Edgar Filing: Customers Bancorp, Inc.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended June 30, 2017



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

For the transition period from to .

001-35542

(Commission File number)

(Exact name of registrant as specified in its charter)



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

1015 Penn Avenue

Suite 103

Wyomissing PA 19610

(Address of principal executive offices)

(610) 933-2000

(Registrant’s telephone number, including area code)

N/A

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

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

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

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



Large accelerated filer	¨	Accelerated filer	x

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

		Emerging Growth Company	¨

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

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

On July 31, 2017, 30,730,784 shares of Voting Common Stock were issued and outstanding.

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Table of Contents



Part I

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of June 30, 2017 and for the three and six month periods ended June 30, 2017 and 2016 (unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	77


Item 4.	Controls and Procedures	78

PART II

Item 1.	Legal Proceedings	79

Item 1A.	Risk Factors	79

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81

Item 3.	Defaults Upon Senior Securities	81

Item 4.	Mine Safety Disclosures	81

Item 5.	Other Information	81

Item 6.	Exhibits	82

SIGNATURES		84

Ex-31.1

Ex-31.2

Ex-32.1

Ex-32.2

Ex-101

Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

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



	June 30, 2017			December 31, 2016
ASSETS
Cash and due from banks	$	18,503		$	17,485
Interest-earning deposits	383,187			227,224
Cash and cash equivalents	401,690			244,709
Investment securities available for sale, at fair value	1,012,605			493,474
Loans held for sale (includes $2,104,338 and $2,117,510, respectively, at fair value)	2,255,096			2,117,510
Loans receivable	6,723,278			6,142,390
Allowance for loan losses	(38,458		)	(37,315		)
Total loans receivable, net of allowance for loan losses	6,684,820			6,105,075
FHLB, Federal Reserve Bank, and other restricted stock	129,689			68,408
Accrued interest receivable	26,163			23,690
Bank premises and equipment, net	12,028			12,259
Bank-owned life insurance	213,902			161,494
Other real estate owned	2,358			3,108
Goodwill and other intangibles	3,633			3,639
Assets held for sale	67,796			79,271
Other assets	73,768			70,099
Total assets	$	10,883,548		$	9,382,736
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing	$	661,914		$	512,664
Interest-bearing	6,360,008			6,334,316
Total deposits	7,021,922			6,846,980
Non-interest bearing deposits held for sale	447,325			453,394
Federal funds purchased	150,000			83,000
FHLB advances	1,999,600			868,800
Other borrowings	186,030			87,123
Subordinated debt	108,831			108,783
Other liabilities held for sale	22,394			31,403
Accrued interest payable and other liabilities	37,157			47,381
Total liabilities	9,973,259			8,526,864
Shareholders’ equity:
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 9,000,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016	217,471			217,471
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 31,261,044 and 30,820,177 shares issued as of June 30, 2017 and December 31, 2016; 30,730,784 and 30,289,917 shares outstanding as of June 30, 2017 and December 31, 2016	31,261			30,820
Additional paid in capital	428,488			427,008
Retained earnings	235,938			193,698
Accumulated other comprehensive income (loss), net	5,364			(4,892		)
Treasury stock, at cost (530,260 shares as of June 30, 2017 and December 31, 2016)	(8,233		)	(8,233		)
Total shareholders’ equity	910,289			855,872
Total liabilities and shareholders’ equity	$	10,883,548		$	9,382,736

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED

(amounts in thousands, except per share data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Interest income:
Loans receivable	$	67,036		$	59,013		$	128,497		$	113,485
Loans held for sale	17,524			17,429			31,470			31,534
Investment securities	7,823			3,638			13,710			7,347
Other	1,469			1,240			3,269			2,352
Total interest income	93,852			81,320			176,946			154,718
Interest expense:
Deposits	16,218			11,138			30,535			21,347
Other borrowings	1,993			1,620			3,600			3,225
FHLB advances	5,340			3,716			8,401			5,984
Subordinated debt	1,685			1,685			3,370			3,370
Total interest expense	25,236			18,159			45,906			33,926
Net interest income	68,616			63,161			131,040			120,792
Provision for loan losses	535			786			3,585			2,766
Net interest income after provision for loan losses	68,081			62,375			127,455			118,026
Non-interest income:
Mortgage warehouse transactional fees	2,523			3,074			4,743			5,622
Bank-owned life insurance	2,258			1,120			3,624			2,243
Gain on sale of SBA and other loans	573			285			1,901			929
Mortgage banking income	291			285			446			450
Deposit fees	258			278			582			531
Interchange and card revenue	126			160			329			304
Gain on sale of investment securities	3,183			—			3,183			26
Impairment loss on investment securities	(2,882		)	—			(4,585		)	—
Other	641			651			2,175			1,016
Total non-interest income	6,971			5,853			12,398			11,121
Non-interest expense:
Salaries and employee benefits	16,687			16,401			32,850			32,799
Professional services	2,834			2,750			5,827			5,071
Technology, communication and bank operations	2,542			2,448			5,861			4,833
Occupancy	2,536			2,363			5,121			4,600
FDIC assessments, taxes, and regulatory fees	2,320			4,289			3,953			8,130
Loan workout	408			487			928			905
Other real estate owned	160			183			105			470
Advertising and promotion	153			194			334			337
Other	2,927			2,970			5,735			6,812
Total non-interest expense	30,567			32,085			60,714			63,957
Income from continuing operations before income tax expense	44,485			36,143			79,139			65,190
Income tax expense	15,533			14,369			23,263			24,108
Net income from continuing operations	28,952			21,774			55,876			41,082
Loss from discontinued operations before income tax benefit	(8,436		)	(3,696		)	(10,334		)	(5,508		)
Income tax benefit from discontinued operations	(3,206		)	(1,405		)	(3,927		)	(2,093		)
Net loss from discontinued operations	(5,230		)	(2,291		)	(6,407		)	(3,415		)
Net income	23,722			19,483			49,469			37,667
Preferred stock dividends	3,615			2,062			7,229			3,348
Net income available to common shareholders	$	20,107		$	17,421		$	42,240		$	34,319
Basic earnings per common share from continuing operations	$	0.83		$	0.73		$	1.59		$	1.40
Basic earnings per common share	$	0.66		$	0.64		$	1.38		$	1.27
Diluted earnings per common share from continuing operations	$	0.78		$	0.67		$	1.49		$	1.28
Diluted earnings per common share	$	0.62		$	0.59		$	1.29		$	1.17

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED

(amounts in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net income from continuing operations	$	28,952		$	21,774		$	55,876		$	41,082
Net loss from discontinued operations	(5,230		)	(2,291		)	(6,407		)	(3,415		)
Net income	23,722			19,483			49,469			37,667
Unrealized gains on available-for-sale securities:
Unrealized holding gains on securities arising during the period	19,885			8,059			18,762			14,926
Income tax effect	(7,755		)	(3,022		)	(7,317		)	(5,597		)
Reclassification adjustments for gains on securities included in net income	(3,183		)	—			(3,183		)	(26		)
Income tax effect	1,241			—			1,241			10
Net unrealized gains on available-for-sale securities	10,188			5,037			9,503			9,313
Unrealized gains (losses) on cash flow hedges:
Unrealized losses arising during the period	(689		)	(813		)	(360		)	(3,413		)
Income tax effect	269			305			141			1,280
Reclassification adjustment for losses included in net income	767			603			1,594			603
Income tax effect	(299		)	(226		)	(622		)	(226		)
Net unrealized gains (losses) on cash flow hedges	48			(131		)	753			(1,756		)
Other comprehensive income, net of income tax effect	10,236			4,906			10,256			7,557
Comprehensive income	$	33,958		$	24,389		$	59,725		$	45,224

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(amounts in thousands, except shares outstanding data)



	Six Months Ended June 30, 2017
	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance, December 31, 2016	9,000,000	$	217,471	30,289,917	$	30,820	$	427,008		$	193,698		$	(4,892	)	$	(8,233	)	$	855,872
Net income from continuing operations	—	—		—	—		—			55,876			—			—			55,876
Net loss from discontinued operations	—	—		—	—		—			(6,407		)	—			—			(6,407		)
Other comprehensive income	—	—		—	—		—			—			10,256			—			10,256
Preferred stock dividends	—	—		—	—		—			(7,229		)	—			—			(7,229		)
Share-based compensation expense	—	—		—	—		2,934			—			—			—			2,934
Exercise of warrants	—	—		43,974	44		376			—			—			—			420
Issuance of common stock under share-based compensation arrangements	—	—		396,893	397		(1,830		)	—			—			—			(1,433		)
Balance, June 30, 2017	9,000,000	$	217,471	30,730,784	$	31,261	$	428,488		$	235,938		$	5,364		$	(8,233	)	$	910,289

	Six Months Ended June 30, 2016
	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance, December 31, 2015	2,300,000	$	55,569	26,901,801	$	27,432	$	362,607		$	124,511		$	(7,984	)	$	(8,233	)	$	553,902
Net income from continuing operations	—	—		—	—		—			41,082			—			—			41,082
Net loss from discontinued operations	—	—		—	—		—			(3,415		)	—			—			(3,415		)
Other comprehensive income	—	—		—	—		—			—			7,557			—			7,557
Issuance of common stock, net of offering costs of $15	—	—		7,291	7		152			—			—			—			159
Issuance of preferred stock, net of offering costs of $2,799	3,300,000	79,701		—	—		—			—			—			—			79,701
Preferred stock dividends	—	—		—	—		—			(3,348		)	—						(3,348		)
Share-based compensation expense	—	—		—	—		2,941			—			—			—			2,941
Exercise of warrants	—	—		239,478	240		831			—			—			—			1,071
Issuance of common stock under share-based compensation arrangements	—	—		138,263	138		764			—			—			—			902
Balance, June 30, 2016	5,600,000	$	135,270	27,286,833	$	27,817	$	367,295		$	158,830		$	(427	)	$	(8,233	)	$	680,552

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)



	Six Months Ended June 30,
	2017			2016
Cash Flows from Operating Activities of Continuing Operations
Net income from continuing operations	$	55,876		$	41,082
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses, net of change to FDIC receivable and clawback liability	3,585			2,766
Provision for depreciation and amortization	2,393			1,728
Share-based compensation	3,153			3,294
Deferred taxes	(2,588		)	(2,563		)
Net amortization of investment securities premiums and discounts	232			424
Gain on sale of investment securities	(3,183		)	(26		)
Impairment loss on investment securities	4,585			—
Gain on sale of mortgages and other loans	(2,183		)	(1,189		)
Origination of loans held for sale	(14,714,280		)	(17,142,862		)
Proceeds from the sale of loans held for sale	14,727,734			16,626,639
Decrease in FDIC loss sharing receivable net of clawback liability	—			255
Amortization of fair value discounts and premiums	98			235
Net (gain) loss on sales of other real estate owned	(163		)	80
Valuation and other adjustments to other real estate owned, net of FDIC receivable	231			193
Earnings on investment in bank-owned life insurance	(3,624		)	(2,243		)
Increase in accrued interest receivable and other assets	(10,618		)	(31,604		)
(Decrease) increase in accrued interest payable and other liabilities	(9,186		)	13,148
Net Cash Provided By (Used In) Operating Activities of Continuing Operations	52,062			(490,643		)
Cash Flows from Investing Activities of Continuing Operations
Proceeds from maturities, calls and principal repayments of securities available for sale	22,843			28,973
Proceeds from sales of investment securities available for sale	115,982			2,848
Purchases of investment securities available for sale	(644,011		)	(5,000		)
Net increase in loans	(582,571		)	(667,584		)
Proceeds from sales of loans	112,927			17,527
Purchase of loans	(262,641		)	—
Purchases of bank-owned life insurance	(50,000		)	—
Proceeds from bank-owned life insurance	1,418			—
Net purchases of FHLB, Federal Reserve Bank, and other restricted stock	(61,281		)	(20,577		)
Payments to the FDIC on loss sharing agreements	—			(668		)
Purchases of bank premises and equipment	(1,274		)	(1,950		)
Proceeds from sales of other real estate owned	682			310
Net Cash Used In Investing Activities of Continuing Operations	(1,347,926		)	(646,121		)
Cash Flows from Financing Activities of Continuing Operations
Net increase in deposits	174,942			848,808
Net increase in short-term borrowed funds from the FHLB	1,130,800			206,600
Net increase (decrease) in federal funds purchased	67,000			(9,000		)
Proceeds from long-term FHLB borrowings	—			75,000
Net proceeds from issuance of long-term debt	98,574			—
Net proceeds from issuance of preferred stock	—			79,701
Preferred stock dividends paid	(7,229		)	(3,110		)
Exercise and redemption of warrants	420			1,071
Payments of employee taxes withheld from share-based awards	(3,961		)	(702		)
Proceeds from issuance of common stock	1,900			1,553
Net Cash Provided By Financing Activities of Continuing Operations	1,462,446			1,199,921
Net Increase in Cash and Cash Equivalents of Continuing Operations	166,582			63,157
Discontinued Operations:
Net cash used in operating activities	(16,106		)	(20,851		)
Net cash provided by (used in) investing activities	9,860			(17,054		)
Net cash used in financing activities	(3,355		)	(7,048		)
Net Cash Used in Discontinued Operations	(9,601		)	(44,953		)
Net Increase in Cash and Cash Equivalents	156,981			18,204
Cash and Cash Equivalents – Beginning	244,709			264,593
Cash and Cash Equivalents – Ending	$	401,690		$	282,797

	(continued)



Supplementary Cash Flows Information
Interest paid	$	44,983		$	33,137
Income taxes paid	21,715			23,539
Non-cash items:
Transfer of loans to other real estate owned	$	—		$	592
Transfer of loans held for investment to loans held for sale	$	150,758		$	—

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF THE BUSINESS

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

Customers Bancorp, Inc. and its wholly owned subsidiaries, Customers Bank, and non-bank subsidiaries, serve residents and businesses in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Rye, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan, New York; and nationally for certain loan and deposit products. The Bank has 14 full-service branches and provides commercial banking products, primarily loans and deposits. In addition, Customers Bank also administratively supports loan and other financial products to customers through its limited-purpose offices in Boston, Massachusetts, Providence, Rhode Island, Portsmouth, New Hampshire, Manhattan and Melville, New York and Philadelphia, Pennsylvania. The Bank also provides liquidity to residential mortgage originators nationwide through commercial loans to mortgage companies.

Through BankMobile, a division of Customers Bank, Customers offers state of the art high tech digital banking services to consumers, students, and the "under banked" nationwide. The combination of the BankMobile technology software platform with the Vibe Student Checking and Refund Management Disbursement Services business (the "Disbursement business") acquired from Higher One Holdings, Inc. and Higher One, Inc. (together, "Higher One") in June 2016 propelled BankMobile to one of the largest mobile banking services in the United States by number of customers. Customers has announced its intent to sell BankMobile and anticipates the sale to close within one year. Accordingly, BankMobile has been classified as "held for sale" in the consolidated balance sheets and BankMobile's operating results and associated cash flows have been presented as discontinued operations in the consolidated financial statements, see NOTE 3 - DISCONTINUED OPERATIONS.

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

NOTE 2 - ACQUISITION ACTIVITY

On June 15, 2016, Customers completed the acquisition of substantially all of the assets and the assumption of certain liabilities of the Disbursement business from Higher One. The acquisition was completed pursuant to the terms of an Asset Purchase Agreement (the "Purchase Agreement") dated as of December 15, 2015 between Customers and Higher One. Under the terms of the Purchase Agreement, Customers also acquired all existing relationships with vendors and educational institutions, and all intellectual property and assumed normal business related liabilities. In conjunction with the acquisition, Customers hired approximately 225 Higher One employees primarily located in New Haven, Connecticut that manage the Disbursement business and serve the Disbursement business customers.

The transaction contemplates aggregate guaranteed payments to Higher One of $42 million. The aggregate purchase price payable by Customers is $37 million in cash, with the payments to be made as follows: (i) $17 million in cash paid upon the closing of the acquisition, (ii) $10 million in cash upon the first anniversary of the closing and (iii) $10 million in cash paid upon the second anniversary of the closing. In accordance with the terms of the agreement, $10 million was paid to Higher One in June 2017. In addition, concurrently with the closing, the parties entered into a Transition Services Agreement pursuant to which Higher One provided certain transition services to Customers through June 30, 2017. As consideration for these services, Customers paid Higher One an additional $5 million in cash. Customers also will be required to make additional payments to Higher One if, during the three years following the closing, revenues from the acquired Disbursement business exceed $75 million in a year. The potential payment is equal to 35% of the amount the Disbursement business related revenue exceeds $75 million in each year. As of June 30, 2017, Customers has not recorded a liability for any additional contingent consideration payable under the Purchase Agreement.

As specified in the Purchase Agreement, the payments of $10 million payable to Higher One upon each of the first and second anniversary of the transaction closing were placed into an escrow account with a third party. The escrow account with $10 million and $20 million, respectively, as of June 30, 2017 and December 31, 2016 in aggregate restricted cash and the corresponding obligation to pay Higher One pursuant to the terms of the Purchase Agreement have been assigned to

Table of Contents

BankMobile and are presented as "Assets held for sale" and "Other liabilities held for sale" on the June 30, 2017 and December 31, 2016 consolidated balance sheets. For more information regarding Customers' plans for BankMobile and the presentation of BankMobile within the consolidated financial statements, see NOTE 3 - DISCONTINUED OPERATIONS.

The assets acquired and liabilities assumed were initially presented at their estimated fair values based on a preliminary

allocation of the purchase price. In many cases, the determination of these fair values required management to make estimates

about discount rates, future expected cash flows, market conditions and other future events that were highly subjective and

subject to change. The fair value estimates were considered preliminary and subject to change for up to one year after the

closing date of the acquisition as additional information became available. Based on a preliminary purchase price allocation, Customers recorded $4.3 million in goodwill as a result of the acquisition. At December 31, 2016, Customers recorded adjustments to the estimated fair values of prepaid expenses and other liabilities, which resulted in a $1.0 million increase in goodwill. The adjusted amount of goodwill of $5.3 million reflects the excess purchase price over the estimated fair value of

the net assets acquired. The goodwill recorded is deductible for tax purposes. The purchase price allocation is considered final as of June 30, 2017. The following table summarizes the final adjusted amounts recognized for assets acquired and liabilities assumed:




(amounts in thousands)
Fair value of assets acquired:
Developed software	$	27,400
Other intangible assets	9,300
Accounts receivable	2,784
Prepaid expenses	418
Fixed assets, net	229
Total assets acquired	40,131

Fair value of liabilities assumed:
Other liabilities	5,735
Deferred revenue	2,655
Total liabilities assumed	8,390

Net assets acquired	$	31,741

Transaction cash consideration (1)	$	37,000

Goodwill recognized	$	5,259

(1) Includes $10 million payable to Higher One upon each of the first and second anniversary of the transaction closing, which has been placed into an escrow account with a third party (aggregate amount of $20 million at December 31, 2016). Customers paid the first $10 million due to Higher One in June 2017.

The fair value for the developed software was estimated based on expected revenue attributable to the software utilizing a discounted cash flow methodology giving consideration to potential obsolescence. The developed software was being amortized over ten years based on the estimated economic benefits received. The fair values for the other intangible assets represent the value of existing student and university relationships and a non-compete agreement with Higher One based on estimated retention rates and discounted cash flows. Other intangible assets were being amortized over an estimated life ranging from four to twenty years. Because BankMobile has been classified as held for sale, these assets are reported at the lower of cost or market on the consolidated balance sheet and are no longer being amortized. At June 30, 2017, Customers estimated the fair values of these assets to be higher than their amortized cost basis. Accordingly, a lower of cost or fair value adjustment was not recorded in second quarter 2017.

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NOTE 3 – DISCONTINUED OPERATIONS

In third quarter 2016, Customers announced its intent to sell BankMobile. Customers anticipates a sale to close within one year. Because BankMobile met the criteria to be classified as held for sale at June 30, 2017, the assets and liabilities of BankMobile have been presented as "Assets held for sale," "Non-interest bearing deposits held for sale," and "Other liabilities held for sale" on the consolidated balance sheets at June 30, 2017 and December 31, 2016. BankMobile'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. BankMobile will continue to be presented as "Discontinued operations" until completion of the sale or at such time that BankMobile no longer meets the held-for-sale criteria.

The following summarized financial information related to BankMobile has been segregated from continuing operations and reported as discontinued operations for the periods presented. The amounts presented below exclude the effect of internal allocations made by management when assessing the performance of the BankMobile operating segment. For more information on the BankMobile operating segment, see NOTE 14 - BUSINESS SEGMENTS.



	Three Months Ended June 30,						Six Months Ended June 30,
(amounts in thousands)	2017			2016			2017			2016
Discontinued operations:
Interest income	$	1		$	—		$	2		$	—
Interest expense	11			4			18			9
Net interest income	(10		)	(4		)	(16		)	(9		)
Non-interest income	11,420			2,403			28,746			2,630
Non-interest expense	19,846			6,095			39,064			8,129
Loss from discontinued operations before income tax benefit	(8,436		)	(3,696		)	(10,334		)	(5,508		)
Income tax benefit from discontinued operations	(3,206		)	(1,405		)	(3,927		)	(2,093		)
Net loss from discontinued operations	$	(5,230	)	$	(2,291	)	$	(6,407	)	$	(3,415	)

The assets and liabilities held for sale on the consolidated balance sheets as of June 30, 2017 and December 31, 2016 were as follows:



	June 30, 2017		December 31, 2016
(amounts in thousands)	June 30, 2017		December 31, 2016
ASSETS
Cash and cash equivalents (1)	$	11,552	$	20,000
Loans receivable	1,930		12,248
Bank premises and equipment, net	968		510
Goodwill and other intangibles	13,982		13,982
Other assets	39,364		32,531
Assets held for sale	$	67,796	$	79,271
LIABILITIES
Demand, non-interest bearing deposits	$	447,325	$	453,394
Other liabilities:
Interest bearing deposits	6,116		3,401
Accrued expenses and other liabilities (1)	16,278		28,002
Other liabilities held for sale	22,394		31,403
Liabilities held for sale	$	469,719	$	484,797

(1) Includes $10 million and $20 million payable to Higher One with matching amounts in restricted cash held in an escrow account with a third party as of June 30, 2017 and December 31, 2016, respectively.

Customers anticipates that cash, securities or loans (or a combination thereof) with a market value equal to approximately the amount of BankMobile deposits outstanding at the time the anticipated sale closes will be included in the net assets transferred.

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NOTE 4 — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Presentation

The interim unaudited consolidated financial statements of Customers Bancorp and subsidiaries have been prepared 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, 2016 consolidated balance sheet presented in this report has been derived from Customers Bancorp’s audited 2016 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 2016 consolidated financial statements of Customers Bancorp and subsidiaries included in Customers' Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 8, 2017. That Form 10-K describes Customers Bancorp’s significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Restrictions on Cash and Amounts due from Banks; Business Combinations; Investment Securities; Loan Accounting Framework; Allowance for Loan Losses; Goodwill and other Intangible Assets; Investments in FHLB, Federal Reserve Bank, and other restricted stock; Other Real Estate Owned; FDIC Loss Sharing Receivable and Clawback Liability; Bank-Owned Life Insurance; Bank Premises and Equipment; Treasury Stock; Income Taxes; Share-Based Compensation; Segments; Derivative Instruments and Hedging; Comprehensive Income; and Earnings per Share. Certain prior period amounts have been reclassified to conform to the current period presentation. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year.

There have been no material changes to Customers' significant accounting policies as disclosed in Customers' Annual Report on Form 10-K for the year ended December 31, 2016. Presented below are recently issued accounting standards that Customers has adopted as well as those that the Financial Accounting Standards Board (“FASB”) has issued but are not yet effective or that Customers has not yet adopted.

Recently Issued Accounting Standards

Accounting Standards Adopted in 2017

Since January 1, 2017, Customers has adopted the following FASB Accounting Standard Updates (“ASUs”), none of which had a material impact to Customers’ consolidated financial statements:

•

Customers adopted ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, on a prospective basis. This ASU clarifies that a change in the counterparties to a derivative contract (i.e. a novation), in and of itself, does not require the de-designation of a hedging relationship provided that all the other hedge accounting criteria continue to be met.

•

Customers also adopted ASU 2016-06, Contingent Put and Call Options in Debt Instruments. This ASU clarifies that a contingency of put or call exercise does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis of hybrid financial instruments. In other words, a contingent put or call option embedded in a debt instrument would be evaluated for possible separate accounting as a derivative instrument without regard to the nature of the exercise contingency. However, as required under the existing guidance, companies will still need to evaluate the other relevant embedded derivative guidance, such as whether the payoff from the contingent put or call option is adjusted based on changes in an index other than interest rates or credit risk, and whether the debt involves a substantial premium or discount. As the adoption did not result in any significant impact to Customers’ consolidated financial statements, it did not result in a modified retrospective application.

•

Customers also adopted ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting, on a prospective basis. This ASU eliminates the requirement for the retrospective use of the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence of an investor. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for the equity method of accounting.

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•

Customers also adopted ASU 2016-17, Consolidation - Interests Held Through Related Parties that are Under Common Control. This ASU amends the guidance included in ASU 2015-02, Consolidation: Amendments to Consolidation Analysis which Customers adopted in first quarter 2016. This ASU makes a narrow amendment that requires that a single decision maker considers indirect economic interests in an entity held through related parties that are under common control on a proportionate basis when determining whether it is the primary beneficiary of that VIE. Prior to this amendment, indirect interests held through related parties that are under common control were to be considered equivalent of the single decision maker’s direct interests in their entirety which could result in a single decision maker consolidating the VIE. As the adoption did not result in any significant impact to Customers’ consolidated financial statements, it did not result in a full or modified retrospective application.

Accounting Standards Issued But Not Yet Adopted

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification in Accounting Standards Codification (“ASC”) 718. Under this ASU, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award as equity or a liability changes as a result of the change in terms or conditions. This ASU does not change the accounting for modifications under ASC 718. The ASU will be effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. Adoption of this new guidance must be applied prospectively to an award modified on or after the adoption date. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities, which requires that premiums for certain callable debt securities held be amortized to their earliest call date. This ASU does not affect the accounting for securities purchased at a discount. This ASU will be effective for Customers for its first reporting period beginning after December 15, 2018, with earlier adoption permitted. Adoption of this new guidance must be applied on a modified retrospective approach. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope and application of the accounting guidance on the sale of nonfinancial assets to non-customers, including partial sales. This ASU defines an in-substance nonfinancial asset, in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. If substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the scope of Subtopic 610-20. This ASU also unifies the guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. This ASU will be effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. The adoption of this new guidance must be applied on a full or modified retrospective basis. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which will simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test that requires an entity to determine the implied fair value of its goodwill through a hypothetical purchase price allocation. Instead, under this ASU, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. All other goodwill impairment guidance will remain largely unchanged. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will also be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective for Customers for its first reporting period beginning after December 15, 2019. Early adoption is permitted for impairment tests performed after January 1, 2017. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which narrows the definition of a business and clarifies that to be considered a business, the fair value of gross assets acquired (or disposed of) should not be

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concentrated in a single identifiable asset or a group of similar identifiable assets. In addition, to be considered a business, an acquisition would have to include an input and a substantive process that together will significantly contribute to the ability to create an output. Also, the amendments narrow the definition of the term “output” so that it is consistent with how outputs are defined in ASC Topic 606, Revenue from Contracts with Customers. This ASU is effective for Customers for its first reporting period beginning after December 15, 2017. Adoption of this new guidance must be applied on a prospective basis. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU is effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. Customers does not expect the adoption to this ASU to have a significant impact on the presentation of its statement of cash flows.

In October 2016, the FASB issued ASU 2016-16-Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This eliminates the current exception for all intra-entity transfers of an asset other than inventory that requires deferral of the tax effects until the asset is sold to a third party or otherwise recovered through use.

This ASU is effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which aims to reduce the existing diversity in practice with regards to the following specific items in the Statement of Cash Flows:


1.	Cash payments for debt prepayment or extinguishment costs will be classified in financing activities.


2.	Upon settlement of zero-coupon bonds and bonds with insignificant cash coupons, the portion of the payment attributable to imputed interest will be classified as an operating activity, while the portion of the payment attributable to principal will be classified as a financing activity.

Cash paid by an acquirer soon after a business combination (i.e. approximately three months or less) for the settlement of a contingent consideration liability will be classified in investing activities. Payments made thereafter should be separated between financing activities and operating activities. Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date will be classified in financing activities; any excess will be classified in operating activities.


4.	Cash proceeds received from the settlement of insurance claims will be classified on the basis of the related insurance coverage (that is, the nature of the loss). Cash proceeds from lump-sum settlements will be classified based on the nature of each loss component included in the settlement.


5.	Cash proceeds received from the settlement of bank-owned life insurance (BOLI) policies will be classified as cash inflows from investing activities. Cash payments for premiums on BOLI may be classified as cash outflows for investing, operating, or a combination of both.


6.	A transferor’s beneficial interest obtained in a securitization of financial assets will be disclosed as a non-cash activity, and cash received from beneficial interests will be classified in investing activities.


7.	Distributions received from equity method investees will be classified using either a cumulative earnings approach or a look-through approach as an accounting policy election.

The ASU contains additional guidance clarifying when an entity should separate cash receipts and cash payments and classify them into more than one class of cash flows (including when reasonable judgment is required to estimate and allocate cash flows) versus when an entity should classify the aggregate amount into one class of cash flows on the basis of predominance. This ASU is effective for Customers for its first reporting period beginning after December 15, 2017, with early adoption permitted. Customers is currently evaluating the impact of this ASU and does not expect the ASU to have a material impact on the presentation of its statement of cash flows.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate lifetime expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset (including HTM securities), presents the net amount expected to be collected on the financial asset. This ASU will replace today’s “incurred loss” approach. The CECL model is expected to result in earlier recognition of credit losses. For available-for-sale debt securities, entities will be required to record allowances for credit losses rather than reduce the carrying amount, as they do today under the OTTI model, and will be allowed to reverse previously established allowances in the event the credit of the issuer improves. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for Customers for its first reporting period beginning after December 15, 2019. Earlier adoption is also permitted. Adoption of the new guidance can be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Customers is currently evaluating the impact of this ASU, initiating implementation efforts across the company, and planning for loss modeling requirements consistent with lifetime expected loss estimates. It is expected that the new model will include different assumptions used in calculating credit losses, such as estimating losses over the estimated life of a financial asset and will consider expected future changes in macroeconomic conditions. The adoption of this ASU may result in an increase to Customers' allowance for loan losses which will depend upon the nature and characteristics of Customers' loan portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at that date. Customers currently does not intend to early adopt this new guidance.

In March 2016, the FASB issued ASU 2016-04, Liabilities - Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products, that would require issuers of prepaid stored-value product (such as gift cards, telecommunication cards, and traveler’s checks), to derecognize the financial liability related to those products for breakage. Breakage is the value of prepaid stored-value products that is not redeemed by consumers for goods, services or cash. There is currently a diversity in the methodology used to recognize breakage. Subtopic 405-20, Extinguishment of Liabilities, includes derecognition guidance for both financial liabilities and nonfinancial liabilities, and Topic 606, Revenue from Contracts with Customers, includes authoritative breakage guidance but excludes financial liabilities. The amendments in this ASU provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage be accounted for consistent with the breakage guidance in Topic 606. This ASU is effective for Customers for its first reporting period beginning after December 15, 2017. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition, results of operations and consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes the current lease accounting guidance for both lessees and lessors under ASC 840, Leases. From the lessee's perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. The new guidance will require lessors to account for leases using an approach that is substantially similar to the existing guidance for sales-type, direct financing leases and operating leases. The new standard is effective for Customers for its first reporting period beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Customers is currently evaluating the impact of this ASU on its financial condition and results of operations and expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of unpaid lease payments as of the date of adoption. Customers does not intend to early adopt this ASU.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance in this ASU among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements and (7) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to

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available-for-sale securities. The guidance in this ASU is effective for Customers for its first reporting period beginning after December 15, 2017, including interim periods within those fiscal years. Customers is in the process of evaluating the impacts of the adoption of this ASU, however, it does not expect the impact to be significant to its financial condition, results of operations and consolidated financial statements given the immaterial amount of its investment in equity securities.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), superseding the revenue recognition requirements in ASC 605. This ASU requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 605. In August 2015, the FASB issued ASU 2015-14, which formalized the deferral of the effective date of the amendment for a period of one-year from the original effective date. Following the issuance of ASU 2015-14, the amendment will be effective for Customers for its first reporting period beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09, which reframed the structure of the indicators of when an entity is acting as an agent and focused on evidence that an entity is acting as the principal or agent in a revenue transaction. ASU 2016-08 also eliminated two of the indicators (the entity’s consideration is in the form of a commission and the entity is not exposed to credit risk) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity's promise to grant a license with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-12, an amendment to ASU 2014-09, which provided practical expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on transition, collectability, non-cash consideration and the presentation of sales and other similar taxes. The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption.

Because the ASU does not apply to revenue associated with leases and financial instruments (including loans and securities), Customers does not expect the new guidance to have a material impact on the elements of its consolidated statements of operations most closely associated with leases and financial instruments (such as interest income, interest expense and securities gain). Customers intends to adopt this ASU on January 1, 2018 using a modified retrospective approach. Customers’ ongoing implementation efforts include the identification of other revenue streams that are within the scope of the new guidance and reviewing the related contracts with customers to determine the effect on certain non-interest income items presented in the consolidated statements of operations. As provided above, Customers does not expect the adoption of this ASU to have a significant impact to its financial condition, results of operations and consolidated financial statements.

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NOTE 5 — EARNINGS PER SHARE

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
(amounts in thousands, except share and per share data)
Net income from continuing operations available to common shareholders (1)	$	25,337		$	19,712		$	48,647		$	37,734
Net loss from discontinued operations	(5,230		)	(2,291		)	(6,407		)	(3,415		)
Net income available to common shareholders	$	20,107		$	17,421		$	42,240		$	34,319

Weighted-average number of common shares outstanding - basic	30,641,554			27,080,676			30,524,955			27,012,869
Share-based compensation plans	1,910,634			2,123,745			2,129,773			2,077,219
Warrants	17,464			299,908			27,318			303,769
Weighted-average number of common shares - diluted	32,569,652			29,504,329			32,682,046			29,393,857

Basic earnings per common share from continuing operations	$	0.83		$	0.73		$	1.59		$	1.40
Basic loss per common share from discontinued operations	$	(0.17	)	$	(0.09	)	$	(0.21	)	$	(0.13	)
Basic earnings per common share	$	0.66		$	0.64		$	1.38		$	1.27
Diluted earnings per common share from continuing operations	$	0.78		$	0.67		$	1.49		$	1.28
Diluted loss per common share from discontinued operations	$	(0.16	)	$	(0.08	)	$	(0.20	)	$	(0.11	)
Diluted earnings per common share	$	0.62		$	0.59		$	1.29		$	1.17

(1) Net income from continuing operations, net of preferred stock dividends

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



	Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016
Anti-dilutive securities:
Share-based compensation awards	288,325	616,995	282,725	616,995
Warrants	52,242	52,242	52,242	52,242
Total anti-dilutive securities	340,567	669,237	334,967	669,237

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NOTE 6 — CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT (1)

The following tables present the changes in accumulated other comprehensive income (loss) by component for the three and six months ended June 30, 2017 and 2016.



	Three Months Ended June 30, 2017
(amounts in thousands)	Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Gain (Loss) on Cash Flow Hedges			Total
Balance - March 31 2017	$	(3,366	)	$	(1,506	)	$	(4,872	)
Other comprehensive income (loss) before reclassifications	12,130			(420		)	11,710
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2)	(1,942		)	468			(1,474		)
Net current-period other comprehensive income	10,188			48			10,236
Balance - June 30, 2017	$	6,822		$	(1,458	)	$	5,364



	Six Months Ended June 30, 2017
(amounts in thousands)	Unrealized Gains (Losses) on Available-For-Sale Securities			Unrealized Loss on Cash Flow Hedges			Total
Balance - December 31, 2016	$	(2,681	)	$	(2,211	)	$	(4,892	)
Other comprehensive income (loss) before reclassifications	11,445			(219		)	11,226
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2)	(1,942		)	972			(970		)
Net current-period other comprehensive income	9,503			753			10,256
Balance - June 30, 2017	$	6,822		$	(1,458	)	$	5,364


(1)	All amounts are presented net of tax. Amounts in parentheses indicate reductions to accumulated other comprehensive income.


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



	Three Months Ended June 30, 2016
	Available-for-sale-securities
(amounts in thousands)	Unrealized Gains (Losses)			Foreign Currency Items			Total Unrealized Gains (Losses)			Unrealized Loss on Cash Flow Hedge			Total
Balance - March 31 2016	$	(363	)	$	(547	)	$	(910	)	$	(4,423	)	$	(5,333	)
Other comprehensive income (loss) before reclassifications	5,258			(221		)	5,037			(508		)	4,529
Amounts reclassified from accumulated other comprehensive income (loss) to net income (2)	—			—			—			377			377
Net current-period other comprehensive income (loss)	5,258			(221		)	5,037			(131		)	4,906
Balance - June 30, 2016	$	4,895		$	(768	)	$	4,127		$	(4,554	)	$	(427	)

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	Six Months Ended June 30, 2016
	Available-for-sale-securities
(amounts in thousands)	Unrealized Gains (Losses)			Foreign Currency Items			Total Unrealized Gains (Losses)			Unrealized Loss on Cash Flow Hedge			Total
Balance - December 31, 2015	$	(4,602	)	$	(584	)	$	(5,186	)	$	(2,798	)	$	(7,984	)
Other comprehensive income (loss) before reclassifications	9,513			(184		)	9,329			(2,133		)	7,196
Amounts reclassified from accumulated other comprehensive loss to net income (2)	(16		)	—			(16		)	377			361
Net current-period other comprehensive income (loss)	9,497			(184		)	9,313			(1,756		)	7,557
Balance - June 30, 2016	$	4,895		$	(768	)	$	4,127		$	(4,554	)	$	(427	)


(1)	All amounts are presented net of tax. Amounts in parentheses indicate reductions to accumulated other comprehensive income.


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

NOTE 7 — INVESTMENT SECURITIES

The amortized cost and approximate fair value of investment securities as of June 30, 2017 and December 31, 2016 are summarized in the tables below:



	June 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	210,688	$	755	$	(1,699	)	$	209,744
Agency-guaranteed commercial real estate mortgage-backed securities	735,116		11,318		(11		)	746,423
Corporate notes (1)	44,956		821		—			45,777
Equity securities (2)	10,661		—		—			10,661
	$	1,001,421	$	12,894	$	(1,710	)	$	1,012,605


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

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

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	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	233,002	$	918	$	(2,657	)	$	231,263
Agency-guaranteed commercial real estate mortgage-backed securities	204,689		—		(2,872		)	201,817
Corporate notes (1)	44,932		401		(185		)	45,148
Equity securities (2)	15,246		—		—			15,246
	$	497,869	$	1,319	$	(5,714	)	$	493,474


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

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

The following table presents proceeds from the sale of available-for-sale investment securities and gross gains and gross losses realized on those sales for the three and six months ended June 30, 2017 and 2016:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
(amounts in thousands)
Proceeds from sale of available-for-sale securities	$	115,982	$	—	$	115,982	$	2,848
Gross gains	$	3,183	$	—	$	3,183	$	26
Gross losses	—		—		—		—
Net gains	$	3,183	$	—	$	3,183	$	26

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

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



	June 30, 2017
	Amortized Cost		Fair Value
(amounts in thousands)
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	42,956		43,602
Due after ten years	2,000		2,175
Agency-guaranteed residential mortgage-backed securities	210,688		209,744
Agency-guaranteed commercial real estate mortgage-backed securities	735,116		746,423
Total debt securities	$	990,760	$	1,001,944

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Gross unrealized losses and fair value of Customers' investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2017 and December 31, 2016 were as follows:



	June 30, 2017
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	76,237	$	(660	)	$	29,797	$	(1,039	)	$	106,034	$	(1,699	)
Agency-guaranteed commercial real estate mortgage-backed securities	6,172		(11		)	—		—			6,172		(11		)
Total	$	82,409	$	(671	)	$	29,797	$	(1,039	)	$	112,206	$	(1,710	)

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



	December 31, 2016
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	87,433	$	(1,330	)	$	30,592	$	(1,327	)	$	118,025	$	(2,657	)
Agency-guaranteed commercial real estate mortgage-backed securities	201,817		(2,872		)	—		—			201,817		(2,872		)
Corporate notes (1)	9,747		(185		)	—		—			9,747		(185		)
Total	$	298,997	$	(4,387	)	$	30,592	$	(1,327	)	$	329,589	$	(5,714	)


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

At June 30, 2017, there were twelve available-for-sale investment securities in the less-than-twelve-month category and seven available-for-sale investment securities in the twelve-month-or-more category. The unrealized losses on the mortgage-backed securities are guaranteed by government-sponsored entities and primarily relate to changes in market interest rates. All amounts are expected to be recovered when market prices recover or at maturity. Customers does not intend to sell these securities and it is not more likely than not that Customers will be required to sell the securities before recovery of the amortized cost basis.

At June 30, 2017, management evaluated its equity holdings issued by a foreign entity for other-than-temporary impairment. Because management no longer has the intent to hold these securities until a recovery in fair value, Customers recorded an other-than-temporary impairment loss of $2.9 million and $4.6 million, respectively, for the three and six months ended June 30, 2017 for the full amount of the decline in fair value below the cost basis established at March 31, 2017 and December 31, 2016. The fair value of the equity securities at June 30, 2017 of $10.7 million became the new cost basis of the securities. Given that these equity securities continue to experience price declines, Customers is closely monitoring the issuer's stock performance while at the same time studying alternatives to exit the investment. As of July 31, 2017, the equity securities were trading at a price of $1.57 per share which represents an estimated fair value of $6.3 million for the equity securities that Customers still owns.

At June 30, 2017 and December 31, 2016, Customers Bank had pledged investment securities aggregating $642.6 million and $231.3 million in fair value, respectively, as collateral against its borrowings primarily with the FHLB and an unused line of credit with another financial institution. These counterparties do not have the ability to sell or repledge these securities.

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NOTE 8 – LOANS HELD FOR SALE

The composition of loans held for sale as of June 30, 2017 and December 31, 2016 was as follows:



	June 30, 2017		December 31, 2016
(amounts in thousands)
Commercial loans:
Mortgage warehouse loans, at fair value	$	2,101,641	$	2,116,815
Multi-family loans at lower of cost or fair value	150,758		—
Total commercial loans held for sale	2,252,399		2,116,815
Consumer loans:
Residential mortgage loans, at fair value	2,697		695
Loans held for sale	$	2,255,096	$	2,117,510

Commercial loans held for sale consists predominately of commercial loans to mortgage companies (i.e., mortgage warehouse loans). These mortgage warehouse lending transactions are subject to master repurchase agreements and are designated as held for sale 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 loans (i.e., the purchase event) and receives proceeds directly from third party investors when the loans are sold into the secondary market (i.e., the sale event). The fair value of the mortgage warehouse loans is estimated as the amount of cash initially advanced to fund the mortgage, plus accrued interest and fees, as specified in the respective agreements. The interest rates on these loans are variable, and the lending transactions are short-term, with an average life of 20 days from purchase to sale. The primary goal of these lending transactions is to provide liquidity to mortgage companies.

Effective June 30, 2017, Customers Bank transferred $150.8 million of multi-family loans from loans receivable (held for investment) to loans held for sale. Customers Bank transferred these loans at their carrying value, which was lower than the estimated fair value at the time of transfer.

Effective December 31, 2016, Customers Bank transferred $25.1 million of multi-family loans from held for sale to loans receivable (held for investment) because the Bank no longer has the intent to sell these loans. Customers Bank transferred these loans at their carrying value, which was lower than the estimated fair value at the time of transfer.

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NOTE 9 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The following table presents loans receivable as of June 30, 2017 and December 31, 2016:



	June 30, 2017			December 31, 2016
(amounts in thousands)
Commercial:
Multi-family	$	3,399,617		$	3,214,999
Commercial and industrial (including owner occupied commercial real estate)	1,505,487			1,370,853
Commercial real estate non-owner occupied	1,216,012			1,193,715
Construction	61,226			64,789
Total commercial loans	6,182,342			5,844,356
Consumer:
Residential real estate	444,453			193,502
Manufactured housing	96,148			101,730
Other	2,561			2,726
Total consumer loans	543,162			297,958
Total loans receivable	6,725,504			6,142,314
Deferred (fees)/costs and unamortized (discounts)/premiums, net	(2,226		)	76
Allowance for loan losses	(38,458		)	(37,315		)
Loans receivable, net of allowance for loan losses	$	6,684,820		$	6,105,075

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The following tables summarize loans receivable by loan type and performance status as of June 30, 2017 and December 31, 2016:



	June 30, 2017
	30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Multi-family	$	—	$	—	$	—	$	—	$	3,397,645	$	1,972	$	3,399,617
Commercial and industrial	—		—		—		10,051		1,051,303		929		1,062,283
Commercial real estate - owner occupied	—		—		—		2,645