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, 2018~~

March 31, 2019



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

For the transition period from to .

001-35542

(Commission File number)

(Exact name of registrant as specified in its charter)

Customers Bancorp, Inc.



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

1015 Penn Avenue

Suite 103

Wyomissing PA 19610

(Address of principal executive offices)

(610) 933-2000

(Registrant’s telephone number, including area code)

N/A

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

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

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

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



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	o	Smaller Reporting Company	¨

		Emerging Growth Company	¨

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

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

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



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

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

________________________________________

On ~~November 2, 2018, 31,687,340~~May 3, 2019, 31,145,896 shares of Voting Common Stock were outstanding.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Table of Contents



Part I

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of ~~September 30, 2018~~March 31, 2019 and for the three ~~months and nine months~~month periods ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (unaudited)	34

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5444

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	8362

Item 4.	Controls and Procedures	8464

PART II

Item 1.	Legal Proceedings	8565

Item 1A.	Risk Factors	8565

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8765

Item 3.	Defaults Upon Senior Securities	8766

Item 4.	Mine Safety Disclosures	8766

Item 5.	Other Information	8766

Item 6.	Exhibits	8767

SIGNATURES		8968

Ex-31.1

Ex-31.2

Ex-32.1

Ex-32.2

Ex-101

GLOSSARY OF ABBREVIATIONS AND ACRONYMS

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



ASC	Accountings Standards Codification
ALLL	Allowance for loan and lease losses
AOCI	Accumulated other comprehensive income
Bancorp	Customers Bancorp, Inc.
Bank	Customers Bank
BOLI	Bank-owned life insurance
CCF	Customers Commercial Finance, LLC
CECL	Current expected credit loss
CPI	Consumer Price Index
CUBI	Symbol for Customers Bancorp, Inc. common stock traded on the NYSE
Customers	Customers Bancorp, Inc. and Customers Bank, collectively
Customers Bancorp	Customers Bancorp, Inc.
Department	Pennsylvania Department of Banking and Securities
DOE	United States Department of Education
EGRRCPA	The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018
EPS	Earnings per share
EVE	Economic value of equity
FASB	Financial Accounting Standards Board
Federal Reserve Board	Board of Governors of the Federal Reserve System
FHA	Federal Housing Administration
FHLB	Federal Home Loan Bank
FMV	Fair Market Value
FPRD	Final Program Review Determination
FRB	Federal Reserve Bank of Philadelphia
GLBA	Gramm-Leach-Bliley Act of 1999
IRS	Internal Revenue Service
LIHTC	Low-Income Housing Tax Credit
LPO	Limited Purpose Office
MMDA	Money market deposit accounts
NIM	Net interest margin, tax equivalent
Non-QM	Non-qualified mortgage
NPA	Non-performing asset
NPL	Non-performing loan
OCI	Other comprehensive income
OREO	Other real estate owned
OTTI	Other-than-temporary impairment
PCI	Purchased Credit-Impaired
ROU	Right-of-use
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
UDAAP	Unfair, Deceptive or Abusive Acts and Practices
U.S. GAAP	Accounting principles generally accepted in the United States of America
VA	Department of Veterans Affairs

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

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


	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS				(As Restated)
Cash and due from banks	$	12,943		$	20,388		$	41,723		$	17,696
Interest-earning deposits	653,091			125,935			75,939			44,439
Cash and cash equivalents	666,034			146,323			117,662			62,135
Investment securities, at fair value	668,851			471,371			678,142			665,012
Loans held for sale (includes $1,383 and $1,886, respectively, at fair value)	1,383			146,077
Loans held for sale (includes $1,602 and $1,507, respectively, at fair value)							1,602			1,507
Loans receivable, mortgage warehouse, at fair value	1,516,327			1,793,408			1,480,195			1,405,420
Loans receivable	7,239,950			6,768,258
Allowance for loan losses	(40,741		)	(38,015		)
Total loans receivable, net of allowance for loan losses	8,715,536			8,523,651
Loans and leases receivable							7,264,049			7,138,074
Allowance for loan and lease losses							(43,679		)	(39,972		)
Total loans and leases receivable, net of allowance for loan and lease losses							8,700,565			8,503,522
FHLB, Federal Reserve Bank, and other restricted stock	74,206			105,918			80,416			89,685
Accrued interest receivable	32,986			27,021			35,716			32,955
Bank premises and equipment, net	11,300			11,955			10,542			11,063
Bank-owned life insurance	263,117			257,720			266,740			264,559
Other real estate owned	1,450			1,726			976			816
Goodwill and other intangibles	16,825			16,295			16,173			16,499
Other assets	165,416			131,498			235,360			185,672
Total assets	$	10,617,104		$	9,839,555		$	10,143,894		$	9,833,425
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing	$	1,338,167		$	1,052,115		$	1,372,358		$	1,122,171
Interest-bearing	7,175,547			5,748,027			6,052,960			6,020,065
Total deposits	8,513,714			6,800,142			7,425,318			7,142,236
Federal funds purchased	—			155,000			388,000			187,000
FHLB advances	835,000			1,611,860			1,025,832			1,248,070
Other borrowings	123,779			186,497			123,963			123,871
Subordinated debt	108,953			108,880			109,002			108,977
Accrued interest payable and other liabilities	80,846			56,212			93,406			66,455
Total liabilities	9,662,292			8,918,591			9,165,521			8,876,609
Commitments and contingencies (NOTE 13)
Shareholders’ equity:
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of September 30, 2018 and December 31, 2017	217,471			217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,217,600 and 31,912,763 shares issued as of September 30, 2018 and December 31, 2017; 31,687,340 and 31,382,503 shares outstanding as of September 30, 2018 and December 31, 2017	32,218			31,913
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018							217,471			217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,411,866 and 32,252,488 shares issued as of March 31, 2019 and December 31, 2018; 31,131,247 and 31,003,028 shares outstanding as of March 31, 2019 and December 31, 2018							32,412			32,252
Additional paid in capital	431,205			422,096			436,713			434,314
Retained earnings	302,404			258,076			328,476			316,651
Accumulated other comprehensive loss, net	(20,253		)	(359		)	(14,919		)	(22,663		)
Treasury stock, at cost (530,260 shares as of September 30, 2018 and December 31, 2017)	(8,233		)	(8,233		)
Treasury stock, at cost (1,280,619 and 1,249,460 shares as of March 31, 2019 and December 31, 2018)							(21,780		)	(21,209		)
Total shareholders’ equity	954,812			920,964			978,373			956,816
Total liabilities and shareholders’ equity	$	10,617,104		$	9,839,555		$	10,143,894		$	9,833,425

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED

(amounts in thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019		2018
Interest income:
Loans	$	97,815		$	88,740		$	278,986		$	248,708
Loans and leases													$	93,116	$	85,931
Investment securities	8,495			7,307			26,932			21,017			6,241		8,672
Other	3,735			2,238			8,731			5,507			1,718		2,361
Total interest income	110,045			98,285			314,649			275,232			101,075		96,964
Interest expense:
Deposits	32,804			18,381			76,779			48,934			31,225		19,793
Other borrowings	2,431			3,168			9,082			6,767
FHLB advances	9,125			7,032			27,381			15,433			5,293		7,080
Subordinated debt	1,684			1,685			5,053			5,055			1,684		1,684
Other borrowings													3,569		3,376
Total interest expense	46,044			30,266			118,295			76,189			41,771		31,933
Net interest income	64,001			68,019			196,354			199,043			59,304		65,031
Provision for loan losses	2,924			2,352			4,257			5,937
Net interest income after provision for loan losses	61,077			65,667			192,097			193,106
Provision for loan and lease losses													4,767		2,117
Net interest income after provision for loan and lease losses													54,537		62,914
Non-interest income:
Interchange and card revenue	7,084			9,570			23,127			31,729			8,806		9,661
Deposit fees	2,002			2,659			5,726			7,918			2,209		2,092
Commercial lease income													2,401		862
Bank-owned life insurance	1,869			1,672			5,769			5,297			1,816		2,031
Mortgage warehouse transactional fees	1,809			2,396			5,663			7,139			1,314		1,887
Gain on sale of SBA and other loans	1,096			1,144			3,404			3,045
Gain (loss) on sale of SBA and other loans													—		1,361
Mortgage banking income	207			257			532			703			167		121
Impairment loss on investment securities	—			(8,349		)	—			(12,934		)
(Loss) gain on sale of investment securities	(18,659		)	5,349			(18,659		)	8,532
Other	6,676			3,328			13,558			7,741			3,005		2,895
Total non-interest income	2,084			18,026			39,120			59,170			19,718		20,910
Non-interest expense:
Salaries and employee benefits	25,462			24,807			78,135			69,569			25,823		24,925
Technology, communication, and bank operations	11,657			14,401			32,923			33,227			11,953		9,943
Professional services	4,743			7,403			14,563			21,142			4,573		6,008
Merger and acquisition related expenses	2,945			—			3,920			—
Occupancy	2,901			2,857			8,876			8,228			2,903		2,834
Commercial lease depreciation													1,923		815
FDIC assessments, non-income taxes, and regulatory fees	2,415			2,475			6,750			6,615			1,988		2,200
Provision for operating losses	1,171			1,509			3,930			4,901			1,779		1,526
Advertising and promotion	820			404			1,529			1,108			809		390
Merger and acquisition related expenses													—		106
Loan workout	516			915			1,823			1,844			320		659
Other real estate owned expenses	66			445			164			550			57		40
Other	4,408			5,824			10,521			13,634			1,856		2,834
Total non-interest expense	57,104			61,040			163,134			160,818			53,984		52,280
Income before income tax expense	6,057			22,653			68,083			91,458			20,271		31,544
Income tax expense	28			14,899			14,250			34,236			4,831		7,402
Net income	6,029			7,754			53,833			57,222			15,440		24,142
Preferred stock dividends	3,615			3,615			10,844			10,844			3,615		3,615
Net income available to common shareholders	$	2,414		$	4,139		$	42,989		$	46,378		$	11,825	$	20,527
Basic earnings per common share	$	0.08		$	0.13		$	1.36		$	1.52		$	0.38	$	0.65
Diluted earnings per common share	$	0.07		$	0.13		$	1.33		$	1.42		$	0.38	$	0.64

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED

(amounts in thousands)



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

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Net income $ 6,029
$ 7,754
$ 53,833
$ 57,222
Unrealized (losses) gains on available-for-sale debt securities:
Unrealized (losses) gains arising during the period (1,629 ) (3,570 ) (47,917 ) 15,192
Income tax effect 423
1,393
12,458
(5,924 )
Reclassification adjustments for losses (gains) on securities included in net income 18,659
(5,349 ) 18,659
(8,532 )
Income tax effect (4,851 ) 2,086
(4,851 ) 3,327
Net unrealized gains (losses) on available-for-sale debt securities 12,602
(5,440 ) �� (21,651 ) 4,063
Unrealized gains on cash flow hedges:
Unrealized gains (losses) arising during the period 4,062
171
6,830
(189 )
Income tax effect (1,056 ) (67 ) (1,775 ) 74
Reclassification adjustment for (gains) losses included in net income (2,519 ) 572
(2,647 ) 2,166
Income tax effect 655
(223 ) 688
(845 )
Net unrealized gains on cash flow hedges 1,142
453
3,096
1,206
Other comprehensive income (loss), net of income tax effect 13,744
(4,987 ) (18,555 ) 5,269
Comprehensive income $ 19,773
$ 2,767
$ 35,278
$ 62,491

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(amounts in thousands, except shares outstanding data)

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

Three Months Ended September 30, 2017
Preferred Stock Common Stock

Shares of
Preferred
Stock
Outstanding
Preferred Stock
Shares of
Common
Stock
Outstanding

Common
Stock

Additional
Paid in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Treasury
Stock
Total
Balance, June 30, 2017 9,000,000
$ 217,471
30,730,784
$ 31,261
$ 428,488
$ 235,938
$ 5,364
$ (8,233 ) $ 910,289
Net income —
—
—
—
—
7,754
—
—
7,754
Other comprehensive loss —
—
—
—
—
—
(4,987 ) —
(4,987 )
Preferred stock dividends —
—
—
—
—
(3,615 ) —
—
(3,615 )
Share-based compensation expense —
—
—
—
1,602
—
—
—
1,602
Exercise of warrants —
—
6,413
6
131
—
—
—
137
Issuance of common stock under share-based compensation arrangements —
—
50,435
51
(588 ) (1 ) —
—
(538 )
Balance, September 30, 2017 9,000,000
$ 217,471
30,787,632
$ 31,318
$ 429,633
$ 240,076
$ 377
$ (8,233 ) $ 910,642

~~See accompanying notes to the unaudited consolidated financial statements.~~

~~CUSTOMERS BANCORP, INC. AND SUBSIDIARIES~~

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

~~(amounts in thousands, except shares outstanding data)~~


																						Three Months Ended March 31, 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 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																						—	—		—		—		—		15,440			—			—			15,440
Other comprehensive income (loss)																						—	—		—		—		—		—			7,744			—			7,744
Preferred stock dividends																						—	—		—		—		—		(3,615		)	—			—			(3,615		)
Share-based compensation expense																						—	—		—		—		2,109		—			—			—			2,109
Issuance of common stock under share-based compensation arrangements																						—	—		159,378		160		290		—			—			—			450
Repurchase of common shares																						—	—		(31,159	)	—		—		—			—			(571		)	(571		)
Balance, March 31, 2019																						9,000,000	$	217,471	31,131,247		$	32,412	$	436,713	$	328,476		$	(14,919	)	$	(21,780	)	$	978,373

	Nine Months Ended September 30, 2018																					Three Months Ended March 31, 2018
	Preferred Stock			Common Stock																		Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total			Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding		Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance, December 31, 2017	9,000,000	$	217,471	31,382,503	$	31,913	$	422,096		$	258,076		$	(359	)	$	(8,233	)	$	920,964		9,000,000	$	217,471	31,382,503		$	31,913	$	422,096	$	258,076		$	(359	)	$	(8,233	)	$	920,964
Reclassification of the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive loss	—	—		—	—		—			298			(298		)	—			—			—	—		—		—		—		298			(298		)	—			—
Reclassification of net unrealized gains on equity securities from accumulated other comprehensive loss	—	—		—	—		—			1,041			(1,041		)	—			—			—	—		—		—		—		1,041			(1,041		)	—			—
Net income	—	—		—	—		—			53,833			—			—			53,833			—	—		—		—		—		24,142			—			—			24,142
Other comprehensive loss	—	—		—	—		—			—			(18,555		)	—			(18,555		)
Other comprehensive income (loss)																						—	—		—		—		—		—			(24,490		)	—			(24,490		)
Preferred stock dividends	—	—		—	—		—			(10,844		)	—			—			(10,844		)	—	—		—		—		—		(3,615		)	—						(3,615		)
Share-based compensation expense	—	—		—	—		5,641			—			—			—			5,641			—	—		—		—		1,786		—			—			—			1,786
Exercise of warrants	—	—		5,242	5		107			—			—			—			112			—	—		5,242		5		107		—			—			—			112
Issuance of common stock under share-based compensation arrangements	—	—		299,595	300		3,361			—			—			—			3,661			—	—		78,526		79		110		—			—			—			189
Balance, September 30, 2018	9,000,000	$	217,471	31,687,340	$	32,218	$	431,205		$	302,404		$	(20,253	)	$	(8,233	)	$	954,812

	Nine Months Ended September 30, 2017
	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance, December 31, 2016	9,000,000	$	217,471	30,289,917	$	30,820	$	427,008		$	193,698		$	(4,892	)	$	(8,233	)	$	855,872
Net income	—	—		—	—		—			57,222			—			—			57,222
Other comprehensive income	—	—		—	—		—			—			5,269			—			5,269
Preferred stock dividends	—	—		—	—		—			(10,844		)	—						(10,844		)
Share-based compensation expense	—	—		—	—		4,536			—			—			—			4,536
Exercise of warrants	—	—		50,387	50		507			—			—			—			557
Issuance of common stock under share-based compensation arrangements	—	—		447,328	448		(2,418		)	—			—			—			(1,970		)
Balance, September 30, 2017	9,000,000	$	217,471	30,787,632	$	31,318	$	429,633		$	240,076		$	377		$	(8,233	)	$	910,642
Balance, March 31, 2018																						9,000,000	$	217,471	31,466,271		$	31,997	$	424,099	$	279,942		$	(26,188	)	$	(8,233	)	$	919,088

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash Flows from Operating Activities				(As Restated)
Net income	$	53,833		$	57,222		$	15,440		$	24,142
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	4,257			5,937
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan and lease losses							4,767			2,117
Depreciation and amortization	10,235			7,476			4,287			3,344
Share-based compensation expense	6,595			5,377			2,381			2,218
Deferred taxes	6,238			286			1,878			2,684
Net amortization of investment securities premiums and discounts	1,204			520			191			375
Unrealized loss recognized on equity securities	1,533			—
Loss (gain) on sale of investment securities	18,659			(8,532		)
Impairment loss on investment securities	—			12,934
Gain on sale of SBA and other loans	(3,880		)	(3,553		)
Unrealized (gain) loss on equity securities							(2		)	(10		)
(Gain) loss on sale of SBA and other loans							(138		)	(1,477		)
Origination of loans held for sale	(22,978		)	(32,343		)	(8,182		)	(4,280		)
Proceeds from the sale of loans held for sale	23,936			31,718			8,225			5,599
Amortization of fair value discounts and premiums	164			93			162			76
Net (gain) loss on sales of other real estate owned	(35		)	154
Valuation and other adjustments to other real estate owned	124			298			—			41
Earnings on investment in bank-owned life insurance	(5,769		)	(5,297		)	(1,816		)	(2,031		)
Increase in accrued interest receivable and other assets	(21,525		)	(27,862		)
(Increase) decrease in accrued interest receivable and other assets							(28,109		)	(6,806		)
Increase (decrease) in accrued interest payable and other liabilities	25,774			(14,106		)	(5,096		)	7,347
Net Cash Provided By Operating Activities	98,365			30,322
Net Cash Provided By (Used In) Operating Activities							(6,012		)	33,339
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of securities available for sale	38,926			36,461			4,498			11,489
Proceeds from sales of investment securities available for sale	476,182			670,522
Purchases of investment securities available for sale	(763,242		)	(796,594		)	—			(756,242		)
Origination of mortgage warehouse loans	(21,739,744		)	(22,738,383		)	(5,039,797		)	(6,804,177		)
Proceeds from repayments of mortgage warehouse loans	22,016,825			22,893,950			4,965,022			6,722,732
Net increase in loans, excluding mortgage warehouse loans	(20,476		)	(921,049		)
Net increase (decrease) in loans and leases, excluding mortgage warehouse loans							1,932			(46,969		)
Proceeds from sales of loans	42,211			124,703			—			16,468
Purchase of loans	(347,740		)	(262,641		)	(129,289		)	—
Purchases of bank-owned life insurance	—			(90,000		)
Proceeds from bank-owned life insurance	529			1,418			—			529
Net proceeds from (purchases of) FHLB, Federal Reserve Bank, and other restricted stock	31,712			(30,203		)	9,269			(24,384		)
Purchases of bank premises and equipment	(1,344		)	(1,725		)	(141		)	(268		)
Proceeds from sales of other real estate owned	421			1,680
Purchase of university relationship intangible asset	(1,502		)	—
Purchase of leased assets under operating leases	(21,849		)	—
Net Cash Used In Investing Activities	(289,091		)	(1,111,861		)
Purchases of leased assets under lessor operating leases							(7,791		)	(2,755		)
Net Cash Provided By (Used In) Investing Activities							(196,297		)	(883,577		)
Cash Flows from Financing Activities
Net increase in deposits	1,713,572			293,301			283,082			242,317
Net (decrease) increase in short-term borrowed funds from the FHLB	(776,860		)	593,543
Net (decrease) increase in federal funds purchased	(155,000		)	64,000
(Repayments of) proceeds from issuance of long-term debt	(63,250		)	98,564
Net increase (decrease) in short-term borrowed funds from the FHLB							(222,238		)	640,755
Net increase (decrease) in federal funds purchased							201,000			40,000
Preferred stock dividends paid	(10,844		)	(10,844		)	(3,615		)	(3,615		)
Exercise of warrants	112			557			—			112
Purchase of treasury stock							(571		)	—
Payments of employee taxes withheld from share-based awards	(711		)	(4,923		)	(894		)	(587		)
Proceeds from issuance of common stock	3,418			2,112			1,072			344
Net Cash Provided By Financing Activities	710,437			1,036,310
Net Cash Provided By (Used In) Financing Activities							257,836			919,326
Net Increase (Decrease) in Cash and Cash Equivalents	519,711			(45,229		)	55,527			69,088
Cash and Cash Equivalents – Beginning	146,323			264,709			62,135			146,323
Cash and Cash Equivalents – Ending	$	666,034		$	219,480		$	117,662		$	215,411








	(continued)						(continued)

Supplementary Cash Flows Information:
Interest paid	$	114,973		$	70,706		$	38,916		$	29,746
Income taxes paid	4,156			31,545			1,204			4,174
Non-cash items:
Transfer of loans to other real estate owned	$	234		$	83		$	160		$	57
Transfer of loans held for investment to held for sale	—			150,638
Transfer of loans held for sale to held for investment	129,691			—			—			129,691
University relationship intangible purchased not settled							—			1,502

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF THE BUSINESS

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

Customers Bancorp, Inc. and its wholly owned subsidiaries, Customers Bank, and non-bank subsidiaries, serve residents and businesses in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Rye Brook, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan and Melville, New York; Washington, D.C.; Chicago, Illinois; and nationally for certain loan and deposit products. The Bank has 13 full-service branches and provides commercial banking products, primarily loans and deposits. In addition, Customers Bank also administratively supports loan, equipment leases and other financial products to customers through its limited-purpose offices in Boston, Massachusetts, Providence, Rhode Island, Portsmouth, New Hampshire, Manhattan and Melville, New York, Philadelphia, Pennsylvania, Washington, D.C., and Chicago, Illinois. The Bank also provides liquidity to residential mortgage originators nationwide through commercial loans to mortgage companies. Through BankMobile, a division of Customers Bank, Customers offers state of the art high tech digital banking services to consumers, students, and the "under banked" ~~nationwide.~~nationwide, along with "Banking as a Service" offerings with white label partners.

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

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Presentation

The interim unaudited consolidated financial statements of Customers Bancorp and subsidiaries have been prepared in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC. These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Customers Bancorp and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted from these interim unaudited consolidated financial statements as permitted by SEC rules and regulations. On November 13, 2018, Customers Bancorp filed with the SEC a report on Form 8-K advising that its 2017, 2016, and 2015 audited consolidated financial statements and its interim unaudited consolidated financial statements as of and for the three and six month periods ended March 31, 2018 and 2017 and June 30, 2018 and 2017, respectively, should no longer be relied upon because of incorrect classifications of the cash flows used in and provided by its commercial mortgage warehouse lending activities between operating and investing activities on the consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale instead of held for investment (i.e., loans receivable) on its consolidated balance sheets. These misclassifications have no impact on total cash balances, total loans, total assets, the allowance for loan losses, total capital, regulatory capital ratios, net interest income, net interest margin, net income to shareholders, basic or diluted earnings per share, return on average assets, return on average equity, the efficiency ratio, asset quality ratios or other key performance metrics, including non-GAAP performance metrics, that Customers routinely discusses with analysts and investors. The December 31, ~~2017~~2018 consolidated balance sheet presented in this report has been derived from ~~Customers'~~Customers Bancorp’s audited ~~2017~~2018 consolidated financial statements, restated to correct the classification of the mortgage warehouse loans as held for investment instead of held for sale. Because of a fair value option election that Customers made on July 1, 2012 that continues today, these loans are, and will continue to be, reported at their fair value and accordingly do not have an allowance for loan losses.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 ~~2017~~2018 consolidated financial statements of Customers Bancorp and subsidiaries included in ~~its~~Customers' Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the SEC on ~~February 23, 2018~~March 1, 2019 (the ~~"2017~~"2018 Form 10-K") ~~except to the extent they are affected by the restatement. That~~. The 2018 Form 10-K describes Customers Bancorp’s significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Restrictions on Cash and Amounts due from Banks; Business Combinations; Investment Securities; Loan Accounting Framework; Loans Held for Sale and Loans at Fair Value; Loans Receivable - Mortgage Warehouse, at Fair Value; Loans Receivable; Purchased Loans; ~~Allowance for Loan Losses;~~ALLL; Goodwill and Other Intangible Assets; ~~Investments in~~ FHLB, Federal Reserve Bank, and Other Restricted Stock; ~~Other Real Estate Owned; Bank-Owned Life Insurance;~~OREO; BOLI; Bank Premises and Equipment; Lessor Operating Leases; Treasury Stock; Income Taxes; Share-Based Compensation; Transfer of Financial Assets; ~~Business Segments;~~Segment Information; Derivative Instruments and Hedging; Comprehensive Income (Loss); ~~Earnings per Share;~~EPS; Loss Contingencies; and ~~Loss Contingencies.~~Collaborative Arrangements. There have been no material changes to Customers Bancorp's significant accounting policies noted above for the three months ended March 31, 2019, with the exception of the adoption of ASU 2016-02, Leases as described below in accounting standards adopted in 2019. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year or any other period. There have been no material changes to Customers' significant accounting policies as disclosed in Customers' 2017 Form 10-K, except for the accounting policies related to Cash and Cash Equivalents and Statements of Cash Flows and Loans Held for Sale and Loans at Fair Value as described below.

~~Restatement of Previously Issued Financial Statements~~

In November 2018, Customers determined that the cash flow activities associated with its commercial mortgage warehouse lending activities should have been reported as investing activities in its consolidated statements of cash flows because the related loan balances should have been classified as held for investment (i.e., loans receivable). Effective with the filing of this quarterly report on Form 10-Q, Customers changed its accounting policies such that commercial mortgage warehouse loans will be classified as held for investment and presented as "Loans receivable, mortgage warehouse, at fair value" on its consolidated balance sheets. The cash flow activities associated with these commercial mortgage warehouse lending activities will be reported as investing activities in the consolidated statements of cash flows.

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

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

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

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

year.

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.

Recently Issued Accounting Standards

Accounting Standards Adopted in ~~2018~~



~~Standard~~	~~Summary of guidance~~	~~Effects on Financial Statements~~
~~ASU 2018-13,~~ ~~Fair Value (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement~~ ~~Issued August 2018~~	Ÿ Eliminates disclosure requirements for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. Ÿ ~~Clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.~~ Ÿ Expands disclosures to include unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Ÿ ~~Certain amendments are applied prospectively and retrospectively.~~ Ÿ ~~Effective for fiscal year beginning after December 15,~~ 2019 ~~and interim periods within those fiscal years. Early adoption permitted.~~	Ÿ ~~Customers early adopted on September 30, 2018.~~ Ÿ ~~The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.~~

~~ASU 2018-03,~~ ~~Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10)~~ ~~Issued February 2018~~	Ÿ Clarifies certain aspects of the guidance issued in ASU 2016-01 including: the ability to irrevocably elect to change the measurement approach for equity securities measured using the practical expedient (at cost plus or minus observable transactions less impairment) to a fair value method in accordance with ASC 820, Fair Value Measurement. Ÿ ~~Provides clarification that if an observable transaction occurs for such securities, the adjustment is as of the observable transaction date.~~ Ÿ ~~Effective July 1, 2018 on a prospective basis with early adoption permitted.~~	Ÿ ~~Customers adopted on July 1, 2018 on a prospective basis.~~ Ÿ The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements as Customers currently does not have any significant equity securities without readily determinable fair values.

~~ASU 2018-02,~~ ~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income/(Loss) ("AOCI")~~ ~~Issued February 2018~~	Ÿ ~~Allows for reclassification from AOCI to retained earnings for stranded tax effects resulting from the 2017 Tax Cut and Jobs Act.~~ Ÿ ~~Requires an entity to disclose whether it has elected to reclassify stranded tax effects from AOCI to retained earnings and its policy for releasing income tax effects from AOCI.~~ Ÿ ~~Effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted.~~	Ÿ ~~Customers early adopted on January 1, 2018.~~ Ÿ The adoption resulted in the reclassification of $0.3 million in stranded tax effects in Customers' AOCI related to net unrealized losses on its available-for-sale debt securities and cash flow hedges. Ÿ ~~The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.~~

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



Standard	Summary of guidance	Effects on Financial Statements

ASU ~~2017-12,~~2016-02, ~~Targeted Improvements to Accounting for Hedging Activities~~Leases Issued ~~August 2017~~February 2016	Ÿ ~~Aligns~~ Supersedes the ~~entity's risk management activities~~lease accounting guidance for both lessees and ~~financial reporting~~lessors under ASC 840, Leases. Ÿ From the lessee's perspective, the new standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for ~~hedging relationships.~~ all leases with terms longer than 12 months. Ÿ ~~Amends~~ Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. Ÿ This ASU requires lessors to account for leases using an approach that is substantially similar to the existing ~~hedge accounting model~~guidance for sales-type, direct financing leases and ~~expands an entity's ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest-rate risk.~~ operating leases. Ÿ Eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line item as the hedge item. Ÿ ~~Changes certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness.~~ Ÿ Effective ~~for fiscal years beginning after December 15, 2018. Early adoption is permitted.~~January 1, 2019. Ÿ In ~~October~~July 2018, the FASB issued ASU ~~2018-16 “Derivatives and Hedging~~2018-11 “Leases (Topic ~~815)~~842): ~~Inclusion~~Targeted Improvements,” which provides lessees the option to apply the new leasing standard to all open leases as of the ~~Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as~~adoption date. Prior to this ASU issuance, a ~~Benchmark Interest Rate~~modified retrospective transition approach was required. Ÿ In December 2018, the FASB issued ASU 2018-20 "Leases (Topic 842): Narrow-Scope Improvements for ~~Hedge Accounting Purposes,~~Lessors," which ~~permits~~provides lessors a policy election to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Additionally, the ~~OIS rate based on SOFR~~update requires certain lessors to exclude from variable payments lessor costs paid by lessees directly to third parties. Ÿ In March 2019, the FASB issued ASU 2019-01 "Codification Improvements," which clarifies that lessors who are not manufacturers or dealers should use the original cost of the underlying asset in a lease as ~~a U.S. benchmark interest rate for hedge accounting purposes.~~its fair value. Additionally, the update states that lessors who are depository or lending institutions within the scope of ASC 942 should present all principal payments received under leases under investing activities in their Statement of Cash Flows and that interim disclosures under ASC 250-10-50-3 are not required in the interim reports of issuers adopting ASC 842.	Ÿ Customers ~~early~~ adopted on January 1, ~~2018.~~2019. Ÿ ~~With~~ The adoption did not materially change Customers' recognition of operating lease expense in its consolidated statements of income. Ÿ Customers adopted certain practical expedients available under the ~~early adoption,~~new guidance, which did not require it to (1) reassess whether any expired or existing contracts contain leases, (2) reassess the lease classification for any expired or existing leases, (3) reassess initial direct costs for any existing leases, (4) separate non-lease components from the associated lease components, (5) evaluate whether certain sales taxes and other similar taxes are lessor costs, and (6) capitalize short-term leases. Additionally, Customers ~~is able to pursue additional hedging strategies including the ability~~elected to apply ~~fair value hedge accounting to a specified pool of assets by excluding~~ the ~~portion~~new lease guidance at the adoption date, rather than at the beginning of the ~~hedged items related~~earliest period presented and will continue to ~~prepayments, defaults~~present comparative periods prior to January 1, 2019 under Topic 840. Customers did not adopt the hindsight practical expedient. Ÿ The adoption of the ASU for Customers' lessor equipment finance business did not have a significant impact on Customers' financial condition, results of operations, and ~~other events.~~consolidated financial statements. Ÿ ~~These additional hedging strategies will allow~~ See NOTE 7 - LEASES.

ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities Issued March 2017	Ÿ Requires that premiums for certain callable debt securities held be amortized to their earliest call date. Ÿ Effective on January 1, 2019. Ÿ Adoption of this new guidance must be applied on a modified retrospective approach.	Ÿ Customers ~~to better align the accounting and financial reporting of its hedging activities with the economic objectives thereby reducing the earnings volatility resulting from these hedging activities.~~adopted on January 1, 2019. Ÿ The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements. ~~Customers has updated its disclosures in NOTE 10 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES as a result of early adopting this ASU.~~

~~ASU 2017-09,~~ ~~Compensation - Stock Compensation: Scope of Modification Accounting~~ ~~Issued May 2017~~	Ÿ ~~Clarifies when to account for a change to the terms or conditions of a share-based-payment award as a modification in ASC 718.~~ Ÿ Provides that modification accounting is only required if the fair value, vesting conditions, or the classification of the award as equity or a liability changes as a result of the change in terms or conditions. Ÿ ~~Effective January 1, 2018 on a prospective basis for awards modified on or after the adoption date.~~	Ÿ ~~Customers adopted on January 1, 2018.~~ Ÿ ~~The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.~~

~~ASU 2017-05,~~ ~~Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~ ~~Issued February 2017~~	Ÿ ~~Clarifies the scope and application of the accounting guidance on the sale of nonfinancial assets to non-customers, including partial sales.~~ Ÿ Clarifies that if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the scope of Subtopic 610-20. Ÿ ~~Effective January 1, 2018 on a prospective basis.~~	Ÿ ~~Customers adopted on January 1, 2018.~~ Ÿ ~~The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.~~

~~ASU 2017-01,~~ ~~Clarifying the Definition of a Business~~ ~~Issued January 2017~~	Ÿ Narrows the definition of a business and clarifies that to be considered a business, the fair value of gross assets acquired (or disposed of) should not be concentrated in a single identifiable asset or a group of similar identifiable assets. Ÿ Also clarifies that in order to be considered a business, an acquisition would have to include an input and a substantive process that together will significantly contribute to the ability to create an output. Ÿ ~~Effective January 1, 2018 on a prospective basis.~~	Ÿ ~~Customers adopted on January 1, 2018.~~ Ÿ ~~The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.~~

~~ASU 2016-18,~~ ~~Statement of Cash Flows: Restricted Cash~~ ~~Issued November 2016~~	Ÿ ~~Requires inclusion of restricted cash in cash and cash equivalents when reconciling the beginning-of-period total amounts shown on the statement of cash flows.~~ Ÿ ~~Effective January 1, 2018 and requires retrospective application to all periods presented.~~	Ÿ ~~Customers adopted on January 1, 2018.~~ Ÿ The adoption did not result in any significant impact on Customers' financial condition, results of operations and consolidated financial statements, including its consolidated statement of cash flows, and therefore did not result in a retrospective application.

Accounting Standards Adopted in ~~2018~~2019 (continued)



Standard	Summary of guidance	Effects on Financial Statements
~~ASU 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~ ~~Issued October 2016~~	Ÿ ~~Requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.~~ Ÿ Eliminates the current exception for all intra-entity transfers of an asset other than inventory that requires deferral of the tax effects until the asset is sold to a third party or otherwise recovered through use. Ÿ ~~Effective January 1, 2018 on a modified retrospective basis.~~	Ÿ ~~Customers adopted on January 1, 2018.~~ Ÿ ~~The adoption of the ASU did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.~~

~~ASU 2016-15,~~ ~~Statement of Cash Flow: Classification of Certain Cash Receipts and Cash Payments~~ ~~Issued August 2016~~	Ÿ ~~Aims to reduce the existing diversity in practice with regards to the classification of the following specific items in the statement of cash flows:~~ 1. ~~Cash payments for debt prepayment or debt extinguishment costs should be classified as a financing activity.~~ 2. ~~Cash paid by an acquirer soon after a business combination for the settlement of a contingent consideration liability recognized at the acquisition date will be classified in investing activities.~~ 3. ~~Cash proceeds received from the settlement of insurance claims will be classified on the basis of the related insurance coverage (i.e., the nature of the loss).~~ 4. ~~Cash proceeds received from the settlement of bank-owned life insurance policies will be classified as cash inflows from investing activities.~~ 5. A transferor's beneficial interest obtained in a securitization of financial assets will be disclosed as a non-cash activity, and cash received from beneficial interests will be classified in investing activities. Ÿ ~~Effective January 1, 2018 and requires retrospective application to all periods presented.~~	Ÿ ~~Customers adopted on January 1, 2018.~~ Ÿ The adoption did not result in any significant impact on Customers' financial condition, results of operations and consolidated financial statements, including its consolidated statement of cash flows, and therefore it did not result in a retrospective application.

~~ASU 2016-04,~~ ~~Liabilities - Extinguishment of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products~~ ~~Issued March 2016~~	Ÿ Requires issuers of prepaid stored-value products (such as gift cards, telecommunication cards, and traveler's checks), to derecognize the financial liability related to those products for breakage. Breakage is the value of prepaid stored-value products that is not redeemed by consumers for goods, services or cash. Ÿ ~~The amendments in this ASU provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage be accounted for consistent with the breakage guidance in Topic 606.~~ Ÿ ~~Effective January 1, 2018 on a modified retrospective basis.~~	Ÿ ~~Customers adopted on January 1, 2018.~~ Ÿ ~~The adoption of this ASU did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.~~

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



~~Standard~~	~~Summary of guidance~~	~~Effects on Financial Statements~~
~~ASU 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~ ~~Issued January 2016~~	Ÿ ~~Requires equity investments with certain exceptions to be measured at fair value with changes in fair value recognized in net income.~~ Ÿ ~~Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.~~ Ÿ Eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. Ÿ ~~Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.~~ Ÿ Requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Ÿ Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. Ÿ ~~Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities.~~ Ÿ ~~Effective January 1, 2018 on a modified retrospective basis.~~	Ÿ ~~Customers adopted on January 1, 2018 using a modified retrospective approach.~~ Ÿ ~~The adoption of this ASU resulted in a cumulative-effect adjustment that resulted in a $1.0 million reduction in AOCI and a corresponding increase in retained earnings for the same amount.~~ Ÿ ~~The $1.0 million represented the net unrealized gain on Customers' investment in Religare equity securities at December 31, 2017, as disclosed in NOTE 5 - INVESTMENT SECURITIES.~~ Ÿ Customers also refined its calculation to determine the fair value of its held-for- investment loan portfolio for disclosure purposes using an exit price notion as part of adopting this ASU. The refined calculation did not have a significant impact on Customers' fair value disclosures.

~~ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~Issued May 2014~~	Ÿ ~~Supersedes the revenue recognition requirements in ASC 605.~~ Ÿ Requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Ÿ ~~The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 605.~~ Ÿ ~~Reframed the structure of the indicators of when an entity is acting as an agent and focused on evidence that an entity is acting as the principal or agent in a revenue transaction.~~ Ÿ ~~Requires additional qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.~~ Ÿ Effective January 1 , 2018 and can either be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption (modified retrospective approach).	Ÿ ~~Customers adopted on January 1, 2018 on a modified retrospective basis.~~ Ÿ Because the ASU does not apply to revenue associated with leases and financial instruments (including loans and securities), Customers concluded that the new guidance did not have a material impact on the elements of its consolidated statements of operations most closely associated with leases and financial instruments (such as interest income, interest expense and securities gains or losses). Ÿ ~~Customers has identified its deposit-related fees, service charges, debit and prepaid card interchange income and university fees to be within the scope of the standard.~~ Ÿ Customers has also completed its review of the related contracts and its evaluation of certain costs related to these revenue streams and determined that its debit and prepaid card interchange income, previously reported on a gross basis for periods prior to adoption, will need to be presented on a net basis under this ASU, as Customers is the agent. Ÿ The adoption of this ASU, did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements. Additional discussion related to the adoption and the required quantitative and qualitative disclosures are included in NOTE 12 - NON-INTEREST REVENUES.

~~Accounting Standards Issued But Not Yet Adopted~~



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

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

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



~~Standard~~	~~Summary of guidance~~	~~Effects on Financial Statements~~
ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features Issued July 2017	Ÿ Changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Ÿ When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) would no longer be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. Ÿ For freestanding equity-classified financial instruments, the amendments require entities to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of net income available to common shareholders in basic ~~earnings per share ("EPS").~~ EPS. Ÿ Effective ~~for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.~~January 1, 2019.	Ÿ Customers ~~currently does~~adopted on January 1, 2019. Ÿ The adoption did not ~~have any equity-linked financial instruments (or embedded features) with down round features and, accordingly, does not expect the adoption of this ASU to~~ have a significant impact on ~~its~~Customers' financial condition, results of operations and consolidated financial ~~statements; however, Customers will continue to evaluate the potential impact of this ASU through the adoption date.~~statements.

ASU ~~2017-08,~~ ~~Receivables-Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities~~ 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting Issued ~~March 2017~~ June 2018	Ÿ ~~Requires~~ Expands the scope of Topic 718, Compensation - Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Ÿ Applies to all share-based payment transactions in which a grantor acquires goods or services from non-employees to be used or consumed in a grantor's own operations by issuing share-based payment awards. Ÿ With the amended guidance from ASU 2018-07, non-employees share-based payments are measured with an estimate of the fair value of the equity the business is obligated to issue at the grant date (the date that ~~premiums~~the business and the stock award recipient agree to the terms of the award). Ÿ Compensation would be recognized in the same period and in the same manner as if the entity had paid cash for goods or services instead of stock. Ÿ Effective January 1, 2019.	Ÿ Customers adopted on January 1, 2019. Ÿ The adoption did not have a significant impact on Customers' financial condition, results of operations and consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted



Standard	Summary of guidance	Effects on Financial Statements

ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments Issued April 2019	Ÿ Clarifies the scope of the credit losses standard and addresses issues related to accrued interest receivable balances, recoveries, variable interest rates, and prepayments. Ÿ Addresses partial-term fair value hedges, fair value hedge basis adjustments and certain ~~callable debt~~transition requirements. Ÿ Addresses recognizing and measuring financial instruments, specifically the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities ~~held~~have to be ~~amortized to their earliest call date.~~ remeasured at historical exchange rates. Ÿ Topic 326 Amendments - Effective for ~~Customers~~fiscal years beginning after December 15, ~~2018, with early~~2019 and interim periods within those fiscal years. Early adoption permitted. Ÿ ~~Adoption~~ Topic 815 Amendments - Effective for first annual period beginning after the issuance date of this ~~new guidance must be applied on a modified retrospective approach.~~ASU (i.e., fiscal year 2020). Entities that have already adopted the amendments in ASU 2017-12 may elect either to retrospectively apply all the amendments or to prospectively apply all amendments as of the date of adoption. Topic 825 Amendments - Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.	Ÿ Customers is currently ~~has an immaterial amount of callable debt securities purchased at a premium and, accordingly, does not expect~~evaluating the ~~adoption~~expected impact of this ASU ~~to have a significant impact~~ on its financial condition, results of operations and consolidated financial ~~statements; however,~~statements.

ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606 Issued November 2018	Ÿ Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. Ÿ Adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within scope of Topic 606. Ÿ Requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. Ÿ Effective for fiscal year beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption permitted.	Ÿ Customers ~~will continue~~is currently evaluating the expected impact of this ASU on its financial condition, results of operations and consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted (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	Ÿ Clarifies that service contracts with hosting arrangements must follow internal-use software guidance Subtopic 350-40 when determining which implementation costs to ~~evaluate~~capitalize as an asset related to the ~~potential~~service contract and which costs to expense. Ÿ Also clarifies that capitalized implementation costs of a hosting arrangement that is a service contract are to be amortized over the term of the hosting arrangement, which includes the noncancelable period of the arrangement plus options to extend the arrangement if reasonably certain to exercise. Ÿ Clarifies that existing impairment guidance in Subtopic 350-40 must be applied to the capitalized implementation costs as if they were long-lived assets. Ÿ Applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Ÿ Effective for fiscal year beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption permitted.	Ÿ Customers is currently evaluating the expected impact ~~through the adoption date.~~of this ASU on its financial condition, results of operations and consolidated financial statements.

ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments Issued June 2016	Ÿ Requires an entity to utilize a new impairment model known as the ~~current expected credit loss ("CECL")~~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~~held to maturity securities), presents the net amount expected to be collected on the financial asset. Ÿ Replaces today's "incurred loss" approach and is expected to result in earlier recognition of credit losses. Ÿ For available-for-sale debt securities, entities will be required to record allowances for credit losses rather than reduce the carrying amount, as they do today under the OTTI model, and will be allowed to reverse previously established allowances in the event the credit of the issuer improves. Ÿ Simplifies the accounting model for ~~purchased credit-impaired~~PCI debt securities and loans. Ÿ Effective beginning after December 15, 2019 with early adoption permitted. Ÿ Adoption can be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ASC 842.	Ÿ Customers has established a company-wide, cross-discipline governance structure, which provides implementation oversight and continues evaluating the impact of this ASU and reviewing the loss modeling requirements consistent with lifetime expected loss estimates. Ÿ Customers has selected a third-party vendor to assist in the implementation process of its new model, which will include different assumptions used in calculating credit losses, such as estimating losses over the ~~estimated life of a financial asset~~contractual term adjusted for prepayments and will consider expected future changes in macroeconomic conditions. Ÿ Customers continues to evaluate data requirements, methodologies, and forecasting options to utilize within the new model. Additionally, Customers is evaluating how to properly segment its loan and lease portfolio. Ÿ Customers has completed preliminary runs of the new model and continues to evaluate the results and assumptions as it prepares to run two methodologies parallel in the second half of 2019. Ÿ The adoption of this ASU may result in an increase to Customers' ~~allowance for loan losses~~ALLL which will depend upon the nature and characteristics of Customers' loan and lease portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at that date. Ÿ Customers ~~currently~~ does not intend to early adopt this new guidance.

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



~~Standard~~	~~Summary of guidance~~	~~Effects on Financial Statements~~
~~ASU 2016-02,~~ ~~Leases~~ ~~Issued February 2016~~	Ÿ ~~Supersedes the current lease accounting guidance for both lessees and lessors under ASC 840,~~ ~~Leases.~~ Ÿ From the lessee's perspective, the new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Ÿ ~~Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees.~~ Ÿ ~~This ASU will require lessors to account for leases using an approach that is substantially similar to the existing guidance for sales-type, direct financing leases and operating leases.~~ Ÿ ~~Effective beginning after December 15, 2018 with early adoption permitted.~~ Ÿ A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Ÿ In July 2018, the FASB issued ASU 2018-11 “Leases (Topic 842): Targeted Improvements,” which provides lessees the option to apply the new leasing standard to all open leases as of the adoption date.	Ÿ Customers is in the process of its implementation, which includes evaluating its leasing activities and certain contracts for embedded leases. Customers will be utilizing a lease accounting software solution for its real estate leases and updating processing and internal controls for its leasing activities. Ÿ Customers expects to recognize a lease liability and a corresponding right-of-use asset, at their present value, to predominately all of the $22 million of future minimum payments required under operating leases as disclosed in Note 10 of Customers’ 2017 Form 10-K, along with any leases entered into or extended during 2018. However, the population of contracts subject to balance sheet recognition and their initial measurement remains under evaluation. Customers does not expect material changes to the recognition of operating lease expense in its consolidated statements of income. Ÿ Customers expects to adopt certain practical expedients available under the new guidance, which will not require it to (1) reassess whether any expired or existing contracts contain leases, (2) reassess the lease classification for any expired or existing leases, or (3) reassess initial direct costs for any existing leases. Additionally, Customers will elect to apply the new lease guidance at the adoption date, rather than at the beginning of the earliest period presented and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, while continuing to present the comparative periods under Topic 840. Ÿ ~~Customers does not intend to early adopt this new guidance.~~

NOTE 3 — EARNINGS PER SHARE

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



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

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

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

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

Weighted-average number of common shares outstanding - basic 31,671,122
30,739,671
31,554,407
30,597,314
Share-based compensation plans 601,622
1,754,480
750,573
2,004,917
Warrants 4,846
18,541
7,475
24,392
Weighted-average number of common shares - diluted 32,277,590
32,512,692
32,312,455
32,626,623

Basic earnings per common share $ 0.08
$ 0.13
$ 1.36
$ 1.52
Diluted earnings per common share $ 0.07
$ 0.13
$ 1.33
$ 1.42

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



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

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Anti-dilutive securities:
Share-based compensation awards 1,787,670
409,225
1,105,287
409,225
Warrants —
52,242
—
52,242
Total anti-dilutive securities 1,787,670
461,467
1,105,287
461,467

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

The following tables present the changes in accumulated other comprehensive income (loss) by component for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018. All amounts are presented net of tax. Amounts in parentheses indicate reductions to ~~accumulated other comprehensive income.~~AOCI.


	Three Months Ended September 30, 2018														Three Months Ended March 31, 2019
	Available-for-sale debt securities														Available-for-Sale Debt Securities
(amounts in thousands)	Unrealized Gains (Losses)			Foreign Currency Items		Total Unrealized Gains (Losses)			Unrealized Gains (Losses) on Cash Flow Hedges			Total			Unrealized Gains (Losses)			Foreign Currency Items		Total Unrealized Gains (Losses)			Unrealized Gains (Losses) on Cash Flow Hedges			Total
Balance - June 30, 2018	$	(35,711	)	$	—	$	(35,711	)	$	1,714		$	(33,997	)
Balance - December 31, 2018															$	(21,741	)	$	—	$	(21,741	)	$	(922	)	$	(22,663	)
Other comprehensive income (loss) before reclassifications	(1,206		)	—		(1,206		)	3,006			1,800			13,185			—		13,185			(5,135		)	8,050
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)	13,808			—		13,808			(1,864		)	11,944			—			—		—			(306		)	(306		)
Net current-period other comprehensive income	12,602			—		12,602			1,142			13,744			13,185			—		13,185			(5,441		)	7,744
Balance - September 30, 2018	$	(23,109	)	$	—	$	(23,109	)	$	2,856		$	(20,253	)
Balance - March 31, 2019															$	(8,556	)	$	—	$	(8,556	)	$	(6,363	)	$	(14,919	)

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

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

(2) Amounts reclassified from accumulated other comprehensive income (loss) on January 1, 2018 as a result of the adoption of ASU 2018-02 and ASU 2016-01 resulted in a decrease in accumulated other comprehensive income of $1.3 million and a corresponding increase in retained earnings for the same amount. See NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for more information.


	Three Months Ended September 30, 2017									Three Months Ended March 31, 2018
(amounts in thousands)	Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Gains (Losses) on Cash Flow Hedges			Total			Unrealized Gains (Losses)			Foreign Currency Items			Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Gains (Losses) on Cash Flow Hedges			Total
Balance - June 30, 2017	$	6,822		$	(1,458	)	$	5,364
Balance - December 31, 2017										$	(249	)	$	88		$	(161	)	$	(198	)	$	(359	)
Reclassification of the income tax effects of the Tax Cuts and Jobs Act ⁽²⁾										(256		)	—			(256		)	(42		)	(298		)
Reclassification of net unrealized gains on equity securities ⁽²⁾										(953		)	(88		)	(1,041		)	—			(1,041		)
Balance after reclassification adjustments on January 1, 2018										(1,458		)	—			(1,458		)	(240		)	(1,698		)
Other comprehensive income (loss) before reclassifications	(2,177		)	104			(2,073		)	(25,233		)	—			(25,233		)	646			(24,587		)
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)	(3,263		)	349			(2,914		)	—			—			—			97			97
Net current-period other comprehensive income (loss)	(5,440		)	453			(4,987		)	(25,233		)	—			(25,233		)	743			(24,490		)
Balance - September 30, 2017	$	1,382		$	(1,005	)	$	377
Balance - March 31, 2018										$	(26,691	)	$	—		$	(26,691	)	$	503		$	(26,188	)

Nine Months Ended September 30, 2017
(amounts in thousands) Unrealized Gains (Losses) on Available-For-Sale Securities Unrealized
Gains (Losses) on Cash Flow Hedges Total
Balance - December 31, 2016 $ (2,681 ) $ (2,211 ) $ (4,892 )
Other comprehensive income (loss) before reclassifications 9,268
(115 ) 9,153
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1) (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) Reclassification amounts for available-for-sale debt securities are reported as gain on sale of investment securities on the consolidated statements of income. During the three and nine months ended September 30, 2017, reclassification amounts of $5.3 million ($3.3 million net of taxes) and $8.5 million ($5.2 million net of taxes), respectively, were reported as gain on sale of investment securities on the consolidated statements of income. Reclassification amounts for cash flow hedges are reported as interest expense on FHLB advances on the consolidated statements of income. During the three and nine months ended September 30, 2017, reclassification amounts of $572 thousand ($349 thousand net of taxes) and $2.2 million ($1.3 million net of taxes) were reported as interest expense on FHLB advances on the consolidated statements of income.

(1)

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


(2)	Amounts reclassified from accumulated other comprehensive income (loss) on January 1, 2018 as a result of the adoption of ASU 2018-02 and ASU 2016-01 resulted in a decrease in AOCI of $1.3 million and a corresponding increase in retained earnings for the same amount.

NOTE 5 — INVESTMENT SECURITIES

The amortized cost and approximate fair value of investment securities as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 are summarized in the tables below:

September 30, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
(amounts in thousands)
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities $ 316,785
$ —
$ (11,367 ) $ 305,418
Corporate notes 381,475
347
(20,208 ) 361,614
Available-for-sale debt securities $ 698,260
$ 347
$ (31,575 ) 667,032
Equity securities ⁽¹⁾
1,819
Total investment securities, at fair value $ 668,851

~~(1) Includes equity securities issued by a foreign entity that are being measured at fair value with changes in fair value recognized directly in earnings~~

~~effective January 1, 2018 as a result of adopting ASU 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~ ~~(see~~ ~~NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION~~ ~~for additional information related to the adoption of this new standard).~~



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


	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		December 31, 2018
(amounts in thousands)										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	186,221	$	36	$	(2,799	)	$	183,458	$	311,267	$	—	$	(5,893	)	$	305,374
Agency-guaranteed commercial real estate mortgage-backed securities	238,809		432		(769		)	238,472
Corporate notes ⁽¹⁾	44,959		1,130		—			46,089		381,407		920		(24,407		)	357,920
Available-for-sale debt securities										$	692,674	$	920	$	(30,300	)	663,294
Equity securities ⁽²⁾	2,311		1,041		—			3,352									1,718
Total available-for-sale securities, at fair value	$	472,300	$	2,639	$	(3,568	)	$	471,371
Total investment securities, at fair value																	$	665,012


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


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

~~The following table presents proceeds from the sale~~There were no sales of ~~investment~~available-for-sale debt securities ~~and gross gains and gross losses realized on those sales~~or equity securities for the three months ended March 31, 2019 and ~~nine month periods ended September 30, 2018 and 2017:~~2018.

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

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

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

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



	March 31, 2019
(amounts in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	354,268		345,717
Due after ten years	27,066		26,561
Agency-guaranteed residential mortgage-backed securities	306,651		304,144
Total debt securities	$	687,985	$	676,422

September 30, 2018

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 229,807
218,904
Due after ten years 151,668
142,710
Agency-guaranteed residential mortgage-backed securities 316,785
305,418
Total debt securities $ 698,260
$ 667,032

Gross unrealized losses and fair value of Customers' available-for-sale debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were as follows:


	September 30, 2018
	Less Than 12 Months					12 Months or More				Total					March 31, 2019
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Less Than 12 Months					12 Months or More					Total
(amounts in thousands)															Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	305,418	$	(11,367	)	$	—	$	—	$	305,418	$	(11,367	)	$	—	$	—		$	211,098	$	(2,569	)	$	211,098	$	(2,569	)
Corporate notes	321,303		(20,208		)	—		—		321,303		(20,208		)	21,873		(93		)	314,767		(9,602		)	336,640		(9,695		)
Total	$	626,721	$	(31,575	)	$	—	$	—	$	626,721	$	(31,575	)	$	21,873	$	(93	)	$	525,865	$	(12,171	)	$	547,738	$	(12,264	)


	December 31, 2017
	Less Than 12 Months					12 Months or More					Total					December 31, 2018
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Less Than 12 Months					12 Months or More				Total
(amounts in thousands)																Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	104,861	$	(656	)	$	66,579	$	(2,143	)	$	171,440	$	(2,799	)	$	305,374	$	(5,893	)	$	—	$	—	$	305,374	$	(5,893	)
Agency-guaranteed commercial real estate mortgage-backed securities	115,970		(740		)	6,151		(29		)	122,121		(769		)
Corporate notes																310,036		(24,407		)	—		—		310,036		(24,407		)
Total	$	220,831	$	(1,396	)	$	72,730	$	(2,172	)	$	293,561	$	(3,568	)	$	615,410	$	(30,300	)	$	—	$	—	$	615,410	$	(30,300	)

At ~~September 30, 2018,~~March 31, 2019, there were ~~twenty-eight~~four available-for-sale debt securities with unrealized losses in the less-than-twelve-month category and notwenty-two available-for-sale debt securities with unrealized losses in the twelve-month-or-more category. The unrealized losses on the mortgage-backed securities are guaranteed by government-sponsored entities and primarily relate to changes in market interest rates. The unrealized losses on the corporate notes relate to securities with no company specific concentration. The unrealized losses were principally due to an upward shift in interest rates that resulted in a negative impact on the respective note's fair value. All amounts related to the mortgage-backed securities and the corporate notes are expected to be recovered when market prices recover or at maturity. Customers does not intend to sell these securities and it is not more likely than not that Customers will be required to sell the securities before recovery of the amortized cost basis.

During the three and nine month periods ended September 30, 2017, Customers recorded other-than-temporary impairment losses of $8.3 million and $12.9 million, respectively, related to its equity holdings in Religare Enterprises Ltd. ("Religare") for the full amount of the decline in fair value from the cost basis established at DecemberAt March 31, 2016 through September 30, 2017 because Customers no longer had the intent to hold these securities until a recovery in fair value. At December 31, 2017, the fair value of the Religare equity securities was $3.4 million, which resulted in an unrealized gain of $1.0 million being recognized in accumulated other comprehensive income with no adjustment for deferred taxes as Customers currently does not have a tax strategy in place capable of generating sufficient capital gains to utilize any capital losses resulting from the Religare investment.

~~As described in NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION, the adoption of ASU 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities,~~on January 1, 2018 resulted in a cumulative effect adjustment to Customers' consolidated balance sheet with a $1.0 million reduction in accumulated other comprehensive income and a corresponding increase in retained earnings related to the December 31, 2017 unrealized gain on the Religare equity securities. In accordance with the new accounting guidance, changes in the fair value of the Religare equity securities since adoption are recorded directly in earnings, which resulted in an unrealized loss of $1.2 million and $1.5 million being recognized in other non-interest income in the accompanying consolidated statements of income for the three and nine months ended September 30, 2018, respectively.

~~At September 30, 2018~~2019 and December 31, ~~2017,~~2018, Customers Bank had pledged investment securities aggregating ~~$187.1~~$22.9 million and ~~$16.9~~$23.0 million in fair value, respectively, as collateral against its borrowings primarily with the FHLB and an unused line of credit with another financial institution. These counterparties do not have the ability to sell or repledge these securities.

~~NOTE 6 – LOANS HELD FOR SALE - As Restated~~

~~The composition of loans held for sale as of September 30, 2018~~At March 31, 2019 and December 31, ~~2017 was as follows:~~

September 30, 2018 December 31, 2017
(amounts in thousands) (As Restated)
Commercial loans:
Multi-family loans at lower of cost or fair value $ —
$ 144,191
Total commercial loans held for sale —
144,191
Consumer loans:
Residential mortgage loans, at fair value 1,383
1,886
Loans held for sale $ 1,383
$ 146,077

~~Effective March 31,~~ 2018, ~~Customers Bank transferred $129.7 million~~no securities holding of multi-family loans from loans held for sale to loan receivable (held for investment) because the Bank no longer has the intent to sell these loans. Customers Bank transferred these loans at their carrying value, which approximated their fair value at the time of transfer.

On June 30, 2017, Customers Bank transferred $150.6 million of multi-family loans from held for investment to loans held for sale. Customers Bank transferred these loans at their carrying value, which was lowerany one issuer, other than the ~~estimated fair value at the time~~U.S. Government and its agencies, amounted to greater than 10% of transfer. At December 31, 2017, the carrying value of these loans approximated their fair value. Accordingly, a lower of cost or fair value adjustment was not recorded as of December 31, 2017. See NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for more information on the reclassification of loans previously reported as held for sale.

shareholders' equity.

NOTE 76 — LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES ~~- As Restated~~

The following table presents loans and leases receivable as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.



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

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

Loans receivable, mortgage warehouse, at fair value $ 1,516,327
$ 1,793,408
Loans receivable:
    Commercial:
   Multi-family 3,504,540
3,502,381
   Commercial and industrial (including owner occupied commercial real estate) 1,841,704
1,633,818
   Commercial real estate non-owner occupied 1,157,849
1,218,719
   Construction 95,250
85,393
Total commercial loans receivable 6,599,343
6,440,311
    Consumer:
   Residential real estate 509,853
234,090
   Manufactured housing 82,589
90,227
   Other 51,210
3,547
Total consumer loans receivable 643,652
327,864
                    Loans receivable 7,242,995
6,768,175
Deferred (fees)/costs and unamortized (discounts)/premiums, net (3,045 ) 83
Allowance for loan losses (40,741 ) (38,015 )
Total loans receivable, net of allowance for loan losses $ 8,715,536
$ 8,523,651


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

Loans receivable, mortgage warehouse, at fair value:

Mortgage warehouse loans consist of commercial loans to mortgage companies. These mortgage warehouse lending transactions are subject to master repurchase agreements. As a result of the contractual provisions, for accounting purposes control of the underlying mortgage loan has not transferred and the rewards and risks of the mortgage loans are not assumed by Customers. The mortgage warehouse loans receivable are designated as loans held for investment and reported at fair value based on an election made to account for the loans at fair value. Pursuant to the agreements, Customers funds the pipelines for these mortgage lenders by sending payments directly to the closing agents for funded mortgage loans and receives proceeds directly from third party investors when the underlying mortgage loans are sold into the secondary market. The fair value of the mortgage warehouse loans is estimated as the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The interest rates on these loans are variable, and the lending transactions are short-term, with an average life of 2520 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.

At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, all of Customers' commercial mortgage warehouse loans were current in terms of payment. ~~Because~~As these loans are reported at their fair value, they do not have an allowance for loan and lease loss and are therefore excluded from ~~allowance for loan losses~~ALLL related disclosures.

Loans and leases receivable:

The following tables summarize loans receivable by loan type and performance status as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:


	September 30, 2018
	30-89 Days Past Due (1)		90 Days Or More Past Due (1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)		March 31, 2019
(amounts in thousands)															30-89 Days Past Due ⁽¹⁾		90 Days or More Past Due ⁽¹⁾		Total Past Due ⁽¹⁾		Non-Accrual		Current ⁽²⁾		Purchased-Credit-Impaired Loans ⁽³⁾		Total Loans and Leases ⁽⁴⁾
Multi-family	$	—	$	—	$	—	$	1,343	$	3,501,450	$	1,747	$	3,504,540	$	3,794	$	—	$	3,794	$	1,997	$	3,204,879	$	1,642	$	3,212,312
Commercial and industrial	418		—		418		13,287		1,271,813		572		1,286,090		1,271		—		1,271		12,225		1,441,679		417		1,455,592
Commercial real estate owner occupied	—		—		—		1,298		545,647		8,669		555,614		3,566		—		3,566		839		570,380		7,852		582,637
Commercial real estate non-owner occupied	—		—		—		158		1,153,107		4,584		1,157,849		1,976		—		1,976		102		1,101,129		4,129		1,107,336
Construction	—		—		—		—		95,250		—		95,250		—		—		—		—		53,372		—		53,372
Residential real estate	2,321		—		2,321		5,522		497,211		4,799		509,853		5,612		—		5,612		5,574		609,874		4,006		625,066
Manufactured housing (5)	3,475		2,300		5,775		1,921		72,777		2,116		82,589		3,686		1,936		5,622		1,924		68,362		1,870		77,778
Other consumer	45		—		45		112		50,832		221		51,210		491		—		491		108		152,348		206		153,153
Total	$	6,259	$	2,300	$	8,559	$	23,641	$	7,188,087	$	22,708	$	7,242,995	$	20,396	$	1,936	$	22,332	$	22,769	$	7,202,023	$	20,122	$	7,267,246

	December 31, 2017														December 31, 2018
	30-89 Days Past Due (1)		90 Days Or More Past Due (1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)
(amounts in thousands)															30-89 Days Past Due ⁽¹⁾		90 Days or More Past Due ⁽¹⁾		Total Past Due ⁽¹⁾		Non-Accrual		Current ⁽²⁾		Purchased-Credit-Impaired Loans ⁽³⁾		Total Loans and Leases ⁽⁴⁾
Multi-family	$	4,900	$	—	$	4,900	$	—	$	3,495,600	$	1,881	$	3,502,381	$	—	$	—	$	—	$	1,155	$	3,282,452	$	1,690	$	3,285,297
Commercial and industrial	103		—		103		17,392		1,130,831		764		1,149,090		1,914		—		1,914		17,764		1,353,586		536		1,373,800
Commercial real estate owner occupied	202		—		202		1,453		472,501		10,572		484,728		193		—		193		1,037		567,809		8,438		577,477
Commercial real estate non-owner occupied	93		—		93		160		1,213,216		5,250		1,218,719		1,190		—		1,190		129		1,119,443		4,344		1,125,106
Construction	—		—		—		—		85,393		—		85,393		—		—		—		—		56,491		—		56,491
Residential real estate	7,628		—		7,628		5,420		215,361		5,681		234,090		5,940		—		5,940		5,605		550,679		4,337		566,561
Manufactured housing (5)	4,028		2,743		6,771		1,959		78,946		2,551		90,227		3,926		2,188		6,114		1,693		69,916		2,008		79,731
Other consumer	116		—		116		31		3,184		216		3,547		200		—		200		111		73,503		221		74,035
Total	$	17,070	$	2,743	$	19,813	$	26,415	$	6,695,032	$	26,915	$	6,768,175	$	13,363	$	2,188	$	15,551	$	27,494	$	7,073,879	$	21,574	$	7,138,498


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


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

(3)

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


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


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

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Bank had $0.4 million and ~~$0.3~~$0.2 million, respectively, of residential real estate held in ~~other real estate owned.~~OREO. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Bank had initiated foreclosure proceedings on ~~$2.1~~$1.4 million and ~~$1.6~~$2.1 million, respectively, in loans secured by residential real estate.

Allowance for loan and lease losses

The changes in the ~~allowance for loan losses~~ALLL for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ and the loans and ~~allowance for loan losses~~ALLL by loan type based on impairment-evaluation method as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 are presented in the tables below.

Three Months Ended September 30, 2018 Multi-family Commercial and Industrial Commercial Real Estate Owner Occupied Commercial
Real Estate Non-Owner Occupied Construction Residential
Real Estate Manufactured
Housing Other Consumer Total
(amounts in thousands)
Ending Balance,
June 30, 2018 $ 12,069
$ 12,258
$ 2,988
$ 6,698
$ 992
$ 2,908
$ 149
$ 226
$ 38,288
Charge-offs —
(90 ) —
—
—
—
—
(437 ) (527 )
Recoveries —
30
—
5
11
6
—
4
56
Provision for loan losses (240 ) 516
164
(254 ) 59
987
(55 ) 1,747
2,924
Ending Balance,
September 30, 2018 $ 11,829
$ 12,714
$ 3,152
$ 6,449
$ 1,062
$ 3,901
$ 94
$ 1,540
$ 40,741
Nine Months Ended September 30, 2018
Ending Balance,
December 31, 2017 $ 12,168
$ 10,918
$ 3,232
$ 7,437
$ 979
$ 2,929
$ 180
$ 172
$ 38,015
Charge-offs —
(314 ) (501 ) —
—
(407 ) —
(1,155 ) (2,377 )
Recoveries —
205
326
5
231
69
—
10
846
Provision for loan losses (339 ) 1,905
95
(993 ) (148 ) 1,310
(86 ) 2,513
4,257
Ending Balance,
September 30, 2018 $ 11,829
$ 12,714
$ 3,152
$ 6,449
$ 1,062
$ 3,901
$ 94
$ 1,540
$ 40,741

As of September 30, 2018
Loans:
Individually evaluated for impairment $ 1,343
$ 13,353
$ 1,335
$ 158
$ —
$ 8,581
$ 10,378
$ 112
$ 35,260
Collectively evaluated for impairment 3,501,450
1,272,165
545,610
1,153,107
95,250
496,473
70,095
50,877
7,185,027
Loans acquired with credit deterioration 1,747
572
8,669
4,584
—
4,799
2,116
221
22,708
Total loans receivable (1) $ 3,504,540
$ 1,286,090
$ 555,614
$ 1,157,849
$ 95,250
$ 509,853
$ 82,589
$ 51,210
$ 7,242,995
Allowance for loan losses:
Individually evaluated for impairment $ —
$ 1,381
$ 80
$ —
$ —
$ 306
$ 4
$ —
$ 1,771
Collectively evaluated for impairment 11,829
10,881
3,072
4,298
1,062
3,072
88
1,471
35,773
Loans acquired with credit deterioration —
452
—
2,151
—
523
2
69
3,197
Allowance for loan losses $ 11,829
$ 12,714
$ 3,152
$ 6,449
$ 1,062
$ 3,901
$ 94
$ 1,540
$ 40,741



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

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



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

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 December 31, 2017
Loans:
Individually evaluated for impairment $ —
$ 17,461
$ 1,448
$ 160
$ —
$ 9,247
$ 10,089
$ 30
$ 38,435
Collectively evaluated for impairment 3,500,500
1,130,865
472,708
1,213,309
85,393
219,162
77,587
3,301
6,702,825
Loans acquired with credit deterioration 1,881
764
10,572
5,250
—
5,681
2,551
216
26,915
Total loans receivable $ 3,502,381
$ 1,149,090
$ 484,728
$ 1,218,719
$ 85,393
$ 234,090
$ 90,227
$ 3,547
$ 6,768,175
Allowance for loan losses:
Individually evaluated for impairment $ —
$ 650
$ 642
$ —
$ —
$ 155
$ 4
$ —
$ 1,451
Collectively evaluated for impairment 12,168
9,804
2,580
4,630
979
2,177
82
117
32,537
Loans acquired with credit deterioration —
464
10
2,807
—
597
94
55
4,027
Allowance for loan losses $ 12,168
$ 10,918
$ 3,232
$ 7,437
$ 979
$ 2,929
$ 180
$ 172
$ 38,015

Certain manufactured housing loans were purchased in August 2010. A portion of the purchase price may be used to reimburse the Bank under the specified terms in the purchase agreement for defaults of the underlying borrower and other specified items. At ~~September 30, 2018~~both March 31, 2019 and December 31, ~~2017,~~2018, funds available for reimbursement, if necessary, were $0.5 ~~million and $0.6 million, respectively.~~million. Each quarter, these funds are evaluated to determine if they would be sufficient to absorb the probable incurred losses within the manufactured housing portfolio.

Impaired Loans - Individually Evaluated for Impairment

The following tables present the recorded investment (net of charge-offs), unpaid principal balance, and related allowance by loan type for impaired loans that were individually evaluated for impairment as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 and the average recorded investment and interest income recognized for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018. Customers did not have any impaired lease receivables as of March 31, 2019 and December 31, 2018, ~~and 2017.~~respectively. Purchased-credit-impaired loans are considered to be performing and are not included in the tables below.


	September 30, 2018						Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Recorded Investment Net of Charge-offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		March 31, 2019						Three Months Ended March 31, 2019
(amounts in thousands)															Recorded Investment Net of Charge-Offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no recorded allowance:
With no related allowance recorded:
Multi-family	$	1,343	$	1,343	$	—	$	1,343	$	—	$	672	$	8	$	1,997	$	2,538	$	—	$	998	$	—
Commercial and industrial	9,888		10,224		—		7,765		166		7,623		168		11,185		12,749		—		12,422		2
Commercial real estate owner occupied	704		1,187		—		711		—		711		—		556		1,103		—		796		21
Commercial real estate non-owner occupied	158		271		—		1,347		—		774		8		102		214		—		115		—
Other consumer	112		112		—		103		1		83		1
Residential real estate	4,259		4,504		—		4,281		23		3,952		25		4,722		5,044		—		4,782		—
Manufactured housing	10,152		10,152		—		10,147		144		10,011		421		10,140		10,140		—		10,084		115
Other consumer															108		108		—		110		—
With an allowance recorded:
Multi-family															—		—		—		578		—
Commercial and industrial	3,465		3,648		1,381		5,787		27		7,089		39		6,226		6,409		263		5,197		39
Commercial real estate owner occupied	631		631		80		336		9		546		11		311		498		36		172		1
Residential real estate	4,322		4,329		306		4,398		61		4,760		124		3,845		3,845		78		3,817		26
Manufactured housing	226		226		4		227		4		225		10		167		167		3		168		2
Total	$	35,260	$	36,627	$	1,771	$	36,445	$	435	$	36,446	$	815	$	39,359	$	42,815	$	380	$	39,239	$	206



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

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

Troubled Debt Restructurings

At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, there were ~~$19.4~~$19.6 million and ~~$20.4~~$19.2 million, respectively, in loans reported as ~~troubled debt restructurings (“TDRs”).~~TDRs. TDRs are reported as impaired loans in the calendar year of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent years, a TDR may be returned to accrual status if it satisfies a minimum performance requirement of six months, however, it will remain classified as impaired. Generally, the Bank requires sustained performance for nine months before returning a TDR to accrual status. Modifications of ~~purchased-credit-impaired~~PCI loans that are accounted for within loan pools in accordance with the accounting standards for ~~purchased-credit-impaired~~PCI loans do not result in the removal of these loans from the pool even if the modifications would otherwise be considered a TDR. Accordingly, as each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, modifications of loans within such pools are not considered TDRs. Customers did not have any TDR lease receivables as of March 31, 2019 and December 31, 2018, respectively.

The following table presents total TDRs based on loan type and accrual status at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. Nonaccrual TDRs are included in the reported amount of total non-accrual loans.



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

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

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, 2018~~March 31, 2019 and ~~2017.~~2018. There were no modifications that involved forgiveness of debt for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.



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

Three Months Ended September 30, 2018 Three Months Ended September 30, 2017
Number of Loans Recorded Investment Number of Loans Recorded Investment
(dollars in thousands)
Extensions of maturity —
$ —
1
$ 60
Interest-rate reductions 8
473
3
122
Total 8
$ 473
4
$ 182

Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017
Number of Loans Recorded Investment Number of Loans Recorded Investment
(dollars in thousands)
Extensions of maturity 1
$ 56
4
$ 6,263
Interest-rate reductions 32
1,402
32
1,297
Total 33
$ 1,458
36
$ 7,560

The following table provides, by loan type, the number of loans modified in ~~troubled debt restructurings,~~TDRs and the related recorded investment ~~during~~for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~

Three Months Ended September 30, 2018 Three Months Ended September 30, 2017
Number of Loans Recorded Investment Number of Loans Recorded Investment
(dollars in thousands)
Manufactured housing 7
$ 321
4
$ 182
Residential real estate 1
152
—
—
Total loans 8
$ 473
4
$ 182
2018.



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

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

As of ~~September 30, 2018~~both March 31, 2019 and December 31, ~~2017,~~2018, except for one commercial and industrial loan with an outstanding commitment of $1.5 million, ~~and $2.1 million, respectively,~~ there were no other commitments to lend additional funds to debtors whose loans have been modified in TDRs.

The following table presents, by loan type, the number of ~~September 30, 2018, there were no~~ loans modified in TDRs and the related recorded investment, for which there was a ~~TDR~~payment default within ~~the past~~ twelve months ~~that defaulted on payments. As of September 30, 2017, ten manufactured housing loans totaling $0.5 million, that were modified in TDRs within~~following the ~~past twelve months, defaulted on payments.~~modification:



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

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.~~ALLL. There ~~was~~wereno~~allowance recorded as a result of TDR modifications during the three and nine months ended September 30, 2018. There was no allowance~~allowances 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.~~March 31, 2019 and 2018.

Purchased-Credit-Impaired Loans

The changes in accretable yield related to ~~purchased-credit-impaired~~PCI loans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as follows:



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

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

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

Credit Quality Indicators

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

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

loans and leases.

The risk rating grades are defined as follows:

“1” – Pass/Excellent

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

“2” – Pass/Superior

Loans and leases rated 2 are those for which the borrower has a strong financial condition, balance sheet, operations, cash flow, debt capacity and coverage with ratios better than industry norms. The borrowers of these loans and leases exhibit a limited leverage position,

are virtually immune to local economies, and are in stable growing industries. The management team is well respected and the company has ready access to public markets.

“3” – Pass/Strong

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

“4” – Pass/Good

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

“5” – Satisfactory

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

“6” – Satisfactory/Bankable with Care

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

“7” – Special Mention

Loans and leases rated 7 are credit facilities that may have potential developing weaknesses and deserve extra attention from the account manager and other management personnel. In the event potential weaknesses are not corrected or mitigated, deterioration in the ability of the borrower to repay the debt in the future may occur. This grade is not assigned to loans and leases that bear certain peculiar risks normally associated with the type of financing involved, unless circumstances have caused the risk to increase to a level higher than would have been acceptable when the credit was originally approved. Loans and leases where significant actual, not potential, weaknesses or problems are clearly evident are graded in the category below.

“8” – Substandard

Loans and leases are rated 8 when the loans and leases are inadequately protected by the current sound worth and payment capacity of the obligor or of the collateral pledged, if any. Loans and leases so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the company will sustain some loss if the weaknesses are not corrected.

“9” – Doubtful

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

“10” – Loss

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

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

The following tables present the credit ratings of loans and leases receivable as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.


	September 30, 2018
	Multi-Family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total (3)		March 31, 2019
(amounts in thousands)																			Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total ⁽³⁾
Pass/Satisfactory	$	3,399,892	$	1,235,945	$	539,252	$	1,084,388	$	95,250	$	—	$	—	$	—	$	6,354,727	$	3,164,722	$	1,395,034	$	565,631	$	1,036,957	$	53,372	$	—	$	—	$	—	$	6,215,716
Special Mention	81,253		7,756		8,793		30,406		—		—		—		—		128,208		40,441		30,575		12,300		30,258		—		—		—		—		113,574
Substandard	23,395		42,389		7,569		43,055		—		—		—		—		116,408		7,149		29,983		4,706		40,121		—		—		—		—		81,959
Performing (1)	—		—		—		—		—		502,010		74,893		51,053		627,956		—		—		—		—		—		613,880		70,232		152,554		836,666
Non-performing (2)	—		—		—		—		—		7,843		7,696		157		15,696		—		—		—		—		—		11,186		7,546		599		19,331
Total	$	3,504,540	$	1,286,090	$	555,614	$	1,157,849	$	95,250	$	509,853	$	82,589	$	51,210	$	7,242,995	$	3,212,312	$	1,455,592	$	582,637	$	1,107,336	$	53,372	$	625,066	$	77,778	$	153,153	$	7,267,246


	December 31, 2017
	Multi-Family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction			Residential Real Estate		Manufactured Housing		Other Consumer		Total (3)		December 31, 2018
(amounts in thousands)											��									Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total ⁽³⁾
Pass/Satisfactory	$	3,438,554	$	1,118,889	$	471,826	$	1,185,933	$	85,393		$	—	$	—	$	—	$	6,300,595	$	3,201,822	$	1,306,466	$	562,639	$	1,054,493	$	56,491	$	—	$	—	$	—	$	6,181,911
Special Mention	53,873		7,652		5,987		31,767		—			—		—		—		99,279		55,696		30,551		9,730		30,203		—		—		—		—		126,180
Substandard	9,954		22,549		6,915		1,019		—			—		—		—		40,437		27,779		36,783		5,108		40,410		—		—		—		—		110,080
Performing (1)	—		—		—		—		—			221,042		81,497		3,400		305,939		—		—		—		—		—		555,016		71,924		73,724		700,664
Non-performing (2)	—		—		—		—		—			13,048		8,730		147		21,925		—		—		—		—		—		11,545		7,807		311		19,663
Total	$	3,502,381	$	1,149,090	$	484,728	$	1,218,719	$	85,393		$	234,090	$	90,227	$	3,547	$	6,768,175	$	3,285,297	$	1,373,800	$	577,477	$	1,125,106	$	56,491	$	566,561	$	79,731	$	74,035	$	7,138,498


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


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


(3)	Excludes commercial mortgage warehouse loans ~~carried under the~~reported at fair ~~value option.~~value.

Loan Purchases and Sales

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

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

Customers did not purchase any loans during first quarter 2018. During first quarter 2018, Customers sold $15.0 million of SBA loans resulting in a gain on sale of $1.4 million. In first quarter 2017, Customers purchased $174.2 million of thirty-year fixed-rate residential mortgage loans from a third party financial institution. The purchase price was 98.5% of loans outstanding. In first quarter 2017, Customers sold $94.9 million of multi-family loansas follows for ~~$95.4 million resulting in a gain on sale of $0.5 million and $8.7 million of SBA loans resulting in a gain on sale of $0.8 million.~~

~~None of the purchases and sales during~~ the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017 materially affected the credit profile of Customers’ loan portfolio.~~2018:



	Three Months Ended March 31,
(amounts in thousands)	2019		2018
Purchases ⁽¹⁾
Residential real estate	$	66,384	$	—
Other consumer	66,136		—
Total	$	132,520	$	—
Sales ⁽²⁾
Commercial and industrial ⁽³⁾	—		(6,842		)
Commercial real estate owner occupied ⁽³⁾	—		(8,151		)
Total	$	—	$	(14,993	)


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


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


(3)	Primarily sales of SBA loans.

Loans Pledged as Collateral

Customers has pledged eligible real estate loans as collateral for potential borrowings from the ~~Federal Home Loan Bank of Pittsburgh ("FHLB")~~FHLB and ~~Federal Reserve Bank of Philadelphia ("FRB")~~FRB in the amount of ~~$5.5~~$5.4 billion at both ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

NOTE 7 — LEASES

Lessee

Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 2 months and 8 years. These operating leases comprise substantially all of Customers' obligations in which Customers acts as the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or right of use asset and are recognized in the period in which the obligation for those payments are incurred. Customers' operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. Pursuant to these agreements, Customers does not have any commitments that would meet the definition of a finance lease.

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

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



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

The following table summarizes operating lease cost and its corresponding income statement location:



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

(1) There were no variable lease costs for the three months ended March 31, 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as follows:



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

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

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

The following table summarizes the term and discount rate information for Customers' operating leases.



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

Weighted average discount rate
Operating leases	2.74	%

Future minimum rental commitments pursuant to non-cancelable operating leases as of December 31, 2018, were as follows:



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

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

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.

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

Leased assets under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to their 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 leased assets for impairment. An impairment loss is recognized if the carrying amount of the leased asset exceeds its fair value and is not recoverable. The carrying amount of 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:



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

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

NOTE 8 — REGULATORY CAPITAL

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Bank and the Bancorp satisfied all capital requirements to which they were subject.

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



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

Minimum Capital Levels to be Classified as:
Actual Adequately Capitalized Well Capitalized Basel III Compliant
(amounts in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio
As of September 30, 2018:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 740,968
8.703 % $ 383,113
4.500 % N/A
N/A
$ 542,744
6.375 %
Customers Bank $ 1,054,869
12.393 % $ 383,042
4.500 % $ 553,282
6.500 % $ 542,642
6.375 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 958,418
11.257 % $ 510,818
6.000 % N/A
N/A
$ 670,448
7.875 %
Customers Bank $ 1,054,869
12.393 % $ 510,722
6.000 % $ 680,963
8.000 % $ 670,323
7.875 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 1,080,245
12.688 % $ 681,090
8.000 % N/A
N/A
$ 840,721
9.875 %
Customers Bank $ 1,204,825
14.154 % $ 680,963
8.000 % $ 851,204
10.000 % $ 840,563
9.875 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc. $ 958,418
8.913 % $ 430,099
4.000 % N/A
N/A
$ 430,099
4.000 %
Customers Bank $ 1,054,869
9.814 % $ 429,939
4.000 % $ 537,423
5.000 % $ 429,939
4.000 %
As of December 31, 2017:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 689,494
8.805 % $ 352,368
4.500 % N/A
N/A
$ 450,248
5.750 %
Customers Bank $ 1,023,564
13.081 % $ 352,122
4.500 % $ 508,621
6.500 % $ 449,934
5.750 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 906,963
11.583 % $ 469,824
6.000 % N/A
N/A
$ 567,704
7.250 %
Customers Bank $ 1,023,564
13.081 % $ 469,496
6.000 % $ 625,994
8.000 % $ 567,307
7.250 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 1,021,601
13.047 % $ 626,432
8.000 % N/A
N/A
$ 724,313
9.250 %
Customers Bank $ 1,170,666
14.961 % $ 625,994
8.000 % $ 782,493
10.000 % $ 723,806
9.250 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc. $ 906,963
8.937 % $ 405,949
4.000 % N/A
N/A
$ 405,949
4.000 %
Customers Bank $ 1,023,564
10.092 % $ 405,701
4.000 % $ 507,126
5.000 % $ 405,701
4.000 %

The Basel III risk-based capital rules adopted effective January 1, 2015 require that banks and holding companies maintain a "capital conservation buffer" of 250 basis points in excess of the "minimum capital ratio" or certain elective distributions would be limited. The minimum capital ratio is equal to the prompt corrective action adequately capitalized threshold ratio. The capital conservation buffer ~~is being~~was phased in over four years beginning on January 1, 2016, with a maximum buffer of 0.625% of risk weighted assets for 2016, ~~1.25%~~1.250% for 2017, 1.875% for 2018, and ~~2.5%~~2.500% for 2019 and thereafter.

Effective January 1, ~~2018,~~2019, the capital level required to avoid limitation on elective distributions applicable to the Bancorp and the Bank were as follows:

(i) a common equity Tier 1 risk-based capital ratio of ~~6.375%~~7.000%;

(ii) a Tier 1 risk-based capital ratio of ~~7.875%~~8.500%; and

(iii) a Total risk-based capital ratio of ~~9.875%~~10.500%.

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

NOTE 9 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS ~~- As Restated~~

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

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

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

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

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

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

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

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

The following methods and assumptions were used to estimate the fair values of Customers' financial instruments as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~

2018:

Financial Instruments Recorded at Fair Value on a Recurring Basis

Investment securities:

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

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

Loans held for sale - ~~Consumer~~consumer residential mortgage 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.

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

The fair value of mortgage warehouse loans is the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The loan is used by mortgage companies as short-term bridge financing between the funding of mortgage loans and the finalization of the sale of the loans to an investor. Changes in fair value are not expected to be recognized because at inception of the transaction the underlying loans have already been sold to an approved investor. Additionally, the interest rate is variable, and the transaction is short-term, with an average life of 2520 days from purchase to sale. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Derivatives ~~(Assets~~(assets and ~~Liabilities)~~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~~Customers and its counterparties. These assets and liabilities are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

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

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

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

Financial Instruments Recorded at Fair Value on a Nonrecurring Basis

Impaired loans:

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

The estimated fair values of Customers' financial instruments at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were as follows.


					Fair Value Measurements at September 30, 2018
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)						Fair Value Measurements at March 31, 2019
(amounts in thousands)											Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	666,034	$	666,034	$	666,034	$	—	$	—	$	117,662	$	117,662	$	117,662	$	—	$	—
Debt securities, available for sale	667,032		667,032		—		667,032		—		676,422		676,422		—		676,422		—
Equity securities	1,819		1,819		1,819		—		—		1,720		1,720		1,720		—		—
Loans held for sale	1,383		1,383		—		1,383		—		1,602		1,602		—		1,602		—
Total loans receivable, net of allowance for loan losses	8,715,536		8,646,346		—		1,516,327		7,130,019
Total loans and leases receivable, net of allowance for loan and lease losses											8,700,565		8,774,518		—		1,480,195		7,294,323
FHLB, Federal Reserve Bank and other restricted stock	74,206		74,206		—		74,206		—		80,416		80,416		—		80,416		—
Derivatives	22,613		22,613		—		22,491		122		14,665		14,665		—		14,588		77
Liabilities:
Deposits	$	8,513,714	$	8,506,804	$	6,120,233	$	2,386,571	$	—	$	7,425,318	$	7,422,232	$	5,867,017	$	1,555,215	$	—
Federal funds purchased											388,000		388,000		388,000		—		—
FHLB advances	835,000		834,968		—		834,968		—		1,025,832		1,025,830		500,832		524,998		—
Other borrowings	123,779		124,724		—		124,724		—		123,963		123,591		—		123,591		—
Subordinated debt	108,953		114,400		—		114,400		—		109,002		113,988		—		113,988		—
Derivatives	15,684		15,684		—		15,684		—		23,837		23,837		—		23,837		—



					Fair Value Measurements at December 31, 2018
(amounts in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	62,135	$	62,135	$	62,135	$	—	$	—
Debt securities, available for sale	663,294		663,294		—		663,294		—
Equity securities	1,718		1,718		1,718		—		—
Loans held for sale	1,507		1,507		—		1,507		—
Total loans and leases receivable, net of allowance for loan and lease losses	8,503,522		8,481,128		—		1,405,420		7,075,708
FHLB, Federal Reserve Bank and other restricted stock	89,685		89,685		—		89,685		—
Derivatives	14,693		14,693		—		14,624		69
Liabilities:
Deposits	$	7,142,236	$	7,136,009	$	5,408,055	$	1,727,954	$	—
Federal funds purchased	187,000		187,000		187,000		—		—
FHLB advances	1,248,070		1,248,046		998,070		249,976		—
Other borrowings	123,871		121,718		—		121,718		—
Subordinated debt	108,977		110,550		—		110,550		—
Derivatives	16,286		16,286		—		16,286		—

Fair Value Measurements at December 31, 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) (as restated)
Assets:
Cash and cash equivalents $ 146,323
$ 146,323
$ 146,323
$ —
$ —
Investment securities, available for sale 471,371
471,371
3,352
468,019
—
Loans held for sale (as restated) 146,077
146,251
—
1,886
144,365
Total loans receivable, net of allowance for loan losses (as restated) 8,523,651
8,470,171
—
1,793,408
6,676,763
FHLB, Federal Reserve Bank and other restricted stock 105,918
105,918
—
105,918
—
Derivatives 9,752
9,752
—
9,692
60
Liabilities:
Deposits $ 6,800,142
$ 6,796,095
$ 4,894,449
$ 1,901,646
$ —
Federal funds purchased 155,000
155,000
155,000
—
—
FHLB advances 1,611,860
1,611,603
881,860
729,743
—
Other borrowings 186,497
193,557
65,072
128,485
—
Subordinated debt 108,880
115,775
—
115,775
—
Derivatives 10,074
10,074
—
10,074
—

For financial assets and liabilities measured at fair value on a recurring and nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were as follows:


	September 30, 2018
	Fair Value Measurements at the End of the Reporting Period Using								March 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)									Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Measured at Fair Value on a Recurring Basis:
Assets
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	305,418	$	—	$	305,418	$	—	$	304,144	$	—	$	304,144
Corporate notes	—		361,614		—		361,614		—		372,278		—		372,278
Equity securities	1,819		—		—		1,819		1,720		—		—		1,720
Derivatives	—		22,491		122		22,613		—		14,588		77		14,665
Loans held for sale – fair value option	—		1,383		—		1,383		—		1,602		—		1,602
Loans receivable, mortgage warehouse - fair value option	—		1,516,327		—		1,516,327
Total assets - recurring fair value measurements	$	1,819	$	2,207,233	$	122	$	2,209,174
Loans receivable, mortgage warehouse – fair value option									—		1,480,195		—		1,480,195
Total assets – recurring fair value measurements									$	1,720	$	2,172,807	$	77	$	2,174,604
Liabilities
Derivatives	$	—	$	15,684	$	—	$	15,684	$	—	$	23,837	$	—	$	23,837
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of reserves of $1,771	$	—	$	—	$	7,295	$	7,295
Impaired loans, net of reserves of $380									$	—	$	—	$	12,668	$	12,668
Other real estate owned	—		—		1,078		1,078		—		—		781		781
Total assets - nonrecurring fair value measurements	$	—	$	—	$	8,373	$	8,373
Total assets – nonrecurring fair value measurements									$	—	$	—	$	13,449	$	13,449


	December 31, 2017								December 31, 2018
	Fair Value Measurements at the End of the Reporting Period Using								Fair Value Measurements at the End of the Reporting Period Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(amounts in thousands) (as restated)
(amounts in thousands)									Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Measured at Fair Value on a Recurring Basis:
Assets
Available-for-sale securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	183,458	$	—	$	183,458
Agency-guaranteed commercial real estate mortgage-backed securities	—		238,472		—		238,472
Agency-guaranteed residential mortgage–backed securities									$	—	$	305,374	$	—	$	305,374
Corporate notes	—		46,089		—		46,089		—		357,920		—		357,920
Equity securities	3,352		—		—		3,352		1,718		—		—		1,718
Derivatives	—		9,692		60		9,752		—		14,624		69		14,693
Loans held for sale – fair value option (as restated)	—		1,886		—		1,886
Loans receivable, mortgage warehouse - fair value option (as restated)	—		1,793,408		—		1,793,408
Total assets - recurring fair value measurements	$	3,352	$	2,273,005	$	60	$	2,276,417
Loans held for sale – fair value option									—		1,507		—		1,507
Loans receivable, mortgage warehouse – fair value option									—		1,405,420		—		1,405,420
Total assets – recurring fair value measurements									$	1,718	$	2,084,845	$	69	$	2,086,632
Liabilities
Derivatives	$	—	$	10,074	$	—	$	10,074	$	—	$	16,286	$	—	$	16,286
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of reserves of $1,451	$	—	$	—	$	13,902	$	13,902
Impaired loans, net of reserves of $845									$	—	$	—	$	10,876	$	10,876
Other real estate owned	—		—		1,449		1,449		—		—		621		621
Total assets - nonrecurring fair value measurements	$	—	$	—	$	15,351	$	15,351
Total assets – nonrecurring fair value measurements									$	—	$	—	$	11,497	$	11,497

The changes in Level 3 assets measured at fair value on a recurring basis for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ are summarized in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 10 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES.


	Residential Mortgage Loan Commitments
	Three Months Ended September 30,						Residential Mortgage Loan Commitments
	2018			2017			Three Months Ended March 31,
(amounts in thousands)							2019			2018
Balance at June 30	$	133		$	102
Balance at December 31							$	69		$	60
Issuances	122			103			77			83
Settlements	(133		)	(102		)	(69		)	(60		)
Balance at September 30	$	122		$	103
Balance at March 31							$	77		$	83

Residential Mortgage Loan Commitments
Nine Months Ended September 30,
2018 2017
(amounts in thousands)
Balance at December 31 $ 60
$ 45
Issuances 338
300
Settlements (276 ) (242 )
Balance at September 30 $ 122
$ 103

There were no transfers between levels during the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

The following table summarizes financial assets and financial liabilities measured at fair value as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 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
March 31, 2019	Fair Value Estimate		Valuation Technique	Unobservable Input	Range (Weighted Average)
(amounts in thousands)
Impaired loans - real estate	$	5,270	Collateral appraisal ⁽¹⁾	Liquidation expenses ⁽²⁾	8% - 8% (8%)
Impaired loans - commercial & industrial	7,398		Business asset valuation ⁽³⁾	Business asset valuation adjustments ⁽⁴⁾	8% - 50% (17%)
Other real estate owned	781		Collateral appraisal ⁽¹⁾	Liquidation expenses ⁽²⁾	8% - 13% (9%)
Residential mortgage loan commitments	77		Adjusted market bid	Pull-through rate	83% - 83% (83%)

Quantitative Information about Level 3 Fair Value Measurements
September 30, 2018
Fair Value
Estimate
Valuation Technique Unobservable Input
Range
(Weighted Average)
(amounts in thousands)
Impaired loans - Real Estate $ 5,211
Collateral appraisal (1) Liquidation expenses (2) 8% - 8%
(8%)
Impaired loans - C&I 2,084
Business asset valuation (3) Business asset valuation adjustments (4) 6% - 63%
(12%)
Other real estate owned 1,078
Collateral appraisal (1) Liquidation expenses (2) 8% - 10%
(8%)
Residential mortgage loan commitments 122
Adjusted market bid Pull-through rate 90% - 90%
(90%)

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2017

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average)

December 31, 2018

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average)

(amounts in thousands)

Impaired loans

13,902

Collateral appraisal (1)

Liquidation expenses (2)

8% - 8%
(8%)

Impaired loans - real estate

10,260

Collateral appraisal ⁽¹⁾

Liquidation expenses ⁽²⁾

8% - 8%
(8%)

Impaired loans - commercial & industrial

616

Business asset valuation ⁽³⁾

Business asset valuation adjustments ⁽⁴⁾

8% - 50%
(26%)

Other real estate owned

1,449

Collateral appraisal (1)

Liquidation expenses (2)

8% - 8%
(8%)

621

Collateral appraisal ⁽¹⁾

Liquidation expenses ⁽²⁾

8% - 8%
(8%)

Residential mortgage loan commitments

Adjusted market bid

Pull-through rate

90% - 90%
(90%)

Adjusted market bid

Pull-through rate

90% - 90%
(90%)


(1)	Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. ~~The Bank~~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.


(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.

NOTE 10 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objectives of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

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

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

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

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

Customers is hedging its exposure to the variability in future cash flows for forecasted transactions (3-month FHLB advances) over a maximum period of 3363 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

At ~~September 30, 2018,~~March 31, 2019, Customers had ~~eight~~five outstanding interest rate derivatives with notional amounts totaling ~~$835.0~~$675.0 million that were designated as cash flow hedges of interest rate risk. At December 31, ~~2017,~~2018, Customers had ~~nine~~six outstanding interest rate derivatives with notional amounts totaling ~~$550.0~~$750.0 million that were designated as cash flow hedges of interest rate risk. The outstanding cash flow hedges at ~~September 30, 2018~~March 31, 2019 expire between ~~October 2018~~April 2019 and July ~~2021.~~2024.

Derivatives Not Designated as Hedging Instruments

Customers executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies (typically the loan customers will swap a floating-rate loan for a fixed-rate loan). The customer interest rate swaps are simultaneously offset by interest rate swaps that Customers executes with a third party in order to minimize interest rate risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting third-party market swaps are recognized directly in earnings. At ~~September 30,~~March 31, 2019 and December 31, 2018, Customers had 98 interest rate swaps with an aggregate notional amount of ~~$956.8 million related to this program. At December 31, 2017, Customers had 76 interest rate swaps with an aggregate notional amount of $800.5 million~~$1.0 billion 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, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Customers had an outstanding notional balance of residential mortgage loan commitments of ~~$6.1~~$5.8 million and ~~$2.7~~$3.6 million, respectively.

Customers has also purchased and sold credit derivatives to either hedge or participate in the performance risk associated with some of its counterparties. These derivatives are not designated as hedging instruments and are reported at fair value, with changes in fair value recorded directly in earnings. At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Customers had outstanding notional balances of credit derivatives of ~~$95.5~~$115.8 million and ~~$80.5~~$94.9 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, 2018~~March 31, 2019 and December 31, ~~2017.~~

2018.


	September 30, 2018
	Derivative Assets			Derivative Liabilities			March 31, 2019
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		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	$	3,859	Other liabilities	$	—	Other assets	$	38	Other liabilities	$	8,636
Total		$	3,859		$	—		$	38		$	8,636
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	18,596	Other liabilities	$	15,653	Other assets	$	14,369	Other liabilities	$	15,136
Credit contracts	Other assets	36		Other liabilities	31		Other assets	181		Other liabilities	65
Residential mortgage loan commitments	Other assets	122		Other liabilities	—		Other assets	77		Other liabilities	—
Total		$	18,754		$	15,684		$	14,627		$	15,201



	December 31, 2018
	Derivative Assets			Derivative Liabilities
(amounts in thousands)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedges:
Interest rate swaps	Other assets	$	256	Other liabilities	$	1,502
Total		$	256		$	1,502
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	14,300	Other liabilities	$	14,730
Credit contracts	Other assets	68		Other liabilities	54
Residential mortgage loan commitments	Other assets	69		Other liabilities	—
Total		$	14,437		$	14,784

December 31, 2017
Derivative Assets Derivative Liabilities
Balance Sheet Balance Sheet
Location Fair Value Location Fair Value
(amounts in thousands)
Derivatives designated as cash flow hedges:
Interest rate swaps Other assets $ 816
Other liabilities $ 1,140
Total $ 816
$ 1,140
Derivatives not designated as hedging instruments:
Interest rate swaps Other assets $ 8,776
Other liabilities $ 8,897
Credit contracts Other assets 100
Other liabilities 37
Residential mortgage loan commitments Other assets 60
Other liabilities —
Total $ 8,936
$ 8,934

Effect of Derivative Instruments on Comprehensive Income

The following tables present the effect of Customers' derivative financial instruments on comprehensive income for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

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

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


	Nine Months Ended September 30, 2018
	Income Statement Location	Amount of Income Recognized in Earnings		Three Months Ended March 31, 2019
(amounts in thousands)				Income Statement Location	Amount of Income (Loss) Recognized in Earnings
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	1,472	Other non-interest income	$	(287	)
Credit contracts	Other non-interest income	119		Other non-interest income	102
Residential mortgage loan commitments	Mortgage banking income	62		Mortgage banking income	8
Total		$	1,653		$	(177	)


	Nine Months Ended September 30, 2017
	Income Statement Location	Amount of Income (Loss) Recognized in Earnings			Three Months Ended March 31, 2018
(amounts in thousands)					Income Statement Location	Amount of Income (Loss) Recognized in Earnings
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	429		Other non-interest income	$	385
Credit contracts	Other non-interest income	(5		)	Other non-interest income	(23		)
Residential mortgage loan commitments	Mortgage banking income	58			Mortgage banking income	23
Total		$	482			$	385


	Three Months Ended September 30, 2018
	Amount of Gain (Loss) Recognized in OCI on Derivatives (1)		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income			Three Months Ended March 31, 2019
(amounts in thousands)							Amount of Gain (Loss) Recognized in OCI on Derivatives (1)			Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	3,006	Interest expense	$	(303	)	$	(5,135	)	Interest expense	$	413
			Other non-interest income (2)	2,822
Total				$	2,519

Three Months Ended September 30, 2017

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

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

Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income
(amounts in thousands)
Derivatives in cash flow hedging relationships:
Interest rate swaps $ 104
Interest expense $ (572 )

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

Other non-interest income (2) 2,822
Total

$ 2,647


	Nine Months Ended September 30, 2017
	Amount of Gain (Loss) Recognized in OCI on Derivatives (1)			Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income			Three Months Ended March 31, 2018
(amounts in thousands)								Amount of Gain (Loss) Recognized in OCI on Derivatives (1)		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Derivative in cash flow hedging relationships:
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	(115	)	Interest expense	$	(2,166	)	$	646	Interest expense	$	(131	)

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

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

Credit-risk-related Contingent Features

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

Agreements with major derivative dealer counterparties contain provisions whereby default on any of Customers' indebtedness would be considered a default on its derivative obligations. Customers also has entered into agreements that contain provisions under which the counterparty could require Customers to settle its obligations if Customers fails to maintain its status as a well/adequately capitalized institution. As of ~~September 30, 2018, all~~March 31, 2019, the fair value of derivatives ~~with major derivative dealer counterparties were~~ in a net ~~asset position.~~liability position (which includes accrued interest but excludes any adjustment for nonperformance risk) related to these agreements was $16.0 million. In addition, Customers has collateral posting thresholds with certain of these counterparties and at March 31, 2019, had posted $19.5 million of cash as collateral. Customers records cash posted as collateral as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets.

Disclosures about Offsetting Assets and Liabilities

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

~~Offsetting of Financial Assets and Derivative Assets~~

~~At September 30, 2018~~

Gross
Amount of
Recognized
Assets

Gross
Amounts
Offset in the
Consolidated
Balance
Sheet

Net
Amounts of
Assets
Presented
in the
Consolidated
Balance
Sheet

Gross Amounts
Not Offset in the
Consolidated
Balance Sheet

Net
Amount

Financial
Instruments

Cash
Collateral
Received

(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties $ 20,688
$ —
$ 20,688
$ —
$ 19,330
$ 1,358

~~Offsetting of Financial Liabilities and Derivative Liabilities~~

~~At September 30, 2018~~

Gross
Amount of
Recognized
Liabilities

Gross
Amounts
Offset in the
Consolidated
Balance
Sheet

Net
Amounts of
Liabilities
Presented
in the
Consolidated
Balance
Sheet
Gross Amounts
Not Offset in the
Consolidated
Balance Sheet

Financial
Instruments

Cash
Collateral
Pledged

Net
Amount
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties $ 1,924
$ —
$ 1,924
$ —
$ 2
$ 1,922

Offsetting of Financial Assets and Derivative Assets

At March 31, 2019



	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet				Financial Instruments		Cash Collateral Received		Net Amount
Description
Interest rate swap derivatives with institutional counterparties	$	3,816	$	—	$	3,816	$	—	$	—	$	3,816

Offsetting of Financial Assets and Derivative Assets

At December 31, ~~2017~~2018


	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet				Net Amount
							Financial Instruments		Cash Collateral Received				Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)																			Financial Instruments		Cash Collateral Received		Net Amount
Description
Interest rate swap derivatives with institutional counterparties	$	5,930	$	—	$	5,930	$	—	$	5,070	$	860	$	7,529	$	—	$	7,529	$	—	$	1,860	$	5,669

Offsetting of Financial Liabilities and Derivative Liabilities

At March 31, 2019



	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet				Financial Instruments		Cash Collateral Pledged		Net Amount
Description
Interest rate swap derivatives with institutional counterparties	$	20,036	$	—	$	20,036	$	—	$	19,462	$	574

Offsetting of Financial Liabilities and Derivative Liabilities

At December 31, ~~2017~~2018



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

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 $ 5,058
$ —
$ 5,058
$ —
$ 4,872
$ 186

NOTE 11 — BUSINESS SEGMENTS

Customers' segment financial reporting reflects the manner in which its chief operating decision makers allocate resources and assess performance. Management has determined that Customers' operations consist of two reportable segments - ~~Community~~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, New Hampshire, Washington D.C., and Illinois through a single-point-of-contact business model and provides liquidity to residential mortgage originators nationwide through commercial loans to mortgage companies. Lending and deposit gathering activities are focused primarily on privately held businesses, high-net-worth families, selected commercial real estate lending, ~~and~~ commercial mortgage ~~companies.~~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 digital banking and disbursement services to consumers, students, and the "under banked" ~~nationwide.~~nationwide, along with "Banking as a Service" offerings with white label partners. BankMobile is a full-service banking platform that is accessible to customers anywhere and anytime through the customer's smartphone or other web-enabled device. Revenues are currently being generated primarily through interchange and card revenue, deposit and wire transfer fees and university fees. The majority of revenue and expenses for BankMobile are related to the segment's operation of the ongoing business acquired through the Disbursement business ~~acquisition.~~

acquisition and costs associated with the development of white label products for its partners.

The following tables present the operating results for Customers' reportable business segments for the three months ended March 31, 2019 and ~~nine month periods ended September 30, 2018 and 2017.~~2018. 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 ~~were~~and preferred stock dividends are assigned to the Community Business Banking segment as those expenses were 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 ~~24.57%~~23.15% for 2019 and 24.56% for 2018, ~~and 37.25% for 2017,~~ respectively.

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



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

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

Three Months Ended September 30, 2018
(amounts in thousands) Community Business Banking BankMobile Consolidated
Interest income ⁽¹⁾
$ 106,156
$ 3,889

$ 110,045
Interest expense 45,982
62

46,044
Net interest income 60,174
3,827
64,001
Provision for loan losses 2,502
422
2,924
Non-interest income (7,756 ) 9,840
2,084
Non-interest expense 36,115
20,989

57,104
Income (loss) before income tax expense (benefit) 13,801
(7,744 ) 6,057
Income tax expense (benefit) 1,930
(1,902 ) 28
Net income (loss) 11,871
(5,842 ) 6,029
Preferred stock dividends 3,615
—
3,615
Net income (loss) available to common shareholders $ 8,256
$ (5,842 ) $ 2,414

Three Months Ended September 30, 2017
(amounts in thousands) Community Business Banking BankMobile Consolidated
Interest income ⁽¹⁾
$ 95,585
$ 2,700
$ 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

(1) Amounts reported include funds transfer pricing of ~~$3.9 million and $2.7~~$5.6 million for the three months ended ~~September 30, 2018 and 2017, respectively,~~March 31, 2019, credited to BankMobile for the value provided to the ~~Community~~Customers Bank Business Banking segment for the use of low/no cost deposits.


	Nine Months Ended September 30, 2018							Three Months Ended March 31, 2018
(amounts in thousands)	Community Business Banking		BankMobile			Consolidated		Customers Bank Banking		BankMobile			Consolidated
Interest income ⁽²⁾	$	302,820	$	11,829		$	314,649	$	92,554	$	4,410		$	96,964
Interest expense	118,081		214			118,295		31,917		16			31,933
Net interest income	184,739		11,615			196,354		60,637		4,394			65,031
Provision for loan losses	3,128		1,129			4,257		1,874		243			2,117
Non-interest income	8,147		30,973			39,120		8,439		12,471			20,910
Non-interest expense	108,168		54,966			163,134		34,331		17,949			52,280
Income (loss) before income tax expense (benefit)	81,590		(13,507		)	68,083		32,871		(1,327		)	31,544
Income tax expense (benefit)	17,567		(3,317		)	14,250		7,728		(326		)	7,402
Net income (loss)	64,023		(10,190		)	53,833		25,143		(1,001		)	24,142
Preferred stock dividends	10,844		—			10,844		3,615		—			3,615
Net income (loss) available to common shareholders	$	53,179	$	(10,190	)	$	42,989	$	21,528	$	(1,001	)	$	20,527

As of September 30, 2018
As of March 31, 2018
Goodwill and other intangibles	$	3,629	$	13,196		$	16,825	$	3,630	$	13,847		$	17,477
Total assets	$	10,542,175	$	74,929		$	10,617,104	$	10,690,479	$	78,787		$	10,769,266
Total deposits	$	7,781,225	$	732,489		$	8,513,714	$	6,418,810	$	623,649		$	7,042,459
Total non-deposit liabilities	$	1,134,251	$	14,327		$	1,148,578	$	2,759,156	$	48,563		$	2,807,719

Nine Months Ended September 30, 2017
(amounts in thousands) Community Business Banking BankMobile Consolidated
Interest income ⁽²⁾
$ 265,524
$ 9,708
$ 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 (loss) 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
$ 10,471,829
Total deposits $ 6,815,994
$ 781,082
$ 7,597,076
Total non-deposit liabilities $ 1,947,213
$ 16,898
$ 1,964,111

(2) Amounts reported include funds transfer pricing of ~~$11.8 million and $9.7~~$4.4 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 ~~and 2017, respectively,~~ credited to BankMobile for the value provided to the ~~Community~~Customers Bank Business Banking segment for the use of low/no cost deposits.

NOTE 12 - NON-INTEREST REVENUES

~~As provided~~Customers' revenue from contracts with customers in ~~NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION, Customers' adoption of ASU 2014-09,~~ ~~Revenue from Contracts with Customers (ASC 606),~~ on January 1, 2018, did not have a significant impact to Customers' consolidated financial statements and, as such, a cumulative effect adjustment to beginning retained earnings was not necessary. Customers determined that its debit and prepaid card interchange income, previously reported on a gross basis for periods prior to adoption, will need to be presented on a net basis under this ASU. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the previous accounting guidance under ASC 605. Debit and prepaid card interchange expense for the three months ended September 30, 2018 and 2017 amounted to $1.2 million and $1.2 million, respectively. Debit and prepaid card interchange expense for the nine months ended September 30, 2018 and 2017 amounted to $3.9 million and $4.4 million, respectively.

In addition, as part of the enhanced disclosure requirements under the new guidance, Customers is presenting disaggregated revenue by business segment, nature of the revenue stream, and the pattern or timing of revenue recognition. The accounting treatment for interest-related revenues is covered under ASC 310 and is out of the scope of ASC ~~606.~~606 is recognized within non-interest income.

The following tables present Customers' non-interest revenues affected by ASC 606 by business segment for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017:~~

Three Months Ended September 30, 2018
(amounts in thousands) Community Business Banking BankMobile Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and Card Revenue $ 181
$ 6,903
$ 7,084
Deposit Fees 311
1,691
2,002
University Fees - Card and Disbursement Fees —
261
261
Total revenue recognized at point in time 492
8,855
9,347
Revenue recognized over time:
University Fees - Subscription Revenue —
950
950
Total revenue recognized over time —
950
950
Total revenue from contracts with customers $ 492
$ 9,805
$ 10,297

Three Months Ended September 30, 2017
(amounts in thousands) Community Business Banking BankMobile Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and Card Revenue $ 215
$ 9,355
$ 9,570
Deposit Fees 321
2,338
2,659
University Fees - Card and Disbursement Fees —
283
283
Total revenue recognized at point in time 536
11,976
12,512
Revenue recognized over time:
University Fees - Subscription Revenue —
829
829
Total revenue recognized over time —
829
829
Total revenue from contracts with customers $ 536
$ 12,805
$ 13,341

Nine Months Ended September 30, 2018
(amounts in thousands) Community Business Banking BankMobile Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and Card Revenue $ 588
$ 22,539
$ 23,127
Deposit Fees 892
4,834
5,726
University Fees - Card and Disbursement Fees —
772
772
Total revenue recognized at point in time 1,480
28,145
29,625
Revenue recognized over time:
University Fees - Subscription Revenue —
2,727
2,727
Total revenue recognized over time —
2,727
2,727

Total revenue from contracts with customers $ 1,480
$ 30,872
$ 32,352

Nine Months Ended September 30, 2017
(amounts in thousands) Community Business Banking BankMobile Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and Card Revenue $ 544
$ 31,185
$ 31,729
Deposit Fees 902
7,016
7,918
University Fees - Card and Disbursement Fees —
878
878
Total revenue recognized at point in time 1,446
39,079
40,525
Revenue recognized over time:
University Fees - Subscription Revenue —
2,408
2,408
Total revenue recognized over time —
2,408
2,408
Total revenue from contracts with customers $ 1,446
$ 41,487
$ 42,933

~~The following is a discussion of revenues within the scope of ASC 606:~~

~~Card revenue~~

Card revenue primarily relates to debit and prepaid card fees earned from interchange and ATM fees. Interchange fees are earned whenever Customers' issued debit and prepaid cards are processed through card payment networks. Interchange fees are recognized concurrent with the processing of the debit or prepaid card transaction.

~~Deposit fees~~

Deposit fees relate to service charges on deposit accounts for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as stop-payment charges, wire transfer fees, cashier and money order fees are recognized at the time the transaction is executed. Account maintenance fees, which relate primarily to monthly maintenance and account analysis fees, are earned on a monthly basis representing the period over which Customers satisfies its performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposit accounts are withdrawn from the depositor's account balance.

The revenues recognized at a point in time primarily consist of contracts with no specified terms, but which may be terminated at any time by the customer without penalty. Due to the transactional nature and indefinite term of these agreements, there were no related contract balances that were recorded for these revenue streams on Customers' consolidated balance sheets as of September 30, 2018 and December 31, 2017.

~~University fees~~

University fees represent revenues from higher education institutions and are generated from fees charged for the services provided. For higher education institution clients, Customers, through BankMobile, facilitates the distribution of financial aid and other refunds to students, while simultaneously enhancing the ability of the higher education institutions to comply with the federal regulations applicable to financial aid transactions. For these services, higher education institution clients are charged an annual subscription fee and/or per-transaction fee (e.g., new card or card replacement fees) for certain transactions. The annual subscription fee is recognized ratably over the period of service and the transaction fees are recognized when the transaction is completed. BankMobile also enters into long-term (generally three- or five-year initial term) contracts with higher education institutions to provide these refund management disbursement services. Deferred revenue consists of amounts billed to or received from clients prior to the performance of services. The deferred revenues are earned over the service period on a straight-line basis. As of September 30, 2018 and December 31, 2017, Customers recorded deferred revenue of $2.8 million and $2.0 million, respectively, related to these university subscription contracts. At September 30, 2018 and December 31, 2017, Customers had accounts receivable of $1.5 million and $1.1 million, respectively, related to the university fee arrangements.

~~NOTE 13 – SUBSEQUENT EVENTS~~

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

2018:



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



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

NOTE 13 — LEGAL CONTINGENCIES

Halbreiner Matter

On December 16, 2016, Elizabeth Halbreiner and Robert Halbreiner (“Plaintiffs”) filed a Second Amended Complaint captioned Elizabeth Halbreiner and Robert Halbreiner, v. Customers Bank, Robert B.White, Richard A. Ehst, Thomas Jastrem, Timothy D. Romig, Andrew Bowman, Michael Fuoco, Saldutti Law Group f/k/a Saldutti, LLC a/k/a Saldutti Law, LLC, Robert L. Saldutti, LLC, Robert L. Saldutti, Esquire, Brian J. Schaffer, Esquire, Robert Lieber, Jr., Esquire, Jay Sidhu, James Zardecki, Zardecki Associates LLC, No. 01419 in the First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia, Trial Division. In this Second Amended Complaint, the Plaintiffs generally allege that Customers Bank, and the other named defendants, conspired to misuse the legal system for improper purposes and it also alleges defamation, false light, tortious interference with contractual relations, infliction of emotional distress, negligent infliction of emotional distress and loss of consortium. On January 6, 2017, Customers Bank filed Preliminary Objections to the Complaint seeking dismissal of the Plaintiff’s claims against Customers Bank and the employees of Customers Bank named as co-defendants.On April 6, 2017, the Court dismissed certain counts and determined to allow certain other counts to proceed. Customers Bank intends to vigorously defend itself against these allegations but is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

Lifestyle Healthcare Group, Inc. Matter

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

United States Department of Education Matter

In third quarter 2018, Customers received a FPRD letter dated September 5, 2018 from the DOE regarding a focused program review of Higher One's/Customers Bank's administration, as a third party servicer, of the programs authorized pursuant to Title IV of the Higher Education Act of 1965. The DOE program review covered the award years beginning in 2013 through the FPRD issuance date, including the time period when Higher One was acting as the third party servicer prior to Customers' acquisition of the Disbursement business on June 15, 2016. The FPRD determined that, with respect to students enrolled at specified partner institutions, Higher One/Customers did not provide convenient fee-free access to ATMs or bank branch offices in such locations as required by the DOE’s cash management regulations. Those regulations, which were in effect during the period covered by the program review and were revised during that period, seek, among other purposes, to ensure that students can make fee-free cash withdrawals. The FPRD determined that students incurred prohibited costs in accessing Title IV credit balance funds, and the FPRD classifies those costs as financial liabilities of Customers. The FPRD also requires Customers to take prospective action to increase ATM access for students at certain of its partner institutions. Customers disagrees with the FPRD and has elected to appeal the FPRD, including the asserted financial liabilities of $6.5 million, and a request for review has been submitted to trigger an administrative process before the DOE’s Office of Hearing and Appeals. Customers intends to vigorously defend itself against the financial liabilities established in the FPRD through that administrative appeals process and it further intends to pursue resolution of the FPRD’s prospective action requirements during the appeals resolution process. The matter is in its early stages. Customers is currently unable to predict the outcome of the appeal and resolution efforts, and therefore cannot determine the likelihood of loss nor estimate a range of possible loss. Customers does not believe that this matter will have a material effect on the consolidated financial statements.

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

Cautionary Note Regarding Forward-Looking Statements

This report and all attachments hereto, as well as other written or oral communications made from time to time by us, may contain forward-looking information within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to future events or future predictions, including events or predictions relating to future financial performance, and are generally identifiable by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “plan,” “intend,” or “anticipate” or the negative thereof or comparable terminology. Forward-looking statements reflect numerous assumptions, estimates and forecasts as to future events. No assurance can be given that the assumptions, estimates and forecasts underlying such forward-looking statements will accurately reflect future conditions, or that any guidance, goals, targets or projected results will be realized. The assumptions, estimates and forecasts underlying such forward-looking statements involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions, which may not be realized and which are inherently subject to significant business, economic, competitive and regulatory uncertainties and known and unknown risks, including the risks described under “Risk Factors” in Customers Bancorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 (the ~~“2017~~“2018 Form 10-K”), as such factors may be updated from time to time in our filings with the SEC, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Our actual results may differ materially from those reflected in the forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements we make, which speak only as of the date they are made. We do not undertake any obligation to release publicly or otherwise provide any revisions to any forward-looking statements we may make, including any forward-looking financial information, to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events, except as may be required under applicable law.

Management’s discussion and analysis represents an overview of the financial condition and results of operations, and highlights the significant changes in the financial condition and results of operations, as presented in the accompanying consolidated financial statements for Customers Bancorp, Inc. (the "Bancorp" or "Customers Bancorp"), a financial holding company, and its wholly owned subsidiaries, including Customers Bank (the "Bank"), collectively referred to as "Customers" herein. This information is intended to facilitate your understanding and assessment of significant changes and trends related to Customers' financial condition and results of operations as of and for the three ~~and nine~~ months ended ~~September 30, 2018.~~March 31, 2019. All quarterly information in this Management’s Discussion and Analysis is unaudited. You should read this section in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Customers' ~~2017~~2018 Form 10-K.

~~Restatement of Previously Issued Financial Statements~~

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

Critical Accounting Policies

Customers has adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America and that are consistent with general practices within the banking industry in the preparation of its financial statements. Customers' significant accounting policies are described in “NOTE 42 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION” in Customers' audited financial statements included in its ~~2017~~2018 Form 10-K and updated in this Form 10-Q for the quarterly period ended ~~September 30, 2018~~March 31, 2019 in “NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION."

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

Overview

~~As previously disclosed, Customers intends to retain~~Customers' strategic priorities include creating shareholder value through improved profitability, targeting a return on average assets of approximately 1.25% and ~~operate BankMobile for~~a double-digit return on tangible common equity within the next 2 - 3 ~~years~~years. Customers is also targeting NIM expansion to 2.75% or greater by fourth quarter 2019, with a full year 2019 NIM above 2.70%, through an expected shift in asset and funding mix. Total assets at year-end 2019 are expected to be under $10 billion, while ~~its spin-off plans~~the average balance of interest-earnings assets for 2019 are ~~put on hold as a result of regulatory complications. Management recently announced its first White-Label partnership with T-Mobile, which~~expected to be comparable to 2018 average interest-earning assets, and the BankMobile segment is expected to ~~be launched~~become profitable in the fourth quarter ~~2018 and provide significant benefits to the overall profitability of BankMobile, beginning as early as the end of~~ 2019.

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

In late November 2018, BankMobile's first White Label banking partnership went live in beta test phase, offering BankMobile's best in class banking products to the partner's broad customer base. At March 31, 2019, the partnership had generated over $11.0 million in total deposits during the beta test phase with no advertising. On April 18, 2019, T-Mobile "launched" the first phase of its national marketing plan and, in the first weeks, new account openings have exceeded expectations. Customers ~~plans to remain predominately a small business bank, with higher-quality consumer loans making up about 15% - 20%~~expects significant account openings and deposit growth through the remainder of total assets, multi-family loans comprising about 10% of total assets, and core commercial lending activities, including specialty lending and loans to mortgage banking businesses totaling approximately 70% - 75% of total assets.2019.

~~Third~~First Quarter Events of Note

Customers reported net income available to common shareholders of ~~$2.4~~$11.8 million, or ~~$0.07 per diluted share, for third quarter 2018 and $43.0 million, or $1.33~~$0.38 per diluted share for the ~~nine~~three months ended September 30, 2018. The financial results for third quarter 2018 included $18.7 million of losses realized from the sale of $495 million of lower-yielding investment securities, $2.9 million of merger and acquisition related expenses resulting primarily from the termination of the spin-off and merger agreement between Customers and Flagship Community Bank ("Flagship") on October 18, 2018, and a negative mark-to-market adjustment of $1.2 million on an equity investment. These notable charges negatively affected GAAP earnings by $0.55 per diluted share in third quarter 2018 and $0.57 per diluted share for the nine months ended September 30, 2018.

March 31, 2019. Total assets were ~~$10.6~~$10.1 billion at ~~September 30, 2018,~~March 31, 2019, an increase of ~~$0.8~~$0.3 billion from December 31, ~~2017.~~2018. The increase in total assets was primarily driven by a $0.2 billion increase in total loans and leases. Commercial and industrial loans (including owner occupied commercial real estate) increased ~~cash held at the Federal Reserve Bank of $0.5 billion~~$87.0 million, or 4.5%, residential real estate loans increased $58.5 million, or 10.3%, and other consumer loans increased ~~investment securities, even after the securities sale of $495~~$79.1 million, executed in the third quarter of 2018 generated the $18.7 million loss, of $0.2 billion. Customers expects to have total assets of under $10 billion by the end of 2018, with an emphasis on higher-yielding assets replacing lower-yielding assets and lower-cost core deposit growth replacing higher-cost funding.or 107%. As planned, multi-family loans decreased $73.0 million.

Asset quality remained exceptional with ~~non-performing loans~~NPLs of ~~$23.6~~$22.8 million, or ~~0.27%~~0.26% of total loans and leases, and total non-performing assets ~~(non-performing loans~~(NPLs and ~~other real estate owned)~~OREO) only ~~0.24%~~0.23% of total assets at ~~September 30, 2018,~~March 31, 2019, reflecting Customers' conservative lending practices and continued focus on credit risk management. Customers' level of ~~non-performing loans~~NPLs to total loans and leases at ~~September 30, 2018~~March 31, 2019 remained well below industry average ~~non-performing loans~~NPLs to total loans and leases of ~~1.21%~~1.11% and Customers' peer group ~~non-performing loans~~NPLs to total loans and leases of ~~0.78%~~0.74% (peer data is the most recent period available from S&P Global Market Intelligence). Customers' capital ratios at the holding company and its bank 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, 2018.~~March 31, 2019. Customers Bancorp's Tier 1 leverage ratio was ~~8.91%~~10.01%, and its total risk-based capital ratio was ~~12.69%~~12.92%, at ~~September 30, 2018.~~March 31, 2019.

Results of Operations

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

~~Net~~The following table sets forth the condensed statements of income ~~available to common shareholders decreased $1.7 million, or 41.7%, to $2.4 million~~ for the three months ended ~~September 30, 2018 when compared to~~March 31, 2019 and 2018:



	Three Months Ended March 31,
(dollars in thousands)	2019		2018		Change			Percentage Change
Net interest income	$	59,304	$	65,031	$	(5,727	)	(8.8	)%
Provision for loan and lease losses	4,767		2,117		2,650			125.2	%
Total non-interest income	19,718		20,910		(1,192		)	(5.7	)%
Total non-interest expense	53,984		52,280		1,704			3.3	%
Income before income taxes	20,271		31,544		(11,273		)	(35.7	)%
Income tax expense	4,831		7,402		(2,571		)	(34.7	)%
Net income	15,440		24,142		(8,702		)	(36.0	)%
Preferred stock dividends	3,615		3,615		—			—	%
Net income available to common shareholders	$	11,825	$	20,527	$	(8,702	)	(42.4	)%

Customers reported net income available to common shareholders of ~~$4.1~~$11.8 million for the three months ended ~~September 30, 2017. The decreased~~March 31, 2019, compared to $20.5 million for the three months ended March 31, 2018. Factors contributing to the change in net income available to common shareholders ~~primarily resulted from a~~for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 were as follows:

Net interest income

The $5.7 million decrease in net interest income for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily resulted from a reduction of ~~$4.0~~$0.6 billion in average interest-earning assets, and the narrowing of NIM by eight basis points to 2.59% for the three months ended March 31, 2019 from 2.67% for the three months ended March 31, 2018. The NIM compression was primarily driven by higher funding costs as the cost of interest-bearing liabilities increased by 69 basis points for the three months ended March 31, 2019, partially offset by a 44 basis point increase in the yield of interest-earnings assets compared to the three months ended March 31, 2018. Given the four Federal Reserve interest rate hikes in 2018 and the associated increases in market interest rates, the cost of total deposits increased 62 basis points to 1.75 % and borrowing costs increased 73 basis points to 2.98% for the three months ended March 31, 2019.

Provision for loan and lease losses

The $2.7 million ~~or 5.9%, an~~ increase in the provision for loan and lease losses for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, reflects Customers' initiative to increase consumer and commercial and industrial loans. The provision for loan and lease losses for the three months ended March 31, 2019 included $4.2 million for loan growth in the consumer and commercial and industrial loan and lease portfolios, net of the multi-family and commercial real estate loan run-off (including $4.0 million relating to increases in residential mortgages and consumer loans) and $0.6 million for impaired loan provisions. The provision for loan and ~~a decrease~~lease losses in ~~non-interest income~~the three months ended March 31, 2018 included provisions of ~~$15.9~~$0.9 million ~~or 88.4%,~~for loan and lease portfolio growth and $1.3 million for impaired loan provisions, offset in part by a ~~decrease in non-interest expense of $3.9~~$0.2 million ~~or 6.4%, and a decrease in income tax expense of $14.9 million, or 99.8%.~~

Net interest income of $64.0 million decreased $4.0 million, or 5.9%, for the three months ended September 30, 2018 when compared to net interest income of $68.0 million for the three months ended September 30, 2017. This decrease resulted primarily from a decrease in the average balance of interest earning assets of $33.5 million and a 15 basis point decrease in net interest margin (tax equivalent) to 2.47% for third quarter 2018 from 2.62% for third quarter 2017. The total cost of deposits and borrowings increased 66 basis points, which was mitigated in part by a 47 basis point increase in yield on interest earning assets over the prior period, primarily due to an increase in yield on loans of 44 basis points and a 43 basis point increase in yield on investment securities.

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

~~Non-interest income of $2.1 million decreased $15.9 million, or 88.4%,~~ Net charge-offs for the three months ended ~~September 30, 2018 when~~March 31, 2019 were $1.1 million, or 5 basis points of average loans and leases on an annualized basis, compared to ~~non-interest income~~net charge-offs of ~~$18.0~~$0.6 million, or 3 basis points on an annualized basis for the three months ended ~~September 30, 2017. Included within~~March 31, 2018.

Non-interest income

The $1.2 million decrease in non-interest income for the three months ended September 30, 2018 was an $18.7 million loss realized from the sale of $495 million of lower-yielding investment securities and a $1.2 million negative mark-to-market adjustment on an equity investment. Also included within non-interest income for the three months ended September 30, 2018 was $1.2 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of $8.3 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior to the adoption of the new revenue recognition guidance, these expenses were included within non-interest expense and reported as technology, communication and bank operations expense. For the three months ended September 30, 2017, debit and prepaid card interchange expense was $1.2 million. If the three months ended September 30, 2017 was presented on a consistent basis with the three months ended September 30, 2018, the reported amount of the gross interchange and card revenue of $9.6 million would have been presented net of the debit and prepaid card interchange expense of $1.2 million, or $8.4 million. When presented on a consistent basis, interchange and card revenue decreased $1.3 million over the year-ago period resulting from lower activity volumes in the BankMobile business segment. Other decreases in total non-interest income for the three months ended September 30, 2018March 31, 2019 compared to the three months ended ~~September 30, 2017 included~~March 31, 2018 primarily resulted from decreases of $1.4 million in gains on sales of SBA loans, $0.9 million in interchange and card revenue, and a reduction in mortgage warehouse ~~transactional fees and deposit~~transaction fees of $0.6 ~~million and $0.7 million, respectively, primarily resulting from reduced transaction volumes.~~million. These decreases ~~in non-interest income~~ were offset in part by ~~a $2.8 million gain recognized from the discontinuance of cash flow hedge accounting for three interest rate swaps, which Customers now believes are not needed due to strong core deposit growth, and~~ an increase in commercial lease income ~~on commercial operating leases~~ of $1.3 million. For the three months ended September 30, 2017, Customers realized $5.3 million of gains from the sale of investment securities and an $8.3 million impairment loss on an equity investment.

~~Non-interest expense of $57.1 million decreased $3.9 million, or 6.4%, for the three months ended September 30, 2018 when compared to non-interest expense of $61.0~~$1.5 million for the three months ended ~~September 30, 2017. Total~~March 31, 2019 compared to the three months ended March 31, 2018.

Non-interest expense

The $1.7 million increase in non-interest expense for the three months ended ~~September 30, 2018 excludes $1.2 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. If~~March 31, 2019 compared to the three months ended ~~September 30, 2017 was presented on a consistent basis with the three months ended September 30,~~March 31, 2018 ~~the reported amount~~primarily resulted from increases of ~~non-interest expense of $61.0~~$2.0 million ~~would have been $59.8 million and~~in technology, communication, and bank operations, expense of $14.4 million would have been $13.2 million. When presented on a consistent basis, technology, communication and bank operations expense decreased $1.5 million to $11.7 million for the three months ended September 30, 2018 from $13.2 million for the three months ended September 30, 2017. Professional services decreased $2.7 million to $4.7 million for the three months ended September 30, 2018 compared to $7.4 million for the three months ended September 30, 2017 primarily attributable to reductions in consulting, legal, and other outside professional services as management continues its efforts to monitor and control expenses. Included in non-interest expenses for the three months ended September 30, 2017 was $2.8$1.1 million in ~~catch-up~~commercial lease depreciation, ~~and amortization for BankMobile assets that were previously classified as held for sale. These decreases in non-interest expense were partially offset by a $2.9~~$0.9 million ~~increase in merger and acquisition related expenses due primarily to the termination of the spin-off and merger agreement with Flagship, a $0.7 million increase~~ in salaries and employee benefits, and a$0.4 million in advertising and promotion. These increases were offset in part by decreases of $1.4 million in professional services, and $1.0 million ~~increase~~ in ~~depreciation on commercial operating leases for the three months ended September 30, 2018 compared the three months ended September 30, 2017.~~

Income tax expense of $28,000 decreased $14.9 million, or 99.8%, for the three months ended September 30, 2018 when compared to income tax expense of $14.9 million for the three months ended September 30, 2017. The decrease in income tax expense was driven primarily by a lower federal income tax rate from the adoption of the Tax Cut and Jobs Act of 2017, a decrease in pre-tax income of $16.6 million, and a $1.7 million return to provision adjustment, which included the benefit of a research and development tax credit, recorded in third quarter 2018 upon completion of the 2017 income tax returns. Customers' effective tax rate decreased to 0.46% for the three months ended September 30, 2018, compared to 65.8% for the same period in 2017. Income taxother non-interest expense for the three months ended ~~September 30, 2017 included an elimination of deferred~~March 31, 2019 compared to the three months ended March 31, 2018.

Income tax ~~benefits~~expense

Customers' effective tax rate was 23.8% for the three months ended March 31, 2019 compared to 23.5% for the three months ended March 31, 2018. The increase in the effective tax rate primarily resulted from the ~~other-than-temporary impairment losses on investment securities totaling $7.7 million.~~income tax expense from restricted stock units that vested during the three months ended March 31, 2019.

Preferred stock dividends

Preferred stock dividends were $3.6 million for the three months ended ~~September 30,~~March 31, 2019 and 2018, respectively. There were no changes to the amount of preferred stock outstanding or the dividends paid during the three months ended March 31, 2019 and ~~2017, respectively.~~2018.

NET INTEREST INCOME

The following table summarizes Customers' net interest income and related interest spread and net interest margin for the ~~periods indicated.~~three months ended March 31, 2019 and 2018.


	Three Months Ended September 30,												Three Months Ended March 31,
	2018						2017						2019						2018
	Average Balance		Interest Income or Expense		Average Yield or Cost (%)		Average Balance		Interest Income or Expense		Average Yield or Cost (%)
(dollars in thousands)
(amounts in thousands)													Average balance		Interest income or expense		Average yield or cost		Average balance		Interest income or expense		Average yield or cost
Assets
Interest-earning deposits	$	309,588	$	1,538	1.97	%	$	280,845	$	923	1.30	%	$	85,263	$	530	2.52	%	$	184,033	$	694	1.53	%
Investment securities (1)	1,029,857		8,495		3.30	%	1,017,065		7,307		2.87	%	691,823		6,241		3.61	%	1,085,429		8,672		3.20	%
Loans:
Loans and leases:
Commercial loans to mortgage companies	1,680,441		21,274		5.02	%	1,956,587		21,099		4.28	%	1,264,478		15,753		5.05	%	1,591,749		18,394		4.69	%
Multi-family loans	3,555,223		34,901		3.89	%	3,639,566		33,301		3.63	%	3,253,792		30,376		3.79	%	3,637,929		33,312		3.71	%
Commercial and industrial loans (2)	1,782,500		21,692		4.83	%	1,491,833		15,792		4.20	%
Non-owner occupied commercial real estate	1,255,206		12,753		4.03	%	1,294,996		12,706		3.89	%
Commercial and industrial loans and leases ⁽²⁾													1,921,139		24,332		5.14	%	1,653,655		17,687		4.34	%
Non-owner occupied commercial real estate loans													1,169,333		12,896		4.47	%	1,281,502		13,200		4.18	%
All other loans	594,528		7,195		4.80	%	546,161		5,842		4.24	%	812,043		9,759		4.87	%	330,100		3,338		4.10	%
Total loans (3)	8,867,898		97,815		4.38	%	8,929,143		88,740		3.94	%
Total loans and leases ⁽³⁾													8,420,785		93,116		4.48	%	8,494,935		85,931		4.10	%
Other interest-earning assets	111,600		2,197		7.81	%	125,341		1,315		4.16	%	80,542		1,188		5.98	%	116,823		1,667		5.79	%
Total interest-earning assets	10,318,943		110,045		4.24	%	10,352,394		98,285		3.77	%	9,278,413		101,075		4.41	%	9,881,220		96,964		3.97	%
Non-interest-earning assets	409,396						389,797						481,116						394,487
Total assets	$	10,728,339					$	10,742,191					$	9,759,529					$	10,275,707
Liabilities
Interest checking accounts	$	696,827	2,690		1.53	%	$	351,422	708		0.80	%	$	815,072	3,815		1.90	%	$	499,245	1,432		1.16	%
Money market deposit accounts	3,564,148		17,855		1.99	%	3,427,682		9,866		1.14	%	3,144,888		17,338		2.24	%	3,402,963		11,471		1.37	%
Other savings accounts	116,172		464		1.59	%	40,310		29		0.28	%	380,911		1,900		2.02	%	37,496		25		0.27	%
Certificates of deposit	2,288,237		11,795		2.05	%	2,361,069		7,778		1.31	%	1,552,153		8,172		2.14	%	1,872,351		6,865		1.49	%
Total interest-bearing deposits	6,665,384		32,804		1.95	%	6,180,483		18,381		1.18	%	5,893,024		31,225		2.15	%	5,812,055		19,793		1.38	%
Borrowings	1,918,577		13,240		2.74	%	2,414,086		11,885		1.96	%	1,432,685		10,546		2.98	%	2,182,463		12,140		2.25	%
Total interest-bearing liabilities	8,583,961		46,044		2.13	%	8,594,569		30,266		1.40	%	7,325,709		41,771		2.31	%	7,994,518		31,933		1.62	%
Non-interest-bearing deposits	1,109,819						1,158,911						1,360,815						1,278,947
Total deposits and borrowings	9,693,780				1.89	%	9,753,480				1.23	%	8,686,524				1.95	%	9,273,465				1.39	%
Other non-interest-bearing liabilities	84,786						66,220						104,401						75,307
Total liabilities	9,778,566						9,819,700						8,790,925						9,348,772
Shareholders’ Equity	949,773						922,491
Shareholders’ equity													968,604						926,935
Total liabilities and shareholders’ equity	$	10,728,339					$	10,742,191					$	9,759,529					$	10,275,707
Net interest income			64,001						68,019
Net interest earnings															59,304						65,031
Tax-equivalent adjustment (4)			172						203						181						171
Net interest earnings			$	64,173					$	68,222					$	59,485					$	65,202
Interest spread					2.35	%					2.54	%					2.46	%					2.58	%
Net interest margin					2.46	%					2.61	%					2.59	%					2.66	%
Net interest margin tax equivalent (4)					2.47	%					2.62	%					2.59	%					2.67	%


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


(2)	Includes owner occupied commercial real estate loans.


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

(4)

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 35% for the three months ended September 30, 2017,~~ presented to approximate interest income as a taxable asset. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

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


	Three Months Ended September 30,
	2018 vs. 2017									Three Months Ended March 31,
	Increase (Decrease) due to Change in									2019 vs. 2018
	Rate			Volume			Total			Increase (decrease) due to change in
(amounts in thousands)										Rate			Volume			Total
Interest income
Interest income:
Interest-earning deposits	$	513		$	102		$	615		$	318		$	(482	)	$	(164	)
Investment securities	1,095			93			1,188			987			(3,418		)	(2,431		)
Loans:
Loans and leases:
Commercial loans to mortgage companies	3,385			(3,210		)	175			1,340			(3,981		)	(2,641		)
Multi-family loans	2,385			(785		)	1,600			694			(3,630		)	(2,936		)
Commercial and industrial loans, including owner occupied commercial real estate	2,563			3,337			5,900
Non-owner occupied commercial real estate	444			(397		)	47
Commercial and industrial loans and leases										3,539			3,106			6,645
Non-owner occupied commercial real estate loans										888			(1,192		)	(304		)
All other loans	808			545			1,353			732			5,689			6,421
Total loans	9,585			(510		)	9,075
Total loans and leases										7,193			(8		)	7,185
Other interest-earning assets	1,040			(158		)	882			53			(532		)	(479		)
Total interest income	12,233			(473		)	11,760			8,551			(4,440		)	4,111
Interest expense
Interest expense:
Interest checking accounts	956			1,026			1,982			1,196			1,187			2,383
Money market deposit accounts	7,581			408			7,989			6,798			(932		)	5,866
Other savings accounts	308			127			435			777			1,098			1,875
Certificates of deposit	4,264			(247		)	4,017			2,629			(1,322		)	1,307
Total interest-bearing deposits	13,109			1,314			14,423			11,400			31			11,431
Borrowings	4,128			(2,773		)	1,355			3,267			(4,860		)	(1,593		)
Total interest expense	17,237			(1,459		)	15,778			14,667			(4,829		)	9,838
Net interest income	$	(5,004	)	$	986		$	(4,018	)	$	(6,116	)	$	389		$	(5,727	)

Net interest income for the three months ended ~~September 30, 2018~~March 31, 2019 was ~~$64.0~~$59.3 million, a decrease of ~~$4.0~~$5.7 million, or ~~5.9%~~8.8%, from net interest income of ~~$68.0~~$65.0 million for the three months ended ~~September 30, 2017,~~March 31, 2018, as ~~net interest margin (tax equivalent)~~NIM narrowed by 15eight basis points to ~~2.47%~~2.59% for ~~third~~first quarter ~~2018~~2019 compared to ~~2.62%~~2.67% for ~~third~~first quarter ~~2017.~~2018. The ~~net interest margin (tax equivalent)~~NIM compression largely resulted from a 7769 basis point increase in the cost of interest-bearing ~~deposits, reflecting higher interest rates offered~~liabilities, partially offset by ~~Customers on its deposit products in order to remain competitive and attract new and retain existing deposit customers, and~~ a 7844 basis point increase in ~~borrowing~~the yield of interest-earning assets. Given the four Federal Reserve interest rate hikes in 2018 and the associated increase in market interest rates, the cost of total deposits increased 62 basis points to 1.75% and borrowings costs ~~reflecting~~increased 73 basis points to 2.98%. The yield on commercial and industrial loans and leases increased 80 basis points given higher ~~short-term funding~~market interest rates. The ~~higher cost of funds was offset in part by a 47~~77 basis point increase in the yield on ~~interest-earning assets, primarily resulting from increased yields on all loan categories, reflecting higher short-term interest rates~~"all other loans" principally reflects the purchase of residential mortgages and ~~increased prepayment fees of $1.5~~consumer loans totaling $132.5 million in ~~third~~first quarter ~~2018~~2019.

Total loans and leases decreased $73.2 million, or 0.8%, to $8.7 billion at March 31, 2019 compared to ~~third quarter 2017.~~the year-ago period, reflecting Customers' efforts to favorably mix the composition of its loan and lease portfolio. Commercial and industrial loans and leases, excluding commercial loans to mortgage companies, increased $334.8 million, or 20.3%, to $2.0 billion; residential mortgages and other consumer loans increased $549.8 million, or 238.9%, to $779.8 million; multi-family loans decreased $433.1 million, or 11.9%, to $3.2 billion; commercial real estate non-owner-occupied loans decreased $88.6 million, or 7.4%, to $1.1 billion; and commercial loans to mortgage companies decreased $396.0 million, or 20.5%, to $1.5 billion.

~~Interest expense on borrowings~~Total deposits increased ~~$1.4~~$382.9 million, or 5.4%, to $7.4 billion at March 31, 2019 compared to the year-ago period. Total demand deposits increased $412.6 million, or 23.3%, to $2.2 billion; savings and money market deposits increased $301.0 million, or 8.9%, to $3.7 billion; and certificates of deposit accounts decreased $330.7 million, or 17.5%, to $1.6 billion. In July 2018, Customers launched a new digital, on-line banking product with a goal of gathering retail deposits. As of March 31, 2019, this new business generated $360.8 million in retail deposits, an increase of $27.5 million since December 31, 2018.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses increased $2.7 million to $4.8 million for the three months ended ~~September 30, 2018~~March 31, 2019, compared to the three months ended September 30, 2017. This increase was primarily driven by higher federal fund rates, partially offset by lower average balances of borrowings, which decreased $0.5 billion for the three months ended September 30, 2018 compared to the three months ended September 30, 2017, as a result of decreases in the average balances of FHLB advances and federal funds purchased, as well as senior note borrowings due to the maturity and payment in full of $63.3 million of senior notes in third quarter 2018.

~~PROVISION FOR LOAN LOSSES~~

~~The provision for loan losses increased by $0.6 million to $2.9 million for the three months ended September 30, 2018, compared to $2.4~~$2.1 million for the same period in ~~2017,~~2018, reflecting Customers' initiatives to increase consumer ~~loans.~~and commercial and industrial loans and leases. The provision for loan and lease losses in ~~third~~first quarter ~~2018~~2019 included ~~$2.3~~$4.2 million for growth in the consumer and commercial and industrial loan ~~portfolio~~ and alease portfolios, net of the multi-family and commercial real estate loan run-off (including $4.0 million relating to increases in residential mortgages and consumer loans) and $0.6 million for impaired loan provisions. The provision for loan and lease losses in first quarter 2018 included provisions of $0.9 million ~~increase~~for loan and lease portfolio growth and $1.3 million for impaired ~~loans,~~loan provisions, offset in part by a ~~release of reserve of~~ $0.2 million release resulting from improved asset quality and lower incurred losses than previously estimated. ~~The provision for loan losses in third quarter 2017 included provisions of $1.4 million for loan portfolio growth and reserves of $0.8 million for impaired loans.~~

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

NON-INTEREST INCOME

The table below presents the components of non-interest income for the three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~

2018.


	Three Months Ended September 30,
	2018			2017			Change			Percentage Change		Three Months Ended March 31,
(dollars in thousands)												2019		2018		Change			Percentage Change
Interchange and card revenue	$	7,084		$	9,570		$	(2,486	)	(26.0	)%	$	8,806	$	9,661	$	(855	)	(8.9	)%
Deposit fees	2,002			2,659			(657		)	(24.7	)%	2,209		2,092		117			5.6	%
Commercial lease income												2,401		862		1,539			178.5	%
Bank-owned life insurance	1,869			1,672			197			11.8	%	1,816		2,031		(215		)	(10.6	)%
Mortgage warehouse transactional fees	1,809			2,396			(587		)	(24.5	)%	1,314		1,887		(573		)	(30.4	)%
Gain on sale of SBA and other loans	1,096			1,144			(48		)	(4.2	)%
Gain (loss) on sale of SBA and other loans												—		1,361		(1,361		)	(100.0	)%
Mortgage banking income	207			257			(50		)	(19.5	)%	167		121		46			38.0	%
(Loss) gain on sale of investment securities	(18,659		)	5,349			(24,008		)	(448.8	)%
Impairment loss on investment securities	—			(8,349		)	8,349			(100.0	)%
Other	6,676			3,328			3,348			100.6	%	3,005		2,895		110			3.8	%
Total non-interest income	$	2,084		$	18,026		$	(15,942	)	(88.4	)%	$	19,718	$	20,910	$	(1,192	)	(5.7	)%

Interchange and card revenue

~~Included within~~The $0.9 million decrease in interchange and card revenue for the three months ended September 30, 2018 was $1.2 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of $8.3 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior to the adoption of the new revenue recognition guidance, these expenses were included within non-interest expense and reported as technology, communication, and bank operations expense. For the three months ended September 30, 2017, debit and prepaid card interchange expense was $1.2 million. If the three months ended September 30, 2017 was presented on a consistent basis with the three months ended September 30, 2018, the reported amount of the gross interchange and card revenue of $9.6 million would have been presented net of the debit and prepaid card interchange expense of $1.2 million, or $8.4 million. When presented on a consistent basis, the $1.3 million decline in interchange and card revenue was largely the result of lower activity volumes in the BankMobile business segment.

~~Deposit fees~~

~~The $0.7 million decrease in deposit fees for the three months ended September 30, 2018~~March 31, 2019 compared to the three months ended ~~September 30, 2017~~March 31, 2018 primarily resulted from ~~reduced transaction~~lower activity volumes inat the BankMobile ~~business~~ segment.

Commercial lease income

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

Mortgage warehouse transactional fees

The $0.6 million decrease in mortgage warehouse transactional fees for the three months ended ~~September 30, 2018~~March 31, 2019 compared to the three months ended ~~September 30, 2017~~March 31, 2018 primarily resulted from ~~reduced transaction volumes and reduced per transaction fees~~a 30% decrease in ~~Customers' mortgage warehouse business.~~

~~(Loss) gain on sale~~the number of ~~investment securities~~

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

~~Impairment loss on investment securities~~

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

~~Other non-interest income~~

~~The $3.3 million increase in other non-interest income for the three months ended September 30, 2018~~March 31, 2019 compared to the three months ended ~~September 30, 2017 was primarily due~~March 31, 2018, as increasing interest rates reduced the volume of mortgage loan originations and refinancings.

Gain (loss) on sale of SBA and other loans

The $1.4 million decrease in gains on sales of SBA and other loans for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 reflects a $2.8 million gain recognized from discontinuing cash flow hedge accounting for three interest rate swaps as of September 30, 2018 and a $1.3 million increase in income from commercial operating leases. These increases were offset in part by a $1.2 million negative mark-to-market adjustmentstrategic shift to retain SBA loans on ~~an equity investment.~~

our balance sheet.

NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.


	Three Months Ended September 30,
	2018		2017		Change			Percentage Change		Three Months Ended March 31,
(dollars in thousands)										2019		2018		Change			Percentage Change
Salaries and employee benefits	$	25,462	$	24,807	$	655		2.6	%	$	25,823	$	24,925	$	898		3.6	%
Technology, communication, and bank operations	11,657		14,401		(2,744		)	(19.1	)%	11,953		9,943		2,010			20.2	%
Professional services	4,743		7,403		(2,660		)	(35.9	)%	4,573		6,008		(1,435		)	(23.9	)%
Merger and acquisition related expenses	2,945		—		2,945			N/A
Occupancy	2,901		2,857		44			1.5	%	2,903		2,834		69			2.4	%
Commercial lease depreciation										1,923		815		1,108			136.0	%
FDIC assessments, non-income taxes, and regulatory fees	2,415		2,475		(60		)	(2.4	)%	1,988		2,200		(212		)	(9.6	)%
Provision for operating losses	1,171		1,509		(338		)	(22.4	)%	1,779		1,526		253			16.6	%
Advertising and promotion	820		404		416			103.0	%	809		390		419			107.4	%
Merger and acquisition related expenses										—		106		(106		)	(100.0	)%
Loan workout	516		915		(399		)	(43.6	)%	320		659		(339		)	(51.4	)%
Other real estate owned expenses	66		445		(379		)	(85.2	)%	57		40		17			42.5	%
Other	4,408		5,824		(1,416		)	(24.3	)%	1,856		2,834		(978		)	(34.5	)%
Total non-interest expense	$	57,104	$	61,040	$	(3,936	)	(6.4	)%	$	53,984	$	52,280	$	1,704		3.3	%

Salaries and employee benefits

The ~~$0.7~~$0.9 million increase in salaries and employee benefits for the three months ended ~~September 30, 2018~~March 31, 2019 compared to the three months ended ~~September 30, 2017 was~~March 31, 2018 primarily ~~attributable to increases in compensation levels for existing team members, reflecting higher costs to maintain our workforce, and~~resulted from an increase in ~~headcount as Customers continues to hire new team members in the markets it serves.~~average full-time equivalent employees and annual merit increases.

Technology, communication, and bank operations

~~Technology,~~The $2.0 million increase in technology, communication, and bank operations expense for the three months ended ~~September 30, 2018 excludes $1.2 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. If~~March 31, 2019 compared to the three months ended ~~September 30, 2017 was presented on a consistent basis with~~March 31, 2018 primarily resulted from the ~~three months ended September 30, 2018, the reported amount of~~continued investment to improve and maintain Customers' digital information technology communication, and bank operations expense of $14.4 million would have been $13.2 million. When presented on a consistent basis, technology, communication, and bank operations expense decreased $1.5 million primarily due to lower activity volumes in the BankMobile business segment.

infrastructure.

Professional services

The ~~$2.7~~$1.4 million decrease in professional services for the three months ended ~~September 30, 2018~~March 31, 2019 compared to the three months ended ~~September 30, 2017 was~~March 31, 2018 primarily ~~attributable to reductions in consulting, legal, and other outside professional services as management continues its~~resulted from management's continued efforts to monitor and control expenses.

~~Merger and acquisition related expenses~~

Commercial lease depreciation

The ~~$2.9~~$1.1 million increase in ~~merger and acquisition related expenses~~commercial lease depreciation for the three months ended ~~September 30, 2018~~March 31, 2019 compared to the three months ended ~~September 30, 2017 was~~March 31, 2018 primarily ~~due~~resulted from the continued growth of the operating lease arrangements originated by Customers' Equipment Finance Group.

Advertising and promotion

The $0.4 million increase in advertising and promotion for the three months ended March 31, 2019 compared to the ~~termination~~three months ended March 31, 2018 primarily resulted from the promotion of the spin-off and merger agreement between Customers and Flagship on October 18, 2018. In connection with the termination of that agreement, Customers recognized expenses of $2.7 million during third quarter 2018 for amounts that, under the terms of the agreement, would have been reimbursed by Flagship only upon completion of the spin-off and merger.

Customers' digital banking products.

Other non-interest expense

The ~~$1.4~~$1.0 million decrease in other non-interest expense for the three months ended ~~September 30, 2018~~March 31, 2019 compared to the three months ended ~~September 30, 2017 was~~March 31, 2018 primarily attributable to $0.7 million in catch-up depreciation and amortization expense recorded in third quarter 2017 for BankMobile assets that were previously classified as held for sale as well as decreases in other miscellaneous expenses as management continues itsresulted from management's continued efforts to monitor and control expenses.

NET INTEREST INCOME ~~TAXES~~

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 ~~below presents~~summarizes Customers' net interest income ~~tax expense~~ and ~~the effective tax rate~~related interest spread and net interest margin for the three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

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



	Three Months Ended March 31,
	2019						2018
(amounts in thousands)	Average balance		Interest income or expense		Average yield or cost		Average balance		Interest income or expense		Average yield or cost
Assets
Interest-earning deposits	$	85,263	$	530	2.52	%	$	184,033	$	694	1.53	%
Investment securities ⁽¹⁾	691,823		6,241		3.61	%	1,085,429		8,672		3.20	%
Loans and leases:
Commercial loans to mortgage companies	1,264,478		15,753		5.05	%	1,591,749		18,394		4.69	%
Multi-family loans	3,253,792		30,376		3.79	%	3,637,929		33,312		3.71	%
Commercial and industrial loans and leases ⁽²⁾	1,921,139		24,332		5.14	%	1,653,655		17,687		4.34	%
Non-owner occupied commercial real estate loans	1,169,333		12,896		4.47	%	1,281,502		13,200		4.18	%
All other loans	812,043		9,759		4.87	%	330,100		3,338		4.10	%
Total loans and leases ⁽³⁾	8,420,785		93,116		4.48	%	8,494,935		85,931		4.10	%
Other interest-earning assets	80,542		1,188		5.98	%	116,823		1,667		5.79	%
Total interest-earning assets	9,278,413		101,075		4.41	%	9,881,220		96,964		3.97	%
Non-interest-earning assets	481,116						394,487
Total assets	$	9,759,529					$	10,275,707
Liabilities
Interest checking accounts	$	815,072	3,815		1.90	%	$	499,245	1,432		1.16	%
Money market deposit accounts	3,144,888		17,338		2.24	%	3,402,963		11,471		1.37	%
Other savings accounts	380,911		1,900		2.02	%	37,496		25		0.27	%
Certificates of deposit	1,552,153		8,172		2.14	%	1,872,351		6,865		1.49	%
Total interest-bearing deposits	5,893,024		31,225		2.15	%	5,812,055		19,793		1.38	%
Borrowings	1,432,685		10,546		2.98	%	2,182,463		12,140		2.25	%
Total interest-bearing liabilities	7,325,709		41,771		2.31	%	7,994,518		31,933		1.62	%
Non-interest-bearing deposits	1,360,815						1,278,947
Total deposits and borrowings	8,686,524				1.95	%	9,273,465				1.39	%
Other non-interest-bearing liabilities	104,401						75,307
Total liabilities	8,790,925						9,348,772
Shareholders’ equity	968,604						926,935
Total liabilities and shareholders’ equity	$	9,759,529					$	10,275,707
Net interest earnings			59,304						65,031
Tax-equivalent adjustment ⁽⁴⁾			181						171
Net interest earnings			$	59,485					$	65,202
Interest spread					2.46	%					2.58	%
Net interest margin					2.59	%					2.66	%
Net interest margin tax equivalent ⁽⁴⁾					2.59	%					2.67	%


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


(2)	Includes owner occupied commercial real estate loans.


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

(4)

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the three months ended March 31, 2019 and 2018, presented to approximate interest income as a taxable asset. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

The ~~$14.9 million decrease~~following table presents the dollar amount of changes in interest income ~~tax~~and interest expense for the major categories of interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.



	Three Months Ended March 31,
	2019 vs. 2018
	Increase (decrease) due to change in
(amounts in thousands)	Rate			Volume			Total
Interest income:
Interest-earning deposits	$	318		$	(482	)	$	(164	)
Investment securities	987			(3,418		)	(2,431		)
Loans and leases:
Commercial loans to mortgage companies	1,340			(3,981		)	(2,641		)
Multi-family loans	694			(3,630		)	(2,936		)
Commercial and industrial loans and leases	3,539			3,106			6,645
Non-owner occupied commercial real estate loans	888			(1,192		)	(304		)
All other loans	732			5,689			6,421
Total loans and leases	7,193			(8		)	7,185
Other interest-earning assets	53			(532		)	(479		)
Total interest income	8,551			(4,440		)	4,111
Interest expense:
Interest checking accounts	1,196			1,187			2,383
Money market deposit accounts	6,798			(932		)	5,866
Other savings accounts	777			1,098			1,875
Certificates of deposit	2,629			(1,322		)	1,307
Total interest-bearing deposits	11,400			31			11,431
Borrowings	3,267			(4,860		)	(1,593		)
Total interest expense	14,667			(4,829		)	9,838
Net interest income	$	(6,116	)	$	389		$	(5,727	)

Net interest income for the three months ended ~~September 30, 2018~~March 31, 2019 was ~~primarily attributable to the elimination~~$59.3 million, a decrease of ~~deferred tax benefits~~$5.7 million, or 8.8%, from ~~the other-than-temporary impairment loss on investment securities totaling $7.7~~net interest income of $65.0 million for the three months ended ~~September 30, 2017,~~March 31, 2018, as NIM narrowed by eight basis points to 2.59% for first quarter 2019 compared to 2.67% for first quarter 2018. The NIM compression largely resulted from a 69 basis point increase in the ~~lowering~~cost of interest-bearing liabilities, partially offset by a 44 basis point increase in the ~~corporate federal income tax~~yield of interest-earning assets. Given the four Federal Reserve interest rate ~~from 35%~~hikes in 2018 and the associated increase in market interest rates, the cost of total deposits increased 62 basis points to ~~21% due~~1.75% and borrowings costs increased 73 basis points to 2.98%. The yield on commercial and industrial loans and leases increased 80 basis points given higher market interest rates. The 77 basis point increase in the yield on "all other loans" principally reflects the purchase of residential mortgages and consumer loans totaling $132.5 million in first quarter 2019.

Total loans and leases decreased $73.2 million, or 0.8%, to $8.7 billion at March 31, 2019 compared to the ~~adoption~~year-ago period, reflecting Customers' efforts to favorably mix the composition of its loan and lease portfolio. Commercial and industrial loans and leases, excluding commercial loans to mortgage companies, increased $334.8 million, or 20.3%, to $2.0 billion; residential mortgages and other consumer loans increased $549.8 million, or 238.9%, to $779.8 million; multi-family loans decreased $433.1 million, or 11.9%, to $3.2 billion; commercial real estate non-owner-occupied loans decreased $88.6 million, or 7.4%, to $1.1 billion; and commercial loans to mortgage companies decreased $396.0 million, or 20.5%, to $1.5 billion.

Total deposits increased $382.9 million, or 5.4%, to $7.4 billion at March 31, 2019 compared to the ~~Tax Cut~~year-ago period. Total demand deposits increased $412.6 million, or 23.3%, to $2.2 billion; savings and ~~Jobs Act~~money market deposits increased $301.0 million, or 8.9%, to $3.7 billion; and certificates of ~~2017,~~deposit accounts decreased $330.7 million, or 17.5%, to $1.6 billion. In July 2018, Customers launched a ~~decrease~~new digital, on-line banking product with a goal of gathering retail deposits. As of March 31, 2019, this new business generated $360.8 million in ~~pre-tax income~~retail deposits, an increase of ~~$16.6~~$27.5 million since December 31, 2018.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses increased $2.7 million to $4.8 million for the three months ended ~~September 30, 2018~~March 31, 2019, compared to the three months ended September 30, 2017, and a $1.7 million favorable return to provision adjustment, which included the benefit of a research and development tax credit, recorded in third quarter 2018 upon completion of the 2017 income tax returns.

~~PREFERRED STOCK DIVIDENDS~~

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

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

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

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

~~The provision for loan losses decreased $1.7 million to $4.3 million for the nine months ended September 30, 2018 when compared to the provision for loan losses of $5.9~~$2.1 million for the same period in ~~2017.~~2018, reflecting Customers' initiatives to increase consumer and commercial and industrial loans and leases. The provision for loan and lease losses in first quarter 2019 included $4.2 million for growth in the ~~nine months ended September 30,~~consumer and commercial and industrial loan and lease portfolios, net of the multi-family and commercial real estate loan run-off (including $4.0 million relating to increases in residential mortgages and consumer loans) and $0.6 million for impaired loan provisions. The provision for loan and lease losses in first quarter 2018 included ~~$3.5~~provisions of $0.9 million for loan and lease portfolio growth and ~~$1.9~~$1.3 million for impaired ~~loans,~~loan provisions, offset in part by a ~~$1.2~~$0.2 million release ~~that resulted~~resulting from improved asset quality and lower incurred losses than previously estimated.

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

NON-INTEREST INCOME

The table below presents the components of $39.1 million decreased $20.1 million, or 33.9%, during the nine months ended September 30, 2018 when compared to non-interest income of $59.2 million for the nine months ended September 30, 2017. Included within non-interest income for the ~~nine~~three months ended ~~September 30, 2018 was an $18.7~~March 31, 2019 and 2018.



	Three Months Ended March 31,
(dollars in thousands)	2019		2018		Change			Percentage Change
Interchange and card revenue	$	8,806	$	9,661	$	(855	)	(8.9	)%
Deposit fees	2,209		2,092		117			5.6	%
Commercial lease income	2,401		862		1,539			178.5	%
Bank-owned life insurance	1,816		2,031		(215		)	(10.6	)%
Mortgage warehouse transactional fees	1,314		1,887		(573		)	(30.4	)%
Gain (loss) on sale of SBA and other loans	—		1,361		(1,361		)	(100.0	)%
Mortgage banking income	167		121		46			38.0	%
Other	3,005		2,895		110			3.8	%
Total non-interest income	$	19,718	$	20,910	$	(1,192	)	(5.7	)%

Interchange and card revenue

The $0.9 million loss realized from the sale of $495 million of lower-yielding investment securities and a $1.5 million negative mark-to-market adjustment on an equity investment. Also included within non-interest income for the nine months ended September 30, 2018 was $3.9 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount ofdecrease in interchange and card revenue ~~of $27.1 million as a result of~~for the ~~adoption of the new revenue recognition guidance as described in NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior~~three months ended March 31, 2019 compared to the ~~adoption~~three months ended March 31, 2018 primarily resulted from lower activity volumes at the BankMobile segment.

Commercial lease income

Mortgage warehouse transactional fees

The $0.6 million decrease in mortgage warehouse transactional fees for the ~~new revenue recognition guidance, these expenses were included within~~three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily resulted from a 30% decrease in the number of loans funded during the three months ended March 31, 2019 compared to the three months ended March 31, 2018, as increasing interest rates reduced the volume of mortgage loan originations and refinancings.

Gain (loss) on sale of SBA and other loans

The $1.4 million decrease in gains on sales of SBA and other loans for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 reflects a strategic shift to retain SBA loans on our balance sheet.

NON-INTEREST EXPENSE

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



	Three Months Ended March 31,
(dollars in thousands)	2019		2018		Change			Percentage Change
Salaries and employee benefits	$	25,823	$	24,925	$	898		3.6	%
Technology, communication, and bank operations	11,953		9,943		2,010			20.2	%
Professional services	4,573		6,008		(1,435		)	(23.9	)%
Occupancy	2,903		2,834		69			2.4	%
Commercial lease depreciation	1,923		815		1,108			136.0	%
FDIC assessments, non-income taxes, and regulatory fees	1,988		2,200		(212		)	(9.6	)%
Provision for operating losses	1,779		1,526		253			16.6	%
Advertising and promotion	809		390		419			107.4	%
Merger and acquisition related expenses	—		106		(106		)	(100.0	)%
Loan workout	320		659		(339		)	(51.4	)%
Other real estate owned expenses	57		40		17			42.5	%
Other	1,856		2,834		(978		)	(34.5	)%
Total non-interest expense	$	53,984	$	52,280	$	1,704		3.3	%

Salaries and employee benefits

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

Technology, communication, and bank operations expense. For the nine months ended September 30, 2017, debit and prepaid card interchange expense was $4.4 million. If the nine months ended September 30, 2017 was presented on a consistent basis with the nine months ended September 30, 2018, the reported amount of non-interest income of $59.2 million would have been $54.8 million and the gross interchange and card revenue of $31.7 million would have been presented net of the debit and prepaid card interchange expense of $4.4 million, or $27.4 million. When presented on a consistent basis, interchange and card revenue decreased $4.2 million in 2018 as compared to the same period in 2017 due to lower activity volumes in the BankMobile business segment. Other decreases in total non-interest income for the nine months ended September 30, 2018 included decreases in deposit fees and mortgage warehouse transactional fees of $2.2 million and $1.5 million, respectively, primarily resulting from reduced transaction volumes. These decreases in non-interest income were offset in part by an increase in other non-interest income of $5.8 million, primarily due to a $3.3

The $2.0 million increase in revenue from commercial operating leases and a $2.8 million gain recognized from discontinuing cash flow hedge accounting for three interest rate swaps. For the nine months ended September 30, 2017, Customers realized $8.5 million of gains from the sale of investment securities and recognized a $12.9 million impairment loss on an equity investment.

Non-interest expense of $163.1 million increased $2.3 million, or 1.4%, for the nine months ended September 30, 2018 when compared to non-interest expense of $160.8 million for the nine months ended September 30, 2017. Total non-interest expense for the nine months ended September 30, 2018 excludes $3.9 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. If the nine months ended September 30, 2017 was presented on a consistent basis with the nine months ended September 30, 2018, the reported amount of non-interest expense of $160.8 million would have been $156.5 million, and technology, communication, and bank operations expense ~~of $33.2 million would have been $28.9 million. When presented on a consistent basis, technology, communication and bank operations expense increased $4.1 million, or 14.1%, to $32.9 million~~ for the ~~nine~~three months ended ~~September 30, 2018 from $28.9 million for~~March 31, 2019 compared to the ~~nine~~three months ended ~~September 30, 2017, given~~March 31, 2018 primarily resulted from the continued investment ~~in the BankMobile segment infrastructure~~to improve and maintain Customers' ~~2018 system conversion. Salaries and employee benefits increased $8.6~~digital information technology infrastructure.

Professional services

The $1.4 million resulting from salary increases to existing team members and an increase in headcount. Merger and acquisition related expenses were $3.9 million for the nine months ended September 30, 2018, compared to no similar expenses for the nine months ended September 30, 2017. These increases in non-interest expense were partially offset by a decrease in professional services for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily resulted from management's continued efforts to monitor and control expenses.

Commercial lease depreciation

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

Advertising and promotion

The $0.4 million increase in advertising and promotion for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily resulted from the promotion of Customers' digital banking products.

Other non-interest expense

The $1.0 million decrease in other non-interest expense ~~of $6.6 million,~~for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily ~~attributable to reductions in consulting, legal, and other professional services as management continues its~~resulted from management's continued efforts to monitor and control expenses.

Income tax expense of $14.3 million decreased $20.0 million, or 58.4%, for the nine months ended September 30, 2018 when compared to income tax expense of $34.2 million for the nine months ended September 30, 2017. The decrease in income tax expense was driven primarily by a lower federal income tax rate from the adoption of the Tax Cut and Jobs Act of 2017, a decrease in pre-tax income of $23.4 million, and a $1.7 million return to provision adjustment, which included the benefit of a research and development tax credit, recorded in third quarter 2018 upon completion of the 2017 income tax returns. Customers' effective tax rate decreased to 20.9% for the nine months ended September 30, 2018, compared to 37.4% for the same period in 2017. Income tax expense included $0.8 million and $4.6 million of tax benefits recognized for the increase in the value of restricted stock units vesting and the exercise of stock options since the award date for the nine months ended September 30, 2018 and 2017, respectively.

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

NET INTEREST INCOME

The following table summarizes Customers' net interest income and related interest spread and net interest margin for the ~~periods indicated.~~three months ended March 31, 2019 and 2018.


	Nine Months Ended September 30,												Three Months Ended March 31,
	2018						2017						2019						2018
	Average Balance		Interest Income or Expense		Average Yield or Cost (%)		Average Balance		Interest Income or Expense		Average Yield or Cost (%)
(dollars in thousands)
(amounts in thousands)													Average balance		Interest income or expense		Average yield or cost		Average balance		Interest income or expense		Average yield or cost
Assets
Interest-earning deposits	$	227,960	$	3,071	1.80	%	$	327,154	$	2,446	1.00	%	$	85,263	$	530	2.52	%	$	184,033	$	694	1.53	%
Investment securities (1)	1,109,555		26,932		3.24	%	971,710		21,017		2.88	%	691,823		6,241		3.61	%	1,085,429		8,672		3.20	%
Loans:
Loans and leases:
Commercial loans to mortgage companies	1,677,895		61,294		4.88	%	1,734,874		53,860		4.15	%	1,264,478		15,753		5.05	%	1,591,749		18,394		4.69	%
Multi-family loans	3,584,640		102,859		3.84	%	3,496,276		96,570		3.69	%	3,253,792		30,376		3.79	%	3,637,929		33,312		3.71	%
Commercial and industrial loans (2)	1,716,907		59,682		4.65	%	1,416,418		44,034		4.16	%
Non-owner occupied commercial real estate	1,268,597		37,996		4.00	%	1,290,762		37,654		3.90	%
Commercial and industrial loans and leases ⁽²⁾													1,921,139		24,332		5.14	%	1,653,655		17,687		4.34	%
Non-owner occupied commercial real estate loans													1,169,333		12,896		4.47	%	1,281,502		13,200		4.18	%
All other loans	469,877		17,155		4.88	%	501,799		16,590		4.42	%	812,043		9,759		4.87	%	330,100		3,338		4.10	%
Total loans (3)	8,717,916		278,986		4.28	%	8,440,129		248,708		3.94	%
Total loans and leases ⁽³⁾													8,420,785		93,116		4.48	%	8,494,935		85,931		4.10	%
Other interest-earning assets	122,736		5,660		6.17	%	102,590		3,061		3.99	%	80,542		1,188		5.98	%	116,823		1,667		5.79	%
Total interest earning assets	10,178,167		314,649		4.13	%	9,841,583		275,232		3.74	%
Total interest-earning assets													9,278,413		101,075		4.41	%	9,881,220		96,964		3.97	%
Non-interest-earning assets	398,570						367,595						481,116						394,487
Total assets	$	10,576,737					$	10,209,178					$	9,759,529					$	10,275,707
Liabilities
Interest checking accounts	$	584,228	6,305		1.44	%	$	338,991	1,839		0.73	%	$	815,072	3,815		1.90	%	$	499,245	1,432		1.16	%
Money market deposit accounts	3,426,620		42,769		1.67	%	3,347,661		24,462		0.98	%	3,144,888		17,338		2.24	%	3,402,963		11,471		1.37	%
Other savings accounts	63,772		514		1.08	%	41,685		87		0.28	%	380,911		1,900		2.02	%	37,496		25		0.27	%
Certificates of deposit	2,041,721		27,191		1.78	%	2,489,970		22,546		1.21	%	1,552,153		8,172		2.14	%	1,872,351		6,865		1.49	%
Total interest-bearing deposits	6,116,341		76,779		1.68	%	6,218,307		48,934		1.05	%	5,893,024		31,225		2.15	%	5,812,055		19,793		1.38	%
Borrowings	2,278,262		41,516		2.44	%	1,836,654		27,255		1.98	%	1,432,685		10,546		2.98	%	2,182,463		12,140		2.25	%
Total interest-bearing liabilities	8,394,603		118,295		1.88	%	8,054,961		76,189		1.26	%	7,325,709		41,771		2.31	%	7,994,518		31,933		1.62	%
Non-interest-bearing deposits	1,165,478						1,185,062						1,360,815						1,278,947
Total deposits and borrowings	9,560,081				1.65	%	9,240,023				1.10	%	8,686,524				1.95	%	9,273,465				1.39	%
Other non-interest-bearing liabilities	81,663						72,622						104,401						75,307
Total liabilities	9,641,744						9,312,645						8,790,925						9,348,772
Shareholders’ Equity	934,993						896,533
Shareholders’ equity													968,604						926,935
Total liabilities and shareholders’ equity	$	10,576,737					$	10,209,178					$	9,759,529					$	10,275,707
Net interest income			196,354						199,043
Net interest earnings															59,304						65,031
Tax-equivalent adjustment (4)			514						399						181						171
Net interest earnings			$	196,868					$	199,442					$	59,485					$	65,202
Interest spread					2.48	%					2.64	%					2.46	%					2.58	%
Net interest margin					2.58	%					2.70	%					2.59	%					2.66	%
Net interest margin tax equivalent (4)					2.58	%					2.71	%					2.59	%					2.67	%


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


(2)	Includes owner occupied commercial real estate loans.


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

(4)

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 35% for the nine months ended September 30, 2017~~ presented to approximate interest income as a taxable asset. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.


	Nine Months Ended September 30,
	2018 vs. 2017									Three Months Ended March 31,
	Increase (Decrease) due to Change in									2019 vs. 2018
	Rate			Volume			Total			Increase (decrease) due to change in
(amounts in thousands)										Rate			Volume			Total
Interest income
Interest income:
Interest-earning deposits	$	1,530		$	(905	)	$	625		$	318		$	(482	)	$	(164	)
Investment securities	2,738			3,177			5,915			987			(3,418		)	(2,431		)
Loans:
Loans and leases:
Commercial loans to mortgage companies	9,252			(1,818		)	7,434			1,340			(3,981		)	(2,641		)
Multi-family loans	3,811			2,478			6,289			694			(3,630		)	(2,936		)
Commercial and industrial loans, including owner occupied commercial real estate	5,597			10,051			15,648
Non-owner occupied commercial real estate	995			(653		)	342
Commercial and industrial loans and leases										3,539			3,106			6,645
Non-owner occupied commercial real estate loans										888			(1,192		)	(304		)
All other loans	1,662			(1,097		)	565			732			5,689			6,421
Total loans	21,317			8,961			30,278
Total loans and leases										7,193			(8		)	7,185
Other interest-earning assets	1,911			688			2,599			53			(532		)	(479		)
Total interest income	27,496			11,921			39,417			8,551			(4,440		)	4,111
Interest expense
Interest expense:
Interest checking accounts	2,580			1,886			4,466			1,196			1,187			2,383
Money market deposit accounts	17,717			590			18,307			6,798			(932		)	5,866
Other savings accounts	360			67			427			777			1,098			1,875
Certificates of deposit	9,232			(4,587		)	4,645			2,629			(1,322		)	1,307
Total interest-bearing deposits	29,889			(2,044		)	27,845			11,400			31			11,431
Borrowings	6,943			7,318			14,261			3,267			(4,860		)	(1,593		)
Total interest expense	36,832			5,274			42,106			14,667			(4,829		)	9,838
Net interest income	$	(9,336	)	$	6,647		$	(2,689	)	$	(6,116	)	$	389		$	(5,727	)

Net interest income for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was ~~$196.4~~$59.3 million, a decrease of ~~$2.7~~$5.7 million, or ~~1.4%~~8.8%, ~~when compared to~~from net interest income of ~~$199.0~~$65.0 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, as ~~net interest margin (tax equivalent)~~NIM narrowed by 13eight basis points to ~~2.58%~~2.59% for ~~the nine months ended September 30, 2018~~first quarter 2019 compared to ~~2.71%~~2.67% for ~~the nine months ended September 30, 2017.~~first quarter 2018. The ~~net interest margin (tax equivalent)~~NIM compression largely resulted from a 6369 basis point increase in the cost of interest-bearing ~~deposits, reflecting higher interest rates offered~~liabilities, partially offset by ~~Customers on its deposit products in order to remain competitive and attract new and retain existing deposit customers, and~~ a 4644 basis point increase in ~~borrowing~~the yield of interest-earning assets. Given the four Federal Reserve interest rate hikes in 2018 and the associated increase in market interest rates, the cost of total deposits increased 62 basis points to 1.75% and borrowings costs ~~reflecting~~increased 73 basis points to 2.98%. The yield on commercial and industrial loans and leases increased 80 basis points given higher ~~short-term funding~~market interest rates. The ~~higher cost of funds was offset in part by a 39~~77 basis point increase in the yield on ~~interest-earning assets, primarily resulting from increased yields on all loan categories, reflecting higher short-term interest rates~~"all other loans" principally reflects the purchase of residential mortgages and ~~increased prepayment fees of $2.0~~consumer loans totaling $132.5 million ~~for the nine months ended September 30, 2018,~~in first quarter 2019.

Total loans and leases decreased $73.2 million, or 0.8%, to $8.7 billion at March 31, 2019 compared to the ~~nine months ended September 30, 2017.~~year-ago period, reflecting Customers' efforts to favorably mix the composition of its loan and lease portfolio. Commercial and industrial loans and leases, excluding commercial loans to mortgage companies, increased $334.8 million, or 20.3%, to $2.0 billion; residential mortgages and other consumer loans increased $549.8 million, or 238.9%, to $779.8 million; multi-family loans decreased $433.1 million, or 11.9%, to $3.2 billion; commercial real estate non-owner-occupied loans decreased $88.6 million, or 7.4%, to $1.1 billion; and commercial loans to mortgage companies decreased $396.0 million, or 20.5%, to $1.5 billion.

~~Interest expense on total interest-bearing~~Total deposits increased ~~$27.8~~$382.9 million, ~~for the nine months ended September 30, 2018,~~or 5.4%, to $7.4 billion at March 31, 2019 compared to the ~~nine months ended September 30, 2017. This~~year-ago period. Total demand deposits increased $412.6 million, or 23.3%, to $2.2 billion; savings and money market deposits increased $301.0 million, or 8.9%, to $3.7 billion; and certificates of deposit accounts decreased $330.7 million, or 17.5%, to $1.6 billion. In July 2018, Customers launched a new digital, on-line banking product with a goal of gathering retail deposits. As of March 31, 2019, this new business generated $360.8 million in retail deposits, an increase ~~primarily resulted from the aforementioned increase in rates offered on all deposit categories. Interest expense on borrowings increased $14.3~~of $27.5 million for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. This increase was driven by increased volume as average borrowings increased by $441.6 million when compared to average borrowings for the nine months ended September 30, 2017, mostly due to higher average outstanding balances of short-term FHLB advances to fund the growth in interest-earning assets.since December 31, 2018.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses ~~decreased by $1.7~~increased $2.7 million to ~~$4.3~~$4.8 million for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, compared to ~~$5.9~~$2.1 million for the same period in ~~2017.~~2018, reflecting Customers' initiatives to increase consumer and commercial and industrial loans and leases. The provision for loan and lease losses in first quarter 2019 included $4.2 million for growth in the ~~nine months ended September 30,~~consumer and commercial and industrial loan and lease portfolios, net of the multi-family and commercial real estate loan run-off (including $4.0 million relating to increases in residential mortgages and consumer loans) and $0.6 million for impaired loan provisions. The provision for loan and lease losses in first quarter 2018 included ~~$3.5~~provisions of $0.9 million for loan and lease portfolio growth and ~~$1.9~~$1.3 million for impaired ~~loans,~~loan provisions, offset in part by a ~~release of $1.2~~$0.2 million resulting from improved asset quality and lower incurred losses than previously estimated. The provision for loan losses for the nine months ended September 30, 2017 included $2.3 million for loan portfolio growth and $3.9 million for impaired loans, offset in part by a release ~~of $0.8 million~~ resulting from improved asset quality and lower incurred losses than previously estimated.

For more information about the provision and ~~allowance for loan losses~~ALLL 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~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.


	Nine Months Ended September 30,
	2018			2017			Change			Percentage Change		Three Months Ended March 31,
(dollars in thousands)												2019		2018		Change			Percentage Change
Interchange and card revenue	$	23,127		$	31,729		$	(8,602	)	(27.1	)%	$	8,806	$	9,661	$	(855	)	(8.9	)%
Deposit fees												2,209		2,092		117			5.6	%
Commercial lease income												2,401		862		1,539			178.5	%
Bank-owned life insurance	5,769			5,297			472			8.9	%	1,816		2,031		(215		)	(10.6	)%
Deposit fees	5,726			7,918			(2,192		)	(27.7	)%
Mortgage warehouse transactional fees	5,663			7,139			(1,476		)	(20.7	)%	1,314		1,887		(573		)	(30.4	)%
Gain on sale of SBA and other loans	3,404			3,045			359			11.8	%
Gain (loss) on sale of SBA and other loans												—		1,361		(1,361		)	(100.0	)%
Mortgage banking income	532			703			(171		)	(24.3	)%	167		121		46			38.0	%
(Loss) gain on sale of investment securities	(18,659		)	8,532			(27,191		)	(318.7	)%
Impairment loss on investment securities	—			(12,934		)	12,934			(100.0	)%
Other	13,558			7,741			5,817			75.1	%	3,005		2,895		110			3.8	%
Total non-interest income	$	39,120		$	59,170		$	(20,050	)	(33.9	)%	$	19,718	$	20,910	$	(1,192	)	(5.7	)%

Interchange and card revenue

~~Included within~~The $0.9 million decrease in interchange and card revenue for the ~~nine~~three months ended ~~September 30, 2018 was $3.9 million of debit and prepaid card interchange expense, which was recorded as a reduction~~March 31, 2019 compared to the gross amount of interchange and card revenue of $27.1 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION on a modified retrospective basis. Prior to the adoption of the new revenue recognition guidance, these expenses were included within non-interest expense and reported as technology, communication, and bank operations expense. For the ninethree months ended September 30, 2017, debit and prepaid card interchange expense was $4.4 million. If the nine months ended September 30, 2017 was presented on a consistent basis with the nine months ended September 30,March 31, 2018 the reported amount of gross interchange and card revenue of $31.7 million would have been presented net of the debit and prepaid card interchange expense of $4.4 million, or $27.4 million. When presented on a consistent basis, interchange and card revenue decreased $4.2 million as a result ofprimarily resulted from lower activity volumes inat the BankMobile ~~business~~ segment.

Commercial lease income

~~Deposit fees~~

Commercial lease income represents income earned on commercial operating leases originated by Customers' Equipment Finance Group in which Customers is the lessor. The ~~$2.2~~$1.5 million ~~decrease~~increase in ~~deposit fees~~commercial lease income for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared to the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 primarily resulted from ~~reduced transaction volumes at BankMobile.~~the continued growth of Customers' equipment finance business.

Mortgage warehouse transactional fees

The ~~$1.5~~$0.6 million decrease in mortgage warehouse transactional fees for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared to the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 primarily resulted from ~~reduced transaction volumes and reduced per transaction fees~~a 30% decrease in ~~Customers' mortgage warehouse business due~~the number of loans funded during the three months ended March 31, 2019 compared to the ~~general slowdown~~three months ended March 31, 2018, as increasing interest rates reduced the volume of mortgage loan originations ~~across the United States.~~and refinancings.

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

~~For~~The $1.4 million decrease in gains on sales of SBA and other loans for the ~~nine~~three months ended September 30, 2018, Customers realized a loss of $18.7 million from the sale of $495 million of lower-yielding investment securities, compared to a gain of $8.5 million from the sale of $662 million of investment securities for the nine months ended September 30, 2017. The 2018 loss results from the fixed rate nature of the bonds relative to the higher market interest rates for those bonds in the third quarter of 2018.

~~Impairment loss on investment securities~~

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

~~Other non-interest income~~

~~The $5.8 million increase in other non-interest income for the nine months ended September 30, 2018~~2019 compared to the ~~nine~~three months ended ~~September 30, 2017 was primarily due~~March 31, 2018 reflects a strategic shift to a $2.8 million gain recognized from discontinuing cash flow hedge accounting for three interest rate swaps as of September 30, 2018 and a $3.3 million increase in income from commercial operating leases. These increases were offset in part by a $1.5 million negative mark-to-market adjustmentretain SBA loans on ~~an equity investment.~~our balance sheet.

NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.


	Nine Months Ended September 30,
	2018		2017		Change			Percentage Change		Three Months Ended March 31,
(dollars in thousands)										2019		2018		Change			Percentage Change
Salaries and employee benefits	$	78,135	$	69,569	$	8,566		12.3	%	$	25,823	$	24,925	$	898		3.6	%
Technology, communication, and bank operations	32,923		33,227		(304		)	(0.9	)%	11,953		9,943		2,010			20.2	%
Professional services	14,563		21,142		(6,579		)	(31.1	)%	4,573		6,008		(1,435		)	(23.9	)%
Occupancy	8,876		8,228		648			7.9	%	2,903		2,834		69			2.4	%
Commercial lease depreciation										1,923		815		1,108			136.0	%
FDIC assessments, non-income taxes, and regulatory fees	6,750		6,615		135			2.0	%	1,988		2,200		(212		)	(9.6	)%
Provision for operating losses	3,930		4,901		(971		)	(19.8	)%	1,779		1,526		253			16.6	%
Advertising and promotion										809		390		419			107.4	%
Merger and acquisition related expenses	3,920		—		3,920			N/A		—		106		(106		)	(100.0	)%
Loan workout	1,823		1,844		(21		)	(1.1	)%	320		659		(339		)	(51.4	)%
Advertising and promotion	1,529		1,108		421			38.0	%
Other real estate owned expenses	164		550		(386		)	(70.2	)%	57		40		17			42.5	%
Other	10,521		13,634		(3,113		)	(22.8	)%	1,856		2,834		(978		)	(34.5	)%
Total non-interest expense	$	163,134	$	160,818	$	2,316		1.4	%	$	53,984	$	52,280	$	1,704		3.3	%

Salaries and employee benefits

The ~~$8.6~~$0.9 million increase in salaries and employee benefits for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared to the ~~nine~~three months ended ~~September 30, 2017 was~~March 31, 2018 primarily ~~due to salary increases for existing team members~~resulted from an increase in average full-time equivalent employees and ~~increased headcount as Customers continues to hire new team members in the markets it serves.~~annual merit increases.

Technology, communication, and bank operations

~~Technology, communication, and bank operations for the nine months ended September 30, 2018 excludes $3.9~~The $2.0 million of debit and prepaid card interchange expense as a result of the adoption of the new revenue recognition guidance on January 1, 2018. For the nine months ended September 30, 2017, debit and prepaid card interchange expense was $4.4 million. If the nine months ended September 30, 2017 was presented on a consistent basis with the nine months ended September 30, 2018, the reported amount ofincrease in technology, communication, and bank operations expense ~~of $33.2 million would have been $28.9 million. When presented on a consistent basis, technology, communication and bank operations expense increased $4.1 million to $32.9~~

~~million~~ for the ~~nine~~three months ended ~~September 30, 2018 from $28.9 million for~~March 31, 2019 compared to the ~~nine~~three months ended ~~September 30, 2017, as a result of~~March 31, 2018 primarily resulted from the continued investment ~~in the BankMobile segment infrastructure~~to improve and maintain Customers' ~~2018 system conversion.~~digital information technology infrastructure.

Professional services

The ~~$6.6~~$1.4 million decrease in professional services for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared to the ~~nine~~three months ended ~~September 30, 2017 was~~March 31, 2018 primarily ~~driven by a reduction in expenses for consulting, legal, and other professional fees as management continues its~~resulted from management's continued efforts to monitor and control expenses.

~~Provision for operating losses~~Commercial lease depreciation

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

~~Merger and acquisition related expenses~~

~~The $3.9~~$1.1 million increase in ~~merger and acquisition related expenses~~commercial lease depreciation for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared to the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 primarily ~~related~~resulted from the continued growth of the operating lease arrangements originated by Customers' Equipment Finance Group.

Advertising and promotion

The $0.4 million increase in advertising and promotion for the three months ended March 31, 2019 compared to the ~~planned spin-off and merger of BankMobile and a residual expense resulting~~three months ended March 31, 2018 primarily resulted from the ~~2016 acquisition~~promotion of the Disbursement business. Upon termination of the spin-off and merger agreement between Customers and Flagship on October 18, 2018, Customers recognized expenses of $2.7 million during third quarter 2018 for amounts that, under the terms of that agreement, would have been reimbursed by Flagship only upon completion of the spin-off and merger.Customers' digital banking products.

Other non-interest expense

The ~~$3.1~~$1.0 million decrease in other non-interest expense for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared to the ~~nine~~three months ended ~~September 30, 2017 was generated by numerous specific cost saves and reflects~~March 31, 2018 primarily resulted from management's continued efforts to monitor and control expenses.

INCOME TAXES

The table below presents income tax expense and the effective tax rate for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.


	Nine Months Ended September 30,
	2018			2017			Change			Percentage Change		Three Months Ended March 31,
(dollars in thousands)												2019			2018			Change			Percentage Change
Income before income tax expense	$	68,083		$	91,458		$	(23,375	)	(25.6	)%	$	20,271		$	31,544		$	(11,273	)	(35.7	)%
Income tax expense	14,250			34,236			(19,986		)	(58.4	)%	4,831			7,402			(2,571		)	(34.7	)%
Effective tax rate	20.93		%	37.43		%						23.83		%	23.47		%

The ~~$20.0~~$2.6 million decrease in income tax expense for the ~~nine~~three months ended ~~September 30, 2018 was~~March 31, 2019 primarily ~~attributable to the lowering of the corporate federal income tax rate~~resulted from ~~35% to 21% due to the adoption of the Tax Cut and Jobs Act of 2017,~~ a decrease in pre-tax income of ~~$23.4~~$11.3 million ~~and a $1.7 million favorable return to provision adjustment, which included~~for the benefit of a research and development tax credit, recorded in third quarter 2018 upon completion of the 2017 income tax returns. Offsetting these items was a lower tax benefit of $3.8 million recognized during the ninethree months ended ~~September 30, 2018~~March 31, 2019 compared to the ~~same period in 2017 for an increase in the fair value of restricted stock units vesting and the exercise of stock options since the award date.~~

three months ended March 31, 2018.

PREFERRED STOCK DIVIDENDS

Preferred stock dividends were ~~$10.8~~$3.6 million for both the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017, respectively.~~the three months ended March 31, 2018. There were no changes to the amount of preferred stock outstanding or the dividend rates ~~for the~~from first ~~nine months of~~quarter 2018 ~~compared~~ to ~~the~~ first ~~nine months of 2017.~~quarter 2019.

Financial Condition

General

Customers' total assets were ~~$10.6~~$10.1 billion at ~~September 30, 2018.~~March 31, 2019. This represented a ~~$0.8~~$0.3 billion increase from total assets of $9.8 billion at December 31, ~~2017.~~2018. The increase in total assets ~~was~~ primarily ~~attributable to~~resulted from increases in loans and leases receivable of $126.0 million; loans receivable, mortgage warehouse, of $74.8 million; and cash and cash equivalents of $0.5 billion, largely resulting from proceeds received from the sale of lower-yielding investment securities during third quarter 2018, and investment securities of $0.2 billion. Customers expects total assets to be under $10 billion by the end of 2018 as management focuses on optimizing balance sheet mix, enhancing liquidity, improving capital, expanding net interest margin, and maximizing the return on average assets.$55.5 million.

Total liabilities were ~~$9.7~~$9.2 billion at ~~September 30, 2018.~~March 31, 2019. This represented a ~~$0.7~~$0.3 billion increase from $8.9 billion at December 31, ~~2017.~~2018. The increase in total liabilities primarily resulted ~~primarily~~ from ~~an increase~~increases in total deposits of ~~$1.7~~$0.3 billion and federal funds purchased of $0.2 billion, offset in part by ~~reductions~~a reduction in FHLB advances ~~of $0.8 billion and federal funds purchased~~ of $0.2 billion.

The following table presents certain key condensed balance sheet data as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:


	September 30, 2018			December 31, 2017			Change			Percentage Change
(dollars in thousands)				(As Restated)								March 31, 2019			December 31, 2018			Change			Percentage Change
Cash and cash equivalents	$	666,034		$	146,323		$	519,711		355.2	%	$	117,662		$	62,135		$	55,527		89.4	%
Investment securities, at fair value	668,851			471,371			197,480			41.9	%	678,142			665,012			13,130			2.0	%
Loans held for sale (includes $1,383 and $1,886, respectively, at fair value)	1,383			146,077			(144,694		)	(99.1	)%
Loans held for sale (includes $1,602 and $1,507, respectively, at fair value)												1,602			1,507			95			6.3	%
Loans receivable, mortgage warehouse, at fair value	1,516,327			1,793,408			(277,081		)	(15.4	)%	1,480,195			1,405,420			74,775			5.3	%
Loans receivable	7,239,950			6,768,258			471,692			7.0	%
Allowance for loan losses	(40,741		)	(38,015		)	(2,726		)	7.2	%
Loans and leases receivable												7,264,049			7,138,074			125,975			1.8	%
Allowance for loan and lease losses												(43,679		)	(39,972		)	(3,707		)	9.3	%
Total assets	10,617,104			9,839,555			777,549			7.9	%	10,143,894			9,833,425			310,469			3.2	%
Total deposits	8,513,714			6,800,142			1,713,572			25.2	%	7,425,318			7,142,236			283,082			4.0	%
Federal funds purchased	—			155,000			(155,000		)	(100.0	)%	388,000			187,000			201,000			107.5	%
FHLB advances	835,000			1,611,860			(776,860		)	(48.2	)%	1,025,832			1,248,070			(222,238		)	(17.8	)%
Other borrowings	123,779			186,497			(62,718		)	(33.6	)%	123,963			123,871			92			0.1	%
Subordinated debt	108,953			108,880			73			0.1	%	109,002			108,977			25			—	%
Total liabilities	9,662,292			8,918,591			743,701			8.3	%	9,165,521			8,876,609			288,912			3.3	%
Total shareholders’ equity	954,812			920,964			33,848			3.7	%	978,373			956,816			21,557			2.3	%
Total liabilities and shareholders’ equity	10,617,104			9,839,555			777,549			7.9	%	10,143,894			9,833,425			310,469			3.2	%

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 $12.9~~Cash and due from banks were $41.7 million and $17.7 million at ~~September 30, 2018. This represented a $7.4 million decrease from $20.4 million at~~March 31, 2019 and December 31, ~~2017. These~~2018, respectively. Cash and due from banks balances vary from day to day, primarily due to variations in customers’ deposit activities with ~~Customers.~~

the Bank.

Interest-earning deposits consist of cash deposited at other banks, primarily the ~~Federal Reserve Bank of Philadelphia.~~FRB. Interest-earning deposits were ~~$653.1~~$75.9 million and ~~$125.9~~$44.4 million at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The increase in interest-earning deposits can be mostly attributed to proceeds received from the sale of lower-yielding investment securities in third quarter 2018, which were subsequently used to pay down FHLB advances in October 2018. Additionally, the balance of interest-earning deposits varies from day to day, depending on several factors, such as fluctuations in customers' deposits with Customers, payment of checks drawn on customers' accounts and strategic investment decisions made to maximize Customers' net interest income, while effectively managing interest-rate risk and liquidity.

Investment Securities

The investment securities portfolio is an important source of interest income and liquidity. It consists of mortgage-backed securities (guaranteed by an agency of the United States government), corporate ~~debt~~securities and marketable equity securities. In addition to generating revenue, the investment portfolio is maintained to manage interest-rate risk, provide liquidity, provide collateral for other borrowings and diversify the credit risk of interest-earning assets. The portfolio is structured to optimize net interest income, given changes in the economic environment, liquidity position and balance sheet mix.

~~Investment~~At March 31, 2019, investment securities totaled ~~$668.9~~$678.1 million ~~at September 30, 2018~~ compared to ~~$471.4~~$665.0 million at December 31, ~~2017.~~2018. The increase in investment securities ~~was~~ primarily resulted from a market-driven recovery in the ~~result of purchases~~fair value of agency-guaranteed mortgage-backed securities and corporate securities totaling $763.2 million, largely during the first quarter of 2018, offset in part by the sale of $494.8 million of lower-yielding securities during the third quarter of this year, and maturities, calls and principal repayments totaling $38.9 million during the nine months ended September 30, 2018.securities.

For financial reporting purposes, available-for-sale debt securities are carried at fair value. Unrealized gains and losses on available-for-sale debt securities are included in ~~other comprehensive income~~OCI and reported as a separate component of shareholders’ equity, net of the related tax effect. ~~Beginning January 1, 2018, changes~~Changes in the fair value of marketable equity securities ~~previously classified as available for sale~~ are recorded in earnings in the period in which they occur and are no longer deferred in accumulated other comprehensive income. Amounts previously recorded to accumulated other comprehensive income were reclassified to retained earnings on January 1, 2018. See NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for additional details related to the adoption of ASU 2016-01, ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~.occur.

LOANS AND LEASES

Existing lending relationships are primarily with small and middle market businesses and individual consumers primarily in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Rye Brook, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan and Melville, New York; Washington, D.C.; and Chicago, Illinois. The portfolio of loans to mortgage banking businesses is nationwide. The loan portfolio consists primarily of loans to support mortgage banking companies’ funding needs, multi-family/commercial real estate and commercial and industrial loans. Customers continues to focus on small and middle market business loans to grow its commercial lending efforts, particularly its commercial and industrial loan and lease portfolio and its specialty mortgage lending business, and has announced its entry into non-QM residential mortgage lending and plans to increase its consumer lending activities. In addition, Customers has been deemphasizing its multi-family business and has significantly limited originations of loans yielding less than 5.25% in order to reduce net interest margin compression.

Commercial Lending

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

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

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

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 lending to mortgage banking businesses products, which primarily provides financing to mortgage bankers for residential mortgage originations from loan closing until sale in the secondary market. Many providers of liquidity in this segment exited the business in 2009 during a period of market turmoil. Customers saw an opportunity to provide liquidity to this business segment at attractive spreads. There was also the opportunity to attract escrow deposits and to generate fee income in this business. The goal of the mortgage banking business lending group is to originate loans that provide liquidity to mortgage banking companies. These loans are primarily used by mortgage companies to fund their pipelines from closing of individual mortgage loans until their sale into the secondary market. The underlying residential loans are taken as collateral for Customers' commercial loans to the mortgage companies. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, commercial loans to mortgage banking businesses totaled $1.5 billion and ~~$1.8~~$1.4 billion, respectively, and are reported as loans receivable, mortgage warehouse, at fair ~~value.~~value on the consolidated balance sheet.

~~The goal of~~Customers intends to deemphasize its lower-yielding multi-family loan portfolio, and invest in higher-yielding commercial and industrial and consumer loan portfolios with the multi-family run-off. However, Customers' multi-family lending group iscontinues to ~~build~~focus on retaining a portfolio of high-quality multi-family loans within Customers' covered markets while ~~cross selling~~cross-selling other products and services. These lending activities primarily target the refinancing of loans with other banks using conservative underwriting standards and provide purchase money for new acquisitions by borrowers. The primary collateral for these loans is a first lien mortgage on the multi-family property, plus an assignment of all leases related to such property. As of ~~September 30, 2018,~~March 31, 2019, Customers had multi-family loans of ~~$3.5~~$3.2 billion outstanding, comprising approximately ~~40.0%~~36.7% of the total loan and lease portfolio, compared to ~~$3.6~~$3.3 billion, or approximately ~~41.9%~~38.4% of the total loan and lease portfolio, at December 31, ~~2017.~~2018.

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, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Customers had ~~$157.4~~$187.8 million and ~~$152.5~~$172.9 million, respectively, of equipment finance loans outstanding. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Customers had ~~$39.3~~$56.4 million and ~~$26.6~~$54.5 million of equipment finance leases, respectively. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Customers had ~~$40.7~~$60.4 million and ~~$21.7~~$54.5 million, respectively, of operating leases entered into under this program, net of accumulated depreciation of ~~$3.4~~$6.7 million and ~~$0.5~~$4.8 million, respectively.

As of September 30, 2018, Customers had $8.1 billion in commercial loans outstanding, totaling approximately 92.6% of its total loan portfolio, which includes loans held for sale and loans receivable mortgage warehouse at fair value, compared to commercial loans outstanding of $8.4 billion, comprising approximately 96.2% of its loan portfolio, at December 31, 2017.

Consumer Lending

Customers provides home equity and residential mortgage loans to customers. Underwriting standards for home equity lending are conservative, and lending is offered to solidify customer relationships and grow relationship revenues in the long term. This lending is important in Customers' efforts to grow total relationship revenues for its consumer households. Customers plans to expand its product offerings in real estate secured, as well as other consumer lending activities, including unsecured consumer lending. As of ~~September 30, 2018,~~March 31, 2019, Customers had ~~$645.0~~$857.6 million in consumer loans outstanding, or ~~7.4%~~9.8% of the total loan and lease portfolio, compared to ~~$329.8~~$721.8 million, or ~~3.8%~~8.4% of the total loan and lease portfolio, as of December 31, ~~2017.~~2018. During ~~third~~first quarter ~~2018,~~2019, Customers purchased ~~$72.7~~a total of $132.5 million of residential mortgage and other consumer loans from third party financial institutions. Customers plans to expand its product offerings in real estate secured consumer lending, as well as other consumer lending activities, and has announced its entry into the non-QM residential mortgage market.

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

Loans Held for Sale

The composition of loans held for sale as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 was as follows:


	September 30,		December 31,
	2018		2017
(amounts in thousands)			(As Restated)		March 31, 2019		December 31, 2018
Commercial loans:
Multi-family loans at lower of cost or fair value	$	—	$	144,191
Total commercial loans held for sale	—		144,191
Consumer loans:
Residential mortgage loans, at fair value	1,383		1,886		$	1,602	$	1,507
Loans held for sale	$	1,383	$	146,077	$	1,602	$	1,507

At ~~September 30, 2018,~~March 31, 2019, loans held for sale totaled ~~$1.4~~$1.6 million, or 0.02% of the total loan and lease portfolio, and ~~$146.1~~$1.5 million, or ~~1.7%~~0.02% of the total loan and lease portfolio, at December 31, ~~2017.~~2018. 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~~ALLL is not recorded on loans that are classified as held for sale.

Total Loans and Leases Receivable

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



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

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 their fair value and loans and leases receivable which are primarily reported at their outstanding unpaid principal balance, net of charge-offs, deferred costs and fees, and unamortized premiums and discounts and are evaluated for impairment.

Loans receivable, mortgage warehouse, at fair value

The mortgage warehouse product line provides financing to mortgage companies nationwide from the time of origination of the underlying mortgage loans until the mortgage loans are sold into the secondary market. As a mortgage warehouse lender, Customers provides a form of financing to mortgage bankers by purchasing for resale the underlying residential mortgages on a short-term basis under a master repurchase agreement. These loans are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance sheets. Because these loans are reported at their fair ~~value), net of the~~value, they do not have an allowance for loan and lease losses ~~increased~~and are therefore excluded from allowance for loan and lease losses related disclosures. At March 31, 2019, 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 ~~$469.0 million~~obtaining financial and other relevant information to ~~$7.2~~reduce these risks during the lending period. Loans receivable, mortgage warehouse, at fair value totaled $1.5 billion and $1.4 billion at ~~September 30, 2018 from $6.7 billion at December~~March 31, ~~2017. Loans receivable as of September 30, 2018~~2019 and December 31, ~~2017 consisted of the following:~~

September 30, December 31,
2018 2017
(amounts in thousands) (As Restated)
Loans receivable, mortgage warehouse, at fair value $ 1,516,327
$ 1,793,408
Loans receivable:
Commercial:
Multi-family 3,504,540
3,502,381
Commercial and industrial (including owner occupied commercial real estate) 1,841,704
1,633,818
Commercial real estate non-owner occupied 1,157,849
1,218,719
Construction 95,250
85,393
Total commercial loans receivable 6,599,343
6,440,311
Consumer:
Residential real estate 509,853
234,090
Manufactured housing 82,589
90,227
Other 51,210
3,547
Total consumer loans receivable 643,652
327,864
Loans receivable 7,242,995
6,768,175
Deferred (fees)/costs and unamortized (discounts)/premiums, net (3,045 ) 83
Allowance for loan losses (40,741 ) (38,015 )
Total loans receivable, net of allowance for loan losses $ 8,715,536
$ 8,523,651
2018, respectively.

Credit Risk

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

The provision for loan and lease losses was ~~$2.9~~$4.8 million and ~~$2.4~~$2.1 million for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $4.3 million and $5.9 million for the nine months ended September 30, 2018 and 2017,~~ respectively. The ~~allowance for loan losses~~ALLL maintained for loans and leases receivable (excluding loans held for sale and loans receivable, mortgage warehouse, ~~loans,~~ at fair value) was ~~$40.7~~$43.7 million, or 0.60% of loans and leases receivable, at March 31, 2019 and $40.0 million, or 0.56% of loans ~~receivable, at September 30, 2018~~ and ~~$38.0 million, or 0.56% of loans~~leases receivable, at December 31, ~~2017.~~2018. Net charge-offs were ~~$0.5~~$1.1 million for the three months ended ~~September 30, 2018, a decrease~~March 31, 2019, an increase of ~~$2.0~~$0.4 million compared to the same period in ~~2017.~~2018. The ~~decrease~~increase in net charge-offs period over period was mainly driven by ~~a decrease in~~

higher net ~~charge-off activities~~charge-offs in the ~~commercial~~multi-family and ~~industrial~~other consumer loan portfolio. Net charge-offs were $1.5 million for the nine months ended September 30, 2018, a decrease of $3.4 million compared to the same period in 2017. The decrease in net charge-offs period over period was mainly driven by a decrease in net charge-off activities related to the commercial and industrial loan portfolio. This decrease wasportfolios, partially offset by ~~an increase in~~lower net ~~charge-off activities~~charge-offs in the ~~other consumer~~residential real estate loan portfolio.

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

Analysis of the Allowance for Loan and Lease Losses


	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		Three Months Ended March 31,
(amounts in thousands)									2019		2018
Balance at the beginning of the period	$	38,288	$	38,458	$	38,015	$	37,315	$	39,972	$	38,015
Loan charge-offs (1)
Loan and lease charge-offs ⁽¹⁾
Multi-family									541		—
Commercial and industrial	90		2,032		314		4,079		—		50
Commercial real estate owner occupied	—		—		501		—		8		18
Commercial real estate non-owner occupied	—		77		—		485
Residential real estate	—		120		407		410		40		365
Other consumer	437		356		1,155		602		755		256
Total Charge-offs	527		2,585		2,377		5,576		1,344		689
Loan recoveries (1)
Loan and lease recoveries ⁽¹⁾
Commercial and industrial	30		54		205		337		119		35
Commercial real estate owner occupied	—		—		326		9		128		—
Commercial real estate non-owner occupied	5		—		5		—
Construction	11		27		231		157		6		11
Residential real estate	6		7		69		34		7		7
Other consumer	4		1		10		101		24		3
Total Recoveries	56		89		846		638		284		56
Total net charge-offs	471		2,496		1,531		4,938		1,060		633
Provision for loan losses	2,924		2,352		4,257		5,937
Provision for loan and lease losses									4,767		2,117
Balance at the end of the period	$	40,741	$	38,314	$	40,741	$	38,314	$	43,679	$	39,499


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

The ~~allowance for loan losses~~ALLL 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 losses incurred as of the balance sheet date. All commercial loans, with the exception of commercial mortgage warehouse loans, which are reported at fair value, are assigned internal credit-risk ratings, based upon an assessment of the borrower, the structure of the transaction and the available collateral and/or guarantees. All loans and leases are monitored regularly by the responsible officer, and the risk ratings are adjusted when considered appropriate. The risk assessment allows management to identify problem loans and leases timely. Management considers a variety of factors and recognizes the inherent risk of loss that always exists in the lending process. Management uses a disciplined methodology to estimate an appropriate level of ~~allowance for loan losses.~~ALLL. Refer to Critical Accounting Policies herein and NOTE 42 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' audited financial statements in its ~~2017~~2018 Form 10-K for further discussion on management's methodology for estimating the ~~allowance for loan losses.~~

ALLL.

Approximately ~~83%~~80% of Customers' commercial real estate, commercial and residential construction, consumer residential and commercial and industrial loan types have real estate as collateral (collectively, “the real estate portfolio”). Customers' lien position on the real estate collateral will vary on a loan-by-loan basis and will change as a result of changes in the value of the collateral. Current appraisals providing current value estimates of the property are received when Customers' credit group determines that the facts and circumstances have significantly changed since the date of the last appraisal, including that real estate values have deteriorated. The credit committee and loan officers review loans that are 15 or more days delinquent and all non-accrual loans on a periodic basis. In addition, loans where the loan officers have identified a “borrower of interest” are discussed to determine if additional analysis is necessary to apply the risk-rating criteria properly. The risk ratings for the real estate loan portfolio are determined based upon the current information available, including but not limited to discussions with the borrower, updated financial information, economic conditions within the geographic area and other factors that may affect the cash flow of the loan. If a loan is individually evaluated for impairment, the collateral value or discounted cash flow analysis is generally used to determine the estimated fair value of the underlying collateral, net of estimated selling costs, and compared to the outstanding loan balance to determine the amount of reserve necessary, if any. Appraisals used in this evaluation process are typically less than two years aged. For loans where real estate is not the primary source of collateral, updated financial information is obtained, including accounts receivable and inventory aging reports and relevant supplemental financial data to estimate the fair value of the loan, net of estimated selling costs, and compared to the outstanding loan balance to estimate the required reserve.

These impairment measurements are inherently subjective as they require material estimates, including, among others, estimates of property values in appraisals, the amounts and timing of expected future cash flows on individual loans, and general considerations for historical loss experience, economic conditions, uncertainties in estimating losses and inherent risks in the various credit portfolios, all of which require judgment and may be susceptible to significant change over time and as a result of changing economic conditions or other factors. Pursuant to ASC 310-10-35 Loan Impairment and ASC 310-40 Troubled Debt Restructurings by Creditors, impaired loans, consisting primarily of non-accrual and restructured loans, are considered in the methodology for determining the ~~allowance for loan losses.~~ALLL. Impaired loans are generally evaluated based on the expected future cash flows or the fair value of the underlying collateral (less estimated costs to sell) if principal repayment is expected to come from the sale or operation of such collateral.

Asset Quality

Customers ~~divides its loan portfolio into two categories to analyze and understand loan activity and performance: loans that were originated and loans that were acquired. Customers further~~ segments the ~~originated~~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 losses from originated loans and leases are absorbed by the ~~allowance for loan losses.~~ALLL. Credit losses from acquired loans are absorbed by the ~~allowance for loan losses,~~ALLL, nonaccretable difference fair value marks and cash reserves. As described below, the allowance for loan losses is intended to absorb only those losses estimated to have been incurred after acquisition, whereas the fair value mark and cash reserves absorb losses estimated to have been embedded in the acquired loans at acquisition. The schedule that follows includes both loans held for sale and loans held for investment.

Asset Quality at ~~September 30, 2018~~March 31, 2019


(dollars in thousands)																					Total Loans			Current			30-89 Days Past Due		90 Days or More Past Due and Accruing		Non-accrual/NPL (a)		OREO (b)		NPA (a)+(b)		NPL to Loan Type (%)		NPA to Loans + OREO (%)
Loan Type	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 (%)
(dollars in thousands)
Originated Loans
Multi-Family	$	3,502,079		$	3,500,736		$	—	$	—	$	1,343	$	—	$	1,343	0.04	%	0.04	%
Multi-family																					$	3,212,312		$	3,206,521		$	3,794	$	—	$	1,997	$	—	$	1,997	0.06	%	0.06	%
Commercial & Industrial (1)	1,760,668			1,746,352			—		—		14,316		621		14,937		0.81	%	0.85	%	2,038,229			2,020,002			4,837		326		13,064		739		13,803		0.64	%	0.68	%
Commercial Real Estate Non-Owner Occupied	1,144,214			1,144,214			—		—		—		—		—		—	%	—	%	1,107,336			1,105,226			2,008		—		102		—		102		0.01	%	0.01	%
Construction																					53,372			53,372			—		—		—		—		—		—	%	—	%
Total commercial loans and leases receivable																					6,411,249			6,385,121			10,639		326		15,163		739		15,902		0.24	%	0.25	%
Residential	106,052			103,018			979		—		2,055		57		2,112		1.94	%	1.99	%	625,066			613,584			5,856		52		5,574		42		5,616		0.89	%	0.90	%
Construction	95,250			95,250			—		—		—		—		—		—	%	—	%
Manufactured housing																					77,778			69,309			3,845		2,700		1,924		195		2,119		2.47	%	2.72	%
Other consumer	1,359			1,322			37		—		—		—		—		—	%	—	%	153,153			152,519			507		19		108		—		108		0.07	%	0.07	%
Total Originated Loans (2)	6,609,622			6,590,892			1,016		—		17,714		678		18,392		0.27	%	0.28	%
Loans Acquired
Bank Acquisitions	131,854			125,399			1,969		480		4,006		400		4,406		3.04	%	3.33	%
Loan Purchases	501,519			492,971			3,518		3,109		1,921		372		2,293		0.38	%	0.46	%
Total Loans Acquired	633,373			618,370			5,487		3,589		5,927		772		6,699		0.94	%	1.06	%
Deferred costs and unamortized premiums, net	(3,045		)	(3,045		)	—		—		—		—		—
��Loans Receivable	7,239,950			7,206,217			6,503		3,589		23,641		1,450		25,091		0.33	%	0.35	%
Total consumer loans receivable																					855,997			835,412			10,208		2,771		7,606		237		7,843		0.89	%	0.92	%
Deferred (fees) costs and unamortized (discounts) premiums, net																					(3,197		)	(3,197		)	—		—		—		—		—
Loans and Leases Receivable																					7,264,049			7,217,336			20,847		3,097		22,769		976		23,745		0.31	%	0.33	%
Loans Receivable, Mortgage Warehouse, at Fair Value	1,516,327			1,516,327			—		—		—		—		—						1,480,195			1,480,195			—		—		—		—		—
Total Loans Held for Sale	1,383			1,383			—		—		—		—		—						1,602			1,602			—		—		—		—		—
Total Portfolio	$	8,757,660		$	8,723,927		$	6,503	$	3,589	$	23,641	$	1,450	$	25,091	0.27	%	0.29	%	$	8,745,846		$	8,699,133		$	20,847	$	3,097	$	22,769	$	976	$	23,745	0.26	%	0.27	%


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

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

~~(2) Does not include loans receivable, mortgage warehouse, at fair value.~~

Asset Quality at ~~September 30, 2018~~March 31, 2019 (continued)


(dollars in thousands)																Total Loans			NPL		ALL		Cash Reserve		Total Credit Reserves		Reserves to Loans (%)		Reserves to NPLs (%)
Loan Type	Total Loans			NPL		ALL		Cash Reserve		Total Credit Reserves		Reserves to Loans (%)		Reserves to NPLs (%)
(dollars in thousands)
Originated Loans
Multi-Family	$	3,502,079		$	1,343	$	11,829	$	—	$	11,829	0.34	%	880.79	%
Multi-family																$	3,212,312		$	1,997	$	10,630	$	—	$	10,630	0.33	%	532.30	%
Commercial & Industrial (1)	1,760,668			14,316		15,268		—		15,268		0.87	%	106.65	%	2,038,229			13,064		16,072		—		16,072		0.79	%	123.03	%
Commercial Real Estate Non-Owner Occupied	1,144,214			—		4,246		—		4,246		0.37	%	—	%	1,107,336			102		6,015		—		6,015		0.54	%	5897.06	%
Construction																53,372			—		584		—		584		1.09	%	—	%
Total commercial loans and leases receivable																6,411,249			15,163		33,301		—		33,301		0.52	%	219.62	%
Residential	106,052			2,055		2,048		—		2,048		1.93	%	99.66	%	625,066			5,574		6,572		—		6,572		1.05	%	117.90	%
Construction	95,250			—		1,062		—		1,062		1.11	%	—	%
Manufactured housing																77,778			1,924		117		527		644		0.83	%	33.47	%
Other consumer	1,359			—		103		—		103		7.58	%	—	%	153,153			108		3,689		—		3,689		2.41	%	3415.74	%
Total Originated Loans (2)	6,609,622			17,714		34,556		—		34,556		0.52	%	195.08	%
Loans Acquired
Bank Acquisitions	131,854			4,006		3,773		—		3,773		2.86	%	94.18	%
Loan Purchases	501,519			1,921		2,412		527		2,939		0.59	%	152.99	%
Total Loans Acquired	633,373			5,927		6,185		527		6,712		1.06	%	113.24	%
Deferred costs and unamortized premiums, net	(3,045		)	—		—		—		—
Loans Receivable	7,239,950			23,641		40,741		527		41,268		0.57	%	174.56	%
Total consumer loans receivable																855,997			7,606		10,378		527		10,905		1.27	%	143.37	%
Deferred (fees) costs and unamortized (discounts) premiums, net																(3,197		)	—		—		—		—
Loans and Leases Receivable																7,264,049			22,769		43,679		527		44,206		0.61	%	194.15	%
Loans Receivable, Mortgage Warehouse, at Fair Value	1,516,327			—		—		—		—						1,480,195			—		—		—		—
Total Loans Held for Sale	1,383			—		—		—		—						1,602			—		—		—		—
Total Portfolio	$	8,757,660		$	23,641	$	40,741	$	527	$	41,268	0.47	%	174.56	%	$	8,745,846		$	22,769	$	43,679	$	527	$	44,206	0.51	%	194.15	%


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

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

~~(2) Does not include loans receivable, mortgage warehouse, at fair value.~~

~~Originated Loans~~

~~Post 2009 originated loans (excluding loans held for sale~~The total and ~~loans receivable mortgage warehouse at fair value) totaled $6.6~~lease loan portfolio was $8.7 billion at ~~September 30, 2018,~~March 31, 2019 compared to ~~$6.4~~$8.5 billion at December 31, ~~2017. The management team adopted new underwriting standards that management believes better limits risks of loss in 2009 and has worked to maintain these standards. Only $17.7~~2018, $22.8 million, or ~~0.27%~~0.26% of ~~post 2009 originated~~ loans and leases were non-performing at ~~September 30, 2018,~~March 31, 2019 compared to ~~$20.0~~$27.5 million, or 0.32% of ~~post 2009 originated~~ loans ~~or 0.31% of post 2009 originated loans,~~and leases at December 31, ~~2017.~~2018. The ~~post 2009 originated loans were~~loan and lease portfolio was supported by ~~an allowance for loan losses~~credit reserves of ~~$34.6~~$44.2 million ~~(0.52%~~(194.15% of ~~post 2009 originated loans)~~NPLs and ~~$33.3~~0.51% of total loans and leases) and $40.5 million ~~(0.52%~~(147.16% of ~~post 2009 originated loans)~~NPLs and 0.47% of total loans and leases), ~~respectively,~~ at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017. Total 2009 and prior loans ("legacy loans") were $23.4 million and $25.6 million at September 30,~~ 2018, ~~and December 31, 2017,~~ respectively.

~~Loans Acquired~~

~~At September 30, 2018, total acquired loans were$633.4 million, or 8.7% of loans receivable, compared to $328.8 million, or 4.9% of loans receivable, at December 31, 2017. Non-performing acquired loans totaled~~$5.9 million and $6.4 million at September 30, 2018 and December 31, 2017, respectively. When loans are acquired, they are recorded on the balance sheet at fair value. Acquired loans include purchased portfolios, FDIC failed-bank acquisitions, and unassisted acquisitions. Of the manufactured housing loans purchased prior to 2012, $48.0 million were supported by a $0.5 million cash reserve at September 30, 2018, compared to $51.9 million supported by a cash reserve of $0.6 million at December 31, 2017. The cash reserve was created as part of the purchase transaction to absorb losses and is maintained in a demand deposit account at the Bank. All current losses and delinquent interest are absorbed by this reserve and any recoveries of those losses, as well as the proceeds from the sale of the repossessed properties securing the loans, are placed back into the reserve. For the manufactured housing loans purchased in 2012, the seller has an obligation to pay the Bank the full payoff amount of the defaulted loan, including any principal, unpaid interest, or advances on the loans, once the borrower vacates the property. At September 30, 2018, $27.8 million of these loans were outstanding, compared to $31.4 million at December 31, 2017.

The price paid for acquired loans considered management’s judgment as to the credit and interest rate risk inherent in the portfolio at the time of purchase. Every quarter, management reassesses the risk and adjusts the cash flow forecast to incorporate changes in the credit outlook. Generally, a decrease in forecasted cash flows for a purchased loan will result in a provision for loan losses, and absent charge-offs, an increase in the allowance for loan losses. Acquired loans have a significantly higher percentage of non-performing loans than loans originated after September 2009. Management acquired these loans with the expectation that non-performing loan levels would be elevated, and therefore incorporated that expectation into the price paid. Customers has assigned these loans to its Special Assets Group, a team that focuses on workouts for these acquired non-performing assets. Total acquired loans were supported by reserves (allowance for loan losses and cash reserves) of $6.7 million (1.06% of total acquired loans) and $5.4 million (1.64% of total acquired loans) at September 30, 2018 and December 31, 2017, respectively.

DEPOSITS

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

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

Customers offers a variety of deposit accounts, including checking, savings, ~~money market deposit accounts (“MMDA”),~~MMDA, and time deposits. Deposits are primarily obtained from Customers' geographic service area and nationwide through branchless digital banking, deposit brokers, listing services and other relationships.

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



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

Total deposits were $7.4 billion at March 31, 2019, an increase of $0.3 billion, or 4.0%, from $7.1 billion at December 31, 2018. Transaction deposits increased by ~~$1.2~~$0.5 billion, or ~~25.0%~~8.5%, to ~~$6.1~~$5.9 billion at ~~September 30, 2018,~~March 31, 2019, from ~~$4.9~~$5.4 billion at December 31, ~~2017.~~2018. This increase iswas primarily driven by Customers' initiative to improve its net interest margin by expanding its sources of lower-cost funding. These efforts ~~along with the seasonality~~led to increases in non-interest bearing demand deposits of ~~the Disbursement business, resulted~~$0.3 billion, interest bearing demand deposits of $7.5 million, and savings, including MMDA, by $0.2 billion. These increases were offset in ~~increases to nearly all deposit categories. Total~~part by a decrease in time deposits ~~were $2.4~~of $0.2 billion, or 10.1% to $1.6 billion at ~~September 30, 2018, an increase of $0.5 billion, or 25.6%,~~March 31, 2019, from ~~$1.9~~$1.7 billion at December 31, ~~2017.~~

2018.

At ~~September 30, 2018,~~March 31, 2019, the Bank had ~~$1.9~~$1.3 billion in state and municipal deposits to which it had pledged $1.3 billion of available borrowing capacity through the FHLB to the depositor through a letter of credit arrangement. ~~At September 30, 2018, the balance of state and municipal deposits was $1.9 billion.~~

BORROWINGS

Borrowed funds from various sources are generally used to supplement deposit growth and meet other operating needs. Customers' borrowings generally include short-term and long-term advances from the FHLB, federal funds purchased, senior unsecured notes and subordinated debt. Subordinated debt is also considered as Tier 2 capital for certain regulatory calculations. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, total outstanding borrowings were ~~$1.1~~$1.6 billion and ~~$2.1~~$1.7 billion, respectively, which represented a decrease of ~~$1.0 billion,~~$21.1 million, or ~~48.2%~~1.3%. These repayments of borrowings are in line with Customers' strategy to reduce its cost of funding and focus on deposit growth in order to improve net interest margins. On July 31, 2018, the 6.375% senior notes with an aggregate principal amount of $63.3 million issued by Customers Bancorp in July 2013 matured and were paid in full.

SHAREHOLDERS' EQUITY

Shareholders’ equity increased $21.6 million, or 2.3%, to $978.4 million at March 31, 2019 when compared to shareholders' equity of $956.8 million at December 31, 2018. The primary components of the net increase were as follows:

net income of $15.4 million for the three months ended March 31, 2019;

OCI of $7.7 million for the three months ended March 31, 2019, arising primarily from unrealized gains on available-for-sale debt securities;

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

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

The increases were offset in part by:

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

Customers' investment portfolio provides periodic cash flows through regular maturities and amortization and can be used as collateral to secure additional liquidity funding. ~~As of September 30, 2018 and December 31, 2017, Customers had unpledged marketable investments of $481.8 million and $454.4 million, respectively.~~ 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 ~~Federal Home Loan Bank~~FHLB and the ~~Federal Reserve Bank of Philadelphia~~FRB to meet short-term liquidity needs. Longer-term borrowing arrangements are also maintained with the ~~Federal Home Loan Bank.~~FHLB. As of ~~September 30, 2018,~~March 31, 2019, Customers' borrowing capacity with the ~~Federal Home Loan Bank~~FHLB was ~~$4.5~~$4.2 billion, of which ~~$0.8~~$1.0 billion was utilized in borrowings and ~~$1.9~~$1.4 billion of available capacity was utilized to collateralize state and municipal deposits. As of December 31, ~~2017,~~2018, Customers' borrowing capacity with the ~~Federal Home Loan Bank~~FHLB was ~~$4.3~~$4.1 billion, of which ~~$1.6~~$1.2 billion was utilized in borrowings and ~~$1.8~~$1.7 billion of available capacity was utilized to collateralize state and municipal deposits. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, Customers' borrowing capacity with the ~~Federal Reserve Bank of Philadelphia~~FRB was ~~$90.8~~$148.3 million and ~~$142.5~~$102.5 million, respectively.

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



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

Cash flows provided by (used in) operating activities

Cash used in operating activities of $6.0 million for the three months ended March 31, 2019 primarily resulted from an increase of $28.1 million in accrued interest receivable and other assets, offset in part by net income of $15.4 million. Cash provided by operating activities ~~were $98.4~~of $33.3 million ~~during~~for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 ~~compared to $30.3 million during the nine months ended September 30, 2017.~~primarily resulted in net income of $24.1 million.

~~Net cash~~Cash flows ~~used in investment~~provided by (used in) investing activities ~~were $0.3 billion during the nine months ended September 30, 2018, compared to $1.1 billion during the nine months ended September 30, 2017.~~

Cash used in ~~investment~~investing activities ~~consisted~~ of $196.3 million for the ~~following:~~

~~Originations~~three months ended March 31, 2019 resulted from purchases of loans of $129.3 million, net originations of mortgage warehouse loans ~~totaled $21.7 billion during the nine months ended September 30, 2018, compared to $22.7 billion during the nine months ended September 30, 2017.~~

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

~~Cash flows used to fund new loans held for investment totaled $20.5~~$74.8 million, and ~~$921.0 million during the nine months ended September 30, 2018 and 2017, respectively.~~

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

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

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

~~Purchases of leased assets under operating leases were $21.8 million during the nine months ended September 30, 2018. There were no such~~ purchases of leased assets under operating leases ~~during~~of $7.8 million. These uses of cash were offset in part by cash provided by net proceeds from FHLB, FRB, and other restricted stock of $9.3 million.

Cash used in investing activities of $883.6 million for the ~~nine~~three months ended ~~September 30, 2017.~~

~~Cash provided by~~March 31, 2018 primarily resulted from purchases of investment ~~activities consisted~~securities available for sale of ~~the following:~~

~~Proceeds from repayments~~$756.2 million, net originations of mortgage warehouse loans ~~totaled $22.0 billion during the nine months ended September 30, 2018, compared to $22.9 billion during the nine months ended September 30, 2017.~~

~~Proceeds~~of $81.4 million, a net decrease in loans and leases of $47.0 million, net purchases of FHLB, FRB, and other restricted stock of $24.4 million, and purchases of leased assets under operating leases of $2.8 million. These uses of cash were offset in part by proceeds from loan sales of $16.5 million, and proceed from maturities, calls and principal repayments of securities available for sale ~~totaled $38.9 million for the nine months ended September 30, 2018, compared to $36.5 million for the nine months ended September 30, 2017.~~totaling $11.5 million.

Proceeds from sales of investment securities available for sale amounted to $476.2 million during the nine months ended September 30, 2018, compared to $670.5 million for the nine months ended September 30, 2017.Cash flows provided by (used in) financing activities

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

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

~~Net cash flows~~Cash provided by financing activities ~~were $0.7 billion during~~of $257.8 million for the ~~nine~~three months ended ~~September 30, 2018, compared to $1.0 billion for the nine months ended September 30, 2017. During the nine months ended September 30, 2018, a net increase~~March 31, 2019 primarily resulted from increases in deposits ~~provided cash flows~~ of ~~$1.7 billion,~~$283.1 million and ~~proceeds from issuance~~federal funds purchased of ~~common stock provided $3.4 million. These cash flow increases were~~$201.0 million, partially offset by repayments of short-term borrowed funds from the FHLB ~~totaling $776.9 million, federal funds purchased~~ of ~~$155.0 million, and long-term debt of $63.3~~$222.2 million and preferred stock dividends paid of ~~$10.8~~$3.6 million. ~~During~~

Cash provided by financing activities of $919.3 million for the ~~nine~~three months ended ~~September 30, 2017, a net increase~~March 31, 2018 primarily resulted from increases in short-term borrowed funds from the FHLB ~~provided net cash flows~~ of ~~$0.6 billion, a net increase in~~$640.8 million, deposits ~~provided cash flows~~ of ~~$293.3 million, proceeds from the issuance of five-year senior notes provided $98.6~~$242.3 million, and ~~a net increase in~~ federal funds purchased ~~provided net cash flows~~ of ~~$64.0~~$40.0 million, partially offset by ~~the payment of~~ preferred stock dividends paid of ~~$10.8~~$3.6 million. ~~These financing activities provided sufficient cash flows to support Customers' investing and operating activities.~~

On July 31, 2018, the 6.375% senior notes with an aggregate principal amount of $63.3 million issued by Customers Bancorp in July 2013 matured. Customers had sufficient funds accumulated at the Bancorp to make payment to the debtholders upon maturity of the senior notes. Overall, based on our core deposit base and available sources of borrowed funds, management believes that Customers has adequate resources to meet its short-term and long-term cash requirements for the foreseeable future.

CAPITAL ADEQUACY ~~AND SHAREHOLDERS' EQUITY~~

Shareholders’ equity increased $33.8 million, or 3.7%, to $954.8 million at September 30, 2018 when compared to shareholders' equity of $921.0 million at December 31, 2017. The primary components of the net increase were as follows:

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

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

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

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

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

~~preferred stock dividends of $10.8 million for the nine months ended September 30, 2018.~~

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Bank and the Bancorp met all capital adequacy requirements to which they were subject.

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


					Minimum Capital Levels to be Classified as:																Minimum Capital Levels to be Classified as:
	Actual				Adequately Capitalized				Well Capitalized				Basel III Compliant				Actual				Adequately Capitalized				Well Capitalized				Basel III Compliant
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2018:
As of March 31, 2019:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	740,968	8.703	%	$	383,113	4.500	%	N/A		N/A		$	542,744	6.375	%	$	759,887	8.914	%	$	383,603	4.500	%	N/A		N/A		$	596,715	7.000	%
Customers Bank	$	1,054,869	12.393	%	$	383,042	4.500	%	$	553,282	6.500	%	$	542,642	6.375	%	$	1,070,664	12.574	%	$	383,186	4.500	%	$	553,491	6.500	%	$	596,068	7.000	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	958,418	11.257	%	$	510,818	6.000	%	N/A		N/A		$	670,448	7.875	%	$	977,339	11.465	%	$	511,470	6.000	%	N/A		N/A		$	724,583	8.500	%
Customers Bank	$	1,054,869	12.393	%	$	510,722	6.000	%	$	680,963	8.000	%	$	670,323	7.875	%	$	1,070,664	12.574	%	$	510,915	6.000	%	$	681,220	8.000	%	$	723,796	8.500	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,080,245	12.688	%	$	681,090	8.000	%	N/A		N/A		$	840,721	9.875	%	$	1,101,041	12.916	%	$	691,960	8.000	%	N/A		N/A		$	895,073	10.500	%
Customers Bank	$	1,204,825	14.154	%	$	680,963	8.000	%	$	851,204	10.000	%	$	840,563	9.875	%	$	1,223,727	14.371	%	$	681,220	8.000	%	$	851,525	10.000	%	$	894,101	10.500	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	958,418	8.913	%	$	430,099	4.000	%	N/A		N/A		$	430,099	4.000	%	$	977,339	10.006	%	$	390,685	4.000	%	N/A		N/A		$	390,685	4.000	%
Customers Bank	$	1,054,869	9.814	%	$	429,939	4.000	%	$	537,423	5.000	%	$	429,939	4.000	%	$	1,070,664	10.969	%	$	390,430	4.000	%	$	488,038	5.000	%	$	390,430	4.000	%
As of December 31, 2017:
As of December 31, 2018:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	689,494	8.805	%	$	352,368	4.500	%	N/A		N/A		$	450,248	5.750	%	$	745,795	8.964	%	$	374,388	4.500	%	N/A		N/A		$	530,384	6.375	%
Customers Bank	$	1,023,564	13.081	%	$	352,122	4.500	%	$	508,621	6.500	%	$	449,934	5.750	%	$	1,066,121	12.822	%	$	374,160	4.500	%	$	540,453	6.500	%	$	530,059	6.375	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	906,963	11.583	%	$	469,824	6.000	%	N/A		N/A		$	567,704	7.250	%	$	963,266	11.578	%	$	499,185	6.000	%	N/A		N/A		$	655,180	7.875	%
Customers Bank	$	1,023,564	13.081	%	$	469,496	6.000	%	$	625,994	8.000	%	$	567,307	7.250	%	$	1,066,121	12.822	%	$	498,879	6.000	%	$	665,173	8.000	%	$	654,779	7.875	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,021,601	13.047	%	$	626,432	8.000	%	N/A		N/A		$	724,313	9.250	%	$	1,081,962	13.005	%	$	665,580	8.000	%	N/A		N/A		$	821,575	9.875	%
Customers Bank	$	1,170,666	14.961	%	$	625,994	8.000	%	$	782,493	10.000	%	$	723,806	9.250	%	$	1,215,522	14.619	%	$	665,173	8.000	%	$	831,466	10.000	%	$	821,072	9.875	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	906,963	8.937	%	$	405,949	4.000	%	N/A		N/A		$	405,949	4.000	%	$	963,266	9.665	%	$	398,668	4.000	%	N/A		N/A		$	398,668	4.000	%
Customers Bank	$	1,023,564	10.092	%	$	405,701	4.000	%	$	507,126	5.000	%	$	405,701	4.000	%	$	1,066,121	10.699	%	$	398,570	4.000	%	$	498,212	5.000	%	$	398,570	4.000	%

The capital ratios above reflect the capital requirements under "Basel III" adopted effective first quarter 2015 and the capital conservation buffer phased in beginning January 1, 2016. Failure to maintain the required capital conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers. As of ~~September 30, 2018,~~March 31, 2019, the Bank and Customers Bancorp were in compliance with the Basel III requirements. See "NOTE 8 - REGULATORY CAPITAL" to Customers' unaudited financial statements for additional discussion regarding regulatory capital requirements.

OFF-BALANCE SHEET ARRANGEMENTS

Customers is involved with financial instruments and other commitments with off-balance sheet risks. Financial instruments with off-balance sheet risks are incurred in the normal course of business to meet the financing needs of the Bank's customers. These financial instruments include commitments to extend credit, including unused portions of lines of credit, and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the balance sheets.

With commitments to extend credit, exposures to credit loss in the event of non-performance by the other party to the financial instrument is represented by the contractual amount of those instruments. The same credit policies are used in making commitments and

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

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the following off-balance sheet commitments, financial instruments and other arrangements were outstanding:


	September 30, 2018		December 31, 2017
(amounts in thousands)					March 31, 2019		December 31, 2018
Commitments to fund loans	$	171,538	$	333,874
Commitments to fund loans and leases					$	181,385	$	345,608
Unfunded commitments to fund mortgage warehouse loans	1,535,720		1,567,139		1,494,055		1,537,900
Unfunded commitments under lines of credit and credit card	821,601		485,345		949,087		867,131
Letters of credit	45,188		39,890		40,453		55,659
Other unused commitments	5,104		6,679		4,822		4,822

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

Commitments to fund loans and leases and unfunded commitments under lines of credit may be obligations of the Bank as long as there is no violation of any condition established in the contract. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if the Bank deems it necessary upon extension of credit, is based upon management’s credit evaluation. Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment.

Mortgage warehouse loan commitments are agreements to fund the pipelines of mortgage banking businesses from closing of individual mortgage loans until their sale into the secondary market. Most of the individual mortgage loans are insured or guaranteed by the U.S. government through one of its programs such as FHA, VA, or are conventional loans eligible for sale to Fannie Mae and Freddie Mac. These commitments generally fluctuate monthly based on changes in interest rates, refinance activity, new home sales and laws and regulation.

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

Effect of Government Monetary Policies

Our earnings are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve Board is to regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans and leases, investments, and deposits, and their use may also affect rates charged on loans and leases or paid for deposits.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

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

Customers uses two complementary methods to analyze and measure interest-rate sensitivity as part of the overall management of ~~interest-rate~~interest rate risk; they are income simulation 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~~interest rate risk of Customers' exposure to time factors and changes in ~~interest-rate~~interest rate environments.

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

Through the use of income simulation modeling, Customers has estimated the net interest income for the period ending ~~September 30, 2019,~~March 31, 2020, based upon the assets, liabilities and off-balance sheet financial instruments in existence at ~~September 30, 2018.~~March 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, 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 and 200 basis points due to the limitations of the current low interest rate environment that renders the ~~Down 200 and~~ Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. The following table reflects the estimated percentage change in estimated net interest income for the period ending ~~September 30, 2019,~~March 31, 2020, resulting from changes in interest rates.

Net change in net interest income



Rate Shocks	% Change
Up 3%	(~~3.0~~10.6	)%
Up 2%	(~~1.4~~6.5	)%
Up 1%	(~~0.4~~2.9	)%
Down 1%	~~(4.4~~2.5	) %
Down 2%	4.3	%

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, 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 and 200 basis points due to the limitations of the current low interest rate environment that renders the ~~Down 200 and~~ Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. This method of measurement primarily evaluates the longer term repricing risks and options in Customers Bank’s balance sheet. The following table reflects the estimated EVE at risk and the ratio of EVE to EVE adjusted assets at ~~September 30, 2018,~~March 31, 2019, resulting from shocks to interest rates.



Rate Shocks	From base
Up 3%	(~~21.2~~18.7	)%
Up 2%	(~~12.8~~10.6	)%
Up 1%	(~~5.7~~4.3	)%
Down 1%	~~1.2~~2.5	%
Down 2%	4.5	%

The net changes in ~~economic value of equity~~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.

Item 4. Controls and Procedures

(a) Management's Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, Customers Bancorp carried out an evaluation, under the supervision and with the participation of Customers Bancorp’s management, including Customers Bancorp’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Customers Bancorp’s disclosure controls and procedures as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Customers Bancorp’s disclosure controls and procedures were not effective at September 30, 2018 because of a material weakness in internal control over financial reporting that resulted in the incorrect classification of cash flows used in and provided by Customers' commercial mortgage warehouse lending activities between operating and investing activities on the consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale instead of held for investing on the consolidated balance sheets.

~~Revised Management's Report from the 2017 Form 10-K.~~ ~~Under the supervision and with the participation of~~Customers Bancorp’s Chief Executive Officer and Chief Financial Officer, Customers Bancorp's management assessed the effectiveness of Customers Bancorp's internal control over financial reporting as of December 31, 2017. In making that assessment, management used the criteria set forth in the framework in Internal Control – Integrated ~~Framework (2013)~~ issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on its initial evaluation under the COSO criteria, management concluded that Customers Bancorp's internal control over financial reporting was effective as of December 31, 2017. Subsequently, in November 2018, management concluded that Customers Bancorp did not maintain effective controls over the appropriate classifications of cash flows used in and provided by its mortgage warehouse lending activities between operating and investing activities on the consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale instead of held for investment on its consolidated balance sheets. On November 12, 2018, Customers Bancorp's Audit Committee of the Board of Directors authorized management to restate its previously issued audited consolidated financial statements for 2017, 2016, and 2015 and the interim unaudited consolidated financial statements as of and for the three month periods ended March 31, 2018 and 2017 and the three and six month periods ended June 30, 2018 and 2017, respectively. Accordingly, management has concluded that the control deficiency that resulted in the incorrect classifications of the cash flows used in and provided by its mortgage warehouse lending activities between operating and investing activities on the consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale instead of held for investment on its consolidated balance sheets constituted a material weakness as of December 31, 2017. Solely as a result of this material weakness, management has revised its earlier assessment and has now concluded that Customers Bancorp's internal control over financial reporting was not effective as of December 31, 2017.2019.

~~Remediation Plan~~. Customers Bancorp conducted a comprehensive analysis of the classifications of cash flows within its consolidated statements of cash flows and established new accounting policies and disclosure control procedures for the classification and reporting of its mortgage warehouse lending transactions on the consolidated balance sheet and statements of cash flows. Management expects these efforts to remediate the identified material weakness and strengthen internal control over financial reporting. As management continues to evaluate and work to enhance internal control over financial reporting, it may determine that additional measures are required to address control deficiencies, strengthen internal control over financial reporting, or it may determine to modify the remediation plan described above.

(b)Changes in Internal Control Over Financial Reporting. During the quarter ended ~~September 30, 2018,~~March 31, 2019, there have been no changes in Customers Bancorp’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Customers Bancorp’s internal control over financial reporting. However, as described above, management did implement changes in internal control over financial reporting during fourth quarter 2018 designed to remediate a material weakness related to the classification and reporting of its mortgage warehouse lending transactions on its consolidated balance sheets and statements of cash flows.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

~~The following~~For information ~~supplements and amends our discussion set forth under Part I, Item 3. "Legal Proceedings" in our 2017 Form 10-K.~~

~~Edelman Matter~~

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

~~United States Department of Education Matter~~

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

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

10-K. The risks described within the ~~2017~~2018 Form 10-K ~~and below~~ are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition and/or operating results. See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Note Regarding Forward-Looking Statements.”

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

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

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

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

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

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

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

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

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 ~~then~~ current outstanding shares ~~at prices~~ not to exceed a 20% premium over the then current book value. On December 11, 2018, the Bancorp's board of directors amended the terms of the 2013 stock repurchase plan to adjust the repurchase terms and book value measurement date such that Customers is authorized to purchase shares of common stock at prices not to exceed the book value per share of Customers' common stock measured as of September 30, 2018. The repurchase program has no expiration date but may be suspended, modified or discontinued at any time, and the Bancorp has no obligation to repurchase any amount of its common stock under the program. As of March 31, 2019, there are no remaining authorized shares for stock repurchases under this program.

~~During~~Common stock repurchase activity during the ~~three~~first quarter 2019 was as follow:



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

Dividends of Common Stock

Customers Bancorp historically has not paid any cash dividends on its shares of common stock and ~~nine months ended September 30, 2018,~~does not expect to do so in the foreseeable future.

Any future determination relating to our dividend policy will be made at the discretion of Customers ~~did not repurchase any~~Bancorp’s board of ~~its shares. The maximum~~directors and will depend on a number of factors, including earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, ability to service any equity or debt obligations senior to our common stock, including obligations to pay dividends to the holders of Customers Bancorp's issued and outstanding shares ~~available~~of preferred stock and other factors deemed relevant by the Board of Directors.

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

Beginning January 1, 2015, the ability to pay dividends and the amounts that can be ~~purchased under~~paid will be limited to the ~~plan is 750,551 shares.~~extent the Bank's capital ratios do not exceed the minimum required levels plus 250 basis points, as these requirements are phased in through January 1, 2019.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit No.		Description

~~2.1~~3.1		Letter Agreement, dated as of August 7, 2018, by and between Flagship Community Bank, BankMobile Technologies, Inc., Customers Bank and Customers Bancorp, Inc., incorporated by reference to Exhibit 3.8 to the Customers Bancorp Form 10Q filed with the SEC on August 9, 2018

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

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

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

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

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

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

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

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~~4.4		Second Supplemental Indenture, dated as of June 30, 2017, by and between Customers Bancorp, Inc, as Issuer, and Wilmington Trust, National Association, As Trustee, incorporated by reference to Exhibit 4.1 to the Customers Bancorp Form 8-K filed with the SEC on June 30, 2017

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

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

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

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

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

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SIGNATURES

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



	Customers Bancorp, Inc.

May 9, 2019	By:	/s/ Jay S. Sidhu
	Name:	Jay S. Sidhu
	Title:	Chairman and Chief Executive Officer (Principal Executive Officer)



May 9, 2019	By:	/s/ Carla A. Leibold
	Name:	Carla A. Leibold
	Title:	Chief Financial Officer and Treasurer (Principal Financial Officer)

Exhibit Index



Exhibit No.		Description

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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

~~Exhibit Index~~



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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




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

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

~~101.INS~~		~~XBRL Instance Document.~~

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

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

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

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

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



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



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



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



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



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



	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	$	1,924	$	—	$	1,924	$	—	$	2	$	1,922