WSFS Financial Corporation
WSFS FINANCIAL CORP (Form: 10-Q, Received: 11/08/2017 17:12:40)
 
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, 2017
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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
 
¨ (Do not check if smaller reporting company)
  
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 31,389,882 shares of common stock, par value $0.01 per share, outstanding at November 3, 2017 .
 



WSFS FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 
 
PART I. Financial Information
Page
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
Notes to the Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2017 and 2016
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

Table of Contents

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;
the Company’s ability to fully realize the cost savings and other benefits of its acquisitions, 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;
system failure or cybersecurity breaches of the Company’s network;
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;
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;

3

Table of Contents

the effects of any reputational, 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, discussed in the Company’s Form 10-K for the year ended December 31, 2016 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.


4

Table of Contents


WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
(Dollars in thousands, except per share data)
 
(Unaudited)
Interest income:
 
 
 
 
 
 
 
 
Interest and fees on loans
 
$
58,504

 
$
49,849

 
$
169,258

 
$
140,394

Interest on mortgage-backed securities
 
4,955

 
3,854

 
14,132

 
11,658

Interest and dividends on investment securities:
 
 
 
 
 
 
 
 
Taxable
 
14

 
80

 
137

 
242

Tax-exempt
 
1,125

 
1,134

 
3,387

 
3,418

Other interest income
 
412

 
420

 
1,256

 
1,174

 
 
65,010

 
55,337

 
188,170

 
156,886

Interest expense:
 
 
 
 
 
 
 
 
Interest on deposits
 
3,862

 
2,412

 
10,278

 
6,734

Interest on senior debt
 
1,807

 
2,119

 
6,049

 
4,236

Interest on Federal Home Loan Bank advances
 
2,402

 
1,225

 
6,057

 
3,397

Interest on federal funds purchased and securities sold under agreements to repurchase
 
273

 
113

 
709

 
457

Interest on trust preferred borrowings
 
500

 
415

 
1,418

 
1,183

Interest on other borrowings
 
37

 
32

 
113

 
88

 
 
8,881

 
6,316

 
24,624

 
16,095

Net interest income
 
56,129

 
49,021

 
163,546

 
140,791

Provision for loan losses
 
2,896

 
5,828

 
6,901

 
7,862

Net interest income after provision for loan losses
 
53,233

 
43,193

 
156,645

 
132,929

Noninterest income:
 
 
 
 
 
 
 
 
Credit/debit card and ATM income
 
9,350

 
7,776

 
26,406

 
21,930

Investment management and fiduciary income
 
8,809

 
6,074

 
25,683

 
17,610

Deposit service charges
 
4,695

 
4,482

 
13,652

 
13,100

Mortgage banking activities, net
 
1,756

 
2,555

 
4,785

 
6,025

Securities gains, net
 
736

 
1,040

 
1,764

 
1,890

Loan fee income
 
483

 
542

 
1,483

 
1,499

Bank owned life insurance income
 
546

 
255

 
1,124

 
697

Other income
 
6,066

 
4,862

 
17,312

 
14,011

 
 
32,441

 
27,586

 
92,209

 
76,762

Noninterest expense:
 
 
 
 
 
 
 
 
Salaries, benefits and other compensation
 
29,172

 
24,804

 
86,231

 
71,189

Occupancy expense
 
4,756

 
4,335

 
14,602

 
12,560

Equipment expense
 
2,922

 
2,653

 
9,544

 
7,642

Professional fees
 
2,248

 
1,554

 
6,552

 
6,891

Data processing and operations expenses
 
1,817

 
1,500

 
5,185

 
4,564

Marketing expense
 
712

 
712

 
2,268

 
2,177

Loan workout and OREO expenses
 
484

 
511

 
1,504

 
1,059

FDIC expenses
 
560

 
469

 
1,683

 
2,080

Early extinguishment of debt

 
695

 

 
695

 

Corporate development expense
 
153

 
5,885

 
857

 
7,003

Other operating expense
 
10,644

 
8,811

 
29,275

 
24,552

 
 
54,163

 
51,234

 
158,396

 
139,717

Income before taxes
 
31,511

 
19,545

 
90,458

 
69,974

Income tax provision
 
10,942

 
6,823

 
30,382

 
24,004

Net income
 
$
20,569

 
$
12,722

 
$
60,076

 
$
45,970

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.65

 
$
0.42

 
$
1.91

 
$
1.54

Diluted
 
$
0.64

 
$
0.41

 
$
1.86

 
$
1.50

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

5


WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
(Dollars in thousands)
 
(Unaudited)
 
(Unaudited)
Net Income
 
$
20,569

 
$
12,722

 
$
60,076

 
$
45,970

Other comprehensive income:
 
 
 
 
 
 
 
 
Net change in unrealized gains on investment securities available for sale
 
 
 
 
 
 
 
 
Net unrealized gains (loss) arising during the period, net of tax expense (benefit) of $761, ($682), $3,498 and $8,668, respectively
 
1,289

 
(1,112
)
 
5,802

 
14,143

Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $261, $395, $628 and $718, respectively
 
(475
)
 
(645
)
 
(1,136
)
 
(1,172
)
 
 
814

 
(1,757
)
 
4,666

 
12,971

Net change in securities held to maturity
 
 
 
 
 
 
 
 
Amortization of unrealized gain on securities reclassified to held-to-maturity, net of tax expense of $60, $60, $181 and $187, respectively
 
(99
)
 
(102
)
 
(297
)
 
(305
)
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 ($15), ($14), ($42) and $266, respectively
 
(22
)
 
(20
)
 
(67
)
 
436

Net change in cash flow hedge
 
 
 
 
 
 
 
 
Net unrealized gain arising during the period, net of tax expense of $26, $38, $118 and $38, respectively
 
42

 
61

 
192

 
61

Total other comprehensive income (loss)
 
735

 
(1,818
)
 
4,494

 
13,163

Total comprehensive income
 
$
21,304

 
$
10,904

 
$
64,570

 
$
59,133

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

6


WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
September 30, 2017
 
December 31, 2016
(Dollars in thousands, except per share and share data)
 
(Unaudited)
Assets:
 
 
 
 
Cash and due from banks
 
$
117,343

 
$
119,929

Cash in non-owned ATMs
 
612,443

 
698,454

Interest-bearing deposits in other banks including collateral of $3,380 at September 30, 2017 and December 31, 2016
 
3,579

 
3,540

Total cash and cash equivalents
 
733,365

 
821,923

Investment securities, available for sale (amortized cost of $816,114 at September 30, 2017 and $807,761 at December 31, 2016)
 
810,433

 
794,543

Investment securities, held to maturity-at cost (fair value of $163,397 at September 30, 2017 and $163,232 at December 31, 2016)
 
161,721

 
164,346

Loans, held for sale at fair value
 
19,313

 
54,782

Loans, net of allowance for loan losses of $40,201 at September 30, 2017 and $39,751 at December 31, 2016
 
4,670,216

 
4,444,375

Bank owned life insurance
 
102,727

 
101,425

Stock in Federal Home Loan Bank of Pittsburgh-at cost
 
33,277

 
38,248

Other real estate owned
 
3,924

 
3,591

Accrued interest receivable
 
17,789

 
17,027

Premises and equipment
 
48,345

 
48,871

Goodwill
 
166,007

 
167,539

Intangible assets
 
23,109

 
23,708

Other assets
 
85,118

 
84,892

Total assets
 
$
6,875,344

 
$
6,765,270

Liabilities and Stockholders’ Equity
 
 
 
 
Liabilities:
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing demand
 
$
1,357,597

 
$
1,266,306

Interest-bearing demand
 
1,057,571

 
935,333

Money market
 
1,347,576

 
1,257,520

Savings
 
557,914

 
547,293

Time
 
305,347

 
332,624

Jumbo certificates of deposit – customer
 
251,782

 
260,560

Total customer deposits
 
4,877,787

 
4,599,636

Brokered deposits
 
173,932

 
138,802

Total deposits
 
5,051,719

 
4,738,438

Federal funds purchased and securities sold under agreements to repurchase
 
70,000

 
130,000

Federal Home Loan Bank advances
 
697,812

 
854,236

Trust preferred borrowings
 
67,011

 
67,011

Senior debt
 
98,116

 
152,050

Other borrowed funds
 
70,369

 
64,150

Accrued interest payable
 
3,882

 
1,151

Other liabilities
 
75,574

 
70,898

Total liabilities
 
6,134,483

 
6,077,934

Stockholders’ Equity:
 
 
 
 
Common stock $0.01 par value, 65,000,000 shares authorized; issued 56,217,643 at September 30, 2017 and 55,995,219 at December 31, 2016
 
562

 
580

Capital in excess of par value
 
334,221

 
329,457

Accumulated other comprehensive loss
 
(3,123
)
 
(7,617
)
Retained earnings
 
680,554

 
627,078

Treasury stock at cost, 24,807,145 shares at September 30, 2017 and 24,605,145 shares at December 31, 2016
 
(271,353
)
 
(262,162
)
Total stockholders’ equity
 
740,861

 
687,336

Total liabilities and stockholders’ equity
 
$
6,875,344

 
$
6,765,270

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
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, 2015
 
55,945,245

 
$
560

 
$
256,435

 
$
696

 
$
570,630

 
$
(247,850
)
 
$
580,471

Net Income
 

 

 

 

 
45,970

 

 
45,970

Other comprehensive income
 

 

 

 
13,163

 

 

 
13,163

Cash dividend, $0.18 per share
 

 

 

 

 
(5,437
)
 

 
(5,437
)
Issuance of common stock including proceeds from exercise of common stock options
 
174,211

 
2

 
1,888

 

 

 

 
1,890

Stock-based compensation expense
 

 

 
2,066

 

 

 

 
2,066

Acquisition of Penn Liberty
 
1,806,748

 
18

 
66,759

 

 

 

 
66,777

Repurchase of common stock, 409,371 shares
 

 

 

 

 

 
(12,890
)
 
(12,890
)
Treasury share adjustment (1)
 
(2,022,627
)
 


 

 

 

 

 

Balance, September 30, 2016
 
55,903,577

 
$
580

 
$
327,148

 
$
13,859

 
$
611,163

 
$
(260,740
)
 
$
692,010

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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


(1)
The 2016 Consolidated Statement of Changes in Stockholder's Equity has been revised to reflect an adjustment between shares issued and treasury stock. This reclassification had no impact on shares outstanding, earnings per share or retained earnings.


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



7


WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
(Dollars in thousands)
 
(Unaudited)
Operating activities:
 
 
 
 
Net Income
 
$
60,076

 
$
45,970

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
6,901

 
7,862

Depreciation of premises and equipment, net
 
6,454

 
5,587

Amortization of fees and discounts, net
 
15,002

 
13,921

Amortization of intangible assets
 
2,352

 
1,260

Gain on mortgage banking activities, net
 
(4,785
)
 
(6,025
)
Gain on sale of securities, net
 
(1,764
)
 
(1,890
)
Loss on sale of other real estate owned and valuation adjustments, net
 
187

 
230

Debt extinguishment cost
 
695

 

Deferred income tax expense
 
3,097

 
5,364

Increase in accrued interest receivable
 
(762
)
 
(239
)
(Increase) decrease in other assets
 
(7,451
)
 
8,028

Origination of loans held for sale
 
(258,962
)
 
(252,368
)
Proceeds from sales of loans held for sale
 
284,797

 
230,864

Stock-based compensation expense
 
2,449

 
2,253

Increase in accrued interest payable
 
2,731

 
2,857

Increase (decrease) in other liabilities
 
962

 
(2,286
)
Increase in value of bank owned life insurance
 
(899
)
 
(2,311
)
Increase in capitalized interest, net
 
(3,252
)
 
(3,834
)
Net cash provided by operating activities
 
$
107,828

 
$
55,243

Investing activities:
 
 
 
 
Purchases of investment securities held to maturity
 
$

 
$
(3,329
)
Repayments, maturities and calls of investment securities held to maturity
 
1,175

 
2,840

Sale of investment securities available for sale
 
415,486

 
155,789

Purchases of investment securities available for sale
 
(593,878
)
 
(254,993
)
Repayments of investment securities available for sale
 
174,251

 
62,798

Proceeds of bank owned life insurance death benefit
 
371

 

Net increase in loans
 
(231,955
)
 
(141,500
)
Net cash for business combinations
 

 
51,788

Purchases of stock of Federal Home Loan Bank of Pittsburgh
 
(128,159
)
 
(57,308
)
Redemptions of stock of Federal Home Loan Bank of Pittsburgh
 
133,130

 
51,117

Sales of other real estate owned
 
4,405

 
4,069

Investment in premises and equipment
 
(7,336
)
 
(7,677
)
Sales of premises and equipment
 
1,593

 

Net cash used for investing activities
 
$
(230,917
)
 
$
(136,406
)

8


 
 
Nine Months Ended September 30,
 
 
2017
 
2016
(Dollars in thousands)
 
(Unaudited)
Financing activities:
 
 
 
 
Net increase in demand and saving deposits
 
$
320,784

 
$
221,336

Decrease in time deposits
 
(36,055
)
 
(57,383
)
Increase (decrease) in brokered deposits
 
35,079

 
(12,091
)
Decrease in loan payable
 
(359
)
 
(366
)
Receipts from FHLB advances
 
109,432,123

 
90,314,153

Repayments of FHLB advances
 
(109,588,547
)
 
(90,166,500
)
Receipts from federal funds purchased and securities sold under agreement to repurchase
 
17,610,000

 
21,676,620

Repayments of federal funds purchased and securities sold under agreement to repurchase
 
(17,670,000
)
 
(21,723,820
)
Dividends paid
 
(6,600
)
 
(5,437
)
Issuance of common stock and exercise of common stock options
 
2,317

 
1,918

Redemption of senior debt
 
(55,000
)
 

Issuance of senior debt
 

 
97,849

Purchase of treasury stock
 
(9,211
)
 
(12,890
)
Net cash provided by financing activities
 
$
34,531

 
$
333,389

(Decrease) increase in cash and cash equivalents
 
(88,558
)
 
252,226

Cash and cash equivalents at beginning of period
 
821,923

 
561,179

Cash and cash equivalents at end of period
 
$
733,365

 
$
813,405

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid during the year for:
 
 
 
 
     Interest
 
$
21,893

 
$
13,238

     Income taxes
 
20,861

 
18,640

Non-cash information:
 
 
 
 
Loans transferred to other real estate owned
 
4,925

 
1,455

Loans transferred to portfolio from held-for-sale at fair value
 
12,782

 
6,337

Net change in accumulated other comprehensive income
 
4,494

 
13,163

Fair value of assets acquired, net of cash received
 

 
526,767

Fair value of liabilities assumed
 

 
583,517

Goodwill adjustments, net
 
(1,532
)
 
(1,496
)
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

9


WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017
(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 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 our 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, other-than-temporary impairment (OTTI), and the income tax valuation allowance. Among other effects, changes to these estimates could result in future impairments of investment securities, goodwill and intangible assets and 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. 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, 2017 . 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, 2016 (the "2016 Annual Report on Form 10-K") that was filed with the SEC on March 1, 2017 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.
The significant accounting policies used in preparation of our Consolidated Financial Statements are disclosed in our 2016 Annual Report on Form 10-K. There have not been any material changes in our significant accounting policies from those disclosed in our 2016 Annual Report on Form 10-K.
Senior Debt
On September 1, 2017, we redeemed $55.0 million in aggregate principal amount of our 6.25% senior notes due 2019 which were issued in 2012 (the 2012 senior notes). The 2012 senior notes were repaid using a portion of the proceeds from our 2016 issuance of senior unsecured fixed-to-floating rate notes (the 2016 senior notes) described below. We recorded noninterest expense of $0.7 million due to the write-off of unamortized debt issuance costs in connection with this redemption.
On June 13, 2016, the Company issued $100.0 million of the 2016 senior notes. The 2016 senior notes mature on June 15, 2026 and have a fixed coupon rate of 4.50% from issuance until June 15, 2021 and a variable coupon rate of three month LIBOR plus 3.30% from June 15, 2021 until maturity. The 2016 senior notes may be redeemed beginning on June 15, 2021 at 100% of principal plus accrued and unpaid interest. The net proceeds from the issuance of the 2016 senior notes are being used for general corporate purposes.

10


Acquisitions in 2016
On August 12, 2016, we completed the acquisition of Penn Liberty Financial Corp. (Penn Liberty), a community bank headquartered in Wayne, Pennsylvania in order to build our market share, deepen our presence in the southeastern Pennsylvania market, and enhance our customer base. The results of Penn Liberty’s operations are included in our Consolidated Financial Statements since the date of the acquisition. See Note 2 – Business Combinations for further information.
During the third and fourth quarters of 2016, respectively, we acquired the assets of Powdermill Financial Solutions LLC, a multi-family office serving an affluent clientele in the local community and throughout the U.S., and West Capital Management, Inc., an independent, fee-only wealth management firm providing fully customized solutions tailored to the unique needs of institutions and high-net-worth individuals which operates under a multi-family office philosophy. These acquisitions align with our strategic plan to expand our wealth management offerings and to diversify our fee-income generating businesses.
Correction of Prior Period Balances
Consolidated Statements of Income: The Consolidated Statements of Income for the three and nine months ended September 30, 2016 have been revised to correct an immaterial error in Noninterest income - Other income and Noninterest expense - Other operating expense related to revenue earned for cash servicing fees. As a result, the Consolidated Statements of Income have been revised to reflect these changes, as follows:
 
 
Three months ended September 30, 2016
 
Nine months ended September 30, 2016
(Dollars in thousands)
 
As originally reported
 
Adjustments
 
As revised
 
As originally reported
 
Adjustments
 
As revised
Noninterest income - Other income
 
$
4,125

 
$
737

 
$
4,862

 
$
12,017

 
$
1,994

 
$
14,011

Noninterest expense - Other operating expense
 
8,074

 
737

 
8,811

 
22,558

 
1,994

 
24,552

The above revisions had no effect on earnings per share or retained earnings. Periods not presented herein will be revised, as applicable, as they are included in future filings.

RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Guidance Adopted in 2017
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-05: Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships , which amends Accounting Standards Codification (ASC) Topic 815: Derivatives and Hedging. This new guidance clarifies that the novation of a derivative contract (i.e., a change in the counterparty) in a hedge accounting relationship does not, in and of itself, cause a hedge accounting relationship to be discontinued because it does not represent a termination of the original derivative instrument or a change in the critical terms of the hedge relationship. This new guidance is effective for annual reporting periods beginning after December 15, 2016 and may be adopted prospectively or retroactively. Early adoption is permitted, including adoption in an interim period. The Company adopted this accounting guidance during the quarter ended March 31, 2017 on a prospective basis with no impact to our Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-06, Contingent Put and Call Options in Debt Instruments, Derivatives and Hedging (Topic 815).  ASU 2016-06 clarifies that determining whether the economic characteristics of a put or call are clearly and closely related to its debt host requires only an assessment of the four-step decision sequence outlined in FASB ASC paragraph 815-15-25-24. Additionally, entities are not required to separately assess whether the contingency itself is clearly and closely related. The standard is effective for public business entities in interim and annual periods in fiscal years beginning after December 15, 2016. Early adoption is permitted in any interim period for which the entity’s financial statements have not been issued, but would be retroactively applied to the beginning of the year that includes the interim period. The standard requires a modified retrospective transition approach, with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. For instruments that are eligible for the fair value option, an entity has a one-time option to irrevocably elect to measure the debt instrument affected by the standard in its entirety at fair value with changes in fair value recognized in earnings. The Company adopted this accounting guidance during the quarter ended March 31, 2017 with no impact on our Consolidated Statements of Income or Consolidated Statements of Financial Condition.

11


In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, Investments - Equity Method and Joint Ventures (Topic 323).  ASU 2016-07 eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The standard is effective for all entities in annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied prospectively to changes in ownership (or influence) after the adoption date. The Company adopted this accounting guidance during the quarter ended March 31, 2017 on a prospective basis with no impact to our Consolidated Financial Statements.
Accounting Guidance Pending Adoption at September 30, 2017

In May 2014, the FASB issued 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 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to 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 defers 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 of certain provisions in Topic 606. These ASC updates are effective for public business entities 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 standard permits the use of either the retrospective or retrospectively with the cumulative effect transition method. The Company will adopt the standard on January 1, 2018 using the retrospective with the cumulative effect transition method. For revenue streams determined to be within the scope of the standard, we have substantially completed our impact analysis, the results of which has shown an immaterial effect on our Consolidated Financial Statements. The Company is in the process of updating our accounting policies, processes and related internal controls to incorporate the changes from the standard. Topic 606 also includes expanded disclosure requirements which we are currently in the process of drafting. Although the impact of this adoption is expected to be immaterial on our financial statements, we do anticipate adding additional detail to our revenue disclosures.
 
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, minus 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. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Entities may apply this guidance on a prospective or retrospective basis. The Company will adopt the standard on a prospective basis and does not expect the prospective application of this guidance to have a material impact on its Consolidated Financial Statements.
 
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 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 for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company does not plan to early adopt this guidance and is currently in the process of identifying our complete lease population as defined by this guidance. The Company is also evaluating our internal systems, accounting policies, processes and related internal controls for potential impacts. Our preliminary review of this guidance suggests that adoption will result in additional assets and liabilities on our Consolidated Balance Sheet. The Company will adopt this guidance on January 1, 2019.
 

12


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 is in the early stages of evaluating the impact of this guidance on its Consolidated Financial Statements, internal systems, accounting policies, processes and related internal controls. Our preliminary review of this guidance 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 and significant estimates and judgments made by management at the time of adoption. The Company will adopt this guidance on January 1, 2020.

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 does not expect the application of this guidance to have any impact on its 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 does not expect the application of this guidance to have any impact on its Consolidated Financial Statements.

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 for public entities 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. The Company does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements.

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, the new guidance clarifies that 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, the new guidance clarifies that each distinct nonfinancial asset and in-substance nonfinancial asset should be derecognized when the counterparty obtains control of it. The guidance is effective for public entities 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 is currently evaluating the impact of adopting ASU 2017-05 on its Consolidated Financial Statements.

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 for public entities in annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements.

13


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 for public entities 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.
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 for all entities 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 does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements.
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities . The new guidance changes both the designation and measurement guidance for qualifying hedging relationships and 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. Additionally, the new guidance provides entities the ability to apply hedge accounting to additional hedging strategies. The guidance is effective for all entities in annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements.


14


2. BUSINESS COMBINATIONS
Penn Liberty Financial Corporation
On August 12, 2016, we completed the acquisition of Penn Liberty. The acquisition of Penn Liberty was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration transferred were recorded at their estimated fair values as of the acquisition date. The fair values of assets acquired and liabilities assumed are now considered final.
In connection with the acquisition of Penn Liberty, the consideration transferred and the fair value of identifiable assets acquired and liabilities assumed, including remeasurement adjustments subsequent to the date of acquisition, are summarized in the following table:
 
(Dollars in thousands)
 
Fair Value
Consideration Transferred:
 
 
Common shares issued (1,806,748)
 
$
68,352

Cash paid to Penn Liberty stock and option holders
 
40,549

Value of consideration
 
108,901

Assets acquired:
 
 
Cash and due from banks
 
102,301

Investment securities
 
627

Loans
 
483,203

Premises and equipment
 
6,817

Deferred income taxes
 
6,542

Bank owned life insurance
 
8,666

Core deposit intangible
 
2,882

Other real estate owned
 
996

Other assets
 
12,085

Total assets
 
624,119

Liabilities assumed:
 
 
Deposits
 
568,706

Other borrowings
 
10,000

Other liabilities
 
3,738

Total liabilities
 
582,444

Net assets acquired:
 
41,675

Goodwill resulting from acquisition of Penn Liberty
 
$
67,226

The following table details the change to goodwill recorded subsequent to acquisition:
(Dollars in thousands)
 
Fair Value
Goodwill resulting from the acquisition of Penn Liberty reported as of December 31, 2016
 
$
68,814

Effects of adjustments to:
 
 
Deferred income taxes
 
880

Loans
 
279

Other assets
 
(1,440
)
Other liabilities
 
(1,307
)
Adjusted goodwill resulting from the acquisition of Penn Liberty as of September 30, 2017
 
$
67,226

In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. During the three months ended September 30, 2017, no adjustments were made to goodwill resulting from the acquisition of Penn Liberty.

15


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)
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net income
$
20,569

 
$
12,722

 
$
60,076

 
$
45,970

Denominator:
 
 
 
 
 
 
 
Weighted average basic shares
31,420

 
30,520

 
31,424

 
29,914

Dilutive potential common shares
848

 
797

 
856

 
747

Weighted average fully diluted shares
32,268

 
31,317

 
32,280

 
30,661

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.65

 
$
0.42

 
$
1.91

 
$
1.54

Diluted
$
0.64

 
$
0.41

 
$
1.86

 
$
1.50

Outstanding common stock equivalents having no dilutive effect

 
1

 
5

 
10



16


4. INVESTMENT SECURITIES
The following tables detail the amortized cost and the estimated fair value of our available-for-sale and held-to-maturity investment securities. None of our investment securities are classified as trading.
(Dollars in thousands)
 
Amortized Cost
 
Gross
Unrealized
 Gain
 
Gross
Unrealized
 Loss
 
Fair
Value
Available-for-Sale Securities:
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
CMO
 
$
269,267

 
$
895

 
$
2,354

 
$
267,808

FNMA MBS
 
434,920

 
1,545

 
5,223

 
431,242

FHLMC MBS
 
85,564

 
277

 
779

 
85,062

GNMA MBS
 
25,723

 
289

 
315

 
25,697

Other investments
 
640

 

 
16

 
624

 
 
$
816,114

 
$
3,006

 
$
8,687

 
$
810,433

December 31, 2016
 
 
 
 
 
 
 
 
GSE
 
$
35,061

 
$
9

 
$
60

 
$
35,010

CMO
 
264,607

 
566

 
3,957

 
261,216

FNMA MBS
 
414,218

 
950

 
9,404

 
405,764

FHLMC MBS
 
64,709

 
135

 
1,330

 
63,514

GNMA MBS
 
28,540

 
303

 
427

 
28,416

Other investments
 
626

 

 
3

 
623

 
 
$
807,761

 
$
1,963

 
$
15,181

 
$
794,543

(Dollars in thousands)
 
Amortized Cost
 
Gross
Unrealized
 Gain
 
Gross
Unrealized
 Loss
 
Fair
Value
Held-to-Maturity Securities (1)
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
161,721

 
$
1,796

 
$
120

 
$
163,397

December 31, 2016
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
164,346

 
$
271

 
$
1,385

 
$
163,232

(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 $1.8 million and $2.2 million at September 30, 2017 and December 31, 2016 , respectively, related to securities transferred, which are offset in Accumulated Other Comprehensive Income, net of tax.


17


The scheduled maturities of investment securities available for sale and held to maturity at September 30, 2017 and December 31, 2016 are presented in the table below:
 
 
 
Available for Sale (1)
 
 
Amortized
 
Fair
(Dollars in thousands)
 
Cost
 
Value
September 30, 2017
 
 
 
 
Within one year
 
$

 
$

After one year but within five years
 
4,007

 
4,002

After five years but within ten years
 
201,919

 
198,334

After ten years
 
609,548

 
607,473

 
 
$
815,474

 
$
809,809

December 31, 2016
 
 
 
 
Within one year
 
$
16,009

 
$
16,017

After one year but within five years
 
19,052

 
18,992

After five years but within ten years
 
276,635

 
270,300

After ten years
 
495,439

 
488,611

 
 
$
807,135

 
$
793,920

 
 
 
 
 
 
 
Held to Maturity
 
 
Amortized
 
Fair
(Dollars in thousands)
 
Cost
 
Value
September 30, 2017
 
 
 
 
Within one year
 
$
328

 
$
326

After one year but within five years
 
5,437

 
5,491

After five years but within ten years
 
15,672

 
15,838

After ten years
 
140,284

 
141,742

 
 
$
161,721

 
$
163,397

December 31, 2016
 
 
 
 
Within one year
 
$

 
$

After one year but within five years
 
6,168

 
6,162

After five years but within ten years
 
8,882

 
8,870

After ten years
 
149,296

 
148,200

 
 
$
164,346

 
$
163,232

(1)  
Included in the investment portfolio, but not in the table above, is a mutual fund with an amortized cost and fair value of $0.6 million and $0.6 million as of September 30, 2017 and December 31, 2016 which has no stated maturity.
Mortgage-backed securities (MBS) may have expected maturities that differ from their contractual maturities. These differences arise because borrowers have the right to call or prepay obligations with or without prepayment penalty.
Investment securities with fair market values aggregating $737.3 million and $562.5 million were pledged as collateral for retail customer repurchase agreements, municipal deposits, and other obligations as of September 30, 2017 and December 31, 2016 , respectively.
During the nine months ended September 30, 2017 , we sold $415.5 million of investment securities categorized as available for sale, resulting in realized gains of $1.9 million and realized losses of less than $0.1 million . During the nine months ended September 30, 2016 , we sold $155.8 million of investment securities categorized as available for sale, resulting in realized gains of $1.9 million and no realized losses. The cost basis of all investment securities sales is based on the specific identification method.
As of September 30, 2017 and December 31, 2016 , our investment securities portfolio had remaining unamortized premiums of $14.9 million and $18.0 million , respectively, and unaccreted discounts of $1.1 million and $0.4 million , respectively.


18


For 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 securities were in a continuous unrealized loss position at September 30, 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 securities:
 
 
 
 
 
 
 
 
 
 
 
 
CMO
 
$
114,939

 
$
1,188

 
$
43,775

 
$
1,166

 
$
158,714

 
$
2,354

FNMA MBS
 
188,153

 
2,299

 
74,801

 
2,924

 
262,954

 
5,223

FHLMC MBS
 
45,317

 
497

 
7,892

 
282

 
53,209

 
779

GNMA MBS
 
4,856

 
83

 
10,687

 
232

 
15,543

 
315

Other investments
 

 

 
624

 
16

 
624

 
16

Total temporarily impaired investments
 
$
353,265

 
$
4,067

 
$
137,779

 
$
4,620

 
$
491,044

 
$
8,687

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 months
 
12 months or longer
 
Total
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
(Dollars in thousands)
 
Value
 
Loss
 
Value
 
Loss
 
Value
 
Loss
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
13,571

 
$
48

 
$
6,700

 
$
72

 
$
20,271

 
$
120

Total temporarily impaired investments
 
$
13,571

 
$
48

 
$
6,700

 
$
72

 
$
20,271

 
$
120

For 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 securities were in a continuous unrealized loss position at December 31, 2016 .
 
 
 
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 securities:
 
 
 
 
 
 
 
 
 
 
 
 
GSE
 
$
21,996

 
$
60

 
$

 
$

 
$
21,996

 
$
60

CMO
 
160,572

 
3,867

 
4,654

 
90

 
165,226

 
3,957

FNMA MBS
 
50,878

 
1,330

 

 

 
50,878

 
1,330

FHLMC MBS
 
300,403

 
9,404

 

 

 
300,403

 
9,404

GNMA MBS
 
16,480

 
427

 

 

 
16,480

 
427

Other investments
 
623

 
3

 

 

 
623

 
3

Total temporarily impaired investments
 
$
550,952

 
$
15,091

 
$
4,654

 
$
90

 
$
555,606

 
$
15,181

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 months
 
12 months or longer
 
Total
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
(Dollars in thousands)
 
Value
 
Loss
 
Value
 
Loss
 
Value
 
Loss
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
112,642

 
$
1,374

 
$
695

 
$
11

 
$
113,337

 
$
1,385

Total temporarily impaired investments
 
$
112,642

 
$
1,374

 
$
695

 
$
11

 
$
113,337

 
$
1,385


19


At September 30, 2017 , we owned investment securities totaling $511.3 million for which the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $8.8 million at September 30, 2017 . The temporary impairment is the result of changes in market interest rates subsequent to the purchase of the securities. 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 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 securities, with the exception of one having a fair value of $0.8 million at September 30, 2017 , were AA-rated or better at the time of purchase and remained investment grade at September 30, 2017 . All securities were evaluated for OTTI at September 30, 2017 and December 31, 2016 . The result of this evaluation showed no OTTI as of September 30, 2017 or December 31, 2016 . The estimated weighted average duration of MBS was 5.10 years at September 30, 2017 .


















20



5. LOANS
The following table shows our loan portfolio by category:  
(Dollars in thousands)
 
September 30, 2017
 
December 31, 2016
Commercial and industrial
 
$
1,388,094

 
$
1,287,731

Owner-occupied commercial
 
1,096,753

 
1,078,162

Commercial mortgages
 
1,157,074

 
1,163,554

Construction
 
293,317

 
222,712

Residential (1)
 
262,147

 
289,611

Consumer
 
520,276

 
450,029

 
 
4,717,661

 
4,491,799

Less:
 
 
 
 
Deferred fees, net
 
7,244

 
7,673

Allowance for loan losses