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Customers Bancorp (CUBI)

Filed: 9 May 22, 4:39pm

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 March 31, 2022
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-20220331_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 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.
Large accelerated filerxAccelerated Filer
Non-accelerated filer
o 
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.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 May 6, 2022, 32,981,204 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 (loss)
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
CAAConsolidated Appropriations Act, 2021
CARES ActCoronavirus Aid, Relief and Economic Security Act
CBITTM
Customers Bank Instant Token
CCFCustomers Commercial Finance, LLC
CECLCurrent expected credit losses
CommissionU.S. Securities and Exchange Commission
CompanyCustomers Bancorp, Inc. and subsidiaries
COVID-19Coronavirus Disease 2019
CPIConsumer Price Index
CRACommunity Reinvestment Act
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
Disbursement BusinessOne Account Student Checking and Refund Management Disbursement Services Business
EDU.S. Department of Education
EPSEarnings per share
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
FHLBFederal Home Loan Bank
FICOFair, Isaac and Company
FintechThird-Party Financial Technology
FMVFair Market Value
FPRDFinal Program Review Determination
FRBFederal Reserve Bank of Philadelphia
GDPGross domestic product
Higher OneHigher One Holdings, Inc.
LIBORLondon Interbank Offered Rate
LPOLimited Purpose Office
MFACMegalith Financial Acquisition Corp.
MMDAMoney market deposit accounts
NIMNet interest margin, tax equivalent
NMNot meaningful
NPANon-performing asset
NPLNon-performing loan
NYSENew York Stock Exchange
OCIOther comprehensive income (loss)
OREOOther real estate owned
PCDPurchased Credit-Deteriorated
3

PPPPaycheck Protection Program
PPPLFFRB Paycheck Protection Program Liquidity Facility
PUTPurchase Upon Termination
Rate ShocksInterest rates rising or falling immediately
ROURight-of-use
SBAU.S. Small 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
SERPSupplemental Executive Retirement Plan
Share Repurchase ProgramShare repurchase program authorized by the Board of Directors of Customers Bancorp in 2021
SOFRSecured Overnight Financing Rate
TDRTroubled debt restructuring
TRACTerminal Rental Adjustment Clause
U.S. GAAPAccounting principles generally accepted in the United States of America
VIEVariable interest entity
VOEVoting interest entity


4

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET — UNAUDITED
(amounts in thousands, except share and per share data)
March 31,
2022
December 31,
2021
ASSETS
Cash and due from banks$55,515 $35,238 
Interest earning deposits219,085 482,794 
Cash and cash equivalents274,600 518,032 
Investment securities, at fair value (includes allowance for credit losses of $728 at March 31, 2022)4,169,853 3,817,150 
Loans held for sale (includes $2,496 and $15,747, respectively, at fair value)3,003 16,254 
Loans receivable, mortgage warehouse, at fair value1,755,758 2,284,325 
Loans receivable, PPP2,195,902 3,250,008 
Loans and leases receivable10,118,855 9,018,298 
Allowance for credit losses on loans and leases(145,847)(137,804)
Total loans and leases receivable, net of allowance for credit losses on loans and leases13,924,668 14,414,827 
FHLB, Federal Reserve Bank, and other restricted stock54,553 64,584 
Accrued interest receivable94,669 92,239 
Bank premises and equipment, net8,233 8,890 
Bank-owned life insurance332,239 333,705 
Goodwill and other intangibles3,678 3,736 
Other assets298,212 305,611 
Total assets$19,163,708 $19,575,028 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing$4,594,428 $4,459,790 
Interest bearing11,821,132 12,318,134 
Total deposits16,415,560 16,777,924 
Federal funds purchased700,000 75,000 
FHLB advances— 700,000 
Other borrowings223,230 223,086 
Subordinated debt181,742 181,673 
Accrued interest payable and other liabilities265,770 251,128 
Total liabilities17,786,302 18,208,811 
Commitments and contingencies (NOTE 15)00
Shareholders’ equity:
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 5,700,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021137,794 137,794 
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 34,881,580 and 34,721,675 shares issued as of March 31, 2022 and December 31, 2021; 32,957,847 and 32,913,267 shares outstanding as of March 31, 2022 and December 31, 202134,882 34,722 
Additional paid in capital542,402 542,391 
Retained earnings780,628 705,732 
Accumulated other comprehensive income (loss), net(62,548)(4,980)
Treasury stock, at cost (1,923,732 and 1,808,408 shares as of March 31, 2022 and December 31, 2021)(55,752)(49,442)
Total shareholders’ equity1,377,406 1,366,217 
Total liabilities and shareholders’ equity$19,163,708 $19,575,028 
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
March 31,
 20222021
Interest income:
Loans and leases$157,175 $152,117 
Investment securities20,295 7,979 
Other6,006 1,019 
Total interest income183,476 161,115 
Interest expense:
Deposits13,712 15,658 
FHLB advances— 5,192 
Subordinated debt2,689 2,689 
FRB PPP liquidity facility, federal funds purchased and other borrowings2,376 4,845 
Total interest expense18,777 28,384 
Net interest income164,699 132,731 
Provision (benefit) for credit losses15,997 (2,919)
Net interest income after provision (benefit) for credit losses148,702 135,650 
Non-interest income:
Interchange and card revenue76 85 
Deposit fees940 863 
Commercial lease income5,895 5,205 
Bank-owned life insurance8,326 1,679 
Mortgage warehouse transactional fees2,015 4,247 
Gain (loss) on sale of SBA and other loans1,507 1,575 
Loan fees2,545 1,436 
Mortgage banking income481 463 
Gain (loss) on sale of investment securities(1,063)23,566 
Unrealized gain (loss) on investment securities(276)974 
Unrealized gain (loss) on derivatives964 2,537 
Loss on cash flow hedge derivative terminations— (24,467)
Other(212)305 
Total non-interest income21,198 18,468 
Non-interest expense:
Salaries and employee benefits26,607 23,971 
Technology, communication and bank operations24,068 19,988 
Professional services6,956 5,877 
Occupancy3,050 2,621 
Commercial lease depreciation4,942 4,291 
FDIC assessments, non-income taxes and regulatory fees2,383 2,719 
Loan servicing2,371 437 
Advertising and promotion315 561 
Merger and acquisition related expenses— 418 
Loan workout(38)(261)
Other3,153 1,305 
Total non-interest expense73,807 61,927 
Income before income tax expense96,093 92,191 
Income tax expense19,332 17,560 
Net income from continuing operations$76,761 $74,631 
(continued)
6

Three Months Ended
March 31,
20222021
Loss from discontinued operations before income taxes$— $(20,354)
Income tax expense from discontinued operations— 17,682 
Net loss from discontinued operations— (38,036)
Net income76,761 36,595 
Preferred stock dividends1,865 3,391 
Net income available to common shareholders$74,896 $33,204 
Basic earnings per common share from continuing operations$2.27 $2.23 
Basic earnings per common share2.27 1.04 
Diluted earnings per common share from continuing operations2.18 2.17 
Diluted earnings per common share2.18 1.01 
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
March 31,
 20222021
Net income$76,761 $36,595 
Unrealized gains (losses) on available for sale debt securities:
Unrealized gains (losses) arising during the period(78,858)400 
Income tax effect20,503 (104)
Reclassification adjustments for (gains) losses included in net income1,063 (23,566)
Income tax effect(276)6,127 
Net unrealized gains (losses) on available for sale debt securities(57,568)(17,143)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period— 12,315 
Income tax effect— (3,202)
Reclassification adjustment for (gains) losses included in net income— 25,926 
Income tax effect— (6,741)
Net unrealized gains (losses) on cash flow hedges— 28,298 
Other comprehensive income (loss), net of income tax effect(57,568)11,155 
Comprehensive income (loss)$19,193 $47,750 
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 March 31, 2022
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, December 31, 20215,700,000 $137,794 32,913,267 $34,722 $542,391 $705,732 $(4,980)$(49,442)$1,366,217 
Net income— — — — — 76,761 — — 76,761 
Other comprehensive income (loss)— — — — — — (57,568)— (57,568)
Preferred stock dividends (1)
— — — — — (1,865)— — (1,865)
Share-based compensation expense— — — — 3,703 — — — 3,703 
Issuance of common stock under share-based compensation arrangements— — 159,904 160 (3,692)— — — (3,532)
Repurchase of common shares— — (115,324)— — — — (6,310)(6,310)
Balance, March 31, 20225,700,000 $137,794 32,957,847 $34,882 $542,402 $780,628 $(62,548)$(55,752)$1,377,406 
Three Months Ended March 31, 2021
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, 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— — — — — 36,595 — — 36,595 
Other comprehensive income (loss)— — — — — — 11,155 — 11,155 
Preferred stock dividends (1)
— — — — — (3,391)— — (3,391)
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— — — — 3,609 — — — 3,609 
Issuance of common stock under share-based compensation arrangements— — 533,674 533 4,632 — — — 5,165 
Balance, March 31, 20219,000,000 $217,471 32,238,762 $33,519 $515,318 $438,802 $5,391 $(21,780)$1,188,721 
(1)Dividends per share of $0.333922 and $0.310297 per share were declared on Series E and F preferred stock for the three months ended March 31, 2022. Dividends per share of $0.34478125, $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 March 31, 2021.
(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.
9

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(amounts in thousands)
 Three Months Ended
March 31,
 20222021
Cash Flows from Operating Activities
Net income from continuing operations$76,761 $74,631 
Adjustments to reconcile net income to net cash provided by (used in) by continuing operating activities:
Provision (benefit) for credit losses15,997 (2,919)
Depreciation and amortization6,055 5,321 
Share-based compensation expense3,718 3,082 
Deferred taxes(22,810)(6,198)
Net amortization (accretion) of investment securities premiums and discounts918 (14)
Unrealized (gain) loss on investment securities276 (974)
(Gain) loss on sale of investment securities1,063 (23,566)
Unrealized (gain) loss on derivatives(964)(2,537)
Loss on cash flow hedge derivative terminations— 24,467 
Settlement of terminated cash flow hedge derivatives— (27,156)
Fair value adjustment on loans held for sale— (1,115)
(Gain) loss on sale of loans(2,070)(2,071)
Origination of loans held for sale(10,999)(12,323)
Proceeds from the sale of loans held for sale24,813 17,122 
Amortization (accretion) of loan net deferred fees, discounts and premiums(27,907)(345)
Earnings on investment in bank-owned life insurance(8,326)(1,679)
(Increase) decrease in accrued interest receivable and other assets66,855 20,979 
Increase (decrease) in accrued interest payable and other liabilities(6,440)135,679 
Net Cash Provided By (Used In) Continuing Operating Activities116,940 200,384 
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of investment securities224,809 62,348 
Proceeds from sales of investment securities available for sale155,954 353,915 
Purchases of investment securities available for sale(814,246)(589,874)
Origination of mortgage warehouse loans(7,938,526)(16,998,093)
Proceeds from repayments of mortgage warehouse loans8,475,173 17,211,909 
Net (increase) decrease in loans and leases, excluding mortgage warehouse loans159,706 (486,158)
Proceeds from sales of loans and leases14,281 39,534 
Purchase of loans(206,330)(117,036)
Proceeds from bank-owned life insurance5,850 — 
Net proceeds from sale of FHLB, Federal Reserve Bank, and other restricted stock15,205 1,948 
Purchases of bank premises and equipment(274)(298)
Purchases of leased assets under lessor operating leases(2,930)(4,849)
Net Cash Provided By (Used In) Continuing Investing Activities88,672 (526,654)
Cash Flows from Financing Activities
Net increase (decrease) in deposits(362,364)1,162,511 
Net increase (decrease) in short-term borrowed funds from the FHLB(700,000)— 
Net increase (decrease) in federal funds purchased625,000 115,000 
Net increase (decrease) in borrowed funds from FRB PPP liquidity facility— (1,130,860)
Preferred stock dividends paid(1,823)(3,401)
Purchase of treasury stock(6,310)— 
Payments of employee taxes withheld from share-based awards(3,755)(1,988)
Proceeds from issuance of common stock208 6,684 
Proceeds from sale of non-controlling interest in BMT— 23,125 
Net Cash Provided By (Used In) Continuing Financing Activities(449,044)171,071 
Net Increase (Decrease) in Cash and Cash Equivalents From Continuing Operations$(243,432)$(155,199)
Discontinued Operations:
Net Cash Used In Operating Activities$— $(22,791)
Net Increase (Decrease) in Cash and Cash Equivalents From Discontinued Operations— (22,791)
Net Increase (Decrease) in Cash and Cash Equivalents(243,432)(177,990)
Cash and Cash Equivalents – Beginning518,032 693,354 
Cash and Cash Equivalents – Ending$274,600 $515,364 
(continued)
Three Months Ended
March 31,
20222021
Non-cash Investing and Financing Activities:
Distribution of investment in BM Technologies common stock$— $32,983 
Transfer of loans held for investment to held for sale— 44,258 
Unsettled purchases of investment securities— 56,620 
See accompanying notes to the unaudited consolidated financial statements.
10

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); Harrisburg, Pennsylvania (Dauphin County); 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; Wilmington, North Carolina; 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; Orlando, Florida and Wilmington, North Carolina; and other locations. 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.
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, 2021 consolidated balance sheet presented in this report has been derived from Customers Bancorp’s audited 2021 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 2021 consolidated financial statements of Customers Bancorp and subsidiaries included in Customers' Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022 (the "2021 Form 10-K"). The 2021 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 months ended March 31, 2022.
Customers Bancorp completed the divestiture of BankMobile Technologies, Inc., the technology arm of its BankMobile segment, to MFAC Merger Sub Inc., an indirect wholly-owned subsidiary of MFAC on January 4, 2021. 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 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 – DISCONTINUED OPERATIONS for additional information.
11

Accounting and Reporting Considerations related to COVID-19
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 provided $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. Customers 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
Section 4013 of the CARES Act, as amended by the CAA, gave 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 offered practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic were TDRs. Customers applied Section 4013 of the CARES Act and the interagency statement in connection with applicable modifications. For modifications that qualified under either the CARES Act or the interagency statement, TDR accounting and reporting was suspended. These modifications generally involved principal and/or interest payment deferrals for a period of 90 days at a time and could be extended to six months or longer for modifications that qualified under the Section 4013 of the CARES Act, as amended, if requested by the borrower as long as the reason was still related to COVID-19. These modified loans were not 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.
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Recently Issued Accounting Standards
Presented below are recently issued accounting standards that Customers has adopted as well as those that the FASB has issued but are not yet effective.
Accounting Standards Adopted in 2022
StandardSummary of GuidanceEffects on Financial Statements
ASU 2020-06,
Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

Issued August 2020
• Provides for simplified accounting for convertible debt instruments by eliminating separation models in ASC 470-20 for convertible debt instruments with a cash conversion feature, or another beneficial conversion feature.
• Removes the requirements to consider whether a contract would be settled in registered shares, to consider whether collateral is required to be posted and to assess shareholders rights upon conversion.
• Effective for fiscal years beginning after December 15, 2021, including interim periods within those
fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.
• Customers adopted this guidance on January 1, 2022.
• The adoption of this guidance did not have any impact on Customers' financial condition, results of operations and consolidated financial statements.
ASU 2021-05,
Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments

Issued July 2021
• Provides updates for accounting for leases with variable lease payments under ASC 842.
• Allows for variable lease payments which are 1) not driven by a reference rate and 2) not dependent upon an estimate to be included within consideration or the investment in a lease at the inception of a sales-type or direct financing lease.
• Effective for fiscal years beginning after December
15, 2021 and interim periods within those fiscal years. Early adoption is permitted.
• Customers adopted this guidance on January 1, 2022.
• The adoption of this guidance did not have any impact on Customers' financial condition, results of operations and consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
StandardSummary of GuidanceEffects on Financial Statements
ASU 2022-02,
Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures

Issued March 2022
• Eliminates the accounting guidance for TDRs by
creditors, and applies the loan refinancing and restructuring guidance when a borrower is experiencing financial difficulty to determine whether a modification results in a new loan or a continuation of an existing loan.
• Provides enhanced disclosure requirements for certain loan refinancing and restructurings and disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326.
• Effective for fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. Early adoption is permitted, including adoption in any interim period, provided the amendments are adopted as of the beginning of the fiscal year that includes the interim period of adoption. Early adoption is permitted separately for the amendments to TDRs and vintage disclosures.
• TDR and vintage disclosures are to be adopted prospectively. An entity may adopt TDR recognition and measurement guidance prospectively or elect to use a modified retrospective transition method, with a cumulative effect adjustment to retained earnings at the beginning of the period of adoption.
• Customers expects this guidance will result in additional disclosures related to gross write-offs by vintage year and expansive disclosures for certain loan modifications to borrowers experiencing financial difficulty.
• Customers intends to adopt this guidance during adoption period and is currently evaluating the expected impact of this guidance on its financial condition, results of operations and consolidated financial statements.
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NOTE 3 – DISCONTINUED OPERATIONS
On January 4, 2021, Customers Bancorp completed the 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 $3.7 million of additional cash consideration in May 2021. Upon closing of the divestiture, the holders of Customers Bancorp's common stock who held their shares as of the close of business on December 18, 2020 became entitled to receive an aggregate of 4,876,387 shares of BM Technologies' common stock. Customers distributed 0.15389 shares of BM Technologies common stock for each share of Customers Bancorp's common stock held as of the close of business on December 18, 2020 as special dividends. Certain team members of BMT also received 1,348,748 restricted shares of BM Technologies' common stock in the form of severance payments. The total stock consideration from the divestiture that were distributed to holders of Customers Bancorp's common stock and certain BMT team members represented 52% of the outstanding common stock of BM Technologies at the closing date of the divestiture.
The sale of BMT was accounted for as a sale of non-controlling interest and the merger between BMT and MFAC was accounted for as a reverse recapitalization as BMT was considered to be the accounting acquirer. Upon closing of the transaction, Customers had no remaining investment in BM Technologies.
BMT's historical financial results for periods prior to the divestiture are reflected in Customers Bancorp’s consolidated financial statements as discontinued operations. BMT's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying consolidated financial statements and prior period amounts have been reclassified to conform with the current period presentation.
The following summarized financial information related to BMT has been segregated from continuing operations and reported as discontinued operations for the periods presented.
Three Months Ended
March 31,
(amounts in thousands)20222021
Discontinued operations:
Non-interest income$— $— 
Non-interest expense— 20,354 
Loss from discontinued operations before income taxes— (20,354)
Income tax expense (benefit)— 17,682 
Net loss from discontinued operations$— $(38,036)
In connection with the divestiture, Customers 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 $17.8 million and $13.7 million, respectively, to BM Technologies under the deposit servicing agreement, included within the technology, communication and bank operations expense in the income from continuing operations during the three months ended March 31, 2022 and 2021. Customers held $2.2 billion and $1.8 billion of deposits serviced by BM Technologies as of March 31, 2022 and December 31, 2021, respectively. The loan agreement with BM Technologies was terminated early in November 2021. The transition services agreement with BM Technologies, as amended, expired on March 31, 2022.
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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
March 31,
(amounts in thousands, except share and per share data)20222021
Net income from continuing operations available to common shareholders$74,896 $71,240 
Net loss from discontinued operations— (38,036)
Net income available to common shareholders$74,896 $33,204 
Weighted-average number of common shares outstanding – basic32,957,033 31,883,946 
Share-based compensation plans1,370,032 957,765 
Weighted-average number of common shares – diluted34,327,065 32,841,711 
Basic earnings (loss) per common share from continuing operations$2.27 $2.23 
Basic earnings (loss) per common share from discontinued operations— (1.19)
Basic earnings (loss) per common share2.27 1.04 
Diluted earnings (loss) per common share from continuing operations$2.18 $2.17 
Diluted earnings (loss) per common share from discontinued operations— (1.16)
Diluted earnings (loss) per common share2.18 1.01 
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
March 31,
 20222021
Anti-dilutive securities:
Share-based compensation awards— 277,725 

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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 months ended March 31, 2022 and 2021. Amounts in parentheses indicate reductions to AOCI.
 Three Months Ended March 31, 2022
(amounts in thousands)
Unrealized Gains (Losses) on Available for Sale Securities (1)
Unrealized Gains (Losses) on Cash Flow Hedges (2)
Total
Balance - December 31, 2021$(4,980)$— $(4,980)
Unrealized gains (losses) arising during period, before tax(78,858)— (78,858)
Income tax effect20,503 — 20,503 
Other comprehensive income (loss) before reclassifications(58,355)— (58,355)
Reclassification adjustments for (gains) losses included in net income, before tax1,063 — 1,063 
Income tax effect(276)— (276)
Amounts reclassified from accumulated other comprehensive income (loss) to net income787 — 787 
Net current-period other comprehensive income (loss)(57,568)— (57,568)
Balance - March 31, 2022$(62,548)$— $(62,548)
Three Months Ended March 31, 2021
(amounts in thousands)
Unrealized Gains (Losses) on 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 tax400 12,315 12,715 
Income tax effect(104)(3,202)(3,306)
Other comprehensive income (loss) before reclassifications296 9,113 9,409 
Reclassification adjustments for (gains) losses included in net income, before tax(23,566)25,926 2,360 
Income tax effect6,127 (6,741)(614)
Amounts reclassified from accumulated other comprehensive income (loss) to net income(17,439)19,185 1,746 
Net current-period other comprehensive income (loss)(17,143)28,298 11,155 
Balance - March 31, 2021$6,169 $(778)$5,391 
(1)Reclassification amounts for AFS debt securities are reported as gain (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.
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NOTE 6 — INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities as of March 31, 2022 and December 31, 2021 are summarized as follows:
 
March 31, 2022 (1)
(amounts in thousands)Amortized CostAllowance for Credit LossesGross Unrealized GainsGross Unrealized LossesFair Value
Available for sale debt securities:
Asset-backed securities$351,847 $(728)$87 $(7,587)$343,619 
Agency-guaranteed residential mortgage-backed securities9,242 — — (973)8,269 
Agency-guaranteed commercial mortgage-backed securities2,140 — — (95)2,045 
Agency-guaranteed residential collateralized mortgage obligations618,998 — 833 (16,428)603,403 
Agency-guaranteed commercial collateralized mortgage obligations172,410 — — (9,811)162,599 
Collateralized loan obligations1,010,938 — — (6,576)1,004,362 
Commercial mortgage-backed securities148,993 — — (1,368)147,625 
Corporate notes (2)
607,230 — 1,376 (14,856)593,750 
Private label collateralized mortgage obligations1,302,400 — — (31,993)1,270,407 
State and political subdivision debt securities (3)
8,531 — — (581)7,950 
Available for sale debt securities$4,232,729 $(728)$2,296 $(90,268)4,144,029 
Equity securities (4)
25,824 
Total investment securities, at fair value$4,169,853 
 
December 31, 2021 (1)
(amounts in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Available for sale debt securities:
Asset-backed securities$297,291 $253 $(119)$297,425 
Agency-guaranteed residential mortgage-backed securities9,865 — (312)9,553 
Agency-guaranteed commercial mortgage-backed securities2,162 — (10)2,152 
Agency-guaranteed residential collateralized mortgage obligations199,091 154 (2,315)196,930 
Agency-guaranteed commercial collateralized mortgage obligations242,668 53 (3,877)238,844 
Collateralized loan obligations1,067,770 247 (1,215)1,066,802 
Commercial mortgage-backed securities149,054 53 (180)148,927 
Corporate notes (2)
575,273 6,334 (1,561)580,046 
Private label collateralized mortgage obligations1,248,142 333 (6,010)1,242,465 
State and political subdivision debt securities (3)
8,535 — (104)8,431 
Available for sale debt securities$3,799,851 $7,427 $(15,703)3,791,575 
Equity securities (4)
25,575 
Total investment securities, at fair value$3,817,150 
(1)Accrued interest on AFS debt securities totaled $14.3 million and $11.0 million at March 31, 2022 and December 31, 2021, 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 perpetual preferred stock issued by domestic banks and domestic bank holding companies and equity securities issued by fintech companies, without a
17

readily determinable fair value, and CRA-qualified mutual fund shares at March 31, 2022 and December 31, 2021. No impairments or measurement adjustments have been recorded on the equity securities without a readily determinable fair value since acquisition.

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. During the three months ended March 31, 2021, Customers recognized unrealized gains of $1.0 million 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.
Customers' transactions with unconsolidated VIEs include sales of consumer installment loans and investments in the securities issued by the VIEs. Customers is not the primary beneficiary of the VIEs because Customers has no right to make decisions that will most significantly affect the economic performance of the VIEs. Customers' continuing involvement with the unconsolidated VIEs is not significant. Customers' continuing involvement is not considered to be significant where Customers only invests in securities issued by the VIE and was not involved in the design of the VIE or where Customers has transferred financial assets to the VIE for only cash consideration. Customers' investments in the securities issued by the VIEs are classified as AFS debt securities on the consolidated balance sheets, and represent Customers' maximum exposure to loss.
Proceeds from the sale of AFS securities were $156.0 million and $353.9 million for the three months ended March 31, 2022 and 2021, respectively. Gross realized gains and realized losses from the sale of AFS debt securities were $2.0 million and $1.0 million for the three months ended March 31, 2022, respectively. Gross realized gains from the sale of AFS debt securities were $23.6 million for the three months ended March 31, 2021. 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.
The following table presents 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:
 March 31, 2022
(amounts in thousands)Amortized
Cost
Fair
Value
Due in one year or less$4,992 $4,999 
Due after one year through five years419,539 409,141 
Due after five years through ten years191,230 187,560 
Asset-backed securities351,847 343,619 
Collateralized loan obligations1,010,938 1,004,362 
Commercial mortgage-backed securities148,993 147,625 
Agency-guaranteed residential mortgage-backed securities9,242 8,269 
Agency-guaranteed commercial mortgage-backed securities2,140 2,045 
Agency-guaranteed residential collateralized mortgage obligations618,998 603,403 
Agency-guaranteed commercial collateralized mortgage obligations172,410 162,599 
Private label collateralized mortgage obligations1,302,400 1,270,407 
Total debt securities$4,232,729 $4,144,029 
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Gross unrealized losses and fair value of Customers' AFS debt securities for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021 were as follows:
 March 31, 2022
 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$199,725 $(3,832)$— $— $199,725 $(3,832)
Agency-guaranteed residential mortgage-backed securities— — 8,269 (973)8,269 (973)
Agency-guaranteed commercial mortgage-backed securities2,045 (95)— — 2,045 (95)
Agency-guaranteed residential collateralized mortgage obligations434,524 (16,428)— — 434,524 (16,428)
Agency-guaranteed commercial collateralized mortgage obligations95,995 (3,764)66,605 (6,047)162,600 (9,811)
Collateralized loan obligations934,954 (6,457)25,510 (119)960,464 (6,576)
Commercial mortgage-backed securities129,365 (1,368)— — 129,365 (1,368)
Corporate notes393,997 (13,972)14,115 (884)408,112 (14,856)
Private label collateralized mortgage obligations856,760 (27,386)42,196 (4,607)898,956 (31,993)
State and political subdivision debt securities7,950 (581)— — 7,950 (581)
Total$3,055,315 $(73,883)$156,695 $(12,630)$3,212,010 $(86,513)

 December 31, 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$54,753 $(119)$— $— $54,753 $(119)
Agency-guaranteed residential mortgage-backed securities9,554 (312)— — 9,554 (312)
Agency-guaranteed commercial mortgage-backed securities2,152 (10)— — 2,152 (10)
Agency-guaranteed residential collateralized mortgage obligations173,492 (2,315)— — 173,492 (2,315)
Agency-guaranteed commercial collateralized mortgage obligations118,334 (3,877)— — 118,334 (3,877)
Collateralized loan obligations715,250 (1,215)— — 715,250 (1,215)
Commercial mortgage-backed securities122,597 (180)— — 122,597 (180)
Corporate notes188,100 (1,561)— — 188,100 (1,561)
Private label collateralized mortgage obligations632,091 (5,874)6,818 (136)638,909 (6,010)
State and political subdivision debt securities8,430 (104)— — 8,430 (104)
Total$2,024,753 $(15,567)$6,818 $(136)$2,031,571 $(15,703)
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At March 31, 2022, there were 160 AFS debt securities with unrealized losses in the less-than-twelve-months category and 15 AFS debt securities with unrealized loss in the twelve-months-or-more category. Except for the 4 asset-backed securities where there was a deterioration in future estimated cash flows as further discussed below, the unrealized losses were principally due to changes in market interest rates that resulted in a negative impact on the respective securities' fair value and are expected to be recovered when market prices recover or at maturity. Customers does not intend to sell any of the 175 securities, and it is not more likely than not that Customers will be required to sell any of the 175 securities before recovery of the amortized cost basis. At December 31, 2021, there were 117 AFS debt securities in an unrealized loss position.
Customers recorded an allowance for credit losses on 4 asset-backed securities where there was a deterioration in future estimated cash flows during the three months ended March 31, 2022. A discounted cash flow approach is used to determine the amount of the allowance. The cash flows expected to be collected, after considering expected prepayments, are discounted at the original effective interest rate. The amount of the allowance is limited to the difference between the amortized cost basis of the security and its estimated fair value. The following table presents the activity in the allowance for credit losses on AFS debt securities, by major security type:
Asset-backed securities
(amounts in thousands)Three Months Ended March 31, 2022
Balance at January 1,$— 
Credit losses on securities for which credit losses were not previously recorded728 
Balance at March 31,$728 
At March 31, 2022 and December 31, 2021, Customers Bank had pledged investment securities aggregating $16.9 million and $11.3 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.
At March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021 was as follows:
(amounts in thousands)March 31, 2022December 31, 2021
Consumer loans:
Home equity conversion mortgages, at lower of cost or fair value$507 $507 
Residential mortgage loans, at fair value2,496 15,747 
Total consumer loans held for sale3,003 16,254 
Loans held for sale$3,003 $16,254 
Total loans held for sale as of March 31, 2022 and December 31, 2021 included NPLs of $0.5 million.

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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 March 31, 2022 and December 31, 2021.
(amounts in thousands)March 31, 2022December 31, 2021
Loans and leases receivable, mortgage warehouse, at fair value$1,755,758 $2,284,325 
Loans receivable, PPP2,195,902 3,250,008 
Loans and leases receivable:
Commercial:
Multi-family1,705,027 1,486,308 
Commercial and industrial (1)
3,995,802 3,424,783 
Commercial real estate owner occupied701,893 654,922 
Commercial real estate non-owner occupied1,140,311 1,121,238 
Construction161,024 198,981 
Total commercial loans and leases receivable7,704,057 6,886,232 
Consumer:
Residential real estate466,423 334,730 
Manufactured housing50,669 52,861 
Installment1,897,706 1,744,475 
Total consumer loans receivable2,414,798 2,132,066 
Loans and leases receivable10,118,855 9,018,298 
Allowance for credit losses on loans and leases(145,847)(137,804)
Total loans and leases receivable, net of allowance for credit losses on loans and leases (2)
$13,924,668 $14,414,827 
(1)Includes direct finance equipment leases of $150.7 million and $146.5 million at March 31, 2022 and December 31, 2021, respectively.
(2)Includes deferred (fees) costs and unamortized (discounts) premiums, net of $(22.8) million and $(52.0) million at March 31, 2022 and December 31, 2021, respectively.
Customers' total loans and leases receivable portfolio includes loans receivable which are reported at fair value based on an election made to account for these loans at fair value and loans and leases receivable which are predominately reported at their outstanding unpaid principal balance, net of charge-offs and deferred costs and fees and unamortized premiums and discounts and are evaluated for impairment. The total amount of accrued interest recorded for total loans was $80.7 million and $81.6 million at March 31, 2022 and December 31, 2021, respectively, and is presented in accrued interest receivable in the consolidated balance sheet. At March 31, 2022 and December 31, 2021, there were $31.8 million and $38.9 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, 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 March 31, 2022 and December 31, 2021, 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.
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Loans receivable, PPP
Customers had $2.2 billion and $3.3 billion of PPP loans outstanding as of March 31, 2022 and December 31, 2021, 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 $36.9 million and $38.8 million for the three months ended March 31, 2022 and 2021, respectively.
PPP loans include an embedded credit enhancement from the SBA, which guarantees 100% of the principal and interest owed by the borrower provided that the SBA's eligibility criteria are met. As a result, the eligible PPP loans 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 March 31, 2022 and December 31, 2021:
 March 31, 2022
(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$10,690 $— $16,181 $26,871 $1,678,156 $1,705,027 
Commercial and industrial2,591 92 5,432 8,115 3,987,687 3,995,802 
Commercial real estate owner occupied2,935 — 1,046 3,981 697,912 701,893 
Commercial real estate non-owner occupied— — 1,302 1,302 1,139,009 1,140,311 
Construction— — — — 161,024 161,024 
Residential real estate5,151 446 4,808 10,405 456,018 466,423 
Manufactured housing975 280 4,488 5,743 44,926 50,669 
Installment7,974 4,868 4,865 17,707 1,879,999 1,897,706 
Total$30,316 $5,686 $38,122 $74,124 $10,044,731 $10,118,855 
 December 31, 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$1,682 $2,707 $18,235 $22,624 $1,463,684 $1,486,308 
Commercial and industrial2,093 95 5,929 8,117 3,416,666 3,424,783 
Commercial real estate owner occupied287 — 1,304 1,591 653,331 654,922 
Commercial real estate non-owner occupied— — 2,815 2,815 1,118,423 1,121,238 
Construction— — — — 198,981 198,981 
Residential real estate4,655 789 4,390 9,834 324,896 334,730 
Manufactured housing2,308 768 4,949 8,025 44,836 52,861 
Installment7,349 4,295 3,783 15,427 1,729,048 1,744,475 
Total$18,374 $8,654 $41,405 $68,433 $8,949,865 $9,018,298 
(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 tables exclude PPP loans of $2.2 billion, of which $37.8 million were 30-59 days past due and $88.3 million were 60 days or more past due as of March 31, 2022, and PPP loans of $3.3 billion, of which $6.3 million were 30-59 days past due and $21.8 million were 60 days or more past due as of December 31, 2021. Claims for guarantee payments are submitted to the SBA for eligible PPP loans more than 60 days past due.
(3)Includes PCD loans of $9.4 million and $9.9 million at March 31, 2022 and December 31, 2021, respectively.
22

Nonaccrual Loans and Leases
The following table presents the amortized cost of loans and leases held for investment on nonaccrual status.
 
March 31, 2022 (1)
December 31, 2021 (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$17,869 $— $17,869 $22,654 $— $22,654 
Commercial and industrial5,490 — 5,490 5,837 259 6,096 
Commercial real estate owner occupied2,191 — 2,191 2,475 — 2,475 
Commercial real estate non-owner occupied1,302 — 1,302 2,815 — 2,815 
Residential real estate8,124 — 8,124 7,727 — 7,727 
Manufactured housing— 3,430 3,430 — 3,563 3,563 
Installment— 4,865 4,865 — 3,783 3,783 
Total$34,976 $8,295 $43,271 $41,508 $7,605 $49,113 
(1) Presented at amortized cost basis.
Interest income recognized on nonaccrual loans was insignificant for the three months ended March 31, 2022 and 2021. Accrued interest reversed when the loans went to nonaccrual status was insignificant during the three months ended March 31, 2022 and 2021, respectively.
Allowance for credit losses on loans and leases
The changes in the ACL on loans and leases for the three months ended March 31, 2022 and 2021, and the loans and leases and ACL by loan and lease type 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 March 31, 2022
Ending balance, December 31, 2021$4,477 $12,702 $3,213 $6,210 $692 $2,383 $4,278 $103,849 $137,804 
Charge-offs— (301)— — — (4)— (8,865)(9,170)
Recoveries337 360 113 — 1,113 1,944 
Provision (benefit) for credit losses on loans and leases2,623 (1,996)621 (263)134 2,300 64 11,786 15,269 
Ending balance, March 31, 2022$7,437 $10,765 $3,841 $5,955 $939 $4,685 $4,342 $107,883 $145,847 
Three Months Ended March 31, 2021
Ending balance, at 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)(635)(142)— — (50)— (12,687)(14,646)
Recoveries— 260 10 10 — 1,832 2,125 
Provision (benefit) for credit losses on loans and leases(3,462)(4,361)(3,443)(7,841)(1,773)(728)(390)19,079 (2,919)
Ending Balance, March 31, 2021$8,026 $7,503 $5,935 $11,621 $4,103 $3,209 $4,800 $83,539 $128,736 
At March 31, 2022, the ACL on loans and leases was $145.8 million, an increase of $8.0 million from the December 31, 2021 balance of $137.8 million. The increase in ACL for the three months ended March 31, 2022 was primarily attributable to the loan growth in the loan portfolio for consumer installment, residential, multi-family and commercial and industrial loans.
Troubled Debt Restructurings
At March 31, 2022 and December 31, 2021, there were $16.6 million and $16.5 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-
23

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 no lease receivables that had been restructured as a TDR as of March 31, 2022 and December 31, 2021, respectively.
Section 4013 of the CARES Act, as amended by the CAA, gave 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 offered practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic were 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. There were no commercial deferments related to COVID-19 at March 31, 2022 and December 31, 2021. Consumer deferments related to COVID-19 were $3.3 million and $6.1 million at March 31, 2022 and December 31, 2021, respectively.
The following table presents loans modified in a TDR by type of concession for the three months ended March 31, 2022 and 2021. There were no modifications that involved forgiveness of debt for the three months ended March 31, 2022 and 2021.
Three Months Ended March 31,
 20222021
(dollars in thousands)Number of loansRecorded investmentNumber of loansRecorded investment
Interest-rate reductions10 $346 $184 
Other (1)
32 451 20 541 
Total42 $797 28 $725 
(1) Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.
As of March 31, 2022 and December 31, 2021, there were no 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:
March 31, 2022March 31, 2021
(dollars in thousands)Number of loansRecorded investmentNumber of loansRecorded investment
Manufactured housing$49 $48 
Residential real estate— — 56 
Installment23 276 16 250 
Total loans24 $325 20 $354 
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.
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.
24

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 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 2021 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 March 31, 2022 and December 31, 2021.
25

Term Loans Amortized Cost Basis by Origination Year as of
March 31, 2022
(amounts in thousands)20222021202020192018PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Multi-family loans:
Pass$385,034 $400,699 $132,732 $22,884 $126,850 $520,645 $— $— $1,588,844 
Special mention— 1,523 — 05,033 49,200 — — 55,756 
Substandard— — — — — 60,427 — — 60,427 
Doubtful— — — — — — — — — 
Total multi-family loans$385,034 $402,222 $132,732 $22,884 $131,883 $630,272 $— $— $1,705,027 
Commercial and industrial loans and leases:
Pass$1,008,340 $627,255 $284,982 $224,881 $57,750 $136,853 $1,578,024 $— $3,918,085 
Special mention— — 57 156 — 36,223 2,524 — 38,960 
Substandard020,400 4,901 4,565 86 1,464 7,341 — 38,757 
Doubtful— — — — — — — — — 
Total commercial and industrial loans and leases$1,008,340 $647,655 $289,940 $229,602 $57,836 $174,540 $1,587,889 $�� $3,995,802 
Commercial real estate owner occupied loans:
Pass$60,055 $210,933 $59,025 $122,135 $60,968 $150,564 $672 $— $664,352 
Special mention— — — 3,010 — 2,302 — — 5,312 
Substandard— — — 3,495 9,635 19,099 — — 32,229 
Doubtful— — — — — — — — — 
Total commercial real estate owner occupied loans$60,055 $210,933 $59,025 $128,640 $70,603 $171,965 $672 $— $701,893 
Commercial real estate non-owner occupied:
Pass$73,544 $135,995 $147,873 $76,351 $65,061 $443,165 $— $— $941,989 
Special mention— — 21,572 — 953 6,069 — — 28,594 
Substandard— — — 29,184 38,409 102,135 — — 169,728 
Doubtful— — — — — — — — — 
Total commercial real estate non-owner occupied loans$73,544 $135,995 $169,445 $105,535 $104,423 $551,369 $— $— $1,140,311 
Construction:
Pass$11,779 $70,404 $13,894 $49,175 $4,791 $9,321 $1,660 $— $161,024 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Total construction loans$11,779 $70,404 $13,894 $49,175 $4,791 $9,321 $1,660 $— $161,024 
Total commercial loans and leases receivable$1,538,752 $1,467,209 $665,036 $535,836 $369,536 $1,537,467 $1,590,221 $— $7,704,057 
Residential real estate loans:
Performing$8,713 $178,623 $12,064 $31,045 $17,126 $127,537 $84,904 $— $460,012 
Non-performing— — — 329 1,138 4,009 935 — 6,411 
Total residential real estate loans$8,713 $178,623 $12,064 $31,374 $18,264 $131,546 $85,839 $— $466,423 
Manufactured housing loans:
Performing$— $— $— $248 $291 $46,315 $— $— $46,854 
Non-performing— — — — — 3,815 — — 3,815 
Total manufactured housing loans$— $— $— $248 $291 $50,130 $— $— $50,669 
Installment loans:
Performing$311,579 $883,638 $325,741 $265,764 $25,590 $2,082 $78,600 $— $1,892,994 
Non-performing— 1,834 1,065 1,534 83 115 81 — 4,712 
Total installment loans$311,579 $885,472 $326,806 $267,298 $25,673 $2,197 $78,681 $— $1,897,706 
Total consumer loans$320,292 $1,064,095 $338,870 $298,920 $44,228 $183,873 $164,520 $— $2,414,798 
Loans and leases receivable$1,859,044 $2,531,304 $1,003,906 $834,756 $413,764 $1,721,340 $1,754,741 $— $10,118,855 

26

Term Loans Amortized Cost Basis by Origination Year as of December 31, 2021
(amounts in thousands)20212020201920182017PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Multi-family loans:
Pass$403,075 $133,452 $23,068 $209,070 $282,663 $316,491 $— $— $1,367,819 
Special mention— — — 9,936 18,489 28,776 — — 57,201 
Substandard— — — — 38,216 23,072 — — 61,288 
Doubtful— — — — — — — — — 
Total multi-family loans$403,075 $133,452 $23,068 $219,006 $339,368 $368,339 $— $— $1,486,308 
Commercial and industrial loans and leases:
Pass$974,016 $337,045 $266,677 $86,691 $55,536 $89,860 $1,484,287 $— $3,294,112 
Special mention476 1,408 3,325 4,904 36,252 92 14,662 — 61,119 
Substandard18,786 10,257 9,543 11,586 5,682 6,764 6,934 — 69,552 
Doubtful— — — — — — — — — 
Total commercial and industrial loans and leases$993,278 $348,710 $279,545 $103,181 $97,470 $96,716 $1,505,883 $— $3,424,783 
Commercial real estate owner occupied loans:
Pass$213,102 $59,348 $124,626 $60,993 $58,073 $99,219 $672 $— $616,033 
Special mention— — 2,876 318 2,044 572 — — 5,810 
Substandard— — 3,750 9,682 8,824 10,823 — — 33,079 
Doubtful— — — — — — — — — 
Total commercial real estate owner occupied loans$213,102 $59,348 $131,252 $70,993 $68,941 $110,614 $672 $— $654,922 
Commercial real estate non-owner occupied:
Pass$136,897 $149,898 $95,504 $66,040 $153,509 $310,435 $— $— $912,283 
Special mention— 21,694 11,113 9,373 43,215 20,540 — — 105,935 
Substandard— — — 35,846 20,516 46,658 — — 103,020 
Doubtful— — — — — — — — — 
Total commercial real estate non-owner occupied loans$136,897 $171,592 $106,617 $111,259 $217,240 $377,633 $— $— $1,121,238 
Construction:
Pass$57,105 $49,199 $77,622 $4,828 $— $9,414 $813 $— $198,981 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Total construction loans$57,105 $49,199 $77,622 $4,828 $— $9,414 $813 $— $198,981 
Total commercial loans and leases receivable$1,803,457 $762,301 $618,104 $509,267 $723,019 $962,716 $1,507,368 $— $6,886,232 
Residential real estate loans:
Performing$107,854 $8,251 $21,096 $11,389 $6,707 $84,035 $87,438 $— $326,770 
Non-performing— — 335 1,015 669 3,587 2,354 — 7,960 
Total residential real estate loans$107,854 $8,251 $21,431 $12,404 $7,376 $87,622 $89,792 $— $334,730 
Manufactured housing loans:
Performing$— $— $253 $299 $73 $47,537 $— $— 48,162 
Non-performing— — — — — 4,699 — — 4,699 
Total manufactured housing loans$— $— $253 $299 $73 $52,236 $— $— $52,861 
Installment loans:
Performing$973,525 $390,788 $341,582 $31,481 $1,601 $1,016 $25 $— $1,740,018 
Non-performing1,162 1,002 2,074 156 61 — — 4,457 
Total installment loans$974,687 $391,790 $343,656 $31,637 $1,603 $1,077 $25 $— $1,744,475 
Total consumer loans$1,082,541 $400,041 $365,340 $44,340 $9,052 $140,935 $89,817 $— $2,132,066 
Loans and leases receivable$2,885,998 $1,162,342 $983,444 $553,607 $732,071 $1,103,651 $1,597,185 $— $9,018,298 


27

Loan Purchases and Sales
Purchases and sales of loans were as follows for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
(amounts in thousands)20222021
Purchases (1)
Residential real estate$146,874 $— 
Installment (2)
59,456 115,849 
Total$206,330 $115,849 
Sales (3)
Commercial and industrial$8,840 $18,931 
Commercial real estate owner occupied5,441 2,237 
Commercial real estate non-owner occupied— 18,366 
Total$14,281 $39,534 
(1)Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was 98.1% and 101.0% of loans outstanding for the three months ended March 31, 2022 and 2021, respectively.
(2)Installment loan purchases for the three months ended March 31, 2022 and 2021 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)For the three months ended March 31, 2022 and 2021, loan sales resulted in net gains of $2.1 million and $1.6 million, respectively, included in gain (loss) on sale of SBA and other loans and mortgage banking income in the consolidated statements of income.
Loans Pledged as Collateral
Customers has pledged eligible real estate and commercial and industrial loans as collateral for borrowings from the FHLB and FRB in the amount of $3.6 billion and $3.7 billion at March 31, 2022 and December 31, 2021, respectively. No PPP loans were pledged to the FRB in accordance with borrowing from the PPPLF at March 31, 2022 and December 31, 2021.

NOTE 9 — LEASES
Lessee
Customers has operating leases for its branches, certain LPOs, and administrative offices, with remaining lease terms ranging between 3 months and 8 years. These operating leases comprise substantially all of Customers' obligations in which Customers is the lessee. Most lease agreements consist of initial lease terms ranging between 1 and 5 years, with options to renew the leases or extend the term up to 15 years at Customers' sole discretion. Some operating leases include variable lease payments that are based on an index or rate, such as the CPI. Variable lease payments are not included in the liability or ROU 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 when determining the present value of lease payments.
The following table summarizes operating lease ROU assets and operating lease liabilities and their corresponding balance sheet location:
(amounts in thousands)ClassificationMarch 31, 2022December 31, 2021
ASSETS
Operating lease ROU assetsOther assets$12,364 $12,677 
LIABILITIES
Operating lease liabilitiesOther liabilities$14,003 $14,524 
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The following table summarizes operating lease cost and its corresponding income statement location for the periods presented:
Three Months Ended March 31,
(amounts in thousands)Classification20222021
Operating lease cost (1)
Occupancy expenses$998 $1,117 
(1) There were no variable lease costs for the three months ended March 31, 2022 and 2021, and sublease income for operating leases is immaterial.
Maturities of non-cancelable operating lease liabilities were as follows at March 31, 2022:
(amounts in thousands)March 31, 2022
2022$3,238 
20234,018 
20242,991 
20252,060 
20261,125 
Thereafter1,791 
Total minimum payments15,223 
Less: interest1,220 
Present value of lease liabilities$14,003 
Customers does not have leases where it is involved with the construction or design of an underlying asset. Customers has a signed lease that has not yet commenced as of March 31, 2022 with future minimum lease payments of $7.1 million. Cash paid pursuant to the operating lease liability was $1.2 million and $1.1 million for the three months ended March 31, 2022 and 2021, 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 March 31, 2022 and December 31, 2021:
March 31, 2022December 31, 2021
Weighted average remaining lease term (years)
Operating leases 4.7 years3.9 years
Weighted average discount rate
Operating leases2.82 %2.74 %
Equipment Lessor
CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance Group. CCF goes to market through the following origination platforms: vendors, intermediaries, direct and capital markets. CCF is primarily focused on serving the following segments: transportation, construction (includes crane and utility), marine, franchise, general manufacturing (includes machine tool), helicopter/fixed wing, solar, packaging, plastics and food processing. Terms typically range from 24 months to 120 months. CCF offers the following products: Loans, Capital Lease, PUT, TRAC, Split-TRAC, and FMV. Direct finance leases are included in commercial and industrial loans and leases receivable.
The residual values are established by utilizing internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. Expected credit losses on direct financing leases and the related estimated residual values are included in the ACL 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.
29

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at March 31, 2022 and December 31, 2021:
(amounts in thousands)ClassificationMarch 31, 2022December 31, 2021
ASSETS
Direct financing leases
Lease receivablesLoans and leases receivable$139,203 $134,855 
Guaranteed residual assetsLoans and leases receivable11,631 11,397 
Unguaranteed residual assetsLoans and leases receivable5,820 5,665 
Deferred initial direct costsLoans and leases receivable623 448 
Unearned incomeLoans and leases receivable(5,917)(5,383)
Net investment in direct financing leases$151,360 $146,982 
Operating leases
Investment in operating leasesOther assets$159,177 $158,135 
Accumulated depreciationOther assets(43,802)(40,749)
Deferred initial direct costsOther assets809 872 
Net investment in operating leases116,184 118,258 
Total lease assets$267,544 $265,240 
COVID-19 Impact on Leases
Customers granted concessions to lessees as a result of the business impact of the COVID-19 pandemic. Customers had no finance or operating leases with payment deferments at March 31, 2022. At December 31, 2021, the book values of finance and operating leases with payment deferments were $22.8 million and $7.4 million, respectively. The concessions did not have a material impact on interest income from leases for the three months ended March 31, 2022 and 2021. Additionally, Customers did not receive any concessions on its operating leases in which Customers is the lessee.
NOTE 10 - BORROWINGS
Short-term debt
Short-term debt at March 31, 2022 and December 31, 2021 was as follows:
 March 31, 2022December 31, 2021
(dollars in thousands)AmountRateAmountRate
FHLB advances$— — %$700,000 0.26 %
Federal funds purchased700,000 0.40 %75,000 0.05 %
Total short-term debt$700,000 $775,000 
30

The following is a summary of additional information relating to Customers' short-term debt:
(dollars in thousands)
March 31, 2022 (1)
December 31, 2021 (2)
FHLB advances
Maximum outstanding at any month end$— $850,000 
Average balance during the period127,778 264,704 
Weighted-average interest rate during the period0.32 %2.35 %
Federal funds purchased
Maximum outstanding at any month end700,000 365,000 
Average balance during the period88,611 22,110 
Weighted-average interest rate during the period0.33 %0.07 %
(1)    For the three months ended March 31, 2022.
(2)    For the year ended December 31, 2021.
At March 31, 2022 and December 31, 2021, Customers Bank had aggregate availability under federal funds lines totaling $0.7 billion and $1.3 billion, respectively.
Long-term debt
FHLB and FRB advances
There were no long-term advances outstanding with the FHLB or FRB at March 31, 2022 and December 31, 2021.
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. During the three months ended September 30, 2021, Customers repaid the PPPLF advances. No new advances are available from the PPPLF after July 30, 2021.
The maximum borrowing capacity with the FHLB and FRB at March 31, 2022 and December 31, 2021 was as follows:
(amounts in thousands)March 31, 2022December 31, 2021
Total maximum borrowing capacity with the FHLB$3,337,211 $2,973,635 
Total maximum borrowing capacity with the FRB (1)
214,908 183,052 
Qualifying loans serving as collateral against FHLB and FRB advances (1)
4,218,252 3,594,339 
(1)    Amounts reported in the above table exclude borrowings under the PPPLF, which are limited to the unpaid principal balance of the loans originated under the PPP. Customers had no borrowings under the PPPLF at March 31, 2022 and December 31, 2021.
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Senior and Subordinated Debt
Long-term senior notes and subordinated debt at March 31, 2022 and December 31, 2021 were as follows:
March 31, 2022December 31, 2021
(dollars in thousands)
Issued byRankingCarrying AmountCarrying AmountRateIssued AmountDate IssuedMaturityPrice
Customers Bancorp
Senior (1)
$99,844 $98,642 2.875 %$100,000 August 2021August 2031100.000 %
Customers BancorpSenior24,702 24,672 4.500 %25,000 September 2019September 2024100.000 %
Customers BancorpSenior98,684 99,772 3.950 %100,000 June 2017June 202299.775 %
Total other borrowings$223,230 $223,086 
Customers Bancorp
Subordinated (2)(3)
$72,448 $72,403 5.375 %$74,750 December 2019December 2034100.000 %
Customers Bank
Subordinated (2)(4)
109,294 109,270 6.125 %110,000 June 2014June 2029100.000 %
Total subordinated debt$181,742 $181,673 
(1)The senior notes will bear an annual fixed rate of 2.875% until August 15, 2026. From August 15, 2026 until maturity, the notes will bear an annual interest rate equal to a benchmark rate, which is expected to be the three-month term SOFR, plus 235 basis points. Customers Bancorp has the ability to call the senior notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after August 15, 2026.
(2)The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.
(3)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.
(4)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 — SHAREHOLDERS’ EQUITY
Common Stock
On August 25, 2021, the Board of Directors of Customers Bancorp authorized the Share Repurchase Program to repurchase up to 3,235,326 shares of the Company's common stock (representing 10% of the Company’s outstanding shares of common stock on June 30, 2021). The term of the Share Repurchase Program will extend for one year from September 27, 2021, unless earlier terminated. Purchases of shares under the Share Repurchase Program may be executed through open market purchases, privately negotiated transactions, through the use of Rule 10b5-1 plans, or otherwise. The exact number of shares, timing for such purchases, and the price and terms at and on which such purchases are to be made will be at the discretion of the Company and will comply with all applicable regulatory limitations. Customers Bancorp purchased 115,324 shares of its common stock for $6.3 million under the Share Repurchase Program on various dates during the three months ended March 31, 2022.
Preferred Stock
As of March 31, 2022, Customers Bancorp has 2 series of preferred stock outstanding. On September 15, 2021, Customers redeemed all of the outstanding shares of Series C and Series D Preferred Stock for an aggregate payment of $82.5 million, at a redemption price of $25.00 per share. The redemption price paid in excess of the carrying value of Series C and Series D Preferred Stock of $2.8 million is included as a loss on redemption of preferred stock in the consolidated statement of income for the three months ended September 30, 2021. After giving effect to the redemption, no shares of the Series C and Series D Preferred Stock remained outstanding.
32

The table below summarizes Customers' issuances of preferred stock and the dividends paid per share.
(amounts in thousands except share and per share data)Shares atCarrying value atInitial Fixed RateDate at which dividend rate becomes floating and earliest redemption dateFloating rate of Three-Month LIBOR Plus:
Dividend Paid Per Share in 2022 (1)
Fixed-to-floating rate:Issue DateMarch 31, 2022December 31, 2021March 31, 2022December 31, 2021
Series EApril 28, 20162,300,0002,300,000$55,593 $55,593 6.45 %June 15, 20215.140 %$0.33 
Series FSeptember 16, 20163,400,0003,400,00082,201 82,201 6.00 %December 15, 20214.762 %$0.31 
Totals5,700,0005,700,000$137,794 $137,794 
(1) For the three months ended March 31, 2022.
On March 15, 2021, 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%. On December 15, 2021, the Series F Preferred Stock became floating at three-month LIBOR plus 4.762%, compared to a fixed rate of 6.00%.
NOTE 12 — 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. The cumulative CECL capital transition impact as of December 31, 2021 which amounted to $61.6 million will be phased in at 25% per year beginning on January 1, 2022 through December 31, 2024. As of March 31, 2022, our regulatory capital ratios reflected 75%, or $46.2 million, benefit associated with the CECL transition provisions.
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. a 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 March 31, 2022 and December 31, 2021, the Bank and the Bancorp satisfied all capital requirements to which they were subject.
33

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
(dollars in thousands)AmountRatioAmountRatioAmountRatioAmountRatio
As of March 31, 2022:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,344,684 9.893 %$611,629 4.500 %N/AN/A$951,423 7.000 %
Customers Bank$1,573,796 11.598 %$610,658 4.500 %$882,062 6.500 %$949,913 7.000 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,482,477 10.907 %$815,505 6.000 %N/AN/A$1,155,299 8.500 %
Customers Bank$1,573,796 11.598 %$814,211 6.000 %$1,085,615 8.000 %$1,153,466 8.500 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,749,655 12.873 %$1,087,340 8.000 %N/AN/A$1,427,134 10.500 %
Customers Bank$1,768,525 13.032 %$1,085,615 8.000 %$1,357,019 10.000 %$1,424,870 10.500 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc.$1,482,477 7.723 %$767,836 4.000 %N/AN/A$767,836 4.000 %
Customers Bank$1,573,796 8.211 %$766,712 4.000 %$958,391 5.000 %$766,712 4.000 %
As of December 31, 2021:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,291,270 9.981 %$582,179 4.500 %N/AN/A$905,611 7.000 %
Customers Bank$1,526,583 11.825 %$580,943 4.500 %$839,140 6.500 %$903,689 7.000 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,429,063 11.046 %$776,238 6.000 %N/AN/A$1,099,671 8.500 %
Customers Bank$1,526,583 11.825 %$774,591 6.000 %$1,032,788 8.000 %$1,097,337 8.500 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,667,395 12.888 %$1,034,984 8.000 %N/AN/A$1,358,417 10.500 %
Customers Bank$1,692,512 13.110 %$1,032,788 8.000 %$1,290,985 10.000 %$1,355,534 10.500 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc.$1,429,063 7.413 %$771,084 4.000 %N/AN/A$771,084 4.000 %
Customers Bank$1,526,583 7.925 %$770,528 4.000 %$963,160 5.000 %$770,528 4.000 %
The Basel III Capital Rules require that we maintain a 2.500% capital conservation buffer with respect to each of common equity Tier 1, 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 13 — 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 March 31, 2022 and December 31, 2021:
Financial Instruments Recorded at Fair Value on a Recurring Basis
Investment securities:
The fair values of equity securities with a readily determinable fair value, 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).
When quoted market prices are not available, Customers employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results and has an established process to challenge their valuations, or methodologies, that appear unusual or unexpected.
Customers also utilizes internally and externally developed models that use unobservable inputs due to limited or no market activity of the instrument. These models use unobservable inputs that are inherently judgmental and reflect our best estimates of the assumptions a market participant would use to calculate fair value. Certain unobservable inputs in isolation may have either a directionally consistent or opposite impact on the fair value of the instrument for a given change in that input. When multiple inputs are used within the valuation techniques, a change in one input in a certain direction may be offset by an opposite change from another input. 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.
35

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.
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.
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, Financial Instruments - Credit Losses ("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.
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.
36

The estimated fair values of Customers' financial instruments at March 31, 2022 and December 31, 2021 were as follows.
   Fair Value Measurements at March 31, 2022
(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$274,600 $274,600 $274,600 $— $— 
Debt securities, available for sale4,144,029 4,144,029 — 4,022,176 121,853 
Loans held for sale3,003 3,003 — 2,496 507 
Total loans and leases receivable, net of allowance for credit losses on loans and leases13,924,668 13,571,137 — 1,755,758 11,815,379 
FHLB, Federal Reserve Bank and other restricted stock46,040 46,040 — 46,040 — 
Derivatives21,954 21,954 — 21,805 149 
Liabilities:
Deposits$16,415,560 $16,343,932 $15,969,368 $374,564 $— 
Federal funds purchased700,000 700,000 700,000 — — 
Other borrowings223,230 219,130 — 219,130 — 
Subordinated debt181,742 196,482 — 196,482 — 
Derivatives18,370 18,370 — 18,370 — 

   Fair Value Measurements at December 31, 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$518,032 $518,032 $518,032 $— $— 
Debt securities, available for sale3,791,575 3,791,575 — 3,648,690 142,885 
Loans held for sale16,254 16,254 — 15,747 507 
Total loans and leases receivable, net of allowance for credit losses on loans and leases14,414,827 14,207,811 — 2,284,325 11,923,486 
FHLB, Federal Reserve Bank and other restricted stock64,584 64,584 — 64,584 — 
Derivatives27,295 27,295 — 27,116 179 
Liabilities:
Deposits$16,777,924 $16,777,236 $16,270,586 $506,650 $— 
Federal funds purchased75,000 75,000 75,000 — — 
FHLB advances700,000 700,000 — 700,000 — 
Other borrowings223,086 226,585 — 226,585 — 
Subordinated debt181,673 204,782 — 204,782 — 
Derivatives26,544 26,544 — 26,544 — 

37

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 March 31, 2022 and December 31, 2021 were as follows:
 March 31, 2022
 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$— $221,766 $121,853 $343,619 
Agency-guaranteed residential mortgage-backed securities— 8,269 — 8,269 
Agency-guaranteed commercial mortgage-backed securities— 2,045 — 2,045 
Agency-guaranteed residential collateralized mortgage obligations— 603,403 — 603,403 
Agency-guaranteed commercial collateralized mortgage obligations— 162,599 — 162,599 
Collateralized loan obligations— 1,004,362 — 1,004,362 
Commercial mortgage-backed securities— 147,625 — 147,625 
Corporate notes— 593,750 — 593,750 
Private label collateralized mortgage obligations— 1,270,407 — 1,270,407 
State and political subdivision debt securities— 7,950 — 7,950 
Derivatives— 21,805 149 21,954 
Loans held for sale – fair value option— 2,496 — 2,496 
Loans receivable, mortgage warehouse – fair value option— 1,755,758 — 1,755,758 
Total assets – recurring fair value measurements$— $5,802,235 $122,002 $5,924,237 
Liabilities
Derivatives $— $18,370 $— $18,370 
Measured at Fair Value on a Nonrecurring Basis:
Assets
Collateral-dependent loans$— $— $2,485 $2,485 
Total assets – nonrecurring fair value measurements$— $— $2,485 $2,485 
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 December 31, 2021
 Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Total
Measured at Fair Value on a Recurring Basis:
Assets
Available for sale debt securities:
Asset-backed securities$— $154,540 $142,885 $297,425 
Agency-guaranteed residential mortgage–backed securities— 9,553 — 9,553 
Agency-guaranteed commercial mortgage–backed securities— 2,152 — 2,152 
Agency-guaranteed residential collateralized mortgage obligations— 196,930 — 196,930 
Agency-guaranteed commercial collateralized mortgage obligations— 238,844 — 238,844 
Collateralized loan obligations— 1,066,802 — 1,066,802 
Commercial mortgage-backed securities— 148,927 — 148,927 
Corporate notes— 580,046 — 580,046 
Private label collateralized mortgage obligations— 1,242,465 — 1,242,465 
State and political subdivision debt securities— 8,431 — 8,431 
Derivatives— 27,116 179 27,295 
Loans held for sale – fair value option— 15,747 — 15,747 
Loans receivable, mortgage warehouse – fair value option— 2,284,325 — 2,284,325 
Total assets – recurring fair value measurements$— $5,975,878 $143,064 $6,118,942 
Liabilities
Derivatives$— $26,544 $— $26,544 
Measured at Fair Value on a Nonrecurring Basis:
Assets
Collateral-dependent loans$— $— $5,121 $5,121 
Total assets – nonrecurring fair value measurements$— $— $5,121 $5,121 
The changes in residential mortgage loan commitments (Level 3 assets) measured at fair value on a recurring basis for the three months ended March 31, 2022 and 2021 are summarized in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 14 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
Residential Mortgage Loan Commitments
Three Months Ended March 31,
(amounts in thousands)20222021
Balance at January 1,$179 $200 
Issuances149 196 
Settlements(179)(200)
Balance at March 31,$149 $196 
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The changes in asset-backed securities (Level 3 assets) measured at fair value on a recurring basis for the three months ended March 31, 2022 are summarized in the tables below.
Asset-backed securities
(amounts in thousands)Three Months Ended March 31, 2022
Balance at January 1,$142,885 
Principal payments(16,349)
Credit losses(728)
Change in fair value recognized in OCI(3,955)
Balance at March 31,$121,853 
There were no transfers between levels during the three months ended March 31, 2022 and 2021.
The following table summarizes financial assets and financial liabilities measured at fair value as of March 31, 2022 and December 31, 2021 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)
March 31, 2022    
Asset-backed securities$121,853 Discounted cash flowDiscount rate


Annualized loss rate


Constant prepayment rate
4% - 6%
(4%)

7% - 8%
(8%)

16% - 30%
(19%)
Collateral-dependent loans – real estate1,809 
Collateral appraisal (1)
Liquidation expenses (2)
5% - 5%
(5%)
Collateral-dependent loans – commercial and industrial676 
Collateral appraisal (1)


Business asset valuation (3)
Liquidation expenses (2)

Business asset valuation adjustments (4)
8% - 26%
(13%)

25% - 27%
(26%)
Residential mortgage loan commitments149 Adjusted market bidPull-through rate
69% - 88%
(82%)

40

Quantitative Information about Level 3 Fair Value Measurements
(amounts in thousands)Fair Value
Estimate
Valuation TechniqueUnobservable Input
Range 
(Weighted Average) (4)
December 31, 2021    
Asset-backed securities$142,885 Discounted cash flowDiscount rate


Annualized loss rate


Constant prepayment rate
4% - 5%
(5%)

4% - 4%
(4%)

17% - 33%
(19%)
Collateral-dependent loans – real estate4,170 
Collateral appraisal (1)
Liquidation expenses (2)
8% - 8%
(8%)
Collateral-dependent loans – commercial and industrial951 
Collateral appraisal (1)


Business asset valuation (3)

Liquidation expenses (2)

Business asset valuation adjustments (4)
8% - 26%
(12%)

20% - 20%
(20%)
Residential mortgage loan commitments179 Adjusted market bidPull-through rate
76% - 89%
(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.
NOTE 14 — 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 an accommodation 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 AOCI 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.
Customers discontinues cash flow hedge accounting if it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in AOCI are reclassified immediately into earnings and any subsequent changes in the fair value of such derivatives are recognized directly in earnings. During the three months ended March 31, 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.
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At March 31, 2022 and December 31, 2021, Customers had no 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 March 31, 2022, Customers had 14 outstanding interest rate derivatives with notional amounts totaling $64.0 million that were designated as fair value hedges of certain AFS debt securities. During the three months ended March 31, 2022, Customers terminated 2 interest rate derivatives with notional amounts totaling $16.5 million that were designated as fair value hedges together with the sale of hedged AFS debt securities. During the three months ended March 31, 2021, Customers terminated 7 interest rate derivatives with notional amounts totaling $186.8 million that were designated as fair value hedges together with the sale of hedged AFS debt securities. At December 31, 2021, Customers had 16 outstanding interest rate derivatives with notional amounts totaling $80.5 million designated as fair value hedges.
As of March 31, 2022, 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
(amounts in thousands)March 31, 2022December 31, 2021March 31, 2022December 31, 2021
AFS debt securities$64,000 $80,500 $3,653 $1,750 
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 March 31, 2022, Customers had 153 interest rate swaps with an aggregate notional amount of $1.4 billion and 14 interest rate caps with an aggregated notional amount of $263.2 million related to this program. At December 31, 2021, Customers had 153 interest rate swaps with an aggregate notional amount of $1.4 billion and 14 interest rate caps with an aggregate notional amount of $264.7 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 March 31, 2022 and December 31, 2021, Customers had an outstanding notional balance of residential mortgage loan commitments of $6.4 million and $8.2 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 March 31, 2022 and December 31, 2021, Customers had outstanding notional balances of credit derivatives of $129.1 million and $129.9 million, respectively.
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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 consolidated balance sheets as of March 31, 2022 and December 31, 2021.
 March 31, 2022
 Derivative AssetsDerivative Liabilities
(amounts in thousands)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as fair value hedges:
Interest rate swapsOther assets$3,653 Other liabilities$— 
Total$3,653 $— 
Derivatives not designated as hedging instruments:
Interest rate swapsOther assets$16,007 Other liabilities$16,158 
Interest rate capsOther assets2,090 Other liabilities2,090 
Credit contractsOther assets55 Other liabilities122 
Residential mortgage loan commitmentsOther assets149 Other liabilities— 
Total$18,301 $18,370 
December 31, 2021
Derivative AssetsDerivative Liabilities
(amounts in thousands)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as fair value hedges:
Interest rate swapsOther assets$1,750 Other liabilities$— 
Total$1,750 $— 
Derivatives not designated as hedging instruments:
Interest rate swapsOther assets$24,747 Other liabilities$25,855 
Interest rate capsOther assets488 Other liabilities488 
Credit contractsOther assets131 Other liabilities201 
Residential mortgage loan commitmentsOther assets179 Other liabilities— 
Total$25,545 $26,544 
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Effect of Derivative Instruments on Net Income
The following table presents 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 months ended March 31, 2022 and 2021.
Amount of Income (Loss) Recognized in Earnings
Three Months Ended March 31,
(amounts in thousands)Income Statement Location20222021
Derivatives designated as fair value hedges:
Recognized on interest rate swapsNet interest income$2,521 $4,907 
Recognized on hedged AFS debt securitiesNet interest income(2,521)(4,907)
Total$— $— 
Derivatives not designated as hedging instruments:
Interest rate swapsOther non-interest income$961 $2,399 
Interest rate capsOther non-interest income— — 
Credit contractsOther non-interest income137 
Residential mortgage loan commitmentsMortgage banking income(31)(4)
Total$933 $2,532 
Effect of Derivative Instruments on Comprehensive Income
The following table presents the effect of Customers' derivative financial instruments on comprehensive income for the three months ended March 31, 2022 and 2021.
Amount of Gain (Loss) Recognized in OCI on Derivatives (1)
Location of Gain (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Three Months Ended
March 31,
Three Months Ended
March 31,
(amounts in thousands)2022202120222021
Derivatives in cash flow hedging relationships:
Interest rate swaps$— $9,113 Interest expense$— $(1,459)
00
Other non-interest income (2)
— (24,467)
00$— $(25,926)
(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.
(2)    Includes loss on cash flow hedge derivative terminations.
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 March 31, 2022, the fair value of derivatives in a net asset position (which includes accrued interest but excludes any adjustment for nonperformance-risk) related to these agreements was $9.6 million. In addition, Customers, which has collateral posting thresholds with certain of these counterparties, had posted $4.1 million of cash as collateral at March 31, 2022. Customers records cash posted as collateral with these counterparties, except with a central clearing entity, 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 tables 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 tables 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
March 31, 2022
Interest rate derivative assets with institutional counterparties$6,546 $— $— $6,546 
Interest rate derivative liabilities with institutional counterparties$4,115 $— $(4,115)$— 
 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, 2021
Interest rate derivative assets with institutional counterparties$— $— $— $— 
Interest rate derivative liabilities with institutional counterparties$23,348 $— $(23,348)$— 
NOTE 15 — LOSS CONTINGENCIES
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the consolidated financial statements that are not currently accrued for. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution may have a material adverse effect on Customers’ results of operations for a particular period, and future changes in circumstances or additional information could result in accruals or resolution in excess of established accruals, which could adversely affect Customers’ results of operations, potentially materially.
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 States Bankruptcy Court for the Central District of California. On October 28, 2020, the Trustee, as plaintiff, filed her amended adversary complaint (“Adversary Complaint”) against the 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 the Bank in the amount of $8.1 million in satisfaction of a PPP loan made by the Bank to the Debtor (the “PPP Loan Payment”). The Trustee sought 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. On December 2, 2021, the Bank filed a motion for summary judgement, arguing that the Trustee had failed to establish the elements under 11 U.S.C. §547 necessary to recover the PPP Loan Payment and other affirmative defenses to any such recovery. On February 2, 2022, the United States Bankruptcy Court for the Central District of California granted the Bank’s motion for summary judgment, finding that the PPP Loan Payment was not recoverable by the Trustee. The Trustee has elected not to appeal this decision and, on February 23, 2022, the case against the Bank was closed by the United States Bankruptcy Court for the Central District of California.
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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,” project,” 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 impact of the ongoing pandemic on the U.S. economy and customer behavior, the impact that changes in the economy have on the performance of our loan and lease portfolio, the market value of our investment securities, the continued success and acceptance of our blockchain payments system, 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 any 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, 2021, 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 months ended March 31, 2022. 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' 2021 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.
Customers Bancorp completed the divestiture of BankMobile Technologies, Inc., the technology arm of its BankMobile segment, to MFAC Merger Sub Inc., an indirect wholly-owned subsidiary of MFAC on January 4, 2021. 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 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.
In October 2021, Customers Bank launched the Customers Bank Instant Token or CBITTM on the TassatPayTM blockchain-based instant B2B payments platform, which serves a growing array of B2B clients who want the benefit of instant payments: including key over-the-counter desks, exchanges, liquidity providers, market makers, funds, and B2B verticals such as trading operations, real estate,
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manufacturing, and logistics. CBIT may only be created by, transferred to and redeemed by commercial customers of Customers Bank on the instant B2B payments platform by maintaining U.S. dollars in non-interest bearing deposits at Customers Bank. CBIT is not listed or traded on any digital currency exchange. As of March 31, 2022, Customers Bank held $1.8 billion of deposits from customers participating in CBIT.
To further build its franchise and support the growth of its commercial lending initiatives, Customers added three new commercial verticals during 2021 within its Specialty Banking business. These three new verticals included fund finance, technology and venture capital banking and financial institutions group that provide financing to the private equity industry and cash management services to the alternative investment industry. Customers also launched a pilot digital small balance 7(a) lending within its existing SBA Lending business in third quarter 2021.
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 leases 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, Geopolitical Conflict and Macroeconomic Uncertainties
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization. The spread of COVID-19 and its variants 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, resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that 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 including the CARES Act and subsequent amendments and the Federal Reserve Board maintaining a low interest rate environment. The CARES Act included the SBA's PPP, a nearly $350 billion program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. The PPP ended on May 31, 2021. Customers has helped thousands of small businesses by funding over $10 billion in PPP loans directly or through partnerships.
In response to the COVID-19 pandemic, 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 continue to experience varying degrees of financial distress. In order to protect the health of its customers and team members, and to comply with applicable government directives, Customers had modified its business practices, including directing team members to work remotely insofar as is possible and implementing its business continuity plans and protocols to the extent necessary. Since that time, Customers has launched the “Return to Workplace” initiative, and communicated a goal of having more team members return to the workplace. In that communication, Customers announced the following steps along with a continuing commitment to remain empathetic and cognizant of balancing company principles, customer support, team member support and remaining vigilant in tracking and preventing COVID-19 exposures to protect our team members and customers. Customers implemented a “ hybrid model” encouraging and tracking the movement of more team members returning to the office, released a communication requiring all team members to read, sign and acknowledge a Code of Commitment to reveal exposures to COVID-19, thereby allowing Customers to manage the possible impact with 100 percent participation of our team members. Customers has started tracking vaccination rates and less than 10 percent of our team members are not vaccinated or not planning to be vaccinated.
Customers also implemented a short-term loan modification program to provide temporary payment relief to certain of its borrowers who met the program's qualifications. This program allowed 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. On December 27, 2020, the CAA was signed into law, which extended and expanded various relief provisions of the CARES Act including the temporary relief from the accounting and disclosure requirements for TDRs until January 1, 2022. All commercial loans previously on deferments became current by December 31, 2021 from a peak of $1.2 billion. Customers had no pending commercial loan deferment requests as of December 31, 2021. As of March 31, 2022, total consumer deferments declined to $3.3 million, from a peak of $108.0 million. As of December 31, 2021, total consumer deferments were $6.1 million, or 0.1% 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.
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(dollars in thousands)March 31, 2022December 31, 2021
Loans held for sale (GAAP)$3,003 $16,254 
Loans receivable, mortgage warehouse, at fair value (GAAP)1,755,758 2,284,325 
Loans and leases receivable (GAAP)12,314,757 12,268,306 
Total loans and leases receivable (GAAP)14,073,518 14,568,885 
Less: Loans receivable, PPP2,195,902 3,250,008 
Total loans and leases, excluding PPP (Non-GAAP)$11,877,616 $11,318,877 
Commercial deferments (GAAP)$— $— 
Consumer deferments (GAAP)3,262 6,060 
Total deferments (GAAP)$3,262 $6,060 
Commercial deferments to total loans and leases, excluding PPP (Non-GAAP)— %— %
Consumer deferments to total loans and leases, excluding PPP (Non-GAAP)0.0 %0.1 %
Total deferments to total loans and leases, excluding PPP (Non-GAAP)0.0 %0.1 %
The Federal Reserve Board had taken a range of actions to support the flow of credit to households and businesses at the outbreak of COVID-19. The Federal Reserve Board established 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, the PPPLF, which was created to bolster the effectiveness of the PPP by taking loans as collateral at face value. Customers participated in some of these facilities and programs, primarily the PPPLF. Customers fully repaid the borrowing from the PPPLF during the three months ended September 30, 2021. No new advances are available from the PPPLF after July 30, 2021. The U.S. economy has since strengthened despite the spread of COVID-19 variants, with higher inflation and housing values. In response, the Federal Reserve Board has begun normalizing monetary policy with its decision in late 2021 to taper its quantitative easing and raising the federal funds rate in March 2022.
Significant uncertainties as to future economic conditions continue to exist, including inflation, global supply chain issues, and higher oil and commodity prices exacerbated by the military conflict between Russia and Ukraine. Customers has taken deliberate actions in response, including maintaining higher levels of on-balance sheet liquidity, reserves for credit losses on loans and leases and off-balance sheet credit exposures and strong capital ratios. Customers has also shifted the mix of its loan portfolio towards commercial loans with floating or adjustable interest rates and increased its non-interest bearing and interest-bearing demand deposits to position the Bank for future interest rate hikes. Customers continues to monitor closely the impact of COVID-19 and its variants, the military conflict between Russia and Ukraine and macroeconomic uncertainties, as well as any effects that may result from the federal government's responses including future rate hikes; however, the extent to which the ongoing COVID-19 pandemic, the geopolitical conflict and macroeconomic factors will impact Customers' operations and financial results during the remainder of 2022 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.
Critical Accounting Policies and Estimates
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 2021 Form 10-K and updated in this Form 10-Q for the quarterly period ended March 31, 2022 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 judgments 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.
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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 March 31, 2022 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 industry and 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 modelled 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, as deemed applicable, to arrive at a scenario or a composite of scenarios 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 increase in our estimated ACL as of March 31, 2022 as compared to our December 31, 2021 estimate was primarily attributable to the loan growth in the loan portfolio for consumer installment, residential, multi-family and commercial and industrial loans. There was a $15.3 million provision for credit losses on loans and leases for the three months ended March 31, 2022, resulting in an ACL ending balance of $147.8 million ($145.8 million for loans and leases and $2.0 million for unfunded lending-related commitments) as of March 31, 2022.
To determine the ACL as of March 31, 2022, Customers utilized Moody's March 2022 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 March 2022 assumed decelerating growth in macroeconomic forecasts compared to the fourth quarter 2021 forecasts of macroeconomic conditions used by Customers; the impact of the Russian invasion of Ukraine on the U.S. economy would be marginal and the disruptions to oil, natural gas and other commodity markets will be limited and temporary; the COVID-19 pandemic slowly receding and becoming less disruptive to global supply chains, tourism and business travel, immigration and labor markets; the Federal Reserve Board raising the target range for the fed funds rate four times by 25 basis points each time in 2022; and the U.S. economy achieving full-employment with a 3.5% unemployment rate in late 2022 or early 2023. Customers continues to monitor the impact of the military conflict between Russia and Ukraine, the ongoing COVID-19 pandemic, inflation, and related policy measures on the U.S. economy and, if pace of the expected recovery is worse than expected, further meaningful provisions for credit losses could be required.
As of December 31, 2021, the ACL ending balance was $139.9 million ($137.8 million for loans and leases and $2.1 million for unfunded lending-related commitments). To determine the ACL as of December 31, 2021, Customers utilized the Moody's December 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 December 31, 2021 assumed continued improvement in forecasts of macroeconomic conditions compared to the forecasts of macroeconomic conditions used by Customers in 2020; the Federal Reserve Board has accelerated its tapering process in the fourth quarter of 2021 and the first rate hike is assumed to occur in 2022; a
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continuing U.S. economic recovery from federal spending and abatement of the COVID-19 pandemic, notwithstanding the impact of the Omicron variant; and the acceleration in consumer prices is expected to peak and moderate in the near-term as the supply chain issues subside.
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 the military conflict between Russia and Ukraine worsening significantly and persisting longer, causing oil prices to rise more sharply than the Baseline projections, new infections, hospitalizations and COVID-19 deaths rising significantly again as compared to the Baseline projections, slowing growth in consumer spending on air travel, retail and hotels, worsening supply chain issues boosting inflation, rising unemployment and the U.S. economy falling into recession. Under this scenario, as an example, the unemployment rate is estimated at 5.8% and 7.6% at the end of 2022 and 2023, respectively. These numbers represent a 2.2% and 4.2% higher unemployment estimate than Baseline scenario projections of 3.6% and 3.4%, 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 modelled results. This would result in an incremental quantitative impact to the ACL of approximately $37.2 million at March 31, 2022. 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 ongoing 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 ongoing 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 Customers' unaudited consolidated financial statements.
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Results of Operations
The following table sets forth the condensed statements of income for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
(dollars in thousands)20222021Change% Change
Net interest income$164,699 $132,731 $31,968 24.1 %
Provision (benefit) for credit losses15,997 (2,919)18,916 (648.0)%
Total non-interest income21,198 18,468 2,730 14.8 %
Total non-interest expense73,807 61,927 11,880 19.2 %
Income before income tax expense96,093 92,191 3,902 4.2 %
Income tax expense19,332 17,560 1,772 10.1 %
Net income from continuing operations76,761 74,631 2,130 2.9 %
Loss from discontinued operations before income taxes— (20,354)20,354 (100.0)%
Income tax expense from discontinued operations— 17,682 (17,682)(100.0)%
Net loss from discontinued operations— (38,036)38,036 (100.0)%
Net income76,761 36,595 40,166 109.8 %
Preferred stock dividends1,865 3,391 (1,526)(45.0)%
Net income available to common shareholders$74,896 $33,204 $41,692 125.6 %
Customers reported net income available to common shareholders of $74.9 million for the three months ended March 31, 2022 compared to net income available to common shareholders of $33.2 million for the three months ended March 31, 2021. Factors contributing to the change in net income available to common shareholders for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 were as follows.
Net interest income
Net interest income increased $32.0 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 as average interest-earning assets increased by $628.4 million, and NIM increased by 60 basis points to 3.60% for the three months ended March 31, 2022 from 3.00% for the three months ended March 31, 2021. The increase in interest-earning assets was driven by increases in investment securities, commercial and industrial loans and leases and installment loans, offset in part by decreases in PPP loans due to PPP loan forgiveness and commercial loans to mortgage companies. The shift in the mix of interest-earning assets and PPP loan forgiveness, which accelerated the recognition of net deferred loan origination fees, drove a 36 basis points increase in the yield on interest-earning assets and contributed to the NIM increase. The NIM also increased from equity investment distributions, which are included in other interest income. The shift in the mix of interest-bearing liabilities in a lower interest rate environment drove a 20 basis points decline in the cost of interest-bearing liabilities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was $2.2 billion ($2.6 billion average balance) of PPP loans yielding 5.66% and $5.6 billion ($5.8 billion average balance) of interest-bearing demand deposits costing 0.54%. Non-interest bearing demand deposits was $4.6 billion ($4.9 billion average balance). PPPLF borrowings costing 0.35% were fully repaid during the three months ended September 30, 2021. Customers' total cost of funds, including non-interest bearing deposits was 0.43% and 0.67% for the three months ended March 31, 2022 and 2021, respectively.
Provision (benefit) for credit losses
The $18.9 million increase in the provision for credit losses for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily reflects the loan growth in the loan portfolio for consumer installment, residential, multi-family and commercial and industrial loans. 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 statement of income. The ACL on loans and leases held for investment represented 1.44% of total loans and leases receivable, excluding PPP loans (non-GAAP measure, please refer to the non-GAAP reconciliation within Loans and Leases - Credit Risk), at March 31, 2022, compared to 1.71% at March 31, 2021. Net charge-offs for the three months ended March 31, 2022 were $7.2 million, or 21 basis points of average loans and leases on an annualized basis, compared to net charge-offs of $12.5 million, or 33 basis points on an annualized basis, for the three months ended March 31, 2021. The decrease in net charge-offs for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was primarily due to lower charge-offs for consumer installment loans.
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The provision for credit losses for the three months ended March 31, 2022 also includes a provision for credit losses of $0.7 million on certain asset-backed securities included in our investment securities. See "NOTE 6 – INVESTMENT SECURITIES" to Customers' unaudited consolidated financial statements for additional information.
Non-interest income
The $2.7 million increase in non-interest income for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily resulted from a decrease of $24.5 million in loss on cash flow hedge derivative terminations, and increases of $6.6 million in bank-owned life insurance income, $1.1 million in loan fees and $0.7 million in commercial lease income. These increases were offset in part by decreases of $24.6 million in gain (loss) on sale of investment securities, $2.2 million in mortgage warehouse transactional fees, $1.6 million in unrealized gain (loss) on derivatives, $1.3 million in unrealized gain (loss) on investment securities, $0.5 million in other non-interest income and $0.1 million in gain (loss) on sale of SBA and other loans.
Non-interest expense
The $11.9 million increase in non-interest expense for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily resulted from increases of $4.1 million in technology, communication and bank operations, $2.6 million in salaries and employee benefits, $1.9 million in loan servicing, $1.8 million in other non-interest expense, $1.1 million in professional services and $0.7 million in commercial lease depreciation. These increases were offset in part by a decrease of $0.4 million in merger and acquisition related expenses for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
Income tax expense
Customers' effective tax rate from continuing operations was 20.1% for the three months ended March 31, 2022 compared to 19.0% for the three months ended March 31, 2021. The increase in the effective tax rate primarily resulted from reduced investment tax credits for 2022 and a benefit for 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 included in 2021, offset in part by excess tax benefits on vesting of restricted stock units and death benefits from bank-owned life insurance policies for 2022.
Net loss from discontinued operations
On January 4, 2021, Customers Bancorp completed the divestiture of BMT, the technology arm of its BankMobile segment, to MFAC Merger Sub Inc., an indirect wholly-owned subsidiary of MFAC. 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 operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying unaudited 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 March 31, 2022 compared to $38.0 million for the three months ended March 31, 2021 as the divestiture of BMT was completed on January 4, 2021. The $38.0 million decrease was primarily related to 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 Customers' unaudited consolidated financial statements for additional information.
Preferred stock dividends
Preferred stock dividends were $1.9 million and $3.4 million for the three months ended March 31, 2022 and 2021, respectively. On September 15, 2021, Customers redeemed all of the outstanding shares of Series C and Series D Preferred Stock for an aggregate payment of $82.5 million, at a redemption price of $25.00 per share. The redemption price paid in excess of the carrying value of Series C and Series D Preferred Stock of $2.8 million was included as a loss on redemption of preferred stock in the consolidated statement of income for the three months ended September 30, 2021. After giving effect to the redemption, no shares of the Series C and Series D Preferred Stock remained outstanding. There were no changes to the amount of preferred stock outstanding during the three months ended March 31, 2022 and 2021.
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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%. On December 15, 2021, the Series F Preferred Stock became floating at three-month LIBOR plus 4.762%, compared to a fixed rate of 6.00%.
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 months ended March 31, 2022 and 2021. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

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Three Months Ended March 31,Three Months Ended March 31,
202220212022 vs. 2021
(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$826,240 $329 0.16 %$1,177,315 $302 0.10 %$133 $(106)$27 
Investment securities (1)
4,036,966 20,295 2.01 %1,357,558 7,979 2.35 %(1,279)13,595 12,316 
Loans and leases:
Commercial loans to mortgage companies1,836,647 14,006 3.09 %3,122,098 23,791 3.09 %— (9,785)(9,785)
Multi-family loans1,531,846 13,766 3.64 %1,689,174 15,848 3.80 %(648)(1,434)(2,082)
Commercial and industrial loans and leases (2)
4,124,408 36,659 3.60 %2,848,328 27,850 3.97 %(2,786)11,595 8,809 
PPP loans2,641,318 36,894 5.66 %4,623,213 38,832 3.41 %19,028 (20,966)(1,938)
Non-owner occupied commercial real estate loans1,312,210 12,207 3.77 %1,348,938 12,794 3.85 %(254)(333)(587)
Residential mortgages416,417 3,680 3.58 %373,497 3,485 3.78 %(191)386 195 
Installment loans1,794,145 39,963 9.03 %1,323,863 29,517 9.04 %(33)10,479 10,446 
Total loans and leases (3)
13,656,991 157,175 4.67 %15,329,111 152,117 4.02 %22,816 (17,758)5,058 
Other interest-earning assets52,111 5,677 NM(7)79,960 717 3.64 %5,294 (334)4,960 
Total interest-earning assets18,572,308 183,476 4.00 %17,943,944 161,115 3.64 %16,514 5,847 22,361 
Non-interest-earning assets557,022 581,777 
Total assets$19,129,330 $18,525,721 
Liabilities
Interest checking accounts$5,769,372 7,730 0.54 %$2,691,723 5,599 0.84 %(2,527)4,658 2,131 
Money market deposit accounts4,880,051 4,674 0.39 %4,435,930 6,059 0.55 %(1,926)541 (1,385)
Other savings accounts880,113 784 0.36 %1,414,350 2,400 0.69 %(903)(713)(1,616)
Certificates of deposit450,644 524 0.47 %666,239 1,600 0.97 %(661)(415)(1,076)
Total interest-bearing deposits (4)
11,980,180 13,712 0.46 %9,208,242 15,658 0.69 %(5,979)4,033 (1,946)
Federal funds purchased88,611 73 0.33 %16,333 0.07 %32 38 70 
FRB PPP liquidity facility— — — %3,941,718 3,402 0.35 %— (3,402)(3,402)
Borrowings532,610 4,992 3.80 %1,155,493 9,321 3.27 %1,321 (5,650)(4,329)
Total interest-bearing liabilities12,601,401 18,777 0.60 %14,321,786 28,384 0.80��%(6,489)(3,118)(9,607)
Non-interest-bearing deposits (4)
4,900,983 2,819,871 
Total deposits and borrowings17,502,384 0.43 %17,141,657 0.67 %
Other non-interest-bearing liabilities237,131 247,798 
Total liabilities17,739,515 17,389,455 
Shareholders' equity1,389,815 1,136,266 
Total liabilities and shareholders' equity$19,129,330 $18,525,721 
Net interest income164,699 132,731 $23,003 $8,965 $31,968 
Tax-equivalent adjustment (5)
239 292 
Net interest earnings$164,938 $133,023 
Interest spread3.57 %2.97 %
Net interest margin3.59 %3.00 %
Net interest margin tax equivalent (5)
3.60 %3.00 %
Net interest margin tax equivalent, excluding PPP loans (6)
3.32 %2.99 %
(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 0.33% and 0.53% for the three months ended March 31, 2022 and 2021, respectively.
(5)Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for the three months ended March 31, 2022 and 2021, 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 March 31, 2022 and 2021, 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.
(7)Not Meaningful. Average yield on other interest-earning assets for the three months ended March 31, 2022 was 44.18% primarily due to $5.2 million of equity investment distributions.
Net interest income increased $32.0 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 as average interest-earning assets increased by $628.4 million, primarily related to increases in investment securities, commercial and industrial loans and installment loans, partially offset by decreases in PPP loans due to PPP loan forgiveness and commercial loans to mortgage companies. 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 since early 2020. The refinancing activity has slowed since reaching its high level in early 2021 with rising interest rates.
The NIM increased by 60 basis points to 3.60% for the three months ended March 31, 2022 from 3.00% for the three months ended March 31, 2021 resulting primarily from the PPP loan forgiveness, as well as a shift in the mix of interest-earning assets and interest-bearing liabilities in a lower interest rate environment. The shift in the mix of interest-earning assets and PPP loan forgiveness, which accelerated the recognition of net deferred loan origination fees, drove a 36 basis points increase in the yield on interest-earning assets and contributed to the NIM increase. The NIM also increased from equity investment distributions, which are included in other interest income. The shift in the mix of interest-bearing liabilities in a lower interest rate environment drove a 20 basis points decline in the cost of interest-bearing liabilities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The largest shift in the mix of interest-earning assets and interest-bearing liabilities was $2.2 billion ($2.6 billion average balance) of PPP loans yielding 5.66% and $5.6 billion ($5.8 billion average balance) of interest-bearing demand deposits costing 0.54%. Non-interest bearing demand deposits was $4.6 billion ($4.9 billion average balance). PPPLF borrowings costing 0.35% were fully repaid during the three months ended September 30, 2021. Customers' total cost of funds, including non-interest bearing deposits was 0.43% and 0.67% for the three months ended March 31, 2022 and 2021, respectively.
Customers' net interest margin tables contain non-GAAP financial measures calculated using non-GAAP amounts. These measures include net interest margin tax equivalent and net interest margin tax equivalent, excluding PPP loans. Management uses these non-GAAP measures to compare the current period presentation to historical periods in prior filings. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers' financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.
A reconciliation of net interest margin tax equivalent and net interest margin tax equivalent, excluding PPP loans for the three months ended March 31, 2022 and 2021 is set forth below.
Three Months Ended March 31,
(dollars in thousands)20222021
Net interest income (GAAP)$164,699 $132,731 
Tax-equivalent adjustment239 292 
Net interest income tax equivalent (Non-GAAP)164,938 133,023 
Loans receivable, PPP net interest income(34,615)(34,842)
Net interest income tax equivalent, excluding PPP loans (Non-GAAP)$130,323 $98,181 
Average total interest-earning assets (GAAP)$18,572,308 $17,943,944 
Average PPP loans(2,641,318)(4,623,213)
Adjusted average total interest-earning assets (Non-GAAP)$15,930,990 $13,320,731 
Net interest margin (GAAP)3.59 %3.00 %
Net interest margin tax equivalent (Non-GAAP)3.60 %3.00 %
Net interest margin tax equivalent, excluding PPP loans (Non-GAAP)3.32 %2.99 %

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PROVISION (BENEFIT) FOR CREDIT LOSSES
The provision (benefit) for credit losses is a charge (credit) to earnings to maintain the ACL at a level consistent with management’s assessment of expected lifetime losses in the loan and lease portfolio at the balance sheet date. Customers recorded a provision for credit losses on loans and leases during the three months ended March 31, 2022, which resulted primarily from an increase in provision for the growth in loan portfolio for consumer installment, residential, multi-family and commercial and industrial loans. Customers recorded a provision for credit losses on loans and leases of $15.3 million and a credit to provision for credit losses (a benefit) on lending-related commitments of $0.1 million for the three months ended March 31, 2022. Customers recorded a credit to provision for credit losses (a benefit) of $2.9 million and $1.3 million for loans and leases and lending-related commitments, respectively, for the three months ended March 31, 2021. Net charge-offs for the three months ended March 31, 2022 were $7.2 million, or 21 basis points of average loans and leases on an annualized basis, compared to net charge-offs of $12.5 million, or 33 basis points of average loans and leases on an annualized basis, for three months ended March 31, 2021. The decrease in net charge-offs for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was primarily due to lower charge-offs for consumer installment loans. For more information about the provision and ACL and our loss experience on loans and leases, see “Credit Risk” and “Asset Quality” herein.
The provision for credit losses for the three months ended March 31, 2022 also included a provision for credit losses of $0.7 million on certain asset-backed securities included in our investment securities. See "NOTE 6 – INVESTMENT SECURITIES" to Customers' unaudited consolidated financial statements for additional information.
NON-INTEREST INCOME
The table below presents the components of non-interest income for the three months ended March 31, 2022 and 2021.
 Three Months Ended March 31,
(dollars in thousands)20222021Change% Change
Interchange and card revenue$76 $85 $(9)(10.6)%
Deposit fees940 863 77 8.9 %
Commercial lease income5,895 5,205 690 13.3 %
Bank-owned life insurance8,326 1,679 6,647 395.9 %
Mortgage warehouse transactional fees2,015 4,247 (2,232)(52.6)%
Gain (loss) on sale of SBA and other loans1,507 1,575 (68)(4.3)%
Loan fees2,545 1,436 1,109 77.2 %
Mortgage banking income481 463 18 3.9 %
Gain (loss) on sale of investment securities(1,063)23,566 (24,629)(104.5)%
Unrealized gain (loss) on investment securities(276)974 (1,250)(128.3)%
Unrealized gain (loss) on derivatives964 2,537 (1,573)(62.0)%
Loss on cash flow hedge derivative terminations— (24,467)24,467 (100.0)%
Other(212)305 (517)(169.5)%
Total non-interest income$21,198 $18,468 $2,730 14.8 %
Commercial lease income
Commercial lease income represents income earned on commercial operating leases originated by Customers' Equipment Finance Group in which Customers is the lessor. The $0.7 million increase in commercial lease income for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily resulted from the continued growth of Customers' equipment finance business.
Bank-owned life insurance
Bank-owned life insurance income represents income earned on life insurance policies owned by Customers including an increase in cash surrender value of the policies and any benefits paid by insurance carriers under the policies. The $6.6 million increase in bank-owned life insurance income for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 resulted from the increase in cash surrender value of the policies and death benefits paid by insurance carriers under the policies.
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Mortgage warehouse transactional fees
The $2.2 million decrease in mortgage warehouse transactional fees for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily resulted from a lower refinancing activity due to higher interest rates. There can be no assurance that Customers will earn mortgage warehouse transactional fees in 2022 comparable to 2021, given the lower refinancing activity in a higher interest rate environment.
Gain (loss) on sale of SBA and other loans
The $0.1 million decrease in gain on sale of SBA and other loans for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 reflects a decrease in sales of SBA loans during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. There can be no assurance that Customers will realize gains on the sale of loans in 2022 comparable to 2021, given the significant uncertainty in the capital markets.
Loan fees
The $1.1 million increase in loan fees for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily resulted from an increase in fees earned on unused lines of credit and other fees from commercial borrowers.
Gain (loss) on sale of investment securities
The $24.6 million decrease in gain on sale of investment securities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 reflects the net losses realized from the sale of $156.0 million in AFS debt securities during the three months ended March 31, 2022 compared to the net gains realized from the sale of $353.9 million in AFS debt securities during the three months ended March 31, 2021. There can be no assurance that Customers will realize gains on the sale of investment securities in 2022 comparable to 2021, given the significant uncertainty in the capital markets and fluctuations in our funding needs, which may impact Customers’ investment strategy.
Unrealized gain (loss) on investment securities
The $1.3 million decrease in unrealized gain (loss) on investment securities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily reflects a decrease in the unrealized gain of equity securities issued by a foreign entity that were held by CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd. Customers sold all outstanding shares in CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd. in June 2021.
Unrealized gain (loss) on derivatives
The $1.6 million decrease in unrealized gain (loss) on derivatives for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily resulted from decreases of $0.7 million in credit valuation adjustment and credit derivatives due to changes in market interest rates and $0.8 million in interest rate swap fees.
Loss on cash flow hedge derivative ter