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Customers Bancorp (CUBI)

Filed: 9 Aug 21, 4:38pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
Form 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2021
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)
cubi-20210630_g1.jpg
(Exact name of registrant as specified in its charter)
Customers Bancorp, Inc.

Pennsylvania 27-2290659
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
701 Reading Avenue
West Reading, PA 19611
(Address of principal executive offices)
(610) 933-2000
(Registrant’s telephone number, including area code)
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 ClassTrading SymbolsName of Each Exchange on which Registered
Voting Common Stock, par value $1.00 per shareCUBINew York Stock Exchange
Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series C, par value $1.00 per share
CUBI/PCNew York Stock Exchange
Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series D, par value $1.00 per share
CUBI/PDNew York Stock Exchange
Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series E, par value $1.00 per share
CUBI/PENew York Stock Exchange
Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series F, par value $1.00 per share
CUBI/PFNew York Stock Exchange
5.375% Subordinated Notes due 2034CUBBNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated fileroAccelerated Filerx
Non-accelerated filer
o 
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.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 August 6, 2021, 32,373,955 shares of Voting Common Stock were outstanding.



CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

2

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.
ACLAllowance for credit losses
AFSAvailable for sale
ASCAccounting Standards Codification
AOCIAccumulated other comprehensive income
ASUAccounting Standards Update
ATMAutomated teller machine
BancorpCustomers Bancorp, Inc.
BankCustomers Bank
BBB spreadBBB rated corporate bond spreads to U.S. Treasury securities
BMTBankMobile Technologies, Inc.
BM TechnologiesBM Technologies, Inc.
BOLIBank-owned life insurance
CAAThe Consolidated Appropriations Act, 2021
CARES ActCoronavirus Aid, Relief and Economic Security Act
CCFCustomers Commercial Finance, LLC
CECLCurrent expected credit loss
CompanyCustomers Bancorp, Inc. and subsidiaries
COVID-19Coronavirus Disease 2019
CPIConsumer Price Index
CUBISymbol for Customers Bancorp, Inc. common stock traded on the NYSE
CustomersCustomers Bancorp, Inc. and Customers Bank, collectively
Customers BancorpCustomers Bancorp, Inc.
DCFDiscounted cash flow
DepartmentPennsylvania Department of Banking and Securities
Disbursement BusinessOne Account Student Checking and Refund Management Disbursement Services Business
EDU.S. Department of Education
EPSEarnings per share
ERISAThe Employee Retirement Income Security Act of 1974
EVEEconomic value of equity
Exchange ActSecurities Exchange Act of 1934
FDICFederal Deposit Insurance Corporation
Fed FundsFederal Reserve Board's Effective Federal Funds Rate
Federal Reserve BoardBoard of Governors of the Federal Reserve System
FHAFederal Housing Administration
FHLBFederal Home Loan Bank
FPRDFinal Program Review Determination
FRBFederal Reserve Bank of Philadelphia
GDPGross domestic product
GNMAGovernment National Mortgage Association
Higher OneHigher One Holdings, Inc.
HTMHeld to maturity
IRSInternal Revenue Service
LIBORLondon Interbank Offered Rate
LPOLimited Purpose Office
MFACMegalith Financial Acquisition Corp.
MMDAMoney market deposit accounts
NIMNet interest margin, tax equivalent
NMNot meaningful
NPLNon-performing loan
NYSENew York Stock Exchange
OCIOther comprehensive income
OREOOther real estate owned
PCDPurchased Credit-Deteriorated
PCIPurchased Credit-Impaired
3

PPPPaycheck Protection Program
PPPLFFRB Paycheck Protection Program Liquidity Facility
Rate ShocksInterest rates rising or falling immediately
ROURight-of-use
SBASmall Business Administration
SBA loansLoans originated pursuant to the rules and regulations of the SBA
SECU.S. Securities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
Series C Preferred StockFixed-to-floating rate non-cumulative perpetual preferred stock, series C
Series D Preferred StockFixed-to-floating rate non-cumulative perpetual preferred stock, series D
Series E Preferred StockFixed-to-floating rate non-cumulative perpetual preferred stock, series E
Series F Preferred StockFixed-to-floating rate non-cumulative perpetual preferred stock, series F
TDRTroubled debt restructuring
TRACTerminal Rental Adjustment Clause
UCCUniform Commercial Code
U.S. GAAPAccounting principles generally accepted in the United States of America


4

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET — UNAUDITED
(amounts in thousands, except share and per share data)
June 30,
2021
December 31,
2020
ASSETS
Cash and due from banks$36,837 $78,090 
Interest earning deposits393,663 615,264 
Cash and cash equivalents430,500 693,354 
Investment securities, at fair value1,526,792 1,210,285 
Loans held for sale (includes $6,074 and $5,509, respectively, at fair value)34,540 79,086 
Loans receivable, mortgage warehouse, at fair value2,855,284 3,616,432 
Loans receivable, PPP6,305,056 4,561,365 
Loans and leases receivable7,772,142 7,575,368 
Allowance for credit losses on loans and leases(125,436)(144,176)
Total loans and leases receivable, net of allowance for credit losses on loans and leases16,807,046 15,608,989 
FHLB, Federal Reserve Bank, and other restricted stock39,895 71,368 
Accrued interest receivable90,009 80,412 
Bank premises and equipment, net10,391 11,225 
Bank-owned life insurance329,421 280,067 
Goodwill and other intangibles3,853 3,969 
Other assets362,661 338,438 
Assets of discontinued operations62,055 
Total assets$19,635,108 $18,439,248 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing$2,699,869 $2,356,998 
Interest bearing11,174,070 8,952,931 
Total deposits13,873,939 11,309,929 
Federal funds purchased250,000 
FHLB advances850,000 
Other borrowings124,240 124,037 
Subordinated debt181,534 181,394 
FRB PPP liquidity facility3,865,865 4,415,016 
Accrued interest payable and other liabilities338,801 152,082 
Liabilities of discontinued operations39,704 
Total liabilities18,384,379 17,322,162 
Commitments and contingencies (NOTE 14)00
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, 2021 and December 31, 2020
217,471 217,471 
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 33,633,875 and 32,985,707 shares issued as of June 30, 2021 and December 31, 2020; 32,353,256 and 31,705,088 shares outstanding as of June 30, 2021 and December 31, 202033,634 32,986 
Additional paid in capital519,294 455,592 
Retained earnings496,844 438,581 
Accumulated other comprehensive income (loss), net5,266 (5,764)
Treasury stock, at cost (1,280,619 shares as of June 30, 2021 and December 31, 2020)(21,780)(21,780)
Total shareholders’ equity1,250,729 1,117,086 
Total liabilities and shareholders’ equity$19,635,108 $18,439,248 
See accompanying notes to the unaudited consolidated financial statements.
5

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) — UNAUDITED
(amounts in thousands, except per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Interest income:
Loans and leases$153,608 $118,447 $305,725 $234,527 
Investment securities8,327 6,155 16,306 11,132 
Other946 616 1,965 4,902 
Total interest income162,881 125,218 323,996 250,561 
Interest expense:
Deposits15,653 23,238 31,311 57,591 
FHLB advances963 4,736 6,155 10,127 
Subordinated debt2,689 2,689 5,378 5,378 
FRB PPP liquidity facility, federal funds purchased and other borrowings4,819 2,573 9,664 4,163 
Total interest expense24,124 33,236 52,508 77,259 
Net interest income138,757 91,982 271,488 173,302 
Provision for credit losses on loans and leases3,291 20,946 372 52,732 
Net interest income after provision for credit losses on loans and leases135,466 71,036 271,116 120,570 
Non-interest income:
Interchange and card revenue84 193 169 463 
Deposit fees891 502 1,754 1,054 
Commercial lease income5,311 4,508 10,516 8,776 
Bank-owned life insurance2,765 1,757 4,444 3,519 
Mortgage warehouse transactional fees3,265 2,582 7,512 4,533 
Gain (loss) on sale of SBA and other loans1,900 23 3,475 34 
Mortgage banking income386 38 849 334 
Gain (loss) on sale of investment securities1,812 4,353 25,378 8,328 
Unrealized gain (loss) on investment securities1,746 1,200 2,720 (178)
Loss on sale of foreign subsidiaries(2,840)(2,840)
Unrealized gain (loss) on derivatives(439)(4,158)2,098 (5,304)
Loss on cash flow hedge derivative terminations(24,467)
Other1,941 713 3,682 1,312 
Total non-interest income16,822 11,711 35,290 22,871 
Non-interest expense:
Salaries and employee benefits28,023 23,192 51,994 43,716 
Technology, communication and bank operations19,618 11,103 39,606 21,642 
Professional services8,234 2,974 14,523 6,519 
Occupancy2,482 2,639 5,103 5,252 
Commercial lease depreciation4,415 3,643 8,706 7,070 
FDIC assessments, non-income taxes and regulatory fees2,602 2,368 5,321 5,235 
Merger and acquisition related expenses418 
Loan workout102 1,808 (159)2,175 
Advertising and promotion313 372 874 1,795 
Other5,034 1,692 6,364 5,354 
Total non-interest expense70,823 49,791 132,750 98,758 
Income before income tax expense81,465 32,956 173,656 44,683 
Income tax expense20,124 7,980 37,684 11,254 
Net income from continuing operations$61,341 $24,976 $135,972 $33,429 
(continued)
6

Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Loss from discontinued operations before income taxes$$(3,190)$(20,354)$(9,911)
Income tax expense (benefit) from discontinued operations(932)17,682 (2,299)
Net loss from discontinued operations(2,258)(38,036)(7,612)
Net income61,341 22,718 97,936 25,817 
Preferred stock dividends3,299 3,581 6,690 7,196 
Net income available to common shareholders$58,042 $19,137 $91,246 $18,621 
Basic earnings per common share from continuing operations$1.80 $0.68 $4.03 $0.83 
Basic earnings per common share1.80 0.61 2.84 0.59 
Diluted earnings per common share from continuing operations1.72 0.68 3.88 0.83 
Diluted earnings per common share1.72 0.61 2.74 0.59 
See accompanying notes to the unaudited consolidated financial statements.
7

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,
 2021202020212020
Net income$61,341 $22,718 $97,936 $25,817 
Unrealized gains (losses) on available for sale debt securities:
Unrealized gains (losses) arising during the period592 35,315 992 26,217 
Income tax effect(154)(9,182)(258)(6,816)
Reclassification adjustments for (gains) losses included in net income(1,812)(4,353)(25,378)(8,328)
Income tax effect471 1,131 6,598 2,165 
Net unrealized gains (losses) on available for sale debt securities(903)22,911 (18,046)13,238 
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period(6,369)12,321 (34,066)
Income tax effect(2)1,684 (3,204)9,035 
Reclassification adjustment for (gains) losses included in net income1,046 2,718 26,972 4,196 
Income tax effect(272)(734)(7,013)(1,118)
Net unrealized gains (losses) on cash flow hedges778 (2,701)29,076 (21,953)
Other comprehensive income (loss), net of income tax effect(125)20,210 11,030 (8,715)
Comprehensive income (loss)$61,216 $42,928 $108,966 $17,102 
See accompanying notes to the unaudited consolidated financial statements.
8

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, 2021
Preferred StockCommon 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, 20219,000,000 $217,471 32,238,762 $33,519 $515,318 $438,802 $5,391 $(21,780)$1,188,721 
Net income— — — — — 61,341 — — 61,341 
Other comprehensive income (loss)— — — — — — (125)— (125)
Preferred stock dividends (1)
— — — — — (3,299)— — (3,299)
Share-based compensation expense— — — — 4,264 — — — 4,264 
Issuance of common stock under share-based compensation arrangements— — 114,494 115 (288)— — — (173)
Balance, June 30, 20219,000,000 $217,471 32,353,256 $33,634 $519,294 $496,844 $5,266 $(21,780)$1,250,729 
Three Months Ended June 30, 2020
Preferred StockCommon Stock
Shares of
Preferred
Stock
Outstanding
Preferred StockShares of
Common
Stock
Outstanding
Common
Stock
Additional
Paid in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Balance, March 31, 20209,000,000 $217,471 31,470,026 $32,751 $446,840 $319,529 $(30,175)$(21,780)$964,636 
Net income— — — — — 22,718 — — 22,718 
Other comprehensive income (loss)— — — — — — 20,210 — 20,210 
Preferred stock dividends(1)
— — — — — (3,581)— — (3,581)
Share-based compensation expense— — — — 3,599 — — — 3,599 
Issuance of common stock under share-based compensation arrangements— — 40,261 40 225 — — — 265 
Balance, June 30, 20209,000,000 $217,471 31,510,287 $32,791 $450,665 $338,665 $(9,965)$(21,780)$1,007,847 
(1)Dividends per share of $0.350359, $0.336942, $0.403125, and $0.375 per share were declared on Series C, D, E, and F preferred stock for the three months ended June 30, 2021. Dividends per share of $0.4375, $0.40625, $0.403125, and $0.375 per share were declared on Series C, D, E, and F preferred stock for the three months ended June 30, 2020.
9

Six Months Ended June 30, 2021
Preferred StockCommon Stock
Shares of Preferred Stock OutstandingPreferred StockShares of Common Stock OutstandingCommon StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance, December 31, 20209,000,000 $217,471 31,705,088 $32,986 $455,592 $438,581 $(5,764)$(21,780)$1,117,086 
Net income— — — — — 97,936 — — 97,936 
Other comprehensive income (loss)— — — — — — 11,030 — 11,030 
Preferred stock dividends(1)
— — — — — (6,690)— — (6,690)
Sale of non-controlling interest in BMT (2)
— — — — 31,893 — — — 31,893 
Distribution of investment in BM Technologies (3)
— — — — — (32,983)— — (32,983)
Restricted stock awards to certain BMT team members (4)
— — — — 19,592 — — — 19,592 
Share-based compensation expense— — — — 7,873 — — — 7,873 
Issuance of common stock under share-based compensation arrangements— — 648,168 648 4,344 — — — 4,992 
Balance, June 30, 20219,000,000 $217,471 32,353,256 $33,634 $519,294 $496,844 $5,266 $(21,780)$1,250,729 
Six Months Ended June 30, 2020
Preferred StockCommon Stock
Shares of Preferred Stock OutstandingPreferred StockShares of Common Stock OutstandingCommon StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance, December 31, 20199,000,000 $217,471 31,336,791 $32,617 $444,218 $381,519 $(1,250)$(21,780)$1,052,795 
Cumulative effect of change in accounting principle - CECL— — — — — (61,475)— — (61,475)
Net income— — — — — 25,817 — — 25,817 
Other comprehensive income (loss)— — — — — — (8,715)— (8,715)
Preferred stock dividends(1)
— — — — — (7,196)— (7,196)
Share-based compensation expense— — — — 6,827 — — — 6,827 
Issuance of common stock under share-based compensation arrangements— — 173,496 174 (380)— — — (206)
Balance, June 30, 20209,000,000 $217,471 31,510,287 $32,791 $450,665 $338,665 $(9,965)$(21,780)$1,007,847 
(1)Dividends per share of $0.69514, $0.743192, $0.806250, and $0.750 per share were declared on Series C, D, E, and F preferred stock for the six months ended June 30, 2021. Dividends per share of $0.8750, $0.81250, $0.806250, and $0.750 per share were declared on Series C, D, E, and F preferred stock for the six months ended June 30, 2020.
(2)Refer to NOTE 3 – DISCONTINUED OPERATIONS for additional information about the sale of non-controlling interest in BMT including the reverse recapitalization of MFAC.
(3)Immediately after the closing of the BMT divestiture, Customers distributed all of its remaining investment in BM Technologies' common stock to its shareholders as special dividends, equivalent to 0.15389 of BM Technologies common stock for each share of Customers common stock. Refer to NOTE 3 – DISCONTINUED OPERATIONS.
(4)At the closing of the BMT divestiture, certain team members of BMT received restricted stock awards in BM Technologies' common stock. Refer to NOTE 3 – DISCONTINUED OPERATIONS.

See accompanying notes to the unaudited consolidated financial statements.
10

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(amounts in thousands)
 Six Months Ended
June 30,
 20212020
Cash Flows from Operating Activities
Net income from continuing operations$135,972 $33,429 
Adjustments to reconcile net income to net cash provided by continuing operating activities:
Provision (benefit) for credit losses on loans and leases372 52,732 
Depreciation and amortization10,735 14,319 
Share-based compensation expense7,645 7,278 
Deferred taxes3,494 (28,104)
Net amortization (accretion) of investment securities premiums and discounts449 (364)
Unrealized (gain) loss on investment securities(2,720)178 
(Gain) loss on sale of investment securities(25,378)(8,328)
Loss on sale of foreign subsidiaries2,840 
Unrealized (gain) loss on derivatives(2,098)5,304 
Loss on cash flow hedge derivative terminations24,467 
Settlement of terminated cash flow hedge derivatives(27,156)
(Gain) loss on sale of leased assets under lessor operating leases132 
Fair value adjustment on loans held for sale(1,115)1,450 
(Gain) loss on sale of SBA and other loans(4,256)(426)
Origination of loans held for sale(28,894)(22,730)
Proceeds from the sale of loans held for sale29,110 21,745 
Amortization (accretion) of fair value discounts and premiums(771)(1,137)
Earnings on investment in bank-owned life insurance(4,444)(3,519)
(Increase) decrease in accrued interest receivable and other assets55,839 (113,857)
Increase (decrease) in accrued interest payable and other liabilities115,102 81,835 
Net Cash Provided By Continuing Operating Activities289,325 39,805 
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of investment securities172,750 78,485 
Proceed from sales of foreign subsidiaries3,765 
Proceeds from sales of investment securities available for sale407,587 109,207 
Purchases of investment securities available for sale(890,186)(280,410)
Origination of mortgage warehouse loans(31,399,228)(23,573,962)
Proceeds from repayments of mortgage warehouse loans32,162,462 23,033,058 
Net (increase) decrease in loans and leases, excluding mortgage warehouse loans(1,304,356)(4,515,097)
Proceeds from sales of loans and leases130,501 
Purchase of loans(737,336)(211,096)
Purchases of bank-owned life insurance(46,462)
Proceeds from bank-owned life insurance1,999 
Net proceeds from sale of (purchases of) FHLB, Federal Reserve Bank, and other restricted stock31,473 (6,809)
Purchases of bank premises and equipment(312)(165)
Proceeds from sales of other real estate owned45 77 
Proceeds from sales of leased assets under lessor operating leases6,106 
Purchases of leased assets under lessor operating leases(8,625)(9,011)
Net Cash Used In Continuing Investing Activities(1,469,817)(5,375,723)
Cash Flows from Financing Activities
Net increase in deposits2,564,010 2,316,939 
Net increase (decrease) in short-term borrowed funds from the FHLB(850,000)
Net increase (decrease) in federal funds purchased(250,000)(538,000)
Net increase (decrease) in borrowed funds from FRB PPP liquidity facility(549,151)4,419,967 
Preferred stock dividends paid(6,746)(7,229)
Payments of employee taxes withheld from share-based awards(2,294)(1,067)
Proceeds from issuance of common stock7,815 410 
Proceeds from sale of non-controlling interest in BMT26,795 
Net Cash Provided By Continuing Financing Activities940,429 6,191,020 
Net Increase (Decrease) in Cash and Cash Equivalents From Continuing Operations$(240,063)$855,102 
(continued)
Six Months Ended
June 30,
20212020
Discontinued Operations:
Net Cash Used In Operating Activities$(22,791)$(329)
Net Cash Provided By Investing Activities52 
Net Increase (Decrease) in Cash and Cash Equivalents From Discontinued Operations(22,791)(277)
Net Increase (Decrease) in Cash and Cash Equivalents(262,854)854,825 
Cash and Cash Equivalents – Beginning693,354 212,505 
Cash and Cash Equivalents – Ending$430,500 $1,067,330 
Non-cash Operating and Investing Activities:
Transfer of loans to other real estate owned$$31 
Distribution of investment in BM Technologies common stock32,983 
Transfer of loans held for investment to held for sale27,824 19,050 
Transfer of loans held for sale to held for investment55,684 
Unsettled sales of investment securities33,615 
Unsettled purchases of investment securities10,000 
See accompanying notes to the unaudited consolidated financial statements.
11

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF THE BUSINESS
Customers Bancorp, Inc. (“Customers Bancorp”) is a bank holding company engaged in banking activities through its wholly owned subsidiary, Customers Bank ("the Bank”), collectively referred to as “Customers” herein.
Customers Bancorp and its wholly owned subsidiaries, the Bank, and non-bank subsidiaries, serve residents and businesses in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Rye Brook, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan and Melville, New York; Washington, D.C.; Chicago, Illinois; Dallas, Texas; Orlando, Florida; and nationally for certain loan and deposit products. The Bank has 12 full-service branches and provides commercial banking products, primarily loans and deposits. In addition, Customers Bank also administratively supports loan and other financial products, including equipment finance leases, to customers through its limited-purpose offices in Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire; Manhattan and Melville, New York; Philadelphia and Lancaster, Pennsylvania; Chicago, Illinois; Dallas, Texas and Orlando, Florida. The Bank also serves specialty niche businesses nationwide, including its commercial loans to mortgage banking businesses, commercial equipment financing, SBA lending, specialty lending and consumer loans through relationships with fintech companies.
The Bank is subject to regulation of the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank and is periodically examined by those regulatory authorities. Customers Bancorp made certain equity investments through its wholly owned subsidiaries CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd., which were sold in June 2021. See NOTE 6 – INVESTMENT SECURITIES for additional information.
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of Presentation
The interim unaudited consolidated financial statements have been prepared in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC. These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Customers Bancorp and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted from these interim unaudited consolidated financial statements as permitted by SEC rules and regulations. The December 31, 2020 consolidated balance sheet presented in this report has been derived from Customers Bancorp’s audited 2020 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2020 consolidated financial statements of Customers Bancorp and subsidiaries included in Customers' Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021 (the "2020 Form 10-K"). The 2020 Form 10-K describes Customers Bancorp’s significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Restrictions on Cash and Amounts due from Banks; Business Combinations; Investment Securities; Loan Accounting Framework; Loans Held for Sale and Loans at Fair Value; Loans Receivable - Mortgage Warehouse, at Fair Value; Loans Receivable, PPP; Loans and Leases Receivable; PCD Loans and Leases; ACL; Goodwill and Other Intangible Assets; FHLB, Federal Reserve Bank, and Other Restricted Stock; OREO; BOLI; Bank Premises and Equipment; Lessor and Lessee Operating Leases; Treasury Stock; Income Taxes; Share-Based Compensation; Transfer of Financial Assets; Derivative Instruments and Hedging; Comprehensive Income (Loss); EPS; and Loss Contingencies. There have been no material changes to Customers Bancorp's significant accounting policies noted above for the three and six months ended June 30, 2021.
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On January 4, 2021, Customers Bancorp completed the previously announced divestiture of BankMobile Technologies, Inc., the technology arm of its BankMobile segment, to MFAC Merger Sub Inc., an indirect wholly-owned subsidiary of MFAC, pursuant to an Agreement and Plan of Merger, dated August 6, 2020, by and among MFAC, MFAC Merger Sub Inc., BMT, Customers Bank, the sole stockholder of BMT, and Customers Bancorp, the parent bank holding company of Customers Bank (as amended on November 2, 2020 and December 8, 2020). Following the completion of the divestiture of BMT, BankMobile's serviced deposits and loans and the related net interest income have been combined with Customers’ financial condition and the results of operations as a single reportable segment. BMT's historical financial results for periods prior to the divestiture are reflected in Customers’ consolidated financial statements as discontinued operations. The assets and liabilities of BMT have been presented as "Assets of discontinued operations" and "Liabilities of discontinued operations" on the consolidated balance sheet at December 31, 2020. BMT's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying consolidated financial statements and prior period amounts have been reclassified to conform with the current period presentation. See NOTE 3 – DISCONTINUED OPERATIONS for additional information.
Accounting and Reporting Considerations related to COVID-19
On March 27, 2020, the CARES Act was signed into law and contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic and stimulate the economy. The CARES Act includes the SBA's PPP designed to aid small-and medium-sized businesses through federally guaranteed loans distributed through banks. Customers is a participant in the PPP. Section 4013 of the CARES Act also gives entities temporary relief from the accounting and disclosure requirements for TDRs under ASC 310-40 in certain situations. On December 27, 2020, the CAA was signed into law, which extended and expanded various relief provisions of the CARES Act.
Accounting for PPP Loans
In April 2020, Customers began originating loans to qualified small businesses under the PPP administered by the SBA. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and terms of two or five years, if not forgiven, in whole or in part. Payments are deferred for the first six months of the loan. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5% based on the size of the loan. On December 27, 2020, the CAA was signed into law, including Division N, Title III, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, which provides $284 billion in additional funding for the SBA's PPP for small businesses affected by the COVID-19 pandemic. On March 11, 2021, the American Rescue Plan Act of 2021 was enacted expanding eligibility for first and second round of PPP loans and revising the exclusions from payroll costs for purposes of loan forgiveness. The second round of PPP loans have the same general loan terms as the first round, and a processing fee of up to $2,500 per loan of less than $50,000, and 1% to 3% for loans greater than $50,000. Customers classified the PPP loans as held for investment and these loans are carried at amortized cost and interest income is recognized using the interest method. The origination fees, net of direct origination costs, are deferred and recognized as an adjustment to the yield of the related loans over their contractual life using the interest method. As PPP is newly created, Customers does not have historical prepayment data to accurately estimate principal prepayments and therefore has elected to not estimate prepayments as a policy election. No ACL has been recognized for PPP loans as these loans are 100% guaranteed by the SBA. See NOTE 8 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES for additional information.
Loan Modifications
As mentioned above, Section 4013 of the CARES Act, as amended by the CAA, gives entities temporary relief from the accounting and disclosure requirements for TDRs. In addition, on April 7, 2020, certain regulatory banking agencies issued an interagency statement that offers practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic are TDRs. To qualify for TDR accounting and disclosure relief under the CARES Act, as amended by the CAA, the applicable loan must not have been more than 30 days past due as of December 31, 2019, and the modification must be executed during the period beginning on March 1, 2020, and ending on the earlier of January 1, 2022, or the date that is 60 days after the termination date of the national emergency declared by the president on March 13, 2020, under the National Emergencies Act related to the outbreak of COVID-19. The CARES Act applies to modifications made as a result of COVID-19 including: forbearance agreements, interest rate modifications, repayment plans, and other arrangements to defer or delay payment of principal or interest. The interagency statement does not require the modification to be completed within a certain time period if it is related to COVID-19 and can be provided to borrowers either individually or as part of a loan modification program. Moreover, the interagency statement applies to short-term modifications (e.g. not more than six months deferral) including payment deferrals, fee waivers, extensions of repayment terms, or other insignificant payment delays as a result of COVID-19.
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Customers applied Section 4013 of the CARES Act and the interagency statement in connection with applicable modifications. For modifications that qualify under either the CARES Act or the interagency statement, TDR accounting and reporting is suspended. These modifications generally involve principal and/or interest payment deferrals for a period of 90 days at a time and can be extended to six months or longer for modifications that qualified under the Section 4013 of the CARES Act if requested by the borrower as long as the reason is still related to COVID-19. These modified loans would not also be reported as past due or nonaccrual during the deferral period. See NOTE 8 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES for additional information.
Recently Issued Accounting Standards

Presented below are recently issued accounting standards that Customers has adopted.
StandardSummary of GuidanceEffects on Financial Statements
ASU 2020-04,
Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Issued March 2020
• Provides optional guidance for a limited period of time to ease the potential burden in accounting for (or derecognizing the effects of) reference rate reform on financial reporting. Specifically, the amendments provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These relate only to those contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.
• Effective as of March 12, 2020 and can be adopted anytime during the period of January 1, 2020 through December 31, 2022.
• Customers adopted this guidance during adoption period for certain optional expedients.
• The adoption of this guidance did not have a material impact on Customers' financial condition, results of operations and consolidated financial statements.
• As of June 30, 2021, Customers has not yet elected to apply optional expedients for
certain contract modifications. However, we plan to elect additional optional expedients in the future, which are not expected to have a material impact on Customers' financial condition, results of operations and consolidated financial statements.
ASU 2021-01,
Reference Rate Reform (Topic 848) - Scope

Issued January 2021
• Clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition, including derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.
• Effective as of March 12, 2020 and can be adopted anytime during the period of January 1, 2020 through December 31, 2022.
• Customers adopted this guidance during adoption period for certain optional expedients.
• The adoption of this guidance did not have a material impact on Customers' financial condition, results of operations and consolidated financial statements.
• As of June 30, 2021, Customers has not yet elected to apply optional expedients for
certain contract modifications. We plan to elect additional optional expedients in the future, which are not expected to have a material impact on Customers' financial condition, results of operations and consolidated financial statements.
NOTE 3 – DISCONTINUED OPERATIONS
On January 4, 2021, Customers Bancorp completed the previously announced divestiture of BMT, the technology arm of its BankMobile segment, to MFAC Merger Sub Inc., an indirect wholly-owned subsidiary of MFAC, pursuant to an Agreement and Plan of Merger, dated August 6, 2020, by and among MFAC, MFAC Merger Sub Inc., BMT, Customers Bank, the sole stockholder of BMT, and Customers Bancorp, the parent bank holding company for Customers Bank (as amended on November 2, 2020 and December 8, 2020). Following the completion of the divestiture of BMT, BankMobile's serviced deposits and loans and the related net interest income have been combined with Customers' financial condition and the results of operations as a single reportable segment.
Customers received cash consideration of $23.1 million upon closing of the divestiture and $3.7 million of additional cash consideration in May 2021. Upon closing of the divestiture, the holders of Customers Bancorp's common stock who held their shares as of the close of business on December 18, 2020 became entitled to receive an aggregate of 4,876,387 shares of BM Technologies' common stock. Customers distributed 0.15389 shares of BM Technologies common stock for each share of Customers Bancorp's common stock held as of the close of business on December 18, 2020 as special dividends. Certain team members of BMT also received 1,348,748 restricted shares of BM Technologies' common stock in the form of severance payments. The total stock consideration from the divestiture that were distributed to holders of Customers Bancorp's common stock and certain BMT team members represented 52% of the outstanding common stock of BM Technologies at the closing date of the divestiture.
The sale of BMT was accounted for as a sale of non-controlling interest and the merger between BMT and MFAC was accounted for as a reverse recapitalization as BMT was considered to be the accounting acquirer. Upon closing of the transaction, Customers had no remaining investment in BM Technologies.
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BMT's historical financial results for periods prior to the divestiture are reflected in Customers Bancorp’s consolidated financial statements as discontinued operations. The assets and liabilities of BMT have been presented as "Assets of discontinued operations" and "Liabilities of discontinued operations" on the consolidated balance sheet at December 31, 2020. BMT's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying consolidated financial statements and prior period amounts have been reclassified to conform with the current period presentation.
The following summarized financial information related to BMT has been segregated from continuing operations and reported as discontinued operations for the periods presented.
Three Months Ended
June 30,
Six Months Ended
June 30,
(amounts in thousands)2021202020212020
Discontinued operations:
Non-interest income$$16,254 $$32,327 
Non-interest expense19,444 20,354 42,238 
Loss from discontinued operations before income taxes(3,190)(20,354)(9,911)
Income tax expense (benefit)(932)17,682 (2,299)
Net loss from discontinued operations$$(2,258)$(38,036)$(7,612)
The assets and liabilities of discontinued operations on the consolidated balance sheet as of December 31, 2020 were as follows:
(amounts in thousands)December 31,
2020
Carrying amounts of assets included as part of discontinued operations:
Cash and cash equivalents$2,989 
Premises and equipment, net401 
Goodwill and other intangibles10,329 
Other assets48,336 
Total assets of discontinued operations$62,055 
Carrying amounts of liabilities included as part of discontinued operations:
Borrowings from Customers Bank$21,000 
Accrued interest payable and other liabilities18,704 
Total liabilities of discontinued operations$39,704 
In connection with the divestiture, Customers has also entered into various agreements with BM Technologies, including a transition services agreement, software license agreement, deposit servicing agreement, non-competition agreement and loan agreement for periods ranging from one to ten years. Customers incurred expenses of $14.3 million and $27.9 million, respectively, to BM Technologies under the deposit servicing agreement, included within the technology, communication and bank operations expense in income from continuing operations during the three and six months ended June 30, 2021.

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NOTE 4 — EARNINGS (LOSS) PER SHARE
The following are the components and results of Customers' earnings (loss) per common share calculations for the periods presented.
 Three Months Ended
June 30,
Six Months Ended
June 30,
(amounts in thousands, except share and per share data)2021202020212020
Net income from continuing operations available to common shareholders$58,042 $21,395 $129,282 $26,233 
Net loss from discontinued operations(2,258)(38,036)(7,612)
Net income available to common shareholders$58,042 $19,137 $91,246 $18,621 
Weighted-average number of common shares outstanding – basic32,279,625 31,477,591 32,082,878 31,434,371 
Share-based compensation plans1,461,843 148,180 1,211,197 191,298 
Weighted-average number of common shares – diluted33,741,468 31,625,771 33,294,075 31,625,669 
Basic earnings (loss) per common share from continuing operations$1.80 $0.68 $4.03 $0.83 
Basic earnings (loss) per common share from discontinued operations(0.07)(1.19)(0.24)
Basic earnings (loss) per common share1.80 0.61 2.84 0.59 
Diluted earnings (loss) per common share from continuing operations$1.72 $0.68 $3.88 $0.83 
Diluted earnings (loss) per common share from discontinued operations(0.07)(1.14)(0.24)
Diluted earnings (loss) per common share1.72 0.61 2.74 0.59 
The following are securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because either the performance conditions for certain of the share-based compensation awards have not been met or to do so would have been anti-dilutive for the periods presented.
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Share-based compensation awards711,000 3,813,959 463,145 3,674,506 

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NOTE 5 — 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, 2021 and 2020. Amounts in parentheses indicate reductions to AOCI.
 Three Months Ended June 30, 2021
(amounts in thousands)
Unrealized Gains (Losses) on Available for Sale Securities (1)
Unrealized Gains (Losses) on Cash Flow Hedges (2)
Total
Balance - March 31, 2021$6,169 $(778)$5,391 
Unrealized gains (losses) arising during period, before tax592 598 
Income tax effect(154)(2)(156)
Other comprehensive income (loss) before reclassifications438 442 
Reclassification adjustments for (gains) losses included in net income, before tax(1,812)1,046 (766)
Income tax effect471 (272)199 
Amounts reclassified from accumulated other comprehensive income (loss) to net income(1,341)774 (567)
Net current-period other comprehensive income (loss)(903)778 (125)
Balance - June 30, 2021$5,266 $$5,266 
Three Months Ended June 30, 2020
(amounts in thousands)
Unrealized Gains (Losses) on Available for Sale Securities (1)
Unrealized Gains (Losses) on Cash Flow Hedges (2)
Total
Balance - March 31, 2020$4,614 $(34,789)$(30,175)
Unrealized gains (losses) arising during period, before tax35,315 (6,369)28,946 
Income tax effect(9,182)1,684 (7,498)
Other comprehensive income (loss) before reclassifications26,133 (4,685)21,448 
Reclassification adjustments for (gains) losses included in net income, before tax(4,353)2,718 (1,635)
Income tax effect1,131 (734)397 
Amounts reclassified from accumulated other comprehensive income (loss) to net income(3,222)1,984 (1,238)
Net current-period other comprehensive income (loss)22,911 (2,701)20,210 
Balance - June 30, 2020$27,525 $(37,490)$(9,965)
(1)Reclassification amounts for AFS debt securities are reported as gain or loss on sale of investment securities on the consolidated statements of income.
(2)Reclassification amounts for cash flow hedges are reported as interest expense for the applicable hedged items or loss on cash flow hedge derivative terminations on the consolidated statements of income.
 Six Months Ended June 30, 2021
(amounts in thousands)
Unrealized Gains (Losses) Available for Sale Securities (1)
Unrealized 
Gains (Losses) on Cash Flow  Hedges (2)
Total
Balance - December 31, 2020$23,312 $(29,076)$(5,764)
Unrealized gains (losses) arising during period, before tax992 12,321 13,313 
Income tax effect(258)(3,204)(3,462)
Other comprehensive income (loss) before reclassifications734 9,117 9,851 
Reclassification adjustments for (gains) losses included in net income, before tax(25,378)26,972 1,594 
Income tax effect6,598 (7,013)(415)
Amounts reclassified from accumulated other comprehensive income (loss) to net income(18,780)19,959 1,179 
Net current-period other comprehensive income (loss)(18,046)29,076 11,030 
Balance - June 30, 2021$5,266 $$5,266 

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Six Months Ended June 30, 2020
(amounts in thousands)
Unrealized Gains (Losses) on Available for Sale Securities (1)
Unrealized
Gains (Losses) on Cash Flow Hedges (2)
Total
Balance - December 31, 2019$14,287 $(15,537)$(1,250)
Unrealized gains (losses) arising during period, before tax26,217 (34,066)(7,849)
Income tax effect(6,816)9,035 2,219 
Other comprehensive income (loss) before reclassifications19,401 (25,031)(5,630)
Reclassification adjustments for (gains) losses included in net income, before tax(8,328)4,196 (4,132)
Income tax effect2,165 (1,118)1,047 
Amounts reclassified from accumulated other comprehensive income (loss) to net income(6,163)3,078 (3,085)
Net current-period other comprehensive income13,238 (21,953)(8,715)
Balance - June 30, 2020$27,525 $(37,490)$(9,965)
(1)Reclassification amounts for AFS debt securities are reported as gain or loss on sale of investment securities on the consolidated statements of income.
(2)Reclassification amounts for cash flow hedges are reported as interest expense for the applicable hedged items or loss on cash flow hedge derivative terminations on the consolidated statements of income.
NOTE 6 — INVESTMENT SECURITIES
The amortized cost and fair value of investment securities as of June 30, 2021 and December 31, 2020 are summarized in the tables below:
 
June 30, 2021 (1)
(amounts in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Available for sale debt securities:
Asset-backed securities$319,682 $3,649 $(377)$322,954 
U.S. government agencies securities20,000 114 20,114 
Agency-guaranteed residential mortgage-backed securities10,620 (265)10,355 
Agency-guaranteed commercial mortgage-backed securities2,206 (1)2,205 
Agency-guaranteed residential collateralized mortgage obligations81,007 813 (62)81,758 
Agency-guaranteed commercial collateralized mortgage obligations144,593 (1,752)142,841 
Collateralized loan obligations162,960 148 (181)162,927 
Commercial mortgage-backed securities23,054 33 23,087 
Corporate notes (2)
345,909 4,974 (462)350,421 
Private label collateralized mortgage obligations401,949 922 (1,295)401,576 
State and political subdivision debt securities (3)
8,543 11 8,554 
Available for sale debt securities$1,520,523 $10,664 $(4,395)$1,526,792 
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December 31, 2020 (1)
(amounts in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Available for sale debt securities:
Asset-backed securities$372,640 $4,515 $(10)$377,145 
U.S. government agencies securities20,000 34 20,034 
Agency-guaranteed residential mortgage-backed securities61,178 1,913 63,091 
Agency-guaranteed residential collateralized mortgage obligations139,985 916 (60)140,841 
Agency-guaranteed commercial collateralized mortgage obligations20,965 (39)20,926 
Collateralized loan obligations32,367 32,367 
Corporate notes (2)
372,764 24,144 (164)396,744 
Private label collateralized mortgage obligations136,943 423 (374)136,992 
State and political subdivision debt securities (3)
17,346 945 18,291 
Available for sale debt securities$1,174,188 $32,890 $(647)1,206,431 
Equity securities (4)
3,854 
Total investment securities, at fair value$1,210,285 
(1)Accrued interest on AFS debt securities totaled $5.0 million and $4.2 million at June 30, 2021 and December 31, 2020, respectively, and is included in accrued interest receivable on the consolidated balance sheet.
(2)Includes corporate securities issued by domestic bank holding companies.
(3)Includes both taxable and non-taxable municipal securities.
(4)Includes equity securities issued by a foreign entity.

During the three and six months ended June 30, 2021, Customers recognized unrealized gains of $1.7 million and $2.7 million, respectively, on its equity securities. During the three and six months ended June 30, 2020, Customers recognized unrealized gains of $1.2 million and unrealized losses of $0.2 million, respectively, on its equity securities. These unrealized gains and losses are reported as unrealized gain (loss) on investment securities within non-interest income on the consolidated statements of income. In June 2021, Customers sold all of the outstanding shares in CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd., which held the equity securities issued by a foreign entity, for $3.8 million, and recognized $2.8 million in loss on sale of foreign subsidiaries within non-interest income on the consolidated statement of income.
Proceeds from the sale of AFS securities were $53.7 million and $407.6 million for the three and six months ended June 30, 2021, respectively. Proceeds from the sale of AFS securities were $109.2 million during the three and six months ended June 30, 2020. Realized gains from the sale of AFS debt securities were $1.8 million and $25.4 million for the three and six months ended June 30, 2021, respectively. Realized gains from the sale of AFS debt securities were $4.4 million and $8.3 million for the three and six months ended June 30, 2020, respectively. These gains (losses) were determined using the specific identification method and were reported as gain (loss) on sale of investment securities within non-interest income on the consolidated statements of income.

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The following table shows debt securities by stated maturity. Debt securities backed by mortgages and other assets 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, 2021
(amounts in thousands)Amortized
Cost
Fair
Value
Due in one year or less$4,901 $5,032 
Due after one year through five years211,508 212,586 
Due after five years through ten years154,043 157,219 
Due after ten years4,000 4,252 
Asset-backed securities319,682 322,954 
Collateralized loan obligations162,960 162,927 
Commercial mortgage-backed securities23,054 23,087 
Agency-guaranteed residential mortgage-backed securities10,620 10,355 
Agency-guaranteed commercial mortgage-backed securities2,206 2,205 
Agency-guaranteed residential collateralized mortgage obligations81,007 81,758 
Agency-guaranteed commercial collateralized mortgage obligations144,593 142,841 
Private label collateralized mortgage obligations401,949 401,576 
Total debt securities$1,520,523 $1,526,792 
Gross unrealized losses and fair value of Customers' AFS debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2021 were as follows:
 June 30, 2021
 Less Than 12 Months12 Months or MoreTotal
(amounts in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Available for sale debt securities:
Asset-backed securities$61,515 $(377)$$$61,515 $(377)
Agency-guaranteed residential mortgage-backed securities10,355 (265)10,355 (265)
Agency-guaranteed commercial mortgage-backed securities2,205 (1)2,205 (1)
Agency-guaranteed residential collateralized mortgage obligations18,158 (62)18,158 (62)
Agency-guaranteed commercial collateralized mortgage obligations142,841 (1,752)142,841 (1,752)
Collateralized loan obligations101,555 (181)101,555 (181)
Corporate notes67,230 (462)67,230 (462)
Private label collateralized mortgage obligations157,470 (1,295)157,470 (1,295)
Total$561,329 $(4,395)$$$561,329 $(4,395)
At June 30, 2021, there were 38 AFS debt securities with unrealized losses in the less-than-twelve-month category and 0 AFS debt securities with unrealized losses in the twelve-month-or-more category. The unrealized losses were principally due to changes in market interest rates that resulted in a negative impact on the respective securities' fair value. All amounts related to these securities are expected to be recovered when market prices recover or at maturity. Customers does not intend to sell any of the 38 securities, and it is not more likely than not that Customers will be required to sell any of the 38 securities before recovery of the amortized cost basis. At December 31, 2020, there were 16 AFS debt securities in an unrealized loss position.
At June 30, 2021 and December 31, 2020, Customers Bank had pledged investment securities aggregating $16.0 million and $18.8 million in fair value, respectively, as collateral primarily for an unused line of credit with another financial institution. These counterparties do not have the ability to sell or repledge these securities.
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At June 30, 2021 and December 31, 2020, no securities holding of any one issuer, other than the U.S. government and its agencies, amounted to greater than 10% of shareholders' equity.
NOTE 7 – LOANS HELD FOR SALE
The composition of loans held for sale as of June 30, 2021 and December 31, 2020 was as follows:
(amounts in thousands)June 30, 2021December 31, 2020
Commercial loans:
Commercial and industrial loans, at lower of cost or fair value$$55,683 
Commercial real estate non-owner occupied loans, at lower of cost or fair value17,251 
Total commercial loans held for sale72,934 
Consumer loans:
Home equity conversion mortgages, at lower of cost or fair value507 643 
Residential mortgage loans, at fair value6,074 5,509 
Installment loans, at lower of cost or fair value27,959 
Total consumer loans held for sale34,540 6,152 
Loans held for sale$34,540 $79,086 
Total loans held for sale as of June 30, 2021 and December 31, 2020 included NPLs of $0.5 million and $18.5 million, respectively.

NOTE 8 — LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
The following table presents loans and leases receivable as of June 30, 2021 and December 31, 2020.
(amounts in thousands)June 30, 2021December 31, 2020
Loans and leases receivable, mortgage warehouse, at fair value$2,855,284 $3,616,432 
Loans receivable, PPP6,305,056 4,561,365 
Loans receivable:
Commercial:
Multi-family1,497,485 1,761,301 
Commercial and industrial (1)
2,360,656 2,289,441 
Commercial real estate owner occupied653,649 572,338 
Commercial real estate non-owner occupied1,206,646 1,196,564 
Construction179,198 140,905 
Total commercial loans and leases receivable5,897,634 5,960,549 
Consumer:
Residential real estate266,911 317,170 
Manufactured housing57,904 62,243 
Installment1,549,693 1,235,406 
Total consumer loans receivable1,874,508 1,614,819 
Loans and leases receivable (2)
7,772,142 7,575,368 
Allowance for credit losses on loans and leases(125,436)(144,176)
Total loans and leases receivable, net of allowance for credit losses on loans and leases$16,807,046 $15,608,989 
(1)Includes direct finance equipment leases of $129.0 million and $108.0 million at June 30, 2021 and December 31, 2020, respectively.
(2)Includes deferred (fees) costs and unamortized (discounts) premiums, net of $(223.1) million and $(54.6) million at June 30, 2021 and December 31, 2020, respectively.
21

Customers' total loans and leases receivable portfolio includes loans receivable which are reported at fair value based on an election made to account for these loans at fair value and loans and leases receivable which are predominately reported at their outstanding unpaid principal balance, net of charge-offs and deferred costs and fees and unamortized premiums and discounts and are evaluated for impairment. The total amount of accrued interest recorded for total loans was $85.4 million and $76.6 million at June 30, 2021 and December 31, 2020, respectively, and is presented in accrued interest receivable in the consolidated balance sheet. At June 30, 2021 and December 31, 2020, there were $36.6 million and $59.5 million of individually evaluated loans that were collateral-dependent, respectively. Substantially all individually evaluated loans are collateral-dependent and consisted primarily of commercial and industrial, commercial real estate, and residential real estate loans. Collateral-dependent commercial and industrial loans were secured by accounts receivable, inventory and equipment; collateral-dependent commercial real estate loans were secured by commercial real estate assets; and residential real estate loans were secured by residential real estate assets.
Loans receivable, PPP
On March 27, 2020, the CARES Act was signed into law and created funding for a new product called the PPP. The PPP is administered by the SBA and is intended to assist organizations with payroll related expenses. Customers had $6.3 billion and $4.6 billion of PPP loans outstanding as of June 30, 2021 and December 31, 2020, respectively, which are fully guaranteed by the SBA and earn a fixed interest rate of 1.00%. Customers recognized interest income, including origination fees, of $41.1 million and $79.9 million for the three and six months ended June 30, 2021, respectively. Customers recognized interest income, including origination fees, of $11.7 million for the three and six months ended June 30, 2020.
PPP loans include an embedded credit enhancement from the SBA, which guarantees 100% of the principal and interest owed by the borrower. As a result, the PPP loans do not have an ACL and are therefore excluded from ACL-related disclosures.
Loans receivable, mortgage warehouse, at fair value
Mortgage warehouse loans consist of commercial loans to mortgage companies. These mortgage warehouse lending transactions are subject to master repurchase agreements. As a result of the contractual provisions, for accounting purposes, control of the underlying mortgage loan has not transferred and the rewards and risks of the mortgage loans are not assumed by Customers. The mortgage warehouse loans are designated as loans held for investment and reported at fair value based on an election made to account for the loans at fair value. Pursuant to the agreements, Customers funds the pipelines for these mortgage lenders by sending payments directly to the closing agents for funded mortgage loans and receives proceeds directly from third party investors when the underlying mortgage loans are sold into the secondary market. The fair value of the mortgage warehouse loans is estimated as the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The interest rates on these loans are variable, and the lending transactions are short-term, with an average life under 30 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.
At June 30, 2021 and December 31, 2020, all of Customers' commercial mortgage warehouse loans were current in terms of payment. As these loans are reported at their fair value, they do not have an ACL and are therefore excluded from ACL-related disclosures.
Loans and leases receivable
The following tables summarize loans and leases receivable by loan and lease type and performance status as of June 30, 2021 and December 31, 2020:
 June 30, 2021
(amounts in thousands)
30-59 Days past due (1)
60-89 Days past due (1)
90 Days or more past due (1)
Total past due (1)
Loans and leases not past due (2)
Total loans and leases (3)
Multi-family$$3,355 $15,004 $18,359 $1,479,126 $1,497,485 
Commercial and industrial1,318 6,415 7,737 2,352,919 2,360,656 
Commercial real estate owner occupied1,684 1,684 651,965 653,649 
Commercial real estate non-owner occupied12 12 1,206,634 1,206,646 
Construction179,198 179,198 
Residential real estate56 679 5,029 5,764 261,147 266,911 
Manufactured housing1,387 237 5,171 6,795 51,109 57,904 
Installment5,966 2,154 2,728 10,848 1,538,845 1,549,693 
Total$7,413 $7,755 $36,031 $51,199 $7,720,943 $7,772,142 
22


 December 31, 2020
(amounts in thousands)
30-59 Days past due (1)
60-89 Days past due (1)
90 Days or more past due (1)
Total past due (1)
Loans and leases not past due (2)
Total loans and leases (3)
Multi-family$4,193 $5,224 $14,907 $24,324 $1,736,977 $1,761,301 
Commercial and industrial2,257 1,274 3,079 6,610 2,282,831 2,289,441 
Commercial real estate owner occupied864 1,324 2,370 4,558 567,780 572,338 
Commercial real estate non-owner occupied60 2,356 2,416 1,194,148 1,196,564 
Construction140,905 140,905 
Residential real estate6,640 1,827 1,856 10,323 306,847 317,170 
Manufactured housing1,518 673 1,951 4,142 58,101 62,243 
Installment6,161 3,430 81 9,672 1,225,734 1,235,406 
Total$21,633 $13,812 $26,600 $62,045 $7,513,323 $7,575,368 
(1)Includes past due loans and leases that are accruing interest because collection is considered probable.
(2)Loans and leases where next payment due is less than 30 days from the report date. The June 30, 2021 and December 31, 2020 tables exclude PPP loans of $6.3 billion and $4.6 billion, respectively, which are all current as of June 30, 2021 and December 31, 2020.
(3)Includes PCD loans of $11.7 million and $13.4 million at June 30, 2021 and December 31, 2020, respectively.
Nonaccrual Loans and Leases
The following table presents the amortized cost of loans and leases held for investment on nonaccrual status.
 
June 30, 2021 (1)
December 31, 2020 (1)
(amounts in thousands)Nonaccrual loans with no related allowanceNonaccrual loans with related allowanceTotal nonaccrual loansNonaccrual loans with no related allowanceNonaccrual loans with related allowanceTotal nonaccrual loans
Multi-family$21,595 $$21,595 $18,800 $2,928 $21,728 
Commercial and industrial6,486 231 6,717 6,384 2,069 8,453 
Commercial real estate owner occupied2,688 2,688 3,411 3,411 
Commercial real estate non-owner occupied2,356 2,356 
Residential real estate8,991 8,991 9,911 9,911 
Manufactured housing3,239 3,239 2,969 2,969 
Installment2,728 2,728 3,211 3,211 
Total$39,760 $6,198 $45,958 $40,862 $11,177 $52,039 
(1) Presented at amortized cost basis.
Interest income recognized on nonaccrual loans was insignificant for the three and six months ended June 30, 2021 and 2020. Accrued interest reversed when the loans went to nonaccrual status was insignificant during the three and six months ended June 30, 2021 and 2020, respectively.

23

Allowance for credit losses on loans and leases
The changes in the ACL on loans and leases for the three and six months ended June 30, 2021 and 2020 are presented in the tables below.
(amounts in thousands)Multi-familyCommercial and industrialCommercial real estate owner occupiedCommercial real estate non-owner occupiedConstructionResidential real estateManufactured housingInstallmentTotal
Three Months Ended
June 30, 2021
Ending Balance,
March 31, 2021
$8,026 $7,503 $5,935 $11,621 $4,103 $3,209 $4,800 $83,539 $128,736 
Charge-offs(2)(1)(7,958)(7,961)
Recoveries285 59 114 12 898 1,370 
Provision (benefit) for credit losses(2,998)341 (1,472)(4,306)(1,574)(922)(428)14,650 3,291 
Ending Balance,
June 30, 2021
$5,028 $8,127 $4,464 $7,374 $2,643 $2,299 $4,372 $91,129 $125,436 
Six Months Ended
June 30, 2021
Ending Balance,
December 31, 2020
$12,620 $12,239 $9,512 $19,452 $5,871 $3,977 $5,190 $75,315 $144,176 
Charge-offs(1,132)(637)(142)(50)(20,645)(22,606)
Recoveries545 69 119 22 2,730 3,494 
Provision (benefit) for credit losses(6,460)(4,020)(4,915)(12,147)(3,347)(1,650)(818)33,729 372 
Ending Balance,
June 30, 2021
$5,028 $8,127 $4,464 $7,374 $2,643 $2,299 $4,372 $91,129 $125,436 
(amounts in thousands)Multi-familyCommercial and industrialCommercial real estate owner occupiedCommercial real estate non-owner occupiedConstructionResidential real estateManufactured housingInstallmentTotal
Three Months Ended June 30, 2020
Ending Balance,
March 31, 2020
$8,750 $18,806 $8,527 $18,530 $1,934 $4,180 $4,987 $83,569 $149,283 
Charge-offs(20)(2,801)(8,304)(11,125)
Recoveries25 113 26 635 801 
Provision (benefit) for credit losses5,947 (6,509)2,876 10,764 3,250 344 1,027 3,247 20,946 
Ending Balance,
June 30, 2020
$14,697 $12,302 $11,405 $26,493 $5,297 $4,550 $6,014 $79,147 $159,905 
Six Months Ended
June 30, 2020
Ending Balance,
December 31, 2019
$6,157 $15,556 $2,235 $6,243 $1,262 $3,218 $1,060 $20,648 $56,379 
Cumulative effect of change in accounting principle - CECL2,171 759 5,773 7,918 (98)1,518 3,802 57,986 79,829 
Charge-offs(117)(15,598)(14,550)(30,265)
Recoveries79 116 55 975 1,230 
Provision (benefit) for credit losses6,369 (3,975)3,392 27,930 4,017 (241)1,152 14,088 52,732 
Ending Balance,
June 30, 2020
$14,697 $12,302 $11,405 $26,493 $5,297 $4,550 $6,014 $79,147 $159,905 

At June 30, 2021, the ACL was $125.4 million, a decrease of $18.8 million from the December 31, 2020 balance of $144.2 million. The decrease resulted primarily from a decrease in provision for credit losses from continuing improvement in macroeconomic forecasts. The increase in ACL for the installment portfolio is mainly due to loan portfolio growth.

24

Troubled Debt Restructurings
At June 30, 2021 and December 31, 2020, there were $16.8 million and $16.1 million, respectively, in loans reported as TDRs. TDRs are reported as impaired loans in the quarter of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent quarters, a TDR may be returned to accrual status if it satisfies a minimum performance requirement of six months, however, it will remain classified as impaired. Generally, the Bank requires sustained performance for nine months before returning a TDR to accrual status. Customers had 0 lease receivables that had been restructured as a TDR as of June 30, 2021 and December 31, 2020, respectively.
Section 4013 of the CARES Act, as amended by the CAA, gives entities temporary relief from the accounting and disclosure requirements for TDRs. In addition, on April 7, 2020, certain regulatory banking agencies issued an interagency statement that offers practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic are TDRs. For COVID-19 related loan modifications which met the loan modification criteria under either the CARES Act or the criteria specified by the regulatory agencies, Customers elected to suspend TDR accounting for such loan modifications. At June 30, 2021, commercial and consumer deferments related to COVID-19 were $89.8 million and $8.4 million, respectively. At December 31, 2020, commercial and consumer deferments related to COVID-19 were $202.1 million and $16.4 million, respectively.
The following table presents loans modified in a TDR by type of concession for the three and six months ended June 30, 2021 and 2020. There were 0 modifications that involved forgiveness of debt for the three and six months ended June 30, 2021 and 2020.
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
(dollars in thousands)Number of loansRecorded investmentNumber of loansRecorded investmentNumber of loansRecorded investmentNumber of loansRecorded investment
Extensions of maturity$$140 $$385 
Interest-rate reductions157 20 843 12 341 32 1,373 
Other (1)
99 1,141 119 1,682 
Total103 $1,298 22 $983 131 $2,023 38 $1,758 
(1) Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.
As of June 30, 2021 and December 31, 2020, there were 0 commitments to lend additional funds to debtors whose loans have been modified in TDRs.
The following table presents, by loan type, the number of loans modified in TDRs and the related recorded investment, for which there was a payment default within twelve months following the modification:
June 30, 2021June 30, 2020
(dollars in thousands)Number of loansRecorded investmentNumber of loansRecorded investment
Manufactured housing$189 $
Commercial real estate owner occupied958 
Residential real estate43 313 
Installment15 247 
Total loans23 $479 $1,271 
Loans modified in TDRs are evaluated for impairment. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of ACL.
Purchased Credit-Deteriorated Loans
Customers adopted ASC 326 Financial Instruments - Credit Losses ("ASC 326") using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, Customers did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. As of June 30, 2021 and December 31, 2020, the amortized cost basis of PCD assets amounted to $11.7 million and $13.4 million, respectively.
25

Credit Quality Indicators
The ACL represents management's estimate of expected losses in Customers' loans and leases receivable portfolio, excluding commercial mortgage warehouse loans reported at fair value pursuant to a fair value option election and PPP loans receivable. Multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, and construction loans are rated based on an internally assigned risk rating system which is assigned at the time of loan origination and reviewed on a periodic, or on an “as needed” basis. Residential real estate loans, manufactured housing and installment loans are evaluated based on the payment activity of the loan.
To facilitate the monitoring of credit quality within the multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, and construction loan portfolios, and as an input in the ACL lifetime loss rate model for the commercial and industrial loan portfolio, the Bank utilizes the following categories of risk ratings: pass/satisfactory (includes risk rating 1 through 6), special mention, substandard, doubtful, and loss. The risk rating categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. Pass/satisfactory ratings, which are assigned to those borrowers who do not have identified potential or well-defined weaknesses and for whom there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis during the month preceding the end of the calendar quarter. While assigning risk ratings involves judgment, the risk-rating process allows management to identify riskier credits in a timely manner and allocate the appropriate resources to manage those loans and leases. The 2020 Form 10-K describes Customers Bancorp’s risk rating grades.
Risk ratings are not established for certain consumer loans, including residential real estate, home equity, manufactured housing, and installment loans, mainly because these portfolios consist of a larger number of homogeneous loans with smaller balances. Instead, these portfolios are evaluated for risk mainly based upon aggregate payment history through the monitoring of delinquency levels and trends and are classified as performing and non-performing. The following tables present the credit ratings of loans and leases receivable as of June 30, 2021 and December 31, 2020.
26

Term Loans Amortized Cost Basis by Origination Year as of June 30, 2021
(amounts in thousands)20212020201920182017PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Multi-family loans:
Pass$89,905 $135,133 $23,427 $243,767 $378,768 $534,970 $$$1,405,970 
Special mention12,100 8,979 21,079 
Substandard41,560 28,876 70,436 
Doubtful00
Total multi-family loans$89,905 $135,133 $23,427 $243,767 $432,428 $572,825 $$$1,497,485 
Commercial and industrial loans and leases:
Pass$433,908 $417,713 $320,158 $102,737 $101,552 $102,040 $780,892 $$2,259,000 
Special mention18,883 4,335 6,364 214 0234 14,333 44,363 
Substandard10,192 7,462 17,570 7,163 7,584 7,322 57,293 
Doubtful0
Total commercial and industrial loans and leases$452,791 $432,240 $333,984 $120,521 $108,715 $109,858 $802,547 $$2,360,656 
Commercial real estate owner occupied loans:
Pass$121,180 $83,122 $164,925 $60,990 $60,542 $122,010 $672 $$613,441 
Special mention320 2,072 588 2,980 
Substandard7,087 9,538 9,012 11,591 37,228 
Doubtful
Total commercial real estate owner occupied loans$121,180 $83,122 $172,012 $70,848 $71,626 $134,189 $672 $$653,649 
Commercial real estate non-owner occupied:
Pass$92,285 $158,983 $95,875 $68,193 $115,452 $395,022 $$$925,810 
Special mention21,925 11,229 22,002 99,469 43,573 198,198 
Substandard23,494 20,611 38,533 82,638 
Doubtful0
Total commercial real estate non-owner occupied loans$92,285 $180,908 $107,104 $113,689 $235,532 $477,128 $$$1,206,646 
Construction:
Pass$3,311 $36,135 $122,833 $4,895 $$9,565 $949 $$177,688 
Special mention1,510 1,510 
Substandard
Doubtful
Total construction loans$3,311 $37,645 $122,833 $4,895 $$9,565 $949 $$179,198 
Total commercial loans and leases receivable$759,472 $869,048 $759,360 $553,720 $848,301 $1,303,565 $804,168 $$5,897,634 
Residential real estate loans:
Performing$2,961 $10,493 $14,089 $11,887 $6,861 $95,687 $116,081 $$258,059 
Non-performing97 900 777 4,768 2,310 8,852 
Total residential real estate loans$2,961 $10,493 $14,186 $12,787 $7,638 $100,455 $118,391 $$266,911 
Manufactured housing loans:
Performing$$$296 $385 $76 $52,180 $$$52,937 
Non-performing4,967 4,967 
Total manufactured housing loans$$$296 $385 $76 $57,147 $$$57,904 
Installment loans:
Performing$515,870 $444,610 $509,216 $73,677 $2,668 $1,167 $$$1,547,208 
Non-performing594 1,609 219 50 2,485 
Total installment loans$515,876 $445,204 $510,825 $73,896 $2,675 $1,217 $$$1,549,693 
Total consumer loans$518,837 $455,697 $525,307 $87,068 $10,389 $158,819 $118,391 $$1,874,508 
Loans and leases receivable$1,278,309 $1,324,745 $1,284,667 $640,788 $858,690 $1,462,384 $922,559 $$7,772,142 

27

Term Loans Amortized Cost Basis by Origination Year as of December 31, 2020
(amounts in thousands)20202019201820172016PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Multi-family loans:
Pass$150,835 $23,716 $299,319 $535,510 $227,296 $420,809 $$$1,657,485 
Special mention20,901 10,394 26,708 58,003 
Substandard34,197 8,256 3,360 45,813 
Doubtful
Total multi-family loans$150,835 $23,716 $299,319 $590,608 $245,946 $450,877 $$$1,761,301 
Commercial and industrial loans and leases:
Pass$729,270 $373,050 $141,943 $116,793 $45,367 $71,502 $717,007 $$2,194,932 
Special mention13,200 1,117 436 113 516 21 17,524 32,927 
Substandard9,968 6,890 19,065 5,901 8,318 2,722 8,718 61,582 
Doubtful
Total commercial and industrial loans and leases$752,438 $381,057 $161,444 $122,807 $54,201 $74,245 $743,249 $$2,289,441 
Commercial real estate owner occupied loans:
Pass$82,343 $168,977 $72,615 $70,642 $46,510 $91,798 $741 $$533,626 
Special mention4,464 9,056 555 14,075 
Substandard2,848 9,499 342 2,231 9,717 24,637 
Doubtful
Total commercial real estate owner occupied loans$82,343 $176,289 $82,114 $80,040 $48,741 $102,070 $741 $$572,338 
Commercial real estate non-owner occupied:
Pass$143,231 $105,430 $97,882 $157,835 $155,168 $313,559 $$$973,105 
Special mention39,994 66,745 24,218 14,613 145,570 
Substandard17,741 20,611 366 39,171 77,889 
Doubtful0
Total commercial real estate non-owner occupied loans$183,225 $105,430 $115,623 $245,191 $179,752 $367,343 $$$1,196,564 
Construction:
Pass$19,932 $105,466 $4,954 $$9,700 $$853 $$140,905 
Special mention
Substandard
Doubtful
Total construction loans$19,932 $105,466 $4,954 $$9,700 $$853 $$140,905 
Total commercial loans and leases receivable$1,188,773 $791,958 $663,454 $1,038,646 $538,340 $994,535 $744,843 $$5,960,549 
Residential real estate loans:
Performing$6,708 $13,617 $6,810 $10,850 $38,143 $69,496 $161,576 $$307,200 
Non-performing160 785 1,350 4,395 3,280 9,970 
Total residential real estate loans$6,708 $13,617 $6,970 $11,635 $39,493 $73,891 $164,856 $$317,170 
Manufactured housing loans:
Performing$$295 $609 $76 $41 $56,837 $$$57,858 
Non-performing4,385 4,385 
Total manufactured housing loans$$295 $609 $76 $41 $61,222 $$$62,243 
Installment loans:
Performing$319,453 $791,235 $114,988 $4,736 $514 $1,204 $$$1,232,130 
Non-performing305 2,326 485 41 117 3,276 
Total installment loans$319,758 $793,561 $115,473 $4,777 $516 $1,321 $$$1,235,406 
Total consumer loans$326,466 $807,473 $123,052 $16,488 $40,050 $136,434 $164,856 $$1,614,819 
Loans and leases receivable$1,515,239 $1,599,431 $786,506 $1,055,134 $578,390 $1,130,969 $909,699 $$7,575,368 


28

Loan Purchases and Sales
Purchases and sales of loans were as follows for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30,Six Months Ended June 30,
(amounts in thousands)2021202020212020
Purchases (1)
Loans receivable, PPP$460,456 $$621,487 $
Residential real estate495 
Installment (2)
18,008 115,849 209,768 
Total$460,456 $18,008 $737,336 $210,263 
Sales (3)
Multi-family$19,443 $$19,443 $
Commercial and industrial10,059 28,990 
Commercial real estate owner occupied4,461 6,698 
Commercial real estate non-owner occupied18,366 
Residential real estate11,623 28,186 
Installment28,818 28,818 1,822 
Total$74,404 $$130,501 $1,822 
(1)Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was 102.0% and 98.5% of loans outstanding for the three months ended June 30, 2021 and 2020, respectively. The purchase price was 103.0% and 100.4% of loans outstanding for the six months ended June 30, 2021 and 2020, respectively.
(2)Installment loan purchases for the three and six months ended June 30, 2021 and 2020 consist of third-party originated unsecured consumer loans. None of the loans are considered sub-prime at the time of origination. Customers considers sub-prime borrowers to be those with FICO scores below 660.
(3)Amounts reported in the above table are the unpaid principal balance at time of sale. For the three months ended June 30, 2021 and 2020, loan sales resulted in net gains of $2.2 million and $0.3 million, respectively, included in gain (loss) on sale of SBA and other loans and mortgage banking income in the consolidated statement of income (loss). For the six months ended June 30, 2021 and 2020, loan sales resulted in net gains of $4.3 million and $0.4 million, respectively.
Loans Pledged as Collateral
Customers has pledged eligible real estate and commercial and industrial loans, including PPP loans as collateral for borrowings from the FHLB and FRB in the amount of $7.1 billion and $8.5 billion at June 30, 2021 and December 31, 2020, respectively. PPP loans of $3.9 billion and $4.6 billion were pledged to the FRB in accordance with borrowing from the PPPLF at June 30, 2021 and December 31, 2020, respectively.

NOTE 9 — LEASES
Lessee
Customers has operating leases for its branches, LPOs, and administrative offices, with remaining lease terms ranging between 2 months and 6 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, Leases or the commencement date of the lease, whichever was later, when determining the present value of lease payments.
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The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:
(amounts in thousands)ClassificationJune 30, 2021December 31, 2020
ASSETS
Operating lease ROU assets (1)
Other assets$15,555 $16,578 
LIABILITIES
Operating lease liabilities (1)
Other liabilities$16,923 $18,005 
(1) Excludes operating leases of BMT included in assets and liabilities of discontinued operations.
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)Classification2021202020212020
Operating lease cost (1)(2)
Occupancy expenses$1,130 $1,198 $2,247 $2,403 
(1) There were 0 variable lease costs for the three and six months ended June 30, 2021 and 2020, and sublease income for operating leases is immaterial.
(2) Excludes operating lease costs of BMT included in loss from discontinued operations in the consolidated statement of income.
Maturities of non-cancelable operating lease liabilities were as follows at June 30, 2021:
(amounts in thousands)June 30, 2021
2021$2,826 
20225,097 
20234,208 
20243,177 
20252,047 
Thereafter1,465 
Total minimum payments18,820 
Less: interest1,897 
Present value of lease liabilities$16,923 
Customers does not have leases where it is involved with the construction or design of an underlying asset. Customers has no legally binding minimum lease payments for leases signed but not yet commenced as of June 30, 2021. Cash paid pursuant to the operating lease liability was $1.4 million and $2.5 million for the three and six months ended June 30, 2021, respectively. Cash paid pursuant to the operating lease liability was $1.5 million and $3.0 million for the three and six months ended June 30, 2020, respectively. These payments were reported as cash flows used in operating activities in the statement of cash flows.
The following table summarizes the weighted average remaining lease term and discount rate for Customers' operating leases at June 30, 2021 and December 31, 2020:
(amounts in thousands)June 30, 2021December 31, 2020
Weighted average remaining lease term (years)
Operating leases (1)
4.1 years4.7 years
Weighted average discount rate
Operating leases (1)
2.67 %2.90 %
(1) Excludes operating leases of BMT included in assets and liabilities of discontinued operations.
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Equipment Lessor
CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance Group. CCF is primarily focused on originating equipment operating and direct finance equipment leases for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. Lease terms typically range from 24 months to 120 months. CCF offers the following lease products: Capital Lease, Purchase Upon Termination, TRAC, Split-TRAC, and FMV. Direct finance equipment leases are included in commercial and industrial loans and leases receivable.
The estimated residual values for direct finance and operating leases are established by utilizing internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. For the direct finance leases, only Customers' Split-TRAC leases have residual risk and the unguaranteed portions are typically nominal. Expected credit losses on direct financing leases and the related estimated residual values are included in the allowance for credit losses on loans and leases.
Leased assets under operating leases are carried at amortized cost net of accumulated depreciation and any impairment charges and are presented in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to the expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its operating leased assets for impairment. An impairment loss is recognized if the carrying amount of the operating leased asset exceeds its fair value and is not recoverable. The carrying amount of operating leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.
The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at June 30, 2021 and December 31, 2020:
(amounts in thousands)ClassificationJune 30, 2021December 31, 2020
ASSETS
Direct financing leases
Lease receivablesLoans and leases receivable$122,372 $104,982 
Guaranteed residual assetsLoans and leases receivable11,261 12,988 
Unguaranteed residual assetsLoans and leases receivable4,846 1,229 
Deferred initial direct costsLoans and leases receivable503 560 
Unearned incomeLoans and leases receivable(9,489)(11,175)
Net investment in direct financing leases$129,493 $108,584 
Operating leases
Investment in operating leasesOther assets$138,359 $131,791 
Accumulated depreciationOther assets(35,568)(28,919)
Deferred initial direct costsOther assets1,021 996 
Net investment in operating leases103,812 103,868 
Total lease assets$233,305 $212,452 

COVID-19 Impact on Leases

Customers granted concessions to lessees as a result of the business impact of the COVID-19 pandemic. At June 30, 2021, the book values of finance and operating leases with payment deferments were $28.1 million and $8.1 million, respectively. At December 31, 2020, the book values of finance and operating leases with payment deferments were $30.4 million and $15.2 million, respectively. The concessions did not have a material impact on interest income from leases for the three and six months ended June 30, 2021 and 2020. Additionally, Customers did not receive any concessions on its operating leases in which Customers is the lessee.

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NOTE 10 - BORROWINGS
Short-term debt
Short-term debt at June 30, 2021 and December 31, 2020 was as follows:
 June 30, 2021December 31, 2020
(dollars in thousands)AmountRateAmountRate
FHLB advances$%$850,000 1.19 %
Federal funds purchased%250,000 0.09 %
Total short-term debt$$1,100,000 
The following is a summary of additional information relating to Customers' short-term debt:
(dollars in thousands)
June 30, 2021 (1)
December 31, 2020 (2)
FHLB advances
Maximum outstanding at any month end$850,000 $910,000 
Average balance during the period500,273 809,788 
Weighted-average interest rate during the period2.48 %2.31 %
Federal funds purchased
Maximum outstanding at any month end365,000 842,000 
Average balance during the period44,171 239,481 
Weighted-average interest rate during the period0.07 %0.19 %
(1)    For the six months ended June 30, 2021.
(2)    For the year ended December 31, 2020.
At June 30, 2021 and December 31, 2020, Customers Bank had aggregate availability under federal funds lines totaling $1.3 billion and $924.0 million, respectively.
Long-term debt
FHLB and FRB advances
Long-term FHLB and FRB advances at June 30, 2021 and December 31, 2020 were as follows:
June 30, 2021December 31, 2020
(dollars in thousands)AmountRateAmountRate
FRB PPP Liquidity Facility advances$3,865,865 0.35 %$4,415,016 0.35 %
Total long-term FHLB and FRB advances$3,865,865 $4,415,016 
Beginning in second quarter 2020, Customers began participating in the PPPLF, in which Federal Reserve Banks extend non-recourse loans to institutions that are eligible to make PPP loans. Only PPP loans that are guaranteed by the SBA under the PPP, with respect to both principal and interest that are originated or purchased by an eligible institution, may be pledged as collateral to the Federal Reserve Banks.
The maximum borrowing capacity with the FHLB and FRB at June 30, 2021 and December 31, 2020 was as follows:
(amounts in thousands)June 30, 2021December 31, 2020
Total maximum borrowing capacity with the FHLB$2,387,172 $2,729,516 
Total maximum borrowing capacity with the FRB (1)
197,894 223,299 
Qualifying loans serving as collateral against FHLB and FRB advances (1)
3,156,850 3,363,364 
(1)    Amounts reported in the above table exclude borrowings under the PPPLF, which are limited to the face value of the loans originated under the PPP. At June 30, 2021, Customers had $3.9 billion of borrowings under the PPPLF, with a borrowing capacity of up to $6.3 billion, which is the face value of the qualifying loans Customers has originated or purchased and outstanding under the PPP. At December 31, 2020, Customers had $4.4 billion of borrowings under the PPPLF.
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Senior and Subordinated Debt
Long-term senior notes and subordinated debt at June 30, 2021 and December 31, 2020 were as follows:
June 30, 2021December 31, 2020
(dollars in thousands)
Issued byRankingAmountAmountRateIssued AmountDate IssuedMaturityPrice
Customers BancorpSenior$24,612 $24,552 4.500 %$25,000 September 2019September 2024100.000 %
Customers BancorpSenior99,629 99,485 3.950 %100,000 June 2017June 202299.775 %
Total other borrowings$124,241 $124,037 
Customers Bancorp
Subordinated (1)(2)
$72,313 $72,222 5.375 %$74,750 December 2019December 2034100.000 %
Customers Bank
Subordinated (1)(3)
109,221 109,172 6.125 %110,000 June 2014June 2029100.000 %
Total subordinated debt$181,534 $181,394 
(1)The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.
(2)Customers Bancorp has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after December 30, 2029.
(3)The subordinated notes will bear an annual fixed rate of 6.125% until June 26, 2024. From June 26, 2024 until maturity, the notes will bear an annual interest rate equal to the three-month LIBOR plus 344.3 basis points. Customers Bank has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after June 26, 2024.

NOTE 11 — REGULATORY CAPITAL
The Bank and the Bancorp are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can result in certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on Customers' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Bancorp must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
In first quarter 2020, U.S federal banking regulatory agencies permitted banking organizations to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 31, 2020, the U.S. federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows banking organizations to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. Customers has elected to adopt the interim final rule, which is reflected in the regulatory capital data presented below.
In April 2020, the U.S. federal banking regulatory agencies issued an interim final rule that permits banks to exclude the impact of participating in the SBA PPP program in their regulatory capital ratios. Specifically, PPP loans are zero percent risk weighted and a bank can exclude all PPP loans pledged as collateral to the PPPLF from its average total consolidated assets for purposes of calculating the Tier 1 capital to average assets ratio (i.e. leverage ratio). Customers applied this regulatory guidance in the calculation of its regulatory capital ratios presented below.
Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At June 30, 2021 and December 31, 2020, the Bank and the Bancorp satisfied all capital requirements to which they were subject.
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Generally, to comply with the regulatory definition of adequately capitalized, or well capitalized, respectively, or to comply with the Basel III capital requirements, an institution must at least maintain the common equity Tier 1, Tier 1 and total risk-based capital ratios and the Tier 1 leverage ratio in excess of the related minimum ratios as set forth in the following table:
Minimum Capital Levels to be Classified as:
 ActualAdequately CapitalizedWell CapitalizedBasel III Compliant
(amounts in thousands)AmountRatioAmountRatioAmountRatioAmountRatio
As of June 30, 2021:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,082,396 9.560 %$509,472 4.500 %N/AN/A$792,512 7.000 %
Customers Bank$1,403,324 12.395 %$509,460 4.500 %$735,886 6.500 %$792,493 7.000 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,299,867 11.481 %$679,296 6.000 %N/AN/A$962,337 8.500 %
Customers Bank$1,403,324 12.395 %$679,279 6.000 %$905,706 8.000 %$962,313 8.500 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,502,069 13.267 %$905,729 8.000 %N/AN/A$1,188,769 10.500 %
Customers Bank$1,559,161 13.772 %$905,706 8.000 %$1,132,132 10.000 %$1,188,739 10.500 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc.$1,299,867 8.389 %$619,832 4.000 %N/AN/A$619,832 4.000 %
Customers Bank$1,403,324 9.070 %$618,871 4.000 %$773,589 5.000 %$618,871 4.000 %
As of December 31, 2020:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$954,839 8.079 %$531,844 4.500 %N/AN/A$827,312 7.000 %
Customers Bank$1,254,082 10.615 %$531,639 4.500 %$767,923 6.500 %$826,994 7.000 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,172,310 9.919 %$709,125 6.000 %N/AN/A$1,004,594 8.500 %
Customers Bank$1,254,082 10.615 %$708,852 6.000 %$945,136 8.000 %$1,004,207 8.500 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,401,119 11.855 %$945,500 8.000 %N/AN/A$1,240,969 10.500 %
Customers Bank$1,424,791 12.060 %$945,136 8.000 %$1,181,421 10.000 %$1,240,492 10.500 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc.$1,172,310 8.597 %$545,485 4.000 %N/AN/A$545,485 4.000 %
Customers Bank$1,254,082 9.208 %$544,758 4.000 %$680,947 5.000 %$544,758 4.000 %
The Basel III Capital Rules require that we maintain a 2.500% capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.
NOTE 12 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Customers uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose the fair value of its financial instruments. ASC 825, Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For Customers, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. Many of these instruments lack an available trading market as characterized by a willing buyer and a willing seller engaging in an exchange transaction. For fair value disclosure purposes, Customers utilized certain fair value measurement criteria under ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), 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.
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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, 2021 and December 31, 2020:
Financial Instruments Recorded at Fair Value on a Recurring Basis
Investment securities:
The fair values of equity securities, AFS debt securities and debt securities reported at fair value based on a fair value option election are determined by obtaining quoted market prices on nationally recognized and foreign securities exchanges (Level 1), quoted prices in markets that are not active (Level 2), matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or internally and externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). These assets are classified as Level 1, 2 or 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Loans held for sale - Residential mortgage loans (fair value option):
Customers generally estimates the fair values of residential mortgage loans held for sale based on commitments on hand from investors within the secondary market for loans with similar characteristics. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Loans receivable - Commercial mortgage warehouse loans (fair value option):
The fair value of commercial mortgage warehouse loans is the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The loan is used by mortgage companies as short-term bridge financing between the funding of the mortgage loans and the finalization of the sale of the loans to an investor. Changes in fair value are not generally expected to be recognized because at inception of the transaction the underlying mortgage loans have already been sold to an approved investor. Additionally, the interest rate is variable, and the transaction is short-term, with an average life of under 30 days from purchase to sale. These assets are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Derivatives (assets and liabilities):
The fair values of interest rate swaps, interest rate caps and credit derivatives are determined using models that incorporate readily observable market data into a market standard methodology. This methodology nets the discounted future cash receipts and the discounted expected cash payments. The discounted variable cash receipts and payments are based on expectations of future interest rates derived from observable market interest rate curves. In addition, fair value is adjusted for the effect of nonperformance risk by incorporating credit valuation adjustments for Customers and its counterparties. These assets and liabilities are classified as Level 2 fair values, based upon the lowest level of input that is significant to the fair value measurements.
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The fair values of the residential mortgage loan commitments are derived from the estimated fair values that can be generated when the underlying mortgage loan is sold in the secondary market. Customers generally uses commitments on hand from third party investors to estimate an exit price and adjusts for the probability of the commitment being exercised based on Customers' internal experience (i.e., pull-through rate). These assets and liabilities are classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Derivative assets and liabilities are presented in "Other assets" and "Accrued interest payable and other liabilities" on the consolidated balance sheet.
The following information should not be interpreted as an estimate of Customers' fair value in its entirety because fair value calculations are only provided for a limited portion of Customers' assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making these estimates, comparisons between Customers' disclosures and those of other companies may not be meaningful.
Financial Instruments Recorded at Fair Value on a Nonrecurring Basis
Collateral-dependent loans:
Collateral-dependent loans are those loans that are accounted for under ASC 326 in which the Bank has measured impairment generally based on the fair value of the loan’s collateral or DCF analysis. Fair value is generally determined based upon independent third-party appraisals of the properties that collateralize the loans, DCF based upon the expected proceeds, sales agreements or letters of intent with third parties. These assets are generally classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Other real estate owned:
The fair value of OREO is determined by using appraisals, which may be discounted based on management’s review and changes in market conditions or sales agreements with third parties. All appraisals must be performed in accordance with the Uniform Standards of Professional Appraisal Practice. Appraisals are certified to the Bank and performed by appraisers on the Bank’s approved list of appraisers. Evaluations are completed by a person independent of management. The content of the appraisal depends on the complexity of the property. Appraisals are completed on a “retail value” and an “as is value”. These assets are classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
The estimated fair values of Customers' financial instruments at June 30, 2021 and December 31, 2020 were as follows.
   Fair Value Measurements at June 30, 2021
(amounts in thousands)Carrying AmountEstimated Fair ValueQuoted 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$430,500 $430,500 $430,500 $$
Debt securities, available for sale1,526,792 1,526,792 1,526,792 
Loans held for sale34,540 34,540 34,033 507 
Total loans and leases receivable, net of allowance for credit losses on loans and leases16,807,046 16,680,386 2,855,284 13,825,102 
FHLB, Federal Reserve Bank and other restricted stock39,895 39,895 39,895 
Derivatives38,289 38,289 37,988 301 
Liabilities:
Deposits$13,873,939 $13,874,284 $13,246,789 $627,495 $
FRB PPP Liquidity Facility3,865,865 3,865,865 3,865,865 
Other borrowings124,240 130,576 130,576 
Subordinated debt181,534 198,904 198,904 
Derivatives38,756 38,756 38,756 
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   Fair Value Measurements at December 31, 2020
(amounts in thousands)Carrying AmountEstimated Fair ValueQuoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Assets:
Cash and cash equivalents$693,354 $693,354 $693,354 $$
Debt securities, available for sale1,206,431 1,206,431 1,206,431 
Equity securities3,854 3,854 3,854 
Loans held for sale79,086 79,086 78,443 643 
Total loans and leases receivable, net of allowance for credit losses on loans and leases15,608,989 16,222,202 3,616,432 12,605,770 
FHLB, Federal Reserve Bank and other restricted stock71,368 71,368 71,368 
Derivatives54,223 54,223 54,023 200 
Liabilities:
Deposits$11,309,929 $11,312,494 $10,657,998 $654,496 $
FRB PPP Liquidity Facility4,415,016 4,415,016 4,415,016 
Federal funds purchased250,000 250,000 250,000 
FHLB advances850,000 852,442 852,442 
Other borrowings124,037 129,120 129,120 
Subordinated debt181,394 193,119 193,119 
Derivatives98,164 98,164 98,164 

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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, 2021 and December 31, 2020 were as follows:
 June 30, 2021
 Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Total
Measured at Fair Value on a Recurring Basis:
Assets
Available for sale debt securities:
Asset-backed securities$$322,954 $$322,954 
U.S. government agencies securities20,114 20,114 
Agency-guaranteed residential mortgage-backed securities10,355 10,355 
Agency-guaranteed commercial mortgage-backed securities2,205 2,205 
Agency-guaranteed residential collateralized mortgage obligations81,758 81,758 
Agency-guaranteed commercial collateralized mortgage obligations142,841 142,841 
Commercial mortgage-backed securities23,087 23,087 
Collateralized loan obligations162,927 162,927 
Corporate notes350,421 350,421 
Private label collateralized mortgage obligations401,576 401,576 
State and political subdivision debt securities8,554 8,554 
Derivatives37,988 301 38,289 
Loans held for sale – fair value option6,074 6,074 
Loans receivable, mortgage warehouse – fair value option2,855,284 2,855,284 
Total assets – recurring fair value measurements$$4,426,138 $301 $4,426,439 
Liabilities
Derivatives $$38,756 $$38,756 
Measured at Fair Value on a Nonrecurring Basis:
Assets
Loans held for sale$$27,959 $$27,959 
Collateral-dependent loans5,323 5,323 
Total assets – nonrecurring fair value measurements$$27,959 $5,323 $33,282 
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 December 31, 2020
 Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Total
Measured at Fair Value on a Recurring Basis:
Assets
Available for sale debt securities:
Asset-backed securities$$377,145 $$377,145 
U.S. government agencies securities20,034 20,034 
Agency-guaranteed residential mortgage–backed securities63,091 63,091 
Agency-guaranteed residential collateralized mortgage obligations140,841 140,841 
Agency-guaranteed commercial collateralized mortgage obligations20,926 20,926 
Collateralized loan obligations32,367 32,367 
Corporate notes396,744 396,744 
Private label collateralized mortgage obligations136,992 136,992 
State and political subdivision debt securities18,291 18,291 
Equity securities3,854 3,854 
Derivatives54,023 200 54,223 
Loans held for sale – fair value option5,509 5,509 
Loans receivable, mortgage warehouse – fair value option3,616,432 3,616,432 
Total assets – recurring fair value measurements$3,854 $4,882,395 $200 $4,886,449 
Liabilities
Derivatives$$98,164 $$98,164 
Measured at Fair Value on a Nonrecurring Basis:
Assets
Loans held for sale$$55,683 $$55,683 
Collateral-dependent loans17,251 3,867 21,118 
Other real estate owned35 35 
Total assets – nonrecurring fair value measurements$$72,934 $3,902 $76,836 
The changes in residential mortgage loan commitments (Level 3 assets) measured at fair value on a recurring basis for the three and six months ended June 30, 2021 and 2020 are summarized in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 13 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
Residential Mortgage Loan Commitments
Three Months Ended June 30,
(amounts in thousands)20212020
Balance at March 31$196 $215 
Issuances301 52 
Settlements(196)(215)
Balance at June 30$301 $52 

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Residential Mortgage Loan Commitments
Six Months Ended June 30,
(amounts in thousands)20212020
Balance at December 31$200 $79 
Issuances497 267 
Settlements(396)(294)
Balance at June 30$301 $52 
There were no transfers between levels during the three and six months ended June 30, 2021 and 2020.
The following table summarizes financial assets and financial liabilities measured at fair value as of June 30, 2021 and December 31, 2020 on a recurring and nonrecurring basis for which Customers utilized Level 3 inputs to measure fair value. The unobservable Level 3 inputs noted below contain a level of uncertainty that may differ from what is realized in an immediate settlement of the assets. Therefore, Customers may realize a value higher or lower than the current estimated fair value of the assets.
Quantitative Information about Level 3 Fair Value Measurements
(amounts in thousands)Fair Value
Estimate
Valuation TechniqueUnobservable Input
Range 
(Weighted Average) (4)
June 30, 2021    
Collateral-dependent loans – real estate$4,456 
Collateral appraisal (1)
Liquidation expenses (2)
8% - 26%
(10%)
Collateral-dependent loans – commercial and industrial867 
Collateral appraisal (1)


Business asset valuation (3)
Liquidation expenses (2)

Business asset valuation adjustments (4)
8% - 8%
(8%)

19% - 40%
(21%)
Residential mortgage loan commitments301 Adjusted market bidPull-through rate
75% - 95%
(85%)
(1)Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. Customers does not generally discount appraisals.
Fair value is also estimated based on sale agreements or letters of intent with third parties.
(2)Appraisals are adjusted by management for liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percentage of the appraisal.
(3)Business asset valuation obtained from independent party.
(4)Business asset valuations may be adjusted by management for qualitative factors including economic conditions and the condition of the business assets. The range and weighted average of the business asset adjustments are presented as a percent of the business asset valuation.

Quantitative Information about Level 3 Fair Value Measurements
(amounts in thousands)Fair Value
Estimate
Valuation TechniqueUnobservable Input
Range 
(Weighted Average) (4)
December 31, 2020    
Collateral-dependent loans – real estate$2,928 
Collateral appraisal (1)
Liquidation expenses (2)
8% - 8%
(8%)
Collateral-dependent loans – commercial and industrial939 
Collateral appraisal (1)


Business asset valuation (3)

Liquidation expenses (2)

Business asset valuation adjustments (4)
7% - 8%
(8%)

60% - 60%
(60%)
Other real estate owned35 
Collateral appraisal (1)
Liquidation expenses (2)
8% - 9%
(9%)
Residential mortgage loan commitments200 Adjusted market bidPull-through rate
78% - 78%
(78%)
(1)Obtained from approved independent appraisers. Appraisals are current and in compliance with credit policy. Customers does not generally discount appraisals.
(2)Appraisals are adjusted by management for liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percentage of the appraisal.
(3)Business asset valuation obtained from independent party.
(4)Business asset valuations may be adjusted by management for qualitative factors including economic conditions and the condition of the business assets. The range and weighted average of the business asset adjustments are presented as a percent of the business asset valuation.


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NOTE 13 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objectives of Using Derivatives
Customers is exposed to certain risks arising from both its business operations and economic conditions. Customers manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and durations of its assets and liabilities. Specifically, Customers enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. Customers’ derivative financial instruments are used to manage differences in the amount, timing, and duration of Customers’ known or expected cash receipts and its known or expected cash payments principally related to certain borrowings and deposits. Customers also has interest-rate derivatives resulting from a service provided to certain qualifying customers, and therefore, they are not used to manage Customers’ interest-rate risk in assets or liabilities. Customers manages a matched book with respect to its derivative instruments used in this customer service in order to minimize its net risk exposure resulting from such transactions.
Cash Flow Hedges of Interest-Rate Risk
Customers’ objectives in using interest-rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, Customers primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for Customers making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the period that the hedged item affects earnings. To date, such derivatives were used to hedge the variable cash flows associated with the forecasted issuances of debt and a certain variable-rate deposit relationship. At December 31, 2020, Customers had 5 outstanding interest rate derivatives with notional amounts totaling $1.1 billion that were designated as cash flow hedges of interest rate risk.
Customers discontinues cash flow hedge accounting if it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in accumulated other comprehensive income (loss) are reclassified immediately into earnings and any subsequent changes in the fair value of such derivatives are recognized directly in earnings. During the six months ended June 30, 2021, Customers terminated 4 interest rate derivatives with notional amounts totaling $850 million that were designated as cash flow hedges of interest-rate risk associated with 3-month FHLB advances, and reclassified $25.9 million of the realized losses and accrued interest from AOCI to current earnings because the hedged forecasted transactions were determined to be no longer probable of occurring. Customers hedged its exposure to the variability in future cash flows for a variable-rate deposit, which matured in June 2021. At June 30, 2021, Customers had 0 interest rate derivative designated as cash flow hedges of interest rate risk.
Fair Value Hedges of Benchmark Interest-Rate Risk
Customers is exposed to changes in the fair value of certain of its fixed rate AFS debt securities due to changes in the benchmark interest rate. Customers uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate such as the Fed Funds Effective Swap Rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for Customers receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
At June 30, 2021, Customers had 16 outstanding interest rate derivatives with notional amounts totaling $80.5 million that were designated as fair value hedges of certain available for sale debt securities. During the six months ended June 30, 2021, Customers terminated 8 interest rate derivatives with notional amounts totaling $191.8 million that were designated as fair value hedges together with the sale of hedged available for sale debt securities. At December 31, 2020, Customers had 24 outstanding interest rate derivatives with notional amounts totaling $272.3 million designated as fair value hedges.
As of June 30, 2021, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges.
Amortized CostCumulative Amount of Fair Value Hedging Adjustment to Hedged Items
June 30,December 31,June 30,December 31,
(amounts in thousands)2021202020212020
Available for sale debt securities$80,500 $272,159 $846 $741 
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Derivatives Not Designated as Hedging Instruments
Customers executes interest rate swaps (typically the loan customers will swap a floating-rate loan for a fixed-rate loan) and interest rate caps with commercial banking customers to facilitate their respective risk management strategies. The customer interest rate swaps and interest rate caps are simultaneously offset by interest rate swaps and interest rate caps that Customers executes with a third party in order to minimize interest-rate risk exposure resulting from such transactions. As the interest rate swaps and interest rate caps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and caps and the offsetting third-party market swaps and caps are recognized directly in earnings. At June 30, 2021, Customers had 157 interest rate swaps with an aggregate notional amount of $1.4 billion and 12 interest rate caps with an aggregated notional amount of $205.4 million related to this program. At December 31, 2020, Customers had 155 interest rate swaps with an aggregate notional amount of $1.4 billion and 12 interest rate caps with an aggregate notional amount of $204.9 million related to this program.
Customers enters into residential mortgage loan commitments in connection with its consumer mortgage banking activities to fund mortgage loans at specified rates and times in the future. These commitments are short-term in nature and generally expire in 30 to 60 days. The residential mortgage loan commitments that relate to the origination of mortgage loans that will be held for sale are considered derivative instruments under applicable accounting guidance and are reported at fair value, with changes in fair value recorded directly in earnings. At June 30, 2021 and December 31, 2020, Customers had an outstanding notional balance of residential mortgage loan commitments of $6.0 million and $11.9 million, respectively.
Customers has also purchased and sold credit derivatives to either hedge or participate in the performance risk associated with some of its counterparties. These derivatives are not designated as hedging instruments and are reported at fair value, with changes in fair value reported directly in earnings. At June 30, 2021 and December 31, 2020, Customers had outstanding notional balances of credit derivatives of $165.8 million and $177.2 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, 2021 and December 31, 2020.
 June 30, 2021
 Derivative AssetsDerivative Liabilities
(amounts in thousands)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as fair value hedges:
Interest rate swapsOther assets$846 Other liabilities$
Total$846 $
Derivatives not designated as hedging instruments:
Interest rate swapsOther assets$36,795 Other liabilities$38,367 
Interest rate capsOther assets146 Other liabilities146 
Credit contractsOther assets201 Other liabilities243 
Residential mortgage loan commitmentsOther assets301 Other liabilities
Total$37,443 $38,756 
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December 31, 2020
Derivative AssetsDerivative Liabilities
(amounts in thousands)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as cash flow hedges:
Interest rate swapsOther assets$196 Other liabilities$40,765 
Total$196 $40,765 
Derivatives designated as fair value hedges:
Interest rate swapsOther assets$Other liabilities$741 
Total$$741 
Derivatives not designated as hedging instruments:
Interest rate swapsOther assets$53,455 Other liabilities$56,209 
Interest rate capsOther assets46 Other liabilities46 
Credit contractsOther assets326 Other liabilities403 
Residential mortgage loan commitmentsOther assets200 Other liabilities
Total$54,027 $56,658 
Effect of Derivative Instruments on Net Income
The following tables present amounts included in the consolidated statements of income related to derivatives designated as fair value hedges and derivatives not designated as hedges for the three and six months ended June 30, 2021 and 2020.
Amount of Income (Loss) Recognized in Earnings
Three Months Ended June 30,Six Months Ended June 30,
(amounts in thousands)Income Statement Location2021202020212020
Derivatives designated as fair value hedges:
Recognized on interest rate swapsNet interest income$(130)$$4,777 $
Recognized on hedged available for sale debt securitiesNet interest income130 (4,777)
Total$$$$
Derivatives not designated as hedging instruments:
Interest rate swapsOther non-interest income$(376)$(5,563)$2,023 $(6,578)
Interest rate capsOther non-interest income
Credit contractsOther non-interest income(63)1,405 74 1,274 
Residential mortgage loan commitmentsMortgage banking income105 (164)101 (27)
Total$(334)$(4,322)$2,198 $(5,331)

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Effect of Derivative Instruments on Comprehensive Income

The following table presents the effect of Customers' derivative financial instruments on comprehensive income for the three and six months ended June 30, 2021 and 2020.
Amount of Gain (Loss) Recognized in OCI on Derivatives (1)
Location of Gain (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Three Months Ended
June 30,
Three Months Ended
June 30,
(amounts in thousands)2021202020212020
Derivatives in cash flow hedging relationships:
Interest rate swaps$$(4,685)Interest expense$(1,046)$(2,718)

Amount of Gain (Loss) Recognized in OCI on Derivatives (1)
Location of Gain (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Six Months Ended
June 30,
Six Months Ended
June 30,
(amounts in thousands)2021202020212020
Derivatives in cash flow hedging relationships:
Interest rate swaps$9,117 $(25,031)Interest expense$(2,505)$(4,196)
Other non-interest income(24,467)
Total$9,117 $(25,031)$(26,972)$(4,196)
(1) Amounts presented are net of taxes. See NOTE 5 - 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 or with central clearing parties.
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, 2021, the fair value of derivatives in a net liability position (which includes accrued interest but excludes any adjustment for nonperformance-risk) related to these agreements was $37.5 million. In addition, Customers, which has collateral posting thresholds with certain of these counterparties, had posted $35.6 million of cash as collateral at June 30, 2021. Customers records cash posted as collateral with these counterparties, except with a central clearing party, as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets.
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Disclosures about Offsetting Assets and Liabilities
The following tables present derivative instruments that are subject to enforceable master netting arrangements. Customers' interest rate swaps and interest rate caps with institutional counterparties are subject to master netting arrangements and are included in the table below. Interest rate swaps and interest rate caps with commercial banking customers and residential mortgage loan commitments are not subject to master netting arrangements and are excluded from the table below. Customers has not made a policy election to offset its derivative positions.
 Gross Amounts Recognized on the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)Financial InstrumentsCash Collateral Received/(Posted)Net Amount
June 30, 2021
Interest rate derivative assets with institutional counterparties$$$$
Interest rate derivative liabilities with institutional counterparties$35,590 $$(35,590)$
 Gross Amounts Recognized on the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)Financial InstrumentsCash Collateral Received/(Posted)Net Amount
December 31, 2020
Interest rate derivative assets with institutional counterparties$199 $$$199 
Interest rate derivative liabilities with institutional counterparties$97,641 $$(97,641)$

NOTE 14 — LOSS CONTINGENCIES
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the consolidated financial statements that are not currently accrued for. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution may have a material adverse effect on Customers’ results of operations for a particular period, and future changes in circumstances or additional information could result in accruals or resolution in excess of established accruals, which could adversely affect Customers’ results of operations, potentially materially.
United States Department of Education Matter
In third quarter 2018, Customers received a Final Program Review Determination ("FPRD") letter dated September 5, 2018 from the ED regarding a focused program review of Higher One's/Customers Bank's administration, as a third party servicer, of the programs authorized pursuant to Title IV of the Higher Education Act of 1965. The ED program review covered the award years beginning in 2013 through the FPRD issuance date, including the time period when Higher One was acting as the third party servicer prior to Customers' acquisition of the Disbursement business on June 15, 2016. The FPRD determined that, with respect to students enrolled at specified partner institutions, Higher One/Customers did not provide convenient fee-free access to ATMs or bank branch offices in such locations as required by the ED’s cash management regulations. Those regulations, which were in effect during the period covered by the program review and were revised during that period, seek, among other purposes, to ensure that students can make fee-free cash withdrawals. The FPRD determined that students incurred prohibited costs in accessing Title IV credit balance funds, and the FPRD classifies those costs as financial liabilities of Customers. The FPRD also requires Customers to take prospective action to increase ATM access for students at certain of its partner institutions. Customers disagreed with the FPRD and appealed the asserted financial liabilities of $6.5 million, and a request for review has been submitted to trigger an administrative process before the ED’s Office of Hearing and Appeals.
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On March 26, 2020, the ED and Customers filed a Joint Motion to Dismiss with Prejudice (the "Joint Motion") with the United States Department of Education. The Joint Motion states that the ED and Customers reached an agreement that resolves the liabilities at issue in the appeal. The Joint Motion was granted on April 27, 2020. As part of the settlement, the liabilities assessed in the FPRD were reduced to $3.0 million (the "settlement amount"). Customers had previously recorded a liability in the amount of $1.0 million during third quarter 2019 and increased its liability by an additional $1.0 million in first quarter 2020. The remaining $1.0 million is expected to be funded from funds in an escrow account set-up at the time of Customers' acquisition of the Disbursement business from Higher One in 2016.
Specialty’s Café Bakery, Inc. Matter
On May 27, 2020, the appointed Chapter 7 Trustee for Specialty’s Café Bakery, Inc. (“Debtor”) filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the United Stated Bankruptcy Court for the Central District of California. On October 28, 2020, the Trustee, as plaintiff, filed her amended adversary complaint (“Adversary Complaint”) against Customers Bank and the SBA seeking to avoid and recover for the benefit of the Debtor’s estate and its creditors the payment made by the Debtor to Customers Bank in the amount of $8.1 million in satisfaction of a Payroll Protection Program loan made by Customers Bank to the Debtor (the “PPP Loan Payment”). The Trustee seeks to avoid and recover the entire PPP Loan Payment from the Bank under the authority provided in 11 U.S.C. §547 and §550, which together permit a trustee of a bankruptcy debtor to avoid and recover, for a more equitable distribution among all creditors, certain transfers made within ninety (90) days before the filing of the bankruptcy petition. The Bank intends to vigorously defend itself against the Trustee’s Adversary Complaint and is currently unable to reasonably determine the likelihood of loss nor estimate a possible range of loss.
NOTE 15 – SUBSEQUENT EVENTS

On July 28, 2021, Customers' board of directors approved a plan to redeem $ 82.5 million, or all of our outstanding shares of Series C Preferred Stock and Series D Preferred Stock. On August 6, 2021, Customers Bancorp completed an underwritten public offering of $100 million in aggregate principal amount of its 2.875% Fixed-to-Floating Rate Senior Notes due 2031 (the “Notes”). The price to the public was 100% of the principal amount of the Notes. The Company estimates the net proceeds from the sale of the Notes, after deducting discounts and commissions and estimated offering expenses payable by the Company, will be approximately $98.7 million. The Company intends to use the net proceeds from the offering to fund the redemption of all of the Company's outstanding Series C Preferred Stock and Series D Preferred Stock. The Company intends to use any remaining proceeds following the redemptions for general corporate purposes, which may include working capital, repaying indebtedness and providing capital to the Bank. The amounts the Company actually expends for any purpose may vary significantly depending upon numerous factors, including assessments of potential market opportunities and competitive developments. The offering of the Notes was made pursuant to the Company’s effective shelf registration statement on Form S-3 previously filed by the Company with the SEC.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This report and all attachments hereto, as well as other written or oral communications made from time to time by us, may contain forward-looking information within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to Customers Bancorp, Inc.’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words may,” could,” should,” pro forma,” looking forward,” would,” believe,” expect,” anticipate,” estimate,” intend,” plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Customers Bancorp, Inc.’s control). Numerous competitive, economic, regulatory, legal and technological events and factors, among others, could cause Customers Bancorp, Inc.’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements, including: the adverse impact on the U.S. economy, including the markets in which we operate, of the coronavirus outbreak, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan and lease portfolio, the market value of our investment securities, the demand for our products and services and the availability of sources of funding; the effects of actions by the federal government, including the Board of Governors of the Federal Reserve System and other government agencies, that affect market interest rates and the money supply; actions that we and our customers take in response to these developments and the effects such actions have on our operations, products, services and customer relationships; and the effects of changes in accounting standards or policies. Customers Bancorp, Inc. cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Customers Bancorp, Inc.’s filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K for the year ended December 31, 2020, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments thereto, that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Customers Bancorp, Inc. does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Customers Bancorp, Inc. or by or on behalf of Customers Bank, except as may be required under applicable law.
Management’s discussion and analysis represents an overview of the financial condition and results of operations, and highlights the significant changes in the financial condition and results of operations, as presented in the accompanying consolidated financial statements for Customers Bancorp, Inc. (the "Bancorp" or "Customers Bancorp"), a financial holding company, and its wholly owned subsidiaries, including Customers Bank (the "Bank"), collectively referred to as "Customers" herein. This information is intended to facilitate your understanding and assessment of significant changes and trends related to Customers' financial condition and results of operations as of and for the three and six months ended June 30, 2021. 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' 2020 Form 10-K.
Overview
Like most financial institutions, Customers derives the majority of its income from interest it receives on its interest-earning assets, such as loans, leases and investments. Customers' primary source of funds for making these loans, leases and investments are its deposits and borrowings, on which it pays interest. Consequently, one of the key measures of Customers' success is the amount of its net interest income, or the difference between the interest income on its interest-earning assets and the interest expense on its interest-bearing liabilities, such as deposits and borrowings. Another key measure is the difference between the interest income generated by interest earning assets and the interest expense on interest-bearing liabilities, relative to the amount of average interest earning assets, which is referred to as net interest margin.
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On January 4, 2021, Customers Bancorp completed the previously announced divestiture of BankMobile Technologies, Inc., the technology arm of its BankMobile segment, to MFAC Merger Sub Inc., an indirect wholly-owned subsidiary of MFAC, pursuant to an Agreement and Plan of Merger, dated August 6, 2020, by and among MFAC, MFAC Merger Sub Inc., BMT, Customers Bank, the sole stockholder of BMT, and Customers Bancorp, the parent bank holding company for Customers Bank (as amended on November 2, 2020 and December 8, 2020). In connection with the closing of the divestiture, MFAC changed its name to “BM Technologies, Inc.” Following the completion of the divestiture of BMT, BankMobile's serviced deposits and loans and the related net interest income have been combined with Customers’ financial condition and the results of operations as a single reportable segment. BMT's historical financial results for periods prior to the divestiture are reflected in Customers’ consolidated financial statements as discontinued operations. The assets and liabilities of BMT have been presented as "Assets of discontinued operations" and "Liabilities of discontinued operations" on the consolidated balance sheet at December 31, 2020. BMT's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying consolidated financial statements and prior period amounts have been reclassified to conform with the current period presentation. For additional information refer to "NOTE 3 – DISCONTINUED OPERATIONS" to Customers' unaudited consolidated financial statements.
There is credit risk inherent in loans and leases requiring Customers to maintain an ACL to absorb credit losses on existing loans and leases that may become uncollectible. Customers maintains this allowance by charging a provision for credit losses on loan and lease losses against its operating earnings. Customers has included a detailed discussion of this process, as well as several tables describing its ACL, in "NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" and "NOTE 8 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES" to Customers' unaudited consolidated financial statements.
Impact of COVID-19
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization. The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that Customers serves. Governmental responses during the pandemic have included orders closing businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future.
Customers has taken deliberate actions to ensure that it has the necessary balance sheet strength to serve its clients and communities, including increases in liquidity and reserves supported by a strong capital position. Customers' business and consumer customers are experiencing varying degrees of financial distress, which is expected to continue in the coming months. In order to protect the health of its customers and team members, and to comply with applicable government directives, Customers has modified its business practices, including restricting team member travel, directing team members to work from home insofar as is possible and implementing its business continuity plans and protocols to the extent necessary. Customers also has made donations that have resulted in more than $1 million, either directly or indirectly, to communities in its footprint for urgent basic needs and has been re-targeting existing sponsorship and grants to non-profit organizations to support COVID-19 related activities.
On March 27, 2020, the CARES Act was signed into law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act includes the SBA's PPP, a nearly $350 billion program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee an eight-week or 24-week period of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. On April 16, 2020, the SBA announced that all available funds had been exhausted and applications were no longer being accepted. On April 22, 2020, an additional $310 billion of funds for the PPP was signed into law. On August 8, 2020, the SBA announced that the PPP was closed and no longer accepting PPP applications from participating lenders. On December 27, 2020, the CAA was signed into law, including Division N, Title III, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, which provides $284 billion in additional funding for the SBA's PPP for small businesses affected by the COVID-19 pandemic. The CAA provides small businesses who received an initial PPP loan and experienced a 25% reduction in gross receipts to request a second PPP loan of up to $2.0 million. On January 11, 2021, the SBA reopened the PPP program to small business and non-profit organizations that did not receive a loan through the initial PPP phase. On March 11, 2021, the American Rescue Plan Act of 2021 was enacted expanding eligibility for first and second round of PPP loans and revising the exclusions from payroll costs for purposes of loan forgiveness. The PPP ended on May 31, 2021. As of June 30, 2021, Customers has helped thousands of small businesses by originating approximately $9.5 billion in PPP loans directly or through fintech partnerships.
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In response to the COVID-19 pandemic, Customers has also implemented a short-term loan modification program to provide temporary payment relief to certain of its borrowers who meet the program's qualifications. This program allows for a deferral of payments for a maximum of 90 days at a time. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. As of June 30, 2021, total commercial deferments declined to $89.8 million, or 0.8% of total loans and leases, excluding PPP loans, from a peak of $1.2 billion and total consumer deferments declined to $8.4 million, or 0.1% of total loans and leases, excluding PPP loans, from a peak of $108 million. Customers had no pending commercial loan deferment requests as of June 30, 2021. As of December 31, 2020, total commercial deferments were $202.1 million, or 1.8% of total loans and leases, excluding PPP loans. Excluding loans receivable, PPP from total loans and leases receivable is a non-GAAP measure. Management believes the use of these non-GAAP measures provides additional clarity when assessing Customers' financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Please refer to the following reconciliation schedule.
(dollars in thousands)June 30, 2021December 31, 2020
Loans held for sale (GAAP)$34,540 $79,086 
Loans receivable, mortgage warehouse, at fair value (GAAP)2,855,284 3,616,432 
Loans and leases receivable (GAAP)14,077,198 12,136,733 
Total loans and leases receivable (GAAP)16,967,022 15,832,251 
Less: Loans receivable, PPP6,305,056 4,561,365 
Total loans and leases, excluding PPP (Non-GAAP)$10,661,966 $11,270,886 
Commercial deferments (GAAP)$89,800 $202,100 
Consumer deferments (GAAP)8,400 16,400 
Total deferments (GAAP)$98,200 $218,500 
Commercial deferments to total loans and leases, excluding PPP (Non-GAAP)0.8 %1.8 %
Consumer deferments to total loans and leases, excluding PPP (Non-GAAP)0.1 %0.1 %
Total deferments to total loans and leases, excluding PPP (Non-GAAP)0.9 %1.9 %
The FRB has taken a range of actions to support the flow of credit to households and businesses. For example, on March 15, 2020, the FRB reduced the target range for the federal funds rate to 0.00% to 0.25% and announced that it would increase its holdings of U.S. Treasury securities and agency mortgage-backed securities and begin purchasing agency commercial mortgage-backed securities. The FRB has also encouraged depository institutions to borrow from the discount window and has lowered the primary credit rate for such borrowing by 150 basis points while extending the term of such loans up to 90 days. Reserve requirements have been reduced to zero as of March 26, 2020. The FRB has also established, or has taken steps to establish, a range of facilities and programs to support the U.S. economy and U.S. marketplace participants in response to economic disruptions associated with COVID-19, including among others, Main Street Lending facilities to purchase loan participations, under specified conditions, from banks lending to small and medium U.S. businesses and the PPPLF, which was created to bolster the effectiveness of the PPP by taking loans as collateral at face value. Customers has been participating in these facilities and programs, and it may participate in some or all of these facilities or programs, including as a lender, agent, or intermediary on behalf of clients or customers at various times in the future. As of June 30, 2021 and December 31, 2020, Customers had $3.9 billion and $4.4 billion in borrowings from the PPPLF, respectively.
Significant uncertainties as to future economic conditions exist, and Customers has taken deliberate actions in response, including higher levels of on-balance sheet liquidity and maintaining strong capital ratios. Additionally, the economic pressures, coupled with the implementation of an expected lifetime loss methodology for determining our provision for credit losses as required by CECL have contributed to an increased provision for credit losses on loans and leases and off-balance sheet credit exposures in 2020. Customers continues to monitor the impact of COVID-19 closely, as well as any effects that may result from the CARES Act, the CAA and the American Rescue Plan Act of 2021; however, the extent to which the COVID-19 pandemic will impact Customers' operations and financial results during the remainder of 2021 is highly uncertain.
New Accounting Pronouncements
For information about the impact that recently adopted or issued accounting guidance will have on us, please refer to "NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" to Customers' unaudited consolidated financial statements.
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Critical Accounting Policies
Customers has adopted various accounting policies that govern the application of U.S. GAAP and that are consistent with general practices within the banking industry in the preparation of its consolidated financial statements. Customers' significant accounting policies are described in "NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" in Customers' audited consolidated financial statements included in its 2020 Form 10-K and updated in this Form 10-Q for the quarterly period ended June 30, 2021 in "NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" in Customers' unaudited consolidated financial statements.
Certain accounting policies may involve significant judgments and assumptions by Customers that have a material impact on the carrying value of certain assets. Customers considers these accounting policies to be critical accounting policies. The judgment and assumptions used are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions management makes, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of Customers' assets.
The critical accounting policy that is both important to the portrayal of Customers' financial condition and results of operations and requires complex, subjective judgments is the ACL. This critical accounting policy and material estimate, along with the related disclosures, are reviewed by Customers' Audit Committee of the Board of Directors.
Allowance for Credit Losses
Customers' ACL at June 30, 2021 represents Customers' current estimate of the lifetime credit losses expected from its loan and lease portfolio and its unfunded lending-related commitments that are not unconditionally cancellable. Management estimates the ACL by projecting a lifetime loss rate conditional on a forecast of economic parameters and other qualitative adjustments, for the loans and leases' expected remaining term.
Customers uses external sources in the creation of its forecasts, including current economic conditions and forecasts for macroeconomic variables over its reasonable and supportable forecast period (e.g., GDP growth rate, unemployment rate, BBB spread, commercial real estate and home price index). After the reasonable and supportable forecast period, which ranges from two to five years, the models revert the forecasted macroeconomic variables to their historical long-term trends, without specific predictions for the economy, over the expected life of the pool, while also incorporating prepayment assumptions into its lifetime loss rates. Internal factors that impact the quarterly allowance estimate include the level of outstanding balances, portfolio performance and assigned risk ratings. Significant loan/borrower attributes utilized in the models include property type, initial loan to value, assigned risk ratings, delinquency status, origination date, maturity date, initial FICO scores, and borrower state.
The ACL may be affected materially by a variety of qualitative factors that Customers considers to reflect its current judgement of various events and risks that are not measured in our statistical procedures, including uncertainty related to the economic forecasts used in the modeled credit loss estimates, nature and volume of loan and lease portfolio, credit underwriting policy exceptions, peer comparison, industry data, and model and data limitations. The qualitative allowance for economic forecast risk is further informed by multiple alternative scenarios to arrive at a composite scenario supporting the period-end ACL balance. The evaluation process is inherently imprecise and subjective as it requires significant management judgment based on underlying factors that are susceptible to changes, sometimes materially and rapidly. Customers recognizes that this approach may not be suitable in certain economic environments such that additional analysis may be performed at management's discretion. Due in part to its subjectivity, the qualitative evaluation may be materially impacted during periods of economic uncertainty and late breaking events that could lead to revision of reserves to reflect management's best estimate of expected credit losses.
The ACL is established in accordance with our ACL policy. The ACL Committee, which includes the Bank's Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Chief Lending Officer, and Chief Credit Officer, among others, reviews the adequacy of the ACL each quarter, together with Customers' risk management team. The ACL policy, significant judgements and the related disclosures are reviewed by Customers' Audit Committee of the Board of Directors.
The net decrease in our estimated ACL as of June 30, 2021 as compared to our December 31, 2020 estimate was primarily attributable to the continuing improvement in macroeconomic forecasts affecting the commercial loan portfolio. The increase in ACL in our installment loan portfolio is mainly due to loan growth. There was a $3.3 million and $0.4 million provision for credit losses on loans and leases for the three and six months ended June 30, 2021, respectively, resulting in an ACL ending balance of $126.5 million ($125.4 million for loans and leases and $1.1 million for unfunded lending-related commitments) as of June 30, 2021.
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To determine the ACL as of June 30, 2021, Customers utilized Moody's June 2021 Baseline forecast to generate its modelled expected losses by loan portfolio in order to reflect management's reasonable expectations of current and future economic conditions. The Baseline forecast at June 2021 assumed continued improvement in forecasts of macroeconomic conditions compared to the first quarter forecasts of macroeconomic conditions used by Customers; the Federal Reserve maintaining a target range for the fed funds rate at 0.00% to 0.25% into 2023; the tapering of quantitative easing not beginning until 2022; an improving U.S. economy from $1.9 trillion of stimulus from the federal government enacted in March 2021 and a federal spending legislation on infrastructure and social benefits in the second half of 2021; and the acceleration in consumer prices is expected to be transitory along with the U.S. labor supply constraints. Customers continues to monitor the impact of the COVID-19 pandemic and related policy measures on the economy and, if pace of the expected recovery is worse than expected, further meaningful provisions for credit losses could be required.
One of the most significant judgments influencing the ACL is the macroeconomic forecasts from Moody's. Changes in the economic forecasts could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next. Given the dynamic relationship between macroeconomic variables within Customers' modelling framework, it is difficult to estimate the impact of a change in any one individual variable on the ACL. However, to illustrate a hypothetical sensitivity analysis, management calculated a quantitative allowance using a 100% weighting applied to an adverse scenario. This scenario includes assumptions around new infections, hospitalizations and COVID-19 deaths diminish more slowly than the Baseline projections, leading to a much slower re-opening of the economy. Under this scenario, as an example, the unemployment rate is estimated at 6.9% and 9.0% at the end of 2021 and 2022, respectively. These numbers represent a 1.5% and 5.2% higher unemployment estimate than Baseline scenario projections of 5.4% and 3.7%, respectively for the same time periods. To demonstrate the sensitivity to key economic parameters, management calculated the difference between a 100% Baseline weighting and a 100% adverse scenario weighting for modeled results. This would result in an incremental quantitative impact to the ACL of approximately $49.7 million. This resulting difference is not intended to represent an expected increase in ACL levels since (i) Customers may use a weighted approach applied to multiple economic scenarios for its ACL process, (ii) the highly uncertain economic environment, (iii) the difficulty in predicting inter-relationships between macroeconomic variables used in various economic scenarios, and (iv) the sensitivity analysis does not account for any qualitative adjustments incorporated by Customers as part of its overall ACL framework.
There is no certainty that Customers' ACL will be appropriate over time to cover losses in our portfolio as economic and market conditions may ultimately differ from our reasonable and supportable forecast. Additionally, events adversely affecting specific customers, industries, or Customers' markets, such as the current COVID-19 pandemic, could severely impact our current expectations. If the credit quality of Customers' customer base materially deteriorates or the risk profile of a market, industry, or group of customers changes materially, Customers' net income and capital could be materially adversely affected which, in turn could have a material adverse effect on Customers' financial condition and results of operations. The extent to which the current COVID-19 pandemic has and will continue to negatively impact Customers' businesses, financial condition, liquidity and results will depend on future developments, which are highly uncertain and cannot be forecasted with precision at this time.
For more information, see "NOTE 8 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES" to the unaudited consolidated financial statements.
51

Results of Operations
The following table sets forth the condensed statements of income for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30,QTDSix Months Ended June 30,YTD
(dollars in thousands)20212020Change% Change20212020Change% Change
Net interest income$138,757 $91,982 $46,775 50.9 %$271,488 $173,302 $98,186 56.7 %
Provision for credit losses on loans and leases3,291 20,946 (17,655)(84.3)%372 52,732 (52,360)(99.3)%
Total non-interest income16,822 11,711 5,111 43.6 %35,290 22,871 12,419 54.3 %
Total non-interest expense70,823 49,791 21,032 42.2 %132,750 98,758 33,992 34.4 %
Income before income tax expense81,465 32,956 48,509 147.2 %173,656 44,683 128,973 288.6 %
Income tax expense20,124 7,980 12,144 152.2 %37,684 11,254 26,430 234.8 %
Net income from continuing operations61,341 24,976 36,365 145.6 %135,972 33,429 102,543 306.7 %
Loss from discontinued operations before income tax expense— (3,190)3,190 (100.0)%(20,354)(9,911)(10,443)105.4 %
Income tax expense (benefit) from discontinued operations— (932)932 (100.0)%17,682 (2,299)19,981 (869.1)%
Net loss from discontinued operations— (2,258)2,258 (100.0)%(38,036)(7,612)(30,424)399.7 %
Net income61,341 22,718 38,623 170.0 %97,936 25,817 72,119 279.3 %
Preferred stock dividends3,299 3,581 (282)(7.9)%6,690 7,196 (506)(7.0)%
Net income available to common shareholders$58,042 $19,137 $38,905 203.3 %$91,246 $18,621 $72,625 390.0 %
Customers reported net income available to common shareholders of $58.0 million and $91.2 million for the three and six months ended June 30, 2021, respectively, compared to net income available to common shareholders of $19.1 million and $18.6 million for the three and six months ended June 30, 2020, respectively. Factors contributing to the change in net income available to common shareholders for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 were as follows.
Net interest income
Net interest income increased $46.8 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 as average interest-earning assets increased by $4.7 billion, and NIM increased by 33 basis point to 2.98% for the three months ended June 30, 2021 from 2.65% for the three months ended June 30, 2020. The increase in interest-earning assets was driven by increases in the origination of the latest round of PPP loans, commercial loans to mortgage companies, commercial and industrial loans and leases, investment securities and installment loans, offset in part by a decrease in multi-family loans. There was also PPP loan forgiveness from the first two rounds which accelerated the recognition of net deferred loan origination fees that contributed to the NIM increase. The shift in the mix of interest-earning assets and interest-bearing liabilities in a lower interest rate environment drove an 11 basis point decline in the yield on interest-earning assets and a 50 basis point decline in the cost of interest-bearing liabilities for the three months ended June 30, 2021. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was $6.3 billion ($6.1 billion average balance) of PPP loans yielding 2.69% and related PPPLF borrowings of $3.9 billion ($3.9 billion average balance) costing 0.35%. Customers' total cost of funds, including non-interest bearing deposits was 0.54% and 0.99% for the three months ended June 30, 2021 and 2020, respectively.
52

Net interest income increased $98.2 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 as average interest-earning assets increased by $5.8 billion, and NIM increased by 19 basis point to 2.99% for the six months ended June 30, 2021 from 2.80% for the six months ended June 30, 2020. The increase in interest-earning assets was driven by increases in the origination of PPP loans, commercial loans to mortgage companies, investment securities, commercial and industrial loans and leases and installment loans, offset in part by decreases in multi-family loans. The shift in the mix of interest-earning assets and interest-bearing liabilities in a lower interest rate environment drove a 48 basis point decline in the yield on interest-earning assets and a 80 basis point decline in the cost of interest-bearing liabilities for the six months ended June 30, 2021. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was $6.3 billion ($5.4 billion average balance) of PPP loans yielding 3.00% and related PPPLF borrowings of $3.9 billion ($3.9 billion average balance) costing 0.35%. There was also PPP loan forgiveness from the first two rounds which accelerated the recognition of net deferred loan origination fees that contributed to the NIM increase. Customers' total cost of funds, including non-interest bearing deposits was 0.61% and 1.30% for the six months ended June 30, 2021 and 2020, respectively.
Provision for credit losses on loans and leases
The $17.7 million decrease in the provision for credit losses for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, reflects the continuing improvement in macroeconomic forecasts since the beginning of COVID-19 pandemic in first quarter 2020. Upon adoption of the CECL standard on January 1, 2020, the ACL for loans and leases and off-balance sheet credit exposures increased by $79.8 million and $3.4 million, respectively. The ACL on off-balance sheet credit exposures is presented within accrued interest payable and other liabilities in the consolidated balance sheet and the related provision is presented as part of other non-interest expense on the consolidated income statement. The ACL on loans and leases held for investment represented 1.18% of total loans and leases receivable, excluding PPP loans (non-GAAP measure, please refer to the non-GAAP reconciliation within Loans and Leases - Asset Quality), at June 30, 2021, compared to 2.20% at June 30, 2020. Net charge-offs for the three months ended June 30, 2021 were $6.6 million, or 16 basis points of average loans and leases on an annualized basis, compared to net charge-offs of $10.3 million, or 32 basis points on an annualized basis, for the three months ended June 30, 2020. The decrease in net charge-offs for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, was primarily due to a charge-off of $2.8 million for one commercial real estate collateral dependent loan during the three months ended June 30, 2020.
The $52.4 million decrease in the provision for credit losses for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, reflects the continuing improvement in macroeconomic forecasts since the beginning of COVID-19 pandemic in first quarter 2020. Net charge-offs for the six months ended June 30, 2021 were $19.1 million, or 24 basis points of average loans and leases on an annualized basis, compared to net charge-offs of $29.0 million, or 52 basis points on an annualized basis, for the six months ended June 30, 2020. The decrease in net charge-offs for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, was primarily due to a charge-off of $12.8 million for one commercial real estate collateral dependent loan during the six months ended June 30, 2020.
Non-interest income
The $5.1 million increase in non-interest income for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily resulted from increases of $3.7 million in unrealized gain (loss) on derivatives, $1.9 million in gain (loss) on sale of SBA and other loans, $1.2 million in other non-interest income, $1.0 million in bank-owned life insurance, $0.8 million in commercial lease income, $0.7 million in mortgage warehouse transactional fees and $0.5 million in unrealized gain (loss) on investment securities. These increases were offset in part by a $2.8 million loss from the sale of foreign subsidiaries and a decrease of $2.5 million in gain (loss) on sale of investment securities.
The $12.4 million increase in non-interest income for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily resulted from increases of $17.1 million in gain (loss) on sale of investment securities, $7.4 million in unrealized gain (loss) on derivatives, $3.4 million in gain (loss) on sale of SBA and other loans, $3.0 million in mortgage warehouse transactional fees, $2.9 million in unrealized gain (loss) on investment securities, $2.4 million in other non-interest income, $1.7 million in commercial lease income and $0.9 million in bank-owned life insurance. These increases were offset in part by $24.5 million of loss on cash flow hedge derivative terminations and $2.8 million of loss on sale of foreign subsidiaries for the six months ended June 30, 2021.
Non-interest expense
The $21.0 million increase in non-interest expense for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily resulted from increases of $8.5 million in technology, communication and bank operations, $5.3 million in professional services, $4.8 million in salaries and employee benefits, $3.3 million in other non-interest expense and $0.8 million in commercial lease depreciation. These increases were offset in part by a decrease of $1.7 million in loan workout expenses for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
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The $34.0 million increase in non-interest expense for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily resulted from increases of $18.0 million in technology, communication and bank operations, $8.3 million in salaries and employee benefits, $8.0 million in professional services and $1.6 million in commercial lease depreciation. These increases were offset in part by a decrease of $2.3 million in loan workout expenses for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Income tax expense
Customers' effective tax rate from continuing operations was 24.7% for the three months ended June 30, 2021 compared to 24.2% for the three months ended June 30, 2020. The increase in the effective tax rate primarily resulted from an increase in compensation expense associated with an executive's retirement that exceeded the limit for tax deduction purposes.
Customers' effective tax rate from continuing operations was 21.7% for the six months ended June 30, 2021 compared to 25.2% for the six months ended June 30, 2020. The decrease in the effective tax rate primarily resulted from an increase in investment tax credits in 2021 and the recording of net discrete tax benefits associated with the divestiture of BMT and the recognition of a deferred tax asset related to the outside basis difference of foreign subsidiaries for the six months ended June 30, 2021, offset in part by an increase in compensation expense associated with an executive's retirement that exceeded the limit for tax deduction purposes.
Net loss from discontinued operations
On January 4, 2021, Customers Bancorp completed the previously announced divestiture of BMT, the technology arm of its BankMobile segment, to MFAC Merger Sub Inc., an indirect wholly-owned subsidiary of MFAC, pursuant to an Agreement and Plan of Merger, dated August 6, 2020, by and among Megalith, MFAC Merger Sub Inc., BMT, Customers Bank, the sole stockholder of BMT, and Customers Bancorp, the parent bank holding company for Customers Bank (as amended on November 2, 2020 and December 8, 2020). In connection with the closing of the divestiture, MFAC changed its name to “BM Technologies, Inc.” Following the completion of the divestiture of BMT, BankMobile's serviced deposits and loans and the related net interest income have been combined with Customers' financial condition and the results of operations as a single reportable segment.
BMT's historical financial results for periods prior to the divestiture are reflected in Customers Bancorp’s consolidated financial statements as discontinued operations. The assets and liabilities of BMT have been presented as "Assets of discontinued operations" and "Liabilities of discontinued operations" on the consolidated balance sheet at December 31, 2020. BMT's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying consolidated financial statements and prior period amounts have been reclassified to conform with the current period presentation.
Customers had no loss from discontinued operations, net of income taxes for the three months ended June 30, 2021 compared to $2.3 million for the three months ended June 30, 2020. The $2.3 million decrease was a result of the divestiture of BMT during the three months ended March 31, 2021.
Customers' loss from discontinued operations, net of income taxes was $38.0 million for the six months ended June 30, 2021 compared to $7.6 million for the six months ended June 30, 2020. The $30.4 million increase primarily resulted from restricted stock awards of BM Technologies' common stock granted to certain team members of BMT and the effect of the divestiture being treated as a taxable asset sale for tax purposes, offset in part by a tax benefit related to the restricted stock awards during the three months ended March 31, 2021. See "NOTE 3 – DISCONTINUED OPERATIONS" to the unaudited consolidated financial statements for additional information.
Preferred stock dividends
Preferred stock dividends were $3.3 million and $3.6 million for the three months ended June 30, 2021 and 2020, respectively. Preferred stock dividends were $6.7 million and $7.2 million for the six months ended June 30, 2021 and 2020, respectively. There were no changes to the amount of preferred stock outstanding during the three and six months ended June 30, 2021 and 2020.
On June 15, 2020, the Series C Preferred Stock became floating at three-month LIBOR plus 5.300%, compared to a fixed rate of 7.00%. On March 15, 2021, the Series D Preferred Stock became floating at three-month LIBOR plus 5.09%, compared to a fixed rate of 6.50%. On June 15, 2021, the Series E Preferred Stock became floating at three-month LIBOR plus 5.14%, compared to a fixed rate of 6.45%.
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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 Customers' net interest income, related interest spread, net interest margin and the dollar amount of changes in interest income and interest expense for the major categories of interest-earning assets and interest-bearing liabilities for the three and six months ended June 30, 2021 and 2020. 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.

55

Three Months Ended June 30,Three Months Ended June 30,
202120202021 vs. 2020
(dollars in thousands)Average
Balance
Interest
Income or
Expense
Average
Yield or
Cost (%)
Average
Balance
Interest
Income or
Expense
Average
Yield or
Cost (%)
Due to rateDue to volumeTotal
Assets
Interest-earning deposits$646,342 $188 0.12 %$384,622 $113 0.12 %$— $75 $75 
Investment securities (1)
1,512,644 8,327 2.20 %705,389 6,155 3.49 %(2,900)5,072 2,172 
Loans and leases:
Commercial loans to mortgage companies2,737,629 21,069 3.09 %2,456,067 17,740 2.91 %1,166 2,163 3,329 
Multi-family loans1,551,370 15,013 3.88 %2,009,847 19,345 3.87 %50 (4,382)(4,332)
Commercial and industrial loans and leases (2)
2,878,045 25,786 3.59 %2,460,060 24,775 4.05 %(2,977)3,988 1,011 
PPP loans6,133,184 41,137 2.69 %2,754,920 11,706 1.71 %9,374 20,057 29,431 
Non-owner occupied commercial real estate loans1,368,695 13,187 3.86 %1,392,131 13,179 3.81 %199 (191)
Residential mortgages346,284 3,127 3.62 %429,609 3,771 3.53 %95 (739)(644)
Installment loans1,467,595 34,289 9.37 %1,288,999 27,931 8.72 %2,224 4,134 6,358 
Total loans and leases (3)
16,482,802 153,608 3.74 %12,791,633 118,447 3.72 %10,131 25,030 35,161 
Other interest-earning assets57,208 758 5.32 %98,377 503 2.06 %536 (281)255 
Total interest-earning assets18,698,996 162,881 3.49 %13,980,021 125,218 3.60 %7,767 29,896 37,663 
Non-interest-earning assets607,952 616,683 
Assets of discontinued operations— 78,880 
Total assets$19,306,948 $14,675,584 
Liabilities
Interest checking accounts$3,503,242 6,653 0.76 %$2,482,222 4,605 0.75 %64 1,984 2,048 
Money market deposit accounts4,859,614 5,650 0.47 %3,034,457 6,449 0.85 %(3,639)2,840 (799)
Other savings accounts1,456,777 2,076 0.57 %1,177,554 5,677 1.94 %(4,718)1,117 (3,601)
Certificates of deposit658,698 1,274 0.78 %1,734,062 6,507 1.51 %(2,293)(2,940)(5,233)
Total interest-bearing deposits (4)
10,478,331 15,653 0.60 %8,428,295 23,238 1.11 %(10,586)3,001 (7,585)
FRB PPP liquidity facility3,858,733 3,367 0.35 %942,258 822 0.35 %— 2,545 2,545 
Borrowings531,757 5,104 3.85 %2,282,761 9,176 1.62 %6,468 (10,540)(4,072)
Total interest-bearing liabilities14,868,821 24,124 0.65 %11,653,314 33,236 1.15 %(4,118)(4,994)(9,112)
Non-interest-bearing deposits (4)
2,889,781 1,890,955 
Total deposits and borrowings17,758,602 0.54 %13,544,269 0.99 %
Other non-interest-bearing liabilities328,251 88,913 
Liabilities of discontinued operations— 53,268 
Total liabilities18,086,853 13,686,450 
Shareholders' equity1,220,095 989,134 
Total liabilities and shareholders' equity$19,306,948 $14,675,584 
Net interest income138,757 91,982 $11,885 $34,890 $46,775 
Tax-equivalent adjustment (5)
289 225 
Net interest earnings$139,046 $92,207 
Interest spread2.95 %2.61 %
Net interest margin2.98 %2.65 %
Net interest margin tax equivalent (5)
2.98 %2.65 %
Net interest margin tax equivalent, excluding PPP loans (6)
3.30 %2.97 %
(1)For presentation in this table, average balances and the corresponding average yields for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(2)Includes owner occupied commercial real estate loans.
(3)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans and leases, and deferred loan fees.
(4)Total costs of deposits (including interest bearing and non-interest-bearing) were 0.47% and 0.91% for the three months ended June 30, 2021 and 2020, respectively.
(5)Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the three months ended June 30, 2021 and 2020, presented to approximate interest income as a taxable asset. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.
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(6)Non-GAAP tax-equivalent basis, as described in note (5) for the three months ended June 30, 2021 and 2020, excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.
Net interest income increased $46.8 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 as average interest-earning assets increased by $4.7 billion, primarily related to PPP loan originations and increases in investment securities, installment loans, commercial and industrial loans and commercial loans to mortgage companies, partially offset by a decrease in multi-family loans as the loan mix improved year-over-year. The commercial loans to mortgage companies trend has been a function of greater refinance activity due to sharply lower interest rates, an increase in home purchase volumes, and market share gains from other banks.
The NIM increased by 33 basis point to 2.98% for the three months ended June 30, 2021 from 2.65% for the three months ended June 30, 2020 resulting from the Federal Reserve interest rate cuts of 225 basis points beginning in August 2019, and the shift in the mix of interest-earning assets and interest-bearing liabilities drove a 11 basis point decline in the yield on interest-earning assets and a 50 basis point decline in the cost of interest-bearing liabilities for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was $6.3 billion ($6.1 billion average balance) of PPP loans yielding 2.69% and related PPPLF borrowings of $3.9 billion ($3.9 billion average balance) costing 0.35%. There was also PPP loan forgiveness from the first two rounds which accelerated the recognition of net deferred loan origination fees that contributed to the NIM increase. Customers' total cost of funds, including non-interest bearing deposits was 0.54% and 0.99% for the three months ended June 30, 2021 and 2020, respectively.
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Six Months Ended June 30,Six Months Ended June 30,
202120202021 vs. 2020
(dollars in thousands)Average
Balance
Interest
Income or
Expense
Average
Yield or
Cost (%)
Average
Balance
Interest
Income or
Expense
Average
Yield or
Cost (%)
Due to rateDue to volumeTotal
Assets    
Interest-earning deposits$910,362 $490 0.11 %$578,435 $2,974 1.03 %$(3,577)$1,093 $(2,484)
Investment securities (1)
1,435,529 16,306 2.27 %635,838 11,132 3.50 %(4,932)10,106 5,174 
Loans and leases:
Commercial loans to mortgage companies2,928,802 44,860 3.09 %2,148,863 35,254 3.30 %(2,375)11,981 9,606 
Multi-family loans1,619,891 30,861 3.84 %2,