WSFS FINANCIAL CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following audited Consolidated Financial Statements and related documents are set forth in this Annual Report on Form 10-K on the following pages: Page Report of Independent Registered Public Accounting Firm ( KPMG LLP , Philadelphia, PA , Auditor Firm ID: 185 ) 65 Consolidated Statements of Income 68 Consolidated Statements of Comprehensive Income 69 Consolidated Statements of Financial Condition 70 Consolidated Statements of Changes in Stockholders’ Equity 71 Consolidated Statements of Cash Flows 72 64 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors WSFS Financial Corporation: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial condition of WSFS Financial Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC 326, Financial Instruments - Credit Losses . Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 65 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of the Allowance for Credit Losses for Loans and Leases Evaluated on a Collective Basis As discussed in Note 7 to the consolidated financial statements, the Company’s total allowance for credit losses as of December 31, 2021 was $94.5 million, of which $94.5 million related to the allowance for credit losses on loans and leases evaluated on a collective basis (the collective ACL). The collective ACL includes the measure of expected credit losses on a collective (pooled) basis for those loans and leases that share similar risk characteristics. For the commercial portfolio, the Company uses a base loss rate methodology which applies a probability of default (PD) and loss given default (LGD) which are calculated based on the historical rate of migration. The historical rate of migration is based on the historical rate of credit loss measured during a look-back period (LBP). The historical rate of credit loss is determined based on internally assessed risk ratings and loan segments and then adjusted for the economic forecast scenario and macroeconomic assumptions over reasonable and supportable forecast periods. For the retail portfolio, the Company uses a base loss rate methodology which calculates historical loss rates based on average net loss rates over the LBP that incorporates the economic forecast assigned to that loan. After the reasonable and supportable forecast periods, the Company reverts on a straight-line basis over the reversion period to its historical loss rates, evaluated over the LBP, for the remaining life of both commercial and retail loans and leases. The LBP, reasonable and supportable forecast, and reversion period are established for each portfolio segment. The Company estimates the exposure at default using a method which projects prepayments over the life of the loans and leases. In order to capture the unique risks of the loan and lease portfolio within the PD, LGD and average net loss rates, the Company segments the portfolio into pools, considering similar risk characteristics. A portion of the collective ACL is comprised of adjustments to historical loss information for various internal and external conditions. These adjustments are based on qualitative factors not reflected in the quantitative model but are likely to impact the measurement of estimated credit losses. We identified the assessment of the December 31, 2021 collective ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment. Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including the methods and quantitative model used to estimate (1) the PD, LGD and average net loss rates and their significant assumptions, including portfolio segmentation, the economic forecast scenario and macroeconomic assumptions, the reasonable and supportable forecast periods, the LBP for both the commercial and retail portfolio, and credit risk ratings for commercial loans, and (2) the qualitative factors. The assessment also included an evaluation of the conceptual soundness and performance of the quantitative model. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL estimates, including controls over the: • development of the collective ACL methodology • continued use and appropriateness of changes made to the quantitative model • identification and determination of the significant assumptions used in the quantitative model • development of certain qualitative factors • analysis of the collective ACL results, trends, and ratios. 66 We evaluated the Company’s process to develop the collective ACL estimates by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting principles • evaluating judgments made by the Company relative to the assessment and performance testing of the quantitative model used • assessing the conceptual soundness and performance of the quantitative model used by inspecting the model documentation to determine whether the model is suitable for its intended use • evaluating the selection of economic forecast scenario by comparing it to the Company’s business environment and relevant industry practices • evaluating the length of the historical observation period and reasonable and supportable forecast periods by comparing to specific portfolio risk characteristics and trends • determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices • testing individual credit risk ratings for a selection of commercial loans by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral • evaluating the effect of certain qualitative factors on the collective ACL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative model. We also assessed the sufficiency of the audit evidence obtained related to the December 31, 2021 collective ACL by evaluating: • cumulative results of the audit procedures • qualitative aspects of the Company’s accounting practices • potential bias in the account estimates /s/ KPMG LLP We have served as the Company's auditor since 1994. Philadelphia, Pennsylvania March 1, 2022 67 CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, (Dollars in thousands, except per share data) 2021 2020 2019 Interest income: Interest and fees on loans and leases $ 393,248 $ 460,394 $ 463,220 Interest on mortgage-backed securities 55,802 48,377 48,954 Interest and dividends on investment securities: Taxable 2,805 1,191 131 Tax-exempt 2,719 3,428 3,884 Other interest income 1,795 1,015 4,903 456,369 514,405 521,092 Interest expense: Interest on deposits 14,923 39,262 60,075 Interest on Federal Home Loan Bank advances 5 1,950 5,520 Interest on senior debt 6,497 4,998 4,717 Interest on trust preferred borrowings 1,274 1,751 2,772 Interest on federal funds purchased — 471 2,971 Interest on other borrowings 21 18 89 22,720 48,450 76,144 Net interest income 433,649 465,955 444,948 (Recovery of) provision for credit losses ( 117,087 ) 153,180 25,560 Net interest income after provision for credit losses 550,736 312,775 419,388 Noninterest income: Credit/debit card and ATM income 29,479 35,014 50,383 Investment management and fiduciary revenue 62,348 48,979 42,450 Deposit service charges 22,090 19,999 22,972 Mortgage banking activities, net 23,216 30,201 11,053 Loan and lease fee income 7,533 4,518 3,577 Security gains, net 331 9,076 333 Unrealized gains on equity investments, net 5,141 761 26,175 Realized (loss) gain on sale of equity investment, net ( 706 ) 22,052 — Bank owned life insurance income 1,251 1,280 1,247 Other income 34,797 29,145 29,919 185,480 201,025 188,109 Noninterest expense: Salaries, benefits and other compensation 214,167 194,317 182,564 Occupancy expense 32,802 32,105 33,068 Equipment expense 29,040 23,793 20,879 Professional fees 15,614 18,757 11,167 Data processing and operations expenses 14,074 12,600 13,373 Marketing expense 5,413 5,677 6,714 FDIC expenses 4,081 2,148 1,483 Loan workout and other credit costs 663 6,899 3,616 Corporate development expense 11,676 4,328 55,697 Restructuring expense 1,346 510 16,133 Recovery of legal settlement ( 15,000 ) — — Recovery of fraud loss — — ( 463 ) Loss on early extinguishment of debt 1,087 2,280 — Other operating expense 63,553 65,430 68,896 378,516 368,844 413,127 Income before taxes 357,700 144,956 194,370 Income tax provision 86,095 31,636 46,452 Net income $ 271,605 $ 113,320 $ 147,918 Less: Net income (loss) attributable to noncontrolling interest 163 ( 1,454 ) ( 891 ) Net income attributable to WSFS $ 271,442 $ 114,774 $ 148,809 Basic earnings per share $ 5.71 $ 2.27 $ 3.02 Diluted earnings per share $ 5.69 $ 2.27 $ 3.00 The accompanying notes are an integral part of these Consolidated Financial Statements 68 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, (Dollars in thousands) 2021 2020 2019 Net income $ 271,605 $ 113,320 $ 147,918 Less: Net gain (loss) attributable to noncontrolling interest 163 ( 1,454 ) ( 891 ) Net income attributable to WSFS $ 271,442 $ 114,774 $ 148,809 Other comprehensive (loss) income: Net change in unrealized (losses) gains on investment securities available-for-sale Net unrealized (losses) gains arising during the period, net of tax (benefit) expense of $( 29,523 ), $ 12,585 , and $ 13,179 , respectively ( 93,503 ) 39,853 41,733 Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $ 80 , $ 2,178 , and $ 80 , respectively ( 252 ) ( 6,898 ) ( 253 ) ( 93,755 ) 32,955 41,480 Net change in securities held-to-maturity Amortization of unrealized gain on securities reclassified to held-to-maturity, net of tax expense of $ 32 , $ 60 , and $ 98 , respectively ( 101 ) ( 192 ) ( 311 ) Net change in unfunded pension liability Change in unfunded pension liability related to unrealized gain (loss), prior service cost and transition obligation, net of tax expense (benefit) of $ 50 , $( 585 ), and $( 1,439 ), respectively 97 ( 1,683 ) ( 4,151 ) Pension settlement, net of tax expense of $ — , $ 67 and $ — , respectively — 212 — 97 ( 1,471 ) ( 4,151 ) Net change in cash flow hedge Net unrealized gain arising during the period, net of tax expense of $ — , $ 493 , and $ 593 , respectively — 1,560 1,877 Amortization of unrealized gain on terminated cash flow hedges, net of tax benefit of $ 119 , $ 106 and $ — , respectively ( 378 ) ( 337 ) — ( 378 ) 1,223 1,877 Net change in equity method investments Net change in other comprehensive loss of equity method investments, net of tax expense (benefit) of $ 114 , $( 3 ), and $ — , respectively 362 ( 9 ) — Total other comprehensive (loss) income ( 93,775 ) 32,506 38,895 Total comprehensive income $ 177,667 $ 147,280 $ 187,704 The accompanying notes are an integral part of these Consolidated Financial Statements 69 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, (Dollars in thousands, except per share and share data) 2021 2020 Assets: Cash and due from banks $ 1,046,992 $ 1,244,705 Cash in non-owned ATMs 480,527 402,339 Interest-bearing deposits in other banks including collateral (restricted cash) of $ 5,050 at December 31, 2021 and $ 7,390 at December 31, 2020 5,420 7,691 Total cash, cash equivalents, and restricted cash 1,532,939 1,654,735 Investment securities, available for sale (amortized cost of $ 5,249,882 at December 31, 2021 and $ 2,450,265 at December 31, 2020) 5,205,311 2,529,057 Investment securities, held to maturity, net of allowance for credit losses of $ 4 at December 31, 2021 and $ 6 at December 31, 2020 (fair value $ 94,131 at December 31, 2021 and $ 116,421 at December 31, 2020) 90,642 111,741 Other investments 10,518 9,541 Loans held for sale at fair value 113,349 197,541 Loans and leases, net of allowance of $ 94,507 at December 31, 2021 and $ 228,804 at December 31, 2020 7,791,482 8,795,935 Bank-owned life insurance 33,099 32,051 Stock in Federal Home Loan Bank of Pittsburgh, at cost 6,073 5,771 Other real estate owned 2,320 3,061 Accrued interest receivable 41,596 44,335 Premises and equipment 87,295 96,556 Goodwill 472,828 472,828 Intangible assets 74,403 84,558 Other assets 315,472 296,204 Total assets $ 15,777,327 $ 14,333,914 Liabilities and Stockholders’ Equity Liabilities: Deposits: Noninterest-bearing $ 4,565,143 $ 3,415,021 Interest-bearing demand 8,674,919 8,441,643 Total deposits 13,240,062 11,856,664 Federal Home Loan Bank advances — 6,623 Trust preferred borrowings 67,011 67,011 Senior debt 147,939 246,617 Other borrowed funds 24,527 20,390 Accrued interest payable 736 1,450 Other liabilities 360,036 345,679 Total liabilities 13,840,311 12,544,434 Stockholders’ Equity: Common stock 0.01 par value, shares authorized of 90,000,000 ; shares issued of 57,695,676 at December 31, 2021 and 57,575,783 at December 31, 2020 577 576 Capital in excess of par value 1,058,997 1,053,022 Accumulated other comprehensive (loss) income ( 37,768 ) 56,007 Retained earnings 1,224,614 977,414 Treasury stock at cost, 10,086,936 shares at December 31, 2021 and 9,819,627 shares at December 31, 2020 ( 307,321 ) ( 295,293 ) Total stockholders’ equity of WSFS 1,939,099 1,791,726 Noncontrolling interest ( 2,083 ) ( 2,246 ) Total stockholders’ equity 1,937,016 1,789,480 Total liabilities and stockholders’ equity $ 15,777,327 $ 14,333,914 The accompanying notes are an integral part of these Consolidated Financial Statements 70 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Dollars in thousands, except per share and share amounts) Shares Common Stock Capital in Excess of Par Value Accumulated Other Comprehensive (Loss) Income 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) — — — — 148,809 — 148,809 ( 891 ) 147,918 Other comprehensive income — — — 38,895 — — 38,895 — 38,895 Cash dividend, $ 0.47 per share — — — — ( 22,463 ) — ( 22,463 ) — ( 22,463 ) Issuance of common stock including proceeds from exercise of common stock options 508,680 6 7,749 — — — 7,755 — 7,755 Re-issuance of treasury stock in connection with BNCL merger and related items — — 687,897 — — 262,071 949,968 76 950,044 Stock-based compensation expense — — 3,608 — — — 3,608 — 3,608 Repurchase of common stock, 2,132,390 shares — — — — — ( 97,186 ) ( 97,186 ) — ( 97,186 ) 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) — — — — 114,774 — 114,774 ( 1,454 ) 113,320 Other comprehensive income — — — 32,506 — — 32,506 — 32,506 Cash dividend, $ 0.48 per share — — — — ( 24,369 ) — ( 24,369 ) — ( 24,369 ) Issuance of common stock including proceeds from exercise of common stock options 140,125 1 2,031 — — — 2,032 — 2,032 Contributions from noncontrolling shareholders — — — — — — — 23 23 Stock-based compensation expense — — 2,677 — — — 2,677 — 2,677 Repurchase of common stock (1) — — ( 750 ) — — ( 155,082 ) ( 155,832 ) — ( 155,832 ) 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 — — — — 271,442 — 271,442 163 271,605 Other comprehensive loss — — — ( 93,775 ) — — ( 93,775 ) — ( 93,775 ) Cash dividend, $ 0.51 per share — — — — ( 24,242 ) — ( 24,242 ) — ( 24,242 ) Issuance of common stock including proceeds from exercise of common stock options 119,893 1 1,521 — — — 1,522 — 1,522 Stock-based compensation expense — — 5,694 — — — 5,694 — 5,694 Repurchase of common stock (1) — — ( 1,240 ) — — ( 12,028 ) ( 13,268 ) — ( 13,268 ) Balance, December 31, 2021 57,695,676 $ 577 $ 1,058,997 $ ( 37,768 ) $ 1,224,614 $ ( 307,321 ) $ 1,939,099 $ ( 2,083 ) $ 1,937,016 (1) Repurchase of common stock for the years ended December 31, 2021 and 2020 included 267,309 and 3,950,855 shares repurchased, respectively, in connection with the Company's share buyback program approved by the Board of Directors, and 31,188 and 24,910 shares withheld, respectively, to cover tax liabilities. The accompanying notes are an integral part of these Consolidated Financial Statements 71 CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (Dollars in thousands) 2021 2020 2019 Operating activities: Net income $ 271,605 $ 113,320 $ 147,918 Adjustments to reconcile net income to net cash provided by operating activities: (Recovery of) provision for credit losses ( 117,087 ) 153,180 25,560 Depreciation of premises and equipment, net 15,410 14,999 15,852 Accretion of fees, premiums and discounts, net ( 38,257 ) ( 60,159 ) ( 45,548 ) Amortization of intangible assets 10,583 10,909 11,113 Amortization of right of use lease asset 11,844 12,290 22,850 Decrease in operating lease liability ( 11,941 ) ( 12,170 ) ( 12,507 ) Income from mortgage banking activities, net ( 23,216 ) ( 30,201 ) ( 11,053 ) Gain on sale of securities, net ( 331 ) ( 9,076 ) ( 333 ) (Gain) loss on sale of other real estate owned and valuation adjustments, net ( 385 ) ( 25 ) 125 Stock-based compensation expense 5,694 2,677 3,608 Unrealized gains on equity investments, net ( 5,141 ) ( 761 ) ( 26,175 ) Realized loss (gain) on sale of equity investment, net 706 ( 22,052 ) — Deferred income tax expense (benefit) 39,838 ( 32,848 ) 7,074 Decrease (increase) in accrued interest receivable 2,739 ( 6,241 ) 1,406 Increase in other assets ( 46,378 ) ( 18,339 ) ( 4,676 ) Origination of loans held-for-sale ( 971,863 ) ( 942,188 ) ( 479,289 ) Proceeds from sales of loans held-for-sale 991,411 824,134 406,012 (Decrease) increase in accrued interest payable ( 714 ) ( 1,653 ) 1,203 (Decrease) increase in other liabilities ( 4,807 ) 24,675 30,922 Increase in value of bank-owned life insurance ( 1,048 ) ( 1,757 ) ( 806 ) Increase in capitalized interest, net ( 3,014 ) ( 3,572 ) ( 3,390 ) Net cash provided by operating activities $ 125,648 $ 15,142 $ 89,866 Investing activities: Purchases of investment securities held to maturity $ — $ ( 6,307 ) $ — Repayments, maturities and calls of investment securities held to maturity 20,365 27,085 16,170 Sale of investment securities available-for-sale 14,051 305,812 618,194 Purchases of investment securities available-for-sale ( 3,490,596 ) ( 1,454,699 ) ( 958,259 ) Repayments of investment securities available-for-sale 697,480 606,156 269,697 Proceeds from bank-owned life insurance surrender — — 59,710 Net proceeds from sale of equity investments 4,899 85,850 — Net cash from business combinations — — 76,072 Net decrease (increase) in loans and leases 1,265,395 ( 449,091 ) 201,934 Purchases of FHLB stock ( 625 ) ( 145,400 ) ( 394,428 ) Redemption of FHLB stock 323 160,726 415,771 Sales of assets acquired through foreclosure, net 2,489 2,014 3,089 Sale of premise and equipment 427 69 71 Investment in premises and equipment, net ( 6,576 ) ( 7,159 ) ( 14,198 ) Net cash (used in) provided by investing activities $ ( 1,492,368 ) $ ( 874,944 ) $ 293,823 (continued on following page) 72 CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) Year Ended December 31, (Dollars in thousands) 2021 2020 2019 Financing activities: Net increase in demand and saving deposits $ 1,760,031 $ 2,501,442 $ 69,761 Decrease in time deposits ( 169,871 ) ( 197,765 ) ( 55,400 ) Decrease in brokered deposits ( 202,625 ) ( 29,474 ) ( 156,396 ) Receipts from FHLB advances 1,000 5,047,424 32,320,456 Repayments of FHLB advances ( 7,623 ) ( 5,153,476 ) ( 32,536,246 ) Receipts from federal funds purchased — 8,030,475 32,252,775 Repayments of federal funds purchased — ( 8,225,475 ) ( 32,215,750 ) Contribution from noncontrolling shareholders — 23 — Cash dividend ( 24,242 ) ( 24,369 ) ( 22,463 ) Issuance of common stock and exercise of common stock options 1,522 2,032 7,755 Redemption of senior debt ( 100,000 ) — — Issuance of senior debt, net of costs — 147,780 — Repurchase of common shares ( 13,268 ) ( 155,832 ) ( 97,186 ) Net cash provided by (used in) financing activities $ 1,244,924 $ 1,942,785 $ ( 432,694 ) (Decrease) increase in cash, cash equivalents, and restricted cash $ ( 121,796 ) $ 1,082,983 $ ( 49,005 ) Cash, cash equivalents, and restricted cash at beginning of period 1,654,735 571,752 620,757 Cash, cash equivalents, and restricted cash at end of period $ 1,532,939 $ 1,654,735 $ 571,752 Supplemental disclosure of cash flow information: Cash paid for interest during the period $ 23,434 $ 50,103 $ 74,942 Cash paid for income taxes, net 40,691 72,756 33,843 Non-cash information: Loans transferred to other real estate owned $ 1,972 $ 2,674 $ 2,541 Loans transferred to portfolio from held-for-sale at fair value 72,621 34,517 24,862 Available-for-sale securities purchased, not settled 34,489 — — Fair value of assets acquired, net of cash received — — 5,032,156 Fair value of liabilities assumed — — 5,108,228 Impact of ASC 842 Adoption: Right of use asset — — 121,288 Lease liability — — ( 132,346 ) Impact of ASC 326 Adoption (Note 2): Allowance for credit losses on held-to-maturity debt securities — ( 8 ) — Allowance for credit losses on loans and leases — ( 35,855 ) — Deferred tax assets — 8,461 — Allowance for credit losses on unfunded lending commitments — ( 2,966 ) — Retained earnings — 30,368 — The accompanying notes are an integral part of these Consolidated Financial Statements 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION General WSFS Financial Corporation (the Company or WSFS) is a savings and loan holding company organized under the laws of the State of Delaware. Substantially all of the Company's assets are held by its subsidiary, Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank), is a federal savings bank organized under the laws of the United States (U.S.). The Consolidated Financial Statements include the accounts of the Company, WSFS Bank, WSFS Wealth Management, LLC (Powdermill ® ), WSFS Capital Management, LLC (West Capital), Cypress Capital Management, LLC (Cypress), Christiana Trust Company of Delaware ® (Christiana Trust DE) and WSFS SPE Services, LLC. The Company also has one unconsolidated subsidiary, WSFS Capital Trust III (the Trust). WSFS Bank has two wholly owned subsidiaries: Beneficial Equipment Finance Corporation (BEFC) and 1832 Holdings, Inc., and one majority-owned subsidiary, NewLane Finance Company (NewLane Finance ® ). Overview Founded in 1832, the Bank is one of the ten oldest bank and trust companies continuously operating under the same name in the U.S. The Company provides residential and commercial mortgage, commercial and consumer lending services, as well as retail deposit and cash management services. The Company's 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 individual, corporate and institutional clients. The Federal Deposit Insurance Corporation (FDIC) insures the Company's customers’ deposits to their legal maximums. The Company serves its Customers primarily from 112 offices located in Pennsylvania ( 52 ), Delaware ( 42 ), New Jersey ( 16 ), Virginia ( 1 ), and Nevada ( 1 ), its ATM network, website at www.wsfsbank.com , and mobile apps. Information on the Company's website is not incorporated by reference into this Annual Report on Form 10-K. The Company's leasing business is conducted by NewLane Finance ® . NewLane Finance ® originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories including technology, software, office, medical, veterinary and other areas. In addition, NewLane Finance ® offers captive insurance through its subsidiary, Prime Protect. Basis of Presentation The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the U.S. (GAAP). In preparing the Consolidated Financial Statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Although the Company's estimates contemplate current conditions and how it expects them to change in the future, it is reasonably possible that actual conditions in 2022 could be worse than anticipated in those estimates, which could materially affect its results of operations and financial condition. The accounting for 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 are subject to significant estimates. 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, changes in the fair value of financial instruments, as well as increased post-retirement benefits and income tax expense. Certain reclassifications have been made to the prior year’s Consolidated Financial Statements to conform to the current year’s presentation. All significant intercompany accounts and transactions were eliminated in consolidation. 74 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SIGNIFICANT ACCOUNTING POLICIES Cash, Cash Equivalents and Restricted Cash For purposes of reporting cash flows, cash, cash equivalents and restricted cash include cash, cash in non-owned ATMs, amounts due from banks, federal funds sold and securities purchased under agreements to resell and cash collateral held for a financial derivative related to the sale of certain Visa Class B shares. Debt Securities Debt securities mostly include mortgage-backed securities (MBS), municipal bonds, and U.S. government and agency securities and 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 are determined using the specific identification method and included in Security gains, net on the Consolidated Statements of Income. All sales are made without recourse. 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. 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. 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 the allowance for credit loss policies 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. 75 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 if it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criterion 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 in 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 these analyses on a quarterly basis to review the conditions and risks associated with the individual securities. Credit losses on an impaired security is 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. Equity Investments The Company has equity investments in certain strategic partnerships that are accounted for in accordance with both ASC 321-10, Investments - Equity Securities and ASC 323-10, Investments - Equity Method and Joint Ventures . Our equity investments are recorded in Other investments on the Consolidated Statements of Financial Condition. Equity investments recorded in accordance with ASC 321-10 are classified into one of the following two categories and accounted for as follows: • Investments with a readily determinable fair value are reported at fair value, with unrealized gains and losses included in earnings. Any dividends received are recorded in interest income. • Investments without a readily determinable fair value are reported at cost less impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Any dividends received are recorded in interest income. The fair value of equity investments with readily determinable fair values is primarily obtained from third-party pricing services. For equity investments without readily determinable fair values, when an orderly transaction for the identical or similar investment of the same issuer is identified, the Company uses valuation techniques permitted under ASC 820, Fair Value Measurement, to evaluate the observed transaction(s) and adjust the carrying value. ASC 321-10 also provides impairment accounting guidance for equity investments without readily determinable fair values. The qualitative assessment to determine whether impairment exists requires the use of the Company's judgment. If, after completing the qualitative assessment, the Company concludes an equity investment without a readily determinable fair value is impaired, a loss for the difference between the equity investment’s carrying value and its fair value may be recognized as a reduction to noninterest income in the Consolidated Statements of Income. Equity investments recorded in accordance with ASC 323-10 are initially recorded at cost based on the Company’s percentage ownership in the investee. Subsequently, the carrying amount of the investment is adjusted to reflect the recognition of the Company’s proportionate share of income or loss of the investee based on the investee’s earnings for the reporting period, recorded on a one-quarter lag. The Company assesses its equity method investments for impairment using ASC 323-10 guidance. The qualitative assessment to determine whether impairment exists requires the use of the Company’s judgment. If, after completing the qualitative assessment, the Company concludes an equity method investment is impaired, a loss for the difference between the equity investment’s carrying value and its fair value may be recognized in Unrealized gains on equity investments, net on the Consolidated Statements of Income. After an impairment charge is recorded, the new cost basis cannot be subsequently written up to a higher value as a result of increases in fair value. For additional detail regarding equity securities, see Note 5. 76 Loans and leases Loans and leases 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. Past Due and Nonaccrual Loans Past due loans are defined as loans contractually past due 90 days or more as to principal or interest payments. Past due loans 90 days or more that remain in accrual status are considered well secured and in the process of collection. Nonaccruing loans are those on which the accrual of interest has ceased. Loans are placed on nonaccrual status immediately if, in the opinion of the Company, collection is doubtful, or when principal or interest is past due 90 days or more and the loan is not well secured and in the process of collection. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on the Company’s assessment of the ultimate collectability of principal and interest. Loans are returned to accrual status when the Company assesses that the borrower has the ability to make all principal and interest payments in accordance with the terms of the loan (i.e. a consistent repayment record, generally six consecutive payments, has been demonstrated). Unless loans are well-secured and collection is imminent, for loans greater than 90 days past due their respective reserves are generally charged off once the loss has been confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. A loan, for which the terms have been modified resulting in a concession to the borrower experiencing financial difficulty, is considered a TDR. Principal balances are generally not forgiven when a loan is modified as a TDR. Nonaccruing restructured loans remain in nonaccrual status until there has been a period of sustained repayment performance demonstrated, as noted above, and repayment is reasonably assured. The CARES Act which was signed into law on March 27, 2020 allows financial institutions to exclude eligible loan modifications from TDR reporting. The Consolidated Appropriations Act, 2021 modified the CARES Act to extend the TDR reporting relief period. Under the CARES Act, as amended, 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 January 1, 2022. In addition, certain regulatory agencies have issued guidance during the year stating certain loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by COVID-19 may also exclude eligible loan modifications from TDR reporting. For COVID-19 related loan modifications which met the criteria under either the CARES Act, as amended, or the interagency guidance, the Company has elected to account for and report eligible modifications under this guidance. For additional detail regarding past due and nonaccrual loans, see Note 7. Allowance for Credit Losses - Loans and Leases The Company establishes its allowance in accordance with guidance provided in ASC 326, Financial Instruments - Credit Losses . The allowance for credit losses includes quantitative and qualitative factors that comprise the Company's current estimate of expected credit losses, including the Company's portfolio mix and segmentation, modeling methodology, historical loss experience, relevant available information from internal and external sources relating to qualitative adjustment factors, prepayment speeds and reasonable and supportable forecasts about future economic conditions. The Company's portfolio segments, established based on similar risk characteristics and loss behaviors, are: • Commercial and industrial - real estate secured, commercial and industrial - non-real estate secured, owner-occupied commercial, commercial mortgages, construction and commercial small business leases (collectively, commercial loans), and • Residential, equity secured lines and loans, installment loans, unsecured lines of credit, originated education loans and previously acquired education loans (collectively, retail loans). 77 Expected credit losses are net of expected recoveries and estimated over the contractual term, adjusted for expected prepayments. The contractual term excludes any extensions, renewals and modifications unless the Company has reasonable expectations at the reporting date that it will result in a troubled debt restructuring (TDR) or they are not unconditionally cancellable. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Expected prepayments are based on historical experience and considers adjustments for current and future economic conditions. The allowance includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis) and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and are individually evaluated for credit losses (individual basis). Loans that share similar risk characteristics are collectively reviewed for credit loss and are evaluated based on historical loss experience, adjusted for current economic conditions and future economic forecasts. Estimated losses are determined differently for commercial and retail loans, and each portfolio segment is further segmented by internally assessed risk ratings. The Company uses a single scenario third-party economic forecast to adjust the calculated historical loss rates of the portfolio segments to incorporate the effects of current and future economic conditions. The Company's economic forecast considers the general health of the economy, the interest rate environment, real estate pricing and market risk. The Company's forecast extends out 6 quarters (the forecast period) and reverts to the historical loss rates on a straight-line basis over 4 quarters (the reversion period) as it believes this to be reasonable and supportable in the current environment. The economic forecast and reversion periods will be evaluated periodically by the Company and updated as appropriate. The historical loss rates for commercial loans are estimated by determining the probability of default (PD) and expected loss given default (LGD) and are applied to the loans' exposure at default. 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 on average net loss rates over the same look-back period. The current look-back period is 44 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. The amount of the potential credit loss is measured using any of the following three methods: (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the fair value of collateral, if the loan is collateral dependent; or (iii) the loan’s observable market price. If the measured fair value of the loan is less than the amortized cost basis of the loan, an allowance for credit loss is recorded. For collateral dependent loans, the expected credit losses at the individual asset level is the difference between the collateral's fair value (less cost to sell) and the amortized cost. Qualitative adjustment factors consider various internal and external conditions which are allocated among loan segments and take into consideration: • Current underwriting policies, staff and portfolio concentrations, • Risk rating accuracy, credit and administration, • Internal risk emergence (including internal trends of delinquency, and criticized loans by segment), • Economic forecasts and conditions - locally and nationally (including market trends impacting collateral values), which is separate from or in addition to the third party economic forecast described above, and • Competitive environment, as it could impact loan structure and underwriting. These factors are based on their relative standing compared to the period in which historical losses are used in quantitative reserve estimates and current directional trends, and reasonable and supportable forecasts. Qualitative factors 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 recurring loan reviews. 78 Accrued interest receivable on loans is excluded from the estimate of credit losses and is included in Accrued interest receivable on the Consolidated Statements of Financial Condition. For additional detail regarding the allowance for credit losses and the provision for credit losses, see Note 7. Unfunded Lending Commitments For unfunded lending commitments, the Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the probability of default and utilization rate at default to calculate expected credit losses on commitments expected to be funded based on historical losses. The allowance for credit losses for off-balance sheet exposures is included in Other liabilities on the Consolidated Statements of Financial Condition and the provision for credit losses for off-balance sheet exposure is included in Loan workout and other credit costs on the Consolidated Statements of Income. For additional detail regarding unfunded lending commitments, see Note 17. Allowance for Loan and Lease Losses (Prior to the Company's Adoption of CECL) The Company adopted the ASC 326 guidance on January 1, 2020, using the modified retrospective approach for financial assets recorded at amortized cost with the exception of purchase credit deteriorated assets, which were previously classified as purchase credit impaired 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. For periods prior to the adoption of CECL, the Company maintain an allowance for loan and lease losses (allowance) which represents our best estimate of probable losses within our loan portfolio. As losses are realized, they are charged to the allowance. We establish our allowance in accordance with guidance provided in ASC 450, Contingencies, ASC 310, and the SEC’s Staff Accounting Bulletin 102, Selected Loan Loss Allowance Methodology and Documentation Issues (SAB 102). The allowance includes two primary components: (i) an allowance established on loans collectively evaluated for impairment (general allowance), and (ii) an allowance established on loans individually evaluated for impairment (specific allowance). In addition, we also maintain an allowance for acquired loans as necessary. The general allowance is calculated on a pooled loan basis using both quantitative and qualitative factors in accordance with ASC 450. The specific allowance is calculated on an individual loan basis when collectability of all contractually due principal and interest is no longer believed to be probable in accordance with ASC 310. Lastly, the allowance related to acquired loans is calculated when (i) there is deterioration in credit quality subsequent to acquisition for loans accounted for under ASC 310-30, and (ii) the inherent losses in the loans exceed the remaining total loan mark recorded at the time of acquisition for loans accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs. Allowances for pooled homogeneous loans, that are not deemed impaired, are based on historical net loss experience. Estimated losses for pooled portfolios are determined differently for commercial loan pools and retail loan pools. Commercial loans are pooled as follows: commercial and industrial, owner-occupied commercial, commercial mortgages and construction. Each pool is further segmented by internally assessed risk ratings. Loan losses for commercial loans are estimated by determining the probability of default and expected loss severity upon default. The probability of default is calculated based on the historical rate of migration to impaired status during the last 36 quarters. During the year ended December 31, 2019, we increased the look-back period to 36 quarters from 32 quarters used at December 31, 2018. This increase in the look-back period allows us to continue to anchor to the fourth quarter of 2010 to ensure that the quantitative reserves calculated by the allowance for loan and lease loss model are adequately considering the losses within a full credit cycle. Loss severity upon default is calculated as the actual loan losses (net of recoveries) on impaired loans in their respective pool during the same time frame. Retail loans are pooled into the following segments: residential mortgage, consumer secured and consumer unsecured loans. Pooled reserves for retail loans are calculated based solely on average net loss rates over the same 36 quarter look-back period. 79 Qualitative adjustment factors consider various internal and external conditions which are allocated among loan segments and take into consideration: • Current underwriting policies, staff and portfolio mix, • Internal trends of delinquency, nonaccrual and criticized loans by segment, • Risk rating accuracy, control and regulatory assessments/environment, • General economic conditions - locally and nationally, • Market trends impacting collateral values, and • Competitive environment, as it could impact loan structure and underwriting. The above factors are based on their relative standing compared to the period in which historic losses are used in quantitative reserve estimates and current directional trends. Qualitative factors in our model can add to or subtract from quantitative reserves. The allowance methodology uses a loss emergence period (LEP), which is the period of time between an event that triggers the probability of a loss and the confirmation of the loss. We estimate the commercial LEP to be approximately nine quarters as of December 31, 2019. Our residential mortgage and consumer LEP remained at four quarters as of December 31, 2019. We evaluate LEP quarterly for reasonableness and complete a detailed historical analysis of our LEP annually for our commercial portfolio and review of the current four quarter LEP for the retail portfolio to determine the continued reasonableness of this assumption. Our loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with individual problem loans. In addition, various regulatory agencies periodically review our loan ratings and allowance for loan and lease losses and the Bank’s internal loan review department performs loan reviews. For impaired loans, if the measure is less than the recorded investment in the loan, a related allowance is allocated for the impairment. Impairment of troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception or the fair value of the underlying collateral if the loan is collateral dependent. Troubled debt restructurings consist of concessions granted to borrowers facing financial difficulty. Loans Held for Sale Mortgage loans held for sale are recorded at fair value on a loan level basis, using pricing information obtained from secondary markets and brokers and applied to loans with similar interest rates and maturities. Other loans held for sale are carried at the lower of amortized cost or estimated fair value. The estimated fair value is based on pricing information from secondary markets and brokers, when available, or a discounted cash flow analysis when market information is unavailable. Other Real Estate Owned Upon initial receipt, other real estate owned (OREO) is recorded at the estimated fair value less costs to sell. Costs subsequently incurred to improve the assets are capitalized, provided that the resultant carrying value does not exceed the estimated fair value less costs to sell. Costs related to holding or disposing of the assets are charged to expense as incurred. The Company periodically evaluates OREO for impairment and write-down the value of the asset when declines in fair value below the carrying value are identified. Loan workout and OREO expenses include costs of holding and operating the assets, net gains or losses on sales of the assets and provisions for losses to reduce such assets to the estimated fair values less costs to sell. For additional detail regarding other real estate owned, see Note 7. Premises, Equipment and Software Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense are computed on a straight-line basis over the estimated useful lives of the assets or, for leasehold improvements, over the terms of the related lease or effective useful lives of the assets, whichever is less. In general, computer equipment, furniture and equipment and building renovations are depreciated over three , five and ten years , respectively. Software, which includes purchased or externally hosted software is recorded in Other assets and is amortized on a straight-line basis over the lesser of the contract term or estimated useful life of the software. 80 Maintenance and repairs are expensed as incurred, while costs of major replacements, improvements and additions are capitalized. Premises and equipment acquired in business combinations are initially recorded at fair value and subsequently carried at cost less accumulated depreciation and amortization. Assets to be disposed of are recorded at the lower of the carrying amount or fair value less costs to sell. For additional detail regarding premises and equipment, see Note 8. Goodwill and Intangible Assets The Company accounts for goodwill and intangible assets in accordance with ASC 805, Business Combinations and ASC 350, Intangibles-Goodwill and Other . Accounting for goodwill and other intangible assets requires the Company to make significant judgments, for goodwill particularly, with respect to estimating the fair value of each reporting unit. The estimates utilize historical data, cash flows, and market and industry data specific to each reporting unit as well as projected data. Industry and market data are used to develop material assumptions such as transaction multiples, required rates of return, control premiums, long-term growth rates, and capitalization. Goodwill is not amortized, rather it is subject to periodic impairment testing. The Company reviews goodwill for impairment annually on October 1 and more frequently if events and circumstances indicate that the fair value of a reporting unit is less than its carrying value. Other intangible assets with finite lives are amortized over their estimated useful lives. The Company reviews other intangible assets with finite lives for impairment if events and circumstances indicate that the carrying value may not be recoverable. For additional information regarding goodwill and intangible assets, see Note 10. Leases The Company accounts for its leases in accordance with ASC 842 - Leases . Most leases are recognized on the balance sheet by recording a right-of-use asset and lease liability for each lease. The right-of-use asset represents the right to use the asset under lease for the lease term, and the lease liability represents the contractual obligation to make lease payments. The right-of-use asset is tested for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. As a lessee, the Company enters into operating leases for certain bank branches, office space, and office equipment. The right-of-use assets and lease liabilities are initially recognized based on the net present value of the remaining lease payments which include renewal options where the Company is reasonably certain they will be exercised. The net present value is determined using the incremental collateralized borrowing rate at commencement date. The right-of-use asset is measured at the amount of the lease liability adjusted for any prepaid rent, lease incentives and initial direct costs incurred. The right-of-use asset and lease liability is amortized over the individual lease terms. Lease expense for lease payments is recognized on a straight-line basis over the lease term. As a lessor, the Company provides direct financing to customers through the Company's equipment and small-business leasing business. Direct financing leases are recorded at the aggregate of minimum lease payments net of unamortized deferred lease origination fees and costs and unearned income. Interest income on direct financing leases is recognized over the term of the lease. Origination fees and costs are deferred, and the net amount is amortized to interest income over the estimated life of the lease. For additional information regarding leases, see Note 9. Derivative Financial Instruments The Company accounts for derivatives in accordance with ASC 815, Derivatives and Hedging . Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recorded to earnings or accumulated other comprehensive income, as appropriate. At the inception of a derivative contract, the Company designates the derivative as a hedging or non-hedging instrument. To qualify for hedge accounting, derivatives must be highly effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the derivative contract. For fair value hedges, changes to the fair value are recorded in earnings, while for cash flow hedges, fair value changes are recorded in accumulated other comprehensive income and subsequently reclassified into earnings in the period that the hedged forecast transaction affects earnings. The ineffective portion of a hedge’s change in fair value is recognized in earnings immediately. For derivatives not designated as hedges, adjustments to fair value are recorded through earnings. For additional detail regarding derivatives, see Note 19. 81 Income Taxes The provision for income taxes includes federal, state and local income taxes currently payable and those deferred due to temporary differences between the financial statement basis and tax basis of assets and liabilities. Income taxes are accounted for in accordance with ASC 740, Income Taxes . 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. It prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. Benefits from tax positions are recognized in the financial statements only when it is more-likely-than-not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC 740 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. For additional detail regarding income taxes, see Note 15. Securities Sold Under Agreements to Repurchase The Company enters into sales of securities under agreements to repurchase which are treated as financings, with the obligation to repurchase securities sold reflected as a liability in the Consolidated Statements of Financial Condition. The securities underlying the agreements are assets. For additional detail regarding the securities sold under agreements to repurchase, see Note 12. Stock-Based Compensation Stock-based compensation is accounted for in accordance with ASC 718, Stock Compensation . Compensation expense relating to all share-based payments is recognized on a straight-line basis, over the applicable vesting period. For additional detail regarding stock-based compensation, see Note 16. RECENT ACCOUNTING PRONOUNCEMENTS Accounting 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 adopted this standard on January 1, 2021, on a prospective basis with 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: 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 adopted this standard on January 1, 2021, on a prospective basis with no impact to the Consolidated Financial Statements at the time of adoption. 82 ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope: In January 2021, the FASB 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 margining, 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 exceptions related to contract modifications and hedge accounting as defined in Topic 848. The guidance is effective upon issuance through December 31, 2022 and there was no impact to the Company at the time the guidance became effective. The Company will apply this guidance to any derivatives affected by the discounting transaction due to reference rate reform. There was no material accounting guidance pending adoption at December 31, 2021. 83 3. NONINTEREST INCOME Credit/debit card and ATM income The following table presents the components of credit/debit card and ATM income: Twelve Months Ended December 31, (Dollars in thousands) 2021 2020 2019 Bailment fees $ 12,940 $ 14,615 $ 26,256 Interchange fees 13,520 17,747 22,975 Other card and ATM fees 3,019 2,652 1,152 Total credit/debit card and ATM income $ 29,479 $ 35,014 $ 50,383 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 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. Bailment fees decreased in 2021 as compared to 2020 and 2019 due to the lower interest rate environment. Credit/debit card and ATM income also includes interchange fees. Interchange fees are paid by a merchant's bank to a bank that issued a debit or credit card used in a transaction to compensate the issuing bank for the value and benefit the merchant receives from accepting electronic payments. These revenue streams generate fee income at the time a transaction occurs and are recorded as revenue at the time of the transaction. Interchange fees decreased in 2021 and 2020 as compared to 2019 as a result of the Durbin Amendment which became effective for the Company on July 1, 2020. 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. Investment management and fiduciary income The following table presents the components of investment management and fiduciary income: Twelve Months Ended December 31, (Dollars in thousands) 2021 2020 2019 Trust fees $ 43,725 $ 33,288 $ 27,383 Wealth management and advisory fees 18,623 15,691 15,067 Total investment management and fiduciary income $ 62,348 $ 48,979 $ 42,450 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 and trustee related 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 or assets held within a trust. This revenue stream primarily generates fee income through monthly, quarterly and annual billings for services provided. Trust fees increased in 2021 as compared to 2020 and 2019 primarily due to increased institutional trust activity. Wealth management and advisory fees consists of fees from Cypress, West Capital, 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. 84 Deposit service charges The following table presents the components of deposit service charges: Twelve Months Ended December 31, (Dollars in thousands) 2021 2020 2019 Service fees $ 14,220 $ 12,725 $ 12,420 Return and overdraft fees 6,789 6,819 9,911 Other deposit service fees 1,081 455 641 Total deposit service charges $ 22,090 $ 19,999 $ 22,972 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: Twelve Months Ended December 31, (Dollars in thousands) 2021 2020 2019 Managed service fees $ 16,425 $ 15,448 $ 14,152 Currency preparation 4,064 3,854 3,195 ATM loss protection 2,522 2,401 2,551 Miscellaneous products and services 11,786 7,442 10,021 Total other income $ 34,797 $ 29,145 $ 29,919 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 21 for further information about the disaggregation of noninterest income by segment. 85 Table of Contents 4. EARNINGS PER SHARE The following table shows the computation of basic and diluted earnings per share: (Dollars and shares in thousands, except per share data) 2021 2020 2019 Numerator: Net income attributable to WSFS $ 271,442 $ 114,774 $ 148,809 Denominator: Weighted average basic shares 47,539 50,510 49,298 Dilutive potential common shares 164 37 256 Weighted average fully diluted shares 47,703 50,547 49,554 Earnings per share: Basic $ 5.71 $ 2.27 $ 3.02 Diluted $ 5.69 $ 2.27 $ 3.00 Outstanding common stock equivalents having no dilutive effect 1 12 1 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 under the 2013 Incentive Plan and the 2018 Incentive Plan. 86 5. INVESTMENT SECURITIES The following tables detail the amortized cost, allowance for credit losses and the estimated fair value of the Company's investments in available-for-sale and held-to-maturity debt securities. None of the Company's investments in debt securities are classified as trading. December 31, 2021 (Dollars in thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Allowance for Credit Losses Fair Value Available-for-Sale Debt Securities Collateralized mortgage obligation (CMO) $ 586,830 $ 3,569 $ 14,633 $ — $ 575,766 Fannie Mae (FNMA) mortgage-backed securities (MBS) 4,275,307 24,170 53,793 — 4,245,684 Freddie Mac (FHLMC) MBS 139,708 6,336 516 — 145,528 Ginnie Mae (GNMA) MBS 17,456 551 71 — 17,936 Government-sponsored enterprises (GSE) agency notes 230,581 — 10,184 — 220,397 $ 5,249,882 $ 34,626 $ 79,197 $ — $ 5,205,311 Held-to-Maturity Debt Securities (1) State and political subdivisions $ 90,146 $ 3,489 $ — $ 4 $ 93,631 Foreign bonds 500 — — — 500 $ 90,646 $ 3,489 $ — $ 4 $ 94,131 (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 $ 0.2 million at December 31, 2021, which are offset in Accumulated other comprehensive income (loss) . 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. December 31, 2020 (Dollars in thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Allowance for Credit Losses Fair Value Available-for-Sale Debt Securities CMO $ 461,819 $ 9,949 $ 443 $ — $ 471,325 FNMA MBS 1,544,105 55,747 882 — 1,598,970 FHLMC MBS 190,856 12,142 105 — 202,893 GNMA MBS 22,716 1,046 — — 23,762 GSE agency notes 230,769 1,987 649 — 232,107 $ 2,450,265 $ 80,871 $ 2,079 $ — $ 2,529,057 Held-to-Maturity Debt Securities (1) State and political subdivisions $ 111,246 $ 4,678 $ — $ 6 $ 115,918 Foreign bonds 501 2 — — 503 $ 111,747 $ 4,680 $ — $ 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 $ 0.4 million at December 31, 2020, which are offset in Accumulated other comprehensive income (loss) . 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. 87 The scheduled maturities of available-for-sale and held-to-maturity debt securities at December 31, 2021 and December 31, 2020 are presented in the table below: Available-for-Sale (Dollars in thousands) Amortized Cost Fair Value December 31, 2021 (1) Within one year $ — $ — After one year but within five years 103,960 107,009 After five years but within ten years 204,186 204,289 After ten years 4,941,736 4,894,013 $ 5,249,882 $ 5,205,311 December 31, 2020 (1) Within one year $ — $ — 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 Held-to-Maturity (Dollars in thousands) Amortized Cost Fair Value December 31, 2021 (1) Within one year $ 232 $ 234 After one year but within five years 2,675 2,736 After five years but within ten years 44,137 45,404 After ten years 43,602 45,757 $ 90,646 $ 94,131 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 (1) Actual maturities could differ from contractual maturities. MBS may have expected maturities that differ from their contractual maturities. These differences arise because issuers may have the right to call securities and borrowers may have the right to prepay obligations with or without prepayment penalty. The estimated weighted average duration of MBS was 4.6 years at December 31, 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 $ 2.2 billion and $ 1.3 billion were pledged as collateral for retail customer repurchase agreements, municipal deposits, and other obligations as of December 31, 2021 and December 31, 2020, respectively. During the year ended December 31, 2021, the Company sold $ 14.1 million of debt securities categorized as available-for-sale, resulting in $ 0.3 million of realized gains and no realized losses. During the year ended December 31, 2020, the Company sold $ 305.8 million of debt securities categorized as available-for-sale, resulting in $ 9.1 million of realized gains and no realized losses. During the year ended December 31, 2019, the Company sold $ 618.2 million, of which $ 578.8 million was related to the acquisition of Beneficial. The remaining $ 39.8 million resulted in realized gains of $ 0.3 million and no realized losses. As of December 31, 2021 and December 31, 2020, the Company's debt securities portfolio had remaining unamortized premiums of $ 69.4 million and $ 60.4 million, respectively, and unaccreted discounts of $ 12.7 million and $ 2.6 million, respectively. 88 For debt securities in an unrealized loss position and an allowance has not been recorded, the table below shows the gross unrealized losses and fair value by investment category and length of time that individual debt securities were in a continuous unrealized loss position at December 31, 2021. Duration of Unrealized Loss Position Less than 12 months 12 months or longer Total (Dollars in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Available-for-sale debt securities: CMO $ 411,347 $ 12,730 $ 35,638 $ 1,903 $ 446,985 $ 14,633 FNMA MBS 3,018,606 41,021 356,665 12,772 3,375,271 53,793 FHLMC MBS 11,227 348 1,917 168 13,144 516 GNMA MBS 4,847 71 — — 4,847 71 GSE agency notes 64,509 1,918 155,888 8,266 220,397 10,184 $ 3,510,536 $ 56,088 $ 550,108 $ 23,109 $ 4,060,644 $ 79,197 For debt securities in an unrealized loss position, the table below shows the gross unrealized losses and fair value by investment category and length of time that individual debt securities were in a continuous unrealized loss position at December 31, 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 $ 183,983 $ 443 $ — $ — $ 183,983 $ 443 FNMA MBS 289,338 879 4,355 3 293,693 882 FHLMC MBS 5,191 105 — — 5,191 105 GSE agency notes 101,016 649 — — 101,016 649 $ 579,528 $ 2,076 $ 4,355 $ 3 $ 583,883 $ 2,079 At December 31, 2021, available-for-sale debt securities for which the amortized cost basis exceeded fair value totaled $ 4.1 billion. Total unrealized losses on these securities were $ 79.2 million at December 31, 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 no allowance for credit losses recorded for available-for-sale debt securities as of December 31, 2021. At December 31, 2021 and December 31, 2020, held-to-maturity debt securities had an amortized cost basis of $ 90.6 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 December 31, 2021, aggregated by credit quality indicator: (Dollars in thousands) State and political subdivisions Foreign bonds A+ rated or higher $ 90,146 $ 500 Not rated — — Ending balance $ 90,146 $ 500 89 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) State and political subdivisions Foreign bonds A+ rated or higher $ 110,959 $ 501 Not rated 287 — Ending balance $ 111,246 $ 501 The 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 twelve months ended December 31, 2021 and 2020. The following table presents the activity in the allowance for credit losses for state and political subdivisions debt securities for the twelve months ended December 31, 2021 and 2020: Twelve months ended December 31, (Dollars in thousands) 2021 2020 Allowance for credit losses: Beginning balance $ 6 $ — Impact of adoption ASC 326 — 8 Provision for credit losses ( 2 ) ( 2 ) Charge-offs, net — — Ending balance $ 4 $ 6 Accrued interest receivable of $ 0.9 million and $ 1.1 million as of December 31, 2021 and December 31, 2020, respectively, for held-to-maturity debt securities were excluded from the evaluation of allowance for credit losses. There were no nonaccrual or past due held-to-maturity debt securities as of December 31, 2021 and December 31, 2020. Equity Investments The Company had equity investments with a fair value of $ 10.5 million and $ 9.5 million as of December 31, 2021 and December 31, 2020, respectively. During the twelve months ended December 31, 2021, total net gains on equity investments of $ 4.4 million were recorded from the sale of the Company's investment in Social Finance, Inc. (SoFi) in July 2021. This included a realized loss of $ 0.7 million which was recorded in Realized loss (gain) on equity investments, net in the Consolidated Statements of Income at the time of sale. During the twelve months ended December 31, 2020, total net gains on equity investments of $ 22.8 million were recorded in the Company's Consolidated Statements of Income. This included a net realized gain of $ 22.1 million which was recorded in Realized loss (gain) on equity investments, net for the sale of Visa Class B shares in June 2020. During the twelve months ended December 31, 2019, total net gains on equity investments of $ 26.2 million were recorded in the Company's Consolidated Statements of Income. 90 6. LOANS The following table shows the Company's loan portfolio by category: December 31, (Dollars in thousands) 2021 2020 Commercial and industrial (1) $ 1,918,043 $ 2,700,418 Owner-occupied commercial 1,341,707 1,332,727 Commercial mortgages 1,881,510 2,086,062 Construction 687,213 716,275 Commercial small business leases 352,276 248,885 Residential (2) 546,667 774,455 Consumer (3) 1,158,573 1,165,917 7,885,989 9,024,739 Less: Allowance for credit losses 94,507 228,804 Net loans and leases $ 7,791,482 $ 8,795,935 (1) Includes PPP loans of $ 31.5 million and $ 751.2 million at December 31, 2021 and 2020, respectively. (2) Includes reverse mortgages, at fair value of $ 3.9 million and $ 10.1 million at December 31, 2021 and 2020, respectively . (3) Includes home equity lines of credit, installment loans unsecured lines of credit and education loans. Accrued interest receivable on loans outstanding was $ 31.6 million and $ 37.6 million at December 31, 2021 and 2020, respectively. 91 7. ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION The following tables provide the activity of the Company's allowance for credit losses and loan and lease balances for the years ended December 31, 2021 and December 31, 2020 in accordance with ASC 326. During 2021, the decrease to the allowance for credit losses was primarily due to positive impacts on the economic forecasts and significantly improved credit quality metrics that reverted the Company's problem assets, nonperforming assets and delinquencies to at or near the levels prior to the COVID-19 pandemic. (Dollars in thousands) Commercial and Industrial (1) Owner- occupied Commercial Commercial Mortgages Construction Residential (2) Consumer (3) Total Year Ended December 31, 2021 Allowance for credit losses Beginning balance $ 150,875 $ 9,615 $ 31,071 $ 12,190 $ 6,893 $ 18,160 $ 228,804 Charge-offs ( 23,592 ) ( 83 ) ( 73 ) ( 2,473 ) — ( 2,094 ) ( 28,315 ) Recoveries 8,756 160 269 — 789 1,131 11,105 (Credit) provision ( 86,072 ) ( 5,118 ) ( 19,644 ) ( 7,814 ) ( 4,330 ) 5,891 ( 117,087 ) Ending balance $ 49,967 $ 4,574 $ 11,623 $ 1,903 $ 3,352 $ 23,088 $ 94,507 Period-end allowance allocated to: Loans evaluated on an individual basis $ 1 $ — $ 7 $ — $ — $ — $ 8 Loans evaluated on a collective basis 49,966 4,574 11,616 1,903 3,352 23,088 94,499 Ending balance $ 49,967 $ 4,574 $ 11,623 $ 1,903 $ 3,352 $ 23,088 $ 94,507 Period-end loan balances: Loans evaluated on an individual basis $ 8,363 $ 1,690 $ 3,764 $ — $ 5,000 $ 2,321 $ 21,138 Loans evaluated on a collective basis 2,261,956 1,340,017 1,877,746 687,213 537,733 1,156,252 7,860,917 Ending balance $ 2,270,319 $ 1,341,707 $ 1,881,510 $ 687,213 $ 542,733 $ 1,158,573 $ 7,882,055 (1) Includes commercial small business leases and PPP loans. (2) Period-end loan balance excludes reverse mortgages at fair value of $ 3.9 million. (3) Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans. (Dollars in thousands) Commercial and Industrial (1) Owner- occupied Commercial Commercial Mortgages Construction Residential (2) Consumer (3) Total Year Ended December 31, 2020 Allowance for credit losses Beginning balance, prior to adoption of ASC 326 $ 22,849 $ 4,616 $ 7,452 $ 3,891 $ 1,381 $ 7,387 $ 47,576 Impact of adoption ASC 326 (4) 19,747 ( 1,472 ) 1,662 681 7,522 7,715 35,855 Charge-offs ( 10,388 ) ( 336 ) ( 104 ) — ( 229 ) ( 2,464 ) ( 13,521 ) Recoveries 4,255 142 158 36 230 893 5,714 Provision (credit) 114,412 6,665 21,903 7,582 ( 2,011 ) 4,629 153,180 Ending balance $ 150,875 $ 9,615 $ 31,071 $ 12,190 $ 6,893 $ 18,160 $ 228,804 Period-end allowance allocated to: Loans evaluated on an individual basis $ 1 $ — $ 13 $ — $ — $ — $ 14 Loans evaluated on a collective basis 150,874 9,615 31,058 12,190 6,893 18,160 228,790 Ending balance $ 150,875 $ 9,615 $ 31,071 $ 12,190 $ 6,893 $ 18,160 $ 228,804 Period-end loan balances: Loans evaluated on an individual basis $ 14,048 $ 6,496 $ 20,309 $ 79 $ 5,921 $ 2,371 $ 49,224 Loans evaluated on a collective basis 2,935,255 1,326,231 2,065,753 716,196 758,472 1,163,546 8,965,453 Ending balance $ 2,949,303 $ 1,332,727 $ 2,086,062 $ 716,275 $ 764,393 $ 1,165,917 $ 9,014,677 (1) Includes commercial small business leases and PPP loans. (2) Period-end loan balance excludes reverse mortgages at fair value of $ 10.1 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. 92 The following table provides the activity of the allowance for loan and lease losses and loan and lease balances for the year ended 2019 under the incurred loss model: (Dollars in thousands) Commercial and Industrial (1) Owner- occupied Commercial Commercial Mortgages Construction Residential (2) Consumer Total Year Ended December 31, 2019 Allowance for loan and lease losses Beginning balance $ 14,211 $ 5,057 $ 6,806 $ 3,712 $ 1,428 $ 8,325 $ 39,539 Charge-offs ( 17,258 ) ( 354 ) ( 159 ) ( 42 ) ( 322 ) ( 4,138 ) ( 22,273 ) Recoveries 1,621 200 1,546 4 ( 84 ) 1,463 4,750 Provision (credit) 23,977 ( 472 ) ( 830 ) 207 126 1,465 24,473 Provision for acquired loans 298 185 89 10 233 272 1,087 Ending balance $ 22,849 $ 4,616 $ 7,452 $ 3,891 $ 1,381 $ 7,387 $ 47,576 Period-end allowance allocated to: Individually evaluated for impairment $ 1,179 $ 23 $ — $ — $ 463 $ 176 $ 1,841 Collectively evaluated for impairment 21,664 4,383 7,387 3,867 824 7,210 45,335 Acquired loans evaluated for impairment 6 210 65 24 94 1 400 Ending balance $ 22,849 $ 4,616 $ 7,452 $ 3,891 $ 1,381 $ 7,387 $ 47,576 Period-end loan balances: Individually evaluated for impairment (3) $ 11,158 $ 4,060 $ 1,753 $ — $ 12,151 $ 7,467 $ 36,589 Collectively evaluated for impairment 1,619,549 971,694 1,105,174 437,999 145,582 899,724 5,179,722 Acquired nonimpaired loans 603,157 313,955 1,107,379 142,592 834,820 219,413 3,221,316 Acquired impaired loans 1,564 6,757 8,670 491 7,326 2,127 26,935 Ending balance (4) $ 2,235,428 $ 1,296,466 $ 2,222,976 $ 581,082 $ 999,879 $ 1,128,731 $ 8,464,562 (1) Includes commercial small business leases. (2) Period-end loan balance excludes reverse mortgages at fair value of $ 16.6 million as of December 31, 2019. (3) The difference between this amount and nonaccruing loans represents accruing troubled debt restructured loans which are considered to be impaired loans of $ 14.3 million as of December 31, 2019. (4) Ending loan balances do not include net deferred fees. The following tables show nonaccrual and past due loans presented at amortized cost at the date indicated: December 31, 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) $ 5,007 $ 547 $ 5,554 $ 2,256,554 $ 8,211 $ 2,270,319 Owner-occupied commercial 741 — 741 1,340,155 811 1,341,707 Commercial mortgages 3,525 810 4,335 1,875,105 2,070 1,881,510 Construction 7,933 — 7,933 679,268 12 687,213 Residential (3) 1,856 — 1,856 537,752 3,125 542,733 Consumer (4) 10,227 8,634 18,861 1,137,332 2,380 1,158,573 Total (4) $ 29,289 $ 9,991 $ 39,280 $ 7,826,166 $ 16,609 $ 7,882,055 % of Total Loans 0.37 % 0.13 % 0.50 % 99.29 % 0.21 % 100.00 % (1) Nonaccrual loans with an allowance totaled less than $ 0.1 million. (2) Includes commercial small business leases and PPP loans. (3) Residential accruing current balances exclude reverse mortgages at fair value of $ 3.9 million. (4) Includes $ 17.0 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss. 93 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 — 371 715,904 — 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 % 100.00 % (1) Nonaccrual loans with an allowance totaled less than $ 0.1 million. (2) Includes commercial small business leases and PPP loans. (3) Residential accruing current balances exclude reverse mortgages at fair value of $ 10.1 million. (4) Includes $ 18.2 million of delinquent, but still accruing, U.S. government-guaranteed student loans that carry little risk of credit loss. The following table presents the amortized cost basis of nonaccruing collateral-dependent loans by class at December 31, 2021 and December 31, 2020: December 31, 2021 December 31, 2020 (Dollars in thousands) Property Equipment and other Property Equipment and other Commercial and industrial (1) $ 4,199 $ 4,012 $ 10,646 $ 3,170 Owner-occupied commercial 811 — 5,360 — Commercial mortgages 2,070 — 17,175 — Construction 12 — — — Residential (2) 3,125 — 3,247 — Consumer (3) 2,380 — 2,294 16 Total $ 12,597 $ 4,012 $ 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 of $ 0.8 million was recognized on individually reviewed loans during 2021 and 2020. As of December 31, 2021, there were 28 residential loans and 9 commercial loans in the process of foreclosure. The total outstanding balance on the loans was $ 2.5 million and $ 3.2 million, respectively. As of December 31, 2020, there were 27 residential loans and 23 commercial loans in the process of foreclosure. The total outstanding balance on the loans was $ 1.9 million and $ 12.8 million, respectively. Loan workout and OREO expenses recognized were $ 1.5 million in 2021, $ 3.2 million in 2020, and $ 2.7 million in 2019. Loan workout and OREO expenses are included in Loan workout and other credit costs on the Consolidated Statement of Income. 94 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. These 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 . These 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. 95 The following table provides an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses as of December 31, 2021. Term Loans Amortized Cost Basis by Origination Year 2021 2020 2019 2018 2017 Prior Revolving loans amortized cost basis Revolving loans converted to term Total (Dollars in thousands) Commercial and industrial (1) : Risk Rating Pass (2) $ 556,896 $ 420,698 $ 329,354 $ 273,345 $ 139,800 $ 148,809 $ 5,551 $ 176,006 $ 2,050,459 Special mention 35,910 949 3,052 1,057 429 15,299 — 17,545 74,241 Substandard or Lower 12,533 14,408 53,655 29,046 19,114 6,921 29 9,913 145,619 $ 605,339 $ 436,055 $ 386,061 $ 303,448 $ 159,343 $ 171,029 $ 5,580 $ 203,464 $ 2,270,319 Owner-occupied commercial: Risk Rating Pass $ 305,156 $ 189,128 $ 172,503 $ 67,526 $ 136,697 $ 262,629 $ — $ 128,188 $ 1,261,827 Special mention 938 5,359 2,561 891 — 7,019 — 10,543 27,311 Substandard or Lower 3,192 13,736 4,138 9,418 5,580 11,039 — 5,466 52,569 $ 309,286 $ 208,223 $ 179,202 $ 77,835 $ 142,277 $ 280,687 $ — $ 144,197 $ 1,341,707 Commercial mortgages: Risk Rating Pass $ 416,149 $ 280,889 $ 217,311 $ 134,477 $ 229,863 $ 368,527 $ — $ 187,396 $ 1,834,612 Special mention — 4,185 — 861 11,588 1,385 — 2,097 20,116 Substandard or Lower 2,438 1,624 3,789 2,114 2,254 14,085 — 478 26,782 $ 418,587 $ 286,698 $ 221,100 $ 137,452 $ 243,705 $ 383,997 $ — $ 189,971 $ 1,881,510 Construction: Risk Rating Pass $ 248,053 $ 195,269 $ 84,868 $ 39,585 $ 2,223 $ 11,297 $ — $ 88,839 $ 670,134 Special mention — — — — — — — — — Substandard or Lower 12,922 — 2,422 — 90 — — 1,645 17,079 $ 260,975 $ 195,269 $ 87,290 $ 39,585 $ 2,313 $ 11,297 $ — $ 90,484 $ 687,213 Residential (3) : Risk Rating Performing $ 59,977 $ 28,426 $ 12,526 $ 32,871 $ 44,969 $ 358,964 $ — $ — $ 537,733 Nonperforming (4) — 112 1,044 — 63 3,781 — — 5,000 $ 59,977 $ 28,538 $ 13,570 $ 32,871 $ 45,032 $ 362,745 $ — $ — $ 542,733 Consumer (5) : Risk Rating Performing $ 219,918 $ 169,922 $ 74,048 $ 203,519 $ 39,113 $ 60,952 $ 382,718 $ 5,364 $ 1,155,554 Nonperforming (6) — 147 — 600 71 — 1,655 546 3,019 $ 219,918 $ 170,069 $ 74,048 $ 204,119 $ 39,184 $ 60,952 $ 384,373 $ 5,910 $ 1,158,573 (1) Includes commercial small business leases. (2) Includes $ 31.5 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. 96 The following table provides an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses as of December 31, 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 — 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 $ — $ 123,194 $ 1,190,526 Special mention 1,525 5,885 1,838 17,578 4,125 1,997 — 14,467 47,415 Substandard or Lower 3,703 13,426 15,272 19,883 11,581 19,331 — 11,590 94,786 $ 225,393 $ 245,077 $ 107,625 $ 173,364 $ 139,603 $ 292,414 $ — $ 149,251 $ 1,332,727 Commercial mortgages: Risk Rating Pass $ 379,592 $ 283,004 $ 240,924 $ 257,809 $ 254,780 $ 375,473 $ — $ 148,210 $ 1,939,792 Special mention 8,324 1,774 21,762 21,269 1,274 6,507 — 1,870 62,780 Substandard or Lower 26,343 25,402 2,253 1,950 3,242 24,300 — — 83,490 $ 414,259 $ 310,180 $ 264,939 $ 281,028 $ 259,296 $ 406,280 $ — $ 150,080 $ 2,086,062 Construction: Risk Rating Pass $ 189,257 $ 214,956 $ 208,981 $ 11,414 $ 7,414 $ 3,645 $ — $ 66,018 $ 701,685 Special mention — — — 3,515 — — — — 3,515 Substandard or Lower — 8,648 — — — 79 — 2,348 11,075 $ 189,257 $ 223,604 $ 208,981 $ 14,929 $ 7,414 $ 3,724 $ — $ 68,366 $ 716,275 Residential (3) : Risk Rating Performing $ 42,475 $ 26,309 $ 71,410 $ 85,277 $ 149,643 $ 383,358 $ — $ — $ 758,472 Nonperforming (4) 113 — — — 283 5,525 — — 5,921 $ 42,588 $ 26,309 $ 71,410 $ 85,277 $ 149,926 $ 388,883 $ — $ — $ 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) — — 636 232 — — 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) Includes commercial small business leases. (2) Includes $ 751.2 million of PPP loans (3) Excludes reverse mortgages at fair value. (4) Includes troubled debt restructured mortgages performing in accordance with the loans' modified terms and are accruing interest. (5) Includes home equity lines of credit, installment loans, unsecured lines of credit and education loans. (6) Includes troubled debt restructured home equity installment loans performing in accordance with the loans' modified terms and are accruing interest. 97 Troubled Debt Restructurings (TDR) The following table presents the balance of TDRs as of the indicated dates: (Dollars in thousands) December 31, 2021 December 31, 2020 Performing TDRs $ 14,204 $ 15,539 Nonperforming TDRs 756 4,601 Total TDRs $ 14,960 $ 20,140 Approximately $ 0.2 million and less than $ 0.1 million in related reserves have been established for these loans at December 31, 2021 and December 31, 2020, respectively. The following tables present information regarding the types of loan modifications made and the balances of loans modified as TDRs during the years ended December 31, 2021 and 2020: December 31, 2021 December 31, 2020 Contractual payment reduction Maturity date extension Discharged in bankruptcy Other (1) Total Contractual payment reduction Maturity date extension Discharged in bankruptcy Other (1) Total Commercial — — — — — 1 — — — 1 Owner-occupied commercial — — — — — 3 — — — 3 Commercial mortgages — — — — — — 1 — — 1 Construction — — — — — — — — — — Residential — — 2 — 2 — — 6 4 10 Consumer — 1 23 6 30 — — 12 7 19 Total — 1 25 6 32 4 1 18 11 34 (1) Other includes interest rate reduction, forbearance, and interest only payments. Year Ended December 31, (Dollars in thousands) 2021 2020 Pre Modification Post Modification Pre Modification Post Modification Commercial $ — $ — $ 1 $ 1 Owner-occupied commercial — — 1,192 1,192 Commercial mortgages — — 93 93 Construction — — — — Residential 146 146 1,396 1,396 Consumer 1,585 1,585 1,714 1,714 Total (1)(2)(3) $ 1,731 $ 1,731 $ 4,396 $ 4,396 (1) During the year ended December 31, 2021, the TDRs in the table above resulted in a less than $ 0.1 million increase in the allowance for credit losses, and no additional charge-offs. During the year ended December 31, 2021, no TDRs defaulted that had received troubled debt modification during the past twelve months. (2) During the year ended December 31, 2020 the TDRs in the table above resulted in a $ 0.5 million decrease in the allowance for credit losses, respectively, and no additional charge-offs. During the year ended December 31, 2020, no TDRs defaulted that had received troubled debt modification during the past twelve months. (3) The TDRs in the table above did not occur as a result of the loan forbearance program under the CARES Act. 98 8. PREMISES AND EQUIPMENT The following table shows the components of premises and equipment, at cost, summarized by major classifications: December 31, (Dollars in thousands) 2021 2020 Land $ 18,469 $ 20,209 Buildings 34,481 35,343 Leasehold improvements 66,098 63,365 Furniture and equipment 70,915 67,336 Gross premises and equipment 189,963 186,253 Less: Accumulated depreciation 102,668 89,697 Net premises and equipment $ 87,295 $ 96,556 The Company recognized depreciation expense of $ 13.5 million, $ 14.3 million and $ 15.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. 9. 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 40 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 Consolidated Statement of Financial Condition. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the lease term. Operating lease expense is included in Occupancy expense in the Consolidated Statement of Income. The Company accounts for lease components separately from nonlease components and subleases certain real estate to third parties. The components of the Company's ongoing operating lease cost were as follows: Twelve months ended (Dollars in thousands) December 31, 2021 December 31, 2020 December 31, 2019 Operating lease cost (1) $ 18,564 $ 18,690 $ 19,574 Sublease income ( 365 ) ( 372 ) ( 486 ) Net lease cost $ 18,199 $ 18,318 $ 19,088 (1) Includes variable lease cost and short-term lease cost. 99 Supplemental balance sheet information related to operating leases was as follows: (Dollars in thousands) December 31, 2021 December 31, 2020 Assets Right-of-use assets $ 144,134 $ 150,985 Total $ 144,134 $ 150,985 Liabilities Lease liabilities $ 159,526 $ 166,451 Total $ 159,526 $ 166,451 Lease term and discount rate of operating leases Weighted average remaining lease term (in years) 19.17 19.36 Weighted average discount rate 4.27 % 4.26 % Maturities of operating lease liabilities were as follows: (Dollars in thousands) December 31, 2021 2022 $ 17,204 2023 17,440 2024 16,227 2025 16,240 2026 12,703 After 2026 170,643 Total lease payments 250,457 Less: Interest ( 90,931 ) Present value of lease liabilities $ 159,526 Supplemental cash flow information related to leases was as follows: Twelve months ended (Dollars in thousands) December 31, 2021 December 31, 2020 December 31, 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 17,834 $ 18,452 $ 17,606 Right of use assets obtained in exchange for new operating lease liabilities (non-cash) — — 61,693 100 Lessor Equipment Leasing The Company provides equipment and small business lease financing through its leasing subsidiary, NewLane Finance ® , acquired from its 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 are included within (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: Twelve months ended (Dollars in thousands) December 31, 2021 December 31, 2020 December 31, 2019 Direct financing leases: Interest income on lease receivable $ 21,947 $ 15,805 $ 9,032 (Amortization)/accretion of deferred fees and costs ( 1,963 ) 433 427 Total direct financing lease income $ 19,984 $ 16,238 $ 9,459 Equipment leasing receivables relate to direct financing leases. The composition of the net investment in direct financing leases was as follows: (Dollars in thousands) December 31, 2021 December 31, 2020 Lease receivables $ 399,688 $ 281,601 Unearned income ( 55,066 ) ( 36,669 ) Deferred fees and costs 7,654 3,953 Net investment in direct financing leases $ 352,276 $ 248,885 Future minimum lease payments to be received for direct financing leases were as follows: (Dollars in thousands) December 31, 2021 2022 $ 123,755 2023 107,054 2024 83,605 2025 57,314 2026 22,143 After 2026 5,817 Total lease payments $ 399,688 101 10. 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. Goodwill 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 year ended December 31, 2021, management determined based on its qualitative assessment that it is not more likely than not that the fair values of our reporting units are less than their carrying values. No goodwill impairment exists during the year ended December 31, 2021. The following table shows the allocation of goodwill to the reportable operating segments for purposes of goodwill impairment testing: ( Dollars in thousands ) WSFS Bank Wealth Management Consolidated Company December 31, 2019 $ 452,629 $ 20,199 $ 472,828 Goodwill adjustments — — — December 31, 2020 452,629 20,199 472,828 Goodwill adjustments — — — December 31, 2021 $ 452,629 $ 20,199 $ 472,828 Other intangible assets ASC 350 requires that an acquired intangible asset be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer’s intent to do so. The following table summarizes the Company's intangible assets: (Dollars in thousands) Gross Intangible Assets Accumulated Amortization Net Intangible Assets Amortization Period December 31, 2021 Core deposits $ 93,811 $ ( 30,103 ) $ 63,708 10 years Customer relationships 15,281 ( 7,876 ) 7,405 7 - 15 years Loan servicing rights (1) 6,671 ( 3,381 ) 3,290 10 - 25 years Total intangible assets $ 115,763 $ ( 41,360 ) $ 74,403 December 31, 2020 Core deposits $ 95,711 $ ( 22,727 ) $ 72,984 10 years Customer relationships 15,281 ( 6,600 ) 8,681 7 - 15 years Non-compete agreements 221 ( 190 ) 31 5 years Loan servicing rights (2) 5,302 ( 2,440 ) 2,862 10 - 25 years Total intangible assets $ 116,515 $ ( 31,957 ) $ 84,558 (1) Includes reversal of impairment losses of $ 0.3 million for the year ended December 31, 2021. (2) Includes impairment losses of $ 0.2 million for the year ended December 31, 2020. The Company recognized amortization expense on other intangible assets of $ 10.6 million, $ 10.9 million and $ 9.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. 102 The following presents the estimated amortization expense of intangibles: (Dollars in thousands) Amortization of Intangibles 2022 $ 11,249 2023 11,087 2024 10,899 2025 10,629 2026 10,011 Thereafter 20,528 Total $ 74,403 Servicing Assets The Company records mortgage servicing rights on its mortgage loan servicing portfolio, which includes mortgages that it acquires or originates as well as mortgages that it services for others, and servicing rights on Small Business Administration (SBA) loans. Mortgage servicing rights and SBA loan servicing rights are included are in Intangible assets in the accompanying Consolidated Statements of Financial Condition. Mortgage loans which the Company services for others are not included in Loans and leases, net of allowance in the accompanying Consolidated Statements of Financial Condition. Servicing rights represent the present value of the future net servicing fees from servicing mortgage loans the Company acquires or originates, or that it services for others. The value of the Company's mortgage servicing rights was $ 0.5 million and $ 0.6 million at December 31, 2021 and 2020, respectively, and the value of its SBA loan servicing rights was $ 2.8 million and $ 2.3 million at December 31, 2021 and 2020, respectively. Changes in the value of these servicing rights resulted in a reversal of impairment losses of $ 0.3 million during 2021 and an impairment loss of $ 0.2 million during 2020. Revenues from originating, marketing and servicing mortgage loans as well as valuation adjustments related to capitalized mortgage servicing rights are included in Mortgage Banking Activities, Net in the Consolidated Statements of Income and revenues from the Company's SBA loan servicing rights are included in Loan fee income, in the Consolidated Statements of Income. Besides the impairment on loan servicing rights noted above, there was no impairment of other intangible assets as of December 31, 2021 or 2020. Changing economic conditions that may adversely affect the Company's performance and could result in impairment, which could adversely affect earnings in the future. 103 11. DEPOSITS The following table is a summary of the Company's deposits by category: December 31, (Dollars in thousands) 2021 2020 Noninterest-bearing: Noninterest-bearing demand $ 4,565,143 $ 3,415,021 Total noninterest-bearing $ 4,565,143 $ 3,415,021 Interest-bearing: Interest-bearing demand $ 2,793,279 $ 2,635,740 Savings 1,970,744 1,774,332 Money market 2,906,260 2,654,439 Customer time deposits 988,974 1,158,845 Brokered deposits 15,662 218,287 Total interest-bearing $ 8,674,919 $ 8,441,643 Total deposits $ 13,240,062 $ 11,856,664 The following table is a summary of the remaining time to maturity for customer time deposits: December 31, (Dollars in thousands) 2021 2020 Certificates of deposit (not jumbo): Less than one year $ 434,039 $ 468,729 One year to two years 109,242 116,541 Two years to three years 33,971 51,477 Three years to four years 10,045 28,105 Over four years 5,704 9,545 Total certificates of deposit (not jumbo) $ 593,001 $ 674,397 Jumbo certificates of deposit (1) Less than one year $ 284,678 $ 349,396 One year to two years 74,802 66,030 Two years to three years 32,459 35,830 Three years to four years 2,393 30,682 Over four years 1,641 2,510 Total jumbo certificates of deposit $ 395,973 $ 484,448 Total certificates of deposit $ 988,974 $ 1,158,845 (1) Represents certificates of deposit balances in excess of $ 0.1 million from individuals, businesses and municipalities. The following table is a summary of interest expense on deposits by category: Year Ended December 31, (Dollars in thousands) 2021 2020 2019 Interest-bearing demand $ 2,262 $ 4,229 $ 8,794 Money market 3,218 9,423 18,169 Savings 586 3,518 7,053 Time deposits 7,332 18,699 19,642 Total customer interest expense $ 13,398 $ 35,869 $ 53,658 Brokered deposits 1,525 3,393 6,417 Total interest expense on deposits $ 14,923 $ 39,262 $ 60,075 104 12. BORROWED FUNDS The following is a summary of borrowed funds by type, at or for the twelve months ended: (Dollars in thousands) Balance at End of Period Weighted Average Interest Rate Maximum Outstanding at Month End During the Period Average Amount Outstanding During the Year Weighted Average Interest Rate During the Year December 31, 2021 Federal funds purchased $ — — % $ — $ 27 — % FHLB advances — — — 184 2.72 Trust preferred borrowings 67,011 1.91 67,011 67,011 1.90 Senior debt 147,939 2.94 246,763 192,243 3.38 Other borrowed funds 24,527 0.10 27,292 21,634 0.10 December 31, 2020 Federal funds purchased $ — — % $ 174,725 $ 34,974 1.35 % FHLB advances 6,623 2.63 119,971 88,011 2.22 Trust preferred borrowings 67,011 1.97 67,011 67,011 2.61 Senior debt 246,617 3.79 246,617 108,420 4.61 Other borrowed funds 20,390 0.10 23,673 18,854 0.10 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase During 2021 and 2020, the Company purchased federal funds as a short-term funding source. The Company had no securities sold under agreements to repurchase at December 31, 2021 and December 31, 2020. Federal Home Loan Bank Advances Advances from the FHLB matured in January 2021, with an interest rate of 2.60 %. Pursuant to collateral agreements with the FHLB, advances are secured by qualifying loan collateral, qualifying fixed-income securities, FHLB stock and an interest-bearing demand deposit account with the FHLB. As a member of the FHLB, the Company is required to purchase and hold shares of capital stock in the FHLB and was in compliance with this requirement with a stock investment in FHLB of $ 6.1 million at December 31, 2021 and $ 5.8 million at December 31, 2020. This stock is carried on the accompanying Consolidated Statements of Financial Condition at cost, which approximates liquidation value. The Company received dividends on its stock investment in FHLB of $ 0.1 million and $ 0.5 million for the years ended December 31, 2021 and 2020, respectively. For additional information regarding FHLB Stock, see Note 18. Trust Preferred Borrowings In 2005, the Company issued $ 67.0 million of aggregate principal amount of Pooled Floating Rate Securities at a variable interest rate of 177 basis points over the three-month LIBOR rate. These securities are currently callable and have a maturity date of June 1, 2035. Senior Debt On June 13, 2016, the Company issued $ 100.0 million of senior notes due 2026 (the 2026 Notes). The 2026 Notes had a fixed coupon rate of 4.50 % from issuance to but excluding June 15, 2021 and a variable coupon rate of three month LIBOR plus 3.30 % from June 15, 2021 until maturity. The 2026 Notes were redeemed on June 15, 2021 at 100 % of principal plus accrued and unpaid interest using cash on hand. On December 3, 2020, the Company issued $ 150.0 million of senior notes due 2030 (the 2030 Notes). The 2030 Notes mature on December 15, 2030 and have a fixed coupon rate of 2.75 % from issuance until December 15, 2025 and a variable coupon rate equal to the three-month term SOFR, reset quarterly, plus 2.485 % from December 15, 2025 until maturity. The 2030 Notes may be redeemed beginning December 15, 2025 at 100 % of principal plus accrued and unpaid interest. The remaining net proceeds from the issuance of the 2030 Notes are being used for general corporate purposes, including, but not limited to, financing organic growth, acquisitions, repurchases of common stock, and redemption of outstanding indebtedness. 105 Other Borrowed Funds Included in other borrowed funds are collateralized borrowings of $ 24.5 million and $ 20.4 million at December 31, 2021 and 2020, respectively, consisting of outstanding retail repurchase agreements, contractual arrangements under which portions of certain securities are sold overnight to retail customers under agreements to repurchase. Such borrowings were collateralized by mortgage-backed securities. Borrower in Custody The Company had $ 282.1 million and $ 347.1 million of loans and securities pledged to the Federal Reserve of Philadelphia (FRB) at December 31, 2021 and December 31, 2020, respectively. The Company did no t borrow funds from the FRB during 2021 or 2020. 106 13. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL Savings associations such as the Bank are subject to regulatory capital requirements administered by various banking regulators. Failure to meet minimum capital requirements could result in certain actions by regulators that could have a material effect on the Company’s Consolidated Financial Statements. Risk-based capital requirements applicable to bank holding companies and depository institutions include a minimum common equity Tier 1 capital ratio of 4.50 % of risk-weighted assets, a minimum Tier 1 capital ratio of 6.00 % of risk-weighted assets, and a current 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. As of December 31, 2021 and 2020, the Bank was in compliance with regulatory capital requirements and exceeded the levels necessary for the Bank to be considered “well capitalized” as defined in the regulations. The following table presents the capital position of the Bank and the Company as of December 31, 2021 and 2020: Consolidated Capital Minimum For Capital Adequacy Purposes To Be Well-Capitalized Under Prompt Corrective Action Provisions (Dollars in thousands) Amount Percent Amount Percent Amount Percent December 31, 2021 Total Capital (to risk-weighted assets) Wilmington Savings Fund Society, FSB $ 1,639,708 15.91 % $ 824,687 8.00 % $ 1,030,858 10.00 % WSFS Financial Corporation 1,610,964 15.59 826,839 8.00 1,033,548 10.00 Tier 1 Capital (to risk-weighted assets) Wilmington Savings Fund Society, FSB 1,557,142 15.11 618,515 6.00 824,687 8.00 WSFS Financial Corporation 1,528,398 14.79 620,129 6.00 826,839 8.00 Common Equity Tier 1 Capital (to risk-weighted assets) Wilmington Savings Fund Society, FSB 1,557,142 15.11 463,886 4.50 670,058 6.50 WSFS Financial Corporation 1,463,398 14.16 465,097 4.50 671,806 6.50 Tier 1 Leverage Capital Wilmington Savings Fund Society, FSB 1,557,142 10.44 596,711 4.00 745,889 5.00 WSFS Financial Corporation 1,528,398 10.24 597,179 4.00 746,473 5.00 December 31, 2020 Total Capital (to risk-weighted assets) Wilmington Savings Fund Society, FSB $ 1,412,290 13.76 % $ 821,012 8.00 % $ 1,026,265 10.00 % WSFS Financial Corporation 1,415,780 13.76 823,355 8.00 1,029,194 10.00 Tier 1 Capital (to risk-weighted assets) Wilmington Savings Fund Society, FSB 1,283,022 12.50 615,759 6.00 821,012 8.00 WSFS Financial Corporation 1,286,150 12.50 617,517 6.00 823,355 8.00 Common Equity Tier 1 Capital (to risk-weighted assets) Wilmington Savings Fund Society, FSB 1,283,022 12.50 461,819 4.50 667,073 6.50 WSFS Financial Corporation 1,221,150 11.87 463,137 4.50 668,976 6.50 Tier 1 Leverage Capital Wilmington Savings Fund Society, FSB 1,283,022 9.74 526,803 4.00 658,503 5.00 WSFS Financial Corporation 1,286,150 9.76 527,192 4.00 658,990 5.00 107 The Holding Company As of December 31, 2021, the Company's capital structure includes one class of stock, $ 0.01 par common stock outstanding with each share having equal voting rights. In 2005, the Trust, the Company's unconsolidated subsidiary, issued Pooled Floating Rate Securities at a variable interest rate of 177 basis points over the three-month LIBOR rate with a scheduled maturity of June 1, 2035. The par value of these securities is $ 2.0 million and the aggregate principal is $ 67.0 million. The proceeds from the issue were invested in Junior Subordinated Debentures issued by the Company. These securities are treated as borrowings with interest included in Interest on trust preferred borrowings on the Consolidated Statements of Income and included in Trust preferred borrowings in the Consolidated Statements of Financial Condition. At December 31, 2021, the coupon rate of the Trust securities was 1.94 %. The effective rate will vary due to fluctuations in interest rates. When infused into the Bank, the Trust preferred borrowings issued in 2005 qualify as Tier 1 capital. The Bank is prohibited from paying any dividend or making any other capital distribution if, after making the distribution, the Bank would be under-capitalized within the meaning of the Prompt Corrective Action regulations. At December 31, 2021, $ 103.7 million in cash remains at the holding company to support the parent company’s needs. Pursuant to federal laws and regulations, the Company's ability to engage in transactions with affiliated corporations, including the loan of funds to, or guarantee of the indebtedness of, an affiliate, is limited. During the year ended December 31, 2021, the Company repurchased 267,309 common shares at an average price of $ 44.97 per share as part of its share buy-back program approved by the Board of Directors. The program is consistent with the Company's 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 regulatory minimums, and in the case of the Bank, the “well-capitalized” benchmarks. 108 14. ASSOCIATE BENEFIT PLANS Associate 401(k) Savings Plan Certain subsidiaries of ours maintain a qualified plan in which Associates may participate. Participants in the plan may elect to direct a portion of their wages into investment accounts that include professionally managed mutual and money market funds and the Company's common stock. Generally, the principal and related earnings are tax deferred until withdrawn. The Company matches a portion of the Associates’ contributions. As a result, the Company's total cash contributions to the plan on behalf of its Associates resulted in an expense of $ 7.0 million, $ 6.6 million, and $ 5.8 million for 2021, 2020, and 2019, respectively. All contributions are invested in accordance with the Associates’ selection of investments. If Associates do not designate how discretionary contributions are to be invested, 100 % is invested in target-date fund that corresponds with the participant’s age. Associates may generally make transfers to various other investment vehicles within the plan. The plan’s yearly activity includes net sales of 33,000 , 14,000 and 9,000 shares of the Company's common stock in 2021, 2020 and 2019 respectively. There were no purchases in 2021, 2020 or 2019. Postretirement Medical Benefits The Company shares certain costs of providing health and life insurance benefits to eligible retired Associates (employees) and their eligible dependents. Previously, all Associates were eligible for these benefits if they reached normal retirement age while working for the Company. Effective March 31, 2014, the Company changed the eligibility of this plan to include only those Associates who have achieved ten years of service as of March 31, 2014. The Company uses the mortality table issued by the Office of the Actuary of the U.S. Bureau of Census in its calculation. The Company accounts for its obligations under the provisions of ASC 715, Compensation - Retirement Benefits (ASC 715). ASC 715 requires that the Company recognized 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 Consolidated Statements of Income. ASC 715 requires that the Company recognizes the funded status of its defined benefit postretirement plan in the statement of financial condition, with a corresponding adjustment to accumulated other comprehensive (loss) income, net of tax. The adjustment to accumulated other comprehensive (loss) income at adoption represented the net unrecognized actuarial losses and unrecognized transition obligation remaining from the initial adoption of ASC 715, all of which were previously netted against the plan’s funded status in the statement of financial condition pursuant to the provisions of ASC 715. These amounts will be subsequently recognized as net periodic pension costs pursuant to the Company's historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods, and are not recognized as net periodic pension cost in the same periods, will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of ASC 715. 109 The following disclosures relating to postretirement medical benefits were measured at December 31: (Dollars in thousands) 2021 2020 2019 Change in benefit obligation: Benefit obligation at beginning of year $ 2,288 $ 2,170 $ 1,893 Service cost 67 61 54 Interest cost 54 67 78 Actuarial (gain) loss ( 216 ) 80 229 Benefits paid ( 55 ) ( 90 ) ( 84 ) Benefit obligation at end of year $ 2,138 $ 2,288 $ 2,170 Change in plan assets: Fair value of plan assets at beginning of year $ — $ — $ — Employer contributions 55 90 84 Benefits paid ( 55 ) ( 90 ) ( 84 ) Fair value of plan assets at end of year $ — $ — $ — Unfunded status $ ( 2,138 ) $ ( 2,288 ) $ ( 2,170 ) Amounts recognized in accumulated other comprehensive income (1) : Net prior service credit $ 359 $ 435 $ 511 Net gain 607 376 491 Net amount recognized $ 966 $ 811 $ 1,002 Components of net periodic cost (benefit): Service cost $ 67 $ 61 $ 54 Interest cost 54 67 78 Amortization of prior service cost ( 76 ) ( 76 ) ( 76 ) Net gain recognition ( 20 ) ( 36 ) ( 63 ) Net periodic cost (benefit) $ 25 $ 16 $ ( 7 ) Assumption used to determine net periodic benefit cost: Discount rate 2.40 % 3.20 % 4.20 % Assumption used to value the Accumulated Postretirement Benefit Obligation (APBO): Discount rate 2.70 % 2.40 % 3.10 % (1) Before tax effects Estimated future benefit payments: The following table shows the expected future payments for the next 10 years: (Dollars in thousands) During 2022 $ 58 During 2023 60 During 2024 64 During 2025 70 During 2026 73 During 2027 through 2031 431 $ 756 The Company assumes medical benefits will increase at an average rate of less than 10 % per annum. The costs incurred for retirees’ health care are limited since certain current and all future retirees are restricted to an annual medical premium cap indexed (since 1995) by the lesser of 4 % or the actual increase in medical premiums paid by us. For 2021, this annual premium cap amounted to $ 3,997 per retiree. The Company estimates that it will contribute approximately $ 4,157 per retiree to the plan during fiscal 2022. 110 Alliance Associate Pension Plan During the fourth quarter of 2015, the Company completed the acquisition of Alliance. At the time of the acquisition the Company assumed the Alliance pension plan offered to current Alliance associates. During the fourth quarter of 2018, the Company notified the Alliance pension plan participants, the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) of its intention to terminate the plan and received IRS and PBGC approval in the first quarter of 2020. The Company completed the termination and contributed $ 0.5 million to the plan to settle the obligation during the three months ended June 30, 2020. The following disclosures relating to Alliance pension benefits were measured at: (Dollars in thousands) June 30, 2020 December 31, 2019 Change in benefit obligation: Benefit obligation at beginning of year $ 6,893 $ 6,289 Interest cost 105 253 Settlements ( 7,272 ) ( 282 ) Disbursements — ( 231 ) Actuarial loss 274 864 Benefit obligation at end of period $ — $ 6,893 Change in plan assets: Fair value of plan assets at beginning of year $ 7,431 $ 6,533 Actual return on plan assets ( 159 ) 1,435 Settlements ( 7,272 ) ( 273 ) Benefits paid — ( 231 ) Administrative expenses — ( 33 ) Fair value of plan assets at end of period $ — $ 7,431 Funded status $ — $ 538 Amounts recognized in accumulated other comprehensive income (1) : Net loss $ — $ ( 279 ) Components of net periodic cost (benefit): Service cost $ 17 $ 40 Interest cost 105 253 Expected return on plan assets ( 196 ) ( 471 ) Settlements — 16 Plan settlement loss 1,431 — Net gain recognition — — Net periodic cost (benefit) $ 1,357 $ ( 162 ) (1) Before tax effects 111 Beneficial Associate Pension and other postretirement benefit plans On March 1, 2019, the Company closed the acquisition of Beneficial. At the time of acquisition, the Company assumed the pension plan covering certain eligible Beneficial Associates. The plan was frozen in 2008. The following disclosures relating to Beneficial pension benefits and other postretirement benefit plans were measured at December 31, 2021: 2021 2020 (Dollars in thousands) Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits Change in benefit obligation: Benefit obligation at beginning of year $ 112,283 $ 19,302 $ 102,878 $ 20,263 Service cost — 39 — 48 Interest cost 2,100 309 2,910 475 Plan participants' contributions — 68 — 35 Amendments ( 83 ) — — ( 202 ) Actuarial (loss) gain ( 4,420 ) ( 442 ) 11,499 ( 520 ) Benefits paid ( 5,185 ) ( 1,171 ) ( 5,004 ) ( 797 ) Benefit obligation at end of year $ 104,695 $ 18,105 $ 112,283 $ 19,302 Change in plan assets: Fair value of plan assets at beginning of year $ 111,129 $ — $ 100,388 $ — Actual return on Plan Assets 2,734 — 15,985 — Employer contribution 308 1,103 340 762 Participants' contributions — 68 — 35 Settlements ( 83 ) — — — Benefits paid ( 5,185 ) ( 1,171 ) ( 5,004 ) ( 797 ) Administrative expenses ( 661 ) — ( 580 ) — Fair value of plan assets at end of year $ 108,242 $ — $ 111,129 $ — Funded (unfunded) status $ 3,547 $ ( 18,105 ) $ ( 1,154 ) $ ( 19,302 ) Amounts recognized in accumulated other comprehensive income (1) : Net loss $ 6,882 $ 87 $ 6,635 $ 517 Components of net periodic (benefit) cost: Service cost $ — $ 39 $ — $ 48 Interest cost 2,100 309 2,910 475 Expected return on plan assets ( 6,783 ) — ( 6,363 ) — Net loss (gain) recognition 27 ( 11 ) 4 ( 205 ) Net periodic (benefit) cost $ ( 4,656 ) $ 337 $ ( 3,449 ) $ 318 (1) Before tax effects 112 Significant assumptions used to calculate the net periodic benefit cost and obligation for Beneficial postretirement plans as of December 31, 2021 are as follows: Consolidated Pension Plan 2021 2020 Discount rate for net periodic benefit cost 2.50 % 2.91 % Expected return on plan assets 6.25 % 6.50 % Discount rate for disclosure obligations 2.82 % 3.25 % Beneficial Bank Other Postretirement Discount rate for net periodic benefit cost 2.32 % 3.12 % Discount rate for disclosure obligations 2.70 % 2.31 % FMS Other Postretirement Discount rate for net periodic benefit cost 1.47 % 2.61 % Discount rate for disclosure obligations 2.07 % 1.49 % Split-Dollar Plan Discount rate for net periodic benefit cost 1.44 % 2.57 % Discount rate for disclosure obligations 2.04 % 1.45 % Estimated future benefit payments: The following table shows the expected future payments for the next 10 years: (Dollars in thousands) Pension Benefits Other Postretirement Benefits During 2022 $ 5,124 $ 1,083 During 2023 5,284 1,092 During 2024 6,451 1,095 During 2025 5,236 1,143 During 2026 6,745 1,150 During 2027 through 2031 27,877 5,507 $ 56,717 $ 11,070 113 The fair values and weighted average asset allocations in plan assets of all pension and postretirement plan assets at December 31, 2021 and 2020 by asset category are as follows: Category Used for Fair Value Measurement December 31, 2021 (Dollars in thousands) Level 1 Level 2 Level 3 Total Percent Assets: Mutual Funds: Large cap $ 5,610 $ — $ — $ 5,610 5.2 % Mid cap 75 — — 75 0.1 Small cap 59 — — 59 0.1 International 9,728 — — 9,728 9.0 Global Managed Volatility 8,640 — — 8,640 8.0 U.S. Managed Volatility 3,243 — — 3,243 3.0 Fixed Income 69,194 — — 69,194 63.9 U.S. Government Agencies — 11,524 — 11,524 10.6 Accrued Income 169 — — 169 0.1 Total $ 96,718 $ 11,524 $ — $ 108,242 100.0 % Category Used for Fair Value Measurement December 31, 2020 (Dollars in thousands) Level 1 Level 2 Level 3 Total Percent Assets: Mutual Funds: Large cap $ 5,827 $ — $ — $ 5,827 5.2 % Mid cap 69 — — 69 0.1 Small cap 61 — — 61 0.1 International 10,249 — — 10,249 9.2 Global Managed Volatility 8,970 — — 8,970 8.1 U.S. Managed Volatility 3,363 — — 3,363 3.0 Fixed Income 73,071 — — 73,071 65.8 U.S. Government Agencies 9,345 — — 9,345 8.4 Accrued Income 174 — — 174 0.1 Total $ 111,129 $ — $ — $ 111,129 100.0 % As of December 31, 2021, pension and postretirement plan assets were comprised of investments in equity and fixed income mutual funds. The Bank’s consolidated pension plan investment policy pro vides that assets are to be managed over a long-term investment horizon to ensure that the chances and duration of investment losses are carefully weighed against the long-term potential for asset appreciation. The primary objective of managing a plan’s assets is to improve the plan’s funded status. A secondary financial objective is, where possible, to minimize pension expense volatility. The Company’s pension plan allocates assets based on the plan’s funded status to risk management and return enhancement asset classes. The risk management class is comprised of a long duration fixed income fund while the return enhancement class consists of equity and other fixed income funds. Asset allocation ranges are generally 40 % to 80 % for risk management and 20 % to 60 % for return enhancement when the funded status is less than 110 %, and 50 % to 90 % in risk management and 10 % to 50 % for return enhancement when the funded status reaches 110 % , subject to the discretion of the Company. Also, a small portion is maintained in cash reserves when appropriate. The Company has four additional plans which are no longer being provided to current Associates: (1) a Supplemental Pension Plan with a corresponding liability of $ 0.4 million and $ 0.5 million for December 31, 2021 and 2020 respectively; (2) an Early Retirement Window Plan with a corresponding liability of $ 0.1 million for both December 31, 2021 and 2020; (3) a Supplemental Executive Retirement Plan with a corresponding liability of $ 1.4 million for both December 31, 2021 and 2020, and; (4) a Post-Retirement Medical Plan with a corresponding liability of $ 0.1 million for both December 31, 2021 and 2020. 114 15. INCOME TAXES The Company and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. The Company's income tax provision consists of the following: Year ended December 31, (Dollars in thousands) 2021 2020 2019 Current income taxes: Federal taxes $ 32,836 $ 57,716 $ 31,401 State and local taxes 13,421 6,768 7,977 Deferred income taxes: Federal taxes 37,251 ( 32,962 ) 5,987 State and local taxes 2,587 114 1,087 Total $ 86,095 $ 31,636 $ 46,452 Current federal income taxes include taxes on income that cannot be offset by net operating loss carryforwards. Deferred income taxes 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 following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31, 2021 and 2020: (Dollars in thousands) 2021 2020 Deferred tax assets: Allowance for credit losses $ 19,847 $ 48,050 Purchase accounting adjustments—loans 10,264 18,084 Reserves and other accruals 16,444 17,115 Investments 2,038 2,045 Derivatives 4,181 5,009 Employee benefit plans 1,340 2,504 Lease liabilities 33,501 34,955 Unrealized losses on available-for-sale securities 10,642 — Other (1) 479 821 Total deferred tax assets $ 98,736 $ 128,583 Deferred tax liabilities: Unrealized gains on available-for-sale securities $ — $ ( 18,997 ) Legal settlement ( 3,150 ) — Accelerated depreciation ( 4,467 ) ( 4,233 ) Right of use assets ( 30,268 ) ( 31,707 ) Deferred loan costs ( 230 ) ( 783 ) Intangibles ( 20,897 ) ( 22,373 ) Other (2) ( 756 ) ( 1,278 ) Total deferred tax liabilities ( 59,768 ) ( 79,371 ) Net deferred tax asset $ 38,968 $ 49,212 (1) Other deferred tax assets includes deferred gains and net operating losses. (2) Other deferred tax liabilities includes derivatives and reverse mortgages. Included in the table above is the effect of certain temporary differences for which no deferred tax expense or benefit was recognized. In 2021, such items consisted primarily of $ 10.6 million of unrealized losses on certain investments in debt and equity securities accounted for under ASC 320 and $ 1.5 million of unrealized losses related to postretirement benefit obligations accounted for under ASC 715. In 2020, they consisted primarily of $ 19.0 million of unrealized gains on certain investments in debt and equity securities and $ 1.6 million of unrealized losses related to postretirement benefit obligations. 115 Based on the Company's history of prior earnings and its expectations of the future, it is anticipated that operating income and the reversal pattern of its temporary differences will, more likely than no t, be sufficient to realize a net deferred tax asset of $ 39.0 million at December 31, 2021. Pursuant to accounting guidance, The Company is not required to provide deferred taxes on Beneficial’s tax loan loss reserve as of December 31, 1987. As of December 31, 2021, Beneficial had unrecognized deferred income taxes of approximately $ 1.7 million with respect to this reserve. This reserve could be recognized as taxable income and create a current and/or deferred tax liability using the income tax rates then in effect if one of the following occur: (1) the Bank’s retained earnings represented by this reserve are used for distributions in liquidation or for any other purpose other than to absorb losses from bad debts; (2) the Bank fails to qualify as a Bank, as provided by the Internal Revenue Code; or (3) there is a change in federal tax law. A reconciliation showing the differences between the Company's effective tax rate and the U.S. Federal statutory tax rate is as follows: Year ended December 31, Year Ended December 31, 2021 2020 2019 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % State tax, net of federal tax benefit 3.9 3.7 3.5 Adjustment to net deferred tax asset for enacted changes in tax laws and rates — ( 1.2 ) — Tax-exempt interest ( 0.2 ) ( 0.7 ) ( 0.6 ) Bank-owned life insurance income ( 0.1 ) ( 0.2 ) ( 0.1 ) Excess tax benefits from share-based compensation ( 0.1 ) — ( 1.0 ) Nondeductible acquisition costs 0.2 — 0.2 Federal tax credits, net of amortization ( 0.5 ) ( 0.8 ) ( 0.2 ) Nondeductible compensation — — 0.9 Other ( 0.1 ) — 0.2 Effective tax rate 24.1 % 21.8 % 23.9 % As a result of the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, the Company recorded $ 0.4 million of income tax benefit in 2021, compared to less than $ 0.1 million of income tax expense and $ 2.0 million of income tax benefit in 2020 and 2019, respectively, related to excess tax benefits from stock compensation. This accounting standard will result in volatility to future effective tax rates. The Company has $ 0.5 million of remaining Federal NOLs. Such NOLs expire beginning in 2030 and, due to Internal Revenue Service (IRS) limitations, $ 0.1 million are being utilized each year. Accordingly, the Company fully expects to utilize all of these NOLs. The Company has no state NOLs. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. Benefits from tax positions are recognized in the financial statements only when it is more-likely-than-not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC 740 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. There were no unrecognized tax benefits as of December 31, 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 2018 through 2021 tax years are subject to examination as of December 31, 2021, while tax years 2018 through 2021 generally remain subject to examination by state taxing jurisdictions. No federal or state income tax return examinations are currently in process. The Company does no t expect to record or realize any material unrecognized tax benefits during 2022. As a result of the adoption of ASC 326 - Credit Losses on January 1, 2020, the tax impact relating to the incremental provision for expected credit losses from financial assets held at amortized cost has been reflected as a credit to retained earnings to reflect the tax impact of increased credit reserves. Accordingly, $ 8.5 million of such impact has been reflected as an income tax credit and deferred tax asset on the Company's Consolidated Statements of Financial Condition. 116 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 $ 1.7 million income tax benefit and deferred tax asset on the Company's Consolidated Statements of Financial Condition. The amortization of the low-income housing credit investments has been reflected as income tax expense in the amount of $ 3.6 million for the year ended December 31, 2021, compared to $ 3.3 million and $ 3.0 million for the years ended December 31, 2020 and December 31, 2019, respectively. The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2021 were $ 3.5 million, $ 3.6 million and $ 0.7 million respectively. The carrying value of the investment in affordable housing credits is $ 39.6 million December 31, 2021, compared to $ 26.6 million December 31, 2020. 16. STOCK-BASED COMPENSATION The Company's stock incentive plans provide for the granting of stock options, stock appreciation rights, performance awards, restricted stock, restricted stock units (RSUs), and other stock based awards or cash incentives that are consistent with the purpose of the incentive plans and interests of the Company. Upon stockholder approval in 2018, the 2013 Incentive Plan (2013 Plan) was replaced by the 2018 Incentive Plan (2018 Plan). However, outstanding awards under the 2013 Plan remain in effect in accordance with their original terms. The 2018 Plan was amended in 2021 to increase the number of shares of Common Stock available for issuance. The 2018 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. The number of shares reserved for issuance under the 2018 Plan is 3,000,000 , of which 1,584,835 shares were available for future grants at December 31, 2021. Generally, all time-based awards become fully vested and outstanding stock options and stock appreciation rights become exercisable immediately in the event of a change in control, as defined in the plans. Total stock-based compensation expense recognized was $ 6.3 million ($ 4.8 million after tax) for 2021, $ 3.1 million ($ 2.5 million after tax) for 2020, and $ 4.5 million ($ 3.4 million after tax) for 2019. As part of the expense calculation, the Company has elected to recognize forfeitures as they occur. Stock-based compensation expense related to awards granted to Associates is recorded in Salaries, benefits and other compensation ; expense related to awards granted to directors is recorded in Other operating expense in the Company's Consolidated Statements of Income. Stock Options Stock options are granted with an exercise price not less than the fair market value of the Company's common stock on the date of the grant. All stock options granted during 2021, 2020, and 2019 vest in 25 % per annum increments, start to become exercisable in April of the year following the year of grant, and expire between five and seven years from the grant date. New shares are issued upon the exercise of options. The Company determines the grant date fair value of stock options using the Black-Scholes option-pricing model. The model requires the use of numerous assumptions, many of which are subjective. Significant assumptions used to determine 2021, 2020, and 2019 grant date fair value included expected term, which was derived from historical exercise patterns and represents the amount of time that stock options granted are expected to be outstanding; volatility, measured using the fluctuation in month end closing stock prices over a period which corresponds with the average expected option life; a weighted-average risk-free rate of return (zero coupon treasury yield); and a dividend yield indicative of the Company's current dividend rate. The assumptions used to determine the grant date fair value for options issued during 2021, 2020, and 2019 are presented below: 2021 2020 2019 Expected term (in years) 5.5 5.5 5.5 Volatility 23.9 % 25.0 % 23.6 % Weighted-average risk-free interest rate 1.16 % 1.06 % 2.50 % Dividend yield 1.33 % 1.39 % 1.02 % 117 A summary of option activity as of December 31, 2021, and changes during the year the ended December 31, 2021, is presented below: 2021 Shares Weighted- Average Exercise Price Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In Thousands) Stock Options: Outstanding at beginning of year 449,761 $ 36.80 4.16 $ 3,910 Plus: Granted 105,164 51.84 Less: Exercised ( 69,873 ) 25.64 Forfeited ( 19,628 ) 48.15 Outstanding at end of year 465,424 41.39 4.52 4,243 Nonvested at end of year 245,462 43.28 2.57 1,680 Exercisable at end of year 219,962 39.29 3.49 2,398 The weighted-average fair value of options granted was $ 10.44 in 2021, $ 7.19 in 2020 and $ 10.26 in 2019. The aggregate intrinsic value of options exercised was $ 1.9 million in 2021, $ 1.8 million in 2020, and $ 12.3 million in 2019. The following table summarizes the non-vested stock option activity during the year the ended December 31, 2021: 2021 Shares Weighted-Average Exercise Price Weighted-Average Grant Date Fair Value Stock Options: Nonvested at beginning of period 242,158 $ 38.66 $ 8.51 Plus: Granted 105,164 51.84 10.44 Less: Vested ( 101,860 ) 41.14 9.10 Forfeited — — — Nonvested at end of period 245,462 43.28 9.09 The total amount of unrecognized compensation cost related to non-vested stock options as of December 31, 2021 was $ 1.4 million. The weighted-average period over which the expense is expected to be recognized is 2.57 years. During 2021, the Company recognized $ 1.1 million of compensation expense related to these awards. Restricted Stock Units RSUs are granted at no cost to the recipient and generally vest over a four year period. All outstanding awards granted to senior executives vest over no less than a four year period. The 2013 and 2018 Plans allow for awards with vesting periods less than four years , subject to Board approval. The fair value of RSUs is equal to the fair value of the common stock on the date of grant. The expense related to RSUs granted to Associates is recognized in Salaries, benefits and other compensation and granted to directors in Other operating expense on an accrual basis over the requisite service period for the entire award. When restricted stock is awarded to individuals from whom the Company may not receive services in the future, the expense is recognized when the award is granted, instead of amortizing the expense over the vesting period of the award. The weighted-average fair value of RSUs granted was $ 45.64 in 2021, $ 37.52 in 2020, and $ 43.28 in 2019. The total amount of compensation cost to be recognized relating to nonvested restricted stock units as of December 31, 2021 was $ 7.1 million. The weighted-average period over which the cost is expected to be recognized is 2.4 years. During 2021, the Company recognized $ 5.3 million of compensation cost related to these awards. The following table summarizes the Company’s RSUs and changes during the year: Units (in whole) Weighted Average Grant-Date Fair Value per Unit Balance at December 31, 2020 209,607 $ 39.66 Plus: Granted 119,714 45.64 Less: Vested ( 85,286 ) 42.18 Forfeited ( 8,194 ) 44.47 Balance at December 31, 2021 235,841 41.62 The total fair value of RSUs that vested was $ 1.9 million in 2021, $ 1.9 million in 2020, and $ 1.5 million in 2019. 118 Integration Performance RSU Plan: In February 2019, the Board of Directors approved the Integration Performance RSU Plan (“the Integration Plan”), in which certain senior executives were granted awards based on the achievement of three defined goals measuring the success of the integration of Beneficial and execution of the Company's strategic goals over the five-year period ending 2023. The Plan provides for a three-year performance achievement period beginning in 2021 and ending in 2023. If any or all of a portion of RSUs vest prior to 2023, there will be an additional time-based vesting requirement though the end of 2023. The Performance RSUs were granted on February 28, 2019, and the Company accrues expense for this Plan based on the estimated probability of achievement of the three defined performance goals. During 2021, the Company recognized $ 0.3 million of compensation expense related to these awards. Beneficial Acquisition Success Plan: On December 10, 2020, the Board of Directors approved the Beneficial Acquisition Success Plan (the “Success Plan”), which is designed to recognize and reward the Company’s achievement of certain key measures of near-term success related to Beneficial and the efforts of the Company’s senior leaders and the value of such success to the Company’s longer term performance. The key measures of success related to Beneficial include acquisition economics, one-time acquisition costs, banking location integration and optimization, customer deposit retention, and cost synergies. Awards under the Success Plan have been awarded as RSUs vesting in equal annual installments over three years . The Company granted 66,703 RSUs under the Success Plan on December 10, 2020. During 2021, the Company recognized $ 1.1 million of compensation expense related to these awards. Awards from both the Integration Plan and the Success Plan will be issued under the Company’s 2018 Incentive Plan. 17. COMMITMENTS AND CONTINGENCIES Legal Proceedings In the ordinary course of business, the Company is subject to legal actions that involve claims for monetary relief. See Note 24 for additional information. Financial Instruments With Off-Balance Sheet Risk In the ordinary course of business, the Company is a party to financial instruments with off-balance sheet risk, primarily to meet the financing needs of its customers. To varying degrees, these financial instruments involve elements of credit risk that are not recognized in the Consolidated Statements of Financial Condition. Exposure to loss for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. The Company generally requires collateral to support such financial instruments in excess of the contractual amount of those instruments and use the same credit policies in making commitments as it does for on-balance sheet instruments. The following represents a summary of off-balance sheet financial instruments at year-end: December 31, (Dollars in thousands) 2021 2020 Financial instruments with contract amounts which represent potential credit risk: Construction loan commitments $ 403,767 $ 406,639 Commercial mortgage loan commitments 91,871 100,729 Commercial loan commitments 1,088,098 1,083,512 Owner-occupied commercial commitments 74,846 70,155 Commercial standby letters of credit 92,048 95,897 Residential loan commitments 6,815 2,842 Consumer loan commitments 731,850 591,856 Total $ 2,489,295 $ 2,351,630 At December 31, 2021, the Company had total commitments to extend credit of $ 2.5 billion. Commitments for consumer lines of credit were $ 731.9 million of which, $ 600.7 million were secured by real estate. Residential loan commitments generally have closing dates within a one month period but can be extended to six months . Not reflected in the table above are commitments to sell residential loans of $ 57.9 million and $ 91.9 million at December 31, 2021 and 2020, respectively. 119 Commitments provide for financing on predetermined terms as long as the customer continues to meet specific criteria. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The Company evaluates each customer’s creditworthiness and obtain collateral based on its credit evaluation of the counterparty. Secondary Market Loan Sales The Company typically sells newly originated residential 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 Consolidated Statements of Financial Condition at their fair value with changes in the value reflected in the Consolidated Statements of Income. Gains and losses are recognized at the time of sale. The Company periodically retains the servicing rights on residential loans sold which results in monthly service fee income. The mortgage servicing rights are included in Intangible assets in the 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 loan sales. These provisions may include either an indemnification from loss or the repurchase of loans. Repurchases and losses have been rare and no provision is made for losses at the time of sale. There were no repurchases for the years ended December 31, 2021 and 2020. Unfunded Lending Commitments At December 31, 2021 and December 31, 2020, the allowance for credit losses of unfunded lending commitments was $ 7.4 million and $ 8.2 million, respectively. A provision release for unfunded lending commitments of $ 0.8 million was recognized during the year ended December 31, 2021, and a provision expense for unfunded lending commitments of $ 3.7 million was recognized during year ended December 31, 2020. 120 18. FAIR VALUE DISCLOSURES OF FINANCIAL ASSETS AND LIABILITIES FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES ASC 820-10, Fair Value Measurement (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 December 31, 2021 and December 31, 2020 by level in the valuation hierarchy (as described above): December 31, 2021 (Dollars in thousands) Quoted Prices in Active Markets for Identical Asset (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Assets measured at fair value on a recurring basis: Available-for-sale securities: CMO $ — $ 575,766 $ — $ 575,766 FNMA MBS — 4,245,684 — 4,245,684 FHLMC MBS — 145,528 — 145,528 GNMA MBS — 17,936 — 17,936 GSE agency notes — 220,397 — 220,397 Other assets — 5,153 — 5,153 Total assets measured at fair value on a recurring basis $ — $ 5,210,464 $ — $ 5,210,464 Liabilities measured at fair value on a recurring basis: Other liabilities $ — $ 3,039 $ 20,252 $ 23,291 Assets measured at fair value on a nonrecurring basis: Other investments $ — $ — $ 10,518 $ 10,518 Other real estate owned — — 2,320 2,320 Loans held for sale — 113,349 — 113,349 Total assets measured at fair value on a nonrecurring basis $ — $ 113,349 $ 12,838 $ 126,187 121 December 31, 2020 (Dollars in thousands) Quoted Prices in Active Markets for Identical Asset (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Assets measured at fair value on a recurring basis: Available-for-sale securities: CMO $ — $ 471,325 $ — $ 471,325 FNMA MBS — 1,598,970 — 1,598,970 FHLMC MBS — 202,893 — 202,893 GNMA MBS — 23,762 — 23,762 GSE agency notes — 232,107 — 232,107 Other assets — 14,448 — 14,448 Total assets measured at fair value on a recurring basis $ — $ 2,543,505 $ — $ 2,543,505 Liabilities measured at fair value on a recurring basis: Other liabilities $ — $ 8,218 $ 24,039 $ 32,257 Assets measured at fair value on a nonrecurring basis: Other investments $ — $ — $ 9,541 $ 9,541 Other real estate owned — — 3,061 3,061 Loans held for sale — 197,541 — 197,541 Total assets measured at fair value on a nonrecurring basis $ — $ 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 GSEs 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 without readily determinable fair values and equity method investments, which are categorized as Level 3. The Company's equity investments without readily determinable fair values are held at cost, and are adjusted for any observable transactions during the reporting period 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. 122 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, 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 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 Loans and leases are segregated by portfolio segments with similar financial characteristics (see Note 2). The fair values of loans and leases, 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. 123 Stock in the Federal Home Loan Bank (FHLB) of Pittsburgh The fair value of FHLB stock is assumed to be equal to its cost basis, since the stock is non-marketable but redeemable at its par value. Accrued interest receivable The carrying amounts of interest receivable approximate fair value. Other assets Other assets include the fair value of interest rate products and derivatives on the residential mortgage held for sale loan pipeline (see discussion in “Fair Value of Financial Assets and Liabilities” section above). Deposits The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, money market and interest-bearing demand deposits, is assumed to be equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using rates currently offered for deposits with comparable remaining maturities. Borrowed funds Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. Off-balance sheet instruments The fair value of off-balance sheet instruments, including swap guarantees of $ 13.1 million and $ 12.8 million at December 31, 2021 and December 31, 2020, respectively, and standby letters of credit, approximates the recorded net deferred fee amounts. Because letters of credit are generally not assignable by either the Company or the borrower, they only have value to the Company and the borrower. 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: (Dollars in thousands) December 31, 2021 Financial Instrument Fair Value Valuation Technique(s) Unobservable Input Range (Weighted Average) Other investments $ 10,518 Observed market comparable transactions Period of observed transactions May 2021 Other real estate owned $ 2,320 Fair market value of collateral Costs to sell 10.0 % Other liabilities $ 20,252 Discounted cash flow Timing of Visa litigation resolution 1.75 - 6.75 years ( 4.50 years or 4Q 2025) 124 The book value and estimated fair value of the Company's financial instruments are as follows: December 31, Fair Value Measurement 2021 2020 (Dollars in thousands) Book Value Fair Value Book Value Fair Value Financial assets: Cash, cash equivalents and restricted cash Level 1 $ 1,532,939 $ 1,532,939 $ 1,654,735 $ 1,654,735 Investment securities, available for sale Level 2 5,205,311 5,205,311 2,529,057 2,529,057 Investment securities, held to maturity, net Level 2 90,642 94,131 111,741 116,421 Other investments Level 3 10,518 10,518 9,541 9,541 Loans, held for sale Level 2 113,349 113,349 197,541 197,541 Loans and leases, net (1) Level 3 7,791,482 7,723,867 8,795,935 9,130,003 Stock in FHLB of Pittsburgh Level 2 6,073 6,073 5,771 5,771 Accrued interest receivable Level 2 41,596 41,596 44,335 44,335 Other assets Level 2 5,153 5,153 14,448 14,448 Financial liabilities: Deposits Level 2 $ 13,240,062 $ 13,236,816 $ 11,856,664 $ 11,868,897 Borrowed funds Level 2 239,477 225,119 340,641 340,106 Standby letters of credit Level 3 674 674 630 630 Accrued interest payable Level 2 736 736 1,450 1,450 Other liabilities Levels 2, 3 23,291 23,291 32,257 32,257 (1) Includes reverse mortgage loans. At December 31, 2021 and December 31, 2020 the Company had no commitments to extend credit measured at fair value. 125 19. 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 Consolidated Statements of Financial Condition as of December 31, 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 $ 54,834 Other assets $ 2,625 Interest rate products 54,834 Other liabilities ( 2,847 ) Risk participation agreements 4,214 Other liabilities ( 3 ) Interest rate lock commitments with customers 102,264 Other assets 1,991 Interest rate lock commitments with customers 12,813 Other liabilities ( 73 ) Forward sale commitments 63,664 Other assets 537 Forward sale commitments 67,032 Other liabilities ( 116 ) Financial derivative related to sales of certain Visa Class B shares 113,177 Other liabilities ( 20,252 ) Total derivatives $ 472,832 $ ( 18,138 ) 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, 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 $ 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 derivative related to sales of certain Visa Class B shares 113,177 Other liabilities ( 24,039 ) Total derivatives $ 801,542 $ ( 17,809 ) 126 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 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 first half of 2020, such derivatives were used to hedge the variable cash flows associated with a variable rate loan pool. In 2020, the Company terminated its three interest rate derivatives that were designated as cash flow hedges for a net gain of $ 1.3 million, recognized in accumulated other comprehensive income (loss). Hedge accounting was discontinued, and the net gain 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 $ 0.2 million will be reclassified as an increase to interest income. During the year ended December 31, 2021, $ 0.5 million was reclassified into interest income. The table below presents the effect of the cash flow hedges on the Consolidated Statements of Income for the year ended December 31, 2020 and 2019. Amount of Gain Recognized in OCI on Derivative (Effective Portion) Location of Gain Reclassified from Accumulated OCI into Income (Effective Portion) (Dollars in thousands) Year Ended December 31, Derivatives in Cash Flow Hedging Relationships 2020 2019 Interest Rate Products $ 1,560 $ 1,877 Interest income Total $ 1,560 $ 1,877 Derivatives not designated as hedging instruments: Back-to-Back Swap Transactions The Company entered into agreements with two unrelated financial institutions whereby the Company enters into an interest rate swap transaction with the customer and offsets that transaction with another counterparty. Derivative financial instruments related to back-to-back swaps are recorded at fair value and are not designated as accounting hedges. Swap Guarantees The Company entered into agreements with six 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 December 31, 2021 and December 31, 2020, there were 261 and 234 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 December 31, 2021 and December 31, 2020. At December 31, 2021, the swap transactions remaining maturities ranged from under 1 year to 14 years. At December 31, 2021, 193 of these customer swaps were in a paying position to third parties for $ 35.8 million, with our swap guarantees having a fair value of $ 13.1 million. At December 31, 2020, 231 of these customer swaps were in a paying position to third 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. 127 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 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 effect of the derivative financial instruments on the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019. Amount of (Loss) or Gain Recognized in Income Location of (Loss) or Gain Recognized in Income (Dollars in thousands) Year Ended December 31, Derivatives Not Designated as a Hedging Instrument 2021 2020 2019 Interest Rate Lock Commitments $ ( 6,218 ) $ 6,490 $ 1,399 Mortgage banking activities, net Forward Sale Commitments 3,263 ( 12,226 ) ( 1,359 ) Mortgage banking activities, net Total $ ( 2,955 ) $ ( 5,736 ) $ 40 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 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. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $ 6.2 million in securities and $ 5.1 million in cash against its obligations under these agreements. If the Company had breached any of these provisions at December 31, 2021, it could have been required to settle its obligations under the agreements at the termination value. 20. 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. 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. There was one related party loan exceeding $ 0.5 million originated and sold during the year ended December 31, 2021 as compared to two related party loans exceeding $ 0.5 million originated and sold during the year ended December 31, 2020. During 2021, all new loans and credit line advances to related parties were $ 0.8 million and repayments were less than $ 0.1 million. The outstanding balances of loans to related parties at December 31, 2021 and 2020 were $ 0.4 million and $ 0.2 million, respectively. Total deposits from related parties at December 31, 2021 and 2020 were $ 5.8 million and $ 8.3 million, respectively. 128 21. 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 Consolidated Financial Statements. Based on these criteria, the Company has identified three segments: WSFS Bank, Cash Connect ® , and Wealth Management. The WSFS Bank segment provides financial products to commercial and retail customers. Retail and Commercial Banking, Commercial Real Estate Lending and other banking business units are operating departments of WSFS Bank. These departments share the same regulators, 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, corporate clients and special purpose vehicles. 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. 129 The following tables show segment results for the years ended December 31, 2021, 2020, and 2019: Year Ended December 31, 2021 (Dollars in thousands) WSFS Bank Cash Connect ® Wealth Management Total Statements of Income External customer revenues: Interest income $ 447,542 $ — $ 8,827 $ 456,369 Noninterest income 79,310 42,818 63,352 185,480 Total external customer revenues 526,852 42,818 72,179 641,849 Inter-segment revenues: Interest income 3,460 1,088 12,002 16,550 Noninterest income 15,988 1,240 1,354 18,582 Total inter-segment revenues 19,448 2,328 13,356 35,132 Total revenue 546,300 45,146 85,535 676,981 External customer expenses: Interest expense 22,058 — 662 22,720 Noninterest expenses 328,277 29,465 20,774 378,516 (Recovery of) provision for credit losses ( 113,715 ) — ( 3,372 ) ( 117,087 ) Total external customer expenses 236,620 29,465 18,064 284,149 Inter-segment expenses Interest expense 13,090 856 2,604 16,550 Noninterest expenses 2,594 4,636 11,352 18,582 Total inter-segment expenses 15,684 5,492 13,956 35,132 Total expenses 252,304 34,957 32,020 319,281 Income before taxes $ 293,996 $ 10,189 $ 53,515 $ 357,700 Income tax provision 86,095 Consolidated net income $ 271,605 Net loss attributable to noncontrolling interest 163 Net income attributable to WSFS $ 271,442 Supplemental Information Capital expenditures for the period ended $ 6,344 $ 232 $ — $ 6,576 130 Year Ended December 31, 2020 (Dollars in thousands) WSFS Bank Cash Connect ® Wealth Management Total Statements of Income External customer revenues: Interest income $ 505,258 $ — $ 9,147 $ 514,405 Noninterest income 110,585 40,899 49,541 201,025 Total external customer revenues 615,843 40,899 58,688 715,430 Inter-segment revenues: Interest income 4,930 851 10,747 16,528 Noninterest income 13,038 835 1,832 15,705 Total inter-segment revenues 17,968 1,686 12,579 32,233 Total revenue 633,811 42,585 71,267 747,663 External customer expenses: Interest expense 46,428 — 2,022 48,450 Noninterest expenses 310,799 28,421 29,624 368,844 Provision for credit losses 149,453 — 3,727 153,180 Total external customer expenses 506,680 28,421 35,373 570,474 Inter-segment expenses Interest expense 11,598 1,580 3,350 16,528 Noninterest expenses 2,667 3,340 9,698 15,705 Total inter-segment expenses 14,265 4,920 13,048 32,233 Total expenses 520,945 33,341 48,421 602,707 Income before taxes $ 112,866 $ 9,244 $ 22,846 $ 144,956 Income tax provision 31,636 Consolidated net income $ 113,320 Net loss attributable to noncontrolling interest ( 1,454 ) Net income attributable to WSFS $ 114,774 Supplemental Information Capital expenditures for the period ended $ 6,499 $ 420 $ 240 $ 7,159 131 Year Ended December 31, 2019 (Dollars in thousands) WSFS Bank Cash Connect ® Wealth Management Total Statements of Income External customer revenues: Interest income $ 510,492 $ — $ 10,600 $ 521,092 Noninterest income 92,898 51,143 44,068 188,109 Total external customer revenues 603,390 51,143 54,668 709,201 Inter-segment revenues: Interest income 12,380 — 17,081 29,461 Noninterest income 9,654 890 902 11,446 Total inter-segment revenues 22,034 890 17,983 40,907 Total revenue 625,424 52,033 72,651 750,108 External customer expenses: Interest expense 71,158 — 4,986 76,144 Noninterest expenses 348,351 35,377 29,399 413,127 Provision for loan and lease losses 24,884 — 676 25,560 Total external customer expenses 444,393 35,377 35,061 514,831 Inter-segment expenses Interest expense 17,081 78,080 4,572 29,461 Noninterest expenses 1,792 2,754 6,900 11,446 Total inter-segment expenses 18,873 10,562 11,472 40,907 Total expenses 463,266 45,939 46,533 555,738 Income before taxes $ 162,158 $ 6,094 $ 26,118 $ 194,370 Income tax provision 46,452 Consolidated net income $ 147,918 Net loss attributable to noncontrolling interest ( 891 ) Net income attributable to WSFS $ 148,809 Supplemental Information Capital expenditures for the period ended $ 11,806 $ 2,120 $ 272 $ 14,198 The following table shows significant components of segment net assets as of December 31, 2021 and 2020: December 31, 2021 2020 (Dollars in thousands) WSFS Bank Cash Connect ® Wealth Management Total WSFS Bank Cash Connect ® Wealth Management Total Cash and cash equivalents $ 1,039,046 $ 477,806 $ 16,087 $ 1,532,939 $ 1,246,394 $ 397,878 $ 10,463 $ 1,654,735 Goodwill 452,629 — 20,199 472,828 452,629 — 20,199 472,828 Other segment assets 13,481,370 6,785 283,405 13,771,560 11,963,345 6,997 236,009 12,206,351 Total segment assets $ 14,973,045 $ 484,591 $ 319,691 $ 15,777,327 $ 13,662,368 $ 404,875 $ 266,671 $ 14,333,914 132 22. PARENT COMPANY FINANCIAL INFORMATION Condensed Statements of Income Year Ended December 31, (Dollars in thousands) 2021 2020 2019 Income: Interest income $ 357 $ 356 $ 5,589 Realized loss on sale of equity investment ( 706 ) — — Unrealized gains (losses) on equity investments, net 5,389 ( 1,617 ) 3,646 Other noninterest income 4,759 208,762 240,408 9,799 207,501 249,643 Expense: Interest expense 7,771 6,748 7,490 Other operating expense 7,508 2,553 259 15,279 9,301 7,749 (Loss) income before equity in undistributed income of subsidiaries ( 5,480 ) 198,200 241,894 Equity in undistributed income (loss) of subsidiaries 276,208 ( 84,346 ) ( 92,020 ) Income before taxes 270,728 113,854 149,874 Income tax (benefit) provision ( 714 ) ( 920 ) 1,065 Net income attributable to WSFS $ 271,442 $ 114,774 $ 148,809 Condensed Statements of Financial Condition December 31, (Dollars in thousands) 2021 2020 Assets: Cash and cash equivalents $ 103,708 $ 244,925 Investment in subsidiaries 2,045,080 1,862,970 Investment in the Trust 2,011 2,011 Other assets 4,514 4,728 Total assets $ 2,155,313 $ 2,114,634 Liabilities: Trust preferred borrowings $ 67,011 $ 67,011 Senior debt 147,939 246,617 Accrued interest payable 298 581 Other liabilities 966 8,699 Total liabilities 216,214 322,908 Stockholders’ equity: Common stock 577 576 Capital in excess of par value 1,058,997 1,053,022 Accumulated other comprehensive (loss) income ( 37,768 ) 56,007 Retained earnings 1,224,614 977,414 Treasury stock ( 307,321 ) ( 295,293 ) Total stockholders’ equity of WSFS 1,939,099 1,791,726 Total liabilities and stockholders’ equity of WSFS $ 2,155,313 $ 2,114,634 133 Condensed Statements of Cash Flows Year Ended December 31, (Dollars in thousands) 2021 2020 2019 Operating activities: Net income attributable to WSFS $ 271,442 $ 114,774 $ 148,809 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed (income) loss of subsidiaries ( 276,208 ) 84,346 92,020 Realized loss on sale of equity investments 706 — — Unrealized (gains) losses on equity investments ( 5,389 ) 1,617 ( 3,646 ) Decrease (increase) in other assets 10,910 ( 4,537 ) 3,538 (Decrease) increase in other liabilities ( 6,690 ) 7,684 6,012 Net cash (used for) provided by operating activities $ ( 5,229 ) $ 203,884 $ 246,733 Investing activities: Net cash for business combinations $ — $ — $ ( 93,990 ) Net cash used for investing activities $ — $ — $ ( 93,990 ) Financing activities: Issuance of common stock and exercise of common stock options $ 1,522 $ 2,032 $ 7,755 Issuance of senior debt — 147,780 — Redemption of senior debt ( 100,000 ) — — Purchase of treasury stock ( 13,268 ) ( 155,832 ) ( 97,186 ) Dividends paid ( 24,242 ) ( 24,369 ) ( 22,463 ) Net cash used for financing activities $ ( 135,988 ) $ ( 30,389 ) $ ( 111,894 ) (Decrease) increase in cash and cash equivalents $ ( 141,217 ) $ 173,495 $ 40,849 Cash and cash equivalents at beginning of period 244,925 71,430 30,581 Cash and cash equivalents at end of period $ 103,708 $ 244,925 $ 71,430 134 23. CHANGE IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) 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 (loss) are presented net of tax as a component of stockholders' equity. Amounts that are reclassified out of accumulated other comprehensive income (loss) are recorded on the Consolidated Statement of Income either as a gain or loss. Changes to accumulated other comprehensive income (loss) by component are shown net of taxes in the following tables for the period indicated: (Dollars in thousands) Net change in investment securities available for sale Net change in investment securities held to maturity Net change in defined benefit plan Net change in fair value of derivatives used for cash flow hedges (1) Net change in equity method investments Total Balance, December 31, 2018 $ ( 14,553 ) $ 779 $ 834 $ ( 2,454 ) $ — $ ( 15,394 ) Other comprehensive income (loss) before reclassifications 41,733 ( 2 ) ( 4,045 ) 1,877 — 39,563 Less: Amounts reclassified from accumulated other comprehensive (loss) income ( 253 ) ( 309 ) ( 106 ) — — ( 668 ) Net current-period other comprehensive income (loss) 41,480 ( 311 ) ( 4,151 ) 1,877 — 38,895 Balance, December 31, 2019 $ 26,927 $ 468 $ ( 3,317 ) $ ( 577 ) $ — $ 23,501 Other comprehensive income (loss) before reclassifications 39,853 — ( 1,445 ) 1,560 ( 9 ) 39,959 Less: Amounts reclassified from accumulated other comprehensive (loss) income ( 6,898 ) ( 192 ) ( 26 ) ( 337 ) — ( 7,453 ) Net current-period other comprehensive income (loss) 32,955 ( 192 ) ( 1,471 ) 1,223 ( 9 ) 32,506 Balance, December 31, 2020 $ 59,882 $ 276 $ ( 4,788 ) $ 646 $ ( 9 ) $ 56,007 Other comprehensive (loss) income before reclassifications ( 93,503 ) — 162 — 362 ( 92,979 ) Less: Amounts reclassified from accumulated other comprehensive (loss) income ( 252 ) ( 101 ) ( 65 ) ( 378 ) — ( 796 ) Net current-period other comprehensive income (loss) ( 93,755 ) ( 101 ) 97 ( 378 ) 362 ( 93,775 ) Balance, December 31, 2021 $ ( 33,873 ) $ 175 $ ( 4,691 ) $ 268 $ 353 $ ( 37,768 ) (1) Cash flow hedges were terminated as of April 1, 2020. 135 Components of other comprehensive income that impact the Consolidated Statements of Income are presented in the table below. Twelve Months Ended December 31, Affected line item in Consolidated Statements of Income (Dollars in thousands) 2021 2020 2019 Securities available-for-sale: Realized gains on securities transactions $ ( 331 ) $ ( 9,076 ) $ ( 333 ) Securities gains, net Income taxes 79 2,178 80 Income tax provision Net of tax $ ( 252 ) $ ( 6,898 ) $ ( 253 ) 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 $ ( 133 ) $ ( 251 ) $ ( 407 ) Interest and dividends on investment securities Income taxes 32 59 98 Income tax provision Net of tax $ ( 101 ) $ ( 192 ) $ ( 309 ) Amortization of defined benefit pension plan-related items: Prior service (credits) costs $ ( 85 ) $ ( 266 ) $ ( 76 ) Actuarial gains — ( 47 ) ( 63 ) Total before tax $ ( 85 ) $ ( 313 ) $ ( 139 ) Salaries, benefits and other compensation Income taxes 20 75 33 Income tax provision Net of tax $ ( 65 ) $ ( 238 ) $ ( 106 ) Defined benefit pension plan settlement: Realized losses on plan settlement $ — $ 279 $ — Other operating expense Income taxes — ( 67 ) — Income tax provision Net of tax $ — $ 212 $ — Net unrealized gains on terminated cash flow hedges: Amortization of net unrealized gains to income during the period $ ( 497 ) $ ( 444 ) $ — Interest and fees on loans and leases Income taxes 119 107 — Income tax provision Net of tax $ ( 378 ) $ ( 337 ) $ — Total reclassifications $ ( 796 ) $ ( 7,453 ) $ ( 668 ) 136 Table of Contents 24. 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), as Insurance Trustee of the Charter Oak Trust, prior to CB&T's acquisition by the Company 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. Thereafter, WSFS filed suit to recover the remaining amounts relating to the Universitas proceeding, including the Universitas settlement payment, legal fees and related costs, by enforcing the indemnity right in the 2010 purchase agreement by which WSFS acquired CB&T. In the fourth quarter of 2021, WSFS agreed to a $ 15.0 million settlement of the indemnity litigation, which with prior recoveries, resulted in a complete recovery of the $ 12.0 million paid to Universitas and of all litigation costs incurred by WSFS in the Universitas arbitration and all related lawsuits, including the indemnity litigation, plus an amount allocable to prejudgment interest. 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 asserted claims against WSFS Bank for breach of contract, breach of fiduciary duty, and negligence, and sought the face value of the policies. WSFS Bank disputed the factual allegations and denied liability. On August 5, 2021, WSFS Bank reached a settlement with NHT, under which WSFS paid no damages and each of the parties agreed to dismiss and release all of their claims against the other. The parties incurred their own attorney's fees and costs. There were no material changes or additions to other significant pending legal or other proceedings involving the Company other than those arising out of routine operations. 25. 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: Bryn Mawr Trust Acquisition On January 1, 2022, WSFS, the parent holding company of WSFS Bank, completed its previously announced merger with Bryn Mawr Bank Corporation (BMBC), pursuant to the Agreement and Plan of Merger, dated as of March 9, 2021, by and between WSFS and BMBC, a Pennsylvania corporation and the parent holding company of The Bryn Mawr Trust Company (collectively, "Bryn Mawr Trust"). The purchase price consideration of $ 908 million was made at closing; however, due to the limited time since the closing, the related acquisition accounting is incomplete at this time. 137 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.