Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-35638
WSFS FINANCIAL CORPORATION
 
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Delaware
 
22-2866913
(State or other jurisdiction of Incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
 
 
500 Delaware Avenue, Wilmington, Delaware
 
19801
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 
(302) 792-6000
 
 
(Registrant’s telephone number, including area code)
 
 
 
 
 
 
 
Not Applicable
 
 
(Former name or former address, if changed since last report)
 
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).    Yes  x    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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 Exchange Act).    Yes  ☐    No  x
The Registrant had 31,369,448 shares of common stock, par value $0.01 per share, outstanding at November 2, 2018.
 



WSFS FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 
 
PART I. Financial Information
Page
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II. Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, and exhibits thereto, contains estimates, predictions, opinions, projections and other “forward-looking statements” as that phrase is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, references to the Company’s predictions or expectations of future business or financial performance as well as its goals and objectives for future operations, financial and business trends, business prospects and management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or business performance, strategies or expectations. The words “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project” and similar expressions, among others, generally identify forward-looking statements. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and are subject to risks and uncertainties (which change over time) and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to:
those related to difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the markets in which the Company operates and in which its loans are concentrated, including the effects of declines in housing markets, an increase in unemployment levels and slowdowns in economic growth;
the Company’s level of nonperforming assets and the costs associated with resolving problem loans including litigation and other costs;
possible additional loan losses and impairment in the collectability of loans;
changes in market interest rates, which may increase funding costs and reduce earning asset yields and thus reduce margin;
the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect of such changes on the market value of the Company’s investment securities portfolio;
the credit risk associated with the substantial amount of commercial real estate, construction and land development and commercial and industrial loans in our loan portfolio;
the extensive federal and state regulation, supervision and examination governing almost every aspect of the Company’s operations including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations issued in accordance with this statute and potential expenses associated with complying with such regulations;
the Company’s ability to comply with applicable capital and liquidity requirements (including the finalized Basel III capital standards), including our ability to generate liquidity internally or raise capital on favorable terms;
possible changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations;
conditions in the financial markets that may limit the Company’s access to additional funding to meet its liquidity needs;
any impairment of the Company’s goodwill or other intangible assets;
failure of the financial and operational controls of the Company’s Cash Connect® division;
the success of the Company's growth plans, including the successful integration of past and future acquisitions; including the pending acquisition of Beneficial Bancorp, Inc. which is subject to customary closing conditions including regulatory and stockholder approvals;
the Company’s ability to fully realize the cost savings and other benefits of its acquisitions, manage risks related to business disruption following those acquisitions, and post-acquisition customer acceptance of the Company’s products and services and related customer disintermediation;
negative perceptions or publicity with respect to the Company’s trust and wealth management business;
adverse judgments or other resolution of pending and future legal proceedings, and cost incurred in defending such proceeding;
system failure or cybersecurity breaches of the Company’s network security;
the Company’s ability to recruit and retain key employees;
the effects of problems encountered by other financial institutions that adversely affect the Company or the banking industry generally;
the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes as well as effects from geopolitical instability and man-made disasters including terrorist attacks;
possible changes in the speed of loan prepayments by the Company’s customers and loan origination or sales volumes;

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possible changes in the speed of prepayments of mortgage-backed securities due to changes in the interest rate environment, and the related acceleration of premium amortization on prepayments in the event that prepayments accelerate;
regulatory limits on the Company’s ability to receive dividends from its subsidiaries and pay dividends to its stockholders;
the effects of any reputation, credit, interest rate, market, operational, legal, liquidity, regulatory and compliance risk resulting from developments related to any of the risks discussed above; and
the effects of other risks and uncertainties, including those discussed in the Company’s Form 10-K for the year ended December 31, 2017 and other documents filed by the Company with the Securities and Exchange Commission from time to time. 
We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. The Company disclaims any duty to revise or update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company for any reason, except as specifically required by law.

As used in this Quarterly Report on Form 10-Q, the terms “WSFS”, “the Company”, “registrant”, “we”, “us”, and “our” mean WSFS Financial Corporation and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.

Cash Connect is our registered trademark. Any other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.


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WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
(Dollars in thousands, except per share data)
 
(Unaudited)
Interest income:
 
 
 
 
 
 
 
 
Interest and fees on loans
 
$
67,164

 
$
58,504

 
$
192,071

 
$
169,258

Interest on mortgage-backed securities
 
6,662

 
4,955

 
18,251

 
14,132

Interest and dividends on investment securities:
 
 
 
 
 
 
 
 
Taxable
 
14

 
14

 
47

 
137

Tax-exempt
 
1,065

 
1,125

 
3,260

 
3,387

Other interest income
 
510

 
412

 
1,550

 
1,256

 
 
75,415

 
65,010

 
215,179

 
188,170

Interest expense:
 
 
 
 
 
 
 
 
Interest on deposits
 
7,977

 
3,862

 
19,585

 
10,278

Interest on senior debt
 
1,179

 
1,807

 
3,538

 
6,049

Interest on Federal Home Loan Bank advances
 
2,097

 
2,402

 
7,096

 
6,057

Interest on federal funds purchased and securities sold under agreements to repurchase
 
381

 
273

 
1,261

 
709

Interest on trust preferred borrowings
 
677

 
500

 
1,871

 
1,418

Interest on other borrowings
 
7

 
37

 
28

 
113

 
 
12,318

 
8,881

 
33,379

 
24,624

Net interest income
 
63,097

 
56,129

 
181,800

 
163,546

Provision for loan losses
 
3,716

 
2,896

 
9,864

 
6,901

Net interest income after provision for loan losses
 
59,381

 
53,233

 
171,936

 
156,645

Noninterest income:
 
 
 
 
 
 
 
 
Credit/debit card and ATM income
 
11,239

 
9,350

 
31,753

 
26,406

Investment management and fiduciary income
 
10,029

 
8,809

 
29,462

 
25,683

Deposit service charges
 
4,670

 
4,695

 
13,964

 
13,652

Mortgage banking activities, net
 
1,509

 
1,756

 
4,938

 
4,785

Securities gains, net
 

 
736

 
21

 
1,764

Unrealized gains on equity investments
 
3,249

 

 
18,595

 

Realized gain on sale of equity investment
 
3,757

 

 
3,757

 

Loan fee income
 
693

 
483

 
1,859

 
1,483

Bank owned life insurance income
 
96

 
546

 
328

 
1,124

Other income
 
6,659

 
6,066

 
19,678

 
17,312

 
 
41,901

 
32,441

 
124,355

 
92,209

Noninterest expense:
 
 
 
 
 
 
 
 
Salaries, benefits and other compensation
 
30,641

 
29,172

 
91,438

 
86,231

Occupancy expense
 
4,697

 
4,756

 
14,953

 
14,602

Equipment expense
 
3,258

 
2,922

 
9,523

 
9,544

Data processing and operations expenses
 
1,962

 
1,817

 
5,765

 
5,185

Professional fees
 
2,358

 
2,248

 
6,403

 
6,552

Marketing expense
 
1,499

 
712

 
3,341

 
2,268

Early extinguishment of debt
 

 
695

 

 
695

FDIC expenses
 
518

 
560

 
1,632

 
1,683

Loan workout and OREO expenses
 
(19
)
 
484

 
1,088

 
1,504

Corporate development expense
 
3,794

 
153

 
4,251

 
857

(Recovery of) provision for legal settlement
 
(7,938
)
 

 
(7,938
)
 

(Recovery of) provision for fraud loss
 
(10
)
 

 
(1,675
)
 

Other operating expense
 
11,694

 
10,644

 
34,916

 
29,275

 
 
52,454

 
54,163

 
163,697

 
158,396

Income before taxes
 
48,828

 
31,511

 
132,594

 
90,458

Income tax provision
 
9,893

 
10,942

 
27,569

 
30,382

Net income
 
$
38,935

 
$
20,569

 
$
105,025

 
$
60,076

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
1.22

 
$
0.65

 
$
3.32

 
$
1.91

Diluted
 
$
1.20

 
$
0.64

 
$
3.26

 
$
1.86

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
(Dollars in thousands)
 
(Unaudited)
 
(Unaudited)
Net income
 
$
38,935

 
$
20,569

 
$
105,025

 
$
60,076

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Net change in unrealized (loss) gains on investment securities available for sale
 
 
 
 
 
 
 
 
Net unrealized (loss) gains arising during the period, net of tax (benefit) expense of ($1,846), $761, ($6,958) and $3,498, respectively
 
(6,042
)
 
1,289

 
(22,370
)
 
5,802

Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $0, $261, $5, and $628, respectively
 

 
(475
)
 
(16
)
 
(1,136
)
 
 
(6,042
)
 
814

 
(22,386
)
 
4,666

Net change in securities held to maturity
 
 
 
 
 
 
 
 
Amortization of unrealized gain on securities reclassified to held-to-maturity, net of tax expense (benefit) of $36, $60, $109 and $181, respectively
 
(107
)
 
(99
)
 
(343
)
 
(297
)
Net change in unfunded pension liability
 
 
 
 
 
 
 
 
Change in unfunded pension liability related to unrealized (loss) gain, prior service cost and transition obligation, net of tax (benefit) expense of $(9), ($15), $1, and ($42), respectively
 
(30
)
 
(22
)
 
(1
)
 
(67
)
Net change in cash flow hedge
 
 
 
 
 
 
 
 
Net unrealized (loss) gain arising during the period, net of tax expense (benefit) of ($75), $26, ($391) and $118 respectively
 
(109
)
 
42

 
(1,119
)
 
192

Total other comprehensive (loss) income
 
(6,288
)
 
735

 
(23,849
)
 
4,494

Total comprehensive income
 
$
32,647

 
$
21,304

 
$
81,176

 
$
64,570

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
September 30, 2018
 
December 31, 2017
(Dollars in thousands, except per share and share data)
 
(Unaudited)
 
 
Assets:
 
 
 
 
Cash and due from banks
 
$
158,234

 
$
122,141

Cash in non-owned ATMs
 
552,952

 
598,117

Interest-bearing deposits in other banks including collateral of $0 and $3,380 at September 30, 2018 and December 31, 2017, respectively
 
186

 
3,608

Total cash and cash equivalents
 
711,372

 
723,866

Investment securities, available for sale (amortized cost of $1,036,905 at September 30, 2018 and $847,791 at December 31, 2017)
 
997,131

 
837,499

Investment securities, held to maturity-at cost (fair value of $150,583 at September 30, 2018 and $162,853 at December 31, 2017)
 
152,577

 
161,186

Other investments
 
35,083

 
17,971

Loans, held for sale at fair value
 
35,855

 
31,055

Loans, net of allowance for loan losses of $41,812 at September 30, 2018 and $40,599 at December 31, 2017
 
4,886,136

 
4,776,318

Bank owned life insurance
 
6,840

 
102,958

Stock in Federal Home Loan Bank of Pittsburgh at cost
 
16,540

 
31,284

Other real estate owned
 
2,004

 
2,503

Accrued interest receivable
 
21,331

 
19,405

Premises and equipment
 
46,348

 
47,983

Goodwill
 
166,007

 
166,007

Intangible assets
 
20,577

 
22,437

Other assets
 
62,041

 
59,068

Total assets
 
$
7,159,842

 
$
6,999,540

Liabilities and Stockholders’ Equity
 
 
 
 
Liabilities:
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing
 
$
1,515,336

 
$
1,420,760

Interest-bearing
 
4,208,580

 
3,826,844

Total deposits
 
5,723,916

 
5,247,604

Federal funds purchased
 

 
28,000

Federal Home Loan Bank advances
 
338,465

 
710,001

Trust preferred borrowings
 
67,011

 
67,011

Senior debt
 
98,334

 
98,171

Other borrowed funds
 
41,279

 
34,623

Accrued interest payable
 
7,119

 
1,037

Other liabilities
 
84,896

 
88,748

Total liabilities
 
6,361,020

 
6,275,195

Stockholders’ Equity:
 
 
 
 
Common stock $0.01 par value, 65,000,000 shares authorized; issued 56,880,335 at September 30, 2018 and 56,279,527 at December 31, 2017
 
567

 
563

Capital in excess of par value
 
347,900

 
336,271

Accumulated other comprehensive loss
 
(32,001
)
 
(8,152
)
Retained earnings
 
764,765

 
669,557

Treasury stock at cost, 25,028,145 shares at September 30, 2018 and 24,861,145 shares at December 31, 2017
 
(282,409
)
 
(273,894
)
Total stockholders’ equity
 
798,822

 
724,345

Total liabilities and stockholders’ equity
 
$
7,159,842

 
$
6,999,540

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands, except per share and share amounts)
 
Shares
 
Common Stock
 
Capital in Excess of Par Value
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total Stockholders' Equity
Balance, December 31, 2016
 
55,995,219

 
$
580

 
$
329,457

 
$
(7,617
)
 
$
627,078

 
$
(262,162
)
 
$
687,336

Net income
 

 

 

 

 
60,076

 

 
60,076

Other comprehensive income
 

 

 

 
4,494

 

 

 
4,494

Cash dividend, $0.21 per share
 

 

 

 

 
(6,600
)
 

 
(6,600
)
Issuance of common stock including proceeds from exercise of common stock options
 
222,424

 
2

 
2,315

 

 

 

 
2,317

Stock-based compensation expense
 

 

 
2,449

 

 

 

 
2,449

Repurchase of common stock, 204,000 shares
 

 
(20
)
 

 

 

 
(9,191
)
 
(9,211
)
Balance, September 30, 2017
 
56,217,643

 
$
562

 
$
334,221

 
$
(3,123
)
 
$
680,554

 
$
(271,353
)
 
$
740,861

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
 
56,279,527

 
$
563

 
$
336,271

 
$
(8,152
)
 
$
669,557

 
$
(273,894
)
 
$
724,345

Net income
 

 

 

 

 
105,025

 

 
105,025

Other comprehensive loss
 

 

 

 
(23,869
)
 

 

 
(23,869
)
Cash dividend, $0.31 per share
 

 

 

 

 
(9,797
)
 

 
(9,797
)
Reclassification due to the adoption of ASU No. 2016-01
 

 

 

 
20

 
(20
)
 

 

Issuance of common stock including proceeds from exercise of common stock options
 
600,808

 
4

 
9,772

 

 

 

 
9,776

Stock-based compensation expense
 

 

 
1,857

 

 

 

 
1,857

Repurchase of common stock, 167,000 shares
 

 

 

 

 

 
(8,515
)
 
(8,515
)
Balance, September 30, 2018
 
56,880,335

 
$
567

 
$
347,900

 
$
(32,001
)
 
$
764,765

 
$
(282,409
)
 
$
798,822



The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.



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WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
(Dollars in thousands)
 
(Unaudited)
Operating activities:
 
 
 
 
Net income
 
$
105,025

 
$
60,076

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
9,864

 
6,901

Depreciation of premises and equipment, net
 
6,347

 
6,454

Amortization of fees and discounts, net
 
11,952

 
15,002

Amortization of intangible assets
 
2,223

 
2,352

Income from mortgage banking activities, net
 
(4,938
)
 
(4,785
)
Gain on sale of securities, net
 
(21
)
 
(1,764
)
Loss on sale of other real estate owned and valuation adjustments, net
 
83

 
187

Stock-based compensation expense
 
1,857

 
2,449

Unrealized gain on equity investments
 
(18,595
)
 

Debt extinguishment cost
 

 
695

Deferred income tax expense
 
3,330

 
3,097

(Increase) decrease in accrued interest receivable
 
(1,926
)
 
(762
)
Decrease (increase) in other assets
 
3,171

 
(7,451
)
Origination of loans held for sale
 
(265,674
)
 
(258,962
)
Proceeds from sales of loans held for sale
 
257,026

 
284,797

Increase in accrued interest payable
 
6,083

 
2,731

(Decrease) increase in other liabilities
 
(5,273
)
 
962

Increase in value of bank owned life insurance
 
(311
)
 
(899
)
Increase in capitalized interest, net
 
(2,795
)
 
(3,252
)
Net cash provided by operating activities
 
$
107,428

 
$
107,828

Investing activities:
 
 
 
 
Purchases of investment securities held to maturity
 
$

 
$

Repayments, maturities and calls of investment securities held to maturity
 
7,055

 
1,175

Sale of investment securities available for sale
 
7,012

 
415,486

Purchases of investment securities available for sale
 
(280,401
)
 
(593,878
)
Repayments of investment securities available for sale
 
82,501

 
174,251

Proceeds of bank-owned life insurance death benefit
 

 
371

Proceeds from bank-owned life insurance surrender
 
96,429

 

Net increase in loans
 
(119,641
)
 
(231,955
)
Purchases of stock of Federal Home Loan Bank of Pittsburgh
 
(137,199
)
 
(128,159
)
Redemptions of stock of Federal Home Loan Bank of Pittsburgh
 
151,943

 
133,130

Sales of other real estate owned
 
2,323

 
4,405

Investment in premises and equipment
 
(4,910
)
 
(7,336
)
Sales of premises and equipment
 
201

 
1,593

Net cash used for investing activities
 
$
(194,687
)
 
$
(230,917
)

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Nine Months Ended September 30,
 
 
2018
 
2017
(Dollars in thousands)
 
(Unaudited)
Financing activities:
 
 
 
 
Net increase in demand and saving deposits
 
$
341,411

 
$
320,784

Increase (decrease) in time deposits
 
83,788

 
(36,055
)
Increase in brokered deposits
 
57,638

 
35,079

Decrease in loan payable
 

 
(359
)
Receipts from FHLB advances
 
85,335,984

 
109,432,123

Repayments of FHLB advances
 
(85,707,520
)
 
(109,588,547
)
Receipts from federal funds purchased and securities sold under agreement to repurchase
 
18,821,100

 
17,610,000

Repayments of federal funds purchased and securities sold under agreement to repurchase
 
(18,849,100
)
 
(17,670,000
)
Dividends paid
 
(9,797
)
 
(6,600
)
Issuance of common stock and exercise of common stock options
 
9,776

 
2,317

Redemption of senior debt
 

 
(55,000
)
Purchase of treasury stock
 
(8,515
)
 
(9,211
)
Net cash provided by financing activities
 
$
74,765

 
$
34,531

Decrease in cash and cash equivalents
 
(12,494
)
 
(88,558
)
Cash and cash equivalents at beginning of period
 
723,866

 
821,923

Cash and cash equivalents at end of period
 
$
711,372

 
$
733,365

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
     Interest
 
$
27,297

 
$
21,893

     Income taxes
 
21,754

 
20,861

Non-cash information:
 
 
 
 
Loans transferred to other real estate owned
 
1,907

 
4,925

Loans transferred to portfolio from held-for-sale at fair value
 
7,261

 
12,782

Goodwill adjustments, net
 

 
(1,532
)
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018
(UNAUDITED)
1. BASIS OF PRESENTATION
General
Our unaudited Consolidated Financial Statements include the accounts of WSFS Financial Corporation (the Company or WSFS), Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank), WSFS Wealth Management, LLC (Powdermill), WSFS Capital Management, LLC (West Capital), Cypress Capital Management, LLC (Cypress) and Christiana Trust Company of Delaware (Christiana Trust DE). We also have one unconsolidated subsidiary, WSFS Capital Trust III. WSFS Bank has three wholly-owned subsidiaries: WSFS Investment Group, Inc. (WSFS Wealth Investments), 1832 Holdings, Inc. and Monarch Entity Services, LLC.
Overview
Founded in 1832, the Bank is one of the ten oldest bank and trust companies continuously operating under the same name in the United States (U.S.). We provide residential and commercial real estate, commercial and consumer lending services, as well as retail deposit and cash management services. Lending activities are funded primarily with customer deposits and borrowings. In addition, we offer a variety of wealth management and trust services to personal and corporate customers. The Federal Deposit Insurance Corporation (FDIC) insures our customers’ deposits to their legal maximums. We serve our customers primarily from 77 offices located in Delaware (46), Pennsylvania (29), Virginia (1) and Nevada (1) and through our website at www.wsfsbank.com. Information on our website is not incorporated by reference into this quarterly report.
In preparing the unaudited Consolidated Financial Statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Amounts subject to significant estimates include the allowance for loan losses and reserves for lending-related commitments, goodwill, intangible assets, post-retirement benefit obligations, the fair value of financial instruments, and other-than-temporary impairment (OTTI). Among other effects, changes to these estimates could result in future impairments of investment securities, goodwill and intangible assets, the establishment of the allowance and lending-related commitments as well as increased post-retirement benefits expense.
Our accounting and reporting policies conform to Generally Accepted Accounting Principles (GAAP) in the U.S., prevailing practices within the banking industry for interim financial information and Rule 10-01 of SEC Regulation S-X (Rule 10-01). Rule 10-01 does not require us to include all information and notes that would be required in audited financial statements. Certain prior period amounts have been reclassified to conform with current period presentation. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any future quarters or for the year ending December 31, 2018. These unaudited, interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2017 (the 2017 Annual Report on Form 10-K) that was filed with the SEC on March 1, 2018 and is available at www.sec.gov or on our website at http://investors.wsfsbank.com/financials.cfm. All significant intercompany transactions were eliminated in consolidation.
Business Combinations
On August 7, 2018, WSFS and Beneficial Bancorp, Inc. (Beneficial) entered into an Agreement and Plan of Reorganization, (as amended from time to time, the Merger Agreement) pursuant to which, subject to the terms and conditions of the Agreement, among other things, (i) Beneficial will merge with and into WSFS, with WSFS continuing as the surviving corporation and (ii) concurrently, Beneficial Bank will merge with and into WSFS Bank, with WSFS Bank continuing as the surviving bank. Subject to the terms and conditions of the Merger Agreement, stockholders of Beneficial will receive 0.3013 shares of WSFS common stock and $2.93 in cash for each share of Beneficial common stock. These mergers, subject to customary closing conditions including required regulatory approvals and stockholder approvals, are expected to close in Q1 2019.



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Significant Accounting Policies:
The significant accounting policies used in preparation of our Consolidated Financial Statements are disclosed in our 2017 Annual Report on Form 10-K. Those significant accounting policies remain unchanged at September 30, 2018, except as described below:
Equity Securities
Following our adoption of ASU 2016-01 on January 1, 2018, as described in "Recent Accounting Pronouncements", we account for our investments in equity securities in accordance with ASC 321-10 Investments - Equity Securities. Our equity securities may be classified into two categories and accounted for as follows:
Equity securities with a readily determinable fair value are reported at fair value, with unrealized gains and losses included in earnings. Any dividends received are recorded in interest income.
Equity securities without a readily determinable fair value are reported at their cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer and their impact on fair value. Any dividends received are recorded in interest income.
Equity investments include our investment in Visa Class B shares and certain other equity investments. The fair value of equity investments with readily determinable fair values is primarily obtained from third-party pricing services. For equity investments without readily determinable fair values, when an orderly transaction for the identical or similar investment of the same issuer is identified, we use the valuation techniques permitted under ASC 820 Fair Value Measurement to evaluate the observed transaction(s) and adjust the fair value of the equity investment.
ASC 321-10 also provides guidance related to accounting for impairment of equity securities without readily determinable fair values. The qualitative assessment to determine whether impairment exists requires the use of our judgment in certain circumstances. If, after completing the qualitative assessment, we conclude an equity investment without a readily determinable fair value is impaired, a loss for the difference between the equity investment’s carrying value and its fair value may be recognized as a reduction to noninterest income in the Consolidated Statements of Income.

RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Guidance Adopted in 2018
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU No. 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model in which entities should exercise judgment when considering the terms of the contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This amendment deferred the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Gross versus Net), which amends the principal versus agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers and 2016-12, Narrow-Scope Improvements and Practical Expedients, both of which provide additional clarification on certain provisions in Topic 606. These ASC updates were effective for public business entities with annual and interim reporting periods in fiscal years beginning after December 15, 2017. The standard permits the use of either the retrospective or modified retrospective with the cumulative effect transition method. The Company adopted the standard on January 1, 2018. Consistent with the transition guidance in ASC 606, results for reporting periods beginning after January 1, 2018 are presented in accordance with ASC 606, while prior period amounts are reported in accordance with ASC 605. For revenue streams determined to be within the scope of the new standard, we concluded that the adoption of the standard did not have a material effect on our Consolidated Financial Statements at the time of adoption. See Note 2 for additional disclosures resulting from our adoption of this standard.

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In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. This amendment requires that equity investments be measured at fair value with changes in fair value recognized in net income. When fair value is not readily determinable, an entity may elect to measure the equity investment at cost, less impairment, plus or minus any change in the investment’s observable price. For financial liabilities that are measured at fair value, the amendment requires an entity to present separately, in other comprehensive income, any change in fair value resulting from a change in instrument specific credit risk. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard requires retrospective application for equity investments with readily determinable fair values and prospective application for equity investments without readily determinable fair values. The Company adopted the standard on January 1, 2018 on a prospective basis for its equity investments without readily determinable fair values, and the adoption of the standard did not have an effect on our Consolidated Financial Statements at the time of adoption. Subsequent to the filing of our 2017 Annual Report on Form 10-K, we identified observable transactions related to an equity investment without a readily determinable fair value. These identified, observable transactions required the revaluation of this equity investment. The result of the revaluation was recorded in the Consolidated Statements of Income in the first quarter of 2018. See Note 10 for further information.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 represents the Emerging Issues Task Force’s final consensus on eight issues related to the classification of cash payments and receipts in the statement of cash flows for a number of common transactions. The consensus also clarifies when identifiable cash flows should be separated versus classified based on their predominant source or use. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted this standard on January 1, 2018, on a retrospective basis and the adoption did not have an effect on the Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 provides a new, two-step framework for determining whether a transaction is accounted for as an acquisition (or disposal) of assets or a business. The first step is evaluating whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the transaction is not considered a business. Also, in order to be considered a business, the transaction would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The guidance is effective for public entities in annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted for transactions that have not been reported in financial statements that have been issued or been made available for issuance. The Company adopted this standard on January 1, 2018, on a prospective basis with no impact to the Consolidated Financial Statements at the time of adoption.

In February 2017, the FASB issued ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. ASU 2017-05 provides clarification of the scope of ASC 610-20. Specifically, the new guidance clarifies that ASC 610-20 applies to nonfinancial assets which do not meet the definition of a business or not-for-profit activity. Further, a financial asset is within the scope of ASC 610-20 if it meets the definition of an in-substance nonfinancial asset which is defined as a financial asset promised to a counterparty in a contract where substantially all of the assets promised are nonfinancial. Finally, each distinct nonfinancial asset and in-substance nonfinancial asset should be derecognized when the counterparty obtains control. The guidance is effective in annual and interim reporting periods in fiscal years beginning after December 15, 2017. Early application is permitted for all entities, but not before annual reporting periods beginning after December 15, 2016. The Company adopted this standard on January 1, 2018, on a modified retrospective basis and the adoption did not have an effect on the Consolidated Financial Statements at the time of adoption.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new guidance requires that the service cost component of net periodic pension cost be disclosed with other compensation costs in the income statement. For all other cost components, an entity must either separately disclose the other cost components in separate line item(s) outside a subtotal of income from operations in the income statement or disclose the line item(s) used to present the other cost components in the income statement. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company adopted this standard on January 1, 2018, on a retrospective basis with no impact to the Consolidated Financial Statements at the time of adoption.
In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting. The new guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. If the award’s fair value, vesting conditions and classification remain the same immediately before and after the change, modification accounting is not applied. Additionally, the guidance does not require valuation before or after the change if the change does not affect any of the inputs to the model used to value the award. The guidance is effective in annual and interim periods beginning after December 15, 2017. Early adoption is permitted. The new guidance will be applied on a prospective basis to awards modified on or after the adoption date. The Company adopted this standard on January 1, 2018, on a prospective basis with no impact to the Consolidated Financial Statements at the time of adoption.

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Accounting Guidance Pending Adoption at September 30, 2018
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for substantially all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ASU 2016-02 is effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. Adoption using the modified retrospective transition approach is required; however, in July 2018, the FASB issued ASU 2018-11, Leases-Targeted Improvements, which provides an optional transition method whereby comparative periods presented in the financial statements in the period of adoption do not need to be restated under Topic 842. The Company will adopt this guidance on January 1, 2019. The Company has substantially completed its process of identifying its lease population as defined by this guidance and anticipates finalizing the impact analysis on the Consolidated Financial Statements in the fourth quarter. To date, our review suggests that adoption will increase assets and liabilities on our Consolidated Statements of Financial Condition. The Company will continue to assess the impact of this guidance, taking into consideration available accounting policy elections and significant assumptions and judgments such as the discount rate and renewal options. In addition, the Company continues to evaluate its internal systems, accounting policies, processes and related internal controls for potential effects. To date, we have been working to implement a lease accounting and administration software to assist us with initial and on-going requirements of the new guidance. The Company expects to complete the implementation in the fourth quarter.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company does not plan to early adopt this guidance and will adopt this guidance on January 1, 2020. A cross-functional team from Finance, Credit, and IT is leading the implementation efforts to evaluate the impact of this guidance on the Company’s Consolidated Financial Statements, internal systems, accounting policies, processes and related internal controls. To date, we have selected a software solution to assist us with the initial and on-going requirements of the new guidance and are currently in the early stages of implementing the software. We have engaged third-party experts and specialists, where necessary, to assist with the implementation efforts. We continue to perform due diligence on acceptable methodologies under the guidance, as well as evaluate the potential effects to our accounting policies, processes and related internal controls. Our review of this guidance to date suggests that adoption may materially increase the allowance for loan losses and decrease capital levels; however, the extent of these impacts will depend on the asset quality of the portfolio, macroeconomic conditions, and significant estimates and judgments made by management at the time of adoption.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the measurement of goodwill impairment by removing the hypothetical purchase price allocation. The new guidance requires an impairment of goodwill be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, up to the amount of goodwill recorded. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests with measurement dates after January 1, 2017, using the prospective method of adoption. The Company does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements.
In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities. The new guidance requires the amortization period for certain non-contingent callable debt securities held at a premium to end at the earliest call date of the debt security. If the call option is not exercised at the earliest call date, the guidance requires the debt security's effective yield to be reset based on the contractual payment terms of the debt security. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted. Use of the modified retrospective method, with a cumulative-effect adjustment to retained earnings is required. In the period of adoption, a change in accounting principle disclosure is required. The Company does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements.


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In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities (Topic 815). The new guidance changes both the designation and measurement guidance for qualifying hedging relationships and simplifies the presentation of hedge results. Specifically, the guidance eliminates the requirement to separately measure and report hedge ineffectiveness and also aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Further, the new guidance provides entities the ability to apply hedge accounting to additional hedging strategies as well as permits a one-time reclassification of eligible to be hedged instruments from held to maturity to available for sale upon adoption. The guidance is effective in annual and interim periods beginning after December 15, 2018. Early adoption is permitted. Adoption using the modified retrospective approach is required for hedging relationships that exist as of the date of adoption; presentation and disclosure requirements are applied prospectively. The Company does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements, except for the one-time reclassification, if elected.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework, which amends ASC 820 - Fair Value Measurement. The ASU modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements for fair value measurements. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Adoption is required on both a prospective and retrospective basis depending on the amendment. The Company does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits - Defined Benefit Plans-General (Topic 715) which applies to all employers that provide defined benefit pension or other postretirement benefit plans for their employees. The ASU modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements to financial statement users. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. Use of the retrospective method is required. The Company does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Topic 350). The new guidance provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. Our preliminary review of this guidance to date suggests that adoption may result in a material amount of implementation costs being deferred; however, the extent of the impact will depend on the cloud computing implementations occurring at the time of adoption.
2. NONINTEREST INCOME

On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified Topic 606. The standard applies to certain revenue streams included in noninterest income on our unaudited Consolidated Statements of Income. See Note 1 for further information about our adoption of ASU 2014-09, and Note 12 for further information about the disaggregation of noninterest income by segment.
Credit/debit card and ATM income
The following table presents the components of credit/debit card and ATM income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in thousands)
2018
 
2017
 
2018
 
2017
Bailment fees
$
7,188

 
$
5,603

 
$
19,869

 
$
15,467

Interchange fees
3,766

 
3,469

 
11,073

 
10,164

Other card and ATM fees
285

 
278

 
811

 
775

Total credit/debit card and ATM income
$
11,239

 
$
9,350

 
$
31,753

 
$
26,406


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Credit/debit card and ATM income is primarily composed of bailment fees which are earned from bailment arrangements with our customers. Bailment arrangements are legal relationships in which property is delivered to another party's temporary custody and control without a transfer of ownership. The party receiving the property (the bailee) has possession and control of the property and is obligated to take reasonable care of the property. The party who transferred the property (the bailor) retains ownership interest of the property. In the event that the bailee files for bankruptcy protection, the property is not included in the bailee's assets. The bailee pays an agreed-upon fee for the use of the bailor's property in exchange for the bailor allowing use of the assets at the bailee's site. Bailment fees are earned from cash that is owned by WSFS but available for customers' use at an offsite location, such as cash located in an ATM at a customer's place of business. These fees are typically indexed to a market interest rate. This revenue stream generates fee income through monthly billing for bailment services.
Credit/debit card and ATM income also includes interchange fees. Interchange fees are paid by a merchant's bank to a bank that issued a debit or credit card used in a transaction to compensate the issuing bank for the value and benefit the merchant receives from accepting electronic payments. These revenue streams generate fee income at the time a transaction occurs and are recorded as revenue at the time of the transaction.
Investment management and fiduciary income
The following table presents the components of investment management and fiduciary income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in thousands)
2018
 
2017
 
2018
 
2017
Trust fees
$
5,932

 
$
5,044

 
$
17,298

 
$
14,317

Wealth management and advisory fees
4,097

 
3,765

 
12,164

 
11,366

Total investment management and fiduciary income
$
10,029

 
$
8,809

 
$
29,462

 
$
25,683

Investment management and fiduciary income is primarily composed of trust fees and wealth management and advisory fees. Trust fees are based on revenue earned from investment and trustee services to families and individuals across the U.S.; custody, escrow and trustee services on structured finance transactions; indenture trustee, administrative agent and collateral agent services to institutions and corporations; and commercial domicile and independent director services. Most fees are flat fees, except for a portion of personal and corporate trustee fees where we earn a percentage on the assets under management. This revenue stream primarily generates fee income through monthly, quarterly and annual billings for services provided.
Wealth management and advisory fees consists of fees from Cypress, West Capital, Powdermill, WSFS Wealth Client Management, WSFS Wealth Investments and Christiana Trust. Wealth management and advisory fees are based on revenue earned from services including asset management, financial planning, family office, and brokerage.  The fees are based on the market value of assets, are assessed as a flat fee, or are brokerage commissions. This revenue stream primarily generates fee income through quarterly and annual billing for the services.
Deposit service charges
The following table presents the components of deposit service charges:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in thousands)
2018
 
2017
 
2018
 
2017
Service fees
$
2,663

 
$
2,603

 
$
7,877

 
$
7,526

Return and overdraft fees
1,885

 
1,973

 
5,662

 
5,660

Other deposit service fees
122

 
119

 
425

 
466

Total deposit service charges
$
4,670

 
$
4,695

 
$
13,964

 
$
13,652

Deposit service charges includes revenue earned from our core deposit products, certificates of deposit, and brokered deposits. We generate revenues from deposit service charges primarily through service charges and overdraft fees. Service charges consist primarily of monthly account maintenance fees, cash management fees, foreign ATM fees and other maintenance fees. All of these revenue streams generate fee income through service charges for monthly account maintenance and similar items, transfer fees, late fees, overlimit fees, and stop payment fees. Revenue is recorded at the time of the transaction.

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Other income
The following table presents the components of other income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in thousands)
2018
 
2017
 
2018
 
2017
Managed service fees
$
3,169

 
$
2,894

 
$
9,100

 
$
8,184

Currency preparation
863

 
765

 
2,406

 
2,185

ATM insurance
586

 
715

 
1,781

 
2,131

Miscellaneous products and services
2,041

 
1,692

 
6,391

 
4,812

Total other income
$
6,659

 
$
6,066

 
$
19,678

 
$
17,312

Other income consists of managed service fees, which are primarily courier fees related to cash management, currency preparation, ATM insurance and other miscellaneous products and services offered by the Bank. These fees are primarily generated through monthly billings or at the time of the transaction.
Arrangements with multiple performance obligations
Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers.
Practical expedients and exemptions
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

3. EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings per share:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars and shares in thousands, except per share data)
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net income
$
38,935

 
$
20,569

 
$
105,025

 
$
60,076

Denominator:
 
 
 
 
 
 
 
Weighted average basic shares
31,800

 
31,420

 
31,599

 
31,424

Dilutive potential common shares
548

 
848

 
663

 
856

Weighted average fully diluted shares
$
32,348

 
$
32,268

 
$
32,262

 
$
32,280

Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.22

 
$
0.65

 
$
3.32

 
$
1.91

Diluted
$
1.20

 
$
0.64

 
$
3.26

 
$
1.86

Outstanding common stock equivalents having no dilutive effect
11

 

 
16

 
5



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4. INVESTMENT SECURITIES
The following tables detail the amortized cost and the estimated fair value of our investments in available-for-sale and held-to-maturity debt securities as well as our equity investments. None of our investments in debt securities are classified as trading.
 
 
September 30, 2018
(Dollars in thousands)
 
Amortized Cost
 
Gross
Unrealized
 Gain
 
Gross
Unrealized
 Loss
 
Fair
Value
Available-for-Sale Debt Securities
 
 
 
 
 
 
 
 
CMO
 
$
311,507

 
$

 
$
11,477

 
$
300,030

FNMA MBS
 
571,686

 

 
22,948

 
548,738

FHLMC MBS
 
116,532

 
2

 
4,112

 
112,422

GNMA MBS
 
37,180

 
72

 
1,311

 
35,941

 
 
$
1,036,905

 
$
74

 
$
39,848

 
$
997,131

Held-to-Maturity Debt Securities(1)
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
152,577

 
$
55

 
$
2,049

 
$
150,583

 
 
 
 
 
 
 
 
 
Equity Investments(2)
 
 
 
 
 
 
 
 
Visa Class B shares
 
$
13,918

 
$
17,865

 
$

 
$
31,783

Other equity investments
 
3,300

 

 

 
3,300

 
 
$
17,218

 
$
17,865

 
$

 
$
35,083

(1) 
Held-to–maturity securities transferred from available-for-sale are included in held-to-maturity at fair value at the time of transfer. The amortized cost of held-to-maturity securities included net unrealized gains of $1.2 million at September 30, 2018, related to securities transferred, which are offset in Accumulated other comprehensive loss, net of tax.
(2) 
Equity investments are included in Other investments in the unaudited Consolidated Statements of Financial Condition.
 
 
December 31, 2017
(Dollars in thousands)
 
Amortized Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
Available-for-Sale Debt Securities
 
 
 
 
 
 
 
 
CMO
 
$
250,592

 
$
88

 
$
4,141

 
$
246,539

FNMA MBS
 
479,218

 
941

 
6,172

 
473,987

FHLMC MBS
 
88,681

 
118

 
924

 
87,875

GNMA MBS
 
29,300

 
209

 
411

 
29,098

 
 
$
847,791

 
$
1,356

 
$
11,648

 
$
837,499

Held-to-Maturity Debt Securities(1)
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
161,186

 
$
1,758

 
$
91

 
$
162,853

 
 
 
 
 
 
 
 
 
Equity Investments(2)(3)
 
 
 
 
 
 
 
 
Other equity investments
 
$
643

 
$

 
$
20

 
$
623

 
 
$
643

 
$

 
$
20

 
$
623

(1) 
Held-to–maturity securities transferred from available-for-sale are included in held-to-maturity at fair value at the time of transfer. The amortized cost of held-to-maturity securities included net unrealized gains of $1.6 million at December 31, 2017, related to securities transferred, which are offset in Accumulated other comprehensive loss, net of tax.
(2) 
Equity investments are included in Other investments in the unaudited Consolidated Statements of Financial Condition.
(3) 
These municipal securities were sold during the second quarter of 2018.

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The scheduled maturities of our available-for-sale debt securities at September 30, 2018 and December 31, 2017 are presented in the table below:
 
 
Available for Sale
 
 
Amortized
 
Fair
(Dollars in thousands)
 
Cost
 
Value
September 30, 2018
 
 
 
 
Within one year
 
$

 
$

After one year but within five years
 
19,792

 
19,160

After five years but within ten years
 
170,009

 
159,754

After ten years
 
847,104

 
818,217

 
 
$
1,036,905

 
$
997,131

December 31, 2017
 
 
 
 
Within one year
 
$

 
$

After one year but within five years
 
20,051

 
19,825

After five years but within ten years
 
179,812

 
175,583

After ten years
 
647,928

 
642,091

 
 
$
847,791

 
$
837,499


The scheduled maturities of our held-to-maturity debt securities at September 30, 2018 and December 31, 2017 are presented in the table below:
 
 
Held to Maturity
 
 
Amortized
 
Fair
(Dollars in thousands)
 
Cost
 
Value
September 30, 2018
 
 
 
 
Within one year
 
$
1,027

 
$
1,023

After one year but within five years
 
6,636

 
6,599

After five years but within ten years
 
29,148

 
28,902

After ten years
 
115,766

 
114,059

 
 
$
152,577

 
$
150,583

December 31, 2017
 
 
 
 
Within one year
 
$
322

 
$
320

After one year but within five years
 
5,895

 
5,894

After five years but within ten years
 
18,751

 
18,873

After ten years
 
136,218

 
137,766

 
 
$
161,186

 
$
162,853

Mortgage-backed securities (MBS) may have expected maturities that differ from their contractual maturities. These differences arise because issuers may have the right to call securities and borrowers may have the right to prepay obligations with or without prepayment penalty.
Investment securities with fair market values aggregating $972.8 million and $688.2 million were pledged as collateral for retail customer repurchase agreements, municipal deposits, and other obligations as of September 30, 2018 and December 31, 2017, respectively.
During the nine months ended September 30, 2018, we sold $7.0 million of debt securities categorized as available for sale, resulting in realized gains of less than $0.1 million and no realized losses. During the nine months ended September 30, 2017, we sold $415.5 million of debt securities categorized as available for sale, resulting in realized gains of $1.9 million and realized losses of less than $0.1 million. The cost basis of all debt securities sales is based on the specific identification method.
During the nine months ended September 30, 2018, we sold $6.2 million of equity securities, specifically Visa Class B shares, resulting in realized gains of $3.8 million and no realized losses. There were no such sales during the nine months ended September 30, 2017.

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As of September 30, 2018 and December 31, 2017, our debt securities portfolio had remaining unamortized premiums of $12.8 million and $14.1 million, respectively, and unaccreted discounts of $1.8 million and $1.3 million as of September 30, 2018 and December 31, 2017.
For debt securities with unrealized losses, the table below shows our gross unrealized losses and fair value by investment category and length of time that individual debt securities were in a continuous unrealized loss position at September 30, 2018.
 
 
Duration of Unrealized Loss Position
 
 
 
 
 
 
Less than 12 months
 
12 months or longer
 
Total
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
(Dollars in thousands)
 
Value
 
Loss
 
Value
 
Loss
 
Value
 
Loss
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
CMO
 
$
138,346

 
$
2,826

 
$
161,684

 
$
8,651

 
$
300,030

 
$
11,477

FNMA MBS
 
303,994

 
8,047

 
244,744

 
14,901

 
548,738

 
22,948

FHLMC MBS
 
55,386

 
1,271

 
52,514

 
2,841

 
107,900

 
4,112

GNMA MBS
 
19,329

 
504

 
13,419

 
807

 
32,748

 
1,311

Total temporarily impaired investments
 
$
517,055

 
$
12,648

 
$
472,361

 
$
27,200

 
$
989,416

 
$
39,848

 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
150,060

 
$
2,013

 
$
523

 
$
36

 
$
150,583

 
$
2,049

Total temporarily impaired investments
 
$
150,060

 
$
2,013

 
$
523

 
$
36

 
$
150,583

 
$
2,049

 
 
 
 
 
 
 
 
 
 
 
 
 
For debt investment securities with unrealized losses, the table below shows our gross unrealized losses and fair value by investment category and length of time that individual debt securities were in a continuous unrealized loss position at December 31, 2017.
 
 
Duration of Unrealized Loss Position
 
 
 
 
 
 
Less than 12 months
 
12 months or longer
 
Total
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
(Dollars in thousands)
 
Value
 
Loss
 
Value
 
Loss
 
Value
 
Loss
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
CMO
 
$
146,726

 
$
1,820

 
$
77,149

 
$
2,321

 
$
223,875

 
$
4,141

FNMA MBS
 
204,921

 
1,479

 
126,342

 
4,693

 
331,263

 
6,172

FHLMC MBS
 
42,514

 
269

 
21,405

 
655

 
63,919

 
924

GNMA MBS
 
4,615

 
56

 
14,782

 
355

 
19,397

 
411

Total temporarily impaired investments
 
$
398,776

 
$
3,624

 
$
239,678

 
$
8,024

 
$
638,454

 
$
11,648

 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
23,404

 
$
59

 
$
5,625

 
$
32

 
$
29,029

 
$
91

Total temporarily impaired investments
 
$
23,404

 
$
59

 
$
5,625

 
$
32

 
$
29,029

 
$
91

 
 
 
 
 
 
 
 
 
 
 
 
 
Other equity investments
 
$

 
$

 
$
624

 
$
20

 
$
624

 
$
20

At September 30, 2018, we owned debt securities totaling $1.1 billion for which the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $41.9 million at September 30, 2018. The temporary impairment is the result of changes in market interest rates subsequent to purchase. Our investment portfolio is reviewed each quarter for indications of OTTI. This review includes analyzing the length of time and the extent to which the fair value has been lower than the amortized cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and our intent and ability to hold the investment for a period of time sufficient to allow for full recovery of the unrealized loss. We evaluate our intent and ability to hold debt securities based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not have the intent to sell, nor is it more likely-than-not we will be required to sell these securities before we are able to recover the amortized cost basis.
All debt securities, with the exception of one having a fair value of $0.6 million at September 30, 2018, were AA-rated or better at the time of purchase and remained investment grade at September 30, 2018. All securities were evaluated for OTTI at September 30, 2018 and December 31, 2017. The result of this evaluation showed no OTTI as of September 30, 2018 or December 31, 2017. The estimated weighted average duration of MBS was 5.6 years at September 30, 2018.

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5. LOANS
The following table shows our loan portfolio by category:  
(Dollars in thousands)
 
September 30, 2018
 
December 31, 2017
Commercial and industrial
 
$
1,506,675

 
$
1,464,554

Owner-occupied commercial
 
1,085,404

 
1,079,247

Commercial mortgages
 
1,133,281

 
1,187,705

Construction
 
333,487

 
281,608

Residential(1)
 
223,308

 
253,301

Consumer
 
653,704

 
558,493

 
 
4,935,859

 
4,824,908

Less:
 

 
 
Deferred fees, net
 
7,911

 
7,991

Allowance for loan losses
 
41,812

 
40,599

Net loans
 
$
4,886,136

 
$
4,776,318

(1) Includes reverse mortgages at fair value of $16.6 million at September 30, 2018 and $19.8 million at December 31, 2017.
The following table shows the outstanding principal balance and carrying amounts for acquired credit impaired loans for which the Company applies ASC 310-30 as of the dates indicated:
(Dollars in thousands)
 
September 30, 2018
 
December 31, 2017
Outstanding principal balance
 
$
21,534

 
$
27,034

Carrying amount
 
17,264

 
21,295

Allowance for loan losses
 
229

 
358

The following table presents the changes in accretable yield on the acquired credit impaired loans for the nine months ended September 30, 2018:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in thousands)
 
2018
 
2017
 
2018
 
2017
Balance at beginning of period
 
$
2,925

 
$
4,603

 
$
3,035

 
$
5,150

Accretion
 
(433
)
 
(583
)
 
(1,351
)
 
(2,158
)
Reclassification from nonaccretable difference
 
2

 
3

 
1,080

 
1,246

Additions/adjustments
 
(52
)
 
(878
)
 
(322
)
 
(1,089
)
Disposals
 

 
(341
)
 

 
(345
)
Balance at end of period
 
$
2,442

 
$
2,804

 
$
2,442