UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20202021
OR
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☐ | 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
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WSFS FINANCIAL CORPORATION | | | | | | |
(Exact name of registrant as specified in its charter) |
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Delaware | 22-2866913 |
(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification Number) |
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Delaware | | | | | 22-2866913 | |
(State or other jurisdiction of Incorporation or organization) | | | | | (I.R.S. Employer Identification Number) | |
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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:
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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“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | x | | Accelerated filer | ☐ |
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Non-accelerated filer | | ☐ | | Smaller reporting company | ☐ |
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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: 50,660,20347,535,215 shares as of July 31, 2020.
WSFS FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
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| PART I. Financial Information | Page |
Item 1. | Financial Statements (Unaudited) | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
PART II. Other Information | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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,and its variants (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,as amended (CARES Act), including its automatic loan forbearance provisions and ourthe Company's Paycheck Protection Program (PPP) lending activities;
•additional credit, fraud and litigation risks associated with our 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 continuation of these conditions related to the COVID-19 pandemic, 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, and how quickly and to what extent normal economic and operating conditions can resume, especially as a vaccine becomes widely available;
•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 finalized Basel III capital standards and 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;rate, such as the Secured Overnight Funding Rate (SOFR), 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 following the acquisition of Beneficial Bancorp, Inc. (Beneficial);
•the successful integration of acquisitions;portfolios;
•the Company’s ability to successfully integrate and 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;disintermediation, including its pending acquisition of Bryn Mawr Bank Corporation (Bryn Mawr);
•the Company’s ability to complete the pending merger with Bryn Mawr on the terms proposed, which are subject to a number of conditions, risks and uncertainties, including the possibility that the proposed acquisition does not close when expected or at all because all conditions to closing are not received or satisfied on a timely basis or at all, the failure to close for any other reason, diversion of management time on merger-related issues, risks relating to the potential dilutive effect of shares of the Company’s common stock to be issued in the acquisition of Bryn Mawr, and the reaction to the acquisition of Bryn Mawr of the companies’ customers, employees and counterparties;
•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 employees;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, public health crises 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 herein under the heading “Risk Factors” and 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.
The following are registered trademarks of the Company: Cash Connect®, Christiana Trust Company of Delaware®, NewLane Finance®, Powdermill® is the Company's registered trademark.Financial Solutions, West Capital Management®, WSFS Institutional Services®, WSFS Mortgage® and WSFS Wealth® Investments. Any other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS) INCOME
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
(Dollars in thousands, except per share and share data) | | (Unaudited) | | | | | | |
Interest income: | | | | | | | | |
Interest and fees on loans and leases | | $ | 112,260 | | | $ | 129,001 | | | $ | 231,462 | | | $ | 216,118 | |
Interest on mortgage-backed securities | | 12,549 | | | 12,229 | | | 25,768 | | | 22,695 | |
Interest and dividends on investment securities: | | | | | | | | |
Taxable | | 102 | | | 31 | | | 117 | | | 50 | |
Tax-exempt | | 907 | | | 999 | | | 1,818 | | | 2,024 | |
Other interest income | | 65 | | | 643 | | | 573 | | | 1,593 | |
| | 125,883 | | | 142,903 | | | 259,738 | | | 242,480 | |
Interest expense: | | | | | | | | |
Interest on deposits | | 9,832 | | | 16,123 | | | 24,469 | | | 27,065 | |
Interest on Federal Home Loan Bank advances | | 625 | | | 806 | | | 1,455 | | | 3,396 | |
Interest on senior debt | | 1,180 | | | 1,180 | | | 2,359 | | | 2,359 | |
Interest on federal funds purchased | | 1 | | | 805 | | | 471 | | | 1,592 | |
Interest on trust preferred borrowings | | 484 | | | 717 | | | 1,070 | | | 1,443 | |
Interest on other borrowings | | 5 | | | 40 | | | 8 | | | 79 | |
| | 12,127 | | | 19,671 | | | 29,832 | | | 35,934 | |
Net interest income | | 113,756 | | | 123,232 | | | 229,906 | | | 206,546 | |
Provision for credit losses | | 94,754 | | | 12,195 | | | 151,400 | | | 19,849 | |
Net interest income after provision for credit losses | | 19,002 | | | 111,037 | | | 78,506 | | | 186,697 | |
Noninterest income: | | | | | | | | |
Credit/debit card and ATM income | | 9,306 | | | 13,677 | | | 20,665 | | | 25,192 | |
Investment management and fiduciary income | | 10,929 | | | 10,382 | | | 21,891 | | | 20,529 | |
Deposit service charges | | 4,175 | | | 6,103 | | | 9,822 | | | 10,849 | |
Mortgage banking activities, net | | 8,494 | | | 2,846 | | | 11,965 | | | 4,938 | |
Loan and lease fee income | | 1,097 | | | 650 | | | 2,216 | | | 1,535 | |
Securities gains, net | | 1,908 | | | 63 | | | 2,601 | | | 78 | |
Unrealized (losses) gains on equity investments, net | | (11) | | | 1,033 | | | 657 | | | 4,831 | |
Realized gain on sale of equity investment | | 22,052 | | | — | | | 22,052 | | | — | |
Bank owned life insurance income | | 445 | | | 383 | | | 420 | | | 600 | |
Other income | | 5,980 | | | 7,734 | | | 12,933 | | | 15,441 | |
| | 64,375 | | | 42,871 | | | 105,222 | | | 83,993 | |
Noninterest expense: | | | | | | | | |
Salaries, benefits and other compensation | | 48,757 | | | 48,550 | | | 94,103 | | | 84,755 | |
Occupancy expense | | 8,296 | | | 8,810 | | | 15,962 | | | 15,177 | |
Equipment expense | | 5,759 | | | 5,444 | | | 10,723 | | | 9,433 | |
Data processing and operations expenses | | 3,061 | | | 3,731 | | | 6,139 | | | 6,319 | |
Professional fees | | 4,423 | | | 2,915 | | | 9,023 | | | 4,787 | |
Marketing expense | | 1,215 | | | 1,947 | | | 2,166 | | | 3,537 | |
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FDIC expenses | | 305 | | | 1,042 | | | 251 | | | 1,662 | |
Loan workout and other credit costs | | 4,587 | | | 1,419 | | | 5,040 | | | 1,690 | |
Corporate development expense | | 2,801 | | | 13,946 | | | 4,142 | | | 40,573 | |
Restructuring expense | | — | | | 1,881 | | | — | | | 6,243 | |
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Other operating expense | | 14,231 | | | 18,163 | | | 34,382 | | | 31,264 | |
| | 93,435 | | | 107,848 | | | 181,931 | | | 205,440 | |
(Loss) income before taxes | | (10,058) | | | 46,060 | | | 1,797 | | | 65,250 | |
Income tax (benefit) provision | | (2,247) | | | 10,091 | | | (959) | | | 16,351 | |
Net (loss) income | | $ | (7,811) | | | $ | 35,969 | | | $ | 2,756 | | | $ | 48,899 | |
Less: Net loss attributable to noncontrolling interest | | (700) | | | (231) | | | (1,060) | | | (324) | |
Net (loss) income attributable to WSFS | | $ | (7,111) | | | $ | 36,200 | | | $ | 3,816 | | | $ | 49,223 | |
(Loss) earnings per share: | | | | | | | | |
Basic | | $ | (0.14) | | | $ | 0.68 | | | $ | 0.08 | | | $ | 1.07 | |
Diluted | | $ | (0.14) | | | $ | 0.68 | | | $ | 0.07 | | | $ | 1.06 | |
Weighted average shares of common stock outstanding: | | | | | | | | |
Basic | | 50,655,154 | | | 53,253,455 | | | 50,870,735 | | | 46,103,264 | |
Diluted | | 50,655,154 | | | 53,516,000 | | | 50,910,790 | | | 46,438,173 | |
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands, except per share and share data) | | 2021 | | 2020 | | 2021 | | 2020 |
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Interest income: | | | | | | | | |
Interest and fees on loans and leases | | $ | 98,645 | | | $ | 112,260 | | | $ | 207,497 | | | $ | 231,462 | |
Interest on mortgage-backed securities | | 12,506 | | | 12,549 | | | 23,210 | | | 25,768 | |
Interest and dividends on investment securities: | | | | | | | | |
Taxable | | 702 | | | 102 | | | 1,403 | | | 117 | |
Tax-exempt | | 681 | | | 907 | | | 1,429 | | | 1,818 | |
Other interest income | | 368 | | | 65 | | | 644 | | | 573 | |
| | 112,902 | | | 125,883 | | | 234,183 | | | 259,738 | |
Interest expense: | | | | | | | | |
Interest on deposits | | 3,778 | | | 9,832 | | | 8,274 | | | 24,469 | |
Interest on Federal Home Loan Bank advances | | 0 | | | 625 | | | 5 | | | 1,455 | |
Interest on senior debt | | 2,053 | | | 1,180 | | | 4,319 | | | 2,359 | |
Interest on federal funds purchased | | 0 | | | 1 | | | 0 | | | 471 | |
Interest on trust preferred borrowings | | 317 | | | 484 | | | 641 | | | 1,070 | |
Interest on other borrowings | | 5 | | | 5 | | | 10 | | | 8 | |
| | 6,153 | | | 12,127 | | | 13,249 | | | 29,832 | |
Net interest income | | 106,749 | | | 113,756 | | | 220,934 | | | 229,906 | |
(Recovery of) provision for credit losses | | (67,563) | | | 94,754 | | | (87,723) | | | 151,400 | |
Net interest income after (recovery of) provision for credit losses | | 174,312 | | | 19,002 | | | 308,657 | | | 78,506 | |
Noninterest income: | | | | | | | | |
Credit/debit card and ATM income | | 7,567 | | | 9,306 | | | 14,372 | | | 20,665 | |
Investment management and fiduciary income | | 15,360 | | | 10,929 | | | 29,613 | | | 21,891 | |
Deposit service charges | | 5,319 | | | 4,175 | | | 10,779 | | | 9,822 | |
Mortgage banking activities, net | | 4,453 | | | 8,494 | | | 13,053 | | | 11,965 | |
Loan and lease fee income | | 1,730 | | | 1,097 | | | 5,215 | | | 2,216 | |
Securities gains, net | | 0 | | | 1,908 | | | 329 | | | 2,601 | |
Unrealized gains on equity investments, net | | 5,261 | | | (11) | | | 5,261 | | | 657 | |
Realized gain on sale of equity investment | | 0 | | | 22,052 | | | 0 | | | 22,052 | |
Bank owned life insurance income | | 695 | | | 445 | | | 900 | | | 420 | |
Other income | | 8,633 | | | 5,980 | | | 17,318 | | | 12,933 | |
| | 49,018 | | | 64,375 | | | 96,840 | | | 105,222 | |
Noninterest expense: | | | | | | | | |
Salaries, benefits and other compensation | | 52,408 | | | 48,757 | | | 105,546 | | | 94,103 | |
Occupancy expense | | 8,083 | | | 8,296 | | | 16,543 | | | 15,962 | |
Equipment expense | | 7,338 | | | 5,759 | | | 14,729 | | | 10,723 | |
Data processing and operations expenses | | 3,444 | | | 3,061 | | | 6,829 | | | 6,139 | |
Professional fees | | 3,401 | | | 4,423 | | | 7,257 | | | 9,023 | |
Marketing expense | | 1,286 | | | 1,215 | | | 2,278 | | | 2,166 | |
Loss on debt extinguishment | | 1,087 | | | 0 | | | 1,087 | | | 0 | |
FDIC expenses | | 1,056 | | | 305 | | | 2,125 | | | 251 | |
Loan workout and other credit costs | | (552) | | | 4,587 | | | 568 | | | 5,040 | |
Corporate development expense | | 2,543 | | | 2,801 | | | 4,638 | | | 4,142 | |
Restructuring expense | | (144) | | | 0 | | | (409) | | | 0 | |
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Other operating expense | | 16,082 | | | 14,231 | | | 30,460 | | | 34,382 | |
| | 96,032 | | | 93,435 | | | 191,651 | | | 181,931 | |
Income (loss) before taxes | | 127,298 | | | (10,058) | | | 213,846 | | | 1,797 | |
Income tax provision (benefit) | | 31,687 | | | (2,247) | | | 53,094 | | | (959) | |
Net income (loss) | | $ | 95,611 | | | $ | (7,811) | | | $ | 160,752 | | | $ | 2,756 | |
Less: Net income (loss) attributable to noncontrolling interest | | (56) | | | (700) | | | 3 | | | (1,060) | |
Net income (loss) attributable to WSFS | | $ | 95,667 | | | $ | (7,111) | | | $ | 160,749 | | | $ | 3,816 | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | 2.01 | | | $ | (0.14) | | | $ | 3.38 | | | $ | 0.08 | |
Diluted | | $ | 2.01 | | | $ | (0.14) | | | $ | 3.37 | | | $ | 0.07 | |
Weighted average shares of common stock outstanding: | | | | | | | | |
Basic | | 47,529,143 | | | 50,655,154 | | | 47,519,229 | | | 50,870,735 | |
Diluted | | 47,691,709 | | | 50,655,154 | | | 47,675,223 | | | 50,910,790 | |
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) INCOME
(Unaudited)
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
(Dollars in thousands) | | (Unaudited) | | | | (Unaudited) | | |
Net (loss) income | | $ | (7,811) | | | $ | 35,969 | | | $ | 2,756 | | | $ | 48,899 | |
Less: Net loss attributable to noncontrolling interest | | (700) | | | (231) | | | (1,060) | | | (324) | |
Net (loss) income attributable to WSFS | | (7,111) | | | 36,200 | | | 3,816 | | | 49,223 | |
Other comprehensive income: | | | | | | | | |
Net change in unrealized gains on investment securities available-for-sale | | | | | | | | |
Net unrealized gains arising during the period, net of tax expense of $1,169, $6,289, $15,707 and $11,831, respectively | | 3,703 | | | 19,591 | | | 49,739 | | | 36,856 | |
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Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $458, $15, $624, and $19, respectively | | (1,450) | | | (48) | | | (1,977) | | | (59) | |
| | 2,253 | | | 19,543 | | | 47,762 | | | 36,797 | |
Net change in securities held-to-maturity | | | | | | | | |
Amortization of unrealized gain on securities reclassified to held-to-maturity, net of tax expense of $18, $27, $38, and $56, respectively | | (57) | | | (84) | | | (122) | | | (177) | |
Net change in unfunded pension liability | | | | | | | | |
Change in unfunded pension liability related to unrealized gain (loss), prior service cost and transition obligation, net of tax benefit of $8, $8, $7, and $17, respectively | | (26) | | | (34) | | | (22) | | | (175) | |
Pension settlement, net of tax expense of $67, $0, $67, and $0, respectively | | 212 | | | — | | | 212 | | | — | |
| | 186 | | | (34) | | | 190 | | | (175) | |
Net change in cash flow hedge | | | | | | | | |
Net unrealized (loss) gain arising during the period, net of tax (benefit) expense of $(8), $323, $493, and $525, respectively | | (25) | | | 1,007 | | | 1,560 | | | 1,637 | |
Amortization of unrealized gain on terminated cash flow hedges, net of tax benefit of $35, $0, $35, and $0, respectively | | (111) | | | — | | | (111) | | | — | |
| | (136) | | | 1,007 | | | 1,449 | | | 1,637 | |
Total other comprehensive income | | 2,246 | | | 20,432 | | | 49,279 | | | 38,082 | |
Total comprehensive (loss) income | | $ | (4,865) | | | $ | 56,632 | | | $ | 53,095 | | | $ | 87,305 | |
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| | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
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Net income (loss) | | $ | 95,611 | | | $ | (7,811) | | | $ | 160,752 | | | $ | 2,756 | |
Less: Net (loss) income attributable to noncontrolling interest | | (56) | | | (700) | | | 3 | | | (1,060) | |
Net income (loss) attributable to WSFS | | 95,667 | | | (7,111) | | | 160,749 | | | 3,816 | |
Other comprehensive income (loss): | | | | | | | | |
Net change in unrealized gains (losses) on investment securities available-for-sale | | | | | | | | |
Net unrealized gains (losses) arising during the period, net of tax expense (benefit) of $7,615, 1,169, $(14,361), and 15,707, respectively | | 24,104 | | | 3,703 | | | (45,485) | | | 49,739 | |
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Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $0, $458, $79, and $624, respectively | | 0 | | | (1,450) | | | (250) | | | (1,977) | |
| | 24,104 | | | 2,253 | | | (45,735) | | | 47,762 | |
Net change in securities held-to-maturity | | | | | | | | |
Amortization of unrealized gain on securities reclassified to held-to-maturity, net of tax expense of $9, $18, $14, and $38, respectively | | (28) | | | (57) | | | (44) | | | (122) | |
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) expense of $(8), $8, $(13), and $7, respectively | | (24) | | | (26) | | | (40) | | | (22) | |
Pension settlement, net of tax expense of $0, $67, $0, and $67, respectively | | 0 | | | 212 | | | 0 | | | 212 | |
| | (24) | | | 186 | | | (40) | | | 190 | |
Net change in cash flow hedge | | | | | | | | |
Net unrealized (loss) gain arising during the period, net of tax expense of $0, $(8) $0, and $493 respectively | | 0 | | | (25) | | | 0 | | | 1,560 | |
Amortization of unrealized gain on terminated cash flow hedges, net of tax benefit of $35, $35, $70, and $35 respectively | | (112) | | | (111) | | | (223) | | | (111) | |
| | (112) | | | (136) | | | (223) | | | 1,449 | |
Net change in equity method investments | | | | | | | | |
Net change in other comprehensive income of equity method investments, net of tax expense of $0, $0, $86, and $0, respectively | | 0 | | | 0 | | | 273 | | | 0 | |
Total other comprehensive income (loss) | | 23,940 | | | 2,246 | | | (45,769) | | | 49,279 | |
Total comprehensive income (loss) | | $ | 119,607 | | | $ | (4,865) | | | $ | 114,980 | | | $ | 53,095 | |
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
| | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
(Dollars in thousands, except per share and share data) | | (Unaudited) | | |
Assets: | | | | |
Cash and due from banks | | $ | 583,221 | | | $ | 164,021 | |
Cash in non-owned ATMs | | 360,969 | | | 407,524 | |
Interest-bearing deposits in other banks including collateral of $11,110 at June 30, 2020 and $0 December 31, 2019, respectively | | 11,577 | | | 207 | |
Total cash and cash equivalents | | 955,767 | | | 571,752 | |
Investment securities, available-for-sale (amortized cost of $2,097,114 at June 30, 2020 and $1,909,483 at December 31, 2019 | | 2,195,389 | | | 1,944,914 | |
Investment securities, held-to-maturity, net of allowance for credit losses of $8 at June 30, 2020 (fair value $132,198 at June 30, 2020 and $136,625 at December 31, 2019) | | 127,601 | | | 133,601 | |
Other investments | | 10,211 | | | 70,046 | |
Loans, held for sale at fair value | | 109,453 | | | 83,872 | |
Loans and leases, net of allowance for credit losses of $232,192 at June 30, 2020 and $47,576 at December 31, 2019 | | 9,120,288 | | | 8,424,464 | |
Bank owned life insurance | | 30,391 | | | 30,294 | |
Stock in Federal Home Loan Bank of Pittsburgh at cost | | 9,772 | | | 21,097 | |
Other real estate owned | | 4,153 | | | 2,605 | |
Accrued interest receivable | | 53,222 | | | 38,094 | |
Premises and equipment | | 99,320 | | | 104,465 | |
Goodwill | | 472,828 | | | 472,828 | |
Intangible assets | | 89,687 | | | 95,917 | |
Other assets | | 295,275 | | | 262,353 | |
Total assets | | $ | 13,573,357 | | | $ | 12,256,302 | |
Liabilities and Stockholders’ Equity | | | | |
Liabilities: | | | | |
Deposits: | | | | |
Noninterest-bearing | | $ | 3,188,046 | | | $ | 2,189,573 | |
Interest-bearing | | 7,874,454 | | | 7,397,284 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Total deposits | | 11,062,500 | | | 9,586,857 | |
Federal funds purchased | | — | | | 195,000 | |
Federal Home Loan Bank advances | | 106,395 | | | 112,675 | |
Trust preferred borrowings | | 67,011 | | | 67,011 | |
Senior debt | | 98,714 | | | 98,605 | |
Other borrowed funds | | 23,673 | | | 15,997 | |
Accrued interest payable | | 6,049 | | | 3,103 | |
Other liabilities | | 387,221 | | | 327,563 | |
Total liabilities | | 11,751,563 | | | 10,406,811 | |
Stockholders’ Equity: | | | | |
Common stock $0.01 par value, 90,000,000 shares authorized; issued 57,533,236 at June 30, 2020 and 57,435,658 at December 31, 2019 | | 576 | | | 575 | |
Capital in excess of par value | | 1,050,678 | | | 1,049,064 | |
Accumulated other comprehensive income | | 72,780 | | | 23,501 | |
Retained earnings | | 878,585 | | | 917,377 | |
Treasury stock at cost, 6,873,120 shares at June 30, 2020 and 5,868,772 shares at December 31, 2019 | | (178,950) | | | (140,211) | |
Total stockholders’ equity of WSFS | | 1,823,669 | | | 1,850,306 | |
Noncontrolling interest | | (1,875) | | | (815) | |
Total stockholders' equity | | 1,821,794 | | | 1,849,491 | |
Total liabilities and stockholders' equity | | $ | 13,573,357 | | | $ | 12,256,302 | |
(Unaudited) | | | | | | | | | | | | | | |
(Dollars in thousands, except per share and share data) | | June 30, 2021 | | December 31, 2020 |
| | | | |
Assets: | | | | |
Cash and due from banks | | $ | 1,944,059 | | | $ | 1,244,705 | |
Cash in non-owned ATMs | | 470,157 | | | 402,339 | |
Interest-bearing deposits in other banks including collateral (restricted cash) of $6,110 at June 30, 2021 and $7,390 December 31, 2020 | | 6,897 | | | 7,691 | |
Total cash, cash equivalents, and restricted cash | | 2,421,113 | | | 1,654,735 | |
Investment securities, available-for-sale (amortized cost of $3,347,966 at June 30, 2021 and $2,450,265 at December 31, 2020 | | 3,366,579 | | | 2,529,057 | |
Investment securities, held-to-maturity, net of allowance for credit losses of $5 at June 30, 2021 and $6 at December 31, 2020 (fair value $99,266 at June 30, 2021 and $116,421 at December 31, 2020) | | 95,126 | | | 111,741 | |
Other investments | | 15,648 | | | 9,541 | |
Loans, held for sale at fair value | | 113,173 | | | 197,541 | |
Loans and leases, net of allowance for credit losses of $132,418 at June 30, 2021 and $228,804 at December 31, 2020 | | 8,131,846 | | | 8,795,935 | |
Bank owned life insurance | | 32,759 | | | 32,051 | |
Stock in Federal Home Loan Bank (FHLB) of Pittsburgh at cost | | 6,090 | | | 5,771 | |
Other real estate owned | | 1,044 | | | 3,061 | |
Accrued interest receivable | | 40,275 | | | 44,335 | |
Premises and equipment | | 92,559 | | | 96,556 | |
Goodwill | | 472,828 | | | 472,828 | |
Intangible assets | | 79,123 | | | 84,558 | |
Other assets | | 280,698 | | | 296,204 | |
Total assets | | $ | 15,148,861 | | | $ | 14,333,914 | |
Liabilities and Stockholders’ Equity | | | | |
Liabilities: | | | | |
Deposits: | | | | |
Noninterest-bearing | | $ | 4,328,060 | | | $ | 3,415,021 | |
Interest-bearing | | 8,398,785 | | | 8,441,643 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Total deposits | | 12,726,845 | | | 11,856,664 | |
| | | | |
FHLB advances | | 0 | | | 6,623 | |
Trust preferred borrowings | | 67,011 | | | 67,011 | |
Senior debt | | 147,823 | | | 246,617 | |
Other borrowed funds | | 21,636 | | | 20,390 | |
Accrued interest payable | | 1,977 | | | 1,450 | |
Other liabilities | | 301,758 | | | 345,679 | |
Total liabilities | | 13,267,050 | | | 12,544,434 | |
Stockholders’ Equity: | | | | |
Common stock $0.01 par value, 90,000,000 shares authorized; issued 57,622,151 at June 30, 2021 and 57,575,783 at December 31, 2020 | | 577 | | | 576 | |
Capital in excess of par value | | 1,054,276 | | | 1,053,022 | |
Accumulated other comprehensive income | | 10,238 | | | 56,007 | |
Retained earnings | | 1,126,284 | | | 977,414 | |
Treasury stock at cost, 10,086,936 shares at June 30, 2021 and 9,819,627 shares at December 31, 2020 | | (307,321) | | | (295,293) | |
Total stockholders’ equity of WSFS | | 1,884,054 | | | 1,791,726 | |
Noncontrolling interest | | (2,243) | | | (2,246) | |
Total stockholders' equity | | 1,881,811 | | | 1,789,480 | |
Total liabilities and stockholders' equity | | $ | 15,148,861 | | | $ | 14,333,914 | |
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
(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, 2020 | | 57,575,783 | | | $ | 576 | | | $ | 1,053,022 | | | $ | 56,007 | | | $ | 977,414 | | | $ | (295,293) | | | $ | 1,791,726 | | | $ | (2,246) | | | $ | 1,789,480 | |
Net income | | — | | | — | | | — | | | — | | | 160,749 | | | — | | | 160,749 | | | 3 | | | 160,752 | |
Other comprehensive loss | | — | | | — | | | — | | | (45,769) | | | — | | | — | | | (45,769) | | | — | | | (45,769) | |
Cash dividend, $0.25 per share | | — | | | — | | | — | | | — | | | (11,879) | | | — | | | (11,879) | | | — | | | (11,879) | |
Issuance of common stock including proceeds from exercise of common stock options | | 46,368 | | | 1 | | | 175 | | | — | | | — | | | — | | | 176 | | | — | | | 176 | |
Stock-based compensation expense | | — | | | — | | | 2,262 | | | — | | | — | | | — | | | 2,262 | | | — | | | 2,262 | |
Repurchases of common stock (1) | | — | | | — | | | (1,183) | | | — | | | — | | | (12,028) | | | (13,211) | | | — | | | (13,211) | |
Balance, June 30, 2021 | | 57,622,151 | | | $ | 577 | | | $ | 1,054,276 | | | $ | 10,238 | | | $ | 1,126,284 | | | $ | (307,321) | | | $ | 1,884,054 | | | $ | (2,243) | | | $ | 1,881,811 | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
(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, March 31, 2021 | | 57,589,330 | | | $ | 576 | | | $ | 1,054,291 | | | $ | (13,702) | | | $ | 1,036,797 | | | $ | (307,321) | | | $ | 1,770,641 | | | $ | (2,187) | | | $ | 1,768,454 | |
Net income (loss) | | — | | | — | | | — | | | — | | | 95,667 | | | — | | | 95,667 | | | (56) | | | 95,611 | |
Other comprehensive income | | — | | | — | | | — | | | 23,940 | | | — | | | — | | | 23,940 | | | — | | | 23,940 | |
Cash dividend, $0.13 per share | | — | | | — | | | — | | | — | | | (6,180) | | | — | | | (6,180) | | | — | | | (6,180) | |
Issuance of common stock including proceeds from exercise of common stock options | | 32,821 | | | 1 | | | 60 | | | — | | | — | | | — | | | 61 | | | — | | | 61 | |
Stock-based compensation expense | | — | | | — | | | 1,107 | | | — | | | — | | | — | | | 1,107 | | | — | | | 1,107 | |
Repurchases of common shares (1) | | — | | | — | | | (1,182) | | | — | | | — | | | 0 | | | (1,182) | | | — | | | (1,182) | |
Balance, June 30, 2021 | | 57,622,151 | | | $ | 577 | | | $ | 1,054,276 | | | $ | 10,238 | | | $ | 1,126,284 | | | $ | (307,321) | | | $ | 1,884,054 | | | $ | (2,243) | | | $ | 1,881,811 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 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) | | — | | | — | | | — | | | — | | | 3,816 | | | — | | | 3,816 | | | (1,060) | | | 2,756 | |
Other comprehensive income | | — | | | — | | | — | | | 49,279 | | | — | | | — | | | 49,279 | | | — | | | 49,279 | |
Cash dividend, $0.24 per share | | — | | | — | | | — | | | — | | | (12,240) | | | — | | | (12,240) | | | — | | | (12,240) | |
Issuance of common stock including proceeds from exercise of common stock options | | 97,578 | | | 1 | | | 990 | | | — | | | — | | | — | | | 991 | | | — | | | 991 | |
Stock-based compensation expense | | — | | | — | | | 1,294 | | | — | | | — | | | — | | | 1,294 | | | — | | | 1,294 | |
Repurchases of common shares (1) | | — | | | — | | | (670) | | | — | | | — | | | (38,739) | | | (39,409) | | | — | | | (39,409) | |
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 | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 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, March 31, 2020 | | 57,506,298 | | | $ | 576 | | | $ | 1,050,658 | | | $ | 70,534 | | | $ | 891,776 | | | $ | (178,950) | | | $ | 1,834,594 | | | $ | (1,175) | | | $ | 1,833,419 | |
Net income (loss) | | — | | | — | | | — | | | — | | | (7,111) | | | — | | | (7,111) | | | (700) | | | (7,811) | |
Other comprehensive income | | — | | | — | | | — | | | 2,246 | | | — | | | — | | | 2,246 | | | — | | | 2,246 | |
Cash dividend, $0.12 per share | | — | | | — | | | — | | | — | | | (6,080) | | | — | | | (6,080) | | | — | | | (6,080) | |
Issuance of common stock including proceeds from exercise of common stock options | | 26,938 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation expense | | — | | | — | | | 690 | | | — | | | — | | | — | | | 690 | | | — | | | 690 | |
Repurchases of common shares (1) | | — | | | — | | | (670) | | | — | | | — | | | — | | | (670) | | | — | | | (670) | |
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 | |
(1)Repurchase of common stock includes 267,309 shares repurchased in connection with the Company's share repurchase program approved by the Board of Directors, and 17,732 shares withheld to cover tax liabilities.(1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 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 | | — | | | — | | | — | | | — | | | (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) | | — | | | — | | | — | | | — | | | 3,816 | | | — | | | 3,816 | | | (1,060) | | | 2,756 | |
Other comprehensive income | | — | | | — | | | — | | | 49,279 | | | — | | | — | | | 49,279 | | | — | | | 49,279 | |
Cash dividend, $0.24 per share | | — | | | — | | | — | | | — | | | (12,240) | | | — | | | (12,240) | | | — | | | (12,240) | |
Issuance of common stock including proceeds from exercise of common stock options | | 97,578 | | | 1 | | | 990 | | | — | | | — | | | — | | | 991 | | | — | | | 991 | |
| | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | — | | | — | | | 1,294 | | | — | | | — | | | — | | | 1,294 | | | — | | | 1,294 | |
Repurchases of common shares (2) | | — | | | — | | | (670) | | | — | | | — | | | (38,739) | | | (39,409) | | | — | | | (39,409) | |
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 | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 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, March 31, 2020 | | 57,506,298 | | | $ | 576 | | | $ | 1,050,658 | | | $ | 70,534 | | | $ | 891,776 | | | $ | (178,950) | | | $ | 1,834,594 | | | $ | (1,175) | | | $ | 1,833,419 | |
Net income (loss) | | — | | | — | | | — | | | — | | | (7,111) | | | — | | | (7,111) | | | (700) | | | (7,811) | |
Other comprehensive income | | — | | | — | | | — | | | 2,246 | | | — | | | — | | | 2,246 | | | — | | | 2,246 | |
Cash dividend, $0.12 per share | | — | | | — | | | — | | | — | | | (6,080) | | | — | | | (6,080) | | | — | | | (6,080) | |
Issuance of common stock including proceeds from exercise of common stock options | | 26,938 | | | 0 | | | 0 | | | — | | | — | | | — | | | 0 | | | — | | | 0 | |
| | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | — | | | — | | | 690 | | | — | | | — | | | — | | | 690 | | | — | | | 690 | |
Repurchases of common shares (2) | | — | | | — | | | (670) | | | — | | | — | | | 0 | | | (670) | | | — | | | (670) | |
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 | |
(2)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 22,531 shares withheld to cover tax liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 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) | | — | | | — | | | — | | | — | | | 49,223 | | | — | | | 49,223 | | | (324) | | | 48,899 | |
Other comprehensive income | | — | | | — | | | — | | | 38,082 | | | — | | | — | | | 38,082 | | | — | | | 38,082 | |
Cash dividend, $0.23 per share | | — | | | — | | | — | | | — | | | (9,857) | | | — | | | (9,857) | | | — | | | (9,857) | |
Issuance of common stock including proceeds from exercise of common stock options | | 312,705 | | | 4 | | | 4,123 | | | — | | | — | | | — | | | 4,127 | | | — | | | 4,127 | |
Re-issuance of treasury stock in connection with the Beneficial merger and related items | | — | | | — | | | 687,897 | | | — | | | — | | | 262,071 | | | 949,968 | | | 101 | | | 950,069 | |
Stock-based compensation expense | | — | | | — | | | 1,235 | | | — | | | — | | | — | | | 1,235 | | | — | | | 1,235 | |
Repurchases of common shares (1) | | — | | | — | | | — | | | — | | | — | | | (17,087) | | | (17,087) | | | — | | | (17,087) | |
Balance, June 30, 2019 | | 57,239,683 | | | $ | 573 | | | $ | 1,043,065 | | | $ | 22,688 | | | $ | 830,397 | | | $ | (60,112) | | | $ | 1,836,611 | | | $ | (223) | | | $ | 1,836,388 | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 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, March 31, 2019 | | 56,941,493 | | | $ | 569 | | | $ | 1,038,494 | | | $ | 2,256 | | | $ | 800,511 | | | $ | (52,078) | | | $ | 1,789,752 | | | $ | (75) | | | $ | 1,789,677 | |
Net income (loss) | | — | | | — | | | — | | | — | | | 36,200 | | | — | | | 36,200 | | | (231) | | | 35,969 | |
Other comprehensive income | | — | | | — | | | — | | | 20,432 | | | — | | | — | | | 20,432 | | | — | | | 20,432 | |
Cash dividend, $0.12 per share | | — | | | — | | | — | | | — | | | (6,406) | | | — | | | (6,406) | | | — | | | (6,406) | |
Issuance of common stock including proceeds from exercise of common stock options | | 298,190 | | | 4 | | | 3,886 | | | — | | | — | | | — | | | 3,890 | | | — | | | 3,890 | |
Beneficial merger and related items | | — | | | — | | | — | | | — | | | 92 | | | — | | | 92 | | | 83 | | | 175 | |
Stock-based compensation expense | | — | | | — | | | 685 | | | — | | | — | | | — | | | 685 | | | — | | | 685 | |
Repurchases of common shares (2) | | — | | | — | | | — | | | — | | | — | | | (8,034) | | | (8,034) | | | — | | | (8,034) | |
Balance, June 30, 2019 | | 57,239,683 | | | $ | 573 | | | $ | 1,043,065 | | | $ | 22,688 | | | $ | 830,397 | | | $ | (60,112) | | | $ | 1,836,611 | | | $ | (223) | | | $ | 1,836,388 | |
(1)Repurchase of common stock includes 271,340 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 193,888 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.
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
| | 2020 | | 2019 |
(Dollars in thousands) | | (Unaudited) | | |
Operating activities: | | | | |
Net income | | $ | 2,756 | | | $ | 48,899 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Provision for credit losses | | 151,400 | | | 19,849 | |
Depreciation of premises and equipment, net | | 7,933 | | | 7,203 | |
(Accretion) amortization of fees and discounts, net | | (27,442) | | | 24,079 | |
Amortization of intangible assets | | 5,528 | | | 5,658 | |
Amortization of right of use lease asset | | 6,356 | | | 12,982 | |
Decrease in operating lease liability | | (7,008) | | | (4,405) | |
Income from mortgage banking activities, net | | (11,965) | | | (4,938) | |
Gain on sale of securities, net | | (2,601) | | | (78) | |
Loss on sale of other real estate owned and valuation adjustments, net | | 10 | | | 63 | |
Stock-based compensation expense | | 1,294 | | | 1,235 | |
Unrealized gain on equity investments, net | | (657) | | | (4,831) | |
Realized gain on sale of equity investment | | (22,052) | | | — | |
| | | | |
Deferred income tax (benefit) expense | | (38,596) | | | 1,205 | |
Increase in accrued interest receivable | | (15,128) | | | (1,284) | |
(Increase) decrease in other assets | | (3,743) | | | 23,060 | |
Origination of loans held for sale | | (404,036) | | | (190,508) | |
Proceeds from sales of loans held for sale | | 377,786 | | | 154,508 | |
Increase in accrued interest payable | | 2,946 | | | 5,164 | |
Increase (decrease) in other liabilities | | 59,651 | | | (3,411) | |
| | | | |
Increase in value of bank owned life insurance | | (97) | | | (632) | |
Increase in capitalized interest, net | | (1,909) | | | (1,808) | |
Net cash provided by operating activities | | $ | 80,426 | | | $ | 92,010 | |
Investing activities: | | | | |
| | | | |
Repayments, maturities and calls of investment securities held-to-maturity | | 9,675 | | | 8,235 | |
Sale of investment securities available-for-sale | | 109,605 | | | 602,432 | |
Purchases of investment securities available-for-sale | | (535,146) | | | (619,652) | |
Repayments of investment securities available-for-sale | | 232,426 | | | 90,009 | |
Net proceeds from sale of Visa Class B shares | | 85,850 | | | — | |
Proceeds from bank-owned life insurance surrender | | — | | | 59,711 | |
Net (increase) decrease in loans | | (839,620) | | | (20,646) | |
Net cash from business combinations | | — | | | 76,072 | |
Purchases of stock of Federal Home Loan Bank of Pittsburgh | | (145,399) | | | (95,750) | |
Redemptions of stock of Federal Home Loan Bank of Pittsburgh | | 156,724 | | | 122,317 | |
Sales of other real estate owned | | 875 | | | 1,610 | |
Investment in premises and equipment | | (2,830) | | | (5,510) | |
Sales of premises and equipment | | 45 | | | 71 | |
Net cash (used in) provided by investing activities | | $ | (927,795) | | | $ | 218,899 | |
(Unaudited)
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
(Dollars in thousands) | | 2021 | | 2020 |
| | |
Operating activities: | | | | |
Net income | | $ | 160,752 | | | $ | 2,756 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
(Recovery of) provision for credit losses | | (87,723) | | | 151,400 | |
Depreciation of premises and equipment, net | | 6,575 | | | 7,933 | |
Accretion of fees and discounts, net | | (26,820) | | | (27,442) | |
Amortization of intangible assets | | 5,302 | | | 5,528 | |
Amortization of right of use lease asset | | 5,988 | | | 6,356 | |
Decrease in operating lease liability | | (6,688) | | | (7,008) | |
Income from mortgage banking activities, net | | (13,053) | | | (11,965) | |
Gain on sale of securities, net | | (329) | | | (2,601) | |
(Loss) gain on sale of other real estate owned and valuation adjustments, net | | (45) | | | 10 | |
Stock-based compensation expense | | 2,262 | | | 1,294 | |
Unrealized gain on equity investments, net | | (5,261) | | | (657) | |
Realized gain on sale of equity investment | | 0 | | | (22,052) | |
| | | | |
Deferred income tax expense (benefit) | | 30,162 | | | (38,596) | |
Decrease (increase) in accrued interest receivable | | 4,060 | | | (15,128) | |
Increase in other assets | | (8,046) | | | (3,743) | |
Origination of loans held for sale | | (510,421) | | | (404,036) | |
Proceeds from sales of loans held for sale | | 569,341 | | | 377,786 | |
Increase in value of bank owned life insurance | | (708) | | | (97) | |
Increase in capitalized interest, net | | (1,551) | | | (1,909) | |
Increase in accrued interest payable | | 527 | | | 2,946 | |
(Decrease) increase in other liabilities | | (35,248) | | | 59,651 | |
| | | | |
Net cash provided by operating activities | | $ | 89,076 | | | $ | 80,426 | |
Investing activities: | | | | |
| | | | |
Repayments, maturities and calls of investment securities held-to-maturity | | $ | 16,240 | | | $ | 9,675 | |
Sale of investment securities available-for-sale | | 9,332 | | | 109,605 | |
Purchases of investment securities available-for-sale | | (1,267,988) | | | (535,146) | |
Repayments of investment securities available-for-sale | | 354,265 | | | 232,426 | |
Net proceeds from sale of Visa Class B shares | | 0 | | | 85,850 | |
| | | | |
Net decrease (increase) in loans | | 826,059 | | | (839,620) | |
| | | | |
Purchases of stock of Federal Home Loan Bank of Pittsburgh | | (585) | | | (145,399) | |
Redemptions of stock of Federal Home Loan Bank of Pittsburgh | | 266 | | | 156,724 | |
Sales of other real estate owned | | 2,402 | | | 875 | |
Investment in premises and equipment | | (3,005) | | | (2,830) | |
Sales of premises and equipment | | 427 | | | 45 | |
Net cash used in investing activities | | $ | (62,587) | | | $ | (927,795) | |
| | | Six Months Ended June 30, | | | | | | | | | | | | | |
| | | 2020 | | 2019 | | Six Months Ended June 30, |
(Dollars in thousands) | (Dollars in thousands) | | (Unaudited) | | (Dollars in thousands) | | 2021 | | 2020 |
| Financing activities: | Financing activities: | | Financing activities: | | | | |
Net increase (decrease) in demand and saving deposits | | $ | 1,580,924 | | | $ | (75,871) | | |
(Decrease) increase in time deposits | | (128,170) | | | 25,640 | | |
Increase (decrease) in brokered deposits | | 30,568 | | | (81,028) | | |
Net increase in demand and saving deposits | | Net increase in demand and saving deposits | | $ | 1,133,691 | | | $ | 1,580,924 | |
Decrease in time deposits | | Decrease in time deposits | | (106,803) | | | (128,170) | |
(Decrease) increase in brokered deposits | | (Decrease) increase in brokered deposits | | (155,462) | | | 30,568 | |
| Receipts from FHLB advances | Receipts from FHLB advances | | 5,037,296 | | | 23,341,156 | | Receipts from FHLB advances | | 0 | | | 5,037,296 | |
Repayments of FHLB advances | Repayments of FHLB advances | | (5,043,576) | | | (23,553,946) | | Repayments of FHLB advances | | (6,623) | | | (5,043,576) | |
Receipts from federal funds purchased | Receipts from federal funds purchased | | 8,025,475 | | | 15,056,950 | | Receipts from federal funds purchased | | 0 | | | 8,025,475 | |
Repayments of federal funds purchased | Repayments of federal funds purchased | | (8,220,475) | | | (15,099,925) | | Repayments of federal funds purchased | | 0 | | | (8,220,475) | |
| Dividends paid | | (12,240) | | | (9,857) | | |
Issuance of common stock and exercise of common stock options | | 991 | | | 4,127 | | |
Cash dividend | | Cash dividend | | (11,879) | | | (12,240) | |
Issuance of common stock including proceeds from exercise of common stock options | | Issuance of common stock including proceeds from exercise of common stock options | | 176 | | | 991 | |
Redemption of senior debt | | Redemption of senior debt | | (100,000) | | | 0 | |
| Purchase of common stock | | (39,409) | | | (17,087) | | |
Net cash provided by (used in) financing activities | | $ | 1,231,384 | | | $ | (409,841) | | |
Increase (decrease) in cash and cash equivalents | | 384,015 | | | (98,932) | | |
Cash and cash equivalents at beginning of period | | 571,752 | | | 620,757 | | |
Cash and cash equivalents at end of period | | $ | 955,767 | | | $ | 521,825 | | |
Repurchases of common shares | | Repurchases of common shares | | (13,211) | | | (39,409) | |
Net cash provided by financing activities | | Net cash provided by financing activities | | $ | 739,889 | | | $ | 1,231,384 | |
Increase in cash, cash equivalents, and restricted cash | | Increase in cash, cash equivalents, and restricted cash | | 766,378 | | | 384,015 | |
Cash, cash equivalents, and restricted cash at beginning of period | | Cash, cash equivalents, and restricted cash at beginning of period | | 1,654,735 | | | 571,752 | |
Cash, cash equivalents, and restricted cash at end of period | | Cash, cash equivalents, and restricted cash at end of period | | $ | 2,421,113 | | | $ | 955,767 | |
Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | | | Supplemental disclosure of cash flow information: | | | | |
Cash paid during the period for: | Cash paid during the period for: | | Cash paid during the period for: | |
Interest | Interest | | $ | 26,886 | | | $ | 30,771 | | Interest | | $ | 12,722 | | | $ | 26,886 | |
Income taxes | Income taxes | | 3,610 | | | 15,987 | | Income taxes | | 21,999 | | | 3,610 | |
Non-cash information: | Non-cash information: | | Non-cash information: | |
Loans transferred to other real estate owned | Loans transferred to other real estate owned | | 2,503 | | | 2,098 | | Loans transferred to other real estate owned | | 606 | | | 2,503 | |
Loans transferred to portfolio from held-for-sale at fair value | Loans transferred to portfolio from held-for-sale at fair value | | 11,065 | | | 14,846 | | Loans transferred to portfolio from held-for-sale at fair value | | 24,782 | | | 11,065 | |
Fair value of assets acquired, net of cash received | | — | | | 5,033,367 | | |
Fair value of liabilities assumed | | — | | | 5,109,931 | | |
Impact of ASC 842 Adoption: | | |
Right of use asset | | — | | | 121,288 | | |
Lease liability | | — | | | (132,346) | | |
Impact of ASC 326 Adoption (Note 2): | | |
| Impact of ASC 326 Adoption: | | Impact of ASC 326 Adoption: | |
Allowance for credit losses on held-to-maturity debt securities | Allowance for credit losses on held-to-maturity debt securities | | (8) | | | — | | Allowance for credit losses on held-to-maturity debt securities | | 0 | | | (8) | |
Allowance for credit losses on loans and leases | Allowance for credit losses on loans and leases | | (35,855) | | | — | | Allowance for credit losses on loans and leases | | 0 | | | (35,855) | |
Deferred tax assets | Deferred tax assets | | 8,461 | | | — | | Deferred tax assets | | 0 | | | 8,461 | |
Allowance for credit losses on unfunded lending commitments | Allowance for credit losses on unfunded lending commitments | | (2,966) | | | — | | Allowance for credit losses on unfunded lending commitments | | 0 | | | (2,966) | |
Retained earnings | Retained earnings | | 30,368 | | | — | | Retained earnings | | 0 | | | 30,368 | |
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20202021
(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)(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 1 unconsolidated subsidiary, WSFS Capital Trust III. WSFS Bank has 32 wholly owned subsidiaries: Beneficial Equipment Finance Corporation (BEFC), WSFS Investment Group, Inc. (WSFS Wealth Investments), and 1832 Holdings, Inc., and 1 majority-owned subsidiary, NewLane Finance Company (NewLane Finance)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 115112 offices located in Pennsylvania (5452), Delaware (43)42), 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.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. In addition, NewLane Finance® offers captive insurance through its subsidiary, Prime Protect.
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, 2020.2021. 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, 20192020 (the 20192020 Annual Report on Form 10-K) that was filed with the SEC on March 2, 20201, 2021 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.
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 20192020 Annual Report on Form 10-K. Those significant accounting policies remain unchanged at June 30, 2020, except as described below:2021.
LoansRECENT ACCOUNTING PRONOUNCEMENTS
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 LeasesAccounting Guidance Adopted in 2021
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 establishes its allowance in accordanceadopted this standard on January 1, 2021, on a prospective basis with guidance provided in ASC 326,no impact to the Consolidated Financial Statements at the time of adoption.
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: Financial Instruments - Credit LossesIn 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 allowancenew 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 credit losses includes quantitative and qualitative factors that comprise management's current estimateannual periods beginning after December 15, 2020. Early adoption is permitted. Use 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 relatingprospective method is required. The Company adopted this standard on January 1, 2021, on a prospective basis with no impact to reasonable and supportable forecasts about future economic conditions, prepayment speeds, and qualitative adjustment factors.
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), andthe Consolidated Financial Statements at the time of adoption.
•Residential, equity secured lines and loans, installment loans, unsecured lines of credit and education loans (collectively, retail loans).
Expected credit losses are estimated overASU No. 2021-01, Reference Rate Reform (Topic 848): Scope: In January 2021, the contractual term, adjustedFASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The new guidance expands and clarifies the scope of ASU No. 2020-04 to include derivatives affected by changes in interest rates used for expected prepaymentsmargining, discounting, or contract price alignment, commonly referred to as the “discounting transaction.” Derivatives impacted by the discounting transaction will be eligible for certain optional expedients and recoveries.exceptions related to contract modifications and hedge accounting as defined in Topic 848. The contractual term excludes any extensions, renewalsguidance is effective upon issuance through December 31, 2022 and modifications unlessthere was no impact to 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 exceedtime 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.
guidance became effective. The Company uses a third-party economic forecastwill apply this guidance to adjust the calculated historical loss rates of the portfolio segments. The Company's economic 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 periodicallyany derivatives affected by the Company and updated as appropriate.discounting transaction due to reference rate reform.
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 38 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.There was no accounting guidance pending adoption at June 30, 2021.
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,3. NONINTEREST INCOME
Credit/debit card and ATM income
The following table presents the expected credit lossescomponents of credit/debit card and ATM income:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Bailment fees | $ | 3,320 | | | $ | 3,080 | | | $ | 6,379 | | | $ | 8,161 | |
Interchange fees | 3,485 | | | 5,631 | | | 6,540 | | | 11,247 | |
Other card and ATM fees | 762 | | | 595 | | | 1,453 | | | 1,257 | |
Total credit/debit card and ATM income | $ | 7,567 | | | $ | 9,306 | | | $ | 14,372 | | | $ | 20,665 | |
Credit/debit card and ATM income is composed of bailment fees, interchange fees, and other card and ATM fees. Bailment 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 individual asset levelbailee'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 difference betweenissuing bank for the collateral's fair value (less costand 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 due to sell)the impact of the Durbin Amendment on 2021 results. The Durbin Amendment is a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that established a cap on interchange fees with respect to debit transactions for banks that, together with their affiliates, have over $10 billion in assets, and became effective for the amortized cost.Company on July 1, 2020.
Qualitative adjustment factors consider various internalInvestment management and external conditions which are allocated among loan segments and take into consideration:fiduciary income
•Current underwriting policies, staffThe following table presents the components of investment management and portfolio concentrations,fiduciary income: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Trust fees | $ | 10,808 | | | $ | 7,308 | | | $ | 20,572 | | | $ | 14,262 | |
Wealth management and advisory fees | 4,552 | | | 3,621 | | | 9,041 | | | 7,629 | |
Total investment management and fiduciary income | $ | 15,360 | | | $ | 10,929 | | | $ | 29,613 | | | $ | 21,891 | |
•Risk rating accuracy, creditInvestment management and administration,
•Internal risk emergence (including internal trendsfiduciary income is composed of delinquency,trust fees and criticized loans by segment),
•Economic forecastswealth management and conditions - locally and nationally (including market trends impacting collateral values), and
•Competitive environment, as it could impact loan structure and underwriting.
These factorsadvisory fees. Trust fees are based on their relative standing comparedrevenue 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 period in which historical lossesU.S. Most fees are used in quantitative reserve estimatesflat fees, except for a portion of personal and current directional trends, and reasonable and supportable forecasts. Qualitative factors incorporate trustee fees where 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 receivableCompany earns a percentage on the Consolidated Statementsassets 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 Financial Condition.fees from Cypress, West Capital, Powdermill
For additional detail regarding the allowance for credit losses® and the provision for credit losses, see Note 7.
Past DueWSFS Wealth® Investments. Wealth management and Nonaccrual Loans
Past due loansadvisory fees are defined as loans contractually past due 30 days or more as to principal or interest payments but which remain in accrual status because theybased on revenue earned from services including asset management, financial planning, family office, and brokerage. The fees 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, dependingbased on the Company’s assessmentmarket value of the ultimate collectability of principal and interest. Loansassets, 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 modifiedassessed as a TDR. Nonaccruing restructured loans remain in nonaccrual status until there has been a period of sustained repayment performance demonstrated, as noted above,flat fee, or are brokerage commissions. This revenue stream primarily generates fee income through quarterly and repayment is reasonably assured.
On March 27, 2020,annual billing for 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.services.
Deposit service charges
The following table presents the components of deposit service charges:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Service fees | $ | 3,553 | | | $ | 2,919 | | | $ | 6,975 | | | $ | 6,130 | |
Return and overdraft fees | 1,504 | | | 1,134 | | | 3,082 | | | 3,466 | |
Other deposit service fees | 262 | | | 122 | | | 722 | | | 226 | |
Total deposit service charges | $ | 5,319 | | | $ | 4,175 | | | $ | 10,779 | | | $ | 9,822 | |
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 June 30, | | Six Months Ended June 30, |
(Dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Managed service fees | $ | 4,504 | | | $ | 3,724 | | | $ | 8,113 | | | $ | 7,755 | |
Currency preparation | 1,160 | | | 919�� | | | 2,108 | | | 1,759 | |
ATM loss protection | 628 | | | 571 | | | 1,250 | | | 1,218 | |
Miscellaneous products and services | 2,341 | | | 766 | | | 5,847 | | | 2,201 | |
Total other income | $ | 8,633 | | | $ | 5,980 | | | $ | 17,318 | | | $ | 12,933 | |
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.
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.
4. EARNINGS (LOSS) PER SHARE
The following table shows the computation of basic and diluted earnings per share: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars and shares in thousands, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | | | | | | | |
Net income (loss) attributable to WSFS | $ | 95,667 | | | $ | (7,111) | | | $ | 160,749 | | | $ | 3,816 | |
Denominator: | | | | | | | |
Weighted average basic shares | 47,529 | | | 50,655 | | | 47,519 | | | 50,871 | |
Dilutive potential common shares (1) | 163 | | | — | | | 156 | | | 40 | |
Weighted average fully diluted shares | 47,692 | | | 50,655 | | | $ | 47,675 | | | $ | 50,911 | |
Earnings (loss) per share: | | | | | | | |
Basic | $ | 2.01 | | | $ | (0.14) | | | $ | 3.38 | | | $ | 0.08 | |
Diluted | $ | 2.01 | | | $ | (0.14) | | | $ | 3.37 | | | $ | 0.07 | |
Outstanding common stock equivalents having no dilutive effect | 0 | | | 48 | | | 1 | | | 15 | |
(1) For the three months ended June 30, 2020, the effect of 14 thousand dilutive potential common shares were excluded from the computation of diluted net loss per common share, as these shares would have been antidilutive due to the net loss reported in this period
Basic earnings per share is calculated by dividing Net income attributable to WSFS by the weighted-average basic shares outstanding. Diluted earnings per share is calculated by dividing Net income attributable to WSFS by the weighted-average fully diluted shares outstanding, using the treasury stock method. Fully diluted shares include the adjustment for the dilutive effect of common stock awards, which include outstanding stock options and unvested restricted stock units from the 2013 Incentive Plan and the 2018 Incentive Plan.
5. INVESTMENTS
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 mortgage-backed securities (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.
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 the allowance for credit losses and the provision for credit losses, 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.
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.
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 June 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.
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 June 30, | | | | Six Months Ended June 30, | | |
(Dollars in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Bailment fees | $ | 3,080 | | | $ | 6,908 | | | $ | 8,161 | | | $ | 13,807 | |
Interchange fees | 5,631 | | | 6,452 | | | 11,247 | | | 10,839 | |
Other card and ATM fees | 595 | | | 317 | | | 1,257 | | | 546 | |
Total credit/debit card and ATM income | $ | 9,306 | | | $ | 13,677 | | | $ | 20,665 | | | $ | 25,192 | |
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.
Investment management and fiduciary income
The following table presents the components of investment management and fiduciary income:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(Dollars in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Trust fees | $ | 7,308 | | | $ | 6,685 | | | $ | 14,262 | | | $ | 13,250 | |
Wealth management and advisory fees | 3,621 | | | 3,697 | | | 7,629 | | | 7,279 | |
Total investment management and fiduciary income | $ | 10,929 | | | $ | 10,382 | | | $ | 21,891 | | | $ | 20,529 | |
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.
Deposit service charges
The following table presents the components of deposit service charges:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(Dollars in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Service fees | $ | 2,919 | | | $ | 3,179 | | | $ | 6,130 | | | $ | 5,895 | |
Return and overdraft fees | 1,134 | | | 2,696 | | | 3,466 | | | 4,544 | |
Other deposit service fees | 122 | | | 228 | | | 226 | | | 410 | |
Total deposit service charges | $ | 4,175 | | | $ | 6,103 | | | $ | 9,822 | | | $ | 10,849 | |
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 June 30, | | | | Six Months Ended June 30, | | |
(Dollars in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Managed service fees | $ | 3,724 | | | $ | 3,624 | | | $ | 7,755 | | | $ | 6,566 | |
Currency preparation | 919 | | | 851 | | | 1,759 | | | 1,590 | |
ATM loss protection | 571 | | | 652 | | | 1,218 | | | 1,280 | |
Miscellaneous products and services | 766 | | | 2,607 | | | 2,201 | | | 6,005 | |
Total other income | $ | 5,980 | | | $ | 7,734 | | | $ | 12,933 | | | $ | 15,441 | |
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 three and six months ended June 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 six months ended June 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.
4. (LOSS) EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(Dollars and shares in thousands, except per share data) | 2020 | | 2019 | | 2020 | | 2019 |
Numerator: | | | | | | | |
Net (loss) income attributable to WSFS | $ | (7,111) | | | $ | 36,200 | | | $ | 3,816 | | | $ | 49,223 | |
Denominator: | | | | | | | |
Weighted average basic shares | 50,655 | | | 53,253 | | | 50,871 | | | 46,103 | |
Dilutive potential common shares(1) | — | | | 263 | | | 40 | | | 335 | |
Weighted average fully diluted shares | $ | 50,655 | | | $ | 53,516 | | | $ | 50,911 | | | $ | 46,438 | |
(Loss) earnings per share: | | | | | | | |
Basic | $ | (0.14) | | | $ | 0.68 | | | $ | 0.08 | | | $ | 1.07 | |
Diluted | $ | (0.14) | | | $ | 0.68 | | | $ | 0.07 | | | $ | 1.06 | |
Outstanding common stock equivalents having no dilutive effect | 48 | | | 1 | | | 15 | | | 1 | |
(1)For the three months ended June 30, 2020, the effect of 14 thousand dilutive potential common shares were excluded from the computation of diluted net loss per common share, as these shares would have been antidilutive due to the net loss reported in this period.
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. NaN of the Company's investments in debt securities are classified as trading.
| | | June 30, 2020 | | | June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Allowance for Credit Losses | | Fair Value | (Dollars in thousands) | | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Allowance for Credit Losses | | Fair Value |
Available-for-Sale Debt Securities | Available-for-Sale Debt Securities | | | | | | | | | | | Available-for-Sale Debt Securities | | | | | | | | | | |
CMO | | $ | 343,725 | | | $ | 12,185 | | | $ | 89 | | | $ | — | | | $ | 355,821 | | |
FNMA MBS | | 1,326,940 | | | 67,158 | | | 63 | | | — | | | 1,394,035 | | |
FHLMC MBS | | 280,752 | | | 16,795 | | | — | | | — | | | 297,547 | | |
GNMA MBS | | 29,567 | | | 1,257 | | | — | | | — | | | 30,824 | | |
GSE | | 116,130 | | | 1,071 | | | 39 | | | — | | | 117,162 | | |
Collateralized mortgage obligation (CMO) | | Collateralized mortgage obligation (CMO) | | $ | 620,242 | | | $ | 7,532 | | | $ | 9,355 | | | $ | 0 | | | $ | 618,419 | |
Fannie Mae (FNMA) MBS | | Fannie Mae (FNMA) MBS | | 2,310,453 | | | 36,274 | | | 16,940 | | | 0 | | | 2,329,787 | |
Freddie Mac (FHLMC) MBS | | Freddie Mac (FHLMC) MBS | | 163,691 | | | 8,529 | | | 222 | | | 0 | | | 171,998 | |
Ginnie Mae (GNMA) MBS | | Ginnie Mae (GNMA) MBS | | 21,713 | | | 736 | | | 47 | | | 0 | | | 22,402 | |
Government-sponsored enterprises (GSEs) agency notes | | Government-sponsored enterprises (GSEs) agency notes | | 231,867 | | | 0 | | | 7,894 | | | 0 | | | 223,973 | |
| | $ | 2,097,114 | | | $ | 98,466 | | | $ | 191 | | | $ | — | | | $ | 2,195,389 | | | $ | 3,347,966 | | | $ | 53,071 | | | $ | 34,458 | | | $ | 0 | | | $ | 3,366,579 | |
Held-to-Maturity Debt Securities(1) | Held-to-Maturity Debt Securities(1) | | | | | | | | | | | Held-to-Maturity Debt Securities(1) | | | | | | | | | | |
State and political subdivisions | State and political subdivisions | | $ | 127,108 | | | $ | 4,597 | | | $ | — | | | $ | 8 | | | $ | 131,697 | | State and political subdivisions | | $ | 94,630 | | | $ | 4,140 | | | $ | 0 | | | $ | 5 | | | $ | 98,765 | |
Foreign bonds | Foreign bonds | | 501 | | | — | | | — | | | — | | | 501 | | Foreign bonds | | 501 | | | 0 | | | 0 | | | 0 | | | 501 | |
| | $ | 127,609 | | | $ | 4,597 | | | $ | — | | | $ | 8 | | | $ | 132,198 | | | $ | 95,131 | | | $ | 4,140 | | | $ | 0 | | | $ | 5 | | | $ | 99,266 | |
(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 $0.5$0.3 million at June 30, 2020, related to securities transferred,2021, 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.
| | | December 31, 2019 | | | December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Fair Value | (Dollars in thousands) | | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Allowance for Credit Losses | | Fair Value |
Available-for-Sale Debt Securities | Available-for-Sale Debt Securities | | | | | | | | | Available-for-Sale Debt Securities | | | | | | | | | | |
CMO | CMO | | $ | 336,194 | | | $ | 4,578 | | | $ | 542 | | | $ | 340,230 | | CMO | | $ | 461,819 | | | $ | 9,949 | | | $ | 443 | | | $ | 0 | | | $ | 471,325 | |
FNMA MBS | FNMA MBS | | 1,219,522 | | | 25,717 | | | 2,786 | | | 1,242,453 | | FNMA MBS | | 1,544,105 | | | 55,747 | | | 882 | | | 0 | | | 1,598,970 | |
FHLMC MBS | FHLMC MBS | | 320,896 | | | 8,641 | | | 591 | | | 328,946 | | FHLMC MBS | | 190,856 | | | 12,142 | | | 105 | | | 0 | | | 202,893 | |
GNMA MBS | GNMA MBS | | 32,871 | | | 477 | | | 63 | | | 33,285 | | GNMA MBS | | 22,716 | | | 1,046 | | | 0 | | | 0 | | | 23,762 | |
GSE agency notes | | GSE agency notes | | 230,769 | | | 1,987 | | | 649 | | | 0 | | | 232,107 | |
| | $ | 1,909,483 | | | $ | 39,413 | | | $ | 3,982 | | | $ | 1,944,914 | | | $ | 2,450,265 | | | $ | 80,871 | | | $ | 2,079 | | | $ | 0 | | | $ | 2,529,057 | |
Held-to-Maturity Debt Securities(1) | Held-to-Maturity Debt Securities(1) | | | | | | | | | Held-to-Maturity Debt Securities(1) | | | | | | | | | | |
State and political subdivisions | State and political subdivisions | | $ | 131,600 | | | $ | 3,023 | | | $ | — | | | $ | 134,623 | | State and political subdivisions | | $ | 111,246 | | | $ | 4,678 | | | $ | 0 | | | $ | 6 | | | $ | 115,918 | |
Foreign bonds | Foreign bonds | | 2,001 | | | 1 | | | — | | | 2,002 | | Foreign bonds | | 501 | | | 2 | | | 0 | | | 0 | | | 503 | |
| | $ | 133,601 | | | $ | 3,024 | | | $ | — | | | $ | 136,625 | | | $ | 111,747 | | | $ | 4,680 | | | $ | 0 | | | $ | 6 | | | $ | 116,421 | |
|
(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$0.4 million at December 31, 2019, related to securities transferred,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.
The scheduled maturities of available-for-sale debt securities at June 30, 20202021 and December 31, 20192020 are presented in the table below: | | | | | | | | | | | | | | |
| | Available-for-Sale |
| | Amortized | | Fair |
(Dollars in thousands) | | Cost | | Value |
June 30, 2021 (1) | | | | |
Within one year | | $ | 0 | | | $ | 0 | |
After one year but within five years | | 70,221 | | | 73,851 | |
After five years but within ten years | | 227,815 | | | 232,840 | |
After ten years | | 3,049,930 | | | 3,059,888 | |
| | $ | 3,347,966 | | | $ | 3,366,579 | |
December 31, 2020 (1) | | | | |
Within one year | | $ | 0 | | | $ | 0 | |
After one year but within five years | | 37,852 | | | 39,985 | |
After five years but within ten years | | 239,845 | | | 251,874 | |
After ten years | | 2,172,568 | | | 2,237,198 | |
| | $ | 2,450,265 | | | $ | 2,529,057 | |
| | | | | | | | | | | | | | |
| | Available-for-Sale | | |
| | Amortized | | Fair |
(Dollars in thousands) | | Cost | | Value |
June 30, 2020 (1) | | | | |
Within one year | | $ | — | | | $ | — | |
After one year but within five years | | 33,142 | | | 34,759 | |
After five years but within ten years | | 217,301 | | | 229,175 | |
After ten years | | 1,846,671 | | | 1,931,455 | |
| | $ | 2,097,114 | | | $ | 2,195,389 | |
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.
The scheduled maturities of held-to-maturity debt securities at June 30, 20202021 and December 31, 20192020 are presented in the table below: | | | | | | | | | | | | | | |
| | Held-to-Maturity |
| | Amortized | | Fair |
(Dollars in thousands) | | Cost | | Value |
June 30, 2021 (1) | | | | |
Within one year | | $ | 1,126 | | | $ | 1,126 | |
After one year but within five years | | 1,948 | | | 1,999 | |
After five years but within ten years | | 40,620 | | | 42,066 | |
After ten years | | 51,437 | | | 54,075 | |
| | $ | 95,131 | | | $ | 99,266 | |
December 31, 2020 (1) | | | | |
Within one year | | $ | 1,144 | | | $ | 1,154 | |
After one year but within five years | | 972 | | | 990 | |
After five years but within ten years | | 35,967 | | | 37,317 | |
After ten years | | 73,664 | | | 76,960 | |
| | $ | 111,747 | | | $ | 116,421 | |
| | | | | | | | | | | | | | |
| | Held-to-Maturity | | |
| | Amortized | | Fair |
(Dollars in thousands) | | Cost | | Value |
June 30, 2020 (1) | | | | |
Within one year | | $ | 1,130 | | | $ | 1,131 | |
After one year but within five years | | 5,197 | | | 5,286 | |
After five years but within ten years | | 31,881 | | | 33,015 | |
After ten years | | 89,401 | | | 92,766 | |
| | $ | 127,609 | | | $ | 132,198 | |
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.
Mortgage-backed securities (MBS)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 1.34.6 years at June 30, 2020.2021.
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 $1.4$1.8 billion and $1.1$1.3 billion were pledged as collateral for retail customer repurchase agreements, municipal deposits, and other obligations as of June 30, 20202021 and December 31, 2019,2020, respectively.
During the six months ended June 30, 2021, the Company sold $9.3 million of debt securities categorized as available-for-sale, resulting in $0.3 million of realized gains and 0 realized losses. During the six months ended June 30, 2020, the Company sold $109.6 million of debt securities categorized as available-for-sale resulting in $2.6 million of realized gains and 0 realized losses. During the six months ended June 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 0 realized losses.
As of June 30, 20202021 and December 31, 2019,2020, the Company's debt securities portfolio had remaining unamortized premiums of $35.0$65.8 million and $15.1$60.4 million, respectively, and unaccreted discounts of $3.5$5.2 million and $4.1$2.6 million, respectively.
For debt securities within an unrealized lossesloss 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 June 30, 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 40,948 | | | $ | 89 | | | $ | — | | | $ | — | | | $ | 40,948 | | | $ | 89 | |
FNMA MBS | | 45,453 | | | 60 | | | 4,403 | | | 3 | | | 49,856 | | | 63 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
GSE | | 18,351 | | | 39 | | | — | | | — | | | 18,351 | | | 39 | |
Total | | $ | 104,752 | | | $ | 188 | | | $ | 4,403 | | | $ | 3 | | | $ | 109,155 | | | $ | 191 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 240,709 | | | $ | 9,355 | | | $ | 0 | | | $ | 0 | | | $ | 240,709 | | | $ | 9,355 | |
FNMA MBS | | 1,234,215 | | | 16,939 | | | 1,547 | | | 1 | | | 1,235,762 | | | 16,940 | |
FHLMC MBS | | 10,340 | | | 214 | | | 3,152 | | | 8 | | | 13,492 | | | 222 | |
GNMA MBS | | 2,204 | | | 47 | | | 0 | | | 0 | | | 2,204 | | | 47 | |
GSE agency notes | | 223,973 | | | 7,894 | | | 0 | | | 0 | | | 223,973 | | | 7,894 | |
| | $ | 1,711,441 | | | $ | 34,449 | | | $ | 4,699 | | | $ | 9 | | | $ | 1,716,140 | | | $ | 34,458 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
For debt securities within an unrealized losses,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, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 183,983 | | | $ | 443 | | | $ | 0 | | | $ | 0 | | | $ | 183,983 | | | $ | 443 | |
FNMA MBS | | 289,338 | | | 879 | | | 4,355 | | | 3 | | | 293,693 | | | 882 | |
FHLMC MBS | | 5,191 | | | 105 | | | 0 | | | 0 | | | 5,191 | | | 105 | |
| | | | | | | | | | | | |
GSE agency notes | | 101,016 | | | 649 | | | 0 | | | 0 | | | 101,016 | | | 649 | |
| | $ | 579,528 | | | $ | 2,076 | | | $ | 4,355 | | | $ | 3 | | | $ | 583,883 | | | $ | 2,079 | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
At June 30, 2020,2021, available-for-sale debt securities for which the amortized cost basis exceeded fair value totaled $109.2 million.$1.7 billion. Total unrealized losses on these securities were $0.2$34.5 million at June 30, 2020.2021. 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 no0 allowance for credit losses recorded for available-for-sale debt securities as of June 30, 2020.2021.
At June 30, 2021 and December 31, 2020, held-to-maturity debt securities had an amortized cost basis of $127.6 million.$95.1 million and $111.7 million, respectively. 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 June 30, 2021, aggregated by credit quality indicator:
| | | | | | | | | | | | | | |
(Dollars in thousands) | | State and political subdivisions | | Foreign bonds |
A+ rated or higher | | $ | 94,504 | | | $ | 501 | |
Not rated | | 126 | | | 0 | |
Ending balance | | $ | 94,630 | | | $ | 501 | |
The following table summarizes the amortized cost of debt securities held-to-maturity as of December 31, 2020, aggregated by credit quality indicator:
| (Dollars in thousands) | (Dollars in thousands) | | State and political subdivisions | | Foreign bonds | (Dollars in thousands) | | State and political subdivisions | | Foreign bonds |
AA-rated or higher | | $ | 126,683 | | | $ | 501 | | |
BBB- | | 425 | | | — | | |
A+ rated or higher | | A+ rated or higher | | $ | 110,959 | | | $ | 501 | |
Not rated | | Not rated | | 287 | | | 0 | |
Ending balance | Ending balance | | $ | 127,108 | | | $ | 501 | | Ending balance | | $ | 111,246 | | | $ | 501 | |
As a result of the adoption of ASC 326 on January 1, 2020, theThe Company reviewed its held-to-maturity debt securities by major security type for potential credit losses. There was no activity in the allowance for credit losses for foreign bond debt securities for the six months ended June 30, 2021 and 2020. The following table presents the activity in the allowance for credit losses for state and political subdivisions debt securities held-to-maturity by major security type for the six months ended June 30, 2021 and 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 | | — | | | — | |
| | | | |
Charge-offs, net | | — | | | — | |
| | | | |
Ending balance | | $ | 8 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | Six months ended June 30, |
(Dollars in thousands) | | 2021 | | 2020 | 2021 | | 2020 |
Allowance for credit losses: | | | | | | | |
Beginning balance | | $ | 5 | | | $ | 0 | | $ | 6 | | | $ | 0 | |
Impact of adoption ASC 326 | | 0 | | | 8 | | 0 | | | 8 | |
Provision for credit losses | | 0 | | | 0 | | (1) | | | 0 | |
| | | | | | | |
Charge-offs, net | | 0 | | | 0 | | 0 | | | 0 | |
| | | | | | | |
Ending balance | | $ | 5 | | | $ | 8 | | $ | 5 | | | $ | 8 | |
Accrued interest receivable of $1.3$1.0 million and $1.1 million as of June 30, 2021 and December 31, 2020, respectively, for held-to-maturity debt securities waswere excluded from the evaluation of allowance for credit losses. There were no nonaccrual or past due held-to-maturity debt securities as of June 30, 2021 and December 31, 2020.
Equity Investments
The following tables detail the amortized cost, and the estimatedCompany had equity investments with a fair value of $15.6 million and $9.5 million as of June 30, 2021 and December 31, 2020, respectively. During the Company's equity investments, which are included in Other investments inthree and six months ended June 30, 2021, the unaudited Consolidated Statements of Financial Condition.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | | | |
(Dollars in thousands) | | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Fair Value |
Equity Investments | | | | | | | | |
Visa Class B shares(1) | | $ | 618 | | | $ | 81 | | | $ | — | | | $ | 699 | |
Other equity investments(2) | | 11,158 | | | — | | | 1,646 | | | 9,512 | |
| | $ | 11,776 | | | $ | 81 | | | $ | 1,646 | | | $ | 10,211 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 an unrealized gain on its remaining investment in Visa Class B shares of $0.2 million and an unrealized gain of $5.1 million on its investment in Social Finance, Inc. (SoFi). During the three months ended June 30, 2020, the Company recorded a net realized gain on sale of Visa Class B shares of $22.1 million, during the three months ended June 30, 2020, which iswas recorded in Realized Realized gain on equity investment, net net in the Consolidated Statements of Income. TheDuring the six months ended June 30, 2020, the Company recorded unrealized gains on its remaining investment in Visa Class B shares of $0.1 million and $4.2an impairment loss of $2.3 million duringin the six months ended June 30, 2020 and 2019, respectivelyinvestment of Spring EQ LLC, which iswere 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 six months ended June 30, 2020, which is recorded in Unrealized gain on equity investment, net in the Consolidated Statements of Income. There were 0 impairment losses recorded on the Company's equity investments during the six months ended June 30, 2019
6. LOANS
The following table shows the Company's loan and lease portfolio by category: | | | | | | | | | | | | | | |
| | | | |
(Dollars in thousands) | | June 30, 2021 | | December 31, 2020 |
Commercial and industrial(1) | | $ | 2,088,040 | | | $ | 2,700,418 | |
Owner-occupied commercial | | 1,360,681 | | | 1,332,727 | |
Commercial mortgages | | 2,024,684 | | | 2,086,062 | |
Construction | | 779,601 | | | 716,275 | |
Commercial small business leases | | 291,657 | | | 248,885 | |
Residential(2) | | 614,432 | | | 774,455 | |
Consumer(3) | | 1,105,169 | | | 1,165,917 | |
| | 8,264,264 | | | 9,024,739 | |
Less: | | | | |
| | | | |
Allowance for credit losses | | 132,418 | | | 228,804 | |
Net loans and leases | | $ | 8,131,846 | | | $ | 8,795,935 | |
| | | | | | | | | | | | | | |
| | | | |
(Dollars in thousands) | | June 30, 2020 | | December 31, 2019 |
Commercial and industrial(1) | | $ | 2,953,701 | | | $ | 2,046,798 | |
Owner-occupied commercial | | 1,337,253 | | | 1,296,466 | |
Commercial mortgages | | 2,165,547 | | | 2,222,976 | |
Construction | | 638,504 | | | 581,082 | |
Commercial small business leases | | 213,133 | | | 188,630 | |
Residential(2) | | 910,971 | | | 1,016,500 | |
Consumer(3) | | 1,133,371 | | | 1,128,731 | |
| | 9,352,480 | | | 8,481,183 | |
Less: | | | | |
Deferred fees, net(4) | | — | | | 9,143 | |
Allowance for credit losses | | 232,192 | | | 47,576 | |
Net loans and leases | | $ | 9,120,288 | | | $ | 8,424,464 | |
(1) Includes PPP loans of $945.1$222.9 million at June 30, 2021 and $751.2 million at December 31, 2020.
(2) Includes reverse mortgages at fair value of $16.1$8.4 million at June 30, 20202021 and $16.6$10.1 million at December 31, 2019.2020.
(3) Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.
(4) At June 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 $46.6$32.7 million and $31.5$37.6 million at June 30, 20202021 and December 31, 2019,2020, respectively. Accrued interest receivable on loans and leases was excluded from the evaluation of allowance for credit losses.
7. ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION
The following table providestables provide the activity of allowance for credit losses and loan balances for the three and six months ended June 30, 2020 under2021 and 2020. During the CECL modelfirst half of 2021, the decrease to the allowance for credit losses was primarily due to positive economic developments in accordanceour forecasts and improved credit quality metrics with ASC 326 (as adopted on January 1, 2020):declines in our problem assets, nonperforming assets and delinquencies.
| (Dollars in thousands) | (Dollars in thousands) | | Commercial and Industrial(1) | | Owner-occupied Commercial | | Commercial Mortgages | | Construction | | Residential(2) | | Consumer(3) | | Total | (Dollars in thousands) | | Commercial and Industrial(1) | | Owner-occupied Commercial | | Commercial Mortgages | | Construction | | Residential(2) | | Consumer(3) | | Total |
Three months ended June 30, 2020 | | | | | | | | | | | | | | | |
Three months ended June 30, 2021 | | Three months ended June 30, 2021 | | | | | | | | | | | | |
Allowance for credit losses | Allowance for credit losses | | Allowance for credit losses | |
Beginning balance | Beginning balance | | $ | 65,771 | | | $ | 9,541 | | | $ | 26,600 | | | $ | 5,198 | | | $ | 11,593 | | | $ | 20,370 | | | $ | 139,073 | | Beginning balance | | $ | 125,870 | | | $ | 9,617 | | | $ | 30,545 | | | $ | 14,287 | | | $ | 5,702 | | | $ | 18,797 | | | $ | 204,818 | |
| Charge-offs | Charge-offs | | (2,072) | | | (53) | | | — | | | — | | | (32) | | | (667) | | | (2,824) | | Charge-offs | | (6,512) | | | (45) | | | 0 | | | 0 | | | 0 | | | (521) | | | (7,078) | |
Recoveries | Recoveries | | 968 | | | — | | | 3 | | | — | | | 24 | | | 194 | | | 1,189 | | Recoveries | | 1,379 | | | 15 | | | 30 | | | 0 | | | 455 | | | 362 | | | 2,241 | |
Provision (credit) | Provision (credit) | | 79,558 | | | (532) | | | 11,794 | | | 4,928 | | | (2,414) | | | 1,420 | | | 94,754 | | Provision (credit) | | (33,534) | | | (3,406) | | | (14,476) | | | (10,775) | | | (2,864) | | | (2,508) | | | (67,563) | |
Ending balance | Ending balance | | $ | 144,225 | | | $ | 8,956 | | | $ | 38,397 | | | $ | 10,126 | | | $ | 9,171 | | | $ | 21,317 | | | $ | 232,192 | | Ending balance | | $ | 87,203 | | | $ | 6,181 | | | $ | 16,099 | | | $ | 3,512 | | | $ | 3,293 | | | $ | 16,130 | | | $ | 132,418 | |
Six months ended June 30, 2020 | | | | | | | | | | | | | | | |
Six months ended June 30, 2021 | | Six months ended June 30, 2021 | | | | | | | | | | | | |
Allowance for credit losses | Allowance for credit losses | | 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 | | |
Beginning balance | | Beginning balance | | $ | 150,875 | | | $ | 9,615 | | | $ | 31,071 | | | $ | 12,190 | | | $ | 6,893 | | | $ | 18,160 | | | $ | 228,804 | |
Charge-offs | Charge-offs | | (5,136) | | | (336) | | | (51) | | | — | | | (175) | | | (1,581) | | | (7,279) | | Charge-offs | | (11,564) | | | (45) | | | 0 | | | 0 | | | 0 | | | (945) | | | (12,554) | |
Recoveries | Recoveries | | 3,815 | | | 125 | | | 32 | | | 5 | | | 115 | | | 548 | | | 4,640 | | Recoveries | | 2,519 | | | 105 | | | 44 | | | 0 | | | 595 | | | 628 | | | 3,891 | |
Provision (credit) | Provision (credit) | | 102,950 | | | 6,023 | | | 29,302 | | | 5,549 | | | 328 | | | 7,248 | | | 151,400 | | Provision (credit) | | (54,627) | | | (3,494) | | | (15,016) | | | (8,678) | | | (4,195) | | | (1,713) | | | (87,723) | |
Ending balance | Ending balance | | $ | 144,225 | | | $ | 8,956 | | | $ | 38,397 | | | $ | 10,126 | | | $ | 9,171 | | | $ | 21,317 | | | $ | 232,192 | | Ending balance | | $ | 87,203 | | | $ | 6,181 | | | $ | 16,099 | | | $ | 3,512 | | | $ | 3,293 | | | $ | 16,130 | | | $ | 132,418 | |
Period-end allowance allocated to: | Period-end allowance allocated to: | | | | | | | | | | | | | | | Period-end allowance allocated to: | | | | | | | | | | | | | | |
Loans evaluated on an individual basis | Loans evaluated on an individual basis | | $ | 18 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 18 | | Loans evaluated on an individual basis | | $ | 1 | | | $ | 0 | | | $ | 10 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 11 | |
Loans evaluated on a collective basis | Loans evaluated on a collective basis | | 144,207 | | | 8,956 | | | 38,397 | | | 10,126 | | | 9,171 | | | 21,317 | | | 232,174 | | Loans evaluated on a collective basis | | 87,202 | | | 6,181 | | | 16,089 | | | 3,512 | | | 3,293 | | | 16,130 | | | 132,407 | |
| Ending balance | Ending balance | | $ | 144,225 | | | $ | 8,956 | | | $ | 38,397 | | | $ | 10,126 | | | $ | 9,171 | | | $ | 21,317 | | | $ | 232,192 | | Ending balance | | $ | 87,203 | | | $ | 6,181 | | | $ | 16,099 | | | $ | 3,512 | | | $ | 3,293 | | | $ | 16,130 | | | $ | 132,418 | |
Period-end loan balances: | Period-end loan balances: | | | | | | | | | | | | | | | Period-end loan balances: | | | | | | | | | | | | | | |
Loans evaluated on an individual basis | Loans evaluated on an individual basis | | $ | 15,634 | | | $ | 5,425 | | | $ | 4,470 | | | $ | 88 | | | $ | 5,452 | | | $ | 2,464 | | | $ | 33,533 | | Loans evaluated on an individual basis | | $ | 14,446 | | | $ | 3,868 | | | $ | 3,962 | | | $ | 72 | | | $ | 4,994 | | | $ | 2,608 | | | $ | 29,950 | |
Loans evaluated on a collective basis | Loans evaluated on a collective basis | | 3,151,200 | | | 1,331,828 | | | 2,161,077 | | | 638,416 | | | 889,408 | | | 1,130,907 | | | 9,302,836 | | Loans evaluated on a collective basis | | 2,365,251 | | | 1,356,813 | | | 2,020,722 | | | 779,529 | | | 601,064 | | | 1,102,561 | | | 8,225,940 | |
| Ending balance | Ending balance | | $ | 3,166,834 | | | $ | 1,337,253 | | | $ | 2,165,547 | | | $ | 638,504 | | | $ | 894,860 | | | $ | 1,133,371 | | | $ | 9,336,369 | | Ending balance | | $ | 2,379,697 | | | $ | 1,360,681 | | | $ | 2,024,684 | | | $ | 779,601 | | | $ | 606,058 | | | $ | 1,105,169 | | | $ | 8,255,890 | |
(1)Includes commercial small business leases and PPP loans.
(2)Period-end loan balance excludes reverse mortgages at fair value of $16.1$8.4 million.
(3)Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.
(4)The impact
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Commercial and Industrial(1) | | Owner - occupied Commercial | | Commercial Mortgages | | Construction | | Residential(2) | | Consumer(3) | | Total |
Three months ended June 30, 2020 | | | | | | | | | | | | | | |
Allowance for credit losses | | | | | | | | | | | | | | |
Beginning balance | | $ | 65,771 | | | $ | 9,541 | | | $ | 26,600 | | | $ | 5,198 | | | $ | 11,593 | | | $ | 20,370 | | | $ | 139,073 | |
| | | | | | | | | | | | | | |
Charge-offs | | (2,072) | | | (53) | | | 0 | | | 0 | | | (32) | | | (667) | | | (2,824) | |
Recoveries | | 968 | | | 0 | | | 3 | | | 0 | | | 24 | | | 194 | | | 1,189 | |
Provision (credit) | | 79,558 | | | (532) | | | 11,794 | | | 4,928 | | | (2,414) | | | 1,420 | | | 94,754 | |
Ending balance | | $ | 144,225 | | | $ | 8,956 | | | $ | 38,397 | | | $ | 10,126 | | | $ | 9,171 | | | $ | 21,317 | | | $ | 232,192 | |
Six months ended June 30, 2020 | | | | | | | | | | | | | | |
Allowance for loan 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 | | (5,136) | | | (336) | | | (51) | | | 0 | | | (175) | | | (1,581) | | | (7,279) | |
Recoveries | | 3,815 | | | 125 | | | 32 | | | 5 | | | 115 | | | 548 | | | 4,640 | |
Provision | | 102,950 | | | 6,023 | | | 29,302 | | | 5,549 | | | 328 | | | 7,248 | | | 151,400 | |
Ending balance | | $ | 144,225 | | | $ | 8,956 | | | $ | 38,397 | | | $ | 10,126 | | | $ | 9,171 | | | $ | 21,317 | | | $ | 232,192 | |
Period-end allowance allocated to: | | | | | | | | | | | | | | |
Loans evaluated on an individual basis | | $ | 18 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 18 | |
Loans evaluated on a collective basis | | 144,207 | | | 8,956 | | | 38,397 | | | 10,126 | | | 9,171 | | | 21,317 | | | 232,174 | |
Ending balance | | $ | 144,225 | | | $ | 8,956 | | | $ | 38,397 | | | $ | 10,126 | | | $ | 9,171 | | | $ | 21,317 | | | $ | 232,192 | |
Period-end loan balances: | | | | | | | | | | | | | | |
Loans evaluated on an individual basis | | $ | 15,634 | | | $ | 5,425 | | | $ | 4,470 | | | $ | 88 | | | $ | 5,452 | | | $ | 2,464 | | | $ | 33,533 | |
Loans evaluated on a collective basis | | 3,151,200 | | | 1,331,828 | | | 2,161,077 | | | 638,416 | | | 889,408 | | | 1,130,907 | | | 9,302,836 | |
Ending balance | | $ | 3,166,834 | | | $ | 1,337,253 | | | $ | 2,165,547 | | | $ | 638,504 | | | $ | 894,860 | | | $ | 1,133,371 | | | $ | 9,336,369 | |
(1)Includes commercial small business leases and PPP loans.
(2)Period-end loan balance excludes reverse mortgages at fair value of $16.1 million.
(3)Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans.
(4)Includes $0.1 million for the initial allowance on loans purchased with credit deterioration.
The following table provides the activity of the allowance for loan and lease losses and loan balances for the three and six months ended June 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 June 30, 2019 | | | | | | | | | | | | | | |
Allowance for loan and lease losses | | | | | | | | | | | | | | |
Beginning balance | | $ | 21,016 | | | $ | 4,949 | | | $ | 6,679 | | | $ | 4,044 | | | $ | 1,401 | | | $ | 8,232 | | | $ | 46,321 | |
Charge-offs | | (13,002) | | | (8) | | | (153) | | | (42) | | | (163) | | | (960) | | | (14,328) | |
Recoveries | | 203 | | | 78 | | | 398 | | | 1 | | | (2) | | | 498 | | | 1,176 | |
Provision (credit) | | 13,568 | | | (526) | | | (474) | | | (1,013) | | | 24 | | | 72 | | | 11,651 | |
Provision (credit) for acquired loans | | 219 | | | (13) | | | 94 | | | (6) | | | 98 | | | 152 | | | 544 | |
Ending balance | | $ | 22,004 | | | $ | 4,480 | | | $ | 6,544 | | | $ | 2,984 | | | $ | 1,358 | | | $ | 7,994 | | | $ | 45,364 | |
Six months ended June 30, 2019 | | | | | | | | | | | | | | |
Allowance for loan losses | | | | | | | | | | | | | | |
Beginning balance | | $ | 14,211 | | | $ | 5,057 | | | $ | 6,806 | | | $ | 3,712 | | | $ | 1,428 | | | $ | 8,325 | | | $ | 39,539 | |
Charge-offs | | (13,744) | | | (8) | | | (155) | | | (42) | | | (285) | | | (1,644) | | | (15,878) | |
Recoveries | | 561 | | | 81 | | | 427 | | | 2 | | | (16) | | | 799 | | | 1,854 | |
Provision (credit) | | 20,691 | | | (637) | | | (630) | | | (682) | | | 75 | | | 329 | | | 19,146 | |
Provision (credit) for acquired loans | | 285 | | | (13) | | | 96 | | | (6) | | | 156 | | | 185 | | | 703 | |
Ending balance | | $ | 22,004 | | | $ | 4,480 | | | $ | 6,544 | | | $ | 2,984 | | | $ | 1,358 | | | $ | 7,994 | | | $ | 45,364 | |
Period-end allowance allocated to: | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 4,324 | | | $ | — | | | $ | — | | | $ | — | | | $ | 488 | | | $ | 183 | | | $ | 4,995 | |
Collectively evaluated for impairment | | 17,679 | | | 4,401 | | | 6,496 | | | 2,976 | | | 828 | | | 7,810 | | | 40,190 | |
Acquired loans individually evaluated for impairment | | 1 | | | 79 | | | 48 | | | 8 | | | 42 | | | 1 | | | 179 | |
Ending balance | | $ | 22,004 | | | $ | 4,480 | | | $ | 6,544 | | | $ | 2,984 | | | $ | 1,358 | | | $ | 7,994 | | | $ | 45,364 | |
Period-end loan balances: | | | | | | | | | | | | | | |
Individually evaluated for impairment(2) | | $ | 21,171 | | | $ | 8,753 | | | $ | 2,431 | | | $ | — | | | $ | 11,398 | | | $ | 7,383 | | | $ | 51,136 | |
Collectively evaluated for impairment | | 1,575,810 | | | 1,168,864 | | | 765,268 | | | 324,307 | | | 134,235 | | | 848,396 | | | 4,816,880 | |
Acquired nonimpaired loans | | 738,579 | | | 99,326 | | | 1,464,739 | | | 216,843 | | | 912,288 | | | 267,955 | | | 3,699,730 | |
Acquired impaired loans | | 4,964 | | | 3,951 | | | 13,609 | | | 546 | | | 7,863 | | | 2,999 | | | 33,932 | |
Ending balance(3) | | $ | 2,340,524 | | | $ | 1,280,894 | | | $ | 2,246,047 | | | $ | 541,696 | | | $ | 1,065,784 | | | $ | 1,126,733 | | | $ | 8,601,678 | |
(1)Includes commercial small business leases.
(2)Period-end loan balance excludes reverse mortgages at fair value of $15.9 million.
(3)The difference between this amount and nonaccruing loans represents accruing troubled debt restructured loans of $14.2 million for the period ending June 30, 2019. Accruing troubled debt restructured loans are considered impaired loans.
(4)Ending loan balances do not include net deferred fees.
The following table showstables show nonaccrual and past due loans presented at amortized cost at the date
indicated under the CECL model:indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2021 |
(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) | | | | $ | 8,160 | | | $ | 482 | | | $ | 8,642 | | | $ | 2,356,794 | | | $ | 14,261 | | | | | $ | 2,379,697 | |
Owner-occupied commercial | | | | 3,817 | | | 0 | | | 3,817 | | | 1,354,083 | | | 2,781 | | | | | 1,360,681 | |
Commercial mortgages | | | | 3,000 | | | 0 | | | 3,000 | | | 2,020,069 | | | 1,615 | | | | | 2,024,684 | |
Construction | | | | 7,383 | | | 0 | | | 7,383 | | | 772,218 | | | 0 | | | | | 779,601 | |
Residential(3) | | | | 1,260 | | | 1,093 | | | 2,353 | | | 600,979 | | | 2,726 | | | | | 606,058 | |
Consumer(4) | | | | 7,971 | | | 6,958 | | | 14,929 | | | 1,087,599 | | | 2,641 | | | | | 1,105,169 | |
Total | | | | $ | 31,591 | | | $ | 8,533 | | | $ | 40,124 | | | $ | 8,191,742 | | | $ | 24,024 | | | | | $ | 8,255,890 | |
% of Total Loans | | | | 0.38 | % | | 0.10 | % | | 0.48 | % | | 99.23 | % | | 0.29 | % | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 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) | | | | $ | 7,577 | | | $ | 1,080 | | | $ | 8,657 | | | $ | 3,142,796 | | | $ | 15,381 | | | | | $ | 3,166,834 | |
Owner-occupied commercial | | | | 5,198 | | | 197 | | | 5,395 | | | 1,327,646 | | | 4,212 | | | | | 1,337,253 | |
Commercial mortgages | | | | 7,895 | | | 996 | | | 8,891 | | | 2,155,508 | | | 1,148 | | | | | 2,165,547 | |
Construction | | | | — | | | — | | | — | | | 638,504 | | | — | | | | | 638,504 | |
Residential(3) | | | | 1,504 | | | 175 | | | 1,679 | | | 890,063 | | | 3,118 | | | | | 894,860 | |
Consumer(4) | | | | 5,473 | | | 6,153 | | | 11,626 | | | 1,119,429 | | | 2,316 | | | | | 1,133,371 | |
Total | | | | $ | 27,647 | | | $ | 8,601 | | | $ | 36,248 | | | $ | 9,273,946 | | | $ | 26,175 | | | | | $ | 9,336,369 | |
% of Total Loans | | | | 0.30 | % | | 0.09 | % | | 0.39 | % | | 99.33 | % | | 0.28 | % | | | | 100 | % |
(1)Nonaccrual loans with an allowance totaled $16$10 thousand.
(2)Includes commercial small business leases and PPP loans.
(3)Residential accruing current balances excludes reverse mortgages at fair value of $16.1$8.4 million.
(4)Includes $10.5$13.6 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 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) | | $ | 7,313 | | | $ | 3,652 | | | $ | 10,965 | | | $ | 2,924,522 | | | $ | 13,816 | | | | | $ | 2,949,303 | |
Owner-occupied commercial | | 3,120 | | | 892 | | | 4,012 | | | 1,323,355 | | | 5,360 | | | | | 1,332,727 | |
Commercial mortgages | | 5,944 | | | 1,090 | | | 7,034 | | | 2,061,853 | | | 17,175 | | | | | 2,086,062 | |
Construction | | 371 | | | 0 | | | 371 | | | 715,904 | | | 0 | | | | | 716,275 | |
Residential(3) | | 3,049 | | | 25 | | | 3,074 | | | 758,072 | | | 3,247 | | | | | 764,393 | |
Consumer(4) | | 8,355 | | | 11,035 | | | 19,390 | | | 1,144,217 | | | 2,310 | | | | | 1,165,917 | |
Total(4) | | $ | 28,152 | | | $ | 16,694 | | | $ | 44,846 | | | $ | 8,927,923 | | | $ | 41,908 | | | | | $ | 9,014,677 | |
% of Total Loans | | 0.31 | % | | 0.19 | % | | 0.50 | % | | 99.04 | % | | 0.46 | % | | | | 100 | % |
(1)Nonaccrual loans with an allowance totaled $13 thousand
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(3) | | $ | 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)(2)Includes commercial small business leases.leases and PPP loans.
(2)(3)Residential accruing current balances excludes reverse mortgages, at fair value of $16.6$10.1 million.
(3)(4)Includes $22.3$18.2 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 June 30, 2020 under the CECL model:2021 and December 31, 2020:
| | | June 30, 2020 | | | June 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | | Property | | | Equipment and other | (Dollars in thousands) | | Property | | | Equipment and other | | Property | | | Equipment and other |
Commercial and industrial(1) | Commercial and industrial(1) | | $ | 11,008 | | | | $ | 4,373 | | Commercial and industrial(1) | | $ | 11,498 | | | | $ | 2,763 | | | $ | 10,646 | | | | $ | 3,170 | |
Owner-occupied commercial | Owner-occupied commercial | | 4,212 | | | | — | | Owner-occupied commercial | | 2,781 | | | | 0 | | | 5,360 | | | | 0 | |
Commercial mortgages | Commercial mortgages | | 1,148 | | | | — | | Commercial mortgages | | 1,615 | | | | 0 | | | 17,175 | | | | 0 | |
Construction | Construction | | — | | | | — | | Construction | | 0 | | | | 0 | | | 0 | | | | 0 | |
Residential(2) | Residential(2) | | 3,118 | | | | — | | Residential(2) | | 2,726 | | | | 0 | | | 3,247 | | | | 0 | |
Consumer(3) | Consumer(3) | | 2,316 | | | | — | | Consumer(3) | | 2,641 | | | | 0 | | | 2,294 | | | | 16 | |
Total | Total | | $ | 21,802 | | | | $ | 4,373 | | Total | | $ | 21,261 | | | | $ | 2,763 | | | $ | 38,722 | | | | $ | 3,186 | |
(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.
Interest income recognized on individually reviewed loans was $0.2 million during the three months ended June 30, 2021 and 2020, respectively, and $0.4 million during the six months ended June 30, 2021 and 2020, respectively.
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 $0.2 million and $0.4 million was recognized on individually reviewed loans during the three and six months ended June 30, 2020. Interest income of $0.4 million and $0.6 million was recognized on impaired loans during the three and six months ended June 30, 2019.
As of June 30, 2020,2021, there were 2523 residential loans and 2023 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $2.0$1.3 million and $6.2$11.8 million, respectively. As of December 31, 2019,2020, there were 3327 residential loans and 2923 commercial loans in the process of foreclosure. The total outstanding balance on these loans was $3.2$1.9 million and $9.5$12.8 million, respectively. Loan workout and OREO expenses were $1.1$0.2 million and $1.8$0.7 million during the three and six months ended June 30, 2020, respectively,2021, and $1.1 million and $1.3$1.8 million during three and six months ended June 30, 2019, respectively.2020. Loan workout and OREO expenses are included in Loan workout and other credit costs on the Consolidated Statement of Income.Income (Loss).
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. BorrowersThese 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. BorrowersThese 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.
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 June 30, 2020 under the CECL model.2021.
| | | Term Loans Amortized Cost Basis by Origination Year | | | | 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 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving loans amortized cost basis | | Revolving loans converted to term | | Total |
(Dollars in thousands) | (Dollars in thousands) | | | | | | | | | | | | | | | | | | | (Dollars in thousands) | | | | | | | | | | | | | | | | | | |
Commercial and industrial(1): | Commercial and industrial(1): | | Commercial and industrial(1): | |
Risk Rating | Risk Rating | | Risk Rating | |
Pass(2) | Pass(2) | | $ | 1,249,900 | | | $ | 568,960 | | | $ | 310,071 | | | $ | 207,981 | | | $ | 135,074 | | | $ | 176,408 | | | $ | 6,368 | | | $ | 137,064 | | | $ | 2,791,826 | | Pass(2) | | $ | 270,308 | | | $ | 698,723 | | | $ | 347,351 | | | $ | 236,657 | | | $ | 144,007 | | | $ | 172,211 | | | $ | 5,500 | | | $ | 135,762 | | | $ | 2,010,519 | |
Special mention | Special mention | | 1,106 | | | 24,940 | | | 17,372 | | | 7,703 | | | 4,699 | | | 31,935 | | | — | | | 16,089 | | | 103,844 | | Special mention | | 13,738 | | | 659 | | | 28,717 | | | 10,786 | | | 943 | | | 15,035 | | | 0 | | | 51,343 | | | 121,221 | |
Substandard or Lower | Substandard or Lower | | 58,854 | | | 68,996 | | | 58,303 | | | 44,712 | | | 9,854 | | | 24,370 | | | 31 | | | 6,044 | | | 271,164 | | Substandard or Lower | | 12,307 | | | 25,261 | | | 65,445 | | | 49,864 | | | 49,931 | | | 36,968 | | | 27 | | | 8,154 | | | 247,957 | |
| | $ | 1,309,860 | | | $ | 662,896 | | | $ | 385,746 | | | $ | 260,396 | | | $ | 149,627 | | | $ | 232,713 | | | $ | 6,399 | | | $ | 159,197 | | | $ | 3,166,834 | | | $ | 296,353 | | | $ | 724,643 | | | $ | 441,513 | | | $ | 297,307 | | | $ | 194,881 | | | $ | 224,214 | | | $ | 5,527 | | | $ | 195,259 | | | $ | 2,379,697 | |
Owner-occupied commercial: | Owner-occupied commercial: | | | | | | | | | | | | | | | | | | | Owner-occupied commercial: | | | | | | | | | | | | | | | | |
Risk Rating | Risk Rating | | Risk Rating | |
Pass | Pass | | $ | 95,721 | | | $ | 262,486 | | | $ | 112,582 | | | $ | 166,073 | | | $ | 144,973 | | | $ | 340,010 | | | $ | — | | | $ | 149,516 | | | $ | 1,271,361 | | Pass | | $ | 145,214 | | | $ | 223,752 | | | $ | 207,609 | | | $ | 75,082 | | | $ | 131,905 | | | $ | 317,070 | | | $ | 0 | | | $ | 130,649 | | | $ | 1,231,281 | |
Special mention | Special mention | | — | | | 311 | | | — | | | 11,585 | | | — | | | 1,266 | | | — | | | 1,848 | | | 15,010 | | Special mention | | 763 | | | 1,124 | | | 3,138 | | | 482 | | | 10,692 | | | 10,418 | | | 0 | | | 14,105 | | | 40,722 | |
Substandard or Lower | Substandard or Lower | | 1,818 | | | 9,282 | | | 7,188 | | | 8,952 | | | 9,209 | | | 9,645 | | | — | | | 4,788 | | | 50,882 | | Substandard or Lower | | 0 | | | 7,157 | | | 13,918 | | | 14,330 | | | 19,617 | | | 25,676 | | | 0 | | | 7,980 | | | 88,678 | |
| | $ | 97,539 | | | $ | 272,079 | | | $ | 119,770 | | | $ | 186,610 | | | $ | 154,182 | | | $ | 350,921 | | | $ | — | | | $ | 156,152 | | | $ | 1,337,253 | | | $ | 145,977 | | | $ | 232,033 | | | $ | 224,665 | | | $ | 89,894 | | | $ | 162,214 | | | $ | 353,164 | | | $ | 0 | | | $ | 152,734 | | | $ | 1,360,681 | |
Commercial mortgages: | Commercial mortgages: | | | | | | | | | | | | | | | | | | | Commercial mortgages: | | | | | | | | | | | | | | | | |
Risk Rating | Risk Rating | | Risk Rating | |
Pass | Pass | | $ | 163,925 | | | $ | 335,085 | | | $ | 291,054 | | | $ | 316,021 | | | $ | 317,738 | | | $ | 530,844 | | | $ | — | | | $ | 127,835 | | | $ | 2,082,502 | | Pass | | $ | 264,232 | | | $ | 314,468 | | | $ | 238,420 | | | $ | 181,718 | | | $ | 224,772 | | | $ | 470,819 | | | $ | 0 | | | $ | 230,137 | | | $ | 1,924,566 | |
Special mention | Special mention | | 20,041 | | | 6,276 | | | — | | | 15,857 | | | 1,901 | | | 4,570 | | | — | | | 1,870 | | | 50,515 | | Special mention | | 0 | | | 8,168 | | | 1,751 | | | 885 | | | 21,004 | | | 6,179 | | | 0 | | | 1,849 | | | 39,836 | |
Substandard or Lower | Substandard or Lower | | 140 | | | 1,306 | | | 1,394 | | | 4,157 | | | 2,650 | | | 20,604 | | | — | | | 2,279 | | | 32,530 | | Substandard or Lower | | 0 | | | 13,190 | | | 22,470 | | | 2,217 | | | 1,562 | | | 19,797 | | | 0 | | | 1,046 | | | 60,282 | |
| | $ | 184,106 | | | $ | 342,667 | | | $ | 292,448 | | | $ | 336,035 | | | $ | 322,289 | | | $ | 556,018 | | | $ | — | | | $ | 131,984 | | | $ | 2,165,547 | | | $ | 264,232 | | | $ | 335,826 | | | $ | 262,641 | | | $ | 184,820 | | | $ | 247,338 | | | $ | 496,795 | | | $ | 0 | | | $ | 233,032 | | | $ | 2,024,684 | |
Construction: | Construction: | | | | | | | | | | | | | | | | | | | Construction: | | | | | | | | | | | | | | | | | | |
Risk Rating | Risk Rating | | Risk Rating | |
Pass | Pass | | $ | 90,202 | | | $ | 204,676 | | | $ | 220,350 | | | $ | 38,300 | | | $ | 6,156 | | | $ | 4,201 | | | $ | — | | | $ | 55,891 | | | $ | 619,776 | | Pass | | $ | 137,727 | | | $ | 208,583 | | | $ | 149,019 | | | $ | 142,891 | | | $ | 11,236 | | | $ | 9,283 | | | $ | 0 | | | $ | 93,945 | | | $ | 752,684 | |
Special mention | Special mention | | — | | | 8,137 | | | — | | | — | | | — | | | — | | | — | | | — | | | 8,137 | | Special mention | | 7,931 | | | 0 | | | 0 | | | 0 | | | 3,515 | | | 0 | | | 0 | | | 0 | | | 11,446 | |
Substandard or Lower | Substandard or Lower | | — | | | 8,775 | | | — | | | — | | | — | | | 88 | | | — | | | 1,728 | | | 10,591 | | Substandard or Lower | | 4,988 | | | 0 | | | 4,967 | | | 0 | | | 98 | | | 71 | | | 0 | | | 5,347 | | | 15,471 | |
| | $ | 90,202 | | | $ | 221,588 | | | $ | 220,350 | | | $ | 38,300 | | | $ | 6,156 | | | $ | 4,289 | | | $ | — | | | $ | 57,619 | | | $ | 638,504 | | | $ | 150,646 | | | $ | 208,583 | | | $ | 153,986 | | | $ | 142,891 | | | $ | 14,849 | | | $ | 9,354 | | | $ | 0 | | | $ | 99,292 | | | $ | 779,601 | |
Residential(3): | Residential(3): | | | | | | | | | | | | | | | | | | | Residential(3): | | | | | | | | | | | | | | | | | | |
Risk Rating | Risk Rating | | Risk Rating | |
Performing | Performing | | $ | 12,967 | | | $ | 35,388 | | | $ | 92,212 | | | $ | 112,961 | | | $ | 173,609 | | | $ | 462,272 | | | $ | — | | | $ | — | | | $ | 889,409 | | Performing | | $ | 11,589 | | | $ | 35,330 | | | $ | 17,243 | | | $ | 43,732 | | | $ | 61,268 | | | $ | 431,902 | | | $ | 0 | | | $ | 0 | | | $ | 601,064 | |
Nonperforming(4) | Nonperforming(4) | | — | | | — | | | — | | | — | | | 92 | | | 5,359 | | | — | | | — | | | 5,451 | | Nonperforming(4) | | 0 | | | 112 | | | 0 | | | 0 | | | 63 | | | 4,819 | | | 0 | | | 0 | | | 4,994 | |
| | $ | 12,967 | | | $ | 35,388 | | | $ | 92,212 | | | $ | 112,961 | | | $ | 173,701 | | | $ | 467,631 | | | $ | — | | | $ | — | | | $ | 894,860 | | | $ | 11,589 | | | $ | 35,442 | | | $ | 17,243 | | | $ | 43,732 | | | $ | 61,331 | | | $ | 436,721 | | | $ | 0 | | | $ | 0 | | | $ | 606,058 | |
Consumer(5): | Consumer(5): | | | | | | | | | | | | | | | | | | | Consumer(5): | | | | | | | | | | | | | | | | | | |
Risk Rating | Risk Rating | | Risk Rating | |
Performing | Performing | | $ | 85,834 | | | $ | 165,512 | | | $ | 287,173 | | | $ | 80,871 | | | $ | 57,913 | | | $ | 70,555 | | | $ | 375,483 | | | $ | 7,392 | | | $ | 1,130,733 | | Performing | | $ | 65,016 | | | $ | 231,337 | | | $ | 98,951 | | | $ | 214,502 | | | $ | 47,934 | | | $ | 75,185 | | | $ | 362,142 | | | $ | 7,147 | | | $ | 1,102,214 | |
Nonperforming(6) | Nonperforming(6) | | — | | | — | | | 651 | | | 219 | | | — | | | — | | | 1,378 | | | 390 | | | 2,638 | | Nonperforming(6) | | 0 | | | 361 | | | 33 | | | 619 | | | 193 | | | 0 | | | 1,351 | | | 398 | | | 2,955 | |
| | $ | 85,834 | | | $ | 165,512 | | | $ | 287,824 | | | $ | 81,090 | | | $ | 57,913 | | | $ | 70,555 | | | $ | 376,861 | | | $ | 7,782 | | | $ | 1,133,371 | | | $ | 65,016 | | | $ | 231,698 | | | $ | 98,984 | | | $ | 215,121 | | | $ | 48,127 | | | $ | 75,185 | | | $ | 363,493 | | | $ | 7,545 | | | $ | 1,105,169 | |
(1)Includes commercial small business leases.
(2)Includes $945.1$222.9 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.
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,credit losses, as of December 31, 2019 under the incurred loss model.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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) | | $ | 1,250,528 | | | $ | 448,704 | | | $ | 296,594 | | | $ | 157,359 | | | $ | 97,036 | | | $ | 125,361 | | | $ | 6,182 | | | $ | 136,110 | | | $ | 2,517,874 | |
Special mention | | 3,040 | | | 26,470 | | | 28,636 | | | 8,482 | | | 2,577 | | | 16,993 | | | 0 | | | 34,403 | | | 120,601 | |
Substandard or Lower | | 82,868 | | | 60,227 | | | 57,880 | | | 50,446 | | | 15,151 | | | 35,150 | | | 63 | | | 9,043 | | | 310,828 | |
| | $ | 1,336,436 | | | $ | 535,401 | | | $ | 383,110 | | | $ | 216,287 | | | $ | 114,764 | | | $ | 177,504 | | | $ | 6,245 | | | $ | 179,556 | | | $ | 2,949,303 | |
Owner-occupied commercial: | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | |
Pass | | $ | 220,165 | | | $ | 225,766 | | | $ | 90,515 | | | $ | 135,903 | | | $ | 123,897 | | | $ | 271,086 | | | $ | 0 | | | $ | 123,194 | | | $ | 1,190,526 | |
Special mention | | 1,525 | | | 5,885 | | | 1,838 | | | 17,578 | | | 4,125 | | | 1,997 | | | 0 | | | 14,467 | | | 47,415 | |
Substandard or Lower | | 3,703 | | | 13,426 | | | 15,272 | | | 19,883 | | | 11,581 | | | 19,331 | | | 0 | | | 11,590 | | | 94,786 | |
| | $ | 225,393 | | | $ | 245,077 | | | $ | 107,625 | | | $ | 173,364 | | | $ | 139,603 | | | $ | 292,414 | | | $ | 0 | | | $ | 149,251 | | | $ | 1,332,727 | |
Commercial mortgages: | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | |
Pass | | $ | 379,592 | | | $ | 283,004 | | | $ | 240,924 | | | $ | 257,809 | | | $ | 254,780 | | | $ | 375,473 | | | $ | 0 | | | $ | 148,210 | | | $ | 1,939,792 | |
Special mention | | 8,324 | | | 1,774 | | | 21,762 | | | 21,269 | | | 1,274 | | | 6,507 | | | 0 | | | 1,870 | | | 62,780 | |
Substandard or Lower | | 26,343 | | | 25,402 | | | 2,253 | | | 1,950 | | | 3,242 | | | 24,300 | | | 0 | | | 0 | | | 83,490 | |
| | $ | 414,259 | | | $ | 310,180 | | | $ | 264,939 | | | $ | 281,028 | | | $ | 259,296 | | | $ | 406,280 | | | $ | 0 | | | $ | 150,080 | | | $ | 2,086,062 | |
Construction: | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | |
Pass | | $ | 189,257 | | | $ | 214,956 | | | $ | 208,981 | | | $ | 11,414 | | | $ | 7,414 | | | $ | 3,645 | | | $ | 0 | | | $ | 66,018 | | | $ | 701,685 | |
Special mention | | 0 | | | 0 | | | 0 | | | 3,515 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3,515 | |
Substandard or Lower | | 0 | | | 8,648 | | | 0 | | | 0 | | | 0 | | | 79 | | | 0 | | | 2,348 | | | 11,075 | |
| | $ | 189,257 | | | $ | 223,604 | | | $ | 208,981 | | | $ | 14,929 | | | $ | 7,414 | | | $ | 3,724 | | | $ | 0 | | | $ | 68,366 | | | $ | 716,275 | |
Residential(3): | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | |
Performing | | $ | 42,475 | | | $ | 26,309 | | | $ | 71,410 | | | $ | 85,277 | | | $ | 149,643 | | | $ | 383,358 | | | $ | 0 | | | $ | 0 | | | $ | 758,472 | |
Nonperforming(4) | | 113 | | | 0 | | | 0 | | | 0 | | | 283 | | | 5,525 | | | 0 | | | 0 | | | 5,921 | |
| | $ | 42,588 | | | $ | 26,309 | | | $ | 71,410 | | | $ | 85,277 | | | $ | 149,926 | | | $ | 388,883 | | | $ | 0 | | | $ | 0 | | | $ | 764,393 | |
Consumer(5): | | | | | | | | | | | | | | | | | | |
Risk Rating | | | | | | | | | | | | | | | | | | |
Performing | | $ | 235,948 | | | $ | 134,064 | | | $ | 251,087 | | | $ | 63,713 | | | $ | 44,700 | | | $ | 53,717 | | | $ | 371,842 | | | $ | 8,287 | | | $ | 1,163,358 | |
Nonperforming(6) | | 0 | | | 0 | | | 636 | | | 232 | | | 0 | | | 0 | | | 1,396 | | | 295 | | | 2,559 | |
| | $ | 235,948 | | | $ | 134,064 | | | $ | 251,723 | | | $ | 63,945 | | | $ | 44,700 | | | $ | 53,717 | | | $ | 373,238 | | | $ | 8,582 | | | $ | 1,165,917 | |
(1)
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$751.2 million of acquired non-impaired loans as of December 31, 2019.PPP loans.
Retail Credit Exposure(3)Excludes reverse mortgages at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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)(4)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’loans' modified terms and are accruing interest.
(2)Residential(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 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.accordance with the loans' modified terms and are accruing interest.
Troubled Debt Restructurings (TDRs)
The following table presents the balance of TDRs as of the indicated dates:
| | | | | | | | | | | | | | |
| | | | |
(Dollars in thousands) | | June 30, 2020 | | December 31, 2019 |
Performing TDRs | | $ | 14,550 | | | $ | 14,281 | |
Nonperforming TDRs | | 4,284 | | | 5,896 | |
Total TDRs | | $ | 18,834 | | | $ | 20,177 | |
| | | | | | | | | | | | | | |
| | |
(Dollars in thousands) | | June 30, 2021 | | December 31, 2020 |
Performing TDRs | | $ | 14,997 | | | $ | 15,539 | |
Nonperforming TDRs | | 2,694 | | | 4,601 | |
Total TDRs | | $ | 17,691 | | | $ | 20,140 | |
Approximately $0.8$0.2 million and $0.6less than $0.1 million in related reserves have been established for these loans at June 30, 20202021 and December 31, 2019,2020, respectively.
The following tables present information regarding the types of loan modifications made for the three and six months ended June 30, 20202021 and 2019:2020:
| | | Three months ended June 30, 2020 | | | Six months ended June 30, 2020 | | | Three months ended June 30, 2021 | | Six months ended June 30, 2021 |
| | 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 | | 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 | Commercial and industrial | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | — | | | 1 | | Commercial and industrial | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Owner-occupied commercial | Owner-occupied commercial | | 2 | | | — | | | — | | | — | | | 2 | | | 3 | | | — | | | — | | | — | | | 3 | | Owner-occupied commercial | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial mortgages | Commercial mortgages | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | | Commercial mortgages | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Construction | Construction | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Construction | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Residential | Residential | | — | | | — | | | 3 | | | 1 | | | 4 | | | — | | | — | | | 4 | | | 2 | | | 6 | | Residential | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | | | 2 | |
Consumer | Consumer | | — | | | — | | | 4 | | | 1 | | | 5 | | | — | | | — | | | 7 | | | 3 | | | 10 | | Consumer | | 0 | | | 0 | | | 3 | | | 1 | | | 4 | | | 0 | | | 0 | | | 20 | | | 1 | | | 21 | |
Total | Total | | 2 | | | — | | | 7 | | | 2 | | | 11 | | | 4 | | | 1 | | | 11 | | | 5 | | | 21 | | Total | | 0 | | | 0 | | | 3 | | | 1 | | | 4 | | | 0 | | | 0 | | | 22 | | | 1 | | | 23 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2020 | | Six months ended June 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 | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | | 1 | |
Owner-occupied commercial | | 2 | | | 0 | | | 0 | | | 0 | | | 2 | | | 3 | | | 0 | | | 0 | | | 0 | | | 3 | |
Commercial mortgages | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | | 1 | |
| | | | | | | | | | | | | | | | | | | | |
Residential | | 0 | | | 0 | | | 3 | | | 1 | | | 4 | | | 0 | | | 0 | | | 4 | | | 2 | | | 6 | |
Consumer | | 0 | | | 0 | | | 4 | | | 1 | | | 5 | | | 0 | | | 0 | | | 7 | | | 3 | | | 10 | |
Total | | 2 | | | 0 | | | 7 | | | 2 | | | 11 | | | 4 | | | 1 | | | 11 | | | 5 | | | 21 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2019 | | | | | | | | | | Six months ended June 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 | | | — | | | 1 | | | — | | | 2 | | | 3 | |
Owner-occupied commercial | | — | | | — | | | — | | | 2 | | | 2 | | | — | | | — | | | — | | | 2 | | | 2 | |
Commercial mortgages | | — | | | — | | | — | | | 1 | | | 1 | | | 1 | | | — | | | — | | | 1 | | | 2 | |
Construction | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Residential | | 3 | | | — | | | — | | | — | | | 3 | | | 4 | | | — | | | 1 | | | — | | | 5 | |
Consumer | | 3 | | | 1 | | | — | | | — | | | 4 | | | 6 | | | 1 | | | 1 | | | — | | | 8 | |
Total | | 6 | | | 2 | | | — | | | 5 | | | 13 | | | 11 | | | 2 | | | 2 | | | 5 | | | 20 | |
(1)Other includesIncludes 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.
The following table presentstables present loans modified as TDRs during the three and six months ended June 30, 20202021 and 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | | | | | Six Months Ended June 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 | | $ | — | | | $ | — | | | $ | 1,347 | | | $ | 1,347 | | | $ | 31 | | | $ | 31 | | | $ | 1,347 | | | $ | 1,347 | |
Owner-occupied commercial | | 567 | | | 567 | | | 1,435 | | | 1,435 | | | 1,216 | | | 1,216 | | | 1,435 | | | 1,435 | |
Commercial mortgages | | — | | | — | | | 483 | | | 483 | | | 104 | | | 104 | | | 514 | | | 514 | |
Construction | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Residential | | 905 | | | 905 | | | 321 | | | 321 | | | 1,126 | | | 1,126 | | | 423 | | | 423 | |
Consumer | | 245 | | | 245 | | | 540 | | | 540 | | | 459 | | | 459 | | | 1,408 | | | 1,408 | |
Total | | $ | 1,717 | | | $ | 1,717 | | | $ | 4,126 | | | $ | 4,126 | | | $ | 2,936 | | | $ | 2,936 | | | $ | 5,127 | | | $ | 5,127 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | | | | | Six Months Ended June 30, 2021 | | | | |
| | | | | | | | |
(Dollars in thousands) | | Pre Modification | | Post Modification | | | | | | Pre Modification | | Post Modification | | | | |
Commercial | | $ | 0 | | | $ | 0 | | | | | | | $ | 0 | | | $ | 0 | | | | | |
Owner-occupied commercial | | 0 | | | 0 | | | | | | | 0 | | | 0 | | | | | |
Commercial mortgages | | 0 | | | 0 | | | | | | | 0 | | | 0 | | | | | |
| | | | | | | | | | | | | | | | |
Residential | | 0 | | | 0 | | | | | | | 166 | | | 166 | | | | | |
Consumer | | 155 | | | 155 | | | | | | | 839 | | | 839 | | | | | |
Total(1)(2) | | $ | 155 | | | $ | 155 | | | | | | | $ | 1,005 | | | $ | 1,005 | | | | | |
(1)During the three and six months ended June 30, 2021, the TDRs set forth in the table above resulted in a less than $0.1 million increase in the allowance for credit losses for both periods, and 0 additional charge-offs in either period. During the three and six months ended June 30, 2021, 0 TDRs defaulted that had received troubled debt modification during the past twelve months.
(2)The TDRs set forth in the table above did not occur as a result of the loan forbearance program under the CARES Act.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 |
| | | | |
(Dollars in thousands) | | Pre Modification | | Post Modification | | Pre Modification | | Post Modification |
Commercial | | $ | 0 | | | $ | 0 | | | $ | 31 | | | $ | 31 | |
Owner-occupied commercial | | 567 | | | 567 | | | 1,216 | | | 1,216 | |
Commercial mortgages | | 0 | | | 0 | | | 104 | | | 104 | |
| | | | | | | | |
Residential | | 905 | | | 905 | | | 1,126 | | | 1,126 | |
Consumer | | 245 | | | 245 | | | 459 | | | 459 | |
Total(1)(2) | | $ | 1,717 | | | $ | 1,717 | | | $ | 2,936 | | | $ | 2,936 | |
(1)During the three and six months ended June 30, 2020 the TDRs set forth in the table above resulted in a less than $0.1 million increase and a $0.1 million increase in the allowance for credit losses, respectively, and 0 additional charge-offs in either period. ForDuring the three and six months ended June 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 0 additional charge-offs for either period.
During the three months ended June 30, 2020, 0 TDRs defaulted that had received troubled debt modification during the past twelve months, compared to 3 TDRs with a total loan amount of $1.2 million during the three months ended June 30, 2019. During the six months ended June 30, 2020, 0 TDRs defaulted that had received troubled debt modification during the past twelve months, compared with 4 TDRs with a total loan amount of $1.3 million during the six months ended June 30, 2019.months.
During the three months ended June 30, 2020, the Company began providing a number of customer relief programs in its commercial and retail portfolios, such as payment deferrals or interest only payments on loans and leases. (2)The TDRs set forth in the table above did not occur as a result of the loan forbearance program under the CARES Act. During the second quarter of 2020, the Company modified approximately $2.1 billion of loans and leases to provide its customers this monetary relief.
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 4241 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 balance sheet.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 | | Six months ended |
(Dollars in thousands) | | June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
Operating lease cost (1) | | $ | 4,789 | | | $ | 4,950 | | | $ | 9,443 | | | $ | 9,500 | |
Sublease income | | (90) | | | (93) | | | (197) | | | (186) | |
Net lease cost | | $ | 4,699 | | | $ | 4,857 | | | $ | 9,246 | | | $ | 9,314 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
(Dollars in thousands) | | June 30, 2020 | | June 30, 2019 | | June 30, 2020 | | June 30, 2019 |
Operating lease cost (1) (2) | | $ | 4,950 | | | $ | 11,024 | | | $ | 9,500 | | | $ | 16,748 | |
Sublease income | | (93) | | | (175) | | | (186) | | | (276) | |
Net lease cost | | $ | 4,857 | | | $ | 10,849 | | | $ | 9,314 | | | $ | 16,472 | |
(1)Includes variable lease cost and short-term lease cost.
Includes $5.9 million and $8.0 million for the three and six months ended June 30, 2019, respectively, in Corporate development expense in the unaudited Consolidated StatementTable of Income.Contents
Supplemental balance sheet information related to operating leases was as follows:
| | | | | | | | | | | | | | |
(Dollars in thousands) | | June 30, 2020 | | December 31, 2019 |
Assets | | | | |
Right of use assets | | $ | 156,919 | | | $ | 166,221 | |
Total assets | | $ | 156,919 | | | $ | 166,221 | |
| | | | |
Liabilities | | | | |
Lease liabilities | | $ | 171,612 | | | $ | 181,814 | |
Total liabilities | | $ | 171,612 | | | $ | 181,814 | |
| | | | |
Lease term and discount rate | | | | |
Weighted average remaining lease term (in years) | | | | |
Operating leases | | 19.39 | | 19.06 |
Weighted average discount rate | | | | |
Operating leases | | 4.25 | % | | 4.17 | % |
| | | | | | | | | | | | | | |
(Dollars in thousands) | | June 30, 2021 | | December 31, 2020 |
| | | | |
Right of use assets | | $ | 150,291 | | | $ | 150,985 | |
| | | | |
| | | | |
| | | | |
Lease liabilities | | $ | 165,057 | | | $ | 166,451 | |
| | | | |
| | | | |
Lease term and discount rate | | | | |
| | | | |
Weighted average remaining lease term (in years) | | 19.16 | | 19.36 |
| | | | |
Weighted average discount rate | | 4.26 | % | | 4.26 | % |
Maturities of operating lease liabilities were as follows:
| | | | | | | | |
(Dollars in thousands) | | June 30, 2020 |
Remaining in 2020 | | $ | 8,724 | |
2021 | | 17,182 | |
2022 | | 17,146 | |
2023 | | 17,263 | |
2024 | | 16,095 | |
After 2024 | | 195,550 | |
Total lease payments | | 271,960 | |
Less: Interest | | (100,348) | |
Present value of lease liabilities | | $ | 171,612 | |
| | |
| | |
| | | | | | | | |
(Dollars in thousands) | | June 30, 2021 |
Remaining in 2021 | | $ | 8,780 | |
2022 | | 17,569 | |
2023 | | 17,692 | |
2024 | | 16,467 | |
2025 | | 16,478 | |
After 2025 | | 183,244 | |
Total lease payments | | 260,230 | |
Less: Interest | | (95,173) | |
Present value of lease liabilities | | $ | 165,057 | |
| | |
| | |
| | | | | | | | |
(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:
| | | | | | | | | | | | | | | | | | |
| | | | | | Six months ended | | |
(Dollars in thousands) | | | | | | June 30, 2020 | | June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | |
Operating cash flows from operating leases | | | | | | $ | 9,328 | | | $ | 7,941 | |
Right of use assets obtained in exchange for new operating lease liabilities (non-cash) | | | | | | — | | | 61,693 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Six months ended |
(Dollars in thousands) | | | | | | June 30, 2021 | | June 30, 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | |
Operating cash flows from operating leases | | | | | | $ | 9,074 | | | $ | 9,328 | |
| | | | | | | | |
Lessor Equipment Leasing
WSFSThe 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 inProvision (Recovery of) 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 | | | | Six months ended | | |
(Dollars in thousands) | | June 30, 2020 | | June 30, 2019 | | June 30, 2020 | | June 30, 2019 |
Direct financing leases: | | | | | | | | |
Interest income on lease receivable | | $ | 3,813 | | | $ | 3,109 | | | $ | 7,379 | | | $ | 3,778 | |
Interest income on deferred fees and costs | | 93 | | | 206 | | | 188 | | | 263 | |
Total direct financing lease income | | $ | 3,906 | | | $ | 3,315 | | | $ | 7,567 | | | $ | 4,041 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
(Dollars in thousands) | | June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
Direct financing leases: | | | | | | | | |
Interest income on lease receivable | | $ | 5,102 | | | $ | 3,813 | | | $ | 9,726 | | | $ | 7,379 | |
Interest income on deferred fees and costs, net | | (438) | | | 93 | | | (756) | | | 188 | |
Total direct financing lease net interest income | | $ | 4,664 | | | $ | 3,906 | | | $ | 8,970 | | | $ | 7,567 | |
Equipment leasing receivables relate to direct financing leases. The composition of the net investment in direct financing leases was as follows:
| | | | | | | | | | | | | | |
(Dollars in thousands) | | June 30, 2020 | | December 31, 2019 |
Lease receivables | | $ | 241,570 | | | $ | 217,076 | |
Unearned income | | (31,279) | | | (28,446) | |
Deferred fees and costs | | 2,842 | | | 1,962 | |
Net investment in direct financing leases | | $ | 213,133 | | | $ | 190,592 | |
| | | | | | | | | | | | | | |
(Dollars in thousands) | | June 30, 2021 | | December 31, 2020 |
Lease receivables | | $ | 329,718 | | | $ | 281,601 | |
Unearned income | | (43,808) | | | (36,669) | |
Deferred fees and costs | | 5,747 | | | 3,953 | |
Net investment in direct financing leases | | $ | 291,657 | | | $ | 248,885 | |
Future minimum lease payments to be received for direct financing leases were as follows:
| | | | | | | | |
(Dollars in thousands) | | June 30, 2020 |
Remaining in 2020 | | $ | 40,894 | |
2021 | | 72,509 | |
2022 | | 55,897 | |
2023 | | 40,034 | |
2024 | | 24,805 | |
After 2024 | | 7,431 | |
Total lease payments | | $ | 241,570 | |
| (Dollars in thousands) | (Dollars in thousands) | | December 31, 2019 | (Dollars in thousands) | | June 30, 2021 |
2020 | | $ | 71,067 | | |
2021 | | 58,337 | | |
Remaining in 2021 | | Remaining in 2021 | | $ | 53,731 | |
2022 | 2022 | | 42,274 | | 2022 | | 96,910 | |
2023 | 2023 | | 28,628 | | 2023 | | 78,809 | |
2024 | 2024 | | 14,450 | | 2024 | | 56,668 | |
After 2024 | | 2,320 | | |
2025 | | 2025 | | 34,903 | |
After 2025 | | After 2025 | | 8,697 | |
Total lease payments | Total lease payments | | $ | 217,076 | | Total lease payments | | $ | 329,718 | |
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 goodwill 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 six months ended June 30, 2020,2021, 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 fair values of our reporting units are less than their carrying value of goodwill is impaired.values. NaN goodwill impairment exists during the six months ended June 30, 2020.2021.
The following table shows the allocation of goodwill to the reportable operating segments for purposes of goodwill impairment testing:
| (Dollars in thousands) | (Dollars in thousands) | WSFS Bank | | Cash Connect | | Wealth Management | | Consolidated Company | (Dollars in thousands) | WSFS Bank | | Cash Connect | | Wealth Management | | Consolidated Company |
December 31, 2019 | $ | 452,629 | | | $ | — | | | $ | 20,199 | | | $ | 472,828 | | |
December 31, 2020 | | December 31, 2020 | $ | 452,629 | | | $ | 0 | | | $ | 20,199 | | | $ | 472,828 | |
| Goodwill adjustments | Goodwill adjustments | — | | | — | | | — | | | — | | Goodwill adjustments | 0 | | | 0 | | | 0 | | | 0 | |
June 30, 2020 | $ | 452,629 | | | $ | — | | | $ | 20,199 | | | $ | 472,828 | | |
June 30, 2021 | | June 30, 2021 | $ | 452,629 | | | $ | 0 | | | $ | 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) | (Dollars in thousands) | Gross Intangible Assets | | Accumulated Amortization | | Net Intangible Assets | | Amortization Period | (Dollars in thousands) | Gross Intangible Assets | | Accumulated Amortization | | Net Intangible Assets | | Amortization Period |
June 30, 2020 | | | | | | | | |
June 30, 2021 | | June 30, 2021 | | | | | | | |
Core deposits | Core deposits | $ | 95,711 | | | $ | (18,033) | | | $ | 77,678 | | | 10 years | Core deposits | $ | 93,811 | | | $ | (25,469) | | | $ | 68,342 | | | 10 years |
Customer relationships | Customer relationships | 17,561 | | | (8,216) | | | 9,345 | | | 7-15 years | Customer relationships | 15,281 | | | (7,238) | | | 8,043 | | | 7-15 years |
Non-compete agreements | Non-compete agreements | 221 | | | (168) | | | 53 | | | 5 years | Non-compete agreements | 221 | | | (212) | | | 9 | | | 5 years |
Loan servicing rights(1) | Loan servicing rights(1) | 4,605 | | | (1,994) | | | 2,611 | | | 10-25 years | Loan servicing rights(1) | 5,639 | | | (2,910) | | | 2,729 | | | 10-25 years |
Total intangible assets | Total intangible assets | $ | 118,098 | | | $ | (28,411) | | | $ | 89,687 | | | Total intangible assets | $ | 114,952 | | | $ | (35,829) | | | $ | 79,123 | | |
December 31, 2019 | | | | | | | |
December 31, 2020 | | December 31, 2020 | | | | | | |
Core deposits | Core deposits | $ | 95,711 | | | $ | (13,326) | | | $ | 82,385 | | | 10 years | Core deposits | $ | 95,711 | | | $ | (22,727) | | | $ | 72,984 | | | 10 years |
Customer relationships | Customer relationships | 17,561 | | | (7,416) | | | 10,145 | | | 7-15 years | Customer relationships | 15,281 | | | (6,600) | | | 8,681 | | | 7-15 years |
Non-compete agreements | Non-compete agreements | 221 | | | (146) | | | 75 | | | 5 years | Non-compete agreements | 221 | | | (190) | | | 31 | | | 5 years |
Loan servicing rights(2) | Loan servicing rights(2) | 4,880 | | | (1,568) | | | 3,312 | | | 10-25 years | Loan servicing rights(2) | 5,302 | | | (2,440) | | | 2,862 | | | 10-25 years |
Total intangible assets | Total intangible assets | $ | 118,373 | | | $ | (22,456) | | | $ | 95,917 | | | Total intangible assets | $ | 116,515 | | | $ | (31,957) | | | $ | 84,558 | | |
(1)Includes impairment losses of $0.3$0.1 million and $0.4less than $0.1 million for the three and six months ended June 30, 2020, respectively.2021.
(2)Includes impairment losses of $0.5$0.2 million for the year ended December 31, 20192020
The Company recognized amortization expense on intangible assets of $2.7 million and $5.3 million for the three and six months ended June 30, 2021, compared to $2.8 million and $5.5 million for the three and six months ended June 30, 2020, respectively, compared to $2.8 million and $4.1 million for the three and six months ended June 30, 2019, respectively.2020.
The following table presents the estimated future amortization expense on intangible assets:
| | | | | |
(Dollars in thousands) | June 30, 2020 |
Remaining in 2020 | $ | 5,747 | |
2021 | 11,194 | |
2022 | 10,991 | |
2023 | 10,847 | |
2024 | 10,685 | |
Thereafter | 40,223 | |
Total | $ | 89,687 | |
10. DEPOSITS
The following table shows deposits by category:
| | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | | | June 30, 2020 | | December 31, 2019 |
Noninterest-bearing: | | | | | | |
| Noninterest demand | | | $ | 3,188,046 | | | $ | 2,189,573 | |
| | Total noninterest-bearing | | $ | 3,188,046 | | | $ | 2,189,573 | |
| | | | | | |
Interest-bearing: | | | | | | |
| Interest-bearing demand | | | $ | 2,302,484 | | | $ | 2,129,725 | |
| Savings | | | 1,731,875 | | | 1,563,000 | |
| Money market | | | 2,333,326 | | | 2,100,188 | |
| | | | | | |
| Customer time deposits | | | 1,228,440 | | | 1,356,610 | |
| Brokered deposits | | | 278,329 | | | 247,761 | |
| | Total interest-bearing | | 7,874,454 | | | 7,397,284 | |
| | Total deposits | | $ | 11,062,500 | | | $ | 9,586,857 | |
| | | | | |
(Dollars in thousands) | June 30, 2021 |
Remaining in 2021 | $ | 5,647 | |
2022 | 11,132 | |
2023 | 10,980 | |
2024 | 10,800 | |
2025 | 10,544 | |
Thereafter | 30,020 | |
Total | $ | 79,123 | |
10. DEPOSITS
The following table shows deposits by category: | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | June 30, 2021 | | December 31, 2020 |
Noninterest-bearing: | | | | |
| Noninterest demand | | $ | 4,328,060 | | | $ | 3,415,021 | |
| | Total noninterest-bearing | | $ | 4,328,060 | | | $ | 3,415,021 | |
| | | | | | |
Interest-bearing: | | | | |
| Interest-bearing demand | | $ | 2,633,423 | | | $ | 2,635,740 | |
| Savings | | 1,927,627 | | | 1,774,332 | |
| Money market | | 2,722,868 | | | 2,654,439 | |
| | | | | | |
| Customer time deposits | | 1,052,042 | | | 1,158,845 | |
| Brokered deposits | | 62,825 | | | 218,287 | |
| | Total interest-bearing | | 8,398,785 | | | 8,441,643 | |
| | Total deposits | | $ | 12,726,845 | | | $ | 11,856,664 | |
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 began to useuses 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 June 30, | | | Six months ended June 30, | | | Three months ended June 30, | | Six months ended June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (Dollars in thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Service cost | Service cost | | $ | 15 | | | $ | 14 | | | $ | 30 | | | $ | 27 | | Service cost | | $ | 17 | | | $ | 15 | | | $ | 34 | | | $ | 30 | |
Interest cost | Interest cost | | 17 | | | 19 | | | 34 | | | 38 | | Interest cost | | 13 | | | 17 | | | 26 | | | 34 | |
Prior service cost amortization | Prior service cost amortization | | (19) | | | (19) | | | (38) | | | (38) | | Prior service cost amortization | | (19) | | | (19) | | | (38) | | | (38) | |
Net gain recognition | Net gain recognition | | (9) | | | (16) | | | (18) | | | (31) | | Net gain recognition | | (5) | | | (9) | | | (10) | | | (18) | |
Net periodic cost (benefit) | Net periodic cost (benefit) | | $ | 4 | | | $ | (2) | | | $ | 8 | | | $ | (4) | | Net periodic cost (benefit) | | $ | 6 | | | $ | 4 | | | $ | 12 | | | $ | 8 | |
Alliance Associate Pension Plan
During the fourth quarter of 2015, the Company completed the acquisition of Alliance.Alliance Bancorp, Inc. of Pennsylvania (Alliance). At the time of the acquisition, the Company assumed the Alliance pension plan offered to its current Associates. In the first quarter of 2020, the Company received Internal Revenue Service and Pension Benefit Guaranty Corporation approval to terminate the plan. As of June 30, 2020, the Company completed the termination and contributed $0.5 million to the plan to settle the obligation.
The following table presents the components of net periodic benefit cost related to the Alliance Associate Pension Plan.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | Six months ended June 30, | | |
(Dollars in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Service cost | | $ | 7 | | | $ | 10 | | | $ | 17 | | | $ | 20 | |
Interest cost | | 42 | | | 69 | | | 105 | | | 138 | |
Expected return on plan assets | | (79) | | | (148) | | | (196) | | | (295) | |
Prior service cost amortization | | — | | | — | | | — | | | — | |
Net gain recognition | | — | | | — | | | — | | | — | |
Plan settlement loss | | 1,431 | | | $ | — | | | 1,431 | | | $ | — | |
Net periodic cost (benefit) | | $ | 1,401 | | | $ | (69) | | | $ | 1,357 | | | $ | (137) | |
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 There was no net periodic benefit cost during the three and six months ended June 30, 2020.2021.
| | | | | | | | | | | | | | | | | | | | |
| | | | Three months ended | | | Six months ended |
(Dollars in thousands) | | | | June 30, 2020 | | | | June 30, 2020 |
Service cost | | | | $ | 7 | | | | | $ | 17 | |
Interest cost | | | | 42 | | | | | 105 | |
Expected return on plan assets | | | | (79) | | | | | (196) | |
| | | | | | | | |
| | | | | | | | |
Plan settlement loss | | | | 1,431 | | | | | 1,431 | |
Net periodic cost (benefit) | | | | $ | 1,401 | | | | | $ | 1,357 | |
Beneficial Associate Pension and other postretirement benefits plans
On March 1, 2019, the Company closed its acquisition of Beneficial.Beneficial Bancorp, Inc. (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 June 30, 2020 | | | Six months ended June 30, 2020 | | | Three months ended June 30, 2021 | | Six months ended June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits | (Dollars in thousands) | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Service cost | Service cost | | $ | — | | | $ | 29 | | | $ | — | | | $ | 58 | | Service cost | | $ | 0 | | | $ | 15 | | | $ | 0 | | | $ | 29 | |
Interest cost | Interest cost | | 740 | | | 138 | | | 1,455 | | | 275 | | Interest cost | | 530 | | | 77 | | | 1,060 | | | 154 | |
Expected return on plan assets | Expected return on plan assets | | (1,588) | | | — | | | (3,182) | | | — | | Expected return on plan assets | | (1,705) | | | 0 | | | (3,410) | | | 0 | |
Prior service cost amortization | Prior service cost amortization | | — | | | — | | | — | | | — | | Prior service cost amortization | | 0 | | | (3) | | | 0 | | | (6) | |
Net loss (gain) recognition | Net loss (gain) recognition | | 1 | | | (16) | | | 2 | | | (32) | | Net loss (gain) recognition | | 7 | | | 0 | | | 13 | | | 0 | |
Net periodic (benefit) cost | Net periodic (benefit) cost | | $ | (847) | | | $ | 151 | | | $ | (1,725) | | | $ | 301 | | Net periodic (benefit) cost | | $ | (1,168) | | | $ | 89 | | | $ | (2,337) | | | $ | 177 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2019 | | | | Six months ended June 30, 2019 | | |
(Dollars in thousands) | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Service cost | | $ | — | | | $ | 23 | | | $ | — | | | $ | 30 | |
Interest cost | | 857 | | | 177 | | | 1,142 | | | 236 | |
Expected return on plan assets | | (1,442) | | | — | | | (1,923) | | | — | |
Prior service cost amortization | | — | | | — | | | — | | | — | |
Net loss (gain) recognition | | — | | | — | | | — | | | — | |
Net periodic (benefit) cost | | $ | (585) | | | $ | 200 | | | $ | (781) | | | $ | 266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2020 | | Six months ended June 30, 2020 |
(Dollars in thousands) | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Service cost | | $ | 0 | | | $ | 29 | | | $ | 0 | | | $ | 58 | |
Interest cost | | 740 | | | 138 | | | 1,455 | | | 275 | |
Expected return on plan assets | | (1,588) | | | 0 | | | (3,182) | | | 0 | |
| | | | | | | | |
Net (gain) loss recognition | | 1 | | | (16) | | | 2 | | | (32) | |
Net periodic (benefit) cost | | $ | (847) | | | $ | 151 | | | $ | (1,725) | | | $ | 301 | |
12. INCOME TAXES
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (ASC 740). ASC 740 requires the recording of deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The company exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities. The judgments and estimates required for the evaluation are updated based on changes in business factors and tax laws. If actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized, there can be no assurance that additional expenses will not be required in future periods.
ASC 740 prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the financial statements. Assessment of uncertain tax positions under ASC 740 requires careful consideration of the technical merits of a position based on an analysis of tax regulations and interpretations.
There were 0 unrecognized tax benefits as of June 30, 2020.2021. 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 20162017 through 20192020 tax years are subject to examination as of June 30, 2020.2021. The Company does not expect to record or realize any material unrecognized tax benefits during 2020.2021.
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 provision for credit lossesimpact has been reflected as an income tax credit and deferred tax asset on the Company's Consolidated Statements of Financial Condition.
As a result
Section 2303(b) of the CARES 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 March 31, 2020, the Company has revalued the benefit from its NOLs to reflect a 35% tax rate, which resulted in the recognition of an additional $1.8$1.7 million income tax benefit and deferred tax asset was recognized on the Company's Consolidated Statements of Financial Condition. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" for details.
As a result of the adoption of ASU No. 2014-01,
Investments-Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects, the
The amortization of the low-income housing credit investments has been reflected as income tax expense. Accordingly,expense of $0.9 million and $0.8 million and $0.6 million of such amortization has been reflected as income tax expense for the three months ended June 30, 20202021 and 2019,2020, respectively, and $1.6$1.8 million and $1.3$1.6 million of such amortization has been reflected as income tax expense for the six months ended June 30, 2021 and 2020, and 2019, respectively.
The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the six months ended June 30, 20202021 were $1.4$1.8 million, $1.6$1.8 million and $0.4$0.3 million, respectively. The carrying value of the investment in affordable housing credits is $28.2$24.8 million at June 30, 2020,2021, compared to $25.8$26.6 million at December 31, 2019.
2020.
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.
The following tables present financial instruments carried at fair value as of June 30, 20202021 and December 31, 20192020 by level in the valuation hierarchy (as described above):
| | | June 30, 2020 | | | June 30, 2021 |
(Dollars in thousands) | (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 | (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: | Assets measured at fair value on a recurring basis: | | | | | | | | | Assets measured at fair value on a recurring basis: | | | | | | | | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
CMO | CMO | | $ | — | | | $ | 355,821 | | | $ | — | | | $ | 355,821 | | CMO | | $ | 0 | | | $ | 618,419 | | | $ | 0 | | | $ | 618,419 | |
FNMA MBS | FNMA MBS | | — | | | 1,394,035 | | | — | | | 1,394,035 | | FNMA MBS | | 0 | | | 2,329,787 | | | 0 | | | 2,329,787 | |
FHLMC MBS | FHLMC MBS | | — | | | 297,547 | | | — | | | 297,547 | | FHLMC MBS | | 0 | | | 171,998 | | | 0 | | | 171,998 | |
GNMA MBS | GNMA MBS | | — | | | 30,824 | | | — | | | 30,824 | | GNMA MBS | | 0 | | | 22,402 | | | 0 | | | 22,402 | |
GSE | | — | | | 117,162 | | | — | | | 117,162 | | |
GSE agency notes | | GSE agency notes | | 0 | | | 223,973 | | | 0 | | | 223,973 | |
| Other assets | Other assets | | — | | | 15,243 | | | — | | | 15,243 | | Other assets | | 0 | | | 8,606 | | | 0 | | | 8,606 | |
Total assets measured at fair value on a recurring basis | Total assets measured at fair value on a recurring basis | | $ | — | | | $ | 2,210,632 | | | $ | — | | | $ | 2,210,632 | | Total assets measured at fair value on a recurring basis | | $ | 0 | | | $ | 3,375,185 | | | $ | 0 | | | $ | 3,375,185 | |
| Liabilities measured at fair value on a recurring basis: | Liabilities measured at fair value on a recurring basis: | | Liabilities measured at fair value on a recurring basis: | |
Other liabilities | Other liabilities | | $ | — | | | $ | 9,017 | | | $ | 25,205 | | | $ | 34,222 | | Other liabilities | | $ | 0 | | | $ | 4,464 | | | $ | 22,145 | | | $ | 26,609 | |
| Assets measured at fair value on a nonrecurring basis: | Assets measured at fair value on a nonrecurring basis: | | Assets measured at fair value on a nonrecurring basis: | |
Other investments | Other investments | | $ | — | | | $ | — | | | $ | 10,211 | | | $ | 10,211 | | Other investments | | $ | 5,604 | | | $ | 0 | | | $ | 10,044 | | | $ | 15,648 | |
Other real estate owned | Other real estate owned | | — | | | — | | | 4,153 | | | 4,153 | | Other real estate owned | | 0 | | | 0 | | | 1,044 | | | 1,044 | |
Loans held for sale | Loans held for sale | | — | | | 109,453 | | | — | | | 109,453 | | Loans held for sale | | 0 | | | 113,173 | | | 0 | | | 113,173 | |
| Total assets measured at fair value on a nonrecurring basis | Total assets measured at fair value on a nonrecurring basis | | $ | — | | | $ | 109,453 | | | $ | 14,364 | | | $ | 123,817 | | Total assets measured at fair value on a nonrecurring basis | | $ | 5,604 | | | $ | 113,173 | | | $ | 11,088 | | | $ | 129,865 | |
| | | December 31, 2019 | | | December 31, 2020 |
(Dollars in thousands) | (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 | (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: | Assets measured at fair value on a recurring basis: | | Assets measured at fair value on a recurring basis: | |
Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
CMO | CMO | | $ | — | | | $ | 340,230 | | | $ | — | | | $ | 340,230 | | CMO | | $ | 0 | | | $ | 471,325 | | | $ | 0 | | | $ | 471,325 | |
FNMA MBS | FNMA MBS | | — | | | 1,242,453 | | | — | | | 1,242,453 | | FNMA MBS | | 0 | | | 1,598,970 | | | 0 | | | 1,598,970 | |
FHLMC MBS | FHLMC MBS | | — | | | 328,946 | | | — | | | 328,946 | | FHLMC MBS | | 0 | | | 202,893 | | | 0 | | | 202,893 | |
GNMA MBS | GNMA MBS | | — | | | 33,285 | | | — | | | 33,285 | | GNMA MBS | | 0 | | | 23,762 | | | 0 | | | 23,762 | |
| GSE agency notes | | GSE agency notes | | 0 | | | 232,107 | | | 0 | | | 232,107 | |
| Other assets | Other assets | | — | | | 4,884 | | | — | | | 4,884 | | Other assets | | 0 | | | 14,448 | | | 0 | | | 14,448 | |
Total assets measured at fair value on a recurring basis | Total assets measured at fair value on a recurring basis | | $ | — | | | $ | 1,949,798 | | | $ | — | | | $ | 1,949,798 | | Total assets measured at fair value on a recurring basis | | $ | 0 | | | $ | 2,543,505 | | | $ | 0 | | | $ | 2,543,505 | |
| Liabilities measured at fair value on a recurring basis: | Liabilities measured at fair value on a recurring basis: | | Liabilities measured at fair value on a recurring basis: | |
Other liabilities | Other liabilities | | $ | — | | | $ | 3,918 | | | $ | — | | | $ | 3,918 | | Other liabilities | | $ | 0 | | | $ | 8,218 | | | $ | 24,039 | | | $ | 32,257 | |
| Assets measured at fair value on a nonrecurring basis | Assets measured at fair value on a nonrecurring basis | | Assets measured at fair value on a nonrecurring basis | |
Other investments | Other investments | | $ | — | | | $ | — | | | $ | 70,046 | | | $ | 70,046 | | Other investments | | $ | 0 | | | $ | 0 | | | $ | 9,541 | | | $ | 9,541 | |
Other real estate owned | Other real estate owned | | — | | | — | | | 2,605 | | | 2,605 | | Other real estate owned | | 0 | | | 0 | | | 3,061 | | | 3,061 | |
Loans held for sale | Loans held for sale | | — | | | 83,872 | | | — | | | 83,872 | | Loans held for sale | | 0 | | | 197,541 | | | 0 | | | 197,541 | |
| Total assets measured at fair value on a nonrecurring basis | Total assets measured at fair value on a nonrecurring basis | | $ | — | | | $ | 83,872 | | | $ | 72,651 | | | $ | 156,523 | | Total assets measured at fair value on a nonrecurring basis | | $ | 0 | | | $ | 197,541 | | | $ | 12,602 | | | $ | 210,143 | |
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 federal agency MBSGSEs and GNMA 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 with and without readily determinable fair values and equity method investments, which are categorized as Level 1 and Level 3. The Company's equity investments with a readily determinable fair value are held at fair value. 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.period and its equity method investments are initially recorded at cost based on the Company’s percentage ownership in the investee, and are adjusted to reflect the recognition of the Company’s proportionate share of income or loss of the investee based on the investee’s earnings.
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, derivatives on the residential mortgage held for sale loan pipeline and derivative related to the sale of certain Visa Class B common shares. 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. 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.
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, and restricted cash
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 with and 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).segments. 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 swapsproducts and derivatives on the residential mortgage held for sale loan pipeline. Valuationpipeline (see discussion in “Fair Value of interest rate swaps is obtained from an independent pricing serviceFinancial Assets 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 saleLiabilities” section above).
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.
Other liabilities
Other liabilities include the fair value of interest rate swaps, risk participation agreements and derivatives on the residential mortgage held for sale loan pipeline. Valuation of interest rate swaps and risk participation agreements 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.
Off-balance sheet instruments
The fair value of off-balance sheet instruments, including swap guarantees of $13.0 million at June 30, 2021 and $12.8 million at December 31, 2020, respectively, and standby letters of credit, approximates the recorded net deferred fee amounts, which are not significant.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. In determining the fair value of the swap guarantees, the Company assesses the underlying credit risk exposure for each borrower in a paying position to the third-party financial institution.
Accrued interest payable
The carrying amounts of interest payable approximate fair value.
Other liabilities
Other liabilities include the fair value of interest rate products, 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
June 30, 2020 | | | | | | | | |
Financial Instrument | | Fair Value | | Valuation Technique(s) | | Unobservable Input | | Range (Weighted Average) |
Other investments | | $ | 10,211 | | | Observed market comparable transactions | | Period of observed transactions | | May 2020 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other real estate owned | | $ | 4,153 | | | Fair market value of collateral | | Costs to sell | | 5.0% - 12.0% (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) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
June 30, 2021 |
Financial Instrument | | Fair Value | | Valuation Technique(s) | | Unobservable Input | | Range (Weighted Average) |
Other investments | | $ | 15,648 | | | Observed market comparable transactions | | Period of observed transactions | | May 2021 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other real estate owned | | 1,044 | | | Fair market value of collateral | | Costs to sell | | 10.0% |
| | | | | | | | |
Other liabilities | | 22,145 | | | Discounted cash flow | | Timing of Visa litigation resolution | | 2.25 - 7.25 years (5.00 years or 4Q 2025) |
| | | | | | | | |
| | | | | | | | |
The book value and estimated fair value of the Company's financial instruments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | | Fair Value Measurement | | Book Value | | Fair Value | | Book Value | | Fair Value |
Financial assets: | | | | | | | | | | |
Cash, cash equivalents, and restricted cash | | Level 1 | | $ | 2,421,113 | | | $ | 2,421,113 | | | $ | 1,654,735 | | | $ | 1,654,735 | |
Investment securities available-for-sale | | Level 2 | | 3,366,579 | | | 3,366,579 | | | 2,529,057 | | | 2,529,057 | |
Investment securities held-to-maturity, net | | Level 2 | | 95,126 | | | 99,266 | | | 111,741 | | | 116,421 | |
Other investments | | Levels 1, 3 | | 15,648 | | | 15,648 | | | 9,541 | | | 9,541 | |
Loans, held for sale | | Level 2 | | 113,173 | | | 113,173 | | | 197,541 | | | 197,541 | |
Loans and leases, net(1) | | Level 3 | | 8,131,846 | | | 8,208,084 | | | 8,795,935 | | | 9,130,003 | |
| | | | | | | | | | |
Stock in FHLB of Pittsburgh | | Level 2 | | 6,090 | | | 6,090 | | | 5,771 | | | 5,771 | |
Accrued interest receivable | | Level 2 | | 40,275 | | | 40,275 | | | 44,335 | | | 44,335 | |
Other assets | | Level 2 | | 8,606 | | | 8,606 | | | 14,448 | | | 14,448 | |
Financial liabilities: | | | | | | | | | | |
Deposits | | Level 2 | | 12,726,845 | | | 12,734,333 | | | 11,856,664 | | | 11,868,897 | |
Borrowed funds | | Level 2 | | 236,470 | | | 224,106 | | | 340,641 | | | 340,106 | |
Standby letters of credit | | Level 3 | | 586 | | | 586 | | | 630 | | | 630 | |
Accrued interest payable | | Level 2 | | 1,977 | | | 1,977 | | | 1,450 | | | 1,450 | |
Other liabilities | | Levels 2, 3 | | 26,609 | | | 26,609 | | | 32,257 | | | 32,257 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2020 | | | | December 31, 2019 | | |
(Dollars in thousands) | | Fair Value Measurement | | Book Value | | Fair Value | | Book Value | | Fair Value |
Financial assets: | | | | | | | | | | |
Cash and cash equivalents | | Level 1 | | $ | 955,767 | | | $ | 955,767 | | | $ | 571,752 | | | $ | 571,752 | |
Investment securities available-for-sale | | Level 2 | | 2,195,389 | | | 2,195,389 | | | 1,944,914 | | | 1,944,914 | |
Investment securities held-to-maturity, net | | Level 2 | | 127,601 | | | 132,198 | | | 133,601 | | | 136,625 | |
Other investments | | Level 3 | | 10,211 | | | 10,211 | | | 70,046 | | | 70,046 | |
Loans, held for sale | | Level 2 | | 109,453 | | | 109,453 | | | 83,872 | | | 83,872 | |
Loans, net(1) | | Level 3 | | 9,120,288 | | | 9,386,635 | | | 8,424,464 | | | 8,580,015 | |
| | | | | | | | | | |
Stock in FHLB of Pittsburgh | | Level 2 | | 9,772 | | | 9,772 | | | 21,097 | | | 21,097 | |
Accrued interest receivable | | Level 2 | | 53,222 | | | 53,222 | | | 38,094 | | | 38,094 | |
Other assets | | Level 2 | | 15,243 | | | 15,243 | | | 4,884 | | | 4,884 | |
Financial liabilities: | | | | | | | | | | |
Deposits | | Level 2 | | 11,062,500 | | | 11,052,211 | | | 9,586,857 | | | 9,575,394 | |
Borrowed funds | | Level 2 | | 295,793 | | | 313,839 | | | 489,288 | | | 489,561 | |
Standby letters of credit | | Level 3 | | 416 | | | 416 | | | 623 | | | 623 | |
Accrued interest payable | | Level 2 | | 6,049 | | | 6,049 | | | 3,103 | | | 3,103 | |
Other liabilities | | Levels 2, 3 | | 34,222 | | | 34,222 | | | 3,918 | | | 3,918 | |
(1) Includes reverse mortgage loans.
At June 30, 20202021 and December 31, 20192020 the Company had 0 commitments to extend credit measured at fair value.
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 June 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 | | | | $ | 65,626 | | | Other assets | | $ | 6,579 | |
Interest rate products | | | | 65,626 | | | Other liabilities | | (7,404) | |
Risk participation agreements | | | | 4,449 | | | Other liabilities | | (14) | |
Interest rate lock commitments with customers | | | | 287,204 | | | Other assets | | 8,218 | |
Interest rate lock commitments with customers | | | | 20,260 | | | Other liabilities | | (132) | |
Forward sale commitments | | | | 44,840 | | | Other assets | | 446 | |
Forward sale commitments | | | | 232,570 | | | Other liabilities | | (1,467) | |
Financial derivatives related to sales of certain Visa Class B shares | | | | 113,177 | | | Other liabilities | | (25,205) | |
Total derivatives | | | | $ | 833,752 | | | | | $ | (18,979) | |
2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
(Dollars in thousands) | | | | Notional | | Balance Sheet Location | | Derivatives (Fair Value) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Interest rate products | | | | $ | 57,781 | | | Other assets | | $ | 3,754 | |
Interest rate products | | | | 57,781 | | | Other liabilities | | (4,034) | |
Risk participation agreements | | | | 4,293 | | | Other liabilities | | (5) | |
Interest rate lock commitments with customers | | | | 182,616 | | | Other assets | | 4,342 | |
Interest rate lock commitments with customers | | | | 10,406 | | | Other liabilities | | (202) | |
Forward sale commitments | | | | 85,611 | | | Other assets | | 510 | |
Forward sale commitments | | | | 82,268 | | | Other liabilities | | (223) | |
Financial derivatives related to sales of certain Visa Class B shares | | | | 113,177 | | | Other liabilities | | (22,145) | |
Total derivatives | | | | $ | 593,933 | | | | | $ | (18,003) | |
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, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
(Dollars in thousands) | | | | Notional | | Balance Sheet Location | | Derivatives (Fair Value) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Interest rate products | | | | $ | 61,326 | | | Other assets | | $ | 5,369 | |
Interest rate products | | | | 61,326 | | | Other liabilities | | (5,851) | |
Risk participation agreements | | | | 4,372 | | | Other liabilities | | (10) | |
Interest rate lock commitments with customers | | | | 244,037 | | | Other assets | | 8,496 | |
Interest rate lock commitments with customers | | | | 8,413 | | | Other liabilities | | (117) | |
Forward sale commitments | | | | 50,705 | | | Other assets | | 583 | |
Forward sale commitments | | | | 258,186 | | | Other liabilities | | (2,240) | |
Financial derivatives related to sales of certain Visa Class B shares | | | | 113,177 | | | Other liabilities | | (24,039) | |
Total derivatives | | | | $ | 801,542 | | | | | $ | (17,809) | |
Derivatives Designated as Hedging Instruments:
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,these objectives, 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 six months ended June 30,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 three3 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 wasmillion, recognized in accumulated other comprehensive income (loss). Once a cash flow hedge isHedge accounting was discontinued, and 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$0.3 million will be reclassified as an increase to interest income. During the three and six months ended June 30, 2020,2021, $0.1 million and $0.3 million, respectively, was reclassified into interest income for both periods.
income.
The table below presents the effect of the derivative financial instrumentscash flow hedges on the unaudited Consolidated Statements of Income for the three and six months ended June 30, 2020 and June 30, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of (Loss) or Gain Recognized in OCI on Derivative (Effective Portion) | | | | Amount of (Loss) or Gain Recognized in OCI on Derivative (Effective Portion) | | | | Location of (Loss) or Gain Reclassified from Accumulated OCI into Income (Effective Portion) |
(Dollars in thousands) | | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | |
Derivatives in Cash Flow Hedging Relationships | | 2020 | | 2019 | | 2020 | | 2019 | | |
Interest Rate Products | | $ | (25) | | | $ | 1,007 | | | $ | 1,560 | | | $ | 1,637 | | | Interest income |
Total | | $ | (25) | | | $ | 1,007 | | | $ | 1,560 | | | $ | 1,637 | | | |
| | | | | | | | | | |
| | 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 June 30, | | | | Six Months Ended June 30, | | | | |
Derivatives Not Designated as a Hedging Instrument | | 2020 | | 2019 | | 2020 | | 2019 | | |
Interest Rate Lock Commitments | | $ | 3,178 | | | $ | 542 | | | $ | 6,227 | | | $ | 1,174 | | | Mortgage banking activities, net |
Forward Sale Commitments | | (2,439) | | | (487) | | | (6,484) | | | $ | (721) | | | Mortgage banking activities, net |
Total | | $ | 739 | | | $ | 55 | | | $ | (257) | | | $ | 453 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 June 30, | | | | Six Months Ended June 30, | | |
Derivatives in cash flow hedging relationships | | | | 2020 | | | | 2020 | | |
Interest rate products | | | | $ | (25) | | | | | $ | 1,560 | | | Interest income |
Total | | | | $ | (25) | | | | | $ | 1,560 | | | |
Derivatives Not Designated as Hedging Instruments:
Back-to-Back Swap Transactions
The Company has minimum collateral posting thresholdsentered into agreements with certain of its derivative counterparties, and has posted collateral of $9.0 million against its obligations under these agreements. Iftwo unrelated financial institutions whereby the Company had breached any of these provisions at June 30, 2020, it could have been required to settle its obligations under the agreements at the termination value.
15. SEGMENT INFORMATION
As defined in ASC 280, Segment Reporting (ASC 280),enters into 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 3 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.
The following tables show segment results for the three and six months ended June 30, 2020 and 2019:
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| | Three Months Ended June 30, 2020 | | | | | | | | Three Months Ended June 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 | | $ | 123,710 | | | $ | — | | | $ | 2,173 | | | $ | 125,883 | | | $ | 140,231 | | | $ | — | | | $ | 2,672 | | | $ | 142,903 | |
Noninterest income | | 44,304 | | | 9,008 | | | 11,063 | | | 64,375 | | | 18,870 | | | 13,355 | | | 10,646 | | | 42,871 | |
Total external customer revenues | | 168,014 | | | 9,008 | | | 13,236 | | | 190,258 | | | 159,101 | | | 13,355 | | | 13,318 | | | 185,774 | |
Inter-segment revenues: | | | | | | | | | | | | | | | | |
Interest income | | 937 | | | 237 | | | 2,442 | | | 3,616 | | | 3,345 | | | — | | | 4,052 | | | 7,397 | |
Noninterest income | | 3,542 | | | 188 | | | 347 | | | 4,077 | | | 2,156 | | | 192 | | | 211 | | | 2,559 | |
Total inter-segment revenues | | 4,479 | | | 425 | | | 2,789 | | | 7,693 | | | 5,501 | | | 192 | | | 4,263 | | | 9,956 | |
Total revenue | | 172,493 | | | 9,433 | | | 16,025 | | | 197,951 | | | 164,602 | | | 13,547 | | | 17,581 | | | 195,730 | |
External customer expenses: | | | | | | | | | | | | | | | | |
Interest expense | | 11,659 | | | — | | | 468 | | | 12,127 | | | 18,282 | | | — | | | 1,389 | | | 19,671 | |
Noninterest expenses | | 79,789 | | | 6,413 | | | 7,233 | | | 93,435 | | | 91,415 | | | 8,893 | | | 7,540 | | | 107,848 | |
Provision for credit losses | | 93,819 | | | — | | | 935 | | | 94,754 | | | 12,239 | | | — | | | (44) | | | 12,195 | |
Total external customer expenses | | 185,267 | | | 6,413 | | | 8,636 | | | 200,316 | | | 121,936 | | | 8,893 | | | 8,885 | | | 139,714 | |
Inter-segment expenses: | | | | | | | | | | | | | | | | |
Interest expense | | 2,679 | | | 131 | | | 806 | | | 3,616 | | | 4,052 | | | 2,203 | | | 1,142 | | | 7,397 | |
Noninterest expenses | | 535 | | | 899 | | | 2,643 | | | 4,077 | | | 403 | | | 698 | | | 1,458 | | | 2,559 | |
Total inter-segment expenses | | 3,214 | | | 1,030 | | | 3,449 | | | 7,693 | | | 4,455 | | | 2,901 | | | 2,600 | | | 9,956 | |
Total expenses | | 188,481 | | | 7,443 | | | 12,085 | | | 208,009 | | | 126,391 | | | 11,794 | | | 11,485 | | | 149,670 | |
(Loss) income before taxes | | $ | (15,988) | | | $ | 1,990 | | | $ | 3,940 | | | $ | (10,058) | | | $ | 38,211 | | | $ | 1,753 | | | $ | 6,096 | | | $ | 46,060 | |
Income tax (benefit) provision | | | | | | | | (2,247) | | | | | | | | | 10,091 | |
Consolidated net (loss) income | | | | | | | | (7,811) | | | | | | | | | 35,969 | |
Net loss attributable to noncontrolling interest | | | | | | | | (700) | | | | | | | | | (231) | |
Net (loss) income attributable to WSFS | | | | | | | | (7,111) | | | | | | | | | 36,200 | |
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| | Six Months Ended June 30, 2020 | | | | | | | | Six Months Ended June 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 | | $ | 255,019 | | | $ | — | | | $ | 4,719 | | | $ | 259,738 | | | $ | 237,177 | | | $ | — | | | $ | 5,303 | | | $ | 242,480 | |
Noninterest income | | 62,376 | | | 20,687 | | | 22,159 | | | 105,222 | | | 36,134 | | | 25,757 | | | 22,102 | | | 83,993 | |
Total external customer revenues | | 317,395 | | | 20,687 | | | 26,878 | | | 364,960 | | | 273,311 | | | 25,757 | | | 27,405 | | | 326,473 | |
Inter-segment revenues: | | | | | | | | | | | | | | | | |
Interest income | | 2,880 | | | 237 | | | 5,291 | | | 8,408 | | | 7,137 | | | — | | | 8,057 | | | 15,194 | |
Noninterest income | | 6,449 | | | 417 | | | 520 | | | 7,386 | | | 4,039 | | | 369 | | | 397 | | | 4,805 | |
Total inter-segment revenues | | 9,329 | | | 654 | | | 5,811 | | | 15,794 | | | 11,176 | | | 369 | | | 8,454 | | | 19,999 | |
Total revenue | | 326,724 | | | 21,341 | | | 32,689 | | | 380,754 | | | 284,487 | | | 26,126 | | | 35,859 | | | 346,472 | |
External customer expenses: | | | | | | | | | | | | | | | | |
Interest expense | | 28,406 | | | — | | | 1,426 | | | 29,832 | | | 33,418 | | | — | | | 2,516 | | | 35,934 | |
Noninterest expenses | | 152,874 | | | 14,636 | | | 14,421 | | | 181,931 | | | 173,992 | | | 16,923 | | | 14,525 | | | 205,440 | |
Provision for credit losses | | 148,853 | | | — | | | 2,547 | | | 151,400 | | | 19,525 | | | — | | | 324 | | | 19,849 | |
Total external customer expenses | | 330,133 | | | 14,636 | | | 18,394 | | | 363,163 | | | 226,935 | | | 16,923 | | | 17,365 | | | 261,223 | |
Inter-segment expenses: | | | | | | | | | | | | | | | | |
Interest expense | | 5,528 | | | 1,085 | | | 1,795 | | | 8,408 | | | 8,057 | | | 4,761 | | | 2,376 | | | 15,194 | |
Noninterest expenses | | 937 | | | 1,640 | | | 4,809 | | | 7,386 | | | 766 | | | 1,243 | | | 2,796 | | | 4,805 | |
Total inter-segment expenses | | 6,465 | | | 2,725 | | | 6,604 | | | 15,794 | | | 8,823 | | | 6,004 | | | 5,172 | | | 19,999 | |
Total expenses | | 336,598 | | | 17,361 | | | 24,998 | | | 378,957 | | | 235,758 | | | 22,927 | | | 22,537 | | | 281,222 | |
(Loss) income before taxes | | $ | (9,874) | | | $ | 3,980 | | | $ | 7,691 | | | $ | 1,797 | | | $ | 48,729 | | | $ | 3,199 | | | $ | 13,322 | | | $ | 65,250 | |
Income (benefit) tax provision | | | | | | | | (959) | | | | | | | | | 16,351 | |
Consolidated net income | | | | | | | | 2,756 | | | | | | | | | 48,899 | |
Net loss attributable to noncontrolling interest | | | | | | | | (1,060) | | | | | | | | | (324) | |
Net income attributable to WSFS | | | | | | | | 3,816 | | | | | | | | | 49,223 | |
The following table shows significant components of segment net assets as of June 30, 2020 and December 31, 2019:
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| | June 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 | | $ | 591,518 | | | $ | 356,785 | | | $ | 7,464 | | | $ | 955,767 | | | $ | 202,792 | | | $ | 357,494 | | | $ | 11,466 | | | $ | 571,752 | |
Goodwill | | 452,629 | | | — | | | 20,199 | | | 472,828 | | | 452,629 | | | — | | | 20,199 | | | 472,828 | |
Other segment assets | | 11,914,250 | | | 5,171 | | | 225,341 | | | 12,144,762 | | | 10,982,681 | | | 6,555 | | | 222,486 | | | 11,211,722 | |
Total segment assets | | $ | 12,958,397 | | | $ | 361,956 | | | $ | 253,004 | | | $ | 13,573,357 | | | $ | 11,638,102 | | | $ | 364,049 | | | $ | 254,151 | | | $ | 12,256,302 | |
Capital expenditures for the period ended | | $ | 2,437 | | | $ | 256 | | | $ | 137 | | | $ | 2,830 | | | $ | 11,806 | | | $ | 2,120 | | | $ | 272 | | | $ | 14,198 | |
16. COMMITMENTS AND CONTINGENCIES
Secondary Market Loan Sales
Given the current interest rate environmentswap transaction with the customer and the Company's overall asset and liability management approach, the Company typically sells newly originated residential mortgage loans in the secondary marketoffsets that transaction with another counterparty. Derivative financial instruments related to mortgage loan aggregators and on a more limited basis, to government sponsored entities (GSEs) such as FHLMC, FNMA, and the FHLB. Loans held for saleback-to-back swaps are reflected on the unaudited Consolidated Statements of Financial Conditionrecorded 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 fornot designated as derivatives under ASC 815, Derivatives and Hedging (ASC 815).accounting hedges.
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 0 provision is made for losses at the time of sale. There were 0 repurchases during the six months ended June 30, 2020 as compared to 1 repurchase for $0.2 million during the six months ended June 30, 2019.
Swap Guarantees
The Company entered into agreements with 4 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 June 30, 20202021 and December 31, 2019,2020, there were 213248 and 172234 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 both June 30, 2020 compared to $941.0 million at2021 and December 31, 2019.2020. At June 30, 2020,2021, the swap transactions remaining maturities ranged from under 1 year to 1514 years. The aggregate net market value of these swaps to the customers was a liability of $91.7 million at June 30, 2020 and a liability of $26.4 million at December 31, 2019. At June 30, 2020, 2112021, 206 of these customer swaps with a liability of $93.0 million, were in a paying positionsposition to third parties for $50.2 million, with our swap guarantees having a fair value of $13.0 million. At December 31, 2020, 231 of these customer swaps were in a paying position to third party; however,parties for $81.6 million, with the Company's swap guarantees having a fair value of $12.8 million. However, for both periods, none of the Company's customers were in default of the swap agreements. There were no payments made by
Derivative Financial Instruments from Mortgage Banking Activities
Derivative financial instruments related to mortgage banking activities are recorded at fair value and are not designated as accounting hedges. This includes commitments to originate certain fixed-rate residential mortgage loans to customers, also referred to as interest rate lock commitments. The Company may also enter into forward sale commitments to sell loans to investors at a fixed price at a future date and trade asset-backed securities to mitigate interest rate risk.
The table below presents the Company undereffect of the agreementsderivative financial instruments on the unaudited Consolidated Statements of Income for the three and six months ended June 30, 20202021 and June 30, 2019.2020.
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| | Amount of (Loss) or Gain Recognized in Income | | Amount of (Loss) Recognized in Income | | Location of Gain or (Loss) Recognized in Income |
(Dollars in thousands) | | Three Months Ended June 30, | | Six Months Ended June 30, | | |
Derivatives not designated as hedging instruments | | 2021 | | 2020 | | 2021 | | 2020 | | |
Interest rate lock commitments with customers | | $ | (823) | | | $ | 3,178 | | | $ | (4,087) | | | $ | 6,227 | | | Mortgage banking activities, net |
Forward sale commitments | | (2,742) | | | (2,439) | | | 3,382 | | | $ | (6,484) | | | Mortgage banking activities, net |
Total | | $ | (3,565) | | | $ | 739 | | | $ | (705) | | | $ | (257) | | | |
Credit-risk-related Contingent Features
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 has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $6.5 million in securities and $6.1 million in cash against its obligations under these agreements. If the Company had breached any of these provisions at June 30, 2021, it could have been required to settle its obligations under the agreements at the termination value.
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 3 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.
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 trust division of WSFS, comprised of WSFS Institutional Services® and Christiana Trust DE, provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional and corporate clients. Christiana Trust DE also 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.
The following tables show segment results for the three and six months ended June 30, 2021 and 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2020 |
(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 | | $ | 110,725 | | | $ | 0 | | | $ | 2,177 | | | $ | 112,902 | | | $ | 123,710 | | | $ | 0 | | | $ | 2,173 | | | $ | 125,883 | |
Noninterest income | | 22,282 | | | 11,213 | | | 15,523 | | | 49,018 | | | 44,304 | | | 9,008 | | | 11,063 | | | 64,375 | |
Total external customer revenues | | 133,007 | | | 11,213 | | | 17,700 | | | 161,920 | | | 168,014 | | | 9,008 | | | 13,236 | | | 190,258 | |
Inter-segment revenues: | | | | | | | | | | | | | | | | |
Interest income | | 842 | | | 328 | | | 3,031 | | | 4,201 | | | 937 | | | 237 | | | 2,442 | | | 3,616 | |
Noninterest income | | 3,790 | | | 316 | | | 515 | | | 4,621 | | | 3,542 | | | 188 | | | 347 | | | 4,077 | |
Total inter-segment revenues | | 4,632 | | | 644 | | | 3,546 | | | 8,822 | | | 4,479 | | | 425 | | | 2,789 | | | 7,693 | |
Total revenue | | 137,639 | | | 11,857 | | | 21,246 | | | 170,742 | | | 172,493 | | | 9,433 | | | 16,025 | | | 197,951 | |
External customer expenses: | | | | | | | | | | | | | | | | |
Interest expense | | 5,983 | | | 0 | | | 170 | | | 6,153 | | | 11,659 | | | 0 | | | 468 | | | 12,127 | |
Noninterest expenses | | 80,480 | | | 7,288 | | | 8,264 | | | 96,032 | | | 79,789 | | | 6,413 | | | 7,233 | | | 93,435 | |
(Recovery of) provision for credit losses | | (66,385) | | | 0 | | | (1,178) | | | (67,563) | | | 93,819 | | | 0 | | | 935 | | | 94,754 | |
Total external customer expenses | | 20,078 | | | 7,288 | | | 7,256 | | | 34,622 | | | 185,267 | | | 6,413 | | | 8,636 | | | 200,316 | |
Inter-segment expenses: | | | | | | | | | | | | | | | | |
Interest expense | | 3,359 | | | 207 | | | 635 | | | 4,201 | | | 2,679 | | | 131 | | | 806 | | | 3,616 | |
Noninterest expenses | | 831 | | | 1,104 | | | 2,686 | | | 4,621 | | | 535 | | | 899 | | | 2,643 | | | 4,077 | |
Total inter-segment expenses | | 4,190 | | | 1,311 | | | 3,321 | | | 8,822 | | | 3,214 | | | 1,030 | | | 3,449 | | | 7,693 | |
Total expenses | | 24,268 | | | 8,599 | | | 10,577 | | | 43,444 | | | 188,481 | | | 7,443 | | | 12,085 | | | 208,009 | |
Income (loss) before taxes | | $ | 113,371 | | | $ | 3,258 | | | $ | 10,669 | | | $ | 127,298 | | | $ | (15,988) | | | $ | 1,990 | | | $ | 3,940 | | | $ | (10,058) | |
Income tax provision (benefit) | | | | | | | | 31,687 | | | | | | | | | (2,247) | |
Consolidated net income (loss) | | | | | | | | 95,611 | | | | | | | | | (7,811) | |
Net loss attributable to noncontrolling interest | | | | | | | | (56) | | | | | | | | | (700) | |
Net income (loss) attributable to WSFS | | | | | | | | $ | 95,667 | | | | | | | | | $ | (7,111) | |
Supplemental Information | | | | | | | | | | | | | | | | |
Capital expenditures for the period ended | | $ | 1,735 | | | $ | 0 | | | $ | 0 | | | $ | 1,735 | | | $ | 155 | | | $ | 45 | | | $ | 99 | | | $ | 299 | |
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| | Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2020 |
(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 | | $ | 229,856 | | | $ | 0 | | | $ | 4,327 | | | $ | 234,183 | | | $ | 255,019 | | | $ | 0 | | | $ | 4,719 | | | $ | 259,738 | |
Noninterest income | | 45,630 | | | 20,915 | | | 30,295 | | | 96,840 | | | 62,376 | | | 20,687 | | | 22,159 | | | 105,222 | |
Total external customer revenues | | 275,486 | | | 20,915 | | | 34,622 | | | 331,023 | | | 317,395 | | | 20,687 | | | 26,878 | | | 364,960 | |
Inter-segment revenues: | | | | | | | | | | | | | | | | |
Interest income | | 1,686 | | | 597 | | | 5,726 | | | 8,009 | | | 2,880 | | | 237 | | | 5,291 | | | 8,408 | |
Noninterest income | | 7,485 | | | 602 | | | 916 | | | 9,003 | | | 6,449 | | | 417 | | | 520 | | | 7,386 | |
Total inter-segment revenues | | 9,171 | | | 1,199 | | | 6,642 | | | 17,012 | | | 9,329 | | | 654 | | | 5,811 | | | 15,794 | |
Total revenue | | 284,657 | | | 22,114 | | | 41,264 | | | 348,035 | | | 326,724 | | | 21,341 | | | 32,689 | | | 380,754 | |
External customer expenses: | | | | | | | | | | | | | | | | |
Interest expense | | 12,887 | | | 0 | | | 362 | | | 13,249 | | | 28,406 | | | 0 | | | 1,426 | | | 29,832 | |
Noninterest expenses | | 161,024 | | | 14,586 | | | 16,041 | | | 191,651 | | | 152,874 | | | 14,636 | | | 14,421 | | | 181,931 | |
(Recovery of) provision for credit losses | | (85,978) | | | 0 | | | (1,745) | | | (87,723) | | | 148,853 | | | 0 | | | 2,547 | | | 151,400 | |
Total external customer expenses | | 87,933 | | | 14,586 | | | 14,658 | | | 117,177 | | | 330,133 | | | 14,636 | | | 18,394 | | | 363,163 | |
Inter-segment expenses: | | | | | | | | | | | | | | | | |
Interest expense | | 6,323 | | | 387 | | | 1,299 | | | 8,009 | | | 5,528 | | | 1,085 | | | 1,795 | | | 8,408 | |
Noninterest expenses | | 1,518 | | | 2,191 | | | 5,294 | | | 9,003 | | | 937 | | | 1,640 | | | 4,809 | | | 7,386 | |
Total inter-segment expenses | | 7,841 | | | 2,578 | | | 6,593 | | | 17,012 | | | 6,465 | | | 2,725 | | | 6,604 | | | 15,794 | |
Total expenses | | 95,774 | | | 17,164 | | | 21,251 | | | 134,189 | | | 336,598 | | | 17,361 | | | 24,998 | | | 378,957 | |
Income (loss) before taxes | | $ | 188,883 | | | $ | 4,950 | | | $ | 20,013 | | | $ | 213,846 | | | $ | (9,874) | | | $ | 3,980 | | | $ | 7,691 | | | $ | 1,797 | |
Income tax provision (benefit) | | | | | | | | 53,094 | | | | | | | | | (959) | |
Consolidated net income | | | | | | | | 160,752 | | | | | | | | | 2,756 | |
Net income (loss) attributable to noncontrolling interest | | | | | | | | 3 | | | | | | | | | (1,060) | |
Net income attributable to WSFS | | | | | | | | 160,749 | | | | | | | | | 3,816 | |
Supplemental Information | | | | | | | | | | | | | | | | |
Capital expenditures for the period ended | | $ | 3,005 | | | $ | 0 | | | $ | 0 | | | $ | 3,005 | | | $ | 2,437 | | | $ | 256 | | | $ | 137 | | | $ | 2,830 | |
The following table shows significant components of segment net assets as of June 30, 2021 and December 31, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
(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 | | $ | 1,945,167 | | | $ | 465,667 | | | $ | 10,279 | | | $ | 2,421,113 | | | $ | 1,246,394 | | | $ | 397,878 | | | $ | 10,463 | | | $ | 1,654,735 | |
Goodwill | | 452,629 | | | 0 | | | 20,199 | | | 472,828 | | | 452,629 | | | 0 | | | 20,199 | | | 472,828 | |
Other segment assets | | 12,007,263 | | | 5,845 | | | 241,812 | | | 12,254,920 | | | 11,963,345 | | | 6,997 | | | 236,009 | | | 12,206,351 | |
Total segment assets | | $ | 14,405,059 | | | $ | 471,512 | | | $ | 272,290 | | | $ | 15,148,861 | | | $ | 13,662,368 | | | $ | 404,875 | | | $ | 266,671 | | | $ | 14,333,914 | |
| | | | | | | | | | | | | | | | |
16. COMMITMENTS AND CONTINGENCIES
Secondary Market Loan Sales
The Company typically sells newly originated residential mortgage loans in the secondary market to mortgage loan aggregators and on a more limited basis, to GSEs such as FHLMC, FNMA, and the FHLB. Loans held for sale are reflected on 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 0 provision is made for losses at the time of sale. There were 0 repurchases during the six months ended June 30, 2021 and 2020.
Unfunded Lending Commitments
At June 30, 20202021 and December 31, 2019,2020, the allowance for credit losses of unfunded lending commitments were $7.8$8.1 million and $1.5$8.2 million, respectively. The balance atA provision release of $0.8 million and $0.2 million was recognized during the three and six months ended June 30, 2020 was determined using the CECL methodology, which included2021, respectively, and a $3.0 million adjustment to retained earnings at the time of adoption. A provision expense for unfunded lending commitments of $3.4 million and $3.3 million was recognized during the three and six months ended June 30, 2020, respectively, and a provision for unfunded lending commitments of $0.3 million and $0.4 million was recognized during the three and six months ended June 30, 2019, respectively.
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 | | Total |
Balance, March 31, 2020 | | $ | 72,436 | | | $ | 403 | | | $ | (3,313) | | | $ | 1,008 | | | $ | 70,534 | |
Other comprehensive income (loss) before reclassifications | | 3,703 | | | — | | | 7 | | | (25) | | | 3,685 | |
Less: Amounts reclassified from accumulated other comprehensive income (loss) | | (1,450) | | | (57) | | | 179 | | | (111) | | | (1,439) | |
Net current-period other comprehensive income (loss) | | 2,253 | | | (57) | | | 186 | | | (136) | | | 2,246 | |
Balance, June 30, 2020 | | $ | 74,689 | | | $ | 346 | | | $ | (3,127) | | | $ | 872 | | | $ | 72,780 | |
| | | | | | | | | | |
Balance, March 31, 2019 | | $ | 2,701 | | | $ | 686 | | | $ | 693 | | | $ | (1,824) | | | $ | 2,256 | |
Other comprehensive income before reclassifications | | 19,591 | | | — | | | 10 | | | 1,007 | | | 20,608 | |
Less: Amounts reclassified from accumulated other comprehensive income | | (48) | | | (84) | | | (44) | | | — | | | (176) | |
Net current-period other comprehensive income (loss) | | 19,543 | | | (84) | | | (34) | | | 1,007 | | | 20,432 | |
Balance, June 30, 2019 | | $ | 22,244 | | | $ | 602 | | | $ | 659 | | | $ | (817) | | | $ | 22,688 | |
| | | | | | | | | | |
| | | | | | | | | | |
(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 | | Total |
Balance, December 31, 2019 | | $ | 26,927 | | | $ | 468 | | | $ | (3,317) | | | $ | (577) | | | $ | 23,501 | |
Other comprehensive income before reclassifications | | 49,739 | | | — | | | 43 | | | 1,560 | | | 51,342 | |
Less: Amounts reclassified from accumulated other comprehensive income | | (1,977) | | | (122) | | | 147 | | | (111) | | | (2,063) | |
Net current-period other comprehensive income (loss) | | 47,762 | | | (122) | | | 190 | | | 1,449 | | | 49,279 | |
Balance, June 30, 2020 | | $ | 74,689 | | | $ | 346 | | | $ | (3,127) | | | $ | 872 | | | $ | 72,780 | |
| | | | | | | | | | |
Balance, December 31, 2018 | | $ | (14,553) | | | $ | 779 | | | $ | 834 | | | $ | (2,454) | | | $ | (15,394) | |
Other comprehensive income (loss) before reclassifications | | 36,856 | | | (2) | | | (89) | | | 1,637 | | | 38,402 | |
Less: Amounts reclassified from accumulated other comprehensive income (loss) | | (59) | | | (175) | | | (86) | | | — | | | (320) | |
Net current-period other comprehensive income (loss) | | 36,797 | | | (177) | | | (175) | | | 1,637 | | | 38,082 | |
Balance, June 30, 2019 | | $ | 22,244 | | | $ | 602 | | | $ | 659 | | | $ | (817) | | | $ | 22,688 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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, March 31, 2021 | | $ | (9,957) | | | $ | 260 | | | $ | (4,804) | | | $ | 535 | | | $ | 264 | | | $ | (13,702) | |
Other comprehensive income (loss) before reclassifications | | 24,104 | | | 0 | | | (9) | | | 0 | | | 0 | | | 24,095 | |
Less: Amounts reclassified from accumulated other comprehensive income | | 0 | | | (28) | | | (15) | | | (112) | | | 0 | | | (155) | |
Net current-period other comprehensive income (loss) | | 24,104 | | | (28) | | | (24) | | | (112) | | | 0 | | | 23,940 | |
Balance, June 30, 2021 | | $ | 14,147 | | | $ | 232 | | | $ | (4,828) | | | $ | 423 | | | $ | 264 | | | $ | 10,238 | |
| | | | | | | | | | | | |
Balance, March 31, 2020 | | $ | 72,436 | | | $ | 403 | | | $ | (3,313) | | | $ | 1,008 | | | $ | 0 | | | $ | 70,534 | |
Other comprehensive income (loss) before reclassifications | | 3,703 | | | 0 | | | 7 | | | (25) | | | 0 | | | 3,685 | |
Less: Amounts reclassified from accumulated other comprehensive loss | | (1,450) | | | (57) | | | 179 | | | (111) | | | 0 | | | (1,439) | |
Net current-period other comprehensive income (loss) | | 2,253 | | | (57) | | | 186 | | | (136) | | | 0 | | | 2,246 | |
Balance, June 30, 2020 | | $ | 74,689 | | | $ | 346 | | | $ | (3,127) | | | $ | 872 | | | $ | 0 | | | $ | 72,780 | |
(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, 2020 | | $ | 59,882 | | | $ | 276 | | | $ | (4,788) | | | $ | 646 | | | $ | (9) | | | $ | 56,007 | |
Other comprehensive (loss) income before reclassifications | | (45,485) | | | 0 | | | (9) | | | 0 | | | 273 | | | (45,221) | |
Less: Amounts reclassified from accumulated other comprehensive income | | (250) | | | (44) | | | (31) | | | (223) | | | 0 | | | (548) | |
Net current-period other comprehensive (loss) income | | (45,735) | | | (44) | | | (40) | | | (223) | | | 273 | | | (45,769) | |
Balance, June 30, 2021 | | $ | 14,147 | | | $ | 232 | | | $ | (4,828) | | | $ | 423 | | | $ | 264 | | | $ | 10,238 | |
| | | | | | | | | | | | |
Balance, December 31, 2019 | | $ | 26,927 | | | $ | 468 | | | $ | (3,317) | | | $ | (577) | | | $ | 0 | | | $ | 23,501 | |
Other comprehensive income before reclassifications | | 49,739 | | | 0 | | | 43 | | | 1,560 | | | 0 | | | 51,342 | |
Less: Amounts reclassified from accumulated other comprehensive (loss) income | | (1,977) | | | (122) | | | 147 | | | (111) | | | 0 | | | (2,063) | |
Net current-period other comprehensive income (loss) | | 47,762 | | | (122) | | | 190 | | | 1,449 | | | 0 | | | 49,279 | |
Balance, June 30, 2020 | | $ | 74,689 | | | $ | 346 | | | $ | (3,127) | | | $ | 872 | | | $ | 0 | | | $ | 72,780 | |
(1)Cash flow hedges were terminated as of April 1, 2020 |
The unaudited Consolidated Statements of Income were impacted by components of other comprehensive income (loss) as shown in the tables below:
| | | Three Months Ended June 30, | | | Affected line item in unaudited Consolidated Statements of Income | | Three Months Ended June 30, | | Affected line item in unaudited Consolidated Statements of Income |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | | 2019 | | | Affected line item in unaudited Consolidated Statements of Income | | 2021 | | 2020 | | |
Securities available for sale: | Securities available for sale: | | | | | | | | | | | |
Realized gains on securities transactions | Realized gains on securities transactions | | $ | (1,908) | | | $ | (63) | | | Securities gains, net | Realized gains on securities transactions | | $ | 0 | | | $ | (1,908) | | | Securities gains, net |
Income taxes | Income taxes | | 458 | | | 15 | | | Income tax provision | Income taxes | | 0 | | | 458 | | | Income tax provision |
Net of tax | Net of tax | | $ | (1,450) | | | $ | (48) | | | Net of tax | | $ | 0 | | | $ | (1,450) | | |
Net unrealized holding gains on securities transferred between available-for-sale and held-to-maturity: | Net unrealized holding gains on securities transferred between available-for-sale and held-to-maturity: | | | | | | 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 | Amortization of net unrealized gains to income during the period | | $ | (75) | | | $ | (111) | | | Interest and dividends on investment securities | Amortization of net unrealized gains to income during the period | | $ | (37) | | | $ | (75) | | | Interest and dividends on investment securities |
Income taxes | Income taxes | | 18 | | | 27 | | | Income tax provision | Income taxes | | 9 | | | 18 | | | Income tax provision |
Net of tax | Net of tax | | $ | (57) | | | $ | (84) | | | Net of tax | | $ | (28) | | | $ | (57) | | |
Amortization of defined benefit pension plan-related items: | Amortization of defined benefit pension plan-related items: | | | | | | Amortization of defined benefit pension plan-related items: | | | | | |
Prior service credits | Prior service credits | | $ | (19) | | | $ | (19) | | | Prior service credits | | $ | (22) | | | $ | (19) | | |
| Actuarial gains | | (24) | | | (16) | | | |
Actuarial losses (gains) | | Actuarial losses (gains) | | 2 | | | (24) | | |
Total before tax | Total before tax | | $ | (43) | | | $ | (35) | | | Salaries, benefits and other compensation | Total before tax | | $ | (20) | | | $ | (43) | | | Salaries, benefits and other compensation |
Income taxes | Income taxes | | 10 | | | (9) | | | Income tax provision | Income taxes | | 5 | | | 10 | | | Income tax provision |
Net of tax | Net of tax | | $ | (33) | | | $ | (44) | | | Net of tax | | $ | (15) | | | $ | (33) | | |
Defined benefit pension plan settlement: | Defined benefit pension plan settlement: | | | | | | | Defined benefit pension plan settlement: | | | | | |
Realized losses on plan settlement | Realized losses on plan settlement | | $ | 279 | | | $ | — | | | Other operating expense | Realized losses on plan settlement | | $ | 0 | | | $ | 279 | | | Other operating expense |
Income taxes | Income taxes | | (67) | | | — | | | Income tax provision | Income taxes | | 0 | | | (67) | | | Income tax provision |
Net of tax | Net of tax | | $ | 212 | | | $ | — | | | | Net of tax | | $ | 0 | | | $ | 212 | | |
Net unrealized gains on terminated cash flow hedges: | Net unrealized gains on terminated cash flow hedges: | | | | | | Net unrealized gains on terminated cash flow hedges: | | | | | |
Amortization of net unrealized gains to income during the period | Amortization of net unrealized gains to income during the period | | $ | (146) | | | $ | — | | | Interest and fees on loans and leases | Amortization of net unrealized gains to income during the period | | $ | (147) | | | $ | (146) | | | Interest and fees on loans and leases |
Income taxes | Income taxes | | 35 | | | — | | | Income tax provision | Income taxes | | 35 | | | 35 | | | Income tax provision |
Net of tax | Net of tax | | $ | (111) | | | $ | — | | | Net of tax | | $ | (112) | | | $ | (111) | | |
Total reclassifications | Total reclassifications | | $ | (1,439) | | | $ | (176) | | | Total reclassifications | | $ | (155) | | | $ | (1,439) | | |
|
| | | | Six Months Ended | | | Affected line item in unaudited Consolidated Statements of Operations | | | Six Months Ended June 30, | | Affected line item in unaudited Consolidated Statements of Operations |
| | | June 30, | | | | | Affected line item in unaudited Consolidated Statements of Operations |
| | | 2020 | | 2019 | | | | | 2021 | | 2020 | | |
Securities available-for-sale: | Securities available-for-sale: | | | | | | Securities available-for-sale: | | | | | |
Realized gains on securities transactions | Realized gains on securities transactions | | $ | (2,601) | | | $ | (78) | | | Securities gains, net | Realized gains on securities transactions | | $ | (329) | | | $ | (2,601) | | | Securities gains, net |
Income taxes | Income taxes | | 624 | | | 19 | | | Income tax provision | Income taxes | | 79 | | | 624 | | | Income tax provision |
Net of tax | Net of tax | | $ | (1,977) | | | $ | (59) | | | Net of tax | | $ | (250) | | | $ | (1,977) | | |
Net unrealized holding gains on securities transferred between available-for-sale and held-to-maturity: | Net unrealized holding gains on securities transferred between available-for-sale and held-to-maturity: | | | | | | 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 | Amortization of net unrealized gains to income during the period | | $ | (160) | | | $ | (231) | | | Interest and dividends on investment securities | Amortization of net unrealized gains to income during the period | | $ | (58) | | | $ | (160) | | | Interest and dividends on investment securities |
Income taxes | Income taxes | | 38 | | | 56 | | | Income tax provision | Income taxes | | 14 | | | 38 | | | Income tax provision |
Net of tax | Net of tax | | $ | (122) | | | $ | (175) | | | Net of tax | | $ | (44) | | | $ | (122) | | |
Amortization of defined benefit pension plan-related items: | Amortization of defined benefit pension plan-related items: | | | | | | Amortization of defined benefit pension plan-related items: | | | | | |
Prior service credits | Prior service credits | | $ | (38) | | | $ | (38) | | | Prior service credits | | $ | (44) | | | $ | (38) | | |
| Actuarial gains | Actuarial gains | | (48) | | | (31) | | | Actuarial gains | | 3 | | | (48) | | |
Total before tax | Total before tax | | $ | (86) | | | $ | (69) | | | Salaries, benefits and other compensation | Total before tax | | $ | (41) | | | $ | (86) | | | Salaries, benefits and other compensation |
Income taxes | Income taxes | | 21 | | | (17) | | | Income tax provision | Income taxes | | 10 | | | 21 | | | Income tax provision |
Net of tax | Net of tax | | $ | (65) | | | $ | (86) | | | Net of tax | | $ | (31) | | | $ | (65) | | |
Defined benefit pension plan settlement: | Defined benefit pension plan settlement: | | | | | | Defined benefit pension plan settlement: | | | | | |
Realized losses on plan settlement | Realized losses on plan settlement | | $ | 279 | | | $ | — | | | Other operating expense | Realized losses on plan settlement | | $ | 0 | | | $ | 279 | | | Other operating expense |
Income taxes | Income taxes | | (67) | | | — | | | Income tax provision | Income taxes | | 0 | | | (67) | | | Income tax provision |
Net of tax | Net of tax | | $ | 212 | | | $ | — | | | | Net of tax | | $ | 0 | | | $ | 212 | | |
Net unrealized gains on terminated cash flow hedges: | Net unrealized gains on terminated cash flow hedges: | | | | | | | Net unrealized gains on terminated cash flow hedges: | | | | | |
Amortization of net unrealized gains to income during the period | Amortization of net unrealized gains to income during the period | | $ | (146) | | | $ | — | | | Interest and fees on loans and leases | Amortization of net unrealized gains to income during the period | | $ | (293) | | | $ | (146) | | | Interest and fees on loans and leases |
Income taxes | Income taxes | | 35 | | | — | | | Income tax provision | Income taxes | | 70 | | | 35 | | | Income tax provision |
Net of tax | Net of tax | | $ | (111) | | | $ | — | | | | Net of tax | | $ | (223) | | | $ | (111) | | |
Total reclassifications | Total reclassifications | | $ | (2,063) | | | $ | (320) | | | Total reclassifications | | $ | (548) | | | $ | (2,063) | | |
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 and six months ended June 30, 2021, there were 0 loans originated to related parties exceeding $0.5 million. During the three and six months ended June 30, 2020, there were 2 loans originated to related parties exceeding $0.5 million, both of which were sold during the second quarter. During the three and six months ended June 30, 2019, there were 0 loans originated to related parties exceeding $0.5 million.quarter of 2020.
The outstanding balances of loans to related parties at June 30, 20202021 and December 31, 20192020 were $0.3$0.4 million and $1.0$0.2 million, respectively. Total deposits from related parties at June 30, 20202021 and December 31, 20192020 were $6.1$6.7 million and $4.9$8.3 million, respectively. During the second quarter of 2020,2021, there were 20 new loansloan and credit line advances to related parties totaling $1.1 million and repayments were $0.7less than $0.1 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. During the second quarter of 2021, the court hearing WSFS' claim for indemnification granted WSFS' motion for summary judgement on the issue of liability against the counterparty to the purchase agreement. The court has not yet scheduled trial on damages owed to WSFS.
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 disputesdisputed the factual allegations and deniesdenied 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 0 material changes or additions to other significant pending legal or other proceedings involving the Company other than those arising out of routine operations.
20. SUBSEQUENT EVENTS
The Company evaluated subsequent events in accordance with ASC Topic 855 and determined that the following qualifies as a non-recognized subsequent event:
Resolution of NHT Legal Proceeding
On August 5, 2021, WSFS Bank reached a settlement with NHT. Under the settlement, WSFS will pay no damages, and the parties have agreed to dismiss and release all of their claims against each other. The parties will bear their own attorney's fees and costs.
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 in the United States (U.S.) continuously operating under the same name in the United States (U.S.). At $13.6name. With $15.1 billion in assets and $20.8$26.7 billion in assets under management (AUM) and assets under administration (AUA), at June 30, 2021, WSFS Bank is also the oldest and largest locally-managed bank and trust company headquartered in the Delaware Valley.and Greater Philadelphia region. As a federal savings bank whichthat was formerly chartered as a state mutual savings bank, theWSFS 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 188189 years. In addition to our focus on stellar customer service,experience, 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)(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 threetwo 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)Finance®).
Our banking business had a total loan and lease portfolio of $9.4$8.3 billion as of June 30, 2020,2021, which was funded primarily through commercial relationships and retail and customer generated deposits. We have built a $7.3$6.5 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, andin addition to mortgage and title services through our branches and WSFS Mortgage. WSFS Mortgage is a®, our 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. In addition, NewLane Finance® offers captive insurance through its subsidiary, Prime Protect.
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 through strategic partnerships with several of the largest networks, manufacturers and service providers in the U.S.ATM industry. Cash Connect®services non-bank and WSFS-branded ATMs and retail safes nationwide, Cash Connect® manages over $1.4approximately $1.8 billion in total cash and services approximately 27,90028,100 non-bank ATMs and approximately 4,1005,800 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 571614 branded ATMs for WSFS Bank Customers, which hasis 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 $20.826.7 billion of AUM and AUA at June 30, 2020.2021. 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, comprised of WSFS Institutional Services® and Christiana Trust DE, provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional and corporate clients. Christiana Trust DE a subsidiary of WSFS,also 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 unitsbusinesses to provide comprehensive solutions to clients.
As of June 30, 2020,2021, we service our customers primarily from 115112 offices located in Pennsylvania (54)(52), Delaware (43)(42), New Jersey, (16), Virginia (1) and Nevada (1), our ATM network, our website at www.wsfsbank.com and our mobile app.
Recent DevelopmentsHighlights for Second Quarter and Business OutlookFirst Six Months of 2021
Our results during the first half of 2020 were significantly 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 during the first half of 2020 and other notable items include the following:
•On March 9, 2021, WSFS signed an Agreement and Plan of Merger (the Merger Agreement) with Bryn Mawr, a Pennsylvania corporation and the parent holding company of The Bryn Mawr Trust Company, a Pennsylvania chartered bank and wholly owned subsidiary of Bryn Mawr (Bryn Mawr Bank). On June 10, 2021, the stockholders of both WSFS and Bryn Mawr approved the Merger. On July 21, 2021, we received a key regulatory approval from the Office of the Comptroller of the Currency. The Merger is subject to customary conditions and the remaining required regulatory approval, and is currently expected to close early in the fourth quarter of 2021. We recorded $2.4 million of corporate development and restructuring expense primarily related to the pending Merger during the second quarter of 2021.
•The COVID-19 pandemic resultedOn June 15, 2021, WSFS completed the redemption of $100.0 million in acute deteriorationaggregate principal amount of our 4.50% fixed-to-floating rate senior notes due 2026 (the 2026 Notes). We recorded a $1.1 million loss of debt extinguishment to recognize the remaining unamortized debt issue costs associated with these notes.
•We recorded a reduction in the economic forecast used in our CECL modeling, resulting in additional provision for credit losses of $94.8 million and $151.4 million for the three and six months ended June 30, 2020, and an increase of $93.1 million and $184.6 million to the allowance for credit losses (ACL) of $72.4 million and $96.4 million during the three and six months ended June 30, 2020. During the three months ended June 30, 2020, we also recorded $1.9 million of other COVID-19 related costs.
•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 $78.0 million.
•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.
•We began participating in some of the regulatory relief programs offered2021, respectively, as a result of the Coronavirus Aid, Relief,continued improving credit trends and Economic Security (CARES) Act, including the Paycheck Protection Program (PPP). During the second quarter of 2020, we provided nearly $1.0 billion in PPP loans for more than 5,400 new and existing WSFS Customers, supporting an estimated 100,000 jobs in our region. During the six months ended June 30, 2020, we also recorded $1.8 million of PPP related costs. See "Recent Regulatory Developments" for further details.
•During March 2020, we began a phased approach to our retail office closures and our retail branch offices only accepted drive-thru services. During the second quarter of 2020, nearly two-thirds of our retail offices were servicing customers. The retail office closures have not significantly impacted our financial condition and results of operations, as our customer deposits remain intact and the fees and costs associated with our customer deposits remain under normal business operations. We continue to serve Customers through drive-thru locations and have begun a carefully planned and phased approach to opening previously closed office and banking locations that aligns with Federal, State and local guidance.economic forecasts.
•During the second quarter, we recorded a $5.1 million unrealized gain on our investment in Social Finance, Inc. (SoFi), which was subsequently liquidated at a realized gain of 2020, and subsequent to June 30, 2020, Cash Connect® expanded its ATM network by adding over 150 ATMs to serve Delaware and the greater Philadelphia region. The number of owned and branded ATMs increased to 571 as of June 30, 2020, and to approximately 640$4.4 million in the third quarter of 2020, through the date of this Quarterly Report on Form 10-Q.
For a discussion of additional risk factors relating to COVID-19, see "Item 1A. Risk Factors."
July 2021.
Looking ahead, the continuation•Taking a portion of the economic effects of COVID-19 and actions taken in responseSoFi proceeds, we contributed $1.0 million to it, including the impacts of loan forbearances and other provisions of theWSFS 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 ledFoundation 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 a second wave 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 effectfurther fund support to our business, financial condition and results of operations.For more information about these risks and uncertainties, see “Item 1A. Risk Factors.”
expanded communities.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets increased $1.3 billion$814.9 million to $13.6$15.1 billion at June 30, 20202021 compared to December 31, 2019.2020. This increase is primarily comprised of the following (in descending order of magnitude):following:
•Net loans, excluding loans held for sale,Investment securities, available-for-sale increased $695.8 million which included:
◦An increase of $945.1 million from PPP loans and growth across CRE, construction, commercial small business leases, and home equity installment loans originated through our partnership with Spring EQ.
◦A decline during the year of $371.0 million in non-relationship run-off portfolios primarily acquired from the Beneficial Bancorp, Inc. (Beneficial) acquisition; and
◦Total provision for credit losses of $151.4$837.5 million during the six months ended June 30, 20202021 primarily due to the impact$1.3 billion in purchases partially offset by repayments of the COVID-19 pandemic, significant deterioration in economic forecasts$354.3 million, decreased market-values on available-for-sale securities of $45.7 million and portfolio credit migration.sales of $9.3 million.
•Cash and cash equivalents increased $384.0$766.4 million, primarily reflecting the continuation of excess cash held due to increased deposits related to PPP loans, additional government stimulus and CARES Act payments, offset by a declinereduced levels of $46.6 million from improved cash optimization at Cash Connect® due to an increased use of external funding sources to supportcustomer spending during the bailment, cash management and smart safe lines of business offset by changes in seasonality.COVID-19 pandemic.
•Investment securities increased $244.5Net loans and leases, excluding loans held for sale, decreased $664.1 million, reflecting a $612.4 million decline in commercial and industrial loans that included a $528.3 million decrease due to forgiveness of PPP loans, a $221.4 million decline in residential and commercial real estate loans, largely due to non-relationship run-off portfolios acquired through the Beneficial acquisition, and lower commercial loan demand resulting from higher levels of borrower liquidity. Partially offsetting these decreases was $134.1 million of growth across our owner-occupied, construction and commercial small business lease portfolios, and a decrease of $96.4 million in our allowance for credit losses due to positive developments in our economic forecasts and continued stable and improved credit quality metrics with notable declines in our problem assets, nonperforming assets and delinquencies.
•Loans held for sale decreased $84.4 million during the six months ended June 30, 2020 primarily due to $535.1 million2021 driven by a large commercial loan sale and a combination of lower origination volume and higher loans sales in purchases and favorable market-value changes on available-for-sale securities of $47.8 million, partially offset by repayments of $232.4 million and sales of $107.0 million.
•Other investments decreased $59.8 millionour mortgage banking business during the six months ended June 30, 2020 as we sold 360,000 Visa Class B shares.2021.
Total liabilities increased $1.3$722.6 million to $13.3 billion to $11.8 billion during the six months endedat June 30, 20202021 compared to December 31, 2019. These increases are2020. This increase is primarily comprised of the following (in descending order of magnitude):following:
•Total deposits increased by $1.5 billion, primarily$870.2 million, due to:
◦Anto an increase of $1.4 billion in customer funding, reflecting an estimated $0.7 billion ofcontinued elevated deposits from our Customers who received PPP loans, the impact of government stimulus checks delayed tax payment and lessreduced levels of customer spending during the COVID-19 pandemic. The increase also reflects a $476.3 million increase in core deposits from our Trust business. The ratio of net loans and leases (including loans held for sale) to customer deposits was 86%65% at June 30, 20202021 reflecting significant liquidity capacity; and
◦An increase of $30.6 million in brokered deposits.capacity.
•Federal funds purchasedSenior debt decreased $195.0$98.8 million due to the increase in customer funding,redemption of the 2026 Notes, as described above.
•Other liabilities decreased $43.9 million primarily due to $35.7 million in lower accrued expenses, reflecting the timing of settlement for debt security trades, payment of Associate incentives and taxes in 2021, and a $3.1 million release of the unfunded commitments reserve, which is consistent with reductions in ACL based upon our stable and improving credit quality metrics.
•FHLB advances decreased $6.6 million due to maturities during the first quarter of 2021.
For further information, see "Notes to the unaudited Consolidated Financial Statements.Statements (Unaudited)."
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, the Board of Directors approved a new share purchase authorization of 7,594,977 shares, or 15% of outstanding shares. However, in the first quarter of 2020, we temporarily suspended all share repurchases until we have a clearer long-term view of the impact of COVID-19 on the economy and our performance.
Stockholders’ equity of WSFS decreased $26.6increased $92.3 million between December 31, 20192020 and June 30, 2020.2021. This decreaseincrease was primarily due to $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 $12.2 million, partially offset by $47.8 million from the effect of market-value changes on available-for-sale securities and $3.8$160.7 million of income attributable to WSFS for the six months ended June 30, 2020.2021, partially offset by $45.7 million from the effect of decreased market-values on available-for-sale securities, $12.0 million for the repurchases of 267,309 shares of common stock under our stock repurchase plan in January 2021, and the payment of dividends on our common stock of $11.9 million.
OurDuring the second quarter of 2021, our Board of Directors approved a quarterly cash dividend of $0.12$0.13 per share of common stock. This dividend will be paid on August 20, 202019, 2021 to stockholders of record as of August 6, 2020.5, 2021.
Book value per share of common stock was $36.00$39.63 at June 30, 2020,2021, an increase of $0.12$2.11 from $35.88$37.52 at December 31, 2019.2020. Tangible book value per share of common stock (a non-GAAP financial measure) was $24.89$28.02 at June 30, 2020,2021, an increase of $0.04$2.17 from $24.85$25.85 at December 31, 2019.2020. These increases are due to the same drivers of the increase in stockholders' equity of WSFS described above. 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 datameasure 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 June 30, 2020:2021:
| | | | Consolidated Capital | | | For Capital Adequacy Purposes | | | To be Well-Capitalized Under Prompt Corrective Action Provisions | | | | Consolidated Capital | | Minimum For Capital Adequacy Purposes | | To be Well-Capitalized Under Prompt Corrective Action Provisions |
(Dollars in thousands) | (Dollars in thousands) | | Amount | | Percent | | Amount | | Percent | | Amount | | Percent | (Dollars in thousands) | | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
Total Capital (to Risk-Weighted Assets) | Total Capital (to Risk-Weighted Assets) | | | | | | | | | | | | | Total Capital (to Risk-Weighted Assets) | | | | | | | | | | | | |
Wilmington Savings Fund Society, FSB | Wilmington Savings Fund Society, FSB | | $ | 1,419,261 | | | 13.93 | % | | $ | 815,140 | | | 8.00 | % | | $ | 1,018,925 | | | 10.00 | % | Wilmington Savings Fund Society, FSB | | $ | 1,561,568 | | | 15.41 | % | | $ | 810,934 | | | 8.00 | % | | $ | 1,013,667 | | | 10.00 | % |
WSFS Financial Corporation | WSFS Financial Corporation | | 1,424,634 | | | 13.95 | % | | 817,201 | | | 8.00 | % | | 1,021,501 | | | 10.00 | % | WSFS Financial Corporation | | 1,542,475 | | | 15.14 | | | 814,845 | | | 8.00 | | | 1,018,556 | | | 10.00 | |
Tier 1 Capital (to Risk-Weighted Assets) | Tier 1 Capital (to Risk-Weighted Assets) | | Tier 1 Capital (to Risk-Weighted Assets) | |
Wilmington Savings Fund Society, FSB | Wilmington Savings Fund Society, FSB | | 1,291,896 | | | 12.68 | % | | 611,355 | | | 6.00 | % | | 815,140 | | | 8.00 | % | Wilmington Savings Fund Society, FSB | | 1,440,393 | | | 14.21 | | | 608,200 | | | 6.00 | | | 810,934 | | | 8.00 | |
WSFS Financial Corporation | WSFS Financial Corporation | | 1,296,947 | | | 12.70 | % | | 612,901 | | | 6.00 | % | | 817,201 | | | 8.00 | % | WSFS Financial Corporation | | 1,421,301 | | | 13.95 | | | 611,134 | | | 6.00 | | | 814,845 | | | 8.00 | |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | Common Equity Tier 1 Capital (to Risk-Weighted Assets) | |
Wilmington Savings Fund Society, FSB | Wilmington Savings Fund Society, FSB | | 1,291,896 | | | 12.68 | % | | 458,516 | | | 4.50 | % | | 662,301 | | | 6.50 | % | Wilmington Savings Fund Society, FSB | | 1,440,393 | | | 14.21 | | | 456,150 | | | 4.50 | | | 658,884 | | | 6.50 | |
WSFS Financial Corporation | WSFS Financial Corporation | | 1,231,947 | | | 12.06 | % | | 459,676 | | | 4.50 | % | | 663,976 | | | 6.50 | % | WSFS Financial Corporation | | 1,356,301 | | | 13.32 | | | 458,350 | | | 4.50 | | | 662,062 | | | 6.50 | |
Tier 1 Leverage Capital | Tier 1 Leverage Capital | | Tier 1 Leverage Capital | |
Wilmington Savings Fund Society, FSB | Wilmington Savings Fund Society, FSB | | 1,291,896 | | | 10.40 | % | | 496,826 | | | 4.00 | % | | 621,032 | | | 5.00 | % | Wilmington Savings Fund Society, FSB | | 1,440,393 | | | 10.11 | | | 569,876 | | | 4.00 | | | 506,834 | | | 5.00 | |
WSFS Financial Corporation | WSFS Financial Corporation | | 1,296,947 | | | 10.44 | % | | 497,092 | | | 4.00 | % | | 621,365 | | | 5.00 | % | WSFS Financial Corporation | | 1,421,301 | | | 9.96 | | | 570,601 | | | 4.00 | | | 713,251 | | | 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, regardingwhich may include restrictions on capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities.
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 receiveIn order to avoid limits on capital distributions and discretionary bonus payments, the Bank and the Company must maintain a zero percent risk weighting undercapital conservation buffer of 2.5% of common equity Tier 1 capital over each of the regulators'risk-based capital rules.requirements. As of June 30, 2021, the Bank and the Company were in compliance with the regulatory capital requirements and met or exceeded the amounts required to be considered “well-capitalized” as defined in the regulations.
$112.3 million in cash to support share repurchases, potential dividends, acquisitions, strategic growth plans and other general corporate purposes. As part of our adoption of CECL in 2020, 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 June 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 $97.2 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:
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | |
(Dollars in thousands) | | As Reported | | Proforma(1) | | CECL Impact |
Total Capital (to Risk-Weighted Assets) | | | | | | |
Wilmington Savings Fund Society, FSB | | 13.93 | % | | 14.01 | % | | (0.08) | % |
WSFS Financial Corporation | | 13.95 | % | | 14.02 | % | | (0.07) | % |
Tier 1 Capital (to Risk-Weighted Assets) | | | | | | |
Wilmington Savings Fund Society, FSB | | 12.68 | % | | 12.76 | % | | (0.08) | % |
WSFS Financial Corporation | | 12.70 | % | | 12.77 | % | | (0.07) | % |
Common Equity Tier 1 Capital (to Risk-Weighted Assets) | | | | | | |
Wilmington Savings Fund Society, FSB | | 12.68 | % | | 12.76 | % | | (0.08) | % |
WSFS Financial Corporation | | 12.06 | % | | 12.14 | % | | (0.08) | % |
Tier 1 Leverage Capital | | | | | | |
Wilmington Savings Fund Society, FSB | | 10.40 | % | | 10.46 | % | | (0.06) | % |
WSFS Financial Corporation | | 10.44 | % | | 10.49 | % | | (0.05) | % |
(1) Excludes the phase-in impact of CECL.
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 six months ended June 30, 2020,2021, cash, and cash equivalents and restricted cash increased $384.0$766.4 million to $955.8 million$2.4 billion from $571.8 million$1.7 billion as of December 31, 2019.2020. Cash provided by operating activities was $80.4$89.1 million, primarily reflecting the cash impact of earnings and gains of $24.7 million from the sale of debt and equity securities (including Visa Class B shares), offset by a $26.3$58.9 million increase infrom the net activity for loans held for sale during the six months ended June 30, 2020. Additionally, to avoid limitations on capital distributions2021. These increases were partially offset by a decrease of $35.2 million in other liabilities from the settlement for debt security trades and discretionary bonus payments, the Bankpayment of Associate incentives and the Company must maintain a capital conservation buffer of 2.5% of common equity tier 1 capital on top of each of the risk-based capital ratios.taxes, as described above. Cash used in investing activities was $0.9 billion$62.6 million primarily due to $839.6net purchases of available-for-sale debt securities of $913.7 million, partially offset by $826.1 million from increaseddecreased lending activity related to PPP loansloan forgiveness, $16.2 million in repayments, maturities and net purchasescalls of held-to-maturity debt securities, of $302.7 million, offset byand proceeds of $109.6$9.3 million from sales of available-for-sale debt securities and net proceeds of $85.9 million from the sale of Visa Class B shares.securities. Cash provided inby financing activities was $1.2 billion,$739.9 million, primarily due to a $1.5 billion$871.4 million net increase in deposits, as a result of the increase in customer funding discussed above, partially offset by $195.0$100.0 million for repaymentthe redemption of federal funds purchased, $38.7the 2026 Notes, $13.2 million for repurchases of common stock under the previously announced stock repurchase plan, and common stock dividends of $12.2 million.$11.9 million and $6.6 million for repayment of FHLB advances.
NONPERFORMING ASSETS
Nonperforming assets include nonaccruing loans, OREOother real estate owned (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 June 30, 2020, and at the unpaid principal balance under the incurred loss methodology at December 31, 2019:indicated:
| (Dollars in thousands) | (Dollars in thousands) | | June 30, 2020 | | December 31, 2019 | (Dollars in thousands) | | June 30, 2021 | | December 31, 2020 |
Nonaccruing loans: | Nonaccruing loans: | | | | | Nonaccruing loans: | | | | |
Commercial and industrial | Commercial and industrial | | $ | 15,381 | | | $ | 11,031 | | Commercial and industrial | | $ | 14,261 | | | $ | 13,816 | |
Owner-occupied commercial | Owner-occupied commercial | | 4,212 | | | 4,060 | | Owner-occupied commercial | | 2,781 | | | 5,360 | |
Commercial mortgages | Commercial mortgages | | 1,148 | | | 1,626 | | Commercial mortgages | | 1,615 | | | 17,175 | |
| Residential | Residential | | 3,118 | | | 4,490 | | Residential | | 2,726 | | | 3,247 | |
Consumer | Consumer | | 2,316 | | | 1,715 | | Consumer | | 2,641 | | | 2,310 | |
Total nonaccruing loans | Total nonaccruing loans | | 26,175 | | | 22,922 | | Total nonaccruing loans | | 24,024 | | | 41,908 | |
Other real estate owned | Other real estate owned | | 4,153 | | | 2,605 | | Other real estate owned | | 1,044 | | | 3,061 | |
Restructured loans(1)(6) | Restructured loans(1)(6) | | 14,550 | | | 14,281 | | Restructured loans(1)(6) | | 14,997 | | | 15,539 | |
Total nonperforming assets | Total nonperforming assets | | $ | 44,878 | | | $ | 39,808 | | Total nonperforming assets | | $ | 40,065 | | | $ | 60,508 | |
Past due loans: | Past due loans: | | | | | Past due loans: | | | | |
Commercial | Commercial | | $ | 2,273 | | | $ | 2,968 | | Commercial | | $ | 482 | | | $ | 5,634 | |
Residential | Residential | | 175 | | | 437 | | Residential | | 1,093 | | | 25 | |
Consumer (2) | Consumer (2) | | 6,153 | | | 12,745 | | Consumer (2) | | 6,958 | | | 11,035 | |
Total past due loans | Total past due loans | | $ | 8,601 | | | $ | 16,150 | | Total past due loans | | $ | 8,533 | | | $ | 16,694 | |
Ratio of allowance for credit losses to total loans and leases(3) | Ratio of allowance for credit losses to total loans and leases(3) | | 2.45 | % | | 0.56 | % | Ratio of allowance for credit losses to total loans and leases(3) | | 1.59 | % | | 2.51 | % |
| Ratio of nonaccruing loans to total gross loans and leases(4) | Ratio of nonaccruing loans to total gross loans and leases(4) | | 0.28 | | | 0.27 | | Ratio of nonaccruing loans to total gross loans and leases(4) | | 0.29 | | | 0.46 | |
Ratio of nonperforming assets to total assets | Ratio of nonperforming assets to total assets | | 0.33 | | | 0.32 | | Ratio of nonperforming assets to total assets | | 0.26 | | | 0.42 | |
Ratio of allowance for credit losses to nonaccruing loans | Ratio of allowance for credit losses to nonaccruing loans | | 887 | | | 208 | | Ratio of allowance for credit losses to nonaccruing loans | | 551 | | | 546 | |
Ratio of allowance for credit losses to total nonperforming assets(5) | Ratio of allowance for credit losses to total nonperforming assets(5) | | 517 | | | 120 | | Ratio of allowance for credit losses to total nonperforming assets(5) | | 331 | | | 378 | |
(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 of $120.4 million at June 30, 2021 and $114.8 million at December 31, 2020.
Nonperforming assets increased $5.1decreased $20.4 million between December 31, 20192020 and June 30, 2020.2021. This increasedecrease was primarily due to $24.3 million of collection activity during the result ofperiod, which included the movepayoff of one commercial real estate relationship totalingof approximately $7.3$15.1 million to non-accrual,during the first quarter of 2021. The decrease was partially offset by collection efforts, which includes both continued monthly paymentsthe transfer to non-accrual of approximately $3.0 million (net of charge-offs) in small commercial and a few modest payoffs.retail loans and the move to non-accrual of one large commercial relationship during the first quarter of 2021 that was fully charged-off by June 30, 2021. The ratio of nonperforming assets to total assets was relatively flat as compared todecreased from 0.42% at December 31, 2019.2020 to 0.26% at June 30, 2021.
The following table summarizes the changes in nonperforming assets during the periods indicated:
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
(Dollars in thousands) | | 2020 | | 2019 |
Beginning balance | | $ | 39,808 | | | $ | 47,675 | |
Additions | | 18,155 | | | 40,142 | |
Collections | | (8,171) | | | (16,637) | |
Transfers to accrual | | — | | | (1,120) | |
Charge-offs | | (4,914) | | | (14,518) | |
Ending balance | | $ | 44,878 | | | $ | 55,542 | |
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
(Dollars in thousands) | | 2021 | | 2020 |
Beginning balance | | $ | 60,508 | | | $ | 39,808 | |
Additions | | 14,790 | | | 18,155 | |
Collections | | (24,286) | | | (8,171) | |
Transfers to accrual | | (28) | | | — | |
Charge-offs | | (10,919) | | | (4,914) | |
Ending balance | | $ | 40,065 | | | $ | 44,878 | |
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
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. WeInterest 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 2020 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 to control interest rate risk.structure.
The matching ofOur primary tool for achieving our asset/liability management strategies is to match 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.rates. We regularly review our interest rate sensitivity and adjust the sensitivity within acceptable tolerance ranges. At June 30, 2020,2021, interest-earning assets exceeded interest-bearing liabilities that mature or reprice within one year (interest-sensitive gap) by $942.9 million.$2.2 billion. Our interest-sensitive assets as a percentage of interest-sensitive liabilities within the one-year window was 117.92%140.47% at June 30, 20202021 compared with 95.02%133.10% at December 31, 2019.2020. Likewise, the one-year interest-sensitive gap as a percentage of total assets was 6.95%14.38% at June 30, 20202021 compared with (2.06)%13.07% at December 31, 2019.2020.
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 June 30, 20202021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
% 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 | | 24.2% | | 19.92% | | 19.7% | | 19.10% |
+200 | | 16.0% | | 19.45% | | 13.1% | | 18.69% |
+100 | | 7.9% | | 18.90% | | 6.5% | | 18.05% |
+50 | | 3.8% | | 18.06% | | 3.2% | | 17.59% |
+25 | | 1.9% | | 17.96% | | 1.5% | | 17.32% |
— | | —% | | 17.83% | | —% | | 17.04% |
-25 | | (1.8)% | | 17.56% | | (1.5)% | | 16.62% |
-50 | | (2.4)% | | 17.21% | | (2.1)% | | 16.20% |
-100 | | (3.6)% | | 16.38% | | (2.8)% | | 15.16% |
'-200(3) | | NMF | | NMF | | NMF | | NMF |
-300(3) | | NMF | | NMF | | NMF | | NMF |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 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 | | 12.3% | | 17.83% | | 5.8% | | 18.97% |
+200 | | 8.1% | | 17.32% | | 4.0% | | 19.18% |
+100 | | 3.9% | | 16.51% | | 2.0% | | 19.23% |
+50 | | 1.9% | | 15.99% | | 1.0% | | 19.14% |
+25 | | 1.0% | | 15.70% | | 0.5% | | 19.06% |
— | | —% | | 15.41% | | —% | | 18.97% |
-25 | | (0.9)% | | 15.08% | | (0.5)% | | 18.85% |
-50 | | (1.0)% | | 14.89% | | (0.9)% | | 18.72% |
-100 | | (1.0)% | | 14.83% | | (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.
RESULTS OF OPERATIONS
Three months ended June 30, 2020:2021: ForNet income for the three months ended June 30, 2020, there2021 was a$95.7 million, compared to net loss of $7.1 million compared to net income of $36.2 million for the three months ended June 30, 2019.2020.
•Net interest income decreased $9.5$7.0 million during the three months ended June 30, 20202021 compared to the three months ended June 30, 2019,2020, primarily due to a lower interest rate environment and a decrease in purchase accounting accretion and the purposeful run-off of acquired non-relationship loan portfolios, partially offset by the positive impact of PPP income. See “Net Interest Income” for further information.
•Our (recovery of) provision for credit losses for the three months ended June 30, 2020 increased $82.62021 decreased $162.3 million compared to the three months ended June 30, 2019,2020, primarily due to the positive economic outlook from our ACL modeling and improved credit quality metrics reflecting overall declines in problem assets, nonperforming assets and delinquencies, as compared to ACL reserve builds required during 2020 as a result of the economic uncertainty associated with the COVID-19 pandemic and its continued impact on the economic forecast used in our CECL modeling. The main drivers for the increased provision for the three months ended June 30, 2020 were loan migrationat that occurred during the quarter in several specific portfolios as well as additional deterioration in our economic forecast model.time. See “Provision/Allowance“Allowance for Credit Losses” for further information.
•Noninterest income for the three months ended June 30, 2020 increased $21.52021 decreased $15.4 million compared to the three months ended June 30, 2019,2020, primarily due to the gain recognized on theyear-over-year impact from of sale of Visa Class B shares.shares in the prior year, a decline in our mortgage banking business and lower interchange fees from the impact of the Durbin Amendment on the second quarter of 2021 results, partially offset by unrealized gain in equity investments driven by our SoFi investment and higher revenues generated through our trust services in the current period compared to the prior period. See “Noninterest (Fee) Income” for further information.
•Noninterest expense decreased $14.4increased $2.6 million during the three months ended June 30, 20202021 compared to the three months ended June 30, 2019, as net corporate development2020 due to increases in salaries and restructuringbenefits, other operating expenses, equipment expense, and debt extinguishments costs related tofrom our acquisition of Beneficial decreased by $13.0 million2026 Notes, partially offset loan workout and other operating costs (which includes occupancy, equipment, data processing and operations expenses) decreased by $4.8 million, partially offset by an increase of $3.2 million for unfunded commitment reserves.credit costs. See “Noninterest Expense” for further information.
•Income tax provision (benefit) for the three months ended June 30, 2021 increased $33.9 million compared to the three months ended June 30, 2020, primarily due to the $137.4 million increase in pre-tax income.
Six months ended June 30, 2020:2021: ForNet income for the six months ended June 30, 2020, net income2021 was $3.8$160.7 million, compared to $49.2net income of $3.8 million for the six months ended June 30, 2019.2020.
•Net interest income increased $23.4decreased $9.0 million during the six months ended June 30, 20202021 compared to the six months ended June 30, 2019,2020, primarily due to lower loan volumes relating to purposeful run-off of acquired non-relationship loan portfolios, a full six month impact of the Beneficial acquisitionlower interest rate environment and a decrease in the current period, in addition to the positive impact ofpurchase accounting accretion, partially offset by favorable customer funding and PPP loans in the current quarter.income. See “Net Interest Income” for further information.
•Our (recovery of) provision for credit losses for the six months ended June 30, 2020 increased $131.62021 decreased $239.1 million compared to the six months ended June 30, 2019, primarily2020, due to the COVID-19 pandemic and its continued impact on the economic forecast used in our CECL modeling.reasons described above. See “Provision/Allowance“Allowance for Credit Losses” for further information.
•Noninterest income for the six months ended June 30, 2020 increased $21.22021 decreased $8.4 million compared to the six months ended June 30, 2019,2020, primarily due to the sale of our Visa Class B shares, as described above,sale in 2020 and growth across most of our business lines withlower interchange fees from the full impact of the Beneficial acquisition duringDurbin Amendment on the six months ended June 30, 2020,first half of 2021 results as described above. These decreases were offset by lower netthe higher revenues generated through our trust services, the unrealized gains of $4.2 million on ourgain in equity investments duringfrom SoFi, and higher traditional banking fees in the six months ended June 30, 2020 ascurrent period compared to the six months ended June 30, 2019.prior period. See “Noninterest (Fee) Income” for further information.
•Noninterest expense decreased $23.5increased $9.7 million during the six months ended June 30, 20202021 compared to the six months ended June 30, 2019,2020 due to increases in salaries and benefits, equipment expense and debt extinguishment costs, as net corporate development and restructuring costs related to our acquisition of Beneficial decreased by $42.7 million,described above, partially offset by $9.3 million of higher employee-relatedlower loan workout and other credit costs to support organic and merger-related growth, $5.0 million increase in other operating costs (which includes occupancy, equipment, data processing and operations expenses, and the contribution to WSFS Community Foundation) and $4.2 million of higher professional fees.expenses. See “Noninterest Expense” for further information.
•Income tax provision for the six months ended June 30, 2021 increased $54.1 million compared to the six months ended June 30, 2020, primarily due to the $212.0 million increase in pre-tax income.
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 June 30, | | | | Three months ended June 30, |
| | | 2020 | | | 2019 | | | | 2021 | | 2020 |
(Dollars in thousands) | (Dollars in thousands) | | Average Balance | | Interest | | Yield/ Rate(1) | | Average Balance | | Interest | | Yield/ Rate(1) | (Dollars in thousands) | | Average Balance | | Interest | | Yield/ Rate(1) | | Average Balance | | Interest | | Yield/ Rate(1) |
Assets: | Assets: | | | | | | | | | | | | | Assets: | | | | | | | | | | | | |
Interest-earning assets: | Interest-earning assets: | | Interest-earning assets: | |
Loans:(2) | Loans:(2) | | Loans:(2) | |
Commercial loans and leases | | Commercial loans and leases | | $ | 3,900,612 | | | $ | 46,039 | | | 4.74 | % | | $ | 4,291,301 | | | $ | 53,390 | | | 5.01 | % |
Commercial real estate loans | Commercial real estate loans | | $ | 2,841,231 | | | $ | 31,230 | | | 4.42 | % | | $ | 2,857,091 | | | $ | 45,458 | | | 6.38 | % | Commercial real estate loans | | 2,791,438 | | | 28,277 | | | 4.06 | | | 2,841,231 | | | 31,230 | | | 4.42 | |
Residential loans | Residential loans | | 933,854 | | | 13,679 | | | 5.86 | | | 1,102,362 | | | 15,359 | | | 5.57 | | Residential loans | | 647,442 | | | 11,271 | | | 6.96 | | | 933,854 | | | 13,679 | | | 5.86 | |
Commercial loans and leases | | 4,291,301 | | | 53,390 | | | 5.01 | | | 3,571,559 | | | 51,798 | | | 5.83 | | |
Consumer loans | Consumer loans | | 1,124,742 | | | 13,065 | | | 4.67 | | | 1,126,385 | | | 15,958 | | | 5.68 | | Consumer loans | | 1,123,440 | | | 11,950 | | | 4.27 | | | 1,124,742 | | | 13,065 | | | 4.67 | |
Loans held for sale | Loans held for sale | | 92,252 | | | 896 | | | 3.91 | | | 37,728 | | | 428 | | | 4.55 | | Loans held for sale | | 131,460 | | | 1,108 | | | 3.38 | | | 92,252 | | | 896 | | | 3.91 | |
Total loans and leases | Total loans and leases | | 9,283,380 | | | 112,260 | | | 4.87 | | | 8,695,125 | | | 129,001 | | | 5.96 | | Total loans and leases | | 8,594,392 | | | 98,645 | | | 4.61 | | | 9,283,380 | | | 112,260 | | | 4.87 | |
Mortgage-backed securities(3) | Mortgage-backed securities(3) | | 2,048,357 | | | 12,549 | | | 2.45 | | | 1,653,582 | | | 12,229 | | | 2.96 | | Mortgage-backed securities(3) | | 2,978,331 | | | 12,506 | | | 1.68 | | | 2,048,357 | | | 12,549 | | | 2.45 | |
Investment securities(3) | Investment securities(3) | | 130,671 | | | 1,009 | | | 3.82 | | | 146,064 | | | 1,030 | | | 3.39 | | Investment securities(3) | | 318,415 | | | 1,383 | | | 1.97 | | | 130,671 | | | 1,009 | | | 3.82 | |
Other interest-earning assets | Other interest-earning assets | | 220,801 | | | 65 | | | 0.12 | | | 89,145 | | | 643 | | | 2.89 | | Other interest-earning assets | | 1,414,264 | | | 368 | | | 0.10 | | | 220,801 | | | 65 | | | 0.12 | |
Total interest-earning assets | Total interest-earning assets | | 11,683,209 | | | $ | 125,883 | | | 4.34 | % | | 10,583,916 | | | $ | 142,903 | | | 5.43 | % | Total interest-earning assets | | $ | 13,305,402 | | | $ | 112,902 | | | 3.41 | % | | $ | 11,683,209 | | | $ | 125,883 | | | 4.34 | % |
Allowance for credit losses | Allowance for credit losses | | (156,576) | | | | | (46,719) | | | | | Allowance for credit losses | | (194,211) | | | | | (156,576) | | | | |
Cash and due from banks | Cash and due from banks | | 108,463 | | | 112,657 | | | Cash and due from banks | | 176,015 | | | 108,463 | | |
Cash in non-owned ATMs | Cash in non-owned ATMs | | 319,154 | | | 364,236 | | | Cash in non-owned ATMs | | 468,136 | | | 319,154 | | |
Bank-owned life insurance | Bank-owned life insurance | | 29,965 | | | 56,332 | | | Bank-owned life insurance | | 32,329 | | | 29,965 | | |
Other noninterest-earning assets | Other noninterest-earning assets | | 1,036,500 | | | 1,052,544 | | | Other noninterest-earning assets | | 998,948 | | | 1,036,500 | | |
Total assets | Total assets | | $ | 13,020,715 | | | $ | 12,122,966 | | | Total assets | | $ | 14,786,619 | | | $ | 13,020,715 | | |
Liabilities and Stockholders’ Equity: | Liabilities and Stockholders’ Equity: | | | | | | Liabilities and Stockholders’ Equity: | | | | | |
Interest-bearing liabilities: | Interest-bearing liabilities: | | Interest-bearing liabilities: | |
Interest-bearing deposits: | Interest-bearing deposits: | | Interest-bearing deposits: | |
Interest-bearing demand | Interest-bearing demand | | $ | 2,213,369 | | | $ | 882 | | | 0.16 | % | | $ | 2,029,361 | | | $ | 2,163 | | | 0.43 | % | Interest-bearing demand | | $ | 2,560,283 | | | $ | 531 | | | 0.08 | % | | $ | 2,213,369 | | | $ | 882 | | | 0.16 | % |
Savings | | Savings | | 1,922,342 | | | 149 | | | 0.03 | | | 1,681,587 | | | 877 | | | 0.21 | |
Money market | Money market | | 2,262,737 | | | 2,311 | | | 0.41 | | | 1,936,112 | | | 4,932 | | | 1.02 | | Money market | | 2,754,895 | | | 801 | | | 0.12 | | | 2,262,737 | | | 2,311 | | | 0.41 | |
Savings | | 1,681,587 | | | 877 | | | 0.21 | | | 1,657,790 | | | 2,009 | | | 0.49 | | |
Customer time deposits | Customer time deposits | | 1,242,730 | | | 4,954 | | | 1.60 | | | 1,476,763 | | | 5,100 | | | 1.39 | | Customer time deposits | | 1,078,296 | | | 1,842 | | | 0.69 | | | 1,242,730 | | | 4,954 | | | 1.60 | |
Total interest-bearing customer deposits | Total interest-bearing customer deposits | | 7,400,423 | | | 9,024 | | | 0.49 | | | 7,100,026 | | | 14,204 | | | 0.80 | | Total interest-bearing customer deposits | | 8,315,816 | | | 3,323 | | | 0.16 | | | 7,400,423 | | | 9,024 | | | 0.49 | |
Brokered certificates of deposit | | 286,655 | | | 808 | | | 1.13 | | | 307,514 | | | 1,919 | | | 2.50 | | |
Brokered deposits | | Brokered deposits | | 63,407 | | | 455 | | | 2.88 | | | 286,655 | | | 808 | | | 1.13 | |
Total interest-bearing deposits | Total interest-bearing deposits | | 7,687,078 | | | 9,832 | | | 0.51 | | | 7,407,540 | | | 16,123 | | | 0.87 | | Total interest-bearing deposits | | 8,379,223 | | | 3,778 | | | 0.18 | | | 7,687,078 | | | 9,832 | | | 0.51 | |
Federal Home Loan Bank advances | Federal Home Loan Bank advances | | 106,694 | | | 625 | | | 2.36 | | | 134,151 | | | 806 | | | 2.41 | | Federal Home Loan Bank advances | | — | | | — | | | — | | | 106,694 | | | 625 | | | 2.36 | |
Trust preferred borrowings | Trust preferred borrowings | | 67,011 | | | 484 | | | 2.90 | | | 67,011 | | | 717 | | | 4.29 | | Trust preferred borrowings | | 67,011 | | | 317 | | | 1.90 | | | 67,011 | | | 484 | | | 2.90 | |
Senior debt | Senior debt | | 98,681 | | | 1,180 | | | 4.78 | | | 98,464 | | | 1,180 | | | 4.79 | | Senior debt | | 228,260 | | | 2,053 | | | 3.60 | | | 98,681 | | | 1,180 | | | 4.78 | |
Other borrowed funds(4) | Other borrowed funds(4) | | 25,580 | | | 6 | | | 0.09 | | | 161,903 | | | 845 | | | 2.09 | | Other borrowed funds(4) | | 21,661 | | | 5 | | | 0.09 | | | 25,580 | | | 6 | | | 0.09 | |
Total interest-bearing liabilities | Total interest-bearing liabilities | | 7,985,044 | | | $ | 12,127 | | | 0.61 | % | | 7,869,069 | | | $ | 19,671 | | | 1.00 | % | Total interest-bearing liabilities | | $ | 8,696,155 | | | $ | 6,153 | | | 0.28 | % | | $ | 7,985,044 | | | $ | 12,127 | | | 0.61 | % |
Noninterest-bearing demand deposits | Noninterest-bearing demand deposits | | 2,882,999 | | | | | 2,126,640 | | | | | Noninterest-bearing demand deposits | | 3,963,476 | | | | | 2,882,999 | | | | |
Other noninterest-bearing liabilities | Other noninterest-bearing liabilities | | 311,697 | | | 315,108 | | | Other noninterest-bearing liabilities | | 329,341 | | | 311,697 | | |
Stockholders’ equity | Stockholders’ equity | | 1,842,525 | | | 1,812,302 | | | Stockholders’ equity | | 1,799,839 | | | 1,842,525 | | |
Noncontrolling interest | Noncontrolling interest | | (1,550) | | | (153) | | | Noncontrolling interest | | (2,192) | | | (1,550) | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | | $ | 13,020,715 | | | $ | 12,122,966 | | | Total liabilities and stockholders’ equity | | $ | 14,786,619 | | | $ | 13,020,715 | | |
Excess of interest-earning assets over interest-bearing liabilities | Excess of interest-earning assets over interest-bearing liabilities | | $ | 3,698,165 | | | $ | 2,714,847 | | | Excess of interest-earning assets over interest-bearing liabilities | | $ | 4,609,247 | | | $ | 3,698,165 | | |
Net interest and dividend income | Net interest and dividend income | | | | $ | 113,756 | | | | | $ | 123,232 | | | Net interest and dividend income | | | | $ | 106,749 | | | | | $ | 113,756 | | |
Interest rate spread | Interest rate spread | | | | 3.73 | % | | | | 4.43 | % | Interest rate spread | | | | 3.13 | % | | | | 3.73 | % |
Net interest margin | Net interest margin | | 3.93 | % | | 4.68 | % | Net interest margin | | 3.23 | % | | 3.93 | % |
|
(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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, |
| | 2021 | | 2020 |
(Dollars in thousands) | | Average Balance | | Interest | | Yield/ Rate(1) | | Average Balance | | Interest | | Yield/ Rate(1) |
Assets: | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | |
Loans:(2) | | | | | | | | | | | | |
Commercial loans and leases | | $ | 4,018,667 | | | $ | 98,659 | | | 4.96 | % | | $ | 3,912,464 | | | $ | 109,084 | | | 5.62 | % |
Commercial real estate loans | | 2,797,375 | | | 57,468 | | | 4.14 | | | 2,825,049 | | | 65,522 | | | 4.66 | |
Residential loans | | 690,776 | | | 24,135 | | | 6.99 | | | 963,131 | | | 27,219 | | | 5.65 | |
Consumer loans | | 1,141,414 | | | 24,786 | | | 4.38 | | | 1,127,483 | | | 28,000 | | | 4.99 | |
Loans held for sale | | 146,291 | | | 2,449 | | | 3.38 | | | 81,068 | | | 1,637 | | | 4.06 | |
Total loans and leases | | 8,794,523 | | | 207,497 | | | 4.76 | | | 8,909,195 | | | 231,462 | | | 5.23 | |
Mortgage-backed securities(3) | | 2,744,420 | | | 23,210 | | | 1.69 | | | 2,003,997 | | | 25,768 | | | 2.57 | |
Investment securities | | 327,363 | | | 2,832 | | | 1.97 | | | 130,896 | | | 1,935 | | | 3.61 | |
Other interest-earning assets | | 1,259,806 | | | 644 | | | 0.10 | | | 148,578 | | | 573 | | | 0.78 | |
Total interest-earning assets | | $ | 13,126,112 | | | $ | 234,183 | | | 3.61 | % | | $ | 11,192,666 | | | $ | 259,738 | | | 4.68 | % |
Allowance for credit losses | | (210,471) | | | | | | | (120,816) | | | | | |
Cash and due from banks | | 145,568 | | | | | | | 124,129 | | | | | |
Cash in non-owned ATMs | | 431,226 | | | | | | | 327,314 | | | | | |
Bank-owned life insurance | | 32,242 | | | | | | | 30,059 | | | | | |
Other noninterest-earning assets | | 998,202 | | | | | | | 1,036,767 | | | | | |
Total assets | | $ | 14,522,879 | | | | | | | $ | 12,590,119 | | | | | |
Liabilities and Stockholders’ Equity: | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | |
Interest-bearing deposits: | | | | | | | | | | | | |
Interest-bearing demand | | $ | 2,566,271 | | | $ | 1,149 | | | 0.09 | % | | $ | 2,149,299 | | | $ | 2,779 | | | 0.26 | % |
Savings | | 1,876,815 | | | 299 | | | 0.03 | | | 1,627,901 | | | 2,621 | | | 0.32 | |
Money market | | 2,718,758 | | | 1,655 | | | 0.12 | | | 2,207,861 | | | 6,400 | | | 0.58 | |
Customer time deposits | | 1,097,636 | | | 4,219 | | | 0.78 | | | 1,274,081 | | | 10,610 | | | 1.67 | |
Total interest-bearing customer deposits | | 8,259,480 | | | 7,322 | | | 0.18 | | | 7,259,142 | | | 22,410 | | | 0.62 | |
Brokered deposits | | 99,979 | | | 952 | | | 1.92 | | | 258,539 | | | 2,059 | | | 1.60 | |
Total interest-bearing deposits | | 8,359,459 | | | 8,274 | | | 0.20 | | | 7,517,681 | | | 24,469 | | | 0.65 | |
Federal Home Loan Bank advances | | 366 | | | 5 | | | 2.75 | | | 138,376 | | | 1,455 | | | 2.11 | |
Trust preferred borrowings | | 67,011 | | | 641 | | | 1.93 | | | 67,011 | | | 1,070 | | | 3.21 | |
Senior debt | | 237,406 | | | 4,319 | | | 3.64 | | | 98,654 | | | 2,359 | | | 4.78 | |
Other borrowed funds(4) | | 20,664 | | | 10 | | | 0.10 | | | 86,918 | | | 479 | | | 1.11 | |
Total interest-bearing liabilities | | $ | 8,684,906 | | | $ | 13,249 | | | 0.31 | % | | $ | 7,908,640 | | | $ | 29,832 | | | 0.76 | % |
Noninterest-bearing demand deposits | | 3,728,459 | | | | | | | 2,524,755 | | | | | |
Other noninterest-bearing liabilities | | 325,838 | | | | | | | 318,941 | | | | | |
Stockholders’ equity | | 1,785,907 | | | | | | | 1,839,013 | | | | | |
Noncontrolling interest | | (2,231) | | | | | | | (1,230) | | | | | |
Total liabilities and stockholders’ equity | | $ | 14,522,879 | | | | | | | $ | 12,590,119 | | | | | |
Excess of interest-earning assets over interest-bearing liabilities | | $ | 4,441,206 | | | | | | | $ | 3,284,026 | | | | | |
Net interest and dividend income | | | | $ | 220,934 | | | | | | | $ | 229,906 | | | |
Interest rate spread | | | | | | 3.30 | % | | | | | | 3.92 | % |
Net interest margin | | | | | | 3.40 | % | | | | | | 4.14 | % |
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| | Six months ended June 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 | | $ | 2,825,049 | | | $ | 65,522 | | | 4.66 | % | | $ | 2,416,011 | | | $ | 73,978 | | | 6.17 | % |
Residential loans | | 963,131 | | | 27,219 | | | 5.65 | | | 817,109 | | | 22,958 | | | 5.62 | |
Commercial loans and leases | | 3,912,464 | | | 109,084 | | | 5.62 | | | 3,214,989 | | | 91,032 | | | 5.72 | |
Consumer loans | | 1,127,483 | | | 28,000 | | | 4.99 | | | 985,248 | | | 27,425 | | | 5.61 | |
Loans held for sale | | 81,068 | | | 1,637 | | | 4.06 | | | 29,153 | | | 725 | | | 5.01 | |
Total loans and leases | | 8,909,195 | | | 231,462 | | | 5.23 | | | 7,462,510 | | | 216,118 | | | 5.85 | |
Mortgage-backed securities(3) | | 2,003,997 | | | 25,768 | | | 2.57 | | | 1,545,968 | | | 22,695 | | | 2.94 | |
Investment securities(3) | | 130,896 | | | 1,935 | | | 3.61 | | | 147,587 | | | 2,074 | | | 3.40 | |
Other interest-earning assets | | 148,578 | | | 573 | | | 0.78 | | | 84,108 | | | 1,593 | | | 3.82 | |
Total interest-earning assets | | 11,192,666 | | | $ | 259,738 | | | 4.68 | % | | 9,240,173 | | | $ | 242,480 | | | 5.31 | % |
Allowance for credit losses | | (120,816) | | | | | | | (43,593) | | | | | |
Cash and due from banks | | 124,129 | | | | | | | 110,231 | | | | | |
Cash in non-owned ATMs | | 327,314 | | | | | | | 395,920 | | | | | |
Bank-owned life insurance | | 30,059 | | | | | | | 45,754 | | | | | |
Other noninterest-earning assets | | 1,036,767 | | | | | | | 870,940 | | | | | |
Total assets | | $ | 12,590,119 | | | | | | | $ | 10,619,425 | | | | | |
Liabilities and Stockholders’ Equity: | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | |
Interest-bearing deposits: | | | | | | | | | | | | |
Interest-bearing demand | | $ | 2,149,299 | | | $ | 2,779 | | | 0.26 | % | | $ | 1,708,010 | | | $ | 3,899 | | | 0.46 | % |
Money market | | 2,207,861 | | | 6,400 | | | 0.58 | | | 1,792,371 | | | 8,771 | | | 0.99 | |
Savings | | 1,627,901 | | | 2,621 | | | 0.32 | | | 1,304,443 | | | 2,881 | | | 0.45 | |
Customer time deposits | | 1,274,081 | | | 10,610 | | | 1.67 | | | 1,226,003 | | | 8,364 | | | 1.38 | |
Total interest-bearing customer deposits | | 7,259,142 | | | 22,410 | | | 0.62 | | | 6,030,827 | | | 23,915 | | | 0.80 | |
Brokered certificates of deposit | | 258,539 | | | 2,059 | | | 1.60 | | | 260,854 | | | 3,150 | | | 2.44 | |
Total interest-bearing deposits | | 7,517,681 | | | 24,469 | | | 0.65 | | | 6,291,681 | | | 27,065 | | | 0.87 | |
Federal Home Loan Bank advances | | 138,376 | | | 1,455 | | | 2.11 | | | 268,311 | | | 3,396 | | | 2.55 | |
Trust preferred borrowings | | 67,011 | | | 1,070 | | | 3.21 | | | 67,011 | | | 1,443 | | | 4.34 | |
Senior debt | | 98,654 | | | 2,359 | | | 4.78 | | | 98,437 | | | 2,359 | | | 4.79 | |
Other borrowed funds(4) | | 86,918 | | | 479 | | | 1.11 | | | 167,547 | | | 1,671 | | | 2.01 | |
Total interest-bearing liabilities | | 7,908,640 | | | $ | 29,832 | | | 0.76 | % | | 6,892,987 | | | $ | 35,934 | | | 1.05 | % |
Noninterest-bearing demand deposits | | 2,524,755 | | | | | | | 1,948,594 | | | | | |
Other noninterest-bearing liabilities | | 318,941 | | | | | | | 288,703 | | | | | |
Stockholders’ equity | | 1,839,013 | | | | | | | 1,489,241 | | | | | |
Noncontrolling interest | | (1,230) | | | | | | | (100) | | | | | |
Total liabilities and stockholders’ equity | | $ | 12,590,119 | | | | | | | $ | 10,619,425 | | | | | |
Excess of interest-earning assets over interest-bearing liabilities | | $ | 3,284,026 | | | | | | | $ | 2,347,186 | | | | | |
Net interest and dividend income | | | | $ | 229,906 | | | | | | | $ | 206,546 | | | |
Interest rate spread | | | | | | 3.92 | % | | | | | | 4.26 | % |
Net interest margin | | | | | | 4.14 | % | | | | | | 4.52 | % |
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(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.
Three months ended June 30, 2020: 2021:During the three months ended June 30, 2020,2021, net interest income decreased $9.5$7.0 million from the three months ended June 30, 20192020 primarily due to the lower rate environment and a $3.7$4.9 million decrease in purchase accounting accretion and a $3.0 million reduction, excluding PPP loans, primarily from lower loan balances due to purposeful run-off of acquired non-relationship loans. These decreases were partially offset by $4.8$0.9 million of net interest income fromhigher PPP loans which included $3.1 million of fee accretion.income. Net interest margin was 3.23% for the second quarter of 2021, a 70 basis point decrease compared to 3.93% for the second quarter of 2020 reflecting 45 bps from the short-term liquidity increase in customer deposits, a 75 basis points decrease compared to 4.68% for the second quarter of 2019 due to19 bps net decline from the lower interest rate environment and balance sheet mix, and 22 bps from lower purchase accounting accretion, partially offset by a 16 bps increase from the impact of PPP loans and asset mix from the significant short-term liquidity increase in customer deposits.loans.
Six months ended June 30, 2020: 2021:During the six months ended June 30, 2020,2021, net interest income increased $23.4decreased $9.0 million from the six months ended June 30, 20192020. This decrease included a $26.1 million reduction from lower loan volumes due to a full six monthpurposeful run-off of acquired non-relationship loans and the net impact of the Beneficial acquisitiona lower interest rate environment, and a $7.8 million decrease in the current yearpurchase accounting accretion. This was partially offset by a favorable increase of $15.1 million from lower customer funding and the impact$10.2 million of net interest income from PPP loans described above.loans. Net interest margin was 3.40% for the six months ended June 30, 2021, a 74 basis point decrease compared to 4.14% for the six months ended June 30, 2020 a 38 basis points decrease compared to 4.52% forreflecting 70 bps net decline from the six months ended June 30, 2019 due to higherlower interest rate environment and balance sheet mix, 28 bps from the significant short-term liquidity increase in customer deposits, and 20 bps from lower purchase accounting accretion, partially offset by a 29 bps increase from the current significantly lower interest rate environmentfavorable impact from customer funding and expected margin compression due to Beneficial's lower-margin balance sheet.a 14 bps increase from the impact of PPP loans.
Provision/
Allowance for Credit Losses
During the six months ended June 30, 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.
TheDuring the three months ended June 30, 2021, we recorded a recovery of credit losses of $67.6 million, a net change of $162.3 million as compared with the provision for credit losses wasof $94.8 million for the three months ended June 30, 2020, an increase of $82.6 million from the three months ended June 30, 2019. For2020. During the six months ended June 30, 2020,2021, we recorded a recovery of credit losses of $87.7 million, a net change of $239.1 million as compared with the provision for credit losses wasof $151.4 million an increase of $131.6 million fromfor the six months ended June 30, 2019.2020. These increases were primarily due to acute deteriorationimprovements reflect the continued positive economic outlook from our ACL modeling and improved credit quality metrics reflecting overall declines in the economic forecast used in our CECL models related to the COVID-19 pandemic,problem assets, nonperforming assets and loan migration that occurred during the quarter in several specific portfolios, mainly in the accommodation and food service industries.delinquencies.
The allowance for credit losses increaseddecreased to $232.2$132.4 million at June 30, 20202021 from $47.6$228.8 million at December 31, 2019. Of this increase, $35.9 million was due to our adoption of CECL as of January 1, 2020, and $151.4 million wasprimarily due to the additional provision for$87.7 million recovery of credit losses during the six months ended June 30, 2020.2021, as described above. The ratio of allowance for credit losses to total loans and leases was 2.45%1.59% at June 30, 20202021 and 0.56%2.51% at December 31, 2019.2020. Net charge-offs were $4.8 million and $8.7 million during the three and six months ended June 30, 2021, respectively, and were primarily driven by one commercial relationship, as described above in Nonperforming Assets.
When compared to the three and six months ended June 30, 2020, net charge-offs increased by $3.2 million and $6.0 million, 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 0.06%0.20% (annualized) and 0.22%0.09% at June 30, 20202021 and December 31, 2019,2020, respectively. The allowance for credit losses was 887% of nonaccruing loans at June 30, 2020, compared to 121% at June 30, 2019.
See Note 7 to the unaudited Consolidated Financial Statements and Nonperforming Assets above for further information.
Noninterest (Fee) Income
Three months ended June 30, 2020:2021: During the three months ended June 30, 2020,2021, noninterest (fee) income was $64.4$49.0 million, an increasea decrease of $21.5$15.4 million from $42.9$64.4 million during the three months ended June 30, 2019, and2020. This decrease includes an increasethe impact of $21.0a $22.1 million gain on sale of Visa Class B shares that occurred in June 2020, a $4.0 million decrease in mortgage banking activities from the expected decline in pipeline volume compared to the historically higher levels in the amountprior period, and a $1.7 million decrease in Credit/debit card and ATM income, which included a reduction in interchange fees of net realized and$3.4 million resulting from the Durbin amendment (effective for us on July 1, 2020). Partially offsetting these decreases were $5.3 million of unrealized gains on equity investments as described above. Excluding this increase, noninterest income increased $0.5 million primarily due todriven by our investment in SoFi and an increase of $5.6$4.4 million in mortgage banking activities, partially offsetInvestment management and fiduciary revenue driven by a $4.4 million decrease in Cash Connectour trust services.®
Six months ended June 30, 2020:2021: During the six months ended June 30, 2020,2021, noninterest (fee) income was $105.2$96.8 million, an increasea decrease of $21.2$8.4 million from $84.0$105.2 million during the six months ended June 30, 2019,2020. This decrease includes the $22.1 million gain on sale of Visa Class B shares as described above, and includesa $6.3 million decrease in Credit/debit card and ATM income primarily due to a reduction in interchange fees resulting from the Durbin Amendment, offset by an increase of $17.9$7.7 million in the amountInvestment management and fiduciary revenue driven by trust services revenue, $4.6 million of net realized and unrealized gaingains on equity investments as described above. Excluding this increase, noninterestdriven primarily from the gains associated with SoFi, $4.0 million from higher traditional banking fees, and $4.4 million from other income, increased $3.4driven primarily by $2.0 million primarily due to an increase of $7.0 million in mortgage banking activities, a $2.5 million increase in securities gains, net,from Cash Connect® and a $1.4 million increase in fiduciary and investment management income. These increases were partially offset by a $4.5 million decrease in Cash Connect®, as described above, a $2.5 million decrease in other income, and a $1.0 million decrease in deposit service charges due to lower transaction volume in the current period as a result of the COVID-19 pandemic.from gains on SBA loans.
For further information, see Note 3 to the unaudited Consolidated Financial Statements.
Noninterest Expense
Three months ended June 30, 2020:2021: Noninterest expense forDuring the three monthsmonth ended June 30, 20202021, noninterest expense was $93.4$96.0 million, a decreasean increase of $14.4$2.6 million from $107.8$93.4 million for the three months ended June 30, 2019. Excluding2020. The increase was primarily due to a decrease$3.7 million increase in Salaries, benefits and other compensation as a result of $13.0higher salaries and incentive compensation due to continued franchise growth, a $1.9 million increase in net corporate development and restructuring costsOther operating expenses that included a $1.0 million contribution to the WSFS CARES Foundation, a $1.6 million increase in Equipment expense including higher third-party software expenses related to our acquisition of Beneficial, noninterest expense decreased $1.4ongoing delivery transformation initiatives, and $1.1 million in debt extinguishment costs from the three months ended June 30, 2019. Thisrepayment of our 2026 Notes. These increases were partially offset by a $5.1 million decrease includes $4.8 million of lower operatingin Loan workout and other credit costs and occupancy costs, including spend on travel and entertainment due to COVID-19, offset by an increasesthe release of $3.2 million inreserves on our unfunded commitment reserve expense and the COVID-19 and PPP related costs described above.commitments.
Six months ended June 30, 2020:2021: Noninterest expense forDuring the six months ended June 30, 20202021, noninterest expense was $181.9$191.7 million, a decreasean increase of $23.5$9.7 million from $205.4$181.9 million for the six months ended June 30, 2019. Excluding a decrease of $42.7 million in net corporate development and restructuring costs related to our acquisition of Beneficial, and a $3.0 million contribution to the WSFS Community Foundation during the first quarter of 2020, noninterest expense increased $16.2 million compared to the six months ended June 30, 2019. This2020. The increase was primarily due to a $9.3$11.4 million increase in salaries,Salaries, benefits and other compensation as a $4.2result of higher salaries and incentive compensation due to franchise growth, a $4.0 million increase in professional fees,Equipment expense including our ongoing delivery transformation initiatives as described above, and an increase of $3.4$1.1 million in unfunded commitment reserve expensedebt extinguishment costs. These increases were partially offset by a $4.5 million decrease in Loan workout and other credit costs and $3.9 million decrease in Other operating expenses primarily due to $2.0 million in lower contributions to the WSFS CARES Foundation (formerly the WSFS Community Foundation) when compared to the prior year and $1.4 million of plan settlement loss incurred from the termination of the Alliance Pension Plan in June 2020.
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 benefitexpense of $2.2$31.7 million and $1.0$53.1 million during the three and six months ended June 30, 2020,2021, respectively, compared to income tax expensebenefit of $10.1$2.2 million and $16.4$1.0 million for the same periods in 2019.2020.
Our effective tax rate was 22.3%24.9% and (53.4)%24.8% for the three and six months ended June 30, 2020,2021, respectively, compared to 21.9%22.3% and 25.1%53.4% for the same periods in 2019.2020. The effective tax rate for the six months ended June 30, 2020 decreased2021 increased 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 $1.8$1.7 million in tax benefits recognized during the six months ended June 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, theFurther, we incurred $0.2 million and $0.6 million of tax benefitexpense related to stock-based compensation activitynondeductible acquisition costs during the six months ended June 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 six months ended June 30, 2020, a $0.2 million tax expense and a less than $0.1 million tax benefit was recognized, respectively, compared to a tax benefit of $1.2 million and $1.3 million for2021 whereas none were incurred in the samecomparable periods in 2019.2020.
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 June 30, 20202021 did not significantly change from our contractual obligations at December 31, 2019,2020, which are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
2020.
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.
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(Dollars and share amounts in thousands, except per share amounts) | | June 30, 2020 | | December 31, 2019 |
Stockholders’ equity | | $ | 1,823,669 | | | $ | 1,850,306 | |
Less: Goodwill and other intangible assets | | 562,515 | | | 568,745 | |
Tangible common equity (numerator) | | $ | 1,261,154 | | | $ | 1,281,561 | |
Shares of common stock outstanding (denominator) | | 50,660 | | | 51,567 | |
Book value per share of common stock | | $ | 36.00 | | | $ | 35.88 | |
Goodwill and other intangible assets | | 11.11 | | | 11.03 | |
Tangible book value per share of common stock | | $ | 24.89 | | | $ | 24.85 | |
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(Dollars and share amounts in thousands, except per share amounts) | | June 30, 2021 | | December 31, 2020 |
Stockholders’ equity of WSFS | | $ | 1,884,054 | | | $ | 1,791,726 | |
Less: Goodwill and other intangible assets | | 551,951 | | | 557,386 | |
Tangible common equity (numerator) | | $ | 1,332,103 | | | $ | 1,234,340 | |
Shares of common stock outstanding (denominator) | | 47,535 | | | 47,756 | |
Book value per share of common stock | | $ | 39.63 | | | $ | 37.52 | |
Goodwill and other intangible assets | | 11.61 | | | 11.67 | |
Tangible book value per share of common stock | | $ | 28.02 | | | $ | 25.85 | |
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 usedrelated to determine the allowance for credit losses, business combinations, deferred taxes, fair value measurements and 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 certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2020,2021, 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 June 30, 20202021 did not significantly change from our critical accounting estimates at MarchDecember 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.2020.
RECENT REGULATORY DEVELOPMENTS
Recent regulatory developments at June 30, 20202021 did not significantly change from our recent regulatory developments at December 31, 2019,2020 and March 31, 2021, 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,2020 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 fundingour Quarterly Report on Form 10-Q for the PPP. During the second quarter of 2020, we provided nearly $1.0 billion in PPP loans for more than 5,400 new and existing WSFS Customers. The statute did not change the PPP loan application deadline of June 30, 2020, set by the CARES Act.quarterly period ending March 31, 2021.
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. During the second quarter of 2020, we have modified approximately $2.1 billion of loans and leases to provide our customers this monetary relief.
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 June 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.
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 June 30, 2020, the Company had approximately $1.7 billion of loans and $901.2 million 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 June 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 June 30, 2020.
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.
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 RulesRule 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, as amended, 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 June 30, 2020,2021, 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.
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, 2019,2020, previously filed with the Securities and Exchange Commission, except noted as below.
The novel coronavirus (“COVID-19”) pandemicStrategic Risk
Failure of the Merger to be completed, the termination of the Merger Agreement or a significant delay in the consummation of the Merger could negatively impact the Company and Bryn Mawr.
Although we anticipate closing the Merger during the fourth quarter of 2021, the Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the Merger. These conditions to the consummation of the Merger may not be fulfilled and, accordingly, the Merger may not be completed. In addition, if the Merger is not completed by March 9, 2022, either the Company or Bryn Mawr may choose to terminate the Merger Agreement at any time after that date if the failure to consummate the transactions contemplated by the Merger Agreement is not caused by any breach of the Merger Agreement by the party electing to terminate the Merger Agreement. Further, the outcomes of several lawsuits filed by stockholders of the Company and Bryn Mawr against the Company, Bryn Mawr and their respective boards of directors with respect to the Merger during the second quarter of 2021 are uncertain and could result in significant costs, management distraction, and/or a delay of or injunction against the Merger.
If the Merger is not consummated, the ongoing business, financial condition and results of operations of the Company may be adversely affected and the impactmarket price of actionsour common stock may decline significantly, particularly to mitigate the spreadextent that the current market price reflects a market assumption that the Merger will be consummated. If the consummation of the virus could adversely affectMerger is delayed, including by the receipt of a competing acquisition proposal, our business, financial condition and results of operations.operations may be adversely affected.
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 and instituted quantitative easing measures as well as domestic and global capital market support programs. In addition, we have incurred and will incur substantial expenses in connection with the Trump Administration, Congress, various federal agenciesnegotiation and state governments have taken measures to address the economic and social consequencescompletion of the pandemic,transactions contemplated by the Merger Agreement. If the Merger is not completed, we would have to recognize these expenses without realizing the expected benefits of the Merger. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, including the passagediversion of management attention from pursuing other opportunities and the constraints in the Merger Agreement on the ability to make significant changes to our ongoing business during the pendency 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 agenciesMerger, could 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 a second wave of COVID-19 infections, particularly as the geographic areas in which we operate begin 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;
•create stress on our operations and systems associated with our participation in the PPP as a result of high demand and volume of applications;
•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, 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.
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, in the quarter ended June 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 anmaterial adverse effect on our business, financial condition and results of operations in future periods,operations.
Additionally, if the Merger is not completed, our business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger, and may heighten manythe market price of our known risks describedcommon stock might decline to the extent that the current market price reflects a market assumption that the Merger will be completed. If the Merger Agreement is terminated and we seek another Merger or business combination, you cannot be certain that we will be able to find a party willing to engage in a transaction on more attractive terms than the Merger.
Combining the Company's and Bryn Mawr's businesses may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the Merger may not be fully realized.
The success of the Merger will depend on, among other things, the combined company’s ability to combine the businesses of the Company and Bryn Mawr. If the combined company is not able to successfully achieve this objective, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected.
The Company and Bryn Mawr have operated and, until the completion of the Merger, will continue to operate, independently. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on the successful combination of the businesses of the Company and Bryn Mawr. To realize these anticipated benefits and cost savings, after the completion of the Merger, the Company expects to integrate Bryn Mawr’s business into its own. It is possible that the integration process could result in the “Risk Factors” sectionloss of our Annual Reportkey employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger. The loss of key employees could have an adverse effect on Form 10-Kthe companies’ financial results and the value of their common stock.
In addition, the impacts of the COVID-19 pandemic may make it more costly or more difficult to integrate the businesses of WSFS and Bryn Mawr. If the Company experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause Bryn Mawr or the Company to lose current customers or cause current customers to remove their accounts from Bryn Mawr or the Company and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Bryn Mawr and the Company during this transition period and on the Company for an undetermined period after consummation of the Merger.
The Company expects to incur substantial expenses related to the Merger.
The Company expects to incur substantial expenses in connection with consummation of the Merger and combining the business, operations, networks, systems, technologies, policies and procedures of the two companies. Although the Company and Bryn Mawr have assumed that a certain level of transaction and combination expenses would be incurred, there are a number of factors beyond their control that could affect the total amount or the timing of their combination expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Due to these factors, the transaction and combination expenses associated with the Merger could, particularly in the near term, exceed the savings that the combined company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the combination of the businesses following the consummation of the Merger. As a result of these expenses, both the Company and Bryn Mawr expect to take charges against their earnings before and after the completion of the Merger. The charges taken in connection with the Merger are expected to be significant, although the aggregate amount and timing of such charges are uncertain at present.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.
Before the transactions contemplated by the Merger Agreement, including the Merger, may be completed, various approvals must be obtained from bank regulatory authorities. In determining whether to grant these approvals, the applicable regulatory authorities consider a variety of factors, including the competitive impact of the proposal in the relevant geographic markets; financial, managerial and other supervisory considerations of each party; convenience and needs of the communities to be served and the record of the insured depository institution subsidiaries under the Community Reinvestment Act of 1977 and the regulations promulgated thereunder; effectiveness of the parties in combating money laundering activities; and the extent to which the proposal would result in greater or more concentrated risks to the stability of the United States banking or financial system. These regulatory authorities may impose conditions on the granting of such approvals. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the Merger or of imposing additional costs or limitations on the combined company following the Merger. The regulatory approvals may not be received at all, may not be received in a timely fashion, or may contain conditions on the completion of the Merger that are not anticipated or cannot be met. Furthermore, such conditions or changes may constitute a burdensome condition that may allow WSFS to terminate the Merger Agreement and WSFS may exercise its right to terminate the Merger Agreement. If the consummation of the Merger is delayed, including by a delay in receipt of necessary regulatory approvals, the business, financial condition and results of operations of each of WSFS and Bryn Mawr may also be adversely affected.
WSFS will be subject to business uncertainties and contractual restrictions while the Merger is pending.
Uncertainty about the effect of the Merger on employees, customers (including depositors and borrowers), suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of WSFS and Bryn Mawr. These uncertainties may impair WSFS’s and Bryn Mawr’s ability to attract, retain and motivate key personnel and customers (including depositors and borrowers) pending the consummation of the Merger, as such personnel and customers may experience uncertainty about their future roles and relationships following the consummation of the Merger. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with WSFS and/or Bryn Mawr to seek to change existing business relationships with WSFS and/or Bryn Mawr or fail to extend an existing relationship with WSFS and/or Bryn Mawr. In addition, competitors may target each party’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the Merger. The pursuit of the Merger and the preparation for the year ended December 31, 2019.integration may place a burden on each company’s management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on each company’s business, financial condition and results of operations. In addition, the Merger Agreement restricts each party from taking certain actions without the other party’s consent while the Merger is pending. These restrictions could have a material adverse effect on each party’s business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the fourthfirst quarter of 2018,2020, the Board of Directors of the Company approved a stockshare repurchase program that enables us toauthorizing the repurchase up to 3,136,978of 7,594,977 shares of common stock, after the closingor 15% of our acquisitionits outstanding shares as of Beneficial, which occurred on March 1, 2019.31, 2020. 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.
During the first quarter of 2020, the Board of Directors approved a new share repurchase program authorizing the repurchase of 7,594,977 shares, or 15% of outstanding shares as of March 31, 2020; however, we have temporarily suspended all share repurchases until we have a clearer long-term view on the impact of COVID-19 on the economy and our performance. During the three months ended June 30, 2020,2021, no repurchases of shares of common stock were made under the Company's new share repurchase program. All share repurchases were temporarily suspended upon the announcement of the Company signing the Merger Agreement with Bryn Mawr on March 10, 2021, and we expect the repurchases will continue to be suspended until the close of the Merger, which is currently anticipated to close early in the fourth quarter of 2021.
(1)
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 |
2.1 | | |
3.1 | | |
3.2 | | |
10.1 | | |
| | |
| | |
| | |
31.1 | | |
31.2 | | |
32 | | |
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 June 30, 2020,2021, filed with the SEC on August 7, 2020,6, 2021, is formatted in Inline XBRL. |
* Schedules to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby agrees to furnish aA copy of any omitted schedulesschedule will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities and Exchange Commission upon request.Act of 1934, as amended, for any document so furnished.
** 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.
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: August 7, 20206, 2021 | | /s/ Rodger Levenson |
| | Rodger Levenson |
| | Chairman, President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
Date: August 7, 20206, 2021 | | /s/ Dominic C. Canuso |
| | Dominic C. Canuso |
| | Executive Vice President and |
| | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |