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 September 30, 2017~~


			For the quarterly period ended September 30, 2020


¨☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			For the transition period from to .

~~For the transition period from~~ to .

001-35542

(Commission File number)

(Exact name of registrant as specified in its charter)



~~Pennsylvania~~Customers Bancorp, Inc.

~~27-2290659~~

Pennsylvania

27-2290659

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

~~1015 Penn~~701 Reading Avenue

~~Suite 103~~

~~Wyomissing~~West Reading PA ~~19610~~19611

(Address of principal executive offices)

(610) 933-2000

(Registrant’s telephone number, including area code)

N/A

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

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

Title of Each Class

Trading Symbols

Name of Each Exchange on which Registered

Voting Common Stock, par value $1.00 per share

CUBI

New York Stock Exchange

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

CUBI/PC

New York Stock Exchange

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

CUBI/PD

New York Stock Exchange

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

CUBI/PE

New York Stock Exchange

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

CUBI/PF

New York Stock Exchange

5.375% Subordinated Notes due 2034

CUBB

New York Stock Exchange

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

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ¨

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

☐

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~

o ~~(Do not check if a smaller reporting company)~~

~~Smaller Reporting Company~~

Emerging Growth Company

¨☐

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

¨o

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 October ~~31, 2017, 30,806,122~~30, 2020, 31,601,311 shares of Voting Common Stock were outstanding.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Table of Contents


Part I

~~Part I~~

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of September 30, ~~2017~~2020 and for the three and nine month periods ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)		35

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		5154

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		7784


Item 4.	Controls and Procedures		7886

PART II

Item 1.		Legal Proceedings		7987

Item 1A.		Risk Factors		7987

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		8188

Item 3.		Defaults Upon Senior Securities		8188

Item 4.		Mine Safety Disclosures		8189

Item 5.		Other Information		8189

Item 6.		Exhibits		8290

SIGNATURES				8492

Ex-31.1

Ex-31.2

Ex-32.1

Ex-32.2

Ex-101

Table of Contents

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

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


2004 Plan			2012 Amendment and Restatement of the Customers Bancorp, Inc. Amended and Restated 2004 Incentive Equity and Deferred Compensation Plan
2010 Plan			2010 Stock Option Plan
2019 Plan			2019 Stock Incentive Plan
ACL			Allowance for credit losses
ASC			Accounting Standards Codification
ALLL			Allowance for loan and lease losses
AOCI			Accumulated other comprehensive income
ASU			Accounting Standards Update
ATM			Automated teller machine
Bancorp			Customers Bancorp, Inc.
Bank			Customers Bank
BBB spread			BBB rated corporate bond spreads to U.S. Treasury securities
BHCA			Bank Holding Company Act of 1956, as amended
BMT			BankMobile Technologies, Inc.
BM Technologies			BM Technologies, Inc.
BOLI			Bank-owned life insurance
BRRP			Bonus Recognition and Retention Program
CARES Act			Coronavirus Aid, Relief and Economic Security Act
CCF			Customers Commercial Finance, LLC
CECL			Current expected credit loss
CEO			Chief Executive Officer
CFO			Chief Financial Officer
CFPB			Consumer Financial Protection Bureau
COSO			Committee of Sponsoring Organizations of the Treadway Commission
COVID-19			Coronavirus Disease 2019
CRA			Community Reinvestment Act
CPI			Consumer Price Index
CUBI			Symbol for Customers Bancorp, Inc. common stock traded on the NYSE
Customers			Customers Bancorp, Inc. and Customers Bank, collectively
Customers Bancorp			Customers Bancorp, Inc.
Department			Pennsylvania Department of Banking and Securities
DCF			Discounted cash flow
DIF			Deposit Insurance Fund
Dodd-Frank Act			Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
ED			United States Department of Education
EGRRCPA			The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018
EPS			Earnings per share
ESPP			Employee Stock Purchase Plan
EVE			Economic value of equity
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
FDICIA			Federal Deposit Insurance Corporation Improvement Act of 1991
Federal Reserve Board			Board of Governors of the Federal Reserve System
FERPA			Family Educational Rights and Privacy Act of 1975
FHA			Federal Housing Administration
FHLB			Federal Home Loan Bank

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

Table of Contents


HTM			Held to maturity
Interest-only GNMA securities			Interest-only classes of Ginnie Mae guaranteed home equity conversation mortgage-backed securities
IRS			Internal Revenue Service
Legacy Loans			Total 2009 and prior loans
LIBOR			London Interbank Offered Rate
LIHTC			Low-Income Housing Tax Credit
LPO			Limited Purpose Office
MFAC			Megalith Financial Acquisition Corp.
MMDA			Money market deposit accounts
NIM			Net interest margin, tax equivalent
NM			Not meaningful
Non-QM			Non-qualified mortgage
NPA			Non-performing asset
NPL			Non-performing loan
NPRM			Notice of Proposed Rulemaking
NYSE			New York Stock Exchange
OCC			Office of the Comptroller of the Currency
OCI			Other comprehensive income
OFAC			Office of Foreign Assets Control
OIS			Overnight index swap
Order			Federal Deposit Insurance Act, as amended
OREO			Other real estate owned
OTTI			Other-than-temporary impairment
PATRIOT Act			Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
PCAOB			Public Accounting Oversight Board (United States)
PCD			Purchased with Credit Deterioration
PCI			Purchased Credit-Impaired
PPP			Paycheck Protection Program
PPPLF			FRB Paycheck Protection Program Liquidity Facility
ROU			Right-of-use
SAB			Staff Accounting Bulletin
SAG			Special Assets Group
Sales Agreement			At Market Issuance Sales Agreement between Customers Bancorp and FBR Capital Markets & Co., Keefe, Bruyette & Woods, Inc. and Maxim Group LLC
SBA			Small Business Administration
SBA loans			Loans originated pursuant to the rules and regulations of the SBA
SEC			U.S. Securities and Exchange Commission








TDR			Troubled debt restructuring
TRAC			Terminal Rental Adjustment Clause

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

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

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


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

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

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

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


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

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

September 30,
2017 December 31,
2016
ASSETS
Cash and due from banks $ 13,318
$ 37,485
Interest-earning deposits 206,162
227,224
Cash and cash equivalents 219,480
264,709
Investment securities available for sale, at fair value 584,823
493,474
Loans held for sale (includes $1,963,076 and $2,117,510, respectively, at fair value) 2,113,293
2,117,510
Loans receivable 7,061,338
6,154,637
Allowance for loan losses (38,314 ) (37,315 )
Total loans receivable, net of allowance for loan losses 7,023,024
6,117,322
FHLB, Federal Reserve Bank, and other restricted stock 98,611
68,408
Accrued interest receivable 27,135
23,690
Bank premises and equipment, net 12,369
12,769
Bank-owned life insurance 255,683
161,494
Other real estate owned 1,059
3,108
Goodwill and other intangibles 16,604
17,621
Other assets 119,748
102,631
Total assets $ 10,471,829
$ 9,382,736
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 1,427,304
$ 966,058
Interest-bearing 6,169,772
6,337,717
Total deposits 7,597,076
7,303,775
Federal funds purchased 147,000
83,000
FHLB advances 1,462,343
868,800
Other borrowings 186,258
87,123
Subordinated debt 108,856
108,783
Accrued interest payable and other liabilities 59,654
75,383
Total liabilities 9,561,187
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 September 30, 2017 and December 31, 2016 217,471
217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 31,317,892 and 30,820,177 shares issued as of September 30, 2017 and December 31, 2016; 30,787,632 and 30,289,917 shares outstanding as of September 30, 2017 and December 31, 2016 31,318
30,820
Additional paid in capital 429,633
427,008
Retained earnings 240,076
193,698
Accumulated other comprehensive income (loss), net 377
(4,892 )
Treasury stock, at cost (530,260 shares as of September 30, 2017 and December 31, 2016) (8,233 ) (8,233 )
Total shareholders’ equity 910,642
855,872
Total liabilities and shareholders’ equity $ 10,471,829
$ 9,382,736

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) — UNAUDITED

(amounts in thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,				Nine Months Ended September 30,
	2017			2016			2017			2016			2020		2019		2020		2019
Interest income:												Interest income:
Loans receivable	$	67,107		$	60,362		$	195,605		$	173,847
Loans held for sale	21,633			18,737			53,103			50,272
Loans and leases												Loans and leases	$	132,107	$	118,444	$	366,634	$	315,126

Investment securities	7,307			3,528			21,017			10,875		Investment securities	6,297		5,867		17,429		18,589
Other	2,238			1,585			5,507			3,937		Other	1,246		2,407		6,149		6,030
Total interest income	98,285			84,212			275,232			238,931		Total interest income	139,650		126,718		390,212		339,745
Interest expense:												Interest expense:
Deposits	18,381			13,009			48,934			34,365		Deposits	18,347		38,267		75,939		105,472
Other borrowings	3,168			1,642			6,767			4,867
FHLB advances	7,032			3,291			15,433			9,274		FHLB advances	5,762		7,563		15,889		20,463
Subordinated debt	1,685			1,685			5,055			5,055		Subordinated debt	2,689		1,684		8,066		5,053
FRB PPP liquidity facility, federal funds purchased and other borrowings												FRB PPP liquidity facility, federal funds purchased and other borrowings	5,413		3,469		9,576		9,039
Total interest expense	30,266			19,627			76,189			53,561		Total interest expense	32,211		50,983		109,470		140,027
Net interest income	68,019			64,585			199,043			185,370		Net interest income	107,439		75,735		280,742		199,718
Provision for loan losses	2,352			88			5,937			2,854
Net interest income after provision for loan losses	65,667			64,497			193,106			182,516
Provision for credit losses on loans and leases												Provision for credit losses on loans and leases	12,955		4,426		65,688		14,539
Net interest income after provision for credit losses on loans and leases												Net interest income after provision for credit losses on loans and leases	94,484		71,309		215,054		185,179
Non-interest income:												Non-interest income:

Interchange and card revenue	9,570			11,547			31,729			13,806		Interchange and card revenue	4,081		6,869		17,368		22,435

Deposit fees												Deposit fees	3,439		3,642		10,221		9,199
Commercial lease income												Commercial lease income	4,510		3,080		13,286		8,212
Bank-owned life insurance												Bank-owned life insurance	1,746		1,824		5,265		5,477
Mortgage warehouse transactional fees												Mortgage warehouse transactional fees	3,320		2,150		7,854		5,145
Gain (loss) on sale of SBA and other loans												Gain (loss) on sale of SBA and other loans	286		0		320		0
Mortgage banking income												Mortgage banking income	1,013		283		1,347		701
Loss upon acquisition of interest-only GNMA securities												Loss upon acquisition of interest-only GNMA securities	0		0		0		(7,476)

Gain (loss) on sale of investment securities	5,349			(1		)	8,532			25		Gain (loss) on sale of investment securities	11,707		1,001		20,035		1,001
Deposit fees	2,659			4,218			7,918			5,260
Mortgage warehouse transactional fees	2,396			3,080			7,139			8,702
Bank-owned life insurance	1,672			1,386			5,297			3,629
Gain on sale of SBA and other loans	1,144			1,206			3,045			2,135
Mortgage banking income	257			287			703			737
Impairment loss on investment securities	(8,349		)	—			(12,934		)	—
Unrealized gain (loss) on investment securities												Unrealized gain (loss) on investment securities	238		1,333		60		988
Other	3,328			5,763			7,741			6,943		Other	3,453		3,187		2,203		9,443
Total non-interest income	18,026			27,486			59,170			41,237		Total non-interest income	33,793		23,369		77,959		55,125
Non-interest expense:												Non-interest expense:
Salaries and employee benefits	24,807			22,681			69,569			58,051		Salaries and employee benefits	32,676		27,193		92,283		79,936
Technology, communication and bank operations	14,401			12,525			33,227			19,021		Technology, communication and bank operations	13,215		8,755		39,576		33,110
Professional services	7,403			7,006			21,142			13,213		Professional services	7,253		8,348		19,476		18,639
Occupancy	2,857			2,450			8,228			7,248		Occupancy	3,632		3,661		9,689		9,628
FDIC assessments, taxes, and regulatory fees	2,475			2,726			6,615			11,191
Commercial lease depreciation												Commercial lease depreciation	3,663		2,459		10,733		6,633
FDIC assessments, non-income taxes, and regulatory fees												FDIC assessments, non-income taxes, and regulatory fees	3,784		(777)		9,019		3,368
Provision for operating losses	1,509			1,406			4,901			1,943		Provision for operating losses	1,186		3,998		3,166		8,223
Advertising and promotion												Advertising and promotion	0		976		2,221		3,145
Merger and acquisition related expenses												Merger and acquisition related expenses	1,035		0		1,110		0
Loan workout	915			592			1,844			1,497		Loan workout	846		495		3,020		1,458
Other real estate owned	445			1,192			550			1,663		Other real estate owned	7		108		26		151
Advertising and promotion	404			591			1,108			1,178
Acquisition related expenses	—			144			—			1,195
Other	5,824			4,905			13,634			12,106		Other	(1,736)		4,376		5,206		8,869
Total non-interest expense	61,040			56,218			160,818			128,306		Total non-interest expense	65,561		59,592		195,525		173,160
Income before income tax expense	22,653			35,765			91,458			95,447		Income before income tax expense	62,716		35,086		97,488		67,144
Income tax expense	14,899			14,558			34,236			36,572		Income tax expense	12,201		8,020		21,156		15,343

Net income	7,754			21,207			57,222			58,875		Net income	50,515		27,066		76,332		51,801
Preferred stock dividends	3,615			2,552			10,844			5,900		Preferred stock dividends	3,430		3,615		10,626		10,844
Net income available to common shareholders	$	4,139		$	18,655		$	46,378		$	52,975
Basic earnings per common share	$	0.13		$	0.68		$	1.52		$	1.95
Diluted earnings per common share	$	0.13		$	0.63		$	1.42		$	1.80
Net income (loss) available to common shareholders												Net income (loss) available to common shareholders	$	47,085	$	23,451	$	65,706	$	40,957

Basic earnings (loss) per common share												Basic earnings (loss) per common share	$	1.49	$	0.75	$	2.09	$	1.32

Diluted earnings (loss) per common share												Diluted earnings (loss) per common share	$	1.48	$	0.74	$	2.07	$	1.30

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED

(amounts in thousands)


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


Net income	$	50,515	$	27,066	$	76,332	$	51,801
Unrealized gains (losses) on available for sale debt securities:
Unrealized gains (losses) arising during the period	(1,090)		7,858		25,127		46,430
Income tax effect	283		(2,043)		(6,533)		(12,072)
Reclassification adjustments for (gains) losses included in net income	(11,707)		(1,001)		(20,035)		(1,001)
Income tax effect	3,044		260		5,209		260
Net unrealized gains (losses) on available for sale debt securities	(9,470)		5,074		3,768		33,617
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	580		(5,163)		(33,486)		(26,204)
Income tax effect	(151)		1,342		8,884		6,813
Reclassification adjustment for (gains) losses included in net income	4,400		764		8,596		355
Income tax effect	(1,145)		(198)		(2,263)		(92)
Net unrealized gains (losses) on cash flow hedges	3,684		(3,255)		(18,269)		(19,128)
Other comprehensive income (loss), net of income tax effect	(5,786)		1,819		(14,501)		14,489
Comprehensive income (loss)	$	44,729	$	28,885	$	61,831	$	66,290

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income $ 7,754
$ 21,207
$ 57,222
$ 58,875
Unrealized (losses) gains on available-for-sale securities:
Unrealized holding (losses) gains on securities arising during the period (3,570 ) 329
15,192
15,256
Income tax effect 1,393
(124 ) (5,924 ) (5,721 )
Reclassification adjustments for (gains) losses on securities included in net income (5,349 ) 1
(8,532 ) (25 )
Income tax effect 2,086
—
3,327
9
Net unrealized (losses) gains on available-for-sale securities (5,440 ) 206
4,063
9,519
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period 171
890
(189 ) (2,523 )
Income tax effect (67 ) (334 ) 74
946
Reclassification adjustment for losses included in net income 572
703
2,166
1,306
Income tax effect (223 ) (264 ) (845 ) (490 )
Net unrealized gains (losses) on cash flow hedges 453
995
1,206
(761 )
Other comprehensive (loss) income, net of income tax effect (4,987 ) 1,201
5,269
8,758
Comprehensive income $ 2,767
$ 22,408
$ 62,491
$ 67,633

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(amounts in thousands, except shares outstanding data)



	Three Months Ended September 30, 2020
	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, June 30, 2020	9,000,000	$	217,471	31,510,287	$	32,791	$	450,665	$	338,665	$	(9,965)	$	(21,780)	$	1,007,847


Net income	—	—		—	—		—		50,515		—		—		50,515

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


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

Issuance of common stock under share-based compensation arrangements	—	—		44,837	45		272		—		—		—		317
Balance, September 30, 2020	9,000,000	$	217,471	31,555,124	$	32,836	$	452,965	$	385,750	$	(15,751)	$	(21,780)	$	1,051,491

	Three Months Ended September 30, 2019
	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, June 30, 2019	9,000,000	$	217,471	31,202,023	$	32,483	$	439,067	$	334,157	$	(9,993)	$	(21,780)	$	991,405
Net income	—	—		—	—		—		27,066		—		—		27,066

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


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

Issuance of common stock under share-based compensation arrangements	—	—		43,753	43		299		—		—		—		342
Balance, September 30, 2019	9,000,000	$	217,471	31,245,776	$	32,526	$	441,499	$	357,608	$	(8,174)	$	(21,780)	$	1,019,150

(1)Dividends per share of $0.357778, $0.40625, $0.403125, and $0.375 per share were declared on Series C, D, E, and F preferred stock for the three months ended September 30, 2020. Dividends per share of $0.4375, $0.40625, $0.403125, and $0.375 per share were declared on Series C, D, E, and F preferred stock for the three months ended September 30, 2019.

Table of Contents

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

Nine Months Ended September 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
Net income —
—
—
—
—
58,875
—
—
58,875
Other comprehensive income —
—
—
—
—
—
8,758
—
8,758
Issuance of common stock, net of offering costs of $217 —
—
226,677
227
5,450
—
—
—
5,677
Issuance of preferred stock, net of offering costs of $5,520 6,700,000
161,980
—
—
—
—
—
—
161,980
Preferred stock dividends —
—
—
—
—
(5,900 ) —
(5,900 )
Share-based compensation expense —
—
—
—
4,569
—
—
—
4,569
Exercise of warrants —
—
259,851
259
862
—
—
—
1,121
Issuance of common stock under share-based compensation arrangements —
—
155,888
156
673
—
—
—
829
Balance, September 30, 2016 9,000,000
$ 217,549
27,544,217
$ 28,074
$ 374,161
$ 177,486
$ 774
$ (8,233 ) $ 789,811



	Nine Months Ended September 30, 2020
	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, 2019	9,000,000	$	217,471	31,336,791	$	32,617	$	444,218	$	381,519	$	(1,250)	$	(21,780)	$	1,052,795


Cumulative effect from change in accounting principle - CECL	—	—		—	—		—		(61,475)		—		—		(61,475)
Net income	—	—		—	—		—		76,332		—		—		76,332

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


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

Issuance of common stock under share-based compensation arrangements	—	—		218,333	219		(108)		—		—		—		111

Balance, September 30, 2020	9,000,000	$	217,471	31,555,124	$	32,836	$	452,965	$	385,750	$	(15,751)	$	(21,780)	$	1,051,491

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


Net income	—	—		—	—		—		51,801		—		—		51,801

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


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

Issuance of common stock under share-based compensation arrangements	—	—		273,907	274		628		—		—		—		902
Repurchase of common shares	—	—		(31,159)	—		—		—		—		(571)		(571)
Balance, September 30, 2019	9,000,000	$	217,471	31,245,776	$	32,526	$	441,499	$	357,608	$	(8,174)	$	(21,780)	$	1,019,150

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

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)

Nine Months Ended
September 30,
2017 2016
Cash Flows from Operating Activities
Net income $ 57,222
$ 58,875
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 5,937
2,854
Depreciation and amortization 7,476
4,138
Share-based compensation expense 5,377
5,213
Deferred taxes 286
(4,846 )
Net amortization of investment securities premiums and discounts 520
664
Gain on sale of investment securities (8,532 ) (25 )
Impairment loss on investment securities 12,934
—
Gain on sale of SBA and other loans (3,553 ) (2,674 )
Origination of loans held for sale (22,770,726 ) (27,092,862 )
Proceeds from the sale of loans held for sale 22,925,668
26,473,789
Decrease in FDIC loss sharing receivable net of clawback liability —
255
Amortization of fair value discounts and premiums 93
312
Net loss on sales of other real estate owned 154
85
Valuation and other adjustments to other real estate owned, net of FDIC receivable 298
1,261
Earnings on investment in bank-owned life insurance (5,297 ) (3,629 )
Increase in accrued interest receivable and other assets (27,862 ) (38,672 )
(Decrease) increase in accrued interest payable and other liabilities (14,106 ) 66,577
Net Cash Provided By (Used In) Operating Activities 185,889
(528,685 )
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of securities available for sale 36,461
46,097
Proceeds from sales of investment securities available for sale 698,451
2,853
Purchases of investment securities available for sale (796,594 ) (5,000 )
Net increase in loans (921,049 ) (641,093 )
Proceeds from sales of loans 124,703
91,868
Purchase of loans (262,641 ) —
Purchases of bank-owned life insurance (90,000 ) —
Proceeds from bank-owned life insurance 1,418
619
Net (purchases of) proceeds from FHLB, Federal Reserve Bank, and other restricted stock (30,203 ) 19,220
Payments to the FDIC on loss sharing agreements —
(2,049 )
Purchases of bank premises and equipment (1,725 ) (3,343 )
Proceeds from sales of other real estate owned 1,680
419
Acquisition of Disbursements business, net —
(17,000 )
Net Cash Used In Investing Activities (1,267,428 ) (507,409 )
Cash Flows from Financing Activities
Net increase in deposits 293,301
1,479,471
Net increase (decrease) in short-term borrowed funds from the FHLB 593,543
(663,600 )
Net increase (decrease) in federal funds purchased 64,000
(18,000 )
Proceeds from long-term FHLB borrowings —
75,000
Net proceeds from issuance of long-term debt 98,564
—
Net proceeds from issuance of preferred stock —
161,980
        Preferred stock dividends paid (10,844 ) (5,450 )
        Exercise of warrants 557
1,121
        Payments of employee taxes withheld from share-based awards (4,923 ) (702 )
        Proceeds from issuance of common stock 2,112
7,269
Net Cash Provided By Financing Activities 1,036,310
1,037,089
Net (Decrease) Increase in Cash and Cash Equivalents (45,229 ) 995
Cash and Cash Equivalents – Beginning 264,709
264,593
Cash and Cash Equivalents – Ending $ 219,480
$ 265,588

(continued)

Supplementary Cash Flows Information
Interest paid $ 70,706
$ 50,410
Income taxes paid 31,545
40,966
Non-cash items:
Transfer of loans to other real estate owned $ 83
$ 605
Transfer of loans held for investment to loans held for sale 150,638
—


	Nine Months Ended September 30,
	2020		2019
Cash Flows from Operating Activities
Net income	$	76,332	$	51,801
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses on loan and lease losses	65,688		14,539
Depreciation and amortization	22,557		15,167
Share-based compensation expense	9,474		7,289
Deferred taxes	(26,188)		8,701
Net amortization (accretion) of investment securities premiums and discounts	(449)		691
Unrealized (gain) loss on investment securities	(60)		(988)
(Gain) loss on sale of investment securities	(20,035)		(1,001)

Loss upon acquisition of interest-only GNMA securities	0		7,476
(Gain) loss on sale of SBA and other loans	194		(602)

Origination of loans held for sale	(50,941)		(35,760)
Proceeds from the sale of loans held for sale	47,009		36,115

Amortization (accretion) of fair value discounts and premiums	(2,106)		561
Net (gain) loss on sales of other real estate owned	(4)		137
Valuation and other adjustments to other real estate owned	0		31
Earnings on investment in bank-owned life insurance	(5,265)		(5,477)
(Increase) decrease in accrued interest receivable and other assets	(124,378)		(79,299)
Increase (decrease) in accrued interest payable and other liabilities	81,640		15,302
Net Cash Provided By Operating Activities	73,468		34,683
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of investment securities	156,759		22,627
Proceeds from sales of investment securities available for sale	377,767		97,555
Purchases of investment securities available for sale	(1,024,345)		0
Origination of mortgage warehouse loans	(41,764,787)		(22,167,517)
Proceeds from repayments of mortgage warehouse loans	40,106,032		21,049,044
Net (increase) decrease in loans and leases, excluding mortgage warehouse loans	(4,733,097)		(6,808)
Proceeds from sales of loans and leases	23,390		0
Purchase of loans	(226,498)		(636,366)


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

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

Purchases of leased assets under lessor operating leases	(11,432)		(27,239)
Net Cash Used In Investing Activities	(7,086,538)		(1,665,534)
Cash Flows from Financing Activities
Net increase in deposits	2,190,141		1,783,449

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

Net increase (decrease) in federal funds purchased	142,000		186,000
Net increase (decrease) in borrowed funds from PPP liquidity facility	4,811,009		0
Proceeds from long-term borrowed funds from the FHLB	0		350,000
Proceeds from issuance of subordinated long-term debt	0		25,000

Repayments of other borrowings	0		(25,000)

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

Purchase of treasury stock	0		(571)
Payments of employee taxes withheld from share-based awards	(1,143)		(1,366)
Proceeds from issuance of common stock	635		1,536
Net Cash Provided By Financing Activities	7,131,981		1,750,934





Net Increase (Decrease) in Cash and Cash Equivalents	118,911		120,083
Cash and Cash Equivalents – Beginning	212,505		62,135
Cash and Cash Equivalents – Ending	$	331,416	$	182,218

	(continued)


	Nine Months Ended September 30,
	2020		2019



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

Unsettled purchases of investment securities	22,500		0

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

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

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF THE BUSINESS

Customers Bancorp, Inc. ~~(the “Bancorp” or “Customers~~(“Customers Bancorp”) is a bank holding company engaged in banking activities through its wholly owned subsidiary, Customers Bank ~~(the “Bank”~~("the Bank”), collectively referred to as “Customers” herein. The consolidated financial statements have been prepared in conformity with 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~~the Bank, and non-bank subsidiaries, serve residents and businesses in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Rye Brook, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan and Melville, New York; Washington, D.C.; Chicago, Illinois; and nationally for certain loan and deposit products. The Bank has 1413 full-service branches and provides commercial banking products, primarily loans and deposits. In addition, Customers Bank also administratively supports loan and other financial products, including equipment finance leases, to customers through its limited-purpose offices in Boston, ~~Massachusetts,~~Massachusetts; Providence, Rhode ~~Island,~~Island; Portsmouth, New ~~Hampshire,~~Hampshire; Manhattan and Melville, New ~~York,~~York; Philadelphia, Pennsylvania; Washington, D.C.; and ~~Philadelphia, Pennsylvania.~~Chicago, Illinois. The Bank also ~~provides liquidity to residential mortgage originators~~serves specialty niche businesses nationwide, ~~through~~including its commercial loans to mortgage banking businesses, commercial equipment financing, SBA lending, specialty lending and consumer loans through relationships with fintech companies.

~~Through~~ In addition, BankMobile, a division of Customers Bank, ~~Customers~~ offers ~~state of the art high tech~~state-of-the-art high-tech digital banking services to consumers, students and the "under banked" ~~nationwide.~~ nationwide, along with "Banking as a Service" offerings with white label partners.

The combination of the BankMobile technology software platform with the 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 has announced its intent to spin-off BankMobile to Customers’ shareholders through a tax-free spin-off/merger transaction. Accordingly, the assets and liabilities of BankMobile will not be reported separately as held for sale, and its operating results and associated cash flows will not be reported as discontinued operations, until execution of the spin-off/merger transaction and will be considered held and used for all periods presented. Previously reported held-for-sale balances in the consolidated balance sheet as of December 31, 2016, and corresponding operating results and cash flows for the periods presented, have been reclassified to conform with the current period consolidated financial statement presentation. See NOTE 3 TAX-FREE SPIN-OFF AND MERGER.

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

NOTE 2 ~~- 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 provided certain transition services to Customers through June 30, 2017. As consideration for these services, Customers 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 potential payment is equal to 35% of the amount the Disbursement business related revenue exceeds $75 million in each year. As of September 30, 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 September 30, 2017 and December 31, 2016 in aggregate 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 included with "Cash and cash equivalents" and "Accrued interest payable and other liabilities" on the September 30, 2017 and December 31, 2016 consolidated balance sheets. For more information regarding Customers' plans for BankMobile and the presentation of BankMobile within the consolidated financial statements, see NOTE 3 ~~- TAX-FREE SPIN-OFF AND MERGER.~~

~~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 was considered final as of June 30, 2017. The following table summarizes the final adjusted amounts recognized for assets acquired and liabilities assumed:

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

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

Net assets acquired $ 31,741

Transaction cash consideration (1) $ 37,000

Goodwill recognized $ 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 at December 31, 2016). Customers paid the first $10 million due to Higher One in June 2017.

The fair value for the developed software was estimated based on expected revenue attributable to the software utilizing a discounted cash flow methodology giving consideration to potential obsolescence. The developed software is being amortized over ten years based on the estimated economic benefits received. The fair values for the other intangible assets 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 being amortized over an estimated life ranging from four to twenty years. Because BankMobile met the criteria to be classified as held for sale at December 31, 2016, the acquired assets were not depreciated or amortized during first quarter 2017 and second quarter 2017. The reclassification of the acquired assets as held and used as of September 30, 2017 resulted in depreciation and amortization expense for the developed software, other intangible assets, and fixed assets totaling $3.5 million in third quarter 2017. The acquired assets were reclassified to held and used at their carrying amounts, adjusted for depreciation and amortization for the periods they were classified as held for sale, which was lower than their estimated fair values as of September 30, 2017.

~~NOTE 3 – TAX-FREE SPIN-OFF AND MERGER~~

In third quarter 2017, Customers decided that the best strategy for its shareholders for divesting BankMobile was to spin-off BankMobile to Customers’ shareholders through a spin-off/merger transaction. The tax-free spin-off is expected to be followed by a merger of Customers' BankMobile Technologies, Inc. subsidiary ("BMT") into Clearwater Florida based Flagship Community Bank ("Flagship"), with Customers' shareholders receiving shares of Flagship common stock in exchange for shares of BMT they receive in the spin-off. Flagship is expected to separately purchase BankMobile deposits directly from Customers for cash. Following completion of the spin-off and merger and other transactions contemplated in a purchase and sale agreement between Customers and Flagship, Customers' shareholders would receive collectively more than 50% of Flagship common stock, valued at approximately $110 million. The common stock of the merged entities, to be called BankMobile, is expected to be listed on a national securities exchange after completion of the transactions. Customers believes the transactions will be treated as a tax-free exchange for both Customers' shareholders and Customers. Customers expects to execute an Amended and Restated Purchase and Assumption Agreement and Plan of Merger (the “Amended Agreement”) with Flagship to effect the spin-off and merger and Flagship’s purchase of BankMobile deposits from Customers. Customers expects that the Amended Agreement will provide that completion of the transactions will be subject to the receipt of all necessary regulatory approvals, certain Flagship shareholder approvals, successful raising of capital by Flagship, and other customary closing conditions. Customers expects the transaction to close in mid-2018.

At December 31, 2016, BankMobile met the criteria to be classified as held for sale, and accordingly the assets and liabilities of BankMobile were presented as “Assets held for sale,” “Non-interest bearing deposits held for sale,” and “Other liabilities held for sale” and BankMobile’s operating results and associated cash flows were presented as “Discontinued operations”. However, with the third quarter 2017 spin-off/merger decision, generally accepted accounting principles require that assets, liabilities, operating results, and cash flows associated with a business to be disposed of through a spin-off/merger transaction not be reported as held for sale or discontinued operations until execution of the spin-off/merger transaction. Accordingly, BankMobile's assets, liabilities, operating results and cash flows will not be reported separately as held for sale or discontinued operations at September 30, 2017 and December 31, 2016 and for the three and nine month periods ended September 30, 2017 and 2016 and instead will be reported as held and used. As a result, Customers measured the business at the lower of its (i) carrying amount before it was classified as held for sale, adjusted for depreciation and amortization expense that would have been recognized had the business been continuously classified as held and used, or (ii) fair value at the date the decision not to sell was made. Customers recorded a charge of $4.2 million in third quarter 2017 relating to the amount of depreciation and amortization expense that would have been recorded had the assets been continuously classified as held and used.

Prior reported December 31, 2016 assets held for sale, non-interest bearing deposits held for sale and other liabilities held for sale have been reclassified to conform with the current period presentation as summarized below. Amounts previously reported as discontinued operations have also been reclassified to conform with the current period presentation within the accompanying consolidated financial statements as summarized below. Customers will continue reporting the Community Business Banking and BankMobile segment results. See NOTE 14 - BUSINESS SEGMENTS.

The following summarizes the effect of the reclassification from held for sale classification to held and used classification on the previously reported consolidated balance sheet as of December 31, 2016 and the previously reported consolidated statements of income for the the three and nine months ended September 30, 2016:

December 31, 2016 As Previously Reported Effect of Reclassification From Held For Sale to Held and Used December 31, 2016 After Reclassification
(amounts in thousands)
ASSETS
Cash and cash equivalents $ 244,709
$ 20,000
$ 264,709
Loans receivable 6,142,390
12,247
6,154,637
Bank premises and equipment, net 12,259
510
12,769
Goodwill and other intangibles 3,639
13,982
17,621
Assets held for sale 79,271
(79,271 ) —
Other assets 70,099
32,532
102,631
LIABILITIES
Demand, non-interest bearing deposits $ 512,664
$ 453,394
$ 966,058
Interest bearing deposits 6,334,316
3,401
6,337,717
Non-interest bearing deposits held for sale 453,394
(453,394 ) —
Other liabilities held for sale 31,403
(31,403 ) —
Accrued interest payable and other liabilities 47,381
28,002
75,383

Three Months Ended September 30, 2016 Effect of Reclassification From Held For Sale to Held and Used Three Months Ended September 30, 2016
As Previously Reported After Reclassification
Interest income $ 84,212
$ —
$ 84,212
Interest expense 19,622
5
19,627
Net interest income 64,590
(5 ) 64,585
Provision for loan losses (161 ) 249
88
Non-interest income 11,121
16,365
27,486
Non-interest expenses 36,750
19,468
56,218
Income from continuing operations before income taxes 39,122
(3,357 ) 35,765
Provision for income taxes 15,834
(1,276 ) 14,558
Net income from continuing operations 23,288
(2,081 ) 21,207
Loss from discontinued operations before income taxes (3,357 ) 3,357
—
Income tax benefit from discontinued operations (1,276 ) 1,276
—
Net loss from discontinued operations (2,081 )
2,081

—
Net income 21,207

—

21,207
Preferred stock dividend 2,552
—
2,552
Net income available to common shareholders $ 18,655
$ —
$ 18,655

Nine Months Ended September 30, 2016 Effect of Reclassification From Held For Sale to Held and Used Nine Months Ended September 30, 2016
As Previously Reported After Reclassification
Interest income $ 238,931
$ —
$ 238,931
Interest expense 53,548
13
53,561
Net interest income 185,383
(13 ) 185,370
Provision for loan losses 2,605
249
2,854
Non-interest income 22,241
18,996
41,237
Non-interest expenses 100,706
27,600
128,306
Income from continuing operations before income taxes 104,313
(8,866 ) 95,447
Provision for income taxes 39,942
(3,370 ) 36,572
Net income from continuing operations 64,371
(5,496 ) 58,875
Loss from discontinued operations before income taxes (8,865 ) 8,865
—
Income tax benefit from discontinued operations (3,369 ) 3,369
—
Net loss from discontinued operations (5,496 ) 5,496
—
Net income 58,875
—
58,875
Preferred stock dividend 5,900
—
5,900
Net income available to common shareholders $ 52,975
$ —
$ 52,975

~~NOTE 4~~ — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Presentation

The interim unaudited consolidated financial statements ~~of Customers Bancorp and subsidiaries~~ have been prepared in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC. These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Customers Bancorp and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted from these interim unaudited consolidated financial statements as permitted by SEC rules and regulations. The December 31, ~~2016~~2019 consolidated balance sheet presented in this report has been derived from Customers Bancorp’s audited ~~2016~~2019 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the ~~2016~~2019 consolidated financial statements of Customers Bancorp and subsidiaries included in Customers' Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the SEC on March ~~8, 2017. That~~2, 2020 (the "2019 Form 10-K"). The 2019 Form 10-K describes Customers Bancorp’s significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Restrictions on Cash and Amounts due from Banks; Business Combinations; Investment Securities; Loan Accounting Framework; ~~Allowance~~Loans Held for ~~Loan Losses;~~Sale and Loans at Fair Value; Loans Receivable - Mortgage Warehouse, at Fair Value; Loans and Leases Receivable; Purchased Loans; ALLL; Goodwill and ~~other~~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;~~Restricted Stock; OREO; BOLI; Bank Premises and Equipment; Lessor Operating Leases; Treasury Stock; Income Taxes; Share-Based Compensation; ~~Segments;~~Transfer of Financial Assets; Segment Information; Derivative Instruments and Hedging; Comprehensive ~~Income;~~Income (Loss); EPS; Loss Contingencies; 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.

~~Reclassifications~~

As described in NOTE 3 - TAX-FREE SPIN-OFF AND MERGER, as of September 30, 2017, Customers reclassified BankMobile, a segment previously classified as held for sale to held and used, as it no longer met the held-for-sale criteria. Certain prior period amounts and note disclosures (including NOTE 9 and NOTE 12) have been reclassified to conform with the current period presentation. Except for these reclassifications, thereCollaborative Arrangements. There have been no material changes to ~~Customers'~~Customers Bancorp's significant accounting policies ~~as disclosed in Customers' Annual Report on Form 10-K~~noted above for the ~~year~~three and nine months ended ~~December 31, 2016.~~September 30, 2020, except for the adoption of ASU 2016-13 Financial Instruments - Credit Losses ("ASC 326"): Measurement of Credit Losses on Financial Instruments, which is discussed below in Adoption of New Accounting Standard, and replaces our prior ALLL policy.

New Accounting Standards

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

~~Recently Issued Accounting Standards~~

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Accounting Standards Adopted in ~~2017~~2020

~~Since~~

Allowance for Credit Losses

On 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:~~

2020, Customers adopted ~~ASU 2016-05,~~ ~~Derivatives~~ASC 326, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and ~~Hedging: Effect~~net investments in leases recognized by Customers as a lessor in accordance with ASC 842. CECL also applies to off-balance sheet credit exposures not accounted for as insurance, such as loan commitments, standby letters of ~~Derivative Contract Novations~~credit, financial guarantees, and other similar instruments. ASC 326 also made changes to the accounting for AFS debt securities, which now requires credit losses to be presented as an allowance, rather than as a write-down on ~~Existing Hedge Accounting Relationships,~~ ~~on a prospective basis. This ASU clarifies~~AFS debt securities that ~~a change in the counterparties to a derivative contract (i.e., a novation), in and of itself,~~management does not ~~require~~intend to sell or believes that it is more likely than not they will not be required to sell.

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

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The following table illustrates the impact of adopting ASC 326:

(amounts in thousands)



	Pre-ASC 326 Adoption		Impact of ASC 326 Adoption		As Reported Under ASC 326
Assets
Loans receivable, mortgage warehouse, at fair value	$	2,245,758	$	0	$	2,245,758
Loans and leases receivable
Multi-family	1,907,331		7		1,907,338
Commercial and industrial	1,891,152		3		1,891,155
Commercial real estate owner occupied	551,948		100		552,048
Commercial real estate non-owner occupied	1,222,772		41		1,222,813
Construction	117,617		0		117,617
Total commercial loans and leases receivable	5,690,820		151		5,690,971
Residential real estate	382,634		32		382,666
Manufactured housing	71,359		37		71,396
Installment	1,174,175		12		1,174,187
Total consumer loans receivable	1,628,168		81		1,628,249
Loans and leases receivable	7,318,988		232		7,319,220
Allowance for credit losses on loans and leases	(56,379)		(79,829)		(136,208)
Total loans and leases receivable, net of allowance for credit losses on loans and leases	9,508,367		(79,596)		9,428,771
Liabilities
Allowance for credit losses on lending-related commitments	49		3,388		3,437
Net deferred tax (asset) liability	11,740		(21,510)		(9,770)
Equity
Retained earnings	$	381,519	$	(61,475)	$	320,044

Allowance for Credit Losses on Loans and Leases

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

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

The allowance for credit losses on collectively assessed loans and leases is measured over the expected life of the loan or lease using lifetime loss rate models which consider historical loan performance, loan or borrower attributes and forecasts of future economic conditions in addition to information about past events and current conditions. Significant loan/borrower attributes utilized in the

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models include origination date, maturity date, collateral property type, internal risk rating, delinquency status, borrower state and FICO score at origination. Customers uses external sources in the creation of its forecasts, including current economic conditions and forecasts for macroeconomic variables over its reasonable and supportable forecast period (e.g., GDP growth rate, unemployment rate, BBB spread, commercial real estate and home price indices). After the reasonable and supportable forecast period, which ranges from two to five years, the models revert the forecasted macroeconomic variables to their historical long-term trends, without specific predictions for the economy, over the expected life of the pool. The lifetime loss rate models also ~~adopted ASU 2016-06,~~ ~~Contingent Put~~incorporate prepayment assumptions into estimated lifetime loss rates. Customers runs the CECL impairment models on a quarterly basis and ~~Call Options~~qualitatively adjusts model results for risk factors that are not considered within the models but which are relevant in ~~Debt Instruments~~assessing the expected credit losses within the loan and lease pools. Management generally considers the following qualitative factors:

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

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

•Nature and volume of the portfolio;

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

•Risk ratings;

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

•Changes in the quality of the loan review system;

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

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

•Model and data limitations.

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

Purchased Credit Deteriorated (“PCD”) Loans and Leases

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

Allowance for Credit Losses on Lending-Related Commitments

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

Individually Assessed Loans and Leases

ASC 326 provides that a ~~contingency of put~~loan or ~~call exercise~~lease is measured individually if it does not ~~need~~share similar risk characteristics with other financial assets. For Customers, loans and leases which are identified to be individually assessed under CECL typically would have been evaluated individually as impaired loans using accounting guidance in effect in periods prior to ~~determine whether it relates to interest rates~~the adoption of CECL and ~~credit risk in an embedded derivative analysis~~include TDRs and collateral dependent loans.

Table of ~~hybrid financial instruments. In other words, a contingent put or call option embedded~~Contents

TDRs

A loan for which the terms have been modified resulting in a ~~debt instrument would~~concession, and for which the borrower is experiencing financial difficulties is considered to be ~~evaluated~~a TDR. The allowance for ~~possible separate accounting~~credit loss on a TDR is measured using the same method as all other loans held for investment, except in cases when the value of a ~~derivative instrument without regard to~~concession cannot be measured using a method other than the ~~nature~~DCF method. When the value of a concession is measured using the DCF method, the allowance for credit loss is determined by discounting the expected future cash flows at the original effective interest rate of the ~~exercise contingency. However, as required under the existing~~loan.

The CARES Act and certain regulatory agencies recently issued guidance ~~companies will still need~~stating certain loan modifications 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’ consolidatedborrowers experiencing 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~~distress as a result of the economic impacts created by COVID-19 may not be required to be treated as TDRs under U.S GAAP. For COVID-19 related loan modifications which met the loan modification criteria under either the CARES Act or the criteria specified by the regulatory agencies, Customers elected to suspend TDR accounting for such loan modifications.

Collateral Dependent Loans

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

Allowance for Credit Losses on Available for Sale Securities

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

Changes in the ~~level~~allowance for credit losses on AFS securities are recorded as provision, or reversal of ~~ownership interest or degree of influence~~provision for credit losses on AFS securities in other non-interest income within the consolidated income statement. Losses are charged against the allowance for credit losses on AFS securities when management believes the uncollectibility of an ~~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~~AFS security is confirmed or when either of the ~~date~~criteria regarding intent or requirement to sell is met. Accrued interest receivable on AFS debt securities totaled $4.2 million at September 30, 2020 and is excluded from the ~~investment becomes qualified for the equity method~~estimate of ~~accounting.~~credit losses.

~~Customers also adopted ASU 2016-17,~~ ~~Consolidation - Interests Held Through Related Parties that are Under Common Control. This ASU amends the guidance included~~

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Other Accounting Standards Adopted in ~~ASU 2015-02,~~ ~~Consolidation: Amendments to Consolidation Analysis~~2020

Standard

Summary of guidance

Effects on Financial Statements

ASU 2019-04,

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

Issued April 2019

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

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

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

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

• Customers adopted on January 1, 2020.

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

ASU 2018-18,

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

Issued November 2018

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

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

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

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

• Customers adopted on January 1, 2020.

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

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Other Accounting Standards Adopted in 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.2020 (continued)

Standard

Summary of guidance

Effects on Financial Statements

ASU 2018-15,

Internal-Use Software (Subtopic 350-40): Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

Issued August 2018

• Clarifies that service contracts with hosting arrangements must follow internal-use software guidance Subtopic 350-40 when determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense.
• Also clarifies that capitalized implementation costs of a hosting arrangement that is a service contract are to be amortized over the term of the hosting arrangement, which includes the noncancelable period of the arrangement plus options to extend the arrangement if reasonably certain to exercise.
• Clarifies that existing impairment guidance in Subtopic 350-40 must be applied to the capitalized implementation costs as if they were long-lived assets.
• Applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.
• Effective for fiscal year beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption permitted.

• Customers adopted on January 1, 2020.
• The adoption of this guidance did not have a material impact on Customers' financial condition, results of operations and consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

Standard

Summary of guidance

Effects on Financial Statements

ASU 2020-04,

Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Issued March 2020

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

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

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

~~In August 2017,~~

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Accounting and Reporting Considerations related to COVID-19

On March 27, 2020, the ~~FASB issued ASU 2017-12,~~ ~~Targeted Improvements~~CARES Act was signed into law and contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic and stimulate the economy. The CARES Act includes the PPP designed to aid small-and medium-sized businesses through federally guaranteed loans distributed through banks. Customers is a participant in the PPP. Section 4013 of the CARES act also gives entities temporary relief from the accounting and disclosure requirements for TDRs under ASC 310-40 in certain situations.

Accounting for ~~Hedging Activities, which amends~~PPP Loans

In April 2020, Customers began to originate loans to qualified small businesses under the ~~existing hedge accounting model~~PPP administered by the SBA. The PPP loans are fully guaranteed by the SBA and ~~expands an entity’s ability~~may be eligible for forgiveness by the SBA to ~~hedge nonfinancial~~the extent that the proceeds are used for payroll and ~~financial risk components and reduce complexity~~other permitted purposes in ~~fair value hedges of interest rate risk. The guidance eliminates~~accordance with the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also changes certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. This ASU is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption permitted. Customers plans to adopt this ASU by January 1, 2018. Adoption of this new guidance must be applied on a modified retrospective approach. While Customers continues to assess all potential impacts of the ~~standard,~~PPP. These loans carry a fixed rate of 1.00% and terms of two or five years, if not forgiven, in whole or in part. Payments are deferred for the first six months of the loan. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5% based on the size of the loan. Customers classified the PPP loans as held for investment and these loans are carried at amortized cost and interest income is recognized using the interest method. The origination fees, net of direct origination costs, are deferred and recognized as an adjustment to the yield of the related loans over their contractual life using the interest method. As PPP is newly created, Customers does not ~~currently expect the adoption of this ASU~~have historical prepayment data to ~~have a significant impact on its financial condition, results of operations~~accurately estimate principal prepayments and ~~consolidated financial statements.~~

~~In July 2017, the FASB issued ASU 2017-11,~~ ~~Accounting for Certain Financial Instruments with Down Round Features~~, which will change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexedtherefore has elected to ~~an entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) would no longer be accounted for~~not estimate prepayments as a ~~derivative liability at fair value~~policy election. No allowance for credit losses has been recognized for PPP loans as these loans are 100% guaranteed by the SBA. See Note 7 - Loans and Leases Receivable and Allowance for Credit Losses on Loans and Leases for additional information.

Loan Modifications

As mentioned above, Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for TDRs. In addition, on April 7, 2020, certain regulatory banking agencies issued an interagency statement that offers practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic are TDRs. To qualify for TDR accounting and disclosure relief under the CARES Act, the applicable loan must not have been more than 30 days past due as of December 31, 2019, and the modification must be executed during the period beginning on March 1, 2020, and ending on the earlier of December 31, 2020, or the date that is 60 days after the termination date of the national emergency declared by the president on March 13, 2020, under the National Emergencies Act related to the outbreak of COVID-19. The CARES Act applies to modifications made as a result of COVID-19 including: forbearance agreements, interest rate modifications, repayment plans, and other arrangements to defer or delay payment of principal or interest. The interagency statement does not require the ~~existence~~modification to be completed within a certain time period if it is related to COVID-19 and can be provided to borrowers either individually or as part of a ~~down round feature. For freestanding equity-classified financial instruments,~~loan modification program. Moreover, the ~~amendments require entities~~interagency statement applies to ~~recognize the effect~~short-term modifications (e.g. not more than six months deferral) including payment deferrals, fee waivers, extensions of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic earnings per share ("EPS"). For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Customers currently does not have any equity-linked financial instruments (or embedded features) with down round features, accordingly 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, however, Customers will continue to evaluate the potential impact through the adoption date.

~~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~~repayment terms, or ~~conditions of a share-based~~other insignificant 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 changesdelays 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~~ COVID-19.

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 generally does not modify the terms of conditions of its share-based payment awards, accordingly 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, however, Customers will continue to evaluate the potential impact through the adoption date.

~~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 currently has an immaterial amount of callable debt securities purchased with premiums, accordingly 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, however, Customers will continue to evaluate the potential impact through the adoption date.~~

~~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~~Section 4013 of the CARES Act and the interagency statement in connection with applicable modifications. For modifications that qualify under either the CARES Act or the interagency statement, TDR accounting 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~~reporting 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 suspended. These modifications generally involve principal and/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 expects to early adopt this ASU upon its next annual goodwill impairment test in 2017 and 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 (i.e., 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 FASB issued ASU 2016-13, Financial 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 earlier recognition of credit losses. 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 is effective for Customers for its first reporting period beginning after December 15, 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 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 guidance.

~~In March 2016, the FASB issued ASU 2016-04,~~ ~~Liabilities - Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products~~, that would require issuers of prepaid stored-value product (such as gift cards, telecommunication cards, and traveler’s checks), to derecognize the financial liability related to those products for breakage. Breakage is the value of prepaid stored-value products that is not redeemed by consumers for goods, services or cash. There is currently a 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. This ASU is effective for Customers for its first reporting period beginning after December 15, 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 February 2016, the FASB issued ASU 2016-02,~~ ~~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 lessees. The new guidance will require lessors to account for leases using an approach that is substantially similar to the existing guidance for sales-type, direct financing leases and operating leases. The new standard is effective for Customers for its first reporting period beginning after December 15, 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 present value of unpaid lease payments as of the date of adoption. Customers does not intend to early adopt this ASU.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Recognition and Measurement of Financial 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 Customers for its first reporting period beginning after December 15, 2017, including interim periods within those fiscal years. Customers is in the process of evaluating the impacts of the adoption of this ASU, however, it does not expect the impact to be significant to its financial condition, results of operations and consolidated financial statements given the immaterial amount of its investment in 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 requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 605. In August 2015, the FASB issued ASU 2015-14, which formalized the deferral of the effective date of the amendmentinterest payment deferrals for a period of ~~one-year from~~90 days at a time and can be extended to six months or longer for modifications that qualified under the original effective date. Following the issuance of ASU 2015-14, the amendment will be effective for Customers for its first reporting period beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09, which reframed the structureSection 4013 of the ~~indicators of when an entity is acting~~CARES Act if requested by the borrower as ~~an agent and focused on evidence that an entity is acting~~long as the ~~principal or agent in a revenue transaction. ASU 2016-08 also eliminated two of the indicators (the entity’s consideration~~reason is in the form of a commission and the entity is not exposed to credit risk) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an 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 expedientsstill related to ~~disclosures~~COVID-19. These modified loans would not also be reported as past due or nonaccrual during the deferral period. See Note 7 - Loans and Leases Receivable and Allowance for Credit Losses on Loans and Leases for additional information.

Table 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.Contents

Because the ASU does not apply to revenue associated with leases and financial instruments (including loans and securities), Customers current assessment is that the new guidance will not have a material impact on the elements of its consolidated statements of operations most closely associated with leases and financial instruments (such as interest income, interest expense and securities gain). Customers will adopt this ASU on January 1, 2018 using a modified retrospective approach. Customers has completed its identification of all revenue streams that are included in its financial statements and has identified its deposit related fees, service charges, debit card and prepaid card interchange income, and university fees to be within the scope of the standard. Customers is also substantially complete with its review of the related contracts and has also completed its evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross vs. net). Customers' overall assessment suggests that adoption of this ASU will not materially change its current method and timing of recognizing revenue for these revenue streams. Customers, however, is still evaluating the ASU’s expanded disclosure requirements. As provided above, Customers current assessment is that the adoption of this ASU will not have a significant impact to its financial condition, results of operations and consolidated financial statements.

NOTE 53 — EARNINGS (LOSS) PER SHARE

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


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


Net income available to common shareholders	$	47,085	$	23,451	$	65,706	$	40,957

Weighted-average number of common shares outstanding – basic	31,517,504		31,223,777		31,462,284		31,142,400
Share-based compensation plans	218,807		420,951		203,743		438,629

Weighted-average number of common shares – diluted	31,736,311		31,644,728		31,666,027		31,581,029



Basic earnings (loss) per common share	$	1.49	$	0.75	$	2.09	$	1.32


Diluted earnings (loss) per common share	$	1.48	$	0.74	$	2.07	$	1.30

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(amounts in thousands, except share and per share data)
Net income available to common shareholders $ 4,139
$ 18,655
$ 46,378
$ 52,975

Weighted-average number of common shares outstanding - basic 30,739,671
27,367,551
30,597,314
27,131,960
Share-based compensation plans 1,754,480
2,205,291
2,004,917
2,119,717
Warrants 18,541
124,365
24,392
243,531
Weighted-average number of common shares - diluted 32,512,692
29,697,207
32,626,623
29,495,208

Basic earnings per common share $ 0.13
$ 0.68
$ 1.52
$ 1.95
Diluted earnings per common share $ 0.13
$ 0.63
$ 1.42
$ 1.80

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


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

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Anti-dilutive securities:
Share-based compensation awards 409,225
616,995
409,225
616,995
Warrants 52,242
52,242
52,242
52,242
Total anti-dilutive securities 461,467
669,237
461,467
669,237

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NOTE 64 — 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 nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019. All amounts are presented net of tax. Amounts in parentheses indicate reductions to AOCI.


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



Unrealized gains (losses) arising during period, before tax	(1,090)		580		(510)
Income tax effect	283		(151)		132
Other comprehensive income (loss) before reclassifications	(807)		429		(378)
Reclassification adjustments for (gains) losses included in net income, before tax	(11,707)		4,400		(7,307)
Income tax effect	3,044		(1,145)		1,899
Amounts reclassified from accumulated other comprehensive income (loss) to net income	(8,663)		3,255		(5,408)
Net current-period other comprehensive income (loss)	(9,470)		3,684		(5,786)
Balance - September 30, 2020	$	18,055	$	(33,806)	$	(15,751)


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



Unrealized gains (losses) arising during period, before tax	25,127		(33,486)		(8,359)
Income tax effect	(6,533)		8,884		2,351
Other comprehensive income (loss) before reclassifications	18,594		(24,602)		(6,008)
Reclassification adjustments for (gains) losses included in net income, before tax	(20,035)		8,596		(11,439)
Income tax effect	5,209		(2,263)		2,946
Amounts reclassified from accumulated other comprehensive income (loss) to net income	(14,826)		6,333		(8,493)
Net current-period other comprehensive income (loss)	3,768		(18,269)		(14,501)
Balance - September 30, 2020	$	18,055	$	(33,806)	$	(15,751)

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

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

Table of Contents

Three Months Ended September 30, 2017
(amounts in thousands) Unrealized Gains (Losses) on Available-For-Sale Securities Unrealized
Loss on
Cash Flow Hedges Total
Balance - June 30, 2017 $ 6,822
$ (1,458 ) $ 5,364
Other comprehensive income (loss) before reclassifications (2,177 ) 104
(2,073 )
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2) (3,263 ) 349
(2,914 )
Net current-period other comprehensive (loss) income (5,440 ) 453
(4,987 )
Balance - September 30, 2017 $ 1,382
$ (1,005 ) $ 377


	Three Months Ended September 30, 2019

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



Unrealized gains (losses) arising during period, before tax	7,858		(5,163)		2,695
Income tax effect	(2,043)		1,342		(701)
Other comprehensive income (loss) before reclassifications	5,815		(3,821)		1,994
Reclassification adjustments for losses (gains) included in net income, before tax	(1,001)		764		(237)
Income tax effect	260		(198)		62
Amounts reclassified from accumulated other comprehensive income (loss) to net income	(741)		566		(175)
Net current-period other comprehensive income (loss)	5,074		(3,255)		1,819
Balance - September 30, 2019	$	11,876	$	(20,050)	$	(8,174)


	Nine Months Ended September 30, 2019

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



Unrealized gains (losses) arising during period, before tax	46,430		(26,204)		20,226
Income tax effect	(12,072)		6,813		(5,259)
Other comprehensive income (loss) before reclassifications	34,358		(19,391)		14,967
Reclassification adjustments for losses (gains) included in net income, before tax	(1,001)		355		(646)
Income tax effect	260		(92)		168
Amounts reclassified from accumulated other comprehensive income (loss) to net income	(741)		263		(478)
Net current-period other comprehensive income	33,617		(19,128)		14,489
Balance - September 30, 2019	$	11,876	$	(20,050)	$	(8,174)

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

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

Nine Months Ended September 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 9,268
(115 ) 9,153
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2) (5,205 ) 1,321
(3,884 )
Net current-period other comprehensive income 4,063
1,206
5,269
Balance - September 30, 2017 $ 1,382
$ (1,005 ) $ 377


~~(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.

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Three Months Ended September 30, 2016
Available-for-sale-securities
(amounts in thousands) Unrealized Gains Foreign Currency Items Total Unrealized Gains Unrealized Loss on Cash Flow Hedge Total
Balance - June 30, 2016 $ 4,895
$ (768 ) $ 4,127
$ (4,554 ) $ (427 )
Other comprehensive income (loss) before reclassifications 15
190
205
556
761
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2) 1
—
1
439
440
Net current-period other comprehensive income 16
190
206
995
1,201
Balance - September 30, 2016 $ 4,911
$ (578 ) $ 4,333
$ (3,559 ) $ 774

Nine Months Ended September 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 9,529
6
9,535
(1,577 ) 7,958
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2) (16 ) —
(16 ) 816
800
Net current-period other comprehensive income (loss) 9,513
6
9,519
(761 ) 8,758
Balance - September 30, 2016 $ 4,911
$ (578 ) $ 4,333
$ (3,559 ) $ 774


~~(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.

NOTE 75 — INVESTMENT SECURITIES

The amortized cost and ~~approximate~~ fair value of investment securities as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized in the tables below:


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

Agency-guaranteed collateralized mortgage obligations	153,088		771		(80)		153,779
State and political subdivision debt securities (2)	17,391		868		0		18,259
Private label collateralized mortgage obligations	118,979		8		0		118,987
Corporate notes (3)	344,344		19,632		(104)		363,872

Available for sale debt securities	$	1,106,966	$	24,757	$	(358)	1,131,365

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


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

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

(1)Accrued interest on AFS debt securities totaled $4.2 million at September 30, 2020 and is included in accrued interest receivable on the consolidated balance sheet.

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

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

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

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

On June 28, 2019, Customers obtained ownership of certain interest-only GNMA securities that served as the primary collateral for loans made to one commercial mortgage warehouse customer through a Uniform Commercial Code private sale transaction. In connection with the acquisition of the interest-only GNMA securities, Customers recognized a pre-tax loss of $7.5 million for the three months ended June 30, 2019 for the shortfall in the fair value of the interest-only GNMA securities compared to its credit exposure to this commercial mortgage warehouse customer. Upon acquisition, Customers elected the fair value option for these interest-only GNMA securities. These securities were sold for $15.4 million with a realized gain of $1.0 million during the three months ended September 30, 2020.

During the three and nine months ended September 30, 2020, Customers recognized unrealized gains of $0.2 million and $0.1 million, respectively, on its equity securities. During the three and nine months ended September 30, 2019, Customers recognized unrealized gains of $1.3 million and $1.0 million, respectively, on its equity securities. These unrealized gains and losses are reported as unrealized gain (loss) on investment securities within non-interest income on the consolidated statements of income.

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September 30, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities $ 197,606
$ 521
$ (1,800 ) $ 196,327
Agency-guaranteed commercial real estate mortgage-backed securities 337,683
2,843
(418 ) 340,108
Corporate notes (1) 44,958
1,119
—
46,077
Equity securities (2) 2,311
—
—
2,311
$ 582,558
$ 4,483
$ (2,218 ) $ 584,823


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


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

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities $ 233,002
$ 918
$ (2,657 ) $ 231,263
Agency-guaranteed commercial real estate mortgage-backed securities 204,689
—
(2,872 ) 201,817
Corporate notes (1) 44,932
401
(185 ) 45,148
Equity securities (2) 15,246
—
—
15,246
$ 497,869
$ 1,319
$ (5,714 ) $ 493,474


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


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

~~The following table presents proceeds~~Proceeds from the sale of ~~available-for-sale investment~~available for sale debt securities were $268.6 million and ~~gross gains and gross losses realized on those sales~~$377.8 million for the three and nine months ended September 30, ~~2017~~2020. Realized gains from the sale of available for sale debt securities were $11.7 million and ~~2016:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(amounts in thousands)
Proceeds from sale of available-for-sale securities $ 554,540
$ 5
$ 698,451
$ 2,853
Gross gains $ 5,349
$ —
$ 8,532
$ 26
Gross losses —
(1 ) —
(1 )
Net gains (losses) $ 5,349
$ (1 ) $ 8,532
$ 25

$20.0 million for the three and nine months ended September 30, 2020, respectively. Proceeds from the sale of available for sale debt securities were $97.6 million for the three and nine months ended September 30, 2019. Realized gains from the sale of available for sale debt securities were $1.0 million for the three and nine months ended September 30, 2019. These gains (losses) were determined using the specific identification method and were reported as gain (loss) on sale of investment securities ~~included in~~within non-interest income on the consolidated statements of income.

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


	September 30, 2020
(amounts in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	8,000	$	8,000
Due after one year through five years	83,209		84,275
Due after five years through ten years	274,135		292,605
Due after ten years	36,391		37,259
Asset-backed securities	374,151		375,381
Agency-guaranteed residential mortgage-backed securities	59,013		61,079
Agency-guaranteed collateralized mortgage obligations	153,088		153,779
Private label collateralized mortgage obligations	118,979		118,987


Total debt securities	$	1,106,966	$	1,131,365

September 30, 2017

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 42,958
43,854
Due after ten years 2,000
2,223
Agency-guaranteed residential mortgage-backed securities 197,606
196,327
Agency-guaranteed commercial real estate mortgage-backed securities 337,683
340,108
Total debt securities $ 580,247
$ 582,512

Gross unrealized losses and fair value of Customers' ~~investments~~available for sale debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, ~~2017 and December 31, 2016~~2020 were as follows:


	September 30, 2017
	Less Than 12 Months					12 Months or More					Total						September 30, 2020
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses				Less Than 12 Months				12 Months or More				Total
(amounts in thousands)																(amounts in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale:
Available for sale debt securities:																Available for sale debt securities:
Asset-backed securities																Asset-backed securities	$	107,610	$	(174)	$	0	$	0	$	107,610	$	(174)
Agency-guaranteed residential mortgage-backed securities	$	54,525	$	(279	)	$	45,682	$	(1,521	)	$	100,207	$	(1,800	)	Agency-guaranteed residential mortgage-backed securities	19,019		(80)		0		0		19,019		(80)
Agency-guaranteed commercial real estate mortgage-backed securities	105,044		(418		)	—		—			105,044		(418		)

Corporate notes																Corporate notes	40,409		(104)		0		0		40,409		(104)

Total	$	159,569	$	(697	)	$	45,682	$	(1,521	)	$	205,251	$	(2,218	)	Total	$	167,038	$	(358)	$	0	$	0	$	167,038	$	(358)

December 31, 2016
Less Than 12 Months 12 Months or More Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities $ 87,433
$ (1,330 ) $ 30,592
$ (1,327 ) $ 118,025
$ (2,657 )
Agency-guaranteed commercial real estate mortgage-backed securities 201,817
(2,872 ) —
—
201,817
(2,872 )
Corporate notes (1) 9,747
(185 ) —
—
9,747
(185 )
Total $ 298,997
$ (4,387 ) $ 30,592
$ (1,327 ) $ 329,589
$ (5,714 )

~~(1)~~

~~Includes subordinated debt issued by other bank holding companies.~~

At September 30, ~~2017,~~2020, there were ~~sixteen available-for-sale investment~~15 available for sale debt securities with unrealized losses in the less-than-twelve-month category and ~~eleven available-for-sale investment~~0 available for sale debt securities with unrealized losses in the twelve-month-or-more category. The unrealized losses ~~on the mortgage-backed securities are guaranteed by government-sponsored entities and primarily relate~~were principally due to changes in market interest ~~rates.~~rates that resulted in a negative impact on the respective securities' fair value. All amounts related to these securities are expected to be recovered when market prices recover or at maturity. Customers does not intend to sell ~~these~~any of the 15 securities, and it is not more likely than not that Customers will be required to sell any of the 15 securities before recovery of the amortized cost basis. At December 31, 2019, there were 0 available for sale debt securities in an unrealized loss position.

At September 30, 2017, management evaluated its equity holdings issued by Religare Enterprises, Ltd. ("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 an other-than-temporary impairment loss of $8.3 million and $12.9 million, respectively, for the three and nine months ended September 30, 2017 for the full amount of the decline in fair value below the cost basis established at June 30, 20172020 and December 31, 2016. The fair value of the equity securities at September 30, 2017 of $2.3 million became the new cost basis of the securities. Because of the change in disposition strategy for BankMobile at September 30, 2017, Customers did not record a deferred tax asset for the other-than-temporary impairment loss recorded in third quarter 2017. In addition, Customers reversed $4.6 million of previously recorded deferred tax assets in third quarter 2017 as the tax-free spin-off/merger strategy for BankMobile does not result in capital gains that could be used to offset any capital losses resulting from the disposition of the Religare equity securities.

~~At September 30, 2017 and December 31, 2016,~~2019, Customers Bank had pledged investment securities aggregating ~~$127.6~~$20.1 million and ~~$231.3~~$20.4 million in fair value, respectively, as collateral against its borrowings primarily with ~~the FHLB and~~ an unused line of credit with another financial institution. These counterparties do not have the ability to sell or repledge these securities.

At September 30, 2020 and December 31, 2019, no securities holding of any one issuer, other than the U.S. Government and its agencies, amounted to greater than 10% of shareholders' equity.

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NOTE 86 – LOANS HELD FOR SALE

The composition of loans held for sale as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 was as follows:



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

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

September 30, 2017 December 31, 2016
(amounts in thousands)
Commercial loans:
Mortgage warehouse loans, at fair value $ 1,961,248
$ 2,116,815
Multi-family loans at lower of cost or fair value 150,217
—
Total commercial loans held for sale 2,111,465
2,116,815
Consumer loans:
Residential mortgage loans, at fair value 1,828
695
Loans held for sale $ 2,113,293
$ 2,117,510

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

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

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


(amounts in thousands)	September 30, 2020		December 31, 2019
Loans and leases receivable, mortgage warehouse, at fair value	$	3,913,593	$	2,245,758
Loans receivable, PPP	4,964,105		0
Loans receivable:
Commercial:
Multi-family	1,950,300		1,907,331
Commercial and industrial (1)	2,220,715		1,891,152
Commercial real estate owner occupied	557,595		551,948
Commercial real estate non-owner occupied	1,215,516		1,222,772
Construction	122,963		117,617
Total commercial loans and leases receivable	6,067,089		5,690,820
Consumer:
Residential real estate	335,452		382,634
Manufactured housing	64,638		71,359
Installment	1,233,713		1,174,175
Total consumer loans receivable	1,633,803		1,628,168
Loans and leases receivable (2)	7,700,892		7,318,988

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

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

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

Customers' total loans and leases receivable portfolio includes loans receivable which are reported at fair value based on an election made to account for these loans at fair value and loans and leases receivable which are predominately reported at their outstanding unpaid principal balance, net of charge-offs and deferred costs and fees and unamortized premiums and discounts and are evaluated for impairment. The total amount of accrued interest recorded for total loans was $61.9 million and $34.8 million at September 30, 2020

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and December 31, 2019, respectively, and is presented in accrued interest receivable in the consolidated balance sheet. At September 30, 2020, there were $32.1 million of individually evaluated loans that were collateral-dependent. Substantially all individually evaluated loans are collateral-dependent and consisted primarily of commercial and industrial, commercial real estate, and residential real estate loans. Collateral-dependent commercial and industrial loans were secured by accounts receivable, inventory and equipment; collateral-dependent commercial real estate loans were secured by commercial real estate assets; and residential real estate loans were secured by residential real estate assets.

Loans receivable, PPP:

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

Loans receivable, mortgage warehouse, at fair value:

Mortgage warehouse loans consist of commercial loans to mortgage ~~companies (i.e., mortgage warehouse loans).~~companies. These mortgage warehouse lending transactions are subject to master repurchase ~~agreements~~agreements. As a result of the contractual provisions, for accounting purposes control of the underlying mortgage loan has not transferred and the rewards and risks of the mortgage loans are not assumed by Customers. The mortgage warehouse loans are designated as loans held for ~~sale~~investment and reported at fair value based on an election made to account for the loans at fair value. Pursuant to the agreements, Customers funds the pipelines for these mortgage lenders by sending payments directly to the closing agents for funded mortgage loans ~~(i.e., the purchase event)~~ and receives proceeds directly from third party investors when the underlying mortgage loans are sold into the secondary ~~market (i.e., the sale event).~~market. The fair value of the mortgage warehouse loans is estimated as the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The interest rates on these loans are variable, and the lending transactions are short-term, with an average life ~~of 21~~under 30 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.

Effective June 30, 2017, Customers Bank transferred $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. At September 30, ~~2017, the estimated fair value of these loans was higher than their carrying value. Accordingly, a lower of cost or market value adjustment was not recorded in third quarter 2017.~~

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.

~~NOTE 9 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES~~

~~The following table presents loans receivable as of September 30, 2017~~2020 and December 31, ~~2016. BankMobile~~2019, all of Customers' commercial mortgage warehouse loans ~~receivable previously~~were current in terms of payment. As these loans are reported ~~as held for sale~~at their fair value, they do not have ~~been reclassified as held~~an ACL and ~~used to conform with the current period presentation.~~are therefore excluded from ACL-related disclosures.

Table of Contents

September 30, 2017 December 31, 2016
(amounts in thousands)
Commercial:
Multi-family $ 3,618,989
$ 3,214,999
Commercial and industrial (including owner occupied commercial real estate) 1,601,789
1,382,343
Commercial real estate non-owner occupied 1,237,849
1,193,715
Construction 73,203
64,789
Total commercial loans 6,531,830
5,855,846
Consumer:
Residential real estate 435,188
193,502
Manufactured housing 92,938
101,730
Other 3,819
3,483
Total consumer loans 531,945
298,715
Total loans receivable 7,063,775
6,154,561
Deferred (fees)/costs and unamortized (discounts)/premiums, net (2,437 ) 76
Allowance for loan losses (38,314 ) (37,315 )
Loans receivable, net of allowance for loan losses $ 7,023,024
$ 6,117,322

Loans and leases receivable:

The following tables summarize loans and leases receivable by loan and lease type and performance status as of September 30, ~~2017~~2020 and December 31, ~~2016:~~2019:


	September 30, 2020
(amounts in thousands)	30-59 Days past due		60-89 Days past due		90 Days or more past due		Total past due		Loans and leases not past due (2)		Total loans and leases (3)
Multi-family	$	0	$	15,446	$	4,790	$	20,236	$	1,930,064	$	1,950,300
Commercial and industrial	0		2,072		7,695		9,767		2,210,948		2,220,715

Commercial real estate owner occupied	0		952		2,436		3,388		554,207		557,595
Commercial real estate non-owner occupied	0		0		2,356		2,356		1,213,160		1,215,516
Construction	0		0		0		0		122,963		122,963
Residential real estate	436		3,160		6,327		9,923		325,529		335,452
Manufactured housing	784		608		4,463		5,855		58,783		64,638
Installment	5,468		4,609		3,098		13,175		1,220,538		1,233,713
Total	$	6,688	$	26,847	$	31,165	$	64,700	$	7,636,192	$	7,700,892

September 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)
(amounts in thousands)
Multi-family $ —
$ —
$ —
$ —
$ 3,617,062
$ 1,927
$ 3,618,989
Commercial and industrial —
—
—
20,423
1,093,997
802
1,115,222
Commercial real estate - owner occupied —
—
—
2,949
472,832
10,786
486,567
Commercial real estate - non-owner occupied —
—
—
184
1,232,212
5,453
1,237,849
Construction —
—
—
—
73,203
—
73,203
Residential real estate 1,607
—
1,607
4,269
423,551
5,761
435,188
Manufactured housing (5) 2,937
2,505
5,442
1,959
82,896
2,641
92,938
Other consumer 67
—
67
58
3,474
220
3,819
Total $ 4,611
$ 2,505
$ 7,116
$ 29,842
$ 6,999,227
$ 27,590
$ 7,063,775

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)
(amounts in thousands)
Multi-family $ 12,573
$ —
$ 12,573
$ —
$ 3,200,322
$ 2,104
$ 3,214,999
Commercial and industrial 350
—
350
8,443
978,881
1,037
988,711
Commercial real estate - owner occupied 137
—
137
2,039
379,227
12,229
393,632
Commercial real estate - non-owner occupied —
—
—
2,057
1,185,331
6,327
1,193,715
Construction —
—
—
—
64,789
—
64,789
Residential real estate 4,417
—
4,417
2,959
178,559
7,567
193,502
Manufactured housing (5) 3,761
2,813
6,574
2,236
89,850
3,070
101,730
Other consumer 12
—
12
58
3,177
236
3,483
Total $ 21,250
$ 2,813
$ 24,063
$ 17,792
$ 6,080,136
$ 32,570
$ 6,154,561


	December 31, 2019
(amounts in thousands)	30-89 Days past due (1)		90 Days or more past due (1)		Total past due (1)		Non-accrual		Current (2)		Purchased-credit-impaired loans (4)		Total loans and leases (5)
Multi-family	$	2,133	0		$	2,133	$	4,117	$	1,901,336	$	1,688	$	1,909,274
Commercial and industrial	2,395		0		2,395		4,531		1,882,700		354		1,889,980
Commercial real estate owner occupied	5,388		0		5,388		1,963		537,992		6,664		552,007
Commercial real estate non-owner occupied	8,034		0		8,034		76		1,211,892		3,527		1,223,529
Construction	0		0		0		0		118,418		0		118,418
Residential real estate	5,924		0		5,924		6,128		359,491		3,471		375,014
Manufactured housing	3,699		1,794		5,493		1,655		61,649		1,601		70,398
Installment	5,756		$	0	5,756		1,551		1,170,793		183		1,178,283
Total	$	33,329	$	1,794	$	35,123	$	20,021	$	7,244,271	$	17,488	$	7,316,903


~~(1)~~	~~Includes past due loans 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.

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

(2)Loans and leases where next payment due is less than 30 days from the report date. The September 30, 2020 table excludes PPP loans of $5.0 billion which are all current as of September 30, 2020.

(3)Includes purchased credit deteriorated loans of $14.4 million at September 30, 2020.

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

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

As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Bank had ~~$0.3~~$0.1 million and ~~$0.5~~$0.2 million, respectively, of residential real estate held in ~~other real estate owned.~~OREO. As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Bank had initiated foreclosure proceedings ~~of $1.5~~on $0.5 million and ~~$0.4~~$0.9 million, respectively, onin loans secured by residential real estate.

Table of Contents

Nonaccrual Loans and Leases

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


	September 30, 2020 (1)						December 31, 2019 (2)
(amounts in thousands)	Nonaccrual loans with no related allowance		Nonaccrual loans with related allowance		Total nonaccrual loans		Nonaccrual loans with no related allowance		Nonaccrual loans with related allowance		Total nonaccrual loans
Multi-family	$	8,749	$	2,961	$	11,710	$	4,117	$	0	$	4,117
Commercial and industrial	8,749		884		9,633		3,083		1,448		4,531

Commercial real estate owner occupied	3,399		200		3,599		1,109		854		1,963
Commercial real estate non-owner occupied	2,408		0		2,408		76		0		76

Residential real estate	10,634		0		10,634		4,559		1,569		6,128
Manufactured housing	0		2,778		2,778		0		1,655		1,655
Installment	0		3,118		3,118		140		1,411		1,551
Total	$	33,939	$	9,941	$	43,880	$	13,084	$	6,937	$	20,021

(1) Presented at amortized cost basis.

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

Interest income recognized on nonaccrual loans was insignificant during the three and nine months ended September 30, 2020. Accrued interest of $1.2 million was reversed when the loans went to nonaccrual status during the nine months ended September 30, 2020.

Allowance for ~~loan~~credit losses on loans and leases

The changes in the allowance for ~~loan~~credit losses on loans and leases for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 are presented in the tables below.


Three Months Ended September 30, 2020	Multi-family		Commercial and industrial		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Construction		Residential real estate		Manufactured housing		Installment		Total
(amounts in thousands)
Ending Balance, June 30, 2020	$	14,697	$	12,302	$	11,405	$	26,493	$	5,297	$	4,550	$	6,014	$	79,147	$	159,905


Charge-offs	0		(2,527)		(44)		(10,181)		0		0		0		(9,194)		(21,946)
Recoveries	0		2,582		0		1,258		6		17		0		784		4,647
Provision for credit loss expense	329		569		(1,809)		2,630		1,120		82		(389)		10,423		12,955
Ending Balance, September 30, 2020	$	15,026	$	12,926	$	9,552	$	20,200	$	6,423	$	4,649	$	5,625	$	81,160	$	155,561
Nine Months Ended September 30, 2020
Ending Balance, December 31, 2019	$	6,157	$	15,556	$	2,235	$	6,243	$	1,262	$	3,218	$	1,060	$	20,648	$	56,379
Cumulative effect of change in accounting principle	2,171		759		5,773		7,918		(98)		1,518		3,802		57,986		79,829
Charge-offs	0		(2,645)		(44)		(25,779)		0		0		0		(23,744)		(52,212)
Recoveries	0		2,661		5		1,258		122		72		0		1,759		5,877
Provision for loan and lease losses	6,698		(3,405)		1,583		30,560		5,137		(159)		763		24,511		65,688
Ending Balance, September 30, 2020	$	15,026	$	12,926	$	9,552	$	20,200	$	6,423	$	4,649	$	5,625	$	81,160	$	155,561

Table of Contents


Three Months Ended September 30, 2019	Multi-family		Commercial and industrial		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Construction		Residential real estate		Manufactured housing		Installment		Total
(amounts in thousands)
Ending Balance, June 30, 2019	$	9,926	$	13,736	$	3,360	$	6,159	$	649	$	4,168	$	123	$	10,267	$	48,388
Charge-offs	0		(349)		(45)		0		0		0		0		(1,806)		(2,200)

Recoveries	0		369		10		0		8		5		0		47		439
Provision for loan and lease losses	(2,428)		2,119		(435)		281		1		(90)		904		4,074		4,426
Ending Balance, September 30, 2019	$	7,498	$	15,875	$	2,890	$	6,440	$	658	$	4,083	$	1,027	$	12,582	$	51,053
Nine Months Ended September 30, 2019
Ending Balance, December 31, 2018	$	11,462	$	12,145	$	3,320	$	6,093	$	624	$	3,654	$	145	$	2,529	$	39,972
Charge-offs	(541)		(532)		(119)		0		0		(109)		0		(3,493)		(4,794)

Recoveries	7		826		235		0		128		20		0		120		1,336
Provision for loan and lease losses	(3,430)		3,436		(546)		347		(94)		518		882		13,426		14,539
Ending Balance, September 30, 2019	$	7,498	$	15,875	$	2,890	$	6,440	$	658	$	4,083	$	1,027	$	12,582	$	51,053

At September 30, 2020, the ACL was $155.6 million, an increase of $19.4 million from the January 1, 2020 balance of $136.2 million. The increase resulted primarily from the impact of reserve build for the COVID-19 pandemic including the change in macroeconomic forecasts, an increase in net charge-offs, mostly attributed to the commercial real estate non-owner occupied and installment portfolios, and portfolio growth mainly in the installment portfolio. Commercial real estate non-owner occupied charge-offs are attributable to two collateral dependent loans. Installment charge-offs are attributable to delinquencies and defaults of originated and purchased unsecured consumer installment loans through arrangements with fintech companies and ~~allowance~~other market place lenders.

PPP loans include an embedded credit enhancement guarantee from the SBA, which guarantees 100% of all principal and interest owed by the borrower. Therefore, Customers did not include an ACL for ~~loan losses by loan class based on impairment evaluation method~~PPP loans as of September 30, 2017 and December 31, 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 for periods prior to the termination of the FDIC loss sharing arrangements.

Three Months Ended
September 30, 2017
Multi-family Commercial and Industrial Commercial Real Estate Owner Occupied Commercial
Real Estate Non-Owner Occupied Construction Residential
Real Estate Manufactured
Housing Other Consumer Total
(amounts in thousands)
Ending Balance,
June 30, 2017
$ 12,028
$ 11,585
$ 2,976
$ 7,786
$ 716
$ 2,995
$ 268
$ 104
$ 38,458
Charge-offs —
(2,032 ) —
(77 ) —
(120 ) —
(356 ) (2,585 )
Recoveries —
54
—
—
27
7
—
1
89
Provision for loan losses 668
966
262
(53 ) 104
72
(77 ) 410
2,352
Ending Balance,
September 30, 2017
$ 12,696
$ 10,573
$ 3,238
$ 7,656
$ 847
$ 2,954
$ 191
$ 159
$ 38,314
Nine Months Ended
September 30, 2017

Ending Balance,
December 31, 2016
$ 11,602
$ 11,050
$ 2,183
$ 7,894
$ 840
$ 3,342
$ 286
$ 118
$ 37,315
Charge-offs —
(4,079 ) —
(485 ) —
(410 ) —
(602 ) (5,576 )
Recoveries —
337
9
—
157
34
—
101
638
Provision for loan losses 1,094
3,265
1,046
247
(150 ) (12 ) (95 ) 542
5,937
Ending Balance,
September 30, 2017
$ 12,696
$ 10,573
$ 3,238
$ 7,656
$ 847
$ 2,954
$ 191
$ 159
$ 38,314

As of September 30, 2017
Loans:
Individually evaluated for impairment $ —
$ 20,493
$ 2,950
$ 184
$ —
$ 8,178
$ 10,340
$ 56
$ 42,201
Collectively evaluated for impairment 3,617,062
1,093,927
472,831
1,232,212
73,203
421,249
79,957
3,543
6,993,984
Loans acquired with credit deterioration 1,927
802
10,786
5,453
—
5,761
2,641
220
27,590
$ 3,618,989
$ 1,115,222
$ 486,567
$ 1,237,849
$ 73,203
$ 435,188
$ 92,938
$ 3,819
$ 7,063,775
Allowance for loan losses:
Individually evaluated for impairment $ —
$ 625
$ 740
$ —
$ —
$ 142
$ 5
$ 15
$ 1,527
Collectively evaluated for impairment 12,696
9,462
2,481
4,732
847
2,222
83
93
32,616
Loans acquired with credit deterioration —
486
17
2,924
—
590
103
51
4,171
$ 12,696
$ 10,573
$ 3,238
$ 7,656
$ 847
$ 2,954
$ 191
$ 159
$ 38,314

Three Months Ended
September 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,
June 30, 2016
$ 12,368
$ 10,370
$ 1,582
$ 8,483
$ 1,209
$ 3,535
$ 440
$ 110
$ 38,097
Charge-offs —
(237 ) —
(140 ) —
(43 ) —
(246 ) (666 )
Recoveries —
62
—
—
8
298
—
10
378
Provision for loan losses (695 ) 832
305
3
(168 ) (411 ) (18 ) 240
88
Ending Balance,
September 30, 2016
$ 11,673
$ 11,027
$ 1,887
$ 8,346
$ 1,049
$ 3,379
$ 422
$ 114
$ 37,897
Nine Months Ended
September 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 —
(774 ) —
(140 ) —
(456 ) —
(478 ) (1,848 )
Recoveries —
173
—
8
465
299
—
10
955
Provision for loan losses (343 ) 2,764
539
58
(490 ) 238
(72 ) 449
3,143
Ending Balance,
September 30, 2016
$ 11,673
$ 11,027
$ 1,887
$ 8,346
$ 1,049
$ 3,379
$ 422
$ 114
$ 37,897
As of December 31, 2016
Loans:
Individually evaluated for impairment $ —
$ 8,516
$ 2,050
$ 2,151
$ —
$ 6,972
$ 9,665
$ 57
$ 29,411
Collectively evaluated for impairment 3,212,895
979,158
379,353
1,185,237
64,789
178,963
88,995
3,190
6,092,580
Loans acquired with credit deterioration 2,104
1,037
12,229
6,327
—
7,567
3,070
236
32,570
$ 3,214,999
$ 988,711
$ 393,632
$ 1,193,715
$ 64,789
$ 193,502
$ 101,730
$ 3,483
$ 6,154,561
Allowance for loan losses:
Individually evaluated for impairment $ —
$ 1,024
$ 287
$ 14
$ —
$ 35
$ —
$ —
$ 1,360
Collectively evaluated for impairment 11,602
9,686
1,896
4,626
772
2,414
88
60
31,144
Loans acquired with credit deterioration —
340
—
3,254
68
893
198
58
4,811
$ 11,602
$ 11,050
$ 2,183
$ 7,894
$ 840
$ 3,342
$ 286
$ 118
$ 37,315

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 September 30, 2017 and December 31, 2016, funds available for reimbursement, if necessary, were $0.7 million and $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 were individually evaluated for impairment as of September 30, 2017 and December 31, 2016 and the average recorded investment and interest income recognized for the three and nine months ended September 30, 2017 and 2016. Purchased-credit-impaired loans are considered to be performing and are not included in the tables below.

September 30, 2017
Three Months Ended
September 30, 2017

Nine Months Ended
September 30, 2017

Recorded
Investment
Net of
Charge offs

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized
(amounts in thousands)
With no related allowance recorded:
Commercial and industrial $ 19,433
$ 22,354
$ —
$ 13,345
$ 354
$ 8,796
$ 450
Commercial real estate owner occupied 1,669
1,936
—
1,744
15
1,589
18
Commercial real estate non-owner occupied 184
428
—
184
91
989
93
Other consumer 32
32
—
44
—
50
—
Residential real estate 7,457
7,664
—
5,228
125
4,865
126
Manufactured housing 10,340
10,340
—
10,243
164
10,038
457
With an allowance recorded:
Commercial and industrial 1,060
1,331
625
1,963
—
5,400
22
Commercial real estate owner occupied 1,281
1,281
740
1,056
1
950
3
Commercial real estate non-owner occupied —
—
—
51
—
94
—
Other consumer 24
24
15
12
—
6
—
Residential real estate 721
741
142
2,862
—
2,729
84
Manufactured housing —
—
5
114
—
108
8
Total $ 42,201
$ 46,131
$ 1,527
$ 36,846
$ 750
$ 35,614
$ 1,261

December 31, 2016
Three Months Ended
September 30, 2016

Nine Months Ended
September 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
(amounts in thousands)
With no related allowance recorded:
Multi-family $ —
$ —
$ —
$ 2,080
$ 38
$ 1,205
$ 38
Commercial and industrial 2,396
3,430
—
21,859
406
18,681
879
Commercial real estate owner occupied 1,210
1,210
—
10,182
201
9,651
403
Commercial real estate non-owner occupied 2,002
2,114
—
7,983
118
6,081
133
Other consumer 57
57
—
43
—
45
—
Residential real estate 6,682
6,749
—
3,835
39
4,039
83
Manufactured housing 9,665
9,665
—
8,971
9
8,785
290
With an allowance recorded:
Multi-family —
—
—
383
5
290
15
Commercial and industrial 6,120
6,120
1,024
7,561
43
7,256
155
Commercial real estate - owner occupied 840
840
287
—
—
6
—
Commercial real estate non-owner occupied 149
204
14
328
2
438
6
Other consumer —
—
—
—
—
36
—
Residential real estate 290
303
35
300
—
421
—
Total $ 29,411
$ 30,692
$ 1,360
$ 63,525
$ 861
$ 56,934
$ 2,002
2020.

Troubled Debt Restructurings

At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were ~~$20.8~~$16.1 million and ~~$16.4~~$13.3 million, respectively, in loans reported as ~~troubled debt restructurings (“TDRs”).~~TDRs. TDRs are reported as impaired loans in the ~~calendar year~~quarter of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent ~~years,~~quarters, a TDR may be returned to accrual status if it satisfies a minimum ~~six-month~~ performance requirement of six months, however, it will remain classified as impaired. Generally, the Bank requires sustained performance for nine months before returning a TDR to accrual status.

~~Modification of purchased-credit-impaired loans~~ Customers had 0 lease receivables 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 forhad been restructured as a ~~single asset with~~TDR as of September 30, 2020 and December 31, 2019, respectively.

The CARES Act and certain regulatory agencies recently issued guidance stating certain loan modifications to borrowers experiencing financial distress as a ~~single composite interest rate~~result of the economic impacts created by COVID-19 may not be required to be treated as TDRs under U.S GAAP. For COVID-19 related loan modifications which met the loan modification criteria under either the CARES Act or the criteria specified by the regulatory agencies, Customers elected to suspend TDR accounting for such loan modifications. At September 30, 2020, commercial and ~~an aggregate expectation~~consumer deferments related to COVID-19 were $79.0 million and $25.0 million, respectively.

Table of ~~cash flows, modifications of loans within such pools are not considered TDRs.~~Contents

The following table presents loans modified in a ~~troubled debt restructuring~~TDR by type of concession for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019. There were no0 modifications that involved forgiveness of ~~debt.~~

Three Months Ended
September 30, 2017

Three Months Ended
September 30, 2016
Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
(dollars in thousands)
Extensions of maturity 1
$ 60
—
$ —
Interest-rate reductions 3
122
10
533
Total 4
$ 182
10
$ 533

Nine Months Ended
September 30, 2017

Nine Months Ended
September 30, 2016
Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
(dollars in thousands)
Extensions of maturity 4
$ 6,263
3
$ 1,995
Interest-rate reductions 32
1,297
49
1,932
Total 36
$ 7,560
52
$ 3,927

~~The following table provides, by loan type, the number of loans modified in troubled~~ debt ~~restructurings, and the related recorded investment, during~~for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~

2019.

Three Months Ended
September 30, 2017

Three Months Ended
September 30, 2016
Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
(dollars in thousands)
Commercial and industrial —
$ —
—
$ —
Manufactured housing 4
182
10
533
Residential real estate —
—
—
—
Total loans 4
$ 182
10
$ 533


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment
Extensions of maturity	0	$	0	0	$	0	6	$	385	2	$	514
Interest-rate reductions	2	88		7	196		34	1,461		19	628
Other (1)	65	1,385		0	0		65	1,385		0	0
Total	67	$	1,473	7	$	196	105	$	3,231	21	$	1,142

Nine Months Ended
September 30, 2017

Nine Months Ended
September 30, 2016
Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
(dollars in thousands)
Commercial and industrial 3
$ 6,203
1
$ 76
Commercial real estate non-owner occupied —
—
1
1,844
Manufactured housing 33
1,357
47
1,716
Residential real estate —
—
3
291
Total loans 36
$ 7,560
52
$ 3,927

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

As of September 30, ~~2017, except for one commercial~~2020 and ~~industrial loan with an outstanding commitment of $2.3 million,~~December 31, 2019, there were ~~no other~~0 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~~

The following table presents, by loan type, the number of loans ~~have been~~ modified in TDRs ~~at December 31, 2016.~~

~~As of September 30, 2017, ten manufactured housing loans totaling $0.5 million that were modified in TDRs~~and the related recorded investment, for which there was a payment default within ~~the past~~ twelve months ~~defaulted on payments. As of September 30, 2016, five manufactured housing loans totaling $0.1 million, that were modified in TDRs within~~following the ~~past twelve months, defaulted on payments.~~modification:


	September 30, 2020			September 30, 2019
(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment
Manufactured housing	5	$	201	3	$	76

Commercial real estate owner occupied	1	952		0	0
Residential real estate	1	95		1	82
Installment	8	$	126	0	$	0
Total loans	15	$	1,374	4	$	158

Loans modified in ~~troubled debt restructurings~~TDRs are evaluated for impairment. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses. There was no allowance recorded as a result of TDR modifications during the three months ended September 30, 2017. For the nine months ended September 30, 2017, there was one allowance recorded resulting from TDR modifications, totaling $1 thousand for one manufactured housing loan. There was one specific allowance totaling $29 thousand for one commercial real estate non-owner occupied loan resulting from TDR modifications during the three and nine months ended September 30, 2016.

ACL.

Purchased ~~Credit Impaired~~Credit-Deteriorated Loans

~~The changes in accretable yield related~~Customers adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, Customers did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to ~~purchased-credit-impaired loans for~~reflect the ~~three and nine months ended September 30, 2017 and 2016 were as follows:~~

Three Months Ended September 30,
2017 2016
(amounts in thousands)
Accretable yield balance as of June 30, $ 9,006
$ 11,165
Accretion to interest income (368 ) (460 )
Reclassification from nonaccretable difference and disposals, net (276 ) 107
Accretable yield balance as of September 30, $ 8,362
$ 10,812

Nine Months Ended September 30,
2017 2016
(amounts in thousands)
Accretable yield balance as of December 31, $ 10,202
$ 12,947
Accretion to interest income (1,326 ) (1,429 )
Reclassification from nonaccretable difference and disposals, net (514 ) (706 )
Accretable yield balance as of September 30, $ 8,362
$ 10,812

~~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 valueaddition of ~~expected cash flows on the covered loans were recognized by increasing~~$0.2 million of the allowance for ~~loan~~credit 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 flowson PCD loans and leases. The remaining noncredit discount of $0.3 million, based on the ~~covered loans increased such that a previously recorded impairment could~~adjusted amortized cost basis, will be ~~reversed,~~accreted into interest income at 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 were no previously recorded impairments, were considered together and recognized over the remaining lifeeffective interest rate as of ~~the loans as interest income. Decreases in the valuations~~January 1, 2020. As 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~~2020, the amortized cost basis of PCD assets amounted 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 were no longer presented as covered assets as of June 30, 2016.$14.4 million.

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 nine months ended September 30, 2017 and 2016.

Allowance for Loan Losses
Three Months Ended September 30,
(amounts in thousands) 2017 2016
Ending balance as of June 30, $ 38,458
$ 38,097
Provision for loan losses (1) 2,352
88
Charge-offs (2,585 ) (666 )
Recoveries 89
378
Ending balance as of September 30, $ 38,314
$ 37,897

FDIC Loss Sharing Receivable/
Clawback Liability
Three Months Ended September 30,
(amounts in thousands) 2017 2016
Ending balance as of June 30, $ —
$ (1,381 )
Cash payments to the FDIC —
1,381
Ending balance as of September 30, $ —
$ —

(1) Provision for loan losses $ 2,352
$ 88
Net amount reported as provision for loan losses $ 2,352
$ 88

Allowance for Loan Losses
Nine Months Ended September 30,
(amounts in thousands) 2017 2016
Ending balance as of December 31, $ 37,315
$ 35,647
Provision for loan losses (1) 5,937
3,143
Charge-offs (5,576 ) (1,848 )
Recoveries 638
955
Ending balance as of September 30, $ 38,314
$ 37,897

FDIC Loss Sharing Receivable/
Clawback Liability
Nine Months Ended September 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 —
2,049
Ending balance as of September 30, $ —
$ —

(1) Provision for loan losses $ 5,937
$ 3,143
(2) Effect attributable to FDIC loss share arrangements —
(289 )
Net amount reported as provision for loan losses $ 5,937
$ 2,854

~~(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

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

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

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repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis during the month preceding the end of the calendar quarter. While assigning risk ratings involves judgment, the risk-rating process allows management to identify riskier credits in a timely manner and allocate the appropriate resources to manage those ~~loans.~~

loans and leases. The 2019 Form 10-K describes Customers Bancorp’s 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.grades.

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

The following tables present the credit ratings of loans and leases receivable as of September 30, ~~2017~~2020 and December 31, ~~2016.~~2019. PPP loans are excluded in the tables below as these loans are fully guaranteed by the SBA.


	Term Loans Amortized Cost Basis by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total






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






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

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September 30, 2017
Multi-family
Commercial
and
Industrial

Commercial
Real Estate Owner Occupied
Commercial Real Estate Non-Owner Occupied Construction
Residential
Real Estate
Manufactured Housing Other Consumer Total
(amounts in thousands)
Pass/Satisfactory $ 3,577,304
$ 1,080,797
$ 468,389
$ 1,212,945
$ 73,203
$ 431,364
$ —
$ —
$ 6,844,002
Special Mention 36,604
8,663
9,716
22,008
—
—
—
—
76,991
Substandard 5,081
25,762
8,462
2,896
—
3,824
—
—
46,025
Performing (1) —
—
—
—
—
—
85,537
3,694
89,231
Non-performing (2) —
—
—
—
—
—
7,401
125
7,526
Total $ 3,618,989
$ 1,115,222
$ 486,567
$ 1,237,849
$ 73,203
$ 435,188
$ 92,938
$ 3,819
$ 7,063,775


	December 31, 2019
(amounts in thousands)	Multi-family		Commercial and industrial		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Construction		Residential real estate		Manufactured housing		Installment		Total (3)
Pass/Satisfactory	$	1,816,200	$	1,841,074	$	536,777	$	1,129,838	$	118,418	$	0	$	0	$	0	$	5,442,307
Special Mention	69,637		26,285		8,286		6,949		0		0		0		0		111,157
Substandard	23,437		22,621		6,944		86,742		0		0		0		0		139,744
Performing (1)	0		0		0		0		0		362,962		63,250		1,170,976		1,597,188
Non-performing (2)	0		0		0		0		0		12,052		7,148		7,307		26,507
Total	$	1,909,274	$	1,889,980	$	552,007	$	1,223,529	$	118,418	$	375,014	$	70,398	$	1,178,283	$	7,316,903

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
(amounts in thousands)
Pass/Satisfactory $ 3,198,290
$ 954,846
$ 375,919
$ 1,175,850
$ 50,291
$ 189,919
$ —
$ —
$ 5,945,115
Special Mention —
19,552
12,065
10,824
14,498
—
—
—
56,939
Substandard 16,709
14,313
5,648
7,041
—
3,583
—
—
47,294
Performing (1) —
—
—
—
—
—
92,920
3,413
96,333
Non-performing (2) —
—
—
—
—
—
8,810
70
8,880
Total $ 3,214,999
$ 988,711
$ 393,632
$ 1,193,715
$ 64,789
$ 193,502
$ 101,730
$ 3,483
$ 6,154,561
(1)Includes residential real estate, manufactured housing, and installment loans not assigned internal ratings.

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


~~(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.~~

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

Loan Purchases and Sales

~~In first quarter 2017, Customers purchased $174.2 million~~Purchases and sales of ~~thirty-year fixed-rate residential mortgage~~ loans ~~from Florida-based Everbank.~~were as follows for the three and nine months ended September 30, 2020 and 2019:


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





Residential real estate	$	0	$	0	$	495	$	105,858

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

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

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



Installment	0		0		1,822		0
Total	$	21,568	$	0	$	23,390	$	0

(1)Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was ~~98.5%~~98.1% and 96.3% of 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 duringoutstanding for the three months ended September 30, ~~2017~~2020 and ~~during the three or nine months ended September 30, 2016.~~

~~In first quarter 2017, Customers sold $94.9 million~~2019, respectively. The purchase price was 100.2% and 99.4% of ~~multi-family~~ loans outstanding 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 third quarter 2017, Customers sold $11.0 million of SBA loans resulting in a gain on sale of $1.1 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. There were no loan sales during the third quarter 2016.

~~None of these purchases and sales during~~ the nine months ended September 30, ~~2017~~2020 and ~~2016 materially affected~~2019, respectively.

(2)Installment loan purchases for the ~~credit profile~~three and nine months ended September 30, 2020 and 2019 consist of ~~Customers’ related~~third-party originated unsecured consumer loans. None of the loans are considered sub-prime at the time of origination. Customers considers sub-prime borrowers to be those with FICO scores below 660.

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

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

Loans Pledged as Collateral

Customers has pledged eligible real estate and commercial and industrial loans as collateral for ~~potential~~ borrowings from the ~~Federal Home Loan Bank of Pittsburgh ("FHLB")~~FHLB and FRB in the amount of ~~$5.5~~$8.9 billion and $4.6 billion at September 30, ~~2017, compared~~2020 and December 31, 2019, respectively. The increase in loans pledged as collateral relates to $4.8 billion of PPP loans that were pledged to the FRB in accordance with borrowing from the PPPLF.

NOTE 8 — LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 2 month and 7 years. These operating leases comprise substantially all of Customers' obligations in which Customers is the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or right of use asset and are recognized in the period in which the obligation for those payments are incurred. Customers' operating lease agreements do not contain any material residual value guarantees

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or material restrictive covenants. Pursuant to these agreements, Customers does not have any commitments that would meet the definition of a finance lease.

As most of Customers' operating leases do not provide an implicit rate, Customers utilized its incremental borrowing rate based on the information available at either the adoption of ASC 842 or the commencement date of the lease, whichever was later, when determining the present value of lease payments.

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


(amounts in thousands)	Classification	September 30, 2020		December 31, 2019
ASSETS
Operating lease ROU assets	Other assets	$	18,419	$	20,232
LIABILITIES
Operating lease liabilities	Other liabilities	$	19,813	$	21,358

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


		Three Months Ended September 30,				Nine Months Ended September 30,
(amounts in thousands)	Classification	2020		2019		2020		2019
Operating lease cost (1)	Occupancy expenses	$	1,643	$	1,470	$	4,597	$	4,400

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

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


(amounts in thousands)	September 30, 2020
2020	$	2,610
2021	5,134
2022	4,653
2023	3,759
2024	2,673
Thereafter	3,026
Total minimum payments	21,855
Less: interest	2,042
Present value of lease liabilities	$	19,813

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

The following table summarizes the weighted average remaining lease term and discount rate for Customers' operating leases at September 30, 2020 and December 31, ~~2016.~~2019:

(amounts in thousands)

September 30, 2020

December 31, 2019

Weighted average remaining lease term (years)

Operating leases

4.6 years

5.0 years

Weighted average discount rate

Operating leases

2.69

2.90

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Equipment Lessor

CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance Group. CCF is primarily focused on originating equipment operating and direct finance equipment leases for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. Lease terms typically range from 24 months to 120 months. CCF offers the following lease products: Capital Lease, Purchase Upon Termination, TRAC, Split-TRAC, and FMV. Direct finance equipment leases are included in commercial and industrial loans and leases receivable.

The estimated residual values for direct finance and operating leases are established by utilizing internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. For the direct finance leases, only Customers' Split-TRAC leases have residual risk and the unguaranteed portions are typically nominal. Expected credit losses on direct financing leases and the related estimated residual values are included in the allowance for credit losses on loans and leases.

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

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


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

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

COVID-19 Impact on Leases

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

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NOTE 9 - BORROWINGS

Short-term debt

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


	September 30, 2020				December 31, 2019
(dollars in thousands)	Amount		Rate		Amount		Rate

FHLB advances	$	850,000	1.24	%	$	500,000	2.15	%
Federal funds purchased	680,000		0.14	%	538,000		1.60	%
Total short-term debt	$	1,530,000			$	1,038,000

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



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

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

Long-term debt

FHLB and FRB advances

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



	September 30, 2020				December 31, 2019
(dollars in thousands)	Amount		Rate		Amount		Rate

FHLB advances	$	0	0	%	$	350,000	2.36	%
FRB PPP Liquidity Facility advances	4,811,009		0.35	%	0		0	%
Total long-term FHLB and FRB advances	$	4,811,009			$	350,000

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

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



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

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

Senior and Subordinated Debt

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


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

Total other borrowings		123,935		123,630

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

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

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

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

NOTE 10 ~~- BORROWINGS~~

In June 2017, Customers Bancorp issued $100 million of senior notes at 99.775% of face value. The price to purchasers represents a yield-to-maturity of 4.0% on the fixed coupon rate of 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.

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

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Bank and the Bancorp satisfied all capital requirements to which they were subject.

The Dodd-Frank Act required the 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 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 sheet items in determining risk weighted assets.

Generally, to ~~be considered~~comply with the regulatory definition of adequately capitalized, or well capitalized, respectively, or to comply with the Basel III capital requirements, an institution must at least maintain the common equity Tier 1, Tier 1 and total ~~risk based~~risk-based capital ratios and the Tier 1 leverage ratio in excess of the related minimum ratios as set forth in the following table:


																		Minimum Capital Levels to be Classified as:
	Actual				For Capital Adequacy Purposes (Minimum Plus Capital Buffer)				To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				Adequately Capitalized				Well Capitalized				Basel III Compliant
(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2017:
Common equity Tier 1 capital (to risk weighted assets)
As of September 30, 2020:													As of September 30, 2020:
Common equity Tier 1 capital (to risk-weighted assets)													Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	677,976	8.284	%	$	470,603	5.750	%	N/A		N/A		Customers Bancorp, Inc.	$	902,174	7.488	%	$	542,199	4.500	%	N/A		N/A		$	843,420	7.000	%
Customers Bank	$	1,009,380	12.342	%	$	470,242	5.750	%	$	531,578	6.500	%	Customers Bank	$	1,217,159	10.120	%	$	541,217	4.500	%	$	781,757	6.500	%	$	841,892	7.000	%
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to risk-weighted assets)													Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	895,447	10.941	%	$	593,369	7.250	%	N/A		N/A		Customers Bancorp, Inc.	$	1,119,645	9.293	%	$	722,932	6.000	%	N/A		N/A		$	1,024,153	8.500	%
Customers Bank	$	1,009,380	12.342	%	$	592,914	7.250	%	$	654,250	8.000	%	Customers Bank	$	1,217,159	10.120	%	$	721,622	6.000	%	$	962,163	8.000	%	$	1,022,298	8.500	%
Total capital (to risk weighted assets)
Total capital (to risk-weighted assets)													Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,014,784	12.399	%	$	757,057	9.250	%	N/A		N/A		Customers Bancorp, Inc.	$	1,361,237	11.298	%	$	963,909	8.000	%	N/A		N/A		$	1,265,130	10.500	%
Customers Bank	$	1,156,766	14.145	%	$	756,477	9.250	%	$	817,813	10.000	%	Customers Bank	$	1,397,059	11.616	%	$	962,163	8.000	%	$	1,202,704	10.000	%	$	1,262,839	10.500	%
Tier 1 capital (to average assets)													Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	895,447	8.355	%	$	428,709	4.000	%	N/A		N/A		Customers Bancorp, Inc.	$	1,119,645	8.534	%	$	524,799	4.000	%	N/A		N/A		$	524,799	4.000	%
Customers Bank	$	1,009,380	9.434	%	$	427,963	4.000	%	$	534,954	5.000	%	Customers Bank	$	1,217,159	9.288	%	$	524,203	4.000	%	$	655,254	5.000	%	$	524,203	4.000	%
As of December 31, 2016:
Common equity Tier 1 capital (to risk weighted assets)
As of December 31, 2019:													As of December 31, 2019:
Common equity Tier 1 capital (to risk-weighted assets)													Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	628,139	8.487	%	$	379,306	5.125	%	N/A		N/A		Customers Bancorp, Inc.	$	821,810	7.984	%	$	463,211	4.500	%	N/A		N/A		$	720,551	7.000	%
Customers Bank	$	857,421	11.626	%	$	377,973	5.125	%	$	479,380	6.500	%	Customers Bank	$	1,164,652	11.323	%	$	462,842	4.500	%	$	668,549	6.500	%	$	719,976	7.000	%
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to risk-weighted assets)													Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	844,755	11.414	%	$	490,322	6.625	%	N/A		N/A		Customers Bancorp, Inc.	$	1,039,281	10.096	%	$	617,615	6.000	%	N/A		N/A		$	874,955	8.500	%
Customers Bank	$	857,421	11.626	%	$	488,599	6.625	%	$	590,006	8.000	%	Customers Bank	$	1,164,652	11.323	%	$	617,122	6.000	%	$	822,829	8.000	%	$	874,256	8.500	%
Total capital (to risk weighted assets)
Total capital (to risk-weighted assets)													Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	966,097	13.053	%	$	638,343	8.625	%	N/A		N/A		Customers Bancorp, Inc.	$	1,256,309	12.205	%	$	823,487	8.000	%	N/A		N/A		$	1,080,827	10.500	%
Customers Bank	$	1,003,609	13.608	%	$	636,101	8.625	%	$	737,508	10.000	%	Customers Bank	$	1,330,155	12.933	%	$	822,829	8.000	%	$	1,028,537	10.000	%	$	1,079,964	10.500	%
Tier 1 capital (to average assets)													Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	844,755	9.067	%	$	372,652	4.000	%	N/A		N/A		Customers Bancorp, Inc.	$	1,039,281	9.258	%	$	449,026	4.000	%	N/A		N/A		$	449,026	4.000	%
Customers Bank	$	857,421	9.233	%	$	371,466	4.000	%	$	464,333	5.000	%	Customers Bank	$	1,164,652	10.379	%	$	448,851	4.000	%	$	561,064	5.000	%	$	448,851	4.000	%

The ~~risk-based capital rules adopted effective January 1, 2015~~Basel III Capital Rules require that ~~banks and holding companies~~we maintain a "capital conservation buffer" of 250 basis points in excess of the "minimum capital ratio." The minimum capital ratio is equal to the prompt corrective action adequately capitalized threshold ratio. The2.500% capital conservation buffer ~~is being phased in over four years beginning on January~~with respect to each of CET1, Tier 1 ~~2016,~~and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a ~~maximum~~conservation buffer of ~~0.625% of risk weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter.~~

~~Effective January 1, 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 5.750%;~~

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

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

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

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NOTE 1211 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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

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

The following methods and assumptions were used to estimate the fair values of Customers' financial instruments as of September 30, ~~2017~~2020 and December 31, ~~2016:~~2019:

~~Cash and cash equivalents:~~

~~The carrying amounts reported~~Financial Instruments Recorded at Fair Value on the balance sheet for cash and cash equivalents approximate those assets’ fair values. These assets are classified as Level 1 fair values, based upon the lowest level of input that is significant to the fair value measurements.a Recurring Basis

Investment securities:

The fair values of ~~investment~~equity securities, available for sale debt securities and debt securities reported at fair value based on a fair value option election are determined by obtaining quoted market prices on nationally recognized and foreign securities exchanges (Level 1), quoted prices in markets that are not active (Level 2), matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or internally and externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). These assets are classified as Level 1, 2 or 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

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

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

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

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Loans ~~held for sale~~receivable - Commercial mortgage warehouse ~~loans:~~loans (fair value option):

The fair value of commercial mortgage warehouse loans is the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The loan is used by mortgage companies as short-term bridge financing between the funding of the mortgage loans and the finalization of the sale of the loans to an investor. Changes in fair value are not generally expected to be recognized because at inception of the transaction the underlying mortgage loans have already been sold to an approved investor. Additionally, the interest rate is variable, and the transaction is short-term, with an average life of 21under 30 days from purchase to sale. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

~~Loans held for sale - Multifamily loans:~~Derivatives (assets and liabilities):

The fair values of ~~multi-family loans held~~interest rate swaps, interest rate caps and credit derivatives are determined using models that incorporate readily observable market data into a market standard methodology. This methodology nets the discounted future cash receipts and the discounted expected cash payments. The discounted variable cash receipts and payments are based on expectations of future interest rates derived from observable market interest rate curves. In addition, fair value is adjusted for ~~sale are estimated using pricing indications from letters~~the effect of ~~intent with third party investors, recent sale transactions within the secondary markets~~nonperformance risk by incorporating credit valuation adjustments for ~~loans with similar characteristics, non-binding indicative bids from brokers, or estimates made by management considering current market rates~~Customers and ~~terms.~~its counterparties. These assets and liabilities are ~~included~~classified as Level 32 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~~the residential mortgage loan commitments are derived from the estimated ~~using discounted cash flows and market rates at~~fair values that can be generated when the ~~balance sheet date that reflect the credit and interest rate-risk inherent~~underlying mortgage loan is sold in the ~~loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments~~secondary market. Customers generally uses commitments on hand from third party investors to estimate an exit price and ~~prepayments~~adjusts for the probability of ~~principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are~~the commitment being exercised based on ~~carrying values.~~Customers' internal experience (i.e., pull-through rate). These assets and liabilities are classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

~~Impaired~~Derivative assets and liabilities are presented in "Other assets" and "Accrued interest payable and other liabilities" on the consolidated balance sheet.

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

Financial Instruments Recorded at Fair Value on a Nonrecurring Basis

Collateral-dependent loans:

~~Impaired~~Collateral-dependent loans are those loans that are accounted for under ASC ~~310,~~ ~~Receivables~~326, Financial Instruments - Credit Losses, in which the Bank has measured impairment generally based on the fair value of the loan’s collateral or discounted cash flow analysis. Fair value is generally determined based upon independent third-party appraisals of the properties that collateralize the loans, or discounted cash flows based upon the expected ~~proceeds.~~proceeds, sales agreements or letters of intent with third parties. These assets are generally classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Other real estate owned:

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

~~Deposit liabilities:~~

The fair values disclosed for interest and non-interest bearing 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 classified as Level 1 fair values, based upon the lowest level

Table of ~~input that is significant to the fair value measurements.~~Contents

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 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 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 overnight borrowings, the carrying amounts are considered reasonable estimates of fair value and are classified as Level 1 fair value measurements. Fair values of 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 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 cash receipts and the discounted expected cash payments. The discounted variable cash receipts and payments are based on expectations of future interest rates derived from observable market interest rate curves. In addition, fair value is adjusted for the effect of nonperformance risk by incorporating credit valuation adjustments for the Bank and its counterparties. These assets and liabilities are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

The fair values of the residential mortgage loan commitments are derived from the estimated fair values that can be generated when the underlying mortgage loan is sold in the secondary market. The Bank generally uses commitments on hand from third- party investors to estimate an exit price and adjusts for the probability of the commitment being exercised based on the Bank’s internal experience (i.e., pull-through rate). These assets and liabilities are classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

~~Derivative assets and liabilities are presented in "Other assets" and "Accrued interest payable and other liabilities" on the consolidated balance sheet.~~

~~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 September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were as follows. ~~BankMobile assets and liabilities previously reported as held for sale have been reclassified as held and used to conform with the current period presentation.~~


					Fair Value Measurements at September 30, 2020
(amounts in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	331,416	$	331,416	$	331,416	$	0	$	0
Debt securities, available for sale	1,131,365		1,131,365		0		1,131,365		0

Equity securities	2,466		2,466		2,466		0		0
Loans held for sale	26,689		26,689		0		6,998		19,691

Total loans and leases receivable, net of allowance for credit losses on loans and leases	16,423,029		17,070,867		0		3,913,593		13,157,274
FHLB, Federal Reserve Bank and other restricted stock	70,387		70,387		0		70,387		0
Derivatives	60,810		60,810		0		60,355		455

Liabilities:
Deposits	$	10,839,077	$	10,843,133	$	9,866,651	$	976,482	$	0

FRB advances	4,811,009		4,811,009		0		4,811,009		0

Federal funds purchased	680,000		680,000		680,000		0		0
FHLB advances	850,000		854,104		0		854,104		0
Other borrowings	123,935		102,594		0		102,594		0
Subordinated debt	181,324		178,958		0		178,958		0
Derivatives	110,649		110,649		0		110,649		0


					Fair Value Measurements at December 31, 2019
(amounts in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	212,505	$	212,505	$	212,505	$	0	$	0
Debt securities, available for sale	577,198		577,198		0		577,198		0
Interest-only GNMA securities	16,272		16,272		0		0		16,272
Equity securities	2,406		2,406		2,406		0		0
Loans held for sale	486,328		486,328		0		2,130		484,198

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

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

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

Fair Value Measurements at September 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)
(amounts in thousands)
Assets:
Cash and cash equivalents $ 219,480
$ 219,480
$ 219,480
$ —
$ —
Investment securities, available for sale 584,823
584,823
2,311
582,512
—
Loans held for sale 2,113,293
2,113,473
—
1,963,076
150,397
Loans receivable, net of allowance for loan losses 7,023,024
7,020,487
—
—
7,020,487
FHLB, Federal Reserve Bank and other restricted stock 98,611
98,611
—
98,611
—
Derivatives 10,447
10,447
—
10,344
103
Liabilities:
Deposits $ 7,597,076
$ 7,596,324
$ 5,296,636
$ 2,299,688
$ —
Federal funds purchased 147,000
147,000
147,000
—
—
FHLB advances 1,462,343
1,462,245
727,343
734,902
—
Other borrowings 186,258
194,157
65,704
128,453
—
Subordinated debt 108,856
115,500
—
115,500
—
Derivatives 12,092
12,092
—
12,092
—

Table of Contents

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)
(amounts in thousands)
Assets:
Cash and cash equivalents $ 264,709
$ 264,709
$ 264,709
$ —
$ —
Investment securities, available for sale 493,474
493,474
15,246
478,228
—
Loans held for sale 2,117,510
2,117,510
—
2,117,510
—
Loans receivable, net of allowance for loan losses 6,117,322
6,162,020
—
—
6,162,020
FHLB, Federal Reserve Bank and other restricted stock 68,408
68,408
—
68,408
—
Derivatives 10,864
10,864
—
10,819
45
Liabilities:
Deposits $ 7,303,775
$ 7,303,663
$ 4,472,013
$ 2,831,650
$ —
Federal funds purchased 83,000
83,000
83,000
—
—
FHLB advances 868,800
869,049
688,800
180,249
—
Other borrowings 87,123
91,761
66,261
25,500
—
Subordinated debt 108,783
111,375
—
111,375
—
Derivatives 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 September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were as follows:


	September 30, 2020
	Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Measured at Fair Value on a Recurring Basis:
Assets
Available for sale debt securities:
Asset-backed securities	$	0	$	375,381	$	0	$	375,381
U.S. government agencies securities	0		40,008		0		40,008
Agency-guaranteed residential mortgage-backed securities	0		$	61,079	0		$	61,079
Agency guaranteed collateralized mortgage obligations	0		153,779		0		153,779

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

Equity securities	2,466		0		0		2,466
Derivatives	0		60,355		455		60,810
Loans held for sale – fair value option	0		6,998		0		6,998
Loans receivable, mortgage warehouse – fair value option	0		3,913,593		0		3,913,593
Total assets – recurring fair value measurements	$	2,466	$	5,112,311	$	455	$	5,115,232
Liabilities
Derivatives	$	0	$	110,649	$	0	$	110,649
Measured at Fair Value on a Nonrecurring Basis:
Assets

Loans held for sale	$	0	$	0	$	18,366	$	18,366
Collateral-dependent loans	0		0		22,539		22,539

Total assets – nonrecurring fair value measurements	$	0	$	0	$	40,905	$	40,905

Table of Contents


	September 30, 2017
	Fair Value Measurements at the End of the Reporting Period Using									December 31, 2019
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total			Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)									(amounts in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Measured at Fair Value on a Recurring Basis:									Measured at Fair Value on a Recurring Basis:
Assets									Assets
Available-for-sale securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	196,327	$	—	$	196,327
Agency guaranteed commercial mortgage-backed securities	—		340,108		—		340,108
Available for sale debt securities:									Available for sale debt securities:
Agency-guaranteed residential mortgage–backed securities									Agency-guaranteed residential mortgage–backed securities	$	0	$	278,321	$	0	$	278,321

Corporate notes	—		46,077		—		46,077		Corporate notes	0		298,877		0		298,877
Interest-only GNMA securities									Interest-only GNMA securities	0		0		16,272		16,272
Equity securities	2,311		—		—		2,311		Equity securities	2,406		0		0		2,406
Derivatives	—		10,344		103		10,447		Derivatives	0		23,529		79		23,608
Loans held for sale – fair value option	—		1,963,076		—		1,963,076		Loans held for sale – fair value option	0		2,130		0		2,130
Total assets - recurring fair value measurements	$	2,311	$	2,555,932	$	103	$	2,558,346
Loans receivable, mortgage warehouse – fair value option									Loans receivable, mortgage warehouse – fair value option	0		2,245,758		0		2,245,758
Total assets – recurring fair value measurements									Total assets – recurring fair value measurements	$	2,406	$	2,848,615	$	16,351	$	2,867,372
Liabilities									Liabilities
Derivatives	$	—	$	12,092	$	—	$	12,092	Derivatives	$	0	$	45,939	$	0	$	45,939
Measured at Fair Value on a Nonrecurring Basis:									Measured at Fair Value on a Nonrecurring Basis:
Assets									Assets
Impaired loans, net of reserves of $1,527	$	—	$	—	$	2,976	$	2,976
Impaired loans, net of specific reserves of $852									Impaired loans, net of specific reserves of $852	$	0	$	—	$	14,272	$	14,272
Other real estate owned	—		—		782		782		Other real estate owned	0		0		78		78
Total assets - nonrecurring fair value measurements	$	—	$	—	$	3,758	$	3,758
Total assets – nonrecurring fair value measurements									Total assets – nonrecurring fair value measurements	$	0	$	0	$	14,350	$	14,350

December 31, 2016
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
(amounts in thousands)
Measured at Fair Value on a Recurring Basis:
Assets
Available-for-sale securities:
Agency-guaranteed residential mortgage-backed securities $ —
$ 231,263
$ —
$ 231,263
Agency-guaranteed commercial mortgage-backed securities —
201,817
—
201,817
Corporate notes —
45,148
—
45,148
Equity securities 15,246
—
—
15,246
Derivatives —
10,819
45
10,864
Loans held for sale – fair value option —
2,117,510
—
2,117,510
Total assets - recurring fair value measurements $ 15,246
$ 2,606,557
$ 45
$ 2,621,848
Liabilities
Derivatives $ —
$ 14,172
$ —
$ 14,172
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of reserves of $1,360 $ —
$ —
$ 6,527
$ 6,527
Other real estate owned —
—
2,731
2,731
Total assets - nonrecurring fair value measurements $ —
$ —
$ 9,258
$ 9,258

Table of Contents

The changes in ~~Level~~residential mortgage loan commitments (Level 3 ~~assets~~assets) measured at fair value on a recurring basis for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 are summarized ~~as follows.~~in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 1312 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES.


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

Residential Mortgage Loan Commitments
Three Months Ended September 30,
2017 2016
(amounts in thousands)
Balance at June 30 $ 102
$ 157
Issuances 103
85
Settlements (102 ) (157 )
Balance at September 30 $ 103
$ 85


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

Balance at December 31	$	79	$	69
Issuances	722		372
Settlements	(346)		(291)
Balance at September 30	$	455	$	150

Residential Mortgage Loan Commitments
Nine Months Ended September 30,
2017 2016
(amounts in thousands)
Balance at December 31 $ 45
$ 45
Issuances 300
315
Settlements (242 ) (275 )
Balance at September 30 $ 103
$ 85

~~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 nine months ended September 30, ~~2017~~2020 and ~~2016.~~

2019.

The following table summarizes financial assets and financial liabilities measured at fair value as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 on a recurring and nonrecurring basis for which Customers utilized Level 3 inputs to measure fair value. The unobservable Level 3 inputs noted below contain a level of uncertainty that may differ from what is realized in an immediate settlement of the assets. Therefore, Customers may realize a value higher or lower than the current estimated fair value of the assets.

Quantitative Information about Level 3 Fair Value Measurements
September 30, 2017
Fair Value
Estimate
Valuation Technique Unobservable Input
Range (Weighted
Average) (4)
(amounts in thousands)
Impaired loans $ 2,976
Collateral appraisal (1) Liquidation expenses (2) (8)%
Other real estate owned 782
Collateral appraisal (1) Liquidation expenses (2) (8)%
Residential mortgage loan commitments 103
Adjusted market bid Pull-through rate 90%

Quantitative Information about Level 3 Fair Value Measurements
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 5,096
Discounted cash flow Projected cash flows (3) 4 times EBITDA
Other real estate owned 2,731
Collateral appraisal (1) Liquidation expenses (2) (8)%
Residential mortgage loan commitments 45
Adjusted market bid Pull-through rate 90%

~~(1)~~

~~Obtained from approved independent appraisers. Appraisals are current and~~Quantitative Information about Level 3 Fair Value Measurements

September 30, 2020

Fair Value
Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average) (4)

(amounts in ~~compliance with credit policy. The Bank does not generally discount appraisals.~~thousands)

~~(2)~~Collateral-dependent loans – real estate

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

21,572

Collateral appraisal (1)

Liquidation expenses (2)

8% - 8%

(8%)

~~(3)~~Collateral-dependent loans – commercial & industrial

~~Projected cash flows of the business derived using EBITDA multiple based on management's best estimate.~~967

Collateral appraisal (1)

Business asset valuation (3)

Liquidation expenses (2)

Business asset valuation adjustments (4)

7% - 8%

(8%)

60% - 60%

(60%)

~~(4)~~

~~Presented as a percentage of the value determined by appraisal for impaired~~

Residential mortgage loan commitments

455

Adjusted market bid

Pull-through rate

81% - 81%

(81%)

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

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

(3)Business asset valuation obtained from independent party.

(4)Business asset valuations may be adjusted by management for qualitative factors including economic conditions and the condition of the business assets. The range and weighted average of the business asset adjustments are presented as a percent of the business asset valuation.

Table of Contents

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2019

Fair Value
Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average) (4)

(amounts in thousands)

Impaired loans ~~and other~~– real estate ~~owned.~~

12,767

Collateral appraisal (1)

Business asset valuation (3)

Liquidation expenses (2)

Business asset valuation (4)

8% - 10%

(8%)

34% - 45%

(37%)

Impaired loans – commercial & industrial

1,505

Collateral appraisal (1)

Business asset valuation (3)

Liquidation expenses (2)

Business asset valuation adjustments (4)

8% - 8%

(8%)

8% - 50%

(22%)

Interest-only GNMA securities

16,272

Discounted cash flow

Constant prepayment rate

9% - 14%

12%

Other real estate owned

Collateral appraisal (1)

Liquidation expenses (2)

8% - 9%

(9%)

Residential mortgage loan commitments

Adjusted market bid

Pull-through rate

85% - 85%

(85%)

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

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

(3)Business asset valuation obtained from independent party.

NOTE 1312 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objectives of Using Derivatives

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

Cash Flow Hedges of ~~Interest Rate~~Interest-Rate Risk

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

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

Customers discontinues cash flow hedge accounting if it is probable the ~~change~~forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in accumulated other comprehensive income (loss) are reclassified immediately into earnings and any subsequent changes in the fair value of ~~the~~such derivatives ~~is to be~~are recognized directly in earnings. ~~During the three and nine months ended September 30, 2017 and 2016, Customers did not record any hedge ineffectiveness.~~

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on Customers' variable-rate ~~debt.~~debt and a variable-rate deposit relationship. Customers expects to reclassify ~~$1.2~~$15.9 million of losses from accumulated other comprehensive income (loss) to interest expense during the next 12 months.

Table of Contents

Customers is hedging its exposure to the variability in future cash flows for forecasted transactions (3-month FHLB advances and federal funds purchased) and a variable-rate deposit relationship over a maximum period of 2467 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

At September 30, ~~2017,~~2020, Customers had ~~nine~~5 outstanding interest rate derivatives with notional amounts totaling ~~$550.0~~$1.1 billion that were designated as cash flow hedges of interest-rate risk. At December 31, 2019, Customers had 4 outstanding interest rate derivatives with notional amounts totaling $725.0 million that were designated as cash flow hedges of interest ~~rate risk. At December 31, 2016, Customers had four~~rate-risk. The outstanding ~~interest rate derivatives with notional amounts totaling $325.0 million that were designated as~~ cash flow hedges ~~of interest rate risk. The hedges~~at September 30, 2020 expire between ~~January 2018~~June 2021 and ~~April 2019.~~May 2026.

Derivatives Not Designated as Hedging Instruments

Customers executes interest rate swaps ~~with commercial banking customers to facilitate their respective risk management strategies~~ (typically the loan customers will swap a floating-rate loan for a fixed-rate loan). and interest rate caps with commercial banking customers to facilitate their respective risk management strategies. The customer interest rate swaps and interest rate caps are simultaneously offset by interest rate swaps and interest rate caps that Customers executes with a third party in order to minimize ~~interest rate~~interest-rate risk exposure resulting from such transactions. ~~Because~~As the interest rate swaps and interest rate caps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and caps and the offsetting third-party market swaps and caps are recognized directly in earnings. At September 30, ~~2017,~~2020, Customers had 76154 interest rate swaps with an aggregate notional amount of ~~$793.6~~$1.4 billion and 6 interest rate caps with an aggregated notional amount of $122.1 million related to this program. At December 31, ~~2016,~~2019, Customers had 76140 interest rate swaps with an aggregate notional amount of ~~$716.6~~$1.4 billion and 4 interest rate caps with an aggregate notional amount of $78.6 million related to this program.

Customers enters into residential mortgage loan commitments in connection with its consumer mortgage banking activities to fund mortgage loans at specified rates and times in the future. These commitments are short-term in nature and generally expire in 30 to 60 days. The residential mortgage loan commitments that relate to the origination of mortgage loans that will be held for sale are considered derivative instruments under ~~the~~ applicable accounting guidance and are reported at fair value, with changes in fair value recorded directly in earnings. At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, Customers had an outstanding notional balance of residential mortgage loan commitments of ~~$5.4~~$19.4 million and ~~$3.6~~$4.5 million, respectively.

Customers has also purchased and sold credit derivatives to either hedge or participate in the performance risk associated with some of its counterparties. These derivatives are not designated as hedging instruments and are reported at fair value, with changes in fair value reported directly in earnings. At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, Customers had outstanding notional balances of credit derivatives of ~~$53.3~~$172.9 million and ~~$44.9~~$167.1 million, respectively.

Fair Value of Derivative Instruments on the Balance Sheet

The following tables present the fair value of Customers' derivative financial instruments as well as their presentation on the balance sheet as of September 30, ~~2017~~2020 and December 31, ~~2016.~~2019.


	September 30, 2020
	Derivative Assets			Derivative Liabilities
(amounts in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	0	Other liabilities	$	46,785
Total		$	0		$	46,785
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	59,962	Other liabilities	$	63,340
Interest rate caps	Other assets	9		Other liabilities	9
Credit contracts	Other assets	384		Other liabilities	515
Residential mortgage loan commitments	Other assets	455		Other liabilities	0
Total		$	60,810		$	63,864

Table of Contents


	September 30, 2017
	Derivative Assets			Derivative Liabilities				December 31, 2019
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value			Derivative Assets			Derivative Liabilities
(amounts in thousands)							(amounts in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:							Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	355	Other liabilities	$	2,001	Interest rate swaps	Other assets	$	0	Other liabilities	$	21,374
Total		$	355		$	2,001	Total		$	0		$	21,374
Derivatives not designated as hedging instruments:							Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	9,861	Other liabilities	$	10,083	Interest rate swaps	Other assets	$	23,301	Other liabilities	$	24,797
Interest rate caps							Interest rate caps	Other assets	9		Other liabilities	9
Credit contracts	Other assets	128		Other liabilities	8		Credit contracts	Other assets	219		Other liabilities	(241)
Residential mortgage loan commitments	Other assets	103		Other liabilities	—		Residential mortgage loan commitments	Other assets	79		Other liabilities	0
Total		$	10,092		$	10,091	Total		$	23,608		$	24,565

Effect of Derivative Instruments on Net Income

December 31, 2016
Derivative Assets Derivative Liabilities
Balance Sheet Balance Sheet
Location Fair Value Location Fair Value
(amounts in thousands)
Derivatives designated as cash flow hedges:
     Interest rate swaps Other assets $ —
Other liabilities $ 3,624
          Total $ —
$ 3,624
Derivatives not designated as hedging instruments:
     Interest rate swaps Other assets $ 10,683
Other liabilities $ 10,537
     Credit contracts Other assets 136
Other liabilities 11
     Residential mortgage loan commitments Other assets 45
Other liabilities —
          Total $ 10,864
$ 10,548
The following tables present amounts included in the consolidated statements of income related to derivatives not designated as hedges for the three and nine months ended September 30, 2020 and 2019.


		Amount of Income (Loss) Recognized in Earnings
		Three Months Ended September 30,				Nine Months Ended September 30,
(amounts in thousands)	Income Statement Location	2020		2019		2020		2019
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	387	$	(35)	$	(6,191)	$	63
Interest rate caps	Other non-interest income	0		0		0		0
Credit contracts	Other non-interest income	162		85		1,436		228
Residential mortgage loan commitments	Mortgage banking income	403		5		376		82
Total		$	952	$	55	$	(4,379)	$	373

Effect of Derivative Instruments on Comprehensive Income

The following ~~tables present~~table presents the effect of Customers' derivative financial instruments on comprehensive income for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019.


	Amount of Gain (Loss) Recognized in OCI on Derivatives (1)				Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
	Three Months Ended September 30,					Three Months Ended September 30,
(amounts in thousands)	2020		2019			2020		2019
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	429	$	(3,821)	Interest expense	$	(4,400)	$	(764)

Table of Contents

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

Three Months Ended September 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 $ 1,737
Credit contracts Other non-interest income (15 )
Residential mortgage loan commitments Mortgage banking income (71 )
Total $ 1,651

Nine Months Ended September 30, 2017
Income Statement Location
Amount of Income (Loss)
Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps Other non-interest income $ 429
Credit contracts Other non-interest income (5 )
Residential mortgage loan commitments Mortgage banking income 58
Total $ 482

Nine Months Ended September 30, 2016
Income Statement Location
Amount of Income
Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps Other non-interest income $ 1,250
Credit contracts Other non-interest income 257
Residential mortgage loan commitments Mortgage banking income 41
Total $ 1,548

Three Months Ended September 30, 2017

Amount of Gain
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 $ 104
Interest expense $ (572 )

Three Months Ended September 30, 2016

Amount of Gain
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 $ 556
Interest expense $ (703 )

Nine Months Ended September 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 $ (115 ) Interest expense $ (2,166 )


	Nine Months Ended September 30, 2016								Amount of Gain (Loss) Recognized in OCI on Derivatives (1)				Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
	Amount of 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)				Nine Months Ended September 30,					Nine Months Ended September 30,
(amounts in thousands)								(amounts in thousands)	2020		2019			2020		2019
Derivative in cash flow hedging relationships:
Derivatives in cash flow hedging relationships:								Derivatives in cash flow hedging relationships:
Interest rate swaps	$	(1,577	)	Interest expense	$	(1,306	)	Interest rate swaps	$	(24,602)	$	(19,391)	Interest expense	$	(8,596)	$	(355)

(1) Amounts presented are net of taxes. See NOTE 64 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) for the total effect on other comprehensive income (loss) from derivatives designated as cash flow hedges for the periods presented.

Credit-risk-related Contingent Features

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

Agreements with major derivative dealer counterparties contain provisions whereby default on any of Customers' indebtedness would be considered a default on its derivative obligations. Customers also has entered into agreements that contain provisions under which the counterparty could require Customers to settle its obligations if Customers fails to maintain its status as a well/adequately capitalized institution. As of September 30, ~~2017,~~2020, the fair value of derivatives in a net liability position (which includes accrued interest but excludes any adjustment for nonperformance-risk) related to these agreements was ~~$7.3~~$114.5 million. In addition, Customers, which has ~~minimum~~ collateral posting thresholds with certain of these counterparties, ~~and at September 30, 2017~~ had posted ~~$8.3~~$110.0 million of cash as ~~collateral.~~collateral at September 30, 2020. Customers records cash posted as collateral as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets.

Disclosures about Offsetting Assets and Liabilities

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

~~Offsetting of Financial Assets and Derivative Assets~~

~~At September 30, 2017~~


	Gross Amounts Recognized on the Consolidated Balance Sheets				Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)			Financial Instruments	Cash Collateral Received/(Posted)	Net Amount
September 30, 2020
Interest rate derivative assets with institutional counterparties	$	0			$	0	$	0	$	0

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

Table of Contents

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 $ 4,190
$ —
$ 4,190
$ —
$ 1,900
$ 2,290

~~Offsetting of Financial Liabilities and Derivative Liabilities~~


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

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

~~At September 30, 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

Financial
Instruments

Cash
Collateral
Pledged

Net
Amount
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties $ 8,400
$ —
$ 8,400
$ —
$ 8,262
$ 138

~~Offsetting of Financial Assets and Derivative Assets~~

~~At December 31, 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 $ 4,723
$ —
$ 4,723
$ —
$ —
$ 4,723

~~Offsetting of Financial Liabilities and Derivative Liabilities~~

~~At December 31, 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

Financial
Instruments

Cash
Collateral
Pledged

(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties $ 9,825
$ —
$ 9,825
$ —
$ 4,472
$ 5,353

NOTE 1413 — BUSINESS SEGMENTS

~~Customers has historically operated under one business segment, "Community Banking." However, beginning in third quarter 2016, Customers revised its~~Customers’ segment financial reporting ~~to reflect~~reflects the manner in which its chief operating decision makers ~~(our Chief Executive Officer and Board of Directors) have begun allocating~~allocate 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.

assess performance. Management has determined that ~~Customers'~~Customers’ operations consist of ~~two~~2 reportable segments - ~~Community~~Customers Bank Business Banking and BankMobile. Each segment generates revenues, manages risk, and offers distinct products and services to targeted customers through different delivery channels. The strategy, marketing and analysis of these segments vary considerably.

The ~~Community~~Customers Bank Business Banking segment is delivered predominately to commercial customers in Southeastern Pennsylvania, New York, New Jersey, Massachusetts, Rhode Island, ~~and~~ New Hampshire, Washington, D.C., and Illinois through a ~~single point of contact~~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~~high-net-worth families, selected commercial real estate lending, ~~and~~ commercial mortgage ~~companies.~~companies, and equipment finance. Revenues are generated primarily through net interest income (the difference between interest earned on loans and leases, investments, and other interest earning assets and interest paid on deposits and other borrowed funds) and other non-interest income, such as mortgage warehouse transactional fees and ~~bank owned life insurance.~~BOLI.

The BankMobile segment provides ~~state of the art high tech~~state-of-the-art high-tech digital banking and disbursement services to consumers, students, and the "under banked" ~~nationwide. BankMobile,~~nationwide, along with "Banking as a ~~division of Customers Bank,~~Service" offerings with white label partners. BankMobile is a ~~full service~~full-service fintech banking platform that is accessible to customers anywhere and anytime through the customer's smartphone or other web-enabled device. Revenues are currently being generated primarily through interest income on consumer installment loans, interchange and card revenue, deposit and wire transfer fees and university fees. The majority of ~~revenue and~~ expenses for BankMobile are ~~a result~~related to the segment's operation of the ongoing business acquired through the Disbursement business ~~acquisition.~~acquisition and costs associated with the development of white label products for its partners.

Table of Contents

The following tables present the operating results for Customers' reportable business segments for the three and nine months ended September 30, ~~2017~~2020 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.~~2019. The segment financial results include directly attributable revenues and expenses. ~~Corporate~~Consistent with the presentation of segment results to Customers' chief operating decision makers, overhead costs and preferred stock dividends are assigned to the Community Business Banking segment as those expenses are expected to continue following the planned spin-off of BankMobile. Similarly, the preferred stock dividends have been allocated in their entirety to the CommunityCustomers Bank Business Banking segment. The tax benefit assigned to BankMobile was based on an estimated effective tax rate of ~~37.25%~~20.61% for ~~2017~~2020 and ~~38%~~23.15% for ~~2016.~~2019, respectively.

BankMobile, previously presented as discontinued operations in the financial statements due to Customers' stated intent to sell the business, was reclassified as held and used at September 30, 2017. As of September 30, 2017, Customers has decided to spin off BankMobile to Customers’ shareholders through a spin-off/merger transaction which is currently being negotiated. For more information on BankMobile's reclassification, see NOTE 3 - TAX-FREE SPIN-OFF AND MERGER.

Three Months Ended September 30, 2017
Community Business Banking BankMobile Consolidated
Interest income $ 95,585
$ 2,700
⁽¹
⁾
$ 98,285
Interest expense 30,250
16

30,266
Net interest income 65,335
2,684
68,019
Provision for loan losses 1,874
478
2,352
Non-interest income 4,190
13,836
18,026
Non-interest expense 33,990
27,050

61,040
Income (loss) before income tax expense (benefit) 33,661
(11,008 ) 22,653
Income tax expense (benefit) 18,999
(4,100 ) 14,899
Net income (loss) 14,662
(6,908 ) 7,754
Preferred stock dividends 3,615
—
3,615
Net income (loss) available to common shareholders $ 11,047
$ (6,908 ) $ 4,139


												Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	Three Months Ended September 30, 2016
	Community Business Banking			BankMobile					Consolidated
Interest income	$	82,828		$	1,384		⁽¹	⁾	$	84,212
(amounts in thousands)											(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated
Interest income (1)											Interest income (1)	$	126,648	$	13,002	$	139,650	$	113,995	$	12,723	$	126,718
Interest expense	19,620			7					19,627		Interest expense	31,718		493		32,211		50,734		249		50,983
Net interest income	63,208			1,377					64,585		Net interest income	94,930		12,509		107,439		63,261		12,474		75,735
Provision for loan losses	(162		)	250					88
Provision for credit losses on loans and leases											Provision for credit losses on loans and leases	8,699		4,256		12,955		2,475		1,951		4,426
Non-interest income	11,121			16,365					27,486		Non-interest income	21,603		12,190		33,793		11,757		11,612		23,369
Non-interest expense	36,864			19,354					56,218		Non-interest expense	48,926		16,635		65,561		38,347		21,245		59,592
Income (loss) before income tax expense (benefit)	37,627			(1,862		)			35,765		Income (loss) before income tax expense (benefit)	58,908		3,808		62,716		34,196		890		35,086
Income tax expense (benefit)	15,266			(708		)			14,558		Income tax expense (benefit)	11,374		827		12,201		7,814		206		8,020
Net income (loss)	22,361			(1,154		)			21,207		Net income (loss)	47,534		2,981		50,515		26,382		684		27,066
Preferred stock dividends	2,552			—					2,552		Preferred stock dividends	3,430		0		3,430		3,615		0		3,615
Net income (loss) available to common shareholders	$	19,809		$	(1,154	)			$	18,655	Net income (loss) available to common shareholders	$	44,104	$	2,981	$	47,085	$	22,767	$	684	$	23,451

(1) - Amounts reported include funds transfer pricing of ~~$2.7~~$2.2 million and ~~1.4~~$0.3 million, for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, credited to BankMobile for the value provided to the ~~Community~~Customers Bank Business Banking segment for the use of excess low/no cost deposits.

Nine Months Ended September 30, 2017
Community Business Banking BankMobile Consolidated
Interest income $ 265,524
$ 9,708
⁽¹
⁾
$ 275,232
Interest expense 76,134
55
76,189
Net interest income 189,390
9,653
199,043
Provision for loan losses 5,459
478
5,937
Non-interest income 16,587
42,583
59,170
Non-interest expense 94,704
66,114
160,818
Income before income tax expense (benefit) 105,814
(14,356 ) 91,458
Income tax expense (benefit) 39,584
(5,348 ) 34,236
Net income (loss) 66,230
(9,008 ) 57,222
Preferred stock dividends 10,844
—
10,844
Net income (loss) available to common shareholders $ 55,386
$ (9,008 ) $ 46,378

As of September 30, 2017
Goodwill and other intangibles $ 3,632
$ 12,972
$ 16,604
Total assets $ 10,405,452
$ 66,377
⁽²
⁾
$ 10,471,829
Total deposits $ 6,815,994
$ 781,082
$ 7,597,076


											Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
	Nine Months Ended September 30, 2016
	Community Business Banking		BankMobile					Consolidated
Interest income	$	234,513	$	4,418		⁽¹	⁾	$	238,931
(amounts in thousands)										(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated
Interest income (1)										Interest income (1)	$	351,819	$	38,393	$	390,212	$	309,882	$	29,863	$	339,745
Interest expense	53,539		22					53,561		Interest expense	108,251		1,219		109,470		139,402		625		140,027
Net interest income	180,974		4,396					185,370		Net interest income	243,568		37,174		280,742		170,480		29,238		199,718
Provision for loan losses	2,605		249					2,854
Provision for credit losses on loans and leases										Provision for credit losses on loans and leases	55,620		10,068		65,688		3,245		11,294		14,539
Non-interest income	22,241		18,996					41,237		Non-interest income	44,422		33,537		77,959		20,304		34,821		55,125
Non-interest expense	101,053		27,253					128,306		Non-interest expense	137,055		58,470		195,525		111,840		61,320		173,160
Income (loss) before income tax expense (benefit)	99,557		(4,110		)			95,447		Income (loss) before income tax expense (benefit)	95,315		2,173		97,488		75,699		(8,555)		67,144
Income tax expense (benefit)	38,134		(1,562		)			36,572		Income tax expense (benefit)	20,708		448		21,156		17,324		(1,981)		15,343
Net income (loss)	61,423		(2,548		)			58,875		Net income (loss)	74,607		1,725		76,332		58,375		(6,574)		51,801
Preferred stock dividends	5,900		—					5,900		Preferred stock dividends	10,626		0		10,626		10,844		0		10,844
Net income (loss) available to common shareholders	$	55,523	$	(2,548	)			$	52,975	Net income (loss) available to common shareholders	$	63,981	$	1,725	$	65,706	$	47,531	$	(6,574)	$	40,957

As of September 30, 2016
As of September 30, 2020 and 2019										As of September 30, 2020 and 2019
Goodwill and other intangibles	$	3,642	$	13,282				$	16,924	Goodwill and other intangibles	$	3,629	$	10,808	$	14,437	$	3,629	$	11,892	$	15,521
Total assets	$	9,532,281	$	70,329		⁽²	⁾	$	9,602,610
Total assets (2)										Total assets (2)	$	18,203,784	$	574,943	$	18,778,727	$	11,131,914	$	591,876	$	11,723,790
Total deposits	$	6,855,788	$	533,182				$	7,388,970	Total deposits	$	9,895,328	$	943,749	$	10,839,077	$	8,260,080	$	665,605	$	8,925,685

Total non-deposit liabilities (2)										Total non-deposit liabilities (2)	$	6,853,184	$	34,975	$	6,888,159	$	1,747,846	$	31,109	$	1,778,955

(1) - Amounts reported include funds transfer pricing of ~~$9.7~~$5.3 million and ~~$4.4~~$8.1 million, for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, credited to BankMobile for the value provided to the ~~Community~~Customers Bank Business Banking segment for the use of excess low/no cost deposits.

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

Table of Contents

NOTE 14 - NON-INTEREST REVENUES

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

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


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











Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and card revenue (1)	$	(3,148)	$	7,229	$	4,081	$	181	$	6,688	$	6,869
Deposit fees	651		2,788		3,439		457		3,185		3,642
University fees - card and disbursement fees	0		310		310		0		262		262


Total revenue recognized at point in time	(2,497)		10,327		7,830		638		10,135		10,773
Revenue recognized over time:
University fees - subscription revenue	0		1,039		1,039		0		1,006		1,006
Total revenue recognized over time	0		1,039		1,039		—		1,006		1,006
Total revenue from contracts with customers	$	(2,497)	$	11,366	$	8,869	$	638	$	11,141	$	11,779


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











Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and card revenue (1)	$	(2,685)	$	20,053	$	17,368	$	580	$	21,855	$	22,435
Deposit fees	1,704		8,517		10,221		1,190		8,009		9,199
University fees - card and disbursement fees	0		990		990		0		783		783


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

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

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NOTE 15 — LOSS CONTINGENCIES

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the consolidated financial statements that are not currently accrued for. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution may have a material adverse effect on Customers’ results of operations for a particular period, and future changes in circumstances or additional information could result in accruals or resolution in excess of established accruals, which could adversely affect Customers’ results of operations, potentially materially.

Lifestyle Healthcare Group, Inc. Matter

On January 9, 2017, Lifestyle Healthcare Group, Inc., et al (“Plaintiffs”) filed a Complaint captioned Lifestyle Healthcare Group, Inc.; Fred Rappaport; Victoria Rappaport; Lifestyle Management Group, LLC Trading as Lifestyle Real Estate I, LP; Lifestyle Real Estate I GP, LLC; Daniel Muck; Lifestyle Management Group, LLC; Lifestyle Management Group, LLC Trading as Lifestyle I, LP D/B/A Lifestyle Medspa, Plaintiffs (“Lifestyle Parties”) v. Customers Bank, Robert White; Saldutti Law, LLC a/k/a Saldutti Law Group; Robert L. Saldutti, Esquire; and Michael Fuoco, Civil Action No. 01206, in the First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia. In this Complaint, the Plaintiffs generally allege wrongful use of civil proceedings and abuse of process in connection with a case filed and later dismissed in federal court, titled, Customers Bank v. Fred Rappaport, et al., U.S.D.C.E.D. Pa., No. 15-6145. On January 30, 2017, Customers Bank filed Preliminary Objections to the Complaint seeking dismissal of Plaintiff’s claims against Customers Bank and Robert White, named as co-defendants. In response to the Preliminary Objections, Lifestyle filed an Amended Complaint against Customers Bank and Robert White. Customers Bank filed Preliminary Objections to the Second Amended Complaint seeking dismissal of Plaintiff's claim against Customers Bank and Robert White, named as co-defendants. The Court dismissed certain counts and determined to allow certain other counts to proceed. On September 17, 2020, a Stipulation of Dismissal with Prejudice was filed with the Court as a result of the voluntary resolution of the matter by and between Plaintiffs and defendants, Customers Bank, Robert White and Michael Fuoco only.

United States Department of Education Matter

In third quarter 2018, Customers received a Final Program Review Determination ("FPRD") letter dated September 5, 2018 from the ED regarding a focused program review of Higher One's/Customers Bank's administration, as a third party servicer, of the programs authorized pursuant to Title IV of the Higher Education Act of 1965. The ED program review covered the award years beginning in 2013 through the FPRD issuance date, including the time period when Higher One was acting as the third party servicer prior to Customers' acquisition of the Disbursement business on June 15, 2016. The FPRD determined that, with respect to students enrolled at specified partner institutions, Higher One/Customers did not provide convenient fee-free access to ATMs or bank branch offices in such locations as required by the ED’s cash management regulations. Those regulations, which were in effect during the period covered by the program review and were revised during that period, seek, among other purposes, to ensure that students can make fee-free cash withdrawals. The FPRD determined that students incurred prohibited costs in accessing Title IV credit balance funds, and the FPRD classifies those costs as financial liabilities of Customers. The FPRD also requires Customers to take prospective action to increase ATM access for students at certain of its partner institutions. Customers disagreed with the FPRD and appealed the asserted financial liabilities of $6.5 million, and a request for review has been submitted to trigger an administrative process before the ED’s Office of Hearing and Appeals.

On March 26, 2020, the ED and Customers filed a Joint Motion to Dismiss with Prejudice (the "Joint Motion") with the United States Department of Education. The Joint Motion states that the ED and Customers reached an agreement that resolves the liabilities at issue in the appeal. The Joint Motion was granted on April 27, 2020. As part of the settlement, the liabilities assessed in the FPRD were reduced to $3.0 million (the "settlement amount"). Customers had previously recorded a liability in the amount of $1.0 million during third quarter 2019 and increased its liability by an additional $1.0 million in first quarter 2020. The remaining $1.0 million is expected to be funded from funds in an escrow account set-up at the time of Customers' acquisition of the Disbursement business from Higher One in 2016.

Bureau of the Fiscal Service Notice of Direct Debit (U.S. Treasury Check Reclamation)

On June 21, 2019, Customers received a Notice of Direct Debit (U.S. Treasury Check Reclamation) from the Bureau of the Fiscal Service (“Reclamation Notice”). The Reclamation Notice represented a demand to Customers for the return of funds on a U.S. Treasury check for approximately $5.4 million. Customers filed a written protest pursuant to Code of Federal Regulations, Title 31, Chapter II, Part 240, which resulted in a suspension of the direct debit by the Bureau of the Fiscal Service. On January 31, 2020, Customers received an Abandonment Notice from the Bureau of Fiscal Service instructing Customers to disregard the Notice of Direct Debit as the Bureau of Fiscal Service would not be seeking reclamation of these funds.

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NOTE 16 — BANKMOBILE TECHNOLOGIES, INC. MERGER

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

Merger Consideration

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

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

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

Certain Relationships

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

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

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Amendment to the Merger Agreement

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

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

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

Cautionary Note Regarding Forward-Looking Statements

This report and all attachments hereto, as well as other written or oral communications made from time to time by us, may contain forward-looking information within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements ~~relate~~include statements with respect to Customers Bancorp, Inc.’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Customers Bancorp, Inc.’s control). Numerous competitive, economic, regulatory, legal and technological events ~~or future predictions, including events or predictions relating to future~~and factors, among others, could cause Customers Bancorp, Inc.’s financial performance to differ materially from the goals, plans, objectives, intentions and are generally identifiable by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “plan,” “intend,” or “anticipate” or the negative thereof or comparable terminology. Forward-looking statements reflect numerous assumptions, estimates and forecasts as to future events. No assurance can be given that the assumptions, estimates and forecasts underlyingexpectations expressed in such forward-looking statements, ~~will accurately reflect future conditions,~~including: the adverse impact on the U.S. economy, including the markets in which we operate, of the coronavirus outbreak, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan and lease portfolio, the market value of our investment securities, the demand for our products and services and the availability of sources of funding; the effects of actions by the federal government, including the Board of Governors of the Federal Reserve System and other government agencies, that affect market interest rates and the money supply; actions that we and our customers take in response to these developments and the effects such actions have on our operations, products, services and customer relationships; the effects of changes in accounting standards or policies, including ASU 2016-13, Financial Instruments—CECL and matters relating to the announced merger of BMT, including the possibility of events, changes or other circumstances occurring or existing that ~~any guidance, goals, targets or projected results will~~could result in the planned merger of BMT not being completed, the possibility that the planned merger of BMT may be ~~realized. The assumptions, estimates~~more expensive to complete than anticipated, the risks associated with Customers' significant ownership of BM Technologies, Inc. common stock and ~~forecasts underlying such forward-looking statements involve judgments with respect~~BM Technologies, Inc.'s ability to ~~among other things, future economic, competitive, regulatory~~service its debt following completion of the merger, the possibility that the expected benefits to Customers and ~~financial market conditions and future business decisions, which~~our shareholders of the planned merger may not be ~~realized and which are inherently subject~~achieved, the possibility of Customers incurring liabilities relating to ~~significant business, economic, competitive and regulatory uncertainties and known and unknown risks,~~the disposition of BMT, the costs of providing certain ongoing services to BM Technologies, Inc. following completion of the merger, including the ~~risks described under “Risk Factors”~~time commitment of Customers' management and other personnel in providing such services, or the possible effects on Customers' results of operations if the planned merger of BMT is not completed in a timely fashion or at all. Customers Bancorp, Inc.~~'s Annual Report on Form 10-K for~~ cautions that the ~~fiscal year ended December 31, 2016 (the “2016 Form 10-K”), as~~foregoing factors are not exclusive, and neither such factors ~~may be updated from time to time in our filings with~~nor any such forward-looking statement takes into account the SEC, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Our actual results may differ materially from those reflected in the forward-looking statements. You are cautioned not to place undue reliance onimpact of any future events. All forward-looking statements ~~we make, which~~and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. ~~We do~~For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Customers Bancorp, Inc.’s filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K for the year ended December 31, 2019, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments thereto, that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Customers Bancorp, Inc. does not undertake ~~any obligation~~ to ~~release publicly or otherwise provide any revisions to~~update any forward-looking ~~statements we~~statement whether written or oral, that may ~~make, including any forward-looking financial information,~~be made from time to ~~reflect events~~time by Customers Bancorp, Inc. or ~~circumstances occurring after the date hereof~~by or ~~to reflect the occurrence~~on behalf of ~~unanticipated events,~~Customers Bank, except as may be required under applicable law.

Management’s discussion and analysis represents an overview of the financial condition and results of operations, and highlights the significant changes in the financial condition and results of operations, as presented in the accompanying consolidated financial statements for Customers Bancorp, Inc. (the "Bancorp" or "Customers Bancorp"), a financial holding company, and its wholly owned subsidiaries, including Customers Bank (the "Bank"), collectively referred to as "Customers" herein. This information is intended to facilitate your understanding and assessment of significant changes and trends related to Customers' financial condition and results of operations as of and for the three and nine months ended September 30, ~~2017.~~2020. All quarterly information in this Management’s Discussion and Analysis is unaudited. You should read this section in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Customers' ~~2016~~2019 Form 10-K.

Overview

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

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

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

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

Impact of COVID-19

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

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

On March 27, 2020, the CARES Act was signed into law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act includes the SBA's PPP, a nearly $350 billion program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee an eight-week or 24-week period of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. On April 16, 2020, the SBA announced that all available funds had been exhausted and applications were no longer being accepted. On April 22, 2020, an additional $310 billion of funds for the PPP was signed into law. On August 8, 2020, the SBA announced that the PPP was closed and no longer accepting PPP applications from participating lenders. As of September 30, 2020, Customers has helped thousands of small businesses by originating about $5.0 billion in PPP loans directly or through fintech partnerships.

In response to the COVID-19 pandemic, Customers has also implemented a short-term loan modification program to provide temporary payment relief to certain of its borrowers who meet the program's qualifications. This program allows for a deferral of payments for a maximum of 90 days at a time. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. As of September 30, 2020, total commercial deferments declined to $79 million, or 0.7% of total loans and leases, excluding PPP loans, from a peak of $1.2 billion and total consumer deferments declined to $25 million, or 0.2% of total loans and leases, excluding PPP loans, from a peak of $108 million. As of September 30, 2020, Customers had $198.5 million of pending commercial loan deferment requests.

The FRB has taken a range of actions to support the flow of credit to households and businesses. For example, on March 15, 2020, the FRB reduced the target range for the federal funds rate to 0.00% to 0.25% and announced that it would increase its holdings of U.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. Additionally, on September 16, 2020, the FRB pledged to keep interest rates near zero until 2023 to support the economy through the COVID-19 recession. The FRB has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as of March 26, 2020. The FRB has also established, or has taken steps to establish, a range of facilities and programs to support the U.S. economy and U.S. marketplace participants in response to economic disruptions associated with

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

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

New Accounting Pronouncements

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

Critical Accounting Policies

Customers has adopted various accounting policies that govern the application of ~~accounting principles generally accepted in the United States of America~~U.S. GAAP and that are consistent with general practices within the banking industry in the preparation of its consolidated financial statements. Customers' significant accounting policies are described in “NOTE 42 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION” in Customers' audited financial statements included in its ~~2016~~2019 Form 10-K and updated in this ~~report on~~ Form 10-Q for the quarterly period ended September 30, ~~2017.~~2020 in “NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION."

Certain accounting policies may involve significant judgments and assumptions by Customers that have a material impact on the carrying value of certain ~~assets and liabilities.~~assets. Customers considers these accounting policies to be critical accounting policies. The judgment and assumptions used are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions management makes, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of Customers' ~~assets~~assets.

The critical accounting policy that is both important to the portrayal of Customers' financial condition and ~~liabilities~~results of operations and requires complex, subjective judgments is the ACL. This critical accounting policy and material estimate, along with the related disclosures, are reviewed by Customers' Audit Committee of the Board of Directors.

Allowance for Credit Losses

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

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

The ACL may be affected materially by a variety of qualitative factors that Customers considers to reflect its current judgement of various events and risks that are not measured in our statistical procedures, including uncertainty related to the economic forecasts used in the modeled credit loss estimates, nature and volume of loan and lease portfolio, credit underwriting policy exceptions, peer comparison, industry data, and model and data limitations. The qualitative allowance for economic forecast risk is further informed by

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multiple alternative scenarios to arrive at a composite scenario supporting the period-end ACL balance. The evaluation process is inherently imprecise and subjective as it requires significant management judgment based on underlying factors that are susceptible to changes, sometimes materially and rapidly. Customers recognizes that this approach may not be suitable in certain economic environments such that additional analysis may be performed at management's discretion. Due in part to its subjectivity, the qualitative evaluation may be materially impacted during periods of economic uncertainty and late breaking events that could lead to revision of reserves to reflect management's best estimate of expected credit losses.

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

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

To determine the ACL as of September 30, 2020, Customers utilized the Moody's September 2020 Baseline forecast to generate its modelled expected losses to reflect management's reasonable expectations of current and future economic conditions. The Baseline forecast assumed improvement in forecasts of macroeconomic conditions compared to the second quarter forecast of macroeconomic conditions used by Customers; the Federal Reserve maintaining a target range for the fed funds rate at 0.00% to 0.25% into 2023; the FRB's emergency lending facilities remaining operational through the end of 2020, with the tapering of quantitative easing not beginning until 2021; and an additional $1.5 trillion of stimulus from the federal government, which is now anticipated before the end of 2020. Customers continues to monitor the impact of the COVID-19 pandemic and related policy measures on the economy and, if the depth of the recession or pace of the expected recovery is worse than expected, further meaningful provisions for credit losses could be required.

There is no certainty that Customers' ACL will be appropriate over time to cover losses in our portfolio as economic and market conditions may ultimately differ from our reasonable and supportable forecast. Additionally, events adversely affecting specific customers, industries, or Customers' markets, such as the current COVID-19 pandemic, could severely impact our current expectations. If the credit quality of Customers' customer base materially deteriorates or the risk profile of a market, industry, or group of customers changes materially, Customers' net income and capital could be materially adversely affected which, in turn could have a material adverse effect on Customers' financial condition and results of operations. The extent to which the current COVID-19 pandemic has and will continue to negatively impact Customers' businesses, financial condition, liquidity and results will depend on future developments, which are highly uncertain and cannot be forecasted with precision at this time.

~~Third Quarter Events~~For more information, see NOTE 7 - LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES to the unaudited consolidated financial statements.

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Results of Operations

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


	Three Months Ended September 30,				QTD				Nine Months Ended September 30,				YTD
(dollars in thousands)	2020		2019		Change		% Change		2020		2019		Change		% Change
Net interest income	$	107,439	$	75,735	$	31,704	41.9	%	$	280,742	$	199,718	$	81,024	40.6	%
Provision for credit losses	12,955		4,426		8,529		192.7	%	65,688		14,539		51,149		351.8	%
Total non-interest income	33,793		23,369		10,424		44.6	%	77,959		55,125		22,834		41.4	%
Total non-interest expense	65,561		59,592		5,969		10.0	%	195,525		173,160		22,365		12.9	%
Income before income tax expense	62,716		35,086		27,630		78.7	%	97,488		67,144		30,344		45.2	%
Income tax expense	12,201		8,020		4,181		52.1	%	21,156		15,343		5,813		37.9	%
Net income	50,515		27,066		23,449		86.6	%	76,332		51,801		24,531		47.4	%
Preferred stock dividends	3,430		3,615		(185)		(5.1)	%	10,626		10,844		(218)		(2.0)	%
Net income available to common shareholders	$	47,085	$	23,451	$	23,634	100.8	%	$	65,706	$	40,957	$	24,749	60.4	%

Customers reported net income available to common shareholders of ~~$4.1~~$47.1 million or $0.13 per fully diluted common share for third quarter 2017. The reported results were impacted by several notable charges in third quarter 2017. First, Customers' previously-announced strategic decision to spin-off its BankMobile business directly to Customers’ shareholders, to be followed by a merger of BankMobile into Flagship Community Bank rather than sell the business directly to a third party resulted in including BankMobile segment results as part of the continuing Customers’ business rather than as discontinued operations. The reclassification as part of the continuing business resulted in the capture of depreciation and amortization expense not recognized during the period the related assets were classified as held for sale ($4.2 million pre-tax, or $0.08 per diluted share). In addition, Customers' decision to spin-off and then merge the BankMobile business eliminated Customers’ tax strategy to offset capital losses on disposition of the Religare common stock with capital gains from the sale of BankMobile. Customers’ decision to pursue the spin-off and merger reduced earnings by $7.7 million after tax ($0.24 per diluted share) in the third quarter due to the reversal of $4.6 million of previously recognized deferred tax assets, and inability to recognize deferred tax benefits of $3.1 million for the third quarter 2017 impairment charge of $8.3 million ($0.16 per diluted share), equal to the third quarter 2017 decrease in market value of Customers’ investment in Religare.

Asset quality remained exceptional with non-performing loans of $29.8 million, or 0.33% of total loans, and total non-performing assets (non-performing loans and other real estate owned) only 0.30% of total assets at September 30, 2017, reflecting Customers' conservative lending practices and continued focus on credit risk management. Customers' level of non-performing loans at September 30, 2017 remained well below industry average non-performing loans of 1.42% and Customers' peer group non-performing loans of 0.88%. Customers' capital ratios at the holding company and its bank subsidiary continue to exceed the “well-capitalized” threshold established by regulation at the Bank and exceed the applicable Basel III regulatory threshold ratios for the Bancorp and the Bank at September 30, 2017. Customers Bancorp's Tier 1 leverage ratio was 8.36%, and its total risk-based capital ratio was 12.40% at September 30, 2017.

Customers ended the quarter with $10.5 billion in total assets, stable asset quality trends, and stronger capital. Customers expects to strategically reduce assets below $10 billion as of December 31, 2017 to eliminate the risk of not receiving full interchange fees by qualifying for the small issuer exemption under the Durbin Amendment to the Dodd Frank legislation.

~~Results of Operations~~

~~Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016~~

~~Net income available to common shareholders decreased $14.5 million, or 77.8%, to $4.1~~$65.7 million for the three and nine months ended September 30, ~~2017 when~~2020, respectively, compared to net income available to common shareholders of ~~$18.7~~$23.5 million and $41.0 million for the three and nine months ended September 30, 2019, respectively. Factors contributing to the change in net income available to common shareholders for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 were as follows:

Net interest income

Net interest income increased $31.7 million for the three months ended September 30, ~~2016. The decreased net income available~~2020 compared to ~~common shareholders primarily resulted from certain notable third quarter 2017 charges totaling $15.6 million including:~~

~~Change in BankMobile disposition strategy ($10.4 million after tax). As further described under~~ the "Third Quarter Events of Note" above, Customers' reclassification of BankMobile as part of the continuing business resulted in the capture of depreciation and amortization expense not recognized during the period the related assets were classified as held for sale ($4.2 million pre-tax and $2.6 million after tax). In addition, Customers' decision to spin-off and then merge the BankMobile business eliminated Customers’ tax strategy to offset capital losses on disposition of the Religare common stock with capital gains from the sale of BankMobile, reducing earnings by $7.7 million after tax in third quarter 2017.

~~Religare investment impairment charge of $8.3 million ($5.2 million after tax). Customers recorded an other-than-temporary impairment loss of $8.3 million for~~ three months ended September 30, ~~2017~~2019 as average interest-earning assets increased by $6.5 billion, partially offset by a 33 basis point decline in NIM to 2.50% for the ~~full amount of~~three months ended September 30, 2020 from 2.83% for the three months ended September 30, 2019. The decline in ~~fair value~~NIM resulted from the Federal Reserve interest rate cuts of 225 basis points beginning in August 2019 and the ~~Religare investment below~~shift in the mix of interest-earning assets and interest-bearing liabilities drove a 147 basis point decline in the yield on interest-earning assets and a 144 basis point decline in the cost ~~basis established at June~~of interest-bearing liabilities for the three months ended September 30, ~~2017.~~2020. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was $5.0 billion ($4.9 billion average balance) of PPP loans yielding 1.97% and related PPPLF borrowings of $4.8 billion ($4.5 billion average balance) costing 0.35%. Customers' total cost of funds, including non-interest bearing deposits was 0.78% and 2.00% for the three months ended September 30, 2020 and 2019, respectively.

~~Other contributors~~Net interest income increased $81.0 million for the nine months ended September 30, 2020 compared to the ~~decrease~~nine months ended September 30, 2019 as average interest-earning assets increased by $4.1 billion, partially offset by a one basis point decline in ~~net income available~~NIM to ~~common shareholders included an~~2.68% for the nine months ended September 30, 2020 from 2.69% for the nine months ended September 30, 2019. The decline in NIM resulted from the Federal Reserve interest rate cuts of 225 basis points beginning in August 2019 and the shift in the mix of interest-earning assets and interest-bearing liabilities drove a 86 basis point decline in the yield on interest-earning assets and a 109 basis point decline in the cost of interest-bearing liabilities for the nine months ended September 30, 2020. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was the origination of $5.0 billion ($2.6 billion average balance) in PPP loans yielding 1.88% and related PPPLF borrowings of $4.8 billion ($1.8 billion average balance) costing 0.35%. Customers' total cost of funds, including non-interest bearing deposits was 1.08% and 2.00% for the nine months ended September 30, 2020 and 2019, respectively.

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Provision for credit losses

The $8.5 million increase in the provision for ~~loan~~credit losses for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, reflects Customers' adoption of ~~$2.3~~CECL and the impact of COVID-19. Upon adoption of the CECL standard on January 1, 2020, the allowance for credit losses for loans and leases and off-balance sheet credit exposures increased by $79.8 million ~~primarily as a result of growth~~and $3.4 million, respectively. The allowance for credit losses on off-balance sheet credit exposures is presented within accrued interest payable and other liabilities in the ~~loan portfolio~~consolidated balance sheet and ~~provisions~~the related provision is presented as part of other non-interest expense on ~~impaired~~the consolidated income statement. The allowance for credit losses on loans and ~~increases~~leases held for investment, represented 2.02% of total loans and leases receivable, excluding PPP loans (non-GAAP measure, please refer to the non-GAAP reconciliation within Loans and Leases - Asset Quality), at September 30, 2020, compared to 0.70% at September 30, 2019. Net charge-offs for the three months ended September 30, 2020 were $17.3 million, or 45 basis points of average loans and leases on an annualized basis, compared to net charge-offs of $1.8 million, or seven basis points on an annualized basis, for the three months ended September 30, 2019. The increase in net charge-offs for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, was primarily due to a partial charge-off of $9.6 million for one commercial real estate collateral dependent loan during the three months ended September 30, 2020 and an increase in charge-offs of installment loans, coinciding with the growth of the portfolio year-over-year.

The $51.1 million increase in the provision for credit losses for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, reflects Customers' adoption of CECL and the impact of COVID-19. Net charge-offs for the nine months ended September 30, 2020 were $46.3 million, or 49 basis points of average loans and leases on an annualized basis, compared to net charge-offs of $3.5 million, or five basis points on an annualized basis, for the nine months ended September 30, 2019. The increase in net charge-offs for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was primarily due to partial charge-offs of $25.2 million for two commercial real estate collateral dependent loans during the nine months ended September 30, 2020 and an increase in charge-offs of installment loans, coinciding with the growth of the portfolio year-over-year.

Non-interest income

The $10.4 million increase in non-interest ~~expenses~~income for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from increases of ~~$4.8~~$10.7 million ~~primarily driven by increases~~ in ~~salaries~~gain on sale of investment securities, $1.4 million in commercial lease income, $1.2 million in mortgage warehouse transactional fees, and ~~employee benefits and technology-related expenses, including core process system and conversion costs and noncapitalizable software development costs.~~$0.7 million in mortgage banking income. These increases were offset in part by ~~increased gains~~decreases of $2.8 million in interchange and card revenue and $1.1 million in unrealized gain on ~~sale of~~ investment securities ~~of $5.4 million and an increase in net interest income of $3.4 million.~~

~~Net interest income of $68.0 million increased $3.4 million, or 5.3%,~~ for the three months ended September 30, ~~2017 when~~2020 compared to ~~net interest~~the three months ended September 30, 2019.

The $22.8 million increase in non-interest income for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily resulted from increases of ~~$64.6~~$19.0 million in gain on sale of investment securities, $5.1 million in commercial lease income, $2.7 million in mortgage warehouse transactional fees, and $1.0 million in deposit fees, along with a $7.5 million reduction in loss upon acquisition of interest-only GNMA securities. These increases were offset in part by decreases of $7.2 million in other non-interest income and $5.1 million in interchange and card revenue for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

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Non-interest expense

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

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

Income tax expense

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

Customers' effective tax rate was 21.70% for the nine months ended September 30, 2020 compared to 22.85% for the nine months ended September 30, 2019. The decrease in the effective tax rate primarily resulted from an increase in the estimated annual benefit of investment tax credits for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

Preferred stock dividends

Preferred stock dividends were $3.4 million and $3.6 million for the three months ended September 30, ~~2016. This increase resulted primarily from an increase in~~2020 and 2019, respectively. There were no changes to the ~~average balance~~amount of interest-earning assets of $1.2 billion for third quarter 2017, offset in part by a 21 basis point decline in net interest margin (tax-equivalent) to 2.62% for third quarter 2017 from 2.83% for third quarter 2016.

~~The provision for loan losses of $2.4 million increased $2.3 million for~~preferred stock outstanding during the three months ended September 30, ~~2017 when~~2020 and 2019. On June 15, 2020, the Series C preferred stock became floating at three-month LIBOR plus 5.300%, or 5.60%, compared to ~~the provision for loan losses~~a fixed rate of ~~$0.1~~7.00%.

Preferred stock dividends were $10.6 million and $10.8 million for the ~~three~~nine months ended September 30, ~~2016. The third quarter 2017 provision expense included provisions~~2020 and 2019, respectively. There were no changes to the amount of ~~$1.4 million for loan portfolio growth and reserves of $0.8 million for impaired loans.~~

~~Non-interest income of $18.0 million decreased $9.5 million, or 34.4%, for~~preferred stock outstanding during the ~~three~~nine months ended September 30, ~~2017 when~~2020 and 2019. On June 15, 2020, the Series C preferred stock became floating at three-month LIBOR plus 5.300%, or 5.60%, compared to ~~non-interest income~~a fixed rate of $27.5 million for the three months ended September 30, 2016. This decrease was primarily the result of an $8.3 million other-than-temporary impairment loss related to the Religare investment, decreases in other non-interest income of $2.4 million, due to a $2.2 million recovery of a previously recorded loss in third quarter 2016, decreases in interchange and card revenue and deposit fees of $2.0 million and $1.6 million, respectively, driven by lower business volumes in BankMobile Disbursements. These decreases were offset in part by increased gains on sales of investment securities of $5.4 million.7.00%.

Non-interest expense of $61.0 million increased $4.8 million, or 8.6%, for the three months ended September 30, 2017 when compared to non-interest expense of $56.2 million for the three months ended September 30, 2016. This increase resulted primarily from increases in salaries and employee benefits of $2.1 million, driven primarily by salary increases as the average number of full-time equivalent employees remained relatively consistent over the past year, and increases in technology, communications and bank operations and other expenses of $1.9 million and $0.9 million, respectively, driven by technology enhancements and the capture of depreciation and amortization expenses related to BankMobile due to the reclassification of BankMobile as held and used as of September 30, 2017.

Income tax expense of $14.9 million increased $0.3 million, or 2.3%, for the three months ended September 30, 2017 when compared to income tax expense of $14.6 million for the three months ended September 30, 2016. The increase in income tax expense was driven primarily by the elimination of deferred tax benefits from other-than-temporary impairment losses on investment securities totaling $7.7 million, offset in part by a decrease in pre-tax income of $13.1 million in third quarter 2017 compared to third quarter 2016.

~~Preferred stock dividends of $3.6 million~~ increased $1.1 million, or 41.7%, for the three months ended September 30, 2017 when compared to preferred stock dividends of $2.6 million for the three months ended September 30, 2016. This increase was the result of preferred stock issuances aggregating $85.0 million in September 2016 with dividends at 6.00%.

~~Net Interest Income~~NET INTEREST INCOME

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

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

Three Months Ended September 30,
2017 2016

Average
Balance

Interest
Income or
Expense

Average
Yield or
Cost (%)

Average
Balance

Interest
Income or
Expense

Average
Yield or
Cost (%)
(dollars in thousands)
Assets
Interest-earning deposits $ 280,845
$ 923
1.30 % $ 237,753
$ 326
0.55 %
Investment securities (A) 1,017,065
7,307
2.87 % 534,333
3,528
2.64 %
Loans:
Commercial loans to mortgage companies 1,956,587
21,099
4.28 % 2,142,986
18,990
3.53 %
Multifamily loans 3,639,566
33,301
3.63 % 3,283,007
31,373
3.80 %
Commercial and industrial 1,476,083
15,792
4.24 % 1,193,906
11,887
3.96 %
Non-owner occupied commercial real estate 1,294,996
12,706
3.89 % 1,236,054
12,295
3.96 %
All other loans 561,911
5,842
4.12 % 385,511
4,554
4.70 %
Total loans (B) 8,929,143

88,740
3.94 % 8,241,464

79,099
3.82 %
Other interest-earning assets 125,341
1,315
4.16 % 90,010
1,259
5.56 %
Total interest-earning assets 10,352,394

98,285
3.77 % 9,103,560

84,212
3.68 %
Non-interest-earning assets 389,797
336,013

Total assets $ 10,742,191
$ 9,439,573

Liabilities
Interest checking accounts $ 351,422
708
0.80 % $ 202,645
278
0.55 %
Money market deposit accounts 3,427,682
9,866
1.14 % 3,115,076
5,200
0.66 %
Other savings accounts 40,310
29
0.28 % 36,516
22
0.24 %
Certificates of deposit 2,361,069
7,778
1.31 % 2,796,028
7,509
1.07 %
Total interest-bearing deposits 6,180,483
18,381
1.18 % 6,150,265
13,009
0.84 %
Borrowings 2,414,086
11,885
1.96 % 1,586,262
6,618
1.66 %
Total interest-bearing liabilities 8,594,569
30,266
1.40 % 7,736,527
19,627
1.01 %
Non-interest-bearing deposits 1,158,911
863,435

Total deposits and borrowings 9,753,480
1.23 % 8,599,962
0.91 %
Other non-interest-bearing liabilities 66,220
129,208

Total liabilities 9,819,700
8,729,170

Shareholders’ Equity 922,491
710,403

Total liabilities and shareholders’ equity $ 10,742,191
$ 9,439,573

Net interest earnings 68,019
64,585

Tax-equivalent adjustment (C) 203
96

Net interest earnings $ 68,222
$ 64,681

Interest spread 2.54 % 2.77 %
Net interest margin 2.61 % 2.82 %
Net interest margin tax equivalent (C) 2.62 % 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)~~	~~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.~~liabilities for the three and nine months ended September 30, 2020 and 2019. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

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Three Months Ended September 30,
2017 vs. 2016

Increase (Decrease) due
to Change in

Rate Volume Total
(amounts in thousands)
Interest income
Interest-earning deposits $ 528
$ 69
$ 597
Investment securities 335
3,444
3,779
Loans:
Commercial loans to mortgage companies 3,853
(1,744 ) 2,109
Multifamily loans (1,440 ) 3,368
1,928
Commercial and industrial 908
2,997
3,905
Non-owner occupied commercial real estate (195 ) 606
411
All other loans (610 ) 1,898
1,288
Total loans 2,516

7,125

9,641
Other interest-earning assets (365 ) 421
56
Total interest income 3,014

11,059

14,073
Interest expense
Interest checking accounts 167
263
430
Money market deposit accounts 4,095
571
4,666
Other savings accounts 4
3
7
Certificates of deposit 1,539
(1,270 ) 269
Total interest-bearing deposits 5,805
(433 ) 5,372
Borrowings 1,337
3,930
5,267
Total interest expense 7,142
3,497
10,639
Net interest income $ (4,128 ) $ 7,562
$ 3,434


	Three Months Ended September 30,												Three Months Ended September 30,
	2020						2019						2020 vs. 2019
(dollars in thousands)	Average balance		Interest income or expense		Average yield or cost		Average balance		Interest income or expense		Average yield or cost		Due to rate		Due to volume		Total
Assets
Interest-earning deposits	$	686,928	$	199	0.12	%	$	100,343	$	826	3.26	%	$	(1,449)	$	822	$	(627)
Investment securities (1)	950,723		6,297		2.65	%	652,142		5,867		3.60	%	(1,818)		2,248		430
Loans and leases:
Commercial loans to mortgage companies	2,847,169		20,750		2.90	%	2,103,612		24,260		4.58	%	(10,506)		6,996		(3,510)
Multi-family loans	1,989,074		18,615		3.72	%	2,929,650		28,871		3.91	%	(1,348)		(8,908)		(10,256)
Commercial and industrial loans and leases (2)	2,599,806		24,958		3.82	%	2,159,067		28,522		5.24	%	(8,655)		5,091		(3,564)
PPP loans	4,909,197		24,337		1.97	%	—		—		—	%	—		24,337		24,337
Non-owner occupied commercial real estate loans	1,388,306		12,901		3.70	%	1,294,246		14,902		4.57	%	(3,023)		1,022		(2,001)
Residential mortgages	414,781		4,139		3.97	%	729,603		7,565		4.11	%	(251)		(3,175)		(3,426)
Installment loans	1,255,505		26,407		8.37	%	600,256		14,324		9.47	%	(1,838)		13,921		12,083
Total loans and leases (3)	15,403,838		132,107		3.41	%	9,816,434		118,444		4.79	%	(40,625)		54,288		13,663
Other interest-earning assets	79,656		1,047		5.23	%	98,279		1,581		6.39	%	(262)		(272)		(534)
Total interest-earning assets	17,121,145		139,650		3.25	%	10,667,198		126,718		4.72	%	(47,648)		60,580		12,932
Non-interest-earning assets	744,429						591,946
Total assets	$	17,865,574					$	11,259,144
Liabilities
Interest checking accounts	$	2,370,709	4,640		0.78	%	$	1,014,590	4,687		1.83	%	(3,761)		3,714		(47)
Money market deposit accounts	3,786,032		6,156		0.65	%	3,100,975		17,344		2.22	%	(14,351)		3,163		(11,188)
Other savings accounts	1,125,273		2,997		1.06	%	561,790		3,108		2.19	%	(2,145)		2,034		(111)
Certificates of deposit	1,344,134		4,554		1.35	%	2,227,817		13,128		2.34	%	(4,425)		(4,149)		(8,574)
Total interest-bearing deposits (4)	8,626,148		18,347		0.85	%	6,905,172		38,267		2.20	%	(27,703)		7,783		(19,920)
FRB PPP liquidity facility	4,479,036		3,951		0.35	%	—		—		—	%	—		3,951		3,951
Borrowings	1,236,127		9,913		3.19	%	1,770,459		12,716		2.86	%	1,358		(4,161)		(2,803)
Total interest-bearing liabilities	14,341,311		32,211		0.89	%	8,675,631		50,983		2.33	%	(41,395)		22,623		(18,772)
Non-interest-bearing deposits (4)	2,194,689						1,431,810
Total deposits and borrowings	16,536,000				0.78	%	10,107,441				2.00	%
Other non-interest-bearing liabilities	299,526						146,347
Total liabilities	16,835,526						10,253,788
Shareholders' equity	1,030,048						1,005,356
Total liabilities and shareholders' equity	$	17,865,574					$	11,259,144
Net interest income			107,439						75,735				$	(6,253)	$	37,957	$	31,704
Tax-equivalent adjustment (5)			225						184
Net interest earnings			$	107,664					$	75,919
Interest spread					2.47	%					2.71	%
Net interest margin					2.50	%					2.82	%
Net interest margin tax equivalent (5)					2.50	%					2.83	%
Net interest margin tax equivalent, excluding PPP loans (6)					2.86	%					2.83	%

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

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

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

(4)Total costs of deposits (including interest ~~income~~bearing and non-interest-bearing) were 0.67% and 1.82% for the three months ended September 30, ~~2017 was $68.0 million,~~2020 and 2019, respectively.

(5)Non-GAAP tax-equivalent basis, using an ~~increase~~estimated marginal tax rate of ~~$3.4 million, or 5.3%, from~~26% for both the three months ended September 30, 2020 and 2019, presented to approximate interest income as a taxable asset. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

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(6)Non-GAAP tax-equivalent basis, as described in note (5) for the three months ended September 30, 2020 and 2019, excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of ~~$64.6~~these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

Net interest income increased $31.7 million for the three months ended September 30, ~~2016,~~2020 compared to the three months ended September 30, 2019 as average interest-earning assets increased by $6.5 billion, primarily related to PPP loan originations, increases in installment loans, commercial loans to mortgage companies, commercial and ~~security balances increased $1.2 billion. Net interest margin (tax equivalent) narrowed~~industrial loans, investment securities, and interest-earning deposits, partially offset by 21a 33 basis ~~points~~point decline in NIM to 2.62% for third quarter 2017 compared to 2.83% for third quarter 2016. The net interest margin (tax equivalent) compression largely resulted from a $1.4 million reduction in prepayment penalties in the multi-family portfolio. Net interest margin (tax equivalent) was also impacted by Customers Bancorp's issuance of $100 million principal amount of 3.95% senior notes on June 30, 2017 and a one-time interest expense adjustment of approximately $0.3 million.

Interest expense on total interest-bearing deposits increased $5.4 million in third quarter 2017 compared to third quarter 2016. The increase was mainly driven by the average rate on interest-bearing deposits, which increased 34 basis points for third quarter 2017 compared to third 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. Deposit volumes remained relatively stable, as average interest-bearing deposits increased $30.2 million2.50% for the three months ended September 30, ~~2017 compared to average interest-bearing deposits~~2020 from 2.83% for the three months ended September 30, ~~2016.~~

~~Interest expense on borrowings increased $5.3 million in third quarter 2017 compared to third quarter 2016. This increase was primarily driven by a higher average~~2019 resulting from the Federal Reserve interest rate ~~on borrowings, which increased 30~~cuts of 225 basis points ~~for third quarter 2017 compared to third quarter 2016, primarily as a result of an increase~~beginning in August 2019 and the shift in the ~~borrowing rate for short term advances, including FHLB advances~~mix of interest-earning assets and ~~federal funds purchased, and an increase~~interest-bearing liabilities drove a 147 basis point decline in the ~~outstanding balance~~yield on interest-earning assets and a 144 basis point decline in the cost of ~~senior note borrowings.~~

~~Provision for Loan Losses~~

~~The provision for loan losses of $2.4 million increased by $2.3 million~~interest-bearing liabilities for the three months ended September 30, ~~2017, compared~~2020. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was $5.0 billion ($4.9 billion average balance) of PPP loans yielding 1.97% and related PPPLF borrowings of $4.8 billion ($4.5 billion average balance) costing 0.35%. Customers' total cost of funds, including non-interest bearing deposits was 0.78% and 2.00% for the three months ended September 30, 2020 and 2019, respectively.

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	Nine Months Ended September 30,												Nine Months Ended September 30,
	2020						2019						2020 vs. 2019
(dollars in thousands)	Average Balance		Interest Income or Expense		Average Yield or Cost (%)		Average Balance		Interest Income or Expense		Average Yield or Cost		Due to rate		Due to volume		Total
Assets
Interest-earning deposits	$	614,863	$	3,173	0.69	%	$	88,146	$	1,945	2.95	%	$	(2,504)	$	3,732	$	1,228
Investment securities (1)	741,566		17,429		3.13	%	676,859		18,589		3.66	%	(2,835)		1,675		(1,160)
Loans and leases:
Commercial loans to mortgage companies	2,383,331		56,004		3.14	%	1,678,461		59,691		4.75	%	(24,036)		20,349		(3,687)
Multi-family loans	2,070,564		60,327		3.89	%	3,092,473		88,877		3.84	%	1,145		(29,695)		(28,550)
Commercial and industrial loans and leases (2)	2,507,231		78,471		4.18	%	2,041,379		79,265		5.19	%	(17,027)		16,233		(794)
PPP loans	2,563,299		36,043		1.88	%	—		—		—	%	—		36,043		36,043
Non-owner occupied commercial real estate loans	1,372,090		40,517		3.94	%	1,215,469		41,127		4.52	%	(5,593)		4,983		(610)
Residential mortgages	430,058		12,310		3.82	%	716,294		22,423		4.19	%	(1,830)		(8,283)		(10,113)
Installment loans	1,267,806		82,962		8.74	%	337,126		23,743		9.42	%	(1,836)		61,055		59,219
Total loans and leases (3)	12,594,379		366,634		3.89	%	9,081,202		315,126		4.64	%	(56,747)		108,255		51,508
Other interest-earning assets	86,454		2,976		4.60	%	91,135		4,085		5.99	%	(908)		(201)		(1,109)
Total interest-earning assets	14,037,262		390,212		3.71	%	9,937,342		339,745		4.57	%	(72,068)		122,535		50,467
Non-interest-earning assets	679,128						531,656
Total assets	$	14,716,390					$	10,468,998
Liabilities
Interest checking accounts	$	2,050,184	13,861		0.90	%	$	889,336	12,580		1.89	%	(9,040)		10,321		1,281
Money market deposit accounts	3,486,445		28,818		1.10	%	3,138,112		52,523		2.24	%	(29,051)		5,346		(23,705)
Other savings accounts	1,147,994		14,480		1.68	%	476,331		7,616		2.14	%	(1,938)		8,802		6,864
Certificates of deposit	1,533,628		18,780		1.64	%	1,920,063		32,753		2.28	%	(8,138)		(5,835)		(13,973)
Total interest-bearing deposits (4)	8,218,251		75,939		1.23	%	6,423,842		105,472		2.20	%	(54,263)		24,730		(29,533)
FRB PPP liquidity facility	1,816,849		4,774		0.35	%	—		—		—	%	—		4,774		4,774
Borrowings	1,581,498		28,757		2.43	%	1,556,405		34,555		2.97	%	(7,448)		1,650		(5,798)
Total interest-bearing liabilities	11,616,598		109,470		1.26	%	7,980,247		140,027		2.35	%	(79,956)		49,399		(30,557)
Non-interest-bearing deposits (4)	1,887,463						1,379,633
Total deposits and borrowings	13,504,061				1.08	%	9,359,880				2.00	%
Other non-interest-bearing liabilities	197,428						122,309
Total liabilities	13,701,489						9,482,189
Shareholders' equity	1,014,901						986,809
Total liabilities and shareholders' equity	$	14,716,390					$	10,468,998
Net interest income			280,742						199,718				$	7,888	$	73,136	$	81,024
Tax-equivalent adjustment (5)			655						548
Net interest earnings			$	281,397					$	200,266
Interest spread					2.63	%					2.57	%
Net interest margin					2.67	%					2.69	%
Net interest margin tax equivalent (5)					2.68	%					2.69	%
Net interest margin tax equivalent, excluding PPP loans (6)					2.93	%					2.69	%

(2)Includes owner occupied commercial real estate loans.

(3)Includes non-accrual loans, the effect of which is to ~~$0.1~~reduce the yield earned on loans and leases, and deferred loan fees.

(4)Total costs of deposits (including interest bearing and non-interest-bearing) were 1.00% and 1.81% for the nine months ended September 30, 2020 and 2019, respectively.

(5)Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the nine months ended September 30, 2020 and 2019, presented to approximate interest income as a taxable asset. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Please refer to the reconciliation schedule that follows this table.

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(6)Non-GAAP tax-equivalent basis, as described in note (5) for the nine months ended September 30, 2020 and 2019, excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Please refer to the reconciliation schedule that follows this table.

Net interest income increased $81.0 million for the ~~same~~nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 as average interest-earning assets increased by $4.1 billion, primarily related to PPP loan originations, increases in installment loans, commercial loans to mortgage companies, commercial and industrial loans, investment securities, and interest earning deposits, partially offset by a 1 basis point decline in NIM to 2.68% for the nine months ended September 30, 2020 from 2.69% for the nine months ended September 30, 2019, resulting from the Federal Reserve interest rate cuts of 225 basis points beginning in August 2019 and the shift in the mix of interest-earning assets drove a 86 basis point decline in the yield on interest-earnings assets and an 109 basis point decline in the cost of interest-bearing liabilities for the nine months ended September 30, 2020. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was the origination of $5.0 billion ($2.6 billion average balance) in PPP loans yielding 1.88% and related PPPLF borrowings of $4.8 billion ($1.8 billion average balance) costing 0.35%. Customers' total cost of funds, including non-interest bearing deposits was 1.08% and 2.00% for the nine months ended September 30, 2020 and 2019, respectively.

Customers’ net interest margin tables contain non-GAAP financial measures calculated using non-GAAP amounts. These measures include net interest margin tax equivalent and net interest margin tax equivalent, excluding PPP loans. Management uses these non-GAAP measures to present the current period presentation to historical periods in ~~2016.~~ prior filings. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers' financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2020			2019			2020			2019
Net interest income (GAAP)	$	107,439		$	75,735		$	280,742		$	199,718
Tax-equivalent adjustment	225			184			655			548
Net interest income tax equivalent (Non-GAAP)	$	107,664		$	75,919		$	281,397		$	200,266
Loans receivable, PPP net interest income	(20,018)			—			(29,326)			—
Net interest income tax equivalent, excluding PPP loans (Non-GAAP)	$	87,646		$	75,919		$	252,071		$	200,266

Average total interest-earning assets (GAAP)	$	17,121,145		$	10,667,198		$	14,037,262		$	9,937,342
Average PPP loans	(4,909,197)			—			(2,563,299)			—
Adjusted average total interest-earning assets (Non-GAAP)	$	12,211,948		$	10,667,198		$	11,473,963		$	9,937,342

Net interest margin (GAAP)	2.50		%	2.82		%	2.67		%	2.69		%
Net interest margin tax equivalent (Non-GAAP)	2.50		%	2.83		%	2.68		%	2.69		%
Net interest margin tax equivalent, excluding PPP loans (Non-GAAP)	2.86		%	2.83		%	2.93		%	2.69		%

PROVISION FOR CREDIT LOSSES

The provision for credit losses is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected lifetime losses in the loan and lease portfolio at the balance sheet date. During first quarter 2020, Customers adopted ASU 2016-13. Upon adoption, the allowance for credit losses for loans and leases and lending-related unfunded commitments increased by $79.8 million and $3.4 million, respectively, with the after-tax cumulative effect recorded to retained earnings. Customers recorded $13.0 million and a credit of ~~$2.4~~$0.5 million of provision for credit losses for loans and leases and lending-related commitments, respectively, for the three months ended September 30, 2020 utilizing the CECL methodology. The additional provision for credit losses during the three months ended September 30, 2020 resulted primarily from net charge-offs and portfolio growth, partially offset by

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changes in ~~third quarter 2017 included provisions~~management's economic forecast since June 30, 2020, due to improved forecasts of ~~$1.4~~macroeconomic conditions. Customers recorded $65.7 million and a $0.1 million credit for ~~loan~~provision for credit losses for loans and leases and lending-related commitments, respectively, for the nine months ended September 30, 2020. The increase resulted primarily from the impact of reserve build for the COVID-19 pandemic, portfolio growth, and reserves of $0.8 million for impaired loans. In third quarter 2016, the provision for loan losses of $0.1 million was the result of minimal loan growth during the quarter, as planned, as well as exceptional asset quality.net-charge-offs.

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

~~Non-Interest Income~~

NON-INTEREST INCOME

The table below presents the components of non-interest income for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019.


	Three Months Ended September 30,				QTD				Nine Months Ended September 30,				YTD
(dollars in thousands)	2020		2019		Change		% Change		2020		2019		Change		% Change
Interchange and card revenue	$	4,081	$	6,869	$	(2,788)	(40.6)	%	$	17,368	$	22,435	$	(5,067)	(22.6)	%
Deposit fees	3,439		3,642		(203)		(5.6)	%	10,221		9,199		1,022		11.1	%
Commercial lease income	4,510		3,080		1,430		46.4	%	13,286		8,212		5,074		61.8	%
Bank-owned life insurance	1,746		1,824		(78)		(4.3)	%	5,265		5,477		(212)		(3.9)	%
Mortgage warehouse transactional fees	3,320		2,150		1,170		54.4	%	7,854		5,145		2,709		52.7	%
Gain (loss) on sale of SBA and other loans	286		—		286		NM		320		—		320		NM
Mortgage banking income	1,013		283		730		258.0	%	1,347		701		646		92.2	%
Loss upon acquisition of interest-only GNMA securities	—		—		—		NM		—		(7,476)		7,476		(100.0)	%
Gain (loss) on sale of investment securities	11,707		1,001		10,706		1,069.5	%	20,035		1,001		19,034		1,901.5	%
Unrealized gain (loss) on investment securities	238		1,333		(1,095)		(82.1)	%	60		988		(928)		(93.9)	%
Other	3,453		3,187		266		8.3	%	2,203		9,443		(7,240)		(76.7)	%
Total non-interest income	$	33,793	$	23,369	$	10,424	44.6	%	$	77,959	$	55,125	$	22,834	41.4	%

Interchange and card revenue

The $2.8 million decrease in interchange and card revenue for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from Customers becoming subject to the Federal Reserve's regulation limits on interchange fees for banks over $10 billion in assets beginning on July 1, 2020.

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

Deposit fees

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

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

Commercial lease income

Commercial lease income represents income earned on commercial operating leases originated by Customers' Equipment Finance Group in which Customers is the lessor. The $1.4 million increase in commercial lease income for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from the continued growth of Customers' equipment finance business.

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Three Months Ended September 30,
2017 2016
(amounts in thousands)
Interchange and card revenue $ 9,570
$ 11,547
Gain (loss) on sale of investment securities 5,349
(1 )
Deposit fees 2,659
4,218
Mortgage warehouse transactional fees 2,396
3,080
Bank-owned life insurance 1,672
1,386
Gain on sale of SBA and other loans 1,144
1,206
Mortgage banking income 257
287
Impairment loss on investment securities (8,349 ) —
Other 3,328
5,763
Total non-interest income $ 18,026
$ 27,486
The $5.1 million increase in commercial lease income for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily resulted from the continued growth of Customers' equipment finance business.

~~Non-interest~~Mortgage warehouse transactional fees

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

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

Mortgage banking income ~~decreased $9.5~~

The $0.7 million increase in mortgage banking income for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from an increase in unrealized gains on derivatives and gains on sales of mortgage servicing rights during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

The $0.6 million increase in mortgage banking income for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily resulted from an increase in unrealized gains on derivatives and gains on sales of mortgage servicing rights during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Loss on acquisition of interest-only GNMA securities

The $7.5 million decrease in loss on acquisition of interest-only GNMA for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 resulted from a mortgage warehouse customer that unexpectedly ceased operations in the second quarter 2019. Customers took possession of the interest-only GNMA securities that served as the primary collateral for loans made to this mortgage warehouse customer. The shortfall in the fair value of the interest-only GNMA securities upon acquisition resulted in a write-down of $7.5 million in second quarter 2019. Customers views this as an isolated event that is not indicative of the overall credit quality of the mortgage warehouse portfolio. There are no other loans in the mortgage warehouse portfolio secured by interest-only securities. These securities were sold for $15.4 million with a realized gain of $1.0 million during the three months ended September 30, ~~2017 to $18.0~~2020.

Gain (loss) on sale of investment securities

The $10.7 million ~~compared to $27.5 million~~increase in gain (loss) on sale of investment securities for the three months ended September 30, ~~2016. This decrease was primarily due~~2020 compared to an $8.3 million other-than-temporary-impairment loss on equity securities, a decrease in other non-interest income of $2.4 million due to a $2.2 million recovery of a previously recorded loss in third quarter 2016, decreases in interchange and card revenue and deposit fees of $2.0 million and $1.6 million, respectively, driven by lower business volumes in BankMobile Disbursements, and a decrease in mortgage warehouse transactional fees of $0.7 million driven by a reduction in the ~~volume of warehouse transactions. These decreases were offset in part by increases in~~three months ended September 30, 2019 reflects the gains realized from the sale of $58.4 million of agency-guaranteed mortgage-backed securities and $70.0 million in corporate notes during the three months ended September 30, 2020.

The $19.0 million increase in gain (loss) on sale of investment securities for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 reflects the gains realized from the sale of ~~$5.4~~$158.9 million of agency-guaranteed mortgage-backed securities, $70.0 million in corporate notes, $30.0 million of corporate bonds, and $6.3 million in non-agency-guaranteed collateralized mortgage obligations during the nine months ended September 30, 2020.

Unrealized gain (loss) on investment securities

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

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

Other non-interest income

The $0.3 million increase in other non-interest income for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from ~~bank-owned life insurance policies~~a net positive mark-to-market derivative valuation adjustment of ~~$0.3 million.~~$1.0 million, due to market interest rates, partially offset by a decrease of $0.5 million in swap premiums.

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

NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019.


	Three Months Ended September 30,				QTD				Nine Months Ended September 30,				YTD
(dollars in thousands)	2020		2019		Change		% Change		2020		2019		Change		% Change
Salaries and employee benefits	$	32,676	$	27,193	$	5,483	20.2	%	$	92,283	$	79,936	$	12,347	15.4	%
Technology, communication and bank operations	13,215		8,755		4,460		50.9	%	39,576		33,110		6,466		19.5	%
Professional services	7,253		8,348		(1,095)		(13.1)	%	19,476		18,639		837		4.5	%
Occupancy	3,632		3,661		(29)		(0.8)	%	9,689		9,628		61		0.6	%
Commercial lease depreciation	3,663		2,459		1,204		49.0	%	10,733		6,633		4,100		61.8	%
FDIC assessments, non-income taxes and regulatory fees	3,784		(777)		4,561		NM		9,019		3,368		5,651		167.8	%
Provision for operating losses	1,186		3,998		(2,812)		(70.3)	%	3,166		8,223		(5,057)		(61.5)	%
Advertising and promotion	—		976		(976)		(100.0)	%	2,221		3,145		(924)		(29.4)	%
Merger and acquisition related expenses	1,035		—		1,035		NM		1,110		—		1,110		NM
Loan workout	846		495		351		70.9	%	3,020		1,458		1,562		107.1	%
Other real estate owned	7		108		(101)		(93.5)	%	26		151		(125)		(82.8)	%
Other	(1,736)		4,376		(6,112)		(139.7)	%	5,206		8,869		(3,663)		(41.3)	%
Total non-interest expense	$	65,561	$	59,592	$	5,969	10.0	%	$	195,525	$	173,160	$	22,365	12.9	%

Three Months Ended September 30,
2017 2016
(amounts in thousands)
Salaries and employee benefits $ 24,807
$ 22,681
Technology, communication and bank operations 14,401
12,525
Professional services 7,403
7,006
Occupancy 2,857
2,450
FDIC assessments, taxes, and regulatory fees 2,475
2,726
Provision for operating losses 1,509
1,406
Loan workout 915
592
Other real estate owned 445
1,192
Advertising and promotion 404
591
Acquisition related expenses —
144
Other 5,824
4,905
Total non-interest expense $ 61,040
$ 56,218
Salaries and employee benefits

~~Non-interest expense was $61.0~~The $5.5 million increase in salaries and employee benefits for the three months ended September 30, ~~2017, an increase of $4.8 million from non-interest expense of $56.2 million for~~2020 compared to the three months ended September 30, ~~2016.~~2019 primarily resulted from an increase in average full-time equivalent team members needed for future growth, annual merit increases, and an increase in incentive accruals tied to Customers' overall performance.

~~Salaries~~The $12.3 million increase in salaries and employee benefits which represent the largest component of non-interest expense, increased $2.1 million, or 9.4%, to $24.8 million for the three months ended September 30, 2017 from $22.7 million for the three months ended September 30, 2016. The increase was primarily attributable to increases in salaries as the average number of full-time equivalent employees remained relatively consistent over the past year.

Technology, communication and bank operations expenses increased by $1.9 million, or 15.0%, to $14.4 million for the three months ended September 30, 2017 from $12.5 million for the three months ended September 30, 2016. The increase was primarily attributable to increased core processing system expenses and non-capitalizable software development costs of $2.0 million and $1.5 million, respectively, as well as the recapture of $3.2 million of depreciation expense in third quarter 2017 related to BankMobile for the period it was classified as held for sale. These increases were offset in part by a $3.9 million one-time expense in third quarter 2016 for technology-related services.

~~Income Taxes~~

Income tax expense increased $0.3 million for the three months ended September 30, 2017 to $14.9 million, compared to $14.6 million in the same period of 2016. This increase was driven primarily by the elimination of deferred tax benefits from other-than-temporary impairment losses on investment securities totaling $7.7 million, offset in part by a decrease in pre-tax income of $13.1 million in third quarter 2017 compared to third quarter 2016.

~~Preferred Stock Dividends~~

Preferred stock dividends of $3.6 million increased $1.1 million, or 41.7%, for the three months ended September 30, 2017 when compared to preferred stock dividends of $2.6 million for the three months ended September 30, 2016. This increase was the result of preferred stock issuances totaling $85.0 million issued in September 2016 with dividends at 6.00%.

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Net income available to common shareholders decreased $6.6 million, or 12.5%, to $46.4 million~~ for the nine months ended September 30, 2017 when compared to net income available to common shareholders of $53.0 million for the nine months ended September 30, 2016. The decreased net income available to common shareholders primarily resulted from an increase in non-interest expense of $32.5 million, an increase in preferred stock dividends of $4.9 million, and an increase in provision for loan losses of $3.1 million. These increases were offset in part by an increase in net interest income of $13.7 million, largely reflecting the growth in interest earning assets over the past twelve months, an increase in non-interest income of $17.9 million largely as a result of a full nine months of BankMobile Disbursements operations, and a decrease in income tax expense of $2.3 million.

Net interest income increased $13.7 million, or 7.4%, for the nine months ended September 30, 2017 to $199.0 million when compared to net interest income of $185.4 million for the nine months ended September 30, 2016. This increase resulted principally from an increase in the average balance of interest-earning assets of $1.1 billion offset in part by a 13 basis point decrease in the net interest margin (tax equivalent) to 2.71% for the first nine months of 2017 when compared to the first nine months of 2016.

The provision for loan losses increased $3.1 million to $5.9 million for the nine months ended September 30, 2017 when compared to the provision for loan losses of $2.9 million for the same period in 2016. The provision for loan losses of $5.9 million included $2.3 million for loan portfolio growth and $3.9 million for impaired loans, offset in part by a $0.8 million release resulting from improved asset quality and lower incurred losses than previously estimated.

Non-interest income increased $17.9 million, or 43.5%, for the nine months ended September 30, 2017 to $59.2 million when compared to $41.2 million for the nine months ended September 30, 2016. The increase was primarily a result of an increase in interchange and card revenue of $17.9 million reflecting a full nine months of BankMobile Disbursements operations, an increase in gains on sales of investment securities of $8.5 million, an increase in deposit fees of $2.7 million, and increased bank-owned life insurance income of $1.7 million, offset in part by other-than-temporary impairment losses of $12.9 million related to the decline in market value of the Religare investment and a decrease in mortgage warehouse transactional fees of $1.6 million.

Non-interest expense increased $32.5 million, or 25.3%, for the nine months ended September 30, 2017 to $160.8 million when compared to non-interest expense of $128.3 million for the nine months ended September 30, 2016. The increase primarily resulted from increased BankMobile expenses of $38.9 million due to the acquisition of the Disbursements business in June 2016 compared to a full nine months of BankMobile Disbursements operations in 2017, offset in part by decreased FDIC assessments, taxes, and regulatory fees of $4.6 million and a one-time expense of $3.9 million in third quarter 2016 for technology-related services. The increased BankMobile expenses, largely the result of a full nine months of BankMobile Disbursements operations in 2017 and only three months in 2016, included $10.5 million of increased salaries and employee benefits, $17.0 million of increased technology, communications, and bank operations, $6.4 million of increased professional services, and $5.5 million of increased other operating expenses. Excluding the effect of BankMobile, non-interest expense decreased $6.3 million period over period as management continued its efforts to control expenses.

Income tax expense decreased $2.3 million for the nine months ended September 30, 2017 to $34.2 million when compared to income tax expense of $36.6 million for the same period of 2016. The decrease in income tax expense was driven primarily by a decrease in pre-tax income of $4.0 million in the first nine months of 2017 as well as the $4.6 million of tax benefits recognized for the increase in fair value of restricted stock units vesting and the exercise of stock options since the award date compared to $0.6 million for the the same period in 2016. Customers' effective tax rate decreased to 37.4% for the nine months ended September 30, 2017, compared to 38.3% for the same period of 2016.

Preferred stock dividends increased $4.9 million for the nine months ended September 30, 2017 to $10.8 million when compared to preferred stock dividends of $5.9 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~~

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

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

Nine Months Ended September 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 $ 327,154
$ 2,446
1.00 % $ 211,971
$ 845
0.53 %
Investment securities (A) 971,710
21,017
2.88 % 548,921
10,875
2.64 %
Loans:
Commercial loans to mortgage companies 1,734,874
53,860
4.15 % 1,931,892
50,767
3.51 %
Multifamily loans 3,496,276
96,570
3.69 % 3,235,689
91,611
3.78 %
Commercial and industrial 1,402,650
44,034
4.20 % 1,127,622
33,626
3.98 %
Non-owner occupied commercial real estate 1,290,762
37,654
3.90 % 1,170,996
33,759
3.85 %
All other loans 515,567
16,590
4.30 % 399,202
14,356
4.80 %
Total loans (B) 8,440,129
248,708
3.94 % 7,865,401

224,119
3.81 %
Other interest-earning assets 102,590
3,061
3.99 % 90,911
3,092
4.54 %
Total interest earning assets 9,841,583

275,232
3.74 % 8,717,204

238,931
3.66 %
Non-interest-earning assets 367,595
305,326

Total assets $ 10,209,178
$ 9,022,530

Liabilities
Interest checking accounts $ 338,991
1,839
0.73 % $ 160,525
681
0.57 %
Money market deposit accounts 3,347,661
24,462
0.98 % 3,044,696
13,674
0.60 %
Other savings accounts 41,685
87
0.28 % 39,075
66
0.23 %
Certificates of deposit 2,489,970
22,546
1.21 % 2,556,935
19,944
1.04 %
Total interest-bearing deposits 6,218,307
48,934
1.05 % 5,801,231
34,365
0.79 %
Borrowings 1,836,654
27,255
1.98 % 1,693,455
19,196
1.51 %
Total interest-bearing liabilities 8,054,961
76,189
1.26 % 7,494,686
53,561
0.95 %
Non-interest-bearing deposits 1,185,062
800,358

Total deposits and borrowings 9,240,023
1.10 % 8,295,044
0.86 %
Other non-interest-bearing liabilities 72,622
76,774

Total liabilities 9,312,645
8,371,818

Shareholders’ Equity 896,533
650,712

Total liabilities and shareholders’ equity $ 10,209,178
$ 9,022,530

Net interest earnings 199,043
185,370

Tax-equivalent adjustment (C) 399
298

Net interest earnings $ 199,442
$ 185,668

Interest spread 2.64 % 2.80 %
Net interest margin 2.70 % 2.84 %
Net interest margin tax equivalent (C) 2.71 % 2.84 %


~~(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.

Nine Months Ended September 30,
2017 vs. 2016
Increase (Decrease) due
to Change in
Rate Volume Total
(amounts in thousands)
Interest income
Interest-earning deposits $ 989
$ 612
$ 1,601
Investment securities 1,079
9,063
10,142
Loans:
Commercial loans to mortgage companies 8,621
(5,528 ) 3,093
Multifamily loans (2,213 ) 7,172
4,959
Commercial and industrial 1,879
8,529
10,408
Non-owner occupied commercial real estate 434
3,461
3,895
All other loans (1,616 ) 3,850
2,234
Total loans 7,105
17,484
24,589
Other interest-earning assets (402 ) 371
(31 )
Total interest income 8,771
27,530
36,301
Interest expense
Interest checking accounts 233
925
1,158
Money market deposit accounts 9,313
1,475
10,788
Other savings accounts 16
5
21
Certificates of deposit 3,138
(536 ) 2,602
Total interest-bearing deposits 12,700
1,869
14,569
Borrowings 6,333
1,726
8,059
Total interest expense 19,033
3,595
22,628
Net interest income $ (10,262 ) $ 23,935
$ 13,673

Net interest income for the nine months ended September 30, 2017 was $199.0 million, an increase of $13.7 million, or 7.4%, when compared to net interest income of $185.4 million for the nine months ended September 30, 2016. This increase was primarily driven by increased average loan and security balances of $1.0 billion.

Net interest margin (tax equivalent) narrowed by 13 basis points to 2.71% from the nine months ended September 30, 2016. The net interest margin compression largely resulted from a $1.6 million reduction in prepayment penalties in the multi-family portfolio during the nine months ended September 30, 2017 as compared to nine months ended September 30, 2016. Net interest margin (tax equivalent) was also impacted by Customers Bancorp's issuance of $100 million principal amount of 3.95% senior notes on June 30, 2017.

~~Interest expense on total interest-bearing deposits increased $14.6 million for the nine months ended September 30, 2017~~2020 compared to the nine months ended September 30, ~~2016. This increase~~2019 primarily resulted from ~~increased deposit volume as~~an increase in average ~~interest-bearing deposits~~full-time equivalent team members needed for future growth, annual merit increases, and an increase in incentive accruals tied to Customers' overall performance.

Technology, communication, and bank operations

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

The $6.5 million increase in technology, communication, and bank operations expense for the nine months ended September 30, 2017 increased by $417.1 million when compared to average interest-bearing deposits for the nine months ended September 30, 2016. The average rate on interest-bearing deposits increased 26 basis points for the nine months ended September 30, 2017 compared to the nine months ended September 30,

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 on borrowings increased $8.1 million for the nine months ended September 30, 2017,~~2020 compared to the nine months ended September 30, ~~2016. This increase was driven by a 47 basis point~~2019 primarily resulted from the continued investment in Customers' white label partnership and digital transformation efforts.

Professional services

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

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The $0.8 million increase in average rates for the period due primarily to higher rates on short term borrowings used to fund commercial loans to mortgage companies. This increase was also driven by increased volume as average borrowings increased by $143.2 million when compared to average borrowingsprofessional services for the nine months ended September 30, ~~2016.~~2020 compared to the nine months ended September 30, 2019 primarily resulted from consulting services associated with supporting Customers' white label partnership and digital transformation efforts, partially offset by management's continued efforts to monitor and control expenses.

~~Provision for Loan Losses~~Commercial lease depreciation

The ~~provision~~$1.2 million increase in commercial lease depreciation for ~~loan losses increased~~the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from the continued growth of the operating lease arrangements originated by ~~$3.1~~Customers' Equipment Finance Group in which Customers is the lessor.

The $4.1 million ~~to $5.9 million~~increase in commercial lease depreciation for the nine months ended September 30, ~~2017,~~2020 compared to ~~$2.9~~the nine months ended September 30, 2019 primarily resulted from the continued growth of the operating lease arrangements originated by Customers' Equipment Finance Group in which Customers is the lessor.

FDIC assessments, non-income taxes, and regulatory fees

The $4.6 million increase in FDIC assessments, non-income taxes, and regulatory fees for the ~~same period~~three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from an increase in ~~2016. The provision for loan losses of $5.9 million included $2.3 million for loan portfolio growth and $3.9 million for impaired loans, offset in part by a $0.8 million release~~FDIC assessment rates resulting from ~~improved asset quality~~management's decision to grow the balance sheet beyond $10 billion in assets, as higher premiums become applicable, and ~~lower incurred losses than previously estimated.~~ the temporary utilization of brokered deposits to fund PPP loans.

The ~~provision for loan losses of $2.9~~$5.7 million increase in FDIC assessments, non-income taxes, and regulatory fees for the nine months ended September 30, ~~2016 included provisions for loan portfolio growth and reserves on impaired loans of approximately $5.0 million, offset in part by increased estimated cash flows expected~~2020 compared to ~~be collected on purchased credit-impaired loans, a reduction in the estimated amounts owed to the FDIC for previous FDIC assisted transactions, and other recoveries of approximately $2.1 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~~

~~The table below presents the components of non-interest income for~~ the nine months ended September 30, ~~2017 and 2016.~~

Nine Months Ended September 30,
2017 2016
(amounts in thousands)
Interchange and card revenue $ 31,729
$ 13,806
Gain on sale of investment securities 8,532
25
Deposit fees 7,918
5,260
Mortgage warehouse transactional fees 7,139
8,702
Bank-owned life insurance 5,297
3,629
Gain on sale of SBA and other loans 3,045
2,135
Mortgage banking income 703
737
Impairment loss on investment securities (12,934 ) —
Other 7,741
6,943
Total non-interest income $ 59,170
$ 41,237

Non-interest income increased $17.9 million during the nine months ended September 30, 2017 to $59.2 million, compared to $41.2 million for the nine months ended September 30, 2016. This increase was2019 primarily due to a $17.9 million increase in interchange and card revenues reflecting a full nine months of BankMobile Disbursements business activity in 2017 compared to three full months in 2016, an $8.5 million increase in gains on sale of investment securities,resulted from an increase in deposit fees of $2.7 million, and increased income from bank-owned life insurance policies of $1.7 million, offset in part by a $12.9 million other-than-temporary-impairment loss on equity securities and a decrease in mortgage warehouse transactional fees of $1.6 million driven by a reduction in the volume of warehouse transactions.

~~Non-Interest Expense~~

~~The table below presents the components of non-interest expense for the nine months ended September 30, 2017 and 2016.~~

Nine Months Ended September 30,
2017 2016
(amounts in thousands)
Salaries and employee benefits $ 69,569
$ 58,051
Technology, communication and bank operations 33,227
19,021
Professional services 21,142
13,213
Occupancy 8,228
7,248
FDIC assessments, taxes, and regulatory fees 6,615
11,191
Provision for operating losses 4,901
1,943
Loan workout 1,844
1,497
Advertising and promotion 1,108
1,178
Other real estate owned 550
1,663
Acquisition related expenses —
1,195
Other 13,634
12,106
Total non-interest expense $ 160,818
$ 128,306

Non-interest expense was $160.8 million for the nine months ended September 30, 2017, an increase of $32.5 million from non-interest expense of $128.3 million for the nine months ended September 30, 2016.

Salaries and employee benefits, which represent the largest component of non-interest expense, increased $11.5 million, or 19.8%, to $69.6 million for the nine months ended September 30, 2017, reflecting salary increases as well as a higher average number of full-time equivalent employees, primarilyFDIC assessment rates resulting from ~~a full year~~management's decision to grow the balance sheet beyond $10 billion in assets, as higher premiums become applicable, and the temporary utilization of ~~BankMobile Disbursements operations.~~

~~Technology, communication and bank operations increased by $14.2 million, or 74.7%,~~brokered deposits to $33.2 million for the nine months ended September 30, 2017 from $19.0 million for the nine months ended September 30, 2016. This increase was primarily attributable to increases in core processing system and conversion expenses of $9.0 million, interchange expenses of $4.7 million, non-capitalizable software development costs of $3.4 million, and depreciation expense primarily driven by the $3.2 catch-up adjustment recorded in third quarter 2017 for the period BankMobile was classified as held for sale. These increases were partially offset by a $3.9 million one-time expense in third quarter 2016 for technology-related services. The increased technology, communication, and bank operations expenses reflected a full nine months of BankMobile Disbursements activity in 2017 compared to three full months of activity for 2016.

Professional services expense increased by $7.9 million, or 60.0%, to $21.1 million for the nine months ended September 30, 2017 from $13.2 million for the nine months ended September 30, 2016. This increase was primarily driven by the transitional services agreement which was in effect for the twelve months following the acquisition of the Disbursement business from Higher One and ended in second quarter 2017 and increases in consulting and other professional services to support a $10.5 billion bank.

FDIC assessments, taxes, and regulatory fees decreased by $4.6 million, or 40.9%, to $6.6 million for the nine months ended September 30, 2017 from $11.2 million for the nine months ended September 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.fund PPP loans.

Provision for operating losses ~~increased by $3.0 million, or 152.2%, to $4.9 million for the nine months ended September 30, 2017 from $1.9 million for the nine months ended September 30, 2016.~~

The provision for operating losses ~~represents Customers' estimated liability for~~primarily consists of losses resulting from fraud or theft-based transactions that have generally been disputed by deposit account ~~holders mainly~~holders. The $2.8 million decrease in provision for operating losses for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from an internet-based organized crime ring that was identified during the three months ended September 30, 2019 and initiatives implemented by management to reduce fraud and theft-based losses during the three months ended September 30, 2020.

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

Advertising and promotion expenses

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

The $0.9 million decrease in advertising and promotion expenses for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily resulted from a reduction in the promotion of Customers' digital banking products and service offerings available through BankMobile ~~Disbursements business but where such disputes have not been resolved as~~and its white label partnership.

Merger and acquisition related expenses

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

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

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Loan workout

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

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

Other non-interest expense

The $6.1 million decrease in other non-interest expense for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily resulted from an increase in operating cost reimbursements from Customers' white label partnership.

The $3.7 million decrease in other non-interest expense for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily resulted from an increase in operating cost reimbursements from Customers' white label partnership, partially offset by a legal contingency accrual of $1.0 million related to the settlement of the ~~end of~~previously disclosed ED matter during the ~~reporting period.~~ three months ended March 31, 2020.

INCOME TAXES

The ~~reserve is based on historical rates of loss on such transactions.~~ table below presents income tax expense and the effective tax rate for the three and nine months ended September 30, 2020 and 2019.


	Three Months Ended September 30,						QTD				Nine Months Ended September 30,						YTD
(dollars in thousands)	2020			2019			Change		% Change		2020			2019			Change		% Change
Income before income tax expense	$	62,716		$	35,086		$	27,630	78.7	%	$	97,488		$	67,144		$	30,344	45.2	%
Income tax expense	$	12,201		$	8,020		$	4,181	52.1	%	$	21,156		$	15,343		$	5,813	37.9	%
Effective tax rate	19.45		%	22.86		%					21.70		%	22.85		%

The $4.2 million increase ~~is mainly attributable~~in income tax expense for the three months ended September 30, 2020, when compared to the ~~accrual~~same period in the prior year, primarily resulted from an increase in pre-tax income, partially offset by an increase in the estimated annual benefit of investment tax credits for the three months ended September 30, 2020. The decrease in the effective tax rate for the three months ended September 30, 2020, when compared to the same period in the prior year, primarily resulted from an increase in the estimated ~~liability~~annual benefit of investment tax credits for ~~a full~~the three months ended September 30, 2020.

The $5.8 million increase in income tax expense for the nine months ended September 30, 2020, when compared to the same period in the prior year, primarily resulted from an increase in pre-tax income, partially offset by an increase in the estimated annual benefit of ~~operations~~investment tax credits for the nine months ended September 30, 2020. The decrease in the effective tax rate for the nine months ended September 30, 2020, when compared to the same period in the prior year, primarily resulted from an increase in the estimated annual benefit of investment tax credits for the ~~BankMobile Disbursements business in 2017.~~nine months ended September 30, 2020.

~~Income Taxes~~PREFERRED STOCK DIVIDENDS

~~Income tax expense decreased $2.3~~

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

Preferred stock dividends were $10.6 million and $10.8 million for the nine months ended September 30, ~~2017~~2020 and 2019. There were no changes to ~~$34.2 million when compared to income tax expense~~the amount of $36.6 million for the same period of 2016. The decrease in income tax expense was driven primarily by a decrease in pre-tax income of $4.0 million in the first nine months of 2017. Customers' effective tax rate decreased to 37.4% for the nine months ended September 30, 2017, compared to 38.3% for the same period of 2016. The decrease in the effective tax rate was primarily driven by the lower taxable income as well as the $4.6 million of tax benefits recognizedpreferred stock outstanding during the nine months ended September 30, ~~2017 for the increase in fair value of restricted~~2020 and 2019. On June 15, 2020, Series C preferred stock ~~units vesting and the exercise of stock options since the award date~~became floating at three-month LIBOR plus 5.300%, compared to ~~$0.6 million for the the same period in 2016.~~

~~Preferred Stock Dividends~~

Preferred stock dividends increased $4.9 million in the nine months ended September 30, 2017 to $10.8 million, compared to $5.9 million for the nine months ended September 30, 2016. This increase was the resulta fixed rate 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%~~7.00%.

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Financial Condition

General

~~Customers crossed the $10 billion asset threshold during the second quarter of 2017 and continued to exceed $10 billion of~~Customers' total assets were $18.8 billion at September 30, ~~2017 with total assets of $10.5 billion.~~2020. This represented a ~~$1.1~~$7.3 billion ~~or 11.6%,~~ increase from total assets of ~~$9.4~~$11.5 billion at December 31, ~~2016.~~2019. The ~~change~~increase in ~~Customers' financial position occurred~~total assets was primarily ~~as the result~~driven by increases of $5.0 billion in PPP loans, $1.7 billion in loans receivable, mortgage warehouse, at fair value, $538.0 million in investment securities, $381.9 million in loans and leases receivable, $125.5 million in other assets, and $118.9 million in cash and cash equivalents, partially offset by a decrease of $459.6 million in loans held for sale and an increase in ~~total loans outstanding~~allowance for loan and lease losses of $0.9 billion since December 31, 2016, or 10.9%, primarily driven by growth in multifamily, commercial and industrial loans, and consumer residential loans. Commercial loans held for investment increased $0.7 billion, or 11.5%, to $6.5$99.2 million.

Total liabilities were $17.7 billion at September 30, ~~2017 compared to $5.9~~2020. This represented a $7.3 billion increase from $10.5 billion at December 31, ~~2016, and consumer loans held for investment increased $233.2 million to $531.9 million at September 30, 2017 from $298.7 million at December 31, 2016.~~

Given the change in disposition strategy related to BankMobile as of September 30, 2017, Customers has decided to strategically reduce its total assets to below $10 billion as of December 31, 2017 in order to continue to qualify for the small issuer exemption rules of the Durbin Amendment to optimize interchange revenue through June 30, 2019. Customers plans to reduce total assets by approximately $500 million by year-end 2017 through normal seasonality of the mortgage warehouse business, which tends to decline in the winter months, selling multi-family and residential mortgage loans, and selling investment securities as needed. In addition, Customers expects to moderately grow its commercial and industrial loan portfolio while limiting growth in its multi-family loan portfolio by disciplined pricing.

~~Total liabilities were $9.6 billion at September 30, 2017. This represented a $1.0 billion, or 12.1%, increase from $8.5 billion at December 31, 2016.~~ The increase in total liabilities primarily resulted ~~primarily~~ from ~~FHLB borrowings, which increased by $0.6~~increases of $4.8 billion ~~or 68.3%, to $1.5~~in the PPPLF, $2.2 billion ~~at September 30, 2017 from $0.9 billion at December 31, 2016, other borrowings, which increased $99.1~~in total deposits, $142.0 million ~~or 113.8%, to $186.3 million at September 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~~in federal funds purchased, ~~which increased $64.0~~and $115.7 million or 77.1%, to $147.0 million at September 30, 2017 from $83.0 million at December 31, 2016. Overall deposits increased $293.3 million, or 4.0%, to $7.6 billion at September 30, 2017 from $7.3 billion at December 31, 2016.

in accrued interest payable and other liabilities.

The following table ~~sets forth~~presents certain key condensed balance sheet data as of September 30, ~~2017~~2020 and December 31, ~~2016:~~2019:


	September 30, 2017			December 31, 2016
(amounts in thousands)
(dollars in thousands)							(dollars in thousands)	September 30, 2020		December 31, 2019		Change		% Change
Cash and cash equivalents	$	219,480		$	264,709		Cash and cash equivalents	$	331,416	$	212,505	$	118,911	56.0	%
Investment securities available for sale, at fair value	584,823			493,474
Loans held for sale (includes $1,963,076 and $2,117,510, respectively, at fair value)	2,113,293			2,117,510
Loans receivable	7,061,338			6,154,637
Allowance for loan losses	(38,314		)	(37,315		)
Investment securities, at fair value							Investment securities, at fair value	1,133,831		595,876		537,955		90.3	%
Loans held for sale							Loans held for sale	26,689		486,328		(459,639)		(94.5)	%
Loans receivable, mortgage warehouse, at fair value							Loans receivable, mortgage warehouse, at fair value	3,913,593		2,245,758		1,667,835		74.3	%
Loans receivable, PPP							Loans receivable, PPP	4,964,105		—		4,964,105		NM
Loans and leases receivable							Loans and leases receivable	7,700,892		7,318,988		381,904		5.2	%
Allowance for credit losses on loan and lease losses							Allowance for credit losses on loan and lease losses	(155,561)		(56,379)		(99,182)		175.9	%
Other assets							Other assets	423,569		298,052		125,517		42.1	%
Total assets	10,471,829			9,382,736			Total assets	18,778,727		11,520,717		7,258,010		63.0	%
Total deposits	7,597,076			7,303,775			Total deposits	10,839,077		8,648,936		2,190,141		25.3	%

Federal funds purchased	147,000			83,000			Federal funds purchased	680,000		538,000		142,000		26.4	%
FHLB advances	1,462,343			868,800			FHLB advances	850,000		850,000		—		—	%
Other borrowings	186,258			87,123			Other borrowings	123,935		123,630		305		0.2	%
Subordinated debt	108,856			108,783			Subordinated debt	181,324		181,115		209		0.1	%
FRB PPP liquidity facility							FRB PPP liquidity facility	4,811,009		—		4,811,009		NM
Accrued interest payable and other liabilities							Accrued interest payable and other liabilities	241,891		126,241		115,650		91.6	%
Total liabilities	9,561,187			8,526,864			Total liabilities	17,727,236		10,467,922		7,259,314		69.3	%
Total shareholders’ equity	910,642			855,872			Total shareholders’ equity	1,051,491		1,052,795		(1,304)		(0.1)	%
Total liabilities and shareholders’ equity	10,471,829			9,382,736			Total liabilities and shareholders’ equity	$	18,778,727	$	11,520,717	$	7,258,010	63.0	%

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and interest-earning deposits. Cash and due from banks consists mainly of vault cash and cash items in the process of collection. ~~These balances totaled $13.3~~Cash and due from banks were $5.8 million and $33.1 million at September 30, ~~2017. This represents a $24.2 million decrease from $37.5 million at~~2020 and December 31, ~~2016. These~~2019, respectively. Cash and due from banks balances vary from day to day, primarily due to variations in customers’ ~~deposits~~deposit activities with the Bank.

Interest-earning deposits consist of cash deposited at other banks, primarily the ~~Federal Reserve Bank of Philadelphia.~~FRB. Interest-earning deposits were ~~$206.2~~$325.6 million and ~~$227.2~~$179.4 million at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

~~Included~~ The balance of interest-earning deposits varies from day to day, depending on several factors, such as fluctuations in ~~the reported balances~~customers' deposits with Customers, payment of ~~cash~~checks drawn on customers' accounts and ~~cash equivalents at September 30, 2017~~strategic investment decisions made to maximize Customers' net interest income, while effectively managing interest-rate risk and liquidity. The increase in interest-earning deposits since December 31, ~~2016 was $10.0 million and $20.0 million, respectively,~~2019 primarily resulted from managing liquidity as Customers' total assets have increased $7.3 billion since December 31, 2019.

Table of ~~restricted cash placed in escrow for payment to Higher One in connection with the acquisition of the Disbursement business.~~Contents

Investment Securities

The investment securities portfolio is an important source of interest income and liquidity. ~~At September 30, 2017, investments consisted~~It consists primarily of ~~residential and commercial real estate~~ mortgage-backed securities ~~guaranteed~~and collateralized mortgage obligations (guaranteed by an agency of the United States government); United States government agencies securities; asset-backed securities; private label collateralized mortgage obligations, state and political subdivision debt securities, corporate notes, and marketable equity securities. In addition to generating revenue, the investment portfolio is maintained to manage interest-rate risk, provide liquidity, ~~and~~serve as collateral for other borrowings, and diversify the credit risk of interest-earning assets. The portfolio is structured to ~~maximize~~optimize net interest income given the changes in the economic environment, liquidity position and balance sheet mix.

At September 30, ~~2017,~~2020, investment securities ~~were $584.8 million~~totaled $1.1 billion compared to ~~$493.5~~$595.9 million at December 31, ~~2016, an increase of $91.3 million.~~2019. The increase ~~was~~in investment securities primarily resulted from the ~~result of~~ purchases of asset-backed securities, U.S. government agency securities, agency-guaranteed collateralized mortgage obligations, private label collateralized mortgage obligations, state and political subdivision debt securities, and corporate notes totaling $1.0 billion, of which $22.5 million settled in October 2020, partially offset by the sale of $377.8 million of U.S. government agencies securities, agency-guaranteed mortgage-backed securities, ~~of $796.6~~corporate notes, non-agency-guaranteed collateralized mortgage obligations, and interest-only GNMA securities and maturities, calls and principal repayments totaling $156.8 million ~~during~~for the nine months ended September 30, ~~2017, offset~~2020.

For financial reporting purposes, available for sale debt securities are carried at fair value. Unrealized gains and losses on available for sale debt securities are included in ~~part by sales~~other comprehensive income (loss) and ~~principal repayments~~reported as a separate component of ~~$698.5 million and impairment charges of $12.9 million. Customers held all~~shareholders’ equity, net of the ~~investment~~related tax effect. Changes in the fair value of marketable equity securities ~~sold~~and securities reported at fair value based on a fair value option election are recorded in ~~2017 for more than 90 days.~~non-interest income in the period in which they occur.

~~Loans~~

LOANS AND LEASES

Existing lending relationships are primarily with small and middle market businesses and individual consumers primarily in ~~Bucks,~~Southeastern Pennsylvania (Bucks, Berks, Chester, ~~Montgomery,~~Philadelphia and Delaware ~~and Philadelphia Counties, Pennsylvania; Camden and Mercer Counties, New Jersey; Westchester County and~~Counties); Rye Brook, New York ~~City,~~(Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan and Melville, New York; and ~~the New England area.~~Chicago, Illinois. The portfolio of loans to mortgage banking ~~companies~~businesses is ~~a nation-wide portfolio.~~nationwide. The loan portfolio consists primarily of loans to support mortgage banking companies’ funding needs, multi-family/commercial real estate and commercial and industrial loans. ~~The Bank~~Customers continues to focus on small and middle market business loans to grow its commercial lending efforts, ~~expand~~particularly its commercial and industrial loan and lease portfolio and its specialty mortgage ~~warehouse lending business, and expand its multi-family/commercial real estate~~ lending business. Customers also focuses its lending efforts on local-market mortgage and home equity lending and the origination and purchase of unsecured consumer loans (installment loans), including personal, student loan refinancing, and home improvement loans through arrangements with fintech companies and other market place lenders for both the Customers Bank Business Banking and BankMobile segments nationwide.

Commercial Lending

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

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

As of September 30, 2020, Customers had $15.0 billion in commercial loans outstanding, totaling approximately 90.1% of its total loan and lease portfolio, which includes loans held for sale and loans receivable, mortgage warehouse, at fair value and PPP loans, compared to commercial loans outstanding of $8.4 billion, comprising approximately 83.8% of its total loan and lease portfolio, at December 31, 2019. Included in the $15.0 billion in commercial loans outstanding as of September 30, 2020 was $5.0 billion of PPP loans. The PPP loans are fully guaranteed by the SBA and earn a fixed interest rate of 1.00%.

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

~~In 2009, Customers launched its~~

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

The goal of the mortgage banking 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.and attract escrow deposits. The underlying residential loans are taken as collateral for ~~the Bank’s~~Customers' commercial loans to the mortgage companies. As of September 30, ~~2017,~~2020 and December 31, 2019, commercial loans ~~in the warehouse lending portfolio~~to mortgage banking businesses totaled ~~$2.0~~$3.9 billion and $2.2 billion, respectively, and are ~~designated~~reported as ~~held for sale.~~loans receivable, mortgage warehouse, at fair value on the consolidated balance sheet.

~~The goal of~~Customers intends to continue to deemphasize its lower-yielding multi-family loan portfolio, and invest in high credit quality higher-yielding commercial and industrial loans with the ~~Bank’s~~multi-family run-off. Customers' multi-family lending group iscontinues to ~~build~~focus on retaining a portfolio of high-quality multi-family loans within ~~the Bank’s~~Customers' covered markets while ~~cross selling~~cross-selling other products and services. ~~This product~~These lending activities primarily ~~targets~~target the refinancing ~~existing~~of loans with other banks using conservative underwriting standards and ~~provides~~provide purchase money for new acquisitions by borrowers. The primary collateral for these loans is a first lien mortgage on the multi-family property, plus an assignment of all leases related to such property. As of September 30, ~~2017, the Bank~~2020, Customers had multi-family loans of ~~$3.8~~$2.0 billion outstanding, ~~making up~~comprising approximately ~~41.1% of the Bank’s total loan portfolio, including loans held for sale, compared to $3.2 billion, or approximately 38.9%~~11.7% of the total loan and lease portfolio, ~~including loans held for sale,~~compared to $2.4 billion, or approximately 23.8% of the total loan and lease portfolio, at December 31, ~~2016.~~2019.

The Equipment Finance Group offers equipment financing and leasing products and services for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. As of September 30, ~~2017,~~2020 and December 31, 2019, Customers had $279.5 million and $257.9 million, respectively, of equipment finance loans outstanding. As of September 30, 2020 and December 31, 2019, Customers had $106.5 million and $89.2 million of equipment finance leases, respectively. As of September 30, 2020 and December 31, 2019, Customers had $94.3 million and $93.6 million, respectively, of operating leases entered into under this program, net of accumulated depreciation of $25.0 million and $14.3 million, respectively.

On March 27, 2020, the ~~Bank~~CARES Act was signed into law and which created funding for a new product called the PPP. The PPP is administered by the SBA and is intended to assist organizations with payroll related expenses. Customers, directly or through fintech partnerships, had ~~$8.6~~$5.0 billion ~~in commercial~~of PPP loans outstanding ~~totaling~~as of September 30, 2020, which are fully guaranteed by the SBA and earn a fixed interest rate of 1.00%. The average loan size of the PPP portfolio is approximately 94.2% of its total loan portfolio, which includes loans held for sale, compared to $8.0 billion commercial loans outstanding, composing approximately 96.4% of its loan portfolio, including loans held for sale, at December 31, 2016.$68 thousand.

Consumer Lending

Customers provides unsecured consumer loans, residential mortgage, and home equity ~~and residential mortgage~~ loans to customers. ~~Underwriting standards for~~The installment loan portfolio consists largely of originated and purchased personal, student loan refinancing and home ~~equity lending~~improvement loans. None of the loans are ~~conservative and~~considered sub-prime at the time of origination. Customers considers sub-prime borrowers to be those with FICO scores below 660. Customers has been selective in the consumer loans it has been purchasing. Home equity lending is offered to solidify customer relationships and grow relationship revenues in the long term. This lending is important in Customers' efforts to grow total relationship revenues for its consumer households. As of September 30, ~~2017, the Bank~~2020, Customers had ~~$533.8 million~~$1.6 billion in consumer loans outstanding, or ~~5.8%~~9.9% of the ~~Bank’s~~ total loan and lease portfolio, ~~which includes~~compared to $1.6 billion, or 16.2% of the total loan and lease portfolio, as of December 31, 2019. Customers intends to temper its growth in consumer loans ~~held~~ for the remainder of 2020.

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

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





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

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

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

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



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

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

(2)Installment loan purchases for the three and nine months ended September 30, 2020 and 2019 consist of third-party originated unsecured consumer loans. None of the loans are considered sub-prime at the time of origination. Customers considers sub-prime borrowers to be those with FICO scores below 660.

(3)Amounts reported in the above table are the unpaid principal balance at time of sale. ~~The Bank plans to expand its product offerings~~There were no loan sales 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." This community outreach program is penetrating the underserved population, especially in low~~three 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.nine months ended September 30, 2019.

Loans Held for Sale

The composition of loans held for sale as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 was as follows:


	September 30,		December 31,
	2017		2016
(amounts in thousands)					(amounts in thousands)	September 30, 2020		December 31, 2019
Commercial loans:					Commercial loans:
Mortgage warehouse loans, at fair value	$	1,961,248	$	2,116,815
Multi-family loans at lower of cost or fair value	150,217		—
Multi-family loans, at lower of cost or fair value					Multi-family loans, at lower of cost or fair value	$	—	$	482,873
Commercial real estate non-owner occupied loans, at lower of cost or fair value					Commercial real estate non-owner occupied loans, at lower of cost or fair value	18,366		—
Total commercial loans held for sale	2,111,465		2,116,815		Total commercial loans held for sale	18,366		482,873
Consumer Loans:
Consumer loans:					Consumer loans:
Home equity conversion mortgages, at lower of cost or fair value					Home equity conversion mortgages, at lower of cost or fair value	1,325		1,325
Residential mortgage loans, at fair value	1,828		695		Residential mortgage loans, at fair value	6,998		2,130
Total consumer loans held for sale					Total consumer loans held for sale	8,323		3,455
Loans held for sale	$	2,113,293	$	2,117,510	Loans held for sale	$	26,689	$	486,328

At September 30, ~~2017,~~2020, loans held for sale totaled ~~$2.1 billion,~~$26.7 million, or ~~23.0%~~0.16% of the total loan and lease portfolio, and ~~$2.1 billion,~~$486.3 million, or ~~25.6%~~4.84% of the total loan and lease portfolio, at December 31, ~~2016.~~

~~Mortgage warehouse~~2019. Effective September 30, 2020, Customers transferred $401.1 million of multi-family loans from loans held for sale to loans receivable (held for investment) because it no longer had the intent to sell these loans. Customers transferred these loans at ~~September 30, 2017 decreased $155.6 million when compared to December 31, 2016. Mortgage warehouse loan balances are typically elevated during~~their carrying value, which approximated their fair value at 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.time of transfer.

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

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Total Loans and Leases Receivable

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


(amounts in thousands)	September 30, 2020		December 31, 2019
Loans and leases receivable, mortgage warehouse, at fair value	$	3,913,593	$	2,245,758
Loans receivable, PPP	4,964,105		—
Loans receivable:
Commercial:
Multi-family	1,950,300		1,907,331
Commercial and industrial (1)	2,220,715		1,891,152
Commercial real estate owner occupied	557,595		551,948
Commercial real estate non-owner occupied	1,215,516		1,222,772
Construction	122,963		117,617
Total commercial loans and leases receivable	6,067,089		5,690,820
Consumer:
Residential real estate	335,452		382,634
Manufactured housing	64,638		71,359
Installment	1,233,713		1,174,175
Total consumer loans receivable	1,633,803		1,628,168
Loans and leases receivable (2)	7,700,892		7,318,988
Allowance for credit losses	(155,561)		(56,379)
Total loans and leases receivable, net of allowance for credit losses	$	16,423,029	$	9,508,367

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

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

Loans receivable, PPP

On March 27, 2020, the ~~allowance~~CARES Act was signed into law and which created funding for ~~loan losses, increased~~a new product called the PPP. The PPP is administered by ~~$905.7~~the SBA and is intended to assist organizations with payroll related expenses. Customers had $5.0 billion of PPP loans outstanding as of September 30, 2020, which are fully guaranteed by the SBA and earn a fixed interest rate of 1.00%. Customers recognized interest income, including origination fees, of $24.3 million and $36.0 million for the three and nine months ended September 30, 2020, respectively.

Loans receivable, mortgage warehouse, at fair value

The mortgage warehouse product line primarily provides financing to ~~$7.0~~mortgage companies nationwide from the time of origination of the underlying mortgage loans until the mortgage loans are sold into the secondary market. As a mortgage warehouse lender, Customers provides a form of financing to mortgage bankers by purchasing for resale the underlying residential mortgages on a short-term basis under a master repurchase agreement. These loans are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance sheets. Because these loans are reported at their fair value, they do not have an ACL and are therefore excluded from ACL-related disclosures. At September 30, 2020, all of Customers' commercial mortgage warehouse loans were current in terms of payment.

Customers is subject to the risks associated with such lending, including, but not limited to, the risks of fraud, bankruptcy and default of the mortgage banker or of the underlying residential borrower, any of which could result in credit losses. Customers' mortgage warehouse lending team members monitor these mortgage originators by obtaining financial and other relevant information to reduce these risks during the lending period. Loans receivable, mortgage warehouse, at fair value totaled $3.9 billion and $2.2 billion at September 30, ~~2017 from $6.1 billion at December 31, 2016. Loans receivable as of September 30, 2017~~2020 and December 31, ~~2016 consisted of the following:~~

September 30, December 31,
2017 2016
(amounts in thousands)
Commercial:
Multi-family $ 3,618,989
$ 3,214,999
Commercial and industrial (including owner occupied commercial real estate) 1,601,789
1,382,343
Commercial real estate non-owner occupied 1,237,849
1,193,715
Construction 73,203
64,789
Total commercial loans 6,531,830
5,855,846
Consumer:
Residential real estate 435,188
193,502
Manufactured housing 92,938
101,730
Other 3,819
3,483
Total consumer loans 531,945
298,715
Total loans receivable 7,063,775
6,154,561
Deferred (fees)/costs and unamortized (discounts)/premiums, net (2,437 ) 76
Allowance for loan losses (38,314 ) (37,315 )
Loans receivable, net of allowance for loan losses $ 7,023,024
$ 6,117,322

2019, respectively.

Credit Risk

Customers manages credit risk by maintaining diversification in its loan and lease portfolio, establishing and enforcing prudent underwriting standards ~~diligent~~and collection efforts, and continuous and periodic loan and lease classification reviews. Management also considers the effect of credit risk on financial performance by reviewing quarterly and maintaining an adequate ~~allowance for loan losses.~~ACL. Credit losses are ~~charged to the allowance for loan losses~~

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charged-off when they are identified, and provisions are added, when it is estimated that a loss has occurred, to the ~~allowance for loan losses when and as appropriate.~~ACL at least quarterly. The ~~adequacy of the allowance for loan losses, maintained at a level to absorb~~ACL is estimated ~~incurred losses 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~~credit losses on loans and leases was ~~$2.4~~$13.0 million and ~~$0.1~~$4.4 million for the three months ended September 30, ~~2017~~2020 and ~~2016, respectively, and $5.9 million and $2.9 million for the nine months ended September 30, 2017 and 2016,~~2019, respectively. The ~~allowance for loan losses~~ACL maintained for loans and leases receivable ~~(excludes~~(excluding loans held for ~~sale)~~sale and loans receivable, mortgage warehouse, at fair value and PPP loans) was ~~$38.3~~$155.6 million, or ~~0.54%~~2.02% of loans and leases receivable, excluding PPP loans, at September 30, ~~2017~~2020 and ~~$37.3~~$56.4 million, or ~~0.61%~~0.77% of loans and leases receivable, at December 31, ~~2016.~~2019. Net charge-offs were ~~$2.5~~$17.3 million for the three months ended September 30, ~~2017,~~2020, an increase of ~~$2.2~~$15.5 million compared to the same period in ~~2016. Net charge-offs were $4.9 million for the nine months ended September 30, 2017, an increase of $4.0 million compared to the same period in 2016.~~2019. The increase in ~~net~~the ACL resulted primarily from the impact of reserve build for the COVID-19 pandemic, mostly attributable to the commercial real estate non-owner occupied and installment portfolios, and portfolio growth. Commercial real estate non-owner occupied charge-offs ~~period over period was largely driven by~~were attributable to the partial charge-off of ~~$1.6 million~~two collateral dependent loans, which are not indicative of the overall commercial real estate portfolio. Installment charge-offs were attributable to originated and ~~$1.8 million during the third quarter 2017~~purchased unsecured consumer loans through arrangements with fintech companies and ~~second quarter 2017, respectively, related to two relationships in the commercial and industrial post-2009 originated loan portfolio.~~

other market place lenders.

The ~~chart~~table below ~~depicts~~presents changes in the Bank’s ~~allowance for loan losses~~ACL 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 for periods prior to the termination of the FDIC loss sharing agreements.

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


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

Residential real estate	—		—		—		109
Installment	9,194		1,806		23,744		3,493
Total charge-offs	21,946		2,200		52,212		4,794
Loan and lease recoveries (1)
Multi-family	—		—		—		7
Commercial and industrial	2,582		369		2,661		826
Commercial real estate owner occupied	—		10		5		235
Commercial real estate non-owner occupied	1,258		—		1,258		—
Construction	6		8		122		128
Residential real estate	17		5		72		20
Installment	784		47		1,759		120
Total recoveries	4,647		439		5,877		1,336
Total net charge-offs	17,299		1,761		46,335		3,458
Provision for loan and lease losses	12,955		4,426		65,688		14,539
Balance at the end of the period	$	155,561	$	51,053	$	155,561	$	51,053

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(amounts in thousands)
Balance at the beginning of the period $ 38,458
$ 38,097
$ 37,315
$ 35,647
Loan charge-offs (1)
Commercial and industrial 2,032
237
4,079
774
Commercial real estate non-owner occupied 77
140
485
140
Residential real estate 120
43
410
456
Other consumer 356
246
602
478
Total Charge-offs 2,585
666
5,576
1,848
Loan recoveries (1)
Commercial and industrial 54
62
337
173
Commercial real estate owner occupied —
—
9
—
Commercial real estate non-owner occupied —
—
—
8
Construction 27
8
157
465
Residential real estate 7
298
34
299
Other consumer 1
10
101
10
Total Recoveries 89
378
638
955
Total net charge-offs 2,496
288
4,938
893
Provision for loan losses 2,352
88
5,937
3,143
Balance at the end of the period $ 38,314

$ 37,897
$ 38,314
$ 37,897
(1)Charge-offs and recoveries on PCD loans that are accounted for in pools are recognized on a net basis when the pool matures.


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

The ~~allowance for loan losses~~ACL is based on a quarterly evaluation of the loan and lease portfolio and is maintained at a level that management considers adequate to absorb ~~probable~~expected lifetime credit losses ~~incurred~~ as of the balance sheet date. All commercial loans, with the exception of PPP loans and commercial mortgage warehouse loans, which are reported at fair value, are assigned ~~credit risk~~internal credit-risk ratings, based upon an assessment of the borrower, the structure of the transaction and the available collateral and/or guarantees. All loans and leases are monitored regularly by the responsible officer, and the risk ratings are adjusted when considered appropriate. The risk assessment allows management to identify problem loans and leases timely. Management considers a variety of factors and recognizes the inherent risk of loss that always exists in the lending process. Management uses a disciplined methodology to estimate an appropriate level of ~~allowance~~ACL. Refer to Critical Accounting Policies herein and NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' interim unaudited financial statements for ~~loan losses. See “Asset Quality”~~Customers' adoption of CECL, also, refer to NOTE 2 –

Table of Contents

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

Approximately ~~85%~~67% of ~~the Bank’s~~Customers' commercial real estate, commercial and residential construction, consumer residential and commercial and industrial loan types have real estate as collateral (collectively, “the real estate portfolio”)~~. 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~~, primarily in the ~~value~~form of ~~the collateral.~~a first lien position. Current appraisals providing current value estimates of the property are received when ~~the Bank’s~~Customers' credit group determines that the facts and circumstances have significantly changed since the date of the last appraisal, including that real estate values have deteriorated. The credit committee and loan officers review loans that are ~~fifteen~~15 or more days delinquent and all non-accrual loans on a periodic basis. In addition, loans where the loan officers have identified a “borrower of interest” are discussed to determine if additional analysis is necessary to apply the ~~risk rating~~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 generally used to ~~estimate~~determine the ~~amount~~estimated fair value of ~~proceeds expected to be collected, and that estimated amount,~~the underlying collateral, net of estimated selling costs, ~~as applicable, is~~and compared to the outstanding loan balance to ~~estimate~~determine the amount of ~~impairment,~~reserve necessary, if any. Appraisals used in this evaluation process are typically less than two years aged. For loans where real estate is not the primary source of collateral, updated financial information is obtained, including accounts

receivable and inventory aging reports and relevant supplemental financial data to estimate the fair value of the loan, ~~and compared,~~ net of estimated selling costs, and compared to the outstanding loan balance to estimate the required ~~reserve, if any.~~reserve.

These impairment measurements are inherently subjective as they require material estimates, including, among others, estimates of property values in appraisals, the amounts and timing of expected future cash flows on individual loans, and general considerations for historical loss experience, economic conditions, uncertainties in estimating losses and inherent risks in the various credit portfolios, all of which require judgment and may be susceptible to significant change over time and as a result of changing economic conditions or other factors. Pursuant to ASC ~~310-10-35 -~~ ~~Loan Impairment~~ ~~and ASC 310-40 -~~ ~~Troubled Debt Restructurings by Creditors,~~ ~~impaired~~326, individually assessed loans, consisting primarily of ~~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 loan losses. Impaired~~ACL. Individually assessed loans are generally evaluated based on the expected future cash flows ~~if principal 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 operation or sale of such collateral. Shortfalls in the underlying collateral value for loans or leases determined to be collateral dependent are charged off immediately. Subsequent to an appraisal or other fair value estimate, management will assess whether there was a further decline in the value of the collateral based on changes in market conditions or property use that would require additional impairment to be recorded to reflect the particular situation, thereby increasing the ACL on loans and leases.

Asset Quality

Customers ~~divides its loan portfolio into two categories to analyze and understand loan activity and performance: loans that were originated and loans that were acquired. Customers further~~ segments the ~~originated~~loan and ~~acquired loan categories~~lease receivables by loan product or other characteristic generally defining a shared characteristic with other loans in the same group. Customers' originated loans were subject to the current underwriting standards that were put in place in 2009. Management believes this segmentation better reflects the risk in the portfolio and the various types of reserves that are available to absorb loan losses that may emerge in future periods. Credit lossesCharge-offs from originated and acquired loans and leases are absorbed by the ~~allowance for~~ACL. The CARES Act and certain regulatory agencies recently issued guidance stating certain loan ~~losses. Credit losses from acquired loans are absorbed~~modifications to borrowers experiencing financial distress as a result of the economic impacts created by COVID-19 may not be required to be treated as TDRs under U.S GAAP. For COVID-19 related loan modifications which met the loan modification criteria under either the CARES Act or the criteria specified by the ~~allowance~~regulatory agencies, Customers elected to suspend TDR accounting for such loan ~~losses, nonaccretable difference fair value marks,~~modifications. At September 30, 2020, commercial and ~~cash reserves. As described below, the allowance for loan losses is intended~~consumer deferments related to ~~absorb only those losses estimated to have been incurred after acquisition, whereas the fair value mark~~COVID-19 were $79 million and ~~cash reserves absorb losses estimated to have been embedded in the acquired loans at acquisition.~~$25 million, respectively. The schedule that follows includes both loans held for sale and loans held for investment.

~~Asset Quality at~~ As of September 30, ~~2017~~

2020, Customers had $198.5 million of pending commercial loan deferment requests.

Loan Type Total Loans Current
30-89
Days Past Due

90
Days or More Past Due and
Accruing

Non-
accrual/
NPL (a)

OREO
(b)

NPA
(a)+(b)

NPL
to
Loan
Type
(%)

NPA
to
Loans +
OREO
(%)
(amounts in thousands)
Originated Loans
Multi-Family $ 3,616,313
$ 3,616,313
$ —
$ —
$ —
$ —
$ —
— % — %
Commercial & Industrial (1) 1,507,395
1,484,400
—
—
22,995
—
22,995
1.53 % 1.53 %
Commercial Real Estate Non-Owner Occupied 1,215,099
1,215,099
—
—
—
—
—
— % — %
Residential 108,786
107,569
636
—
581
—
581
0.53 % 0.53 %
Construction 73,203
73,203
—
—
—
—
—
— % — %
Other consumer 1,450
1,437
13
—
—
—
—
— % — %
Total Originated Loans 6,522,246
6,498,021
649
—
23,576
—
23,576
0.36 % 0.36 %
Loans Acquired

Bank Acquisitions 153,772
147,172
1,352
941
4,307
782
5,089
2.80 % 3.29 %
Loan Purchases
387,757
379,026
2,984
3,788
1,959
277
2,236
0.51 % 0.58 %
Total Loans Acquired 541,529
526,198
4,336
4,729
6,266
1,059
7,325
1.16 % 1.35 %
Deferred fees and unamortized discounts, net (2,437 ) (2,437 ) —
—
—
—
—

Total Loans Receivable 7,061,338
7,021,782
4,985
4,729
29,842
1,059
30,901
0.42 % 0.44 %
Total Loans Held for Sale 2,113,293
2,113,293
—
—
—
—
—

Total Portfolio $ 9,174,631
$ 9,135,075
$ 4,985
$ 4,729
$ 29,842
$ 1,059
$ 30,901
0.33 % 0.34 %

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

Asset Quality at September 30, ~~2017 (continued)~~2020


(dollars in thousands)	Total Loans and Leases		Current		30-89 Days Past Due		90 Days or More Past Due and Accruing		Non-accrual/NPL (a)		OREO (b)		NPA (a)+(b)		NPL to Loan and Lease Type (%)		NPA to Loans and Leases + OREO (%)
Loan and Lease Type
Multi-family	$	1,950,300	$	1,926,658	$	11,932	$	—	$	11,710	$	—	$	11,710	0.60	%	0.60	%
Commercial & industrial (1)	2,220,715		2,210,493		589		—		9,633		—		9,633		0.43	%	0.43	%
Commercial real estate owner occupied	557,595		553,996		—		—		3,599		—		3,599		0.65	%	0.65	%
Commercial real estate non-owner occupied	1,215,516		1,213,108		—		—		2,408		—		2,408		0.20	%	0.20	%
Construction	122,963		122,963		—		—		—		—		—		—	%	—	%
Total commercial loans and leases receivable	6,067,089		6,027,218		12,521		—		27,350		—		27,350		0.45	%	0.45	%
Residential	335,452		321,472		3,346		—		10,634		35		10,669		3.17	%	3.18	%
Manufactured housing	64,638		58,784		1,391		1,685		2,778		96		2,874		4.30	%	4.44	%
Installment	1,233,713		1,220,525		10,070		—		3,118		—		3,118		0.25	%	0.25	%
Total consumer loans receivable	1,633,803		1,600,781		14,807		1,685		16,530		131		16,661		1.01	%	1.02	%
Loans and leases receivable (1)	7,700,892		7,627,999		27,328		1,685		43,880		131		44,011		0.57	%	0.57	%
Loans receivable, PPP	4,964,105		4,964,105		—		—		—		—		—		—	%	—	%
Loans receivable, mortgage warehouse, at fair value	3,913,593		3,913,593		—		—		—		—		—
Total loans held for sale	26,689		6,998		—		—		19,691		—		19,691		73.78	%	73.78	%
Total portfolio	$	16,605,279	$	16,512,695	$	27,328	$	1,685	$	63,571	$	131	$	63,702	0.38	%	0.38	%

Loan Type Total Loans NPL ALL
Cash
Reserve

Total
Credit
Reserves

Reserves
to Loans
(%)

Reserves
to NPLs
(%)
(amounts in thousands)
Originated Loans
Multi-Family $ 3,616,313
$ —
$ 12,696
$ —
$ 12,696
0.35 % — %
Commercial & Industrial (1) 1,507,395
22,995
13,084
—
13,084
0.87 % 56.90 %
Commercial Real Estate Non-Owner Occupied 1,215,099
—
4,665
—
4,665
0.38 % — %
Residential 108,786
581
2,130
—
2,130
1.96 % 366.61 %
Construction 73,203
—
847
—
847
1.16 % — %
Other consumer 1,450
—
59
—
59
4.07 % — %
Total Originated Loans 6,522,246
23,576
33,481
—
33,481
0.51 % 142.01 %
Loans Acquired

Bank Acquisitions 153,772
4,307
4,642
—
4,642
3.02 % 107.78 %
Loan Purchases
387,757
1,959
191
728
919
0.24 % 46.91 %
Total Loans Acquired 541,529
6,266
4,833
728
5,561
1.03 % 88.75 %
Deferred fees and unamortized discounts, net (2,437 ) —
—
—
—

Total Loans Receivable 7,061,338
29,842
38,314
728
39,042
0.55 % 130.83 %
Total Loans Held for Sale 2,113,293
—
—
—
—

Total Portfolio $ 9,174,631
$ 29,842
$ 38,314
$ 728
$ 39,042
0.43 % 130.83 %

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

~~Originated Loans~~

~~Post 2009 originated loans (excluding held-for-sale loans) totaled $6.5 billion, or 92.4% of total loans receivable~~Asset Quality at September 30, ~~2017,~~2020 (continued)


(dollars in thousands)	Total Loans and Leases		Non-accrual / NPL		ACL		Reserves to Loans and Leases (%)		Reserves to NPLs (%)
Loan and Lease Type
Multi-family	$	1,950,300	$	11,710	$	15,026	0.77	%	128.32	%
Commercial & industrial	2,220,715		9,633		12,926		0.58	%	134.18	%
Commercial real estate owner occupied	557,595		3,599		9,552		1.71	%	265.41	%
Commercial real estate non-owner occupied	1,215,516		2,408		20,200		1.66	%	838.87	%
Construction	122,963		—		6,423		5.22	%	—	%
Total commercial loans and leases receivable	6,067,089		27,350		64,127		1.06	%	234.47	%
Residential	335,452		10,634		4,649		1.39	%	43.72	%
Manufactured housing	64,638		2,778		5,625		8.70	%	202.48	%
Installment	1,233,713		3,118		81,160		6.58	%	2602.95	%
Total consumer loans receivable	1,633,803		16,530		91,434		5.60	%	553.14	%
Loans and leases receivable (1)	7,700,892		43,880		155,561		2.02	%	354.51	%
Loans receivable, PPP	4,964,105		—		—		—	%	—	%
Loans receivable, mortgage warehouse, at fair value	3,913,593		—		—
Total loans held for sale	26,689		19,691		—		—	%	—	%
Total portfolio	$	16,605,279	$	63,571	$	155,561	0.94	%	244.70	%

(1) Excluding loans receivable, PPP from total loans and leases receivable is a non-GAAP measure. Management believes the use of these non-GAAP measures provides additional clarity when assessing Customers' financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Please refer to the reconciliation schedules that follow this table.

Table of Contents

Customers’ asset quality table contains non-GAAP financial measures calculated using non-GAAP amounts. These measures all exclude loans receivable, PPP from their calculations. Management uses these non-GAAP measures to present the current period presentation to historical periods in prior filings. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing the Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

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


(dollars in thousands)	Total Loans and Leases		Current		30-89 Days Past Due		90 Days or More Past Due and Accruing		Non-accrual/NPL (a)		OREO (b)		NPA (a)+(b)		NPL to Loan and Lease Type (%)		NPA to Loans and Leases + OREO (%)
Loans and leases receivable (GAAP)	$	12,664,997	$	12,592,104	$	27,328	$	1,685	$	43,880	$	131	$	44,011	0.35	%	0.35	%
Less: Loans receivable, PPP	4,964,105		4,964,105		—		—		—		—		—		—	%	—	%
Loans receivable, excluding loans receivable, PPP (Non-GAAP)	$	7,700,892	$	7,627,999	$	27,328	$	1,685	$	43,880	$	131	$	44,011	0.57	%	0.57	%


(dollars in thousands)	Total Loans and Leases		Non-accrual / NPL		ACL		Reserves to Loans and Leases (%)		Reserves to NPLs (%)
Loans and leases receivable (GAAP)	$	12,664,997	$	43,880	$	155,561	1.23	%	354.51	%
Less: Loans receivable, PPP	4,964,105		—		—		—	%	—	%
Loans receivable, excluding loans receivable, PPP (Non-GAAP)	$	7,700,892	$	43,880	$	155,561	2.02	%	354.51	%

The total loan and lease portfolio was $16.6 billion at September 30, 2020 compared to ~~$5.8~~$10.1 billion ~~or 94.8% of total loans receivable~~ at December 31, ~~2016. The management team adopted new underwriting standards that management believes better limits risks of loss in 2009~~2019 and ~~have worked to monitor these standards. Only $23.6~~$63.6 million, or ~~0.36%~~0.38% of ~~post 2009 originated~~ loans and leases, were non-performing at September 30, ~~2017,~~2020 compared to ~~$10.5~~$21.3 million, or ~~0.18%~~0.21% of ~~post 2009~~ loans and leases, at December 31, ~~2016.~~2019. The ~~post 2009 loans were~~loan and lease portfolio was supported by an ~~allowance for loan losses~~ACL of ~~$33.5~~$155.6 million ~~(0.51%~~(244.70% of ~~post 2009 originated loans)~~NPLs and ~~$31.8~~0.94% of total loans and leases) and $56.5 million ~~(0.55%~~(264.67% of ~~post 2009 originated loans)~~NPLs and 0.56% of total loans and leases), ~~respectively,~~ at September 30, ~~2017~~2020 and December 31, ~~2016.~~2019, respectively.

~~Loans Acquired~~

At September 30, 2017, total acquired loans were $0.5 billion, or 7.7% of total loans receivable, compared to $0.3 billion, or 5.2% of total loans receivable, at December 31, 2016. Non-performing acquired loans totaled $6.3 million and $7.3 million, respectively, at September 30, 2017 and December 31, 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, $53.1 million were supported by a $0.7 million cash reserve at September 30, 2017, compared to $57.6 million supported by a cash reserve of $1.0 million at December 31, 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 September 30, 2017, $32.8 million of these loans were outstanding, compared to $36.6 million at December 31, 2016.

DEPOSITS

Many of the acquired loans were purchased at a discount. The price paid considered management’s judgment as to the credit and interest rate risk inherent in the portfolio at the time of purchase. Every quarter, management reassesses the risk and adjusts the cash flow forecast to incorporate changes in the credit outlook. Generally, a decrease in forecasted cash flows for a purchased loan will result in a provision for loan losses, and absent charge-offs, an increase in the allowance for loan losses. Acquired loans have a significantly higher percentage of non-performing loans than loans originated after September 2009. Management acquired these loans with the expectation that non-performing loan levels would be elevated, and therefore incorporated that expectation into the price paid. Customers has assigned these loans to its Special Assets Group, a team that focuses on workouts for these acquired non-performing assets. Total acquired loans were supported by reserves (allowance for loan losses and cash reserves) of $5.6 million (1.03% of total acquired loans) and $6.5 million (2.03% of total acquired loans), respectively, at September 30, 2017 and December 31, 2016.

~~Deposits~~

~~The Bank~~Customers offers a variety of deposit accounts, including checking, savings, ~~money market deposit accounts (“MMDA”)~~MMDA, and time deposits. Deposits are ~~generally~~primarily obtained ~~primarily~~ from ~~our~~Customers' geographic service ~~area. Customers also acquires deposits~~area and nationwide through branchless digital banking, our white label relationship, deposit brokers, listing services and other relationships.

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


(dollars in thousands)	September 30, 2020		December 31, 2019		Change		% Change
Demand, non-interest bearing	$	2,327,017	$	1,343,391	$	983,626	73.2	%
Demand, interest bearing	2,308,627		1,235,292		1,073,335		86.9	%
Savings, including MMDA	5,231,007		4,401,719		829,288		18.8	%
Non-time deposits	9,866,651		6,980,402		2,886,249		41.3	%
Time, $100,000 and over	466,860		402,161		64,699		16.1	%
Time, other	505,566		1,266,373		(760,807)		(60.1)	%
Time deposits	972,426		1,668,534		(696,108)		(41.7)	%
Total deposits	$	10,839,077	$	8,648,936	$	2,190,141	25.3	%

Total deposits were ~~$7.6~~$10.8 billion at September 30, ~~2017,~~2020, an increase of ~~$0.3~~$2.2 billion, or ~~4.0%~~25.3%, from ~~$7.3~~$8.6 billion at December 31, ~~2016. Demand~~2019. Non-time deposits ~~were $1.8~~increased by $2.9 billion, or 41.3%, to $9.9 billion at September 30, ~~2017, compared to $1.3~~2020, from $7.0 billion at December 31, ~~2016, an~~2019. This increase primarily resulted from Customers' initiative to improve its net interest margin by expanding its sources of ~~$484.1 million, or 37.1%.~~lower-cost funding. These ~~amounts consist primarily of~~efforts led to increases in non-interest bearing demand ~~deposits.~~deposits of $1.0 billion and interest bearing demand deposits of

Table of Contents

$1.1 billion. Savings, including MMDA ~~totaled $3.5~~increased $0.8 billion, or 18.8%, to $5.2 billion at September 30, ~~2017, an increase of $340.5 million, or 10.8%,~~2020, from ~~$3.2~~$4.4 billion at December 31, ~~2016. This increase was primarily attributed~~2019. Time deposits decreased $0.7 billion, or 41.7%, to ~~an increase in money market deposit accounts, including accounts held by municipalities. Total time deposits were $2.3~~$1.0 billion at September 30, ~~2017, a decrease of $531.3 million, or 18.8%,~~2020, from ~~$2.8~~$1.7 billion at December 31, ~~2016.~~ 2019.

At September 30, ~~2017,~~2020, the Bank had ~~$1.4~~$1.1 billion in state and municipal deposits to which ~~Customers has~~it had pledged $1.1 billion of available borrowing capacity through the FHLB to the depositor through a letter of credit arrangement. ~~State and municipal deposits under this program decreased $44.5 million, or 3.1% from December 31, 2016.~~

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

FHLB ADVANCES AND OTHER BORROWINGS

September 30,
2017 December 31,
2016
(amounts in thousands)
Demand $ 1,789,573
$ 1,305,455
Savings, including MMDA 3,507,063
3,166,558
Time, $100,000 and over 1,406,899
2,106,905
Time, other 893,541
724,857
Total deposits $ 7,597,076
$ 7,303,775

~~Borrowings~~

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

Short-term debt

Short-term debt at September 30, ~~2017~~2020 and December 31, ~~2016, total outstanding~~2019 was as follows:


	September 30, 2020				December 31, 2019
(dollars in thousands)	Amount		Rate		Amount		Rate

FHLB advances	$	850,000	1.24	%	$	500,000	2.15	%
Federal funds purchased	680,000		0.14	%	538,000		1.60	%
Total short-term debt	$	1,530,000			$	1,038,000

Long-term debt

FHLB and FRB Advances

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



	September 30, 2020				December 31, 2019
(dollars in thousands)	Amount		Rate		Amount		Rate

FHLB advances	$	—	—	%	$	350,000	2.36	%
FRB PPP Liquidity Facility advances	4,811,009		0.35	%	—		—	%
Total long-term FHLB and FRB advances	$	4,811,009			$	350,000

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


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

Table of Contents

Senior Notes and Subordinated Debt

Long-term senior notes and subordinated debt at September 30, 2020 and December 31, 2019 were $1.9 billion and $1.1 billion, respectively, which represented an increase of $0.8 billion, or 65.9%. This increase was primarily the result of an increase in investments and loans receivable increasing the needas follows:


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

Total other borrowings		123,935		123,630

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

(1)The subordinated notes qualify as Tier 2 capital for ~~short-term borrowings. In June 2017,~~ regulatory capital purposes.

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

(3)The subordinated notes will bear an annual fixed rate of 6.125% until June 26, 2024. From June 26, 2024 until maturity, the notes will bear an annual interest rate equal to the three-month LIBOR plus 344.3 basis points. Customers Bank has the ability to call the subordinated notes, in whole, or in part, at ~~99.775%~~a redemption price equal to 100% of ~~face value that will mature in~~the principal balance at certain times on or after June ~~2022. Customers will use~~26, 2024.

SHAREHOLDERS' EQUITY

The components of shareholders' equity were as follows at 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, refer to NOTE 10 - BORROWINGS.dates indicated:


(dollars in thousands)	September 30, 2020		December 31, 2019		Change		% Change
Preferred stock	$	217,471	$	217,471	$	—	—	%
Common stock	32,836		32,617		219		0.7	%
Additional paid in capital	452,965		444,218		8,747		2.0	%
Retained earnings	385,750		381,519		4,231		1.1	%
Accumulated other comprehensive loss, net	(15,751)		(1,250)		(14,501)		1,160.1	%
Treasury stock	(21,780)		(21,780)		—		—	%
Total shareholders' equity	$	1,051,491	$	1,052,795	$	(1,304)	(0.1)	%

~~Capital Adequacy and Shareholders’ Equity~~

Shareholders’ equity ~~increased $54.8~~decreased $1.3 million, or 0.1%, to ~~$910.6 million~~$1.1 billion at September 30, ~~2017~~2020 when compared to shareholders' equity of ~~$855.9 million~~$1.1 billion at December 31, ~~2016,~~2019. The decrease primarily resulted from an increase of $14.5 million in accumulated other comprehensive loss, net, partially offset by increases of $8.7 million in additional paid in capital and $4.2 million in retained earnings.

The increase in accumulated other comprehensive loss, net primarily resulted from a ~~6.4%~~decline in the fair value of cash flow hedges due to changes in market interest rates during the nine months ended September 30, 2020, partially offset by an increase in the ~~first~~fair value of available for sale debt securities due to the timing of purchases and changes in market interest rates during the nine months ended September 30, 2020. The increase in additional paid in capital resulted primarily from the issuance of ~~2017.~~common stock under share-based compensation arrangements for the nine months ended September 30, 2020. The ~~primary components of the net~~ increase ~~were as follows:~~

in retained earnings primarily resulted from net income of ~~$57.2~~$76.3 million, partially offset by the adoption of CECL on January 1, 2020, which reduced retained earnings by $61.5 million, and $10.6 million in preferred stock dividends.

LIQUIDITY AND CAPITAL RESOURCES

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

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Customers' investment portfolio provides periodic cash flows through regular maturities and amortization and can be used as collateral to secure additional funding. Customers' principal sources of funds are deposits, borrowings, principal and interest payments on loans and leases, other funds from operations, and proceeds from common and preferred stock issuances. Borrowing arrangements are maintained with the FHLB and the FRB to meet short-term liquidity needs. Longer-term borrowing arrangements are also maintained with the FHLB and FRB. As of September 30, 2020, Customers' borrowing capacity with the FHLB was $2.9 billion, of which $0.9 billion was utilized in borrowings and $1.1 billion of available capacity was utilized to collateralize state and municipal deposits. As of December 31, 2019, Customers' borrowing capacity with the FHLB was $3.4 billion, of which $0.9 billion was utilized in borrowings and $1.4 billion of available capacity was utilized to collateralize state and municipal deposits. As of September 30, 2020 and December 31, 2019, Customers' borrowing capacity with the FRB was $214.8 million and $136.8 million, respectively.

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


	Nine Months Ended September 30,
(amounts in thousands)	2020		2019		Change		% Change
Net cash provided by (used in) operating activities	$	73,468	$	34,683	$	38,785	111.8	%
Net cash provided by (used in) investing activities	(7,086,538)		(1,665,534)		(5,421,004)		325.5	%
Net cash provided by (used in) financing activities	7,131,981		1,750,934		5,381,047		307.3	%
Net increase (decrease) in cash and cash equivalents	$	118,911	$	120,083	$	(1,172)	(1.0)	%

Cash flows provided by (used in) operating activities

Cash provided by operating activities of $73.5 million for the nine months ended September 30, ~~2017;~~

2020 primarily resulted from an increase in accrued interest payable and other ~~comprehensive~~liabilities of $81.6 million, net income of ~~$5.3~~$76.3 million, and non-cash operating activities of $38.4 million, partially offset by an increase of $124.4 million in accrued interest receivable and other assets.

Cash provided by operating activities of $34.7 million for the nine months ended September 30, ~~2017, arising~~2019 primarily resulted from ~~unrealized gains on available-for-sale securities;~~net income of $51.8 million, non-cash operating adjustments of $46.9 million, and an increase of $15.3 million in accrued interest payable and other liabilities, partially offset by an increase of $79.3 million in accrued interest receivable and other assets.

~~share-based compensation expense~~Cash flows provided by (used in) investing activities

Cash used in investing activities of ~~$4.5 million~~$7.1 billion for the nine months ended September 30, ~~2017;~~2020 primarily resulted from a net increase in loans and leases, excluding mortgage warehouse loans of $4.7 billion, primarily related to PPP loan originations, net originations of mortgage warehouse loans of $1.7 billion, purchases of loans of $226.5 million, and purchases of investment securities available for sale of $1.0 billion, partially offset by proceeds from sales of investment securities of $377.8 million and proceeds from maturities, calls, and principal repayments on investment securities of $156.8 million.

~~offset~~Cash used in ~~part by preferred stock dividends~~investing activities of ~~$10.8 million~~$1.7 billion for the nine months ended September 30, ~~2017;~~2019 primarily resulted from net originations of mortgage warehouse loans of $1.1 billion and purchases of loans of $636.4 million, partially offset by proceeds from sale of investment securities available for sale of $97.6 million.

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

Cash provided by financing activities of ~~common stock under share-based compensation arrangements of $2.0 million~~$7.1 billion for the nine months ended September 30, ~~2017.~~2020 primarily resulted from net increases in long-term borrowed funds from the FRB of $4.8 billion primarily to finance the PPP loan originations, deposits of $2.2 billion, and a net increase in federal funds purchased of $142.0 million.

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

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CAPITAL ADEQUACY

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At September 30, ~~2017,~~2020 and December 31, 2019, the Bank and ~~Customers~~the Bancorp met all capital adequacy requirements to which they were subject. ~~Capital levels continue~~

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Generally, to ~~exceed~~comply with the ~~well-capitalized threshold established by regulation at~~regulatory definition of adequately capitalized, or well capitalized, respectively, or to comply with the ~~Bank and exceed the applicable~~ Basel III ~~regulatory thresholds for Customers Bancorp~~capital requirements, an institution must at least maintain the common equity Tier 1, Tier 1, and total risk-based capital ratios and the ~~Bank.~~Tier 1 leverage ratio in excess of the related minimum ratios set forth in the following table:

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


																		Minimum Capital Levels to be Classified as:
	Actual				For Capital Adequacy Purposes (Minimum Plus Capital Buffer)				To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				Adequately Capitalized				Well Capitalized				Basel III Compliant
(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2017:
Common equity Tier 1 capital (to risk weighted assets)
(dollars in thousands)													(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2020:													As of September 30, 2020:
Common equity Tier 1 capital (to risk-weighted assets)													Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	677,976	8.284	%	$	470,603	5.750	%	N/A		N/A		Customers Bancorp, Inc.	$	902,174	7.488	%	$	542,199	4.500	%	N/A		N/A		$	843,420	7.000	%
Customers Bank	$	1,009,380	12.342	%	$	470,242	5.750	%	$	531,578	6.500	%	Customers Bank	$	1,217,159	10.120	%	$	541,217	4.500	%	$	781,757	6.500	%	$	841,892	7.000	%
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to risk-weighted assets)													Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	895,447	10.941	%	$	593,369	7.250	%	N/A		N/A		Customers Bancorp, Inc.	$	1,119,645	9.293	%	$	722,932	6.000	%	N/A		N/A		$	1,024,153	8.500	%
Customers Bank	$	1,009,380	12.342	%	$	592,914	7.250	%	$	654,250	8.000	%	Customers Bank	$	1,217,159	10.120	%	$	721,622	6.000	%	$	962,163	8.000	%	$	1,022,298	8.500	%
Total capital (to risk weighted assets)
Total capital (to risk-weighted assets)													Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,014,784	12.399	%	$	757,057	9.250	%	N/A		N/A		Customers Bancorp, Inc.	$	1,361,237	11.298	%	$	963,909	8.000	%	N/A		N/A		$	1,265,130	10.500	%
Customers Bank	$	1,156,766	14.145	%	$	756,477	9.250	%	$	817,813	10.000	%	Customers Bank	$	1,397,059	11.616	%	$	962,163	8.000	%	$	1,202,704	10.000	%	$	1,262,839	10.500	%
Tier 1 capital (to average assets)													Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	895,447	8.355	%	$	428,709	4.000	%	N/A		N/A		Customers Bancorp, Inc.	$	1,119,645	8.534	%	$	524,799	4.000	%	N/A		N/A		$	524,799	4.000	%
Customers Bank	$	1,009,380	9.434	%	$	427,963	4.000	%	$	534,954	5.000	%	Customers Bank	$	1,217,159	9.288	%	$	524,203	4.000	%	$	655,254	5.000	%	$	524,203	4.000	%
As of December 31, 2016:
Common equity Tier 1 capital (to risk weighted assets)
As of December 31, 2019:													As of December 31, 2019:
Common equity Tier 1 capital (to risk-weighted assets)													Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	628,139	8.487	%	$	379,306	5.125	%	N/A		N/A		Customers Bancorp, Inc.	$	821,810	7.984	%	$	463,211	4.500	%	N/A		N/A		$	720,551	7.000	%
Customers Bank	$	857,421	11.626	%	$	377,973	5.125	%	$	479,380	6.500	%	Customers Bank	$	1,164,652	11.323	%	$	462,842	4.500	%	$	668,549	6.500	%	$	719,976	7.000	%
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to risk-weighted assets)													Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	844,755	11.414	%	$	490,322	6.625	%	N/A		N/A		Customers Bancorp, Inc.	$	1,039,281	10.096	%	$	617,615	6.000	%	N/A		N/A		$	874,955	8.500	%
Customers Bank	$	857,421	11.626	%	$	488,599	6.625	%	$	590,006	8.000	%	Customers Bank	$	1,164,652	11.323	%	$	617,122	6.000	%	$	822,829	8.000	%	$	874,256	8.500	%
Total capital (to risk weighted assets)
Total capital (to risk-weighted assets)													Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	966,097	13.053	%	$	638,343	8.625	%	N/A		N/A		Customers Bancorp, Inc.	$	1,256,309	12.205	%	$	823,487	8.000	%	N/A		N/A		$	1,080,827	10.500	%
Customers Bank	$	1,003,609	13.608	%	$	636,101	8.625	%	$	737,508	10.000	%	Customers Bank	$	1,330,155	12.933	%	$	822,829	8.000	%	$	1,028,537	10.000	%	$	1,079,964	10.500	%
Tier 1 capital (to average assets)													Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	844,755	9.067	%	$	372,652	4.000	%	N/A		N/A		Customers Bancorp, Inc.	$	1,039,281	9.258	%	$	449,026	4.000	%	N/A		N/A		$	449,026	4.000	%
Customers Bank	$	857,421	9.233	%	$	371,466	4.000	%	$	464,333	5.000	%	Customers Bank	$	1,164,652	10.379	%	$	448,851	4.000	%	$	561,064	5.000	%	$	448,851	4.000	%

The capital ratios above reflect the capital requirements under "Basel III" adopted effective ~~during~~ first quarter 2015 and the capital conservation buffer ~~effective~~phased in beginning January 1, ~~2017.~~2016. Failure to maintain the required capital conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers. As of September 30, ~~2017,~~2020, the Bank and Customers Bancorp were in compliance with the Basel III requirements. See "NOTE 1110 - REGULATORY CAPITAL" to Customers' unaudited financial statements for additional discussion regarding regulatory capital requirements.

~~Off-Balance Sheet Arrangements~~

~~The Bank~~OFF-BALANCE SHEET ARRANGEMENTS

Customers is involved with financial instruments and other commitments with off-balance sheet risks. Financial instruments with off-balance sheet risks are incurred in the normal course of business to meet the financing needs of the Bank's customers. These financial instruments include commitments to extend credit, including unused portions of lines of credit, and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the balance ~~sheets.~~sheet.

With commitments to extend credit, ~~exposures~~exposure to credit loss in the event of non-performance by the other party to the financial instrument is represented by the contractual amount of those instruments. The same credit policies are used in making commitments and

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

As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the following off-balance sheet commitments, financial instruments and other arrangements were outstanding:


	September 30, 2017		December 31, 2016
(amounts in thousands)					(amounts in thousands)	September 30, 2020		December 31, 2019
Commitments to fund loans	$	261,878	$	244,784
Commitments to fund loans and leases					Commitments to fund loans and leases	$	246,036	$	261,902
Unfunded commitments to fund mortgage warehouse loans	1,385,192		1,230,596		Unfunded commitments to fund mortgage warehouse loans	1,303,981		1,378,364
Unfunded commitments under lines of credit	498,316		480,446
Unfunded commitments under lines of credit and credit cards					Unfunded commitments under lines of credit and credit cards	917,305		1,065,474
Letters of credit	38,842		40,223		Letters of credit	27,580		48,856
Other unused commitments					Other unused commitments	2,167		2,736

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

Commitments to fund loans and leases and unfunded commitments under lines of credit may be obligations of the Bank as long as there is no violation of any condition established in the contract. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if the Bank deems it necessary upon extension of credit, is based upon management’s credit evaluation. Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment.

Mortgage warehouse loan commitments are agreements to fund the pipelines of mortgage banking businesses from closing of individual mortgage loans until their sale into the secondary market. Most of the individual mortgage loans are insured or guaranteed by the U.S. government through one of its programs such as FHA, VA, or are conventional loans eligible for sale to Fannie Mae and Freddie Mac. These commitments generally fluctuate monthly based on changes in interest rates, refinance activity, new home sales and laws and regulation.

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

~~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 borrowing arrangements are also maintained with the Federal Home Loan Bank. As of September 30, 2017, our borrowing capacity with the Federal Home Loan Bank was $4.7 billion, of which $1.5 billion was utilized in borrowings and $1.9 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 $4.1 billion, of which $0.9 billion was utilized in borrowings and $1.7 billion of available capacity was utilized to collateralize state and municipal deposits. As of September 30, 2017 and December 31, 2016, our borrowing capacity with the Federal Reserve Bank of Philadelphia was $151.1 million and $158.6 million, respectively.

Net cash flows provided by operating activities were $185.9 million during the nine months ended September 30, 2017, compared to net cash flows used in operating activities of $528.7 million during the nine months ended September 30, 2016. During the nine months ended September 30, 2017, proceeds from sales of loans held for sale exceeded originations of loans held for sale by $154.9 million. During the nine months ended September 30, 2016, originations of loans held for sale exceeded proceeds from sales of loans held for sale by $619.1 million.

Investing activities used net cash flows of $1.3 billion during the nine months ended September 30, 2017, compared to net cash flows used in investing activities of $507.4 million during the nine months ended September 30, 2016. Purchases of investment securities available for sale totaled $796.6 million during the nine months ended September 30, 2017, compared to $5.0 million during the nine months ended September 30, 2016. Proceeds from sales of investment securities available for sale were $698.5 million for the nine month ended September 30, 2017, compared to $2.9 million during the nine months ended September 30, 2016. Purchases of loans held for investment and bank owned life insurance policies totaled $262.6 million and $90.0 million, respectively, for the nine months ended September 30, 2017, compared to no similar purchases during the nine months ended September 30, 2016. Proceeds from the sale of loans held for investment totaled $124.7 million during the nine months ended September 30, 2017, compared to $91.9 million during the nine months ended September 30, 2016. Cash flows used to fund new loans held for investment totaled $921.0 million and $641.1 million during the nine months ended September 30, 2017 and 2016, respectively.

Financing activities provided a net aggregate of $1.0 billion for each of the nine months ended September 30, 2017 and 2016. During the nine months ended September 30, 2017, increases in deposits provided net cash flows of $293.3 million, net increases in short-term borrowed funds provided $593.5 million, net increases in federal funds provided $64.0 million, proceeds from the issuance of five-year senior notes provided $98.6 million, payment of preferred stock dividends used $10.8 million, and net proceeds from the issuance of common stock provided $2.1 million. During the nine months ended September 30, 2016, increases in deposits provided $1.5 billion, net repayments of short-term borrowed funds used $663.6 million, net decrease in federal funds purchased used $18.0 million, net proceeds from long-term FHLB advances provided $75.0 million, net proceeds from the issuance of preferred stock provided $162.0 million, payment of preferred stock dividends used $5.5 million, and net proceeds from the issuance of common stock provided $7.3 million. These financing activities provided sufficient cash flows to support Customers' investing and operating activities.

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

Effect of Government Monetary Policies

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

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

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

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

Through the use of income ~~simulation~~scenario modeling, ~~we have~~Customers has estimated the net interest income for the ~~period~~periods ending September 30, ~~2018,~~2021 and December 31, 2020, based upon the assets, liabilities and off-balance sheet financial instruments in existence at September 30, ~~2017. We have~~2020 and December 31, 2019. Customers has also estimated changes to that estimated net interest income based upon interest rates rising or falling immediately (“rate shocks”). For upward rate shocks modeling a rising rate environment at September 30, 2020, current market interest rates were increased immediately by 100, 200, and 300 basis points. For downward rate shocks modeling a falling rate environment, current market rates were only decreased immediately by 100 basis points due to the limitations of the current low interest rate environment that renders the Down 200 and Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. The following table reflects the estimated percentage change in estimated net interest income for the ~~period~~periods ending September 30, ~~2018,~~2020 and December 31, 2019, resulting from changes in interest rates.

Net change in net interest income


	% Change
Rate Shocks	September 30, 2020	December 31, 2019
Up 3%	8.4%	3.3%
Up 2%	5.9%	2.7%
Up 1%	3.2%	1.6%
Down 1%	1.1%	(1.9)%



~~Rate Shocks~~	~~% Change~~
~~Up 3%~~	~~(8.2~~	)%
~~Up 2%~~	~~(3.0~~	)%
~~Up 1%~~	~~(0.3~~	)%
~~Down 1%~~	~~(2.4~~	)%

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

~~Economic Value of Equity (“EVE”)~~EVE estimates the discounted present value of asset and liability cash flows. Discount rates are based upon market prices for comparable assets and liabilities. Upward and downward rate shocks are used to measure volatility of EVE in relation to a constant rate environment. For upward rate shocks modeling a rising rate environment at September 30, 2020, current market interest rates were only increased immediately by 100, 200, and 300 basis points. For downward rate shocks modeling a falling rate environment, current market rates were ~~only~~ decreased immediately by 100 basis points due to the limitations of the current low interest rate environment that renders the Down 200 and Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. This method of measurement primarily evaluates the longer term repricing risks and options in Customers Bank’s balance sheet. The following table reflects the estimated EVE at risk and the ratio of EVE to EVE adjusted assets at September 30, ~~2017,~~2020 and December 31, 2019, resulting from shocks to interest rates.


	From base
Rate Shocks	September 30, 2020	December 31, 2019
Up 3%	(15.6)%	(5.6)%
Up 2%	(9.3)%	(2.0)%
Up 1%	(4.3)%	(1.0)%
Down 1%	(1.4)%	(1.1)%



~~Rate Shocks~~	~~From base~~
~~Up 3%~~	~~(30.9~~	)%
~~Up 2%~~	~~(18.7~~	)%
~~Up 1%~~	~~(8.3~~	)%
~~Down 1%~~	~~4.2~~	%

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

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

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Item 4. Controls and Procedures

(a) Management's Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, Customers Bancorp carried out an evaluation, under the supervision and with the participation of Customers Bancorp’s management, including Customers Bancorp’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Customers Bancorp’s disclosure controls and procedures as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Customers Bancorp’s disclosure controls and procedures were effective atas of September 30, ~~2017.~~2020.

(b)Changes in Internal Control Over Financial Reporting. During the quarter ended September 30, ~~2017,~~2020, there have been no changes in Customers ~~Bancorp’s~~Bancorp's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Customers ~~Bancorp’s~~Bancorp's internal control over financial reporting.

The emergence of the COVID-19 pandemic during first quarter 2020 necessitated the execution of several Customers Bancorp contingency plans. Beginning in March 2020 and continuing through this filing date, Customers Bancorp had a substantial number of its team members working remotely under such contingency plans. The execution of these contingency plans have not materially affected, or are reasonably likely to materially affect, Customers' internal control over financial reporting

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

~~There have been no material changes~~For information on Customers' legal proceedings, refer to “NOTE 15 – LOSS CONTINGENCIES” to the ~~legal proceedings disclosed within our 2016 Form 10-K, as supplemented and amended within our quarterly report on Form 10-Q for the quarter ended March 31, 2017.~~unaudited consolidated financial statements.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in “Risk Factors” included within the ~~2016~~2019 Form 10-K, ~~and our quarterly reports on Form 10-Q for the quarter ended March 31, 2017 ("~~the March 31, ~~2017 Quarterly Report")~~2020 Form 10-Q and ~~for the quarter ended June 30, 2017 ("~~the June 30, ~~2017 Quarterly Report").~~2020 Form 10-Q. There are no material changes from the risk factors included within the ~~2016~~2019 Form 10-K, the March 31, ~~2017 Quarterly Report,~~2020 Form 10-Q and the June 30, ~~2017 Quarterly Report~~2020 Form 10-Q, other than the risks described below. The risks described within the ~~2016~~2019 Form 10-K, the March 31, ~~2017 Quarterly Report,~~2020 Form 10-Q, and the June 30, ~~2017 Quarterly Report~~2020 Form 10-Q and below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition and/or operating results. See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Note Regarding Forward-Looking Statements.”

~~We face a number~~Risks Related to the Disposition of ~~risks~~BMT to MFAC

The amended agreement relating to ~~our announced plans to dispose of BankMobile through a spin-off and merger.~~

~~We have announced our plans to dispose of our BankMobile business through a spin-off of BankMobile~~BMT's proposed merger with MFAC provides for the issuance directly to our shareholders to be followed by a merger of our BankMobile Technologies, Inc. subsidiary, which we refer to as BMT, into Flagship Community Bank, which we refer to as Flagship. While we currently expect to execute a definitive agreement with Flagship for this transaction, as of the ~~date of filing of this Form 10-Q, a definitive agreement has not been executed. We expect that completion~~shares issuable by MFAC as part of the ~~spin-off~~merger consideration. The future value of the shares you receive as a result of the merger and ~~merger~~your ability to realize the value of your ownership of BM Technologies shares will be subject to a number of ~~conditions, including receipt of all necessary regulatory approvals, receipt by Flagship of shareholder approvals of certain matters~~risks and challenges.

Our agreement with MFAC relating to ~~its acquisition~~the proposed merger of BMT ~~Flagship’s ability~~and MFAC has recently been amended to ~~raise approximately $100 million through~~provide that the ~~issuance~~shares issuable by MFAC in connection with the proposed merger will be issued directly to Customers Bancorp shareholders rather than being issued to and held by us. Ownership of shares of ~~its common stock,~~BM Technologies following completion of the merger will involve many of the risks we have previously described in our 2019 Form 10-K and subsequently filed quarterly reports on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020 regarding the business, operations and prospects of our BankMobile business, as well as additional risks relating to the business, operations and prospects of BM Technologies as a stand-alone public company. As a result, the future value of the shares you receive will depend on BM Technologies’ future performance, as well as factors impacting the value of fintech companies generally, conditions in the financial markets and other ~~conditions. Certain~~factors affecting public companies including, but not limited to:


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

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

Although our BankMobile division, as an operating segment of ours, recently became profitable, there can be no assurance that BMT, a component of our BankMobile division, will be profitable following completion of the ~~conditions will not be within our control and we cannot guarantee you that we will enter into a definitive agreement~~merger or that weBM Technologies will be able to ~~complete the spin-off~~successfully execute its business plan, address competitive conditions in its markets and ~~merger~~take other actions necessary to increase its value.

The shares issuable by MFAC will be subject to a contractual restriction on the ~~terms we have agreed to with Flagship, or at all.~~

~~Our announcement~~resale of those shares by Customers Bancorp shareholders for a period of twelve months after the closing of the ~~spin-off and~~ merger, ~~and the steps we take~~subject to ~~complete those transactions may adversely affect our business and the value of Customers and/or BankMobile. Uncertainty as to our ability to execute~~certain exceptions. As a definitive agreement or to complete the transactions and uncertainty as to the timing of the execution of a definitive agreement or the completion of the transactions may adversely affect analyst and shareholder views of our business and prospects, which could adversely affect our share price. These uncertainties also may adversely impact our relationships with our current and potential higher education institution customers and our BankMobile employees, and could result, in the loss of customers and key employees. Because we cannot be certain of completing the spin-off and merger by July 1, 2018, we are also taking steps to reduce our assets below $10 billion at December 31, 2017 in order to eliminate the risk of not receiving full interchange fees, which would occur if we no longer qualified for the smaller issuer exemption from the Durbin Amendment for 2018.

Executing the spin-off and merger also may result in the diversion of management’s attention from Customers’ day-to-day operations generally, and the expenses we incur in executing the transactions may exceed our expectations, which may adversely affect our results of operations. In addition, even if we are successful in completing the spin-off and merger, it is possible that Customers and our shareholders may not receive the benefits we presently anticipate from these transactions.

~~If we are unable to reduce our total assets to below $10 billion as of December 31, 2017, our business and potential for future success could be materially adversely affected.~~

Under federal law and regulation, if our total assets exceed $10 billion as of December 31, 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 could result in the BankMobile segment operating unprofitably or charging additional fees to students to replace the lost revenue. Customers plans to reduce total assets by approximately $500 million by year-end 2017 through normal seasonality of the mortgage warehouse business, which tends to decline in the winter months, selling multi-family and residential mortgage loans, and selling investment securities as needed. In addition, Customers expects to moderately grow its commercial and industrial loan portfolio while limiting growth in its multi-family loan portfolio by disciplined pricing. If Customers is unable to reduce total

~~assets to below $10 billion as of December 31, 2017, our financial condition and results of operations could be adversely affected.~~

~~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 September 30, 2017, the fair value of our investment securities portfolio was $584.8 million. 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 September 30, 2017, management evaluated its equity holdings issued by 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 $8.3 million in third quarter 2017, $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 September 30, 2017 of $2.3 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~~you may not be able to ~~influence~~realize the ~~activities~~value of ~~companies~~shares you receive in ~~which we invest, and may suffer losses due~~the merger through a sale of part or all of those shares during that twelve-month period. In addition, the distribution of the MFAC shares to ~~these activities. Investments in foreign companies could pose additional risks~~Customers Bancorp shareholders generally will be taxable to shareholders receiving those shares as a ~~result of distance, language barriers~~qualified dividend for federal, state and ~~potential lack of information (for example, foreign institutions, including foreign financial institutions,~~local income tax purposes and, under certain circumstances, also may ~~not~~ be ~~obligated~~subject to ~~provide as much information regarding their operations as those in the United States). Our~~"net 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. In third quarter 2017, we recognized an other-than-temporary impairment loss of $8.3 million and adjusted our cost of the Religare equity securities to their estimated fair value of $2.3 million at September 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.income" tax.

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

On November 26, 2013, ~~Customers announced that~~ the ~~Board~~Bancorp's board of ~~Directors had~~directors 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~~On December 11, 2018, the Bancorp's board of directors amended the terms of the 2013 stock repurchase plan to adjust the repurchase terms and book value measurement date such that Customers was authorized to purchase shares of common stock at prices not to exceed the book value per share of Customers' common stock measured as of September 30, 2018. Customers repurchased all remaining authorized shares pursuant to this program in January 2019. Accordingly, there were no common shares repurchased during third quarter 2020.

Dividends on Common Stock

Customers Bancorp historically has ~~no expiration date but may~~not paid any cash dividends on its shares of common stock and does not expect to do so in the foreseeable future.

Any future determination relating to our dividend policy will be ~~suspended, modified~~made at the discretion of Customers Bancorp’s board of directors and will depend on a number of factors, including earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, ability to service any equity or ~~discontinued~~debt obligations senior to our common stock, including obligations to pay dividends to the holders of Customers Bancorp's issued and outstanding shares of preferred stock and other factors deemed relevant by the Board of Directors.

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

Beginning January 1, 2015, the ability to pay dividends and the ~~Bancorp has no obligation~~amounts that can be paid will be limited to ~~repurchase any amount of its common stock under~~ the ~~program.~~extent the Bank's capital ratios do not exceed the minimum required levels plus 250 basis points, as these requirements were phased in through January 1, 2019.

~~During the three and nine months ended September 30, 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.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~

None

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Item 6. Exhibits


Exhibit No.			Description

~~Exhibit~~ ~~No.~~2.1		*	~~Description~~ Agreement and Plan of Merger by and between Megalith Financial Acquisition Corp., MFAC Merger Sub Inc., Customers Bank, and BankMobile Technologies, Inc., as the Company, incorporated by reference to Exhibit 2.1 to the Customers Bancorp 8-K filed with the SEC on August 6, 2020

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

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

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

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

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

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

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

~~3.5~~3.7			Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on January 29, 2016

~~3.6~~3.8			Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on April 28, 2016

~~3.7~~3.9			Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on September 16, 2016

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

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

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

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

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

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

~~4.7~~4.3			~~Form of Warrant issued by Berkshire Bancorp, Inc., incorporated by reference to Exhibit 10.23 to the Customers Bancorp Form S-1/A filed with the SEC on April 25, 2012~~

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

4.4			Third Supplemental Indenture, dated as of September 25, 2019, by and between Customers Bancorp, Inc., as Issuer and Wilmington Trust, National Association, as Trustee, incorporated by reference to Exhibit 4.1 to the Customers Bancorp Form 8-K filed with the SEC on September 25, 2019

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

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

4.7			First Supplemental Indenture, dated as of December 9, 2019, between Customers Bancorp, Inc., as Issuer, and Wilmington Trust, National Association, as Trustee, incorporated by reference to Exhibit 4.2 to the Customers Bancorp Form 8-K filed with the SEC on December 9, 2019

4.8			Form of 5.375% Subordinated Note due 2034, incorporated by reference to Exhibit 4.2 to the Customers Bancorp Form 8-K filed with the SEC on December 9, 2019

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

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

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

10.4						Form of Registration Rights Agreement, incorporated by reference to Exhibit 10.4 to the Customers Bancorp Form 8-K filed with the SEC on August 6, 2020

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

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

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

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



101		The ~~Exhibits filed~~following financial statements from the Customers’ Annual Report on Form 10-Q as ~~part~~ of ~~this report are as follows:~~and for the year ended September 30, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.

~~101.INS~~104		Cover Page Interactive Data File - the cover page XBRL ~~Instance Document.~~tags are embedded within the Inline XBRL document

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

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

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

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

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

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SIGNATURES

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


		Customers Bancorp, Inc.

November 6, 2020		By:	/s/ Jay S. Sidhu
		Name:	Jay S. Sidhu
		Title:	Chairman and Chief Executive Officer (Principal Executive Officer)

		~~Customers Bancorp, Inc.~~

~~November 3, 2017~~	~~By:~~	~~/s/ Jay S. Sidhu~~
	~~Name:~~	~~Jay S. Sidhu~~
	~~Title:~~	~~Chairman and Chief Executive Officer~~ ~~(Principal Executive Officer)~~



~~November 3, 2017~~	~~By:~~	~~/s/ Robert E. Wahlman~~
	~~Name:~~	~~Robert E. Wahlman~~
	~~Title:~~	~~Chief Financial Officer~~ ~~(Principal Financial Officer)~~

~~Exhibit Index~~



~~Exhibit~~ ~~No.~~ November 6, 2020		By:	~~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 Form 8-K filed with the SEC on July 31, 2013

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

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

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

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

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

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

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

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

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

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

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

/s/ Carla A. Leibold
		Name:		Carla A. Leibold
~~101~~		Title:	~~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.~~Chief Financial Officer (Principal Financial Officer)



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

	Nine Months Ended September 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
Net income	—	—		—	—		—			58,875			—			—			58,875
Other comprehensive income	—	—		—	—		—			—			8,758			—			8,758
Issuance of common stock, net of offering costs of $217	—	—		226,677	227		5,450			—			—			—			5,677
Issuance of preferred stock, net of offering costs of $5,520	6,700,000	161,980		—	—		—			—			—			—			161,980
Preferred stock dividends	—	—		—	—		—			(5,900		)	—						(5,900		)
Share-based compensation expense	—	—		—	—		4,569			—			—			—			4,569
Exercise of warrants	—	—		259,851	259		862			—			—			—			1,121
Issuance of common stock under share-based compensation arrangements	—	—		155,888	156		673			—			—			—			829
Balance, September 30, 2016	9,000,000	$	217,549	27,544,217	$	28,074	$	374,161		$	177,486		$	774		$	(8,233	)	$	789,811



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

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

Net assets acquired	$	31,741

Transaction cash consideration (1)	$	37,000

Goodwill recognized	$	5,259



	December 31, 2016 As Previously Reported		Effect of Reclassification From Held For Sale to Held and Used			December 31, 2016 After Reclassification
(amounts in thousands)	December 31, 2016 As Previously Reported					December 31, 2016 After Reclassification
ASSETS
Cash and cash equivalents	$	244,709	$	20,000		$	264,709
Loans receivable	6,142,390		12,247			6,154,637
Bank premises and equipment, net	12,259		510			12,769
Goodwill and other intangibles	3,639		13,982			17,621
Assets held for sale	79,271		(79,271		)	—
Other assets	70,099		32,532			102,631
LIABILITIES
Demand, non-interest bearing deposits	$	512,664	$	453,394		$	966,058
Interest bearing deposits	6,334,316		3,401			6,337,717
Non-interest bearing deposits held for sale	453,394		(453,394		)	—
Other liabilities held for sale	31,403		(31,403		)	—
Accrued interest payable and other liabilities	47,381		28,002			75,383



	Three Months Ended September 30, 2017
(amounts in thousands)	Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Loss on Cash Flow Hedges			Total
Balance - June 30, 2017	$	6,822		$	(1,458	)	$	5,364
Other comprehensive income (loss) before reclassifications	(2,177		)	104			(2,073		)
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2)	(3,263		)	349			(2,914		)
Net current-period other comprehensive (loss) income	(5,440		)	453			(4,987		)
Balance - September 30, 2017	$	1,382		$	(1,005	)	$	377



	Three Months Ended September 30, 2016
	Available-for-sale-securities
(amounts in thousands)	Unrealized Gains		Foreign Currency Items			Total Unrealized Gains		Unrealized Loss on Cash Flow Hedge			Total
Balance - June 30, 2016	$	4,895	$	(768	)	$	4,127	$	(4,554	)	$	(427	)
Other comprehensive income (loss) before reclassifications	15		190			205		556			761
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2)	1		—			1		439			440
Net current-period other comprehensive income	16		190			206		995			1,201
Balance - September 30, 2016	$	4,911	$	(578	)	$	4,333	$	(3,559	)	$	774



	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	197,606	$	521	$	(1,800	)	$	196,327
Agency-guaranteed commercial real estate mortgage-backed securities	337,683		2,843		(418		)	340,108
Corporate notes (1)	44,958		1,119		—			46,077
Equity securities (2)	2,311		—		—			2,311
	$	582,558	$	4,483	$	(2,218	)	$	584,823



	September 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)
(amounts in thousands)
Multi-family	$	—	$	—	$	—	$	—	$	3,617,062	$	1,927	$	3,618,989
Commercial and industrial	—		—		—		20,423		1,093,997		802		1,115,222
Commercial real estate - owner occupied	—		—		—		2,949		472,832		10,786		486,567
Commercial real estate - non-owner occupied	—		—		—		184		1,232,212		5,453		1,237,849
Construction	—		—		—		—		73,203		—		73,203
Residential real estate	1,607		—		1,607		4,269		423,551		5,761		435,188
Manufactured housing (5)	2,937		2,505		5,442		1,959		82,896		2,641		92,938
Other consumer	67		—		67		58		3,474		220		3,819
Total	$	4,611	$	2,505	$	7,116	$	29,842	$	6,999,227	$	27,590	$	7,063,775
	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)
(amounts in thousands)
Multi-family	$	12,573	$	—	$	12,573	$	—	$	3,200,322	$	2,104	$	3,214,999
Commercial and industrial	350		—		350		8,443		978,881		1,037		988,711
Commercial real estate - owner occupied	137		—		137		2,039		379,227		12,229		393,632
Commercial real estate - non-owner occupied	—		—		—		2,057		1,185,331		6,327		1,193,715
Construction	—		—		—		—		64,789		—		64,789
Residential real estate	4,417		—		4,417		2,959		178,559		7,567		193,502
Manufactured housing (5)	3,761		2,813		6,574		2,236		89,850		3,070		101,730
Other consumer	12		—		12		58		3,177		236		3,483
Total	$	21,250	$	2,813	$	24,063	$	17,792	$	6,080,136	$	32,570	$	6,154,561



Three Months Ended September 30, 2017	Multi-family		Commercial and Industrial			Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied			Construction			Residential Real Estate			Manufactured Housing			Other Consumer			Total
(amounts in thousands)
Ending Balance, June 30, 2017	$	12,028	$	11,585		$	2,976	$	7,786		$	716		$	2,995		$	268		$	104		$	38,458
Charge-offs	—		(2,032		)	—		(77		)	—			(120		)	—			(356		)	(2,585		)
Recoveries	—		54			—		—			27			7			—			1			89
Provision for loan losses	668		966			262		(53		)	104			72			(77		)	410			2,352
Ending Balance, September 30, 2017	$	12,696	$	10,573		$	3,238	$	7,656		$	847		$	2,954		$	191		$	159		$	38,314
Nine Months Ended September 30, 2017
Ending Balance, December 31, 2016	$	11,602	$	11,050		$	2,183	$	7,894		$	840		$	3,342		$	286		$	118		$	37,315
Charge-offs	—		(4,079		)	—		(485		)	—			(410		)	—			(602		)	(5,576		)
Recoveries	—		337			9		—			157			34			—			101			638
Provision for loan losses	1,094		3,265			1,046		247			(150		)	(12		)	(95		)	542			5,937
Ending Balance, September 30, 2017	$	12,696	$	10,573		$	3,238	$	7,656		$	847		$	2,954		$	191		$	159		$	38,314

As of September 30, 2017
Loans:
Individually evaluated for impairment	$	—	$	20,493		$	2,950	$	184		$	—		$	8,178		$	10,340		$	56		$	42,201
Collectively evaluated for impairment	3,617,062		1,093,927			472,831		1,232,212			73,203			421,249			79,957			3,543			6,993,984
Loans acquired with credit deterioration	1,927		802			10,786		5,453			—			5,761			2,641			220			27,590
	$	3,618,989	$	1,115,222		$	486,567	$	1,237,849		$	73,203		$	435,188		$	92,938		$	3,819		$	7,063,775
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	625		$	740	$	—		$	—		$	142		$	5		$	15		$	1,527
Collectively evaluated for impairment	12,696		9,462			2,481		4,732			847			2,222			83			93			32,616
Loans acquired with credit deterioration	—		486			17		2,924			—			590			103			51			4,171
	$	12,696	$	10,573		$	3,238	$	7,656		$	847		$	2,954		$	191		$	159		$	38,314



Three Months Ended September 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, June 30, 2016	$	12,368		$	10,370		$	1,582	$	8,483		$	1,209		$	3,535		$	440		$	110		$	38,097
Charge-offs	—			(237		)	—		(140		)	—			(43		)	—			(246		)	(666		)
Recoveries	—			62			—		—			8			298			—			10			378
Provision for loan losses	(695		)	832			305		3			(168		)	(411		)	(18		)	240			88
Ending Balance, September 30, 2016	$	11,673		$	11,027		$	1,887	$	8,346		$	1,049		$	3,379		$	422		$	114		$	37,897
Nine Months Ended September 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	—			(774		)	—		(140		)	—			(456		)	—			(478		)	(1,848		)
Recoveries	—			173			—		8			465			299			—			10			955
Provision for loan losses	(343		)	2,764			539		58			(490		)	238			(72		)	449			3,143
Ending Balance, September 30, 2016	$	11,673		$	11,027		$	1,887	$	8,346		$	1,049		$	3,379		$	422		$	114		$	37,897
As of December 31, 2016
Loans:
Individually evaluated for impairment	$	—		$	8,516		$	2,050	$	2,151		$	—		$	6,972		$	9,665		$	57		$	29,411
Collectively evaluated for impairment	3,212,895			979,158			379,353		1,185,237			64,789			178,963			88,995			3,190			6,092,580
Loans acquired with credit deterioration	2,104			1,037			12,229		6,327			—			7,567			3,070			236			32,570
	$	3,214,999		$	988,711		$	393,632	$	1,193,715		$	64,789		$	193,502		$	101,730		$	3,483		$	6,154,561
Allowance for loan losses:
Individually evaluated for impairment	$	—		$	1,024		$	287	$	14		$	—		$	35		$	—		$	—		$	1,360
Collectively evaluated for impairment	11,602			9,686			1,896		4,626			772			2,414			88			60			31,144
Loans acquired with credit deterioration	—			340			—		3,254			68			893			198			58			4,811
	$	11,602		$	11,050		$	2,183	$	7,894		$	840		$	3,342		$	286		$	118		$	37,315



	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Extensions of maturity	1	$	60	—	$	—
Interest-rate reductions	3	122		10	533
Total	4	$	182	10	$	533



	September 30, 2017
	Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total
(amounts in thousands)
Pass/Satisfactory	$	3,577,304	$	1,080,797	$	468,389	$	1,212,945	$	73,203	$	431,364	$	—	$	—	$	6,844,002
Special Mention	36,604		8,663		9,716		22,008		—		—		—		—		76,991
Substandard	5,081		25,762		8,462		2,896		—		3,824		—		—		46,025
Performing (1)	—		—		—		—		—		—		85,537		3,694		89,231
Non-performing (2)	—		—		—		—		—		—		7,401		125		7,526
Total	$	3,618,989	$	1,115,222	$	486,567	$	1,237,849	$	73,203	$	435,188	$	92,938	$	3,819	$	7,063,775



					Fair Value Measurements at September 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)
(amounts in thousands)
Assets:
Cash and cash equivalents	$	219,480	$	219,480	$	219,480	$	—	$	—
Investment securities, available for sale	584,823		584,823		2,311		582,512		—
Loans held for sale	2,113,293		2,113,473		—		1,963,076		150,397
Loans receivable, net of allowance for loan losses	7,023,024		7,020,487		—		—		7,020,487
FHLB, Federal Reserve Bank and other restricted stock	98,611		98,611		—		98,611		—
Derivatives	10,447		10,447		—		10,344		103
Liabilities:
Deposits	$	7,597,076	$	7,596,324	$	5,296,636	$	2,299,688	$	—
Federal funds purchased	147,000		147,000		147,000		—		—
FHLB advances	1,462,343		1,462,245		727,343		734,902		—
Other borrowings	186,258		194,157		65,704		128,453		—
Subordinated debt	108,856		115,500		—		115,500		—
Derivatives	12,092		12,092		—		12,092		—



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



	Nine Months Ended September 30, 2016
	Income Statement Location	Amount of Income Recognized in Earnings
(amounts in thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	1,250
Credit contracts	Other non-interest income	257
Residential mortgage loan commitments	Mortgage banking income	41
Total		$	1,548



	Three Months Ended September 30, 2017
	Amount of Gain 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	$	104	Interest expense	$	(572	)



	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	$	4,190	$	—	$	4,190	$	—	$	1,900	$	2,290



	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				Financial Instruments		Cash Collateral Pledged		Net Amount
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties	$	8,400	$	—	$	8,400	$	—	$	8,262	$	138



	Three Months Ended September 30,
	2017 vs. 2016
	Increase (Decrease) due to Change in
	Rate			Volume			Total
(amounts in thousands)
Interest income
Interest-earning deposits	$	528		$	69		$	597
Investment securities	335			3,444			3,779
Loans:
Commercial loans to mortgage companies	3,853			(1,744		)	2,109
Multifamily loans	(1,440		)	3,368			1,928
Commercial and industrial	908			2,997			3,905
Non-owner occupied commercial real estate	(195		)	606			411
All other loans	(610		)	1,898			1,288
Total loans	2,516			7,125			9,641
Other interest-earning assets	(365		)	421			56
Total interest income	3,014			11,059			14,073
Interest expense
Interest checking accounts	167			263			430
Money market deposit accounts	4,095			571			4,666
Other savings accounts	4			3			7
Certificates of deposit	1,539			(1,270		)	269
Total interest-bearing deposits	5,805			(433		)	5,372
Borrowings	1,337			3,930			5,267
Total interest expense	7,142			3,497			10,639
Net interest income	$	(4,128	)	$	7,562		$	3,434



Loan Type	Total Loans			Current			30-89 Days Past Due		90 Days or More Past Due and Accruing		Non- accrual/ NPL (a)		OREO (b)		NPA (a)+(b)		NPL to Loan Type (%)		NPA to Loans + OREO (%)
(amounts in thousands)
Originated Loans
Multi-Family	$	3,616,313		$	3,616,313		$	—	$	—	$	—	$	—	$	—	—	%	—	%
Commercial & Industrial (1)	1,507,395			1,484,400			—		—		22,995		—		22,995		1.53	%	1.53	%
Commercial Real Estate Non-Owner Occupied	1,215,099			1,215,099			—		—		—		—		—		—	%	—	%
Residential	108,786			107,569			636		—		581		—		581		0.53	%	0.53	%
Construction	73,203			73,203			—		—		—		—		—		—	%	—	%
Other consumer	1,450			1,437			13		—		—		—		—		—	%	—	%
Total Originated Loans	6,522,246			6,498,021			649		—		23,576		—		23,576		0.36	%	0.36	%
Loans Acquired
Bank Acquisitions	153,772			147,172			1,352		941		4,307		782		5,089		2.80	%	3.29	%
Loan Purchases	387,757			379,026			2,984		3,788		1,959		277		2,236		0.51	%	0.58	%
Total Loans Acquired	541,529			526,198			4,336		4,729		6,266		1,059		7,325		1.16	%	1.35	%
Deferred fees and unamortized discounts, net	(2,437		)	(2,437		)	—		—		—		—		—
Total Loans Receivable	7,061,338			7,021,782			4,985		4,729		29,842		1,059		30,901		0.42	%	0.44	%
Total Loans Held for Sale	2,113,293			2,113,293			—		—		—		—		—
Total Portfolio	$	9,174,631		$	9,135,075		$	4,985	$	4,729	$	29,842	$	1,059	$	30,901	0.33	%	0.34	%



Loan Type	Total Loans			NPL		ALL		Cash Reserve		Total Credit Reserves		Reserves to Loans (%)		Reserves to NPLs (%)
(amounts in thousands)
Originated Loans
Multi-Family	$	3,616,313		$	—	$	12,696	$	—	$	12,696	0.35	%	—	%
Commercial & Industrial (1)	1,507,395			22,995		13,084		—		13,084		0.87	%	56.90	%
Commercial Real Estate Non-Owner Occupied	1,215,099			—		4,665		—		4,665		0.38	%	—	%
Residential	108,786			581		2,130		—		2,130		1.96	%	366.61	%
Construction	73,203			—		847		—		847		1.16	%	—	%
Other consumer	1,450			—		59		—		59		4.07	%	—	%
Total Originated Loans	6,522,246			23,576		33,481		—		33,481		0.51	%	142.01	%
Loans Acquired
Bank Acquisitions	153,772			4,307		4,642		—		4,642		3.02	%	107.78	%
Loan Purchases	387,757			1,959		191		728		919		0.24	%	46.91	%
Total Loans Acquired	541,529			6,266		4,833		728		5,561		1.03	%	88.75	%
Deferred fees and unamortized discounts, net	(2,437		)	—		—		—		—
Total Loans Receivable	7,061,338			29,842		38,314		728		39,042		0.55	%	130.83	%
Total Loans Held for Sale	2,113,293			—		—		—		—
Total Portfolio	$	9,174,631		$	29,842	$	38,314	$	728	$	39,042	0.43	%	130.83	%