Edgar Filing: WSFS FINANCIAL CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if smaller reporting company)

Smaller reporting company

Form 10-Q

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, 2014

¨	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 0-16668

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)		(Zip Code)

(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 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 or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 1, 2014.


Common Stock, par value $.01 per share		9,398,662
(Title of Class)		(Shares Outstanding)

WSFS FINANCIAL CORPORATION

FORM 10-Q

INDEX

PART I. Financial Information


		Page
Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013		3

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013		5

	Consolidated Statements of Condition as of September 30, 2014 and December 31, 2013		6

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013		8

	Notes to the Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2014 and 2013		10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		54

Item 4.	Controls and Procedures		54

PART II. Other Information

Item 1.	Legal Proceedings		54

Item 1A.	Risk Factors		54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		54

Item 3.	Defaults upon Senior Securities		54

Item 4.	Mine Safety Disclosure		54

Item 5.	Other Information		54

Item 6.	Exhibits		55

Signatures			56

Exhibit 31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(Unaudited)
	(In Thousands, Except Per Share Data)
Interest income:
Interest and fees on loans	$	34,850	$	32,708	$	100,371	$	96,268
Interest on mortgage-backed securities		3,317		3,159		10,130		9,665
Interest on reverse mortgage related assets		1,323		616		3,917		1,523
Interest and dividends on investment securities		837		546		2,443		999
Other interest income		472		87		1,136		134

		40,799		37,116		117,997		108,589

Interest expense:
Interest on deposits		1,823		1,673		5,193		5,513
Interest on Federal Home Loan Bank advances		663		482		1,850		1,376
Interest on federal funds purchased and securities sold under agreements to repurchase		268		244		783		738
Interest on trust preferred borrowings		332		339		988		1,005
Interest on senior debt		941		943		2,824		2,830
Interest on bonds payable		—		—		15		—
Interest on other borrowings		25		29		76		85

		4,052		3,710		11,729		11,547

Net interest income		36,747		33,406		106,268		97,042
Provision for loan losses		333		1,969		3,013		5,880

Net interest income after provision for loan losses		36,414		31,437		103,255		91,162

Noninterest income:
Credit/debit card and ATM income		6,219		6,374		17,995		18,231
Deposit service charges		4,477		4,407		13,092		12,637
Investment management and fiduciary revenue		4,332		3,836		12,453		11,623
Reverse mortgage consolidation gain		—		3,801		—		3,801
Mortgage banking activities, net		1,229		907		3,066		2,837
Loan fee income		466		419		1,406		1,401
Bank owned life insurance income		185		74		467		162
Security gains, net		36		306		979		2,856
Other income		3,360		2,618		8,833		6,807

		20,304		22,742		58,291		60,355

Noninterest expenses:
Salaries, benefits and other compensation		19,292		17,648		56,434		53,086
Occupancy expense		3,456		3,385		10,754		10,169
Equipment expense		2,063		2,044		5,610		5,808
Data processing and operations expenses		1,609		1,548		4,611		4,291
Professional fees		1,762		673		5,083		2,701
FDIC expenses		666		959		2,011		3,067
Loan workout and OREO expenses		664		492		1,919		1,432
Marketing expense		643		643		1,584		1,768
Corporate development		2,620		193		3,032		193
Other operating expense		6,682		5,224		18,115		15,816

		39,457		32,809		109,153		98,331

Income before taxes		17,261		21,370		52,393		53,186
Income tax provision		5,848		7,210		11,344		18,378

Net income		11,413		14,160		41,049		34,808
Dividends on preferred stock and accretion of discount		—		332		—		1,633

Net income allocable to common stockholders	$	11,413	$	13,828	$	41,049	$	33,175

Earnings per share:
Basic	$	1.26	$	1.57	$	4.58	$	3.77
Diluted	$	1.23	$	1.54	$	4.46	$	3.72

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

WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(Unaudited)
	(In Thousands)

Net Income	$	11,413		$	14,160		$	41,049		$	34,808
Other comprehensive income (loss):
Net change in unrealized gains (losses) on investment securities available-for-sale:
Net Unrealized gains (losses) arising during the period, net of tax expense (benefit) of ($490), ($1,795), $10,688 and ($16,532) respectively		(778	)		(3,106	)		18,046			(27,249	)
Less: reclassification adjustment for net losses (gains) on sales realized in net income, net of tax benefit (expense) of ($13), ($116), ($371) and (1,085) respectively		(23	)		(190	)		(608	)		(1,771	)

		(801	)		(3,296	)		17,438			(29,020	)

Net change in unfunded pension liability:
Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax expense of $3, $0, $39 and $0 respectively		5			—			65			—

Total other comprehensive income (loss)		(796	)		(3,296	)		17,503			(29,020	)

Total comprehensive income	$	10,617		$	10,864		$	58,552		$	5,788

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

WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION


	September 30, 2014			December 31, 2013
	(Unaudited)
	(In Thousands, Except Per Share Data)
Assets
Cash and due from banks	$	95,473		$	94,734
Cash in non-owned ATMs		375,555			389,360
Interest-bearing deposits in other banks		273			332

Total cash and cash equivalents		471,301			484,426
Investment securities, available-for-sale acquired and sold securities		843,316			817,115
Loans held-for-sale		26,324			31,491
Loans, net of allowance for loan losses of $39,484 at September 30, 2014 and $41,244 at December 31, 2013		3,141,509			2,904,976
Reverse mortgage related assets		29,392			37,328
Bank-owned life insurance		76,276			63,185
Stock in Federal Home Loan Bank of Pittsburgh, at cost		29,782			35,869
Assets acquired through foreclosure		6,307			4,532
Accrued interest receivable		11,435			10,798
Premises and equipment		34,979			35,178
Goodwill		48,748			32,235
Intangible assets		9,428			6,743
Other assets		53,931			51,887

Total assets	$	4,782,728		$	4,515,763


Liabilities and Stockholders’ Equity

Liabilities:
Deposits:
Noninterest-bearing demand	$	814,203		$	650,256
Interest-bearing demand		689,544			638,403
Money market		823,781			887,715
Savings		405,157			383,731
Time		263,365			236,965
Jumbo certificates of deposit – customer		264,893			221,145

Total customer deposits		3,260,943			3,018,215
Brokered deposits		243,167			168,727

Total deposits		3,504,110			3,186,942
Federal funds purchased and securities sold under agreements to repurchase		100,000			97,000
Federal Home Loan Bank advances		517,160			638,091
Trust preferred borrowings		67,011			67,011
Senior debt		55,000			55,000
Other borrowed funds		18,068			24,739
Reverse mortgage trust bonds payable		—			21,990
Accrued interest payable		3,442			838
Other liabilities		41,613			41,102

Total liabilities		4,306,404			4,132,713

Stockholders’ Equity:
Common stock $0.01 par value, 20,000,000 shares authorized; issued 18,523,661 at September 30, 2014 and 18,476,003 at December 31, 2013		185			185
Capital in excess of par value		204,673			178,477
Accumulated other comprehensive loss		(3,791	)		(21,294	)
Retained earnings		511,804			473,962
Treasury stock at cost, 9,127,908 shares at September 30, 2014 and 9,580,569 at December 31, 2013		(236,547	)		(248,280	)

Total stockholders’ equity		476,324			383,050

Total liabilities and stockholders’ equity	$	4,782,728		$	4,515,763

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

WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine months ended September 30,
	2014			2013
	(Unaudited)
	(In Thousands)
Operating activities:
Net Income	$	41,049		$	34,808
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		3,013			5,880
Depreciation of premises and equipment		4,436			4,329
Amortization, net		8,201			8,575
Increase in accrued interest receivable		(637	)		(181	)
Decrease (increase) in other assets		835			(6,118	)
Origination of loans held-for-sale		(174,469	)		(178,819	)
Proceeds from sales of loans held-for-sale		180,794			191,831
Gain on mortgage banking activities, net		(3,066	)		(2,837	)
Gain on market-to-market adjustment on trading securities		—			125
Gain on sale of securities, net		(979	)		(2,981	)
Reverse mortgage consolidation gain		—			(3,801	)
Stock-based compensation expense		3,637			2,294
Excess tax benefits from share-based payment arrangements		(551	)		(266	)
Increase in accrued interest payable		2,373			2,155
Decrease in other liabilities		(2,324	)		(9,488	)
Loss (gain) on sale of assets acquired through foreclosure and valuation adjustments, net		91			203
Deferred income tax (benefit) expense		(5,198	)		(8	)
Increase in value of bank-owned life insurance		(467	)		(162	)
Increase in capitalized interest for reverse mortgages, net		(4,184	)		(802	)

Net cash provided by operating activities	$	52,554		$	44,737


Investing activities:
Maturities and Calls of investment securities		2,335			510
Sale of investment securities available-for-sale		200,734			239,383
Purchase of investment securities available-for-sale		(217,617	)		(255,277	)
Repayments of investment securities available-for-sale		54,328			64,369
Repayments on reverse mortgages		13,049			—
Disbursements for reverse mortgages		(929	)		(40	)
Net increase in loans		(67,824	)		(121,589	)
Cash received in consolidation of reverse mortgage securitization trust		—			5,833
Acquisition of Array/Arrow, net of cash acquired		—			(4,189	)
Acquisition of FNBW, net of cash acquired		(25,590	)		—
Net decrease (increase) in stock of Federal Home Loan Bank of Pittsburgh		6,087			(2,711	)
Sales of assets acquired through foreclosure, net		3,807			4,682
Investment in premises and equipment, net		(2,370	)		(1,948	)

Net cash (used for) provided by investing activities	$	(33,990	)	$	(70,977	)


Financing activities:
Net increase (decrease) in demand and saving deposits		3,774			(46,072	)
Increase (decrease) in time deposits		3,379			(103,062	)
Increase in brokered deposits		74,440			4,958
Increase in loan payable		61			—
Repayment of reverse mortgage trust bonds payable		(21,990	)		—
Receipts from FHLB advances		68,802,762			29,071,254
Repayments of FHLB advances		(68,928,745	)		(28,847,129	)
Receipts from federal funds purchased and securities sold under agreement to repurchase		19,040,751			15,682,425
Repayments of federal funds purchased and securities sold under agreement to repurchase		(19,037,751	)		(15,678,425	)
Dividends paid		(3,213	)		(6,017	)
Issuance of common stock and exercise of common stock options		1,376			2,223
Reissuance of Treasury Stock for FNBW purchase, net		32,916			—
Redemption of preferred stock		—			(52,623	)
Excess tax benefits from share-based payment arrangements		551			266

Net cash provided by (used for) financing activities	$	(31,689	)	$	27,798


Increase (decrease) in cash and cash equivalents		(13,125	)		1,558
Cash and cash equivalents at beginning of period		484,426			500,887


Cash and cash equivalents at end of period	$	471,301		$	502,445


Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the period	$	9,126		$	9,392
Cash paid for income taxes, net		19,675			15,822
Loans transferred to assets acquired through foreclosure		3,633			7,427
Loans transferred to portfolio from HFS		2,169			—
Other comprehensive income (loss)		17,503			(29,021	)
Fair value of assets acquired, net of cash received		245,910			12,817
Fair value of liabilities assumed		236,787			10,127
Fair value of assets consolidated		—			41,397
Fair value of liabilities consolidated		—			26,339
Non-Cash Goodwill Adjustment, Net		46			—

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

WSFS FINANCIAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

(UNAUDITED)

1. BASIS OF PRESENTATION

Our 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”) and Cypress Capital Management, LLC (“Cypress”). We also have one unconsolidated affiliate, WSFS Capital Trust III (“the Trust”). WSFS Bank has two fully-owned subsidiaries, WSFS Investment Group, Inc. (“WIG”) and Monarch Entity Services LLC (“Monarch”).

Founded in 1832, the Bank is one of the ten oldest banks continuously operating under the same name in the United States. 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 through our Trust and Wealth Management division. The Federal Deposit Insurance Corporation (“FDIC”) insures our customers’ deposits to their legal maximums. We serve our customers primarily from our 55 offices located in Delaware (45), Pennsylvania (8), 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.

Amounts subject to significant estimates are items such as the allowance for loan losses and reserves for lending related commitments, goodwill, intangible assets, post-retirement benefit obligations, the fair value of financial instruments, reverse mortgage related assets, income taxes and other-than-temporary impairments (“OTTI”). Among other effects, changes to such estimates could result in future impairments of investment securities, goodwill and intangible assets and establishment of allowances for loan losses and lending related commitments as well as increased post-retirement benefits expense.

Our accounting and reporting policies conform with U.S. generally accepted accounting principles and prevailing practices within the banking industry for interim financial information and Rule 10-01 of the Securities and Exchange Commission (“SEC”) Regulation S-X. Rule 10-01 of Regulation S-X does not require us to include all information and notes that would be required in audited financial statements. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for any future quarters or for the year ending December 31, 2014. For further information, refer to the Consolidated Financial Statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the SEC.

Whenever necessary, reclassifications have been made to prior period Consolidated Financial Statements to conform to the current period’s presentation. All significant intercompany transactions were eliminated in consolidation.

The significant accounting policies used in preparation of our Consolidated Financial Statements are disclosed in our Annual Report on Form 10-K. There have not been any material changes in our significant accounting policies from those contained in the 2013 Annual Report on Form 10-K other than the one described below, which was a result of the FNBW combination.

Loans

Loans are stated net of deferred fees and costs. Interest income on loans is recognized using the level yield method. Loan origination fees, commitment fees and direct loan origination costs are deferred and recognized over the life of the related loans using a level yield method over the period to maturity.

A loan is impaired when, based on current information and events, it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future discounted cash flows, the market price of the loan or the fair value of the underlying collateral if the loan is collateral dependent. In addition, all loans restructured in a troubled debt restructuring are considered to be impaired. Impaired loans include loans within our commercial (investor and owner-occupied), commercial mortgage, commercial construction, residential mortgages and consumer portfolios. Our policy for recognition of interest income on impaired loans is the same as for nonaccrual loans.

In addition to originating loans, we occasionally acquire loans through mergers or loan purchase transactions. Some of these acquired loans may exhibit deteriorated credit quality that has occurred since origination and we may not expect to collect all contractual payments. Accounting for these purchased credit-impaired loans is done in accordance with ASC 310-30. The loans are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on nonaccrual status and have no accretable yield.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2014, the FASB issued ASU No. 2014-01, “Investments - Equity Method and Joint Ventures (Topic 323) - Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force).” The ASU permits an entity to make an accounting policy election to account for its investment in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportionate amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The decision to apply the proportionate amortization method of accounting should be applied consistently to all qualifying affordable housing project investments. A reporting entity that uses the effective yield or other method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply such method to those preexisting investments. The amendments are effective for annual and interim periods beginning after December 15, 2014. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

In January 2014, the FASB issued ASU No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU includes amendments that change the requirements for reporting discontinued operations and disposals of components of an entity. Under the new guidance, only disposals representing a strategic shift that has (or will have) a major effect on the organization’s operations and financial results should be presented as discontinued operations. Additionally, the ASU requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. These amendments are effective prospectively for fiscal years and interim reporting periods within those years, beginning after December 15, 2014. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” The ASU introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its Consolidated Financial Statements.

In June 2014, the FASB issued ASU No. 2014-11, “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The amendments in the ASU require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The amendments in the ASU also require expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The amendments in this ASU are effective for public companies for the first interim or annual period beginning after December 15, 2014. In addition, for public companies, the disclosure for certain transactions accounted for as a sale is effective for the first interim or annual reporting periods beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required to be presented for annual reporting periods beginning after December 15, 2014, and

interim periods beginning after March 15, 2015. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The standard update resolves the diverse accounting treatment for these share-based payments by requiring that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. ASU 2014-12 will be effective for interim and annual reporting periods beginning after December 15, 2015. Early application is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its Consolidated Financial Statements.

In August 2014, the FASB issued ASU No. 2014-14, “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.” The objective of this guidance is to reduce diversity in practice related to how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure. Some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to other receivables. The amendments in this guidance require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure; (2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. ASU No. 2014-14 is effective for interim and annual reporting periods beginning after December 15, 2014. The Company does not expect the application of this guidance to have a material impact on the Company’s financial statements.

2. BUSINESS COMBINATIONS

First Wyoming Financial Corporation

On September 5, 2014, the Company completed the merger of First Wyoming Financial Corporation (FNBW) into the Company (the “Merger”) and the merger of FNBW’s wholly owned subsidiary, The First National Bank of Wyoming (“First Wyoming”) into the Bank. In accordance with the terms of the Agreement and Plan of Merger, dated November 25, 2013, between the Company and FNBW (the “Merger Agreement”) holders of shares of FNBW common stock received, in aggregate, $32.0 million in cash and 452,769 shares of WSFS common stock. The transaction is valued at $64.9 million based on WSFS’ September 5, 2014 closing share price as listed on the NASDAQ stock market of $72.70. This in-market combination significantly bolsters our presence in Kent County and strengthens our position as the leading independent community bank in Delaware. The results of the combined entity’s operations are included in our unaudited Consolidated Statements of Operations for the period beginning on September 5, 2014, the date of the acquisition.

The acquisition of FNBW was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the preliminary fair value of net assets acquired was recorded as goodwill in the amount of $16.5 million, which will not be amortizable and is not deductible for tax purposes. The Company allocated the total balance of goodwill to its Banking segment. The Company also recorded $3.2 million in core deposit intangibles which will be amortized over ten years using an accelerated depreciation method.

The fair values listed below are preliminary estimates and are subject to adjustment. While they are not expected to be materially different than those shown, any adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition.

In connection with the merger, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table.


(In Thousands)
Consideration Paid:
Common shares issued (452,769)	$	32,916
Cash paid to FNBW stockholders		32,029

Value of consideration		64,945
Assets acquired:
Cash and due from banks		39,355
Investment securities		41,825
Loans		175,966
Premises and equipment		1,877
Deferred income taxes		3,232
Bank owned life insurance		12,624
Core deposit intangible		3,240
Other Real Estate Owned		2,040
Other assets		5,106

Total assets		285,265
Liabilities assumed:
Deposits		228,844
FHLB advances		5,052
Other liabilities		2,891

Total liabilities		236,787

Net assets acquired:		48,478

Goodwill resulting from acquisition of FNBW:	$	16,467

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.

Acquired loans are initially recorded at their fair value as of the acquisition date. The fair value is based on a discounted cash flow methodology that uses assumptions as to credit risk, default rates, collateral values, loss severity, along with estimated prepayment rates. Non-impaired acquired loans had gross contractual balance of $163.7 million and a fair value of $159.3 million. Loans that have deteriorated in credit quality since their origination, and for which it is probable that all contractual cash flows will not be received, are accounted for in accordance with ASC 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” The gross contractual balance of the impaired loans was $24.2 million. For additional information regarding purchased impaired loans, see Note 5 to the unaudited Consolidated Financial Statements.

The Company acquired FNBW’s investment portfolio with a fair value of $41.8 million, of which $31.5 million were sold at acquisition. The fair value of the investment portfolio was determined by taking into account market prices obtained from independent valuation source(s). For additional information regarding level 2 valuation, see Note 11 to the unaudited Consolidated Financial Statements.

The Company recorded a deferred income tax asset (DTA) of $3.2 million related to tax attributes of FNBW along with the effects of fair value adjustments resulting from acquisition accounting for the combination.

The fair value of savings and transaction deposit accounts acquired was assumed to approximate their carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit accounts were valued by comparing the contractual cost of the portfolio to an identical portfolio bearing current market rates. The portfolio was segregated into pools based on remaining maturity. For each pool, the projected cash flows from maturing certificates was then calculated based on contractual rates and prevailing market rates. The valuation adjustment for each pool is equal to the present value of the difference of these two cash flows, discounted at the assumed market rate for a certificate with a corresponding maturity. The valuation adjustment will be accreted or amortized to interest expense over the remaining maturities of the respective pools.

The fair value of the FHLB advance was determined based on the prepayment penalties that would have been assessed as of September 5, 2014, by the FHLB for its redemption. The adjustment to the face value of the borrowing will be accreted to reduce interest expense over the remaining life of the advance.

Direct costs related to the acquisition were expensed as incurred. During the nine months ended September 30, 2014, the Company incurred $2.9 million in integration expenses, including $1.1 million in salary and benefits, $1.0 million in data processing expense, $495,000 in professional fees and $292,000 in marketing expense.

Array Financial Group, Inc. and Arrow Land Transfer Company Acquisition

On July 31, 2013, WSFS Bank completed the purchase of Array Financial Group, Inc. (Array), a Delaware Valley mortgage banking company, specializing in a variety of residential mortgage and refinancing solutions, and Arrow Land Transfer Company (Arrow), an abstract and title company that is a related entity to Array.

These companies were acquired through an asset purchase transaction for the purchase price of $8.0 million (including a $1.4 million payment for the working capital of the two companies), $4.0 million of which can be earned through a five-year earn out based on achieved earnings contribution targets, the fair value of which is $3.0 million at September 30, 2014. Operating results of Array and Arrow are included in the Consolidated Financial Statements since the date of acquisition.

The transaction was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill, which will not be amortizable for book purposes, however will be deductible for tax purposes. We allocated the total balance of goodwill to our WSFS Bank segment. We also recognized $2.4 million in intangible assets which will be amortized over 7 years utilizing the straight-line method.

The following table details the effect on goodwill from the changes in the derivative assets and liabilities relating to the loan commitment pipeline and changes in fair value of contingent consideration from the amounts originally reported on the Form 10-K for the year ended December 31, 2013.


(In Thousands)
Goodwill resulting from acquisition of Array and Arrow reported on Form 10-K for the year ended December 31, 2013	$	4,089
Effect of adjustments to:
Other assets		(338	)
Contingent Liabilities		181
Other liabilities		203

Adjusted goodwill resulting from acquisition of Array & Arrow as of September 30, 2014	$	4,135

3. EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per share:


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
	(In Thousands, Except Per Share Data)
Numerator:
Net income allocable to common stockholders	$	11,413	$	13,828	$	41,049	$	33,175


Denominator:
Denominator for basic earnings per share - weighted average shares		9,061		8,828		8,961		8,804
Effect of dilutive employee stock options and warrants		248		148		236		106

Denominator for diluted earnings per share – adjusted weighted average shares and assumed exercise		9,309		8,976		9,197		8,910


Earnings per share:
Basic:
Net income allocable to common stockholders	$	1.26	$	1.57	$	4.58	$	3.77

Diluted:
Net income allocable to common stockholders	$	1.23	$	1.54	$	4.46	$	3.72


Outstanding common stock equivalents having no dilutive effect		44		402		44		557

4. INVESTMENT SECURITIES

The following tables detail the amortized cost and the estimated fair value of our available-for-sale investment securities. None of our investment securities is classified as trading or held-to-maturity.

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

(In Thousands)

Available-for-sale securities:

September 30, 2014:

State and political subdivisions

121,080

3,024

(595

)

123,509

U.S. Government and government sponsored enterprises (“GSE”)

29,976

(37

)

29,971

Collateralized Mortgage Obligation (“CMO”)

189,488

195

(2,943

)

186,740

Federal National Mortgage Association (“FNMA”) Mortgage-Backed Securities (“MBS”)

299,264

342

(3,734

)

295,872

Federal Home Loan Mortgage Corporation MBS (“FHLMC”)

128,395

104

(1,467

)

127,032

Government National Mortgage Association MBS (“GNMA”)

80,571

399

(778

)

80,192

848,774

4,096

(9,554

)

843,316


December 31, 2013:
State and political subdivisions	$	105,354	$	257	$	(5,426	)	$	100,185
GSE		32,082		93		(17	)		32,158
CMO		103,064		28		(5,535	)		97,557
FNMA MBS		382,909		20		(15,801	)		367,128
FHLMC MBS		129,460		29		(4,994	)		124,495
GNMA MBS		97,830		743		(2,981	)		95,592

	$	850,699	$	1,170	$	(34,754	)	$	817,115

The scheduled maturities of investment securities available-for-sale at September 30, 2014 and December 31, 2013 were as follows:


	Available-for-Sale
	Amortized Cost		Fair Value
	(In Thousands)
September 30, 2014
Within one year	$	25,616	$	25,653
After one year but within five years		45,714		46,706
After five years but within ten years		219,861		217,843
After ten years		557,583		553,114

	$	848,774	$	843,316

December 31, 2013
Within one year	$	16,319	$	16,378
After one year but within five years		19,761		19,986
After five years but within ten years		229,033		217,911
After ten years		585,586		562,840

	$	850,699	$	817,115

MBS have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty.

At September 30, 2014, investment securities with market values aggregating $502.4 million were pledged as collateral for retail customer repurchase agreements, municipal deposits, and other obligations. From time to time, investment securities are also pledged as collateral for FHLB borrowings. There were $6.0 million of FHLB pledged investment securities at September 30, 2014.

During the first nine months of 2014, we sold $170.4 million of investment securities during the period categorized as available-for-sale for net gains of $978,600. In the first nine months of 2013, we sold $239.9 million of investment securities available-for-sale which resulted in net gains of $3.0 million.

As of September 30, 2014, our investment securities portfolio had remaining unamortized premiums of $22.1 million and $203,000 of unaccreted discounts compared to unamortized premiums of $25.3 million and unaccreted discounts of $63,000 as of December 31, 2013.

The tables below show our investment securities’ 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, 2014 and December 31, 2013.


	Less than 12 months				12 months or longer				Total
September 30, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(In Thousands)
Available-for-sale
State and political subdivisions	$	8,534	$	19	$	35,414	$	575	$	43,948	$	594
GSE		8,948		37		—		—		8,948		37
CMO		66,891		229		71,569		2,714		138,460		2,943
FNMA MBS		95,007		522		134,877		3,212		229,884		3,734
FHLMC MBS		30,390		68		76,681		1,399		107,071		1,467
GNMA MBS		6,274		16		49,666		763		55,940		779

Total temporarily impaired investments	$	216,044	$	891	$	368,207	$	8,663	$	584,251	$	9,554


	Less than 12 months				12 months or longer				Total
December 31, 2013	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(In Thousands)
Available-for-sale
State and political subdivisions	$	83,036	$	5,426	$	—	$	—	$	83,036	$	5,426
GSE		3,972		13		2,001		4		5,973		17
CMO		73,109		4,173		21,590		1,362		94,699		5,535
FNMA MBS		346,266		14,386		17,800		1,415		364,066		15,801
FHLMC MBS		116,732		4,548		7,307		446		124,039		4,994
GNMA MBS		57,076		1,897		18,829		1,084		75,905		2,981

Total temporarily impaired investments	$	680,191	$	30,443	$	67,527	$	4,311	$	747,718	$	34,754

All securities were AAA-rated at the time of purchase and remained at investment grade at both September 30, 2014 and December 31, 2013. All securities were re-evaluated for OTTI at September 30, 2014. The result of this evaluation showed no OTTI during the first nine months of 2014. The weighted average duration of MBS was 4.8 years at September 30, 2014.

At September 30, 2014, we owned investment securities totaling $584.3 million in which the amortized cost basis exceeded fair value. Total unrealized losses on those securities were $9.6 million at September 30, 2014. At December 31, 2013, we owned investment securities totaling $747.7 million in which the amortized cost basis exceeded fair value. Total unrealized loss at December 31, 2013 on those securities was $34.8 million. 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 impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the 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 any anticipated recovery in the market. 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. In addition, 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.

5 ACQUIRED CREDIT IMPAIRED LOANS

On September 5, 2014 $24.2 million of impaired loans were acquired from FNBW. Loans that have deteriorated in credit quality since their origination, and for which it is probable that all contractual cash flows will not be received, are accounted for in accordance with (ASC 310-30) Loans and Debt Securities Acquired with Deteriorated Credit Quality. Under ASC 310-30, acquired loans are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when expected cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans as long as the estimated cash flows are received as expected. If the timing and amount of cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income may be recognized on a cash basis or as a reduction of the principal amount outstanding. At September 30, 2014, there were not any acquired impaired loans accounted for under ASC 310-30 classified as nonaccrual loans. There is no carry forward of allowance for loan losses on any of the acquired loans, because

any credit deterioration evident in the loans was included in the determination of the fair value of the loans at the acquisition date. Updates to expected cash flows for acquired impaired loans accounted for under ASC 310-30 may result in a provision for loan losses and the establishment of an allowance for loan losses to the extent the amount and timing of expected cash flows decrease compared to those originally estimated at acquisition.

The following table details the loans that are accounted for in accordance with ASC 310-30 as of September 5, 2014:


(in thousands)
Contractually required principal and interest at acquisition	$	27,086
Contractual cash flows not expected to be collected (nonaccretable difference)		7,956

Expected cash flows at acquisition		19,130

Interest component of expected cash flows (accretable yield)		1,790

Fair value of acquired loans accounted for under FASB ASC 310-30	$	17,340

The outstanding principal balance and carrying amounts for acquired credit-impaired loans for which the Company applies ASC 310-30 as of September 30, 2014:


(in thousands)
Outstanding principal balance	$	22,398
Carrying amount	$	17,129
Allowance for Loan Loss		N/A

The following table presents the changes in accretable yield on the acquired credit impaired loans:


	Accretable Yield

Balance as of September 5, 2014	$	1,790
Accretion		(59	)
Reclassification from nonaccretable difference		—
Additions/adjustments		—
Disposals		—

Ending balance as September 30, 2014	$	1,731

6. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION

Allowance for Loan Losses

We maintain an allowance for loan losses and charge losses to this allowance when such losses are realized. We established our allowance for loan losses in accordance with guidance provided in the SEC’s Staff Accounting Bulletin 102 (“SAB 102”). 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 upon a continuing review of these portfolios. The following are included in our allowance for loan losses:

•

Specific reserves for impaired loans

•

Allowances for pools of homogenous loans based on historical net loss experience

•

Adjustments for qualitative and environmental factors allocated to pools of homogenous loans

•

Allowance for model estimation and complexity risk

Specific reserves are established for impaired loans where we have identified significant conditions or circumstances related to specific credits that indicate losses are probable. Unless loans are well-secured and collection is imminent, all loans that are 90 days past due are deemed impaired. Reserves for impaired loans are generally charged-off within 90 days of impairment recognition. Estimated losses are based on collateral values, estimates of future cash flows or market valuations. Loans are charged off when they are deemed to be uncollectible. During the nine months ended September 30, 2014, net charge-offs totaled $4.7 million or 0.21% of average loans annualized, compared to $8.4 million, or 0.39% of average loans annualized during the nine months ended September 30, 2013. We charge loans off when they are deemed to be uncollectible.

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 into the following segments: Business Loans (Commercial and Industrial Loans), Commercial Real Estate — Owner-Occupied, Commercial Real Estate – Investor, and Construction Loans. 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 16 quarters. Loss severity is calculated as the actual loan losses (net of recoveries) on impaired loans in the respective pool during the same time frame. Retail loans are pooled into the following segments: residential mortgage loans, home equity secured loans, and all other consumer loans. Pooled reserves for retail loans are calculated based solely on the previous four years average net loss rate.

Qualitative and environmental adjustment factors are taken into consideration when determining the above reserve estimates or core reserves. These adjustment factors are based upon our evaluation of various current internal and external conditions and are allocated among loan types and take into consideration the following:

•

Assessment of current underwriting policies, staff, and portfolio mix

•

Internal trends of delinquency, nonaccrual and criticized loans by segment

•

Assessment of risk rating accuracy, control and regulatory assessments/environment

•

General economic conditions — locally and nationally

•

Market trends impacting collateral values

•

Competitive environment as it could impact loan structure and underwriting

The above factors are based on their relative standing compared to the period in which historic losses are used in core reserve estimates and current directional trends. Each individual qualitative and environmental factor in our model can add or subtract to core reserves. In addition, a 15 basis point consideration was given to the C&I loan portfolio due to the assessment of qualitative factors on two lending relationships.

The final component of the allowance is a reserve for model estimation and complexity risk. The calculation of reserves is generally quantitative; however, qualitative estimates of valuations and risk assessment are necessary. We review the qualitative estimates of valuation factors quarterly and management uses its judgment to make adjustments based on current trends.

Our loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with individual problem loans. In addition, various regulatory agencies and loan review consultants periodically review our loan ratings and allowance for loan losses.

The following tables provide the activity of our allowance for loan losses and loan balances for the three and nine months ended September 30, 2014 and 2013:


	Commercial			Owner - Occupied Commercial			Commercial Mortgages			Construction			Residential			Consumer			Estimation / Complexity Risk (1)			Total
	(in thousands)
Three months ended September 30, 2014
Allowance for loan losses
Beginning balance	$	13,346		$	7,986		$	7,617		$	2,319		$	2,759		$	6,299		$	1,055		$	41,381
Charge-offs		(1,840	)		(272	)		(101	)		—			(147	)		(372	)		—			(2,732	)
Recoveries		66			77			4			8			86			261			—			502
Provision (credit)		1,833			454			(1,097	)		(897	)		(6	)		56			(10	)		333

Ending balance	$	13,405		$	8,245		$	6,423		$	1,430		$	2,692		$	6,244		$	1,045		$	39,484


Nine months ended September 30, 2014
Allowance for loan losses
Beginning balance	$	12,751		$	7,638		$	6,932		$	3,326		$	3,078		$	6,494		$	1,025		$	41,244
Charge-offs		(3,335	)		(593	)		(261	)		(88	)		(674	)		(2,095	)		—			(7,046	)
Recoveries		873			244			43			192			129			792			—			2,273
Provision (credit)		3,116			956			(291	)		(2,000	)		159			1,053			20			3,013

Ending balance	$	13,405		$	8,245		$	6,423		$	1,430		$	2,692		$	6,244		$	1,045		$	39,484


Period-end allowance allocated to:
Loans individually evaluated for impairment	$	1,573		$	993		$	240		$	—		$	850		$	211		$	—		$	3,867
Loans collectively evaluated for impairment		11,832			7,252			6,183			1,430			1,842			6,033			1,045			35,617

Ending balance	$	13,405		$	8,245		$	6,423		$	1,430		$	2,692		$	6,244		$	1,045		$	39,484


Period-end loan balances evaluated for:
Loans individually evaluated for impairment	$	3,683		$	3,390		$	8,760		$	1,419		$	16,807		$	6,610		$	—		$	40,669	(2)
Purchased credit impaired loans		5,908			2,728			7,892			5,202			623			45			—			22,398

Loans collectively evaluated for impairment		872,679			802,139			777,260			141,595			211,791			319,131			—			3,124,595

Ending balance	$	882,270		$	808,257		$	793,912		$	148,216		$	229,221		$	325,786		$	—		$	3,187,662	(3)


	Commercial			Owner - Occupied Commercial			Commercial Mortgages			Construction			Residential			Consumer			Estimation/ Complexity Risk (1)			Total
	(in thousands)
Three months ended September 30, 2013
Allowance for loan losses
Beginning balance	$	12,967		$	8,049		$	6,345		$	3,952		$	3,230		$	6,137		$	814		$	41,494
Charge-offs		(1,172	)		(31	)		(103	)		(4	)		(290	)		(1,343	)		—			(2,943	)
Recoveries		273			55			333			21			10			219			—			911
Provision (credit)		594			(23	)		345			(380	)		364			1,071			(2	)		1,969

Ending balance	$	12,662		$	8,050		$	6,920		$	3,589		$	3,314		$	6,084		$	812		$	41,431


Nine months ended September 30, 2013
Allowance for loan losses
Beginning balance	$	13,663		$	6,108		$	8,079		$	6,456		$	3,124		$	5,631		$	861		$	43,922
Charge-offs		(2,311	)		(68	)		(1,824	)		(1,344	)		(985	)		(4,153	)		—			(10,685	)
Recoveries		900			100			442			106			51			715			—			2,314
Provision (credit)		410			1,910			223			(1,629	)		1,124			3,891			(49	)		5,880

Ending balance	$	12,662		$	8,050		$	6,920		$	3,589		$	3,314		$	6,084		$	812		$	41,431


Period-end allowance allocated to:
Loans individually evaluated for impairment	$	2,004		$	945		$	1,995		$	—		$	995		$	12		$	—		$	5,951
Loans collectively evaluated for impairment		10,658			7,105			4,925			3,589			2,319			6,072			812			35,480

Ending balance	$	12,662		$	8,050		$	6,920		$	3,589		$	3,314		$	6,084		$	812		$	41,431


Period-end loan balances evaluated for:
Loans individually evaluated for impairment	$	5,833		$	12,568		$	8,894		$	274		$	17,360		$	4,400		$	—		$	49,329	(2)
Loans collectively evaluated for impairment		748,106			777,297			704,895			102,347			211,595			283,645			—			2,827,885

Ending balance	$	753,939		$	789,865		$	713,789		$	102,621		$	228,955		$	288,045		$	—		$	2,877,214	(3)

(1)	Represents the portion of the allowance for loan losses established to account for the inherent complexity and uncertainty of estimates.

(2)	The difference between this amount and nonaccruing loans at September 30, 2014, represents accruing troubled debt restructured (“TDR”) loans which are considered to be impaired loans.

(3)	Ending loan balances do not include deferred costs of $6.7 million for September 30, 2014 and $5.8 million for September 30, 2013.

Nonaccrual and Past Due Loans

The following tables show our nonaccrual and past due loans at the dates indicated:

September 30, 2014

(In Thousands)

30–59 Days
Past Due and
Still Accruing

60–89 Days
Past Due and
Still Accruing

Greater Than
90 Days
Past Due and
Still Accruing

Total Past
Due
And Still
Accruing

Accruing
Current
Balances

Acquired
Impaired
Loans

Nonaccrual
Loans

Total
Loans

Commercial

299

10,765

—

11,064

862,223

5,908

3,075

882,270

Owner-Occupied commercial

734

5,561

—

6,295

795,844

2,728

3,390

808,257

Commercial mortgages

—

777,252

7,892

8,670

793,912

Construction

—

142,954

5,202

—

148,216

Residential

2,756

937

678

4,371

216,279

623

7,948

229,221

Consumer

861

397

—

1,258

320,790

3,693

325,786

Total

4,727

17,741

678

23,146

3,115,342

22,398

26,776

3,187,662

% of Total Loans

0.15

0.56

0.02

0.73

97.73

0.70

0.84

100


December 31, 2013 (In Thousands)	30–59 Days Past Due and Still Accruing			60–89 Days Past Due and Still Accruing			Greater Than 90 Days Past Due and Still Accruing			Total Past Due And Still Accruing			Accruing Current Balances			Nonaccrual Loans			Total Loans
Commercial	$	1,447		$	—		$	—		$	1,447		$	805,132		$	4,303		$	810,882
Owner-Occupied commercial		538			—			—			538			780,625			5,197			786,360
Commercial mortgages		83			1,049			—			1,132			715,496			8,565			725,193
Construction		—			—			—			—			104,916			1,158			106,074
Residential		1,952			1,348			533			3,833			209,255			8,432			221,520
Consumer		1,095			177			—			1,272			297,669			3,293			302,234


Total	$	5,115		$	2,574		$	533		$	8,222		$	2,913,093		$	30,948		$	2,952,263

% of Total Loans		0.17	%		0.09	%		0.02	%		0.28	%		98.67	%		1.05	%		100	%

Impaired Loans

The following tables provide an analysis of our impaired loans at September 30, 2014 and December 31, 2013:


September 30, 2014 (In Thousands)	Ending Loan Balances		Loans with No Specific Reserve (1)		Loans with Specific Reserve		Related Specific Reserve		Contractual Principal Balances		Average Loan Balances

Commercial	$	3,683	$	1,480	$	2,203	$	1,573	$	4,612	$	4,642
Owner-Occupied commercial		3,390		1,857		1,533		993		4,338		6,480
Commercial mortgages		8,760		5,136		3,624		240		11,667		11,117
Construction		1,419		1,419		—		—		1,419		784
Residential		16,807		9,215		7,592		850		19,045		17,635
Consumer		6,610		5,228		1,382		211		7,332		5,507


Total	$	40,669	$	24,335	$	16,334	$	3,867	$	48,413	$	46,165


December 31, 2013 (In Thousands)	Ending Loan Balances		Loans with No Specific Reserve (1)		Loans with Specific Reserve		Related Specific Reserve		Contractual Principal Balances		Average Loan Balances
Commercial	$	5,003	$	2,362	$	2,641	$	1,781	$	13,013	$	5,347
Owner-Occupied commercial		5,197		5,184		12		12		8,293		11,542
Commercial mortgages		8,661		2,784		5,877		1,987		16,566		10,444
Construction		1,158		1,158		—		—		1,563		968
Residential		17,852		9,750		8,103		989		20,153		18,047
Consumer		5,411		4,767		644		134		6,056		5,455


Total	$	43,282	$	26,005	$	17,277	$	4,903	$	65,644	$	51,803

(1)	Reflects loan balances at or written down to their remaining book balance.

Interest income of $401,000 and $1.1 million was recognized on impaired loans during the three and nine months ended September 30, 2014, respectively. Interest income of $234,000 and $706,000 was recognized on impaired loans during the three and nine months ended September 30, 2013, respectively.

Credit Quality Indicators

Below is a description of each of our risk ratings for all commercial loans:

Pass. These borrowers presently show no current or potential problems and their loans are considered fully collectible.

Special Mention. Borrowers have potential weaknesses that deserve management’s close attention. Borrowers in this category may be experiencing adverse operating trends, for example, declining revenues or margins, high leverage, tight liquidity, or increasing inventory without increasing sales. These adverse trends can have a potential negative effect on the borrower’s repayment capacity. These assets are not adversely classified and do not expose the Bank to significant risk that would warrant a more severe rating. Borrowers in this category may also be experiencing significant management problems, pending litigation, or other structural credit weaknesses.

Substandard. Borrowers have well-defined weaknesses that require extensive oversight by management. Borrowers in this category may exhibit one or more of the following: inadequate debt service coverage, unprofitable operations, insufficient liquidity, high leverage, and weak or inadequate capitalization. Relationships in this category are not adequately protected by the sound financial worth and paying capacity of the obligor or the collateral pledged on the loan, if any. The distinct possibility exists that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Borrowers have well-defined weaknesses inherent in the Substandard category with the added characteristic that the possibility of loss is extremely high. Current circumstances in the credit relationship make collection or liquidation in full highly questionable. A doubtful asset has some pending event that may strengthen the asset that defers the loss classification. Such impending events include: perfecting liens on additional collateral, obtaining collateral valuations, an acquisition or liquidation preceding, proposed merger, or refinancing plan.

Loss. Borrowers are uncollectible or of such negligible value that continuance as a bankable asset is not supportable. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical to defer writing off this asset even though partial recovery may be recognized sometime in the future.

Residential and Consumer Loans

The residential and consumer loan portfolios are monitored on an ongoing basis using delinquency information and loan type as credit quality indicators. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status.

The following tables provide an analysis of loans by credit risk profile using internally assigned risk ratings, as of September 30, 2014 and December 31, 2013

Commercial Credit Exposure


	Commercial				Owner-Occupied Commercial				Commercial Mortgages				Construction				Total Commercial
	Sept. 30 2014		Dec. 31 2013		Sept. 30 2014		Dec. 31 2013		Sept. 30 2014		Dec. 31 2013		Sept. 30 2014		Dec. 31 2013		September 30, 2014					December 31, 2013
(in thousands)	Sept. 30 2014		Dec. 31 2013		Sept. 30 2014		Dec. 31 2013		Sept. 30 2014		Dec. 31 2013		Sept. 30 2014		Dec. 31 2013		Amount		%			Amount		%
Risk Rating:
Special mention	$	10,363	$	12,566	$	13,247	$	4,747	$	12,141	$	2,092	$	1,073	$	226	$	36,824				$	19,631
Substandard:
Accrual		62,453		56,806		43,382		45,181		12,107		8,146		5,254		3,599		123,196					113,732
Nonaccrual		1,572		2,362		2,041		5,185		6,925		2,784		313		1,158		10,851					11,489
Doubtful /
Nonaccrual		2,203		2,641		1,533		12		3,624		5,877		—		—		7,360					8,530

Total Special Mention, Substandard and Doubtful		76,591		74,375		60,203		55,125		34,797		18,899		6,640		4,983		178,231		6	%		153,382		6	%
Pass		805,679		736,507		748,054		731,235		759,115		706,294		141,576		101,091		2,454,424		94	%		2,275,127		94

Total Commercial Loans	$	882,270	$	810,882	$	808,257	$	786,360	$	793,912	$	725,193	$	148,216	$	106,074	$	2,632,655		100	%	$	2,428,509		100	%

Consumer Credit Exposure


	Residential				Consumer				Total Residential and Consumer
	Sept. 30 2014		Dec. 31 2013		Sept. 30 2014		Dec. 31 2013		September 30, 2014					December 31, 2013
(in thousands)	Sept. 30 2014		Dec. 31 2013		Sept. 30 2014		Dec. 31 2013		Amount		Percent			Amount		Percent

Nonperforming (1)	$	16,807	$	17,852	$	6,610	$	5,411	$	23,417		4	%	$	23,263		4	%
Performing		212,414		203,668		319,176		296,823		531,590		96	%		500,491		96

Total	$	229,221	$	221,520	$	325,786	$	302,234	$	555,007		100	%	$	523,754		100	%

(1)	Includes $12.1 million as of September 30, 2014 and $11.5 million as of December 31, 2013 of troubled debt restructured mortgages and home equity installment loans that are performing in accordance with modified terms and are accruing interest.

Troubled Debt Restructurings (TDR)

The balance of TDRs at September 30, 2014 and December 31, 2013 was $28.3 million and $27.6 million, respectively. The balance at September 30, 2014 included approximately $14.1 million in nonaccrual status and $14.2 million in accrual status compared to $15.3 million in nonaccrual status and $12.3 million in accrual status at December 31, 2013. Approximately $2.5 million and $4.1million in related reserves have been established for these loans at September 30, 2014 and December 31, 2013, respectively.

A modification is classified as a TDR if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty. Concessions may include the reduction of an interest rate at a rate lower than current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR.

During the nine months ended September 30, 2014, the terms of 20 loans were modified in TDRs, comprised of 4 commercial loans and the remaining being residential and consumer loans. Our concessions on restructured loans consisted mainly of forbearance agreements, reduction in interest rates or extensions of maturities. Principal balances are generally not forgiven by us when a loan is modified as a TDR. Nonaccruing restructured loans remain in nonaccrual status until there has been a period of sustained repayment performance, typically six months.

The following table presents loans identified as TDRs during the three and nine months ended September 30, 2014 and 2013:


(In Thousands)	Three Months Ended September 30, 2014		Three Months Ended September 30, 2013		Nine Months Ended September 30, 2014		Nine Months Ended September 30, 2013

Commercial	$	88	$	6,800	$	209	$	6,824
Commercial mortgages		3,430		108		3,430		1,169
Construction		1,419		—		1,419		—
Residential		72		207		1,916		806
Consumer		1,097		256		1,612		973


Total	$	6,106	$	7,371	$	8,586	$	9,772

The TDRs set forth in the table above increased our allowance for loan losses by $395,000 through allocation of a related reserve, and resulted in charge-offs of $49,000 during the nine months ended September 30, 2014, compared to a $37,000 increase and charge-offs of $363,000 for the same period in 2013.

7. REVERSE MORTGAGE RELATED ASSETS

Reverse mortgage related assets include reverse mortgage loans as of September 30, 2014. In addition, prior to the clean-up call discussed below, the SASCO 2002-RM’s Class “O” certificates and the BBB-rated tranche of this reverse mortgage security were also included.

Reverse mortgage loans are contracts in which a homeowner borrows against the equity in his/her home and receives cash in one lump sum payment, a line of credit, fixed monthly payments for either a specific term or for as long as the homeowner lives in the home, or a combination of these options. Since reverse mortgages are nonrecourse obligations, the loan repayments are generally limited to the sale proceeds of the borrower’s residence and the mortgage balance consists of cash advanced, interest compounded over the life of the loan and some may include a premium which represents a portion of the shared appreciation in the home’s value, if any, or a percentage of the value of the residence.

In July 2011, we purchased 100% of SASCO 2002-RM1’s Class “O” certificates, representing equity ownership of a reverse mortgage securitization trust, for $2.5 million. This securitization was created in 2002 through the purchase of reverse mortgage loans owned by us, as well as an additional lender. As part of this securitization we retained the BBB rated tranche of this securitization and held this instrument as a trading asset.

During the third quarter of 2013, we obtained the right to execute a clean-up call on the underlying collateral. This event led us to consolidate the assets and liabilities of the securitization trust, SASCO 2002 RM-1, on our Consolidated Statement of Condition in accordance with ASC 810, Consolidation. As a result of consolidation of the reverse mortgage trust during the third quarter of 2013, a DTA was recorded at that time. However, because the reverse mortgage trust was not able to be consolidated for income tax purposes, a full valuation allowance was also recorded at that time on the DTA due to the uncertainty of realizing this benefit. On January 27, 2014, WSFS completed the legal call of the reverse mortgage trust bonds and the redemption of the trust’s preferred stockholders, eliminating this uncertainty since the reverse mortgage trust’s assets have now been combined with the Bank’s for tax purposes. As a result, WSFS removed the valuation allowance, and recorded a tax benefit of approximately $6.7 million during the first quarter 2014.

Our existing investment in reverse mortgages has been combined with the consolidated reverse mortgage loans for a total of $29.4 million at September 30, 2014. The average age of the borrowers is 92 years old and there is currently significant overcollateralization in the portfolio, as the realizable collateral value (the lower of collectible principal and interest, or appraised value and annual broker price opinion of the home) of $51.1 million well exceeds the outstanding book balance at September 30, 2014.

The carrying value of the reverse mortgages is calculated by a model that uses the income approach as described in ASC 820-10-35-32. The model is a present value cash flow model, consistent with ASC 820-10-55-5 which describes the components of a present value measurement. The model incorporates the projected cash flows of the loans (includes payouts and collections) and then discounts these cash flows using the effective yield required on the life of the portfolio to reduce the net investment to zero at the time the final reverse mortgage contract is liquidated. The inputs to the model reflect our expectations of what other market participants would use in pricing this asset in a current transaction and therefore is consistent with ASC 820 that requires an exit price methodology for determining fair value.

To determine the carrying value of these reverse mortgages as of September 30, 2014, we used a proprietary model and actual cash flow information to estimate future cash flows. There are three main drivers of cash flows 1) move-out rates, 2) house price appreciation HPA forecasts and 3) internal rate of return.

Move-out rates – The projections incorporate actuarial estimates of contract termination using mortality tables published by the Office of the Actuary of the United States Bureau of Census, adjusted for expected prepayments and relocations.

House Price Appreciation – Consistent with other residential mortgage analyses from various market sources, we forecast a 2.5% increase in housing prices during 2014 and a 2.0% increase in the following year and thereafter. We believe this forecast continues to be appropriate given the nature of reverse mortgage collateral and historical under-performance to the broad housing market.

Internal Rate of Return – As of September 30, 2014, the internal rate of return (IRR) of 16.34% was the effective yield required on the life of the portfolio to reduce the net investment to zero at the time the final reverse mortgage contract is liquidated.

As of September 30, 2014, the Company’s actuarially estimated cash payments to reverse mortgagors are as follows:


(in thousands)
Year Ending
Remaining in 2014	$	181
2015		690
2016		553
2017		439
2018		344
Years 2019 - 2023		835
Years 2024 - 2028		187
Years 2029 - 2033		32
Thereafter		4

Total (1)	$	3,265

(1)	This table does not take into consideration cash inflow including payments from mortgagors or payoffs based on contractual terms. These figures are stated values not discounted values.

The amount of the contract value that would be forfeited if the Company were not to make cash payments to reverse mortgagors in the future is $7.1 million.

The future cash flows depend on the HPA assumptions. If the future changes in collateral value were assumed to be zero, income would decrease by $502,000 for the quarter ended September 30, 2014 with an IRR of 14.83%. If the future changes in collateral value were assumed to be reduced by 1%, income would decrease by $230,000 with an IRR of 15.65%.

The net present value of the projected cash flow depends on the IRR used. If the IRR increased by 1%, the net present value would increase by $384,000. If the IRR decreased by 1%, the net present value would decrease by $381,000.

8. GOODWILL AND INTANGIBLES

In accordance with FASB ASC 805, Business Combinations, and FASB ASC 350, Intangibles—Goodwill and Other, all assets and liabilities acquired in purchase acquisitions, including goodwill, indefinite-lived intangibles and other intangibles are recorded at fair value.

During the nine months ended September 30, 2014 we determined there were no events or other indicators of impairment as it relates to goodwill or other intangibles.

During the third quarter of 2014 we completed the acquisition of First National Bank of Wyoming, De (“FNBW”). As a result of this transaction, we have recognized core deposit intangible assets of $3.2 million and goodwill of $16.5 million. The fair values listed above are estimates and are subject to adjustment. While they are not expected to be materially different than those shown, any material adjustments to the estimates will be reflected, retroactively, as of the date of the transaction.

The following table shows the allocation of goodwill to our reportable operating segments for purposes of goodwill impairment testing.


(In Thousands)	WSFS Bank		Cash Connect		Trust & Wealth Management		Consolidated Company

December 31, 2013	$	27,101	$	—	$	5,134	$	32,235
Changes in goodwill		46		—		—		46
Goodwill from business combinations		16,467		—		—		16,467

September 30, 2014	$	43,614	$	—	$	5,134	$	48,748

FASB ASC 350 requires that an acquired intangible asset be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer’s intent to do so.

The following table summarizes other intangible assets:


	Gross Intangible Assets		Accumulated Amortization			Net Intangible Assets
	(In Thousands)
September 30, 2014
Core deposits	$	7,610	$	(3,074	)	$	4,536
Other		7,021		(2,129	)		4,892

Total other intangible assets	$	14,631	$	(5,203	)	$	9,428


December 31, 2013
Core deposits	$	4,370	$	(2,605	)	$	1,765
Other		6,625		(1,647	)		4,978

Total other intangible assets	$	10,995	$	(4,252	)	$	6,743

Core deposits are amortized over their expected lives using the present value of the benefit of the core deposits and straight-line methods of amortization. During the nine months ended September 30, 2014, we recognized amortization expense on other intangible assets of $879,000.

The following presents the estimated amortization expense of intangibles:


(In Thousands)	Amortization of Intangibles
Remaining in 2014	$	378
2015		1,485
2016		1,229
2017		1,081
2018		1,062
Thereafter		4,193

Total	$	9,428

9. ASSOCIATE (EMPLOYEE) BENEFIT PLANS

Postretirement Benefits

We share certain costs of providing health and life insurance benefits to eligible retired Associates and their eligible dependents. Previously, all Associates were eligible for these benefits if they reached normal retirement age while working for us. Effective March 31, 2014, we changed the eligibility of this plan to include only those Associates who have achieved ten years of service with us as of March 31, 2014. The change will impact our net periodic benefit cost; however, this impact was partially offset by a change in the assumptions used to determine these costs (discount rate of 4.5% compared to 4% at December 31, 2013).

We account for our obligations under the provisions of FASB ASC 715, Compensation – Retirement Benefits (“ASC 715”). ASC 715 requires the costs of these benefits be recognized over an Associate’s active working career. Disclosures are in accordance with ASC 715.

The following disclosures of the net periodic benefit cost components of postretirement benefits were measured at January 1, 2014 and 2013:


	Three months ended September 30,					Nine months ended September 30,
	2014			2013		2014			2013
(In Thousands)
Service cost	$	49		$	86	$	147		$	258
Interest cost		48			44		146			132
Prior service cost amortization		(14	)		—		(44	)		—
Net loss recognition		22			20		66			60


Net periodic benefit cost	$	105		$	150	$	315		$	450

10. TAXES ON INCOME

We account for income taxes in accordance with FASB ASC 740, Income Taxes (“ASC 740”) (Formerly SFAS No. 109, Accounting for Income Taxes and FASB Interpretation No. 48, Accounting for Uncertainty In Income Taxes, an Interpretation of FASB Statement 109 ). ASC 740 requires the recording of deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We exercise significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities. The judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws. If actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized, there can be no assurance that additional expenses will not be required in future periods.

As a result of the consolidation for accounting purposes of the SASCO reverse mortgage securitization trust during 2013, a deferred tax asset (“DTA”) of approximately $4.9 million was recorded. In addition we recorded a $1.8 million deferred tax liability associated with our original investment in SASCO. However, because SASCO was not consolidated for income tax purposes, a full valuation allowance was also recorded on this DTA due to the uncertainty of its realization, as realization is dependent on future taxable income. On January 27, 2014 the separate company SASCO tax structure was eliminated, which permits consolidation within the Bank’s tax return filings on a prospective basis. At this date, the uncertainty surrounding the realization of the DTA was eliminated. Accordingly, we removed the $4.9 million valuation allowance and eliminated the $1.8 million deferred tax liability, which resulted in an overall income tax benefit of $6.7 million in the quarter ended March 31, 2014.

As a result of the acquisition of the First National Bank of Wyoming, we recorded a net DTA of $3.2 million. Included in this DTA are $1.9 million of net operating loss carryovers and $300,000 of tax credit carryovers. We expect to fully utilize these tax attributes and, therefore, no valuation allowance has been recorded against the DTA.

ASC 740 prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. We recognize, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the financial statements. Assessment of uncertain tax positions under ASC 740 requires careful consideration of the technical merits of a position based on our analysis of tax regulations and interpretations.

There were no unrecognized tax benefits as of September 30, 2014. We record interest and penalties on potential income tax deficiencies as income tax expense. Our federal and state tax returns for the 2011 through 2013 tax years are subject to examination as of September 30, 2014. No federal or state income tax return examinations are currently in process. We do not expect to record or realize any material unrecognized tax benefits during 2014.

11. FAIR VALUE DISCLOSURES OF FINANCIAL ASSETS AND LIABILITIES

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

ASC 820-10, Fair Value Measurements and Disclosure, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

The table below presents the balances of assets measured at fair value as of September 30, 2014 (there are no material liabilities measured at fair value):

Description

Quoted
Prices in
Active
Markets for
Identical
Asset
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total
Fair Value

(in Thousands)

Assets Measured at Fair Value on a Recurring Basis

Available-for-sale securities:

Collateralized mortgage obligations

—

186,740

—

186,740

FNMA

—

295,872

—

295,872

FHLMC

—

127,032

—

127,032

GNMA

—

80,192

—

80,192

U.S. Government and agencies

—

29,971

—

29,971

State and political subdivisions

—

123,509

—

123,509

Total assets measured at fair value on a recurring basis

—

843,316

—

843,316

Assets Measured at Fair Value on a Nonrecurring Basis

Other real estate owned

—

6,307

Loans held-for-sale

—

26,324

—

26,324

Impaired loans (collateral dependent)

—

36,802

Total assets measured at fair value on a nonrecurring basis

—

26,324

43,109

69,433

The table below presents the balances of assets measured at fair value as of December 31, 2013 (there are no material liabilities measured at fair value):


Description	Quoted Prices in Active Markets for Identical Asset (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
	(in Thousands)
Assets Measured at Fair Value on a Recurring Basis
Available-for-sale securities:
Collateralized mortgage obligations	$	—	$	97,557	$	—	$	97,557
FNMA		—		367,128		—		367,128
FHLMC		—		124,495		—		124,495
GNMA		—		95,592		—		95,592
U.S. Government and agencies		—		32,158		—		32,158
State and political subdivisions		—		100,185		—		100,185

Total assets measured at fair value on a recurring basis	$	—	$	817,115	$	—	$	817,115

Assets Measured at Fair Value on a Nonrecurring Basis
Other real estate owned	$	—	$	—	$	4,532	$	4,532
Impaired loans		—		—		38,379		38,379

Total assets measured at fair value on a nonrecurring basis	$	—	$	—	$	42,911	$	42,911

Fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models or obtained from third parties that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include unobservable parameters. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While we believe our valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Available-for-sale securities. As of September 30, 2014, securities classified as available for sale are reported at fair value using Level 2 inputs. As a result of the consolidation of the reverse mortgage trust, there were no securities with Level 3 inputs as of September 30, 2014. Included in the Level 2 total are approximately $29.9 million in Federal Agency debentures, $689.8 million in Federal Agency MBS and $123.5 million in municipal bonds. We believe that this Level 2 designation is appropriate for these securities under ASC 820-10 as, with almost all fixed income securities, none are exchange traded, and all are priced by correlation to observed market data. For these securities we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.

Other real estate owned. Other real estate owned consists of loan collateral which has been repossessed through foreclosure or other measures. Initially, foreclosed assets are recorded as held for sale at the lower of the loan balance or fair value of the collateral less estimated selling costs. Subsequent to foreclosure, valuations are updated periodically and the assets may be marked down further, reflecting a new cost basis. The fair value of our real estate owned was estimated using Level 3 inputs based on appraisals obtained from third parties.

Loans held-for-sale. During the second quarter of 2014 we elected to record loans held-for-sale at their fair value. The fair value was estimated using Level 2 inputs based on value information provided by brokers.

Impaired loans. We evaluate and value impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral has a unique appraisal and management’s

discount of the value is based on the factors unique to each impaired loan. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan, which range from 10% - 50%. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on the appraisals by qualified licensed appraisers hired by us. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a net amount of $36.8 million and $38.4 million at September 30, 2014 and December 31, 2013, respectively. The valuation allowance on impaired loans was $3.9 million as of September 30, 2014 and $4.9 million as of December 31, 2013.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The reported fair values of financial instruments are based on a variety of factors. In certain cases, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions regarding the amount and timing of estimated future cash flows that are discounted to reflect current market rates and varying degrees of risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of period-end or that will be realized in the future.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Short-Term Investments: For cash and short-term investments, including due from banks, federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with other banks, the carrying amount is a reasonable estimate of fair value.

Investments and Mortgage-Backed Securities: Since quoted market prices are not available, fair value is estimated using quoted prices for similar securities, which we obtain from a third party vendor. We utilize one of the largest providers of securities pricing to the industry and management periodically assesses the inputs used by this vendor to price the various types of securities owned by us to validate the vendor’s methodology. The fair value of our investment in reverse mortgages is based on the net present value of estimated cash flows, which have been updated to reflect recent external appraisals of the underlying collateral. For additional discussion of our mortgage-backed securities-trading or our internally developed models, see “Fair Value of Financial Assets” in Note 10 to the unaudited Consolidated Financial Statements.

Loans held-for-sale: Loans held-for-sale are carried at fair market value.

Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type: commercial, commercial mortgages, construction, residential mortgages and consumer. For loans that reprice frequently, the book value approximates fair value. The fair values of other types of loans are estimated by discounting expected cash flows using the current rates at which similar loans would be made to borrowers with comparable credit ratings and for similar remaining maturities. The fair value of nonperforming loans is based on recent external appraisals of the underlying collateral. Estimated cash flows, discounted using a rate commensurate with current rates and the risk associated with the estimated cash flows, are utilized if appraisals are not available. This technique does not contemplate an exit price.

Reverse Mortgage Related Assets: For additional information on these reverse mortgage related assets, see Note 6, Reverse Mortgage Related Assets, to the unaudited Consolidated Financial Statements.

Demand Deposits, Savings Deposits and Time Deposits: The fair value deposits with no stated maturity, such as noninterest-bearing demand deposits, money market and interest-bearing demand deposits, is assumed to be equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using rates currently offered for deposits with comparable remaining maturities.

Borrowed Funds: Rates currently available to us for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Stock in the Federal Home Loan Bank of Pittsburgh: The fair value of FHLB stock is assumed to be essentially equal to its cost basis, since the stock is non-marketable but redeemable at its par value.

Off-Balance Sheet Instruments: The fair value of off-balance sheet instruments, including commitments to extend credit and standby letters of credit, approximates the recorded net deferred fee amounts, which are not significant. Because commitments to extend credit and letters of credit are generally not assignable by either us or the borrower, they only have value to us and the borrower.

The book value and estimated fair value of our financial instruments are as follows:

Fair Value

September 30, 2014

December 31, 2013

Measurement

Book Value

Fair Value

Book Value

Fair Value

(In Thousands)

Financial assets:

Cash and cash equivalents

Level 1

471,301

484,426

Investment securities

See previous table

843,316

817,115

Loans held for sale

Level 3

26,324

31,491

Loans, net

Level 3

3,141,509

3,098,014

2,904,976

2,871,499

Reverse mortgage loans

Level 3

29,392

37,328

Stock in Federal Home Loan Bank of Pittsburgh

Level 2

29,782

35,869

Accrued interest receivable

Level 2

11,435

10,798

Financial liabilities:

Deposits

Level 2

3,504,110

3,295,795

3,186,942

2,982,420

Borrowed funds

Level 2

757,239

757,634

903,831

904,804

Standby letters of credit

Level 3

199

248

Accrued interest payable

Level 2

3,442

838

The estimated fair value of our off-balance sheet financial instruments is as follows:


	Sept. 30, 2014		Dec. 31, 2013
(in thousands)
Off-balance sheet instruments:	$	—	$	—

12. SEGMENT INFORMATION

In accordance with FASB ASC 280, Segment Reporting (“ASC 280”) (Formerly SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information) we discuss our business in three segments. An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision makers to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. We evaluate performance based on pretax ordinary income relative to resources used, and allocate resources based on these results. The accounting policies applicable to our segments are those that apply to our preparation of the accompanying Consolidated Financial Statements. There is one segment for each of WSFS Bank, Cash Connect, and Trust and Wealth Management.

The WSFS Bank segment provides financial products to commercial and retail customers through its 55 offices located in Delaware (45), Pennsylvania (8) and Virginia (1) and Nevada (1). Retail and Commercial Banking, Commercial Real Estate Lending and other banking business units are operating departments of WSFS. These departments share the same regulator, the same market, many of the same customers and provide similar products and services through the general infrastructure of the Bank. Because of these and other reasons, these departments are not considered discrete segments and are appropriately aggregated within the WSFS Bank segment in accordance with ASC 280.

Cash Connect provides turnkey ATM services through strategic partnerships with several of the largest networks, manufacturers and service providers in the ATM industry. The balance sheet category “Cash in non-owned ATMs” includes cash from which fee income is earned through bailment arrangements with customers of Cash Connect.

The Trust and Wealth Management division provides a broad array of fiduciary, investment management, credit and deposit products to clients through four business lines. WSFS Investment Group, Inc. provides insurance and brokerage products primarily to our retail banking clients. Cypress Capital Management, LLC is a registered investment advisor with over $638 million in assets under management. Cypress’ primary market segment is high net worth individuals, offering a ‘balanced’ investment style focused on preservation of capital and current income. Christiana Trust, with $8.7 billion in assets under management and administration, provides fiduciary and investment services to personal trust clients, and trustee, agency, custodial and commercial domicile services to corporate and institutional clients. WSFS Private Banking serves high net worth clients by delivering credit and deposit products and partnering with Cypress, Christiana and WSFS Investment Group to deliver investment management and fiduciary products and services.

Segment information for the three months and nine months ended September 30, 2014 and 2013 follows:

For the three months ended September 30, 2014:

Statement of Operations

WSFS Bank

Cash Connect

Trust & Wealth
Management

Total

(In Thousands)

External customer revenues:

Interest income

38,777

—

2,022

40,799

Noninterest income

9,161

6,640

4,503

20,304

Total external customer revenues

47,938

6,640

6,525

61,103

Inter-segment revenues:

Interest income

880

—

1,361

2,241

Noninterest income

1,602

204

1,838

Total inter-segment revenues

2,482

204

1,393

4,079

Total revenue

50,420

6,844

7,918

65,182

External customer expenses:

Interest expense

3,952

—

100

4,052

Noninterest expenses

32,327

3,993

3,137

39,457

Provision for loan loss

198

—

135

333

Total external customer expenses

36,477

3,993

3,372

43,842

Inter-segment expenses

Interest expense

1,361

360

520

2,241

Noninterest expenses

236

509

1,093

1,838

Total inter-segment expenses

1,597

869

1,613

4,079

Total expenses

38,074

4,862

4,985

47,921

Income before taxes

12,346

1,982

2,933

17,261

Provision for income taxes

5,848

Consolidated net income

11,413

Capital expenditures

914

—

981

As of September 30, 2014:

Statement of Condition

Cash and cash equivalents

73,935

393,977

3,389

471,301

Goodwill

43,614

—

5,134

48,748

Other segment assets

4,068,237

2,232

192,210

4,262,679

Total segment assets

4,185,786

396,209

200,733

4,782,728

For the three months ended September 30, 2013:


Statement of Operations	WSFS Bank		Cash Connect		Trust & Wealth Management			Total
	(In Thousands)
External customer revenues:
Interest income	$	35,171	$	—	$	1,945		$	37,116
Noninterest income		12,449		6,360		3,933			22,742

Total external customer revenues		47,620		6,360		5,878			59,858

Inter-segment revenues:
Interest income		906		—		1,477			2,383
Noninterest income		1,689		222		28			1,939

Total inter-segment revenues		2,595		222		1,505			4,322

Total revenue		50,215		6,582		7,383			64,180

External customer expenses:
Interest expense		3,587		—		123			3,710
Noninterest expenses		26,510		3,470		2,829			32,809
Provision for loan loss		2,263		—		(294	)		1,969

Total external customer expenses		32,360		3,470		2,658			38,488

Inter-segment expenses
Interest expense		1,477		400		506			2,383
Noninterest expenses		250		561		1,128			1,939

Total inter-segment expenses		1,727		961		1,634			4,322

Total expenses		34,087		4,431		4,292			42,810


Income before taxes	$	16,128	$	2,151	$	3,091		$	21,370
Provision for income taxes									7,210

Consolidated net income								$	14,160


Capital expenditures	$	460	$	131	$	—		$	591


As of December 31, 2013:
Statement of Condition

Cash and cash equivalents	$	73,017	$	408,096	$	3,313		$	484,426
Goodwill		27,101		—		5,134			32,235
Other segment assets		3,811,424		1,965		185,713			3,999,102

Total segment assets	$	3,911,542	$	410,061	$	194,160		$	4,515,763

For the nine months ended September 30, 2014:

Statement of Operations

WSFS Bank

Cash Connect

Trust & Wealth
Management

Total

(In Thousands)

External customer revenues:

Interest income

112,178

—

5,819

117,997

Noninterest income

26,334

18,974

12,983

58,291

Total external customer revenues

138,512

18,974

18,802

176,288

Inter-segment revenues:

Interest income

2,545

—

4,124

6,669

Noninterest income

5,041

601

5,727

Total inter-segment revenues

7,586

601

4,209

12,396

Total revenue

146,098

19,575

23,011

188,684

External customer expenses:

Interest expense

11,413

—

316

11,729

Noninterest expenses

88,549

11,425

9,179

109,153

Provision for loan loss

2,320

—

693

3,013

Total external customer expenses

102,282

11,425

10,188

123,895

Inter-segment expenses

Interest expense

4,124

1,019

1,526

6,669

Noninterest expenses

686

1,688

3,353

5,727

Total inter-segment expenses

4,810

2,707

4,879

12,396

Total expenses

107,092

14,132

15,067

136,291

Income before taxes

39,006

5,443

7,944

52,393

Provision for income taxes

11,344

Consolidated net income

41,049

Capital expenditures

2,207

156

2,366

As of September 30, 2014:

Statement of Condition

Cash and cash equivalents

73,935

393,977

3,389

471,301

Goodwill

43,614

—

5,134

48,748

Other segment assets

4,068,237

2,232

192,210

4,262,679

Total segment assets

4,185,786

396,209

200,733

4,782,728

For the nine months ended September 30, 2013


Statement of Operations	WSFS Bank		Cash Connect		Trust & Wealth Management			Total
	(In Thousands)
External customer revenues:
Interest income	$	102,732	$	—	$	5,857		$	108,589
Noninterest income		31,009		17,412		11,934			60,355

Total external customer revenues		133,741		17,412		17,791			168,944

Inter-segment revenues:
Interest income		2,723		—		4,276			6,999
Noninterest income		5,040		645		82			5,767

Total inter-segment revenues		7,763		645		4,358			12,766

Total revenue		141,504		18,057		22,149			181,710

External customer expenses:
Interest expense		11,120		—		427			11,547
Noninterest expenses		79,671		9,629		9,031			98,331
Provision for loan loss		6,044		—		(164	)		5,880

Total external customer expenses		96,835		9,629		9,294			115,758

Inter-segment expenses
Interest expense		4,276		1,176		1,547			6,999
Noninterest expenses		727		1,649		3,391			5,767

Total inter-segment expenses		5,003		2,825		4,938			12,766

Total expenses		101,838		12,454		14,232			128,524


Income (loss) before taxes	$	39,666	$	5,603	$	7,917		$	53,186
Provision for income taxes									18,378

Consolidated net income								$	34,808


Capital expenditures	$	1,505	$	591	$	—		$	2,096


As of December 31, 2013:
Statement of Condition

Cash and cash equivalents	$	73,017	$	408,096	$	3,313		$	484,426
Goodwill		27,101		—		5,134			32,235
Other segment assets		3,811,424		1,965		185,713			3,999,102

Total segment assets	$	3,911,542	$	410,061	$	194,160		$	4,515,763

13. INDEMNIFICATIONS AND GUARANTEES

Secondary Market Loan Sales. Given the current interest rate environment and current customer preference for long-term fixed rate mortgages, coupled with our desire not to hold these assets in our portfolio, we generally sell newly originated fixed rate conventional, 15 to 30 year loans in the secondary market to GSEs such as FHLMC or to wholesale lenders. We sometimes retain the servicing rights on residential mortgage loans sold which results in monthly service fee income. Otherwise, we sell loans with servicing released on a nonrecourse basis. Rate-locked loan commitments we intend to sell in the secondary market and related sales commitments are accounted for as derivatives under the guidance promulgated in FASB ASC Topic 815, Derivatives and Hedging.

We generally do not sell loans with recourse, except for standard loan sale contract provisions covering violations of representations and warranties and, under certain circumstances, first payment default by the borrower. These are customary repurchase provisions in the secondary market for conforming mortgage loan sales. These indemnifications may include our repurchase of the loans. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There were no such repurchases in the third quarter of 2014 and two repurchases totalling $354,000 for the nine months ended September 30, 2014.

Swap Guarantees. We entered into agreements with four unrelated financial institutions whereby those financial institutions entered into interest rate derivative contracts (interest rate swap transactions) with customers referred to them by us. By the terms of the agreements, those financial institutions have recourse to us for any exposure created under each swap transaction in the event the customer defaults on the swap agreement and the agreement is in a paying position to the third-party financial institution. This is a customary arrangement that allows smaller financial institutions like us to provide access to interest rate swap transactions for our customers without creating the swap ourselves. These swap guarantees are accounted for as credit derivatives under FASB ASC Topic 815, Derivatives and Hedging.

At September 30, 2014 there were 100 variable-rate swap transactions between third party financial institutions and our customers, compared to 101 at December 31, 2013. The initial notional aggregated amount was approximately $426.6 million at September 30, 2014 compared to $423.9 million at December 31, 2013. At September 30, 2014 maturities ranged from approximately one to eleven years. The aggregate market value of these swaps to customers was a liability of $15.5 million at September 30, 2014 and $17.8 million at December 31, 2013. Our analysis indicated there were no reserve requirements for the swap guarantees as of September 30, 2014 and $70,000 of reserves as of December 31, 2013. The methodology to determine reserves for swap guarantees is consistent with the ALLL methodology as described in Note 5 to the unaudited Consolidated Financial Statements.

14. CHANGE IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) includes unrealized gains and losses on available-for-sale investments as well as unrecognized prior service costs, transition costs and actuarial gains and losses on defined benefit pension plans which reflects changes made to the post retirement benefit obligation for retiree health and life insurance. These changes were effective March 31, 2014 (see footnote 9 “Associate (Employee) Benefit Plans” for further information). Changes to other accumulated other comprehensive income (loss) are presented net of tax effect as a component of equity. Reclassification out of accumulated other comprehensive is recorded on the statement of operations either as a gain or loss.

Changes to accumulated other comprehensive income (loss) by component are shown net of taxes in the following tables for the period indicated:


(in thousands)	Net unrealized (losses) gains on investment securities available-for-sale			Net unrealized losses on defined benefit pension plan			Total
Balance, June 30, 2014	$	(2,583	)	$	(412	)	$	(2,995	)
Other comprehensive income (loss) before reclassifications		(778	)		5			(773	)
Less: Amounts reclassified from accumulated other comprehensive income (loss)		(23	)		—			(23	)

Net current-period other comprehensive income (loss)		(801	)		5			(796	)

Balance, September 30, 2014	$	(3,384	)	$	(407	)	$	(3,791	)


Balance, June 30, 2013	$	(12,309	)	$	(472	)	$	(12,781	)
Other comprehensive income (loss) before reclassifications		(3,106	)		—			(3,106	)
Less: Amounts reclassified from accumulated other comprehensive income (loss)		(190	)		—			(190	)

Net current-period other comprehensive income (loss)		(3,296	)		—			(3,296	)

Balance, September 30, 2013	$	(15,605	)	$	(472	)	$	(16,077	)


(in thousands)	Net unrealized (losses) gains on investment securities available-for-sale			Net unrealized losses on defined benefit pension plan			Total
Balance, December 31, 2013	$	(20,822	)	$	(472	)	$	(21,294	)
Other comprehensive income (loss) before reclassifications		18,046			65			18,111
Less: Amounts reclassified from accumulated other comprehensive income (loss)		(608	)		—			(608	)

Net current-period other comprehensive income (loss)		17,438			65			17,503

Balance, September 30, 2014	$	(3,384	)	$	(407	)	$	(3,791	)


Balance, December 31, 2012	$	13,415		$	(472	)	$	12,943
Other comprehensive income (loss) before reclassifications		(27,249	)		—			(27,249	)
Less: Amounts reclassified from accumulated other comprehensive income (loss)		(1,771	)		—			(1,771	)

Net current-period other comprehensive income (loss)		(29,020	)		—		$	(29,020	)

Balance, September 30, 2013	$	(15,605	)	$	(472	)	$	(16,077	)

The statement of operations impacted by components of other comprehensive income are presented in the table below.


	Three Months Ended September 30,						Affected line item in Statements of Operations
(in thousands)	2014			2013
Securities available-for-sale:
Realized gains on securities transactions	$	36		$	306		Securities gains, net
Income taxes		(13	)		(116	)	Income tax provision

Net of tax	$	23		$	190
Amortization of Defined Benefit Pension Items:
Prior service costs	$	22		$	—
Transition obligation		—			—
Actuarial losses		(14	)		—

Total before tax	$	8		$	—		Salaries, benefits and other compensation
Income taxes		(3	)		—		Income tax provision

Net of tax	$	5		$	—

Total reclassifications	$	18		$	190


	Nine Months Ended September 30,						Affected line item in Statements of Operations
	2014			2013
Securities available-for-sale:
Realized gains on securities transactions	$	979		$	2,856		Securities gains, net
Income taxes		(371	)		(1,085	)	Income tax provision

Net of tax	$	608		$	1,771
Amortization of Defined Benefit Pension Items:
Prior service costs	$	905		$	—
Transition obligation		245			—
Actuarial losses		(1,046	)		—

Total before tax	$	104		$	—		Salaries, benefits and other compensation
Income taxes		(39	)		—		Income tax provision

Net of tax	$	65		$	—

Total reclassifications	$	543		$	1,771

15. LEGAL PROCEEDINGS

As initially disclosed in 2011, we were served with a complaint, filed in U.S. Bankruptcy Court for the Eastern District of Pennsylvania, by a bankruptcy trustee relating to a former WSFS Bank customer. The complaint challenges the Bank’s actions relating to the repayment of an outstanding loan and also seeks to avoid and recover the pre-bankruptcy repayment of that loan, approximately $5.0 million. The matter has been captioned Goldstein v. Wilmington Savings Fund Society, FSB (In re: Universal Marketing, Inc.), Chapter 7, Case No. 09-15404 (ELF), Adv. Pro. No. 11-00512. We believe we acted appropriately and we are vigorously defending ourselves against the complaint.

Based upon available information we believe the estimate of the aggregate range of reasonably possible losses for this legal proceeding was from approximately $0 to approximately $5.0 million at September 30, 2014. Costs of litigation were covered by insurance; however, such costs have now exceeded the limits of insurance coverage for this case. Cross motions for summary judgement are currently pending before the court.

There were no material changes or additions to other significant pending legal or other proceedings involving us other than those arising out of routine operations. Management does not anticipate that the ultimate liability, if any, arising out of such other proceedings will have a material effect on the Consolidated Financial Statements.

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

We are a thrift holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by our subsidiary, Wilmington Savings Fund Society, FSB, or WSFS Bank, one of the ten oldest banks continuously operating under the same name in the United States. As a federal savings bank, which was formerly chartered as a state mutual savings bank, we enjoy broad fiduciary powers. A fixture in the community, WSFS Bank has been in operation for more than 182 years. In addition to its focus on stellar customer service, WSFS Bank has continued to fuel growth and remain a leader in our community. We are a relationship-focused, locally-managed, community banking institution that has grown to become the largest thrift holding company in the State of Delaware, one of the top commercial lenders in the state and the third largest bank in terms of Delaware deposits. We state our mission simply: “We Stand for Service.” Our strategy of “Engaged Associates delivering Stellar Service growing Customer Advocates and value for our Owners” focuses on exceeding customer expectations, delivering stellar service and building customer advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates.

Our core banking business is commercial lending funded by customer-generated deposits. We have built a $2.6 billion commercial loan portfolio by recruiting the best seasoned commercial lenders in our markets and offering a high level of service and flexibility typically associated with a community bank. We fund this business primarily with deposits generated through commercial relationships and retail deposits. We service our customers primarily from our 55 offices located in Delaware (45), Pennsylvania (8), Virginia (1) and Nevada (1) and through our website at www.wsfsbank.com. We also offer a broad variety of consumer loan products, retail securities and insurance brokerage through our retail branches.

In July 2013 we added two new divisions to WSFS Bank with the purchase Array Financial Group, Inc., a mortgage banking company, and a related entity, Arrow Land Transfer Company, an abstract and Title Company. On September 5, 2014 we completed the acquisition of First Wyoming Financial Corporation, the parent company of The First National Bank of Wyoming (“FNBW”). We expect this acquisition to build our market share, expand our customer base and enhance our fee income. The results of FNBW operations are included in our Consolidated Financial Statements since the date of the acquisition.

Our Cash Connect division is a premier provider of ATM Vault Cash and related services in the United States. Cash Connect manages more than $507 million in vault cash in over 15,000 ATMs nationwide and also provides online reporting and ATM cash management, predictive cash ordering, armored carrier management, ATM processing and equipment sales. Cash Connect also operates over 465 ATMs for WSFS Bank, which has, by far, the largest branded ATM network in Delaware.

As a leading provider of ATM Vault Cash to the U.S. ATM industry, Cash Connect is exposed to substantial operational risk, including theft of cash from ATMs, armored vehicles, or armored carrier terminals, as well as general risk of accounting errors or fraud. This risk is managed through a series of financial controls, automated tracking and settlement systems, contracts, and other risk mitigation strategies, including both loss prevention and loss recovery strategies. Throughout its 16-year history, Cash Connect periodically has been exposed to theft from armored courier companies and consistently has been able to recover losses through its risk management strategies.

We have one consolidated subsidiary, WSFS Bank. We also have one unconsolidated affiliate, WSFS Capital Trust III, or the Trust. WSFS Bank has two wholly-owned subsidiaries, WSFS Investment Group, Inc. and Monarch Entity Services LLC, or Monarch.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 our financial goals, management’s plans 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. Such forward-looking statements are based on various assumptions (some of which may be beyond our 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 the economic environment, particularly in the market areas in which we operate, including an increase in unemployment levels; our level of nonperforming assets; the volatility of the financial and securities markets, including changes with respect to the market value of financial assets; changes in market interest rates which may increase funding costs and reduce earning asset yields thus reducing margin; increases in benchmark rates would also increase debt service requirements for customers whose terms include a variable interest rate, which may negatively impact the ability of borrowers to pay as contractually obligated; changes in government regulation affecting financial institutions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations being issued in accordance with this statute and potential expenses and elevated capital levels associated therewith; additional loan losses and impairment of the collectability of loans; changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations, may have an adverse effect on business; rules and regulations issued by the Consumer Financial Protection Bureau or other regulators which might adversely impact our business model or products and services; stresses in the real estate markets, including continued deterioration in property values that affect the collateral value underlying our real estate loans; our ability to expand into new markets, develop competitive new products and services in a timely manner, and to maintain profit margins in the face of competitive pressures; changes in consumer and business spending and saving habits could affect our ability to increase assets and to attract deposits; our ability to effectively manage credit risk, interest rate risk, market risk, operational risk, legal risk, liquidity risk, reputational risk, and regulatory and compliance risk; the effects of increased competition from both banks and non-banks; the effects of geopolitical instability and risks such as terrorist attacks; the effects of weather and natural disasters such as floods, droughts, wind, tornados and hurricanes, and the effects of man-made disasters; changes in the speed of loan prepayments by our customers and loan origination or sales volumes; acceleration of prepayments of mortgage-backed securities (“MBS”) due to low interest rates, and the related acceleration of premium amortization on prepayments on MBS due to low interest rates; and the costs associated with resolving any problem loans, litigation and other risks and uncertainties. Such risks and uncertainties are discussed herein, including under the heading “Risk Factors,” and in our Form 10-K for the year ended December 31, 2013 and other documents filed by us with the Securities and Exchange Commission (“SEC”) from time to time. Forward looking statements are as of the date they are made, and we do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of us.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of the financial condition and results of operations are based on the Consolidated Financial Statements, which are prepared in conformity with GAAP. The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenue and expenses. We regularly evaluate these estimates and assumptions including those related to the allowance for loan losses, deferred taxes, fair value measurements, goodwill and other intangible assets. We base our estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of assets and liabilities that are not readily apparent from other sources. Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2014, it is reasonably possible that actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Actual results may differ from these estimates under different assumptions or conditions.

See further discussion of these critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2013 and Note 1, Basis of Presentation, to the unaudited Consolidated Financial Statements.

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

Financial Condition

Our total assets increased $267.0 million or 6% to $4.8 billion during the nine months ended September 30, 2014. Included in this increase was a $231.4 million, or 8%, increase in net loans (including loans held for sale) which includes $176.0 million in net loans from the FNBW acquisition, and a $26.2 million increase in investment securities. Partially offsetting these increases was a $13.1 million decrease in cash and cash equivalents.

Total liabilities increased $173.7 million during the nine months ended September 30, 2014 to $4.3 billion. This increase was primarily the result of an increase in customer deposits of $242.7 million, or 8% which includes $228.8 million of customer deposits added through the FNBW acquisition. Brokered Deposits also increased $74.4 million during the nine months ended September 30, 2014. Total deposit increases were used to fund growth in our assets, a $22.0 million decrease in reverse mortgage trust bonds payable related to the call of those bonds and a $120.9 million decrease in Federal Home Loan Bank Advances.

Capital Resources

Stockholders’ equity increased $93.3 million between December 31, 2013 and September 30, 2014. This increase was due in part to net income of $41.0 million during the nine months ended September 30, 2014. Also contributing to the increase in stockholders’ equity was the acquisition of FNBW which contributed approximately $32.9 million additional capital primarily due to stock issued in conjunction with the merger. Further, the (net of tax) increase in our available for sale securities portfolio was $17.5 million. Partially offsetting these increases were payments of dividends on our common stock of $3.2 million during the nine months ended September 30, 2014. Tangible common equity (a non-GAAP financial measure) increased $74.1 million from $344.1 million at December 31, 2013 to $418.1 million at September 30, 2014.

Tangible common book value per share of common stock (a non-GAAP financial measure) was $44.50 at September 30, 2014, an increase of $5.82 or 15%, from $38.68 reported at December 31, 2013. Book value per share of common stock was $50.70 at September 30, 2014, an increase of $7.64 from $43.06 reported at December 31, 2013. See “Reconciliation of Non-GAAP Measures to GAAP” below.

Below is a table comparing WSFS Bank’s consolidated capital position to the minimum regulatory requirements as of September 30, 2014:


	Consolidated Bank Capital					For Capital Adequacy Purposes					To be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		% of Assets			Amount		% of Assets			Amount		% of Assets
Total Capital (to Risk-Weighted Assets)	$	559,837		14.70	%	$	304,591		8.00	%	$	380,738		10.00	%
Core Capital (to Adjusted Total Assets)		519,600		11.01			188,837		4.00			236,046		5.00
Tangible Capital (to Tangible Assets)		519,600		11.01			70,814		1.50			N/A		N/A
Tier 1 Capital (to Risk-Weighted Assets)		519,600		13.65			152,295		4.00			228,443		6.00

Under guidelines issued by banking regulators, savings institutions such as WSFS Bank must maintain “tangible” capital equal to 1.5% of adjusted total assets, “core” capital equal to 4.0% of adjusted total assets, “Tier 1” capital equal to 4.0% of risk weighted assets and “total” or “risk-based” capital (a combination of core and “supplementary” capital) equal to 8.0% of risk-weighted assets. Failure to meet minimum capital requirements can initiate certain mandatory actions and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our bank’s financial statements.

The Federal Deposit Insurance Corporation Act, as well as other requirements, established five capital tiers: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized. A depository institution’s capital tier depends upon its capital levels in relating to various relevant capital measures, which include leverage and risk-based capital measures and certain other factors. Depository institutions that are not classified as well-capitalized are subject to various restrictions regarding capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities.

At September 30, 2014, WSFS Bank was in compliance with regulatory capital requirements and was considered a “well-capitalized” institution. WSFS Bank’s core capital ratio of 11.01%, Tier 1 capital ratio of 13.65%, and total risk based capital ratio of 14.70%, all remain substantially in excess of “well-capitalized” regulatory benchmarks, the highest regulatory capital rating. In addition, and not included in Bank capital, the holding company held $20.4 million in cash to support potential dividends, acquisitions and strategic growth plans.

Liquidity

We manage our liquidity and funding needs through our Treasury function and our Asset/Liability Committee. We have a policy that separately addresses liquidity, and management monitors our adherence to policy limits. Also, liquidity risk management is a primary area of examination by the banking regulators.

We have ready access to several sources to fund growth and meet our liquidity needs. Among these are: net income (to the extent in cash), retail and commercial deposit programs, loan repayments, borrowing from the FHLB, repurchase agreements, access to the Federal Reserve Discount Window, and access to the brokered deposit market as well as other wholesale funding avenues. In addition, we have a large portfolio of high-quality, liquid investments, primarily short-duration MBS and government sponsored enterprises (“GSE”) notes that provide a near-continuous source of cash flow to meet current cash needs, or can be sold to meet larger discrete needs for cash. We believe these sources are sufficient to maintain required and prudent levels of liquidity.

During the nine months ended September 30, 2014, cash and cash equivalents decreased $13.1 million to $471.3 million. This decrease was primarily a result of: $231.4 million increase in net loans and $120.9 million from the net repayments of FHLB Advances. Partially offsetting these decreases in cash were a $242.7 million increase in customer deposits and a $74.4 million increase in brokered deposits.

NONPERFORMING ASSETS

Nonperforming assets include nonaccruing loans, assets acquired through foreclosure and restructured commercial, mortgage and home equity consumer debt. Nonaccruing loans are those on which the accrual of interest has ceased. Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more, unless management believes the loan is adequately collateralized and in the process of collection. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectability of principal and interest. Past due loans are loans contractually past due 90 days or more as to principal or interest payments but which remain on accrual status because they are considered well secured and in the process of collection.

The following table shows our nonperforming assets and past due loans at the dates indicated.


	September 30, 2014			December 31, 2013
	(In Thousands)
Nonaccruing loans:
Commercial	$	3,075		$	4,305
Owner-occupied commercial		3,390			5,197
Consumer		3,693			3,293
Commercial mortgages		8,670			8,565
Residential mortgages		7,948			8,432
Construction		—			1,158

Total nonaccruing loans		26,776			30,950
Assets acquired through foreclosure		6,307			4,532
Troubled debt restructuring (accruing)		14,215			12,332

Total nonperforming assets	$	47,298		$	47,814

Past due loans (1):
Residential mortgages		678			533

Total past due loans	$	678		$	533

Ratios:
Allowance for loan losses to total loans (2)		1.24	%		1.40	%
Nonperforming assets to total assets		0.99			1.06
Nonperforming assets (excluding accruing TDR) to total assets		0.69			0.79
Nonaccruing loans to total loans (2)		0.84			1.05
Loan loss allowance to nonaccruing loans		147.46			133.26

⁽¹⁾	Accruing Loans only; Nonaccruing TDR’s are included in their respective categories of nonaccruing loans.

⁽²⁾	Total loans exclude loans held for sale.

Nonperforming assets decreased $516,000 between December 31, 2013 and September 30, 2014. As a result, non-performing assets as a percentage of total assets decreased from 1.06% at December 31, 2013 to 0.99% at September 30, 2014. There were $27.3 million in new nonperforming loans during the first nine months of 2014, which was offset by $21.2 million in collections, REO sales or workouts and another $6.6 million in write-downs. All portfolio categories have slightly declined or remained relatively flat except for real estate owned (OREO), which increased by $1.8 million and accruing TDRs which increased $2 million. The OREO increase included $2.0 million in OREO as a result of the combination with FNBW, related to the fair value of 4 OREO properties assumed at the time of merger.

The following table summarizes the changes in nonperforming assets during the period indicated:


	For the nine months ended September 30, 2014			For the year ended December 31, 2013
	(In Thousands)
Beginning balance	$	47,814		$	62,475
Additions		27,320			30,367
Collections		(21,166	)		(29,725	)
Transfers to accrual		(96	)		(1,702	)
Charge-offs/write-downs, net		(6,574	)		(13,601	)

Ending balance	$	47,298		$	47,814

The timely identification of problem loans is a key element in our strategy to manage our loan portfolio. Timely identification enables us to take appropriate action and, accordingly, minimize losses. An asset review system established to monitor the asset quality of our loans and investments in real estate portfolios facilitates the identification of problem assets. In general, this system utilizes guidelines established by federal regulation.

INTEREST RATE SENSITIVITY

The matching of maturities or repricing periods of interest rate-sensitive assets and liabilities to promote a favorable interest rate spread and mitigate exposure to fluctuations in interest rates is our primary tool for achieving our asset/liability management strategies. We regularly review our interest rate sensitivity and adjust the sensitivity within acceptable tolerance ranges established by the Board of Directors. At September 30, 2014, interest-earning assets exceeded interest-bearing liabilities that mature or reprice within one year (interest-sensitive gap) by $63.3 million. Our interest-sensitive liabilities as a percentage of interest-sensitive assets within the one-year window increased from 94% at December 31, 2013 to 102.6% at September 30, 2014. Likewise, the one-year interest-sensitive gap as a percentage of total assets changed to 1.32% at September 30, 2014 from -3.28% at December 31, 2013. The low level of sensitivity reflects our continuing efforts to effectively manage interest rate risk.

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk inherent in our lending, investing, and funding activities. To that end, we actively monitor and manage our interest rate risk exposure. One measure, required to be performed by federal regulation, measures the impact of an immediate change in interest rates in 100 basis point increments on the economic value of equity ratio. The economic value of equity ratio is defined as the economic value of the estimated cash flows from assets and liabilities as a percentage of economic value of cash flows from total assets.

The table below shows the estimated impact of immediate changes in interest rates on our net interest margin and economic value of equity ratio at the specified levels at September 30, 2014 and December 31, 2013:


			September 30, 2014						December 31, 2013
% Change in Interest Rate (Basis Points)			% Change in Net Interest Margin (1)			Economic Value of Equity (2)			% Change in Net Interest Margin (1)			Economic Value of Equity (2)

	+300			6	%		13.77	%		-1	%		11.78	%
	+200			3	%		13.83	%		-2	%		11.97	%
	+100			-1	%		13.67	%		-3	%		12.13	%
	—			0	%		13.53	%		—	%		12.25	%
	-100			-1	%		12.85	%		-1	%		11.92	%
	-200	(3)		NMF			NMF			NMF			NMF
	-300	(3)		NMF			NMF			NMF			NMF

(1)	The percentage difference between net interest margin in a stable interest rate environment and net interest margin as projected under the various rate change environments.

(2)	The economic value of equity ratio of the Company in a stable interest rate environment and the economic value of equity ratio as projected under the various rate change environments.

(3)	Sensitivity indicated by a decrease of 200 or 300 basis points is not deemed meaningful at September 30, 2014 given the low absolute level of interest rates at that time.

We also engage in other business activities that are sensitive to changes in interest rates. For example, mortgage banking revenues and expenses can fluctuate with changing interest rates. These fluctuations are difficult to model and estimate.

COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

Results of Operations

Net income allocable to common stockholders (after preferred stock dividends) was $11.4 million, or $1.23 per diluted common share, for the quarter ended September 30, 2014, or a 20% decrease in EPS compared to net income allocable to common stockholders of $13.8 million, or $1.54 per diluted common share, for the quarter ended September 30, 2013. The quarterly comparison was impacted by several notable items, including corporate development costs in the third quarter of 2014 and a one-time reverse mortgage consolidation gain in the third quarter of 2013. Excluding these items, underlying trends were strong, driven by higher revenue growth and lower credit costs. Net interest income increased $3.3 million in the quarter ended September 30, 2014 as compared to the same period last year, reflecting the growth in our loan portfolio as well as the benefit from the consolidation of reverse mortgage assets late in the third quarter of 2013 and continued growth and improvement in our yield on investments. Noninterest income decreased by $2.4 million for the quarter ended September 30, 2014 compared to the same period last year as increases in investment management, fiduciary and mortgage banking revenues did not fully offset a one-time $3.8 million reverse consolidations gain recognized in the third quarter of 2013. Provision for loan losses decreased $1.6 million for the quarter ended September 30, 2014, when compared to the third quarter of 2013 as a result of improved credit quality. Noninterest expenses also grew reflecting added ongoing costs from acquisitions of Array/Arrow and FNBW, and added salary and benefit costs and other infrastructure to promote and support revenue growth. Expenses for the third quarter of 2014 were $39.5 million compared to $32.8 million for the third quarter of 2013, an increase of $6.7 million. Contributing to this increase was $2.6 million in corporate development, and higher legal costs.

Net income for the first nine months of 2014 was $41.0 million as compared to $34.8 million for the first nine months of 2013. Net income allocable to common stockholders was $41.0 million, or $4.46 per diluted share of common stock, compared to net income allocable to common stockholders of $33.2 million, or $3.72 per diluted share of common stock, for the nine months ended September 30, 2013, a 20% increase in EPS. For the first nine months of 2014, we directly benefited from a one-time tax benefit of approximately $6.7 million due to the legal call of our reverse mortgage trust bonds which were previously consolidated on WSFS’ balance sheet compared to the $3.8 million consolidation gain recorded in the third quarter of 2013.

Net Interest Income

The following tables provide information concerning the balances, yields and rates on interest-earning assets and interest-bearing liabilities during the periods indicated.


	Three Months Ended September 30,
	2014								2013
	Average Balance			Interest		Yield/ Rate (1)			Average Balance			Interest		Yield/ Rate (1)
(Dollars In Thousands)
*Assets:*
Interest-earning assets:
Loans (2) (3):
Commercial real estate loans	$	885,953		$	10,670		4.82	%	$	818,361		$	9,877		4.83	%
Residential real estate loans (4)		245,085			2,345		3.83			249,476			2,455		3.94
Commercial loans		1,639,318			18,276		4.40			1,525,053			17,023		4.40
Consumer loans		317,053			3,559		4.45			287,555			3,353		4.63

Total loans		3,087,409			34,850		4.53			2,880,445			32,708		4.56
Mortgage-backed securities (5) (6)		689,123			3,317		1.93			692,619			3,159		1.82
Investment securities (5) (6)		158,087			837		3.07			111,362			546		2.80
Reverse mortgages and related assets		31,435			1,323		16.83			19,915			616		12.37
Other interest-earning assets		34,535			472		5.42			38,054			87		0.90

Total interest-earning assets		4,000,589			40,799		4.13			3,742,395			37,116		4.01

Allowance for loan losses		(41,694	)							(42,315	)
Cash and due from banks		84,647								80,586
Cash in non-owned ATMs		377,879								424,125
Bank-owned life insurance		67,089								63,030
Other noninterest-earning assets		133,567								131,780

Total assets	$	4,622,077							$	4,399,601


*Liabilities and Stockholders’ Equity:*
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand	$	640,401		$	155		0.10	%	$	563,409		$	121		0.09	%
Money market		783,561			374		0.19			764,973			238		0.12
Savings		400,049			58		0.06			388,132			50		0.05
Customer time deposits		472,853			1,031		0.87			512,689			1,123		0.87

Total interest-bearing customer deposits		2,296,864			1,618		0.28			2,229,203			1,532		0.27
Brokered certificates of deposit		221,298			205		0.37			174,690			141		0.32

Total interest-bearing deposits		2,518,162			1,823		0.29			2,403,893			1,673		0.28
FHLB of Pittsburgh advances		611,327			663		0.42			651,993			482		0.29
Trust preferred borrowings		67,011			332		1.94			67,011			339		1.98
Reverse mortgage bonds payable		—			—		—			1,265			—		—
Senior Debt		55,000			941		6.84			55,000			943		6.86
Other borrowed funds (7)		149,939			293		0.78			131,812			273		0.82

Total interest-bearing liabilities		3,401,439			4,052		0.48			3,310,974			3,710		0.44

Noninterest-bearing demand deposits		734,490								669,807
Other noninterest-bearing liabilities		37,137								32,756
Stockholders’ equity		449,011								386,064

Total liabilities and stockholders’ equity	$	4,622,077							$	4,399,601

Excess of interest-earning assets over interest-bearing liabilities	$	599,150							$	431,421

Net interest and dividend income				$	36,747							$	33,406

Interest rate spread							3.65	%							3.56	%

Net interest margin							3.73	%							3.61	%

(1)	Weighted average yields have been computed on a tax-equivalent basis using a 35% effective tax rate.

(2)	Nonperforming loans are included in average balance computations.

(3)	Balances are reflected net of unearned income.

(4)	Includes residential mortgage loans HFS.

(5)	Includes securities available-for-sale at fair value.

(6)	Average Balances and related yield are calculated using the fair value of available-for-sale securities.

(7)	Includes federal funds purchased and securities sold under agreement to repurchase.


	Nine Months Ended September 30,
	2014								2013
	Average Balance			Interest		Yield/ Rate (1)			Average Balance			Interest		Yield/ Rate (1)
(Dollars In Thousands)
*Assets:*
Interest-earning assets:
Loans (2) (3):
Commercial real estate loans	$	857,146		$	29,541		4.60	%	$	791,222		$	28,143		4.74	%
Residential real estate loans (4)		239,508			6,898		3.84			254,154			7,631		4.00
Commercial loans		1,624,710			53,497		4.37			1,506,616			50,467		4.45
Consumer loans		309,910			10,435		4.50			285,772			10,027		4.69

Total loans		3,031,274			100,371		4.41			2,837,764			96,268		4.52
Mortgage-backed securities (5) (6)		694,618			10,130		1.94			725,614			9,665		1.78
Investment securities (5) (6)		147,752			2,443		3.28			83,955			999		2.18
Reverse mortgages and related assets		34,365			3,917		15.20			19,244			1,523		10.55
Other interest-earning assets		35,083			1,136		4.33			34,924			134		0.51

Total interest-earning assets		3,943,092			117,997		4.04			3,701,501			108,589		3.94

Allowance for loan losses		(41,871	)							(43,417	)
Cash and due from banks		79,692								78,444
Cash in non-owned ATMs		366,302								421,573
Bank-owned life insurance		64,579								62,978
Other noninterest-earning assets		133,985								122,792

Total assets	$	4,545,779							$	4,343,871


*Liabilities and Stockholders’ Equity:*
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand	$	632,498		$	449		0.09	%	$	544,125		$	369		0.09	%
Money market		767,553			1,021		0.18			775,121			832		0.14
Savings		399,450			178		0.06			393,544			161		0.05
Customer time deposits		459,426			2,968		0.86			547,126			3,692		0.90

Total interest-bearing customer deposits		2,258,927			4,616		0.27			2,259,916			5,054		0.30
Brokered certificates of deposit		222,355			577		0.35			178,522			459		0.34

Total interest-bearing deposits		2,481,282			5,193		0.28			2,438,438			5,513		0.30
FHLB of Pittsburgh advances		650,215			1,850		0.38			561,357			1,376		0.32
Trust preferred borrowings		67,011			988		1.94			67,011			1,005		1.98
Reverse mortgage bonds payable		—			—		—			427			—		—
Senior Debt		55,000			2,824		6.77			55,000			2,830		6.86
Other borrowed funds (7)		150,886			874		0.77			141,292			823		0.77

Total interest-bearing liabilities		3,404,394			11,729		0.46			3,263,525			11,547		0.47

Noninterest-bearing demand deposits		682,651								638,289
Other noninterest-bearing liabilities		34,772								30,763
Stockholders’ equity		423,962								411,294

Total liabilities and stockholders’ equity	$	4,545,779							$	4,343,871

Excess of interest-earning assets over interest-bearing liabilities	$	538,698							$	437,976

Net interest and dividend income				$	106,268							$	97,042

Interest rate spread							3.58	%							3.47	%

Net interest margin							3.65	%							3.52	%

(1)	Weighted average yields have been computed on a tax-equivalent basis using a 35% effective tax rate.

(2)	Nonperforming loans are included in average balance computations.

(3)	Balances are reflected net of unearned income.

(4)	Includes residential mortgage loans HFS.

(5)	Includes securities available-for-sale at fair value.

(6)	Average Balances and related yield are calculated using the fair value of available-for-sale securities.

(7)	Includes federal funds purchased and securities sold under agreement to repurchase.

The net interest margin for the third quarter of 2014 was 3.73%, a 12 basis point increase compared to 3.61% for the third quarter of 2013. The increase in net interest margin from the third quarter of 2013 reflects improvement in the balance sheet mix as total loans grew $207.0 million through organic growth and the FNBW acquisition, investment securities increased $46.7 million, and higher-costing FHLB advances decreased by $40.7 million and were replaced by non-interest bearing deposits. In addition, there was a positive one-time net adjustment of $393,000 related to prepayment fees on one large commercial relationship, and reverse mortgage income was higher. Further, our net interest income increased $3.3 million, or 10%, over the third quarter of 2013.

The net interest margin for the nine months ended September 30, 2014 was 3.65%, compared to 3.52% for the same period in 2013. Compared to the nine months ended September 30, 2013, our net interest income increased $9.2 million, or 10%. Similar to the quarterly discussion above, the increase in net interest margin and income reflected higher reverse mortgage income, improved balance sheet mix, and growth in earning assets.

Provision/Allowance for Loan Losses

Our provision for loan losses is based on the inherent risk of our loans and considers various factors including collateral values, trends in asset quality, level of delinquent loans and loan concentrations. In addition, regional economic conditions are also taken into consideration. The provision for loan losses decreased to $3.0 million for the nine months ended September 30, 2014, compared to $5.9 million for the same period in 2013.

Our allowance for loan losses of $39.5 million at September 30, 2014 decreased from $41.2 million at December 31, 2013 and the ratio of allowance for loan losses to total gross loans was 1.24% at September 30, 2014, compared to 1.40% at December 31, 2013 as loans grew faster than our provision. The changes in allowance for loan losses and provision reflect the following:

•

Net charge-offs were $4.8 million for the nine months ended September 30, 2014 compared to $8.4 million for the nine months ended September 30, 2013.

•

Total problem loans (all criticized, classified, and non-performing loans) were 35.27% of Tier 1 Capital plus allowance for loan losses at September 30, 2014, compared to 33.58% at December 31, 2013 and 40.5% at September 30, 2013. The increase at September 30, 2014 included loans acquired in the combination with FNBW, which were recorded at their fair value at acquisition and did not carry any reserves as of September 30, 2014.

•

Nonperforming loans decreased to $26.8 million as of September 30, 2014 from $31.0 million as of December 31, 2013.

•

Total loan delinquency was 1.11% as of September 30, 2014, compared to 0.76% as of December 31, 2013. This increase was impacted by one large relationship where $16.3 million is being carried as delinquent. This relationship is in a highly seasonal industry and has previously shown delinquency in its seasonally slow periods, but is well secured. Excluding this relationship total loan delinquency was only 0.59% as of September 30, 2014.

•

Loans acquired with the FNBW acquisition were recorded at fair value. As a result, loans increased with no corresponding increase in the allowance. This served to lower the allowance for the loan losses to total gross loans. Excluding the FNBW loans, our allowance for loan losses to total gross loans was 1.32%.

The following table summarizes the year-to-date provision/allowance for loan losses:


	For the Nine Months Ended September 30,
	2014			2013
	(Dollars in Thousands)

Beginning balance	$	41,244		$	43,922
Provision for loan losses		3,013			3,911

Charge-offs:
Residential real estate		674			695
Commercial real estate		261			1,721
Construction		88			1,340
Commercial		3,335			1,139
Owner-occupied commercial		593			37
Overdrafts		702			449
Consumer		1,393			2,361

Total charge-offs		7,046			7,742


Recoveries:
Residential real estate		129			41
Commercial real estate		43			109
Construction		192			85
Commercial		873			627
Owner-occupied commercial		244			45
Overdrafts		370			214
Consumer		422			282

Total recoveries		2,273			1,403


Net charge-offs		4,773			6,339

Ending balance	$	39,484		$	41,494


Net charge-offs to average gross loans outstanding, net of unearned income (1)		0.21	%		0.44	%

(1)	Ratios for the nine months ended September 30, 2014 and 2013 are annualized.

Noninterest Income

During the third quarter of 2014, the Company earned noninterest income of $20.3 million, compared to $22.7 million in the third quarter of 2013. Excluding net securities gains in both periods and a one-time reverse mortgage consolidation gain in the third quarter of 2013, noninterest income increased $1.6 million, or 9%. The increase is a result of fundamental growth in the core banking business, including improvements in mortgage banking fees and growth in Trust and Wealth revenues.

For the nine months ended September 30, 2014, the company earned noninterest income of $58.3 million, compared to $60.4 million in the nine months ended September 30, 2013, a decrease of 3%. Excluding net securities gains and the one-time reverse mortgage consolidation gain from 2013, noninterest income increased $3.6 million or 7%. This increase reflects continued expansion of our Trust & Wealth Management division, increases in our mortgage banking activities as well as increased deposit service charges. Compared to the nine months ended September 30, 2013 Trust and Wealth investment management and fiduciary revenue increased $830,000 or 7%, Mortgage banking income increased $229,000 or 8%, reflecting the full year effect of our acquisition of the Array Mortgage Banking division and deposit service charges increased $455,000 or 4%.

Noninterest Expense

Noninterest expense for the third quarter of 2014 was $39.5 million, an increase of $6.7 million or 20% from $32.8 million in the third quarter of 2013. Third quarter 2014 includes a $2.6 million increase in corporate development expense primarily related to our merger with FNBW. Contributing to the year-over-year growth was the completion of two acquisitions during the past year, which included the addition of new Associates as well as other operational costs. In addition, the increase includes higher salary and benefit costs related to new hires and infrastructure costs incurred during the year to support the significant organic franchise growth. Further, the third quarter of 2014 was impacted by additional legal costs and higher fraud costs, primarily due to data breaches occurring at local and large national retailers.

For the nine months ended September 30, 2014, noninterest expense was $109.2 million, an increase of $10.9 million from $98.3 million for the nine months ended September 30, 2013. The increase is due primarily to $2.8 million increase in corporate development expense, higher legal costs and the aforementioned growth in Associate and infrastructure support costs.

Income Taxes

We and our subsidiaries file a consolidated federal income tax return and separate state income tax returns. Income taxes are accounted for in accordance with ASC 740, which requires the recording of deferred income taxes for tax consequences of temporary differences. We recorded an income tax expense of $5.8 million and $11.3 million during the three and nine months ended September 30, 2014, respectively, compared to an income tax expense of $7.2 million and $18.4 million for the same periods in 2013.

The third quarter of 2013 included the recognition of $200,000 of tax benefits related to the completion of an IRS audit of our 2010 tax return. The first quarter of 2014 included the recognition of $6.7 million of tax benefits related to the legal call of our reverse mortgage trust bonds as more fully discussed in Note 10, Taxes on Income to our Consolidated Financial Statements. Our effective tax rate was 33.9% and 21.7% for the three and nine months ended September 30, 2014, respectively, compared to 33.7% and 34.6% during the same periods in 2013. Excluding the IRS audit impact and the reverse mortgage tax benefit, our effective tax rates were 33.9% and 34.5% for the three and nine months ended September 30, 2014, respectively, compared to 34.7% and 34.9% during the same periods in 2013.

The effective tax rate reflects the recognition of certain tax benefits in the financial statements including those benefits from tax-exempt interest income, federal low-income housing tax credits, and BOLI income. These tax benefits are offset by the tax effect of stock-based compensation expense related to incentive stock options, nondeductible merger expenses and a provision for state income tax expense.

We frequently analyze our projections of taxable income and make adjustments to our provision for income taxes accordingly.

RECONCILIATION OF NON-GAAP MEASURES TO GAAP

The following table provides a reconciliation of tangible common book value per share of common stock to book value per share of common stock, the most directly comparable GAAP financial measure. We believe this measure is important to management and investors to better understand and assess changes from period to period in stockholders’ equity exclusive of changes in intangible assets.


	September 30, 2014			December 31, 2013
	(In Thousands)

End of period balance sheet data:
Stockholders’ equity	$	476,324		$	383,050
Goodwill and other intangible assets		(58,176	)		(38,978	)

Tangible common equity (numerator)	$	418,148		$	344,072


Shares of common stock outstanding (denominator)		9,396			8,895


Book value per share of common stock	$	50.70		$	43.06
Goodwill and other intangible assets		(6.20	)		(4.38	)

Tangible book value per share of common stock	$	44.50		$	38.68

RECENT LEGISLATION

Basel III

On July 2, 2013, the Board of Governors of the Federal Reserve System, FDIC and the OCC approved the final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Company. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.

The phase-in period for the final rules will begin for us on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule and should be fully phased-in by January 1, 2019. Management believes that our capital levels will remain characterized as “well-capitalized” under the new rules.

On September 3, 2014, the FRB, the FDIC, and the Office of the Comptroller of the Currency finalized the Liquidity Coverage Ratio (“LCR”), which would require banks to hold highly liquid assets relative to cash outflows over a 30-day period during a stressed scenario. The LCR will generally apply to banking organizations with over $50.0 billion in assets, and therefore, should not impact us.

We are mindful of the pending development of the net stable funding ratio and short-term wholesale funding requirements, and other potential liquidity risk management and reporting requirements. Management will continue to monitor these developments and their potential impact to our liquidity requirements.

Debit Card Interchange Fees

On July 31, 2013, a U.S. District Court judge declared invalid provisions of the rule issued by the FRB under the Durbin Amendment of the Dodd-Frank Act, regarding the amount of the debit card interchange fee cap and the network non-exclusivity provisions, which was effective October 1, 2011. The court ruled that the FRB, when determining the amount of the fee cap, erred in using criteria outside the scope Congress intended to determine the fee cap, thereby causing the fee cap to be set higher than warranted. The court also ruled that the Durbin Amendment required merchants to be given a choice between multiple unaffiliated networks (signature and PIN networks) for each debit card transaction, as opposed to the FRB’s rule allowing debit card networks and issuers to make only one network available for each type of debit transaction. In September 2013, the U.S. District Court judge agreed to the FRB’s request to leave the existing rules in place until an appeals court rules on the case.

On March 21, 2014, a panel of the U.S. Court of Appeals for the District of Columbia (the “Court”) overturned the U.S. District Court’s opinion. The Court concluded that the FRB “reasonably interpreted the Durbin Amendment” to allow issuers to recover certain costs that are incremental to the authorization, clearing, and settlement (“ACS”) costs. Finding that the FRB’s interpretation was reasonable, the Court then analyzed whether the FRB reasonably concluded that issuers could recover the four specific costs challenged by the merchants: fixed ACS costs, network processing fees, fraud losses and transaction monitoring costs. The Court acknowledged that such a task was not “an exact science” and involved policy determinations in which the FRB had “expertise” as to which the FRB was entitled to “special deference.” The Court remanded one issue relating to recovery of fraud-monitoring costs back to the FRB, asking it to articulate a reasonable justification for determining that transaction monitoring costs fell outside of the costs associated with fraud prevention. The Court also rejected the merchants’ argument that the Durbin Amendment “unambiguously” required that there be multiple unaffiliated network routing options for each debit card transaction. The Court ruled that the FRB’s final rule does exactly what Congress contemplated, which is that under the rule, issuers and networks are prohibited from restricting the number of payment card networks on which an electronic debit transaction may be processed to only affiliated networks. On August 18, 2014, some of the trade associations and retailers filed an appeal with the U.S. Supreme Court seeking review of the decision of the Court. We will continue to monitor the developments related to this matter and any potential impact on our Consolidated Financial Statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Incorporated herein by reference from Item 2, of this Quarterly Report on Form 10-Q

Item 4.

Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q such disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b)

Changes in internal control over financial reporting. During the quarter ended September 30, 2014, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II.

OTHER INFORMATION

Item 1.

Legal Proceedings

Incorporated herein by reference to Note 14 – Legal Proceedings to the Consolidated Financial Statements

Item 1A.

Risk Factors

Our management does not believe there have been any material changes to the risk factors previously disclosed under Item 1A. of the Company’s Form 10-K for the year ended December 31, 2013, previously filed with the SEC.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table represents information with respect to repurchases of common stock made by the Company during the three months ended September 30, 2014.

Common


2014	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicity Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

July		—	$	—		—		—
August		—		—		—		—
September		—		—		—		—


Total (1)		—	$	—		—		—

(1)

The shares repurchased were not part of a publicly announced repurchase plan or program. These shares were owned and tendered by employees as payment for taxes on vesting of restricted stock or exercise of stock options. There were no treasury shares repurchased during the quarter ended September 30, 2014.

Item 3.

Defaults upon Senior Securities

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable

Item 5.

Other Information

Not applicable

Item 6.

Exhibits

(a)

Exhibit 31.1 – Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(b)

Exhibit 31.2 – Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(c)

Exhibit 32 – Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(d)

Exhibit 101.INS – XBRL Instance Document

(e)

Exhibit 101.SCH – XBRL Schema Document

(f)

Exhibit 101.CAL – XBRL Calculation Linkbase Document

(g)

Exhibit 101.LAB – XBRL Labels Linkbase Document

(h)

Exhibit 101.PRE – XBRL Presentation Linkbase Document

(i)

Exhibit 101.DEF – XBRL Definition Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		WSFS FINANCIAL CORPORATION

Date:	November 10, 2014	/s/ Mark A. Turner
		Mark A. Turner
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	November 10, 2014	/s/ Stephen A. Fowle
		Stephen A. Fowle
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial and Accounting Officer)