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EX-31.1 - EXHIBIT 31.1 - Customers Bancorp, Inc.ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - Customers Bancorp, Inc.ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - Customers Bancorp, Inc.ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - Customers Bancorp, Inc.ex32-2.htm
EXCEL - IDEA: XBRL DOCUMENT - Customers Bancorp, Inc.Financial_Report.xls

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

x
Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2011

¨
Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from _______ to _______.

__________
(Commission file number)

CUSTOMERS BANCORP, INC.
(Exact name of registrant as specified in its charter)

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

1015 Penn Avenue
Suite 103
Wyomissing PA 19610
(Address of principal executive offices)

(610) 933-2000
(Issuer’s telephone number)

N/A
 (Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes            ¨            No            x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
Yes            x            No            ¨
 
 
 
 
 

 
 

 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
Smaller reporting company ¨
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes            ¨       No            x

On September 26, 2011, 7,508,608 shares of the registrant's Common Stock were outstanding, and 2,278,298 shares of the registrant’s Class B Non-Voting Common Stock were outstanding.

EXPLANATORY NOTE

Customers Bancorp, Inc. (the “Bancorp”) is a Pennsylvania corporation formed on April 7, 2010 to facilitate the reorganization of Customers Bank (the “Bank”) into a bank holding company structure.  The Bancorp and Customers Bank (the “Bank”) entered into a Plan of Merger and Reorganization effective September 17, 2011 pursuant to which all of the issued and outstanding common stock of the Bank were exchanged on a three to one basis for shares of common stock of the Bancorp. The Bank became a wholly-owned subsidiary of the Bancorp (the “Reorganization).  The Bancorp described the Reorganization in its Form S-1 registration statement filed with the Securities and Exchange Commission (File No. 333-166225) and became effective on August 11, 2011. On September 6, 2011, the shareholders of the Bank voted on and approved the Reorganization that closed on September 17, 2011. Through June 30, 2011, the Bancorp had no operations and no assets, liabilities, equity or cash flows. The balance sheet, statement of operations and cash flows are presented herein solely to comply with the Bancorp’s reporting obligations under the Securities Exchange Act of 1934, as amended, including its obligations to provide financial statements in XBRL format pursuant to Regulation S-T.

Beginning on page 10 of this Quarterly Report on Form 10-Q, the Bancorp has presented supplemental financial information in the form of unaudited financial statements of Customers Bank, the predecessor entity that is the accounting acquirer.  The supplemental information is not the information of the Bancorp, and should not be construed as such.



 
 

 


Customers Bancorp, Inc.
Table of Contents
     
     
Part I
   
     
     
Item 1.
Customers Bancorp, Inc. Financial Statements as of June 30, 2011 and for the three and six month periods ended June 30, 2011
  4
     
 
Supplemental Information – Customers Bank Financial Statements as of June 30, 2011 and for the three and six month periods ended June 30, 2011
  10
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  36
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
  50
     
Item 4.
Controls and Procedures
  50
     
     
     
     
PART II
   
     
     
Item 1.
Legal Proceedings
  51
     
Item 1A.
Risk Factors
  51
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds Not Applicable
  51
Item 6.
Exhibits
  52
     
SIGNATURES
   
     
Ex-31.1
 
     
Ex-31.2
 
     
Ex-32.1
 
     
Ex-32.2
 



 
 

 

CUSTOMERS BANCORP, INC.
UNAUDITED BALANCE SHEETS

 
   
June 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
Cash
 
$
   
$
 
Total assets
 
$
   
$
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Total liabilities
 
   
 
Stockholders’ equity:
               
Preferred stock, no par value; 100,000,000 shares authorized; no shares issued and outstanding in 2011 and 2010
 
$
   
$
 
Common stock, no par value; 200,000,000 shares authorized;
               
no shares issued and outstanding in 2011 and 2010
   
     
 
Retained earnings
   
     
 
Total stockholders’ equity
   
     
 
Total liabilities and stockholders’ equity
 
$
   
$
 
 

 
4

 


CUSTOMERS BANCORP, INC.
UNAUDITED STATEMENTS OF OPERATIONS



   
 
For the three months ended June 30, 2011
   
For the period April 7, 2010 through June 30, 2010
   
Six months ended June 30, 2011
   
For the period April 7, 2010 through June 30, 2010
 
Total interest income
 
$
   
$
   
$
   
$
 
Total interest expense
   
     
     
     
 
Net interest income
   
     
     
     
 
Provision for loan losses
   
     
     
     
 
Net interest income (loss) after provision for loan losses
   
     
     
     
 
Non-interest income:
   
     
     
     
 
Non-interest expense:
   
     
     
     
 
 (Loss) income before tax expense
   
     
     
     
 
Income tax expense
   
     
     
     
 
Net income (loss)
 
$
   
$
   
$
   
$
 
Basic earnings (loss) per share
 
$
   
$
   
$
   
$
 
Diluted earnings (loss) per share
 
$
   
$
   
$
   
$
 


 
5

 

CUSTOMERS BANCORP, INC.
UNAUDITED STATEMENTS OF CASH FLOWS

   
For the six months ended June 30, 2011
   
For the period
April 7, 2010 through June 30, 2010
 
Cash Flows from Operating Activities
           
Net income (loss)
  $     $  
Adjustments to reconcile net income to cash provided by operating activities:
           
 Net Cash Provided by Operating Activities
           
Cash Flows from Investing Activities
               
Net Cash Used in Investing Activities
           
Cash Flows from Financing Activities
           
Net Cash Provided by Financing Activities
           
Net (decrease) increase in Cash and Cash Equivalents
           
Cash and Cash Equivalents - Beginning
           
Cash and Cash Equivalents - Ending
  $     $  


 
6

 

CUSTOMERS BANCORP, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
 

NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Customers Bancorp, Inc. (the “Bancorp”) is a Pennsylvania corporation formed on April 7, 2010 to facilitate the reorganization of Customers Bank (the “Bank) into a bank holding company structure.  Through June 30, 2011, the Bancorp has no operations and no assets, liabilities, equity or cash flows.  The unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“USGAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting.  The Bancorp’s unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for fair statement of the results of interim periods presented.

NOTE 2 – SUBSEQUENT EVENTS

The Bancorp and the Bank entered into a Plan of Merger and Reorganization effective September 17, 2011 pursuant to which all of the issued and outstanding common stock of the Bank were exchanged on a three to one basis for shares of common stock of the Bancorp (the “Reorganization”).  Every three shares of the Bank’s outstanding common stock or Non-Voting common stock were converted into one share of the Bancorp’s common stock or Non-Voting common stock. The Bank became a wholly-owned subsidiary of the Bancorp.   The Bancorp is authorized to issue up to 100,000,000 shares of Common Stock, 100,000,000 shares of Class B Non-Voting Common Stock and 100,000,000 shares of preferred stock.

In the Reorganization, the Bank’s issued and outstanding common stock of 22,525,825 shares and Class B Non-Voting common stock of 6,834,895 shares converted into 7,508,608 shares of the Bancorp’s common stock and 2,278,298 shares of the Bancorp’s Non-Voting common stock.   Outstanding warrants to purchase 1,410,732 shares of the Bank’s common stock with an weighted average exercise price of $3.55 per share and 243,102 shares of the Bank’s Class B Non-Voting common stock with an weighted average exercise price of $3.50 per share were converted into warrants to purchase 470,244 shares of the Bancorp’s common stock with a weighted average exercise price of $10.64 per share and warrants to purchase 81,034 shares of the Bancorp’s Class B Non-Voting common stock with a weighted average exercise price of $10.50 per share.  Outstanding stock options to purchase 2,552,404 shares of the Bank’s common stock with a weighted average exercise price of $3.50 per share and stock options to purchase 231,500 shares of the Bank’s Class B Non-Voting common stock with a weighted average exercise price of $4.00 per share were converted into stock options to purchase 857,468 shares of the Bancorp’s common stock with a weighted average exercise price of $10.49 per share and stock options to purchase 77,167 shares of the Bancorp’s Class B Non-Voting common stock with a weighted average exercise price of $12.00 per share.

Berkshire Bancorp Acquisition

On September 17, 2011, the Bancorp completed its acquisition of Berkshire Bancorp, Inc. (BBI) and its subsidiary Berkshire Bank (collectively, Berkshire).  BBI serves Berks County, Pennsylvania through its five branches of its subsidiary Berkshire Bank.  Under the terms of the merger agreement, each outstanding share of BBI common stock (a total of 4,051,068) was exchanged for 0.1534 shares of Customers Bancorp, Inc. common stock, resulting in the issuance of 621,611 shares of the Bancorp common stock.  In addition, the Bancorp exchanged each share of BBI’s shares of Series A Preferred Securities and Series B Preferred Shares to the U.S. Treasury for one share of the Bancorp’s Fixed Rate Cumulative Preferred Stock for the issuance of 2,892 shares of Series A Preferred Stock and 145 shares of Series B Preferred Stock with a par value of $1.00 per share and a liquidation of $1,000 per share.  Cumulative dividends on the Series A Preferred Stock are 5% per year and Series B Preferred Stock are 9%.   Upon the assumption of the Series A and B preferred shares, the Bancorp paid $218 of cumulative dividends to the Treasury previously unpaid.  The Bancorp’s next scheduled dividend payment for the Series A and B Preferred Stock will be November 2011.  The total purchase price was approximately $10.9 million.

 
7

 


NOTE 2 – SUBSEQUENT EVENTS – (continued)

In addition, 774,571 warrants to purchase shares of BBI’s common stock were converted into warrants to purchase 118,853 shares of the Bancorp’s common stock with exercise prices ranging from $21.38 to $68.82 per share.  The warrants were extended for a five year period and will expire on September 17, 2016.  BBI’s operating results will be included in the Bancorp’s financial results from the date of acquisition, September 17, 2011.  BBI had total assets of $137 million, total loans of $103 million, and total deposits of $119 million at June 30, 2011.   The Bancorp is in the process of obtaining the fair values of the acquired assets and assumed liabilities to allocate the purchase price.

NOTE 3 – NEW ACCOUNTING PRONOUNCEMENTS
 
In April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring, providing additional guidance to creditors for evaluating troubled debt restructurings. The amendments clarify the guidance in ASC 310-40,   Receivables: Troubled Debt Restructurings by Creditors, which requires a creditor to classify a restructuring as a troubled debt restructuring (“TDR”) if (1) the restructuring includes a concession by the creditor to the borrower and (2) the borrower is experiencing financial difficulties. The amended guidance requires a creditor to consider all aspects of the restructuring to determine whether it has granted a concession. It further clarifies that a creditor must consider the probability that a debtor could default in the foreseeable future when determining whether the debtor is facing financial difficulty, even though the debtor may not be in default at the date of restructuring. This new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and requires a company to retrospectively evaluate all restructurings occurring on or after the beginning of the fiscal year of adoption to determine if the restructuring is a TDR.  Management is currently evaluating the impact of this new accounting guidance.
 
In May 2011, the FASB issued new accounting guidance on fair value measurement and disclosure requirements. This guidance is the result of work by the FASB and IASB to develop common requirements for measuring fair value and disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). As a result, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The guidance is effective during interim and annual periods beginning after December 15, 2011. The guidance is to be applied prospectively, and early application by public entities is not permitted. Adoption of the guidance is not expected to have a significant impact on the Bancorp’s financial statements.
 
In June 2011, the FASB issued accounting guidance updating the requirements regarding the presentation of comprehensive income to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS. Under the new guidance, the components of net income and the components of other comprehensive income can be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance eliminates the option to present components of other comprehensive income as part of the changes in stockholders’ equity. This amendment will be applied prospectively and the amendments are effective for fiscal years and interim periods beginning after December 15, 2011. Early adoption is permitted. Adoption of the guidance is not expected to have a significant impact on the Bancorp’s financial statements.


 

 
8

 

SUPPLEMENTAL FINANCIAL INFORMATION OF CUSTOMERS BANK

Customer Bancorp, Inc. presents supplemental financial information, the financial statements of Customers Bank, which will be considered the accounting acquirer. The following are the unaudited financial statements of Customers Bank for the three and six months ended June 30, 2011 and 2010. This supplemental information is not the information of Customers Bancorp, Inc. and should not be construed as such.

 
9

 

BALANCE SHEETS
(dollar amounts in thousands, except per share data)


   
June 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
 
(unaudited)
       
Cash and due from banks
 
$
5,041
   
$
6,396
 
Interest earning deposits
   
95,993
     
225,635
 
Federal funds sold
   
674
     
6,693
 
 Cash and cash equivalents
   
101,708
     
238,724
 
Investment securities available for sale, at fair value
   
251,255
     
205,828
 
Investment securities, held-to-maturity (fair value 2011 $395,837; 2010 $0)
   
381,818
     
 
Loans receivable held for sale
   
175,000
     
199,970
 
Loans receivable not covered by loss sharing agreements with the FDIC
   
576,949
     
514,087
 
Loans receivable covered under loss sharing agreements with the FDIC
   
149,867
     
164,885
 
Less: Allowance for loan losses
   
(13,946
)
   
(15,129
)
Total loans receivable, net
   
712,870
     
663,843
 
FDIC loss sharing receivable
   
12,634
     
16,702
 
Bank premises and equipment, net
   
5,232
     
5,302
 
Bank owned life insurance
   
26,321
     
25,649
 
Other real estate owned (2011 $ 3,020; 2010 $5,342 covered under loss sharing agreements with the FDIC)
   
5,918
     
7,248
 
Accrued interest receivable and other assets
   
21,423
     
11,141
 
Total assets
 
$
1,694,179
   
$
1,374,407
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Liabilities:
               
Deposits:
               
Demand, non-interest bearing
 
$
81,602
   
$
72,268
 
Interest bearing
   
1,324,751
     
1,173,422
 
 Total deposits
   
1,406,353
     
1,245,690
 
Securities sold under agreements to repurchase
   
125,000
     
 
Other borrowings
   
27,000
     
11,000
 
Subordinated debt
   
2,000
     
2,000
 
Accrued interest payable and other liabilities
   
10,449
     
10,577
 
Total liabilities
   
1,570,802
     
1,269,267
 
Stockholders’ equity:
               
Preferred stock, par value $1,000 per share; 1,000,000 shares authorized; no shares issued and outstanding in 2011 and 2010
   
     
 
Common stock, par value $1.00 per share;  100,000,000 shares authorized;
               
shares issued and outstanding 2011 – 29,360,720; 2010 – 25,194,041
   
29,361
     
25,194
 
Additional paid in capital
   
83,025
     
71,336
 
Retained earnings
   
8,975
     
10,506
 
Accumulated other comprehensive income (loss)
   
2,016
     
(1,896
)
Total stockholders’ equity
   
123,377
     
105,140
 
Total liabilities and stockholders’ equity
 
$
1,694,179
   
$
1,374,407
 

See accompanying notes to the unaudited financial statements.

 
10

 

CUSTOMERS BANK
UNAUDITED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share data)

   
Three months ended
 June 30,
   
Six months ended
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Interest income:
                       
Loans receivable, including fees
  $ 10,203     $ 5,225     $ 19,727     $ 8,696  
Investment Securities, taxable
    4,351       431       6,368       818  
Investment Securities, non-taxable
    21       28       43       66  
Other
    122       70       398       94  
Total interest income
    14,697       5,754       26,536       9,674  
                                 
Interest expense:
                               
Deposits
    5,646       2,014       11,096       3,545  
Securities sold under repurchase agreements
    7             7        
Other borrowings
    137       110       242       216  
Total interest expense
    5,790       2,124       11,345       3,761  
Net interest income
    8,907       3,630       15,191       5,913  
Provision for loan losses
    2,850       1,100       5,650       5,472  
Net interest income after provision for loan losses
    6,057       2,530       9,541       441  
Non-interest income:
                               
Service fees
    138       78       307       206  
Mortgage warehouse transactional fees
    1,277       547       2,388       703  
Bank owned life insurance
    243       58       864       116  
Gains on sales of securities
          774             1,076  
Accretion of FDIC loss sharing receivable
    800             1,709        
Other
    61       55       387       64  
Total non-interest income
    2,519       1,512       5,655       2,165  
Non-interest expense:
                               
Salaries and employee benefits
    3,944       1,777       8,064       3,221  
Occupancy
    756       325       1,487       633  
Technology, communication and bank operations
    820       353       1,470       710  
Advertising and promotion
    205       232       433       328  
Professional services
    1,254       328       2,608       698  
FDIC assessments, taxes, and regulatory fees
    430       339       1,253       615  
Loan workout and other real estate owned
    390       156       862       643  
Other
    567       102       1,181       297  
Total non-interest expense
    8,366       3,612       17,358       7,145  
Income (loss) before tax expense (benefit)
    210       430       (2,162 )     (4,539 )
Income tax expense (benefit)
    65             (631 )      
Net income (loss)
  $ 145     $ 430     $ (1,531 )   $ (4,539 )
Basic earnings (loss) per share
  $ 0.00     $ 0.02     $ (0.05 )   $ (0.29 )
Diluted earnings (loss) per share
  $ 0.00     $ 0.02     $ (0.05 )   $ (0.29 )

See accompanying notes to the unaudited financial statements.

 
11

 


CUSTOMERS BANK
UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the six months ended June 30, 2011 and 2010
(dollar amounts in thousands, except per share data)


   
Number of
shares of
common stock
   
Common Stock
   
Additional
Paid in
Capital
   
Retained
Earnings
   
Accumulated
other
comprehensive
income (loss)
   
Total
 
Balance, December 31, 2010
   
25,194,041
   
$
25,194
   
$
71,336
   
$
10,506
   
$
(1,896
)
 
$
105,140
 
                                                 
Comprehensive income:
                                               
Net loss
   
     
     
     
(1,531
)
   
     
(1,531
)
Change in net unrealized gains on investment securities available-for-sale, net of taxes
   
     
     
     
     
3,912
     
3,912
 
Total comprehensive income
                                           
2,381
 
Common stock shares issued
   
4,166,679
     
4,167
     
11,360
     
     
     
15,527
 
Stock-based compensation expense
   
     
     
329
     
     
     
329
 
                                                 
Balance, June 30, 2011
   
29,360,720
   
$
29,361
   
$
83,025
   
$
8,975
   
$
2,016
   
$
123,377
 
 
 
 
   
Number of
shares of
common stock
   
Common
Stock
   
Additional
Paid in
Capital
   
Accumulated
Deficit
   
Accumulated
other
comprehensive
loss
   
Total
Balance, December 31, 2009
   
5,522,706
   
$
5,522
   
$
29,243
   
$
(13,229
)
 
$
(33
)
 
$
21,503
 
                                                 
Comprehensive loss:
                                               
Net loss
   
     
     
     
(4,539
)
   
     
(4,539
)
Change in net unrealized losses  on securities available- for-sale, net of taxes
   
     
     
     
     
(4
)
   
(4
)
Total comprehensive loss
   
     
     
     
             
(4,543
)
Stock-based compensation expense
   
     
     
92
     
     
     
92
 
Common stock shares issued
   
14,859,216
     
14,860
     
33,747
     
     
     
48,607
 
                                                 
Balance, June 30, 2010
   
20,381,922
   
$
20,382
   
$
63,082
   
$
(17,768
)
 
$
(37
)
 
$
65,659
 
  


See accompanying notes to the unaudited financial statements.



 
12

 

CUSTOMERS BANK
UNAUDITED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands, except per share data)

Six months ended June 30,
 
2011
   
2010
 
Cash Flows from Operating Activities
           
Net income (loss)
  $ (1,531 )   $ (4,539 )
Adjustments to reconcile net loss to cash provided by operating activities:
               
Provision for loan losses
    5,650       5,472  
Provision for depreciation and amortization
    614       357  
Net amortization (accretion) of investment securities premiums and discounts
    (28 )     98  
Gain on sales of investment securities
          (1,076 )
Gain on sale of SBA loan
    (78 )      
Accretion of fair value discounts, net
    (311 )      
Increase in FDIC loss sharing receivables
    (1,709 )      
Fair value adjustments on other real estate owned
    197       342  
Earnings on investment in bank owned life insurance
    (864 )     (116 )
Stock-based compensation expense
    329       92  
Origination of loans held for sale
    (1,080,828 )      
Proceeds from the sale of loans held for sale
    1,105,798        
(Increase) decrease in accrued interest receivable and other assets
    (56 )     340  
(Decrease) increase in other liabilities
    (2,143 )     458  
 Net Cash Provided by Operating Activities
    25,040       1,428  
Cash Flows from Investing Activities
               
Purchases of investment securities available-for-sale
    (49,961     (101,634 )
Purchases of investment securities held-to-maturity
    (396,847 )      
Proceeds from maturities and principal repayments on investment securities held–to- maturity
    15,071        
Proceeds from maturities and principal repayments on investment securities available-for-sale
    10,447       4,727  
Proceeds from sales of securities available-for-sale
          130,483  
Net increase in loans
    (59,885 )     (244,888 )
Purchases of bank premises and equipment
    (544 )     (1,090 )
Purchase of restricted stock
    (10,040 )     (1,003 )
Proceeds from the sale of an SBA loan
    1,465        
Reimbursements under FDIC loss sharing agreements
    5,777        
Proceeds from sales of foreclosed real estate
    5,079       268  
Proceeds from bank owned life insurance 
    192        
Net Cash Used in Investing Activities
    (479,246 )     (213,137 )
Cash Flows from Financing Activities
               
Net increase in deposits
    160,663       239,100  
Net increase in short-term borrowings
    141,000        
Proceeds from issuance of common stock
    15,527       48,607  
Net Cash Provided by Financing Activities
    317,190       287,707  
Net (decrease) increase in Cash and Cash Equivalents
    (137,016     75,998  
Cash and Cash Equivalents - Beginning
    238,724       68,807  
Cash and Cash Equivalents - Ending
  $ 101,708     $ 144,805  
Supplementary Cash Flows Information
               
Interest paid
  $ 11,344     $ 3,605  
Income taxes (refund) paid
    2,816        
Transfers of loans to other real estate owned
    3,948       3,296  

See accompanying notes to the unaudited financial statements.
     

 
13

 

CUSTOMERS BANK
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Dollars in thousands except for per share data)


NOTE 1 - BASIS OF PRESENTATION

This quarterly report presents the financial statements of Customers Bank (the “Bank”).  The accounting and reporting policies of the Bank conform with accounting principles generally accepted in the United States of America (US GAAP) and predominant practices within the banking industry.

The Bank’s unaudited interim financial statements reflect all adjustments, such as normal recurring accruals, that are, in the opinion of management, necessary for fair statement of the results of interim periods presented. The results of operations for the three and six months ended June 30, 2011 presented do not necessarily indicate the results that the Bank will achieve for all of 2011. These interim financial statements should be read in conjunction with the financial statements and accompanying notes that are presented in the financial statements for the Bank for the year ended December 31, 2010.

The financial information in this quarterly report has been prepared in accordance with the Bank’s customary accounting practices. Certain information and footnote disclosures required under US GAAP have been condensed or omitted, as permitted by rules and regulations of the Securities and Exchange Commission.

Certain amounts reported in the 2010 financial statements have been reclassified to conform to the 2011 presentation.  These reclassifications did not significantly impact Customers Bank’s financial position or results of operations.
 
The Bank evaluated its June 30, 2011 financial statements for subsequent events through the date the financial statements were issued. The Bank is not aware of any additional subsequent events which would require recognition or disclosure in the financial statements.

NOTE 2 – REORGANIZATION AND ACQUISITION ACTIVITY

Reorganization into Customers Bancorp, Inc.

Customers Bancorp, Inc. (the Bancorp) and the Bank entered into a Plan of Merger and Reorganization effective September 17, 2011 pursuant to which all of the issued and outstanding common stock of the Bank were exchanged on a three to one basis for shares of common stock and Non-Voting common stock of the Bancorp. The Bank became a wholly-owned subsidiary of the Bancorp (the “Reorganization”).  The Bancorp is authorized to issue up to 100,000,000 shares of Common Stock, 100,000,000 shares of Class B Non-Voting Common Stock and 100,000,000 shares of preferred stock.

In the Reorganization, the Bank’s issued and outstanding shares of common stock of 22,525,825 shares and Class B Non-Voting common stock of 6,834,895 shares converted into 7,508,608 shares of the Bancorp’s common stock and 2,278,298 shares of the Bancorp’s Non-Voting common stock.   Outstanding warrants to purchase 1,410,732 shares of the Bank’s common stock with an weighted average exercise price of $3.55 per share and 243,102 shares of the Bank’s Class B Non-Voting common stock with an weighted average exercise price of $3.50 per share were converted into warrants to purchase 470,244 shares of the Bancorp’s common stock with a weighted average exercise price of $10.64 per share and warrants to purchase 81,034 shares of the Bancorp’s Class B Non-Voting common stock with a weighted average exercise price of $10.50 per share.  Outstanding stock options to purchase 2,572,404 shares of the Bank’s common stock with a weighted average exercise price of $3.50 per share and stock options to purchase 231,500 shares of the Bank’s the Class B Non-Voting common stock with a weighted average exercise price of $4.00 per share were converted into stock options to purchase 857,468 shares of the Bancorp’s common stock with a weighted average exercise price of $10.49 per share and stock options to purchase 77,167 shares of the Bancorp’s Class B Non-Voting common stock with a weighted average exercise price of $12.00 per share.



 
14

 

(Dollars in thousands except for per share data)

NOTE 2 – REORGANIZATION AND ACQUISITION ACTIVITY (continued)

Berkshire Bancorp Acquisition

On September 17, 2011, the Bancorp completed its acquisition of Berkshire Bancorp, Inc. (“BBI”) and its subsidiary Berkshire Bank (collectively, “Berkshire”).  BBI served Berks County, Pennsylvania through the five branches of its subsidiary, Berkshire Bank.  Under the terms of the merger agreement, each outstanding share of BBI common stock (a total of 4,051,068) was exchanged for 0.1534 shares of the Bancorp common stock, resulting in the issuance of 621,611 shares of the Bancorp’s common stock.  In addition, the Bancorp exchanged each share of BBI’s shares of Series A Preferred Securities and Series B Preferred Shares to the U.S. Treasury for one share of the Bancorp’s Fixed Rate Cumulative Perpetual Preferred Stock for the issuance of 2,892 shares of Series A Preferred Stock and 145 shares of Series B Preferred Stock with a par value of $1.00 per share with a liquidation of $1,000 per share.  Cumulative dividends on the Series A Preferred Stock are 5% per year and Series B Preferred Stock are 9%. Upon the assumption of the Series A and B preferred shares, the Bancorp paid $218 of cumulative dividends to the Treasury previously unpaid.  The Bancorp’s next scheduled dividend payment for the Series A and B Preferred Stock will be November 2011.  The total purchase price was approximately $10.9 million.

In addition, 774,571 warrants to purchase shares of BBI common stock were converted into warrants to purchase 118,853 shares of the Bancorp’s common stock with an exercise price ranging from $21.38 to $68.82 per share.  The warrants were extended for a five year period and will expire on September 17, 2016.  BBI’s operating results will be included in the Bancorp’s financial results from the date of acquisition, September 17, 2011.   BBI had total assets of approximately $137 million, total loans of $103 million, and total deposits of $119 million at June 30, 2011.   The Bancorp is in the process of obtaining the fair values of the acquired assets and assumed liabilities to allocate the purchase price.

NOTE 3 – EARNINGS PER SHARE

Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period.  Diluted earnings(loss) per share reflects the potential dilution that could occur if (i) options to purchase common stock were exercised and (ii) warrants to purchase common stock were exercised.  Potential common shares that may be issued related to outstanding stock options are determined using the treasury stock method. The following are the components of the Bank’s earnings (loss) per share for the periods presented:

   
For the three months ended
June 30,
   
For the six months ended
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Net income (loss) allocated to common shareholders
 
$
145
   
$
430
   
$
(1,531
 
$
(4,539
             
Weighted average number of common shares outstanding - basic
   
29,360,720
     
20,381,922
     
28,478,112
     
15,588,436
 
            Warrants
   
202,530
     
     
     
 
            Stock-based compensation plans
   
364,726
     
     
     
 
             
Weighted average number of common shares - diluted
   
29,927,976
     
20,381,922
     
28,478,112
     
15,588,436
 
                                 
Basic earnings (loss) per share
 
$
0.00
   
$
0.02
   
$
(0.05
 
$
(0.29
         
Diluted earnings (loss) per share
 
$
0.00
   
$
0.02
   
$
(0.05
)
 
$
(0.29

Stock options outstanding for 878,264 shares of common stock with exercise prices ranging from $4.00 to $11.00 per share and warrants for 33,591 shares of common stock with an exercise price of $5.50 per share for the three month period ended June 30, 2011 were not dilutive, because the exercise price was greater than the average market price.  Stock options outstanding for 2,803,904 shares of common stock with exercise prices ranging from $3.25 to $11.00 per share, restricted stock units for 106,876 shares of common stock and warrants for 1,653,834 shares of common stock for the six months ended June 30, 2011 were not dilutive due to losses.


 
15

 

(Dollars in thousands except for per share data)


NOTE 3 – EARNINGS PER SHARE – (continued)

Stock options to purchase 1,870,140 shares of common stock with an exercise price of $3.25 per share and warrants to purchase 1,541,783 shares of common stock with exercise prices ranging from $3.76 to $5.50 per share were outstanding and were not included in the computation of diluted earnings per share for the three months ended June 30, 2010 because the option exercise price was equal to or greater than the average market price. Stock options outstanding for 1,870,140 shares of common stock with an exercise price of $3.25 per share and warrants to purchase 1,541,783 shares of common stock with exercise prices ranging from $3.76 to $5.50 per share for the six month periods ended June 30, 2010 were not dilutive due to losses.  

NOTE 4 – INVESTMENT SECURITIES

The amortized cost and approximate fair value of investment securities as of June 30, 2011 and December 31, 2010 are summarized as follows:

   
June 30, 2011
 
   
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
Available-for-Sale:
                       
U.S. Treasury and government agencies
 
$
1,635
   
$
3
   
$
(5
)
 
$
1,633
 
Mortgage-backed securities
   
243,818
     
3,936
     
(672
)
   
247,082
 
Asset-backed securities
   
667
     
4
     
     
671
 
Municipal securities
   
2,080
     
     
(211
)
   
1,869
 
     
248,200
     
3,943
     
(888
)
   
251,255
 
Held-to-Maturity:
     
Mortgage-backed securities
                               
     
381,818
     
14,019
     
     
395,837
 
   
$
381,818
   
$
14,019
   
$
   
$
395,837
 


   
December 31, 2010
 
   
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
  Fair Value  
       
Available-for-Sale:
                       
U.S. Treasury and government agencies
 
$
1,711
   
$
   
$
(30
)
 
$
1,681
 
Mortgage-backed securities
   
204,182
     
561
     
(3,169
)
   
201,574
 
Asset-backed securities
   
719
     
3
     
     
722
 
Municipal securities
   
2,088
     
     
(237
)
   
1,851
 
   
$
208,700
   
$
564
   
$
(3,436
)
 
$
205,828
 

 

 
16

 


(Dollars in thousands except for per share data)


NOTE 4 – INVESTMENT SECURITIES (continued)

The following table shows proceeds from the sale of available for sale investment securities, gross gains and gross losses on those sales of securities:

 
For the six months ended
June 30,
 
 
2011
   
2010
 
Proceeds from sale of available-for-sale investment securities
  $     $ 130,483  
Gross gains
          1,078  
Gross losses
          (2 )

The following table shows investment securities by stated maturity. Investment securities backed by mortgages have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay, and are, therefore, classified separately with no specific maturity date:
 
 
June 30, 2011
 
 
Available-for-Sale
 
Held-to-Maturity
 
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Due in one year or less
  $ 1,274     $ 1,270     $     $  
Due after one year through five years
    2,936       2,731              
Due after five years through ten years
    129       130              
Due after ten years
    43       42              
      4,382       4,173              
                                 
Mortgage-backed securities
    243,818       247,082       381,818       395,837  
   
Total investment securities
  $ 248,200     $ 251,255     $ 381,818     $ 395,837  
 
The Bank’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time for individual securities that have been in a continuous unrealized loss position, at June 30, 2011 and December 31, 2010 are as follows:

   
June 30, 2011
 
   
Less than 12 months
 
12 months or more
   
Total
 
   
Fair Value
   
Unrealized Losses
 
Fair Value
   
Unrealized Losses
   
Fair Value
   
Unrealized Losses
 
Available-for-Sale:
                                   
U.S. Treasury and government agencies
 
$
1,012
   
$
(4
)
 
$
113
   
$
(1
 
$
1,125
   
$
(5
)
Mortgage-backed securities
   
45,421
     
(585
)
   
450
     
(87
)
   
45,871
     
(672
)
Municipal securities
   
     
     
1,869
     
(211
)
   
1,869
     
(211
)
Total investment securities available-for-sale
 
$
46,433
   
(589
 
)
 
$
2,432
   
$
(299
 
)
 
$
48,865
   
$
(888
 
)


 
17

 


(Dollars in thousands except for per share data)

NOTE 4 – INVESTMENT SECURITIES (continued)

 
December 31, 2010
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Available-for-Sale:
                       
U.S. Treasury and government agencies
  $ 1,457     $ (29 )   $ 116     $ (1 )   $ 1,573     $ (30 )
Mortgage-backed securities
    134,068       (3,104 )     524       (65 )     134,592       (3,169 )
Municipal securities
                1,851       (237 )     1,851       (237 )
Total investment securities available-for-sale
  $ 135,525     $ (3,133 )   $ 2,491     $ (303 )   $ 138,016     $ (3,436 )

At June 30, 2011, there were eight available for sale investment securities in the less than twelve month category and six available for sale investment securities in the twelve month or more category. At December 31, 2010, there were thirty-three available-for-sale investment securities in the less than twelve month category and six available for sale investment securities in the twelve month or more category. In management’s opinion, the unrealized losses reflect primarily changes in interest rates, such as but not limited to changes in economic conditions and the liquidity of the market, subsequent to the acquisition of specific securities. The Bank does not intend to sell. In addition, the Bank does not believe that it will be more likely than not that the Bank will be required to sell the securities prior to maturity or market price recovery.

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The composition of net loans receivable at June 30, 2011 and December 31, 2010 is as follows:

   
2011
   
2010
 
Construction
 
$
48,290
   
$
50,964
 
Commercial real estate
   
62,985
     
72,281
 
Commercial and industrial
   
12,135
     
13,156
 
Residential real estate
   
22,219
     
23,822
 
Manufactured housing
   
4,238
     
4,662
 
Total loans receivable covered under FDIC loss sharing agreements (1)
   
149,867
     
164,885
 
Construction
   
10,962
     
13,387
 
Commercial real estate
   
156,770
     
144,849
 
Commercial and industrial
   
43,158
     
35,942
 
Mortgage warehouse
   
235,420
     
186,113
 
Manufactured housing
   
98,338
     
102,924
 
Residential real estate
   
30,638
     
28,964
 
Consumer
   
1,299
     
1,581
 
Unearned origination costs, net
   
364
     
327
 
Total loans receivable not covered under FDIC loss sharing agreements
   
576,949
     
514,087
 
Allowance for loan losses
   
(13,946
)
   
(15,129
)
Loans receivable, net
 
$
712,870
   
$
663,843
 
 
(1)  Loans that were acquired in the two FDIC assisted transactions and are covered under loss sharing agreements with the FDIC are referred to as “covered” loans throughout the financial statements.

 

 
18

 

(Dollars in thousands except for per share data)

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES  (continued)

Non-Covered Nonaccrual Loans and Loans Past Due

The following table summarizes non-covered nonaccrual loans and past due loans, by class, as of June 30, 2011:

   
30-89 Days
 Past  Due (1)
   
Greater Than
 90 Days (1)
   
Total Past
 Due(1)
   
Non-
 Accrual
   
Current(2)
 
Total Loans
 
Commercial and industrial
 
$
317
   
$
   
$
317
   
$
3,100
   
$
39,741
   
$
43,158
 
Commercial real estate
   
3,012
     
     
3,012
     
14,103
     
139,655
     
156,770
 
Construction
   
159
     
     
159
     
3,690
     
7,113
     
10,962
 
Residential real estate
                                               
First mortgages
   
210
     
     
210
     
640
     
10,164
     
11,014
 
Home equity
   
558
     
     
558
     
679
     
18,378
     
19,615
 
Acquired with credit deterioration
   
     
     
     
     
9
     
9
 
Consumer
   
16
     
     
16
     
47
     
1,236
     
1,299
 
Mortgage warehouse
   
     
     
     
     
235,420
     
235,420
 
Manufactured housing (3)
   
1,998
     
     
1,998
     
     
96,340
     
98,338
 
                                                 
Total
 
$
6,270
   
$
   
$
6,270
   
$
22,259
   
$
548,056
   
$
576,585
 
(1) Loan balances do not include non-accrual loans.
(2) Loans where payments are due within 29 days of the scheduled payment date.
(3) Purchased manufactured housing loans are subject to cash reserves held at the Bank and are used to fund the past due payments when the loan reaches 90 days or more delinquent.
 
The following table summarizes non-covered nonaccrual loans and past due loans, by class, as of December 31, 2010:
 
   
30-89 Days
 Past  Due(1)
   
Greater Than
 90 Days(1)
   
Total Past
 Due(1)
   
Non-
 Accrual
   
Current(2)
 
Total Loans
 
                                     
Commercial and industrial
 
$
   
$
   
$
   
$
705
   
$
35,237
   
$
35,942
 
Commercial real estate
   
3,545
     
     
3,545
     
15,739
     
125,565
     
144,849
 
Construction
   
51
     
     
51
     
4,673
     
8,663
     
13,387
 
Residential real estate
                                               
First mortgages
   
     
     
     
658
     
6,705
     
7,363
 
Home equity
   
400
     
     
400
     
467
     
20,702
     
21,569
 
Acquired with credit deterioration
   
     
     
     
32
     
     
32
 
Consumer
   
17
     
5
     
22
     
     
1,559
     
1,581
 
Mortgage warehouse
   
     
     
     
     
186,113
     
186,113
 
Manufactured housing (3)
   
2,698
     
     
2,698
     
     
100,226
     
102,924
 
                                                 
Total
 
$
6,711
   
$
5
   
$
6,716
   
$
22,274
   
$
484,770
   
$
513,760
 
                                                 
(1) Loan balances do not include non-accrual loans.
(2) Loans where payments are due within 29 days of the scheduled payment date. 
 
(3) Purchased manufactured housing loans are subject to cash reserves held at the Bank and are used to fund the past due payments when the loan reaches 90 days or more delinquent.

 
19

 


(Dollars in thousands except for per share data)

NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (continued)

At June 30, 2011 and December 31, 2010, the Bank had other real estate owned that was not covered by loss sharing arrangements of $2,898 and $1,906, respectively.  
 
Covered Nonaccrual Loans and Loans Past Due

The following table summarizes covered nonaccrual loans and past due loans, by class, as of June 30, 2011:

  
 
30-89 Days Past Due (1)
   
Greater than 90 days (1)
   
Total past due (1)
   
Nonaccrual
   
Current(3)
   
Total
 
Commercial and industrial
                                   
Acquired with credit deterioration
  $           $     $ 701     $ 523     $ 1,224  
Remaining loans (2)
    365             365             10,546       10,911  
Commercial real estate
                                               
Acquired with credit deterioration
    35             35       17,470       9,806       27,311  
Remaining loans (2)
          437       437       1,343       33,894       35,674  
Construction
                                               
Acquired with credit deterioration
                      23,934       4,766       28,700  
Remaining loans (2)
                      781       18,809       19,590  
Residential real estate
                                               
Acquired with credit deterioration
                      3,680       1,647       5,327  
First mortgages (2)
                            8,303       8,303  
Home equity (2)
    84             84       4       8,501       8,589  
Manufactured housing
                                               
Acquired with credit deterioration
                      89             89  
Remaining loans (2)
                      40       4,109       4,149  
    $ 484     $ 437     $ 921     $ 48,042     $ 100,904     $ 149,867  
   
(1) Loan balances do not include non-accrual loans.
 
(2) Loans that were not identified at the acquisition date as a loan with credit deterioration.
 
(3) Loans where payments are due within 29 days of the scheduled payment date.
 


 
20

 

(Dollars in thousands except for per share data)
 
NOTE 5 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES  (continued)

The following table summarizes covered nonaccrual loans and past due loans, by class, as of December 31, 2010:
 
   
30-89 Days
   
Greater than
   
Total past
   
Non-
             
   
Past Due (1)
   
90 days (1)
   
due (1)
   
accrual
   
Current(3)
   
Total
 
                                     
Commercial and industrial
                                   
Acquired with credit deterioration
 
$
419
   
$
   
$
419
   
$
1,790
   
$
1,003
   
$
3,212
 
Remaining loans (2)
   
53
     
     
53
     
     
9,891
     
9,944
 
Commercial real estate
                                               
Acquired with credit deterioration
   
1,215
     
     
1,215
     
15,242
     
23,778
     
40,235
 
Remaining loans (2)
   
795
     
     
795
     
433
     
30,818
     
32,046
 
Construction
                                               
Acquired with credit deterioration
   
3,884
     
     
3,884
     
19,869
     
     
23,753
 
Remaining loans (2)
   
     
     
     
1,912
     
25,299
     
27,211
 
Residential real estate
                                               
Acquired with credit deterioration
   
     
     
     
4,013
     
1,751
     
5,764
 
First mortgages (2)
   
     
     
     
     
8,254
     
8,254
 
Home equity (2)
   
248
     
     
248
     
4
     
9,552
     
9,804
 
Manufactured housing
                                               
Acquired with credit deterioration
   
     
     
     
95
     
7
     
102
 
Remaining loans (2)
   
113
     
     
113
     
 96
     
4,351
     
4,560
 
   
$