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Customers Bancorp Inc

For the period ended Sep 30, 2024. Filed Nov 12, 2024.

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About this filing

A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.

Sep 30, 2024 · Filed Nov 12, 2024

CUBI$85.27-0.4%Stored close · as of Nov 10, 2026

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Item 1. CONSOLIDATED BALANCE SHEET

UNAUDITED

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

September 30,2024December 31,2023
ASSETS
Cash and due from banks$39,429$45,210
Interest earning deposits3,048,5933,801,136
Cash and cash equivalents3,088,0223,846,346
Investment securities, at fair value (includes allowance for credit losses of $4,639 and $3,952, respectively)2,412,0692,405,640
Investment securities held to maturity1,064,4371,103,170
Loans held for sale (includes $219,621 and $189,277, respectively, at fair value)275,420340,317
Loans and leases receivable12,527,28311,963,855
Loans receivable, mortgage finance, at fair value1,250,413897,912
Allowance for credit losses on loans and leases(133,158)(135,311)
Total loans and leases receivable, net of allowance for credit losses on loans and leases13,644,53812,726,456
FHLB, Federal Reserve Bank, and other restricted stock95,035109,548
Accrued interest receivable115,588114,766
Bank premises and equipment, net6,7307,371
Bank-owned life insurance295,531292,193
Goodwill and other intangibles3,6293,629
Other assets455,083366,829
Total assets$21,456,082$21,316,265
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing$4,670,809$4,422,494
Interest bearing13,398,58013,497,742
Total deposits18,069,38917,920,236
FHLB advances1,117,2291,203,207
Other borrowings99,033123,840
Subordinated debt182,439182,230
Accrued interest payable and other liabilities186,812248,358
Total liabilities19,654,90219,677,871
Commitments and contingencies (NOTE 15)
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 September 30, 2024 and December 31, 2023137,794137,794
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 35,734,517 and 35,459,342 shares issued as of September 30, 2024 and December 31, 2023; 31,342,107 and 31,440,906 shares outstanding as of September 30, 2024 and December 31, 202335,73435,459
Additional paid in capital571,609564,538
Retained earnings1,302,7451,159,582
Accumulated other comprehensive income (loss), net(106,082)(136,569)
Treasury stock, at cost (4,392,410 and 4,018,436 shares as of September 30, 2024 and December 31, 2023)(140,620)(122,410)
Total shareholders’ equity1,801,1801,638,394
Total liabilities and shareholders’ equity$21,456,082$21,316,265

CONSOLIDATED STATEMENTS OF INCOME (LOSS) — UNAUDITED

(amounts in thousands, except per share data)

Three Months EndedSeptember 30,Nine Months EndedSeptember 30,
2024202320242023
Interest income:
Loans and leases$228,659$271,107$670,923$757,064
Investment securities46,26554,243140,653149,585
Interest earning deposits44,37243,800142,69581,819
Loans held for sale10,9074,66436,62627,514
Other1,9102,5267,0315,463
Total interest income332,113376,340997,9281,021,445
Interest expense:
Deposits155,829145,825458,338426,130
FHLB advances12,59026,48539,51261,140
FRB advances———6,286
Subordinated debt3,5372,6898,9608,067
Other borrowings1,6121,5684,5354,879
Total interest expense173,568176,567511,345506,502
Net interest income158,545199,773486,583514,943
Provision for credit losses17,06617,85652,25761,088
Net interest income after provision for credit losses141,479181,917434,326453,855
Non-interest income:
Commercial lease income10,0938,90130,05827,144
Loan fees8,0116,02918,52414,290
Bank-owned life insurance2,0491,9737,3179,617
Mortgage finance transactional fees1,0871,0183,0913,468
Net gain (loss) on sale of loans and leases(14,548)(348)(14,776)(1,109)
Loss on sale of capital call lines of credit———(5,037)
Net gain (loss) on sale of investment securities—(429)(749)(429)
Unrealized gain on equity method investments——11,041—
Other1,8656316,3193,949
Total non-interest income8,55717,77560,82551,893
Non-interest expense:
Salaries and employee benefits47,71733,845128,68999,310
Technology, communication and bank operations13,58815,66751,71948,663
Commercial lease depreciation7,8117,33823,61022,541
Professional services9,0488,56921,50525,357
Loan servicing3,7783,85811,32513,296
Occupancy2,9872,4718,4547,750
FDIC assessments, non-income taxes and regulatory fees7,9028,55131,60721,059
Advertising and promotion9086502,8442,245
Legal settlement expense—4,096—4,096
Other10,2794,42126,88614,579
Total non-interest expense104,01889,466306,639258,896
Income before income tax expense (benefit)46,018110,226188,512246,852
Income tax expense (benefit)(725)23,47033,95858,801
Net income46,74386,756154,554188,051
Preferred stock dividends3,8063,80311,39110,826
Net income available to common shareholders$42,937$82,953$143,163$177,225
Basic earnings per common share$1.36$2.65$4.54$5.63
Diluted earnings per common share1.312.584.375.53

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED

(amounts in thousands)

Three Months EndedSeptember 30,Nine Months EndedSeptember 30,
2024202320242023
Net income$46,743$86,756$154,554$188,051
Unrealized gains (losses) on available for sale debt securities:
Unrealized gains (losses) arising during the period32,81023,66636,43914,535
Income tax effect(8,432)(6,011)(9,351)(3,692)
Reclassification adjustments for (gains) losses included in net income—(429)749(429)
Income tax effect—109(193)109
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity1,2091,3793,8213,700
Income tax effect(311)(350)(978)(939)
Net unrealized gains (losses) on available for sale debt securities25,27618,36430,48713,284
Other comprehensive income (loss), net of income tax effect25,27618,36430,48713,284
Comprehensive income (loss)$72,019$105,120$185,041$201,335

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(amounts in thousands, except shares outstanding data)

Three Months Ended September 30, 2024
Preferred Stock · Common Stock
Shares ofPreferred StockOutstandingPreferredStockShares ofCommon StockOutstandingCommonStockAdditionalPaid inCapitalRetainedEarningsAccumulatedOtherComprehensiveIncome (Loss)TreasuryStockTotal
Balance, June 30, 20245,700,000$137,79431,667,655$35,686$567,345$1,259,808$(131,358)$(122,410)$1,746,865
Net income—————46,743——46,743
Other comprehensive income (loss)——————25,276—25,276
Preferred stock dividends (1)—————(3,806)——(3,806)
Share-based compensation expense————3,739———3,739
Issuance of common stock under share-based compensation arrangements——48,42648525———573
Repurchase of common shares——(373,974)————(18,210)(18,210)
Balance, September 30, 20245,700,000$137,79431,342,107$35,734$571,609$1,302,745$(106,082)$(140,620)$1,801,180
Three Months Ended September 30, 2023
Preferred Stock · Common Stock
Shares ofPreferredStockOutstandingPreferred StockShares ofCommonStockOutstandingCommonStockAdditionalPaid inCapitalRetainedEarningsAccumulatedOtherComprehensiveIncome (Loss)TreasuryStockTotal
Balance, June 30, 20235,700,000$137,79431,282,318$35,301$555,737$1,018,406$(168,176)$(122,410)$1,456,652
Net income—————86,756——86,756
Other comprehensive income (loss)——————18,364—18,364
Preferred stock dividends (1)—————(3,803)——(3,803)
Share-based compensation expense————3,510———3,510
Issuance of common stock under share-based compensation arrangements——28,9362999———128
Balance, September 30, 20235,700,000$137,79431,311,254$35,330$559,346$1,101,359$(149,812)$(122,410)$1,561,607

(1)Dividends per share of $0.678761 and $0.654873 were declared on Series E and F preferred stock, respectively, for the three months ended September 30, 2024. Dividends per share of $0.6831 and $0.658950 were declared on Series E and F preferred stock, respectively, for the three months ended September 30, 2023.

Nine Months Ended September 30, 2024
Preferred Stock · Common 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, 20235,700,000$137,79431,440,906$35,459$564,538$1,159,582$(136,569)$(122,410)$1,638,394
Net income—————154,554——154,554
Other comprehensive income (loss)——————30,487—30,487
Preferred stock dividends (1)—————(11,391)——(11,391)
Share-based compensation expense————10,985———10,985
Issuance of common stock under share-based compensation arrangements——275,175275(3,914)———(3,639)
Repurchase of common shares——(373,974)————(18,210)(18,210)
Balance, September 30, 20245,700,000$137,79431,342,107$35,734$571,609$1,302,745$(106,082)$(140,620)$1,801,180
Nine Months Ended September 30, 2023
Preferred Stock · Common 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, 20225,700,000$137,79432,373,697$35,012$551,721$924,134$(163,096)$(82,604)$1,402,961
Net income—————188,051——188,051
Other comprehensive income (loss)——————13,284—13,284
Preferred stock dividends (1)—————(10,826)——(10,826)
Share-based compensation expense————9,979———9,979
Issuance of common stock under share-based compensation arrangements——317,440318(2,354)———(2,036)
Repurchase of common shares——(1,379,883)————(39,806)(39,806)
Balance, September 30, 20235,700,000$137,79431,311,254$35,330$559,346$1,101,359$(149,812)$(122,410)$1,561,607

(1)Dividends per share of $2.060879 and $1.988429 were declared on Series E and F preferred stock, respectively, for the nine months ended September 30, 2024. Dividends per share of $1.941704 and $1.869779 were declared on Series E and F preferred stock, respectively, for the nine months ended September 30, 2023.

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)

Nine Months EndedSeptember 30,
20242023
Cash Flows from Operating Activities
Net income from continuing operations$154,554$188,051
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses52,25761,088
Depreciation and amortization24,45824,226
Share-based compensation expense10,72210,048
Deferred taxes(697)21,999
Net amortization (accretion) of investment securities premiums and discounts(3,281)(8,859)
Unrealized (gain) loss on investment securities(324)197
Net (gain) loss on sale of investment securities749429
Unrealized gain on equity method investments(11,041)—
Impairment loss on fixed assets and leases—124
Unrealized (gain) loss on derivatives(1,089)(344)
Settlement of terminated fair value hedge derivatives—4,630
(Gain) loss on sale of leased assets under lessor operating leases(1,693)439
Fair value adjustment on loans held for sale607—
Net (gain) loss on sale of loans and leases14,776869
Loss on sale of capital call lines of credit—5,037
Origination and purchases of loans held for sale(1,034,072)(470,318)
Proceeds from the sales and repayments of loans held for sale952,271454,867
Amortization (accretion) of loan net deferred fees, discounts and premiums(21,580)(74,016)
Earnings on investment in bank-owned life insurance(7,317)(9,617)
(Increase) decrease in accrued interest receivable and other assets(56,371)917
Increase (decrease) in accrued interest payable and other liabilities(61,274)33,339
Net Cash Provided By (Used In) Operating Activities11,655243,106
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of investment securities available for sale457,970228,503
Proceeds from maturities, calls and principal repayments of investment securities held to maturity217,338175,896
Proceeds from sales of investment securities available for sale240,8474,075
Purchases of investment securities available for sale(665,800)—
Purchases of investment securities held to maturity(14,844)(73,074)
Purchases of equity method investments(5,000)—
Origination of mortgage finance loans(16,495,064)(15,385,554)
Proceeds from repayments of mortgage finance loans16,141,96415,766,489
Net (increase) decrease in loans and leases, excluding mortgage finance loans(538,621)1,586,922
Proceeds from sales of loans and leases34,426409,503
Purchases of loans(121,222)(702,409)
Proceeds from bank-owned life insurance5,11056,645
Net (purchases of) proceeds from sale of FHLB, Federal Reserve Bank, and other restricted stock15,508(51,667)
Purchases of bank premises and equipment(992)(521)
Proceeds from sale of fixed assets—73
Proceeds from sale of other real estate owned7933
Proceeds from sales of leased assets under lessor operating leases14,5762,515
Purchases of leased assets under lessor operating leases(31,299)(20,257)
Net Cash Provided By (Used In) Investing Activities(745,024)1,997,172
(continued)
Nine Months EndedSeptember 30,
20242023
Cash Flows from Financing Activities
Net increase (decrease) in deposits128,39536,624
Net increase (decrease) in short-term borrowed funds from FHLB—(300,000)
Proceeds from long-term borrowed funds from FHLB and FRB155,0002,565,000
Repayments of long-term borrowed funds from FHLB and FRB(250,000)(1,525,000)
Repayments of other long-term borrowings(25,000)—
Preferred stock dividends paid(11,501)(10,823)
Purchase of treasury stock(18,210)(39,806)
Payments of employee taxes withheld from share-based awards(5,150)(2,429)
Proceeds from issuance of common stock1,511324
Net Cash Provided By (Used In) Financing Activities(24,955)723,890
Net Increase (Decrease) in Cash and Cash Equivalents(758,324)2,964,168
Cash and Cash Equivalents – Beginning3,846,346455,806
Cash and Cash Equivalents – Ending$3,088,022$3,419,974
Non-cash Investing and Financing Activities:
Purchases of investment securities held to maturity upon sale of consumer installment loans$160,029$436,841
Transfer of loans held for investment to held for sale55,724309,076
Transfer of loans held for sale to held for investment5,21014,377

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 businesses and residents in Berks County and Southeastern Pennsylvania (Bucks, Chester and Philadelphia Counties); New York (Westchester and Suffolk Counties, and Manhattan); Hamilton, New Jersey; Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire; Chicago, Illinois; Dallas, Texas; Wilmington, North Carolina; and nationally for certain loan and deposit products. The Bank hasseven branches and provides commercial banking products, primarily loans and deposits. In addition, the Bank also administratively supports loan and other financial products, including equipment finance leases, to customers through its limited-purpose offices. The Bank also serves specialized businesses nationwide, including its mortgage finance loans, commercial equipment financing, SBA lending, specialized 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, 2023 consolidated balance sheet presented in this report has been derived from Customers Bancorp’s audited 2023 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 2023 consolidated financial statements of Customers Bancorp and subsidiaries included in Customers’ Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024 (the “2023 Form 10-K”). The 2023 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 nine months ended September 30, 2024.

Recently Issued Accounting Standards

Presented below are recently issued accounting standards that Customers has adopted as well as those that the FASB has issued but are not yet effective.

Accounting Standards Adopted in 2024

StandardSummary of GuidanceEffects on Financial Statements
ASU 2022-03,Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale RestrictionsIssued June 2022• Clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and not considered in measuring fair value.• Prohibits recognition and measurement of a contractual sale restriction on the sale of an equity security as a separate unit of account.• Provides disclosure requirements for the equity securities subject to contractual sale restrictions.• Effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.• Customers adopted this guidance on January 1, 2024. This guidance did not have a material impact on Customers’ financial condition, results of operations and consolidated financial statements.
ASU 2023-02,Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization MethodIssued March 2023• Provides an election to account for tax equity investments, regardless of the tax credit program, using the proportional amortization method provided that certain conditions are met.• Effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for any interim period, as of the beginning of the fiscal year that includes that interim period.• Customers adopted this guidance on January 1, 2024. This guidance did not have a material impact on Customers’ financial condition, results of operations and consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

StandardSummary of GuidanceEffects on Financial Statements
ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment DisclosuresIssued November 2023• Requires a public entity, including a public entity that has a single reportable segment to disclose, on an annual and interim basis, all disclosures required by the amendments in this ASU and all existing disclosures in ASC 280.• Requires disclosures of significant segment expenses included within each reportable segment’s profit or loss that are regularly provided to the CODM, an amount for other segment items by reportable segment and a description of its composition, the title and position of the CODM and an explanation of how the CODM uses the reported measure of segment profit or loss.• Clarifies that more than one measure of a segment’s profit or loss may be reported if the CODM uses them in assessing segment performance and deciding how to allocate resources, provided that at least one of the reported segment profit or loss measure is consistent with the measurement principles used in measuring the corresponding amounts in the entity’s consolidated financial statements.• Effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted.• Customers will adopt this ASU and provide the newly required disclosures in the consolidated financial statements for the year ending December 31, 2024.
StandardSummary of GuidanceEffects on Financial Statements
ASU 2023-08,Intangibles - Goodwill and Other - Crypto Assets (Subtopic 250-60)Issued December 2023• Requires crypto assets meeting certain criteria to be subsequently measured at fair value with changes recognized in net income each reporting period.• Requires crypto assets measured at fair value to be presented separately from other intangible assets in the balance sheet and changes from the remeasurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement.• Requires cash receipts arising from crypto assets that are received as noncash consideration in the ordinary course of business and converted nearly immediately into cash as operating activities in the statement of cash flows.• Effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued.• Customers does not expect this ASU to have a material impact on Customers’ financial condition, results of operations and consolidated financial statements.
ASU 2023-09,Income Taxes (Topic 740): Improvements to Income Tax DisclosuresIssued December 2023• Requires public entities to disclose annually a tabular reconciliation of specific reconciling items, including those items exceeding five percent of the amount computed by multiplying income from continuing operations before income taxes by the statutory income tax rate, in the income tax rate reconciliation of the effective tax rate to the statutory tax rate.• Requires disclosures of income taxes paid, net of refunds received, disaggregated by federal, state and foreign taxes and by individual jurisdictions where income taxes paid is equal to or greater than five percent of total income taxes paid, net of refunds received.• Effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued.• Customers is currently evaluating the expected impact of this ASU on Customers’ consolidated financial statements.
ASU 2024-03,Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)Issued November 2024• Requires disclosure in the notes to financial statements at each interim and annual reporting period of specified information about certain costs and expenses including purchases of inventory, employee compensation, depreciation, intangible asset amortization and deprecation, depletion, and amortization recognized as part of oil-and gas-producing activities.• Requires disclosure of certain amounts already required to be disclosed under U.S. GAAP in the same disclosure as the other disaggregation requirements.• Requires disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.• Requires disclosure of the total amount of selling expenses and, in annual reporting periods, an entity's definition of selling expenses.• Effective for fiscal years beginning after December 15, 2026. Early adoption is permitted.• Customers is currently evaluating the expected impact of this ASU on Customers’ consolidated financial statements.

NOTE 3 —EARNINGS (LOSS) PER SHARE

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

Three Months EndedSeptember 30,Nine Months EndedSeptember 30,
(amounts in thousands, except share and per share data)2024202320242023
Net income available to common shareholders$42,937$82,953$143,163$177,225
Weighted-average number of common shares outstanding – basic31,567,79731,290,58131,563,66031,452,700
Share-based compensation plans1,198,691884,5031,209,705583,759
Weighted-average number of common shares – diluted32,766,48832,175,08432,773,36532,036,459
Basic earnings per common share$1.36$2.65$4.54$5.63
Diluted earnings per common share1.312.584.375.53

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 EndedSeptember 30,Nine Months EndedSeptember 30,
2024202320242023
Anti-dilutive securities:
Share-based compensation awards—319,973—685,951

NOTE 4 —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 nine months ended September 30, 2024 and 2023. Amounts in parentheses indicate reductions to AOCI.

Unrealized Gains (Losses) Available for Sale Securities (1)
Three Months Ended September 30,
(amounts in thousands)20242023
Balance at July 1$(131,358)$(168,176)
Unrealized gains (losses) arising during period, before tax32,81023,666
Income tax effect(8,432)(6,011)
Other comprehensive income (loss) before reclassifications24,37817,655
Reclassification adjustments for (gains) losses included in net income, before tax—(429)
Income tax effect—109
Amounts reclassified from accumulated other comprehensive income (loss) to net income—(320)
Amortization of unrealized loss on securities transferred from available for sale to held to maturity1,2091,379
Income tax effect(311)(350)
Amortization of unrealized loss on securities transferred from available for sale to held to maturity8981,029
Net current-period other comprehensive income (loss)25,27618,364
Balance at September 30$(106,082)$(149,812)
Unrealized Gains (Losses) Available for Sale Securities (1)
Nine Months Ended September 30,
(amounts in thousands)20242023
Balance at January 1$(136,569)$(163,096)
Unrealized gains (losses) arising during period, before tax36,43914,535
Income tax effect(9,351)(3,692)
Other comprehensive income (loss) before reclassifications27,08810,843
Reclassification adjustments for (gains) losses included in net income, before tax749(429)
Income tax effect(193)109
Amounts reclassified from accumulated other comprehensive income (loss) to net income556(320)
Amortization of unrealized loss on securities transferred from available for sale to held to maturity3,8213,700
Income tax effect(978)(939)
Amortization of unrealized loss on securities transferred from available for sale to held to maturity2,8432,761
Net current-period other comprehensive income (loss)30,48713,284
Balance at September 30$(106,082)$(149,812)

(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.

NOTE 5 —INVESTMENT SECURITIES

Investment securities at fair value

The amortized cost, approximate fair value and allowance for credit losses of investment securities at fair value as of September 30, 2024 and December 31, 2023 are summarized as follows:

September 30, 2024 (1)
(amounts in thousands) · Amortized Cost · Allowance for Credit Losses · Gross Unrealized Gains · Gross Unrealized Losses · Fair Value
Available for sale debt securities:
Asset-backed securities$40,179$(307)$—$(2,202)$37,670
Agency-guaranteed residential mortgage-backed securities216,821—4,357—221,178
Agency-guaranteed residential collateralized mortgage obligations201,529—1,277(7,933)194,873
Agency-guaranteed commercial collateralized mortgage obligations96,200—1,361(618)96,943
Collateralized loan obligations315,096—100(4,767)310,429
Commercial mortgage-backed securities78,711——(1,637)77,074
Corporate notes660,626(4,332)646(61,969)594,971
Private label collateralized mortgage obligations879,555—1,573(36,533)844,595
Available for sale debt securities$2,488,717$(4,639)$9,314$(115,659)2,377,733
Equity securities (2)34,336
Total investment securities, at fair value$2,412,069
December 31, 2023 (1)
(amounts in thousands) · Amortized Cost · Allowance for Credit Losses · Gross Unrealized Gains · Gross Unrealized Losses · Fair Value
Available for sale debt securities:
Asset-backed securities$97,359$(483)$15$(4,262)$92,629
Agency-guaranteed residential collateralized mortgage obligations129,589——(12,681)116,908
Collateralized loan obligations500,109—1(11,018)489,092
Commercial mortgage-backed securities125,885——(4,249)121,636
Corporate notes636,880(3,469)79(50,456)583,034
Private label collateralized mortgage obligations1,034,841—1,201(62,481)973,561
Available for sale debt securities$2,524,663$(3,952)$1,296$(145,147)2,376,860
Equity securities (2)28,780
Total investment securities, at fair value$2,405,640

(1)Accrued interest on AFS debt securities totaled $19.4 million and $14.7 million at September 30, 2024 and December 31, 2023, respectively, and is included in accrued interest receivable on the consolidated balance sheet.

(2)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 September 30, 2024 and December 31, 2023. No impairments or measurement adjustments have been recorded on the equity securities without a readily determinable fair value since acquisition.

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 or HTM debt securities on the consolidated balance sheets, and represent Customers’ maximum exposure to loss.

Proceeds from the sale of AFS debt securities were $0.1 million and $240.8 million for the three and nine months ended September 30, 2024, respectively. Proceeds from the sale of AFS debt securities were $4.1 million for the three and nine months ended September 30, 2023. The following table presents gross realized gains and realized losses from the sale of AFS debt securities for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,Nine Months Ended September 30,
(amounts in thousands)2024202320242023
Gross realized gains$—$—$176$—
Gross realized losses—(429)(925)(429)
Net realized gains (losses) on sale of available for sale debt securities$—$(429)$(749)$(429)

These gains (losses) were determined using the specific identification method and were reported as net 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:

September 30, 2024
(amounts in thousands)AmortizedCostFairValue
Due in one year or less$41,523$29,940
Due after one year through five years531,379484,726
Due after five years through ten years87,72480,305
Asset-backed securities40,17937,670
Agency-guaranteed residential mortgage-backed securities216,821221,178
Agency-guaranteed residential collateralized mortgage obligations201,529194,873
Agency-guaranteed commercial collateralized mortgage obligations96,20096,943
Collateralized loan obligations315,096310,429
Commercial mortgage-backed securities78,71177,074
Private label collateralized mortgage obligations879,555844,595
Total available for sale debt securities$2,488,717$2,377,733

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 September 30, 2024 and December 31, 2023 were as follows:

September 30, 2024
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$—$—$30,960$(1,241)$30,960$(1,241)
Agency-guaranteed residential collateralized mortgage obligations——109,456(7,933)109,456(7,933)
Agency-guaranteed commercial collateralized mortgage obligations45,080(618)——45,080(618)
Collateralized loan obligations37,164(284)250,635(4,483)287,799(4,767)
Commercial mortgage-backed securities——77,074(1,637)77,074(1,637)
Corporate notes59,408(766)319,371(26,637)378,779(27,403)
Private label collateralized mortgage obligations175,651(3,367)586,700(33,166)762,351(36,533)
Total$317,303$(5,035)$1,374,196$(75,097)$1,691,499$(80,132)
December 31, 2023
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$—$—$64,029$(4,027)$64,029$(4,027)
Agency-guaranteed residential collateralized mortgage obligations——116,908(12,681)116,908(12,681)
Collateralized loan obligations29,241(392)438,551(10,626)467,792(11,018)
Commercial mortgage-backed securities——121,636(4,249)121,636(4,249)
Corporate notes23,243(1,147)424,768(33,764)448,011(34,911)
Private label collateralized mortgage obligations303,750(11,243)613,007(51,417)916,757(62,660)
Total$356,234$(12,782)$1,778,899$(116,764)$2,135,133$(129,546)

At September 30, 2024, there were 21 AFS debt securities with unrealized losses in the less-than-twelve-months category and 92 AFS debt securities with unrealized losses in the twelve-months-or-more category. Except fortwo asset-backed securities and 20 corporate notes where there was a change in future estimated cash flows as further discussed below, the unrealized losses were principally due to changes in market interest rates and credit spreads that resulted in a negative impact on the respective securities’ fair value and expected to be recovered when market prices recover or at maturity. Customers does not intend to sell any of the 113 securities, and it is not more likely than not that Customers will be required to sell any of the 113 securities before recovery of the amortized cost basis. At December 31, 2023, there were 119 AFS debt securities in an unrealized loss position.

Customers recorded an allowance for credit losses ontwo asset-backed securities and 20 corporate notes where there was a change in future estimated cash flows during the three and nine months ended September 30, 2024 and onfour asset-backed securities andtwelve corporate notes during the three and nine months ended September 30, 2023. 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:

Three Months Ended September 30,
20242023
(amounts in thousands)Asset-backed securitiesCorporate notesTotalAsset-backed securitiesCorporate notesTotal
Balance at July 1$367$4,972$5,339$1,563$1,876$3,439
Credit losses on securities for which credit losses were not previously recorded24—24—564564
Credit losses on previously impaired securities—121244269511
Decrease in allowance for credit losses on previously impaired securities(84)(652)(736)(250)(24)(274)
Reduction due to sales————(391)(391)
Balance at September 30$307$4,332$4,639$1,755$2,094$3,849
Nine Months Ended September 30,
20242023
(amounts in thousands)Asset-backed securitiesCorporate notesTotalAsset-backed securitiesCorporate notesTotal
Balance at January 1$483$3,469$3,952$578$—$578
Credit losses on securities for which credit losses were not previously recorded24635659—2,4852,485
Credit losses on previously impaired securities—6136131,488—1,488
Decrease in allowance for credit losses on previously impaired securities(200)(385)(585)(311)—(311)
Reduction due to sales————(391)(391)
Balance at September 30$307$4,332$4,639$1,755$2,094$3,849

At September 30, 2024 and December 31, 2023, no AFS investment securities holding of any one issuer, other than the U.S. government and its agencies, amounted to greater than 10% of shareholders’ equity.

At September 30, 2024 and December 31, 2023, Customers Bank had pledged AFS investment securities aggregating $1.3 billion and $1.2 billion in fair value, respectively, as collateral primarily for immediately available liquidity from the FRB. The counterparty does not have the ability to sell or repledge these securities.

Investment securities held to maturity

The amortized cost, approximate fair value and allowance for credit losses of investment securities held to maturity as of September 30, 2024 and December 31, 2023 are summarized as follows:

September 30, 2024 (1)
(amounts in thousands)Amortized CostAllowance for Credit LossesNet Carrying ValueGross Unrealized GainsGross Unrealized LossesFair Value
Held to maturity debt securities:
Asset-backed securities$538,832$—$538,832$1,628$(184)$540,276
Agency-guaranteed residential mortgage-backed securities6,920—6,920—(522)6,398
Agency-guaranteed commercial mortgage-backed securities1,790—1,790—(271)1,519
Agency-guaranteed residential collateralized mortgage obligations174,098—174,098—(11,221)162,877
Agency-guaranteed commercial collateralized mortgage obligations159,050—159,050—(19,426)139,624
Private label collateralized mortgage obligations183,747—183,747789(7,716)176,820
Total held to maturity debt securities$1,064,437$—$1,064,437$2,417$(39,340)$1,027,514
December 31, 2023 (1)
(amounts in thousands)Amortized CostAllowance for Credit LossesNet Carrying ValueGross Unrealized GainsGross Unrealized LossesFair Value
Held to maturity debt securities:
Asset-backed securities$575,990$—$575,990$202$(2,064)$574,128
Agency-guaranteed residential mortgage-backed securities7,039—7,039—(649)6,390
Agency-guaranteed commercial mortgage-backed securities1,850—1,850—(134)1,716
Agency-guaranteed residential collateralized mortgage obligations186,636—186,636—(19,049)167,587
Agency-guaranteed commercial collateralized mortgage obligations146,765—146,765—(23,178)123,587
Private label collateralized mortgage obligations184,890—184,890—(11,859)173,031
Total held to maturity debt securities$1,103,170$—$1,103,170$202$(56,933)$1,046,439

(1)Accrued interest on HTM debt securities totaled $2.6 million and $2.7 million at September 30, 2024 and December 31, 2023, respectively, and is included in accrued interest receivable on the consolidated balance sheet.

During the three and nine months ended September 30, 2024, Customers sold consumer installment loans that were classified as held for sale with a carrying value of $202.5 million, inclusive of $53.0 million of personal installment loans transferred from held for investment to held for sale, accrued interest and unamortized deferred loan origination costs, totwo third party sponsored VIEs. As part of the sales, Customers recognized a loss on sale of $0.3 million, inclusive of transaction costs, in net gain (loss) on sale of loans and leases within non-interest income in the consolidated statement of income. Customers provided financing to the purchasers for a portion of the sale price in the form of $160.0 million of asset-backed securities, presented in the table above, collateralized by the sold loans. Customers will act as the servicer for the sold consumer installment loans to the VIEs, and will receive servicing fees. Customers recognized servicing assets of $2.1 million upon sale.

During the nine months ended September 30, 2023, Customers sold consumer installment loans that were classified as held for sale with a carrying value of $556.7 million, inclusive of $154.0 million of other installment loans transferred from held for investment to held for sale, accrued interest and unamortized deferred loan origination costs, totwo third-party sponsored VIEs. As part of these sales, Customers recognized a loss on sale of $1.2 million, inclusive of transaction costs, in net gain (loss) on sale of loans and leases within non-interest income in the consolidated statement of income. Customers provided financing to the purchasers for a portion of the sale price in the form of $436.8 million of asset-backed securities, presented in the tables above, collateralized by the sold loans. Customers acts as the servicer for the sold consumer installment loans toone of the VIEs, and receives a servicing fee. Customers recognized a servicing asset of $3.8 million upon sale.

At the time of the sale, and at each subsequent reporting period, Customers is required to evaluate its involvement with the VIEs to determine if it holds a variable interest in the VIEs and, if so, if Customers is the primary beneficiary of the VIEs. If Customers is both a variable interest holder and the primary beneficiary of the VIEs, it would be required to consolidate the VIEs. As of September 30, 2024 and December 31, 2023, Customers concluded that its investments in asset-backed securities as well as the servicing fees are considered variable interests in the VIEs as there is a possibility, even if remote, that would result in Customers’ interests in the asset-backed securities or the servicing fees absorbing some of the losses of the VIEs.

After concluding that Customers has one or more variable interests in the VIEs, Customers must determine if it is the primary beneficiary of the VIEs. U.S. GAAP defines the primary beneficiary as the entity that has both an economic exposure to the VIE as well as the power to direct the activities that are determined to be most significant to the economic performance of the VIE. In order to make this determination, Customers needed to first establish which activities are the most significant to the economic performance of the VIEs. Based on a review of the VIEs’ activities, Customers concluded the servicing activities, specifically those performed for significantly delinquent loans contribute most significantly to the performance of the loans and thus the VIEs. The conclusion is based upon review of the historical performance of the types of consumer installment loans sold to the VIEs, as well as consideration of which activities performed by the owner or servicer of the loans contribute most significantly to the ultimate performance of the loans. The loan servicing agreements between Customers and the VIEs for a portion of the sold consumer loans provide that the VIEs have substantive kick out rights to replace Customers as the servicer with or without cause. Accordingly, as a holder of the asset-backed securities and the servicer of the loans, Customers does not have the power to direct the servicing of significantly delinquent loans given the VIEs’ substantive kick-out rights. Customers is not the servicer for the sold consumer loans to some of the VIEs and therefore does not have the power to direct the activities that most significantly impact the economic performance of these VIEs. As the activities which most significantly affect the performance of the VIEs are not controlled by Customers, Customers has concluded that it is therefore not the primary beneficiary and does not consolidate the VIEs. Customers accounted for its investments in the asset-backed securities as HTM debt securities on the consolidated balance sheet.

The following table presents HTM debt securities by stated maturity, including debt securities backed by mortgages and other assets with expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and, therefore, are classified separately with no specific maturity date:

September 30, 2024
(amounts in thousands)AmortizedCostFairValue
Asset-backed securities$538,832$540,276
Agency-guaranteed residential mortgage-backed securities6,9206,398
Agency-guaranteed commercial mortgage-backed securities1,7901,519
Agency-guaranteed residential collateralized mortgage obligations174,098162,877
Agency-guaranteed commercial collateralized mortgage obligations159,050139,624
Private label collateralized mortgage obligations183,747176,820
Total held to maturity debt securities$1,064,437$1,027,514

Customers recordedno allowance for credit losses on investment securities classified as held to maturity at September 30, 2024 and December 31, 2023. 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 that are highly rated with sufficient overcollateralization are estimated to have no expected credit losses. Customers recordedno allowance for its investments in the asset-backed securities. Customers considered the seniority of its beneficial interests, which include overcollateralization of these asset-backed securities in the estimate of the ACL at September 30, 2024 and December 31, 2023. The unrealized losses on HTM debt securities with no ACL were primarily 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 Indicator

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. Except for the asset-backed securities and a private label collateralized mortgage obligation, all of the HTM debt securities held by Customers were investment grade or U.S. government agency guaranteed securities that were not rated at September 30, 2024 and December 31, 2023. The asset-backed securities and a private label collateralized mortgage obligation are not rated by rating agencies. Customers monitors the credit quality of these asset-backed securities and a private label collateralized mortgage obligation by evaluating the performance of the sold consumer installment loans and other underlying loans against the overcollateralization available for these securities.

The following table presents the amortized cost of HTM debt securities based on their lowest credit rating available:

September 30, 2024
(amounts in thousands)AAAAANot RatedTotal
Held to maturity debt securities:
Asset-backed securities$—$—$538,832$538,832
Agency-guaranteed residential mortgage-backed securities——6,9206,920
Agency-guaranteed commercial mortgage-backed securities——1,7901,790
Agency-guaranteed residential collateralized mortgage obligations——174,098174,098
Agency-guaranteed commercial collateralized mortgage obligations——159,050159,050
Private label collateralized mortgage obligations100,2879,30174,159183,747
Total held to maturity debt securities$100,287$9,301$954,849$1,064,437

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 September 30, 2024 and December 31, 2023, there were no HTM debt securities past due under the terms of their agreements or in nonaccrual status.

At September 30, 2024 and December 31, 2023, Customers Bank had pledged HTM investment securities aggregating $412.3 million and $398.4 million in fair value, respectively, as collateral primarily for immediately available liquidity from the FRB and unused lines of credit with another financial institution. The counterparties do not have the ability to sell or repledge these securities.

NOTE 6 –LOANS HELD FOR SALE

The composition of loans held for sale as of September 30, 2024 and December 31, 2023 was as follows:

(amounts in thousands)September 30, 2024December 31, 2023
Residential mortgage loans, at fair value$2,523$1,215
Personal installment loans, at lower of cost or fair value55,799151,040
Other installment loans, at fair value217,098188,062
Total loans held for sale$275,420$340,317

Total loans held for sale included NPLs of $5.3 million and $0.5 million as of September 30, 2024 and December 31, 2023, respectively.

During the three and nine months ended September 30, 2024, Customers sold $202.5 million of personal and other installment loans that were classified as held for sale, inclusive of $53.0 million of personal installment loans transferred from held for investment to held for sale, accrued interest and unamortized deferred loan origination costs, totwo third-party sponsored VIEs. Customers provided financing to the purchasers for a portion of the sales price in the form of $160.0 million of asset-backed securities while $40.2 million of the remaining sales proceeds were paid in cash.

During the nine months ended September 30, 2023, Customers sold $556.7 million of personal and other installment loans that were classified as held for sale, inclusive of $154.0 million of other installment loans transferred from held for investment to held for sale, accrued interest and unamortized deferred loan origination costs, totwo third-party sponsored VIEs. Customers provided financing to the purchasers for a portion of the sales price in the form of $436.8 million of asset backed securities while $115.1 million of the remaining sales proceeds were paid in cash. Refer to NOTE 5 – INVESTMENT SECURITIES for additional information.

NOTE 7 —LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES

The following table presents loans and leases receivable as of September 30, 2024 and December 31, 2023.

(amounts in thousands)September 30, 2024December 31, 2023
Loans and leases receivable:
Commercial:
Commercial and industrial:
Specialized lending (1)$5,468,507$5,006,693
Other commercial and industrial (2)1,204,4261,279,147
Multifamily2,115,9782,138,622
Commercial real estate owner occupied981,904797,319
Commercial real estate non-owner occupied1,326,5911,177,650
Construction174,509166,393
Total commercial loans and leases receivable11,271,91510,565,824
Consumer:
Residential real estate500,786484,435
Manufactured housing34,48138,670
Installment:
Personal453,739555,533
Other266,362319,393
Total consumer loans receivable1,255,3681,398,031
Loans and leases receivable12,527,28311,963,855
Loans receivable, mortgage finance, at fair value1,250,413897,912
Allowance for credit losses on loans and leases(133,158)(135,311)
Total loans and leases receivable, net of allowance for credit losses on loans and leases (3)$13,644,538$12,726,456

(1)Includes direct finance and sales-type equipment leases of $254.3 million and $205.7 million at September 30, 2024 and December 31, 2023, respectively.

(2)Includes PPP loans of $30.5 million and $74.7 million at September 30, 2024 and December 31, 2023, respectively.

(3)Includes deferred (fees) costs and unamortized (discounts) premiums, net of $(18.1) million and $(22.7) million at September 30, 2024 and December 31, 2023, respectively.

Customers’ total loans and leases receivable includes loans receivable reported at fair value based on an election made to account for these loans at fair value, and loans and leases receivable predominately reported at their outstanding unpaid principal balance, net of charge-offs, deferred costs and fees, unamortized premiums and discounts, and evaluated for impairment. The total amount of accrued interest recorded for total loans was $89.2 million and $95.0 million at September 30, 2024 and December 31, 2023, respectively, and is presented in accrued interest receivable in the consolidated balance sheet. At September 30, 2024 and December 31, 2023, there were $31.7 million and $15.8 million of individually evaluated loans that were collateral-dependent, respectively. Substantially all individually evaluated loans were 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 and leases receivable

The following tables summarize loans and leases receivable by loan and lease type and performance status as of September 30, 2024 and December 31, 2023:

September 30, 2024
(amounts in thousands)30-59 Days past due (1)60-89 Days past due (1)90 Days or more past due (2)Total past dueLoans and leases not past due (3)(4)Total loans and leases (4)
Commercial and industrial, including specialized lending$540$660$3,519$4,719$6,637,746$6,642,465
Multifamily——11,83411,8342,104,1442,115,978
Commercial real estate owner occupied—3918,5918,982972,922981,904
Commercial real estate non-owner occupied293701621,0561,325,5351,326,591
Construction————174,509174,509
Residential real estate3,3205,9443,99513,259487,527500,786
Manufactured housing6232002,2633,08631,39534,481
Installment5,2667,2976,32818,891701,210720,101
Total$10,042$15,193$36,592$61,827$12,434,988$12,496,815
December 31, 2023
(amounts in thousands)30-59 Days past due (1)60-89 Days past due (1)90 Days or more past due (2)Total past dueLoans and leases not past due (3)(4)Total loans and leases (4)
Commercial and industrial, including specialized lending$1,516$322$4,153$5,991$6,205,114$6,211,105
Multifamily16,003——16,0032,122,6192,138,622
Commercial real estate owner occupied4493,8145,82710,090787,229797,319
Commercial real estate non-owner occupied16,653——16,6531,160,9971,177,650
Construction————166,393166,393
Residential real estate10,5042,2553,76416,523467,912484,435
Manufactured housing1,1523432,8694,36434,30638,670
Installment9,2557,8667,21124,332850,594874,926
Total$55,532$14,600$23,824$93,956$11,795,164$11,889,120

(1)Includes past due loans and leases that are accruing interest because collection is considered probable.

(2)Includes loans amounting to $0.4 million and $0.5 million as of September 30, 2024 and December 31, 2023, 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 $30.5 million, of which $0.5 million were 30-59 days past due and $17.1 million were 60 days or more past due as of September 30, 2024, and PPP loans of $74.7 million, of which $0.7 million were 30-59 days past due and $48.5 million were 60 days or more past due as of December 31, 2023. Claims for guarantee payments are submitted to the SBA for eligible PPP loans that are more than 60 days past due.

(4)Includes PCD loans of $127.0 million and $157.2 million at September 30, 2024 and December 31, 2023, respectively.

Nonaccrual Loans and Leases

The following table presents the amortized cost of loans and leases held for investment on nonaccrual status.

September 30, 2024December 31, 2023
(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 specialized lending$4,598$17$4,615$3,365$1,071$4,436
Multifamily11,834—11,834———
Commercial real estate owner occupied4,5904,0238,6135,869—5,869
Commercial real estate non-owner occupied763—763———
Residential real estate7,4675307,9976,6851176,802
Manufactured housing—1,8691,869—2,3312,331
Installment—6,3286,328—7,2117,211
Total$29,252$12,767$42,019$15,919$10,730$26,649

Interest income recognized on nonaccrual loans was insignificant for the three and nine months ended September 30, 2024 and 2023. Accrued interest reversed when the loans went to nonaccrual status was insignificant for the three and nine months ended September 30, 2024 and 2023.

Loans receivable, mortgage finance, at fair value

Mortgage finance loans consist of commercial loans to mortgage companies. These mortgage finance 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 finance 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 finance 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 September 30, 2024 and December 31, 2023, all of Customers’ mortgage finance 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.

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 nine months ended September 30, 2024 and 2023 are presented in the tables below.

(amounts in thousands)Commercial and industrial (1)(2)MultifamilyCommercial real estate owner occupiedCommercial real estate non-owner occupiedConstructionResidential real estateManufactured housingInstallmentTotal
Ending Balance, June 30, 2024$23,721$20,652$8,431$17,966$1,856$5,884$4,094$49,832$132,436
Charge-offs(6,538)(2,167)(4)——(19)—(12,496)(21,224)
Recoveries1,482———340—2,6554,180
Provision (benefit) for credit losses on loans and leases6,526(395)2,486(663)(253)(68)(13)10,14617,766
Ending Balance, September 30, 2024$25,191$18,090$10,913$17,303$1,606$5,837$4,081$50,137$133,158
Ending Balance, December 31, 2023$23,503$16,343$9,882$16,859$1,482$6,586$4,239$56,417$135,311
Charge-offs(19,282)(4,073)(26)——(38)—(43,356)(66,775)
Recoveries4,889———1061—8,09213,052
Provision (benefit) for credit losses on loans and leases16,0815,8201,057444114(772)(158)28,98451,570
Ending Balance, September 30, 2024$25,191$18,090$10,913$17,303$1,606$5,837$4,081$50,137$133,158
(amounts in thousands)Commercial and industrial (1)(2)MultifamilyCommercial real estate owner occupiedCommercial real estate non-owner occupiedConstructionResidential real estateManufactured housingInstallmentTotal
Ending Balance, June 30, 2023$29,092$15,400$10,215$13,495$2,639$6,846$4,338$57,631$139,656
Charge-offs(9,008)(1,999)(39)——(42)—(18,932)(30,020)
Recoveries6,034————29—6,45912,522
Provision (benefit) for credit losses on loans and leases(1,132)2,4691872,324491(31)(258)13,00517,055
Ending Balance, September 30, 2023$24,986$15,870$10,363$15,819$3,130$6,802$4,080$58,163$139,213
Ending Balance, December 31, 2022$17,582$14,541$6,454$11,219$1,913$6,094$4,430$68,691$130,924
Allowance for credit losses on FDIC PCD loans, net of charge-offs (3)2,576———————2,576
Charge-offs(9,600)(3,447)(39)(4,527)—(69)—(52,031)(69,713)
Recoveries6,439—342711634—11,35018,000
Provision (benefit) for credit losses on loans and leases7,9894,7763,9149,1001,101743(350)30,15357,426
Ending Balance, September 30, 2023$24,986$15,870$10,363$15,819$3,130$6,802$4,080$58,163$139,213

(1) Includes specialized lending.

(2) 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.

(3) Represents $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of a venture banking loan portfolio (included within specialized lending) from the FDIC on June 15, 2023, net of $6.2 million of charge-offs for certain of these PCD loans upon acquisition.

At September 30, 2024, the ACL on loans and leases was $133.2 million, a decrease of $2.2 million from the December 31, 2023 balance of $135.3 million. The decrease in ACL for the three and nine months ended September 30, 2024 was primarily attributable to slight improvements in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment.

Loan Modifications for Borrowers Experiencing Financial Difficulty

A borrower is considered to be experiencing financial difficulty when there is a significant doubt about the borrower’s ability to make the required principal and interest payments on the loan or to get an equivalent financing from another creditor at a market rate for a similar loan.

When borrowers are experiencing financial difficulty, Customers may make certain loan modifications as part of loss mitigation strategies to maximize expected payment. To be classified as a modification made to a borrower experiencing financial difficulty, the modification must be in the form of an interest rate reduction, principal forgiveness, or an other-than-insignificant payment delay (payment deferral), term extension, or combinations thereof.

Customers will generally try other forms of relief before principal forgiveness. Any contractual reduction in the amount of principal due without receiving payment or assets is considered forgiveness. For the purpose of this disclosure, Customers considers any contractual change in interest rate that results in a reduction in interest rate relative to the current stated interest rate as an interest rate reduction. Generally, Customers considers any delay in payment of greater than 90 days in the last 12 months to be significant. Term extensions extend the original contractual maturity of the loan. For the purpose of this disclosure, modification of contingent payment features or covenants that would have accelerated payment are not considered term extensions.

The following table presents the amortized cost of loans that were modified to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2024 and 2023, disaggregated by class of financing receivable and type of modification granted.

Three Months Ended September 30, 2024
(dollars in thousands)Interest Rate ReductionTerm ExtensionPayment DeferralDebt ForgivenessInterest Rate Reduction and Term ExtensionTotalPercentage of Total by Financing Class
Commercial and industrial, including specialized lending$—$—$4,800$—$—$4,8000.07%
Manufactured housing—18——79970.28%
Personal installment2661,7705537—2,1280.47%
Total$266$1,788$4,855$37$79$7,025
Three Months Ended September 30, 2023
(dollars in thousands)Term ExtensionPayment DeferralDebt ForgivenessInterest Rate Reduction and Term ExtensionTotalPercentage of Total by Financing Class
Manufactured housing$—$—$—$99$990.25%
Personal installment3,86321028—4,1010.42%
Total$3,863$210$28$99$4,200
Nine Months Ended September 30, 2024
(dollars in thousands)Interest Rate ReductionTerm ExtensionPayment DeferralDebt ForgivenessInterest Rate Reduction and Term ExtensionTotalPercentage of Total by Financing Class
Commercial and industrial, including specialized lending$—$2,000$8,049$—$—$10,0490.15%
Multifamily——10,713——10,7130.51%
Residential real estate——52——520.01%
Manufactured housing—96——1282240.65%
Personal installment2664,97017893—5,5071.21%
Total$266$7,066$18,992$93$128$26,545
Nine Months Ended September 30, 2023
(dollars in thousands)Term ExtensionPayment DeferralDebt ForgivenessInterest Rate Reduction and Term ExtensionTotalPercentage of Total by Financing Class
Commercial real estate owner occupied$169$—$—$—$1690.02%
Manufactured housing6——1131190.30%
Personal installment10,910442222—11,5741.20%
Total$11,085$442$222$113$11,862

As of September 30, 2024, there wereno commitments to lend additional funds to debtors experiencing financial difficulty whose loans have been modified during the three and nine months ended September 30, 2024.

The following table summarizes the impacts of loan modifications made to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2024 and 2023.

Three Months Ended September 30, 2024 · Three Months Ended September 30, 2023
Weighted AverageWeighted Average
(dollars in thousands)Interest Rate Reduction (%)Term Extension(in months)Payment Deferral(in months)Debt ForgivenInterest Rate Reduction (%)Term Extension(in months)Payment Deferral(in months)Debt Forgiven
Commercial and industrial, including specialized lending—%010$——%00$—
Manufactured housing3.81150—4.4310—
Personal installment13.65712—6620
Nine Months Ended September 30, 2024 · Nine Months Ended September 30, 2023
Weighted AverageWeighted Average
(dollars in thousands)Interest Rate Reduction (%)Term Extension(in months)Payment Deferral(in months)Debt ForgivenInterest Rate Reduction (%)Term Extension(in months)Payment Deferral(in months)Debt Forgiven
Commercial and industrial, including specialized lending—%18$——%00$—
Multifamily—05——00—
Commercial real estate owner occupied—00——40—
Residential real estate—05——00—
Manufactured housing4.0780—4.3300—
Personal installment13.657153—66183

The performance of loans made to borrowers experiencing financial difficulty in which modifications were made is closely monitored to understand the effectiveness of modification efforts. Loans are considered to be in payment default at 90 days or more past due. The following table presents an aging analysis of loan modifications made to borrowers experiencing financial difficulty in the twelve months ended September 30, 2024 and the nine months ended ended September 30, 2023.

September 30, 2024
(dollars in thousands)30-59 Days past due60-89 Days past due90 Days or more past dueCurrentTotal
Commercial and industrial, including specialized lending$—$—$230$22,395$22,625
Multifamily———10,71310,713
Residential real estate———5252
Manufactured housing192437269349
Personal installment4363316657,3938,825
Total$455$355$932$40,822$42,564
September 30, 2023 (1)
(dollars in thousands)30-59 Days past due60-89 Days past due90 Days or more past dueCurrentTotal
Commercial real estate owner occupied$—$—$169$—$169
Manufactured housing———119119
Personal installment8375653549,82011,576
Total$837$565$523$9,939$11,864

(1) Customers adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023, therefore, the September 30, 2023 balances only include loans since ASU 2022-02 became effective.

The loans to borrowers experiencing financial difficulty that were modified during the twelve months ended September 30, 2024 that subsequently defaulted were not material. During the nine months ended September 30, 2023, the loans that were made to borrowers experiencing financial difficulty that subsequently defaulted were not material. Customers’ ACL is influenced by loan level characteristics that inform the assessed propensity to default. As such, the provision for credit losses is impacted by changes in such loan level characteristics, such as payment performance. Loans made to borrowers experiencing financial difficulty can be classified as either accrual or nonaccrual.

Credit Quality Indicators

The ACL represents management’s estimate of expected losses in Customers’ loans and leases receivable portfolio, excluding mortgage finance loans reported at fair value pursuant to a fair value option election and PPP loans receivable. Commercial and industrial including specialized lending, multifamily, 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 commercial and industrial including specialized lending, multifamily, 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 2023 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. PPP loans of $30.5 million and $74.7 million at September 30, 2024 and December 31, 2023, respectively, are excluded in the tables below as these loans are fully guaranteed by the SBA, provided that the eligibility criteria are met. The following tables present the credit ratings of loans and leases receivable and current period gross write-offs as of September 30, 2024 and December 31, 2023.

(amounts in thousands) · 2024 · 2023 · 2022 · 2021 · 2020 · Prior · Revolving loans amortized cost basis · Revolving loans converted to term · Total
Commercial and industrial loans and leases, including specialized lending:
Pass$1,288,705$790,316$1,591,974$328,477$114,778$32,650$1,952,229$392,242$6,491,371
Special mention12,75525030,3973,926—6729,7474,41781,559
Substandard—9587,83212,0763,57637,3794,0763,63869,535
Doubtful—————————
Total commercial and industrial loans and leases$1,301,460$791,524$1,630,203$344,479$118,354$70,096$1,986,052$400,297$6,642,465
Commercial and industrial loans and leases charge-offs:
Three Months Ended September 30, 2024 (1)$94$—$13$52$742$5,637$—$—$6,538
Nine Months Ended September 30, 2024 (1)3127025,6854,1472,4296,007——19,282
Multifamily loans:
Pass$76,380$823$1,202,986$301,976$125,476$303,992$—$—$2,011,633
Special mention——6,770——42,662——49,432
Substandard—————54,913——54,913
Doubtful—————————
Total multifamily loans$76,380$823$1,209,756$301,976$125,476$401,567$—$—$2,115,978
Multifamily loans charge-offs:
Three Months Ended September 30, 2024$—$—$—$—$—$2,167$—$2,167
Nine Months Ended September 30, 2024—————4,073——4,073
Commercial real estate owner occupied loans:
Pass$218,625$64,100$238,103$197,298$52,820$147,520$7,640$74$926,180
Special mention—————10,924—11,19722,121
Substandard—2,94470315,310—14,646——33,603
Doubtful—————————
Total commercial real estate owner occupied loans$218,625$67,044$238,806$212,608$52,820$173,090$7,640$11,271$981,904
Commercial real estate owner occupied loans charge-offs:
Three Months Ended September 30, 2024$—$—$—$—$—$4$—$—$4
Nine Months Ended September 30, 2024—————26——26
Commercial real estate non-owner occupied loans:
Pass$100,123$30,427$413,675$97,555$182,789$424,192$214$—$1,248,975
Special mention—12,0004,308——438——16,746
Substandard————70160,169——60,870
Doubtful—————————
Total commercial real estate non-owner occupied loans$100,123$42,427$417,983$97,555$183,490$484,799$214$—$1,326,591
Commercial real estate non-owner occupied loans charge-offs:
Three Months Ended September 30, 2024$—$—$—$—$—$—$—$—$—
Nine Months Ended September 30, 2024—————————
Construction loans:
Pass$9,235$18,651$133,969$—$—$4,486$—$—$166,341
Special mention—8,168——————8,168
Substandard—————————
Doubtful—————————
Total construction loans$9,235$26,819$133,969$—$—$4,486$—$—$174,509
(amounts in thousands)20242023202220212020PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Construction loans charge-offs:
Three Months Ended September 30, 2024$—$—$—$—$—$—$—$—$—
Nine Months Ended September 30, 2024—————————
Total commercial loans and leases receivable$1,705,823$928,637$3,630,717$956,618$480,140$1,134,038$1,993,906$411,568$11,241,447
Total commercial loans and leases receivable charge-offs:
Three Months Ended September 30, 2024$94$—$13$52$742$7,808$—$—$8,709
Nine Months Ended September 30, 20243127025,6854,1472,42910,106——23,381
Residential real estate loans:
Performing$41,200$21,946$165,563$124,381$5,957$80,700$53,214$—$492,961
Non-performing1412801,3941,6952334,082——7,825
Total residential real estate loans$41,341$22,226$166,957$126,076$6,190$84,782$53,214$—$500,786
Residential real estate loans charge-offs:
Three Months Ended September 30, 2024$—$—$—$—$—$19$—$—$19
Nine Months Ended September 30, 2024—————38——38
Manufactured housing loans:
Performing$—$—$—$—$—$32,969$—$—$32,969
Non-performing—————1,512——1,512
Total manufactured housing loans$—$—$—$—$—$34,481$—$—$34,481
Manufactured housing loans charge-offs:
Three Months Ended September 30, 2024$—$—$—$—$—$—$—$—$—
Nine Months Ended September 30, 2024—————————
Installment loans:
Performing$81,762$174,647$240,433$109,349$35,925$28,770$43,757$8$714,651
Non-performing391,8801,5521,119308442110—5,450
Total installment loans$81,801$176,527$241,985$110,468$36,233$29,212$43,867$8$720,101
Installment loans charge-offs:
Three Months Ended September 30, 2024$425$2,432$5,219$3,311$553$556$—$—$12,496
Nine Months Ended September 30, 20242,3075,83717,45012,0992,2863,377——43,356
Total consumer loans$123,142$198,753$408,942$236,544$42,423$148,475$97,081$8$1,255,368
Total consumer loans charge-offs:
Three Months Ended September 30, 2024$425$2,432$5,219$3,311$553$575$—$—$12,515
Nine Months Ended September 30, 20242,3075,83717,45012,0992,2863,415——43,394
Loans and leases receivable$1,828,965$1,127,390$4,039,659$1,193,162$522,563$1,282,513$2,090,987$411,576$12,496,815
Loans and leases receivable charge-offs:
Three Months Ended September 30, 2024$519$2,432$5,232$3,363$1,295$8,383$—$—$21,224
Nine Months Ended September 30, 2024$2,619$6,539$23,135$16,246$4,715$13,521$—$—$66,775

(1) Charge-offs for the three and nine months ended September 30, 2024 included $0.8 million and $5.0 million, respectively, of commercial and industrial loans originated under the PPP that were subsequently determined to be ineligible for SBA forgiveness and guarantee and were ultimately deemed uncollectible.

(amounts in thousands)20232022202120202019PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Commercial and industrial loans and leases, including specialized lending:
Pass$1,184,923$1,909,592$483,039$170,384$59,213$63,480$1,722,559$384,947$5,978,137
Special mention18,0003,3775,1271,986—5957,9162,90339,904
Substandard14,73839,25861,53326,6604,80342,0624,010—193,064
Doubtful—————————
Total commercial and industrial loans and leases$1,217,661$1,952,227$549,699$199,030$64,016$106,137$1,734,485$387,850$6,211,105
Commercial and industrial loans and leases charge-offs:
For the Year Ended December 31, 2023 (1)(2)$1,483$381$3,169$10,348$24$1,510$—$—$16,915
Multifamily loans:
Pass$845$1,229,198$371,016$127,493$43,046$253,806$—$—$2,025,404
Special mention————6,46867,035——73,503
Substandard—————39,715——39,715
Doubtful—————————
Total multifamily loans$845$1,229,198$371,016$127,493$49,514$360,556$—$—$2,138,622
Multifamily loans charge-offs:
For the Year Ended December 31, 2023$—$—$—$—$—$3,574$—$—$3,574
Commercial real estate owner occupied loans:
Pass$41,011$254,878$180,289$77,821$44,382$120,248$—$11,318$729,947
Special mention——15,432—35,69147——51,170
Substandard————34715,855——16,202
Doubtful—————————
Total commercial real estate owner occupied loans$41,011$254,878$195,721$77,821$80,420$136,150$—$11,318$797,319
Commercial real estate owner occupied loans charge-offs:
For the Year Ended December 31, 2023$—$—$—$—$—$39$—$—$39
Commercial real estate non-owner occupied loans:
Pass$12,906$325,881$109,521$152,227$88,586$367,996$—$—$1,057,117
Special mention———20,702—9,148——29,850
Substandard—10,910——8,11371,660——90,683
Doubtful—————————
Total commercial real estate non-owner occupied loans$12,906$336,791$109,521$172,929$96,699$448,804$—$—$1,177,650
Commercial real estate non-owner occupied loans charge-offs:
For the Year Ended December 31, 2023$—$—$—$—$—$4,527$—$—$4,527
Construction loans:
Pass$17,594$138,797$2,567$—$—$4,580$—$1,100$164,638
Special mention1,755———————1,755
Substandard—————————
Doubtful—————————
Total construction loans$19,349$138,797$2,567$—$—$4,580$—$1,100$166,393
Construction loans charge-offs:
For the Year Ended December 31, 2023$—$—$—$—$—$—$—$—$—
Total commercial loans and leases receivable$1,291,772$3,911,891$1,228,524$577,273$290,649$1,056,227$1,734,485$400,268$10,491,089
(amounts in thousands)20232022202120202019PriorRevolving loans amortized cost basisRevolving loans converted to termTotal
Total commercial loans and leases receivable charge-offs:
For the Year Ended December 31, 2023$1,483$381$3,169$10,348$24$9,650$—$—$25,055
Residential real estate loans:
Performing$22,613$173,424$131,621$6,458$15,508$71,433$56,844$—$477,901
Non-performing—3501,2362295453,993181—6,534
Total residential real estate loans$22,613$173,774$132,857$6,687$16,053$75,426$57,025$—$484,435
Residential real estate loans charge-offs:
For the Year Ended December 31, 2023$—$—$—$—$—$69$—$—$69
Manufactured housing loans:
Performing$—$—$—$—$98$36,464$—$—$36,562
Non-performing—————2,108——2,108
Total manufactured housing loans$—$—$—$—$98$38,572$—$—$38,670
Manufactured housing loans charge-offs:
For the Year Ended December 31, 2023$—$—$—$—$—$—$—$—$—
Installment loans:
Performing$253,958$307,566$158,381$50,354$39,953$3,448$51,480$—$865,140
Non-performing2,6344,1021,75154647786190—9,786
Total installment loans$256,592$311,668$160,132$50,900$40,430$3,534$51,670$—$874,926
Installment loans charge-offs:
For the Year Ended December 31, 2023$7,728$24,605$23,984$5,590$6,797$1,238$—$—$69,942
Total consumer loans$279,205$485,442$292,989$57,587$56,581$117,532$108,695$—$1,398,031
Total consumer loans charge-offs:
For the Year Ended December 31, 2023$7,728$24,605$23,984$5,590$6,797$1,307$—$—$70,011
Loans and leases receivable$1,570,977$4,397,333$1,521,513$634,860$347,230$1,173,759$1,843,180$400,268$11,889,120
Loans and leases receivable charge-offs:
For the Year Ended December 31, 2023$9,211$24,986$27,153$15,938$6,821$10,957$—$—$95,066

(1) Excludes $6.2 million of charge-offs for certain PCD loans against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of a venture banking loan portfolio (included within specialized lending) from the FDIC on June 15, 2023. These PCD loans were originated in years 2016 to 2022.

(2) Charge-offs for the year ended December 31, 2023 included $10.7 million of commercial and industrial loans originated under the PPP that were subsequently determined to be ineligible for SBA forgiveness and guarantee and were ultimately deemed uncollectible.

Loan Purchases and Sales

Purchases and sales of loans held for investment were as follows for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,Nine Months Ended September 30,
(amounts in thousands)2024202320242023
Purchases (1)
Specialized lending$—$—$—$631,252
Other commercial and industrial6024,9778,00515,285
Commercial real estate owner occupied———2,867
Residential real estate———4,238
Personal installment (2)69,976—113,217—
Other installment (2)—96,758—96,758
Total$70,578$101,735$121,222$750,400
Sales (3)
Specialized lending (4)$—$—$—$287,185
Other commercial and industrial (5)—6,72523,70854,083
Commercial real estate owner occupied (5)—5,671—24,522
Commercial real estate non-owner occupied———16,000
Personal installment53,021—53,021—
Other installment———154,042
Total$53,021$12,396$76,729$535,832

(1)Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was 95.9% and 100.0% of the loans’ unpaid principal balance for the three months ended September 30, 2024 and 2023, respectively. The purchase price was 97.5% and 87.7% of the loans’ unpaid principal balance for the nine months ended September 30, 2024 and 2023, respectively.

(2)Installment loan purchases for the three and nine months ended September 30, 2024 consist of third-party originated unsecured consumer loans. None of the loans held for investment 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 September 30, 2024 and 2023, sales of loans held for investment resulted inno gain or loss and net losses of $0.2 million, respectively, included in net gain (loss) on sale of loans and leases in the consolidated statements of income. For the nine months ended September 30, 2024 and 2023, sales of loans held for investment resulted in net losses of $0.2 million and net gains of $0.2 million, respectively.

(4)Includes a loss of $5.0 million from the sale of $670.0 million of short-term syndicated capital call lines of credit ($280.7 million of loans held for investment in unpaid principal balance and $389.3 million of unfunded loan commitments) included in the consolidated statement of income for the nine months ended September 30, 2023.

(5)Primarily sales of SBA loans for the three and nine months ended September 30, 2023.

Loans Pledged as Collateral

Customers has pledged eligible commercial and residential real estate, multifamily, commercial and industrial, PPP and consumer installment loans as collateral for borrowings outstanding or available immediately from the FHLB and FRB in the amount of $7.8 billion and $7.0 billion at September 30, 2024 and December 31, 2023, respectively.

NOTE 8 —LEASES

Lessee

Customers has operating leases for its branches, certain LPOs, and administrative offices, with remaining lease terms ranging betweensix months andeleven 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 betweenone andten years, with options to renew the leases or extend the term up toten 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)ClassificationSeptember 30, 2024December 31, 2023
ASSETS
Operating lease ROU assetsOther assets$35,901$15,644
LIABILITIES
Operating lease liabilitiesOther liabilities$37,993$18,048

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

Three Months Ended September 30, · Nine Months Ended September 30,
(amounts in thousands)Classification2024202320242023
Operating lease cost (1)Occupancy expenses$1,792$1,260$4,277$3,775

(1) There wereno variable lease costs for the three and nine months ended September 30, 2024 and 2023, and sublease income for operating leases was immaterial.

Maturities of non-cancelable operating lease liabilities were as follows at September 30, 2024:

(amounts in thousands)September 30, 2024
2024$1,507
20255,668
20266,328
20275,833
20285,207
Thereafter21,187
Total minimum payments45,730
Less: interest7,737
Present value of lease liabilities$37,993

Customers does not have leases where it is involved with the construction or design of an underlying asset. Cash paid pursuant to the operating lease liabilities was $1.3 million and $3.8 million for the three and nine months ended September 30, 2024, respectively. Cash paid pursuant to the operating lease liabilities was $1.3 million and $4.4 million for the three and nine months ended September 30, 2023, 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 September 30, 2024 and December 31, 2023:

September 30, 2024December 31, 2023
Weighted average remaining lease term (years)
Operating leases8.6 years5.6 years
Weighted average discount rate
Operating leases4.08%3.28%

Equipment Lessor

Customers’ commercial equipment financing group goes to market through the following origination platforms: vendors, intermediaries, direct and capital markets. The commercial equipment financing group is primarily focused on serving the following industries: transportation, construction (includes crane and utility), marine, franchise, general manufacturing (includes machine tool), helicopter/fixed wing, solar, packaging, plastics and food processing. Lease terms typically range from 24 months to 120 months. The commercial equipment financing group offers the following products: Loans, Capital Lease, PUT, TRAC, Split-TRAC, and FMV. Customers’ commercial equipment financing group leases equipments under direct finance, sales-type or operating leases.

The estimated residual values for direct finance, sales-type and operating leases are established by utilizing internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. For the direct finance leases, only Customers’ Split-TRAC leases have residual risk and the unguaranteed portions are typically nominal. Expected credit losses on direct financing and sales-type leases and the related estimated residual values are included in the ACL on loans and leases.

Direct finance and sales-type equipment leases, are included in commercial and industrial loans and leases receivable and are recorded at the discounted amounts of lease payments receivable and the estimated residual value of the leased assets. Interest income on direct finance and sales-type leases is recognized over the term of the leases using the effective interest method. Any difference between the lower of the fair value of the underlying leased asset or the sum of the lease receivables and the carrying amount of the underlying leased asset would result to a gain or loss at the lease commencement date. Customers’ direct finance and sales-type lease activity primarily relates to leasing of new equipments.

During the three and nine months ended September 30, 2024, Customers’ commercial equipment financing group executed leases of commercial clean vehicles that qualified for investment tax credits. Customers accounted for these leases as sales-type leases and were included in loans and leases receivable on the balance sheet. Customers recognized a loss on sales-type leases of $14.3 million within net gain (loss) on sale of loans and leases and the corresponding investment tax credits within income tax expense (benefit) in the statements of income for the three and nine months ended September 30, 2024.

Customers recognized interest income from its sales-type and direct financing leases of $9.9 million and $7.1 million for the three months ended September 30, 2024 and 2023. Customers recognized interest income from its sales-type and direct financing leases of $27.0 million and $21.4 million for the nine months ended September 30, 2024 and 2023.

Leased assets under operating leases are reported at amortized cost net of accumulated depreciation and any impairment charges, and are presented in other assets. The depreciation expense of the leased assets is recognized on a straight-line basis over the contractual term of the leases up to the expected residual value. The expected residual value and, accordingly, the monthly depreciation expense, may change throughout the term of the lease. Operating lease rental income for leased assets is recognized in commercial lease income on a straight-line basis over the lease term. Customers periodically reviews its operating leased assets for impairment. An impairment loss is recognized if the carrying amount of the operating leased asset exceeds its fair value and is not recoverable. The carrying amount of operating leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the equipment.

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at September 30, 2024 and December 31, 2023:

(amounts in thousands)ClassificationSeptember 30, 2024December 31, 2023
ASSETS
Direct financing and sales-type leases
Lease receivablesLoans and leases receivable$243,859$190,559
Guaranteed residual assetsLoans and leases receivable21,87815,783
Unguaranteed residual assetsLoans and leases receivable10,46710,010
Deferred initial direct costsLoans and leases receivable1,3481,213
Unearned incomeLoans and leases receivable(23,208)(11,891)
Net investment in direct financing and sales-type leases$254,344$205,674
Operating leases
Investment in operating leasesOther assets$287,575$282,208
Accumulated depreciationOther assets(88,636)(77,672)
Deferred initial direct costsOther assets9571,192
Net investment in operating leases199,896205,728
Total lease assets$454,240$411,402

Maturities of operating and direct financing and sales-type lease receivables were as follows at September 30, 2024:

(amounts in thousands) · Operating leases · Direct financing and sales-type leases
2024$11,314$19,302
202541,97963,374
202647,55156,173
202734,37747,608
202857,17329,881
Thereafter35,96827,521
Total minimum payments$228,362243,859
Less: interest23,208
Present value of lease receivables$220,651

NOTE 9 –DEPOSITS

The components of deposits at September 30, 2024 and December 31, 2023 were as follows:

September 30, 2024December 31, 2023
(amounts in thousands)
Demand, non-interest bearing$4,670,809$4,422,494
Demand, interest bearing5,606,5005,580,527
Savings, including money market deposit accounts5,360,9964,629,336
Time2,431,0843,287,879
Total deposits$18,069,389$17,920,236

The scheduled maturities for time deposits at September 30, 2024 were as follows:

(amounts in thousands)September 30, 2024
2024$145,935
2025771,882
2026550,209
2027305,184
2028397,761
Thereafter260,113
Total time deposits$2,431,084

Time deposits greater than the FDIC limit of $250,000 totaled $643.0 million and $186.3 million at September 30, 2024 and December 31, 2023, respectively.

Demand deposit overdrafts reclassified as loans were $1.2 million at September 30, 2024 and December 31, 2023.

At September 30, 2024 and December 31, 2023, the Bank had $1.5 billion and $1.1 billion in deposits, respectively, to which it had pledged $1.4 billion and $1.1 billion of available borrowing capacity through the FHLB to the depositors through a standby letter of credit arrangement, respectively.

NOTE 10 -BORROWINGS

Short-term debt

There wasno short-term debt outstanding at September 30, 2024 and December 31, 2023.

The following is a summary of additional information relating to Customers’ short-term debt:

(dollars in thousands)September 30, 2024 (1)December 31, 2023 (2)
FRB advances
Maximum outstanding at any month end$—$—
Average balance during the period—120,099
Weighted-average interest rate during the period—%5.23%
FHLB advances
Maximum outstanding at any month end150,000—
Average balance during the period11,49687,407
Weighted-average interest rate during the period5.74%5.16%
Federal funds purchased
Maximum outstanding at any month end——
Average balance during the period—3,781
Weighted-average interest rate during the period—%4.97%

(1) For the nine months ended September 30, 2024.

(2) For the year ended December 31, 2023.

At September 30, 2024 and December 31, 2023, Customers Bank had aggregate availability under federal funds lines totaling $1.7 billion.

Long-term debt

FHLB and FRB advances

Long-term FHLB and FRB advances at September 30, 2024 and December 31, 2023 were as follows:

September 30, 2024 · December 31, 2023
(dollars in thousands) · Amount · Rate · Amount · Rate
FHLB advances (1)$1,117,229(2)4.24%(3)$1,203,2073.91%
Total long-term FHLB and FRB advances$1,117,229$1,203,207

(1) Amounts reported in the above table include fixed rate long-term advances from FHLB of $950.0 million with maturities ranging from March 2025 to March 2028, and variable rate long-term advances from FHLB of $155.0 million with maturities ranging from March 2028 to June 2029 with a returnable option that can be repaid without penalty on certain predetermined dates at Customers Bank's option, at September 30, 2024.

(2) Includes $12.2 million and $3.2 million of unamortized basis adjustments from interest rate swaps designated as fair value hedges of long-term advances from FHLB at September 30, 2024 and December 31, 2023, respectively. Refer to NOTE 14 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for additional information.

(3) Excludes the effect of interest rate swaps designated as fair value hedges of long-term advances from FHLB.

Maturities of long-term FHLB advances were as follows at September 30, 2024:

September 30, 2024
(dollars in thousands)Amount (1)Rate
2024$——%
2025200,0004.45%
2026200,0004.32%
2027450,0003.70%
2028180,0004.75%
Thereafter75,0005.55%
Total long-term FHLB advances$1,105,000

(1) Amounts reported in the above table include variable rate long-term advances from FHLB of $155.0 million with maturities ranging from March 2028 to June 2029 with a returnable option that can be repaid without penalty on certain predetermined dates at Customers Bank's option.

The maximum borrowing capacity with the FHLB and FRB at September 30, 2024 and December 31, 2023 was as follows:

(amounts in thousands)September 30, 2024December 31, 2023
Total maximum borrowing capacity with the FHLB$3,565,068$3,474,347
Total maximum borrowing capacity with the FRB4,180,8243,436,000
Qualifying loans and securities serving as collateral against FHLB and FRB advances9,508,1358,575,137

Senior and Subordinated Debt

Long-term senior notes and subordinated debt at September 30, 2024 and December 31, 2023 were as follows:

(dollars in thousands)Carrying Amount
Issued by · Ranking · September 30, 2024 · December 31, 2023 · Rate · Issued Amount · Date Issued · Maturity · Price
Customers BancorpSenior (1)$99,033$98,9282.875%$100,000August 2021August 2031100.000%
Customers BancorpSenior—24,9124.500%25,000September 2019September 2024100.000%
Total other borrowings$99,033$123,840
Customers BancorpSubordinated (2)(3)$72,902$72,7665.375%$74,750December 2019December 2034100.000%
Customers BankSubordinated (2)(4)109,537109,4646.125%110,000June 2014June 2029100.000%
Total subordinated debt$182,439$182,230

(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 had an annual fixed rate of 6.125% until June 26, 2024. From June 26, 2024 until maturity, the notes bear an annual interest rate equal to the three-month LIBOR plus 344.3 basis points. Pursuant to the Adjustable Interest Rate (LIBOR) Act enacted by Congress on March 15, 2022, Customers substituted three-month term SOFR plus a tenor spread adjustment of 26.161 basis points for three-month LIBOR as the benchmark reference rate in order to calculate the annual interest rate after June 26, 2024. Customers Bank has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after June 26, 2024.

NOTE 11 —SHAREHOLDERS’ EQUITY

Common Stock

On June 26, 2024, the Board of Directors of Customers Bancorp authorized a new common stock repurchase program (the “2024 Share Repurchase Program”) to repurchase up to 497,509 shares of the Company’s common stock. The term of the 2024 Share Repurchase Program will extend forone year from June 26, 2024, unless earlier terminated. Purchases of shares under the 2024 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.

The Company’s previously authorized common stock repurchase program (the “Share Repurchase Program”), authorized on August 25, 2021, subsequently expired on September 27, 2023. At expiration, the Share Repurchase Program had 497,509 shares that had not been repurchased.

Customers Bancorp purchased 373,974 shares of its common stock for $18.2 million under the 2024 Share Repurchase Program during the three and nine months ended September 30, 2024. Customers Bancorp purchasedno shares and 1,379,883 shares of its common stock for $39.8 million under the previously authorized Share Repurchase Program during the three and nine months ended September 30, 2023, respectively.

Preferred Stock

As of September 30, 2024 and December 31, 2023, Customers Bancorp hastwo series of preferred stock outstanding. The table below summarizes Customers’ issuances of preferred stock that remain outstanding at September 30, 2024 and December 31, 2023 and the dividends paid per share.

(amounts in thousands except share and per share data) · Shares at · Carrying value at · Initial Fixed Rate · Date at which dividend rate becomes floating and earliest redemption date · Floating rate of Three-Month SOFR (2) Plus: · Dividend Paid Per Share in 2024 (1)
Fixed-to-floating rate: · Issue Date · September 30, 2024 · December 31, 2023 · September 30, 2024 · December 31, 2023
Series EApril 28, 20162,300,0002,300,000$55,593$55,5936.45%June 15, 20215.140%$2.06
Series FSeptember 16, 20163,400,0003,400,00082,20182,2016.00%December 15, 20214.762%$1.99
Totals5,700,0005,700,000$137,794$137,794

(1) For the nine months ended September 30, 2024.

(2) Pursuant to the Adjustable Interest Rate (LIBOR) Act enacted by Congress on March 15, 2022, Customers substituted three-month term SOFR plus a tenor spread adjustment of 26.161 basis points for three-month LIBOR as the benchmark reference rate on Series E and F Preferred Stock, plus 5.14% and 4.762%, respectively, beginning with dividends declared on October 25, 2023.

NOTE 12 —REGULATORY CAPITAL

The Bank and the Bancorp are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can result in certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on Customers’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Bancorp must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

In first quarter 2020, the 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 September 30, 2024, our regulatory capital ratios reflected 25%, or $15.4 million, benefit associated with the CECL transition provisions.

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 September 30, 2024 and December 31, 2023, the Bank and the Bancorp satisfied all capital requirements to which they were subject.

Generally, to comply with the regulatory definition of adequately capitalized, or well capitalized, respectively, or to comply with the Basel III capital requirements, an institution must at least maintain the common equity Tier 1, Tier 1 and total risk-based capital ratios and the Tier 1 leverage ratio in excess of the related minimum ratios as set forth in the following table:

Minimum Capital Levels to be Classified as:
ActualAdequately CapitalizedWell CapitalizedBasel III Compliant
(dollars in thousands)AmountRatioAmountRatioAmountRatioAmountRatio
As of September 30, 2024:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,777,68312.463%$641,8854.500%N/AN/A$998,4887.000%
Customers Bank$1,943,05913.636%$641,2124.500%$926,1256.500%$997,4417.000%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,915,47613.429%$855,8476.000%N/AN/A$1,212,4508.500%
Customers Bank$1,943,05913.636%$854,9496.000%$1,139,9328.000%$1,211,1788.500%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.$2,191,26615.362%$1,141,1298.000%N/AN/A$1,497,73210.500%
Customers Bank$2,145,94715.060%$1,139,9328.000%$1,424,91610.000%$1,496,16110.500%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.$1,915,4768.947%$856,3864.000%N/AN/A$856,3864.000%
Customers Bank$1,943,0599.082%$855,8074.000%$1,069,7595.000%$855,8074.000%
As of December 31, 2023:
Common equity Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,661,14912.230%$611,2004.500%N/AN/A$950,7557.000%
Customers Bank$1,868,36013.773%$610,4534.500%$881,7656.500%$949,5947.000%
Tier 1 capital (to risk-weighted assets)
Customers Bancorp, Inc.$1,798,94213.245%$814,9336.000%N/AN/A$1,154,4898.500%
Customers Bank$1,868,36013.773%$813,9376.000%$1,085,2508.000%$1,153,0788.500%
Total capital (to risk-weighted assets)
Customers Bancorp, Inc.$2,076,55015.289%$1,086,5788.000%N/AN/A$1,426,13310.500%
Customers Bank$2,073,20215.283%$1,085,2508.000%$1,356,56210.000%$1,424,39010.500%
Tier 1 capital (to average assets)
Customers Bancorp, Inc.$1,798,9428.375%$859,1894.000%N/AN/A$859,1894.000%
Customers Bank$1,868,3608.708%$858,2254.000%$1,072,7825.000%$858,2254.000%

The Basel III Capital Rules require that we maintain a 2.500% capital conservation buffer with respect to each of common equity Tier 1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.

NOTE 13 —DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Customers uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose the fair value of its financial instruments. ASC 825, Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For Customers, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. Many of these instruments lack an available trading market as characterized by a willing buyer and a willing seller engaging in an exchange transaction. For fair value disclosure purposes, Customers utilized certain fair value measurement criteria under ASC 820, Fair Value Measurements and Disclosures(“ASC 820”), as explained below.

In accordance with ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for Customers’ various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

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 September 30, 2024 and December 31, 2023:

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.

Loans held for sale - Consumer other installment loans (fair value option):

The fair value of medical installment loans within consumer other installment loans is the amount of cash initially advanced to fund the loan, as specified in the agreement with a fintech company, and generally held for up to 90 days prior to sale. These assets are classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Loans receivable - Mortgage finance loans (fair value option):

The fair value of mortgage finance 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.

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.

The estimated fair values of Customers’ financial instruments at September 30, 2024 and December 31, 2023 were as follows:

(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$3,088,022$3,088,022$3,088,022$—$—
Debt securities, available for sale2,377,7332,377,733—2,360,90816,825
Debt securities, held to maturity1,064,4371,027,514—487,238540,276
Loans held for sale275,420275,420—2,523272,897
Total loans and leases receivable, net of allowance for credit losses on loans and leases13,644,53813,511,102—1,250,41312,260,689
FHLB, Federal Reserve Bank, and other restricted stock95,03595,035—95,035—
Derivatives15,54615,546—15,47472
Liabilities:
Deposits$18,069,389$18,096,656$15,638,305$2,458,351$—
FHLB advances1,117,2291,121,074—1,121,074—
Other borrowings99,03378,000—78,000—
Subordinated debt182,439157,542—157,542—
Derivatives21,48621,486—21,486—
(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$3,846,346$3,846,346$3,846,346$—$—
Debt securities, available for sale2,376,8602,376,860—2,341,91134,949
Debt securities, held to maturity1,103,1701,046,439—472,311574,128
Loans held for sale340,317340,317—1,215339,102
Total loans and leases receivable, net of allowance for credit losses on loans and leases12,726,45612,513,386—897,91211,615,474
FHLB, Federal Reserve Bank, and other restricted stock109,548109,548—109,548—
Derivatives17,93117,931—17,90625
Liabilities:
Deposits$17,920,236$17,922,005$14,632,357$3,289,648$—
FHLB advances1,203,2071,188,517—1,188,517—
Other borrowings123,840103,674—103,674—
Subordinated debt182,230164,233—164,233—
Derivatives27,11027,110—27,110—

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 September 30, 2024 and December 31, 2023 were as follows:

September 30, 2024
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$—$20,845$16,825$37,670
Agency-guaranteed residential mortgage-backed securities—221,178—221,178
Agency-guaranteed residential collateralized mortgage obligations—194,873—194,873
Agency-guaranteed commercial collateralized mortgage obligations—96,943—96,943
Collateralized loan obligations—310,429—310,429
Commercial mortgage-backed securities—77,074—77,074
Corporate notes—594,971—594,971
Private label collateralized mortgage obligations—844,595—844,595
Derivatives—15,4747215,546
Loans held for sale – fair value option—2,523217,098219,621
Loans receivable, mortgage finance – fair value option—1,250,413—1,250,413
Total assets – recurring fair value measurements$—$3,629,318$233,995$3,863,313
Liabilities
Derivatives$—$21,486$—$21,486
Measured at Fair Value on a Nonrecurring Basis:
Assets
Collateral-dependent loans$—$—$18,003$18,003
Total assets – nonrecurring fair value measurements$—$—$18,003$18,003
December 31, 2023
Fair Value Measurements at the End of the Reporting Period Using
(amounts in thousands)Quoted Prices in Active Markets for Identical Assets(Level 1)Significant Other Observable Inputs(Level 2)Significant Unobservable Inputs(Level 3)Total
Measured at Fair Value on a Recurring Basis:
Assets
Available for sale debt securities:
Asset-backed securities$—$57,680$34,949$92,629
Agency-guaranteed residential collateralized mortgage obligations—116,908—116,908
Collateralized loan obligations—489,092—489,092
Commercial mortgage-backed securities—121,636—121,636
Corporate notes—583,034—583,034
Private label collateralized mortgage obligations—973,561—973,561
Derivatives—17,9062517,931
Loans held for sale – fair value option—1,215188,062189,277
Loans receivable, mortgage finance – fair value option—897,912—897,912
Total assets – recurring fair value measurements$—$3,258,944$223,036$3,481,980
Liabilities
Derivatives$—$27,110$—$27,110
Measured at Fair Value on a Nonrecurring Basis:
Assets
Collateral-dependent loans$—$—$2,373$2,373
Total assets – nonrecurring fair value measurements$—$—$2,373$2,373

The changes in asset-backed securities (Level 3 assets) measured at fair value on a recurring basis for the three and nine months ended September 30, 2024 and 2023 are summarized in the tables below.

Asset-backed securities
(amounts in thousands)Three Months Ended September 30,
20242023
Balance at July 1$21,862$51,825
Principal payments and premium amortization(5,704)(10,023)
Increase in allowance for credit losses(24)(442)
Decrease in allowance for credit losses84250
Change in fair value recognized in OCI607755
Balance at September 30$16,825$42,365
Asset-backed securities
(amounts in thousands)Nine Months Ended September 30,
20242023
Balance at January 1$34,949$73,266
Principal payments and premium amortization(19,652)(31,683)
Increase in allowance for credit losses(24)(1,488)
Decrease in allowance for credit losses200311
Change in fair value recognized in OCI1,3521,959
Balance at September 30$16,825$42,365

The changes in other installment loans (Level 3 assets) measured at fair value on a recurring basis, based on an election made to account for the loans at fair value for the three and nine months ended September 30, 2024 and 2023 are summarized in the tables below.

Other Installment Loans
(amounts in thousands)Three Months Ended September 30,
20242023
Balance at July 1$247,442$—
Originations223,625—
Sales(200,041)—
Principal payments(53,928)—
Change in fair value recognized in earnings——
Balance at September 30$217,098$—
Other Installment Loans
(amounts in thousands)Nine Months Ended September 30,
20242023
Balance at January 1$188,062$—
Originations704,081—
Sales(518,271)—
Principal payments(156,774)—
Change in fair value recognized in earnings——
Balance at September 30$217,098$—

There were no transfers between levels during the three and nine months ended September 30, 2024 and 2023.

The following tables summarize financial assets and financial liabilities measured at fair value as of September 30, 2024 and December 31, 2023 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 ValueEstimateValuation TechniqueUnobservable InputRange (Weighted Average)
Asset-backed securities$16,825Discounted cash flowDiscount rateAnnualized loss rateConstant prepayment rate9% - 10%(9%)3% - 13%(5%)19% - 20%(20%)
Quantitative Information about Level 3 Fair Value Measurements
(dollars in thousands)Fair ValueEstimateValuation TechniqueUnobservable InputRange (Weighted Average)
Asset-backed securities$34,949Discounted cash flowDiscount rateAnnualized loss rateConstant prepayment rate12% - 14%(13%)3% - 13%(5%)11% - 30%(26%)

NOTE 14 —DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objectives of Using Derivatives

Customers is exposed to certain risks arising from both its business operations and economic conditions. Customers manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and durations of its assets and liabilities. Specifically, Customers enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. Customers’ derivative financial instruments are used to manage differences in the amount, timing, and duration of Customers’ known or expected cash receipts and its known or expected cash payments principally related to certain borrowings and deposits. Customers also has interest-rate derivatives resulting from an accommodation provided to certain qualifying customers, and therefore, they are not used to manage Customers’ interest-rate risk in assets or liabilities. Customers manages a matched book with respect to its derivative instruments used in this customer service in order to minimize its net risk exposure resulting from such transactions.

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, deposits and FHLB advances 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 of certain fixed rate AFS debt securities 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. Interest rate swaps designated as fair value hedges of certain deposits and FHLB advances involve the payment of variable-rate amounts to a counterparty in exchange for Customers receiving fixed-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 net interest income.

At September 30, 2024, Customers had 43 outstanding interest rate derivatives with notional amounts totaling $2.3 billion that were designated as fair value hedges of certain AFS debt securities, deposits and FHLB advances. During the three and nine months ended September 30, 2024, Customers entered into 12 and 37 interest rate derivatives with notional amounts totaling $431.6 million and $1.8 billion, respectively, that were designated as fair value hedges of certain deposits and FHLB advances. During the nine months ended September 30, 2023, Customers entered into five interest rate derivatives with notional amounts totaling $1.0 billion, two of which were terminated with notional amounts totaling $550.0 million that were designated as fair value hedges of certain deposits and FHLB advances resulting in $4.6 million of basis adjustments being amortized over the remaining terms of the hedged items as a reduction in interest expense. At December 31, 2023, Customers hadsix outstanding interest rate derivatives with notional amounts totaling $472.5 million that were designated as fair value hedges of certain AFS debt securities and FHLB advances.

As of September 30, 2024 and December 31, 2023, 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)September 30, 2024December 31, 2023September 30, 2024December 31, 2023
AFS debt securities$22,500$22,500$202$941
Deposits1,614,617300,00022,1911,432
FHLB advances1,200,000700,00012,2293,206

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 September 30, 2024, Customers had 130 interest rate swaps with an aggregate notional amount of $1.3 billion andtwo interest rate caps with an aggregated notional amount of $55.6 million related to this program. At December 31, 2023, Customers had 132 interest rate swaps with an aggregate notional amount of $1.2 billion andtwo interest rate caps with an aggregate notional amount of $55.6 million related to this program.

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 September 30, 2024 and December 31, 2023.

Derivative AssetsDerivative Liabilities
(amounts in thousands)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives not designated as hedging instruments:
Interest rate swaps and caps (1)Other assets$15,473Other liabilities$21,474
Derivative AssetsDerivative Liabilities
(amounts in thousands)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives not designated as hedging instruments:
Interest rate swaps and caps (1)Other assets$17,903Other liabilities$27,097

(1) Customers’ centrally cleared derivatives are legally settled through variation margin payments and these payments are reflected as a reduction of the related derivative asset or liability, including accrued interest, on the consolidated balance sheet.

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 nine months ended September 30, 2024 and 2023.

Amount of Income (Loss) Recognized in Earnings
Three Months Ended September 30, · Nine Months Ended September 30,
(amounts in thousands)Income Statement Location2024202320242023
Derivatives designated as fair value hedges:
Recognized on interest rate swapsNet interest income$42,717$6,377$54,453$13,209
Recognized on hedged AFS debt securitiesNet interest income(306)(196)(739)(446)
Recognized on hedged depositsNet interest income(23,444)—(25,130)—
Recognized on hedged FHLB advancesNet interest income(18,967)(6,181)(28,584)(12,763)
Total$—$—$—$—
Derivatives not designated as hedging instruments:
Interest rate swaps and capsOther non-interest income$374$192$1,109$332

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 September 30, 2024, the fair value of derivatives in a net asset position related to these agreements was $5.6 million. In addition, Customers, which has collateral posting thresholds with certain of these counterparties, had received $6.1 million of cash as collateral at September 30, 2024. 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.

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 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 Sheet · Gross Amounts Not Offset in the Consolidated Balance Sheet · Net Amount
(amounts in thousands) · Financial Instruments · Cash Collateral Received/Posted
Interest rate derivative assets with institutional counterparties$10,647$(5,079)$(5,568)$—
Interest rate derivative liabilities with institutional counterparties$5,079$(5,079)$—$—
Gross Amounts Recognized on the Consolidated Balance Sheet · Gross Amounts Not Offset in the Consolidated Balance Sheet · Net Amount
(amounts in thousands) · Financial Instruments · Cash Collateral Received/Posted
Interest rate derivative assets with institutional counterparties$17,439$(500)$(16,939)$—
Interest rate derivative liabilities with institutional counterparties$500$(500)$—$—

NOTE 15 —LOSS CONTINGENCIES

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the consolidated financial statements that are not currently accrued for. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution may have a material adverse effect on Customers’ results of operations for a particular period, and future changes in circumstances or additional information could result in accruals or resolution in excess of established accruals, which could adversely affect Customers’ results of operations, potentially materially.

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