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EX-32 - EXHIBIT 32 - WSFS FINANCIAL CORPex32.htm
EX-31.1 - EXHIBIT 31.1 - WSFS FINANCIAL CORPex31-1.htm
EX-31.2 - EXHIBIT 31.2 - WSFS FINANCIAL CORPex31-2.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
September 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 November 2, 2010:
 
Common Stock, par value $.01 per share
 
8,496,836
(Title of Class)
 
(Shares Outstanding)



 
 

 

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 Nine Months
   
   
Ended September 30, 2010 and 2009
 
3
         
   
Consolidated Statement of Condition as of  September 30, 2010 and December 31, 2009
 
4
         
   
Consolidated Statement of Cash Flows for the Nine  Months Ended
   
   
September 30, 2010 and 2009
 
5
         
   
Notes to the Consolidated Financial Statements for the Nine
   
   
Months Ended September 30, 2010 and  2009
 
7
         
Item 2.
 
Management’s Discussion and Analysis of Financial Condition
 
30
   
and Results of Operations
   
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
44
         
Item 4.
 
Controls and Procedures
 
44
         
         
   
PART II. Other Information
   
         
Item 1.
 
Legal Proceedings
 
44
         
Item 1A.
 
Risk Factors
 
45
         
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
45
         
Item 3.
 
Defaults upon Senior Securities
 
45
         
Item 4.
 
[Reserved]
 
45
         
Item 5.
 
Other Information
 
45
         
Item 6.
 
Exhibits
 
45
         
Signatures
     
46
         
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 September 30,
   
Nine Months Ended September 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
 
 
 
   
 
   
 
   
 
 
 
 
(Unaudited)
 
 
 
(In Thousands, Except Per Share Data)
 
Interest income:
 
 
   
 
   
 
   
 
 
Interest and fees on loans
  $ 31,664     $ 32,283     $ 94,497     $ 96,013  
Interest on mortgage-backed securities
    8,699       6,435       27,370       20,719  
Interest and dividends on investment securities
    216       412       718       1,044  
Other Interest Income
    -       -       6       -  
 
    40,579       39,130       122,591       117,776  
Interest expense:
                               
Interest on deposits
    5,590       7,578       17,655       23,430  
Interest on Federal Home Loan Bank advances
    3,818       4,221       11,812       14,366  
Interest on trust preferred borrowings
    370       389       1,047       1,449  
Interest on other borrowings
    624       649       1,859       1,967  
 
    10,402       12,837       32,373       41,212  
Net interest income
    30,177       26,293       90,218       76,564  
Provision for loan losses
    9,976       15,483       31,980       35,133  
Net interest income after provision for loan losses
    20,201       10,810       58,238       41,431  
 
                               
Noninterest income:
                               
Credit/debit card and ATM income
    4,984       4,373       14,171       12,124  
Deposit service charges
    4,153       4,401       12,381       12,494  
Securities gains, net
    1,756       1,875       2,024       3,185  
Mortgage banking activities, net
    646       822       1,145       1,430  
Loan fee income
    626       1,349       2,015       3,953  
Investment advisory income
    600       525       1,816       1,572  
Bank owned life insurance income
    181       238       596       677  
Other income
    1,479       955       3,854       2,871  
 
    14,425       14,538       38,002       38,306  
Noninterest expenses:
                               
Salaries, benefits and other compensation
    12,237       12,131       36,334       36,513  
Occupancy expense
    2,402       2,452       7,235       7,243  
FDIC expenses
    1,829       1,517       5,234       5,885  
Professional Fees
    1,736       815       4,194       3,807  
Equipment expense
    1,648       1,829       4,762       5,133  
Data processing and operations expenses
    1,096       1,169       3,541       3,447  
Loan workout and OREO expenses
    908       1,069       4,877       3,430  
Marketing Expense
    719       852       2,328       2,410  
Non-recurring ATM recovery
    (4,491 )     -       -       -  
Other operating expense
    4,008       3,735       10,959       13,030  
 
    22,092       25,569       79,464       80,898  
 
                               
Income (loss) income before taxes
    12,534       (221 )     16,776       (1,161 )
Income tax provision (benefit)
    4,312       (222 )     4,739       (1,786 )
Net income
    8,222       1       12,037       625  
Dividends on preferred stock and accretion of discount
    692       634       2,076       1,898  
Net income (loss) allocable to common stockholders
  $ 7,530     $ (633 )   $ 9,961     $ (1,273 )
 
                               
Earnings (loss) per share:
                               
Basic
  $ 0.95     $ (0.10 )   $ 1.35     $ (0.20 )
Diluted
  $ 0.94     $ (0.10 )   $ 1.33     $ (0.20 )
 
                               
The accompanying notes are an integral part of these consolidated Financial Statements.
 

 
3

 

WSFS FINANCIAL CORPORATION
 
CONSOLIDATED STATEMENT OF CONDITION
 
 
 
 
   
 
 
 
 
September 30,
   
December 31,
 
 
 
2010
   
2009
 
 
 
(Unaudited)
 
 
 
(In Thousands, Except Per Share Data)
 
Assets:
 
 
   
 
 
Cash and due from banks
  $ 63,554     $ 55,756  
Cash in non-owned ATMs
    271,178       264,903  
Federal funds sold
    -       -  
Interest-bearing deposits in other banks
    63       1,090  
Total cash and cash equivalents
    334,795       321,749  
Investment securities held-to-maturity
    558       709  
Investment securities-available-for-sale including reverse mortgages
    48,364       44,808  
Mortgage-backed securities - available-for-sale
    719,212       669,059  
Mortgages-backed securities-trading
    12,432       12,183  
Loans held-for-sale
    12,861       8,366  
Loans, net of allowance for loan losses of $64,478 at September 30, 2010
    2,459,680       2,470,789  
and $53,446 at December 31, 2009
Bank owned life insurance
    60,850       60,254  
Stock in Federal Home Loan Bank of Pittsburgh, at cost
    39,305       39,305  
Assets acquired through foreclosure
    5,145       8,945  
Premises and equipment
    29,486       36,108  
Goodwill
    10,870       10,870  
Intangible assets
    2,361       2,781  
Accrued interest receivable and other assets
    62,951       62,581  
 
               
Total assets
  $ 3,798,870     $ 3,748,507  
 
               
Liabilities and Stockholders’ Equity
               
 
               
Liabilities:
               
Deposits:
               
Noninterest-bearing demand
  $ 442,017     $ 431,476  
Interest-bearing demand
    283,701       265,719  
Money market
    663,201       550,639  
Savings
    243,320       224,921  
Time
    481,055       470,139  
Jumbo certificates of deposit – customer
    208,622       203,126  
Total customer deposits
    2,321,916       2,146,020  
Other jumbo certificates of deposit
    95,527       69,208  
Brokered deposits
    251,326       346,643  
Total deposits
    2,668,769       2,561,871  
 
               
Federal funds purchased and securities sold under agreements to repurchase
    100,000       100,000  
Federal Home Loan Bank advances
    445,201       613,144  
Trust preferred borrowings
    67,011       67,011  
Other borrowed funds
    107,867       74,654  
Accrued interest payable and other liabilities
    40,318       30,027  
Total liabilities
    3,429,166       3,446,707  
 
               
Stockholders’ Equity:
               
Serial preferred stock $.01 par value, 7,500,000 shares authorized; issued 52,625 at
    1       1  
September 30,2010 and June 30,2009
Common stock $.01 par value, 20,000,000 shares authorized; issued
    180       166  
18,077,074 at September 30,2010 and 16,660,588 at June 30,2009
Capital in excess of par value
    215,425       166,627  
Accumulated other comprehensive income (loss)
    9,665       (2,022 )
Retained earnings
    392,713       385,308  
Treasury stock at cost, 9,580,569 shares at September 30,2010 and June 30,2009
    (248,280 )     (248,280 )
Total stockholders’ equity
    369,704       301,800  
Total liabilities and stockholders’ equity
  $ 3,798,870     $ 3,748,507  
 
               
The accompanying notes are an integral part of these consolidated Financial Statements.
 

 
4

 

WSFS FINANCIAL CORPORATION
 
CONSOLIDATED STATEMENT OF CASH FLOWS
 
 
 
 
   
 
 
 
 
Nine months ended
 
 
September 30,
 
 
 
2010
   
2009
 
 
 
(Unaudited)
 
 
 
(In Thousands)
 
Operating activities:
 
 
   
 
 
Net Income
  $ 12,037     $ 625  
Adjustments to reconcile net income to net cash provided by operating activities:
               
  Provision for loan losses
    31,980       35,133  
  Depreciation, accretion and amortization
    4,725       5,191  
  Increase in accrued interest receivable and other assets
    (7,265 )     (11,315 )
  Origination of loans held-for-sale
    (102,598 )     (88,963 )
  Proceeds from sales of loans held-for-sale
    99,102       79,815  
  Gain on mortgage banking activity
    (1,145 )     (1,430 )
  Gain on mark to market adjustment on trading securities
    (249 )     (1,243 )
  Securities gain from the sale of MasterCard, Inc. and Visa, Inc. common stock
    -       (119 )
  Net gain on sale of investments
    (1,775 )     (1,823 )
  Stock-based compensation expense, net of tax benefit recognized
    448       683  
  Excess tax benefits from share-based payment arrangements
    (323 )     -  
  Increase in accrued interest payable and other liabilities
    16,834       15,753  
  Loss on wind-down of 1st Reverse Financial Services, LLC
    -       1,589  
  Loss on sale of assets acquired through foreclosure and valuation adjustments
    3,577       2,391  
  Increase in value of bank-owned life insurance
    (596 )     (678 )
  Decrease in capitalized interest, net
    144       24  
Net cash provided by operating activities
    54,896       35,633  
 
               
Investing activities:
               
 Maturities and calls of investment securities
    3,540       18,300  
 Purchase of investments available-for-sale
    (7,081 )     (16,049 )
 Sales of mortgage-backed securities available-for-sale
    92,493       101,032  
 Repayments of mortgage-backed securities available-for-sale
    142,612       114,330  
 Purchases of mortgage-backed securities available-for-sale
    (264,464 )     (222,456 )
 Repayments of reverse mortgages
    -       207  
 Disbursements for reverse mortgages
    (145 )     (153 )
 Net increase in loans
    (27,143 )     (100,150 )
 Sales of assets acquired through foreclosure, net
    6,324       2,102  
 Proceeds from the sale of MasterCard, Inc. and Visa, Inc. common stock
    -       119  
 Investment in premises and equipment, net
    (3,621 )     (4,979 )
Net cash used for investing activities
    (57,485 )     (107,697 )
 
               
Financing activities:
               
 Net increase in demand and saving deposits
    192,696       274,379  
 Net increase (decrease) in time deposits
    42,731       (3,100 )
 Net (decrease) increase in brokered deposits
    (95,901 )     22,258  
 Receipts from federal funds purchased and securities sold under agreement to
    13,795,000       14,197,995  
  repurchase
 Repayments of federal funds purchased and securities sold under agreement to
    (13,795,000 )     (14,172,995 )
  repurchase
 Receipts from FHLB advances
    19,767,639       23,862,548  
 Repayments of FHLB advances
    (19,935,582 )     (24,172,940 )
 Proceeds from issuance of unsecured bank debt
    -       30,000  
 Dividends paid
    (4,527 )     (3,703 )
 Proceeds from issuance of preferred stock
    -       52,625  
 Issuance of common stock and exercise of common stock options
    48,256       26,016  
 Excess tax benefits from share-based payment arrangements
    323       -  
Net cash provided by financing activities
    15,635       113,083  
 
               
 Increase cash and cash equivalents
    13,046       41,019  
 Cash and cash equivalents at beginning of period
    321,749       248,558  
 Cash and cash equivalents at end of period
  $ 334,795     $ 289,577  
 
               
 
 
 
5

 
 
Supplemental Disclosure of Cash Flow Information:
               
 Cash paid for interest during the period
  $ 47,148     $ 36,375  
 Cash paid for income taxes, net
    7,485       973   
 Loans transferred to assets acquired through foreclosure
    6,101       9,049  
 Net change in other comprehensive income
    11,687       10,505    
 Settlement of pending sale of premises and equipment
    6,515       -  
 
               
The accompanying notes are an integral part of these consolidated Financial Statements.
 

 
6

 

WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 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 three unconsolidated affiliates, WSFS Capital Trust III, WSFS Capital Trust IV, and WSFS Capital Trust V (“the Trusts”). 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 the WSFS Trust and Wealth Management Division.  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, for the remainder of 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 nine month periods ended September 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.  In our opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Consolidated Financial Statements for the interim periods presented have been included.  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.

Whenever necessary, reclassifications are made to the prior years’ Consolidated Financial Statements to conform them to the current year’s presentation. All significant intercompany transactions are eliminated in consolidation.

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 September 30, 2010, there were 461,240 shares available for future grants under the 2005 Plan.
 
 
 
7

 

 
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 our Company’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.

In 2007, our Executive Committee of the Board of Directors adopted an administrative policy related to the future award of stock options under the 2005 Plan whereby 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 September 30, 2010 and September 30, 2009, respectively, and changes during the three months then ended is presented below:
 
   
September 30, 2010
   
September 30, 2009
 
   
Shares
   
Weighted- Average
Exercise Price
   
Shares
   
Weighted- Average
Exercise Price
 
Stock Options:
                       
Outstanding at beginning of period
    717,086     $ 43.88       756,888     $ 42.52  
Granted
    --       --       --       --  
Exercised
    (7,475 )     13.53       (13,660     16.81  
Forfeited or canceled
    (48,463     46.37       (6,960     59.59  
Outstanding at end of period
    661,148       44.04       736,268       42.84  
                                 
Exercisable at end of period
    485,452     $ 45.03       459,004     $ 40.47  
                                 
Weighted-average fair value
  of stock options granted
  $ --             $ --          
 
    On July 1, 2010, 490,997 stock options were exercisable with an intrinsic value of $2.7 million.  In addition, at July 1, 2010, there were 178,931 nonvested options with a grant date fair value of $9.28 per option.  During the third quarter of 2010, 2,280 options vested with no intrinsic value, and a grant date fair value of $13.17 per option.  Also during the quarter, 7,475 options were exercised with an intrinsic value of $172,000.  There were 485,452 exercisable options remaining at September 30, 2010, with an intrinsic value of $2.5 million and a remaining contractual term of 2.0 years.  At September 30, 2010, there were 661,148 stock options outstanding with an intrinsic value of $3.5 million and a remaining contractual term of 2.2 years.  During the third quarter of 2009, 13,660 options were exercised with an intrinsic value of $197,000 and 3,155 options vested with a grant date fair value of $12.96 per option.
 
 
8

 

    A summary of the status of our Stock Incentive Plans at September 30, 2010 and September 30, 2009 and changes during the nine months then ended is presented below:
 
 
 
September 30, 2010
   
September 30, 2009
 
 
 
 
   
Weighted-
   
 
   
Weighted-
 
 
 
 
   
Average
   
 
   
Average
 
 
 
 
   
Exercise
   
 
   
Exercise
 
 
 
Shares
   
Price
   
Shares
   
Price
 
Stock Options:
 
 
   
 
   
 
   
 
 
Outstanding at beginning of period
    733,468     $ 42.95       675,887     $ 44.98  
Granted
    26,289       30.56       83,921       23.33  
Exercised
    (44,026 )     13.64       (13,660 )     16.81  
Forfeited
    (54,583 )     47.33       (9,880 )     59.50  
Outstanding at end of period
    661,148       44.04       736,268       42.84  
 
                               
Exercisable at end of period
    485,452     $ 45.03       459,004     $ 40.47  
 
                               
Weighted-average fair value
                               
  of awards granted for the nine
                               
  months ended:
  $ 9.22             $ 5.42          
 
                               
 
Beginning January 1, 2010, 541,910 stock options were exercisable. During the nine months ended September 30, 2010, 25,310 options vested with a $270,000 intrinsic value, and a weighted-average grant date fair value of $7.38 per option. Also during the first nine months of 2010, 44,026 options were exercised with an intrinsic value of $1.1 million.  During the first nine months of 2009, 13,660 options were exercised with an intrinsic value of $197,000 and 7,631 options vested with a weighted-average grant date fair value of $13.34 per option.

The total amount of compensation cost related to non-vested stock options as of September 30, 2010 was $715,000. 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.

During the third quarter of 2010, there were no options granted.  During the first nine 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 third quarter of 2010, we issued 67 restricted stock units. During the first nine months of 2010, we issued 5,828 restricted stock units and awards.  These awards generally vest over a four to five year period.  In addition, for 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 will become 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 will become 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 become transferrable 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 shall 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 an accrual 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.
 
 
9

 
 
Beginning in 2009, 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”) in any year through 2011.  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.  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, we 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 nine months of 2010 or 2009.  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 September 30, 2010 was $131,000 pre-tax ($97,000 after tax) or $0.01 per share, to salaries, benefits and other compensation a lower amount than in comparable periods due to several Associates with unvested stock options leaving the Company.  This compares to $343,000 pre-tax ($263,000 after tax) or $0.04 per share for the three months ended September 30, 2009.  The impact of stock-based compensation for the nine months ended September 30,2010 was $773,000 pre-tax ($598,000 after tax) or $0.08 per share, to salaries, benefits and other compensation.  This compares to $1.1 million pre-tax ($896,000 after tax) or $0.14 per share for the nine months ended September 30, 2009.

2. EARNINGS PER SHARE

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

   
For the three months
   
For the nine months
 
   
ended September 30,
   
ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(Unaudited)
 
   
(In Thousands, Except per Share Data)
 
Numerator:
                       
Net income (loss) allocable to common stockholders
  $ 7,530     $ (633 )   $ 9,961     $ (1,273 )
                                 
Denominator:
                               
Denominator for basic earnings per share — weighted average shares
    7,907       6,266       7,369       6,210  
Effect of dilutive employee stock options and warrants
    124             125        
    Denominator for diluted earnings per share — adjusted weighted
                               
        average shares and assumed exercise
    8,031       6,266       7,494       6,210  
                                 
Earnings Per Share                                 
Basic:
                               
   Net income (loss) available to common shareholders
  $ 0.95     $ (0.10 )   $ 1.35     $ (0.20 )
Diluted:
                               
   Net income (loss) available to common shareholders
  $ 0.94     $ (0.10 )   $ 1.33     $ (0.20 )
Weighted Average Outstanding common stock equivalents having 
  no dilutive effect
    603       826       604       881  
 
 
10

 
For the three and nine months ended September 30, 2009, 68,618 and 64,798 of employee stock options were excluded from the computation of diluted net loss per common share because the effect would have been antidilutive due to the net loss reported in theses periods.

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:
 
 
   
 
   
 
   
 
 
September 30, 2010:
 
 
   
 
   
 
   
 
 
Reverse mortgages
  $ (529 )   $     $     $ (529 )
U.S. Government and government sponsored enterprises ("GSE")
    45,649       630             46,279  
State and political subdivisions
    2,550       65       (1 )     2,614  
 
  $ 47,670     $ 695     $ (1 )   $ 48,364  
December 31, 2009:
                               
Reverse mortgages
  $ (530 )   $     $     $ (530 )
U.S. Government and GSE
    40,695       652       (35 )     41,312  
State and political subdivisions
    3,935       91             4,026  
 
  $ 44,100     $ 743     $ (35 )   $ 44,808  
Held-to-maturity:
                               
September 30, 2010:
                               
State and political subdivisions
  $ 558     $     $ (15 )   $ 543  
 
                               
December 31, 2009:
                               
State and political subdivisions
  $ 709     $     $ (38 )   $ 671  

Securities with fair values aggregating $46.3 million at September 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, and certain letters of credit and municipal deposits which require collateral.


 
11

 

 
The scheduled maturities of investment securities held-to-maturity and securities available-for-sale at September 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)
 
September 30, 2010
 
 
 
 
 
 
 
 
Within one year (1)
  $ 340     $ 340     $ 19,226     $ 19,389  
After one year but within five years
                28,444       28,975  
After five years but within ten years
                       
After ten years
    218       203              
 
  $ 558     $ 543     $ 47,670     $ 48,364  
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 $720,000 and $18.3 million were called by their issuers during 2010 and 2009, respectively.

At September 30, 2010, we owned investment securities totaling $284,000 where the amortized cost basis exceeded fair value. Total unrealized losses on those securities were $16,000 at September 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 near-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.
 
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 September 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
    174       1                   174       1  
U.S Government and GSE
                                   
 
                                               
Total temporarily impaired investments
  $ 174     $ 1     $ 110     $ 15     $ 284     $ 16  

 
12

 
 
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 GSE
    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 the Company’s mortgage-backed securities:
 
 
 
   
Gross
   
Gross
   
 
 
 
 
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
 
 
Cost
   
Gains
   
Losses
   
Value
 
 
 
(In Thousands)
 
Available-for-sale securities:
 
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
 
September 30, 2010:
 
 
   
 
   
 
   
 
 
Collateralized mortgage obligations ("CMO") (1)
  $ 557,208     $ 12,139     $ (1,371 )   $ 567,976  
Federal National Mortgage Association ("FNMA")
    59,689       1,763       (48 )     61,404  
Federal Home Loan Mortgage Corporation ("FHLMC")
    41,430       1,258       (92 )     42,596  
Government National Mortgage Association ("GNMA")
    45,517       1,740       (21 )     47,236  
 
  $ 703,844     $ 16,900     $ (1,532 )   $ 719,212  
 
                               
December 31, 2009:
                               
  CMO (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  
 
                               
Trading securities:
                               
 
                               
September 30, 2010:
                               
  CMO
  $ 12,432     $     $     $ 12,432  
 
                               
December 31, 2009:
                               
  CMO
  $ 12,183     $     $     $ 12,183  
 
                               
(1) Includes GSE CMO’s classified as available-for-sale.
 
 
13

 
The portfolio of available-for-sale mortgage-backed securities is comprised of 187 securities with an amortized cost of $703.8 million of both GSE ($278.5 million) and non-GSE ($425.3 million) securities.  All securities were AAA-rated at the time of purchase; $60.6 million are now rated below AAA, of which $30.5 million (8 securities) are rated below investment grade.  Downgraded securities were evaluated at September 30, 2010.  The result of this evaluation showed no other-than-temporary impairment for the nine months ended September 30, 2010.  An evaluation of downgraded securities at December 31, 2009 showed one security had other-than-temporary impairment which resulted in an earnings charge of $86,000 or 9 basis points of downgraded securities and represented only 1 basis point of the total mortgage-backed securities portfolio.  The weighted average expected duration of the mortgage-backed securities was 2.5 years at September 30, 2010 compared to 2.4 years at December 31, 2009.
 
At September 30, 2010, mortgage-backed securities with fair values aggregating $410.5 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 September 30, 2010 was $79.6 million.
 
During the first nine months of 2010, there were sales of mortgage-backed securities available-for-sale of $92.5 million with net gains of $1.8 million, as a result of the Company’s portfolio management aimed at monetizing the gains in mortgage-backed securities where prepayments were expected to accelerate and decreasing the level of downgraded private label mortgage-backed securities.  The cost basis of all mortgage-backed securities sales is based on the specific identification method. During the first nine months of 2009, proceeds from the sale of mortgage-backed securities available-for-sale were $101.0 million, resulting in net gains of $1.8 million.
 
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, 2010, we owned mortgage-backed securities totaling $84.2 million where the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $1.5 million at September 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 21 securities out of 103 securities in the non-GSE mortgage-backed security portfolio.  Most of these securities have been impaired for less than twelve months. We have determined that the securities in an unrealized loss position at September 30, 2010 were not other-than-temporarily impaired during the nine months ended September 30, 2010.  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 September 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
  $ 27,194     $ 145     $ 28,062     $ 1,226     $ 55,256     $ 1,371  
  FNMA
    15,586       48                   15,586       48  
  FHLMC
    10,397       92                   10,397       92  
  GNMA
    2,925       21                   2,925       21  
 
                                               
    Total temporarily impaired 
     MBS
  $ 56,102     $ 306     $ 28,062     $ 1,226     $ 84,164     $ 1,532  


 
14

 
At December 31, 2009, we owned mortgage-backed securities totaling $298.7 million where the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $11.1 million at December 31, 2009. This temporary impairment was the result of changes in market interest rates, a lack of liquidity in the private-label mortgage-backed securities market and the reduction in credit ratings of 28 securities out of 175 private-label securities we owned. Most of these securities were impaired for less than twelve months. We determined that all except one of these securities were 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 did not have the intent to sell, nor was it more likely than not we would be required to sell these securities before we were 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 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  

At December 31, 2009, we owned one $2.6 million mortgage-backed security where the amortized cost exceeded fair value and we recognized other-than-temporary impairment. The total loss on this security was $187,000 at December 31, 2009. Of this loss, $86,000 was related to credit impairment and $101,000 was related to market interest rates and/or lack of liquidity in the market for mortgage-backed securities. As a result, we realized an earnings charge of $86,000 for other-than-temporary impairment in the fourth quarter of 2009.  There was no other-than-temporary impairment recognized in any prior years.

We own $12.4 million par value of SASCO RM-1 2002 securities 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 (“ASC320”) (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.  We estimated the value of these securities as of September 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.

 
15

 

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 $83.3 million at September 30, 2010 compared to $73.2 million at December 31, 2009. The specific allowance on these impaired loans was $16.7 million at September 30, 2010 compared to $11.8 million at December 31, 2009. The specific reserve at September 30, 2010 was associated with $46.8 million of total impaired loans compared to $50.6 million of total impaired loans at December 31, 2009. The remaining $36.5 million of impaired loans at September 30, 2010 and $22.6 million at December 31, 2009 had no related specific reserve as collateral is sufficient to cover our loan balance or because of previous charge-offs. The average recorded balance of aggregate impaired loans was $76.1 million for the nine months ended September 30, 2010 and $62.2 million for the year-ended December 31, 2009.

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 uncollectable.

6. COMPREHENSIVE INCOME

The following schedule reconciles net income to total comprehensive income:

 
 
For the three months ended
September 30,
   
For the nine months ended
September 30,
 
 
 
(In Thousands)
   
(In Thousands)
 
 
 
2010
   
2009
   
2010
   
2009
 
 
 
 
   
 
   
 
   
 
 
Net income
  $ 8,222     $ 1     $ 12,037     $ 625  
 
                               
Other comprehensive income:
                               
Other, net
    162       -       162       -  
Unrealized holding gains on securities
                               
available-for-sale arising during the period, net
    1,105       12,034       18,590       18,761  
Tax expense
    (420 )     (4,573 )     (7,064 )     (7,129 )
Net of tax amount
    685       7,461       11,526       11,632  
Reclassification adjustment for net gains
    (1,446 )     (1,129 )     (1,776 )     (1,817 )
included in net income
Tax expense
    549       429       675       690  
Net of tax amounts
    (897 )     (700 )     (1,101 )     (1,127 )
 
                               
Total comprehensive income
  $ 8,172     $ 6,762     $ 22,624     $ 11,130  

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 No. 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
 
 
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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 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 September 30, 2010 and December 31, 2009 were $1.0 million and $1.9 million, respectively, of which $500,000 would have affected our September 30, 2010 effective tax rate if recognized. The first quarter of 2010 and 2009 included tax benefits of $899,000 and $854,000, respectively, resulting from a decrease in the Company’s income tax reserve due to the expiration of the statute of limitations on certain tax items. This benefit will not be recognized in future years. As of September 30, 2010 and December 31, 2009, the total amount of accrued interest included in such unrecognized tax benefits was $47,000 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 2007 through 2009 remain subject to examination as of September 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 an 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 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, each, 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 nine months ended September 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.

 
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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 nine months ended September 30, 2010 and 2009 follows:

 
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    For the Three Months Ended September 30, 2010 (In Thousands)
 
 
 
WSFS
   
Cash Connect
   
Trust & Wealth Management
   
Total
 
 
 
 
   
 
   
 
   
 
 
External customer revenues:
 
 
   
 
   
 
   
 
 
Interest income
  $ 40,579     $ -     $ -     $ 40,579  
Noninterest income
   <