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 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):
 
Large accelerated filer
 
¨
  
Accelerated filer
 
x
 
 
 
 
Non-accelerated filer
 
o  (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 April 28, 2016, 27,044,750 shares of Voting Common Stock were issued and outstanding.
 




Table of Contents

CUSTOMERS BANCORP, INC. AND SUBSIDIARIES
Table of Contents
 
 
 
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
Ex-31.1
 
 
 
 
 
Ex-31.2
 
 
 
 
 
Ex-32.1
 
 
 
 
 
Ex-32.2
 
 
 
 
 
Ex-101
 
 


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Table of Contents


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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Table of Contents

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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Table of Contents

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.

19

Table of Contents

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


20

Table of Contents

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

<