UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended June 30, ~~2016~~2017



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

For the transition period from to .

001-35542

(Commission File number)

(Exact name of registrant as specified in its charter)



Pennsylvania		27-2290659
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1015 Penn Avenue

Suite 103

Wyomissing PA 19610

(Address of principal executive offices)

(610) 933-2000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer” and~~filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller Reporting Company	¨

		Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

On July ~~29, 2016, 27,292,265~~31, 2017, 30,730,784 shares of Voting Common Stock were issued and outstanding.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Table of Contents



Part I

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of June 30, ~~2016~~2017 and for the three and six month periods ended June 30, ~~2016~~2017 and ~~2015~~2016 (unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4951

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7377


Item 4.	Controls and Procedures	7578

PART II

Item 1.	Legal Proceedings	7779

Item 1A.	Risk Factors	7779

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8281

Item 3.	Defaults Upon Senior Securities	8281

Item 4.	Mine Safety Disclosures	8281

Item 5.	Other Information	8281

Item 6.	Exhibits	8382

SIGNATURES		8584

Ex-31.1

Ex-31.2

Ex-32.1

Ex-32.2

Ex-101

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

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



	June 30, 2017			December 31, 2016
ASSETS
Cash and due from banks	$	18,503		$	17,485
Interest-earning deposits	383,187			227,224
Cash and cash equivalents	401,690			244,709
Investment securities available for sale, at fair value	1,012,605			493,474
Loans held for sale (includes $2,104,338 and $2,117,510, respectively, at fair value)	2,255,096			2,117,510
Loans receivable	6,723,278			6,142,390
Allowance for loan losses	(38,458		)	(37,315		)
Total loans receivable, net of allowance for loan losses	6,684,820			6,105,075
FHLB, Federal Reserve Bank, and other restricted stock	129,689			68,408
Accrued interest receivable	26,163			23,690
Bank premises and equipment, net	12,028			12,259
Bank-owned life insurance	213,902			161,494
Other real estate owned	2,358			3,108
Goodwill and other intangibles	3,633			3,639
Assets held for sale	67,796			79,271
Other assets	73,768			70,099
Total assets	$	10,883,548		$	9,382,736
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing	$	661,914		$	512,664
Interest-bearing	6,360,008			6,334,316
Total deposits	7,021,922			6,846,980
Non-interest bearing deposits held for sale	447,325			453,394
Federal funds purchased	150,000			83,000
FHLB advances	1,999,600			868,800
Other borrowings	186,030			87,123
Subordinated debt	108,831			108,783
Other liabilities held for sale	22,394			31,403
Accrued interest payable and other liabilities	37,157			47,381
Total liabilities	9,973,259			8,526,864
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, 2017 and December 31, 2016	217,471			217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 31,261,044 and 30,820,177 shares issued as of June 30, 2017 and December 31, 2016; 30,730,784 and 30,289,917 shares outstanding as of June 30, 2017 and December 31, 2016	31,261			30,820
Additional paid in capital	428,488			427,008
Retained earnings	235,938			193,698
Accumulated other comprehensive income (loss), net	5,364			(4,892		)
Treasury stock, at cost (530,260 shares as of June 30, 2017 and December 31, 2016)	(8,233		)	(8,233		)
Total shareholders’ equity	910,289			855,872
Total liabilities and shareholders’ equity	$	10,883,548		$	9,382,736

June 30,
2016 December 31,
2015
ASSETS
Cash and due from banks $ 46,767
$ 53,550
Interest-earning deposits 256,029
211,043
Cash and cash equivalents 302,796
264,593
Investment securities available for sale, at fair value 547,935
560,253
Loans held for sale (includes $2,274,294 and $1,757,807, respectively, at fair value) 2,301,821
1,797,064
Loans receivable 6,114,576
5,453,479
Allowance for loan losses (38,097 ) (35,647 )
Total loans receivable, net of allowance for loan losses 6,076,479
5,417,832
FHLB, Federal Reserve Bank, and other restricted stock 111,418
90,841
Accrued interest receivable 22,402
19,939
Bank premises and equipment, net 12,457
11,531
Bank-owned life insurance 159,486
157,211
Other real estate owned 5,066
5,057
Goodwill and other intangibles 17,197
3,651
Other assets 127,568
70,233
Total assets $ 9,684,625
$ 8,398,205
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 749,564
$ 653,679
Interest-bearing 6,001,695
5,255,822
Total deposits 6,751,259
5,909,501
Federal funds purchased 61,000
70,000
FHLB advances 1,906,900
1,625,300
Other borrowings 86,790
86,457
Subordinated debt 108,734
108,685
Accrued interest payable and other liabilities 89,380
44,360
Total liabilities 9,004,063
7,844,303
Shareholders’ equity:
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 5,600,000 and 2,300,000 shares issued and outstanding as of June 30, 2016 and December 31, 2015 135,270
55,569
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 27,817,093 and 27,432,061 shares issued as of June 30, 2016 and December 31, 2015; 27,286,833 and 26,901,801 shares outstanding as of June 30, 2016 and December 31, 2015 27,817
27,432
Additional paid in capital 367,843
362,607
Retained earnings 158,292
124,511
Accumulated other comprehensive loss, net (427 ) (7,984 )
Treasury stock, at cost (530,260 shares as of June 30, 2016 and December 31, 2015) (8,233 ) (8,233 )
Total shareholders’ equity 680,562
553,902
Total liabilities and shareholders’ equity $ 9,684,625
$ 8,398,205

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED

(amounts in thousands, except per share data)


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2016		2015			2016		2015			2017			2016			2017			2016
Interest income:
Loans receivable	$	59,013	$	42,801		$	113,485	$	85,894		$	67,036		$	59,013		$	128,497		$	113,485
Loans held for sale	17,429		13,522			31,535		24,422			17,524			17,429			31,470			31,534
Investment securities	3,638		2,253			7,347		4,616			7,823			3,638			13,710			7,347
Other	1,241		1,107			2,352		3,469			1,469			1,240			3,269			2,352
Total interest income	81,321		59,683			154,719		118,401			93,852			81,320			176,946			154,718
Interest expense:
Deposits	11,142		8,145			21,356		15,671			16,218			11,138			30,535			21,347
Other borrowings	1,620		1,496			3,225		2,984			1,993			1,620			3,600			3,225
FHLB advances	3,716		1,799			5,984		3,488			5,340			3,716			8,401			5,984
Subordinated debt	1,685		1,685			3,370		3,370			1,685			1,685			3,370			3,370
Total interest expense	18,163		13,125			33,935		25,513			25,236			18,159			45,906			33,926
Net interest income	63,158		46,558			120,784		92,888			68,616			63,161			131,040			120,792
Provision for loan losses	786		9,335			2,766		12,299			535			786			3,585			2,766
Net interest income after provision for loan losses	62,372		37,223			118,018		80,589			68,081			62,375			127,455			118,026
Non-interest income:
Mortgage warehouse transactional fees	3,074		2,799			5,622		5,072			2,523			3,074			4,743			5,622
Bank-owned life insurance											2,258			1,120			3,624			2,243
Gain on sale of SBA and other loans											573			285			1,901			929
Mortgage banking income											291			285			446			450
Deposit fees											258			278			582			531
Interchange and card revenue	1,890		132			2,259		262			126			160			329			304
Bank-owned life insurance	1,120		1,169			2,243		2,230
Deposit fees	787		247			1,042		426
Gain on sale of loans	285		827			929		2,058
Mortgage loans and banking income	285		287			450		438
Gain (loss) on sale of investment securities	—		(69		)	26		(69		)
Gain on sale of investment securities											3,183			—			3,183			26
Impairment loss on investment securities											(2,882		)	—			(4,585		)	—
Other	816		1,001			1,180		1,709			641			651			2,175			1,016
Total non-interest income	8,257		6,393			13,751		12,126			6,971			5,853			12,398			11,121
Non-interest expense:
Salaries and employee benefits	18,107		14,448			35,370		28,400			16,687			16,401			32,850			32,799
Professional services											2,834			2,750			5,827			5,071
Technology, communication and bank operations											2,542			2,448			5,861			4,833
Occupancy											2,536			2,363			5,121			4,600
FDIC assessments, taxes, and regulatory fees	4,435		995			8,465		4,273			2,320			4,289			3,953			8,130
Technology, communication and bank operations	3,854		2,838			6,496		5,369
Professional services	3,636		2,792			6,207		4,705
Occupancy	2,473		2,199			4,798		4,300
Acquisition related expenses	874		—			1,050		—
Loan workout expense (income)	487		(13		)	905		256
Loan workout											408			487			928			905
Other real estate owned											160			183			105			470
Advertising and promotion	334		429			587		776			153			194			334			337
Other real estate owned expense (income)	183		(580		)	470		304
Other	3,800		2,552			7,739		4,742			2,927			2,970			5,735			6,812
Total non-interest expense	38,183		25,660			72,087		53,125			30,567			32,085			60,714			63,957
Income before income tax expense	32,446		17,956			59,682		39,590
Income from continuing operations before income tax expense											44,485			36,143			79,139			65,190
Income tax expense	13,016		6,400			22,553		14,082			15,533			14,369			23,263			24,108
Net income from continuing operations											28,952			21,774			55,876			41,082
Loss from discontinued operations before income tax benefit											(8,436		)	(3,696		)	(10,334		)	(5,508		)
Income tax benefit from discontinued operations											(3,206		)	(1,405		)	(3,927		)	(2,093		)
Net loss from discontinued operations											(5,230		)	(2,291		)	(6,407		)	(3,415		)
Net income	19,430		11,556			37,129		25,508			23,722			19,483			49,469			37,667
Preferred stock dividends	2,062		507			3,348		507			3,615			2,062			7,229			3,348
Net income available to common shareholders	$	17,368	$	11,049		$	33,781	$	25,001		$	20,107		$	17,421		$	42,240		$	34,319
Basic earnings per common share from continuing operations											$	0.83		$	0.73		$	1.59		$	1.40
Basic earnings per common share	$	0.64	$	0.41		$	1.25	$	0.93		$	0.66		$	0.64		$	1.38		$	1.27
Diluted earnings per common share from continuing operations											$	0.78		$	0.67		$	1.49		$	1.28
Diluted earnings per common share	$	0.60	$	0.39		$	1.17	$	0.88		$	0.62		$	0.59		$	1.29		$	1.17

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED

(amounts in thousands)

Three Months Ended
June 30, Six Months Ended
June 30,
2016 2015 2016 2015
Net income $ 19,430
$ 11,556
$ 37,129
$ 25,508
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) on securities arising during the period 8,059
(5,423 ) 14,926
(4,964 )
Income tax effect (3,022 ) 2,034
(5,597 ) 1,818
Less: reclassification adjustment for (gains) losses on securities included in net income —
69
(26 ) 69
Income tax effect —
(26 ) 10
(26 )
Net unrealized gains (losses) 5,037
(3,346 ) 9,313
(3,103 )
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) on cash flow hedges arising during the period (813 ) 446
(3,413 ) (1,500 )
Income tax effect 305
(167 ) 1,280
611
Less: reclassification adjustment for (gains) losses included in net income 603
—
603
—
Income tax effect (226 ) —
(226 ) —
Net unrealized gains (losses) (131 ) 279
(1,756 ) (889 )
Other comprehensive income (loss), net of tax 4,906
(3,067 ) 7,557
(3,992 )
Comprehensive income $ 24,336
$ 8,489
$ 44,686
$ 21,516



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net income from continuing operations	$	28,952		$	21,774		$	55,876		$	41,082
Net loss from discontinued operations	(5,230		)	(2,291		)	(6,407		)	(3,415		)
Net income	23,722			19,483			49,469			37,667
Unrealized gains on available-for-sale securities:
Unrealized holding gains on securities arising during the period	19,885			8,059			18,762			14,926
Income tax effect	(7,755		)	(3,022		)	(7,317		)	(5,597		)
Reclassification adjustments for gains on securities included in net income	(3,183		)	—			(3,183		)	(26		)
Income tax effect	1,241			—			1,241			10
Net unrealized gains on available-for-sale securities	10,188			5,037			9,503			9,313
Unrealized gains (losses) on cash flow hedges:
Unrealized losses arising during the period	(689		)	(813		)	(360		)	(3,413		)
Income tax effect	269			305			141			1,280
Reclassification adjustment for losses included in net income	767			603			1,594			603
Income tax effect	(299		)	(226		)	(622		)	(226		)
Net unrealized gains (losses) on cash flow hedges	48			(131		)	753			(1,756		)
Other comprehensive income, net of income tax effect	10,236			4,906			10,256			7,557
Comprehensive income	$	33,958		$	24,389		$	59,725		$	45,224

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(amounts in thousands, except shares outstanding data)


	Six Months Ended June 30, 2016																				Six Months Ended June 30, 2017
	Preferred Stock			Common Stock																	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total			Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance, December 31, 2016																					9,000,000	$	217,471	30,289,917	$	30,820	$	427,008		$	193,698		$	(4,892	)	$	(8,233	)	$	855,872
Net income from continuing operations																					—	—		—	—		—			55,876			—			—			55,876
Net loss from discontinued operations																					—	—		—	—		—			(6,407		)	—			—			(6,407		)
Other comprehensive income																					—	—		—	—		—			—			10,256			—			10,256
Preferred stock dividends																					—	—		—	—		—			(7,229		)	—			—			(7,229		)
Share-based compensation expense																					—	—		—	—		2,934			—			—			—			2,934
Exercise of warrants																					—	—		43,974	44		376			—			—			—			420
Issuance of common stock under share-based compensation arrangements																					—	—		396,893	397		(1,830		)	—			—			—			(1,433		)
Balance, June 30, 2017																					9,000,000	$	217,471	30,730,784	$	31,261	$	428,488		$	235,938		$	5,364		$	(8,233	)	$	910,289

																					Six Months Ended June 30, 2016
																					Preferred Stock			Common Stock
																					Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance, December 31, 2015	2,300,000	$	55,569	26,901,801	$	27,432	$	362,607	$	124,511		$	(7,984	)	$	(8,233	)	$	553,902		2,300,000	$	55,569	26,901,801	$	27,432	$	362,607		$	124,511		$	(7,984	)	$	(8,233	)	$	553,902
Net income	—	—		—	—		—		37,129			—			—			37,129
Net income from continuing operations																					—	—		—	—		—			41,082			—			—			41,082
Net loss from discontinued operations																					—	—		—	—		—			(3,415		)	—			—			(3,415		)
Other comprehensive income	—	—		—	—		—		—			7,557			—			7,557			—	—		—	—		—			—			7,557			—			7,557
Issuance of common stock, net of offering costs of $15	—	—		7,291	7		152		—			—			—			159			—	—		7,291	7		152			—			—			—			159
Issuance of preferred stock, net of offering costs of $2,799	3,300,000	79,701		—	—		—		—			—			—			79,701			3,300,000	79,701		—	—		—			—			—			—			79,701
Preferred stock dividends	—	—		—	—		—		(3,348		)	—			—			(3,348		)	—	—		—	—		—			(3,348		)	—						(3,348		)
Share-based compensation expense	—	—		—	—		2,941		—			—			—			2,941			—	—		—	—		2,941			—			—			—			2,941
Exercise of warrants	—	—		239,478	240		831		—			—			—			1,071			—	—		239,478	240		831			—			—			—			1,071
Issuance of common stock under share-based compensation arrangements	—	—		138,263	138		1,312		—			—			—			1,450			—	—		138,263	138		764			—			—			—			902
Balance, June 30, 2016	5,600,000	$	135,270	27,286,833	$	27,817	$	367,843	$	158,292		$	(427	)	$	(8,233	)	$	680,562		5,600,000	$	135,270	27,286,833	$	27,817	$	367,295		$	158,830		$	(427	)	$	(8,233	)	$	680,552

	Six Months Ended June 30, 2015
	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance, December 31, 2014	—	$	—	26,745,529	$	27,278	$	355,822	$	68,421		$	(122	)	$	(8,254	)	$	443,145
Net income	—	—		—	—		—		25,508			—			—			25,508
Other comprehensive loss	—	—		—	—		—		—			(3,992		)	—			(3,992		)
Issuance of preferred stock, net of offering costs of $1,931	2,300,000	55,569		—	—		—		—			—			—			55,569
Preferred stock dividends	—	—		—	—		—		(507		)	—						(507		)
Share-based compensation expense	—	—		—	—		2,359		—			—			—			2,359
Issuance of common stock under share-based compensation arrangements	—	—		126,216	124		1,274		—			—			21			1,419
Balance, June 30, 2015	2,300,000	$	55,569	26,871,745	$	27,402	$	359,455	$	93,422		$	(4,114	)	$	(8,233	)	$	523,501

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)


	Six Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2017			2016
Cash Flows from Operating Activities
Net income	$	37,129		$	25,508
Adjustments to reconcile net income to net cash used in operating activities:
Cash Flows from Operating Activities of Continuing Operations
Net income from continuing operations							$	55,876		$	41,082
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses, net of change to FDIC receivable and clawback liability	2,766			12,299			3,585			2,766
Provision for depreciation and amortization	2,143			2,068			2,393			1,728
Share-based compensation	3,394			2,755			3,153			3,294
Deferred taxes	(2,025		)	(3,476		)	(2,588		)	(2,563		)
Net amortization of investment securities premiums and discounts	424			404			232			424
(Gain) loss on sale of investment securities	(26		)	69
Gain on sale of investment securities							(3,183		)	(26		)
Impairment loss on investment securities							4,585			—
Gain on sale of mortgages and other loans	(1,189		)	(2,094		)	(2,183		)	(1,189		)
Origination of loans held for sale	(17,142,862		)	(15,090,554		)	(14,714,280		)	(17,142,862		)
Proceeds from the sale of loans held for sale	16,626,639			14,476,771			14,727,734			16,626,639
Decrease (increase) in FDIC loss sharing receivable net of clawback liability	255			(1,924		)
Decrease in FDIC loss sharing receivable net of clawback liability							—			255
Amortization of fair value discounts and premiums	235			632			98			235
Net loss on sales of other real estate owned	80			334
Net (gain) loss on sales of other real estate owned							(163		)	80
Valuation and other adjustments to other real estate owned, net of FDIC receivable	193			(308		)	231			193
Earnings on investment in bank-owned life insurance	(2,243		)	(2,230		)	(3,624		)	(2,243		)
(Increase) decrease in accrued interest receivable and other assets	(31,201		)	1,158
Increase (decrease) in accrued interest payable and other liabilities	14,793			(4,314		)
Net Cash Used In Operating Activities	(491,495		)	(582,902		)
Cash Flows from Investing Activities
Increase in accrued interest receivable and other assets							(10,618		)	(31,604		)
(Decrease) increase in accrued interest payable and other liabilities							(9,186		)	13,148
Net Cash Provided By (Used In) Operating Activities of Continuing Operations							52,062			(490,643		)
Cash Flows from Investing Activities of Continuing Operations
Proceeds from maturities, calls and principal repayments of securities available for sale	28,973			43,872			22,843			28,973
Proceeds from sales of investment securities available for sale	2,848			492			115,982			2,848
Purchases of investment securities available for sale	(5,000		)	(7,000		)	(644,011		)	(5,000		)
Net increase in loans	(667,403		)	(345,630		)	(582,571		)	(667,584		)
Proceeds from sales of loans	17,527			148,916			112,927			17,527
Purchase of loans							(262,641		)	—
Purchases of bank-owned life insurance	—			(15,000		)	(50,000		)	—
Net proceeds from (purchases of) FHLB, Federal Reserve Bank, and other restricted stock	(20,577		)	3,854
(Payments to) reimbursements from the FDIC on loss sharing agreements	(668		)	503
Proceeds from bank-owned life insurance							1,418			—
Net purchases of FHLB, Federal Reserve Bank, and other restricted stock							(61,281		)	(20,577		)
Payments to the FDIC on loss sharing agreements							—			(668		)
Purchases of bank premises and equipment	(2,185		)	(1,799		)	(1,274		)	(1,950		)
Proceeds from sales of other real estate owned	310			4,431			682			310
Acquisition of Disbursement business, net	(17,000		)	—
Net Cash Used In Investing Activities	(663,175		)	(167,361		)
Cash Flows from Financing Activities
Net Cash Used In Investing Activities of Continuing Operations							(1,347,926		)	(646,121		)
Cash Flows from Financing Activities of Continuing Operations
Net increase in deposits	841,760			944,632			174,942			848,808
Net increase (decrease) in short-term borrowed funds from the FHLB	206,600			(255,000		)
Net decrease in federal funds purchased	(9,000		)	—
Net increase in short-term borrowed funds from the FHLB							1,130,800			206,600
Net increase (decrease) in federal funds purchased							67,000			(9,000		)
Proceeds from long-term FHLB borrowings	75,000			25,000			—			75,000
Net proceeds from issuance of long-term debt							98,574			—
Net proceeds from issuance of preferred stock	79,701			55,569			—			79,701
Preferred stock dividends paid	(3,110		)	—			(7,229		)	(3,110		)
Exercise and redemption of warrants	1,071			—			420			1,071
Payments of employee taxes withheld from share-based awards							(3,961		)	(702		)
Proceeds from issuance of common stock	851			628			1,900			1,553
Net Cash Provided by Financing Activities	1,192,873			770,829
Net Cash Provided By Financing Activities of Continuing Operations							1,462,446			1,199,921
Net Increase in Cash and Cash Equivalents of Continuing Operations							166,582			63,157
Discontinued Operations:
Net cash used in operating activities							(16,106		)	(20,851		)
Net cash provided by (used in) investing activities							9,860			(17,054		)
Net cash used in financing activities							(3,355		)	(7,048		)
Net Cash Used in Discontinued Operations							(9,601		)	(44,953		)
Net Increase in Cash and Cash Equivalents	38,203			20,566			156,981			18,204
Cash and Cash Equivalents – Beginning	264,593			371,023			244,709			264,593
Cash and Cash Equivalents – Ending	$	302,796		$	391,589		$	401,690		$	282,797

	(continued)						(continued)



Supplementary Cash Flows Information
Interest paid	$	33,137		$	25,302		$	44,983		$	33,137
Income taxes paid	23,539			17,387			21,715			23,539
Non-cash items:
Transfer of loans to other real estate owned	$	592		$	2,405		$	—		$	592
Transfer of loans held for investment to loans held for sale							$	150,758		$	—

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF THE BUSINESS

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

Customers Bancorp, Inc. and its wholly owned subsidiaries, Customers Bank, and non-bank subsidiaries, serve residents and businesses in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Rye, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan, New York; and nationally for certain loan and deposit products. The Bank has 14 full-service branches and provides commercial banking products, primarily loans and deposits. In addition, Customers Bank also administratively supports loan and other financial products to customers through its ~~limited purpose~~limited-purpose offices in Boston, Massachusetts, Providence, Rhode Island, Portsmouth, New Hampshire, Manhattan and Melville, New York and Philadelphia, Pennsylvania. The Bank also provides liquidity to residential mortgage originators nationwide through commercial loans to mortgage companies.

Through BankMobile, a division of Customers Bank, Customers offers state of the art high tech digital banking services to consumers, students, and the "under banked" nationwide. The combination of the BankMobile technology software platform with the ~~OneAccount~~Vibe Student Checking and Refund Management Disbursement Services business (the "Disbursement business") acquired from Higher One Holdings, Inc. and Higher One, Inc. (together, "Higher One") in June 2016 propelled BankMobile to one of the largest mobile banking services in the United States by number of customers. Customers ~~Bank~~has announced its intent to sell BankMobile and anticipates the sale to close within one year. Accordingly, BankMobile has been classified as "held for sale" in the consolidated balance sheets and BankMobile's operating results and associated cash flows have been presented as discontinued operations in the consolidated financial statements, see NOTE 3 - DISCONTINUED OPERATIONS.

Customers is subject to regulation of the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank and is periodically examined by those regulatory authorities. Customers Bancorp has made certain equity investments through its wholly owned subsidiaries CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd.

NOTE 2 - ACQUISITION ACTIVITY

On June 15, 2016, Customers completed the acquisition of substantially all of the assets and the assumption of certain liabilities of the Disbursement business from Higher One. The acquisition was completed pursuant to the terms of an Asset Purchase Agreement (the "Purchase Agreement") dated as of December 15, 2015 between Customers and Higher One. Under the terms of the Purchase Agreement, Customers also acquired all existing relationships with vendors and educational institutions, and all intellectual property and assumed normal business related liabilities. In conjunction with the acquisition, Customers hired approximately 225 Higher One employees primarily located in New Haven, Connecticut that manage the Disbursement business and serve the Disbursement business customers.

The transaction contemplates aggregate guaranteed payments to Higher One of $42 million. The aggregate purchase price payable by Customers is $37 million in cash, with the payments to be made as follows: (i) $17 million in cash paid upon the closing of the acquisition, (ii) $10 million in cash upon the first anniversary of the closing and (iii) $10 million in cash paid upon the second anniversary of the closing. In accordance with the terms of the agreement, $10 million was paid to Higher One in June 2017. In addition, concurrently with the closing, the parties entered into a Transition Services Agreement pursuant to which Higher One ~~will provide~~provided certain transition services to Customers through June 30, 2017. As consideration for these services, Customers ~~will pay~~paid Higher One an additional $5 million in cash. Customers also will be required to make additional payments to Higher One if, during the three years following the closing, revenues from the acquired Disbursement business exceed $75 million in a year. The ~~possible~~potential payment ~~will be~~is equal to 35% of the amount the Disbursement business related revenue exceeds $75 million in each year. As of June 30, ~~2016,~~2017, Customers has not recorded a liability for any additional contingent consideration payable under the Purchase Agreement.

As specified in the Purchase Agreement, the payments of $10 million payable to Higher One upon each of the first and second anniversary of the transaction closing were placed into an escrow account with a third party. The escrow account with $10 million and $20 million, respectively, as of June 30, 2017 and December 31, 2016 in aggregate ~~in such escrow account is~~restricted cash and the corresponding obligation to pay Higher One pursuant to the terms of the Purchase Agreement have been assigned to

BankMobile and are presented ~~in "Cash~~as "Assets held for sale" and ~~due from banks" and "Accrued interest payable and other liabilities"~~"Other liabilities held for sale" on the June 30, 2017 and December 31, 2016 consolidated balance ~~sheet~~sheets. For more information regarding Customers' plans for BankMobile and ~~is considered restricted cash.~~

the presentation of BankMobile within the consolidated financial statements, see NOTE 3 - DISCONTINUED OPERATIONS.

The ~~following table presents the fair values of the~~ assets acquired and liabilities assumed were initially presented at their estimated fair values based on a preliminary

allocation of the purchase price. In many cases, the determination of these fair values required management to make estimates

about discount rates, future expected cash flows, market conditions and other future events that were highly subjective and

subject to change. The fair value estimates were considered preliminary and subject to change for up to one year after the

closing date of the acquisition as additional information became available. Based on a preliminary purchase price allocation, Customers recorded $4.3 million in goodwill as a result of the acquisition. At December 31, 2016, Customers recorded adjustments to the estimated fair values of prepaid expenses and other liabilities, which resulted in a $1.0 million increase in goodwill. The adjusted amount of goodwill of $5.3 million reflects the excess purchase price over the estimated fair value of

the net assets acquired. The goodwill recorded is deductible for tax purposes. The purchase price allocation is considered final as of June ~~15, 2016:~~

30, 2017. The following table summarizes the final adjusted amounts recognized for assets acquired and liabilities assumed:



(amounts in thousands)	June 15, 2016
Fair value of assets acquired:
Developed software	$	27,400	$	27,400
Other intangible assets	9,300		9,300
Accounts receivable	2,784		2,784
Prepaid expenses	1,180		418
Fixed assets, net	229		229
Total assets acquired	40,893		40,131

Fair value of liabilities assumed:
Other liabilities	5,531		5,735
Deferred revenue	2,655		2,655
Total liabilities assumed	8,186		8,390

Net assets acquired	$	32,707	$	31,741

Transaction cash consideration (1)	$	37,000	$	37,000

Goodwill recognized	$	4,293	$	5,259

(1) Includes $10 million payable to Higher One upon each of the first and second anniversary of the transaction closing, which has been placed into an escrow account with a third party (aggregate amount of $20 ~~million)~~million at December 31, 2016).

~~Based on a preliminary purchase price allocation,~~ Customers ~~recorded $4.3~~paid the first $10 million due to Higher One in goodwill as a result of the acquisition. The amount of goodwill recorded reflects the excess purchase price over the estimated fair value of the net assets acquired. The goodwill recorded is deductible for tax purposes.

The assets acquired and liabilities assumed are presented at their estimated fair values. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective and subject to change. The fair value estimates are considered preliminary and subject to change for up to one year after the closing date of the acquisition as additional information becomes available.June 2017.

The fair value for the developed software iswas estimated based on expected revenue attributable to the software utilizing a discounted cash flow methodology giving consideration to potential obsolescence. ~~Developed~~The developed software iswas being amortized over ten years based on the estimated economic benefits received. The fair ~~value~~values for the other intangible assets ~~represents~~represent the value of existing student and university relationships and a non-compete agreement with Higher One based on estimated retention rates and discounted cash flows. Other intangible assets ~~are~~were being amortized over an estimated life ranging from four to twenty years. Because BankMobile has been classified as held for sale, these assets are reported at the lower of cost or market on the consolidated balance sheet and are no longer being amortized. At June 30, 2017, Customers estimated the fair values of these assets to be higher than their amortized cost basis. Accordingly, a lower of cost or fair value adjustment was not recorded in second quarter 2017.

NOTE 3 – DISCONTINUED OPERATIONS

In ~~connection~~third quarter 2016, Customers announced its intent to sell BankMobile. Customers anticipates a sale to close within one year. Because BankMobile met the criteria to be classified as held for sale at June 30, 2017, the assets and liabilities of BankMobile have been presented as "Assets held for sale," "Non-interest bearing deposits held for sale," and "Other liabilities held for sale" on the consolidated balance sheets at June 30, 2017 and December 31, 2016. BankMobile's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying consolidated financial statements, and prior period amounts have been reclassified to conform with the ~~Disbursement business acquisition, Customers incurred acquisition~~current period presentation. BankMobile will continue to be presented as "Discontinued operations" until completion of the sale or at such time that BankMobile no longer meets the held-for-sale criteria.

The following summarized financial information related ~~expenses of $0.9~~to BankMobile has been segregated from continuing operations and ~~$1.1 million~~reported as discontinued operations for the ~~three~~periods presented. The amounts presented below exclude the effect of internal allocations made by management when assessing the performance of the BankMobile operating segment. For more information on the BankMobile operating segment, see NOTE 14 - BUSINESS SEGMENTS.



	Three Months Ended June 30,						Six Months Ended June 30,
(amounts in thousands)	2017			2016			2017			2016
Discontinued operations:
Interest income	$	1		$	—		$	2		$	—
Interest expense	11			4			18			9
Net interest income	(10		)	(4		)	(16		)	(9		)
Non-interest income	11,420			2,403			28,746			2,630
Non-interest expense	19,846			6,095			39,064			8,129
Loss from discontinued operations before income tax benefit	(8,436		)	(3,696		)	(10,334		)	(5,508		)
Income tax benefit from discontinued operations	(3,206		)	(1,405		)	(3,927		)	(2,093		)
Net loss from discontinued operations	$	(5,230	)	$	(2,291	)	$	(6,407	)	$	(3,415	)

The assets and ~~six months ended~~liabilities held for sale on the consolidated balance sheets as of June 30, 2017 and December 31, 2016 ~~related predominantly~~were as follows:



	June 30, 2017		December 31, 2016
(amounts in thousands)	June 30, 2017		December 31, 2016
ASSETS
Cash and cash equivalents (1)	$	11,552	$	20,000
Loans receivable	1,930		12,248
Bank premises and equipment, net	968		510
Goodwill and other intangibles	13,982		13,982
Other assets	39,364		32,531
Assets held for sale	$	67,796	$	79,271
LIABILITIES
Demand, non-interest bearing deposits	$	447,325	$	453,394
Other liabilities:
Interest bearing deposits	6,116		3,401
Accrued expenses and other liabilities (1)	16,278		28,002
Other liabilities held for sale	22,394		31,403
Liabilities held for sale	$	469,719	$	484,797

(1) Includes $10 million and $20 million payable to ~~professional services.~~Higher One with matching amounts in restricted cash held in an escrow account with a third party as of June 30, 2017 and December 31, 2016, respectively.

Customers anticipates that cash, securities or loans (or a combination thereof) with a market value equal to approximately the amount of BankMobile deposits outstanding at the time the anticipated sale closes will be included in the net assets transferred.

NOTE 34 — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Presentation

The interim unaudited consolidated financial statements of Customers Bancorp and subsidiaries have been prepared 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, ~~2015~~2016 consolidated balance sheet presented in this report has been derived from Customers Bancorp’s audited ~~2015~~2016 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 ~~2015~~2016 consolidated financial statements of Customers Bancorp and subsidiaries included in ~~the~~ Customers' Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 filed with the SEC on ~~February 26, 2016.~~March 8, 2017. That Form 10-K describes Customers Bancorp’s significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Restrictions on Cash and Amounts due from Banks; Business Combinations; Investment Securities; Loan Accounting Framework; Allowance for Loan Losses; Goodwill and other Intangible Assets; Investments in FHLB, Federal Reserve Bank, and other restricted stock; Other Real Estate Owned; FDIC Loss Sharing Receivable and Clawback Liability; Bank-Owned Life Insurance; Bank Premises and Equipment; Treasury Stock; Income Taxes; Share-Based Compensation; Segments; Derivative Instruments and Hedging; Comprehensive Income; and Earnings per Share. Certain prior period amounts have been reclassified to conform to the current period presentation. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year.

There have been no material changes to Customers' significant accounting policies as disclosed in Customers' Annual Report on Form 10-K for the year ended December 31, 2016. Presented below are ~~Customers Bancorp's significant accounting policies that were updated during the three months ended June 30, 2016 to address new or evolving activities and~~ recently issued accounting standards ~~and updates~~ that ~~were issued or effective during 2016.~~

~~Restrictions on Cash and Amounts due from Banks~~

Customers ~~Bank is required to maintain average balances on hand or with~~has adopted as well as those that the ~~Federal Reserve Bank. As of June 30, 2016 and December 31, 2015, these reserve balances were $82.6 million and $73.2 million, respectively.~~

In connection with the acquisition of the Disbursement business from Higher One, Customers placed $20 million in an escrow account with a third party to be paid to Higher One over the next two years. This cash is restricted in use and is reported in "Cash and due from banks" on the consolidated balance sheet as of June 30, 2016.

~~Business Combinations~~

~~Business combinations are accounted for by applying the acquisition method in accordance with~~Financial Accounting Standards ~~Codification (ASC) 805,~~ ~~Business Combinations. Under the acquisition method, identifiable assets acquired and liabilities assumed~~Board (“FASB”) has issued but are ~~measured at their fair values as of~~not yet effective or that ~~date, and are recognized separately from goodwill. Results of operations of the acquired entity are included in the consolidated statement of income from the date of acquisition.~~Customers has not yet adopted.

~~Goodwill and Other Intangible Assets~~

Goodwill represents the excess of cost over the identifiable net assets of businesses acquired. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as customer relationship intangibles, core deposit intangibles, and non-compete agreements, are amortized over their estimated useful lives and subject to periodic impairment testing. Goodwill and other intangible assets recognized as part of the Disbursement business acquisition are based on a preliminary allocation of the purchase price and subject to change for up to one year following the date of the acquisition closing.

Goodwill and other intangible assets are reviewed for impairment annually as of October 31 and between annual tests when events and circumstances indicate that impairment may have occurred. Impairment is a condition that exists when the carrying amount of goodwill or other intangible asset exceeds its implied fair value. A qualitative factor test can be performed to determine whether it is necessary to perform the two-step quantitative impairment test. If the results of the qualitative review indicate that it is unlikely (less than 50% probability) that the carrying value of the reporting unit exceeds its fair value, no further evaluation needs to be performed. As of June 30, 2016 and December 31, 2015, goodwill and other intangibles totaled $17.2 million and $3.7 million, respectively.

Recently Issued Accounting Standards

Accounting Standards Adopted in 2017

Since January 1, 2017, Customers has adopted the following FASB Accounting Standard Updates (“ASUs”), none of which had a material impact to Customers’ consolidated financial statements:

Customers adopted ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, on a prospective basis. This ASU clarifies that a change in the counterparties to a derivative contract (i.e. a novation), in and of itself, does not require the de-designation of a hedging relationship provided that all the other hedge accounting criteria continue to be met.

Customers also adopted ASU 2016-06, Contingent Put and Call Options in Debt Instruments. This ASU clarifies that a contingency of put or call exercise does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis of hybrid financial instruments. In other words, a contingent put or call option embedded in a debt instrument would be evaluated for possible separate accounting as a derivative instrument without regard to the nature of the exercise contingency. However, as required under the existing guidance, companies will still need to evaluate the other relevant embedded derivative guidance, such as whether the payoff from the contingent put or call option is adjusted based on changes in an index other than interest rates or credit risk, and whether the debt involves a substantial premium or discount. As the adoption did not result in any significant impact to Customers’ consolidated financial statements, it did not result in a modified retrospective application.

Customers also adopted ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting, on a prospective basis. This ASU eliminates the requirement for the retrospective use of the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence of an investor. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for the equity method of accounting.

Customers also adopted ASU 2016-17, Consolidation - Interests Held Through Related Parties that are Under Common Control. This ASU amends the guidance included in ASU 2015-02, Consolidation: Amendments to Consolidation Analysis which Customers adopted in first quarter 2016. This ASU makes a narrow amendment that requires that a single decision maker considers indirect economic interests in an entity held through related parties that are under common control on a proportionate basis when determining whether it is the primary beneficiary of that VIE. Prior to this amendment, indirect interests held through related parties that are under common control were to be considered equivalent of the single decision maker’s direct interests in their entirety which could result in a single decision maker consolidating the VIE. As the adoption did not result in any significant impact to Customers’ consolidated financial statements, it did not result in a full or modified retrospective application.

Accounting Standards Issued But Not Yet Adopted

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification in Accounting Standards Codification (“ASC”) 718. Under this ASU, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award as equity or a liability changes as a result of the change in terms or conditions. This ASU does not change the accounting for modifications under ASC 718. The ASU will be effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. Adoption of this new guidance must be applied prospectively to an award modified on or after the adoption date. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities, which requires that premiums for certain callable debt securities held be amortized to their earliest call date. This ASU does not affect the accounting for securities purchased at a discount. This ASU will be effective for Customers for its first reporting period beginning after December 15, 2018, with earlier adoption permitted. Adoption of this new guidance must be applied on a modified retrospective approach. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope and application of the accounting guidance on the sale of nonfinancial assets to non-customers, including partial sales. This ASU defines an in-substance nonfinancial asset, in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the scope of Subtopic 610-20. This ASU also unifies the guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. This ASU will be effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. The adoption of this new guidance must be applied on a full or modified retrospective basis. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which will simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test that requires an entity to determine the implied fair value of its goodwill through a hypothetical purchase price allocation. Instead, under this ASU, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. All other goodwill impairment guidance will remain largely unchanged. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will also be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective for Customers for its first reporting period beginning after December 15, 2019. Early adoption is permitted for impairment tests performed after January 1, 2017. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which narrows the definition of a business and clarifies that to be considered a business, the fair value of gross assets acquired (or disposed of) should not be

concentrated in a single identifiable asset or a group of similar identifiable assets. In addition, to be considered a business, an acquisition would have to include an input and a substantive process that together will significantly contribute to the ability to create an output. Also, the amendments narrow the definition of the term “output” so that it is consistent with how outputs are defined in ASC Topic 606, Revenue from Contracts with Customers. This ASU is effective for Customers for its first reporting period beginning after December 15, 2017. Adoption of this new guidance must be applied on a prospective basis. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU is effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. Customers does not expect the adoption to this ASU to have a significant impact on the presentation of its statement of cash flows.

In October 2016, the FASB issued ASU 2016-16-Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This eliminates the current exception for all intra-entity transfers of an asset other than inventory that requires deferral of the tax effects until the asset is sold to a third party or otherwise recovered through use.

This ASU is effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which aims to reduce the existing diversity in practice with regards to the following specific items in the Statement of Cash Flows:


1.	Cash payments for debt prepayment or extinguishment costs will be classified in financing activities.


2.	Upon settlement of zero-coupon bonds and bonds with insignificant cash coupons, the portion of the payment attributable to imputed interest will be classified as an operating activity, while the portion of the payment attributable to principal will be classified as a financing activity.

Cash paid by an acquirer soon after a business combination (i.e. approximately three months or less) for the settlement of a contingent consideration liability will be classified in investing activities. Payments made thereafter should be separated between financing activities and operating activities. Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date will be classified in financing activities; any excess will be classified in operating activities.


4.	Cash proceeds received from the settlement of insurance claims will be classified on the basis of the related insurance coverage (that is, the nature of the loss). Cash proceeds from lump-sum settlements will be classified based on the nature of each loss component included in the settlement.


5.	Cash proceeds received from the settlement of bank-owned life insurance (BOLI) policies will be classified as cash inflows from investing activities. Cash payments for premiums on BOLI may be classified as cash outflows for investing, operating, or a combination of both.


6.	A transferor’s beneficial interest obtained in a securitization of financial assets will be disclosed as a non-cash activity, and cash received from beneficial interests will be classified in investing activities.


7.	Distributions received from equity method investees will be classified using either a cumulative earnings approach or a look-through approach as an accounting policy election.

The ASU contains additional guidance clarifying when an entity should separate cash receipts and cash payments and classify them into more than one class of cash flows (including when reasonable judgment is required to estimate and allocate cash flows) versus when an entity should classify the aggregate amount into one class of cash flows on the basis of predominance.This ASU is effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. Customers is currently evaluating the impact of this ASU and does not expect the ASU to have a material impact on the presentation of its statement of cash flows.

In June 2016, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ~~Accounting Standards Update ("ASU") No.~~ASU 2016-13—, Financial ~~Instruments—~~Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate lifetime expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset (including HTM securities), presents the net amount expected to be collected on the financial asset. This ASU will replace today’s “incurred loss” approach. The CECL model is expected to result in ~~more timely~~earlier recognition of credit losses. ~~The~~For available-for-sale debt securities, entities will be required to record allowances for credit losses rather than reduce the carrying amount, as they do today under the OTTI model, and will be allowed to reverse previously established allowances in the event the credit of the issuer improves. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU ~~also requires new disclosures for financial assets measured at amortized cost, loans, and available for sale debt securities. For public business entities, the amendments in this ASU are~~is effective for ~~fiscal years~~Customers for its first reporting period beginning after December 15, ~~2019, including interim periods within those fiscal years.~~2019. Earlier adoption is also permitted. Adoption of the new guidance can be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Customers is currently evaluating the impact of this ASU, initiating implementation efforts across the ~~pending~~company, and planning for loss modeling requirements consistent with lifetime expected loss estimates. It is expected that the new model will include different assumptions used in calculating credit losses, such as estimating losses over the estimated life of a financial asset and will consider expected future changes in macroeconomic conditions. The adoption of this ASU may result in an increase to Customers' allowance for loan losses which will depend upon the nature and characteristics of Customers' loan portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at that date. Customers currently does not intend to early adopt this new ~~standard on its consolidated financial statements.~~guidance.

In March 2016, the FASB issued ASU ~~No. 2016-09~~2016-04, ~~—Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting.~~ The FASB issued this ASU as part of its initiative to reduce complexity in accounting standards. The areas for simplification in this ASU involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. In addition, the amendments in this ASU eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. Customers is currently evaluating the impact of this ASU on its financial condition and results of operations.

~~In March 2016, the FASB issued ASU No. 2016-07—Investments—Equity Method and Joint Ventures.~~ To simplify the accounting for equity method investments, the amendments in the ASU eliminate the requirement in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The ASU is effective for all entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

~~In March 2016, the FASB issued ASU No. 2016-06—Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments.~~ Topic 815 requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met, including the “clearly and closely related” criterion. The amendments in this ASU clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. Namely, this decision sequence requires that an entity consider whether:


1.	~~the payoff is adjusted based on changes in an index;~~


2.	~~the payoff is indexed to an underlying other than interest rates or credit risk;~~


3.	~~the debt involves a substantial premium or discount; and~~


4.	~~the call (put) option is contingently exercisable.~~

The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

~~In March 2016, the FASB issued ASU No. 2016-05—Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships~~. The term novation refers to replacing one counterparty to a derivative instrument with a new counterparty. That change occurs for a variety of reasons, including financial institution mergers, intercompany transactions, an entity exiting a particular derivatives business or relationship, an entity managing against internal credit limits, or in response to laws or regulatory requirements. The amendments in this ASU clarify that a change in the counterparty to a

derivative instrument that has been designated as the hedging instrument under Topic 815, does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

~~In March 2016, the FASB issued ASU No. 2016-04—Liabilities—~~Liabilities - Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products~~. When an entity sells a~~, that would require issuers of prepaid stored-value product (such as gift cards, telecommunication cards, and traveler’s checks), ~~it recognizes a~~to derecognize the financial liability related to those products for ~~its obligation to provide~~breakage. Breakage is the ~~product holder with the ability to purchase goods or services at a third-party merchant. When a~~value of prepaid stored-value ~~product goes unused wholly~~products that is not redeemed by consumers for goods, services or ~~partially for an indefinite time period, the amount that remains on the product~~cash. There is ~~referred to as breakage. There~~ currently isa diversity in the methodology used to recognize breakage. Subtopic 405-20,Extinguishment of Liabilities, includes derecognition guidance for both financial liabilities and nonfinancial liabilities, and Topic 606, Revenue from Contracts with Customers, includes authoritative breakage guidance but excludes financial liabilities. The amendments in this ASU provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage be accounted for consistent with the breakage guidance in Topic 606. ~~For public business entities, the amendments are~~This ASU is effective for ~~financial statements issued~~Customers for ~~fiscal years~~its first reporting period beginning after December 15, ~~2017, and interim periods within those fiscal years.~~2017. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, or results of ~~operations.~~operations and consolidated financial statements.

In February 2016, the FASB issued ASU ~~No.~~ 2016-02, ~~Leases.~~Leases, which supersedes the current lease accounting guidance for both lessees and lessors under ASC 840, Leases. From the lessee's perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessees. ~~From the lessor's perspective, the~~The new ~~standard requires a lessor~~guidance will require lessors to ~~classify~~account for leases ~~as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset,~~using an approach that is substantially similar to the ~~lessee. If risks~~existing guidance for sales-type, direct financing leases and ~~rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an~~ operating ~~lease results.~~leases. The new standard is effective for ~~fiscal years~~Customers for its first reporting period beginning after December 15, ~~2018, including interim periods within those fiscal years.~~2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Customers is currently evaluating the impact of this ASU on its financial condition and results of operations and expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the ~~pending adoption~~present value of unpaid lease payments as of the ~~new standard on its consolidated financial statements.~~date of adoption. Customers does not intend to early adopt this ASU.

In January 2016, the FASB issued ASU ~~No.~~ 2016-01, Recognition and Measurement of Financial ~~Instruments - Overall.~~Assets and Financial Liabilities. The guidance in this ASU among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements and (7) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to

available-for-sale securities. The guidance in this ASU is effective for ~~fiscal years~~Customers for its first reporting period beginning after December 15, 2017, including interim periods within those fiscal years. Customers ~~does not expect~~is in the process of evaluating the impacts of the adoption of this ASU, ~~to have a significant impact on its financial condition or results of operations.~~

~~In November 2015, the FASB issued ASU 2015-17,~~ ~~Income Taxes~~. The amendments in this ASU, which will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS), require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The amendments in this ASU apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this ASU. For public business entities, the amendments in this ASU are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Customershowever, it does not expect the ~~adoption of this ASU~~impact to ~~have a~~be significant ~~impact on~~to its financial condition, or results of ~~operations.~~

~~In September 2015, the FASB issued ASU 2015-16,~~ ~~Simplifying the Accounting for Measurement-Period Adjustments~~. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the guidance in this ASU eliminates the requirement to retrospectively account for those adjustmentsoperations and requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance in this ASU was effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years and should be applied prospectively to adjustment to provisional amounts that occur after the effective date of this ASU. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

~~In April 2015 and August 2015, the FASB issued ASU 2015-03,~~ ~~Simplifying the Presentation of Debt Issuance Costs~~ ~~and ASU2015-15,~~ ~~Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements- Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting,~~ ~~respectively~~. The guidance in these ASUs is intended to simplify the presentation of debt issuance costs, and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability consistent with debt discounts and is applicable on a retrospective basis. The guidance in these ASUs was effective for interim and annual periods beginning after December 15, 2015. The adoption of these ASUs on January 1, 2016 resulted in a reclassification adjustment, which reduced "Other borrowings" by $1.8 million and "Subordinated debt" by $1.3 million with a corresponding decrease in "Other assets" of $3.1 million as of December 31, 2015.

~~In February 2015, the FASB issued ASU 2015-02,~~ ~~Amendments to the Consolidation Analysis.~~ The guidance in this ASU affects reporting entities that must determine whether they should consolidate certain legal entities. this update modifies the evaluation of whether limited partnerships or similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. The guidance in this ASU was effective for annual and interim periods beginning after December 15, 2015. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

~~In January 2015, the FASB issued ASU 2015-01,~~ ~~Income Statement - Extraordinary and Unusual Items - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.~~ The guidance in this ASU was issued as part of the FASB's initiative to reduce complexity in accounting standards and eliminates from GAAP the concept of extraordinary items. The guidance in this ASU was effective in the first quarter 2016. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

~~In November 2014, the FASB issued ASU 2014-16,~~ ~~Derivatives and Hedging: Determining Whether the Host contract in a Hybrid Financial Instrument in the Form of a Share is More Akin to Debt or to Equity.~~ The guidance in this ASU requires entities that issue or invest in a hybrid financial instrument to separate an embedded derivative feature from a host contract and account for the feature as a derivative. In the case of derivatives embedded in a hybrid financial instrument that is issued in the form of a share, that criterion requires evaluating whether the nature of the host contract is more akin to debt or to equity and whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to the host contract. If the host contract is akin to equity, then equity-like features (for example, a conversion option) are considered clearly and closely related to the host contract and, thus, would not be separated from the host contract. If the host contract is akin to debt, then equity-like features are not considered clearly and closely related to the host contract. In the latter case, an entity may be required to separate the equity-like embedded derivative feature from the debt host contract if certain other criteria in Subtopic 815-15 are met. Similarly, debt-like embedded derivative features may require separate accounting from an equity-like host contract. The guidance in this ASU was effective in first quarter 2016. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

~~In August 2014, the FASB issued ASU 2014-13, Consolidation: Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity.~~ The guidance in this ASU applies to a reporting entity that is required to consolidate a collateralized financing entity under the Variable Interest Entities guidance when: (1) the reporting entity measures all of the financial assets and the financial liabilities of that consolidated collateralized financing entity at fair value in the consolidated financial statements ~~based on other Codification Topics; and (2)~~given the changes in the fair values of those financial assets and financial liabilities are reflected in earnings. The guidance in this ASU was effective in first quarter 2016. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

~~In June 2014, the FASB issued ASU 2014-12,~~ ~~Compensation-Stock Compensation~~. The guidance in this ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be

achieved and should represent the compensation cost attributable to the period(s) for which the requisite has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite period, the remaining unrecognized cost should be recognized prospectively over the remaining requisite service period. The totalimmaterial amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vestits investment in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The guidance in this ASU was effective in first quarter 2016. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.equity securities.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606)., superseding the revenue recognition requirements in ASC 605. This ASU ~~establishes a comprehensive~~requires an entity to recognize revenue recognition standard for virtually all industries following U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate and construction industries. The revenue standard’s core principal is built on the contract between a vendor and a customer for the ~~provision~~transfer of promised goods ~~and services. It attempts~~or services to ~~depict the exchange of rights and obligations between the parties~~customers in ~~the pattern of revenue recognition based on~~an amount that reflects the consideration to which the ~~vendor is entitled. To accomplish this, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations~~entity expects to be entitled in ~~the contract, (iii) identify the transaction price, (iv) allocate the transaction price~~exchange for those goods or services. The amendment includes a five-step process to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies the performance obligation. Three basic transition methods are available - full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the cumulative effect alternative,assist an entity ~~would apply~~in achieving the ~~new~~main principle(s) of revenue ~~standard only to contracts that are incomplete~~recognition under ~~legacy U.S. GAAP at the date of initial application and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings.~~

ASC 605. In August 2015, the FASB issued ASU 2015-14, ~~Revenue fromContracts with Customers: Deferral~~which formalized the deferral of the ~~Effective Date. The guidance in this~~effective date of the amendment for a period of one-year from the original effective date. Following the issuance of ASU ~~is now~~2015-14, the amendment will be effective for ~~annual~~Customers for its first reporting ~~periods~~period beginning after December 15, ~~2017, including interim reporting periods within that reporting period. Customers does not expect this ASU to have a significant impact on its financial condition or results of operations.~~

2017. In March 2016, the FASB also issued ASU ~~No. 2016-08—Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). While~~2016-08, an amendment to the guidance in ASU ~~does~~2014-09, which reframed the structure of the indicators of when an entity is acting as an agent and focused on evidence that an entity is acting as the principal or agent in a revenue transaction. ASU 2016-08 also eliminated two of the indicators (the entity’s consideration is in the form of a commission and the entity is not ~~change~~exposed to credit risk) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the ~~core provisions~~assessment depending on the terms and conditions of ~~Topic 606, it~~the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on principal versus agent considerations. Namely, the ASU clarifies and offers guidance to help determine when the reporting entity is providing goods or services to a customer itself (i.e. the entity is a principal), or merely arranging for that good or service to be provided by the other party (i.e. the reporting entity is an agent). If the entity is a principal, it recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer. When the reporting entity is an agent, it recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified good or service to be provided by the other party. An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. The guidance includes indicators to assist in determining whether the Control criteria are met. If a contract with a customer includes more than one specified good or service, an entity could be a principal for some specifiedidentifying promised goods or services and on determining whether an ~~agent for others.~~entity's promise to grant a license with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-12, an amendment to ASU 2014-09, which provided practical expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on transition, collectability, non-cash consideration and the presentation of sales and other similar taxes. The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption.

Because the ASU does not apply to revenue associated with leases and financial instruments (including loans and securities), Customers does not expect the new guidance to have a material impact on the elements of its consolidated statements of operations most closely associated with leases and financial instruments (such as interest income, interest expense and securities gain). Customers intends to adopt this ASU on January 1, 2018 using a modified retrospective approach. Customers’ ongoing implementation efforts include the identification of other revenue streams that are within the scope of the new guidance and reviewing the related contracts with customers to determine the effect on certain non-interest income items presented in the consolidated statements of operations. As provided above, Customers does not expect the adoption of this ASU to have a significant impact onto its financial condition, or results of ~~operations.~~

~~In April 2016, the FASB issued ASU No. 2016-10—Revenue from Contracts with Customers: Identifying Performance Obligations~~operations and ~~Licensing.~~ This ASU clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. The ASU includes targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders. The ASU seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis. The amendments in this ASU affect the guidance in ASU 2014-09, Revenue from Contracts with Customers, which will be effective for fiscal years beginning after December 31, 2016 for public entities. The effective date and transition requirements for the amendments in this ASU are the same as those in ASU 2014-09. Customers does not expect the adoption of this ASU to have a significant impact on itsconsolidated financial ~~condition or results of operations.~~

~~In May 2016, the FASB issued ASU No. 2016-12—Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients.~~ ~~This ASU clarifies certain aspects of Topic 606 guidance as follows:~~

The objective of the collectibility assessment is to determine whether the contract is valid and represents a substantive transaction on the basis of whether a customer has the ability and intention to pay the promised consideration in exchange for the goods or services transferred.

An entity can recognize revenue in the amount of consideration received when it has transferred control of the goods or services, has no additional obligation to transfer goods or services, and the consideration received is nonrefundable.

~~A reporting entity is permitted to make the accounting policy election to exclude amounts collected from customers for all sales taxes from the transaction price.~~

~~The measurement date is specified as being the contract inception, and variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration.~~

As a practical expedient, a reporting entity is permitted to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented in accordance with Topic 606 when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.

The ASU clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy generally accepted accounting principles (GAAP) before the date of initial application. Accounting for elements of a contract that do not affect revenue under legacy GAAP are irrelevant to the assessment of whether a contract is complete. In addition, the amendments in this ASU permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts.

The amendments in this ASU clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose the effect of the changes on any prior periods retrospectively adjusted. The effective date and transition requirements in this Update are the same as the effective date and transition requirements for ASU No. 2014-09, ~~Revenue from Contracts with Customers (Topic 606). Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.~~

~~NOTE 4 — CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT (1)~~

~~The following tables present the changes in accumulated other comprehensive income (loss) by component for the three and six months ended June 30, 2016 and 2015.~~

Three Months Ended June 30, 2016
Available-for-sale-securities
(amounts in thousands) Unrealized Gains (Losses) Foreign Currency Items Total Unrealized Gains (Losses) Unrealized Loss on Cash Flow Hedge Total
Balance - March 31, 2016 $ (363 ) $ (547 ) $ (910 ) $ (4,423 ) $ (5,333 )
Other comprehensive income (loss) before reclassifications 5,258
(221 ) 5,037
(508 ) 4,529
Amounts reclassified from accumulated other comprehensive loss to net income (2) —
—
—
377
377
Net current-period other comprehensive income (loss) 5,258
(221 ) 5,037
(131 ) 4,906
Balance - June 30, 2016 $ 4,895
$ (768 ) $ 4,127
$ (4,554 ) $ (427 )
statements.

Six Months Ended June 30, 2016
Available-for-sale-securities
(amounts in thousands) Unrealized Gains (Losses) Foreign Currency Items Total Unrealized Gains (Losses)
Unrealized
Loss on
Cash Flow Hedge
Total
Balance - December 31, 2015 $ (4,602 ) $ (584 ) $ (5,186 ) $ (2,798 ) $ (7,984 )
Other comprehensive income (loss) before reclassifications 9,513
(184 ) 9,329
(2,133 ) 7,196
Amounts reclassified from accumulated other comprehensive loss to net income (2) (16 ) —
(16 ) 377
361
Net current-period other comprehensive income (loss) 9,497
(184 ) 9,313
(1,756 ) 7,557
Balance - June 30, 2016 $ 4,895
$ (768 ) $ 4,127
$ (4,554 ) $ (427 )


~~(1)~~	~~All amounts are presented net of tax. Amounts in parentheses indicate reductions to accumulated other comprehensive income.~~


~~(2)~~	Reclassification amounts for available-for-sale securities are reported as gain (loss) on sale of investment securities on the consolidated statements of income. Reclassification amounts for cash flow hedges are reported as interest expense on FHLB advances on the consolidated statements of income.

Three Months Ended June 30, 2015
Available-for-sale-securities
(amounts in thousands) Unrealized Gains (Losses) Foreign Currency Items Total Unrealized Gains (Losses) Unrealized Loss on Cash Flow Hedge Total
Balance - March 31, 2015 $ 1,277
$ 108
$ 1,385
$ (2,432 ) $ (1,047 )
Other comprehensive income (loss) before reclassifications (3,147 ) (242 ) (3,389 ) 279
(3,110 )
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2) 43
—
43
—
43
Net current-period other comprehensive income (loss) (3,104 ) (242 ) (3,346 ) 279
(3,067 )
Balance - June 30, 2015 $ (1,827 ) $ (134 ) $ (1,961 ) $ (2,153 ) $ (4,114 )

Six Months Ended June 30, 2015
Available-for-sale-securities
(amounts in thousands) Unrealized Gains (Losses) Foreign Currency Items Total Unrealized Gains (Losses) Unrealized Loss on Cash Flow Hedge Total
Balance - December 31, 2014 $ 1,156
$ (14 ) $ 1,142
$ (1,264 ) $ (122 )
Other comprehensive (loss) before reclassifications (3,026 ) (120 ) (3,146 ) (889 ) (4,035 )
Amounts reclassified from accumulated other comprehensive loss to net income (2) 43
—
43
—
43
Net current-period other comprehensive income (loss) (2,983 ) (120 ) (3,103 ) (889 ) (3,992 )
Balance - June 30, 2015 $ (1,827 ) $ (134 ) $ (1,961 ) $ (2,153 ) $ (4,114 )


~~(1)~~	~~All amounts are presented net of tax. Amounts in parentheses indicate reductions to accumulated other comprehensive income.~~


~~(2)~~	~~Reclassification amounts are reported as gain (loss) on sale of investment securities on the consolidated statements of income.~~

NOTE 5 — EARNINGS PER SHARE

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,						Six Months Ended June 30,
	2016		2015		2016		2015		2017			2016			2017			2016
(amounts in thousands, except share and per share data)
Net income from continuing operations available to common shareholders (1)									$	25,337		$	19,712		$	48,647		$	37,734
Net loss from discontinued operations									(5,230		)	(2,291		)	(6,407		)	(3,415		)
Net income available to common shareholders	$	17,368	$	11,049	$	33,781	$	25,001	$	20,107		$	17,421		$	42,240		$	34,319

Weighted-average number of common shares outstanding - basic	27,080,676		26,839,799		27,012,869		26,808,766		30,641,554			27,080,676			30,524,955			27,012,869
Share-based compensation plans	1,590,456		1,509,521		1,563,242		1,405,578		1,910,634			2,123,745			2,129,773			2,077,219
Warrants	299,908		331,344		303,769		307,840		17,464			299,908			27,318			303,769
Weighted-average number of common shares - diluted	28,971,040		28,680,664		28,879,880		28,522,184		32,569,652			29,504,329			32,682,046			29,393,857

Basic earnings per common share from continuing operations									$	0.83		$	0.73		$	1.59		$	1.40
Basic loss per common share from discontinued operations									$	(0.17	)	$	(0.09	)	$	(0.21	)	$	(0.13	)
Basic earnings per common share	$	0.64	$	0.41	$	1.25	$	0.93	$	0.66		$	0.64		$	1.38		$	1.27
Diluted earnings per common share from continuing operations									$	0.78		$	0.67		$	1.49		$	1.28
Diluted loss per common share from discontinued operations									$	(0.16	)	$	(0.08	)	$	(0.20	)	$	(0.11	)
Diluted earnings per common share	$	0.60	$	0.39	$	1.17	$	0.88	$	0.62		$	0.59		$	1.29		$	1.17

(1) Net income from continuing operations, net of preferred stock dividends

The following is a summary of securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the periods presented.


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended June 30,		Six Months Ended June 30,
	2016	2015	2016	2015	2017	2016	2017	2016
Anti-dilutive securities:
Share-based compensation awards	616,995	12,383	616,995	12,383	288,325	616,995	282,725	616,995
Warrants	52,242	52,242	52,242	52,242	52,242	52,242	52,242	52,242
Total anti-dilutive securities	669,237	64,625	669,237	64,625	340,567	669,237	334,967	669,237

NOTE 6 — CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT (1)

The following tables present the changes in accumulated other comprehensive income (loss) by component for the three and six months ended June 30, 2017 and 2016.



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



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


(1)	All amounts are presented net of tax. Amounts in parentheses indicate reductions to accumulated other comprehensive income.


(2)	Reclassification amounts for available-for-sale securities are reported as gain on sale of investment securities on the consolidated statements of income. Reclassification amounts for cash flow hedges are reported as interest expense on FHLB advances on the consolidated statements of income.



	Three Months Ended June 30, 2016
	Available-for-sale-securities
(amounts in thousands)	Unrealized Gains (Losses)			Foreign Currency Items			Total Unrealized Gains (Losses)			Unrealized Loss on Cash Flow Hedge			Total
Balance - March 31 2016	$	(363	)	$	(547	)	$	(910	)	$	(4,423	)	$	(5,333	)
Other comprehensive income (loss) before reclassifications	5,258			(221		)	5,037			(508		)	4,529
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2)	—			—			—			377			377
Net current-period other comprehensive income (loss)	5,258			(221		)	5,037			(131		)	4,906
Balance - June 30, 2016	$	4,895		$	(768	)	$	4,127		$	(4,554	)	$	(427	)



	Six Months Ended June 30, 2016
	Available-for-sale-securities
(amounts in thousands)	Unrealized Gains (Losses)			Foreign Currency Items			Total Unrealized Gains (Losses)			Unrealized Loss on Cash Flow Hedge			Total
Balance - December 31, 2015	$	(4,602	)	$	(584	)	$	(5,186	)	$	(2,798	)	$	(7,984	)
Other comprehensive income (loss) before reclassifications	9,513			(184		)	9,329			(2,133		)	7,196
Amounts reclassified from accumulated other comprehensive loss to net income (2)	(16		)	—			(16		)	377			361
Net current-period other comprehensive income (loss)	9,497			(184		)	9,313			(1,756		)	7,557
Balance - June 30, 2016	$	4,895		$	(768	)	$	4,127		$	(4,554	)	$	(427	)


(1)	All amounts are presented net of tax. Amounts in parentheses indicate reductions to accumulated other comprehensive income.


(2)	Reclassification amounts for available-for-sale securities are reported as gain on sale of investment securities on the consolidated statements of income. Reclassification amounts for cash flow hedges are reported as interest expense on FHLB advances on the consolidated statements of income.

NOTE 67 — INVESTMENT SECURITIES

The amortized cost and approximate fair value of investment securities as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 are summarized in the tables below:


	June 30, 2016									June 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	269,044	$	3,484	$	(552	)	$	271,976	$	210,688	$	755	$	(1,699	)	$	209,744
Agency-guaranteed commercial real estate mortgage-backed securities	204,845		8,709		—			213,554		735,116		11,318		(11		)	746,423
Corporate notes (1)	44,929		861		(78		)	45,712		44,956		821		—			45,777
Equity securities (2)	22,514		—		(5,821		)	16,693		10,661		—		—			10,661
	$	541,332	$	13,054	$	(6,451	)	$	547,935	$	1,001,421	$	12,894	$	(1,710	)	$	1,012,605


(1)	Includes subordinated debt issued by other bank holding companies.

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


	December 31, 2015									December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	299,392	$	1,453	$	(2,741	)	$	298,104	$	233,002	$	918	$	(2,657	)	$	231,263
Agency-guaranteed commercial real estate mortgage-backed securities	206,719		—		(3,849		)	202,870		204,689		—		(2,872		)	201,817
Corporate notes (1)	39,925		320		(178		)	40,067		44,932		401		(185		)	45,148
Equity securities (2)	22,514		—		(3,302		)	19,212		15,246		—		—			15,246
	$	568,550	$	1,773	$	(10,070	)	$	560,253	$	497,869	$	1,319	$	(5,714	)	$	493,474


(1)	Includes subordinated debt issued by other bank holding companies.

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

The following table presents proceeds from the sale of available-for-sale investment securities and gross gains and gross losses realized on those sales for the three and six months ended June 30, ~~2016~~2017 and ~~2015:~~2016:


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015			2016		2015			2017		2016		2017		2016
(amounts in thousands)
Proceeds from sale of available-for-sale securities	$	—	$	492		$	2,848	$	492		$	115,982	$	—	$	115,982	$	2,848
Gross gains	$	—	—			$	26	$	—		$	3,183	$	—	$	3,183	$	26
Gross losses	—		(69		)	—		(69		)	—		—		—		—
Net gains	$	—	$	(69	)	$	26	$	(69	)	$	3,183	$	—	$	3,183	$	26

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

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


	June 30, 2016				June 30, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
(amounts in thousands)
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	—		—		—		—
Due after five years through ten years	37,929		38,427		42,956		43,602
Due after ten years	7,000		7,285		2,000		2,175
Agency-guaranteed residential mortgage-backed securities	269,044		271,976		210,688		209,744
Agency-guaranteed commercial real estate mortgage-backed securities	204,845		213,554		735,116		746,423
Total debt securities	$	518,818	$	531,242	$	990,760	$	1,001,944

Gross unrealized losses and fair value of Customers' investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 were as follows:


	June 30, 2016															June 30, 2017
	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	—	$	—		$	53,069	$	(552	)	$	53,069	$	(552	)	$	76,237	$	(660	)	$	29,797	$	(1,039	)	$	106,034	$	(1,699	)
Corporate notes (1)	13,923		(78		)	—		—			13,923		(78		)
Equity securities (2)	—		—			16,693		(5,821		)	16,693		(5,821		)
Agency-guaranteed commercial real estate mortgage-backed securities																6,172		(11		)	—		—			6,172		(11		)
Total	$	13,923	$	(78	)	$	69,762	$	(6,373	)	$	83,685	$	(6,451	)	$	82,409	$	(671	)	$	29,797	$	(1,039	)	$	112,206	$	(1,710	)

(1) Includes subordinated debt issued by other bank holding companies.


	December 31, 2015															December 31, 2016
	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	102,832	$	(535	)	$	57,357	$	(2,206	)	160,189		$	(2,741	)	$	87,433	$	(1,330	)	$	30,592	$	(1,327	)	$	118,025	$	(2,657	)
Agency-guaranteed commercial real estate mortgage-backed securities	202,870		(3,849		)	—		—			202,870		(3,849		)	201,817		(2,872		)	—		—			201,817		(2,872		)
Corporate notes (1)	9,748		(178		)	—		—			9,748		(178		)	9,747		(185		)	—		—			9,747		(185		)
Equity securities (2)	19,206		(3,301		)	6		(1		)	19,212		(3,302		)
Total	$	334,656	$	(7,863	)	$	57,363	$	(2,207	)	$	392,019	$	(10,070	)	$	298,997	$	(4,387	)	$	30,592	$	(1,327	)	$	329,589	$	(5,714	)


(1)	Includes subordinated debt issued by other bank holding companies.

~~(2) Consists primarily of equity securities in a foreign entity.~~

At June 30, ~~2016,~~2017, there were ~~two~~twelve available-for-sale investment securities in the less-than-twelve-month category and ~~fourteen~~seven available-for-sale investment securities in the twelve-month-or-more category. The unrealized losses on the ~~residential~~ mortgage-backed securities are guaranteed by government-sponsored entities and primarily relate to changes in market interest rates. All amounts are expected to be recovered when market prices recover or at maturity. ~~The unrealized losses on the equity securities reflect decreases in market price and adverse changes in foreign currency exchange rates.~~ Customers ~~evaluated the financial condition and capital strength of the issuer of~~does not intend to sell these securities and ~~concluded~~it is not more likely than not that Customers will be required to sell the securities before recovery of the amortized cost basis.

At June 30, 2017, management evaluated its equity holdings issued by a foreign entity for other-than-temporary impairment. Because management no longer has the intent to hold these securities until a recovery in fair value, Customers recorded an other-than-temporary impairment loss of $2.9 million and $4.6 million, respectively, for the three and six months ended June 30, 2017 for the full amount of the decline in fair value ~~was temporary~~below the cost basis established at March 31, 2017 and December 31, 2016. The fair value of the equity securities at June 30, 2017 of $10.7 million became the new cost basis of the securities. Given that these equity securities continue to experience price declines, Customers is closely monitoring the issuer's stock performance while at the same time studying alternatives to exit the investment. As of July 31, 2017, the equity securities were trading at a price of $1.57 per share which represents an estimated ~~the~~fair value ~~could reasonably recover by way~~ of ~~increases in market price or positive changes in foreign currency exchange rates. Customers intends to hold these securities~~$6.3 million for the ~~foreseeable future and does not intend to sell the~~equity securities ~~before the price recovers.~~that Customers considers it more likely than not that it will not be required to sell the securities. Accordingly, Customers concluded that the securities are not other-than-temporarily impaired as of June 30, 2016.still owns.

At June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, Customers Bank had pledged investment securities aggregating ~~$272.0~~$642.6 million and ~~$299.8~~$231.3 million in fair value, respectively, as collateral against its borrowings primarily with the FHLB and an unused line of credit with another financial institution. These counterparties do not have the ability to sell or repledge these securities.

NOTE 78 – LOANS HELD FOR SALE

The composition of loans held for sale as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 was as follows:


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
(amounts in thousands)
Commercial loans:
Mortgage warehouse loans at fair value	$	2,271,893	$	1,754,950
Mortgage warehouse loans, at fair value					$	2,101,641	$	2,116,815
Multi-family loans at lower of cost or fair value	27,527		39,257		150,758		—
Commercial loans held for sale	2,299,420		1,794,207
Total commercial loans held for sale					2,252,399		2,116,815
Consumer loans:
Residential mortgage loans at fair value	2,401		2,857
Residential mortgage loans, at fair value					2,697		695
Loans held for sale	$	2,301,821	$	1,797,064	$	2,255,096	$	2,117,510

Commercial loans held for sale consists ~~primarily~~predominately of commercial loans to mortgage companies (i.e., mortgage warehouse ~~loans.~~loans). These mortgage warehouse lending transactions are subject to master repurchase agreements and are designated as held for sale and reported at fair value based on an election made to account for the loans at fair value. Pursuant to the agreements, Customers funds the pipelines for these mortgage lenders by sending payments directly to the closing agents for funded loans (i.e., the purchase event) and receives proceeds directly from third party investors when the loans are sold into the secondary market (i.e., the sale event). The fair value of the mortgage warehouse loans is estimated as the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The interest ~~rate~~rates on these loans are variable, and the lending transactions are short-term, with an average life of 1920 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.

Effective ~~September~~June 30, ~~2015,~~2017, Customers Bank transferred ~~$30.4~~$150.8 million of multi-family loans from loans receivable (held for investment) to loans held for sale. Customers Bank transferred these loans at their carrying value, which was lower than the estimated fair value at the time of transfer.

Effective December 31, 2016, Customers Bank transferred $25.1 million of multi-family loans from held for sale to loans receivable (held for investment) because the Bank no longer has the intent to sell these loans. Customers Bank transferred these loans at their carrying value, which was lower than the estimated fair value at the time of transfer. ~~No loans were transfered during 2016.~~

NOTE 89 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The following table presents loans receivable as of June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:


	June 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
(amounts in thousands)
Commercial:
Multi-family	$	3,308,556		$	2,909,439		$	3,399,617		$	3,214,999
Commercial and industrial (including owner occupied commercial real estate)	1,192,674			1,111,400			1,505,487			1,370,853
Commercial real estate non-owner occupied	1,139,711			956,255			1,216,012			1,193,715
Construction	99,615			87,240			61,226			64,789
Total commercial loans	5,740,556			5,064,334			6,182,342			5,844,356
Consumer:
Residential real estate	262,567			271,613			444,453			193,502
Manufactured housing	107,874			113,490			96,148			101,730
Other	3,277			3,708			2,561			2,726
Total consumer loans	373,718			388,811			543,162			297,958
Total loans receivable	6,114,274			5,453,145			6,725,504			6,142,314
Deferred costs and unamortized premiums, net	302			334
Deferred (fees)/costs and unamortized (discounts)/premiums, net							(2,226		)	76
Allowance for loan losses	(38,097		)	(35,647		)	(38,458		)	(37,315		)
Loans receivable, net of allowance for loan losses	$	6,076,479		$	5,417,832		$	6,684,820		$	6,105,075

The following tables summarize loans receivable by loan type and performance status as of June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:


	June 30, 2016														June 30, 2017
	30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)		30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Multi-family	$	—	$	—	$	—	$	—	$	3,304,995	$	3,561	$	3,308,556	$	—	$	—	$	—	$	—	$	3,397,645	$	1,972	$	3,399,617
Commercial and industrial	—		—		—		5,294		837,642		932		843,868		—		—		—		10,051		1,051,303		929		1,062,283
Commercial real estate - owner occupied	—		—		—		2,677		333,609		12,520		348,806		—		—		—		2,645		429,283		11,276		443,204
Commercial real estate - non-owner occupied	52		—		52		2,299		1,126,583		10,777		1,139,711		—		—		—		285		1,209,987		5,740		1,216,012
Construction	—		—		—		—		99,381		234		99,615		—		—		—		—		61,226		—		61,226
Residential real estate	570		—		570		2,494		251,672		7,831		262,567		1,113		—		1,113		4,059		433,243		6,038		444,453
Manufactured housing (5)	3,461		2,297		5,758		1,818		97,062		3,236		107,874		2,480		3,163		5,643		2,075		85,570		2,860		96,148
Other consumer	—		—		—		45		3,006		226		3,277		1		—		1		56		2,281		223		2,561
Total	$	4,083	$	2,297	$	6,380	$	14,627	$	6,053,950	$	39,317	$	6,114,274	$	3,594	$	3,163	$	6,757	$	19,171	$	6,670,538	$	29,038	$	6,725,504
	December 31, 2015														December 31, 2016
	30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)		30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Multi-family	$	—	$	—	$	—	$	—	$	2,905,789	$	3,650	$	2,909,439	$	12,573	$	—	$	12,573	$	—	$	3,200,322	$	2,104	$	3,214,999
Commercial and industrial	39		—		39		1,973		799,595		1,552		803,159		350		—		350		8,443		967,391		1,037		977,221
Commercial real estate - owner occupied	268		—		268		2,700		292,312		12,961		308,241		137		—		137		2,039		379,227		12,229		393,632
Commercial real estate - non-owner occupied	1,997		—		1,997		1,307		940,895		12,056		956,255		—		—		—		2,057		1,185,331		6,327		1,193,715
Construction	—		—		—		—		87,006		234		87,240		—		—		—		—		64,789		—		64,789
Residential real estate	2,986		—		2,986		2,202		257,984		8,441		271,613		4,417		—		4,417		2,959		178,559		7,567		193,502
Manufactured housing (5)	3,752		2,805		6,557		2,449		101,132		3,352		113,490		3,761		2,813		6,574		2,236		89,850		3,070		101,730
Other consumer	107		—		107		140		3,227		234		3,708		12		—		12		58		2,420		236		2,726
Total	$	9,149	$	2,805	$	11,954	$	10,771	$	5,387,940	$	42,480	$	5,453,145	$	21,250	$	2,813	$	24,063	$	17,792	$	6,067,889	$	32,570	$	6,142,314


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


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

(3)

Purchased-credit-impaired loans aggregated into a pool are accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, and the past due status of the pools, or that of the individual loans within the pools, is not meaningful. Because of the credit impaired nature of the loans, the loans are recorded at a discount reflecting estimated future cash flows and the Bank recognizes interest income on each pool of loans reflecting the estimated yield and passage of time. Such loans are considered to be performing. Purchased-credit-impaired loans that are not in pools accrete interest when the timing and amount of their expected cash flows are reasonably estimable, and are reported as performing loans.


(4)	Amounts exclude deferred costs and fees, unamortized premiums and discounts, and the allowance for loan losses.


(5)	Manufactured housing loans purchased in 2010 are subject to cash reserves held at the Bank that are used to fund past-due payments when the loan becomes 90 days or more delinquent. Subsequent purchases are subject to varying provisions in the event of borrowers’ delinquencies.

As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Bank had ~~$1.0~~$0.3 million and ~~$1.2~~$0.5 million, respectively, of residential real estate held in other real estate owned. As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Bank had initiated foreclosure proceedings ~~on $1.0~~of $1.6 million and ~~$0.6~~$0.4 million, respectively, on loans secured by residential real estate.

Allowance for loan losses

During second quarter 2015, the Bank refined its methodology for estimating the general allowance for loan losses. Previously, the general allowance for the portion of the loan portfolio originated after December 31, 2009 ("Post 2009 loan portfolio") was based generally on qualitative factors due to insufficient historical loss data on the portfolio. During second quarter 2015, the Bank began using objectively verifiable industry and peer loss data to estimate probable incurred losses as of the balance sheet date for the Post 2009 loan portfolio until sufficient internal loss history is available. The same methodology was also adopted for the portion of the loan portfolio originated on or before December 31, 2009 ("Legacy loan portfolio") that had no loss history over the past two years.

The changes in the allowance for loan losses for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 and the loans and allowance for loan losses by loan class based on impairment evaluation method as of June 30, ~~2016~~2017 and December 31, ~~2015 are~~2016 were as follows. The amounts presented for the provision for loan losses below do not include the effect of changes to estimated benefits resulting from the FDIC loss share arrangements for the covered ~~loans.~~loans for periods prior to the termination of the FDIC loss sharing arrangements.


Three Months Ended June 30, 2016	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 June 30, 2017																										Multi-family			Commercial and Industrial			Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied			Construction			Residential Real Estate			Manufactured Housing			Other Consumer			Total
(amounts in thousands)
Ending Balance, March 31, 2016	$	12,135	$	9,959		$	1,410	$	8,548		$	1,264		$	3,676		$	468		$	145		$	37,605
Ending Balance, March 31, 2017																										$	12,283		$	13,009		$	2,394	$	7,847		$	885		$	3,080		$	284		$	101		$	39,883
Charge-offs	—		(537		)	—		—			—			(413		)	—			(190		)	(1,140		)	—			(1,849		)	—		(4		)	—			(69		)	—			(24		)	(1,946		)
Charge-offs for BankMobile loans (1)																										—			—			—		—			—			—			—			(202		)	(202		)
Recoveries	—		55			—		—			24			1			—			—			80			—			68			9		—			49			6			—			2			134
Recoveries for BankMobile loans (1)																										—			—			—		—			—			—			—			54			54
Provision for loan losses	233		893			172		(65		)	(79		)	271			(28		)	155			1,552			(255		)	357			573		(57		)	(218		)	(22		)	(16		)	173			535
Ending Balance, June 30, 2016	$	12,368	$	10,370		$	1,582	$	8,483		$	1,209		$	3,535		$	440		$	110		$	38,097
Six Months Ended June 30, 2016
Ending Balance, December 31, 2015	$	12,016	$	8,864		$	1,348	$	8,420		$	1,074		$	3,298		$	494		$	133		$	35,647
Ending Balance, June 30, 2017																										$	12,028		$	11,585		$	2,976	$	7,786		$	716		$	2,995		$	268		$	104		$	38,458
Six Months Ended June 30, 2017
Ending Balance, December 31, 2016																										$	11,602		$	11,050		$	2,183	$	7,894		$	840		$	3,342		$	286		$	118		$	37,315
Charge-offs	—		(537		)	—		—			—			(413		)	—			(232		)	(1,182		)	—			(2,047		)	—		(408		)	—			(290		)	—			(24		)	(2,769		)
Charge-offs for BankMobile loans (1)																										—			—			—		—			—			—			—			(222		)	(222		)
Recoveries	—		111			—		8			457			1			—			—			577			—			283			9		—			130			27			—			4			453
Recoveries for BankMobile loans (1)																										—			—			—		—			—			—			—			96			96
Provision for loan losses	352		1,932			234		55			(322		)	649			(54		)	209			3,055			426			2,299			784		300			(254		)	(84		)	(18		)	132			3,585
Ending Balance, June 30, 2016	$	12,368	$	10,370		$	1,582	$	8,483		$	1,209		$	3,535		$	440		$	110		$	38,097
As of June 30, 2016
Ending Balance, June 30, 2017																										$	12,028		$	11,585		$	2,976	$	7,786		$	716		$	2,995		$	268		$	104		$	38,458

As of June 30, 2017
Loans:
Individually evaluated for impairment	$	386	$	28,564		$	9,840	$	5,962		$	—		$	4,270		$	8,850		$	44		$	57,916		$	—		$	10,121		$	2,649	$	285		$	—		$	8,002		$	10,374		$	56		$	31,487
Collectively evaluated for impairment	3,304,609		814,372			326,446		1,122,972			99,381			250,466			95,788			3,007			6,017,041			3,397,645			1,051,233			429,279		1,209,987			61,226			430,413			82,914			2,282			6,664,979
Loans acquired with credit deterioration	3,561		932			12,520		10,777			234			7,831			3,236			226			39,317			1,972			929			11,276		5,740			—			6,038			2,860			223			29,038
	$	3,308,556	$	843,868		$	348,806	$	1,139,711		$	99,615		$	262,567		$	107,874		$	3,277		$	6,114,274		$	3,399,617		$	1,062,283		$	443,204	$	1,216,012		$	61,226		$	444,453		$	96,148		$	2,561		$	6,725,504
Allowance for loan losses:
Individually evaluated for impairment	$	202	$	3,183		$	—	$	177		$	—		$	104		$	—		$	—		$	3,666		$	—		$	1,959		$	642	$	67		$	—		$	118		$	5		$	—		$	2,791
Collectively evaluated for impairment	12,166		6,968			1,582		4,535			1,209			2,491			96			53			29,100			12,028			9,128			2,317		4,673			716			2,245			83			48			31,238
Loans acquired with credit deterioration	—		219			—		3,771			—			940			344			57			5,331			—			498			17		3,046			—			632			180			56			4,429
	$	12,368	$	10,370		$	1,582	$	8,483		$	1,209		$	3,535		$	440		$	110		$	38,097		$	12,028		$	11,585		$	2,976	$	7,786		$	716		$	2,995		$	268		$	104		$	38,458

(1) Includes activity for BankMobile-related loans, primarily overdrawn deposit accounts.


Three Months Ended June 30, 2015	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 June 30, 2016																											Multi-family		Commercial and Industrial			Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied			Construction			Residential Real Estate			Manufactured Housing			Other Consumer			Total
(amounts in thousands)
Ending Balance, March 31, 2015	$	8,196	$	6,747		$	4,583		$	9,738		$	852		$	2,995		$	346		$	109		$	33,566
Ending Balance, March 31, 2016																											$	12,135	$	9,959		$	1,410	$	8,548		$	1,264		$	3,676		$	468		$	145		$	37,605
Charge-offs	—		(1,213		)	(270		)	—			(295		)	(26		)	—			—			(1,804		)	—		(537		)	—		—			—			(413		)	—			(50		)	(1,000		)
Charge-offs for BankMobile loans (1)																											—		—			—		—			—			—			—			(140		)	(140		)
Recoveries	—		58			1			—			172			572			—			2			805			—		55			—		—			24			1			—			—			80
Provision for loan losses	538		8,470			(663		)	(3,428		)	115			(86		)	(30		)	8			4,924			233		893			172		(65		)	(79		)	271			(28		)	155			1,552
Ending Balance, June 30, 2015	$	8,734	$	14,062		$	3,651		$	6,310		$	844		$	3,455		$	316		$	119		$	37,491
Six Months Ended June 30, 2015
Ending Balance, December 31, 2014	$	8,493	$	4,784		$	4,336		$	9,198		$	1,047		$	2,698		$	262		$	114		$	30,932
Ending Balance, June 30, 2016																											$	12,368	$	10,370		$	1,582	$	8,483		$	1,209		$	3,535		$	440		$	110		$	38,097
Six Months Ended June 30, 2016
Ending Balance, December 31, 2015																											$	12,016	$	8,864		$	1,348	$	8,420		$	1,074		$	3,298		$	494		$	133		$	35,647
Charge-offs	—		(1,234		)	(343		)	(245		)	(1,064		)	(26		)	—			(36		)	(2,948		)	—		(537		)	—		—			—			(413		)	—			(92		)	(1,042		)
Charge-offs for BankMobile loans (1)																											—		—			—		—			—			—			—			(140		)	(140		)
Recoveries	—		103			1			—			187			572			—			85			948			—		111			—		8			457			1			—			—			577
Provision for loan losses	241		10,409			(343		)	(2,643		)	674			211			54			(44		)	8,559			352		1,932			234		55			(322		)	649			(54		)	209			3,055
Ending Balance, June 30, 2015	$	8,734	$	14,062		$	3,651		$	6,310		$	844		$	3,455		$	316		$	119		$	37,491
As of December 31, 2015
Ending Balance, June 30, 2016																											$	12,368	$	10,370		$	1,582	$	8,483		$	1,209		$	3,535		$	440		$	110		$	38,097
As of December 31, 2016
Loans:
Individually evaluated for impairment	$	661	$	17,621		$	8,329		$	4,831		$	—		$	4,726		$	8,300		$	140		$	44,608		$	—	$	8,516		$	2,050	$	2,151		$	—		$	6,972		$	9,665		$	57		$	29,411
Collectively evaluated for impairment	2,905,128		783,986			286,951			939,368			87,006			258,446			101,838			3,334			5,366,057			3,212,895		967,668			379,353		1,185,237			64,789			178,963			88,995			2,433			6,080,333
Loans acquired with credit deterioration	3,650		1,552			12,961			12,056			234			8,441			3,352			234			42,480			2,104		1,037			12,229		6,327			—			7,567			3,070			236			32,570
	$	2,909,439	$	803,159		$	308,241		$	956,255		$	87,240		$	271,613		$	113,490		$	3,708		$	5,453,145		$	3,214,999	$	977,221		$	393,632	$	1,193,715		$	64,789		$	193,502		$	101,730		$	2,726		$	6,142,314
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	1,990		$	1		$	148		$	—		$	84		$	—		$	50		$	2,273		$	—	$	1,024		$	287	$	14		$	—		$	35		$	—		$	—		$	1,360
Collectively evaluated for impairment	12,016		6,650			1,347			3,858			1,074			2,141			98			28			27,212			11,602		9,686			1,896		4,626			772			2,414			88			60			31,144
Loans acquired with credit deterioration	—		224			—			4,414			—			1,073			396			55			6,162			—		340			—		3,254			68			893			198			58			4,811
	$	12,016	$	8,864		$	1,348		$	8,420		$	1,074		$	3,298		$	494		$	133		$	35,647		$	11,602	$	11,050		$	2,183	$	7,894		$	840		$	3,342		$	286		$	118		$	37,315

(1) Includes activity for BankMobile loans, primarily overdrawn deposit accounts.

Certain manufactured housing loans were purchased in August 2010. A portion of the purchase price may be used to reimburse the Bank under the specified terms in the purchase agreement for defaults of the underlying borrower and other specified items. At June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, funds available for reimbursement, if necessary, were ~~$1.2~~$0.8 million and ~~$1.2~~$1.0 million, respectively. Each quarter, these funds are evaluated to determine if they would be sufficient to absorb the probable incurred losses within the manufactured housing portfolio.

Impaired Loans - Individually Evaluated for Impairment

The following tables present the recorded investment (net of charge-offs), unpaid principal balance, and related allowance by loan type for impaired loans that ~~are~~were individually evaluated for impairment as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 and the average recorded investment and interest income recognized for the three and six months ended June 30, ~~2016~~2017 and ~~2015.~~2016. Purchased-credit-impaired loans are considered to be performing and are not included in the tables below.


	June 30, 2016						Three Months Ended June 30, 2016				Six Months Ended June 30, 2016				June 30, 2017						Three Months Ended June 30, 2017				Six Months Ended June 30, 2017
	Recorded Investment Net of Charge offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Recorded Investment Net of Charge offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
(amounts in thousands)
With no related allowance recorded:
Multi-family	$	—	$	—	$	—	$	—	$	—	$	220	$	—
Commercial and industrial	20,833		22,911		—		19,892		286		17,280		473		$	7,256	$	7,318	$	—	$	6,678	$	46	$	5,251	$	96
Commercial real estate owner occupied	9,840		9,840		—		9,882		108		9,360		202		1,819		1,819		—		1,739		—		1,563		3
Commercial real estate non-owner occupied	5,427		5,426		—		4,755		—		4,595		15		183		296		—		884		—		1,257		2
Other consumer	44		44		—		45		—		46		—		56		57		—		56		—		56		—
Residential real estate	3,871		3,871		—		4,013		20		4,119		44		2,999		3,180		—		2,660		—		4,001		1
Manufactured housing	8,850		8,850		—		8,874		172		8,683		281		10,146		10,146		—		10,074		152		9,937		293
With an allowance recorded:
Multi-family	386		386		202		390		5		260		10
Commercial and industrial	7,731		7,731		3,183		8,034		41		7,211		112		2,865		2,865		1,959		7,209		—		6,846		22
Commercial real estate owner occupied	—		—		—		6		—		8		—		830		830		642		839		1		839		2
Commercial real estate non-owner occupied	535		535		177		538		2		544		4		102		155		67		114		—		126		—
Other consumer	—		—		—		27		—		48		—
Residential real estate	399		399		104		544		—		494		—		5,003		5,003		118		4,953		45		3,399		84
Manufactured housing															228		228		5		216		5		144		8
Total	$	57,916	$	59,993	$	3,666	$	57,000	$	634	$	52,868	$	1,141	$	31,487	$	31,897	$	2,791	$	35,422	$	249	$	33,419	$	511


	December 31, 2015						Three Months Ended June 30, 2015				Six Months Ended June 30, 2015				December 31, 2016						Three Months Ended June 30, 2016				Six Months Ended June 30, 2016
	Recorded Investment Net of Charge offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Recorded Investment Net of Charge offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
(amounts in thousands)
With no related allowance recorded:
Multi-family	$	661	$	661	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	220	$	—
Commercial and industrial	12,056		13,028		—		7,122		439		9,356		604		2,396		3,430		—		19,892		286		17,280		473
Commercial real estate owner occupied	8,317		8,317		—		5,175		122		6,177		185		1,210		1,210		—		9,882		108		9,360		202
Commercial real estate non-owner occupied	4,276		4,276		—		6,805		246		8,135		374		2,002		2,114		—		4,755		—		4,595		15
Construction	—		—		—		1,497		—		1,773		—
Other consumer	48		48		—		35		—		30		—		57		57		—		45		—		46		—
Residential real estate	4,331		4,331		—		3,924		21		3,841		42		6,682		6,749		—		4,013		20		4,119		44
Manufactured housing	8,300		8,300		—		4,747		186		4,027		209		9,665		9,665		—		8,874		172		8,683		281
With an allowance recorded:
Multi-family															—		—		—		390		5		260		10
Commercial and industrial	5,565		5,914		1,990		10,686		96		7,735		101		6,120		6,120		1,024		8,034		41		7,211		112
Commercial real estate - owner occupied	12		12		1		18		—		20		—		840		840		287		6		—		8		—
Commercial real estate non-owner occupied	555		555		148		1,072		7		1,177		7		149		204		14		538		2		544		4
Other consumer	92		92		50		73		—		87		—		—		—		—		27		—		48		—
Residential real estate	395		395		84		454		—		424		—		290		303		35		544		—		494		—
Total	$	44,608	$	45,929	$	2,273	$	41,608	$	1,117	$	42,782	$	1,522	$	29,411	$	30,692	$	1,360	$	57,000	$	634	$	52,868	$	1,141

Troubled Debt Restructurings

At June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, there were ~~$14.1~~$21.3 million and ~~$11.4~~$16.4 million, respectively, in loans reported as troubled debt restructurings (“TDRs”). TDRs are reported as impaired loans in the calendar year of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent years, a TDR may be returned to accrual status if it satisfies a minimum six-month performance requirement; however, it will remain classified as impaired. Generally, the Bank requires sustained performance for nine months before returning a TDR to accrual status.

Modification of purchased-credit-impaired loans that are accounted for within loan pools in accordance with the accounting standards for purchased-credit-impaired loans do not result in the removal of these loans from the pool even if the modifications would otherwise be considered a TDR. Accordingly, as each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, modifications of loans within such pools are not considered TDRs.

The following ~~is an analysis of~~table presents loans modified in a troubled debt restructuring by type of concession for the three and six months ended June 30, ~~2016~~2017 and ~~2015.~~2016. There were no modifications that involved forgiveness of debt.


	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Three Months Ended June 30, 2017			Three Months Ended June 30, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Extensions of maturity							2	$	5,855	—	$	—
Interest-rate reductions	16	$	535	109	$	5,012	9	320		16	535
Total	16	$	535	109	$	5,012	11	$	6,175	16	$	535


	Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Extensions of maturity	3	$	1,995	—	$	—	3	$	6,203	3	$	1,995
Interest-rate reductions	39	1,399		112	5,417		29	1,175		39	1,399
Total	42	$	3,394	112	$	5,417	32	$	7,378	42	$	3,394

The following table provides, by loan type, the number of loans modified in troubled debt restructurings, and the related recorded investment, during the three and six months ended June 30, ~~2016~~2017 and ~~2015.~~2016.


	Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Three Months Ended June 30, 2017			Three Months Ended June 30, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Commercial and industrial	—	$	—	2	$	608	2	$	5,855	—	$	—
Commercial real estate non-owner occupied	—	—		—	—
Manufactured housing	14	319		106	4,193		9	320		14	319
Residential real estate	2	216		1	211		—	—		2	216
Total loans	16	$	535	109	$	5,012	11	$	6,175	16	$	535


	Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Commercial and industrial	1	$	76	2	$	608	3	$	6,203	1	$	76
Commercial real estate non-owner occupied	1	1,844		—	—		—	—		1	1,844
Manufactured housing	37	1,183		108	4,400		29	1,175		37	1,183
Residential real estate	3	291		2	409		—	—		3	291
Total loans	42	$	3,394	112	$	5,417	32	$	7,378	42	$	3,394

As of June 30, ~~2016~~2017, except for one commercial and ~~December 31, 2015,~~industrial loan with an outstanding commitment of $2.3 million, there were no other commitments to lend additional funds to debtors whose loans have been modified in TDRs. There were no commitments to lend additional funds to debtors whose ~~terms~~loans have been modified in ~~TDRs.~~TDRs at December 31, 2016.

As of June 30, 2017, six manufactured housing loans totaling $0.3 million that were modified in TDRs within the past twelve months, defaulted on payments. As of June 30, 2016, two manufactured housing loans totaling $0.1 million, that were modified in TDRs within the past twelve months, ~~defaulted on payments. As of June 30, 2015, there were no loans modified in TDRs within the past twelve months that~~ defaulted on payments.

Loans modified in troubled debt restructurings are evaluated for impairment. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses. There ~~were~~was no ~~specific allowances~~allowance recorded as a result of TDR modifications during the three ~~and~~months ended June 30, 2017. For the six months ended June 30, ~~2016.~~2017, there was one allowance recorded resulting from TDR modifications, totaling $1 thousand for one manufactured housing loan. There were ~~two specific~~no allowances recorded resulting from TDR modifications during the three and six months ended June 30, ~~2015, including $70 thousand for one commercial and industrial loan and $20 thousand for one residential real estate loan.~~2016.

Purchased Credit Impaired Loans

The changes in accretable yield related to purchased-credit-impaired loans for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 were as follows:


	Three Months Ended June 30,						Three Months Ended June 30,
	2016			2015			2017			2016
(amounts in thousands)
Accretable yield balance as of March 31,	$	12,622		$	15,424		$	9,376		$	12,622
Accretion to interest income	(499		)	(578		)	(465		)	(499		)
Reclassification from nonaccretable difference and disposals, net	(958		)	(544		)	95			(958		)
Accretable yield balance as of June 30,	$	11,165		$	14,302		$	9,006		$	11,165

	Six Months Ended June 30,
	2016			2015
(amounts in thousands)
Accretable yield balance as of December 31,	$	12,947		$	17,606
Accretion to interest income	(969		)	(1,239		)
Reclassification from nonaccretable difference and disposals, net	(813		)	(2,065		)
Accretable yield balance as of June 30,	$	11,165		$	14,302



	Six Months Ended June 30,
	2017			2016
(amounts in thousands)
Accretable yield balance as of December 31,	$	10,202		$	12,947
Accretion to interest income	(958		)	(969		)
Reclassification from nonaccretable difference and disposals, net	(238		)	(813		)
Accretable yield balance as of June 30,	$	9,006		$	11,165

Allowance for Loan Losses and the FDIC Loss Sharing Receivable and Clawback Liability

Losses incurred on covered loans were eligible for partial reimbursement by the FDIC. Subsequent to the purchase date, the expected cash flows on the covered loans were subject to evaluation. Decreases in the present value of expected cash flows on the covered loans were recognized by increasing the allowance for loan losses with a related charge to the provision for loan losses. At the same time, the FDIC indemnification asset was increased reflecting an estimated future collection from the FDIC, which was recorded as a reduction to the provision for loan losses. If the expected cash flows on the covered loans increased such that a previously recorded impairment could be reversed, the Bank recorded a reduction in the allowance for loan losses (with a related credit to the provision for loan losses) accompanied by a reduction in the FDIC receivable balance (with a related charge to the provision for loan losses). Increases in expected cash flows on covered loans and decreases in expected cash flows from the FDIC loss sharing receivable, when there ~~are~~were no previously recorded impairments, were considered together and recognized over the remaining life of the loans as interest income. Decreases in the valuations of other real estate owned covered by the loss sharing agreements were recorded net of the estimated FDIC receivable as an increase to other real estate owned expense (a component of non-interest expense).

On July 11, 2016, Customers entered into an agreement to terminate all existing rights and obligations pursuant to the loss sharing agreements with the FDIC. In connection with the termination agreement, Customers paid the FDIC $1.4 million as final payment under these agreements. The negotiated settlement amount was based on net losses incurred on the covered assets through September 30, 2015, adjusted for cash payments to and receipts from the FDIC as part of the December 31, 2015 and March 31, 2016 certifications. Consequently, loans and other real estate owned previously reported as covered assets pursuant to the loss sharing agreements ~~are not~~were no longer presented as covered assets as of June 30, 2016. ~~As of June 30, 2016, the negotiated settlement amount of $1.4 million was recorded in "Accrued interest payable and other liabilities" on the consolidated balance sheet.~~

The following table presents changes in the allowance for loan losses and the FDIC loss sharing receivable, including the effects of the estimated clawback liability and the termination agreement, for the three ~~and six~~ months ended June 30, ~~2016~~2017 and ~~2015.~~2016.


	Allowance for Loan Losses						Allowance for Loan Losses
	Three Months Ended June 30,						Three Months Ended June 30,
(amounts in thousands)	2016			2015			2017			2016
Ending balance as of March 31,	$	37,605		$	33,566		$	39,883		$	37,605
Provision for loan losses (1)	1,552			4,924			535			1,552
Charge-offs	(1,140		)	(1,804		)	(1,946		)	(1,000		)
Charge-offs for BankMobile loans							(202		)	(140		)
Recoveries	80			805			134			80
Recoveries for BankMobile loans							54			—
Ending balance as of June 30,	$	38,097		$	37,491		$	38,458		$	38,097

FDIC Loss Sharing Receivable/
Clawback Liability
Three Months Ended June 30,
(amounts in thousands) 2016 2015
Ending balance as of March 31, $ (2,544 ) $ 3,427
Increased (decreased) estimated cash flows (2) 766
(4,411 )
Other activity, net (a) 49
334
Cash payments to (receipts from) the FDIC 348
(805 )
Ending balance as of June 30, $ (1,381 ) $ (1,455 )

(1) Provision for loan losses $ 1,552
$ 4,924
(2) Effect attributable to FDIC loss share arrangements (766 ) 4,411
Net amount reported as provision for loan losses $ 786
$ 9,335

~~(a) Includes external costs, such as legal fees, real estate taxes, and appraisal expenses, which qualify for reimbursement under loss sharing arrangements.~~

Allowance for Loan Losses
Six months ended June 30,
(amounts in thousands) 2016 2015
Ending balance as of December 31, $ 35,647
$ 30,932
Provision for loan losses (1) 3,055
8,559
Charge-offs (1,182 ) (2,948 )
Recoveries 577
948
Ending balance as of June 30, $ 38,097
$ 37,491


	FDIC Loss Sharing Receivable/ Clawback Liability						FDIC Loss Sharing Receivable/ Clawback Liability
	Six months ended June 30,						Three Months Ended June 30,
(amounts in thousands)	2016			2015			2017		2016
Ending balance as of December 31,	$	(2,083	)	$	2,320
Increased (decreased) estimated cash flows (2)	289			(3,740		)
Ending balance as of March 31,							$	—	$	(2,544	)
Increased estimated cash flows (2)							—		766
Other activity, net (a)	(255		)	468			—		49
Cash payments to (receipts from) the FDIC	668			(503		)
Cash payments to the FDIC							—		348
Ending balance as of June 30,	$	(1,381	)	$	(1,455	)	$	—	$	(1,381	)

(1) Provision for loan losses	$	3,055		$	8,559		$	535	$	1,552
(2) Effect attributable to FDIC loss share arrangements	(289		)	3,740			—		(766		)
Net amount reported as provision for loan losses	$	2,766		$	12,299		$	535	$	786

(a) Includes external costs, such as legal fees, real estate taxes, and appraisal expenses, which qualified for reimbursement under the FDIC loss sharing ~~arrangements.~~agreements.



	Allowance for Loan Losses
	Six Months Ended June 30,
(amounts in thousands)	2017			2016
Ending balance as of December 31,	$	37,315		$	35,647
Provision for loan losses (1)	3,585			3,055
Charge-offs	(2,769		)	(1,042		)
Charge-offs for BankMobile loans	(222		)	(140		)
Recoveries	453			577
Recoveries for BankMobile loans	96			—
Ending balance as of June 30,	$	38,458		$	38,097



	FDIC Loss Sharing Receivable/ Clawback Liability
	Six Months Ended June 30,
(amounts in thousands)	2017		2016
Ending balance as of December 31,	$	—	$	(2,083	)
Increased estimated cash flows (2)	—		289
Other activity, net (a)	—		(255		)
Cash payments to the FDIC	—		668
Ending balance as of June 30,	$	—	$	(1,381	)

(1) Provision for loan losses	$	3,585	$	3,055
(2) Effect attributable to FDIC loss share arrangements	—		(289		)
Net amount reported as provision for loan losses	$	3,585	$	2,766

(a) Includes external costs, such as legal fees, real estate taxes, and appraisal expenses, which qualified for reimbursement under the FDIC loss sharing agreements.

Credit Quality Indicators

Multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, construction, and residential real estate 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,”~~needed” basis. Manufactured housing and other consumer loans are evaluated based on the payment activity of the ~~loan and individual loans are not assigned an internal risk rating unless delinquent.~~loan.

To facilitate the monitoring of credit quality within the multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, construction and residential real estate classes, and for purposes of analyzing historical loss rates used in the determination of the allowance for loan losses for the respective loan portfolio class, the Bank utilizes the following categories of risk ratings: pass/satisfactory (includes risk rating 1 through 6), special mention, substandard, doubtful, and loss. The risk rating categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. Pass/satisfactory ratings, which are assigned to those borrowers who do not have identified potential or well-defined weaknesses and for whom there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis during the month preceding the end of the calendar quarter. While assigning risk ratings involves judgment, the risk-rating process allows management to identify riskier credits in a timely manner and allocate the appropriate resources to manage those loans.

The risk rating grades are defined as follows:

“1” – Pass/Excellent

Loans rated 1 represent a credit extension of the highest quality. The borrower’s historic (at least five years) cash flows manifest extremely large and stable margins of coverage. Balance sheets are conservative, well capitalized, and liquid. After considering debt service for proposed and existing debt, projected cash flows continue to be strong and provide ample coverage. The borrower typically reflects broad geographic and product diversification and has access to alternative financial markets.

“2” – Pass/Superior

Loans rated 2 are those for which the borrower has a strong financial condition, balance sheet, operations, cash flow, debt capacity and coverage with ratios better than industry norms. The borrowers of these loans exhibit a limited leverage position, are virtually immune to local economies, and are in stable growing industries. The management team is well respected and the company has ready access to public markets.

“3” – Pass/Strong

Loans rated 3 are those loans for which the borrowers have above average financial condition and flexibility; more than satisfactory debt service coverage; balance sheet and operating ratios are consistent with or better than industry peers; operate in industries with little risk; move in diversified markets; and are experienced and competent in their industry. These borrowers’ access to capital markets is limited mostly to private sources, often secured, but the borrower typically has access to a wide range of refinancing alternatives.

“4” – Pass/Good

Loans rated 4 have a sound primary and secondary source of repayment. The borrower may have access to alternative sources of financing, but sources are not as widely available as they are to a higher grade borrower. These loans carry a normal level of risk, with very low loss exposure. The borrower has the ability to perform according to the terms of the credit facility. The margins of cash flow coverage are satisfactory but vulnerable to more rapid deterioration than the higher quality loans.

“5” – Satisfactory

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

“6” – Satisfactory/Bankable with Care

Loans rated 6 are those for which the borrower has higher than normal credit risk; however, cash flow and asset values are generally intact. These borrowers may exhibit declining financial characteristics, with increasing leverage and decreasing liquidity and may have limited resources and access to financial alternatives. Signs of weakness in these borrowers may include delinquent taxes, trade slowness and eroding profit margins.

“7” – Special Mention

Loans rated Special Mention are credit facilities that may have potential developing weaknesses and deserve extra attention from the account manager and other management personnel. In the event potential weaknesses are not corrected or mitigated, deterioration in the ability of the borrower to repay the debt in the future may occur. This grade is not assigned to loans that bear certain peculiar risks normally associated with the type of financing involved, unless circumstances have caused the risk to increase to a level higher than would have been acceptable when the credit was originally approved. Loans where significant actual, not potential, weaknesses or problems are clearly evident are graded in the category below.

“8” – Substandard

Loans are classified Substandard when the loans are inadequately protected by the current sound worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the company will sustain some loss if the weaknesses are not corrected.

“9” – Doubtful

The Bank assigns a doubtful rating to loans that have all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage of and strengthen the credit quality of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting liens on additional collateral or refinancing plans.

“10” – Loss

The Bank assigns a loss rating to loans considered uncollectible and of such little value that their continuance as an active asset is not warranted. Amounts classified as loss are immediately charged off.

Risk ratings are not established for certain consumer loans, including home equity, manufactured housing, and installment loans, mainly because these portfolios consist of a larger number of homogeneous loans with smaller balances. Instead, these portfolios are evaluated for risk mainly based upon aggregate payment history through the monitoring of delinquency levels and trends and are classified as performing and non-performing.

The following tables present the credit ratings of loans receivable as of June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.


	June 30, 2016																		June 30, 2017
	Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total		Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total
(amounts in thousands)	(amounts in thousands)																		(amounts in thousands)
Pass/Satisfactory	$	3,306,759	$	815,210	$	336,283	$	1,133,554	$	99,615	$	259,894	$	—	$	—	$	5,951,315	$	3,371,537	$	1,032,343	$	427,717	$	1,194,758	$	61,226	$	440,712	$	—	$	—	$	6,528,293
Special Mention	386		21,588		7,944		3,700		—		—		—		—		33,618		18,883		15,105		8,465		13,374		—		—		—		—		55,827
Substandard	1,411		7,070		4,579		2,457		—		2,673		—		—		18,190		9,197		14,835		7,022		7,880		—		3,741		—		—		42,675
Performing (1)	—		—		—		—		—		—		100,298		3,232		103,530		—		—		—		—		—		—		88,430		2,504		90,934
Non-performing (2)	—		—		—		—		—		—		7,576		45		7,621		—		—		—		—		—		—		7,718		57		7,775
Total	$	3,308,556	$	843,868	$	348,806	$	1,139,711	$	99,615	$	262,567	$	107,874	$	3,277	$	6,114,274	$	3,399,617	$	1,062,283	$	443,204	$	1,216,012	$	61,226	$	444,453	$	96,148	$	2,561	$	6,725,504


	December 31, 2015																		December 31, 2016
	Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total		Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total
(amounts in thousands)	(amounts in thousands)																		(amounts in thousands)
Pass/Satisfactory	$	2,907,362	$	784,892	$	295,762	$	950,886	$	87,240	$	268,210	$	—	$	—	$	5,294,352	$	3,198,290	$	943,356	$	375,919	$	1,175,850	$	50,291	$	189,919	$	—	$	—	$	5,933,625
Special Mention	661		14,052		7,840		1,671		—		282		—		—		24,506		—		19,552		12,065		10,824		14,498		—		—		—		56,939
Substandard	1,416		4,215		4,639		3,698		—		3,121		—		—		17,089		16,709		14,313		5,648		7,041		—		3,583		—		—		47,294
Performing (1)	—		—		—		—		—		—		104,484		3,461		107,945		—		—		—		—		—		—		92,920		2,656		95,576
Non-performing (2)	—		—		—		—		—		—		9,006		247		9,253		—		—		—		—		—		—		8,810		70		8,880
Total	$	2,909,439	$	803,159	$	308,241	$	956,255	$	87,240	$	271,613	$	113,490	$	3,708	$	5,453,145	$	3,214,999	$	977,221	$	393,632	$	1,193,715	$	64,789	$	193,502	$	101,730	$	2,726	$	6,142,314


(1)	Includes consumer and other installment loans not subject to risk ratings.


(2)	Includes loans that are past due and still accruing interest and loans on nonaccrual status.

~~NOTE 9 - SHAREHOLDERS’ EQUITY~~

~~On April 28, 2016,~~Loan Purchases and Sales

In first quarter 2017, Customers ~~Bancorp issued 2,300,000 shares~~purchased $174.2 million of ~~Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, (the “Series E Preferred Stock”) par value $1.00 per share, at a~~thirty-year fixed-rate residential mortgage loans from Florida-based Everbank. The purchase price was 98.5% of ~~$25.00 per share in a public offering. Dividends on~~loans outstanding. In second quarter 2017, Customers purchased an additional $90.0 million of thirty-year fixed-rate residential mortgage loans from Everbank. The purchase price was 101.0% of loans outstanding. There were no loan purchases during the Series E Preferred Stock will accrue and be payable quarterly in arrears, at a fixed rate per annum equal to 6.45% from the original issue date to, but excluding, June 15, 2021, and thereafter at a floating rate per annum equal to three-month LIBOR on the related dividend determination date plus a spread of 5.14% per annum. Customers received net proceeds of $55.6 million from the offering, after deducting offering costs.

On January 29, 2016, Customers Bancorp issued 1,000,000 shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, (the "Series D Preferred Stock") par value $1.00 per share, at a price of $25.00 per share in a public offering. Dividends on the Series D Preferred Stock will accrue and be payable quarterly in arrears, at a fixed rate per annum equal to 6.50% from the original issue date to, but excluding, March 15, 2021, and thereafter at a floating rate per annum equal to three-month LIBOR on the related dividend determination date plus a spread of 5.09% per annum. Customers received net proceeds of $24.1 million from the offering, after deducting offering costs.

On May 18, 2015, Customers Bancorp issued 2,300,000 shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C, (the "Series C Preferred Stock") par value $1.00 per share, at a price of $25.00 per share in a public offering. Dividends on the Series C Preferred Stock will accrue and be payable quarterly in arrears, at a fixed rate per annum equal to 7.00% from the original issue date to, but excluding, June 15, 2020, and thereafter at a floating rate per annum equal to three-month LIBOR on the related dividend determination date plus a spread of 5.30% per annum. Customers received net proceeds of $55.6 million from the offering, after deducting offering costs.

~~The net proceeds from the preferred offerings will be used for general corporate purposes, which may include working capital and the funding of organic growth at Customers Bank.~~

~~Dividends on the Series C, Series D and Series E Preferred Stock will not be cumulative. If Customers Bancorp's board of directors~~three or a duly authorized committee of the board does not declare a dividend on the Series C, Series D and Series E Preferred Stock in respect of a dividend period, then no dividend shall be deemed to have accrued for such dividend period, be payable on the applicable dividend payment date, or be cumulative, and Customers Bancorp will have no obligation to pay any dividend for that dividend period, whether or not the board of directors or a duly authorized committee of the board declares a dividend on the Series C, Series D and Series E Preferred Stock for any future dividend period.

The Series C, Series D and Series E Preferred Stock have no stated maturity, are not subject to any mandatory redemption, sinking fund or other similar provisions and will remain outstanding unless redeemed at Customers Bancorp's option. Customers Bancorp may redeem the Series C, Series D and Series E Preferred Stock at its option, at a redemption price equal to $25.00 per share, plus any declared and unpaid dividends (without regard to any undeclared dividends), (i) in whole or in part, from time to time, on any dividend payment date on or after June 15, 2020 for Series C Preferred Stock, March 15, 2021 for Series D Preferred Stock and June 15, 2021 for Series E Preferred Stock and or (ii) in whole but not in part, within 90 days following the occurrence of a regulatory capital treatment event. Any redemption of the Series C, Series D and Series E Preferred Stock is subject to prior approval of the Board of Governors of the Federal Reserve System. The Series C, Series D and Series E Preferred Stock qualify as Tier 1 capital under regulatory capital guidelines. Except in limited circumstances, the Series C, Series D and Series E Preferred Stock do not have any voting rights.

~~On June 15, 2016, Customers made the following dividend payments to shareholders of record as of May 31, 2016:~~

~~a cash dividend on its Series C Preferred Stock of $0.437500 per share.~~

~~a cash dividend on its Series D Preferred Stock of $0.40625 per share.~~

~~a cash dividend on its Series E Preferred Stock of $0.21052 per share.~~

~~On March 15, 2016, Customers made the following dividend payments to shareholders of record as of February 29, 2016:~~

~~a cash dividend on its Series C Preferred Stock of $0.4375 per share.~~

~~a cash dividend on its Series D Preferred Stock of $0.2076 per share.~~

~~NOTE 10 — SHARE-BASED COMPENSATION~~

~~Stock Options~~

~~The following table summarizes stock option activity for the~~ six months ended June 30, 2016.

Number
of Options

Weighted-
average
Exercise
Price

Weighted-
average
Remaining
Contractual
Term in Years

Aggregate
Intrinsic
Value
(amounts in thousands, except weighted-average exercise price)
Outstanding at December 31, 2015 3,731,761
$ 14.33

Granted 20,000
25.18

Exercised (40,669 ) 10.32
$ 565
Forfeited (275 ) 18.19

Outstanding at June 30, 2016 3,710,817
$ 14.44
6.32 $ 39,696
Exercisable at June 30, 2016 896,061
$ 9.58
4.06 $ 13,935
In first quarter 2017, Customers sold $94.9 million of multi-family loans for $95.4 million resulting in a gain on sale of $0.5 million and $8.7 million of Small Business Administration (SBA) loans resulting in a gain on sale of $0.8 million. In second quarter 2017, Customers sold $7.0 million of SBA loans resulting in a gain on sale of $0.6 million. In first quarter 2016, Customers sold $6.9 million of SBA loans resulting in a gain on sale of $0.6 million. In second quarter 2016, Customers sold one commercial loan amounting to $5.7 million resulting in a loss on sale of $0.1 million and $3.6 million of SBA loans resulting in a gain on sale of $0.4 million.

~~Cash received from the exercise~~None of ~~options~~these purchases and sales during the six months ended June 30, 2017 and 2016 ~~was $0.4 million with a~~materially affected the credit profile of Customers’ related ~~tax benefit of $0.2 million.~~loan portfolio.

~~Restricted Stock Units~~

~~There were 247,285 restricted stock units granted during the six months ended~~

NOTE 10 - BORROWINGS

In June 30, 2016. Of the aggregate restricted stock units granted, 86,654 were granted under the Bonus Recognition and Retention Program and are subject to five-year cliff vesting. The remaining units were granted under the Bancorp's Restated and Amended 2004 Incentive Equity and Deferred Compensation Plan and are subject to either a three-year waterfall vesting with one third of the amount vesting annually or a three-year cliff vesting. The following table summarizes restricted stock unit activity for the six months ended June 30, 2016.

Restricted
Stock Units

Weighted-
average Grant-
date Fair Value
Outstanding and unvested at December 31, 2015 873,264
$ 14.24
Granted 247,285
23.85
Vested (97,664 ) 14.82
Forfeited (623 ) 21.18
Outstanding and unvested at June 30, 2016 1,022,262
$ 16.51

Total share-based compensation expense for the three months ended June 30, 2016 and 2015 was $1.6 million and $1.2 million, respectively. Total share-based compensation expense for the six months ended June 30, 2016 and 2015 was $3.0 million and $2.4 million, respectively.

~~Customers Bancorp has a policy that permits its directors to elect to receive shares of voting common stock in lieu of their cash retainers. During the six months ended June 30, 2016,~~2017, Customers Bancorp issued ~~16,552 shares~~$100 million of ~~voting common stock with~~senior notes at 99.775% of face value. The price to purchasers represents a ~~fair value~~yield-to-maturity of ~~$0.4 million to directors as compensation for their services during the first six months of 2016. The fair values were determined based~~4.0% on the ~~opening price~~fixed coupon rate of ~~the common stock on the day the shares were issued.~~3.95%. The senior notes mature in June 2022.

The net proceeds to Customers after deducting the underwriting discount and estimated offering expenses were approximately $98.6 million. The net proceeds were contributed to Customers Bank for purposes of its working capital needs and the funding of its organic growth.

NOTE 11 — REGULATORY CAPITAL

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, ~~and~~ total capital to risk-weighted assets, and of Tier 1 capital to average assets (as defined in the regulations). At June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Bank and the Bancorp ~~met~~satisfied all capital ~~adequacy~~ requirements to which they were subject.

The Dodd-Frank Act required the ~~FRB~~Federal Reserve Bank to establish minimum consolidated capital requirements for bank holding companies that are as stringent as those required for insured depositary subsidiaries. In 2013, the federal banking agencies approved rules that implemented the Dodd-Frank requirements and certain other regulatory capital reforms effective January 1, 2015, that (i) introduced a new capital ratio pursuant to the prompt corrective action provisions, the common equity tier 1 capital to risk ~~rated~~weighted assets ratio, (ii) increased the adequately capitalized and well capitalized thresholds for the Tier 1 risk based capital ratios to 6% and 8%, respectively, (iii) changed the treatment of certain capital components for determining Tier 1 and Tier 2 capital, and (iv) changed the risk weighting of certain assets and ~~off balance~~off-balance sheet items in determining risk weighted assets.

ToGenerally, to be ~~categorized as~~considered adequately capitalized, or well capitalized, respectively, an institution must at least maintain ~~minimum~~the common equity Tier 1, Tier 1 ~~risk based,~~and total risk based ratios and the Tier 1 ~~leveraged~~leverage ratio in excess of the related minimum ratios as set forth in the following table:


	Actual				For Capital Adequacy Purposes (Minimum Plus Capital Buffer)				To Be Well Capitalized Under Prompt Corrective Action Provisions				Actual				For Capital Adequacy Purposes (Minimum Plus Capital Buffer)				To Be Well Capitalized Under Prompt Corrective Action Provisions
(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2016:
As of June 30, 2017:
Common equity Tier 1 capital (to risk weighted assets)
Customers Bancorp, Inc.	$	528,603	6.815	%	$	397,491	5.125	%	N/A		N/A		$	671,824	8.282	%	$	466,453	5.750	%	N/A		N/A
Customers Bank	$	684,682	8.856	%	$	396,238	5.125	%	$	502,546	6.500	%	$	995,670	12.302	%	$	465,368	5.750	%	$	526,068	6.500	%
Tier 1 capital (to risk weighted assets)
Customers Bancorp, Inc.	$	663,873	8.560	%	$	513,830	6.625	%	N/A		N/A		$	889,295	10.962	%	$	588,136	7.250	%	N/A		N/A
Customers Bank	$	684,682	8.856	%	$	512,210	6.625	%	$	618,518	8.000	%	$	995,670	12.302	%	$	586,768	7.250	%	$	647,468	8.000	%
Total capital (to risk weighted assets)
Customers Bancorp, Inc.	$	808,127	10.419	%	$	668,949	8.625	%	N/A		N/A		$	1,008,760	12.435	%	$	750,380	9.250	%	N/A		N/A
Customers Bank	$	831,513	10.755	%	$	666,839	8.625	%	$	773,147	10.000	%	$	1,143,056	14.123	%	$	748,635	9.250	%	$	809,335	10.000	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	663,873	7.143	%	$	371,756	4.000	%	N/A		N/A		$	889,295	8.680	%	$	409,836	4.000	%	N/A		N/A
Customers Bank	$	684,682	7.385	%	$	370,840	4.000	%	$	463,551	5.000	%	$	995,670	9.737	%	$	409,025	4.000	%	$	511,281	5.000	%
As of December 31, 2015:
As of December 31, 2016:
Common equity Tier 1 capital (to risk weighted assets)
Customers Bancorp, Inc.	$	500,624	7.610	%	$	296,014	4.500	%	N/A		N/A		$	628,139	8.487	%	$	379,306	5.125	%	N/A		N/A
Customers Bank	$	565,217	8.620	%	$	294,916	4.500	%	$	425,990	6.500	%	$	857,421	11.626	%	$	377,973	5.125	%	$	479,380	6.500	%
Tier 1 capital (to risk weighted assets)
Customers Bancorp, Inc.	$	556,193	8.460	%	$	394,685	6.000	%	N/A		N/A		$	844,755	11.414	%	$	490,322	6.625	%	N/A		N/A
Customers Bank	$	565,217	8.620	%	$	393,221	6.000	%	$	524,295	8.000	%	$	857,421	11.626	%	$	488,599	6.625	%	$	590,006	8.000	%
Total capital (to risk weighted assets)
Customers Bancorp, Inc.	$	698,323	10.620	%	$	526,247	8.000	%	N/A		N/A		$	966,097	13.053	%	$	638,343	8.625	%	N/A		N/A
Customers Bank	$	710,864	10.850	%	$	524,295	8.000	%	$	655,369	10.000	%	$	1,003,609	13.608	%	$	636,101	8.625	%	$	737,508	10.000	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	556,193	7.160	%	$	310,812	4.000	%	N/A		N/A		$	844,755	9.067	%	$	372,652	4.000	%	N/A		N/A
Customers Bank	$	565,217	7.300	%	$	309,883	4.000	%	$	387,353	5.000	%	$	857,421	9.233	%	$	371,466	4.000	%	$	464,333	5.000	%

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

Effective January 1, ~~2016,~~2017, the capital level required to avoid limitation on elective distributions applicable to the Bancorp and the Bank were as follows:

(i) a common equity Tier 1 capital ratio of ~~5.125%~~5.750%;

(ii) a Tier 1 Risk based capital ratio of ~~6.625%~~7.250%; and

(iii) a Total Risk based capital ratio of ~~8.625%~~9.250%.

Failure to maintain the required capital conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers.

NOTE 12 — 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. ~~FASB Accounting Standards Codification ("ASC")~~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. ~~However, many~~Many of these financial instruments lack an available trading market as characterized by a willing buyer and a willing seller engaging in an exchange transaction. For fair value disclosure purposes, Customers utilized certain fair value measurement criteria under ~~the FASB~~ ASC Topic 820, Fair Value Measurements and Disclosures, as explained below.

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

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

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

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

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

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

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

The following methods and assumptions were used to estimate the fair values of Customers' financial instruments as of June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

Cash and cash equivalents:

The carrying amounts reported on the balance sheet for cash and cash equivalents approximate those assets’ fair values. These assets are ~~included~~classified as Level 1 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Investment securities:

The fair values of investment securities available for sale are determined by obtaining quoted market prices on nationally recognized and foreign securities exchanges (Level 1), matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). These assets are ~~included~~classified as Level 1, 2, or 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

The carrying amount of investments in FHLB, Federal Reserve Bank, and other restricted stock approximates fair value, and considers the limited marketability of such securities. These assets are ~~included~~classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Loans held for sale - ~~Residential~~Consumer residential mortgage loans:

The Bank generally estimates the fair values of residential mortgage loans held for sale based on commitments on hand from investors within the secondary market for loans with similar characteristics. These assets are ~~included~~classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Loans held for sale - ~~Mortgage~~Commercial mortgage warehouse loans:

The fair value of mortgage warehouse loans is the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The loan is used by mortgage companies as short-term bridge financing between the funding of mortgage loans and the finalization of the sale of the loans to an investor. Changes in fair value are not expected to be recognized ~~since~~because at inception of the transaction the underlying loans have already been sold to an approved investor. Additionally, the interest rate is variable, and the transaction is short-term, with an average life of 1920 days from purchase to sale. These assets are ~~included~~classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Loans held for sale ~~– Multi-family~~- Multifamily loans:

The fair values of multi-family loans held for sale are estimated using pricing indications from letters of intent with ~~third-party~~third party investors, recent sale transactions within the secondary markets for loans with similar characteristics, or non-binding indicative bids from ~~brokers.~~brokers, or estimates made by management considering current market rates and terms. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Loans receivable, net of allowance for loan losses:

The fair values of loans held for investment are estimated using discounted cash flows ~~using~~and market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. These assets are ~~included~~classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Impaired loans:

Impaired loans are those loans that are accounted for under ASC 310, Receivables, in which the Bank has measured impairment generally based on the fair value of the loan’s ~~collateral.~~collateral or discounted cash flow analysis. Fair value is generally determined based upon independent third-party appraisals of the properties that collateralize the loans or discounted cash flows based upon the expected proceeds. These assets are ~~included~~generally classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Other real estate owned:

The fair value of other real estate owned ("OREO") is determined by using appraisals, which may be discounted based on management’s review and changes in market conditions or sales agreements with third parties. All appraisals must be performed in accordance with the Uniform Standards of Professional Appraisal Practice. Appraisals are certified to the Bank and performed by appraisers on the Bank’s approved list of appraisers. Evaluations are completed by a person independent of management. The content of the appraisal depends on the complexity of the property. Appraisals are completed on a “retail value” and an “as is value”. These assets are ~~included~~classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Deposit liabilities:

The fair values disclosed for interest and non-interest checking, passbook savings and money market deposit accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). These liabilities are ~~included~~classified as Level 1 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. These liabilities are ~~included~~classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Federal funds purchased:

For these short-term instruments, the carrying amount is considered a reasonable estimate of fair value. These liabilities are ~~included~~classified as Level 1 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Borrowings:

Borrowings consist of long-term and short-term FHLB advances, 5-year senior unsecured notes, and subordinated debt. For ~~the short-term~~overnight borrowings, the carrying ~~amount is~~amounts are considered a reasonable ~~estimate~~estimates of fair value and ~~is included~~are classified as a Level 1 fair value ~~measurement.~~measurements. Fair values of ~~long-term~~all other FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. The prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party. Fair values of privately placed subordinated and senior unsecured debt are estimated by a third-party financial adviser using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit-risk characteristics, terms and remaining maturity. These liabilities are ~~included~~classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements. The $63 million senior unsecured notes issued during third quarter 2013 are traded on The New York Stock Exchange, and their price can be obtained daily. This fair value measurement is classified as Level 1.

Derivatives (Assets and Liabilities):

The fair values of interest rate swaps and credit derivatives are determined using models that incorporate readily observable market data into a market standard methodology. This methodology nets the discounted future ~~fixed~~ cash receipts and the discounted expected ~~variable~~ cash payments. The discounted variable cash receipts and payments are based on expectations of future interest rates derived from observable market interest rate curves. In addition, fair value is adjusted for the effect of nonperformance risk by incorporating credit valuation adjustments for the Bank and its counterparties. These assets and liabilities are ~~included~~classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

The fair values of the residential mortgage loan commitments are derived from the estimated fair values that can be generated when the underlying mortgage loan is sold in the secondary market. The Bank generally uses commitments on hand from ~~third~~third- party investors to estimate an exit price and adjusts for the probability of the commitment being exercised based on the Bank’s internal experience (i.e., pull-through rate). These assets and liabilities are ~~included~~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.

Assets and Liabilities held for sale

Assets and liabilities held for sale are recorded at the lower of cost basis or market value. Assets classified as held for sale at June 30, 2017 were $67.8 million. Included in assets held for sale were financial instruments including cash and cash equivalents of $11.6 million (Level 1) and loans receivable of $1.9 million (Level 3). The remaining assets designated as held for sale consist of goodwill, intangibles and other assets not considered financial instruments. Liabilities classified as held for sale consisted primarily of $453.4 million million of transaction deposit accounts (Level 1). The remaining liabilities classified as held for sale consist of accrued liabilities not considered financial instruments under ASC 825 - Financial Instruments.

Off-balance-sheet financial instruments:

The fair values of unused commitments to lend and standby letters of credit are considered to be the same as their contractual amounts.

The following information should not be interpreted as an estimate of Customers' fair value in its entirety because fair value calculations are only provided for a limited portion of Customers' assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making these estimates, comparisons between Customer’s disclosures and those of other companies may not be meaningful.

The estimated fair values of Customers' financial instruments at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 were as follows:


					Fair Value Measurements at June 30, 2016										Fair Value Measurements at June 30, 2017
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(amounts in thousands)
Assets:
Cash and cash equivalents	$	302,796	$	302,796	$	302,796	$	—	$	—	$	401,690	$	401,690	$	401,690	$	—	$	—
Investment securities, available for sale	547,935		547,935		16,693		531,242		—		1,012,605		1,012,605		10,661		1,001,944		—
Loans held for sale	2,301,821		2,301,821		—		2,274,294		27,527		2,255,096		2,255,276		—		2,104,338		150,938
Loans receivable, net of allowance for loan losses	6,076,479		6,105,391		—		—		6,105,391		6,684,820		6,715,271		—		—		6,715,271
FHLB, Federal Reserve Bank and other restricted stock	111,418		111,418		—		111,418		—		129,689		129,689		—		129,689		—
Derivatives	19,492		19,492		—		19,335		157		10,754		10,754		—		10,652		102
Assets held for sale											13,482		13,482		11,552		—		1,930
Liabilities:
Deposits	$	6,751,259	$	6,762,470	$	4,020,501	$	2,741,969	$	—	$	7,021,922	$	7,020,634	$	4,579,560	$	2,441,074	$	—
Deposits held for sale											453,441		453,441		453,441		—		—
Federal funds purchased	61,000		61,000		61,000		—		—		150,000		150,000		150,000		—		—
FHLB advances	1,906,900		1,908,421		1,646,900		261,521		—		1,999,600		1,999,358		1,189,600		809,758		—
Other borrowings	86,790		88,579		63,579		25,000		—		186,030		191,887		66,362		125,525		—
Subordinated debt	108,734		110,000		—		110,000		—		108,831		114,400		—		114,400		—
Derivatives	27,624		27,624		—		27,624		—		13,116		13,116		—		13,116		—


					Fair Value Measurements at December 31, 2015										Fair Value Measurements at December 31, 2016
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(amounts in thousands)
Assets:
Cash and cash equivalents	$	264,593	$	264,593	$	264,593	$	—	$	—	$	244,709	$	244,709	$	244,709	$	—	$	—
Investment securities, available for sale	560,253		560,253		19,212		541,041		—		493,474		493,474		15,246		478,228		—
Loans held for sale	1,797,064		1,797,458		—		1,757,807		39,651		2,117,510		2,117,510		—		2,117,510		—
Loans receivable, net of allowance for loan losses	5,417,832		5,353,903		—		—		5,353,903		6,105,075		6,149,773		—		—		6,149,773
FHLB, Federal Reserve Bank and other restricted stock	90,841		90,841		—		90,841		—		68,408		68,408		—		68,408		—
Derivatives	9,295		9,295		—		9,250		45		10,864		10,864		—		10,819		45
Assets held for sale											32,248		32,248		20,000		—		12,248
Liabilities:
Deposits	$	5,909,501	$	5,911,754	$	3,561,905	$	2,349,849	$	—	$	6,846,980	$	6,846,868	$	4,015,218	$	2,831,650	$	—
Deposits held for sale											456,795		456,795		456,795		—		—
Federal funds purchased	70,000		70,000		70,000		—		—		83,000		83,000		83,000		—		—
FHLB advances	1,625,300		1,625,468		1,365,300		260,168		—		868,800		869,049		688,800		180,249		—
Other borrowings	86,457		93,804		68,867		24,937		—		87,123		91,761		66,261		25,500		—
Subordinated debt	108,685		110,825		—		110,825		—		108,783		111,375		—		111,375		—
Derivatives	13,932		13,932		—		13,932		—		14,172		14,172		—		14,172		—

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 30, ~~2016~~2017 and December 31, ~~2015~~2016 were as follows:


	June 30, 2016								June 30, 2017
	Fair Value Measurements at the End of the Reporting Period Using								Fair Value Measurements at the End of the Reporting Period Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(amounts in thousands)
Measured at Fair Value on a Recurring Basis:
Assets
Available-for-sale securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	271,976	$	—	$	271,976	$	—	$	209,744	$	—	$	209,744
Agency guaranteed commercial real estate mortgage-backed securities	—		213,554		—		213,554
Agency guaranteed commercial mortgage-backed securities									—		746,423		—		746,423
Corporate notes	—		45,712		—		45,712		—		45,777		—		45,777
Equity securities	16,693		—		—		16,693		10,661		—		—		10,661
Derivatives	—		19,335		157		19,492		—		10,652		102		10,754
Loans held for sale – fair value option	—		2,274,294		—		2,274,294		—		2,104,338		—		2,104,338
Total assets - recurring fair value measurements	$	16,693	$	2,824,871	$	157	$	2,841,721	$	10,661	$	3,116,934	$	102	$	3,127,697
Liabilities
Derivatives	$	—	$	27,624	$	—	$	27,624	$	—	$	13,116	$	—	$	13,116
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of specific reserves of $3,666	$	—	$	—	$	5,385	$	5,385
Impaired loans, net of reserves of $2,791									$	—	$	—	$	6,725	$	6,725
Other real estate owned	—		—		688		688		—		—		2,070		2,070
Total assets - nonrecurring fair value measurements	$	—	$	—	$	6,073	$	6,073	$	—	$	—	$	8,795	$	8,795


	December 31, 2015								December 31, 2016
	Fair Value Measurements at the End of the Reporting Period Using								Fair Value Measurements at the End of the Reporting Period Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(amounts in thousands)
Measured at Fair Value on a Recurring Basis:
Assets
Available-for-sale securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	298,104	$	—	$	298,104	$	—	$	231,263	$	—	$	231,263
Agency-guaranteed commercial real estate mortgage-backed securities	—		202,870		—		202,870
Agency-guaranteed commercial mortgage-backed securities									—		201,817		—		201,817
Corporate notes	—		40,067		—		40,067		—		45,148		—		45,148
Equity securities	19,212		—		—		19,212		15,246		—		—		15,246
Derivatives	—		9,250		45		9,295		—		10,819		45		10,864
Loans held for sale – fair value option	—		1,757,807		—		1,757,807		—		2,117,510		—		2,117,510
Total assets - recurring fair value measurements	$	19,212	$	2,308,098	$	45	$	2,327,355	$	15,246	$	2,606,557	$	45	$	2,621,848
Liabilities
Derivatives	$	—	$	13,932	$	—	$	13,932	$	—	$	14,172	$	—	$	14,172
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of specific reserves of $2,273	$	—	$	—	$	4,346	$	4,346
Impaired loans, net of reserves of $1,360									$	—	$	—	$	6,527	$	6,527
Other real estate owned	—		—		358		358		—		—		2,731		2,731
Total assets - nonrecurring fair value measurements	$	—	$	—	$	4,704	$	4,704	$	—	$	—	$	9,258	$	9,258

The changes in Level 3 assets measured at fair value on a recurring basis for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 are summarized as follows.


	Residential Mortgage Loan Commitments						Residential Mortgage Loan Commitments
	Three Months Ended June 30,						Three Months Ended June 30,
	2016			2015			2017			2016
(amounts in thousands)
Balance at March 31	$	73		$	87		$	95		$	73
Issuances	157			71			102			157
Settlements	(73		)	(87		)	(95		)	(73		)
Balance at June 30	$	157		$	71		$	102		$	157


	Residential Mortgage Loan Commitments						Residential Mortgage Loan Commitments
	Six Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2017			2016
(amounts in thousands)
Balance at December 31	$	45		$	43		$	45		$	45
Issuances	230			158			197			230
Settlements	(118		)	(130		)	(140		)	(118		)
Balance at Balance at June 30	$	157		$	71
Balance at June 30							$	102		$	157

Customers' policy is to recognize transfers between fair value levels when events or circumstances warrant transfers. There were no transfers between levels during the three and six months ended June 30, ~~2016~~2017 and ~~2015.~~2016.

The following table summarizes financial assets and financial liabilities measured at fair value as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 on a recurring and nonrecurring basis for which Customers utilized Level 3 inputs to measure fair value.

Quantitative Information about Level 3 Fair Value Measurements

June 30, 2016

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range (Weighted

Average)

June 30, 2017

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range (Weighted

Average) (4)

(amounts in thousands)

Impaired loans

5,385

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

6,725

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

Other real estate owned

688

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

2,070

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

Residential mortgage loan commitments

157

Adjusted market bid

Pull-through rate

90%

102

Adjusted market bid

Pull-through rate

90%

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2015

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range (Weighted

Average)

December 31, 2016

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range (Weighted

Average) (4)

(amounts in thousands)

Impaired loans

1,431

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

Impaired loans

4,346

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

5,096

Discounted cash flow

Projected cash flows (3)

4 times EBITDA

Other real estate owned

358

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

2,731

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

Residential mortgage loan commitments

Adjusted market bid

Pull-through rate

94%

Adjusted market bid

Pull-through rate

90%


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


(2)	Fair value is adjusted for estimated costs to sell based on a percentage of the value as determined by the appraisal.


(3)	Projected cash flows of the business derived using EBITDA multiple based on management's best estimate.


(4)	Presented as a percentage of the value determined by appraisal for impaired loans and other real estate owned.

NOTE 13 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objectives of Using Derivatives

Customers is exposed to certain risks arising from both its business operations and economic conditions. Customers manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and durations of its assets and liabilities. Specifically, Customers enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Customers' derivative financial instruments are used to manage differences in the amount, timing, and duration of Customers' known or expected cash receipts and its known or expected cash payments principally related to certain borrowings. Customers also has interest-rate derivatives resulting from a service provided to certain qualifying customers, and therefore, they are not used to manage Customers' interest-rate risk in assets or liabilities. Customers manages a matched book with respect to its derivative instruments used in this customer service in order to minimize its net risk exposure resulting from such transactions.

Cash Flow Hedges of Interest Rate Risk

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

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. To date, such derivatives were used to hedge the variable cash flows associated with the forecasted ~~issuance~~issuances of debt. The ineffective portion of the change in fair value of the derivatives is to be recognized directly in earnings. During the three and six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, Customers did not record any hedge ineffectiveness.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on Customers' variable-rate debt. Customers expects to reclassify ~~$2.8~~$1.6 million from accumulated other comprehensive income to interest expense during the next 12 months.

Customers is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of 24 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

At June 30, ~~2016 and December 31, 2015,~~2017, Customers had ~~one~~nine outstanding interest rate ~~derivative~~derivatives with a notional ~~amount of $150.0~~amounts totaling $550.0 million that ~~was~~were designated as a cash flow ~~hedge~~hedges of interest rate risk. At December 31, 2016, Customers had four outstanding interest rate derivatives with notional amounts totaling $325.0 million that were designated as cash flow hedges of interest rate risk. The ~~hedge expires in~~hedges expire between January 2018 and April 2019.

Derivatives Not Designated as Hedging Instruments

Customers executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies (typically the loan customers will swap a floating-rate loan for a fixed-rate loan). The customer interest rate swaps are simultaneously offset by interest rate swaps that Customers executes with a third party in order to minimize interest rate risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting third-party market swaps are recognized directly in earnings. At June 30, ~~2016,~~2017, Customers had 7076 interest rate swaps with an aggregate notional amount of ~~$546.1~~$789.7 million related to this program. At December 31, ~~2015,~~2016, Customers had 6276 interest rate swaps with an aggregate notional amount of ~~$461.0~~$716.6 million related to this program.

Customers enters into residential mortgage loan commitments in connection with its consumer mortgage banking activities to fund mortgage loans at specified rates and times in the future. These commitments are short-term in nature and generally expire in 30 to 60 days. The residential mortgage loan commitments that relate to the origination of mortgage loans that will be held for sale are considered derivative instruments under the applicable accounting guidance and are reported at fair value, with changes in fair value recorded directly in earnings. At June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, Customers had an outstanding notional balance of residential mortgage loan commitments of ~~$8.2~~$6.1 million and ~~$2.8~~$3.6 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 30, ~~2016~~2017 and December 31, ~~2015,~~2016, Customers had an outstanding notional balances of credit derivatives of ~~$36.0~~$53.8 million and ~~$19.3~~$44.9 million, respectively.

Fair Value of Derivative Instruments on the Balance Sheet

The following ~~table presents~~tables present the fair value of Customers' derivative financial instruments as well as their presentation on the balance sheet as of June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.


	June 30, 2016						June 30, 2017
	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
(amounts in thousands)
Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	—	Other liabilities	$	7,287	Other assets	$	195	Other liabilities	$	2,586
Total		$	—		$	7,287		$	195		$	2,586
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	19,063	Other liabilities	$	20,299	Other assets	$	10,322	Other liabilities	$	10,521
Credit contracts	Other assets	272		Other liabilities	38		Other assets	135		Other liabilities	9
Residential mortgage loan commitments	Other assets	157		Other liabilities	—		Other assets	102		Other liabilities	—
Total		$	19,492		$	20,337		$	10,559		$	10,530


	December 31, 2015						December 31, 2016
	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
(amounts in thousands)
Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	—	Other liabilities	$	4,477	Other assets	$	—	Other liabilities	$	3,624
Total		$	—		$	4,477		$	—		$	3,624
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	9,088	Other liabilities	$	9,455	Other assets	$	10,683	Other liabilities	$	10,537
Credit contracts	Other assets	162		Other liabilities	—		Other assets	136		Other liabilities	11
Residential mortgage loan commitments	Other assets	45		Other liabilities	—		Other assets	45		Other liabilities	—
Total		$	9,295		$	9,455		$	10,864		$	10,548

Effect of Derivative Instruments on Comprehensive Income

The following tables present the effect of Customers' derivative financial instruments on comprehensive income for the three and six months ended June 30, ~~2016~~2017 and ~~2015.~~2016.


	Three Months Ended June 30, 2016				Three Months Ended June 30, 2017
	Income Statement Location	Amount of Income (Loss) Recognized in Earnings			Income Statement Location	Amount of Income (Loss) Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	(14	)	Other non-interest income	$	(145	)
Credit contracts	Other non-interest income	23			Other non-interest income	1
Residential mortgage loan commitments	Mortgage loan and banking income	84			Mortgage banking income	7
Total		$	93			$	(137	)


	Three Months Ended June 30, 2015				Three Months Ended June 30, 2016
	Income Statement Location	Amount of Income (Loss) Recognized in Earnings			Income Statement Location	Amount of Income (Loss) Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	588		Other non-interest income	$	(14	)
Credit contracts	Other non-interest income	(66		)	Other non-interest income	23
Residential mortgage loan commitments	Mortgage loan and banking income	(17		)	Mortgage banking income	84
Total		$	505			$	93



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



	Six Months Ended June 30, 2016
	Income Statement Location	Amount of Income (Loss) Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	(486	)
Credit contracts	Other non-interest income	272
Residential mortgage loan commitments	Mortgage banking income	112
Total		$	(102	)



	Three Months Ended June 30, 2017
	Amount of Loss Recognized in OCI on Derivatives (Effective Portion) (1)			Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
(amounts in thousands)
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	(420	)	Interest expense	$	(767	)

Six Months Ended June 30, 2016
Income Statement Location
Amount of Income (Loss)
Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps Other non-interest income $ (486 )
Credit contracts Other non-interest income 272
Residential mortgage loan commitments Mortgage loan and banking income 112
Total $ (102 )



	Three Months Ended June 30, 2016
	Amount of Loss Recognized in OCI on Derivatives (Effective Portion) (1)			Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
(amounts in thousands)
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	(508	)	Interest expense	$	(603	)

Six Months Ended June 30, 2015
Income Statement Location
Amount of Income (Loss)
Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps Other non-interest income $ 710
Credit contracts Other non-interest income (36 )
Residential mortgage loan commitments Mortgage loan and banking income 28
Total $ 702

Three Months Ended June 30, 2016

Amount of Gain (Loss)
Recognized in OCI on
Derivatives (Effective Portion) (1)

Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)

Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
(amounts in thousands)
Derivatives in cash flow hedging relationships:
Interest rate swaps $ (508 ) Interest expense $ (603 )



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



	Six Months Ended June 30, 2016
	Amount of Loss Recognized in OCI on Derivatives (Effective Portion) (1)			Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
(amounts in thousands)
Derivative in cash flow hedging relationships:
Interest rate swaps	$	(2,133	)	Interest expense	$	(603	)

Three Months Ended June 30, 2015

Amount of Gain (Loss)
Recognized in OCI on
Derivatives (Effective Portion) (1)

Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)

Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
(amounts in thousands)
Derivatives in cash flow hedging relationships:
Interest rate swaps $ 279
Interest expense $ —


~~(1)~~	~~Amounts presented are net of taxes~~

Six Months Ended June 30, 2016
Amount of Gain (Loss)
Recognized in OCI on
Derivatives (Effective Portion) (1) Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion) Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
(amounts in thousands)
Derivative in cash flow hedging relationships:
Interest rate swaps $ (2,133 ) Interest expense $ (603 )

Six Months Ended June 30, 2015
Amount of Gain (Loss)
Recognized in OCI on
Derivatives (Effective Portion) (1) Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion) Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
(amounts in thousands)
Derivative in cash flow hedging relationships:
Interest rate swaps $ (889 ) Interest expense $ —
(1) Amounts presented are net of taxes. See NOTE 6 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME for total effect on other comprehensive income from derivatives designated as cash flow hedges for the periods presented.

Credit-risk-related Contingent Features

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

Agreements with major derivative dealer counterparties contain provisions whereby default on any of Customers' indebtedness would be considered a default on its derivative obligations. Customers also has entered into agreements that contain provisions under which the counterparty could require Customers to settle its obligations if Customers fails to maintain its status as a well/~~adequately-capitalized~~adequately capitalized institution. As of June 30, ~~2016,~~2017, 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 ~~$28.6~~$8.3 million. In addition, Customers has minimum collateral posting thresholds with certain of these counterparties and at June 30, ~~2016~~2017 had posted ~~$28.3~~$10.1 million of cash as collateral. Customers records cash posted as collateral as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets.

Disclosures about Offsetting Assets and Liabilities

The following tables present derivative instruments that are subject to enforceable master netting arrangements. Customers' interest rate swaps with institutional counterparties are subject to master netting arrangements and are included in the table below. Interest rate swaps with commercial banking customers and residential mortgage loan commitments are not subject to master netting arrangements and are excluded from the table below. Customers has not made a policy election to offset its derivative positions.

Offsetting of Financial Assets and Derivative Assets

At June 30, ~~2016~~2017

~~Gross~~

~~Amount of~~

~~Recognized~~

~~Assets~~

~~Gross~~

~~Amounts~~

~~Offset in the~~

~~Consolidated~~

~~Balance~~

~~Sheet~~

~~Net~~

~~Amounts of~~

~~Assets~~

~~Presented~~

~~in the~~

~~Consolidated~~

~~Balance~~

~~Sheet~~

~~Gross Amounts~~

~~Not Offset in the~~

~~Consolidated~~

~~Balance Sheet~~

~~Net~~

~~Amount~~

~~Financial~~

~~Instruments~~

~~Cash~~

~~Collateral~~

~~Received~~

~~(amounts in thousands)~~

~~Description~~

~~Interest rate swap derivatives with institutional counterparties~~

—



	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet				Net Amount
	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet				Financial Instruments		Cash Collateral Received		Net Amount
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties	$	4,175	$	—	$	4,175	$	—	$	920	$	3,255

Offsetting of Financial Liabilities and Derivative Liabilities

At June 30, ~~2016~~2017


	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet						Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet
							Financial Instruments		Cash Collateral Pledged		Net Amount								Financial Instruments		Cash Collateral Pledged		Net Amount
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties	$	27,586	$	—	$	27,586	$	—	$	27,586	$	—	$	9,307	$	—	$	9,307	$	—	$	9,307	$	—

Offsetting of Financial Assets and Derivative Assets

At December 31, ~~2015~~2016

~~Gross~~

~~Amount of~~

~~Recognized~~

~~Assets~~

~~Gross~~

~~Amounts~~

~~Offset in the~~

~~Consolidated~~

~~Balance~~

~~Sheet~~

~~Net~~

~~Amounts of~~

~~Assets~~

~~Presented~~

~~in the~~

~~Consolidated~~

~~Balance~~

~~Sheet~~

~~Gross Amounts~~
~~Not Offset in the~~
~~Consolidated~~
~~Balance Sheet~~

~~Net~~

~~Amount~~

~~Financial~~

~~Instruments~~

~~Cash~~

~~Collateral~~

~~Received~~

~~(amounts in thousands)~~

~~Description~~

~~Interest rate swap derivatives with institutional counterparties~~

—



	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet				Net Amount
	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet				Financial Instruments		Cash Collateral Received		Net Amount
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties	$	4,723	$	—	$	4,723	$	—	$	—	$	4,723

Offsetting of Financial Liabilities and Derivative Liabilities

At December 31, ~~2015~~2016


	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet				Net Amount		Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet				Net Amount
							Financial Instruments		Cash Collateral Pledged										Financial Instruments		Cash Collateral Pledged
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties	$	13,932	$	—	$	13,932	$	—	$	13,932	$	—	$	9,825	$	—	$	9,825	$	—	$	4,472	$	5,353

NOTE 14 — BUSINESS SEGMENTS

Customers has historically operated under one business segment, "Community Banking." However, beginning in third quarter 2016, Customers revised its segment financial reporting to reflect the manner in which its chief operating decision makers (our Chief Executive Officer and Board of Directors) have begun allocating resources and assessing performance subsequent to Customers' acquisition of the Disbursement business from Higher One and the combination of that business with the BankMobile technology platform late in second quarter 2016.

Management has determined that Customers' operations consist of two reportable segments - Community Business Banking and BankMobile. Each segment generates revenues, manages risk, and offers distinct products and services to targeted customers through different delivery channels. The strategy, marketing, and analysis of these segments vary considerably.

The Community Business Banking segment is delivered predominately to commercial customers in Southeastern Pennsylvania, New York, New Jersey, Massachusetts, Rhode Island and New Hampshire through a single point of contact business model and provides liquidity to residential mortgage originators nationwide through commercial loans to mortgage companies. Lending and deposit gathering activities are focused primarily on privately held businesses, high net worth families, selected commercial real estate lending, and commercial mortgage companies. Revenues are generated primarily through net interest income (the difference between interest earned on loans, investments, and other interest earning assets and interest paid on deposits and other borrowed funds) and other non-interest income, such as mortgage warehouse transactional fees and bank owned life insurance.

The BankMobile segment provides state of the art high tech digital banking and disbursement services to consumers, students, and the "under banked" nationwide. BankMobile, as a division of Customers Bank, is a full service banking platform that is accessible to customers anywhere and anytime through the customer's smartphone or other web-enabled device. Revenues are currently being generated primarily through interchange and card revenue, deposit and wire transfer fees and university fees. The majority of revenue and expenses for BankMobile are a result of the Disbursement business acquisition.

The following tables present the operating results for Customers' reportable business segments for the three and six months ended June 30, 2017 and 2016. Customers has presented the financial information and disclosures for prior periods to reflect the segment disclosures as if they had been in effect for the periods presented. The segment financial results include directly attributable revenues and expenses. Corporate overhead costs are assigned to the Community Business Banking segment as those expenses are expected to continue following the planned disposition of BankMobile. Similarly, the preferred stock dividends have been allocated in their entirety to the Community Business Banking segment. The tax benefit assigned to BankMobile was based on an estimated effective tax rate of 38%.

In third quarter 2016, Customers announced its intent to sell BankMobile. Customers anticipates a sale to close within one year. Because BankMobile met the criteria to be classified as held for sale at June 30, 2017, the assets and liabilities of BankMobile have been presented as "Assets held for sale," "Non-interest bearing deposits held for sale" and "Other liabilities held for sale" on the consolidated balance sheets at June 30, 2017 and December 31, 2016. BankMobile's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying consolidated financial statements and prior period amounts have been reclassified to conform with the current period presentation. For more information on BankMobile discontinued operations, see NOTE 3 - DISCONTINUED OPERATIONS.

The BankMobile segment results presented below differ from the amounts reported as "Discontinued operations" on the consolidated financial statements primarily because of the internal funds transfer pricing methodology used by management to allocate interest income to BankMobile for the value provided to the Community Business Banking segment for the use of low/no cost deposits.



	Three Months Ended June 30, 2017
	Community Business Banking		BankMobile					Consolidated
Interest income	$	91,107	$	2,745		⁽¹	⁾	$	93,852
Interest expense	25,228		18					25,246
Net interest income	65,879		2,727					68,606
Provision for loan losses	535		—					535
Non-interest income	6,971		11,420					18,391
Non-interest expense	30,567		19,846					50,413
Income (loss) before income tax expense (benefit)	41,748		(5,699		)			36,049
Income tax expense (benefit)	14,493		(2,166		)			12,327
Net income (loss)	27,255		(3,533		)			23,722
Preferred stock dividends	3,615		—					3,615
Net income (loss) available to common shareholders	$	23,640	$	(3,533	)			$	20,107



	Three Months Ended June 30, 2016
	Community Business Banking		BankMobile					Consolidated
Interest income	$	80,011	$	1,309		⁽¹	⁾	$	81,320
Interest expense	18,156		7					18,163
Net interest income	61,855		1,302					63,157
Provision for loan losses	786		—					786
Non-interest income	5,853		2,403					8,256
Non-interest expense	32,085		6,095					38,180
Income (loss) before income tax expense (benefit)	34,837		(2,390		)			32,447
Income tax expense (benefit)	13,872		(908		)			12,964
Net income (loss)	20,965		(1,482		)			19,483
Preferred stock dividends	2,062		—					2,062
Net income (loss) available to common shareholders	$	18,903	$	(1,482	)			$	17,421

(1) - Amounts reported include funds transfer pricing of $2.7 million and 1.3 million for the three months ended June 30, 2017 and 2016, respectively, credited to BankMobile for the value provided to the Community Business Banking segment for the use of low/no cost deposits.



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

As of June 30, 2017
Goodwill and other intangibles	$	3,633	$	13,982				$	17,615
Total assets	$	10,815,752	$	67,796		⁽²	⁾	$	10,883,548
Total deposits	$	7,021,922	$	453,441				$	7,475,363



	Six Months Ended June 30, 2016
	Community Business Banking		BankMobile					Consolidated
Interest income	$	151,684	$	3,034		⁽¹	⁾	$	154,718
Interest expense	33,920		14					33,934
Net interest income	117,764		3,020					120,784
Provision for loan losses	2,766		—					2,766
Non-interest income	11,121		2,630					13,751
Non-interest expense	63,957		8,130					72,087
Income (loss) before income tax expense (benefit)	62,162		(2,480		)			59,682
Income tax expense (benefit)	22,957		(942		)			22,015
Net income (loss)	39,205		(1,538		)			37,667
Preferred stock dividends	3,348		—					3,348
Net income (loss) available to common shareholders	$	35,857	$	(1,538	)			$	34,319

As of June 30, 2016
Goodwill and other intangibles	$	3,645	$	13,552				$	17,197
Total assets	$	9,617,524	$	67,101		⁽²	⁾	$	9,684,625
Total deposits	$	6,511,240	$	240,020				$	6,751,260

(1) - Amounts reported include funds transfer pricing of $7.0 million and $3.0 million for the six months ended June 30, 2017 and 2016, respectively, credited to BankMobile for the value provided to the Community Business Banking segment for the use of low/no cost deposits.

(2) - Amounts reported exclude intra company receivables.

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

Cautionary Note Regarding Forward-Looking Statements

This report and all attachments hereto, as well as other written or oral communications made from time to time by ~~Customers~~us, may contain ~~certain~~ forward-looking information within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of ~~1933, as amended, and the Securities Exchange Act of 1934, as amended.~~1995. These statements relate to future events or future predictions, including events or predictions relating to future financial performance, and are generally identifiable by the use of forward-looking terminology such as ~~“believes,~~“believe,” ~~“expects,~~“expect,” “may,” “will,” “should,” “plan,” “intend,” ~~“anticipates,” “strategies”~~or “anticipate” or the negative thereof or comparable ~~terminology, or by discussion of strategy~~terminology. Forward-looking statements reflect numerous assumptions, estimates and forecasts as to future events. No assurance can be given that ~~involve risks~~the assumptions, estimates and ~~uncertainties. These~~forecasts underlying such forward-looking statements will accurately reflect future conditions, or that any guidance, goals, targets or projected results will be realized. The assumptions, estimates and forecasts underlying such forward-looking statements involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions, which may not be realized and which are ~~only predictions~~inherently subject to significant business, economic, competitive and ~~estimates regarding future events~~regulatory uncertainties and ~~circumstances and involve~~ known and unknown risks, ~~uncertainties and other factors,~~ including the risks described under “Risk Factors” in ~~this~~Customers' Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “2016 Form 10-K”), as such factors may be updated from time to time in our filings with the SEC, including our Quarterly Reports on Form 10-Q and ~~other filings we make with the SEC that may cause~~Current Reports on Form 8-K. Our actual results ~~levels of activity, performance or achievements to be~~may differ materially ~~different~~ from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. This information is based on various assumptions that may not prove to be correct. These forward-looking statements are subject to significant uncertainties and contingencies, many of which are beyond the control of Customers. Although the expectationsthose reflected in the forward-looking statements are currently believed to be reasonable, future results, levels of activity, performance or achievements cannot be guaranteed. Accordingly, there can be no assurance that actual results will meet expectations or will not be materially lower than the results contemplated in this report and attachments hereto.statements. You are cautioned not to place undue reliance on ~~these~~any forward-looking statements we make, which speak only as of the date ~~of this report or, in the case of documents referred to, the dates of those documents. Customers undertakes no~~they are made. We do not undertake any obligation to release publicly or otherwise provide any revisions to ~~these~~any forward-looking statements we may make, including any forward-looking financial information, to reflect events or circumstances occurring after the date ~~of this report~~hereof or to reflect the occurrence of unanticipated events, except as may be required under applicable law.

Management’s discussion and analysis represents an overview of the financial condition and results of operations, and highlights the significant changes in the financial condition and results of operations, as presented in the accompanying consolidated financial statements for Customers Bancorp, a financial holding company, and its wholly owned subsidiaries, including Customers Bank. 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 months ended June 30, ~~2016.~~2017. 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' ~~Annual Report on~~2016 Form ~~10-K for the fiscal year ended December 31, 2015 (“2015 Form 10-K”).~~10-K.

Critical Accounting Policies

~~We have~~Customers has adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America and that are consistent with general practices within the banking industry in the preparation of ~~our~~its financial statements. ~~Our~~Customers' significant accounting policies are described in “NOTE ~~3 —~~4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION” ~~to our~~in Customers' audited financial statements included in ~~our 2015~~its 2016 Form 10-K and updated in this report on Form 10-Q for the quarterly period ended June 30, ~~2016.~~2017.

Certain accounting policies involve significant judgments and assumptions by Customers that have a material impact on the carrying value of certain assets and liabilities. ~~We consider~~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 ~~our~~Customers' assets and liabilities and ~~our~~its results of operations.

Second Quarter Events of Note

Customers ~~Bancorp~~ continued ~~its~~to report strong financial performance through second quarter ~~2016,~~2017, with ~~earnings~~net income available to common shareholders of ~~$17.4~~$20.1 million, or ~~$0.60~~$0.62 per fully diluted common share. ~~Total~~Customers also grew total assets ~~reached $9.7~~through the $10 billion level during second quarter 2017, with total assets of $10.9 billion at June 30, ~~2016,~~2017, an increase of ~~$1.3~~$1.5 billion from December 31, 2015. Customers achieved significant organic loan and deposit growth as loan balances increased $1.2 billion to $8.4 billion and deposits increased $0.8 billion to $6.8 billion at June 30, 2016 compared to December 31, 2015. Customers plans to moderate its balance sheet growth in the second half of the year. 2016.

Asset quality remained exceptional with non-performing loans ~~only 0.17%~~of $19.2 million, or 0.21% of total loans, and total non-performing assets (non-performing loans and other real estate owned) only 0.20% of total assets at June 30, ~~2016,~~2017, reflecting Customers' conservative lending practices and continued focus on ~~positive operating leverage and~~ risk management. ~~Capital levels~~Customers' level of non-performing loans at June 30, 2017 remained well below industry average non-performing loans of 1.50% and Customers' peer group non-performing loans of 0.94%. Customers' capital ratios at the holding company and its bank subsidiary continue to exceed the “well-capitalized” threshold established by regulation at the Bank and exceed the applicable Basel III regulatory ~~thresholds~~threshold ratios for the Bancorp and the Bank at June 30, ~~2016.~~2017. Customers ~~issued $57.5~~Bancorp's Tier 1 leverage ratio was 8.68%, and its total risk-based capital ratio was 12.44%, at June 30, 2017.

BankMobile remains classified as held for sale at June 30, 2017, and its operating activities are presented as discontinued operations throughout the accompanying consolidated financial statements. The net loss from discontinued operations of $5.2 million ~~of non-cumulative perpetual preferred stock in a public offering~~ during second quarter 2017 was a result of lower seasonal activity for student spending and certain costs related to system conversions. BankMobile's student disbursement business is very seasonal with the second quarter as the lowest performing quarter when student enrollment is down for the summer months.

~~quarter 2016,~~On June 30, 2017, Customers Bancorp issued $100 million five-year senior debt securities paying interest at 3.95%, the net proceeds of which ~~qualifies~~were contributed as Tier 1 capital ~~under~~to Customers Bank. As a result of this debt transaction and contribution of capital to the bank subsidiary, Customers Bank's regulatory capital ~~guidelines. The return on average common equity was 13.03% for~~ratios were increased by approximately 100 basis points during second quarter ~~2016, and the return on average assets was 0.84%.~~

Of significant note is the acquisition of the Disbursement business from Higher One and the combination of that business with the BankMobile technology platform. The discussion that follows describes the Disbursement business, the combination of that business with the BankMobile platform, and Customers' strategic plans for operating the combined businesses over the next two years.

Customers Bank acquired the Disbursement business of Higher One effective with the close of business on June 15, 2016. The Disbursement business consists primarily of assets, liabilities, technology and patents used to assist higher educational institutions in their distributions of Title IV monies to students. Specifically, many college students upon admission to a college will apply for Federal student loans and grants. The students make their applications through a college, university or other qualifying educational institution. Upon enrollment at the educational institution, the institution will submit the financial aid request to the Department of Education ("ED") on behalf of the student. The ED will send the approved financial aid monies to the institution. The institution will subtract tuition, fees, and other charges from the amount of aid received by the student. Any excess funds received by the institution must be made available to the student within time frames prescribed in ED regulations. The institution will send the funds, also known as financial aid refunds ("FARs"), for students receiving amounts along with key contact information. The Disbursement business then communicates with the student via a U.S. postal service mailing and e-mails with instructions to proceed to a dedicated website to complete documentation in order to receive funds due to the student. The student, among other options, is presented with a choice as to whether to send the funds due to them to an existing bank account via ACH and provide account information, receive a check for the funds (if the educational institution allows paper checks to be disbursed), or open an account with now Customers Bank. If the student elects to open a bank account with Customers, an account is opened and the student's funds due are deposited into the Customers Bank bank account the same business day the file and funds are received. The student is given access to the student's monies via an internet based virtual debit card, through a plastic debit card, and normal capabilities of a checking account.

Customers Bank has combined the Disbursement business with its existing BankMobile business. In combining the businesses, Customers now provides deposit services to approximately 2.1 million student bank customers with the primary channel of delivery via online banking and the smart phone. The combination of online banking and the smart phone technology with the Disbursement business distribution channels is anticipated to give Customers Bank 500,000 or more new deposit accounts annually.

Customers has significantly altered the revenue and expense business model that was followed when the business was owned by Higher One. Customers' virtual debit card and plastic debit card give the students access to their money 24 hours per day 365 days per year, in a no or low fee product. In Customers' business model, the fees received by Customers for providing this service to students are predominately paid by merchants servicing the students through interchange fees paid by the merchant. Customers Bank also charges the educational providers a fee for the program. Fees are also paid by students for out-of-network ATM use (the student has free use of approximately 43,000 ATMs across the United States and 55,000 across the world), lost cards that must be replaced, and fees for specific uses of bank product offerings.

Customers' strategy is to provide unmatched valuable service to students at low to no cost while they are attending school, develop student loyalty by providing high quality services and anticipating student financial needs, develop long term customer loyalty while the student is in college, and then work to retain the post graduate student for a lifetime customer. The economics of the Customers Bank business model are intended to be reasonably profitable, while providing valuable financial services to the student, and enjoy the benefit of higher balances and greater account usage in the post college years that Customers retains the student as a customer.

Currently under federal law and regulation, Customers Bancorp, Inc. must remain under $10 billion in total assets as of December 31 of each year to qualify as a small issuer of debit cards and receive the optimal debit card processing fee. Failure to qualify for the small issuer exception would result in a significant reduction in interchange fee income, perhaps as much as 70 percent of the current interchange fee expected. Failure to qualify for the small business exception would mean the business would operate unprofitably or additional fees would need to be charged to students to replace the lost revenue. Customers has further stated its intent to dispose of this business through an initial public offering of BankMobile shares, sale to third-party investors, or the issuance of BankMobile common stock to existing investors in a spin-off transaction within the next two years, depending upon market conditions and opportunities.

As previously noted, Customers has substantively changed the Disbursement business revenue model to eliminate or reduce many of the fees previously charged by this business. Customers anticipates total revenues derived from the Disbursement business in the first full year of operation of approximately $65 million, predominately from interchange but also including fees

from educational institutions participating in the program and other miscellaneous fees for specific services. Customers also anticipates that expenses of operating the Disbursement business will be of a similar amount as revenues, not including allocation of Customers Bancorp overhead to the Disbursement business. It is further anticipated that the Disbursement business will operate at approximately break even over the next twelve months. Although these represent management’s preliminary expectations regarding revenues, expenses and results of operations regarding the Disbursement business, the integration of the Disbursement business and implementation of Customers’ business model for the Disbursement business are ongoing, and actual results may differ materially from these preliminary expectations.

2017.

Results of Operations

Three Months Ended June 30, ~~2016~~2017 Compared to Three Months Ended June 30, ~~2015~~2016

Net income available to common shareholders increased ~~$6.3~~$2.7 million, or ~~57.2%~~15.4%, to $20.1 million for the three months ended June 30, 2017 when compared to net income available to common shareholders of $17.4 million for the three months ended June 30, ~~2016, compared to $11.0 million for the three months ended June 30, 2015.~~2016. The increased net income available to common shareholders primarily resulted from an increase in net interest income from continuing operations of ~~$16.6~~$5.5 million, largely reflecting the ~~loan portfolio~~ growth ofin interest earning assets over the past ~~year, a reduction in provision expense of $8.5 million, and~~twelve months, an increase in non-interest income of ~~$1.9~~$1.1 million, ~~offset in part by an increase~~and a decrease in non-interest expense of ~~$12.5~~$1.5 million, partially offset by an increase in income tax expense of ~~$6.6~~$1.2 million, an increase in the net loss from discontinued operations of $2.9 million, and an increase in preferred stock dividends of $1.6 million.

Net interest income from continuing operations of $68.6 million increased ~~$16.6~~$5.5 million, or ~~35.7%~~8.6%, for the three months ended June 30, ~~2016 to $63.2 million,~~2017 when compared to ~~$46.6~~net interest income from continuing operations of $63.2 million for the three months ended June 30, ~~2015.~~2016. This increase resulted ~~principally~~primarily from ~~higher~~an increase in the average ~~loan and security balances~~balance of ~~$2.2~~interest-earning assets of $0.9 billion ~~as well as~~in second quarter 2017, offset in part by a 10five basis point ~~expansion~~decline in net interest margin (tax-equivalent) to 2.78% for second quarter 2017 from 2.83% infor second quarter 2016.

The provision for loan losses from continuing operations of $0.5 million decreased ~~$8.5~~$0.3 million for the three months ended June 30, 2017 when compared to the provision for loan losses from continuing operations of $0.8 million for the three months ended June 30, ~~2016, compared to $9.3 million for the same period in 2015.~~2016. The second quarter ~~2016~~2017 provision expense includes provisions of $0.4 million for loan ~~losses included provisions~~portfolio growth and $0.6 million for ~~loan growth~~ a~~nd impairment measured on specific~~impaired loans, ~~of $2.1 million,~~ offset in part by ~~increased estimated cash flows expected to be collected on purchased credit-impaired loans~~a $0.5 million release for improved asset quality and ~~a reduction in the estimated amount owed to the FDIC for previous FDIC assisted acquisitions totaling $1.3 million. The~~lower incurred losses during second quarter ~~2015 provision included a provision of $6.0 million for a fraudulent loan that was charged off in full during 2015.~~2017 than previously estimated.

Non-interest income from continuing operations of $7.0 million increased ~~$1.9~~$1.1 million, ~~during~~or 19.1%, for the three months ended June 30, ~~2016 to $8.3 million,~~2017 when compared to ~~$6.4~~non-interest income from continuing operations of $5.9 million for the three months ended June 30, ~~2015. The~~2016. This increase ~~in second quarter 2016~~ was primarily athe result of ~~$2.2~~increased gains on sales of investment securities of $3.2 million and increased income from bank-owned life insurance policies of ~~interchange and other fees received from the acquired Disbursement business.~~$1.1 million, offset in part by a $2.9 million other-than-temporary impairment loss related to equity securities.

Non-interest expense ~~increased $12.5~~from continuing operations of $30.6 million ~~during~~decreased $1.5 million, or 4.7%, for the three months ended June 30, ~~2016 to $38.2 million,~~2017 when compared to ~~$25.7~~non-interest expense from continuing operations of $32.1 million ~~during~~for the three months ended June 30, ~~2015. Second quarter 2016 operating expenses included approximately $3.2~~2016. This decrease resulted primarily from a decrease in deposit insurance assessments, non-income related taxes, and regulatory fees of $2.0 million, ~~of Disbursement business expenses (salaries~~offset in part by increases in salaries and employee benefits of $0.7 million, professional services of $0.5 million, technology, communication and bank operations of $0.9 million, and other expenses of $1.1 million) and one-time acquisition related expenses of $0.9 million (predominately for professional services). The second quarter 2015 non-interest expenses reflected an adjustment for Pennsylvania shares taxes which reduced expense by $2.3$0.3 million. The remaining increases in salary and employee benefits, regulatory assessments and fees, professional services, technology, and occupancy expenses resulted largely from the increases in resources and services necessary to support and operate a $9.7 billion bank.

Income tax expense from continuing operations of $15.5 million increased ~~$6.6~~$1.2 million, inor 8.1%, for the three months ended June 30, ~~2016 to $13.0 million,~~2017 when compared to ~~$6.4~~income tax expense from continuing operations of $14.4 million infor the ~~same period of 2015.~~three months ended June 30, 2016. The increase in income tax expense was driven primarily by an increase in pre-tax income from ~~increased taxable income~~continuing

operations of ~~$14.5~~$8.3 million in second quarter ~~2016~~2017 compared to second quarter ~~2015. Customers’~~2016 offset in part by a tax benefit of $1.3 million resulting from the exercise of stock options during second quarter 2017.

The net loss from discontinued operations of $5.2 million increased $2.9 million, or 128.3%, for the three months ended June 30, 2017 when compared to the net loss from discontinued operations of $2.3 million for the three months ended June 30, 2016. Total non-interest income was $11.4 million, an increase of $9.0 million over second quarter 2016, and total non-interest expense was $19.8 million, an increase of $13.8 million over second quarter 2016. The increases in non-interest income and non-interest expense reported within the loss from discontinued operations were predominantly a result of the acquisition of the Disbursement business in June 2016, which therefore only affected BankMobile's operating results for a portion of the quarter ended June 30, 2016 when compared to the full second quarter in 2017. BankMobile's student disbursement business is very seasonal with the second quarter as the lowest performing quarter when student enrollment is down for the summer months. The net loss from discontinued operations included a tax ~~expense reflected~~benefit of $3.2 million and $1.4 million for the second quarter 2017 and 2016, respectively, reflecting an estimated effective tax rate of 40.1% compared to second quarter 2015 tax expense of $6.4 million with an effective tax rate of 35.6%. During second quarter 2016, Customers evaluated its apportionment factors and estimated that, due to the increasing proportion of income producing assets domiciled in New York, particularly in New York City, Customers' effective tax rate38% for full year 2016 would be approximately 38.0% (prior to the consideration of any return to provision true-ups that may be necessary upon the completion of the federal and state tax returns). The 40.1% second quarter 2016 effective rate reflects recording the higher estimated taxes for the first six months of 2016 during the second quarter 2016.both periods.

Preferred stock dividends of $3.6 million increased $1.6 million, ~~due to~~or 75.3%, for the ~~accrual of dividends on the Series C, Series D and Series E Preferred Stock in second quarter 2016~~three months ended June 30, 2017 when compared to ~~only~~preferred stock dividends of $2.1 million for the ~~accrual~~three months ended June 30, 2016. This increase was the result of ~~dividends on the Series C Preferred Stock~~preferred stock issuances aggregating $142.5 million in ~~second quarter 2015.~~April 2016 (dividends at 6.45%) and September 2016 (dividends at 6.00%).

Net Interest Income from Continuing Operations

Net interest income (the difference between the interest earned on loans, investments and interest-earning deposits with banks, and interest paid on deposits, borrowed funds and subordinated debt) is the primary source of Customers' earnings.

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


	Three Months Ended June 30,												Three Months Ended June 30,
	2016						2015						2017						2016
	Average Balance		Interest Income or Expense		Average Yield or Cost (%)		Average Balance		Interest Income or Expense		Average Yield or Cost		Average Balance		Interest Income or Expense		Average Yield or Cost (%)		Average Balance		Interest Income or Expense		Average Yield or Cost (%)
(amounts in thousands)
Assets
Interest-earning deposits	$	213,509	$	273	0.51	%	$	290,241	$	186	0.26	%	$	201,774	$	550	1.09	%	$	213,509	$	273	0.51	%
Investment securities (A)	550,130		3,638		2.65	%	384,324		2,253		2.34	%	1,066,277		7,823		2.94	%	550,130		3,638		2.65	%
Loans held for sale	2,056,929		17,429		3.41	%	1,692,622		13,522		3.20	%	1,708,849		17,524		4.11	%	2,056,929		17,429		3.41	%
Loans receivable (B)	6,050,895		59,013		3.92	%	4,404,304		42,801		3.90	%	6,807,093		67,036		3.95	%	6,050,321		59,013		3.92	%
Other interest-earning assets	102,599		968		3.79	%	77,822		921		4.75	%	105,908		919		3.48	%	102,599		967		3.79	%
Total interest-earning assets	8,974,062		81,321		3.64	%	6,849,313		59,683		3.49	%	9,889,901		93,852		3.81	%	8,973,488		81,320		3.64	%
Non-interest-earning assets	285,138						257,275						299,598						271,495
Assets held for sale													75,834						14,209
Total assets	$	9,259,200					$	7,106,588					$	10,265,333					$	9,259,192
Liabilities
Interest checking accounts	$	149,863	208		0.56	%	$	128,537	164		0.51	%	$	346,940	634		0.73	%	$	149,863	208		0.56	%
Money market deposit accounts	3,068,321		4,381		0.57	%	2,319,306		3,057		0.53	%	3,456,638		8,369		0.97	%	3,068,321		4,381		0.57	%
Other savings accounts	39,573		22		0.23	%	36,160		26		0.29	%	35,475		19		0.21	%	37,097		17		0.18	%
Certificates of deposit	2,515,688		6,531		1.04	%	1,915,161		4,898		1.03	%	2,413,240		7,196		1.20	%	2,515,688		6,532		1.04	%
Total interest-bearing deposits	5,773,445		11,142		0.78	%	4,399,164		8,145		0.74	%	6,252,293		16,218		1.04	%	5,770,969		11,138		0.78	%
Borrowings	2,014,452		7,021		1.40	%	1,507,870		4,980		1.32	%	1,951,282		9,018		1.85	%	2,014,452		7,021		1.40	%
Total interest-bearing liabilities	7,787,897		18,163		0.94	%	5,907,034		13,125		0.89	%	8,203,575		25,236		1.23	%	7,785,421		18,159		0.94	%
Non-interest-bearing deposits	759,373						669,411						556,947						475,968
Non-interest-bearing deposits held for sale													525,853						283,405
Total deposits and borrowings	8,547,270				0.85	%	6,576,445				0.80	%	9,286,375				1.09	%	8,544,794				0.85	%
Other non-interest-bearing liabilities	56,870						33,586						46,819						51,854
Other liabilities held for sale													33,626						7,493
Total liabilities	8,604,140						6,610,031						9,366,820						8,604,141
Shareholders’ Equity	655,060						496,557						898,513						655,051
Total liabilities and shareholders’ equity	$	9,259,200					$	7,106,588					$	10,265,333					$	9,259,192
Net interest earnings			63,158						46,558
Net interest earnings from continuing operations															68,616						63,161
Tax-equivalent adjustment (C)			98						107						104						98
Net interest earnings			$	63,256					$	46,665
Net interest earnings from continuing operations															$	68,720					$	63,259
Interest spread					2.79	%					2.69	%					2.72	%					2.79	%
Net interest margin					2.83	%					2.73	%					2.78	%					2.83	%
Net interest margin tax equivalent (C)					2.83	%					2.73	%					2.78	%					2.83	%


(A)	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.


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


(C)	~~Full~~Non-GAAP tax-equivalent basis, using a 35% statutory tax rate to approximate interest income as a taxable asset.

The following table presents the dollar amount of changes in interest income from continuing operations and interest expense from continuing operations for the major categories of interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.



	Three Months Ended June 30,
	2017 vs. 2016
	Increase (Decrease) due to Change in
	Rate			Volume			Total
(amounts in thousands)
Interest income from continuing operations:
Interest-earning deposits	$	293		$	(16	)	$	277
Investment securities	437			3,748			4,185
Loans held for sale	3,306			(3,211		)	95
Loans receivable	422			7,601			8,023
Other interest-earning assets	(79		)	31			(48		)
Total interest income from continuing operations	4,379			8,153			12,532
Interest expense from continuing operations:
Interest checking accounts	82			344			426
Money market deposit accounts	3,371			617			3,988
Other savings accounts	3			(1		)	2
Certificates of deposit	935			(271		)	664
Total interest-bearing deposits	4,391			689			5,080
Borrowings	2,222			(225		)	1,997
Total interest expense from continuing operations	6,613			464			7,077
Net interest income from continuing operations	$	(2,234	)	$	7,689		$	5,455

Net interest income from continuing operations for the three months ended June 30, 2017 was $68.6 million, an increase of $5.5 million, or 8.6%, from net interest income from continuing operations of $63.2 million for the three months ended June 30, 2016, as average loan and security balances increased $0.9 billion, including loans held for sale. Net interest margin (tax equivalent) contracted by 5 basis points to 2.78% for second quarter 2017 compared to 2.83% for second quarter 2016 due primarily to a 24 basis point increase in the cost of total deposits and borrowings combined with the dilutive effect on asset yields caused by an increase in the average balance of the investment securities portfolio of $516.1 million at yields lower than those earned on the loan assets.

Commercial loan average balances increased $74 million, including commercial loans to mortgage banking companies, in second quarter 2017 compared to second quarter 2016.

Multi-family average loan balances increased $181 million in second quarter 2017 compared to second quarter 2016.

The net interest margin declined to 2.78% in second quarter 2017 as the average yield earned on assets increased 17 basis points, while the cost of funding the portfolio increased 24 basis points.

Interest expense from continuing operations on total interest-bearing deposits increased $5.1 million in second quarter 2017 compared to second quarter 2016. This increase resulted from increased deposit volume as average interest-bearing deposits increased $0.5 billion for the three months ended June 30, 2017 compared to average interest-bearing deposits for the three months ended June 30, 2016. The average rate on interest-bearing deposits increased 26 basis points for second quarter 2017 compared to second quarter 2016, reflecting higher interest rates offered by Customers on its money market deposit accounts and certificates of deposits in order to remain competitive and attract new and retain existing deposit customers.

Interest expense from continuing operations on borrowings increased $2.0 million in second quarter 2017 compared to second quarter 2016. This increase was primarily driven by a higher average rate on borrowings, which increased 45 basis points for second quarter 2017 compared to second quarter 2016, primarily as a result of a decrease in the proportion of lower rate short term borrowings in relation to total borrowings and higher rates on short-term borrowings as markets rates increase.

Provision for Loan Losses from Continuing Operations

The provision for loan losses from continuing operations of $0.5 million decreased by $0.3 million for the three months ended June 30, 2017, compared to $0.8 million for the same period in 2016. The provision for loan losses from continuing operations of $0.5 million included $0.4 million for loan portfolio growth and $0.6 million for impaired loans, offset in part by a $0.5 million release for improved asset quality and lower incurred losses during second quarter 2017 than previously estimated. In second quarter 2016, the provision for loan losses from continuing operations of $0.8 million included provisions for loan growth and reserves on impaired loans of $2.1 million, offset in part by increased estimated cash flows expected to be collected on purchased-credit impaired loans and a reduction in the estimated amount owed to the FDIC for previous FDIC assisted acquisitions totaling $1.3 million.

For more information about the provision and allowance for loan losses and our loss experience, see “Credit Risk” and “Asset Quality” herein.

Non-Interest Income from Continuing Operations

The table below presents the components of non-interest income from continuing operations for the three months ended June 30, 2017 and 2016.



	Three Months Ended June 30,
	2017			2016
(amounts in thousands)
Mortgage warehouse transactional fees	$	2,523		$	3,074
Bank-owned life insurance	2,258			1,120
Gain on sale of SBA and other loans	573			285
Mortgage banking income	291			285
Deposit fees	258			278
Interchange and card revenue	126			160
Gain on sale of investment securities	3,183			—
Impairment loss on investment securities	(2,882		)	—
Other	641			651
Total non-interest income from continuing operations	$	6,971		$	5,853

Non-interest income from continuing operations increased $1.1 million during the three months ended June 30, 2017 to $7.0 million, compared to $5.9 million for the three months ended June 30, 2016. This increase was primarily due to a $3.2 million gain resulting from the sale of investment securities, increased income from bank-owned life insurance policies of $1.1 million and increased gain on sale of SBA loans of $0.3 million, offset in part by a $2.9 million other-than-temporary-impairment loss on equity securities and a decrease in mortgage warehouse transactional fees of $0.6 million driven by a reduction in the volume of warehouse transactions.

Non-Interest Expense from Continuing Operations

The table below presents the components of non-interest expense from continuing operations for the three months ended June 30, 2017 and 2016.



	Three Months Ended June 30,
	2017		2016
(amounts in thousands)
Salaries and employee benefits	$	16,687	$	16,401
Professional services	2,834		2,750
Technology, communication and bank operations	2,542		2,448
Occupancy	2,536		2,363
FDIC assessments, taxes, and regulatory fees	2,320		4,289
Loan workout	408		487
Other real estate owned	160		183
Advertising and promotion	153		194
Other	2,927		2,970
Total non-interest expense from continuing operations	$	30,567	$	32,085

Non-interest expense from continuing operations was $30.6 million for the three months ended June 30, 2017, a decrease of $1.5 million from non-interest expense of $32.1 million for the three months ended June 30, 2016.

Salaries and employee benefits, which represent the largest component of non-interest expense, increased $0.3 million, or 1.7%, to $16.7 million for the three months ended June 30, 2017 from $16.4 million for the three months ended June 30, 2016. The increase was primarily attributable to salary increases, as the average number of full-time equivalent employees remained relatively consistent over the past year despite the continuing organic growth of the Bank and management continued its efforts to control expenses.

FDIC assessments, taxes, and regulatory fees decreased by $2.0 million, or 45.9%, to $2.3 million for the three months ended June 30, 2017 from $4.3 million for the three months ended June 30, 2016. This decrease was primarily related to a lower insurance assessment charged by the FDIC as the FDIC's Deposit Insurance Fund reached a targeted ratio.

Income Taxes from Continuing Operations

Income tax expense from continuing operations increased $1.2 million for the three months ended June 30, 2017 to $15.5 million, compared to $14.4 million in the same period of 2016. This increase is primarily due to higher pre-tax income of $44.5 million with an effective tax rate of 34.9% in second quarter 2017 compared to a pre-tax income of $36.1 million with an effective tax rate of 39.8% in second quarter 2016.

Discontinued Operations

Preferred Stock Dividends

Preferred stock dividends of $3.6 million increased $1.6 million, or 75.3%, for the three months ended June 30, 2017 when compared to preferred stock dividends of $2.1 million for the three months ended June 30, 2016. This increase was the result of preferred stock issuances totaling $142.5 million issued in April 2016 with dividends at 6.45% and in September 2016 with dividends at 6.00%.

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Net income available to common shareholders increased $7.9 million, or 23.1%, to $42.2 million for the six months ended June 30, 2017 when compared to net income available to common shareholders of $34.3 million for the six months ended June 30, 2016. The increased net income available to common shareholders primarily resulted from an increase in net interest income from continuing operations of $10.2 million, largely reflecting the growth in interest earning assets over the past twelve months, an increase in non-interest income of $1.3 million, a decrease in non-interest expense of $3.2 million, and a decrease in income tax expense of $0.8 million, partially offset by an increase in provision for loan losses of $0.8 million, an increase in the net loss from discontinued operations of $3.0 million, and an increase in preferred stock dividends of $3.9 million.

Net interest income from continuing operations increased $10.2 million, or 8.5%, for the six months ended June 30, 2017 to $131.0 million when compared to net interest income from continuing operations of $120.8 million for the six months ended June 30, 2016. This increase resulted principally from an increase in the average balance of interest-earning assets of $1.1 billion offset by a 9 basis point decrease in the net interest margin (tax equivalent) to 2.76% for the first six months of 2017 when compared to the first six months of 2016.

The provision for loan losses from continuing operations increased $0.8 million to $3.6 million for the six months ended June 30, 2017 when compared to the provision for loan losses of $2.8 million for the same period in 2016. The provision for loan losses from continuing operations of $3.6 million included $0.9 million for loan portfolio growth and $3.1 million for impaired loans, offset in part by a $0.5 million release resulting from improved asset quality and lower incurred losses than previously estimated.

Non-interest income from continuing operations increased $1.3 million, or 11.5%, for the six months ended June 30, 2017 to $12.4 million when compared to $11.1 million for the six months ended June 30, 2016. The increase was primarily a result of an increase in gains on sales of investment securities of $3.2 million, increased bank-owned life insurance income of $1.4 million, an increase in gain on sale of SBA and other loans of $1.0 million, offset in part by other-than-temporary impairment losses of $4.6 million related to equity securities and a decrease in mortgage warehouse transactional fees of $0.9 million.

Non-interest expense from continuing operations decreased $3.2 million, or 5.1%, for the six months ended June 30, 2017 to $60.7 million when compared to non-interest expense from continuing operations of $64.0 million for the six months ended June 30, 2016. The decrease was primarily a result of a decrease in FDIC assessments, taxes, and regulatory fees of $4.2 million, offset in part by increases in technology, communication and bank operations expenses of $1.0 million. The decrease in overall non-interest expenses is attributable to management efforts focused on controlling expenses.

Income tax expense from continuing operations decreased $0.8 million for the six months ended June 30, 2017 to $23.3 million when compared to income tax expense from continuing operations of $24.1 million for the same period of 2016. The decrease in income tax expense was driven primarily by the recognition of a tax benefit of $4.6 million for the development of tax strategies that will allow for the recognition of the tax benefit from losses that have been recorded for impairment charges on equity securities. In addition, a tax benefit of $3.9 million was also recorded for the tax effect of the increase in the fair value for restricted stock units vesting and the exercise of stock options since the award date. These tax benefits were offset by an increase in pre-tax income from continuing operations of $13.9 million in the first six months of 2017. Customers' effective tax rate decreased to 29.4% for the six months ended June 30, 2017, compared to 37.0% for the same period of 2016. The decrease in the effective tax rate was primarily driven by the recognition of the aforementioned tax benefits.

The net loss from discontinued operations of $6.4 million increased $3.0 million, or 87.6%, for the six months ended June 30, 2017 when compared to the net loss from discontinued operations of $3.4 million for the six months ended June 30, 2016. Non-interest income of $28.7 million, operating expense of $39.1 million, and a tax benefit of $3.9 million from the operating losses for the six months ended June 30, 2017 increased when compared to the non-interest income of $2.6 million, operating expense of $8.1 million, and a tax benefit of $2.1 million for the same period in 2016. The increases in non-interest income and non-interest expense reported within the loss from discontinued operations were predominantly a result of the acquisition of the Disbursement business in June 2016, which therefore only affected BankMobile's operating results for a portion of the first six months of 2016 when compared to the full first six months of 2017.

Preferred stock dividends increased $3.9 million for the six months ended June 30, 2017 to $7.2 million when compared to preferred stock dividends of $3.3 million in the same period of 2016. This increase was the result of preferred stock issuances totaling $142.5 million issued in April 2016 with dividends at 6.45% and in September 2016 with dividends at 6.00%.

Net Interest Income from Continuing Operations

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



	Six Months Ended June 30,
	2017						2016
	Average Balance		Interest Income or Expense		Average Yield or Cost (%)		Average Balance		Interest Income or Expense		Average Yield or Cost
(amounts in thousands)
Assets
Interest-earning deposits	$	349,250	$	1,523	0.88	%	$	198,938	$	519	0.52	%
Investment securities (A)	948,657		13,710		2.91	%	556,295		7,347		2.64	%
Loans held for sale	1,568,555		31,470		4.05	%	1,810,164		31,534		3.50	%
Loans receivable (B)	6,618,436		128,497		3.92	%	5,864,596		113,485		3.89	%
Other interest-earning assets	91,026		1,746		3.87	%	91,367		1,833		4.03	%
Total interest earning assets	9,575,924		176,946		3.73	%	8,521,360		154,718		3.65	%
Non-interest-earning assets	285,609						281,916
Assets held for sale	76,722						8,436
Total assets	$	9,938,255					$	8,811,712
Liabilities
Interest checking accounts	$	332,673	1,131		0.69	%	$	139,234	403		0.58	%
Money market deposit accounts	3,306,987		14,595		0.89	%	3,009,118		8,474		0.57	%
Other savings accounts	37,699		41		0.22	%	37,954		35		0.19	%
Certificates of deposit	2,555,488		14,768		1.17	%	2,436,076		12,435		1.03	%
Total interest-bearing deposits	6,232,847		30,535		0.99	%	5,622,382		21,347		0.76	%
Borrowings	1,543,154		15,371		2.01	%	1,747,640		12,579		1.45	%
Total interest-bearing liabilities	7,776,001		45,906		1.19	%	7,370,022		33,926		0.93	%
Non-interest-bearing deposits	540,669						452,446
Non-interest-bearing deposits held for sale	657,686						316,027
Total deposits and borrowings	8,974,356				1.03	%	8,138,495				0.84	%
Other non-interest-bearing liabilities	48,576						50,217
Other liabilities held for sale	31,985						2,470
Total liabilities	9,054,917						8,191,182
Shareholders’ Equity	883,338						620,530
Total liabilities and shareholders’ equity	$	9,938,255					$	8,811,712
Net interest earnings from continuing operations			131,040						120,792
Tax-equivalent adjustment (C)			197						202
Net interest earnings from continuing operations			$	131,237					$	120,994
Interest spread					2.70	%					2.81	%
Net interest margin					2.75	%					2.85	%
Net interest margin tax equivalent (C)					2.76	%					2.85	%


(A)	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.


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


(C)	Non-GAAP tax-equivalent basis, using a 35% statutory tax rate to approximate interest income as a taxable asset.

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.


	Three Months Ended June 30,									Six Months Ended June 30,
	2016 vs. 2015									2017 vs. 2016
	Increase (Decrease) due to Change in									Increase (Decrease) due to Change in
	Rate			Volume			Total			Rate			Volume			Total
(amounts in thousands)
Interest income:
Interest income from continuing operations:
Interest-earning deposits	$	146		$	(59	)	$	87		$	474		$	530		$	1,004
Investment securities	317			1,068			1,385			813			5,550			6,363
Loans held for sale	890			3,017			3,907			4,474			(4,539		)	(65		)
Loans receivable	268			15,944			16,212			700			14,312			15,012
Other interest-earning assets	(208		)	255			47			(79		)	(7		)	(86		)
Total interest income	1,413			20,225			21,638
Interest expense:
Total interest income from continuing operations										6,382			15,846			22,228
Interest expense from continuing operations:
Interest checking accounts	16			28			44			83			645			728
Money market deposit accounts	279			1,045			1,324			5,217			904			6,121
Savings accounts	(6		)	2			(4		)
Other savings accounts										6			—			6
Certificates of deposit	89			1,544			1,633			1,712			621			2,333
Total interest-bearing deposits	378			2,619			2,997			7,018			2,170			9,188
Borrowings	300			1,741			2,041			4,396			(1,604		)	2,792
Total interest expense	678			4,360			5,038
Net interest income	$	735		$	15,865		$	16,600
Total interest expense from continuing operations										11,414			566			11,980
Net interest income from continuing operations										$	(5,032	)	$	15,280		$	10,248

Net interest income from continuing operations for the ~~three~~six months ended June 30, ~~2016~~2017 was ~~$63.2~~$131.0 million, an increase of ~~$16.6~~$10.2 million, or ~~35.7%~~8.5%, ~~from~~when compared to net interest income ~~for second quarter 2015, as average loan and security balances increased $2.2 billion. Net interest margin expanded by 10 basis points to 2.83% from second quarter 2015.~~

~~Commercial loan average balances increased $886 million, including commercial loans to mortgage banking companies, in second quarter 2016 compared to second quarter 2015.~~

~~Multi-family average loan balances increased $1.2 billion.~~

~~The increased yields from variable rate commercial loans and the investment portfolio more than offset the slightly higher funding costs.~~

~~The increases in loan volumes were the result~~ of ~~focused efforts by Customers' lending teams to execute an organic growth strategy.~~

Interest expense on total interest-bearing deposits increased $3.0 million in second quarter 2016 compared to second quarter 2015. This increase resulted from increased deposit volume as average interest-bearing deposits increased $1.4 billion for the three months ended June 30, 2016 compared to average interest-bearing deposits for the three months ended June 30, 2015. The average rate on interest-bearing deposits increased 4 basis points for the second quarter 2016 compared to second quarter 2015.

Interest expense on borrowings increased $2.0 million in second quarter 2016 compared to second quarter 2015. This increase was primarily driven by increased volumes as average borrowings for the three months ended June 30, 2016, which increased by $506.6 million when compared to average borrowings for the three months ended June 30, 2015. The average rate on borrowings increased 8 basis points for second quarter 2016 compared to second quarter 2015 due to higher rates on short term borrowings used to fund commercial loans to mortgage banking companies.

Customers’ net interest margin (tax equivalent) increased by 10 basis points to 2.83% for the three months ended June 30, 2016 compared to the prior year period, as the increased yields from variable rate commercial loans and the investment portfolio more than offset the slightly higher funding costs.

~~Provision for Loan Losses~~

The Bank has established an allowance for loan losses through a provision for loan losses charged as an expense on the consolidated statements of income. The loan portfolio is reviewed quarterly to assess and measure both the performance of the portfolio and the adequacy of the allowance for loan losses.

The provision for loan losses decreased by $8.5 million to $0.8 million for the three months ended June 30, 2016, compared to $9.3 million for the same period in 2015. The second quarter 2016 provision for loan losses included provisions for loan growth and impairment measured on specific loans of $2.1 million, offset in part by increased estimated cash flows expected to be collected on purchased credit-impaired loans and a reduction in the estimated amount owed to the FDIC for previous FDIC assisted acquisitions totaling $1.3 million. The second quarter 2015 provision included a provision of $6.0 million for a fraudulent loan that was fully charged off during 2015.

~~For more information about provision expense, the allowance for loan losses, and Customers' loss experience, see “Credit Risk” and “Asset Quality” herein.~~

~~Non-Interest Income~~

~~The table below presents the components of non-interest income for the three months ended June 30, 2016 and 2015.~~

Three Months Ended June 30,
2016 2015
(amounts in thousands)
Mortgage warehouse transactional fees $ 3,074
$ 2,799
Interchange and card revenue 1,890
132
Bank-owned life insurance 1,120
1,169
Deposit fees 787
247
Gain on sale of loans 285
827
Mortgage loans and banking income 285
287
Gain (loss) on sale of investment securities —
(69 )
Other 816
1,001
Total non-interest income $ 8,257
$ 6,393

Non-interest income increased $1.9 million during the three months ended June 30, 2016 to $8.3 million, compared to $6.4 million for the three months ended June 30, 2015. The increase in second quarter 2016 was primarily a result of $2.2 million of interchange and other fees received from the acquired Disbursement business and a $0.3 million increase in mortgage warehouse transactional fees due to increased volume of warehouse transactions. These increases were offset in part by reduced gains realized from sales of loans in second quarter 2016 of $0.5 million driven primarily by decreased Small Business Administration ("SBA") loan sales as compared to second quarter 2015. There were no sales of multi-family loans during either the three months ended June 30, 2016 or June 30, 2015.

~~Non-Interest Expense~~

~~The table below presents the components of non-interest expense for the three months ended June 30, 2016 and 2015.~~

Three Months Ended June 30,
2016 2015
(amounts in thousands)
Salaries and employee benefits $ 18,107
$ 14,448
FDIC assessments, taxes, and regulatory fees 4,435
995
Professional services 3,636
2,792
Technology, communication and bank operations 3,854
2,838
Occupancy 2,473
2,199
Acquisition related expenses 874
—
Loan workout expense (income) 487
(13 )
Other real estate owned expense (income) 183
(580 )
Advertising and promotion 334
429
Other 3,800
2,552
Total non-interest expense $ 38,183
$ 25,660

~~Non-interest expense was $38.2 million for the three months ended June 30, 2016, an increase of $12.5 million from non-interest expense of $25.7 million for the three months ended June 30, 2015.~~

Salaries and employee benefits, which represent the largest component of non-interest expense, increased $3.7 million, or 25.3%, to $18.1 million for the three months ended June 30, 2016. The increase was primarily related to headcount growth needed to support the growing multi-family, commercial real estate and commercial and industrial loan portfolios, and the increased deposits. Total team members increased to 773 full-time equivalents at June 30, 2016 from 491 full-time equivalents at June 30, 2015. The increase in full-time equivalents was primarily related to the acquisition of the Disbursement business which added approximately 225 team members during June 2016, with the remaining team members added to support the growth of the Bank.

FDIC assessments, taxes, and regulatory fees increased by $3.4 million, or 345.7%, to $4.4 million for the three months ended June 30, 2016 from $1.0 million for the three months ended June 30, 2015. This increase was primarily attributable to an adjustment recorded in second quarter 2015 that reduced Pennsylvania shares tax expense by $2.3 million and increased FDIC insurance assessments in second quarter 2016 driven mainly by the organic growth of the Bank.

Professional services increased by $0.8 million or 30.2%, to $3.6 million for the three months ended June 30, 2016 from $2.8 million for the three months ended June 30, 2015. The increase was primarily related to additional professional services expenses driven by the growth of the Bank and service charges paid for the FHLB letter of credit used to collateralize municipal deposits.

Technology, communication and bank operations expenses increased by $1.0 million, or 35.8%, to $3.9 million for the three months ended June 30, 2016 from $2.8 million for the three months ended June 30, 2015. This increase was primarily attributable to costs driven by the growth of the Bank and BankMobile Disbursement related expenses.

Acquisition related expenses were $0.9 million for the three months ended June 30, 2016 related to the acquisition of the Disbursement business from Higher One and were predominately for professional services.

Other expenses increased by $1.2 million, or 48.9% to $3.8 million for the three months ended June 30, 2016 from $2.6 million for the three months ended June 30, 2015. The increase was primarily related to additional expenses related to the Disbursement business and growth of the Bank.

~~Income Taxes~~

Income tax expense increased $6.6 million in the three months ended June 30, 2016 to $13.0 million, compared to $6.4 million in the same period of 2015. The increase in income tax expense was driven from increased taxable income of $14.5 million in second quarter 2016 and an increase in the effective tax rate to 40.1% for the three months ended June 30, 2016, compared to 35.6% in the same period of 2015. The increase in the effective tax rate was due to an increased proportion of income

~~producing assets domiciled in New York, particularly in New York City and includes a true up of first quarter 2016 expense to an expected overall effective tax rate of 38.0% for 2016.~~

~~Preferred Stock Dividends~~

Preferred stock dividends increased $1.6 million in the three months ended June 30, 2016 due to the accrual of dividends on Customer Bancorp's Series C preferred stock issued in second quarter 2015, its Series D preferred stock issued in first quarter 2016, and its Series E preferred stock issued in the second quarter 2016, compared to three months ended June 30, 2015, which accrued for the outstanding Series C preferred stock issued in the second quarter of 2015.

~~Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015~~

~~Net income available to common shareholders increased $8.8 million, or 35.1%, to $33.8~~$120.8 million for the six months ended June 30, 2016, compared to $25.0 million for the six months ended June 30, 2015. The increased net income available to common shareholders resulted from an increase in net interest income of $27.9 million, largely reflecting the loan portfolio growth of the past year, a reduction in provision expense of $9.5 million, and an increase in non-interest income of $1.6 million, offset in part by an increase in non-interest expense of $19.0 million, an increase in income tax expense of $8.5 million, and an increase in preferred stock dividends of $2.8 million.

Net interest income increased $27.9 million, or 30.0%, for the six months ended June 30, 2016 to $120.8 million, compared to $92.9 million for the six months ended June 30, 2015. This increase resulted principally from higher average loan and security balances of $1.9 billion as well as a 4 basis point expansion in net interest margin to 2.85% for the first six months of 2016.

The provision for loan losses decreased $9.5 million to $2.8 million for the six months ended June 30, 2016, compared to $12.3 million for the same period in 2015. The provision for loan losses of $2.8 million included provisions for loan growth, net of qualitative considerations, and impairment measured on specific loans of $4.3 million, offset in part by increased estimated cash flows expected to be collected on purchased credit-impaired loans and a reduction in the estimated amount owed to the FDIC for previous FDIC assisted acquisitions totaling $1.5 million. The second quarter 2015 provision expense included a provision of $6.0 million for a fraudulent loan that was charged off in full during 2015.

Non-interest income increased $1.6 million during the six months ended June 30, 2016 to $13.8 million, compared to $12.1 million for the six months ended June 30, 2015. The increase was primarily a result of $2.2 million of interchange and other fees received from the acquired Disbursement business offset in part by lower gains on loan sales as no multi-family loans were sold by Customers during the first six months of 2016.

Non-interest expense increased $19.0 million during the six months ended June 30, 2016 to $72.1 million, compared to $53.1 million during the six months ended June 30, 2015 primarily as a result of the $1.8 billion growth in average loan balances (loans and loans held for sale) during the period, requiring increased staffing for loan origination and administrative support of approximately $7.0 million, increased occupancy, technology and professional services expenses totaling $3.1 million, and increases in other operating expenses of $3.0 million primarily attributable to one-time charges associated with legal matters of $1.4 million and growth of the Bank. Non-interest expenses also included $3.2 million of Disbursement business expenses recorded in second quarter 2016, as well as acquisition related expenses of $1.1 million related to the acquisition of the Disbursement business and second quarter 2015 non-interest expense included an adjustment of $2.3 million that reduced Pennsylvania shares tax expense.

Income tax expense increased $8.5 million in the six months ended June 30, 2016 to $22.6 million, compared to $14.1 million in the same period of 2015. The increase in income tax expense was driven by increased taxable income of $20.1 million in the first six months of 2016 and an increase in the effective tax rate to 37.8% for the six months ended June 30, 2016, compared to 35.6% in the same period of 2015. The increase in the effective tax rate was due to an increased proportion of income producing assets domiciled in New York, particularly in New York City.

Preferred stock dividends increased $2.8 million in the six months ended June 30, 2016 principally due to the accrual of dividends on Customers' Series D Preferred Stock and Series E Preferred Stock issued in January 2016 and April 2016, respectively.

~~Net Interest Income~~

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

Six Months Ended June 30,
2016 2015
Average
Balance Interest
Income or
Expense Average
Yield or
Cost (%) Average
Balance Interest
Income or
Expense Average
Yield or
Cost
(amounts in thousands)
Assets
Interest earning deposits $ 198,938
$ 519
0.52 % $ 286,945
$ 364
0.25 %
Investment securities, taxable (A) 556,295
7,347
2.64 % 395,401
4,616
2.33 %
Loans held for sale 1,810,164
31,535
3.50 % 1,530,938
24,422
3.22 %
Loans (B) 5,865,139
113,485
3.89 % 4,383,102
85,894
3.95 %
Other interest-earning assets 91,367
1,833
4.03 % 76,453
3,105
8.19 %
Total interest earning assets 8,521,903
154,719
3.65 % 6,672,839
118,401
3.58 %
Non-interest earning assets 289,814
269,231

Total assets $ 8,811,717
$ 6,942,070

Liabilities
Interest checking $ 139,234
403
0.58 % $ 111,304
318
0.58 %
Money market 3,009,118
8,474
0.57 % 2,258,416
6,078
0.54 %
Other savings 40,369
44
0.22 % 35,652
65
0.36 %
Certificates of deposit 2,436,076
12,435
1.03 % 1,855,608
9,210
1.00 %
Total interest bearing deposits 5,624,797
21,356
0.76 % 4,260,980
15,671
0.74 %
Borrowings 1,747,640
12,579
1.45 % 1,487,892
9,842
1.33 %
Total interest-bearing liabilities 7,372,437
33,935
0.93 % 5,748,872
25,513
0.89 %
Non-interest-bearing deposits 768,473
689,047

Total deposits & borrowings 8,140,910
0.84 % 6,437,919
0.80 %
Other non-interest bearing liabilities 50,273
29,089

Total liabilities 8,191,183
6,467,008

Shareholders’ Equity 620,534
475,062

Total liabilities and shareholders’ equity $ 8,811,717
$ 6,942,070

Net interest earnings 120,784
92,888

Tax-equivalent adjustment (C) 202
232

Net interest earnings $ 120,986
$ 93,120

Interest spread 2.81 % 2.78 %
Net interest margin 2.85 % 2.81 %
Net interest margin tax equivalent (C) 2.85 % 2.81 %


~~(A)~~	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.


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


~~(C)~~	~~Full tax-equivalent basis, using a 35% statutory tax rate to approximate interest income as a taxable asset.~~

Six Months Ended June 30,
2016 vs. 2015
Increase (Decrease) due
to Change in
Rate Volume Total
(amounts in thousands)
Interest income:
Interest earning deposits $ 293
$ (138 ) $ 155
Investment securities 667
2,064
2,731
Loans held for sale 2,333
4,780
7,113
Loans (1,315 ) 28,906
27,591
Other interest-earning assets (1,796 ) 524
(1,272 )
Total interest income 182
36,136
36,318
Interest expense:
Interest checking 3
82
85
Money market deposit accounts 278
2,118
2,396
Savings (29 ) 8
(21 )
Certificates of deposit 243
2,982
3,225
Total interest bearing deposits 495
5,190
5,685
Borrowings 907
1,830
2,737
Total interest expense 1,402
7,020
8,422
Net interest income $ (1,220 ) $ 29,116
$ 27,896

Net interest income for the six months ended June 30, 2016 was $120.8 million, an increase of $27.9 million, or 30.0%, when compared to net interest income of $92.9 million for the six months ended June 30, 2015. This increase was primarily driven by increased average loan and security balances of ~~$1.9 billion.~~$0.9 billion, including loans held for sale. Net interest margin ~~expanded~~(tax equivalent) contracted by 49 basis points to ~~2.85%~~2.76% from the six months ended June 30, ~~2015.~~

2016 due primarily to a 19 basis point increase in the cost of total deposits and borrowings combined with the dilutive effect on asset yields caused by an increase in the average balance of the investment securities portfolio of $392.4 million at yields lower than those earned on the loan assets. Commercial loan average balances increased ~~$796~~$212.0 million, including commercial loans to mortgage banking companies, in the first six months of ~~2016~~2017 compared to the first six months of ~~2015.~~

2016. Multi-family average loan balances increased ~~$1.1 billion.~~

~~The increased yields from variable rate commercial loans and~~$212.2 million in the ~~investment portfolio more than offset~~first six months of 2017 compared to the ~~slightly higher funding costs.~~first six months of 2016.

Interest expense from continuing operations on total interest-bearing deposits increased ~~$5.7~~$9.2 million for the six months ended June 30, ~~2016~~2017 compared to the six months ended June 30, ~~2015.~~2016. This increase primarily resulted from increased deposit volume as average interest-bearing deposits for the six months ended June 30, ~~2016~~2017 increased by ~~$1.4~~$0.6 billion when compared to average interest-bearing deposits for the six months ended June 30, ~~2015.~~2016. The average rate on interest-bearing deposits increased 223 basis points for the six months ended June 30, ~~2016~~2017 compared to the six months ended June 30, ~~2015.~~2016, reflecting higher interest rates offered by Customers on its money market deposit accounts and certificates of deposits in order to remain competitive and attract new and retain existing deposit customers.

Interest expense from continuing operations on borrowings increased ~~$2.7~~$2.8 million for the six months ended June 30, ~~2016,~~2017, compared to the six months ended June 30, ~~2015.~~2016. This increase was driven by ~~increased volume as average borrowings increased by $259.7 million when compared to average borrowings for the six months ended June 30, 2015, in addition to~~ a 1256 basis point increase in average rates for the period due to higher rates on short term borrowings used to fund commercial loans to mortgage companies.

This increase was offset in part by decreased volume as average borrowings decreased by $204.5 million when compared to average borrowings for the six months ended June 30, 2016.

Provision for Loan Losses from Continuing Operations

The provision for loan losses ~~decreased~~from continuing operations increased by ~~$9.5~~$0.8 million to ~~$2.8~~$3.6 million for the six months ended June 30, ~~2016,~~2017, compared to ~~a provision of $12.3~~$2.8 million for the same period in ~~2015.~~2016. The ~~six months ended 2016~~ provision for loan losses from continuing operations of $3.6 million included provisions of $0.9 million for loan portfolio growth and $3.1 million for impaired loans offset in part by a $0.5 million release resulting from improved asset quality and lower incurred losses than previously estimated. The provision for loan losses for the first six months of 2016 included provisions for loan growth, net of qualitative considerations, and ~~impairment measured on specific~~impaired loans of $4.3 million, offset in part by increased estimated cash flows expected to be collected on ~~purchased credit-impaired~~purchased-credit impaired loans and a reduction in the estimated ~~amounts~~amount owed to the FDIC for previous FDIC assisted acquisitions totaling $1.5 million. The six months ended June 30, 2015 provision included a provision of $6.0 million for a fraudulent loan and an increase in estimated amounts owed to the FDIC for previous assisted acquisitions totaling $3.7 million.

For more information about ~~our~~the provision and allowance for loan losses and our loss experience, see “Credit Risk” and “Asset Quality” herein.

Non-Interest Income from Continuing Operations

The table below presents the components of non-interest income from continuing operations for the six months ended June 30, ~~2016~~2017 and ~~2015.~~2016.


	Six Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2017			2016
(amounts in thousands)
Mortgage warehouse transactional fees	$	5,622	$	5,072		$	4,743		$	5,622
Bank-owned life insurance						3,624			2,243
Gain on sale of SBA and other loans						1,901			929
Deposit fees						582			531
Mortgage banking income						446			450
Interchange and card revenue	2,259		262			329			304
Bank-owned life insurance	2,243		2,230
Deposit fees	1,042		426
Gain on sale of loans	929		2,058
Mortgage loans and banking income	450		438
Gain (loss) on sale of investment securities	26		(69		)
Gain on sale of investment securities						3,183			26
Impairment loss on investment securities						(4,585		)	—
Other	1,180		1,709			2,175			1,016
Total non-interest income	$	13,751	$	12,126
Total non-interest income from continuing operations						$	12,398		$	11,121

Non-interest income from continuing operations increased ~~$1.6~~$1.3 million during the six months ended June 30, ~~2016~~2017 to ~~$13.8~~$12.4 million, compared to ~~$12.1~~$11.1 million for the six months ended June 30, ~~2015. The~~2016. This increase was primarily ~~attributable~~due to ~~$2.2~~a $3.2 million gain resulting from the sale of ~~interchange~~investment securities, increased income from bank-owned life insurance policies of $1.4 million, increased gain on sale of SBA and other ~~fees received from the acquired Disbursement business, an increase in deposit fees~~loans of ~~$0.6~~$1.0 million, and an increase in other non-interest income of $1.2 million resulting primarily from increased loan fees and derivative-and-hedging-related activity, offset in part by a $4.6 million other-than-temporary-impairment loss on equity securities and a decrease in mortgage ~~and~~ warehouse transactional fees of ~~$0.6~~$0.9 million driven by ~~higher volumes~~a reduction in the volume of ~~mortgage~~ warehouse transactions. These increases were partially offset by a decrease of $1.1 million in gains realized from sales of loans, as there have been no multi-family sales during the six months ended June 30, 2016 compared to approximately $140 million of multi-family sales which occurred during the six months ended June 30, 2015.

Non-Interest Expense from Continuing Operations

The table below presents the components of non-interest expense from continuing operations for the six months ended June 30, ~~2016~~2017 and ~~2015.~~2016.


	Six Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2017		2016
(amounts in thousands)
Salaries and employee benefits	$	35,370	$	28,400	$	32,850	$	32,799
FDIC assessments, taxes, and regulatory fees	8,465		4,273
Technology, communication and bank operations	6,496		5,369		5,861		4,833
Professional services	6,207		4,705		5,827		5,071
Occupancy	4,798		4,300		5,121		4,600
Acquisition related expenses	1,050		—
FDIC assessments, taxes, and regulatory fees					3,953		8,130
Loan workout expense	905		256		928		905
Advertising and promotion	587		776		334		337
Other real estate owned expense	470		304		105		470
Other	7,739		4,742		5,735		6,812
Total non-interest expense	$	72,087	$	53,125
Total non-interest expense from continuing operations					$	60,714	$	63,957

Non-interest expense from continuing operations was ~~$72.1~~$60.7 million for the six months ended June 30, ~~2016, an increase~~2017, a decrease of ~~$19.0~~$3.2 million from non-interest expense of ~~$53.1~~$64.0 million for the six months ended June 30, ~~2015.~~2016.

Salaries and employee benefits, which represent the largest component of non-interest expense, increased ~~$7.0~~$0.1 million, or ~~24.5%~~0.2%, to ~~$35.4~~$32.9 million for the six months ended June 30, 2017 as management continued its efforts to control expenses.

Technology, communication and bank operations increased by $1.0 million, or 21.3%, to $5.9 million for the six months ended June 30, 2017 from $4.8 million for the six months ended June 30, 2016. ~~The~~This increase was primarily attributable to upgrades and enhancements to our core processing capabilities.

Professional services expense increased by $0.8 million, or 14.9%, to $5.8 million for the six months ended June 30, 2017 from $5.1 million for the six months ended June 30, 2016. This increase was primarily attributable to increases in consulting and other professional services necessary to support a $10.9 billion Bank.

Occupancy expense increased by $0.5 million, or 11.3%, to $5.1 million for the six months ended June 30, 2017 from $4.6 million for the six months ended June 30, 2016. This increase was primarily related to headcount growth needed to support the growing multi-family, commercial real estate and commercial and industrial loan portfolios, and the increased deposits. Total team members increased to 773 full-time equivalents at June 30, 2016, from 491 full-time equivalents at June 30, 2015. The increase in full-time equivalents was primarily related to the acquisition of the Disbursement business of Higher One which added approximately 225 employees during June 2016, with the remaining team members added to support the growth of the Bank.

FDIC assessments, taxes, and regulatory fees ~~increased~~decreased by $4.2 million, or ~~98.1%~~51.4%, to ~~$8.5~~$4.0 million for the six months ended June 30, 2017 from $8.1 million for the six months ended June 30, 2016. This decrease was primarily related to a lower insurance assessment charged by the FDIC as the FDIC's Deposit Insurance Fund reached a targeted ratio.

Other expenses decreased by $1.1 million, or 15.8%, to $5.7 million for the six months ended June 30, 2017 from $6.8 million for the six months ended June 30, 2016. The decrease was primarily attributable to one-time charges of $1.4 million associated with legal matters during the six months ended June 30, 2016.

Income Taxes from Continuing Operations

Discontinued Operations

The net loss from discontinued operations of $6.4 million increased $3.0 million, or 87.6%, for the six months ended June 30, 2017 when compared to the net loss from discontinued operations of $3.4 million for the six months ended June 30, 2016, which includes the operations of the Disbursement business acquired in June 2016. Non-interest income of $28.7 million, operating expense of $39.1 million, and a tax benefit of $3.9 million from ~~$4.3 million~~the operating losses for the six months ended June 30, ~~2015. This increase was primarily attributable~~2017 increased when compared to ~~an adjustment that reduced Pennsylvania shares~~the non-interest income of $2.6 million, operating expense of $8.1 million, and a tax ~~expense by $2.3~~benefit of $2.1 million for the ~~six months ended June 30, 2015~~same period in ~~addition to increased FDIC insurance assessments driven mainly by~~2016. The increases in non-interest income and non-interest expense reported within the ~~organic growth~~loss from discontinued operations were predominantly a result of ~~the Bank.~~

Technology, communication and bank operations increased by $1.1 million, or 21.0%, to $6.5 million for the six months ended June 30, 2016 from $5.4 million for the six months ended June 30, 2015. This increase was primarily attributable to costs driven by the growth of the Bank and BankMobile Disbursement related expenses.

Professional services expense increased by $1.5 million, or 31.9%, to $6.2 million for the six months ended June 30, 2016 from $4.7 million for the six months ended June 30, 2015. The increase was primarily related to additional professional services expenses driven by the growth of the Bank and service charges paid for the FHLB letter of credit used to collateralize municipal deposits.

Occupancy expense increased by $0.5 million, or 11.6%, to $4.8 million for the six months ended June 30, 2016 from $4.3 million for the six months ended June 30, 2015. This increase was driven by increased business activity in existing and new markets which required additional team members and facilities.

~~Acquisition related expenses were $1.1 million for the six months ended June 30, 2016 related to~~ the acquisition of the Disbursement ~~business. Expenses were primarily consulting, professional services and other expenses related to the acquisition~~business in June 2016, which therefore only affected BankMobile's operating results for a portion of ~~the Disbursement business.~~

Other expenses increased by $3.0 million, or 63.2%, to $7.7 million for the six months ended June 30, 2016 from $4.7 million for the six months ended June 30, 2015. The increase was primarily related to additional expenses related to the Disbursement business and growth of the Bank.

~~Income Taxes~~

Income tax expense increased $8.5 million in the six months ended June 30, 2016 to $22.6 million, compared to $14.1 million in the same period of 2015. The increase in income tax expense was driven by increased taxable income of $20.1 million in the first six months of 2016 ~~and an increase in~~when compared to the ~~effective tax rate to 37.8% for the~~full first six months ~~ended June 30, 2016, compared to 35.6% in the same period~~ of ~~2015. The increase in the effective tax rate was due to an increased proportion of income producing assets domiciled in New York, particularly in New York City.~~2017.

Preferred Stock Dividends

Preferred stock dividends increased ~~$2.8~~$3.9 million in the six months ended June 30, ~~2016 due~~2017 to the accrual of dividends on the Series C preferred stock issued in second quarter 2015, the Series D preferred stock issued in first quarter 2016, and the Series E preferred stock issued in the second quarter 2016,$7.2 million, compared to $3.3 million for the six months ended June 30, ~~2015, which accrued for~~2016. This increase was the ~~outstanding Series C~~result of preferred stock ~~for the period it was outstanding during the second quarter of 2015.~~issuances totaling $142.5 million issued in April 2016 with dividends at 6.45% and in September 2016 with dividends at 6.00%.

Financial Condition

General

~~Total~~Customers crossed the $10 billion asset threshold in second quarter 2017, with total assets ~~were $9.7~~of $10.9 billion at June 30, ~~2016.~~2017. This represented a ~~$1.3~~$1.5 billion, or ~~15.3%~~16.0%, increase from total assets of ~~$8.4~~$9.4 billion at December 31, ~~2015.~~2016. The ~~major~~ change in Customers' financial position occurred as the result of ~~organic growth~~an increase in ~~our loan portfolio, which increased by $1.2~~total loans outstanding of $0.7 billion since December 31, ~~2015,~~2016, or ~~16.1%~~8.7%, primarily driven by growth in multifamily, commercial and industrial loans, and consumer residential loans, and by growth in our investment portfolio since December 31, 2016, which increased by $0.5 billion, or 105.2%, to ~~$8.4~~$1.0 billion at June 30, ~~2016. The main drivers were the growth~~2017, driven by purchases of agency-guaranteed commercial mortgage-backed securities. Commercial loans held for investment ~~which~~ increased ~~$0.7~~$0.3 billion, or ~~13.4%~~5.8%, to ~~$5.7~~$6.2 billion at June 30, ~~2016~~2017 compared to ~~$5.1~~$5.8 billion at December 31, ~~2015~~2016, and ~~warehouse~~consumer loans held for ~~sale which~~investment increased ~~$0.5 billion,~~$245.2 million to $543.2 million at June 30, 2017 from $298.0 million at December 31, 2016. Additionally, cash and cash equivalents increased $157.0 million, or ~~29.5%~~64.2%, to ~~$2.3~~$401.7 million at June 30, 2017 from December 31, 2016 primarily attributable to the net proceeds received from the issuance of the $100 million senior notes on June 30, 2017.

Total liabilities were $10.0 billion at June 30, ~~2016 compared to $1.8~~2017. This represented a $1.4 billion, or 17.0%, increase from $8.5 billion at December 31, ~~2015.~~

~~Total liabilities were $9.0 billion at June 30,~~ 2016. ~~This represented a $1.2 billion, or 14.8%, increase from $7.8 billion at December 31, 2015.~~ The increase in total liabilities resulted primarily from ~~increased deposits as deposits~~FHLB borrowings, which increased by ~~$0.8~~$1.1 billion, or ~~14.2%~~130.2%, to ~~$6.8~~$2.0 billion at June 30, ~~2016~~2017 from ~~$5.9~~$0.9 billion at December 31, ~~2015. Transaction deposits grew by $0.5 billion,~~2016, other borrowings, which increased $98.7 million, or ~~12.9%~~113.5%, to ~~$4.0~~$186.0 million at June 30, 2017 from $87.1 million at December 31, 2016 resulting from the issuance of the $100 million senior notes on June 30, 2017, and federal funds purchased, which increased $67.0 million, or 80.7%, to $150.0 million at June 30, 2017 from $83.0 million at December 31, 2016. Overall deposits increased $174.9 million, or 2.6%, to $7.0 billion at June 30, ~~2016~~2017 from ~~$3.6~~$6.8 billion at December 31, ~~2015. Deposit growth was primarily~~2016, and non-interest bearing deposits held for sale (from the ~~result of growth in money market accounts of $0.3 billion and certificates of deposit accounts of $0.4 billion.~~BankMobile business) decreased $6.1 million, or 1.3%, to $447.3 million at June 30, 2017 from $453.4 million at December 31, 2016.

The following table sets forth certain key condensed balance sheet data as of June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:


	June 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
(amounts in thousands)
Cash and cash equivalents	$	302,796		$	264,593		$	401,690		$	244,709
Investment securities, available for sale	547,935			560,253
Loans held for sale (includes $2,274,294 and $1,757,807, respectively, at fair value)	2,301,821			1,797,064
Investment securities available for sale, at fair value							1,012,605			493,474
Loans held for sale (includes $2,104,338 and $2,117,510, respectively, at fair value)							2,255,096			2,117,510
Loans receivable	6,114,576			5,453,479			6,723,278			6,142,390
Allowance for loan losses	(38,097		)	(35,647		)	(38,458		)	(37,315		)
Total assets	9,684,625			8,398,205			10,883,548			9,382,736
Total deposits	6,751,259			5,909,501			7,021,922			6,846,980
Non-interest bearing deposits held for sale							447,325			453,394
Federal funds purchased	61,000			70,000			150,000			83,000
FHLB advances	1,906,900			1,625,300			1,999,600			868,800
Other borrowings	86,790			86,457			186,030			87,123
Subordinated debt	108,734			108,685			108,831			108,783
Total liabilities	9,004,063			7,844,303			9,973,259			8,526,864
Total shareholders’ equity	680,562			553,902			910,289			855,872
Total liabilities and shareholders’ equity	9,684,625			8,398,205			10,883,548			9,382,736

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and interest-earning deposits. Cash and due from banks consists mainly of vault cash and cash items in the process of collection. These balances totaled ~~$46.8~~$18.5 million at June 30, ~~2016.~~2017. This represents a ~~$6.8~~$1.0 million ~~decrease~~increase from ~~$53.6~~$17.5 million at December 31, ~~2015.~~2016. These balances vary from day to day, primarily due to variations in customers’ deposits with the Bank. Interest-earning deposits consist of cash deposited at other banks, primarily the Federal Reserve Bank of Philadelphia. Interest-earning deposits were ~~$256.0~~$383.2 million and ~~$211.0~~$227.2 million at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. ~~Included~~The increase in interest-earning deposits was largely due to the ~~reported balances~~net proceeds received from the issuance of ~~cash and cash equivalents at~~the $100 million senior notes on June 30, ~~2016 is the $20 million placed in escrow to be paid to Higher One over the next two years in connection with the acquisition of the Disbursement business.~~2017.

Investment Securities

The investment securities portfolio is an important source of interest income and liquidity. At June 30, ~~2016,~~2017, investments consisted of residential and commercial real estate mortgage-backed securities guaranteed by an agency of the United States government, corporate notes and marketable equity securities. In addition to generating revenue, the investment portfolio is maintained to manage interest-rate risk, provide liquidity and collateral for borrowings, and diversify the credit risk of interest-earning assets. The portfolio is structured to maximize net interest income, given changes in the economic environment, liquidity position, and balance sheet mix.

At June 30, ~~2016,~~2017, investment securities were ~~$547.9 million~~$1.0 billion compared to ~~$560.3~~$493.5 million at December 31, ~~2015.~~2016, an increase of $519.1 million. The ~~decrease~~increase was primarily the result of ~~maturities, sales~~purchases of agency-guaranteed commercial real estate mortgage-backed securities of $531.3 million and ~~principal repayments~~corporate securities of ~~$31.8~~$112.7 million during the six months ended June 30, ~~2016, offset in part by investment security purchases of $5.0 million~~2017 and net increases in fair values of ~~$14.9~~$11.0 million, offset in part by sales and principal repayments of $138.8 million.

Loans

Existing lending relationships are primarily with small and middle market businesses and individual consumers primarily in Bucks, Berks, Chester, Montgomery, Delaware, and Philadelphia Counties, Pennsylvania; Camden and Mercer Counties, New Jersey; and Westchester County and New York City, New York; and the New England area. The loans to mortgage banking companies ~~portfolio~~ is ~~nation-wide.~~a nation-wide portfolio. The loan portfolio consists primarily of loans to support mortgage banking ~~companies, multi-family,~~ companies’ funding needs, multi-family/commercial real estate, and commercial and industrial loans. The Bank continues to focus on small and middle market business loans to grow its commercial lending efforts, ~~establish a~~expand its specialty mortgage warehouse lending business, and expand its ~~consumer~~multi-family/commercial real estate lending ~~products, as outlined below:~~business.

Commercial Lending

Customers' commercial lending is divided into four groups: Business Banking, Small and Middle Market Business Banking, Multi-family and Commercial Real Estate Lending, and Mortgage Banking Lending. This grouping is designed to allow for more effective resource deployment, higher standards of risk management, stronger oversight of asset quality, better management of interest rate risk and higher productivity levels.

The commercial lending group focuses primarily on companies with annual revenues ranging from $1 million to ~~$50~~$100 million, which typically have credit requirements between $0.5 million and $10 million.

The small and middle market business banking platform originates loans, including Small Business Administration loans, through the branch network sales force and a team of dedicated relationship managers. The support administration of this platform is centralized including risk management, product management, marketing, performance tracking and overall strategy. Credit and sales training has been established for Customers' sales force, ensuring that it has small business experts in place providing appropriate financial solutions to the small business owners in its communities. A division approach focuses on industries that offer high asset quality and are deposit rich to drive profitability.

In 2009, Customers launched its lending to mortgage banking businesses products, which primarily provides financing to mortgage bankers for residential mortgage originations from loan closing until sale in the secondary market. Many providers of liquidity in this segment exited the business in 2009 during a period of market turmoil. Customers saw an opportunity to provide liquidity to this business segment at attractive spreads. There was also the opportunity to attract escrow deposits and to generate fee income in this business.

The goal of the mortgage banking ~~businesses~~business lending group is to provide liquidity to mortgage companies. These loans are primarily used by mortgage companies to fund their pipelines from closing of individual mortgage loans until their sale into the secondary market. The underlying residential loans are taken as collateral for the Bank’s ~~loans.~~commercial loans to the mortgage companies. As of June 30, ~~2016,~~2017, loans in the warehouse lending portfolio totaled ~~$2.3~~$2.1 billion and are designated as held for sale.

The goal of the Bank’s multi-family lending group is to build a portfolio of high-quality multi-family loans within the Bank’s covered markets, while cross selling other products and services. This product primarily targets refinancing existing loans with other banks using conservative underwriting standards and provides 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 30, ~~2016,~~2017, the Bank had multi-family loans of ~~$3.3~~$3.6 billion outstanding, making up approximately ~~39.6%~~39.5% of the Bank’s total loan portfolio, compared to ~~$2.9~~$3.2 billion, or approximately ~~40.7%~~38.9% of the total loan portfolio at December 31, ~~2015.~~2016.

As of June 30, ~~2016,~~2017, the Bank had ~~$8.0~~$8.4 billion in commercial loans outstanding, totaling approximately ~~95.5%~~93.9% of its total loan portfolio, which includes loans held for sale, compared to ~~$6.9~~$8.0 billion commercial loans outstanding, composing approximately ~~94.6%~~96.4% of its loan portfolio at December 31, ~~2015.~~2016.

Consumer Lending

Customers provides home equity and residential mortgage loans to customers. Underwriting standards for home equity lending are conservative and lending is offered to solidify customer relationships and grow relationship revenues in the long term. This lending is important in Customers' efforts to grow total relationship revenues for its consumer households. As of June 30, ~~2016,~~2017, the Bank had ~~$376.1~~$545.9 million in consumer loans outstanding, or ~~4.5%,~~6.1% of the Bank’s total loan portfolio, which includes loans held for sale. The Bank plans to expand its product offerings in real estate secured consumer lending.

Customers Bank has launched a community outreach program in Philadelphia to finance homeownership in urban communities. As part of this program, the Bank is offering an “Affordable Mortgage ~~Product”.~~Product." This community outreach program is penetrating the underserved population, especially in low and moderate income neighborhoods. As part of this commitment, a limited purpose office was opened in Progress Plaza, 1501 North Broad Street, Philadelphia, PA. The program includes homebuyer seminars that prepare potential homebuyers for homeownership by teaching money management and budgeting skills, including the financial responsibilities that come with having a mortgage and owning a home. The “Affordable Mortgage Product” is offered throughout Customers Bank’s assessment areas.

~~Held-for-Sale~~ Loans Held for Sale

The composition of loans held for sale as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 was as follows:


	June 30,		December 31,		June 30,		December 31,
	2016		2015		2017		2016
(amounts in thousands)
Commercial loans:
Mortgage warehouse loans at fair value	$	2,271,893	$	1,754,950
Mortgage warehouse loans, at fair value					$	2,101,641	$	2,116,815
Multi-family loans at lower of cost or fair value	27,527		39,257		150,758		—
Total commercial loans held for sale	2,299,420		1,794,207		2,252,399		2,116,815
Consumer loans:
Residential mortgage loans at fair value	2,401		2,857
Consumer Loans:
Residential mortgage loans, at fair value					2,697		695
Loans held for sale	$	2,301,821	$	1,797,064	$	2,255,096	$	2,117,510

At June 30, ~~2016,~~2017, loans held for sale ~~were~~totaled $2.3 billion, or ~~27.3%,~~25.1% of the total loan portfolio, ~~compared to $1.8~~and $2.1 billion, or ~~24.8%~~25.6% of the total loan portfolio, at December 31, ~~2015. The~~2016.

Mortgage warehouse loans ~~held-for-sale portfolio~~held for sale at June 30, ~~2016 included $2.3 billion of loans to mortgage banking businesses, $27.5~~2017 decreased $15.2 million ~~of multi-family loans and $2.4 million of residential mortgage loans,~~when compared to ~~$1.8 billion of loans to mortgage banking businesses, $39.3 million of multi-family loans and $2.9 million of residential mortgages loans at~~ December 31, ~~2015.~~ 2016. Mortgage warehouse loan balances are typically elevated during the summer months when home-purchasing activity is usually stronger. However, Customers expects that mortgage warehouse loan growth will moderate and return to more normal seasonal patterns as interest rates and the interest rate yield curve return to more normal levels and spreads.

Held-for-sale loans are carried on the balance sheet at either fair value (due to the election of the fair value option) or the lower of cost or fair value. An allowance for loan losses is not recorded on loans that are held for sale.

The mortgage warehouse loan held for sale balances increased $516.9 million to $2.3 billion as of June 30, 2016 compared to December 31, 2015. The increase resulted primarily from the increased level of home mortgage refinance activity nation-wide as a result of the sharp decline in longer term borrowing rates experienced in 2016. Mortgage warehouse balances are typically elevated during the summer months when home purchasing activity is typically stronger. Customers expects that mortgage

~~warehouse loan growth will moderate during the year and return to more normal seasonal patterns as interest rates and the interest rate yield curve return to more normal levels and spreads.~~

Loans Receivable

Loans receivable (excluding loans held for sale), net of the allowance for loan losses, increased by ~~$658.6~~$579.7 million to ~~$6.1~~$6.7 billion at June 30, ~~2016~~2017 from ~~$5.4~~$6.1 billion at December 31, ~~2015.~~2016. Loans receivable as of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 consisted of the following:


	June 30,			December 31,			June 30,			December 31,
	2016			2015			2017			2016
(amounts in thousands)
Commercial:
Multi-family	$	3,308,556		$	2,909,439		$	3,399,617		$	3,214,999
Commercial and industrial (including owner occupied commercial real estate)	1,192,674			1,111,400			1,505,487			1,370,853
Commercial real estate non-owner occupied	1,139,711			956,255			1,216,012			1,193,715
Construction	99,615			87,240			61,226			64,789
Total commercial loans	5,740,556			5,064,334			6,182,342			5,844,356
Consumer:
Residential real estate	262,567			271,613			444,453			193,502
Manufactured housing	107,874			113,490			96,148			101,730
Other	3,277			3,708			2,561			2,726
Total consumer loans	373,718			388,811			543,162			297,958
Total loans receivable	6,114,274			5,453,145			6,725,504			6,142,314
Deferred costs and unamortized premiums, net	302			334
Deferred (fees)/costs and unamortized (discounts)/premiums, net							(2,226		)	76
Allowance for loan losses	(38,097		)	(35,647		)	(38,458		)	(37,315		)
Loans receivable, net of allowance for loan losses	$	6,076,479		$	5,417,832		$	6,684,820		$	6,105,075

~~Multi-family loan growth (excluding loans held for sale) of $399.1 million in 2016 reflects efforts by Customers to deepen penetration into its markets during the period.~~

Credit Risk

Customers manages credit risk by maintaining diversification in its loan portfolio, establishing and enforcing prudent underwriting standards, diligent collection efforts and continuous and periodic loan classification reviews. Management also considers the effect of credit risk on financial performance by maintaining an adequate allowance for loan losses. Credit losses are charged to the allowance for loan losses when they are identified, and provisions are added to the allowance for loan losses when and as appropriate. The adequacy of the allowance for loan losses, maintained at a level to absorb estimated incurred losses ~~estimated to exist~~in the held-for-investment loan portfolio as of the last day of the reporting period, is evaluated at least quarterly.

The provision for loan losses was ~~$0.8~~$0.5 million and ~~$9.3~~$0.8 million for the three months ended June 30, 2017 and 2016, respectively, and ~~2015, respectively. The provision for loan losses was $2.8~~$3.6 million and ~~$12.3~~$2.8 million for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The allowance for loan losses maintained for loans receivable (excludes loans held for sale) was ~~$38.1~~$38.5 million, or ~~0.62%~~0.57% of loans receivable, at June 30, ~~2016~~2017 and ~~$35.6~~$37.3 million, or ~~0.65%~~0.61% of loans receivable, at December 31, ~~2015.~~2016. Net charge-offs were ~~$0.6~~$2.4 million for the six months ended June 30, ~~2016, a decrease~~2017, an increase of ~~$1.4~~$1.8 million compared to the same period in ~~2015.~~2016. The ~~decrease~~increase in net ~~charge offs~~charge-offs period over period was ~~mainly~~largely driven by the ~~increased performance~~charge-off of $1.8 million during second quarter 2017 related to one relationship in ~~loans receivable~~the commercial and ~~a large recovery on a purchased-credit-impaired~~industrial post-2009 originated loan ~~during first quarter 2016.~~portfolio.

On July 11, 2016, Customers entered into an agreement to terminate all existing loss sharing agreements with the FDIC. All rights and obligations under these loss sharing agreements have been resolved and terminated under this agreement. Covered loans and other real estate owned were reclassified and are no longer presented as covered as of June 30, 2016.

The chart below depicts changes in the Bank’s allowance for loan losses for the periods indicated. The amounts presented for the provision for loan losses below do not include the effect of changes to estimated benefits resulting from the FDIC loss share arrangements for the covered ~~loans.~~loans for periods prior to the termination of the FDIC loss sharing agreements.

Analysis of the Allowance for Loan Losses


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
(amounts in thousands)
Balance at the beginning of the period	$	37,605	$	33,566	$	35,647	$	30,932	$	39,883	$	37,605	$	37,315	$	35,647
Loan charge-offs (1)
Commercial and industrial	537		1,213		537		1,234		1,849		537		2,047		537
Commercial real estate owner occupied	—		270		—		343
Commercial real estate non-owner occupied	—		—		—		245		4		—		408		—
Construction	—		295		—		1,064
Residential real estate	413		26		413		26		69		413		290		413
Other consumer	190		—		232		36		24		50		24		92
Charge-offs for BankMobile loans (2)									202		140		222		140
Total Charge-offs	1,140		1,804		1,182		2,948		2,148		1,140		2,991		1,182
Loan recoveries (1)
Commercial and industrial	55		58		111		103		68		55		283		111
Commercial real estate owner occupied	—		1		—		1		9		—		9		—
Commercial real estate non-owner occupied	—		—		8		—		—		—		—		8
Construction	24		172		457		187		49		24		130		457
Residential real estate	1		572		1		572		6		1		27		1
Other consumer	—		2		—		85		2		—		4		—
Recoveries for BankMobile loans (2)									54		—		96		—
Total Recoveries	80		805		577		948		188		80		549		577
Total net charge-offs	1,060		999		605		2,000		1,960		1,060		2,442		605
Provision for loan losses	1,552		4,924		3,055		8,559		535		1,552		3,585		3,055
	$	38,097	$	37,491	$	38,097	$	37,491
Balance at the end of the period									$	38,458	$	38,097	$	38,458	$	38,097


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


(2)	BankMobile charge-offs/recoveries, primarily on overdrawn deposit accounts.

The allowance for loan losses is based on a ~~periodic~~quarterly evaluation of the loan portfolio and is maintained at a level that management considers adequate to absorb probable losses incurred as of the balance sheet date. All commercial loans are assigned credit risk ratings, based upon an assessment of the borrower, the structure of the transaction and the available collateral and/or guarantees. All loans are monitored regularly by the responsible officer, and the risk ratings are adjusted when considered appropriate. The risk assessment allows management to identify problem loans timely. Management considers a variety of factors, and recognizes the inherent risk of loss that always exists in the lending process. Management uses a disciplined methodology to estimate an appropriate level of allowance for loan losses. See “Asset Quality” for further discussion of the allowance for loan losses.

Approximately ~~80%~~85% of the Bank’s 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”). The Bank’s lien position on the real estate collateral will vary on a loan-by-loan basis and will change as a result of changes in the value of the collateral. Current appraisals providing current value estimates of the property are received when the Bank’s 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 fifteen 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 impaired and individually evaluated for impairment, the collateral value, or

discounted cash flow,

or loan market value analysis is used to ~~determine~~estimate the amount of proceeds expected to be collected, and that estimated ~~fair value of the underlying collateral and compared,~~amount, net of estimated selling costs as applicable, is compared to the outstanding loan balance to ~~measure a specific reserve.~~estimate the amount of impairment, if any. Appraisals used in this evaluation process are typically less than two years aged. ~~New appraisals are typically obtained for loans when they are first evaluated individually for impairment.~~ 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 and compared, net of estimated selling costs, to the outstanding loan balance to estimate the required reserve, if any.

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 ~~450~~310-10-35 - ~~Contingencies~~Loan Impairment and ASC 310-40 - Troubled Debt Restructurings by Creditors, impaired loans, consisting primarily of loans placed on non-accrual, ~~and~~ restructured under troubled debt restructurings loans, or charged-off to their net realizable value, are considered in the methodology for determining the allowance for ~~credit~~loan losses. Impaired loans are generally evaluated based on the expected future cash flows if prinicpal is expected to come from the operation of such collateral or the fair value of the underlying collateral (less estimated costs to sell) if principal repayment is expected to come from the sale ~~or operation~~ of such collateral.

Losses incurred on covered loans are eligible for partial reimbursement by the FDIC. Subsequent to the purchase date, the expected cash flows on the covered loans are subject to evaluation. Decreases in the present value of expected cash flows on the covered loans are recognized by increasing the allowance for loan losses with a related charge to the provision for loan losses. At the same time, the FDIC indemnification asset is increased reflecting an estimated future collection from the FDIC, which is recorded as a reduction to the provision for loan losses. If the expected cash flows on the covered loans increase such that a previously recorded impairment can be reversed, the Bank records a reduction in the allowance for loan losses (with a related credit to the provision for loan losses) accompanied by a reduction in the FDIC receivable balance (with a related charge to the provision for loan losses). Increases in expected cash flows on covered loans and decreases in expected cash flows from the FDIC loss sharing receivable, when there are no previously recorded impairments, are considered together and recognized over the remaining life of the loans as interest income. Decreases in the valuations of other real estate owned covered by the loss sharing agreements are recorded net of the estimated FDIC receivable as an increase to other real estate owned expense (a component of non-interest expense).

Asset Quality

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

Asset Quality at June 30, ~~2016~~2017


Loan Type	Total Loans		Current		30-89 Days		90 Days or More and Accruing		Non- accrual/ NPL (a)		OREO (b)		NPA (a)+(b)		NPL to Loan Type (%)		NPA to Loans + OREO (%)		Total Loans			Current			30-89 Days Past Due		90 Days or More Past Due and Accruing		Non- accrual/ NPL (a)		OREO (b)		NPA (a)+(b)		NPL to Loan Type (%)		NPA to Loans + OREO (%)
(amounts in thousands)
Originated Loans
Multi-Family	$	3,303,077	$	3,303,077	$	—	$	—	$	—	$	—	$	—	—	%	—	%	$	3,396,888		$	3,396,888		$	—	$	—	$	—	$	—	$	—	—	%	—	%
Commercial & Industrial (1)	1,082,109		1,075,504		—		—		6,605		271		6,876		0.61	%	0.64	%	1,409,349			1,397,091			—		—		12,258		—		12,258		0.87	%	0.87	%
Commercial Real Estate Non-Owner Occupied	1,092,851		1,092,851		—		—		—		—		—		—	%	—	%	1,185,878			1,185,878			—		—		—		—		—		—	%	—	%
Residential	119,489		119,457		—		—		32		—		32		0.03	%	0.03	%	111,157			110,176			371		—		610		—		610		0.55	%	0.55	%
Construction	99,381		99,381		—		—		—		—		—		—	%	—	%	61,226			61,226			—		—		—		—		—		—	%	—	%
Other consumer	545		545		—		—		—		—		—		—	%	—	%	132			132			—		—		—		—		—		—	%	—	%
Total Originated Loans	5,697,452		5,690,815		—		—		6,637		271		6,908		0.12	%	0.12	%	6,164,630			6,151,391			371		—		12,868		—		12,868		0.21	%	0.21	%
Loans Acquired
Bank Acquisitions	192,173		179,517		822		5,662		6,172		4,385		10,557		3.21	%	5.37	%	157,239			151,076			872		1,063		4,228		2,070		6,298		2.69	%	3.95	%
Loan Purchases	224,649		215,429		3,451		3,951		1,818		410		2,228		0.81	%	0.99	%	403,635			394,480			2,612		4,468		2,075		288		2,363		0.51	%	0.59	%
Total Loans Acquired	416,822		394,946		4,273		9,613		7,990		4,795		12,785		1.92	%	3.03	%	560,874			545,556			3,484		5,531		6,303		2,358		8,661		1.12	%	1.54	%
Deferred costs and unamortized premiums, net	302		302		—		—		—		—		—
Deferred fees and unamortized discounts, net																			(2,226		)	(2,226		)	—		—		—		—		—
Total Loans Receivable ~~(2)~~	6,114,576		6,086,063		4,273		9,613		14,627		5,066		19,693		0.24	%	0.32	%	6,723,278			6,694,721			3,855		5,531		19,171		2,358		21,529		0.29	%	0.32	%
Total Loans Held for Sale ~~(3)~~	2,301,821		2,301,821		—		—		—		—		—						2,255,096			2,255,096			—		—		—		—		—
Total Portfolio	$	8,416,397	$	8,387,884	$	4,273	$	9,613	$	14,627	$	5,066	$	19,693	0.17	%	0.23	%	$	8,978,374		$	8,949,817		$	3,855	$	5,531	$	19,171	$	2,358	$	21,529	0.21	%	0.24	%

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

Asset Quality at June 30, 2017 (continued)



Loan Type	Total Loans			NPL		ALL		Cash Reserve		Total Credit Reserves		Reserves to Loans (%)		Reserves to NPLs (%)
(amounts in thousands)
Originated Loans
Multi-Family	$	3,396,888		$	—	$	12,028	$	—	$	12,028	0.35	%	—	%
Commercial & Industrial (1)	1,409,349			12,258		13,701		—		13,701		0.97	%	111.77	%
Commercial Real Estate Non-Owner Occupied	1,185,878			—		4,593		—		4,593		0.39	%	—	%
Residential	111,157			610		2,169		—		2,169		1.95	%	355.57	%
Construction	61,226			—		716		—		716		1.17	%	—	%
Other consumer	132			—		14		—		14		10.61	%	—	%
Total Originated Loans	6,164,630			12,868		33,221		—		33,221		0.54	%	258.17	%
Loans Acquired
Bank Acquisitions	157,239			4,228		4,970		—		4,970		3.16	%	117.55	%
Loan Purchases	403,635			2,075		267		763		1,030		0.26	%	49.64	%
Total Loans Acquired	560,874			6,303		5,237		763		6,000		1.07	%	95.19	%
Deferred fees and unamortized discounts, net	(2,226		)	—		—		—		—
Total Loans Receivable	6,723,278			19,171		38,458		763		39,221		0.58	%	204.59	%
Total Loans Held for Sale	2,255,096			—		—		—		—
Total Portfolio	$	8,978,374		$	19,171	$	38,458	$	763	$	39,221	0.44	%	204.59	%

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

~~(2) Includes purchased credit impaired loans.~~

~~(3) Consists primarily of short-term commercial loans to mortgage companies. Please refer to Note 7 - LOANS HELD FOR SALE to the unaudited consolidated financial statements for more information.~~

~~Asset Quality at June 30, 2016 (continued)~~

Loan Type Total Loans NPL ALL
Cash
Reserve

Total
Credit
Reserves

Reserves
to Loans
(%)

Reserves
to NPLs
(%)
(amounts in thousands)
Originated Loans
Multi-Family $ 3,303,077
$ —
$ 12,368
$ —
$ 12,368
0.37 % — %
Commercial & Industrial (1) 1,082,109
6,605
10,999
—
10,999
1.02 % 166.53 %
Commercial Real Estate Non-Owner Occupied 1,092,851
—
4,390
—
4,390
0.40 % — %
Residential 119,489
32
2,240
—
2,240
1.87 % 7,000.00 %
Construction 99,381
—
1,209
—
1,209
1.22 % — %
Other consumer 545
—
8
—
8
1.47 % — %
Total Originated Loans 5,697,452
6,637
31,214
—
31,214
0.55 % 470.30 %
Loans Acquired

Bank Acquisitions 192,173
6,172
6,445
—
6,445
3.35 % 104.42 %
Loan Purchases 224,649
1,818
438
1,246
1,684
0.75 % 92.63 %
Total Loans Acquired 416,822
7,990
6,883
1,246
8,129
1.95 % 101.74 %
Deferred costs and unamortized premiums, net 302
—
—
—
—

Total Loans Receivable (2) 6,114,576
14,627
38,097
1,246
39,343
0.64 % 268.98 %
Total Loans Held for Sale (3) 2,301,821
—
—
—
—

Total Portfolio $ 8,416,397
$ 14,627
$ 38,097
$ 1,246
$ 39,343
0.47 % 268.98 %

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

~~(2) Includes purchased credit impaired loans.~~

~~(3) Consists primarily of short-term commercial loans to mortgage companies. Please refer to Note 7 - LOANS HELD FOR SALE to the unaudited consolidated financial statements for more information.~~

Originated Loans

Post 2009 originated loans (excluding held-for-sale loans) totaled ~~$5.7~~$6.2 billion, or ~~93.2%,~~91.7% of total loans ~~excluding loans held for sale~~receivable at June 30, ~~2016,~~2017, compared to ~~$5.0~~$5.8 billion, or ~~91.7%,~~94.8% of total loans receivable at December 31, ~~2015.~~2016. The ~~new~~ management team adopted new underwriting standards that management believes better limits risks of loss ~~than the pre-2009, or legacy underwriting standards, or the underwriting standards of acquired, typically troubled banks. Post~~in 2009 ~~non-performing loans were $6.6~~and have worked to monitor these standards. Only $12.9 million, or ~~0.12%~~0.21% of post 2009 originated loans were non-performing at June 30, ~~2016,~~2017, compared to ~~$3.6~~$10.5 million, or ~~0.07%~~0.18% of post 2009 loans, at December 31, ~~2015.~~2016. The post 2009 ~~originated~~ loans were supported by an allowance for loan losses of ~~$31.2~~$33.2 million ~~(0.55%~~(0.54% of post 2009 originated loans) and ~~$27.7~~$31.8 million (0.55% of post 2009 originated loans), respectively, at June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

Loans Acquired

At June 30, ~~2016, Customers reported $416.8 million of~~2017, total acquired loans ~~which was 6.8%~~were $0.6 billion, or 8.3% of total loans ~~excluding loans held for sale,~~receivable, compared to ~~$450.6 million,~~$0.3 billion, or ~~8.3%,~~5.2% of total loans receivable, at December 31, ~~2015.~~2016. Non-performing acquired loans totaled ~~$8.0~~$6.3 million and ~~$7.2~~$7.3 million, respectively, at June 30, ~~2016~~2017 and December 31, ~~2015, respectively.~~2016. When loans are acquired, they are recorded on the balance sheet at fair value. Acquired loans include purchased portfolios, FDIC assisted failed-bank acquisitions, and unassisted acquisitions. Of the manufactured housing loans purchased from Tammac prior to 2012, ~~$61.0~~$54.6 million were supported by a ~~$1.2~~$0.8 million cash reserve at June 30, ~~2016,~~2017, compared to ~~$63.4~~$57.6 million supported by a cash reserve of ~~$1.2~~$1.0 million at December 31, ~~2015.~~2016. The cash reserve was created as part of the purchase transaction to absorb losses and is maintained in a demand deposit account at the Bank. All current losses and delinquent interest are absorbed by this reserve. For the manufactured housing loans purchased in 2012, Tammac has an obligation to pay the Bank the full payoff amount of the defaulted loan, including any principal, unpaid interest, or advances on the loans, once the borrower vacates the property. At June 30, ~~2016, $39.0~~2017, $34.4 million of these loans were outstanding, compared to ~~$41.9~~$36.6 million at December 31, ~~2015.~~2016.

Many of the acquired loans were purchased at a discount. The price paid considered management’s judgment as to the credit and interest rate risk inherent in the portfolio at the time of purchase. Every quarter, management reassesses the risk and adjusts the cash flow forecast to incorporate changes in the credit outlook. Generally, a decrease in forecasted cash flows for a purchased loan will result in a provision for loan losses, and absent charge-offs, an increase in the allowance for loan losses. Acquired loans have a significantly higher percentage of non-performing loans than loans originated after September 2009. Management acquired these loans with the expectation that non-performing loan levels would be elevated, and therefore incorporated that expectation into the price paid. ~~There is a~~Customers has assigned these loans to its Special Assets Group, a team that focuses on workouts for these acquired

non-performing assets. Total acquired loans were supported by reserves (allowance for loan losses and cash reserves) of ~~$8.1~~$6.0 million ~~(1.95%~~(1.07% of total acquired loans) and ~~$9.1~~$6.5 million (2.03% of total acquired loans), respectively, at June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

Deposits

The Bank offers a variety of deposit accounts, including checking, savings, money market deposit accounts (“MMDA”) and time deposits. Deposits are generally obtained primarily from our geographic service area. Customers also acquires deposits nationwide through deposit brokers, listing services and other relationships. Total deposits ~~grew to $6.8~~from continuing operations were $7.0 billion at June 30, 2017, an increase of $0.2 billion, or 2.6%, from $6.8 billion at December 31, 2016. Demand deposits were $1.0 billion at June 30, 2017, compared to $852.1 million at December 31, 2016, an increase of ~~$0.8 billion, or 14.2%, from $5.9 billion at December 31, 2015. Demand deposits were $976.0 million at June 30, 2016, compared to $780.9 million at December 31, 2015, an increase of $195.1~~$169.2 million, or ~~25.0%~~19.9%. These amounts consist primarily of non-interest bearing demand deposits. Savings, including MMDA, totaled ~~$3.0~~$3.6 billion at June 30, ~~2016,~~2017, an increase of ~~$263.5~~$395.1 million, or ~~9.5%~~12.5%, from ~~$2.8~~$3.2 billion at December 31, ~~2015.~~2016. This increase was primarily attributed to an increase in money market deposit accounts, including accounts held by municipalities. Total time deposits were ~~$2.7~~$2.4 billion at June 30, ~~2016, an increase~~2017, a decrease of ~~$383.2~~$389.4 million, or ~~16.3%~~13.8%, from ~~$2.3~~$2.8 billion at December 31, ~~2015.~~2016. At June 30, ~~2016,~~2017, the Bank had ~~$1.2~~$1.4 billion in state and municipal deposits to which Customers has pledged available borrowing capacity through the FHLB to the depositor through a letter of credit arrangement. State and municipal deposits under this program decreased ~~$64.5~~$89.6 million, or ~~5.04%~~6.2% from December 31, ~~2015.~~2016.

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


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
(amounts in thousands)
Demand	$	976,006	$	780,894	$	1,021,275	$	852,062
Savings, including MMDA	3,044,496		2,781,010		3,558,285		3,163,156
Time, $100,000 and over	1,800,491		1,624,562		1,535,981		2,106,905
Time, other	930,266		723,035		906,381		724,857
Total deposits	$	6,751,259	$	5,909,501	$	7,021,922	$	6,846,980

The above amounts exclude deposits for the BankMobile business that are classified as held for sale, which decreased $3.4 million, or 0.73%, to $453.4 million at June 30, 2017, from $456.8 million at December 31, 2016. Of the $453.4 million of BankMobile deposits at June 30, 2017, $447.3 million were non-interest bearing demand deposits and $6.1 million were interest-bearing savings accounts. Of the $456.8 million of BankMobile deposits at December 31, 2016, $453.4 million were non-interest bearing demand deposits and $3.4 million were interest bearing savings accounts.

Borrowings

Borrowed funds from various sources are generally used to supplement deposit growth and meet other operating needs. Customers' borrowings generally include ~~short term~~short-term and ~~long term~~long-term advances from the FHLB, federal funds purchased, senior unsecured notes and subordinated debt. Subordinated debt is also considered as Tier 2 capital for certain regulatory calculations. As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, total outstanding borrowings were ~~$2.2~~$2.4 billion and ~~$1.9~~$1.1 billion, ~~respectively. Total outstanding borrowings increased $0.3~~respectively, which represented an increase of $1.3 billion, or ~~14.4% from $1.9 billion at December 31, 2015. The~~113.0%. This increase was primarily ~~related to~~the result of an increase in ~~short term~~investments and loans receivable increasing the need for short-term borrowings. In June 2017, Customers Bancorp issued $100 million of senior notes at 99.775% of face value that will mature in June 2022. Customers will use the net proceeds for general corporate purposes, which may include working capital and the funding of organic growth at Customers Bank. For more information about Customers' borrowings, ~~used~~refer to ~~fund the mortgage warehouse portfolio.~~NOTE 10 - BORROWINGS.

Capital Adequacy and Shareholders’ Equity

Shareholders’ equity increased ~~$126.7~~$54.4 million to ~~$680.6~~$910.3 million at June 30, ~~2016,~~2017 when compared to shareholders' equity of ~~$553.9~~$855.9 million at December 31, ~~2015.~~2016, a 6.4% increase in the first six months of 2017. The primary components of the net increase were as follows:

the issuance of 3,300,000 shares of preferred stock in 2016; 1,000,000 shares on January 29, 2016 with net proceeds of $24.1 million and 2,300,000 shares on April 28, 2016 with net proceeds of $55.6 million;

net income (from continuing operations and discontinued operations) of ~~$37.1~~$49.5 million for the six months ended June 30, ~~2016;~~2017;

~~net~~ other comprehensive income of ~~$7.6~~$10.3 million for the six months ended June 30, ~~2016;~~2017, arising primarily from unrealized gains on available-for-sale securities;

share-based compensation expense of $2.9 million for the six months ended June 30, ~~2016;~~ 2017;

offset in part by

~~the accrual of~~ preferred stock dividends of ~~$3.3~~$7.2 million for the six months ended June 30, ~~2016.~~2017; and

issuance of common stock under share-based compensation arrangements of $1.4 million for the six months ended June 30, 2017.

~~Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E~~

On April 28, 2016, Customers Bancorp issued 2,300,000 shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E (the “Series E Preferred Stock”) at a price of $25.00 per share. Dividends on the Series E Preferred Stock will

accrue and be payable quarterly in arrears, at a fixed rate per annum equal to 6.45% from the original issue date to, but excluding, June 15, 2021, and thereafter at a floating rate per annum equal to three-month LIBOR on the related dividend determination date plus a spread of 5.14% per annum. Customers received net proceeds of $55.6 million from the offering, after deducting offering costs.

~~Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D~~

On January 29, 2016, Customers Bancorp issued 1,000,000 shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, par value $1.00 per share, with a liquidation preference of $25.00 per share. Dividends on the Series D Preferred Stock will accrue and be payable quarterly in arrears, at a fixed rate per annum equal to 6.50% from the original issue date to, but excluding, March 15, 2021, and thereafter at a floating rate per annum equal to three-month LIBOR on the related dividend determination date plus a spread of 5.09% per annum.

Dividends on the Series D and Series E Preferred Stock will not be cumulative. If Customers Bancorp's board of directors or a duly authorized committee of the board does not declare a dividend on the Series D and Series E Preferred Stock in respect of a dividend period, then no dividend shall be deemed to have accrued for such dividend period, be payable on the applicable dividend payment date, or be cumulative,The Bank and Customers Bancorp will have no obligation to pay any dividend for that dividend period, whether or not the board of directors or a duly authorized committee of the board declares a dividend on the Series D and Series E Preferred Stock for any future dividend period.

The Series D and Series E Preferred Stock have no stated maturity, are not subject to any mandatory redemption, sinking fund or other similar provisions and will remain outstanding unless redeemed at Customers Bancorp's option. Customers Bancorp may redeem the Series D and Series E Preferred Stock at its option, at a redemption price equal to $25.00 per share, plus any declared and unpaid dividends (without regard to any undeclared dividends), (i) in whole or in part, from time to time, on any dividend payment date on or after March 15, 2021 for Series D Preferred Stock and June 15, 2021 for Series E Preferred Stock and or (ii) in whole but not in part, within 90 days following the occurrence of a regulatory capital treatment event. Any redemption of the Series D and Series E Preferred Stock are subject to prior approval of the Board of Governors of the Federal Reserve System. The Series D and Series E Preferred Stock qualify as Tier 1 capital under regulatory capital guidelines. Except in limited circumstances, the Series D and Series E Preferred Stock do not have any voting rights.

We are subject to various regulatory capital requirements that are monitored by federal banking agencies. Failure to meet minimum capital requirements can lead to supervisory actions by regulators; any supervisory action could have a direct material effect on ~~our~~Customers' financial ~~statements.~~performance. At June 30, ~~2016,~~2017, the Bank and Customers Bancorp met all capital adequacy requirements to which they were subject. Capital levels continue to exceed the well-capitalized threshold established by regulation at the Bank and exceed the applicable Basel III regulatory thresholds for Customers Bancorp and the Bank.

The capital ratios for the Bank and the Bancorp at June 30, ~~2016~~2017 and December 31, ~~2015~~2016 were as follows:


	Actual				For Capital Adequacy Purposes (Minimum Plus Capital Buffer)				To Be Well Capitalized Under Prompt Corrective Action Provisions				Actual				For Capital Adequacy Purposes (Minimum Plus Capital Buffer)				To Be Well Capitalized Under Prompt Corrective Action Provisions
(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2016:
As of June 30, 2017:
Common equity Tier 1 capital (to risk weighted assets)
Customers Bancorp, Inc.	$	528,603	6.815	%	$	397,491	5.125	%	N/A		N/A		$	671,824	8.282	%	$	466,453	5.750	%	N/A		N/A
Customers Bank	$	684,682	8.856	%	$	396,238	5.125	%	$	502,546	6.500	%	$	995,670	12.302	%	$	465,368	5.750	%	$	526,068	6.500	%
Tier 1 capital (to risk weighted assets)
Customers Bancorp, Inc.	$	663,873	8.560	%	$	513,830	6.625	%	N/A		N/A		$	889,295	10.962	%	$	588,136	7.250	%	N/A		N/A
Customers Bank	$	684,682	8.856	%	$	512,210	6.625	%	$	618,518	8.000	%	$	995,670	12.302	%	$	586,768	7.250	%	$	647,468	8.000	%
Total capital (to risk weighted assets)
Customers Bancorp, Inc.	$	808,127	10.419	%	$	668,949	8.625	%	N/A		N/A		$	1,008,760	12.435	%	$	750,380	9.250	%	N/A		N/A
Customers Bank	$	831,513	10.755	%	$	666,839	8.625	%	$	773,147	10.000	%	$	1,143,056	14.123	%	$	748,635	9.250	%	$	809,335	10.000	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	663,873	7.143	%	$	371,756	4.000	%	N/A		N/A		$	889,295	8.680	%	$	409,836	4.000	%	N/A		N/A
Customers Bank	$	684,682	7.385	%	$	370,840	4.000	%	$	463,551	5.000	%	$	995,670	9.737	%	$	409,025	4.000	%	$	511,281	5.000	%
As of December 31, 2015:
As of December 31, 2016:
Common equity Tier 1 capital (to risk weighted assets)
Customers Bancorp, Inc.	$	500,624	7.610	%	$	296,014	4.500	%	N/A		N/A		$	628,139	8.487	%	$	379,306	5.125	%	N/A		N/A
Customers Bank	$	565,217	8.620	%	$	294,916	4.500	%	$	425,990	6.500	%	$	857,421	11.626	%	$	377,973	5.125	%	$	479,380	6.500	%
Tier 1 capital (to risk weighted assets)
Customers Bancorp, Inc.	$	556,193	8.460	%	$	394,685	6.000	%	N/A		N/A		$	844,755	11.414	%	$	490,322	6.625	%	N/A		N/A
Customers Bank	$	565,217	8.620	%	$	393,221	6.000	%	$	524,295	8.000	%	$	857,421	11.626	%	$	488,599	6.625	%	$	590,006	8.000	%
Total capital (to risk weighted assets)
Customers Bancorp, Inc.	$	698,323	10.620	%	$	526,247	8.000	%	N/A		N/A		$	966,097	13.053	%	$	638,343	8.625	%	N/A		N/A
Customers Bank	$	710,864	10.850	%	$	524,295	8.000	%	$	655,369	10.000	%	$	1,003,609	13.608	%	$	636,101	8.625	%	$	737,508	10.000	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	556,193	7.160	%	$	310,812	4.000	%	N/A		N/A		$	844,755	9.067	%	$	372,652	4.000	%	N/A		N/A
Customers Bank	$	565,217	7.300	%	$	309,883	4.000	%	$	387,353	5.000	%	$	857,421	9.233	%	$	371,466	4.000	%	$	464,333	5.000	%

The capital ratios above reflect the capital requirements under "Basel III" effective during ~~the~~ first quarter 2015 and the capital conservation buffer effective January 1, ~~2016.~~2017. 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 30, ~~2016,~~2017, the Bank and Bancorp were in compliance with the Basel III requirements. See "NOTE 11 - REGULATORY CAPITAL" for additional discussion regarding regulatory capital requirements.

Off-Balance Sheet Arrangements

The Bank 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 ~~our~~the Bank's customers. These financial instruments include commitments to extend credit, including unused portions of lines of credit, and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the balance sheets.

With commitments to extend credit, exposures to credit loss in the event of non-performance by the other party to the financial instrument is represented by the contractual amount of those instruments. The same credit policies are used in making commitments and conditional obligations as for on-balance sheet instruments. Because they involve credit risk similar to extending a loan, ~~they~~commitments to extend credit are subject to the Bank’s credit policy and other underwriting standards.

As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the following off-balance sheet commitments, financial instruments and other arrangements were outstanding:


	June 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
(amounts in thousands)
Commitments to fund loans	$	135,290	$	537,380	$	448,175	$	244,784
Unfunded commitments to fund mortgage warehouse loans	924,035		1,302,759		1,291,171		1,230,596
Unfunded commitments under lines of credit	469,281		436,550		489,179		480,446
Letters of credit	36,367		42,002		40,377		40,223

Commitments to fund loans, unfunded commitments to fund mortgage warehouse loans, unfunded commitments under lines of credit and letters of credit are agreements to extend credit to or for the benefit of a customer in the ordinary course of ~~our~~the Bank's business.

Commitments to fund loans and unfunded commitments under lines of credit may be obligations of ~~Customers~~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. ~~Customers~~The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if ~~Customers~~the Bank deems it necessary upon extension of credit, is based onupon management’s credit evaluation. ~~The types of collateral~~Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment.

Mortgage warehouse loan commitments are agreements to ~~purchase~~fund the pipelines of mortgage banking businesses from closing of individual mortgage loans ~~from~~until their sale into the secondary market. Most of the individual mortgage ~~bankers that agree~~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 ~~purchase the loans back in a short period of time or to sell to third party mortgage originators.~~Fannie Mae and Freddie Mac. These commitments generally fluctuate monthly ~~as existing loans are repurchased by the mortgage bankers~~based on changes in interest rates, refinance activity, new home sales and ~~new loans are purchased by the Bank.~~laws and regulation.

Outstanding letters of credit written are conditional commitments issued by ~~Customers~~the Bank to guarantee the performance of a customer to a third party. Letters of credit may obligate ~~Customers~~the Bank to fund draws under those letters of credit whether or not a customer continues to meet the conditions of the extension of credit. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Liquidity and Capital Resources

Liquidity for a financial institution is a measure of that institution’s ability to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes. Ensuring adequate liquidity is an objective of the asset/liability management process. Customers coordinates its management of liquidity with its interest rate sensitivity and capital position, and strives to maintain a strong liquidity position.

Customers' investment portfolio provides periodic cash flows through regular maturities and amortization and can be used as collateral to secure additional liquidity funding. Our principal sources of funds are deposits, proceeds from debt issuances, principal and interest payments on loans, other funds from operations, and proceeds from stock issuances. Borrowing arrangements are maintained with the Federal Home Loan Bank and the Federal Reserve Bank of Philadelphia to meet short-term liquidity needs. ~~Longer term~~Longer-term borrowing arrangements are also maintained with the Federal Home Loan Bank. As of June 30, 2017, our borrowing capacity with the Federal Home Loan Bank was $4.9 billion, of which $2.0 billion was utilized in borrowings and $1.8 billion of available capacity was utilized to collateralize state and municipal deposits. As of December 31, 2016, our borrowing capacity with the Federal Home Loan Bank was ~~$4.3~~$4.1 billion, of which ~~$1.9~~$0.9 billion was utilized in borrowings and ~~$1.6~~$1.7 billion of available capacity was utilized to collateralize state and municipal deposits. As of June 30, 2017 and December 31, 2016, our borrowing capacity with the Federal Reserve Bank of Philadelphia was ~~$62.2 million.~~$146.2 million and $158.6 million, respectively.

Net cash flows ~~used in~~provided by operating activities of continuing operations were ~~$491.5~~$52.1 million during the six months ended June 30, ~~2016,~~2017, compared to net cash flows used in operating activities of ~~$582.9~~$490.6 million during the six months ended June 30, ~~2015.~~2016. During the six months ended June 30, 2017, proceeds from sales of loans held for sale exceeded originations of loans held for sale by $13.5 million. During the six months ended June 30, 2016, originations of loans held for sale exceeded proceeds from sales of loans held for sale by $516.2 million. ~~During~~

Investing activities of continuing operations used net cash flows of $1.3 billion during the six months ended June 30, ~~2015, originations of loans held for sale exceeded proceeds from sales of loans held for sale by $613.8 million.~~

~~Investing activities used~~2017, compared to net cash flows used in investing activities of ~~$663.2~~$646.1 million during the six months ended June 30, ~~2016, compared to $167.4~~2016. Purchases of investment securities available for sale totaled $644.0 million during the six months ended June 30, ~~2015. Net cash used~~2017, compared to ~~originate loans totaled $667.4~~$5.0 million during the six months ended June 30, ~~2016,~~2016. Proceeds from sales of investment securities available for sale were $116.0 million for the six month ended June 30, 2017, compared to ~~$345.6~~$2.8 million during the six months ended June 30, ~~2015.~~2016. Purchases of loans held for investment and bank owned life insurance policies totaled $262.6 million and $50.0 million, respectively, for the six months ended June 30, 2017, compared to no similar purchases during the six months ended June 30, 2016. Proceeds from the sale

of loans held for investment totaled $112.9 million during the six months ended June 30, 2017, compared to $17.5 million during the six months ended June 30, ~~2016, compared~~2016. Cash flows used to ~~$148.9~~fund new loans held for investment totaled $582.6 million and $667.6 million during the six months ended June 30, ~~2015.~~2017 and 2016, respectively.

Financing activities of continuing operations provided a net aggregate of $1.5 billion during the six months ended June 30, 2017, compared to $1.2 billion during the six months ended June 30, ~~2016, compared to $770.8 million during~~2016. During the six months ended June 30, ~~2015.~~2017, increases in deposits provided net cash flows of $174.9 million, net increases in short-term borrowed funds provided $1.1 billion, net increases in federal funds provided $67.0 million, proceeds from the issuance of five-year senior notes provided $98.6 million, payment of preferred stock dividends used $7.2 million, and net proceeds from the issuance of common stock provided $1.9 million. During the six months ended June 30, 2016, increases in deposits provided ~~$841.8~~$848.8 million, net ~~advances of~~increase in short-term borrowed funds provided $206.6 million, net ~~repayments of~~decrease in federal funds purchased used $9.0 million, net proceeds from long-term FHLB advances provided $75.0 million, net proceeds from the issuance of preferred stock provided $79.7 million, ~~proceeds from the issuance of common stock provided $0.9 million, and~~ payment of preferred stock dividends used $3.1 million. During the six months ended June 30, 2015, increases in deposits provided $944.6 million, net repayments from short-term borrowed funds used $255.0 million, net proceeds from long-term FHLB advances provided $25.0 million, and net proceeds from the issuance of common stock provided ~~$0.6~~$1.6 million. These financing activities provided sufficient cash flows to support Customers' investing and operating activities.

Net cash flows used in discontinued operations were $9.6 million during the six months ended June 30, 2017, compared to net cash flows used of $45.0 million during the six months ended June 30, 2016. The net decrease of $37.8 million is primarily attributable to cash used in investing activities for discontinued operations of $17.1 million during the six months ended June 30, 2016, resulting from the acquisition of the Disbursements Business of Bank Mobile.

Overall, based on our core deposit base and available sources of borrowed funds, management believes that Customers has adequate resources to meet its short-term and long-term cash requirements for the foreseeable future.

Effect of Government Monetary Policies

Our earnings are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve Board is to regulate the money supply and

interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect rates charged on loans or paid for deposits.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

The largest component of our net income is net interest income, and the majority of our financial instruments are interest rate sensitive assets and liabilities with various term structures and maturities. One of the primary objectives of management is to maximize net interest income while minimizing interest rate risk. Interest rate risk is derived from timing differences in the repricing of assets and liabilities, loan prepayments, deposit withdrawals, and differences in lending and funding rates. Our Asset/Liability Committee actively seeks to monitor and control the mix of interest rate sensitive assets and interest rate sensitive liabilities.

We use two complementary methods to analyze and measure interest rate sensitivity as part of the overall management of interest rate risk. They are income simulation modeling and estimates of economic value of equity. The combination of these two methods provides a reasonably comprehensive summary of the levels of interest rate risk of our exposure to time factors and changes in interest rate environments.

Income simulation modeling is used to measure our interest rate sensitivity and manage our interest rate risk. Income simulation ~~modeling~~ considers not only the impact of changing market interest rates upon forecasted net interest income, but also other factors such as yield curve relationships, the volume and mix of assets and liabilities, customer preferences and general market conditions.

Through the use of income simulation modeling, we have estimated the net interest income for the period ending June 30, ~~2017,~~2018, based upon the assets, liabilities and off-balance sheet financial instruments in existence at June 30, ~~2016.~~2017. We have also estimated changes to that estimated net interest income based upon interest rates rising or falling immediately (“rate shocks”). For upward rate shocks modeling a rising rate environment, current market interest rates were increased immediately by 100, 200, and 300 basis points. For downward rate shocks modeling a falling rate environment, current market rates were only decreased immediately by 100 basis points due to the limitations of the current low interest rate environment that renders the Down 200 and Down 300 rate shocks impractical. The following table reflects the estimated percentage change in estimated net interest income for the period ending June 30, ~~2016,~~2018, resulting from changes in interest rates.

Net change in net interest income



Rate Shocks	% Change
Up 3%	(~~5.0~~10.0	)%
Up 2%	~~0.1~~(4.1	)%
Up 1%	~~1.9~~(0.8	)%
Down 1%	(~~1.9~~3.5	)%

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

Economic ~~value~~Value of ~~equity~~Equity (“EVE”) estimates the discounted present value of asset and liability cash flows. Discount rates are based upon market prices for comparable assets and liabilities. Upward and downward rate shocks are used to measure volatility of EVE in relation to a constant rate environment. For upward rate shocks modeling a rising rate environment, current market interest rates were increased immediately by 100, 200, and 300 basis points. For downward rate shocks modeling a falling rate environment, current market rates were only decreased immediately by 100 basis points due to the limitations of the current low interest rate environment that renders the Down 200 and Down 300 rate shocks impractical. 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 30, ~~2016,~~2017, resulting from shocks to interest rates.



Rate Shocks	From base
Up 3%	(~~28.9~~32.8	)%
Up 2%	(~~14.6~~19.3	)%
Up 1%	(~~4.8~~8.3	)%
Down 1%	~~0.3~~3.2	%

~~The net changes in economic value of equity in all scenarios are within Customers Bank’s interest rate risk policy guidelines.~~

The matching of assets and liabilities may also be analyzed by examining the extent to which such assets and liabilities are interest rate sensitive and by monitoring a bank’s interest rate sensitivity “gap”. An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest earning assets maturing or repricing within a specific time period and the amount of interest bearing liabilities maturing or repricing within that time period.

The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 2016 that are anticipated, based upon certain assumptions, to reprice or mature in each of the future time periods shown. Except as stated below, the amount of assets and liabilities shown that reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at June 30, 2016 on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be repaid and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable and fixed rate loans, and as a result of contractual-rate adjustments on adjustable-rate loans.

Balance Sheet Gap Analysis at June 30, 2016
3 months
or less 3 to 6
months 6 to 12
months 1 to 3
years 3 to 5
years Over 5
years Total
(dollars in thousands)
Assets
Interest earning deposits and federal funds sold $ 256,029
$ —
$ —
$ —
$ —
$ —
$ 256,029
Investment securities 17,192
16,624
31,614
107,621
92,390
261,240
526,681
Loans (a) 3,458,510
180,724
272,124
1,790,130
2,438,204
232,623
8,372,315
Other interest-earning assets —
—
114,393
—
—
—
114,393
Total interest-earning assets 3,731,731
197,348
418,131
1,897,751
2,530,594
493,863
9,269,418
Non interest-earning assets —
—
—
—
—
380,201
380,201
Total assets 3,731,731
197,348
418,131
1,897,751
2,530,594
874,064
$ 9,649,619
Liabilities
Other interest-bearing deposits $ 217,245
$ 52,810
$ 100,642
$ 343,486
$ 2,559,151
$ —
$ 3,273,334
Time deposits 450,056
597,032
830,424
724,532
131,090
—
2,733,134
Other borrowings 1,622,900
10,000
125,000
210,000
—
—
1,967,900
Subordinated debt —
—
—
—
—
108,734
108,734
Total interest-bearing liabilities 2,290,201
659,842
1,056,066
1,278,018
2,690,241
108,734
8,083,102
Non-interest-bearing liabilities 31,182
29,941
56,353
184,734
403,273
159,663
865,146
Shareholders’ equity —
—
—
—
—
701,371
701,371
Total liabilities and shareholders’ equity 2,321,383
689,783
1,112,419
1,462,752
3,093,514
969,768
$ 9,649,619
Interest sensitivity gap $ 1,410,348
$ (492,435 ) $ (694,288 ) $ 434,999
$ (562,920 ) $ (95,704 ) —
Cumulative interest sensitivity gap $ 917,913
$ 223,625
$ 658,624
$ 95,704
$ —

Cumulative interest sensitivity gap to total assets 14.6 % 9.5 % 2.3 % 6.8 % 1.0 % 0.0 %
Cumulative interest-earning assets to cumulative interest-bearing liabilities 162.9 % 133.2 % 108.5 % 118.2 % 110.0 % 114.7 %

~~(a) Including loans held for sale~~

As shown above, we have a positive cumulative gap (cumulative interest sensitive assets are higher than cumulative interest sensitive liabilities) within the next year, which generally indicates that an increase in rates may lead to an increase in net interest income, and a decrease in rates may lead to a decrease in net interest income. Interest rate sensitivity gap analysis measures whether assets or liabilities may reprice but does not capture the ability to reprice or the range of potential repricing on assets or liabilities. Thus indications based on a negative or positive gap position need to be analyzed in conjunction with other interest rate risk management tools.

Management believes that the assumptions and combination of methods utilized in evaluating estimated net interest income are reasonable. However, the interest rate sensitivity of our assets, liabilities and off-balance sheet financial instruments, as well as the estimated effect of changes in interest rates on estimated net interest income, could vary substantially if different assumptions are used or actual experience differs from the assumptions used in the model.

Item 4. Controls and Procedures

As 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 at June 30, ~~2016.~~

2017.

During the quarter ended June 30, ~~2016,~~2017, 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.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to the legal proceedings disclosed within our ~~2015~~2016 Form ~~10-K.~~10-K, as supplemented and amended within our quarterly report on Form 10-Q for the quarter ended March 31, 2017.

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 ~~2015~~2016 Form ~~10-K.~~10-K and our quarterly report on Form 10-Q for the quarter ended March 31, 2017 ("the March 31, 2017 Quarterly Report"). There are no material changes from the risk factors included within the ~~2015~~2016 Form 10-K and March 31, 2017 Quarterly Report, other than the risks described below. The risks described within the ~~2015~~2016 Form 10-K, the March 31, 2017 Quarterly Report, 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.”

~~In connection~~We are subject to heightened regulatory requirements because our total assets exceed $10 billion.

At June 30, 2017, out total assets were $10.9 billion. The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies with ~~Customers’ acquisition~~$10 billion or more in total assets, including compliance with portions of the ~~Disbursement business, Customers is subject~~Federal Reserve’s enhanced prudential oversight requirements and annual stress testing requirements. In addition, banks with $10 billion or more in total assets are primarily examined by the Consumer Financial Protection Bureau (“CFPB”) with respect to ~~further substantial~~various federal and state governmental regulation related to the Disbursement business that could change and thus force us to make modifications to the Disbursement business. Compliance with the various complex laws and regulations is costly and time consuming, and failure to comply could have a material adverse effect on our business. Additionally, increased regulatory requirements on the Disbursement business may increase costs, which could materially and adversely affect our business,consumer financial ~~condition and/or operating results.~~

~~As a third party servicer under the Title IV regulations, we are directly or indirectly subject to a variety of federal and state~~protection laws and regulations. ~~Our contracts~~Previously, our bank was subject to regulations adopted by the CFPB, but the Federal Reserve was primarily responsible for examining our bank’s compliance with ~~most of our higher education institution clients require us to comply with applicable~~consumer protection laws and those CFPB regulations. As a relatively new agency with evolving regulations ~~including:~~and practices, there is uncertainty as to how the CFPB’s examination and regulatory authority might impact our business.

•~~Title IV of the Higher Education Act of 1965, or Title IV;~~

•~~the Family Educational Rights and Privacy Act of 1975, or FERPA;~~

•~~the USA PATRIOT Act and related anti-money laundering requirements; and~~

•~~certain federal rules regarding safeguarding personal information, including rules implementing the privacy~~

~~provisions of Gramm-Leach-Bliley Act of 1999, or GLBA.~~

~~Higher Education Regulations~~

~~Third-Party Servicer.~~ ~~Because of the services we provide to some institutions~~Compliance with regard to the handling of Title IV funds, we are considered a “third-party servicer” under the Title IV regulations. Those regulations require a third-party servicer annually to submit a compliance audit conducted by outside independent auditors that cover the servicer’s Title IV activities. Each year we must submit a “Compliance Attestation Examination of the Title IV Student Financial Assistance Programs” audit to the Department of Education (“ED”), which includes a report by an independent audit firm. This yearly compliance audit submission to ED provides comfort to our higher education institution clientsthese requirements may necessitate that we ~~are in~~hire additional compliance with the third-party servicer regulations that may apply to us. We also provide this compliance audit report to clients upon request to help them fulfill their compliance audit obligations as Title IV participating institutions.

~~Under ED’s regulations, a third party servicer that contracts with a Title IV institution acts in the nature~~or other personnel, design and implement additional internal controls, or incur other significant expenses, any of a fiduciary in the administration of Title IV programs. Among other requirements, the regulations provide that a third-party servicer is jointly and severally liable with its client institution for any liability to ED arising out of the servicer’s violation of Title IV or its implementing regulations, which could subject us to material fines related to acts or omissions of entities beyond our control. ED is also empowered to limit, suspend or terminate the violating servicer’s eligibility to act as a third-party servicer and to impose significant civil penalties on the violating servicer.

Additionally, on behalf of our higher education institution clients, we are required to comply with ED’s cash management regulations regarding payment of financial aid credit balances to students and providing bank accounts to students that may be used for receiving such payments. In the event ED concluded that we had violated Title IV or its implementing regulations and should be subject to one or more of these sanctions, our business and results of operations could be materially and adversely affected. There is limited enforcement and interpretive history of Title IV regulations.

On May 18, 2015, ED published its Notice of Proposed Rulemaking, or NPRM on program integrity and improvement issues. Final rules relating to Title IV Cash Management were published in the Federal Register on October 30, 2015. The Final Rules included, among others, provisions related to (i) restrictions on the ability of higher education institutions and third party servicers like us to market financial products to students including sending unsolicited debit cards to students, (ii) prohibitions on the assessment of certain types of account fees on student account holders and (iii) requirements related to ATM access for student account holders that became effective as of July 1, 2016. Although the complete impact of the Final Rules are unknown, there could be a significant negative impact on the Disbursement business and, in turn, Customers’ business.

~~FERPA.~~ Our higher education institution clients are subject to FERPA, which provides, with certain exceptions, that an educational institution that receives any federal funding under a program administered by ED may not have a policy or practice of disclosing education records or “personally identifiable information” from education records, other than directory information, to third parties without the student’s or parent’s written consent. Our higher education institution clients that use the Disbursement business services disclose to us certain non-directory information concerning their students, including contact information, student identification numbers and the amount of students’ credit balances. We believe that our higher education institution clients may disclose this information to us without the students’ or their parents’ consent pursuant to one or more exceptions under FERPA. However, if ED asserts that we do not fall into one of these exceptions or if future changes to legislation or regulations require student consent before our higher education institution clients can disclose this information to us, a sizable number of students may cease using our products and services, which could materially and adversely affect our business, financial condition and results of operations.

Additionally, as we are indirectly subject to FERPA, we may not permit the transfer of any personally identifiable information to another party other than in a manner in which a higher education institution may disclose it. In the event that we re-disclose student information in violation of this requirement, FERPA requires our clients to suspend our access to any such information for a period of five years. Any such suspension could have a material adverse effect on our business, financial condition and results of operations

~~State Laws.~~ We may also be subject to similar state laws and regulations, including those that restrict higher education institutions from disclosing certain personally identifiable information of students. State attorneys general and other enforcement agencies may monitor our compliance with state and federal laws and regulations that affect our business, including those pertaining to higher education and banking, and conduct investigations of our business that are time consuming and expensive and could result in fines and penalties that have a material adverse effect on our business, financial condition and results of operations.

~~Additionally, individual state legislatures may propose and enact new laws that restrict or otherwise affect our ability to offer our products and services as we currently do,~~ which could have a material adverse effect on our business, financial condition ~~and~~or results of operations. ~~For example, the legislation has been introduced in the State of Oregon which may further regulate the disbursement of financial aid refunds and associated financial products and services.~~

~~In connection~~Compliance with the ~~Disbursement business, we depend on our relationship with higher education institutions and, in turn, student usage~~annual stress testing requirements, part of ~~our products and services for future growth of our business.~~

~~Our future growth depends, in part, on our ability to enter into agreements with higher education institutions. Our contracts with these clients can generally~~which must be ~~terminated at will and, therefore, there can be no assurance that we will be able to maintain these clients. We~~publicly disclosed, may also be unable to maintain our agreements with these clients on terms and conditions acceptable to us. In addition, we may not be able to continue to establish new relationships with higher education institution clients. The termination of our current client contractsmisinterpreted by the market generally or our ~~inability to continue to attract new clients could have a material adverse effect on our business, financial condition and results of operations.~~

~~Establishing new client relationships and maintaining current ones are also essential components of our strategy for attracting new student~~ customers deepening the relationship we have with existing customers and maximizing customer usage of our products and services. A reduction in enrollment, a failure to attract and maintain student customers, as well as any future demographic or other trends that reduce the number of higher education students could materially and adversely affect our capability for both revenue and cash generation and, as a result, ~~could have a material adverse effect on our business, financial condition and results of operations.~~

~~Our Disbursement business depends on the current government financial aid regime that relies on the outsourcing of financial aid disbursements through higher education institutions.~~

In general, the U.S. federal government distributes financial aid to students through higher education institutions as intermediaries. Our Disbursement business provides our higher education institution clients an electronic system for improving the administrative efficiency of this refund disbursement process. If the government, through legislation or regulatory action, restructures the existing financial aid regime in such a way that reduces or eliminates the intermediary role played by financial institutions serving higher education institutions or limits or regulates the role played by service providers such as us, our business, results of operations and prospects for future growth could be materially and adversely affected.

~~A change in the availability of financial aid, as well as U.S. budget constraints, could materially and~~may adversely affect our ~~financial performance by reducing demand for our services.~~

The higher education industry depends heavily upon the ability of students to obtain financial aid. As part of our contracts with our higher education institution clients that use our Disbursement business services, students’ financial aid and other refunds are sent to us for disbursement. The fees that we charge most of our Disbursement business higher education institution clients are based on the number of financial aid disbursements that we make to students. In addition, our relationships with Disbursement business higher education institution clients provide us with a market for BankMobile. Consequently, a change in the availabilitystock price or ~~amount of financial aid that restricted client use of our Disbursement business service or otherwise limited~~ our ability to ~~attract~~retain our customers or effectively compete for new ~~higher education institution clients could materially and adversely affect~~business opportunities. To ensure compliance with these heightened requirements when effective, our financial performance. Also, decreases in the amount of financial aid disbursements from higher education institutions to students could materially and adversely affect our financial performance. Future legislative and executive branch efforts to reduce the U.S. federal budget deficit or worsening economic conditionsregulators may require ~~the government~~us to ~~severely curtail its financial aid spending, which could materially and adversely affect our business, financial condition and results of operations.~~

~~Providing disbursement services~~fully comply with these requirements or take actions to ~~higher education institutions is an uncertain business; if the market~~prepare for ~~our products does not continue~~compliance even before we are obligated to ~~develop,~~do so. As a result, we ~~will not~~may incur compliance-related costs before we might otherwise be ~~able to grow this portion of our business.~~

The success of our Disbursement business will depend, in part, on our ability to generate revenues by providing financial transaction services to higher education institutions and their students. The market for these services has evolved and the long-term viability and profitability of this market is unproven. Our business will be materially and adversely affectedrequired, including if we do not ~~develop and market products and services that achieve and maintain market acceptance. Outsourcing disbursement services may not become as widespread in~~continue to grow at the higher education industry as we anticipate, and our products and services may not achieve continued commercial success. In addition, higher education institution clients could discontinue using our services and return to in-house disbursement solutions. If outsourcing disbursement services does not become as widespread as we anticipate or if higher education institution clients return to their prior methods of disbursement, our growth prospects, business, financial condition and results of operations could be materially and adversely affected.

~~Our business will suffer if we fail to successfully integrate the Disbursement businesses and technologies or to appropriately assess the risks associated with that transaction.~~

The successful integration of the Disbursement business, or any business, technology, service, product line or other asset that we may acquire in the future, on a cost-effective basis, may be critical to our future performance. There are a number of risks and uncertainties associated with such integration, including: we may not be able to achieve expected synergies and operating efficiencies regarding the Disbursement business acquisition within the expected time-frames or at all and to successfully integrate the Disbursement business operations; such integration may be more difficult, time-consuming or costly than expected; we may not be successful in converting new clients gained through the acquisition to our own; revenues following the transaction may be lower than expected; operating costs, client and customer loss and business disruption (including, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the acquisition; we may have difficulty retaining certain key employees in the acquired Disbursement business; we may be subject to legal proceedings that may be instituted against the parties and others related to the acquisition agreement; and the amount of the costs, fees, expenses and charges related to the acquisition may be greater than anticipated. If we do not successfully integrate the Disbursement business, or if the benefits of this transaction do not meet the expectations of financial or industry analysts, the market price of our common stock may decline. Even if we successfully integrate the Disbursement business, we may incur substantial expenses and devote significant management time and resources in seeking to complete the

~~integration and the acquired Disbursement business may not perform as~~rate we expect or ~~enhance the value of~~at all. Our regulators may also consider our ~~business as a whole.~~preparation for compliance with these regulatory requirements when examining our operations generally or considering any request for regulatory approval we may make, even requests for approvals on unrelated matters.

~~Our business and future success may suffer if~~If we are unable to ~~successfully implement our strategy to combine~~complete the ~~Disbursement business with BankMobile.~~

~~A significant component~~sale of ~~our growth strategy is dependent on our ability to have students of our higher education institution clients select~~ BankMobile, during the refund disbursement selection process and to convert those student BankMobile customers, along with the existing student customers we acquired through the Disbursement business acquisition, into lifetime customers with BankMobile as their primary banking relationship. In particular, our growth strategy depends on our ability to successfully cross-sell our core banking products and services to these student customers after they graduate from college. We may not be successful in implementing this strategy because these student customers and potential student customers may believe our products and services unnecessary or unattractive. Our failure to sell our products and services to students after they graduate and to attract new student customers could have a material adverse effect on our prospects, business, financial condition and results of operations.

~~If the integration of the Disbursement business disrupts our business operations and prevents us from realizing intended benefits, our business may be harmed.~~

The integration of the Disbursement business may disrupt the operation of our business and prevent us from realizing the intended benefits of the Disbursement business as a result of a number of obstacles, such as the loss of key employees, customers or business partners, the failure to adjust or implement our business strategies, additional expenditures required to facilitate the integration and the diversion of management’s attention from our day-to-day operations.

Breaches of security measures, unauthorized access to or disclosure of data relating to our higher education institution clients or student BankMobile account holders, computer viruses or unauthorized software (malware), fraudulent activity, and infrastructure failures could materially and adversely affect our reputation or harm our business.

Companies that process and transmit cardholder information have been specifically and increasingly targeted by sophisticated criminal organizations in an effort to obtain the information and utilize it for fraudulent transactions. The encryption software and the other technologies we use to provide security for storage, processing and transmission of confidential customer and other information may not be effective to protect against data security breaches. The risk of unauthorized circumvention of our security measures has been heightened by advances in computer capabilities and the increasing sophistication of hackers.

Unauthorized access to our computer systems, or those of our third-party service providers, could result in the theft or publication of the information or the deletion or modification of sensitive records, and could cause interruptions in our operations. Any inability to prevent security breaches could damage our relationships with our higher eduction institution customers, cause a decrease in transactions by individual cardholders, expose us to liability for unauthorized purchases, and subject us to network fines. These claims also could result in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business practices. Further, a significant data security breach could lead to additional regulation, which could impose new and costly compliance obligations. Any material increase in our costs resulting from litigation or additional regulatory burdens being imposed upon us or litigation could have a material adverse effect on our operating revenues and profitability.

In addition, our higher education institution clients and student BankMobile account holders disclose to us certain “personally identifiable” information, including student contact information, identification numbers and the amount of credit balances, which they expect we will maintain in confidence. It is possible that hackers, customers or employees acting unlawfully or contrary to our policies, or other individuals, could improperly access our or our vendors’ systems and obtain or disclose data about our customers. Further, because customer data may also be collected, stored, or processed by third-party vendors, it is possible that these vendors could intentionally, negligently or otherwise disclose data about our clients or customers.

We rely to a large extent upon sophisticated information technology systems, databases, and infrastructure, and take reasonable steps to protect them. However, due to their size, complexity, content and integration with or reliance on third-party systems they are vulnerable to breakdown, malicious intrusion, natural disaster and random attack, all of which pose a risk of exposure of sensitive data to unauthorized persons or to the public.

A cybersecurity breach of our information systems could lead to fraudulent activity such as identity theft, losses on the part of our banking customers, additional security costs, negative publicity and damage to our reputation and brand. In addition, our customers could be subject to scams that may result in the release of sufficient information concerning themselves or their accounts to allow others unauthorized access to their accounts or our systems (e.g., “phishing” and “smishing”). Claims for

compensatory or other damages may be brought against us as a result of a breach of our systems or fraudulent activity. If we are unsuccessful in defending against any resulting claims against us, we may be forced to pay damages, which could materially and adversely affect our financial condition and results of operations.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

Further, computer viruses or malware could infiltrate our systems, thus disrupting our delivery of services and making our applications unavailable. Although we utilize several preventative and detective security controls in our network, they may be ineffective in preventing computer viruses or malware that could damage our relationships with our merchant customers, cause a decrease in transactions by individual cardholders, or cause us to be in non-compliance with applicable network rules and regulations.

In addition, a significant incident of fraud or an increase in fraud levels generally involving our products could result in reputational damage to us, which could reduce the use of our products and services. Such incidents could also lead to a large financial loss as a result of the protection for unauthorized purchases we provide to BankMobile customers given that we may be liable for any uncollectible account holder overdrafts and any other losses due to fraud or theft. Such incidents of fraud could also lead to regulatory intervention, which could increase our compliance costs. Compliance with the various complex laws and regulations is costly and time consuming, and failure to comply could have a material adverse effect on our business. Additionally, increased regulatory requirements on our services may increase our costs, which could materially and adversely affect our business, financial condition and results of operations. Accordingly, account data breaches and related fraudulent activity could have a material adverse effect on our future growth prospects, business, financial condition and results of operations.

A disruption to our systems or infrastructure could damage our reputation, expose us to legal liability, cause us to lose customers and revenue, result in the unintentional disclosure of confidential information or require us to expend significant efforts and resources or incur significant expense to eliminate these problems and address related data and security concerns. The harm to our business could be even greater if such an event occurs during a period of disproportionately heavy demand for our products or services or traffic on our systems or networks.

~~Termination of, or changes to, the MasterCard association registration could materially and adversely affect our business, financial condition and results of operations.~~

The student checking account debit cards issued in connection with the Disbursement business are subject to MasterCard association rules that could subject us to a variety of fines or penalties that may be levied by MasterCard for acts or omissions by us or businesses that work with us. The termination of the card association registration held by us or any changes in card association or other network rules or standards, including interpretation and implementation of existing rules or standards, that increase the cost of doing business or limit our ability to provide our products and services could materially and adversely affect our business, financial condition and results of operations.

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

The effective use of technology can increase efficiency and enable financial institutions to better serve customers and to reduce costs. However, some new technologies, including BankMobile, are not fully tested and we may incur substantial expenses and devote significant management time and resources in order for BankMobile to compete effectively. Revenue generated from BankMobile’s no fee or very low fee banking strategy may not perform as well as we expect or enhance the value of our business as a whole and it could materially and adversely affect our financial condition and results of operations. Additionally, if the benefits of BankMobile do not meet the expectations of financial or industry analysts, the market price of our common stock may decline.

~~We face a number of risks relating to our future plans with respect to BankMobile.~~

~~We have indicated that we intend to sell or otherwise dispose of the BankMobile business,~~ including the Disbursement business within the next two years, depending upon market conditions and opportunities. Our announcement of this intention and steps we take to implement a disposition may adversely affect our business and the value of Customers Bancorp and/or BankMobile. Uncertainty as to the timing, form and terms of any disposition transaction may adversely affect analyst and

shareholder views as to the value of the BankMobile business, which could adversely affect our share price. In addition, these uncertainties may adversely impact our relationships with our current and potential higher education institutions customers and our BankMobile employees, and could result in the loss of customers and key employees. Our consideration and pursuit of various alternative disposition strategies and opportunities also may result in the diversion of management’s attention from the integration of the Disbursement business into BankMobile and our day-to-day operations generally. Market conditions, regulatory and legal conditions, BankMobile’s performance and other factors, some of which are not in our control, may limit our disposition alternatives, prevent us from completing a transaction on terms that we believe are favorable to Customers and our shareholders, or otherwise reduce the value we and our shareholders receive as a result of a disposition. Expenses we incur to consider alternatives and pursue and complete a transaction could be significant and may not yield a discernible benefit if we do not complete a transaction on favorable terms or at all.

~~Our business and future success may suffer if we are unable to remain under~~total assets exceed $10 billion ~~in total assets~~ as of December 31, ~~of each year before we sell or otherwise dispose of the BankMobile~~2017, our business ~~including the Disbursement business.~~

and potential for future success could be materially adversely affected.

Under federal law and regulation, ~~we must remain under~~if our total assets exceed $10 billion ~~in total assets~~ as of December 31, ~~of each year to~~2017, we will no longer qualify as a small issuer of debit cards and we will not receive the optimal debit card processing fee. Failure to qualify for the small issuer exception would result in a significant reduction in interchange fee income beginning July 1, 2018 and ~~would mean we would operate~~could result in the BankMobile segment operating unprofitably or charging additional fees ~~would need to be charged~~ to students to replace the lost revenue. To optimize the value of the Customers franchise to shareholders, we have stated our intention to sell ~~or otherwise dispose of the BankMobile business, including the Disbursements business, before crossing the $10 billion total asset threshold.~~BankMobile. Market conditions, regulatory and legal conditions, BankMobile’s performance and other factors, some of which are not in our control, may limit, delay or prevent ~~our disposition plans, and prevent~~ us from ~~remaining under the $10 billion total asset threshold before~~completing the planned ~~disposition.~~disposition by July 1, 2018. Accordingly, this could materially and adversely affect our financial condition and results of operations.

The fair value of our investment securities can fluctuate due to market conditions. Adverse economic performance can lead to adverse security performance and other-than-temporary impairment.

As of June 30, 2017, the fair value of our investment securities portfolio was $1.0 billion. We have historically followed a conservative investment strategy, with concentrations in securities that are backed by government sponsored enterprises. In the

future, we may seek to increase yields through more aggressive strategies, which may include a greater percentage of corporate securities, structured credit products or non-agency mortgage backed securities. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest rates and continued instability in the capital markets. Any of these factors, among others, such as a change in management's intent to hold the securities until recovery in fair value, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could have a material adverse effect on us. The process for determining whether impairment of a security is other-than-temporary usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

As of June 30, 2017, management evaluated its equity holdings issued by Religare Enterprises Limited (or Religare) for other-than-temporary impairment. Because management no longer has the intent to hold these securities until a recovery in fair value, Customers recorded other-than-temporary impairment losses of $2.9 million in second quarter 2017, $1.7 million in first quarter 2017, and $7.3 million in fourth quarter 2016 for the full amount of the decline in fair value below the cost basis. The fair value of the equity securities at June 30, 2017 of $10.7 million became the new cost basis of the securities.

We may suffer losses due to minority investments in other financial institutions or related companies.

From time to time, we may make or consider making minority investments in other financial institutions or technology companies in the financial services business. If we do so, we may not be able to influence the activities of companies in which we invest, and may suffer losses due to these activities. Investments in foreign companies could pose additional risks as a result of distance, language barriers and potential lack of information (for example, foreign institutions, including foreign financial institutions, may not be obligated to provide as much information regarding their operations as those in the United States). Our investment in Religare, which is a diversified financial services company in India, represents such an investment. In fourth quarter 2016, we announced our decision to exit our investment in Religare. As a result of that decision, we recorded an other-than-temporary impairment loss of $7.3 million in earnings in fourth quarter 2016 and adjusted our cost basis of the Religare securities to their estimated fair value of $15.2 million at December 31, 2016. In first quarter 2017, we recognized an other-than-temporary impairment loss of $1.7 million and adjusted our cost basis of the Religare securities to their estimated fair value of $13.5 million at March 31, 2017. In second quarter 2017, we recognized an other-than-temporary impairment loss of $2.9 million and adjusted our cost basis of the Religare securities to their estimated fair value of $10.7 million at June 30, 2017. To the extent we are unable to exit the Religare investment as planned, and pursuant to the terms contemplated, further declines in the market price per share of the Religare common stock and adverse changes in foreign currency exchange rates, may have an adverse effect on our financial condition and results of operations.

We are required to hold capital for United States bank regulatory purposes to support our investment in Religare securities.

Under the newly adopted U.S. capital adequacy rules, which became effective as of January 1, 2015, we have to hold risk based capital based on the amount of Religare common stock we own. Based upon the implementation of the final U.S. capital adequacy rules, these investments are currently subject to risk weighting of 100% of the amount of the investment; however, to the extent future aggregated carrying value of certain equity exposures exceed 10% of the Bancorp's then total capital, risk weightings of 300% may apply. Any capital that is required to be used to support our Religare investment will not be available to support our United States operations or Customers Bank, if needed.

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

On November 26, 2013, Customers announced that the Board of Directors had authorized a stock repurchase plan in which the Bancorp could acquire up to 5% of its current outstanding shares at prices not to exceed a 20% premium over the then current book value. The repurchase program has no expiration date but may be suspended, modified or discontinued at any time, and the Bancorp has no obligation to repurchase any amount of its common stock under the program.

During the three and six months ended June 30, ~~2016,~~2017, Customers did not repurchase any of its shares. The maximum number of shares available to be purchased under the plan is 750,551 shares.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit No.		Description

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

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

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

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

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

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

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 8-K filed with the SEC on July 31, 2013

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

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

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

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

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

~~10.1~~4.7		~~Transition Services Agreement dated as~~Form of ~~June 15, 2016~~Warrant issued by ~~and among Customers~~Berkshire Bancorp, ~~Customers Bank, Higher One, Inc. and Higher One Holdings,~~ Inc., incorporated by reference to Exhibit ~~10.1~~10.23 to the Customers ~~Bancorp’s~~Bancorp Form ~~8-K~~S-1/A filed with the SEC on ~~June 16, 2016.~~April 25, 2012.

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

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

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

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

101		The Exhibits filed as part of this report are as follows:

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.




101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.



101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Customers Bancorp, Inc.

August ~~5, 2016~~4, 2017	By:	/s/ Jay S. Sidhu
	Name:	Jay S. Sidhu
	Title:	Chairman and Chief Executive Officer (Principal Executive Officer)



August ~~5, 2016~~4, 2017	By:	/s/ Robert E. Wahlman
	Name:	Robert E. Wahlman
	Title:	Chief Financial Officer (Principal Financial Officer)

Exhibit Index



Exhibit No.		Description

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

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

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

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

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

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

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 8-K filed with the SEC on July 31, 2013

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

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

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

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

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

~~10.1~~4.7		~~Transition Services Agreement dated as~~Form of ~~June 15, 2016~~Warrant issued by ~~and among Customers~~Berkshire Bancorp, ~~Customers Bank, Higher One, Inc. and Higher One Holdings,~~ Inc., incorporated by reference to Exhibit ~~10.1~~10.23 to the Customers ~~Bancorp’s~~Bancorp Form ~~8-K~~S-1/A filed with the SEC on ~~June 16, 2016.~~April 25, 2012.

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

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

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

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

101		The Exhibits filed as part of this report are as follows:

101.INS		XBRL Instance Document.



101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.




101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document.

8786



	Number of Options		Weighted- average Exercise Price		Weighted- average Remaining Contractual Term in Years	Aggregate Intrinsic Value
(amounts in thousands, except weighted-average exercise price)
Outstanding at December 31, 2015	3,731,761		$	14.33
Granted	20,000		25.18
Exercised	(40,669	)	10.32			$	565
Forfeited	(275	)	18.19
Outstanding at June 30, 2016	3,710,817		$	14.44	6.32	$	39,696
Exercisable at June 30, 2016	896,061		$	9.58	4.06	$	13,935



	Restricted Stock Units		Weighted- average Grant- date Fair Value
Outstanding and unvested at December 31, 2015	873,264		$	14.24
Granted	247,285		23.85
Vested	(97,664	)	14.82
Forfeited	(623	)	21.18
Outstanding and unvested at June 30, 2016	1,022,262		$	16.51



	Three Months Ended June 30, 2016
	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) (1)			Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
(amounts in thousands)
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	(508	)	Interest expense	$	(603	)



Balance Sheet Gap Analysis at June 30, 2016
	3 months or less			3 to 6 months			6 to 12 months			1 to 3 years			3 to 5 years			Over 5 years			Total
	(dollars in thousands)
Assets
Interest earning deposits and federal funds sold	$	256,029		$	—		$	—		$	—		$	—		$	—		$	256,029
Investment securities	17,192			16,624			31,614			107,621			92,390			261,240			526,681
Loans (a)	3,458,510			180,724			272,124			1,790,130			2,438,204			232,623			8,372,315
Other interest-earning assets	—			—			114,393			—			—			—			114,393
Total interest-earning assets	3,731,731			197,348			418,131			1,897,751			2,530,594			493,863			9,269,418
Non interest-earning assets	—			—			—			—			—			380,201			380,201
Total assets	3,731,731			197,348			418,131			1,897,751			2,530,594			874,064			$	9,649,619
Liabilities
Other interest-bearing deposits	$	217,245		$	52,810		$	100,642		$	343,486		$	2,559,151		$	—		$	3,273,334
Time deposits	450,056			597,032			830,424			724,532			131,090			—			2,733,134
Other borrowings	1,622,900			10,000			125,000			210,000			—			—			1,967,900
Subordinated debt	—			—			—			—			—			108,734			108,734
Total interest-bearing liabilities	2,290,201			659,842			1,056,066			1,278,018			2,690,241			108,734			8,083,102
Non-interest-bearing liabilities	31,182			29,941			56,353			184,734			403,273			159,663			865,146
Shareholders’ equity	—			—			—			—			—			701,371			701,371
Total liabilities and shareholders’ equity	2,321,383			689,783			1,112,419			1,462,752			3,093,514			969,768			$	9,649,619
Interest sensitivity gap	$	1,410,348		$	(492,435	)	$	(694,288	)	$	434,999		$	(562,920	)	$	(95,704	)	—
Cumulative interest sensitivity gap				$	917,913		$	223,625		$	658,624		$	95,704		$	—
Cumulative interest sensitivity gap to total assets	14.6		%	9.5		%	2.3		%	6.8		%	1.0		%	0.0		%
Cumulative interest-earning assets to cumulative interest-bearing liabilities	162.9		%	133.2		%	108.5		%	118.2		%	110.0		%	114.7		%