SPIN-OFF AND MERGER

In third quarter 2017, Customers decided that the best strategy for its shareholders to realize the value of the BankMobile business was to divest BankMobile through a spin-off of BankMobile to Customers’ shareholders to be followed by a merger 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 the BankMobile spin-off subsidiary into Flagship, with Customers' shareholders first receiving shares of the BankMobile spin-off subsidiary as a dividend in the spin-off and then receiving shares of Flagship common stock in the merger of the BankMobile spin-off subsidiary into Flagship in exchange for shares of the BankMobile spin-off subsidiary common stock they receive in the spin-off. Separately, Flagship will assume the deposits and purchase certain associated assets of BankMobile for $10 million. Following completion of the spin-off and merger and other transactions contemplated in the Amended Agreement between Customers and Flagship, the BankMobile spin-off subsidiary shareholders would receive collectively more than 50% of Flagship common stock. The common stock of the merged entities, expected to be called BankMobile, is expected to be listed on a national securities exchange after completion of the transactions. In connection with the signing of the Amended Agreement on November 17, 2017, Customers deposited $1.0 million in an escrow account with a third party to be reserved for payment to Flagship in the event the Amended Agreement is terminated for reasons described in the Amended Agreement. This $1.0 million is considered restricted cash and is presented in cash and cash equivalents in the accompanying June 30, 2018 consolidated balance sheet. The Amended Agreement provides that completion of the transactions will be subject to the receipt of all necessary closing conditions. Although the possibility still exits that the spin-off and merger could close by September 30, 2018, at this time, no assurance can be given that the spin-off and merger will occur by or shortly after September 30, 2018.

As of June 30, 2017, BankMobile met the criteria to be classified as held for sale and, accordingly, the operating results of BankMobile for the three and six month periods ended June 30, 2017, along with the associated cash flows of BankMobile for the six months ended June 30, 2017, were presented as "Discontinued operations." However, generally accepted accounting principles require that assets, liabilities, operating results, and cash flows associated with a business to be disposed of through a spin-off/merger transaction should not be reported as held for sale or discontinued operations until execution of the spin-off/merger transaction. As a result, 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 operating results and cash flows were no longer reported as held for sale or discontinued operations but instead were reported as held and used. At September 30, 2017, Customers measured the business at the lower of its (i) carrying amount before it was classified as held for sale, adjusted for depreciation and amortization expense that would have been recognized had the business been continuously classified as held and used, or (ii) fair value at the date the decision not to sell was made.

Amounts previously reported as discontinued operations for the three and six month periods ended June 30, 2017 have been reclassified to conform with the current period presentation within the accompanying consolidated financial statements as summarized below. Customers will continue reporting the Community Business Banking and BankMobile segment results. See NOTE 12 - BUSINESS SEGMENTS.

The following tables summarize the effect of the reclassification of BankMobile from held for sale to held and used on the previously reported consolidated statements of income for the three and six months ended June 30, 2017:



	Three Months Ended June 30, 2017
(amounts in thousands)	As Previously Reported			Effect of Reclassification From Held For Sale to Held and Used			After Reclassification
Interest income	$	93,852		$	—		$	93,852
Interest expense	25,236			10			25,246
Net interest income	68,616			(10		)	68,606
Provision for loan losses	535			—			535
Non-interest income	6,971			11,420			18,391
Non-interest expense	30,567			19,846			50,413
Income from continuing operations before income taxes	44,485			(8,436		)	36,049
Provision for income taxes	15,533			(3,206		)	12,327
Net income from continuing operations	28,952			(5,230		)	23,722
Loss from discontinued operations before income taxes	(8,436		)	8,436			—
Income tax benefit from discontinued operations	(3,206		)	3,206			—
Net loss from discontinued operations	(5,230		)	5,230			—
Net income	23,722			—			23,722
Preferred stock dividends	3,615			—			3,615
Net income available to common shareholders	$	20,107		$	—		$	20,107



	Six Months Ended June 30, 2017
(amounts in thousands)	As Previously Reported			Effect of Reclassification From Held For Sale to Held and Used			After Reclassification
Interest income	$	176,946		$	—		$	176,946
Interest expense	45,906			16			45,922
Net interest income	131,040			(16		)	131,024
Provision for loan losses	3,585			—			3,585
Non-interest income	12,398			28,746			41,144
Non-interest expense	60,714			39,064			99,778
Income from continuing operations before income taxes	79,139			(10,334		)	68,805
Provision for income taxes	23,263			(3,927		)	19,336
Net income from continuing operations	55,876			(6,407		)	49,469
Loss from discontinued operations before income taxes	(10,334		)	10,334			—
Income tax benefit from discontinued operations	(3,927		)	3,927			—
Net loss from discontinued operations	(6,407		)	6,407			—
Net income	49,469			—			49,469
Preferred stock dividends	7,229			—			7,229
Net income available to common shareholders	$	42,240		$	—		$	42,240