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Customers Bancorp (CUBI)

Filed: 8 Aug 22, 4:58pm

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

 
Form 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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-20220630_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 August 5, 2022, 32,454,557 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
B2BBusiness-to-business
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
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
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
FRBFederal Reserve Bank of Philadelphia
HTMHeld to maturity
GDPGross domestic product
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
PPPPaycheck Protection Program
PPPLFFRB Paycheck Protection Program Liquidity Facility
PUTPurchase Upon Termination
3

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)
June 30,
2022
December 31,
2021
ASSETS
Cash and due from banks$66,703 $35,238 
Interest earning deposits178,475 482,794 
Cash and cash equivalents245,178 518,032 
Investment securities, at fair value (includes allowance for credit losses of $411 at June 30, 2022)3,144,882 3,817,150 
Investment securities held to maturity495,039 — 
Loans held for sale (includes $1,952 and $15,747, respectively, at fair value)6,595 16,254 
Loans receivable, mortgage warehouse, at fair value1,874,603 2,284,325 
Loans receivable, PPP1,570,160 3,250,008 
Loans and leases receivable12,212,995 9,018,298 
Allowance for credit losses on loans and leases(156,530)(137,804)
Total loans and leases receivable, net of allowance for credit losses on loans and leases15,501,228 14,414,827 
FHLB, Federal Reserve Bank, and other restricted stock74,626 64,584 
Accrued interest receivable98,727 92,239 
Bank premises and equipment, net6,755 8,890 
Bank-owned life insurance335,153 333,705 
Goodwill and other intangibles3,629 3,736 
Other assets340,184 305,611 
Total assets$20,251,996 $19,575,028 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing$4,683,030 $4,459,790 
Interest bearing12,261,689 12,318,134 
Total deposits16,944,719 16,777,924 
Federal funds purchased770,000 75,000 
FHLB advances635,000 700,000 
Other borrowings123,450 223,086 
Subordinated debt181,812 181,673 
Accrued interest payable and other liabilities243,625 251,128 
Total liabilities18,898,606 18,208,811 
Commitments and contingencies (NOTE 16)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 June 30, 2022 and December 31, 2021137,794 137,794 
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 34,922,039 and 34,721,675 shares issued as of June 30, 2022 and December 31, 2021; 32,449,486 and 32,913,267 shares outstanding as of June 30, 2022 and December 31, 202134,922 34,722 
Additional paid in capital545,670 542,391 
Retained earnings837,147 705,732 
Accumulated other comprehensive income (loss), net(124,881)(4,980)
Treasury stock, at cost (2,472,553 and 1,808,408 shares as of June 30, 2022 and December 31, 2021)(77,262)(49,442)
Total shareholders’ equity1,353,390 1,366,217 
Total liabilities and shareholders’ equity$20,251,996 $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
June 30,
Six Months Ended
June 30,
 2022202120222021
Interest income:
Loans and leases$168,941 $153,608 $326,116 $305,725 
Investment securities25,442 8,327 45,737 16,306 
Other1,951 946 7,957 1,965 
Total interest income196,334 162,881 379,810 323,996 
Interest expense:
Deposits22,781 15,653 36,493 31,311 
FHLB advances2,316 963 2,316 6,155 
Subordinated debt2,689 2,689 5,378 5,378 
FRB PPP liquidity facility, federal funds purchased and other borrowings3,696 4,819 6,072 9,664 
Total interest expense31,482 24,124 50,259 52,508 
Net interest income164,852 138,757 329,551 271,488 
Provision for credit losses23,847 3,291 39,844 372 
Net interest income after provision for credit losses141,005 135,466 289,707 271,116 
Non-interest income:
Interchange and card revenue24 84 100 169 
Deposit fees964 891 1,904 1,754 
Commercial lease income6,592 5,311 12,487 10,516 
Bank-owned life insurance1,947 2,765 10,273 4,444 
Mortgage warehouse transactional fees1,883 3,265 3,898 7,512 
Gain (loss) on sale of SBA and other loans1,542 1,900 3,049 3,475 
Loan fees2,618 1,670 5,163 3,106 
Mortgage banking income173 386 654 849 
Gain (loss) on sale of investment securities(3,029)1,812 (4,092)25,378 
Unrealized gain (loss) on investment securities(203)1,746 (479)2,720 
Loss on sale of foreign subsidiaries— (2,840)— (2,840)
Unrealized gain (loss) on derivatives821 (439)1,785 2,098 
Loss on cash flow hedge derivative terminations— — — (24,467)
Other(586)271 (798)576 
Total non-interest income12,746 16,822 33,944 35,290 
Non-interest expense:
Salaries and employee benefits25,334 28,023 51,941 51,994 
Technology, communication and bank operations22,738 19,618 46,806 39,606 
Professional services7,415 6,882 14,371 12,759 
Occupancy4,279 2,482 7,329 5,103 
Commercial lease depreciation5,552 4,415 10,494 8,706 
FDIC assessments, non-income taxes and regulatory fees1,619 2,602 4,002 5,321 
Loan servicing4,341 1,700 6,712 2,137 
Advertising and promotion353 313 668 874 
Merger and acquisition related expenses— — — 418 
Loan workout179 102 141 (159)
Other4,395 4,686 7,548 5,991 
Total non-interest expense76,205 70,823 150,012 132,750 
Income before income tax expense77,546 81,465 173,639 173,656 
Income tax expense18,896 20,124 38,228 37,684 
Net income from continuing operations$58,650 $61,341 $135,411 $135,972 
(continued)
6

Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
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 income58,650 61,341 135,411 97,936 
Preferred stock dividends2,131 3,299 3,996 6,690 
Net income available to common shareholders$56,519 $58,042 $131,415 $91,246 
Basic earnings per common share from continuing operations$1.73 $1.80 $4.00 $4.03 
Basic earnings per common share1.73 1.80 4.00 2.84 
Diluted earnings per common share from continuing operations1.68 1.72 3.87 3.88 
Diluted earnings per common share1.68 1.72 3.87 2.74 
See accompanying notes to the unaudited consolidated financial statements.
7

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED
(amounts in thousands)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Net income$58,650 $61,341 $135,411 $97,936 
Unrealized gains (losses) on available for sale debt securities:
Unrealized gains (losses) arising during the period(88,224)592 (167,082)992 
Income tax effect22,938 (154)43,441 (258)
Reclassification adjustments for (gains) losses included in net income3,991 (1,812)5,054 (25,378)
Income tax effect(1,038)471 (1,314)6,598 
Net unrealized gains (losses) on available for sale debt securities(62,333)(903)(119,901)(18,046)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period— — 12,321 
Income tax effect— (2)— (3,204)
Reclassification adjustment for (gains) losses included in net income— 1,046 — 26,972 
Income tax effect— (272)— (7,013)
Net unrealized gains (losses) on cash flow hedges— 778 — 29,076 
Other comprehensive income (loss), net of income tax effect(62,333)(125)(119,901)11,030 
Comprehensive income (loss)$(3,683)$61,216 $15,510 $108,966 
See accompanying notes to the unaudited consolidated financial statements.
8

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED
(amounts in thousands, except shares outstanding data)
Three Months Ended June 30, 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, March 31, 20225,700,000 $137,794 32,957,847 $34,882 $542,402 $780,628 $(62,548)$(55,752)$1,377,406 
Net income— — — — — 58,650 — — 58,650 
Other comprehensive income (loss)— — — — — — (62,333)— (62,333)
Preferred stock dividends (1)
— — — — — (2,131)— — (2,131)
Share-based compensation expense— — — — 3,618 — — — 3,618 
Issuance of common stock under share-based compensation arrangements— — 40,460 40 (350)— — — (310)
Repurchase of common shares— — (548,821)— — — — (21,510)(21,510)
Balance, June 30, 20225,700,000 $137,794 32,449,486 $34,922 $545,670 $837,147 $(124,881)$(77,262)$1,353,390 
Three Months Ended June 30, 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, March 31, 20219,000,000 $217,471 32,238,762 $33,519 $515,318 $438,802 $5,391 $(21,780)$1,188,721 
Net income— — — — — 61,341 — — 61,341 
Other comprehensive income (loss)— — — — — — (125)— (125)
Preferred stock dividends (1)
— — — — — (3,299)— — (3,299)
Share-based compensation expense— — — — 4,264 — — — 4,264 
Issuance of common stock under share-based compensation arrangements— — 114,494 115 (288)— — — (173)
Balance, June 30, 20219,000,000 $217,471 32,353,256 $33,634 $519,294 $496,844 $5,266 $(21,780)$1,250,729 
(1)Dividends per share of $0.381161 and $0.357011 were declared on Series E and F preferred stock, respectively, for the three months ended June 30, 2022. Dividends per share of $0.350359, $0.336942, $0.403125, and $0.375 were declared on Series C, D, E, and F preferred stock, respectively, for the three months ended June 30, 2021.
9

Six Months Ended June 30, 2022
Preferred StockCommon Stock
Shares of Preferred Stock OutstandingPreferred StockShares of Common Stock OutstandingCommon StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance, December 31, 20215,700,000 $137,794 32,913,267 $34,722 $542,391 $705,732 $(4,980)$(49,442)$1,366,217 
Net income— — — — — 135,411 — — 135,411 
Other comprehensive income (loss)— — — — — — (119,901)— (119,901)
Preferred stock dividends (1)
— — — — — (3,996)— — (3,996)
Share-based compensation expense— — — — 7,321 — — — 7,321 
Issuance of common stock under share-based compensation arrangements— — 200,364 200 (4,042)— — — (3,842)
Repurchase of common shares— — (664,145)— — — — (27,820)(27,820)
Balance, June 30, 20225,700,000 $137,794 32,449,486 $34,922 $545,670 $837,147 $(124,881)$(77,262)$1,353,390 
Six Months Ended June 30, 2021
Preferred StockCommon Stock
Shares of Preferred Stock OutstandingPreferred StockShares of Common Stock OutstandingCommon StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance, December 31, 20209,000,000 $217,471 31,705,088 $32,986 $455,592 $438,581 $(5,764)$(21,780)$1,117,086 
Net income— — — — — 97,936 — — 97,936 
Other comprehensive income (loss)— — — — — — 11,030 — 11,030 
Preferred stock dividends (1)
— — — — — (6,690)— (6,690)
Sale of non-controlling interest in BMT (2)
— — — — 31,893 — — — 31,893 
Distribution of investment in BM Technologies (3)
— — — — — (32,983)— — (32,983)
Restricted stock awards to certain BMT team members (4)
— — — — 19,592 — — — 19,592 
Share-based compensation expense— — — — 7,873 — — — 7,873 
Issuance of common stock under share-based compensation arrangements— — 648,168 648 4,344 — — — 4,992 
Balance, June 30, 20219,000,000 $217,471 32,353,256 $33,634 $519,294 $496,844 $5,266 $(21,780)$1,250,729 
(1)Dividends per share of $0.715083 and $0.667308 were declared on Series E and F preferred stock, respectively, for the six months ended June 30, 2022. Dividends per share of $0.69514, $0.743192, $0.80625, and $0.750 were declared on Series C, D, E, and F preferred stock, respectively, for the six months ended June 30, 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.
10

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(amounts in thousands)
 Six Months Ended
June 30,
 20222021
Cash Flows from Operating Activities
Net income from continuing operations$135,411 $135,972 
Adjustments to reconcile net income to net cash provided by (used in) by continuing operating activities:
Provision (benefit) for credit losses39,844 372 
Depreciation and amortization13,327 10,735 
Share-based compensation expense7,351 7,645 
Deferred taxes(18,802)3,494 
Net amortization (accretion) of investment securities premiums and discounts1,714 449 
Unrealized (gain) loss on investment securities479 (2,720)
(Gain) loss on sale of investment securities4,092 (25,378)
Loss on sale of foreign subsidiaries— 2,840 
Impairment loss on fixed assets and leases1,200 — 
Unrealized (gain) loss on derivatives(1,785)(2,098)
Loss on cash flow hedge derivative terminations— 24,467 
Settlement of terminated cash flow hedge derivatives— (27,156)
(Gain) loss on sale of leased assets under lessor operating leases317 132 
Fair value adjustment on loans held for sale— (1,115)
(Gain) loss on sale of loans(3,860)(4,256)
Origination of loans held for sale(20,197)(28,894)
Proceeds from the sale of loans held for sale34,803 29,110 
Amortization (accretion) of loan net deferred fees, discounts and premiums(40,439)(771)
Earnings on investment in bank-owned life insurance(10,273)(4,444)
(Increase) decrease in accrued interest receivable and other assets52,526 55,839 
Increase (decrease) in accrued interest payable and other liabilities(29,684)115,102 
Net Cash Provided By (Used In) Continuing Operating Activities166,024 289,325 
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of investment securities available for sale349,296 172,750 
Proceeds from maturities, calls and principal repayments of investment securities held to maturity5,072 — 
Proceed from sales of foreign subsidiaries— 3,765 
Proceeds from sales of investment securities available for sale554,965 407,587 
Purchases of investment securities available for sale(900,828)(890,186)
Origination of mortgage warehouse loans(16,464,761)(31,399,228)
Proceeds from repayments of mortgage warehouse loans16,867,530 32,162,462 
Net (increase) decrease in loans and leases, excluding mortgage warehouse loans(1,293,008)(1,304,356)
Proceeds from sales of loans and leases34,719 130,501 
Purchase of loans(230,962)(737,336)
Purchases of bank-owned life insurance— (46,462)
Proceeds from bank-owned life insurance9,521 1,999 
Net (purchases of) proceeds from sale of FHLB, Federal Reserve Bank, and other restricted stock(4,867)31,473 
Purchases of bank premises and equipment(320)(312)
Proceeds from sales of other real estate owned— 45 
Proceeds from sales of leased assets under lessor operating leases2,327 6,106 
Purchases of leased assets under lessor operating leases(28,751)(8,625)
Net Cash Provided By (Used In) Continuing Investing Activities$(1,100,067)$(1,469,817)
(continued)
Six Months Ended
June 30,
20222021
Cash Flows from Financing Activities
Net increase (decrease) in deposits$166,795 $2,564,010 
Net increase (decrease) in short-term borrowed funds from the FHLB(565,000)(850,000)
Net increase (decrease) in long-term borrowed funds from the FHLB500,000 — 
Net increase (decrease) in federal funds purchased695,000 (250,000)
Net increase (decrease) in borrowed funds from FRB PPP liquidity facility— (549,151)
Repayments of other borrowings(100,000)— 
Preferred stock dividends paid(3,914)(6,746)
Purchase of treasury stock(27,820)— 
Payments of employee taxes withheld from share-based awards(4,196)(2,294)
Proceeds from issuance of common stock324 7,815 
Proceeds from sale of non-controlling interest in BMT— 26,795 
Net Cash Provided By (Used In) Continuing Financing Activities661,189 940,429 
Net Increase (Decrease) in Cash and Cash Equivalents From Continuing Operations(272,854)(240,063)
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(272,854)(262,854)
Cash and Cash Equivalents – Beginning518,032 693,354 
Cash and Cash Equivalents – Ending$245,178 $430,500 
Non-cash Investing and Financing Activities:
Transfer of investment securities available for sale to held to maturity$500,174 $— 
Distribution of investment in BM Technologies common stock— 32,983 
Transfer of loans held for investment to held for sale4,136 27,824 
Transfer of loans held for sale to held for investment— 55,684 
Unsettled purchases of investment securities— 10,000 
See accompanying notes to the unaudited consolidated financial statements.
11

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF THE BUSINESS
Customers Bancorp, Inc. (“Customers Bancorp”) is a bank holding company engaged in banking activities through its wholly owned subsidiary, Customers Bank ("the Bank”), collectively referred to as “Customers” herein.
Customers Bancorp and its wholly owned subsidiaries, the Bank, and non-bank subsidiaries, serve residents and businesses in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); 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. During the three months ended June 30, 2022, the Bank decided to consolidate 5 branches into other existing locations in Southeastern Pennsylvania. The branch consolidations are expected to take place in late 2022. 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. There have been no material changes to Customers Bancorp's significant accounting policies noted above for the three and six months ended June 30, 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 NOTE 3 – DISCONTINUED OPERATIONS for additional information.
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Recently Issued Accounting Standards
Presented below are recently issued accounting standards that the FASB has issued but are not yet effective.
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.
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. 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 $3.7 million of additional cash consideration in May 2021. Upon closing of the divestiture, the holders of Customers Bancorp's common stock who held their shares as of the close of business on December 18, 2020 became entitled to receive an aggregate of 4,876,387 shares of BM Technologies' common stock. Customers distributed 0.15389 shares of BM Technologies common stock for each share of Customers Bancorp's common stock held as of the close of business on December 18, 2020 as special dividends. Certain team members of BMT also received 1,348,748 restricted shares of BM Technologies' common stock in the form of severance payments. The total stock consideration from the divestiture that was distributed to holders of Customers Bancorp's common stock and certain BMT team members represented 52% of the outstanding common stock of BM Technologies at the closing date of the divestiture.
The sale of BMT was accounted for as a sale of non-controlling interest and the merger between BMT and MFAC was accounted for as a reverse recapitalization as BMT was considered to be the accounting acquirer. Upon closing of the transaction, Customers had no remaining investment in BM Technologies.
BMT's historical financial results for periods prior to the divestiture are reflected in Customers Bancorp’s consolidated financial statements as discontinued operations. BMT's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying consolidated financial statements and prior period amounts have been reclassified to conform with the current period presentation.
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The following summarized financial information related to BMT has been segregated from continuing operations and reported as discontinued operations for the periods presented.
Three Months Ended
June 30,
Six Months Ended
June 30,
(amounts in thousands)2022202120222021
Discontinued operations:
Non-interest income$— $— $— $— 
Non-interest expense— — — 20,354 
Loss from discontinued operations before income taxes— — — (20,354)
Income tax expense (benefit)— — — 17,682 
Net loss from discontinued operations$— $— $— $(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 $15.9 million and $33.7 million to BM Technologies under the deposit servicing agreement, included within the technology, communication and bank operations expense in net income from continuing operations during the three and six months ended June 30, 2022, respectively. Customers incurred expenses of $14.3 million and $27.9 million to BM Technologies under the deposit servicing agreement during the three and six months ended June 30, 2021, respectively. Customers held $1.8 billion of deposits serviced by BM Technologies as of June 30, 2022 and December 31, 2021. On June 30, 2022, Customers provided a written notice to BM Technologies to terminate the deposit servicing agreement effective December 31, 2022. 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. Customers entered into a special limited agency agreement with BM Technologies, whereby Customers will originate consumer installment loans referred by BM Technologies for an initial period from April 20, 2022 to December 31, 2022, which is renewable annually.
NOTE 4 — EARNINGS (LOSS) PER SHARE
The following are the components and results of Customers' earnings (loss) per common share calculations for the periods presented.
 Three Months Ended
June 30,
Six Months Ended
June 30,
(amounts in thousands, except share and per share data)2022202120222021
Net income from continuing operations available to common shareholders$56,519 $58,042 $131,415 $129,282 
Net loss from discontinued operations— — — (38,036)
Net income available to common shareholders$56,519 $58,042 $131,415 $91,246 
Weighted-average number of common shares outstanding – basic32,712,616 32,279,625 32,834,150 32,082,878 
Share-based compensation plans866,397 1,461,843 1,116,823 1,211,197 
Weighted-average number of common shares – diluted33,579,013 33,741,468 33,950,973 33,294,075 
Basic earnings (loss) per common share from continuing operations$1.73 $1.80 $4.00 $4.03 
Basic earnings (loss) per common share from discontinued operations— — — (1.19)
Basic earnings (loss) per common share1.73 1.80 4.00 2.84 
Diluted earnings (loss) per common share from continuing operations$1.68 $1.72 $3.87 $3.88 
Diluted earnings (loss) per common share from discontinued operations— — — (1.14)
Diluted earnings (loss) per common share1.68 1.72 3.87 2.74 
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The following are securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because either the performance conditions for certain of the share-based compensation awards have not been met or to do so would have been anti-dilutive for the periods presented.
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Anti-dilutive securities:
Share-based compensation awards404,473 711,000 106,198 463,145 
NOTE 5 — CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT
The following tables present the changes in accumulated other comprehensive income (loss) by component for the three and six months ended June 30, 2022 and 2021. Amounts in parentheses indicate reductions to AOCI.
 Three Months Ended June 30, 2022
(amounts in thousands)
Unrealized Gains (Losses) on Available for Sale Securities (1)
Unrealized Gains (Losses) on Cash Flow Hedges (2)
Total
Balance - March 31, 2022$(62,548)$— $(62,548)
Unrealized gains (losses) arising during period, before tax(88,224)— (88,224)
Income tax effect22,938 — 22,938 
Other comprehensive income (loss) before reclassifications(65,286)— (65,286)
Reclassification adjustments for (gains) losses included in net income, before tax3,991 — 3,991 
Income tax effect(1,038)— (1,038)
Amounts reclassified from accumulated other comprehensive income (loss) to net income2,953 — 2,953 
Net current-period other comprehensive income (loss)(62,333)— (62,333)
Balance - June 30, 2022$(124,881)$— $(124,881)

Three Months Ended June 30, 2021
(amounts in thousands)
Unrealized Gains (Losses) on Available for Sale Securities (1)
Unrealized Gains (Losses) on Cash Flow Hedges (2)
Total
Balance - March 31, 2021$6,169 $(778)$5,391 
Unrealized gains (losses) arising during period, before tax592 598 
Income tax effect(154)(2)(156)
Other comprehensive income (loss) before reclassifications438 442 
Reclassification adjustments for (gains) losses included in net income, before tax(1,812)1,046 (766)
Income tax effect471 (272)199 
Amounts reclassified from accumulated other comprehensive income (loss) to net income(1,341)774 (567)
Net current-period other comprehensive income (loss)(903)778 (125)
Balance - June 30, 2021$5,266 $— $5,266 

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 Six Months Ended June 30, 2022
(amounts in thousands)
Unrealized Gains (Losses) Available for Sale Securities (1)
Unrealized 
Gains (Losses) on Cash Flow  Hedges (2)
Total
Balance - December 31, 2021$(4,980)$— $(4,980)
Unrealized gains (losses) arising during period, before tax(167,082)— (167,082)
Income tax effect43,441 — 43,441 
Other comprehensive income (loss) before reclassifications(123,641)— (123,641)
Reclassification adjustments for (gains) losses included in net income, before tax5,054 — 5,054 
Income tax effect(1,314)— (1,314)
Amounts reclassified from accumulated other comprehensive income (loss) to net income3,740 — 3,740 
Net current-period other comprehensive income (loss)(119,901)— (119,901)
Balance - June 30, 2022$(124,881)$— $(124,881)

Six Months Ended June 30, 2021
(amounts in thousands)
Unrealized Gains (Losses) on Available for Sale Securities (1)
Unrealized
Gains (Losses) on Cash Flow Hedges (2)
Total
Balance - December 31, 2020$23,312 $(29,076)$(5,764)
Unrealized gains (losses) arising during period, before tax992 12,321 13,313 
Income tax effect(258)(3,204)(3,462)
Other comprehensive income (loss) before reclassifications734 9,117 9,851 
Reclassification adjustments for (gains) losses included in net income, before tax(25,378)26,972 1,594 
Income tax effect6,598 (7,013)(415)
Amounts reclassified from accumulated other comprehensive income (loss) to net income(18,780)19,959 1,179 
Net current-period other comprehensive income(18,046)29,076 11,030 
Balance - June 30, 2021$5,266 $— $5,266 
(1)Reclassification amounts for AFS debt securities are reported as gain (loss) on sale of investment securities and amortization of unrealized losses on debt securities transferred from available-for-sale to held-to-maturity is reported within interest income 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
Investment securities at fair value
The amortized cost, approximate fair value and allowance for credit losses of investment securities as of June 30, 2022 and December 31, 2021 are summarized as follows:
 
June 30, 2022 (1)
(amounts in thousands)Amortized CostAllowance for Credit LossesGross Unrealized GainsGross Unrealized LossesFair Value
Available for sale debt securities:
Asset-backed securities$223,661 $(411)$— $(3,529)$219,721 
Agency-guaranteed residential collateralized mortgage obligations156,339 — — (9,219)147,120 
Collateralized loan obligations974,213 — — (23,645)950,568 
Commercial mortgage-backed securities138,972 — — (3,188)135,784 
Corporate notes579,324 — 376 (33,856)545,844 
Private label collateralized mortgage obligations1,161,325 — — (47,988)1,113,337 
State and political subdivision debt securities (2)
8,527 — — (790)7,737 
Available for sale debt securities$3,242,361 $(411)$376 $(122,215)3,120,111 
Equity securities (3)
24,771 
Total investment securities, at fair value$3,144,882 
 
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 notes575,273 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 (2)
8,535 — (104)8,431 
Available for sale debt securities$3,799,851 $7,427 $(15,703)3,791,575 
Equity securities (3)
25,575 
Total investment securities, at fair value$3,817,150 
(1)Accrued interest on AFS debt securities totaled $13.0 million and $11.0 million at June 30, 2022 and December 31, 2021, respectively, and is included in accrued interest receivable on the consolidated balance sheet.
(2)Includes both taxable and non-taxable municipal securities.
(3)Includes perpetual preferred stock issued by domestic banks and domestic bank holding companies and equity securities issued by fintech companies, without a readily determinable fair value, and CRA-qualified mutual fund shares at June 30, 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.

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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 and six months ended June 30, 2021, Customers recognized unrealized gains of $1.7 million and $2.7 million respectively, on its equity securities issued by a foreign entity that were held by CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd. These unrealized gains and losses were 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 debt securities were $399.0 million and $555.0 million for the three and six months ended June 30, 2022, respectively. Proceeds from the sale of AFS debt securities were $53.7 million and $407.6 million for the three and six months ended June 30, 2021, respectively. The following table presents gross realized gains and realized losses from the sale of AFS debt securities for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30,Six Months Ended June 30,
(amounts in thousands)2022202120222021
Gross realized gains$2,003 $1,812 $2,563 $25,378 
Gross realized losses(5,032)— (6,655)— 
Net realized gains (losses) on sale of available for sale debt securities$(3,029)$1,812 $(4,092)$25,378 
These gains (losses) were determined using the specific identification method and were reported as gain (loss) on sale of investment securities within non-interest income on the consolidated statements of income.
The following table presents AFS debt securities by stated maturity. Debt securities backed by mortgages and other assets have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and, therefore, these debt securities are classified separately with no specific maturity date:
 June 30, 2022
(amounts in thousands)Amortized
Cost
Fair
Value
Due in one year or less$— $— 
Due after one year through five years436,185 411,856 
Due after five years through ten years151,666 141,725 
Asset-backed securities223,661 219,721 
Collateralized loan obligations974,213 950,568 
Commercial mortgage-backed securities138,972 135,784 
Agency-guaranteed residential collateralized mortgage obligations156,339 147,120 
Private label collateralized mortgage obligations1,161,325 1,113,337 
Total available for sale debt securities$3,242,361 $3,120,111 
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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 June 30, 2022 and December 31, 2021 were as follows:
 June 30, 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$132,895 $(2,495)$— $— $132,895 $(2,495)
Agency-guaranteed residential collateralized mortgage obligations147,120 (9,219)— — 147,120 (9,219)
Collateralized loan obligations920,688 (23,080)25,064 (565)945,752 (23,645)
Commercial mortgage-backed securities117,536 (3,188)— — 117,536 (3,188)
Corporate notes434,262 (32,270)13,413 (1,586)447,675 (33,856)
Private label collateralized mortgage obligations737,880 (47,976)4,000 (12)741,880 (47,988)
State and political subdivision debt securities7,737 (790)— — 7,737 (790)
Total$2,498,118 $(119,018)$42,477 $(2,163)$2,540,595 $(121,181)

 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)
At June 30, 2022, there were 140 AFS debt securities with unrealized losses in the less-than-twelve-months category and 7 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 147 securities, and it is not more likely than not that Customers will be required to sell any of the 147 securities before recovery of the amortized cost basis. At December 31, 2021, there were 117 AFS debt securities in an unrealized loss position.
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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 and six months ended June 30, 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 tables present the activity in the allowance for credit losses on AFS debt securities, by major security type, for the periods presented:
Asset-backed securities
(amounts in thousands)Three Months Ended
June 30, 2022
Balance at April 1$728 
Credit losses on securities for which credit losses were not previously recorded329 
Net increase (decrease) in allowance for credit losses on previously impaired securities(646)
Balance at June 30$411 
Asset-backed securities
(amounts in thousands)Six Months Ended
June 30, 2022
Balance at January 1$— 
Credit losses on securities for which credit losses were not previously recorded411 
Balance at June 30$411 
At June 30, 2022 and December 31, 2021, Customers Bank had pledged investment securities aggregating $19.3 million and $11.3 million in fair value, respectively, as collateral primarily for unused lines of credit with another financial institution. The counterparty does not have the ability to sell or repledge these securities.
At June 30, 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.
Investment securities held to maturity
In June 2022, Customers transferred $500.2 million in net carrying value of certain debt securities from available for sale to held to maturity as a part of Customers' ongoing asset liability management primarily to mitigate the impact of rising interest rates on the long duration component of the investment portfolio. At the time of transfer to held to maturity, these debt securities had unrealized losses of $50.0 million, which, along with the unrealized loss in accumulated other comprehensive income, will be amortized over the remaining terms of the securities as an adjustment to yield (interest income) using the effective interest method resulting in no impact to current period earnings.
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The amortized cost, approximate fair value and allowance for credit losses of investment securities held to maturity as of June 30, 2022 are summarized as follows:
June 30, 2022 (1)
(amounts in thousands)Amortized CostAllowance for Credit LossesNet Carrying ValueGross Unrealized GainsGross Unrealized LossesFair Value
Held to maturity debt securities:
Agency-guaranteed residential mortgage-backed securities$7,820 $— $7,820 $— $(181)$7,639 
Agency-guaranteed commercial mortgage-backed securities1,966 — 1,966 — (5)1,961 
Agency-guaranteed residential collateralized mortgage obligations215,996 — 215,996 — (4,368)211,628 
Agency-guaranteed commercial collateralized mortgage obligations154,204 — 154,204 (1,041)153,167 
Private label collateralized mortgage obligations115,053 — 115,053 — (3,813)111,240 
Total held to maturity debt securities$495,039 $— $495,039 $$(9,408)$485,635 
(1)Accrued interest on HTM debt securities totaled $0.7 million at June 30, 2022, and is included in accrued interest receivable on the consolidated balance sheet.

The following table presents HTM debt securities by stated maturity. Debt securities backed by mortgages and other assets have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and, therefore, these debt securities are classified separately with no specific maturity date:
 June 30, 2022
(amounts in thousands)Amortized
Cost
Fair
Value
Agency-guaranteed residential mortgage-backed securities$7,820 $7,639 
Agency-guaranteed commercial mortgage-backed securities1,966 1,961 
Agency-guaranteed residential collateralized mortgage obligations215,996 211,628 
Agency-guaranteed commercial collateralized mortgage obligations154,204 153,167 
Private label collateralized mortgage obligations115,053 111,240 
Total held to maturity debt securities$495,039 $485,635 
Customers recorded no allowance for credit losses on investment securities classified as held to maturity at June 30, 2022. The U.S. government agency securities represent obligations issued by a U.S. government-sponsored enterprise or other federal government agency that are explicitly or implicitly guaranteed by the U.S. federal government and therefore, assumed to have zero credit losses. The private label collateralized mortgage obligations are highly rated with sufficient overcollateralization and therefore have zero expected credit losses. The unrealized losses on HTM debt securities with no ACL were due to changes in market interest rates that resulted in a negative impact on the respective securities' fair value and are expected to be recovered when market prices recover or at maturity.
Credit Quality Indicators
Customers monitors the credit quality of HTM debt securities primarily through credit ratings provided by rating agencies. Investment grade debt securities are rated BBB- or higher by S&P Global Ratings, Baa3 or higher by Moody's Investors Service or equivalent ratings by other rating agencies, and are generally considered to be of low credit risk. All of the HTM debt securities held by Customers were investment grade or U.S. government agency guaranteed securities that were not rated at June 30, 2022.
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The following table presents the amortized cost of HTM debt securities based on their lowest credit rating available:
June 30, 2022
(amounts in thousands)AAAAAABBBNot RatedTotal
Held to maturity debt securities:
Agency-guaranteed residential mortgage-backed securities$— $— $— $— $7,820 $7,820 
Agency-guaranteed commercial mortgage-backed securities— — — — 1,966 1,966 
Agency-guaranteed residential collateralized mortgage obligations— — — — 215,996 215,996 
Agency-guaranteed commercial collateralized mortgage obligations— — — — 154,204 154,204 
Private label collateralized mortgage obligations65,092 7,022 33,779 9,160 — 115,053 
Total held to maturity debt securities$65,092 $7,022 $33,779 $9,160 $379,986 $495,039 
Customers has elected to not estimate an ACL on accrued interest receivable on HTM debt securities, as it already has a policy in place to reverse or write-off accrued interest, through interest income, for debt securities in nonaccrual status in a timely manner. At June 30, 2022, there were no HTM debt securities past due under the terms of their agreements or in nonaccrual status.
NOTE 7 – LOANS HELD FOR SALE
The composition of loans held for sale as of June 30, 2022 and December 31, 2021 was as follows:
(amounts in thousands)June 30, 2022December 31, 2021
Commercial loans:
Multi-family loans, at lower of cost or fair value$4,136 $— 
Total commercial loans held for sale4,136 — 
Consumer loans:
Home equity conversion mortgages, at lower of cost or fair value507 507 
Residential mortgage loans, at fair value1,952 15,747 
Total consumer loans held for sale2,459 16,254 
Loans held for sale$6,595 $16,254 
Total loans held for sale as of June 30, 2022 and December 31, 2021 included NPLs of $4.6 million and $0.5 million, respectively.
22

NOTE 8 — LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
The following table presents loans and leases receivable as of June 30, 2022 and December 31, 2021.
(amounts in thousands)June 30, 2022December 31, 2021
Loans and leases receivable, mortgage warehouse, at fair value$1,874,603 $2,284,325 
Loans receivable, PPP1,570,160 3,250,008 
Loans and leases receivable:
Commercial:
Commercial and industrial, including specialty lending (1)
5,737,670 3,424,783 
Multi-family2,008,784 1,486,308 
Commercial real estate owner occupied710,577 654,922 
Commercial real estate non-owner occupied1,152,869 1,121,238 
Construction195,687 198,981 
Total commercial loans and leases receivable9,805,587 6,886,232 
Consumer:
Residential real estate457,768 334,730 
Manufactured housing48,570 52,861 
Installment1,901,070 1,744,475 
Total consumer loans receivable2,407,408 2,132,066 
Loans and leases receivable12,212,995 9,018,298 
Allowance for credit losses on loans and leases(156,530)(137,804)
Total loans and leases receivable, net of allowance for credit losses on loans and leases (2)
$15,501,228 $14,414,827 
(1)Includes direct finance equipment leases of $149.2 million and $146.5 million at June 30, 2022 and December 31, 2021, respectively.
(2)Includes deferred (fees) costs and unamortized (discounts) premiums, net of $(12.1) million and $(52.0) million at June 30, 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 $86.1 million and $81.6 million at June 30, 2022 and December 31, 2021, respectively, and is presented in accrued interest receivable in the consolidated balance sheet. At June 30, 2022 and December 31, 2021, there were $17.2 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 June 30, 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.
23

Loans receivable, PPP
Customers had $1.6 billion and $3.3 billion of PPP loans outstanding as of June 30, 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 $20.6 million and $57.5 million for the three and six months ended June 30, 2022, respectively. Customers recognized interest income, including origination fees, of $41.1 million and $79.9 million for the three and six months ended June 30, 2021, respectively.
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 June 30, 2022 and December 31, 2021:
 June 30, 2022
(amounts in thousands)
30-59 Days past due (1)
60-89 Days past due (1)
90 Days or more past due (2)
Total past due
Loans and leases not past due (3)
Total loans and leases (4)
Commercial and industrial, including specialty lending$340 $339 $3,918 $4,597 $5,733,073 $5,737,670 
Multi-family— — 1,153 1,153 2,007,631 2,008,784 
Commercial real estate owner occupied857 648 1,149 2,654 707,923 710,577 
Commercial real estate non-owner occupied— — — — 1,152,869 1,152,869 
Construction— — — — 195,687 195,687 
Residential real estate2,689 1,513 3,379 7,581 450,187 457,768 
Manufactured housing690 288 3,955 4,933 43,637 48,570 
Installment8,050 5,929 5,965 19,944 1,881,126 1,901,070 
Total$12,626 $8,717 $19,519 $40,862 $12,172,133 $12,212,995 
 December 31, 2021
(amounts in thousands)
30-59 Days past due (1)
60-89 Days past due (1)
90 Days or more past due (2)
Total past due
Loans and leases not past due (3)
Total loans and leases (4)
Commercial and industrial, including specialty lending$2,093 $95 $5,929 $8,117 $3,416,666 $3,424,783 
Multi-family1,682 2,707 18,235 22,624 1,463,684 1,486,308 
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)Includes loans amounting to $1.5 million and $1.4 million as of June 30, 2022 and December 31, 2021, respectively, that are still accruing interest because collection is considered probable.
(3)Loans and leases where next payment due is less than 30 days from the report date. The tables exclude PPP loans of $1.6 billion, of which $3.3 million were 30-59 days past due and $33.4 million were 60 days or more past due as of June 30, 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.
(4)Includes PCD loans of $9.0 million and $9.9 million at June 30, 2022 and December 31, 2021, respectively.
24

Nonaccrual Loans and Leases
The following table presents the amortized cost of loans and leases held for investment on nonaccrual status.
 
June 30, 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
Commercial and industrial, including specialty lending$4,061 $— $4,061 $5,837 $259 $6,096 
Multi-family1,153 — 1,153 22,654 — 22,654 
Commercial real estate owner occupied2,913 — 2,913 2,475 — 2,475 
Commercial real estate non-owner occupied— — — 2,815 — 2,815 
Residential real estate6,258 — 6,258 7,727 — 7,727 
Manufactured housing— 3,071 3,071 — 3,563 3,563 
Installment— 5,965 5,965 — 3,783 3,783 
Total$14,385 $9,036 $23,421 $41,508 $7,605 $49,113 
(1) Presented at amortized cost basis.
Interest income recognized on nonaccrual loans was insignificant for the three and six months ended June 30, 2022 and 2021. Accrued interest reversed when the loans went to nonaccrual status was insignificant during the three and six months ended June 30, 2022 and 2021.
Allowance for credit losses on loans and leases
The changes in the ACL on loans and leases by loan and lease type for the three and six months ended June 30, 2022 and 2021 are presented in the tables below.
(amounts in thousands)Multi-familyCommercial and industrialCommercial real estate owner occupiedCommercial real estate non-owner occupiedConstructionResidential real estateManufactured housingInstallmentTotal
Three Months Ended
June 30, 2022
Ending balance, March 31, 2022$7,437 $10,765 $3,841 $5,955 $939 $4,685 $4,342 $107,883 $145,847 
Charge-offs(1,990)(276)— (163)— — — (12,851)(15,280)
Recoveries— 692 42 103 39 — 919 1,799 
Provision (benefit) for credit losses on loans and leases4,318 (100)862 3,084 137 854 (262)15,271 24,164 
Ending Balance,
June 30, 2022
$9,765 $11,081 $4,745 $8,880 $1,179 $5,578 $4,080 $111,222 $156,530 
Six Months Ended
June 30, 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(1,990)(578)— (163)— (4)— (21,716)(24,451)
Recoveries337 1,053 49 12 216 45 — 2,032 3,744 
Provision (benefit) for credit losses on loans and leases6,941 (2,096)1,483 2,821 271 3,154 (198)27,057 39,433 
Ending Balance,
June 30, 2022
$9,765 $11,081 $4,745 $8,880 $1,179 $5,578 $4,080 $111,222 $156,530 
25

(amounts in thousands)Multi-familyCommercial and industrialCommercial real estate owner occupiedCommercial real estate non-owner occupiedConstructionResidential real estateManufactured housingInstallmentTotal
Three Months Ended
June 30, 2021
Ending balance, March 31, 2021$8,026 $7,503 $5,935 $11,621 $4,103 $3,209 $4,800 $83,539 $128,736 
Charge-offs— (2)(1)— — — — (7,958)(7,961)
Recoveries— 285 59 114 12 — 898 1,370 
Provision (benefit) for credit losses on loan and lease losses(2,998)341 (1,472)(4,306)(1,574)(922)(428)14,650 3,291 
Ending Balance,
June 30, 2021
$5,028 $8,127 $4,464 $7,374 $2,643 $2,299 $4,372 $91,129 $125,436 
Six Months Ended
June 30, 2021
Ending Balance,
December 31, 2020
$12,620 $12,239 $9,512 $19,452 $5,871 $3,977 $5,190 $75,315 $144,176 
Charge-offs(1,132)(637)(142)— — (50)— (20,645)(22,606)
Recoveries— 545 69 119 22 — 2,730 3,494 
Provision (benefit) for credit losses on loan and lease losses(6,460)(4,020)(4,915)(12,147)(3,347)(1,650)(818)33,729 372 
Ending Balance,
June 30, 2021
$5,028 $8,127 $4,464 $7,374 $2,643 $2,299 $4,372 $91,129 $125,436 
At June 30, 2022, the ACL on loans and leases was $156.5 million, an increase of $18.7 million from the December 31, 2021 balance of $137.8 million. The increase in ACL for the three and six months ended June 30, 2022 was primarily attributable to loan growth.
Troubled Debt Restructurings
At June 30, 2022 and December 31, 2021, there were $16.8 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-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 June 30, 2022 and December 31, 2021, respectively.
The following table presents loans modified in a TDR by type of concession for the three and six months ended June 30, 2022 and 2021. There were no modifications that involved forgiveness of debt for the three and six months ended June 30, 2022 and 2021.
Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
(dollars in thousands)Number of loansRecorded investmentNumber of loansRecorded investmentNumber of loansRecorded investmentNumber of loansRecorded investment
Interest-rate reductions$124 $157 14 $470 12 $341 
Other (1)
67 743 99 1,141 99 1,194 119 1,682 
Total71 $867 103 $1,298 113 $1,664 131 $2,023 
(1) Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.
As of June 30, 2022 and December 31, 2021, there were no commitments to lend additional funds to debtors whose loans have been modified in TDRs.
26

The following table presents, by loan type, the number of loans modified in TDRs and the related recorded investment, for which there was a payment default within twelve months following the modification:
June 30, 2022June 30, 2021
(dollars in thousands)Number of loansRecorded investmentNumber of loansRecorded investment
Manufactured housing$94 $189 
Residential real estate119 43 
Installment38 473 15 247 
Total loans43 $686 23 $479 
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, manufactured housing and installment loans are evaluated based on the payment activity of the loan.
To facilitate the monitoring of credit quality within the multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, and construction loan portfolios, and as an input in the ACL lifetime loss rate model for the commercial and industrial loan portfolio, the Bank utilizes the following categories of risk ratings: pass/satisfactory (includes risk rating 1 through 6), special mention, substandard, doubtful, and loss. The risk rating categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. Pass 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 June 30, 2022 and December 31, 2021.
27

Term Loans Amortized Cost Basis by Origination Year as of
June 30, 2022
(amounts in thousands)20222021202020192018PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Commercial and industrial loans and leases, including specialty lending:
Pass$2,288,409 $600,191 $305,601 $231,819 $79,656 $116,210 $2,006,671 $— $5,628,557 
Special mention— — — — — 380 3,222 — 3,602 
Substandard— 21,825 9,691 8,652 12,601 43,664 9,078 — 105,511 
Doubtful— — — — — — — — — 
Total commercial and industrial loans and leases$2,288,409 $622,016 $315,292 $240,471 $92,257 $160,254 $2,018,971 $— $5,737,670 
Multi-family loans:
Pass$882,267 $399,236 $131,741 $22,663 $119,914 $329,640 $— $— $1,885,461 
Special mention— — — — 5,009 66,748 — — 71,757 
Substandard— 1,515 — — — 50,051 — — 51,566 
Doubtful— — — — — — — — — 
Total multi-family loans$882,267 $400,751 $131,741 $22,663 $124,923 $446,439 $— $— $2,008,784 
Commercial real estate owner occupied loans:
Pass$129,586 $203,769 $58,688 $116,646 $41,654 $137,023 $672 $— $688,038 
Special mention— — — — — 3,880 — — 3,880 
Substandard— — — 134 9,544 8,981 — — 18,659 
Doubtful— — — — 0— — — — 
Total commercial real estate owner occupied loans$129,586 $203,769 $58,688 $116,780 $51,198 $149,884 $672 $— $710,577 
Commercial real estate non-owner occupied:
Pass$134,207 $120,804 $146,492 $75,872 $64,787 $415,941 $— $— $958,103 
Special mention— — 21,454 — — 5,873 — — 27,327 
Substandard— — — 29,008 38,246 100,185 — — 167,439 
Doubtful— — — — — — — — — 
Total commercial real estate non-owner occupied loans$134,207 $120,804 $167,946 $104,880 $103,033 $521,999 $— $— $1,152,869 
Construction:
Pass$44,282 $81,791 $17,939 $29,061 $4,760 $9,243 $8,611 $— $195,687 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Total construction loans$44,282 $81,791 $17,939 $29,061 $4,760 $9,243 $8,611 $— $195,687 
Total commercial loans and leases receivable$3,478,751 $1,429,131 $691,606 $513,855 $376,171 $1,287,819 $2,028,254 $— $9,805,587 
Residential real estate loans:
Performing$113,101 $142,389 $7,526 $16,970 $10,374 $76,795 $84,904 $— $452,059 
Non-performing— — — 382 1,264 3,128 935 — 5,709 
Total residential real estate loans$113,101 $142,389 $7,526 $17,352 $11,638 $79,923 $85,839 $— $457,768 
Manufactured housing loans:
Performing$— $— $— $220 $171 $45,271 $— $— $45,662 
Non-performing— — — — — 2,908 — — 2,908 
Total manufactured housing loans$— $— $— $220 $171 $48,179 $— $— $48,570 
Installment loans:
Performing$553,321 $774,689 $265,103 $202,825 $19,122 $1,471 $78,600 $— $1,895,131 
Non-performing138 3,421 1,000 1,066 172 61 81 — 5,939 
Total installment loans$553,459 $778,110 $266,103 $203,891 $19,294 $1,532 $78,681 $— $1,901,070 
Total consumer loans$666,560 $920,499 $273,629 $221,463 $31,103 $129,634 $164,520 $— $2,407,408 
Loans and leases receivable$4,145,311 $2,349,630 $965,235 $735,318 $407,274 $1,417,453 $2,192,774 $— $12,212,995 

28

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
Commercial and industrial loans and leases, including specialty lending:
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 
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 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 


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Loan Purchases and Sales
Purchases and sales of loans were as follows for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30,Six Months Ended June 30,
(amounts in thousands)2022202120222021
Purchases (1)
Loans receivable, PPP$— $460,456 $— $621,487 
Residential real estate8,081 — 154,955 — 
Installment (2)
16,551 — 76,007 115,849 
Total$24,632 $460,456 $230,962 $737,336 
Sales (3)
Multi-family$2,879 $19,443 $2,879 $19,443 
Commercial and industrial14,040 10,059 22,880 28,990 
Commercial real estate owner occupied3,519 4,461 8,960 6,698 
Commercial real estate non-owner occupied— — — 18,366 
Residential real estate— 11,623 — 28,186 
Installment— 28,818 — 28,818 
Total$20,438 $74,404 $34,719 $130,501 
(1)Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was 98.9% and 102.0% of loans outstanding for the three months ended June 30, 2022 and 2021, respectively. The purchase price was 98.2% and 103.0% of loans outstanding for the six months ended June 30, 2022 and 2021, respectively.
(2)Installment loan purchases for the three and six months ended June 30, 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 June 30, 2022 and 2021, loan sales resulted in net gains of $1.5 million and $2.2 million, respectively, included in gain (loss) on sale of SBA and other loans in the consolidated statements of income. For the six months ended June 30, 2022 and 2021, loan sales resulted in net gains of $3.6 million and $4.3 million, respectively.
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 $4.0 billion and $3.7 billion at June 30, 2022 and December 31, 2021, respectively. No PPP loans were pledged to the FRB in accordance with borrowing from the PPPLF at June 30, 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 10 months and 8 years. These operating leases comprise substantially all of Customers' obligations in which Customers is the lessee. These lease agreements typically consist of initial lease terms ranging between 1 and 10 years, with options to renew the leases or extend the term up to 10 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)ClassificationJune 30, 2022December 31, 2021
ASSETS
Operating lease ROU assetsOther assets$18,124 $12,677 
LIABILITIES
Operating lease liabilitiesOther liabilities$19,967 $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 June 30,Six Months Ended June 30,
(amounts in thousands)Classification2022202120222021
Operating lease cost (1)
Occupancy expenses$1,217 $1,130 $2,215 $2,247 
(1) There were no variable lease costs for the three and six months ended June 30, 2022 and 2021, and sublease income for operating leases is immaterial.
Maturities of non-cancelable operating lease liabilities were as follows at June 30, 2022:
(amounts in thousands)June 30, 2022
2022$2,626 
20235,308 
20244,301 
20253,388 
20262,473 
Thereafter5,016 
Total minimum payments23,112 
Less: interest3,145 
Present value of lease liabilities$19,967 
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 June 30, 2022 with future minimum lease payments of $4.2 million. Cash paid pursuant to the operating lease liability was $1.2 million and $2.4 million for the three and six months ended June 30, 2022, respectively. Cash paid pursuant to the operating lease liability was $1.4 million and $2.5 million for the three and six months ended June 30, 2021, respectively. These payments were reported as cash flows used in operating activities in the statement of cash flows.
The following table summarizes the weighted average remaining lease term and discount rate for Customers' operating leases at June 30, 2022 and December 31, 2021:
June 30, 2022December 31, 2021
Weighted average remaining lease term (years)
Operating leases 5.3 years3.9 years
Weighted average discount rate
Operating leases2.88 %2.74 %
Equipment Lessor
CCF is a wholly-owned subsidiary of Customers Bank and is referred to as the Equipment Finance Group. The Equipment Finance Group goes to market through the following origination platforms: vendors, intermediaries, direct and capital markets. The Equipment Finance Group 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. The Equipment Finance Group 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.
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The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at June 30, 2022 and December 31, 2021:
(amounts in thousands)ClassificationJune 30, 2022December 31, 2021
ASSETS
Direct financing leases
Lease receivablesLoans and leases receivable$136,095 $134,855 
Guaranteed residual assetsLoans and leases receivable11,534 11,397 
Unguaranteed residual assetsLoans and leases receivable6,126 5,665 
Deferred initial direct costsLoans and leases receivable566 448 
Unearned incomeLoans and leases receivable(5,146)(5,383)
Net investment in direct financing leases$149,175 $146,982 
Operating leases
Investment in operating leasesOther assets$183,986 $158,135 
Accumulated depreciationOther assets(48,803)(40,749)
Deferred initial direct costsOther assets748 872 
Net investment in operating leases135,931 118,258 
Total lease assets$285,106 $265,240 
NOTE 10 – DEPOSITS
The components of deposits at June 30, 2022 and December 31, 2021 were as follows:
June 30, 2022December 31, 2021
(amounts in thousands)
Demand, non-interest bearing$4,683,030 $4,459,790 
Demand, interest bearing6,644,398 6,488,406 
Savings, including money market deposit accounts4,894,267 5,322,390 
Time723,024 507,338 
Total deposits$16,944,719 $16,777,924 
The scheduled maturities for time deposits at June 30, 2022 were as follows:
(amounts in thousands)June 30, 2022
2022$526,133 
2023184,893 
20246,659 
20252,484 
20262,247 
Thereafter608 
Total time deposits$723,024 
Time deposits greater than the FDIC limit of $250,000 totaled $389.2 million and $259.0 million at June 30, 2022 and December 31, 2021, respectively.
Included in the demand, interest bearing balances above were $1.5 billion and $1.7 billion of brokered demand deposits at June 30, 2022 and December 31, 2021, respectively. Included in the savings and money market deposit account ("MMDA") balances above were $765.3 million and $480.5 million of brokered money market deposits at June 30, 2022 and December 31, 2021, respectively. Included in time deposits above were $403.4 million of brokered time deposits at June 30, 2022. There were no brokered time deposits included in time deposits above as of December 31, 2021.
Demand deposit overdrafts reclassified as loans were $3.5 million and $2.8 million at June 30, 2022 and December 31, 2021, respectively.
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NOTE 11 - BORROWINGS
Short-term debt
Short-term debt at June 30, 2022 and December 31, 2021 was as follows:
 June 30, 2022December 31, 2021
(dollars in thousands)AmountRateAmountRate
FHLB advances$135,000 1.38 %$700,000 0.26 %
Federal funds purchased770,000 1.71 %75,000 0.05 %
Total short-term debt$905,000 $775,000 
The following is a summary of additional information relating to Customers' short-term debt:
(dollars in thousands)
June 30, 2022 (1)
December 31, 2021 (2)
FHLB advances
Maximum outstanding at any month end$775,000 $850,000 
Average balance during the period250,164 264,704 
Weighted-average interest rate during the period1.46 %2.35 %
Federal funds purchased
Maximum outstanding at any month end895,000 365,000 
Average balance during the period367,210 22,110 
Weighted-average interest rate during the period0.82 %0.07 %
(1) For the six months ended June 30, 2022.
(2) For the year ended December 31, 2021.
At June 30, 2022 and December 31, 2021, Customers Bank had aggregate availability under federal funds lines totaling $929.0 million and $1.3 billion, respectively.
Long-term debt
FHLB and FRB advances
Long-term FHLB and FRB advances at June 30, 2022 and December 31, 2021 were as follows:
June 30, 2022December 31, 2021
(dollars in thousands)AmountRateAmountRate
FHLB advances$500,000 3.37 %$— — %
Total long-term FHLB and FRB advances$500,000 $— 

The maximum borrowing capacity with the FHLB and FRB at June 30, 2022 and December 31, 2021 was as follows:
(amounts in thousands)June 30, 2022December 31, 2021
Total maximum borrowing capacity with the FHLB$3,655,756 $2,973,635 
Total maximum borrowing capacity with the FRB (1)
244,802 183,052 
Qualifying loans serving as collateral against FHLB and FRB advances (1)
4,466,931 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. 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. Customers had no borrowings under the PPPLF at June 30, 2022 and December 31, 2021.
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Senior and Subordinated Debt
Long-term senior notes and subordinated debt at June 30, 2022 and December 31, 2021 were as follows:
June 30, 2022December 31, 2021
(dollars in thousands)
Issued byRankingCarrying AmountCarrying AmountRateIssued AmountDate IssuedMaturityPrice
Customers Bancorp
Senior (1)
$98,719 $98,642 2.875 %$100,000 August 2021August 2031100.000 %
Customers BancorpSenior24,731 24,672 4.500 %25,000 September 2019September 2024100.000 %
Customers BancorpSenior— 99,772 3.950 %100,000 June 2017June 202299.775 %
Total other borrowings$123,450 $223,086 
Customers Bancorp
Subordinated (2)(3)
$72,494 $72,403 5.375 %$74,750 December 2019December 2034100.000 %
Customers Bank
Subordinated (2)(4)
109,318 109,270 6.125 %110,000 June 2014June 2029100.000 %
Total subordinated debt$181,812 $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 12 — 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 is 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 548,821 shares of its common stock for $21.5 million under the Share Repurchase Program on various dates during the three months ended June 30, 2022. Customers Bancorp purchased 664,145 shares of its common stock for $27.8 million under the Share Repurchase Program on various dates during the six months ended June 30, 2022.
Preferred Stock
As of June 30, 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.
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The table below summarizes Customers' issuances of preferred stock that remain outstanding at June 30, 2022 and December 31, 2021 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 DateJune 30, 2022December 31, 2021June 30, 2022December 31, 2021
Series EApril 28, 20162,300,0002,300,000$55,593 $55,593 6.45 %June 15, 20215.140 %$0.72 
Series FSeptember 16, 20163,400,0003,400,00082,201 82,201 6.00 %December 15, 20214.762 %$0.67 
Totals5,700,0005,700,000$137,794 $137,794 
(1) For the six months ended June 30, 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 13 — 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 June 30, 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 June 30, 2022 and December 31, 2021, the Bank and the Bancorp satisfied all capital requirements to which they were subject.
35

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 June 30, 2022:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,383,051 9.690 %$642,289 4.500 %N/AN/A$999,117 7.000 %
Customers Bank$1,633,346 11.460 %$641,349 4.500 %$926,393 6.500 %$997,654 7.000 %
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,520,844 10.655 %$856,386 6.000 %N/AN/A$1,213,213 8.500 %
Customers Bank$1,633,346 11.460 %$855,132 6.000 %$1,140,176 8.000 %$1,211,437 8.500 %
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,799,354 12.607 %$1,141,848 8.000 %N/AN/A$1,498,675 10.500 %
Customers Bank$1,839,362 12.906 %$1,140,176 8.000 %$1,425,220 10.000 %$1,496,481 10.500 %
Tier 1 capital (to average assets)
Customers Bancorp, Inc.$1,520,844 7.522 %$808,706 4.000 %N/AN/A$808,706 4.000 %
Customers Bank$1,633,346 8.087 %$807,863 4.000 %$1,009,829 5.000 %$807,863 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 14 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Customers uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose the fair value of its financial instruments. ASC 825, Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For Customers, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. Many of these instruments lack an available trading market as characterized by a willing buyer and a willing seller engaging in an exchange transaction. For fair value disclosure purposes, Customers utilized certain fair value measurement criteria under ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), as explained below.
In accordance with ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for Customers' various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
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The fair value guidance provides a consistent definition of fair value, focusing on an exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
The fair value guidance also establishes a fair value hierarchy and describes the following three levels used to classify fair value measurements.
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require adjustments to inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The following methods and assumptions were used to estimate the fair values of Customers' financial instruments as of June 30, 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.
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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.
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The estimated fair values of Customers' financial instruments at June 30, 2022 and December 31, 2021 were as follows.
   Fair Value Measurements at June 30, 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$245,178 $245,178 $245,178 $— $— 
Debt securities, available for sale3,120,111 3,120,111 — 3,013,192 106,919 
Debt securities, held to maturity495,039 485,635 — 485,635 — 
Loans held for sale6,595 6,595 — 1,952 4,643 
Total loans and leases receivable, net of allowance for credit losses on loans and leases15,501,228 15,294,332 — 1,874,603 13,419,729 
FHLB, Federal Reserve Bank and other restricted stock74,626 74,626 — 74,626 — 
Derivatives27,434 27,434 — 27,336 98 
Liabilities:
Deposits$16,944,719 $16,827,233 $16,221,695 $605,538 $— 
Federal funds purchased770,000 770,000 770,000 — — 
FHLB advances635,000 632,182 — 632,182 — 
Other borrowings123,450 115,324 — 115,324 — 
Subordinated debt181,812 181,576 — 181,576 — 
Derivatives24,922 24,922 — 24,922 — 

   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 — 

39

For financial assets and liabilities measured at fair value on a recurring and nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2022 and December 31, 2021 were as follows:
 June 30, 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$— $112,802 $106,919 $219,721 
Agency-guaranteed residential collateralized mortgage obligations— 147,120 — 147,120 
Collateralized loan obligations— 950,568 — 950,568 
Commercial mortgage-backed securities— 135,784 — 135,784 
Corporate notes— 545,844 — 545,844 
Private label collateralized mortgage obligations— 1,113,337 — 1,113,337 
State and political subdivision debt securities— 7,737 — 7,737 
Derivatives— 27,336 98 27,434 
Loans held for sale – fair value option— 1,952 — 1,952 
Loans receivable, mortgage warehouse – fair value option— 1,874,603 — 1,874,603 
Total assets – recurring fair value measurements$— $4,917,083 $107,017 $5,024,100 
Liabilities
Derivatives $— $24,922 $— $24,922 
Measured at Fair Value on a Nonrecurring Basis:
Assets
Collateral-dependent loans$— $— $4,920 $4,920 
Total assets – nonrecurring fair value measurements$— $— $4,920 $4,920 
40

 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 and six months ended June 30, 2022 and 2021 are summarized in the tables below. Additional information about residential mortgage loan commitments can be found in NOTE 15 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
Residential Mortgage Loan Commitments
Three Months Ended June 30,
(amounts in thousands)20222021
Balance at April 1$149 $196 
Issuances98 301 
Settlements(149)(196)
Balance at June 30$98 $301 
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Residential Mortgage Loan Commitments
Six Months Ended June 30,
(amounts in thousands)20222021
Balance at January 1$179 $200 
Issuances247 497 
Settlements(328)(396)
Balance at June 30$98 $301 

The changes in asset-backed securities (Level 3 assets) measured at fair value on a recurring basis for the three and six months ended June 30, 2022 are summarized in the tables below.
Asset-backed securities
(amounts in thousands)Three Months Ended
June 30, 2022
Balance at April 1$121,853 
Principal payments and premium amortization(18,147)
Net decrease in allowance for credit losses317 
Change in fair value recognized in OCI2,896 
Balance at June 30$106,919 
Asset-backed securities
(amounts in thousands)Six Months Ended
June 30, 2022
Balance at January 1$142,885 
Principal payments and premium amortization(34,496)
Credit losses(411)
Change in fair value recognized in OCI(1,059)
Balance at June 30$106,919 
There were no transfers between levels during the three and six months ended June 30, 2022 and 2021.
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The following table summarizes financial assets and financial liabilities measured at fair value as of June 30, 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
(dollars in thousands)Fair Value
Estimate
Valuation TechniqueUnobservable Input
Range 
(Weighted Average) (4)
June 30, 2022    
Asset-backed securities$106,919 Discounted cash flowDiscount rate


Annualized loss rate


Constant prepayment rate
4% - 6%
(5%)

5% - 6%
(5%)

17% - 27%
(19%)
Collateral-dependent loans – real estate4,643 
Collateral appraisal (1)
Liquidation expenses (2)
0% - 0%
(0%)
Collateral-dependent loans – commercial and industrial277 
Collateral appraisal (1)


Business asset valuation (3)
Liquidation expenses (2)

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

25% - 27%
(26%)
Residential mortgage loan commitments98 Adjusted market bidPull-through rate
77% - 100%
(81%)

Quantitative Information about Level 3 Fair Value Measurements
(dollars 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.
43

NOTE 15 — 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 six months ended June 30, 2021, Customers terminated 4 interest rate derivatives with notional amounts totaling $850 million that were designated as cash flow hedges of interest-rate risk associated with 3-month FHLB advances, and reclassified $25.9 million of the realized losses and accrued interest from AOCI to current earnings because the hedged forecasted transactions were determined to be no longer probable of occurring. Customers hedged its exposure to the variability in future cash flows for a variable-rate deposit, which matured in June 2021. At June 30, 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 June 30, 2022, Customers had 7 outstanding interest rate derivatives with notional amounts totaling $32.5 million that were designated as fair value hedges of certain AFS debt securities. During the three and six months ended June 30, 2022, Customers terminated 7 and 9 interest rate derivatives with notional amounts totaling $31.5 million and $48.0 million, respectively, that were designated as fair value hedges together with the sale of hedged AFS debt securities. During the three and six months ended June 30, 2021, Customers terminated 1 and 8 interest rate derivatives with notional amounts totaling $5.0 million and $191.8 million, respectively, 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.
44

As of June 30, 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)June 30, 2022December 31, 2021June 30, 2022December 31, 2021
AFS debt securities$32,500 $80,500 $2,118 $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 June 30, 2022, Customers had 151 interest rate swaps with an aggregate notional amount of $1.4 billion and 12 interest rate caps with an aggregated notional amount of $243.8 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 June 30, 2022 and December 31, 2021, Customers had an aggregate notional amount of residential mortgage loan commitments of $5.0 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 recorded directly in earnings. At June 30, 2022 and December 31, 2021, Customers had an aggregate notional amount of credit derivatives of $143.8 million and $129.9 million, respectively.
Fair Value of Derivative Instruments on the Balance Sheet
The following tables present the fair value of Customers' derivative financial instruments as well as their presentation on the consolidated balance sheets as of June 30, 2022 and December 31, 2021.
 June 30, 2022
 Derivative AssetsDerivative Liabilities
(amounts in thousands)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as fair value hedges:
Interest rate swapsOther assets$2,118 Other liabilities$— 
Total$2,118 $— 
Derivatives not designated as hedging instruments:
Interest rate swaps and capsOther assets$25,165 Other liabilities$24,860 
Credit contractsOther assets53 Other liabilities62 
Residential mortgage loan commitmentsOther assets98 Other liabilities— 
Total$25,316 $24,922 
45

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 swaps and capsOther assets$25,235 Other liabilities$26,343 
Credit contractsOther assets131 Other liabilities201 
Residential mortgage loan commitmentsOther assets179 Other liabilities— 
Total$25,545 $26,544 
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 and six months ended June 30, 2022 and 2021.
Amount of Income (Loss) Recognized in Earnings
Three Months Ended June 30,Six Months Ended June 30,
(amounts in thousands)Income Statement Location2022202120222021
Derivatives designated as fair value hedges:
Recognized on interest rate swapsNet interest income$498 $(130)$3,019 $4,777 
Recognized on hedged AFS debt securitiesNet interest income(498)130 (3,019)(4,777)
Total$— $— $— $— 
Derivatives not designated as hedging instruments:
Interest rate swaps and caps
Non-interest income (1)
$780 $(376)$1,741 $2,023 
Credit contracts
Non-interest income (1)
41 (63)44 74 
Residential mortgage loan commitments
Non-interest income (2)
(50)105 (81)101 
Total$771 $(334)$1,704 $2,198 
(1) Included in unrealized gain (loss) on derivatives.
(2) Included in mortgage banking income.
46

Effect of Derivative Instruments on Comprehensive Income
The following tables present the effect of Customers' derivative financial instruments on comprehensive income for the three and six months ended June 30, 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 June 30,Three Months Ended June 30,
(amounts in thousands)2022202120222021
Derivatives in cash flow hedging relationships:
Interest rate swaps$— $Interest expense$— $(1,046)
Amount of Gain (Loss) Recognized in OCI on Derivatives (1)
Location of Gain (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Six Months Ended June 30,Six Months Ended June 30,
(amounts in thousands)2022202120222021
Derivatives in cash flow hedging relationships:
Interest rate swaps$— $9,117 Interest expense$— $(2,505)
Non-interest income (2)
— (24,467)
Total$— $(26,972)
(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) Included in 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 June 30, 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 $14.4 million. In addition, Customers, which has collateral posting thresholds with certain of these counterparties, had received $15.9 million of cash as collateral at June 30, 2022. Customers records cash posted or received as collateral with these counterparties, except with a central clearing entity, as a reduction or an increase in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets or other liabilities.
47

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/PostedNet Amount
June 30, 2022
Interest rate derivative assets with institutional counterparties$15,587 $(1,189)$(14,398)$— 
Interest rate derivative liabilities with institutional counterparties$1,189 $(1,189)$— $— 
 Gross Amounts Recognized on the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance Sheet
(amounts in thousands)Financial InstrumentsCash Collateral Received/PostedNet Amount
December 31, 2021
Interest rate derivative assets with institutional counterparties$— $— $— $— 
Interest rate derivative liabilities with institutional counterparties$23,348 $— $(23,348)$— 
NOTE 16 — 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.
48

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; higher inflation and its impacts; 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 and six months ended June 30, 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.
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Customers Bank provides blockchain-based digital payments via the Customers Bank Instant Token or CBITTM, which allows clients to make instant payments in U.S. dollars. CBIT on the TassatPayTM blockchain-based instant B2B payments platform 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, 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 deposit accounts at Customers Bank. CBIT is not listed or traded on any digital currency exchange. As of June 30, 2022 and December 31, 2021, Customers Bank held $2.1 billion and $1.9 billion of low-to-no cost deposits from customers participating in CBIT, respectively.
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
The spread of COVID-19 and its variants since early 2020 has created a global public health crisis that has resulted in 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 early stages of the pandemic have included 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. The Federal Reserve Board also 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 PPP loans as collateral at face value. Customers participated in some of these facilities and programs, primarily the PPPLF. Customers fully repaid the borrowings 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 beginning in 2021. 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 beginning in March 2022, with future rate hikes expected through 2022 and beyond.
Significant uncertainties as to future economic conditions continue to exist, including higher 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 June 30, 2022 in "NOTE 2 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" in Customers' unaudited consolidated financial statements.
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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.
The critical accounting policy that is both important to the portrayal of Customers' financial condition and results of operations and requires complex, subjective judgments is the ACL. This critical accounting policy and material estimate, along with the related disclosures, are reviewed by Customers' Audit Committee of the Board of Directors.
Allowance for Credit Losses
Customers' ACL at June 30, 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 a 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 June 30, 2022 as compared to our December 31, 2021 estimate was primarily attributable to loan growth. There was a provision for credit losses on loans and leases of $24.2 million and $39.4 million for the three and six months ended June 30, 2022, respectively, resulting in an ACL ending balance of $159.1 million ($156.5 million for loans and leases and $2.6 million for unfunded lending-related commitments) as of June 30, 2022.
To determine the ACL as of June 30, 2022, Customers utilized Moody's June 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 June 2022 assumed lower growth rate in macroeconomic forecasts compared to the first quarter 2022 forecasts of macroeconomic conditions used by Customers; the impact of the Russian invasion of Ukraine on the U.S. economy would be limited and the disruptions to oil, natural gas and other commodity markets will be temporary; COVID-19 will be endemic and seasonal and becoming less disruptive to global supply chains, tourism and business travel, immigration and labor markets; the Federal Reserve Board raising the effective fed funds rate to average 2.1% in the fourth quarter of 2022; and the U.S. economy achieving full-employment with a 3.5% unemployment rate in 2022 and gradually rising over the next couple of years as the effect of tighter monetary policy starts to be felt. 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.
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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 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 4.9% and 7.7% at the end of 2022 and 2023, respectively. These numbers represent a 1.4% and 4.2% higher unemployment estimate than the Baseline scenario projection of 3.5% for the same time periods, respectively. 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 $47.0 million at June 30, 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 geopolitical instability, risks of rising inflation including a near-term recession, or the emergence of a more contagious and severe COVID-19 variant, 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 geopolitical instability, risks of rising inflation and 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 and six months ended June 30, 2022 and 2021:
Three Months Ended June 30,QTDSix Months Ended June 30,YTD
(dollars in thousands)20222021Change% Change20222021Change% Change
Net interest income$164,852 $138,757 $26,095 18.8 %$329,551 $271,488 $58,063 21.4 %
Provision for credit losses23,847 3,291 20,556 NM39,844 372 39,472 NM
Total non-interest income12,746 16,822 (4,076)(24.2)%33,944 35,290 (1,346)(3.8)%
Total non-interest expense76,205 70,823 5,382 7.6 %150,012 132,750 17,262 13.0 %
Income before income tax expense77,546 81,465 (3,919)(4.8)%173,639 173,656 (17)— %
Income tax expense18,896 20,124 (1,228)(6.1)%38,228 37,684 544 1.4 %
Net income from continuing operations58,650 61,341 (2,691)(4.4)%135,411 135,972 (561)(0.4)%
Loss from discontinued operations before income taxes— — — NM— (20,354)20,354 (100.0)%
Income tax expense from discontinued operations— — — NM— 17,682 (17,682)(100.0)%
Net loss from discontinued operations— — — NM— (38,036)38,036 (100.0)%
Net income58,650 61,341 (2,691)(4.4)%135,411 97,936 37,475 38.3 %
Preferred stock dividends2,131 3,299 (1,168)(35.4)%3,996 6,690 (2,694)(40.3)%
Net income available to common shareholders$56,519 $58,042 $(1,523)(2.6)%$131,415 $91,246 $40,169 44.0 %
Customers reported net income available to common shareholders of $56.5 million and $131.4 million for the three and six months ended June 30, 2022, respectively, compared to net income available to common shareholders of $58.0 million and $91.2 million for the three and six months ended June 30, 2021, respectively. Factors contributing to the change in net income available to common shareholders for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 were as follows.
Net interest income
Net interest income increased $26.1 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 as average interest-earning assets increased by $826.9 million, and NIM increased by 41 basis points to 3.39% for the three months ended June 30, 2022 from 2.98% for the three months ended June 30, 2021. The increase in interest-earning assets was driven by increases in investment securities, commercial and industrial loans and leases, installment, multi-family and residential mortgage 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 in a rising interest rate environment and PPP loan forgiveness, which accelerated the recognition of net deferred loan origination fees, drove a 54 basis points increase in the yield on interest-earning assets and contributed to the NIM increase. The shift in the mix of interest-bearing liabilities in a rising interest rate envi