with the adoption of CECL and the impact of COVID-19.

2020.

INCOME TAXES

The table below presents income tax expense and the effective tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.


		Three Months Ended June 30,								QTD								Six Months Ended June 30,									YTD						Three Months Ended September 30,						QTD				Nine Months Ended September 30,	YTD
(dollars in thousands)	(dollars in thousands)	2020			2019			Change		% Change		2020			2019			Change		% Change		(dollars in thousands)	2020			2019			Change		% Change		2020			2019			Change		% Change
Income before income tax expense	Income before income tax expense	$	29,766		$	11,787		$	17,979	152.5	%	$	34,772		$	32,058		$	2,714	8.5	%	Income before income tax expense	$	62,716		$	35,086		$	27,630	78.7	%	$	97,488		$	67,144		$	30,344	45.2	%
Income tax expense	Income tax expense	$	7,048		$	2,491		$	4,557	182.9	%	$	8,955		$	7,323		$	1,632	22.3	%	Income tax expense	$	12,201		$	8,020		$	4,181	52.1	%	$	21,156		$	15,343		$	5,813	37.9	%
Effective tax rate	Effective tax rate	23.68		%	21.13		%					25.75		%	22.84		%					Effective tax rate	19.45		%	22.86		%					21.70		%	22.85		%

~~Tab~~le ~~of Content~~s

The ~~$4.6~~$4.2 million increase in income tax expense for the three months ended ~~June~~September 30, 2020, when compared to the same period in the prior year, primarily resulted from an increase in pre-tax income, ~~and a favorable return to provision adjustment~~partially offset by an increase in the estimated annual benefit of investment tax credits for the three months ended ~~June~~September 30, ~~2019.~~2020. The ~~increase~~decrease in the effective tax rate for the three months ended ~~June~~September 30, 2020, when compared to the same period in the prior year, ~~primary~~primarily resulted from an increase in the ~~favorable return to provision adjustment, which decreased~~estimated annual benefit of investment tax ~~expense~~credits for the three months ended ~~June~~September 30, ~~2019.~~2020.

The ~~$1.6~~$5.8 million increase in income tax expense for the ~~six~~nine months ended ~~June~~September 30, 2020, when compared to the same period in the prior year, primarily resulted from an increase in pre-tax income, ~~and~~partially offset by an increase in the ~~discrete provision items which increased income~~estimated annual benefit of investment tax ~~expense~~credits for the ~~six~~nine months ended ~~June~~September 30, ~~2020, compared to a favorable return to provision adjustment for the six months ended June 30, 2019.~~2020. The ~~increase~~decrease in the effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2020, when compared to the same period in the prior year, ~~primary~~primarily resulted from an increase in the ~~discrete provision items, which increased income~~estimated annual benefit of investment tax ~~expense~~credits for the ~~six~~nine months ended ~~June~~September 30, ~~2020, compared to a favorable return to provision adjustment, which lowered income tax expense for the six months ended June 30, 2019.~~2020.

PREFERRED STOCK DIVIDENDS

Preferred stock dividends were $3.4 million and $3.6 million for ~~both~~ the three months ended ~~June~~September 30, 2020 and ~~2019.~~2019, respectively. There were no changes to the amount of preferred stock outstanding ~~or the dividends paid~~ during the three months ended ~~June~~September 30, 2020 and 2019. On June 15, 2020, Series C preferred stock became floating at three-month LIBOR plus 5.300%, compared to a fixed rate of 7.00%.

Preferred stock dividends were ~~$7.2~~$10.6 million and $10.8 million for ~~both~~ the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019. There were no changes to the amount of preferred stock outstanding ~~or the dividends paid~~ during the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019. On June 15, 2020, Series C preferred stock became floating at three-month LIBOR plus 5.300%, compared to a fixed rate of 7.00%.

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Financial Condition

General

Customers' total assets were ~~$17.9~~$18.8 billion at ~~June~~September 30, 2020. This represented a ~~$6.4~~$7.3 billion increase from total assets of $11.5 billion at December 31, 2019. The increase in total assets was primarily driven by increases of ~~$4.8~~$5.0 billion in PPP loans, ~~$854.8 million in cash and cash equivalents, $547.4 million~~$1.7 billion in loans receivable, mortgage warehouse, at fair value, ~~$286.2~~$538.0 million in investment securities, $381.9 million in loans and leases receivable, $125.5 million in other assets, and ~~$85.5~~$118.9 million in ~~investment securities,~~cash and cash equivalents, partially offset by a decrease of $459.6 million in loans held for sale and an increase in allowance for loan and lease losses of ~~$103.5~~$99.2 million.

Total liabilities were ~~$16.9~~$17.7 billion at ~~June~~September 30, 2020. This represented a ~~$6.4~~$7.3 billion increase from $10.5 billion at December 31, 2019. The increase in total liabilities primarily resulted from increases of ~~$4.4~~$4.8 billion in the PPPLF, ~~$2.3~~$2.2 billion in total deposits, $142.0 million in federal funds purchased, and ~~$228.1~~$115.7 million in accrued interest payable and other ~~liabilities, offset in part by a reduction in federal funds purchased of $0.5 billion.~~

~~Tab~~le ~~of Content~~s

liabilities.

The following table presents certain key condensed balance sheet data as of ~~June~~September 30, 2020 and December 31, 2019:


(dollars in thousands)	(dollars in thousands)	June 30, 2020		December 31, 2019		Change		% Change		(dollars in thousands)	September 30, 2020		December 31, 2019		Change		% Change
Cash and cash equivalents	Cash and cash equivalents	$	1,067,330	$	212,505	$	854,825	402.3	%	Cash and cash equivalents	$	331,416	$	212,505	$	118,911	56.0	%
Investment securities, at fair value	Investment securities, at fair value	681,382		595,876		85,506		14.3	%	Investment securities, at fair value	1,133,831		595,876		537,955		90.3	%
Loans held for sale	Loans held for sale	464,164		486,328		(22,164)		(4.6)	%	Loans held for sale	26,689		486,328		(459,639)		(94.5)	%
Loans receivable, mortgage warehouse, at fair value	Loans receivable, mortgage warehouse, at fair value	2,793,164		2,245,758		547,406		24.4	%	Loans receivable, mortgage warehouse, at fair value	3,913,593		2,245,758		1,667,835		74.3	%
Loans receivable, PPP	Loans receivable, PPP	4,760,427		—		4,760,427		NM		Loans receivable, PPP	4,964,105		—		4,964,105		NM
Loans and leases receivable	Loans and leases receivable	7,272,447		7,318,988		(46,541)		(0.6)	%	Loans and leases receivable	7,700,892		7,318,988		381,904		5.2	%
Allowance for credit losses on loan and lease losses	Allowance for credit losses on loan and lease losses	(159,905)		(56,379)		(103,526)		183.6	%	Allowance for credit losses on loan and lease losses	(155,561)		(56,379)		(99,182)		175.9	%
Other assets										Other assets	423,569		298,052		125,517		42.1	%
Total assets	Total assets	17,903,118		11,520,717		6,382,401		55.4	%	Total assets	18,778,727		11,520,717		7,258,010		63.0	%
Total deposits	Total deposits	10,965,875		8,648,936		2,316,939		26.8	%	Total deposits	10,839,077		8,648,936		2,190,141		25.3	%

Federal funds purchased	Federal funds purchased	—		538,000		(538,000)		(100.0)	%	Federal funds purchased	680,000		538,000		142,000		26.4	%
FHLB advances	FHLB advances	850,000		850,000		—		—	%	FHLB advances	850,000		850,000		—		—	%
Other borrowings	Other borrowings	123,833		123,630		203		0.2	%	Other borrowings	123,935		123,630		305		0.2	%
Subordinated debt	Subordinated debt	181,255		181,115		140		0.1	%	Subordinated debt	181,324		181,115		209		0.1	%
FRB PPP liquidity facility	FRB PPP liquidity facility	4,419,967		—		4,419,967		NM		FRB PPP liquidity facility	4,811,009		—		4,811,009		NM
Accrued interest payable and other liabilities										Accrued interest payable and other liabilities	241,891		126,241		115,650		91.6	%
Total liabilities	Total liabilities	16,895,271		10,467,922		6,427,349		61.4	%	Total liabilities	17,727,236		10,467,922		7,259,314		69.3	%
Total shareholders’ equity	Total shareholders’ equity	1,007,847		1,052,795		(44,948)		(4.3)	%	Total shareholders’ equity	1,051,491		1,052,795		(1,304)		(0.1)	%
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	17,903,118	$	11,520,717	$	6,382,401	55.4	%	Total liabilities and shareholders’ equity	$	18,778,727	$	11,520,717	$	7,258,010	63.0	%

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 ~~$44.6~~$5.8 million and $33.1 million at ~~June~~September 30, 2020 and December 31, 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 ~~$1.0 billion~~$325.6 million and $179.4 million at ~~June~~September 30, 2020 and December 31, 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. The increase in interest-earning deposits since December 31, 2019 primarily resulted from managing liquidity as Customers' total assets have increased ~~brokered deposits used as bridge financing for the origination~~$7.3 billion since December 31, 2019.

Table of ~~PPP loans until the loans were pledged as eligible collateral to the FRB PPPLF.~~Contents

Investment Securities

The investment securities portfolio is an important source of interest income and liquidity. It consists primarily of mortgage-backed securities and collateralized mortgage obligations (guaranteed by an agency of the United States government),; United States government agencies securities; asset-backed securities; private label collateralized mortgage obligations, state and political subdivision debt securities, corporate ~~securities, interest-only GNMA securities,~~notes, and marketable equity securities. In addition to generating revenue, the investment portfolio is maintained to manage interest-rate risk, provide liquidity, 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 the changes in the economic environment, liquidity position and balance sheet mix.

At ~~June~~September 30, 2020, investment securities totaled ~~$681.4 million~~$1.1 billion compared to $595.9 million at December 31, 2019. The increase in investment securities primarily resulted from the purchases of asset-backed securities, U.S. government agency securities, agency-guaranteed ~~mortgage-backed securities,~~collateralized mortgage obligations, private label collateralized mortgage obligations, state and political subdivision debt securities, and corporate ~~securities~~notes totaling ~~$280.4~~$1.0 billion, of which $22.5 million ~~and unrealized gains of $17.9 million,~~settled in October 2020, partially offset by the sale of ~~$142.8~~$377.8 million of U.S. government agencies securities, agency-guaranteed mortgage-backed securities, corporate ~~bonds, of which $33.6 million was settled in July 2020, and~~notes, non-agency-guaranteed collateralized mortgage obligations, and interest-only GNMA securities and maturities, calls and principal repayments totaling ~~$78.5~~$156.8 million for the ~~six~~nine months ended ~~June~~September 30, 2020.

For financial reporting purposes, available for sale debt securities are carried at fair value. Unrealized gains and losses on available for sale debt securities are included in other comprehensive income (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 non-interest income in the period in which they occur.

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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; 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. Customers also focuses its lending efforts on local-market mortgage and home equity lending and the origination and purchase of unsecured consumer loans ~~(other consumer~~(installment loans), including personal, student loan refinancing, and home improvement loans through arrangements with fintech companies and other market place lenders for both the Customers Bank Business Banking and 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 ~~June~~September 30, 2020, Customers had ~~$13.6~~$15.0 billion in commercial loans outstanding, totaling approximately ~~89.0%~~90.1% of its total loan and lease portfolio, which includes loans held for sale and loans receivable, mortgage warehouse, at fair value and PPP loans, compared to commercial loans outstanding of $8.4 billion, comprising approximately 83.8% of its total loan and lease portfolio, at December 31, 2019. Included in the ~~$13.6~~$15.0 billion in commercial loans outstanding as of ~~June~~September 30, 2020 was ~~$4.8~~$5.0 billion of PPP ~~loans that Customers originated during the three months ended June 30, 2020.~~loans. The PPP loans are fully guaranteed by the SBA and earn a fixed interest rate of 1.00%.

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.

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Customers' lending to mortgage banking businesses 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, generate fee income and attract escrow deposits. The underlying residential loans are taken as collateral for Customers' commercial loans to the mortgage companies. As of ~~June~~September 30, 2020 and December 31, 2019, commercial loans to mortgage banking businesses totaled ~~$2.8~~$3.9 billion and $2.2 billion, respectively, and are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance sheet.

Customers intends to continue to deemphasize its lower-yielding multi-family loan portfolio, and invest in high credit quality higher-yielding commercial and industrial loans with the multi-family run-off. 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 ~~June~~September 30, 2020, Customers had multi-family loans of $2.0 billion outstanding, comprising approximately ~~13.2%~~11.7% of the total loan and lease portfolio, compared to $2.4 billion, or approximately 23.8% of the total loan and lease portfolio, at December 31, 2019.

The Equipment Finance Group offers equipment financing and leasing products and services for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. As of ~~June~~September 30, 2020 and December 31, 2019, Customers

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had ~~$283.1~~$279.5 million and ~~$263.9~~$257.9 million, respectively, of equipment finance loans outstanding. As of ~~June~~September 30, 2020 and December 31, 2019, Customers had ~~$96.4~~$106.5 million and $89.2 million of equipment finance leases, respectively. As of ~~June~~September 30, 2020 and December 31, 2019, Customers had ~~$95.5~~$94.3 million and $93.6 million, respectively, of operating leases entered into under this program, net of accumulated depreciation of ~~$21.3~~$25.0 million and $14.3 million, respectively.

On March 27, 2020, the CARES Act was signed ~~by President Trump,~~into law and which created funding for a new product called the PPP. The PPP is administered by the SBA and is intended to assist organizations with payroll related expenses. Customers, directly or through fintech partnerships, had ~~$4.8~~$5.0 billion of PPP loans outstanding as of ~~June~~September 30, 2020, which are fully guaranteed by the SBA and earn a fixed interest rate of 1.00%. The average loan size of the PPP portfolio is approximately ~~$50~~$68 thousand.

Consumer Lending

Customers provides unsecured consumer loans, residential mortgage, and home equity loans to customers. The ~~other consumer~~installment loan portfolio consists largely of originated and purchased personal, student loan refinancing and home improvement 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. 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. As of ~~June~~September 30, 2020, Customers had ~~$1.7~~$1.6 billion in consumer loans outstanding, or ~~11.0%~~9.9% of the total loan and lease portfolio, compared to $1.6 billion, or 16.2% of the total loan and lease portfolio, as of December 31, 2019. Customers intends to temper its growth in consumer loans for the remainder of 2020.

Purchases and sales of consumer loans were as follows for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019:

Three Months Ended June 30, Six Months Ended June 30,
(amounts in thousands) 2020 2019 2020 2019
Purchases ⁽¹⁾
Residential real estate $ — $ 39,474 $ 495 $ 105,858
Other consumer⁽²⁾
18,008 384,116 209,768 450,252
Total $ 18,008 $ 423,590 $ 210,263 $ 556,110
Sales⁽³⁾
Other consumer — — 1,822 —
Total $ — $ — $ 1,822 $ —

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	Three Months Ended September 30,				Nine Months Ended September 30,
(amounts in thousands)	2020		2019		2020		2019
Purchases (1)





Residential real estate	$	—	$	—	$	495	$	105,858

Installment (2)	15,700		83,898		225,468		534,150
Total	$	15,700	$	83,898	$	225,963	$	640,008
Sales (3)

Commercial and industrial (4)	$	3,968	$	—	$	3,968	$	—

Commercial real estate non-owner occupied	17,600		—		17,600		—



Installment	—		—		1,822		—
Total	$	21,568	$	—	$	23,390	$	—

(1)Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was ~~98.5%~~98.1% and ~~100.6%~~96.3% of loans outstanding for the three months ended ~~June~~September 30, 2020 and 2019, respectively. The purchase price was ~~100.4%~~100.2% and ~~99.9%~~100.3% of loans outstanding for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

(3)Amounts reported in the above table are the unpaid principal balance at time of sale. There were no loan sales in the three and ~~six~~nine months ended ~~June~~September 30, 2019.

Loans Held for Sale

The composition of loans held for sale as of ~~June~~September 30, 2020 and December 31, 2019 was as follows:

(amounts in thousands) June 30, 2020 December 31, 2019
Commercial loans:
Multi-family loans, at lower of cost or fair value $ 441,732 $ 482,873
Commercial mortgage loans, at lower of cost or fair value 17,600 —
Total commercial loans held for sale 459,332 482,873
Consumer loans:
Home equity conversion mortgages, at lower of cost or fair value 1,325 1,325
Residential mortgage loans, at fair value 3,507 2,130
Total consumer loans held for sale 4,832 3,455
Loans held for sale $ 464,164 $ 486,328

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(amounts in thousands)	September 30, 2020		December 31, 2019
Commercial loans:
Multi-family loans, at lower of cost or fair value	$	—	$	482,873
Commercial real estate non-owner occupied loans, at lower of cost or fair value	18,366		—
Total commercial loans held for sale	18,366		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	6,998		2,130
Total consumer loans held for sale	8,323		3,455
Loans held for sale	$	26,689	$	486,328

At ~~June~~September 30, 2020, loans held for sale totaled ~~$464.2~~$26.7 million, or ~~3.04%~~0.16% of the total loan and lease portfolio, and $486.3 million, or 4.84% of the total loan and lease portfolio, at December 31, 2019. Effective September 30, 2020, Customers transferred $401.1 million of multi-family loans from loans held for sale to loans receivable (held for investment) because it no longer had the intent to sell these loans. Customers transferred these loans at their carrying value, which approximated their fair value at the time of transfer.

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 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)	(amounts in thousands)	June 30, 2020		December 31, 2019		(amounts in thousands)	September 30, 2020		December 31, 2019
Loans and leases receivable, mortgage warehouse, at fair value	Loans and leases receivable, mortgage warehouse, at fair value	$	2,793,164	$	2,245,758	Loans and leases receivable, mortgage warehouse, at fair value	$	3,913,593	$	2,245,758
Loans receivable, PPP	Loans receivable, PPP	4,760,427		—		Loans receivable, PPP	4,964,105		—
Loans receivable:	Loans receivable:					Loans receivable:
Commercial:	Commercial:					Commercial:
Multi-family	Multi-family	1,581,839		1,907,331		Multi-family	1,950,300		1,907,331
Commercial and industrial ⁽¹⁾	Commercial and industrial ⁽¹⁾	2,099,442		1,891,152		Commercial and industrial (1)	2,220,715		1,891,152
Commercial real estate owner occupied	Commercial real estate owner occupied	544,772		551,948		Commercial real estate owner occupied	557,595		551,948
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	1,244,773		1,222,772		Commercial real estate non-owner occupied	1,215,516		1,222,772
Construction	Construction	128,834		117,617		Construction	122,963		117,617
Total commercial loans and leases receivable	Total commercial loans and leases receivable	5,599,660		5,690,820		Total commercial loans and leases receivable	6,067,089		5,690,820
Consumer:	Consumer:					Consumer:
Residential real estate	Residential real estate	348,109		382,634		Residential real estate	335,452		382,634
Manufactured housing	Manufactured housing	66,865		71,359		Manufactured housing	64,638		71,359
Other consumer		1,257,813		1,174,175
Installment						Installment	1,233,713		1,174,175
Total consumer loans receivable	Total consumer loans receivable	1,672,787		1,628,168		Total consumer loans receivable	1,633,803		1,628,168
Loans and leases receivable ⁽²⁾	Loans and leases receivable ⁽²⁾	7,272,447		7,318,988		Loans and leases receivable (2)	7,700,892		7,318,988
Allowance for credit losses	Allowance for credit losses	(159,905)		(56,379)		Allowance for credit losses	(155,561)		(56,379)
Total loans and leases receivable, net of allowance for credit losses	Total loans and leases receivable, net of allowance for credit losses	$	14,666,133	$	9,508,367	Total loans and leases receivable, net of allowance for credit losses	$	16,423,029	$	9,508,367

(1)Includes direct finance equipment leases of ~~$96.4~~$106.5 million and $89.2 million at ~~June~~September 30, 2020 and December 31, 2019, respectively.

(2)Includes deferred (fees) costs and unamortized (discounts) premiums, net of ~~$(83.1)~~$(74.7) million and $2.1 million at ~~June~~September 30, 2020 and December 31, 2019, respectively.

Loans receivable, PPP

On March 27, 2020, the CARES Act was signed into law and which created funding for a new product called the PPP. The PPP is administered by the SBA and is intended to assist organizations with payroll related expenses. Customers had ~~$4.8~~$5.0 billion of PPP loans outstanding as of ~~June~~September 30, 2020, which are fully guaranteed by the SBA and earn a fixed interest rate of 1.00%. Customers recognized interest income, including origination fees, of ~~$11.7~~$24.3 million and $36.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020, 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 ACL and are therefore excluded from ACL-related disclosures. At ~~June~~September 30, 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 ~~$2.8~~$3.9 billion and $2.2 billion at ~~June~~September 30, 2020 and December 31, 2019, respectively.

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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 ACL. Credit losses are

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charged-off when they are identified, and provisions are added, when it is estimated that a loss has occurred, to the ACL at least quarterly. The ACL is estimated at least quarterly.

The provision for credit losses on loans and leases was ~~$20.9~~$13.0 million and ~~$5.3~~$4.4 million for the three months ended ~~June~~September 30, 2020 and 2019, respectively. The ACL maintained for loans and leases receivable (excluding loans held for sale and loans receivable, mortgage warehouse, at fair value and PPP loans) was ~~$159.9~~$155.6 million, or ~~2.20%~~2.02% of loans and leases receivable, excluding PPP loans, at ~~June~~September 30, 2020 and $56.4 million, or 0.77% of loans and leases receivable, at December 31, 2019. Net charge-offs were ~~$10.3~~$17.3 million for the three months ended ~~June~~September 30, 2020, an increase of ~~$9.7~~$15.5 million compared to the same period in 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,~~ mostly attributable to the commercial real estate non-owner occupied and ~~other consumer~~installment portfolios, and portfolio growth. Commercial real estate non-owner occupied charge-offs were attributable to the partial charge-off of two collateral dependent loans, which are not indicative of the overall commercial real estate portfolio. ~~Other consumer~~Installment 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 ACL for the periods indicated.

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


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(amounts in thousands)	(amounts in thousands)	2020		2019		2020		2019		(amounts in thousands)	2020		2019		2020		2019
Balance at beginning of the period	Balance at beginning of the period	$	149,283	$	43,679	$	56,379	$	39,972	Balance at beginning of the period	$	159,905	$	48,388	$	56,379	$	39,972
Cumulative effect of change in accounting principle	Cumulative effect of change in accounting principle	—		—		79,829		—		Cumulative effect of change in accounting principle	—		—		79,829		—
Loan and lease charge-offs ⁽¹⁾	Loan and lease charge-offs ⁽¹⁾									Loan and lease charge-offs (1)
Multi-family	Multi-family	—		—		—		541		Multi-family	—		—		—		541
Commercial and industrial	Commercial and industrial	20		183		117		183		Commercial and industrial	2,527		349		2,645		532
Commercial real estate owner occupied	Commercial real estate owner occupied	—		66		—		74		Commercial real estate owner occupied	44		45		44		119
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	2,801		—		15,598		—		Commercial real estate non-owner occupied	10,181		—		25,779		—

Residential real estate	Residential real estate	—		69		—		109		Residential real estate	—		—		—		109
Other consumer		8,304		932		14,550		1,687
Total Charge-offs		11,125		1,250		30,265		2,594
Installment										Installment	9,194		1,806		23,744		3,493
Total charge-offs										Total charge-offs	21,946		2,200		52,212		4,794
Loan and lease recoveries ⁽¹⁾	Loan and lease recoveries ⁽¹⁾									Loan and lease recoveries (1)
Multi-family	Multi-family	—		7		—		7		Multi-family	—		—		—		7
Commercial and industrial	Commercial and industrial	25		338		79		457		Commercial and industrial	2,582		369		2,661		826
Commercial real estate owner occupied	Commercial real estate owner occupied	2		97		5		225		Commercial real estate owner occupied	—		10		5		235

Commercial real estate non-owner occupied										Commercial real estate non-owner occupied	1,258		—		1,258		—
Construction	Construction	113		114		116		120		Construction	6		8		122		128
Residential real estate	Residential real estate	26		8		55		15		Residential real estate	17		5		72		20
Other consumer		635		49		975		73
Total Recoveries		801		613		1,230		897
Installment										Installment	784		47		1,759		120
Total recoveries										Total recoveries	4,647		439		5,877		1,336
Total net charge-offs	Total net charge-offs	10,324		637		29,035		1,697		Total net charge-offs	17,299		1,761		46,335		3,458
Provision for loan and lease losses	Provision for loan and lease losses	20,946		5,346		52,732		10,113		Provision for loan and lease losses	12,955		4,426		65,688		14,539
Balance at the end of the period	Balance at the end of the period	$	159,905	$	48,388	$	159,905	$	48,388	Balance at the end of the period	$	155,561	$	51,053	$	155,561	$	51,053

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

The 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 expected lifetime credit losses as of the balance sheet date. All commercial loans, with the exception of PPP loans and 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

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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 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 –

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SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' audited financial statements in its 2019 Form 10-K for further discussion on management's prior incurred loss methodology for estimating the ALLL.

Approximately ~~75%~~67% 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”), primarily in the form of 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 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 326, individually assessed loans, consisting primarily of non-accrual and restructured loans, are considered in the methodology for determining the 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 operation or sale of such collateral. Shortfalls in the underlying collateral value for loans or leases determined to be collateral dependent are charged off immediately. Subsequent to an appraisal or other fair value estimate, management will assess whether there was a further decline in the value of the collateral based on changes in market conditions or property use that would require additional impairment to be recorded to reflect the particular situation, thereby increasing the ACL on loans and leases.

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. Charge-offs from originated and acquired loans and leases are absorbed by the ACL. The 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 under U.S GAAP. For COVID-19 related loan modifications which met the 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. At ~~June~~September 30, 2020, commercial and consumer deferments related to COVID-19 were ~~$974~~$79 million and ~~$81.3~~$25 million, respectively. The schedule that follows includes both loans held for sale and loans held for investment. As of September 30, 2020, Customers had $198.5 million of pending commercial loan deferment requests.

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Asset Quality at ~~June~~September 30, 2020


(dollars in thousands)	(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 (%)		(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	Loan and Lease Type																			Loan and Lease Type
Multi-family	Multi-family	$	1,581,839	$	1,558,036	$	16,790	$	—	$	7,013	$	—	$	7,013	0.44	%	0.44	%	Multi-family	$	1,950,300	$	1,926,658	$	11,932	$	—	$	11,710	$	—	$	11,710	0.60	%	0.60	%
Commercial & industrial ⁽¹⁾	Commercial & industrial ⁽¹⁾	2,099,442		2,088,822		646		—		9,974		—		9,974		0.48	%	0.48	%	Commercial & industrial (1)	2,220,715		2,210,493		589		—		9,633		—		9,633		0.43	%	0.43	%
Commercial real estate owner occupied	Commercial real estate owner occupied	544,772		535,861		4,889		—		4,022		—		4,022		0.74	%	0.74	%	Commercial real estate owner occupied	557,595		553,996		—		—		3,599		—		3,599		0.65	%	0.65	%
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	1,244,773		1,214,419		97		—		30,257		—		30,257		2.43	%	2.43	%	Commercial real estate non-owner occupied	1,215,516		1,213,108		—		—		2,408		—		2,408		0.20	%	0.20	%
Construction	Construction	128,834		128,834		—		—		—		—		—		—	%	—	%	Construction	122,963		122,963		—		—		—		—		—		—	%	—	%
Total commercial loans and leases receivable	Total commercial loans and leases receivable	5,599,660		5,525,972		22,422		—		51,266		—		51,266		0.92	%	0.92	%	Total commercial loans and leases receivable	6,067,089		6,027,218		12,521		—		27,350		—		27,350		0.45	%	0.45	%
Residential	Residential	348,109		331,180		9,072		—		7,857		35		7,892		2.26	%	2.27	%	Residential	335,452		321,472		3,346		—		10,634		35		10,669		3.17	%	3.18	%
Manufactured housing	Manufactured housing	66,865		60,625		1,171		1,738		3,331		96		3,427		4.98	%	5.12	%	Manufactured housing	64,638		58,784		1,391		1,685		2,778		96		2,874		4.30	%	4.44	%
Other consumer		1,257,813		1,241,511		11,415		—		4,887		—		4,887		0.39	%	0.39	%
Installment																				Installment	1,233,713		1,220,525		10,070		—		3,118		—		3,118		0.25	%	0.25	%
Total consumer loans receivable	Total consumer loans receivable	1,672,787		1,633,316		21,658		1,738		16,075		131		16,206		0.96	%	0.97	%	Total consumer loans receivable	1,633,803		1,600,781		14,807		1,685		16,530		131		16,661		1.01	%	1.02	%
Loans and leases receivable ⁽¹⁾	Loans and leases receivable ⁽¹⁾	7,272,447		7,159,288		44,080		1,738		67,341		131		67,472		0.93	%	0.93	%	Loans and leases receivable (1)	7,700,892		7,627,999		27,328		1,685		43,880		131		44,011		0.57	%	0.57	%
Loans receivable, PPP	Loans receivable, PPP	4,760,427		4,760,427		—		—		—		—		—		—	%	—	%	Loans receivable, PPP	4,964,105		4,964,105		—		—		—		—		—		—	%	—	%
Loans receivable, mortgage warehouse, at fair value	Loans receivable, mortgage warehouse, at fair value	2,793,164		2,793,164		—		—		—		—		—						Loans receivable, mortgage warehouse, at fair value	3,913,593		3,913,593		—		—		—		—		—
Total loans held for sale	Total loans held for sale	464,164		445,239		—		—		18,925		—		18,925		4.08	%	4.08	%	Total loans held for sale	26,689		6,998		—		—		19,691		—		19,691		73.78	%	73.78	%
Total portfolio	Total portfolio	$	15,290,202	$	15,158,118	$	44,080	$	1,738	$	86,266	$	131	$	86,397	0.56	%	0.57	%	Total portfolio	$	16,605,279	$	16,512,695	$	27,328	$	1,685	$	63,571	$	131	$	63,702	0.38	%	0.38	%

Asset Quality at ~~June~~September 30, 2020 (continued)


(dollars in thousands)	(dollars in thousands)	Total Loans and Leases		Non-accrual / NPL		ACL		Reserves to Loans and Leases (%)		Reserves to NPLs (%)		(dollars in thousands)	Total Loans and Leases		Non-accrual / NPL		ACL			Reserves to Loans and Leases (%)		Reserves to NPLs (%)
Loan and Lease Type	Loan and Lease Type																		Loan and Lease Type
Multi-family	Multi-family	$	1,581,839	$	7,013	$	14,697	0.93	%	209.57	%	Multi-family	$	1,950,300	$	11,710	$	15,026		0.77	%	128.32	%
Commercial & industrial	Commercial & industrial	2,099,442		9,974		12,302		0.59	%	123.34	%	Commercial & industrial	2,220,715		9,633		12,926			0.58	%	134.18	%
Commercial real estate owner occupied	Commercial real estate owner occupied	544,772		4,022		11,405		2.09	%	283.57	%	Commercial real estate owner occupied	557,595		3,599		9,552			1.71	%	265.41	%
Commercial real estate non-owner occupied	Commercial real estate non-owner occupied	1,244,773		30,257		26,493		2.13	%	87.56	%	Commercial real estate non-owner occupied	1,215,516		2,408		20,200			1.66	%	838.87	%
Construction	Construction	128,834		—		5,297		4.11	%	—	%	Construction	122,963		—		6,423			5.22	%	—	%
Total commercial loans and leases receivable	Total commercial loans and leases receivable	5,599,660		51,266		70,194		1.25	%	136.92	%	Total commercial loans and leases receivable	6,067,089		27,350		64,127			1.06	%	234.47	%
Residential	Residential	348,109		7,857		4,550		1.31	%	57.91	%	Residential	335,452		10,634		4,649			1.39	%	43.72	%
Manufactured housing	Manufactured housing	66,865		3,331		6,014		8.99	%	180.55	%	Manufactured housing	64,638		2,778		5,625			8.70	%	202.48	%
Other consumer		1,257,813		4,887		79,147		6.29	%	1619.54	%
Installment												Installment	1,233,713		3,118		81,160			6.58	%	2602.95	%
Total consumer loans receivable	Total consumer loans receivable	1,672,787		16,075		89,711		5.36	%	558.08	%	Total consumer loans receivable	1,633,803		16,530		91,434			5.60	%	553.14	%
Loans and leases receivable ⁽¹⁾	Loans and leases receivable ⁽¹⁾	7,272,447		67,341		159,905		2.20	%	237.46	%	Loans and leases receivable (1)	7,700,892		43,880		155,561			2.02	%	354.51	%
Loans receivable, PPP	Loans receivable, PPP	4,760,427		—		—		—	%	—	%	Loans receivable, PPP	4,964,105		—		—			—	%	—	%
Loans receivable, mortgage warehouse, at fair value	Loans receivable, mortgage warehouse, at fair value	2,793,164		—		—						Loans receivable, mortgage warehouse, at fair value	3,913,593		—		—
Total loans held for sale	Total loans held for sale	464,164		18,925		—		—	%	—	%	Total loans held for sale	26,689		19,691		—			—	%	—	%
Total portfolio	Total portfolio	$	15,290,202	$	86,266	$	159,905	1.05	%	185.36	%	Total portfolio	$	16,605,279	$	63,571	$	155,561		0.94	%	244.70	%

(1) Excluding loans receivable, PPP from total loans and leases receivable is a non-GAAP measure. 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. Please refer to the reconciliation schedules that follow this table.

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Customers’ asset quality table contains non-GAAP financial measures calculated using non-GAAP amounts. These measures all exclude loans receivable, PPP from their calculations. Management uses these non-GAAP measures to present the current period presentation to historical periods in prior filings. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing the ~~Bancorp’s~~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.

A reconciliation of loans and leases receivable, excluding loans receivable, PPP and other related amounts, at ~~June~~September 30, 2020, are set forth below.


(dollars in thousands)	(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 (%)		(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 (%)
Loans and leases receivable (GAAP)	Loans and leases receivable (GAAP)	$	12,032,874	$	11,919,715	$	44,080	$	1,738	$	67,341	$	131	$	67,472	0.56	%	0.56	%	Loans and leases receivable (GAAP)	$	12,664,997	$	12,592,104	$	27,328	$	1,685	$	43,880	$	131	$	44,011	0.35	%	0.35	%
Less: Loans receivable, PPP	Less: Loans receivable, PPP	4,760,427		4,760,427		—		—		—		—		—		—	%	—	%	Less: Loans receivable, PPP	4,964,105		4,964,105		—		—		—		—		—		—	%	—	%
Loans receivable, excluding loans receivable, PPP (Non-GAAP)	Loans receivable, excluding loans receivable, PPP (Non-GAAP)	$	7,272,447	$	7,159,288	$	44,080	$	1,738	$	67,341	$	131	$	67,472	0.93	%	0.93	%	Loans receivable, excluding loans receivable, PPP (Non-GAAP)	$	7,700,892	$	7,627,999	$	27,328	$	1,685	$	43,880	$	131	$	44,011	0.57	%	0.57	%


(dollars in thousands)	(dollars in thousands)	Total Loans and Leases		Non-accrual / NPL		ACL		Reserves to Loans and Leases (%)		Reserves to NPLs (%)		(dollars in thousands)	Total Loans and Leases		Non-accrual / NPL		ACL		Reserves to Loans and Leases (%)		Reserves to NPLs (%)
Loans and leases receivable (GAAP)	Loans and leases receivable (GAAP)	$	12,032,874	$	67,341	$	159,905	1.33	%	237.46	%	Loans and leases receivable (GAAP)	$	12,664,997	$	43,880	$	155,561	1.23	%	354.51	%
Less: Loans receivable, PPP	Less: Loans receivable, PPP	4,760,427		—		—		—	%	—	%	Less: Loans receivable, PPP	4,964,105		—		—		—	%	—	%
Loans receivable, excluding loans receivable, PPP (Non-GAAP)	Loans receivable, excluding loans receivable, PPP (Non-GAAP)	7,272,447		67,341		159,905		2.20	%	237.46	%	Loans receivable, excluding loans receivable, PPP (Non-GAAP)	$	7,700,892	$	43,880	$	155,561	2.02	%	354.51	%

The total loan and lease portfolio was ~~$15.3~~$16.6 billion at ~~June~~September 30, 2020 compared to $10.1 billion at December 31, 2019 and ~~$86.3~~$63.6 million, or ~~0.56%~~0.38% of loans and leases, were non-performing at ~~June~~September 30, 2020 compared to $21.3 million, or 0.21% of loans and leases, at December 31, 2019. The loan and lease portfolio was supported by an ACL of ~~$159.9~~$155.6 million ~~(185.36%~~(244.70% of NPLs and ~~1.05%~~0.94% of total loans and leases) and $56.5 million (264.67% of NPLs and 0.56% of total loans and leases), at ~~June~~September 30, 2020 and December 31, 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)	(dollars in thousands)	June 30, 2020		December 31, 2019		Change		% Change		(dollars in thousands)	September 30, 2020		December 31, 2019		Change		% Change
Demand, non-interest bearing	Demand, non-interest bearing	$	1,879,789	$	1,343,391	$	536,398	39.9	%	Demand, non-interest bearing	$	2,327,017	$	1,343,391	$	983,626	73.2	%
Demand, interest bearing	Demand, interest bearing	2,666,209		1,235,292		1,430,917		115.8	%	Demand, interest bearing	2,308,627		1,235,292		1,073,335		86.9	%
Savings, including MMDA	Savings, including MMDA	4,549,497		4,401,719		147,778		3.4	%	Savings, including MMDA	5,231,007		4,401,719		829,288		18.8	%
Non-time deposits	Non-time deposits	9,095,495		6,980,402		2,115,093		30.3	%	Non-time deposits	9,866,651		6,980,402		2,886,249		41.3	%
Time, $100,000 and over	Time, $100,000 and over	503,405		402,161		101,244		25.2	%	Time, $100,000 and over	466,860		402,161		64,699		16.1	%
Time, other	Time, other	1,366,975		1,266,373		100,602		7.9	%	Time, other	505,566		1,266,373		(760,807)		(60.1)	%
Time deposits	Time deposits	1,870,380		1,668,534		$	201,846	12.1	%	Time deposits	972,426		1,668,534		(696,108)		(41.7)	%
Total deposits	Total deposits	$	10,965,875	$	8,648,936	$	2,316,939	26.8	%	Total deposits	$	10,839,077	$	8,648,936	$	2,190,141	25.3	%

Total deposits were ~~$11.0~~$10.8 billion at ~~June~~September 30, 2020, an increase of ~~$2.3~~$2.2 billion, or ~~26.8%~~25.3%, from $8.6 billion at December 31, 2019. Non-time deposits increased by ~~$2.1~~$2.9 billion, or ~~30.3%~~41.3%, to ~~$9.1~~$9.9 billion at ~~June~~September 30, 2020, from $7.0 billion at December 31, 2019. This increase primarily 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 ~~$0.5~~$1.0 billion and interest bearing demand deposits of ~~$1.4~~

Table of Contents

$1.1 billion. Savings, including MMDA increased ~~$0.1~~$0.8 billion, or ~~3.4%~~18.8%, to ~~$4.5~~$5.2 billion at ~~June~~September 30, 2020, from $4.4 billion at December 31, 2019. Time deposits ~~increased $0.2~~decreased $0.7 billion, or ~~12.1%~~41.7%, to ~~$1.9~~$1.0 billion at ~~June~~September 30, 2020, from $1.7 billion at December 31, 2019.

~~Tab~~le ~~of Content~~s

At ~~June~~September 30, 2020, the Bank had ~~$1.0~~$1.1 billion in state and municipal deposits to which it had pledged ~~$1.0~~$1.1 billion of available borrowing capacity through the FHLB to the depositor through a letter of credit arrangement.

FHLB ADVANCES AND OTHER BORROWINGS

Borrowed funds from various sources are generally used to supplement deposit growth and meet other operating needs. Customers' borrowings include short-term and long-term advances from the FHLB, FRB, including from the PPPLF, federal funds purchased, senior unsecured notes and subordinated debt. Subordinated debt is also considered as Tier 2 capital for certain regulatory calculations.

Short-term debt

Short-term debt at ~~June~~September 30, 2020 and December 31, 2019 was as follows:


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
(dollars in thousands)	(dollars in thousands)	Amount		Rate		Amount		Rate		(dollars in thousands)	Amount		Rate		Amount		Rate
												(dollars in thousands)
FHLB advances	FHLB advances	$	850,000	1.48	%	$	500,000	2.15	%	FHLB advances	$		1.24	%	$	500,000	2.15	%
Federal funds purchased	Federal funds purchased	—		—	%	538,000		1.60	%	Federal funds purchased	680,000		0.14	%	538,000		1.60	%
Total short-term debt	Total short-term debt	$	850,000			$	1,038,000			Total short-term debt	$	1,530,000			$	1,038,000

Long-term debt

FHLB and FRB Advances

Long-term FHLB and FRB advances at ~~June~~September 30, 2020 and December 31, 2019, was as follows:



		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
(dollars in thousands)	(dollars in thousands)	Amount		Rate		Amount		Rate		(dollars in thousands)	Amount		Rate		Amount		Rate
												(dollars in thousands)
FHLB advances	FHLB advances	$	—	—	%	$	350,000	2.36	%	FHLB advances	$		—	%	$	350,000	2.36	%
FRB PPP Liquidity Facility advances	FRB PPP Liquidity Facility advances	4,419,967		0.35	%	—		—	%	FRB PPP Liquidity Facility advances	4,811,009		0.35	%	—		—	%
Total long-term FHLB and FRB advances	Total long-term FHLB and FRB advances	$	4,419,967			$	350,000			Total long-term FHLB and FRB advances	$	4,811,009			$	350,000

The maximum borrowing capacity with the FHLB and FRB at ~~June~~September 30, 2020 and December 31, 2019 was as follows:


(dollars in thousands)	(dollars in thousands)	June 30, 2020		December 31, 2019		(dollars in thousands)	September 30, 2020		December 31, 2019
Total maximum borrowing capacity with the FHLB	Total maximum borrowing capacity with the FHLB	$	2,958,717	$	3,445,416	Total maximum borrowing capacity with the FHLB	$	2,851,496	$	3,445,416
Total maximum borrowing capacity with the FRB ⁽¹⁾	Total maximum borrowing capacity with the FRB ⁽¹⁾	152,410		136,842		Total maximum borrowing capacity with the FRB (1)	214,766		136,842
Qualifying loans serving as collateral against FHLB and FRB advances(1)	Qualifying loans serving as collateral against FHLB and FRB advances(1)	3,814,247		4,496,983		Qualifying loans serving as collateral against FHLB and FRB advances(1)	4,092,732		4,496,983

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Senior Notes and Subordinated Debt

Long-term senior notes and subordinated debt at ~~June~~September 30, 2020 and December 31, 2019 were as follows:


			June 30, 2020			December 31, 2019																					September 30, 2020			December 31, 2019
(dollars in thousands)	(dollars in thousands)																									(dollars in thousands)						September 30, 2020				December 31, 2019
Issued by	Issued by	Ranking			Amount			Amount				Rate			Issued Amount		Date Issued		Maturity			Price	Issued by			Ranking			Amount				Amount							Date Issued		Maturity			Price
Customers Bancorp	Customers Bancorp	Senior	$	24,492		$	24,432		4.500		%		$	25,000		September 2019		September 2024		100.000	%	Customers Bancorp		Senior			$	24,522		$	24,432		4.500		%		$	25,000	September 2019		September 2024		100.000	%
Customers Bancorp	Customers Bancorp	Senior	99,341			99,198			3.950		%		100,000			June 2017		June 2022		99.775	%	Customers Bancorp		Senior			99,413			99,198			3.950		%		100,000		June 2017		June 2022		99.775	%

Total other borrowings	Total other borrowings		123,833			123,630																Total other borrowings					123,935			123,630

Customers Bancorp	Customers Bancorp	Subordinated ⁽¹⁾⁽²⁾	72,131			72,040			5.375		%		74,750			December 2019		December 2034		100.000	%	Customers Bancorp		Subordinated (1)(2)			72,176			72,040			5.375		%		74,750		December 2019		December 2034		100.000	%
Customers Bank	Customers Bank	Subordinated ⁽¹⁾⁽³⁾	109,124			109,075			6.125		%		110,000			June 2014		June 2029		100.000	%	Customers Bank		Subordinated (1)(3)			109,148			109,075			6.125		%		110,000		June 2014		June 2029		100.000	%
Total subordinated debt	Total subordinated debt					$	181,255		$	181,115															Total subordinated debt					$	181,324		$	181,115

(1)The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.

(2)Customers Bancorp has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after December 30, 2029.

SHAREHOLDERS' EQUITY

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


(dollars in thousands)	(dollars in thousands)	June 30, 2020		December 31, 2019		Change		% Change		(dollars in thousands)	September 30, 2020		December 31, 2019		Change		% Change
Preferred stock	Preferred stock	$	217,471	$	217,471	$	—	—	%	Preferred stock	$	217,471	$	217,471	$	—	—	%
Common stock	Common stock	32,791		32,617		174		0.5	%	Common stock	32,836		32,617		219		0.7	%
Additional paid in capital	Additional paid in capital	450,665		444,218		6,447		1.5	%	Additional paid in capital	452,965		444,218		8,747		2.0	%
Retained earnings	Retained earnings	338,665		381,519		(42,854)		(11.2)	%	Retained earnings	385,750		381,519		4,231		1.1	%
Accumulated other comprehensive loss, net	Accumulated other comprehensive loss, net	(9,965)		(1,250)		(8,715)		697.2	%	Accumulated other comprehensive loss, net	(15,751)		(1,250)		(14,501)		1,160.1	%
Treasury stock	Treasury stock	(21,780)		(21,780)		—		—	%	Treasury stock	(21,780)		(21,780)		—		—	%
Total shareholders' equity	Total shareholders' equity	$	1,007,847	$	1,052,795	$	(44,948)	(4.3)	%	Total shareholders' equity	$	1,051,491	$	1,052,795	$	(1,304)	(0.1)	%

Shareholders’ equity decreased ~~$44.9~~$1.3 million, or ~~4.3%~~0.1%, to ~~$1.0~~$1.1 billion at ~~June~~September 30, 2020 when compared to shareholders' equity of $1.1 billion at December 31, 2019. The decrease primarily resulted from ~~a decrease in retained earnings~~an increase of ~~$42.9~~$14.5 million ~~and an increase~~ in accumulated other comprehensive loss, net, ~~of $8.7 million,~~ partially offset by ~~an increase~~increases of ~~$6.4~~$8.7 million in additional paid in ~~capital. The decrease~~capital and $4.2 million in retained earnings primarily resulted from the adoption of CECL on January 1, 2020, which reduced retained earnings by $61.5 million, and $7.2 million in preferred stock dividends, partially offset by net income of $25.8 million. earnings.

The increase in accumulated other comprehensive loss, net primarily resulted from a decline in the fair value of cash flow hedges due to changes in market interest rates during the ~~six~~nine months ended ~~June~~September 30, 2020, partially offset by an increase in the fair value of available for sale debt securities due to the timing of purchases and changes in market interest rates during the ~~six~~nine months ended ~~June~~September 30, 2020. The increase in additional paid in capital resulted primarily from the issuance of common stock under share-based compensation arrangements for the ~~six~~nine months ended ~~June~~September 30, 2020.

The increase in retained earnings primarily resulted from net income of $76.3 million, partially offset by the adoption of CECL on January 1, 2020, which reduced retained earnings by $61.5 million, and $10.6 million in preferred stock dividends.

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.

Table of Contents

Customers' investment portfolio provides periodic cash flows through regular maturities and amortization and can be used as collateral to secure additional funding. Customers' principal sources of funds are deposits, borrowings, principal and interest payments on loans and

~~Tab~~le ~~of Content~~s

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 and FRB. As of ~~June~~September 30, 2020, Customers' borrowing capacity with the FHLB was ~~$3.0~~$2.9 billion, of which $0.9 billion was utilized in borrowings and ~~$1.0~~$1.1 billion of available capacity was utilized to collateralize state and municipal deposits. As of December 31, 2019, Customers' borrowing capacity with the FHLB was $3.4 billion, of which $0.9 billion was utilized in borrowings and $1.4 billion of available capacity was utilized to collateralize state and municipal deposits. As of ~~June~~September 30, 2020 and December 31, 2019, Customers' borrowing capacity with the FRB was ~~$152.4~~$214.8 million and $136.8 million, respectively.

The table below summarizes Customers' cash flows for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019:


		Six Months Ended June 30,											Nine Months Ended September 30,
(amounts in thousands)	(amounts in thousands)	2020		2019		Change		% Change		(amounts in thousands)	2020		2019		Change		% Change
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	39,577	$	3,129	$	36,448	1,164.8	%	Net cash provided by (used in) operating activities	$	73,468	$	34,683	$	38,785	111.8	%
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(5,375,772)		(1,213,324)		(4,162,448)		343.1	%	Net cash provided by (used in) investing activities	(7,086,538)		(1,665,534)		(5,421,004)		325.5	%
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	6,191,020		1,243,855		4,947,165		397.7	%	Net cash provided by (used in) financing activities	7,131,981		1,750,934		5,381,047		307.3	%
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	$	854,825	$	33,660	$	821,165	2,439.6	%	Net increase (decrease) in cash and cash equivalents	$	118,911	$	120,083	$	(1,172)	(1.0)	%

Cash flows provided by (used in) operating activities

Cash provided by operating activities of ~~$39.6~~$73.5 million for the ~~six~~nine months ended ~~June~~September 30, 2020 primarily resulted from an increase in accrued interest payable and other liabilities of ~~$88.3~~$81.6 million, net income of ~~$25.8~~$76.3 million, and non-cash operating activities of $38.4 million, partially offset by an increase of ~~$108.3~~$124.4 million in accrued interest receivable and other assets.

Cash provided by operating activities of ~~$3.1~~$34.7 million for the ~~six~~nine months ended ~~June~~September 30, ~~2020~~2019 primarily resulted from net income of ~~$24.7~~$51.8 million, non-cash operating adjustments of ~~$25.2~~$46.9 million, and an increase of ~~$16.5~~$15.3 million in accrued interest payable and other liabilities, partially offset by an increase of ~~$63.3~~$79.3 million in accrued interest receivable and other assets.

Cash flows provided by (used in) investing activities

Cash used in investing activities of ~~$5.4~~$7.1 billion for the ~~six~~nine months ended ~~June~~September 30, 2020 primarily resulted from a net increase in loans and leases, excluding mortgage warehouse loans of ~~$4.5~~$4.7 billion, primarily related to PPP loan originations, net originations of mortgage warehouse loans of ~~$540.9 million,~~$1.7 billion, purchases of loans of ~~$211.1~~$226.5 million, and purchases of investment securities available for sale of ~~$280.4 million,~~$1.0 billion, partially offset by proceeds from sales of investment securities of $377.8 million and proceeds from maturities, calls, and principal repayments ofon investment securities of ~~$109.2~~$156.8 million.

Cash used in investing activities of ~~$1.2~~$1.7 billion for the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from net originations of mortgage warehouse loans of ~~$622.4 million~~$1.1 billion and purchases of loans of ~~$555.6~~$636.4 million, partially offset by proceeds from sale of investment securities available for sale of $97.6 million.

Cash flows provided by (used in) financing activities

Cash provided by financing activities of ~~$6.2~~$7.1 billion for the ~~six~~nine months ended ~~June~~September 30, 2020 primarily resulted from net increases in long-term borrowed funds from the FRB of ~~$4.4~~$4.8 billion primarily to finance the PPP loan originations, ~~and~~ deposits of ~~$2.3~~$2.2 billion, ~~partially offset by~~and a net ~~decrease~~increase in federal funds purchased of ~~$538.0~~$142.0 million.

Cash provided by financing activities of ~~$1.2~~$1.8 billion for the ~~six~~nine months ended ~~June~~September 30, 2019 primarily resulted from ~~increases~~an increase in deposits of ~~$1.0~~$1.8 billion, proceeds from long-term FHLB borrowings of $350.0 million, and federal funds purchased of ~~$219.0~~$186.0 million, partially offset by repayments of short-term borrowed funds from the FHLB of ~~$336.0 million, repayments of long-term debt of $25.0~~$557.3 million, and preferred stock dividends paid of ~~$7.2~~$10.8 million.

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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 ~~June~~September 30, 2020 and December 31, 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)	(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		(dollars in thousands)	Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2020:
As of September 30, 2020:																		As of September 30, 2020:
Common equity Tier 1 capital (to risk-weighted assets)	Common equity Tier 1 capital (to risk-weighted assets)																	Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	Customers Bancorp, Inc.	$	853,818	7.765	%	$	494,780	4.500	%	N/A		N/A		$	769,657	7.000	%	Customers Bancorp, Inc.	$	902,174	7.488		%	$	542,199	4.500	%	N/A		N/A		$	843,420	7.000	%
Customers Bank	Customers Bank	$	1,168,276	10.636	%	$	494,291	4.500	%	$	713,976	6.500	%	$	768,897	7.000	%	Customers Bank	$	1,217,159	10.120		%	$	541,217	4.500	%	$	781,757	6.500	%	$	841,892	7.000	%
Tier 1 capital (to risk-weighted assets)	Tier 1 capital (to risk-weighted assets)																	Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	Customers Bancorp, Inc.	$	1,071,289	9.743	%	$	659,706	6.000	%	N/A		N/A		$	934,584	8.500	%	Customers Bancorp, Inc.	$	1,119,645	9.293		%	$	722,932	6.000	%	N/A		N/A		$	1,024,153	8.500	%
Customers Bank	Customers Bank	$	1,168,276	10.636	%	$	659,055	6.000	%	$	878,740	8.000	%	$	933,661	8.500	%	Customers Bank	$	1,217,159	10.120		%	$	721,622	6.000	%	$	962,163	8.000	%	$	1,022,298	8.500	%
Total capital (to risk-weighted assets)	Total capital (to risk-weighted assets)																	Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	Customers Bancorp, Inc.	$	1,311,527	11.928	%	$	879,608	8.000	%	N/A		N/A		$	1,154,486	10.500	%	Customers Bancorp, Inc.	$	1,361,237	11.298		%	$	963,909	8.000	%	N/A		N/A		$	1,265,130	10.500	%
Customers Bank	Customers Bank	$	1,351,665	12.305	%	$	878,740	8.000	%	$	1,098,424	10.000	%	$	1,153,346	10.500	%	Customers Bank	$	1,397,059	11.616		%	$	962,163	8.000	%	$	1,202,704	10.000	%	$	1,262,839	10.500	%
Tier 1 capital (to average assets)	Tier 1 capital (to average assets)																	Tier 1 capital (to average assets)
Customers Bancorp, Inc.	Customers Bancorp, Inc.	$	1,071,289	8.790	%	$	487,512	4.000	%	N/A		N/A		$	487,512	4.000	%	Customers Bancorp, Inc.	$	1,119,645	8.534		%	$	524,799	4.000	%	N/A		N/A		$	524,799	4.000	%
Customers Bank	Customers Bank	$	1,168,276	9.593	%	$	487,151	4.000	%	$	608,938	5.000	%	$	487,151	4.000	%	Customers Bank	$	1,217,159	9.288		%	$	524,203	4.000	%	$	655,254	5.000	%	$	524,203	4.000	%
As of December 31, 2019:	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)																	Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	Customers Bancorp, Inc.	$	821,810	7.984	%	$	463,211	4.500	%	N/A		N/A		$	720,551	7.000	%	Customers Bancorp, Inc.	$	821,810	7.984		%	$	463,211	4.500	%	N/A		N/A		$	720,551	7.000	%
Customers Bank	Customers Bank	$	1,164,652	11.323	%	$	462,842	4.500	%	$	668,549	6.500	%	$	719,976	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)	Tier 1 capital (to risk-weighted assets)																	Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	Customers Bancorp, Inc.	$	1,039,281	10.096	%	$	617,615	6.000	%	N/A		N/A		$	874,955	8.500	%	Customers Bancorp, Inc.	$	1,039,281	10.096		%	$	617,615	6.000	%	N/A		N/A		$	874,955	8.500	%
Customers Bank	Customers Bank	$	1,164,652	11.323	%	$	617,122	6.000	%	$	822,829	8.000	%	$	874,256	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)	Total capital (to risk-weighted assets)																	Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	Customers Bancorp, Inc.	$	1,256,309	12.205	%	$	823,487	8.000	%	N/A		N/A		$	1,080,827	10.500	%	Customers Bancorp, Inc.	$	1,256,309	12.205		%	$	823,487	8.000	%	N/A		N/A		$	1,080,827	10.500	%
Customers Bank	Customers Bank	$	1,330,155	12.933	%	$	822,829	8.000	%	$	1,028,537	10.000	%	$	1,079,964	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)	Tier 1 capital (to average assets)																	Tier 1 capital (to average assets)
Customers Bancorp, Inc.	Customers Bancorp, Inc.	$	1,039,281	9.258	%	$	449,026	4.000	%	N/A		N/A		$	449,026	4.000	%	Customers Bancorp, Inc.	$	1,039,281	9.258		%	$	449,026	4.000	%	N/A		N/A		$	449,026	4.000	%
Customers Bank	Customers Bank	$	1,164,652	10.379	%	$	448,851	4.000	%	$	561,064	5.000	%	$	448,851	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 ~~June~~September 30, 2020, the Bank and Customers Bancorp were in compliance with the Basel III requirements. See "NOTE 10 - 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 sheet.

With commitments to extend credit, 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

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conditional obligations as for on-balance sheet instruments. Because they involve credit risk similar to extending a loan and lease, these financial instruments are subject to the Bank’s credit policy and other underwriting standards.

As of ~~June~~September 30, 2020 and December 31, 2019, the following off-balance sheet commitments, financial instruments and other arrangements were outstanding:


(amounts in thousands)	(amounts in thousands)	June 30, 2020		December 31, 2019		(amounts in thousands)	September 30, 2020		December 31, 2019
Commitments to fund loans and leases	Commitments to fund loans and leases	$	404,528	$	261,902	Commitments to fund loans and leases	$	246,036	$	261,902
Unfunded commitments to fund mortgage warehouse loans	Unfunded commitments to fund mortgage warehouse loans	1,226,333		1,378,364		Unfunded commitments to fund mortgage warehouse loans	1,303,981		1,378,364
Unfunded commitments under lines of credit and credit cards	Unfunded commitments under lines of credit and credit cards	1,172,313		1,065,474		Unfunded commitments under lines of credit and credit cards	917,305		1,065,474
Letters of credit	Letters of credit	26,419		48,856		Letters of credit	27,580		48,856
Other unused commitments	Other unused commitments	2,466		2,736		Other unused commitments	2,167		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 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 sensitivity as part of the overall management of interest rate risk; they are income scenario modeling and estimates of EVE. The combination of these two methods provides a reasonably comprehensive summary of the levels of interest rate risk of Customers' exposure to time factors and changes in interest rate environments.

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Income scenario modeling is used to measure interest rate sensitivity and manage interest rate risk. Income scenario 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 scenario modeling, Customers has estimated the net interest income for the periods ending ~~June~~September 30, 2021 and December 31, 2020, based upon the assets, liabilities and off-balance sheet financial instruments in existence at ~~June~~September 30, 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 ~~June~~September 30, 2020, current market interest rates were increased immediately by 100, 200, and 300 basis points. For downward rate shocks modeling a falling rate environment, current market rates were only decreased immediately by 100 basis points due to the limitations of the current low interest rate environment that renders the Down 200 and Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. The following table reflects the estimated percentage change in estimated net interest income for the periods ending ~~June~~September 30, 2020 and December 31, 2019, resulting from changes in interest rates.

Net change in net interest income


		% Change				% Change
Rate Shocks	Rate Shocks	June 30, 2020	December 31, 2019	Rate Shocks	September 30, 2020	December 31, 2019
Up 3%	Up 3%	7.8%	3.3%	Up 3%	8.4%	3.3%
Up 2%	Up 2%	5.8%	2.7%	Up 2%	5.9%	2.7%
Up 1%	Up 1%	3.2%	1.6%	Up 1%	3.2%	1.6%
Down 1%	Down 1%	4.2%	(1.9)%	Down 1%	1.1%	(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 ~~June~~September 30, 2020, current market interest rates ~~were~~ were only increased immediately by 100, 200, and 300 basis points. For downward rate shocks modeling a falling rate environment, current market rates were decreased immediately by 100 basis points due to the limitations of the current low interest rate environment that renders the Down 200 and Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. This method of measurement primarily evaluates the longer term repricing risks and options in Customers Bank’s balance sheet. The following table reflects the estimated EVE at risk and the ratio of EVE to EVE adjusted assets at ~~June~~September 30, 2020 and December 31, 2019, resulting from shocks to interest rates.


		From base				From base
Rate Shocks	Rate Shocks	June 30, 2020	December 31, 2019	Rate Shocks	September 30, 2020	December 31, 2019
Up 3%	Up 3%	(5.8)%	(5.6)%	Up 3%	(15.6)%	(5.6)%
Up 2%	Up 2%	(2.3)%	(2.0)%	Up 2%	(9.3)%	(2.0)%
Up 1%	Up 1%	(0.6)%	(1.0)%	Up 1%	(4.3)%	(1.0)%
Down 1%	Down 1%	(0.9)%	(1.1)%	Down 1%	(1.4)%	(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 ~~June~~September 30, 2020.

(b) Changes in Internal Control Over Financial Reporting. During the quarter ended ~~June~~September 30, 2020, there have been no changes in Customers Bancorp's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Customers Bancorp's internal control over financial reporting.

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. The execution of these contingency plans have not materially affected, or are reasonably likely to materially affect, Customers' internal control over financial reporting

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

For information on Customers' legal proceedings, refer to “NOTE 15 – 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 2019 Form ~~10-K.~~10-K, the March 31, 2020 Form 10-Q and the June 30, 2020 Form 10-Q. There are no material changes from the risk factors included within the 2019 Form 10-K, the March 31, 2020 Form 10-Q and the June 30, 2020 Form 10-Q, other than the risks described below. The risks described within the 2019 Form 10-K, the March 31, 2020 Form 10-Q, and the June 30, 2020 Form 10-Q and below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition and/or operating results. See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Note Regarding Forward-Looking Statements.”

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 2019 Form 10-K, including those risks related to business operations, industry/market, our securities and credit, or risks described in our other filings with the SEC.

Risks Related to the ~~Proposed Sale~~Disposition of ~~BankMobile Technologies~~BMT to ~~Megalith Financial Acquisition Corp.~~MFAC

~~We face a number of risks~~The amended agreement relating to BMT's proposed merger with MFAC provides for the issuance directly to our ~~announced plans to sell BankMobile Technologies.~~

~~We have announced our plans to dispose~~shareholders of the technology arm of our BankMobile business through a merger transaction through which Megalith Financial Acquisition Corp. (“MFAC”), a special purpose acquisition company, will acquire the Bank’s subsidiary, BankMobile Technologies, Inc. (“BMT”). The completionshares issuable by MFAC as part of the merger will be subject to a number of conditions, including receipt by MFAC of stockholder approval of the transaction, receipt of all necessary regulatory approvals, MFAC meeting certain net tangible assets and minimum cash requirements and other conditions. Certain of the conditions will not be within our control, and we cannot guarantee you that we will be able to complete the merger on the terms we have agreed to with MFAC, or at all.consideration. The steps we take to complete this transaction may adversely affect our business and the value of Customers and/or BMT. Uncertainty as to our ability to complete the transaction and uncertainty as to the timing of the completion of the transaction may adversely affect analyst and shareholder views of our business and prospects, which could adversely affect our share price. Executing the merger may also result in the diversion of our management’s attention from Customers’ day-to-day operations generally, and the expenses we incur in executing the transaction may exceed our expectations, which may adversely affect our results of operations. In addition, even if we are successful

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~~in completing the sale of BMT, it is possible that we and our shareholders may not receive the benefits we presently anticipate from this transaction.~~

~~Failure to complete the proposed sale of BMT could negatively impact our share price, our future business and financial results.~~

We cannot assure you that our proposed sale of BMT will be completed in the time frame we currently anticipate, or at all. If we do not complete the proposed sale, we and our shareholders will not receive the expected benefits of such proposed transactions, but we will have incurred significant costs in connection with our pursuit of the transaction. In addition, we cannot assure you that alternative opportunities to sell or otherwise divest BMT will be available to us, or, if available, will be on terms at least as favorable to us and our shareholders as the terms of the proposed merger with MFAC. Market conditions, the possible need to secure regulatory, shareholder or other approvals and other factors will affect our ability to pursue alternative opportunities. In addition, the value of our common and preferred stock may decline if the proposed transactions are not completed, and uncertainty as to whether alternative transactions may be available for the disposition of BMT, and as to the timing, form and terms of any such alternative disposition may adversely affect analyst and shareholder views as to the value of BMT, which could further adversely affect the value of our securities.

~~If we are unable to complete the proposed sale of BMT in a timely fashion, or at all, we will continue to face the risks and challenges associated with the BankMobile business.~~

If we do not complete the proposed sale of BMT in a timely fashion, or at all, we will continue to face the risks and challenges associated with the BankMobile business, including those risks described in the “Risk Factors” discussion in our 2019 Form 10-K. We cannot assure you that we will be able to address and manage these risks so as to preserve or increase the value of the BankMobile business, and any failure to preserve or increase the value of the BankMobile business could adversely affect our business as a whole and our ability to divest BMT in an alternative transaction on favorable terms, or at all.

~~We will continue to own a significant amount of the resulting company following the completion of BMT’s merger with MFAC and, as such, the~~ future value of the ~~stock consideration we~~shares you receive inas a result of the merger and ~~our~~your ability to realize the value of ~~our own~~your ownership of BM Technologies shares will be subject to a number of risks and challenges.

~~Following completion of~~

Our agreement with MFAC relating to the proposed merger ~~we expect~~of BMT and MFAC has recently been amended to ~~own approximately 47% of~~provide that the ~~outstanding stock of BM Technologies, depending on the amount of~~ shares issuable by MFAC ~~stockholders elect to have redeemed~~ in connection with the proposed merger will be issued directly to Customers Bancorp shareholders rather than being issued to and held by us. Ownership of shares of BM Technologies following completion of the ~~merger.~~merger will involve many of the risks we have previously described in our 2019 Form 10-K and subsequently filed quarterly reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020 regarding the business, operations and prospects of our BankMobile business, as well as additional risks relating to the business, operations and prospects of BM Technologies as a stand-alone public company. As a result, the ~~benefits we obtain from~~future value of the ~~stock consideration we will~~shares you receive ~~in the merger~~ will depend on BM ~~Technologies’s~~Technologies’ future performance, as well as factors impacting the value of fintech companies generally, conditions in the financial markets and other factors affecting public ~~companies.~~ companies including, but not limited to:


			•						BankMobile's limited history operating as a separate entity and lack of history operating independently of Customers Bank;
			•						the experience of BankMobile's management team managing BankMobile, and in managing a public company and the business and financing activities of an organization of BankMobile’s size;
			•						BankMobile's dependence on key individuals and its ability to identify, recruit and retain skilled sales, management, and technical personnel;
			•						BankMobile’s ability to continue to successfully implement its strategy, grow adoption and retention rates, and effectively manage future growth;
			•						BankMobile’s ability to maximize the expected benefits of its partnership with T-Mobile, and successfully maintain its relationship with T-Mobile and continue its white label agreement with respect to T-Mobile MONEY;
			•						the success of BankMobile's efforts to expand market reach and product portfolio beyond the limited number of products and markets that have been the primary source of its revenue, and its ability to do so in a timely manner;
			•						BankMobile's ability to address current and increasing competitive factors in the industries in which it will do business, including its ability to innovate or respond to evolving technological changes;.
			•						the potential negative effects if BankMobile is unable to maintain an effective system of disclosure controls and internal control over financial reporting;
			•						the effect of any changes in the availability of student loans or financial aid, as well as budget constraints, and changes in enrollment rates in traditional (on-campus) and non-traditional (online) institutions of higher education (including as a result of COVID), on demand for BankMobile's services;
			•						the effect of any changes in the current government financial aid regime that relies on the outsourcing of financial aid disbursements through higher education institutions;

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			•						the potential adverse effects on BankMobile’s business, financial condition, and results of operations of any termination of, or changes to, the MasterCard association registration;
			•						the potential adverse effects on BankMobile’s business, financial condition, and results of operations and/or its reputation of breaches of security measures, unauthorized access to or disclosure of data relating to clients, fraudulent activity, and infrastructure failures; and
			•						the potential adverse effects on BankMobile’s business, financial condition, and results of operations if it is unable to protect or enforce its intellectual property rights or if BankMobile becomes subject to claims that its services or solutions violate the patents or other intellectual property of others, which would be costly and time-consuming to defend.

Although our BankMobile division, as an operating segment of ours, recently became profitable, there can be no assurance that BMT, a component of our BankMobile division, will be profitable following completion of the merger or that BM Technologies will be able to successfully execute its business plan, address competitive conditions in its markets and take other actions necessary to increase its ~~value and~~value.

The shares issuable by MFAC will be subject to a contractual restriction on the ~~value~~resale of ~~our shareholdings. In addition, although we have stated that it is our plan to reduce our ownership stake in the post-merger company gradually following~~those shares by Customers Bancorp shareholders for a period of twelve months after the closing of the ~~transaction, we cannot assure~~merger, subject to certain exceptions. As a result, you ~~that we will~~may not be able to ~~do so on favorable terms or~~realize the value of shares you receive in the ~~time frame we currently anticipate. We~~merger through a sale of part or all of those shares during that twelve-month period. In addition, the distribution of the MFAC shares to Customers Bancorp shareholders generally will be taxable to shareholders receiving those shares as a qualified dividend for federal, state and local income tax purposes and, under certain circumstances, also ~~are~~may be subject to ~~a lock-up agreement that will prevent us from disposing of any of the shares, except in limited circumstances, for a period of up to 180 days from the closing of the transaction.~~

"net investment income" tax.

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 was 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. Customers repurchased all remaining authorized shares pursuant to this program in January 2019. Accordingly, there were no common shares repurchased during ~~second~~third quarter 2020.

Dividends on 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 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.

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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 were phased in through January 1, 2019.

Item 3. Defaults Upon Senior Securities

None.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

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Item 6. Exhibits


Exhibit No.		Description

2.1	*	Agreement and Plan of Merger by and between Megalith Financial Acquisition Corp., MFAC Merger Sub Inc., Customers Bank, and BankMobile Technologies, Inc., as the Company, incorporated by reference to Exhibit 2.1 to the Customers Bancorp 8-K filed with the SEC on August 6,2020

2.2		First Amendment to Agreement and Plan Merger, dated November 2, 2020, by and among Megalith Financial Acquisition Corp., MFAC Merger Sub, Inc., Customers Bank, BankMobile Technologies, and Customers Bancorp, incorporated by reference to Exhibit 2.1 to the Customers Bancorp 8-K filed with the SEC on November 2, 2020

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

3.7		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

3.8		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

3.9		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		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

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 Indenture, 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~~4.2 to the Customers Bancorp Form 8-K filed with the SEC on December 9, 2019

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10.1						Sponsor Share Letter, dated August 6, 2020, by and among Sponsor, Megalith and Customers Bank, incorporated by reference to Exhibit 10.1 to the Customers Bancorp Form 8-K filed with the SEC on August 6, 2020

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10.2						Form of Lock-up Agreement, incorporated by reference to Exhibit 10.2 to the Customers Bancorp Form 8-K filed with the SEC on August 6,2020

10.3						Form of Non-Competition Agreement, incorporated by reference to Exhibit 10.3 to the Customers Bancorp Form 8-K filed with the SEC on August 6, 2020

10.4						Form of Registration Rights Agreement, incorporated by reference to Exhibit 10.4 to the Customers Bancorp Form 8-K filed with the SEC on August 6, 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

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 following financial statements from the Customers’ Annual Report on Form 10-Q as of and for the year ended ~~June~~September 30, 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.

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101.SCH						XBRL Taxonomy Extension Schema Document.

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						XBRL Taxonomy Extension Definitions Linkbase Document.

101.LAB						XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.

* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished to the SEC upon its request.

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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.

~~August 10,~~November 6, 2020

By:

/s/ Jay S. Sidhu

Name:

Jay S. Sidhu

Title:

Chairman and Chief Executive Officer
(Principal Executive Officer)

~~August 10,~~November 6, 2020

By:

/s/ Carla A. Leibold

Name:

Carla A. Leibold

Title:

Chief Financial Officer
(Principal Financial Officer)

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~~Exhibit Index~~


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

~~2.1~~	*	~~Agreement and Plan of Merger by and between Megalith Financial Acquisition Corp.,~~ ~~MFAC Merger Sub Inc.,Customers Bank, and BankMobile Technologies, Inc.,~~ ~~incorporated by reference to Exhibit 2.1 to the Customers Bancorp 8-K filed with the SEC on August 6, 2020~~

~~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

~~3.7~~		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

~~3.8~~		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

~~3.9~~		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~~		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

~~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 Indenture, 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~~		Sponsor Share Letter, dated August 6, 2020, by and among Sponsor, Megalith and Customers Bank, incorporated by reference to Exhibit 10.1 to the Customers Bancorp Form 8-K filed with the SEC on August 6, 2020

~~10.2~~		~~Form of Lock-up Agreement, incorporated by reference to Exhibit 10.2 to the Customers Bancorp Form 8-K filed with the SEC on August 6, 2020~~

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~~10.3~~						~~Form of Non-Competition Agreement, incorporated by reference to Exhibit 10.3 to the Customers Bancorp Form 8-K filed with the SEC on August 6, 2020~~

~~10.4~~						~~Form of Registration Rights Agreement, incorporated by reference to Exhibit 10.4 to the Customers Bancorp Form 8-K filed with the SEC on August 6, 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~~

~~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 following financial statements from the Customers’ Annual Report on Form 10-Q as of and for the year ended June 30, 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~~.

~~104~~						~~Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document~~

~~101.SCH~~						~~XBRL Taxonomy Extension Schema Document.~~

~~101.CAL~~						~~XBRL Taxonomy Extension Calculation Linkbase Document.~~

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

~~101.LAB~~						~~XBRL Taxonomy Extension Label Linkbase Document.~~

~~101.PRE~~						~~XBRL Taxonomy Extension Presentation Linkbase Document.~~

* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished to the SEC upon its request.