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EX-32 - EXHIBIT 32 - WSFS FINANCIAL CORPex32.htm
EX-2.1 - EXHIBIT 2.1 - WSFS FINANCIAL CORPex2-1.htm
EX-31.2 - EXHIBIT 31.2 - WSFS FINANCIAL CORPex31-2.htm
EX-31.1 - EXHIBIT 31.1 - WSFS FINANCIAL CORPex31-1.htm


 
 
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
June 30, 2010
     
OR
     
[  ]
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   
EXCHANGE ACT OF 1934
     
For the transition period from
 
to
 
     
     
Commission File Number  0-16668
     
     
WSFS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
     
Delaware
 
22-2866913
(State or other jurisdiction of
 
(I.R.S. Employer
Incorporation or organization)
 
Identification Number)
     
500 Delaware Avenue, Wilmington, Delaware
 
19801
(Address of principal executive offices)
 
(Zip Code)
     
(302) 792-6000
Registrant’s telephone number, including area code:
     
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_____ 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.
 
Large accelerated filer [  ]                                                      Accelerated filer [X]
Non-accelerated filer [  ]                                                      Smaller reporting company [   ]
(Do not check if smaller reporting company)
 
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 July 26, 2010
 
Common Stock, par value $.01 per share
 
7,116,714
(Title of Class)
 
(Shares Outstanding)


 
1

 

WSFS FINANCIAL CORPORATION

FORM 10-Q

INDEX


PART I. Financial Information



       
Page
Item 1.
 
Financial Statements (Unaudited)
   
         
   
Consolidated Statement of Operations for the Three and Six Months
 
3
   
Ended June 30, 2010 and 2009
   
         
   
Consolidated Statement of Condition as of June 30, 2010
 
4
   
and December 31, 2009
   
         
   
Consolidated Statement of Cash Flows for the Six  Months Ended
 
5
   
June 30, 2010 and 2009
   
         
   
Notes to the Consolidated Financial Statements for the Six
 
6
   
Months Ended June 30, 2010 and 2009
   
         
Item 2.
 
Management’s Discussion and Analysis of Financial Condition
 
26
   
and Results of Operations
   
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
40
         
Item 4.
 
Controls and Procedures
 
40
         
         
PART II. Other Information
         
Item 1.
 
Legal Proceedings
 
40
         
Item 1A.
 
Risk Factors
 
40
         
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
43
         
Item 3.
 
Defaults upon Senior Securities
 
43
         
Item 4.
 
[Reserved]
 
43
         
Item 5.
 
Other Information
 
43
         
Item 6.
 
Exhibits
 
43
         
Signatures
     
44
         
Exhibit 2.1
   
  Stock Purchase Agreement between WSFS Financial Corporation and National Penn Bancshares, Inc. dated as of June 24, 2010    
         
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
   



 
2

 

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS


 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(Unaudited)
 
   
(In Thousands, Except Per Share Data)
 
   Interest income:
                               
Interest and fees on loans
 
$
31,610
   
$
32,356
   
$
62,833
   
$
63,730
 
Interest on mortgage-backed securities
   
9,639
     
6,948
     
18,671
     
14,284
 
Interest and dividends on investment securities
   
199
     
535
     
502
     
632
 
Other interest income
   
6
     
     
6
     
 
     
41,454
 
 
 
39,839
     
82,012
     
78,646
   
   Interest expense:
                               
Interest on deposits
   
5,771
     
7,523
     
12,065
     
15,852
 
Interest on Federal Home Loan Bank advances
   
4,017
     
4,804
     
7,994
     
10,145
 
Interest on trust preferred borrowings
   
348
     
465
     
677
     
1,060
 
Interest on other borrowings
   
620
     
667
     
1,235
     
1,318
 
     
10,756
     
13,459
     
21,971
     
28,375
   
   Net interest income
   
30,698
     
26,380
     
60,041
     
50,271
 
   Provision for loan losses
   
10,594
     
11,997
     
22,004
     
19,650
    
   Net interest income after provision for loan losses
   
20,104
     
14,383
     
38,037
     
30,621
 
                                    
   Noninterest income:
                               
Credit/debit card and ATM income
   
4,817
     
4,049
     
9,187
     
7,751
 
Deposit service charges
   
4,349
     
4,276
     
8,228
     
8,093
 
Loan fee income
   
709
     
1,354
     
1,389
     
2,604
 
Investment advisory income
   
612
     
516
     
1,216
     
1,047
 
Security gains, net
   
268
 
 
 
887
     
268
     
1,310
 
Mortgage banking activities, net
   
247
     
406
     
499
     
608
 
Bank owned life insurance income
   
219
     
229
     
415
     
439
 
Other income
   
1,215
     
950
     
2,375
     
1,916
 
     
12,436
 
 
 
12,667
     
23,577
     
23,768
    
   Noninterest expenses:
                               
Salaries, benefits and other compensation
   
12,111
     
12,051
     
24,097
     
24,382
 
Loan workout and OREO expenses
   
2,872
     
1,721
     
3,969
     
2,361
 
Occupancy expense
   
2,271
     
2,355
     
4,833
     
4,791
 
FDIC expenses
   
1,762
     
2,903
     
3,405
     
4,368
 
Equipment expense
   
1,646
     
1,725
     
3,114
     
3,304
 
Professional fees
   
1,440
     
2,082
     
2,458
     
2,992
 
Data processing and operations expenses
   
1,159
     
1,157
     
2,445
     
2,278
 
Marketing expense
   
904
     
831
     
1,609
     
1,558
 
Non-recurring ATM loss
   
     
     
4,491
     
 
Other operating expense
   
3,574
     
6,130
     
6,951
     
9,295
 
     
27,739
     
30,955
     
57,372
     
55,329
 
                                   
   Income before taxes
   
4,801
     
(3,905
)
   
4,242
     
(940
)
   Income tax provision (benefit)
   
1,500
     
(1,589
)
   
427
     
(1,564
)
   Net income (loss)
   
3,301
     
(2,316
)
   
3,815
     
 624
    
   Dividends on preferred stock and accretion of discount
   
692
     
751
     
1,384
     
1,264
 
   Net income (loss) allocable to common shareholders
 
$
2,609
   
$
 (3,067
)
 
$
2,431
   
$
 (640
)
                                 
   Earnings (loss) per share:
                                  
   Basic
 
$
0.37
   
$
 (0.50
)
 
$
0.34
   
$
 (0.10
)
   Diluted
 
$
0.36
   
$
 (0.50
)
 
$
0.34
   
$
 (0.10
)


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

 
3

 

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION



   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(Unaudited)
 
   
(In Thousands, Except Per Share Data)
 
   Assets:
                  
   Cash and due from banks
 
$
57,664
   
$
55,756
   
   Cash in non-owned ATMs
   
263,989
     
264,903
 
   Federal funds sold
   
-
     
-
 
   Interest-bearing deposits in other banks
   
474
     
1,090
 
    Total cash and cash equivalents
   
322,127
     
321,749
 
   Investment securities held-to-maturity
   
557
     
709
 
   Investment securities-available-for-sale including reverse mortgages
   
44,469
     
44,808
 
   Mortgage-backed securities - available-for-sale
   
743,470
     
669,059
 
   Mortgages-backed securities-trading
   
12,121
     
12,183
 
   Loans held-for-sale
   
10,372
     
8,366
 
   Loans, net of allowance for loan losses of $62,256 at June 30, 2010
    and $53,446 at December 31, 2009
   
2,449,631
     
2,470,789
 
   Bank owned life insurance
   
60,669
     
60,254
 
   Stock in Federal Home Loan Bank of Pittsburgh, at cost
   
39,305
     
39,305
    
   Assets acquired through foreclosure
   
9,428
     
8,945
 
   Premises and equipment
   
29,304
     
36,108
 
   Goodwill
   
10,870
     
10,870
 
   Intangible assets
   
2,501
     
2,781
 
   Accrued interest receivable and other assets
   
57,042
     
62,581
 
                 
   Total assets
 
$
3,791,866
   
$
3,748,507
 
                 
   Liabilities and Stockholders’ Equity
               
                 
   Liabilities:
               
   Deposits:
               
   Noninterest-bearing demand
 
$
469,518
   
$
431,476
 
   Interest-bearing demand
   
259,180
     
265,719
    
   Money market
   
594,007
     
550,639
 
   Savings
   
243,268
     
224,921
 
   Time
   
469,114
     
470,139
 
   Jumbo certificates of deposit – customer
   
200,834
     
203,126
 
    Total customer deposits
   
2,235,921
     
2,146,020
 
   Other jumbo certificates of deposit
   
91,915
     
69,208
 
   Brokered deposits
   
300,946
     
346,643
 
    Total deposits
   
2,628,782
     
2,561,871
 
                 
   Federal funds purchased and securities sold under agreements to repurchase
   
100,000
     
100,000
 
   Federal Home Loan Bank advances
   
572,072
     
613,144
 
   Trust preferred borrowings
   
67,011
     
67,011
 
   Other borrowed funds
   
80,782
     
74,654
 
   Accrued interest payable and other liabilities
   
28,486
     
30,027
 
   Total liabilities
   
3,477,133
     
3,446,707
 
                 
   Stockholders’ Equity:
               
   Serial preferred stock $.01 par value, 7,500,000 shares authorized; issued 52,625 at
       June 30, 2010 and December 31, 2009
   
1
     
1
 
   Common stock $.01 par value, 20,000,000 shares authorized; issued
    16,697,283 at June 30, 2010 and 16,660,588 at December 31, 2009
   
166
     
166
 
   Capital in excess of par value
   
167,992
     
166,627
    
   Accumulated other comprehensive income (loss)
   
8,818
     
(2,022
)
   Retained earnings
   
386,036
     
385,308
 
   Treasury stock at cost, 9,580,569 shares at June 30, 2010 and December 31, 2009
   
(248,280
)
   
(248,280
)
   Total stockholders’ equity
   
314,733
     
301,800
 
   Total liabilities and stockholders’ equity
 
$
3,791,866
   
$
3,748,507
 

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

 
4

 

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS


 
Six months ended June 30,
 
 
2010
   
2009
 
 
(Unaudited)
 
 
(In Thousands)
    
   Operating activities:
             
   Net income
$
3,815
   
$
624
 
   Adjustments to reconcile net income to net cash provided by operating activities:
             
    Provision for loan losses
 
22,004
     
19,650
 
    Depreciation, accretion and amortization
 
2,973
     
3,393
 
    Increase in accrued interest receivable and other assets
 
(5,597
)
   
(4,538
)
    Non-routine ATM losses
 
4,491
     
 
    Origination of loans held-for-sale
 
(54,225
)
   
(53,740
)
    Proceeds from sales of loans held-for-sale
 
52,543
     
43,104
 
      Gain on mortgage banking activity
 
(499
)
   
(608
)
    Loss (gain) on mark to market adjustment on trading securities
 
62
     
(497
)
    Securities gain from the sale of MasterCard, Inc. and Visa, Inc. common stock
 
     
(119
    Gain on sale of investments, net
 
(330
)
   
(694
)
    Stock-based compensation expense, net of tax benefit recognized
 
372
     
484
 
    Excess tax benefits from share-based payment arrangements
 
(263
)
   
 
    Increase in accrued interest payable and other liabilities
 
4,994
     
8,995
     
      Loss on wind-down of 1st Reverse Financial Services, LLC
 
     
1,589
 
      Loss on sale of assets acquired through foreclosure and valuation adjustments
 
3,563
     
1,993
 
    Increase in value of bank-owned life insurance
 
(415
)
   
(439
)
    Decrease in capitalized interest, net
 
76
     
106
   
   Net cash provided by operating activities
 
33,564
     
19,303
 
                   
  Investing activities:
             
    Maturities and calls of investment securities
 
2,500
     
18,025
 
    Purchases of investment securities available-for-sale
 
(2,002
)
   
(16,049
)
    Sales of mortgage backed securities available-for-sale
 
45,979
     
38,646
 
    Repayments of mortgage-backed securities available-for-sale
 
90,523
     
75,605
 
    Purchases of mortgage-backed securities available-for-sale
 
(192,700
)
   
(158,473
)
    Repayments of reverse mortgages
 
     
50
 
    Disbursements for reverse mortgages
 
(97
)
   
(104
)
    Net increase in loans
 
(5,872
)
   
(88,002
)
    Sales of assets acquired through foreclosure, net
 
926
     
1,523
 
    Proceeds from the sale of MasterCard, Inc. and Visa, Inc. common stock
 
     
119
 
    Investment in premises and equipment, net
 
(2,165
)
   
(3,526
)
   Net cash used for investing activities
 
(62,908
)
   
(132,186
)
               
   Financing activities:
             
    Net increase in demand and savings deposits
 
99,346
     
210,943
 
    Net increase (decrease) in time deposits
 
19,390
     
(17,427
)
    Net (decrease) increase in brokered deposits
 
(46,109
)
   
21,344
 
    Receipts from federal funds purchased & securities sold under agreement to repurchase
 
9,245,000
     
9,247,995
 
    Repayments of federal funds purchased & securities sold under agreement to repurchase
 
(9,245,000
)
   
(9,222,995
)
    Receipts from FHLB advances
 
15,593,383
     
17,615,421
 
    Repayments of FHLB advances
 
(15,634,455
)
   
(17,794,606
)
    Proceeds from issuance of unsecured bank debt
 
     
30,000
 
    Dividends paid
 
(3,016
)
   
(2,301
)
    Proceeds from issuance of preferred stock
 
     
52,625
 
    Issuance of common stock and exercise of common stock options
 
920
     
454
     
    Excess tax benefits from share-based payment arrangements
 
263
     
 
   Net cash provided by financing activities
 
29,722
     
141,453
     
    Increase in cash and cash equivalents
 
378
     
28,570
 
    Cash and cash equivalents at beginning of period
 
321,749
     
248,558
 
    Cash and cash equivalents at end of period
$
322,127
   
$
277,128
 
               
   Supplemental Disclosure of Cash Flow Information:
                 
   Cash paid for interest during the period
$
17,660
   
$
22,919
    
   Cash paid for income taxes, net
 
4,659
     
971
 
   Loans transferred to assets acquired through foreclosure
 
4,972
     
6,683
   
   Net change in other comprehensive income
 
10,840
     
3,744
 
 Settlement of pending sale of premises and equipment        
6,515
     
 

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

 
5

 

WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(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 Montchanin Capital Management, Inc. (“Montchanin”) and its wholly owned subsidiary, Cypress Capital Management, LLC (“Cypress”). We also have one unconsolidated affiliate, WSFS Capital Trust III (“the Trust”). WSFS Bank has a fully-owned subsidiary, WSFS Investment Group, Inc., which markets various third-party insurance products and securities products to Bank customers through WSFS’ retail banking system.  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.  In addition, we offer a variety of wealth management and trust services through WSFS Trust and Wealth Management.  Lending activities are funded primarily with customer deposits and borrowings.  The Federal Deposit Insurance Corporation (“FDIC”) insures our customers’ deposits to their legal maximum.  We serve our customers primarily from our 40 banking offices located in Delaware (35), Pennsylvania (4) and Virginia (1) and through our website at www.wsfsbank.com.

Although our current estimates contemplate current economic conditions and how we expect them to change in the future, it is reasonably possible that, in 2010, actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as the allowance for loan losses and lending related commitments, goodwill, intangible assets, post-retirement obligations, the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and increases of allowances for loan losses and lending related commitments as well as increased post-retirement 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 SEC’s Regulation S-X.  Rule 10-01 of Regulation S-X does not require us to include all information and notes for complete financial statements and prevailing practices within the banking industry. Operating results for the three and six month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for any future quarters or for the year ending December 31, 2010. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC.

Accounting for Stock-Based Compensation

Stock-based compensation is accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718 (formerly SFAS No. 123R, Share-Based Payment).  We have stock options outstanding under two plans (collectively, “Stock Incentive Plans”) for officers, directors and Associates of the Company and its subsidiaries.  After shareholder approval in 2005, the 1997 Stock Option Plan (“1997 Plan”) was replaced by the 2005 Incentive Plan (“2005 Plan”).  No future awards may be granted under the 1997 Plan.  The 2005 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted.  The number of shares reserved for issuance under the 2005 Plan is 1,197,000.  At June 30, 2010, there were 402,669 shares available for future grants under the 2005 Plan.

The Stock Incentive Plans provide for the granting of incentive stock options as defined in Section 422 of the Internal Revenue Code as well as non-incentive stock options (collectively, “Stock Options”).  Additionally, the 2005 Plan provides for the granting of stock appreciation rights, performance awards, restricted stock and restricted stock unit awards, deferred stock units, dividend equivalents, other stock-based awards and cash awards.  All Stock Options are to be granted at not less than the market price of the Corporation's common stock on the date of the grant.  All Stock Options granted during 2010 vest in 25% per annum increments, start to become exercisable one year from the grant date and expire five years from the grant date.  Generally, all awards become immediately exercisable in the event of a change in control, as defined within the Stock Incentive Plans.

 
6

 


We announced in 2007, that our Executive Committee of the Board of Directors adopted an administrative policy related to the future award of stock options under the 2005 Plan. The Executive Committee’s policy provided that any change to the policy would only be made following the approval by our stockholders. At the 2010 Annual Meeting of Shareholders, a proposal was approved to increase the maximum life of stock options and stock appreciation rights from five years to seven years.

A summary of the status of our Stock Incentive Plans at June 30, 2010 and June 30, 2009, respectively, and changes during the quarters then ended is presented below:

 
June 30, 2010
 
June 30, 2009
 
Shares
 
Weighted- Average
Exercise Price
 
Shares
 
Weighted- Average
Exercise Price
Stock Options:
                 
Outstanding at beginning of period
736,576
 
$
  43.06
 
755,388
 
$
42.56
Granted
200
   
43.71
 
1,500
   
26.23
Exercised
(19,690
)
 
13.27
 
0
   
0.00
Forfeited or canceled
0
   
0.00
 
0
   
0.00
Outstanding at end of period
717,086
   
43.88
 
756,888
   
42.52
                   
Exercisable at end of period
526,015
 
$
44.79
 
476,469
 
$
39.95
                   
Weighted-average fair value
of stock options granted
$   16.98
       
$     7.69
     

On April 1, 2010, 544,912 stock options were exercisable with an intrinsic value of $3.0 million.  In addition, at April 1, 2010, there were 191,664 nonvested options with a grant date fair value of $9.23 per option.  During the second quarter of 2010, 793 options vested with an intrinsic value of $4,000, and a grant date fair value of $10.88 per option.  Also during the quarter, 19,690 options were exercised with an intrinsic value of $556,000.  There were 526,015 exercisable options remaining at June 30, 2010, with an intrinsic value of $2.5 million and a remaining contractual term of 2.2 years.  At June 30, 2010 there were 717,086 stock options outstanding with an intrinsic value of $3.4 million and a remaining contractual term of 2.5 years.  During the second quarter of 2009, no options were exercised and 852 options vested with a grant date fair value of $12.44 per option.


A summary of the status of our Stock Incentive Plans at June 30, 2010 and June 30, 2009, respectively and changes during the six months then ended is presented below:

 
June 30, 2010
 
June 30, 2009
 
Shares
 
Weighted- Average
Exercise Price
 
Shares
 
Weighted- Average
Exercise Price
Stock Options:
                 
Outstanding at beginning of period
733,468
 
$
  42.95
 
675,887
 
$
44.98
Granted
26,289
   
30.56
 
83,921
   
23.23
Exercised
(36,551
)
 
13.67
 
0
   
0.00
Forfeited or canceled
(6,120
)
 
54.93
 
(2,920
)
 
59.26
Outstanding at end of period
717,086
   
43.88
 
756,888
   
42.52
                   
Exercisable at end of period
526,015
 
$
44.79
 
476,469
 
$
39.95
                   
Weighted-average fair value
of stock options granted
$    9.22
       
$           5.42
     
                   

Beginning January 1, 2010, 541,910 stock options were exercisable.  During the six months ended June 30, 2010, 24,994 options vested with a $261,000 intrinsic value, and a weighted-average grant date fair value of $6.78 per option.  Also during the first six months of 2010, 36,551 options were exercised with an intrinsic value of $907,000.  During the first six months of 2009, no options were exercised and 4,476 options vested with a weighted-average grant date fair value of $13.61 per option.

 
7

 

The total amount of compensation cost related to non-vested stock options as of June 30, 2010 was $931,000.  The weighted-average period over which they are expected to be recognized is 2.1 years. We issue new shares upon the exercise of options.

The Black-Scholes and other option-pricing models assume that options are freely tradable and immediately vested.  Since options are not transferable, have vesting provisions, and are subject to trading blackout periods imposed by us, the value calculated by the Black-Scholes model may significantly overstate the true economic value of the options.

During the second quarter of 2010, we granted 200 options with a five-year life and a four-year vesting period.  The Black-Scholes option-pricing model was used to determine the grant date fair value of options.  Significant assumptions used in the model included a weighted-average risk-free rate of return of 1.9% in 2010; an expected option life of three and three-quarter years; and an expected stock price volatility of 54.4% in 2010.  For the purposes of this option-pricing model, a dividend yield of 1.1% was assumed.  During the first six months of 2010, we granted 26,289 options with a five-year life and a four-year vesting period.  The Black-Scholes option-pricing model was used to determine the grant date fair value of options.  Significant assumptions used in the model included a weighted-average risk-free rate of return of 1.8% in 2010; an expected option life of three and three-quarter years; and an expected stock price volatility of 43.4% in 2010.  For the purposes of this option-pricing model, a dividend yield of 1.6% was assumed.

During the second quarter of 2010, we issued 59 restricted stock units.  During the first six months of 2010, we issued 5,761 restricted stock units and awards.  These awards generally vest over a four to five year period.  In addition, for these stock awards made to certain executive officers, there are additional vesting limitations.  Under these additional limitations;  25% of the awards will become transferrable at the time of repayment of at least 25% of the aggregate financial assistance received by the Company under the Emergency Economic Stabilization Act of 2008 (“EESA”); an additional 25% of the shares granted (for an aggregate total of 50% of the shares transferrable) at the time of repayment of at least 50% of the aggregate financial assistance received by the Company under EESA; an additional 25% of the shares granted (for an aggregate total of 75% of the shares transferrable) at the time of repayment of at least 75% of the aggregate financial assistance received by the Company under EESA.  The remainder of the shares will vest following the time of repayment of 100% of the aggregate financial assistance received by the Company under EESA.  If the date specified has not occurred by the tenth anniversary of the grant date, the grantee will forfeit all of the restricted shares.

Compensation costs related to these issuances are recognized over the lives of the restricted stock and restricted stock units.  We amortize the expense related to the restricted stock grants into salaries, benefits and other compensation expense on a straight-line basis over the requisite service period for the entire award.  When we award restricted stock to individuals from whom we may not receive services in the future, such as those who are eligible for retirement, we recognize the expense of restricted stock grants when we make the award, instead of amortizing the expense over the vesting period of the award.

The Long-Term Performance-Based Restricted Stock Unit program (“Long-Term Program”) will award up to an aggregate of 109,200 shares of WSFS stock to seventeen participants, only after the achievement of targeted levels of return on assets (“ROA”).  Under the terms of the plan, if an annual ROA performance level of 1.20% is achieved, up to 54,900 shares will be awarded.  If an annual ROA performance level of 1.35% is achieved, up to 76,100 shares will be awarded.  If an annual ROA performance level of 1.50% or greater is achieved, up to 109,200 shares will be awarded.  If these targets are achieved in any year up until 2011, the awarded stock will vest in 25% increments over four years.  In addition, if a performance level is achieved and there are insufficient shares available for grant, then we would have the option of granting the available shares with the remainder being paid in cash.  We did not recognize any compensation expense related to this program in the first six months of 2010.  Compensation expense for the Long-Term Program was based on the closing stock price as of May 28, 2009 and will begin to be recognized once the achievement of target performance is considered probable.

The impact of stock-based compensation for the three months ended June 30, 2010 was $273,000 pre-tax ($213,000 after tax) or $0.03 per share, to salaries, benefits and other compensation.  This compares to $356,000 pre-tax ($273,000 after tax) or $0.04 per share for the three months ended June 30, 2009.  The impact of stock-based compensation for the six months ended June 30, 2010 was $642,000 pre-tax ($500,000 after tax) or $0.07 per share, to salaries, benefits and other compensation.  This compares to $801,000 pre-tax ($639,000 after tax) or $0.10 per share for the six months ended June 30, 2009.

 
8

 

2. EARNINGS PER SHARE

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

     
For the three months
   
For the six months
 
     
ended June 30,
   
ended June 30,
 
     
2010
   
2009
   
2010
   
2009
 
     
(Unaudited)
 
     
(In Thousands, Except per Share Data)
 
 
Numerator:
                       
 
Net income (loss) allocable to common stockholders
$
2,609
 
$
(3,067
)
$
2,431
 
$
(640
)
                           
 
Denominator:
                       
 
Denominator for basic earnings per share — weighted average shares
$
7,107
 
$
6,191
 
$
7,096
 
$
6,182
 
 
Effect of dilutive employee stock options
 
152
   
 —
   
125
   
 —
 
 
    Denominator for diluted earnings per share — adjusted weighted
                       
 
        average shares and assumed exercise
$
7,259
 
$
6,191
 
$
7,221
 
$
6,182
 
 
Basic:
                       
 
   Net income (loss) available to common shareholders
$
0.37
 
$
(0.50
)
$
0.34
 
$
(0.10
)
 
Diluted:
                       
 
   Net income (loss) available to common shareholders
$
0.36
 
$
(0.50
)
$
0.34
 
$
(0.10
)
 
Outstanding common stock equivalents having no dilutive effect
 
616
   
763
   
637
   
761
 


3. INVESTMENT SECURITIES

The following tables detail the amortized cost and the estimated fair value of the Company’s investment securities held-to-maturity and securities available-for-sale (which includes reverse mortgages):

       
Gross
 
Gross
     
   
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
   
Cost
 
Gains
 
Losses
 
Value
 
   
(In Thousands)
 
                           
   Available-for-sale securities:
                         
                           
June 30, 2010:
                         
Reverse mortgages
 
$
(509
)
$
 
$
 
$
(509
)
U.S. Government and agencies
   
40,613
   
695
   
   
41,308
 
State and political subdivisions
   
3,590
   
82
   
(2
)
 
3,670
 
   
$
43,694
 
$
777
 
$
(2
)
$
44,469
 
                           
December 31, 2009
                         
Reverse mortgages
 
$
(530
)
$
 
$
 
$
 (530
)
U.S. Government and agencies
   
40,695
   
652
   
(35
)
 
41,312
 
State and political subdivisions
   
3,935
   
91
   
   
4,026
 
   
$
44,100
 
$
743
 
$
 (35
)
$
44,808
 
                           
   Held-to-maturity:
                         
                           
June 30, 2010:
                         
State and political subdivisions
 
$
557
 
$
 
$
(15
)
$
542
 
   
$
557
 
$
 
$
(15
)
$
542
 
                           
December 31, 2009:
                         
State and political subdivisions
 
$
709
 
$
 
$
 (38
)
$
671
 
   
$
709
 
$
 
$
 (38
)
$
671
 

 
 
9

 
 
Securities with fair values aggregating $41.3 million at June 30, 2010 were specifically pledged as collateral for WSFS’ Treasury Tax and Loan account with the Federal Reserve Bank, securities sold under agreement to repurchase, certain letters of credit and municipal deposits which require collateral. Accrued interest receivable relating to investment securities was $336,000 and $352,000 at June 30, 2010 and December 31, 2009, respectively.

The scheduled maturities of investment securities held-to-maturity and securities available-for-sale at June 30, 2010 and December 31, 2009 were as follows:

   
Held-to-Maturity
 
Available-for Sale
 
   
Amortized
 
Fair
 
Amortized
 
Fair
 
   
Cost
 
Value
 
Cost
 
Value
 
   
(In Thousands)
 
 June 30, 2010
                 
  Within one year (1)
 
$
340
 
$
340
 
$
19,866
 
$
20,140
 
  After one year but within five years
   
   
   
23,708
   
24,204
   
  After five years but within ten years
   
   
   
120
   
125
 
  After ten years
   
217
   
202
   
   
 
   
$
557
 
$
542
 
$
43,694
 
$
44,469
   
 December 31, 2009
                 
  Within one year (1)
 
$
340
 
$
340
 
$
10,864
 
$
11,068
 
  After one year but within five years
   
   
   
32,986
   
33,485
   
  After five years but within ten years
   
   
   
250
   
255
   
  After ten years
   
369
   
331
   
   
 
   
$
709
 
$
671
 
$
44,100
 
$
44,808
 
 
(1) Reverse mortgages do not have contractual maturities. We have included reverse mortgages in maturities within one year.

There were no sales of investment securities classified as available-for-sale during 2010 or 2009. As a result, there were no net gains/losses realized during 2010 or 2009.  Investment securities totaling $2.5 million and $18.0 million matured or were called by their issuers during the six months ended June 30, 2010 and 2009, respectively.

At June 30, 2010, we owned investment securities totaling $333,000 where the amortized cost basis exceeded fair value. Total unrealized losses on those securities were $17,000 at June 30, 2010. This temporary impairment is the result of changes in market interest rates subsequent to the purchase of the securities. Securities amounting to $110,000 have been impaired for 12 months or longer. We have determined that these securities are not other than temporarily impaired. The 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 new-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the 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 debt securities based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position.  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 (which may be at maturity).

The table below shows our investment securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2010.
 

   
Less than 12 months
 
12 months or longer
 
Total
 
   
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
   
Value
 
Loss
 
Value
 
Loss
 
Value
 
Loss
 
   
(In Thousands)
 
   Held-to-maturity
                                     
   State and political subdivisions
 
$
 
$
 
$
110
 
$
15
 
$
110
 
$
15
 
                                          
   Available-for-sale
                                     
   State and political subdivisions
   
223
   
2
   
   
   
223
   
2
 
   U.S Government and agencies
   
   
   
   
   
   
 
                                       
Total temporarily impaired investments
 
$
223
 
$
2
 
$
110
 
$
15
 
$
333
 
$
17
 

 
 
 
10

 
 
The table below shows 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 December 31, 2009.
 

   
Less than 12 months
 
12 months or longer
 
Total
 
   
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
   
Value
 
Loss
 
Value
 
Loss
 
Value
 
Loss
 
   
(In Thousands)
 
   Held-to-maturity
                                     
   State and political subdivisions
 
$
 
$
 
$
242
 
$
38
 
$
242
 
$
38
 
                                       
   Available-for-sale
                                     
   State and political subdivisions
   
   
   
   
   
   
   
   U.S Government and agencies
   
2,985
   
35
   
   
   
2,985
   
35
 
                                       
   Total temporarily impaired investments
 
$
2,985
 
$
35
 
$
242
 
$
38
 
$
3,227
 
$
73
 

4. MORTGAGE-BACKED SECURITIES

The following tables detail the amortized cost and the estimated fair value of our mortgage-backed securities:

       
Gross
 
Gross
     
   
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
   
Cost
 
Gains
 
Losses
 
Value
 
   
(In Thousands)
 
   Available-for-sale securities:
                         
                           
   June 30, 2010:
                         
Collateralized mortgage obligations (1)
 
$
600,027
 
$
11,622
 
$
(2,753
)
$
608,896
 
FNMA
   
45,485
   
2,021
   
   
47,506
 
FHLMC
   
39,496
   
1,632
   
   
41,128
 
GNMA
   
44,280
   
1,660
   
   
45,940
 
   
$
729,288
 
$
16,935
 
$
(2,753
)
$
743,470
 
Weighted average yield
   
5.05%
                   
                           

   December 31, 2009:
                         
Collateralized mortgage obligations (1)
 
$
519,527
 
$
5,368
 
$
(10,383
)
$
514,512
 
FNMA
   
61,603
   
813
   
(454
)
 
61,962
 
FHLMC
   
44,536
   
561
   
(83
)
 
45,014
 
GNMA
   
46,629
   
1,129
   
(187
)
 
47,571
 
   
$
672,295
 
$
7,871
 
$
(11,107
)
$
669,059
 
Weighted average yield
   
5.00%
                   
                           
   Trading securities:
                         
                           
   June 30, 2010:
                         
Collateralized mortgage obligations
 
$
12,121
 
$
 
$
 
$
12,121
 
   
$
12,121
 
$
 
$
 
$
12,121
 
Weighted average yield
   
3.35%
                   
                           
   December 31, 2009:
                         
Collateralized mortgage obligations
 
$
12,183
 
$
 
$
 
$
12,183
 
   
$
12,183
 
$
 
$
 
$
12,183
 
Weighted average yield
   
3.74%
                   

(1)  Includes Agency CMO’s classified as available-for-sale.

 
 
11

 
 
The portfolio of available-for-sale mortgage-backed securities (“MBS”) is comprised of 190 securities with a book value of $729.3 million including both Agency ($271.5 million) and non-Agency securities ($457.8 million).  All securities were AAA-rated at the time of purchase; $76.8 million are now rated below AAA.  Downgraded securities were evaluated at June 30, 2010.  The result of this evaluation showed no other-than-temporary impairment as of June 30, 2010.  An evaluation of downgraded securities at December 31, 2009 showed one security ($2.6 million) had an other-than-temporary impairment which resulted in an earnings charge of $86,000 or 9 basis points of downgraded securities and only 1 basis point of the total mortgage-backed securities portfolio.  The $86,000 of other-than-temporary impairment loss recognized during the fourth quarter of 2009 represents our only other-than-temporary impairment charge since the start of this credit cycle in 2008.  The weighted average duration of the mortgage-backed securities was 2.4 years at June 30, 2010.

Accrued interest receivable relating to mortgage-backed securities was $3.0 million at June 30, 2010 and $2.8 million at December 31, 2009.  At June 30, 2010, mortgage-backed securities with fair values aggregating $355.2 million were pledged as collateral for retail customer repurchase agreements and municipal deposits. From time to time, mortgage-backed securities are also pledged as collateral for Federal Home Loan Bank (“FHLB”) borrowings and other obligations.  The fair value of these FHLB-pledged mortgage-backed securities at June 30, 2010 was $106.8 million.

During the first six months of 2010, as part our portfolio management, there were proceeds from the sales of mortgage-backed securities available-for-sale of $46.0 million with net securities gains of $330,000.  These sales were primarily in late part of the second quarter to take advantage of significant improved pricing in the market.  The cost basis of all mortgage-backed securities sales is based on the specific identification method.  During the first six months of 2009, proceeds from the sale of mortgage-backed securities available-for-sale were $38.6 million, resulting in a net gain of $694,000.  In addition, and also part of our portfolio management we purchased $192.7 million of mortgage-backed securities primarily during the first quarter of 2010.

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 June 30, 2010, we owned mortgage-backed securities totaling $104.6 million where the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $2.8 million at June 30, 2010. This temporary impairment is the result of changes in market interest rates, a lack of liquidity in the mortgage-backed securities market and the reduction in credit ratings of 24 out of 109 bonds in the non-agency mortgage-backed security portfolio.  Most of these securities have been impaired for twelve months or longer. We have determined that these securities are not other-than-temporarily impaired. Quarterly, we evaluate the current characteristics of each of our mortgage-backed securities such as delinquency and foreclosure levels, credit enhancement, projected losses and coverage.  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.

The table below shows our mortgage-backed securities’ gross unrealized losses and fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2010.
 

 
   
Less than 12 months
 
12 months or longer
 
Total
 
   
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
   
Value
 
Loss
 
Value
 
Loss
 
Value
 
Loss
 
   
(In Thousands)
 
   Available-for-sale
                                        
    CMO
 
$
44,225
 
$
124
 
$
60,419
 
$
2,629
 
$
104,644
 
$
2,753
 
    FNMA
   
   
   
   
   
   
 
    FHLMC
   
   
   
   
   
   
 
    GNMA
   
   
   
   
   
   
 
                                       
    Total temporarily impaired MBS
 
$
44,225
 
$
124
 
$
60,419
 
$
2,629
 
$
104,644
 
$
2,753
 

 

 

 
12

 

The table below shows our mortgage-backed 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 December 31, 2009.
 
   
Less than 12 months
 
12 months or longer
 
Total
 
   
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
   
Value
 
Loss
 
Value
 
Loss
 
Value
 
Loss
 
   
(In Thousands)
 
   Available-for-sale
                                     
    CMO
 
$
115,088
 
$
2,701
 
$
108,839
 
$
7,682
 
$
223,927
 
$
10,383
 
    FNMA
   
29,360
   
454
   
   
   
29,360
   
454
 
    FHLMC
   
25,434
   
83
   
   
   
25,434
   
83
 
    GNMA
   
19,953
   
187
   
   
   
19,953
   
187
 
                                       
    Total temporarily impaired MBS
 
$
189,835
 
$
3,425
 
$
108,839
 
$
7,682
 
$
298,674
 
$
11,107
 


We own $12.4 million par value of SASCO RM-1 2002 reverse mortgage MBS which are classified as trading, of which $1.4 million is accrued interest paid in kind.  We expect to recover all principal and interest due to seasoning and excess collateral.  Based on FASB ASC 320, Investments – Debt and Equity Securities (“ASC 320”) (Formerly SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities) when these securities were acquired they were classified as trading. It was our intent to sell them in the near term. We have used the guidance under ASC 320 to provide a reasonable estimate of fair value at June 30, 2010 and December 31, 2009.  We estimated the fair value of these securities as of June 30, 2010 based on the pricing of BBB+ securities that have an active market through a technique which estimates the fair value of this asset using the income approach.

5.   IMPAIRED LOANS

Loans for which it is probable we will not collect all principal and interest due according to contractual terms are measured for impairment in accordance with the provisions of FASB ASC 310, Receivables (Formerly SFAS No. 114, Accounting for Creditors for Impairment of a Loan).  The amount of impairment is required to be measured using one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of collateral if the loan is collateral dependent.  If the measure of the impaired loan is less than the recorded investment in the loan, a specific allowance is allocated for the impairment.

We had impaired loans (for which ASC 310 applied) of approximately $76.4 million at June 30, 2010 compared to $73.2 million at December 31, 2009. The average recorded balance of aggregate impaired loans was $73.7 million for the six months ended June 30, 2010 and $62.2 million for the year-ended December 31, 2009. The specific allowance for losses on these impaired loans was $15.0 million at June 30, 2010 compared to $11.8 million at December 31, 2009.   The specific reserve at June 30, 2010 was associated with $46.8 million of total impaired loans.  The remaining $29.6 million of impaired loans had no related specific reserve as collateral is more than sufficient to cover our loan balance or because of previous charge-offs.

When there is little prospect of collecting principal or interest, loans, or portions of loans, may be charged-off to the allowance for loan losses.  Losses are recognized in the period an obligation becomes uncollectible.













 
13

 

6. COMPREHENSIVE INCOME (LOSS)

The following schedule reconciles net income (loss) to total comprehensive income:

 
For the three months
 
For the six months
 
 
Ended June 30,
 
Ended June 30,
 
 
2010
 
2009
 
2010
 
2009
 
 
(In Thousands)
 
                         
  Net income (loss)
$
3,301
 
$
 (2,316
)
$
3,815
 
$
624
 
                         
  Other Comprehensive Income (Loss):
                       
Unrealized holding gains on securities
                       
available-for-sale arising during the period
 
9,211
   
158
   
17,484
   
6,727
 
Tax expense
 
(3,500
)
 
(60
)
 
(6,644
)
 
(2,556
)
  Net of tax amount
 
5,711
   
98
   
10,840
   
4,171
 
                         
  Reclassification adjustment for gains included in net income
 
(330
)
 
(141
)
 
(330
)
 
(688
)
  Tax expense
 
125
   
54
   
125
   
261
 
  Net of tax amount
 
(205
)
 
(87
)
 
(205
)
 
(427
)
  Total comprehensive income (loss)
$
8,807
 
$
 (2,305
)
$
14,450
 
$
4,368
 

7. 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 have assessed valuation allowances on the deferred income taxes due to, among other things, limitations imposed by Internal Revenue Code and uncertainties, including the timing of settlement and realization of these differences.  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. 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 Consolidated 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.

The total amount of unrecognized tax benefits as of June 30, 2010 and December 31, 2009 were $1.0 million and $1.9 million, respectively, of which $500,000 would have affected our June 30, 2010 effective tax rate if recognized. As of June 30, 2010 and December 31, 2009, the total amount of accrued interest included in such unrecognized tax benefits was $43,000 and $372,000, respectively. No penalties are included in such unrecognized tax benefits. We record interest and penalties on potential income tax deficiencies as income tax expense. The decrease in the unrecognized tax benefits was primarily due to the expiration of a statute of limitations.

While our Federal and State tax years 2006 through 2009 remain subject to examination as of June 30, 2010, the Internal Revenue Service (“IRS”) completed its examination of our 2004 through 2006 Federal tax returns during the quarter ended June 30, 2008. During 2008 we successfully completed the IRS appeal process and during the quarter ended March 31, 2009 we recovered $863,000 of taxes plus $275,000 of interest that were previously assessed during the audit phase.

During 2007, we donated a N.C. Wyeth mural which was previously displayed in our former headquarters. The estimated fair value of the mural was $6.0 million, which was recorded as a charitable contribution expense. We recognized a related offsetting gain on the transfer of the asset during 2007. The expense and offsetting gain was shown net in our Consolidated Financial Statements during 2007. As the gain on the transfer of the asset is

 
14

 

permanently excludible from taxation, the charitable contribution transaction results in a permanent deduction for income tax purposes. The amount of the deduction represents an income tax uncertainty because it is subject to evaluation by the IRS. The IRS is still in the process of evaluating this tax deduction.
 
8.  SEGMENT INFORMATION
 
Under the definition of 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.  There is one segment for WSFS Bank (including WSFS Investment Group, Inc.), Cash Connect, (the ATM division of WSFS), and Trust and Wealth Management (including Montchanin).  During 2009 we reported the results of 1st Reverse (the national reverse mortgage subsidiary of WSFS) as a separate segment, consistent with the guidance promulgated in ASC 280.  However, we completed a wind-down of 1st Reverse’s operation during the latter part of 2009 and have no results to report as an operating segment in 2010.  The three and six months ended June 30, 2009, includes a $1.6 million pre-tax charge related to 1st Reverse, which includes the write-off of all related goodwill and intangibles, uncollectable receivables and our remaining investment in this subsidiary.
 
The WSFS Bank segment provides financial products to commercial and retail customers through its 40 banking offices located in Delaware (35), Pennsylvania (4) and Virginia (1).  Retail and Commercial Banking, Commercial Real Estate Lending, Private Banking and other banking business units including WSFS Investment Group, Inc. 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 of the Company 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 Wealth Management column is comprised of the WSFS Trust & Wealth Management division and Montchanin.  The WSFS Trust and Wealth Management division was established in response to our commercial customers’ demand for the same high level service in their investment relationships that they enjoy as banking customers of WSFS Bank.  Montchanin provides asset management products and services to customers in the Bank’s primary market area through its one consolidated, wholly owned subsidiary, Cypress Capital Management, LLC (“Cypress”). Cypress is a Wilmington-based Registered Investment Advisory firm serving high net-worth individuals and institutions.

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 segments and assessment of the performance of the segments, 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. Segment information for the three and six months ended June 30, 2010 and 2009 follows:

 
15

 

For the Three Months Ended June 30, 2010
 

 

   
WSFS
 
Cash Connect
 
Trust & Wealth Management
 
Total
     
   
(In Thousands)
     
   External customer revenues:
                             
Interest income
 
$
41,454
 
$
 
$
 
$
41,454
     
Noninterest income
   
8,425
   
3,321
   
690
   
12,436
     
   Total external customer revenues
   
49,879
   
3,321
   
690
   
53,890
     
                               
   Inter-segment revenues:
                             
Interest income
   
225
   
   
   
225
     
Noninterest income
   
699
   
203
   
   
902
     
   Total inter-segment revenues
   
924
   
203
   
   
1,127
     
                               
   Total revenue
   
50,803
   
3,524
   
690
   
55,017
     
                               
   External expenses:
                             
Interest expense
   
10,756
   
   
   
10,756
     
Noninterest expenses
   
25,449
   
1,407
   
883
   
27,739
     
Provision for loan loss
   
10,594
   
   
   
10,594
        
   Total external expenses
   
46,799
   
1,407
   
883
   
49,089
     
                               
   Inter-segment expenses
                             
Interest expense
   
   
225
   
   
225
     
Noninterest expenses
   
203
   
367
   
332
   
902
     
   Total inter-segment expenses
   
203
   
592
   
332
   
1,127
     
                               
   Total expenses
   
47,002
   
1,999
   
1,215
   
50,216
     
                               
   Income (loss) before taxes
 
$
3,801
 
$
1,525
 
$
(525)
 
$
4,801
     
                               
   Income tax provision
                     
1,500
     
   Consolidated net income
                   
$
3,301
     
                               
   Cash and cash equivalents
 
$
57,073
 
$
263,989
 
$
1,065
 
$
322,127
        
   Other segment assets
   
3,454,067
   
14,871
   
801
   
3,469,739
     
                               
   Total segment assets
 
$
3,511,140
 
$
278,860
 
$
1,866
 
$
3,791,866
     
                               
   Capital expenditures
 
$
1,427
 
$
4
 
$
 
$
1,431
     

 
16

 

For the Three Months Ended June 30, 2009
 


       
WSFS
 
Cash Connect
 
1st Reverse
 
Trust & Wealth Management
 
Total
   
       
(In Thousands)
 
   External customer revenues:
                                 
Interest income
     
$
39,839
 
$
 
$
 $
 
$
39,839
 
Noninterest income
       
8,570
   
2,855
   
654
 
588
   
12,667
 
   Total external customer revenues
       
48,409
   
2,855
   
654
 
588
   
52,506
 
                                   
   Inter-segment revenues:
                                 
Interest income
       
162
   
   
 
   
162
 
Noninterest income
       
1,071
   
98
   
 
   
1,169
 
   Total inter-segment revenues
       
1,233
   
98