UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________
FORM 10-K/A
(Amendment No. 1)
________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
001-35542
(Commission File Number)
________________________________________
(Exact name of registrant as specified in its charter)
________________________________________
Pennsylvania | 27-2290659 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
1015 Penn Avenue
Suite 103
Wyomissing PA 19610
(Address of principal executive offices)
(610) 933-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on which Registered | |
Voting Common Stock, par value $1.00 per share | New York Stock Exchange | |
6.375% Senior Notes due 2018 | New York Stock Exchange | |
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C, par value $1.00 per share | New York Stock Exchange | |
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, par value $1.00 per share | New York Stock Exchange | |
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, par value $1.00 per share | New York Stock Exchange | |
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, par value $1.00 per share | New York Stock Exchange | |
Securities registered pursuant to Section 12(g) of the Act: None
________________________________________
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer | x | Accelerated filer | ¨ | ||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ | ||
Emerging growth company | ¨ | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ¨ | ||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of common stock held by non-affiliates of the registrant was approximately $814,989,106 as of June 30, 2017, based upon the closing price quoted on the New York Stock Exchange for such date. Shares of common stock held by each executive officer and director have been excluded because such persons may under certain circumstances be deemed to be affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes.
On February 16, 2018, 31,439,416 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be delivered to shareholders in connection with the 2018 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report.
EXPLANATORY NOTE
This Amendment No. 1 to Customers Bancorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the "2017 Form 10-K/A") is being filed to amend and restate the following items presented in Customers Bancorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which was initially filed with the Securities and Exchange Commission on February 23, 2018 (the "Original 2017 Form 10-K"):
• | The Consolidated Balance Sheets included in Part II, Item 8 "Financial Statements and Supplementary Data" are being amended and restated as of December 31, 2017 and 2016 as set forth in the Consolidated Balance Sheets and described in NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION. |
• | The Consolidated Statements of Cash Flows included in Part II, Item 8 are being amended and restated for the years ended December 31, 2017, 2016, and 2015 as set forth in the Consolidated Statements of Cash Flows and described in NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION. |
• | NOTE 8 - LOANS HELD FOR SALE, NOTE 9 - LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES, AND NOTE 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS included in Part II, Item 8 are being amended and restated as set forth in the notes accompanying the consolidated financial statements and described in NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION. |
• | Management's Responsibility for Financial Statements and Report on Internal Control Over Financial Reporting included in Part II, Item 8 is being amended to reflect the identification of a material weakness in internal control over financial reporting in conjunction with the restatement. |
• | The Report of the Independent Registered Public Accounting Firm and the Report of the Independent Registered Public Accounting Firm on Internal Controls included in Part II, Item 8 are being amended to reflect the identification of a material weakness in internal control over financial reporting in conjunction with the restatement. |
• | Part II, Item 9A "Controls and Procedures" is being amended to address management's re-evaluation of disclosure controls and procedures and reflect the identification of a material weakness in internal control over financial reporting in conjunction with the restatement. |
• | Part IV, Item 15 "Exhibits and Financial Statement Schedules" also has been amended to include currently dated certifications from Customers Bancorp, Inc's Principal Executive Officer and Principal Financial Officer as required by sections 302 and 906 of the Sarbanes Oxley Act of 2002. The certifications are attached to this 2017 Form 10-K/A as Exhibits 31.1, 31.2, 32.1 and 32.2. The Interactive Data Files have also been amended in conjunction with the restatement and are attached to this 2017 Form 10-K/A as Exhibit 101. |
This 2017 Form 10-K/A also restates previously reported amounts included in Part II, Item 6 "Selected Financial Data" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Original 2017 Form 10-K to present the corrected classification of Customers Bancorp, Inc.'s commercial mortgage warehouse lending activities.
As previously reported on its Current Report on Form 8-K, which was filed with the SEC on November 13, 2018, Customers Bancorp, Inc. is restating its previously issued audited consolidated financial statements for 2017, 2016 and 2015 and its interim unaudited consolidated financial statements as of and for the three months ended March 31, 2018 and 2017 and the three and six months ended June 30, 2018 and 2017, because of misclassifications of cash flow activities associated with its commercial mortgage warehouse lending activities between operating and investing activities on the consolidated statements of cash flows because the related loan balances were incorrectly classified as held for sale rather than held for investment on the consolidated balance sheets. Accordingly, management has concluded that the control deficiency that resulted in these incorrect classifications constituted a material weakness in internal control over financial reporting. Solely as a result of this material weakness, management revised its earlier assessment and has now concluded that its disclosure controls and procedures were not effective at December 31, 2017.
These misclassifications had no effect on total cash balances, total loans, the allowance for loan losses, total assets, total capital, regulatory capital ratios, net interest income, net interest margin, net income to shareholders, basic or diluted earnings per share, return on average assets, return on average equity, the efficiency ratio, asset quality ratios or any other key performance metric, including non-GAAP performance metrics, that Customers routinely discusses with analysts and investors. This 2017 Form 10-K/A has not been updated for other events or information subsequent to the date of the filing of the Original 2017 Form 10-K, except as noted above, and should be read in conjunction with the Original 2017 Form 10-K and our other filings with the SEC.
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INDEX
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FORWARD-LOOKING STATEMENTS
This amended Annual Report on Form 10-K/A, as well as other written or oral communications made from time to time by us, contains forward-looking information within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to future events or future predictions, including events or predictions relating to future financial performance, and are generally identifiable by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “plan,” “intend,” or “anticipate” or the negative thereof or comparable terminology. Forward-looking statements reflect numerous assumptions, estimates and forecasts as to future events. No assurance can be given that the assumptions, estimates and forecasts underlying such forward-looking statements will accurately reflect future conditions, or that any guidance, goals, targets or projected results will be realized. The assumptions, estimates and forecasts underlying such forward-looking statements involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions, which may not be realized and which are inherently subject to significant business, economic, competitive and regulatory uncertainties and known and unknown risks, including the risks described under “Risk Factors” in the Original 2017 Form 10-K, as such factors may be updated from time to time in our filings with the SEC, including our Quarterly Reports on Form 10-Q. Our actual results may differ materially from those reflected in the forward-looking statements.
In addition to the risks described in the “Risk Factors” section of the Original 2017 Form 10-K and the other reports we file with the SEC, important factors to consider and evaluate with respect to such forward-looking statements include:
• | Changes in external competitive market factors that might impact our results of operations; |
• | Changes in laws and regulations, including without limitation changes in capital requirements under Basel III; |
• | The impact of the federal Tax Cuts and Jobs Act of 2017, including, but not limited to, the effect of a lower federal corporate income tax rate, and the effect on the valuation of our tax assets and liabilities; |
• | Changes in our business strategy or an inability to execute our strategy due to the occurrence of unanticipated events; |
• | Local, regional and national economic conditions and events, including real estate values, and the impact they may have on us and our customers; |
• | Costs and effects of regulatory and legal developments, including official and unofficial interpretations by regulatory agencies of laws and regulations, the results of regulatory examinations and the outcome of regulatory or other governmental inquiries and proceedings, such as fines or restrictions on our business activities; |
• | Our ability to attract deposits and other sources of liquidity; |
• | Changes in the financial performance and/or condition of our borrowers; |
• | Our ability to access the capital markets to fund our operations and future growth; |
• | Changes in the level of non-performing and classified assets and charge-offs; |
• | Changes in estimates of future loan loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; |
• | Inflation, interest rate, securities market and monetary fluctuations; |
• | Timely development and acceptance of new banking products and services and perceived overall value of these products and services by users, including the products and services being developed and introduced to the market by the BankMobile division of Customers Bank; |
• | Changes in consumer spending, borrowing and saving habits; |
• | Technological changes; |
• | Significant disruption in the technology platforms on which we rely, including security failures, cyberattacks or other breaches of our systems or those of our customers, partners or service providers; |
• | Continued volatility in the credit and equity markets and its effect on the general economy; |
• | Effects of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; |
• | Our ability to identify potential candidates for, and consummate, acquisition or investment transactions; |
• | The timing of acquisition, investment, or disposition transactions; |
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• | Constraints on our ability to consummate an attractive acquisition or investment transaction because of significant competition for these opportunities; |
• | The businesses of Customers Bank and any acquisition targets or merger partners and subsidiaries not integrating successfully or such integration being more difficult, time-consuming or costly than expected; |
• | Material differences in the actual financial results of merger and acquisition activities compared with expectations, such as with respect to the full realization of anticipated cost savings and revenue enhancements within the expected time frame; |
• | Our ability to successfully implement our growth strategy, increase market share, control expenses and maintain liquidity; |
• | Customers Bank’s ability to pay dividends to Customers Bancorp; |
• | Risks related to our proposed spin-off of BankMobile and merger of BankMobile into Flagship Community Bank, including: |
◦ | Our ability to successfully complete the transactions as designed and intended and the timing of completion, and the potential effects on us if we are unable to complete the transactions; |
◦ | The ability of Customers and Flagship Community Bank to meet all of the conditions to completion of the proposed transactions; |
◦ | The possibility that the transactions may be more expensive to complete than anticipated; |
◦ | The possibility that the expected benefits of the transactions to us and our shareholders may not be achieved; |
◦ | The possibility that the proposed transactions may be determined to be taxable to Customers or Customers' shareholders receiving Flagship Community Bank shares in the merger, or both; |
◦ | The possibility that the proposed transactions may be amended to address regulatory, legal or operational concerns; |
◦ | The possibility that the proposed transactions may be completed later than mid-2018, or not at all; and |
◦ | The impact of the announcement of the proposed spin-off and merger on the value of our securities, our business and our relationships with team members and customers; |
• | Risks relating to BankMobile, including: |
◦ | Material variances in the adoption rate of BankMobile's services by new students and/or the usage rate of BankMobile's services by current student customers compared to our expectations; |
◦ | The levels of usage of other BankMobile student customers following graduation of additional product and service offerings of BankMobile or Customers Bank, including mortgages and consumer loans, and the mix of products and services used; |
◦ | Our ability to implement changes to BankMobile's product and service offerings under current and future regulations and governmental policies; |
◦ | Our ability to effectively manage revenue and expense fluctuations that may occur with respect to BankMobile's student-oriented business activities, which result from seasonal factors related to the higher-education academic year; |
◦ | Our ability to implement our strategy regarding BankMobile, including with respect to our intent to spin-off and merge or otherwise dispose of the BankMobile business in the future, depending upon market conditions and opportunities and |
◦ | BankMobile's ability to successfully implement its growth strategy, including development of white label deposit relationships, and control expenses. |
You are cautioned not to place undue reliance on any forward-looking statements we make, which speak only as of the date they are made. We do not undertake any obligation to release publicly or otherwise provide any revisions to any forward-looking statements we may make, including any forward-looking financial information, to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events, except as may be required under applicable law.
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PART II
Item 6. Selected Financial Data - As Restated
Customers Bancorp, Inc. and Subsidiaries
The following table presents Customers Bancorp’s summary consolidated financial data. Customers Bancorp derived the balance sheet data as of December 31, 2017 and 2016 and the income statement data for the years ended December 31, 2017, 2016, and 2015, 2014 and 2013, from its audited financial statements. Balance sheet data as of December 31, 2015, 2014 and 2013 was derived from audited consolidated financial statements, restated to correct the classification of the commercial mortgage warehouse loans as held for investment instead of held for sale. The summary consolidated financial data should be read in conjunction with, and is qualified in their entirety by, Customers Bancorp’s financial statements and the accompanying notes and the other information included elsewhere in this Annual Report on Form 10-K/A. Certain amounts reported below have been reclassified to conform to the 2017 presentation, including the presentation of BankMobile as continuing operations.
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2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(dollars in thousands, except per share information) | |||||||||||||||||||
For the Years Ended December 31, | |||||||||||||||||||
Interest income | $ | 372,850 | $ | 322,539 | $ | 249,850 | $ | 190,427 | $ | 128,156 | |||||||||
Interest expense | 105,507 | 73,042 | 53,560 | 38,504 | 24,301 | ||||||||||||||
Net interest income | 267,343 | 249,497 | 196,290 | 151,923 | 103,855 | ||||||||||||||
Provision for loan losses | 6,768 | 3,041 | 20,566 | 14,747 | 2,236 | ||||||||||||||
Total non-interest income | 78,910 | 56,370 | 27,717 | 25,126 | 22,703 | ||||||||||||||
Total non-interest expense | 215,606 | 178,231 | 114,946 | 98,914 | 74,024 | ||||||||||||||
Income before income tax expense | 123,879 | 124,595 | 88,495 | 63,388 | 50,298 | ||||||||||||||
Income tax expense | 45,042 | 45,893 | 29,912 | 20,174 | 17,604 | ||||||||||||||
Net income | 78,837 | 78,702 | 58,583 | 43,214 | 32,694 | ||||||||||||||
Preferred stock dividends | 14,459 | 9,515 | 2,493 | — | — | ||||||||||||||
Net income attributable to common shareholders | $ | 64,378 | $ | 69,187 | $ | 56,090 | $ | 43,214 | $ | 32,694 | |||||||||
Earnings per common share: | |||||||||||||||||||
Basic earnings per common share | $ | 2.10 | $ | 2.51 | $ | 2.09 | $ | 1.62 | $ | 1.34 | |||||||||
Diluted earnings per common share | $ | 1.97 | $ | 2.31 | $ | 1.96 | $ | 1.55 | $ | 1.30 | |||||||||
At Period End | |||||||||||||||||||
Total assets | $ | 9,839,555 | $ | 9,382,736 | $ | 8,398,205 | $ | 6,821,500 | $ | 4,150,493 | |||||||||
Cash and cash equivalents | 146,323 | 264,709 | 264,593 | 371,023 | 233,068 | ||||||||||||||
Investment securities | 471,371 | 493,474 | 560,253 | 416,685 | 497,573 | ||||||||||||||
Loans held for sale - as restated (1) | 146,077 | 695 | 42,114 | 103,440 | 6,899 | ||||||||||||||
Loans receivable, mortgage warehouse, at fair value - as restated (1) | 1,793,408 | 2,116,815 | 1,754,950 | 1,332,019 | 740,694 | ||||||||||||||
Loans receivable | 6,768,258 | 6,154,637 | 5,453,479 | 4,312,173 | 2,465,078 | ||||||||||||||
Allowance for loan losses | 38,015 | 37,315 | 35,647 | 30,932 | 23,998 | ||||||||||||||
FDIC loss sharing receivable (2) | — | — | — | 2,320 | 10,046 | ||||||||||||||
Deposits | 6,800,142 | 7,303,775 | 5,909,501 | 4,532,538 | 2,959,922 | ||||||||||||||
Borrowings (3) | 2,062,237 | 1,147,706 | 1,890,442 | 1,812,380 | 782,070 | ||||||||||||||
Shareholders’ equity | 920,964 | 855,872 | 553,902 | 443,145 | 386,623 | ||||||||||||||
Tangible common equity (4) | 687,198 | 620,780 | 494,682 | 439,481 | 382,947 | ||||||||||||||
Selected Ratios and Share Data | |||||||||||||||||||
Return on average assets | 0.77 | % | 0.86 | % | 0.81 | % | 0.78 | % | 0.95 | % | |||||||||
Return on average common equity | 9.38 | % | 12.41 | % | 11.82 | % | 10.39 | % | 9.49 | % | |||||||||
Common book value per share | $ | 22.42 | $ | 21.08 | $ | 18.52 | $ | 16.57 | $ | 14.51 | |||||||||
Tangible book value per common share (4) | $ | 21.90 | $ | 20.49 | $ | 18.39 | $ | 16.43 | $ | 14.37 | |||||||||
Common shares outstanding | 31,382,503 | 30,289,917 | 26,901,801 | 26,745,529 | 26,646,566 | ||||||||||||||
Net interest margin, tax equivalent (4) | 2.73 | % | 2.84 | % | 2.81 | % | 2.86 | % | 3.13 | % | |||||||||
Equity to assets | 9.36 | % | 9.12 | % | 6.60 | % | 6.50 | % | 9.32 | % | |||||||||
Tangible common equity to tangible assets (4) | 7.00 | % | 6.63 | % | 5.89 | % | 6.45 | % | 9.23 | % | |||||||||
Tier 1 leverage ratio – Customers Bank | 10.09 | % | 9.23 | % | 7.30 | % | 7.39 | % | 10.81 | % | |||||||||
Tier 1 leverage ratio – Customers Bancorp | 8.94 | % | 9.07 | % | 7.16 | % | 6.69 | % | 10.11 | % | |||||||||
Tier 1 risk-based capital ratio – Customers Bank | 13.08 | % | 11.63 | % | 8.62 | % | 9.27 | % | 13.33 | % | |||||||||
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Tier 1 risk-based capital ratio – Customers Bancorp | 11.58 | % | 11.41 | % | 8.46 | % | 8.39 | % | 12.44 | % | |||||||||
Total risk-based capital ratio – Customers Bank | 14.96 | % | 13.61 | % | 10.85 | % | 11.98 | % | 14.11 | % | |||||||||
Total risk-based capital ratio – Customers Bancorp | 13.05 | % | 13.05 | % | 10.62 | % | 11.09 | % | 13.21 | % | |||||||||
Asset Quality | |||||||||||||||||||
Non-performing loans | $ | 26,415 | $ | 17,792 | $ | 10,771 | $ | 11,733 | $ | 19,163 | |||||||||
Non-performing loans to loans receivable (5) | 0.39 | % | 0.29 | % | 0.20 | % | 0.27 | % | 0.78 | % | |||||||||
Non-performing loans to total loans | 0.30 | % | 0.22 | % | 0.15 | % | 0.20 | % | 0.60 | % | |||||||||
Other real estate owned | $ | 1,726 | $ | 3,108 | $ | 5,057 | $ | 15,371 | $ | 12,265 | |||||||||
Non-performing assets | 28,141 | 20,900 | 15,828 | 27,104 | 31,428 | ||||||||||||||
Non-performing assets to total assets | 0.29 | % | 0.22 | % | 0.19 | % | 0.40 | % | 0.76 | % | |||||||||
Allowance for loan losses to loans receivable (5) | 0.56 | % | 0.61 | % | 0.65 | % | 0.72 | % | 0.97 | % | |||||||||
Allowance for loan losses to non-performing loans | 143.91 | % | 209.73 | % | 330.95 | % | 263.63 | % | 125.23 | % | |||||||||
Net charge-offs | $ | 6,068 | $ | 1,662 | $ | 11,979 | $ | 3,124 | $ | 6,894 | |||||||||
Net charge-offs to average loans receivable (5) | 0.09 | % | 0.03 | % | 0.26 | % | 0.09 | % | 0.37 | % | |||||||||
(1) | Restated to correct the misclassification of Customers' commercial mortgage warehouse loans as held for sale rather than held for investment as described in NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to the consolidated financial statements as of December 31, 2017 and 2016 included in Part II, Item 8 of this Annual Report on Form 10-K/A. The following table sets forth the effects of the correction on the consolidated balance sheets as of December 31, 2015, 2014 and 2013: |
December 31, | |||||||||||||||||||||||||||||||||||
2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||||
Consolidated Balance Sheet | As Previously Reported | Adjustments | As Restated | As Previously Reported | Adjustments | As Restated | As Previously Reported | Adjustments | As Restated | ||||||||||||||||||||||||||
(amounts in thousands) | |||||||||||||||||||||||||||||||||||
Loans held for sale | $ | 1,797,064 | $ | (1,754,950 | ) | $ | 42,114 | $ | 1,435,459 | $ | (1,332,019 | ) | $ | 103,440 | $ | 747,593 | $ | (740,694 | ) | $ | 6,899 | ||||||||||||||
Loans receivable, mortgage warehouse, at fair value | — | 1,754,950 | 1,754,950 | — | 1,332,019 | 1,332,019 | — | 740,694 | 740,694 | ||||||||||||||||||||||||||
(2) | The FDIC loss sharing receivable, net of the clawback liability, was included in "Accrued interest payable and other liabilities" as of December 31, 2015. |
(3) | Borrowings includes FHLB advances, Federal funds purchased, Subordinated debt and other borrowings. |
(4) | Customers’ selected financial data contains non-GAAP financial measures calculated using non-GAAP amounts. These measures include net interest margin tax equivalent, tangible common equity and tangible book value per common share and tangible common equity to tangible assets. Management uses these non-GAAP measures to present historical periods comparable to the current period presentation. In addition, management believes the use of these non-GAAP measures provides additional clarity when assessing the Bancorp’s financial results and use of equity. These disclosures should not be viewed as substitutes for results determined to be in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other entities. Customers Bancorp calculates tangible common equity by excluding intangible assets from total shareholders’ equity. Tangible book value per common share equals tangible common equity divided by common shares outstanding. The non-GAAP tax-equivalent basis uses a 35% statutory tax rate to approximate interest income as a taxable asset. |
(5) | Excludes loans receivable, mortgage warehouse, at fair value which are not evaluated for impairment and do not have an allowance for loan loss. |
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A reconciliation of shareholders’ equity to tangible common equity and other related amounts is set forth below.
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||
Shareholders’ equity | $ | 920,964 | $ | 855,872 | $ | 553,902 | $ | 443,145 | $ | 386,623 | |||||||||
Less: intangible assets | (16,295 | ) | (17,621 | ) | (3,651 | ) | (3,664 | ) | (3,676 | ) | |||||||||
Less: preferred stock | (217,471 | ) | (217,471 | ) | (55,569 | ) | — | — | |||||||||||
Tangible common equity | $ | 687,198 | $ | 620,780 | $ | 494,682 | $ | 439,481 | $ | 382,947 | |||||||||
Shares outstanding | 31,383 | 30,290 | 26,902 | 26,746 | 26,647 | ||||||||||||||
Common book value per share | $ | 22.42 | $ | 21.08 | $ | 18.52 | $ | 16.57 | $ | 14.51 | |||||||||
Less: effect of excluding intangible assets | (0.52 | ) | (0.59 | ) | (0.13 | ) | (0.14 | ) | (0.14 | ) | |||||||||
Common tangible book value per share | $ | 21.90 | $ | 20.49 | $ | 18.39 | $ | 16.43 | $ | 14.37 | |||||||||
Total assets | $ | 9,839,555 | $ | 9,382,736 | $ | 8,398,205 | $ | 6,821,500 | $ | 4,150,493 | |||||||||
Less: intangible assets | (16,295 | ) | (17,621 | ) | (3,651 | ) | (3,664 | ) | (3,676 | ) | |||||||||
Total tangible assets | $ | 9,823,260 | $ | 9,365,115 | $ | 8,394,554 | $ | 6,817,836 | $ | 4,146,817 | |||||||||
Equity to assets | 9.36 | % | 9.12 | % | 6.60 | % | 6.50 | % | 9.32 | % | |||||||||
Tangible common equity to tangible assets | 7.00 | % | 6.63 | % | 5.89 | % | 6.45 | % | 9.23 | % | |||||||||
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - As Restated
This Management's Discussion and Analysis should be read in conjunction with the Bancorp’s consolidated financial statements and related notes for the year ended December 31, 2017. Certain amounts reported in the 2016 and 2015 financial statements have been reclassified to conform to the 2017 presentation. At December 31, 2016, BankMobile met the criteria to be classified as held for sale and, accordingly, the assets and liabilities of BankMobile were presented as “Assets held for sale," “Non-interest bearing deposits held for sale,” and “Other liabilities held for sale;” and BankMobile’s operating results and associated cash flows were presented as “Discontinued operations.” Beginning in third quarter 2017, the period in which Customers decided to spin-off BankMobile rather than selling directly to a third party, BankMobile's assets, liabilities, operating results and cash flows were no longer reported as held for sale or discontinued operations but instead were reported as held and used. Prior reported assets held for sale, non-interest bearing deposits held for sale and other liabilities held for sale have been reclassified to conform with the December 31, 2017 presentation. Amounts previously reported as discontinued operations have also been reclassified to conform with the year ended December 31, 2017 presentation.
Restatement of Previously Issued Financial Statements
In November 2018, Customers determined that its commercial mortgage warehouse loans should have been classified as loans receivable, rather than loans held for sale. The discussion and analysis included herein has been amended and restated to present the corrected classification of Customers' commercial mortgage warehouse lending activities. Additional discussion regarding the restatement of previously issued financial statements is included in the Explanatory Note to this Annual Report on Form 10-K/A and in NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION included in Part II, Item 8 of this Annual Report on Form 10-K/A.
Critical Accounting Policies
Customers has adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America ("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 4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' audited financial statements.
Certain accounting policies involve significant judgments and assumptions by Customers that have a material impact on the carrying value of certain assets and liabilities. 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 and liabilities and results of operations.
The critical accounting policies that are both important to the portrayal of Customers' financial condition and results of operations and require complex, subjective judgments are the accounting policies for the following: Allowance for Loan Losses, Purchased Credit-Impaired ("PCI") Loans, Deferred Income Taxes, Unrealized Gains and Losses on Available-for-Sale Securities and Other-Than-Temporary Impairment Analysis, Fair Values of Financial Instruments, Share-Based Compensation and Goodwill and Other Intangible Assets. These critical accounting policies and material estimates, along with the related disclosures, are reviewed by Customers' Audit Committee of the Board of Directors.
Allowance for Loan Losses
Customers maintains an allowance for loan losses at a level management believes is sufficient to absorb estimated credit losses incurred as of the report date. Management’s determination of the adequacy of the allowance for loan losses is based on periodic evaluations of the loan portfolio and other relevant factors. However, these evaluations are inherently subjective as they require significant estimates by management. Consideration is given to a variety of factors in establishing these estimates including historical losses, peer and industry data, current economic conditions, size and composition of the loan portfolio, existence and level of loan concentrations, delinquency statistics, criticized and classified assets and impaired loans, results of internal loan reviews, borrowers’ perceived financial and management strengths, adequacy of underlying collateral, dependence on collateral, present value of expected future cash flows and other relevant factors. These factors may be susceptible to significant change. To the extent actual outcomes differ from management's estimates, additional provisions for loan losses may be required which may adversely affect Customers' results of operations in the future.
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Subsequent to the acquisition of purchased credit-impaired loans, estimates of cash flows expected to be collected are updated each reporting period based on updated assumptions regarding default rates, loss severities and other factors that are reflective of current market conditions. Subsequent decreases in expected cash flows will generally result in a provision for loan losses. Subsequent increases in expected cash flows will generally result in a reversal of the provision for loan losses to the extent of prior charges. Please see below for additional discussions related to the accounting for purchased credit-impaired loans.
Purchased Credit-Impaired Loans
For certain acquired loans that have experienced a deterioration of credit quality, Customers follows the accounting guidance in ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired loans are loans that were acquired in business combinations or asset purchases with evidence of credit deterioration since origination to the date acquired, and for which it is probable that all contractually required payments will not be collected. Evidence of credit- quality deterioration as of purchase dates may include information such as past-due and non-accrual status, borrower credit scores and recent loan-to-value percentages.
The fair value of loans with evidence of credit deterioration is recorded net of a nonaccretable difference and, if appropriate, an accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is the nonaccretable difference, which is not included in the carrying amount of acquired loans. Subsequent to acquisition, estimates of cash flows expected to be collected are updated each reporting period based on updated assumptions regarding default rates, loss severities, and other factors that are reflective of current market conditions. Subsequent decreases in the estimated cash flows of the loan will generally result in a provision for loan losses. Subsequent increases in cash flows will generally result in a reversal of the provision for loan losses to the extent of prior charges or a reclassification of the difference from nonaccretable to accretable with a positive impact on accretion of interest income in future periods. Further, any excess of cash flows expected at the time of acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of those cash flows.
Purchased credit-impaired loans acquired may be aggregated into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. On a quarterly basis, Customers re-estimates the total cash flows (both principal and interest) expected to be collected over the remaining life of each pool. These estimates incorporate assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that reflect then-current market conditions. If the timing and/or amounts of expected cash flows on purchased credit-impaired loans are determined not to be reasonably estimable, no interest is accreted, and the loans are reported as non-accrual loans; however, when the timing and amounts of expected cash flows for purchased credit-impaired loans are reasonably estimable, interest is accreted, and the loans are reported as performing loans. Charge-offs are not recorded on purchased credit-impaired loans until actual losses exceed the estimated losses that were recorded as purchase-accounting adjustments at acquisition date.
Deferred Income Taxes
Customers provides for deferred income taxes using the liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities in the financial statements and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the "Act") was enacted into law. The Act contained several key tax provisions including the reduction in the corporate federal tax rate from 35% to 21% effective January 1, 2018. As a result, Customers is required to re-measure, through income tax expense, its deferred tax assets and liabilities using the enacted rate at which it expects them to be recovered or settled. In December 2017, the U.S. Securities and Exchange Commission ("SEC") also issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act "(SAB 118"), which allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Since the Act was passed late in December 2017, and ongoing analysis and interpretation of the other key tax provisions is expected over the next 12 months, Customers considers the deferred tax re-measurements and other items to be provisional in nature. Customers expects to complete its analysis within the measurement periods in accordance with SAB 118. See NOTE 16 - INCOME TAXES to Customers' audited financial statements for additional information.
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Unrealized Gains and Losses on Securities Available for Sale and Other-Than-Temporary Impairment Analysis
Customers obtains estimated fair values of debt securities from independent valuation services and brokers. In developing these fair values, the valuation services and brokers use estimates of cash flows based on historical performance of similar instruments in similar rate environments. Debt securities available for sale consist primarily of mortgage-backed securities issued by U.S. government-sponsored agencies. Customers uses various indicators in determining whether a security is other-than-temporarily impaired including, for debt securities, when it is probable that the contractual interest and principal will not be collected, or for equity securities, whether the market value is below its cost for an extended period of time with low expectation of recovery. The debt securities are monitored for changes in credit ratings because adverse changes in credit ratings could indicate a change in the estimated cash flows of the underlying collateral or issuer.
For marketable equity securities, Customers considers the issuer’s financial condition, capital strength and near-term prospects to determine whether an impairment is temporary or other than temporary. Customers also considers the volatility of a security’s price in comparison to the market as a whole and any recoveries or declines in fair value subsequent to the balance sheet date. If management determines that the impairment is other than temporary, the entire amount of the impairment as of the balance sheet date is recognized in earnings even if the decision to sell the security has not been made. The fair value of the security becomes the new amortized cost basis of the investment and is not adjusted for subsequent recoveries in fair value.
Beginning January 1, 2018, changes in the fair value of marketable equity securities classified as available for sale will be recorded in earnings in the period in which they occur and will no longer be deferred in accumulated other comprehensive income. Amounts previously recorded to accumulated other comprehensive income were reclassified to retained earnings on January 1, 2018.
At December 31, 2017, management evaluated its available-for-sale debt securities for other-than-temporary impairment. The unrealized losses associated with the available-for-sale debt securities were not considered to be other than temporary at December 31, 2017, because the losses were related to changes in interest rates and did not affect the expected cash flows of the underlying collateral or issuer. Customers does not intend to sell these securities, and it is not more likely than not that Customers will be required to sell the securities before recovery of the amortized cost basis.
During the year ended December 31, 2017, Customers recorded other-than-temporary impairment losses of $12.9 million related to its equity holdings in Religare for the full amount of the decline in fair value from the cost basis established at December 31, 2016, through September 30, 2017, because Customers no longer has the intent to hold these securities until a recovery in fair value. The fair value of the Religare equity securities at September 30, 2017, of $2.3 million became the new cost basis of the securities. At December 31, 2017, the fair value of the Religare equity securities was $3.4 million, which resulted in an unrealized gain of $1.0 million being recognized in accumulated other comprehensive income with no adjustment for deferred taxes as Customers currently does not have a tax strategy in place capable of generating sufficient capital gains to utilize any capital losses resulting from the Religare investment.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, other than in a forced or liquidation sale as of the measurement date (also referred to as an exit price). Management estimates the fair values of financial instruments using a variety of valuation methods. When financial instruments are actively traded and have quoted market prices, the quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, Customers estimates fair value using unobservable data. The valuation methods and inputs consider factors such as types of underlying assets or liabilities, rates of estimated credit losses, interest rates or discount rates and collateral. The best estimate of fair value involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, current delinquency rates, loan-to-value ratios and the possibility of obligor refinancing. U.S. GAAP requires the use of fair values in determining the carrying values of certain assets and liabilities, as well as for specific disclosures. The most significant uses of fair values include commercial loans to mortgage banking businesses, residential mortgage loans originated with an intent to sell, available-for-sale investment securities, derivative assets and liabilities, impaired loans and foreclosed property and the net assets acquired in business combinations. For additional information, see NOTE 20 – DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS to Customers' audited financial statements.
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Share-Based Compensation
Customers recognizes compensation expense for share-based awards in accordance with ASC 718, Compensation – Stock Compensation. The expense recognized for awards of stock options and restricted stock units is based on the fair value of the awards on the date of grant, with compensation expense recognized over the service period, which is usually the vesting period. For performance-based awards, compensation cost is recognized over the vesting period as long as it remains probable that the performance conditions will be met. If the service or performance conditions are not met, Customers reverses previously recorded compensation expense upon forfeiture. Customers generally utilizes the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant. The Black-Scholes model takes into consideration the exercise price of the option, the expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the current risk-free interest rate for the expected life of the option. Customers' estimate of the fair value of a stock option is based on expectations derived from its limited historical experience and may not necessarily equate to market value when fully vested. The fair value of the restricted stock units is generally determined based on the closing market price of Customers' common stock on the date of grant.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of businesses acquired through business combinations accounted for under the acquisition method. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as customer and university relationship intangibles and non-compete agreements, are amortized over their estimated useful lives and subject to periodic impairment testing. Goodwill and other intangible assets recognized as part of the Disbursement business acquisition in June 2016 were based on a preliminary allocation of the purchase price. At December 31, 2016, Customers recorded adjustments to the estimated fair values of the net assets acquired, which resulted in a $1.0 million increase in goodwill. For more information regarding the net assets acquired and goodwill recorded upon acquisition of the Disbursement business, see NOTE 2 - ACQUISITION ACTIVITY to Customers' audited financial statements.
Goodwill and other intangible assets are reviewed for impairment annually as of October 31 and between annual tests when events and circumstances indicate that impairment may have occurred. Customers early adopted Accounting Standards Update ("ASU") 2017-04, Simplifying the Test for Goodwill Impairment during its annual goodwill impairment review in October 2017. The new rules under this guidance provide that the goodwill impairment charge will be the amount by which the reporting unit's carrying amount exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The same one-step impairment test is applied to goodwill at all reporting units. Customers applies a qualitative assessment for its reporting units to determine if the one-step quantitative impairment test is necessary.
Intangible assets subject to amortization are reviewed for impairment under ASC 360, Property, Plant, and Equipment, which requires that a long-lived asset or asset group be tested for recoverability whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.
Overview
Like most financial institutions, Customers derives the majority of its income from interest it receives on its interest-earning assets, such as loans and investments. Customers' primary source of funds for making these loans and investments is 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 income on its interest-earning assets and the expense on its interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield earned on these interest-earning assets and the rate paid on these interest-bearing liabilities, which is referred to as net interest margin.
There is credit risk inherent in all loans, so Customers maintains an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. Customers maintains this allowance by charging a provision for loan losses against its operating earnings. Customers has included a detailed discussion of this process, as well as several tables describing its allowance for loan losses, in NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION and NOTE 9 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES to Customers' audited financial statements.
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BankMobile, a division of Customers Bank, derives a majority of its revenue from interchange and card revenue. In third quarter 2017, Customers decided that the best strategy for its shareholders to realize the value of BankMobile's business was to divest BankMobile through a spin-off of BankMobile to Customers' shareholders to be followed by a merger of Customers' BankMobile Technologies, Inc. ("BMT") subsidiary with Flagship Community Bank ("Flagship"). An Amended and Restated Purchase and Assumption Agreement and Plan of Merger (the “Amended Agreement”) with Flagship to effect the spin-off and merger and Flagship’s related purchase of BankMobile deposits from Customers was executed on November 17, 2017. Per the provisions of the Amended Agreement, the spin-off will be followed by a merger of BMT into Flagship, with Customers' shareholders first receiving shares of BMT as a dividend in the spin-off and then receiving shares of Flagship common stock in the merger of BMT into Flagship in exchange for the shares of BMT they received in the spin-off. Flagship will separately purchase BankMobile deposits directly from Customers for cash. Customers expects the transactions to close in mid-2018.
At December 31, 2016, BankMobile met the criteria to be classified as held for sale and, accordingly, the assets and liabilities of BankMobile were presented as “Assets held for sale,” “Non-interest bearing deposits held for sale” and “Other liabilities held for sale,” and BankMobile’s operating results and associated cash flows were presented as “Discontinued operations.” Beginning in third quarter 2017, the period in which Customers decided to spin-off BankMobile rather than sell it directly to a third party, BankMobile's assets, liabilities, operating results and cash flows were no longer reported as held for sale or discontinued operations but instead were reported as held and used. Prior reported assets held for sale, non-interest bearing deposits held for sale and other liabilities held for sale have been reclassified to conform with the December 31, 2017 presentation. Amounts previously reported as discontinued operations also have been reclassified to conform with the year ended December 31, 2017 presentation. See NOTE 3 - SPIN-OFF AND MERGER to Customers' audited financial statements.
2018 Economic Outlook
Building off the momentum gained in 2017, the U.S. economy is expected to continue its expansion in 2018. This continued economic growth should result in a tighter labor market and accelerated wage growth. U.S. Real Gross Domestic Product is projected in the 2.50% to 2.75% range in 2018, which will be driven, in part, by the anticipated stimulative impact of the recent tax legislation passed by the U.S. Government. Additionally, while inflation remains below the Federal Reserve's target of 2% on a year-over-year basis, it is expected to stabilize around that level over the medium term. With respect to interest rates, the Federal Reserve is expected to continue to raise the overnight rate, increasing it three times by the end of 2018.
While the economic outlook in the U.S. remains optimistic in the short run, keeping the economy on a sustainable path over the longer term will most likely become more challenging. For example, while the recently passed tax legislation will support growth over the near term, it will increase the longer-term fiscal burden of the country. Other potential concerns for the longer- term economic outlook include the flattening of the yield curve and/or the possibility of an inverted yield curve (which may signal a future recession), the risk of economic overheating over the next few years and concerns surrounding the long-term fiscal position of the U.S. (e.g., the federal deficit, rising debt-service costs and increasing entitlement spending as the Baby Boomers retire). Overall, Customers' management is optimistic that 2018 will generally show a continuation of the improving economic environment experienced in 2017, with continued moderate growth in the Bank's market area and improving unemployment or at least remaining at current levels during the year.
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. Also see Critical Accounting Policies in this Management's Discussion and Analysis and NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' audited financial statements for information concerning certain significant accounting policies and estimates applied in determining reported results of operations.
For the years ended December 31, 2017 and 2016
Net income available to common shareholders declined $4.8 million, or 7.0%, to $64.4 million for the year ended December 31, 2017, when compared to $69.2 million for the year ended December 31, 2016. The decrease in net income available to common shareholders resulted from increases in non-interest expenses of $37.4 million, preferred stock dividends of $4.9 million and provision for loan losses of $3.7 million, offset in part by increases in non-interest income of $22.5 million and net interest income of $17.8 million and a decrease in tax expense of $0.9 million.
Net interest income increased $17.8 million, or 7.2%, for the year ended December 31, 2017, to $267.3 million, when compared to $249.5 million for the year ended December 31, 2016. The increase in net interest income was driven primarily
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by an increase in the average balance of interest-earnings assets of $1.0 billion, or 11.7%, to $9.8 billion for the year ended December 31, 2017, when compared to $8.8 billion for the year ended December 31, 2016, offset in part by the narrowing of net interest margin (tax equivalent) by 11 basis points (from 2.84% in 2016 to 2.73% in 2017). Average loans outstanding increased $0.6 billion for 2017, particularly multi-family loans increased $0.3 billion and commercial and industrial loans increased $0.3 billion as Customers continued its efforts to grow its business. Net interest margin decreased 11 basis points largely due to the increased cost of obtaining deposits to fund the assets of 29 basis points.
The provision for loan losses increased $3.7 million to $6.8 million for the year ended December 31, 2017, when compared to $3.0 million for the same period in 2016. The increase in the provision for loan losses during 2017 included $2.3 million for loan-portfolio growth and $5.6 million for impaired loans, offset in part by a $1.1 million release resulting from improved asset quality and lower incurred losses than previously estimated. Net charge-offs for 2017 were $6.1 million compared to net charge-offs for 2016 of $1.7 million. There were no significant changes in Customers' methodology for estimating the allowance for loan losses or policies regarding charge-offs in 2017.
Non-interest income increased $22.5 million, or 40.0%, for the year ended December 31, 2017, to $78.9 million, when compared to $56.4 million for the year ended December 31, 2016. The increase in non-interest income resulted primarily from increases in interchange and card revenue of $16.8 million, reflecting a full year of operations of the BankMobile Disbursement business acquired in June 2016, gains on sales of investment securities of $8.8 million, bank-owned life insurance income of $2.5 million and deposit fees of $2.0 million. These increases were offset in part by an increase in impairment losses on equity securities of $5.7 million and a decrease in mortgage warehouse transaction fees of $2.2 million resulting from lower transaction volumes.
Non-interest expense increased $37.4 million, or 21.0%, during the year ended December 31, 2017, to $215.6 million, when compared to $178.2 million during the year ended December 31, 2016. The increase in non-interest expense was primarily driven by increases in BankMobile operating expenses of $39.2 million, reflecting a full year of operations for the BankMobile Disbursement business in 2017 and 6.5 months of BankMobile operations in 2016. The increases in BankMobile expenses included a $10.4 million increase in salaries and employee benefits, a $20.2 million increase in technology, communication and bank operation expenses and a $5.4 million increase in professional services. On a consolidated basis, salaries and employee benefits increased $14.9 million, technology, communications and bank operations increased $19.0 million, professional services increased $7.4 million and occupancy expenses increased $0.8 million. These increases were offset in part by decreases in FDIC assessments, non-income taxes, and regulatory fees of $5.2 million, other real estate owned expenses of $1.4 million and merger and acquisition related expenses of $0.8 million.
Income tax expense declined $0.9 million for the year ended December 31, 2017, to $45.0 million, when compared to $45.9 million in the same period in 2016. The decrease in income tax expense was driven primarily by a tax benefit recognized of $12.0 million as a result of the exercises of employee stock options and vesting of restricted stock units and decreased pre-tax income of $0.7 million in 2017, offset in part by a deferred tax asset re-measurement charge to income tax expense of $5.5 million due to the enactment of the Tax Cuts and Jobs Act in December 2017. Customers' effective tax rate decreased by 0.4% to 36.4% for 2017 from 36.8% for 2016.
Preferred stock dividends increased $4.9 million for 2017, reflecting a full year of dividends paid on the Series E and Series F Preferred Stock issued in April 2016 and September 2016, respectively.
For the years ended December 31, 2016 and 2015
Net income available to common shareholders increased $13.1 million, or 23.3%, to $69.2 million for the year ended December 31, 2016, when compared to $56.1 million for the year ended December 31, 2015. The increased net income available to common shareholders resulted from an increase in net interest income of $53.2 million, an increase in non-interest income of $28.7 million and a decrease in the provision for loan losses of $17.5 million, partially offset by increases in non-interest expense of $63.3 million, tax expense of $16.0 million and preferred stock dividends of $7.0 million.
Net interest income increased $53.2 million, or 27.1%, for the year ended December 31, 2016, to $249.5 million, when compared to $196.3 million for the year ended December 31, 2015. The increase in net interest income was driven by an increase in the average balances of loans and securities of $1.8 billion, from $6.7 billion in 2015 to $8.5 billion in 2016, as well as the expansion of net interest margin by 3 basis points (from 2.81% in 2015 to 2.84% in 2016).
The provision for loan losses decreased $17.5 million to $3.0 million for the year ended December 31, 2016, when compared to $20.6 million for the year ended December 31, 2015. The decrease in the provision for loan losses during 2016 primarily resulted from a provision expense of $9.0 million recorded in 2015 for a fraudulent loan that was charged off in its entirety
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during 2015, a $2.5 million decrease as a result of greater growth in loans held for investment in 2015 as compared to 2016, a benefit of $0.3 million in 2016 attributable to FDIC loss sharing arrangements versus expense of $3.9 million in 2015 and recoveries totaling $2.7 million in 2016 compared to recoveries of $1.4 million in 2015.
Non-interest income increased $28.7 million, or 103.4%, for the year ended December 31, 2016, to $56.4 million, when compared to $27.7 million for the year ended December 31, 2015. The increase in non-interest income resulted primarily from the acquisition of the Disbursement business in June 2016, which increased interchange and card revenues by $24.1 million, increases in deposit fees of $7.1 million, and other income of $5.8 million driven by increases in university fees and a $2.2 million recovery of a previously recorded loss received in 2016. These increases were offset in part by an other-than-temporary impairment charge of $7.3 million recorded in 2016 on equity securities, and a decrease in bank-owned life insurance income of $2.3 million as a result of a $2.4 million benefit received on a bank-owned life insurance policy in 2015.
Non-interest expense increased $63.3 million, or 55.1%, during the year ended December 31, 2016, to $178.2 million, when compared to $114.9 million during the year ended December 31, 2015. The increase was primarily driven by increases in salaries and employee benefits of $21.9 million, technology, communication and bank operation expenses of $16.2 million, FDIC assessments, non-income taxes, and regulatory fees of $2.4 million, professional services of $9.6 million, occupancy expenses of $1.7 million and one-time charges of $1.4 million associated with legal matters. Most of the increased non-interest expense was attributable to the increased level of staff, core processing and technology-related expenses and other operating expenses arising from the acquisition of the Disbursement business in June 2016 as well as the organic growth of the Bank.
Income tax expense increased $16.0 million for the year ended December 31, 2016, to $45.9 million, when compared to $29.9 million in the same period in 2015. The increase in income tax expense was driven primarily by increased pre-tax income of $36.1 million in 2016 partially offset by the early adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which decreased income tax expense by $4.1 million for the year ended December 31, 2016. Customers' effective tax rate increased by 3.0% to 36.8% for 2016 from 33.8% for 2015.
Preferred stock dividends increased $7.0 million for 2016 due to the issuance of the Series D, Series E and Series F Preferred Stock during 2016 with an aggregate principal balance of $167.5 million and an average dividend yield of 6.23%.
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NET INTEREST INCOME
Net interest income (the difference between the interest earned on loans, 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 and related interest spread and net interest margin for the years ended December 31, 2017, 2016 and 2015.
For the Years Ended December 31, | ||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||
Average balance | Interest income or expense | Average yield or cost | Average balance | Interest income or expense | Average yield or cost | Average balance | Interest income or expense | Average yield or cost | ||||||||||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Interest-earning deposits | $ | 296,305 | $ | 3,132 | 1.06 | % | $ | 225,409 | $ | 1,218 | 0.54 | % | $ | 271,201 | $ | 718 | 0.26 | % | ||||||||||||||
Investment securities (A) | 870,979 | 25,153 | 2.89 | % | 540,532 | 14,293 | 2.64 | % | 427,638 | 10,405 | 2.43 | % | ||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Commercial loans to mortgage companies | 1,748,575 | 73,513 | 4.20 | % | 1,985,495 | 70,308 | 3.54 | % | 1,550,683 | 50,876 | 3.28 | % | ||||||||||||||||||||
Multifamily loans | 3,551,683 | 132,263 | 3.72 | % | 3,223,122 | 122,316 | 3.79 | % | 2,367,472 | 88,879 | 3.75 | % | ||||||||||||||||||||
Commercial and industrial | 1,452,805 | 60,595 | 4.17 | % | 1,172,655 | 46,257 | 3.94 | % | 681,722 | 26,758 | 3.93 | % | ||||||||||||||||||||
Non-owner occupied commercial real estate | 1,293,173 | 51,212 | 3.96 | % | 1,188,631 | 45,441 | 3.82 | % | 1,209,879 | 47,438 | 3.92 | % | ||||||||||||||||||||
All other loans | 503,532 | 22,353 | 4.44 | % | 370,663 | 18,496 | 4.99 | % | 415,307 | 19,882 | 4.79 | % | ||||||||||||||||||||
Total loans (B) | 8,549,768 | 339,936 | 3.98 | % | 7,940,566 | 302,818 | 3.81 | % | 6,225,063 | 233,833 | 3.76 | % | ||||||||||||||||||||
Other interest-earning assets | 103,710 | 4,629 | 4.46 | % | 84,797 | 4,210 | 4.96 | % | 72,693 | 4,894 | 6.73 | % | ||||||||||||||||||||
Total interest-earning assets | 9,820,762 | 372,850 | 3.80 | % | 8,791,304 | 322,539 | 3.67 | % | 6,996,595 | 249,850 | 3.57 | % | ||||||||||||||||||||
Non-interest-earning assets | 376,948 | 310,813 | 265,936 | |||||||||||||||||||||||||||||
Total assets | $ | 10,197,710 | $ | 9,102,117 | $ | 7,262,531 | ||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Interest checking accounts | $ | 386,819 | 3,157 | 0.82 | % | $ | 190,279 | 1,069 | 0.56 | % | $ | 123,527 | 686 | 0.56 | % | |||||||||||||||||
Money market deposit accounts | 3,339,053 | 34,488 | 1.03 | % | 3,085,140 | 19,233 | 0.62 | % | 2,412,958 | 12,548 | 0.52 | % | ||||||||||||||||||||
Other savings accounts | 40,791 | 112 | 0.27 | % | 39,122 | 95 | 0.24 | % | 36,820 | 111 | 0.30 | % | ||||||||||||||||||||
Certificates of deposit | 2,392,095 | 29,825 | 1.25 | % | 2,633,425 | 27,871 | 1.06 | % | 2,087,641 | 20,637 | 0.99 | % | ||||||||||||||||||||
Total interest-bearing deposits | 6,158,758 | 67,582 | 1.10 | % | 5,947,966 | 48,268 | 0.81 | % | 4,660,946 | 33,982 | 0.73 | % | ||||||||||||||||||||
Borrowings | 1,875,431 | 37,925 | 2.02 | % | 1,498,899 | 24,774 | 1.65 | % | 1,369,841 | 19,578 | 1.43 | % | ||||||||||||||||||||
Total interest-bearing liabilities | 8,034,189 | 105,507 | 1.31 | % | 7,446,865 | 73,042 | 0.98 | % | 6,030,787 | 53,560 | 0.89 | % | ||||||||||||||||||||
Non-interest-bearing deposits | 1,187,324 | 873,599 | 692,159 | |||||||||||||||||||||||||||||
Total deposits and borrowings | 9,221,513 | 1.14 | % | 8,320,464 | 0.88 | % | 6,722,946 | 0.80 | % | |||||||||||||||||||||||
Other non-interest-bearing liabilities | 72,714 | 84,752 | 30,394 | |||||||||||||||||||||||||||||
Total liabilities | 9,294,227 | 8,405,216 | 6,753,340 | |||||||||||||||||||||||||||||
Shareholders’ equity | 903,483 | 696,901 | 509,191 | |||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 10,197,710 | $ | 9,102,117 | $ | 7,262,531 | ||||||||||||||||||||||||||
Net interest earnings | 267,343 | 249,497 | 196,290 | |||||||||||||||||||||||||||||
Tax-equivalent adjustment (C) | 645 | 390 | 449 | |||||||||||||||||||||||||||||
Net interest earnings | $ | 267,988 | $ | 249,887 | $ | 196,739 | ||||||||||||||||||||||||||
Interest spread | 2.66 | % | 2.79 | % | 2.77 | % | ||||||||||||||||||||||||||
Net interest margin | 2.72 | % | 2.84 | % | 2.81 | % | ||||||||||||||||||||||||||
Net interest margin tax equivalent (C) | 2.73 | % | 2.84 | % | 2.81 | % | ||||||||||||||||||||||||||
(A) | For presentation in this table, balances and the corresponding average yield for investment securities are based upon historical cost, adjusted for other-than-temporary impairment and amortization of premiums and accretion of discounts. |
(B) | Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees. |
(C) | Non-GAAP tax-equivalent basis, using a 35% statutory tax rate to approximate interest income as a taxable asset. |
16
The following table presents the dollar amount of changes in interest income and interest expense for the major categories of interest-earning assets and interest-bearing liabilities. 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.
2017 vs. 2016 | 2016 vs. 2015 | ||||||||||||||||||||||
Increase (decrease) due to change in | Increase (decrease) due to change in | ||||||||||||||||||||||
Rate | Volume | Total | Rate | Volume | Total | ||||||||||||||||||
(amounts in thousands) | |||||||||||||||||||||||
Interest income: | |||||||||||||||||||||||
Interest-earning deposits | $ | 1,440 | $ | 474 | $ | 1,914 | $ | 639 | $ | (139 | ) | $ | 500 | ||||||||||
Investment securities | 1,422 | 9,438 | 10,860 | 961 | 2,927 | 3,888 | |||||||||||||||||
Loans: | |||||||||||||||||||||||
Commercial loans to mortgage companies | 12,206 | (9,001 | ) | 3,205 | 4,284 | 15,148 | 19,432 | ||||||||||||||||
Multifamily loans | (2,325 | ) | 12,272 | 9,947 | 976 | 32,461 | 33,437 | ||||||||||||||||
Commercial and industrial | 2,776 | 11,562 | 14,338 | 134 | 19,365 | 19,499 | |||||||||||||||||
Non-owner occupied commercial real estate | 1,673 | 4,098 | 5,771 | (1,172 | ) | (825 | ) | (1,997 | ) | ||||||||||||||
All other loans | (2,214 | ) | 6,071 | 3,857 | 816 | (2,202 | ) | (1,386 | ) | ||||||||||||||
Total loans | 12,116 | 25,002 | 37,118 | 5,038 | 63,947 | 68,985 | |||||||||||||||||
Other interest-earning assets | (454 | ) | 873 | 419 | (1,416 | ) | 732 | (684 | ) | ||||||||||||||
Total interest income | 14,524 | 35,787 | 50,311 | 5,222 | 67,467 | 72,689 | |||||||||||||||||
Interest expense: | |||||||||||||||||||||||
Interest checking accounts | 636 | 1,452 | 2,088 | 8 | 375 | 383 | |||||||||||||||||
Money market deposit accounts | 13,556 | 1,699 | 15,255 | 2,784 | 3,901 | 6,685 | |||||||||||||||||
Other savings accounts | 13 | 4 | 17 | (23 | ) | 7 | (16 | ) | |||||||||||||||
Certificates of deposit | 4,663 | (2,709 | ) | 1,954 | 1,538 | 5,696 | 7,234 | ||||||||||||||||
Total interest-bearing deposits | 18,868 | 446 | 19,314 | 4,307 | 9,979 | 14,286 | |||||||||||||||||
Borrowings | 6,192 | 6,959 | 13,151 | 3,243 | 1,953 | 5,196 | |||||||||||||||||
Total interest expense | 25,060 | 7,405 | 32,465 | 7,550 | 11,932 | 19,482 | |||||||||||||||||
Net interest income | $ | (10,536 | ) | $ | 28,382 | $ | 17,846 | $ | (2,328 | ) | $ | 55,535 | $ | 53,207 | |||||||||
For the years ended December 31, 2017 and 2016
Net interest income was $267.3 million for the year ended December 31, 2017, an increase of $17.8 million, or 7.2%, when compared to net interest income for the year ended December 31, 2016, of $249.5 million. The increase in net interest income in 2017 was primarily attributable to an increase in the average balance of interest-earning assets of $1.0 billion, or 11.7%, to $9.8 billion for the year ended December 31, 2017, when compared to $8.8 billion for the year ended December 31, 2016, offset in part by the narrowing of Customers' net interest margin (tax equivalent) by 11 basis points, to 2.73%, for the year ended December 31, 2017, from 2.84% for the year ended December 31, 2016.
For the years ended December 31, 2016 and 2015
Net interest income was $249.5 million for the year ended December 31, 2016, an increase of $53.2 million, or 27.1%, when compared to net interest income for the year ended December 31, 2015, of $196.3 million. The increase in net interest income was primarily attributable to an increase in the average balance of interest-earning assets of $1.8 billion, from $7.0 billion in 2015 to $8.8 billion in 2016, as well as the expansion of Customers' net interest margin (tax equivalent) by 3 basis points to 2.84% for the year ended December 31, 2016 from 2.81% for the year ended December 31, 2015.
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PROVISION FOR LOAN LOSSES
For more information about the provision and allowance for loan losses methodology and Customers' loss experience, see Critical Accounting Policies, FINANCIAL CONDITION - LOANS, CREDIT RISK and ASSET QUALITY herein and NOTE 4 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION to Customers' audited financial statements.
Customers maintains an allowance for loan losses to cover estimated probable losses incurred as of the balance sheet date on loans held for investment. The allowance for loan losses is increased through periodic provisions for loan losses that are charged as an expense on the consolidated statements of income and is reduced by charge-offs, net of recoveries. The loan portfolio is reviewed quarterly to evaluate the performance of the portfolio and the adequacy of the allowance for loan losses. The allowance for loan losses 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 allowance for loan losses balance with a corresponding charge (or debit) to the provision for loan losses.
For the years ended December 31, 2017 and 2016
During 2017, the provision for loan losses was $6.8 million, an increase of $3.7 million from a provision of $3.0 million in 2016. The 2017 provision expense included $2.3 million for loan portfolio growth and $5.6 million for impaired loans, offset in part by a $1.1 million release of the allowance estimate resulting from improved asset quality and lower incurred losses than previously estimated. Of the $6.8 million provision for loan losses recorded in 2017, $5.1 million related to the commercial and industrial loan portfolio, including owner occupied commercial real estate, and $0.6 million related to the multi-family loan portfolio. The 2016 provision included a benefit of $0.3 million attributable to FDIC loss sharing arrangements. Recoveries in 2017 totaled $1.1 million compared to recoveries of $2.7 million in 2016. There were no significant changes in Customers' methodology for estimating its allowance for loan losses, or policies regarding charge-offs, in 2017. For more information about the provision and the allowance for loan losses, see NOTE 9 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES to Customers' audited financial statements.
For the years ended December 31, 2016 and 2015
During 2016, the provision for loan losses was $3.0 million, a decrease of $17.5 million from a provision of $20.6 million in 2015. The 2015 provision for loan losses included $9.0 million for a fraudulent loan that was charged off in its entirety and reflected greater growth in loans held for investment. The held-for-investment loan portfolio (excluding loans receivable, mortgage warehouse, at fair value) grew approximately $0.7 billion in 2016 compared to $1.1 billion in 2015, resulting in less provision for new loans of approximately $2.5 million. The 2016 provision included a benefit of $0.3 million attributable to FDIC loss sharing arrangements versus expense of $3.9 million in 2015. Recoveries in 2016 totaled $2.7 million compared to recoveries of $1.4 million in 2015. There were no significant changes in Customers' methodology for estimating its allowance for loan losses, or policies regarding charge-offs, in 2016.
NON-INTEREST INCOME
The table below presents the various components of non-interest income for the years ended December 31, 2017, 2016 and 2015.
For the Years Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(amounts in thousands) | |||||||||||
Interchange and card revenue | $ | 41,509 | $ | 24,681 | $ | 557 | |||||
Deposit fees | 10,039 | 8,067 | 944 | ||||||||
Mortgage warehouse transactional fees | 9,345 | 11,547 | 10,394 | ||||||||
Gain (loss) on sale of investment securities | 8,800 | 25 | (85 | ) | |||||||
Bank-owned life insurance | 7,219 | 4,736 | 7,006 | ||||||||
Gains on sale of SBA and other loans | 4,223 | 3,685 | 4,047 | ||||||||
Mortgage banking income | 875 | 969 | 741 | ||||||||
Impairment loss on investment securities | (12,934 | ) | (7,262 | ) | — | ||||||
Other | 9,834 | 9,922 | 4,113 | ||||||||
Total non-interest income | $ | 78,910 | $ | 56,370 | $ | 27,717 | |||||
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For the years ended December 31, 2017 and 2016
Non-interest income increased $22.5 million, or 40.0%, for the year ended December 31, 2017, to $78.9 million, when compared to $56.4 million for the year ended December 31, 2016. The increase in non-interest income resulted primarily from increases in interchange and card revenue of $16.8 million, reflecting a full year of BankMobile Disbursement operations which was acquired in June 2016, gains on sales of investment securities of $8.8 million, bank-owned life insurance income of $2.5 million resulting from increased investment in bank-owned life insurance policies during 2017 and deposit fees of $2.0 million, reflecting a full year of BankMobile Disbursement operations, offset in part by an increase in impairment losses of $5.7 million recognized on equity securities due to further declines in fair value from December 31, 2016 through September 30, 2017 and a decrease in mortgage warehouse transaction fees of $2.2 million driven by a reduction in the volume of warehouse transactions.
For the years ended December 31, 2016 and 2015
Non-interest income increased $28.7 million, or 103.4%, for the year ended December 31, 2016, to $56.4 million, when compared to $27.7 million for the year ended December 31, 2015. The increase in non-interest income resulted primarily from the acquisition of the Disbursement business in June 2016, which increased interchange and card revenues by $24.1 million, increases in deposit fees of $7.1 million and other income of $5.8 million driven primarily by increases in university fees and a $2.2 million recovery of a previously recorded loss received in 2016. These increases were offset in part by the impairment loss of $7.3 million recorded in 2016 on equity securities and a decrease in bank-owned life insurance income of $2.3 million as a result of a $2.4 million benefit received on a bank-owned life insurance policy in 2015.
NON-INTEREST EXPENSE
The table below presents the various components of non-interest expense for the years ended December 31, 2017, 2016 and 2015.
For the Years Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(amounts in thousands) | |||||||||||
Salaries and employee benefits | $ | 95,518 | $ | 80,641 | $ | 58,777 | |||||
Technology, communication and bank operations | 45,885 | 26,839 | 10,596 | ||||||||
Professional services | 28,051 | 20,684 | 11,042 | ||||||||
Occupancy | 11,161 | 10,327 | 8,668 | ||||||||
FDIC assessments, non-income taxes, and regulatory fees | 7,906 | 13,097 | 10,728 | ||||||||
Provision for operating losses | 6,435 | 3,517 | 140 | ||||||||
Loan workout | 2,366 | 2,063 | 1,127 | ||||||||
Advertising and promotion | 1,470 | 1,549 | 1,475 | ||||||||
Other real estate owned | 570 | 1,953 | 2,516 | ||||||||
Merger and acquisition related expenses | 410 | 1,195 | — | ||||||||
Other | 15,834 | 16,366 | 9,877 | ||||||||
Total non-interest expense | $ | 215,606 | $ | 178,231 | $ | 114,946 | |||||
For the years ended December 31, 2017 and 2016
Non-interest expense was $215.6 million for the year ended December 31, 2017, which was an increase of $37.4 million over non-interest expense of $178.2 million for the year ended December 31, 2016. The increase in non-interest expense was primarily driven by increased BankMobile operating expenses of $39.2 million, reflecting a full year of operations for the BankMobile Disbursement business. The increases in BankMobile expenses included a $10.4 million increase in salaries and employee benefits, a $20.2 million increase in technology, communication and bank operations expenses and a $5.4 million increase in professional services. Excluding the BankMobile-related expenses, non-interest expense of the core bank decreased by $1.8 million in 2017 as a result of management's continued efforts to control expenses.
Salaries and employee benefits, which represent the largest component of non-interest expense, increased $14.9 million, or 18.4%, to $95.5 million for the year ended December 31, 2017, from $80.6 million for the year ended December 31, 2016, reflecting salary increases as well as a higher average number of full-time equivalent employees, primarily resulting from a full year of BankMobile Disbursement operations.
19
Technology, communication and bank operations expenses increased $19.0 million to $45.9 million for the year ended December 31, 2017, from $26.8 million for the year ended December 31, 2016. This increase was primarily attributable to increases in the core processing system and conversion-related expenses of $10.6 million. The conversion of Customers' core processing applications is expected to provide a significant cost savings in the future. There were also increases in interchange expenses of $5.5 million, reflecting a full year of BankMobile Disbursement operations and non-capitalizable software development costs of $4.9 million resulting from the continued development and support of the BankMobile technology platform as Customers strives to grow and successfully divest BankMobile in 2018. These increases were offset in part by a $3.9 million one-time expense for technology-related expenses in 2016.
FDIC assessments, non-income taxes, and regulatory fees decreased $5.2 million to $7.9 million for the year ended December 31, 2017, from $13.1 million for the year ended December 31, 2016. This decrease was primarily related to a lower insurance assessment charged by the FDIC as the FDIC's Deposit Insurance Fund reached a targeted ratio.
Professional services expense increased by $7.4 million to $28.1 million for the year ended December 31, 2017, from $20.7 million for the year ended December 31, 2016. This increase was primarily driven by increased customer service-related expenses of $4.8 million resulting from a full year of BankMobile Disbursement operations, increased legal expenses of $1.0 million associated with the planned divestment of BankMobile and increased consulting and other professional services to support the ongoing operations of the Bank and BankMobile.
The provision for operating losses increased by $2.9 million, or 83.0%, to $6.4 million for the year ended December 31, 2017, from $3.5 million for the year ended December 31, 2016. The provision for operating losses primarily consists of Customers' estimated liability for losses resulting from fraud or theft-based transactions that have generally been disputed by deposit account holders, mainly from its BankMobile Disbursement business, but where such disputes have not been resolved as of the end of the reporting period. The reserve is based on historical rates of loss on such transactions. The increase is mainly attributable to the accrual for the estimated liability for a full year of operations of the BankMobile Disbursement business in 2017.
Occupancy expense increased by $0.8 million to $11.2 million for the year ended December 31, 2017, from $10.3 million for the year ended December 31, 2016. This increase primarily reflects a full year of operations of the BankMobile Disbursement business, as well as increased business activity in existing and new markets, requiring additional team members and facilities.
For the years ended December 31, 2016 and 2015
Non-interest expense was $178.2 million for the year ended December 31, 2016, which was an increase of $63.3 million over non-interest expense of $114.9 million for the year ended December 31, 2015.
Salaries and employee benefits, which represent the largest component of non-interest expense, increased $21.9 million, or 37.2%, to $80.6 million for the year ended December 31, 2016, from $58.8 million for the year ended December 31, 2015. The increase was primarily related to the additional 225 Higher One employees that manage the Disbursement business and serve its customers. These employees became Customers' employees following the acquisition of the Disbursement business in June 2016.
Technology, communication and bank operations expenses increased $16.2 million to $26.8 million for the year ended December 31, 2016, from $10.6 million for the year ended December 31, 2015. The increase is primarily attributable to the acquisition of the Disbursement business in June 2016 which accounted for $12.7 million of the increase and mainly related to core processing, interchange and software depreciation expenses. The remaining increase related to organic growth of the Bank.
FDIC assessments, non-income taxes, and regulatory fees increased $2.4 million to $13.1 million for the year ended December 31, 2016, from $10.7 million for the year ended December 31, 2015. The primary reason for the 2016 increase was an adjustment in 2015 that reduced the Pennsylvania shares tax expense by $2.3 million.
Professional services expense increased by $9.6 million to $20.7 million for the year ended December 31, 2016, from $11.0 million for the year ended December 31, 2015, primarily attributable to increases in consulting, lending service fees and other professional services including those associated with the acquisition and operation of the Disbursement business.
The provision for operating losses increased by $3.4 million to $3.5 million for the year ended December 31, 2016, from $0.1 million for the year ended December 31, 2015. The provision for operating losses primarily consists of Customers' estimated liability for losses resulting from fraud or theft-based transactions that have generally been disputed by deposit account holders
20
mainly from its BankMobile Disbursements. The increase was mainly attributable to the accrual for the estimated liability for the partial year of operations of the BankMobile Disbursement business in 2016.
Occupancy expense increased by $1.7 million to $10.3 million for the year ended December 31, 2016, from $8.7 million for the year ended December 31, 2015. This increase was driven by increased business activity in existing and new markets, requiring additional team members and facilities. The increase also reflected a partial year of operations of the BankMobile Disbursement business.
Other expense increased by $6.5 million to $16.4 million for the year ended December 31, 2016, from $9.9 million for the year ended December 31, 2015. The increase was primarily attributable to increased staffing, supplies and other activities associated with the acquisition of the Disbursement business, and higher levels of miscellaneous expenses resulting from the organic growth of the Bank. Other expenses in 2016 also included one-time charges of $1.4 million associated with legal matters.
INCOME TAXES
For the years ended December 31, 2017 and 2016
The income tax expense and effective tax rate include both federal and state income taxes. Income tax expense for the year ended December 31, 2017, was $45.0 million and resulted in an effective tax rate of 36.36%, compared to income tax expense of $45.9 million and an effective tax rate of 36.83% for the year ended December 31, 2016. Income tax expense was primarily driven by net income before taxes of $123.9 million and $124.6 million for the years ended December 31, 2017 and 2016, respectively. In fourth quarter 2017, Customers recorded a deferred tax asset re-measurement charge to its income tax expense of $5.5 million, or a 4.44% effective tax rate increase, as a result of the enactment of the Tax Cuts and Jobs Act of 2017 in December 2017. In 2017, Customers also had an unrecorded basis difference in foreign subsidiaries of $4.5 million, or a 3.65% effective tax rate increase, related to the other-than-temporary impairment charges recorded during 2017 on equity securities held by these foreign subsidiaries. These adjustments were offset in part by the federal tax benefit recognized of $10.7 million, or a 8.67% effective tax rate reduction, resulting from exercises of employee stock options and vesting of restricted stock units. Customers currently estimates a 2018 effective tax rate of approximately 24%. The decrease from the 2017 effective tax rate is due to the Tax Cuts and Jobs Act of 2017 enacted on December 22, 2017, which reduced the corporate federal tax rate from 35% to 21% effective January 1, 2018. For additional information, see NOTE 16 - INCOME TAXES to Customers' audited financial statements.
For the years ended December 31, 2016 and 2015
The income tax expense and effective tax rate include both federal and state income taxes. In 2016, income tax expense was $45.9 million with an effective tax rate of 36.83%, compared to an expense of $29.9 million and an effective tax rate of 33.80% for 2015. Income tax expense was primarily driven by net income before taxes of $124.6 million and $88.5 million for the years ended December 31, 2016 and 2015, respectively. In 2016, the effective tax rate was higher due to state income tax items totaling $4.5 million, or a 3.65% effective tax rate increase, driven by a greater proportion of income producing assets domiciled in New York, particularly in New York City, an unrecorded basis difference in foreign subsidiaries of $2.8 million, or 2.27%, related to an other-than-temporary impairment charge recorded on equity securities in fourth quarter 2016, partially offset by an equity-based compensation benefit of $3.7 million or a 2.94% effective tax rate reduction, from the early adoption of ASU No. 2016-09, Improvements to Employee Share-Based Accounting, and a reduction of $1.7 million, or a 1.38% effective tax rate reduction, due to a tax benefit resulting from bank-owned life insurance income. In 2015, the effective tax rate was reduced due to a tax benefit resulting from bank-owned life insurance income of $2.4 million, or 2.73%.
21
FINANCIAL CONDITION
GENERAL
Customers reported total assets in excess of $10 billion at June 30, 2017, and September 30, 2017, with total assets reported of $10.9 billion and $10.5 billion, respectively. Customers strategically reduced total assets to under $10 billion at December 31, 2017, to improve capital ratios and to continue to maintain its small issuer status under the Durbin Amendment to maximize interchange revenue until the spin-off of BankMobile is completed, or until July 1, 2019. During fourth quarter 2017, Customers reduced total assets by selling $0.2 billion of consumer residential loans, $0.1 billion of multi-family loans, and $0.1 billion of investment securities. Commercial loans to mortgage banking businesses also declined in fourth quarter 2017 by $0.3 billion as a result of normal seasonality.
At December 31, 2017, total assets were $9.8 billion. This represented a $0.5 billion, or 4.9%, increase from total assets of $9.4 billion at December 31, 2016. The major change in Customers' financial position occurred as a result of organic growth in loans receivable (excluding loans receivable, mortgage warehouse, at fair value), which increased by $0.6 billion, or 10.0%, to $6.8 billion at December 31, 2017, from $6.2 billion at December 31, 2016. This increase was offset in part by a decline in loans receivable, mortgage warehouse, at fair value of $0.3 billion, or 15.3%, from $2.1 billion at December 31, 2016, to $1.8 billion at December 31, 2017.
Total loans outstanding were $8.7 billion at December 31, 2017, compared to $8.3 billion at December 31, 2016, an increase of $0.4 billion, or 5.3%. Multi-family loans increased by $0.4 billion to $3.6 billion at December 31, 2017. Commercial and industrial loans, including owner-occupied commercial real estate, increased by $0.3 billion to $1.6 billion at December 31, 2017. Commercial loans to mortgage banking businesses decreased $0.3 billion to $1.8 billion at December 31, 2017.
Total liabilities were $8.9 billion at December 31, 2017. This represented a $0.4 billion, or 4.6%, increase from total liabilities of $8.5 billion at December 31, 2016. The increase in total liabilities resulted primarily from a higher level of borrowings in 2017 compared to 2016. FHLB borrowings increased by $0.7 billion, federal funds purchased increased by $72.0 million and other borrowings increased by $99.4 million due to the issuance of the $100 million 3.95% Senior Notes in June 2017. These increases were partially offset by lower levels of deposits. Total deposits decreased by $0.5 billion, or 6.9%, to $6.8 billion at December 31, 2017, from $7.3 billion at December 31, 2016. Transaction deposits increased by $0.4 billion, or 9.4%, to $4.9 billion at December 31, 2017, from $4.5 billion at December 31, 2016, with non-interest bearing deposits increasing by $86.1 million. Certificates of deposit accounts decreased by $0.9 billion, or 32.7%, to $1.9 billion at December 31, 2017, from $2.8 billion at December 31, 2016.
The following table sets forth certain key condensed balance sheet data:
December 31, | |||||||
2017 | 2016 | ||||||
(amounts in thousands) | |||||||
Cash and cash equivalents | $ | 146,323 | $ | 264,709 | |||
Investment securities available for sale, at fair value | 471,371 | 493,474 | |||||
Loans held for sale (includes $1,886 and $695, respectively at fair value) - as restated | 146,077 | 695 | |||||
Loans receivable, mortgage warehouse, at fair value - as restated | 1,793,408 | 2,116,815 | |||||
Loans receivable | 6,768,258 | 6,154,637 | |||||
Total loans receivable, net of allowance for loan losses - as restated | 8,523,651 | 8,234,137 | |||||
Total assets | 9,839,555 | 9,382,736 | |||||
Total deposits | 6,800,142 | 7,303,775 | |||||
Federal funds purchased | 155,000 | 83,000 | |||||
FHLB advances | 1,611,860 | 868,800 | |||||
Other borrowings | 186,497 | 87,123 | |||||
Subordinated debt | 108,880 | 108,783 | |||||
Total liabilities | 8,918,591 | 8,526,864 | |||||
Total shareholders’ equity | 920,964 | 855,872 | |||||
Total liabilities and shareholders’ equity | 9,839,555 | 9,382,736 | |||||
22
CASH AND CASH EQIVALENTS
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. These balances totaled $20.4 million at December 31, 2017. This represents a $17.1 million decrease from $37.5 million at December 31, 2016. These balances vary from day to day, primarily due to fluctuations in customers’ deposits with the Bank.
Interest-earning deposits consist mainly of deposits at the Federal Reserve Bank of Philadelphia. These deposits totaled $125.9 million at December 31, 2017, which was a $101.3 million decrease from $227.2 million at December 31, 2016. This balance varies from day to day, depending on several factors, such as fluctuations in customers’ deposits with the Bank, payment of checks drawn on customers’ accounts and strategic investment decisions made to maximize Customers' net interest income, while effectively managing interest-rate risk and liquidity.
In connection with the June 2016 acquisition of the Disbursement business from Higher One, as of December 31, 2017 and 2016, Customers had $5 million and $20 million, respectively, in an escrow account restricted in use with a third party to be paid to Higher One upon the first and second anniversaries of the transaction closing. See NOTE 2 - ACQUISITION ACTIVITY to Customers' audited financial statements for additional information related to the acquisition of the Disbursement business. Also, in connection with the planned spin-off and merger of BankMobile, Customers had $1.0 million in an escrow account with a third party that is reserved for payment to Flagship Community Bank in the event the agreement is terminated for reasons described in the Amended and Restated Purchase and Assumption Agreement and Plan of Merger. See NOTE 3 - SPIN-OFF AND MERGER to Customers' audited financial statements for additional information related to this planned transaction.
INVESTMENT SECURITIES
The investment securities portfolio is an important source of interest income and liquidity. It consists of mortgage-backed securities (guaranteed by an agency of the United States government), domestic corporate debt and marketable equity securities. In addition to generating revenue, the investment portfolio is maintained to manage interest-rate risk, provide liquidity, provide collateral for other borrowings and diversify the credit risk of interest-earning assets. The portfolio is structured to maximize net interest income, given changes in the economic environment, liquidity position and balance sheet mix.
At December 31, 2017, investment securities were $471.4 million compared to $493.5 million at December 31, 2016. The decrease was primarily the result of an $817.3 million reduction in securities due to sales, maturities, calls and principal repayments and a $12.9 million impairment loss on equity securities, offset in part by purchases of higher-yielding securities of $796.6 million as Customers improved its average yield on investment securities to 2.89% for the year ended December 31, 2017, compared to 2.64% for the year ended December 31, 2016.
For financial reporting purposes, available-for-sale securities are carried at fair value. Unrealized gains and losses on available-for-sale securities are included in other comprehensive income and reported as a separate component of shareholders’ equity, net of the related tax effect. Beginning January 1, 2018, changes in the fair value of marketable equity securities classified as available for sale will be recorded in earnings in the period in which they occur and will no longer be deferred in accumulated other comprehensive income. Amounts previously recorded to accumulated other comprehensive income were reclassified to retained earnings on January 1, 2018.
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The following table sets forth the amortized cost of the investment securities at December 31, 2017 and 2016.
December 31, | |||||||
2017 | 2016 | ||||||
(amounts in thousands) | |||||||
Available for Sale | |||||||
Agency-guaranteed residential mortgage-backed securities | $ | 186,221 | $ | 233,002 | |||
Agency-guaranteed commercial real estate mortgage-backed securities | 238,809 | 204,689 | |||||
Corporate notes (1) | 44,959 | 44,932 | |||||
Equity securities (2) | 2,311 | 15,246 | |||||
$ | 472,300 | $ | 497,869 | ||||
(1) | Includes subordinated debt issued by other bank holding companies. |
(2) | Includes equity securities issued by a foreign entity. |
The following table sets forth information about the maturities and weighted-average yield of the securities portfolio. Yields are not reported on a tax-equivalent basis.
December 31, 2017 | |||||||||||||||||||||||||||
Amortized Cost | Fair Value | ||||||||||||||||||||||||||
< 1yr | 1 -5 years | 5 -10 years | After 10 years | No specific maturity | Total | Total | |||||||||||||||||||||
(amounts in thousands) | |||||||||||||||||||||||||||
Available for Sale | |||||||||||||||||||||||||||
Residential mortgage-backed securities | $ | — | $ | — | $ | — | $ | — | $ | 186,221 | $ | 186,221 | $ | 183,458 | |||||||||||||
Yield | 2.66 | % | 2.66 | % | — | ||||||||||||||||||||||
Commercial real estate mortgage-backed securities | 238,809 | $ | 238,809 | 238,472 | |||||||||||||||||||||||
Yield | — | — | — | — | 3.02 | % | 3.02 | % | — | ||||||||||||||||||
Corporate notes | — | — | 42,959 | 2,000 | — | 44,959 | 46,089 | ||||||||||||||||||||
Yield | — | — | 5.60 | % | 5.63 | % | — | 5.60 | % | — | |||||||||||||||||
Equity securities | — | — | — | — | 2,311 | 2,311 | 3,352 | ||||||||||||||||||||
Yield | — | — | — | — | — | % | — | % | — | ||||||||||||||||||
Total | $ | — | $ | — | $ | 42,959 | $ | 2,000 | $ | 427,341 | $ | 472,300 | $ | 471,371 | |||||||||||||
Weighted-Average Yield | — | % | — | % | 5.60 | % | 5.63 | % | 2.85 | % | 3.11 | % | |||||||||||||||
The mortgage-backed securities in the portfolio were issued by Fannie Mae, Freddie Mac, and Ginnie Mae and contain guarantees for the collection of principal and interest on the underlying mortgages. The corporate notes in the portfolio include subordinated notes issued by other bank holding companies.
LOANS
Existing lending relationships are primarily with small and middle market businesses and individual consumers primarily in Bucks, Berks, Chester, Montgomery, Delaware, and Philadelphia Counties, Pennsylvania; Camden and Mercer Counties, New Jersey; and Westchester, Suffolk and New York Counties, New York; and the New England area. The portfolio of loans to mortgage banking businesses is nationwide. The loan portfolio consists primarily of loans to support mortgage banking companies’ funding needs, multi-family/commercial real estate and commercial and industrial loans. The Bank continues to focus on small and middle market business loans to grow its commercial lending efforts, expand its specialty mortgage warehouse lending business and expand its multi-family/commercial real estate lending business.
Commercial Lending
Customers' commercial lending is divided into five groups: Business Banking, Small and Middle Market Business Banking, Multi-Family and Commercial Real Estate Lending, Mortgage Banking Lending and Equipment Finance. 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.
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The commercial lending group focuses on companies with annual revenues ranging from $1 million to $100 million, that typically have credit requirements between $0.5 million and $10 million.
The small and middle market business banking platform originates loans, including Small Business Administration loans, through the branch network sales force and a team of dedicated relationship managers. The support administration of this platform is centralized including risk management, product management, marketing, performance tracking and overall strategy. Credit and sales training has been established for Customers' sales force, thus ensuring that it has small business experts in place to provide appropriate financial solutions to the small business owners in its communities. A division approach focuses on industries that offer high asset quality and are deposit rich to drive profitability.
In 2009, Customers launched its lending to mortgage banking businesses products, which primarily provides financing to mortgage bankers for residential mortgage originations from loan closing until sale in the secondary market. Many providers of liquidity in this segment exited the business in 2009 during a period of market turmoil. Customers saw an opportunity to provide liquidity to this business segment at attractive spreads. There was also the opportunity to attract escrow deposits and to generate fee income in this business. The goal of the lending to mortgage banking business group is to originate loans that provide liquidity to mortgage banking companies. These loans are primarily used by mortgage banking companies to fund their pipelines from closing of individual mortgage loans until their sale into the secondary market. The underlying residential loans serve as collateral for Customers' commercial loans. As of December 31, 2017 and 2016, commercial loans to mortgage banking businesses totaled $1.8 billion and $2.1 billion, respectively, and are reported as loans receivable, mortgage warehouse, at fair value on the consolidated balance sheets.
The goal of Customers' multi-family lending group is to build a portfolio of high-quality multi-family loans within Customers' covered markets while cross-selling other products and services. These lending activities primarily target the refinancing of loans with other banks using conservative underwriting standards and provide purchase money for new acquisitions by borrowers. The primary collateral for these loans is a first-lien mortgage on the multi-family property, plus an assignment of all leases related to such property. As of December 31, 2017, Customers had multi-family loans of $3.6 billion outstanding, comprising approximately 41.9% of the total loan portfolio, compared to $3.2 billion, or approximately 38.9% of the total loan portfolio, at December 31, 2016.
The equipment finance group offers equipment financing and leasing products and services for a broad range of asset classes. It services vendors, dealers, independent finance companies, bank-owned leasing companies and strategic direct customers in the plastics, packaging, machine tool, construction, transportation and franchise markets. As of December 31, 2017 and 2016, Customers had $152.5 million and $89.4 million, respectively, of equipment finance loans outstanding. As of December 31, 2017 and 2016, Customers had $26.6 million and $10.3 million of finance leases, respectively. As of December 31, 2017, Customers had $22.2 million of operating leases entered into under this program. Customers had not entered into similar operating lease arrangements in 2016.
As of December 31, 2017, Customers had $8.4 billion in commercial loans outstanding, composing approximately 96.2% of its total loan portfolio, which includes loans held for sale, compared to $8.0 billion, composing approximately 96.4% of its total loan portfolio at December 31, 2016.
Consumer Lending
Customers provides home equity and residential mortgage loans to customers. Underwriting standards for home equity lending are conservative, and 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, 2017, Customers had $329.7 million in consumer loans outstanding, or 3.8% of the total loan portfolio, which includes loans held for sale. Customers plans to expand its product offerings in real-estate-secured consumer lending.
Customers has launched a community outreach program in Philadelphia to finance homeownership in urban communities. As part of this program, Customers is offering an “Affordable Mortgage Product." This community outreach program is penetrating the underserved population, especially in low-and-moderate-income neighborhoods. As part of this commitment, a loan production office was opened in Progress Plaza, 1501 North Broad Street, Philadelphia, PA. The program includes homebuyer seminars that prepare potential homebuyers for homeownership by teaching money management and budgeting skills, including the financial responsibilities that come with having a mortgage and owning a home. The “Affordable Mortgage Product” is offered throughout Customers' assessment areas.
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The composition of loans held for sale was as follows:
December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(amounts in thousands) | (As Restated) | (As Restated) | (As Restated) | (As Restated) | (As Restated) | ||||||||||||||
Commercial loans: | |||||||||||||||||||
Multi-family loans at lower of cost or fair value | $ | 144,191 | $ | — | $ | 39,257 | $ | 99,791 | $ | — | |||||||||
Total commercial loans held for sale | 144,191 | — | 39,257 | 99,791 | — | ||||||||||||||
Consumer loans: | |||||||||||||||||||
Residential mortgage loans, at fair value | 1,886 | 695 | 2,857 | 3,649 | 6,899 | ||||||||||||||
Loans held for sale | $ | 146,077 | $ | 695 | $ | 42,114 | $ | 103,440 | $ | 6,899 | |||||||||
At December 31, 2017, loans held for sale totaled $146.1 million, or 1.7% of the total loan portfolio, and $0.7 million, or less than 0.01% of the total loan portfolio, at December 31, 2016. Loans held for sale are carried on the 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 allowance for loan losses is not recorded on loans that are classified as held for sale.
Because the FDIC loss sharing agreements were terminated in 2016, and the balance of covered loans was not significant to Customers' total loan portfolio, the disaggregation between covered and non-covered loans is no longer presented in the disclosures that follow. Additional disaggregation of the commercial real estate loan portfolio between owner occupied commercial real estate and non-owner occupied commercial real estate is presented for 2017, 2016, 2015 and 2014. For 2013, owner occupied commercial real estate and non-owner occupied commercial real estate are presented collectively as commercial real estate loans.
The composition of loans receivable (excluding loans held for sale) was as follows:
December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(amounts in thousands) | (As Restated) | (As Restated) | (As Restated) | (As Restated) | (As Restated) | ||||||||||||||
Loans receivable, mortgage warehouse, at fair value | $ | 1,793,408 | $ | 2,116,815 | $ | 1,754,950 | $ | 1,332,019 | $ | 740,694 | |||||||||
Loans receivable: | |||||||||||||||||||
Commercial: | |||||||||||||||||||
Multi-family | 3,502,381 | 3,214,999 | 2,909,439 | 2,208,405 | 1,064,059 | ||||||||||||||
Commercial and industrial (a) | 1,633,818 | 1,382,343 | 1,111,400 | 785,669 | 296,595 | ||||||||||||||
Commercial real estate (b) | 1,218,719 | 1,193,715 | 956,255 | 839,310 | 753,591 | ||||||||||||||
Construction | 85,393 | 64,789 | 87,240 | 49,718 | 42,917 | ||||||||||||||
Total commercial loans receivable | 6,440,311 | 5,855,846 | 5,064,334 | 3,883,102 | 2,157,162 | ||||||||||||||
Consumer: | |||||||||||||||||||
Residential real estate | 234,090 | 193,502 | 271,613 | 297,395 | 163,920 | ||||||||||||||
Manufactured housing | 90,227 | 101,730 | 113,490 | 126,731 | 139,471 | ||||||||||||||
Other | 3,547 | 3,483 | 3,708 | 4,433 | 5,437 | ||||||||||||||
Total consumer loans receivable | 327,864 | 298,715 | 388,811 | 428,559 | 308,828 | ||||||||||||||
Loans receivable | 6,768,175 | 6,154,561 | 5,453,145 | 4,311,661 | 2,465,990 | ||||||||||||||
Deferred costs (fees) and unamortized premiums (discounts), net | 83 | 76 | |||||||||||||||||