Fair Value Disclosures

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures

18. FAIR VALUE DISCLOSURES

Fair Value of Financial Assets and Liabilities

ASC 820-10, Fair Value Measurements and Disclosure, 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.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

The table below presents the balances of assets measured at fair value as of December 31, 2014 (there are no material liabilities measured at fair value):

Description	Quoted Prices in Active Markets for Identical Assets (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:
Collateralized mortgage obligations	$	—	$	192,932	$	—	$	192,932
FNMA		—		292,553		—		292,553
FHLMC		—		146,882		—		146,882
GNMA		—		77,797		—		77,797
U.S. Government and agencies		—		29,960				29,960
Total assets measured at fair value on a recurring basis		—		740,124		—		740,124
Assets measured at fair value on a nonrecurring basis:
Other real estate owned	$	—	$	—	$	5,734	$	5,734
Loans held-for-sale		—		28,508		—		28,508
Impaired loans		—		—		41,334		41,334
Total assets measured at fair value on a nonrecurring basis	$	—	$	28,508	$	47,068	$	75,576

The table below presents the balances of assets measured at fair value as of December 31, 2013 (there were no material liabilities measured at fair value):

Description	Quoted Prices in Active Markets for Identical Assets (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:
Collateralized mortgage obligations	$	—	$	97,557	$	—	$	97,557
FNMA		—		367,128		—		367,128
FHLMC		—		124,495		—		124,495
GNMA		—		95,592		—		95,592
U.S. Government and agencies		—		132,343		—		132,343
Total assets measured at fair value on a recurring basis	$	—	$	817,115	$	—	$	817,115
Assets Measured at Fair Value on a Nonrecurring Basis:
Other real estate owned	$	—	$	—	$	4,532	$	4,532
Impaired loans (collateral dependent)		—		—		38,379		38,379
Total assets measured at fair value on a nonrecurring basis	$	—	$	—	$	42,911	$	42,911

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

Available-for-sale securities

As of December 31, 2014, securities classified as available for sale are reported at fair value using Level 2 inputs. Included in the Level 2 total are approximately $30.0 million in Federal Agency debentures, and $710.2 million in Federal Agency MBS. We believe that this Level 2 designation is appropriate for these securities under ASC 820-10 as, with almost all fixed income securities, none are exchange traded, and all are priced by correlation to observed market data. For these securities we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.

Other real estate owned

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

Loans held-for-sale

During 2014 we elected to record loans held-for-sale at their fair value. The fair value was estimated using Level 2 inputs based on value information provided by brokers.

Impaired loans

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

Impaired loans, which are measured for impairment by either calculating the expected future cash flows discounted at the loan’s effective interest rate or determining the fair value of the collateral for collateral dependent loans, has a gross amount of $46.7 million and $43.3 million at December 31, 2014 and December 31, 2013, respectively. The valuation allowance on impaired loans was $5.3 million as of December 31, 2014 and $4.9 million as of December 31, 2013.

Fair Value of Financial Instruments

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

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

Cash and Short-Term Investments

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

Investments and Mortgage-Backed Securities

Since quoted market prices are not available, fair value is estimated using quoted prices for similar securities, which we obtain from a third party vendor. We utilize one of the largest providers of securities pricing to the industry and management periodically assesses the inputs used by this vendor to price the various types of securities owned by us to validate the vendor’s methodology. The fair value of our investment in reverse mortgages is based on the net present value of estimated cash flows, which have been updated to reflect recent external appraisals of the underlying collateral. For additional discussion of our mortgage-backed securities-trading or our internally developed models, see “Fair Value of Financial Assets” in Note 10 to the Consolidated Financial Statements.

Stock in the Federal Home Loan Bank of Pittsburgh

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

Loans held-for-sale

Loans held-for-sale are carried at their fair value.

Loans

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

Reverse Mortgage Related Assets

For additional information on these reverse mortgage related assets, see Note 7, Reverse Mortgage Related Assets, to the Consolidated Financial Statements.

Demand Deposits, Savings Deposits and Time Deposits

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

Borrowed Funds

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

Off-Balance Sheet Instruments

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

Other Assets

WSFS holds 50,833 shares of Visa Class B stock. Following resolution of Visa’s covered litigation, shares of Visa Class B stock will be converted to Visa Class A shares (the current conversion rate is 0.4121 shares of Class A stock for each share of Class B stock). As our ownership is related to our prior participation in Visa’s network, while Visa operated as a cooperative, this ownership is recorded on our books with zero basis.

While only current owners of Class B shares are allowed to purchase other Class B shares, there have been several transactions between Class B shareholders. Based on these transactions we estimate the value of our Class B shares to be $4.8 million as of December 31, 2014.

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

(In Thousands)	Fair Value Measurement	2014				2013
At December 31,		Book Value		Fair Value		Book Value		Fair Value
Financial assets:
Cash and cash equivalents	Level 1		508,039		508,039		484,426		484,426
Investment securities available-for-sale	See previous table		740,124		740,124		817,115		817,115
Investment securities held-to-maturity	See previous table		126,168		126,171		—		—
Loans, held-for-sale	See previous table		28,508		28,508		31,491		31,491
Loans, net	Level 2		3,156,652		3,121,855		2,904,976		2,871,499
Reverse Mortgages	Level 3		29,298		29,298		37,328		37,328
Stock in Federal Home Loan Bank of Pittsburgh	Level 2		23,278		23,278		35,869		35,869
Accrued interest receivable	Level 2		11,782		11,782		10,798		10,798
Financial liabilities:
Deposits	Level 2		3,649,235		3,461,218		3,186,942		2,982,420
Borrowed funds	Level 2		667,775		672,850		903,831		904,804
Standby letters of credit	Level 3		151		151		248		248
Accrued interest payable	Level 2		1,004		1,004		838		838

The estimated fair value of our off-balance sheet financial instruments is as follows:

(In Thousands)
December 31,	2014		2013
Off-balance sheet instruments:
Commitments to extend credit	$	—	$	—