Customers Bancorp, Inc. (CUBI) FY 2022 MD&A

Item 7.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis should be read in conjunction with "Business - Summary" and the Bancorp’s consolidated financial statements and related notes for the year ended December 31, 2022. For the comparison of the years ended December 31, 2021 and 2020, refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for our fiscal year ended December 31, 2021, filed with the SEC on February 28, 2022.

Overview

Like most financial institutions, Customers derives the majority of its income from interest it receives on its interest-earning assets, such as loans, leases and investments. Customers' primary source of funds for making these loans, leases and investments are its deposits and borrowings, on which it pays interest. Consequently, one of the key measures of Customers' success is the amount of its net interest income, or the difference between the interest income on its interest-earning assets and the interest expense on its interest-bearing liabilities, such as deposits and borrowings. Another key measure is the difference between the interest income generated by interest-earning assets and the interest expense on interest-bearing liabilities, relative to the amount of average interest-earning assets, which is referred to as net interest margin.

BankMobile, previously a division of Customers Bank, derived a majority of its revenue from interest income on installment loans, interchange and card revenue and deposit fees. On January 4, 2021, Customers Bancorp completed the divestiture of BankMobile Technologies, Inc., a wholly-owned subsidiary of Customers Bank and a component of BankMobile, through a merger with Megalith Financial Acquisition Corp. In connection with the closing of the divestiture, MFAC changed its name to “BM Technologies, Inc.” All of BankMobile’s serviced deposits and loans including the related net interest income remained with Customers Bank after the divestiture. Beginning in first quarter 2021, BMT's historical financial results for periods prior to the divestiture are reflected in Customers Bancorp’s results of operations as discontinued operations. As a result of the divestiture, Customers' interchange income, deposit account fees and subscription fees decreased for the year ended December 31, 2021. In addition, Customers' non-interest expenses, such as salaries and employee benefits, technology, professional services, merger and acquisition related expenses and other non-interest expenses, including reimbursements from the white label relationship associated with BMT decreased for the year ended December 31, 2021.

In connection with the divestiture, Customers entered into various agreements with BM Technologies, including a transition services agreement, software license agreement, deposit servicing agreement, non-competition agreement and loan agreement for periods ranging from one to ten years. Customers incurred expenses of $57.0 million and $59.5 million to BM Technologies under the deposit servicing agreement, included within the technology, communication and bank operations expense in the income from continuing operations during the years ended December 31, 2022 and 2021, respectively. Customers held $1.1 billion and $1.8 billion of deposits serviced by BM Technologies as of December 31, 2022 and 2021, respectively. Customers currently expects that approximately half of these serviced deposits will leave Customers Bank by the earlier of BM Technologies' successful completion of the transfer of such deposits to a new sponsor bank or June 30, 2023. The deposit service agreement was scheduled to expire on December 31, 2022. On June 30, 2022, Customers provided a written notice to BM Technologies to terminate the deposit servicing agreement effective December 31, 2022. On November 7, 2022, Customers agreed to extend the deposit servicing agreement to the earlier of BM Technologies' successful completion of the transfer of the serviced deposits to a new sponsor bank or June 30, 2023. Customers and BM Technologies also agreed to remove Customers' obligation under the deposit servicing agreement to pay BM Technologies the interchange maintenance fee which is the difference between the Durbin-exempt and Durbin-recalculated interchange revenues. The other terms of the deposit servicing agreement remain in effect through the new termination date. Customers and BM Technologies are currently negotiating an extension of this agreement with respect to the serviced deposits expected to remain at Customers Bank after June 30, 2023. The loan agreement with BM Technologies was terminated early in November 2021. The transition services agreement with BM Technologies, as amended, expired on March 31, 2022. Customers entered into a special limited agency agreement with BM Technologies, whereby Customers originates consumer installment loans referred by BM Technologies for an initial period from April 20, 2022 to December 31, 2022, and renews annually unless terminated by either party. For additional information, refer to "NOTE 3 – DISCONTINUED OPERATIONS" to Customers' audited financial statements.

In 2021, Customers Bank launched CBIT on the TassatPay blockchain-based instant B2B payments platform, which serves a growing array of B2B clients who want the benefit of instant payments, including key over-the-counter desks, exchanges, liquidity providers, market makers, funds, and other B2B verticals. CBIT may only be created by, transferred to and redeemed by commercial customers of Customers Bank on the instant B2B payments platform by maintaining U.S. dollars in deposit accounts at Customers Bank. CBIT is not listed or traded on any digital currency exchange. As of December 31, 2022 and 2021, Customers Bank held $2.3 billion and $1.9 billion of deposits from customers participating in CBIT, respectively.

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The CBIT instant payments platform provides a closed-system for intrabank commercial transactions and is not intended to be a trading platform for tokens or digital assets. CBIT tokens are used only in connection with the CBIT instant payments platform and are not securities for purposes of applicable securities laws. There are no scenarios in which the transaction or redemption value of one CBIT would not be equal to one U.S. dollar. Each CBIT is minted with precisely one U.S. dollar equivalent, and those dollars are held in a non-interest bearing omnibus deposit account until the CBIT is burned or redeemed. The number of CBIT outstanding in the CBIT instant payments platform is always equal to the U.S. dollars held in the omnibus deposit account at Customers Bank and is reported as a deposit liability in the consolidated balance sheet. The omnibus deposit account had an outstanding balance of $23 thousand at December 31, 2022 and no outstanding balance at December 31, 2021.

There is credit risk inherent in loans and leases requiring Customers to maintain an ACL to absorb credit losses on existing loans and leases that may become uncollectible. Customers maintains this allowance by charging a provision for credit losses on loans and leases against its operating earnings. Customers has included a detailed discussion of this process, as well as several tables describing its ACL, in "NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" and "NOTE 8 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES" to Customers' audited financial statements.

Impact of Macroeconomic Uncertainties, COVID-19 and Geopolitical Conflict

The spread of COVID-19 and its variants since early 2020 has created a global public health crisis that has resulted in volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that Customers serves. Governmental responses during the early stages of the pandemic have included orders closing businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place. These actions, together with responses to the pandemic by businesses and individuals, resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment, material decreases in oil and gas prices and in business valuations, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation including the CARES Act and subsequent amendments and the Federal Reserve maintaining a low interest rate environment.

On March 27, 2020, the CARES Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the SBA's PPP, a nearly $350 billion program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. These loans were intended to guarantee an eight-week or 24-week period of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. On April 16, 2020, the SBA announced that all available funds had been exhausted and applications were no longer being accepted. On April 22, 2020, an additional $310 billion of funds for the PPP was signed into law. On August 8, 2020, the SBA announced that the PPP was closed and no longer accepting PPP applications from participating lenders. On December 27, 2020, the CAA was signed into law, including Division N, Title III, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, which provided $284 billion in additional funding for the SBA's PPP for small businesses affected by the COVID-19 pandemic. The CAA provided small businesses who received an initial PPP loan and experienced a 25% reduction in gross receipts to request a second PPP loan of up to $2.0 million. On January 11, 2021, the SBA reopened the PPP program to small business and non-profit organizations that did not receive a loan through the initial PPP phase. On March 11, 2021, the American Rescue Plan Act of 2021 was enacted expanding eligibility for first and second round of PPP loans and revising the exclusions from payroll costs for purposes of loan forgiveness. The PPP ended on May 31, 2021. Customers has helped thousands of small businesses by funding over $10 billion in PPP loans directly or through partnerships. Customers had $1.0 billion of PPP loans outstanding as of December 31, 2022.

In the early stages of the COVID-19 pandemic, Customers also implemented a short-term loan modification program to provide temporary payment relief to certain of its borrowers who met the program's qualifications. This program allowed for a deferral of payments for a maximum of 90 days at a time. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. On December 27, 2020, the CAA was signed into law, which extended and expanded various relief provisions of the CARES Act including the temporary relief from the accounting and disclosure requirements for TDRs until January 1, 2022. All commercial loans previously on deferments became current by December 31, 2021. As of December 31, 2021, total consumer deferments were $6.1 million.

The Federal Reserve also took a range of actions to support the flow of credit to households and businesses at the outbreak of the COVID-19 pandemic. The Federal Reserve established a range of facilities and programs to support the U.S. economy and U.S. marketplace participants in response to economic disruptions associated with COVID-19, including among others, the PPPLF, which was created to bolster the effectiveness of the PPP by taking loans as collateral at face value. Customers participated in some of these facilities or programs, primarily the PPPLF. Customers fully repaid the borrowing from the PPPLF during the year ended December 31, 2021. No new advances are available from the PPPLF after July 30, 2021.

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The U.S. economy has since strengthened despite the spread of COVID-19 variants, with higher inflation and housing values beginning in 2021. Also, the ongoing global supply chain issues and the military conflict between Russia and Ukraine contributed to higher inflation in 2022. In response, the Federal Reserve began normalizing monetary policy with its decision in late 2021 to taper its quantitative easing and raising the federal funds rate beginning in March 2022. Inflation remains elevated in 2022, reflecting supply and demand imbalances related to COVID-19 and its variants, higher food and energy prices from the military conflict between Russia and Ukraine, and broader price pressures. The Federal Reserve has raised interest rates significantly throughout 2022 and in the early part of 2023 in attempts to bring the inflation to its long run target rate of two percent. Future rate hikes are expected during the remainder of 2023, as the Federal Reserve has indicated ongoing interest rate increases in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to two percent over time.

Significant uncertainties as to future economic conditions continue to exist, including higher inflation, global supply chain issues, and higher oil and commodity prices exacerbated by the military conflict between Russia and Ukraine. Customers has taken deliberate actions in response, including maintaining higher levels of liquidity, reserves for credit losses on loans and leases and off-balance sheet credit exposures and strong capital ratios. Customers has also shifted the mix of its loan portfolio towards low credit risk commercial loans with floating or adjustable interest rates and focused on growing its non-interest bearing and lower-cost interest-bearing deposits to position the Bank for higher interest rates. Customers continues to monitor closely the impact of COVID-19 and its variants, the military conflict between Russia and Ukraine and macroeconomic uncertainties, as well as any effects that may result from the federal government's responses including future rate hikes; however, the extent to which COVID-19 and its variants, the geopolitical conflict, inflation, interest rates and other macroeconomic factors will impact Customers' operations and financial results in 2023 is highly uncertain.

New Accounting Pronouncements

For information about the impact that recently adopted or issued accounting guidance will have on us, refer to "NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" to Customers' audited financial statements.

Critical Accounting Policies and Estimates

Customers has adopted various accounting policies that govern the application of U.S. GAAP and that are consistent with general practices within the banking industry in the preparation of its consolidated financial statements. Customers' significant accounting policies are described in "NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" to Customers' audited financial statements.

Certain accounting policies involve significant judgments and assumptions by Customers that have a material impact on the carrying value of certain assets. Customers considers these accounting policies to be critical accounting policies. The judgments and assumptions used are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions management makes, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of Customers' assets.

The critical accounting policy that is both important to the portrayal of Customers' financial condition and results of operations and require complex, subjective judgments is the ACL. This critical accounting policy and material estimate, along with the related disclosures, are reviewed by Customers' Audit Committee of the Board of Directors.

Allowance for Credit Losses

Customers' ACL at December 31, 2022 represents Customers' current estimate of the lifetime credit losses expected from its loan and lease portfolio and its unfunded lending-related commitments that are not unconditionally cancellable. Management estimates the ACL by projecting a lifetime loss rate conditional on a forecast of economic parameters and other qualitative adjustments, for the loans and leases' expected remaining term.

Customers uses external sources in the creation of its forecasts, including current economic conditions and forecasts for macroeconomic variables over its reasonable and supportable forecast period (e.g., GDP growth rate, unemployment rate, BBB spread, commercial real estate and home price index). After the reasonable and supportable forecast period, which ranges from two to five years, the models revert the forecasted macroeconomic variables to their historical long-term trends, without specific predictions for the economy, over the expected life of the pool, while also incorporating prepayment assumptions into its lifetime loss rates. Internal factors that impact the quarterly allowance estimate include the level of outstanding balances, portfolio performance and assigned risk ratings. Significant loan/borrower attributes utilized in the models include property type, initial loan to value, assigned risk ratings, delinquency status, origination date, maturity date, initial FICO scores, and borrower industry and state.

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The ACL may be affected materially by a variety of qualitative factors that Customers considers to reflect its current judgment of various events and risks that are not measured in our statistical procedures, including uncertainty related to the economic forecasts used in the modelled credit loss estimates, nature and volume of the loan and lease portfolio, credit underwriting policy exceptions, peer comparison, industry data, and model and data limitations. The qualitative allowance for economic forecast risk is further informed by multiple alternative scenarios, as deemed applicable, to arrive at a scenario or a composite of scenarios supporting the period-end ACL balance. The evaluation process is inherently imprecise and subjective as it requires significant management judgment based on underlying factors that are susceptible to changes, sometimes materially and rapidly. Customers recognizes that this approach may not be suitable in certain economic environments such that additional analysis may be performed at management's discretion. Due in part to its subjectivity, the qualitative evaluation may be materially impacted during periods of economic uncertainty and late breaking events that could lead to revision of reserves to reflect management's best estimate of expected credit losses.

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

The net decrease in our estimated ACL as of December 31, 2022 as compared to our December 31, 2021 resulted primarily from the sale of consumer installment loans to a third-party sponsored VIE, partially offset by loan growth, deteriorating macroeconomic forecasts and increases in charge-offs primarily attributed to $11.0 million in commercial and industrial loans originated under the PPP that were subsequently determined to be ineligible for SBA forgiveness and guarantee and ultimately deemed uncollectible, a partial charge-off of $7.9 million for a performing non-owner occupied commercial real estate loan that Customers decided to exit, and higher charge-offs in consumer installment loans and overdrawn deposit accounts. Refer to NOTE 6 – INVESTMENT SECURITIES to Customers' audited financial statements for more information on the sale of consumer installment loans. The provision for credit losses on loans and leases for the year ended December 31, 2022 was $59.5 million, for an ending ACL balance of $133.9 million ($130.9 million for loans and leases and $3.0 million for unfunded lending-related commitments) as of December 31, 2022.

To determine the ACL as of December 31, 2022, Customers utilized the Moody's December 2022 Baseline forecast to generate its modelled expected losses and considered Moody's other alternative economic forecast scenarios to qualitatively adjust the modelled ACL by loan portfolio in order to reflect management's reasonable expectations of current and future economic conditions. The Baseline forecast at December 31, 2022 assumed lower growth rates in macroeconomic forecasts compared to the macroeconomic forecasts used by Customers in 2021; oil prices remaining volatile, but gradually declining by mid-2023, recession fears, weakening global economies and the embargo on Russian crude oil from the Russian invasion of Ukraine; COVID-19 becoming less disruptive to global supply chains, tourism and business travel, immigration and labor markets; the Federal Reserve raising the effective fed funds rate to just under 5.0% and cutting the fed funds rate beginning in late 2023 and throughout 2024; the CPI rising 4.1% in 2023 and 2.4% in 2024; and the unemployment rate rising to 4.0% in 2023 and 4.1% in 2024. Customers continues to monitor the impact of the military conflict between Russia and Ukraine, COVID-19 and its variants, supply-chain disruptions, inflation, and related policy measures on the economy and, if the pace of the expected recovery is worse than expected, further meaningful provisions for credit losses could be required.

The net decrease in our estimated ACL as of December 31, 2021 as compared to December 31, 2020 was primarily attributable to the continued improvement in macroeconomic forecasts since the significant economic impact of COVID-19 in early 2020, partially offset by loan growth primarily in Customers' consumer installment loan portfolio. The provision for credit losses on loans and leases for the year ended December 31, 2021 was $27.4 million, for an ending ACL balance of $139.9 million ($137.8 million for loans and leases and $2.1 million for unfunded lending-related commitments) as of December 31, 2021. To determine the ACL as of December 31, 2021, Customers utilized the Moody's December 2021 Baseline forecast to generate its modelled expected losses by loan portfolio in order to reflect management's reasonable expectations of current and future economic conditions. The Moody's Baseline forecast at December 31, 2021 assumed continued improvement in forecasts of macroeconomic conditions compared to the forecasts of macroeconomic conditions used by Customers in 2020; the Federal Reserve has accelerated its tapering process in the fourth quarter of 2021 and the first rate hike is assumed to occur in 2022; a continuing U.S. economic recovery from federal spending and abatement of the COVID-19 pandemic, notwithstanding the impact of the Omicron variant; and the acceleration in consumer prices is expected to peak and moderate in the near-term as the supply chain issues subside.

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One of the most significant judgments influencing the ACL is the macroeconomic forecasts from Moody's. Changes in the economic forecasts could significantly affect the estimated credit losses which could potentially lead to materially different allowance levels from one reporting period to the next. Given the dynamic relationship between macroeconomic variables within Customers' modelling framework, it is difficult to estimate the impact of a change in any one individual variable on the ACL. However, to illustrate a hypothetical sensitivity analysis, management calculated a quantitative allowance using a 100% weighting applied to an adverse scenario. This scenario includes assumptions around the supply-chain conditions worsening and higher wage increases adding to inflation pressures; new infections, hospitalizations and COVID-19 deaths rising significantly again as compared to the Baseline projections, slowing growth in consumer spending on air travel, retail and hotels; the Federal Reserve raising interest rates higher than the Baseline projections; rising unemployment; and the U.S. economy falling into recession in 2023. Under this scenario, as an example, the unemployment rate is estimated at 6.8% and 7.4% in 2023 and 2024, respectively. These numbers represent a 2.8% and 3.3% higher unemployment estimate than Baseline scenario projections of 4.0% and 4.1%, respectively, for the same time periods. To demonstrate the sensitivity to key economic parameters, management calculated the difference between a 100% Baseline weighting and a 100% adverse scenario weighting for modelled results. This would result in an incremental quantitative impact to the ACL of approximately $42.2 million at December 31, 2022. This resulting difference is not intended to represent an expected increase in ACL levels since (i) Customers may use a weighted approach applied to multiple economic scenarios for its ACL process, (ii) the highly uncertain economic environment, (iii) the difficulty in predicting inter-relationships between macroeconomic variables used in various economic scenarios, and (iv) the sensitivity analysis does not account for any qualitative adjustments incorporated by Customers as part of its overall ACL framework.

There is no certainty that Customers' ACL will be appropriate over time to cover losses in our portfolio as economic and market conditions may ultimately differ from our reasonable and supportable forecast. Additionally, events adversely affecting specific customers, industries, or Customers' markets, such as geopolitical instability, risks of rising inflation including a near-term recession, or

the emergence of a more contagious and severe COVID-19 variant, could severely impact our current expectations. If the credit quality of Customers' customer base materially deteriorates or the risk profile of a market, industry, or group of customers changes materially, Customers' net income and capital could be materially adversely affected which, in turn could have a material adverse effect on Customers' financial condition and results of operations. The extent to which the geopolitical instability, risks of rising inflation and COVID-19 and its variants have and will continue to negatively impact Customers' businesses, financial condition, liquidity and results will depend on future developments, which are highly uncertain and cannot be forecasted with precision at this time.

For more information, refer to "NOTE 8 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES" to Customers' audited financial statements.

Results of Operations

The following discussion of Customers Bancorp’s consolidated results of operations should be read in conjunction with its consolidated financial statements, including the accompanying notes. Please refer to Critical Accounting Policies and Estimates in this Management's Discussion and Analysis and "NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" to Customers' audited financial statements for information concerning certain significant accounting policies and estimates applied in determining reported results of operations.

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The following table sets forth the condensed statements of income for the years ended December 31, 2022 and 2021:

Customers reported net income available to common shareholders of $218.4 million for the year ended December 31, 2022, compared to $300.1 million for the year ended December 31, 2021. Factors contributing to the change in net income available to common shareholders for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Net interest income

Net interest income decreased $61.4 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 as interest income from PPP loans decreased due to lower levels of PPP loan forgiveness, which accelerated the recognition of net deferred loan origination fees, offset in part by an increase in commercial and industrial loans and leases, primarily in specialty lending. Average interest-earning assets increased by $1.0 billion, and NIM decreased by 51 basis points to 3.19% for the year ended December 31, 2022 from 3.70% for the year ended December 31, 2021. The increase in interest-earning assets was primarily driven by increases in commercial and industrial loans and leases, primarily in specialty lending, investment securities, multifamily loans, consumer installment loans and residential mortgages, offset in part by decreases in PPP loans due to PPP loan forgiveness and commercial loans to mortgage companies. The PPP loan forgiveness, which accelerated the recognition of net deferred loan origination fees, decreased in 2022. The commercial loans to mortgage companies decreased as the mortgage activity decelerated due to rising interest rates in 2022. These decreases were partially offset by the shift in the mix of interest-earning assets in a rising interest rate environment mostly in commercial and industrial loans and leases, primarily in specialty lending and by equity investment distributions, which are included in other interest income. The shift in the mix of interest-earning assets in a rising interest rate environment included $7.4 billion in ending balance ($5.9 billion average balance) of commercial and industrial loans and leases yielding 4.88% at and for the year ended December 31, 2022, which included secured and variable rate loans in specialty lending and owner occupied commercial real estate loans, and $1.0 billion in ending balance ($1.7 billion average balance) of PPP loans yielding 4.60% at and for the year December 31, 2022. The shift in the mix of interest-bearing liabilities in a rising interest rate environment drove an 88 basis point increase in the cost of deposits and borrowings, which more than offset the increase in yield from interest-earning assets, and contributed to the NIM decrease for the year ended December 31, 2022 compared to the year ended December 31, 2021. The shift in the mix of interest-bearing liabilities included interest-bearing deposits of $16.3 billion in ending balance ($13.5 billion average balance) costing 1.67% at and for the year December 31, 2022. Non-interest bearing demand deposits were $1.9 billion in ending balance ($3.8 billion average balance) at and for the year December 31, 2022. Customers' total cost of deposits, including interest-bearing and non-interest bearing deposits, were 1.31% and 0.44% for the years ended December 31, 2022 and 2021, respectively. PPPLF borrowings costing 0.35% were fully repaid during the year ended December 31, 2021. Customers' total cost of funds, including non-interest bearing deposits and borrowings, was 1.42% and 0.54% for the years ended December 31, 2022 and 2021, respectively.

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Provision for credit losses

The $32.6 million increase in the provision for credit losses for the year ended December 31, 2022 compared to the year ended December 31, 2021, reflects the loan growth and deteriorating macroeconomic forecasts, partially offset by sale of consumer installment loans to a third-party sponsored VIE. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information on the sale of consumer installment loans during the year ended December 31, 2022. The ACL on off-balance sheet credit exposures is presented within accrued interest payable and other liabilities in the consolidated balance sheet and the related provision is presented as part of other non-interest expense on the consolidated statement of income. The ACL on loans and leases held for investment, represented 0.93% of total loans and leases receivable and 1.00% of total loans and leases receivable, excluding PPP loans (a non-GAAP measure, please refer to the non-GAAP reconciliation within Loans and Leases, Credit Risk), at December 31, 2022, compared to 1.12% and 1.53% (a non-GAAP measure, please refer to the non-GAAP reconciliation within Loans and Leases, Credit Risk) at December 31, 2021.

Net charge-offs for the year ended December 31, 2022 were $66.4 million, or 45 basis points of average total loans and leases, compared to $33.8 million, or 22 basis points of average total loans and leases for the year ended December 31, 2021. The increase in net charge-offs was primarily due to $11.0 million in commercial and industrial loans originated under the PPP that were subsequently determined to be ineligible for SBA forgiveness and guarantee and ultimately deemed uncollectible, a partial charge-off of $7.9 million for a performing non-owner occupied commercial real estate loan that Customers decided to exit, higher charge-offs of consumer installment loans and overdrawn deposit accounts.

The provision for credit losses for the year ended December 31, 2022 also included a provision for credit losses of $0.6 million on certain asset-backed securities included in our investment securities available for sale. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information.

Non-interest income

The $45.6 million decrease in non-interest income for the year ended December 31, 2022 compared to the year ended December 31, 2021 resulted primarily from $23.5 million of losses from the sales of $521.8 million of consumer installment loans, inclusive of accrued interest and unamortized deferred loan origination costs, to a third-party sponsored VIE, and decreases of $54.6 million in net gains realized from the sale of AFS debt securities, $8.2 million in gains from the sales of SBA and other loans, $6.1 million in mortgage warehouse transactional fees, $3.4 million in unrealized gain on investment securities and $1.7 million in other non-interest income. These decreases were offset in part by losses of $24.5 million on cash flow hedge derivative terminations and $2.8 million on sale of foreign subsidiaries for the year ended December 31, 2021, $7.5 million in legal settlement gain, and increases of $7.3 million in bank-owned life insurance income, $6.6 million in commercial lease income and $4.7 million in loans fees for the year ended December 31, 2022 compared to the year ended December 31, 2021. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information on the sale of consumer installment loans during the year ended December 31, 2022.

Non-interest expense

The $10.3 million increase in non-interest expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from increases of $5.2 million in commercial lease depreciation, $4.3 million in loan servicing, $4.2 million in salaries and employee benefits, $1.5 million in occupancy, $1.5 million in technology, communication and bank operations, $1.0 million in advertising and promotion, $0.8 million in loan workout related expenses and $0.8 million in professional services. These increases were offset in part by decreases of $6.2 million in deposit relationship adjustment fees, $1.2 million in FDIC assessments, non-income taxes, and regulatory fees, $1.0 million in other non-interest expense and $0.4 million in merger and acquisition related expenses for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Income tax expense

Customers' effective tax rate was 21.7% for the year ended December 31, 2022 compared to 19.7% for the year the ended December 31, 2021. The increase in the effective tax rate for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to the recognition of uncertain tax positions in 2022, a decrease in tax credit benefits, recognition of a deferred tax asset related to the outside basis difference of foreign subsidiaries in 2021 and excess tax benefits from stock option exercises in 2021, partially offset by increases in death benefits from bank-owned life insurance policies in 2022.

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Net loss from discontinued operations

On January 4, 2021, Customers Bancorp completed the divestiture of BMT, the technology arm of its BankMobile segment, to MFAC Merger Sub Inc., an indirect wholly-owned subsidiary of MFAC, pursuant to an Agreement and Plan of Merger, dated August 6, 2020, by and among MFAC, MFAC Merger Sub Inc., BMT, Customers Bank, the sole stockholder of BMT, and Customers Bancorp, the parent bank holding company for Customers Bank (as amended on November 2, 2020 and December 8, 2020). In connection with the closing of the divestiture, MFAC changed its name to “BM Technologies, Inc.” Following the completion of the divestiture of BMT, BankMobile's serviced deposits and loans and the related net interest income have been combined with Customers' financial condition and the results of operations as a single reportable segment.

BMT's historical financial results for periods prior to the divestiture are reflected in Customers Bancorp’s consolidated financial statements as discontinued operations. BMT's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying audited financial statements and prior period amounts have been reclassified to conform with the current period presentation.

Customers had no loss from discontinued operations, net of income taxes for the year ended December 31, 2022 compared to $39.6 million for the year ended December 31, 2021. The $39.6 million decrease primarily resulted from restricted stock awards of BM Technologies' common stock granted to certain team members of BMT and the effect of the divestiture being treated as a taxable asset sale for tax purposes, offset in part by a tax benefit related to the restricted stock awards in 2021. Refer to "NOTE 3 – DISCONTINUED OPERATIONS" to Customers' audited financial statements for additional information.

Preferred stock dividends and loss on redemption of preferred stock

Preferred stock dividends were $9.6 million and $11.7 million for the years ended December 31, 2022 and 2021, respectively. During the year ended December 31, 2021, Customers redeemed all of the outstanding shares of Series C and Series D Preferred Stock for an aggregate payment of $82.5 million, at a redemption price of $25.00 per share. The redemption price paid in excess of the carrying value of Series C and Series D Preferred Stock of $2.8 million is included as a loss on redemption of preferred stock in the consolidated statement of income for the year ended December 31, 2021. After giving effect to the redemption, no shares of the Series C and Series D Preferred Stock remained outstanding. There were no changes to the amount of preferred stock outstanding during the year ended December 31, 2022. Refer to "NOTE 13 – SHAREHOLDERS EQUITY" to Customers' audited financial statements for additional information.

On June 15, 2021, the Series E Preferred Stock became floating at three-month LIBOR plus 5.14%, compared to a fixed rate of 6.45%. On December 15, 2021, the Series F Preferred Stock became floating at three-month LIBOR plus 4.762%, compared to a fixed rate of 6.00%. Publication of overnight and one-, three-, six‑, and twelve-month USD LIBOR settings will be discontinued after June 30, 2023. Customers expects that the Series E and F Preferred Stock will pay dividends based on the three-month term SOFR plus spreads comparable to the current spreads after June 30, 2023.

NET INTEREST INCOME

Net interest income (the difference between the interest earned on loans and leases, investments and interest-earning deposits with banks, and interest paid on deposits, borrowed funds and subordinated debt) is the primary source of Customers' earnings. The following table summarizes Customers' net interest income, related interest spread, net interest margin and the dollar amount of changes in interest income and interest expense for the major categories of interest-earning assets and interest-bearing liabilities for the years ended December 31, 2022 and 2021. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

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(1)For presentation in this table, average balances and the corresponding average yields for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.

(2)Includes owner occupied commercial real estate loans.

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

(4)Total costs of deposits (including interest bearing and non-interest-bearing) were 1.31% and 0.44% for the years ended December 31, 2022 and 2021, respectively.

(5)Non-GAAP tax-equivalent basis, using an estimated marginal tax rate of 26% for both the years ended December 31, 2022 and 2021, presented to approximate interest income as a taxable asset and excluding net interest income from PPP loans and related borrowings, along with the related PPP loan balances and PPP fees receivable from interest-earning assets. Management uses non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Please refer to the reconciliation schedule that follows this table.

(6)Not Meaningful. Average yield on other interest-earning assets for the year ended December 31, 2022 was 15.38% primarily due to $6.4 million of equity investment distributions.

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Net interest income decreased $61.4 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The average interest-earning assets increased by $1.0 billion, primarily related to increases in commercial and industrial loans and leases, primarily in specialty lending, investment securities, multifamily loans, consumer installment loans and residential mortgages, partially offset by decreases in PPP loans due to PPP loan forgiveness and commercial loans to mortgage companies. Up until late 2021, the commercial loans to mortgage companies trend had largely been a function of greater refinance activity due to sharply lower interest rates, an increase in home purchase volumes and market share gains from other banks since early 2020. The refinancing activity has slowed since reaching its high level in early 2021, and into 2022 with rising interest rates.

The NIM decreased by 51 basis points to 3.19% for the year ended December 31, 2022, from 3.70% for the year ended December 31, 2021 resulting primarily from a decrease in PPP loan forgiveness and a shift in the mix of interest-bearing liabilities in a rising interest rate environment, offset in part by a shift in the mix of interest-earning assets in a rising interest rate environment. The PPP loan forgiveness, which accelerated the recognition of net deferred loan origination fees, decreased in 2022. This decrease was partially offset by the shift in the mix of interest-earning assets in a rising interest rate environment, mostly in commercial and industrial loans and leases, primarily specialty lending, and by equity investment distributions, which are included in other interest income. The shift in the mix of interest-earning assets in a rising interest rate environment included $7.4 billion in ending balance ($5.9 billion average balance) of commercial and industrial loans and leases yielding 4.88% at and for the year December 31, 2022, which included secured and variable rate loans in specialty lending and owner occupied commercial real estate loans, and $1.0 billion in ending balance ($1.7 billion average balance) of PPP loans yielding 4.60% at and for the year December 31, 2022. The shift in the mix of interest-bearing liabilities in a rising interest rate environment drove an 88 basis point increase in the cost of deposits and borrowings, which more than offset the increase in yield from interest-earning assets, and contributed to the NIM decrease for the year ended December 31, 2022 compared to the year ended December 31, 2021. The shift in interest-bearing liabilities included interest-bearing deposits of $16.3 billion in ending balance ($13.5 billion average balance) costing 1.67% at and for the year December 31, 2022. Non-interest bearing demand deposits was $1.9 billion in ending balance ($3.8 billion average balance) at and for the year December 31, 2022. Customers' total cost of deposits, including interest-bearing and non-interest bearing deposits was 1.31% and 0.44% for the years ended December 31, 2022 and 2021, respectively. PPPLF borrowings costing 0.35% were fully repaid during the year ended December 31, 2021. Customers' total cost of funds, including non-interest bearing deposits and borrowings was 1.42% and 0.54% for the years ended December 31, 2022 and 2021, respectively.

Customers’ net interest margin table contains non-GAAP financial measures calculated using non-GAAP amounts. These measures include net interest margin tax equivalent, excluding PPP loans. Management uses these non-GAAP measures to compare the current period presentation to historical periods in prior filings. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers' financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

A reconciliation of net interest margin tax equivalent, excluding PPP loans for the years ended December 31, 2022 and 2021 is set forth below.

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PROVISION FOR CREDIT LOSSES

For more information about the provision and Customers' ACL methodology and loss experience, see Critical Accounting Policies and Estimates and "NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" and "NOTE 8 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES" to Customers' audited financial statements.

Customers maintains an ACL to cover current expected credit losses as of the balance sheet date on loans and leases held for investment that are not reported at their fair value on a recurring basis. The ACL is increased through periodic provisions for credit losses on loans and leases that are charged as an expense on the consolidated statements of income and is reduced by charge-offs, net of recoveries. The loan and lease portfolio is reviewed quarterly to evaluate the performance of the portfolio and the adequacy of the ACL. The ACL is estimated as of the end of each quarter and compared to the balance recorded in the general ledger, net of charge-offs and recoveries. The allowance is adjusted to the estimated ACL balance with a corresponding charge (or debit) to the provision for credit losses on loans and leases.

The provision for credit losses is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected lifetime losses in the loan and lease portfolio at the balance sheet date. Customers recorded a provision for credit losses for loans and leases of $59.5 million and $27.4 million for the years ended December 31, 2022 and 2021, respectively. Customers recorded a provision of $0.9 million and a benefit to provision of $0.2 million of lending-related commitments for the years ended December 31, 2022 and 2021, respectively. The $32.1 million increase in the provision for credit losses for loans and leases for the year ended December 31, 2022 compared to the year ended December 31, 2021 reflects the loan growth and deteriorating macroeconomic forecasts, partially offset by sale of consumer installment loans to a third-party sponsored VIE. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information on the sale of consumer installment loans during the year ended December 31, 2022.

Net charge-offs for the year ended December 31, 2022 were $66.4 million, or 45 basis points of average total loans and leases, compared to $33.8 million, or 22 basis points of average total loans and leases for the year ended December 31, 2021. The increase in net charge-offs primarily related to $11.0 million of commercial and industrial loans originated under the PPP that were subsequently determined to be ineligible for SBA forgiveness and guarantee and ultimately deemed uncollectible, a partial charge-off of $7.9 million for a performing non-owner occupied commercial real estate loan that Customers decided to exit, higher charge-offs for consumer installment loans and overdrawn deposit accounts.

The provision for credit losses for the year ended December 31, 2022 also included a provision for credit losses of $0.6 million on certain asset-backed securities included in our investment securities available for sale. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information.

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NON-INTEREST INCOME

The table below presents the components of non-interest income for the years ended December 31, 2022 and 2021.

Commercial lease income

Commercial lease income represents income earned on commercial operating leases generated by Customers' Equipment Finance Group in which Customers is the lessor. The $6.6 million increase in commercial lease income for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from the continued growth of Customers' equipment finance business.

Bank-owned life insurance

Bank-owned life insurance income represents income earned on life insurance policies owned by Customers including an increase in cash surrender value of the policies and any benefits paid by insurance carriers under the policies. The $7.3 million increase in bank-owned life insurance income for the year ended December 31, 2022 compared to the year ended December 31, 2021 resulted from an increase in cash surrender value of the policies and benefits paid by insurance carriers under the policies.

Mortgage warehouse transactional fees

The $6.1 million decrease in mortgage warehouse transactional fees for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from a decrease in refinancing activity driven by rising interest rates. There can be no assurance that Customers will earn mortgage warehouse transactional fees in 2023 comparable to 2022, given lower mortgage activity in a rising interest rate environment that is expected to continue in 2023.

Gain (loss) on sale of SBA and other loans

The $8.2 million decrease in gain on sale of SBA and other loans for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from $3.2 million in gains realized from the sales of $31.8 million in SBA loans and a commercial lease in 2022, as compared to $6.1 million in gains from sales of $66.6 million in SBA loans and $5.2 million in gains from sales of $212.3 million in consumer installment loans in 2021. There can be no assurance that Customers will realize gains on the sale of loans in 2023, given the significant uncertainty in the capital markets that is expected to continue in 2023.

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Loss on sale of consumer installment loans

The $23.5 million increase in loss on sale of consumer installment loans for the year ended December 31, 2022 compared to the year ended December 31, 2021 reflects loss on sales of $521.8 million in consumer installment loans, inclusive of accrued interest and unamortized deferred loan origination costs, to a third-party sponsored VIE. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information.

Loan fees

The $4.7 million increase in loan fees for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from an increase in fees earned on unused lines of credit, servicing fees and other fees from commercial borrowers.

Net gain (loss) on sale of investment securities

The $54.6 million decrease in net gain on sale of investment securities for the year ended December 31, 2022 compared to the year ended December 31, 2021 reflects the net losses realized from the sale of $983.6 million in AFS debt securities for the year ended December 31, 2022, compared to the gains realized from the sale of $689.9 million in AFS debt securities for the year ended December 31, 2021. There can be no assurance that Customers will realize gains on the sale of investment securities in 2023, given the significant uncertainty in the capital markets and fluctuations in our funding needs, which may impact Customers’ investment strategy.

Unrealized gain (loss) on investment securities

The $3.4 million decrease in unrealized gain on investment securities for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily reflects the unrealized loss on CRA-qualified mutual fund shares in 2022 and unrealized gain of equity securities issued by a foreign entity that were held by CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd. in 2021. Customers sold all outstanding shares in CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd. for $3.8 million in 2021.

Loss on sale of foreign subsidiaries

The $2.8 million decrease in loss on sale of foreign subsidiaries for the year ended December 31, 2022 compared to the year ended December 31, 2021 reflects the realized loss from the sale of CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd., which held the equity securities issued by a foreign entity in 2021. Customers sold all outstanding shares in CB Green Ventures Pte Ltd. and CUBI India Ventures Pte Ltd. for $3.8 million in 2021.

Loss on cash flow hedge derivative terminations

The $24.5 million decrease in loss on cash flow hedge derivative terminations for the year ended December 31, 2022 compared to the year ended December 31, 2021 reflects the early terminations of derivatives designated in cash flow hedging relationships and reclassification of the realized losses from accumulated other comprehensive income to earnings because the hedged forecasted transactions were no longer probable of occurring in 2021.

Legal settlement gain

The $7.5 million increase in legal settlement gain for the year ended December 31, 2022 compared to the year ended December 31, 2021 reflects the gain from the court-approved settlement with a third party PPP service provider.

Other non-interest income

The $1.7 million decrease in other non-interest income for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from a decrease in SERP income due to changes in capital markets.

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NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the years ended December 31, 2022 and 2021.

Salaries and employee benefits

The $4.2 million increase in salaries and employee benefits for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from an increase in average full-time equivalent team members needed for future growth, annual merit increases, increase in stock-based compensation related to new awards and severance expenses. These increases were offset in part by decreases in compensation expense associated with an executive's retirement and other one-time benefits in 2021 and a decrease in incentive accruals tied to Customers' overall performance.

Technology, communication and bank operations

The $1.5 million increase in technology, communication and bank operations expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from increases of $4.4 million in software licenses and fees paid for software as a service, partially offset by decreases in deposit servicing fees from lower deposits and interchange maintenance fees from lower debit card spend, that were paid to BM Technologies, the successor entity to BMT that was divested on January 4, 2021. Customers incurred $57.0 million and $59.5 million in deposit servicing fees to BM Technologies under the deposit servicing agreement during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, Customers held $1.1 billion and $1.8 billion of deposits serviced by BM Technologies, respectively. Customers currently expects that approximately half of these serviced deposits will leave Customers Bank by the earlier of BM Technologies' successful completion of the transfer of such deposits to a new sponsor bank or June 30, 2023. The deposit service agreement was scheduled to expire on December 31, 2022. On June 30, 2022, Customers provided a written notice to BM Technologies to terminate the deposit servicing agreement effective December 31, 2022. On November 7, 2022, Customers agreed to extend the deposit servicing agreement to the earlier of BM Technologies' successful completion of the transfer of the serviced deposits to a new sponsor bank or June 30, 2023. Customers and BM Technologies also agreed to remove Customers' obligation under the deposit servicing agreement to pay BM Technologies the interchange maintenance fee which is the difference between the Durbin-exempt and Durbin-recalculated interchange revenues. The other terms of the deposit servicing agreement remain in effect through the new termination date. Customers and BM Technologies are currently negotiating an extension of this agreement with respect to the serviced deposits expected to remain at Customers Bank after June 30, 2023. For additional information, refer to "NOTE 3 – DISCONTINUED OPERATIONS" to Customers' audited financial statements.

Professional services

The $0.8 million increase in professional services for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from an increase in legal fees in connection with the legal settlement with a third party PPP service provider, partially offset by a decrease in outside professional services used to support the PPP forgiveness process and our participation in the latest round of PPP in 2021.

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Occupancy

The $1.5 million increase in occupancy for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to impairment charges of $1.4 million for ROU assets, bank premises and equipment related to consolidation of branch locations and other offices.

Commercial lease depreciation

The $5.2 million increase in commercial lease depreciation for the year ended December 31, 2022 compared to the year ended December 31, 2021 resulted from the continued growth of the operating lease arrangements originated by Customers' Equipment Finance Group in which Customers is the lessor.

FDIC assessments, non-income taxes, and regulatory fees

The $1.2 million decrease in FDIC assessments, non-income taxes, and regulatory fees for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from a decrease in FDIC assessment rates. In October 2022, FDIC issued a final rule to increase the initial base deposit insurance assessment rate by two basis points for all insured depository institutions beginning in 2023.

Loan servicing

The $4.3 million increase in loan servicing for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from servicing fees paid to third party servicers associated with the growth in consumer installment loans, including those loans sold to a third-party sponsored VIE, and residential mortgages, partially offset by a decrease in servicing fees paid to third party servicers associated with the participation in the latest round of PPP in 2021 and the PPP forgiveness process.

Advertising and promotion

The $1.0 million increase in advertising and promotion for the year ended December 31, 2022 compared to the year ended December 31, 2021 resulted from higher spending on advertising agencies and media, primarily for our deposit products.

Merger and acquisition related expenses

The $0.4 million decrease in merger and acquisition related expenses for the year ended December 31, 2022 compared to the year ended December 31, 2021 resulted from the merger of BankMobile Technologies, Inc. and Megalith Financial Acquisition Corp. completed on January 4, 2021.

Loan workout

The $0.8 million increase in loan workout related expenses for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from legal fees incurred in connection with a performing non-owner occupied commercial real estate loan that Customers decided to exit and loans to a commercial mortgage warehouse borrower that filed for bankruptcy.

Deposit relationship adjustment fees

The $6.2 million decrease in deposit relationship adjustment fees for the year ended December 31, 2022 compared to the year ended December 31, 2021 resulted from a make-whole fee paid to a single high-cost deposit customer to amend a long-term deposit contract as a part of Customers' initiative to lower its cost of funds in 2021.

Other non-interest expenses

The $1.0 million decrease in other non-interest expenses for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from decreases in provision for operating losses of $1.0 million, loan origination expenses associated with the latest round of PPP of $0.9 million, corporate sponsorships of $0.9 million and litigation settlement of $1.2 million in 2021. These decreases were offset in part by increases of $1.9 million in expenses primarily associated with our team members' return to office and business development and $0.9 million in provision for credit losses on lending-related unfunded commitments.

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INCOME TAXES

The table below presents income tax expense from continuing operations and the effective tax rate for the years ended December 31, 2022 and 2021.

The $23.7 million decrease in income tax expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from a decrease in pre-tax income from continuing operations. The increase in the effective tax rate for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily resulted from the recognition of uncertain tax positions in 2022, a decrease in tax credit benefits, recognition of a deferred tax asset related to the outside basis difference of foreign subsidiaries in 2021 and excess tax benefits from stock option exercises in 2021, partially offset by increases in death benefits from bank-owned life insurance policies in 2022. For the reconciliation of the effective tax rate and the statutory federal tax rate, refer to "NOTE 16 – INCOME TAXES" to Customers' audited financial statements.

NET LOSS FROM DISCONTINUED OPERATIONS

On January 4, 2021, Customers Bancorp completed the divestiture of BMT, the technology arm of its BankMobile segment, to MFAC Merger Sub Inc., an indirect wholly-owned subsidiary of MFAC, pursuant to an Agreement and Plan of Merger, dated August 6, 2020, by and among MFAC, MFAC Merger Sub Inc., BMT, Customers Bank, the sole stockholder of BMT, and Customers Bancorp, the parent bank holding company for Customers Bank (as amended on November 2, 2020 and December 8, 2020). In connection with the closing of the divestiture, MFAC changed its name to “BM Technologies, Inc.” Following the completion of the divestiture of BMT, BankMobile's serviced deposits and loans and the related net interest income have been combined with Customers' financial condition and the results of operations as a single reportable segment.

BMT's historical financial results for periods prior to the divestiture are reflected in Customers Bancorp’s consolidated financial statements as discontinued operations. BMT's operating results and associated cash flows have been presented as "Discontinued operations" within the accompanying audited financial statements and prior period amounts have been reclassified to conform with the current period presentation.

The table below presents the loss from discontinued operations, net of income taxes for the years ended December 31, 2022 and 2021.

Customers had no loss from discontinued operations for the year ended December 31, 2022, compared to loss from discontinued operations of $20.4 million for the year ended December 31, 2021, which consisted of restricted stock awards in BM Technologies' common stock distributed to certain team members of BMT in the form of severance payments and compensation costs for the restricted stock units of Customers Bancorp previously granted to certain team members of BMT that vested upon completion of the divestiture on January 4, 2021.

Customers had no income tax expense from discontinued operations for the year ended December 31, 2022, compared to an income tax expense of $19.3 million for the year ended December 31, 2021, which resulted from the effect of the divestiture being treated as a taxable asset sale for tax purposes, offset in part by the reversal of a valuation allowance on certain state deferred tax assets which can be realized as a result of the gain from the divestiture and the tax benefits related to the restricted stock awards in BM Technologies' common stock and vesting of restricted stock units of Customers Bancorp to certain team members of BMT.

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In connection with the divestiture, Customers entered into various agreements with BM Technologies, including a transition services agreement, software license agreement, deposit servicing agreement, non-competition agreement and loan agreement for periods ranging from one to ten years. Customers incurred expenses of $57.0 million and $59.5 million to BM Technologies under the deposit servicing agreement included in technology, communication and bank operations within the income from continuing operations during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, Customers held $1.1 billion and $1.8 billion of deposits serviced by BM Technologies, respectively. Customers currently expects that approximately half of these serviced deposits will leave Customers Bank by the earlier of BM Technologies' successful completion of the transfer of such deposits to a new sponsor bank or June 30, 2023. The deposit service agreement was scheduled to expire on December 31, 2022. On June 30, 2022, Customers provided a written notice to BM Technologies to terminate the deposit servicing agreement effective December 31, 2022. On November 7, 2022, Customers agreed to extend the deposit servicing agreement to the earlier of BM Technologies' successful completion of the transfer of the serviced deposits to a new sponsor bank or June 30, 2023. Customers and BM Technologies also agreed to remove Customers' obligation under the deposit servicing agreement to pay BM Technologies the interchange maintenance fee which is the difference between the Durbin-exempt and Durbin-recalculated interchange revenues. The other terms of the deposit servicing agreement remain in effect through the new termination date. Customers and BM Technologies are currently negotiating an extension of this agreement with respect to the serviced deposits expected to remain at Customers Bank after June 30, 2023. The loan agreement with BM Technologies was terminated early in November 2021. The transition services agreement with BM Technologies, as amended, expired on March 31, 2022. Customers entered into a special limited agency agreement with BM Technologies, whereby Customers originates consumer installment loans referred by BM Technologies for an initial period from April 20, 2022 to December 31, 2022, and renews annually unless terminated by either party. Refer to "NOTE 3 – DISCONTINUED OPERATIONS" to Customers' audited financial statements for additional information.

PREFERRED STOCK DIVIDENDS AND LOSS ON REDEMPTION OF PREFERRED STOCK

Preferred stock dividends were $9.6 million and $11.7 million for the years ended December 31, 2022 and 2021, respectively. On September 15, 2021, Customers redeemed all of the outstanding shares of Series C and Series D Preferred Stock for an aggregate payment of $82.5 million, at a redemption price of $25.00 per share. The redemption price paid in excess of the carrying value of Series C and Series D Preferred Stock of $2.8 million is included as a loss on redemption of preferred stock in the consolidated statement of income for the year ended December 31, 2021. After giving effect to the redemption, no shares of the Series C and Series D Preferred Stock remained outstanding. There were no changes to the amount of preferred stock outstanding during the year ended December 31, 2022. Refer to "NOTE 13 – SHAREHOLDERS' EQUITY" to Customers' audited financial statements for additional information.

On June 15, 2021, the Series E Preferred Stock became floating at three-month LIBOR plus 5.14%, compared to a fixed rate of 6.45%. On December 15, 2021, the Series F Preferred Stock became floating at three-month LIBOR plus 4.762%, compared to a fixed rate of 6.00%. Publication of overnight and one-, three-, six‑, and twelve-month USD LIBOR settings will be discontinued after June 30, 2023. Customers expects that the Series E and F Preferred Stock will pay dividends based on the three-month term SOFR plus spreads comparable to the current spreads after June 30, 2023.

Financial Condition

General

Customers' total assets were $20.9 billion at December 31, 2022. This represented a $1.3 billion increase from total assets of $19.6 billion at December 31, 2021. The increase in total assets was primarily driven by increases of $4.1 billion in loans and leases receivable, $840.3 million in investment securities held to maturity, $312.1 million in loans held for sale and a decrease in ACL of $6.9 million, partially offset by decreases of $961.0 million in loans receivable, mortgage warehouse, at fair value, $2.3 billion in loans receivable, PPP, $829.7 million in investment securities available for sale and $62.2 million in cash and cash equivalents.

Total liabilities were $19.5 billion at December 31, 2022. This represented a $1.3 billion increase from $18.2 billion at December 31, 2021. The increase in total liabilities primarily resulted from increases in total deposits of $1.4 billion and FHLB advances of $100.0 million, offset in part by decreases in other borrowings of $99.5 million and federal funds purchased of $75.0 million.

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The following table sets forth certain key condensed balance sheet data as of December 31, 2022 and 2021:

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and interest-earning deposits. Cash and due from banks consists mainly of vault cash and cash items in the process of collection. Cash and due from banks were $58.0 million and $35.2 million at December 31, 2022 and 2021, respectively. Cash and cash due from banks balances vary from day to day, primarily due to variations in customers’ deposit activities with the Bank.

Interest-earning deposits consist of cash deposited at other banks, primarily the FRB. Interest-earning deposits were $397.8 million and $482.8 million at December 31, 2022 and 2021, respectively. The balance of interest-earning deposits varies from day to day, depending on several factors, such as fluctuations in customers’ deposits with Customers, payment of checks drawn on customers’ accounts and strategic investment decisions made to maximize Customers' net interest income, while effectively managing interest-rate risk and liquidity. The decrease in interest-earning deposits since December 31, 2021 primarily resulted from managing liquidity as excess funds from the forgiveness of PPP loans and recent deposits were deployed into higher interest-earning assets.

Investment securities, at fair value

The investment securities portfolio is an important source of interest income and liquidity. It consists primarily of mortgage-backed securities and collateralized mortgage obligations guaranteed by agencies of the United States government, asset-backed securities, collateralized loan obligations, commercial mortgage-backed securities, private label collateralized mortgage obligations, corporate notes and certain equity securities. In addition to generating revenue, the investment portfolio is maintained to manage interest-rate risk, provide liquidity, serve as collateral for other borrowings, and diversify the credit risk of interest-earning assets. The portfolio is structured to optimize net interest income given the changes in the economic environment, liquidity position and balance sheet mix.

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At December 31, 2022, investment securities at fair value totaled $3.0 billion compared to $3.8 billion at December 31, 2021. The decrease primarily resulted from the sale of $983.6 million of asset-backed securities, agency-guaranteed collateralized mortgage obligations, collateralized loan obligations, commercial mortgage-backed securities, private label collateralized mortgage obligations and corporate notes, the transfer of certain agency-guaranteed mortgage-backed securities and collateralized mortgage obligations and private label collateralized mortgage obligations totaling $500.2 million to investment securities held to maturity, maturities, calls and principal repayments totaling $464.1 million and a decline in the fair value of AFS debt securities, or unrealized losses of $236.8 million due to changes in market interest rates, partially offset by the purchases of asset-backed securities, collateralized loan obligations, agency-guaranteed collateralized mortgage obligations, private label collateralized mortgage obligations and corporate notes totaling $1.4 billion for the year ended December 31, 2022.

For financial reporting purposes, AFS debt securities are carried at fair value. Unrealized gains and losses on AFS debt securities, other than credit losses, are included in other comprehensive income (loss) and reported as a separate component of shareholders’ equity, net of the related tax effect. Changes in the fair value of equity securities with a readily determinable fair value and securities reported at fair value based on a fair value option election are recorded in non-interest income in the period in which they occur. Customers recorded a provision for credit losses of $0.6 million on certain asset-backed securities included in our investment securities at fair value during the year ended December 31, 2022. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information.

The following table sets forth information about the maturities and weighted-average yield of the AFS debt securities portfolio. The weighted-average yield is computed based on a constant effective interest rate over the contractual life of each security adjusted for prepayment estimates, and considers the contractual coupon, amortization of premiums and accretion of discounts. Yields are not reported on a tax-equivalent basis. Yields exclude the impact of related hedging derivatives.

The agency-guaranteed collateralized mortgage obligations in the portfolio were issued by Ginnie Mae and contain guarantees for the collection of principal and interest on the underlying mortgages.

Investment securities held to maturity

In June 2022, Customers transferred $500.2 million in net carrying value of certain debt securities from available for sale to held to maturity as part of Customers' ongoing asset liability management primarily to mitigate the impact of rising interest rates on the long duration component of the investment portfolio. At the time of transfer to held to maturity, these debt securities had unrealized losses of $50.0 million which, along with the unrealized loss in accumulated other comprehensive income, will be amortized over the remaining terms of the securities as an adjustment to yield (interest income) using the effective interest method, resulting in no impact to earnings.

On September 30, 2022, Customers sold $521.8 million of consumer installment loans inclusive of accrued interest and unamortized deferred loan origination costs, to a third-party sponsored VIE. As part of these sales, Customers recognized a loss on sale of $23.5 million in loss on sale of consumer installment loans within non-interest income in the consolidated statement of income for the year ended December 31, 2022. Customers provided financing to the purchaser for a portion of the sale price in the form of $400.0 million of asset-backed securities collateralized by the sold loans. Customers accounts for its investment in these asset-backed securities as HTM debt securities on the consolidated balance sheet.

At December 31, 2022, investment securities held to maturity totaled $840.3 million from the transfer of $500.2 million in AFS debt securities, primarily agency-guaranteed mortgage-backed securities and collateralized mortgage obligations and private label collateralized mortgage obligations and $400.0 million of asset-backed securities investment in a VIE in connection with the sale of consumer installment loans, partially offset by maturities, calls and principal repayments totaling $59.5 million for the year ended December 31, 2022. There were no investment securities classified as HTM as of December 31, 2021.

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The following table sets forth information about the maturities and weighted-average yield of the investment securities held to maturity. The weighted-average yield is computed based on a constant effective interest rate over the contractual life of each security adjusted for prepayment estimates, and considers the contractual coupon, amortization of premiums, accretion of discounts and amortization of unrealized losses upon transfer from investment securities available for sale to held to maturity, along with the unrealized loss in accumulated other comprehensive income. Yields are not reported on a tax-equivalent basis.

The agency-guaranteed mortgage-backed securities and collateralized mortgage obligations in the portfolio were issued by Fannie Mae, Freddie Mac and Ginnie Mae, and contain guarantees for the collection of principal and interest on the underlying mortgages. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information.

LOANS AND LEASES

Existing lending relationships are primarily with small and middle market businesses and individual consumers primarily in Southeastern Pennsylvania (Bucks, Berks, Chester, Philadelphia and Delaware Counties); Harrisburg, Pennsylvania (Dauphin County); Rye Brook, New York (Westchester County); Hamilton, New Jersey (Mercer County); Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire (Rockingham County); Manhattan and Melville, New York; Washington, D.C.; Chicago, Illinois; Dallas, Texas; Orlando and Jacksonville, Florida; Wilmington, North Carolina; and nationally for certain loan and deposit products. The portfolio of loans to mortgage companies is nationwide. The loan portfolio consists primarily of loans to support mortgage companies’ funding needs, multifamily, commercial real estate and commercial and industrial loans. Customers continues to focus on small and middle market business loans to grow its commercial lending efforts, particularly its commercial and industrial loan and lease portfolio and its specialty lending business. Customers also focuses its lending efforts on local-market mortgage and home equity lending and the origination and purchase of unsecured consumer loans (installment loans), including personal, student loan refinancing, home improvement and medical loans through arrangements with fintech companies and other market place lenders nationwide.

Commercial Lending

Customers' commercial lending is divided into six groups: Business Banking, Small and Middle Market Business Banking, Specialty Banking, Multifamily and Commercial Real Estate Lending, Mortgage Banking Lending, and SBA Lending. This grouping is designed to allow for greater resource deployment, higher standards of risk management, strong asset quality, lower interest-rate risk and higher productivity levels.

As of December 31, 2022, Customers had $13.5 billion in commercial loans outstanding, totaling approximately 85.8% of its total loan and lease portfolio, which includes loans held for sale, loans receivable, mortgage warehouse, at fair value and PPP loans, compared to commercial loans outstanding of $12.4 billion, comprising approximately 85.3% of its total loan and lease portfolio, at December 31, 2021. Included in the $13.5 billion and $12.4 billion in commercial loans outstanding as of December 31, 2022 and 2021, respectively, were $1.0 billion and $3.3 billion of PPP loans, respectively. The PPP loans are fully guaranteed by the SBA, provided that the SBA's eligibility criteria are met and earn a fixed interest rate of 1.00%.

The commercial lending group focuses primarily on companies with annual revenues ranging from $1 million to $100 million, which typically have credit requirements between $0.5 million and $10 million. The small and middle market business banking platform originates loans, including SBA loans, through the branch network sales force and a team of dedicated relationship managers. The support administration of this platform is centralized including technology, risk management, product management, marketing, performance tracking and overall strategy. Credit and sales training has been established for Customers' sales force, ensuring that it has small business experts in place providing appropriate financial solutions to the small business owners in its communities. The division approach focuses on industries that offer high asset quality and are deposit rich to drive profitability. Customers' SBA Lending includes digital small balance 7(a) lending.

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Customers' Specialty Banking includes lending to mortgage companies, equipment finance, warehouse lending, healthcare lending, real estate specialty finance, fund finance, technology and venture capital banking and financial institutions group. Customers added three new verticals within its Specialty Banking, which included capital call lines, technology and venture capital banking and financial institutions group in 2021 to further build its franchise and support the growth of its commercial lending. Customers' fund finance provides secured and variable rate financing to private debt funds and private equity funds and cash management services to the alternative investment industry. Customers' lender finance vertical within fund finance provides variable rate loans secured by diverse collateral pools to private debt funds. Customers' capital call lines vertical within fund finance provides variable rate loans secured by collateral pools and limited partnership commitments from institutional investors in private equity funds. Customers' technology and venture capital banking provides loans to businesses with mission critical software products, recurring software revenues and funded by well-known venture capital firms.

Customers' lending to mortgage companies primarily provides financing to mortgage bankers for residential mortgage originations from loan closing until sale in the secondary market. The underlying residential loans are taken as collateral for Customers' commercial loans to the mortgage companies. As of December 31, 2022 and 2021, commercial loans to mortgage companies totaled $1.3 billion and $2.3 billion, respectively, and are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance sheet.

The Equipment Finance Group goes to market through the following origination platforms: vendors, intermediaries, direct and capital markets. The Equipment Finance Group is primarily focused on serving the following segments: transportation, construction (includes crane and utility), marine, franchise, general manufacturing (includes machine tool), helicopter/fixed wing, solar, packaging, plastics and food processing. As of December 31, 2022 and 2021, Customers had $560.3 million and $378.7 million, respectively, of equipment finance loans outstanding. As of December 31, 2022 and 2021, Customers had $157.4 million and $146.5 million of equipment finance leases outstanding, respectively. As of December 31, 2022 and 2021, Customers had $197.3 million and $117.4 million, respectively, of operating leases entered into under this program, net of accumulated depreciation of $52.6 million and $40.7 million, respectively.

Customers had been deemphasizing its multifamily loan portfolio, and investing in high credit quality higher-yielding commercial and industrial loans with the multifamily run-off. Customers began to grow the multifamily loan portfolio in late 2021. Customers' multifamily lending group is focused on retaining a portfolio of high-quality multifamily loans within Customers' covered markets. These lending activities primarily target the refinancing of loans with other banks using conservative underwriting standards and provide purchase money for new acquisitions by borrowers. The primary collateral for these loans is a first lien mortgage on the multifamily property, plus an assignment of all leases related to such property. As of December 31, 2022, Customers had multifamily loans of $2.2 billion outstanding, comprising approximately 14.0% of the total loan and lease portfolio, compared to $1.5 billion, or approximately 10.2% of the total loan and lease portfolio, at December 31, 2021.

Customers, directly or through fintech partnerships and acquisitions, had $1.0 billion and $3.3 billion of PPP loans outstanding as of December 31, 2022 and 2021, respectively, which are fully guaranteed by the SBA, provided that the SBA's eligibility criteria are met and earn a fixed interest rate of 1.00%. The average loan size of the PPP portfolio from the first two rounds is approximately $50 thousand and approximately $20 thousand from the latest round.

Consumer Lending

Customers provides unsecured consumer installment loans, residential mortgage and home equity loans to customers nationwide primarily through relationships with fintech companies. The installment loan portfolio consists largely of originated and purchased personal, student loan refinancing, home improvement and medical loans. None of the loans held for investment are considered sub-prime at the time of origination. Customers considers sub-prime borrowers to be those with FICO scores below 660. Customers has been selective in the consumer loans it has been purchasing. Home equity lending is offered to solidify customer relationships and grow relationship revenues in the long term. This lending is important in Customers' efforts to grow total relationship revenues for its consumer households. As of December 31, 2022, Customers had $2.2 billion in consumer loans outstanding (including consumer loans held for investment and held for sale), or 14.2% of the total loan and lease portfolio, compared to $2.1 billion, or 14.7% of the total loan and lease portfolio, as of December 31, 2021.

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Purchases and sales of loans were as follows for the years ended December 31, 2022, 2021 and 2020:

(1)Amounts reported represent the unpaid principal balance at time of purchase. The purchase price was 99.1%, 100.8% and 100.3% of the loans' unpaid principal balance during the years ended December 31, 2022, 2021 and 2020, respectively.

(2)Installment loan purchases for the years ended December 31, 2022, 2021 and 2020 consist of third-party originated unsecured consumer loans. None of the loans held for investment are considered sub-prime at the time of origination. Customers considers sub-prime borrowers to be those with FICO scores below 660.

(3)For the years ended December 31, 2022, 2021 and 2020, loan sales resulted in net losses of $20.3 million and net gains of $12.9 million and $2.0 million, respectively, included in gain (loss) on sale of SBA and other loans and loss on sale of consumer installment loans (refer to (5) below) in the consolidated statements of income.

(4)Primarily sales of SBA loans.

(5)During the year ended December 31, 2022, Customers sold $521.8 million of consumer installment loans, inclusive of accrued interest and unamortized deferred loan origination costs, to a third-party sponsored VIE. Customers provided financing to the purchaser for a portion of the sales price in the form of $400.0 million of asset-backed securities. $100.7 million of the remaining sales proceeds were paid in cash. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information.

Loans Held for Sale

The composition of loans held for sale as of December 31, 2022 and 2021 was as follows:

At December 31, 2022, loans held for sale totaled $328.3 million, or 2.1% of the total loan and lease portfolio, and $16.3 million, or 0.1% of the total loan and lease portfolio, at December 31, 2021.

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During the year ended December 31, 2022, Customers purchased $200.0 million of a pool of medical loans included in other installment loans and originated $127.9 million of personal installment loans, which are classified as consumer installment loans held for sale and stated at lower of cost or fair value as Customers intends to sell the loans.

Loans held for sale are carried on the consolidated balance sheet at either fair value (due to the election of the fair value option) or at the lower of cost or fair value. An ACL is not recorded on loans that are classified as held for sale.

Total Loans and Leases Receivable

The composition of total loans and leases receivable (excluding loans held for sale) was as follows:

(1)Includes direct finance leases of $157.4 million and $146.5 million at December 31, 2022 and 2021, respectively.

(2)Includes deferred (fees) costs and unamortized (discounts) premiums, net of $(21.5) million and $(52.0) million at December 31, 2022 and 2021, respectively.

Loans receivable, mortgage warehouse, at fair value

The mortgage warehouse product line primarily provides financing to mortgage companies nationwide from the time of origination of the underlying mortgage loans until the mortgage loans are sold into the secondary market. As a mortgage warehouse lender, Customers provides a form of financing to mortgage bankers by purchasing for resale the underlying residential mortgages on a short-term basis under a master repurchase agreement. These loans are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance sheets. Because these loans are reported at their fair value, they do not have an ACL and are therefore excluded from ACL-related disclosures. At December 31, 2022, all of Customers' commercial mortgage warehouse loans were current in terms of payment.

Customers is subject to the risks associated with such lending, including, but not limited to, the risks of fraud, bankruptcy and default of the mortgage banker or of the underlying residential borrower, any of which could result in credit losses. Customers' mortgage warehouse lending team members monitor these mortgage originators by obtaining financial and other relevant information to reduce these risks during the lending period. Loans receivable, mortgage warehouse, at fair value totaled $1.3 billion and $2.3 billion at December 31, 2022 and 2021, respectively.

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On June 30, 2022, one of Customers’ commercial mortgage warehouse borrowers filed for chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware. As of December 31, 2022, Customers had an outstanding loan balance with the borrower of $6.0 million in an unsecured working capital loan that was fully guaranteed by an affiliate of the primary shareholder of the borrower. Customers' loan to the borrower subject to a master repurchase agreement secured by first lien residential mortgages was fully repaid during the year ended December 31, 2022.

Loans receivable, PPP

Customers had $1.0 billion and $3.3 billion of PPP loans outstanding as of December 31, 2022 and 2021, respectively, which are fully guaranteed by the SBA, provided that the SBA's eligibility criteria are met and earn a fixed interest rate of 1.00%. Customers recognized interest income, including origination fees, of $79.4 million and $279.2 million for the years ended December 31, 2022 and 2021, respectively. PPP loans include an embedded credit enhancement from the SBA, which guarantees 100% of the principal and interest owed by the borrower provided that the SBA's eligibility criteria are met. As a result, the eligible PPP loans do not have an ACL and are therefore excluded from ACL-related disclosures.

During the year ended December 31, 2022, $11.0 million of commercial and industrial loans originated under the PPP were subsequently determined to be ineligible for SBA forgiveness and guarantee. These loans were ultimately deemed uncollectible and charged off during the year ended December 31, 2022.

Loans and leases receivable

Loans and leases receivable (excluding loans held for sale, loans receivable, mortgage warehouse, at fair value, and loans receivable, PPP), net of the ACL, increased by $4.1 billion to $13.0 billion at December 31, 2022, from $8.9 billion at December 31, 2021. The increase in loans and leases receivable, net of the ACL, was attributable to $6.9 million decrease in ACL, as further described below, and higher balances in the specialty lending and other commercial and industrial, multifamily, owner occupied commercial real estate, non-owner occupied commercial real estate and residential real estate loan portfolios, with each portfolio increasing by $3.0 billion, $239.2 million, $726.7 million, $230.4 million, $169.5 million and $163.2 million, respectively, from December 31, 2021. These increases were partially offset by a reduction in the consumer installment portfolio of $366.5 million from December 31, 2021. The overall loans and leases receivable fluctuations were the result of Customers' strategic efforts to redeploy the funds from PPP loan forgiveness into commercial and industrial loans and leases, including secured and variable rate loans within specialty lending, multifamily loans and residential mortgages. Customers reduced its installment loan portfolio through the sale of $521.8 million in consumer installment loans, inclusive of accrued interest and unamortized deferred loan origination costs, to a third-party sponsored VIE. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information on the sale of the consumer installment loans.

The following table presents Customers' loans receivable (excluding loans held for sale, loans receivable, at fair value, and loans receivable, PPP) as of December 31, 2022 based on the remaining term to contractual maturity:

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The following table presents the distribution of those loans that mature in more than one year between predetermined rates and floating or adjustable rates as of December 31, 2022:

Credit Risk

Customers manages credit risk by maintaining diversification in its loan and lease portfolio, establishing and enforcing prudent underwriting standards and collection efforts, and continuous and periodic loan and lease classification reviews. Management also considers the effect of credit risk on financial performance by reviewing quarterly and maintaining an adequate ACL. Credit losses are charged-off when they are identified, and provisions are added for current expected credit losses, to the ACL at least quarterly. The ACL is estimated at least quarterly.

The provision for credit losses on loans and leases was $59.5 million and $27.4 million for the years ended December 31, 2022 and 2021, respectively. The ACL maintained for loans and leases receivable (excluding loans held for sale and loans receivable, mortgage warehouse, at fair value) was $130.9 million, or 0.93% of loans and leases receivable and 1.00% of loans and leases receivable, excluding PPP loans (a non-GAAP measure), at December 31, 2022, and $137.8 million, or 1.12% of loans and leases receivable and 1.53% of loans and leases receivable, excluding PPP loans (a non-GAAP measure), at December 31, 2021. Excluding loans receivable, PPP from total loans and leases receivable is a non-GAAP measure. Management believes the use of these non-GAAP measures provides additional clarity when assessing Customers' financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Please refer to the reconciliation schedule below.

The decrease in the ACL resulted primarily from lower ACL for the consumer installment loan portfolio from the sale of $521.8 million, inclusive of accrued interest and unamortized deferred loan origination costs, to a third-party sponsored VIE, offset in part by the increase in ACL due to loan growth and deteriorating macroeconomic forecasts. Refer to "NOTE 6 – INVESTMENT SECURITIES" to Customers' audited financial statements for additional information on the sale of consumer installment loans. Net charge-offs were $66.4 million for the year ended December 31, 2022, an increase of $32.6 million compared to $33.8 million for the year ended December 31, 2021. The increase in net charge-offs was primarily due to $11.0 million in commercial and industrial loans originated under the PPP that were subsequently determined to be ineligible for SBA forgiveness and guarantee and ultimately deemed uncollectible, a partial charge-off of $7.9 million for a performing non-owner occupied commercial real estate loan that Customers decided to exit, and higher charge-offs for consumer installment loans and overdrawn deposit accounts. Installment charge-offs were attributable to unsecured consumer loans originated and purchased through arrangements with fintech companies and other market place lenders, which increased for the year ended December 31, 2022 compared to the same period in 2021 consistent with the loan growth. Refer to the table of changes in Customers' ACL for net-charge offs to average loans by loan type for the periods indicated.

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A reconciliation of the coverage of ACL for loans and leases held for investment to the ACL for loans and leases held for investment, excluding PPP loans as of December 31, 2022 and 2021 is set forth below.

The table below presents changes in Customers' ACL for the periods indicated.

(1)    Charge-offs and recoveries on PCD loans that are accounted for in pools are recognized on a net basis when the pool matures.

(2)    Includes specialty lending.

(3)    Charge-offs for the year ended December 31, 2022 included $11.0 million of commercial and industrial loans originated under the PPP that were subsequently determined to be ineligible for SBA forgiveness and guarantee and ultimately deemed uncollectible.

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The ACL is based on a quarterly evaluation of the loan and lease portfolio and is maintained at a level that management considers adequate to absorb expected losses as of the balance sheet date. All commercial loans, with the exception of PPP loans and commercial mortgage warehouse loans, which are reported at fair value, are assigned internal credit-risk ratings, based upon an assessment of the borrower, the structure of the transaction and the available collateral and/or guarantees. All loans and leases are monitored regularly by the responsible officer, and the risk ratings are adjusted when considered appropriate. The risk assessment allows management to identify problem loans and leases timely. Management considers a variety of factors and recognizes the inherent risk of loss that always exists in the lending process. Management uses a disciplined methodology to estimate an appropriate level of ACL. Refer to Critical Accounting Policies and Estimates herein and "NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION" to Customers' audited financial statements for Customers' adoption of CECL and management's methodology for estimating the ACL.

Approximately 43% of Customers’ commercial real estate, commercial and residential construction, consumer residential and commercial and industrial loan types have real estate as collateral (collectively, “the real estate portfolio”), primarily in the form of a first lien position. Current appraisals providing current value estimates of the property are received when Customers' credit group determines that the facts and circumstances have significantly changed since the date of the last appraisal, including that real estate values have deteriorated. The credit committee and loan officers review loans that are 15 or more days delinquent and all non-accrual loans on a periodic basis. In addition, loans where the loan officers have identified a “borrower of interest” are discussed to determine if additional analysis is necessary to apply the risk-rating criteria properly. The risk ratings for the real estate loan portfolio are determined based upon the current information available, including but not limited to discussions with the borrower, updated financial information, economic conditions within the geographic area and other factors that may affect the cash flow of the loan. If a loan is individually evaluated for impairment, the collateral value or discounted cash flow analysis is generally used to determine the estimated fair value of the underlying collateral, net of estimated selling costs, and compared to the outstanding loan balance to determine the amount of reserve necessary, if any. Appraisals used in this evaluation process are typically less than two years aged. For loans where real estate is not the primary source of collateral, updated financial information is obtained, including accounts receivable and inventory aging reports and relevant supplemental financial data to estimate the fair value of the loan, net of estimated selling costs, and compared to the outstanding loan balance to estimate the required reserve.

These impairment measurements are inherently subjective as they require material estimates, including, among others, estimates of property values in appraisals, the amounts and timing of expected future cash flows on individual loans, and general considerations for historical loss experience, economic conditions, uncertainties in estimating losses and inherent risks in the various credit portfolios, all of which require judgment and may be susceptible to significant change over time and as a result of changing economic conditions or other factors. Pursuant to ASC 326, individually assessed loans, consisting primarily of non-accrual and restructured loans, are considered in the methodology for determining the ACL. Individually assessed loans are generally evaluated based on the expected future cash flows or the fair value of the underlying collateral if principal repayment is expected to substantially come from the operation of the collateral or fair value of the collateral less estimated costs to sell if repayment of the loan is expected to be provided from the sale of such collateral. Shortfalls in the underlying collateral value for loans or leases determined to be collateral dependent are charged off immediately. Subsequent to an appraisal or other fair value estimate, management will assess whether there was a further decline in the value of the collateral based on changes in market conditions or property use that would require additional impairment to be recorded to reflect the particular situation, thereby increasing the ACL on loans and leases.

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The following table shows the ACL by various portfolios as of December 31, 2022 and 2021:

Asset Quality

Customers segments the loan and lease receivables by product or other characteristic generally defining a shared characteristic with other loans or leases in the same group. Charge-offs from originated and acquired loans and leases are absorbed by the ACL. The schedule that follows includes both loans held for sale and loans held for investment.

Asset Quality at December 31, 2022

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Asset Quality at December 31, 2022 (continued)

(1)Excluding loans receivable, PPP from total loans and leases receivable is a non-GAAP measure. Management believes the use of these non-GAAP measures provides additional clarity when assessing Customers' financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Please refer to the reconciliation schedules that follow this table.

(2)The tables exclude PPP loans of $1.0 billion, of which $0.6 million were 30-59 days past due and $36.0 million were 60 days or more past due as of December 31, 2022, and PPP loans of $3.3 billion, of which $6.3 million were 30-59 days past due and $21.8 million were 60 days or more past due as of December 31, 2021. Claims for guarantee payments are submitted to the SBA for eligible PPP loans more than 60 days past due.

Customers’ asset quality table contains non-GAAP financial measures which exclude loans receivable, PPP from its calculations. Management uses these non-GAAP measures to compare the current period presentation to historical periods in prior filings. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing Customers’ financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities.

A reconciliation of total loans and leases portfolio, excluding loans receivable, PPP and other related amounts, at December 31, 2022, is set forth below.

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(1)Loans receivable, PPP includes PPP loans that are past due, as claims for guarantee payments are submitted to the SBA for eligible PPP loans more than 60 days past due.

The total loan and lease portfolio was $15.8 billion at December 31, 2022 compared to $14.6 billion at December 31, 2021 and $30.7 million, or 0.19% of loans and leases, were non-performing at December 31, 2022 compared to $49.6 million, or 0.34% of loans and leases, at December 31, 2021. The total loan and lease portfolio was supported by an ACL of $130.9 million (425.95% of NPLs and 0.83% of total loans and leases) and $137.8 million (277.72% of NPLs and 0.95% of total loans and leases), at December 31, 2022 and 2021, respectively.

The tables below set forth non-accrual loans, NPAs and asset quality ratios:

(1)Excludes PCD loans at December 31, 2022 and 2021.

(1)Excludes loans held for sale, loans receivable, mortgage warehouse, at fair value and loans receivable, PPP. Excluding loans receivable, PPP from total loans and leases receivable is a non-GAAP measure. Management believes the use of these non-GAAP measures provides additional clarity when assessing Customers' financial results. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Refer to the reconciliation schedules above that precedes this table and within Credit Risk above.

The asset quality ratios related to NPAs, including non-accrual loans remained low at December 31, 2022 as compared to December 31, 2021. Refer to Credit Risk above for information about the decrease in ACL affecting the related asset quality ratios at December 31, 2022 as compared to December 31, 2021.

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The table below sets forth loans that were non-performing at December 31, 2022 and 2021.

Asset quality assurance activities include careful monitoring of borrower payment status and the periodic review of borrower current financial information to ensure ongoing financial strength and borrower cash flow viability. Customers has established credit policies and procedures, seeks the consistent application of those policies and procedures across the organization and adjusts policies as appropriate for changes in market conditions and applicable regulations.

Problem Loan Identification and Management

To facilitate the monitoring of credit quality within the commercial and industrial, multifamily, commercial real estate and construction portfolios and for purposes of analyzing historical loss rates used in the determination of the ACL for individually assessed loans, Customers utilizes the following categories of risk ratings: pass (there are six risk ratings for pass loans), special mention, substandard, doubtful or loss. The risk-rating categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated regularly thereafter. Pass ratings, which are assigned to those borrowers who do not have identified potential or well-defined weaknesses and for whom there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis, generally during the month preceding the end of the calendar quarter. While assigning risk ratings involves judgment, the risk-rating process allows management to identify riskier credits in a timely manner and allocate the appropriate resources to manage the loans and leases. PPP loans are excluded, provided that the SBA's eligibility criteria are met, as these loans are fully guaranteed by the SBA.

Customers assigns a special mention rating to loans and leases that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the loan and lease and Customers' financial position. At December 31, 2022 and 2021, special mention loans and leases were $138.8 million and $230.1 million, respectively, and are considered performing loans and are therefore not included in the tables above.

Risk ratings are not established for residential real estate, home equity loans and installment loans mainly because these portfolios consist of a larger number of homogeneous loans with smaller balances. Instead, these portfolios are evaluated for risk mainly based on aggregate payment history through the monitoring of delinquency levels and trends.

A regular reporting and review process is in place to provide for proper portfolio oversight and control and to monitor those loans and leases identified as problem credits by management. This process is designed to assess Customers' progress in working toward a solution and to assist in determining an appropriate ACL. All loan work-out situations involve the active participation of management and are reported regularly to the Board of Directors. When a loan or lease becomes delinquent for 90 days or more, or earlier if considered appropriate, the loan is assigned to SAG for workout or other resolution.

Loan and lease charge-offs are determined on a case-by-case basis. Loans and leases are generally charged-off when principal is likely to be unrecoverable and after appropriate collection steps have been taken. Loan and lease charge-offs are proposed by the SAG and approved by the Board of Directors.

Loan and lease policies and procedures are reviewed internally for possible revisions and changes on a regular basis. In addition, these policies and procedures, together with the loan and lease portfolio, are reviewed on a periodic basis by various regulatory agencies and by our internal, external and loan review auditors, as part of their examination and audit procedures.

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Troubled Debt Restructurings

At December 31, 2022, 2021 and 2020, there were $16.8 million, $16.5 million and $16.1 million, respectively, in loans categorized as a TDR. TDRs are reported as impaired loans in the period of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent years, a TDR may be returned to accrual status if the borrower satisfies a minimum six-month performance requirement; however, it will remain classified as impaired. Generally, Customers requires sustained performance for nine months before returning a TDR to accrual status.

Modification of PCD loans that are accounted for within loan pools in accordance with the accounting standards for PCD loans does not result in the removal of these loans from the pool even if the modification would otherwise be considered a TDR. Accordingly, as each pool is accounted for as a single asset with a single composite interest rate and an expectation of cash flows, modifications of loans within such pools are not reported as TDRs.

In response to the COVID-19 pandemic, Customers implemented a short-term loan modification program to provide temporary payment relief to certain of its borrowers who met the program's qualifications in 2020. This program allowed for a deferral of payments for a maximum of 90 days at a time. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. On December 27, 2020, the CAA was signed into law, which extended and expanded various relief provisions of the CARES Act including the temporary relief from the accounting and disclosure requirements for TDRs until January 1, 2022. All commercial loans previously on deferments became current by December 31, 2021. Total consumer deferments were $6.1 million at December 31, 2021. There were no commercial or consumer loans on deferments related to COVID-19 at December 31, 2022.

TDR modifications primarily involve interest-rate concessions, extensions of term, deferrals of principal and other modifications. Other modifications typically reflect other nonstandard terms which Customers would not offer in non-troubled situations. During the years ended December 31, 2022, 2021 and 2020, loans aggregating $3.3 million, $3.5 million and $3.7 million, respectively, were modified in TDRs. TDR modifications of residential real estate loans were primarily extensions of term, interest rate concessions and other modifications; modifications of manufactured housing loans were primarily interest rate concessions; and modifications of consumer installment loans were primarily other modifications. As of December 31, 2022, 2021 and 2020, there were no commitments to lend additional funds to debtors whose loans have been modified in TDRs.

As of December 31, 2022, 212 installment loans totaling $2.2 million, 15 manufactured housing loans totaling $491 thousand and two residential real estate loans for $201 thousand that were modified in TDRs within the past twelve months defaulted on payments. As of December 31, 2021, 21 installment loans totaling $263 thousand, two manufactured housing loans totaling $71 thousand and one residential real estate loan for $121 thousand that were modified in TDRs within the past twelve months defaulted on payments. As of December 31, 2020, 15 installment loans totaling $226 thousand, six manufactured housing loans totaling $236 thousand and three residential real estate loans totaling $152 thousand that were modified in TDRs within the past twelve months defaulted on payments.

Loans modified in TDRs are evaluated for impairment. The nature and extent of impairment of TDRs, including those that have experienced a subsequent default, is considered in the determination of an appropriate level of ACL.

ACCRUED INTEREST RECEIVABLE

At December 31, 2022, accrued interest receivable totaled $123.4 million compared to $92.2 million at December 31, 2021. The increase primarily resulted from an increase in outstanding balances of variable rate interest-earning assets and rising interest rates.

BANK PREMISES AND EQUIPMENT AND OTHER ASSETS

At December 31, 2022, bank premises and equipment, net of accumulated depreciation and amortization, totaled $9.0 million compared to $8.9 million at December 31, 2021. The increase primarily resulted from purchases of IT equipment, partially offset by impairment of leasehold improvements and equipment related to consolidation of branch locations and other offices and higher depreciation and amortization expenses.

At December 31, 2022, Customers Bank’s restricted stock holdings totaled $74.2 million compared to $64.6 million at December 31, 2021. These holdings consist of stock of the FRB, the FHLB and Atlantic Community Bankers Bank and are required as part of our relationship with these banks.

At December 31, 2022, the cash surrender value of BOLI totaled $338.4 million compared to $333.7 million at December 31, 2021. Presented within BOLI on the consolidated balance sheets is the cash surrender value of the SERP balances of $12.3 million and $11.5 million at December 31, 2022 and 2021, respectively. Customers entered into additional SERPs during the years ended December 31, 2022 and 2021. For additional information, see "NOTE 14 - EMPLOYEE BENEFIT PLANS" to Customers' audited financial statements.

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At December 31, 2022 and 2021, other assets totaled $400.1 million and $305.6 million, respectively. Other assets consist primarily of operating leases through Customers' Equipment Finance Group (net investment in operating leases of $197.3 million at December 31, 2022 compared to $118.3 million at December 31, 2021), deferred tax assets, net, mark-to-market adjustments for interest-rate swaps, investments in affordable housing projects and other limited partnerships or limited liability companies, ROU assets and prepaid expenses.

DEPOSITS

Customers offers a variety of deposit accounts, including checking, savings, MMDA and time deposits. Deposits are primarily obtained from Customers' geographic service area and nationwide through branchless digital banking, our white label relationship, deposit brokers, listing services and other relationships. Customers accepts deposits from customers on the TassatPay instant blockchain payments platform which launched in October 2021. Customers Bank provides blockchain-based digital payments via CBIT, which allows clients to make instant payments in U.S. dollars. CBIT may only be created by, transferred to and redeemed by commercial customers of Customers Bank on the instant B2B payments platform by maintaining U.S. dollars in deposit accounts at Customers Bank. As of December 31, 2022 and 2021, Customers Bank held $2.3 billion and $1.9 billion of deposits from customers participating in CBIT, respectively, which are reported as deposit liabilities in the consolidated balance sheets. Each CBIT is minted with precisely one U.S. dollar equivalent, and those dollars are held in a non-interest bearing omnibus deposit account until the CBIT is burned or redeemed. The number of CBIT outstanding in the CBIT instant payments platform is always equal to the U.S. dollars held in the omnibus deposit account at Customers Bank and is reported as a deposit liability in the consolidated balance sheet. The omnibus deposit account established for the CBIT instant payments platform had an outstanding balance of $23 thousand at December 31, 2022 and no outstanding balance at December 31, 2021. For additional information, refer to "NOTE 11 - DEPOSITS" to Customers' audited financial statements.

The components of deposits at December 31, 2022 and 2021 were as follows:

Total deposits were $18.2 billion at December 31, 2022, an increase of $1.4 billion, or 8.2%, from $16.8 billion at December 31, 2021. Time deposits increased by $3.7 billion, or 737.7%, to $4.2 billion and interest bearing demand deposits increased by $2.0 billion, or 30.6%, to $8.5 billion. These increases were offset in part by decreases in non-interest bearing demand deposits of $2.6 billion, or 57.7%, to $1.9 billion and savings, including MMDA, of $1.8 billion, or 33.4%, to $3.5 billion.

Total deposits at December 31, 2022 and 2021 include $1.1 billion and $1.8 billion, respectively, of deposits serviced by BM Technologies under a deposit servicing agreement. The deposit servicing agreement was scheduled to expire on December 31, 2022. On June 30, 2022, Customers provided a written notice to BM Technologies to terminate the deposit servicing agreement effective December 31, 2022. On November 7, 2022, Customers agreed to extend the deposit servicing agreement to the earlier of BM Technologies' successful completion of the transfer of the serviced deposits to a new sponsor bank or June 30, 2023. Customers and BM Technologies also agreed to remove Customers' obligation under the deposit servicing agreement to pay BM Technologies the interchange maintenance fee which is the difference between the Durbin-exempt and Durbin-recalculated interchange revenues. The other terms of the deposit servicing agreement remain in effect through the new termination date. Refer to "NOTE 3 – DISCONTINUED OPERATIONS" to Customers' audited financial statements for additional information.

At December 31, 2022 the Bank had $176.2 million in state and municipal deposits to which it had pledged $175.6 million of available borrowing capacity through the FHLB to the depositors through a letter of credit arrangement.

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The total amount of estimated uninsured deposits totaled $8.9 billion and $12.1 billion at December 31, 2022 and 2021, respectively. Time deposits greater than the FDIC limit of $250,000 totaled $85.5 million and $259.0 million at December 31, 2022, and 2021, respectively. At December 31, 2022, the scheduled maturities of uninsured time deposits were as follows:

Average deposit balances by type and the associated average rate paid are summarized below:

FHLB ADVANCES AND OTHER BORROWINGS

Borrowed funds from various sources are generally used to supplement deposit growth and meet other operating needs. Customers' borrowings include short-term and long-term advances from the FHLB, FRB, federal funds purchased, senior unsecured notes and subordinated debt. Subordinated debt is also considered as Tier 2 capital for certain regulatory calculations. Refer to "NOTE 12 – BORROWINGS" to Customers' audited financial statements for additional information on Customers' borrowings.

Short-term debt

Short-term debt at December 31, 2022 and 2021 was as follows:

Long-term debt

FHLB and FRB Advances

Long-term FHLB and FRB advances at December 31, 2022 and 2021 were as follows:

(1)    Amounts reported in the above table include long-term advances from FHLB of $250.0 million with a fixed rate of 3.44% and maturity of June 2024 with a returnable option that can be repaid without penalty on certain predetermined dates at Customers Bank's option, and $250.0 million with a fixed rate of 3.30% and maturity of June 2027.

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The maximum borrowing capacity with the FHLB and FRB at December 31, 2022 and 2021 was as follows:

(1)Amounts reported in the above table exclude borrowings under the PPPLF, which are limited to the unpaid principal balance of the loans originated under the PPP. Under the PPPLF, Federal Reserve Banks extended non-recourse loans to institutions that were eligible to make PPP loans. Only PPP loans that are guaranteed by the SBA pursuant to the PPP, with respect to both principal and interest that are originated or purchased by an eligible institution, may be pledged as collateral to the Federal Reserve Banks. During the year ended December 31, 2021, Customers repaid the PPPLF advances. No new advances are available from the PPPLF after July 30, 2021. Customers had no borrowings under the PPPLF at December 31, 2022 and 2021.

Senior Notes and Subordinated Debt

Long-term senior notes and subordinated debt at December 31, 2022 and 2021 were as follows:

(1)The senior notes will bear an annual fixed rate of 2.875% until August 15, 2026. From August 15, 2026 until maturity, the notes will bear an annual interest rate equal to a benchmark rate, which is expected to be the three-month term SOFR, plus 235 basis points. Customers Bancorp has the ability to call the senior notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after August 15, 2026.

(2)The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.

(3)Customers Bancorp has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after December 30, 2029.

(4)The subordinated notes will bear an annual fixed rate of 6.125% until June 26, 2024. From June 26, 2024 until maturity, the notes will bear an annual interest rate equal to the three-month LIBOR plus 344.3 basis points. It is expected that the notes will bear an annual interest rate equal to the three-month term SOFR plus a comparable spread beginning in June 2024. Customers Bank has the ability to call the subordinated notes, in whole, or in part, at a redemption price equal to 100% of the principal balance at certain times on or after June 26, 2024.

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SHAREHOLDERS’ EQUITY

The components of shareholders’ equity were as follows at the dates indicated: