Edgar Filing: Customers Bancorp, Inc.

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller Reporting Company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended June 30, 2012

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

For the transition period from to .

333-166225

(Commission File number)

LOGO

(Exact name of registrant as specified in its charter)

Pennsylvania

27-2290659

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

1015 Penn Avenue

Suite 103

Wyomissing PA 19610

(Address of principal executive offices)

(610) 933-2000

(Issuer’s telephone number)

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ¨ No x

On August 14, 2012, 8,579,310 shares of Voting Common Stock were outstanding, and 2,844,142 shares of Class B Non-Voting Common Stock were outstanding.

Customers Bancorp, Inc.

Table of Contents


Part I

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of June 30, 2012 and for the three and six month periods ended June 30, 2012 (unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	67

Item 4.	Controls and Procedures	67

PART II

Item 1.	Legal Proceedings	68

Item 1A.	Risk Factors	68

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3.	Defaults Upon Senior Securities	69

Item 4.	Mine Safety Disclosures	69

Item 5.	Other Information	69

Item 6.	Exhibits	69

SIGNATURES		71

Ex-31.1

Ex-31.2

Ex-32.1

Ex-32.2

Ex-101

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS – UNAUDITED

(Dollar amounts in thousands, except per share data)


	June 30, 2012			December 31, 2011
ASSETS
Cash and due from banks	$	2,956		$	7,765
Interest earning deposits		119,096			65,805

Cash and cash equivalents		122,052			73,570
Investment securities available for sale, at fair value		134,757			79,137
Investment securities held to maturity (fair value 2011 $330,809)		0			319,547
Loans held for sale		283,535			174,999
Loans receivable not covered under Loss Sharing Agreements with the FDIC		1,537,577			1,216,265
Loans receivable covered under Loss Sharing Agreements with the FDIC		113,293			126,276
Less: Allowance for loan and lease losses		(16,118	)		(15,032	)

Total loans receivable, net		1,634,752			1,327,509
FDIC loss sharing receivable		12,376			13,077
Bank premises and equipment, net		9,319			8,448
Bank-owned life insurance		39,901			29,268
Other real estate owned (2012 $8,612; 2011 $6,166 covered under Loss Sharing Agreements with the FDIC)		12,931			13,482
Goodwill and other intangibles		2,275			1,674
Restricted stock		20,125			21,818
Accrued interest receivable and other assets		11,009			15,003

Total assets	$	2,283,032		$	2,077,532

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing	$	155,009		$	114,044
Interest bearing		1,774,854			1,469,145

Total deposits		1,929,863			1,583,189
Federal funds purchased		5,000			5,000
Other borrowings		178,000			331,000
Subordinated debt		2,000			2,000
Accrued interest payable and other liabilities		9,453			8,595

Total liabilities		2,124,316			1,929,784

Shareholders’ equity:
Preferred stock, par value $1,000 per share; 100,000,000 shares authorized; none issued		0			0
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 11,395,302 shares issued and 11,347,683 outstanding at June 30, 2012 and December 31, 2011		11,395			11,395
Additional paid in capital		123,868			122,602
Retained earnings		24,112			14,496
Accumulated other comprehensive loss		(159	)		(245	)
Less: cost of treasury stock; 47,619 shares at June 30, 2012 and December 31, 2011		(500	)		(500	)

Total shareholders’ equity		158,716			147,748

Total liabilities and shareholders’ equity	$	2,283,032		$	2,077,532

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED

(Dollar amounts in thousands, except per share data)


	Three months ended					Six months ended
	June 30,					June 30,
	2012			2011		2012			2011
Interest income:
Loans receivable, including fees	$	17,350		$	10,176	$	32,973		$	19,678
Loans receivable, non-taxable, including fees		41			22		55			45
Investment securities, taxable		2,219			4,351		5,131			6,368
Investment securities, non-taxable		21			22		43			43
Other		69			75		134			313

Total interest income		19,700			14,646		38,336			26,447

Interest expense:
Deposits		5,424			5,646		10,496			11,096
Federal funds purchased		1			0		3			0
Securities sold under repurchase agreements		0			7		0			7
Borrowed funds		106			121		240			210
Subordinated debt		17			16		35			33

Total interest expense		5,548			5,790		10,774			11,346

Net interest income		14,152			8,856		27,562			15,101
Provision for loan and lease losses		2,738			2,850		4,538			5,650

Net interest income after provision for loan and lease losses		11,414			6,006		23,024			9,451

Non-interest income:
Deposit fees		117			94		233			198
Loan fees		9			66		201			146
Mortgage warehouse transactional fees		3,384			1,277		5,483			2,388
Bank owned life insurance		323			263		589			864
Gain on sale of investment securities		8,797			0		9,006			0
Accretion of FDIC loss sharing receivable		0			800		655			1,709
Loss on sale of other real estate owned		(660	)		0		(601	)		0
Gain on sale of loans		339			0		339			78
Gain on sale of repossessed assets		59			0		59			0
Gain on sale of bank premises and equipment		22			0		22			0
Other		247			142		443			533

Total non-interest income		12,637			2,642		16,429			5,916

Non-interest expense:
Salaries and employee benefits		5,598			3,973		11,095			8,088
Occupancy		1,849			1,004		3,228			1,991
Technology, communication and bank operations		691			513		1,338			826
Advertising and promotion		301			205		576			433
Professional services		769			1,304		1,655			2,730
FDIC assessments, taxes, and regulatory fees		867			431		1,536			1,253
Loan workout and other real estate owned		651			415		1,176			799
Impairment and losses on other real estate owned		0			15		0			211
Merger related expenses		0			0		28			0
Stock offering expenses		1,340			0		1,340			0
Other		1,907			578		2,688			1,198

Total non-interest expense		13,973			8,438		24,660			17,529

Income (loss) before tax expense (benefit)		10,078			210		14,793			(2,162	)
Income tax expense (benefit)		3,574			65		5,177			(631	)

Net income (loss)	$	6,504		$	145	$	9,616		$	(1,531	)

Basic income (loss) per share	$	0.57		$	0.01	$	0.85		$	(0.16	)

Diluted income (loss) per share	$	0.56		$	0.01	$	0.83		$	(0.16	)

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED

(Dollar amounts in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Net income (loss)	$	6,504		$	145		$	9,616		$	(1,531	)

Other comprehensive income, before tax:
Unrealized holding gains on securities arising during the period		543			5,789			629			5,927
Unrealized holding gain on securities transferred from the held- to-maturity category into the available-for-sale category		8,509			0			8,509			0
Reclassification adjustment for gains included in net income		(8,797	)		0			(9,006	)		0
Income tax expense related to items of other comprehensive income		(89	)		(1,967	)		(46	)		(2,015	)

Other comprehensive income, net of tax		166			3,822			86			3,912

Comprehensive income	$	6,670		$	3,967		$	9,702		$	2,381

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY – UNAUDITED

For the six months ended June 30, 2012 and 2011

(Dollar amounts in thousands)


	Shares of Common Stock Outstanding		Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock		Total
Balance, December 31, 2010		8,398,015	$	8,398	$	88,132	$	10,506		$	(1,896	)	$	0	$	105,140
Comprehensive income								(1,531	)		3,912					2,381
Stock-based compensation expense						329										329
Common stock issued, net of costs		1,388,893		1,389		14,138										15,527

Balance, June 30, 2011		9,786,908	$	9,787	$	102,599	$	8,975		$	2,016		$	0	$	123,377


	Shares of Common Stock Outstanding		Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance, December 31, 2011		11,347,683	$	11,395	$	122,602	$	14,496	$	(245	)	$	(500	)	$	147,748
Comprehensive income								9,616		86						9,702
Stock-based compensation expense						1,266										1,266

Balance, June 30, 2012		11,347,683	$	11,395	$	123,868	$	24,112	$	(159	)	$	(500	)	$	158,716

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(Dollar amounts in thousands)


Six Months Ended June 30,	2012			2011
Cash Flows from Operating Activities
Net income (loss)	$	9,616		$	(1,531	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Provision for loan and lease losses		4,538			5,650
Provision for depreciation and amortization		687			614
Stock-based compensation		1,266			329
Deferred taxes		188			0
Net amortization (accretion) of investment securities premiums and discounts		193			(28	)
Gain on sale of investment securities		(9,006	)		0
Gain on sale of loans		(339	)		(78	)
Origination of loans held for sale		(1,359,676	)		(1,080,828	)
Proceeds from the sale of loans held for sale		1,251,140			1,105,798
Increase in FDIC loss sharing receivable		(741	)		(1,709	)
Amortization (accretion) of fair value discounts		46			(311	)
Net loss on sale of other real estate owned		601			0
Impairment charges on other real estate owned		0			197
Change in investment in bank-owned life insurance		(633	)		(864	)
Decrease (increase) in accrued interest receivable and other assets		471			(56	)
Decrease in accrued interest payable and other liabilities		(3,185	)		(2,143	)

Net Cash (Used in) Provided by Operating Activities		(104,834	)		25,040

Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of investment securities available for sale		23,543			10,447
Proceeds from sales of investment securities available for sale		306,610			0
Purchases of investment securities available for sale		(108,249	)		(49,961	)
Purchases of investment securities held to maturity		0			(396,847	)
Proceeds from maturities, calls and principal repayments of investment securities held to maturity		50,968			15,071
Net increase in loans		(312,624	)		(59,885	)
Proceeds from sale of SBA loans		3,689			1,465
Proceeds from bank-owned life insurance		0			192
Purchases of bank-owned life insurance		(10,000	)		0
Proceeds from redemption (purchases of) restricted stock		1,693			(10,040	)
Reimbursements from the FDIC on loss sharing agreements		1,442			5,777
Purchases of bank premises and equipment		(1,558	)		(544	)
Proceeds from sales of other real estate owned		4,022			5,079

Net Cash Used in Investing Activities		(40,464	)		(479,246	)

Cash Flows from Financing Activities
Net increase in deposits		346,780			160,663
Net (decrease) increase in short-term borrowed funds		(153,000	)		141,000
Proceeds from issuance of common stock		0			15,527

Net Cash Provided by Financing Activities		193,780			317,190

Net Increase (Decrease) in Cash and Cash Equivalents		48,482			(137,016	)
Cash and Cash Equivalents — Beginning		73,570			238,724

Cash and Cash Equivalents — Ending	$	122,052		$	101,708

Supplementary Cash Flows Information

Interest paid	$	10,916		$	11,344
Income taxes paid		4,855			2,816

Non-cash items:

Transfer of loans to other real estate owned	$	4,941		$	3,948
Transfer of held to maturity investments to available for sale		268,671			0

See accompanying notes to the unaudited consolidated financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 1 — DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Customers Bancorp, Inc. (the “Bancorp”) is a Pennsylvania corporation formed on April 7, 2010 to facilitate the reorganization of Customers Bank (the “Bank”) into a bank holding company structure. The reorganization was completed on September 17, 2011. Any financial information for periods prior to September 17, 2011 contained herein reflects that of Customers Bank as the predecessor entity. The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although the Bancorp believes that the disclosures made are adequate to make the information not misleading. The accounting policies of Customers Bancorp, Inc. and Subsidiaries, as applied in the consolidated interim financial statements presented herein, are substantially the same as those followed on an annual basis as disclosed on pages 80 through 90 of Customers’ Annual Report on Form 10-K for the fiscal year ended December 31, 2011. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the latest Form 10-K. Operating results for the three-month and six-month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

The Bancorp’s unaudited consolidated interim financial statements reflect all adjustments that are, in the opinion of management, necessary for fair statement of the results of interim periods presented.

Certain amounts reported in the 2011 consolidated financial statements have been reclassified to conform to the 2012 presentation. These reclassifications did not significantly impact the Bancorp’s financial position or results of operations.

The Bancorp evaluated its June 30, 2012 consolidated financial statements for subsequent events through the date the financial statements were issued. The Bancorp is not aware of any additional subsequent events which would require recognition or disclosure in the financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 2 — REORGANIZATION AND ACQUISITION ACTIVITY

Reorganization into Customers Bancorp, Inc.

The Bancorp and the Bank entered into a Plan of Merger and Reorganization effective September 17, 2011 pursuant to which all of the issued and outstanding common stock of the Bank was exchanged on a three to one basis for shares of common stock and Class B Non-Voting common stock of the Bancorp. The Bank became a wholly owned subsidiary of the Bancorp (the “Reorganization”). The Bancorp is authorized to issue up to 100,000,000 shares of common stock, 100,000,000 shares of Class B Non-Voting Common Stock and 100,000,000 shares of preferred stock. All share and per share information has been retrospectively restated to reflect the Reorganization, including the three-for-one consideration used in the Reorganization.

In the Reorganization, the Bank’s issued and outstanding shares of common stock of 22,525,825 shares and Class B Non-Voting common stock of 6,834,895 shares converted into 7,508,473 shares of the Bancorp’s common stock and 2,278,294 shares of the Bancorp’s Class B Non-Voting common stock. Cash was paid in lieu of fractional shares. Outstanding warrants to purchase 1,410,732 shares of the Bank’s common stock with a weighted-average exercise price of $3.55 per share and 243,102 shares of the Bank’s Class B Non-Voting common stock with a weighted-average exercise price of $3.50 per share were converted into warrants to purchase 470,260 shares of the Bancorp’s common stock with a weighted-average exercise price of $10.64 per share and warrants to purchase 81,036 shares of the Bancorp’s Class B Non-Voting common stock with a weighted-average exercise price of $10.50 per share. Outstanding stock options to purchase 2,572,404 shares of the Bank’s common stock with a weighted-average exercise price of $3.50 per share and stock options to purchase 231,500 shares of the Bank’s Class B Non-Voting common stock with a weighted-average exercise price of $4.00 per share were converted into stock options to purchase 855,774 shares of the Bancorp’s common stock with a weighted-average exercise price of $10.49 per share and stock options to purchase 77,166 shares of the Bancorp’s Class B Non-Voting common stock with a weighted-average exercise price of $12.00 per share.

Acacia Federal Savings Bank Acquisition

On June 21, 2012, the Bancorp announced the entry into a definitive agreement to acquire Acacia Federal Savings Bank (Acacia), Falls Church, Virginia from two subsidiaries of Ameritas Mutual Holding Company (Ameritas). Acacia serves the metro Washington, D.C. market. Pursuant to the terms of the agreement, the Bancorp will acquire 100% of the stock of Acacia from Ameritas Mutual Holding Company for a total consideration of $65,000 to be paid in the Bancorp’s common stock (resulting in Ameritas indirectly holding a 9.9% voting ownership interest in the Bancorp), Class B Non-Voting Common Stock (resulting in Ameritas indirectly holding a 19.9% total common ownership interest (voting and non-voting, taking into account outstanding securities convertible into common stock) in the Bancorp), and Perpetual Non-Cumulative Preferred Stock, Series C (with an aggregate liquidation value of $65,000 minus the value of the common stock and Class B Non-Voting Common Stock issued in the transaction). The Bancorp expects to issue its voting and Class B Non-Voting common stock for about $45,000 at 115% of GAAP book value at the time of closing. Approximately $20,000 million of Tier 1 qualifying non-cumulative Perpetual Preferred Stock is expected to be issued by the Bancorp at a rate of 3.72% fixed for the first five years.

The Bancorp will not be acquiring any non-performing loans, other real estate owned or other assets that it deems to possess higher risk. In addition, the Bancorp will not be responsible for any severance obligations, charges associated with the early termination of the O.S.I. technology contract or lease termination charges on Acacia’s corporate headquarters beyond one year. The closing is expected to take place during the fourth quarter of 2012.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 3 — RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-03, Reconsideration of Effective Control for Repurchase Agreements. This ASU removes from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. This guidance was effective for the first interim or annual period beginning on or after December 15, 2011 and is to be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Adoption of this guidance has not had a material impact on results of operations or financial condition.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS. The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The guidance was effective for interim and annual periods beginning after December 15, 2011 is to be applied prospectively. Adoption of this guidance has not had a material impact on Customers Bancorp’s financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. Under the new guidance, the components of net income and the components of other comprehensive income can be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance eliminates the option to present components of other comprehensive income as part of the changes in shareholders’ equity. This amendment is to be applied retrospectively and was effective for fiscal years and interim periods ending after December 15, 2011 for public companies. Adoption of this guidance has not had a significant impact on Customers Bancorp’s financial statements.

In September, 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment. The purpose of this ASU is to simplify how entities test goodwill for impairment by adding a new first step to the preexisting goodwill impairment test under ASC Topic 350, Intangibles – Goodwill and other. This amendment gives the entity the option to first assess a variety of qualitative factors such as economic conditions, cash flows, and competition to determine whether it was more likely than not that the fair value of goodwill has fallen below its carrying value. If the entity determines that it is not likely that the fair value has fallen below its carrying value, then the entity will not have to complete the original two-step test under Topic 350. The amendments in this ASU were effective for impairment tests performed for fiscal years beginning after December 15, 2011. Adoption of this guidance has not had a material impact on results of operations or financial condition.

In December, 2011, the FASB issued ASU 2011-10, Derecognition of in Substance Real Estate – a Scope Clarification. This ASU clarifies previous guidance for situations in which a reporting entity would relinquish control of the assets of a subsidiary in order to satisfy the nonrecourse debt of the subsidiary. The ASU concludes that if control of the assets has been transferred to the lender, but not legal ownership of the assets; then the reporting entity must continue to include the assets of the subsidiary in its consolidated financial statements. The amendments in this ASU are effective for public entities for annual and interim periods beginning on or after June 15, 2012. Early adoption is permitted. Adoption of this guidance has not had a material impact on results of operations or financial condition.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 3 — RECENTLY ISSUED ACCOUNTING STANDARDS – (continued)

In December, 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, in an effort to improve comparability between U.S. GAAP and IFRS financial statements with regard to the presentation of offsetting assets and liabilities on the statement of financial position arising from financial and derivative instruments, and repurchase agreements. The ASU establishes additional disclosures presenting the gross amounts of recognized assets and liabilities, offsetting amounts, and the net balance reflected in the statement of financial position. Descriptive information regarding the nature and rights of the offset must also be disclosed. This ASU is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. Customers Bancorp does not expect this ASU to have a significant impact on its consolidated financial statements.

<!-- xbrl,dnap,"Reclassification"/>In June 2012, the FASB decided to issue an exposure draft that would require new footnote disclosures of items reclassified from accumulated other comprehensive income to net income. The exposure draft is expected to be issued during the third quarter of 2012 for a sixty-day comment period.

In July 2012, the FASB issued guidance amending the way companies test for indefinite-lived intangible asset impairment, allowing the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. This guidance is effective for interim and annual periods beginning after September 15, 2012, with early adoption permitted. Customers Bancorp will adopt the guidance in connection with its annual definite-lived intangible assets impairment test in the fourth quarter of fiscal 2012. Customers Bancorp does not expect the adoption will have a significant impact on its consolidated financial statements.

NOTE 4 — EARNINGS PER SHARE

Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if options to purchase common stock were exercised, warrants to purchase common stock were exercised, and restricted stock units vested and common stock was issued. Potential common shares that may be issued related to outstanding stock options are determined using the treasury stock method. The following are the components of the Bancorp’s earnings per share for the periods presented:


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Net income (loss) allocated to common shareholders	$	6,504	$	145	$	9,616	$	(1,531	)

Weighted-average number of common shares — basic		11,347,683		9,786,906		11,347,683		9,492,704
Stock-based compensation plans		188,673		121,575		183,859		0
Warrants		102,712		67,510		100,809		0

Weighted-average number of common shares — diluted		11,639,068		9,975,991		11,632,351		9,492,704

Basic earnings (loss) per share	$	0.57	$	0.01	$	0.85	$	(0.16	)

Diluted earnings (loss) per share	$	0.56	$	0.01	$	0.83	$	(0.16	)

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 4 — EARNINGS PER SHARE – (continued)

For the quarter and six months ended June 30, 2012, respectively, 1,590,162 and 1,594,976 share-based compensation awards and 567,329 and 569,232 warrants were outstanding but were not included in the computation of diluted earnings per share because their common stock equivalents were anti-dilutive.

For the quarter and six months ended June 30, 2011, respectively, 292,874 and 934,634 share-based compensation awards and 11,197 and 551,278 warrants were outstanding but were not included in the computation of diluted earnings per share because their common stock equivalents were anti-dilutive.

NOTE 5 — INVESTMENT SECURITIES

On May 9, 2012, Customers Bancorp reclassified its $269,000 held-to-maturity investment portfolio to available for sale. Due to its strong outlook for loan growth, falling interest rates, and its recent decision to postpone its initial public offering of stock, the Bancorp decided to proceed with this reclassification to provide liquidity. The reclassification increased total shareholders’ equity by $5,300 associated with the recording of the net security gains on the portfolio, net of tax effects, to accumulated other comprehensive income. Subsequently, the Bancorp sold $257,645 of available-for-sale securities and realized a pre-tax gain of $8,797. In accordance with regulatory and accounting requirements, the Bancorp is prohibited from classifying security purchases as held to maturity for a period of two years.

The amortized cost and approximate fair value of investment securities as of June 30, 2012 and December 31, 2011 are summarized as follows:


	June 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
*Available for Sale:*

Mortgage-backed securities (1) (2)	$	107,360	$	661	$	(113	)	$	107,908
Asset-backed securities		574		8		0			582
Municipal securities		2,062		2		(6	)		2,058
Corporate notes		25,000		0		(797	)		24,203
Equities		6		0		0			6

	$	135,002	$	671	$	(916	)	$	134,757

(1)	Includes an interest only strip security of $2,632.

(2)	Includes private-label securities with an aggregate amortized cost of $701 and an aggregate fair value of $635.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 5 — INVESTMENT SECURITIES – (continued)


	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
*Available for Sale:*
U.S. Treasury and government agencies	$	1,002	$	0	$	(1	)	$	1,001
Mortgage-backed securities (1) (2)		55,818		581		(107	)		56,292
Asset-backed securities		622		5		0			627
Municipal securities		2,071		0		(71	)		2,000
Corporate notes		20,000		0		(783	)		19,217

	$	79,513	$	586	$	(962	)	$	79,137

*Held to Maturity:*
Mortgage-backed securities	$	319,547	$	11,262	$	0		$	330,809

(1)	Includes an interest only strip security of $2,894.

(2)	Includes private-label securities with an aggregate amortized cost of $765 and an aggregate fair value of $662.

The following tables shows proceeds from the sale of available for sale investment securities, gross gains and gross losses on those sales of securities for the three and six months ended June 30, 2012:


	Three months ended June 30,
	2012		2011
Proceeds from sale of available-for-sale investment securities	$	257,645	$	0

Gross gains	$	8,797	$	0
Gross losses		0		0

Net gains	$	8,797	$	0


	Six months ended June 30,
	2012		2011
Proceeds from sale of available-for-sale investment securities	$	306,610	$	0

Gross gains	$	9,006	$	0
Gross losses		0		0

Net gains	$	9,006	$	0

These gains and losses were determined using the specific identification method and were included in non-interest income.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 5 — INVESTMENT SECURITIES – (continued)

The following table shows investments securities by stated maturity. Investment securities backed by mortgages have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and are, therefore, classified separately with no specific maturity date:


	June 30, 2012
	Available for Sale
	Amortized Cost		Fair Value
Due in one year or less	$	94	$	94
Due after one year through five years		27,461		26,667
Due after five years through ten years		46		47
Due after ten years		35		35

		27,636		26,843
Mortgage-backed securities (1)		107,360		107,908

Total, excluding equities	$	134,996	$	134,751

(1)	Includes an interest only strip security of $2,632.

The Bancorp’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time for individual securities that have been in a continuous unrealized loss position, at June 30, 2012 and December 31, 2011, were as follows:


	June 30, 2012
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
*Available for Sale:*

Mortgage-backed securities	$	10,509	$	(42	)	$	425	$	(71	)	$	10,934	$	(113	)
Municipal securities		0		0			1,003		(6	)		1,003		(6	)
Corporate notes		24,203		(797	)		0		0			24,203		(797	)

Total	$	34,712	$	(839	)	$	1,428	$	(77	)	$	36,140	$	(916	)

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 5 — INVESTMENT SECURITIES – (continued)


	December 31, 2011
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
*Available for Sale:*

U.S. Treasury and government agencies	$	1,001	$	(1	)	$	0	$	0		$	1,001	$	(1	)
Mortgage-backed securities		166		(1	)		412		(106	)		578		(107	)
Municipal securities		0		0			2,000		(71	)		2,000		(71	)
Corporate notes		19,218		(783	)		0		0			19,218		(783	)

Total	$	20,385	$	(785	)	$	2,412	$	(177	)	$	22,797	$	(962	)

At June 30, 2012, there were eight available-for-sale investment securities in the less-than-twelve-month category and seven available-for-sale investment securities in the twelve-month-or-more category. At December 31, 2011, there were ten available-for-sale investment securities in the less-than-twelve-month category and six available-for-sale investment securities in the twelve-month-or-more category. In management’s opinion, the unrealized losses reflect primarily changes in interest rates due to changes in economic conditions and the liquidity of the market, and not credit quality. In addition, the Bancorp does not believe that it will be more likely than not that the Bancorp will be required to sell the securities prior to maturity or market-price recovery.

During June 2012, Moody’s downgraded all five corporate bonds in the Bancorp’s portfolio. This downgrade was anticipated since Moody’s placed these bonds on negative watch in February 2012. The Bancorp analyzed these bonds in more detail at the time of downgrade. The Bancorp does not intend to sell these debt securities prior to recovery, and it is more likely than not that the Bancorp will not have to sell these debt securities prior to recovery. These bonds continue to pay their scheduled interest payments on time. No additional downgrades are anticipated at this time.

At June 30, 2012 and December 31, 2011, the Bancorp had pledged investment securities aggregating $106,618 and $311,442, respectively, as collateral for borrowings.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The composition of net loans receivable at June 30, 2012 and December 31, 2011 was as follows:


	2012			2011
Construction	$	30,859		$	37,926
Commercial real estate		45,893			48,789
Commercial and industrial		12,324			13,084
Residential real estate		20,205			22,465
Manufactured housing		4,012			4,012

Total loans receivable covered under FDIC Loss Sharing Agreements (1)		113,293			126,276

Construction		12,986			15,271
Commercial real estate		458,377			352,077
Commercial and industrial		72,140			69,736
Mortgage warehouse		801,994			619,318
Manufactured housing		98,146			104,565
Residential real estate		91,539			53,476
Consumer		2,402			2,211

Total loans receivable not covered under FDIC Loss Sharing Agreements		1,537,584			1,216,654

Total loans receivable		1,650,877			1,342,930

Deferred (fees) costs, net		(7	)		(389	)
Allowance for loan and lease losses		(16,118	)		(15,032	)

Loans receivable, net	$	1,634,752		$	1,327,509

(1)	Loans that were acquired in the two FDIC assisted transactions and are covered under loss sharing agreements with the FDIC are referred to as “covered” loans throughout these financial statements.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

Non-Covered Nonaccrual Loans and Loans Past Due

The following table summarizes non-covered loans, by class, as of June 30, 2012:


	30-89 Days Past Due (1)		Greater Than 90 Days (1)		Total Past Due (1)		Non- Accrual		Current (2)		Total Loans (4)
Commercial and industrial
Acquired with credit deterioration	$	0	$	0	$	0	$	966	$	3,946	$	4,912
Remaining loans (5)		1,113		0		1,113		986		65,129		67,228
Commercial real estate
Acquired with credit deterioration		0		0		0		6,977		52,365		59,342
Remaining loans (5)		3,542		0		3,542		15,350		380,143		399,035
Construction
Acquired with credit deterioration		752		0		752		0		3,247		3,999
Remaining loans (5)		357		0		357		3,563		5,067		8,987
Residential real estate
Acquired with credit deterioration		689		0		689		1,229		15,229		17,147
First mortgages (5)		304		0		304		595		52,970		53,869
Home equity (5)		381		0		381		657		19,485		20,523
Consumer
Acquired with credit deterioration		10		0		10		83		472		565
Remaining loans (5)		67		0		67		5		1,765		1,837
Mortgage warehouse
Acquired with credit deterioration		0		0		0		0		0		0
Remaining loans (5)		0		0		0		0		801,994		801,994
Manufactured housing (3)
Acquired with credit deterioration		2,252		0		2,252		2,328		2,977		7,557
Remaining loans (5)		1,464		0		1,464		0		89,125		90,589

Total	$	10,931	$	0	$	10,931	$	32,739	$	1,493,914	$	1,537,584

(1)	Loan balances do not include non-accrual loans.

(2)	Loans where payments are due within 29 days of the scheduled payment date.

(3)	Purchased manufactured housing loans, purchased in 2010, are subject to cash reserves held at the Bank that are used to fund the past-due payments when the loan becomes 90 days or more delinquent.

(4)	Loans exclude deferred costs and fees.

(5)	Loans that were not identified at the acquisition date as a loan with credit deterioration.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

The following table summarizes non-covered loans, by class, as of December 31, 2011:


	30-89 Days Past Due (1)		Greater Than 90 Days (1)		Total Past Due(1)		Non- Accrual		Current (2)		Total Loans (4)
Commercial and industrial
Acquired with credit deterioration	$	0	$	0	$	0	$	178	$	4,946	$	5,124
Remaining loans (5)		0		0		0		2,817		61,795		64,612
Commercial real estate
Acquired with credit deterioration		89		0		89		8,527		57,542		66,158
Remaining loans (5)		1,025		0		1,025		18,729		266,165		285,919
Construction
Acquired with credit deterioration		0		0		0		0		3,393		3,393
Remaining loans (5)		0		0		0		5,630		6,248		11,878
Residential real estate
Acquired with credit deterioration		1,002		0		1,002		1,423		16,156		18,581
First mortgages (5)		314		0		314		700		14,652		15,666
Home equity (5)		183		0		183		823		18,223		19,229
Consumer
Acquired with credit deterioration		7		0		7		6		233		246
Remaining loans (5)		14		0		14		34		1,917		1,965
Mortgage warehouse		0		0		0		0		619,318		619,318
Manufactured housing (3)
Acquired with credit deterioration		1,681		0		1,681		0		7,048		8,729
Remaining loans (5)		3,481		0		3,481		0		92,355		95,836

Total	$	7,796	$	0	$	7,796	$	38,867	$	1,169,991	$	1,216,654

(1)	Loan balances do not include non-accrual loans.

(2)	Loans where payments are due within 29 days of the scheduled payment date.

(3)	Purchased manufactured housing loans, purchased in 2010, are subject to cash reserves held at the Bank that are used to fund the past-due payments when the loan becomes 90 days or more delinquent.

(4)	Loans exclude deferred costs and fees.

(5)	Loans that were not identified at the acquisition date as a loan with credit deterioration.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

Covered Nonaccrual Loans and Loans Past Due

The following table summarizes covered loans, by class, as of June 30, 2012:


	30-89 Days Past Due (1)		Greater Than 90 Days (1)		Total Past Due (1)		Nonaccrual		Current (3)		Total Loans
Commercial and industrial
Acquired with credit deterioration	$	0	$	0	$	0	$	485	$	1,691	$	2,176
Remaining loans (2)		290		0		290		153		9,705		10,148
Commercial real estate
Acquired with credit deterioration		0		0		0		14,780		0		14,780
Remaining loans (2)		1,230		0		1,230		1,811		28,072		31,113
Construction
Acquired with credit deterioration		0		0		0		17,301		0		17,301
Remaining loans (2)		0		0		0		6,643		6,915		13,558
Residential real estate
Acquired with credit deterioration		0		0		0		2,422		0		2,422
First mortgages (2)		0		0		0		0		9,597		9,597
Home equity (2)		208		0		208		324		7,654		8,186
Manufactured housing
Acquired with credit deterioration		0		0		0		70		0		70
Remaining loans (2)		108		0		108		108		3,726		3,942

	$	1,836	$	0	$	1,836	$	44,097	$	67,360	$	113,293

(1)	Loans balances do not include nonaccrual loans.

(2)	Loans that were not identified at the acquisition date as a loan with credit deterioration.

(3)	Loans where payments are due within 29 days of the scheduled payment date.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

The following table summarizes covered loans, by class, as of December 31, 2011:


	30-89 Days Past Due (1)		Greater Than 90 Days (1)		Total Past Due (1)		Nonaccrual		Current (3)		Total Loans
Commercial and industrial
Acquired with credit deterioration	$	0	$	0	$	0	$	378	$	0	$	378
Remaining loans (2)		2,672		0		2,672		0		10,034		12,706
Commercial real estate
Acquired with credit deterioration		0		0		0		16,204		2,039		18,243
Remaining loans (2)		1,074		0		1,074		1,462		28,010		30,546
Construction
Acquired with credit deterioration		0		0		0		18,896		3,266		22,162
Remaining loans (2)		92		0		92		2,584		13,088		15,764
Residential real estate
Acquired with credit deterioration		0		0		0		4,002		0		4,002
First mortgages (2)		570		0		570		0		8,601		9,171
Home equity (2)		281		0		281		1,532		7,479		9,292
Manufactured housing
Acquired with credit deterioration		0		0		0		77		0		77
Remaining loans (2)		6		0		6		78		3,851		3,935

	$	4,695	$	0	$	4,695	$	45,213	$	76,368	$	126,276

(1)	Loans balances do not include nonaccrual loans.

(2)	Loans receivable that were not identified upon acquisition as a loan with credit deterioration.

(3)	Loans where payments are due within 29 days of the scheduled payment date.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

Impaired Loans — Covered and Non-Covered

The following table presents a summary of impaired loans at or for the six months ended June 30, 2012.


	Unpaid Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	2,393			$	5,593	$	72
Commercial real estate		19,650				20,329		303
Construction		6,991				7,788		16
Consumer		64				101		0
Residential real estate		1,019				2,131		10
With an allowance recorded:
Commercial and industrial		839	$	481		806		4
Commercial real estate		5,998		1,631		8,955		81
Construction		7,318		3,007		7,196		100
Consumer		19		20		20		1
Residential real estate		735		45		822		0

Total	$	45,026	$	5,184	$	53,741	$	587

(1)	Also represents the recorded investment.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

The following table presents a summary of impaired loans at December 31, 2011 and activity recorded for the six months ended June 30, 2011.


	December 31, 2011				For the six months ended June 30, 2011
	Unpaid Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial and industrial	$	6,975			$	1,129	$	19
Commercial real estate		20,431				12,102		210
Construction		8,773				1,816		32
Residential real estate		343				239		0
With an allowance recorded:
Commercial and industrial		800	$	426		6,339		140
Commercial real estate		12,195		2,047		17,398		346
Construction		7,369		2,986		5,252		55
Consumer		22		22		2		0
Residential real estate		869		195		1,068		13

Total	$	57,777	$	5,676	$	45,345	$	815

(1)	Also represents the recorded investment.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

Troubled Debt Restructurings

At June 30, 2012, there was $7,796 in loans categorized as troubled debt restructurings (“TDR”). Of this amount, $3,911 was performing in accordance with the modified terms. All TDRs are considered impaired loans in the calendar year of their restructuring. In subsequent years, a TDR may cease being classified as impaired if the loan was modified at a market rate at the time of modification and has performed according to the modified terms for at least six months. A loan that has been modified at a below market rate will return to performing status if it satisfies the six-month performance requirement; however, it will remain classified as impaired.

The following is an analysis of loans modified in a troubled debt restructuring by type of concession for the three and six months ended June 30, 2012. There were no modifications that involved forgiveness of debt.


Three months ended June 30, 2012	TDRs in compliance with their modified terms and accruing interest		TDRs that are not accruing interest		Total
Extended under forbearance	$	0	$	145	$	145
Multiple extensions resulting from financial difficulty		103		0		103
Interest-rate reductions		255		0		255

Total	$	358	$	145	$	503


Six months ended June 30, 2012	TDRs in compliance with their modified terms and accruing interest		TDRs that are not accruing interest		Total
Extended under forbearance	$	0	$	145	$	145
Multiple extensions resulting from financial difficulty		103		0		103
Interest-rate reductions		347		0		347

Total	$	450	$	145	$	595

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

Troubled Debt Restructurings (continued)

The following table provides, by class, the number of loans and leases modified in troubled debt restructurings and the recorded investments and unpaid principal balances during the three and six months ended June 30, 2012.


Three months ended June 30, 2012	TDRs in compliance with their modified terms and accruing interest				TDRs that are not accruing interest
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Commercial and industrial		0	$	0		0	$	0
Commercial real estate		0		0		0		0
Construction		0		0		0		0
Manufactured housing		7		358		0		0
Residential real estate		0		0		1		145
Consumer		0		0		0		0

Total		7	$	358		1	$	145


Six months ended June 30, 2012	TDRs in compliance with their modified terms and accruing interest				TDRs that are not accruing interest
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Commercial and industrial		0	$	0		0	$	0
Commercial real estate		0		0		0		0
Construction		0		0		0		0
Manufactured housing		9		450		0		0
Residential real estate		0		0		1		145
Consumer		0		0		0		0

Total		9	$	450		1	$	145

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

Troubled Debt Restructurings (continued)

As of June 30, 2012 and 2011, there were no commitments to lend additional funds to debtors whose terms have been modified in troubled debt structuring.

All loans and leases modified in troubled debt restructurings are evaluated for impairment. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for credit losses. There were no specific reserves resulting from the addition of TDR modifications, and there were no TDRs with subsequent defaults in the three and six month periods ended June 30, 2012 and June 30, 2011.

Credit Quality Indicators

Credit quality indicators for commercial and industrial, commercial real estate, residential real estate and construction loans are based on an internal risk-rating system and are assigned at the loan origination and reviewed on a periodic or on an “as needed” basis. Consumer, mortgage warehouse and manufactured housing loans are evaluated based on the payment activity of the loan.

The following presents the credit quality tables as of June 30, 2012 and December 31, 2011 for the non-covered loan portfolio.


	June 30, 2012
	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Pass/Satisfactory	$	68,996	$	423,925	$	8,718	$	88,988
Special Mention		2,026		11,654		587		247
Substandard		821		21,281		2,611		2,304
Doubtful		297		1,517		1,070		0

Total	$	72,140	$	458,377	$	12,986	$	91,539


	Consumer		Mortgage Warehouse		Manufactured Housing
Performing	$	2,339	$	801,994	$	98,146
Nonperforming (1)		63		0		0

Total	$	2,402	$	801,994	$	98,146

(1)	Includes loans that are on nonaccrual status or past due ninety days of more at June 30, 2012.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)


	December 31, 2011
	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Pass/Satisfactory	$	61,851	$	307,734	$	9,314	$	50,517
Special Mention		57		13,402		237		0
Substandard		7,506		29,278		4,349		2,959
Doubtful		322		1,663		1,371		0

Total	$	69,736	$	352,077	$	15,271	$	53,476


	Consumer		Mortgage Warehouse		Manufactured Housing
Performing	$	2,171	$	619,318	$	104,565
Nonperforming (1)		40		0		0

Total	$	2,211	$	619,318	$	104,565

(1)	Includes loans that are on nonaccrual status or past due ninety days of more at December 31, 2011.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

The following presents the credit quality tables as of June 30, 2012 and December 31, 2011 for the covered loan portfolio.


	June 30, 2012
	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Pass/Satisfactory	$	9,942	$	29,425	$	2,953	$	14,887
Special Mention		1,744		222		4,057		2,567
Substandard		638		16,246		23,849		2,751
Doubtful		0		0		0		0

Total	$	12,324	$	45,893	$	30,859	$	20,205


	Manufactured Housing
Performing	$	3,834
Nonperforming (1)		178

Total	$	4,012

(1)	Includes loans that are on nonaccrual status or past due ninety days or more at June 30, 2012.


	December 31, 2011
	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Pass/Satisfactory	$	10,928	$	29,892	$	5,539	$	16,476
Special Mention		1,778		1,633		7,641		455
Substandard		378		17,264		24,746		5,534
Doubtful		0		0		0		0

Total	$	13,084	$	48,789	$	37,926	$	22,465


	Manufactured Housing
Performing	$	3,857
Nonperforming (1)		155

Total	$	4,012

(1)	Includes loans that are on nonaccrual status or past due ninety days or more at December 31, 2011.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

Allowance for loan and lease losses

The changes in the allowance for loan and lease losses for the three and six months ended June 30, 2012 by loan segment based on impairment method:


Three months ended June 30, 2012	Commercial and Industrial			Commercial Real Estate			Construction			Residential Real Estate
Beginning Balance, April 1, 2012	$	1,464		$	7,117		$	5,099		$	775
Charge-offs		0			(938	)		(979	)		(179	)
Recoveries		66			14			0			1
Provision for loan and lease losses		(27	)		2,073			232			483

Ending Balance, June 30, 2012	$	1,503		$	8,266		$	4,352		$	1,080


Three months ended June 30, 2012 (continued)	Manufactured Housing		Consumer			Mortgage Warehouse		Unallocated			Total
Beginning Balance, April 1, 2012	$	33	$	95		$	763	$	54		$	15,400
Charge-offs		0		(10	)		0		0			(2,106	)
Recoveries		0		5			0		0			86
Provision for loan and lease losses		8		(16	)		39		(54	)		2,738

Ending Balance, June 30, 2012	$	41	$	74		$	802	$	0		$	16,118


Six months ended June 30, 2012	Commercial and Industrial			Commercial Real Estate			Construction			Residential Real Estate
Beginning Balance, January 1, 2012	$	1,441		$	7,029		$	4,656		$	844
Charge-offs		(34	)		(1,143	)		(2,191	)		(200	)
Recoveries		66			50			0			5
Provision for loan and lease losses		30			2,330			1,887			431

Ending Balance, June 30, 2012	$	1,503		$	8,266		$	4,352		$	1,080


Six months ended June 30, 2012 (continued)	Manufactured Housing		Consumer			Mortgage Warehouse			Unallocated			Total
Beginning Balance, January 1, 2012	$	18	$	61		$	929		$	54		$	15,032
Charge-offs		0		(10	)		0			0			(3,578	)
Recoveries		0		5			0			0			126
Provision for loan and lease losses		23		18			(127	)		(54	)		4,538

Ending Balance, June 30, 2012	$	41	$	74		$	802		$	0		$	16,118

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

The changes in the allowance for loan and lease losses for the three and six months ended June 30, 2011 by loan segment based on impairment method:


Three months ended June 30, 2011	Commercial and Industrial			Commercial Real Estate			Construction			Residential Real Estate
Beginning Balance, April 1, 2011	$	2,046		$	11,183		$	2,134		$	816
Charge-offs		(1,461	)		(3,731	)		(914	)		(105	)
Recoveries		6			0			2			0
Provision for loan and lease losses		1,354			(275	)		1,257			896

Ending Balance, June 30, 2011	$	1,945		$	7,177		$	2,479		$	1,607


Three months ended June 30, 2011 (continued)	Manufactured Housing		Consumer		Mortgage Warehouse		Unallocated			Total
Beginning Balance, April 1, 2011	$	0	$	12	$	507	$	600		$	17,298
Charge-offs		0		0		0		0			(6,211	)
Recoveries		0		1		0		0			9
Provision for loan and lease losses		39		7		82		(510	)		2,850

Ending Balance, June 30, 2011	$	39	$	20	$	589	$	90		$	13,946


Six months ended June 30, 2011	Commercial and Industrial			Commercial Real Estate			Construction			Residential Real Estate
Beginning Balance, January 1, 2011	$	1,662		$	9,152		$	2,127		$	1,116
Charge-offs		(1,461	)		(4,208	)		(1,069	)		(105	)
Recoveries		6			5			2			0
Provision for loan and lease losses		1,738			2,228			1,419			596

Ending Balance, June 30, 2011	$	1,945		$	7,177		$	2,479		$	1,607


Six months ended June 30, 2011 (continued)	Manufactured Housing		Consumer			Mortgage Warehouse		Unallocated			Total
Beginning Balance, January 1, 2011	$	0	$	11		$	465	$	596		$	15,129
Charge-offs		0		(4	)		0		0			(6,847	)
Recoveries		0		1			0		0			14
Provision for loan and lease losses		39		12			124		(506	)		5,650

Ending Balance, June 30, 2011	$	39	$	20		$	589	$	90		$	13,946

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

The following tables summarize the loans and allowance for loan losses by loan segment based on the impairment method as of June 30, 2012:


June 30, 2012	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Loans:
Individually evaluated for impairment	$	3,232	$	25,648	$	14,309	$	1,754
Collectively evaluated for impairment		68,212		405,632		7,809		89,617
Loans acquired with credit deterioration		12,253		77,378		23,203		22,413

Total	$	83,697	$	508,658	$	45,321	$	113,784

Allowance for loan and lease losses:
Individually evaluated for impairment	$	481	$	1,651	$	3,007	$	45
Collectively evaluated for impairment		868		4,995		181		994
Loans acquired with credit deterioration		154		1,620		1,164		41

Total	$	1,503	$	8,266	$	4,352	$	1,080


June 30, 2012 (continued)	Manufactured Housing		Consumer		Mortgage Warehouse		Total
Loans:
Individually evaluated for impairment	$	0	$	83	$	0	$	45,026
Collectively evaluated for impairment		96,713		5,141		801,994		1,475,118
Loans acquired with credit deterioration		9,097		722		0		145,066
Market discounts/premiums/valuation adjustments		0		0		0		(14,340	)

Total	$	105,810	$	5,946	$	801,994	$	1,650,870

Allowance for loan and lease losses:
Individually evaluated for impairment	$	0	$	0	$	0	$	5,184
Collectively evaluated for impairment		41		57		802		7,938
Loans acquired with credit deterioration		0		17		0		2,996

Total	$	41	$	74	$	802	$	16,118

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

The following table summarizes the loans and allowance for loan losses by loan segment based on the impairment method as of December 31, 2011:


December 31, 2011	Commercial and Industrial		Commercial Real Estate		Construction		Residential Real Estate
Loans:
Individually evaluated for impairment	$	7,775	$	32,626	$	16,142	$	1,212
Collectively evaluated for impairment		59,745		287,839		11,863		52,856
Loans acquired with credit deterioration		15,017		87,684		30,590		23,352

Total	$	82,537	$	408,149	$	58,595	$	77,420

Allowance for loan and lease losses:
Individually evaluated for impairment	$	426	$	2,047	$	2,986	$	195
Collectively evaluated for impairment		911		4,063		209		554
Loans acquired with credit deterioration		104		920		1,461		94

Total	$	1,441	$	7,030	$	4,656	$	843


December 31, 2011 (continued)	Manufactured Housing		Consumer		Mortgage Warehouse		Unallocated			Total
Loans:
Individually evaluated for impairment	$	0	$	22	$	0	$	0		$	57,777
Collectively evaluated for impairment		102,876		6,213		619,318		0			1,140,710
Loans acquired with credit deterioration		10,592		333		0		0			167,568
Market discounts/premiums/valuation adjustments								(23,514	)		(23,514	)

Total loans	$	113,468	$	6,568	$	619,318	$	(23,514	)	$	1,342,541

Allowance for loan and lease losses:
Individually evaluated for impairment	$	0	$	22	$	0	$	0		$	5,676
Collectively evaluated for impairment		1		39		929		54			6,760
Loans acquired with credit deterioration		17		0		0		0			2,596

Total	$	18	$	61	$	929	$	54		$	15,032

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

The non-covered manufactured housing portfolio was purchased in August 2010. A portion of the purchase price may be used to reimburse the Bank under the specified terms in the Purchase Agreement for defaults of the underlying borrower and other specified items. Each quarter, these funds are evaluated to determine if they would be sufficient to absorb probable losses within the manufactured housing portfolio. At June 30, 2012, funds available for reimbursement, if necessary, were $5,045; and the Bancorp has determined that these funds were sufficient to absorb probable losses.

The changes in the accretable yield for prior loan acquisitions for the three and six months ended June 30, 2012 and 2011 were as follows:


For the three months ended June 30,	2012			2011
Balance, beginning of period	$	44,703		$	6,220
Accretion to interest income		0			(503	)
Reclassification from nonaccretable difference and disposals, net		(1,473	)		0

Balance, end of period	$	43,230		$	5,717


For the six months ended June 30,	2012			2011
Balance, beginning of period	$	45,358		$	7,176
Accretion to interest income		(2,059	)		(1,030	)
Reclassification from nonaccretable difference and disposals, net		(69	)		(429	)

Balance, end of period	$	43,230		$	5,717

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES – (continued)

FDIC Loss Sharing Receivable

Prospective losses incurred on covered loans are eligible for partial reimbursement by the FDIC. Subsequent decreases in the amount expected to be collected result in a provision for loan and lease losses, an increase in the allowance for loan and lease losses, and a proportional adjustment to the FDIC loss sharing receivable for the estimated amount to be reimbursed. Subsequent increases in the amount expected to be collected result in the reversal of any previously recorded provision for loan and lease losses and related allowance for loan and lease losses and adjustments to the FDIC loss sharing receivable, or accretion of certain fair value amounts into interest income in future periods if no provision for loan and lease losses had been recorded.

The following table summarizes the activity related to the FDIC loss sharing receivable for the three and six months ended June 30, 2012 and 2011:


Three months ended June 30,	2012			2011
Balance, beginning of period	$	14,149		$	16,229
Change in FDIC loss sharing receivable		(449	)		800
Reimbursement from the FDIC		(1,324	)		(4,395	)

Balance, end of period	$	12,376		$	12,634


Six months ended June 30,	2012			2011
Balance, beginning of period	$	13,077		$	16,702
Change in FDIC loss sharing receivable		741			1,709
Reimbursement from the FDIC		(1,442	)		(5,777	)

Balance, end of period	$	12,376		$	12,634

NOTE 7 — SHAREHOLDERS’ EQUITY

On May 8, 2012, the Bancorp announced that, due to market conditions, it had postponed its initial public offering of voting common stock. Costs related to this postponed offering in the amount of $1,340 were expensed in the quarter ended June 30, 2012.

On September 30, 2011, the Bancorp sold 419,000 shares of common stock and 565,848 shares of Class B Non-Voting Common Stock at $13.20 per share with total proceeds of $13,000.

During the first quarter of 2011, the Bank sold shares of its common stock and Class B Non-Voting Common Stock to certain investors. Giving effect to the Reorganization, the Bancorp (as successor to the Bank) issued, in connection with this transaction, 668,527 shares of common stock and 363,140 shares of Class B Non-Voting Common Stock at $12.00 per share and 210,916 shares of common stock and 146,310 shares of Class B Non-Voting Common Stock to the Bancorp’s investors at $10.50 per share. The proceeds, net of offering costs, were $15,500.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 8 — STOCK BASED COMPENSATION

Restricted Stock Units

Due to the Bancorp’s significant growth and evolution as a bank since 2009, which included raising more than $100,000 in equity, increasing assets to over $2,000,000 and significantly increasing our equity base, in February 2012, the Compensation Committee recommended and the board of directors approved a restricted stock reward program that provided for the grant of restricted stock units to certain directors and senior executives of Customers Bancorp and Customers Bank. Pursuant to the program, restricted stock units for 185,189 shares of Voting Common Stock and 211,640 shares of Class B Non-Voting Common Stock were granted on February 16, 2012 pursuant to the 2004 Plan. Of this amount, certain officers received restricted stock units for 169,313 shares of Voting Common Stock and 211,640 shares of Class B Non-Voting Common Stock in the aggregate and non-employee directors received 15,876 shares of Voting Common Stock in the aggregate. One requirement for vesting is that the recipient of the restricted stock units remains an employee or director through December 31, 2016. The restricted stock units held by an employee or director are forfeited if he or she ceases to be an employee or director prior to that date. The second vesting requirement for each award (both must be met to vest) is that the Bancorp’s Voting Common Stock trades at a price greater than $18.90 per share (adjusted for any stock splits or stock dividends) for at least 5 consecutive trading days during the five year period ending December 31, 2016. If the restricted stock units vest, the recipient will receive shares of the Bancorp’s common stock on December 31, 2016. However, upon a change in control resulting in any one shareholder owning more than 24.9% of the outstanding stock of Customers Bancorp prior to December 31, 2016, all restricted stock units held by employees and directors automatically vest, and shares of our common stock will be issued at that time.

In addition, in February 2012, there was an aggregate award of 57,031 restricted stock units to officers and employees of the Bank which vest 3 years from the date of issuance or upon a change in control.

Participants under the Bonus Recognition and Retention Program (“BRRP”) were eligible to make elections under the BRRP with respect to their bonuses for 2011, which were payable in the first quarter of 2012. As a result, in February 2012, an aggregate of 63,326 restricted stock units were allocated to the annual deferral account.

A participant becomes 100% vested in an Annual Deferral Account on the fifth anniversary date of the initial funding of the account, provided he or she remains continuously employed by the Bancorp from the date of funding to the anniversary date. Vesting is accelerated in the event of involuntary termination other than for cause, retirement at or after age 65, death, termination on account of disability, or a change in control of the Company.

The table below presents the status of the restricted stock/units at June 30, 2012 and changes during 2012.


	Restricted Stock Units		Weighted- average Price
Outstanding at January 1, 2012		35,289	$	12.00
Granted		517,186		12.53
Vested		0		0.00
Canceled		0		0.00

Outstanding at June 30, 2012		552,475	$	12.50

Unrecognized compensation expense related to the unvested restricted stock units was $5,954 at June 30, 2012 and is expected to be recognized through December 31, 2016.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 8 — STOCK BASED COMPENSATION – (continued)

Stock Option Plans

During 2010, the shareholders of Customers Bank approved the 2010 Stock Option Plan (“2010 Plan”) which was subsequently amended to reflect the September 17, 2011 Plan of Merger and Reorganization approved by the shareholders of Customers Bank and during 2012, the shareholders of the Bancorp approved and ratified the Amendment and Restatement of the Amended and Restated 2004 Incentive Equity and Deferred Compensation Plan (“2004 Plan”). The purpose of these plans is to promote the success and enhance the value of the Bancorp by linking the personal interests of the members of the Board of Directors and Customers Bank’s employees, officers, and executives to those of the Bancorp’s shareholders, providing such individuals with an incentive for outstanding performance in order to generate superior returns to shareholders of the Bancorp. The 2010 and 2004 Plans are intended to provide flexibility to the Bancorp in its ability to motivate, attract and retain the services of members of the Board of Directors, employees, officers and executives of Customers Bank. Stock options granted normally vest on the third or fifth anniversary of the grant date if the fully diluted tangible book value increased by 50% for the 2010 Plan and three years for the 2004 Plan if the fully diluted tangible book value has increased by 50%.

The 2010 and 2004 Plans are administered by the Compensation Committee of the Board of Directors. The 2010 Plan provides exclusively for the grant of stock options, some or all of which may be structured to qualify as Incentive Stock Options, to employees, officers, executives and directors. The maximum number of shares of common stock and Class B Non-Voting common stock which may be issued under the 2010 Plan is the lesser of (a) 15% of the number of shares of common stock and Class B Non-Voting common stock issued in consideration of cash or other property after December 31, 2009, or (b) 3,333,334 shares. The 2004 Plan provides for the grant of options, some or all of which may be structured to qualify as Incentive Stock Options if granted to employees, stock appreciation rights (“SARS”), restricted stock and unrestricted stock to employees, officers, executives and members of the Board of Directors. The maximum number of shares of common stock and Class B Non-Voting common stock which may be issued under the 2004 Plan is 500,000 shares.

During the six months ended June 30, 2012, the Bancorp granted to employees options to purchase 31,668 shares of common stock at a weighted-average exercise price of $12.60 per share. The stock options vest on the fifth anniversary after the date of grant if the fully diluted tangible book value has increased by 50%.

During the six months ended June 30, 2012, the Bancorp estimated the fair value of each option grant on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


	June 30, 2012
Risk-free interest rates		0.87	%
Expected dividend yield		0.00	%
Expected volatility		20.00	%
Expected lives (years)		7
Weighted-average fair value of options granted	$	2.94

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 8 — STOCK BASED COMPENSATION – (continued)

The following summarizes stock option activity under the Bancorp’s stock option plans at June 30, 2012:


	Number of shares			Weighted- average exercise price		Weighted- average remaining contractual term in years		Aggregate intrinsic value
Outstanding, January 1, 2012		1,127,653		$	11.00
Issued		31,668			12.60
Adjustments (1)		67,091
Forfeited		(333	)		30.68

Outstanding, June 30, 2012		1,226,079		$	11.16		5.13	$	1,265

Options exercisable at June 30, 2012		6,272		$	31.73		3.47	$	0

(1)	The adjustment above represents error corrections, the cancellation of the directors’ options and the conversion of the voting stock options to non-voting stock options.

Unrecognized compensation expense related to the unvested stock options was $2,530 at June 30, 2012 and is expected to be recognized through February 28, 2017.

The September 17, 2011 and the September 30, 2011 options awards to Mr. Sidhu totaling 160,884 shares were cancelled on March 6, 2012, and new options to purchase the same number of shares of Class B Non-Voting common stock upon the same terms (including the same exercise price and expiration date) were issued. The cancellation and grant were done to correct an inadvertent mistake of originally awarding these as options to purchase shares of voting common stock. There was no impact to the total number of stock option shares from this adjustment.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Bancorp’s latest sale price of $11.75 and the exercise price) multiplied by the number of in-the-money options.

NOTE 9 — REGULATORY MATTERS

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 initiate certain mandatory and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Bancorp’s consolidated financial statements. At June 30, 2012, the Bank and the Bancorp met all capital adequacy requirements to which they are subject.

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands except for per share data)

NOTE 9 — REGULATORY MATTERS – (continued)

The Bancorp’s and the Bank’s capital amounts and ratios at June 30, 2012 and December 31, 2011 are presented below:


	Actual						For Capital Adequacy Purposes							To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio				Amount			Ratio				Amount			Ratio
As of June 30, 2012:
Total capital (to risk weighted assets)
Customers Bancorp, Inc.	$	171,153		10.17	%	³	$	134,597	³		8.0	%	³		N/A			N/A
Customers Bank	$	170,807		10.16	%	³	$	134,524	³		8.0	%	³	$	168,155	³		10.0	%
Tier 1 capital (to risk weighted assets)

Customers Bancorp, Inc.	$	154,182		9.16	%	³	$	67,299	³