WSFS Financial Corporation
WSFS FINANCIAL CORP (Form: 10-Q, Received: 08/08/2017 16:52:19)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________________
FORM 10-Q
___________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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)
 
WSFS Bank Center, 500 Delaware Avenue, Wilmington, Delaware 19801
(Address of principal executive offices)
 
(302) 792-6000
Registrant’s telephone number, including area code:
___________________________________________
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  ☒    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  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting 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
 
  
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  ☒
The Registrant had 31,418,069 shares of common stock, par value $0.01 per share, outstanding at August 3, 2017 .
 



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.
 
 
 
 
Exhibit 31.1
 
Exhibit 31.2
 
Exhibit 32
 
Exhibit 101.INS
Instance Document
 
Exhibit 101.SCH
Schema Document
 
Exhibit 101.CAL
Calculation Linkbase Document
 
Exhibit 101.LAB
Labels Linkbase Document
 
Exhibit 101.PRE
Presentation Linkbase Document
 
Exhibit 101.DEF
Definition Linkbase Document
 

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;

3

Table of Contents

regulatory limits on the Company’s ability to receive dividends from its subsidiaries and pay dividends to its shareholders;
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. 
Forward-looking statements speak only as of the date they are made, and the Company assumes no obligation 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 required by law.



4

Table of Contents

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
(Dollars in thousands, except per share data)
 
(Unaudited)
Interest income:
 
 
 
 
 
 
 
 
Interest and fees on loans
 
$
56,073

 
$
45,983

 
$
110,754

 
$
90,545

Interest on mortgage-backed securities
 
4,782

 
3,910

 
9,177

 
7,804

Interest and dividends on investment securities:
 
 
 
 
 
 
 
 
Taxable
 
6

 
85

 
123

 
162

Tax-exempt
 
1,130

 
1,141

 
2,262

 
2,284

Other interest income
 
343

 
384

 
844

 
754

 
 
62,334

 
51,503

 
123,160

 
101,549

Interest expense:
 
 
 
 
 
 
 
 
Interest on deposits
 
3,341

 
2,204

 
6,416

 
4,322

Interest on senior debt
 
2,121

 
1,175

 
4,242

 
2,117

Interest on Federal Home Loan Bank advances
 
1,797

 
1,124

 
3,655

 
2,172

Interest on federal funds purchased and securities sold under agreements to repurchase
 
235

 
162

 
436

 
344

Interest on trust preferred borrowings
 
472

 
397

 
918

 
768

Interest on other borrowings
 
54

 
27

 
76

 
56

 
 
8,020

 
5,089

 
15,743

 
9,779

Net interest income
 
54,314

 
46,414

 
107,417

 
91,770

Provision for loan losses
 
1,843

 
1,254

 
4,005

 
2,034

Net interest income after provision for loan losses
 
52,471

 
45,160

 
103,412

 
89,736

Noninterest income:
 
 
 
 
 
 
 
 
Credit/debit card and ATM income
 
8,925

 
7,253

 
17,056

 
14,154

Investment management and fiduciary income
 
8,835

 
6,282

 
16,874

 
11,536

Deposit service charges
 
4,560

 
4,342

 
8,957

 
8,618

Mortgage banking activities, net
 
1,844

 
1,816

 
3,029

 
3,470

Securities gains, net
 
708

 
545

 
1,028

 
850

Loan fee income
 
451

 
480

 
1,000

 
957

Bank owned life insurance income
 
302

 
211

 
578

 
442

Other income
 
6,051

 
4,578

 
11,246

 
9,149

 
 
31,676

 
25,507

 
59,768

 
49,176

Noninterest expense:
 
 
 
 
 
 
 
 
Salaries, benefits and other compensation
 
28,223

 
23,509

 
57,059

 
46,385

Occupancy expense
 
4,684

 
3,955

 
9,846

 
8,225

Equipment expense
 
3,498

 
2,516

 
6,622

 
4,989

Professional fees
 
2,669

 
2,934

 
4,304

 
5,337

Data processing and operations expenses
 
1,750

 
1,522

 
3,368

 
3,064

Marketing expense
 
932

 
801

 
1,556

 
1,465

Loan workout and OREO expenses
 
499

 
45

 
1,020

 
548

FDIC expenses
 
594

 
773

 
1,123

 
1,611

Corporate development expense
 
366

 
549

 
704

 
1,118

Other operating expense
 
9,512

 
8,081

 
18,631

 
15,741

 
 
52,727

 
44,685

 
104,233

 
88,483

Income before taxes
 
31,420

 
25,982

 
58,947

 
50,429

Income tax provision
 
10,850

 
8,504

 
19,440

 
17,181

Net income
 
$
20,570

 
$
17,478

 
$
39,507

 
$
33,248

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.65

 
$
0.59

 
$
1.26

 
$
1.12

Diluted
 
$
0.64

 
$
0.58

 
$
1.22

 
$
1.10

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 June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
(Dollars in thousands)
 
(Unaudited)
 
(Unaudited)
Net Income
 
$
20,570

 
$
17,478

 
$
39,507

 
$
33,248

Other comprehensive income:
 
 
 
 
 
 
 
 
Net change in unrealized gains on investment securities available for sale
 
 
 
 
 
 
 
 
Net unrealized gains arising during the period, net of tax expense of $1,958, $2,870, $2,737 and $9,350, respectively
 
3,241

 
4,683

 
4,513

 
15,255

Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $253, $207, $367 and $323, respectively
 
(455
)
 
(338
)
 
(661
)
 
(527
)
 
 
2,786

 
4,345

 
3,852

 
14,728

Net change in securities held to maturity
 
 
 
 
 
 
 
 
Amortization of unrealized gain on securities reclassified to held-to-maturity, net of tax expense of $62, $62, $121 and $127, respectively
 
(97
)
 
(100
)
 
(198
)
 
(203
)
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), ($13), ($27) and $280, respectively
 
(22
)
 
(22
)
 
(45
)
 
456

Net change in cash flow hedge
 
 
 
 
 
 
 
 
Net unrealized gain arising during the period, net of tax expense of $161, $0, $92 and $0, respectively
 
262

 

 
150

 

Total other comprehensive income
 
2,929

 
4,223

 
3,759

 
14,981

Total comprehensive income
 
$
23,499

 
$
21,701

 
$
43,266

 
$
48,229

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

6


WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
 
 
June 30, 2017
 
December 31, 2016
(Dollars in thousands, except per share and share data)
 
(Unaudited)
Assets:
 
 
 
 
Cash and due from banks
 
$
118,555

 
$
119,929

Cash in non-owned ATMs
 
623,232

 
698,454

Interest-bearing deposits in other banks including collateral of $3,380 at June 30, 2017 and December 31, 2016
 
3,524

 
3,540

Total cash and cash equivalents
 
745,311

 
821,923

Investment securities, available for sale (amortized cost of $825,488 at June 30, 2017 and $807,761 at December 31, 2016)
 
818,495

 
794,543

Investment securities, held to maturity-at cost (fair value of $163,903 at June 30, 2017 and $163,232 at December 31, 2016)
 
162,598

 
164,346

Loans, held for sale at fair value
 
35,425

 
54,782

Loans, net of allowance for loan losses of $40,005 at June 30, 2017 and $39,751 at December 31, 2016
 
4,579,715

 
4,444,375

Bank owned life insurance
 
102,007

 
101,425

Stock in Federal Home Loan Bank of Pittsburgh-at cost
 
35,832

 
38,248

Other real estate owned
 
2,121

 
3,591

Accrued interest receivable
 
16,742

 
17,027

Premises and equipment
 
47,505

 
48,871

Goodwill
 
166,007

 
167,539

Intangible assets
 
23,976

 
23,708

Other assets
 
86,693

 
84,892

Total assets
 
$
6,822,427

 
$
6,765,270

Liabilities and Stockholders’ Equity
 
 
 
 
Liabilities:
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing demand
 
$
1,319,749

 
$
1,266,306

Interest-bearing demand
 
927,465

 
935,333

Money market
 
1,297,024

 
1,257,520

Savings
 
572,476

 
547,293

Time
 
311,804

 
332,624

Jumbo certificates of deposit – customer
 
223,311

 
260,560

Total customer deposits
 
4,651,829

 
4,599,636

Brokered deposits
 
182,221

 
138,802

Total deposits
 
4,834,050

 
4,738,438

Federal funds purchased and securities sold under agreements to repurchase
 
65,000

 
130,000

Federal Home Loan Bank advances
 
823,651

 
854,236

Trust preferred borrowings
 
67,011

 
67,011

Senior debt
 
152,313

 
152,050

Other borrowed funds
 
54,779

 
64,150

Accrued interest payable
 
2,405

 
1,151

Other liabilities
 
100,595

 
70,898

Total liabilities
 
6,099,804

 
6,077,934

Stockholders’ Equity:
 
 
 
 
Common stock $0.01 par value, 65,000,000 shares authorized; issued 56,173,802 at June 30, 2017 and 55,995,219 at December 31, 2016
 
581

 
580

Capital in excess of par value
 
331,905

 
329,457

Accumulated other comprehensive loss
 
(3,858
)
 
(7,617
)
Retained earnings
 
662,186

 
627,078

Treasury stock at cost, 24,739,145 shares at June 30, 2017 and 24,605,145 shares at December 31, 2016
 
(268,191
)
 
(262,162
)
Total stockholders’ equity
 
722,623

 
687,336

Total liabilities and stockholders’ equity
 
$
6,822,427

 
$
6,765,270

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

7


WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars and share data in thousands)
 
Shares
 
Common Stock
 
Capital in Excess of Par Value
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total Shareholders' Equity
Balance, December 31, 2015
 
55,945,245

 
$
560

 
$
256,435

 
$
696

 
$
570,630

 
$
(247,850
)
 
$
580,471

Net Income
 

 

 

 

 
33,248

 

 
33,248

Other comprehensive income
 

 

 

 
14,981

 

 

 
14,981

Cash dividend, $0.12 per share
 

 

 

 

 
(3,556
)
 

 
(3,556
)
Issuance of common stock including proceeds from exercise of common stock options
 
145,276

 
2

 
1,721

 

 

 

 
1,723

Stock-based compensation expense
 

 

 
1,363

 

 

 

 
1,363

Repurchase of common stock, 359,371 shares
 

 

 

 

 

 
(11,034
)
 
(11,034
)
Balance, June 30, 2016
 
56,090,521

 
$
562

 
$
259,519

 
$
15,677

 
$
600,322

 
$
(258,884
)
 
$
617,196

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
 
55,995,219

 
$
580

 
$
329,457

 
$
(7,617
)
 
$
627,078

 
$
(262,162
)
 
$
687,336

Net Income
 

 

 

 

 
39,507

 

 
39,507

Other comprehensive income
 

 

 

 
3,759

 

 

 
3,759

Cash dividend, $0.14 per share
 

 

 

 

 
(4,399
)
 

 
(4,399
)
Issuance of common stock including proceeds from exercise of common stock options
 
178,583

 
1

 
884

 

 

 

 
885

Stock-based compensation expense
 

 

 
1,564

 

 

 

 
1,564

Repurchase of common stock, 133,000 shares
 

 

 

 

 

 
(6,029
)
 
(6,029
)
Balance, June 30, 2017
 
56,173,802

 
$
581

 
$
331,905

 
$
(3,858
)
 
$
662,186

 
$
(268,191
)
 
$
722,623


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



8


WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Six Months Ended June 30,
 
 
2017
 
2016
(Dollars in thousands)
 
(Unaudited)
Operating activities:
 
 
 
 
Net Income
 
$
39,507

 
$
33,248

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
4,005

 
2,034

Depreciation of premises and equipment, net
 
4,286

 
3,699

Amortization of fees and discounts, net
 
10,266

 
8,239

Amortization of intangible assets
 
1,639

 
1,015

Decrease (increase) in accrued interest receivable
 
285

 
(124
)
Increase in other assets
 
(8,156
)
 
(2,440
)
Origination of loans held for sale
 
(181,851
)
 
(152,484
)
Proceeds from sales of loans held for sale
 
192,130

 
160,686

Gain on mortgage banking activities, net
 
(3,029
)
 
(3,470
)
Gain on sale of securities, net
 
(1,028
)
 
(850
)
Stock-based compensation expense
 
1,564

 
1,480

Increase in accrued interest payable
 
1,254

 
1,272

Decrease in other liabilities
 
(1,004
)
 
(473
)
Loss on sale of other real estate owned and valuation adjustments, net
 
131

 
162

Deferred income tax expense
 
2,808

 
3,821

Increase in value of bank owned life insurance
 
(582
)
 
(1,283
)
Increase in capitalized interest, net
 
(2,334
)
 
(2,688
)
Net cash provided by operating activities
 
$
59,891

 
$
51,844

Investing activities:
 
 
 
 
Purchases of investment securities held to maturity
 
$

 
$
(3,329
)
Repayments, maturities and calls of investment securities held to maturity
 
780

 
1,810

Sale of investment securities available for sale
 
351,614

 
101,348

Purchases of investment securities available for sale
 
(481,978
)
 
(159,684
)
Repayments of investment securities available for sale
 
144,208

 
35,570

Net increase in loans
 
(135,856
)
 
(74,579
)
Purchases of stock of Federal Home Loan Bank of Pittsburgh
 
(100,438
)
 
(38,599
)
Redemptions of stock of Federal Home Loan Bank of Pittsburgh
 
102,854

 
31,179

Sales of other real estate owned
 
4,105

 
2,657

Investment in premises and equipment
 
(4,490
)
 
(3,870
)
Sales of premises and equipment
 
1,585

 

Net cash used for investing activities
 
$
(117,616
)
 
$
(107,497
)

9


 
 
Six Months Ended June 30,
 
 
2017
 
2016
(Dollars in thousands)
 
(Unaudited)
Financing activities:
 
 
 
 
Net increase in demand and saving deposits
 
$
101,267

 
$
17,446

Decrease in time deposits
 
(58,069
)
 
(46,594
)
Increase in brokered deposits
 
43,419

 
2,396

Decrease in loan payable
 
(376
)
 
(386
)
Receipts from FHLB advances
 
72,320,785

 
57,591,203

Repayments of FHLB advances
 
(72,351,370
)
 
(57,373,950
)
Receipts from federal funds purchased and securities sold under agreement to repurchase
 
12,312,000

 
16,434,870

Repayments of federal funds purchased and securities sold under agreement to repurchase
 
(12,377,000
)
 
(16,512,070
)
Dividends paid
 
(4,399
)
 
(3,556
)
Issuance of common stock and exercise of common stock options
 
885

 
1,723

Issuance of senior debt
 

 
98,319

Purchase of treasury stock
 
(6,029
)
 
(11,034
)
Net cash (used) provided by financing activities
 
$
(18,887
)
 
$
198,367

(Decrease) increase in cash and cash equivalents
 
(76,612
)
 
142,714

Cash and cash equivalents at beginning of period
 
821,923

 
561,179

Cash and cash equivalents at end of period
 
$
745,311

 
$
703,893

Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid for interest during the period
 
$
14,490

 
$
8,507

Cash paid for income taxes, net
 
10,352

 
12,493

Loans transferred to other real estate owned
 
2,766

 
674

Loans transferred to portfolio from held-for-sale at fair value
 
11,015

 
3,670

Net change in accumulated other comprehensive income
 
3,759

 
14,981

Non-cash goodwill adjustments, net
 
(1,532
)
 
(360
)
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

10


WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017
(UNAUDITED)
1. BASIS OF PRESENTATION
General
Our unaudited Consolidated Financial Statements include the accounts of WSFS Financial Corporation (the Company, our Company, we, our or us), Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank), WSFS Wealth Management, LLC (Powdermill), WSFS Capital Management, LLC (West Capital) and Cypress Capital Management, LLC (Cypress). We also have one unconsolidated subsidiary, WSFS Capital Trust III (the Capital Trust). WSFS Bank has three wholly-owned subsidiaries: WSFS Wealth Investments, 1832 Holdings, Inc. and Monarch Entity Services LLC (Monarch).
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 76 offices located in Delaware ( 45 ), 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 June 13, 2016, the Company issued $100.0 million of senior unsecured fixed-to-floating rate notes (the senior debt). The senior unsecured 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 senior unsecured 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 notes are being used for general corporate purposes.

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In 2012, we issued $55.0 million in aggregate principal amount of 6.25% senior notes due 2019 (the 2012 senior debt). The 2012 senior debt is unsecured and ranks equally with all of our other present and future unsecured unsubordinated obligations. Both the senior debt and the 2012 senior debt are effectively subordinated to our secured indebtedness and structurally subordinated to the indebtedness of our subsidiaries. At our option, the 2012 senior debt is callable, in whole or in part, on September 1, 2017, or on any scheduled interest payment date thereafter, at a price equal to the outstanding principal amount to be redeemed plus accrued and unpaid interest. We expect to call the 2012 senior debt, which matures on September 1, 2019, during the third quarter of 2017.
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
The Consolidated Statements of Income for the three and six months ended June 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 June 30, 2016
 
Six months ended June 30, 2016
Dollars in thousands
 
As originally reported
 
Adjustments
 
As revised
 
As originally reported
 
Adjustments
 
As revised
Noninterest income - Other income
 
$
3,920

 
$
658

 
$
4,578

 
$
7,892

 
$
1,257

 
$
9,149

Noninterest expense - Other operating expense
 
7,423

 
658

 
8,081

 
14,484

 
1,257

 
15,741

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.

12


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.
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 June 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 Accounting Standards Codification (“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. For revenue streams determined to be within the scope of the standard, we are continuing to evaluate the related accounting policies, practices and reporting to identify and understand any impact the standard may have on the Company’s Consolidated Financial Statements. Our preliminary evaluation continues to suggest that adoption of this guidance is not expected to have a material effect on our Consolidated Financial Statements. The Company expects to complete its assessment in the second half of 2017 and will adopt the guidance on January 1, 2018.
 
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 does not expect the application of this guidance to have a material impact on its Consolidated Financial Statements.
 

13


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 has begun the process of identifying our complete lease population as defined by the guidance. Our preliminary review of the guidance suggests that adoption will result in additional assets and liabilities on our Consolidated Balance Sheet. The Company expects to adopt the guidance on January 1, 2019.
 
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 is in the early stages of evaluating the impact of this guidance on its Consolidated Financial Statements. Our preliminary review of the guidance suggests that adoption may materially increase the allowance for loan losses. Management is in the process of creating a project team to lead the implementation of this guidance. The Company expects to adopt the 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 (“the EITF”) 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 is currently evaluating the impact of this guidance 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 (“Step 2”). 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.


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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.
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.

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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 are preliminary estimates and are subject to adjustment during the one-year measurement period after the acquisition.
In connection with the merger, 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 June 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.

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3. EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings per share:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars and Shares in thousands, except per share data)
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net income
$
20,570

 
$
17,478

 
$
39,507

 
$
33,248

Denominator:
 
 
 
 
 
 
 
Weighted average basic shares
31,443

 
29,545

 
31,425

 
29,608

Dilutive potential common shares
869

 
606

 
899

 
582

Weighted average fully diluted shares
32,312

 
30,151

 
32,324

 
30,190

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.65

 
$
0.59

 
$
1.26

 
$
1.12

Diluted
$
0.64

 
$
0.58

 
$
1.22

 
$
1.10

Outstanding common stock equivalents having no dilutive effect

 
5

 
10

 
20



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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:
 
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
 
GSE
 
$
2,993

 
$

 
$

 
$
2,993

CMO
 
316,395

 
1,152

 
2,708

 
314,839

FNMA MBS
 
400,598

 
1,135

 
5,773

 
395,960

FHLMC MBS
 
77,815

 
168

 
839

 
77,144

GNMA MBS
 
27,050

 
294

 
405

 
26,939

Other investments
 
637

 

 
17

 
620

 
 
$
825,488

 
$
2,749

 
$
9,742

 
$
818,495

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)
 
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
 
State and political subdivisions
 
$
162,598

 
$
1,525

 
$
220

 
$
163,903

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 $1.9 million and $2.2 million at June 30, 2017 and December 31, 2016 , respectively, related to securities transferred, which are offset in Accumulated Other Comprehensive Income, net of tax.


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The scheduled maturities of investment securities available for sale and held to maturity at June 30, 2017 and December 31, 2016 are presented in the table below:
 
 
 
Available for Sale (1) (2)
 
 
Amortized
 
Fair
(Dollars in thousands)
 
Cost
 
Value
June 30, 2017
 
 
 
 
Within one year
 
$
2,993

 
$
2,993

After one year but within five years
 
10,043

 
10,062

After five years but within ten years
 
195,075

 
191,104

After ten years
 
616,740

 
613,716

 
 
$
824,851

 
$
817,875

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 (2)
 
 
Amortized
 
Fair
(Dollars in thousands)
 
Cost
 
Value
June 30, 2017
 
 
 
 
Within one year
 
$

 
$

After one year but within five years
 
5,906

 
5,949

After five years but within ten years
 
13,142

 
13,276

After ten years
 
143,550

 
144,678

 
 
$
162,598

 
$
163,903

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 June 30, 2017 and December 31, 2016 which has no stated maturity.
(2)  
Actual maturities could differ.
Mortgage-backed securities (MBS) 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 a prepayment penalty.
Investment securities with fair market values aggregating $571.6 million and $562.5 million were pledged as collateral for retail customer repurchase agreements, municipal deposits, and other obligations as of June 30, 2017 and December 31, 2016 , respectively.
During the six months ended June 30, 2017 , we sold $351.6 million of investment securities categorized as available for sale, resulting in realized gains of $1.1 million and realized losses of less than $0.1 million . During the six months ended June 30, 2016 , we sold $101.3 million of investment securities categorized as available for sale, resulting in realized gains of $0.9 million and no realized losses. The cost basis of all investment securities sales is based on the specific identification method.
As of June 30, 2017 and December 31, 2016 , our investment securities portfolio had remaining unamortized premiums of $15.5 million and $18.0 million , respectively, and unaccreted discounts of $0.8 million and $0.4 million , respectively.

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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 June 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
 
$
174,552

 
$
2,654

 
$
4,143

 
$
54

 
$
178,695

 
$
2,708

FNMA MBS
 
255,044

 
5,773

 

 

 
255,044

 
5,773

FHLMC MBS
 
45,583

 
839

 

 

 
45,583

 
839

GNMA MBS
 
12,097

 
313

 
3,733

 
92

 
15,830

 
405

Other investments
 
620

 
17

 

 

 
620

 
17

Total temporarily impaired investments
 
$
487,896

 
$
9,596

 
$
7,876

 
$
146

 
$
495,772

 
$
9,742

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
32,927

 
$
193

 
$
1,969

 
$
27

 
$
34,896

 
$
220

Total temporarily impaired investments
 
$
32,927

 
$
193

 
$
1,969

 
$
27

 
$
34,896

 
$
220

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


20


At June 30, 2017 , we owned investment securities totaling $530.7 million for which the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $10.0 million at June 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 $1.0 million at June 30, 2017 , were AA-rated or better at the time of purchase and remained investment grade at June 30, 2017 . All securities were evaluated for OTTI at June 30, 2017 and December 31, 2016 . The result of this evaluation showed no OTTI as of June 30, 2017 or December 31, 2016 . The estimated weighted average duration of MBS was 5.04 years at June 30, 2017 .
5. LOANS
The following table shows our loan portfolio by category:  
(Dollars in thousands)
 
June 30, 2017
 
December 31, 2016
Commercial and industrial
 
$
1,323,664

 
$
1,287,731

Owner-occupied commercial
 
1,109,876

 
1,078,162

Commercial mortgages
 
1,147,006

 
1,163,554

Construction
 
279,806

 
222,712

Residential (1)
 
274,235

 
289,611

Consumer
 
492,817

 
450,029

 
 
4,627,404

 
4,491,799

Less:
 
 
 
 
Deferred fees, net
 
7,684

 
7,673

Allowance for loan losses
 
40,005

 
39,751

Net loans
 
$
4,579,715

 
$
4,444,375

(1) Includes reverse mortgages, at fair value of $21.6 million at June 30, 2017 and $22.6 million at December 31, 2016 .
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)
 
June 30, 2017
 
December 31, 2016
Outstanding principal balance
 
$
38,401

 
$
41,574

Carrying amount
 
30,560

 
33,104

Allowance for loan losses
 
588

 
510


21


The following table presents the changes in accretable yield on the acquired credit impaired loans for the six months ended June 30, 2017 :
(Dollars in thousands)
 
Six months ended June 30, 2017
Balance at beginning of period
 
$
5,150

Accretion
 
(1,575
)
Reclassification from nonaccretable difference
 
1,243

Additions/adjustments
 
(211
)
Disposals
 
(4
)
Balance at end of period
 
$
4,603


22


6. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION
Allowance for Loan Losses
We maintain an allowance for loan losses which represents our best estimate of probable losses within our loan portfolio. As losses are realized, they are charged to this allowance. We established our allowance in accordance with guidance provided in the SEC’s Staff Accounting Bulletin 102 (SAB 102), Selected Loan Loss Allowance Methodology and Documentation Issues, Accounting Standard Codification ("ASC") Contingencies (ASC 450) and Receivables (ASC 310). When we have reason to believe it is probable that we will not be able to collect all contractually due amounts of principal and interest, loans are evaluated for impairment on an individual basis and a specific allocation of the allowance is assigned in accordance with ASC 310-10. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for under ASC 310-30, there is deterioration in credit quality subsequent to acquisition and (ii) for loans accounted for under ASC 310-20, the inherent losses in the loans exceed the remaining credit discount recorded at the time of acquisition. The determination of the allowance for loan losses requires significant judgment reflecting our best estimate of impairment related to specifically identified impaired loans as well as probable loan losses in the remaining loan portfolio. Our evaluation is based on a continuing review of these portfolios. The following are included in our allowance for loan losses:
 
Specific reserves for impaired loans
An allowance for each pool of homogenous loans based on historical loss experience
Adjustments for qualitative and environmental factors allocated to pools of homogenous loans
When it is probable that the Bank will be unable to collect all amounts due (interest and principal) in accordance with the contractual terms of the loan agreement, it assigns a specific reserve to that loan, if necessary. Unless loans are well-secured and collection is imminent, loans greater than 90 days past due are deemed impaired and their respective reserves are generally charged-off once the loss has been confirmed. Estimated specific reserves are based on collateral values, estimates of future cash flows or market valuations. We charge loans off when they are deemed to be uncollectible. During the six months ended June 30, 2017 and 2016 , net charge-offs totaled $3.8 million or 0.17% of average loans annualized, and $1.4 million , or 0.07% of average loans annualized, respectively.
Allowances for pooled homogeneous loans, that are not deemed impaired, are based on historical net loss experience. Estimated losses for pooled portfolios are determined differently for commercial loan pools and retail loan pools. Commercial loans are pooled as follows: commercial, owner-occupied commercial, commercial mortgages and construction. Each pool is further segmented by internally assessed risk ratings. Loan losses for commercial loans are estimated by determining the probability of default and expected loss severity upon default. Probability of default is calculated based on the historical rate of migration to impaired status during the last 26 quarters. During the six months ended June 30, 2017 , we increased the look-back period to 26 quarters from the 24 quarters used at December 31, 2016 . This increase in the look-back period allows us to continue to anchor to the fourth quarter of 2010 to ensure that the core reserves calculated by the ALLL model are adequately considering the losses within a full credit cycle.
Loss severity upon default is calculated as the actual loan losses (net of recoveries) on impaired loans in their respective pool during the same time frame. Retail loans are pooled into the following segments: residential mortgage, consumer secured and consumer unsecured loans. Pooled reserves for retail loans are calculated based solely on average net loss rates over the same 26 quarter look-back period.