Edgar Filing: Customers Bancorp, Inc.

Large accelerated filer

Accelerated filer

Non-accelerated filer

o (Do not check if a smaller reporting company)

Smaller Reporting Company

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 March 31, 2016



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

For the transition period from to .

001-35542

(Commission File number)

(Exact name of registrant as specified in its charter)



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

1015 Penn Avenue

Suite 103

Wyomissing PA 19610

(Address of principal executive offices)

(610) 933-2000

(Registrant’s telephone number, including area code)

N/A

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 April 28, 2016, 27,044,750 shares of Voting Common Stock were issued and outstanding.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

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Part I

Item 1.	Customers Bancorp, Inc. Consolidated Financial Statements as of March 31, 2016 and for the three month periods ended March 31, 2016 and 2015 (unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	63


Item 4.	Controls and Procedures	66

PART II

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3.	Defaults Upon Senior Securities	67

Item 4.	Mine Safety Disclosures	67

Item 5.	Other Information	67

Item 6.	Exhibits	68

SIGNATURES		69

Ex-31.1

Ex-31.2

Ex-32.1

Ex-32.2

Ex-101

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET — UNAUDITED

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



	March 31, 2016			December 31, 2015
ASSETS
Cash and due from banks	$	63,849		$	53,550
Interest-earning deposits	198,789			211,043
Cash and cash equivalents	262,638			264,593
Investment securities available for sale, at fair value	556,165			560,253
Loans held for sale (includes $1,941,602 and $1,757,807, respectively, at fair value)	1,969,280			1,797,064
Loans receivable	5,907,315			5,453,479
Allowance for loan losses	(37,605		)	(35,647		)
Total loans receivable, net of allowance for loan losses	5,869,710			5,417,832
FHLB, Federal Reserve Bank, and other restricted stock	92,269			90,841
Accrued interest receivable	21,206			19,939
Bank premises and equipment, net	12,444			11,531
Bank-owned life insurance	158,339			157,211
Other real estate owned	5,106			5,057
Goodwill and other intangibles	3,648			3,651
Other assets	88,077			70,233
Total assets	$	9,038,882		$	8,398,205
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing	$	779,568		$	653,679
Interest-bearing	5,699,047			5,255,822
Total deposits	6,478,615			5,909,501
Federal funds purchased	80,000			70,000
FHLB advances	1,633,700			1,625,300
Other borrowings	86,624			86,457
Subordinated debt	108,709			108,685
Accrued interest payable and other liabilities	51,985			44,360
Total liabilities	8,439,633			7,844,303
Shareholders’ equity:
Preferred stock, par value $1.00 per share; liquidation preference $25.00 per share; 100,000,000 shares authorized, 3,300,000 and 2,300,000 shares issued and outstanding as of March 31, 2016 and December 31, 2015	79,677			55,569
Common stock, par value $1.00 per share; 200,000,000 shares authorized; 27,567,265 and 27,432,061 shares issued as of March 31, 2016 and December 31, 2015; 27,037,005 and 26,901,801 shares outstanding as of March 31, 2016 and December 31, 2015	27,567			27,432
Additional paid in capital	364,647			362,607
Retained earnings	140,924			124,511
Accumulated other comprehensive loss, net	(5,333		)	(7,984		)
Treasury stock, at cost (530,260 shares as of March 31, 2016 and December 31, 2015)	(8,233		)	(8,233		)
Total shareholders’ equity	599,249			553,902
Total liabilities and shareholders’ equity	$	9,038,882		$	8,398,205

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED

(amounts in thousands, except per share data)



	Three Months Ended March 31,
	2016		2015
Interest income:
Loans receivable	$	54,472	$	43,093
Loans held for sale	14,106		10,900
Investment securities	3,709		2,363
Other	1,111		2,362
Total interest income	73,398		58,718
Interest expense:
Deposits	10,212		7,526
Other borrowings	1,606		1,488
FHLB advances	2,268		1,689
Subordinated debt	1,685		1,685
Total interest expense	15,771		12,388
Net interest income	57,627		46,330
Provision for loan losses	1,980		2,964
Net interest income after provision for loan losses	55,647		43,366
Non-interest income:
Mortgage warehouse transactional fees	2,548		2,273
Bank-owned life insurance	1,123		1,061
Gain on sale of loans	644		1,231
Deposit fees	255		179
Mortgage loans and banking income	165		151
Gain on sale of investment securities	26		—
Other	733		838
Total non-interest income	5,494		5,733
Non-interest expense:
Salaries and employee benefits	17,332		13,952
FDIC assessments, taxes, and regulatory fees	4,030		3,278
Professional services	2,657		1,913
Technology, communication and bank operations	2,643		2,531
Occupancy	2,325		2,101
Loan workout	418		269
Other real estate owned	287		884
Advertising and promotion	256		347
Other	3,957		2,190
Total non-interest expense	33,905		27,465
Income before income tax expense	27,236		21,634
Income tax expense	9,537		7,682
Net income	17,699		13,952
Preferred stock dividends	1,286		—
Net income available to common shareholders	$	16,413	$	13,952
Basic earnings per common share	$	0.61	$	0.52
Diluted earnings per common share	$	0.57	$	0.49

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME — UNAUDITED

(amounts in thousands)



	Three Months Ended March 31,
	2016			2015
Net income	$	17,699		$	13,952
Unrealized gains on securities:
Unrealized holding gains on securities arising during the period	6,867			459
Income tax effect	(2,575		)	(216		)
Less: reclassification adjustment for gains on securities included in net income	(26		)	—
Income tax effect	10			—
Net unrealized gains	4,276			243
Unrealized losses on cash flow hedges:
Unrealized losses on cash flow hedges arising during the period	(2,600		)	(1,946		)
Income tax effect	975			778
Net unrealized losses	(1,625		)	(1,168		)
Other comprehensive income (loss), net of tax	2,651			(925		)
Comprehensive income	$	20,350		$	13,027

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

(amounts in thousands, except shares outstanding data)



	Three Months Ended March 31, 2016
	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance, December 31, 2015	2,300,000	$	55,569	26,901,801	$	27,432	$	362,607	$	124,511		$	(7,984	)	$	(8,233	)	$	553,902
Net income	—	—		—	—		—		17,699			—			—			17,699
Other comprehensive income	—	—		—	—		—		—			2,651			—			2,651
Issuance of common stock, net of offering costs of $15	—	—		7,291	7		152		—			—			—			159
Issuance of preferred stock, net of offering costs of $892	1,000,000	24,108		—	—		—		—			—			—			24,108
Preferred stock dividends	—	—		—	—		—		(1,286		)	—			—			(1,286		)
Share-based compensation expense	—	—		—	—		1,402		—			—			—			1,402
Exercise of warrants	—	—		12,377	12		106		—			—			—			118
Issuance of common stock under share-based compensation arrangements	—	—		115,536	116		380		—			—			—			496
Balance, March 31, 2016	3,300,000	$	79,677	27,037,005	$	27,567	$	364,647	$	140,924		$	(5,333	)	$	(8,233	)	$	599,249

	Three Months Ended March 31, 2015
	Preferred Stock			Common Stock
	Shares of Preferred Stock Outstanding	Preferred Stock		Shares of Common Stock Outstanding	Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance, December 31, 2014	—	$	—	26,745,529	$	27,278	$	355,822	$	68,421		$	(122	)	$	(8,254	)	$	443,145
Net income	—	—		—	—		—		13,952			—			—			13,952
Other comprehensive loss	—	—		—	—		—		—			(925		)	—			(925		)
Share-based compensation expense	—	—		—	—		1,170		—			—			—			1,170
Issuance of common stock under share-based compensation arrangements	—	—		78,510	78		531		—			—			—			609
Balance, March 31, 2015	—	$	—	26,824,039	$	27,356	$	357,523	$	82,373		$	(1,047	)	$	(8,254	)	$	457,951

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(amounts in thousands)



	Three Months Ended March 31,
	2016			2015
Cash Flows from Operating Activities
Net income	$	17,699		$	13,952
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses, net of change to FDIC receivable and clawback liability	1,980			2,964
Provision for depreciation and amortization	970			1,033
Share-based compensation	1,689			1,416
Deferred taxes	573			(1,540		)
Net amortization of investment securities premiums and discounts	205			211
Loss (gain) on sale of investment securities	(26		)	—
Gain on sale of mortgages and other loans	(810		)	(1,266		)
Origination of loans held for sale	(6,876,748		)	(6,627,070		)
Proceeds from the sale of loans held for sale	6,693,763			6,285,952
Increase in FDIC loss sharing receivable net of clawback liability	304			(134		)
Amortization (accretion) of fair value discounts	(114		)	32
Net loss on sales of other real estate owned	15			441
Valuation and other adjustments to other real estate owned, net of FDIC receivable	170			343
Earnings on investment in bank-owned life insurance	(1,123		)	(1,061		)
Increase in accrued interest receivable and other assets	(21,304		)	(3,259		)
Increase in accrued interest payable and other liabilities	4,254			3,574
Net Cash Used In Operating Activities	(178,503		)	(324,412		)
Cash Flows from Investing Activities
Proceeds from maturities, calls and principal repayments of securities available for sale	12,902			20,739
Proceeds from sales of investment securities available for sale	2,848			—
Purchases of investment securities available for sale	(5,000		)	—
Net increase in loans	(448,956		)	(148,554		)
Proceeds from sales of loans	6,946			141,437
Purchases of bank-owned life insurance	—			(15,000		)
Net proceeds from (purchases of) FHLB, Federal Reserve Bank, and other restricted stock	(1,428		)	204
Reimbursements from the FDIC on loss sharing agreements	(320		)	(302		)
Purchases of bank premises and equipment	(1,665		)	(829		)
Proceeds from sales of other real estate owned	86			1,619
Net Cash Used In Investing Activities	(434,587		)	(686		)
Cash Flows from Financing Activities
Net increase in deposits	569,116			360,789
Net (decrease) increase in short-term borrowed funds from the FHLB	(16,600		)	(98,000		)
Net increase in federal funds purchased	10,000			—
Proceeds from long-term FHLB borrowings	25,000			25,000
Net proceeds from issuance of preferred stock	24,108			—
Preferred stock dividends paid	(1,214		)	—
Exercise and redemption of warrants	118			—
Proceeds from issuance of common stock	607			109
Net Cash Provided by Financing Activities	611,135			287,898
Net Decrease in Cash and Cash Equivalents	(1,955		)	(37,200		)
Cash and Cash Equivalents – Beginning	264,593			371,023
Cash and Cash Equivalents – Ending	$	262,638		$	333,823

	(continued)



Supplementary Cash Flows Information
Interest paid	$	13,018		$	10,550
Income taxes paid	15,789			2,762
Non-cash items:
Transfer of loans to other real estate owned	$	320		$	159

See accompanying notes to the unaudited consolidated financial statements.

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF THE BUSINESS

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

Customers Bancorp, Inc. and its wholly owned subsidiaries, Customers Bank and non-bank subsidiaries, serve residents and businesses in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Rye, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); and Manhattan, New York. The Bank has 14 full-service branches and provides commercial banking products, primarily loans and deposits. Customers Bank provides loan and other financial products to customers through its limited purpose offices in Boston, Massachusetts, Providence, Rhode Island, Portsmouth, New Hampshire, Manhattan and Melville, New York and Philadelphia, Pennsylvania. The Bank also provides liquidity to residential mortgage originators nationwide through commercial loans to mortgage companies. Customers Bank is subject to regulation of the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank and is periodically examined by those regulatory authorities. Customers Bancorp has made certain equity investments through its wholly owned subsidiaries CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd.

NOTE 2 - ACQUISITION ACTIVITY

Pending Acquisition of Higher One, Inc.'s One Account Student Checking and Refund Management Disbursement Services Business

On December 15, 2015, Customers announced that it had entered into an Asset Purchase Agreement (the "Agreement") to acquire assets related to the One Account Student Checking and Refund Management Disbursement Services business ("Disbursements") of Higher One, Inc. ("Higher One"). Pursuant to the Agreement, Customers will acquire all assets of the Disbursements business, including all property and equipment, existing contractual relationships with vendors and educational institutions, and all intellectual property, will assume certain normal business related liabilities, and will commit to hire approximately 225 current Higher One employees primarily located in New Haven, Connecticut that manage the Disbursement business and serve the customers. Customers intends to retain these team members in New Haven. Customers will pay Higher One an aggregate of $42 million in cash in connection with the acquisition of the Disbursements business. Under the Agreement, Customers will pay Higher One $17 million in cash at closing and make cash payments of $10 million each on the first and second anniversaries of the closing. Customers also will pay Higher One $5 million in cash for Higher One's services under a transition services agreement. The transaction was approved by Higher One stockholders in April 2016 with the transaction closing anticipated to occur, subject to the successful conclusion of all transition activities, in the second quarter of 2016 but no later than July 1, 2016.

NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Presentation

The interim unaudited consolidated financial statements of Customers Bancorp, Inc. and subsidiaries have been prepared pursuant to the rules and regulations of the SEC. These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Customers Bancorp and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted from these interim unaudited consolidated financial statements as permitted by SEC rules and regulations. The December 31, 2015 consolidated balance sheet presented in this report has been derived from Customers Bancorp’s audited 2015 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2015 consolidated financial statements of Customers Bancorp and subsidiaries included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 26, 2016. That Form 10-K describes Customers Bancorp’s significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Restrictions on Cash and Amounts due from Banks; Investment Securities; Loan Accounting Framework; Allowance for Loan Losses; Goodwill; Investments in FHLB, Federal

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Reserve Bank, and other restricted stock; Other Real Estate Owned; FDIC Loss Sharing Receivable and Clawback Liability; Bank-Owned Life Insurance; Bank Premises and Equipment; Treasury Stock; Income Taxes; Share-Based Compensation; Derivative Instruments and Hedging; Comprehensive Income; Earnings per Share and Segment Information. Certain prior period amounts have been reclassified to conform to current period presentation. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year.

Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09—Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The Board issued this ASU as part of its initiative to reduce complexity in accounting standards. The areas for simplification in this ASU involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. In addition, the amendments in this ASU eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

In February 2016, the FASB issued ASU No. 2016-07—Investments—Equity Method and Joint Ventures. To simplify the accounting for equity method investments, the amendments in the ASU eliminate the requirement in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The ASU is effective for all entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

In February 2016, the FASB issued ASU No. 2016-06—Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments. Topic 815 requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met, including the “clearly and closely related” criterion. The amendments in this ASU clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. Namely, this decision sequence requires that an entity consider whether:


1.	the payoff is adjusted based on changes in an index;


2.	the payoff is indexed to an underlying other than interest rates or credit risk;


3.	the debt involves a substantial premium or discount; and


4.	the call (put) option is contingently exercisable.

The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

In February 2016, the FASB issued ASU No. 2016-05—Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The term novation refers to replacing one counterparty to a derivative instrument with a new counterparty. That change occurs for a variety of reasons, including financial institution mergers, intercompany transactions, an entity exiting a particular derivatives business or relationship, an entity managing against internal credit limits, or in response to laws or regulatory requirements.

The amendments in this ASU clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815, does not, in and of itself, require dedesignation of that hedging relationship provided that

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all other hedge accounting criteria continue to be met. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

In February 2016, the FASB issued ASU No. 2016-04—Liabilities—Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products. When an entity sells a prepaid stored-value product (such as gift cards, telecommunication cards, and traveler’s checks), it recognizes a financial liability for its obligation to provide the product holder with the ability to purchase goods or services at a third-party merchant. When a prepaid stored-value product goes unused wholly or partially for an indefinite time period, the amount that remains on the product is referred to as breakage. There currently is diversity in the methodology used to recognize breakage. Subtopic 405-20 includes derecognition guidance for both financial liabilities and nonfinancial liabilities, and Topic 606, Revenue from Contracts with Customers, includes authoritative breakage guidance but excludes financial liabilities.

The amendments in this ASU provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage be accounted for consistent with the breakage guidance in Topic 606. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

In February 2016, the FASB issued ASU No. 2016-02, Leases. From the lessee's perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessees. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Customers is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall. The guidance in this ASU among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for public entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (7) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

In November 2015, the FASB issued ASU 2015-17, Income Taxes. The amendments in this ASU, which will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards (IFRS), require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The amendments in this ASU apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this ASU.

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For public business entities, the amendments in this ASU are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the guidance in this ASU eliminates the requirement to retrospectively account for those adjustments and requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance in this ASU was effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years and should be applied prospectively to adjustment to provisional amounts that occur after the effective date of this ASU. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

In April 2015 and August 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements- Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, respectively. The guidance in these ASUs is intended to simplify presentation of debt issuance costs, and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability consistent with debt discounts and is applicable on a retrospective basis. The guidance in these ASUs was effective for interim and annual periods beginning after December 15, 2015. The adoption of these ASUs on January 1, 2016 resulted in a reclassification adjustment, which reduced "Other borrowings" by $1.8 million and "Subordinated debt" by $1.3 million with corresponding decrease in "Other assets" of $3.1 million as of December 31, 2015.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. The guidance in this ASU is intended to amend the update, which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this ASU affect the following areas:


1.	Limited partnerships and similar legal entities.


2.	Evaluating fees paid to a decision maker or a service provider as a variable interest.


3.	The effect of fee arrangements on the primary beneficiary determination.


4.	The effect of related parties on the primary beneficiary determination.


5.	Certain investment funds.

The guidance in this ASU was effective for annual and interim periods beginning after December 15, 2015. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The guidance in this ASU was issued as part of the FASB's initiative to reduce complexity in accounting standards and eliminates from GAAP the concept of extraordinary items. The guidance in this ASU was effective in the first quarter 2016. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging : Determining Whether the Host contract in a Hybrid Financial Instrument in the Form of a Share is More Akin to Debt or to Equity. The guidance in this ASU requires entities that issue or invest in a hybrid financial instrument to separate an embedded derivative feature from a host contract and account for the feature as a derivative. In the case of derivatives embedded in a hybrid financial instrument that is issued in the form of a share, that criterion requires evaluating whether the nature of the host contract is more akin to debt or to equity and whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to the host contract. If the host contract is akin to equity, then equity-like features (for example, a conversion option) are considered clearly and closely related to the host contract and, thus, would not be separated from the host contract. If the host contract is akin to debt, then equity-like features are not considered clearly and closely related to the host contract. In the latter case, an entity may be required to separate the equity-like embedded derivative feature from the debt host contract if certain other criteria in Subtopic 815-15 are met. Similarly, debt-like embedded derivative features may require separate accounting from an equity-like host contract. The guidance in this ASU was effective in first quarter 2016. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

In August 2014, the FASB issued ASU 2014-13, Consolidation: Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. The guidance in this ASU applies to a reporting entity that is required to

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consolidate a collateralized financing entity under the Variable Interest Entities guidance when: (1) the reporting entity measures all of the financial assets and the financial liabilities of that consolidated collateralized financing entity at fair value in the consolidated financial statements based on other Codification Topics; and (2) the changes in the fair values of those financial assets and financial liabilities are reflected in earnings. The guidance in this ASU was effective in first quarter 2016. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation. The guidance in this ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite period, the remaining unrecognized cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The guidance in this ASU was effective in first quarter 2016. The adoption of this ASU did not have an impact on Customers' financial condition or results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU establishes a comprehensive revenue recognition standard for virtually all industries following U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate and construction industries. The revenue standard’s core principal is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) identify the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies the performance obligation. Three basic transition methods are available - full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the cumulative effect alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. The guidance in this ASU is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Customers does not expect this ASU to have a significant impact on its financial condition or results of operations.

In February 2016, the FASB issued ASU No. 2016-08—Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). While the ASU does not change the core provisions of Topic 606, it clarifies the implementation guidance on principal versus agent considerations. Namely, the ASU clarifies and offers guidance to help determine when the reporting entity is providing goods or services to a customer itself (i.e. the entity is a principal), or merely arranging for that good or service to be provided by the other party (i.e. the reporting entity is an agent). If the entity is a principal, it recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer. When the reporting entity is an agent, it recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified good or service to be provided by the other party.

An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. The guidance includes indicators to assist in determining whether the Control criteria are met. If a contract with a customer includes more than one specified good or service, an entity could be a principal for some specified goods or services and an agent for others. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

In March 2016, the FASB issued ASU No. 2016-10—Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. This ASU clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. The ASU includes targeted improvements based on input the Board received from the Transition Resource Group for Revenue Recognition and other stakeholders. The ASU seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and

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complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers, which will be effective for fiscal years beginning after December 31, 2016 for public entities. The effective date and transition requirements for the amendments in this Update are the same as those in Update 2014-09. Customers does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

NOTE 4 — CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT (1)

The following tables present the changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2016 and 2015.



	Three Months Ended March 31, 2016
	Available-for-sale-securities
(amounts in thousands)	Unrealized Gains (Losses)			Foreign Currency Items			Total Unrealized Gains (Losses)			Unrealized Loss on Cash Flow Hedge			Total
Balance - December 31, 2015	$	(4,602	)	$	(584	)	$	(5,186	)	$	(2,798	)	$	(7,984	)
Other comprehensive income (loss) before reclassifications	4,255			37			4,292			(1,625		)	2,667
Amounts reclassified from accumulated other comprehensive loss to net income (2)	(16		)	—			(16		)	—			(16		)
Net current-period other comprehensive income (loss)	4,239			37			4,276			(1,625		)	2,651
Balance - March 31, 2016	$	(363	)	$	(547	)	$	(910	)	$	(4,423	)	$	(5,333	)



	Three Months Ended March 31, 2015
	Available-for-sale-securities
(amounts in thousands)	Unrealized Gains (Losses) (2)		Foreign Currency Items			Total Unrealized Gains (Losses)		Unrealized Loss on Cash Flow Hedge			Total
Balance - December 31, 2014	$	1,156	$	(14	)	$	1,142	$	(1,264	)	$	(122	)
Other comprehensive income (loss) before reclassifications	121		122			243		(1,168		)	(925		)
Amounts reclassified from accumulated other comprehensive loss to net income (2)	—		—			—		—			—
Net current-period other comprehensive income (loss)	121		122			243		(1,168		)	(925		)
Balance - March 31, 2015	$	1,277	$	108		$	1,385	$	(2,432	)	$	(1,047	)


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


(2)	Reclassification amounts are reported as "Gain on sale of investment securities" on the Consolidated Statements of Income.

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NOTE 5 — EARNINGS PER SHARE

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



	Three Months Ended March 31,
	2016		2015
(amounts in thousands, except share and per share data)
Net income available to common shareholders	$	16,413	$	13,952
Weighted-average number of common shares outstanding - basic	26,945,062		26,777,389
Share-based compensation plans	1,530,409		1,276,340
Warrants	307,630		284,074
Weighted-average number of common shares - diluted	28,783,101		28,337,803
Basic earnings per common share	$	0.61	$	0.52
Diluted earnings per common share	$	0.57	$	0.49

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



	Three Months Ended March 31,
	2016	2015
Anti-dilutive securities:
Share-based compensation awards	606,995	18,683
Warrants	52,242	52,242
Total anti-dilutive securities	659,237	70,925

NOTE 6 — INVESTMENT SECURITIES

The amortized cost and approximate fair value of investment securities as of March 31, 2016 and December 31, 2015 are summarized in the tables below:



	March 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	285,259	$	2,359	$	(1,329	)	$	286,289
Agency-guaranteed commercial real estate mortgage-backed securities	204,921		2,485		(9		)	207,397
Corporate notes (1)	44,927		303		(209		)	45,021
Equity securities (2)	22,514		—		(5,056		)	17,458
	$	557,621	$	5,147	$	(6,603	)	$	556,165


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

(2) Consists primarily of equity securities issued by a foreign entity.

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	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	299,392	$	1,453	$	(2,741	)	$	298,104
Agency-guaranteed commercial real estate mortgage-backed securities	206,719		—		(3,849		)	202,870
Corporate notes (1)	39,925		320		(178		)	40,067
Equity securities (2)	22,514		—		(3,302		)	19,212
	$	568,550	$	1,773	$	(10,070	)	$	560,253


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

(2) Consists primarily of equity securities issued by a foreign entity.

The following table presents proceeds from the sale of available-for-sale investment securities and gross gains and gross losses realized on those sales for the three months ended March 31, 2016 and 2015:



	Three Months Ended March 31,
	2016		2015
(amounts in thousands)
Proceeds from sale of available-for-sale securities	$	2,848	$	—
Gross gains	$	26	—
Gross losses	—		—
Net gains	$	26	$	—

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

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



	March 31, 2016
	Amortized Cost		Fair Value
(amounts in thousands)
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	37,927		37,911
Due after ten years	7,000		7,110
Agency-guaranteed residential mortgage-backed securities	285,259		286,289
Agency-guaranteed commercial real estate mortgage-backed securities	204,921		207,397
Total debt securities	$	535,107	$	538,707

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Gross unrealized losses and fair value of Customers' investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2016 and December 31, 2015 were as follows:



	March 31, 2016
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	13,858	$	(23	)	$	56,604	$	(1,306	)	$	70,462	$	(1,329	)
Agency-guaranteed commercial real estate mortgage-backed securities	20,954		(9		)	—		—			20,954		(9		)
Corporate notes (1)	18,718		(209		)	—		—			18,718		(209		)
Equity securities (2)	17,452		(5,055		)	6		(1		)	17,458		(5,056		)
Total	$	70,982	$	(5,296	)	$	56,610	$	(1,307	)	$	127,592	$	(6,603	)



	December 31, 2015
	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(amounts in thousands)
Available for Sale:
Agency-guaranteed residential mortgage-backed securities	$	102,832	$	(535	)	$	57,357	$	(2,206	)	160,189		$	(2,741	)
Agency-guaranteed commercial real estate mortgage-backed securities	202,870		(3,849		)	—		—			202,870		(3,849		)
Corporate notes (1)	9,748		(178		)	—		—			9,748		(178		)
Equity securities (2)	19,206		(3,301		)	6		(1		)	19,212		(3,302		)
Total	$	334,656	$	(7,863	)	$	57,363	$	(2,207	)	$	392,019	$	(10,070	)


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

(2) Consists primarily of equity securities in a foreign entity.

At March 31, 2016, there were eight available-for-sale investment securities in the less-than-twelve-month category and thirteen available-for-sale investment securities in the twelve-month-or-more category. The unrealized losses on the mortgage-backed securities are guaranteed by government-sponsored entities and primarily relate to changes in market interest rates. All amounts are expected to be recovered when market prices recover or at maturity. The unrealized losses on the equity securities reflect decreases in market price and adverse changes in foreign currency exchange rates. Customers evaluated the financial condition and capital strength of the issuer of these securities and concluded that the decline in fair value was temporary and estimated the value could reasonably recover by way of increases in market price or positive changes in foreign currency exchange rates. Customers intends to hold these securities for the foreseeable future and does not intend to sell the securities before the price recovers. Customers considers it more likely than not that it will not be required to sell the securities. Accordingly, Customers concluded that the securities are not other-than-temporarily impaired as of March 31, 2016.

At March 31, 2016 and December 31, 2015, Customers Bank had pledged investment securities aggregating $286.3 million and $299.8 million fair value, respectively, as collateral against its borrowings primarily with the FHLB and an unused line of credit with another financial institution. These counterparties do not have the ability to sell or repledge these securities.

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NOTE 7 – LOANS HELD FOR SALE

The composition of loans held for sale as of March 31, 2016 and December 31, 2015 was as follows:



	March 31, 2016		December 31, 2015
(amounts in thousands)
Commercial loans:
Mortgage warehouse loans at fair value	$	1,940,558	$	1,754,950
Multi-family loans at lower of cost or fair value	27,678		39,257
Commercial loans held for sale	1,968,236		1,794,207
Consumer loans:
Residential mortgage loans at fair value	1,044		2,857
Loans held for sale	$	1,969,280	$	1,797,064

Effective September 30, 2015, Customers Bank transferred $30.4 million of multi-family loans from held for sale to loans receivable (held for investment) because the Bank no longer has the intent to sell these loans. Customers Bank transferred these loans at their carrying value, which was lower than the estimated fair value at the time of transfer.

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NOTE 8 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The following table presents loans receivable as of March 31, 2016 and December 31, 2015:



	March 31, 2016			December 31, 2015
(amounts in thousands)
Commercial:
Multi-family	$	3,210,177		$	2,909,439
Commercial and industrial (including owner occupied commercial real estate)	1,160,389			1,111,400
Commercial real estate non-owner occupied	1,052,162			956,255
Construction	103,061			87,240
Total commercial loans	5,525,789			5,064,334
Consumer:
Residential real estate	267,031			271,613
Manufactured housing	110,830			113,490
Other	3,474			3,708
Total consumer loans	381,335			388,811
Total loans receivable	5,907,124			5,453,145
Deferred costs and unamortized premiums, net	191			334
Allowance for loan losses	(37,605		)	(35,647		)
Loans receivable, net of allowance for loan losses	$	5,869,710		$	5,417,832

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The following tables summarize loans receivable by loan type and performance status as of March 31, 2016 and December 31, 2015:



	March 31, 2016
	30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Multi-family	$	—	$	—	$	—	$	—	$	3,206,569	$	3,608	$	3,210,177
Commercial and industrial	4		—		4		6,035		841,166		1,470		848,675
Commercial real estate - owner occupied	—		—		—		2,689		296,285		12,740		311,714
Commercial real estate - non-owner occupied	—		—		—		2,610		1,037,684		11,868		1,052,162
Construction	—		—		—		—		102,827		234		103,061
Residential real estate	3,487		—		3,487		2,325		253,006		8,213		267,031
Manufactured housing (5)	3,296		2,292		5,588		2,356		99,572		3,314		110,830
Other consumer	20		—		20		99		3,127		228		3,474
Total	$	6,807	$	2,292	$	9,099	$	16,114	$	5,840,236	$	41,675	$	5,907,124
	December 31, 2015
	30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Multi-family	$	—	$	—	$	—	$	—	$	2,905,789	$	3,650	$	2,909,439
Commercial and industrial	39		—		39		1,973		799,595		1,552		803,159
Commercial real estate - owner occupied	268		—		268		2,700		292,312		12,961		308,241
Commercial real estate - non-owner occupied	1,997		—		1,997		1,307		940,895		12,056		956,255
Construction	—		—		—		—		87,006		234		87,240
Residential real estate	2,986		—		2,986		2,202		257,984		8,441		271,613
Manufactured housing (5)	3,752		2,805		6,557		2,449		101,132		3,352		113,490
Other consumer	107		—		107		140		3,227		234		3,708
Total	$	9,149	$	2,805	$	11,954	$	10,771	$	5,387,940	$	42,480	$	5,453,145


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


(2)	Loans where next payment due is less than 30 days from the report date.

(3)

Purchased-credit-impaired loans aggregated into a pool are accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, and the past due status of the pools, or that of the individual loans within the pools, is not meaningful. Because of the credit impaired nature of the loans, the loans are recorded at a discount reflecting estimated future cash flows and the Bank recognizes interest income on each pool of loans reflecting the estimated yield and passage of time. Such loans are considered to be performing. Purchased-credit-impaired loans that are not in pools accrete interest when the timing and amount of their expected cash flows are reasonably estimable, and are reported as performing loans.


(4)	Amounts exclude deferred costs and fees, unamortized premiums and discounts, and the allowance for loan losses.


(5)	Manufactured housing loans purchased in 2010 are subject to cash reserves held at the Bank that are used to fund past-due payments when the loan becomes 90 days or more delinquent. Subsequent purchases are subject to varying provisions in the event of borrowers’ delinquencies.

As of March 31, 2016 and December 31, 2015, the Bank had $1.2 million and $1.2 million, respectively, of residential real estate held in other real estate owned. As of March 31, 2016 and December 31, 2015, the Bank had initiated foreclosure proceedings on $0.9 million and $0.6 million, respectively, on loans secured by residential real estate.

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Allowance for loan losses

During second quarter 2015, the Bank refined its methodology for estimating the general allowance for loan losses. Previously, the general allowance for the portion of the loan portfolio originated after December 31, 2009 ("Post 2009 loan portfolio") was based generally on qualitative factors due to insufficient historical loss data on the portfolio. During second quarter 2015, the Bank began using objectively verifiable industry and peer loss data to estimate probable incurred losses as of the balance sheet date for the Post 2009 loan portfolio until sufficient internal loss history is available. The same methodology was also adopted for the portion of the loan portfolio originated on or before December 31, 2009 ("Legacy loan portfolio") that had no loss history over the past two years.

The changes in the allowance for loan losses for the three months ended March 31, 2016 and 2015 and the loans and allowance for loan losses by loan class based on impairment evaluation method as of March 31, 2016 and December 31, 2015 are as follows. The amounts presented for the provision for loan losses below do not include the effect of changes to estimated benefits resulting from the FDIC loss share arrangements for the covered loans.



Three Months Ended March 31, 2016	Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction			Residential Real Estate		Manufactured Housing			Other Consumer			Total
(amounts in thousands)
Ending Balance, December 31, 2015	$	12,016	$	8,864	$	1,348	$	8,420	$	1,074		$	3,298	$	494		$	133		$	35,647
Charge-offs	—		—		—		—		—			—		—			(42		)	(42		)
Recoveries	—		56		—		8		433			—		—			—			497
Provision for loan losses	119		1,039		62		120		(243		)	378		(26		)	54			1,503
Ending Balance, March 31, 2016	$	12,135	$	9,959	$	1,410	$	8,548	$	1,264		$	3,676	$	468		$	145		$	37,605
As of March 31, 2016
Loans:
Individually evaluated for impairment	$	393	$	27,286	$	9,936	$	4,624	$	—		$	4,843	$	8,898		$	98		$	56,078
Collectively evaluated for impairment	3,206,176		819,919		289,038		1,035,670		102,827			253,975		98,618			3,148			5,809,371
Loans acquired with credit deterioration	3,608		1,470		12,740		11,868		234			8,213		3,314			228			41,675
	$	3,210,177	$	848,675	$	311,714	$	1,052,162	$	103,061		$	267,031	$	110,830		$	3,474		$	5,907,124
Allowance for loan losses:
Individually evaluated for impairment	$	209	$	2,834	$	1	$	135	$	—		$	445	$	—		$	46		$	3,670
Collectively evaluated for impairment	11,926		6,906		1,409		4,229		1,264			2,193		97			43			28,067
Loans acquired with credit deterioration	—		219		—		4,184		—			1,038		371			56			5,868
	$	12,135	$	9,959	$	1,410	$	8,548	$	1,264		$	3,676	$	468		$	145		$	37,605

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Three Months Ended March 31, 2015	Multi-family			Commercial and Industrial			Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied			Construction			Residential Real Estate		Manufactured Housing		Other Consumer			Total
(amounts in thousands)
Ending Balance, December 31, 2014	$	8,493		$	4,784		$	4,336	$	9,198		$	1,047		$	2,698	$	262	$	114		$	30,932
Charge-offs	—			(21		)	—		(318		)	(769		)	—		—		(36		)	(1,144		)
Recoveries	—			22			14		9			15			—		—		83			143
Provision for loan losses	(297		)	1,962			233		849			559			297		84		(52		)	3,635
Ending Balance, March 31, 2015	$	8,196		$	6,747		$	4,583	$	9,738		$	852		$	2,995	$	346	$	109		$	33,566
As of December 31, 2015
Loans:
Individually evaluated for impairment	$	661		$	17,621		$	8,329	$	4,831		$	—		$	4,726	$	8,300	$	140		$	44,608
Collectively evaluated for impairment	2,905,128			783,986			286,951		939,368			87,006			258,446		101,838		3,334			5,366,057
Loans acquired with credit deterioration	3,650			1,552			12,961		12,056			234			8,441		3,352		234			42,480
	$	2,909,439		$	803,159		$	308,241	$	956,255		$	87,240		$	271,613	$	113,490	$	3,708		$	5,453,145
Allowance for loan losses:
Individually evaluated for impairment	$	—		$	1,990		$	1	$	148		$	—		$	84	$	—	$	50		$	2,273
Collectively evaluated for impairment	12,016			6,650			1,347		3,858			1,074			2,141		98		28			27,212
Loans acquired with credit deterioration	—			224			—		4,414			—			1,073		396		55			6,162
	$	12,016		$	8,864		$	1,348	$	8,420		$	1,074		$	3,298	$	494	$	133