# Customers Bancorp, Inc. (CUBI) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Customers Bancorp, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1488813/000148881325000013/cubi-20241231.htm
Accession: 0001488813-25-000013
Filing date: 2025-02-28
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CUBI/
All MD&A years: /company/CUBI/mda/
Previous year: /company/CUBI/mda/fy2023/ (FY 2023)
Next year: /company/CUBI/mda/fy2025/ (FY 2025)

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, 2024. For the comparison of the years ended December 31, 2023 and 2022, 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, 2023, filed with the SEC on February 29, 2024.

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.

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 7 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated financial statements.

Impact of Macroeconomic and Banking Industry Uncertainties and Military Conflicts

The Federal Reserve raised interest rates significantly throughout 2022 and into 2023 in attempts to bring the inflation to its long run target rate of two percent. Inflation remained slightly elevated in 2024 and into 2025. The Federal Reserve has stated that inflation is moving sustainably toward two percent, and that the risks to achieving its employment and inflation goals are roughly in balance. In light of the progress on inflation and the balance of risks, the Federal Reserve has begun lowering the federal funds rate in late 2024. Most recently, the Federal Reserve has maintained the federal funds rate, and stated that they would assess incoming data, the evolving outlook and the balance of risks in further lowering the federal funds rate. Significant uncertainties exist as to the extent and timing of future rate cuts and their effects on the economic conditions.

Significant uncertainties as to future economic conditions continue to exist, including risks of higher inflation and sustained higher interest rate environment, elevated liquidity risk to the U.S. banking system and the exposure to the U.S. commercial real estate market, particularly to the regional banks, disruptions to global supply chain and labor markets, and higher oil and commodity prices exacerbated by the military conflicts between Russia and Ukraine and in the Middle East. Customers has maintained higher levels of liquidity, reserves for credit losses on loans and leases and off-balance sheet credit exposures and strong capital ratios, and shifted the mix of its loan portfolio towards low credit risk commercial loans with floating or adjustable interest rates during the period of high interest rates. As the interest rates begin to decline, Customers has been reducing the Bank’s asset sensitivity through derivative hedging and investment securities portfolio rebalancing. Customers remains focused on growing its non-interest bearing and lower-cost interest-bearing deposits. Customers’ exposure to higher risk commercial real estate such as the office sector is minimal, representing approximately 1% of the loan portfolio as of December 31, 2024. The Bank’s debt securities available for sale and held to maturity are available to be pledged as collateral to the FRB and FHLB for additional liquidity. The Bank had approximately $5.3 billion in immediate available liquidity from the FRB and FHLB and cash on hand of $3.8 billion as of December 31, 2024. The Bank’s estimated FDIC insured deposits represented approximately 61.0% of our deposits (inclusive of accrued interest) as of December 31, 2024. When including collateralized and affiliate deposits as FDIC insured, this number increased to 70.0% of our deposits as of December 31, 2024. Customers continues to monitor closely the impact of uncertainties affecting the macroeconomic conditions, the U.S. banking system, particularly regional banks, the military conflicts between Russia and Ukraine and in the Middle East, as well as any effects that may result from the federal government’s responses including future rate and regulatory actions; however, the extent to which inflation, interest rates and other macroeconomic and industry factors, the geopolitical conflicts and developments in the U.S. banking system will impact Customers’ operations and financial results in 2025 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 consolidated financial statements.

69

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 consolidated 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 requires 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, 2024 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.

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 President, Chief Financial Officer, Chief Accounting Officer, Chief Banking 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 increase in our estimated ACL as of December 31, 2024 as compared to December 31, 2023 resulted primarily from an increase in commercial and industrial loan balances held for investment, partially offset by the recognition of improvements in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment. The provision for credit losses on loans and leases for the year ended December 31, 2024 was $69.8 million, for an ending ACL balance of $141.7 million ($136.8 million for loans and leases and $4.9 million for unfunded lending-related commitments) as of December 31, 2024.

70

To determine the ACL as of December 31, 2024, Customers utilized Moody’s December 2024 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, 2024 assumed slight improvements in macroeconomic forecasts compared to the macroeconomic forecasts used by Customers in 2023; the Federal Reserve Board lowering interest rates twice in 2025 and gradually reducing the policy rate to its neutral level by late 2026, as slower progress in reducing inflation and additional inflationary pressures from the new administration’s fiscal, tariff and immigration plans suggest a slower pace of normalization than previously expected; failures of several regional banks in the first half of 2023 and recent issues around other banks are not symptomatic of a broader problem in the U.S. financial system and policymakers’ aggressive response will ensure that the failures do not weaken the financial system or further undermine economic growth; the military conflict between Russia and Ukraine continuing for the foreseeable future but its impact on energy, agriculture and other commodity markets and the global economy has largely faded; the war in Israel not spreading to other parts of the Middle East and disrupting global energy markets and global shipping; the CPI rising 2.3% in 2025 and 2.8% in 2026; and the unemployment rate rising to 4.1% in 2025 and 2026. Customers continues to monitor the impact of the U.S. banking system weaknesses, the military conflicts between Russia and Ukraine and in the Middle East, inflation, and monetary and fiscal policy measures on the U.S. economy and, if pace of the expected recovery is worse than expected, further meaningful provisions for credit losses could be required.

The net increase in our estimated ACL as of December 31, 2024 as compared to December 31, 2023 resulted primarily from an increase in commercial and industrial loan balances held for investment, partially offset by the recognition of improvements in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment. The provision for credit losses on loans and leases for the year ended December 31, 2023 was $70.8 million, for an ending ACL balance of $138.2 million ($135.3 million for loans and leases and $2.9 million for unfunded lending-related commitments) as of December 31, 2023. To determine the ACL as of December 31, 2023, Customers utilized Moody’s December 2023 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, 2023 assumed lower growth rates in macroeconomic forecasts compared to the macroeconomic forecasts used by Customers in 2022; the Federal Reserve Board not raising the effective federal funds rate further as it has reached its terminal range of 5.25% to 5.5%, and easing gradually beginning in mid-2024; the federal government avoiding a shutdown in the fourth quarter 2023 and remaining in continuous operation through 2024; recent U.S. bank failures are not symptomatic of a broader problem in the U.S. financial system and policymakers’ aggressive response will ensure that the failures do not weaken the financial system or the U.S. economy; the military conflict between Russia and Ukraine continuing for the foreseeable future but its fallout on energy, agriculture and other commodity markets and the global economy fading; the war in Israel not broadening to a regional conflict and disrupting global energy markets; the CPI rising 2.8% in 2024 and 2.4% in 2025; and the unemployment rate rising to 4.0% in 2024 and 4.1% in 2025.

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 impact of the new administration’s tariffs and deportations on the economy being significantly worse than expected; elevated interest rates weakening credit-sensitive consumer spending much more than anticipated, and rising inflation causing the Federal Reserve Board to initially raise the fed fund rate; military conflict between Russia and Ukraine persisting longer than expected; worries grow that the military conflict in Israel escalating; unemployment beginning to increase significantly in the first quarter of 2025 and peaking in the first quarter of 2026. Under this scenario, as an example, the unemployment rate is estimated at 7.3% and 8.0% in 2025 and 2026, respectively. These numbers represent a 3.2% and 3.9% higher unemployment estimate than Baseline scenario projections of 4.1% for the same time periods, respectively. 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 $77 million at December 31, 2024. 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.

71

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 or worsening of the U.S. banking system 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 worsening of the U.S. banking system 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 7 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated 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 consolidated financial statements for information concerning certain significant accounting policies and estimates applied in determining reported results of operations.

The following table sets forth the condensed statements of income for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["(dollars in thousands)","","2024","","2023","","Change","","% Change"],["Net interest income","","$","654,404","","","$","687,449","","","$","(33,045)","","","(4.8)","%"],["Provision for credit losses","","73,451","","","74,611","","","(1,160)","","","(1.6)","%"],["Total non-interest income","","60,434","","","70,565","","","(10,131)","","","(14.4)","%"],["Total non-interest expense","","417,014","","","352,663","","","64,351","","","18.2","%"],["Income before income tax expense","","224,373","","","330,740","","","(106,367)","","","(32.2)","%"],["Income tax expense","","42,904","","","80,597","","","(37,693)","","","(46.8)","%"],["Net income","","181,469","","","250,143","","","(68,674)","","","(27.5)","%"],["Preferred stock dividends","","15,040","","","14,695","","","345","","","2.3","%"],["Net income available to common shareholders","","$","166,429","","","$","235,448","","","$","(69,019)","","","(29.3)","%"]]
[[/GREPCENT_TABLE]]

Customers reported net income available to common shareholders of $166.4 million for the year ended December 31, 2024, compared to $235.4 million for the year ended December 31, 2023. Factors contributing to the change in net income available to common shareholders for the year ended December 31, 2024 compared to the year ended December 31, 2023 were as follows:

72

Net interest income

Net interest income decreased $33.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to lower interest income in specialized lending, other commercial and industrial loans and leases and consumer installment loans and higher interest expense on deposits, offset in part by lower interest expense from lower average balances of borrowings. The decrease in interest income in specialized lending was mostly attributable to lower purchase discount accretion on the venture banking loan portfolio acquired in 2023. The average interest-earning assets decreased by $55.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease in interest-earning assets was primarily driven by decreases in specialized lending, PPP loans included in other commercial and industrial loans and leases, consumer installment loans and investment securities, partially offset by an increase in interest-earning deposits. Loan forgiveness and guarantee claims processing for the PPP program was substantially completed in early 2023. Consumer installment loans decreased as Customers continued its de-risking strategy and the build out of our held for sale strategy in 2024. Also in 2024, Customers executed investment securities portfolio repositioning to improve structural liquidity, reduce asset sensitivity and benefit margin. Customers invested the cash flows from investment securities, including proceeds from the sale of lower yielding investment securities into higher yielding loans and investment securities. NIM decreased by 14 basis points to 3.15% for the year ended December 31, 2024, from 3.29% for the year ended December 31, 2023. The lower purchase discount accretion on the venture banking loan portfolio acquired in 2023, reduced recognition of net deferred loan origination fees from PPP loans driven by lower loan forgiveness and guarantee payments and higher market interest rates on deposits contributed to the NIM decrease for the year ended December 31, 2024 compared to the year ended December 31, 2023. The higher market interest rates on deposits drove a 32 basis point increase in the cost of interest-bearing liabilities for the year ended December 31, 2024 compared to the year ended December 31, 2023. Customers’ total cost of deposits, including interest-bearing and non-interest bearing deposits, were 3.34% and 3.27% for the years ended December 31, 2024 and 2023, respectively, as higher market interest rates on deposits were partially offset by a favorable shift in deposit mix. Customers’ total cost of funds, including non-interest bearing deposits and borrowings, was 3.46% and 3.45% for the years ended December 31, 2024 and 2023, respectively.

Provision for credit losses

The $1.2 million decrease in the provision for credit losses included $1.0 million decrease in provision for credit losses on loans and leases for the year ended December 31, 2024 compared to the year ended December 31, 2023, which resulted primarily from the recognition of improvements in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment, partially offset by an increase in commercial and industrial loan balances held for investment. 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 1.04% of total loans and leases receivable at December 31, 2024, compared to 1.13% at December 31, 2023. Net charge-offs for the year ended December 31, 2024 were $68.3 million, or 50 basis points of average total loans and leases, compared to $69.0 million, or 48 basis points of average total loans and leases for the year ended December 31, 2023. The net charge-offs of $69.0 million for the year ended December 31, 2023 excludes $6.2 million of charge-offs for certain PCD loans acquired from the FDIC applied against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of the venture banking loan portfolio on June 15, 2023. Subsequent recoveries and charge-offs of these PCD loans are included in the period in which they occur. The decrease in net charge-offs was primarily due to decreases in non-owner occupied commercial real estate and consumer installment loans, partially offset by higher charge-offs for commercial and industrial loans and subsequent recoveries of PCD loans acquired from the FDIC during the year ended December 31, 2023.

The provision for credit losses for the years ended December 31, 2024 and 2023 also included a provision for credit losses of $3.6 million and $3.8 million, respectively, on certain debt securities available for sale. Refer to “NOTE 5 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for additional information.

73

Non-interest income

The $10.1 million decrease in non-interest income for the year ended December 31, 2024 compared to the year ended December 31, 2023 resulted primarily from increases of $26.4 million in net loss on sale of investment securities and $14.4 million in net loss on sale of loans and leases, which included a loss of $14.9 million on leases of commercial clean vehicles that were accounted for as sales-type leases during the year ended December 31, 2024, and a decrease of $2.3 million in bank-owned life insurance income. These decreases were offset in part by $11.4 million of unrealized gain on equity method investment with a fair value of $16.6 million purchased at discount for the year ended December 31, 2024, $5.0 million in loss on sale of capital call lines of credit for the year ended December 31, 2023, and increases of $6.9 million in loans fees, $5.5 million in other non-interest income and $4.5 million in commercial lease income for the year ended December 31, 2024 compared to the year ended December 31, 2023. The commercial clean vehicle leases generated the same amount of investment tax credits that were included as a benefit to income tax expense for the year ended December 31, 2024. Refer to “NOTE 8 – LEASES” to Customers’ audited consolidated financial statements for additional information on the sales-type leases of commercial clean vehicles. Refer to “NOTE 5 – INVESTMENT SECURITIES”, “NOTE 6 – LOANS HELD FOR SALE” and “NOTE 7 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated financial statements for additional information on the sales of consumer installment loans and capital call lines of credit.

Non-interest expense

The $64.4 million increase in non-interest expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from increases of $42.6 million in salaries and employee benefits, $15.2 million in other non-interest expense, $6.6 million in FDIC assessments, non-income taxes and regulatory fees, $2.6 million in commercial lease depreciation, $1.7 million in occupancy and $1.4 million in advertising and promotion. These increases were offset in part by a legal settlement expense of $4.1 million for the year ended December 31, 2023, and decreases of $1.2 million in loan servicing, $0.4 million in technology, communication and bank operations and $0.2 million in professional services for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Included in the $6.6 million increase in FDIC assessments, non-income taxes and regulatory fees for the year ended December 31, 2024 compared to the year ended December 31, 2023 was $4.2 million in FDIC premiums related to periods prior to 2024 and a credit of $3.0 million for Pennsylvania bank shares taxes related to periods prior to 2024 that were recorded in the year ended December 31, 2024. Included in the $0.4 million decrease in technology, communication and bank operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 was $7.1 million of deposit servicing-related fees related to periods prior to 2024 that were recorded in the year ended December 31, 2024.

Income tax expense

Customers’ effective tax rate was 19.1% for the year ended December 31, 2024 compared to 24.4% for the year the ended December 31, 2023. The decrease in the effective tax rate for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to an increase in investment tax credits, including $14.9 million of investment tax credits generated from commercial clean vehicles in 2024, and tax on the surrender of bank-owned life insurance policies of $4.1 million in 2023 that did not exist in 2024, partially offset by the increase of unrecognized tax benefits in 2024. The investment tax credits from commercial clean vehicle leases were the same amount as the loss on leases of commercial clean vehicles included within net gain (loss) on sale of loans and leases.

Preferred stock dividends

Preferred stock dividends were $15.0 million and $14.7 million for the years ended December 31, 2024 and 2023, respectively. There were no changes to the amount of preferred stock outstanding during the years ended December 31, 2024 and 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, 2024 and 2023. 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.

74

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,","","For the Years Ended December 31,"],["","2024","","2023","","2024 vs. 2023"],["(dollars in thousands)","Average balance","","Interest income or expense","","Average yield or cost","","Average balance","","Interest income or expense","","Average yield or cost","","Due to rate","","Due to volume","","Total"],["Assets"],["Interest-earning deposits","$","3,597,260","","","$","190,842","","","5.31","%","","$","2,375,488","","","$","125,923","","","5.30","%","","$","238","","","$","64,681","","","$","64,919"],["Investment securities (1)","3,650,320","","","180,291","","","4.94","%","","4,057,564","","","200,659","","","4.95","%","","(402)","","","(19,966)","","","(20,368)"],["Loans and leases:"],["Commercial and industrial:"],["Specialized lending loans and leases (2)","5,637,189","","","483,052","","","8.57","%","","5,704,220","","","513,976","","","9.01","%","","(24,926)","","","(5,998)","","","(30,924)"],["Other commercial and industrial loans (2)(3)","1,564,167","","","102,001","","","6.52","%","","1,976,924","","","133,451","","","6.75","%","","(4,412)","","","(27,038)","","","(31,450)"],["Mortgage finance loans","1,192,827","","","62,344","","","5.23","%","","1,179,141","","","67,660","","","5.74","%","","(6,092)","","","776","","","(5,316)"],["Multifamily loans","2,116,168","","","86,263","","","4.08","%","","2,165,067","","","85,204","","","3.94","%","","3,004","","","(1,945)","","","1,059"],["Non-owner occupied commercial real estate loans","1,412,201","","","83,484","","","5.91","%","","1,423,929","","","81,970","","","5.76","%","","2,177","","","(663)","","","1,514"],["Residential mortgages","526,133","","","24,046","","","4.57","%","","533,213","","","23,240","","","4.36","%","","1,116","","","(310)","","","806"],["Installment loans","1,104,470","","","106,340","","","9.63","%","","1,437,078","","","127,237","","","8.85","%","","10,473","","","(31,370)","","","(20,897)"],["Total loans and leases (4)","13,553,155","","","947,530","","","6.99","%","","14,419,572","","","1,032,738","","","7.16","%","","(24,133)","","","(61,075)","","","(85,208)"],["Other interest-earning assets","114,983","","","9,171","","","7.98","%","","118,574","","","8,040","","","6.78","%","","1,381","","","(250)","","","1,131"],["Total interest-earning assets","20,915,718","","","1,327,834","","","6.35","%","","20,971,198","","","1,367,360","","","6.52","%","","(35,885)","","","(3,641)","","","(39,526)"],["Non-interest-earning assets","518,472","","","","","","","515,185"],["Total assets","$","21,434,190","","","","","","","$","21,486,383"],["Liabilities"],["Interest checking accounts","$","5,660,890","","","248,400","","","4.39","%","","$","6,048,797","","","241,025","","","3.98","%","","23,576","","","(16,201)","","","7,375"],["Money market deposit accounts","3,559,362","","","159,598","","","4.48","%","","2,358,437","","","93,434","","","3.96","%","","13,565","","","52,599","","","66,164"],["Other savings accounts","1,595,357","","","73,947","","","4.64","%","","1,029,951","","","41,556","","","4.03","%","","7,001","","","25,390","","","32,391"],["Certificates of deposit","2,434,622","","","121,367","","","4.99","%","","4,401,855","","","200,422","","","4.55","%","","17,782","","","(96,837)","","","(79,055)"],["Total interest-bearing deposits (5)","13,250,231","","","603,312","","","4.55","%","","13,839,040","","","576,437","","","4.17","%","","51,798","","","(24,923)","","","26,875"],["Federal funds purchased","\u2014","","","\u2014","","","\u2014","%","","3,781","","","188","","","4.97","%","","\u2014","","","(188)","","","(188)"],["Borrowings","1,414,583","","","70,118","","","4.96","%","","2,073,553","","","103,286","","","4.98","%","","(414)","","","(32,754)","","","(33,168)"],["Total interest-bearing liabilities","14,664,814","","","673,430","","","4.59","%","","15,916,374","","","679,911","","","4.27","%","","48,994","","","(55,475)","","","(6,481)"],["Non-interest-bearing deposits (5)","4,807,647","","","","","","","3,801,053"],["Total deposits and borrowings","19,472,461","","","","","3.46","%","","19,717,427","","","","","3.45","%"],["Other non-interest-bearing liabilities","217,172","","","","","","","272,599"],["Total liabilities","19,689,633","","","","","","","19,990,026"],["Shareholders\u2019 equity","1,744,557","","","","","","","1,496,357"],["Total liabilities and shareholders\u2019 equity","$","21,434,190","","","","","","","$","21,486,383"],["Net interest income","","","654,404","","","","","","","687,449","","","","","$","(84,879)","","","$","51,834","","","$","(33,045)"],["Tax-equivalent adjustment","","","1,556","","","","","","","1,568"],["Net interest earnings","","","$","655,960","","","","","","","$","689,017"],["Interest spread","","","","","2.89","%","","","","","","3.07","%"],["Net interest margin","","","","","3.14","%","","","","","","3.28","%"],["Net interest margin tax equivalent (6)","","","","","3.15","%","","","","","","3.29","%"]]
[[/GREPCENT_TABLE]]

(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 PPP loans.

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

(5)Total costs of deposits (including interest bearing and non-interest-bearing) were 3.34% and 3.27% for the years ended December 31, 2024 and 2023, respectively.

(6)Tax-equivalent basis, using an estimated marginal tax rate of 26% for both the years ended December 31, 2024 and 2023, presented to approximate interest income as a taxable asset.

75

Net interest income decreased $33.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to lower interest income in specialized lending, other commercial and industrial loans and leases and consumer installment loans and higher interest expense on deposits, offset in part by lower interest expense from lower average balances of borrowings. The decrease in interest income in specialized lending was mostly attributable to lower purchase discount accretion on the venture banking loan portfolio acquired in 2023. The average interest-earning assets decreased by $55.5 million, primarily in specialized lending, PPP loans included in other commercial and industrial loans and leases, consumer installment loans and investment securities, partially offset by an increase in interest-earning deposits. Loan forgiveness and guarantee claims processing for the PPP program was substantially completed in early 2023. Consumer installment loans decreased as Customers continued its de-risking strategy and the build out of our held for sale strategy in 2024. Also in 2024, Customers executed investment securities portfolio repositioning to improve structural liquidity, reduce asset sensitivity and benefit margin. Customers invested the cash flows from investment securities, including proceeds from the sale of lower yielding investment securities into higher yielding loans and investment securities.

The NIM decreased by 14 basis points to 3.15% for the year ended December 31, 2024, from 3.29% for the year ended December 31, 2023 resulting primarily from lower purchase discount accretion on the venture banking loan portfolio acquired in 2023, reduced recognition of net deferred loan origination fees from PPP loans driven by lower loan forgiveness and guarantee payments, and higher market interest rates on deposits. The higher market interest rates on deposits drove a 32 basis point increase in the cost of interest-bearing liabilities. Customers’ total cost of deposits, including interest-bearing and non-interest bearing deposits was 3.34% and 3.27% for the years ended December 31, 2024 and 2023, respectively, as higher market interest rates on deposits were partially offset by a favorable shift in deposit mix. Customers’ total cost of funds, including non-interest bearing deposits and borrowings was 3.46% and 3.45% for the years ended December 31, 2024 and 2023, respectively.

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 7 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated 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 on loans and leases of $69.8 million and $70.8 million for the years ended December 31, 2024 and 2023, respectively. Customers recorded a provision for credit losses of $2.0 million and a benefit to provision for credit losses of $0.1 million of lending-related commitments for the years ended December 31, 2024 and 2023, respectively. The $1.0 million decrease in the provision for credit losses for loans and leases for the year ended December 31, 2024 compared to the year ended December 31, 2023 resulted primarily from the recognition of improvements in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment, partially offset by an increase in commercial and industrial loan balances held for investment.

Net charge-offs for the year ended December 31, 2024 were $68.3 million, or 50 basis points of average total loans and leases, compared to $69.0 million, or 48 basis points of average total loans and leases for the year ended December 31, 2023. The net charge-offs of $69.0 million for the year ended December 31, 2023 excludes $6.2 million of charge-offs for certain PCD loans acquired from the FDIC applied against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of the venture banking loan portfolio on June 15, 2023. Subsequent recoveries and charge-offs of these PCD loans are included in the period in which they occur. The decrease in net charge-offs was primarily related to decreases in charge-offs for non-owner occupied commercial real estate and consumer installment loans, partially offset by higher charge-offs for commercial and industrial loans and subsequent recoveries of PCD loans acquired from the FDIC during the year ended December 31, 2023.

For more information about the provision and ACL and our loss experience on loans and leases, refer to “Credit Risk” and “Asset Quality” herein.

76

The provision for credit losses for the years ended December 31, 2024 and 2023 also included a provision for credit losses of $3.6 million and $3.8 million, respectively, on certain debt securities available for sale. Refer to “NOTE 5 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for additional information.

NON-INTEREST INCOME

The table below presents the components of non-interest income for the years ended December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,","","Change","","% Change"],["(dollars in thousands)","2024","","2023"],["Commercial lease income","$","40,662","","","$","36,179","","","$","4,483","","","12.4","%"],["Loan fees","27,163","","","20,216","","","6,947","","","34.4","%"],["Bank-owned life insurance","9,442","","","11,777","","","(2,335)","","","(19.8)","%"],["Mortgage finance transactional fees","4,101","","","4,395","","","(294)","","","(6.7)","%"],["Net gain (loss) on sale of loans and leases","(15,628)","","","(1,200)","","","(14,428)","","","NM"],["Loss on sale of capital call lines of credit","\u2014","","","(5,037)","","","5,037","","","(100.0)","%"],["Net gain (loss) on sale of investment securities","(27,009)","","","(574)","","","(26,435)","","","NM"],["Unrealized gain on equity method investments","11,430","","","\u2014","","","11,430","","","NM"],["Other","10,273","","","4,809","","","5,464","","","113.6","%"],["Total non-interest income","$","60,434","","","$","70,565","","","$","(10,131)","","","(14.4)","%"]]
[[/GREPCENT_TABLE]]

Commercial lease income

Commercial lease income represents income earned on commercial operating leases generated by Customers’ commercial equipment financing group in which Customers is the lessor. The $4.5 million increase in commercial lease income for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from the growth of Customers’ equipment finance business.

Loan fees

The $6.9 million increase in loan fees for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from increases in fees earned on unused lines of credit and other fees from borrowers.

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 $2.3 million decrease in bank-owned life insurance income for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from a decrease in death benefits paid by insurance carriers under the policies.

77

Net gain (loss) on sale of loans and leases

The $14.4 million increase in net loss on sale of loans and leases for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from $14.9 million of loss on leases of commercial clean vehicles that were accounted for as sales-type leases, a loss of $0.3 million, inclusive of transaction costs, on sales of $202.5 million in consumer installment loans that were classified as held for sale, inclusive of $53.0 million of personal installment loans transferred from held for investment to held for sale, accrued interest and unamortized deferred loan origination costs, to two third-party sponsored VIEs and $0.4 million in losses, inclusive of transaction costs, on sales of commercial and industrial loans and other consumer loans for the year ended December 31, 2024, as compared to $0.2 million in net gains on sales of $78.6 million of SBA loans, $0.2 million in losses on sales of consumer installment loans and a loss of $1.2 million, inclusive of transaction costs, on sales of $556.7 million in consumer installment loans that were classified as held for sale, inclusive of $154.0 million of other installment loans transferred from held for investment to held for sale, accrued interest and unamortized deferred loan origination costs, to two third-party sponsored VIEs for the year ended December 31, 2023. The commercial clean vehicle leases generated the same amount of investment tax credits that were included as a benefit to income tax expense for the year ended December 31, 2024. Refer to “NOTE 8 – LEASES” to Customers’ audited consolidated financial statements for additional information on the sales-type leases of commercial clean vehicles. Refer to “NOTE 5 – INVESTMENT SECURITIES” and “NOTE 6 – LOANS HELD FOR SALE” to Customers’ audited consolidated financial statements for additional information on the sale of consumer installment loans to third-party sponsored VIEs. There can be no assurance that Customers will realize gains on the sale of loans in 2025, given the significant uncertainty in the capital markets.

Loss on sale of capital call lines of credit

The $5.0 million decrease in realized loss from the sale of capital call lines of credit for the year ended December 31, 2024 compared to the year ended December 31, 2023 reflected the sale of $670.0 million of short-term syndicated capital call lines of credit within specialized lending, inclusive of accrued interest and unamortized deferred loan origination costs for the year ended December 31, 2023, compared to no such sales for the year ended December 31, 2024. Customers decided to exit completely the non-strategic, short-term syndicated call lines of credit with borrowers that Customers had no deposit relationships during the year ended December 31, 2023. Refer to “NOTE 7 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated financial statements for additional information.

Net gain (loss) on sale of investment securities

The $26.4 million increase in net loss on sale of investment securities for the year ended December 31, 2024 compared to the year ended December 31, 2023 reflects net losses realized from the sales of $624.9 million in AFS debt securities for the year ended December 31, 2024, compared to the sales of $297.4 million in AFS debt securities for the year ended December 31, 2023. In 2024, Customers executed investment securities portfolio repositioning to improve structural liquidity, reduce asset sensitivity and benefit margin. Customers invested the proceeds from the sale of lower yielding investment securities into higher yielding loans and investment securities. There can be no assurance that Customers will realize gains from sales of investment securities in 2025, given the significant uncertainty in the capital markets and fluctuations in our funding needs, which may impact Customers’ investment strategy.

Unrealized gain on equity method investments

The $11.4 million increase in unrealized gain on the equity method investments for the year ended December 31, 2024 compared to the year ended December 31, 2023 reflects unrealized gain from the equity method investments with fair value of $16.6 million purchased at discount during the year ended December 31, 2024.

Other non-interest income

The $5.5 million increase in other non-interest income for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from increases in income from equity investments, derivatives and deposit account fees.

78

NON-INTEREST EXPENSE

The table below presents the components of non-interest expense for the years ended December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,","","Change","","% Change"],["(dollars in thousands)","2024","","2023"],["Salaries and employee benefits","$","175,836","","","$","133,275","","","$","42,561","","","31.9","%"],["Technology, communication and bank operations","65,154","","","65,550","","","(396)","","","(0.6)","%"],["Commercial lease depreciation","32,543","","","29,898","","","2,645","","","8.8","%"],["Professional services","34,978","","","35,177","","","(199)","","","(0.6)","%"],["Loan servicing","15,909","","","17,075","","","(1,166)","","","(6.8)","%"],["Occupancy","11,789","","","10,070","","","1,719","","","17.1","%"],["FDIC assessments, non-income taxes, and regulatory fees","41,684","","","35,036","","","6,648","","","19.0","%"],["Advertising and promotion","4,489","","","3,095","","","1,394","","","45.0","%"],["Legal settlement expense","\u2014","","","4,096","","","(4,096)","","","(100.0)","%"],["Other","34,632","","","19,391","","","15,241","","","78.6","%"],["Total non-interest expense","$","417,014","","","$","352,663","","","$","64,351","","","18.2","%"]]
[[/GREPCENT_TABLE]]

Salaries and employee benefits

The $42.6 million increase in salaries and employee benefits for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from an increase in average full-time equivalent team members including the addition of new banking teams, annual merit increases, incentives and severance.

Technology, communication and bank operations

The $0.4 million decrease in technology, communication and bank operations expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from a decrease in deposit servicing-related expenses resulting from lower servicing fees, partially offset by an increase of $9.0 million in fees for software and processing fees.

Customers incurred $19.6 million and $29.6 million in deposit servicing fees to BM Technologies, the successor entity to BMT that was divested on January 4, 2021, under the deposit servicing agreement, as amended, included within the technology, communication and bank operations expense during the years ended December 31, 2024 and 2023, respectively. On March 22, 2023, Customers agreed to amend and extend an existing white label relationship with a third party and BM Technologies, whereby Customers will continue to pay deposit servicing fees to BM Technologies. On December 1, 2023, Customers had an outflow of approximately $430.0 million of student-related deposits serviced by BM Technologies to a new sponsor bank. The remaining deposits serviced by BM Technologies in connection with an existing white label relationship are expected to remain at Customers Bank and continue to be serviced by BM Technologies until such accounts are transferred to another sponsor bank on or around March 31, 2025. The deposit servicing fees of $19.6 million incurred to BM Technologies for the year ended December 31, 2024 included $7.1 million for periods prior to 2024.

Commercial lease depreciation

The $2.6 million increase in commercial lease depreciation for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from the growth of the operating lease arrangements originated by Customers’ commercial equipment financing group in which Customers is the lessor.

Professional services

The $0.2 million decrease in professional services for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from decreases in legal fees related to loan transactions and PPP related matters and other professional services, partially offset by increases in consulting fees including to enhance the Bank’s risk management infrastructure.

Loan servicing

The $1.2 million decrease in loan servicing for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from lower balances in consumer installment loans serviced by third parties.

79

Occupancy

The $1.7 million increase in occupancy for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to higher lease expense and depreciation and amortization associated with the Bank’s expansion.

FDIC assessments, non-income taxes, and regulatory fees

The $6.6 million increase in FDIC assessments, non-income taxes and regulatory fees for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from an increase in FDIC assessment rates and FDIC premiums of $4.2 million relating to periods prior to 2024, partially offset by a decrease of $3.0 million in FDIC special assessments and a credit of $3.0 million for Pennsylvania bank shares taxes relating to periods prior to 2024.

Customers incurred FDIC special assessments of $0.7 million and $3.7 million for the years ended December 31, 2024 and 2023, respectively. In November 2023, FDIC issued a final rule to implement a special assessment of 3.36 basis points on the uninsured deposits in excess of $5 billion as of December 31, 2022 to recover the losses arising from the closures of Silicon Valley Bank and Signature Bank in early March 2023. The special assessment is paid over eight quarterly periods beginning in the first quarter 2024. Customers had approximately $6.4 billion in uninsured deposits as of December 31, 2022. The FDIC currently projects that the special assessment will be collected for an additional two quarters beyond the initial eight-quarter collection period, at an estimated quarterly rate of 1.69 basis points. The total special assessment amount to be paid by Customers, including the projected number of additional quarters and the estimated rate applicable to those quarters, are subject to change depending on any future adjustments to estimated losses or amendments to uninsured deposits by the FDIC.

Advertising and promotion

The $1.4 million increase in advertising and promotion expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from higher spending on advertising agencies and media.

Legal settlement expense

The $4.1 million decrease in legal settlement expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 reflects expenses from a settlement with a third party PPP service provider during the year ended December 31, 2023.

Other non-interest expenses

The $15.2 million increase in other non-interest expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from increases in fees paid to a fintech company related to consumer installment loans originated and held for sale as a part of the Bank’s held for sale strategy and the provision for credit losses on unfunded lending-related commitments.

INCOME TAXES

The table below presents income tax expense and the effective tax rate for the years ended December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["(dollars in thousands)","2024","","2023","","Change","","% Change"],["Income before income tax expense","$","224,373","","","$","330,740","","","$","(106,367)","","","(32.2)","%"],["Income tax expense","42,904","","","80,597","","","(37,693)","","","(46.8)","%"],["Effective tax rate","19.1","%","","24.4","%"]]
[[/GREPCENT_TABLE]]

The $37.7 million decrease in income tax expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from lower pre-tax income and an increase in investment tax credits, including $14.9 million of investment tax credits generated from commercial clean vehicles in 2024, partially offset by the increase of unrecognized tax benefits in 2024. The income tax expense for the year ended December 31, 2023 also included $4.1 million from the surrender of bank-owned life insurance policies that did not repeat in 2024. The investment tax credits from commercial clean vehicles were the same amount as the loss on leases of commercial clean vehicles included within net gain (loss) on sale of loans and leases.

The decrease in the effective tax rate for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily resulted from an increase in investment tax credits in 2024 and tax on the surrender of bank-owned life insurance policies in 2023 that did not repeat in 2024, partially offset by the increase of unrecognized tax benefits in 2024. For the reconciliation of the effective tax rate and the statutory federal tax rate, refer to “NOTE 15 – INCOME TAXES” to Customers’ audited consolidated financial statements.

80

PREFERRED STOCK DIVIDENDS

Preferred stock dividends were $15.0 million and $14.7 million for the years ended December 31, 2024 and 2023, respectively. There were no changes to the amount of preferred stock outstanding during the years ended December 31, 2024 and 2023.

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%. Pursuant to the Adjustable Interest Rate (LIBOR) Act enacted by Congress on March 15, 2022, Customers substituted three-month term SOFR plus a tenor spread adjustment of 26.161 basis points for three-month LIBOR as the benchmark reference rate on Series E and F Preferred Stock, plus 5.14% and 4.762%, respectively, beginning with dividends declared on October 25, 2023.

Financial Condition

General

Customers’ total assets were $22.3 billion at December 31, 2024. This represented an increase of $992.0 million from total assets of $21.3 billion at December 31, 2023. The increase in total assets was primarily driven by increases of $1.2 billion in loans and leases receivable, $423.2 million in loans receivable, mortgage finance, at fair value and $114.6 million in other assets, partially offset by decreases of $385.9 million in investment securities, at fair value, $135.5 million in loans held for sale, $111.2 million in investment securities held to maturity and $60.4 million in cash and cash equivalents.

Total liabilities were $20.5 billion at December 31, 2024. This represented an increase of $793.7 million from $19.7 billion at December 31, 2023. The increase in total liabilities primarily resulted from an increase of $926.2 million in total deposits, partially offset by decreases of $74.9 million in FHLB advances, $33.2 million in accrued interest payable and other liabilities and $24.8 million in other borrowings.

The following table sets forth certain key condensed balance sheet data as of December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","December 31,"],["(dollars in thousands)","2024","","2023","","Change","","% Change"],["Cash and cash equivalents","$","3,785,931","","","$","3,846,346","","","$","(60,415)","","","(1.6)","%"],["Investment securities, at fair value","2,019,694","","","2,405,640","","","(385,946)","","","(16.0)","%"],["Investment securities held to maturity","991,937","","","1,103,170","","","(111,233)","","","(10.1)","%"],["Loans held for sale","204,794","","","340,317","","","(135,523)","","","(39.8)","%"],["Loans and leases receivable","13,127,634","","","11,963,855","","","1,163,779","","","9.7","%"],["Loans receivable, mortgage finance, at fair value","1,321,128","","","897,912","","","423,216","","","47.1","%"],["Allowance for credit losses on loans and leases","(136,775)","","","(135,311)","","","(1,464)","","","1.1","%"],["Bank-owned life insurance","297,641","","","292,193","","","5,448","","","1.9","%"],["Other assets","481,395","","","366,829","","","114,566","","","31.2","%"],["Total assets","22,308,241","","","21,316,265","","","991,976","","","4.7","%"],["Total deposits","18,846,461","","","17,920,236","","","926,225","","","5.2","%"],["FHLB advances","1,128,352","","","1,203,207","","","(74,855)","","","(6.2)","%"],["Other borrowings","99,068","","","123,840","","","(24,772)","","","(20.0)","%"],["Subordinated debt","182,509","","","182,230","","","279","","","0.2","%"],["Accrued interest payable and other liabilities","215,168","","","248,358","","","(33,190)","","","(13.4)","%"],["Total liabilities","20,471,558","","","19,677,871","","","793,687","","","4.0","%"],["Total shareholders\u2019 equity","1,836,683","","","1,638,394","","","198,289","","","12.1","%"],["Total liabilities and shareholders\u2019 equity","$","22,308,241","","","$","21,316,265","","","$","991,976","","","4.7","%"]]
[[/GREPCENT_TABLE]]

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 $56.8 million and $45.2 million at December 31, 2024 and 2023, respectively. Cash and cash due from banks balances vary from day to day, primarily due to variations in customers’ deposit activities with the Bank.

81

Interest-earning deposits consist of cash deposited at other banks, primarily the FRB. Interest-earning deposits were $3.7 billion and $3.8 billion at December 31, 2024 and 2023, 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 optimize Customers’ net interest income, while effectively managing interest-rate risk and liquidity. The decrease in interest-earning deposits since December 31, 2023 primarily resulted from deploying excess cash into loans and investment securities.

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.

At December 31, 2024, investment securities at fair value totaled $2.0 billion compared to $2.4 billion at December 31, 2023. The decrease primarily resulted from the maturities, calls and principal repayments totaling $629.2 million and the sales of $624.9 million, partially offset by purchases of $845.8 million of the investment securities.

For financial reporting purposes, AFS debt securities are reported 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 $3.6 million and $3.8 million on certain debt securities available for sale during the years ended December 31, 2024 and 2023, respectively. Refer to “NOTE 5 – INVESTMENT SECURITIES” and “NOTE 19 – DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS” to Customers’ audited consolidated 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 exclude the impact of related hedging derivatives.

[[GREPCENT_TABLE]]
[["","December 31, 2024"],["","Within one year","","After one but within five years","","After five but within ten years","","","","No specific maturity","","Total"],["Asset-backed securities","\u2014","%","","\u2014","%","","\u2014","%","","","","1.39","%","","1.39","%"],["Agency-guaranteed residential mortgage-backed securities","\u2014","","","\u2014","","","\u2014","","","","","5.52","","","5.52"],["Agency-guaranteed residential collateralized mortgage obligations","\u2014","","","\u2014","","","\u2014","","","","","3.93","","","3.93"],["Agency-guaranteed commercial collateralized mortgage obligations","\u2014","","","\u2014","","","\u2014","","","","","5.51","","","5.51"],["Collateralized loan obligations","\u2014","","","\u2014","","","\u2014","","","","","6.31","","","6.31"],["Commercial mortgage-backed securities","\u2014","","","\u2014","","","\u2014","","","","","5.86","","","5.86"],["Corporate notes","9.99","","","6.48","","","6.25","","","","","\u2014","","","6.78"],["Private label collateralized mortgage obligations","\u2014","","","\u2014","","","\u2014","","","","","4.84","","","4.84"],["Weighted-average yield","9.99","%","","6.48","%","","6.25","%","","","","3.76","%","","5.59","%"]]
[[/GREPCENT_TABLE]]

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

Investment securities held to maturity

At December 31, 2024, investment securities held to maturity totaled $991.9 million compared to $1.1 billion at December 31, 2023. The decrease primarily resulted from the maturities, calls and principal repayments totaling $291.5 million, partially offset by purchases of $160.0 million of asset-backed securities investments in VIEs in connection with the sales of consumer installment loans and $15.0 million of CRA-qualified, agency-guaranteed collateralized mortgage obligations.

82

During the year ended December 31, 2024, Customers sold $202.5 million of personal and other installment loans that were classified as held for sale, inclusive of $53.0 million of personal installment loans transferred from held for investment to held for sale, accrued interest and unamortized deferred loan origination costs, to two third-party sponsored VIEs. Customers provided financing to the purchasers for a portion of the sale price in the form of $160.0 million of asset-backed securities collateralized by the sold loans. Customers accounts for its investment in the asset-backed securities as HTM debt securities on the consolidated balance sheet. Refer to “NOTE 5 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for additional information.

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.

[[GREPCENT_TABLE]]
[["","December 31, 2024"],["","Within one year","","After one but within five years","","After five but within ten years","","","","No specific maturity","","Total"],["Asset-backed securities","\u2014","%","","\u2014","%","","\u2014","%","","","","5.54","%","","5.54","%"],["Agency-guaranteed residential mortgage-backed securities","\u2014","","","\u2014","","","\u2014","","","","","1.79","","","1.79"],["Agency-guaranteed commercial mortgage-backed securities","\u2014","","","\u2014","","","\u2014","","","","","1.77","","","1.77"],["Agency-guaranteed residential collateralized mortgage obligations","\u2014","","","\u2014","","","\u2014","","","","","1.89","","","1.89"],["Agency-guaranteed commercial collateralized mortgage obligations","\u2014","","","\u2014","","","\u2014","","","","","2.39","","","2.39"],["Private label collateralized mortgage obligations","\u2014","","","\u2014","","","\u2014","","","","","4.61","","","4.61"],["Weighted-average yield","\u2014","%","","\u2014","%","","\u2014","%","","","","4.21","%","","4.21","%"]]
[[/GREPCENT_TABLE]]

The agency-guaranteed mortgage-backed securities and collateralized mortgage obligations in the HTM 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.

Investment securities classified as HTM are those debt securities that Customers has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs, or changes in general economic conditions. For financial reporting purposes, these securities are reported at cost, adjusted for the amortization of premiums and accretion of discounts, computed by a method which approximates the interest method over the terms of the securities. Refer to “NOTE 5 – INVESTMENT SECURITIES” and “NOTE 19 – DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS” to Customers’ audited consolidated financial statements for additional information.

LOANS AND LEASES

Existing lending relationships are primarily with small and middle market businesses and individual consumers primarily in Berks County and Southeastern Pennsylvania (Bucks, Chester and Philadelphia Counties); New York (Westchester and Suffolk Counties, and Manhattan); Hamilton, New Jersey; Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New Hampshire; California (Southern California and the Bay Area); Nevada (Las Vegas and Reno); and nationally for certain loan and deposit products. The portfolio of specialized lending loans and leases and mortgage finance loans 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 specialized 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. Customers is transitioning its consumer installment lending strategy from a held for investment to a held for sale business to reduce its exposure to credit risk.

Commercial Lending

Customers’ commercial lending is broadly divided into the following groups: small and middle market business banking, specialized banking, multifamily and commercial real estate lending, mortgage finance, 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.

83

As of December 31, 2024, Customers had $13.2 billion in commercial loans outstanding, totaling approximately 90.1% of its total loan and lease portfolio, which includes loans held for sale and loans receivable, mortgage finance, at fair value, compared to commercial loans outstanding of $11.5 billion, comprising approximately 86.8% of its total loan and lease portfolio at December 31, 2023.

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’ specialized banking includes equipment finance, healthcare lending, real estate specialty finance, fund finance, technology and venture capital banking and financial institutions group. In 2021, Customers added three new verticals within its specialized lending, which included capital call lines, technology and venture capital banking and financial institutions group to further build its franchise and support the growth of its commercial lending. 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 and cash management services to the alternative investment industry. Customers’ technology and venture capital banking group services the venture-backed growth industry from seed-stage through late-stage.

In 2023, Customers acquired a venture banking loan portfolio from the FDIC. Customers has also recruited team members that originated these loans to service the venture-backed growth industry from seed-stage through late-stage. The newly recruited team gives clients access to the capital to grow from innovation to maturity and leverage a customized, best-in-class tech platform to support their growth. The team has long-standing relationships with these clients offering them premier end-to-end financial services meeting their needs. The addition of these team members created venture banking client coverage in Austin, the Bay Area, Boston, Southern California, Chicago, Denver, Raleigh/Durham, and Washington, D.C. The technology and life sciences portfolio was combined with Customers’ existing technology and venture capital banking vertical. The portfolio of capital call loans to venture capital firms was combined with Customers’ existing capital call lines vertical within fund finance.

Customers’ mortgage finance 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, 2024 and 2023, mortgage finance loans totaled $1.3 billion and $897.9 million, respectively, and are reported as loans receivable, mortgage finance, at fair value on the consolidated balance sheet.

Customers’ commercial equipment financing group goes to market through the following origination platforms: vendors, intermediaries, direct and capital markets. The commercial equipment financing group is primarily focused on serving the following industries: transportation, construction (including crane and utility), marine, franchise, general manufacturing (including machine tool), helicopter/fixed wing, solar, packaging, plastics and food processing. As of December 31, 2024 and 2023, Customers had $675.4 million and $547.0 million, respectively, of equipment finance loans outstanding. As of December 31, 2024 and 2023, Customers had $262.7 million and $205.7 million, respectively, of equipment finance leases outstanding. As of December 31, 2024 and 2023, Customers had $214.9 million and $205.7 million, respectively, of operating leases entered into under this program, net of accumulated depreciation of $95.1 million and $77.7 million, respectively.

Customers’ multifamily lending group is focused on retaining a portfolio of high-quality multifamily loans within Customers’ covered markets. These lending activities use conservative underwriting standards and primarily target the refinancing of loans with other banks or 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, 2024, Customers had multifamily loans of $2.3 billion outstanding, comprising approximately 15.4% of the total loan and lease portfolio, compared to $2.1 billion, or approximately 16.2% of the total loan and lease portfolio, at December 31, 2023.

84

Consumer Lending

Customers provides unsecured consumer installment loans, residential mortgage and home equity loans to customers nationwide primarily through relationships with fintech companies. Customers has continued to build out its held-for-sale strategy in 2024 in which we accumulate loans with the intent to sell in the future while reducing consumer installment loans held for investment. 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, 2024, Customers had $1.4 billion in consumer loans outstanding (including consumer loans held for investment and held for sale), or 9.9% of the total loan and lease portfolio, compared to $1.7 billion, or 13.2% of the total loan and lease portfolio, as of December 31, 2023.

Purchases and sales of loans held for investment were as follows for the years ended December 31, 2024, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["(amounts in thousands)","2024","","2023","","2022"],["Purchases (1)"],["Specialized lending","$","\u2014","","","$","631,252","","","$","\u2014"],["Other commercial and industrial","9,019","","","22,073","","","2,975"],["Commercial real estate owner occupied","\u2014","","","2,867","","","\u2014"],["Residential real estate","\u2014","","","4,238","","","207,251"],["Personal installment (2)","189,374","","","\u2014","","","123,785"],["Other installment (2)","\u2014","","","96,758","","","149,969"],["Total","$","198,393","","","$","757,188","","","$","483,980"],["Sales (3)"],["Specialized lending (4)","$","\u2014","","","$","287,185","","","$","2,200"],["Other commercial and industrial (5)","23,708","","","54,083","","","22,880"],["Multifamily","\u2014","","","\u2014","","","2,879"],["Commercial real estate owner occupied (5)","\u2014","","","24,522","","","8,960"],["Commercial real estate non-owner occupied","\u2014","","","16,000","","","\u2014"],["Personal installment (6)","53,598","","","\u2014","","","500,001"],["Other installment","\u2014","","","154,042","","","\u2014"],["Total","$","77,306","","","$","535,832","","","$","536,920"]]
[[/GREPCENT_TABLE]]

(1)Amounts reported in the above table are the unpaid principal balance at time of purchase. The purchase price was 97.5%, 87.9% and 99.1% of the loans’ unpaid principal balance for the years ended December 31, 2024, 2023 and 2022, respectively.

(2)Installment loan purchases for the years ended December 31, 2024, 2023 and 2022 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, 2024, 2023 and 2022, sales of loans held for investment resulted in net losses of $0.4 million and net gains of $0.2 million and $3.2 million, respectively, included in net gain (loss) on sale of loans and leases in the consolidated statements of income.

(4)Includes a loss of $5.0 million from the sale of $670.0 million of short-term syndicated capital call lines of credit ($280.7 million of loans held for investment in unpaid principal balance and $389.3 million of unfunded loan commitments) included in loss on sale of capital call lines of credit in the consolidated statement of income for the year ended December 31, 2023.

(5)Primarily sales of SBA loans for the years ended December 31, 2023 and 2022.

(6)Customers sold $521.8 million of consumer installment loans held for investment, inclusive of accrued interest and unamortized deferred loan origination costs, to a third-party sponsored VIE for a loss of $23.5 million included in loss on sale of consumer installment loans in the consolidated statement of income for the year ended December 31, 2022. 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 5 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for additional information.

85

Loans Held for Sale

The composition of loans held for sale as of December 31, 2024 and 2023 was as follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["(amounts in thousands)","2024","","2023"],["Residential mortgage loans, at fair value","$","1,836","","","$","1,215"],["Personal installment loans, at lower of cost or fair value","40,903","","","151,040"],["Other installment loans, at fair value","162,055","","","188,062"],["Loans held for sale","$","204,794","","","$","340,317"]]
[[/GREPCENT_TABLE]]

At December 31, 2024, loans held for sale totaled $204.8 million, or 1.4% of the total loan and lease portfolio, and $340.3 million, or 2.6% of the total loan and lease portfolio, at December 31, 2023.

During the year ended December 31, 2024, Customers sold $202.5 million of personal and other installment loans that were classified as held for sale, inclusive of $53.0 million of personal installment loans transferred from held for investment to held for sale, accrued interest and unamortized deferred loan origination costs, to two third-party sponsored VIEs. Customers provided financing to the purchasers for a portion of the sales price in the form of $160.0 million of asset-backed securities while $40.2 million of the remaining sales proceeds were paid in cash.

During the year ended December 31, 2023, Customers sold $556.7 million of personal and other installment loans that were classified as held for sale, inclusive of $154.0 million of other installment loans transferred from held for investment to held for sale, accrued interest and unamortized deferred loan origination costs to two third-party sponsored VIEs. Customers provided financing to the purchasers for a portion of the sales price in the form of $436.8 million of asset-backed securities while $115.1 million of the remaining sales proceeds were paid in cash. Refer to “NOTE 5 – INVESTMENT SECURITIES” to Customers’ audited consolidated financial statements for additional information.

Loans held for sale are reported 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.

86

Total Loans and Leases Receivable

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

[[GREPCENT_TABLE]]
[["","December 31,"],["(amounts in thousands)","2024","","2023"],["Loans and leases receivable:"],["Commercial:"],["Commercial and industrial:"],["Specialized lending (1)","$","5,842,420","","","$","5,006,693"],["Other commercial and industrial (2)","1,182,350","","","1,279,147"],["Multifamily","2,252,246","","","2,138,622"],["Commercial real estate owner occupied","1,100,944","","","797,319"],["Commercial real estate non-owner occupied","1,359,130","","","1,177,650"],["Construction","147,209","","","166,393"],["Total commercial loans and leases receivable","11,884,299","","","10,565,824"],["Consumer:"],["Residential real estate","496,559","","","484,435"],["Manufactured housing","33,123","","","38,670"],["Installment:"],["Personal","463,854","","","555,533"],["Other","249,799","","","319,393"],["Total consumer loans receivable","1,243,335","","","1,398,031"],["Loans and leases receivable","13,127,634","","","11,963,855"],["Loans receivable, mortgage finance, at fair value","1,321,128","","","897,912"],["Allowance for credit losses on loans and leases","(136,775)","","","(135,311)"],["Total loans and leases receivable, net of allowance for credit losses on loans and leases (3)","$","14,311,987","","","$","12,726,456"]]
[[/GREPCENT_TABLE]]

(1)Includes direct finance and sales-type equipment leases of $262.7 million and $205.7 million at December 31, 2024 and 2023, respectively.

(2)Includes PPP loans of $22.8 million and $74.7 million at December 31, 2024 and 2023, 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%. Customers substantially completed processing forgiveness and guarantee claims for the PPP in early 2023.

(3)Includes deferred (fees) costs and unamortized (discounts) premiums, net of $(20.8) million and $(22.7) million at December 31, 2024 and 2023, respectively.

Loans and leases receivable

Loans and leases receivable (excluding loans held for sale and loans receivable, mortgage finance, at fair value), net of the ACL, increased by $1.2 billion to $13.0 billion at December 31, 2024, from $11.8 billion at December 31, 2023. The increase in loans and leases receivable, net of the ACL, was primarily attributable to higher balances in specialized lending, multifamily, owner-occupied and non-owner occupied commercial real estate loans, partially offset by $1.5 million increase in ACL, as further described below, from December 31, 2023. The overall loans and leases receivable fluctuations were the result of Customers selectively pursuing disciplined loan growth by focusing on holistic and strategic banking relationships that create franchise value, while executing on the held-for-sale strategy and de-risking the held-for-investment consumer installment loan portfolio in 2024.

87

The following table presents Customers’ loans receivable (excluding loans held for sale and loans receivable, mortgage finance, at fair value) as of December 31, 2024 based on the remaining term to contractual maturity:

[[GREPCENT_TABLE]]
[["(amounts in thousands)","Within one year","","After one but within five years","","After five but within fifteen years","","After fifteen years","","Total"],["Commercial loans:"],["Commercial and industrial, including specialized lending","$","1,377,299","","","$","4,397,073","","","$","1,183,761","","","$","66,637","","","$","7,024,770"],["Multifamily","50,638","","","424,809","","","1,776,799","","","\u2014","","","2,252,246"],["Commercial real estate owner occupied","156,610","","","611,515","","","219,892","","","112,927","","","1,100,944"],["Commercial real estate non-owner occupied","271,708","","","837,390","","","250,032","","","\u2014","","","1,359,130"],["Construction","59,782","","","52,280","","","29,982","","","5,165","","","147,209"],["Total commercial loans","$","1,916,037","","","$","6,323,067","","","$","3,460,466","","","$","184,729","","","$","11,884,299"],["Consumer loans:"],["Residential real estate","$","1,228","","","$","1,008","","","$","9,198","","","$","485,125","","","$","496,559"],["Manufactured housing","262","","","3,761","","","24,207","","","4,893","","","33,123"],["Installment","23,460","","","427,397","","","148,751","","","114,045","","","713,653"],["Total consumer loans","$","24,950","","","$","432,166","","","$","182,156","","","$","604,063","","","$","1,243,335"]]
[[/GREPCENT_TABLE]]

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, 2024:

[[GREPCENT_TABLE]]
[["(amounts in thousands)","Predetermined rates","","Floating or adjustable rates","","Total"],["Commercial loans:"],["Commercial and industrial, including specialized lending","$","1,168,262","","","$","4,479,209","","","$","5,647,471"],["Multifamily","255,983","","","1,945,625","","","2,201,608"],["Commercial real estate owner occupied","114,837","","","829,497","","","944,334"],["Commercial real estate non-owner occupied","613,300","","","474,122","","","1,087,422"],["Construction","7,871","","","79,556","","","87,427"],["Total commercial loans","$","2,160,253","","","$","7,808,009","","","$","9,968,262"],["Consumer loans:"],["Residential real estate","$","407,345","","","$","87,986","","","$","495,331"],["Manufactured housing","32,861","","","\u2014","","","32,861"],["Installment","690,193","","","\u2014","","","690,193"],["Total consumer loans","$","1,130,399","","","$","87,986","","","$","1,218,385"]]
[[/GREPCENT_TABLE]]

Loans receivable, mortgage finance, at fair value

The mortgage finance 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 finance 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 finance, 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, 2024, all of Customers’ mortgage finance loans were current in terms of payment.

88

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 finance 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 finance, at fair value totaled $1.3 billion and $897.9 million at December 31, 2024 and 2023, respectively.

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 $69.8 million and $70.8 million for the years ended December 31, 2024 and 2023, respectively. The ACL maintained for loans and leases receivable (excluding loans held for sale and loans receivable, mortgage finance, at fair value) was $136.8 million, or 1.04% of loans and leases receivable at December 31, 2024, and $135.3 million, or 1.13% of loans and leases receivable at December 31, 2023.

The increase in the ACL resulted primarily from an increase in commercial and industrial loan balances held for investment, partially offset by the recognition of improvement in macroeconomic forecasts and a decrease in consumer installment loan balances held for investment. Net charge-offs were $68.3 million for the year ended December 31, 2024, a decrease of $0.7 million compared to $69.0 million for the year ended December 31, 2023. The net charge-offs for year ended December 31, 2023 excluded $6.2 million of charge-offs for certain PCD loans acquired from the FDIC applied against $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of the venture banking loan portfolio on June 15, 2023. The decrease in net charge-offs was primarily due to decreases in charge-offs for non-owner occupied commercial real estate and consumer installment loans, partially offset by higher charge-offs for commercial and industrial loans and subsequent recoveries of PCD loans acquired from the FDIC during the year ended December 31, 2023. Installment charge-offs were attributable to unsecured consumer loans originated and purchased through arrangements with fintech companies and other market place lenders. Refer to the table of changes in Customers’ ACL for annualized net-charge offs to average loans by loan type for the periods indicated.

89

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

[[GREPCENT_TABLE]]
[["(dollars in thousands)","Commercial and industrial (1)(2)","","Multifamily","","Commercial real estate owner occupied","","Commercial real estate non-owner occupied","","Construction","","Residential real estate","","Manufactured housing","","Installment","","","","Total"],["Ending Balance, December 31, 2021","$","12,702","","","$","4,477","","","$","3,213","","","$","6,210","","","$","692","","","$","2,383","","","$","4,278","","","$","103,849","","","","","$","137,804"],["Charge-offs (3)","(16,248)","","","(1,990)","","","\u2014","","","(6,075)","","","\u2014","","","(17)","","","\u2014","","","(52,866)","","","","","(77,196)"],["Recoveries (3)","1,182","","","337","","","51","","","121","","","236","","","64","","","\u2014","","","8,837","","","","","10,828"],["Provision (benefit) for credit losses on loans and leases","19,946","","","11,717","","","3,190","","","10,963","","","985","","","3,664","","","152","","","8,871","","","","","59,488"],["Ending Balance, December 31, 2022","$","17,582","","","$","14,541","","","$","6,454","","","$","11,219","","","$","1,913","","","$","6,094","","","$","4,430","","","$","68,691","","","","","$","130,924"],["Allowance for credit losses on FDIC PCD loans, net of charge-offs (4)","2,576","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","","","2,576"],["Charge-offs (3)","(16,915)","","","(3,574)","","","(39)","","","(4,527)","","","\u2014","","","(69)","","","\u2014","","","(69,942)","","","","","(95,066)"],["Recoveries (3)","8,472","","","\u2014","","","34","","","315","","","116","","","35","","","\u2014","","","17,059","","","","","26,031"],["Provision (benefit) for credit losses on loans and leases","11,788","","","5,376","","","3,433","","","9,852","","","(547)","","","526","","","(191)","","","40,609","","","","","70,846"],["Ending Balance, December 31, 2023","$","23,503","","","$","16,343","","","$","9,882","","","$","16,859","","","$","1,482","","","$","6,586","","","$","4,239","","","$","56,417","","","","","$","135,311"],["Charge-offs (3)","(23,735)","","","(4,073)","","","(365)","","","(145)","","","\u2014","","","(38)","","","\u2014","","","(56,109)","","","","","(84,465)"],["Recoveries (3)","5,689","","","\u2014","","","\u2014","","","\u2014","","","10","","","79","","","\u2014","","","10,352","","","","","16,130"],["Provision (benefit) for credit losses on loans and leases","23,922","","","6,241","","","1,238","","","691","","","(242)","","","(659)","","","(410)","","","39,018","","","","","69,799"],["Ending Balance, December 31, 2024","$","29,379","","","$","18,511","","","$","10,755","","","$","17,405","","","$","1,250","","","$","5,968","","","$","3,829","","","$","49,678","","","","","$","136,775"],["Net Charge-offs to Average Loans and Leases"],["2022","(0.22)","%","","(0.08)","%","","0.01","%","","(0.50)","%","","0.14","%","","0.01","%","","\u2014","%","","(2.48)","%","","","","(0.50)","%"],["2023","(0.12)","%","","(0.17)","%","","0.00","%","","(0.34)","%","","0.06","%","","(0.01)","%","","\u2014","%","","(4.65)","%","","","","(0.53)","%"],["2024","(0.28)","%","","(0.19)","%","","(0.04)","%","","(0.01)","%","","0.01","%","","0.01","%","","\u2014","%","","(5.90)","%","","","","(0.56)","%"]]
[[/GREPCENT_TABLE]]

(1)    Includes specialized lending.

(2)    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.

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

(4)    Represents $8.7 million of allowance for credit losses on PCD loans recognized upon acquisition of a Venture Banking loan portfolio (included within specialized lending) from the FDIC on June 15, 2023, net of $6.2 million of charge-offs for certain of these PCD loans upon acquisition.

The ACL is based on a quarterly evaluation of the loan and lease portfolio held for investment 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 mortgage finance 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 consolidated financial statements for management’s methodology for estimating the ACL.

90

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. Customers’ exposure to higher risk commercial real estate such as the office sector is minimal, representing approximately 1% of the loan portfolio as of December 31, 2024.

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 held for investment.

The following table shows the ACL by various portfolios as of December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2024","","2023"],["(dollars in thousands)","ACL","","Percent of loans in each category to loans and leases receivable","","ACL","","Percent of loans in each category to loans and leases receivable"],["Commercial and industrial, including specialized lending (1)","$","29,379","","","53.5","%","","$","23,503","","","52.5","%"],["Multifamily","18,511","","","17.2","%","","16,343","","","17.9","%"],["Commercial real estate owner occupied","10,755","","","8.4","%","","9,882","","","6.7","%"],["Commercial real estate non-owner occupied","17,405","","","10.3","%","","16,859","","","9.8","%"],["Construction","1,250","","","1.1","%","","1,482","","","1.4","%"],["Total commercial loans and leases","77,300","","","90.5","%","","68,069","","","88.3","%"],["Residential real estate","5,968","","","3.8","%","","6,586","","","4.0","%"],["Manufactured housing","3,829","","","0.3","%","","4,239","","","0.3","%"],["Installment","49,678","","","5.4","%","","56,417","","","7.4","%"],["Total consumer loans","59,475","","","9.5","%","","67,242","","","11.7","%"],["Loans and leases receivable","$","136,775","","","100.0","%","","$","135,311","","","100.0","%"]]
[[/GREPCENT_TABLE]]

(1)    Includes PPP loans.

91

Asset Quality

Customers classifies 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 held for investment 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, 2024

[[GREPCENT_TABLE]]
[["(dollars in thousands)","Total Loans and Leases","","Current","","30-89 Days Past Due","","90 Days or More Past Due and Accruing","","Non-accrual/NPL (a)","","OREO and Repossessed Assets (b)","","NPA (2)(a)+(b)","","NPL to Loan and Lease Type (%)","","NPA (2) to Loans and Leases + OREO and Repossessed Assets (%)"],["Loan and Lease Type"],["Commercial and industrial, including specialized lending (1)","$","7,024,770","","","$","6,997,577","","","$","23,131","","","$","21","","","$","4,041","","","$","\u2014","","","$","4,041","","","0.06","%","","0.06","%"],["Multifamily","2,252,246","","","2,240,412","","","\u2014","","","\u2014","","","11,834","","","\u2014","","","11,834","","","0.53","%","","0.53","%"],["Commercial real estate owner occupied","1,100,944","","","1,081,459","","","11,395","","","\u2014","","","8,090","","","\u2014","","","8,090","","","0.73","%","","0.73","%"],["Commercial real estate non-owner occupied","1,359,130","","","1,342,123","","","\u2014","","","16,653","","","354","","","\u2014","","","354","","","0.03","%","","0.03","%"],["Construction","147,209","","","147,209","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","%","","\u2014","%"],["Total commercial loans and leases receivable","11,884,299","","","11,808,780","","","34,526","","","16,674","","","24,319","","","\u2014","","","24,319","","","0.20","%","","0.20","%"],["Residential","496,559","","","476,848","","","10,997","","","\u2014","","","8,714","","","\u2014","","","8,714","","","1.75","%","","1.75","%"],["Manufactured housing","33,123","","","29,941","","","920","","","410","","","1,852","","","\u2014","","","1,852","","","5.59","%","","5.59","%"],["Installment","713,653","","","695,014","","","13,026","","","\u2014","","","5,613","","","\u2014","","","5,613","","","0.79","%","","0.79","%"],["Total consumer loans receivable","1,243,335","","","1,201,803","","","24,943","","","410","","","16,179","","","\u2014","","","16,179","","","1.30","%","","1.30","%"],["Loans and leases receivable","13,127,634","","","13,010,583","","","59,469","","","17,084","","","40,498","","","\u2014","","","40,498","","","0.31","%","","0.31","%"],["Loans receivable, mortgage finance, at fair value","1,321,128","","","1,321,128","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","%","","\u2014","%"],["Total loans held for sale","204,794","","","196,157","","","5,860","","","\u2014","","","2,777","","","\u2014","","","2,777","","","1.36","%","","1.36","%"],["Total portfolio","$","14,653,556","","","$","14,527,868","","","$","65,329","","","$","17,084","","","$","43,275","","","$","\u2014","","","$","43,275","","","0.30","%","","0.30","%"]]
[[/GREPCENT_TABLE]]

Asset Quality at December 31, 2024 (continued)

[[GREPCENT_TABLE]]
[["(dollars in thousands)","Total Loans and Leases","","Non-accrual/NPL","","ACL","","","","","","Reserves to Loans and Leases (%)","","Reserves to NPLs (%)"],["Loan and Lease Type"],["Commercial and industrial, including specialized lending (1)","$","7,024,770","","","$","4,041","","","$","29,379","","","","","","","0.42","%","","727.02","%"],["Multifamily","2,252,246","","","11,834","","","18,511","","","","","","","0.82","%","","156.42","%"],["Commercial real estate owner occupied","1,100,944","","","8,090","","","10,755","","","","","","","0.98","%","","132.94","%"],["Commercial real estate non-owner occupied","1,359,130","","","354","","","17,405","","","","","","","1.28","%","","4916.67","%"],["Construction","147,209","","","\u2014","","","1,250","","","","","","","0.85","%","","\u2014","%"],["Total commercial loans and leases receivable","11,884,299","","","24,319","","","77,300","","","","","","","0.65","%","","317.86","%"],["Residential","496,559","","","8,714","","","5,968","","","","","","","1.20","%","","68.49","%"],["Manufactured housing","33,123","","","1,852","","","3,829","","","","","","","11.56","%","","206.75","%"],["Installment","713,653","","","5,613","","","49,678","","","","","","","6.96","%","","885.05","%"],["Total consumer loans receivable","1,243,335","","","16,179","","","59,475","","","","","","","4.78","%","","367.61","%"],["Loans and leases receivable","13,127,634","","","40,498","","","136,775","","","","","","","1.04","%","","337.73","%"],["Loans receivable, mortgage finance, at fair value","1,321,128","","","\u2014","","","\u2014","","","","","","","\u2014","%","","\u2014","%"],["Total loans held for sale","204,794","","","2,777","","","\u2014","","","","","","","\u2014","%","","\u2014","%"],["Total portfolio","$","14,653,556","","","$","43,275","","","$","136,775","","","","","","","0.93","%","","316.06","%"]]
[[/GREPCENT_TABLE]]

(1)Includes PPP loans of $22.8 million within commercial and industrial, including specialized lending, and classified as current. PPP loans of $0.8 million were 30-59 days past due and $16.1 million were 60 days or more past due as of December 31, 2024. PPP loans were $74.7 million, of which $0.7 million were 30-59 days past due and $48.5 million were 60 days or more past due as of December 31, 2023. Claims for guarantee payments are submitted to the SBA for eligible PPP loans more than 60 days past due.

(2)Excludes non-performing investment securities, at fair value of $12.5 million with ACL of $4.3 million at December 31, 2024.

92

The total loan and lease portfolio was $14.7 billion at December 31, 2024 compared to $13.2 billion at December 31, 2023 and $43.3 million, or 0.30% of loans and leases, were non-performing at December 31, 2024 compared to $27.1 million, or 0.21% of loans and leases, at December 31, 2023. The total loan and lease portfolio was supported by an ACL of $136.8 million (316.06% of NPLs and 0.93% of total loans and leases) and $135.3 million (499.12% of NPLs and 1.02% of total loans and leases), at December 31, 2024 and 2023, respectively.

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

[[GREPCENT_TABLE]]
[["","December 31,"],["(amounts in thousands)","2024","","2023"],["Loans 90+ days delinquent still accruing (1)","$","17,084","","","$","538"],["Non-accrual loans","$","43,275","","","$","27,110"],["OREO and repossessed assets","\u2014","","","99"],["Investment securities, at fair value","12,532","","","\u2014"],["Total non-performing assets","$","55,807","","","$","27,209"]]
[[/GREPCENT_TABLE]]

(1)Excludes PCD loans at December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","December 31,"],["","2024","","2023"],["Non-accrual loans to loans and leases receivable (1)","0.31","%","","0.22","%"],["Non-accrual loans to total loans and leases portfolio","0.30","%","","0.21","%"],["Non-performing assets to total assets (2)","0.25","%","","0.13","%"],["Non-accrual loans and loans 90+ days delinquent to total assets","0.27","%","","0.13","%"],["Allowance for credit losses on loans and leases to:"],["Loans and leases receivable","1.04","%","","1.13","%"],["Non-accrual loans","316.06","%","","499.12","%"]]
[[/GREPCENT_TABLE]]

(1)    Excludes loans held for sale and loans receivable, mortgage finance, at fair value.

(2)Includes non-performing investment securities, at fair value of $12.5 million with ACL of $4.3 million at December 31, 2024.

The asset quality ratios related to NPAs, including non-performing investment securities, at fair value, and non-accrual loans remained low at December 31, 2024 as compared to December 31, 2023. Refer to Credit Risk above for information about the increase in ACL affecting the related asset quality ratios at December 31, 2024 as compared to December 31, 2023.

The table below sets forth loans held for investment that were non-performing at December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","December 31,"],["(amounts in thousands)","2024","","2023"],["Commercial and industrial, including specialized lending","$","4,041","","","$","4,436"],["Multifamily","11,834","","","\u2014"],["Commercial real estate owner occupied","8,090","","","5,869"],["Commercial real estate non-owner occupied","354","","","\u2014"],["Residential real estate","8,714","","","6,802"],["Manufactured housing","1,852","","","2,331"],["Installment","5,613","","","7,211"],["Total non-performing loans","$","40,498","","","$","26,649"]]
[[/GREPCENT_TABLE]]

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.

93

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, 2024 and 2023, special mention loans and leases were $175.1 million and $196.2 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.

Loan Modifications for Borrowers Experiencing Financial Difficulty

A borrower is considered to be experiencing financial difficulty when there is a significant doubt about the borrower’s ability to make the required principal and interest payments on the loan or to get an equivalent financing from another creditor at a market rate for a similar loan.

When borrowers are experiencing financial difficulty, Customers may make certain loan modifications as part of loss mitigation strategies to maximize expected payment. To be classified as a modification made to a borrower experiencing financial difficulty, the modification must be in the form of an interest rate reduction, principal forgiveness, or an other-than-insignificant payment delay (payment deferral), term extension, or combinations thereof.

Customers will generally try other forms of relief before principal forgiveness. Any contractual reduction in the amount of principal due without receiving payment or assets is considered as forgiveness. For the purpose of this disclosure, Customers considers any contractual change in interest rate that results in a reduction in interest rate relative to the current stated interest rate as an interest rate reduction. Generally, Customers considers any delay in payment of greater than 90 days in the last 12 months to be significant. Term extensions extend the original contractual maturity of the loan. For the purpose of this disclosure, modification of contingent payment features or covenants that would have accelerated payment are not considered term extensions.

94

The following tables present the amortized cost of loans that were modified to borrowers experiencing financial difficulty for the years ended December 31, 2024 and 2023, disaggregated by class of financing receivable and type of modification granted.

[[GREPCENT_TABLE]]
[["","","","For the Year Ended December 31, 2024"],["(dollars in thousands)","","","Term Extension","","Payment Deferral","","Debt Forgiveness","","Interest Rate Reduction and Term Extension","","Total","","Percentage of Total by Financing Class"],["Commercial and industrial, including specialized lending","","","$","1,999","","","$","9,114","","","$","\u2014","","","$","\u2014","","","$","11,113","","","0.16","%"],["Multifamily","","","\u2014","","","10,694","","","\u2014","","","\u2014","","","10,694","","","0.47","%"],["Residential real estate","","","\u2014","","","51","","","\u2014","","","303","","","354","","","0.07","%"],["Manufactured housing","","","100","","","\u2014","","","\u2014","","","217","","","317","","","0.96","%"],["Personal installment","","","4,937","","","171","","","73","","","\u2014","","","5,181","","","1.12","%"],["Total","","","$","7,036","","","$","20,030","","","$","73","","","$","520","","","$","27,659"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","For the Year Ended December 31, 2023"],["(dollars in thousands)","","","Term Extension","","Payment Deferral","","Debt Forgiveness","","Interest Rate Reduction and Term Extension","","Total","","Percentage of Total by Financing Class"],["Commercial and industrial, including specialized lending","","","$","250","","","$","14,791","","","$","\u2014","","","$","\u2014","","","$","15,041","","","0.24","%"],["Commercial real estate owner occupied","","","169","","","\u2014","","","\u2014","","","\u2014","","","169","","","0.02","%"],["Residential real estate","","","46","","","\u2014","","","\u2014","","","\u2014","","","46","","","0.01","%"],["Manufactured housing","","","158","","","\u2014","","","\u2014","","","664","","","822","","","2.13","%"],["Personal installment","","","14,075","","","756","","","312","","","\u2014","","","15,143","","","2.73","%"],["Total","","","$","14,698","","","$","15,547","","","$","312","","","$","664","","","$","31,221"]]
[[/GREPCENT_TABLE]]

As of December 31, 2024, there were no commitments to lend additional funds to debtors experiencing financial difficulty whose loans have been modified during the year ended December 31, 2024.

The loans to borrowers experiencing financial difficulty that were modified during the years ended December 31, 2024 and 2023, respectively, that subsequently defaulted were not material. Customers’ ACL is influenced by loan level characteristics that inform the assessed propensity to default. As such, the provision for credit losses is impacted by changes in such loan level characteristics, such as payment performance. Loans made to borrowers experiencing financial difficulty can be classified as either accrual or nonaccrual.

ACCRUED INTEREST RECEIVABLE

At December 31, 2024, accrued interest receivable totaled $108.4 million compared to $114.8 million at December 31, 2023. The decrease primarily resulted from a decrease in interest rates.

BANK PREMISES AND EQUIPMENT AND OTHER ASSETS

At December 31, 2024, bank premises and equipment, net of accumulated depreciation and amortization, totaled $6.7 million compared to $7.4 million at December 31, 2023. The decrease primarily resulted from higher depreciation and amortization expenses.

At December 31, 2024, Customers Bank’s restricted stock holdings totaled $96.2 million compared to $109.5 million at December 31, 2023. 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, 2024, the cash surrender value of BOLI totaled $297.6 million compared to $292.2 million at December 31, 2023. Presented within BOLI on the consolidated balance sheets is the cash surrender value of the annuities funding the SERPs of $9.9 million and $11.4 million at December 31, 2024 and 2023, respectively. For additional information on the SERPs, refer to “NOTE 13 - EMPLOYEE BENEFIT PLANS” to Customers’ audited consolidated financial statements.

At December 31, 2024 and 2023, other assets totaled $481.4 million and $366.8 million, respectively. Other assets consist primarily of operating leases through Customers’ commercial equipment financing group (net investment in operating leases of $214.9 million at December 31, 2024 compared to $205.7 million at December 31, 2023), mark-to-market adjustments and receivable related to interest-rate swaps, investments in affordable housing projects and other limited partnerships or limited liability companies, ROU assets and prepaid expenses and taxes.

95

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 our single point of contact relationship managers, our branchless digital banking products, our white label relationship, deposit brokers, listing services and other relationships.

In April 2024, Customers onboarded 10 experienced commercial and business banking teams in New York, California and Nevada to accelerate the Bank’s deposit growth potential. The new teams are enhancing the Bank’s presence in New York City, where it has successfully operated for over seven years; reinforcing its dedication to Los Angeles; adding representation in Orange County, California; and bringing client coverage to the communities of Reno and Las Vegas, Nevada. All newly onboarded bankers are highly respected in the commercial deposits space and augment existing expertise in private banking, treasury management, and commercial and industrial lending. They are enhancing the growth of the Bank’s low-cost, relationship-focused deposit portfolio, and their addition strengthens the Bank’s commitment to its single point of contact relationship-oriented service approach.

Customers Bank provided TassatPay instant blockchain-based digital payments platform via CBIT, which allowed clients to make instant payments in U.S. dollars. In November 2024, Customers launched a new B2B instant payments platform, cubiX, which was developed in-house, is not based on blockchain and offers more extensive products and services compared to CBIT. CBIT could 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. Each CBIT was minted with precisely one U.S. dollar equivalent, and those dollars were held in a non-interest bearing omnibus deposit account until the CBIT was burned or redeemed. The number of CBIT outstanding in the CBIT instant payments platform was always equal to the U.S. dollars held in the omnibus deposit account at Customers Bank and was reported as a deposit liability on the consolidated balance sheet. The deposits from customers participating in CBIT included the omnibus deposit account established for the CBIT instant payments platform, which had no outstanding balance and an outstanding balance of $826.9 million at December 31, 2024 and 2023, respectively. The deposits from customers who participated in CBIT and transitioned to cubiX are included in the deposit liability on the consolidated balance sheet. The deposits from customers who participated in CBIT, including the omnibus deposit account, had an outstanding balance of $2.8 billion at December 31, 2023. The deposits from these customers who transitioned to cubiX was $3.6 billion at December 31, 2024.

The components of deposits were as follows at the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31,"],["(dollars in thousands)","2024","","2023","","","","Change","","% Change"],["Demand, non-interest bearing","$","5,608,288","","","$","4,422,494","","","","","$","1,185,794","","","26.8","%"],["Demand, interest bearing","5,553,698","","","5,580,527","","","","","(26,829)","","","(0.5)","%"],["Savings, including MMDA","4,976,270","","","4,629,336","","","","","346,934","","","7.5","%"],["Non-time deposits","16,138,256","","","14,632,357","","","","","1,505,899","","","10.3","%"],["Time deposits","2,708,205","","","3,287,879","","","","","(579,674)","","","(17.6)","%"],["Total deposits","$","18,846,461","","","$","17,920,236","","","","","$","926,225","","","5.2","%"]]
[[/GREPCENT_TABLE]]

Total deposits were $18.8 billion at December 31, 2024, an increase of $926.2 million, or 5.2%, from $17.9 billion at December 31, 2023. The increase in total deposits was primarily due to increases in non-interest bearing demand deposits of $1.2 billion, or 26.8%, to $5.6 billion and savings, including MMDA, of $346.9 million, or 7.5%, to $5.0 billion. These increases were offset in part by decreases in time deposits of $579.7 million, or 17.6%, to $2.7 billion and interest bearing demand deposits of $26.8 million, or 0.5%, to $5.6 billion.

Total deposits at December 31, 2024 and 2023 include $221.3 million and $307.9 million, respectively, of deposits serviced by BM Technologies under a deposit servicing agreement, as amended. On December 1, 2023, Customers had an outflow of approximately $430.0 million of student-related deposits serviced by BM Technologies to a new sponsor bank. The remaining deposits serviced by BM Technologies in connection with an existing white label relationship are expected to remain at Customers Bank and continue to be serviced by BM Technologies until such accounts are transferred to another sponsor bank on or around March 31, 2025.

At December 31, 2024 and 2023, the Bank had $1.5 billion and $1.1 billion in deposits, respectively, to which it had pledged $1.5 billion and $1.1 billion, respectively, of available borrowing capacity through the FHLB to the depositors through a standby letter of credit arrangement.

96

The total amount of estimated uninsured deposits was $7.3 billion and $5.4 billion at December 31, 2024 and 2023, respectively. Time deposits greater than the FDIC limit of $250,000 totaled $803.1 million and $186.3 million at December 31, 2024, and 2023, respectively. At December 31, 2024, the scheduled maturities of uninsured time deposits were as follows:

[[GREPCENT_TABLE]]
[["(amounts in thousands)","December 31, 2024"],["3 months or less","$","574,405"],["Over 3 through 6 months","79,263"],["Over 6 through 12 months","44,762"],["Over 12 months","104,705"],["Total","$","803,135"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["","2024","","2023"],["(dollars in thousands)","Average Balance","","Average Rate Paid","","Average Balance","","Average Rate Paid"],["Demand, non-interest bearing","$","4,807,647","","","0.00","%","","$","3,801,053","","","0.00","%"],["Demand, interest-bearing","5,660,890","","","4.39","%","","6,048,797","","","3.98","%"],["Savings, including MMDA","5,154,719","","","4.53","%","","3,388,388","","","3.98","%"],["Time deposits","2,434,622","","","4.99","%","","4,401,855","","","4.55","%"],["Total","$","18,057,878","","","3.34","%","","$","17,640,093","","","3.27","%"]]
[[/GREPCENT_TABLE]]

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 11 – BORROWINGS” to Customers’ audited consolidated financial statements for additional information.

Short-term debt

Short-term debt at December 31, 2024 and 2023 was as follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2024","","2023"],["(dollars in thousands)","Amount","","Rate","","Amount","","Rate"],["FHLB advances","$","100,000","","","4.61","%","","$","\u2014","","","\u2014","%"],["Total short-term debt","$","100,000","","","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

Long-term debt

FHLB and FRB Advances

Long-term FHLB and FRB advances at December 31, 2024 and 2023 were as follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2024","","2023"],["(dollars in thousands)","Amount","","","Rate","","","Amount","","","Rate"],["FHLB advances (1)","$","1,028,352","","(2)","","4.11","%","(3)","","$","1,203,207","","(2)","","3.91","%","(3)"],["Total long-term FHLB and FRB advances","$","1,028,352","","","","","","","$","1,203,207"]]
[[/GREPCENT_TABLE]]

(1)    Amounts reported in the above table include fixed rate long-term advances from FHLB of $950.0 million with maturities ranging from March 2025 to March 2028, and variable rate long-term advances from FHLB of $80.0 million with maturities ranging from March 2028 to December 2028 with a returnable option that can be repaid without penalty on certain predetermined dates at Customers Bank's option, at December 31, 2024.

(2)    Includes $(1.6) million and $3.2 million of unamortized basis adjustments from interest rate swaps designated as fair value hedges of long-term advances from FHLB at December 31, 2024 and 2023, respectively. Refer to “NOTE 20 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES” to Customers’ audited consolidated financial statements for additional information.

(3)    Excludes the effect of interest rate swaps designated as fair value hedges of long-term advances from FHLB.

97

The maximum borrowing capacity with the FHLB and FRB at December 31, 2024 and 2023 was as follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["(dollars in thousands)","2024","","2023"],["Total maximum borrowing capacity with the FHLB","$","3,562,171","","","$","3,474,347"],["Total maximum borrowing capacity with the FRB","4,357,519","","","3,436,000"],["Qualifying loans and securities serving as collateral against FHLB and FRB advances","9,722,736","","","8,575,137"]]
[[/GREPCENT_TABLE]]

Senior Notes and Subordinated Debt

Long-term senior notes and subordinated debt at December 31, 2024 and 2023 were as follows:

[[GREPCENT_TABLE]]
[["","","","","Carrying Amount at December 31,"],["(dollars in thousands)"],["Issued by","","Ranking","","2024","","2023","","Rate","","Issued Amount","","Date Issued","","Maturity","","Price"],["Customers Bancorp","","Senior (1)","","$","99,068","","","$","98,928","","","2.875","%","","$","100,000","","","August 2021","","August 2031","","100.000","%"],["Customers Bancorp","","Senior","","\u2014","","","24,912","","","4.500","%","","25,000","","","September 2019","","September 2024","","100.000","%"],["Total other borrowings","","$","99,068","","","$","123,840"],["Customers Bancorp","","Subordinated (2)(3)","","$","72,947","","","$","72,766","","","5.375","%","","$","74,750","","","December 2019","","December 2034","","100.000","%"],["Customers Bank","","Subordinated (2)(4)","","109,562","","","109,464","","","6.125","%","","110,000","","","June 2014","","June 2029","","100.000","%"],["Total subordinated debt","","$","182,509","","","$","182,230"]]
[[/GREPCENT_TABLE]]

(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 bear an annual interest rate equal to the three-month LIBOR plus 344.3 basis points. Pursuant to the Adjustable Interest Rate (LIBOR) Act enacted by Congress on March 15, 2022, Customers substituted three-month term SOFR plus a tenor spread adjustment of 26.161 basis points for three-month LIBOR as the benchmark reference rate in order to calculate the annual interest rate after June 26, 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.

SHAREHOLDERS’ EQUITY

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

[[GREPCENT_TABLE]]
[["","December 31,"],["(dollars in thousands)","2024","","2023","","Change","","% Change"],["Preferred stock","$","137,794","","","$","137,794","","","$","\u2014","","","\u2014","%"],["Common stock","35,758","","","35,459","","","299","","","0.8","%"],["Additional paid in capital","575,333","","","564,538","","","10,795","","","1.9","%"],["Retained earnings","1,326,011","","","1,159,582","","","166,429","","","14.4","%"],["Accumulated other comprehensive income (loss), net","(96,560)","","","(136,569)","","","40,009","","","(29.3)","%"],["Treasury stock","(141,653)","","","(122,410)","","","(19,243)","","","15.7","%"],["Total shareholders\u2019 equity","$","1,836,683","","","$","1,638,394","","","$","198,289","","","12.1","%"]]
[[/GREPCENT_TABLE]]

Shareholders’ equity increased $198.3 million, or 12.1%, to $1.8 billion at December 31, 2024 when compared to shareholders’ equity of $1.6 billion at December 31, 2023. The increase primarily resulted from increases in retained earnings of $166.4 million, common stock of $0.3 million, additional paid in capital of $10.8 million and accumulated other comprehensive income (loss), net of $40.0 million, partially offset by an increase in treasury stock of $19.2 million.

The increases in common stock and additional paid in capital primarily resulted from the issuance of common stock under share-based compensation arrangements for the year ended December 31, 2024.

98

The increase in retained earnings resulted from net income of $181.5 million for the year ended December 31, 2024, partially offset by preferred stock dividends of $15.0 million for the year ended December 31, 2024.

The increase in accumulated other comprehensive income (loss), net primarily resulted from a decrease of $21.7 million in unrealized losses on AFS debt securities primarily due to changes in interest rates and credit spreads and income tax effect of $5.5 million, and the reclassification of realized losses from the sales of $27.0 million and income tax effects of $7.1 million, during the year ended December 31, 2024.

The increase treasury stock resulted from repurchases of 393,303 shares of its common stock for $19.2 million under the 2024 Share Repurchase Program during the year ended December 31, 2024. On June 26, 2024, the Board of Directors of Customers Bancorp authorized a new common stock repurchase program, the 2024 Share Repurchase Program, to repurchase up to 497,509 shares of the Company’s common stock. The term of the 2024 Share Repurchase Program will extend for one year from June 26, 2024, unless earlier terminated. Purchases of shares under the 2024 Share Repurchase Program may be executed through open market purchases, privately negotiated transactions, through the use of Rule 10b5-1 plans, or otherwise. The exact number of shares, timing for such purchases, and the price and terms at and on which such purchases are to be made will be at the discretion of the Company and will comply with all applicable regulatory limitations. The Company’s previously authorized common stock repurchase program, the Share Repurchase Program, authorized on August 25, 2021, subsequently expired on September 27, 2023. At expiration, the Share Repurchase Program had 497,509 shares that had not been repurchased. Refer to “NOTE 12 – SHAREHOLDERS’ EQUITY” to Customers’ audited consolidated financial statements for additional information.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity for a financial institution is a measure of that institution’s ability to meet depositors’ needs for funds, to satisfy or fund loan and lease commitments and for other operating purposes. Ensuring adequate liquidity is an objective of the asset/liability management process. Customers coordinates its management of liquidity with its interest-rate sensitivity and capital position, and strives to maintain a strong liquidity position that is sufficient to meet Customers’ short-term and long-term needs, commitments and contractual obligations.

Customers is involved with financial instruments and other commitments with off-balance sheet risks. Financial instruments with off-balance sheet risks are incurred in the normal course of business to meet the financing needs of the Bank’s customers. These financial instruments include commitments to extend credit, including unused portions of lines of credit, and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the consolidated balance sheet.

With commitments to extend credit, exposure to credit loss in the event of non-performance by the other party to the financial instrument is represented by the contractual amount of those instruments. The same credit policies are used in making commitments and conditional obligations as for on-balance-sheet instruments. Because they involve credit risk similar to extending a loan and lease, these financial instruments are subject to the Bank’s credit policy and other underwriting standards. Refer to “NOTE 17 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK” to Customers’ audited consolidated financial statements for additional information.

As described in “NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION” to Customers’ audited consolidated financial statements, ACL on lending related commitments is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which Customers is exposed to credit risk resulting from a contractual obligation to extend credit. No ACL is recognized if Customers has the unconditional right to cancel the obligation. Off-balance sheet credit commitments primarily consist of amounts available under outstanding lines of credit and letters of credit disclosed above. For the period of exposure, the estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment or other off-balance sheet exposure. Customers estimates the expected credit losses for undrawn or unfunded commitments using a usage given default calculation. The lifetime loss rates for off-balance sheet credit exposures are calculated in the same manner as on-balance sheet credit exposures, using the same models and economic forecasts, adjusted for the estimated likelihood that funding will occur. Customers recognized a provision for credit losses on unfunded lending-related commitments of $2.0 million during the year ended December 31, 2024 resulting in an ACL of $4.9 million as of December 31, 2024. Customers recognized a benefit to provision for credit losses on unfunded lending-related commitments of $0.1 million during the year ended December 31, 2023 resulting in an ACL of $2.9 million as of December 31, 2023. The ACL on unfunded lending-related commitments is recorded in accrued interest payable and other liabilities in the consolidated balance sheet and the credit loss expense is recorded as a provision for credit losses within other non-interest expense in the consolidated statement of income.

Customers’ contractual obligations and other commitments representing required and potential cash outflows include operating leases, demand deposits, time deposits, short-term and long-term advances from FHLB, unsecured senior notes, subordinated debt, loan and other commitments as of December 31, 2024. Refer to “NOTE 8 – LEASES”, “NOTE 10 – DEPOSITS”, “NOTE 11 – BORROWINGS” and “NOTE 17 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK” to Customers’ audited consolidated financial statements for additional information.

99

At December 31, 2024, Customers had $3.8 billion of cash on hand and $3.0 billion of investment securities. Customers’ investment portfolio, including debt securities available for sale and held to maturity provides periodic cash flows through regular maturities and amortization and can be used as collateral to secure additional funding. We maintain a strong liquidity position, with $9.1 billion of liquidity immediately available consisting of cash on hand and available borrowing capacity from the FHLB and the FRB, which covered approximately 124% of uninsured deposits and approximately 159% of uninsured deposits less collateralized and affiliate deposits at December 31, 2024. Our loan to deposit ratio was 78% at December 31, 2024. Customers’ principal sources of funds are deposits, borrowings, principal and interest payments on loans and leases, other funds from operations, and proceeds from common and preferred stock issuances. Borrowing arrangements are maintained with the FHLB and the FRB to meet short-term liquidity needs. Longer-term borrowing arrangements are also maintained with the FHLB and FRB. As of December 31, 2024, Customers’ borrowing capacity with the FHLB was $3.6 billion, of which $1.1 billion was utilized in borrowings and $1.5 billion of available capacity was utilized to collateralize deposits. As of December 31, 2023, Customers’ borrowing capacity with the FHLB was $3.5 billion, of which $1.2 billion was utilized in borrowings and $1.1 billion of available capacity was utilized to collateralize deposits. As of December 31, 2024 and 2023, Customers’ borrowing capacity with the FRB was $4.4 billion and $3.4 billion, respectively. None of this capacity was utilized as of December 31, 2024 and 2023.

Customers Bank provided blockchain-based digital payments via CBIT, which allowed clients to make instant payments in U.S. dollars. In November 2024, Customers launched a new B2B instant payments platform, cubiX, which was developed in-house, is not based on blockchain and offers more extensive products and services compared to CBIT. CBIT could only be created or minted 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 was not listed or traded on any digital currency exchange. The deposits from customers who participated in CBIT and transitioned to cubiX are included in the deposit liability on the consolidated balance sheet. The deposits from customers who participated in CBIT had an outstanding balance of $2.8 billion at December 31, 2023. The deposits from these customers who transitioned to cubiX was $3.6 billion at December 31, 2024.

The CBIT instant payments platform provided a closed-system for intrabank commercial transactions and was not intended to be a trading platform for tokens or digital assets. CBIT tokens were used only in connection with the CBIT instant payments platform and were not securities for purposes of applicable securities laws. There were no scenarios in which the transaction or redemption value of one CBIT would not be equal to one U.S. dollar. Each CBIT was minted with precisely one U.S. dollar equivalent, and those dollars were held in a non-interest bearing omnibus deposit account until the CBIT was burned or redeemed. The number of CBIT outstanding in the CBIT instant payments platform was always equal to the U.S. dollars held in the omnibus deposit account at Customers Bank and was reported as a deposit liability on the consolidated balance sheet. The deposits from customers participating in CBIT included the omnibus deposit account, which had no outstanding balance and an outstanding balance of $826.9 million at December 31, 2024 and 2023, respectively.

The principal source of the Bancorp’s liquidity is the dividends it receives from the Bank, which may be impacted by the following: bank-level capital needs, laws and regulations, corporate policies, contractual restrictions and other factors. The Bank has generated sufficient positive cash flows from operations to pay dividends to the Bancorp. However, there are statutory and regulatory limitations on the ability of the Bank to pay dividends or make other capital distributions or to extend credit to the Bancorp or its non-bank subsidiaries.

The table below summarizes Customers’ cash flows for the years indicated:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["(dollars in thousands)","","2024","","2023","","","","Change","","% Change"],["Net cash provided by (used in) operating activities","","$","145,057","","","$","124,729","","","","","$","20,328","","","16.3","%"],["Net cash provided by (used in) investing activities","","(1,006,091)","","","3,157,723","","","","","(4,163,814)","","","(131.9)","%"],["Net cash provided by (used in) financing activities","","800,619","","","108,088","","","","","692,531","","","640.7","%"],["Net increase (decrease) in cash and cash equivalents","","$","(60,415)","","","$","3,390,540","","","","","$","(3,450,955)","","","(101.8)","%"]]
[[/GREPCENT_TABLE]]

Cash flows provided by (used in) operating activities

Cash provided by operating activities of $145.1 million for the year ended December 31, 2024 resulted from proceeds from the sales and repayments of loans held for sale of $1.3 billion, which included cash proceeds from the sales of consumer installment loans that were classified as held for sale to two third-party sponsored VIEs, net income of $181.5 million and non-cash operating adjustments of $109.1 million, partially offset by origination and purchases of loans held for sale of $1.4 billion, an increase in accrued interest receivable and other assets of $100.0 million and a decrease in accrued interest payable and other liabilities of $32.8 million. Refer to “NOTE 5 – INVESTMENT SECURITIES” and “NOTE 6 – LOANS HELD FOR SALE” to Customers’ audited consolidated financial statements for additional information on the sale of consumer installment loans to third-party sponsored VIEs.

100

Cash provided by operating activities of $124.7 million for the year ended December 31, 2023 resulted from proceeds from the sales and repayments of loans held for sale of $600.5 million, which included cash proceeds from the sales of consumer installment loans that were classified as held for sale to two third-party sponsored VIEs, net income of $250.1 million, non-cash operating adjustments of $38.4 million, a decrease in accrued interest receivable and other assets of $23.6 million and an increase in accrued interest payable and other liabilities of $18.7 million, partially offset by origination and purchases of loans held for sale of $806.6 million. Refer to “NOTE 5 – INVESTMENT SECURITIES” and “NOTE 6 – LOANS HELD FOR SALE” to Customers’ audited consolidated financial statements for additional information on the sale of consumer installment loans to third-party sponsored VIEs.

Cash flows provided by (used in) investing activities

Cash used in investing activities of $1.0 billion for the year ended December 31, 2024 primarily resulted from a net increase in loans and leases, excluding mortgage finance loans of $1.1 billion, purchases of investment securities available for sale of $845.8 million and CRA-qualified investment securities held to maturity of $15.0 million, net origination of mortgage finance loans of $426.5 million, purchases of loans of $198.4 million and purchases of leased assets under lessor operating leases of $63.7 million, partially offset by proceeds from maturities, calls and principal repayments on investment securities available for sale of $629.2 million and held to maturity of $291.5 million, proceeds from sales of investment securities available for sale of $624.9 million, proceeds from sales of loans and leases of $35.0 million, proceeds from sales of leased assets under lessor operating leases of $18.5 million and net proceeds from sales of FHLB, Federal Reserve Bank, and other restricted stock of $13.3 million.

Cash provided by investing activities of $3.2 billion for the year ended December 31, 2023 primarily resulted from a net decrease in loans and leases, excluding mortgage finance loans, of $2.3 billion mostly from PPP loan forgiveness and guarantee payments by the SBA, proceeds from sales of loans and leases of $409.5 million including the sales of capital call lines of credit held for investment, proceeds from net repayments of mortgage finance loans of $408.3 million, proceeds from maturities, calls and principal repayments on investment securities available for sale of $323.3 million and held to maturity of $252.4 million, proceeds from sales of investment securities available for sale of $297.4 million and proceeds from surrenders and death benefits from the BOLI of $56.6 million, partially offset by purchases of loans of $709.2 million including the venture banking loans purchased from the FDIC, purchases of investment securities held to maturity of $73.1 million, purchases of leased assets under lessor operating leases of $40.8 million and net purchases of FHLB, Federal Reserve Bank, and other restricted stock of $35.1 million. Refer to “NOTE 7 – LOANS AND LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES” to Customers’ audited consolidated financial statements for additional information on the sales of capital call lines of credit held for investment and the venture banking loans purchased from the FDIC.

Cash flows provided by (used in) financing activities

Cash provided by financing activities of $800.6 million for the year ended December 31, 2024 primarily resulted from a net increase in deposits of $933.7 million, proceeds from long-term borrowed funds from the FHLB and the FRB of $155.0 million and a net increase in short-term borrowed funds from the FHLB of $100.0 million, partially offset by repayments of long-term borrowed funds from the FHLB and the FRB of $325.0 million, repayments of other long-term borrowings of $25.0 million, purchases of treasury stock of $19.2 million and dividends paid on preferred stock of $15.1 million. Refer to “NOTE 12 – SHAREHOLDERS’ EQUITY” to Customers’ audited consolidated financial statements for additional information on purchases of treasury stock.

Cash provided by financing activities of $108.1 million for the year ended December 31, 2023 primarily resulted from proceeds from long-term borrowed funds from the FHLB and the FRB of $2.6 billion, partially offset by repayments of long-term borrowed funds from the FHLB and the FRB of $1.9 billion, a net decrease in short-term borrowed funds from the FHLB of $300.0 million, a net decrease in deposits of $238.1 million and purchases of treasury stock of $39.8 million. Refer to “NOTE 12 – SHAREHOLDERS’ EQUITY” to Customers’ audited consolidated financial statements for additional information on purchases of treasury stock.

CAPITAL ADEQUACY

The Bank and the Bancorp are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can result in certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on Customers’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Bancorp must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

101

In first quarter 2020, the U.S federal banking regulatory agencies permitted banking organizations to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 31, 2020, the U.S. federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows banking organizations to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. Customers has elected to adopt the interim final rule, which is reflected in the regulatory capital data presented below. The cumulative CECL capital transition impact as of December 31, 2021 which amounted to $61.6 million will be phased in at 25% per year beginning on January 1, 2022 through December 31, 2024. As of December 31, 2024, our regulatory capital ratios reflected 25%, or $15.4 million, benefit associated with the CECL transition provisions.

In April 2020, the U.S. federal banking regulatory agencies issued an interim final rule that permits banks to exclude the impact of participating in the SBA PPP program in their regulatory capital ratios. Specifically, PPP loans are zero percent risk weighted and a bank can exclude all PPP loans pledged as collateral to the PPPLF from its average total consolidated assets for purposes of calculating the Tier 1 capital to average assets ratio (i.e. leverage ratio). Customers applied this regulatory guidance in the calculation of its regulatory capital ratios presented below.

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Bancorp to maintain minimum amounts and ratios (set forth in the following table) of common equity Tier 1, Tier 1, and total capital to risk-weighted assets, and Tier 1 capital to average assets (as defined in the regulations). At December 31, 2024 and 2023, the Bank and the Bancorp met all capital adequacy requirements to which they were subject.

102

Generally, to comply with the regulatory definition of adequately capitalized, or well capitalized, respectively, or to comply with the Basel III capital requirements, an institution must at least maintain the common equity Tier 1, Tier 1 and total risk-based capital ratios and the Tier 1 leverage ratio in excess of the related minimum ratios set forth in the following table:

[[GREPCENT_TABLE]]
[["","","","","","Minimum Capital Levels to be Classified as:"],["","Actual","","Adequately Capitalized","","Well Capitalized","","Basel III Compliant"],["(dollars in thousands)","Amount","","Ratio","","Amount","","Ratio","","Amount","","Ratio","","Amount","","Ratio"],["As of December 31, 2024:"],["Common equity Tier 1 capital (to risk-weighted assets)"],["Customers Bancorp, Inc.","$","1,803,601","","","12.087","%","","$","671,841","","","4.500","%","","N/A","","N/A","","$","1,044,526","","","7.000","%"],["Customers Bank","$","1,930,951","","","12.955","%","","$","670,719","","","4.500","%","","$","968,817","","","6.500","%","","$","1,043,341","","","7.000","%"],["Tier 1 capital (to risk-weighted assets)"],["Customers Bancorp, Inc.","$","1,941,394","","","13.011","%","","$","895,308","","","6.000","%","","N/A","","N/A","","$","1,268,353","","","8.500","%"],["Customers Bank","$","1,930,951","","","12.955","%","","$","894,292","","","6.000","%","","$","1,192,390","","","8.000","%","","$","1,266,914","","","8.500","%"],["Total capital (to risk-weighted assets)"],["Customers Bancorp, Inc.","$","2,219,984","","","14.878","%","","$","1,193,744","","","8.000","%","","N/A","","N/A","","$","1,566,789","","","10.500","%"],["Customers Bank","$","2,136,594","","","14.335","%","","$","1,192,390","","","8.000","%","","$","1,490,487","","","10.000","%","","$","1,565,012","","","10.500","%"],["Tier 1 capital (to average assets)"],["Customers Bancorp, Inc.","$","1,941,394","","","8.694","%","","$","893,254","","","4.000","%","","N/A","","N/A","","$","893,254","","","4.000","%"],["Customers Bank","$","1,930,951","","","8.652","%","","$","892,755","","","4.000","%","","$","1,115,944","","","5.000","%","","$","892,755","","","4.000","%"],["As of December 31, 2023:"],["Common equity Tier 1 capital (to risk-weighted assets)"],["Customers Bancorp, Inc.","$","1,661,149","","","12.230","%","","$","611,200","","","4.500","%","","N/A","","N/A","","$","950,755","","","7.000","%"],["Customers Bank","$","1,868,360","","","13.773","%","","$","610,453","","","4.500","%","","$","881,765","","","6.500","%","","$","949,594","","","7.000","%"],["Tier 1 capital (to risk-weighted assets)"],["Customers Bancorp, Inc.","$","1,798,942","","","13.245","%","","$","814,933","","","6.000","%","","N/A","","N/A","","$","1,154,489","","","8.500","%"],["Customers Bank","$","1,868,360","","","13.773","%","","$","813,937","","","6.000","%","","$","1,085,250","","","8.000","%","","$","1,153,078","","","8.500","%"],["Total capital (to risk-weighted assets)"],["Customers Bancorp, Inc.","$","2,076,550","","","15.289","%","","$","1,086,578","","","8.000","%","","N/A","","N/A","","$","1,426,133","","","10.500","%"],["Customers Bank","$","2,073,202","","","15.283","%","","$","1,085,250","","","8.000","%","","$","1,356,562","","","10.000","%","","$","1,424,390","","","10.500","%"],["Tier 1 capital (to average assets)"],["Customers Bancorp, Inc.","$","1,798,942","","","8.375","%","","$","859,189","","","4.000","%","","N/A","","N/A","","$","859,189","","","4.000","%"],["Customers Bank","$","1,868,360","","","8.708","%","","$","858,225","","","4.000","%","","$","1,072,782","","","5.000","%","","$","858,225","","","4.000","%"]]
[[/GREPCENT_TABLE]]

The Basel III Capital Rules require that we maintain a 2.500% capital conservation buffer with respect to each of common equity Tier 1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers. As of December 31, 2024, the Bank and the Bancorp were in compliance with the Basel III requirements. Refer to “NOTE 18 – REGULATORY CAPITAL” to Customers’ audited consolidated financial statements for additional discussion regarding regulatory capital requirements.

103

Capital Ratios

Customers continued to build capital during 2024. In general, for the past few years, Customers Bancorp capital growth has been achieved by retained earnings and issuances of common stock under share-based compensation arrangements, offset in part by the repurchase of common shares. In 2022, Customers repurchased 830,145 shares of common stock for $33.2 million pursuant to the Share Repurchase Program. In 2023, Customers repurchased 1,379,883 shares of its common stock for $39.8 million pursuant to the Share Repurchase Program. In 2024, Customers repurchased 393,303 shares of its common stock for $19.2 million pursuant to the 2024 Share Repurchase Program. During 2024, 2023 and 2022, Customers Bancorp did not issue any preferred stock or common stock other than in connection with share-based compensation agreements. In 2021, Customers Bancorp issued $100 million in fixed-to-floating rate senior notes, and utilized the proceeds to redeem all of the outstanding shares of Series C and Series D Preferred Stock. Customers Bank capital growth for the past few years has been achieved primarily by retained earnings and capital contributions from Customers Bancorp from proceeds received from issuances of senior and subordinated notes. For more information relating to preferred and common stock, refer to “NOTE 12 – SHAREHOLDERS’ EQUITY” to Customers’ audited consolidated financial statements.

Customers is unaware of any current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on its liquidity, capital resources, or operations.

The maintenance of appropriate levels of capital is an important objective of Customers’ asset and liability management process. Through its initial capitalization and subsequent offerings, Customers believes it has continued to maintain a strong capital position. Since first quarter 2015, Customers Bank’s board of directors has declared a quarterly cash dividend to the Bank’s sole shareholder, Customers Bancorp. Cash dividends declared by the Bank and paid to Customers Bancorp during 2024 and 2023, include the following:

•$30.0 million declared on February 22, 2023, and paid on February 22, 2023;

•$20.0 million declared on June 28, 2023, and paid on June 28, 2023;

•$10.0 million declared on September 27, 2023, and paid on September 27, 2023;

•$30.0 million declared on December 20, 2023, and paid on December 21, 2023;

•$10.0 million declared on March 27, 2024, and paid on March 28, 2024;

•$25.0 million declared on June 26, 2024, and paid on June 26, 2024;

•$45.0 million declared on July 24, 2024, and paid on July 25, 2024; and

•$45.0 million declared on October 23, 2024, and paid on October 23, 2024.

Effect of Government Monetary Policies

Our earnings are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. An important function of the Federal Reserve Board is to regulate the money supply and interest rates. Among the instruments used to implement those objectives are open market operations in United States government securities and changes in reserve requirements against member bank deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans and leases, investments, and deposits, and their use may also affect rates charged on loans and leases or paid for deposits.