NOTE 12 – STOCK BASED COMPENSATION PLANS

Stock Option Plans

During 2010, the shareholders of Customers Bank approved the 2010 Stock Option Plan (“2010 Plan”) and during 2011, the shareholders of Customers Bank approved the Amendmed and Restated 2004 Incentive Equity and Deferred Compensation Plan (“2004 Plan”). The 2010 Plan and 2004 Plan were subsequently amended to reflect the September 17, 2011 Plan of Merger and Reorganization approved by the shareholders of Customers Bank. The purpose of these plans is to promote the success and enhance the value of Bancorp by linking the personal interests of the members of the Board of Directors and Customers Bank's employees, officers and executives to those of Bancorp's shareholders and by providing such individuals with an incentive for outstanding performance in order to generate superior returns to shareholders of Bancorp. The 2010 Plan and 2004 Plan are intended to provide flexibility to Bancorp in its ability to motivate, attract and retain the services of members of the Board of Directors, employees, officers and executives of Customers Bank. Stock options granted normally vest on the third or fifth anniversary of the grant date plus the fully diluted tangible book value must increase by 50% for the 2010 Plan and three years for the 2004 Plan plus the fully diluted tangible book value must increase by 50%.

The 2010 and 2004 Plans are administered by the Compensation Committee of the Board of Directors. The 2010 Plan provides exclusively for the grant of stock options, some or all of which may be structured to qualify as Incentive Stock Options, to employees, officers, executives and directors. The maximum number of shares of common stock and Class B Non-Voting common stock which may be issued under the 2010 Plan is the lesser of (a) 15% of the number of shares of common stock and Class B Non-Voting common stock issued in consideration of cash or other property after December 31, 2009, or (b) 3,333,334 shares. The 2004 Plan provides for the grant of options, some or all of which may be structured to qualify as Incentive Stock Options if granted to employees, stock appreciation rights (“SARS”), restricted stock and unrestricted stock to employees, officers, executives and members of the Board of Directors. The maximum number of shares of common stock and Class B Non-Voting common stock which may be issued under the 2004 Plan is 500,000 shares.

During the year ended December 31, 2011, the Bancorp (as successor to the Bank) granted to employees options to purchase 200,268 shares of common stock at a weighted-average exercise price of $12.12 per share. The stock options vest on the fifth anniversary after the date of grant plus the fully diluted tangible book value must increase by 50%.

For the years ended December 31, 2011 and 2010, Customers Bank estimated the fair value of each option grant on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

		2011			2010
Risk-free interest rates		2.00	%		2.81	%
Expected dividend yield		0.00	%		0.00	%
Expected volatility		20.00	%		20.00	%
Expected lives (years)		7			7
Weighted average fair value of options granted	$	4.14		$	2.68

The following summarizes the changes in stock option activity under the Bancorp's stock option plans at December 31, 2011:

	Number of shares			Weighted average exercise price		Weighted average remaining contractual term in years		Aggregate intrinsic value
Outstanding, January 1, 2011		758,244		$	10.38
Issued		375,776			12.41
Forfeited		(6,367	)		17.81
Outstanding, December 31, 2011		1,127,653		$	11.00		5.38	$	2,628
Options exercisable at December 31, 2011		6,592		$	31.75		3.99	$	-

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Bancorp's latest sale price of $13.20 and the exercise price) multiplied by the number of in-the-money options.

A summary of the status of the Bancorp's nonvested options at December 31, 2011 and changes during the year ended December 31, 2011 is as follows:

	Number of shares			Weighted average grant-date Fair Value
Nonvested at January 1, 2011		746,960		$	3.12
Issued		375,776			5.58
Forfeited		(1,675	)		3.09
Nonvested at December 31, 2011		1,121,061		$	3.96

For the years ended December 31, 2011 and 2010, the Bancorp recognized $704 and $291, respectively in stock option compensation expense as a component of salaries and benefits. The weighted-average remaining contractual life of the outstanding stock options at December 31, 2011 is approximately 5.38 years. Unvested compensation was $1,587 at December 31, 2011. The aggregate intrinsic value of options outstanding was $2,152 at December 31, 2011.

Restricted Stock Units

The Bancorp (as successor to the Bank) granted restricted stock units to purchase 35,622 shares of common stock on February 17, 2011. These awards vest on the third anniversary of the grant date. The fair value of the restricted stock units granted on February 17, 2011 was $12.00 per share. Unrecognized compensation expense related to unvested restricted stock units was approximately $304 at December 31, 2011 and is expected to be recognized over a period of 2.87 years.

Management Stock Purchase Plan

The Bancorp initiated a Management Stock Purchase Program (MSPP) in 2010 where certain employees were offered an option to purchase shares of common stock at $1.00 per share for an aggregate issuance of 233,333 shares of common stock. The MSPP offers vested in accordance with the plan document in the third quarter of 2010 as result of the acquisition of USA Bank on July 9, 2010. The Bancorp's common stock had a market value of $10.50 at the offer date and compensation expense of $1,750 was recorded as a component of salaries and benefits during the year ended December 31, 2010. In December 2010, the offer period was completed and 233,333 shares of common stock were issued.

Bonus Recognition and Retention Program

The Bancorp initiated a Bonus Recognition and Retention Program (BRRP) effective January 1, 2011. Employees eligible to participate in the BRRP include the Chief Executive Officer and other management and highly compensated employees as determined by the Compensation Committee in its sole discretion. Under the BRRP, a participant may elect to defer receipt of not less than 25%, nor more than 50%, of his or her bonus payable with respect to each year of participation. Shares of Voting Common Stock having a value equal to the portion of the bonus deferred by a participant will be allocated to an annual deferral account and a matching amount equal to an identical number of shares of common stock shall be allocated to the annual deferral account. A participant becomes 100% vested in the annual deferral account on the fifth anniversary date of the initial funding of the account, provided he or she remains continuously employed by us from the date of funding to the anniversary date. Vesting is accelerated in the event of involuntary termination other than for cause, retirement at or after age 65, death, termination on account of disability, or a change in control of the Bancorp. Participants were first eligible to make elections under the BRRP with respect to their bonuses for 2011 which were payable in the first quarter of 2012.