Customers Bancorp Inc

Previous wording

Impact of Macroeconomic and Banking Industry Uncertainties, COVID-19 and Geopolitical Conflicts

Current wording

Impact of Macroeconomic and Banking Industry Uncertainties and Military Conflicts

Previous wording

Significant uncertainties as to future economic conditions continue to exist, including higher inflation and interest rate environment, elevated liquidity risk to the U.S. banking system and the exposure to the U.S. commercial real estate market, particularly to the regional banks, disruptions to global supply chain and labor markets, and higher oil and commodity prices exacerbated by the military conflicts between Russia and Ukraine and in Israel. Customers has taken deliberate actions in response, including maintaining higher levels of liquidity, reserves for credit losses on loans and leases and off-balance sheet credit exposures and strong capital ratios. Customers has shifted the mix of its loan portfolio towards low credit risk commercial loans with floating or adjustable interest rates to position the Bank for higher interest rates. Customers’ exposure to higher risk commercial real estate such as the office and retail sectors is minimal, each representing approximately 1% of the loan portfolio as of December 31, 2023. Customers has also shifted the mix of its available for sale debt securities portfolio towards variable rate, shorter duration debt securities. The Bank’s debt securities available for sale and held to maturity are available to be pledged as collateral to the FRB and FHLB for additional liquidity, including through the BTFP. The Bank had $4.6 billion in immediate available liquidity from the FRB and FHLB and cash on hand of $3.8 billion as of December 31, 2023. The Bank’s estimated FDIC insured deposits represented approximately 70.1% of our deposits (inclusive of accrued interest) as of December 31, 2023. When including collateralized and affiliate deposits as FDIC insured, this number increased to 77.0% of our deposits as of December 31, 2023. Customers is focused on growing its non-interest bearing and lower-cost interest-bearing deposits. Customers continues to monitor closely the impact of uncertainties affecting the macroeconomic conditions, the U.S. banking system, particularly regional banks, the military conflicts between Russia and Ukraine and in Israel, as well as any effects that may result from the federal government’s responses including future interest rate and regulatory actions; however, the extent to which inflation, interest rates and other macroeconomic and industry factors, the geopolitical conflicts and developments in the U.S. banking system will impact Customers’ operations and financial results in 2024 is highly uncertain.

Current wording

Significant uncertainties as to future economic conditions continue to exist, including risks of higher inflation and sustained higher interest rate environment, elevated liquidity risk to the U.S. banking system and the exposure to the U.S. commercial real estate market, particularly to the regional banks, disruptions to global supply chain and labor markets, and higher oil and commodity prices exacerbated by the military conflicts between Russia and Ukraine and in the Middle East. Customers has maintained higher levels of liquidity, reserves for credit losses on loans and leases and off-balance sheet credit exposures and strong capital ratios, and shifted the mix of its loan portfolio towards low credit risk commercial loans with floating or adjustable interest rates during the period of high interest rates. As the interest rates begin to decline, Customers has been reducing the Bank’s asset sensitivity through derivative hedging and investment securities portfolio rebalancing. Customers remains focused on growing its non-interest bearing and lower-cost interest-bearing deposits. Customers’ exposure to higher risk commercial real estate such as the office sector is minimal, representing approximately 1% of the loan portfolio as of December 31, 2024. The Bank’s debt securities available for sale and held to maturity are available to be pledged as collateral to the FRB and FHLB for additional liquidity. The Bank had approximately $5.3 billion in immediate available liquidity from the FRB and FHLB and cash on hand of $3.8 billion as of December 31, 2024. The Bank’s estimated FDIC insured deposits represented approximately 61.0% of our deposits (inclusive of accrued interest) as of December 31, 2024. When including collateralized and affiliate deposits as FDIC insured, this number increased to 70.0% of our deposits as of December 31, 2024. Customers continues to monitor closely the impact of uncertainties affecting the macroeconomic conditions, the U.S. banking system, particularly regional banks, the military conflicts between Russia and Ukraine and in the Middle East, as well as any effects that may result from the federal government’s responses including future rate and regulatory actions; however, the extent to which inflation, interest rates and other macroeconomic and industry factors, the geopolitical conflicts and developments in the U.S. banking system will impact Customers’ operations and financial results in 2025 is highly uncertain.

Previous wording

The ACL is established in accordance with our ACL policy. The ACL Committee, which includes the President, Chief Financial Officer, Chief Accounting Officer, Chief Lending Officer, and Chief Credit Officer, among others, reviews the adequacy of the ACL each quarter, together with Customers’ risk management team. The ACL policy, significant judgments and the related disclosures are reviewed by Customers’ Audit Committee of the Board of Directors.

Current wording

The ACL is established in accordance with our ACL policy. The ACL Committee, which includes the President, Chief Financial Officer, Chief Accounting Officer, Chief Banking Officer, and Chief Credit Officer, among others, reviews the adequacy of the ACL each quarter, together with Customers’ risk management team. The ACL policy, significant judgments and the related disclosures are reviewed by Customers’ Audit Committee of the Board of Directors.

Previous wording

The net increase in our estimated ACL as of December 31, 2023 as compared to December 31, 2022 resulted primarily from additional provision for credit losses from the recognition of weaker and increased uncertainties in macroeconomic forecasts and the recognition of ACL for PCD loans acquired from the FDIC, net of related charge-offs upon acquisition, partially offset by a decrease in loan balances held for investment. The provision for credit losses on loans and leases for the year ended December 31, 2023 was $70.8 million, for an ending ACL balance of $138.2 million ($135.3 million for loans and leases and $2.9 million for unfunded lending-related commitments) as of December 31, 2023.

Current wording

The net increase in our estimated ACL as of December 31, 2024 as compared to December 31, 2023 resulted primarily from an increase in commercial and industrial loan balances held for investment, partially offset by the recognition of improvements in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment. The provision for credit losses on loans and leases for the year ended December 31, 2024 was $69.8 million, for an ending ACL balance of $141.7 million ($136.8 million for loans and leases and $4.9 million for unfunded lending-related commitments) as of December 31, 2024.

Previous wording

To determine the ACL as of December 31, 2023, Customers utilized Moody’s December 2023 Baseline forecast to generate its modelled expected losses and considered Moody’s other alternative economic forecast scenarios to qualitatively adjust the modelled ACL by loan portfolio in order to reflect management’s reasonable expectations of current and future economic conditions. The Baseline forecast at December 31, 2023 assumed lower growth rates in macroeconomic forecasts compared to the macroeconomic forecasts used by Customers in 2022; the Federal Reserve Board not raising the effective fed funds rate further as it has reached its terminal range of 5.25% to 5.5%, and easing gradually beginning in mid-2024; the federal government avoiding a shutdown in the fourth quarter 2023 and remaining in continuous operation through 2024; recent U.S. bank failures are not symptomatic of a broader problem in the U.S. financial system and policymakers’ aggressive response will ensure that the failures do not weaken the financial system or the U.S. economy; the military conflict between Russia and Ukraine continuing for the foreseeable future but its fallout on energy, agriculture and other commodity markets and the global economy fading; the war in Israel not broadening to a regional conflict and disrupting global energy markets; the CPI rising 2.8% in 2024 and 2.4% in 2025; and the unemployment rate rising to 4.0% in 2024 and 4.1% in 2025. Customers continues to monitor the impact of the U.S. banking system turmoil, the military conflict between Russia and Ukraine and in Israel, inflation, and monetary and fiscal policy measures on the U.S. economy and, if pace of the expected recovery is worse than expected, further meaningful provisions for credit losses could be required.

Current wording

To determine the ACL as of December 31, 2024, Customers utilized Moody’s December 2024 Baseline forecast to generate its modelled expected losses and considered Moody’s other alternative economic forecast scenarios to qualitatively adjust the modelled ACL by loan portfolio in order to reflect management’s reasonable expectations of current and future economic conditions. The Baseline forecast at December 31, 2024 assumed slight improvements in macroeconomic forecasts compared to the macroeconomic forecasts used by Customers in 2023; the Federal Reserve Board lowering interest rates twice in 2025 and gradually reducing the policy rate to its neutral level by late 2026, as slower progress in reducing inflation and additional inflationary pressures from the new administration’s fiscal, tariff and immigration plans suggest a slower pace of normalization than previously expected; failures of several regional banks in the first half of 2023 and recent issues around other banks are not symptomatic of a broader problem in the U.S. financial system and policymakers’ aggressive response will ensure that the failures do not weaken the financial system or further undermine economic growth; the military conflict between Russia and Ukraine continuing for the foreseeable future but its impact on energy, agriculture and other commodity markets and the global economy has largely faded; the war in Israel not spreading to other parts of the Middle East and disrupting global energy markets and global shipping; the CPI rising 2.3% in 2025 and 2.8% in 2026; and the unemployment rate rising to 4.1% in 2025 and 2026. Customers continues to monitor the impact of the U.S. banking system weaknesses, the military conflicts between Russia and Ukraine and in the Middle East, inflation, and monetary and fiscal policy measures on the U.S. economy and, if pace of the expected recovery is worse than expected, further meaningful provisions for credit losses could be required.

Previous wording

The net decrease in our estimated ACL as of December 31, 2022 as compared to December 31, 2021 resulted primarily from the sale of consumer installment loans held for investment to a third-party sponsored VIE, partially offset by loan growth, deteriorating macroeconomic forecasts and increases in charge-offs primarily attributed to $11.0 million in commercial and industrial loans originated under the PPP that were subsequently determined to be ineligible for SBA forgiveness and guarantee and ultimately deemed uncollectible, a partial charge-off of a performing non-owner occupied commercial real estate loan that Customers decided to exit, and higher charge-offs in consumer installment loans and overdrawn deposit accounts. Refer to “NOTE 6 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for more information on the sale of consumer installment loans held for investment during the year ended December 31, 2022. The provision for credit losses on loans and leases for the year ended December 31, 2022 was $59.5 million, for an ending ACL balance of $133.9 million ($130.9 million for loans and leases and $3.0 million for unfunded lending-related commitments) as of December 31, 2022. To determine the ACL as of December 31, 2022, Customers utilized Moody’s December 2022 Baseline forecast to generate its modelled expected losses and considered Moody’s other alternative economic forecast scenarios to qualitatively adjust the modelled ACL by loan portfolio in order to reflect management’s reasonable expectations of current and future economic conditions. The Baseline forecast at December 31, 2022 assumed lower growth rates in macroeconomic forecasts compared to the macroeconomic forecasts used by Customers in 2021; oil prices remaining volatile, but gradually declining by mid-2023, recession fears, weakening global economies and the embargo on Russian crude oil from the Russian invasion of Ukraine; COVID-19 becoming less disruptive to global supply chains, tourism and business travel, immigration and labor markets; the Federal Reserve raising the effective fed funds rate to just under 5.0% and cutting the fed funds rate beginning in late 2023 and throughout 2024; the CPI rising 4.1% in 2023 and 2.4% in 2024; and the unemployment rate rising to 4.0% in 2023 and 4.1% in 2024.

Current wording

The net increase in our estimated ACL as of December 31, 2024 as compared to December 31, 2023 resulted primarily from an increase in commercial and industrial loan balances held for investment, partially offset by the recognition of improvements in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment. The provision for credit losses on loans and leases for the year ended December 31, 2023 was $70.8 million, for an ending ACL balance of $138.2 million ($135.3 million for loans and leases and $2.9 million for unfunded lending-related commitments) as of December 31, 2023. To determine the ACL as of December 31, 2023, Customers utilized Moody’s December 2023 Baseline forecast to generate its modelled expected losses and considered Moody’s other alternative economic forecast scenarios to qualitatively adjust the modelled ACL by loan portfolio in order to reflect management’s reasonable expectations of current and future economic conditions. The Baseline forecast at December 31, 2023 assumed lower growth rates in macroeconomic forecasts compared to the macroeconomic forecasts used by Customers in 2022; the Federal Reserve Board not raising the effective federal funds rate further as it has reached its terminal range of 5.25% to 5.5%, and easing gradually beginning in mid-2024; the federal government avoiding a shutdown in the fourth quarter 2023 and remaining in continuous operation through 2024; recent U.S. bank failures are not symptomatic of a broader problem in the U.S. financial system and policymakers’ aggressive response will ensure that the failures do not weaken the financial system or the U.S. economy; the military conflict between Russia and Ukraine continuing for the foreseeable future but its fallout on energy, agriculture and other commodity markets and the global economy fading; the war in Israel not broadening to a regional conflict and disrupting global energy markets; the CPI rising 2.8% in 2024 and 2.4% in 2025; and the unemployment rate rising to 4.0% in 2024 and 4.1% in 2025.

Previous wording

One of the most significant judgments influencing the ACL is the macroeconomic forecasts from Moody’s. Changes in the economic forecasts could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next. Given the dynamic relationship between macroeconomic variables within Customers’ modelling framework, it is difficult to estimate the impact of a change in any one individual variable on the ACL. However, to illustrate a hypothetical sensitivity analysis, management calculated a quantitative allowance using a 100% weighting applied to an adverse scenario. This scenario includes assumptions around an extended federal government shutdown causing consumer and business confidence to decline, recent bank failures raising fears of further collapse in the banking industry, reducing consumer confidence and causing banks to tighten lending standards, the Federal Reserve keeping the fed funds rate at the terminal range of 5.25% to 5.5% through the first quarter of 2024 but easing subsequently as the economy weakens, military conflict between Russia and Ukraine persisting longer than expected, the war in Israel leading to a wider regional conflict, rising unemployment and the U.S. economy falling into recession in the first quarter of 2024. Under this scenario, as an example, the unemployment rate is estimated at 6.7% and 7.4% in 2024 and 2025, respectively. These numbers represent a 2.7% and 3.3% higher unemployment estimate than Baseline scenario projections of 4.0% and 4.1% for the same time periods, respectively. To demonstrate the sensitivity to key economic parameters, management calculated the difference between a 100% Baseline weighting and a 100% adverse scenario weighting for modelled results. This would result in an incremental quantitative impact to the ACL of approximately $56.8 million at December 31, 2023. This resulting difference is not intended to represent an expected increase in ACL levels since (i) Customers may use a weighted approach applied to multiple economic scenarios for its ACL process, (ii) the highly uncertain economic environment, (iii) the difficulty in predicting inter-relationships between macroeconomic variables used in various economic scenarios, and (iv) the sensitivity analysis does not account for any qualitative adjustments incorporated by Customers as part of its overall ACL framework.

Current wording

One of the most significant judgments influencing the ACL is the macroeconomic forecasts from Moody’s. Changes in the economic forecasts could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next. Given the dynamic relationship between macroeconomic variables within Customers’ modelling framework, it is difficult to estimate the impact of a change in any one individual variable on the ACL. However, to illustrate a hypothetical sensitivity analysis, management calculated a quantitative allowance using a 100% weighting applied to an adverse scenario. This scenario includes assumptions around the impact of the new administration’s tariffs and deportations on the economy being significantly worse than expected; elevated interest rates weakening credit-sensitive consumer spending much more than anticipated, and rising inflation causing the Federal Reserve Board to initially raise the fed fund rate; military conflict between Russia and Ukraine persisting longer than expected; worries grow that the military conflict in Israel escalating; unemployment beginning to increase significantly in the first quarter of 2025 and peaking in the first quarter of 2026. Under this scenario, as an example, the unemployment rate is estimated at 7.3% and 8.0% in 2025 and 2026, respectively. These numbers represent a 3.2% and 3.9% higher unemployment estimate than Baseline scenario projections of 4.1% for the same time periods, respectively. To demonstrate the sensitivity to key economic parameters, management calculated the difference between a 100% Baseline weighting and a 100% adverse scenario weighting for modelled results. This would result in an incremental quantitative impact to the ACL of approximately $77 million at December 31, 2024. This resulting difference is not intended to represent an expected increase in ACL levels since (i) Customers may use a weighted approach applied to multiple economic scenarios for its ACL process, (ii) the highly uncertain economic environment, (iii) the difficulty in predicting inter-relationships between macroeconomic variables used in various economic scenarios, and (iv) the sensitivity analysis does not account for any qualitative adjustments incorporated by Customers as part of its overall ACL framework.

Previous wording

There is no certainty that Customers’ ACL will be appropriate over time to cover losses in our portfolio as economic and market conditions may ultimately differ from our reasonable and supportable forecast. Additionally, events adversely affecting specific customers, industries, or Customers’ markets, such as geopolitical instability, risks of rising inflation including a near-term recession, or worsening of the U.S. banking system turmoil, could severely impact our current expectations. If the credit quality of Customers’ customer base materially deteriorates or the risk profile of a market, industry, or group of customers changes materially, Customers’ net income and capital could be materially adversely affected which, in turn could have a material adverse effect on Customers’ financial condition and results of operations. The extent to which the geopolitical instability, risks of rising inflation and worsening of the U.S. banking system turmoil and federal government shutdown have and will continue to negatively impact Customers’ businesses, financial condition, liquidity and results will depend on future developments, which are highly uncertain and cannot be forecasted with precision at this time.

Current wording

There is no certainty that Customers’ ACL will be appropriate over time to cover losses in our portfolio as economic and market conditions may ultimately differ from our reasonable and supportable forecast. Additionally, events adversely affecting specific customers, industries, or Customers’ markets, such as geopolitical instability, risks of rising inflation or worsening of the U.S. banking system could severely impact our current expectations. If the credit quality of Customers’ customer base materially deteriorates or the risk profile of a market, industry, or group of customers changes materially, Customers’ net income and capital could be materially adversely affected which, in turn could have a material adverse effect on Customers’ financial condition and results of operations. The extent to which the geopolitical instability, risks of rising inflation and worsening of the U.S. banking system have and will continue to negatively impact Customers’ businesses, financial condition, liquidity and results will depend on future developments, which are highly uncertain and cannot be forecasted with precision at this time.

Previous wording

Customers reported net income available to common shareholders of $235.4 million for the year ended December 31, 2023, compared to $218.4 million for the year ended December 31, 2022. Factors contributing to the change in net income available to common shareholders for the year ended December 31, 2023 compared to the year ended December 31, 2022 were as follows:

Current wording

Customers reported net income available to common shareholders of $166.4 million for the year ended December 31, 2024, compared to $235.4 million for the year ended December 31, 2023. Factors contributing to the change in net income available to common shareholders for the year ended December 31, 2024 compared to the year ended December 31, 2023 were as follows:

Previous wording

Net interest income increased $63.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in average interest-earning assets and higher market interest rates on variable rate loans, interest-earning deposits and investments, offset in part by higher funding costs from higher average balances of certificate of deposits and other borrowings and increased market interest rates. The average interest-earning assets increased by $1.4 billion for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase in interest-earning assets was primarily driven by increases in interest-earning deposits, commercial and industrial loans and leases, primarily in variable rate lower credit risk specialty lending and multifamily loans, partially offset by decreases in PPP loans due to PPP loan forgiveness and guarantee payments from the SBA as the PPP program was substantially completed in early 2023, commercial loans to mortgage companies due to lower mortgage activity from rising interest rates, and consumer installment loans as Customers continued its de-risking strategy. NIM increased by 10 basis points to 3.29% for the year ended December 31, 2023, from 3.19% for the year ended December 31, 2022. The shift in the mix of interest-earning assets in a rising interest rate environment, mostly due to higher interest rates on variable rate loans in specialty lending, investments and interest-earning deposits, drove a 200 basis point increase in the yield on interest-earning assets. The higher-than-expected purchase discount accretion of approximately $27 million recognized on the Venture Banking loan portfolio acquired from the FDIC on June 15, 2023 due to loan maturities and increased payoffs, which is unlikely to occur in future periods, also contributed to the higher interest income in specialty lending and the NIM increase for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase in NIM was offset in part by a shift in the mix of interest-bearing liabilities in a rising interest rate environment, which drove a 249 basis point increase in the cost of interest-bearing liabilities, and reduced recognition of net deferred loan origination fees from PPP loans driven by lower loan forgiveness, which accelerated the recognition of net deferred loan origination fees, for the year ended December 31, 2023 compared to the year ended December 31, 2022. Customers’ total cost of deposits, including interest-bearing and non-interest bearing deposits, were 3.27% and 1.31% for the years ended December 31, 2023 and 2022, respectively. Customers’ total cost of funds, including non-interest bearing deposits and borrowings, was 3.45% and 1.42% for the years ended December 31, 2023 and 2022, respectively.

Current wording

Net interest income decreased $33.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to lower interest income in specialized lending, other commercial and industrial loans and leases and consumer installment loans and higher interest expense on deposits, offset in part by lower interest expense from lower average balances of borrowings. The decrease in interest income in specialized lending was mostly attributable to lower purchase discount accretion on the venture banking loan portfolio acquired in 2023. The average interest-earning assets decreased by $55.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease in interest-earning assets was primarily driven by decreases in specialized lending, PPP loans included in other commercial and industrial loans and leases, consumer installment loans and investment securities, partially offset by an increase in interest-earning deposits. Loan forgiveness and guarantee claims processing for the PPP program was substantially completed in early 2023. Consumer installment loans decreased as Customers continued its de-risking strategy and the build out of our held for sale strategy in 2024. Also in 2024, Customers executed investment securities portfolio repositioning to improve structural liquidity, reduce asset sensitivity and benefit margin. Customers invested the cash flows from investment securities, including proceeds from the sale of lower yielding investment securities into higher yielding loans and investment securities. NIM decreased by 14 basis points to 3.15% for the year ended December 31, 2024, from 3.29% for the year ended December 31, 2023. The lower purchase discount accretion on the venture banking loan portfolio acquired in 2023, reduced recognition of net deferred loan origination fees from PPP loans driven by lower loan forgiveness and guarantee payments and higher market interest rates on deposits contributed to the NIM decrease for the year ended December 31, 2024 compared to the year ended December 31, 2023. The higher market interest rates on deposits drove a 32 basis point increase in the cost of interest-bearing liabilities for the year ended December 31, 2024 compared to the year ended December 31, 2023. Customers’ total cost of deposits, including interest-bearing and non-interest bearing deposits, were 3.34% and 3.27% for the years ended December 31, 2024 and 2023, respectively, as higher market interest rates on deposits were partially offset by a favorable shift in deposit mix. Customers’ total cost of funds, including non-interest bearing deposits and borrowings, was 3.46% and 3.45% for the years ended December 31, 2024 and 2023, respectively.

Previous wording

Net charge-offs for the year ended December 31, 2023 were $69.0 million, or 48 basis points of average total loans and leases, compared to $66.4 million, or 45 basis points of average total loans and leases for the year ended December 31, 2022. The net charge-offs of $69.0 million for the year ended December 31, 2023 excludes $6.2 million of charge-offs for certain PCD loans acquired from the FDIC applied against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of the Venture Banking loan portfolio on June 15, 2023. Subsequent recoveries and charge-offs of these PCD loans are included in the period in which they occur. The increase in net charge-offs was primarily due to higher charge-offs for consumer installment loans, partially offset by subsequent recoveries of PCD loans acquired from the FDIC in 2023 and a partial charge-off of a performing non-owner occupied commercial real estate loan that Customers decided to exit in 2022.

Current wording

The $1.2 million decrease in the provision for credit losses included $1.0 million decrease in provision for credit losses on loans and leases for the year ended December 31, 2024 compared to the year ended December 31, 2023, which resulted primarily from the recognition of improvements in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment, partially offset by an increase in commercial and industrial loan balances held for investment. The ACL on off-balance sheet credit exposures is presented within accrued interest payable and other liabilities in the consolidated balance sheet and the related provision is presented as part of other non-interest expense on the consolidated statement of income. The ACL on loans and leases held for investment, represented 1.04% of total loans and leases receivable at December 31, 2024, compared to 1.13% at December 31, 2023. Net charge-offs for the year ended December 31, 2024 were $68.3 million, or 50 basis points of average total loans and leases, compared to $69.0 million, or 48 basis points of average total loans and leases for the year ended December 31, 2023. The net charge-offs of $69.0 million for the year ended December 31, 2023 excludes $6.2 million of charge-offs for certain PCD loans acquired from the FDIC applied against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of the venture banking loan portfolio on June 15, 2023. Subsequent recoveries and charge-offs of these PCD loans are included in the period in which they occur. The decrease in net charge-offs was primarily due to decreases in non-owner occupied commercial real estate and consumer installment loans, partially offset by higher charge-offs for commercial and industrial loans and subsequent recoveries of PCD loans acquired from the FDIC during the year ended December 31, 2023.

Previous wording

The provision for credit losses for the years ended December 31, 2023 and 2022 also included a provision for credit losses of $3.8 million on certain asset-backed securities and corporate notes and $0.6 million on certain asset-backed securities, respectively, included in our investment securities available for sale. Refer to “NOTE 6 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for additional information.

Current wording

The provision for credit losses for the years ended December 31, 2024 and 2023 also included a provision for credit losses of $3.6 million and $3.8 million, respectively, on certain debt securities available for sale. Refer to “NOTE 5 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for additional information.

Previous wording

The $38.3 million increase in non-interest income for the year ended December 31, 2023 compared to the year ended December 31, 2022 resulted primarily from $23.5 million of loss on sale of $521.8 million of consumer installment loans held for investment, inclusive of accrued interest and unamortized deferred loan origination costs, to a third-party sponsored VIE for the year ended December 31, 2022, a decrease of $22.6 million in net loss realized from the sale of AFS debt securities, and increases of $8.5 million in commercial lease income and $8.0 million in loans fees. These increases were offset in part by $7.5 million in legal settlement gain for the year ended December 31, 2022, $5.0 million in loss on sale of capital call lines of credit for the year ended December 31, 2023, and decreases of $4.4 million in gains from the sales of SBA and other loans, $3.9 million in bank-owned life insurance income, $2.3 million in mortgage warehouse transactional fees and $1.1 million in other non-interest income for the year ended December 31, 2023 compared to the year ended December 31, 2022. Refer to “NOTE 6 – INVESTMENT SECURITIES”, “NOTE 7 – LOANS HELD FOR SALE” and “NOTE 8 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated financial statements for additional information on the sales of consumer installment loans and capital call lines of credit.

Current wording

The $10.1 million decrease in non-interest income for the year ended December 31, 2024 compared to the year ended December 31, 2023 resulted primarily from increases of $26.4 million in net loss on sale of investment securities and $14.4 million in net loss on sale of loans and leases, which included a loss of $14.9 million on leases of commercial clean vehicles that were accounted for as sales-type leases during the year ended December 31, 2024, and a decrease of $2.3 million in bank-owned life insurance income. These decreases were offset in part by $11.4 million of unrealized gain on equity method investment with a fair value of $16.6 million purchased at discount for the year ended December 31, 2024, $5.0 million in loss on sale of capital call lines of credit for the year ended December 31, 2023, and increases of $6.9 million in loans fees, $5.5 million in other non-interest income and $4.5 million in commercial lease income for the year ended December 31, 2024 compared to the year ended December 31, 2023. The commercial clean vehicle leases generated the same amount of investment tax credits that were included as a benefit to income tax expense for the year ended December 31, 2024. Refer to “NOTE 8 – LEASES” to Customers’ audited consolidated financial statements for additional information on the sales-type leases of commercial clean vehicles. Refer to “NOTE 5 – INVESTMENT SECURITIES”, “NOTE 6 – LOANS HELD FOR SALE” and “NOTE 7 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated financial statements for additional information on the sales of consumer installment loans and capital call lines of credit.

Previous wording

The $48.0 million increase in non-interest expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from a legal settlement expense of $4.1 million for the year ended December 31, 2023, and increases of $26.2 million in FDIC assessments, non-income taxes, and regulatory fees, $20.9 million in salaries and employee benefits, $7.7 million in professional services, $6.9 million in commercial lease depreciation, $2.6 million in other non-interest expense and $2.1 million in loan servicing. These increases were offset in part by decreases of $19.4 million in technology, communication and bank operations and $3.5 million in occupancy for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Current wording

The $64.4 million increase in non-interest expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from increases of $42.6 million in salaries and employee benefits, $15.2 million in other non-interest expense, $6.6 million in FDIC assessments, non-income taxes and regulatory fees, $2.6 million in commercial lease depreciation, $1.7 million in occupancy and $1.4 million in advertising and promotion. These increases were offset in part by a legal settlement expense of $4.1 million for the year ended December 31, 2023, and decreases of $1.2 million in loan servicing, $0.4 million in technology, communication and bank operations and $0.2 million in professional services for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Previous wording

Customers’ effective tax rate was 24.4% for the year ended December 31, 2023 compared to 21.7% for the year the ended December 31, 2022. The increase in the effective tax rate for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to tax expense on surrendered bank-owned life insurance policies of $4.1 million, partially offset by the recognition of uncertain tax positions in 2022 and an increase in income tax credits.

Current wording

Customers’ effective tax rate was 19.1% for the year ended December 31, 2024 compared to 24.4% for the year the ended December 31, 2023. The decrease in the effective tax rate for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to an increase in investment tax credits, including $14.9 million of investment tax credits generated from commercial clean vehicles in 2024, and tax on the surrender of bank-owned life insurance policies of $4.1 million in 2023 that did not exist in 2024, partially offset by the increase of unrecognized tax benefits in 2024. The investment tax credits from commercial clean vehicle leases were the same amount as the loss on leases of commercial clean vehicles included within net gain (loss) on sale of loans and leases.

Previous wording

Preferred stock dividends were $14.7 million and $9.6 million for the years ended December 31, 2023 and 2022, respectively. There were no changes to the amount of preferred stock outstanding during the years ended December 31, 2023 and 2022.

Current wording

Preferred stock dividends were $15.0 million and $14.7 million for the years ended December 31, 2024 and 2023, respectively. There were no changes to the amount of preferred stock outstanding during the years ended December 31, 2024 and 2023.

Previous wording

(3)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans and leases, and deferred loan fees.

Current wording

(4)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans and leases, and deferred loan fees.

Previous wording

(4)Total costs of deposits (including interest bearing and non-interest-bearing) were 3.27% and 1.31% for the years ended December 31, 2023 and 2022, respectively.

Current wording

(5)Total costs of deposits (including interest bearing and non-interest-bearing) were 3.34% and 3.27% for the years ended December 31, 2024 and 2023, respectively.

Previous wording

(5)Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the years ended December 31, 2023 and 2022, presented to approximate interest income as a taxable asset and excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Please refer to the reconciliation schedule that follows this table.

Current wording

(6)Tax-equivalent basis, using an estimated marginal tax rate of 26% for both the years ended December 31, 2024 and 2023, presented to approximate interest income as a taxable asset.

Previous wording

Net interest income increased $63.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in average interest-earning assets and higher market interest rates on variable rate loans, interest-earning deposits and investments, offset in part by higher funding costs from higher average balances of certificate of deposits and other borrowings and increased market interest rates. The average interest-earning assets increased by $1.4 billion, primarily related to increases in interest-earning deposits, commercial and industrial loans and leases, primarily in variable rate lower credit risk specialty lending and multifamily loans, partially offset by decreases in PPP loans due to PPP loan forgiveness and guarantee payments from the SBA as forgiveness and guarantee claims processing for the PPP program was substantially completed in early 2023, commercial loans to mortgage companies and consumer installment loans. Commercial loans to mortgage companies decreased due to lower mortgage activity from rising interest rates. Consumer installment loans decreased as Customers continued its de-risking strategy.

Current wording

Net interest income decreased $33.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to lower interest income in specialized lending, other commercial and industrial loans and leases and consumer installment loans and higher interest expense on deposits, offset in part by lower interest expense from lower average balances of borrowings. The decrease in interest income in specialized lending was mostly attributable to lower purchase discount accretion on the venture banking loan portfolio acquired in 2023. The average interest-earning assets decreased by $55.5 million, primarily in specialized lending, PPP loans included in other commercial and industrial loans and leases, consumer installment loans and investment securities, partially offset by an increase in interest-earning deposits. Loan forgiveness and guarantee claims processing for the PPP program was substantially completed in early 2023. Consumer installment loans decreased as Customers continued its de-risking strategy and the build out of our held for sale strategy in 2024. Also in 2024, Customers executed investment securities portfolio repositioning to improve structural liquidity, reduce asset sensitivity and benefit margin. Customers invested the cash flows from investment securities, including proceeds from the sale of lower yielding investment securities into higher yielding loans and investment securities.

Previous wording

The NIM increased by 10 basis points to 3.29% for the year ended December 31, 2023, from 3.19% for the year ended December 31, 2022 resulting primarily from a shift in the mix of interest-earning assets in a rising interest rate environment, partially offset by a shift in the mix of interest-bearing liabilities in a rising interest rate environment and reduced recognition of net deferred loan origination fees from PPP loans driven by lower loan forgiveness, which accelerated the recognition of net deferred loan origination fees. The shift in the mix of interest-earning assets in a rising interest rate environment, mostly due to higher interest rates on variable rate loans in specialty lending, investments and interest-earning deposits, drove a 200 basis point increase in the yield on interest-earning assets. The higher-than-expected purchase discount accretion of approximately $27 million recognized on the Venture Banking loan portfolio acquired from the FDIC on June 15, 2023 due to loan maturities and increased payoffs, which is unlikely to occur in future periods, also contributed to the higher interest income in specialty lending and the NIM increase for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase in NIM was offset in part by a shift in the mix of interest-bearing liabilities in a rising interest rate environment, which drove a 249 basis point increase in the cost of interest-bearing liabilities. Customers’ total cost of deposits, including interest-bearing and non-interest bearing deposits was 3.27% and 1.31% for the years ended December 31, 2023 and 2022, respectively. Customers’ total cost of funds, including non-interest bearing deposits and borrowings was 3.45% and 1.42% for the years ended December 31, 2023 and 2022, respectively.

Current wording

The NIM decreased by 14 basis points to 3.15% for the year ended December 31, 2024, from 3.29% for the year ended December 31, 2023 resulting primarily from lower purchase discount accretion on the venture banking loan portfolio acquired in 2023, reduced recognition of net deferred loan origination fees from PPP loans driven by lower loan forgiveness and guarantee payments, and higher market interest rates on deposits. The higher market interest rates on deposits drove a 32 basis point increase in the cost of interest-bearing liabilities. Customers’ total cost of deposits, including interest-bearing and non-interest bearing deposits was 3.34% and 3.27% for the years ended December 31, 2024 and 2023, respectively, as higher market interest rates on deposits were partially offset by a favorable shift in deposit mix. Customers’ total cost of funds, including non-interest bearing deposits and borrowings was 3.46% and 3.45% for the years ended December 31, 2024 and 2023, respectively.

Previous wording

The provision for credit losses is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected lifetime losses in the loan and lease portfolio at the balance sheet date. Customers recorded a provision for credit losses for loans and leases of $70.8 million and $59.5 million for the years ended December 31, 2023 and 2022, respectively. Customers recorded a benefit to provision for credit losses of $0.1 million and a provision for credit losses of $0.9 million of lending-related commitments for the years ended December 31, 2023 and 2022, respectively. The $11.4 million increase in the provision for credit losses for loans and leases for the year ended December 31, 2023 compared to the year ended December 31, 2022 resulted primarily from the recognition of weaker and increased uncertainties in macroeconomic forecasts, partially offset by a decrease in loan balances held for investment.

Current wording

The provision for credit losses is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected lifetime losses in the loan and lease portfolio at the balance sheet date. Customers recorded a provision for credit losses on loans and leases of $69.8 million and $70.8 million for the years ended December 31, 2024 and 2023, respectively. Customers recorded a provision for credit losses of $2.0 million and a benefit to provision for credit losses of $0.1 million of lending-related commitments for the years ended December 31, 2024 and 2023, respectively. The $1.0 million decrease in the provision for credit losses for loans and leases for the year ended December 31, 2024 compared to the year ended December 31, 2023 resulted primarily from the recognition of improvements in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment, partially offset by an increase in commercial and industrial loan balances held for investment.

Previous wording

Net charge-offs for the year ended December 31, 2023 were $69.0 million, or 48 basis points of average total loans and leases, compared to $66.4 million, or 45 basis points of average total loans and leases for the year ended December 31, 2022. The net charge-offs of $69.0 million for the year ended December 31, 2023 excludes $6.2 million of charge-offs for certain PCD loans acquired from the FDIC applied against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of the Venture Banking loan portfolio on June 15, 2023. Subsequent recoveries and charge-offs of these PCD loans are included in the period in which they occur. The increase in net charge-offs primarily related to higher charge-offs for consumer installment loans, partially offset by subsequent recoveries of PCD loans acquired from the FDIC in 2023 and a partial charge-off of a performing non-owner occupied commercial real estate loan that Customers decided to exit in 2022.

Current wording

Net charge-offs for the year ended December 31, 2024 were $68.3 million, or 50 basis points of average total loans and leases, compared to $69.0 million, or 48 basis points of average total loans and leases for the year ended December 31, 2023. The net charge-offs of $69.0 million for the year ended December 31, 2023 excludes $6.2 million of charge-offs for certain PCD loans acquired from the FDIC applied against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of the venture banking loan portfolio on June 15, 2023. Subsequent recoveries and charge-offs of these PCD loans are included in the period in which they occur. The decrease in net charge-offs was primarily related to decreases in charge-offs for non-owner occupied commercial real estate and consumer installment loans, partially offset by higher charge-offs for commercial and industrial loans and subsequent recoveries of PCD loans acquired from the FDIC during the year ended December 31, 2023.

Previous wording

The provision for credit losses for the year ended December 31, 2023 and 2022 also included a provision for credit losses of $3.8 million on certain asset-backed securities and corporate notes and $0.6 million on certain asset-backed securities, respectively, included in our investment securities available for sale. Refer to “NOTE 6 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for additional information.

Current wording

The provision for credit losses for the years ended December 31, 2024 and 2023 also included a provision for credit losses of $3.6 million and $3.8 million, respectively, on certain debt securities available for sale. Refer to “NOTE 5 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for additional information.

Previous wording

Commercial lease income represents income earned on commercial operating leases generated by Customers’ commercial equipment financing group in which Customers is the lessor. The $8.5 million increase in commercial lease income for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from the growth of Customers’ equipment finance business.

Current wording

Commercial lease income represents income earned on commercial operating leases generated by Customers’ commercial equipment financing group in which Customers is the lessor. The $4.5 million increase in commercial lease income for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from the growth of Customers’ equipment finance business.

Previous wording

The $8.0 million increase in loan fees for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from an increase in fees earned on unused lines of credit, servicing related revenue and other fees from commercial borrowers.

Current wording

The $6.9 million increase in loan fees for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from increases in fees earned on unused lines of credit and other fees from borrowers.

Previous wording

Bank-owned life insurance income represents income earned on life insurance policies owned by Customers including an increase in cash surrender value of the policies and any benefits paid by insurance carriers under the policies. The $3.9 million decrease in bank-owned life insurance income for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from a decrease in death benefits paid by insurance carriers under the policies.

Current wording

Bank-owned life insurance income represents income earned on life insurance policies owned by Customers including an increase in cash surrender value of the policies and any benefits paid by insurance carriers under the policies. The $2.3 million decrease in bank-owned life insurance income for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from a decrease in death benefits paid by insurance carriers under the policies.

Previous wording

The $4.4 million decrease in gain on sale of SBA and other loans for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from $0.2 million in net gains on sales of $78.6 million of SBA loans, $0.2 million in losses on sales of consumer installment loans held for sale and a loss of $1.2 million, inclusive of transaction costs, on sales of $556.7 million in consumer installment loans that were classified as held for sale, accrued interest and unamortized deferred loan origination costs, to third-party sponsored VIEs in 2023, as compared to $3.2 million in gains from sales of $31.8 million in SBA loans and a commercial lease in 2022. Customers has continued to build out its held-for-sale strategy in 2023 in which we accumulate loans with the intent to sell in the future. There can be no assurance that Customers will realize gains on the sale of loans in 2024, given the significant uncertainty in the capital markets. Refer to “NOTE 6 – INVESTMENT SECURITIES” and “NOTE 7 – LOANS HELD FOR SALE” to Customers’ audited consolidated financial statements for additional information on the sale of consumer installment loans held for sale.

Current wording

The $14.4 million increase in net loss on sale of loans and leases for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from $14.9 million of loss on leases of commercial clean vehicles that were accounted for as sales-type leases, a loss of $0.3 million, inclusive of transaction costs, on sales of $202.5 million in consumer 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, to two third-party sponsored VIEs and $0.4 million in losses, inclusive of transaction costs, on sales of commercial and industrial loans and other consumer loans for the year ended December 31, 2024, as compared to $0.2 million in net gains on sales of $78.6 million of SBA loans, $0.2 million in losses on sales of consumer installment loans and a loss of $1.2 million, inclusive of transaction costs, on sales of $556.7 million in consumer 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, to two third-party sponsored VIEs for the year ended December 31, 2023. The commercial clean vehicle leases generated the same amount of investment tax credits that were included as a benefit to income tax expense for the year ended December 31, 2024. Refer to “NOTE 8 – LEASES” to Customers’ audited consolidated financial statements for additional information on the sales-type leases of commercial clean vehicles. Refer to “NOTE 5 – INVESTMENT SECURITIES” and “NOTE 6 – LOANS HELD FOR SALE” to Customers’ audited consolidated financial statements for additional information on the sale of consumer installment loans to third-party sponsored VIEs. There can be no assurance that Customers will realize gains on the sale of loans in 2025, given the significant uncertainty in the capital markets.

Previous wording

The $5.0 million increase in realized loss from the sale of capital call lines of credit for the year ended December 31, 2023 compared to the year ended December 31, 2022 reflected the sale of $670.0 million of short-term syndicated capital call lines of credit within specialty lending, inclusive of accrued interest and unamortized deferred loan origination costs for the year ended December 31, 2023, compared to no such sales for the year ended December 31, 2022. Customers decided to exit completely the non-strategic, short-term syndicated call lines of credit with borrowers that Customers had no deposit relationships. Refer to “NOTE 8 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated financial statements for additional information.

Current wording

The $5.0 million decrease in realized loss from the sale of capital call lines of credit for the year ended December 31, 2024 compared to the year ended December 31, 2023 reflected the sale of $670.0 million of short-term syndicated capital call lines of credit within specialized lending, inclusive of accrued interest and unamortized deferred loan origination costs for the year ended December 31, 2023, compared to no such sales for the year ended December 31, 2024. Customers decided to exit completely the non-strategic, short-term syndicated call lines of credit with borrowers that Customers had no deposit relationships during the year ended December 31, 2023. Refer to “NOTE 7 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated financial statements for additional information.

Previous wording

The $22.6 million decrease in net loss on sale of investment securities for the year ended December 31, 2023 compared to the year ended December 31, 2022 reflects net losses realized from the sales of $297.4 million in AFS debt securities for the year ended December 31, 2023, compared to the sales of $983.6 million in AFS debt securities for the year ended December 31, 2022. There can be no assurance that Customers will realize gains on the sale of investment securities in 2024, given the significant uncertainty in the capital markets and fluctuations in our funding needs, which may impact Customers’ investment strategy.

Current wording

The $26.4 million increase in net loss on sale of investment securities for the year ended December 31, 2024 compared to the year ended December 31, 2023 reflects net losses realized from the sales of $624.9 million in AFS debt securities for the year ended December 31, 2024, compared to the sales of $297.4 million in AFS debt securities for the year ended December 31, 2023. In 2024, Customers executed investment securities portfolio repositioning to improve structural liquidity, reduce asset sensitivity and benefit margin. Customers invested the proceeds from the sale of lower yielding investment securities into higher yielding loans and investment securities. There can be no assurance that Customers will realize gains from sales of investment securities in 2025, given the significant uncertainty in the capital markets and fluctuations in our funding needs, which may impact Customers’ investment strategy.

Previous wording

The $20.9 million increase in salaries and employee benefits for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from an increase in average full-time equivalent team members, annual merit increases, incentives and SERP expenses due to changes in market prices.

Current wording

The $42.6 million increase in salaries and employee benefits for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from an increase in average full-time equivalent team members including the addition of new banking teams, annual merit increases, incentives and severance.

Previous wording

The $19.4 million decrease in technology, communication and bank operations expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from decreases in deposit servicing-related expenses resulting from lower servicing fees and the discontinuation of the interchange maintenance fees paid to BM Technologies, the successor entity to BMT that was divested on January 4, 2021, partially offset by increases in processing and software expenses including a $6.5 million increase in fees paid for software as a service.

Current wording

The $0.4 million decrease in technology, communication and bank operations expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from a decrease in deposit servicing-related expenses resulting from lower servicing fees, partially offset by an increase of $9.0 million in fees for software and processing fees.

Previous wording

Customers incurred $29.6 million and $57.0 million in deposit servicing fees to BM Technologies under the deposit servicing agreement included within the technology, communication and bank operations expense during the years ended December 31, 2023 and 2022, respectively. Customers and BM Technologies agreed to remove Customers’ obligation under the deposit servicing agreement to pay BM Technologies the interchange maintenance fee which is the difference between the Durbin-exempt and Durbin-recalculated interchange revenues effective early 2023. On March 22, 2023, Customers agreed to amend and extend an existing white label relationship with a third party and BM Technologies, whereby Customers will continue to pay deposit servicing fees to BM Technologies. On December 1, 2023, Customers had an outflow of approximately $430.0 million of student-related deposits serviced by BM Technologies to a new sponsor bank.

Current wording

Customers incurred $19.6 million and $29.6 million in deposit servicing fees to BM Technologies, the successor entity to BMT that was divested on January 4, 2021, under the deposit servicing agreement, as amended, included within the technology, communication and bank operations expense during the years ended December 31, 2024 and 2023, respectively. On March 22, 2023, Customers agreed to amend and extend an existing white label relationship with a third party and BM Technologies, whereby Customers will continue to pay deposit servicing fees to BM Technologies. On December 1, 2023, Customers had an outflow of approximately $430.0 million of student-related deposits serviced by BM Technologies to a new sponsor bank. The remaining deposits serviced by BM Technologies in connection with an existing white label relationship are expected to remain at Customers Bank and continue to be serviced by BM Technologies until such accounts are transferred to another sponsor bank on or around March 31, 2025. The deposit servicing fees of $19.6 million incurred to BM Technologies for the year ended December 31, 2024 included $7.1 million for periods prior to 2024.

Previous wording

The $6.9 million increase in commercial lease depreciation for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from the growth of the operating lease arrangements originated by Customers’ commercial equipment financing group in which Customers is the lessor.

Current wording

The $2.6 million increase in commercial lease depreciation for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from the growth of the operating lease arrangements originated by Customers’ commercial equipment financing group in which Customers is the lessor.

Previous wording

The $7.7 million increase in professional services for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from increases in legal fees related to loan transactions and PPP related matters and consulting fees related to technology, compliance and risk management.

Current wording

The $0.2 million decrease in professional services for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from decreases in legal fees related to loan transactions and PPP related matters and other professional services, partially offset by increases in consulting fees including to enhance the Bank’s risk management infrastructure.

Previous wording

The $2.1 million increase in loan servicing for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from the growth in loan portfolios serviced by third parties.

Current wording

The $1.2 million decrease in loan servicing for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from lower balances in consumer installment loans serviced by third parties.

Previous wording

The $26.2 million increase in FDIC assessments, non-income taxes, and regulatory fees for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from an increase in FDIC assessment rates, including special assessments of $3.7 million. In October 2022, FDIC issued a final rule to increase the initial base deposit insurance assessment rate by two basis points for all insured depository institutions beginning in 2023. In November 2023, FDIC issued a final rule to implement a special assessment of 3.36 basis points on the uninsured deposits in excess of $5 billion as of December 31, 2022 to recover the losses arising from the closures of Silicon Valley Bank and Signature Bank in early March 2023. The special assessment will be paid over eight quarterly periods beginning in the first quarter 2024. Customers had approximately $6.4 billion in uninsured deposits as of December 31, 2022. The total special assessment amount to be paid by Customers may vary based on collections ultimately received by the FDIC to recover its losses.

Current wording

Customers incurred FDIC special assessments of $0.7 million and $3.7 million for the years ended December 31, 2024 and 2023, respectively. In November 2023, FDIC issued a final rule to implement a special assessment of 3.36 basis points on the uninsured deposits in excess of $5 billion as of December 31, 2022 to recover the losses arising from the closures of Silicon Valley Bank and Signature Bank in early March 2023. The special assessment is paid over eight quarterly periods beginning in the first quarter 2024. Customers had approximately $6.4 billion in uninsured deposits as of December 31, 2022. The FDIC currently projects that the special assessment will be collected for an additional two quarters beyond the initial eight-quarter collection period, at an estimated quarterly rate of 1.69 basis points. The total special assessment amount to be paid by Customers, including the projected number of additional quarters and the estimated rate applicable to those quarters, are subject to change depending on any future adjustments to estimated losses or amendments to uninsured deposits by the FDIC.

Previous wording

The $4.1 million increase in legal settlement expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 reflects expenses from a settlement with a third party PPP service provider.

Current wording

The $4.1 million decrease in legal settlement expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 reflects expenses from a settlement with a third party PPP service provider during the year ended December 31, 2023.

Previous wording

The table below presents income tax expense from continuing operations and the effective tax rate for the years ended December 31, 2023 and 2022.

Current wording

The table below presents income tax expense and the effective tax rate for the years ended December 31, 2024 and 2023.

Previous wording

The $17.3 million increase in income tax expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from an increase in pre-tax income from continuing operations and tax expense on surrendered bank-owned life insurance policies of $4.1 million. The increase in the effective tax rate for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily resulted from tax expense on surrendered bank-owned life insurance policies of $4.1 million, partially offset by the recognition of uncertain tax positions in 2022 and an increase in income tax credits. For the reconciliation of the effective tax rate and the statutory federal tax rate, refer to “NOTE 16 – INCOME TAXES” to Customers’ audited consolidated financial statements.

Current wording

The decrease in the effective tax rate for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from an increase in investment tax credits in 2024 and tax on the surrender of bank-owned life insurance policies in 2023 that did not repeat in 2024, partially offset by the increase of unrecognized tax benefits in 2024. For the reconciliation of the effective tax rate and the statutory federal tax rate, refer to “NOTE 15 – INCOME TAXES” to Customers’ audited consolidated financial statements.