Form 10-Q
Table of Contents

 

 

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 September 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):

 

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

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 November 14, 2012, 13,767,605 shares of Voting Common Stock were outstanding, and 4,691,897 shares of Class B Non-Voting Common Stock were outstanding.

 

 

 


Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

Customers Bancorp, Inc.

Table of Contents

 

Part I

  
Item 1.    Customers Bancorp, Inc. Consolidated Financial Statements as of September 30, 2012 and for the three and nine month periods ended September 30, 2012 (unaudited)      3   
Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     41   
Item 3.   

Quantitative and Qualitative Disclosures about Market Risk

     60   
Item 4.   

Controls and Procedures

     60   

PART II

  
Item 1.    Legal Proceedings      61   
Item 1A.    Risk Factors      61   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      61   
Item 3.    Defaults Upon Senior Securities      61   
Item 4.    Mine Safety Disclosures      61   
Item 5.    Other Information      61   
Item 6.    Exhibits      62   
SIGNATURES      63   
Ex-31.1      
Ex-31.2      
Ex-32.1      
Ex-32.2      
Ex-101      

 

2


Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET - UNAUDITED

 

     September 30,
2012
    December 31,
2011
 
    

(Dollars in thousands,

except per share data)

 
ASSETS     

Cash and due from banks

   $ 9,112      $ 7,765   

Interest earning deposits

     148,398        65,805   
  

 

 

   

 

 

 

Cash and cash equivalents

     157,510        73,570   

Investment securities available for sale, at fair value

     130,705        79,137   

Investment securities held to maturity (fair value 2011 $330,809)

     0        319,547   

Loans held for sale (including $1,063,666 of mortgage warehouse loans at fair value in 2012)

     1,187,885        174,999   

Loans receivable not covered under Loss Sharing Agreements with the FDIC

     976,134        1,215,117   

Loans receivable covered under Loss Sharing Agreements with the FDIC

     110,965        126,276   

Less: Allowance for loan losses

     (24,974     (15,032
  

 

 

   

 

 

 

Total loans receivable, net

     1,062,125        1,326,361   

FDIC loss sharing receivable

     12,306        13,077   

Bank premises and equipment, net

     9,708        8,448   

Bank-owned life insurance

     40,303        29,268   

Other real estate owned (2012 $7,107; 2011 $6,166 covered under Loss Sharing Agreements with the FDIC)

     10,699        11,814   

Goodwill and other intangibles

     3,697        3,705   

Restricted stock

     22,581        21,818   

Accrued interest receivable and other assets

     16,572        15,788   
  

 

 

   

 

 

 

Total assets

   $ 2,654,091      $ 2,077,532   
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Liabilities:

    

Deposits:

    

Demand, non-interest bearing

   $ 213,229      $ 114,044   

Interest bearing

     2,134,955        1,469,145   
  

 

 

   

 

 

 

Total deposits

     2,348,184        1,583,189   

Federal funds purchased

     0        5,000   

Other borrowings

     36,000        331,000   

Subordinated debt

     2,000        2,000   

Accrued interest payable and other liabilities

     6,405        8,595   
  

 

 

   

 

 

 

Total liabilities

     2,392,589        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; 18,507,121 shares issued and 18,459,502 outstanding at September 30, 2012 and 11,395,302 shares issued and 11,347,683 outstanding at December 31, 2011

     18,507        11,395   

Additional paid in capital

     211,868        122,602   

Retained earnings

     30,748        14,496   

Accumulated other comprehensive gain (loss)

     879        (245

Less: cost of treasury stock; 47,619 shares at September 30, 2012 and December 31, 2011

     (500     (500
  

 

 

   

 

 

 

Total shareholders’ equity

     261,502        147,748   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 2,654,091      $ 2,077,532   
  

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

3


Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012     2011      2012      2011  
     (Dollars in thousands, except per share data)  

Interest income

          

Loans receivable, taxable, including fees

   $ 26,990      $ 11,280       $ 59,963       $ 30,958   

Loans receivable, non-taxable, including fees

     55        17         110         62   

Investment securities, taxable

     805        3,973         5,936         10,341   

Investment securities, non-taxable

     21        22         64         65   

Other

     91        67         225         380   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total interest income

     27,962        15,359         66,298         41,806   
  

 

 

   

 

 

    

 

 

    

 

 

 

Interest expense:

          

Deposits

     5,191        5,564         15,687         16,660   

Federal funds purchased

     5        0         8         0   

Securities sold under repurchase agreements

     0        21         0         28   

Borrowed funds

     194        95         434         304   

Subordinated debt

     17        16         52         49   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total interest expense

     5,407        5,696         16,181         17,041   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net interest income

     22,555        9,663         50,117         24,765   

Provision for loan losses

     10,116        900         14,654         6,550   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     12,439        8,763         35,463         18,215   
  

 

 

   

 

 

    

 

 

    

 

 

 

Non-interest income:

          

Deposit fees

     124        114         357         313   

Mortgage warehouse transactional fees

     3,346        1,366         8,829         3,754   

Bank owned life insurance

     359        264         948         1,128   

Gain on sale of investment securities

     0        1,413         9,006         1,413   

Accretion of FDIC loss sharing receivable

     1,296        0         1,951         1,709   

Gain (loss) on sale of loans

     (71     0         268         377   

Other

     4,712        85         5,436         388   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total non-interest income

     9,766        3,242         26,795         9,082   
  

 

 

   

 

 

    

 

 

    

 

 

 

Non-interest expense:

          

Salaries and employee benefits

     5,978        3,752         17,073         11,840   

Occupancy

     1,709        1,022         4,937         3,012   

Technology, communication and bank operations

     699        485         2,037         1,312   

Advertising and promotion

     270        206         846         639   

Professional services

     819        1,234         2,474         3,963   

FDIC assessments, taxes, and regulatory fees

     669        373         2,205         1,626   

Other real estate owned

     (287     102         587         390   

Loan workout

     617        370         1,519         1,014   

Merger related expenses

     0        530         28         530   

Stock offering expenses

     97        0         1,437         0   

Other

     1,424        656         4,112         1,861   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total non-interest expense

     11,995        8,730         37,255         26,187   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income before tax expense

     10,210        3,275         25,003         1,110   

Income tax expense

     3,574        930         8,751         299   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net income

     6,636        2,345         16,252         811   

Dividends on preferred stock

     0        5         0         5   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 6,636      $ 2,340       $ 16,252       $ 806   
  

 

 

   

 

 

    

 

 

    

 

 

 

Basic income per share

   $ 0.53      $ 0.24       $ 1.39       $ .08   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted income per share

   $ 0.51      $ 0.23       $ 1.35       $ .08   
  

 

 

   

 

 

    

 

 

    

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

4


Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  
    

(Dollars in thousands)

 

Net income

   $ 6,636      $ 2,345      $ 16,252      $ 811   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

        

Unrealized holding gains on securities arising during the period

     1,597        646        2,226        6,573   

Income tax effect

     (559     (220     (779     (2,235

Unrealized holding gain on securities transferred from the held-to-maturity category into the available-for-sale category

     0        0        8,509        0   

Income tax effect

     0        0        (2,978     0   

Reclassification adjustment for gains included in net income

     0        (1,413     (9,006     (1,413

Income tax effect

     0        477        3,152        480   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     1,038        (510     1,124        3,405   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 7,674      $ 1,835      $ 17,376      $ 4,216   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

5


Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY – UNAUDITED

For the Nine Months Ended September 30, 2012 and 2011

(Dollars in thousands)

 

    Shares of
Preferred
Stock
Outstanding
    Shares of
Common
Stock
Outstanding
    Preferred
Stock
    Common
Stock
    Additional
Paid in
Capital
    Retained
Earnings
    Accumulated Other
Comprehensive
Income (Loss)
    Treasury
Stock
    Total  

Balance, December 31, 2010

    0        8,398,015      $ 0      $ 8,398      $ 88,132      $ 10,506      $ (1,896   $ 0      $ 105,140   

Comprehensive income

              811        3,405          4,216   

Stock-based compensation expense

            515              515   

Common stock issued, net of costs

      2,373,599          2,374        26,152              28,526   

Shares issued in the acquisition of Berkshire Bancorp, Inc

    3,037        623,990        3,037        623        7,614              11,274   

Dividends – preferred stock

              (5         (5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2011

    3,037        11,395,604      $ 3,037      $ 11,395      $ 122,413      $ 11,312      $ 1,509      $ 0      $ 149,666   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Shares of
Preferred
Stock
Outstanding
    Shares of
Common
Stock
Outstanding
    Preferred
Stock
    Common
Stock
    Additional
Paid in
Capital
    Retained
Earnings
    Accumulated Other
Comprehensive
Income (Loss)
    Treasury
Stock
    Total  

Balance, December 31, 2011

    0        11,347,683      $ 0      $ 11,395      $ 122,602      $ 14,496      $ (245   $ (500   $ 147,748   

Comprehensive income

              16,252        1,124          17,376   

Stock-based compensation expense

            1,616              1,616   

Common stock issued, net of costs

      7,111,819          7,112        87,650              94,762   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2012

    0        18,459,502      $ 0      $ 18,507      $ 211,868      $ 30,748      $ 879      $ (500   $ 261,502   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

6


Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

 

Nine Months Ended September 30,

   2012     2011  
     (Dollars in thousands)  

Cash Flows from Operating Activities

    

Net income available to common shareholders

   $ 16,252      $ 806   

Adjustments to reconcile net income to net cash used in operating activities:

    

Provision for loan losses

     14,654        6,550   

Provision for depreciation and amortization

     1,447        967   

Stock-based compensation

     1,616        515   

Deferred taxes

     (1,112     0   

Net amortization (accretion) of investment securities premiums and discounts

     2,897        (282

Gain on sale of investment securities

     (9,006     (1,413

Gain on sale of loans

     (268     (377

Origination of loans held for sale

     (7,305,339     (1,685,972

Proceeds from the sale of loans held for sale

     6,292,453        1,680,915   

Increase in FDIC loss sharing receivable

     (4,537     (1,709

(Accretion) amortization of fair value discounts

     (277     330   

Net loss (gain) on sales of other real estate owned

     985        (235

Impairment charges on other real estate owned

     468        1,156   

Change in investment in bank-owned life insurance

     (1,035     (1,128

Increase in accrued interest receivable and other assets

     (1,081     (22,459

Decrease in accrued interest payable and other liabilities

     (2,190     (2,456
  

 

 

   

 

 

 

Net Cash Used in Operating Activities

     (994,073     (24,792
  

 

 

   

 

 

 

Cash Flows from Investing Activities

    

Proceeds from maturities, calls and principal repayments of investment securities available for sale

     26,488        16,847   

Proceeds from sales of investment securities available for sale

     306,610        112,757   

Purchases of investment securities available for sale

     (108,249     (72,960

Purchases of investment securities held to maturity

     0        (396,835

Proceeds from maturities and principal repayments of investment securities held to maturity

     50,968        35,647   

Net decrease (increase) in loans

     302,275        (220,626

Purchase of loan portfolio

     (63,246     (13,000

Proceeds from sales of SBA loans

     3,689        5,172   

Net cash proceeds from bank acquisition

     0        19,207   

Proceeds from bank-owned life insurance

     0        273   

Purchases of bank-owned life insurance

     (10,000     0   

Purchases of restricted stock

     (763     (10,364

Reimbursements from the FDIC on loss sharing agreements

     5,308        6,551   

Purchases of bank premises and equipment

     (2,343     (1,725

Proceeds from sales of other real estate owned

     7,383        5,377   
  

 

 

   

 

 

 

Net Cash Provided by (Used in) Investing Activities

     518,120        (513,679
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Net increase in deposits

     765,131        214,269   

Net (decrease) increase in short-term borrowed funds

     (300,000     110,000   

Payment of preferred dividend

     0        (218

Proceeds from issuance of common stock, net

     94,762        28,526   
  

 

 

   

 

 

 

Net Cash Provided by Financing Activities

     559,893        352,577   
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     83,940        (185,894

Cash and Cash Equivalents — Beginning

     73,570        238,724   
  

 

 

   

 

 

 

Cash and Cash Equivalents — Ending

   $ 157,510      $ 52,830   
  

 

 

   

 

 

 

Supplementary Cash Flows Information

    

Interest paid

   $ 16,257      $ 17,212   

Income taxes paid

     12,625        2,816   

Non-cash items:

    

Transfer of loans to other real estate owned

   $ 8,293      $ 7,793   

Transfer of held to maturity investments to available for sale

     268,671        0   

Berkshire Bancorp, Inc. Acquisition:

    

Assets acquired

   $ 0      $ 134,110   

Liabilities assumed

     0        122,836   

See accompanying notes to the unaudited consolidated financial statements.

 

7


Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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 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.

Operating results for the three-month and nine-month periods ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

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. In addition, the Bancorp has made accounting changes in the third quarter of 2012 that are detailed in the following section entitled “ACCOUNTING CHANGES.”

The Bancorp evaluated its September 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.

ACCOUNTING CHANGES

The Fair Value Option

During the third quarter of 2012, we elected the fair value option for warehouse lending transactions documented under a Master Repurchase Agreement originated after July 1, 2012 in order to more accurately represent the short term nature of the transaction and its inherent credit risk. This adoption is in accordance with the parameters established by Accounting Standards Codification (“ASC”) 825-10-25, Financial Instruments-Overall-Recognition: The Fair Value Option. As a result of this election, new warehouse lending transactions were classified as “Loans held for sale” on the balance sheet. The interest income from the warehouse lending transactions was classified in “Interest Income – Loans receivable, taxable, including fees” on the income statement for the third quarter of 2012. As Loans Receivable, the warehouse lending transactions were accounted for on an amortized cost basis less an allowance for loan loss. An allowance for loan losses is not recorded for the warehouse lending transactions when measured at fair value since under ASC 825, the exit price (the repurchase price) for warehouse lending transactions considers the effect of expected credit losses.

 

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Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

NOTE 1 — DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION – (continued)

 

Change in Accounting Estimates

Estimates of cash flows from purchased credit-impaired (“PCI”) loans were revised during the third quarter of 2012 due to conversion to a more sophisticated and precise loan valuation system. In accordance with the guidance in ASC 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality, interest income is based on an acquired loan’s expected cash flows. Acquired loans are generally assessed to be within the scope of ASC 310-30 if: (1) the asset shows evidence of having deteriorated in credit quality since it was originated, and (2) it is probable that the acquirer will be unable to collect all contractually required payments receivable. Complex models are needed to calculate loan-level and/or pool level expected cash flows in accordance with ASC 310-30. The loan data analysis provided by the new software is a more precise quantification of future cash flows than the analysis that was previously calculated manually. Conversion to the new system was completed in September 2012, and as a result, estimates of cash flows from PCI loans were revised. When converting to the new software system, we were required to calculate the estimated cash flows from the various acquisition dates of the PCI loans through the date the software was implemented as it was impracticable to perform these calculations on a monthly or quarterly basis. These changes in estimates are accounted for prospectively as a change in accounting estimate. In the third quarter of 2012, approximately $4.4 million was recognized in other non-interest income related to this change.

Also during the third quarter of 2012, we performed an initial re-estimation of the cash flows for the PCI loans. The re-estimation process updates the existing loan data for current loan assumptions. As a result of the initial re-estimation an increase of $4.5 million was recorded to interest income. As required by ASC 310-30, the recorded loan balance included accrued interest receivable. Due to the higher loan balance, we evaluated the adequacy of the allowance for loan losses and determined that an additional provision for loan losses of $7.5 million was appropriate. In the future, we will re-estimate the cash flows on the PCI loans on a quarterly basis, and adjustments, if any, are not expected to have a material impact on future earnings.

As a result of the changes in estimates, net income increased by $911,000, net of tax, and basic and diluted earnings increased by $0.08 per share.

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.

 

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NOTE 2 — REORGANIZATION AND ACQUISITION ACTIVITY – (continued)

 

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) located in 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 purchase price of $65.0 million to be paid in Voting Common Stock (resulting in a 9.9% voting ownership interest in the Bancorp), Class B Non-Voting Common Stock (resulting in up to 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 $65.0 million minus the value of the Common Stock and Class B Non-Voting Common Stock to be issued in the acquisition). The Bancorp expects to issue its Voting Common Stock and Class B Non-Voting Common Stock at 115% of GAAP book value at the time of closing.

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.

The consummation of the Acacia Transaction is contingent upon a number of conditions including, but not limited to, receipt of various regulatory approvals.

CMS Bancorp Acquisition

On August 10, 2012, Customers Bancorp Inc. announced the entry into a definitive agreement to acquire via merger CMS Bancorp (CMS Bancorp) located in White Plains, New York and ultimately CMS Bank. CMS Bank, with five branches, serves Westchester County, New York, and the surrounding areas.

The total transaction value is approximately $20.8 million, and the agreement provides for CMS Bancorp stockholders to receive shares of Customers Bancorp voting common stock based upon an exchange ratio to be determined as the quotient of (i) the CMS Valuation, divided by (ii) the Customers Valuation, with fractional shares to be cashed out. The “CMS Valuation” will be calculated as 95% of CMS Bancorp’s common stockholders’ equity as of the month end prior to the closing, while the “Customers Valuation” will be calculated as 125% of Customer Bancorp’s modified stockholder equity as of the month end prior to closing. Modified stockholders’ equity is defined as June 30, 2012 book value plus additions to retained earnings through the month-end prior to closing. Shares issued by Customers Bancorp in capital raises and purchase accounting adjustments from any other acquisitions will not be included in calculating modified stockholders’ equity. By way of example, based on the March 31, 2012 book value per share of CMS Bancorp and the June 30, 2012 modified stockholders’ equity of Customers Bancorp, $11.75 and $13.99, respectively, the exchange ratio would be 0.6383. The foregoing calculation is provided as an example only, and does not purport to be the actual exchange ratio. The actual exchange ratio will likely be different at closing.

The acquisition of CMS will enhance the Bancorp’s New York franchise. Closing of the CMS Bancorp merger, which is subject to regulatory approval, customary closing conditions and the approval of CMS Bancorp’s stockholders, is expected to occur in the first half of 2013.

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 and is to be applied prospectively. Adoption of this guidance has not had a material impact on Customers Bancorp’s financial statements.

 

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NOTE 3 — RECENTLY ISSUED ACCOUNTING STANDARDS - (continued)

 

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 were effective for public entities for annual and interim periods beginning on or after June 15, 2012. Adoption of this guidance has not had a material impact on results of operations or financial condition.

In December, 2011, the FASB issued ASU 2011-11, 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.

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 indefinite-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.

 

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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
September 30,
     Nine Months Ended
September 30,
 
     (Dollars in thousands, except per share data)  
     2012      2011      2012      2011  

Net income allocated to common shareholders

   $ 6,636       $ 2,340       $ 16,252       $ 806   

Weighted-average number of common shares — basic

     12,465,744         9,876,004         11,723,090         9,621,548   

Share-based compensation plans

     310,845         144,560         231,674         127,561   

Warrants

     134,926         73,258         112,265         64,360   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average number of common shares — diluted

     12,911,515         10,093,822         12,067,029         9,813,469   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 0.53       $ 0.24       $ 1.39       $ 0.08   

Diluted earnings per share

   $ 0.51       $ 0.23       $ 1.35       $ 0.08   

 

     Anti-dilutive Securities Excluded from the Computation of Earnings per Share  
     Three Months Ended September 30,      Nine Months Ended September 30,  
     2012      2011      2012      2011  

Anti-dilutive securities:

           

Share-based compensation awards

     6,592         34,130         6,592         34,130   

Warrants

     129,946         130,047         129,946         130,047   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total anti-dilutive securities

     136,538         164,177         136,538         164,177   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 5 — INVESTMENT SECURITIES

In May 2012, Customers Bancorp reclassified its $269.0 million 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 $5.5 million 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 $257.6 million of available-for-sale securities and realized a pre-tax gain of $8.8 million. 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.

 

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NOTE 5 — INVESTMENT SECURITIES - (continued)

 

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

 

     September 30, 2012  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Value  
    

(Dollars in thousands)

 

Available for Sale:

          

Mortgage-backed securities (1)

   $ 101,736       $ 1,689       $ (27   $ 103,398   

Asset-backed securities

     553         10         0        563   

Municipal securities

     2,058         9         (1     2,066   

Corporate notes

     25,000         0         (328     24,672   

Equities

     6         0         0        6   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 129,353       $ 1,708       $ (356   $ 130,705   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Includes private-label securities with an aggregate amortized cost of $659 and an aggregate fair value of $636.

 

 

     December 31, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Value  
    

(Dollars in thousands)

 

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.

 

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NOTE 5 — INVESTMENT SECURITIES – (continued)

 

The following tables show proceeds from the sale of available for sale investment securities, gross gains and gross losses on those sales of securities for the three and nine months ended September 30, 2012 and 2011:

 

     Three Months Ended
September 30,
 
     2012      2011  
     (Dollars in thousands)  

Proceeds from sale of available-for-sale investment securities

   $ 0       $ 112,757   

Gross gains

   $ 0       $ 1,413   

Gross losses

     0         0   
  

 

 

    

 

 

 

Net gains

   $ 0       $ 1,413   
  

 

 

    

 

 

 
     Nine Months Ended
September 30,
 
     2012      2011  
     (Dollars in thousands)  

Proceeds from sale of available-for-sale investment securities

   $ 306,610       $ 112,757   

Gross gains

   $ 9,006       $ 1,413   

Gross losses

     0         0   
  

 

 

    

 

 

 

Net gains

   $ 9,006       $ 1,413   
  

 

 

    

 

 

 

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

The following table shows 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 are, therefore, classified separately with no specific maturity date:

 

     September 30, 2012  
     Available for Sale  
     Amortized
Cost
     Fair
Value
 
     (Dollars in thousands)  

Due in one year or less

   $ 1,090       $ 1,090   

Due after one year through five years

     26,450         26,139   

Due after five years through ten years

     38         39   

Due after ten years

     33         33   
  

 

 

    

 

 

 
     27,611         27,301   

Mortgage-backed securities

     101,736         103,398   
  

 

 

    

 

 

 

Total debt securities

   $ 129,347       $ 130,699   
  

 

 

    

 

 

 

 

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NOTE 5 — INVESTMENT SECURITIES – (continued)

 

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 September 30, 2012 and December 31, 2011, were as follows:

 

     September 30, 2012  
     Less than 12 months     12 months or more     Total  
     Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
 
            (Dollars in thousands)         

Available for Sale:

               

Mortgage-backed securities

   $ 6       $ (1   $ 440       $ (26   $ 446       $ (27

Municipal securities

     0         0        1,005         (1     1,005         (1

Corporate notes

     4,912         (88     19,760         (240     24,672         (328
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 4,918       $ (89   $ 21,205       $ (267   $ 26,123       $ (356
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

     December 31, 2011  
     Less than 12 months     12 months or more     Total  
     Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
 
    

(Dollars in thousands)

 

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 September 30, 2012, there were three available-for-sale investment securities in the less-than-twelve-month category and ten 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. The holdings are all in the financial services industry and all are well capitalized.

At September 30, 2012 and December 31, 2011, the Bancorp had pledged investment securities aggregating $105.4 million and $311.4 million, respectively, as collateral for borrowings.

 

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NOTE 6 — LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

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

 

     2012     2011  
     (Dollars in thousands)  

Construction

   $ 28,932      $ 37,926   

Commercial real estate

     45,724        48,789   

Commercial and industrial

     12,164        13,084   

Residential real estate

     20,278        22,465   

Manufactured housing

     3,867        4,012   
  

 

 

   

 

 

 

Total loans receivable covered under FDIC Loss Sharing Agreements (1)

     110,965        126,276   
  

 

 

   

 

 

 

Construction

     13,242        15,271   

Commercial real estate

     605,373        350,929   

Commercial and industrial

     76,641        69,736   

Mortgage warehouse (2)

     9,321        619,318   

Manufactured housing

     158,457        104,565   

Residential real estate

     107,855        53,476   

Consumer

     2,451        2,211   
  

 

 

   

 

 

 

Total loans receivable not covered under FDIC Loss Sharing Agreements

     973,340        1,215,506   
  

 

 

   

 

 

 

Total loans receivable

     1,084,305        1,341,782   

Deferred (fees) costs, net

     2,794        (389

Allowance for loan losses

     (24,974     (15,032
  

 

 

   

 

 

 

Loans receivable, net

   $ 1,062,125      $ 1,326,361   
  

 

 

   

 

 

 

 

(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.
(2) During the third quarter of 2012, we elected the fair value option for warehouse lending transactions documented under a Master Repurchase Agreement originated after July 1, 2012. As a result of this election, new warehouse lending transactions were classified as “Loans held for sale” on the balance sheet. For additional information about our election of the fair value option refer to “Note 1 — DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION – The Fair Value Option” in this Form 10-Q. Certain classes of warehouse lending loans were not eligible for fair value option accounting.

 

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

 

Non-Covered Nonaccrual Loans and Loans Past Due

The following tables summarize non-covered loans, by class, at September 30, 2012:

 

     30-89 Days
Past Due (1)
     Greater
Than
90 Days (1)
     Total Past
Due (1)
     Non-
Accrual
     Current (2)      Total Loans
(4)
 
                   (Dollars in thousands)                

Commercial and industrial

                 

Acquired with credit deterioration

   $ 1       $ 0       $ 1       $ 129       $ 2,288       $ 2,418   

Remaining loans (5)

     85         0         85         655         73,483         74,223   

Commercial real estate

                 

Acquired with credit deterioration

     1,269         0         1,269         5,279         43,265         49,813   

Remaining loans (5)

     772         0         772         18,294         536,494         555,560   

Construction

                 

Acquired with credit deterioration

     0         0         0         0         2,001         2,001   

Remaining loans (5)

     0         0         0         2,423         8,818         11,241   

Residential real estate

                 

Acquired with credit deterioration

     477         0         477         947         11,215         12,639   

First mortgages (5)

     519         0         519         549         69,149         70,217   

Home equity (5)

     50         0         50         915         24,034         24,999   

Consumer

                 

Acquired with credit deterioration

     11         0         11         80         459         550   

Remaining loans (5)

     1         0         1         56         1,844         1,901   

Mortgage warehouse

                 

Acquired with credit deterioration

     0         0         0         0         0         0   

Remaining loans (5)

     0         0         0         0         9,321         9,321   

Manufactured housing (3)

                 

Acquired with credit deterioration

     834         0         834         2,814         3,933         7,581   

Remaining loans (5)

     6,392         1,473         7,865         652         142,359         150,876   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,411       $ 1,473       $ 11,884       $ 32,793       $ 928,663       $ 973,340   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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. Subsequent purchases are subject to varying provisions in the event of borrowers’ delinquencies.
(4) Loans exclude deferred costs and fees.
(5) Loans that were not identified at the acquisition date as a loan with credit deterioration.

 

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

The following tables summarize non-covered loans, by class, at 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)
 
    

(Dollars in thousands)

 

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         17,581         266,165         284,771   

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       $ 37,719       $ 1,169,991       $ 1,215,506   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

Covered Nonaccrual Loans and Loans Past Due

The following tables summarize covered loans, by class, at September 30, 2012 and December 31, 2011

 

September 30, 2012    30-89 Days
Past Due (1)
     Greater
Than
90 Days (1)
     Total Past
Due (1)
     Nonaccrual      Current (3)      Total Loans  
    

(Dollars in thousands)

 

Commercial and industrial

                 

Acquired with credit deterioration

   $ 0       $ 0       $ 0       $ 745       $ 2,014       $ 2,759   

Remaining loans (2)

     0         0         0         100         9,305         9,405   

Commercial real estate

                 

Acquired with credit deterioration

     0         0         0         14,737         5,527         20,264   

Remaining loans (2)

     0         0         0         3,998         21,462         25,460   

Construction

                 

Acquired with credit deterioration

     0         0         0         15,949         0         15,949   

Remaining loans (2)

     0         0         0         6,506         6,477         12,983   

Residential real estate

                 

Acquired with credit deterioration

     0         0         0         4,020         255         4,275   

First mortgages (2)

     565         0         565         0         6,864         7,429   

Home equity (2)

     0         0         0         1,364         7,210         8,574   

Manufactured housing

                 

Acquired with credit deterioration

     0         0         0         66         0         66   

Remaining loans (2)

     21         0         21         161         3,619         3,801   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 586       $ 0       $ 586       $ 47,646       $ 62,733       $ 110,965   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

December 31, 2011    30-89 Days
Past Due (1)
     Greater
Than
90 Days (1)
     Total Past
Due (1)
     Nonaccrual      Current (3)      Total Loans  
    

(Dollars in thousands)

 

Commercial and industrial

                 

Acquired with credit deterioration

   $ 0       $ 0       $ 0       $ 378       $ 0       $ 378   

Remaining loans (2)

     2,672         0         2,672         0         7,204         9,876   

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         30,840         33,376   

Construction

                 

Acquired with credit deterioration

     0         0         0         18,896         3,266         22,162   

Remaining loans (2)

     91         0         91         2,584         13,089         15,764   

Residential real estate

                 

Acquired with credit deterioration

     0         0         0         4,002         0         4,002   

First mortgages (2)

     570         0         570         0         8,600         9,170   

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         3,852         3,936   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,694       $ 0       $ 4,694       $ 45,213       $ 76,369       $ 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.

 

19


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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

Impaired Loans — Covered and Non-Covered

The following table presents a summary of impaired loans:

 

     September 30, 2012      For the Nine Months Ended
September 30, 2012
 
     Unpaid
Principal
Balance (1)
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
            (Dollars in thousands)         

With no related allowance recorded:

           

Commercial and industrial

   $ 3,987          $ 5,191       $ 160   

Commercial real estate

     27,835            22,205         748   

Construction

     7,147            7,627         19   

Consumer

     217            105         3   

Residential real estate

     3,136            2,382         55   

With an allowance recorded:

           

Commercial and industrial

     571       $ 349         748         9   

Commercial real estate

     9,416         2,787         9,071         205   

Construction

     6,022         2,450         6,903         154   

Consumer

     55         3         29         4   

Residential real estate

     1,404         250         967         13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 59,790       $ 5,839       $ 55,228       $ 1,370   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Also represents the recorded investment.

 

     December 31, 2011      For the Nine Months Ended
September 30, 2011
 
     Unpaid
Principal
Balance
(1)
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (Dollars in thousands)  

With no related allowance recorded:

           

Commercial and industrial

   $ 6,975          $ 1,893       $ 95   

Commercial real estate

     20,431            15,096         525   

Construction

     8,773            3,420         92   

Consumer

     0            0         2   

Residential real estate

     343            618         35   

With an allowance recorded:

           

Commercial and industrial

     800       $ 426         3,320         124   

Commercial real estate

     12,195         2,047         10,880         473   

Construction

     7,369         2,986         3,420         46   

Consumer

     22         22         22         0   

Residential real estate

     869         195         618         232   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 57,777       $ 5,676       $ 39,287       $ 1,624   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Also represents the recorded investment.

 

20


Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

Troubled Debt Restructurings

At September 30, 2012, there was $8.2 million in loans categorized as troubled debt restructurings (“TDR”). Of this amount, $1.5 million was performing in accordance with the modified terms. All TDRs are considered impaired loans at the time 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 nine months ended September 30, 2012 and 2011. There were no modifications that involved forgiveness of debt.

 

     TDRs in
compliance
with their
modified
terms and
accruing
interest
     TDRs that
are not
accruing
interest
     Total  
     (Dollars in thousands)  

Three months ended September 30, 2012

        

Extended under forbearance

   $ 0       $ 593       $ 593   

Multiple extensions resulting from financial difficulty

     0         0         0   

Interest-rate reductions

     0         219         219   
  

 

 

    

 

 

    

 

 

 

Total

   $ 0       $ 812       $ 812   
  

 

 

    

 

 

    

 

 

 

Nine months ended September 30, 2012

        

Extended under forbearance

   $ 0       $ 711       $ 711   

Multiple extensions resulting from financial difficulty

     103         0         103   

Interest-rate reductions

     69         493         562   
  

 

 

    

 

 

    

 

 

 

Total

   $ 172       $ 1,204       $ 1,376   
  

 

 

    

 

 

    

 

 

 

Three months ended September 30, 2011

        

Extended under forbearance

   $ 0       $ 1,423       $ 1,423   

Multiple extensions resulting from financial difficulty

     72         0         72   

Interest-rate reductions

     901         0         901   
  

 

 

    

 

 

    

 

 

 

Total

   $ 973       $ 1,423       $ 2,396   
  

 

 

    

 

 

    

 

 

 

Nine months ended September 30, 2011

        

Extended under forbearance

   $ 3,093       $ 5,394       $ 8,487   

Multiple extensions resulting from financial difficulty

     74         0         74   

Interest-rate reductions

     1,009         132         1,141   
  

 

 

    

 

 

    

 

 

 

Total

   $ 4,176       $ 5,526       $ 9,702   
  

 

 

    

 

 

    

 

 

 

 

 

21


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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

The following table provides, by class, the number of loans modified in troubled debt restructurings and the recorded investments and unpaid principal balances during the three and nine months ended September 30, 2012 and 2011.

 

     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
 
            (Dollars in thousands)         

Three months ended September 30, 2012

           

Commercial and industrial

     0       $ 0         0       $ 0   

Commercial real estate

     0         0         0         0   

Construction

     0         0         0         0   

Manufactured housing

     0         0         2         173   

Residential real estate

     0         0         3         188   

Consumer

     0         0         2         451   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     0       $ 0         7       $ 812   
  

 

 

    

 

 

    

 

 

    

 

 

 

Nine months ended September 30, 2012

           

Commercial and industrial

     0       $ 0         0       $ 0   

Commercial real estate

     0         0         0         0   

Construction

     0         0         0         0   

Manufactured housing

     3         172         8         447   

Residential real estate

     0         0         4         306   

Consumer

     0         0         2         451   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3       $ 172         14       $ 1,204   
  

 

 

    

 

 

    

 

 

    

 

 

 

Three months ended September 30, 2011

           

Commercial and industrial

     0       $ 0         0       $ 0   

Commercial real estate

     0         0         4         1,423   

Construction

     0         0         0         0   

Manufactured housing

     12         973         0         0   

Residential real estate

     0         0         0         0   

Consumer

     0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     12       $ 973         4       $ 1,423   
  

 

 

    

 

 

    

 

 

    

 

 

 

Nine months ended September 30, 2011

           

Commercial and industrial

     1       $ 108         0       $ 0   

Commercial real estate

     3         2,543         18         4,904   

Construction

     1         550         0         0   

Manufactured housing

     12         973         0         0   

Residential real estate

     0         0         1         622   

Consumer

     1         2         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     18       $ 4,176         19       $ 5,526   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

All loans 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 nine month periods ended September 30, 2012 and September 30, 2011.

 

22


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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

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 September 30, 2012 and December 31, 2011 for the non-covered loan portfolio.

 

     September 30, 2012  
     Commercial
and
Industrial
     Commercial
Real Estate
     Construction      Residential
Real Estate
 
     (Dollars in thousands)  

Pass/Satisfactory

   $ 72,052       $ 561,061       $ 10,515       $ 104,307   

Special Mention

     3,752         20,064         231         1,229   

Substandard

     837         23,487         2,044         2,319   

Doubtful

     0         761         452         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 76,641       $ 605,373       $ 13,242       $ 107,855   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consumer      Mortgage
Warehouse
     Manufactured
Housing
 
     (Dollars in thousands)  

Performing

   $ 2,398       $ 9,321       $ 158,457   

Nonperforming (1)

     53         0         0   
  

 

 

    

 

 

    

 

 

 

Total

   $ 2,451       $ 9,321       $ 158,457   
  

 

 

    

 

 

    

 

 

 

 

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

 

     December 31, 2011  
     Commercial
and
Industrial
     Commercial
Real Estate
     Construction      Residential
Real Estate
 
     (Dollars in thousands)  

Pass/Satisfactory

   $ 61,851       $ 307,734       $ 9,314       $ 50,517   

Special Mention

     57         13,402         237         0   

Substandard

     7,506         28,131         4,349         2,959   

Doubtful

     322         1,662         1,371         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 69,736       $ 350,929       $ 15,271       $ 53,476   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consumer      Mortgage
Warehouse
     Manufactured
Housing
 
     (Dollars in thousands)  

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 or more at December 31, 2011.

 

23


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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

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

 

     September 30, 2012  
     Commercial
and
Industrial
     Commercial
Real Estate
     Construction      Residential
Real Estate
 
            (Dollars in thousands)         

Pass/Satisfactory

   $ 9,609       $ 26,755       $ 2,438       $ 14,336   

Special Mention

     1,710         235         4,039         3,202   

Substandard

     845         18,734         22,455         2,740   

Doubtful

     0         0         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,164       $ 45,724       $ 28,932       $ 20,278   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Manufactured
Housing
 
     (Dollars in thousands)  

Performing

   $ 3,701   

Nonperforming (1)

     166   
  

 

 

 

Total

   $ 3,867   
  

 

 

 

 

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

 

     December 31, 2011  
     Commercial
and
Industrial
     Commercial
Real Estate
     Construction      Residential
Real Estate
 
            (Dollars in thousands)         

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
 
     (Dollars in thousands)  

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.

 

24


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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

Allowance for loan losses

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

 

Three Months Ended September 30, 2012

   Commercial
and
Industrial
    Commercial
Real Estate
    Construction     Residential
Real Estate
 
           (Dollars in thousands)        

Beginning Balance, July 1, 2012

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

Charge-offs

     (266     (283     (475     (365

Recoveries

     98        33        3        0   

Provision for loan losses

     387        5,923        1,139        2,262   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, September 30, 2012

   $ 1,722      $ 13,939      $ 5,019      $ 2,977   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Three Months Ended September 30, 2012 (continued)

   Manufactured
Housing
     Consumer     Mortgage
Warehouse
    Unallocated      Total  
            (Dollars in thousands)         

Beginning Balance, July 1, 2012

   $ 40       $ 75      $ 802      $ 0       $ 16,118   

Charge-offs

     0         (27     0        0         (1,416

Recoveries

     0         22        0        0         156   

Provision for loan losses

     858         279        (732     0         10,116   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Ending Balance, September 30, 2012

   $ 898       $ 349      $ 70      $ 0       $ 24,974   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

Nine Months Ended September 30, 2012

   Commercial
and
Industrial
    Commercial
Real Estate
    Construction     Residential
Real Estate
 
           (Dollars in thousands)        

Beginning Balance, January 1, 2012

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

Charge-offs

     (300     (1,426     (2,666     (565

Recoveries

     164        83        3        5   

Provision for loan losses

     417        8,253        3,026        2,693   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, September 30, 2012

   $ 1,722      $ 13,940      $ 5,019      $ 2,976   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Nine Months Ended September 30, 2012 (continued)

   Manufactured
Housing
     Consumer     Mortgage
Warehouse
    Unallocated     Total  
            (Dollars in thousands)        

Beginning Balance, January 1, 2012

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

Charge-offs

     0         (37     0        0        (4,994

Recoveries

     0         27        0        0        282   

Provision for loan losses

     880         298        (859     (54     14,654   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, September 30, 2012

   $ 898       $ 349      $ 70      $ 0      $ 24,974   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

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

 

Three Months Ended September 30, 2011

   Commercial
and
Industrial
    Commercial
Real Estate
    Construction      Residential
Real  Estate
 
     (Dollars in thousands)  

Beginning Balance, July 1, 2011

   $ 1,945      $ 7,177      $ 2,479       $ 1,607   

Charge-offs

     (717     (182     0         (4

Recoveries

     9        72        0         0   

Provision for loan losses

     359        (264     1,191         (436
  

 

 

   

 

 

   

 

 

    

 

 

 

Ending Balance, September 30, 2011

   $ 1,596      $ 6,803      $ 3,670       $ 1,167   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

Three Months Ended September 30, 2011

(continued)

   Manufactured
Housing
    Consumer     Mortgage
Warehouse
     Unallocated      Total  
     (Dollars in thousands)  

Beginning Balance, July 1, 2011

   $ 39      $ 20      $ 589       $ 90       $ 13,946   

Charge-offs

     0        (1     0         0         (904

Recoveries

     0        2        0         0         83   

Provision for loan losses

     (39     35        36         18         900   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Ending Balance, September 30, 2011

   $ 0      $ 56      $ 625       $ 108       $ 14,025   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

Nine Months Ended September 30, 2011

   Commercial
and
Industrial
    Commercial
Real Estate
    Construction     Residential
Real  Estate
 
     (Dollars in thousands)  

Beginning Balance, January 1, 2011

   $ 1,662      $ 9,152      $ 2,127      $ 1,116   

Charge-offs

     (2,178     (4,389     (1,069     (109

Recoveries

     15        78        2        0   

Provision for loan losses

     2,097        1,962        2,610        160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, September 30, 2011

   $ 1,596      $ 6,803      $ 3,670      $ 1,167   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Nine Months Ended September 30, 2011 (continued)

   Manufactured
Housing
     Consumer     Mortgage
Warehouse
     Unallocated     Total  
     (Dollars in thousands)  

Beginning Balance, January 1, 2011

   $ 0       $ 11      $ 465       $ 596      $ 15,129   

Charge-offs

     0         (7     0         0        (7,752

Recoveries

     0         3        0         0        98   

Provision for loan losses

     0         49        160         (488     6,550   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Ending Balance, September 30, 2011

   $ 0       $ 56      $ 625       $ 108      $ 14,025   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

26


Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

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

 

September 30, 2012

   Commercial
and
Industrial
     Commercial
Real Estate
     Construction      Residential
Real  Estate
 
     (Dollars in thousands)  

Loans:

           

Individually evaluated for impairment

   $ 4,558       $ 37,250       $ 13,169       $ 4,540   

Collectively evaluated for impairment

     79,448         543,772         11,056         100,751   

Loans acquired with credit deterioration

     5,774         70,915         18,904         15,819   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 89,780       $ 651,937       $ 43,129       $ 121,110   
  

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for loan losses:

           

Individually evaluated for impairment

   $ 349       $ 2,787       $ 2,450       $ 250   

Collectively evaluated for impairment

     877         5,379         262         878   

Loans acquired with credit deterioration

     496         5,773         2,307         1,849   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,722       $ 13,939       $ 5,019       $ 2,977   
  

 

 

    

 

 

    

 

 

    

 

 

 

September 30, 2012 (continued)

   Manufactured
Housing
     Consumer      Mortgage
Warehouse
     Total  
     (Dollars in thousands)  

Loans:

  

Individually evaluated for impairment

   $ 0       $ 273       $ 0       $ 59,790   

Collectively evaluated for impairment

     150,876         11,356         9,321         906,580   

Loans acquired with credit deterioration

     13,113         2,125         0         126,650   

Market discounts/premiums/valuation adjustments

     0         0         0         (5,921
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 163,989       $ 13,754       $ 9,321       $ 1,087,099   
  

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for loan losses:

           

Individually evaluated for impairment

   $ 0       $ 3       $ 0       $ 5,839   

Collectively evaluated for impairment

     757         93         70         8,316   

Loans acquired with credit deterioration

     141         253         0         10,819   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 898       $ 349       $ 70       $ 24,974   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

27


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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

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

 

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

December 31, 2011

   Commercial
and
Industrial
     Commercial
Real Estate
     Construction      Residential  Real
Estate
 
            (Dollars in thousands)         

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         86,536         30,590         23,352   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 82,537       $ 407,001       $ 58,595       $ 77,420   
  

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for loan 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  
     (Dollars in thousands)  

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        166,420   

Market discounts/premiums/valuation adjustments

              (23,514     (23,514
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 113,468       $ 6,568       $ 619,318       $ (23,514   $ 1,341,393   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Allowance for loan 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   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

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 September 30, 2012, funds available for reimbursement, if necessary, were $4.1 million; and the Bancorp has determined that these funds were sufficient to absorb probable losses.

On July 24, 2012, the Bancorp paid $63,246 to acquire manufactured housing loans from Vanderbilt Mortgage and Finance Inc. at par. These loans were originated by Tammac Holding Corporation (“Tammac”), and will be serviced by Tammac on the Bancorp’s behalf. Approximately 85% of the loans are chattel, with the other 15% representing real estate. The loans carry an 11.3% coupon rate, where Tammac earns a 2.0% servicing fee and also retains the rights to a 2.0% IO Strip in relation to this pool of loans. The full recourse for losses on these loans resides with Tammac.

 

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CUSTOMERS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

 

NOT