WSFS FINANCIAL CORP - FORM 10-Q

WSFS FINANCIAL CORP - FORM 10-Q - May 6, 2016

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WSFS FINANCIAL CORP Reports

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EX-31.1 - EX-31.1 - WSFS FINANCIAL CORP	d183855dex311.htm
EX-32 - EX-32 - WSFS FINANCIAL CORP	d183855dex32.htm
EX-31.2 - EX-31.2 - WSFS FINANCIAL CORP	d183855dex312.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 March 31, 2016

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35638

WSFS FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		22-2866913
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification Number)

WSFS Bank Center, 500 Delaware Avenue, Wilmington, Delaware		19801
(Address of principal executive offices)		(Zip Code)

(302) 792-6000

Registrant’s telephone number, including area code:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files), Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 29, 2016.


Common Stock, par value $.01 per share		29,536,577
(Title of Class)		(Shares Outstanding)

WSFS FINANCIAL CORPORATION

FORM 10-Q

INDEX


		Page
PART I. Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015		3

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015		4

	Consolidated Statements of Condition as of March 31, 2016 and December 31, 2015		5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015		6

	Notes to the Consolidated Financial Statements for the Three Months Ended March 31, 2016 and 2015		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		51

Item 4.	Controls and Procedures		51

PART II. Other Information			51

Item 1.	Legal Proceedings		51

Item 1A.	Risk Factors		51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		52

Item 3.	Defaults upon Senior Securities		52

Item 4.	Mine Safety Disclosure		52

Item 5.	Other Information		52

Item 6.	Exhibits		52

Signatures			53

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

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

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

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

WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended March 31,
	2016		2015
	(Unaudited)
	(In Thousands, Except Per Share Data)
Interest income:
Interest and fees on loans	$	43,517	$	36,244
Interest on mortgage-backed securities		3,894		3,433
Interest and dividends on investment securities:
Taxable		77		61
Tax-exempt		1,143		799
Interest on reverse mortgage loans		1,045		1,236
Other interest income		370		1,078

		50,046		42,851

Interest expense:
Interest on deposits		2,118		1,942
Interest on Federal Home Loan Bank advances		1,048		713
Interest on federal funds purchased and securities sold under agreements to repurchase		182		80
Interest on trust preferred borrowings		371		327
Interest on senior debt		942		942
Interest on other borrowings		29		30

		4,690		4,034

Net interest income		45,356		38,817
Provision for loan losses		780		786

Net interest income after provision for loan losses		44,576		38,031

Noninterest income:
Credit/debit card and ATM income		6,901		6,027
Deposit service charges		4,276		3,905
Wealth management income		5,254		5,093
Mortgage banking activities, net		1,654		1,703
Securities gains, net		305		451
Loan fee income		477		463
Bank owned life insurance income		231		203
Other income		3,972		3,250

		23,070		21,095

Noninterest expense:
Salaries, benefits and other compensation		22,876		21,010
Occupancy expense		4,270		3,878
Equipment expense		2,473		2,082
Data processing and operations expenses		1,542		1,422
Professional fees		2,403		1,472
FDIC expenses		838		669
Loan workout and OREO expenses		503		(1	)
Marketing expense		664		584
Corporate development expense		569		596
Other operating expense		7,061		7,201

		43,199		38,913

Income before taxes		24,447		20,213
Income tax provision		8,677		7,324

Net income	$	15,770	$	12,889

Earnings per share:
Basic	$	0.53	$	0.46
Diluted	$	0.52	$	0.45

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

WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended
	31-Mar
	2016			2015
	(Unaudited)
	(In Thousands)
Net Income	$	15,770		$	12,889

Other comprehensive income:
Net change in unrealized gains (losses) on investment securities available-for-sale
Net unrealized gains arising during the period, net of tax expense of $6,479 and $2,794, respectively		10,572			4,567

Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $116 and $171, respectively		(189	)		(280	)

		10,383			4,287
Net change in securities held-to-maturity
Amortization of unrealized gain on securities reclassified to held-to-maturity, net of tax (benefit) of $65 and $0, respectively		(103	)		(171	)

Net change in unfunded pension liability
Change in unfunded pension liability related to unrealized gain (loss), prior service cost and transition obligation, net of tax expense (benefit) of $306 and ($9), respectively		478			(15	)

Total other comprehensive income		10,758			4,101

Total comprehensive income	$	26,528		$	16,990

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

WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION


	March 31, 2016			December 31, 2015
(In Thousands, Except Per Share Data)	(Unaudited)
Assets:
Cash and due from banks	$	92,543		$	83,065
Cash in non-owned ATMs		497,322			477,924
Interest-bearing deposits in other banks		163			190

Total cash and cash equivalents		590,028			561,179
Investment securities, available-for-sale		774,712			721,029
Investment securities, held-to-maturity at cost		166,962			165,862
Loans held-for-sale at fair value		36,178			41,807
Loans, net of allowance for loan losses of 37,556 at March 31, 2016 and $37,089 at December 31, 2015		3,757,729			3,729,050
Reverse mortgage loans		24,739			24,284
Bank-owned life insurance		90,439			90,208
Stock in Federal Home Loan Bank of Pittsburgh, at cost		30,711			30,519
Assets acquired through foreclosure		3,979			5,080
Accrued interest receivable		13,992			14,040
Premises and equipment		38,992			39,569
Goodwill		84,854			85,212
Intangible assets		9,718			10,083
Other assets		61,961			66,715

Total assets	$	5,684,994		$	5,584,637

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand	$	964,487		$	958,238
Interest-bearing demand		786,780			784,619
Money market		1,107,421			1,090,050
Savings		449,061			439,918
Time		322,260			333,000
Jumbo certificates of deposit – customer		238,679			254,011

Total customer deposits		3,868,688			3,859,836
Brokered deposits		200,083			156,730

Total deposits		4,068,771			4,016,566
Federal funds purchased and securities sold under agreements to repurchase		127,525			128,200
Federal Home Loan Bank advances		707,826			669,514
Trust preferred borrowings		67,011			67,011
Senior debt		53,840			53,675
Other borrowed funds		15,062			14,486
Accrued interest payable		1,340			801
Other liabilities		46,039			53,913

Total liabilities		5,087,414			5,004,166

Stockholders’ Equity:
Common stock $0.01 par value, 65,000,000 shares authorized; issued 56,006,743 at March 31, 2016 and 55,945,245 at December 31, 2015		561			560
Capital in excess of par value		257,793			256,435
Accumulated other comprehensive income		11,454			696
Retained earnings		584,617			570,630
Treasury stock at cost, 26,484,272 shares at March 31, 2016 and 26,182,401 shares at December 31, 2015		(256,845	)		(247,850	)

Total stockholders’ equity		597,580			580,471

Total liabilities and stockholders’ equity	$	5,684,994		$	5,584,637

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

WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three months ended March 31,
	2016			2015
	(Unaudited)
	(In Thousands)
Operating activities:
Net Income	$	15,770		$	12,889
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		780			786
Depreciation of premises and equipment, net		1,903			1,519
Amortization of fees and discounts, net		3,895			3,068
Amortization of intangible assets		549			466
Decrease (increase) in accrued interest receivable		48			(222	)
(Increase) decrease in other assets		(3,534	)		(4,275	)
Origination of loans held-for-sale		(72,474	)		(83,411	)
Proceeds from sales of loans held-for-sale		77,834			66,225
Gain on mortgage banking activities, net		(1,654	)		(1,703	)
Gain on sale of securities, net		(305	)		(451	)
Stock-based compensation expense		758			1,364
Excess tax benefit from stock-based compensation		(419	)		(522	)
Increase in accrued interest payable		539			617
(Decrease) increase in other liabilities		(7,930	)		(3,834	)
Loss (gain) on sale of other real estate owned and valuation adjustments, net		76			75
Deferred income tax expense		3,293			2,389
Increase in value of bank-owned life insurance		(231	)		(203	)
Increase in capitalized interest, net, on reverse mortgage loans		(1,193	)		(1,236	)

Net cash provided by (used for) operating activities	$	17,705		$	(6,459	)

Investing activities:
Purchases of investment securities held-to-maturity		(3,329	)		—
Repayments of investment securities held-to-maturity		1,335			—
Maturities and calls of investment securities held-to-maturity		400			—
Sale of investment securities available-for-sale		38,932			35,553
Purchases of investment securities available-for-sale		(91,963	)		(94,300	)
Repayments of investment securities available-for-sale		15,463			19,399
Maturities of investment securities available for sale		—			1,761
Repayments on reverse mortgages		1,582			3,743
Disbursements for reverse mortgages		(844	)		(244	)
Net increase in loans		(30,748	)		(36,108	)
Net (increase) decrease in stock of FHLB		(192	)		(4,377	)
Sales of assets acquired through foreclosure, net		1,442			1,184
Investment in premises and equipment, net		(1,234	)		(817	)

Net cash used for investing activities	$	(69,156	)	$	(74,206	)

Financing activities:
Net increase in demand and saving deposits		35,907			(103,384	)
(Decrease) increase in time deposits		(26,072	)		(26,970	)
Increase in brokered deposits		43,353			6,668
(Decrease) increase in loan payable		(407	)		21
Receipts from FHLB advances		28,349,212			14,439,318
Repayments of FHLB advances		(28,310,900	)		(14,221,453	)
Receipts from federal funds purchased and securities sold under agreement to repurchase		8,710,770			6,981,250
Repayments of federal funds purchased and securities sold under agreement to repurchase		(8,711,445	)		(6,995,625	)
Dividends paid		(1,783	)		(1,405	)
Issuance of common stock and exercise of common stock options		241			498
Purchase of treasury stock		(8,995	)		(879	)
Excess tax benefit from stock-based compensation		419			522

Net cash provided by financing activities	$	80,300		$	78,561

Increase (decrease) in cash and cash equivalents		28,849			(2,104	)
Cash and cash equivalents at beginning of period		561,179			508,039

Cash and cash equivalents at end of period	$	590,028		$	505,935

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the period	$	4,151		$	3,417
Cash paid for income taxes, net		9,554			8,566
Loans transferred to other real estate owned		417			1,613
Loans transferred to portfolio from held-for-sale at fair value		1,510			211
Net change in accumulated other comprehensive income		10,758			4,101
Non-cash goodwill adjustments, net		(358	)		173

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

WSFS FINANCIAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE ENDED MARCH 31, 2016

(UNAUDITED)

1. BASIS OF PRESENTATION

General

Our unaudited Consolidated Financial Statements include the accounts of WSFS Financial Corporation (the Company, our Company, we, our or us), Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank) and Cypress Capital Management, LLC (Cypress). We also have one unconsolidated affiliate, WSFS Capital Trust III (the Trust). WSFS Bank has three wholly-owned subsidiaries, WSFS Wealth Investments, 1832 Holdings, Inc. and Monarch Entity Services LLC (Monarch).

The acronyms and abbreviations below are used in the unaudited Notes to Consolidated Financial Statements as well as in Management’s Discussion and Analysis of Financial Condition and Results of Operations. You may find it helpful to refer back to this page as you read this report.


AICPA: American Institute of Certified Public Accountants		FASB: Financial Accounting Standards Board

Allowance: Allowance for loan losses or ALLL		FDIC: Federal Deposit Insurance Corporation

Alliance: Alliance Bancorp Inc. of Pennsylvania		Federal Reserve: Board of Governors of the Federal Reserve System

Array: Array Financial Group		Monarch: Monarch Entity Services, LLC

Arrow: Arrow Land Transfer		FHLB: Federal Home Loan Bank

ASC: Accounting standard codification		FHLMC: Federal Home Loan Mortgage Corporation

Associate: Employee		GAAP: U.S. Generally Accepted Accounting Principles

ASU: Accounting standard update		GNMA: Government National Mortgage Association

BCBS: Basel Committee on Banking Supervision		GSE: U.S. Government and government sponsored enterprises

C&I: Commercial & Industrial (loans)		NSFR: Net stable funding ratio

CMO: Collateralized mortgage obligation		MBS: Mortgage-backed securities

Cypress: Cypress Capital Management, LLC		OCC: Office of the Comptroller of the Currency

Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010		OREO: Other real estate owned

DTA: Deferred tax asset		OTTI: Other-than-temporary impairment

Exchange Act: Securities Exchange Act of 1934

Overview

Founded in 1832, the Bank is the seventh oldest bank and trust company continuously operating under the same name in the United States. We provide residential and commercial real estate, commercial and consumer lending services, as well as retail deposit and cash management services. Lending activities are funded primarily with customer deposits and borrowings. In addition, we offer a variety of wealth management and trust services to personal and corporate customers through our Wealth Management segment. The FDIC insures our customers’ deposits to their legal maximums. We serve our customers primarily from our 63 offices located in Delaware (44), Pennsylvania (17), Virginia (1) and Nevada (1) and through our website at www.wsfsbank.com. Information on our website is not incorporated by reference into this quarterly report.

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

Our accounting and reporting policies conform to GAAP, prevailing practices within the banking industry for interim financial information and Rule 10-01 of SEC Regulation S-X (Rule 10-01). Rule 10-01 does not require us to include all information and notes that would be required in audited financial statements. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any future quarters or for the year ending December 31, 2016. These unaudited, interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in our 2015 Annual Report on Form 10-K that was filed with the SEC on February 29, 2016 and is available at www.sec.gov or on our website at http://investors.wsfsbank.com/financials.cfm.

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

The significant accounting policies used in preparation of our Consolidated Financial Statements are disclosed in our 2015 Annual Report on Form 10-K. There have not been any material changes in our significant accounting policies from those contained in our 2015 Annual Report on Form 10-K.

Common Stock Split

In March 2015, the Company’s Board of Directors adopted an amendment to the Company’s Certificate of Incorporation, to increase the number of shares of common stock the Company is authorized to issue from 20,000,000, par value $0.01 to 65,000,000, par value $0.01. This amendment to the Company’s Certificate of Incorporation was approved by the Company’s stockholders at the 2015 Annual Meeting held on April 30, 2015.

In May 2015, the Company effected a three-for-one stock split in the form of a stock dividend to shareholders of record as of May 4, 2015. All share and per share information has been retroactively adjusted to reflect the stock split. We retroactively adjusted stockholders’ equity to reflect the stock split by reclassifying an amount equal to the par value, $0.01, of the additional shares arising from the split from capital in excess of par value to common stock, resulting in no net impact to stockholders’ equity on our Consolidated Statements of Condition.

Stock-Based Compensation

Stock-based compensation is accounted for in accordance with FASB ASC 718, Stock Compensation. Compensation expense relating to all share-based payments is recognized on a straight-line basis, over the applicable vesting period. Our Stock Incentive Plans provide for the granting of stock options, stock appreciation rights, performance awards, restricted stock and restricted stock unit awards, deferred stock units, and other awards that are payable in or valued by reference to our common shares. The number of shares reserved for issuance under our 2013 Incentive Plan is 2,096,535. At March 31, 2016, there were 749,825 shares available for future grants under the 2013 Incentive Plan.

Stock-based compensation expense related to awards granted to Associates is recorded in salaries, benefits and other compensation; expense related to awards granted to directors is recorded in other operating expense. Total stock-based compensation expense recognized for the three months ended March 31, 2016 was $758,000 pre-tax ($430,000 after tax), or $0.01 per share. This compares to $842,000 pre-tax ($593,000 after tax), or $0.02 per share during the three months ended March 31, 2015.

Stock Options

Stock options are granted with an exercise price not less than the fair market value of our common stock on the date of the grant. All stock options are to be granted at not less than the market price of our common stock on the date of the grant. All stock options granted during 2016 and 2015 vest in 25% per annum increments, start to become exercisable one year from the grant date and expire seven years from the grant date. Generally, all awards become exercisable immediately in the event of a change in control, as defined within the Stock Incentive Plans. We issue new shares upon the exercise of options.

We determine the grant date fair value of stock options using the Black-Scholes option-pricing model. The model requires the use of numerous assumptions, many of which are subjective. For stock options granted during 2016 we utilized our historical share option exercise experience to estimate the expected term of options. For stock options granted in 2015 we used the simplified method provided for in Staff Accounting Bulletin (SAB) Topic 14.D.2 to estimate the expected term of options as we did not believe our historical share option exercise experience was sufficient to provide a reasonable basis upon which to estimate expected term at that time. Other significant assumptions to determine 2016 and 2015 grant date fair value included volatility measured using the fluctuation in month end closing stock prices over a period which corresponds with the average expected option life; a weighted-average risk-free rate of return (zero coupon treasury yield); and a dividend yield indicative of our current dividend rate

The assumptions for options issued during the three months ended 2016 and 2015 are presented below:


	2016	2015
Expected term (in years)	5.3	4.9
Volatility	29.6%	25.0%
Weighted-average risk-free interest rate	1.24%	1.54%
Dividend yield	0.80%	0.76%

The following table provides information about our stock options outstanding as of March 31, 2016:


	March 31, 2016
	Shares			Weighted- Average Exercise Price
Stock Options:
Outstanding at beginning of period		1,647,878		$	17.08
Granted		67,591			29.86
Exercised		(60,770	)		15.52
Forfeited		(2,622	)		14.75

Outstanding at end of period		1,652,077			17.67
Exercisable at end of period		901,777			16.53
Weighted-average fair value of awards granted	$	7.84

The following table provides information about our nonvested stock options outstanding at March 31, 2016:


	March 31, 2016
	Shares			Weighted- Average Exercise Price
Stock Options:
Unvested at beginning of period		1,028,142		$	17.58
Granted		67,591			29.86
Forfeited		(1,461	)		14.97
Vested		(343,972	)		16.83

Unvested at end of period		750,300		$	19.03

The total amount of unrecognized compensation cost related to nonvested stock options as of March 31, 2016 was $3.2 million. The weighted-average period over which the expense is expected to be recognized is 2.2 years.

Restricted Stock and Restricted Stock Units

Restricted stock awards (RSAs) and restricted stock units (RSUs) are granted at no cost to the recipient and generally vest over a four year period. RSA recipients are entitled to voting rights and generally entitled to dividends on the common stock during the vesting period. The fair value of RSAs and RSUs is equal to the fair value of the Company’s common stock on the date of grant. We recognize the expense related to RSAs and RSUs granted to Associates into salaries, benefits and other compensation expense and granted to directors into other operating 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, 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) provided for awards up to an aggregate of 233,400 RSUs to participants, only after the achievement of targeted levels of return on assets (ROA) in any year through 2013. During 2013, the company achieved the 1.00% ROA performance level. In accordance with the Long-Term Program, the Company issued 108,456 RSUs to the plan’s participants in 2014. The RSUs vest in 25% increments over four years and we recognize expense over the implicit service period associated with the performance condition. During the first quarter of 2016, we recognized $92,000 of compensation expense related to this program.

The following table summarizes the Company’s RSAs and RSUs, including performance awards, and changes during the three months ended March 31, 2016:


	March 31, 2016
				Weighted Average
	Units (in whole)			Grant-Date Fair Value per Unit
Outstanding at beginning of period		171,834		$	19.00
Granted		44,186			29.86
Vested		(71,932	)		16.45
Forfeited		(402	)		25.17

Outstanding at end of period		143,686		$	23.60

The total amount of compensation cost to be recognized relating to non-vested restricted stock, including performance awards, as of March 31, 2016, was $2.9 million. The weighted-average period over which the expense is expected to be recognized is 3.0 years.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Guidance Adopted in 2016

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The standard update resolves the diverse accounting treatment for these share-based payments by requiring that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. ASU 2014-12 will be effective for interim and annual reporting periods beginning after December 15, 2015. Early application is permitted. ASU 2014-12 may be adopted either prospectively for share-based payment awards granted or modified on or after the effective date, or retrospectively, using a modified retrospective approach. The modified retrospective approach applies to share-based payment awards outstanding as of the beginning of the earliest annual period presented in the financial statement at adoption, and to all new or modified awards thereafter. The adoption of this accounting guidance did not have a material effect on the Company’s Consolidated Statements of Operations or Consolidated Statements of Condition.

In April 2015, the FASB issued ASU No 2015-03, Interest- Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this amendment. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015 and is applied retrospectively. The Company adopted ASU 2015-03 in the first quarter of 2016, and applied its provisions retrospectively. The adoption of ASU 2015-03 resulted in the reclassification at March 31, 2016 and December 31, 2015, of $1.2 million and $1.3 million of unamortized debt issuance costs related to the Company’s senior debt from other assets to senior debt within its consolidated balance sheets. Other than this reclassification, the adoption of ASU 2015-03 did not have an impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU No 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. This guidance provides an additional requirement for a limited partnership or similar entity to qualify as a voting interest entity and also amends the criteria for consolidating such an entity. In addition, it amends the criteria for evaluating fees paid to a decision maker or service provider as a variable interest and amends the criteria for evaluating the effect of fee arrangements and related parties on a VIE primary beneficiary determination. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. ASU No. 2015-02 requires entities to use a retrospective or a modified retrospective approach (recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year). The adoption of this accounting guidance did not have a material effect on the Company’s Consolidated Statements of Operations or Consolidated Statements of Condition.

Accounting Guidance Pending Adoption at March 31, 2016

In May 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU No. 2014-9 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This amendment defers the effective date of ASU 2014-09 by one year to financial statements issued for fiscal years beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The standard permits the use of either the retrospective or retrospectively with the cumulative effect transition method. The Company does not expect the application of this guidance to have a material impact on the Company’s Consolidated Statements of Operations or Consolidated Statements of Condition.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. This amendment provides that equity investments will be measured at fair value with changes in fair value recognized in net income. When fair value is not readily determinable an entity may elect to measure the equity investment at cost, minus impairment, plus or minus any change in the investment’s observable price. For financial liabilities that are measured at fair value, the amendment requires an entity to present separately, in other comprehensive income, any change in fair value resulting from a change in instrument specific credit risk. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Entities may apply this guidance on a prospective or retrospective basis. The Company does not expect the application of this guidance to have a material impact on the Company’s Consolidated Statements of Operations or Consolidated Statements of Condition.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ASU 2016-02 is effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted using the modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company’s management is currently evaluating the impact of adopting ASU 2016-02 on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-06, Contingent Put and Call Options in Debt Instruments, Derivatives and Hedging (Topic 815). ASU 2016-06 clarifies that determining whether the economic characteristics of a put or call are clearly and closely related to its debt host requires only an assessment of the four-step decision sequence outlined in FASB ASC paragraph 815-15-25-24. Additionally, entities are not required to separately assess whether the contingency itself is clearly and closely related. The standard is effective for public business entities in interim and annual periods in fiscal years beginning after December 15, 2016. Early adoption is permitted in any interim period for which the entity’s financial statements have not been issued, but would be retroactively applied to the beginning of the year that includes the interim period. The standard requires a modified retrospective transition approach, with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. For instruments that are eligible for the fair value option, an entity has a one-time option to irrevocably elect to measure the debt instrument affected by the standard in its entirety at fair value with changes in fair value recognized in earnings. The Company does not expect the application of this guidance to have a material impact on the Company’s Consolidated Statements of Operations or Consolidated Statements of Condition.

In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, Investments - Equity Method and Joint Ventures (Topic 323). ASU 2016-07 eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The standard is effective for all entities in annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied prospectively to changes in ownership (or influence) after the adoption date. The Company does not expect the application of this guidance to have a material impact on the Company’s Consolidated Statements of Operations or Consolidated Statements of Condition.

In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net, Revenue from Contracts with Customers (Topic 606). ASU 2016-08 amends the principal versus agent guidance in ASU 2014-09, Revenue from Contracts with Customers, and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. The amendments in the standard affect the guidance in ASU 2014-09, which is effective for public business entities in annual and interim reporting periods in fiscal years beginning after December 15, 2017. Early application is permitted for all entities, but not before annual reporting periods beginning after December 15, 2016. The Company does not expect the application of this guidance to have a material impact on the Company’s Consolidated Statements of Operations or Consolidated Statements of Condition.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, Compensation – Stock Compensation (Topic 718). ASU 2016-09 changes several aspects of the accounting for share-based payment award transactions, including: (1) Accounting and Cash Flow Classification for Excess Tax Benefits and Deficiencies, (2) Forfeitures, and (3) Tax Withholding Requirements and Cash Flow Classification. The standard is effective for public business entities in annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption is permitted in any interim or annual period provided that the entire standard is adopted. If an entity early adopts the standard in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company’s management is currently evaluating the impact of adopting ASU 2016-09 on the Company’s consolidated financial statements.

2. BUSINESS COMBINATIONS

Penn Liberty Financial Corporation

On November 23, 2015, we along with Penn Liberty Financial Corporation (Penn Liberty) announced the signing of a definitive agreement and plan of reorganization whereby we would acquire Penn Liberty. Upon the closing of the transaction, Penn Liberty will merge into the Company and Penn Liberty Bank will merge into WSFS Bank. Penn Liberty is a locally managed institution with eleven branch locations and is headquartered in Wayne, Pennsylvania. It reported $704 million in assets, $510 million in loans and $621 million in deposits as of December 31, 2015. We expect this acquisition to build our market share, expand our customer base and enhance our fee income. The total transaction is valued at approximately $101 million, has received all necessary approvals and is expected to close in August 2016.

Alliance Bancorp, Inc. of Pennsylvania

On October 9, 2015 we completed the acquisition of Alliance and its wholly owned subsidiary, Alliance Bank, headquartered in Broomall, Pennsylvania. At that time Alliance merged into the Company and Alliance Bank merged into WSFS Bank. In accordance with the terms of the Agreement and Plan of Merger, dated March 2, 2015, holders of shares of Alliance common stock received, in aggregate, $26.6 million in cash and 2,459,120 shares of WSFS common stock. The transaction was valued at $97.9 million based on WSFS’ October 9, 2015 closing share price of $29.01 as quoted on NASDAQ. The results of the combined entity’s operations are included in our Consolidated Financial Statements since the date of the acquisition.

The acquisition of Alliance was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The fair values are preliminary estimates and are subject to adjustment during the one year measurement period after the acquisition. The excess of consideration paid over the preliminary fair value of net assets acquired was recorded as goodwill in the amount of $36.1 million, which will not be amortizable and is not deductible for tax purposes. The Company allocated the total balance of goodwill to its WSFS Bank segment. The Company also recorded $2.6 million in core deposit intangibles which are being amortized over ten years using the straight-line depreciation method and $511,000 for non-compete covenants which are being amortized between six and eighteen months.

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


(In Thousands)	Fair Value
Consideration Paid:
Common shares issued (2,459,120)	$	71,345
Cash paid to Alliance stockholders		26,576

Value of consideration		97,921
Assets acquired:
Cash and due from banks		67,439
Investment securities		3,002
Loans		307,695
Premises and equipment		2,685
Deferred income taxes		7,730
Bank owned life insurance		12,923
Core deposit intangible		2,635
Other real estate owned		768
Other assets		3,583

Total assets		408,460
Liabilities assumed:
Deposits		341,682
Other Borrowings		2,826
Other liabilities		2,098

Total liabilities		346,606
Net assets acquired:		61,854

Goodwill resulting from acquisition of Alliance	$	36,067

The following table details the changes to goodwill in 2016:


(In Thousands)	Fair Value
Goodwill resulting from the acquisition of Alliance reported as of December 31, 2015	$	36,425
Effects of adjustments to:
Deferred income taxes		(186	)
Other assets		(597	)
Other liabilities		425

Adjusted goodwill resulting from the acquisition of Alliance as of March 31, 2016	$	36,067

The adjustments made to goodwill during the first three months of 2016, reflect a change in the fair value of leases acquired, accrued expenses and deferred federal income taxes.

Direct costs related to the acquisition were expensed as incurred. During the three months ended March 31, 2016, the Company incurred $426,000 in merger expenses related to Alliance and Penn Liberty compared to $666,000 for the three months ended March 31, 2015.

3. EARNINGS PER SHARE

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


	Three Months Ended
	March 31,
(In Thousands, Except Per Share Data)	2016		2015
Numerator:
Net income	$	15,770	$	12,889

Denominator:
Weighted average basic shares		29,671		28,218
Dilutive potential common shares		558		535

Weighted average fully diluted shares		30,229		28,753

Earnings per share:
Basic	$	0.53	$	0.46

Diluted	$	0.52	$	0.45

Outstanding common stock equivalents having no dilutive effect		42		238

4. INVESTMENT SECURITIES

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


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gain		Loss		Value
Available-for-Sale Securities:
March 31, 2016
GSE	$	39,088	$	71	$	1	$	39,158
CMO		269,309		4,798		205		273,902
FNMA MBS		334,668		6,985		30		341,623
FHLMC MBS		99,317		1,679		78		100,918
GNMA MBS		18,627		501		17		19,111

	$	761,009	$	14,034	$	331	$	774,712

December 31, 2015
GSE	$	31,041	$	—	$	127	$	30,914
CMO		253,189		713		2,414		251,488
FNMA MBS		320,105		1,081		2,715		318,471
FHLMC MBS		99,350		405		313		99,442
GNMA MBS		20,387		420		93		20,714

	$	724,072	$	2,619	$	5,662	$	721,029


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gain		Loss		Value
Held-to-Maturity Securities ^(a)
March 31, 2016
State and political subdivisions	$	166,962	$	3,619	$	41	$	170,540

December 31, 2015
State and political subdivisions	$	165,862	$	1,943	$	62	$	167,743

(a)

Held-to –maturity securities transferred from available-for-sale are included in held-to-maturity at fair value at the time of transfer. The amortized cost of held-to-maturity securities included net unrealized gains of $2.7 million and $2.9 million at March 31, 2016 and December 31, 2015, respectively, related to securities transferred, which are offset in Accumulated Other Comprehensive Income, net of tax.

The scheduled maturities of investment securities available-for-sale and held-to-maturity at March 31, 2016 and December 31, 2015 are presented in the table below:


	Available-for-Sale
(In Thousands)	Amortized Cost		Fair Value
March 31, 2016
Within one year	$	6,001	$	6,003
After one year but within five years		33,087		33,155
After five years but within ten years		255,484		261,034
After ten years		466,437		474,520

	$	761,009	$	774,712

December 31, 2015
Within one year	$	3,997	$	3,995
After one year but within five years		30,009		29,840
After five years but within ten years		218,023		215,018
After ten years		472,043		472,176

	$	724,072	$	721,029


	Held-to-Maturity
(In Thousands)	Amortized Cost		Fair Value
March 31, 2016
After one year but within five years		3,229		3,249
After five years but within ten years		8,546		8,732
After ten years		155,187		158,559

	$	166,962	$	170,540

December 31, 2015
Within one year	$	1,486	$	1,488
After one year but within five years		3,465		3,456
After five years but within ten years		7,939		8,045
After ten years		152,972		154,754

	$	165,862	$	167,743

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

Investment securities with fair market values aggregating $423.8 million and $457.0 million were pledged as collateral for retail customer repurchase agreements, municipal deposits, and other obligations as of March 31, 2016 and December 31, 2015, respectively.

During the first three months of 2016 and 2015, we sold $38.9 million and $37.4 million of investment securities categorized as available-for-sale, for a gain of $305,000 and $451,000, respectively. No losses were incurred from sales during the first three months of 2016 and 2015.

As of March 31, 2016 and December 31, 2015, our investment securities portfolio had remaining unamortized premiums of $18.7 million and $18.3 million and unaccreted discounts of $307,000 and $306,000, respectively.

For these investment securities with unrealized losses, the table below shows our gross unrealized losses and fair value by investment category and length of time that individual securities were in a continuous unrealized loss position at March 31, 2016.


	Duration of Unrealized Loss Position
	Less than 12 months				12 months or longer				Total
(In Thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities:
GSE	$	2,018		1	$	—		—	$	2,018	$	1
CMO		15,643		110		14,686		95		30,329		205
FNMA MBS		8,721		30		—		—		8,721		30
FHLMC MBS		7,452		30		4,109		48		11,561		78
GNMA MBS		1,963		10		2,274		7		4,237		17

Total temporarily impaired investments	$	35,797	$	181	$	21,069	$	150	$	56,866	$	331


	Less than 12 months				12 months or longer				Total
(In Thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Held-to-maturity securities:
State and political subdivisions	$	—	$	—	$	2,924	$	41	$	2,924	$	41

Total temporarily impaired investments	$	—	$	—	$	2,924	$	41	$	2,924	$	41


	Duration of Unrealized Loss Position
	Less than 12 months				12 months or longer				Total
(In Thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Available-for-sale securities:
GSE	$	30,914	$	127	$	—	$	—	$	30,914	$	127
CMO		139,486		1,703		26,536		711		166,022		2,414
FNMA MBS		214,465		2,715		—		—		214,465		2,715
FHLMC MBS		41,791		136		4,025		177		45,816		313
GNMA MBS		4,073		29		2,377		64		6,450		93

Total temporarily impaired investments	$	430,729	$	4,710	$	32,938	$	952	$	463,667	$	5,662


	Less than 12 months				12 months or longer				Total
(In Thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Held-to-maturity securities:
State and political subdivisions	$	9,845	$	62	$	—	$	—	$	9,845	$	62

Total temporarily impaired investments	$	9,845	$	62	$	—	$	—	$	9,845	$	62

At March 31, 2016, we owned investment securities totaling $59.8 million in which the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $372,000 at March 31, 2016. The temporary impairment is the result of changes in market interest rates subsequent to the purchase of the securities. Our investment portfolio is reviewed each quarter for indications of OTTI. This review includes analyzing the length of time and the extent to which the fair value has been lower than the amortized cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and our intent and ability to hold the investment for a period of time sufficient to allow for full recovery of the unrealized loss. We evaluate our intent and ability to hold securities based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position. 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.

All securities, with the exception of one, were AA-rated or better at the time of purchase and remained investment grade at March 31, 2016. All securities were evaluated for OTTI at March 31, 2016 and December 31, 2015. The result of this evaluation showed no OTTI as of March 31, 2016 or December 31, 2015. The estimated weighted average duration of MBS was 4.1 years at March 31, 2016.

5. LOANS

The following details our loan portfolio by category:


(In Thousands)	March 31, 2016		December 31, 2015
Commercial and industrial	$	1,083,121	$	1,061,597
Owner occupied commercial		895,457		880,643
Commercial mortgages		987,066		966,698
Construction		227,348		245,773
Residential		251,065		259,679
Consumer		359,656		360,249

	$	3,803,713	$	3,774,639
Less:
Deferred fees, net	$	8,428	$	8,500
Allowance for loan losses		37,556		37,089

Net loans	$	3,757,729	$	3,729,050

The following is the outstanding principal balance and carrying amounts for acquired credit impaired loans for which the company applies ASC 310-30 as of the dates indicated:


(In Thousands)	March 31, 2016		December 31, 2015
Outstanding principal balance	$	37,041		38,067
Carrying amount		32,165		32,658
Allowance for loan losses		119		132

The following table presents the changes in accretable yield on the acquired credit impaired loans for the following three month period:


(In Thousands)	January 1 through March 31, 2016
Balance at beginning of period	$	4,764
Accretion		(592	)
Reclassification from nonaccretable difference		—
Additions/adjustments		(116	)
Disposals		(7	)

Balance at the end of the period	$	4,049

6. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION

Allowance for Loan Losses

We maintain an allowance for loan losses and charge losses to this allowance when such losses are realized. We established our allowance for loan losses in accordance with guidance provided in the SEC’s Staff Accounting Bulletin 102 (SAB 102) and FASB ASC 450, Contingencies (ASC 450). When we have reason to believe it is probable that we will not be able to collect all contractually due amounts of principal and interest, loans are evaluated for impairment on an individual basis and a specific allocation of the allowance is assigned in accordance with ASC 310-10. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for under ASC 310-30, there is deterioration in credit quality subsequent to acquisition and (ii) for loans accounted for under ASC 310-20, the inherent losses in the loans exceed the remaining credit discount recorded at the time of acquisition. The determination of the allowance for loan losses requires significant judgment reflecting our best estimate of impairment related to specifically identified impaired loans as well as probable loan losses in the remaining loan portfolio. Our evaluation is based upon a continuing review of these portfolios. The following are included in our allowance for loan losses:

•

Specific reserves for impaired loans

•

An allowance for each pool of homogenous loans based on historical loss experience

•

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

•

Allowance for model estimation and complexity risk

When it is probable that the Bank will be unable to collect all amounts due (interest and principal) in accordance with the contractual terms of the loan agreement, it assigns a specific reserve to that loan, if necessary. Unless loans are well-secured and collection is imminent, loans greater than 90 days past due are deemed impaired and their respective reserves are generally charged-off once the loss has been confirmed. Estimated specific reserves are based on collateral values, estimates of future cash flows or market valuations. We charge loans off when they are deemed to be uncollectible. During the three months ended March 31, 2016, net charge-offs totaled $313,000 or 0.03% of average loans, compared to $705,000, or 0.09% of average loans annualized, during the three months ended March 31, 2015.

Allowances for pooled homogeneous loans, that are not deemed impaired, are based on historical net loss experience. Estimated losses for pooled portfolios are determined differently for commercial loan pools and retail loan pools. Commercial loans are pooled into the following segments: commercial, owner-occupied, commercial real estate and construction. Each pool is further segmented by internally assessed risk ratings. Loan losses for commercial loans are estimated by determining the probability of default and expected loss severity upon default. Probability of default is calculated based on the historical rate of migration to impaired status during the last 21 quarters. During the three months ended March 31 2016, we increased the look-back period to 21 quarters from the 20 quarters used at December 31, 2015. This increase in the look-back period allows us to continue to anchor to the fourth quarter of 2010 to ensure that the core reserves calculated by the ALLL model are adequately considering the losses within a full credit cycle.

Loss severity upon default is calculated as the actual loan losses (net of recoveries) on impaired loans in their respective pool during the same time frame. Retail loans are pooled into the following segments: residential mortgage, consumer secured and consumer unsecured loans. Pooled reserves for retail loans are calculated based solely on average net loss rates over the same 21 quarter look-back period.

Qualitative adjustment factors consider various current internal and external conditions which are allocated among loan types and take into consideration the following:

•

Current underwriting policies, staff, and portfolio mix

•

Internal trends of delinquency, nonaccrual and criticized loans by segment

•

Risk rating accuracy, control and regulatory assessments/environment

•

General economic conditions - locally and nationally

•

Market trends impacting collateral values

•

A competitive environment as it could impact loan structure and underwriting

The above factors are based on their relative standing compared to the period in which historic losses are used in core reserve estimates and current directional trends. Qualitative factors in our model can add or subtract to core reserves. Continued economic improvement and continued refinement of the quantitative model have driven an overall reduction in qualitative factors during the period.

The allowance methodology uses a loss emergence period (LEP), which is the period of time between an event that triggers the probability of a loss and the confirmation of the loss. We estimate the commercial LEP to be 8 quarters as of March 31, 2016. Further, our residential mortgage and consumer LEP remained at 4 quarters as of March 31, 2016. We evaluate LEP quarterly for reasonableness and complete a detailed historical analysis of our commercial LEP at least annually.

The final component of the allowance is a reserve for model estimation and complexity risk. The calculation of this reserve is generally quantitative; however, qualitative estimates of valuations and risk assessment, and methodology judgments are necessary in order to capture factors not already included in other components in our allowance for loan losses methodology. We review the qualitative estimates of valuation factors quarterly and management uses its judgment to make adjustments based on current trends.

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

The following tables provide the activity of our allowance for loan losses and loan balances for three months ended March 31, 2016:


(In Thousands)	Commercial			Owner-Occupied Commercial			Commercial Mortgages			Construction			Residential			Consumer			Complexity Risk ⁽¹⁾		Total
Three months ended March 31, 2016
Allowance for loan losses
Beginning balance	$	11,156		$	6,670		$	6,487		$	3,521		$	2,281		$	5,964		$	1,010	$	37,089
Charge-offs		(179	)		—			(17	)		(26	)		(14	)		(631	)		—		(867	)
Recoveries		110			38			79			46			22			259			—		554
Provision (credit)		484			(6	)		(37	)		72			(20	)		400			14		907
Provision for acquired loans		(89	)					4			(4	)		—			(38	)		—		(127	)

Ending balance	$	11,482		$	6,702		$	6,516		$	3,609		$	2,269		$	5,954		$	1,024	$	37,556

Period-end allowance allocated to:
Loans individually evaluated for impairment	$	1,473		$	—		$	—		$	211		$	911		$	208		$	—	$	2,803
Loans collectively evaluated for impairment		10,005			6,680			6,427			3,398			1,354			5,746			1,024		34,634
Acquired loans evaluated for impairment		4			22			89			—			4			—			—		119

Ending balance	$	11,482		$	6,702		$	6,516		$	3,609		$	2,269		$	5,954		$	1,024	$	37,556

Period-end loan balances evaluated for:
Loans individually evaluated for impairment	$	5,278		$	1,270		$	2,678		$	1,419		$	15,260		$	7,795		$	—	$	33,700	⁽²⁾
Loans collectively evaluated for impairment		957,863			839,819			893,036			194,654			161,610			336,053			—		3,383,035
Acquired nonimpaired loans		107,380			49,765			80,795			27,711			73,240			15,803			—		354,694
Acquired impaired loans		12,600			4,603			10,557			3,564			955			5			—		32,284

Ending balance	$	1,083,121		$	895,457		$	987,066		$	227,348		$	251,065		$	359,656		$	—	$	3,803,713	⁽³⁾

The following table provides the activity of the allowance for loan losses and loan balances for the three ended March 31, 2015:


(In Thousands)	Commercial			Owner-Occupied Commercial			Commercial Mortgages			Construction		Residential			Consumer			Complexity Risk ⁽¹⁾		Total
Three months ended March 31, 2015
Allowance for loan losses
Beginning balance	$	12,837		$	6,643		$	7,266		$	2,596	$	2,523		$	6,041		$	1,520	$	39,426
Charge-offs		(131	)		(330	)		(39	)		—		(125	)		(450	)		—		(1,075	)
Recoveries		26			4			79			49		11			201			—		370
Provision (credit)		316			722			(782	)		307		(29	)		234			18		786

Ending balance	$	13,048		$	7,039		$	6,524		$	2,952	$	2,380		$	6,026		$	1,538	$	39,507

Period-end allowance allocated to:
Loans individually evaluated for impairment	$	3,169		$	284		$	223		$	210	$	751		$	197		$	—	$	4,834
Loans collectively evaluated for impairment		9,879			6,755			6,301			2,742		1,629			5,829			1,538		34,673
Acquired loans evaluated for impairment		—			—			—			—		—			—			—		—

Ending balance	$	13,048		$	7,039			6,524		$	2,952	$	2,380		$	6,026		$	1,538	$	39,507

Period-end loan balances evaluated for:
Loans individually evaluated for impairment	$	11,707		$	1,552		$	7,595		$	1,419	$	14,749		$	6,157		$	—	$	43,179	⁽²⁾
Loans collectively evaluated for impairment		876,434			754,044			770,991			138,495		184,337			310,427			—		3,034,728
Acquired nonimpaired loans		31,737			39,671			36,373			9,680		16,615			7,640			—		141,716
Acquired impaired loans		3,192			2,133			5,877			3,630		496			8			—		15,336

Ending balance	$	923,070		$	797,400		$	820,836		$	153,224	$	216,197		$	324,232		$	—	$	3,234,959	⁽³⁾

⁽¹⁾	Represents the portion of the allowance for loan losses established to capture factors not already included in other components in our allowance for loan losses methodology.

⁽²⁾	The difference between this amount and nonaccruing loans represents accruing troubled debt restructured loans of $13.9 million and $22.5 million for the periods ending March 31, 2016 and 2015, respectively. Accruing troubled debt restructured loans are considered impaired loans.

⁽³⁾	Ending loan balances do not include deferred costs.

Nonaccrual and Past Due Loans

Nonaccruing loans are those on which the accrual of interest has ceased. We discontinue accrual of interest on originated loans after payments become more than 90 days past due or earlier if we do not expect the full collection of principal or interest in accordance with the terms of the loan agreement. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the accretion of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on our assessment of the ultimate collectability of principal and interest. Loans greater than 90 days past due and still accruing are defined as loans contractually past due 90 days or more as to principal or interest payments, but remain in accrual status because they are considered well secured and in the process of collection.

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


March 31, 2016 (In Thousands)	30–59 Days Past Due and Still Accruing			60–89 Days Past Due and Still Accruing			Greater Than 90 Days Past Due and Still Accruing			Total Past Due And Still Accruing			Accruing Current Balances			Acquired Impaired Loans			Nonaccrual Loans			Total Loans
Commercial	$	1,378		$	1,354		$	—		$	2,732		$	1,062,856		$	12,600		$	4,933		$	1,083,121
Owner-Occupied commercial		678			—			—			678			888,907			4,603			1,269			895,457
Commercial mortgages		127			—			—			127			973,786			10,557			2,596			987,066
Construction		—			—			—			—			223,784			3,564			—			227,348
Residential		4,332			418			—			4,750			238,482			955			6,878			251,065
Consumer		851			339			127			1,317			354,219			5			4,115			359,656

Total (1)	$	7,366		$	2,111		$	127		$	9,604		$	3,742,034		$	32,284		$	19,791		$	3,803,713

% of Total Loans		0.19	%		0.06	%		—	%		0.25	%		98.38	%		0.85	%		0.52	%		100	%


(1) The balances of above include $354.7 million of acquired nonimpaired loans.
December 31, 2015 (In Thousands)	30–59 Days Past Due and Still Accruing			60–89 Days Past Due and Still Accruing			Greater Than 90 Days Past Due and Still Accruing			Total Past Due And Still Accruing			Accruing Current Balances			Acquired Impaired Loans			Nonaccrual Loans			Total Loans
Commercial	$	1,686		$	270		$	12,355		$	14,311		$	1,028,973		$	12,985		$	5,328		$	1,061,597
Owner-Occupied commercial		713			217			4,886			5,816			869,048			4,688			1,091			880,643
Commercial mortgages		141			4			288			433			952,426			10,513			3,326			966,698
Construction		—			—			—			—			242,229			3,544			—			245,773
Residential		5,263			621			251			6,135			245,307			950			7,287			259,679
Consumer		1,222			36			252			1,510			354,599			7			4,133			360,249

Total (1)	$	9,025		$	1,148		$	18,032		$	28,205		$	3,692,582		$	32,687		$	21,165		$	3,774,639

% of Total Loans		0.24	%		0.03	%		0.48	%		0.75	%		97.83	%		0.86	%		0.56	%		100	%

(1)	The balances of above include $371.1 million of acquired nonimpaired loans

Impaired Loans

Loans for which it is probable we will not collect all principal and interest due according to their contractual terms, which is assessed based on the credit characteristics of the loan and/or payment status, are measured for impairment in accordance with the provisions of SAB 102 and FASB ASC 310, Receivables (ASC 310). 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 fair value of collateral, if the loan is collateral dependent or (3) the loan’s observable market price. If the measure of the impaired loan is less than the recorded investment in the loan, a related allowance is allocated for the impairment.

The following tables provide an analysis of our impaired loans at March 31, 2016 and December 31, 2015:

March 31, 2016

(In Thousands)

Ending
Loan
Balances

Loans with
No Related
Reserve ⁽¹⁾

Loans with
Related
Reserve

Related
Reserve

Contractual
Principal
Balances

Average
Loan
Balances

Commercial

5,728

947

4,781

1,477

12,187

8,060

Owner-Occupied commercial

2,281

1,269

1,012

2,488

6,329

Commercial mortgages

3,980

2,678

1,302

6,626

2,412

Construction

1,419

—

1,419

211

1,419

1,448

Residential

15,421

8,618

6,803

915

18,395

15,215

Consumer

7,794

6,585

1,209

208

9,610

7,084

Total (2)

36,623

20,097

16,526

2,922

50,725

40,548

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

⁽²⁾	The above includes acquired impaired loans totaling $2.9 million in the ending loan balance and $3.5 million in the contractual principal balance.


December 31, 2015 (In Thousands)	Ending Loan Balances		Loans with No Related Reserve⁽¹⁾		Loans with Related Reserve		Related Reserve		Contractual Principal Balances		Average Loan Balances
Commercial	$	6,137	$	951	$	5,186	$	1,168	$	20,206	$	9,391
Owner-Occupied commercial		2,127		1,090		1,037		22		2,947		2,111
Commercial mortgages		4,652		3,410		1,242		103		11,826		7,540
Construction		1,419		—		1,419		211		1,419		1,448
Residential		15,710		9,034		6,676		920		18,655		15,264
Consumer		7,665		6,498		1,167		200		9,353		6,801

Total (2)	$	37,710	$	20,983	$	16,727	$	2,624	$	64,406	$	42,555

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

⁽²⁾	The above includes acquired impaired loans totaling $2.9 million in the ending loan balance and $3.5 million in the contractual principal balance.

Interest income of $156,000, and $472,000 was recognized on impaired loans during the three months ended March 31, 2016 and 2015, respectively.

As of March 31, 2016, there were 40 residential loans and 7 commercial loans in the process of foreclosure. The total outstanding balance on the loans was $6.3 million and $667,000, respectively. As of December 31, 2015, there were 32 residential loans and 3 commercial loans in the process of foreclosure. The total outstanding balance on the loans was $5.0 million and $675,000, respectively.

Reserves on Acquired Nonimpaired Loans

In accordance with FASB ASC 310, loans acquired by the Bank through its merger with FNBW and Alliance are required to be reflected on the balance sheet at their fair values on the date of acquisition as opposed to their contractual values. Therefore, on the date of acquisition establishing an allowance for acquired loans is prohibited. After the acquisition date the Bank performs a separate allowance analysis on a quarterly basis to determine if an allowance for loan loss is necessary. Should the credit risk calculated exceed the purchased loan portfolio’s remaining credit mark, additional reserves will be added to the Bank’s allowance. When a purchased loan becomes impaired after its acquisition, it is evaluated as part of the Bank’s reserve analysis and a specific reserve is established to be included in the Bank’s allowance.

Credit Quality Indicators

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

Pass. These borrowers currently show no indication of deterioration or potential problems and their loans are considered fully collectible.

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

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

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

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

Residential and Consumer Loans

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

The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the Allowance for Loan Loss.

Commercial Credit Exposure


(In Thousands)	Commercial				Owner-Occupied Commercial				Commercial Mortgages				Construction				Total Commercial⁽¹⁾
																	Mar. 31, 2016					Dec. 31, 2015
	Mar. 31, 2016		Dec. 31 2015		Mar. 31, 2016		Dec. 31 2015		Mar. 31, 2016		Dec. 31 2015		Mar. 31, 2016		Dec. 31 2015		Amount		%			Amount		%
Risk Rating:
Special mention	$	6,992	$	5,620	$	11,982	$	9,535	$	8,900	$	12,323	$	—	$	—	$	27,874				$	27,478
Substandard:
Accrual		36,428		33,883		20,905		22,901		2,523		2,547		8,322		8,296		68,178					67,627
Nonaccrual		3,525		4,164		1,269		1,090		2,596		3,326		—		—		7,390					8,580
Doubtful		1,408		1,164		—		—		—		—		—		—		1,408					1,164

Total Special and Substandard		48,353		44,831		34,156		33,526		14,019		18,196		8,322		8,296		104,850		3	%		104,849		3	%
Acquired impaired		12,600		12,985		4,603		4,688		10,557		10,513		3,564		3,544		31,324		1			31,730		1
Pass		1,022,168		1,003,781		856,698		842,429		962,490		937,989		215,462		233,933		3,056,818		96			3,018,132		96

Total	$	1,083,121	$	1,061,597	$	895,457	$	880,643	$	987,066	$	966,698	$	227,348	$	245,773	$	3,192,992		100	%	$	3,154,711		100	%

⁽¹⁾	Table includes $265.7 million and $277.0 million of acquired nonimpaired loans as of March 31, 2016 and December 31, 2015, respectively.

Residential and Consumer Credit Exposure


(In Thousands)	Residential				Consumer				Total Residential and Consumer⁽²⁾
	Mar. 31,		Dec. 31		Mar. 31,		Dec. 31		Mar. 31, 2016					Dec. 31, 2015
	2016		2015		2016		2015		Amount		Percent			Amount		Percent

Nonperforming(1)	$	15,260	$	15,548	$	7,794	$	7,664	$	23,054		4	%	$	23,212		4	%

Acquired impaired loans		955		950		5		7		960		—			957		—
Performing		234,850		243,181		351,857		352,578		586,707		96			595,759		96

Total	$	251,065	$	259,679	$	359,656	$	360,249	$	610,721		100	%	$	619,928		100	%

⁽¹⁾	Includes $12.1 million as of March 31, 2016 and $13.6 million as of December 31, 2015 of troubled debt restructured mortgages and home equity installment loans that are performing in accordance with the loans’ modified terms and are accruing interest.

⁽²⁾	Total includes $89.0 million and $94.2 million in acquired nonimpaired loans as of March 31, 2016 and December 31, 2015, respectively.

Troubled Debt Restructurings (TDR)

TDRs are recorded in accordance with FASB ASC 310-40, Troubled Debt Restructuring by Creditors (ASC 310-40). The balance of TDRs at March 31, 2016 and December 31, 2015 was $25.6 million and $24.6 million, respectively. The balance at March 31, 2016 included approximately $11.7 million of TDRs in nonaccrual status and $13.9 million of TDRs in accrual status compared to $11.0 million in nonaccrual status and $13.6 million in accrual status at December 31, 2015. Approximately $2.7 million and $2.1 million in related reserves have been established for these loans at March 31, 2016 and December 31, 2015, respectively.

During the three months ended March 31, 2016, the terms of 8 loans were modified in TDRs. Five modifications were for consumer loans of which all were HELOC conversions with interest rate reductions. Two were residential mortgages of which both were forbearance agreements. One commercial loan in bankruptcy was granted interest only payments. Our concessions on restructured loans typically consist of forbearance agreements, reduction in interest rates or extensions of maturities. Principal balances are generally not forgiven when a loan is modified as a TDR. Nonaccruing restructured loans remain in nonaccrual status until there has been a period of sustained repayment performance, typically six months and payment is reasonably assured.

The following table presents loans identified as TDRs during the three months ended March 31, 2016 and 2015.


(In Thousands)	Three Months Ended March 31, 2016		Three Months Ended March 31, 2015
Commercial	$	984	$	—
Owner Occupied Commercial		—		—
Commercial mortgages		—		—
Construction		—		—
Residential		614		212
Consumer		215		135

Total	$	1,813	$	347

During the three months ended March 31, 2016, the TDRs set forth in the table above had no change on our allowance for loan losses allocation of a related reserve, and resulted in charge-offs of $80,000. For the same period of 2015, there was no change to our allowance for loan losses and no additional charge-offs.

7. REVERSE MORTGAGE LOANS

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

Our investment in reverse mortgages totaled $24.7 million at March 31, 2016. The portfolio consists of 90 loans with an average borrowers’ age of 94 years old and there is currently significant overcollateralization in the portfolio, as the realizable collateral value (the lower of collectible principal and interest, or appraised value and annual broker price opinion of the home) of $45.6 million exceeds the outstanding book balance at March 31, 2016. Broker price opinions are updated at least annually. Additional broker price opinions are obtained when our quarterly review indicates that a home’s value has increased or decreased by at least 50% during any given period.

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

To determine the carrying value of these reverse mortgages as of March 31, 2016, we used the proprietary model described above and actual cash flow information to estimate future cash flows. There are three main drivers of cash flows; 1) move-out rates, 2) house price appreciation (HPA) forecasts, and 3) internal rate of return.

Move-out rates – We used the actuarial estimates of contract termination provided in the United States Mortality Rates Period Life Table, 2011, published by the Office of the Actuary - Social Security in 2015, adjusted for expected prepayments and relocations which we adopted during 2016.

House Price Appreciation – We utilize house price forecasts from various market sources. Based on this information, we forecasted a 2.5% increase in housing prices during 2016 and a 2.0% increase in the following year and thereafter. We believe this forecast continues to be appropriate given the nature of reverse mortgage collateral and historical under-performance to the broad housing market. Annually, during the fourth quarter, current collateral values are updated through broker price opinions.

Internal Rate of Return – As of March 31, 2016, the internal rate of return (IRR) of 19.32% was the effective yield required on the life of the portfolio to reduce the net investment to zero at the time the final reverse mortgage contract is liquidated.

As of March 31, 2016, the Company’s actuarially estimated cash payments to reverse mortgagors are as follows:


(In thousands)
Year Ending
2016	$	580
2017		435
2018		342
2019		266
2020		204
Years 2021 - 2025		466
Years 2026 - 2030		92
Years 2031 - 2035		13
Thereafter		2

Total ⁽¹⁾	$	2,400

⁽¹⁾	This table does not take into consideration cash inflow including payments from mortgagors or payoffs based on contractual terms.

The amount of the contract value that would be forfeited if we were not to make cash payments to reverse mortgagors in the future is $6.2 million.

The future cash flows depend on the HPA assumptions. If the future changes in collateral value were assumed to be zero, income would decrease by $745,000 for the quarter ended March 31, 2016 with an IRR of 18.41%. If the future changes in collateral value were assumed to be reduced by 1%, income would decrease by $343,000 with an IRR of 18.90%.

The net present value of the projected cash flows depends on the IRR used. If the IRR increased by 1%, the net present value would increase by $984,000. If the IRR decreased by 1%, the net present value would decrease by $957,000.

8. GOODWILL AND INTANGIBLES

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

During the three months ended March 31, 2016, we determined there were no events or other indicators of impairment as it relates to goodwill or other intangibles.

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


(In Thousands)	WSFS Bank			Cash Connect		Wealth Management		Consolidated Company
December 31, 2015	$	80,078		$	—	$	5,134	$	85,212
Changes in goodwill		(358	)		—		—		(358	)

March 31, 2016	$	79,720		$	—	$	5,134	$	84,854

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

The following table summarizes other intangible assets:


(In Thousands)	Gross Intangible Assets		Accumulated Amortization			Net Intangible Assets
March 31, 2016
Core deposits	$	10,245	$	(4,807	)	$	5,438
CB&T intangibles		3,142		(1,230	)		1,912
Array and Arrow intangibles		2,353		(934	)		1,419
Mortgage servicing rights		1,503		(976	)		527
Alliance intangible assets		650		(228	)		422

Total intangible assets	$	17,893	$	(8,175	)	$	9,718

December 31, 2015
Core deposits	$	10,246	$	(4,512	)	$	5,734
CB&T intangibles		3,142		(1,181	)		1,961
Array and Arrow intangibles		2,353		(847	)		1,506
Mortgage servicing rights		1,430		(949	)		481
Alliance intangible assets		511		(110	)		401

Total intangible assets	$	17,682	$	(7,599	)	$	10,083

Core deposits are amortized over their expected lives using the present value of the benefit of the core deposits and either accelerated or straight-line methods of amortization. During the three months ended March 31, 2016, we recognized amortization expense on other intangible assets of $549,000.

The following presents the estimated amortization expense of intangibles:


(In Thousands)	Amortization of Intangibles
Remaining in 2016	$	1,396
2017		1,543
2018		1,407
2019		1,338
2020		1,171
Thereafter		2,863

Total	$	9,718

9. ASSOCIATE BENEFIT PLANS

Postretirement Benefits

We account for our obligations under the provisions of FASB ASC 715, Compensation - Retirement Benefits (ASC 715). ASC 715 requires that the costs of these benefits be recognized over an Associate’s active working career. Amortization of unrecognized net gains or losses resulting from experience different from that assumed and from changes in assumptions is included as a component of net periodic benefit cost over the remaining service period of active employees to the extent that such gains and losses exceed 10% of the accumulated postretirement benefit obligation, as of the beginning of the year.

The following are disclosures of the net periodic benefit cost components of postretirement benefits measured at January 1, 2016 and 2015.


	Three months ended
	March 31,
(In Thousands)	2016			2015
Service cost	$	15		$	15
Interest cost		19			22
Prior service cost amortization		(7	)		(19	)
Net gain recognition		(15	)		(5	)

Net periodic benefit cost	$	12		$	13

10. INCOME TAXES

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

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

There were no unrecognized tax benefits as of March 31, 2016. We record interest and penalties on potential income tax deficiencies as income tax expense. Our federal and state tax returns for the 2012 through 2015 tax years are subject to examination as of March 31, 2016. Pennsylvania is currently auditing our 2012 state tax return. We do not expect to record or realize any material unrecognized tax benefits during 2016.

As a result of the adoption of ASU No. 2014-01, “Investments-Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects,” the amortization of our low-income housing credit investments has been reflected as income tax expense. Accordingly, $390,000 of such amortization has been reflected as income tax expense for the three months ended March 31, 2016, compared to $495,000 for the same period in 2015.

The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the three months ended March 31, 2016 were $368,000, $390,000 and $89,000, respectively. The carrying value of the investment in affordable housing credits is $11.6 million at March 31, 2016, compared to $12.0 million at December 31, 2015.

11. FAIR VALUE DISCLOSURES OF FINANCIAL ASSETS AND LIABILITIES

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

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

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

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

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

The following tables present financial instruments carried at fair value as of March 31, 2016 and December 31, 2015 by valuation hierarchy (as described above):

(In Thousands)

Description

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

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total Fair
Value

Assets measured at fair value on a recurring basis

Available-for-sale securities:

CMO

—

273,902

—

273,902

FNMA MBS

—

341,623

—

341,623

FHLMC MBS

—

100,918

—

100,918

GNMA MBS

—

19,111

—

19,111

GSE

—

39,158

—

39,158

Total assets measured at fair value on a recurring basis

—

774,712

—

774,712

Assets measured at fair value on a nonrecurring basis

Other real estate owned

—

3,979

Loans held-for-sale

—

36,178

—

36,178

Impaired loans

—

33,701

Total assets measured at fair value on a nonrecurring basis

—

36,178

37,680

73,858


(In Thousands) Description	Quoted Prices in Active Markets for Identical Asset (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets measured at fair value on a recurring basis
Available-for-sale securities:
CMO	$	—	$	251,488	$	—	$	251,488
FNMA MBS		—		318,471		—		318,471
FHLMC MBS		—		99,442		—		99,442
GNMA MBA		—		20,714		—		20,714
GSE				30,914		—		30,914

Total assets measured at fair value on a recurring basis	$	—	$	721,029	$	—	$	721,029
Assets measured at fair value on a nonrecurring basis
Other real estate owned	$	—	$	—	$	5,080	$	5,080
Loans held-for sale		—		41,807		—		41,807
Impaired loans (collateral dependent)		—		—		35,086		35,086

Total assets measured at fair value on a nonrecurring basis	$	—	$	41,807	$	40,166	$	81,973

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ending March 31, 2016 and no material liabilities measured at fair value as of March 31, 2016 and December 31, 2015.

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

Available-for-sale securities

As of March 31, 2016 securities classified as available-for-sale are reported at fair value using Level 2 inputs. Included in the Level 2 total are approximately $39.2 million in U.S. Treasury Notes and Federal Agency debentures, and $735.6 million in Federal Agency MBS. We believe that this Level 2 designation is appropriate for these securities under ASC 820-10 as, with almost all fixed income securities, none are exchange traded, and all are priced by correlation to observed market data. For these securities we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.

Other real estate owned

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

Loans held-for-sale

The fair value of our loans held-for-sale is based upon estimates using Level 2 inputs. These inputs are based upon pricing information obtained from secondary markets and brokers and applied to loans with similar interest rates and maturities.

Impaired loans

We evaluate and value impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral has a unique appraisal and management’s discount of the value is based on the factors unique to each impaired loan. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the loan, which range from 10% - 50%. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on the appraisals by qualified licensed appraisers hired by us. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.

Impaired loans, which are measured for impairment by either calculating the expected future cash flows discounted at the loan’s effective interest rate or determining the fair value of the collateral for collateral dependent loans has a gross amount of $36.6 million and $37.7 million at March 31, 2016 and December 31, 2015, respectively. The valuation allowance on impaired loans was $2.9 million as of March 31, 2016 and $2.6 million as of December 31, 2015.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

Cash and cash equivalents

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

Investment securities

Fair value is estimated using quoted prices for similar securities, which we obtain from a third party vendor. We utilize one of the largest providers of securities pricing to the industry and management periodically assesses the inputs used by this vendor to price the various types of securities owned by us to validate the vendor’s methodology.

Loans held-for sale

Loans held-for- sale are carried at their fair value (see discussion earlier in the note).

Loans

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

Reverse mortgage loans

The fair value of our investment in reverse mortgages is based on the net present value of estimated cash flows, which have been updated to reflect recent external appraisals of the underlying collateral. For additional information on reverse mortgage loans, see Note 7, Reverse Mortgage Loans, to the unaudited Consolidated Financial Statements.

Stock in the Federal Home Loan Bank (FHLB) of Pittsburgh

The fair value of FHLB stock is assumed to be equal to its cost basis, since the stock is non-marketable but redeemable at its par value.

Other assets

Other assets includes other real estate owned (see discussion earlier in this note) and our investment in Visa Class B stock. Our ownership includes shares acquired at no cost from our prior participation in Visa’s network, while Visa operated as a cooperative. During 2015 we purchased additional shares which are accounted for as non-marketable equity securities and carried at cost. We evaluated the shares carried at cost for OTTI as of March 31, 2016, and the evaluation showed no OTTI as of March 31, 2016. Following resolution of Visa’s covered litigation, shares of Visa’s Class B stock will be converted to Visa Class A shares

While only current owners of Class B shares are allowed to purchase other Class B shares, there have been several transactions between Class B shareholders. Based on these transactions we estimate the value of our Class B shares to be $13.1 million as of March 31, 2016.

Deposits

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

Borrowed funds

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

Off-balance sheet instruments

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

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

Fair Value

March 31, 2016

December 31, 2015

(In Thousands)

Measurement

Book Value

Fair Value

Book Value

Fair Value

Financial assets:

Cash and cash equivalents

Level 1

590,028

561,179

Investment securities available-for-sale

Level 2

774,712

721,029

Investment securities held-to-maturity

Level 2

166,962

170,540

165,862

167,743

Loans, held-for-sale

Level 2

36,178

41,807

Loans, net⁽¹⁾

Level 2

3,724,028

3,685,174

3,693,964

3,637,714

Impaired loans, net

Level 3

33,701

35,086

Reverse mortgage loans

Level 3

24,739

24,284

Stock in FHLB of Pittsburgh

Level 2

30,711

30,444

30,519

Accrued interest receivable

Level 2

13,992

14,040

Other assets

Level 3

7,568

17,123

8,669

18,416

Financial liabilities:

Deposits

Level 2

4,068,771

3,890,594

4,016,566

3,791,606

Borrowed funds

Level 2

971,264

973,805

932,886

933,905

Standby letters of credit

Level 3

204

195

Accrued interest payable

Level 2

1,340

801

⁽¹⁾ Excludes impaired loans, net.

At March 31, 2016 and December 31, 2015 we had no commitments to extend credit measured at fair value.

12. SEGMENT INFORMATION

In accordance with FASB ASC 280, Segment Reporting (ASC 280) we discuss our business in three segments. An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision makers to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. We evaluate performance based on pretax ordinary income relative to resources used, and allocate resources based on these results. The accounting policies applicable to our segments are those that apply to our preparation of the accompanying unaudited Consolidated Financial Statements. We have three segments: WSFS Bank, Cash Connect, and Wealth Management.

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

Cash Connect provides ATM vault cash and smart safe and cash logistics 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 segment provides a broad array of fiduciary, investment management, credit and deposit products to clients through four business lines. WSFS Wealth Investments provides insurance and brokerage products primarily to our retail banking clients. Cypress Capital Management, LLC is a registered investment advisor. Cypress’ primary market segment is high net worth individuals, offering a ‘balanced’ investment style focused on preservation of capital and current income. Christiana Trust provides fiduciary and investment services to personal trust clients, and trustee, agency, bankruptcy administration, custodial and commercial domicile services to corporate and institutional clients. WSFS Private Banking serves high net worth clients by delivering credit and deposit products and partnering with other business units to deliver investment management and fiduciary products and services.

Segment information for the three months ended March 31, 2016 and March 31, 2015 follows:

For the three months ended March 31, 2016:

(In Thousands)

WSFS Bank

Cash
Connect

Wealth
Management

Total

Statement of Operations

External customer revenues:

Interest income

48,038

—

2,008

50,046

Noninterest income

9,852

7,673

5,545

23,070

Total external customer revenues

57,890

7,673

7,553

73,116

Inter-segment revenues:

Interest income

1,061

—

1,895

2,956

Noninterest income

2,060

193

2,277

Total inter-segment revenues

3,121

193

1,919

5,233

Total revenue

61,011

7,866

9,472

78,349

External customer expenses:

Interest expense

4,497

—

193

4,690

Noninterest expenses

33,812

4,850

4,537

43,199

Provision for loan losses

815

—

(35

)

780

Total external customer expenses

39,124

4,850

4,695

48,669

Inter-segment expenses:

Interest expense

1,895

555

506

2,956

Noninterest expenses

217

715

1,345

2,277

Total inter-segment expenses

2,112

1,270

1,851

5,233

Total expenses

41,236

6,120

6,546

53,902

Income before taxes

19,775

1,746

2,926

24,447

Income tax provision

8,677

Consolidated net income

15,770

Capital expenditures

1,211

1,233

As of March 31, 2016:

Statement of Condition

Cash and cash equivalents

74,695

513,813

1,520

590,028

Goodwill

79,720

—

5,134

84,854

Other segment assets

4,812,640

3,173

194,299

5,010,112

Total segment assets

4,967,055

516,986

200,953

5,684,994

For the three months ended March 31, 2015:


(In Thousands)	WSFS Bank		Cash Connect		Wealth Management		Total
Statement of Operations
External customer revenues:
Interest income	$	40,823	$	—	$	2,028	$	42,851
Noninterest income		9,189		6,639		5,267		21,095

Total external customer revenues		50,012		6,639		7,295		63,946

Inter-segment revenues:
Interest income		871		—		1,447		2,318
Noninterest income		1,784		168		18		1,970

Total inter-segment revenues		2,655		168		1,465		4,288

Total revenue		52,667		6,807		8,760		68,234

External customer expenses:
Interest expense		3,912		—		122		4,034
Noninterest expenses		31,079		4,175		3,659		38,913
Provision for loan losses		733		—		53		786

Total external customer expenses		35,724		4,175		3,834		43,733

Inter-segment expenses
Interest expense		1,447		373		498		2,318
Noninterest expenses		186		614		1,170		1,970

Total inter-segment expenses		1,633		987		1,668		4,288

Total expenses		37,357		5,162		5,502		48,021

Income before taxes	$	15,310	$	1,645	$	3,258	$	20,213
Income tax provision								7,324

Consolidated net income								12,889

Capital expenditures (1)	$	497	$	234	$	3	$	734

As of December 31, 2015:
Statement of Condition
Cash and cash equivalents	$	65,663	$	493,165	$	2,351	$	561,179
Goodwill		80,078		—		5,134		85,212
Other segment assets		4,746,995		—		192,576		4,939,571

Total segment assets	$	4,892,736	$	493,165	$	200,061	$	5,585,962

(1)

Capital expenditures amounts have been adjusted to correct errors that were not material to our Form 10-Q for the quarterly period ended March 31, 2015. Previously reported capital expenditures were $817,000 for WSFS Bank, $0 for Cash Connect, $0 for Wealth Management, and $817,000 for Total Consolidated Company.

13. INDEMNIFICATIONS AND GUARANTEES

Secondary Market Loan Sales

Given the current interest rate environment, coupled with our desire not to hold these assets in our portfolio, we generally sell newly originated residential mortgage loans in the secondary market to mortgage loan aggregators and on a more limited basis, to GSEs such as FHLMC, FNMA, and the FHLB. Loans held-for-sale are reflected on our unaudited Consolidated Statements of Condition at fair value with changes in the value reflected in our unaudited Consolidated Statements of Cash Flows and Comprehensive Income. Gains and losses are recognized at the time of sale. We periodically retain the servicing rights on residential mortgage loans sold which result in monthly service fee income and are included in our intangible assets in our unaudited Consolidated Statements of Condition. Otherwise, we sell loans with servicing released on a nonrecourse basis. Rate-locked loan commitments that we intend to sell in the secondary market are accounted for as derivatives under the guidance promulgated in FASB ASC Topic 815, Derivatives and Hedging (ASC 815).

We generally do not sell loans with recourse, except for standard loan sale contract provisions covering violations of representations and warranties and, under certain circumstances, early payment default by the borrower. These are customary repurchase provisions in the secondary market for residential mortgage loan sales. These provisions may include either an indemnification from loss or the repurchase of the loans. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There were no such repurchases for the three months ended March 31, 2016.

Swap Guarantees.

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

At March 31, 2016 there were 123 variable-rate to fixed-rate swap transactions between the third party financial institutions and our customers, compared to 119 at December 31, 2015. The initial notional aggregated amount was approximately $488.9 million at March 31, 2016 compared to $481.6 million at December 31, 2015. At March 31, 2016 maturities ranged from four months to over 10 years. The aggregate market value of these swaps to the customers was a liability of $27.0 million at March 31, 2016 and $18.1 million at December 31, 2015. There were no reserves for the swap guarantees as of March 31, 2016.

14. CHANGE IN ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income includes unrealized gains and losses on available-for-sale investments and unrecognized prior service costs on defined benefit pension plans. Changes to accumulated other comprehensive income are presented net of tax effect as a component of equity. Reclassification out of accumulated other comprehensive income is recorded on the statement of operations either as a gain or loss.

Changes to accumulated other comprehensive income by component are shown net of taxes in the following tables for the three month periods indicated:


(In Thousands)	Net change in investment securities available-for-sale			Net change in securities held-to- maturity			Net change in defined benefit plan			Total
Balance, December 31, 2015	$	(1,887	)	$	1,795		$	788		$	696
Other comprehensive income before reclassifications		10,572			—			—			10,572
Less: Amounts reclassified from accumulated other comprehensive income		(189	)		(103	)		478			186

Net current-period other comprehensive income (loss)		10,383			(103	)		478			10,758

Balance, March 31, 2016	$	8,496		$	1,692		$	1,266		$	11,454

Balance, December 31, 2014	$	446		$	2,207		$	847		$	3,500
Other comprehensive income before reclassifications		4,567			—			—			4,567
Less: Amounts reclassified from accumulated other comprehensive loss		(280	)		(171	)		(15	)		(466	)

Net current-period other comprehensive income (loss)		4,287			(171	)		(15	)		4,101

Balance, March 31, 2015	$	4,733		$	2,036		$	832		$	7,601

The statements of operations impacted by components of other comprehensive income are presented in the table below:


(In Thousands)	Three Months Ended March 31,						Affected line item in Statements of Operations
(In Thousands)	2016			2015
Securities available-for-sale:
Realized gains on securities transactions	$	(305	)	$	(451	)	Security gains, net
Income taxes		116			171		Income tax provision

Net of tax	$	(189	)	$	(280	)

Net unrealized holding gains on securities transferred between available-for-sale and held-to-maturity:
Amortization of net unrealized gains to income during the period	$	(168	)	$	(171	)	Interest income on investment securities
Income taxes		65			—		Income tax provision

Net of tax	$	(103	)	$	(171	)

Amortization of Defined Benefit Pension items:
Prior service (credits) costs	$	(7	)	$	(19	)
Transition obligation					—
Actuarial losses (gains)		791			(5	)

Total before tax	$	784		$	(24	)	Salaries, benefits and other compensation
Income taxes		(306	)		9		Income tax provision

Net of tax		478			(15	)

Total reclassifications	$	186		$	(466	)

15. LEGAL AND OTHER PROCEEDINGS

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

On November 24, 2015 the Court entered summary judgment in favor of WSFS Bank on all but one of the remaining counts, leaving one count for resolution at trial. Based upon available information we believe the estimate of the aggregate range of reasonably possible losses for this legal proceeding is from approximately $0 to approximately $5.0 million at March 31, 2016. Costs of litigation were initially covered by insurance; however, such costs have now exceeded the limits of insurance coverage for this case.

Four purported shareholder derivative and class action complaints relating to the October 2015 merger with Alliance were filed during the quarter ended June 30, 2015. These actions were consolidated under the caption In re: Alliance Bancorp, Inc. of Pennsylvania Derivative and Class Action Litigation, Court of Common Pleas of Delaware County, Pennsylvania, Consol. Action Lead Case No. 2015-3606 (Civil Div.) (the Alliance Action). The complaint named as defendants Alliance Bancorp, Inc. of Pennsylvania, its directors and certain of its officers, and the Company (the Defendants).

As previously disclosed, on June 11, 2015, solely to avoid the costs, risks and uncertainties inherent in litigation, Alliance, WSFS and the other Defendants entered into a Memorandum of Understanding (the MOU) with the plaintiffs ( the Plaintiffs) regarding the settlement of the Alliance Action. Pursuant to the MOU, Alliance filed with the SEC and made publicly available to Alliance shareholders supplemental disclosures, and the Plaintiffs agreed to release Alliance, WSFS and the other Defendants from all claims related to the Merger Agreement and the proposed merger, subject to approval of the Court of Common Pleas of Delaware County (the Court). In the MOU, the parties agreed to negotiate in good faith to prepare a stipulation of settlement to be filed with the Court and other documentation as may be required to effectuate the settlement. Management does not expect this settlement to have a material impact on the Company’s Consolidated Statements of Operations or Consolidated Statements of Condition. There can be no assurance that the parties ultimately will enter into a stipulation of settlement or that the Court will approve the settlement even if the parties were to enter into such stipulation. The proposed settlement contemplated by the MOU will become void in the event that the parties do not enter into such stipulation or the Court does not approve the settlement.

Additionally, in 2013 a regulatory inquiry commenced into the registered transfer agent (“RTA”) activities of WSFS, as successor to Christiana Bank & Trust. As a result of issues arising from that inquiry, WSFS revamped Christiana Trust’s RTA policies and procedures and remediated all deficiencies. We have included the estimated financial liability from the expected resolution of this inquiry, which is not material, in our Consolidated Financial Statements as of March 31, 2016.

From time-to-time we are brought into certain legal matters and/or disputes through our Wealth Management segment, as a result of sometimes highly complex documents and servicing requirements that are part of this business. While the outcomes carry some degree of uncertainty, management does not currently anticipate that the ultimate liability, if any, arising out of such other proceedings we are aware of, will have a material effect on the Consolidated Financial Statements.

There were no material changes or additions to other significant pending legal or other proceedings involving us other than those arising out of routine operations.

16. SUBSEQUENT EVENTS

We reviewed subsequent events and determined that no further disclosures or measurements were required.

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

OVERVIEW

The Company is a savings and loan holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by the Company’s subsidiary, Wilmington Savings Fund Society, FSB, or WSFS Bank, the seventh oldest bank and trust company continuously operating under the same name in the United States. At $5.7 billion in assets and $13.1 billion in fiduciary assets, WSFS Bank is also the largest bank and trust company headquartered in Delaware and the Delaware Valley. As a federal savings bank, which was formerly chartered as a state mutual savings bank, the Bank enjoys broader fiduciary powers than most other types of financial institutions. A fixture in the community, the Bank has been in operation for more than 184 years. In addition to its focus on stellar customer service, the Bank has continued to fuel growth and remains a leader in our community. We are a relationship-focused, locally-managed, community banking institution. We state our mission simply: “We Stand for Service.” Our strategy of “Engaged Associates delivering Stellar Experiences growing Customer Advocates and value for our Owners” focuses on exceeding customer expectations, delivering stellar service and building customer advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates.

Our core banking business is commercial lending funded by customer-generated deposits. We have built a $3.2 billion commercial loan portfolio by recruiting the best seasoned commercial lenders in our markets and offering the high level of service and flexibility typically associated with a community bank. We fund this business primarily with deposits generated through commercial relationships and retail deposits. As of March 31, 2016, we service our customers primarily from our 63 offices located in Delaware (44), Pennsylvania (17), Virginia (1) and Nevada (1) and through our website at www.wsfsbank.com. We also offer a broad variety of consumer loan products, retail securities and insurance brokerage through our retail branches and mortgage and title services through those branches and through Pennsylvania-based WSFS Mortgage. WSFS Mortgage is a mortgage banking company specializing in a variety of residential mortgage and refinancing solutions.

On November 23, 2015, we announced the signing of an Agreement and Plan of Reorganization with Penn Liberty Financial Corp. (Penn Liberty) whereby Penn Liberty will merge into the Company and Penn Liberty Bank, a Pennsylvania – chartered bank and wholly owned subsidiary of Penn Liberty will merge into WSFS Bank. The company has obtained all required approvals to acquire Penn Liberty including Penn Liberty shareholder approval and regulatory approvals. The acquisition is subject to customary closing conditions.

The Cash Connect segment is a premier provider of ATM Vault Cash and smart safe and cash logistics in the United States. It manages $711 million in vault cash in over 17,000 non-bank ATMs nationwide and provides related services such as, online reporting and ATM cash management, predictive cash ordering, armored carrier management, ATM processing equipment sales and deposit safe cash logistics. Cash Connect also operates 442 ATMs for the Bank, which has the largest branded ATM network in Delaware.

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

The Wealth Management segment provides a broad array of fiduciary, investment management, credit and deposit products to clients through four businesses. WSFS Wealth Investments provides insurance and brokerage products primarily to our retail banking clients. Cypress is a registered investment advisor with approximately $634 million in assets under management. Cypress’ primary market segment is high net worth individuals and offers a ‘balanced’ investment style focused on preservation of capital and providing for current income. Christiana Trust, with $12.47 billion in assets under management and administration, provides fiduciary and investment services to personal trust clients, and trustee, agency, bankruptcy, custodial and commercial domicile services to corporate and institutional clients. WSFS Private Banking serves high net worth clients by delivering credit and deposit products and partnering with other business units to deliver investment management and fiduciary products and services.

The Company has two consolidated subsidiaries, WSFS Bank and Cypress, and one unconsolidated subsidiary, WSFS Capital Trust III. WSFS Bank has three wholly-owned subsidiaries, WSFS Wealth Investments, 1832 Holdings, Inc. and Monarch Entity Services LLC.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains estimates, predictions, opinions, projections and other “forward-looking statements” as that phrase is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, references to the Company’s predictions or expectations of future business or financial performance as well as its goals and objectives for future operations, financial and business trends, business prospects, and management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “prospects” or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could” or “may”, or by variations of such words or by similar expressions. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and are subject to risks and uncertainties (which change over time) and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to, those related to difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the market areas in which the Company operates and in which its loans are concentrated, including the effects of declines in housing markets, an increase in unemployment levels and slowdowns in economic growth; the Company’s level of nonperforming assets and the costs associated with resolving any problem loans including litigation and other costs; changes in market interest rates may increase funding costs and reduce earning asset yields thus reducing margin; the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect of such changes on the market value of the Company’s investment securities portfolio; the credit risk associated with the substantial amount of commercial real estate, construction and land development, and commercial and industrial loans in our loan portfolio; the extensive federal and state regulation, supervision and examination governing almost every aspect of the Company’s operations including the changes in regulations affecting financial institutions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations being issued in accordance with this statute and potential expenses associated with complying with such regulations; possible additional loan losses and impairment of the collectability of loans; the Company’s ability to comply with applicable capital and liquidity requirements (including the finalized Basel III capital standards), including our ability to generate liquidity internally or raise capital on favorable terms; possible changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations; any impairment of the Company’s goodwill or other intangible assets; failure of the financial and operational controls of the Company’s Cash Connect division; conditions in the financial markets that may limit the Company’s access to additional funding to meet its liquidity needs; the success of the Company’s growth plans, including the successful integration of past and future acquisitions; the Company’s ability to complete the pending merger with Penn Liberty on the terms and conditions proposed which are subject to a number of conditions, risks and uncertainties delay in closing the merger, difficulties and delays in integrating the Penn Liberty business or fully realizing cost savings and other benefits of the merger, business disruption following the merger, Penn Liberty’s customer acceptance of the Company’s products and services and related customer disintermediation; negative perceptions or publicity with respect to the Company’s trust and wealth management business; system failure or cybersecurity breaches of the Company’s network security; the Company’s ability to recruit and retain key employees; the effects of problems encountered by other financial institutions that adversely affect the Company or the banking industry generally; the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes as well as effects from geopolitical instability and man-made disasters including terrorist attacks; possible changes in the speed of loan prepayments by the Company’s customers and loan origination or sales volumes; possible acceleration of prepayments of mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on prepayments on mortgage-backed securities due to low interest rates; regulatory limits on the Company’s ability to receive dividends from its subsidiaries and pay dividends to its shareholders; the effects of any reputational, credit, interest rate, market, operational, legal, liquidity, regulatory and compliance risk resulting from developments related to any of the risks discussed above; and the costs associated with resolving any problem loans, litigation and other risks and uncertainties, discussed in the Company’s Form 10-K for the year ended December 31, 2015 and other documents filed by the Company with the Securities and Exchange Commission from time to time. Forward looking statements are as of the date they are made, and the Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

CRITICAL ACCOUNTING POLICIES

The preparation of the unaudited Consolidated Financial Statements in accordance with U.S. GAAP, requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenue and expenses. We regularly evaluate these estimates and assumptions including those used to determine the allowance for loan losses, investment in reverse mortgages, deferred taxes, fair value measurements, goodwill and other intangible assets. We base our estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of assets and liabilities that are not readily apparent from other sources. Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2016, it is reasonably possible that actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Actual results may differ from these estimates under different assumptions or conditions.

See further discussion of these critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2015 and Note 1, Basis of Presentation, to the unaudited Consolidated Financial Statements.

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

Financial Condition

Our total assets increased $100.4 million, or 2%, to $5.68 billion during the three months ended March 31, 2016. Included in this increase was a $54.8 million, or 6%, increase in investment securities as a result of ongoing portfolio management and a $23.0 million, or 1%, increase in net loans. The increase in net loans was primarily the result of an increase in commercial and industrial loans of $40.6 million. Partially offsetting this increase was an $18.5 million decrease in residential mortgages due to our strategy of selling newly originated residential mortgages in the secondary market.

Total liabilities increased $83.2 million, or 2%, to $5.09 billion during the three months ended March 31, 2016. This increase was primarily the result of an increase in total deposits of $52.2 million, or 1%, and an increase in FHLB advances of $38.3 million, or 6%. The increase in total deposits included an $8.9 million increase in customer deposits and a $43.3 million increase in brokered deposits. The increases in brokered deposits and FHLB advances were due to loan growth and ongoing portfolio management. These increases were partially offset by a decrease of $7.9 million, or 15% in other liabilities.

Capital Resources

During the first quarter of 2015, the WSFS Board of Directors declared a three-for-one stock split of our common stock in the form of a stock dividend. On May 4, 2015, stockholders approved an increase in the authorized shares of common stock from 20.0 million to 65.0 million. The stock dividend was paid on May 18, 2015 to stockholders on record as of May 4, 2015.

During the first quarter of 2016, WSFS repurchased 301,871 shares of common stock at an average price of $29.75 as part of our 5% buyback program approved by the Board of Directors during the fourth quarter of 2015. WSFS has 1,098,694 shares, or just under 4% of outstanding shares, remaining to repurchase under this current authorization.

Stockholders’ equity increased $17.1 million between December 31, 2015 and March 31, 2016. This increase was primarily due to net income of $15.8 million during the three months ended March 31, 2016.

Tangible common book value per share of common stock (a non-GAAP financial measure) was $17.04 at March 31, 2016, an increase of $0.74, or 5%, from $16.30 at December 31, 2015. Book value per share of common stock was $20.24 at March 31, 2016, an increase of $0.74, or 4% from $19.50 at December 31, 2015.

Below is a table comparing WSFS Bank’s consolidated capital position to the minimum regulatory requirements as of March 31, 2016:


											To be Well-Capitalized Under Prompt Corrective Action Provisions
	Consolidated Bank Capital					For Capital Adequacy Purposes
(In Thousands)	Amount		% of Assets			Amount		% of Assets			Amount		% of Assets
Total Capital (to Risk-Weighted Assets)	$	616,271		12.96	%	$	380,291		8.00	%	$	475,364		10.00	%

Tier 1 Capital (to Risk-Weighted Assets)		578,113		12.16			285,218		6.00			380,291		8.00
Common Equity Tier 1 Capital (to Risk-Weighted Assets)		578,113		12.16			213,914		4.50			308,987		6.50

Tier 1 Leverage Capital		578,113		10.50			220,291		4.00			275,364		5.00

Under new guidelines issued by banking regulators effective January 1, 2015, savings institutions such as WSFS Bank must maintain a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, a minimum ratio of total capital to risk-weighted assets of 8.0%, and a minimum Tier 1 leverage ratio of 4.0%. Failure to meet minimum capital requirements can initiate certain mandatory actions and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.

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

At March 31, 2016, WSFS Bank was in compliance with regulatory capital requirements and all of its regulatory capital ratios exceeded “well-capitalized” regulatory benchmarks. WSFS Bank’s total risk based capital ratio was 12.96%, Tier 1 capital ratio and total common equity tier 1 capital was 12.16%. In addition, and not included in the WSFS Bank capital, WSFS separately held $36.9 million in cash to support share repurchases, potential dividends, acquisitions, strategic growth plans and other general capital purposes.

Liquidity

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

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

During the three months ended March 31, 2016, cash and cash equivalents increased $28.8 million to $590.0 million from $561.2 as of December 31, 2015. This increase was primarily the result of a $43.3 million increase in brokered deposits, a $38.3 million increase in FHLB advances, a $8.9 million increase in customer deposits, and a $14.0 million increase in retained earnings due primarily to net income for the three months ended March 31, 2016. This increase was partially offset by a $53.7 million increase in investment securities, available-for-sale, and a $23.0 million increase in net loans.

NONPERFORMING ASSETS

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

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


(In Thousands)	March 31, 2016			December 31, 2015
Nonaccruing loans:
Commercial	$	4,933		$	5,328
Owner-occupied commercial		1,269			1,091
Consumer		4,115			4,133
Commercial mortgages		2,596			3,326
Residential mortgages		6,878			7,287
Construction		—			—

Total nonaccruing loans		19,791			21,165
Assets acquired through foreclosure		3,979			5,080
Troubled debt restructuring (accruing)		13,909			13,647

Total nonperforming assets	$	37,679		$	39,892

Past due loans:⁽¹⁾
Residential mortgages	$	—		$	251
Consumer		127			252
Commercial and commercial mortgages		—			17,529

Total past due loans	$	127		$	18,032

Ratio of allowance for loan losses to total loans ⁽²⁾		0.99	%		0.98	%
Ratio of nonaccruing loans to total loans ⁽²⁾		0.52			0.56
Ratio of nonperforming assets to total assets		0.66			0.71
Ratio of loan loss allowance to nonaccruing loans		189.76			175.27
Ratio of loan loss allowance to total nonperforming assets		1.00			0.93

⁽¹⁾	Accruing loans only which includes acquired nonimpaired loans. Nonaccruing TDR’s are included in their respective categories of nonaccruing loans.

⁽²⁾	Total loans exclude loans held for sale.

Nonperforming assets decreased $2.2 million between December 31, 2015 and March 31, 2016. As a result, nonperforming assets as a percentage of total assets decreased from 0.71% at December 31, 2015 to 0.66% at March 31, 2016. This decrease is due to significant collections and workout activity. One relationship in particular paid down over $600,000. There were eight Real Estate Owned (OREO) properties with a total balance of $1.8 million sold during the first quarter of 2016. However this was offset by $764,000 in new OREO properties. Past due loans decreased $18 million from December 31, 2015 to March 31, 2016 due to successful collection efforts on one large C&I loan.

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


(In Thousands)	For the Three Months Ended March 31, 2016			For the Year Ended December 31, 2015
Beginning balance	$	39,892		$	52,385
Additions		2,473			12,897
Collections		(3,940	)		(14,167	)
Transfers to accrual		—			(95	)
Charge-offs, net		(746	)		(11,128	)

Ending balance	$	37,679		$	39,892

The timely identification of problem loans is a key element in our strategy to manage our loan portfolio. Problem loans include special mention, sub-standard (performing and nonperforming excluding purchase credit impaired) and 90 days delinquent and still accruing. Timely identification enables us to take appropriate action and, accordingly, minimize losses. An asset review system established to monitor the asset quality of our loans and investments in real estate portfolios facilitates the identification of problem assets. In general, this system utilizes guidelines established by federal regulation.

INTEREST RATE SENSITIVITY

The matching of maturities or repricing periods of interest rate-sensitive assets and liabilities to promote a favorable interest rate spread and mitigate exposure to fluctuations in interest rates is our primary tool for achieving our asset/liability management strategies. We regularly review our interest rate sensitivity and adjust the sensitivity within acceptable tolerance ranges. At March 31, 2016, interest-earning assets exceeded interest-bearing liabilities that mature or reprice within one year (interest-sensitive gap) by $105.7 million. Our interest-sensitive liabilities as a percentage of interest-sensitive assets within the one-year window decreased from 103.9% at December 31, 2015 to 103.7% at March 31, 2016. Likewise, the one-year interest-sensitive gap as a percentage of total assets changed to 1.86% at March 31, 2016 from 1.96% at December 31, 2015. The low rate level of sensitivity reflects our continuing efforts to effectively manage interest rate risk.

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

The following table shows the estimated impact of immediate changes in interest rates on our net interest margin and economic value of equity ratio at the specified levels at March 31, 2016 and December 31, 2015:


	March 31, 2016		December 31, 2015
% Change in Interest Rate (Basis Points)	% Change in Net Interest Margin ⁽¹⁾	Economic Value of Equity ⁽²⁾	% Change in Net Interest Margin ⁽¹⁾	Economic Value of Equity⁽²⁾
+300	5%	13.67%	6%	13.96%
+200	3%	13.69%	3%	13.99%
+100	-%	13.51%	-%	13.81%
—	-%	13.05%	-%	13.56%
-100	-1%	12.07%	-1%	12.72%
-200 ⁽³⁾	NMF	NMF	NMF	NMF
-300 ⁽³⁾	NMF	NMF	NMF	NMF

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

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

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

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

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2016 AND MARCH 31, 2015

Results of Operations

We recorded net income of $15.8 million, or $0.52 per diluted common share, for the three months ended March 31, 2016, a $2.9 million, or 22% increase from the $12.9 million, or $0.45 per share, recorded for the three months ended March 31, 2015. Results for the first quarter of 2015 included $808,000 (pre-tax) of interest income, or $0.02 per share, from a special one-time dividend payment from the FHLB. The increase in net income reflected both strong organic and acquisition growth of our business as well as an improved balance sheet mix. Net interest income increased by $6.5 million in the quarter ending March 31, 2016 as compared to the same period last year, due to growth in our loan portfolio, an improved balance sheet mix, and the positive purchase accounting impacts from recent acquisitions. Also favorably impacting earnings for the first quarter of 2016 was a $2.0 million increase in noninterest income due primarily to organic growth in our Cash Connect and Wealth Management segments. Partially offsetting these increases was a $4.3 million increase in noninterest expenses primarily due to higher salaries, benefits and operating costs due to our significant organic and acquisition growth and typical first quarter seasonality.

Net Interest Income

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


	Three Months Ended March 31,
	2016								2015
(Dollars In Thousands)	Average Balance			Interest		Yield/ Rate ⁽¹⁾			Average Balance			Interest		Yield/ Rate ⁽¹⁾
*Assets:*
Interest-earning assets:
Loans (2) (3):
Commercial real estate loans	$	1,192,711		$	14,280		4.82	%	$	955,680		$	11,225		4.70	%
Residential real estate loans (4)		286,853			3,179		4.43			249,612			2,414		3.87
Commercial loans		1,970,680			21,965		4.52			1,700,948			19,038		4.50
Consumer loans		361,040			4,093		4.56			325,449			3,567		4.44

Total loans		3,811,284			43,517		4.61			3,231,689			36,244		4.50
Mortgage-backed securities (5) (6)		711,352			3,894		2.19			723,018			3,433		1.90
Investment securities (5) (6)		203,665			1,220		3.54			158,028			860		3.22
Reverse mortgages (5) (6)		25,137			1,045		16.63			28,253			1,236		17.50
Other interest-earning assets		30,558			370		4.87			31,623			1,078		13.83

Total interest-earning assets		4,781,996			50,046		4.27			4,172,611			42,851		4.22

Allowance for loan losses		(37,544	)							(39,674	)
Cash and due from banks		93,998								81,149
Cash in non-owned ATMs		452,052								402,072
Bank-owned life insurance		90,290								76,583
Other noninterest-earning assets		215,201								146,907

Total assets	$	5,595,993							$	4,839,648

*Liabilities and Stockholders’ Equity:*
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand	$	766,209		$	245		0.13	%	$	673,976		$	152		0.09	%
Money market		1,098,595			748		0.27			875,273			538		0.25
Savings		443,822			139		0.13			408,555			52		0.05
Customer time deposits		574,422			745		0.52			490,077			1,049		0.87

Total interest-bearing customer deposits		2,883,048			1,877		0.26			2,447,881			1,791		0.30
Brokered certificates of deposit		166,974			241		0.58			180,618			151		0.34

Total interest-bearing deposits		3,050,022			2,118		0.28			2,628,499			1,942		0.30
FHLB of Pittsburgh advances		674,247			1,048		0.63			610,954			713		0.47
Trust preferred borrowings		67,011			371		2.23			67,011			327		1.98
Senior Debt		53,741			942		6.85			53,462			942		6.85
Other borrowed funds (7)		155,011			211		0.54			127,325			110		0.35

Total interest-bearing liabilities		4,000,032			4,690		0.47			3,487,251			4,034		0.47

Noninterest-bearing demand deposits		949,607								811,365
Other noninterest-bearing liabilities		54,307								40,628
Stockholders’ equity		592,047								500,404

Total liabilities and stockholders’ equity	$	5,595,993							$	4,839,648

Excess of interest-earning assets over interest-bearing liabilities	$	781,964							$	685,360

Net interest and dividend income				$	45,356							$	38,817

Interest rate spread							3.80	%							3.75	%

Net interest margin (8)							3.87	%							3.82	%

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

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

(3)	Balances are reflected net of unearned income.

(4)	Includes residential mortgage loans HFS.

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

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

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

(8)	Beginning in 2015, the annualization method used to calculate net interest margin was changed to actual/actual from 30/360. All net interest margin calculations were updated to reflect this change.

During the three months ended March 31, 2016, net interest income increased $6.5 million, or 17% from the three months ended March 31, 2015, and the net interest margin was 3.87%, a five basis point increase compared to 3.82% for the first quarter of 2015. The first quarter of 2015 net interest income and net interest margin reflect a special FHLB dividend of $808,000, or 8 basis points of net interest margin. These year-over-year increases in margin dollars and percentages reflect the impact of organic and acquisition growth and an improved balance sheet mix, in addition to the positive purchase accounting impacts from recent acquisitions.

Provision/Allowance for Loan Losses

We maintain an allowance for loan losses at an appropriate level based on our assessment of estimable and probable losses in the loan portfolio, pursuant to GAAP, which is discussed in “Nonperforming Assets”. Our evaluation is based upon a review of the portfolio and requires significant, complex and difficult judgments. For the three months ended March 31, 2016 and 2015, we recorded a provision for loan losses of $780,000 and $786,000, respectively.

Our allowance for loan losses is based on the inherent risk of our loans and various other factors including but not limited to, collateral values, trends in asset quality, level of delinquent loans and concentrations. In addition, regional economic conditions are taken into consideration. The allowance for loan losses of $37.6 million at March 31, 2016 increased slightly from $37.1 million at December 31, 2015, and reflects continued strong credit quality metrics in our loan portfolio, with most metrics at or near their historic lows. The ratio of allowance for loan losses to total gross loans was 0.99% at March 31, 2016, compared to 0.98% at December 31, 2015. The allowance for loan losses and provision reflect the following:

•

Total net loans increased $23.1 million at March 31, 2016 when compared to December 31, 2015.

•

Total loan delinquency decreased to 0.60% as of March 31, 2016, compared to 1.17% as of December 31, 2015.

•

Net charge-offs were a low $313,000 for the three months ended March 31, 2016 compared to $705,000 for the three months ended March 31, 2015.

•

Total nonperforming assets declined $2.2 million to $37.7 million during the three months ended March 31, 2016.

The table below represents a summary of changes in the allowance for loan losses for the nine months ended March 31, 2016 and 2015, respectively.


	For the Three Months Ended March 31,
(In Thousands)	2016			2015
Beginning balance	$	37,089		$	39,426
Provision for loan losses		780			786
Charge-offs:
Commercial		179			131
Owner-occupied commercial		—			330
Commercial real estate		17			39
Construction		26			—
Residential real estate		14			125
Consumer		488			289
Overdrafts		143			161

Total charge-offs		867			1,075

Recoveries:
Commercial		110			26
Owner-occupied commercial		38			4
Commercial real estate		79			79
Construction		46			49
Residential real estate		22			11
Consumer		172			103
Overdrafts		87			98

Total recoveries		554			370

Net charge-offs		313			705

Ending balance	$	37,556		$	39,507

Net charge-offs to average gross loans outstanding, net of unearned income⁽¹⁾		0.03	%		0.09	%

⁽¹⁾	Ratios for the three months ended March 31, 2016 and 2015 are annualized.

Noninterest (fee) Income

During the first quarter of 2016, the company earned fee income of $23.1 million, an increase of $2.0 million, or 9%, compared to $21.1 million in the first quarter of 2015. Excluding net security gains in both periods, fee income increased $2.1 million, or 10%. This increase is a result of continued organic growth in the Cash Connect and Wealth Management segments, including increases of $874,000 in credit/debit card and ATM income and $161,000 in investment management and fiduciary revenue. In addition, the increase in fee revenue compared to the first quarter of 2015 included a $371,000 increase in deposit service charges and $355,000 from gain on sale of Small Business Administration (SBA) loans.

Noninterest Expense

Noninterest expense for the first quarter of 2016 was $43.2 million, an increase of $4.3 million, or 11%, from $38.9 million in the first quarter of 2015. Excluding corporate development costs in both periods, noninterest expense also increased $4.3 million compared to the first quarter of 2015. This increase included a $1.9 million increase in salaries, benefits and other compensation to support our significant organic and acquisition growth, and a $931,000 increase in professional fees primarily due to higher legal and consulting fees in our Wealth Management segment. In addition, the acquisition of Alliance during the third quarter of 2015 resulted in a $1.8 million increase in operating costs during the first quarter of 2016 compared to the first quarter of 2015.

Income Taxes

We and our subsidiaries file a consolidated federal income tax return and separate state income tax returns. Income taxes are accounted for in accordance with ASC 740, which requires the recording of deferred income taxes for tax consequences of temporary differences. We recorded an income tax expense of $8.7 million during the three months ended March 31, 2016, compared to an income tax expense of $7.3 million for the same period in 2015.

Our effective tax rate was 35.5% for the three months ended March 31, 2016, compared to 36.2% during the same period in 2015. The reduction in the effective tax rate is due to lower nondeductible acquisition costs in 2016 combined with increased tax-exempt income.

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

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

RECONCILIATION OF NON-GAAP MEASUREMENT TO GAAP

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


(In Thousands, except for value per share amounts)	March 31, 2016			December 31, 2015
Tangible Common Book Value per Share of Common Stock
End of period balance sheet data:
Stockholders’ equity	$	597,580		$	580,471
Goodwill and other intangible assets		(94,572	)		(95,295	)

Tangible common equity (numerator)	$	503,008		$	485,176

Shares of common stock outstanding (denominator)		29,522			29,763

Book value per share of common stock	$	20.24		$	19.50
Goodwill and other intangible assets		(3.20	)		(3.20	)

Tangible book value per share of common stock	$	17.04		$	16.30

RECENT LEGISLATION

General

As a federally chartered savings institution the Bank is subject to regulation by the FHFA, an independent agency in the executive branch of the U.S. government, the FDIC, the Federal Reserve and the OCC (collectively, the Federal banking agencies). The lending activities and other investments of the Bank must comply with various federal regulatory requirements. The OCC periodically examines the Bank for compliance with regulatory requirements. The FDIC also has the authority to conduct special examinations of the Bank. The Bank must file reports with the OCC describing its activities and financial condition. The Bank is also subject to certain reserve requirements promulgated by the FHFA and the Federal Reserve.

CEO pay ratio disclosure

On August 5, 2015, the SEC adopted a new rule requiring public companies to disclose the CEO’s annual total compensation, the annual total compensation of the company’s median employee, and the ratio of these two amounts in certain SEC Filings that require executive compensation information. With certain exceptions, registrants must comply with this rule for the first fiscal year beginning on or after January 1, 2017.

Basel III

In 2013, the Federal banking agencies approved the final rules implementing the BCBS capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%, require a minimum ratio of total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. The final rules also establish a new capital conservation buffer, comprised of common equity Tier 1 capital, above the regulatory minimum capital requirements. This capital conservation buffer will be phased-in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. The final rules also revise the standards for an insured depository institution to be “well-capitalized” under the banking agencies’ prompt corrective action framework, requiring a common equity Tier 1 capital ratio of 6.5%, Tier 1 capital ratio of 8.0% and total capital ratio of 10.0%, while leaving unchanged the existing 5.0% leverage ratio requirement. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. Newly issued trust preferred securities and cumulative perpetual preferred stock may no longer be included in Tier 1 capital. However, for depository institution holding companies of less than $15 billion in total consolidated assets, such as the Company, most outstanding trust preferred securities and other non-qualifying securities issued prior to May 19, 2010 are permanently grandfathered to be included in Tier 1 capital (up to a limit of 25% of Tier 1 capital, excluding non-qualifying capital instruments).

The phase-in period for the final rules began for us on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule and should be fully phased-in by January 1, 2019. Our capital levels at March 31, 2016 remain in excess of the “well-capitalized” regulatory benchmarks under the new rules.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.

Controls and Procedures

(a)

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

(b)

Changes in internal control over financial reporting. During the quarter ended March 31, 2016, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1.

Legal Proceedings

Incorporated herein by reference to Note 15 – Legal Proceedings to the Consolidated Financial Statements

Item 1A.

Risk Factors

Our management does not believe there have been any material changes to the risk factors previously disclosed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, previously filed with the SEC.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table represents information with respect to repurchases of common stock made by the Company during the three months ended March 31, 2016.


2016	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
February		222,537	$	28.95		203,108		1,197,457
March		102,186		32.00		98,763		1,098,694

Total		324,723	$	29.91		301,871

(1)	Amounts include shares repurchased that were not part of a publicly announced repurchase plan or program. These shares were owned and tendered by employees as payment for taxes on vesting of restricted stock.

(2)

During the fourth quarter of 2015, the Board of Directors approved a stock buyback program of up to 5% of total outstanding shares of common stock. Under the program, purchases may be made from time to time in the open market or through negotiated transactions, subject to market conditions and other factors, and in accordance with applicable securities laws. There is no fixed termination date for the repurchase program, and the repurchase program may be suspended or discontinued at any time.

Item 3.

Defaults upon Senior Securities

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable

Item 5.

Other Information

Not applicable

Item 6.

Exhibits

(a)

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

(b)

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

(c)

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

(d)

Exhibit 101.INS – XBRL Instance Document

(e)

Exhibit 101.SCH – XBRL Schema Document

(f)

Exhibit 101.CAL – XBRL Calculation Linkbase Document

(g)

Exhibit 101.LAB – XBRL Labels Linkbase Document

(h)

Exhibit 101.PRE – XBRL Presentation Linkbase Document

(i)

Exhibit 101.DEF – XBRL Definition Linkbase Document

SIGNATURES

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


						WSFS FINANCIAL CORPORATION

Date: May 06, 2016						/s/ Mark A. Turner
						Mark A. Turner
						President and Chief Executive Officer
						(Principal Executive Officer)

Date: May 06, 2016						/s/ Rodger Levenson
						Rodger Levenson
						Executive Vice President and
						Chief Financial Officer
						(Principal Financial and Accounting Officer)

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