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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Risk Management Objectives of Using Derivatives Customers is exposed to certain risks arising from both its business operations and economic conditions. Customers manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and durations of its assets and liabilities. Specifically, Customers enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. Customers’ derivative financial instruments are used to manage differences in the amount, timing, and duration of Customers’ known or expected cash receipts and its known or expected cash payments principally related to certain loans, borrowings and deposits. Customers also has interest-rate derivatives resulting from an accommodation provided to certain qualifying customers, and therefore, they are not used to manage Customers’ interest-rate risk in assets or liabilities. Customers manages a matched book with respect to its derivative instruments used in this customer service in order to minimize its net risk exposure resulting from such transactions. Cash Flow Hedges of Interest-Rate Risk Customers’ objectives in using interest-rate derivatives include managing exposure to interest rate movements. To accomplish this objective, Customers primarily uses interest rate swaps as part of its interest rate risk management strategy. In the past,such derivatives were used to hedge the variable cash flows associated with the forecasted issuances of debt and a certain variable-rate deposit relationship. During the three and nine months ended September 30, 2025, Customers entered into two interest rate derivatives with notional amounts totaling $800 million that were designated as cash flow hedges of interest-rate risk associated with variable-rate commercial and industrial loans. The outstanding cash flow hedges expire between July 2027 and July 2028. Interest rate swaps designated as cash flow hedges associated with the forecasted issuance of debt and variable-rate deposit relationships involve the receipt of variable amounts from a counterparty in exchange for Customers making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate swaps designated as cash flow hedges of loans receivable involve the receipt of fixed amounts from a counterparty in exchange for Customers making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in AOCI and subsequently reclassified into earnings in the period that the hedged item affects earnings. At December 31, 2024, Customers had no outstanding interest rate derivative designated as cash flow hedges of interest-rate risk. Customers discontinues cash flow hedge accounting if it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in AOCI are reclassified immediately into earnings and any subsequent changes in the fair value of such derivatives are recognized directly in earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are received on Customers’ variable-rate commercial and industrial loans. Customers expects to reclassify $0.3 million of gains from AOCI to interest income during the next twelve months. Customers is hedging its exposure to the variability in future cash flows for forecasted transactions (interest payments on commercial and industrial loans) over a maximum period of three years. Fair Value Hedges of Benchmark Interest-Rate Risk Customers is exposed to changes in the fair value of certain of its fixed rate AFS debt securities, deposits and FHLB advances due to changes in the benchmark interest rate. Customers uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate such as the Fed Funds Effective Swap Rate. Interest rate swaps designated as fair value hedges of certain fixed rate AFS debt securities involve the payment of fixed-rate amounts to a counterparty in exchange for Customers receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Interest rate swaps designated as fair value hedges of certain deposits and FHLB advances involve the payment of variable-rate amounts to a counterparty in exchange for Customers receiving fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in net interest income. At September 30, 2025, Customers had 44 outstanding interest rate derivatives with notional amounts totaling $2.4 billion that were designated as fair value hedges of certain deposits and FHLB advances. Customers did not enter into any interest rate derivatives that were designated as fair value hedges of deposits or FHLB advances during the three months ended September 30, 2025. During the nine months ended September 30, 2025, Customers entered into three interest rate derivatives with notional amounts totaling $320.2 million that were designated as fair value hedges of certain deposits. During the three and nine months ended September 30, 2024, Customers entered into 12 and 37 interest rate derivatives with notional amounts totaling $431.6 million and $1.8 billion, respectively, that were designated as fair value hedges of certain deposits and FHLB advances. At December 31, 2024, Customers had 46 outstanding interest rate derivatives with notional amounts totaling $2.4 billion that were designated as fair value hedges of certain deposits and FHLB advances. As of September 30, 2025 and December 31, 2024, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges:
|  | Amortized Cost |  | Cumulative Amount of Fair Value Hedging Adjustment to Hedged Items
(amounts in thousands) |  | September 30, 2025 |  | December 31, 2024 |  | September 30, 2025 |  | December 31, 2024
AFS debt securities |  | $ | — |  |  | $ | 10,000 |  |  | $ | — |  |  | $ | — |
Deposits |  | 1,697,282 |  |  | 1,794,923 |  |  | 22,495 |  |  | (6,042) |
FHLB advances |  | 750,000 |  |  | 1,200,000 |  |  | 5,437 |  |  | (1,648) |
Derivatives Not Designated as Hedging Instruments Customers executes interest rate swaps (typically the loan customers will swap a floating-rate loan for a fixed-rate loan), caps and collars with commercial banking customers to facilitate their respective risk management strategies. The customer interest rate swaps, caps and collars are simultaneously offset by interest rate swaps, caps and collars that Customers executes with a third party in order to minimize interest-rate risk exposure resulting from such transactions. As the interest rate swaps, caps and collars associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps, caps and collars and the offsetting third-party market swaps, caps and collars are recognized directly in earnings. At September 30, 2025, Customers had 120 interest rate swaps with an aggregate notional amount of $1.2 billion and eight interest rate caps and collars with an aggregated notional amount of $309.2 million related to this program. At December 31, 2024, Customers had 128 interest rate swaps with an aggregate notional amount of $1.2 billion and two interest rate caps with an aggregate notional amount of $150.0 million related to this program. Fair Value of Derivative Instruments on the Balance Sheet The following tables present the fair value of Customers’ derivative financial instruments as well as their presentation on the consolidated balance sheets as of September 30, 2025 and December 31, 2024:
|  | September 30, 2025
|  | Derivative Assets |  | Derivative Liabilities
(amounts in thousands) |  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Interest rate swaps, caps and collars (1) |  | Other assets |  | $ | 12,613 |  |  | Other liabilities |  | $ | 17,300 |
|  | December 31, 2024
|  | Derivative Assets |  | Derivative Liabilities
(amounts in thousands) |  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate swaps and caps (1) |  | Other assets |  | $ | 15,223 |  |  | Other liabilities |  | $ | 22,567 |
(1) Customers’ centrally cleared derivatives are legally settled through variation margin payments and these payments are reflected as a reduction of the related derivative asset or liability, including accrued interest, on the consolidated balance sheet. Effect of Derivative Instruments on Net Income The following table presents amounts included in the consolidated statements of income related to derivatives designated as fair value hedges and derivatives not designated as hedges for the three and nine months ended September 30, 2025 and 2024:
|  |  | Amount of Income (Loss) Recognized in Earnings
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(amounts in thousands) | Income Statement Location |  | 2025 |  | 2024 |  | 2025 |  | 2024
Derivatives designated as fair value hedges: |  |  |  |  |  |  |  |
Recognized on interest rate swaps | Net interest income |  | $ | (2,245) |  |  | $ | 42,717 |  |  | $ | (6,535) |  |  | $ | 54,453 |
Recognized on hedged AFS debt securities | Net interest income |  | — |  |  | (306) |  |  | — |  |  | (739) |
Recognized on hedged deposits | Net interest income |  | 1,452 |  |  | (23,444) |  |  | 4,188 |  |  | (25,130) |
Recognized on hedged FHLB advances | Net interest income |  | 944 |  |  | (18,967) |  |  | 2,834 |  |  | (28,584) |
Total |  |  | $ | 151 |  |  | $ | — |  |  | $ | 487 |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate swaps, caps and collars | Other non-interest income |  | $ | 340 |  |  | $ | 374 |  |  | $ | (2,011) |  |  | $ | 1,109 |
Effect of Derivative Instruments on Comprehensive Income The following table presents the effect of Customers’ derivative financial instruments on comprehensive income for the three and nine months ended September 30, 2025 and 2024:
| Amount of Gain (Loss) Recognized in OCI on Derivatives (1) |  | Location of Gain (Loss) Reclassified from Accumulated OCI into Income |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
| Three Months Ended September 30, |  |  |  | Three Months Ended September 30,
(amounts in thousands) | 2025 |  | 2024 |  |  |  | 2025 |  | 2024
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 1,681 |  |  | $ | — |  |  | Interest income |  | $ | (1,412) |  |  | $ | — |
|  |  |  |  | Amount of Gain (Loss) Recognized in OCI on Derivatives (1) |  | Location of Gain (Loss) Reclassified from Accumulated OCI into Income |  |  |  |  |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
|  |  |  |  | Nine Months Ended September 30, |  |  |  |  |  |  |  | Nine Months Ended September 30,
(amounts in thousands) |  |  |  |  | 2025 |  | 2024 |  |  |  |  |  |  |  | 2025 |  | 2024
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  |  |  | $ | 1,681 |  |  | $ | — |  |  | Interest income |  |  |  |  |  | $ | (1,412) |  |  | $ | — |
(1) Amounts presented are net of taxes. Refer to NOTE 5 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) for the total effect on other comprehensive income (loss) from derivatives designated as cash flow hedges for the periods presented. Credit-risk-related Contingent Features By entering into derivative contracts, Customers is exposed to credit risk. The credit risk associated with derivatives executed with customers is the same as that involved in extending the related loans and is subject to the same standard credit policies. To mitigate the credit-risk exposure to major derivative dealer counterparties, Customers only enters into agreements with those counterparties that maintain credit ratings of high quality or with central clearing parties. Agreements with major derivative dealer counterparties contain provisions whereby default on any of Customers’ indebtedness would be considered a default on its derivative obligations. Customers also has entered into agreements that contain provisions under which the counterparty could require Customers to settle its obligations if Customers fails to maintain its status as a well/adequately capitalized institution. As of September 30, 2025, the fair value of derivatives in a net asset position related to these agreements was $1.3 million. In addition, Customers, which has collateral posting thresholds with certain of these counterparties, had received $2.2 million of cash as collateral at September 30, 2025. Customers records cash posted or received as collateral with these counterparties, except with a central clearing entity, as a reduction or an increase in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets or other liabilities. Disclosures about Offsetting Assets and Liabilities The following tables present derivative instruments that are subject to enforceable master netting arrangements. Customers’ interest rate swaps and interest rate caps with institutional counterparties are subject to master netting arrangements and are included in the tables below. Interest rate swaps, caps and collars with commercial banking customers are not subject to master netting arrangements and are excluded from the tables below. Customers has not made a policy election to offset its derivative positions.
| Gross Amounts Recognized on the Consolidated Balance Sheet |  |  |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheet |  | Net Amount
(amounts in thousands) | Financial Instruments |  | Cash Collateral Received/Posted |
September 30, 2025 |  |  |  |  |  |  |  |  |  |  |
Interest rate derivative assets with institutional counterparties | $ | 7,079 |  |  |  |  |  |  | $ | (5,814) |  |  | $ | (1,265) |  |  | $ | — |
Interest rate derivative liabilities with institutional counterparties | $ | 5,814 |  |  |  |  |  |  | $ | (5,814) |  |  | $ | — |  |  | $ | — |
| Gross Amounts Recognized on the Consolidated Balance Sheet |  |  |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheet |  | Net Amount
(amounts in thousands) | Financial Instruments |  | Cash Collateral Received/Posted |
December 31, 2024 |  |  |  |  |  |  |  |  |  |  |
Interest rate derivative assets with institutional counterparties | $ | 14,782 |  |  |  |  |  |  | $ | (577) |  |  | $ | (14,205) |  |  | $ | — |
Interest rate derivative liabilities with institutional counterparties | $ | 577 |  |  |  |  |  |  | $ | (577) |  |  | $ | — |  |  | $ | — |

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