Investment Securities

6 Months Ended

Jun. 30, 2012

Investment Securities [Abstract]

INVESTMENT SECURITIES

NOTE 5 — INVESTMENT SECURITIES

On May 9, 2012, Customers Bancorp reclassified its $269,000 held-to-maturity investment portfolio to available for sale. Due to its strong outlook for loan growth, falling interest rates, and its recent decision to postpone its initial public offering of stock, the Bancorp decided to proceed with this reclassification to provide liquidity. The reclassification increased total shareholders’ equity by $5,300 associated with the recording of the net security gains on the portfolio, net of tax effects, to accumulated other comprehensive income. Subsequently, the Bancorp sold $257,645 of available-for-sale securities and realized a pre-tax gain of $8,797. In accordance with regulatory and accounting requirements, the Bancorp is prohibited from classifying security purchases as held to maturity for a period of two years.

The amortized cost and approximate fair value of investment securities as of June 30, 2012 and December 31, 2011 are summarized as follows:

	June 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
Mortgage-backed securities (1) (2)	$	107,360	$	661	$	(113	)	$	107,908
Asset-backed securities		574		8		0			582
Municipal securities		2,062		2		(6	)		2,058
Corporate notes		25,000		0		(797	)		24,203
Equities		6		0		0			6
	$	135,002	$	671	$	(916	)	$	134,757

(1) Includes an interest only strip security of $2,632.

(2) Includes private-label securities with an aggregate amortized cost of $701 and an aggregate fair value of $635.

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Treasury and government agencies	$	1,002	$	0	$	(1	)	$	1,001
Mortgage-backed securities (1) (2)		55,818		581		(107	)		56,292
Asset-backed securities		622		5		0			627
Municipal securities		2,071		0		(71	)		2,000
Corporate notes		20,000		0		(783	)		19,217
	$	79,513	$	586	$	(962	)	$	79,137
Held to Maturity:
Mortgage-backed securities	$	319,547	$	11,262	$	0		$	330,809

(1) Includes an interest only strip security of $2,894.

(2) Includes private-label securities with an aggregate amortized cost of $765 and an aggregate fair value of $662.

The following tables shows proceeds from the sale of available for sale investment securities, gross gains and gross losses on those sales of securities for the three and six months ended June 30, 2012:

	Three months ended June 30,
	2012		2011
Proceeds from sale of available-for-sale investment securities	$	257,645	$	0
Gross gains	$	8,797	$	0
Gross losses		0		0
Net gains	$	8,797	$	0
	Six months ended June 30,
	2012		2011
Proceeds from sale of available-for-sale investment securities	$	306,610	$	0
Gross gains	$	9,006	$	0
Gross losses		0		0
Net gains	$	9,006	$	0

These gains and losses were determined using the specific identification method and were included in non-interest income.

The following table shows investments securities by stated maturity. Investment securities backed by mortgages have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and are, therefore, classified separately with no specific maturity date:

	June 30, 2012
	Available for Sale
	Amortized Cost		Fair Value
Due in one year or less	$	94	$	94
Due after one year through five years		27,461		26,667
Due after five years through ten years		46		47
Due after ten years		35		35
		27,636		26,843
Mortgage-backed securities (1)		107,360		107,908
Total, excluding equities	$	134,996	$	134,751

(1) Includes an interest only strip security of $2,632.

The Bancorp’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time for individual securities that have been in a continuous unrealized loss position, at June 30, 2012 and December 31, 2011, were as follows:

	June 30, 2012
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for Sale:
Mortgage-backed securities	$	10,509	$	(42	)	$	425	$	(71	)	$	10,934	$	(113	)
Municipal securities		0		0			1,003		(6	)		1,003		(6	)
Corporate notes		24,203		(797	)		0		0			24,203		(797	)
Total	$	34,712	$	(839	)	$	1,428	$	(77	)	$	36,140	$	(916	)

	December 31, 2011
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for Sale:
U.S. Treasury and government agencies	$	1,001	$	(1	)	$	0	$	0		$	1,001	$	(1	)
Mortgage-backed securities		166		(1	)		412		(106	)		578		(107	)
Municipal securities		0		0			2,000		(71	)		2,000		(71	)
Corporate notes		19,218		(783	)		0		0			19,218		(783	)
Total	$	20,385	$	(785	)	$	2,412	$	(177	)	$	22,797	$	(962	)

At June 30, 2012, there were eight available-for-sale investment securities in the less-than-twelve-month category and seven available-for-sale investment securities in the twelve-month-or-more category. At December 31, 2011, there were ten available-for-sale investment securities in the less-than-twelve-month category and six available-for-sale investment securities in the twelve-month-or-more category. In management’s opinion, the unrealized losses reflect primarily changes in interest rates due to changes in economic conditions and the liquidity of the market, and not credit quality. In addition, the Bancorp does not believe that it will be more likely than not that the Bancorp will be required to sell the securities prior to maturity or market-price recovery.

During June 2012, Moody’s downgraded all five corporate bonds in the Bancorp’s portfolio. This downgrade was anticipated since Moody’s placed these bonds on negative watch in February 2012. The Bancorp analyzed these bonds in more detail at the time of downgrade. The Bancorp does not intend to sell these debt securities prior to recovery, and it is more likely than not that the Bancorp will not have to sell these debt securities prior to recovery. These bonds continue to pay their scheduled interest payments on time. No additional downgrades are anticipated at this time.

At June 30, 2012 and December 31, 2011, the Bancorp had pledged investment securities aggregating $106,618 and $311,442, respectively, as collateral for borrowings.