WSFS FINANCIAL CORP - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2020


☐			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)

500 Delaware Ave,

Wilmington, Delaware, 19801

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (302) 792-6000

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

WSFS

Nasdaq Global Select Market

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 every Interactive Data File required to be submitted 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 such files). Yes x No ☐

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

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Number of shares outstanding of the issuer's common stock, as of the latest practicable date: 50,402,351 shares as of October 31, 2020.

WSFS FINANCIAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS


	PART I. Financial Information	Page
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2020 and 2019	5
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019	6
	Consolidated Statements of Financial Condition as of September 30, 2020 and December 31, 2019	7
	Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019	8
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	10
	Notes to the Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2020	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	61
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	78
Item 4.	Controls and Procedures	78
PART II. Other Information
Item 1.	Legal Proceedings	78
Item 1A.	Risk Factors	79
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 3.	Defaults upon Senior Securities	81
Item 4.	Mine Safety Disclosures	81
Item 5.	Other Information	81
Item 6.	Exhibits	81

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, and exhibits hereto, contains estimates, predictions, opinions, projections and other “forward-looking statements” as that phrase is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, references to the Company’s predictions or expectations of future business or financial performance as well as its goals and objectives for future operations, financial and business trends, business prospects and management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or business performance, strategies or expectations. The words “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project” and similar expressions, among others, generally identify forward-looking statements. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and are subject to risks and uncertainties (which change over time) and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to:

•difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the markets in which the Company operates and in which its loans are concentrated, including possible declines in housing markets, an increase in unemployment levels and slowdowns in economic growth, including as a result of the novel coronavirus, or COVID-19, pandemic;

•possible additional loan losses and impairment of the collectability of loans, particularly as a result of the COVID-19 pandemic and the policies and programs implemented by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, including its automatic loan forbearance provisions and the Company's Paycheck Protection Program (PPP) lending activities;

•the economic and financial impact of federal, state and local emergency orders and other actions taken in response to the COVID-19 pandemic;

•the Company’s level of nonperforming assets and the costs associated with resolving problem loans including litigation and other costs and complying with government-imposed foreclosure moratoriums;

•changes in market interest rates, which may increase funding costs and reduce earning asset yields and thus reduce margin;

•the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect of such changes on the market value of the Company’s investment securities portfolio;

•the credit risk associated with the substantial amount of commercial real estate, construction and land development and commercial and industrial loans in the Company's loan portfolio;

•the extensive federal and state regulation, supervision and examination governing almost every aspect of the Company’s operations and potential expenses associated with complying with such regulations;

•the Company’s ability to comply with applicable capital and liquidity requirements (including the effect of the transition to the Current Expected Credit Losses (CECL) methodology for allowances and related adjustments), including its ability to generate liquidity internally or raise capital on favorable terms;

•possible changes in trade, monetary and fiscal policies and stimulus programs, laws and regulations and other activities of governments, agencies, and similar organizations, and the uncertainty of the short- and long-term impacts of such changes;

•any impairments of the Company's goodwill or other intangible assets;

•conditions in the financial markets, including the destabilized economic environment caused by the COVID-19 pandemic, that may limit the Company’s access to additional funding to meet its liquidity needs;

•the intention of the United Kingdom's Financial Conduct Authority (FCA) to cease support of London Inter-Bank Offered Rate (LIBOR) and the transition to an alternative reference interest rate, including methodologies for calculating the rate that are different from the LIBOR methodology and changed language for existing and new floating or adjustable rate contracts;

•the success of the Company's growth plans, including its plans to grow the commercial small business leasing portfolio and residential mortgage, small business and Small Business Administration (SBA) portfolios;

•the successful integration of acquisitions;

•the Company’s ability to fully realize the cost savings and other benefits of its acquisitions, manage risks related to business disruption following those acquisitions, and post-acquisition Customer acceptance of the Company’s products and services and related Customer disintermediation;

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•negative perceptions or publicity with respect to the Company generally and, in particular, the Company’s trust and wealth management business;

•failure of the financial and operational controls of the Company’s Cash Connect® division;

•adverse judgments or other resolution of pending and future legal proceedings, and cost incurred in defending such proceedings;

•the Company's reliance on third parties for certain important functions, including the operation of its core systems, and any failures by such third parties;

•system failures or cybersecurity incidents or other breaches of the Company’s network security, particularly given widespread remote working arrangements;

•the Company’s ability to recruit and retain key Associates;

•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;

•the effects of regional or national civil unrest (including any resulting branch or ATM closures or damage);

•possible changes in the speed of loan prepayments by the Company’s Customers and loan origination or sales volumes;

•possible changes in the speed of prepayments of mortgage-backed securities due to changes in the interest rate environment, particularly as a result of the COVID-19 pandemic, and the related acceleration of premium amortization on prepayments in the event that prepayments accelerate;

•regulatory limits on the Company’s ability to receive dividends from its subsidiaries and pay dividends to its stockholders;

•any reputation, credit, interest rate, market, operational, litigation, legal, liquidity, regulatory and compliance risk resulting from developments related to any of the risks discussed above; and

•other risks and uncertainties, including those discussed in other documents filed by the Company with the Securities and Exchange Commission (SEC) from time to time.

The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. The Company disclaims any duty to revise or update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company for any reason, except as specifically required by law.

As used in this Quarterly Report on Form 10-Q, the terms “WSFS”, “the Company”, “registrant”, “we”, “us”, and “our” mean WSFS Financial Corporation and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.

Cash Connect® is the Company's registered trademark. Any other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

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WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
(Dollars in thousands, except per share and share data)	(Unaudited)
Interest income:
Interest and fees on loans and leases	$	110,195	$	124,800	$	341,657	$	340,918
Interest on mortgage-backed securities	11,686		12,989		37,454		35,684
Interest and dividends on investment securities:
Taxable	435		29		552		79
Tax-exempt	830		939		2,648		2,963
Other interest income	224		2,505		797		4,098
	123,370		141,262		383,108		383,742
Interest expense:
Interest on deposits	8,346		16,851		32,815		43,916
Interest on Federal Home Loan Bank advances	445		1,099		1,900		4,495
Interest on senior debt	1,179		1,179		3,538		3,538
Interest on federal funds purchased	—		602		471		2,194
Interest on trust preferred borrowings	347		693		1,417		2,136
Interest on other borrowings	5		5		13		84
	10,322		20,429		40,154		56,363
Net interest income	113,048		120,833		342,954		327,379
Provision for credit losses	2,716		4,121		154,116		23,970
Net interest income after provision for credit losses	110,332		116,712		188,838		303,409
Noninterest income:
Credit/debit card and ATM income	7,251		13,115		27,916		38,307
Investment management and fiduciary income	13,266		10,459		35,157		30,988
Deposit service charges	4,772		6,139		14,594		16,988
Mortgage banking activities, net	11,507		3,152		23,472		8,090
Loan and lease fee income	1,165		823		3,381		2,358
Securities gains, net	3,322		—		5,923		78
Unrealized gains on equity investments, net	104		21,344		761		26,175
Realized gain on sale of equity investment	—		—		22,052		—
Bank owned life insurance income	591		277		1,011		877
Other income	7,193		7,037		20,126		22,478
	49,171		62,346		154,393		146,339
Noninterest expense:
Salaries, benefits and other compensation	48,772		48,914		142,875		133,669
Occupancy expense	8,152		9,085		24,114		24,262
Equipment expense	5,678		5,564		16,401		14,997
Data processing and operations expenses	3,198		3,861		9,337		10,180
Professional fees	4,611		3,180		13,634		7,967
Marketing expense	1,451		1,373		3,617		4,910
Loss on early extinguishment of debt	2,280		—		2,280		—
FDIC expenses	829		(227)		1,080		1,435
Loan workout and other credit costs	1,422		846		6,462		2,537
Corporate development expense	428		10,517		4,570		51,090
Restructuring expense	—		8,360		—		14,603


Other operating expense	16,719		18,088		51,101		49,351
	93,540		109,561		275,471		315,001
Income before taxes	65,963		69,497		67,760		134,747
Income tax provision	15,140		15,902		14,181		32,253
Net income	$	50,823	$	53,595	$	53,579	$	102,494
Less: Net loss attributable to noncontrolling interest	(322)		(287)		(1,382)		(611)
Net income attributable to WSFS	$	51,145	$	53,882	$	54,961	$	103,105
Earnings per share:
Basic	$	1.01	$	1.02	$	1.08	$	2.13
Diluted	$	1.01	$	1.02	$	1.08	$	2.12
Weighted average shares of common stock outstanding:
Basic	50,665,359		52,863,202		50,801,777		48,381,338
Diluted	50,684,493		53,054,368		50,832,085		48,668,460

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

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WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
(Dollars in thousands)	(Unaudited)				(Unaudited)
Net income	$	50,823	$	53,595	$	53,579	$	102,494
Less: Net loss attributable to noncontrolling interest	(322)		(287)		(1,382)		(611)
Net income attributable to WSFS	51,145		53,882		54,961		103,105
Other comprehensive (loss) income:
Net change in unrealized (losses) gains on investment securities available-for-sale
Net unrealized (losses) gains arising during the period, net of tax (benefit) expense of $(1,097), $2,911, $14,610 and $14,565, respectively	(3,474)		9,268		46,264		46,124

Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $797, $—, $1,421, and $19, respectively	(2,525)		—		(4,501)		(59)
	(5,999)		9,268		41,763		46,065
Net change in securities held-to-maturity
Amortization of unrealized gain on securities reclassified to held-to-maturity, net of tax expense of $12, $22, $50, and $78, respectively	(39)		(70)		(161)		(247)
Net change in unfunded pension liability
Change in unfunded pension liability related to unrealized loss, prior service cost and transition obligation, net of tax benefit of $8, $11, $15, and $66, respectively	(25)		(35)		(47)		(210)
Pension settlement, net of tax expense of $—, $—, $67, and $—, respectively	—		—		212		—
	(25)		(35)		165		(210)
Net change in cash flow hedge
Net unrealized gain arising during the period, net of tax expense of $—, $116, $493, and $633, respectively	—		368		1,560		2,005
Amortization of unrealized gain on terminated cash flow hedges, net of tax benefit of $36, $—, $71, and $—, respectively	(113)		—		(224)		—
	(113)		368		1,336		2,005
Net change in equity method investments
Net change in other comprehensive loss of equity method investments, net of tax benefit of $3, $—, $3, and $—, respectively	(9)		—		(9)		—
Total other comprehensive (loss) income	(6,185)		9,531		43,094		47,613
Total comprehensive income	$	44,960	$	63,413	$	98,055	$	150,718

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

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WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	September 30, 2020		December 31, 2019
(Dollars in thousands, except per share and share data)	(Unaudited)
Assets:
Cash and due from banks	$	714,062	$	164,021
Cash in non-owned ATMs	347,462		407,524
Interest-bearing deposits in other banks including collateral (restricted cash) of $11,110 at September 30, 2020 and $0 December 31, 2019, respectively	11,396		207
Total cash, cash equivalents, and restricted cash	1,072,920		571,752
Investment securities, available-for-sale (amortized cost of $2,244,541 at September 30, 2020 and $1,909,483 at December 31, 2019	2,334,922		1,944,914
Investment securities, held-to-maturity, net of allowance for credit losses of $7 at September 30, 2020 (fair value $118,113 at September 30, 2020 and $136,625 at December 31, 2019)	113,609		133,601
Other investments	10,436		70,046
Loans, held for sale at fair value	152,453		83,872
Loans and leases, net of allowance for credit losses of $232,726 at September 30, 2020 and $47,576 at December 31, 2019	9,102,332		8,424,464
Bank owned life insurance	31,717		30,294
Stock in Federal Home Loan Bank of Pittsburgh at cost	6,497		21,097
Other real estate owned	3,000		2,605
Accrued interest receivable	42,801		38,094
Premises and equipment	96,554		104,465
Goodwill	472,828		472,828
Intangible assets	86,978		95,917
Other assets	303,061		262,353
Total assets	$	13,830,108	$	12,256,302
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	3,196,967	$	2,189,573
Interest-bearing	8,194,378		7,397,284






Total deposits	11,391,345		9,586,857
Federal funds purchased	—		195,000
Federal Home Loan Bank advances	16,751		112,675
Trust preferred borrowings	67,011		67,011
Senior debt	98,768		98,605
Other borrowed funds	21,764		15,997
Accrued interest payable	8,522		3,103
Other liabilities	364,645		327,563
Total liabilities	11,968,806		10,406,811
Stockholders’ Equity:
Common stock $0.01 par value, 90,000,000 shares authorized; issued 57,546,564 at September 30, 2020 and 57,435,658 at December 31, 2019	576		575
Capital in excess of par value	1,051,627		1,049,064
Accumulated other comprehensive income	66,595		23,501
Retained earnings	923,651		917,377
Treasury stock at cost, 6,873,120 shares at September 30, 2020 and 5,868,772 shares at December 31, 2019	(178,950)		(140,211)
Total stockholders’ equity of WSFS	1,863,499		1,850,306
Noncontrolling interest	(2,197)		(815)
Total stockholders' equity	1,861,302		1,849,491
Total liabilities and stockholders' equity	$	13,830,108	$	12,256,302

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

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WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)


	Nine Months Ended September 30, 2020
(Dollars in thousands, except per share and share amounts)	Shares	Common Stock		Capital in Excess of Par Value		Accumulated Other Comprehensive Income		Retained Earnings		Treasury Stock		Total Stockholders' Equity of WSFS		Non-controlling Interest		Total Stockholders' Equity
Balance, December 31, 2019	57,435,658	$	575	$	1,049,064	$	23,501	$	917,377	$	(140,211)	$	1,850,306	$	(815)	$	1,849,491
Cumulative change in accounting principle (Note 2)	—	—		—		—		(30,368)		—		(30,368)		—		(30,368)
Balance, January 1, 2020 (as adjusted for change in accounting principle)	57,435,658	575		1,049,064		23,501		887,009		(140,211)		1,819,938		(815)		1,819,123
Net income (loss)	—	—		—		—		54,961		—		54,961		(1,382)		53,579
Other comprehensive income	—	—		—		43,094		—		—		43,094		—		43,094
Cash dividend, $0.36 per share	—	—		—		—		(18,319)		—		(18,319)		—		(18,319)
Issuance of common stock including proceeds from exercise of common stock options	110,906	1		1,358		—		—		—		1,359		—		1,359
Stock-based compensation expense	—	—		1,954		—		—		—		1,954		—		1,954
Repurchases of common shares (1)	—	—		(749)		—		—		(38,739)		(39,488)		—		(39,488)
Balance, September 30, 2020	57,546,564	$	576	$	1,051,627	$	66,595	$	923,651	$	(178,950)	$	1,863,499	$	(2,197)	$	1,861,302

	Three Months Ended September 30, 2020
(Dollars in thousands, except per share and share amounts)	Shares	Common Stock		Capital in Excess of Par Value		Accumulated Other Comprehensive Income		Retained Earnings		Treasury Stock		Total Stockholders' Equity of WSFS		Non-controlling Interest		Total Stockholders' Equity
Balance, June 30, 2020	57,533,236	$	576	$	1,050,678	$	72,780	$	878,585	$	(178,950)	$	1,823,669	$	(1,875)	$	1,821,794
Net income (loss)	—	—		—		—		51,145		—		51,145		(322)		50,823
Other comprehensive loss	—	—		—		(6,185)		—		—		(6,185)		—		(6,185)
Cash dividend, $0.12 per share	—	—		—		—		(6,079)		—		(6,079)		—		(6,079)
Issuance of common stock including proceeds from exercise of common stock options	13,328	—		368		—		—		—		368		—		368
Stock-based compensation expense	—	—		660		—		—		—		660		—		660
Repurchases of common shares (2)	—	—		(79)		—		—		—		(79)		—		(79)
Balance, September 30, 2020	57,546,564	$	576	$	1,051,627	$	66,595	$	923,651	$	(178,950)	$	1,863,499	$	(2,197)	$	1,861,302

(1)Repurchase of common stock includes 1,004,348 shares repurchased in connection with the Company's share repurchase program approved by the Board of Directors, and 24,884 shares withheld to cover tax liabilities.

(2)Repurchase of common stock includes 2,353 shares withheld to cover tax liabilities.

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	Nine Months Ended September 30, 2019
(Dollars in thousands, except per share and share amounts)	Shares	Common Stock		Capital in Excess of Par Value		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Total Stockholders' Equity of WSFS		Non-controlling Interest		Total Stockholders' Equity
Balance, December 31, 2018	56,926,978	$	569	$	349,810	$	(15,394)	$	791,031	$	(305,096)	$	820,920	$	—	$	820,920
Net income (loss)	—	—		—		—		103,105		—		103,105		(611)		102,494
Other comprehensive income	—	—		—		47,613		—		—		47,613		—		47,613
Cash dividend, $0.35 per share	—	—		—		—		(16,208)		—		(16,208)		—		(16,208)
Issuance of common stock including proceeds from exercise of common stock options	484,843	6		7,334		—		—		—		7,340		—		7,340
Re-issuance of treasury stock in connection with the Beneficial merger and related items	—	—		687,897		—		—		262,071		949,968		76		950,044
Stock-based compensation expense	—	—		1,994		—		—		—		1,994		—		1,994
Repurchases of common shares (1)	—	—		—		—		—		(57,740)		(57,740)		—		(57,740)
Balance, September 30, 2019	57,411,821	$	575	$	1,047,035	$	32,219	$	877,928	$	(100,765)	$	1,856,992	$	(535)	$	1,856,457

	Three Months Ended September 30, 2019
(Dollars in thousands, except per share and share amounts)	Shares	Common Stock		Capital in Excess of Par Value		Accumulated Other Comprehensive Income		Retained Earnings		Treasury Stock		Total Stockholders' Equity of WSFS		Non-controlling Interest		Total Stockholders' Equity
Balance, June 30, 2019	57,239,683	$	573	$	1,043,065	$	22,688	$	830,397	$	(60,112)	$	1,836,611	$	(223)	$	1,836,388
Net income (loss)	—	—		—		—		53,882		—		53,882		(287)		53,595
Other comprehensive income	—	—		—		9,531		—		—		9,531		—		9,531
Cash dividend, $0.12 per share	—	—		—		—		(6,351)		—		(6,351)		—		(6,351)
Issuance of common stock including proceeds from exercise of common stock options	172,138	2		3,211		—		—		—		3,213		—		3,213
Beneficial merger and related items	—	—		—		—		—		—		—		(25)		(25)
Stock-based compensation expense	—	—		759		—		—		—		759		—		759
Repurchases of common shares (2)	—	—		—		—		—		(40,653)		(40,653)		—		(40,653)
Balance, September 30, 2019	57,411,821	$	575	$	1,047,035	$	32,219	$	877,928	$	(100,765)	$	1,856,992	$	(535)	$	1,856,457

(1)Repurchase of common stock includes 1,230,640 shares repurchased in connection with the Company's share repurchase program approved by the Board of Directors, and 132,993 shares repurchased to cover taxes due on the consideration transferred in the Beneficial acquisition related to the vesting of unrestricted Beneficial stock awards.

(2)Repurchase of common stock includes 959,300 shares repurchased in connection with the Company's share repurchase program approved by the Board of Directors.

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

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WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
	2020		2019
(Dollars in thousands)	(Unaudited)
Operating activities:
Net income	$	53,579	$	102,494
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	154,116		23,970
Depreciation of premises and equipment, net	11,322		11,139
Accretion of fees and discounts, net	(40,136)		(32,308)
Amortization of intangible assets	8,236		8,348
Amortization of right of use lease asset	9,267		19,842
Decrease in operating lease liability	(9,563)		(9,999)
Income from mortgage banking activities, net	(23,472)		(8,090)
Gain on sale of securities, net	(5,923)		(78)
(Gain) loss on sale of other real estate owned and valuation adjustments, net	(102)		63
Stock-based compensation expense	1,954		1,994
Unrealized gain on equity investments, net	(761)		(26,175)
Realized gain on sale of equity investment	(22,052)		—

Deferred income tax (benefit) expense	(36,541)		6,106
(Increase) decrease in accrued interest receivable	(4,707)		729
(Increase) decrease in other assets	(14,032)		8,582
Origination of loans held for sale	(663,371)		(325,103)
Proceeds from sales of loans held for sale	589,993		271,679
Increase in accrued interest payable	5,419		7,581
Increase in other liabilities	39,806		18,014

Increase in value of bank owned life insurance	(1,423)		(1,590)
Increase in capitalized interest, net	(2,755)		(2,698)
Net cash provided by operating activities	$	48,854	$	74,500
Investing activities:
Purchases of investment securities held to maturity	$	(6,307)	$	—
Repayments, maturities and calls of investment securities held-to-maturity	25,430		15,130
Sale of investment securities available-for-sale	198,855		602,467
Purchases of investment securities available-for-sale	(943,710)		(800,020)
Repayments of investment securities available-for-sale	408,989		170,646
Net proceeds from sale of Visa Class B shares	85,850		—
Proceeds from bank-owned life insurance surrender	—		59,710
Net (increase) decrease in loans	(792,881)		125,511
Net cash from business combinations	—		76,072
Purchases of stock of Federal Home Loan Bank of Pittsburgh	(145,399)		(176,966)
Redemptions of stock of Federal Home Loan Bank of Pittsburgh	159,999		196,777
Sales of other real estate owned	2,014		1,866
Investment in premises and equipment	(3,480)		(10,701)
Sales of premises and equipment	69		71
Net cash (used in) provided by investing activities	$	(1,010,571)	$	260,563

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	Nine Months Ended September 30,
	2020		2019
(Dollars in thousands)	(Unaudited)
Financing activities:
Net increase in demand and saving deposits	$	1,948,026	$	55,527
Decrease in time deposits	(132,767)		(81,783)
Decrease in brokered deposits	(5,002)		(161,892)

Receipts from FHLB advances	5,037,296		27,146,456
Repayments of FHLB advances	(5,133,220)		(27,109,246)
Receipts from federal funds purchased	8,030,475		21,475,000
Repayments of federal funds purchased	(8,225,475)		(21,632,975)

Cash dividend	(18,319)		(16,208)
Issuance of common stock including proceeds from exercise of common stock options	1,359		7,340



Repurchases of common shares	(39,488)		(57,740)
Net cash provided by (used in) financing activities	$	1,462,885	$	(375,521)
Increase (decrease) in cash, cash equivalents, and restricted cash	501,168		(40,458)
Cash, cash equivalents, and restricted cash at beginning of period	571,752		620,757
Cash, cash equivalents, and restricted cash at end of period	$	1,072,920	$	580,299
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	34,735	$	48,782
Income taxes	60,494		24,579
Non-cash information:
Loans transferred to other real estate owned	2,503		2,344
Loans transferred to portfolio from held-for-sale at fair value	24,180		19,278
Fair value of assets acquired, net of cash received	—		5,032,299
Fair value of liabilities assumed	—		5,108,371
Impact of ASC 842 Adoption:
Right of use asset	—		121,288
Lease liability	—		(132,346)
Impact of ASC 326 Adoption (Note 2):
Allowance for credit losses on held-to-maturity debt securities	(8)		—
Allowance for credit losses on loans and leases	(35,855)		—
Deferred tax assets	8,461		—
Allowance for credit losses on unfunded lending commitments	(2,966)		—
Retained earnings	30,368		—

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

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WSFS FINANCIAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

(UNAUDITED)

1. BASIS OF PRESENTATION

General

These unaudited Consolidated Financial Statements include the accounts of WSFS Financial Corporation (the Company or WSFS), Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank), WSFS Wealth Management, LLC (Powdermill), WSFS Capital Management, LLC (West Capital), Cypress Capital Management, LLC (Cypress), Christiana Trust Company of Delaware (Christiana Trust DE) and WSFS SPE Services, LLC. The Company also has one unconsolidated subsidiary, WSFS Capital Trust III. WSFS Bank has three wholly owned subsidiaries: Beneficial Equipment Finance Corporation (BEFC), WSFS Investment Group, Inc. (WSFS Wealth Investments), and 1832 Holdings, Inc., and one majority-owned subsidiary, NewLane Finance Company (NewLane Finance).

Overview

Founded in 1832, the Bank is one of the ten oldest bank and trust companies continuously operating under the same name in the United States (U.S.). The Company provides residential and commercial real estate, commercial and consumer lending services, as well as retail deposit and cash management services. The core banking business is commercial lending funded primarily by customer-generated deposits. In addition, the Company offers a variety of wealth management and trust services to personal and corporate customers. The Federal Deposit Insurance Corporation (FDIC) insures the customers’ deposits to their legal maximums. The Company serves its customers primarily from 115 offices located in Pennsylvania (54), Delaware (43), New Jersey (16), Virginia (1) and Nevada (1), its ATM network, website at www.wsfsbank.com and mobile app. Information on the website is not incorporated by reference into this Quarterly Report on Form 10-Q.

The Company's leasing business is conducted by NewLane Finance. NewLane Finance originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories including technology, software, office, medical, veterinary and other areas.

Basis of Presentation

In preparing the unaudited Consolidated Financial Statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Amounts subject to significant estimates include the allowance for credit losses (including loans and leases held for investment, investment securities available-for-sale and held-to-maturity), lending-related commitments, goodwill, intangible assets, post-retirement benefit obligations, the fair value of financial instruments, and income taxes. Among other effects, changes to these estimates could result in future impairments of investment securities, goodwill and intangible assets, the establishment of additional allowance and lending-related commitment reserves as well as increased post-retirement benefits expense.

The Company's accounting and reporting policies conform to Generally Accepted Accounting Principles in the U.S. (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. Certain prior period amounts have been reclassified to conform with current period presentation. 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, 2020. These unaudited, interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Annual Report on Form 10-K) that was filed with the SEC on March 2, 2020 and is available at www.sec.gov or on the website at www.wsfsbank.com. All significant intercompany accounts and transactions were eliminated in consolidation.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES:

The significant accounting policies used in preparation of the Consolidated Financial Statements are disclosed in the Company's 2019 Annual Report on Form 10-K. Those significant accounting policies remain unchanged at September 30, 2020, except as described below:

Loans

Loans held for investment are recorded at amortized cost, net of allowance for credit losses. Amortized cost is the amount at which a financial asset is originated or acquired, adjusted for the amortization of premium and discount, net deferred fees or costs, collection of cash, and write-offs. Interest income on loans is recognized using the level yield method. Loan origination fees, commitment fees and direct loan origination costs are deferred and recognized over the life of the related loans using a level yield method over the period to maturity.

Allowance for Credit Losses - Loans and Leases

The Company establishes its allowance in accordance with guidance provided in ASC 326, Financial Instruments - Credit Losses. The allowance for credit losses includes quantitative and qualitative factors that comprise management's current estimate of expected credit losses, including the Company's portfolio mix and segmentation, modeling methodology, historical loss experience, relevant available information from internal and external sources relating to qualitative adjustment factors, prepayment speeds and reasonable and supportable forecasts about future economic conditions.

The Company's portfolio segments, established based on similar risk characteristics and loss behaviors, are:

•Commercial and industrial, owner-occupied commercial, commercial mortgages, construction and commercial small business leases (collectively, commercial loans), and

•Residential, equity secured lines and loans, installment loans, unsecured lines of credit and education loans (collectively, retail loans).

Expected credit losses are net of expected recoveries and estimated over the contractual term, adjusted for expected prepayments. The contractual term excludes any extensions, renewals and modifications unless the Company has reasonable expectations at the reporting date that it will result in a troubled debt restructuring (TDR) or they are not unconditionally cancellable. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis) and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and are individually evaluated for credit losses (individual basis).

Loans that share similar risk characteristics are collectively reviewed for credit loss and are evaluated based on historical loss experience, adjusted for current economic conditions and future economic forecasts. Estimated losses are determined differently for commercial and retail loans, and each portfolio segment is further segmented by internally assessed risk ratings.

The Company uses a third-party economic forecast to adjust the calculated historical loss rates of the portfolio segments. The Company's economic forecast considers the general health of the economy, the interest rate environment, real estate pricing and market risk. Our forecast extends out 6 quarters (the forecast period) and reverts to the historical loss rates on a straight-line basis over 4 quarters (the reversion period) as it believes this to be reasonable and supportable in the current environment. The economic forecast and reversion periods will be evaluated periodically by the Company and updated as appropriate.

The historical loss rates for commercial loans are estimated by determining the probability of default (PD) and expected loss given default (LGD). The probability of default is calculated based on the historical rate of migration to an event of credit loss during the look-back period. The historical loss rates for retail loans is calculated based solely on average net loss rates over the same look-back period. The current look-back period is 39 quarters which ensures historical loss rates are adequately considering losses within a full credit cycle.

Loans that do not share similar risk characteristics with any loan segments are evaluated on an individual basis. These loans, which may include TDRs, are not included in the collective basis evaluation. When it is probable the Company 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, these loans are individually reviewed and measured for potential credit loss.

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The amount of the potential credit loss is measured using one of three methods: (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the fair value of collateral, if the loan is collateral dependent; or (iii) the loan’s observable market price. If the measured fair value of the loan is less than the amortized cost basis of the loan, an allowance for credit loss is recorded.

For collateral dependent loans, the expected credit losses at the individual asset level is the difference between the collateral's fair value (less cost to sell) and the amortized cost.

Qualitative adjustment factors consider various internal and external conditions which are allocated among loan segments and take into consideration:

•Current underwriting policies, staff and portfolio concentrations,

•Risk rating accuracy, credit and administration,

•Internal risk emergence (including internal trends of delinquency, and criticized loans by segment),

•Economic forecasts and conditions - locally and nationally (including market trends impacting collateral values), and

•Competitive environment, as it could impact loan structure and underwriting.

These factors are based on their relative standing compared to the period in which historical losses are used in quantitative reserve estimates and current directional trends, and reasonable and supportable forecasts. Qualitative factors in the model can add to or subtract from quantitative reserves.

The Company's 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 the Company's loan ratings and allowance for credit losses and the Bank's internal loan review department performs loan reviews.

Accrued interest receivable on loans is excluded from the estimate of credit losses and is included in Accrued interest receivable on the Consolidated Statements of Financial Condition.

For additional detail regarding the allowance for credit losses and the provision for credit losses, see Note 7.

Past Due and Nonaccrual Loans

Past due loans are defined as loans contractually past due 30 days or more as to principal or interest payments. Past due loans 90 days or more that remain in accrual status are considered well secured and in the process of collection.

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 loan is not well secured and in the process of collection. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on the Company’s assessment of the ultimate collectability of principal and interest. Loans are returned to accrual status when the Company assesses that the borrower has the ability to make all principal and interest payments in accordance with the terms of the loan (i.e. a consistent repayment record, generally six consecutive payments, has been demonstrated).

Unless loans are well-secured and collection is imminent, for loans greater than 90 days past due their respective reserves are generally charged off once the loss has been confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

A loan, for which the terms have been modified resulting in a concession to the borrower experiencing financial difficulty, is considered a TDR. 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 demonstrated, as noted above, and repayment is reasonably assured.

On March 27, 2020, the CARES Act was signed into law, which allows financial institutions to exclude eligible loan modifications from TDR reporting under its loan forbearance program. Eligible modifications must be related to the COVID-19 pandemic, executed on a loan that was not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020 and the earlier of 60 days after the date of the termination of the national emergency or December 31, 2020. Management has elected to account and report eligible modifications under the provisions of the CARES Act.

For additional detail regarding past due and nonaccrual loans, see Note 7.

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Debt Securities

Investments in debt securities are classified into one of the following three categories and accounted for as follows:

•Securities purchased with the intent of selling them in the near future are classified as “trading” and reported at fair value, with unrealized gains and losses included in earnings.

•Securities purchased with the positive intent and ability to hold to maturity are classified as “held-to-maturity” and reported at amortized cost.

•Securities not classified as either trading or held-to-maturity are classified as “available-for-sale” and reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, as a separate component of stockholders’ equity in accumulated other comprehensive income (loss). Realized gains and losses on sales of investment and mortgage-backed securities (MBS) are determined using the specific identification method. All sales are made without recourse.

Debt securities mostly include MBS, municipal bonds, and U.S. government and agency securities. Premiums and discounts on MBS collateralized by residential 1-4 family loans are recognized in interest income using a level yield method over the period to expected maturity. Premiums and discounts on all other securities are recognized on a straight line basis over the period to expected maturity, with the exception of premiums on callable debt securities, which are recognized over the period to the earliest call date.

The fair value of debt securities is primarily obtained from third-party pricing services. Implicit in the valuation of MBS are estimated prepayments based on historical and current market conditions.

A debt security is placed on nonaccrual status at the time any principal or interest payments are contractually past due 90 days or more. Interest accrued but not received for a security placed on nonaccrual status is reversed against interest income.

The Company's investment portfolio is reviewed each quarter for indications of potential credit losses. Refer to the respective held-to-maturity and available-for-sale debt securities sections for management's discussion of the allowance for credit loss for each portfolio.

Allowance for Credit Losses - Held-to-Maturity Debt Securities

The Company follows Accounting Standards Codification (ASC) 326-20, Financial Instruments - Credit Loss - Measured at Amortized Cost, to measure expected credit losses on held-to-maturity debt securities on a collective basis by security investment grade. The estimate of expected credit losses considers historical credit loss information adjusted by a security's credit rating.

The Company classifies the held-to-maturity debt securities into the following major security types: state and political subdivisions, and foreign bonds. These securities are highly rated with a history of no credit losses, and are assigned ratings based on the most recent data from ratings agencies depending on the availability of data for the security. Credit ratings of held-to-maturity debt securities, which are a significant input in calculating the expected credit loss, are reviewed on a quarterly basis.

Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses and is included in Accrued interest receivable on the Consolidated Statements of Financial Condition.

Allowance for Credit Losses - Available-for-Sale Debt Securities

The Company follows ASC 326-30, Financial Instruments - Credit Loss - Available-for-Sale Debt Securities, which provides guidance related to the recognition of and expanded disclosure requirements for expected credit losses on available-for-sale debt securities. For available-for-sale debt securities in an unrealized loss position, the Company first evaluates whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the security's amortized cost basis is reduced to fair value and recognized as a reduction to Noninterest income in the Consolidated Statements of Income.

For debt securities available-for-sale which the Company does not intend to sell, or it is not likely the security would be required to be sold before recovery, it evaluates whether a decline in fair value has resulted from credit losses or other adverse factors, such as a change in the security's credit rating. In assessing whether a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance is recorded, limited to the fair value of the security.

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The Company performs this analysis on a quarterly basis to review the conditions and risks associated with the individual securities. Credit losses on an impaired security shall continue to be measured using the present value of expected future cash flows. Any impairment not recorded through an allowance for credit loss is included in other comprehensive income (loss), net of the tax effect. The Company is required to use its judgment in determining impairment in certain circumstances.

For additional detail regarding debt securities, see Note 5.

Unfunded Lending Commitments

For unfunded lending commitments, the Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the probability of default and utilization rate at default to calculate expected credit losses on commitments expected to be funded based on historical losses.

The allowance for credit losses for off-balance sheet exposures is included in Other liabilities on the Consolidated Statements of Financial Condition and the provision for credit losses for off-balance sheet exposure is included in Loan workout and other credit costs on the Consolidated Statements of Income.

For additional detail regarding unfunded lending commitments, see Note 16.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Guidance Adopted in 2020

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 replaces the incurred loss impairment methodology with the current expected credit losses (CECL) methodology which requires management consideration and judgment of a broader range of information to determine credit loss estimates.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, clarifying that operating lease receivables are not within the scope of Topic 326. In December 2018, federal regulators issued a final rule related to regulatory capital and CECL (Regulatory Capital Rule: Implementation and Transition of the Current Expected Credit Losses Methodology for Allowances and Related Adjustments to the Regulatory Capital Rule and Conforming Amendments to Other Regulations), intended to provide regulatory capital relief for entities transitioning to CECL. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, providing entities the option to irrevocably elect the fair value option on eligible financial instruments, which excluded held-to-maturity debt securities. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, clarifying guidance on expected recoveries for purchased credit deteriorated financial assets, accrued interest receivable and collateral maintenance provisions and providing transition relief for troubled debt restructurings. In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments, clarifying the contractual term of a net investment in a lease and the requirement to establish an allowance for credit loss when an entity regains control of sold financial assets.

While the CARES Act provided an option to defer implementation of the CECL methodology, the Company adopted this guidance on January 1, 2020, using the modified retrospective approach for financial assets recorded at amortized cost with the exception of purchase credit deteriorated (PCD) assets, which were previously classified as purchase credit impaired (PCI) accounted for under ASC 310-30, adopted using the prospective approach. The cumulative effect of the adoption resulted in a $30.4 million decrease to the beginning balance of retained earnings as of January 1, 2020. Results and disclosures for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. For further details on the impact of the adoption, accounting policies, elections, and practical expedients applied, see updated Significant Accounting Policies and CECL disclosures throughout the Notes to the Consolidated Financial Statements.

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The following table illustrates the impact of ASC 326 on loans, leases, purchased financial assets, debt securities, other assets and unfunded lending commitments compared to the incurred loss approach, as disclosed prior to adoption on January 1, 2020.


	January 1, 2020
	As reported under ASC 326		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption
(Dollars in thousands)
Assets:
Investment securities, held-to-maturity
State and political subdivisions	$	(8)	$	—	$	(8)

Allowance for credit losses on held-to-maturity debt securities	$	(8)	$	—	$	(8)
Loans and leases
Commercial and industrial(1)	(42,596)		(22,849)		(19,747)
Owner-occupied commercial	(3,144)		(4,616)		1,472
Commercial mortgages	(9,114)		(7,452)		(1,662)
Construction	(4,572)		(3,891)		(681)
Residential	(8,903)		(1,381)		(7,522)
Consumer	(15,102)		(7,387)		(7,715)
Allowance for credit losses on loans and leases	$	(83,431)	$	(47,576)	$	(35,855)
Other assets
Deferred tax assets	18,452		9,991		8,461
Liabilities:
Other liabilities
Allowance for credit losses on unfunded lending commitments	(4,513)		(1,547)		(2,966)
Total ASC 326 impact to retained earnings					$	30,368

(1)Includes commercial small business leases.

ASU No. 2018-13, Fair Value Measurement Disclosure Framework: In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework, which amended ASC 820 - Fair Value Measurement. The new guidance modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements for fair value measurements. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Adoption is required on either a prospective or retrospective basis, depending on the amendment. The Company adopted this standard on January 1, 2020. See Note 13 for changes to financial statement disclosures resulting from the adoption of this standard.

ASU No. 2018-14, Compensation-Retirement Benefits - Defined Benefit Plans-General (Topic 715): In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits - Defined Benefit Plans-General (Topic 715) which applies to all employers that provide defined benefit pension or other postretirement benefit plans for their employees. The new guidance modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements to financial statement users. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. Use of the retrospective method is required. The Company early adopted this standard on January 1, 2020. See Note 11 for changes to financial statement disclosures resulting from the adoption of this standard.

ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Topic 350): In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Topic 350). The new guidance provided clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. Adoption can be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this standard on January 1, 2020, on a prospective basis with no impact to the Consolidated Financial Statements at the time of adoption.

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ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments: In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The new guidance amended ASU 2016-13 to address topics related to accrued interest receivables, recoveries, disclosures, and provides certain other clarifications. The new guidance also amended ASU 2017-12 to provide clarification on certain hedge accounting topics and transition requirements. Lastly, the new guidance amended ASU 2016-01, Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities, to add clarifying guidance when using the measurement alternative under ASC 820, among certain other clarifications. The guidance is effective for annual periods beginning after December 15, 2019. Early adoption is permitted. Adoption is required on a prospective, modified-retrospective or retrospective basis, depending on the amendment. The Company included the amendments related to ASU 2016-13 as part of its CECL guidance implementation and adoption at January 1, 2020. The Company adopted other amendments within this guidance on January 1, 2020 with no impact to the Consolidated Financial Statements at the time of adoption.

Accounting Guidance Pending Adoption at September 30, 2020

ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance adds new amendments to simplify income tax accounting and removes certain exceptions and modifies the accounting for certain income tax transactions. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. Adoption is required on a prospective, modified-retrospective or retrospective basis, depending on the amendment. The Company does not expect the application of this guidance to have a material impact on the Consolidated Financial Statements.

ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815: In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The new guidance clarifies that observable transactions under the measurement alternative method (ASC 321) should be considered when applying or discontinuing the equity method of accounting (ASC 323). The guidance also clarifies that certain non-derivative forward contracts and purchase call options to acquire securities, should be measured at fair value before settlement or exercise. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. Use of the prospective method is required. The Company does not expect the application of this guidance to have a material impact on the Consolidated Financial Statements.

ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting: In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance to entities for a limited period of time to ease the transition in accounting for and recognizing the effects of reference rate reform on financial reporting. Under the guidance, modifications of contracts due to reference rate reform will not require contract remeasurement or reassessment of a previous accounting determination. For hedge accounting, modification of critical terms of the hedge due to changes in reference rate reform will not affect hedge accounting or dedesignate the hedging relationship. The guidance also provides specific expedients for fair value hedges, cash flow hedges, and excluded components. Further, the guidance provides a one-time election to sell or transfer held to maturity debt securities that are affected by the reference rate change. The guidance is effective upon issuance through December 31, 2022. The Company will apply the guidance to any contracts modifications made due to reference rate reform.

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3. NONINTEREST INCOME

Credit/debit card and ATM income

The following table presents the components of credit/debit card and ATM income:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2020		2019		2020		2019
Bailment fees	$	3,311	$	6,580	$	11,472	$	20,387
Interchange fees	3,267		6,234		14,514		17,073
Other card and ATM fees	673		301		1,930		847
Total credit/debit card and ATM income	$	7,251	$	13,115	$	27,916	$	38,307

Credit/debit card and ATM income is composed of bailment fees, interchange fees, and other card and ATM fees are earned from bailment arrangements with customers. Bailment arrangements are legal relationships in which property is delivered to another party without a transfer of ownership. The party who transferred the property (the bailor) retains ownership interest of the property. In the event that the bailee files for bankruptcy protection, the property is not included in the bailee's assets. The bailee pays an agreed-upon fee for the use of the bailor's property in exchange for the bailor allowing use of the assets at the bailee's site. Bailment fees are earned from cash that is made available for customers' use at an offsite location, such as cash located in an ATM at a customer's place of business. These fees are typically indexed to a market interest rate. This revenue stream generates fee income through monthly billing for bailment services.

Credit/debit card and ATM income also includes interchange fees. Interchange fees are paid by a merchant's bank to a bank that issued a debit or credit card used in a transaction to compensate the issuing bank for the value and benefit the merchant receives from accepting electronic payments. These revenue streams generate fee income at the time a transaction occurs and are recorded as revenue at the time of the transaction. Interchange income decreased quarter-to-date and year-to-date compared to 2019 as a result of the Durbin amendment (effective on July 1, 2020).

Investment management and fiduciary income

The following table presents the components of investment management and fiduciary income:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2020		2019		2020		2019
Trust fees	$	9,303	$	6,632	$	23,565	$	19,884
Wealth management and advisory fees	3,963		3,827		11,592		11,104
Total investment management and fiduciary income	$	13,266	$	10,459	$	35,157	$	30,988

Investment management and fiduciary income is composed of trust fees and wealth management and advisory fees. Trust fees are based on revenue earned from custody, escrow and trustee services on structured finance transactions; indenture trustee, administrative agent and collateral agent services to institutions and corporations; commercial domicile and independent director services; and investment and trustee services to families and individuals across the U.S. Most fees are flat fees, except for a portion of personal and corporate trustee fees where the Company earns a percentage on the assets under management. This revenue stream primarily generates fee income through monthly, quarterly and annual billings for services provided.

Wealth management and advisory fees consists of fees from West Capital, Cypress, Powdermill and WSFS Wealth Investments. Wealth management and advisory fees are based on revenue earned from services including asset management, financial planning, family office, and brokerage. The fees are based on the market value of assets, are assessed as a flat fee, or are brokerage commissions. This revenue stream primarily generates fee income through quarterly and annual billing for the services.

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Deposit service charges

The following table presents the components of deposit service charges:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2020		2019		2020		2019
Service fees	$	3,116	$	3,188	$	9,246	$	9,083
Return and overdraft fees	1,532		2,797		4,998		7,341
Other deposit service fees	124		154		350		564
Total deposit service charges	$	4,772	$	6,139	$	14,594	$	16,988

Deposit service charges includes revenue earned from core deposit products, certificates of deposit, and brokered deposits. The Company generates fee revenues from deposit service charges primarily through service charges and overdraft fees. Service charges consist primarily of monthly account maintenance fees, cash management fees, foreign ATM fees and other maintenance fees. All of these revenue streams generate fee income through service charges for monthly account maintenance and similar items, transfer fees, late fees, overlimit fees, and stop payment fees. Revenue is recorded at the time of the transaction.

Other income

The following table presents the components of other income:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2020		2019		2020		2019
Managed service fees	$	3,794	$	3,628	$	11,549	$	10,195
Currency preparation	1,083		823		2,842		2,413
ATM loss protection	597		644		1,815		1,923
Miscellaneous products and services	1,719		1,942		3,920		7,947
Total other income	$	7,193	$	7,037	$	20,126	$	22,478

Other income consists of managed service fees, which are primarily courier fees related to cash management, currency preparation, ATM loss protection and other miscellaneous products and services offered by the Bank. These fees are primarily generated through monthly billings or at the time of the transaction. Miscellaneous products and services include gains from the sale of SBA loans, which were higher during the nine months ended September 30, 2019, and a non-recurring transfer of client accounts to a departing Wealth investment advisor in accordance with the buy-out provisions of the advisor's contract, which occurred during the nine months ended September 30, 2019.

Arrangements with multiple performance obligations

The Company's contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers.

Practical expedients and exemptions

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

See Note 15 for further information about the disaggregation of noninterest income by segment.

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4. EARNINGS PER SHARE

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars and shares in thousands, except per share data)	2020		2019		2020		2019
Numerator:
Net income attributable to WSFS	$	51,145	$	53,882	$	54,961	$	103,105
Denominator:
Weighted average basic shares	50,665		52,863		50,802		48,381
Dilutive potential common shares	19		191		30		287
Weighted average fully diluted shares	$	50,684	$	53,054	$	50,832	$	48,668
Earnings per share:
Basic	$	1.01	$	1.02	$	1.08	$	2.13
Diluted	$	1.01	$	1.02	$	1.08	$	2.12
Outstanding common stock equivalents having no dilutive effect	29		1		18		1

5. INVESTMENTS

Debt Securities

The following tables detail the amortized cost, allowance for credit losses and the estimated fair value of the Company's investments in available-for-sale and held-to-maturity debt securities. None of the Company's investments in debt securities are classified as trading.


	September 30, 2020
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Allowance for Credit Losses		Fair Value
Available-for-Sale Debt Securities
CMO	$	417,162	$	11,455	$	84	$	—	$	428,533
FNMA MBS	1,393,291		61,809		192		—		1,454,908
FHLMC MBS	232,056		14,277		109		—		246,224
GNMA MBS	25,637		993		—		—		26,630
GSE agency notes	176,395		2,329		97		—		178,627
	$	2,244,541	$	90,863	$	482	$	—	$	2,334,922
Held-to-Maturity Debt Securities(1)
State and political subdivisions	$	113,115	$	4,504	$	—	$	7	$	117,612
Foreign bonds	501		—		—		—		501
	$	113,616	$	4,504	$	—	$	7	$	118,113

(1)Held-to-maturity securities transferred from available-for-sale are included in held-to-maturity at amortized cost basis at the time of transfer. The amortized cost of transferred held-to-maturity securities included net unrealized gains of $0.4 million at September 30, 2020, which are offset in Accumulated other comprehensive income. At the time of transfer, there was no allowance for credit loss on the available-for-sale securities. Subsequent to transfer, the securities were evaluated for credit loss. See Note 2 for updated Significant Accounting Policies on held-to-maturity debt securities.

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	December 31, 2019
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Available-for-Sale Debt Securities
CMO	$	336,194	$	4,578	$	542	$	340,230
FNMA MBS	1,219,522		25,717		2,786		1,242,453
FHLMC MBS	320,896		8,641		591		328,946
GNMA MBS	32,871		477		63		33,285
	$	1,909,483	$	39,413	$	3,982	$	1,944,914
Held-to-Maturity Debt Securities(1)
State and political subdivisions	$	131,600	$	3,023	$	—	$	134,623
Foreign bonds	2,001		1		—		2,002
	$	133,601	$	3,024	$	—	$	136,625

(1)Held-to–maturity securities transferred from available-for-sale are included in held-to-maturity at fair value at the time of transfer. The amortized cost of transferred held-to-maturity securities included net unrealized gains of $0.6 million at December 31, 2019, which are offset in Accumulated other comprehensive income.

The scheduled maturities of available-for-sale debt securities at September 30, 2020 and December 31, 2019 are presented in the table below:


	Available-for-Sale
	Amortized		Fair
(Dollars in thousands)	Cost		Value
September 30, 2020 (1)
Within one year	$	—	$	—
After one year but within five years	32,729		34,393
After five years but within ten years	219,962		233,169
After ten years	1,991,850		2,067,360
	$	2,244,541	$	2,334,922
December 31, 2019 (1)
Within one year	$	—	$	—
After one year but within five years	22,136		22,207
After five years but within ten years	194,197		194,376
After ten years	1,693,150		1,728,331
	$	1,909,483	$	1,944,914

(1)Actual maturities could differ from contractual maturities.

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The scheduled maturities of held-to-maturity debt securities at September 30, 2020 and December 31, 2019 are presented in the table below:


	Held-to-Maturity
	Amortized		Fair
(Dollars in thousands)	Cost		Value
September 30, 2020 (1)
Within one year	$	1,152	$	1,168
After one year but within five years	1,549		1,567
After five years but within ten years	32,533		33,763
After ten years	78,382		81,615
	$	113,616	$	118,113
December 31, 2019 (1)
Within one year	$	2,649	$	2,653
After one year but within five years	4,239		4,270
After five years but within ten years	35,288		35,967
After ten years	91,425		93,735
	$	133,601	$	136,625

(1)Actual maturities could differ from contractual maturities.

MBS may have expected maturities that differ from their contractual maturities. These differences arise because issuers may have the right to call securities and borrowers may have the right to prepay obligations with or without prepayment penalty. The estimated weighted average duration of MBS was 2.1 years at September 30, 2020.

The held-to-maturity debt securities are not collateral-dependent securities as these are general obligation bonds issued by cities, states, counties, or other local and foreign governments.

Investment securities with fair market values aggregating $1.6 billion and $1.1 billion were pledged as collateral for retail customer repurchase agreements, municipal deposits, and other obligations as of September 30, 2020 and December 31, 2019, respectively.

During the nine months ended September 30, 2020, the Company sold $198.9 million of debt securities categorized as available-for-sale, resulting in $5.9 million of realized gains and no realized losses. During the nine months ended September 30, 2019, the Company sold $602.5 million of debt securities categorized as available-for-sale, of which $578.8 million was related to the acquisition of Beneficial. The remaining $23.7 million resulted in realized gains of less than $0.1 million and no realized losses.

As of September 30, 2020 and December 31, 2019, the Company's debt securities portfolio had remaining unamortized premiums of $47.1 million and $15.1 million, respectively, and unaccreted discounts of $3.0 million and $4.1 million, respectively.

For debt securities in an unrealized loss position and an allowance has not been recorded, the table below shows the gross unrealized losses and fair value by investment category and length of time that individual debt securities were in a continuous unrealized loss position at September 30, 2020.


	Duration of Unrealized Loss Position
	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
Available-for-sale debt securities:
CMO	$	52,291	$	84	$	—	$	—	$	52,291	$	84
FNMA MBS	74,281		189		4,380		3		78,661		192
FHLMC MBS	5,196		109		—		—		5,196		109

GSE agency notes	25,751		97		—		—		25,751		97
Total	$	157,519	$	479	$	4,380	$	3	$	161,899	$	482

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For debt securities in an unrealized loss position, the table below shows the gross unrealized losses and fair value by investment category and length of time that individual debt securities were in a continuous unrealized loss position at December 31, 2019.


	Duration of Unrealized Loss Position
	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in thousands)	Value		Loss		Value		Loss		Value		Loss
Available-for-sale debt securities:

CMO	$	47,376	$	481	$	7,999	$	61	$	55,375	$	542
FNMA MBS	310,312		2,681		6,522		105		316,834		2,786
FHLMC MBS	35,354		541		2,836		50		38,190		591
GNMA MBS	1,847		4		5,742		59		7,589		63
Total temporarily impaired investments	$	394,889	$	3,707	$	23,099	$	275	$	417,988	$	3,982

Held-to-maturity debt securities:

State and political subdivisions (1)	$	523	$	—	$	—	$	—	$	523	$	—

(1)State and political subdivisions with an unrealized loss position of less than twelve months had an unrealized loss of less than $1 thousand at December 31, 2019.

At September 30, 2020, available-for-sale debt securities for which the amortized cost basis exceeded fair value totaled $161.9 million. Total unrealized losses on these securities were $0.5 million at September 30, 2020. The Company does not have the intent to sell, nor is it more likely than not it will be required to sell these securities before it is able to recover the amortized cost basis. The unrealized losses are the result of changes in market interest rates subsequent to purchase, not credit loss, as these are highly rated agency securities with no expected credit loss, in the event of a default. As a result, there is no allowance for credit losses recorded for available-for-sale debt securities as of September 30, 2020.

At September 30, 2020, held-to-maturity debt securities had an amortized cost basis of $113.6 million. The held-to-maturity debt security portfolio primarily consists of highly rated municipal bonds. The Company monitors credit quality of its debt securities through credit ratings. The following table summarizes the amortized cost of debt securities held-to-maturity as of September 30, 2020, aggregated by credit quality indicator:


(Dollars in thousands)	State and political subdivisions		Foreign bonds
A+ rated or higher	$	112,826	$	501
Not rated	289		—
Ending balance	$	113,115	$	501

As a result of the adoption of ASC 326 on January 1, 2020, the Company reviewed its held-to-maturity debt securities for potential credit losses. The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity by major security type for the nine months ended September 30, 2020:


(Dollars in thousands)	State and political subdivisions		Foreign bonds
Allowance for credit losses:
Beginning balance	$	—	$	—
Impact of adoption ASC 326	8		—
Provision for credit losses	(1)		—

Charge-offs, net	—		—

Ending balance	$	7	$	—

Accrued interest receivable of $1.0 million as of September 30, 2020 for held-to-maturity debt securities was excluded from the evaluation of allowance for credit losses. There were no nonaccrual or past due held-to-maturity debt securities as of September 30, 2020.

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Equity Investments

The following tables detail the amortized cost, and the estimated fair value of the Company's equity investments, which are included in Other investments in the unaudited Consolidated Statements of Financial Condition.


	September 30, 2020
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Equity Investments
Visa Class B shares(1)	$	618	$	185	$	—	$	803
Other equity investments(2)	11,279		—		1,646		9,633
	$	11,897	$	185	$	1,646	$	10,436


	December 31, 2019
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Equity Investments
Visa Class B shares(1)	$	15,716	$	45,565	$	—	$	61,281
Other equity investments(2)	8,140		625		—		8,765
	$	23,856	$	46,190	$	—	$	70,046

(1)The Company recorded a net realized gain on sale of Visa Class B shares of $22.1 million during the nine months ended September 30, 2020, which is recorded in Realized gain on sale of equity investment in the Consolidated Statements of Income. The Company recorded unrealized gains on its remaining investment in Visa Class B shares of $0.2 million and $25.6 million during the nine months ended September 30, 2020 and 2019, respectively which is recorded in Unrealized gain on equity investment, net in the Consolidated Statements of Income.

(2)The Company recorded an impairment loss of $2.3 million in the investment of Spring EQ during the first quarter of 2020, which is recorded in Unrealized gain on equity investment, net in the Consolidated Statements of Income. There were no impairment losses recorded on the Company's equity investments during the nine months ended September 30, 2019. During the second quarter of 2020, the Company amended its agreement with Spring EQ in an exchange for additional equity interest. The additional equity interest in Spring EQ was valued at $2.4 million.

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6. LOANS

The following table shows the Company's loan and lease portfolio by category:



(Dollars in thousands)	September 30, 2020		December 31, 2019
Commercial and industrial(1)	$	2,902,815	$	2,046,798
Owner-occupied commercial	1,344,494		1,296,466
Commercial mortgages	2,167,508		2,222,976
Construction	666,317		581,082
Commercial small business leases	227,539		188,630
Residential(2)	857,494		1,016,500
Consumer(3)	1,168,891		1,128,731
	9,335,058		8,481,183
Less:
Deferred fees, net(4)	—		9,143
Allowance for credit losses	232,726		47,576
Net loans and leases	$	9,102,332	$	8,424,464

(1) Includes PPP loans of $954.2 million at September 30, 2020.

(2) Includes reverse mortgages at fair value of $12.5 million at September 30, 2020 and $16.6 million at December 31, 2019.

(3) Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.

(4) At September 30, 2020, deferred fees, net are included in portfolio segment totals to present the amortized cost basis in accordance with the adoption of CECL. At December 31, 2019, deferred fees, net are excluded from portfolio segment totals to present the unpaid principal balance under the incurred loss methodology.

Accrued interest receivable on loans and leases was $36.4 million and $31.5 million at September 30, 2020 and December 31, 2019, respectively. Accrued interest receivable on loans and leases was excluded from the evaluation of allowance for credit losses.

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7. ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION

The following table provides the activity of allowance for credit losses and loan balances for the three and nine months ended September 30, 2020 under the CECL model in accordance with ASC 326 (as adopted on January 1, 2020):


(Dollars in thousands)	Commercial and Industrial(1)		Owner-occupied Commercial		Commercial Mortgages		Construction		Residential(2)		Consumer(3)		Total
Three months ended September 30, 2020
Allowance for credit losses
Beginning balance	$	144,225	$	8,956	$	38,397	$	10,126	$	9,171	$	21,317	$	232,192

Charge-offs	(2,254)		—		(4)		—		—		(374)		(2,632)
Recoveries	223		8		6		—		26		187		450
Provision (credit)	6,335		1,420		(4,140)		104		(743)		(260)		2,716
Ending balance	$	148,529	$	10,384	$	34,259	$	10,230	$	8,454	$	20,870	$	232,726
Nine months ended September 30, 2020
Allowance for credit losses
Beginning balance, prior to adoption of ASC 326	$	22,849	$	4,616	$	7,452	$	3,891	$	1,381	$	7,387	$	47,576
Impact of adopting ASC 326(4)	19,747		(1,472)		1,662		681		7,522		7,715		35,855
Charge-offs	(7,390)		(336)		(55)		—		(175)		(1,955)		(9,911)
Recoveries	4,038		133		38		5		141		735		5,090
Provision (credit)	109,285		7,443		25,162		5,653		(415)		6,988		154,116
Ending balance	$	148,529	$	10,384	$	34,259	$	10,230	$	8,454	$	20,870	$	232,726
Period-end allowance allocated to:
Loans evaluated on an individual basis	$	16	$	—	$	—	$	—	$	—	$	—	$	16
Loans evaluated on a collective basis	148,513		10,384		34,259		10,230		8,454		20,870		232,710

Ending balance	$	148,529	$	10,384	$	34,259	$	10,230	$	8,454	$	20,870	$	232,726
Period-end loan balances:
Loans evaluated on an individual basis	$	14,946	$	5,132	$	4,878	$	83	$	5,307	$	2,503	$	32,849
Loans evaluated on a collective basis	3,115,408		1,339,362		2,162,630		666,234		839,688		1,166,388		9,289,710


Ending balance	$	3,130,354	$	1,344,494	$	2,167,508	$	666,317	$	844,995	$	1,168,891	$	9,322,559

(1)Includes commercial small business leases and PPP loans.

(2)Period-end loan balance excludes reverse mortgages at fair value of $12.5 million.

(3)Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.

(4)The impact of adopting ASC 326 includes $0.1 million for the initial allowance on loans purchased with credit deterioration.

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The following table provides the activity of the allowance for loan and lease losses and loan balances for the three and nine months ended September 30, 2019 under the incurred loss model:


(Dollars in thousands)	Commercial and Industrial(1)		Owner - occupied Commercial		Commercial Mortgages		Construction		Residential(2)		Consumer		Total
Three months ended September 30, 2019
Allowance for loan and lease losses
Beginning balance	$	22,004	$	4,480	$	6,544	$	2,984	$	1,358	$	7,994	$	45,364
Charge-offs	(1,441)		(12)		2		—		(3)		(1,042)		(2,496)
Recoveries	297		4		120		2		(60)		319		682
Provision (credit)	3,595		23		97		(105)		43		327		3,980
Provision (credit) for acquired loans	49		9		(26)		—		(8)		117		141
Ending balance	$	24,504	$	4,504	$	6,737	$	2,881	$	1,330	$	7,715	$	47,671
Nine months ended September 30, 2019
Allowance for loan losses
Beginning balance	$	14,211	$	5,057	$	6,806	$	3,712	$	1,428	$	8,325	$	39,539
Charge-offs	(15,185)		(20)		(153)		(42)		(288)		(2,686)		(18,374)
Recoveries	858		85		547		4		(76)		1,118		2,536
Provision (credit)	24,286		(614)		(533)		(787)		118		656		23,126
Provision (credit) for acquired loans	334		(4)		70		(6)		148		302		844
Ending balance	$	24,504	$	4,504	$	6,737	$	2,881	$	1,330	$	7,715	$	47,671
Period-end allowance allocated to:
Individually evaluated for impairment	$	3,534	$	156	$	—	$	—	$	478	$	180	$	4,348
Collectively evaluated for impairment	20,969		4,269		6,690		2,873		813		7,534		43,148
Acquired loans individually evaluated for impairment	1		79		47		8		39		1		175
Ending balance	$	24,504	$	4,504	$	6,737	$	2,881	$	1,330	$	7,715	$	47,671
Period-end loan balances:
Individually evaluated for impairment(3)	$	21,135	$	9,263	$	2,325	$	—	$	12,031	$	7,502	$	52,256
Collectively evaluated for impairment	1,657,748		935,306		1,019,723		375,664		138,121		887,193		5,013,755
Acquired nonimpaired loans	605,804		322,030		1,237,282		138,251		876,089		241,633		3,421,089
Acquired impaired loans	1,664		6,809		12,655		487		7,655		2,545		31,815
Ending balance(4)	$	2,286,351	$	1,273,408	$	2,271,985	$	514,402	$	1,033,896	$	1,138,873	$	8,518,915

(1)Includes commercial small business leases.

(2)Period-end loan balance excludes reverse mortgages at fair value of $17.7 million.

(3)The difference between this amount and nonaccruing loans represents accruing troubled debt restructured loans of $14.1 million for the period ending September 30, 2019. Accruing troubled debt restructured loans are considered impaired loans.

(4)Ending loan balances do not include net deferred fees.

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The following table shows nonaccrual and past due loans presented at amortized cost at the date indicated under the CECL model:


	September 30, 2020
(Dollars in thousands)	30–89 Days Past Due and Still Accruing			Greater Than 90 Days Past Due and Still Accruing			Total Past Due And Still Accruing			Accruing Current Balances			Nonaccrual Loans(1)			Total Loans
Commercial and industrial(2)	$	17,314		$	1,040		$	18,354		$	3,097,310		$	14,690		$	3,130,354
Owner-occupied commercial	3,073			3,171			6,244			1,334,228			4,022			1,344,494
Commercial mortgages	15,290			1,399			16,689			2,149,167			1,652			2,167,508
Construction	2,799			—			2,799			663,518			—			666,317
Residential(3)	2,673			—			2,673			839,240			3,082			844,995
Consumer(4)	10,282			6,276			16,558			1,149,944			2,389			1,168,891
Total	$	51,431		$	11,886		$	63,317		$	9,233,407		$	25,835		$	9,322,559
% of Total Loans	0.55		%	0.13		%	0.68		%	99.04		%	0.28		%	100		%

(1)Nonaccrual loans with an allowance totaled $15 thousand.

(2)Includes commercial small business leases and PPP loans.

(3)Residential accruing current balances excludes reverse mortgages at fair value of $12.5 million.

(4)Includes $15.0 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.

The following table shows nonaccrual and past due loans presented at unpaid principal balance at the date indicated under the incurred loss model:


	December 31, 2019
(Dollars in thousands)	30–89 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 and industrial(1)	$	6,289		$	2,038		$	8,327		$	2,214,506		$	1,564		$	11,031		$	2,235,428
Owner-occupied commercial	1,498			831			2,329			1,283,320			6,757			4,060			1,296,466
Commercial mortgages	4,999			99			5,098			2,207,582			8,670			1,626			2,222,976
Construction	—			—			—			580,591			491			—			581,082
Residential(2)	6,733			437			7,170			980,893			7,326			4,490			999,879
Consumer(3)	13,164			12,745			25,909			1,098,980			2,127			1,715			1,128,731
Total(4)	$	32,683		$	16,150		$	48,833		$	8,365,872		$	26,935		$	22,922		$	8,464,562
% of Total Loans	0.39		%	0.19		%	0.58		%	98.83		%	0.32		%	0.27		%	100		%

(1)Includes commercial small business leases.

(2)Residential accruing current balances excludes reverse mortgages, at fair value of $16.6 million.

(3)Includes $22.3 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.

(4)Balances in the table above include a total of $3.2 billion acquired non-impaired loans.

The following table presents the amortized cost basis of nonaccruing collateral-dependent loans by class at September 30, 2020 under the CECL model:


	September 30, 2020
(Dollars in thousands)	Property		Equipment and other
Commercial and industrial(1)	$	10,824	$	3,866
Owner-occupied commercial	4,022		—
Commercial mortgages	1,652		—
Construction	—		—
Residential(2)	3,082		—
Consumer(3)	2,389		—
Total	$	21,969	$	3,866

(1)Includes commercial small business leases.

(2)Excludes reverse mortgages at fair value.

(3)Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.

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The following table provides an analysis of the Company's impaired loans at December 31, 2019 under the incurred loss model:


	December 31, 2019
(Dollars in thousands)	Ending Loan Balances		Loans with No Related Reserve(1)		Loans with Related Reserve(2)		Related Reserve		Contractual Principal Balances(2)		Average Loan Balances
Commercial and industrial	$	11,900	$	9,979	$	1,921	$	1,185	$	14,653	$	17,033
Owner-occupied commercial	5,596		3,919		1,677		233		6,083		7,869
Commercial mortgages	4,888		1,753		3,135		65		5,215		4,607
Construction	435		—		435		24		488		1,686
Residential	14,119		8,858		5,261		557		16,721		12,031
Consumer	7,584		5,876		1,708		178		8,444		7,729
Total	$	44,522	$	30,385	$	14,137	$	2,242	$	51,604	$	50,955

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

(2)The above includes acquired impaired loans totaling $7.9 million in the ending loan balance and $9.0 million in the contractual principal balance.

Interest income of $0.5 million and $0.8 million was recognized on individually reviewed loans during the three and nine months ended September 30, 2020. Interest income of $0.2 million and $0.6 million was recognized on impaired loans during the three and nine months ended September 30, 2019.

As of September 30, 2020, there were 24 residential loans and 24 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $1.7 million and $13.1 million, respectively. As of December 31, 2019, there were 33 residential loans and 29 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $3.2 million and $9.5 million, respectively. Loan workout and OREO expenses were $0.6 million and $2.4 million during the three and nine months ended September 30, 2020, respectively, and $0.6 million and $1.8 million during three and nine months ended September 30, 2019, respectively. Loan workout and OREO expenses are included in Loan workout and other credit costs on the Consolidated Statement of Income.

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Credit Quality Indicators

Below is a description of each of the 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 or Lower. 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. A distinct possibility exists that the Bank will sustain some loss if the deficiencies are not corrected. In addition, some borrowers in this category could have 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. Such impending events include: perfecting liens on additional collateral, obtaining collateral valuations, an acquisition or liquidation preceding, proposed merger, or refinancing plan.

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.

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The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses, as of September 30, 2020 under the CECL model.


	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost basis		Revolving loans converted to term		Total
(Dollars in thousands)
Commercial and industrial(1):
Risk Rating
Pass(2)	$	1,360,120	$	460,904	$	275,565	$	182,326	$	105,960	$	148,327	$	5,893	$	139,851	$	2,678,946
Special mention	3,514		42,224		29,414		10,445		8,145		29,059		—		24,220		147,021
Substandard or Lower	75,455		70,069		62,398		53,471		11,080		23,318		65		8,531		304,387
	$	1,439,089	$	573,197	$	367,377	$	246,242	$	125,185	$	200,704	$	5,958	$	172,602	$	3,130,354
Owner-occupied commercial:
Risk Rating
Pass	$	162,465	$	236,745	$	96,951	$	151,118	$	135,794	$	298,133	$	—	$	134,165	$	1,215,371
Special mention	83		7,974		653		17,670		3,599		3,328		—		3,451		36,758
Substandard or Lower	4,556		20,219		15,077		14,076		9,127		22,304		—		7,006		92,365
	$	167,104	$	264,938	$	112,681	$	182,864	$	148,520	$	323,765	$	—	$	144,622	$	1,344,494
Commercial mortgages:
Risk Rating
Pass	$	277,281	$	299,727	$	247,892	$	306,437	$	301,239	$	462,444	$	—	$	122,592	$	2,017,612
Special mention	8,479		7,211		22,309		21,450		1,906		6,519		—		1,861		69,735
Substandard or Lower	26,260		19,239		1,911		1,833		2,636		26,211		—		2,071		80,161
	$	312,020	$	326,177	$	272,112	$	329,720	$	305,781	$	495,174	$	—	$	126,524	$	2,167,508
Construction:
Risk Rating
Pass	$	123,965	$	209,675	$	214,989	$	24,828	$	7,711	$	3,864	$	—	$	66,591	$	651,623
Special mention	—		—		—		3,503		—		—		—		616		4,119
Substandard or Lower	—		8,743		—		—		—		83		—		1,749		10,575
	$	123,965	$	218,418	$	214,989	$	28,331	$	7,711	$	3,947	$	—	$	68,956	$	666,317
Residential(3):
Risk Rating
Performing	$	21,380	$	32,628	$	89,647	$	103,019	$	163,476	$	429,538	$	—	$	—	$	839,688
Nonperforming(4)	112		—		—		—		92		5,103		—		—		5,307
	$	21,492	$	32,628	$	89,647	$	103,019	$	163,568	$	434,641	$	—	$	—	$	844,995
Consumer(5):
Risk Rating
Performing	$	171,357	$	152,211	$	275,702	$	71,871	$	50,878	$	62,148	$	374,550	$	7,439	$	1,166,156
Nonperforming(6)	—		—		642		236		—		—		1,478		379		2,735
	$	171,357	$	152,211	$	276,344	$	72,107	$	50,878	$	62,148	$	376,028	$	7,818	$	1,168,891

(1)Includes commercial small business leases.

(2)Includes $954.2 million of PPP loans.

(3)Excludes reverse mortgages at fair value.

(4)Includes troubled debt restructured mortgages performing in accordance with the loans' modified terms and are accruing interest.

(5)Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.

(6)Includes troubled debt restructured home equity installment loans performing in accordance with the loans' modified terms and are accruing interest.

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The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for loan and lease loss, as of December 31, 2019 under the incurred loss model.

Commercial Credit Exposure


	December 31, 2019
	Commercial and Industrial(1)		Owner-occupied Commercial		Commercial Mortgages		Construction		Total Commercial(2)
(Dollars in thousands)									Amount		%
Risk Rating:
Special mention	$	12,287	$	—	$	40,478	$	—	$	52,765
Substandard:
Accrual	78,809		32,679		23,017		—		134,505
Nonaccrual	9,852		4,037		1,626		—		15,515
Doubtful	1,179		23		—		—		1,202
Total Special Mention and Substandard	102,127		36,739		65,121		—		203,987		3	%
Acquired impaired	1,564		6,757		8,670		491		17,482		—	%
Pass	2,131,737		1,252,970		2,149,185		580,591		6,114,483		97	%
Total	$	2,235,428	$	1,296,466	$	2,222,976	$	581,082	$	6,335,952	100	%

(1)Includes commercial small business leases.

(2)Includes $2.2 billion of acquired non-impaired loans as of December 31, 2019.

Retail Credit Exposure


	Residential(2)		Consumer			Total Retail(3)
	December 31, 2019		December 31, 2019		December 31, 2019
(Dollars in thousands)						Amount		Percent
Nonperforming(1)	$	12,858	$	7,374		$	20,232	1	%
Acquired impaired loans	7,326		2,127			9,453		—	%
Performing	979,695		1,119,230			2,098,925		99	%
Total	$	999,879	$	1,128,731		$	2,128,610	100	%

(1)Includes $14.0 million as of December 31, 2019 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)Residential performing loans excludes $16.6 million of reverse mortgages at fair value as of December 31, 2019.

(3)Total includes $1.1 billion in acquired non-impaired loans as of December 31, 2019.

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Troubled Debt Restructurings (TDRs)

The following table presents the balance of TDRs as of the indicated dates:



(Dollars in thousands)	September 30, 2020		December 31, 2019
Performing TDRs	$	15,670	$	14,281
Nonperforming TDRs	4,136		5,896
Total TDRs	$	19,806	$	20,177

Approximately $0.2 million and $0.6 million in related reserves have been established for these loans at September 30, 2020 and December 31, 2019, respectively.

The following tables present information regarding the types of loan modifications made for the three and nine months ended September 30, 2020 and 2019:


	Three months ended September 30, 2020					Nine months ended September 30, 2020
	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other(1)	Total	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other(1)	Total
Commercial and industrial	—	—	—	—	—	1	—	—	—	1
Owner-occupied commercial	—	—	—	—	—	3	—	—	—	3
Commercial mortgages	—	—	—	—	—	—	1	—	—	1
Construction	—	—	—	—	—	—	—	—	—	—
Residential	—	—	1	1	2	—	—	5	3	8
Consumer	—	—	1	2	3	—	—	8	5	13
Total	—	—	2	3	5	4	1	13	8	26


	Three months ended September 30, 2019					Nine months ended September 30, 2019
	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other(1)	Total	Contractual payment reduction and term extension	Maturity Date Extension	Discharged in bankruptcy	Other(1)	Total
Commercial and industrial	—	—	—	—	—	—	1	—	2	3
Owner-occupied commercial	—	—	—	—	—	—	—	—	2	2
Commercial mortgages	—	—	—	—	—	1	—	—	1	2
Construction	—	—	—	—	—	—	—	—	—	—
Residential	—	—	1	—	1	4	—	2	—	6
Consumer	—	2	1	2	5	5	3	2	2	12
Total	—	2	2	2	6	10	4	4	7	25

(1)Other includes underwriting exceptions.

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, which is typically six months, and repayment is reasonably assured.

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The following table presents loans modified as TDRs during the three and nine months ended September 30, 2020 and 2019.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
(Dollars in thousands)	Pre Modification		Post Modification		Pre Modification		Post Modification		Pre Modification		Post Modification		Pre Modification		Post Modification
Commercial	$	—	$	—	$	—	$	—	$	16	$	16	$	1,335	$	1,335
Owner-occupied commercial	—		—		—		—		1,206		1,206		1,413		1,413
Commercial mortgages	—		—		—		—		99		99		504		504
Construction	—		—		—		—		—		—		—		—
Residential	404		404		253		253		1,522		1,522		670		670
Consumer	928		928		500		500		1,321		1,321		1,807		1,807
Total	$	1,332	$	1,332	$	753	$	753	$	4,164	$	4,164	$	5,729	$	5,729

During the three and nine months ended September 30, 2020, the TDRs set forth in the table above resulted in a less than $0.1 million and $0.1 million increase in the allowance for credit losses, respectively, and no additional charge-offs in either period. For the three and nine months ended September 30, 2019 the TDRs set forth in the table above resulted in a $0.1 million and $0.2 million decrease in the allowance for credit losses, respectively, and no additional charge-offs for either period.

During the three months ended September 30, 2020, no TDRs defaulted that had received troubled debt modification during the past twelve months, compared to two TDRs with a total loan amount of $0.2 million during the three months ended September 30, 2019. During the nine months ended September 30, 2020, no TDRs defaulted that had received troubled debt modification during the past twelve months, compared with six TDRs with a total loan amount of $1.5 million during the nine months ended September 30, 2019.

During the nine months ended September 30, 2020, the Company provided a number of customer relief programs in its commercial and retail portfolios, such as payment deferrals or interest only payments on loans and leases. The TDRs set forth in the table above did not occur as a result of the loan forbearance program under the CARES Act.

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8. LEASES

As a lessee, the Company enters into leases for its bank branches, corporate offices, and certain equipment. As a lessor, the Company primarily provides financing through its equipment leasing business.

Lessee

The Company's ongoing leases have remaining lease terms of less than 1 year to 42 years, which includes renewal options that are exercised at its discretion. The Company's lease terms to calculate the lease liability and right of use asset include options to extend the lease when it is reasonably certain that the Company will exercise the option. The lease liability and right of use asset is included in Other liabilities and Other assets, respectively, in the unaudited Consolidated Statement of Financial Condition. Leases with an initial term of 12 months or less are not recorded on the unaudited Consolidated Statement of Financial Condition. Lease expense is recognized on a straight-line basis over the lease term. Operating lease expense is included in Occupancy expense in the unaudited Consolidated Statement of Income. The Company accounts for lease components separately from nonlease components. The Company subleases certain real estate to third parties.

The components of operating lease cost were as follows:


	Three months ended				Nine months ended
(Dollars in thousands)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Operating lease cost (1)	$	4,723	$	5,596	$	14,224	$	14,610
Sublease income	(93)		(105)		(279)		(381)
Net lease cost	$	4,630	$	5,491	$	13,945	$	14,229

(1)Includes variable lease cost and short-term lease cost.

Supplemental balance sheet information related to operating leases was as follows:


(Dollars in thousands)	September 30, 2020			December 31, 2019
Assets
Right of use assets	$	154,007		$	166,221
Total assets	$	154,007		$	166,221

Liabilities
Lease liabilities	$	169,058		$	181,814
Total liabilities	$	169,058		$	181,814

Lease term and discount rate

Weighted average remaining lease term (in years)	19.37			19.06

Weighted average discount rate	4.25		%	4.17		%

Maturities of operating lease liabilities were as follows:


(Dollars in thousands)	September 30, 2020
Remaining in 2020	$	4,359
2021	17,110
2022	17,074
2023	17,192
2024	16,017
After 2024	195,793
Total lease payments	267,545
Less: Interest	(98,487)
Present value of lease liabilities	$	169,058

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(Dollars in thousands)	December 31, 2019
2020	$	18,591
2021	18,314
2022	18,315
2023	18,525
2024	17,390
After 2024	197,203
Total lease payments	288,338
Less: Interest	(106,524)
Present value of lease liabilities	$	181,814

Supplemental cash flow information related to operating leases was as follows:


	Nine months ended
(Dollars in thousands)		September 30, 2020		September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	13,915	$	12,564
Right of use assets obtained in exchange for new operating lease liabilities (non-cash)		—		61,693

Lessor Equipment Leasing

The Company provides equipment and small business lease financing through its leasing subsidiary, NewLane Finance, acquired in the Beneficial acquisition. Interest income from direct financing leases where the Company is a lessor is recognized in Interest and fees on loans and leases on the Consolidated Statements of Income. The allowance for credit losses on finance leases is included in Provision for credit losses on the Consolidated Statements of Income.

The components of direct finance lease income are summarized in the table below:


	Three months ended				Nine months ended
(Dollars in thousands)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Direct financing leases:
Interest income on lease receivable	$	3,965	$	2,048	$	11,344	$	5,826
Interest income on deferred fees and costs	117		63		304		326
Total direct financing lease income	$	4,082	$	2,111	$	11,648	$	6,152

Equipment leasing receivables relate to direct financing leases. The composition of the net investment in direct financing leases was as follows:


(Dollars in thousands)	September 30, 2020		December 31, 2019
Lease receivables	$	257,519	$	217,076
Unearned income	(33,430)		(28,446)
Deferred fees and costs	3,450		1,962
Net investment in direct financing leases	$	227,539	$	190,592

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Future minimum lease payments to be received for direct financing leases were as follows:


(Dollars in thousands)	September 30, 2020
Remaining in 2020	$	21,770
2021	80,291
2022	64,172
2023	47,661
2024	30,874
After 2024	12,751
Total lease payments	$	257,519


(Dollars in thousands)	December 31, 2019
2020	$	71,067
2021	58,337
2022	42,274
2023	28,628
2024	14,450
After 2024	2,320
Total lease payments	$	217,076

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9. GOODWILL AND INTANGIBLE ASSETS

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

WSFS performs its annual impairment test on October 1 or more frequently if events and circumstances indicate that the fair value of a reporting unit is less than its carrying value. In between annual tests, management performs a qualitative review of goodwill quarterly as part of the Company's review of the overall business to ensure no events or circumstances have occurred that would impact its goodwill evaluation. During the nine months ended September 30, 2020, management included considerations of the current economic environment caused by COVID-19 in its evaluation, and determined based on the totality of its qualitative assessment that it is not more likely than not that the carrying value of goodwill is impaired. No goodwill impairment exists during the nine months ended September 30, 2020.

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


(Dollars in thousands)	WSFS Bank		Cash Connect		Wealth Management		Consolidated Company
December 31, 2019	$	452,629	$	—	$	20,199	$	472,828

Goodwill adjustments	—		—		—		—
September 30, 2020	$	452,629	$	—	$	20,199	$	472,828

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

The following table summarizes the Company's intangible assets:


(Dollars in thousands)	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets		Amortization Period
September 30, 2020
Core deposits	$	95,711	$	(20,384)	$	75,327	10 years
Customer relationships	15,281		(6,281)		9,000		7-15 years
Non-compete agreements	221		(179)		42		5 years
Loan servicing rights(1)	4,819		(2,210)		2,609		10-25 years
Total intangible assets	$	116,032	$	(29,054)	$	86,978
December 31, 2019
Core deposits	$	95,711	$	(13,326)	$	82,385	10 years
Customer relationships	17,561		(7,416)		10,145		7-15 years
Non-compete agreements	221		(146)		75		5 years
Loan servicing rights(2)	4,880		(1,568)		3,312		10-25 years
Total intangible assets	$	118,373	$	(22,456)	$	95,917

(1)Includes reversal of impairment losses of $0.1 million and impairment losses of $0.3 million for the three and nine months ended September 30, 2020, respectively.

(2)Includes impairment losses of $0.5 million for the year ended December 31, 2019

The Company recognized amortization expense on intangible assets of $2.7 million and $8.2 million for the three and nine months ended September 30, 2020, respectively, compared to $2.8 million and $6.9 million for the three and nine months ended September 30, 2019, respectively.

The following table presents the estimated future amortization expense on intangible assets:


(Dollars in thousands)	September 30, 2020
Remaining in 2020	$	2,875
2021	11,289
2022	11,073
2023	10,914
2024	10,739
Thereafter	40,088
Total	$	86,978

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10. DEPOSITS

The following table shows deposits by category:


(Dollars in thousands)			September 30, 2020		December 31, 2019
Noninterest-bearing:
	Noninterest demand		$	3,196,967	$	2,189,573
		Total noninterest-bearing	$	3,196,967	$	2,189,573

Interest-bearing:
	Interest-bearing demand		$	2,521,030	$	2,129,725
	Savings		1,717,952		1,563,000
	Money market		2,488,794		2,100,188

	Customer time deposits		1,223,843		1,356,610
	Brokered deposits		242,759		247,761
		Total interest-bearing	8,194,378		7,397,284
		Total deposits	$	11,391,345	$	9,586,857

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11. ASSOCIATE BENEFIT PLANS

Postretirement Medical Benefits

The Company shares certain costs of providing health and life insurance benefits to eligible retired Associates (employees) and their eligible dependents. Previously, all Associates were eligible for these benefits if they reached normal retirement age while working for the Company. Effective March 31, 2014, the Company changed the eligibility of this plan to include only those Associates who have achieved ten years of service as of March 31, 2014. The Company uses the mortality table issued by the Office of the Actuary of the U.S. Bureau of Census in its calculation.

The Company accounts for its obligations under the provisions of ASC 715, Compensation - Retirement Benefits (ASC 715). ASC 715 requires the recognition of the costs of these benefits 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 Company recognizes its service cost in Salaries, benefits and other compensation and the other components of net periodic benefit cost in Other operating expenses in the unaudited Consolidated Statements of Income.

The following table presents the components of net periodic benefit cost related to postretirement medical benefits plan.


	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2020		2019		2020		2019
Service cost	$	15	$	13	$	45	$	40
Interest cost	17		20		51		58
Prior service cost amortization	(19)		(19)		(57)		(57)
Net gain recognition	(9)		(16)		(27)		(47)
Net periodic cost (benefit)	$	4	$	(2)	$	12	$	(6)

Alliance Associate Pension Plan

During the fourth quarter of 2015, the Company completed the acquisition of Alliance. At the time of the acquisition, the Company assumed the Alliance pension plan offered to its current Associates.

The following table presents the components of net periodic benefit cost related to the Alliance Associate Pension Plan.


	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2020		2019		2020		2019
Service cost	$	—	$	10	$	17	$	30
Interest cost	—		70		105		208
Expected return on plan assets	—		(150)		(196)		(445)
Prior service cost amortization	—		—		—		—
Net gain recognition	—		—		—		—
Plan settlement loss	—		—		1,431		$	—
Net periodic cost (benefit)	$	—	$	(70)	$	1,357	$	(207)

During the fourth quarter of 2018, the Company notified the Alliance pension plan participants, the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) of its intention to terminate the plan, and received IRS and PBGC approval in the first quarter of 2020. The Company completed the termination and contributed $0.5 million to the plan to settle the obligation during the three months ended June 30, 2020.

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Beneficial Associate Pension and other postretirement benefits plans

On March 1, 2019, the Company closed its acquisition of Beneficial. At the time of the acquisition, the Company assumed the pension plan covering certain eligible Beneficial Associates. The plan was frozen in 2008.

The following table presents the components of net periodic benefit cost related to the Beneficial pension benefits and other postretirement benefit plans.


	Three months ended September 30, 2020				Nine months ended September 30, 2020
(Dollars in thousands)	Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits
Service cost	$	—	$	2	$	—	$	59
Interest cost	728		108		2,183		381
Expected return on plan assets	(1,590)		—		(4,773)		—
Prior service cost amortization	—		(76)		—		(76)
Net loss (gain) recognition	1		(6)		3		(15)
Net periodic (benefit) cost	$	(861)	$	28	$	(2,587)	$	349


	Three months ended September 30, 2019				Nine months ended September 30, 2019
(Dollars in thousands)	Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits
Service cost	$	—	$	23	$	—	$	53
Interest cost	857		177		1,999		413
Expected return on plan assets	(1,442)		—		(3,365)		—
Prior service cost amortization	—		—		—		—
Net loss (gain) recognition	—		—		—		—
Net periodic (benefit) cost	$	(585)	$	200	$	(1,366)	$	466

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12. INCOME TAXES

There were no unrecognized tax benefits as of September 30, 2020. The Company records interest and penalties on potential income tax deficiencies as income tax expense. The Company's federal and state tax returns for the 2017 through 2019 tax years are subject to examination as of September 30, 2020. The Company does not expect to record or realize any material unrecognized tax benefits during 2020.

As a result of the adoption of ASC 326 - Credit Losses on January 1, 2020, the tax impact relating to the incremental provision for expected credit losses from financial assets held at amortized cost has been reflected as a credit to retained earnings to reflect the tax impact of increased credit reserves. Accordingly, $8.5 million of such impact has been reflected as an income tax credit and deferred tax asset on the Company's Consolidated Statements of Financial Condition.

On March 27, 2020, the CARES Act was enacted, and Section 2303(b) of this act provides the Company with an opportunity to carry back net operating losses (NOLs) arising from 2018, 2019 and 2020 to the prior five tax years. The Company has such NOLs reflected on its balance sheet as a portion of its current tax receivables, which were previously valued at the federal corporate income tax rate of 21%. However, the provisions of the CARES Act provide for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate tax rate in effect for the carryback years. Consequently, effective September 30, 2020, the Company has revalued the benefit from its NOLs to reflect a 35% tax rate, which resulted in the recognition of an additional $1.7 million income tax benefit and deferred tax asset on the Company's Consolidated Statements of Financial Condition.

The amortization of the low-income housing credit investments has been reflected as income tax expense of $0.8 million and $0.9 million for the three months ended September 30, 2020 and 2019, respectively, and $2.4 million and $2.1 million of such amortization has been reflected as income tax expense for the nine months ended September 30, 2020 and 2019, respectively.

The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the nine months ended September 30, 2020 were $2.2 million, $2.4 million and $0.7 million, respectively. The carrying value of the investment in affordable housing credits is $27.4 million at September 30, 2020, compared to $25.8 million at December 31, 2019.

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13. FAIR VALUE DISCLOSURES OF FINANCIAL ASSETS AND LIABILITIES

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

ASC 820-10, Fair Value Measurement - Overall (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.

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The following tables present financial instruments carried at fair value as of September 30, 2020 and December 31, 2019 by level in the valuation hierarchy (as described above):


	September 30, 2020
(Dollars in thousands)	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	$	—	$	428,533	$	—	$	428,533
FNMA MBS	—		1,454,908		—		1,454,908
FHLMC MBS	—		246,224		—		246,224
GNMA MBS	—		26,630		—		26,630
GSE agency notes	—		178,627		—		178,627

Other assets	—		18,448		—		18,448
Total assets measured at fair value on a recurring basis	$	—	$	2,353,370	$	—	$	2,353,370

Liabilities measured at fair value on a recurring basis:
Other liabilities	$	—	$	8,350	$	25,205	$	33,555

Assets measured at fair value on a nonrecurring basis:
Other investments	$	—	$	—	$	10,436	$	10,436
Other real estate owned	—		—		3,000		3,000
Loans held for sale	—		152,453		—		152,453

Total assets measured at fair value on a nonrecurring basis	$	—	$	152,453	$	13,436	$	165,889


	December 31, 2019
(Dollars in thousands)	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	$	—	$	340,230	$	—	$	340,230
FNMA MBS	—		1,242,453		—		1,242,453
FHLMC MBS	—		328,946		—		328,946
GNMA MBS	—		33,285		—		33,285


Other assets	—		4,884		—		4,884
Total assets measured at fair value on a recurring basis	$	—	$	1,949,798	$	—	$	1,949,798

Liabilities measured at fair value on a recurring basis:
Other liabilities	$	—	$	3,918	$	—	$	3,918

Assets measured at fair value on a nonrecurring basis
Other investments	$	—	$	—	$	70,046	$	70,046
Other real estate owned	—		—		2,605		2,605
Loans held for sale	—		83,872		—		83,872

Total assets measured at fair value on a nonrecurring basis	$	—	$	83,872	$	72,651	$	156,523

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Fair value is based on quoted market prices, where available. If such quoted market prices are not available, fair value is based on 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. The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While the Company believes its 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

Securities classified as available-for-sale are reported at fair value using Level 2 inputs. The Company believes that this Level 2 designation is appropriate under ASC 820-10, as these securities are government sponsored enterprises (GSEs) and Ginnie Mae securities with almost all fixed income securities, none are exchange traded, and all are priced by correlation to observed market data. For these securities the Company obtains 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 investments

Other investments includes equity investments without readily determinable fair values and are categorized as Level 3. The Company's equity investments without readily determinable fair values are held at cost, and are adjusted for any observable transactions during the reporting period.

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 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 other real estate owned was estimated using Level 3 inputs based on appraisals obtained from third parties.

Loans held for sale

The fair value of loans held for sale is based on estimates using Level 2 inputs. These inputs are based on pricing information obtained from wholesale mortgage banks and brokers and applied to loans with similar interest rates and maturities.

Other assets

Other assets include the fair value of interest rate products and derivatives on the residential mortgage held for sale loan pipeline. Valuation of interest rate products is obtained from an independent pricing service and also from the derivative counterparty. Valuation of the derivative related to the residential mortgage held for sale loan pipeline is based on valuation of the loans held for sale portfolio as described above in Loans held for sale.

Other liabilities

Other liabilities include the fair value of interest rate products, risk participation agreement, derivatives on the residential mortgage held for sale loan pipeline and derivative related to the sale of certain Visa Class B common share. Valuation of interest rate products and risk participation agreements is obtained from an independent pricing service and also from the derivative counterparty. Valuation of the derivative related to the sale of certain Visa Class B common shares is based on: (i) the agreed upon graduated fee structure; (ii) the length of time until the resolution of the Visa covered litigation; and (iii) the estimated impact of dilution in the conversion ratio of Class B shares resulting from changes in the Visa covered litigation. Valuation of the derivative related to the residential mortgage held for sale loan pipeline is based on valuation of the loans held for sale portfolio as described above in Loans held for sale.

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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

Investment securities include debt securities classified as held-to-maturity or available-for-sale. Fair value is estimated using quoted prices for similar securities, which the Company obtains from a third party vendor. The Company uses 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 the Company to validate the vendor’s methodology as described above in available-for-sale securities.

Other investments

Other investments includes equity investments without readily determinable fair values (see discussion in “Fair Value of Financial Assets and Liabilities” section above).

Loans held for sale

Loans held for sale are carried at their fair value (see discussion in “Fair Value of Financial Assets and Liabilities” section above).

Loans and leases

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans and leases are segregated by portfolio segments (see Note 2). For loans that reprice frequently, the book value approximates fair value. The fair values of other types of loans, with the exception of reverse mortgages, 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 values of reverse mortgages are based on the net present value of the expected cash flows using a discount rate specific to the reverse mortgages portfolio. The fair value of nonperforming loans is based on recent external appraisals of the underlying collateral, if the loan is collateral dependent. Estimated cash flows, discounted using a rate commensurate with current rates and the risk associated with the estimated cash flows, are used if appraisals are not available. This technique does contemplate an exit price.

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.

Accrued interest receivable

The carrying amounts of interest receivable approximate fair value.

Other assets

Other assets include the fair value of interest rate products and derivatives on the residential mortgage held for sale loan pipeline (see discussion in “Fair Value of Financial Assets and Liabilities” section above).

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Deposits

The fair value of 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 the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Off-balance sheet instruments

The fair value of off-balance sheet instruments, including swap guarantees of $12.2 million and $8.8 million at September 30, 2020 and December 31, 2019, respectively, and standby letters of credit, approximates the recorded net deferred fee amounts. Because letters of credit are generally not assignable by either the Company or the borrower, they only have value to the Company and the borrower.

Accrued interest payable

The carrying amounts of interest payable approximate fair value.

Other liabilities

Other liabilities include the fair value of interest rate products, risk participation agreements, derivatives on the residential mortgage held for sale loan pipeline, and derivative related to the sale of certain Visa Class B common shares (see discussion in “Fair Value of Financial Assets and Liabilities” section above).

Assets measured at fair value using significant unobservable inputs (Level 3)

The following table provides a description of the valuation technique and significant unobservable inputs for the Company's assets classified as Level 3 and measured at fair value on a nonrecurring basis:

September 30, 2020

Financial Instrument

Fair Value

Valuation Technique(s)

Unobservable Input

Range (Weighted Average)

Other investments

10,436

Observed market comparable transactions

Period of observed transactions

July 2020

Other real estate owned

3,000

Fair market value of collateral

Costs to sell

5.0% - 10.0% (10.0%)

Other liabilities

25,205

Discounted cash flow

Timing of the resolution of the Visa litigation

3 - 8 years (5.75 years or 4Q 2025)

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


		September 30, 2020				December 31, 2019
(Dollars in thousands)	Fair Value Measurement	Book Value		Fair Value		Book Value		Fair Value
Financial assets:
Cash, cash equivalents, and restricted cash	Level 1	$	1,072,920	$	1,072,920	$	571,752	$	571,752
Investment securities available-for-sale	Level 2	2,334,922		2,334,922		1,944,914		1,944,914
Investment securities held-to-maturity, net	Level 2	113,609		118,113		133,601		136,625
Other investments	Level 3	10,436		10,436		70,046		70,046
Loans, held for sale	Level 2	152,453		152,453		83,872		83,872
Loans and leases, net(1)	Level 3	9,102,332		9,455,051		8,424,464		8,580,015

Stock in FHLB of Pittsburgh	Level 2	6,497		6,497		21,097		21,097
Accrued interest receivable	Level 2	42,801		42,801		38,094		38,094
Other assets	Level 2	18,448		18,448		4,884		4,884
Financial liabilities:
Deposits	Level 2	11,391,345		11,353,731		9,586,857		9,575,394
Borrowed funds	Level 2	204,294		206,804		489,288		489,561
Standby letters of credit	Level 3	496		496		623		623
Accrued interest payable	Level 2	8,522		8,522		3,103		3,103
Other liabilities	Levels 2, 3	33,555		33,555		3,918		3,918

(1) Includes reverse mortgage loans.

At September 30, 2020 and December 31, 2019 the Company had no commitments to extend credit measured at fair value.

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14. DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both economic conditions and its business operations. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

Fair Values of Derivative Instruments

The table below presents the fair value of derivative financial instruments as well as their location on the unaudited Consolidated Statements of Financial Condition as of September 30, 2020.


	Fair Values of Derivative Instruments
(Dollars in thousands)		Notional		Balance Sheet Location	Derivatives (Fair Value)



Derivatives not designated as hedging instruments:
Interest rate products		$	65,068	Other assets	$	6,339
Interest rate products		65,068		Other liabilities	(7,067)
Risk participation agreements		4,410		Other liabilities	(12)
Interest rate lock commitments with customers		308,807		Other assets	11,606
Interest rate lock commitments with customers		22,134		Other liabilities	(174)
Forward sale commitments		56,290		Other assets	503
Forward sale commitments		245,224		Other liabilities	(1,097)
Financial derivatives related to sales of certain Visa Class B shares		113,177		Other liabilities	(25,205)
Total derivatives		$	880,178		$	(15,107)

The table below presents the fair value of derivative financial instruments as well as their location on the Consolidated Statements of Financial Condition as of December 31, 2019.


	Fair Values of Derivative Instruments
(Dollars in thousands)		Count	Notional		Balance Sheet Location	Derivatives (Fair Value)
Derivatives designated as hedging instruments:
Interest rate products		3	$	75,000	Other liabilities	$	(759)
Total			$	75,000		$	(759)
Derivatives not designated as hedging instruments:
Interest rate products			$	71,804	Other assets	$	2,520
Interest rate products			71,804		Other liabilities	(2,688)
Risk participation agreements			4,524		Other liabilities	(4)
Interest rate lock commitments with customers			99,057		Other assets	1,768
Interest rate lock commitments with customers			28,505		Other liabilities	(191)
Forward sale commitments			61,301		Other assets	596
Forward sale commitments			90,177		Other liabilities	(276)
Total			$	427,172		$	1,725
Total derivatives			$	502,172		$	966

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Cash Flow Hedges of Interest Rate Risk

The Company's objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of fixed amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount.

Changes to the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecast transaction affects earnings. During the first half of 2020, such derivatives were used to hedge the variable cash flows associated with a variable rate loan pool.

The Company has agreements with certain derivative counterparties that contain a provision under which, if it defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain derivative counterparties that contain a provision where if it fails to maintain its status as a well-capitalized or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

In April 2020, the Company terminated its three interest rate derivatives that were designated as cash flow hedges for a net gain of $1.3 million. At this point, hedge accounting was discontinued, and the net gain was recognized in accumulated other comprehensive income (loss). Once a cash flow hedge is discontinued, the net gain or loss that remains in accumulated comprehensive income (loss) is reclassified into earnings when the transaction affects earnings. As the underlying hedged transaction continues to be probable, the $1.3 million net gain will be recognized into earnings on a straight-line basis over each derivative's original contract term. During the next twelve months, the Company estimates that $0.6 million will be reclassified as an increase to interest income. During the three and nine months ended September 30, 2020, $0.1 million and $0.3 million was reclassified into interest income, respectively.

Swap Guarantees

The Company entered into agreements with four unrelated financial institutions whereby those financial institutions entered into interest rate derivative contracts (interest rate swap transactions) directly with customers referred to them by the Company. Under the terms of the agreements, those financial institutions have recourse to us for any exposure created under each swap transaction, only in the event that 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 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.

At September 30, 2020 and December 31, 2019, there were 226 and 172 variable-rate to fixed-rate swap transactions between the third-party financial institutions and the Company's customers, respectively. The initial notional aggregate amount was approximately $1.1 billion at September 30, 2020 compared to $941.0 million at December 31, 2019. At September 30, 2020, the swap transactions remaining maturities ranged from under 1 year to 15 years. At September 30, 2020, 223 of these customer swaps were in a paying position to third parties for $93.9 million, with our swap guarantees having a fair value of $12.2 million. At December 31, 2019, 156 of these customer swaps were in a paying position to third parties for $27.4 million, with our swap guarantees having a fair value of $8.8 million. However, for both periods, none of the Company's customers were in default of the swap agreements.

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The table below presents the effect of the derivative financial instruments on the unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2020 and September 30, 2019.


	Amount of Gain Recognized in OCI on Derivative (Effective Portion)				Amount of Gain Recognized in OCI on Derivative (Effective Portion)				Location of Gain Reclassified from Accumulated OCI into Income (Effective Portion)
(Dollars in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	2020		2019		2020		2019
Interest Rate Products	$	—	$	368	$	1,560	$	2,005	Interest income
Total	$	—	$	368	$	1,560	$	2,005

	Amount of Gain or (Loss) Recognized in Income				Amount of Gain or (Loss) Recognized in Income				Location of Gain or (Loss) Recognized in Income
(Dollars in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives Not Designated as a Hedging Instrument	2020		2019		2020		2019
Interest Rate Lock Commitments	$	3,261	$	322	$	9,488	$	1,496	Mortgage banking activities, net
Forward Sale Commitments	(3,110)		(481)		(9,594)		$	(1,203)	Mortgage banking activities, net
Total	$	151	$	(159)	$	(106)	$	293

The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $8.4 million in securities and $11.1 million in cash against its obligations under these agreements. If the Company had breached any of these provisions at September 30, 2020, it could have been required to settle its obligations under the agreements at the termination value.

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15. SEGMENT INFORMATION

As defined in ASC 280, Segment Reporting (ASC 280), 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. The Company evaluates performance based on pretax net income relative to resources used, and allocate resources based on these results. The accounting policies applicable to the Company's segments are those that apply to its preparation of the accompanying unaudited Consolidated Financial Statements. Based on these criteria, the Company has identified 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 Bank. 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. Accordingly, these departments are not considered discrete segments and are appropriately aggregated in the WSFS Bank segment in accordance with ASC 280.

The Company's Cash Connect® segment provides ATM vault cash, smart safe and other cash logistics services through strategic partnerships with several of the largest networks, manufacturers and service providers in the ATM industry. Cash Connect® services non-bank and WSFS-branded ATMs and retail safes nationwide. 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 planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate, and institutional clients through multiple integrated businesses. WSFS Wealth Investments provides financial advisory services along with insurance and brokerage products. Cypress, a registered investment adviser, is a fee-only wealth management firm managing a “balanced” investment style portfolio focused on preservation of capital and generating current income. West Capital, a registered investment adviser, is a fee-only wealth management firm operating under a multi-family office philosophy to provide customized solutions to institutions and high-net-worth individuals. The institutional trust division of WSFS, WSFS Institutional Services®, provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional and corporate clients. Christiana Trust DE, a subsidiary of WSFS, provides personal trust and fiduciary services to families and individuals across the U.S. Powdermill is a multi-family office specializing in providing independent solutions to high-net-worth individuals, families and corporate executives through a coordinated, centralized approach. WSFS Wealth Client Management serves high-net-worth clients by delivering credit and deposit products and partnering with other Wealth Management units to provide comprehensive solutions to clients.

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The following tables show segment results for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30, 2020								Three Months Ended September 30, 2019
(Dollars in thousands)	WSFS Bank		Cash Connect®		Wealth Management		Total		WSFS Bank		Cash Connect®		Wealth Management		Total
Statements of Income
External customer revenues:
Interest income	$	121,179	$	—	$	2,191	$	123,370	$	138,585	$	—	$	2,677	$	141,262
Noninterest income	25,601		10,157		13,413		49,171		38,563		13,067		10,716		62,346
Total external customer revenues	146,780		10,157		15,604		172,541		177,148		13,067		13,393		203,608
Inter-segment revenues:
Interest income	965		244		2,477		3,686		2,855		—		5,592		8,447
Noninterest income	3,359		199		497		4,055		2,483		257		320		3,060
Total inter-segment revenues	4,324		443		2,974		7,741		5,338		257		5,912		11,507
Total revenue	151,104		10,600		18,578		180,282		182,486		13,324		19,305		215,115
External customer expenses:
Interest expense	9,994		—		328		10,322		19,056		—		1,373		20,429
Noninterest expenses	79,469		6,537		7,534		93,540		93,146		9,132		7,283		109,561
Provision for credit losses	1,324		—		1,392		2,716		3,954		—		167		4,121
Total external customer expenses	90,787		6,537		9,254		106,578		116,156		9,132		8,823		134,111
Inter-segment expenses:
Interest expense	2,721		172		793		3,686		5,592		1,730		1,125		8,447
Noninterest expenses	696		798		2,561		4,055		577		680		1,803		3,060
Total inter-segment expenses	3,417		970		3,354		7,741		6,169		2,410		2,928		11,507
Total expenses	94,204		7,507		12,608		114,319		122,325		11,542		11,751		145,618
Income before taxes	$	56,900	$	3,093	$	5,970	$	65,963	$	60,161	$	1,782	$	7,554	$	69,497
Income tax provision							15,140								15,902
Consolidated net income							50,823								53,595
Net loss attributable to noncontrolling interest							(322)								(287)
Net income attributable to WSFS							51,145								53,882
Supplemental Information
Capital expenditures for the period ended	$	640	$	—	$	10	$	650	$	3,920	$	1,340	$	—	$	5,260

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	Nine Months Ended September 30, 2020								Nine Months Ended September 30, 2019
(Dollars in thousands)	WSFS Bank		Cash Connect®		Wealth Management		Total		WSFS Bank		Cash Connect®		Wealth Management		Total
Statements of Income
External customer revenues:
Interest income	$	376,198	$	—	$	6,910	$	383,108	$	375,762	$	—	$	7,980	$	383,742
Noninterest income	87,977		30,844		35,572		154,393		74,697		38,824		32,818		146,339
Total external customer revenues	464,175		30,844		42,482		537,501		450,459		38,824		40,798		530,081
Inter-segment revenues:
Interest income	3,845		481		7,768		12,094		9,992		—		13,649		23,641
Noninterest income	9,808		616		1,017		11,441		6,522		626		717		7,865
Total inter-segment revenues	13,653		1,097		8,785		23,535		16,514		626		14,366		31,506
Total revenue	477,828		31,941		51,267		561,036		466,973		39,450		55,164		561,587
External customer expenses:
Interest expense	38,400		—		1,754		40,154		52,474		—		3,889		56,363
Noninterest expenses	232,343		21,173		21,955		275,471		267,138		26,055		21,808		315,001
Provision for credit losses	150,177		—		3,939		154,116		23,479		—		491		23,970
Total external customer expenses	420,920		21,173		27,648		469,741		343,091		26,055		26,188		395,334
Inter-segment expenses:
Interest expense	8,249		1,257		2,588		12,094		13,649		6,491		3,501		23,641
Noninterest expenses	1,633		2,438		7,370		11,441		1,343		1,923		4,599		7,865
Total inter-segment expenses	9,882		3,695		9,958		23,535		14,992		8,414		8,100		31,506
Total expenses	430,802		24,868		37,606		493,276		358,083		34,469		34,288		426,840
Income before taxes	$	47,026	$	7,073	$	13,661	$	67,760	$	108,890	$	4,981	$	20,876	$	134,747
Income tax provision							14,181								32,253
Consolidated net income							53,579								102,494
Net loss attributable to noncontrolling interest							(1,382)								(611)
Net income attributable to WSFS							54,961								103,105
Supplemental Information
Capital expenditures for the period ended	$	3,077	$	256	$	147	$	3,480	$	9,160	$	1,411	$	130	$	10,701

The following table shows significant components of segment net assets as of September 30, 2020 and December 31, 2019:


	September 30, 2020								December 31, 2019
(Dollars in thousands)	WSFS Bank		Cash Connect®		Wealth Management		Total		WSFS Bank		Cash Connect®		Wealth Management		Total
Statements of Financial Condition
Cash and cash equivalents	$	720,456	$	342,951	$	9,513	$	1,072,920	$	202,792	$	357,494	$	11,466	$	571,752
Goodwill	452,629		—		20,199		472,828		452,629		—		20,199		472,828
Other segment assets	12,045,866		6,757		231,737		12,284,360		10,982,681		6,555		222,486		11,211,722
Total segment assets	$	13,218,951	$	349,708	$	261,449	$	13,830,108	$	11,638,102	$	364,049	$	254,151	$	12,256,302

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16. COMMITMENTS AND CONTINGENCIES

Secondary Market Loan Sales

Given the current interest rate environment and the Company's overall asset and liability management approach, the Company typically sells newly originated residential mortgage loans in the secondary market to mortgage loan aggregators and on a more limited basis, to government sponsored enterprise (GSEs) such as FHLMC, FNMA, and the FHLB. Loans held for sale are reflected on the unaudited Consolidated Statements of Financial Condition at fair value with changes in the value reflected in the unaudited Consolidated Statements of Income. Gains and losses are recognized at the time of sale. The Company periodically retains the servicing rights on residential mortgage loans sold which results in monthly service fee income. The mortgage servicing rights are included in Intangible assets in the unaudited Consolidated Statements of Financial Condition. Otherwise, the Company sells loans with servicing released on a nonrecourse basis. Rate-locked loan commitments that the Company intends to sell in the secondary market are accounted for as derivatives under ASC 815, Derivatives and Hedging (ASC 815).

The Company does 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 repurchases during the nine months ended September 30, 2020 as compared to one repurchase for $0.2 million during the nine months ended September 30, 2019.

Unfunded Lending Commitments

At September 30, 2020 and December 31, 2019, the allowance for credit losses of unfunded lending commitments were $8.6 million and $1.5 million, respectively. The balance at September 30, 2020 was determined using the CECL methodology, which included a $3.0 million adjustment to retained earnings at the time of adoption. A provision for unfunded lending commitments of $0.9 million and $4.1 million was recognized during the three and nine months ended September 30, 2020, respectively, and a provision for unfunded lending commitments of $0.2 million and $0.7 million was recognized during the three and nine months ended September 30, 2019, respectively.

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17. CHANGE IN ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income includes unrealized gains and losses on available-for-sale investments, unrealized gains and losses on cash flow hedges, as well as unrecognized prior service costs, transition costs, and actuarial gains and losses on defined benefit pension plans. Changes to accumulated other comprehensive income are presented, net of tax, as a component of stockholders’ equity. Amounts that are reclassified out of accumulated other comprehensive income are recorded on the unaudited Consolidated Statement of Income 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 period indicated:


(Dollars in thousands)	Net change in investment securities available-for-sale		Net change in investment securities held-to-maturity		Net change in defined benefit plan		Net change in fair value of derivatives used for cash flow hedges (1)		Net change in equity method investments		Total
Balance, June 30, 2020	$	74,689	$	346	$	(3,127)	$	872	$	—	$	72,780
Other comprehensive (loss) income before reclassifications	(3,474)		—		58		—		(9)		(3,425)
Less: Amounts reclassified from accumulated other comprehensive (loss) income	(2,525)		(39)		(83)		(113)		—		(2,760)
Net current-period other comprehensive loss	(5,999)		(39)		(25)		(113)		(9)		(6,185)
Balance, September 30, 2020	$	68,690	$	307	$	(3,152)	$	759	$	(9)	$	66,595

Balance, June 30, 2019	$	22,244	$	602	$	659	$	(817)	$	—	$	22,688
Other comprehensive income (loss) before reclassifications	9,268		(1)		(8)		368		—		9,627
Less: Amounts reclassified from accumulated other comprehensive loss	—		(69)		(27)		—		—		(96)
Net current-period other comprehensive income (loss)	9,268		(70)		(35)		368		—		9,531
Balance, September 30, 2019	$	31,512	$	532	$	624	$	(449)	$	—	$	32,219
(1)Cash flow hedges were terminated as of April 1, 2020

(Dollars in thousands)	Net change in investment securities available for sale		Net change in investment securities held to maturity		Net change in defined benefit plan		Net change in fair value of derivatives used for cash flow hedges (1)		Net change in equity method investments		Total
Balance, December 31, 2019	$	26,927	$	468	$	(3,317)	$	(577)	$	—	$	23,501
Other comprehensive income (loss) before reclassifications	46,264		—		84		1,560		(9)		47,899
Less: Amounts reclassified from accumulated other comprehensive (loss) income	(4,501)		(161)		81		(224)		—		(4,805)
Net current-period other comprehensive income (loss)	41,763		(161)		165		1,336		(9)		43,094
Balance, September 30, 2020	$	68,690	$	307	$	(3,152)	$	759	$	(9)	$	66,595

Balance, December 31, 2018	$	(14,553)	$	779	$	834	$	(2,454)	$	—	$	(15,394)
Other comprehensive income (loss) before reclassifications	46,124		(2)		(131)		2,005		—		47,996
Less: Amounts reclassified from accumulated other comprehensive (loss) income	(59)		(245)		(79)		—		—		(383)
Net current-period other comprehensive income (loss)	46,065		(247)		(210)		2,005		—		47,613
Balance, September 30, 2019	$	31,512	$	532	$	624	$	(449)	$	—	$	32,219
(1)Cash flow hedges were terminated as of April 1, 2020

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The unaudited Consolidated Statements of Income were impacted by components of other comprehensive income as shown in the tables below:


	Three Months Ended September 30,				Affected line item in unaudited Consolidated Statements of Income
(Dollars in thousands)	2020		2019
Securities available for sale:
Realized gains on securities transactions	$	(3,322)	$	—	Securities gains, net
Income taxes	797		—		Income tax provision
Net of tax	$	(2,525)	$	—
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	$	(51)	$	(91)	Interest and dividends on investment securities
Income taxes	12		22		Income tax provision
Net of tax	$	(39)	$	(69)
Amortization of defined benefit pension plan-related items:
Prior service credits	$	(95)	$	(19)

Actuarial gains	(14)		(16)
Total before tax	$	(109)	$	(35)	Salaries, benefits and other compensation
Income taxes	26		8		Income tax provision
Net of tax	$	(83)	$	(27)




Net unrealized gains on terminated cash flow hedges:
Amortization of net unrealized gains to income during the period	$	(149)	$	—	Interest and fees on loans and leases
Income taxes	36		—		Income tax provision
Net of tax	$	(113)	$	—
Total reclassifications	$	(2,760)	$	(96)

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	Nine Months Ended				Affected line item in unaudited Consolidated Statements of Operations
	September 30,
	2020		2019
Securities available-for-sale:
Realized gains on securities transactions	$	(5,923)	$	(78)	Securities gains, net
Income taxes	1,422		19		Income tax provision
Net of tax	$	(4,501)	$	(59)
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	$	(211)	$	(322)	Interest and dividends on investment securities
Income taxes	50		77		Income tax provision
Net of tax	$	(161)	$	(245)
Amortization of defined benefit pension plan-related items:
Prior service credits	$	(133)	$	(57)

Actuarial gains	(39)		(47)
Total before tax	$	(172)	$	(104)	Salaries, benefits and other compensation
Income taxes	41		25		Income tax provision
Net of tax	$	(131)	$	(79)
Defined benefit pension plan settlement:
Realized losses on plan settlement	$	279	$	—	Other operating expense
Income taxes	(67)		—		Income tax provision
Net of tax	$	212	$	—
Net unrealized gains on terminated cash flow hedges:
Amortization of net unrealized gains to income during the period	$	(295)	$	—	Interest and fees on loans and leases
Income taxes	71		—		Income tax provision
Net of tax	$	(224)	$	—
Total reclassifications	$	(4,805)	$	(383)

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18. RELATED PARTY TRANSACTIONS

In the ordinary course of business, from time to time the Company enters into transactions with related parties, including, but not limited to, its officers and directors. These transactions are made on substantially the same terms and conditions, including interest rates and collateral requirements, as those prevailing at the same time for comparable transactions with other customers. They do not, in the opinion of management, involve greater than normal credit risk or include other features unfavorable to the Company. Any related party loans exceeding $0.5 million require review and approval by the Board of Directors. During the three months ended September 30, 2020, there were no loans originated to related parties exceeding $0.5 million. During the nine months ended September 30, 2020, there were two loans originated to related parties exceeding $0.5 million, both of which were sold during the second quarter. During the three and nine months ended September 30, 2019, there were one and two loans, respectively, originated to related parties exceeding $0.5 million.

The outstanding balances of loans to related parties at September 30, 2020 and December 31, 2019 were $0.2 million and $1.0 million, respectively. Total deposits from related parties at September 30, 2020 and December 31, 2019 were $9.2 million and $4.9 million, respectively. During the third quarter of 2020, there was one new loan and credit line advance to related parties and repayments were $0.2 million.

19. LEGAL AND OTHER PROCEEDINGS

In accordance with the current accounting standards for loss contingencies, the Company establishes reserves for litigation-related matters that arise in the ordinary course of its business activities when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss can be reasonably estimated. Litigation claims and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with assurance. In addition, the Company's defense of litigation claims may result in legal fees, which it expenses as incurred.

As previously disclosed, on February 27, 2018, the Company entered into a settlement agreement with Universitas Education, LLC (Universitas) to resolve arbitration claims related to services provided by Christiana Bank and Trust Company (CB&T) prior to its acquisition by WSFS in December 2010. In accordance with the litigation settlement, the Company paid Universitas $12.0 million to fully settle the claims. During the third quarter of 2018, WSFS recovered $7.9 million in settlement and legal costs from insurance carriers that provided coverage relating to the Universitas matter. WSFS is pursuing all of its rights and remedies to recover the remaining amounts relating to the Universitas proceeding, including the Universitas settlement payment, legal fees and related costs, by enforcing the indemnity right in the 2010 purchase agreement by which WSFS acquired CB&T.

In March 2017, Nature’s Healing Trust (NHT) filed a complaint against WSFS Bank in the Delaware Court of Chancery. NHT asserts that WSFS Bank failed to provide timely notice concerning the possible lapse of two life settlement policies (aggregate face amount of $6.3 million) held in the trust. NHT asserts claims against WSFS Bank for breach of contract, breach of fiduciary duty, and negligence, and seeks the face value of the policies. WSFS Bank disputes the factual allegations and denies liability. WSFS Bank has, in accordance with its normal procedures, notified its insurance carriers of a possible claim. WSFS Bank is vigorously defending itself in this matter and believes it has valid factual and legal defenses.

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

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

OVERVIEW

WSFS Financial Corporation (the Company or WSFS) is a savings and loan holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by our subsidiary, Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank), one of the ten oldest bank and trust companies continuously operating under the same name in the United States (U.S.). At $13.8 billion in assets and $23.1 billion in assets under management (AUM) and assets under administration (AUA), WSFS Bank is also the largest bank and trust company headquartered in the Delaware Valley. As a federal savings bank, which was formerly chartered as a state mutual savings bank, the Bank enjoys a broader scope of permissible activities than most other types of financial institutions. A fixture in the community, we have been in operation for more than 188 years. In addition to our focus on stellar customer service, we have continued to fuel growth and remain a leader in our community. We are a relationship-focused, locally-managed, community banking institution. Our mission is simple: “We Stand for Service.” Our strategy of “Engaged Associates, living our culture, making a better life for all we serve” focuses on exceeding customer expectations, delivering stellar experiences and building customer advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates.

We have six consolidated subsidiaries: WSFS Bank, WSFS Wealth Management, LLC (Powdermill), WSFS Capital Management, LLC (West Capital), Cypress Capital Management, LLC (Cypress), Christiana Trust Company of Delaware (Christiana Trust DE) and WSFS SPE Services, LLC. We also have one unconsolidated subsidiary, WSFS Capital Trust III. WSFS Bank has three wholly owned subsidiaries: Beneficial Equipment Finance Corporation (BEFC), WSFS Investment Group, Inc. (WSFS Wealth Investments), and 1832 Holdings, Inc., and one majority-owned subsidiary, NewLane Finance Company (NewLane Finance).

Our banking business had a total loan portfolio of $9.3 billion as of September 30, 2020, which was funded primarily through commercial relationships and retail and customer generated deposits. We have built a $7.3 billion commercial loan and lease portfolio by recruiting seasoned commercial lenders in our markets, offering the high level of service and flexibility typically associated with a community bank, and through acquisitions. 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 our branches and WSFS Mortgage. WSFS Mortgage is a mortgage banking company specializing in a variety of residential mortgage and refinancing solutions. Our leasing business is conducted by NewLane Finance. NewLane Finance originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories including technology, software, office, medical, veterinary and other areas.

Our Cash Connect® business is a premier provider of ATM vault cash, smart safe (safes that automatically accept, validate, record and hold cash in a secure environment) and other cash logistics services in the U.S. Cash Connect® manages over $1.4 billion in total cash and services approximately 28,000 non-bank ATMs and approximately 4,300 smart safes nationwide. Cash Connect® provides related services such as online reporting and ATM cash management, predictive cash ordering and reconcilement services, armored carrier management, loss protection, ATM processing equipment sales and deposit safe cash logistics. Cash Connect® also supports 635 branded ATMs for WSFS Bank Customers, which has one of the largest branded ATM networks in our market.

Our Wealth Management business provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate, and institutional clients through multiple integrated businesses. Combined, these businesses had $23.1 billion of AUM and AUA at September 30, 2020. WSFS Wealth Investments provides financial advisory services along with insurance and brokerage products. Cypress, a registered investment adviser, is a fee-only wealth management firm managing a “balanced” investment style portfolio focused on preservation of capital and generating current income. West Capital, a registered investment adviser, is a fee-only wealth management firm operating under a multi-family office philosophy to provide customized solutions to institutions and high-net-worth individuals. The institutional trust division of WSFS, WSFS Institutional Services®, provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional and corporate clients. Christiana Trust DE, a subsidiary of WSFS, provides personal trust and fiduciary services to families and individuals across the U.S. Powdermill is a multi-family office specializing in providing independent solutions to high-net-worth individuals, families and corporate executives through a coordinated, centralized approach. WSFS Wealth Client Management serves high-net-worth clients by delivering credit and deposit products and partnering with other Wealth Management units to provide comprehensive solutions to clients.

As of September 30, 2020, we service our customers primarily from 115 offices located in Pennsylvania (54), Delaware (43), New Jersey, (16), Virginia (1) and Nevada (1), our ATM network, our website at www.wsfsbank.com and our mobile app.

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Recent Developments and Business Outlook

Our results through the third quarter of 2020 continue to be impacted by the COVID-19 pandemic and its impact on the economic forecasts that drive the estimates we use to determine the provision for credit losses. Contributing to the magnitude of the pandemic's effect is our adoption, as of January 1, 2020, of, the Current Expected Credit Loss (CECL) method of accounting, which considers forward-looking information when establishing reserves for credit losses. Results through the third quarter of 2020 and other notable items include the following:

•The COVID-19 pandemic resulted in acute deterioration in the economic forecast used in our CECL modeling, resulting in additional provision for credit losses of $154.1 million for the nine months ended September 30, 2020. Including the impact of our adoption of CECL, the allowance for credit losses increased to $185.2 million during the nine months ended September 30, 2020. During the three months ended September 30, 2020 our economic forecasts were relatively consistent with previous estimates and resulted in a modest increase to our provision for credit losses. We continue to incur other COVID-19 costs as we navigate through the COVID-19 pandemic. During the three and nine months ended September 30, 2020, we recorded $1.6 million and $3.5 million, respectively, of such other COVID-19 related costs. The COVID-19 pandemic also resulted in a lower interest rate environment, impacting our asset/liability management strategies. See "Interest Rate Sensitivity" and "Results of Operations" for further details.

•We participated in some of the regulatory relief programs offered as a result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including the Paycheck Protection Program (PPP). We have provided nearly $1.0 billion in PPP loans to more than 5,400 new and existing WSFS Customers. During the three and nine months ended September 30, 2020, we recorded $0.4 million and $2.4 million, respectively, of PPP related costs. We experienced an increase in deposits and liquidity due to these PPP loans and the current economic environment. See "Financial Condition" and "Recent Regulatory Developments" for further details.

•During 2020, WSFS made a $3.0 million grant to the WSFS Community Foundation to address the impacts of COVID-19 on the communities we serve and provide long-term support for education, health and human services, and economic development in our communities. In addition, the WSFS Community Foundation provided $335,500 in grants to 25 local nonprofit organizations and schools engaged in the fight against COVID-19, and WSFS Bank provided a $200,000 donation to four community development financial institutions (CDFIs) to utilize for relief grants to help accelerate recovery efforts of local small businesses within the Bank’s footprint.

•During March 2020, we began a phased approach to our retail office closures and our retail branch offices only accepted drive-thru services. By the second quarter of 2020, nearly two-thirds of our retail offices were servicing our Customers. During this time, the retail office closures did not significantly impact our financial condition and results of operations, as our Customer deposits remained intact and the fees and costs associated with our Customer deposits remained under normal business operations. During the third quarter of 2020, we reopened all previously closed banking locations that service our Customers and continued with a carefully planned and phased approach to opening our remaining office locations that aligns with Federal, State and local guidance. Our non-retail office Associates continue to work from home; however, our ability to operate and execute on our strategy continues without disruption.

•In the nine months ended September 30, 2020, WSFS recorded net realized gains on our equity investments of $22.1 million from the sale of 360,000 Visa Class B shares. Since our adoption of ASU 2016-01 in 1Q 2018, cumulative realized and unrealized gains and dividends on Visa Class B shares total $78.1 million.

•Cash Connect® expanded its ATM network by adding over 150 ATMs during 2020 to serve Delaware and the greater Philadelphia region. The number of owned and branded ATMs increased to 635 as of September 30, 2020.

•During 2020, we announced the addition of two executive officers of WSFS. Michael P. Reed has joined as Executive Vice President, Chief Risk Officer and Michael L. Conklin has joined as Executive Vice President, Chief Human Resources Officer. We also announced that Peggy H. Eddens transitioned to Executive Vice President, Chief Customer Officer, and will be retiring at the end of 2021.

For a discussion of additional risk factors relating to COVID-19, see "Item 1A. Risk Factors."

Looking ahead, the continuation of the economic effects of COVID-19 and actions taken in response to it, including the impacts of loan forbearances and forgiveness and other provisions of the CARES Act and other federal and state measures, may adversely impact our business and results of operations and the operations of our borrowers, customers and business partners. The uncertainty regarding the duration of the pandemic and the resulting economic disruption has caused increased market volatility and has led to an economic recession and a significant decrease in consumer confidence and business generally. The continuation of these conditions (including whether due to a resurgence of COVID-19 infections, particularly as the geographic areas in which we operate begin to re-open) and their ultimate impact of these factors is highly uncertain at this time and we do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the decline in economic conditions generally and a prolonged negative impact on small to medium sized businesses, in particular, due to COVID-19 may result in an adverse effect to our business, financial condition and results of operations. For more information about these risks and uncertainties, see “Item 1A. Risk Factors.”

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FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

Financial Condition

Total assets increased $1.6 billion to $13.8 billion at September 30, 2020 compared to December 31, 2019. This increase is primarily comprised of the following (in descending order of magnitude):

•Net loans, excluding loans held for sale, increased $677.9 million which included:

◦An increase of $954.2 million from PPP loans, in addition to growth in construction, owner-occupied commercial, and commercial small business leases, as well as an increase in home equity installment loans originated through our partnership with Spring EQ;

◦A decline during the year of $316.4 million from residential and commercial real estate, primarily due to non-relationship run-off portfolios primarily acquired from the Beneficial Bancorp, Inc. (Beneficial) acquisition; and

◦An increase in the allowance for credit losses, primarily from $154.1 million of provision for credit losses during the nine months ended September 30, 2020 due to the impact of the COVID-19 pandemic, significant deterioration in economic forecasts and portfolio credit migration.

•Cash and cash equivalents increased $501.2 million, primarily reflecting excess cash held due to increased deposits related to PPP loans and CARES Act payments, partially offset by a decline of $60.1 million from improved cash optimization at Cash Connect® due to an increased use of external funding sources to support the bailment, cash management and smart safe lines of business offset by changes in seasonality.

•Investment securities, available-for-sale increased $390.0 million during the nine months ended September 30, 2020 primarily due to $943.7 million in purchases and favorable market-value changes on available-for-sale securities of $41.8 million, partially offset by repayments of $409.0 million and sales of $198.9 million.

•Loans held for sale increased $68.6 million during the nine months ended September 30, 2020 driven by an increase in residential mortgage loan originations.

•Other investments decreased $59.6 million during the nine months ended September 30, 2020 as we sold 360,000 Visa Class B shares during the second quarter of 2020.

Total liabilities increased $1.6 billion to $12.0 billion during the nine months ended September 30, 2020 compared to December 31, 2019. These increases are primarily comprised of the following (in descending order of magnitude):

•Total deposits increased by $1.8 billion, primarily due to an increase in customer funding, reflecting elevated deposits from Customers who received PPP loans, the impact of government stimulus checks and less customer spending during the COVID-19 pandemic. The ratio of loans to customer deposits was 83% at September 30, 2020 reflecting significant liquidity capacity;

•Federal funds purchased decreased $195.0 million due to the increase in customer funding, as described above; and

•FHLB advances decreased $95.9 million due to the termination of fixed rate FHLB term advances as part of our routine balance sheet and liquidity management.

For further information, see "Notes to the unaudited Consolidated Financial Statements."

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Capital Resources

Share Repurchases: During the first quarter of 2020, we repurchased $38.7 million, or 1,004,348 shares of common stock at an average price of $38.53 per share, completing our share repurchase program approved by the Board of Directors in the fourth quarter of 2018. Also in the first quarter of 2020, the Board of Directors approved a new share purchase authorization of 15% of outstanding shares. However, we temporarily suspended all share repurchases through the third quarter of 2020 due to the impact of COVID-19 on the economy and our performance. Based on our current balance sheet, capital position and earnings, as well as additional clarity on the economic and credit environment, our Board of Directors approved the resumption of share repurchases in the fourth quarter of 2020.

Stockholders’ equity of WSFS increased $13.2 million between December 31, 2019 and September 30, 2020. This increase was primarily due to $55.0 million of income attributable to WSFS for the nine months ended September 30, 2020 and $41.8 million from the effect of market-value changes on available-for-sale securities, partially offset by $38.7 million for repurchases of common stock under the previously announced stock repurchase plan, a $30.4 million impact to retained earnings due to the adoption of CECL, and the payment of dividends on our common stock of $18.3 million.

Our Board of Directors approved a quarterly cash dividend of $0.12 per share of common stock. This dividend will be paid on November 19, 2020 to stockholders of record as of November 5, 2020.

Book value per share of common stock was $36.77 at September 30, 2020, an increase of $0.89 from $35.88 at December 31, 2019. Tangible book value per share of common stock (a non-GAAP financial measure) was $25.73 at September 30, 2020, an increase of $0.88 from $24.85 at December 31, 2019. We believe tangible book value per common share helps management and investors better understand and assess changes from period to period in stockholders’ equity exclusive of changes in intangible assets. This non-GAAP data should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in the U.S. (GAAP), and is not a substitute for, or superior to, GAAP results. For a reconciliation of tangible book value per common share to book value per share in accordance with GAAP, see "Reconciliation of Non-GAAP Measure to GAAP Measure."

The table below compares the Bank's and the Company’s consolidated capital position to the minimum regulatory requirements as of September 30, 2020:


	Consolidated Capital				For Capital Adequacy Purposes				To be Well-Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Total Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB	$	1,473,337	14.50	%	$	812,713	8.00	%	$	1,015,891	10.00	%
WSFS Financial Corporation	1,473,652		14.47	%	814,844		8.00	%	1,018,555		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB	1,345,296		13.24	%	609,535		6.00	%	812,713		8.00	%
WSFS Financial Corporation	1,345,282		13.21	%	611,133		6.00	%	814,844		8.00	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB	1,345,296		13.24	%	457,151		4.50	%	660,329		6.50	%
WSFS Financial Corporation	1,280,282		12.57	%	458,350		4.50	%	662,061		6.50	%
Tier 1 Leverage Capital
Wilmington Savings Fund Society, FSB	1,345,296		10.31	%	521,967		4.00	%	652,458		5.00	%
WSFS Financial Corporation	1,345,282		10.30	%	522,328		4.00	%	652,910		5.00	%

Under the prompt corrective action regime, 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 on 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.

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Regulatory capital requirements for the Bank and the Company include a minimum common equity Tier 1 capital ratio of 4.50% of risk-weighted assets, a Tier 1 capital ratio of 6.00% of risk-weighted assets, a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of 4.00% of average assets. PPP loans receive a zero percent risk weighting under the regulators' capital rules. In order to avoid limits on capital distributions and discretionary bonus payments, the Bank and the Company must maintain a capital conservation buffer of 2.5% of common equity Tier 1 capital over each of the risk-based capital requirements.

As part of our adoption of CECL, we elected the Implementation and Transition of the Current Expected Credit Losses Methodology for Allowances and Related Adjustments to the Regulatory Capital Rule and Conforming Amendments to Other Regulations, which permits the Company to phase in the day-one adverse effects on regulatory capital that may result from the adoption of CECL over a three-year period. In addition, the final rule revises the agencies' regulatory capital rule, stress testing rules, and regulatory disclosure requirements to reflect CECL, and makes conforming amendments to other regulations that reference allowance for credit losses.

As shown in the table above, as of September 30, 2020, the Bank and the Company were in compliance with regulatory capital requirements and exceeded the amounts required to be considered “well-capitalized” as defined in the regulations.

Not included in the Bank’s capital, the Company separately held $90.7 million in cash to support share repurchases, potential dividends, acquisitions, strategic growth plans and other general corporate purposes.

As a result of the three-year period phase-in related to our CECL adoption, the impact (by bps) to our capital ratios were as follows:


	September 30, 2020
(Dollars in thousands)	As Reported		Proforma(1)		CECL Impact
Total Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB	14.50	%	14.59	%	(0.09)	%
WSFS Financial Corporation	14.47	%	14.55	%	(0.08)	%
Tier 1 Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB	13.24	%	13.32	%	(0.08)	%
WSFS Financial Corporation	13.21	%	13.29	%	(0.08)	%
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB	13.24	%	13.32	%	(0.08)	%
WSFS Financial Corporation	12.57	%	12.65	%	(0.08)	%
Tier 1 Leverage Capital
Wilmington Savings Fund Society, FSB	10.31	%	10.36	%	(0.05)	%
WSFS Financial Corporation	10.30	%	10.35	%	(0.05)	%

(1) Excludes the phase-in impact of CECL.

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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.

Funding sources to support growth and meet our liquidity needs include cash from operations, retail deposit programs, loan repayments, FHLB borrowings, repurchase agreements, access to the Federal Reserve Discount Window, and access to the brokered deposit market as well as other wholesale funding avenues. In addition, we have a large portfolio of high-quality, liquid investments, primarily short-duration mortgage-backed securities, 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 meet our funding needs as well as maintain required and prudent levels of liquidity over the next twelve months.

During the nine months ended September 30, 2020, cash, cash equivalents and restricted cash increased $501.2 million to $1.1 billion from $571.8 million as of December 31, 2019. Cash provided by operating activities was $48.9 million, primarily reflecting the cash impact of earnings and gains of $22.8 million from the sale of debt and equity securities (including Visa Class B shares), offset by a $73.4 million increase in net activity for loans held for sale during the nine months ended September 30, 2020. Cash used in investing activities was $1.0 billion primarily due to $792.9 million from increased lending activity related to PPP loans and net purchases of debt securities of $534.7 million, partially offset by proceeds of $198.9 million from sales of debt securities and net proceeds of $85.9 million from the sale of Visa Class B shares. Cash provided by financing activities was $1.5 billion, primarily due to a $1.8 billion net increase in deposits, as a result of the increase in customer funding discussed above, partially offset by $195.0 million for repayment of federal funds purchased, $95.9 million for repayment of FHLB advances, $38.7 million for repurchases of common stock under the previously announced stock repurchase plan and common stock dividends of $18.3 million.

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NONPERFORMING ASSETS

Nonperforming assets include nonaccruing loans, OREO and restructured loans. Nonaccruing loans are those on which we no longer accrue interest. 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, which presents the portfolio segment totals at the amortized cost in accordance with our adoption of CECL at September 30, 2020, and at the unpaid principal balance under the incurred loss methodology at December 31, 2019:


(Dollars in thousands)	September 30, 2020			December 31, 2019
Nonaccruing loans:
Commercial and industrial	$	14,690		$	11,031
Owner-occupied commercial	4,022			4,060
Commercial mortgages	1,652			1,626

Residential	3,082			4,490
Consumer	2,389			1,715
Total nonaccruing loans	25,835			22,922
Other real estate owned	3,000			2,605
Restructured loans(1)(6)	15,670			14,281
Total nonperforming assets	$	44,505		$	39,808
Past due loans:
Commercial	$	5,610		$	2,968
Residential	—			437
Consumer (2)	6,276			12,745
Total past due loans	$	11,886		$	16,150
Ratio of allowance for credit losses to total loans and leases(3)	2.47		%	0.56		%

Ratio of nonaccruing loans to total gross loans and leases(4)	0.28			0.27
Ratio of nonperforming assets to total assets	0.32			0.32
Ratio of allowance for credit losses to nonaccruing loans	901			208
Ratio of allowance for credit losses to total nonperforming assets(5)	523			120

(1)Accruing loans only, which includes acquired nonimpaired loans. Nonaccruing Troubled Debt Restructurings (TDRs) are included in their respective categories of nonaccruing loans.

(2)Includes U.S. government guaranteed student loans with little risk of credit loss.

(3)Represents amortized cost basis for loans, leases and held-to-maturity securities.

(4)Total loans exclude loans held for sale and reverse mortgages.

(5)Excludes acquired impaired loans.

(6)Balance excludes COVID-19 modifications.

Nonperforming assets increased $4.7 million between December 31, 2019 and September 30, 2020. This increase was primarily the result of the move of one commercial relationship totaling approximately $7.3 million to non-accrual, partially offset by collection efforts, which includes both continued monthly payments and a few modest payoffs. The ratio of nonperforming assets to total assets was relatively flat as compared to December 31, 2019.

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


	Nine Months Ended September 30,
(Dollars in thousands)	2020		2019
Beginning balance	$	39,808	$	47,675
Additions	23,276		46,879
Collections	(11,893)		(20,491)
Transfers to accrual	(134)		(1,240)
Charge-offs	(6,552)		(16,587)
Ending balance	$	44,505	$	56,236

The timely identification of problem loans is a key element in our strategy to manage our loan portfolio. Problem loans are all criticized, classified and nonperforming loans and other real estate owned. 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 uses guidelines established by federal regulation.

In response to the COVID-19 pandemic, the CARES Act was enacted to provide certain measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing and automatic forbearance. Our modified loans, most of which were short-term in duration, decreased significantly from the amounts reported for the second quarter of 2020.

The following table summarizes the COVID-19 modifications by portfolio segment as of October 15, 2020, September 30, 2020, and June 30, 2020:


	October 15, 2020				September 30, 2020		June 30, 2020
(Dollars in thousands)	Loan Balances		% of Portfolio		Loan Balances		% of Portfolio		Loan Balances		% of Portfolio
Commercial and industrial(1)	$	94,278	4	%	$	139,856	7	%	$	675,724	30	%
Owner-occupied commercial	9,764		1	%	10,643		1	%	380,432		28	%
Commercial mortgages	53,005		2	%	53,122		2	%	700,889		32	%
Construction	1,744		—	%	1,748		—	%	109,861		17	%
Residential	34,954		4	%	34,985		4	%	86,581		9	%
Consumer(2)(3)	38,304		3	%	42,406		4	%	65,162		7	%
	$	232,049	3	%	$	282,760	3	%	$	2,018,649	24	%

(1)Includes modifications of leases with balances of $0.2 million, $0.2 million and $39.3 million at October 15, 2020, September 30, 2020, and June 30, 2020, respectively.

(2)Includes modifications of education loans with balances of $23.7 million, $27.7 million, $29.3 million at October 15, 2020 September 30, 2020, and June 30, 2020, respectively.

(3)Includes modifications of credit card loans with balances of $0.1 million, $0.1 million, and $0.3 million at October 15, 2020 September 30, 2020, and June 30, 2020, respectively.

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INTEREST RATE SENSITIVITY

Our primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net interest income and capital, while maximizing the yield/cost spread on our asset/liability structure. Interest rates are partly a function of decisions by the Federal Open Market Committee (FOMC) on the target range for the federal funds rate, and these decisions are sometimes difficult to anticipate. In response to the pandemic, in March the FOMC lowered the range 150 basis points to 0 to 1/4 percent. The FOMC recently indicated that the target range will remain at this level for some time, but the FOMC is not locked into this result. In order to manage the risks associated with changes or possible changes in interest rates, we rely primarily on our asset/liability structure.

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 September 30, 2020, interest-earning assets exceeded interest-bearing liabilities that mature or reprice within one year (interest-sensitive gap) by $1.0 billion. Our interest-sensitive assets as a percentage of interest-sensitive liabilities within the one-year window was 118.92% at September 30, 2020 compared with 95.02% at December 31, 2019. Likewise, the one-year interest-sensitive gap as a percentage of total assets was 7.58% at September 30, 2020 compared with (2.06)% at December 31, 2019.

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, which we are required to perform 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 September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019
% 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	13.9%	18.16%	5.8%	18.97%
+200	9.2%	17.74%	4.0%	19.18%
+100	4.4%	17.05%	2.0%	19.23%
+50	2.1%	16.57%	1.0%	19.14%
+25	1.0%	16.30%	0.5%	19.06%
—	—%	16.02%	—%	18.97%
-25	(0.7)%	15.68%	(0.5)%	18.85%
-50	(1.1)%	15.17%	(0.9)%	18.72%
-100	(1.3)%	14.77%	(2.4)%	18.30%
'-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 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 and 300 basis points is not deemed meaningful (NMF) given the low absolute level of interest rates in the periods presented.

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.

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RESULTS OF OPERATIONS

Three months ended September 30, 2020: For the three months ended September 30, 2020, there was net income of $51.1 million compared to $53.9 million for the three months ended September 30, 2019.

•Net interest income decreased $7.8 million during the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to a lower interest rate environment and a decrease in purchase accounting accretion, partially offset by the positive impact of PPP income. See “Net Interest Income” for further information.

•Our provision for credit losses for the three months ended September 30, 2020 slightly decreased compared to the three months ended September 30, 2019. See “Provision/Allowance for Credit Losses” for further information.

•Noninterest income for the three months ended September 30, 2020 decreased $13.2 million compared to the three months ended September 30, 2019, primarily due to the lower combined gains on debt and equity securities in the current period compared to the prior period and lower interchange fees. These decreases were partially offset by increases in mortgage banking business and trust services revenue. See “Noninterest Income” for further information.

•Noninterest expense decreased $16.0 million during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 due to a decrease in net corporate development and restructuring costs related to our acquisition of Beneficial, partially offset by the loss on early extinguishment of debt during the third quarter of 2020. See “Noninterest Expense” for further information.

Nine months ended September 30, 2020: For the nine months ended September 30, 2020, net income was $55.0 million compared to $103.1 million for the nine months ended September 30, 2019.

•Net interest income increased $15.6 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to decrease in rates on deposits, the positive impact of PPP loans, and lower interest on borrowings. See “Net Interest Income” for further information.

•Our provision for credit losses for the nine months ended September 30, 2020 increased $130.1 million compared to the nine months ended September 30, 2019, primarily due to the COVID-19 pandemic and its continued impact on the economic forecast used in our CECL modeling. See “Provision/Allowance for Credit Losses” for further information.

•Noninterest income for the nine months ended September 30, 2020 increased $8.1 million compared to the nine months ended September 30, 2019, primarily due to growth across most of our business lines with the full impact of the Beneficial acquisition during the nine months ended September 30, 2020 as well as an increase in the sale of MBS compared to the prior period. Partially offsetting these increases were lower interchange fees, the net impact on the sale of our Visa Class B shares and lower deposit service charges. See “Noninterest Income” for further information.

•Noninterest expense decreased $39.5 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 due to a decrease in net corporate development and restructuring costs related to our acquisition of Beneficial, partially offset by higher expense related to employee-related costs, professional fees, credit-related costs (including loan workout expenses, OREO expenses and other credit costs), contribution to the WSFS Community Foundation and the loss on early extinguishment of debt. See “Noninterest Expense” for further information.

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Net Interest Income

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


	Three months ended September 30,
	2020						2019
(Dollars in thousands)	Average Balance		Interest		Yield/ Rate(1)		Average Balance		Interest		Yield/ Rate(1)
Assets:
Interest-earning assets:
Loans:(2)
Commercial real estate loans	$	2,848,655	$	30,218	4.22	%	$	2,783,199	$	37,492	5.34	%
Residential loans	892,634		12,512		5.61		1,069,495		14,580		5.45
Commercial loans and leases	4,472,190		52,753		4.70		3,548,597		55,903		6.26
Consumer loans	1,153,168		13,726		4.74		1,135,575		16,286		5.69
Loans held for sale	110,768		986		3.54		50,465		539		4.24
Total loans and leases	9,477,415		110,195		4.63		8,587,331		124,800		5.77
Mortgage-backed securities(3)	2,204,573		11,686		2.12		1,833,267		12,989		2.83
Investment securities(3)	119,556		1,265		4.86		137,497		968		3.35
Other interest-earning assets	530,178		224		0.17		423,470		2,505		2.35
Total interest-earning assets	12,331,722		$	123,370	3.99	%	10,981,565		$	141,262	5.11	%
Allowance for credit losses	(233,301)						(46,773)
Cash and due from banks	135,198						115,506
Cash in non-owned ATMs	370,912						313,456
Bank-owned life insurance	30,956						30,558
Other noninterest-earning assets	1,012,506						1,024,108
Total assets	$	13,647,993					$	12,418,420
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand	$	2,372,547	$	790	0.13	%	$	2,055,497	$	2,490	0.48	%
Money market	2,404,202		1,805		0.30		1,966,545		5,034		1.02
Savings	1,753,489		621		0.14		1,579,463		2,068		0.52
Customer time deposits	1,234,637		4,402		1.42		1,371,744		5,452		1.58
Total interest-bearing customer deposits	7,764,875		7,618		0.39		6,973,249		15,044		0.86
Brokered certificates of deposit	243,728		728		1.19		294,485		1,807		2.43
Total interest-bearing deposits	8,008,603		8,346		0.41		7,267,734		16,851		0.92
Federal Home Loan Bank advances	68,442		445		2.59		187,721		1,099		2.32
Trust preferred borrowings	67,011		347		2.06		67,011		693		4.10
Senior debt	98,733		1,179		4.78		98,519		1,179		4.79
Other borrowed funds(4)	20,062		5		0.10		127,850		607		1.88
Total interest-bearing liabilities	8,262,851		$	10,322	0.50	%	7,748,835		$	20,429	1.05	%
Noninterest-bearing demand deposits	3,176,647						2,503,816
Other noninterest-bearing liabilities	374,206						323,350
Stockholders’ equity	1,836,256						1,842,759
Noncontrolling interest	(1,967)						(340)
Total liabilities and stockholders’ equity	$	13,647,993					$	12,418,420
Excess of interest-earning assets over interest-bearing liabilities	$	4,068,871					$	3,232,730
Net interest and dividend income			$	113,048					$	120,833
Interest rate spread					3.49	%					4.06	%
Net interest margin					3.66	%					4.38	%

(1)Weighted average yields for tax-exempt securities and loans have been computed on a tax-equivalent basis.

(2)Average balances are net of unearned income and include nonperforming loans.

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

(4)Includes federal funds purchased.

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	Nine months ended September 30,
	2020						2019
(Dollars in thousands)	Average Balance		Interest		Yield/ Rate(1)		Average Balance		Interest		Yield/ Rate(1)
Assets:
Interest-earning assets:
Loans:(2)
Commercial real estate loans	$	2,832,976	$	95,740	4.51	%	$	2,539,752	$	111,470	5.87	%
Residential loans	939,460		39,731		5.64		902,162		37,538		5.55
Commercial loans and leases	4,100,401		161,837		5.28		3,327,414		146,935		5.92
Consumer loans	1,136,107		41,726		4.91		1,035,907		43,711		5.64
Loans held for sale	91,040		2,623		3.85		36,335		1,264		4.65
Total loans and leases	9,099,984		341,657		5.02		7,841,570		340,918		5.82
Mortgage-backed securities(3)	2,071,344		37,454		2.41		1,642,787		35,684		2.90
Investment securities	127,088		3,200		4.00		144,187		3,042		3.38
Other interest-earning assets	276,707		797		0.38		198,471		4,098		2.76
Total interest-earning assets	11,575,123		$	383,108	4.43	%	9,827,015		$	383,742	5.23	%
Allowance for credit losses	(158,584)						(44,665)
Cash and due from banks	127,859						111,979
Cash in non-owned ATMs	341,940						368,160
Bank-owned life insurance	30,360						40,633
Other noninterest-earning assets	1,028,620						922,557
Total assets	$	12,945,318					$	11,225,679
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand	$	2,224,258	$	3,569	0.21	%	$	1,825,112	$	6,389	0.47	%
Money market	2,273,786		8,205		0.48		1,851,067		13,806		1.00
Savings	1,670,069		3,243		0.26		1,397,124		4,949		0.47
Customer time deposits	1,260,837		15,012		1.59		1,275,118		13,815		1.45
Total interest-bearing customer deposits	7,428,950		30,029		0.54		6,348,421		38,959		0.82
Brokered certificates of deposit	253,566		2,786		1.47		272,187		4,957		2.43
Total interest-bearing deposits	7,682,516		32,815		0.57		6,620,608		43,916		0.89
Federal Home Loan Bank advances	114,895		1,900		2.21		241,152		4,495		2.49
Trust preferred borrowings	67,011		1,417		2.82		67,011		2,136		4.26
Senior debt	98,681		3,538		4.78		98,465		3,538		4.79
Other borrowed funds(4)	64,470		484		1.00		154,169		2,278		1.98
Total interest-bearing liabilities	8,027,573		$	40,154	0.67	%	7,181,405		$	56,363	1.05	%
Noninterest-bearing demand deposits	2,743,638						2,135,702
Other noninterest-bearing liabilities	337,497						300,378
Stockholders’ equity	1,838,087						1,608,375
Noncontrolling interest	(1,477)						(181)
Total liabilities and stockholders’ equity	$	12,945,318					$	11,225,679
Excess of interest-earning assets over interest-bearing liabilities	$	3,547,550					$	2,645,610
Net interest and dividend income			$	342,954					$	327,379
Interest rate spread					3.76	%					4.18	%
Net interest margin					3.97	%					4.47	%

(1)Weighted average yields for tax-exempt securities and loans have been computed on a tax-equivalent basis.

(2)Average balances are net of unearned income and include nonperforming loans.

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

(4)Includes federal funds purchased.

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Three months ended September 30, 2020: During the three months ended September 30, 2020, net interest income decreased $7.8 million from the three months ended September 30, 2019 primarily due to the lower rate environment and a $2.9 million decrease in purchase accounting accretion, partially offset by $6.4 million of net interest income from PPP loans which included $4.1 million of fee accretion. Net interest margin was 3.66% for the third quarter of 2020, a 72 basis point decrease compared to 4.38% for the third quarter of 2019 due to a 44 bps net decline from the lower interest rate environment and balance sheet mix, 12 bps from lower purchase accounting accretion, 8 bps from the significant short-term liquidity increase in customer deposits and 8 bps from the impact of PPP loans.

Nine months ended September 30, 2020: During the nine months ended September 30, 2020, net interest income increased $15.6 million from the nine months ended September 30, 2019 primarily due to a full nine month impact of the Beneficial acquisition in the current year and the impact of net interest income from PPP loans described above. Net interest margin was 3.97% for the nine months ended September 30, 2020, a 50 basis point decrease compared to 4.47% for the nine months ended September 30, 2019 due to 36 bps net decline from the lower interest rate environment and expected margin compression due to Beneficial's lower-margin balance sheet, 8 bps from the impact of PPP loans, and 6 bps from the significant short-term liquidity increase in customer deposits.

Provision/Allowance for Credit Losses

On January 1, 2020, we adopted the CECL method of accounting for loans and leases, and our held-to-maturity debt securities portfolio, which considers forward-looking information when establishing reserves for credit losses. We maintain the allowance for credit losses at an appropriate level based on our assessment of estimable and expected losses in the loan portfolio. Our allowance for credit losses is based on our historical loss experience that includes 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. Further, regional and national economic forecasts are considered in our expected credit losses. Our evaluation is based on a review of the portfolio and requires significant, complex and difficult judgments.

Three months ended September 30, 2020: During the three months ended September 30, 2020, the provision for credit losses was $2.7 million, a decrease of $1.4 million from the three months ended September 30, 2019. Our provision for loan losses was relatively flat as compared to the prior period as economic forecasts in the current period were relatively consistent with our previous quarter estimates.

Nine months ended September 30, 2020: During the nine months ended September 30, 2020, the provision for credit losses was $154.1 million, an increase of $130.1 million from the nine months ended September 30, 2019. The increase was primarily due to acute deterioration in the economic forecast used in our CECL models related to the impact of COVID-19 pandemic, and loan migration that occurred during the year in several specific portfolios, mainly in the accommodation and food service industries.

The allowance for credit losses increased to $232.7 million at September 30, 2020 from $47.6 million at December 31, 2019. Of this increase, $35.9 million was due to our adoption of CECL as of January 1, 2020 and $154.1 million was due to the additional provision for credit losses during the nine months ended September 30, 2020. The ratio of allowance for credit losses to total loans and leases was 2.47% at September 30, 2020 and 0.56% at December 31, 2019. During the three and nine months ended September 30, 2020, net charge-offs totaled $2.2 million and $4.8 million, respectively, compared to $1.8 million and $15.8 million during the three and nine months ended September 30, 2019, respectively. The ratio of net charge-offs to average gross loans net of unearned income, which excludes loans held for sale and reverse mortgages, was 0.07% (annualized) and 0.22% at September 30, 2020 and December 31, 2019, respectively.

See Note 7 to the unaudited Consolidated Financial Statements and Nonperforming Assets above for further information.

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Noninterest Income

Three months ended September 30, 2020: During the three months ended September 30, 2020, noninterest income was $49.2 million, a decrease of $13.2 million from $62.3 million during the three months ended September 30, 2019. This amount includes a $21.2 million decrease in unrealized gains on equity investments compared to the prior period, a $5.9 million decrease in Credit/debit card and ATM income primarily due to less interchange fees resulting from the Durbin amendment (effective on July 1, 2020), and the impact of a lower interest rate environment. Partially offsetting these decreases was an $8.4 million increase in mortgage banking activities due to improved secondary market conditions and increased volume from refinancings resulting from the lower interest rate environment, a $3.3 million in securities gains, net in the current period and an increase of $2.8 million in Investment management and fiduciary revenue driven by trust services revenue.

Nine months ended September 30, 2020: During the nine months ended September 30, 2020, noninterest income was $154.4 million, an increase of $8.1 million from $146.3 million during the nine months ended September 30, 2019, and includes an increase of $15.4 million in mortgage banking activities, as described above, a $5.8 million increase in securities gains, net, and a $4.2 million increase in Investment management and fiduciary revenue driven by trust services revenue. These increases were partially offset by a $10.4 million decrease in Credit/debit card and ATM income, as described above, a decrease of $3.4 million in the amount of net realized and unrealized gain on equity investments, which includes the combination of higher unrealized gains compared to the prior period partially offset by the gain on sale of 360,000 Visa Class B shares that occurred in the second quarter of 2020, and a $2.4 million decrease in deposit service charges due to lower transaction volume in the current period as a result of the COVID-19 pandemic.

For further information, see Note 3 to the unaudited Consolidated Financial Statements.

Noninterest Expense

Three months ended September 30, 2020: Noninterest expense for the three months ended September 30, 2020 was $93.5 million, a decrease of $16.0 million from $109.6 million for the three months ended September 30, 2019. The decrease was primarily due to $18.4 million of lower net corporate development and restructuring costs as compared to the prior period related to our acquisition of Beneficial, partially offset by a $2.3 million loss associated with prepayment fees from the termination of fixed rate FHLB term advances that occurred in the current period as part of routine balance sheet and liquidity management.

Nine months ended September 30, 2020: Noninterest expense for the nine months ended September 30, 2020 was $275.5 million, a decrease of $39.5 million from $315.0 million for the nine months ended September 30, 2019. The decrease was primarily due to $61.1 million of lower net corporate development and restructuring costs, as described above. This decrease was partially offset by increases of $9.2 million in salary-related expenses and $5.7 million in professional fees to support organic and merger-related growth, and an increase of $3.9 million for credit-related costs, driven by the increase in the unfunded commitment reserve expense in the current period, a $3.0 million contribution to the WSFS Community Foundation during the first quarter of 2020, and the $2.3 million loss on early extinguishment of debt, as described above.

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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, Income Taxes, which requires the recording of deferred income taxes for tax consequences of temporary differences. We recorded income tax expense of $15.1 million and $14.2 million during the three and nine months ended September 30, 2020, respectively, compared to income tax expense of $15.9 million and $32.3 million for the same periods in 2019.

Our effective tax rate was 23.0% and 20.9% for the three and nine months ended September 30, 2020, respectively, compared to 22.9% and 23.9% for the same periods in 2019. The effective tax rate for the nine months ended September 30, 2020 decreased primarily due to nondeductible expenses associated with the acquisition of Beneficial incurred during the first quarter of 2019. Nondeductible acquisition costs of $8.2 million were recognized during the first quarter of 2019, whereas none were incurred in the comparable period in 2020. In addition, we recognized $1.7 million in tax benefits during the nine months ended September 30, 2020 related to tax law changes contained in the CARES Act (see "Recent Regulatory Developments"), related to the ability to carry back certain acquired net operating losses to prior years where the statutory tax rate was higher than the current statutory tax rate. Finally, the tax benefit related to stock-based compensation activity during the nine months ended September 30, 2020 pursuant to ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, Compensation - Stock Compensation (Topic 718), decreased compared to the prior year. During the three and nine months ended September 30, 2020, we recognized less than $0.1 million of tax expense and less than $0.1 million of a tax benefit, respectively, related to stock-based compensation activity, compared to a tax benefit of $0.7 million and $1.9 million for the same periods in 2019.

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 excess tax benefits from recognized stock compensation. 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.

Contractual Obligations

Our contractual obligations at September 30, 2020 did not significantly change from our contractual obligations at December 31, 2019, which are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

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RECONCILIATION OF NON-GAAP MEASURE TO GAAP MEASURE

The following table provides a reconciliation of tangible 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 helps management and investors better understand and assess changes from period to period in stockholders’ equity exclusive of changes in intangible assets. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results.


(Dollars and share amounts in thousands, except per share amounts)	September 30, 2020		December 31, 2019
Stockholders’ equity of WSFS	$	1,863,499	$	1,850,306
Less: Goodwill and other intangible assets	559,806		568,745
Tangible common equity (numerator)	$	1,303,693	$	1,281,561
Shares of common stock outstanding (denominator)	50,673		51,567
Book value per share of common stock	$	36.77	$	35.88
Goodwill and other intangible assets	11.04		11.03
Tangible book value per share of common stock	$	25.73	$	24.85

CRITICAL ACCOUNTING ESTIMATES

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 credit losses, deferred taxes, fair value measurements, goodwill and other intangible assets. We base our estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of assets and liabilities that are not readily apparent from other sources. Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2020, it is 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.

Critical accounting estimates at September 30, 2020 did not significantly change from our critical accounting estimates at March 31, 2020 and December 31, 2019, which are disclosed in our Quarterly Report on Form 10-Q for the period ended March 31, 2020, and Annual Report on Form 10-K for the year ended December 31, 2019, respectively.

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RECENT REGULATORY DEVELOPMENTS

Recent regulatory developments at September 30, 2020 did not significantly change from our recent regulatory developments at December 31, 2019, which are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, except as noted below.

Coronavirus Aid, Relief, and Economic Security (CARES) Act

On March 27, 2020, the CARES Act was enacted, providing wide ranging economic relief for individuals and businesses impacted by COVID-19. Among other things, the statute created the Paycheck Protection Program (PPP) and funded it with $349 billion. The PPP is a stimulus response to the potential economic impacts of COVID-19, and its purpose is to provide forgivable loans to smaller businesses that use the proceeds of the loans for payroll and certain other qualifying expenses. The Small Business Administration (SBA) manages and backs the PPP. If a loan is fully forgiven, SBA will repay the lending bank in full. If a loan is partially forgiven or not forgiven at all, a bank must look to the borrower for repayment of unforgiven principal and interest. If the borrower defaults, the loan is guaranteed by SBA.

On April 6, 2020, WSFS Bank began participating in the PPP, We processed PPP loan applications until April 16, 2020, when the SBA announced that it had exhausted the $349 billion appropriated in the CARES Act, and stopped accepting PPP applications. On April 24, 2020, the President signed into law the Paycheck Protection Program and Health Care Enhancement Act, which supplemented certain programs established by the CARES Act and provided $310 billion in additional funding for the PPP. To date, we have provided nearly $1.0 billion in PPP loans for more than 5,400 new and existing WSFS Customers and are now processing loan forgiveness applications. The Bank has not accepted any applications since August 8, 2020, the statutory deadline for submissions by prospective borrowers.

We are also providing a number of customer relief programs in our commercial and retail portfolios, such as payment deferrals or interest only payments on loans and leases, disaster assistance, and waiving minimum deposit balance and direct deposit requirements as well as early withdrawal penalties for CDs or IRAs. Additionally, we are offering new lines of credit or increases to existing lines of credit and increased remote deposit limits for those individuals and businesses impacted by COVID-19. To date, we have modified approximately $2.1 billion of loans and leases to provide our customers this monetary relief. In general, we are not required to report these modifications as troubled debt restructurings.

The CARES Act also provides us with an opportunity to carry back net operating losses (NOLs) arising from 2018, 2019 and 2020 to the prior five tax years. We have such NOLs reflected on our balance sheet as a portion of our current tax receivables, which were previously valued at the federal corporate income tax rate of 21%. However, the provisions of the CARES Act provide for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate tax rate in effect for the carryback years. Consequently, effective September 30, 2020, we have revalued the benefit from its NOLs to reflect a 35% tax rate.

Transition from London Inter-Bank Offered Rate (LIBOR)

In 2014, a committee of private-market derivative participants and their regulators, the Alternative Reference Rate Committee (ARRC), was convened by the Federal Reserve to identify an alternative reference interest rate to replace LIBOR. In June 2017, the ARRC announced the Secured Overnight Funding Rate (SOFR), a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, as its preferred alternative to LIBOR. In July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced its intention to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. In April 2018, the Federal Reserve Bank of New York began to publish SOFR rates on a daily basis, and the ARRC and other institutions continue to take steps to advance SOFR as an alternative benchmark. In July 2020, the federal banking agencies issued guidance for banking organizations on managing the transition to an alternative reference rate; for the agencies, however, SOFR is not the exclusive alternative. The International Swaps and Derivatives Association, which develops standardized language for the derivatives contracts that we enter into, recently announced that language replacing LIBOR with another benchmark would take effect in January 2021. For derivatives contracts denominated in U.S. currency, the replacement benchmark rate is SOFR.

Given LIBOR’s extensive use across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions, including to the Company. The Company’s commercial and consumer businesses issue, trade, and hold various products that are indexed to LIBOR. As of September 30, 2020, the Company had approximately $1.7 billion of loans and $1.0 billion of derivatives that are utilized for customer guarantees, indexed to LIBOR, that mature after 2021. In addition, the Company had approximately $167.0 million of debt securities outstanding that are indexed to LIBOR (either currently or in the future) as of September 30, 2020. The Company has one investment security totaling $0.5 million, and no repurchase and resale agreements or FHLB advances indexed to LIBOR as of September 30, 2020.

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Due to the uncertainty surrounding the future of LIBOR, it is expected that the transition will span several reporting periods through, and potentially beyond, the end of 2021. A cross-functional team from Finance, Lending, Risk and IT is leading our efforts to monitor this activity and evaluate the related risks and potential process changes arising from the transition from LIBOR. We have completed our initial assessment efforts, including our internal risk assessment procedures, and the cross-functional team is working towards the migration of our existing contracts and system implementation. Our variable or floating rate instruments currently use LIBOR and give us discretion to determine a replacement benchmark rate if LIBOR becomes unavailable. We are still considering the appropriate transition for our legacy contracts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by this Item is incorporated herein by reference to the information provided in Item 2 Part I (Interest Rate Sensitivity) of this Quarterly Report on Form 10-Q.

Item 4. Controls and Procedures

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

(b)Changes in internal control over financial reporting. During the three months ended September 30, 2020, 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

The information required by this Item is incorporated herein by reference to the information provided in Note 19 – Legal and Other Proceedings to the unaudited Consolidated Financial Statements.

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Item 1A. Risk Factors

There have not 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, 2019, previously filed with the Securities and Exchange Commission, except noted as below.

The novel coronavirus (“COVID-19”) pandemic and the impact of actions to mitigate the spread of the virus could adversely affect our business, financial condition and results of operations.

Federal, state and local governments have enacted various restrictions in an attempt to limit the spread of COVID-19. Such measures have disrupted economic activity and contributed to job losses and reductions in consumer and business spending. In response to the economic and financial effects of COVID-19, the Federal Reserve Board has sharply reduced interest rates (which we expect will likely remain low for a considerable period) and instituted quantitative easing measures as well as domestic and global capital market support programs. In addition, the Trump Administration, Congress, various federal agencies and state governments have taken measures to address the economic and social consequences of the pandemic, including the passage of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act.

The CARES Act, among other things, provides certain measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing, loan forgiveness and automatic forbearance. Beginning April 6, 2020, we began processing loan applications, under the Paycheck Protection Program (PPP) created under the CARES Act. All of the federal banking regulatory agencies have encouraged lenders to extend additional loans, and the federal government is considering additional stimulus and support legislation focused on providing aid to various sectors, including small businesses. We are also making a high level of loan modifications under our deferred payment program. The full impact on our lending and other business activities as a result of new government and regulatory policies, programs and guidelines, as well as regulators’ reaction to such activities, remains uncertain.

The continuation of the economic effects of the COVID-19 pandemic have had a destabilizing effect on financial markets, key market indices and overall economic activity. The uncertainty regarding the duration of the pandemic and the resulting economic disruption has caused increased market volatility and has led to an economic recession and a significant decrease in consumer confidence and business generally. The continuation of these conditions (including whether due to a resurgence or additional waves of COVID-19 infections, particularly as the geographic areas in which we operate continue to re-open), as well as the impacts of the CARES Act and other federal and state measures, specifically with respect to loan forbearances, has adversely affected our results of operations and financial condition, and have and can be expected to further adversely impact our businesses and results of operations and the operations of our borrowers, customers and business partners. In particular, these events have had, and/or can be expected to continue to have, the following effects, among other things:

•impair the ability of borrowers to repay outstanding loans or other obligations, resulting in increases in delinquencies and modifications to loans;

•impair the value of collateral securing loans (particularly with respect to real estate);

•impair the value of our assets, including our securities portfolio, goodwill and intangible assets;

•require an increase in our allowance for credit losses, particularly in light of our adoption of CECL in the first quarter of 2020;

•adversely affect the stability of our deposit base or otherwise impair our liquidity;

•reduce our revenues from fee-based services, including wealth management and the demand for our products and services;

•negatively impact our self-insurance healthcare costs;

•result in increased compliance risk as we become subject to new regulatory and other requirements, including new and changing guidance, associated with the PPP and other new programs in which we participate;

•impair the ability of loan guarantors to honor commitments;

•negatively impact our regulatory capital ratios;

•negatively impact the productivity and availability of key personnel and other Associates necessary to conduct our business, and of third-party service providers who perform critical services for us (including the processing of forgiveness applications associated with our PPP loans), or otherwise cause operational failures due to changes in our normal business practices necessitated by the pandemic and related governmental actions; and

•increase cyber and payment fraud risk and other operational risks, given increased online and remote activity, which may adversely affect the realization of the anticipated benefits of our Delivery Transformation initiative.

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Prolonged measures by health or other governmental authorities encouraging or requiring significant restrictions on travel, assembly or other core business practices could further harm our business and those of our customers, in particular our small to medium sized business customers. Although we have business continuity plans and other safeguards in place, there is no assurance that they will be effective.

Our loan portfolio includes loans that are in forbearance but which are not classified as TDRs because they were current at the time forbearance began. When the forbearance periods end, we may be required to classify a substantial portion of these loans as problem loans.

Our results of operations have been adversely affected by the factors described above. For example, for the nine months ended September 30, 2020 these factors caused a substantial increase in our provision for credit losses and the amount of our problem loans. While the ultimate impact of these factors over the longer term is uncertain and we do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole, nor the pace of economic recovery when the COVID-19 pandemic subsides, the decline in economic conditions generally and a prolonged negative impact on small to medium sized businesses, in particular, due to COVID-19 is likely to result in an adverse effect on our business, financial condition and results of operations in future periods, and may heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019.

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

During the fourth quarter of 2018, the Board of Directors of the Company approved a share repurchase program that enables us to repurchase up to 3,136,978 shares of common stock after the closing of our acquisition of Beneficial, which occurred on March 1, 2019.

During the first quarter of 2020, the Company completed this share repurchase program and the Board of Directors approved a new share repurchase program authorizing the repurchase of 7,594,977 shares, or 15% of its outstanding shares as of March 31, 2020; however, all share repurchases were temporarily suspended due to the impact of COVID-19 on the economy and our performance. During the three months ended September 30, 2020, no repurchases of shares of common stock were made under the Company's new share repurchase program.

Our Board of Directors approved the resumption of share repurchases in the fourth quarter of 2020 due to our improved financial performance and additional clarity on the economic and credit environment. Under the program, repurchases 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. The program is consistent with our intent to return a minimum of 25% of annual net income to stockholders through dividends and share repurchases while maintaining capital ratios in excess of “well-capitalized” regulatory benchmarks.

(1)

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Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit Number						Description of Document

3.1						Registrant’s Amended and Restated Certificate of Incorporation, as amended is incorporated herein by reference to Exhibit 3.1 of the Registrant’s Annual Report on Form 10-K filed for the year ended December 31, 2019.
3.2						Amended and Restated Bylaws of WSFS Financial Corporation is incorporated herein by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K filed on November 21, 2014.




31.1						Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document **
101.SCH						XBRL Schema Document **
101.CAL						XBRL Calculation Linkbase Document **
101.LAB						XBRL Labels Linkbase Document **
101.PRE						XBRL Presentation Linkbase Document **
101.DEF						XBRL Definition Linkbase Document **
104						The cover page of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed with the SEC on November 4, 2020, is formatted in Inline XBRL.

** Submitted as Exhibits 101 to this Quarterly Report on Form 10-Q are documents formatted in XBRL (Extensible Business Reporting Language). Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability.

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SIGNATURES

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


						WSFS FINANCIAL CORPORATION

Date: November 4, 2020						/s/ Rodger Levenson
						Rodger Levenson
						Chairman, President and Chief Executive Officer
						(Principal Executive Officer)

Date: November 4, 2020						/s/ Dominic C. Canuso
						Dominic C. Canuso
						Executive Vice President and
						Chief Financial Officer
						(Principal Financial and Accounting Officer)