0001488813 cubi:UniversityFeesCardandDisbursementFeesMember cubi:BankMobileMember us-gaap:TransferredAtPointInTimeMember 2019-04-01 2019-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form ~~10-Q/A~~10-Q

~~(Amendment No. 1)~~



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

For the quarterly period ended June 30, ~~2018~~

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

WyomissingPA19610

(Address of principal executive offices)

~~(610)~~ (610) 933-2000

(Registrant’s telephone number, including area code)

N/A

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

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



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

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

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

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

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



Large accelerated filer	x	Accelerated filer	¨o

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

		Emerging Growth Company	¨☐

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

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

________________________________________

On ~~July 31, 2018, 31,669,839~~August 2, 2019, 31,228,622 shares of Voting Common Stock were outstanding.

~~EXPLANATORY NOTE~~

This Amendment No. 1 to Customers Bancorp, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018 (the "June 30, 2018 Form 10-Q/A") is being filed to amend and restate the following items presented in Customers Bancorp, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, which was initially filed with the Securities and Exchange Commission on August 9, 2018 (the "Original June 30, 2018 Form 10-Q"):

The Consolidated Balance Sheet (unaudited) included in Part I, Item 1 "Customers Bancorp, Inc. Consolidated Financial Statements as of June 30, 2018 and for the three month and six month periods ended June 30, 2018 and 2017 (unaudited)" are being amended and restated as of June 30, 2018 as set forth in the Consolidated Balance Sheets (unaudited) and described in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION.

The Consolidated Statements of Cash Flows (unaudited) included in Part I, Item 1 are being amended and restated for the six months ended June 30, 2018 and 2017 as set forth in the Consolidated Statements of Cash Flows (unaudited) and described in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION.

NOTE 7 - LOANS HELD FOR SALE, NOTE 8 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES, AND NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS included in Part I, Item 1 are being amended and restated as set forth in the notes accompanying the unaudited consolidated financial statements and described in NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION.

Part I, Item 4 "Controls and Procedures" is being amended to address management's re-evaluation of disclosure controls and procedures and reflect the identification of a material weakness in internal control over financial reporting in conjunction with the restatement.

~~Part II, Item 1A "Risk Factors" is being amended to address risks related to the identification of a material weakness in internal control over financial reporting in conjunction with the restatement.~~

Part II, Item 6 "Exhibits" also has been amended to include currently dated certifications from Customers Bancorp, Inc's Principal Executive Officer and Principal Financial Officer as required by sections 302 and 906 of the Sarbanes Oxley Act of 2002. The certifications are attached to this June 30, 2018 Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2. The Interactive Data Files have also been amended in conjunction with the restatement and are attached to this June 30, 2018 Form 10-Q/A as Exhibit 101.

This June 30, 2018 Form 10-Q/A also restates previously reported amounts included in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" to present the corrected classification of Customers Bancorp Inc.'s commercial mortgage warehouse lending activities.

As previously reported on its Current Report on Form 8-K, which was filed with the SEC on November 13, 2018, Customers Bancorp, Inc. is restating its previously issued audited consolidated financial statements for 2017, 2016 and 2015 and its interim unaudited consolidated financial statements as of and for the three months ended March 31, 2018 and 2017 and the three and six months ended June 30, 2018 and 2017, because of misclassifications of cash flow activities associated with 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 rather than held for investment on the consolidated balance sheets. Accordingly, management has concluded that the control deficiency that resulted in these incorrect classifications constituted a material weakness in internal control over financial reporting. Solely as a result of this material weakness, management revised its earlier assessment and has now concluded that its disclosure controls and procedures were not effective at June 30, 2018.

These misclassifications had no effect on total cash balances, total loans, the allowance for loan losses, total assets, 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 any other key performance metric, including non-GAAP performance metrics, that Customers routinely discusses with analysts and investors. This June 30, 2018 Form 10-Q/A has not been updated for other events or information subsequent to the date of the filing of the Original June 30, 2018 Form 10-Q, except as noted above, and should be read in conjunction with the Original June 30, 2018 Form 10-Q and our other filings with the SEC.

~~Table of Contents~~

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Table of Contents



Part I

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of June 30, ~~2018~~2019 and for the three ~~month~~ and six month periods ended June 30, 2019 and 2018 ~~and 2017~~ (unaudited)	35

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5348

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	X69

Item 4.	Controls and Procedures	8071

PART II

Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	8172

Item 1A.	Risk Factors	72

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72

Item 3.	Defaults Upon Senior Securities	72

Item 4.	Mine Safety Disclosures	72

Item 5.	Other Information	72

Item 6.	Exhibits	8373

SIGNATURES		8575

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
GNMA	Government National Mortgage Association
GLBA	Gramm-Leach-Bliley Act of 1999
HECM	Home Equity Conversion Mortgage
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
NM	Not meaningful
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	United States Department of Veterans Affairs

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

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

June 30,
2018 December 31,
2017
(As Restated) (As Restated)
ASSETS
Cash and due from banks $ 22,969
$ 20,388
Interest-earning deposits 228,757
125,935
Cash and cash equivalents 251,726
146,323
Investment securities, at fair value 1,161,000
471,371
Loans held for sale (includes $1,043 and $1,886, respectively, at fair value) 1,043
146,077
Loans receivable, mortgage warehouse, at fair value 1,930,738
1,793,408
Loans receivable 7,181,726
6,768,258
Allowance for loan losses (38,288 ) (38,015 )
Total loans receivable, net of allowance for loan losses 9,074,176
8,523,651
FHLB, Federal Reserve Bank, and other restricted stock 136,066
105,918
Accrued interest receivable 33,956
27,021
Bank premises and equipment, net 11,224
11,955
Bank-owned life insurance 261,121
257,720
Other real estate owned 1,705
1,726
Goodwill and other intangibles 17,150
16,295
Other assets 143,679
131,498
Total assets $ 11,092,846
$ 9,839,555
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 1,090,744
$ 1,052,115
Interest-bearing 6,205,210
5,748,027
Total deposits 7,295,954
6,800,142
Federal funds purchased 105,000
155,000
FHLB advances 2,389,797
1,611,860
Other borrowings 186,888
186,497
Subordinated debt 108,929
108,880
Accrued interest payable and other liabilities 70,051
56,212
Total liabilities 10,156,619
8,918,591
Shareholders’ equity:
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of June 30, 2018 and December 31, 2017 217,471
217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,199,903 and 31,912,763 shares issued as of June 30, 2018 and December 31, 2017; 31,669,643 and 31,382,503 shares outstanding as of June 30, 2018 and December 31, 2017 32,200
31,913
Additional paid in capital 428,796
422,096
Retained earnings 299,990
258,076
Accumulated other comprehensive loss, net (33,997 ) (359 )
Treasury stock, at cost (530,260 shares as of June 30, 2018 and December 31, 2017) (8,233 ) (8,233 )
Total shareholders’ equity 936,227
920,964
Total liabilities and shareholders’ equity $ 11,092,846
$ 9,839,555



	June 30, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	24,757		$	17,696
Interest-earning deposits	71,038			44,439
Cash and cash equivalents	95,795			62,135
Investment securities, at fair value	708,359			665,012
Loans held for sale (includes $4,372 and $1,507, respectively, at fair value)	5,697			1,507
Loans receivable, mortgage warehouse, at fair value	2,001,540			1,405,420
Loans and leases receivable	7,714,106			7,138,074
Allowance for loan and lease losses	(48,388		)	(39,972		)
Total loans and leases receivable, net of allowance for loan and lease losses	9,667,258			8,503,522
FHLB, Federal Reserve Bank, and other restricted stock	101,947			89,685
Accrued interest receivable	38,506			32,955
Bank premises and equipment, net	10,095			11,063
Bank-owned life insurance	268,682			264,559
Other real estate owned	1,076			816
Goodwill and other intangibles	15,847			16,499
Other assets	269,165			185,672
Total assets	$	11,182,427		$	9,833,425
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing	$	1,380,698		$	1,122,171
Interest-bearing	6,805,079			6,020,065
Total deposits	8,185,777			7,142,236
Federal funds purchased	406,000			187,000
FHLB advances	1,262,100			1,248,070
Other borrowings	99,055			123,871
Subordinated debt	109,026			108,977
Accrued interest payable and other liabilities	129,064			66,455
Total liabilities	10,191,022			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 June 30, 2019 and December 31, 2018	217,471			217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 32,482,642 and 32,252,488 shares issued as of June 30, 2019 and December 31, 2018; 31,202,023 and 31,003,028 shares outstanding as of June 30, 2019 and December 31, 2018	32,483			32,252
Additional paid in capital	439,067			434,314
Retained earnings	334,157			316,651
Accumulated other comprehensive loss, net	(9,993		)	(22,663		)
Treasury stock, at cost (1,280,619 and 1,249,460 shares as of June 30, 2019 and December 31, 2018)	(21,780		)	(21,209		)
Total shareholders’ equity	991,405			956,816
Total liabilities and shareholders’ equity	$	11,182,427		$	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 June 30,						Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018		2017			2019			2018			2019			2018
Interest income:
Loans	$	95,240		$	84,560		$	181,171	$	159,967
Loans and leases												$	103,567		$	95,240		$	196,683		$	181,171
Investment securities	9,765			7,823			18,437		13,710			6,481			9,765			12,722			18,437
Other	2,634			1,469			4,996		3,269			1,902			2,634			3,620			4,996
Total interest income	107,639			93,852			204,604		176,946			111,950			107,639			213,025			204,604
Interest expense:
Deposits	24,182			16,228			43,975		30,551			35,980			24,182			67,204			43,975
Other borrowings	3,275			1,993			6,651		3,600
FHLB advances	11,176			5,340			18,256		8,401			7,607			11,176			12,900			18,256
Subordinated debt	1,684			1,685			3,369		3,370			1,684			1,684			3,369			3,369
Other borrowings												2,000			3,275			5,569			6,651
Total interest expense	40,317			25,246			72,251		45,922			47,271			40,317			89,042			72,251
Net interest income	67,322			68,606			132,353		131,024			64,679			67,322			123,983			132,353
Provision for loan losses	(784		)	535			1,333		3,585
Net interest income after provision for loan losses	68,106			68,071			131,020		127,439
Provision for loan and lease losses												5,346			(784		)	10,113			1,333
Net interest income after provision for loan and lease losses												59,333			68,106			113,870			131,020
Non-interest income:
Interchange and card revenue	6,382			8,648			16,043		22,158			6,760			6,382			15,565			16,043
Deposit fees												3,348			1,632			5,557			3,724
Commercial lease income												2,730			1,091			5,131			1,953
Bank-owned life insurance												1,836			1,869			3,653			3,900
Mortgage warehouse transactional fees	1,967			2,523			3,854		4,743			1,681			1,967			2,995			3,854
Bank-owned life insurance	1,869			2,258			3,900		3,624
Deposit fees	1,632			2,133			3,724		5,260
Gain on sale of SBA and other loans	947			573			2,308		1,901			—			947			—			2,308
Mortgage banking income	205			291			325		446			250			205			417			325
Gain on sale of investment securities	—			3,183			—		3,183
Impairment loss on investment securities	—			(2,882		)	—		(4,585		)
Loss upon acquisition of interest-only GNMA securities												(7,476		)	—			(7,476		)	—
Other	3,125			1,664			6,883		4,414			2,907			2,034			5,912			4,930
Total non-interest income	16,127			18,391			37,037		41,144			12,036			16,127			31,754			37,037
Non-interest expense:
Salaries and employee benefits	27,748			23,651			52,673		44,763			26,920			27,748			52,743			52,673
Technology, communication and bank operations	11,322			8,910			21,266		18,827
Technology, communication, and bank operations												12,402			11,322			24,355			21,266
Professional services	3,811			6,227			9,820		13,739			5,718			3,811			10,291			9,820
Occupancy	3,141			2,657			5,975		5,371			3,064			3,141			5,967			5,975
Commercial lease depreciation												2,252			920			4,174			1,735
FDIC assessments, non-income taxes, and regulatory fees	2,135			2,416			4,335		4,141			2,157			2,135			4,145			4,335
Provision for operating losses	1,233			1,746			2,759		3,392			2,446			1,233			4,225			2,759
Advertising and promotion												1,360			319			2,169			709
Merger and acquisition related expenses	869			—			975		—			—			869			—			975
Loan workout	648			408			1,307		929			643			648			963			1,307
Advertising and promotion	319			378			709		704
Other real estate owned expenses	58			160			98		105
Other real estate owned expenses (income)												(14		)	58			43			98
Other	2,466			3,860			6,114		7,807			2,634			1,546			4,491			4,379
Total non-interest expense	53,750			50,413			106,031		99,778			59,582			53,750			113,566			106,031
Income before income tax expense	30,483			36,049			62,026		68,805			11,787			30,483			32,058			62,026
Income tax expense	6,820			12,327			14,222		19,336			2,491			6,820			7,323			14,222
Net income	23,663			23,722			47,804		49,469			9,296			23,663			24,735			47,804
Preferred stock dividends	3,615			3,615			7,229		7,229			3,615			3,615			7,229			7,229
Net income available to common shareholders	$	20,048		$	20,107		$	40,575	$	42,240		$	5,681		$	20,048		$	17,506		$	40,575
Basic earnings per common share	$	0.64		$	0.66		$	1.29	$	1.38		$	0.18		$	0.64		$	0.56		$	1.29
Diluted earnings per common share	$	0.62		$	0.62		$	1.26	$	1.29		$	0.18		$	0.62		$	0.55		$	1.26

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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	9,296		$	23,663		$	24,735		$	47,804
Unrealized gains (losses) on available-for-sale debt securities:
Unrealized gains (losses) arising during the period	20,755			(12,190		)	38,572			(46,288		)
Income tax effect	(5,397		)	3,170			(10,029		)	12,035
Net unrealized gains (losses) on available-for-sale debt securities	15,358			(9,020		)	28,543			(34,253		)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	(14,102		)	1,895			(21,041		)	2,768
Income tax effect	3,667			(492		)	5,471			(719		)
Reclassification adjustment for (gains) losses included in net income	4			(259		)	(409		)	(128		)
Income tax effect	(1		)	67			106			33
Net unrealized gains (losses) on cash flow hedges	(10,432		)	1,211			(15,873		)	1,954
Other comprehensive income (loss), net of income tax effect	4,926			(7,809		)	12,670			(32,299		)
Comprehensive income (loss)	$	14,222		$	15,854		$	37,405		$	15,505

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Net income $ 23,663
$ 23,722
$ 47,804
$ 49,469
Unrealized (losses) gains on available-for-sale debt securities:
Unrealized (losses) gains arising during the period (12,190 ) 19,885
(46,288 ) 18,762
Income tax effect 3,170
(7,755 ) 12,035
(7,317 )
Reclassification adjustments for gains on securities included in net income —
(3,183 ) —
(3,183 )
Income tax effect —
1,241
—
1,241
Net unrealized (losses) gains on available-for-sale debt securities (9,020 ) 10,188
(34,253 ) 9,503
Unrealized gains on cash flow hedges:
Unrealized gains (losses) arising during the period 1,895
(689 ) 2,768
(360 )
Income tax effect (492 ) 269
(719 ) 141
Reclassification adjustment for (gains) losses included in net income (259 ) 767
(128 ) 1,594
Income tax effect 67
(299 ) 33
(622 )
Net unrealized gains on cash flow hedges 1,211
48
1,954
753
Other comprehensive (loss) income, net of income tax effect (7,809 ) 10,236
(32,299 ) 10,256
Comprehensive income $ 15,854
$ 33,958
$ 15,505
$ 59,725

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 June 30, 2019
	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance, March 31, 2019	9,000,000	$	217,471	31,131,247	$	32,412	$	436,713	$	328,476		$	(14,919	)	$	(21,780	)	$	978,373
Net income	—	—		—	—		—		9,296			—			—			9,296
Other comprehensive income (loss)	—	—		—	—		—		—			4,926			—			4,926
Preferred stock dividends	—	—		—	—		—		(3,615		)	—			—			(3,615		)
Share-based compensation expense	—	—		—	—		2,315		—			—			—			2,315
Issuance of common stock under share-based compensation arrangements	—	—		70,776	71		39		—			—			—			110
Balance, June 30, 2019	9,000,000	$	217,471	31,202,023	$	32,483	$	439,067	$	334,157		$	(9,993	)	$	(21,780	)	$	991,405

	Three Months Ended June 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 Income (Loss)			Treasury Stock			Total
Balance, March 31, 2018	9,000,000	$	217,471	31,466,271	$	31,997	$	424,099	$	279,942		$	(26,188	)	$	(8,233	)	$	919,088
Net income	—	—		—	—		—		23,663			—			—			23,663
Other comprehensive income (loss)	—	—		—	—		—		—			(7,809		)	—			(7,809		)
Preferred stock dividends	—	—		—	—		—		(3,615		)	—			—			(3,615		)
Share-based compensation expense	—	—		—	—		1,875		—			—			—			1,875
Issuance of common stock under share-based compensation arrangements	—	—		203,372	203		2,822		—			—			—			3,025
Balance, June 30, 2018	9,000,000	$	217,471	31,669,643	$	32,200	$	428,796	$	299,990		$	(33,997	)	$	(8,233	)	$	936,227

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)


																						Six Months Ended June 30, 2019
																						Preferred Stock			Common Stock
																						Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding		Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance, December 31, 2018																						9,000,000	$	217,471	31,003,028		$	32,252	$	434,314	$	316,651		$	(22,663	)	$	(21,209	)	$	956,816
Net income																						—	—		—		—		—		24,735			—			—			24,735
Other comprehensive income (loss)																						—	—		—		—		—		—			12,670			—			12,670
Preferred stock dividends																						—	—		—		—		—		(7,229		)	—			—			(7,229		)
Share-based compensation expense																						—	—		—		—		4,425		—			—			—			4,425
Issuance of common stock under share-based compensation arrangements																						—	—		230,154		231		328		—			—			—			559
Repurchase of common shares																						—	—		(31,159	)	—		—		—			—			(571		)	(571		)
Balance, June 30, 2019																						9,000,000	$	217,471	31,202,023		$	32,483	$	439,067	$	334,157		$	(9,993	)	$	(21,780	)	$	991,405

	Six Months Ended June 30, 2018																					Six Months Ended June 30, 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 Income (Loss)			Treasury Stock			Total
Balance, December 31, 2017	9,000,000	$	217,471	31,382,503	$	31,913	$	422,096		$	258,076		$	(359	)	$	(8,233	)	$	920,964		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	—	—		—	—		—			47,804			—			—			47,804			—	—		—		—		—		47,804			—			—			47,804
Other comprehensive loss	—	—		—	—		—			—			(32,299		)	—			(32,299		)
Other comprehensive income (loss)																						—	—		—		—		—		—			(32,299		)	—			(32,299		)
Preferred stock dividends	—	—		—	—		—			(7,229		)	—			—			(7,229		)	—	—		—		—		—		(7,229		)	—						(7,229		)
Share-based compensation expense	—	—		—	—		3,661			—			—			—			3,661			—	—		—		—		3,661		—			—			—			3,661
Exercise of warrants	—	—		5,242	5		107			—			—			—			112			—	—		5,242		5		107		—			—			—			112
Issuance of common stock under share-based compensation arrangements	—	—		281,898	282		2,932			—			—			—			3,214			—	—		281,898		282		2,932		—			—			—			3,214
Balance, June 30, 2018	9,000,000	$	217,471	31,669,643	$	32,200	$	428,796		$	299,990		$	(33,997	)	$	(8,233	)	$	936,227		9,000,000	$	217,471	31,669,643		$	32,200	$	428,796	$	299,990		$	(33,997	)	$	(8,233	)	$	936,227

	Six Months Ended June 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	—	—		—	—		—			49,469			—			—			49,469
Other comprehensive income	—	—		—	—		—			—			10,256			—			10,256
Preferred stock dividends	—	—		—	—		—			(7,229		)	—						(7,229		)
Share-based compensation expense	—	—		—	—		2,934			—			—			—			2,934
Exercise of warrants	—	—		43,974	44		376			—			—			—			420
Issuance of common stock under share-based compensation arrangements	—	—		396,893	397		(1,830		)	—			—			—			(1,433		)
Balance, June 30, 2017	9,000,000	$	217,471	30,730,784	$	31,261	$	428,488		$	235,938		$	5,364		$	(8,233	)	$	910,289

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)


	Six Months Ended June 30,
	2018			2017			Six Months Ended June 30,
	(As Restated)			(As Restated)			2019			2018
Cash Flows from Operating Activities
Net income	$	47,804		$	49,469		$	24,735		$	47,804
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,333			3,585
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan and lease losses							10,113			1,333
Depreciation and amortization	6,716			2,393			8,884			6,716
Share-based compensation expense	4,384			3,562			4,900			4,384
Deferred taxes	4,172			(2,588		)	(681		)	4,172
Net amortization of investment securities premiums and discounts	813			232			421			813
Unrealized loss recognized on equity securities	296			—
Gain on sale of investment securities	—			(3,183		)
Impairment loss on investment securities	—			4,585
Gain on sale of SBA and other loans	(2,572		)	(2,183		)
Unrealized (gain) loss on equity securities							345			296
Loss upon acquisition of interest-only GNMA securities							7,476			—
(Gain) loss on sale of SBA and other loans							(304		)	(2,572		)
Origination of loans held for sale	(11,554		)	(20,442		)	(22,152		)	(11,554		)
Proceeds from the sale of loans held for sale	12,640			18,721			19,591			12,640
Amortization of fair value discounts and premiums	85			98			232			85
Net gain on sales of other real estate owned	(28		)	(163		)
Net (gain) loss on sales of other real estate owned							—			(28		)
Valuation and other adjustments to other real estate owned	78			231			31			78
Earnings on investment in bank-owned life insurance	(3,900		)	(3,624		)	(3,653		)	(3,900		)
Increase in accrued interest receivable and other assets	(7,857		)	(9,003		)
(Increase) decrease in accrued interest receivable and other assets							(63,311		)	(7,857		)
Increase (decrease) in accrued interest payable and other liabilities	13,061			(29,357		)	16,502			13,061
Net Cash Provided By Operating Activities	65,471			12,333
Net Cash Provided By (Used In) Operating Activities							3,129			65,471
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of securities available for sale	26,216			22,843			11,616			26,216
Proceeds from sales of investment securities available for sale	—			115,982
Purchases of investment securities available for sale	(763,242		)	(644,011		)	—			(763,242		)
Origination of mortgage warehouse loans	(14,260,621		)	(14,693,838		)	(12,246,471		)	(14,260,621		)
Proceeds from repayments of mortgage warehouse loans	14,123,291			14,709,013			11,624,062			14,123,291
Net increase in loans	(18,680		)	(572,253		)
Net (increase) decrease in loans and leases, excluding mortgage warehouse loans							(22,665		)	(18,680		)
Proceeds from sales of loans	29,038			112,927			—			29,038
Purchase of loans	(278,508		)	(262,641		)	(555,587		)	(278,508		)
Purchases of bank-owned life insurance	—			(50,000		)
Proceeds from bank-owned life insurance	529			1,418			—			529
Net purchases of FHLB, Federal Reserve Bank, and other restricted stock	(30,148		)	(61,281		)	(12,262		)	(30,148		)
Purchases of bank premises and equipment	(608		)	(1,732		)	(345		)	(608		)
Proceeds from sales of other real estate owned	28			682			—			28
Purchase of leased assets under operating leases	(6,486		)	—
Net Cash Used In Investing Activities	(1,179,191		)	(1,322,891		)
Purchases of leased assets under lessor operating leases							(11,672		)	(6,486		)
Net Cash Provided By (Used In) Investing Activities							(1,213,324		)	(1,179,191		)
Cash Flows from Financing Activities
Net increase in deposits	495,812			171,587			1,043,541			495,812
Net increase in short-term borrowed funds from the FHLB	777,937			1,130,800
Net (decrease) increase in federal funds purchased	(50,000		)	67,000
Net proceeds from issuance of long-term debt	—			98,574
Net increase (decrease) in short-term borrowed funds from the FHLB							(335,970		)	777,937
Net increase (decrease) in federal funds purchased							219,000			(50,000		)
Proceeds from long-term borrowed funds from the FHLB							350,000			—
Repayments of other borrowings							(25,000		)	—
Preferred stock dividends paid	(7,229		)	(7,229		)	(7,229		)	(7,229		)
Exercise of warrants	112			420			—			112
Purchase of treasury stock							(571		)	—
Payments of employee taxes withheld from share-based awards	(700		)	(3,961		)	(1,210		)	(700		)
Proceeds from issuance of common stock	3,191			1,900			1,294			3,191
Net Cash Provided By Financing Activities	1,219,123			1,459,091
Net Increase in Cash and Cash Equivalents	105,403			148,533
Net Cash Provided By (Used In) Financing Activities							1,243,855			1,219,123
Net Increase (Decrease) in Cash and Cash Equivalents							33,660			105,403
Cash and Cash Equivalents – Beginning	146,323			264,709			62,135			146,323
Cash and Cash Equivalents – Ending	$	251,726		$	413,242		$	95,795		$	251,726





	(continued)						(continued)

Supplementary Cash Flows Information:
Interest paid	$	73,162		$	44,983		$	85,560		$	73,162
Income taxes paid	4,174			21,715			3,005			4,174
Non-cash items:
Transfer of loans to other real estate owned	$	57		$	—		$	291		$	57
Transfer of loans held for investment to held for sale	—			150,758
Transfer of loans held for sale to held for investment	129,691			—			—			129,691
Acquisition of interest-only GNMA securities securing a mortgage warehouse loan							17,157			—
Acquisition of residential reverse mortgage loans securing a mortgage warehouse loan							1,325			—
University relationship intangible purchased not settled	1,502			—			—			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. In October 2017, Customers announced its intent to spin-off its BankMobile business directly to Customers’ shareholders, to be followed by~~nationwide, along with "Banking as a merger of BankMobile into Flagship Community Bank ("Flagship"), as the most favorable option for disposition of BankMobile to Customers' shareholders rather than selling the business directly to a third party. Until execution of the spin-off and merger transaction, the assets and liabilities of BankMobile will be reported as held and used for all periods presented. Previously, Customers had stated its intention to sell BankMobile and, accordingly, all BankMobile operating results for the three and six months ended June 30, 2017 and cash flows for the six months ended June 30, 2017 were presented as discontinued operations. All prior period amounts have been reclassified to conformService" offerings with ~~the current period consolidated financial statement presentation. See NOTE 2 SPIN-OFF AND MERGER for more information regarding the spin-off and merger transaction.~~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 ~~– SPIN-OFF AND MERGER~~

In third quarter 2017, Customers decided that the best strategy for its shareholders to realize the value of the BankMobile business was to divest BankMobile through a spin-off of BankMobile to Customers’ shareholders to be followed by a merger with Flagship Community Bank ("Flagship"). An Amended and Restated Purchase and Assumption Agreement and Plan of Merger (the "Amended Agreement") with Flagship to effect the spin-off and merger and Flagship's related purchase of BankMobile deposits from Customers was executed on November 17, 2017. Per the provisions of the Amended Agreement, the spin-off will be followed by a merger of the BankMobile spin-off subsidiary into Flagship, with Customers' shareholders first receiving shares of the BankMobile spin-off subsidiary as a dividend in the spin-off and then receiving shares of Flagship common stock in the merger of the BankMobile spin-off subsidiary into Flagship in exchange for shares of the BankMobile spin-off subsidiary common stock they receive in the spin-off. Separately, Flagship will assume the deposits and purchase certain associated assets of BankMobile for $10 million. Following completion of the spin-off and merger and other transactions contemplated in the Amended Agreement between Customers and Flagship, the BankMobile spin-off subsidiary shareholders would receive collectively more than 50% of Flagship common stock. The common stock of the merged entities, expected to be called BankMobile, is expected to be listed on a national securities exchange after completion of the transactions. In connection with the signing of the Amended Agreement on November 17, 2017, Customers deposited $1.0 million in an escrow account with a third party to be reserved for payment to Flagship in the event the Amended Agreement is terminated for reasons described in the Amended Agreement. This $1.0 million is considered restricted cash and is presented in cash and cash equivalents in the accompanying June 30, 2018 consolidated balance sheet. The Amended Agreement provides that completion of the transactions will be subject to the receipt of all necessary closing conditions. Although the possibility still exits that the spin-off and merger could close by September 30, 2018, at this time, no assurance can be given that the spin-off and merger will occur by or shortly after September 30, 2018.

As of June 30, 2017, BankMobile met the criteria to be classified as held for sale and, accordingly, the operating results of BankMobile for the three and six month periods ended June 30, 2017, along with the associated cash flows of BankMobile for the six months ended June 30, 2017, were presented as "Discontinued operations." However, generally accepted accounting principles require that assets, liabilities, operating results, and cash flows associated with a business to be disposed of through a spin-off/merger transaction should not be reported as held for sale or discontinued operations until execution of the spin-off/merger transaction. As a result, beginning in third quarter 2017, the period in which Customers decided to spin-off BankMobile rather than selling directly to a third party, BankMobile's operating results and cash flows were no longer reported as held for sale or discontinued operations but instead were reported as held and used. At September 30, 2017, Customers measured the business at the lower of its (i) carrying amount before it was classified as held for sale, adjusted for depreciation and amortization expense that would have been recognized had the business been continuously classified as held and used, or (ii) fair value at the date the decision not to sell was made.

Amounts previously reported as discontinued operations for the three and six month periods ended June 30, 2017 have been reclassified to conform with the current period presentation within the accompanying consolidated financial statements as summarized below. Customers will continue reporting the Community Business Banking and BankMobile segment results. See NOTE 12 - BUSINESS SEGMENTS.

The following tables summarize the effect of the reclassification of BankMobile from held for sale to held and used on the previously reported consolidated statements of income for the three and six months ended June 30, 2017:

Three Months Ended June 30, 2017

(amounts in thousands)
As Previously Reported Effect of Reclassification From Held For Sale to Held and Used After Reclassification
Interest income $ 93,852
$ —
$ 93,852
Interest expense 25,236
10
25,246
Net interest income 68,616
(10 ) 68,606
Provision for loan losses 535
—
535
Non-interest income 6,971
11,420
18,391
Non-interest expense 30,567
19,846
50,413
Income from continuing operations before income taxes 44,485
(8,436 ) 36,049
Provision for income taxes 15,533
(3,206 ) 12,327
Net income from continuing operations 28,952
(5,230 ) 23,722
Loss from discontinued operations before income taxes (8,436 ) 8,436
—
Income tax benefit from discontinued operations (3,206 ) 3,206
—
Net loss from discontinued operations (5,230 )
5,230

—
Net income 23,722

—

23,722
Preferred stock dividends 3,615
—
3,615
Net income available to common shareholders $ 20,107
$ —
$ 20,107

Six Months Ended June 30, 2017

(amounts in thousands)
As Previously Reported Effect of Reclassification From Held For Sale to Held and Used After Reclassification
Interest income $ 176,946
$ —
$ 176,946
Interest expense 45,906
16
45,922
Net interest income 131,040
(16 ) 131,024
Provision for loan losses 3,585
—
3,585
Non-interest income 12,398
28,746
41,144
Non-interest expense 60,714
39,064
99,778
Income from continuing operations before income taxes 79,139
(10,334 ) 68,805
Provision for income taxes 23,263
(3,927 ) 19,336
Net income from continuing operations 55,876
(6,407 ) 49,469
Loss from discontinued operations before income taxes (10,334 ) 10,334
—
Income tax benefit from discontinued operations (3,927 ) 3,927
—
Net loss from discontinued operations (6,407 ) 6,407
—
Net income 49,469
—
49,469
Preferred stock dividends 7,229
—
7,229
Net income available to common shareholders $ 42,240
$ —
$ 42,240

~~NOTE 3~~ — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION ~~- As Restated~~

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 months ended March 31, 2018 and 2017 and the three and six months ended 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 included in its Annual Report on Form 10-K/A filed with the SEC on November 30, 2018 (the "2017 Form 10-K/A"). 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 Customers' Annual Report on Form 10-K for the ~~2017~~year ended December 31, 2018 filed with the SEC on March 1, 2019 (the "2018 Form ~~10-K/A.~~10-K"). The ~~2017~~2018 Form ~~10-K/A~~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 and six months ended June 30, 2019, with the exception of the adoption of ASU 2016-02, Leases as described below in accounting standards adopted in 2019 and the election of the fair value option, upon acquisition on June 28, 2019, for certain interest-only classes of Ginnie Mae guaranteed home equity conversion mortgage-backed securities ("interest-only GNMA securities") that served as the primary collateral for loans made to one commercial mortgage warehouse customer, as further described in NOTE 5 - INVESTMENT SECURITIES. As the interest-only GNMA securities are carried at their current fair value, changes in fair value are reported in non-interest income. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal ~~year or any other period.~~

~~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). Customers changed its accounting policies such that commercial mortgage warehouse loans are 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 are reported as investing activities in the consolidated statements of cash flows. Accordingly, Customers has restated the consolidated balance sheet as of June 30, 2018 and statements of cash flows for the six months ended June 30, 2018 and 2017 herein.

The following tables set forth the effects of the correction on the consolidated balance sheet as of June 30, 2018 and the consolidated statements of cash flows for the six months ended June 30, 2018 and 2017.

June 30, 2018
Consolidated Balance Sheet As Previously Reported Adjustments As Restated
(amounts in thousands)
Loans held for sale $ 1,931,781
$ (1,930,738 ) $ 1,043
Loans receivable, mortgage warehouse, at fair value —
1,930,738
1,930,738
Total loans receivable, net of allowance for loan losses $ 7,143,438
$ 1,930,738
$ 9,074,176

Six Months Ended June 30,
2018 2017
Consolidated Statements of Cash Flows As Previously Reported Adjustments As Restated As Previously Reported Adjustments As Restated
(amounts in thousands)
Origination of loans held for sale $ (14,272,175 ) $ 14,260,621
$ (11,554 ) $ (14,714,280 ) $ 14,693,838
$ (20,442 )
Proceeds from the sale of loans held for sale 14,135,931
(14,123,291 ) 12,640
14,727,734
(14,709,013 ) 18,721
Net Cash Provided by (Used in) Operating Activities (71,859 ) 137,330
65,471
27,508
(15,175 ) 12,333
Origination of mortgage warehouse loans —
(14,260,621 ) (14,260,621 ) —
(14,693,838 ) (14,693,838 )
Proceeds from repayments of mortgage warehouse loans —
14,123,291
14,123,291
—
14,709,013
14,709,013
Net Cash Used In Investing Activities $ (1,041,861 ) $ (137,330 ) $ (1,179,191 ) $ (1,338,066 ) $ 15,175
$ (1,322,891 )

In addition to the restatement of Customers' consolidated balance sheet and statements of cash flows summarized above, the following notes to the consolidated financial statements have been restated to reflect the corrected classification of Customers' commercial warehouse lending activities:

~~NOTE 7 - LOANS HELD FOR SALE;~~

~~NOTE 8 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES; and~~

~~NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS.~~

In addition, the comparative balances reported throughout Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 2 in this Quarterly Report on Form 10-Q/A, have been restated to present the corrected classification of Customers' commercial mortgage warehouse lending activities.

~~Reclassifications~~

As described in NOTE 2 - SPIN-OFF AND MERGER, beginning in third quarter 2017, Customers reclassified BankMobile, a segment previously classified as held for sale, to held and used as it no longer met the held-for-sale criteria. Certain prior period amounts and note disclosures (including NOTE 4, NOTE 8 and NOTE 10) have been reclassified to conform with the current period presentation. Except for these reclassifications, there have been no material changes to Customers' significant accounting policies as disclosed in Customers' 2017 Form 10-K/A.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 or that Customers has not yet adopted.~~effective.

Recently Issued Accounting Standards

Accounting Standards Adopted in ~~2018~~2019



Standard	Summary of guidance	Effects on Financial Statements

ASU ~~2018-03,~~2016-02, ~~Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10)~~Leases Issued February ~~2018~~2016	Ÿ ~~Clarifies certain aspects~~ Supersedes the lease accounting guidance for both lessees and lessors under ASC 840, Leases. Ÿ From the lessee's perspective, the new standard establishes a ROU model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Ÿ Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. Ÿ This ASU requires lessors to account for leases using an approach that is substantially similar to the existing guidance for sales-type, direct financing leases and operating leases. Ÿ Effective January 1, 2019. Ÿ In July 2018, the FASB issued in ASU ~~2016-01 including:~~2018-11 “Leases (Topic 842): Targeted Improvements,” which provides lessees the ~~ability~~option to ~~irrevocably elect~~apply the new leasing standard 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~~all open leases as of the ~~observable transaction~~adoption date. Prior to this ASU issuance, a modified retrospective transition approach was required. Ÿ ~~Effective July 1,~~ In December 2018, onthe FASB issued ASU 2018-20 "Leases (Topic 842): Narrow-Scope Improvements for Lessors," which provides lessors a ~~prospective basis with early adoption permitted.~~policy election to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Additionally, the update requires certain lessors to exclude from variable payments lessor costs paid by lessees directly to third parties. Ÿ In March 2019, the FASB issued ASU 2019-01 "Codification Improvements," which clarifies that lessors who are not manufacturers or dealers should use the original cost of the underlying asset in a lease as its fair value. Additionally, the update states that lessors who are depository or lending institutions within the scope of ASC 942 should present all principal payments received under leases under investing activities in their Statement of Cash Flows and that interim disclosures under ASC 250-10-50-3 are not required in the interim reports of issuers adopting ASC 842.	Ÿ Customers adopted on ~~July~~January 1, ~~2018 on a prospective basis.~~2019. Ÿ The adoption did not materially change Customers' recognition of operating lease expense in its consolidated statements of income. Ÿ Customers adopted certain practical expedients available under the new guidance, which did not require it to (1) reassess whether any expired or existing contracts contain leases, (2) reassess the lease classification for any expired or existing leases, (3) reassess initial direct costs for any existing leases, (4) separate non-lease components from the associated lease components, (5) evaluate whether certain sales taxes and other similar taxes are lessor costs, and (6) capitalize short-term leases. Additionally, Customers elected to apply the new lease guidance at the adoption date, rather than at the beginning of the earliest period presented and will continue to present comparative periods prior to January 1, 2019 under Topic 840. Customers did not adopt the hindsight practical expedient. Ÿ The adoption of the ASU for Customers' lessor equipment finance business did not have a significant impact ~~as Customers currently does not have any significant equity securities without readily determinable fair values.~~on Customers' financial condition, results of operations, and consolidated financial statements. Ÿ See NOTE 7 - LEASES.

ASU ~~2018-02,~~ ~~Reclassification of Certain Tax Effects from Accumulated~~2017-08, Receivables-Nonrefundable Fees and Other ~~Comprehensive Income/(Loss) ("AOCI")~~ Costs: Premium Amortization on Purchased Callable Debt Securities Issued ~~February 2018~~March 2017	Ÿ ~~Allows~~ Requires that premiums for ~~reclassification from AOCI~~certain callable debt securities held be amortized to ~~retained earnings for stranded tax effects resulting from the 2017 Tax Cut and Jobs Act.~~ their earliest call date. 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.~~on January 1, 2019. Ÿ Adoption of this new guidance must be applied on a modified retrospective approach.	Ÿ Customers ~~early~~ adopted on January 1, ~~2018.~~2019. 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.

~~ASU 2017-12,~~ ~~Targeted Improvements to Accounting for Hedging Activities~~ ~~Issued August 2017~~	Ÿ ~~Aligns the entity's risk management activities and financial reporting for hedging relationships.~~ Ÿ ~~Amends the existing hedge accounting model and expands an entity's ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest-rate risk.~~ 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.~~	Ÿ ~~Customers early adopted on January 1, 2018.~~ Ÿ With the early adoption, Customers is able to pursue additional hedging strategies including the ability to apply fair value hedge accounting to a specified pool of assets by excluding the portion of the hedged items related to prepayments, defaults and other events. Ÿ These additional hedging strategies will allow 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. 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 11 - 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.~~

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



Standard	Summary of guidance	Effects on 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' consolidated financial statements, including its consolidated statement of cash flows, and therefore did not result in a retrospective application.

~~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 extinguishment costs will be classified as an operating activity, while the portion of the payment attributable to principal will 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' 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 6 - 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 be either 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 gain). 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 13 - NON-INTEREST REVENUES.

~~Accounting Standards Issued But Not Yet Adopted~~



~~Standard~~	~~Summary of guidance~~	~~Effects on 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.

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.~~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 ~~certain callable debt securities held be amortized to their earliest call date.~~ goods or services instead of stock. Ÿ Effective ~~for Customers beginning after December 15, 2018, with early adoption permitted.~~ Ÿ ~~Adoption of this new guidance must be applied on a modified retrospective approach.~~January 1, 2019.	Ÿ Customers ~~currently has an immaterial amount of callable debt securities purchased at a premium and, accordingly, does~~adopted on January 1, 2019. Ÿ The adoption did 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 through the adoption date.~~statements.

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



Standard	Summary of guidance	Effects on Financial Statements

ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments Issued April 2019	Ÿ Clarifies the scope of the credit losses standard and addresses issues related to accrued interest receivable balances, recoveries, variable interest rates, and prepayments. Ÿ Addresses partial-term fair value hedges, fair value hedge basis adjustments and certain transition requirements. Ÿ Addresses recognizing and measuring financial instruments, specifically the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates. Ÿ Topic 326 Amendments - Effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption permitted. Topic 815 Amendments - Effective for first annual period beginning after the issuance date of this ASU (i.e., fiscal year 2020). Entities that have already adopted the amendments in ASU 2017-12 may elect either to retrospectively apply all the amendments or to prospectively apply all amendments as of the date of adoption. Topic 825 Amendments - Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.	Ÿ Customers is currently evaluating the expected impact of this ASU on its financial condition, results of operations and consolidated financial 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 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 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 intends to adopt this guidance on its effective date and does not expect the adoption of this guidance to materially impact 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 debt 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 In May 2019, the FASB issued ASU 2019-05 "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief," which provides entities that have certain instruments within the scope of Topic 326 with an option to irrevocably elect the fair value option in Subtopic 825, Financial Instruments. This relief is to be applied on an instrument-by-instrument basis for eligible instruments upon adoption of Topic 326. 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.	Ÿ Customers ~~is currently~~has established a company-wide, cross-discipline governance structure, which provides implementation oversight and continues evaluating the impact of this ASU ~~continuing its implementation efforts across the company~~ and reviewing the loss modeling requirements consistent with lifetime expected loss estimates. Ÿ Customers ~~expects that~~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 began to run the new model parallel to its current ALLL model during second quarter 2019 and continues to evaluate the results and assumptions. Ÿ The adoption of this ASU ~~may~~will 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.

~~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 currently evaluating the impact of this ASU on its financial condition and results of operations and expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of unpaid lease payments as of the date of adoption. Ÿ ~~Customers expects to apply the new transition option under ASU 2018-11.~~ Ÿ ~~Customers does not intend to early adopt this ASU.~~

NOTE 43 — EARNINGS PER SHARE

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



	Three Months Ended June 30,				Six Months Ended June 30,
(amounts in thousands, except share and per share data)	2019		2018		2019		2018
Net income available to common shareholders	$	5,681	$	20,048	$	17,506	$	40,575

Weighted-average number of common shares outstanding - basic	31,154,292		31,564,893		31,101,037		31,495,082
Share-based compensation plans	471,449		807,258		446,985		823,245
Warrants	—		8,511		—		8,566
Weighted-average number of common shares - diluted	31,625,741		32,380,662		31,548,022		32,326,893

Basic earnings per common share	$	0.18	$	0.64	$	0.56	$	1.29
Diluted earnings per common share	$	0.18	$	0.62	$	0.55	$	1.26

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
(amounts in thousands, except share and per share data)
Net income available to common shareholders $ 20,048
$ 20,107
$ 40,575
$ 42,240

Weighted-average number of common shares outstanding - basic 31,564,893
30,641,554
31,495,082
30,524,955
Share-based compensation plans 807,258
1,910,634
823,245
2,129,773
Warrants 8,511
17,464
8,566
27,318
Weighted-average number of common shares - diluted 32,380,662
32,569,652
32,326,893
32,682,046

Basic earnings per common share $ 0.64
$ 0.66
$ 1.29
$ 1.38
Diluted earnings per common share $ 0.62
$ 0.62
$ 1.26
$ 1.29

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 June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Share-based compensation awards	2,246,181	1,069,225	2,301,663	1,069,225

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Anti-dilutive securities:
Share-based compensation awards 1,069,225
288,325
1,069,225
282,725
Warrants —
52,242
—
52,242
Total anti-dilutive securities 1,069,225
340,567
1,069,225
334,967

NOTE 54 — CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT

The following tables present the changes in accumulated other comprehensive income (loss) by component for the three and six months ended June 30, ~~2018~~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 June 30, 2018														Three Months Ended June 30, 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 - March 31, 2018	$	(26,691	)	$	—	$	(26,691	)	$	503		$	(26,188	)
Balance - March 31, 2019															$	(8,556	)	$	—	$	(8,556	)	$	(6,363	)	$	(14,919	)
Other comprehensive income (loss) before reclassifications	(9,020		)	—		(9,020		)	1,403			(7,617		)	15,358			—		15,358			(10,435		)	4,923
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)	—			—		—			(192		)	(192		)	—			—		—			3			3
Net current-period other comprehensive income (loss)	(9,020		)	—		(9,020		)	1,211			(7,809		)
Balance - June 30, 2018	$	(35,711	)	$	—	$	(35,711	)	$	1,714		$	(33,997	)
Net current-period other comprehensive income															15,358			—		15,358			(10,432		)	4,926
Balance - June 30, 2019															$	6,802		$	—	$	6,802		$	(16,795	)	$	(9,993	)



	Six Months Ended June 30, 2019
	Available-for-Sale Debt Securities
(amounts in thousands)	Unrealized Gains (Losses)			Foreign Currency Items		Total Unrealized Gains (Losses)			Unrealized Gains (Losses) on Cash Flow Hedges			Total
Balance - December 31, 2018	$	(21,741	)	$	—	$	(21,741	)	$	(922	)	$	(22,663	)
Other comprehensive income (loss) before reclassifications	28,543			—		28,543			(15,570		)	12,973
Amounts reclassified from accumulated other comprehensive income (loss) to net income ⁽¹⁾	—			—		—			(303		)	(303		)
Net current-period other comprehensive income (loss)	28,543			—		28,543			(15,873		)	12,670
Balance - June 30, 2019	$	6,802		$	—	$	6,802		$	(16,795	)	$	(9,993	)

(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 and six months ended June 30, 2019 there were no sales of investment securities. Reclassification amounts for cash flow hedges are reported as interest expense for the applicable hedged items on the consolidated statements of income. During the three and six months ended June 30, 2019, reclassification amounts of $4 thousand ($3 thousand net of taxes) and $409 thousand ($303 thousand net of taxes) were reported as an increase and as a reduction, respectively, to interest expense for the applicable hedged items on the consolidated statements of income.


	Six Months Ended June 30, 2018															Three Months Ended June 30, 2018
	Available-for-sale 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		Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Gains (Losses) on Cash Flow Hedges			Total
Balance - December 31, 2017	$	(249	)	$	88		$	(161	)	$	(198	)	$	(359	)
Reclassification of the income tax effects of the Tax Cuts and Jobs Act (2)	(256		)	—			(256		)	(42		)	(298		)
Reclassification of net unrealized gains on equity securities (2)	(953		)	(88		)	(1,041		)	—			(1,041		)
Balance after reclassification adjustments on January 1, 2018	(1,458		)	—			(1,458		)	(240		)	(1,698		)
Balance - March 31, 2018																$	(26,691	)	$	—	$	(26,691	)	$	503		$	(26,188	)
Other comprehensive income (loss) before reclassifications	(34,253		)	—			(34,253		)	2,049			(32,204		)	(9,020		)	—		(9,020		)	1,403			(7,617		)
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)	—			—			—			(95		)	(95		)	—			—		—			(192		)	(192		)
Net current-period other comprehensive income (loss)	(34,253		)	—			(34,253		)	1,954			(32,299		)	(9,020		)	—		(9,020		)	1,211			(7,809		)
Balance - June 30, 2018	$	(35,711	)	$	—		$	(35,711	)	$	1,714		$	(33,997	)	$	(35,711	)	$	—	$	(35,711	)	$	1,714		$	(33,997	)

~~(1) Reclassification amounts for cash flow hedges are 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 accumulated other comprehensive income of $1.3 million and a corresponding increase in retained earnings for the same amount. See NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for more information.


										Six Months Ended June 30, 2018
	Three Months Ended June 30, 2017									Available-for-Sale Debt Securities
(amounts in thousands)	Unrealized Gains (Losses) on Available-For-Sale Debt 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 - March 31, 2017	$	(3,366	)	$	(1,506	)	$	(4,872	)
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 reclassifications on January 1, 2018										(1,458		)	—			(1,458		)	(240		)	(1,698		)
Other comprehensive income (loss) before reclassifications	12,130			(420		)	11,710			(34,253		)	—			(34,253		)	2,049			(32,204		)
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1)	(1,942		)	468			(1,474		)	—			—			—			(95		)	(95		)
Net current-period other comprehensive income	10,188			48			10,236			(34,253		)	—			(34,253		)	1,954			(32,299		)
Balance - June 30, 2017	$	6,822		$	(1,458	)	$	5,364
Balance - June 30, 2018										$	(35,711	)	$	—		$	(35,711	)	$	1,714		$	(33,997	)

Six Months Ended June 30, 2017
(amounts in thousands) Unrealized Gains (Losses) on Available-For-Sale Debt 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 11,445
(219 ) 11,226
Amounts reclassified from accumulated other comprehensive income (loss) to net income (1) (1,942 ) 972
(970 )
Net current-period other comprehensive income 9,503
753
10,256
Balance - June 30, 2017 $ 6,822
$ (1,458 ) $ 5,364

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

(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 and six months ended June 30, 2018, there were no sales of investment securities. Reclassification amounts for cash flow hedges are reported as interest expense for the applicable hedged items on the consolidated statements of income. During the three and six months ended June 30, 2018, reclassification amounts of $259 thousand ($192 thousand net of taxes) and $128 thousand ($95 thousand net of taxes) were reported as reductions to interest expense for the applicable hedged items 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 65 — INVESTMENT SECURITIES

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

June 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 $ 490,425
$ —
$ (13,862 ) $ 476,563
Agency-guaranteed commercial real estate mortgage-backed securities 334,232
—
(13,859 ) 320,373
Corporate notes 381,545
798
(21,335 ) 361,008
Available-for-Sale Debt Securities $ 1,206,202
$ 798
$ (49,056 ) 1,157,944
Equity Securities (1) 3,056
Total Investment Securities, at Fair Value $ 1,161,000

(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 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for additional information related to the adoption of this new standard).~~



	June 30, 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	$	299,370	$	2,023	$	(2	)	$	301,391
Corporate notes ⁽¹⁾	381,267		8,574		(1,403		)	388,438
Available-for-sale debt securities	$	680,637	$	10,597	$	(1,405	)	689,829
Interest-only classes of agency-guaranteed home equity conversion mortgage-backed securities ⁽²⁾								17,157
Equity securities⁽³⁾								1,373
Total investment securities, at fair value								$	708,359

December 31, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
(amounts in thousands)
Available-for-Sale Securities:
Agency-guaranteed residential mortgage-backed securities $ 186,221
$ 36
$ (2,799 ) $ 183,458
Agency-guaranteed commercial real estate mortgage-backed securities 238,809
432
(769 ) 238,472
Corporate notes (1) 44,959
1,130
—
46,089
Equity securities (2) 2,311
1,041
—
3,352
Total Available-for-Sale Securities, at Fair Value $ 472,300
$ 2,639
$ (3,568 ) $ 471,371



	December 31, 2018
(amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	311,267	$	—	$	(5,893	)	$	305,374
Corporate notes ⁽¹⁾	381,407		920		(24,407		)	357,920
Available-for-sale debt securities	$	692,674	$	920	$	(30,300	)	663,294
Equity securities ⁽³⁾								1,718
Total investment securities, at fair value								$	665,012


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


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


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

~~The following table presents proceeds from~~

On June 28, 2019, Customers obtained ownership of certain interest-only classes of Ginnie Mae guaranteed home equity conversion mortgage-backed securities ("interest-only GNMA securities") that served as the primary collateral for loans made to one commercial mortgage warehouse customer through a Uniform Commercial Code private sale transaction. In connection with the acquisition of ~~investment~~the interest-only GNMA securities, ~~and gross gains and gross losses realized on those sales~~Customers recognized a pre-tax loss of $7.5 million for the three and six ~~month periods~~months ended June 30, ~~2018~~2019 for the shortfall in the fair value of the interest-only GNMA securities compared to its credit exposure to this commercial mortgage warehouse customer. On June 28, 2019, Customers elected the fair value option for these interest-only GNMA securities acquired on such date. The fair value of these securities at June 30, 2019 was $17.2 million.

There were no sales of available-for-sale debt securities or equity securities for the three and ~~2017:~~six months ended June 30, 2019 and 2018.

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
(amounts in thousands)
Proceeds from sale of available-for-sale securities $ —
$ 115,982
$ —
$ 115,982
Gross gains $ —
$ 3,183
$ —
$ 3,183
Gross losses —
—
—
—
Net gains (losses) $ —
$ 3,183
$ —
$ 3,183

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

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



	June 30, 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	379,267		386,316
Due after ten years	2,000		2,122
Agency-guaranteed residential mortgage-backed securities	299,370		301,391
Interest-only classes of agency-guaranteed home equity conversion mortgage-backed securities	—		17,157
Total debt securities	$	680,637	$	706,986

June 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 179,413
171,214
Due after ten years 202,132
189,794
Agency-guaranteed residential mortgage-backed securities 490,425
476,563
Agency-guaranteed commercial real estate mortgage-backed securities 334,232
320,373
Total debt securities $ 1,206,202
$ 1,157,944

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


	June 30, 2018
	Less Than 12 Months					12 Months or More					Total					June 30, 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:
Available-for-sale debt securities:
Agency-guaranteed residential mortgage-backed securities	$	416,002	$	(10,256	)	$	60,561	$	(3,606	)	$	476,563	$	(13,862	)	$	—	$	—	$	64,296	$	(2	)	$	64,296	$	(2	)
Agency-guaranteed commercial real estate mortgage-backed securities	314,525		(13,532		)	5,848		(327		)	320,373		(13,859		)
Corporate notes	315,249		(21,335		)	—		—			315,249		(21,335		)	—		—		74,492		(1,403		)	74,492		(1,403		)
Total	$	1,045,776	$	(45,123	)	$	66,409	$	(3,933	)	$	1,112,185	$	(49,056	)	$	—	$	—	$	138,788	$	(1,405	)	$	138,788	$	(1,405	)


	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:
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 June 30, ~~2018,~~2019, there were ~~sixty-four~~no available-for-sale debt ~~investment~~ securities with unrealized losses in the less-than-twelve-month category and ~~sixteen~~seven available-for-sale debt ~~investment~~ 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 since the time of purchase that resulted in a negative impact on the respective ~~notes pricing.~~security'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 six month periods ended June 30, 2017, Customers recorded other-than-temporary impairment losses of $2.9 million and $4.6 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 December 31, 2016 through June 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 3 - 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 were recorded directly in earnings, which resulted in an unrealized loss of $0.3 million being recognized in other non-interest income in the accompanying consolidated statements of income for the three and six months ended June 30, 2018, respectively.

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Customers Bank had pledged investment securities aggregating ~~$685.0~~$22.6 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 7 – LOANS HELD FOR SALE - As Restated~~

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

June 30, 2018 December 31, 2017
(amounts in thousands) (As Restated) (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 1,043
1,886
Loans held for sale $ 1,043
$ 146,077
2018, no securities holding of any one issuer, other than the U.S. Government and its agencies, amounted to greater than 10% of shareholders' equity.

Effective March 31, 2018, Customers Bank transferred $129.7 million 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 lower than the estimated fair value at the time 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 ~~3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION for more information on the reclassification of loans previously reported as held for sale.~~

~~NOTE 8~~6 — LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES ~~- As Restated~~

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



(amounts in thousands)	June 30, 2019			December 31, 2018
Loans receivable, mortgage warehouse, at fair value	$	2,001,540		$	1,405,420
Loans receivable:
Commercial:
Multi-family	3,017,531			3,285,297
Commercial and industrial (including owner occupied commercial real estate) ⁽¹⁾	2,184,556			1,951,277
Commercial real estate non-owner occupied	1,176,575			1,125,106
Construction	59,811			56,491
Total commercial loans and leases receivable	6,438,473			6,418,171
Consumer:
Residential real estate	648,860			566,561
Manufactured housing	75,597			79,731
Other consumer	552,839			74,035
Total consumer loans receivable	1,277,296			720,327
Loans and leases receivable	7,715,769			7,138,498
Deferred (fees) costs and unamortized (discounts) premiums, net	(1,663		)	(424		)
Allowance for loan and lease losses	(48,388		)	(39,972		)
Total loans and leases receivable, net of allowance for loan and lease losses	$	9,667,258		$	8,503,522

June 30, 2018 December 31, 2017
(amounts in thousands) (As Restated) (As Restated)
Loans receivable, mortgage warehouse, at fair value $ 1,930,738
$ 1,793,408
Loans receivable:
Commercial:
Multi-family 3,542,770
3,502,381
Commercial and industrial (including owner occupied commercial real estate) 1,811,751
1,633,818
Commercial real estate non-owner occupied 1,155,998
1,218,719
Construction 88,141
85,393
Total commercial loans receivable 6,598,660
6,440,311
Consumer:
Residential real estate 493,222
234,090
Manufactured housing 85,328
90,227
Other 3,874
3,547
Total consumer loans receivable 582,424
327,864
Loans receivable 7,181,084
6,768,175
Deferred costs and unamortized premiums, net 642
83
Allowance for loan losses (38,288 ) (38,015 )
Total loans receivable, net of allowance for loan losses $ 9,074,176
$ 8,523,651


(1)	Includes direct finance equipment leases of $64.5 million and $54.5 million at June 30, 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 ~~commercial~~ mortgage warehouse loans receivable are designated as loans held for investment and reported at fair value based on an election made to account for the loans at fair value. Pursuant to the agreements, Customers funds the pipelines for these mortgage lenders by sending payments directly to the closing agents for funded mortgage loans and receives proceeds directly from third party investors when the underlying mortgage loans are sold into the secondary market. The fair value of the mortgage warehouse loans is estimated as the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The interest rates on these loans are variable, and the lending transactions are short-term, with an average life ~~of 20~~under 30 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.

At June 30, ~~2018~~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 related~~ALLL-related disclosures.

Loans and leases receivable:

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



	June 30, 2019
(amounts in thousands)	30-89 Days past due ⁽¹⁾		90 Days or more past due ⁽¹⁾		Total past due ⁽¹⁾		Non-accrual		Current ⁽²⁾		Purchased-credit-impaired loans ⁽³⁾		Total loans and leases ⁽⁴⁾
Multi-family	$	—	$	—	$	—	$	—	$	3,015,935	$	1,596	$	3,017,531
Commercial and industrial	626		—		626		5,400		1,592,049		395		1,598,470
Commercial real estate owner occupied	801		—		801		927		576,692		7,666		586,086
Commercial real estate non-owner occupied	252		—		252		94		1,172,421		3,808		1,176,575
Construction	—		—		—		—		59,811		—		59,811
Residential real estate	2,611		—		2,611		5,083		637,309		3,857		648,860
Manufactured housing ⁽⁵⁾	3,829		2,006		5,835		1,570		66,470		1,722		75,597
Other consumer	1,480		—		1,480		359		550,794		206		552,839
Total	$	9,599	$	2,006	$	11,605	$	13,433	$	7,671,481	$	19,250	$	7,715,769

	December 31, 2018
(amounts in thousands)	30-89 Days past due ⁽¹⁾		90 Days or more past due ⁽¹⁾		Total past due ⁽¹⁾		Non-accrual		Current ⁽²⁾		Purchased-credit-impaired loans ⁽³⁾		Total loans and leases ⁽⁴⁾
Multi-family	$	—	$	—	$	—	$	1,155	$	3,282,452	$	1,690	$	3,285,297
Commercial and industrial	1,914		—		1,914		17,764		1,353,586		536		1,373,800
Commercial real estate owner occupied	193		—		193		1,037		567,809		8,438		577,477
Commercial real estate non-owner occupied	1,190		—		1,190		129		1,119,443		4,344		1,125,106
Construction	—		—		—		—		56,491		—		56,491
Residential real estate	5,940		—		5,940		5,605		550,679		4,337		566,561
Manufactured housing ⁽⁵⁾	3,926		2,188		6,114		1,693		69,916		2,008		79,731
Other consumer	200		—		200		111		73,503		221		74,035
Total	$	13,363	$	2,188	$	15,551	$	27,494	$	7,073,879	$	21,574	$	7,138,498

June 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)
(amounts in thousands)
Multi-family $ —
$ —
$ —
$ 1,343
$ 3,539,640
$ 1,787
$ 3,542,770
Commercial and industrial 1,087
—
1,087
13,683
1,251,148
602
1,266,520
Commercial real estate - owner occupied —
—
—
718
534,923
9,590
545,231
Commercial real estate - non-owner occupied —
—
—
2,536
1,148,581
4,881
1,155,998
Construction —
—
—
—
88,141
—
88,141
Residential real estate 2,174
—
2,174
5,606
480,381
5,061
493,222
Manufactured housing (5) 2,977
2,661
5,638
2,015
75,250
2,425
85,328
Other consumer 56
—
56
94
3,496
228
3,874
Total $ 6,294
$ 2,661
$ 8,955
$ 25,995
$ 7,121,560
$ 24,574
$ 7,181,084

December 31, 2017

30-89 Days
Past Due (1)

90 Days
Or More
Past Due(1)

Total Past
Due (1)

Non-
Accrual
Current (2)
Purchased-
Credit-
Impaired
Loans (3)

Total
Loans (4)
(amounts in thousands)
Multi-family $ 4,900
$ —
$ 4,900
$ —
$ 3,495,600
$ 1,881
$ 3,502,381
Commercial and industrial 103
—
103
17,392
1,130,831
764
1,149,090
Commercial real estate - owner occupied 202
—
202
1,453
472,501
10,572
484,728
Commercial real estate - non-owner occupied 93
—
93
160
1,213,216
5,250
1,218,719
Construction —
—
—
—
85,393
—
85,393
Residential real estate 7,628
—
7,628
5,420
215,361
5,681
234,090
Manufactured housing (5) 4,028
2,743
6,771
1,959
78,946
2,551
90,227
Other consumer 116
—
116
31
3,184
216
3,547
Total $ 17,070
$ 2,743
$ 19,813
$ 26,415
$ 6,695,032
$ 26,915
$ 6,768,175


(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. ~~Because of~~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~~Certain manufactured housing loans purchased in 2010 are supported by cash reserves held at the Bank ~~that~~of $0.4 million and $0.5 million at June 30, 2019 and December 31, 2018, respectively, which are used to fund past-due payments when the loan becomes 90 days or more delinquent. ~~Subsequent purchases~~Each quarter, these funds are ~~subject~~evaluated to ~~varying provisions in~~determine if they would be sufficient to absorb the ~~event of borrowers’ delinquencies.~~probable incurred losses within the manufactured housing portfolio.

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Bank had ~~$0.3~~$0.5 million and $0.2 million, respectively, of residential real estate held in ~~other real estate owned.~~OREO. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Bank had initiated foreclosure proceedings on ~~$2.2~~$0.7 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 six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, and the loans and ~~allowance for loan losses~~leases and ALLL by loan ~~class~~and lease type based on impairment-evaluation method as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 are presented in the tables below.


Three Months Ended June 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
Three Months Ended June 30, 2019																												Multi-family			Commercial and industrial			Commercial real estate owner occupied			Commercial real estate non-owner occupied		Construction			Residential real estate			Manufactured housing			Other consumer			Total
(amounts in thousands)
Ending Balance, March 31, 2018	$	12,545		$	11,737		$	3,525		$	7,233		$	921		$	3,179		$	176		$	183		$	39,499
Ending Balance, March 31, 2019																												$	10,630		$	12,647		$	3,425		$	6,015	$	584		$	6,572		$	117		$	3,689		$	43,679
Charge-offs	—			(174		)	(483		)	—			—			(42		)	—			(462		)	(1,161		)	—			(183		)	(66		)	—		—			(69		)	—			(932		)	(1,250		)
Recoveries	—			140			326			—			209			56			—			3			734			7			338			97			—		114			8			—			49			613
Provision for loan losses	(476		)	555			(380		)	(535		)	(138		)	(285		)	(27		)	502			(784		)
Ending Balance, June 30, 2018	$	12,069		$	12,258		$	2,988		$	6,698		$	992		$	2,908		$	149		$	226		$	38,288
Six Months Ended June 30, 2018
Ending Balance, December 31, 2017	$	12,168		$	10,918		$	3,232		$	7,437		$	979		$	2,929		$	180		$	172		$	38,015
Provision for loan and lease losses																												(711		)	934			(96		)	144		(49		)	(2,343		)	6			7,461			5,346
Ending Balance, June 30, 2019																												$	9,926		$	13,736		$	3,360		$	6,159	$	649		$	4,168		$	123		$	10,267		$	48,388
Six Months Ended June 30, 2019
Ending Balance, December 31, 2018																												$	11,462		$	12,145		$	3,320		$	6,093	$	624		$	3,654		$	145		$	2,529		$	39,972
Charge-offs	—			(224		)	(501		)	—			—			(407		)	—			(718		)	(1,850		)	(541		)	(183		)	(74		)	—		—			(109		)	—			(1,687		)	(2,594		)
Recoveries	—			175			326			—			220			63			—			6			790			7			457			225			—		120			15			—			73			897
Provision for loan losses	(99		)	1,389			(69		)	(739		)	(207		)	323			(31		)	766			1,333
Ending Balance, June 30, 2018	$	12,069		$	12,258		$	2,988		$	6,698		$	992		$	2,908		$	149		$	226		$	38,288
Provision for loan and lease losses																												(1,002		)	1,317			(111		)	66		(95		)	608			(22		)	9,352			10,113
Ending Balance, June 30, 2019																												$	9,926		$	13,736		$	3,360		$	6,159	$	649		$	4,168		$	123		$	10,267		$	48,388

As of June 30, 2018
Loans:
As of June 30, 2019
(amounts in thousands)
Loans and leases receivable:
Individually evaluated for impairment	$	1,343		$	13,750		$	759		$	2,536		$	—		$	8,775		$	10,372		$	94		$	37,629		$	—		$	10,605		$	950		$	94	$	—		$	8,107		$	10,126		$	359		$	30,241
Collectively evaluated for impairment	3,539,640			1,252,168			534,882			1,148,581			88,141			479,386			72,531			3,552			7,118,881			3,015,935			1,587,470			577,470			1,172,673		59,811			636,896			63,749			552,274			7,666,278
Loans acquired with credit deterioration	1,787			602			9,590			4,881			—			5,061			2,425			228			24,574			1,596			395			7,666			3,808		—			3,857			1,722			206			19,250
	$	3,542,770		$	1,266,520		$	545,231		$	1,155,998		$	88,141		$	493,222		$	85,328		$	3,874		$	7,181,084
Allowance for loan losses:
Total loans and leases receivable																												$	3,017,531		$	1,598,470		$	586,086		$	1,176,575	$	59,811		$	648,860		$	75,597		$	552,839		$	7,715,769
Allowance for loan and lease losses:
Individually evaluated for impairment	$	—		$	1,062		$	1		$	—		$	—		$	313		$	5		$	—		$	1,381		$	—		$	225		$	31		$	—	$	—		$	39		$	3		$	5		$	303
Collectively evaluated for impairment	12,069			10,749			2,987			4,334			992			2,106			81			154			33,472			9,926			13,250			3,321			4,249		649			3,789			91			10,108			45,383
Loans acquired with credit deterioration	—			447			—			2,364			—			489			63			72			3,435			—			261			8			1,910		—			340			29			154			2,702
	$	12,069		$	12,258		$	2,988		$	6,698		$	992		$	2,908		$	149		$	226		$	38,288
Total allowance for loan and lease losses																												$	9,926		$	13,736		$	3,360		$	6,159	$	649		$	4,168		$	123		$	10,267		$	48,388



Three Months Ended June 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, March 31, 2018	$	12,545		$	11,737		$	3,525		$	7,233		$	921		$	3,179		$	176		$	183		$	39,499
Charge-offs	—			(174		)	(483		)	—			—			(42		)	—			(462		)	(1,161		)
Recoveries	—			140			326			—			209			56			—			3			734
Provision for loan and lease losses	(476		)	555			(380		)	(535		)	(138		)	(285		)	(27		)	502			(784		)
Ending Balance, June 30, 2018	$	12,069		$	12,258		$	2,988		$	6,698		$	992		$	2,908		$	149		$	226		$	38,288
Six Months Ended June 30, 2018
Ending Balance, December 31, 2017	$	12,168		$	10,918		$	3,232		$	7,437		$	979		$	2,929		$	180		$	172		$	38,015
Charge-offs	—			(224		)	(501		)	—			—			(407		)	—			(718		)	(1,850		)
Recoveries	—			175			326			—			220			63			—			6			790
Provision for loan and lease losses	(99		)	1,389			(69		)	(739		)	(207		)	323			(31		)	766			1,333
Ending Balance, June 30, 2018	$	12,069		$	12,258		$	2,988		$	6,698		$	992		$	2,908		$	149		$	226		$	38,288

As of December 31, 2018
(amounts in thousands)
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
June 30, 2017
Multi-family Commercial and Industrial Commercial Real Estate Owner Occupied Commercial
Real Estate Non-Owner Occupied Construction Residential
Real Estate Manufactured
Housing Other Consumer Total
(amounts in thousands)
Ending Balance,
March 31, 2017
$ 12,283
$ 13,009
$ 2,394
$ 7,847
$ 885
$ 3,080
$ 284
$ 101
$ 39,883
Charge-offs —
(1,849 ) —
(4 ) —
(69 ) —
(226 ) (2,148 )
Recoveries —
68
9
—
49
6
—
56
188
Provision for loan losses (255 ) 357
573
(57 ) (218 ) (22 ) (16 ) 173
535
Ending Balance,
June 30, 2017
$ 12,028
$ 11,585
$ 2,976
$ 7,786
$ 716
$ 2,995
$ 268
$ 104
$ 38,458
Six Months Ended
June 30, 2017

Ending Balance,
December 31, 2016
$ 11,602
$ 11,050
$ 2,183
$ 7,894
$ 840
$ 3,342
$ 286
$ 118
$ 37,315
Charge-offs —
(2,047 ) —
(408 ) —
(290 ) —
(246 ) (2,991 )
Recoveries —
283
9
—
130
27
—
100
549
Provision for loan losses 426
2,299
784
300
(254 ) (84 ) (18 ) 132
3,585
Ending Balance,
June 30, 2017
$ 12,028
$ 11,585
$ 2,976
$ 7,786
$ 716
$ 2,995
$ 268
$ 104
$ 38,458
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
$ 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
$ 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 June 30, 2018 and December 31, 2017, funds available for reimbursement, if necessary, were $0.5 million and $0.6 million, respectively. Each quarter, these funds are evaluated to determine if they would be sufficient to absorb the probable incurred losses within the manufactured housing portfolio.

Impaired Loans - Individually Evaluated for Impairment

The following tables present the recorded investment (net of charge-offs), unpaid principal balance, and related allowance by loan type for impaired loans that were individually evaluated for impairment as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 and the average recorded investment and interest income recognized for the three and six months ended June 30, 2019 and 2018. Customers had no impaired lease receivables as of June 30, 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.


	June 30, 2018						Three Months Ended June 30, 2018				Six Months Ended June 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		June 30, 2019						Three Months Ended June 30, 2019				Six Months Ended June 30, 2019
(amounts in thousands)															Recorded investment net of charge-offs		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
With no recorded allowance:
With no related allowance recorded:
Multi-family	$	1,343	$	1,343	$	—	$	672	$	8	$	448	$	8	$	—	$	534	$	—	$	998	$	—	$	665	$	—
Commercial and industrial	5,642		5,889		—		5,736		2		6,870		2		4,663		6,144		—		7,923		16		9,836		18
Commercial real estate owner occupied	718		1,201		—		664		—		713		—		784		1,555		—		669		—		792		21
Commercial real estate non-owner occupied	2,536		2,648		—		1,390		8		980		8		94		206		—		98		—		108		—
Other consumer	94		94		—		96		—		74		—
Residential real estate	4,301		4,546		—		3,959		2		3,849		2		4,365		4,684		—		4,544		61		4,643		61
Manufactured housing	10,144		10,144		—		10,015		146		9,963		277		9,961		9,961		—		10,051		123		10,043		238
Other consumer															132		132		—		120		8		117		8
With an allowance recorded:
Multi-family															—		—		—		—		—		385		—
Commercial and industrial	8,108		8,292		1,062		8,283		11		8,296		12		5,942		6,048		225		6,084		58		5,445		97
Commercial real estate owner occupied	41		41		1		455		1		517		2		166		166		31		239		—		170		1
Commercial real estate non-owner occupied															—		—		—		—		—		—		—
Residential real estate	4,474		4,479		313		4,550		38		4,906		63		3,742		3,742		39		3,794		28		3,792		54
Manufactured housing	228		228		5		225		6		225		6		165		165		3		166		2		167		4
Other consumer															227		227		5		114		—		76		—
Total	$	37,629	$	38,905	$	1,381	$	36,045	$	222	$	36,841	$	380	$	30,241	$	33,564	$	303	$	34,800	$	296	$	36,239	$	502



	December 31, 2018						Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
(amounts in thousands)	Recorded investment net of charge-offs		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
With no related allowance recorded:
Multi-family	$	—	$	—	$	—	$	672	$	8	$	448	$	8
Commercial and industrial	13,660		15,263		—		5,736		2		6,870		2
Commercial real estate owner occupied	1,037		1,766		—		664		—		713		—
Commercial real estate non-owner occupied	129		241		—		1,390		8		980		8
Residential real estate	4,842		5,128		—		3,959		2		3,849		2
Manufactured housing	10,027		10,027		—		10,015		146		9,963		277
Other consumer	111		111		—		96		—		74		—
With an allowance recorded:
Multi-family	1,155		1,155		539		—		—		—		—
Commercial and industrial	4,168		4,351		261		8,283		11		8,296		12
Commercial real estate owner occupied	32		32		1		455		1		517		2
Residential real estate	3,789		3,789		41		4,550		38		4,906		63
Manufactured housing	168		168		3		225		6		225		6
Total	$	39,118	$	42,031	$	845	$	36,045	$	222	$	36,841	$	380

December 31, 2017 Three Months Ended June 30, 2017 Six Months Ended June 30, 2017

Recorded
Investment
Net of
Charge offs

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized
Average
Recorded
Investment Interest
Income
Recognized
(amounts in thousands)
With no recorded allowance:
Commercial and industrial $ 9,138
$ 9,287
$ —
$ 6,678
$ 46
$ 5,251
$ 96
Commercial real estate owner occupied 806
806
—
1,739
—
1,563
3
Commercial real estate non-owner occupied 160
272
—
884
—
1,257
2
Other consumer 30
30
—
56
—
56
—
Residential real estate 3,628
3,801
—
2,660
—
4,001
1
Manufactured housing 9,865
9,865
—
10,074
152
9,937
293
With an allowance recorded:
Commercial and industrial 8,323
8,506
650
7,209
—
6,846
22
Commercial real estate - owner occupied 642
642
642
839
1
839
2
Commercial real estate non-owner occupied —
—
—
114
—
126
—
Residential real estate 5,619
5,656
155
4,953
45
3,399
84
Manufactured housing 224
224
4
216
5
144
8
Total $ 38,435
$ 39,089
$ 1,451
$ 35,422
$ 249
$ 33,419
$ 511

Troubled Debt Restructurings

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, there were ~~$19.4~~$19.0 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. ~~Modification~~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 had no lease receivables that had been restructured as a TDR as of June 30, 2019 and December 31, 2018, respectively.

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



	June 30, 2019						December 31, 2018
(amounts in thousands)	Accruing TDRs		Nonaccrual TDRs		Total		Accruing TDRs		Nonaccrual TDRs		Total
Commercial and industrial	$	5,205	$	35	$	5,240	$	64	$	5,273	$	5,337
Commercial real estate owner occupied	23		—		23		32		—		32
Residential real estate	3,024		646		3,670		3,026		667		3,693
Manufactured housing	8,556		1,498		10,054		8,502		1,620		10,122
Other consumer	—		11		11		—		12		12
Total TDRs	$	16,808	$	2,190	$	18,998	$	11,624	$	7,572	$	19,196

June 30, 2018 December 31, 2017

Accruing
TDRs
Nonaccrual TDRs Total Accruing TDRs Nonaccrual TDRs Total
(amounts in thousands)
Commercial and industrial $ 67
$ 5,415
$ 5,482
$ 63
$ 5,939
$ 6,002
Commercial real estate owner occupied 41
—
41
—
—
—
Manufactured housing 8,357
1,875
10,232
8,130
1,766
9,896
Residential real estate 3,169
485
3,654
3,828
703
4,531
Other consumer —
13
13
—
—
—
Total TDRs $ 11,634
$ 7,788
$ 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 six months ended June 30, ~~2018~~2019 and ~~2017.~~2018. There were no modifications that involved forgiveness of ~~debt.~~debt for the three and six months ended June 30, 2019 and 2018.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment
Extensions of maturity	—	$	—	1	$	56	2	$	514	1	$	56
Interest-rate reductions	2	47		15	607		12	432		24	929
Total	2	$	47	16	$	663	14	$	946	25	$	985

Three Months Ended
June 30, 2018

Three Months Ended
June 30, 2017
Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
(dollars in thousands)
Extensions of maturity 1
$ 56
2
$ 5,855
Interest-rate reductions 15
607
9
320
Total 16
$ 663
11
$ 6,175

Six Months Ended
June 30, 2018

Six Months Ended
June 30, 2017
Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
(dollars in thousands)
Extensions of maturity 1
$ 56
3
$ 6,203
Interest-rate reductions 24
929
29
1,175
Total 25
$ 985
32
$ 7,378

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 six months ended June 30, ~~2018~~2019 and ~~2017.~~

Three Months Ended
June 30, 2018

Three Months Ended
June 30, 2017
Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
(dollars in thousands)
Commercial and industrial —
$ —
2
$ 5,855
Manufactured housing 14
450
9
320
Residential real estate 1
200

—

—
Other consumer 1
13

—

—
Total loans 16
$ 663
11
$ 6,175
2018.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
(dollars in thousands)	Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment		Number of loans	Recorded investment
Commercial and industrial	—	$	—	—	$	—	1	$	431	—	$	—
Manufactured housing	2	47		14	450		12	432		23	772
Residential real estate	—	—		1	200		1	83		1	200
Other consumer	—	—		1	13		—	—		1	13
Total loans	2	$	47	16	$	663	14	$	946	25	$	985

Six Months Ended
June 30, 2018

Six Months Ended
June 30, 2017
Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
(dollars in thousands)
Commercial and industrial —
$ —
3
$ 6,203
Manufactured housing 23
772
29
1,175
Residential real estate 1
200
—
—
Other consumer 1
13
—
—
Total loans 25
$ 985
32
$ 7,378

As of both June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, except for one commercial and industrial loan with an outstanding commitment of ~~$1.6~~$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 ~~June 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 June 30, 2017, six manufactured housing loans totaling $0.3 million, that were modified in TDRs within~~following the ~~past twelve months, defaulted on payments.~~modification:



	June 30, 2019				June 30, 2018
(dollars in thousands)	Number of loans		Recorded investment		Number of loans	Recorded investment
Manufactured housing	3		$	108	—	$	—
Commercial and industrial	1		—		—	—
Total loans	$	4	$	108	—	$	—

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~~allowances recorded as a result of TDR modifications during the three and six months ended June 30, 2019 and 2018. There was no allowance recorded as a result of TDR modifications during the three months ended June 30, 2017. For the six months ended June 30, 2017, there was one allowance recorded resulting from TDR modifications, totaling $1 thousand for one manufactured housing loan.

Purchased-Credit-Impaired Loans

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



	Three Months Ended June 30,						Six Months Ended June 30,
(amounts in thousands)	2019			2018			2019			2018
Accretable yield balance, beginning of period	$	6,194		$	7,663		$	6,178		$	7,825
Accretion to interest income	(378		)	(516		)	(655		)	(854		)
Reclassification from nonaccretable difference and disposals, net	(9		)	256			284			432
Accretable yield balance, end of period	$	5,807		$	7,403		$	5,807		$	7,403

Three Months Ended June 30,
2018 2017
(amounts in thousands)
Accretable yield balance as of March 31, $ 7,663
$ 9,376
Accretion to interest income (516 ) (465 )
Reclassification from nonaccretable difference and disposals, net 256
95
Accretable yield balance as of June 30, $ 7,403
$ 9,006

Six Months Ended June 30,
2018 2017
(amounts in thousands)
Accretable yield balance as of December 31, $ 7,825
$ 10,202
Accretion to interest income (854 ) (958 )
Reclassification from nonaccretable difference and disposals, net 432
(238 )
Accretable yield balance as of June 30, $ 7,403
$ 9,006

Credit Quality Indicators

The ~~allowance for loan losses~~ALLL represents management's estimate of probable losses in Customers' loans and leases receivable portfolio, excluding commercial mortgage warehouse loans reported at fair value ~~because of~~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 2018 Form 10-K describes Customers Bancorp’s risk rating ~~grades are defined as follows:~~

~~“1” –~~ ~~Pass~~/~~Excellent~~

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

~~“2” –~~ ~~Pass~~/~~Superior~~

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

~~“3” –~~ ~~Pass~~/~~Strong~~

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

~~“4” –~~ ~~Pass~~/~~Good~~

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

~~“5” –~~ ~~Satisfactory~~

Loans rated 5 are extended to borrowers who are 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 rated 6 are those for which the borrower has higher than normal credit risk; however, cash flow and asset values are generally intact. These borrowers may exhibit declining financial characteristics, with increasing leverage and decreasing liquidity and may have limited resources and access to financial alternatives. Signs of weakness in these borrowers may include delinquent taxes, trade slowness and eroding profit margins.

~~“7” –~~ ~~Special Mention~~

Loans rated 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 that bear certain peculiar risks normally associated with the type of financing involved, unless circumstances have caused the risk to increase to a level higher than would have been acceptable when the credit was originally approved. Loans where significant actual, not potential, weaknesses or problems are clearly evident are graded in the category below.

~~“8” –~~ ~~Substandard~~

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

~~“9” –~~ ~~Doubtful~~

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

~~“10” –~~ ~~Loss~~

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

Risk ratings are not established for certain consumer loans, including residential real estate, other consumer loans, 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 and through the monitoring of delinquency levels and trends and are classified as performing and non-performing.

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


	June 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)		June 30, 2019
(amounts in thousands)	(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	$	3,485,669	$	1,211,934	$	529,898	$	1,089,666	$	88,141	$	—	$	—	$	—	$	6,405,308	$	2,969,263	$	1,545,879	$	568,720	$	1,108,632	$	59,811	$	—	$	—	$	—	$	6,252,305
Special Mention	31,001		16,979		8,152		60,943		—		—		—		—		117,075		43,147		29,473		11,853		30,051		—		—		—		—		114,524
Substandard	26,100		37,607		7,181		5,389		—		—		—		—		76,277		5,121		23,118		5,513		37,892		—		—		—		—		71,644
Performing (1)	—		—		—		—		—		485,442		77,675		3,724		566,841		—		—		—		—		—		641,166		68,192		551,000		1,260,358
Non-performing (2)	—		—		—		—		—		7,780		7,653		150		15,583		—		—		—		—		—		7,694		7,405		1,839		16,938
Total	$	3,542,770	$	1,266,520	$	545,231	$	1,155,998	$	88,141	$	493,222	$	85,328	$	3,874	$	7,181,084	$	3,017,531	$	1,598,470	$	586,086	$	1,176,575	$	59,811	$	648,860	$	75,597	$	552,839	$	7,715,769


	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)	(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 reported at fair value.

Loan Purchases and Sales

~~In second quarter 2018, Customers purchased $277.4 million of thirty-year fixed-rate residential mortgage loans from Third Federal Savings & Loan. The purchase price was 100.4%~~Purchases and sales 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 an additional $90.0 million of thirty-year fixed-rate residential mortgage loans from Everbank. 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 Small Business Administration (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 Florida-based Everbank. The purchase price was 98.5% of loans outstanding. In first quarter 2017, Customers sold $94.9 million of multi-family loanswere as 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 six months ended June 30, ~~2018~~2019 and ~~2017 materially affected the credit profile of Customers’ loan portfolio.~~2018:



	Three Months Ended June 30,					Six Months Ended June 30,
(amounts in thousands)	2019		2018			2019		2018
Purchases ⁽¹⁾
Residential real estate	$	39,474	$	277,374		$	105,858	$	277,374
Other consumer ⁽²⁾	384,116		—			450,252		—
Total	$	423,590	$	277,374		$	556,110	$	277,374
Sales ⁽³⁾
Commercial and industrial ⁽⁴⁾	—		(10,307		)	—		(17,149		)
Commercial real estate owner occupied ⁽⁴⁾	—		(1,430		)	—		(9,581		)
Total	$	—	$	(11,737	)	$	—	$	(26,730	)


(1)	Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was 100.6% and 100.4% of loans outstanding for the three months ended June 30, 2019 and 2018, respectively. The purchase price was 99.9% and 100.4% of loans outstanding for the six months ended June 30, 2019 and 2018, respectively.


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


(3)	Amounts reported in the above table are the unpaid principal balance at time of sale. There were no loan sales for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2018, loan sales resulted in gains of $0.9 million and $2.3 million, respectively.


(4)	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 FRB in the amount of ~~$5.6~~$5.3 billion and $5.4 billion at June 30, ~~2018~~2019 and ~~$5.5 billion at~~ December 31, ~~2017.~~2018, respectively.

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

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

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 operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:



(amounts in thousands)	Classification	June 30, 2019
ASSETS
Operating lease ROU assets	Other assets	$	22,069
LIABILITIES
Operating lease liabilities	Other liabilities	$	23,256

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



		Three Months Ended June 30,		Six Months Ended June 30,
(amounts in thousands)	Classification	2019		2019
Operating lease cost ⁽¹⁾	Occupancy expenses	$	1,462	$	2,931

(1) There were no variable lease costs for the three and six months ended June 30, 2019, and sublease income for operating leases is immaterial.

Maturities of non-cancelable operating lease liabilities were as follows at June 30, 2019:



(amounts in thousands)	June 30, 2019
2019	$	2,840
2020	5,309
2021	4,678
2022	4,076
2023	3,106
Thereafter	4,785
Total minimum payments	24,794
Less: interest	1,538
Present value of lease liabilities	$	23,256

Customers is not currently involved with the construction or design of an underlying asset. Customers has legally binding minimum lease payments of $1.8 million for leases signed by not yet commenced as of June 30, 2019. Cash paid under the operating lease liability was $1.4 million and $2.8 million for the three and six months ended June 30, 2019, respectively, and is reported as cash flows from operating activities in the statement of cash flows.

The following table summarizes the term and discount rate information for Customers' operating leases at June 30, 2019:



(amounts in thousands)	June 30, 2019
Weighted average remaining lease term (years)
Operating leases	5.4 years

Weighted average discount rate
Operating leases	2.72	%

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 $1.5 million and $3.0 million for the three and six months ended June 30, 2018, respectively.

Equipment Lessor

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

The estimated residual values for direct finance and operating leases are established by utilizing internally developed analysis, external studies, and/or third-party appraisals to establish a residual position. 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 and are presented in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to the expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its 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 at June 30, 2019:



(amounts in thousands)	Classification	June 30, 2019
ASSETS
Direct financing leases
Lease receivables	Loans and leases receivable	$	64,575
Guaranteed residual assets	Loans and leases receivable	5,144
Unguaranteed residual assets	Loans and leases receivable	1,266
Deferred initial direct costs	Loans and leases receivable	735
Unearned income	Loans and leases receivable	(6,519		)
Net investment in direct financing leases		$	65,201

Operating leases
Investment in operating leases	Other assets	$	70,974
Accumulated depreciation	Other assets	(8,957		)
Deferred initial direct costs	Other assets	813
Net investment in operating leases		62,830
Total lease assets		$	128,031

NOTE 98 — 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 June 30, ~~2018~~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 June 30, 2019:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	768,335	8.041	%	$	429,991	4.500	%	N/A		N/A		$	668,874	7.000	%
Customers Bank	$	1,068,554	11.190	%	$	429,727	4.500	%	$	620,717	6.500	%	$	668,465	7.000	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	985,784	10.317	%	$	573,321	6.000	%	N/A		N/A		$	812,205	8.500	%
Customers Bank	$	1,068,554	11.190	%	$	572,970	6.000	%	$	763,960	8.000	%	$	811,707	8.500	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,123,602	11.759	%	$	764,428	8.000	%	N/A		N/A		$	1,003,312	10.500	%
Customers Bank	$	1,226,248	12.841	%	$	763,960	8.000	%	$	954,950	10.000	%	$	1,002,697	10.500	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	985,784	9.511	%	$	414,576	4.000	%	N/A		N/A		$	414,576	4.000	%
Customers Bank	$	1,068,554	10.318	%	$	414,241	4.000	%	$	517,801	5.000	%	$	414,241	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 Adequacy Capitalized Well Capitalized Basel III Compliant
(amounts in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2018:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 735,609
8.611 % $ 384,418
4.500 % N/A
N/A
$ 544,591
6.375 %
Customers Bank $ 1,054,613
12.351 % $ 384,232
4.500 % $ 555,002
6.500 % $ 544,329
6.375 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 953,025
11.156 % $ 512,557
6.000 % N/A
N/A
$ 672,731
7.875 %
Customers Bank $ 1,054,613
12.351 % $ 512,309
6.000 % $ 683,079
8.000 % $ 672,406
7.875 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc. $ 1,072,072
12.550 % $ 683,409
8.000 % N/A
N/A
$ 843,583
9.875 %
Customers Bank $ 1,202,070
14.078 % $ 683,079
8.000 % $ 853,849
10.000 % $ 843,176
9.875 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc. $ 953,025
8.866 % $ 429,963
4.000 % N/A
N/A
$ 429,963
4.000 %
Customers Bank $ 1,054,613
9.822 % $ 429,471
4.000 % $ 536,839
5.000 % $ 429,471
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 109 — 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 June 30, ~~2018~~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~~available-for-sale debt securities and debt securities reported at fair value based on a fair value option election are determined by obtaining quoted market prices on nationally recognized and foreign securities exchanges (Level 1), quoted prices in markets that are not active (Level 2), and matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or internally and externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). These assets are classified as Level 1, 2 or 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

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

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

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

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 primarily 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 generally 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 20under 30 days from purchase to sale. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Derivatives ~~(Assets~~(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 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.

Other real estate owned:

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

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

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


					Fair Value Measurements at June 30, 2018										Fair Value Measurements at June 30, 2019
	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)
(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	$	251,726	$	251,726	$	251,726	$	—	$	—	$	95,795	$	95,795	$	95,795	$	—	$	—
Debt securities, available for sale	1,157,944		1,157,944		—		1,157,944		—		689,829		689,829		—		689,829		—
Interest-only classes of agency-guaranteed home equity conversion mortgage-backed securities, reported at fair value based on a fair value option election											17,157		17,157		—		—		17,157
Equity securities	3,056		3,056		3,056		—		—		1,373		1,373		1,373		—		—
Loans held for sale (as restated)	1,043		1,043		—		1,043		—
Total loans receivable, net of allowance for loan losses (as restated)	9,074,176		9,058,053		—		1,930,738		7,127,315
Loans held for sale											5,697		5,697		—		4,372		1,325
Total loans and leases receivable, net of allowance for loan and lease losses											9,667,258		9,885,136		—		2,001,540		7,883,596
FHLB, Federal Reserve Bank and other restricted stock	136,066		136,066		—		136,066		—		101,947		101,947		—		101,947		—
Derivatives	16,247		16,247		—		16,114		133		22,679		22,679		—		22,534		145
Liabilities:
Deposits	$	7,295,954	$	7,288,828	$	5,223,793	$	2,065,035	$	—	$	8,185,777	$	8,186,683	$	5,747,676	$	2,439,007	$	—
Federal funds purchased	105,000		105,000		105,000		—		—		406,000		406,000		406,000		—		—
FHLB advances	2,389,797		2,389,785		1,504,797		884,988		—		1,262,100		1,263,718		412,100		851,618		—
Other borrowings	186,888		185,364		63,554		121,810		—		99,055		125,245		—		125,245		—
Subordinated debt	108,929		114,675		—		114,675		—		109,026		116,644		—		116,644		—
Derivatives	13,698		13,698		—		13,698		—		46,636		46,636		—		46,636		—



					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 June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:


	June 30, 2018								June 30, 2019
	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 debt securities:
Agency-guaranteed residential mortgage-backed securities	$	—	$	476,563	$	—	$	476,563	$	—	$	301,391	$	—	$	301,391
Agency-guaranteed commercial mortgage-backed securities	—		320,373		—		320,373
Corporate notes	—		361,008		—		361,008		—		388,438		—		388,438
Interest-only classes of agency-guaranteed home equity conversion mortgage-backed securities, reported at fair value based on a fair value option election									—		—		17,157		17,157
Equity securities	3,056		—		—		3,056		1,373		—		—		1,373
Derivatives	—		16,114		133		16,247		—		22,534		145		22,679
Loans held for sale – fair value option (as restated)	—		1,043		—		1,043
Loans receivable, mortgage warehouse – fair value option (as restated)	—		1,930,738		—		1,930,738
Total assets - recurring fair value measurements	$	3,056	$	3,105,839	$	133	$	3,109,028
Loans held for sale – fair value option									—		4,372		—		4,372
Loans receivable, mortgage warehouse – fair value option									—		2,001,540		—		2,001,540
Total assets – recurring fair value measurements									$	1,373	$	2,718,275	$	17,302	$	2,736,950
Liabilities
Derivatives	$	—	$	13,698	$	—	$	13,698	$	—	$	46,636	$	—	$	46,636
Measured at Fair Value on a Nonrecurring Basis:
Assets
Impaired loans, net of reserves of $1,381	$	—	$	—	$	11,929	$	11,929
Impaired loans, net of reserves of $303									—		—		11,577		11,577
Other real estate owned	—		—		1,027		1,027		—		—		880		880
Total assets - nonrecurring fair value measurements	$	—	$	—	$	12,956	$	12,956
Total assets – nonrecurring fair value measurements									$	—	$	—	$	12,457	$	12,457


	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 six months ended June 30, ~~2018~~2019 and ~~2017~~2018 are summarized in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 1110 - DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES.


	Residential Mortgage Loan Commitments
	Three Months Ended June 30,						Residential Mortgage Loan Commitments
	2018			2017			Three Months Ended June 30,
(amounts in thousands)							2019			2018
Balance at March 31	$	83		$	95		$	77		$	83
Issuances	133			102			145			133
Settlements	(83		)	(95		)	(77		)	(83		)
Balance at June 30	$	133		$	102		$	145		$	133



	Residential Mortgage Loan Commitments
	Six Months Ended June 30,
(amounts in thousands)	2019			2018

Balance at December 31	$	69		$	60
Issuances	222			216
Settlements	(146		)	(143		)
Balance at June 30	$	145		$	133

Residential Mortgage Loan Commitments
Six Months Ended June 30,
2018 2017
(amounts in thousands)
Balance at December 31 $ 60
$ 45
Issuances 216
197
Settlements (143 ) (140 )
Balance at June 30 $ 133
$ 102

~~Customers' policy is to recognize transfers between fair value levels when events or circumstances warrant transfers.~~ There were no transfers between levels during the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~

2018.

The following table summarizes financial assets and financial liabilities measured at fair value as of June 30, ~~2018~~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. On June 28, 2019, Customers obtained ownership of interest-only GNMA securities that served as the primary collateral for loans made to one commercial mortgage warehouse customer through a Uniform Commercial Code ("UCC") private sale transaction. On June 28, 2019, Customers elected the fair value option for these interest-only GNMA securities acquired on such date. The fair value of these securities at June 30, 2019 was $17.2 million which reflects the valuation obtained from the third party binding bids obtained through the UCC private sale transaction. Customers corroborated the third party binding bids through internally developed discounted cash flow modeling. The significant unobservable inputs used in the discounted cash flow modeling include prepayment speeds and discount rates. Customers will mark these securities to fair value on a quarterly basis, with changes in fair value reported in non-interest income.

Customers will mark these securities to fair value on a quarterly basis, with changes in fair value reported in non-interest income.

Quantitative Information about Level 3 Fair Value Measurements
June 30, 2018
Fair Value
Estimate
Valuation Technique Unobservable Input
Range (Weighted
Average) (3)
(amounts in thousands)
Impaired loans $ 11,929
Collateral appraisal (1) Liquidation expenses (2) (8)%
Other real estate owned 1,027
Collateral appraisal (1) Liquidation expenses (2) (8)%
Residential mortgage loan commitments 133
Adjusted market bid Pull-through rate 90%

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2017

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range (Weighted

Average) (3)

June 30, 2019

Fair Value

Estimate

Valuation Technique

Unobservable Input

Range

(Weighted Average)

(amounts in thousands)

Impaired loans

13,902

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

Impaired loans - real estate

5,015

Collateral appraisal ⁽¹⁾

Liquidation expenses ⁽²⁾

8% - 8%
(8%)

Impaired loans - commercial & industrial

6,562

Business asset valuation ⁽³⁾

Business asset valuation adjustments ⁽⁴⁾

8% - 50%
(16%)

Other real estate owned

1,449

Collateral appraisal (1)

Liquidation expenses (2)

(8)%

880

Collateral appraisal ⁽¹⁾

Liquidation expenses ⁽²⁾

8% - 11%
(8%)

Residential mortgage loan commitments

Adjusted market bid

Pull-through rate

90%

145

Adjusted market bid

Pull-through rate

83% - 83%
(83%)


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


(2)	~~Fair value is~~Appraisals are adjusted by management for ~~estimated costs to sell based on~~liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percentage of ~~the value as determined by~~ the appraisal.


(3)	~~Presented~~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.



	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2018	Fair Value Estimate		Valuation Technique	Unobservable Input	Range (Weighted Average)
(amounts in thousands)
Impaired loans - real estate	$	10,260	Collateral appraisal ⁽¹⁾	Liquidation expenses ⁽²⁾	8% - 8% (8%)
Impaired loans - commercial & industrial	616		Business asset valuation ⁽³⁾	Business asset valuation adjustments ⁽⁴⁾	8% - 50% (26%)
Other real estate owned	621		Collateral appraisal ⁽¹⁾	Liquidation expenses ⁽²⁾	8% - 8% (8%)
Residential mortgage loan commitments	69		Adjusted market bid	Pull-through rate	90% - 90% (90%)


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


(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 ~~value determined~~appraisal.


(3)	Business asset valuation obtained from independent party.


(4)	Business asset valuations may be adjusted by ~~appraisal~~management for ~~impaired loans~~qualitative factors including economic conditions and ~~other real estate owned.~~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 1110 — 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~~interest rate risk management strategy. ~~Interest-rate~~Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for Customers making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The 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~~item affects earnings. To date, such derivatives were used to hedge the variable cash flows associated with the forecasted issuances of ~~debt.~~debt and a certain variable-rate deposit relationship.

Customers discontinues cash flow hedge accounting if it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in AOCI are reclassified immediately into earnings and any subsequent changes in the fair value of such derivatives are recognized directly in earnings.

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.~~debt and a variable-rate deposit relationship. Customers expects to reclassify ~~$0.5~~$4.5 million from ~~accumulated other comprehensive income~~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) and a variable-rate deposit relationship over a maximum period of 60 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

At June 30, ~~2018,~~2019, Customers had ~~thirteen~~four outstanding interest rate derivatives with notional amounts totaling ~~$1.4 billion~~$725.0 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 June 30, ~~2018~~2019 expire between June, 2021 and July, ~~2018 and June 2023.~~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. ~~Because~~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 June 30, ~~2018,~~2019, Customers had 82116 interest rate swaps with an aggregate notional amount of ~~$779.0 million~~$1.2 billion related to this program. At December 31, ~~2017,~~2018, Customers had 7698 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 June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Customers had an outstanding notional balance of residential mortgage loan commitments of ~~$6.0~~$8.1 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 June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Customers had outstanding notional balances of credit derivatives of ~~$92.6~~$115.1 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 June 30, ~~2018~~2019 and December 31, ~~2017.~~

2018.


	June 30, 2018
	Derivative Assets			Derivative Liabilities			June 30, 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	$	2,732	Other liabilities	$	416	Other assets	$	—	Other liabilities	$	22,696
Total		$	2,732		$	416		$	—		$	22,696
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	13,334	Other liabilities	$	13,148	Other assets	$	22,278	Other liabilities	$	23,841
Credit contracts	Other assets	48		Other liabilities	134		Other assets	256		Other liabilities	99
Residential mortgage loan commitments	Other assets	133		Other liabilities	—		Other assets	145		Other liabilities	—
Total		$	13,515		$	13,282		$	22,679		$	23,940



	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 six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.


	Three Months Ended June 30, 2018
	Income Statement Location	Amount of Income (Loss) Recognized in Earnings			Three Months Ended June 30, 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	$	(51	)	Other non-interest income	$	386
Credit contracts	Other non-interest income	(15		)	Other non-interest income	41
Residential mortgage loan commitments	Mortgage banking income	50			Mortgage banking income	68
Total		$	(16	)		$	495



	Three Months Ended June 30, 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	$	(51	)
Credit contracts	Other non-interest income	(15		)
Residential mortgage loan commitments	Mortgage banking income	50
Total		$	(16	)



	Six Months Ended June 30, 2019
(amounts in thousands)	Income Statement Location	Amount of Income Recognized in Earnings

Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	98
Credit contracts	Other non-interest income	144
Residential mortgage loan commitments	Mortgage banking income	76
Total		$	318


	Three Months Ended June 30, 2017
	Income Statement Location	Amount of Income (Loss) Recognized in Earnings			Six Months Ended June 30, 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	$	(145	)	Other non-interest income	$	334
Credit contracts	Other non-interest income	1			Other non-interest income	(38		)
Residential mortgage loan commitments	Mortgage banking income	7			Mortgage banking income	73
Total		$	(137	)		$	369

Six Months Ended June 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 $ 334
Credit contracts Other non-interest income (38 )
Residential mortgage loan commitments Mortgage banking income 73
Total $ 369



	Three Months Ended June 30, 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	$	(10,435	)	Interest expense	$	(4	)

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



	Three Months Ended June 30, 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
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	1,403	Interest expense	$	259



	Six Months Ended June 30, 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
Derivative in cash flow hedging relationships:
Interest rate swaps	$	(15,570	)	Interest expense	$	409

Three Months Ended June 30, 2018

Amount of Gain

Recognized in OCI on

Derivatives (1)

Location of Gain (Loss)

Reclassified from

Accumulated OCI into

Income

Amount of Gain

Reclassified from

Accumulated OCI into

Income

Six Months Ended June 30, 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

Derivatives in cash flow hedging relationships:

Derivative in cash flow hedging relationships:

Interest rate swaps

1,403

Interest expense

259

2,049

Interest expense

128

Three Months Ended June 30, 2017

Amount of Loss
Recognized in OCI on
Derivatives (1)

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

Amount of Loss
Reclassified from
Accumulated OCI into
Income
(amounts in thousands)
Derivatives in cash flow hedging relationships:
Interest rate swaps $ (420 ) Interest expense $ (767 )

Six Months Ended June 30, 2018
Amount of Gain
Recognized in OCI on
Derivatives (1) Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income Amount of Gain
Reclassified from
Accumulated OCI into
Income
(amounts in thousands)
Derivative in cash flow hedging relationships:
Interest rate swaps $ 2,049
Interest expense $ 128

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

(1) Amounts presented are net of taxes. See NOTE 54 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) for the total effect on other comprehensive income (loss) from derivatives designated as cash flow hedges for the periods presented.

Credit-risk-related Contingent Features

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

Agreements with major derivative dealer counterparties contain provisions whereby default on any of Customers' indebtedness would be considered a default on its derivative obligations. Customers also has entered into agreements that contain provisions under which the counterparty could require Customers to settle its obligations if Customers fails to maintain its status as a well/adequately capitalized institution. As of June 30, ~~2018, all~~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 $45.0 million. In addition, Customers has collateral posting thresholds with certain of these counterparties and at June 30, 2019, had posted $44.8 million of cash as collateral. Customers records cash posted as collateral as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets.

Disclosures about Offsetting Assets and Liabilities

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

Offsetting of Financial Assets and Derivative Assets

At June 30, ~~2018~~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	$	736	$	—	$	736	$	—	$	—	$	736

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 $ 14,921
$ —
$ 14,921
$ —
$ 11,170
$ 3,751
Offsetting of Financial Assets and Derivative Assets

At December 31, 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
(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	$	7,529	$	—	$	7,529	$	—	$	1,860	$	5,669

Offsetting of Financial Liabilities and Derivative Liabilities

At June 30, ~~2018~~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	$	45,777	$	—	$	45,777	$	—	$	44,832	$	945

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 $ 1,639
$ —
$ 1,639
$ —
$ 2
$ 1,637

~~Offsetting of Financial Assets and Derivative Assets~~

~~At December 31, 2017~~

Gross
Amount of
Recognized
Assets

Gross
Amounts
Offset in the
Consolidated
Balance
Sheet

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

Financial
Instruments

Cash
Collateral
Received

(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties $ 5,930
$ —
$ 5,930
$ —
$ 5,070
$ 860

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 1211 — 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. BankMobile,~~nationwide, along with "Banking as a ~~division of Customers Bank,~~Service" offerings with white label partners. BankMobile is a full-service fintech banking platform that is accessible to customers anywhere and anytime through the customer's smartphone or other web-enabled device. Revenues are currently being generated primarily through 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 and six ~~month periods~~months ended June 30, ~~2018~~2019 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 and preferred stock dividends are assigned to the Community Business Banking segment as those expenses are expected to continue following the planned spin-off of BankMobile. Similarly, the preferred stock dividends have been allocated in their entirety to the CommunityCustomers Bank Business Banking segment. The tax benefit assigned to BankMobile was based on an estimated effective tax rate of 23.15% for 2019 and 24.57% for 2018, ~~and 38.00% for 2017,~~ respectively.



	Three Months Ended June 30, 2019
(amounts in thousands)	Customers Bank Business Banking			BankMobile			Consolidated
Interest income ⁽¹⁾	$	103,014		$	8,936		$	111,950
Interest expense	47,061			210			47,271
Net interest income	55,953			8,726			64,679
Provision for loan losses	(2,206		)	7,552			5,346
Non-interest income	970			11,066			12,036
Non-interest expense	38,107			21,475			59,582
Income (loss) before income tax expense (benefit)	21,022			(9,235		)	11,787
Income tax expense (benefit)	4,629			(2,138		)	2,491
Net income (loss)	16,393			(7,097		)	9,296
Preferred stock dividends	3,615			—			3,615
Net income (loss) available to common shareholders	$	12,778		$	(7,097	)	$	5,681



	Three Months Ended June 30, 2018
(amounts in thousands)	Customers Bank Business Banking			BankMobile			Consolidated
Interest income ⁽¹⁾	$	104,110		$	3,529		$	107,639
Interest expense	40,182			135			40,317
Net interest income	63,928			3,394			67,322
Provision for loan losses	(1,247		)	463			(784		)
Non-interest income	7,465			8,662			16,127
Non-interest expense	37,721			16,029			53,750
Income (loss) before income tax expense (benefit)	34,919			(4,436		)	30,483
Income tax expense (benefit)	7,910			(1,090		)	6,820
Net income (loss)	27,009			(3,346		)	23,663
Preferred stock dividends	3,615			—			3,615
Net income (loss) available to common shareholders	$	23,394		$	(3,346	)	$	20,048

Three Months Ended June 30, 2018
(amounts in thousands) Community Business Banking BankMobile Consolidated
Interest income ⁽¹⁾
$ 104,110
$ 3,529

$ 107,639
Interest expense 40,182
135

40,317
Net interest income 63,928
3,394
67,322
Provision for loan losses (1,247 ) 463
(784 )
Non-interest income 7,465
8,662
16,127
Non-interest expense 37,721
16,029

53,750
Income (loss) before income tax expense (benefit) 34,919
(4,436 ) 30,483
Income tax expense (benefit) 7,910
(1,090 ) 6,820
Net income (loss) 27,009
(3,346 ) 23,663
Preferred stock dividends 3,615
—
3,615
Net income (loss) available to common shareholders $ 23,394
$ (3,346 ) $ 20,048

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

(1) - Amounts reported include funds transfer pricing of $2.2 million and $3.5 million ~~and~~ ~~$2.7 million~~ for the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, credited to BankMobile for the value provided to the ~~Community~~Customers Bank Business Banking segment for the use of excess low/no cost deposits.


	Six Months Ended June 30, 2018							Six Months Ended June 30, 2019
(amounts in thousands)	Community Business Banking		BankMobile			Consolidated		Customers Bank Business Banking		BankMobile			Consolidated
Interest income ⁽¹⁾	$	196,664	$	7,940		$	204,604	$	195,885	$	17,140		$	213,025
Interest expense	72,100		151			72,251		88,666		376			89,042
Net interest income	124,564		7,789			132,353		107,219		16,764			123,983
Provision for loan losses	627		706			1,333		770		9,343			10,113
Non-interest income	15,904		21,133			37,037		8,547		23,207			31,754
Non-interest expense	72,052		33,979			106,031		73,491		40,075			113,566
Income (loss) before income tax expense (benefit)	67,789		(5,763		)	62,026		41,505		(9,447		)	32,058
Income tax expense (benefit)	15,638		(1,416		)	14,222		9,510		(2,187		)	7,323
Net income (loss)	52,151		(4,347		)	47,804		31,995		(7,260		)	24,735
Preferred stock dividends	7,229		—			7,229		7,229		—			7,229
Net income (loss) available to common shareholders	$	44,922	$	(4,347	)	$	40,575	$	24,766	$	(7,260	)	$	17,506

As of June 30, 2018
As of June 30, 2019
Goodwill and other intangibles	$	3,629	$	13,521		$	17,150	$	3,629	$	12,218		$	15,847
Total assets(2)	$	11,017,272	$	75,574		$	11,092,846	$	10,555,141	$	627,286		$	11,182,427
Total deposits	$	6,876,688	$	419,266		$	7,295,954	$	7,729,580	$	456,197		$	8,185,777
Total non-deposit liabilities(2)	$	2,843,360	$	17,305		$	2,860,665	$	1,970,391	$	34,854		$	2,005,245



	Six Months Ended June 30, 2018
(amounts in thousands)	Customers Bank Business Banking		BankMobile			Consolidated
Interest income ⁽¹⁾	$	196,664	$	7,940		$	204,604
Interest expense	72,100		151			72,251
Net interest income	124,564		7,789			132,353
Provision for loan losses	627		706			1,333
Non-interest income	15,904		21,133			37,037
Non-interest expense	72,052		33,979			106,031
Income (loss) before income tax expense (benefit)	67,789		(5,763		)	62,026
Income tax expense (benefit)	15,638		(1,416		)	14,222
Net income (loss)	52,151		(4,347		)	47,804
Preferred stock dividends	7,229		—			7,229
Net income (loss) available to common shareholders	$	44,922	$	(4,347	)	$	40,575

As of June 30, 2018
Goodwill and other intangibles	$	3,629	$	13,521		$	17,150
Total assets ⁽²⁾	$	11,017,272	$	75,574		$	11,092,846
Total deposits	$	6,876,688	$	419,266		$	7,295,954
Total non-deposit liabilities ⁽²⁾	$	2,843,360	$	17,305		$	2,860,665

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

As of June 30, 2017
Goodwill and other intangibles $ 3,633
$ 13,982
$ 17,615
Total assets $ 10,815,752
$ 67,796
$ 10,883,548
Total deposits $ 7,021,922
$ 453,441
$ 7,475,363
Total non-deposit liabilities $ 2,481,618
$ 16,278
$ 2,497,896

⁽¹⁾ Amounts reported include funds transfer pricing of ~~$7.9~~$7.8 million and ~~$7.0~~$7.9 million, for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, credited to BankMobile for the value provided to the ~~Community~~Customers Bank Business Banking segment for the use of excess low/no cost deposits.

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

NOTE 1312 - NON-INTEREST REVENUES

~~As provided~~Customers' revenue from contracts with customers in ~~NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION, Customers' adoption~~scope 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~~is recognized within non-interest income.

The following tables present Customers' non-interest revenues affected by ASC ~~605. Debit and prepaid card interchange expense~~606 by business segment for the three ~~months ended June 30, 2018~~ and ~~2017 amounted to $1.2 million and $1.3 million, respectively. Debit and prepaid card interchange expense for the~~ six months ended June 30, ~~2018~~2019 and ~~2017 amounted to $2.7 million and $3.2 million, respectively.~~2018:



	Three Months Ended June 30, 2019						Three Months Ended June 30, 2018
(amounts in thousands)	Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and card revenue	$	219	$	6,541	$	6,760	$	183	$	6,199	$	6,382
Deposit fees	433		2,915		3,348		294		1,338		1,632
University fees - card and disbursement fees	—		167		167		—		185		185
Total revenue recognized at point in time	652		9,623		10,275		477		7,722		8,199
Revenue recognized over time:
University fees - subscription revenue	—		968		968		—		907		907
Total revenue recognized over time	—		968		968		—		907		907
Total revenue from contracts with customers	$	652	$	10,591	$	11,243	$	477	$	8,629	$	9,106

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 ASU 2014-09.

~~The following tables present Customers' non-interest revenues affected by ASU 2014-09 by business segment for the three and six months ended June 30, 2018 and 2017:~~


	Three Months Ended June 30, 2018						Six Months Ended June 30, 2019						Six Months Ended June 30, 2018
(amounts in thousands)	Community Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated		Customers Bank Business Banking		BankMobile		Consolidated
Revenue from contracts with customers:
Revenue recognized at point in time:
Interchange and Card Revenue	$	183	$	6,199	$	6,382
Deposit Fees	294		1,338		1,632
University Fees - Card and Disbursement Fees	—		185		185
Interchange and card revenue							$	398	$	15,167	$	15,565	$	406	$	15,637	$	16,043
Deposit fees							733		4,824		5,557		580		3,144		3,724
University fees - card and disbursement fees							—		522		522		—		512		512
Total revenue recognized at point in time	477		7,722		8,199		1,131		20,513		21,644		986		19,293		20,279
Revenue recognized over time:
University Fees - Subscription Revenue	—		907		907
University fees - subscription revenue							—		1,947		1,947		—		1,777		1,777
Total revenue recognized over time	—		907		907		—		1,947		1,947		—		1,777		1,777

Total revenue from contracts with customers	$	477	$	8,629	$	9,106	$	1,131	$	22,460	$	23,591	$	986	$	21,070	$	22,056

NOTE 13 — LOSS 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

Three Months Ended June 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 $ 126
$ 8,522
$ 8,648
Deposit Fees 258
1,875
2,133
University Fees - Card and Disbursement Fees —
206
206
Total revenue recognized at point in time 384
10,603
10,987
Revenue recognized over time:
University Fees - Subscription Revenue —
784
784
Total revenue recognized over time —
784
784
Total revenue from contracts with customers $ 384
$ 11,387
$ 11,771

Six Months Ended June 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 $ 406
$ 15,637
$ 16,043
Deposit Fees 580
3,144
3,724
University Fees - Card and Disbursement Fees —
512
512
Total revenue recognized at point in time 986
19,293
20,279
Revenue recognized over time:
University Fees - Subscription Revenue —
1,777
1,777
Total revenue recognized over time —
1,777
1,777

Total revenue from contracts with customers $ 986
$ 21,070
$ 22,056

Six Months Ended June 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 $ 328
$ 21,830
$ 22,158
Deposit Fees 582
4,678
5,260
University Fees - Card and Disbursement Fees —
595
595
Total revenue recognized at point in time 910
27,103
28,013
Revenue recognized over time:
University Fees - Subscription Revenue —
1,579
1,579
Total revenue recognized over time —
1,579
1,579
Total revenue from contracts with customers $ 910
$ 28,682
$ 29,592

~~The following is a discussion~~system for improper purposes and it also alleges defamation, false light, tortious interference with contractual relations, infliction of ~~revenues within~~emotional distress, negligent infliction of emotional distress and loss of consortium. On January 6, 2017, Customers Bank filed Preliminary Objections to 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 processingComplaint seeking dismissal 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 or 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 whichPlaintiff’s claims against 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 June 30, 2018 and December 31, 2017.

~~University Fees~~

University fees represent revenues from higher education institutions and is 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 serviceBank and the ~~transaction fees are recognized when~~employees of Customers Bank named as co-defendants.On April 6, 2017, the ~~transaction~~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 ~~completed. BankMobile also enters into long-term (generally three- or five-year initial term) contracts with higher education institutions~~currently unable to ~~provide these refund management disbursement services. Deferred revenue consists~~predict the outcome of ~~amounts billed to or received from clients prior to~~this lawsuit and therefore cannot determine the ~~performance~~likelihood of ~~services. The deferred revenues are earned over~~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 ~~service period on a straight line basis. As~~First Judicial District of ~~June 30, 2018 and December 31, 2017, Customers recorded deferred revenue~~Pennsylvania, Court of ~~$3.1 million and $2.0 million, respectively, related to these university subscription contracts. At June 30, 2018 and December 31, 2017, Customers had accounts receivable~~Common Pleas of ~~$2.5 million and $1.1 million, respectively,~~Philadelphia. In this Complaint, which is related to the ~~university fee arrangements.~~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. 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.

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

On June 21, 2019, Customers received a Notice of Direct Debit (U.S. Treasury Check Reclamation) from the Bureau of the Fiscal Service (“Reclamation Notice”). The Reclamation Notice represents a demand to Customers for the return of funds on a U.S. Treasury check for approximately $5.4 million. Customers filed a written protest pursuant to Code of Federal Regulations, Title 31, Chapter II, Part 240, which resulted in a suspension of the direct debit by the Bureau of the Fiscal Service. Customers is currently unable to predict the outcome of the written protest, and therefore cannot determine the likelihood of loss nor estimate a range of loss. Customers intends to vigorously defend itself against the Reclamation Notice. 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 - As Restated.~~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 ~~“Original~~“2018 Form ~~10-K Filing”~~10-K”), ~~which was filed with the SEC on February 23, 2018,~~ 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 six months ended June 30, ~~2018.~~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/A.~~10-K.

~~Restatement of Previously Issued Financial Statements~~

In November 2018, Customers determined that its commercial mortgage warehouse loans should have been classified as loans receivable, rather than loans held for sale. The discussion and analysis included herein has been amended and restated to present the corrected classification of Customers' commercial mortgage warehouse lending activities. Additional discussion regarding the restatement of previously issued financial statements is included in the Explanatory Note to this Form 10-Q/A and NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION included in Part 1 of this Form 10-Q/A.

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/A~~10-K and updated in this Form ~~10-Q/A~~10-Q for the quarterly period ended June 30, ~~2018~~2019 in “NOTE 32 - 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

Customers' strategic priorities include creating shareholder value through improved profitability, targeting a return on average assets of approximately 1.25% and a double-digit return on tangible common equity within the next 2 - 3 years. Customers is also targeting NIM expansion to 2.80% by fourth quarter 2019, with a full-year 2019 NIM above 2.70%, through an expected shift in asset and funding mix. Total assets at year-end 2019 are expected to be under $10 billion, while the average balance of interest-earning assets for 2019 are expected to be comparable to 2018 average interest-earning assets, and the BankMobile segment is expected to become profitable by the fourth quarter 2019. Customers intends to continue to de-emphasize its lower-yielding multi-family loan portfolio, and invest in higher-yielding commercial and industrial and other 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. On April 18, 2019, the partner made a public announcement regarding the

partnership and began the first phase of national digital marketing efforts. At June 30, 2019, the partnership had generated $46.5 million in total deposits.

Second Quarter Events of Note

Customers reported net income available to common shareholders of ~~$20.0~~$5.7 million, or ~~$0.62 per diluted share, for second quarter 2018. Customers' net income to common shareholders was $40.6 million, or $1.26~~$0.18 per diluted share, for the ~~six~~three months ended June 30, 2019. The second quarter 2019 financial results included certain notable charges, including a $7.5 million loss realized upon the acquisition of certain interest-only GNMA securities that served as the primary collateral for a mortgage warehouse customer that unexpectedly ceased operations in second quarter 2019 ($0.18 per diluted share), accrued severance expense of $0.5 million resulting from Customers continued analysis of staffing and de-emphasis of less profitable lines of business ($0.01 per diluted share), and other securities losses of $0.3 million ($0.01 per diluted share). NIM expanded 5 basis points from first quarter 2019 to 2.64% in second quarter 2019, which marks Customers' third consecutive quarter of NIM expansion from the trough of 2.47% reported in third quarter 2018.

Total assets were ~~$11.1~~$11.2 billion at June 30, ~~2018,~~2019, an increase of $1.3 billion from December 31, ~~2017, including $405.8~~2018. The increase in total assets was primarily driven by a $1.2 billion increase in total loans and leases. Mortgage warehouse loans, at fair value, increased $596.1 million, or 42.4%, commercial and industrial loans (including owner occupied commercial real estate) increased $233.3 million, or 12.0%, commercial real estate non-owner occupied loans increased $51.5 million, or 4.6%, residential real estate loans increased $82.3 million, or 14.5%, and other consumer loans increased $478.8 million, or 647%. As planned, multi-family loans decreased $267.8 million, or 8.2%. Total asset growth reflected a stronger than expected seasonal increase in mortgage warehouse loans in second quarter 2019 primarily resulting from increased refinancing activity. Customers plans to reduce total assets to below $10 billion at year-end 2019 by reducing its multi-family loan portfolio by $1 billion or more in the second half of ~~total loan growth~~2019 and ~~$689.6 million of investment securities growth. Customers expects a more moderate pace of growth~~ through ~~the rest~~normal seasonality of the ~~year with an emphasis on shifting from lower yielding~~mortgage warehouse business, which tends to ~~higher yielding assets, and~~decline in the ~~development of sustainable deposits to replace short-term borrowings and fund future growth.~~winter months.

Asset quality ~~remained exceptional~~remains strong with ~~non-performing loans~~NPLs of ~~$26.0~~$14.8 million, or ~~0.29%~~0.15% of total loans and leases, and total non-performing assets ~~(non-performing loans~~(NPLs and ~~other real estate owned)~~OREO) only ~~0.25%~~0.14% of total assets at June 30, ~~2018,~~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 June 30, ~~2018~~2019 remained well below industry average ~~non-performing loans~~NPLs to total loans and leases of ~~1.26%~~1.13% and Customers' peer group ~~non-performing loans~~NPLs to total loans and leases of ~~0.82%~~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 June 30, ~~2018. Customers Bancorp's Tier 1 leverage ratio was 8.87%, and its total risk-based capital ratio was 12.55%, at June 30, 2018.~~

2019.

Results of Operations

~~Three Months Ended~~The following table sets forth the condensed statements of income for the three and six months ended June 30, ~~2018 Compared to Three Months Ended June 30, 2017~~2019 and 2018:

~~Net~~



	Three Months Ended June 30,					QTD					Six Months Ended June 30,				YTD
(dollars in thousands)	2019		2018			Change			% Change		2019		2018		Change			% Change
Net interest income	$	64,679	$	67,322		$	(2,643	)	(3.9	)%	$	123,983	$	132,353	$	(8,370	)	(6.3	)%
Provision for loan and lease losses	5,346		(784		)	6,130			NM		10,113		1,333		8,780			658.7	%
Total non-interest income	12,036		16,127			(4,091		)	(25.4	)%	31,754		37,037		(5,283		)	(14.3	)%
Total non-interest expense	59,582		53,750			5,832			10.9	%	113,566		106,031		7,535			7.1	%
Income before income income tax expense	11,787		30,483			(18,696		)	(61.3	)%	32,058		62,026		(29,968		)	(48.3	)%
Income tax expense	2,491		6,820			(4,329		)	(63.5	)%	7,323		14,222		(6,899		)	(48.5	)%
Net income	9,296		23,663			(14,367		)	(60.7	)%	24,735		47,804		(23,069		)	(48.3	)%
Preferred stock dividends	3,615		3,615			—			—	%	7,229		7,229		—			—	%
Net income available to common shareholders	$	5,681	$	20,048		$	(14,367	)	(71.7	)%	$	17,506	$	40,575	$	(23,069	)	(56.9	)%

Customers reported net income available to common shareholders ~~decreased $0.1~~of $5.7 million ~~or 0.3%,~~and $17.5 million for the three and six months ended June 30, 2019, respectively, compared to $20.0 million and $40.6 million for the three and six months ended June 30, 2018, respectively. Factors contributing to the change in net income available to common shareholders for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018 were as follows:

Net interest income

Net interest income decreased $2.6 million for the three months ended June 30, ~~2018 when~~2019 compared to ~~net income available~~the three months ended June 30, 2018 as average interest-earning assets decreased by $0.5 billion. NIM expanded by two basis points to ~~common shareholders of $20.1 million~~2.64% for the three months ended June 30, ~~2017. The decreased net income available to common shareholders primarily resulted~~2019 from an increase in non-interest expense of $3.3 million, or 6.6%, a decrease in non-interest income of $2.3 million, or 12.3%, and a decrease in net interest income of $1.3 million, or 1.9%, offset in part by a decrease in income tax expense of $5.5 million and a decrease in the provision for loan losses of $1.3 million.

~~Net interest income of $67.3 million decreased $1.3 million, or 1.9%,~~2.62% for the three months ended June 30, 2018 ~~when compared to net interest income~~as the shift in the mix of ~~$68.6 million~~interest-earning assets drove a 38 basis point increase in the yield on interest-earnings assets for the three months ended June 30, ~~2017. This decrease~~2019, offset in part by higher funding costs as the cost of interest-bearing liabilities increased by 51 basis points for the three months ended June 30, 2019. Compared to the three months ended June 30, 2018, total loan yields increased 27 basis points to 4.62%, and total investment securities yields increased 55 basis points to 3.77% mostly due to the sale of $495 million of lower-yielding securities during the three months ended September 30, 2018. Given the Federal Reserve interest rate hikes in 2018 and the associated increases in market interest rates, the cost of interest-bearing deposits increased 58 basis points to 2.23% and borrowing costs increased 73 basis points to 3.09% for the three months ended June 30, 2019. Customers' total costs of deposits (including interest-bearing and non-interest-bearing) were 1.85% and 1.39% for the three months ended June 30, 2019 and 2018, respectively, an increase of 46 basis points.

Net interest income decreased $8.4 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 as average interest-earning assets decreased by $0.5 billion. NIM narrowed by two basis points to 2.62% for the six months ended June 30, 2019 from 2.64% for the six months ended June 30, 2018. The NIM compression largely resulted ~~primarily~~ from ana 60 basis point increase in the cost of ~~funds, primarily in money market deposit accounts, certificates of deposit, and short term borrowings, driving~~interest-bearing liabilities for the six months ended June 30, 2019, partially offset by a 16 basis point decline in net interest margin (tax-equivalent) to 2.62% for second quarter 2018 from 2.78% for second quarter 2017. The 58 basis point higher cost of funds was offset in part by an increase in the average balance of interest-earning assets of $0.4 billion over the prior year period and a 3741 basis point increase in the yield on ~~loans.~~interest-earning assets for the six months ended June 30, 2019. The 456 basis point increase in the yield on other consumer loans principally reflects the purchase of other consumer loans totaling $447.0 million during the six months ended June 30, 2019. The yield on commercial and industrial loans and leases increased 61 basis points for the six months ended June 30, 2019 given higher market interest rates. Given the Federal Reserve interest rate hikes in 2018 and the associated increases in market interest rates, the cost of interest-bearing deposits increased 67 basis points to 2.19% and borrowing costs increased 73 basis points to 3.04% for the six months ended June 30, 2019. Customers' total costs of deposits (including interest-bearing and non-interest-bearing) were 1.80% and 1.26% for the six months ended June 30, 2019 and 2018, respectively, an increase of 54 basis points.

Provision for loan and lease losses

The $6.1 million increase in the provision for loan and lease losses for the three months ended June 30, 2019 compared to the three months ended June 30, 2018, reflects Customers' initiative to increase other consumer and commercial and industrial loans and leases. The provision for loan and lease losses ~~decreased $1.3~~for the three months ended June 30, 2019 included $8.0 million for loan growth in the other consumer and commercial and industrial loan and lease portfolios, net of the multi-family loan run-off, and $0.1 million for impaired loan provisions, offset in part by a release of reserve of $2.9 million resulting from refinement in assumptions within the allowance for loan losses due to lower than expected credit losses than previously estimated, primarily in the residential mortgage loan portfolio. The provision for loan and lease losses for the three months ended June 30, 2018 ~~when compared to the provision for loan losses of $0.5 million for the three months ended June 30, 2017. The second quarter 2018 provision for loan losses~~ included a release of $0.8 million ~~that resulted~~resulting from continued strong asset quality and lower incurred losses than previously estimated and a release of $0.3 million for impaired loans, offset in part by provisions of $0.3 million ~~of provision~~ for loan and lease portfolio growth.

~~Non-interest income of $16.1 million decreased $2.3 million, or 12.3%,~~ Net charge-offs for the three months ended June 30, ~~2018 when~~2019 were $0.6 million, or 3 basis points of average loans and leases on an annualized basis, compared to ~~non-interest income~~net charge-offs of ~~$18.4~~$0.4 million, or 2 basis points on an annualized basis for the three months ended June 30, ~~2017. Included within non-interest income~~2018.

The $8.8 million increase in the provision for loan and lease losses for the ~~three~~six months ended June 30, 2019 compared to six months ended June 30, 2018, ~~was $1.2 million of debit~~reflects Customers' initiatives to increase other consumer and ~~prepaid card interchange expense, which was recorded as a reduction to~~commercial and industrial loans and leases. The provision for loan and lease losses for the gross amount of interchange and card revenue of $7.6 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 3 - 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 threesix months ended June 30, ~~2017, debit~~2019 included $12.2 million for growth in the other consumer and ~~prepaid card interchange expense was $1.3 million. If~~commercial and industrial loan and lease portfolios, net of the ~~three months ended June 30, 2017 was presented on~~multi-family run-off, and $0.7 million for impaired loan provisions, offset in part by a ~~consistent basis with~~release of reserve of $2.9 million resulting from refinement in assumptions within the ~~three~~allowance for loan losses due to lower than expected credit losses than previously estimated, primarily in the residential mortgage loan portfolio. The provision for loan and lease losses for the six months ended June 30, 2018 ~~the reported amount~~included provisions of ~~non-interest income of $18.4~~$1.2 million ~~would have been $17.1~~for loan and lease portfolio growth and $1.1 million for impaired loan provisions, offset in part by a $0.9 million release resulting from improved asset quality and the gross interchange and card revenue of $8.6 million would have been presented net of the debit and prepaid card interchange expense of $1.3 million, or $7.4 million. When presented on a consistent basis, the $1.0 million decline in interchange and card revenue was largely the result of lower ~~activity volumes in the BankMobile business segment. Other decreases in total non-interest income~~incurred losses than previously estimated. Net charge-offs for the ~~three~~six months ended June 30, ~~2018~~2019 were $1.7 million, or 4 basis points of average loans and leases on an annualized basis, compared to net charge-offs of $1.1 million, or 2 basis points on an annualized basis for the ~~three~~six months ended June 30, ~~2017 included decreases in mortgage warehouse transactional fees and deposit fees of $0.6~~2018.

Non-interest income

The $4.1 million and $0.5 million, respectively, primarily resulting from reduced transaction volumes. For the three months ended June 30, 2017, Customers also realized $3.2 million of gains from the sale of investment securities. The decreasesdecrease in non-interest income for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily resulted from a $7.5 million loss upon acquisition of interest-only GNMA securities and decreases of $0.9 million in gains on sales of SBA loans, and $0.3 million in mortgage warehouse transactional fees. These decreases were ~~partially~~ offset in part by ~~an increase~~increases of $1.7 million in deposit fees, $1.6 million in commercial lease income, $0.9 million in other non-interest income, ~~of $1.5~~and $0.4 million ~~primarily from increased income on commercial operating leases of $1.1 million,~~in interchange and ~~a decline in other-than temporary impairment losses from the $2.9 million recognized in second quarter 2017.~~

~~Non-interest expense of $53.8 million increased $3.3 million, or 6.6%,~~card revenue for the three months ended June 30, ~~2018 when~~2019 compared to ~~non-interest expense of $50.4 million for~~ the three months ended June 30, ~~2017. This increase~~2018.

The $5.3 million decrease in non-interest income for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from a $7.5 million loss upon acquisition of interest-only GNMA securities and decreases of $2.3 million in gains on sales of SBA loans, $0.9 million in mortgage warehouse transaction fees, and $0.5 million in interchange and card revenue. These decreases were offset in part by increases of $3.2 million in ~~salaries~~commercial lease income and ~~employee benefits of $4.1~~$1.8 million ~~as Customers continues~~in deposit fees for the six months ended June 30, 2019 compared to ~~hire new team members~~the six months ended June 30, 2018.

Non-interest expense

The $5.8 million increase in ~~the markets that it serves. Total~~ non-interest expense for the three months ended June 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 the three months ended June 30, 2017 was presented on a consistent basis with2019 compared to the three months ended June 30, 2018 ~~the reported amount~~primarily resulted from increases of ~~non-interest expense of $50.4~~$1.9 million ~~would have been $49.1~~in professional services, $1.3 million ~~and~~in commercial lease depreciation, $1.2 million in provision for operating losses, $1.1 million in technology, communication, and bank operations, $1.1 million in other non-interest expense, and $1.0 million in advertising and promotion expenses. These increases were offset in part by decreases of ~~$8.9~~$0.9 million ~~would have been $7.6 million. When presented on a consistent basis, technology, communication~~in merger-related expenses and ~~bank operations expense increased $3.7~~$0.8 million ~~or 48.7%, to $11.3 million~~in salaries and employee benefits for the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

The $7.5 million increase in non-interest expense for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from ~~$7.6~~increases of $3.1 million in technology, communication, and bank operations, $2.4 million in commercial lease depreciation, $1.5 million in advertising and promotion expenses, $1.5 million in provision for operating losses, and $0.5 million in professional services. These increases were offset in part by decreases of $1.0 million in merger-related expenses and $0.3 million in loan workout expenses for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Income tax expense

Customers' effective tax rate was 21.1% for the three months ended June 30, 2017 given the continued investment in the BankMobile segment infrastructure and Customers' recent system conversion. These increases in non-interest expense were partially offset by a decrease in professional services of $2.4 million, primarily attributable2019 compared to ~~reductions in consulting, legal and other professional services as management continues its efforts to monitor and control expenses.~~

~~Income tax expense of $6.8 million decreased $5.5 million, or 44.7%,~~22.4% for the three months ended June 30, ~~2018 when compared~~2018. The decrease in the effective tax rate primarily resulted from a favorable return to ~~income tax expense of $12.3 million for~~provision adjustment recorded during the three months ended June 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, as well as by a decrease in pre-tax income of $5.6 million in second quarter 2018 compared to second quarter 2017. 2019.

Customers' effective tax rate ~~decreased to 22.37%~~was 22.8% for the ~~three~~six months ended June 30, ~~2018,~~2019 compared to ~~34.20%~~22.9% for the ~~same period in 2017.~~six months ended June 30, 2018.

Preferred stock dividends

Preferred stock dividends were $3.6 million and $7.2 million for the three and six months ended June 30, 2019 and 2018, respectively. There were no changes to the amount of preferred stock outstanding or the dividends paid during the three and ~~2017, respectively.~~six months ended June 30, 2019 and 2018.

NET INTEREST INCOME

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

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

Three Months Ended June 30,
2018 2017

Average
Balance

Interest
Income or
Expense

Average
Yield or
Cost (%)

Average
Balance

Interest
Income or
Expense

Average
Yield or
Cost (%)
(dollars in thousands)
Assets
Interest-earning deposits $ 188,880
$ 839
1.78 % $ 203,460
$ 549
1.08 %
Investment securities (1) 1,213,989
9,765
3.22 % 1,066,277
7,823
2.94 %
Loans:
Commercial loans to mortgage companies 1,760,519
21,626
4.93 % 1,762,469
18,198
4.14 %
Multi-family loans 3,561,679
34,646
3.90 % 3,508,619
32,762
3.75 %
Commercial and industrial loans (2) 1,713,150
20,303
4.75 % 1,405,150
14,746
4.21 %
Non-owner occupied commercial real estate 1,269,373
12,830
4.05 % 1,299,809
12,964
4.00 %
All other loans 482,098
5,835
4.85 % 542,093
5,890
4.36 %
Total loans (3) 8,786,819
95,240
4.35 % 8,518,140
84,560
3.98 %
Other interest-earning assets 139,842
1,795
5.15 % 105,908
920
3.48 %
Total interest-earning assets 10,329,530
107,639
4.18 % 9,893,785
93,852
3.80 %
Non-interest-earning assets 391,660
371,548

Total assets $ 10,721,190
$ 10,265,333

Liabilities
Interest checking accounts $ 554,441
2,183
1.58 % $ 346,940
634
0.73 %
Money market deposit accounts 3,310,979
13,444
1.63 % 3,456,638
8,369
0.97 %
Other savings accounts 36,784
25
0.27 % 41,491
30
0.29 %
Certificates of deposit 1,960,007
8,530
1.75 % 2,413,241
7,195
1.20 %
Total interest-bearing deposits 5,862,211
24,182
1.65 % 6,258,310
16,228
1.04 %
Borrowings 2,736,644
16,135
2.36 % 1,951,282
9,018
1.85 %
Total interest-bearing liabilities 8,598,855
40,317
1.88 % 8,209,592
25,246
1.23 %
Non-interest-bearing deposits 1,109,527
1,082,799

Total deposits and borrowings 9,708,382
1.67 % 9,292,391
1.09 %
Other non-interest-bearing liabilities 84,788
74,429

Total liabilities 9,793,170
9,366,820

Shareholders’ Equity 928,020
898,513

Total liabilities and shareholders’ equity $ 10,721,190
$ 10,265,333

Net interest income 67,322
68,606

Tax-equivalent adjustment (4) 171
104

Net interest earnings $ 67,493
$ 68,710

Interest spread 2.51 % 2.71 %
Net interest margin 2.61 % 2.78 %
Net interest margin tax equivalent (4) 2.62 % 2.78 %


~~(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 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 deferred loan fees.~~

~~(4)~~

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the three months ended June 30, 2018 and 35% for the three months ended June 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.~~liabilities for the three and six months ended June 30, 2019 and 2018. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.


	Three Months Ended June 30,
	2018 vs. 2017
	Increase (Decrease) due to Change in									Three Months Ended June 30,												Three Months Ended June 30,
	Rate			Volume			Total			2019						2018						2019 vs. 2018
(amounts in thousands)										Average balance		Interest income or expense		Average yield or cost		Average balance		Interest income or expense		Average yield or cost		Due to rate			Due to volume			Total
Interest income
Assets
Interest-earning deposits	$	332		$	(42	)	$	290		$	78,666	$	590	3.01	%	$	188,880	$	839	1.78	%	$	395		$	(644	)	$	(249	)
Investment securities	797			1,145			1,942
Loans:
Investment securities ⁽¹⁾										687,048		6,481		3.77	%	1,213,989		9,765		3.22	%	1,462			(4,746		)	(3,284		)
Loans and leases:
Commercial loans to mortgage companies	3,448			(20		)	3,428			1,658,070		19,678		4.76	%	1,760,519		21,626		4.93	%	(725		)	(1,223		)	(1,948		)
Multi-family loans	1,383			501			1,884			3,097,537		29,630		3.84	%	3,561,679		34,646		3.90	%	(530		)	(4,486		)	(5,016		)
Commercial and industrial loans, including owner occupied commercial real estate	2,062			3,495			5,557
Non-owner occupied commercial real estate	172			(306		)	(134		)
All other loans	634			(689		)	(55		)
Total loans	7,699			2,981			10,680
Commercial and industrial loans and leases ⁽²⁾										2,041,315		26,411		5.19	%	1,713,150		20,303		4.75	%	1,991			4,117			6,108
Non-owner occupied commercial real estate loans										1,181,455		13,329		4.53	%	1,269,373		13,750		4.34	%	574			(995		)	(421		)
Residential mortgages										723,160		7,724		4.28	%	477,932		4,867		4.08	%	249			2,608			2,857
Other consumer loans										289,511		6,795		9.41	%	4,166		48		4.62	%	101			6,646			6,747
Total loans and leases ⁽³⁾										8,991,048		103,567		4.62	%	8,786,819		95,240		4.35	%	6,058			2,269			8,327
Other interest-earning assets	524			351			875			94,388		1,312		5.58	%	139,842		1,795		5.15	%	140			(623		)	(483		)
Total interest income	9,352			4,435			13,787
Interest expense
Total interest-earning assets										9,851,150		111,950		4.56	%	10,329,530		107,639		4.18	%	9,462			(5,151		)	4,311
Non-interest-earning assets										520,692						391,660
Total assets										$	10,371,842					$	10,721,190
Liabilities
Interest checking accounts	1,021			528			1,549			$	836,154	4,078		1.96	%	$	554,441	2,183		1.58	%	609			1,286			1,895
Money market deposit accounts	5,442			(367		)	5,075			3,168,957		17,842		2.26	%	3,310,979		13,444		1.63	%	4,998			(600		)	4,398
Other savings accounts	(2		)	(3		)	(5		)	484,303		2,608		2.16	%	36,784		25		0.27	%	943			1,640			2,583
Certificates of deposit	2,867			(1,532		)	1,335			1,972,792		11,452		2.33	%	1,960,007		8,530		1.75	%	2,866			56			2,922
Total interest-bearing deposits	9,328			(1,374		)	7,954
Total interest-bearing deposits ⁽⁴⁾										6,462,206		35,980		2.23	%	5,862,211		24,182		1.65	%	9,137			2,661			11,798
Borrowings	2,894			4,223			7,117			1,462,362		11,291		3.09	%	2,736,644		16,135		2.36	%	4,052			(8,896		)	(4,844		)
Total interest expense	12,222			2,849			15,071
Total interest-bearing liabilities										7,924,568		47,271		2.39	%	8,598,855		40,317		1.88	%	10,298			(3,344		)	6,954
Non-interest-bearing deposits ⁽⁴⁾										1,345,494						1,109,527
Total deposits and borrowings										9,270,062				2.04	%	9,708,382				1.67	%
Other non-interest-bearing liabilities										115,717						84,788
Total liabilities										9,385,779						9,793,170
Shareholders' equity										986,063						928,020
Total liabilities and shareholders' equity										$	10,371,842					$	10,721,190
Net interest income	$	(2,870	)	$	1,586		$	(1,284	)			64,679						67,322				$	(836	)	$	(1,807	)	$	(2,643	)
Tax-equivalent adjustment ⁽⁵⁾												183						171
Net interest earnings												$	64,862					$	67,493
Interest spread														2.51	%					2.51	%
Net interest margin														2.63	%					2.61	%
Net interest margin tax equivalent ⁽⁵⁾														2.64	%					2.62	%


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


(2)	Includes owner occupied commercial real estate loans.


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


(4)	Total costs of deposits (including interest bearing and non-interest-bearing) were 1.85% and 1.39% for the three months ended June 30, 2019 and 2018, respectively.

(5)

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

Net interest income for the three months ended June 30, ~~2018~~2019 was ~~$67.3~~$64.7 million, a decrease of ~~$1.3~~$2.6 million, or ~~1.9%~~3.9%, from net interest income of ~~$68.6~~$67.3 million for the three months ended June 30, ~~2017,~~2018. This decrease primarily resulted from a $0.5 billion reduction in average interest-earning assets, offset in part by two basis points of NIM expansion. Compared to the three months ended June 30, 2018, total loan yields increased 27 basis points to 4.62%. Total investment securities yields increased 55 basis points to 3.77% mostly due to the sale of $495 million of lower-yielding securities in third quarter 2018. Given the Federal Reserve interest rate hikes in 2018

and the associated increases in market interest rates, the cost of total deposits and borrowings increased 37 basis points to 2.04% for the three months ended June 30, 2019, up from 1.67% for the same period in the prior year.



	Six Months Ended June 30,												Six Months Ended June 30,
	2019						2018						2019 vs. 2018
(amounts in thousands)	Average Balance		Interest Income or Expense		Average Yield or Cost (%)		Average Balance		Interest Income or Expense		Average Yield or Cost		Due to rate			Due to volume			Total
Assets
Interest-earning deposits	$	81,947	$	1,120	2.76	%	$	186,470	$	1,533	1.66	%	709			(1,122		)	(413		)
Investment securities ⁽¹⁾	689,422		12,722		3.69	%	1,150,064		18,437		3.21	%	2,433			(8,148		)	(5,715		)
Loans and leases:
Commercial loans to mortgage companies	1,462,362		35,430		4.89	%	1,676,601		40,021		4.81	%	648			(5,239		)	(4,591		)
Multi-family loans	3,175,233		60,006		3.81	%	3,599,593		67,958		3.81	%	—			(7,952		)	(7,952		)
Commercial and industrial loans and leases ⁽²⁾	1,981,559		50,744		5.16	%	1,683,566		37,990		4.55	%	5,497			7,257			12,754
Non-owner occupied commercial real estate loans	1,175,428		26,225		4.50	%	1,275,404		26,950		4.26	%	1,463			(2,188		)	(725		)
Residential mortgages	709,529		14,859		4.22	%	402,638		8,160		4.09	%	268			6,431			6,699
Other consumer loans	203,381		9,419		9.34	%	3,881		92		4.78	%	170			9,157			9,327
Total loans and leases ⁽³⁾	8,707,492		196,683		4.55	%	8,641,683		181,171		4.23	%	14,093			1,419			15,512
Other interest-earning assets	87,503		2,500		5.76	%	128,396		3,463		5.44	%	194			(1,157		)	(963		)
Total interest-earning assets	9,566,364		213,025		4.49	%	10,106,613		204,604		4.08	%	19,767			(11,346		)	8,421
Non-interest-earning assets	501,013						393,066
Total assets	$	10,067,377					$	10,499,679
Liabilities
Interest checking accounts	$	825,672	7,893		1.93	%	$	526,995	3,615		1.38	%	1,766			2,512			4,278
Money market deposit accounts	3,156,988		35,179		2.25	%	3,356,717		24,914		1.50	%	11,829			(1,564		)	10,265
Other savings accounts	432,893		4,508		2.10	%	37,138		50		0.27	%	1,733			2,725			4,458
Certificates of deposit	1,763,634		19,624		2.24	%	1,916,421		15,396		1.62	%	5,531			(1,303		)	4,228
Total interest-bearing deposits ⁽⁴⁾	6,179,187		67,204		2.19	%	5,837,271		43,975		1.52	%	20,504			2,725			23,229
Borrowings	1,447,606		21,838		3.04	%	2,461,085		28,276		2.31	%	7,286			(13,724		)	(6,438		)
Total interest-bearing liabilities	7,626,793		89,042		2.35	%	8,298,356		72,251		1.75	%	23,014			(6,223		)	16,791
Non-interest-bearing deposits ⁽⁴⁾	1,353,112						1,193,769
Total deposits and borrowings	8,979,905				2.00	%	9,492,125				1.53	%
Other non-interest-bearing liabilities	110,090						80,074
Total liabilities	9,089,995						9,572,199
Shareholders' equity	977,382						927,480
Total liabilities and shareholders' equity	$	10,067,377					$	10,499,679
Net interest income			123,983						132,353				$	(3,247	)	$	(5,123	)	$	(8,370	)
Tax-equivalent adjustment ⁽⁵⁾			364						342
Net interest earnings			$	124,347					$	132,695
Interest spread					2.49	%					2.55	%
Net interest margin					2.61	%					2.64	%
Net interest margin tax equivalent ⁽⁵⁾					2.62	%					2.64	%


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


(2)	Includes owner occupied commercial real estate loans.


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


(4)	Total costs of deposits (including interest bearing and non-interest-bearing) were 1.80% and 1.26% for the six months ended June 30, 2019 and 2018, respectively.

(5)

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the six months ended June 30, 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.

Net interest income for the six months ended June 30, 2019 was $124.0 million, a decrease of $8.4 million, or 6.3%, from net interest ~~margin (tax equivalent) narrowed~~income of $132.4 million for the six months ended June 30, 2018. This decrease primarily resulted from a $0.5 billion reduction in average interest-earning assets and NIM narrowing by 16two basis points to 2.62% for ~~second quarter 2018~~the six months ended June 30, 2019 compared to ~~2.78%~~2.64% for ~~second quarter 2017.~~the six months ended June 30, 2018. The ~~net interest margin (tax equivalent)~~NIM compression largely resulted from a 6160 basis point increase in the cost of interest-bearing ~~deposits, reflecting higher interest rates offered~~liabilities, partially offset by ~~Customers on its money market deposit accounts and certificates of deposits in order to remain competitive and attract new and retain existing deposit customers, and~~ a 5141 basis point increase in ~~borrowing costs, reflecting higher short-term funding~~the yield of interest-earning assets. Given Federal Reserve interest rate hikes in 2018 and the associated increase in market interest rates, ~~and a full-quarter effect of~~ the ~~$100 million 3.95% senior debt securities issued on June 30, 2017. The higher~~ cost of ~~funds was offset in part by a 38~~interest-bearing deposits increased 67 basis points to 2.19% and borrowings costs increased 73 basis points to 3.04%. The 456 basis point increase in the yield on ~~interest-earning assets, primarily resulting from~~other consumer loans principally reflects the purchase of other consumer loans totaling $447.0 million in the first half of 2019. The yield on commercial and industrial loans and leases increased ~~yields on~~61 basis points given higher market interest rates.

Total loans increased $607.8 million, or 6.7%, to $9.7 billion at June 30, 2019 compared to the year-ago period. Commercial and industrial loans increased $376.6 million, or 21.5%, to $2.1 billion, commercial loans to mortgage companies increased $67.0 million, or 3.4%, to $2.1 billion; residential mortgages increased $160.3 million, or 32.4%, to $654.6 million; other consumer loans increased $549.0 million to $552.8 million; and commercial real estate non-owner-occupied loans increased $20.6 million, or 1.8%, to $1.2 billion. These increases were offset in part by the planned decrease in multi-family loans of $525.2 million, or 14.8%, to $3.0 billion.

Total deposits increased $889.8 million, or 12.2%, to $8.2 billion at June 30, 2019 compared to the year-ago period. Total demand deposits increased $591.8 million, or 34.5%, to $2.3 billion, certificates of deposit accounts increased $365.9 million, or 17.7%, to $2.4 billion, savings deposits increased $491.1 million to $529.5 million, and ~~commercial and industrial loans, reflecting higher short-term interest rates and increased prepayment fees~~money market deposits decreased $559.0 million, or 16.1%, to $2.9 billion at June 30, 2019 compared to the year-ago period. In July 2018, Customers launched a new digital, on-line savings banking product with a goal of ~~$1.0~~gathering retail deposits. As of June 30, 2019, this new product generated $479.2 million in ~~second quarter 2018 compared~~retail deposits.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses increased $6.1 million to ~~second quarter 2017.~~

~~Interest expense on borrowings increased $7.1~~$5.3 million for the three months ended June 30, ~~2018~~2019, compared to a benefit of $0.8 million for the same period in 2018, reflecting Customers' initiatives to increase other consumer and commercial and industrial loans and leases. The provision for loan and lease losses for the three months ended June 30, ~~2017. This increase was~~2019 included $8.0 million for loan growth in the other consumer and commercial and industrial loan and lease portfolios, net of the multi-family loan run-off, and $0.1 million for impaired loan provisions, offset in part by a release of reserve of $2.9 million resulting from refinement in assumptions within the allowance for loan losses due to lower than expected credit losses than previously estimated, primarily ~~driven by higher average balances of borrowings, which increased $0.8 billion~~in the residential mortgage loan portfolio. The provision for loan and lease losses for the three months ended June 30, 2018 ~~compared to the three months ended June 30, 2017, primarily as a result of increases in the average balances of FHLB advances and senior note borrowings to fund the growth in interest-earning assets.~~

~~PROVISION FOR LOAN LOSSES~~

The provision for loan losses decreased by $1.3 million to a benefit of $0.8 million for the three months ended June 30, 2018, compared to expense of $0.5 million for the same period in 2017. The provision for loan losses in second quarter 2018 included a release of $0.8 million ~~that resulted~~resulting from ~~improved~~continued strong asset quality and lower incurred losses than previously estimated and a release of $0.3 million for impaired loans, offset in part by provisions of $0.3 million ~~of provision~~ for loan and lease portfolio growth. Net charge-offs for the three months ended June 30, 2019 were $0.6 million, or 3 basis points of average loans and leases on an annualized basis, compared to net charge-offs of $0.4 million, or 2 basis points on an annualized basis for the three months ended June 30, 2018.

The provision for loan and lease losses increased $8.8 million to $10.1 million for the six months ended June 30, 2019, compared to $1.3 million for the same period in ~~second quarter 2017~~2018, reflecting Customers' initiatives to increase other consumer and commercial and industrial loans and leases. The provision for loan and lease losses for the six months ended June 30, 2019 included $12.2 million for growth in the other consumer and commercial and industrial loan and lease portfolios, net of the multi-family run-off, and $0.7 million for impaired loan provisions, offset in part by a release of ~~$0.5~~reserve of $2.9 million resulting from refinement in assumptions within the allowance for loan losses due to lower than expected credit losses than previously estimated, primarily in the residential mortgage loan portfolio. The provision for loan and lease losses for the six months ended June 30, 2018 included provisions of $1.2 million for loan and lease portfolio growth and $1.1 million for impaired loan provisions, offset in part by a $0.9 million release resulting from improved asset quality and lower incurred losses than previously ~~estimated, offset by $0.6~~estimated. Net charge-offs for the six months ended June 30, 2019 were $1.7 million, or 4 basis points of ~~provision for impaired~~average loans and ~~$0.4~~leases on an annualized basis, compared to net charge-offs of $1.1 million, ~~of provision~~or 2 basis points on an annualized basis for ~~loan growth.~~the six months ended June 30, 2018.

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 and six months ended June 30, ~~2018~~2019 and ~~2017.~~

2018.


	Three Months Ended June 30,					Three Months Ended June 30,					QTD					Six Months Ended June 30,					YTD
	2018		2017
(amounts in thousands)
(dollars in thousands)						2019			2018		Change			% Change		2019			2018		Change			% Change
Interchange and card revenue	$	6,382	$	8,648		$	6,760		$	6,382	$	378		5.9	%	$	15,565		$	16,043	$	(478	)	(3.0	)%
Deposit fees						3,348			1,632		1,716			105.1	%	5,557			3,724		1,833			49.2	%
Commercial lease income						2,730			1,091		1,639			150.2	%	5,131			1,953		3,178			162.7	%
Bank-owned life insurance						1,836			1,869		(33		)	(1.8	)%	3,653			3,900		(247		)	(6.3	)%
Mortgage warehouse transactional fees	1,967		2,523			1,681			1,967		(286		)	(14.5	)%	2,995			3,854		(859		)	(22.3	)%
Bank-owned life insurance	1,869		2,258
Deposit fees	1,632		2,133
Gain on sale of SBA and other loans	947		573			—			947		(947		)	(100.0	)%	—			2,308		(2,308		)	(100.0	)%
Mortgage banking income	205		291			250			205		45			22.0	%	417			325		92			28.3	%
Gain on sale of investment securities	—		3,183
Impairment loss on investment securities	—		(2,882		)
Loss upon acquisition of interest-only GNMA securities						(7,476		)	—		(7,476		)	NM		(7,476		)	—		(7,476		)	NM
Other	3,125		1,664			2,907			2,034		873			42.9	%	5,912			4,930		982			19.9	%
Total non-interest income	$	16,127	$	18,391		$	12,036		$	16,127	$	(4,091	)	(25.4	)%	$	31,754		$	37,037	$	(5,283	)	(14.3	)%

~~Non-interest income of $16.1~~Interchange and card revenue

The $0.4 million ~~decreased $2.3 million, or 12.3%,~~increase in interchange and card revenue for the three months ended June 30, ~~2018 when~~2019 compared to ~~non-interest income of $18.4~~the three months ended June 30, 2018 primarily resulted from higher negotiated fee sharing rates with the debit card processor.

The $0.5 million decrease in interchange and card revenue for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from lower activity volumes at the BankMobile segment.

Deposit fees

The $1.7 million increase in deposit fees for the three months ended June 30, ~~2017. Included within~~2019 compared to the three months ended June 30, 2018 primarily resulted from an increase in service charges on certain deposit accounts relating to a change in the fee structure at BankMobile.

The $1.8 million increase in deposit fees for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from an increase in service charges on certain deposit accounts relating to a change in the fee structure at BankMobile.

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 $1.6 million increase in commercial lease income for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily resulted from the continued growth of Customers' equipment finance business.

The $3.2 million increase in commercial lease income for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from the continued growth of Customers' equipment finance business.

Mortgage warehouse transactional fees

The $0.3 million decrease in mortgage warehouse transactional fees for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily resulted from an 11% decrease in the number of loans funded during the three months ended June 30, 2019 compared to the three months ended June 30, 2018, as higher interest rates reduced the volume of mortgage loan originations and refinancings.

The $0.9 million decrease in mortgage warehouse transactional fees for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from a 20% decrease in the number of loans funded during the six months ended June 30, 2019 compared to the six months ended June 30, 2018, as higher interest rates reduced the volume of mortgage loan originations and refinancings.

Gain on sale of SBA and other loans

The $0.9 million decrease in gains on sales of SBA and other loans for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 reflects a strategic shift to retain SBA loans on our balance sheet.

The $2.3 million decrease in gains on sales of SBA and other loans for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 reflects a strategic shift to retain SBA loans on our balance sheet.

Loss on acquisition of interest-only GNMA securities

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

Other non-interest income

The $0.9 million increase in other non-interest income for the three months ended June 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 $7.6 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 3 - 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 June 30, 2017, debit and prepaid card interchange expense was $1.3 million. If the three months ended June 30, 2017 was presented on a consistent basis with the three months ended June 30, 2018, the reported amount of non-interest income of $18.4 million would have been $17.1 million and the gross interchange and card revenue of $8.6 million would have been presented net of the debit and prepaid card interchange expense of $1.3 million, or $7.4 million. When presented on a consistent basis, the $1.0 million decline in interchange and card revenue was largely the result of lower activity volumes in the BankMobile business segment. Other decreases in total non-interest income for the three months ended June 30, 20182019 compared to the three months ended June 30, ~~2017 included decreases~~2018 primarily resulted from increases in ~~mortgage warehouse transactional fees and deposit~~loan fees of ~~$0.6~~$0.2 million and market-driven increases in interest rate swap and derivative-related income of $0.5 million.

The $1.0 million ~~or 22.0% and 23.5%, respectively, primarily resulting from reduced transaction volumes. BankMobile continues to focus on implementing its "Customers~~increase in other non-interest income for ~~Life" model and decrease its reliance on Disbursement related deposits. For~~ the ~~three~~six months ended June 30, ~~2017, Customers also realized $3.2 million of gains from~~2019 compared to the ~~sale of investment securities. The decreases in non-interest income for the three~~six months ended June 30, 2018 ~~were partially offset by an increase~~primarily resulted from increases in loan fees of $0.5 million along with various increases in miscellaneous other non-interest income of $1.5 million, primarily from increased income on commercial operating leases of $1.1 million, and a decline in other-than temporary impairment losses from the $2.9 million recognized in second quarter 2017.amounts.

NON-INTEREST EXPENSE

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


	Three Months Ended June 30,				Three Months Ended June 30,					QTD					Six Months Ended June 30,				YTD
	2018		2017
(amounts in thousands)
(dollars in thousands)					2019			2018		Change			% Change		2019		2018		Change			% Change
Salaries and employee benefits	$	27,748	$	23,651	$	26,920		$	27,748	$	(828	)	(3.0	)%	$	52,743	$	52,673	$	70		0.1	%
Technology, communication and bank operations	11,322		8,910
Technology, communication, and bank operations					12,402			11,322		1,080			9.5	%	24,355		21,266		3,089			14.5	%
Professional services	3,811		6,227		5,718			3,811		1,907			50.0	%	10,291		9,820		471			4.8	%
Occupancy	3,141		2,657		3,064			3,141		(77		)	(2.5	)%	5,967		5,975		(8		)	(0.1	)%
Commercial lease depreciation					2,252			920		1,332			144.8	%	4,174		1,735		2,439			140.6	%
FDIC assessments, non-income taxes, and regulatory fees	2,135		2,416		2,157			2,135		22			1.0	%	4,145		4,335		(190		)	(4.4	)%
Provision for operating losses	1,233		1,746		2,446			1,233		1,213			98.4	%	4,225		2,759		1,466			53.1	%
Advertising and promotion					1,360			319		1,041			326.3	%	2,169		709		1,460			205.9	%
Merger and acquisition related expenses	869		—		—			869		(869		)	(100.0	)%	—		975		(975		)	(100.0	)%
Loan workout	648		408		643			648		(5		)	(0.8	)%	963		1,307		(344		)	(26.3	)%
Advertising and promotion	319		378
Other real estate owned expenses	58		160
Other real estate owned expenses (income)					(14		)	58		(72		)	(124.1	)%	43		98		(55		)	(56.1	)%
Other	2,466		3,860		2,634			1,546		1,088			70.4	%	4,491		4,379		112			2.6	%
Total non-interest expense	$	53,750	$	50,413	$	59,582		$	53,750	$	5,832		10.9	%	$	113,566	$	106,031	$	7,535		7.1	%

~~Non-interest expense was $53.8~~Salaries and employee benefits

The $0.8 million decrease in salaries and employee benefits for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily resulted from a reduction in incentive accruals given lower-than-expected overall performance, partially

offset by an increase in average full-time equivalent team members, annual merit increases, and severance payments related to a reduction of ~~$3.3~~headcount, primarily in less profitable business lines.

The $0.1 million ~~or 6.6%~~increase in salaries and employee benefits for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from ~~non-interest~~an increase in average full-time equivalent team members, annual merit increases, and severance payments related to a reduction of headcount, primarily in less profitable business lines, partially offset by decreases in incentive accruals given lower-than-expected overall performance.

Technology, communication, and bank operations

The $1.1 million increase in technology, communication, and bank operations expense ~~of $50.4 million~~ for the three months ended June 30, ~~2017. As described above, total~~2019 compared to the three months ended June 30, 2018 primarily resulted from continued investment to improve and maintain Customers' digital information technology infrastructure and support expanded products and services offered through its White Label partnership.

The $3.1 million increase in technology, communication, and bank operations expense for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from continued investment to improve and maintain Customers' digital information technology infrastructure and support expanded products and services offered through its White Label partnership.

Professional services

The $1.9 million increase in professional services for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily resulted from consulting services associated with supporting our White Label partnership and other miscellaneous initiatives.

The $0.5 million increase in professional services for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from consulting services associated with supporting our White Label partnership.

Commercial lease depreciation

The $1.3 million increase in commercial lease depreciation for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily resulted from the continued growth of the operating lease arrangements originated by Customers' Equipment Finance Group in which Customers is the lessor.

The $2.4 million increase in commercial lease depreciation for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from the continued growth of the operating lease arrangements originated by Customers' Equipment Finance Group in which Customers is the lessor.

Provision for operating losses

The provision for operating losses primarily consists of losses resulting from fraud or theft-based transactions that have generally been disputed by deposit account holders. The $1.2 million increase in provision for operating losses for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily resulted from higher customer volumes from our White Label partnership.

The $1.5 million increase in provision for operating losses for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from higher customer volumes from our White Label partnership.

Advertising and promotion expenses

The $1.0 million increase in advertising and promotion expenses for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily resulted from the promotion of Customers' digital banking products and service offerings available through our White Label partnership.

The $1.5 million increase in advertising and promotion for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from the promotion of Customers' digital banking products and service offerings available through our White Label partnership.

Merger and acquisition related expenses

The $0.9 million decrease in merger and acquisition related expenses for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 resulted from the spin-off and merger agreement between Customers and Flagship Community Bank, which was terminated in October 2018.

The $1.0 million decrease in merger and acquisition related expenses for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 resulted from the spin-off and merger agreement between Customers and Flagship Community Bank, which was terminated in October 2018.

Other non-interest expense

The $1.1 million increase in other non-interest expense for the three months ended June 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 the three months ended June 30, 2017 was presented on a consistent basis with2019 compared to the three months ended June 30, 2018 ~~the reported amount of~~primarily resulted from ongoing investment in our White Label partnership, partially offset by management's continued efforts to monitor and control expenses.

The $0.1 million increase in other non-interest expense ~~of $50.4 million would have been $49.1 million and technology, communication, and bank operations expense of $8.9 million would have been $7.6 million.~~

~~Salaries and employee benefits, which represent the largest component of non-interest expense, increased $4.1 million, or 17.3%, to $27.7 million~~ for the ~~three~~six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily resulted from $23.7 million for the three months ended June 30, 2017. The increase was primarily attributable to increases in compensation levels for existing team members, reflecting higher costs to maintain our workforce, and an increase in headcount as Customers continues to hire new team members in the markets it serves.

When presented on a consistent basis, technology, communication and bank operations expense increased $3.7 million, or 48.7%, to $11.3 million for the three months ended June 30, 2018 from $7.6 million for the three months ended June 30, 2017 given the continuedongoing investment in ~~the BankMobile segment infrastructure and Customers' recent system conversion.~~

Merger and acquisition related expenses were $0.9 million for the three months ended June 30, 2018, compared to no similar expenses for the three months ended June 30, 2017. These charges include professional services expenses incurred in connection with the planned spin-off of the BankMobile business as well as a residual expense resulting from the 2016 acquisition of the Disbursements business.

~~These increases were~~our White Label partnership, partially offset by a decrease in professional services expense of $2.4 million, or 38.8%, to $3.8 million for the three months ended June 30, 2018 from $6.2 million for the three months ended June 30, 2017. This decrease was primarily attributable to reductions in consulting, legal and other professional services as management continues itsmanagement's continued efforts to monitor and control expenses.

INCOME TAXES

~~Income~~The table below presents income tax expense ~~of $6.8 million decreased $5.5 million, or 44.7%, resulting in an~~and the effective tax rate ~~of 22.4%~~for the three and six months ended June 30, 2019 and 2018.



	Three Months Ended June 30,						QTD					Six Months Ended June 30,						YTD
(dollars in thousands)	2019			2018			Change			% Change		2019			2018			Change			% Change
Income before income tax expense	$	11,787		$	30,483		$	(18,696	)	(61.3	)%	$	32,058		$	62,026		$	(29,968	)	(48.3	)%
Income tax expense	$	2,491		$	6,820		$	(4,329	)	(63.5	)%	$	7,323		$	14,222		$	(6,899	)	(48.5	)%
Effective tax rate	21.13		%	22.37		%						22.84		%	22.93		%

The $4.3 million and $6.9 million decrease in income tax expense for the three and six months ended June 30, 2019, when compared to the same periods in the prior year, primarily resulted from lower pre-tax income. The decrease in the effective tax rate for the three months ended June 30, 2018 when compared to income tax expense of $12.3 million and an effective tax rate of 34.2% for the three months ended June 30, 2017. The decrease in income tax expense and effective rate was driven by the lower corporate tax rate as a result of the Tax Cuts and Jobs Act enacted in December 2017, as well as a decrease in pre-tax income of $5.6 million in the three months ended June 30, 20182019 compared to the three months ended June 30, ~~2017.~~2018 primarily resulted from a favorable return to provision adjustment recorded during the three months ended June 30, 2019.

~~PREFERRED STOCK DIVIDENDS~~INCOME TAXES

~~Preferred stock dividends were $3.6~~The table below presents income tax expense and the effective tax rate for the three and six months ended June 30, 2019 and 2018.



	Three Months Ended June 30,						QTD					Six Months Ended June 30,						YTD
(dollars in thousands)	2019			2018			Change			% Change		2019			2018			Change			% Change
Income before income tax expense	$	11,787		$	30,483		$	(18,696	)	(61.3	)%	$	32,058		$	62,026		$	(29,968	)	(48.3	)%
Income tax expense	$	2,491		$	6,820		$	(4,329	)	(63.5	)%	$	7,323		$	14,222		$	(6,899	)	(48.5	)%
Effective tax rate	21.13		%	22.37		%						22.84		%	22.93		%

~~Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017~~

~~Net income available to common shareholders decreased $1.7 million, or 3.9%, to $40.6 million for the six~~three months ended June 30, 2018 ~~when compared~~primarily resulted from a favorable return to ~~net income available to common shareholders of $42.2 million for~~provision adjustment recorded during the ~~six~~three months ended June 30, 2017. The decreased net income available to common shareholders resulted primarily from an increase in non-interest expense of $6.3 million and a decrease in non-interest income of $4.1 million, offset in part by decreases in income tax expense of $5.1 million and the provision for loan losses of $2.3 million and an increase in net interest income of $1.3 million.2019.

Net interest income increased $1.3 million, or 1.0%, for the six months ended June 30, 2018 to $132.4 million when compared to net interest income of $131.0 million for the six months ended June 30, 2017. This increase resulted primarily from an increase in the average balance of loans of $0.5 billion and a 29 basis point increase in the yield on loans. These increases were offset in part by a 53 basis point increase in the cost of interest-bearing deposits and a 30 basis point increase in the cost of borrowings for the first six months of 2018 when compared to the first six months of 2017.

The provision for loan losses decreased $2.3 million to $1.3 million for the six months ended June 30, 2018 when compared to the provision for loan losses of $3.6 million for the same period in 2017. The provision for loan losses of $1.3 million included $1.2 million for loan portfolio growth and $1.1 million for impaired loans, offset in part by a $0.9 million release that resulted from improved asset quality and lower incurred losses than previously estimated.

Non-interest income decreased $4.1 million during the six months ended June 30, 2018 to $37.0 million, compared to $41.1 million for the six months ended June 30, 2017. Included within non-interest income for the six months ended June 30, 2018 was $2.7 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of $18.8 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 3 - 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 six months ended June 30, 2017, debit and prepaid card interchange expense was $3.2 million. If the six months ended June 30, 2017 was presented on a consistent basis with the six months ended June 30, 2018, the reported amount of non-interest income of $41.1 million would have been $38.0 million and the gross interchange and card revenue of $22.2 million would have been presented net of the debit and prepaid card interchange expense of $3.2 million, or $19.0 million. When presented on a consistent basis, the $3.0 million decline in interchange and card revenue was largely the result of lower activity volumes in the BankMobile business segment. Deposit fees of $3.7 million for the six months ended June 30, 2018 decreased $1.5 million compared to $5.3 million for the six months ended June 30, 2017, mostly driven by lower activity volumes in the BankMobile business segment. There was also a decrease of $3.2 million in gains realized from the sale of investment securities for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. These decreases in non-interest income were offset in part by an increase in other non-interest income of $2.5 million, primarily driven by increased income on commercial operating leases, and a decline in other-than-temporary impairment losses from the $4.6 million recognized during the six months ended June 30, 2017.

Non-interest expense increased $6.3 million, or 6.3%, for the six months ended June 30, 2018 to $106.0 million when compared to non-interest expense of $99.8 million for the six months ended June 30, 2017. The increase was mostly driven by increases in salaries and employee benefits of $7.9 million resulting from salary increases to existing team members as well as an increase in headcount as Customers continues to hire new team members in the markets that it serves. Total non-interest expense for the six months ended June 30, 2018 excludes $2.7 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 six months ended June 30, 2017 was presented on a consistent basis with the six months ended June 30, 2018, the reported amount of non-interest expense of $99.8 million would have been $96.6 million and technology, communication, and bank operations expense of $18.8 million would have been $15.7 million. When presented on a consistent basis, technology, communication and bank operations expense increased $5.6 million, or 35.7%, to $21.3 million for the six months ended June 30, 2018 from $15.7 million for the six months ended June 30, 2017 given the continued investment in the BankMobile segment infrastructure and Customers' recent system conversion. Merger and acquisition related expenses were $1.0 million for the six months ended June 30, 2018, compared to no similar expenses for the six months ended June 30, 2017. These expenses include professional services expenses incurred in connection with the planned spin-off of the BankMobile business as well as a residual expense resulting from the 2016 acquisition of the Disbursements business. These increases in non-interest expense were partially offset by a

decrease in professional services expense of $3.9 million, primarily attributable to reductions in consulting, legal and other professional services as management continues its efforts to monitor and control expenses.

Income tax expense decreased $5.1 million for the six months ended June 30, 2018 to $14.2 million when compared to income tax expense of $19.3 million for the same period in 2017. The decrease in income tax expense was driven primarily by a decrease in pre-tax income of $6.8 million in the first six months of 2018, as well as a lower federal income tax rate resulting from the Tax Cut and Jobs Act of 2017. Customers' effective tax rate decreased to 22.9% for the six months ended June 30, 2018, compared to 28.1% for the same period in 2017. Income tax expense for the six months ended June 30, 2017 included the recognition of a tax benefit of $4.6 million for the development of tax strategies that would have allowed for the recognition of the tax benefit from losses that had been recorded for impairment charges on the Religare equity securities.

~~Preferred stock dividends were $7.2 million for the six months ended June 30, 2018 and 2017, respectively.~~

~~NET INTEREST INCOME~~

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

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

Six Months Ended June 30,
2018 2017
Average
Balance Interest
Income or
Expense Average
Yield or
Cost (%) Average
Balance Interest
Income or
Expense Average
Yield or
Cost (%)
(amounts in thousands)
Assets
Interest-earning deposits $ 186,470
$ 1,533
1.66 % $ 350,693
$ 1,523
0.88 %
Investment securities (1) 1,150,064
18,437
3.21 % 948,657
13,710
2.91 %
Loans:
Commercial loans to mortgage companies 1,676,601
40,021
4.81 % 1,622,182
32,761
4.07 %
Multi-family loans 3,599,593
67,958
3.81 % 3,423,449
63,270
3.73 %
Commercial and industrial loans (2) 1,683,566
37,990
4.55 % 1,378,085
28,241
4.13 %
Non-owner occupied commercial real estate 1,275,404
25,243
3.99 % 1,288,610
24,948
3.90 %
All other loans 406,519
9,959
4.94 % 479,242
10,747
4.52 %
Total loans (3) 8,641,683
181,171
4.23 % 8,191,568
159,967
3.94 %
Other interest-earning assets 128,396
3,463
5.44 % 91,026
1,746
3.87 %
Total interest earning assets 10,106,613
204,604
4.08 % 9,581,944
176,946
3.72 %
Non-interest-earning assets 393,066
356,311

Total assets $ 10,499,679
$ 9,938,255

Liabilities
Interest checking accounts $ 526,995
3,615
1.38 % $ 332,673
1,131
0.69 %
Money market deposit accounts 3,356,717
24,914
1.50 % 3,306,988
14,595
0.89 %
Other savings accounts 37,138
50
0.27 % 42,383
58
0.28 %
Certificates of deposit 1,916,421
15,396
1.62 % 2,555,488
14,767
1.17 %
Total interest-bearing deposits 5,837,271
43,975
1.52 % 6,237,532
30,551
0.99 %
Borrowings 2,461,085
28,276
2.31 % 1,543,154
15,371
2.01 %
Total interest-bearing liabilities 8,298,356
72,251
1.75 % 7,780,686
45,922
1.19 %
Non-interest-bearing deposits 1,193,769
1,198,355

Total deposits and borrowings 9,492,125
1.53 % 8,979,041
1.03 %
Other non-interest-bearing liabilities 80,074
75,876

Total liabilities 9,572,199
9,054,917

Shareholders’ Equity 927,480
883,338

Total liabilities and shareholders’ equity $ 10,499,679
$ 9,938,255

Net interest income 132,353
131,024

Tax-equivalent adjustment (4) 342
197

Net interest earnings $ 132,695
$ 131,221

Interest spread 2.55 % 2.69 %
Net interest margin 2.64 % 2.75 %
Net interest margin tax equivalent (4) 2.64 % 2.76 %


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


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


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

~~(4)~~

Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the six months ended June 30, 2018 and 35% for the six months ended June 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.

Six Months Ended June 30,
2018 vs. 2017
Increase (Decrease) due
to Change in
Rate Volume Total
(amounts in thousands)
Interest income
Interest-earning deposits $ 942
$ (932 ) $ 10
Investment securities 1,606
3,121
4,727
Loans:
Commercial loans to mortgage companies 6,130
1,130
7,260
Multi-family loans 1,383
3,305
4,688
Commercial and industrial loans, including owner occupied commercial real estate 3,054
6,695
9,749
Non-owner occupied commercial real estate 552
(257 ) 295
All other loans 935
(1,723 ) (788 )
Total loans 12,054
9,150
21,204
Other interest-earning assets 855
862
1,717
Total interest income 15,457
12,201
27,658
Interest expense
Interest checking accounts 1,578
906
2,484
Money market deposit accounts 10,096
223
10,319
Other savings accounts (1 ) (7 ) (8 )
Certificates of deposit 4,884
(4,255 ) 629
Total interest-bearing deposits 16,557
(3,133 ) 13,424
Borrowings 2,649
10,256
12,905
Total interest expense 19,206
7,123
26,329
Net interest income $ (3,749 ) $ 5,078
$ 1,329

Net interest income for the six months ended June 30, 2018 was $132.4 million, an increase of $1.3 million, or 1.0%, when compared to net interest income of $131.0 million for the six months ended June 30, 2017. This increase was primarily driven by increased average loan and security balances of $0.7 billion and higher yields on commercial loans to mortgage companies.

Net interest margin (tax equivalent) narrowed by 12 basis points to 2.64% for the six months ended June 30, 2018, compared to 2.76% for the six months ended June 30, 2017. The net interest margin compression largely resulted from a 53 basis point increase in the cost of interest-bearing deposits, reflecting higher interest rates offered by Customers on its money market deposit accounts and certificates of deposits in order to remain competitive and attract new and retain existing deposit customers. The higher cost of funds was offset in part by a 36 basis point increase in the yield on interest-earning assets, primarily due to an increase in the yield on commercial loans to mortgage companies, reflecting higher short-term interest rates.

Interest expense on total interest-bearing deposits increased $13.4 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. This increase primarily resulted from the aforementioned increase in rates offered on money market deposit accounts and certificates of deposit.

Interest expense on borrowings increased $12.9 million for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. This increase was driven by increased volume as average borrowings increased by $917.9 million when compared to average borrowings for the six months ended June 30, 2017, mostly due to higher average outstanding balances of short-term FHLB advances and senior note borrowings to fund the growth in interest-earning assets.

~~PROVISION FOR LOAN LOSSES~~

The provision for loan losses decreased by $2.3 million to $1.3 million for the six months ended June 30, 2018, compared to $3.6 million for the same period in 2017. The provision for loan losses for the six months ended June 30, 2018 included $1.2 million for loan portfolio growth, $1.1 million for impaired loans, offset in part by a release of $0.9 million resulting from improved asset quality and lower incurred losses than previously estimated. The provision for loan losses for the six months ended June 30, 2017 included $3.1 million for impaired loans and $0.9 million for loan portfolio growth, offset in part by a release of $0.5 million resulting from improved asset quality and lower incurred losses than previously estimated.

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

~~NON-INTEREST INCOME~~

~~The table below presents the components of non-interest income for the six months ended June 30, 2018 and 2017.~~

Six Months Ended June 30,
2018 2017
(amounts in thousands)
Interchange and card revenue $ 16,043
$ 22,158
Bank-owned life insurance 3,900
3,624
Mortgage warehouse transactional fees 3,854
4,743
Deposit fees 3,724
5,260
Gain on sale of SBA and other loans 2,308
1,901
Mortgage banking income 325
446
Gain on sale of investment securities —
3,183
Impairment loss on investment securities —
(4,585 )
Other 6,883
4,414
Total non-interest income $ 37,037
$ 41,144

Non-interest income decreased $4.1 million during the six months ended June 30, 2018 to $37.0 million, compared to $41.1 million for the six months ended June 30, 2017. Included within non-interest income for the six months ended June 30, 2018 was $2.7 million of debit and prepaid card interchange expense, which was recorded as a reduction to the gross amount of interchange and card revenue of $18.8 million as a result of the adoption of the new revenue recognition guidance as described in NOTE 3 - 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 six months ended June 30, 2017, debit and prepaid card interchange expense was $3.2 million. If the six months ended June 30, 2017 was presented on a consistent basis with the six months ended June 30, 2018, the reported amount of non-interest income of $41.1 million would have been $38.0 million and the gross interchange and card revenue of $22.2 million would have been presented net of the debit and prepaid card interchange expense of $3.2 million, or $19.0 million. When presented on a consistent basis, the $3.0 million decline in interchange and card revenue was largely the result of lower activity volumes in the BankMobile business segment. Deposit fees of $3.7 million for the six months ended June 30, 2018 decreased $1.5 million compared to $5.3 million for the six months ended June 30, 2017, mostly driven by lower activity volumes in the BankMobile business segment. There was also a decrease of $3.2 million in gains realized from the sale of investment securities for the six months ended June 30, 2018 compared to the six months ended June 30, 2017. These decreases in non-interest income were offset in part by an increase in other non-interest income of $2.5 million, primarily driven by increased income on commercial operating leases, and a decline in other-than-temporary impairment losses from the $4.6 million recognized during the six months ended June 30, 2017 for the decline in market value of the Religare equity securities.

~~NON-INTEREST EXPENSE~~

~~The table below presents the components of non-interest expense for the six months ended June 30, 2018 and 2017.~~

Six Months Ended June 30,
2018 2017
(amounts in thousands)
Salaries and employee benefits $ 52,673
$ 44,763
Technology, communication and bank operations 21,266
18,827
Professional services 9,820
13,739
Occupancy 5,975
5,371
FDIC assessments, non-income taxes, and regulatory fees 4,335
4,141
Provision for operating losses 2,759
3,392
Loan workout 1,307
929
Merger and acquisition related expenses 975
—
Advertising and promotion 709
704
Other real estate owned expenses 98
105
Other 6,114
7,807
Total non-interest expense $ 106,031
$ 99,778

Non-interest expense was $106.0 million for the six months ended June 30, 2018, an increase of $6.3 million from non-interest expense of $99.8 million for the six months ended June 30, 2017. As described above, total non-interest expense for the six months ended June 30, 2018 excludes $2.7 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 six months ended June 30, 2017 was presented on a consistent basis with the six months ended June 30, 2018, the reported amount of non-interest expense of $99.8 million would have been $96.6 million and technology, communication, and bank operations expense of $18.8 million would have been $15.7 million.

Salaries and employee benefits, which represent the largest component of non-interest expense, increased $7.9 million, or 17.7%, to $52.7 million for the six months ended June 30, 2018, reflecting salary increases for existing team members and increased headcount as Customers continues to hire new team members in the markets it serves.

When presented on a consistent basis, technology, communication and bank operations expense increased $5.6 million, or 35.7%, to $21.3 million for the six months ended June 30, 2018 from $15.7 million for the six months ended June 30, 2017 given the continued investment in the BankMobile segment infrastructure and Customers' recent system conversion.

Merger and acquisition related expenses were $1.0 million for the six months ended June 30, 2018, compared to no similar expenses for the six months ended June 30, 2017. These expenses include professional services expenses incurred in connection with the planned spin-off of the BankMobile business as well as a residual expense resulting from the 2016 acquisition of the Disbursements business.

Occupancy expense increased $0.6 million, or 11.2%, to $6.0 million for the six months ended June 30, 2018 from $5.4 million for the six months ended June 30, 2017 as Customers expanded into different geographical markets.

Professional services expense decreased by $3.9 million, or 28.5%, to $9.8 million for the six months ended June 30, 2018 from $13.7 million for the six months ended June 30, 2017. This decrease was primarily driven by a reduction in expenses for consulting, legal, and other professional fees as management continues its efforts to monitor and control expenses.

Provision for operating losses decreased by $0.6 million, or 18.7%, to $2.8 million for the six months ended June 30, 2018 from $3.4 million for the six months ended June 30, 2017. The 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.

INCOME TAXES

~~Income~~The table below presents income tax expense ~~decreased $5.1 million~~and the effective tax rate for the three and six months ended June 30, ~~2018 to $14.2~~2019 and 2018.



	Three Months Ended June 30,						QTD					Six Months Ended June 30,						YTD
(dollars in thousands)	2019			2018			Change			% Change		2019			2018			Change			% Change
Income before income tax expense	$	11,787		$	30,483		$	(18,696	)	(61.3	)%	$	32,058		$	62,026		$	(29,968	)	(48.3	)%
Income tax expense	$	2,491		$	6,820		$	(4,329	)	(63.5	)%	$	7,323		$	14,222		$	(6,899	)	(48.5	)%
Effective tax rate	21.13		%	22.37		%						22.84		%	22.93		%

The $4.3 million ~~when compared to income tax expense of $19.3~~and $6.9 million ~~for the same period in 2017. The~~ decrease in income tax expense ~~was driven primarily by a decrease in pre-tax income of $6.8 million in~~for the ~~first six months of 2018. Customers' effective tax rate decreased to 22.9% for the~~three and six months ended June 30, ~~2018,~~2019, when compared to ~~28.1% for~~ the same ~~period~~periods in ~~2017.~~the prior year, primarily resulted from lower pre-tax income. The decrease in the effective tax rate ~~was~~for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 primarily ~~driven by lower federal income tax tax rates following~~resulted from a favorable return to provision adjustment recorded during the ~~enactment of~~three months ended June 30, 2019.

PREFERRED STOCK DIVIDENDS

Preferred stock dividends were $3.6 million and $7.2 million for the ~~Tax Cuts~~three and ~~Jobs Act in December 2017 and a lower taxable income for the~~ six months ended June 30, 2018 compared to the same period in 2017. In the six months ended June 30, 2017, there was a recognition of a tax benefit of $4.6 million for the development of tax strategies that would have allowed for the recognition of the tax benefit from losses that had been recorded for impairment charges on the Religare equity securities.

~~PREFERRED STOCK DIVIDENDS~~

~~Preferred stock dividends were $7.2 million for the six months ended June 30, 2018~~2019 and ~~June 30, 2017,~~2018, respectively. There were no changes to the amount of preferred stock outstanding or the dividend rates ~~for~~from second quarter 2018 to second quarter 2019 or from the first six months ofin 2018 ~~compared~~ to the first six months ~~of 2017.~~

in 2019.

Financial Condition

General

Customers' total assets were ~~$11.1~~$11.2 billion at June 30, ~~2018.~~2019. This represented a $1.3 billion ~~or 12.7%,~~ increase from total assets of $9.8 billion at December 31, 2017. At December 31, 2017, Customers had strategically reduced total assets to under $10 billion to improve capital ratios and to continue to maintain its small issuer status under the Durbin Amendment to maximize interchange revenue until July 1, 2019. The change in Customers' financial position at June 30, 2018 compared to December 31, 2017 occurred primarily as a result of an increase in total investment securities of $0.7 billion, or 146.3%, to $1.2 billion at June 30, 2018 compared to $0.5 billion at December 31, 2017, primarily driven by growth in agency-guaranteed mortgage-backed securities and corporate bonds.2018. The increase in total assets ~~was also attributable to an increase~~primarily resulted from increases in ~~total~~ loans ~~outstanding, including~~receivable, mortgage warehouse, at fair value of $596.1 million, loans ~~held for sale,~~and leases receivable of ~~$405.8~~$576.0 million, ~~or 4.7%, since December 31, 2017, primarily driven by growth in commercial and industrial loans (including owner occupied commercial real estate loans)~~investment securities of ~~$172.5 million, commercial loans to mortgage banking business of $142.7~~$43.3 million, and ~~consumer loans~~cash and cash equivalents of ~~$253.8 million. These increases were offset in part by a decrease in multi-family loans of $103.8~~$33.7 million.

Total liabilities were $10.2 billion at June 30, ~~2018.~~2019. This represented a ~~$1.2~~$1.3 billion ~~or 13.9%,~~ increase from $8.9 billion at December 31, ~~2017.~~2018. The increase in total liabilities primarily resulted ~~primarily~~ from ~~FHLB borrowings, which increased by $0.8 billion, or 48.3%, to $2.4 billion at June 30, 2018 from $1.6 billion at December 31, 2017, and~~increases in total deposits ~~which increased $495.8~~of $1.0 billion and federal funds purchased of $219.0 million, ~~or 7.3%, to $7.3 billion at June 30, 2018 from $6.8 billion at December 31, 2017. These increases were~~partially offset in part by a ~~decrease~~reduction in ~~Federal funds purchased~~other borrowings of ~~$50.0 million, or 32.3%, to $105.0 million at June 30, 2018 from $155.0 million at December 31, 2017.~~$24.8 million.

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


	June 30, 2018			December 31, 2017

(amounts in thousands)
(dollars in thousands)							June 30, 2019			December 31, 2018			Change			% Change
Cash and cash equivalents	$	251,726		$	146,323		$	95,795		$	62,135		$	33,660		54.2	%
Investment securities, at fair value	1,161,000			471,371			708,359			665,012			43,347			6.5	%
Loans held for sale (includes $1,043 and $1,886, respectively, at fair value) - as restated	1,043			146,077
Loans receivable, mortgage warehouse, at fair value - as restated	1,930,738			1,793,408
Loans receivable	7,181,726			6,768,258
Allowance for loan losses	(38,288		)	(38,015		)
Loans held for sale							5,697			1,507			4,190			278.0	%
Loans receivable, mortgage warehouse, at fair value							2,001,540			1,405,420			596,120			42.4	%
Loans and leases receivable							7,714,106			7,138,074			576,032			8.1	%
Allowance for loan and lease losses							(48,388		)	(39,972		)	(8,416		)	21.1	%
Total assets	11,092,846			9,839,555			11,182,427			9,833,425			1,349,002			13.7	%
Total deposits	7,295,954			6,800,142			8,185,777			7,142,236			1,043,541			14.6	%
Federal funds purchased	105,000			155,000			406,000			187,000			219,000			117.1	%
FHLB advances	2,389,797			1,611,860			1,262,100			1,248,070			14,030			1.1	%
Other borrowings	186,888			186,497			99,055			123,871			(24,816		)	(20.0	)%
Subordinated debt	108,929			108,880			109,026			108,977			49			—	%
Total liabilities	10,156,619			8,918,591			10,191,022			8,876,609			1,314,413			14.8	%
Total shareholders’ equity	936,227			920,964			991,405			956,816			34,589			3.6	%
Total liabilities and shareholders’ equity	11,092,846			9,839,555			$	11,182,427		$	9,833,425		$	1,349,002		13.7	%

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 $23.0~~Cash and due from banks were $24.8 million and $17.7 million at June 30, ~~2018. This represented a $2.6 million increase from $20.4 million at~~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’ ~~deposits~~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 ~~$228.8~~$71.0 million and ~~$125.9~~$44.4 million at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. ~~This~~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. ~~Customers targeted a lower cash balance at December 31, 2017 consistent with its objectives of reducing total assets below $10 billion at December 31, 2017.~~

In connection with the June 2016 acquisition of the Disbursement business from Higher One, as of June 30, 2018 and December 31, 2017, Customers had $5 million in an escrow account restricted in use with a third party to be paid to Higher One upon the second anniversary of the transaction closing, or at a later date as otherwise agreed to by both parties. Also, in connection with the planned spin-off and merger, Customers had $1.0 million in an escrow account with a third party that is reserved for payment to Flagship Community Bank in the event the amended and restated agreement with Flagship is terminated for reasons described in the agreement. See NOTE 2 - SPIN-OFF AND MERGER for additional details related to this escrow account. In connection with the purchase of certain university relationships in January 2018, Customers placed $1.5 million in an escrow account with a third party that is reserved for payment to a third party by December 31, 2018.

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, interest-only GNMA securities, and marketable equity securities. In addition to generating revenue, the investment portfolio is maintained to manage interest-rate risk, provide liquidity, ~~provide~~serve as collateral for other borrowings, and diversify the credit risk of interest-earning assets. The portfolio is structured to optimize net interest income, given changes in the economic environment, liquidity position and balance sheet mix.

At June 30, ~~2018,~~2019, investment securities ~~were $1.2 billion,~~totaled $708.4 million compared to ~~$0.5 billion~~$665.0 million at December 31, ~~2017, an increase of $0.7 billion.~~2018. The increase ~~was~~in investment securities primarily resulted from a market-driven recovery in the ~~result of purchases~~fair value of agency-guaranteed mortgage-backed securities and corporate securities and from obtaining ownership of certain interest-only GNMA securities with a fair value of $17.2 million on June 28, 2019. These securities served as the primary collateral for loans made to one commercial mortgage warehouse customer. These securities will be reported at fair value with fair value changes recorded directly in earnings based on a fair value option election.

securities totaling $763.2 million during the six months ended June 30, 2018, offset in part by maturities, calls and principal repayments in the amount of $26.2 million during the six months ended June 30, 2018.

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 will be~~and securities reported at fair value based on a fair value option election are recorded in ~~earnings~~non-interest income in the period in which they occur and will no longer be 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 3 - 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 ~~warehouse~~ lending business, and has recently announced plans to increase its ~~entry into non-QM residential mortgage lending.~~other consumer lending activities by approximately $750 million over the prior year. In addition, Customers has been deemphasizing its multi-family business, with plans to run-off approximately $1 billion or more in the second half of 2019, and has significantly limited originations of loans yielding less than 5%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 June 30, 2019, Customers had $8.4 billion in commercial loans outstanding, totaling approximately 86.8% 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~~Customers' lending to mortgage banking ~~businesses products, which~~business primarily provides financing to mortgage bankers for residential mortgage originations from loan closing until sale in the secondary market. Many providers of liquidity in this segment exited the business in 2009 during a period of market turmoil. Customers saw an opportunity to provide liquidity to this business segment at attractive ~~spreads. There was also the opportunity to attract escrow deposits and to~~spreads, generate fee income in this business. The goal of the mortgage banking business lending group is to 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.and attract escrow deposits. The underlying residential loans are taken as collateral for Customers' commercial loans to the mortgage companies. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, commercial loans to mortgage banking businesses totaled ~~$1.9~~$2.0 billion and ~~$1.8~~$1.4 billion, respectively, and are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance ~~sheets.~~sheet.

~~The goal of~~Customers intends to continue to deemphasize its lower-yielding multi-family loan portfolio, and invest in higher-yielding commercial and industrial and other consumer loan portfolios with the multi-family run-off. 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 June 30, ~~2018,~~2019, Customers had multi-family loans of ~~$3.5~~$3.0 billion outstanding, comprising approximately ~~38.9%~~31.0% 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 June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Customers had ~~$167.2~~$227.8 million and ~~$152.5~~$172.9 million, respectively, of equipment finance loans outstanding. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Customers had ~~$35.1~~$64.5 million and ~~$26.6~~$54.5 million of equipment finance leases, respectively. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Customers had ~~$26.5~~$62.0 million and ~~$21.7~~$54.5 million, respectively, of operating leases entered into under this program, net of accumulated depreciation of ~~$2.3~~$9.0 million and ~~$0.5~~$4.8 million, respectively.

As of June 30, 2018, Customers had $8.5 billion in commercial loans outstanding, totaling approximately 93.6% of its total loan portfolio, which includes loans held for sale, 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 unsecured consumer loans, residential mortgage, and home equity ~~and residential mortgage~~ loans to customers. ~~Underwriting standards for home~~The other consumer loan portfolio consists largely of third-party originated unsecured consumer loans. None of the loans are considered sub-prime. Customers considers sub-prime borrowers to be those with FICO scores below 660. Customers has been selective in the consumer loans it has been

purchasing. Home equity ~~lending are conservative and~~ lending is offered to solidify customer relationships and grow relationship revenues in the long term. This lending is important in Customers' efforts to grow total relationship revenues for its consumer households. As of June 30, ~~2018,~~2019, Customers had ~~$583.5 million~~$1.3 billion in consumer loans outstanding, or ~~6.4%~~13.2% 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. In second quarter 2018,~~2018. Customers purchased ~~$277.4~~$385.7 million and $447.0 million of ~~thirty-year fixed-rate~~other consumer loans through arrangements with third party fintech companies during the three and six months ended June 30, 2019, respectively. Customers purchased $40.6 million and $108.5 million of residential mortgage loans from ~~Third Federal Savings & Loan. Customers plans to expand its product offerings in real estate secured consumer lending in 2018~~third party financial institutions during the three 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 come with having a mortgage and owning a home. The “Affordable Mortgage Product” is offered throughout Customers' assessment areas.six months ended June 30, 2019, respectively.

Loans Held for Sale

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

June 30, December 31,
2018 2017
(amounts in thousands) (As Restated) (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 1,043
1,886
Loans held for sale $ 1,043
$ 146,077



(amounts in thousands)	June 30, 2019		December 31, 2018
Mortgage loans:
Residential mortgage loans, at fair value	$	4,372	$	1,507
Residential reverse mortgage loans – lower of cost or market	1,325		—
Loans held for sale	$	5,697	$	1,507

At June 30, ~~2018,~~2019, loans held for sale totaled ~~$1.0~~$5.7 million, or ~~0.01%~~0.06% 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)	June 30, 2019			December 31, 2018
Loans receivable, mortgage warehouse, at fair value	$	2,001,540		$	1,405,420
Loans receivable:
Commercial:
Multi-family	3,017,531			3,285,297
Commercial and industrial (including owner occupied commercial real estate)	2,184,556			1,951,277
Commercial real estate non-owner occupied	1,176,575			1,125,106
Construction	59,811			56,491
Total commercial loans and leases receivable	6,438,473			6,418,171
Consumer:
Residential real estate	648,860			566,561
Manufactured housing	75,597			79,731
Other consumer	552,839			74,035
Total consumer loans receivable	1,277,296			720,327
Loans and leases receivable	7,715,769			7,138,498
Deferred (fees) costs and unamortized (discounts) premiums, net	(1,663		)	(424		)
Allowance for loan and lease losses	(48,388		)	(39,972		)
Total loans and leases receivable, net of allowance for loan and lease losses	$	9,667,258		$	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 primarily provides financing to mortgage companies nationwide from the time of origination of the underlying mortgage loans until the mortgage loans are sold into the secondary market. As a mortgage warehouse lender, Customers provides a form of financing to mortgage bankers by purchasing for resale the underlying residential mortgages on a short-term basis under a master repurchase agreement. These loans are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance sheets. Because these loans are reported at their fair ~~value), 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 June 30, 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 ~~$413.2 million~~obtaining financial and other relevant information to ~~$7.1~~reduce these risks during the lending period. Loans receivable, mortgage warehouse, at fair value totaled $2.0 billion and $1.4 billion at June 30, ~~2018 from $6.7 billion at December 31, 2017. Total loans receivable as of June 30, 2018~~2019 and December 31, ~~2017 consisted of the following:~~

June 30, December 31,
2018 2017
(amounts in thousands) (As Restated) (As Restated)
Loans receivable, mortgage warehouse, at fair value $ 1,930,738
$ 1,793,408
Loans receivable:
Commercial:
Multi-family $ 3,542,770
$ 3,502,381
Commercial and industrial (including owner occupied commercial real estate) 1,811,751
1,633,818
Commercial real estate non-owner occupied 1,155,998
1,218,719
Construction 88,141
85,393
Total commercial loans receivable 6,598,660
6,440,311
Consumer:
Residential real estate 493,222
234,090
Manufactured housing 85,328
90,227
Other 3,874
3,547
Total consumer loans receivable 582,424
327,864
Loans receivable 7,181,084
6,768,175
Deferred costs and unamortized premiums, net 642
83
Allowance for loan losses (38,288 ) (38,015 )
Total loans receivable, net of allowance for loan losses $ 9,074,176
$ 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 ~~$(0.8)~~$5.3 million and ~~$0.5~~a benefit of $0.8 million for the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$1.3~~$10.1 million and ~~$3.6~~$1.3 million for the six months ended June 30, ~~2018~~2019 and ~~2017, respectively.~~2018. The ~~allowance for loan losses~~ALLL maintained for loans and leases receivable (excluding loans held for sale and loans receivable, mortgage warehouse, at fair value) was ~~$38.3~~$48.4 million, or ~~0.53%~~0.63% of loans and leases receivable, at June 30, ~~2018~~2019 and ~~$38.0~~$40.0 million, or 0.56% of loans and leases receivable, at December 31, ~~2017.~~2018. Net charge-offs were ~~$0.4~~$0.6 million for the three months ended June 30, ~~2018, a decrease~~2019, an increase of ~~$1.5~~$0.2 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~~higher net charge-offs in ~~charge-off activities~~the other consumer loan portfolio, partially offset by lower net charge-offs in the commercial and industrial ~~loan portfolio~~ and ~~an increase in recoveries in the~~ commercial real estate owner occupied ~~and construction~~ loan portfolios. Net charge-offs were ~~$1.1~~$1.7 million for the six months ended June 30, ~~2018, a decrease~~2019, an increase of ~~$1.4~~$0.6 million compared to the same period in ~~2017.~~2018. The ~~decrease~~increase in net charge-offs period over period was mainly driven by ~~decreases~~higher net charge-offs in ~~charge-off activities related to~~the other consumer and multi-family loan portfolios, partially offset by lower net charge-offs in the commercial and industrial ~~loan portfolio~~ and ~~the commercial real estate non-owner occupied loan portfolio, partially offset by an increase in charge-off activities in the~~ commercial real estate owner occupied ~~portfolio and in the other consumer~~ loan ~~portfolio.~~portfolios.

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 June 30,					Six Months Ended June 30,
	2018			2017		2018		2017		Three Months Ended June 30,					Six Months Ended June 30,
(amounts in thousands)										2019		2018			2019		2018
Balance at the beginning of the period	$	39,499		$	39,883	$	38,015	$	37,315	$	43,679	$	39,499		$	39,972	$	38,015
Loan charge-offs (1)
Loan and lease charge-offs ⁽¹⁾
Multi-family										—		—			541		—
Commercial and industrial	174			1,849		224		2,047		183		174			183		224
Commercial real estate owner occupied	483			—		501		—		66		483			74		501
Commercial real estate non-owner occupied	—			4		—		408
Residential real estate	42			69		407		290		69		42			109		407
Other consumer	462			226		718		246		932		462			1,687		718
Total Charge-offs	1,161			2,148		1,850		2,991		1,250		1,161			2,594		1,850
Loan recoveries (1)
Loan and lease recoveries ⁽¹⁾
Multi-family										7		—			7		—
Commercial and industrial	140			68		175		283		338		140			457		175
Commercial real estate owner occupied	326			9		326		9		97		326			225		326
Construction	209			49		220		130		114		209			120		220
Residential real estate	56			6		63		27		8		56			15		63
Other consumer	3			56		6		100		49		3			73		6
Total Recoveries	734			188		790		549		613		734			897		790
Total net charge-offs	427			1,960		1,060		2,442		637		427			1,697		1,060
Provision for loan losses	(784		)	535		1,333		3,585
Provision for loan and lease losses										5,346		(784		)	10,113		1,333
Balance at the end of the period	$	38,288		$	38,458	$	38,288	$	38,458	$	48,388	$	38,288		$	48,388	$	38,288


(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/A~~10-K for further discussion on management's methodology for estimating the ~~allowance for loan losses.~~ALLL.

Approximately ~~83%~~79% of Customers' commercial real estate, commercial and residential construction, consumer residential and commercial and industrial loan types have real estate as collateral (collectively, “the real estate portfolio”)~~. Customers' lien position on the real estate collateral will vary on a loan-by-loan basis and will change as a result of changes~~, primarily in the ~~value~~form of ~~the collateral.~~a first lien position. Current appraisals providing current value estimates of the property are received when Customers' credit group determines that the facts and circumstances have significantly changed since the date of the last appraisal, including that real estate values have deteriorated. The credit committee and loan officers review loans that are 15 or more days delinquent and all non-accrual loans on a periodic basis. In addition, loans where the loan officers have identified a “borrower of interest” are discussed to determine if additional analysis is necessary to apply the risk-rating criteria properly. The risk ratings for the real estate loan portfolio are determined based upon the current information available, including but not limited to discussions with the borrower, updated financial information, economic conditions within the geographic area and other factors that may affect the cash flow of the loan. If a loan is individually evaluated for impairment, the collateral value or discounted cash flow analysis is generally used to determine the estimated fair value of 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 June 30, ~~2018~~2019

Loan Type Total Loans Current
30-89
Days Past Due

90
Days or More Past Due and
Accruing

Non-
accrual/
NPL (a)

OREO
(b)

NPA
(a)+(b)

NPL
to
Loan
Type
(%)

NPA
to
Loans +
OREO
(%)
(amounts in thousands)
Originated Loans
Multi-Family $ 3,540,261
$ 3,538,918
$ —
$ —
$ 1,343
$ —
$ 1,343
0.04 % 0.04 %
Commercial & Industrial (1) 1,728,577
1,713,369
1,087
—
14,121
667
14,788
0.82 % 0.86 %
Commercial Real Estate Non-Owner Occupied 1,140,483
1,138,133
—
—
2,350
—
2,350
0.21 % 0.21 %
Residential 106,076
103,426
748
—
1,902
57
1,959
1.79 % 1.85 %
Construction 88,141
88,141
—
—
—
—
—
— % — %
Other consumer 1,752
1,716
36
—
—
—
—
— % — %
Total Originated Loans (2) 6,605,290
6,583,703
1,871
—
19,716
724
20,440
0.30 % 0.31 %
Loans Acquired
Bank Acquisitions 136,070
130,316
1,015
475
4,264
704
4,968
3.13 % 3.63 %
Loan Purchases
439,724
430,415
3,517
3,777
2,015
277
2,292
0.46 % 0.52 %
Total Loans Acquired 575,794
560,731
4,532
4,252
6,279
981
7,260
1.09 % 1.26 %
Deferred costs and unamortized premiums, net 642
642
—
—
—
—
—

Loans Receivable 7,181,726
7,145,076
6,403
4,252
25,995
1,705
27,700
0.36 % 0.39 %
Loans Receivable, Mortgage Warehouse, at Fair Value - As Restated 1,930,738
1,930,738
—
—
—
—
—

Total Loans Held for Sale - As Restated 1,043
1,043
—
—
—
—
—

Total Portfolio $ 9,113,507
$ 9,076,857
$ 6,403
$ 4,252
$ 25,995
$ 1,705
$ 27,700
0.29 % 0.30 %



(dollars in thousands)	Total Loans			Current			30-89 Days Past Due		90 Days or More Past Due and Accruing		Non-accrual/NPL (a)		OREO (b)		NPA (a)+(b)		NPL to Loan Type (%)		NPA to Loans + OREO (%)
Loan Type
Multi-family	$	3,017,531		$	3,017,531		$	—	$	—	$	—	$	—	$	—	—	%	—	%
Commercial & Industrial ⁽¹⁾	2,184,556			2,176,475			1,428		326		6,327		708		7,035		0.29	%	0.32	%
Commercial Real Estate Non-Owner Occupied	1,176,575			1,176,198			283		—		94		—		94		0.01	%	0.01	%
Construction	59,811			59,811			—		—		—		—		—		—	%	—	%
Total commercial loans and leases receivable	6,438,473			6,430,015			1,711		326		6,421		708		7,129		0.10	%	0.11	%
Residential	648,860			641,065			2,660		52		5,083		78		5,161		0.78	%	0.80	%
Manufactured housing	75,597			67,390			3,937		2,700		1,570		290		1,860		2.08	%	2.45	%
Other consumer	552,839			550,964			1,496		20		359		—		359		0.06	%	0.06	%
Total consumer loans receivable	1,277,296			1,259,419			8,093		2,772		7,012		368		7,380		0.55	%	0.58	%
Deferred (fees) costs and unamortized (discounts) premiums, net	(1,663		)	(1,663		)	—		—		—		—		—
Loans and Leases Receivable	7,714,106			7,687,771			9,804		3,098		13,433		1,076		14,509		0.17	%	0.19	%
Loans Receivable, Mortgage Warehouse, at Fair Value	2,001,540			2,001,540			—		—		—		—		—
Total Loans Held for Sale	5,697			4,372			—		—		1,325		—		1,325		23.26	%	23.26	%
Total Portfolio	$	9,721,343		$	9,693,683		$	9,804	$	3,098	$	14,758	$	1,076	$	15,834	0.15	%	0.16	%


(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 June 30, ~~2018~~2019 (continued)

Loan Type Total Loans NPL ALL
Cash
Reserve

Total
Credit
Reserves

Reserves
to Loans
(%)

Reserves
to NPLs
(%)
(amounts in thousands)
Originated Loans
Multi-Family $ 3,540,261
$ 1,343
$ 12,072
$ —
$ 12,072
0.34 % 898.88 %
Commercial & Industrial (1) 1,728,577
14,121
14,643
—
14,643
0.85 % 103.70 %
Commercial Real Estate Non-Owner Occupied 1,140,483
2,350
4,260
—
4,260
0.37 % 181.28 %
Residential 106,076
1,902
2,047
—
2,047
1.93 % 107.62 %
Construction 88,141
—
992
—
992
1.13 % — %
Other consumer 1,752
—
131
—
131
7.48 % — %
Total Originated Loans (2) 6,605,290
19,716
34,145
—
34,145
0.52 % 173.18 %
Loans Acquired
Bank Acquisitions 136,070
4,264
3,990
—
3,990
2.93 % 93.57 %
Loan Purchases
439,724
2,015
153
510
663
0.15 % 32.90 %
Total Loans Acquired 575,794
6,279
4,143
510
4,653
0.81 % 74.10 %
Deferred costs and unamortized premiums, net 642
—
—
—
—

Loans Receivable 7,181,726
25,995
38,288
510
38,798
0.54 % 149.25 %
Loans Receivable, Mortgage Warehouse, at Fair Value - As Restated 1,930,738
—
—
—
—

Total Loans Held for Sale - As Restated 1,043
—
—
—
—

Total Portfolio $ 9,113,507
$ 25,995
$ 38,288
$ 510
$ 38,798
0.43 % 149.25 %



(dollars in thousands)	Total Loans			Non-accrual / NPL		ALLL		Cash Reserve		Total Credit Reserves		Reserves to Loans (%)		Reserves to NPLs (%)
Loan Type
Multi-family	$	3,017,531		$	—	$	9,926	$	—	$	9,926	0.33	%	—	%
Commercial & Industrial ⁽¹⁾	2,184,556			6,327		17,096		—		17,096		0.78	%	270.21	%
Commercial Real Estate Non-Owner Occupied	1,176,575			94		6,159		—		6,159		0.52	%	6552.13	%
Construction	59,811			—		649		—		649		1.09	%	—	%
Total commercial loans and leases receivable	6,438,473			6,421		33,830		—		33,830		0.53	%	526.86	%
Residential	648,860			5,083		4,168		—		4,168		0.64	%	82.00	%
Manufactured housing	75,597			1,570		123		366		489		0.65	%	31.15	%
Other consumer	552,839			359		10,267		—		10,267		1.86	%	2859.89	%
Total consumer loans receivable	1,277,296			7,012		14,558		366		14,924		1.17	%	212.84	%
Deferred (fees) costs and unamortized (discounts) premiums, net	(1,663		)	—		—		—		—
Loans and Leases Receivable	7,714,106			13,433		48,388		366		48,754		0.63	%	362.94	%
Loans Receivable, Mortgage Warehouse, at Fair Value	2,001,540			—		—		—		—
Total Loans Held for Sale	5,697			1,325		—		—		—		—	%	—	%
Total Portfolio	$	9,721,343		$	14,758	$	48,388	$	366	$	48,754	0.50	%	330.36	%


(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 loan and ~~loans receivable, mortgage warehouse, at fair value) totaled $6.6~~lease portfolio was $9.7 billion at June 30, ~~2018,~~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~~2018 and ~~has worked to maintain these standards. Only $19.7~~$14.8 million, or ~~0.30%~~0.15% of ~~post 2009 originated~~ loans and leases were non-performing at June 30, ~~2018,~~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 ~~$34.1~~$48.8 million ~~(0.52%~~(330.36% of ~~post 2009 originated loans)~~NPLs and ~~$33.3~~0.50% 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 June 30, ~~2018~~2019 and December 31, ~~2017. Total 2009 and prior loans ("legacy loans") were $22.5 million and $25.6 million at June 30,~~ 2018, ~~and December 31, 2017,~~ respectively.

~~Loans Acquired~~

~~At June 30, 2018, total acquired loans were$575.8 million, or 8.0% of loans receivable, compared to $328.8 million, or 4.9% of loans receivable, at December 31, 2017. Non-performing acquired loans totaled~~$6.3 million and $6.4 million at June 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 from Tammac prior to 2012, $49.4million were supported by a $0.5 million cash reserve at June 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, Tammac has an obligation to pay the Bank the full payoff amount of the defaulted loan, including any principal, unpaid interest, or advances on the loans, once the borrower vacates the property. At June 30, 2018, $29.2 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 $4.7 million (0.81% of total acquired loans) and $5.4 million (1.64% of total acquired loans) at June 30, 2018 and December 31, 2017, respectively.

DEPOSITS

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, our White Label relationship, deposit brokers, listing services and other relationships.

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



(dollars in thousands)	June 30, 2019		December 31, 2018		Change			% Change
Demand, non-interest bearing	$	1,380,698	$	1,122,171	$	258,527		23.0	%
Demand, interest bearing	925,180		803,948		121,232			15.1	%
Savings, including MMDA	3,441,798		3,481,936		(40,138		)	(1.2	)%
Transaction deposits	5,747,676		5,408,055		339,621			6.3	%
Time, $100,000 and over	1,156,485		792,370		364,115			46.0	%
Time, other	1,281,616		941,811		339,805			36.1	%
Total deposits	$	8,185,777	$	7,142,236	$	1,043,541		14.6	%

Total deposits were ~~$7.3~~$8.2 billion at June 30, ~~2018,~~2019, an increase of ~~$0.5~~$1.0 billion, or ~~7.3%~~14.6%, from ~~$6.8~~$7.1 billion at December 31, ~~2017.~~2018. Transaction deposits increased by ~~$0.3 billion,~~$339.6 million, or ~~6.7%~~6.3%, to ~~$5.2~~$5.7 billion at June 30, ~~2018,~~2019, from ~~$4.9~~$5.4 billion at December 31, ~~2017, with~~2018. This increase primarily resulted from Customers' initiative to improve its net interest margin by expanding its sources of lower-cost funding. These efforts led to increases in non-interest bearing ~~deposits increasing by $38.6 million. Interest-bearing~~ demand deposits of $258.5 million, and interest bearing demand deposits of $121.2 million. These increases were ~~$0.6~~offset by a decrease in savings, including MMDA of $40.1 million, or 1.2%, to $3.4 billion at June 30, ~~2018, an increase of $99.5 million, or 19.0%,~~2019, from ~~$0.5~~$3.5 billion at December 31, ~~2017. Savings, including MMDA, totaled $3.5~~2018. Time deposits increased $703.9 million, or 40.6%, to $2.4 billion at June 30, ~~2018, an increase of $191.2 million, or 5.8%,~~2019, from ~~$3.3~~$1.7 billion at December 31, 2017. This increase was primarily attributed to an increase in money market deposit accounts. Total time deposits were $2.1 billion at June 30, 2018, an increase of $166.5 million, or 8.7%, from $1.9 billion at December 31, 2017. 2018.

At June 30, ~~2018,~~2019, the Bank had ~~$1.6~~$1.9 billion in state and municipal deposits to which it had pledged $1.9 billion of available borrowing capacity through the FHLB to the depositor through a letter of credit arrangement. ~~At June 30, 2018, the balance of state and municipal deposits was $1.5 billion.~~

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

June 30,
2018 December 31,
2017
(amounts in thousands)
Demand, non-interest bearing $ 1,090,744
$ 1,052,115
Demand, interest bearing 623,343
523,848
Savings, including MMDA 3,509,706
3,318,486
Time, $100,000 and over 1,055,341
1,284,855
Time, other 1,016,820
620,838
Total deposits $ 7,295,954
$ 6,800,142

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 June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, total outstanding borrowings were ~~$2.8~~$1.9 billion and ~~$2.1~~$1.7 billion, respectively, which represented an increase of ~~$0.7 billion,~~$208.3 million, or ~~35.3%~~12.5%. ~~This~~In June 2019, $25.0 million of senior notes bearing an annual interest rate of 4.625%, which were originally issued in June 2014 by the Bancorp, matured and were repaid in full.

SHAREHOLDERS' EQUITY

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



(dollars in thousands)	June 30, 2019			December 31, 2018			Change			% Change
Preferred stock	$	217,471		$	217,471		$	—		—	%
Common stock	32,483			32,252			231			0.7	%
Additional paid in capital	439,067			434,314			4,753			1.1	%
Retained earnings	334,157			316,651			17,506			5.5	%
Accumulated other comprehensive loss, net	(9,993		)	(22,663		)	12,670			(55.9	)%
Treasury stock	(21,780		)	(21,209		)	(571		)	2.7	%
Total shareholders' equity	$	991,405		$	956,816		$	34,589		3.6	%

Shareholders’ equity increased $34.6 million, or 3.6%, to $991.4 million at June 30, 2019 when compared to shareholders' equity of $956.8 million at December 31, 2018. The increase ~~was~~ primarily resulted from net income of $24.7 million for the ~~result~~six months ended June 30, 2019, a reduction in accumulated other comprehensive loss, net of $12.7 million, and increases of $4.8 million in additional paid in capital and $0.2 million in common stock, partially offset by preferred stock dividends of $7.2 million for the six months ended June 30, 2019 and repurchases of shares of Customers' common stock totaling $0.6 million. The reduction in accumulated other comprehensive loss, net primarily resulted from an increase in ~~investments~~the fair value of available-for-sale debt securities, partially offset by a decline in the fair value of cash flow hedges, both due to the decline in market interest rates during the year. The increases in additional paid in capital and ~~loans receivable increasing~~common stock resulted primarily from the ~~need~~issuance of common stock under share-based compensation arrangements for ~~short-term borrowings.~~the six months ended June 30, 2019.

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 June 30, 2018 and December 31, 2017, Customers had unpledged marketable investments of $476.0 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 June 30, ~~2018,~~2019, Customers' borrowing capacity with the ~~Federal Home Loan Bank~~FHLB was ~~$4.9~~$4.2 billion, of which ~~$2.4~~$1.3 billion was utilized in borrowings and ~~$1.6~~$2.0 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 June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, Customers' borrowing capacity with the ~~Federal Reserve Bank of Philadelphia~~FRB was ~~$136.9~~$129.7 million and ~~$142.5~~$102.5 million, respectively.

~~Net~~

The table below summarizes Customers' cash flows for the six months ended June 30, 2019 and 2018:



	Six Months Ended June 30,
(amounts in thousands)	2019			2018			Change			% Change
Net cash provided by (used in) operating activities	$	3,129		$	65,471		$	(62,342	)	(95.2	)%
Net cash provided by (used in) investing activities	(1,213,324		)	(1,179,191		)	(34,133		)	2.9	%
Net cash provided by (used in) financing activities	1,243,855			1,219,123			24,732			2.0	%
Net increase (decrease) in cash and cash equivalents	$	33,660		$	105,403		$	(71,743	)	(68.1	)%

Cash flows provided by (used in) operating activities

Cash provided by operating activities ~~were~~of $3.1 million for the six months ended June 30, 2019 primarily resulted from net income of $24.7 million, non-cash operating adjustments of $25.2 million, and an increase of $16.5 million in accrued interest payable and other liabilities, partially offset by an increase of $63.3 million in accrued interest receivable and other assets. Cash provided by operating activities of $65.5 million ~~during~~for the six months ended June 30, 2018 ~~compared to~~primarily resulted in net ~~cash~~income of $47.8 million and non-cash operating adjustments.

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

Cash used in investing activities of ~~$12.3 million during~~$1.2 billion for the six months ended June 30, ~~2017.~~

~~Net cash flows used in investing activities were $1.2 billion during the six months ended June 30, 2018, compared to~~2019 primarily resulted from net ~~cash flows used in investing activities~~originations of ~~$1.3 billion during the six months ended June 30, 2017.~~mortgage warehouse loans of $622.4 million and purchases of loans of $555.6 million.

Cash used in investing activities ~~consisted~~ of ~~the following:~~

~~The origination of mortgage warehouse loans totaled $14.3 billion during the six months ended June 30, 2018, compared to $14.7 billion during the six months ended June 30, 2017.~~

~~Purchases of investment securities available for sale totaled $763.2 million during the six months ended June 30, 2018, compared to $644.0 million during the six months ended June 30, 2017.~~

~~Cash flows used to fund new loans held for investment totaled $18.7 million and $572.3 million during the six months ended June 30, 2018 and 2017, respectively.~~

~~Cash flows used to purchase loans totaled $278.5 million and $262.6 million during the six months ended June 30, 2018 and 2017, respectively.~~

Purchases of bank owned life insurance policies were $50.0 million during the six months ended June 30, 2017. There were no such purchases of bank owned life insurance policies during the six months ended June 30, 2018.

~~Net purchases of FHLB, Federal Reserve Bank and other restricted stock totaled $30.1 million and $61.3 million during the six months ended June 30, 2018 and 2017, respectively.~~

Purchases of leased assets under operating leases were $6.5 million during the six months ended June 30, 2018. There were no such purchases of leased assets under operating leases during the six months ended June 30, 2017.

~~Cash provided by investing activities consisted of the following:~~

~~Proceeds from repayments of mortgage warehouse loans totaled $14.1~~$1.2 billion for the six months ended June 30, 2018 ~~compared to $14.7~~primarily resulted from purchases of investment securities available for sale of $763.2 million, purchases of loans of $278.5 million, and net originations of mortgage warehouse loans of $137.3 million.

Cash flows provided by (used in) financing activities

Cash provided by financing activities of $1.2 billion for the six months ended June 30, ~~2017.~~

~~Proceeds~~2019 primarily resulted from ~~maturities, calls~~increases in deposits of $1.0 billion, proceeds from long-term FHLB borrowings of $350.0 million, and ~~principal~~federal funds purchased of $219.0 million, partially offset by repayments of ~~securities available for sale totaled $26.2~~short-term borrowed funds from the FHLB of $336.0 million, repayments of long-term debt of $25.0 million, and preferred stock dividends paid of $7.2 million.

Cash provided by financing activities of $1.2 billion for the six months ended June 30, 2018 ~~compared to $22.8 million for the six months ended June 30, 2017.~~

~~Proceeds~~primarily resulted from sales of investment securities available for sale amounted to $116.0 million during the six months ended June 30, 2017. There were no such sales of investments securities during the six months ended June 30, 2018.

~~Proceeds from the sale of loans held for investment totaled $29.0 million during the six months ended June 30, 2018, compared to $112.9 million during the six months ended June 30, 2017.~~

Net cash flows provided by financing activities were $1.2 billion during the six months ended June 30, 2018, compared to $1.5 billion for the six months ended June 30, 2017. During the six months ended June 30, 2018, a net increaseincreases in short-term borrowed funds from the FHLB ~~provided net cash flows~~ of $777.9 million, and ~~an increase in~~ deposits ~~provided net cash flows~~ of $495.8 ~~million. These cash flow increases were~~million, partially offset by ~~a net cash flow usage in~~ federal funds purchased of $50.0 million, and preferred stock dividends paid of $7.2 million. During the six months ended June 30, 2017, a net increase in short-term borrowed funds from the FHLB provided net cash flows of $1.1 billion, a net increase in deposits provided net cash flows of $171.6 million, proceeds from the issuance of five-year senior notes provided $98.6 million, and a net increase in federal funds purchased provided net cash flows of $67.0 million, partially offset by the payment of preferred stock dividends of $7.2 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 $15.3 million to $936.2 million at June 30, 2018 when compared to shareholders' equity of $921.0 million at December 31, 2017, an increase of 1.7% . The primary components of the net increase were as follows:

~~net income of $47.8 million for the six months ended June 30, 2018;~~

~~share-based compensation expense of $3.7 million for the six months ended June 30, 2018; and~~

~~issuance of common stock under share-based compensation arrangements of $3.2 million for the six months ended June 30, 2018.~~

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

~~other comprehensive loss of $32.3 million for the six months ended June 30, 2018, arising primarily from unrealized fair value losses recognized on available-for-sale debt securities; and~~

~~preferred stock dividends of $7.2 million for the six months ended June 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 June 30, ~~2018~~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
(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2018:
(dollars in thousands)																	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2019:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	735,609	8.611	%	$	384,418	4.500	%	N/A		N/A		$	544,591	6.375	%	$	768,335	8.041	%	$	429,991	4.500	%	N/A		N/A		$	668,874	7.000	%
Customers Bank	$	1,054,613	12.351	%	$	384,232	4.500	%	$	555,002	6.500	%	$	544,329	6.375	%	$	1,068,554	11.190	%	$	429,727	4.500	%	$	620,717	6.500	%	$	668,465	7.000	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	953,025	11.156	%	$	512,557	6.000	%	N/A		N/A		$	672,731	7.875	%	$	985,784	10.317	%	$	573,321	6.000	%	N/A		N/A		$	812,205	8.500	%
Customers Bank	$	1,054,613	12.351	%	$	512,309	6.000	%	$	683,079	8.000	%	$	672,406	7.875	%	$	1,068,554	11.190	%	$	572,970	6.000	%	$	763,960	8.000	%	$	811,707	8.500	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,072,072	12.550	%	$	683,409	8.000	%	N/A		N/A		$	843,583	9.875	%	$	1,123,602	11.759	%	$	764,428	8.000	%	N/A		N/A		$	1,003,312	10.500	%
Customers Bank	$	1,202,070	14.078	%	$	683,079	8.000	%	$	853,849	10.000	%	$	843,176	9.875	%	$	1,226,248	12.841	%	$	763,960	8.000	%	$	954,950	10.000	%	$	1,002,697	10.500	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	953,025	8.866	%	$	429,963	4.000	%	N/A		N/A		$	429,963	4.000	%	$	985,784	9.511	%	$	414,576	4.000	%	N/A		N/A		$	414,576	4.000	%
Customers Bank	$	1,054,613	9.822	%	$	429,471	4.000	%	$	536,839	5.000	%	$	429,471	4.000	%	$	1,068,554	10.318	%	$	414,241	4.000	%	$	517,801	5.000	%	$	414,241	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 ~~during~~ first quarter 2015 and the capital conservation buffer ~~effective~~phased in beginning January 1, 2016. Failure to maintain the required capital conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers. As of June 30, ~~2018,~~2019, the Bank and Customers Bancorp were in compliance with the Basel III requirements. See "NOTE 98 - REGULATORY CAPITAL" to Customers' unaudited financial statements for additional discussion regarding regulatory capital requirements.

OFF-BALANCE SHEET ARRANGEMENTS

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

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

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

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


	June 30, 2018		December 31, 2017
(amounts in thousands)					June 30, 2019		December 31, 2018
Commitments to fund loans	$	346,648	$	333,874
Commitments to fund loans and leases					$	324,543	$	345,608
Unfunded commitments to fund mortgage warehouse loans	1,268,637		1,567,139		1,297,406		1,537,900
Unfunded commitments under lines of credit	759,100		485,345
Unfunded commitments under lines of credit and credit card					949,557		867,131
Letters of credit	38,718		39,890		44,880		55,659
Other unused commitments	6,319		6,679		4,372		4,822

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

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

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

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

Effect of Government Monetary Policies

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

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

Customers uses two complementary methods to analyze and measure interest rate sensitivity as part of the overall management of interest rate risk; they are income simulation modeling and estimates of EVE. The combination of these two methods provides a reasonably comprehensive summary of the levels of interest rate risk of Customers' exposure to time factors and changes in interest rate environments.

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

Through the use of income simulation modeling, Customers has estimated the net interest income for the periods ending June 30, 2020 and December 31, 2019, based upon the assets, liabilities and off-balance sheet financial instruments in existence at June 30, 2019 and December 31, 2018. 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 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. The following table reflects the estimated percentage change in estimated net interest income for the periods ending June 30, 2020 and December 31, 2019, resulting from changes in interest rates.

Net change in net interest income



	% Change
Rate Shocks	June 30, 2020	December 31, 2019
Up 3%	(1.0)%	(15.7)%
Up 2%	(0.1)%	(9.8)%
Up 1%	0.2%	(4.5)%
Down 1%	(0.6)%	3.9%
Down 2%	(1.9)%	6.7%

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

EVE estimates the discounted present value of asset and liability cash flows. Discount rates are based upon market prices for comparable assets and liabilities. Upward and downward rate shocks are used to measure volatility of EVE in relation to a constant rate environment. For upward rate shocks modeling a rising rate environment, 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 decreased immediately by 100 and 200 basis points due to the limitations of the current low interest rate environment that renders the Down 300 rate shocks impractical. The downward rate shocks modeled will be revisited in the future if necessary and will be contingent upon additional Federal Reserve interest rate hikes. This method of measurement primarily evaluates the longer term repricing risks and options in Customers Bank’s balance sheet. The following table reflects the estimated EVE at risk and the ratio of EVE to EVE adjusted assets at June 30, 2019 and December 31, 2018, resulting from shocks to interest rates.



	From base
Rate Shocks	June 30, 2019	December 31, 2018
Up 3%	(12.5)%	(22.8)%
Up 2%	(6.2)%	(13.3)%
Up 1%	(1.9)%	(5.7)%
Down 1%	0.4%	3.8%
Down 2%	0.2%	6.5%

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

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

Item 4. Controls and Procedures

(a) Management's Evaluation of Disclosure Controls and Procedures. ~~Customers Bancorp maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its periodic filings under~~As of the ~~Exchange Act is accumulated and communicated to its management on a timely basis to allow decisions regarding required disclosure.~~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) ~~as of June 30, 2018. In connection with~~. Based upon the ~~restatement discussed in the Explanatory Note to this Quarterly Report on Form 10-Q/A and in Note 3 to the consolidated financial statements, under the supervision and with the participation of~~evaluation, the Chief Executive Officer and Chief Financial Officer ~~management re-evaluated~~concluded that Customers Bancorp’s disclosure controls and procedures as of June 30, 2018. During its re-evaluation, management identified 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 investment on the consolidated balance sheets. Solely as a result of this material weakness, Customers Bancorp concluded that its disclosure controls and procedures were not effective as of June 30, ~~2018.~~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 commercial mortgage warehouse lending transactions on the consolidated balance sheets 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.~~ Reporting. During the quarter ended June 30, ~~2018,~~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 commercial mortgage warehouse lending transactions on its consolidated balance sheets and statements of cash flows.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

For information on Customers' legal proceedings, refer to “NOTE 13 – LOSS CONTINGENCIES” to the consolidated financial statements.

Item 1A. Risk Factors ~~- As Amended~~

In addition to the other information set forth in this ~~amended~~ Quarterly Report, you should carefully consider the factors discussed in “Risk Factors” included within the ~~Original~~2018 Form ~~10-K Filing.~~10-K. There are no material changes from the risk factors included within the ~~Original~~2018 Form ~~10-K Filing, other than the risks described below.~~10-K. The risks described within the ~~Original~~2018 Form 10-K ~~Filing and below~~ are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition and/or operating results. See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Note Regarding Forward-Looking Statements.”

~~The Federal Reserve may conclude~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On November 26, 2013, the Bancorp's board of directors authorized a stock repurchase plan in which the Bancorp could acquire up to 5% of its current outstanding shares not to exceed a 20% premium over the then current book value. On December 11, 2018, the Bancorp's board of directors amended the terms of the 2013 stock repurchase plan to adjust the repurchase terms and book value measurement date such that ~~following~~Customers was authorized to purchase shares of common stock at prices not to exceed the ~~Merger~~book value per share of ~~Flagship Community Bank~~Customers' common stock measured as of September 30, 2018. Customers repurchased all remaining authorized shares pursuant to this program in January 2019. Accordingly, there were no common shares repurchased during second quarter 2019.

Dividends on Common Stock

Customers Bancorp historically has not paid any cash dividends on its shares of common stock and does not expect to do so in the ~~BankMobile business, if completed prior~~foreseeable future.

Any future determination relating to ~~December 31, 2018,~~our dividend policy will be ~~an affiliate~~made at the discretion of Customers Bancorp’s board of directors and will depend on a number of factors, including earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, ability to service any equity or debt obligations senior to our common stock, including obligations to pay dividends to the holders of Customers Bancorp's issued and outstanding shares of preferred stock and other factors deemed relevant by the Board of Directors.

In addition, as a bank holding company, Customers Bancorp asis subject to general regulatory restrictions on the payment of ~~December 31, 2018 for purposes of applying~~cash dividends. Federal bank regulatory agencies have the ~~small issuer exemption contained~~authority to prohibit bank holding companies from engaging in unsafe or unsound practices in conducting their business, which, depending on the ~~Durbin Amendment. Failure~~financial condition and liquidity of the ~~combined~~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 ~~qualify~~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 ~~the Durbin Amendment small issuer exemption would result in a material reduction in interchange revenue and may adversely impact~~specified periods.

Beginning January 1, 2015, the ability to ~~attract or retain certain white label partners.~~

The Federal Reserve has indicated that following the acquisition of the BankMobile business by Flagship in the Merger, the combined company may be considered an affiliate of Customers Bancorp for purposes of calculating the applicability of the Federal Reserve Act Sections 23A and 23B, Regulation W, Regulation EE,pay dividends and the ~~Durbin Amendment by the fact~~amounts that ~~Customers Bancorp's shareholders~~can be paid will ~~hold approximately 51% of the stock of the combined company after giving effect~~be limited to the ~~Distribution and~~extent the ~~Merger. Unless~~Bank's capital ratios do not exceed the ~~combined company can reasonably demonstrate that,~~minimum required levels plus 250 basis points, as ~~a result of shareholder turnover from regular market trading, the shareholders of Customers Bancorp receiving Flagship shares~~these requirements were phased in the Merger may control 24.9% or less of the combined company's common shares on a combined basis as of December 31, 2018, and that other subjective elements of Customers Bancorp's control or significant influence over the post-Merger company are not present, the Federal Reserve may determine that the combined company and Customers Bancorp are affiliates for purposes of the Federal Reserve Act Section 23A and 23B, Regulation W, Regulation EE, and the Durbin Amendment. None of Customers Bancorp, Customers Bank, Flagship Community Bank, or any affiliate thereof, nor anyone acting on their behalf, intends to take any action or engage in any efforts to cause, encourage or otherwise influence any Customers Bancorp shareholders who receive shares of Flagship Community Bank (if the spin-off and merger is completed) to sell or otherwise dispose of their shares. The determination that the combined company and Customers Bancorp are affiliates for purposes of the Durbin Amendment would require the combined company and Customers Bancorp to combine the combined company's and Customers Bancorp's assets for the purpose of calculating the $10 billion asset threshold in determining whether the combined company qualifies for the small debit card issuer exemption to the Durbin Amendment. If the combined company is not able to qualify for the small debit card issuer exemption to the Durbin Amendment, the BankMobile/Flagship company would face a material loss of interchange revenue, and may adversely impact the combined company's ability to attract or retain other white label partners. While management believes it can successfully demonstrate that, as a result of shareholder turnover from regular market trading, the ownership of Flagship by holders of Customers Bancorp common stock receiving Flagship common stock in the Merger will decline to 24.9% or less through natural turnover of common stock ownership within three to four months after the transactions are completed, and that other qualitative conditions that could lead to a separate qualitative determination of control or significant influence are not present, a failure to qualify for the small debit card issuer exemption in the Durbin Amendment at December 31, 2018 would materially and adversely affect the combined company's revenues, ongoing business and ability to achieve BankMobile/Flagship’s future business plans. Furthermore, if BankMobile/Flagship does not qualify for the small debit card issuer exemption as of December 31, 2018, the combined company may not be able to qualify for the small debit card issuer exemption until at least the next measurement date, December 31, 2019, and may not be able to reinstitute the combined company's interchange fee levels until at least January 1, ~~2020.~~2019.

We are dependent upon maintaining an effective system of internal controls to provide reasonable assurance that transactions and activities are conducted in accordance with established policies and procedures and are captured and reported in the financial statements. Failure to comply with the system of internal controls may result in events or losses which could adversely affect our operations, net income, financial condition, reputation and compliance with laws and regulations.Item 3. Defaults Upon Senior Securities

None.

~~Our system of internal controls, including internal controls over financial reporting, is an important element of our risk-~~

management framework. Management regularly reviews and seeks to improve our internal controls, including annual review of key policies and procedures and annual review and testing of key internal controls over financial reporting. Any system of internal controls, however well designed and operated, is based in part on certain assumptions and expectations of employeeItem 4. Mine Safety Disclosures

Not applicable.

conduct and can only provide reasonable, not absolute, assurance that the objectives of the internal control structure are met. Any failure or circumvention of our controls and procedures, or failure to comply with regulations related to controls and procedures, could have a material adverse effect on our operations, net income, financial condition, reputation and compliance with laws and regulations.

Item 5. Other Information

As previously disclosed, in November 2018, Customers determined that its previously issued consolidated financial statements as of and for the years ended December 31, 2017, 2016 and 2015, the related report of BDO USA, LLP ("BDO") included in the Original 2017 Form 10-K, and interim consolidated financial statements as of and for the three months ended March 31, 2018 and 2017 and the three and six months ended June 30, 2018 and 2017 (collectively, the "Affected Periods"), should no longer be relied upon because of misclassifications of cash flow activities associated with Customers' commercial mortgage warehouse lending activities between operating and investing activities on its consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale rather than held for investment on its consolidated balance sheets. These misclassifications had no effect on total cash balances, total loans, the allowance for loan losses, total assets, 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 any other key performance metric, including non-GAAP performance metrics, that Customers routinely discusses with analysts and investors. Customers is filing an amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2017 and amended Quarterly Reports on Form 10-Q/A for the three months ended March 31, 2018 and the three and six months ended June 30, 2018 to present the restated financial statements and related disclosures.

In connection with the restatement, management has determined that a material weakness existed in internal control over financial reporting solely with respect to the misclassification of cash flows associated with Customers' commercial mortgage warehouse lending activities between operating and investing activities on its consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale rather than held for investment. As a result of the material weakness, BDO's report on Customers' internal control over financial reporting as of December 31, 2017 should no longer be relied upon.

Customers 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. If Customers' remediation efforts do not operate effectively or if it is unsuccessful in implementing or following its remediation efforts, this may result in untimely or inaccurate reporting of Customers' financial results.

None.

Item 6. Exhibits



Exhibit No.		Description

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

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

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

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

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

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

~~3.5~~3.7		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on January 29, 2016

~~3.6~~3.8		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on April 28, 2016

~~3.7~~3.9		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on September 16, 2016

~~3.8~~4.1		~~Letter Agreement, dated as of August 7, 2018, by and between Flagship Community Bank, BankMobile Technologies, Inc., Customers Bank and Customers Bancorp, Inc.~~

~~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~~10.1		Customers Bancorp, Inc. 2019 Stock Incentive Plan, incorporated by reference to Exhibit 4.6 to the Customers Bancorp Form S-8 filed with the SEC on July 25, 2019

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 ~~amended~~ report to be signed on its behalf by the undersigned thereunto duly authorized.



	Customers Bancorp, Inc.

~~November 30, 2018~~August 8, 2019	By:	/s/ Jay S. Sidhu
	Name:	Jay S. Sidhu
	Title:	Chairman and Chief Executive Officer (Principal Executive Officer)



~~November 30, 2018~~August 8, 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		Articles of Amendment to the Amended and Restated Articles of Incorporation of Customers Bancorp, Inc., incorporated by reference to Exhibit 3.1 to the Customers Bancorp’s Form 8-K filed with the SEC on June 3, 2019

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

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

~~3.5~~3.7		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on January 29, 2016

~~3.6~~3.8		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on April 28, 2016

~~3.7~~3.9		Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, incorporated by reference to Exhibit 3.1 to the Customers Bancorp Form 8-K filed with the SEC on September 16, 2016

~~3.8~~4.1		~~Letter Agreement, dated as of August 7, 2018, by and between Flagship Community Bank, BankMobile Technologies, Inc., Customers Bank and Customers Bancorp, Inc.~~

~~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~~10.1		Customers Bancorp, Inc. 2019 Stock Incentive Plan, incorporated by reference to Exhibit 4.6 to the Customers Bancorp Form S-8 filed with the SEC on July 25, 2019

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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8777



	Three Months Ended June 30, 2017
(amounts in thousands)	As Previously Reported			Effect of Reclassification From Held For Sale to Held and Used			After Reclassification
Interest income	$	93,852		$	—		$	93,852
Interest expense	25,236			10			25,246
Net interest income	68,616			(10		)	68,606
Provision for loan losses	535			—			535
Non-interest income	6,971			11,420			18,391
Non-interest expense	30,567			19,846			50,413
Income from continuing operations before income taxes	44,485			(8,436		)	36,049
Provision for income taxes	15,533			(3,206		)	12,327
Net income from continuing operations	28,952			(5,230		)	23,722
Loss from discontinued operations before income taxes	(8,436		)	8,436			—
Income tax benefit from discontinued operations	(3,206		)	3,206			—
Net loss from discontinued operations	(5,230		)	5,230			—
Net income	23,722			—			23,722
Preferred stock dividends	3,615			—			3,615
Net income available to common shareholders	$	20,107		$	—		$	20,107



	June 30, 2018
Consolidated Balance Sheet	As Previously Reported		Adjustments			As Restated
(amounts in thousands)
Loans held for sale	$	1,931,781	$	(1,930,738	)	$	1,043
Loans receivable, mortgage warehouse, at fair value	—		1,930,738			1,930,738
Total loans receivable, net of allowance for loan losses	$	7,143,438	$	1,930,738		$	9,074,176



	June 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	$	490,425	$	—	$	(13,862	)	$	476,563
Agency-guaranteed commercial real estate mortgage-backed securities	334,232		—		(13,859		)	320,373
Corporate notes	381,545		798		(21,335		)	361,008
Available-for-Sale Debt Securities	$	1,206,202	$	798	$	(49,056	)	1,157,944
Equity Securities (1)								3,056
Total Investment Securities, at Fair Value								$	1,161,000



	June 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)
(amounts in thousands)
Multi-family	$	—	$	—	$	—	$	1,343	$	3,539,640	$	1,787	$	3,542,770
Commercial and industrial	1,087		—		1,087		13,683		1,251,148		602		1,266,520
Commercial real estate - owner occupied	—		—		—		718		534,923		9,590		545,231
Commercial real estate - non-owner occupied	—		—		—		2,536		1,148,581		4,881		1,155,998
Construction	—		—		—		—		88,141		—		88,141
Residential real estate	2,174		—		2,174		5,606		480,381		5,061		493,222
Manufactured housing (5)	2,977		2,661		5,638		2,015		75,250		2,425		85,328
Other consumer	56		—		56		94		3,496		228		3,874
Total	$	6,294	$	2,661	$	8,955	$	25,995	$	7,121,560	$	24,574	$	7,181,084
	December 31, 2017
	30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Multi-family	$	4,900	$	—	$	4,900	$	—	$	3,495,600	$	1,881	$	3,502,381
Commercial and industrial	103		—		103		17,392		1,130,831		764		1,149,090
Commercial real estate - owner occupied	202		—		202		1,453		472,501		10,572		484,728
Commercial real estate - non-owner occupied	93		—		93		160		1,213,216		5,250		1,218,719
Construction	—		—		—		—		85,393		—		85,393
Residential real estate	7,628		—		7,628		5,420		215,361		5,681		234,090
Manufactured housing (5)	4,028		2,743		6,771		1,959		78,946		2,551		90,227
Other consumer	116		—		116		31		3,184		216		3,547
Total	$	17,070	$	2,743	$	19,813	$	26,415	$	6,695,032	$	26,915	$	6,768,175



Three Months Ended June 30, 2017	Multi-family			Commercial and Industrial			Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied			Construction			Residential Real Estate			Manufactured Housing			Other Consumer			Total
(amounts in thousands)
Ending Balance, March 31, 2017	$	12,283		$	13,009		$	2,394	$	7,847		$	885		$	3,080		$	284		$	101		$	39,883
Charge-offs	—			(1,849		)	—		(4		)	—			(69		)	—			(226		)	(2,148		)
Recoveries	—			68			9		—			49			6			—			56			188
Provision for loan losses	(255		)	357			573		(57		)	(218		)	(22		)	(16		)	173			535
Ending Balance, June 30, 2017	$	12,028		$	11,585		$	2,976	$	7,786		$	716		$	2,995		$	268		$	104		$	38,458
Six Months Ended June 30, 2017
Ending Balance, December 31, 2016	$	11,602		$	11,050		$	2,183	$	7,894		$	840		$	3,342		$	286		$	118		$	37,315
Charge-offs	—			(2,047		)	—		(408		)	—			(290		)	—			(246		)	(2,991		)
Recoveries	—			283			9		—			130			27			—			100			549
Provision for loan losses	426			2,299			784		300			(254		)	(84		)	(18		)	132			3,585
Ending Balance, June 30, 2017	$	12,028		$	11,585		$	2,976	$	7,786		$	716		$	2,995		$	268		$	104		$	38,458
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
	$	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
	$	12,168		$	10,918		$	3,232	$	7,437		$	979		$	2,929		$	180		$	172		$	38,015



	June 30, 2018						December 31, 2017
	Accruing TDRs		Nonaccrual TDRs		Total		Accruing TDRs		Nonaccrual TDRs		Total
(amounts in thousands)
Commercial and industrial	$	67	$	5,415	$	5,482	$	63	$	5,939	$	6,002
Commercial real estate owner occupied	41		—		41		—		—		—
Manufactured housing	8,357		1,875		10,232		8,130		1,766		9,896
Residential real estate	3,169		485		3,654		3,828		703		4,531
Other consumer	—		13		13		—		—		—
Total TDRs	$	11,634	$	7,788	$	19,422	$	12,021	$	8,408	$	20,429



	Three Months Ended June 30, 2018			Three Months Ended June 30, 2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(dollars in thousands)
Extensions of maturity	1	$	56	2	$	5,855
Interest-rate reductions	15	607		9	320
Total	16	$	663	11	$	6,175



					Minimum Capital Levels to be Classified as:
	Actual				Adequacy Capitalized				Well Capitalized				Basel III Compliant
(amounts in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2018:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	735,609	8.611	%	$	384,418	4.500	%	N/A		N/A		$	544,591	6.375	%
Customers Bank	$	1,054,613	12.351	%	$	384,232	4.500	%	$	555,002	6.500	%	$	544,329	6.375	%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	953,025	11.156	%	$	512,557	6.000	%	N/A		N/A		$	672,731	7.875	%
Customers Bank	$	1,054,613	12.351	%	$	512,309	6.000	%	$	683,079	8.000	%	$	672,406	7.875	%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.	$	1,072,072	12.550	%	$	683,409	8.000	%	N/A		N/A		$	843,583	9.875	%
Customers Bank	$	1,202,070	14.078	%	$	683,079	8.000	%	$	853,849	10.000	%	$	843,176	9.875	%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.	$	953,025	8.866	%	$	429,963	4.000	%	N/A		N/A		$	429,963	4.000	%
Customers Bank	$	1,054,613	9.822	%	$	429,471	4.000	%	$	536,839	5.000	%	$	429,471	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	%



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



	Six Months Ended June 30, 2018
	Amount of Gain Recognized in OCI on Derivatives (1)		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain Reclassified from Accumulated OCI into Income
(amounts in thousands)
Derivative in cash flow hedging relationships:
Interest rate swaps	$	2,049	Interest expense	$	128



	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet				Net Amount
	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet				Financial Instruments		Cash Collateral Received		Net Amount
(amounts in thousands)
Description
Interest rate swap derivatives with institutional counterparties	$	14,921	$	—	$	14,921	$	—	$	11,170	$	3,751



	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	$	1,639	$	—	$	1,639	$	—	$	2	$	1,637



	June 30,		December 31,
	2018		2017
(amounts in thousands)	(As Restated)		(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	1,043		1,886
Loans held for sale	$	1,043	$	146,077



Loan Type	Total Loans		NPL		ALL		Cash Reserve		Total Credit Reserves		Reserves to Loans (%)		Reserves to NPLs (%)
(amounts in thousands)
Originated Loans
Multi-Family	$	3,540,261	$	1,343	$	12,072	$	—	$	12,072	0.34	%	898.88	%
Commercial & Industrial (1)	1,728,577		14,121		14,643		—		14,643		0.85	%	103.70	%
Commercial Real Estate Non-Owner Occupied	1,140,483		2,350		4,260		—		4,260		0.37	%	181.28	%
Residential	106,076		1,902		2,047		—		2,047		1.93	%	107.62	%
Construction	88,141		—		992		—		992		1.13	%	—	%
Other consumer	1,752		—		131		—		131		7.48	%	—	%
Total Originated Loans (2)	6,605,290		19,716		34,145		—		34,145		0.52	%	173.18	%
Loans Acquired
Bank Acquisitions	136,070		4,264		3,990		—		3,990		2.93	%	93.57	%
Loan Purchases	439,724		2,015		153		510		663		0.15	%	32.90	%
Total Loans Acquired	575,794		6,279		4,143		510		4,653		0.81	%	74.10	%
Deferred costs and unamortized premiums, net	642		—		—		—		—
Loans Receivable	7,181,726		25,995		38,288		510		38,798		0.54	%	149.25	%
Loans Receivable, Mortgage Warehouse, at Fair Value - As Restated	1,930,738		—		—		—		—
Total Loans Held for Sale - As Restated	1,043		—		—		—		—
Total Portfolio	$	9,113,507	$	25,995	$	38,288	$	510	$	38,798	0.43	%	149.25	%