2 0 0 8 A N N U A L R E P O R T
Table of Contents
Financial Highlights
(Dollars in millions, except banking office data and per share data)
Letter from the Chairman
& the Chief Executive Officer . . . . . . . . . . . . . . . . . i
at December 31
2008
2007
2006
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . ii
Continuing operations:
Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Principal Officers
& Advisory Board Members . . . . . . Inside Back Cover
Total assets
Net loans, including
held for sale
Mortgage-backed securities
and other investments
Deposits
Borrowings
Stockholders’ equity
Number of banking offices
for the year ended December 31
Continuing operations:
Income from
continuing operations
Diluted earnings per share
Return on average equity
Return on average assets
Nonperforming assets
to total assets
$3,433
$3,200
$2,997
2,444
587
2,122
1,067
217
35
2,234
571
1,827
1,135
211
29
2,020
613
1,756
1,003
212
27
$16,136
$29,649
$30,441
2.57
7.30%
0.50
1.04
4.55
4.41
14.34%
15.42%
0.98
0.99
1.03
0.14
L E T T E R
F R O M T H E
C H A I R M A N & T H E
C H I E F
E X E C U T I V E O F F I C E R
Marvin N. Schoenhals, Chairman
Mark A. Turner, President and Chief Executive Officer
To our Shareholders, Customers, Associates, Neighbors and Friends:
WSFS recorded net income from continuing operations of $16.1
million, or $2.57 per diluted share in 2008, compared to $29.6 million,
or $4.55 per diluted share in 2007. For 2008 our return on equity
was 7.30% and our return on assets was 0.50%, compared to
14.34% and 0.98%, respectively, for 2007.
We ended 2008 with strong capital levels, substantially above the
“well capitalized” levels by all regulatory measures. Early in 2009, we
welcomed the U.S. Treasury as an investor in WSFS and plan to use
the Treasury’s investment to continue to make loans and expand
services in and around Delaware.
Even during the fourth quarter of 2008, when we recorded a $3.3
million quarterly loss, customer deposits increased $173.4 million
and total net loans increased $113.6 million. Our loss was primarily
due to recording a $14.7 million loan loss provision to reflect the
accelerating recession and its impact on our borrowers. By taking
this approach to loan losses in 2008, we have better positioned
WSFS to manage through these more challenging times and to
come out stronger on the other side.
Our balance sheet remains strong with particular care given to loan
diversification and lending discipline, ample liquidity, solid capital
levels and an investment portfolio strategy that limits credit risk.
We continue to lend and invest in our communities using prudent
and profitable underwriting. Well in advance of the current economic
weakness, we took measures to reduce our exposure to construction
and land development loans. As a result, we have limited these
types of loans to less than 10% of our entire loan portfolio, with
residential development representing only $142 million or 5.7% of
the loan portfolio. We also purposefully built our loan portfolios
diversified by geography, industry and property type.
Our funding sources, especially our deposits and funding from the
Federal Home Loan Bank of Pittsburgh, are ample and reliable.
Growth initiatives added $228 million of customer deposits over the
past year.
WSFS owns no securities backed by sub-prime mortgages, bank
trust preferred, Freddie Mac or Fannie Mae preferred securities or
equity securities in other FDIC insured banks or thrifts. It is no accident
that our disciplined approach to building our investment portfolio to
limit credit risk has resulted in steady income and limited our exposure
to negative “mark to market” and other adjustments.
Our mission and strategy is built around service to our customers
and the community. We continue to sustain ourselves, even through
this downturn, by constantly focusing on attracting customer deposits
to fund our business loans. We strengthen the communities and
customers we serve by delivering Stellar Service and by staying true
to our values. Two of our value statements, Integrity in All We Do
and Customer First, are the guiding lights that continually focus us on
doing the right thing. WSFS remains a strong and solid community
bank built on a 177-year heritage of developing relationships and
trust with our customers, which will help us to be here for many
generations to come.
Highlights of 2008 include:
• Through disciplined risk management and prudent underwriting,
our total loan growth in 2008 was $210 million, or 9%, over
December 31, 2007. Nearly three quarters of this growth was in
commercial and industrial loans.
Total Loans
($MM)
4
4
4
2
,
4
3
2
2
,
0
2
0
2
,
5
7
7
1
,
5
3
5
1
,
5
0
3
1
,
08 07 06 05 04 03
i
W S F S 2 0 0 8 A N N U A L R E P O R T
L E T T E R
F R O M T H E
C H A I R M A N & T H E
C H I E F
E X E C U T I V E O F F I C E R
Total Customer
Deposits ($MM)
7
0
7
1
,
9
7
4
1
,
4
4
3
1
,
4
9
1
1
,
2
5
0
1
,
3
8
8
• As our customers continued to trust
WSFS to be a safe and comfortable
home for their money, we saw deposits
increase 15% in 2008, or $227.9
million from December 31, 2007.
• WSFS welcomed new customers
through the acquisition of six
branches and as a result gained $95
million in deposits. We are particularly
proud that, to date, we have not only
retained those deposit levels, but also
deepened our relationships, and
have grown these deposits to more
than $99 million.
• Richard J. Immesberger joined the
WSFS Wealth Strategies group as
Executive Vice President. With more
than 20 years of private banking and wealth management
experience, Rich leads a seasoned team of Associates who provide
WSFS customers with high-touch investment management and
trust solutions, and a world-class investment platform.
08 07 06 05 04 03
• We increased our presence in the reverse mortgage industry—
locally and nationally.
• For the third year in a row, WSFS Bank was named “Best in the
Business” by the Wilmington News Journal. This accolade supports
our commitment to being an outstanding employer and creating
an environment where Associates feel valued and love to come to
work every day.
• Critical to our long-term success is our strong culture of Engaged
Associates Delivering Stellar Service to Create Customer Advocates.
We continued to reach new heights in 2008 in both our Associate
and Customer engagement levels. Our customers continue to
have confidence in WSFS and value the world-class service
delivered by our Associates—so much so that when surveyed by
Gallup, 40% of our customers strongly agree that they “cannot
imagine a world without WSFS.”
As we have entered 2009, we continue to make appropriate
adjustments to our underwriting, pricing and loan structures. We have
also committed to monitor spending more closely in consideration
of the current economic environment. We anticipate 2009 will be
profitable for WSFS but also expect it will be a very challenging and
dynamic year. With our nimble and prudent approach to running
our business, we feel confident that we will continue to grow and
prosper in 2009 and in the years to come.
This year we will add two branches to our retail franchise in Millsboro
and Ocean View, Delaware, both located in Sussex County. Additionally,
we plan on relocating another three branches to provide even
more enhanced service to our customers in Lewes and Dover,
Delaware, as well as Glen Mills, Pennsylvania. And we will continue
to expand our lending and professional services to all our customers.
Our dedicated team of Associates and a strong management team
will lead WSFS and its shareholders, customers, Associates, neighbors
and friends through this difficult economic cycle. Thank you for
your continued support and trust in WSFS Bank.
MARVIN N. SCHOENHALS
Chairman
MARK A. TURNER
President and Chief Executive Officer
Board of Directors, WSFS Financial Corporation
Charles G. Cheleden
Vice Chairman and Lead Director
WSFS Financial Corporation
Attorney-At-Law
Calvert A. Morgan, Jr.
Vice Chairman, WSFS Bank
Chairman, President and
Chief Executive Officer (Retired)
PNC Bank, Delaware
Jennifer W. Davis
Vice President of Administration
University of Delaware
Donald W. Delson
Senior Advisor
Keefe, Bruyette, & Woods, Inc.
John F. Downey
Executive Director (Retired)
Office of Thrift Supervision
Linda C. Drake
Founder and Chair
TCIM Services, Inc.
David E. Hollowell
Executive Vice President
and University Treasurer (Retired)
University of Delaware
Joseph R. Julian
Chairman and Chief Executive Officer
JJID, Inc.
Dennis E. Klima
President/Chief Executive Officer
Bayhealth Medical Center, Inc.
Thomas P. Preston
Managing Partner
Blank Rome LLP
i i
Scott E. Reed
Senior Executive Vice President
and Chief Financial Officer (Retired)
BB&T Corporation
Marvin N. Schoenhals
Chairman
WSFS Financial Corporation
Claibourne D. Smith, Ph.D.
Acting President, Delaware State University
Vice President (Retired)
E. I. du Pont de Nemours & Company,
Incorporated
Mark A. Turner
President and Chief Executive Officer
WSFS Financial Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16668
WSFS FINANCIAL CORPORATION
Delaware
(State or other jurisdiction of incorporation or
organization)
22-2866913
(I.R.S. Employer Identification Number)
500 Delaware Avenue, Wilmington, Delaware
(Address of principal executive offices)
19899
(Zip Code)
Registrant's telephone number, including area code (302) 792-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. YES __ NO __X___
Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES __ NO __X___
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer X Non-accelerated filer ___ Smaller reporting company ___
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ____ No __X___
The aggregate market value of the voting stock held by nonaffiliates of the registrant, based on the closing price of the registrant's common stock as
quoted on NASDAQ as of June 30, 2008 was $264,701,000. For purposes of this calculation only, affiliates are deemed to be directors, executive
officers and beneficial owners of greater than 10% of the outstanding shares.
As of March 5, 2009, there were issued and outstanding 6,165,099 shares of the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 23, 2009 are incorporated by reference in Part
III hereof.
WSFS FINANCIAL CORPORATION
TABLE OF CONTENTS
Part I
Item 1.
Business .....................................................................................................................................
Item 1A.
Risk Factors ...............................................................................................................................
Item 1B.
Unresolved Staff Comments .....................................................................................................
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties ...................................................................................................................................
Legal Proceedings.......................................................................................................................
Submission of Matters to a Vote of Security Holders................................................................
Part II
Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities..................................................................................
Selected Financial Data...............................................................................................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................................................................................
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk...................................................
Item 8.
Item 9.
Financial Statements and Supplementary Data ..........................................................................
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................................................................
Item 9A.
Controls and Procedures .............................................................................................................
Page
3
25
29
29
33
33
33
35
35
53
54
98
98
Item 9B.
Other Information .......................................................................................................................
101
Part III
Item 10.
Directors, Executive Officers and Corporate Governance ........................................................
Item 11.
Executive Compensation ............................................................................................................
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters.....................................................................................................................................
Item 13.
Certain Relationships and Related Transactions, and Director Independence..........................
Item 14.
Principal Accountant Fees and Services.....................................................................................
Item 15.
Exhibits and Financial Statement Schedules..............................................................................
Signatures....................................................................................................................................
101
101
101
102
102
102
105
-2-
FORWARD-LOOKING STATEMENTS
PART I
Within this Annual Report on Form 10-K and exhibits thereto, management has included certain “forward-
looking statements” concerning the future operations of WSFS Financial Corporation (“the Company,” “our Company,”
“WSFS” “we,” “our” or “us”). It is management’s desire to take advantage of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. This statement is for the express purpose of availing the Company of the
protections of such safe harbor with respect to all “forward-looking statements” contained in its financial statements.
Management has used “forward-looking statements” to describe the future plans and strategies including expectations of
our future financial results. Management’s ability to predict results or the effect of future plans and strategy is inherently
uncertain. Factors that could affect results include interest rate trends, competition, the general economic climate in
Delaware, the mid-Atlantic region and the country as a whole, asset quality, loan growth, loan delinquency rates,
operating risk, uncertainty of estimates in general and changes in federal and state regulations, among other factors.
These factors should be considered in evaluating the “forward-looking statements,” and undue reliance should not be
placed on such statements. Actual results may differ materially from management expectations. We do not undertake
and specifically disclaim any obligation to publicly release the result of any revisions that may be made to any
forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
ITEM 1. BUSINESS
OUR BUSINESS
WSFS Financial Corporation is parent to WSFS Bank (‘the Bank”), one of the ten oldest banks in the United
States continuously operating under the same name. A permanent fixture in this community, WSFS has been in
operation for more than 175 years. In addition to its focus on stellar customer service, the Bank has continued to fuel
growth and remain relevant. The Bank is a relationship-focused, locally-managed, community banking institution that
has grown to become the largest thrift holding company in the State of Delaware, the second largest commercial lender
in the state and the fourth largest bank in terms of Delaware deposits.
WSFS’ core banking business is commercial lending funded by customer-generated deposits. We have built a
$1.7 billion commercial loan portfolio by recruiting the best seasoned commercial lenders in our markets and offering a
high level of service and flexibility typically associated with a community bank. We fund this business primarily with
deposits generated through commercial relationships and retail deposits in our 35-branch retail banking franchise
located in Delaware and southeastern Pennsylvania. We also offer a broad variety of consumer loan products, retail
securities and insurance brokerage through our retail branches.
In 2005, we established WSFS Wealth Strategies, our wealth management services division. Wealth
Strategies was formed in response to our commercial customers’ demand for the same high level service in their
investment relationships that they enjoyed as banking customers of WSFS. We found that many competitors are not
devoting human capital to clients with less than $5 million in investable assets, thereby creating an opportunity. WSFS
Wealth Strategies is complemented by Cypress Capital Management, a Registered Investment Adviser, acquired by
WSFS in 2004 and WSFS Investment Group, a brokerage firm and insurance agency.
Our Cash Connect division is a premier provider of ATM Vault Cash and related services in the United States.
Cash Connect manages more than $265 million in vault cash in approximately 10,000 ATMs nationwide and also
provides online reporting and ATM cash management, predictive cash ordering, armored carrier management, ATM
processing and equipment sales. Cash Connect also operates over 300 ATMs for WSFS Bank, which owns the largest
branded ATM network in Delaware.
During the second quarter of 2008, we acquired a majority interest in 1st Reverse Financial Services, LLC (1st
Reverse), specializing in reverse mortgage lending nationwide.
-3-
WSFS POINTS OF DIFFERENTIATION
While all banks offer similar products and services, we believe that WSFS has set itself apart from other banks
in our market and the industry in general. Also, community banks have been able to distinguish themselves from large
weakened banks with too many big problems and not enough emphasis on the customer in the current environment.
The following factors summarize what we believe are those points of differentiation.
Community Banking Model
Our size and community banking model play a key role in our success. Our approach to business combines a
service-oriented culture (which we call Stellar Service) with a strong complement of products and services, all aimed at
meeting the needs of our retail and business customers. We believe the essence of being a community bank means that
we are:
Small enough to offer customers responsive, personalized service and direct access to decision makers,
Large enough to provide all the products and services needed by our target market customers.
As the financial services industry has consolidated, many independent banks have been acquired by national
companies that have centralized their decision-making authority away from their customers and focused their mass-
marketing to a regional or even national customer base. We believe this trend has frustrated smaller business owners
who have become accustomed to dealing directly with their bank’s senior executives and discouraged retail customers
who often experience deteriorating levels of service in the branches. Additionally, it frustrates bank Associates who
are no longer empowered to provide good and timely service to their customers.
WSFS Bank offers:
Rapid response. Our customers tell us this is a critical differentiator from larger, in-market competitors.
One point of contact. Our Relationship Managers are responsible for understanding his or her customers’ needs
and bringing together the right resources in the Bank to meet those needs.
A customized approach to our clients. We believe this gives us an advantage over our competitors who are too
large or centralized to offer customized products or services.
Products and services that our customers value. This includes a broad array of banking and cash management
products, as well as a legal lending limit high enough to meet the credit needs of our customers, especially as they
grow.
Building Associate Engagement and Customer Advocacy
Our business model is built on a concept called Human Sigma, a concept we have implemented using the
statement “Engaged Associates delivering Stellar Service to create Customer Advocates”. The Human Sigma model,
identified by Gallup, Inc., begins with Associates who have taken ownership of their jobs because their strengths have
been identified and they have been matched with the right position and strong management. This strategy motivates
Associates, and unleashes innovation and productivity to engage our most valuable asset, our customers, by providing
them what we refer to as Stellar Service. As a result, we create Customer Advocates, or customers who have built an
emotional attachment to the Bank. Research studies continue to show a direct link between Associate engagement,
customer engagement and a company’s financial performance.
-4-
Engaged
Eng
Associates
Asso
aged
ciates
Delivering
Stellar
Service
Creating
Customer
Advocates
Sha
Buil
Building
ding
Shareholder
reholder
Value
Valu
e
Surveys conducted for us by a nationally recognized polling company indicate:
Our Associate Engagement scores consistently rank in the top quartile of companies polled. In 2008, there were
13.4 engaged Associates for every disengaged Associate. This compares to a 2.6:1 ratio in 2003 and a national
average of 1.5:1.
Customer surveys rank us in the top 10% of all companies, a “world class” rating. More than 40% of our
customers ranked us a “five” out of “five,” strongly agreeing with the statement “I can’t imagine a world without
WSFS.”
We believe that by fostering the energy of engaged and empowered Associates, we have become an employer
of choice in our market. During each of the past three years, WSFS was ranked “Best Place to Work” by The
Wilmington News Journal.
Strong Market Demographics
Delaware is situated in the middle of the Washington, DC - New York corridor which includes the urban
markets of Philadelphia and Baltimore. The state benefits from this urban concentration as well as from a unique
political environment that has created favorable law and legal structure, a business-friendly environment and a fair tax
system. In its 2007 overview, the Corporation for Enterprise Development ranked Delaware as one of only two states
to receive “Straight A’s” in its assessment of economic development throughout the U.S. Additionally, Delaware is
one of only seven states with a AAA bond rating. Delaware’s Demographics consistently compare favorably to US
economic and demographic averages.
(Most recent available statistics)
Average GDP Growth (Average 2006-2007)
Unemployment (For January 2009)
Median Household Income (Average 2007)
Population Growth (2000-2007)
Delaware
(1.6)%
6.7%
$55,988
10.4%
National
Average
2.0%
8.1%
$50,740
7.2%
-5-
Balance Sheet Management
We put a great deal of focus on actively managing our balance sheet. This management manifests itself in:
Strong capital levels. Maintaining strong capital levels is key to our operating philosophy. All regulatory
capital levels exceed well-capitalized levels. Our Tier 1 capital ratio was nearly 10% as of December 31, 2008,
more than $100 million in excess of the 6% “well-capitalized” level. Our year end capital ratios do not include
the additional capital raised in January 2009 through our participation in the Treasury’s Capital Purchase
Program (described later).
We maintain discipline around our lending, including planned portfolio diversification. Additionally, we take a
proactive approach to identifying trends in our business and lending market and have responded proactively to
areas of concern. For instance, we have limited our exposure to construction and land development (CLD)
loans as we anticipated an end to the expansion in housing prices. We have also increased our portfolio
monitoring and reporting sophistication. We maintain diversification in our loan portfolio to limit our exposure
to any single type of credit. Such discipline supplements careful underwriting and the benefits of knowing our
customers.
We seek to avoid credit risk in our investment portfolio and use this portion of our balance sheet primarily to
help us manage liquidity and interest rate risk, while providing some marginal income. As a result, we have no
exposure to Freddie Mac or Fannie Mae preferred securities, Trust Preferred securities or any securities backed
by sub-prime assets. Our securities purchases have been almost exclusively AAA-rated credits. To date, we
have had no other-than-temporary impairment losses to report.
We have been subject to many of the same pressures facing the banking industry, including an increase in our
delinquent loans, problem loans and charge-offs from the unsustainably low levels in recent years. The measures we
have taken strengthen the Bank’s credit position by diversifying risk and limiting exposure.
Disciplined and Aggressive Capital Management
We understand that our capital (or shareholders’ equity) belongs to our shareholders. They have entrusted this
capital to us with the expectation that it will be kept safe, but with the equal expectation that it will earn an adequate
return. As a result, we prudently but aggressively manage our shareholders’ capital. It is our intention to return some
of our earnings to shareholders through share repurchases, which is now subject to approval by the U.S. Treasury,
while maintaining adequate levels of capital.
Strong Performance Expectations
We are focused on high-performing long term financial goals. We define “high performing” as the top
quintile of a relevant peer group in return on assets (ROA), return on equity (ROE) and earnings per share (EPS)
growth. While industry headwinds have depressed these measures for the industry in recent years, long term, we
believe these targets should translate to approximately 1.5% ROA, 18% ROE and a 12% EPS growth rate.
Management incentives are paid, in large part, based on driving performance in these areas. A “Target” payment level
is only achieved by reaching performance at the 60th percentile of a peer group of all publicly traded banks and thrifts
in our size range. More details on this plan are included in our proxy statement.
Growth
Our successful long-term trend in lending, deposit gathering and EPS have been the result of our focused
strategy that provides the service and responsiveness of a community bank in a consolidating marketplace. We will
continue to grow by:
-6-
Recruiting and developing talented, service-minded Associates. We have successfully recruited Associates with
strong community ties to strengthen our existing markets and provide a strong start in new communities. We also
focus efforts on developing talent and leadership in our current Associate base to better equip those Associates for
their jobs and prepare them for leadership roles at WSFS.
Embracing the Human Sigma concept. We are committed to building Associate engagement and customer
advocacy as a way to develop our culture and grow our franchise. We firmly believe franchise and shareholder
value are directly linked to our Human Sigma model.
Continuing strong growth in commercial lending by:
o Selectively building a presence in contiguous markets.
o Providing product solutions like Remote Deposit Capture to facilitate commercial banking outside of our
primary market.
o Offering our community banking model that combines Stellar Service with the banking products and services
our business customers demand.
Aggressively growing deposits. In 2003, we energized our retail branch strategy by combining Stellar Service
with an expanded and updated branch network. We have also implemented a number of additional measures to
accelerate our deposit growth. We will continue to grow deposits by:
o Expanding and renovating our retail branch network.
o Further expanding our commercial customer relationships with deposit products.
o Finding creative ways to build deposit market share such as hiring deposit-focused relationship managers, and
targeted marketing programs.
o Potential acquisitions such as the branch acquisition we completed in 2008.
Growing our wealth management services division by leveraging the strong relationships we have with our current
customer base and providing unparalleled service to modestly wealthy clients in our market.
Results
Our focus on these points of differentiation has allowed us to grow our core franchise and build value for our
shareholders. Since 2004, our commercial loans have grown from $903 million to $1.8 billion, a strong 18%
compound annual growth rate (CAGR). Over the same period, customer deposits have grown from $1.1 billion to $1.7
billion, a 13% CAGR. More importantly, over the last decade, shareholder value has increased at a far greater rate
than our banking peers and the market in general, as is evident in the table below.
-7-
Cumulative Total Shareholder Return Compared with Performance of
Selected Indexes
December 31, 1997 through December 31, 2008
400
350
300
250
200
150
100
50
0
(50)
19 9 8
19 9 9
2 0 0 0
2 0 0 1 2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
WSFS Financial Corporation
Dow Jones Total Market Index
Nasdaq Bank Index
SUBSIDIARIES
We have two consolidated subsidiaries, WSFS Bank and Montchanin Capital Management, Inc.
WSFS Bank has one wholly owned subsidiary, WSFS Investment Group, Inc., which markets various third-
party investment and insurance products, such as single-premium annuities, whole life policies and securities primarily
through the Bank’s retail banking system and directly to the public.
In addition, WSFS Bank has one majority owned subsidiary, 1st Reverse Financial Services, LLC (1st
Reverse). 1st Reverse, a 51% owned subsidiary, is an Illinois-based reverse mortgage company that originates and
subsequently sells reverse mortgage loans nationwide.
Montchanin Capital Management, Inc. (“Montchanin”) provides asset management services in our primary
market area. Montchanin has one wholly owned subsidiary, Cypress Capital Management, LLC (“Cypress”). Cypress
is a Wilmington-based investment advisory firm servicing high net-worth individuals and institutions and had
approximately $410 million in assets under management at December 31, 2008.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Condensed average balance sheets for each of the last three years and analyses of net interest income and changes
in net interest income due to changes in volume and rate are presented in "Results of Operations" included in the section
entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
-8-
INVESTMENT ACTIVITIES
At December 31, 2008, WSFS’ total securities portfolio had a carrying value of $547.9 million. The
Company’s strategy has been to avoid credit risk in our securities portfolio. Therefore, securities purchases have been
limited to AAA-rated securities, except for $12.4 million in BBB+ rated MBS purchased in conjunction with a 2002
reverse mortgage securitization.
WSFS owns no CDOs, Bank Trust Preferred, Agency Preferred securities or equity securities in other FDIC
insured banks or thrifts.
T
he portfolio is comprised of:
$44.6 million in Federal Agency debt securities with a maturity of four years or less.
$194.7 million in “plain vanilla” Agency MBS. Of these, $103.4 million are sequential pay CMOs with no
contingent cash flows and $91.3 million are Agency MBS with 10-15 year original final maturities.
$292.7 million in Non-Agency MBS. The quality of this portfolio is evidenced by:
o Diversification among more than 75 different pools.
o
Significant seasoning, with 85% of underlying loans originated in 2005 or earlier, and 15% originated in
2006.
o Heavy continuing principal amortization, as more than 95% of these bonds were originally 15-year pass-
o
through cash flows.
Strong fundamental characteristics, with an average loan-to-value of 42% (based on scheduled
amortization and initial appraised value) with an average FICO score (at origination) well above 700.
Only 11% of the collateral is classified as Alt-A loans and none are classified as sub-prime.
Only four of the 75 bonds, with a market value of $11.3 million, were downgraded in 2008. Based on stress
tests of these four bonds using proprietary models of two independent companies, management believes the collection
of the contractual principal and interest is probable and therefore the unrealized losses are considered to be temporary.
Our short-term investment portfolio is intended to keep the Bank’s funds fully employed at the maximum after-
tax return, while maintaining acceptable credit, market and interest-rate risk limits, and providing needed liquidity under
current circumstances. In addition, our short-term taxable investments provide collateral for various Bank obligations.
Our short-term municipal securities provide for a portion of the Bank’s CRA investment program. Amortized cost of
investment securities and short-term investments by category, stated in dollar amounts and as a percent of total assets,
follow:
2008
Percent
of
December 31,
2007
Percent
of
2006
Percent
of
Amount
Assets
Amount
Assets
Amount
Assets
(Dollars in Thousands)
Held-to-Maturity:
State and political subdivisions....
$ 1,181
0.1 %
$ 1,516
0.1 %
$ 4,219
0.1%
Available-for-Sale:
Reverse Mortgages.......................
State and political subdivisions....
U.S. Government and agencies ....
Short-term investments:
Interest-bearing deposits in
other banks ..................................
(61)
4,020
43,778
47,737
-
0.1
1.3
1.4
2,037
4,115
20,477
26,629
0.1
0.1
0.6
0.8
598
2,785
46,920
50,303
-
0.1
1.6
1.7
216
$ 49,134
-
1.4%
1,078
$ 29,223
-
0.9%
243
$ 54,765
-
1.8%
-9-
There were no sales of investment securities classified as available-for-sale during 2008 and 2007. Municipal
bonds totaling $440,000 were called by the issuers during 2008. There were no net losses realized on sales in either 2008
or 2007. Proceeds from the sale of investments classified as available-for-sale during 2006 were $11.0 million. There was
a net loss of $41,000 realized on sales in 2006. The cost basis for all investment security sales was based on the specific
identification method. There were no sales of investment securities classified as held-to-maturity in 2008, 2007 or 2006.
The following table shows the terms to maturity and related weighted average yields of investment securities and
short-term investments at December 31, 2008. Substantially all of the related interest and dividends represent taxable
income.
At December 31, 2008
Amount
Weighted
Average
Yield (1)
(Dollars In Thousands)
Held-to-Maturity:
State and political subdivisions (2):
Within one year ..........................................................................................
After one but within five years ..................................................................
After ten years ............................................................................................
Total debt securities, held-to-maturity .................................................................
$ -
630
551
1,181
Available-for-Sale:
Reverse Mortgages (3):
Within one year ..........................................................................................
$ (61)
State and political subdivisions (2):
Within one year ..........................................................................................
After one but within five years ..................................................................
After five but within ten years ...................................................................
U.S. Government and agencies:
Within one year ..........................................................................................
After one but within five years ..................................................................
Total debt securities, available-for-sale ...............................................................
Total debt securities .............................................................................................
Short-term investments:
Interest-bearing deposits in other banks .....................................................
Total short-term investments ...............................................................................
855
1,890
1,275
4,020
$ 4,001
39,777
43,778
47,737
48,918
216
216
$ 49,134
- %
7.53
5.32
6.50
-
3.85
4.13
4.31
4.13
4.08
3.19
3.27
3.34
3.42
0.30
0.30
3.41%
(1)
Reverse mortgages have been excluded from weighted average yield calculations because income can vary
significantly from reporting period to reporting period due to the volatility of factors used to value the portfolio.
(2) Yields on state and political subdivisions are not calculated on a tax-equivalent basis since the effect would be
immaterial.
(3)
Reverse mortgages do not have contractual maturities. We have included reverse mortgages in maturities within one
year.
-10-
In addition to these investment securities, we have maintained an investment portfolio of mortgage-backed
securities, $10.8 million of which is classified as “trading” that are BBB+ rated and were purchased in conjunction with a
2002 reverse mortgage securitization. At December 31, 2008, mortgage-backed securities with a par value of $314.5
million were pledged as collateral for retail customer repurchase agreements and municipal deposits. Accrued interest
receivable for mortgage-backed securities was $2.1 million and $2.0 million at December 31, 2008 and 2007, respectively.
There were no sales of mortgage-backed securities available-for-sale in 2008. In 2007, proceeds from the sale of
mortgage-backed securities available-for-sale were $2.7 million, resulting in a gain of $82,000.
The following table shows the amortized cost of mortgage-backed securities and their related weighted average
contractual rates at the end of the last three fiscal years.
2008
December 31,
2007
2006
Amount
Rate
Amount
Rate
Amount
Rate
(Dollars in Thousands)
Available-for-Sale:
Collateralized mortgage obligations .................
FNMA ..............................................................
FHLMC ............................................................
GNMA ..............................................................
$ 419,177
35,578
30,477
22,536
$ 507,768
5.48%
4.19
4.44
5.01
5.31%
$ 407,113
35,654
31,357
15,923
$ 490,047
4.97%
4.04
4.31
4.73
4.85%
$ 424,748
42,254
31,121
19,115
$ 517,238
4.88%
4.05
4.29
4.72
4.77%
Trading:
Collateralized mortgage obligations ..................
$ 10,816
3.47%
$ 12,364
7.79%
$ 12,364
8.35%
CREDIT EXTENSION ACTIVITIES
Over the past several years we have focused on increasing the more profitable segments of our loan portfolio.
Our current lending activity is concentrated on lending to small-to mid-sized businesses in the mid-Atlantic region of
the United States primarily in Delaware and contiguous counties in Pennsylvania, Maryland and New Jersey. In 2004,
residential first mortgage loans comprised 28.9% of the loan portfolio, while the combination of commercial loans and
commercial real estate loans made up only 59.0%. In contrast, at December 31, 2008, residential first loans totaled
only 17.4%, while commercial loans and commercial real estate loans have increased to a combined total of 71.8% of
the loan portfolio. Traditionally, the majority of typical thrift institutions’ loan portfolios have consisted of first
mortgage loans on residential properties.
-11-
The following table shows the composition of our loan portfolio at year-end for the last five years. Except as shown below, there are no concentrations of
loans exceeding 10% of total loans.
Types of Loans
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
2008
2007
December 31,
2006
2005
2004
(Dollars in Thousands)
Residential real estate (1) ...........
Commercial real estate:
Commercial mortgage ..............
Construction ..............................
Total commercial real estate ...
Commercial .................................
Consumer ....................................
$ 425,018
17.4%
$ 449,853
20.1%
$ 474,871
23.5%
$ 457,651
25.8%
$ 443,023
28.9%
558,979
251,508
810,487
942,920
296,728
22.9
10.3
33.2
38.6
12.1
465,928
276,939
742,867
787,539
278,272
20.9
12.4
33.3
35.3
12.4
422,089
241,931
664,020
643,918
263,478
20.9
12.0
32.9
31.9
13.0
410,552
178,418
588,970
508,930
244,820
23.1
10.0
33.1
28.7
13.8
416,287
120,604
536,891
368,752
210,959
27.1
7.9
35.0
24.0
13.7
Gross loans .................................
$2,475,153
101.3
$2,258,531
101.1
$2,046,287
101.3
$1,800,371
101.4
$1,559,625
101.6
Less:
Deferred fees (unearned income)
.....................................................
Allowance for loan losses ...........
129
31,189
0.0
1.3
(701)
25,252
0.0
1.1
(838)
27,384
0.0
1.3
(304)
25,381
0.0
1.4
(64)
24,222
0.0
1.6
Net loans .....................................
$2,443,835
100.0%
$2,233,980
100.0%
$2,019,741
100.0%
$1,775,294
100.0%
$1,535,467
100.0%
(1) Includes $2,275, $2,404, $925, $438 and $3,249 of residential mortgage loans held-for-sale at December 31, 2008, 2007, 2006, 2005 and 2004, respectively.
-12-
The following tables show how much time remains until our loans mature. The first table details the
total loan portfolio by type of loan. The second table details the total loan portfolio by loans with fixed
interest rates and loans with adjustable interest rates. The tables show loans by contractual maturity. Loans
may be pre-paid so that the actual maturity may be earlier than the contractual maturity. Prepayments tend to
be highly dependent upon the interest rate environment. Loans having no stated maturity or repayment
schedule are reported in the Less than One Year category.
Less than
One Year
One to
Over
Five Years
Five Years
Total
(Dollars in Thousands)
Real estate loans (1) .......................................
Construction loans .........................................
Commercial loans ..........................................
Consumer loans .............................................
Rate sensitivity:
Fixed ............................................................
Adjustable (2) ..............................................
Gross loans
$ 165,797
189,544
347,146
169,891
$ 872,378
$ 86,223
786,155
$ 872,378
$ 307,454
55,702
399,234
54,006
$ 816,396
$ 351,865
464,531
$ 816,396
$ 508,467
6,262
196,540
72,831
$ 784,100
$ 288,423
495,677
$ 784,100
$ 981,718
251,508
942,920
296,728
$ 2,472,874
$ 726,511
1,746,363
$ 2,472,874
(1)
(2)
Includes commercial mortgage loans and does not include loans held-for-sale.
Includes hybrid adjustable rate mortgages.
Residential Real Estate Lending.
We generally originate residential mortgage loans with loan-to-value ratios of up to 80% and require
private mortgage insurance for up to 30% of the mortgage amount for mortgage loans with loan-to-value ratios
exceeding 80%. We do not have any significant concentrations of such insurance with any one insurer. On a
limited basis, we originate or purchase loans with loan-to-value ratios exceeding 80% without a private
mortgage insurance requirement. At December 31, 2008, the balance of all such loans was approximately $4.2
million.
Generally, our residential mortgage loans are underwritten and documented in accordance with
standard underwriting criteria published by the Federal Home Loan Mortgage Corporation (“FHLMC”) to
assure maximum eligibility for subsequent sale in the secondary market. We sell only those loans that are
originated specifically with the intention to sell.
To protect the propriety of our liens, we require that title insurance be obtained. We also require fire
and extended coverage casualty insurance for properties securing residential loans. All properties securing
residential loans made by us are appraised by independent, licensed and certified appraisers selected by us and
are subject to review in accordance with our standards.
The majority of our adjustable-rate, residential real estate loans have interest rates that adjust yearly
after an initial period. Typically, the change in rate is limited to two percentage points at the adjustment date.
Adjustments are generally based upon a margin (currently 2.75%) over the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity, as published by the Federal Reserve Board.
Generally, the maximum rate on these loans is up to six percent above the initial interest rate. We
underwrite adjustable-rate loans under standards consistent with private mortgage insurance and secondary
market criteria. We do not originate adjustable-rate mortgages with payment limitations that could produce
-13-
negative amortization. Consistent with industry practice in our market area, we typically originate adjustable-
rate mortgage loans with discounted initial interest rates.
The retention of adjustable-rate mortgage loans in our loan portfolio helps mitigate our risk to
changes in interest rates. However, there are unquantifiable credit risks resulting from potential increased costs
to the borrower as a result of repricing adjustable-rate mortgage loans. It is possible that during periods of
rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward
adjustment of interest costs to the borrower. Further, although adjustable-rate mortgage loans allow us to
increase the sensitivity of our asset base to changes in interest rates, the extent of this interest sensitivity is
limited by the periodic and lifetime interest rate adjustment limitations. Accordingly, there can be no
assurance that yields on our adjustable-rate mortgages will adjust sufficiently to compensate for increases to
our cost of funds during periods of extreme interest rate increases.
The original contractual loan payment period for residential loans is normally 10 to 30 years. Because
borrowers may refinance or prepay their loans without penalty, these loans tend to remain outstanding for a
substantially shorter period of time. First mortgage loans customarily include "due-on-sale" clauses on
adjustable- and fixed-rate loans. This provision gives us the right to declare a loan immediately due and
payable in the event the borrower sells or otherwise disposes of the real property subject to the mortgage. Due-
on-sale clauses are an important means of adjusting the rate on existing fixed-rate mortgage loans to current
market rates. We enforce due-on-sale clauses through foreclosure and other legal proceedings to the extent
available under applicable laws.
In general, loans are sold without recourse except for the repurchase arising from standard contract
provisions covering violation of representations and warranties or, under certain investor contracts, a default
by the borrower on the first payment. We also have limited recourse exposure under certain investor contracts
in the event a borrower prepays a loan in total within a specified period after sale, typically one year. The
recourse is limited to a pro rata portion of the premium paid by the investor for that loan, less any prepayment
penalty collectible from the borrower.
We have a very limited amount of subprime loans, $16.9 million, at December 31, 2008 (0.7% of
loans), many originated in 2003, and no negative amortizing loans or interest only loans. Subprime mortgage
delinquencies of 3.20% in our small portfolio are a fraction of the national average of 20.47%, due to our
underwriting and the seasoning of these loans.
Commercial Real Estate, Construction and Commercial Lending.
Federal savings banks are generally permitted to invest up to 400% of their total regulatory capital in
nonresidential real estate loans and up to 20% of its assets in commercial loans. As a federal savings bank that
was formerly chartered as a Delaware savings bank, we have certain additional lending authority.
We offer commercial real estate mortgage loans on multi-family properties and other commercial real
estate. Generally, loan-to-value ratios for these loans do not exceed 80% of appraised value at origination.
We offer commercial construction loans to developers. In some cases these loans are made as
"construction/permanent" loans, which provides for disbursement of loan funds during construction and
automatic conversion to mini-permanent loans (1-5 years) upon completion of construction. These
construction loans are made on a short-term basis, usually not exceeding two years, with interest rates indexed
to our prime rate or London InterBank Offered Rate (“LIBOR”), in most cases, and adjusted periodically as
these rates change. The loan appraisal process includes the same evaluation criteria as required for permanent
mortgage loans, but also takes into consideration: completed plans, specifications, comparables and cost
estimates. Prior to approval of the credit, these items are used as a basis to determine the appraised value of the
subject property when completed. Our policy requires that all appraisals be reviewed independently from our
-14-
commercial lending staff. Generally, at origination, the loan-to-value ratios for construction loans do not
exceed 75%. The initial interest rate on the permanent portion of the financing is determined by the prevailing
market rate at the time of conversion to the permanent loan. At December 31, 2008, $459.8 million was
committed for construction loans, of which $251.5 million was outstanding.
The remainder of our commercial lending includes loans for working capital, financing equipment
acquisitions, business expansion and other business purposes. These loans generally range in amounts up to
$10 million, and their terms range from less than one year to seven years. The loans generally carry variable
interest rates indexed to our prime rate or LIBOR, at the time of closing. We have no loans to any one industry
with a concentration greater than 10.0% (Health Care and Social Assistance).
Commercial, commercial mortgage and construction lending have a higher level of risk than
residential mortgage lending. These loans typically involve larger loan balances concentrated with single
borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-
producing properties is typically dependent on the successful operation of the related real estate project and
may be more subject to adverse conditions in the commercial real estate market or in the economy generally.
The majority of our commercial and commercial real estate loans are concentrated in Delaware and
surrounding areas.
Construction loans involve additional risk because loan funds are advanced as construction projects
progress. The valuation of the underlying collateral can be difficult to quantify prior to the completion of the
construction. This is due to uncertainties inherent in construction such as changing construction costs, delays
arising from labor or material shortages and other unpredictable contingencies. We attempt to mitigate these
risks and plan for these contingencies through additional analysis and monitoring of our construction projects.
Construction loans receive independent inspections prior to disbursement of funds.
As of December 31, 2008, our construction and land development (CLD) loans represented $229
million, or only 9.2% of our loan portfolio. Residential CLD, one of the hardest hit sectors in today’s
economy, represents only $142 million or 5.7% of the loan portfolio. Our average residential CLD loan is
$1.4 million. Only eight of our residential CLD loans exceeded $5 million in outstandings. We currently limit
each category to 8% of total loans. Our largest geographic concentration (Sussex County, Delaware)
represents only $40 million.
Only four commercial relationships have outstandings in excess of $20 million and each of these
relationships is collateralized by real estate or US Treasury securities.
Land loans were $114 million at December 31, 2008 including $44 million of “land held” loans which
are land loans not currently being developed.
Federal law limits the extensions of credit to any one borrower to 15% of unimpaired capital, or 25%
if the difference is secured by readily marketable collateral having a market value that can be determined by
reliable and continually available pricing. Extensions of credit include outstanding loans as well as contractual
commitments to advance funds, such as standby letters of credit, but do not include unfunded loan
commitments. At December 31, 2008, no borrower had collective outstandings exceeding these limits.
-15-
Consumer Lending.
Our primary consumer credit products are home equity lines of credit and equity-secured installment
loans. At December 31, 2008, home equity lines of credit totaled $142.9 million and equity-secured
installment loans totaled $131.6 million. In total these product lines represent 93% of total consumer loans.
Some home equity products granted a borrower credit availability of up to 100% of the appraised value (net of
any senior mortgages) of their residence. Maximum LTV limits were reduced to 80% as of November 2008.
At December 31, 2008, we had extended $248.6 million in home equity lines of credit. Home equity lines of
credit offer customers with potential Federal income tax advantages, the convenience of checkbook access and
revolving credit features and are typically more attractive in the current low interest rate environment. Home
equity lines of credit expose us to the risk that falling collateral values may leave us inadequately secured,
while the risk on products like home equity loans is mitigated as they amortize over time.
Prior to 2008, we had not observed any significant adverse experience on home equity lines of credit
or equity-secured installment loans but delinquencies and net charge-offs on these products increased in 2008,
mainly as a result of the deteriorating economy and declining home values. During 2008 we also increased
our loan loss reserves related to consumer loans.
-16-
The following table shows our consumer loans at year-end, for the last five years.
2008
2007
December 31,
2006
2005
2004
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in Thousands)
Equity secured installment loans .....
Home equity lines of credit .............
Automobile ......................................
Unsecured lines of credit .................
Other ................................................
$ 131,550
142,949
1,134
5,508
15,587
44.3%
48.2
0.4
1.9
5.2
$ 147,551
108,873
1,159
5,011
15,678
53.0%
39.1
0.4
1.8
5.7
$ 141,708
100,981
1,702
8,947
10,140
53.8%
38.3
0.7
3.4
3.8
$ 136,721
87,503
2,616
8,780
9,200
55.8%
35.7
1.1
3.6
3.8
$ 131,935
56,755
5,126
9,338
7,805
62.6%
26.9
2.4
4.4
3.7
Total consumer loans .......................
$ 296,728
100%
$ 278,272
100%
$ 263,478
100.0%
$ 244,820
100.0%
$ 210,959
100.0%
-17-
Loan Originations, Purchase and Sales.
We have engaged in traditional lending activities primarily in Delaware and contiguous areas of neighboring
states. As a federal savings bank, however, we may originate, purchase and sell loans throughout the United States. We
have purchased limited amounts of loans from outside our normal lending area when such purchases are deemed
appropriate. We originate fixed-rate and adjustable-rate residential real estate loans through our banking offices. In
addition, we have established relationships with correspondent banks and mortgage brokers to originate loans.
During 2008, we originated $435 million of residential real estate loans. This compares to originations of $671
million in 2007. From time to time, we have purchased whole loans and loan participations in accordance with our
ongoing asset and liability management objectives. Purchases of residential real estate loans from correspondents and
brokers primarily in the mid-Atlantic region totaled $27.7 million for the year ended December 31, 2008 and $53.0
million for 2007. Residential real estate loan sales totaled $30 million in 2008, $26.0 million in 2007 and $33.0
million in 2006. We sell certain newly originated mortgage loans in the secondary market primarily to control the
interest rate sensitivity of our balance sheet and to manage overall balance sheet mix. We hold certain fixed-rate
mortgage loans for investment consistent with our current asset/liability management strategies.
Our residential real estate portfolio includes only $16.9 million of sub-prime mortgage loans (less than 1% of our
loan portfolio). Most of our subprime portfolio is well seasoned as is evidenced by our low charge-offs and delinquency
ratios. Of these loans $368,000 were in nonaccrual status as of December 31, 2008. Net charge offs in this portfolio for
the year were minimal at $32,000 or 19 basis points.
At December 31, 2008, we serviced approximately $269 million of residential mortgage loans for others
compared to $255 million at December 31, 2007. We also service residential mortgage loans for our own portfolio
totaling $423 million and $447 million at December 31, 2008 and 2007, respectively.
We originate commercial real estate and commercial loans through our commercial lending division.
Commercial loans are made for working capital, financing equipment acquisitions, business expansion and other
business purposes. During 2008, we originated $870 million of commercial and commercial real estate loans compared
with $908 million in 2007. To reduce our exposure on certain types of these loans, or to maintain relationships within
internal lending limits, at times we will sell a portion of our commercial real estate loan portfolio, typically through
loan participations. Commercial real estate loan sales totaled $39.3 million and $19.3 million in 2008 and 2007,
respectively. These amounts represent gross contract amounts and do not reflect amounts outstanding on those loans.
Our consumer lending activity is conducted through our branch offices, through correspondent banks and
mortgage brokers. We originate a variety of consumer credit products including home improvement loans, home equity
lines of credit, automobile loans, unsecured lines of credit and other secured and unsecured personal installment loans.
During 2008, consumer loan originations amounted to $19.3 million compared to $19.0 million in 2007.
During 2006, we formed a new reverse mortgage initiative under the Bank’s retail leadership. While the
Bank’s activity during 2008 has been limited to acting as a correspondent for these loans, our intention is to originate
and underwrite our own reverse mortgages in the future. We expect to sell most of these loans and not hold them in
our portfolio. These reverse mortgages are government approved and insured.
During 2008, we acquired a majority interest in 1st Reverse Financial Services, LLC (1st Reverse), which
specializes in originating and subsequently selling reverse mortgage loans nationwide. These reverse mortgages are
government approved and insured.
All loans to one borrowing relationship exceeding $3.5 million must be approved by the Senior Management
Loan Committee (“SLC”). The Executive Committee of the Board of Directors (“EC”) reviews the minutes of the SLC
meetings. They also approve individual loans exceeding $5 million for customers with less than one year of significant
loan history with the Bank and loans in excess of $7.5 million for customers with established borrowing relationships.
Depending upon their experience and management position, individual officers of the Bank have the authority to
-18-
approve smaller loan amounts. Our credit policy includes a “House Limit” to one borrowing relationship of $20
million. In extraordinary circumstances, we will approve exceptions to the “House Limit”. The largest is a borrowing
relationship of $34.3 million, which the EC approved. This borrowing is secured by U.S. Treasury securities which
have a value at maturity equal to or exceeding the aggregate loan principal.
Fee Income from Lending Activities.
We earn fee income from lending activities, including fees for originating loans, servicing loans and selling
loan participations. We also receive fee income for making commitments to originate construction, residential and
commercial real estate loans. Additionally, we collect fees related to existing loans which include prepayment charges,
late charges and assumption fees.
We charge fees for making loan commitments. Also as part of the loan application process, the borrower may
pay us for out-of-pocket costs to review the application, whether or not the loan is closed.
Most loan fees are not recognized in the Consolidated Statement of Operations immediately, but are deferred
as adjustments of yield in accordance with U.S. generally accepted accounting principles and are reflected in interest
income. Those fees represented interest income of $1.1 million, $124,000, and $425,000 during 2008, 2007, and 2006,
respectively. The increase in fee income in 2008 was mainly the result of several large prepayment penalties received
during the year. Loan fees other than those considered adjustments of yield (such as late charges) are reported as loan
fee income, a component of noninterest income.
LOAN LOSS EXPERIENCE, PROBLEM ASSETS AND DELINQUENCIES
Our results of operations can be negatively impacted by nonperforming assets, which include nonaccruing loans,
nonperforming real estate investments and assets acquired through foreclosure. Nonaccruing loans are those on which the
accrual of interest has ceased. Loans are placed on nonaccrual status immediately if, in the opinion of management,
collection is doubtful, or when principal or interest is past due 90 days or more and collateral is insufficient to cover
principal and interest. Interest accrued, but not collected at the date a loan is placed on nonaccrual status, is reversed and
charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed
on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as
interest income, depending on management's assessment of the ultimate collectability of principal and interest.
We endeavor to manage our portfolio to identify problem loans as promptly as possible and take immediate
actions to minimize losses. To accomplish this, our Risk Management Department monitors the asset quality of our loan
and investment in real estate portfolios and reports such information to the Credit Policy Committee, the Audit Committee
of the Board of Directors and the Bank’s Controller’s Department.
SOURCES OF FUNDS
We manage our liquidity risk and funding needs through our treasury function and our Asset/Liability
Committee. Historically, we have had success in growing our loan portfolio. For example, during the year ended
December 31, 2008, net loan growth resulted in the net use of $236.7 million in cash. The loan growth was primarily
the result of our continued success in increasing corporate and small business lending. Management expects this trend
to continue. While our loan-to-deposit ratio has been well above 100% for many years, management has significant
experience managing its funding needs through borrowings and deposit growth.
As a financial institution, we have ready access to several sources of funding. Among these are:
Deposit growth
Brokered deposits
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Borrowing from the FHLB
Fed Discount Window access
Other borrowings such as repurchase agreements
Cash flow from securities and loan sales and repayments
Net income.
Our current branch expansion and renovation program is focused on expanding our retail footprint in
Delaware and attracting new customers to provide additional deposit growth. Customer deposit growth was strong,
equaling $227.9 million, or 15%, between December 31, 2007 and December 31, 2008. During 2008 we acquired six
Delaware branches from Sun National Bank, including $95.3 million in customer deposit accounts.
Deposits. We offer various deposit programs to our customers, including savings accounts, demand deposits,
interest-bearing demand deposits, money market deposit accounts and certificates of deposits. In addition, we accept
“jumbo” certificates of deposit with balances in excess of $100,000 from individuals, businesses and municipalities in
Delaware.
WSFS is the second largest independent full service banking institution headquartered and operating in Delaware.
The Bank primarily attracts deposits through its system of 35 retail banking offices (as of December 31, 2008). Twenty -
four banking offices were located in northern Delaware's New Castle County, WSFS’ primary market. These banking
offices maintain approximately 156,000 total account relationships with approximately 60,000 total households. Four
banking offices are located in central Delaware’s Kent County, two of which are in the state capital, Dover. Four banking
offices are located in Delaware’s Sussex County and three other banking offices are located in nearby southeastern
Pennsylvania.
The following table shows the maturity of certificates of deposit of $100,000 or more as of December 31, 2008:
Maturity Period
Less than 3 months.....................................
Over 3 months to 6 months ........................
Over 6 months to 12 months ......................
Over 12 months..........................................
December 31,
2008
(In Thousands)
$104,129
70,890
73,731
50,921
$299,671
Borrowings. We utilize the following borrowing sources to fund operations:
Federal Home Loan Bank Advances
As a member of the Federal Home Loan Bank of Pittsburgh, we are able to obtain Federal Home Loan Bank
(“FHLB”) advances. Advances from the FHLB of Pittsburgh had rates ranging from 0.57% to 5.45% at December 31,
2008. Pursuant to collateral agreements with the FHLB, the advances are secured by qualifying first mortgage loans,
qualifying fixed-income securities, FHLB stock and an interest-bearing demand deposit account with the FHLB. We
are required to acquire and hold shares of capital stock in the FHLB of Pittsburgh in an amount at least equal to
4.65% of its borrowings from them, plus 0.65% of our unused borrowing capacity. As of December 31, 2008, our
FHLB stock investment totaled $39.3 million.
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At December 31, 2008 we had $816.0 million in FHLB advances. Eight advances are outstanding at December
31, 2008 totaling $180.0 million, with a weighted average rate of 4.37% maturing in 2009 and beyond. At the discretion
of the FHLB, theses eight advances are convertible quarterly to a variable rate advance based upon a three-month LIBOR
rate, after an initial fixed term. If any of these advances convert, we have the option to prepay these advances at
predetermined times or rates.
In December 2008, the FHLB of Pittsburgh announced the suspension of both dividend payments and the
repurchase of capital stock until such time as it becomes prudent to reinstate both. During 2008 we received $1.5 million
in dividends from the FHLB of Pittsburgh.
Trust Preferred Borrowings
In 2005, we issued $67.0 million aggregate principal amount of Pooled Floating Rate Securities at a variable
interest rate of 177 basis points over the three-month LIBOR rate. The proceeds from this issuance were used to fund the
redemption of $51.5 million of Floating Rate Capital Trust I Preferred Securities which had a variable interest rate of 250
basis points over the three-month LIBOR rate.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
During 2008, we purchased federal funds as a short-term funding source. At December 31, 2008, we had
purchased $50.0 million in federal funds at a rate of 0.38%. At December 31, 2007, we also had $50.0 million in federal
funds purchased.
During 2008, we sold securities under agreements to repurchase as a funding source. At December 31, 2008,
securities sold under agreements to repurchase had a fixed rate of 4.87%. The underlying securities are mortgage-backed
securities with a book value of $29.5 million at December 31, 2008.
PERSONNEL
As of December 31, 2008 we had 633 full-time equivalent Associates (employees). The Associates are not
represented by a collective bargaining unit. Management believes its relationship with its Associates is very good.
REGULATION
Regulation of the Corporation
General. We are a registered savings and loan holding company and are subject to the regulation,
examination, supervision and reporting requirements of the Office of Thrift Supervision (“OTS”). We are also a
registered public company subject to the reporting requirements of the United States Securities and Exchange
Commission. The filings we make with Securities and Exchange Commission, including Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports,
are available on the investor relations page of our website at www.wsfsbank.com.
Sarbanes-Oxley Act of 2002. The Securities and Exchange Commission (the "SEC") has promulgated new
regulations pursuant to the Sarbanes-Oxley Act of 2002 (the “Act”) and may continue to propose additional
implementing or clarifying regulations as necessary in furtherance of the Act. The passage of the Act and the
regulations implemented by the SEC subject publicly-traded companies to additional and more cumbersome reporting
regulations and disclosure. Compliance with the Act and corresponding regulations has increased our expenses.
Restrictions on Acquisitions. A savings and loan holding company must obtain the prior approval of the
Director of OTS before acquiring (i) control of any other savings association or savings and loan holding company or
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substantially all the assets thereof, or (ii) more than 5% of the voting shares of a savings association or holding
company thereof which is not a subsidiary. Except with the prior approval of the Director of OTS, no director or
officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25%
of such company's stock, may also acquire control of any savings association, other than a subsidiary savings
association, or of any other savings and loan holding company.
The OTS may only approve acquisitions resulting in the formation of a multiple savings and loan holding
company which controls savings associations in more than one state if: (i) the company involved controls a savings
institution which operated a home or branch office in the state of the association to be acquired as of March 5, 1987;
(ii) the acquirer is authorized to acquire control of the savings association pursuant to the emergency acquisition
provisions of the Federal Deposit Insurance Act; or (iii) the statutes of the state in which the association to be acquired
is located specifically permit institutions to be acquired by state-chartered associations or savings and loan holding
companies located in the state where the acquiring entity is located (or by a holding company that controls such state-
chartered savings institutions). The laws of Delaware do not specifically authorize out-of-state savings associations or
their holding companies to acquire Delaware-chartered savings associations.
The statutory restrictions on the formation of interstate multiple holding companies would not prevent us from
entering into other states by mergers or branching. OTS regulations permit federal associations to branch in any state or
states of the United States and its territories. Except in supervisory cases or when interstate branching is otherwise
permitted by state law or other statutory provision, a federal association may not establish an out-of-state branch unless
the federal association qualifies as a "domestic building and loan association" under Section 7701(a)(19) of the Internal
Revenue Code or as a "qualified thrift lender" under the Home Owners' Loan Act and the total assets attributable to all
branches of the association in the state would qualify such branches taken as a whole for treatment as a domestic
building and loan association or qualified thrift lender. Federal associations generally may not establish new branches
unless the association meets or exceeds minimum regulatory capital requirements. The OTS will also consider the
association's record of compliance with the Community Reinvestment Act of 1977 in connection with any branch
application.
Recent Legislative and Regulatory Initiatives to Address the Current Financial and Economic Crisis.
Congress, the United States Department of the Treasury (“Treasury”) and the federal banking regulators, including the
FDIC, have taken broad action since early September 2008 to address volatility in the U.S. banking system and
financial markets. See “Recent Legislation” under Management’s Discussion and Analysis of Financial Condition and
Results of Operations for further discussion.
Regulation of WSFS Bank
General. As a federally chartered savings institution, the Bank is subject to extensive regulation by the Office
of Thrift Supervision. The lending activities and other investments of the Bank must comply with various federal
regulatory requirements. The OTS periodically examines the Bank for compliance with regulatory requirements. The
FDIC also has the authority to conduct special examinations of the Bank. The Bank must file reports with the OTS
describing its activities and financial condition. The Bank is also subject to certain reserve requirements promulgated
by the Federal Reserve Board.
Transactions with Affiliates; Tying Arrangements. The Bank is subject to certain restrictions in its
dealings with us and our affiliates. Transactions between savings associations and any affiliate are governed by
Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings association, generally, is any company
or entity which controls or is under common control with the savings association or any subsidiary of the savings
association that is a bank or savings association. In a holding company context, the parent holding company of a
savings association (such as “WSFS Financial Corporation”) and any companies which are controlled by such
parent holding company are affiliates of the savings association. Generally, Sections 23A and 23B (i) limit the
extent to which the savings institution or its subsidiaries may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such institution's capital stock and surplus, and limit the aggregate of all
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such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require
that all such transactions be on terms substantially the same, or at least as favorable, to the institution or
subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar types of transactions. In addition to the restrictions
imposed by Sections 23A and 23B, no savings association may (i) lend or otherwise extend credit to an affiliate
that engages in any activity impermissible for bank holding companies, or (ii) purchase or invest in any stocks,
bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the
savings association. Savings associations are also prohibited from extending credit, offering services, or fixing or
varying the consideration for any extension of credit or service on the condition that the customer obtain some
additional service from the institution or certain of its affiliates or that the customer not obtain services from a
competitor of the institution, subject to certain limited exceptions.
Regulatory Capital Requirements. Under OTS capital regulations, savings institutions must maintain
"tangible" capital equal to 1.5% of adjusted total assets, "Tier 1" or "core" capital equal to 4% of adjusted total assets
(or 3% if the institution is rated composite 1 under the OTS examiner rating system), and "total" capital (a combination
of core and "supplementary" capital) equal to 8% of risk-weighted assets. In addition, OTS regulations impose certain
restrictions on savings associations that have a total risk-based capital ratio that is less than 8.0%, a ratio of Tier 1
capital to risk-weighted assets of less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or
3.0% if the institution is rated Composite 1 under the OTS examination rating system). For purposes of these
regulations, Tier 1 capital has the same definition as core capital.
The OTS capital rule defines Tier 1 or core capital as common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority interests in the equity accounts of
fully consolidated subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual institutions and
"qualifying supervisory goodwill," less intangible assets other than certain supervisory goodwill and, subject to certain
limitations, mortgage and non-mortgage servicing rights, purchased credit card relationships and credit-enhancing
interest only strips. Tangible capital is given the same definition as core capital but does not include qualifying
supervisory goodwill and is reduced by the amount of all the savings institution's intangible assets except for limited
amounts of mortgage servicing assets. The OTS capital rule requires that core and tangible capital be reduced by an
amount equal to a savings institution's debt and equity investments in "non-includable" subsidiaries engaged in
activities not permissible to national banks, other than subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and subsidiary depository institutions or their holding companies. At
December 31, 2008, the Bank was in compliance with both the core and tangible capital requirements.
The risk weights assigned by the OTS risk-based capital regulation range from 0% for cash and U.S.
government securities to 100% for consumer and commercial loans, non-qualifying mortgage loans, property acquired
through foreclosure, assets more than 90 days past due and other assets. In determining compliance with the risk-based
capital requirement, a savings institution may include both core capital and supplementary capital in its total capital,
provided the amount of supplementary capital included does not exceed the savings institution's core capital.
Supplementary capital is defined to include certain preferred stock issues, non-withdrawable accounts and pledged
deposits that do not qualify as core capital, certain approved subordinated debt, certain other capital instruments,
general loan loss allowances up to 1.25% of risk-weighted assets and up to 45% of unrealized gains on available-for-
sale equity securities with readily determinable fair values. Total capital is reduced by the amount of the institution’s
reciprocal holdings of depository institution capital instruments and all equity investments. At December 31, 2007,
WSFS Bank was in compliance with the OTS risk-based capital requirements.
Dividend Restrictions. As the subsidiary of a savings and loan holding company, WSFS bank must submit
notice to the OTS prior to making any capital distribution (which includes cash dividends and payments to
shareholders of another institution in a cash merger). In addition, a savings association must make application to the
OTS to pay a capital distribution if (x) the association would not be adequately capitalized following the distribution,
(y) the association's total distributions for the calendar year exceeds the association's net income for the calendar year
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to date plus its net income (less distributions) for the preceding two years, or (z) the distribution would otherwise
violate applicable law or regulation or an agreement with or condition imposed by the OTS.
Insurance of Deposit Accounts. The Bank’s deposits are insured to applicable limits by the FDIC (“Federal
Deposit Insurance Corporation”). Although the FDIC is authorized to assess premiums under a risk-based system for
such deposit insurance, most insured depository institutions have not been required to pay premiums for the last ten
years. The Federal Deposit Insurance Reform Act of 2005 (the "Reform Act"), which was signed into law on February
15, 2006, resulted in significant changes to the federal deposit insurance program: (i) effective March 31, 2006, the
Bank Insurance Fund and the Savings Association Insurance Fund were merged into a new combined fund, called the
Deposit Insurance Fund (“DIF”); (ii) the current $100,000 deposit insurance coverage will be indexed for inflation
(with adjustments every five years, commencing January 1, 2011); and (iii) deposit insurance coverage for retirement
accounts was increased to $250,000 per participant subject to adjustment for inflation. In addition, the Reform Act
gave the FDIC greater latitude in setting the assessment rates for insured depository institutions, which could be used
to impose minimum assessments.
Due to the recent difficult economic conditions, deposit insurance per account owner has been raised to
$250,000 for all types of accounts until January 1, 2010. In addition, the FDIC adopted an optional Temporary
Liquidity Guarantee Program by which, for a fee, noninterest bearing transaction accounts would receive unlimited
insurance coverage until December 31, 2009 and, for a fee, certain senior unsecured debt issued by institutions and
their holding companies between October 13, 2008 and June 30, 2009 would be guaranteed by the FDIC through June
30, 2012. The Bank made the business decision to participate in the unlimited noninterest bearing transaction account
coverage and the Bank and the Company elected to participate in the unsecured debt guarantee program. The
assessments for unlimited noninterest bearing transaction account coverage will total 10 basis points per $100 of
insured deposits during 2009. The assessments for unsecured debt guarantee program coverage will total 75 basis
points per $100 of insured deposits during 2009.
The FDIC is authorized to set the reserve ratio for the DIF annually at between 1.15% and 1.5% of estimated
insured deposits. If the DIF's reserves exceed the designated reserve ratio, the FDIC is required to pay out all or, if the
reserve ratio is less than 1.5%, a portion of the excess as a dividend to insured depository institutions based on the
percentage of insured deposits held on December 31, 1996 adjusted for subsequently paid premiums. Insured
depository institutions that were in existence on December 31, 1996 and paid assessments prior to that date (or their
successors) were entitled to a one-time credit against future assessments based on the amount of their assessable
deposits on that date. During 2008 we were able to offset $330,000 of our deposit insurance premium. We have no
remaining credits available to offset our deposit insurance premiums for 2009.
Pursuant to the Reform Act, the FDIC has maintained the designated reserve ratio at 1.25%. The FDIC has
also adopted a new risk-based premium system that provides for quarterly assessments based on an insured institution's
ranking in one of four risk categories based on their examination ratings and capital ratios. Beginning in 2007, well-
capitalized institutions with a CAMELS (“Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market
risk”) rating of 1 or 2 will be grouped in Risk Category I and will be assessed for deposit insurance at an annual rate of
between five and seven basis points, with the assessment rate for an individual institution to be determined according
to a formula based on a weighted average of the institution's individual CAMEL component ratings, plus either five
financial ratios or the average ratings of its long-term debt. Institutions in Risk Categories II, III and IV will be
assessed at annual rates of 10, 28 and 43 basis points, respectively.
On October 16, 2008, the FDIC published a notice in the Federal Register concerning its establishment of the
Federal Deposit Insurance Corporation Restoration Plan (the “Restoration Plan”). The Restoration Plan is a five year
recapitalization plan for the DIF (subsequently amended to cover a seven-year time frame, as discussed below) based,
in part, on significantly higher assessed DIF rates. Concurrent with the publication of the Restoration Plan, the FDIC
issued a proposed rule to increase the DIF assessed rates for the first quarter of 2009 by 7 bps and, effective April 1,
2009, to make certain other changes regarding risk-based assessment and to set new deposit insurance rates. On
December 22, 2008, the FDIC issued a final rule in which it invoked the “good cause” exception of the Administrative
Procedures Act to waive the requirement that once finalized a rule must have a delayed effective date of 30 days from
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the publication date and, effective January 1, 2009, raised the first quarter 2009 DIF assessed rates by 7 bps. Under the
final rule, for the first quarter of 2009, the new rates were expressed to range between 12 and 50 cents per $100 in
assessable deposits depending on the risk category to which an insured depository institution was assigned. Institutions
in Risk Category I were charged a rate between 12 and 14 cents per $100 in assessable deposits for the first quarter of
2009. Such an increase in the DIF assessed rates more than doubles the previous applicable rates for Tier I institutions.
On February 27, 2009 the FDIC amended the Restoration Plan for the DIF. Under the amended Restoration Plan,
the FDIC extended the horizon from five years to seven years to raise the DIF reserve ratio to 1.15 percent, in
recognition of the current significant strains on banks and the financial system and the likelihood of a severe recession.
The amended Restoration Plan was accompanied by a final rule that sets assessment rates and makes adjustments to
recognize how the assessment system differentiates for risk. Currently, most banks are in the best risk category and pay
anywhere from 12 cents per $100 of deposits to 14 cents per $100 for insurance. Under the final rule, banks in this
category will pay initial base rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis, beginning
on April 1, 2009. Changes to the assessment system include higher rates for institutions that rely significantly on
secured liabilities, which would increase the FDIC’s loss in the event of institutional failure, without providing
additional assessment revenue. Under the final rule, assessments will be higher for institutions that rely significantly on
brokered deposits but, for well-managed and well-capitalized institutions, only when accompanied by rapid asset
growth. The final rule also provides incentives in the form of a reduction in assessment rates for institutions to hold
long-term unsecured debt and, for smaller institutions, high levels of Tier 1 capital.
On February 27, 2009, the FDIC proposed an additional amendment to the Restoration Plan for the DIF. This
amendment proposes the imposition of a 20 basis point emergency special assessment on insured depository
institutions as of June 30, 2009. The assessment is proposed to be collected on September 30, 2009. The interim rule
would also permit the FDIC to impose an emergency special assessment after June 30, 2009, of up to ten basis points if
necessary to maintain public confidence in federal deposit insurance. On March 5, 2009, FDIC Chairman Sheila Bair
announced that if Congress adopts legislation expanding the FDIC’s line of credit with Treasury from $30 billion to
$100 billion, the FDIC might have the flexibility to reduce the special emergency assessment, possibly from 20 to 10
basis points. This assessment will be in addition to the new assessment rates which become effective April 1, 2009.
In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest
payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to
recapitalize the predecessor to the SAIF. The FICO assessment rates, which are determined quarterly, averaged
0.011% of insured deposits in fiscal 2008. These assessments will continue until the FICO bonds mature in 2019.
Federal Reserve System. Pursuant to regulations of the Federal Reserve Board, a savings institution must
maintain reserves against their transaction accounts. As of December 31, 2008, no reserves were required to be
maintained on the first $10.3 million of transaction accounts, reserves of 3% were required to be maintained against the
next $34.1 million of transaction accounts and a reserve of 10% against all remaining transaction accounts. This
percentage is subject to adjustment by the Federal Reserve Board. Because required reserves must be maintained in the
form of vault cash or in a non-interest bearing account at a Federal Reserve Bank, the effect of the reserve requirement
may reduce the amount of an institution's interest-earning assets. As of December 31, 2008 we met our reserve
requirements.
ITEM 1A. RISK FACTORS
The following are certain risks that management believes are specific to our business. This should not be
viewed as an all inclusive list and the order is not intended as an indicator of the level of importance.
Recent legislative and regulatory initiatives to address difficult market and economic conditions may not stabilize the
U.S. economy or the U.S. banking system.
On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008
(“EESA”) which, among other measures, authorizes Treasury to purchase from financial institutions and their holding
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companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments,
including debt and equity securities issued by financial institutions and their holding companies, under a troubled asset
relief program (“TARP”). The purpose of TARP is to restore confidence and stability to the U.S. banking system and
to encourage financial institutions to increase their lending to customers and to each other. Under the TARP Capital
Purchase Program, Treasury is purchasing equity securities from participating institutions. The Series A Preferred
Stock and warrant offered by this prospectus were issued by us to Treasury pursuant to the TARP Capital Purchase
Program. The EESA also increased federal deposit insurance on most deposit accounts from $100,000 to $250,000.
This increase is in place until the end of 2009 and is not covered by deposit insurance premiums paid by the banking
industry.
The EESA followed, and has been followed by, numerous actions by the Board of Governors of the Federal
Reserve System, the U.S. Congress, Treasury, the FDIC, the SEC and others to address the current liquidity and credit
crisis that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner relief
that encourage loan restructuring and modification; the establishment of significant liquidity and credit facilities for
financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short
selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper
funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to
address illiquidity and other weaknesses in the banking sector. Most recently, on February 17, 2009, the American
Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. ARRA, more commonly known as the
economic stimulus bill or economic recovery package, is intended to stimulate the economy and provides for broad
infrastructure, education and health spending.
On October 14, 2008, the FDIC announced the establishment of a temporary liquidity guarantee program to
provide full deposit insurance for all non-interest bearing transaction accounts and guarantees of certain newly issued
senior unsecured debt issued by FDIC-insured institutions and their holding companies. Insured institutions were
automatically covered by this program from October 14, 2008 until December 5, 2008, unless they opted out prior to
that date. Under the program, the FDIC will guarantee timely payment of newly issued senior unsecured debt issued on
or before June 30, 2009. The debt includes all newly issued unsecured senior debt including promissory notes,
commercial paper and inter-bank funding. The aggregate coverage for an institution may not exceed 125% of its debt
outstanding on September 30, 2008 that was scheduled to mature before June 30, 2009, or, for certain insured
institutions, 2% of liabilities as of September 30, 2008. The guarantee will extend to June 30, 2012 even if the maturity
of the debt is after that date. The Bank elected to participate in both parts of the temporary liquidity guarantee program.
The purpose of these legislative and regulatory actions is to stabilize the U.S. banking system. The EESA, the
ARRA and the other regulatory initiatives described above may not have their desired effects. If the volatility in the
markets continues and economic conditions fail to improve or worsen, our business, financial condition, results of
operations and cash flows could be materially and adversely affected.
Difficult market conditions and economic trends have adversely affected our industry and our business.
We are particularly exposed to downturns in the U. S. housing market. Dramatic declines in the housing
market over the past year, with decreasing home prices and increasing delinquencies and foreclosures, have negatively
impacted the credit performance of mortgage and construction loans and resulted in significant write-downs of assets
by many financial institutions. In addition, the values of real estate collateral supporting many loans have declined and
may continue to decline. General downward economic trends, reduced availability of commercial credit and increasing
unemployment have negatively impacted the credit performance of commercial and consumer credit, resulting in
additional write-downs. Concerns over the stability of the financial markets and the economy have resulted in
decreased credit supply in part due to the reduction in non-bank providers of credit in the marketplace. This market
turmoil and tightening of credit has led to increased commercial and consumer deficiencies, lack of customer
confidence, increased market volatility and widespread reduction in general business activity. Competition among
depository institutions for deposits has increased significantly. Financial institutions have experienced decreased
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access to deposits or borrowings. The resulting economic pressure on consumers and businesses and the lack of
confidence in the financial markets may adversely affect our business, financial condition, results of operations and
stock price. We do not expect that the difficult market conditions will improve in the near future. A worsening of these
conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the
industry. In particular, we may face the following risks in connection with these events:
•
•
•
•
•
Our ability to assess the creditworthiness of customers and to estimate the losses inherent in our credit
exposure is made more complex by these difficult market and economic conditions.
We also may be required to pay even higher Federal Deposit Insurance Corporation premiums than
the recently increased level, because financial institution failures resulting from the depressed market
conditions have depleted and may continue to deplete the deposit insurance fund and reduce its ratio
of reserves to insured deposits.
Our ability to borrow from other financial institutions or the Federal Home Loan Bank on favorable
terms or at all could be adversely affected by further disruptions in the capital markets or other events.
We may experience a decline in the value of our investment in Federal Home Loan Bank stock, which
could result in a writedown of the investment.
We may experience increases in foreclosures, delinquencies and customer bankruptcies, as well as
more restricted access to funds.
The securities purchase agreement between us and Treasury permits Treasury to impose additional restrictions
on us retroactively.
The securities purchase agreement we entered into with Treasury permits Treasury to unilaterally amend the
terms of the securities purchase agreement to comply with any changes in federal statutes after the date of its
execution. ARRA imposed additional executive compensation and expenditure limits on all current and future TARP
recipients, including us, until we have repaid the Treasury. These additional restrictions may impede our ability to
attract and retain qualified executive officers. ARRA also permits TARP recipients to repay the Treasury without
penalty or requirement that additional capital be raised, subject to Treasury’s consultation with our primary federal
regulator while the securities purchase agreement required that, for a period of three years, the Series A Preferred
Stock could generally only be repaid if we raised additional capital to repay the securities and such capital qualified as
Tier 1 capital. Additional unilateral changes in the securities purchase agreement could have a negative impact on our
financial condition and results of operations.
Future loan losses may negatively impact the Company.
We are subject to credit risk, which is the risk of losing principal or interest due to borrowers’ failure to repay
loans in accordance with their terms. A downturn in the economy or the real estate market in our market areas or a
rapid change in interest rates could have a negative effect on collateral values and borrowers’ ability to repay. This
deterioration in economic conditions could result in losses to us. To the extent loans are not paid timely by borrowers,
the loans are placed on non-accrual, thereby reducing interest income.
Rapidly changing interest rate environments could reduce our profitability.
Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a large part of our
net income. Interest rates are key drivers of our net interest margin and subject to many factors beyond the control of
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management. As interest rates change, net interest income is affected. Rapid increases or decreases in interest rates in
the future could negatively impact our net interest margin.
Liquidity risk.
Due to our continued success in our lending operations, particularly in corporate and small business lending, our
loans have exceeded customer deposit funding. Changes in interest rates or alternative investment opportunities and
other factors may make deposit gathering more difficult. Additionally, interest rate changes or disruptions in the
capital market may make the terms of the borrowings and brokered deposits less favorable. As a result, there is a risk
that we will not have funds to meet our obligations when they come due. Interest rate and liquidity risk is managed by
our Asset/Liability Committee (“ALCO”). While our loan-to-deposit ratio has been well above 100% for many years,
management has significant experience managing its funding needs through borrowings and deposit growth. A
liquidity crisis plan has been developed and is an important part of our liquidity management.
Current levels of market volatility are unprecedented.
The capital and credit markets have been experiencing volatility and disruption for more than a year. In recent
months, the volatility and disruption has reached unprecedented levels. In some cases, the markets have produced
downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying
financial strength. If current levels of market disruption and volatility continue or worsen, there can be no assurance
that we will not experience an adverse effect, which may be material, on our ability to access capital and on our
business, financial condition, results of operations and cash flows.
Our profitability could be adversely affected if we are unable to promptly deploy the capital raised in our recent
offering.
We may not be able to immediately deploy all of the capital raised in the recent sale of the Series A Preferred
Stock to the Treasury. Investing the offering proceeds in securities until we are able to deploy the proceeds will
provide lower margins than we generally earn on loans, potentially adversely affecting shareholder returns, including
earnings per share, return on assets and return on equity.
The financial services industry is very competitive.
We face competition in attracting and retaining deposits, making loans, and providing other financial services
throughout our market area. Our competitors include other community banks, larger banking institutions, and a wide
range of other financial institutions such as credit unions, government-sponsored enterprises, mutual fund companies,
insurance companies and other non-bank businesses. Many of these competitors have substantially greater resources
than us. If we are unable to compete effectively, we will lose market share and will have less income from deposits
and loans, which will negatively impact our net interest margin. Profitability of other products may be reduced as well.
Adverse changes in the economic growth and vitality in our banking markets may negatively impact us.
Our business is closely tied to the economies of Delaware and the contiguous counties outside of Delaware. A
sustained economic downturn could adversely affect our net income.
We are subject to extensive regulation.
Our operations are subject to extensive regulation by federal banking authorities which impose requirements and
restrictions on our operations. The impact of changes to laws and regulations or other actions by regulatory agencies
could make regulatory compliance more difficult or expensive for us and could adversely affect our net income.
-28-
We may not be able to achieve our growth plans or effectively manage its growth.
There can be no assurance that growth opportunities will be available or that growth will be successfully
managed. This includes, but is not limited to, growth in generating loans and gathering deposits. Due to our
investment in future growth, failure to obtain sufficient growth would negatively effect our net income.
Inability to hire or retain certain key professionals, management and staff could adversely affect our revenues
and net income.
We rely on key personnel to manage and operate our business, including major revenue generating functions
such as our loan and deposit portfolios. The loss of key staff may adversely affect our ability to maintain and manage
these portfolios effectively, which could negatively effect our revenues. In addition, loss of key personnel could result
in increased recruiting and hiring expenses, which could cause a decrease in our net income.
We continually encounter technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions
of new technology-driven products and services. The effective use of technology increases efficiency and enables
financial institutions to better serve customers and reduce costs. Our future success depends, in part, upon our ability
to address the needs of our customers by using technology to provide products and services that will satisfy customer
demands, as well as to create additional efficiencies in our operations. Our largest competitors have substantially
greater resources to invest in technological improvements. We may not be able to effectively implement new
technology-driven products and services or be successful in marketing these products and services to our customers.
Failure to successfully keep pace with technological change affecting the financial services industry could have a
material adverse impact on our business and, in turn, our financial condition and our net income.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following table shows information regarding offices and material properties held by us, and our subsidiaries, at
December 31, 2008:
Location
WSFS :
WSFS Bank Center Branch (2)
Main Office
500 Delaware Avenue
Wilmington, De 19801
Union Street Branch
211 North Union Street
Wilmington, DE 19805
Trolley Square Branch
1711 Delaware Ave
Wilmington, DE 19806
Fairfax Shopping Center (3)
2005 Concord Pike
Wilmington, DE 19803
Owned/
Leased
Date Lease
Expires
Net Book Value
Of Property
or Leasehold
Improvements (1)
Deposits
(In Thousands)
Leased
2019
1,808
764,942
Leased
2012
Leased
2011
95
24
60,091
32,054
Master Lease
7,991
81,113
-29-
Location
Branmar Plaza Shopping Center Branch
1812 Marsh Road
Wilmington, DE 19810
Prices Corner Shopping Center Branch
3202 Kirkwood Highway
Wilmington, DE 19808
Pike Creek Shopping Center Branch
4730 Limestone Road
Wilmington, DE 19808
University Plaza Shopping Center Branch
100 University Plaza
Newark, DE 19702
College Square Shopping Center Branch (4)
Route 273 & Liberty Avenue
Newark, DE 19711
Airport Plaza Shopping Center Branch
144 N. DuPont Hwy.
New Castle, DE 19720
Stanton Branch
Inside ShopRite
1600 W. Newport Pike
Wilmington, DE 19804
Glasgow Branch
Inside Safeway at People Plaza
Routes 40 & 896
Newark, DE 19702
Middletown Crossing Shopping Center
400 East Main Street
Middletown, DE 19709
Dover Branch
Inside Metro Food Market
257 North DuPont Highway
Dover, DE 19901
West Dover Loan Office
Greentree Office Center
160 Greentree Drive
Suite 105
Dover, DE 19904
Blue Bell Loan Office
721 Skippack Pike
Suite 101
Blue Bell, PA 19422
Glen Eagle (5)
Inside Genaurdi's Family Market
475 Glen Eagle Square
Glen Mills, PA 19342
University of Delaware-Trabant University
Center
17 West Main Street
Newark, DE 19716
Brandywine Branch
Inside Safeway Market
2522 Foulk Road
Wilmington, DE 19810
Operations Center
2400 Philadelphia Pike
Wilmington, DE 19703
Owned/
Leased
Date Lease
Expires
Leased
2013
Net Book Value
Of Property
or Leasehold
Improvements (1)
Deposits
(In Thousands)
77
97,966
Leased
2023
Leased
2015
60
677
103,790
81,689
Leased
2026
1,328
51,205
Leased
2012
Leased
2013
Leased
2011
Leased
2012
161
661
17
30
Leased
2017
940
Leased
2010
Leased
2014
Leased
2012
44
20
21
101,802
73,299
19,822
23,193
42,488
13,527
31
10,868
Leased
2024
111
7,452
Leased
2013
Leased
2014
44
27
14,299
24,024
Owned
685
N/A
-30-
Location
Longwood Branch
Inside Genaurdi’s Family Market
830 E. Baltimore Pike
E. Marlboro, PA 19348
Holly Oak Branch
Inside Super Fresh
2105 Philadelphia Pike
Claymont, DE 19703
Hockessin Branch
7450 Lancaster Pike
Wilmington, DE 19707
Lewes Branch
Southpointe Professional Center
1515 Savannah Road, Suite 103
Lewes, DE 19958
Fox Run Shopping Center
210 Fox Hunt Drive
Bear, DE 19701
Camden Town Center
4566 S. Dupont Highway
Camden, DE 19934
Rehoboth Branch
19335 coastal Highway
Lighthouse Plaza
Rehoboth, DE 19771
Loan Operations
30 Blue Hen Drive
Suite 200
Newark, DE 19713
West Dover Branch
1486 Forest Avenue
Dover, DE 19904
Longneck Branch
25926 Plaza Drive
Millsboro, DE 19966
Smyrna
Simon's Corner Shopping Center
400 Jimmy Drive
Smyrna, DE 19977
Oxford, LPO
59 South Third Street
Suite 1
Oxford, PA
Greenville
3908 Kennett Pike
Greenville, DE
WSFS Bank Center
500 Delaware Avenue
Wilmington, De 19801
Market Street Branch (7)
833 Market Street
Wilmington, De 19801
Annandale, VA
7010 Little River Tnpk.
Suite 330
Annandale, VA 22003
Oceanview (6)
69 Atlantic Avenue
Oceanview, DE 19970
Owned/
Leased
Date Lease
Expires
Leased
2010
Net Book Value
Of Property
or Leasehold
Improvements (1)
Deposits
(In Thousands)
68
10,725
Leased
2015
Leased
2015
Leased
2013
Leased
2015
Leased
2024
Leased
2028
Leased
2012
Owned
Leased
2026
Leased
2028
45
566
101
884
956
930
3
2,182
1,234
1,264
18,769
67,670
37,460
50,644
25,358
50,175
N/A
24,953
30,693
23,694
Leased
2011
34
8,967
Owned
2,075
24,652
Leased
2011
Leased
2009
Leased
2011
Leased
2024
-31-
760
77
16
177
12,684
63,052
782
N/A
Location
Selbyville
Strawberry Center
Unit 2
Selbyville, DE 19975
Lewes (7)
34383 Carpenters Way
Lewes, DE 19958
Millsboro (8)
26644 Center View Drive
Millsboro, DE 19966
Concord Square
4401 Concord Pike
Wilmington, DE 19803
Crossroads
2080 New Castle Avenue
New Castle, DE 19720
Delaware City
145 Clinton Street
Delaware City, DE 19706
Governor’s Square
1101 Governor’s Place
Bear, DE 19701
Liberty Square (9)
1 Possum Park Shopping Center
Newark, DE 19711
1st Reverse Financial Services
Headquarters
Quail Ridge Office Center
Quail Ridge Drive
Westmont, IL
Call Center
1295 Corporate Drive
Hudson, OH 44236
Cypress Capital Management, LLC
1220 Market Street
Suite 704
Wilmington, DE 19801
Owned/
Leased
Date Lease
Expires
Leased
2013
Net Book Value
Of Property
or Leasehold
Improvements (1)
Deposits
(In Thousands)
55
5,896
Leased
2028
N/A
Leased
2029
Leased
2011
Leased
2013
Owned
Leased
2010
Leased
2009
Leased
2009
45
61
61
122
61
N/A
N/A
N/A
N/A
30,227
16,355
5,013
10,928
N/A
N/A
Leased
2009
N/A
N/A
Leased
2010
5
N/A
(1) The net book value of all the Company's investment in premise and equipment totaled $34.9 million at December 31, 2008.
(2) Location of Corporate Headquarters and Montchanin Capital Management, Inc.
(3) Includes Fairfax Branch office and shopping center which is under a master lease. Net book value represents the value of the entire facility.
(4) Includes the Company's education and development center.
(5) As of December 31, 2008, location was under construction. Completion date is August, 2009.
(6) As of December 31, 2008, location was under construction. Completion date is June, 2009.
(7) As of December 31, 2008, location was under construction. Completion date is April, 2009.
(8) As of December 31, 2008, location was under construction. Completion date is June, 2009.
(9) No branch is open at this location. This lease was part of the Sun Branch purchase in October 2008.
$2,122,352
-32-
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to be disclosed under this item.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the stockholders during the fourth quarter of the fiscal year ended December 31,
2008 through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market for Registrant's Common Equity and Related Stockholder Matters
Our Common Stock is traded on The Nasdaq Stock Market(SM) under the symbol WSFS. At December 31, 2008, we had
1,200 registered common stockholders of record. The following table sets forth the range of high and low sales prices for the Common
Stock for each full quarterly period within the two most recent fiscal years as well as the quarterly dividends paid.
The closing market price of our common stock at December 31, 2008 was $47.99.
Stock Price Range
2008
2007
4th
3rd
2nd
1st
4th
3rd
2nd
1st
High
Dividend
$ 60.50
$ 65.50
$ 53.84
$ 54.17
$ 68.33
$ 68.81
$ 69.00
$ 70.85
$ 0.12
$ 0.12
$ 0.12
$ 0.10
$ 0.46
$ 0.10
$ 0.10
$ 0.10
$ 0.08
$ 0.38
Low
$ 35.51
$ 40.04
$ 42.79
$ 41.12
$ 48.45
$ 53.42
$ 62.78
$ 60.91
-33-
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph and table which follow show the cumulative total return on our Common Stock over the last five years
compared with the cumulative total return of the Dow Jones Total Market Index and the Nasdaq Bank Index over the same
period as obtained from Bloomberg L.P. Cumulative total return on our Common Stock or the index equals the total increase
in value since December 31, 2003, assuming reinvestment of all dividends paid into the Common Stock or the index,
respectively. The graph and table were prepared assuming $100 was invested on December 31, 2003 in our Common Stock
and in each of the indexes. There can be no assurance that our future stock performance will be the same or similar to the
historical stock performance shown in the graph below. We neither make nor endorse any predictions as to stock
performance.
CUMULATIVE TOTAL SHAREHOLDER RETURN
COMPARED WITH PERFORMANCE OF SELECTED INDEXES
December 31, 2003 through December 31, 2008
200
s
r
a
l
l
o
D
150
100
50
2003
2004
2005
2006
2007
2008
WSFS Financial Corporation
Dow Jones Total Market Index
Nasdaq Bank Index
WSFS Financial Corporation
Dow Jones Total Market Index
Nasdaq Bank Index
2003
$100
100
100
Cumulative Total Return
2006
2005
2004
$134
103
114
$137
102
111
$153
119
127
2007
$114
127
102
2008
$110
84
80
-34-
ITEM 6. SELECTED FINANCIAL DATA
At December 31,
Total assets
Net loans (1)
Investment securities (2)
Investment in reverse mortgages, net
Other investments
Mortgage-backed securities (2)
Deposits
Borrowings (3)
Trust preferred borrowings
Stockholders’ equity
Number of full-service branches (4)
For the Year Ended December 31,
Interest income
Interest expense
Noninterest income
Noninterest expenses
Income from continuing operations
Net income
Earnings per share:
Basic:
Income from continuing operations
Net income
Diluted:
Income from continuing operations
Net income
Interest rate spread
Net interest margin
Return on average equity (5)
Return on average assets (5)
Average equity to average assets (5)
2008
2007
2006
2005
2004
(Dollars in Thousands, Except Per Share Data)
$3,432,560
2,443,835
49,749
(61)
39,521
498,205
2,122,352
999,734
67,011
216,635
35
$ 166,477
77,258
45,989
89,098
16,136
16,136
$3,200,188
2,233,980
26,235
2,037
46,615
496,492
1,827,161
1,068,149
67,011
211,330
29
$ 189,477
107,468
48,166
82,031
29,649
29,649
$2,997,396
2,019,741
53,893
598
41,615
516,711
1,756,348
935,668
67,011
212,059
27
$ 177,177
99,278
40,305
69,314
30,441
30,441
$2,846,752
1,775,294
56,704
785
46,466
620,323
1,446,236
1,127,997
67,011
181,975
24
$ 136,022
62,380
34,653
62,877
27,856
27,856
$2,502,956
1,535,467
97,485
(109)
44,477
524,144
1,234,962
1,002,609
51,547
196,303
24
$ 104,110
37,246
31,950
55,699
25,757
25,900
$ 2.62
2.62
$ 4.69
4.69
$ 4.59
4.59
$ 4.10
4.10
$ 3.60
3.62
2.57
2.57
2.94%
3.13
7.30
0.50
6.86
4.55
4.55
2.80%
3.09
14.34
0.98
6.87
4.41
4.41
2.70%
2.98
15.42
1.03
6.68
3.89
3.89
2.91%
3.13
14.78
1.05
7.10
3.39
3.41
3.07%
3.24
13.54
1.10
8.13
(1)
(2)
(3)
(4)
(5)
Includes loans held-for-sale.
Includes securities available-for-sale.
Borrowings consist of FHLB advances, securities sold under agreement to repurchase and other borrowed funds.
WSFS opened two branches and acquired six (keeping four open and closing two) branches in 2008, opened three branches and closed one
branch in 2007, opened three branches in 2006, and opened one branch in 2004.
Based on continuing operations.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
WSFS Financial Corporation (“the Company,” “our Company,” “we,” “our” or “us”) is a thrift holding company
headquartered in Wilmington, Delaware. Substantially all of our assets are held by our subsidiary, Wilmington Savings
Fund Society, FSB (“WSFS Bank” or the “Bank”). Founded in 1832, we are one of the ten oldest banks in the United
States continuously-operating under the same name. As a federal savings bank, which was formerly chartered as a state
mutual savings bank, we enjoy broader investment powers than most other financial institutions. We have served the
residents of the Delaware Valley for over 175 years. We are the largest thrift institution headquartered in Delaware and
the third largest financial institution in the state on the basis of total deposits traditionally garnered in-market. Our primary
-35-
market area is the mid-Atlantic region of the United States, which is characterized by a diversified manufacturing and
service economy. Our long-term strategy is to serve small and mid-size businesses through loans, deposits, investments,
and related financial services, and to gather retail core deposits. Our strategic focus is to exceed customer expectations,
deliver stellar service and build customer advocacy through highly trained, relationship oriented, friendly, knowledgeable,
and empowered Associates.
.
We provide residential and commercial real estate, commercial and consumer lending services, as well as retail
deposit and cash management services. In addition, we offer a variety of wealth management and personal trust services
through WSFS Wealth Strategies, which was formed during 2005. Lending activities are funded primarily with retail
deposits and borrowings. The Federal Deposit Insurance Corporation (“FDIC”) insures our customers’ deposits to their
legal maximum. We serve our customers primarily from our main office, 35 retail banking offices, loan production offices
and operations centers located in Delaware, southeastern Pennsylvania and Virginia and through our website at
www.wsfsbank.com.
We have two consolidated subsidiaries, WSFS Bank and Montchanin Capital Management, Inc. (“Montchanin”).
We also have one unconsolidated affiliate, WSFS Capital Trust III (“the Trust”). WSFS Bank has a fully-owned
subsidiary, WSFS Investment Group, Inc., which markets various third-party insurance products and securities through the
Bank’s retail banking system. WSFS Bank also owns a majority interest in 1st Reverse Financial Services, LLC (1st
Reverse), specializing in reverse mortgage lending.
Montchanin has one consolidated subsidiary, Cypress Capital Management, LLC (“Cypress”). Cypress is a
Wilmington-based investment advisory firm serving high net-worth individuals and institutions. Cypress had
approximately $410 million in assets under management at December 31, 2008.
FORWARD-LOOKING STATEMENTS
Within this annual report and financial statements, management has included certain “forward-looking
statements” concerning our future operations. Statements contained in this annual report which are not historical facts, are
forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. It is
management’s desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of
1995. This statement is for the express purpose of availing the Corporation of the protections of such safe harbor with
respect to all “forward-looking statements.” Management has used “forward-looking statements” to describe future plans
and strategies including expectations of our future financial results. Management’s ability to predict results or the effect of
future plans and strategy is inherently uncertain. Factors that could affect results include interest rate trends, competition,
the general economic climate in Delaware, the mid-Atlantic region and the country as a whole, asset quality, loan growth,
loan delinquency rates, operating risk, uncertainty of estimates in general, and changes in federal and state regulations,
among other factors. These factors should be considered in evaluating the “forward-looking statements,” and undue
reliance should not be placed on such statements. Actual results may differ materially from management expectations.
We do not undertake, and specifically disclaim any obligation to publicly release the result of any revisions that may
be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
RESULTS OF OPERATIONS
WSFS Financial Corporation recorded net income of $16.1 million or $2.57 per diluted share for the year
ended December 31, 2008, compared to $29.6 million or $4.55 per share and $30.4 million or $4.41 per share in 2007
and 2006, respectively.
Net Interest Income. Net interest income increased $7.2 million, or 9%, to $89.2 million in 2008 compared to $82.0
million in 2007. The net interest margin for 2008 was 3.13%, up 0.04% from 2007. These increases were the result of
a slightly liability sensitive balance sheet combined with active management of deposit pricing. In comparison to
2007, the yield on interest-bearing liabilities declined by 1.41%, while the yield on interest-earning assets only
declined by 1.27%. The improvement in the net interest margin also reflects growth, and the improved mix of our
balance sheet. The investment category on our average balance sheet includes income from reverse mortgages, which
declined substantially in 2008 compared to 2007, consistent with decreases in home prices over the past year. During
2008 we lost $1.1 million on reverse mortgages compared to income of $2.0 million in 2007. For further discussion of
-36-
reverse mortgages, see the “Reverse Mortgages” discussion included in this Management’s Discussion and Analysis
and Note 4 to the Consolidated Financial Statements.
Net interest income increased $4.1 million, or 5%, to $82.0 million in 2007 compared to $77.9 million in 2006.
The net interest margin for 2007 was 3.09%, up 0.11% from 2006. The overall improvement in the net interest margin
over the previous year reflects loan growth and our continued efforts to refocus the mix of our balance sheet. Loans,
with an average yield of 7.55%, increased $168.7 million on average while mortgage-backed securities, with an
average yield of 4.93%, declined $99.4 million on average mostly due to scheduled repayments. In addition, interest-
bearing deposits, with an average rate of 3.76%, increased $219.3 million on average while FHLB advances, with an
average rate of 4.97%, decreased $210.1 million on average. The yield on earning assets increased 0.37% on average
in comparison to 2006 while the rate on interest-bearing liabilities increased by 0.27% on average. Additionally,
income from reverse mortgages increased $1.3 million in comparison to 2006.
The following table sets forth certain information regarding changes in net interest income attributable to
changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the yields for the
periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided
on the changes that are attributable to: (i) changes in volume (change in volume multiplied by prior year rate); (ii)
changes in rates (change in rate multiplied by prior year volume on each category); and (iii) net change (the sum of the
change in volume and the change in rate). Changes due to the combination of rate and volume changes (changes in
volume multiplied by changes in rate) are allocated proportionately between changes in rate and changes in volume.
Year Ended December 31,
(Dollars in Thousands)
Interest Income:
Commercial real estate loans
Residential real estate loans
Commercial loans (1)
Consumer loans
Mortgage-backed securities
Investment securities
Other
Favorable (unfavorable)
Interest expense:
Deposits:
2008 vs. 2007
2007 vs. 2006
Volume Yield/Rate
Net
Volume Yield/Rate
Net
$ 5,722 $ (15,131)
360
(15,396)
(3,480)
335
(3,610)
(945)
(37,867)
(1,280)
9,460
894
(588)
504
155
14,867
$ (9,409)
(920)
(5,936)
(2,586)
(253)
(3,106)
(790)
(23,000)
$ 4,281
(1,244)
10,318
870
(4,898)
(1,638)
(601)
7,088
$ (320)
1,186
475
317
691
2,430
433
5,212
$ 3,961
(58)
10,793
1,187
(4,207)
792
(168)
12,300
Interest-bearing demand
Money market
Savings
Retail time deposits
Jumbo certificates of deposits - nonretail
Brokered certificates of deposits
FHLB of Pittsburgh advances
Trust Preferred
Other borrowed funds
Unfavorable (favorable)
Net change, as reported
217
(419)
(106)
2,933
(229)
258
3,460
0
1,500
7,614
$ 7,253
(546)
(5,542)
(837)
(4,515)
(1,856)
(6,860)
(12,401)
(1,478)
(3,789)
(37,824)
$ (43)
(329)
(5,961)
(943)
(1,582)
(2,085)
(6,602)
(8,941)
(1,478)
(2,289)
(30,210)
$ 7,210
180
2,981
(248)
4,003
927
1,815
(10,342)
0
1,090
406
428
799
(310)
3,045
149
835
3,025
(300)
113
7,784
$ 6,682 $ (2,572)
608
3,780
(558)
7,048
1,076
2,650
(7,317)
(300)
1,203
8,190
$ 4,110
(1) The tax-equivalent income adjustment is related to commercial loans.
-37-
The following table provides information regarding the average balances of, and yields/rates on interest-earning assets and
interest-bearing liabilities during the periods indicated:
Year Ended December 31,
2008
2007
2006
Average
Balance
Interest
Yield /
Rate (1)
Average
Balance
Interest
Yield/
Rate (1)
Average
Balance
Interest
Yield/
Rate (1)
(Dollars in Thousands)
Assets
Interest-earning assets:
Loans (2) (3):
Commercial real estate loans
Residential real estate loans
Commercial loans
Consumer loans
Total loans
Mortgage-backed securities (4)
Investment securities (4) (5)
Other interest-earning assets
Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Cash in non-owned ATMs
Bank-owned life insurance
Other noninterest-earning assets
Total assets
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand
Money market
Savings
Retail time deposits
Total interest-bearing retail deposits
Jumbo certificates of deposit-nonretail
Brokered certificates of deposit
Total interest-bearing deposits
FHLB of Pittsburgh advances
Trust preferred borrowings
Other borrowed funds
Total interest-bearing liabilities
Noninterest-bearing demand deposits
Other noninterest-bearing liabilities
Minority interest
Stockholders' equity
Total liabilities and
stockholders' equity
Excess of interest-earning assets
over interest-bearing liabilities
Net interest and dividend income
Interest rate spread
Net interest margin
$ 46,647
25,531
50,830
17,653
140,661
23,984
254
1,578
166,477
1,064
5,909
736
20,775
28,484
3,091
8,234
39,809
29,620
3,275
4,554
77,258
$ 763,825
437,223
840,303
282,943
2,324,294
480,002
34,263
42,934
2,881,493
(27,210)
65,022
172,304
58,503
70,838
$3,220,950
$ 174,080
300,775
197,175
543,808
1,215,838
93,901
282,760
1,592,499
841,005
67,011
186,081
2,686,596
283,845
29,560
-
220,949
$3,220,950
$ 194,897
6.11% $ 687,614 $ 56,056
26,451
459,043
5.84
56,766
709,507
6.08
20,239
270,518
6.24
159,512
2,126,682
6.10
24,237
491,650
5.00
3,360
29,130
0.74
2,368
40,137
3.68
189,477
2,687,599
5.82
(28,192)
70,387
158,091
56,307
67,711
$3,011,903
8.15% $ 635,133 $ 52,095
26,509
481,308
5.76
45,973
582,546
8.05
19,052
258,946
7.48
143,629
1,957,933
7.55
28,444
591,021
4.93
2,568
55,004
11.53
51,144
5.90
2,536
177,177
2,655,102
7.09
(26,491)
57,771
153,060
53,137
63,793
$2,956,372
785
8,090
2,237
15,309
26,421
4,100
12,186
42,707
45,878
5,053
5,640
99,278
1,393
11,870
1,679
22,357
37,299
5,176
14,836
57,311
38,561
4,753
6,843
107,468
0.61% $ 148,039
312,192
1.96
211,453
0.37
476,159
3.82
1,147,843
2.34
98,452
3.29
277,860
2.91
1,524,155
2.50
765,974
3.46
67,011
4.81
147,251
2.45
2,504,391
2.88
272,964
27,737
38
206,773
$3,011,903
$ 183,208
0.94% $ 123,599
232,418
3.80
240,426
0.79
384,654
4.70
981,097
3.25
80,691
5.26
243,070
5.34
1,304,858
3.76
976,101
4.97
67,011
7.00
123,800
4.65
2,471,770
4.29
262,838
24,330
84
197,350
$2,956,372
$ 183,332
8.20%
5.51
7.97
7.36
7.39
4.81
4.67
4.96
6.72
0.64%
3.48
0.93
3.98
2.69
5.08
5.01
3.27
4.64
7.44
4.56
4.02
$89,219
$82,009
$77,899
2.94%
3.13%
2.80%
3.09%
2.70%
2.98%
(1) Weighted average yields have been computed on a tax-equivalent basis using a 35% effective tax rate.
(2) Nonperforming loans are included in average balance computations.
(3) Balances are reflected net of unearned income.
(4) Includes securities available-for-sale.
(5) Includes reverse mortgages.
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Provision for Loan Losses. We maintain an allowance for loan losses at an appropriate level based on management’s
assessment of the estimable and probable losses in the loan portfolio, pursuant to accounting literature, which is discussed
further in the “Nonperforming Assets” section of this Management’s Discussion and Analysis. Management’s evaluation is
based upon a review of the portfolio and requires significant judgment. For the year ended December 31, 2008, we recorded
a provision for loan losses of $23.0 million compared to $5.0 million in 2007 and $2.7 million in 2006. The $23.0 million
included $14.7 million recorded in the fourth quarter of 2008. The larger provision amount was due to the rapid deterioration
in the economic environment during the fourth quarter. The $14.7 million includes the following: $7.3 million was related to
four large construction loans and land development projects; $6.2 million was attributed to reserves for new loans, updated
loss rate expectations on the consumer and mortgage portfolios, as well as credit risk migration in the commercial loan
portfolio due to economic conditions; and $1.2 million was a result of consumer credit losses taken during the fourth quarter
of 2008. The increase in the provision for loan loss reflects our proactive approach in confronting the reality of the deepening
economic recession.
Noninterest Income. Noninterest income decreased $2.2 million to $46.0 million in 2008, or 5%, from $48.2 million in 2007.
The majority of the decrease was due to a $2.5 million decrease in credit card/debit card and ATM income due to reduced
prime based ATM bailment fees. Although noninterest income was negatively impacted by lower bailment fees, the net
interest margin benefited due to lower funding costs for these borrowings. In addition, 2007 had included a $1.1 million non-
recurring gain related to the sale of our former headquarters building and an $882,000 gain from the sale of our credit card
portfolio. Also during the year, income from Bank-Owned Life Insuarance (BOLI) decreased $483,000 from the prior year
due to lower yields in underlying investments funding this program. These decreases were partially offset by an increase in
loan fee income of $1.3 million. The majority of the increase in loan fee income was due to $851,000 in fees from 1st Reverse
Financial Services, LLC (“1st Reverse”). During the second quarter of 2008 we acquired a majority interest in 1st Reverse,
specializing in both reverse mortgage lending directly to consumers and business-to-business reverse mortgage lending
through banks, brokers and financial institutions throughout the United States. Deposit service charges also increased $1.1
million. This increase was a result of overall growth in deposits. In 2008 we also recorded a $1.8 million gain on the sale of
shares related to the completion of Visa’s initial public offering, and a $1.6 million charge related to a mark-to-market
adjustment on the $12.4 million BBB+ rated mortgage-backed security (“MBS”) issued in connection with a 2002 reverse
mortgage securitization.
Noninterest income increased $7.9 million to $48.2 million in 2007, or 20%, from $40.3 million in 2006. This was
attributable to a $3.2 million increase in deposit service charges as we continued to benefit from increased deposit accounts
and offered additional fee-based services. The increase also included a $1.1 million non-recurring gain related to the sale of
our former headquarters building and an $882,000 gain from the sale of our credit card portfolio. Credit/debit card and ATM
income also increased $915,000 as a result of increased volumes of cash in non-owned ATMs and higher bailment fess earned
on this cash. In 2007 we also recorded two offsetting $6.0 million items. Both occurred during the fourth quarter and
resulted in a gain and an expense recognized from the donation of a N.C. Wyeth mural, Apotheosis of the Family, which was
located in our former headquarters.
Noninterest Expenses. Noninterest expenses increased $7.1 million to $89.1 million in 2008, or 9%, from $82.0 million in 2007.
Excluding $2.8 million of expenses related to 1st Reverse, acquired in the second quarter of 2008, expenses increased $4.3 million
or 5% over 2007. As a result of continued growth efforts salaries, benefits, and other compensation increased $1.1 million while
other operating expenses increased $1.2 million. Included in other operating expenses was a $453,000 increase in FDIC charges
due to increased assessment rates. During 2008 the investment in WSFS franchise included the opening of one branch in
Selbyville, Delaware, the relocation of another branch in Smyrna, Delaware, and the previously mentioned acquisition of
branches. Further, during 2008 professional fees increased $1.3 million as a result of legal fees reflecting increased costs relating
to problem credits, reflecting credit costs associated with the challenging credit environment.
Noninterest expenses increased $12.7 million to $82.0 million in 2007, or 18%, from $69.3 million in 2006. WSFS
showed strong growth in 2007 which included the opening of three branch offices, one branch renovation, and the relocation
of our corporate headquarters. As a result of this growth, the number of full-time associates grew to 599, resulting in
increased salaries, benefits and other compensation of $4.3 million. This growth also affected both occupancy expense, which
increased by $2.8 million, and other operating expenses, which increased by $1.9 million. During 2007 our marketing
expenses increased $1.2 million, as a multi-year brand campaign was launched with the intent to leverage our Stellar Service
model with the message “We Stand For Service.” Also during 2007, we recorded a $1.2 million expense related to the Visa
antitrust lawsuit settlement with American Express and Discover.
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Income Taxes. We recorded a $7.0 million tax provision for the year ended December 31, 2008 compared to $13.5 million
and $15.7 million for the years ended December 31, 2007 and 2006, respectively. The effective tax rates for the years ended
December 31, 2008, 2007 and 2006 were 30.1%, 31.2% and 34.0%, respectively. The reduction in the 2008 effective tax rate
is primarily the result of volatility in effective tax rates. The reduction in the 2007 effective tax rate is primarily the result of a
$1.7 million tax benefit related to the previously discussed donation of the N.C. Wyeth mural. The provision for income
taxes includes federal, state and local income taxes that are currently payable or deferred because of temporary differences
between the financial reporting bases and the tax reporting bases of the assets and liabilities.
We analyze our projection of taxable income and make adjustments to our provision for income taxes accordingly.
For additional information regarding our tax provision and net operating loss carryforwards, see Note 12 to the Consolidated
Financial Statements.
FINANCIAL CONDITION
Total assets increased $232.4 million, or 7%, during 2008 to $3.4 billion. This increase was predominantly due to
growth in net loans, which grew $209.9 million, or 9%, during 2008. Total liabilities increased $227.1 million during the
year to $3.2 billion at December 31, 2008. This increase was primarily the result of an increase in customer deposits of
$227.9 million, or 15% and brokered deposits of $62.2 million, or 25% during 2008. Partially offsetting these increases was
an $82.3 million, or 9% decrease in FHLB advances.
Cash in non-owned ATMs. During 2008, cash in non-owned ATMs managed by CashConnect, our ATM unit, increased
$7.4 million, or 4%. This increase was the result of an increase in the number of ATMs serviced by CashConnect from 9,976
at December 31, 2007 to 10,031 at December 31, 2008. Of these, 301 ATMs were WSFS owned and operated during 2008.
Mortgage-backed Securities. Our mortgage-backed securities are predominantly “plain-vanilla”, AAA-rated and of short
duration. Investments in mortgage-backed securities increased $1.4 million during 2008 to $498.2 million. There were no
sales of mortgage-backed securities during 2008. The weighted average duration of the mortgage-backed securities was 2.9
years at December 31, 2008.
Investment Securities. Our investment securities are comprised mostly of Federal Agency debt securities with a maturity of
four years or less. We own no Collateralized Debt Obligations, Bank Trust Preferred, Agency Preferred securities or equity
securities in other FDIC insured banks or thrifts.
Loans, net. Net loans increased $209.9 million, or 9%, during 2008. This included increases of $155.4 million, or 20%, in
commercial loans, $67.6 million, or 9%, in commercial real estate loans, and $18.5 million, or 7%, in consumer loans. This
increase was partially offset by a decrease of $24.7 million, or 6%, in residential mortgage loans.
Customer Deposits. Customer deposits increased $227.9 million, or 15%, during 2008 to $1.7 billion. During 2008 we
acquired six Delaware branches from Sun National Bank, including $95.3 million in customer deposit accounts and paid a
12% premium on the balances. For additional information regarding this transaction, see Note 20 to the Consolidated
Financial Statements. Customer time deposits (CDs) increased $129.0 million, or 25%, in 2008. In addition, core deposit
relationships (demand deposits, money market and savings accounts) increased $98.9 million, or 10%, during the year. The
table below depicts the changes in customer deposits over the last three years:
Beginning balance………………………………………………….
Interest credited…………………………………………………….
Deposit inflows, net………………………………………………..
Ending balance……………………………………………………..
Borrowings and Brokered Certificates of Deposit. Borrowings and brokered certificates of deposit decreased by $6.2
million, or less than 1%, during 2008. This decrease was primarily the result of a decrease in FHLB advances of $82.3
million, or 9%. Partially offsetting this decrease was a $62.2 million, or 25%, increase in brokered deposits. In addition,
other borrowed funds increased $14.0 million, or 15%.
$1,193.9
26.3
123.5
$1,343.7
$1,479.2
34.6
193.3
$1,707.1
Year Ended December 31,
2008
2006
2007
(In Millions)
$1,343.7
32.4
103.1
$1,479.2
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Stockholders' Equity. Stockholders' equity increased $5.3 million to $216.6 million at December 31, 2008. This increase
included an increase of $7.4 million in comprehensive income and $3.0 million from the result of the exercise of common
stock options. Partially offsetting these decreases was the purchase of 73,500 shares of treasury stock for $3.6 million. At
December 31, 2008, we held 9.6 million shares of our common stock as treasury stock. Long-term, it is our intention to
return some of our earnings to shareholders through share repurchases, which is subject to approval by the U.S. Treasury,
while maintaining adequate levels of capital. In addition, we declared cash dividends totaling $2.8 million during 2008.
ASSET/LIABILITY MANAGEMENT
Our primary asset/liability management goal is to maximize net interest income opportunities within the constraints of
managing interest rate risk, while ensuring adequate liquidity and funding and maintaining a strong capital base.
In general, interest rate risk is mitigated by closely matching the maturities or repricing periods of interest-sensitive
assets and liabilities to ensure a favorable interest rate spread. We regularly review our interest-rate sensitivity, and use a variety
of strategies as needed to adjust that sensitivity within acceptable tolerance ranges established by management and the Board of
Directors. Changing the relative proportions of fixed-rate and adjustable-rate assets and liabilities is one of our primary strategies
to accomplish this objective.
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are
"interest-rate sensitive" and by monitoring an institution's interest-sensitivity gap. An interest-sensitivity gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities repricing within a
defined period, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-
rate sensitive assets repricing within a defined period.
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The repricing and maturities of our interest-rate sensitive assets and interest-rate sensitive liabilities at December 31, 2008 are set
forth in the following table:
(Dollars in Thousands)
Interest-rate sensitive assets:
Real estate loans (1) (2)
Commercial loans (2)
Consumer loans (2)
Mortgage-backed securities
Loans held-for-sale (2)
Investment securities
Interest-bearing deposits in other banks
Interest-rate sensitive liabilities:
Money market and interest-bearing demand deposits
Savings deposits
Retail time deposits
Jumbo certificates of deposit
Brokered certificates of deposit
FHLB advances
Trust preferred borrowings
Other borrowed funds
(Deficiency) excess of interest-rate sensitive
assets over interest-rate liabilities
(“interest-rate sensitive gap”)
One-year interest-rate sensitive assets/
Interest-rate sensitive liabilities
One-year interest-rate sensitive gap as a
Percent of total assets
Less than
One Year
One to
Five Years
Over
Five Years
Total
$ 815,324
746,480
170,870
141,048
2,275
4,204
216
1,880,417
189,559
55,540
429,074
103,825
310,827
554,517
67,011
158,777
1,869,130
$300,644
157,100
53,329
249,121
-
43,697
-
803,891
14
10
215,588
-
567
261,440
-
25,000
502,619
$ 117,258
39,340
72,529
108,036
-
41,092
-
378,255
351,968
152,818
1,240
-
-
-
-
-
506,026
$1,233,226
942,920
296,728
498,205
2,275
88,993
216
3,062,563
541,541
208,368
645,902
103,825
311,394
815,957
67,011
183,777
2,877,775
$ 11,287
$301,272
$(127,771)
$ 184,788
100.60%
0.33%
Includes commercial mortgage, construction, and residential mortgage loans.
(1)
(2) Loan balances exclude deferred fees and costs.
Generally, during a period of rising interest rates, a positive gap would result in an increase in net interest income while a
negative gap would adversely affect net interest income. Conversely, during a period of falling rates, a positive gap would result
in a decrease in net interest income while a negative gap would augment net interest income. However, the interest-sensitivity
table does not provide a comprehensive representation of the impact of interest rate changes on net interest income. Each
category of assets or liabilities will not be affected equally or simultaneously by changes in the general level of interest rates.
Even assets and liabilities which contractually reprice within the rate period may not, in fact, reprice at the same price or the same
time or with the same frequency. It is also important to consider that the table represents a specific point in time. Variations can
occur as we adjust our interest-sensitivity position throughout the year.
To provide a more accurate position of our one-year gap, certain deposit classifications are based on the interest-rate
sensitive attributes and not on the contractual repricing characteristics of these deposits. Management estimates, based on
historical trends of our deposit accounts, that 35% of money market and 13% of interest-bearing demand deposits are sensitive to
interest rate changes and that 22% to 36% of savings deposits are sensitive to interest rate changes. Accordingly, these interest-
sensitive portions are classified in the less than one-year category with the remainder in the over five-year category.
Deposit rates other than time deposit rates are variable, and changes in deposit rates are generally subject to local market
conditions and management's discretion and are not indexed to any particular rate.
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REVERSE MORTGAGES
We hold an investment in reverse mortgages of $(61,000) at December 31, 2008 representing a participation in
reverse mortgages with a third party. The loans supporting this balance were originated in the early 1990’s.
Reverse mortgage loans are contracts that require the lender to make monthly advances throughout the borrower’s life or
until the borrower relocates, prepays or the home is sold, at which time the loan becomes due and payable. Reverse mortgages
are nonrecourse obligations, which means that the loan repayments are generally limited to the net sale proceeds of the
borrower’s residence.
We account for our investment in reverse mortgages by estimating the value of the future cash flows on the reverse
mortgages at a rate deemed appropriate for these mortgages, based on the market rate for similar collateral. Actual cash flows
from the maturity of these mortgage loans can result in significant volatility in the recorded value of reverse mortgage assets. As
a result, income varies significantly from reporting period to reporting period. For the year ended December 31, 2008, we lost
$1.1 million in interest income on reverse mortgages as compared to posting income of $2.0 million in 2007 and $684,000 in
2006. The loss in 2008 primarily resulted from the decrease in the values of the properties securing these mortgages, based on
annual re-evaluations and consistent with the decrease in home values over the past year.
The projected cash flows depend on assumptions about life expectancy of the mortgagee and the future changes in
collateral values. Projecting the changes in collateral values is the most significant factor impacting the volatility of reverse
mortgage values. Our current assumptions include a short-term annual appreciation rate of -8.0% in the first year, and a long-
term annual appreciation rate of 0.5% in future years. If the long-term appreciation rate was increased to 1.5%, the resulting
impact on income would have been $26,000. Conversely, if the long-term appreciation rate was decreased to -0.5%, the
resulting impact on income would have been $(22,000).
We also hold $10.8 million in BBB+ rated mortgage-backed securities classified as trading and have options to acquire
up to 49.9% of Class “O” Certificates issued in connection with securities consisting of a portfolio of reverse mortgages we
previously owned. The Class “O” Certificates are currently recorded on our financial statements at a zero value. At the time of
the securitization, the third-party securitizer (Lehman Brothers) retained 100% of the Class “O” Certificates from the
securitization. These Class “O” Certificates have no priority over other classes of Certificates under the Trust and no
distributions will be made on the Class “O” Certificates until, among other conditions, the principal amount of each other
class of notes has been reduced to zero. The underlying assets, the reverse mortgages, are very long-term assets. Therefore,
any cash flow that might inure to the holder of the Class “O” Certificates is not expected to occur until many years in the
future. Additionally, we can exercise our option on 49.9% of the Class “O” Certificates in up to five separate increments for
an aggregate purchase price of $1.0 million any time between January 1, 2004 and the termination of the Securitization Trust.
The option to purchase the Class “O” Certificates does not meet the definition of a derivative under SFAS No. 133,
Accounting for Derivative and Hedging Activities and is carried in our financial statements at cost. During the third quarter of
2008 Lehman Brothers filed for bankruptcy. We are currently in discussions with legal counsel to determine our legal rights
with respect to the Class “O” certificates.
During 2006, we formed a new reverse mortgage initiative. While our activity during the past two years has been
limited to acting as a correspondent for these loans, it is our intention to originate and underwrite our own reverse mortgages
in the future. We expect to sell most of these loans and do not intend to hold them in our portfolio. These reverse mortgages
are government approved and insured.
NONPERFORMING ASSETS
Nonperforming assets, which include nonaccruing loans, nonperforming real estate investments and assets acquired
through foreclosure, can negatively affect our results of operations. Nonaccruing loans are those on which the accrual of interest
has ceased. Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when
principal or interest is past due 90 days or more and the value of the collateral is insufficient to cover principal and interest.
Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income.
In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash
receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management's
-43-
assessment of the ultimate collectibility of principal and interest. Past due loans are defined as loans contractually past due 90
days or more as to principal or interest payments but which remain in accrual status because they are considered well secured and
in the process of collection.
The following table sets forth our nonperforming assets and past due loans at the dates indicated:
December 31,
(Dollars in Thousands)
Nonaccruing loans:
Commercial
Consumer
Commercial mortgages
Residential mortgages
Construction
Total nonaccruing loans
Assets acquired through foreclosure
Restructured loans
Total nonperforming assets
Past due loans:
Residential mortgages
Commercial and commercial mortgages
Consumer
Total past due loans
2008
2007
2006
2005
2004
$ 986
352
5,748
4,753
16,595
28,434
4,471
2,855
$35,760
$ 17,187
835
3,873
2,417
6,794
31,106
703
0
$31,809
$ 1,313
0
26
$ 1,339
$ 388
14
173
$ 575
$1,282
557
500
1,493
-
3,832
388
0
$4,220
$219
3
29
$251
$ 925
155
727
1,567
36
3,410
59
0
$3,469
$327
-
59
$386
$1,595
291
909
1,601
-
4,396
217
0
$4,613
$703
-
104
$807
Ratio of nonaccruing loans to total loans (1)
Ratio of allowance for loan losses to gross loans (1)
Ratio of nonperforming assets to total assets
Ratio of loan loss allowance to nonaccruing loans (2)
1.15%
1.26%
1.04%
0.19%
1.38%
1.34%
1.12%
0.14%
0.99%
108.30% 78.80% 705.32%
0.19%
1.41%
0.12%
0.28%
1.56%
0.18%
709.47% 524.05%
(1) Total loans exclude loans held-for-sale.
(2) The applicable allowance represents general valuation allowances only.
Total nonperforming assets increased $4.0 million during 2008. As a result, nonperforming assets as a percentage of
total assets increased from 0.99% at December 31, 2007 to 1.04% at December 31, 2008. Non-performing loans declined from
December 31, 2007 level as exposures migrated to assets acquired through foreclosure and $8.4 million in losses were recognized
on construction loans. Restructured loans of $2.9 million contributed to the increase in non-performing assets. All of the
restructured loans are residential mortgage loans to home owners and represent loans in which we have made concessions in
order to assist the borrower in making their payments.
The following table provides an analysis of the change in the balance of nonperforming assets during the last three years:
Year Ended December 31,
(In Thousands)
Beginning balance
Additions
Collections
Transfers to accrual
Charge-offs/write-downs
Ending balance
2008
2007
2006
$ 31,809
48,152
(26,574)
(1,345)
(16,282)
$ 35,760
$ 4,220
37,017
(3,029)
(295)
(6,104)
$ 31,809
$ 3,469
5,697
(3,916)
(453)
(577)
$ 4,220
As of December 31, 2008, we had $70.2 million of loans, which, although performing at that date, are believed to
require increased supervision and review; and may, depending on the economic environment and other factors, become non-
performing assets in future periods. The amount of such loans at December 31, 2007 was $40.7 million. The majority of the
-44-
loans are secured by commercial real estate, with lesser amounts being secured by residential real estate, inventory and
receivables.
Allowance for Loan Losses. We maintain allowances for credit losses and charge losses to these allowances when such losses
are realized. The determination of the allowance for loan losses requires significant judgement reflecting management’s best
estimate of probable loan losses related to specifically identified loans as well as probable loan losses in the remaining loan
portfolio. Our evaluation is based upon a continuing review of these portfolios.
We established our loan loss allowance in accordance with guidance provided in the Securities and Exchange
Commission’s Staff Accounting Bulletin 102 (SAB 102). Its methodology for assessing the appropriateness of the allowance
consists of several key elements which include: specific allowances for identified problem loans; formula allowances for
commercial and commercial real estate loans; and allowances for pooled homogenous loans.
Specific reserves are established for certain loans in cases where management has identified significant conditions or
circumstances related to a specific credit that management believes indicate the probability that a loss has been incurred.
The formula allowances for commercial and commercial real estate loans are calculated by applying estimated loss
factors to outstanding loans based on the internal risk grade of loans. For low risk commercial and commercial real estate loans
the portfolio is pooled, based on internal risk grade, and estimates are based on a ten-year net charge-off history. Higher risk and
criticized loans have loss factors that are derived from an analysis of both the probability of default and the probability of loss
should default occur. Loss adjustment factors are applied based on criteria discussed below. As a result, changes in risk grades
of both performing and nonperforming loans affect the amount of the formula allowance.
Pooled loans are loans that are usually smaller, not-individually-graded and homogenous in nature, such as consumer
installment loans and residential mortgages. Loan loss allowances for pooled loans are based on a ten-year net charge-off history.
The average loss allowance per homogenous pool is based on the product of average annual historical loss rate and the estimated
duration of the pool multiplied by the pool balances. These separate risk pools are assigned a reserve for losses based upon this
historical loss information and loss adjustment factors.
Historical loss adjustment factors are based upon our evaluation of various current conditions including those listed
below:
General economic and business conditions affecting our key lending areas,
Credit quality trends,
Recent loss experience in particular segments of the portfolio,
Collateral values and loan-to-value ratios,
Loan volumes and concentrations, including changes in mix,
Seasoning of the loan portfolio,
Specific industry conditions within portfolio segments,
Bank regulatory examination results, and
Other factors, including changes in quality of the loan origination, servicing and risk management processes.
Our loan officers and risk managers meet at least quarterly to discuss and review these conditions and risks associated
with individual problem loans. In addition, various regulatory agencies, as an integral part of their examination process,
periodically review our allowance for such losses. We also give consideration to the results of these regulatory agency
examinations.
During 2008, the provision for loan losses were affected by increased credit-related costs due to the rapid deterioration in
the economic environment during the fourth quarter: including (1) increased charge-offs; (2) a general migration to loans to lower
credit grades; (3) higher reserves for new loans; (4) higher loss rate expectations; and (5) higher estimated reserves for economic
conditions.
-45-
The table below represents a summary of changes in the allowance for loan losses during the periods indicated:
Year Ended December 31,
(Dollars in Thousands)
Beginning balance
Provision for loan losses
Charge-offs:
Residential real estate
Commercial real estate (1)
Commercial
Overdrafts (2)
Consumer
Total charge-offs
Recoveries:
Residential real estate
Commercial real estate (1)
Commercial
Overdrafts (2)
Consumer
Total recoveries
Net charge-offs
Ending balance
Net charge-offs to average gross loans outstanding,
net of unearned income
(1) Includes commercial mortgage and construction loans.
(2) Prior to April 2006, overdraft charge-offs/recoveries
were recognized in other operating expense.
2008
2007
2006
2005
2004
$25,252
23,024
$27,384 $25,381
2,738
5,021
$24,222 $22,386
3,217
2,582
628
12,195
1,992
1,327
1,697
17,839
7
12
100
384
249
752
41
1,398
4,379
1,441
790
8,049
75
-
470
607
483
1,635
90
104
1,048
-
631
1,873
222
148
656
-
817
1,843
11
127
173
446
139
896
14
170
343
217
156
900
59
42
209
-
140
450
32
-
335
-
95
462
17,087
$31,189
7,153
735
$25,252 $27,384
1,423
1,381
$25,381 $24,222
0.74%
0.34%
0.04%
0.09% 0.10%
The allowance for loan losses is allocated by major portfolio type. As these portfolios have developed, they have
become a source of historical data in projecting delinquencies and loss exposure; however, such allocations are not a
guarantee of where future losses may occur. While we have allocated the allowance for loan losses by portfolio type in the
following table, the entire reserve is available for any loan portfolio to utilize. The allocation of the allowance for loan losses
by portfolio type at the end of each of the last five fiscal years, and the percentage of outstanding loans in each category to
total gross outstanding, at such dates follow:
December 31,
(Dollars in Thousands)
Residential real estate
Commercial real estate
Commercial
Consumer
Total
LIQUIDITY
2008
Amount Percent
2007
2006
Amount
Percent
Amount
Percent
2005
Amount Percent
2004
Amount
Percent
$ 2,480
10,656
12,510
5,543
17.1%
32.8%
38.1%
12.0%
$31,189 100.0%
$ 1,304
12,151
8,088
3,709
$25,252
19.8%
32.9%
35.0%
12.3%
100.0%
$ 1,645
11,343
11,019
3,377
$27,384
23.1%
32.5%
31.5%
12.9%
100.0%
$ 1,632
10,978
9,471
3,300
25.4%
32.7%
28.3%
13.6%
$25,381 100.0%
$ 1,468
9,211
10,456
3,087
$24,222
28.1%
34.6%
23.7%
13.6%
100.0%
We manage our liquidity risk and funding needs through our treasury function and our Asset/Liability Committee.
Historically, we have had success in growing our loan portfolio. For example, during the year ended December 31, 2008, net
loan growth resulted in the use of $236.7 million in cash. The loan growth was primarily the result of our continued success
increasing corporate and small business lending. Management expects this trend to continue. While our loan-to-deposit ratio
has been well above 100% for many years, management has significant experience managing its funding needs through
borrowings and deposit growth.
-46-
As a financial institution, we have ready access to several sources of funding. Among these are:
Deposit growth
Brokered deposits
Borrowing from the FHLB
Fed Discount Window access
Other borrowings such as repurchase agreements
Cash flow from securities and loan sales and repayments
Net income.
Our current branch expansion and renovation program is focused on expanding our retail footprint in Delaware and
attracting new customers to provide additional deposit growth. Customer deposit growth was strong, equaling $227.9 million,
or 15% between December 31, 2007 and December 31, 2008.
Our portfolio of high-quality, liquid investments, primarily short-duration AAA-rated, mortgage-backed securities
and Agency notes also provide a source of cash flow to meet current cash needs. If needed, portions of this portfolio, as well
as portions of the loan portfolio, could be sold to provide cash to fund new loans. During the year ended December 31, 2008,
$46.4 million in cash was provided by operating activities.
We have a policy that separately addresses liquidity, and management monitors our adherence to policy limits. As
part of the liquidity management process, we also monitor our available wholesale funding capacity. At December 31, 2008,
we had $267.4 million in funding capacity at the Federal Home Loan Bank of Pittsburgh and $546.7 million in estimated
funding capacity in brokered deposits. Also, liquidity risk management is a primary area of examination by the OTS.
We have not used and have no intention of using any significant off balance sheet financing arrangement for liquidity
management purposes. Our financial instruments with off balance sheet risk are limited to obligations to fund loans to
customers pursuant to existing commitments and obligations of letters of credit. In addition, we have not had and have no
intention to have any significant transactions, arrangements or other relationships with any unconsolidated, limited purpose
entities that could materially affect our liquidity or capital resources.
CAPITAL RESOURCES
Federal laws, among other things, require the OTS to mandate uniformly applicable capital standards for all savings
institutions. These standards currently require institutions such as us to maintain a "tangible" capital ratio equal to 1.5% of
adjusted total assets, "core" (or "leverage") capital equal to 4.0% of adjusted total assets, "Tier 1" capital equal to 4.0% of "risk-
weighted" assets and total "risk-based" capital (a combination of core and "supplementary" capital) equal to 8.0% of "risk-
weighted" assets.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA), as well as other requirements, established five
capital tiers: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized and critically under-
capitalized. A depository institution's capital tier depends upon its capital levels in relation to various relevant capital measures,
which include leverage and risk-based capital measures and certain other factors. Depository institutions that are not classified as
well-capitalized are subject to various restrictions regarding capital distributions, payment of management fees, acceptance of
brokered deposits and other operating activities.
At December 31, 2008, we are classified as well-capitalized, the highest regulatory defined level, and in compliance with
all regulatory capital requirements. Additional information concerning our regulatory capital compliance is included in Note 10
to the Consolidated Financial Statements.
Since 1996, the Board of Directors has approved several stock repurchase programs to acquire common stock
outstanding. As part of these programs, we acquired approximately 73,500 shares in 2008 and 564,100 shares in 2007. At
December 31, 2008, we held 9.6 million shares of our common stock as treasury shares. At December 31, 2008, we had 506,000
shares remaining under our current share repurchase authorization.
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On January 23, 2009, under the U.S. Treasury’s Capital Purchase Plan (“CPP”), we sold 52,625 shares of senior
preferred stock to the U.S. Treasury, having a liquidation amount equal to $1,000 per share, or $52.6 million. Although we
are currently well-capitalized under regulatory guidelines, the Board of Directors believed it was advisable to take advantage
of the CPP to raise additional capital to ensure that during these uncertain times, we are well-positioned to support our
existing operations as well as anticipated future growth. Additional information concerning the CPP is included in Note 21
to the Consolidated Financial Statements.
As part of the CPP program, any share repurchases or increase in the dividend level from the September 2008
quarterly payment of $0.12 per share, must be approved by the U.S. Treasury department.
OFF BALANCE SHEET ARRANGEMENTS
We have no off balance sheet arrangements that currently have, or are reasonably likely to have, a material future effect
on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources. Additional information concerning our off balance sheet arrangements is included in Note 14
to the Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
At December 31, 2008, we had contractual obligations relating to operating leases, long-term debt, data processing
and credit obligations. These obligations are summarized below. See Notes 7, 9 and 14 to the Consolidated Financial
Statements for further discussion.
(In Thousands)
Operating lease obligations
Long-term debt obligations
Data processing contracts
Credit obligations
Total
Total
Less than
1 Year
1-3 Years
3-5 Years
$ 54,616
882,968
4,674
700,540
$1,642,798
$ 5,323
471,562
3,683
700,540
$1,181,108
$ 10,060
302,372
991
-
$313,423
$ 8,535
42,023
-
-
$50,558
More than
5 Years
$30,698
67,011
-
-
$97,709
IMPACT OF INFLATION AND CHANGING PRICES
Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting
principles, which require the measurement of financial position and operating results in terms of historical dollars without
consideration of the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased costs of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are
monetary. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or the same extent as the price of goods and services.
RECENT LEGISLATION
The economy is experiencing significantly reduced business activity as a result of, among other factors, disruptions in
the financial system during the past year. Declines in the housing market during the past year, due to falling home prices and
increased foreclosures and unemployment, have resulted in substantial declines in mortgage-related asset values, which has
had a dramatic negative impact on government-sponsored entities and major commercial and investment banks.
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Reflecting concern about the stability of the finance markets in general and the strength of counterparties, many
lenders and institutional investors have reduced, and in some cases, ceased, to provide funding and liquidity to borrowers,
including other financial institutions. In response to the financial crisis affecting the banking system and financial markets and
going concern threats to investment banks and other financial institutions, on October 3, 2008, the Emergency Economic
Stabilization Act of 2008 (the “EESA”) was signed into law. Pursuant to the EESA, specifically the Troubled Asset Relief
Program (“TARP”) thereunder, the U.S. Treasury will have the authority to, among other things, purchase up to $700 billion
of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of
stabilizing and providing liquidity to the U.S. financial markets.
On October 14, 2008, the Secretary of the Department of the Treasury announced the Department of the Treasury
will purchase equity stakes in a wide variety of banks and thrifts through TARP’s CPP. Under this program, from the $700
billion authorized by the EESA, the Treasury made $250 billion of capital available to U.S. financial institutions in the form
of preferred stock. In conjunction with the purchase of preferred stock, the Treasury received, from participating financial
institutions, warrants to purchase common stock with an aggregate market price equal to 15% of the preferred stock
investment. Participating financial institutions were required to adopt the Treasury’s standards for executive compensation
and corporate governance for the period during which the Treasury holds equity in such institution issued under the CPP.
On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity
Guarantee Program (the “TLGP”). The TLGP was announced by the FDIC on October 14, 2008, after the determination of
systemic risk by the Secretary of the Department of Treasury (after consultation with the President), as an initiative to counter
the system-wide crisis in the nation’s financial sector. Under the TLGP the FDIC will (i) guarantee, through the earlier of
maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October
14, 2008, and before June 30, 2009 and (ii) provide full FDIC insurance deposit insurance coverage for noninterest bearing
transaction deposit accounts, Negotiable Order of Withdrawal (“NOW”) accounts paying less than 0.5% interest per annum
and Interest on Lawyers Trust Accounts (“IOLTA”) accounts held at participating FDIC-insured institutions through
December 31, 2009. Coverage under the TLGP was available for the first 30 days without charge. The fee assessment for
coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial
maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered
accounts exceeding $250,000.
On February 10, 2009, the U.S. Treasury and the federal bank regulatory agencies announced in a Joint Statement a
new Financial Stability Plan which would include additional capital support for banks under a Capital Assistance Program, a
public-private investment fund to address existing bank loan portfolios and expanded funding for the FRB's pending Term
Asset-Backed Securities Loan Facility to restart lending and the securitization markets.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 ("ARRA") was signed into law by
President Obama. The ARRA includes a wide variety of programs intended to stimulate the economy and provide for
extensive infrastructure, energy, health, and education needs. In addition, the ARRA imposes certain new executive
compensation and corporate expenditure limits on all current and future TARP recipients until the institution has repaid the
U.S. Treasury, which is now permitted under the ARRA without penalty and without the need to raise new capital, subject to
the U.S. Treasury's consultation with the recipient's appropriate regulatory agency.
The executive compensation standards under ARRA are more stringent than those currently in effect under the CPP
or those previously proposed by the U.S. Treasury. The new standards include (but are not limited to) (i) prohibitions on
bonuses, retention awards and other incentive compensation, other than restricted stock grants which do not fully vest during
the TARP period up to one-third of an employee's total annual compensation, (ii) prohibitions on golden parachute payments
for departure from a company, (iii) an expanded clawback of bonuses, retention awards, and incentive compensation if
payment is based on materially inaccurate statements of earnings, revenues, gains or other criteria, (iv) prohibitions on
compensation plans that encourage manipulation of reported earnings, (v) retroactive review of bonuses, retention awards and
other compensation previously provided by TARP recipients if found by the U.S. Treasury to be inconsistent with the
purposes of TARP or otherwise contrary to public interest, (vi) required establishment of a company-wide policy regarding
"excessive or luxury expenditures," and (vii) inclusion in a participant's proxy statements for annual shareholder meetings of a
nonbinding "Say on Pay" shareholder vote on the compensation of executives.
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On February 23, 2009, the U.S. Treasury and the federal bank regulatory agencies issued a Joint Statement providing
further guidance with respect to the Capital Assistance Program ("CAP") announced February 10, 2009, including: (i) that the
CAP will be initiated on February 25, 2009 and will include "stress test" assessments of major banks and that should the
"stress test" indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private
sources of capital; otherwise the temporary capital buffer will be made available from the government; (ii) such additional
government capital will be in the form of mandatory convertible preferred shares, which would be converted into common
equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved
financial conditions before the conversion becomes mandatory; and (iii) previous capital injections under the CPP will also be
eligible to be exchanged for the mandatory convertible preferred shares. The conversion of preferred shares to common equity
shares would enable institutions to maintain or enhance the quality of their capital by increasing their tangible common equity
capital ratios; however, such conversions would necessarily dilute the interests of existing shareholders.
On February 25, 2009, the first day the CAP program was initiated, the U.S. Treasury released the actual terms of the
program, stating that the purpose of the CAP is to restore confidence throughout the financial system that the nation's largest
banking institutions have a sufficient capital cushion against larger than expected future losses, should they occur due to more
a more severe economic environment, and to support lending to creditworthy borrowers. Under the CAP terms, eligible U.S.
banking institutions with assets in excess of $100 billion on a consolidated basis are required to participate in coordinated
supervisory assessments, which are forward-looking "stress test" assessments to evaluate the capital needs of the institution
under a more challenging economic environment. Should this assessment indicate the need for the bank to establish an
additional capital buffer to withstand more stressful conditions, these institutions may access the CAP immediately as a means
to establish any necessary additional buffer or they may delay the CAP funding for six months to raise the capital privately.
Eligible U.S. banking institutions with assets below $100 billion may also obtain capital from the CAP. The CAP program is
an additional program from the CPP and is open to eligible institutions regardless of whether they participated in the CPP.
The deadline to apply to the CAP is May 25, 2009. Recipients of capital under the CAP will be subject to the same executive
compensation requirements as if they had received the CPP.
On February 27, 2009, the FDIC proposed amendments to the restoration plan for the Deposit Insurance Fund. This
amendment proposes the imposition of a 20 basis point emergency special assessment on insured depository institutions as of
June 30, 2009. On March 5, 2009, FDIC Chairman Sheila Bair announced that if Congress adopts legislation expanding the
FDIC’s line of credit with Treasury from $30 billion to $100 billion, the FDIC might have the flexibility to reduce the special
emergency assessment, possibly from 20 to 10 basis points. The assessment is proposed to be collected on September 30,
2009. The interim rule would also permit the FDIC to impose an emergency special assessment after June 30, 2009, of up to
ten basis points if necessary to maintain public confidence in federal deposit insurance. This special assessment if
implemented as proposed will have a significant impact on the results of operations of the Company for 2009.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the financial condition and results of operations are based on the Consolidated
Financial Statements, which are prepared in conformity with U.S. generally accepted accounting principles. The preparation
of these Financial Statements requires management to make estimates and assumptions affecting the reported amounts of
assets, liabilities, revenue and expenses. We regularly evaluate these estimates and assumptions including those related to the
allowance for loan losses, contingencies (including indemnifications), and deferred taxes. We base our estimates on historical
experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form
the basis for making judgements on the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
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The following are critical accounting policies that involve more significant judgements and estimates:
Allowance for Loan Losses
We maintain allowances for credit losses and charge losses to these allowances when realized. The determination of the
allowance for loan losses requires significant judgement reflecting our best estimate of probable loan losses related to specifically
identified loans as well as those in the remaining loan portfolio. Our evaluation is based upon a continuing review of these
portfolios, with consideration given to evaluations resulting from examinations performed by regulatory authorities.
As part of our problem loan management process, we may, from time to time, make decisions to protect our interests
which may affect the basis in a problem loan or our estimate of the realizable value of a problem loan. For example, to improve
our first lien position in a non-accrual loan, in August 2008 we purchased a note related to this non-accrual loan from another
lender for up to $1 million. Related to the same credit, in August 2008, we made a loan to an interested third party that is
expected to add up to $2.8 million to its estimated realizable value.
Contingencies (Including Indemnifications)
In the ordinary course of business, we are subject to legal actions, which involve claims for monetary relief. Based
upon information presently available to us and our counsel, it is our opinion that any legal and financial responsibility arising
from such claims will not have a material adverse effect on our results of operations.
We maintain a loss contingency for standby letters of credit and charge losses to this reserve when such losses are
realized. The determination of the loss contingency for standby letters of credit requires significant judgement reflecting
management’s best estimate of probable losses.
The Bank, as successor to originators of reverse mortgages is, from time to time, involved in arbitration or litigation
with various parties including borrowers or the heirs of borrowers. Because reverse mortgages are a relatively new and
uncommon product, there can be no assurances about how the courts or arbitrators may apply existing legal principles to the
interpretation and enforcement of the terms and conditions of the Bank’s reverse mortgage obligations.
Deferred Taxes
We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS 109), which
requires the recording of deferred income taxes that reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We have
assessed our valuation allowances on deferred income taxes resulting from, among other things, limitations imposed by
Internal Revenue Code and uncertainties, including the timing of settlement and realization of these differences.
Fair Value Measurements
On January 1, 2008, we adopted SFAS No. 157,
Fair Value Measurements (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. See
Note 15, to our Consolidated Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”). This Statement
defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. Additionally, it establishes a fair value hierarchy that prioritizes the information
used to develop those assumptions. SFAS 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. The adoption of SFAS 157 did not have a material impact
on our Consolidated Financial Statements.
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In September 2006, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 06-04, Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements. In
accordance with the EITF consensus, an agreement by an employer to share a portion of the proceeds of a life insurance
policy with an employee during the postretirement period is a postretirement benefit arrangement required to be accounted for
in accordance with SFAS No. 106 Employers’ Accounting for Postretirement Benefits Other Than Pensions (“SFAS 106”) or
Accounting Principles Board Opinion (“APB”) No. 12, Omnibus Opinion — 1967. Furthermore, the purchase of a split dollar
life insurance policy does not constitute a settlement under SFAS 106 and, therefore, a liability for the postretirement
obligation must be recognized under SFAS 106 if the benefit is offered under an arrangement that constitutes a plan or under
Accounting Principles Board No. 12 if it is not part of a plan. The provisions of EITF Issue 06-04 are to be applied through
either a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or retrospective
application. We adopted this statement on January 1, 2008 and it did not have a material impact on our Consolidated
Financial Statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are recognized in earnings at each subsequent reporting date. We adopted SFAS 159 on
January 1, 2008 and it did not have a material impact on our Consolidated Financial Statements.
On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at
Fair Value through Earnings (“SAB 109”). Previously, SAB 105, Application of Accounting Principles to Loan
Commitments, stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the
expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that
the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value
for all written loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that internally-
developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109
retains that view. SAB 109 was effective for derivative loan commitments issued or modified in fiscal quarters beginning
after December 15, 2007 and did not have a material impact on our Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”). This
Statement changes the requirements for an acquirer’s recognition and measurement of the assets acquired and the liabilities
assumed in a business combination. SFAS 141(R) is effective for annual periods beginning after December 15, 2008 and
should be applied prospectively for all business combinations entered into after the date of adoption.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements
— an amendment of ARB No. 51 (“SFAS 160”). This Statement requires (i) that noncontrolling (minority) interests be
reported as a component of shareholders’ equity, (ii) that net income attributable to the parent and to the noncontrolling
interest be separately identified in the consolidated statement of operations, (iii) that changes in a parent’s ownership interest
while the parent retains its controlling interest be accounted for as equity transactions, (iv) that any retained noncontrolling
equity investment upon the deconsolidation of a subsidiary be initially measured at fair value, and (v) that sufficient
disclosures are provided that clearly identify and distinguish between the interests of the parent and the interests of the
noncontrolling owners. SFAS 160 is effective for annual periods beginning after December 15, 2008 and should be applied
prospectively. However, the presentation and disclosure requirements of the statement shall be applied retrospectively for all
periods presented. We do not believe the adoption of SFAS 160 will have a material impact on our Consolidated Financial
Statements.
In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative Instruments and Hedging Activities
(“SFAS 161”). This statement changes the disclosure requirements for derivative instruments and hedging activities. Entities
are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedges are accounted for under Statement 133 and its related interpretations and (c) how derivative
instruments and related hedged affect an entity’s financial position, financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We do not
believe the adoption of this standard will have a material impact on our Consolidated Financial Statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS
162”). This statement identifies the sources of accounting principles and the framework for selecting the principles to be used
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in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States. SFAS 162 is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles. We do not believe the adoption of this standard will have a material impact
on our Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from
interest rate risk inherent in our lending, investing and funding activities. To that end, we actively monitor and manage our
interest rate risk exposure. One measure required to be performed by the Office of Thrift Supervision (OTS)-regulated
institutions is the test specified by OTS Thrift Bulletin No. 13A, Management of Interest Rate Risk, Investment Securities and
Derivatives Activities. This test measures the impact on the net portfolio value of an immediate change in interest rates in 100
basis point increments. Net portfolio value is defined as the net present value of the estimated cash flows from assets and
liabilities as a percentage of the net present value of assets. The following table is the estimated impact of immediate changes in
interest rates on our net interest margin and net portfolio value at the specified levels at December 31, 2008 and 2007, calculated
in compliance with Thrift Bulletin No. 13A:
December 31,
Change in
Interest Rate
(Basis
Points)
+300
+200
+100
0
-100
-200 (3)
-300 (3)
2008
% Change in
Net Interest
Margin (1)
Net Portfolio
Value (2)
2007
% Change in
Net Interest
Margin (1)
Net Portfolio
Value (2)
-9%
-6%
-3%
0%
-2%
NMF
NMF
7.92%
8.17%
8.37%
8.50%
8.43%
NMF
NMF
+2%
+2%
+1%
0%
-1%
-2%
-4%
9.70%
10.27%
10.72%
11.01%
11.04%
11.10%
11.25%
(1) The percentage difference between net interest margin in a stable interest rate environment and net interest margin as projected under the various rate
environment changes.
(2) Our net portfolio value in a stable interest rate environment and the net portfolio value as projected under the various rate environment changes.
(3) Sensitivity indicated by a decrease of 200 and 300 basis points may not be particularly meaningful (NMF) at December 31, 2008 given the historically low
absolute level of interest rates at that date. OTS regulators are currently only monitoring rate shocks of -100 to +300 basis points.
Our primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net
interest income and capital, while maximizing the yield/cost spread on our asset/liability structure. We rely primarily on our
asset/liability structure to control interest rate risk.
We also engage in other business activities that are sensitive to changes in interest rates. For example, mortgage banking
revenues and expenses can fluctuate with changing interest rates. These fluctuations are difficult to model and estimate.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
WSFS Financial Corporation:
We have audited the accompanying consolidated statement of condition of WSFS Financial Corporation and subsidiaries (the
Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended December 31, 2008. 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 conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of WSFS Financial Corporation and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB Statement No. 123(revised), Share-
Based Payment, a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation, effective January 1, 2006,
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
effective January 1, 2007, and FASB Statement No. 157, Fair Value Measurements, effective January 1, 2008.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 16, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 16, 2009
-54-
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31,
(Dollars in Thousands, Except Per Share Data)
Interest income:
Interest and fees on loans
Interest on mortgage-backed securities
Interest and dividends on investment securities
Interest on investments in reverse mortgages
Other interest income
Interest expense:
Interest on deposits
Interest on Federal Home Loan Bank advances
Interest on federal funds purchased and securities
sold under agreements to repurchase
Interest on trust preferred borrowings
Interest on other borrowings
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income:
Credit/debit card and ATM income
Deposit service charges
Loan fee income
Investment advisory income
Bank-owned life insurance income
Mortgage banking activities, net
Securities gains (losses)
Non-recurring gains, net
Other income
Noninterest expenses:
Salaries, benefits and other compensation
Occupancy expense
Equipment expense
Data processing and operations expense
Marketing expense
Professional fees
Other operating expenses
Income before minority interest and taxes
Less minority interest
Income before taxes
Income tax provision
Net income
Earnings per share:
Basic
Diluted
The accompanying notes are an integral part of these Financial Statements.
-55-
2008
2007
2006
$140,661
23,984
1,331
(1,077)
1,578
166,477
39,809
29,620
2,397
3,275
2,157
77,258
89,219
23,024
66,195
17,229
16,484
3,696
2,395
1,786
148
139
-
4,112
45,989
46,654
8,416
6,174
4,216
3,920
4,082
15,636
89,098
23,086
-
23,086
6,950
$ 16,136
$2.62
$2.57
$159,512
24,237
1,353
2,007
2,368
189,477
57,311
38,561
3,153
4,753
3,690
107,468
82,009
5,021
76,988
19,750
15,419
2,384
2,465
2,269
217
82
1,979
3,601
48,166
43,662
8,280
5,616
4,062
3,911
2,662
13,838
82,031
43,123
$143,629
28,444
1,884
684
2,536
177,177
42,707
45,878
3,790
5,053
1,850
99,278
77,899
2,738
75,161
18,835
12,250
1,824
2,399
3,976
225
(1,981)
-
2,777
40,305
39,369
5,508
4,393
3,511
2,713
2,070
11,750
69,314
46,152
-51
43,123
13,474
$ 29,649
$4.69
$4.55
46,101
15,660
$ 30,441
$4.59
$4.41
CONSOLIDATED STATEMENT OF CONDITION
Year Ended December 31,
(Dollars in Thousands, Except Per Share Data)
Assets
Cash and due from banks
Cash in non-owned ATMs
Federal funds sold
Interest-bearing deposits in other banks
Total cash and cash equivalents
Investment securities held-to-maturity (fair value: 2008-$1,071; 2007-$1,498)
Investment securities available-for-sale including reverse mortgages
Mortgage-backed securities-available-for-sale
Mortgage-backed securities-trading
Loans held-for-sale
Loans, net of allowance for loan losses of $31,189 at December 31, 2008
and $25,252 at December 31, 2007
Bank-owned life insurance
Stock in Federal Home Loan Bank of Pittsburgh, at cost
Assets acquired through foreclosure
Premises and equipment
Accrued interest receivable and other assets
Total assets
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand
Interest-bearing demand
Money market
Savings
Time
Jumbo certificates of deposit - customer
Total customer deposits
Other jumbo certificates of deposit
Brokered deposits
Total deposits
Federal funds purchased and securities sold under agreements to repurchase
Federal Home Loan Bank advances
Trust preferred borrowings
Other borrowed funds
Accrued interest payable and other liabilities
Total liabilities
Minority Interest
Stockholders' Equity:
Serial preferred stock $.01 par value, 7,500,000 shares authorized;
none issued and outstanding
Common stock $.01 par value, 20,000,000 shares authorized; issued 15,739,768
at December 31, 2008 and 15,673,865 at December 31, 2007
Capital in excess of par value
Accumulated other comprehensive loss
Retained earnings
Treasury stock at cost, 9,580,569 shares at December 31, 2008 and 9,507,069
shares at December 31, 2007
Total stockholders' equity
Total liabilities, minority interest and stockholders' equity
The accompanying notes are an integral part of these Financial Statements.
-56-
2008
2007
$ 58,377
189,965
-
216
248,558
1,181
48,507
487,389
10,816
2,275
2,441,560
59,337
39,305
4,471
34,966
54,195
$ 83,936
182,523
-
1,078
267,537
1,516
26,756
484,428
12,364
2,404
2,231,576
57,551
45,537
703
34,851
34,965
$3,432,560
$3,200,188
$ 311,322
214,749
326,792
208,368
450,056
195,846
1,707,133
103,825
311,394
2,122,352
75,000
815,957
67,011
108,777
26,828
$ 290,424
171,363
303,931
196,571
366,717
150,191
1,479,197
98,758
249,206
1,827,161
75,000
898,280
67,011
94,869
26,537
3,215,925
2,988,858
-
-
-
-
157
87,033
(12,613)
390,338
157
83,077
(3,861)
376,682
(248,280)
(244,725)
216,635
$3,432,560
211,330
$3,200,188
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
Balance, December 31, 2005
Comprehensive income:
Net income
Other comprehensive loss (1)
Total comprehensive income
Adjustment to initially apply FASB
Statement No. 158, net of tax $(344)
Cash dividend, $0.31 per share
Issuance of common stock,
including proceeds from exercise
of common stock options
Treasury stock at cost, 103,400 shares
Issuance of restricted stock
Tax benefit from exercises of
common stock options
Balance, December 31, 2006
Comprehensive income:
Net income
Other comprehensive income (1)
Total comprehensive income
Cumulative effect of change in accounting
principle related to the adoption of FIN 48
Cash dividend, $0.38 per share
Issuance of common stock,
including proceeds from exercise of
common stock options
Treasury stock at cost, 564,100 shares
Issuance of restricted stock
Tax liability from exercises of
common stock options
Balance, December 31, 2007
Comprehensive income:
Net income
Other comprehensive income (1)
Total comprehensive income
Cash dividend, $0.46 per share
Issuance of common stock,
including proceeds from exercise of
common stock options
Treasury stock at cost, 73,500 shares
Issuance of restricted stock
Reclassification adjustment of negative
minority interest
Tax benefit from exercises of
common stock options
Balance, December 31, 2008
Capital in
Excess of
Par Value
Accumulated
Other
Comprehensive
Loss
Common
Stock
Retained
Earnings
Treasury
Stock
Total
Stockholders’
Equity
$ 154
$74,673
$(9,968)
$319,065
$(201,949)
$181,975
-
-
-
-
2
-
-
-
-
-
-
4,610
-
286
-
1,956
30,441
-
(561)
-
-
(2,058)
-
-
-
-
-
-
-
-
-
-
-
(6,603)
-
30,441
1,956
32,397
(561)
(2,058)
4,612
(6,603)
286
-
$ 156
2,011
$81,580
-
$(8,573)
-
$347,448
-
$(208,552)
2,011
$212,059
-
-
-
-
(36,173)
-
-
$157
(2,437)
$83,077
-
$(3,861)
-
$376,682
-
$(244,725)
-
-
-
-
1
-
-
-
-
-
-
3,704
-
230
-
-
-
-
-
-
-
-
-
-
2,391
-
202
-
-
4,712
29,649
-
1,988
(2,403)
-
(8,752)
16,136
-
(2,832)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29,649
4,712
34,361
1,988
(2,403)
3,705
(36,173)
230
(2,437)
$211,330
16,136
(8,752)
7,384
(2,832)
2,391
(3,555)
202
-
-
-
-
(3,555)
-
352
-
352
-
$157
1,363
$87,033
-
$(12,613)
-
$390,338
-
$(248,280)
1,363
$216,635
-57-
(1) Other Comprehensive Income:
Net unrealized holding (losses) gains on securities available-for-sale arising during the
period, net of taxes (2008 - $(5,364); 2007 - $2,855; 2006 - $261)
Actuarial gain reclassified to periodic cost,
net of income taxes (2007 - $42)
Transition obligation reclassified to periodic cost,
net of income taxes (2007 - $23)
Net unrealized holding gains arising during the period on derivatives
net of taxes (2006 - $163)
Reclassification for losses (gains) included in income, net of taxes (2007 - $(31);
2006 - $753)
Total other comprehensive (loss) income
The accompanying notes are an integral part of these Financial Statements.
2008
2007
2006
$(8,752)
$4,657
$ 426
-
-
-
68
38
-
-
$(8,752)
(51)
$4,712
-
-
302
1,228
$1,956
-58-
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
(In Thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses
Depreciation, accretion and amortization
(Increase) decrease in accrued interest receivable and other assets
Origination of loans held-for-sale
Proceeds from sales of loans held-for-sale
Gain on mortgage banking activity
Loss on mark to market adjustment on trading securities
Gain on sale of credit card portfolio
Securities gain from the sale of Visa, Inc. common stock
Gain on sale of former headquarters building
(Gain) loss on sale of investments
Stock-based compensation expense, net of tax benefit recognized
Excess tax (benefits) liability from share-based payment arrangements
Minority interest in net income
Increase (decrease) in accrued interest payable and other liabilities
Loss (gain) on sale of assets acquired through foreclosure and valuation adjustments
Increase in value of bank-owned life insurance
Decrease (increase) in capitalized interest, net
Net cash provided by operating activities
Investing activities:
Maturities of investment securities
Sales of investment securities available-for-sale
Purchases of investment securities available-for-sale
Sales of mortgage-backed securities available-for-sale
Repayments of mortgage-backed securities available-for-sale
Purchases of mortgage-backed securities available-for-sale
Repayments on reverse mortgages
Disbursements for reverse mortgages
Purchase of 1st Reverse Financial Services
Acquisition of branches
Sales of loans
Purchase of Cypress Capital Management, LLC
Purchase of ATM vault cash business
Purchases of loans
Payment of bank-owned life insurance
Net increase in loans
Net decrease (increase) in stock of Federal Home Loan Bank of Pittsburgh
Increase in assets acquired through foreclosure, net
Sale of credit card portfolio
Proceeds from the sale of Visa, Inc. shares
Sale of former headquarters building
Deferred gain on sale of partnership interest
Investment in real estate partnership
Premises and equipment, net
Net cash used for investing activities
2008
2007
2006
$ 16,136 $ 29,649
$ 30,441
23,024
6,218
(94)
(31,358)
31,648
(148)
1,616
-
(1,755)
-
-
730
(1,363)
-
1,693
816
(1,786)
1,009
46,386
14,440
-
(37,298)
-
77,856
(95,195)
1,248
(227)
(2,442)
(11,505)
-
-
-
(3,190)
-
(236,674)
6,232
1,674
-
1,755
-
-
-
(4,989)
(288,315)
5,021
4,930
1,142
(27,160)
25,362
(217)
-
(882)
-
(1,093)
(82)
1,222
2,437
-
(3,328)
(20)
(2,269)
(2,007)
32,705
41,893
-
(13,986)
2,690
77,328
(52,507)
3,532
(2,964)
-
-
909
(240)
(440)
(2,656)
-
(221,179)
(5,665)
120
6,295
-
2,436
1,335
1,172
(9,181)
(171,108)
2,738
4,507
(3,066)
(23,914)
21,406
(224)
-
-
-
-
1,981
1,153
(2,011)
51
4,380
41
(3,976)
(1,097)
32,410
13,569
10,991
(20,718)
49,412
102,255
(47,721)
1,347
(476)
-
-
11,379
(466)
-
(9,600)
2,887
(246,432)
6,421
80
-
-
-
-
24
(10,750)
(137,798)
(Continued on next page)
-59-
2008
2007
2006
$ 112,850 $ 82,363
4,256
195,584
$ 56,803
294,365
-
1,600
82,778,987 31,427,417
(82,861,310) (31,313,165)
(2,404)
2,713
(2,437)
(36,173)
(54)
164,116
25,713
-
(2,832)
1,863
1,363
(3,555)
-
222,950
(18,979)
-
(9,750)
8,796,661
(9,021,354)
(2,058)
3,355
2,011
(6,603)
(203)
113,227
7,839
14
-
267,537
20
-
233,951
241,824
$ 248,558 $ 267,537 $ 241,824
$ 80,654 $ 105,969
18,056
415
4,712
333
10,521
6,186
(8,752)
247
$ 98,142
13,597
450
1,395
2,129
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
Year Ended December 31,
(In Thousands)
Financing activities:
Net increase in demand and saving deposits
Net increase in time deposits
Net increase (decrease) in securities sold
under agreement to repurchase
Receipts of FHLB advances
Repayments of FHLB advances
Dividends paid on common stock
Issuance of common stock and exercise of common stock options
Excess tax benefit (liability) from share-based payment arrangements
Purchase of treasury stock, net of re-issuance
Decrease in minority interest
Net cash provided by financing activities
(Decrease) increase in cash and cash equivalents from continuing operations
Net cash provided by operating activities of discontinued operations
Net cash provided by investing activities of
discontinued operations
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosure of Cash Flow Information:
Cash paid in interest during the year
Cash paid for income taxes, net
Loans transferred to assets acquired through foreclosure
Net change in accumulated other comprehensive income
Transfer of loans held for sale to loans
The accompanying notes are an integral part of these Financial Statements.
-60-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
WSFS Financial Corporation (“the Company,” “our Company,” “WSFS”, “we,” “our” or “us”) is a thrift holding
company organized under the laws of the State of Delaware. Our principal wholly-owned subsidiary, Wilmington Savings
Fund Society, FSB (“WSFS Bank” or the “Bank”), is a federal savings bank organized under the laws of the United States
which, at December 31, 2008, serves customers from its main office, 35 retail banking offices, loan production offices and
operations centers located in Delaware, southeastern Pennsylvania and Virginia.
In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses. The material estimates that are particularly susceptible
to significant changes in the near term relate to the allowance for loan losses for impaired loans and the remainder of the loan
portfolios, investment in reverse mortgages, contingencies (including indemnifications) and income taxes.
Although our current estimates contemplate current conditions and how we expect them to change in the future, it is
reasonably possible that in 2009, actual conditions could be worse than anticipated in those estimates, which could
materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as
the allowance for loan losses and lending related commitments, goodwill and intangible assets, post-retirement obligations,
the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could
result in future impairments of investment securities, goodwill and intangible assets and establishment of allowances for
loan losses and lending related commitments as well as increased post-retirement expense.
Basis of Presentation
The Consolidated Financial Statements include the accounts of the parent company, Montchanin Capital Management,
Inc. (Montchanin) and its wholly-owned subsidiary, Cypress Capital Management, LLC (Cypress), WSFS Bank and its wholly-
owned subsidiary, WSFS Investment Group, Inc. WSFS Investment Group, Inc. markets various third-party insurance and
securities products to Bank customers through WSFS’ retail banking system. WSFS Bank also owns a majority interest in 1st
Reverse Financial Services, LLC (1st Reverse), specializing in reverse mortgage lending. Montchanin was formed to provide
asset management products and services. In January 2006 and 2007, Montchanin increased its ownership in Cypress, a
Wilmington-based investment advisory firm servicing high net-worth individuals and institutions, to 90% and 100%,
respectively.
WSFS Capital Trust III (“the Trust”) is an unconsolidated affiliate of ours, and was formed in 2005 to issue $67.0
million aggregate principal amount of Pooled Floating Rate Capital Securities. The proceeds from this issue were used to fund
the redemption of $51.5 million of Floating Rate WSFS Capital Trust I Preferred Securities (formerly WSFS Capital Trust I).
The Trust invested all of the proceeds from the sale of the Pooled Floating Rate Capital Securities in Junior Subordinated
Debentures of the Corporation.
Certain reclassifications have been made to the prior years' Consolidated Financial Statements to conform them to the
current year's presentation. All significant intercompany transactions are eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, cash in non-owned ATMs, cash due
from banks, federal funds sold and securities purchased under agreements to resell.
- 61 -
Debt and Equity Securities
Investments in equity securities that have a readily determinable fair value and investments in debt securities are
classified into three categories and accounted for as follows:
• Debt securities with the positive intention to hold to maturity are classified as "held-to-maturity" and reported at
amortized cost.
•
Debt and equity securities purchased with the intention of selling them in the near future are classified as "trading
securities" and are reported at fair value, with unrealized gains and losses included in earnings.
•
Debt and equity securities not classified in either of the above are classified as "available-for-sale securities" 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.
Debt and equity securities include mortgage-backed securities, municipal bonds, U.S. Government and agency
securities and certain equity securities. Premiums and discounts on debt and equity securities, held-to-maturity and available-
for-sale, are recognized in interest income using a level yield method over the period to expected maturity. The fair value of
debt and equity securities is primarily obtained from third-party pricing services. Implicit in the valuation are estimated
prepayments based on historical and current market conditions.
Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are other
than temporary, result in write-downs of the individual securities to their fair value. We had no other than temporary losses in
2008, 2007 and 2006. The related write-downs are included in earnings as realized losses. Management is required to use its
judgement to determine impairment in certain circumstances. The specific identification method is used to determine realized
gains and losses on sales of investment and mortgage-backed securities. All sales are made without recourse.
Investment in Reverse Mortgages
We account for our investment in reverse mortgages in accordance with the instructions provided by the staff of the
Securities and Exchange Commission (SEC) entitled “Accounting for Pools of Uninsured Residential Reverse Mortgage
Contracts,” which requires grouping the individual reverse mortgages into “pools” and recognizing income based on the
estimated effective yield of the pool. In computing the effective yield, we must project the cash inflows and outflows of the
pool including actuarial projections of the life expectancy of the individual contract holder and changes in the collateral
value of the residence. At each reporting date, a new economic forecast is made of the cash inflows and outflows of each
pool of reverse mortgages; the effective yield of each pool is recomputed, and income is adjusted retroactively and
prospectively to reflect the revised rate of return. Because of this highly specialized accounting, the recorded value of
reverse mortgage assets can result in significant volatility associated with estimations. As a result, income recognition can
vary significantly from reporting period to reporting period.
During the fourth quarter of 2008 we recorded a $1.4 million charge related to a mark-to-market adjustment on the
$12.4 million BBB+ rated mortgage-backed security (MBS) issued in connection with a 2002 reverse mortgage
securitization. Despite this write-down, WSFS expects any holder of this security to recover all principal and interest,
mainly because of its seasoning and it is well over-collateralized. We also recorded a $1.0 million charge (taken through
interest income) related to our second-lien interest in 21 whole-loan reverse mortgages during the fourth quarter of 2008.
Loans
Loans are stated net of deferred fees and costs and unearned discounts. Loan interest income is accrued using various
methods that approximate a constant yield. Loan origination and 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.
- 62 -
A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value
of expected future discounted cash flows, the market price of the loan or the fair value of the underlying collateral if the loan is
collateral dependent. Impaired loans include loans within our commercial, commercial mortgage, commercial construction,
residential mortgages and consumer portfolios. Our policy for recognition of interest income on impaired loans is the same as
for nonaccrual loans discussed below.
Nonaccrual Loans
Nonaccrual loans are those on which the accrual of interest has ceased. Loans are placed on nonaccrual status
immediately if, in the opinion of management, collection is doubtful, or when principal or interest is contractually past due 90
days or more and collateral is insufficient to cover principal and interest. Interest accrued but not collected at the date a loan is
placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan
fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding
principal or recorded as interest income, depending on management's assessment of ultimate collectibility of principal and
interest. Loans are returned to an accrual status when the borrower's ability to make periodic principal and interest payments
has returned to normal (i.e.: brought current with respect to principal or interest or restructured) and the paying capacity of the
borrower or the underlying collateral is deemed sufficient to cover principal and interest in accordance with our previously
established loan-to-value policies.
Allowances for Loan Losses
We maintain allowances for credit losses and charge losses to these allowances when such losses are realized. The
determination of the allowance for loan losses requires significant judgement reflecting management’s best estimate of
probable losses related to specifically identified loans as well as probable losses in the remaining loan portfolio.
Management's evaluation is based upon a review of these portfolios.
Management establishes the loan loss allowance in accordance with guidance provided by the Securities and Exchange
Commission’s Staff Accounting Bulletin 102 (SAB 102). Its methodology for assessing the appropriateness of the allowance
consists of several key elements which include: specific allowances for identified problem loans, formula allowances for
commercial and commercial real estate loans, and allowances for pooled, homogenous loans.
Specific reserves are established for certain loans in cases where management has identified significant conditions or
circumstances related to a specific credit that management believes indicate the probability that a loss has been incurred.
The formula allowances for commercial and commercial real estate loans are calculated by applying estimated loss
factors to outstanding loans based on the internal risk grade of loans. For low risk commercial and commercial real estate loans
the portfolio is pooled, based on internal risk grade, and estimates are based on a ten-year net charge-off history. Higher risk
and criticized loans have loss factors that are derived from an analysis of both the probability of default and the probability of
loss should default occur. Loss adjustment factors are applied based on criteria discussed below. As a result, changes in risk
grades of both performing and nonperforming loans affect the amount of the formula allowance.
Pooled loans are loans that are usually smaller, not-individually-graded and homogeneous in nature, such as consumer
installment loans and residential mortgages. Loan loss allowances for pooled loans are based on a ten-year net charge-off
history. The average loss allowance per homogeneous pool is based on the product’s average annual historical loss rate and the
average estimated duration of the pool multiplied by the pool balances. These separate risk pools are assigned a reserve for loss
based upon this historical loss information and loss adjustment factors.
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Historical loss adjustment factors are based upon management’s evaluation of various current conditions, including
those listed below:
General economic and business conditions affecting WSFS’ key lending areas,
Credit quality trends,
Recent loss experience in particular segments of the portfolio,
Collateral values and loan-to-value ratios,
Loan volumes and concentrations, including changes in mix,
Seasoning of the loan portfolio,
Specific industry conditions within portfolio segments,
Bank regulatory examination results, and
Other factors, including changes in quality of the loan origination, servicing and risk management processes.
Our loan officers and risk managers meet at least quarterly to discuss and review these conditions, and also risks
associated with individual problem loans. In addition, various regulatory agencies, as an integral part of their examination
process, periodically review our allowance for such losses. We also give consideration to the results of these regulatory
agency examinations.
During 2008, the provision for loan losses was affected by changes in estimates used in the calculation. These
changes included additional reserves reflecting the effects of updated loss rate expectations on our loan portfolio. These
changes resulted in an increase to the provision for loan losses of $2.8 million or $0.29 per share.
Allowances for estimated losses on investments in real estate and assets acquired through foreclosure are provided if
the carrying value exceeds the fair value less estimated disposal costs.
During the fourth quarter of 2008, we recorded a $14.9 million provision for loan losses and letter of credit
contingency, which was primarily related to four large construction and land development (CLD) credits.
Assets Held-for-Sale
Assets held-for-sale include loans held-for-sale and are carried at the lower of cost or market of the aggregate or, in
some cases, individual assets.
Assets Acquired Through Foreclosure
Assets acquired through foreclosure are recorded at the lower of the recorded investment in the loans or fair value less
estimated disposal costs. Costs subsequently incurred to improve the assets are included in the carrying value provided that the
resultant carrying value does not exceed fair value less estimated disposal costs. Costs relating to holding the assets are charged
to expense in the current period. An allowance for estimated losses is provided when declines in fair value below the carrying
value are identified. Net costs of assets acquired through foreclosure 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 fair value less estimated disposal costs. During
the fourth quarter of 2008, we booked $700,000 in additional write-downs of values of assets acquired through foreclosure
(REO).
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Costs of major
replacements, improvements and additions are capitalized. Depreciation expense is computed on a straight-line basis over the
estimated useful lives of the assets or, for leasehold improvements, over the effective life of the related lease if less than the
- 64 -
estimated useful life. In general, computer equipment, furniture and equipment and building renovations are depreciated over
three, five and ten years, respectively.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
We enter into sales of securities under agreements to repurchase. Reverse repurchase agreements are treated as
financings, with the obligation to repurchase securities sold reflected as a liability in the Consolidated Statement of Condition.
The securities underlying the agreements are assets. Generally, federal funds are purchased for periods ranging up to 90 days.
Loss Contingency for Standby Letters of Credit
We maintain a loss contingency for standby letters of credit and charge losses to this contingency when such losses are
realized. The determination of the loss contingency for standby letters of credit requires significant judgement reflecting
management’s best estimate of probable losses related to standby letters of credit.
Income Taxes
The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because
of temporary differences between the financial statement basis and tax basis of assets and liabilities.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (“FIN 48”). FIN 48 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. FIN 48 also provides guidance on the accounting for and disclosure of unrecognized tax benefits,
interest and penalties. FIN 48 became effective for us on January 1, 2007, and resulted in a $2.0 million increase to our
retained earnings on that date.
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Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
(In Thousands, Except Per Share Data)
2008
2007
2006
Numerator:
Net income ......................................................................................................
$ 16,136 $ 29,649 $ 30,441
Denominator:
Denominator for basic earnings per share - weighted average shares ...........
Effect of dilutive employee stock options .......................................................
Denominator for diluted earnings per share - adjusted weighted average
shares and assumed exercise ..........................................................................
6,158
132
6,316
194
6,634
270
6,290
6,510
6,904
Earnings per share:
Basic:
Net income ......................................................................................................
$ 2.62
$ 4.69 $ 4.59
Diluted:
Net income ......................................................................................................
$ 2.57
$ 4.55 $ 4.41
Outstanding common stock equivalents having no dilutive effect................
371
194
197
Stock-Based Compensation
Stock-based compensation is accounted for in accordance with Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), Share-Based Payment (SFAS 123R). We adopted SFAS 123R beginning January 1, 2006 using the
Modified Prospective Application Method. The impact of stock-based compensation for 2008 was $851,000 or $0.12 per
share, to salaries, benefits and other compensation, compared to $1.2 million, or $0.16 per share in 2007.
Fair Value of Financial Assets
Effective January 1, 2008, we adopted the provisions of SFAS No. 157, Fair Value Measurements (“SFAS 157”),
for financial assets and financial liabilities. In accordance with FASB Staff Position (FSP) No. 157-2, Effective Date of
FASB Statement No. 157, we will delay application of SFAS 157 for nonfinancial assets and nonfinancial liabilities, until
January 1, 2009.
SFAS 157 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. SFAS 157 establishes a fair value hierarchy that
prioritizes the use of inputs used in valuation methodologies into the following three levels:
Level 1:
Level 2:
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.
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.
- 66 -
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. These valuation methodologies
were applied to all of our financial assets carried at fair value effective January 1, 2008. The table below presents the
balances of assets measured at fair value as of December 31, 2008 (there are no material liabilities measured at fair value):
Description
Quoted
Prices in
Active
Markets for
Identical
Asset
(Level 1)
Assets Measured at Fair Value on a Recurring Basis
Available for sale securities
Trading Securities
Total assets measured at fair value on a recurring basis
$
$
Assets Measured at Fair Value on a Nonrecurring Basis
Impaired Loans
Total assets measured at fair value on a nonrecurring
basis
$
$
-
-
-
-
-
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
(in Thousands)
$ -
$
$
$
535,896
-
10,816 $
535,896 $ 10,816 $
535,896
10,816
546,712
$
22,840
$
22,840
$ -
$
22,840 $ -
$
22,840
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. Any such valuation adjustments have been applied
consistently over time. 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. Securities classified as available for sale are reported at fair value using Level 2
inputs. Included in the Level 2 total are approximately $44.6 million in Federal Agency debentures, $194.7 million in
Federal Agency MBS, $292.7 million of Private Label MBS, and $3.9 million in municipal bonds. Agency and MBS
securities are predominately AAA-rated. We believe that this Level 2 designation is appropriate for these securities under
SFAS 157 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.
- 67 -
Trading securities. The amount included in the trading securities category represents the fair value of a BBB-rated
traunche of a reverse mortgage security. There has never been an active market for these securities. As such, we classify
these trading securities as Level 3 under FAS 157. As prescribed by FAS 157 management used various observable and
unobservable inputs to develop a range of likely fair value prices where this security would be exchanged in an orderly
transaction between market participants at the measurement date. The unobservable inputs reflect management’s
assumptions about the assumptions that market participants would use in pricing this asset. Included in these inputs were
the median of a selection of other BBB-rated securities as well as quoted market prices from higher rated traunches of this
asset class. As a result, the value assigned to this security is determined primarily through a discounted cash flow analysis.
All of these assumptions require a significant degree of management judgment.
The changes in Level 3 assets measured at fair value are summarized as follows:
Balance at January 1, 2008
Total net losses for the period included in net income
Purchases, sales, issuances, and settlements, net
Balance at December 31, 2008
Trading
Securities
(in thousands)
$12,364
(1,548 )
-
$10,816
Impaired loans. Impaired loans, which are measured for impairment using the fair value of the collateral for
collateral dependent loans, had a carrying amount of $22.8 million at December 31, 2008. The valuation allowance on
impaired loans was $395,000 as of December 31, 2008.
2. INVESTMENT SECURITIES
The following tables detail the amortized cost and the estimated fair value of the Company’s investment securities:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
Available-for-sale securities:
December 31, 2008:
Reverse mortgages (1) ...................................
U.S. Government and agencies ....................
State and political subdivisions ....................
$ (61)
43,778
4,020
$ -
857
-
$ - $ (61)
(1) 44,634
3,934
(86)
$ 47,737
$ 857
$ (87)
$ 48,507
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December 31, 2007:
Reverse mortgages (1).....................................
U.S. Government and agencies .......................
State and political subdivisions.......................
$ 2,037 $ -
99
28
$ 127
20,477
4,115
$ 26,629
-
$ - $ 2,037
20,576
- 4,143
$ - $ 26,756
Held-to-maturity:
December 31, 2008:
State and political subdivisions ....................
$ 1,181
$ 1,181
$ -
$ -
$ (110) $ 1,071
$ (110) $ 1,071
December 31, 2007:
State and political subdivisions.......................
$ 1,516
$ 1,516
$ 24
$ 24
$ 42 $ 1,498
$ 42 $ 1,498
(1) See Note 4 to the Consolidated Financial Statements for a further discussion of Reverse Mortgages.
Securities with book values aggregating $45.9 million at December 31, 2008 were specifically pledged as collateral for
WSFS’ Treasury Tax and Loan account with the Federal Reserve Bank, securities sold under agreement to repurchase and
certain letters of credit and municipal deposits which require collateral. Accrued interest receivable relating to investment
securities was $409,000 and $341,000 at December 31, 2008 and 2007, respectively.
The scheduled maturities of investment securities held-to-maturity and securities available-for-sale at December 31,
2008 were as follows:
Within one year (1)...................................................... ...
After one year but within five years ..............................
After five years but within ten years..............................
After ten years ................................................................
Held-to-Maturity
Fair
Amortized
Cost
Value
Available-for-Sale
Amortized Fair
Value
Cost
(In Thousands)
$ -
630
-
551
$ 1,181
$ -
630
-
441
$ 1,071
$ 3,940
42,522
1,275
-
$ 47,737
$ 4,054
43,220
1,233
-
$ 48,507
(1) Reverse mortgages do not have contractual maturities. We have included reverse mortgages in maturities within one year.
There were no sales of investment securities classified as available-for-sale during 2008 and 2007. Municipal bonds
totaling $440,000 were called by the issuers during 2008. Proceeds from the sale of investments classified as available-for-
sale during 2006 was $11.0 million. There were no net losses realized on sales in either 2008 or 2007. There was a net loss of
$41,000 realized on sales in 2006. The cost basis for all investment security sales was based on the specific identification
method. There were no sales of investment securities classified as held-to-maturity in 2008, 2007 and 2006.
At December 31, 2008, we owned investment securities totaling $6.3 million where the amortized cost basis exceeded
fair value. Total unrealized losses on those securities were $197,000 at December 31, 2008. This temporary impairment is the
- 69 -
result of changes in market interest rates since the purchase of the securities and a lack of liquidity in the securities market,
depressing prices. Securities amounting to $265,000 have been impaired for 12 months or longer. We have determined that
these securities are not other than temporarily impaired as these securities carry high credit ratings. In addition, we have the
intent and ability to hold these securities until they recover. The following table includes unrealized losses aggregated by
category:
Less than 12 months 12 months or longer Total
Fair
Value
Unrealized
Loss
Unrealized
Fair
Value Loss
(In Thousands)
Fair
Value
Unrealized
Loss
Held-to-maturity
State and political subdivisions..................
$
92
$ - $ 265 $ 110 $ 357 $ 110
Available-for-sale
State and political subdivisions..................
3,934
U.S Government and agencies…………… 2,053
86 - -
3,934 86
1 - - 2,053 1
Total temporarily impaired investments $ 6,079
$ 87 $ 265 $ 110 $ 6,344 $ 197
3. MORTGAGE-BACKED SECURITIES
The following tables detail the amortized cost and the estimated fair value of the Company’s mortgage-backed
securities:
Gross
Gross
Amortized Unrealized Unrealized
Losses
Gains
Cost
Fair
Value
(In Thousands)
Available-for-sale securities:
December 31, 2008:
Collateralized mortgage obligations .....................
FNMA ......................................................................
FHLMC ....................................................................
GNMA.......................................................................
Weighted average yield ...........................................
December 31, 2007:
Collateralized mortgage obligations .........................
FNMA .......................................................................
FHLMC......................................................................
GNMA .......................................................................
$419,177
35,578
30,477
22,536
$507,768
5.30%
$ 2,595
932
830
992
$ 5,349
$407,113
35,654
31,357
15,923
$490,047
$ 856
-
34
-
$ 890
Weighted average yield .............................................
4.85%
- 70 -
$ 25,728
-
$396,044
36,510
- 31,307
23,528
$487,389
-
$ 25,728
$ 4,440
1,009
$403,529
34,645
937 30,454
15,800
$484,428
123
$ 6,509
Trading securities:
December 31, 2008:
Collateralized mortgage obligations ......................
Weighted average yield ...........................................
December 31, 2007:
Collateralized mortgage obligations..........................
Weighted average yield .............................................
$ 10,816
$ 10,816
3.47%
$ 12,364
$ 12,364
7.79%
$ -
$ -
$ -
$ -
$ 10,816
$ 10,816
$ -
$ -
$ -
$ -
$ 12,364
$ 12,364
The portfolio of available-for-sale mortgage-backed securities consists primarily of AAA-rated, currently cash flowing
securities, backed by conventional 10 to 30-year mortgages. The weighted average duration of the mortgage-backed securities
was 2.9 years at December 31, 2008.
At December 31, 2008, mortgage-backed securities with par values aggregating $314.5 million were pledged as
collateral for retail customer repurchase agreements and municipal deposits. Accrued interest receivable relating to mortgage-
backed securities was $2.1 million and $2.0 million at both December 31, 2008 and 2007, respectively. From time to time,
mortgage-backed securities are pledged as collateral for Federal Home Loan Bank (FHLB) borrowings. The fair value of these
pledged mortgage-backed securities at December 31, 2008 and 2007 was $16.0 million and $218.8 million, respectively. There
were no sales of mortgage-backed securities available-for-sale in 2008. In 2007, proceeds from the sale of mortgage-backed
securities available-for-sale were $2.7 million, resulting in a gain of $82,000. The cost basis of all mortgage-backed sales is
based on the specific identification method.
We own $12.4 million par value of SASCO RM-1 2002 securities which are classified as trading. $10.0 million was
originally received as partial consideration for the sale of a previously owned reverse mortgage portfolio, an additional $1.0
million was purchased at par at the time of the securitization of these assets by a third party, and $1.4 million of accrued interest
was paid in kind. The current fair value of this security is $10.8 million which includes a negative $1.6 million mark-to-market
adjustment for 2008. These floating rate notes represent the BBB+ rated traunche of a reverse mortgage securitization
underwritten by Lehman Brothers and carry a coupon rate of one-month London InterBank Offered Rate (LIBOR) plus 300
basis points. We expect to recover all principal and interest, because of seasoning and the fact hat these securities are well
over-collateralized. For a further discussion of reverse mortgages, see the Reverse Mortgages discussion in Management’s
Discussion and Analysis and Note 4 to the Consolidated Financial Statements.
Based on SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), when these
securities were acquired they were classified as trading. It was our intention to sell them in the near term. An active market for
these securities has not developed since the issuance. Since there is no active market for these securities, we have used the
guidance under SFAS 157 to provide a reasonable estimate of fair value in 2008. We estimated the value of these securities as
of December 31, 2008 based on the pricing of BBB+ securities that have an active market through a technique which estimates
the fair value of this asset using the income approach.
At December 31, 2008, we owned mortgage-backed securities totaling $286.4 million where the amortized cost basis
exceeded fair value. Total unrealized losses on those securities were $25.7 million at December 31, 2008. This temporary
impairment is the result of changes in market interest rates since the purchase of the securities and a lack of liquidity in the
mortgage-backed securities market, depressing prices. Most of these securities have been impaired for less than twelve
months. We have determined that these securities are not “other than temporarily” impaired as these mortgage-backed
securities carry high credit ratings. In addition, we have the intent and ability to hold these securities until they recover. The
following table lists the unrealized losses aggregated by category:
- 71 -
Less than 12 months 12 months or longer Total
Fair
Value Loss
Unrealized
Fair
Value Loss
Unrealized
Fair
Value
Unrealized
Loss
Available-for-sale
CMO ..........................................................
FNMA........................................................
FHLMC .....................................................
GNMA.......................................................
$ 249,118
-
-
-
$ 23,536 $ 37,298
- -
- -
- -
$ 2,192 $286,416 $ 25,728
-
-
-
- -
-
-
-
-
(In Thousands)
Total temporarily impaired MBS ............
$249,118 $ 23,536 $37,298 $ 2,192 $286,416 $ 25,728
4. REVERSE MORTGAGES AND RELATED ASSETS
We hold an investment in reverse mortgages of $(61,000) at December 31, 2008 representing a participation in
reverse mortgages with a third party. The loans supporting this balance were originated in the early 1990’s.
These reverse mortgage loans are contracts that require the lender to make monthly advances throughout the
borrower’s life or until the borrower relocates, prepays or the home is sold, at which time the loan becomes due and payable.
Reverse mortgages are nonrecourse obligations, which means that the loan repayments are generally limited to the net sale
proceeds of the borrower’s residence.
We account for our investment in reverse mortgages by estimating the value of the future cash flows on the reverse
mortgages at a rate deemed appropriate for these mortgages, based on the market rate for similar collateral. Actual cash flows
from these mortgage loans can result in significant volatility in the recorded value of reverse mortgage assets. As a result,
income varies significantly from reporting period to reporting period. For the year ended December 31, 2008, the Company
lost $1.1 million in interest income on reverse mortgages as compared to posting income of $2.0 million in 2007 and $684,000
in 2006. The loss in 2008 primarily resulted from the decrease in the values of the properties securing these mortgages, based
on annual re-evaluations and consistent with the decrease in home values over the past year.
The projected cash flows depend on assumptions about life expectancy of the mortgagee and the future changes in
collateral values. Projecting the changes in collateral values is the most significant factor impacting the volatility of reverse
mortgage values. The current assumptions include a short-term annual depreciation rate of -8.0% in the first year, and a
long-term annual appreciation rate of 0.5% in future years. If the long-term appreciation rate was increased to 1.5%, the
resulting impact on income would have been $26,000. Conversely, if the long-term appreciation rate was decreased to -
0.5%, the resulting impact on income would have been $(22,000).
We also hold $10.8 million in BBB+ rated mortgage-backed securities classified as trading and have options to acquire
up to 49.9% of Class “O” Certificates issued in connection with securities consisting of a portfolio of reverse mortgages we
previously owned. The Class “O” Certificates are currently recorded on our financial statements at a zero value. At the time of
the securitization, the third party securitizer (Lehman Brothers) retained 100% of the Class “O” Certificates from the
securitization. These Class “O” Certificates have no priority over other classes of Certificates under the Trust and no
distributions will be made on the Class “O” Certificates until, among other conditions, the principal amount of each other
class of notes has been reduced to zero. The underlying assets, the reverse mortgages, are long-term assets. Hence, any
cash flow that might inure to the holder of the Class “O” Certificates is not expected to occur until 2014. Additionally, the
Company can exercise its option on 49.9% of the Class “O” Certificates in up to five separate increments for an aggregate
purchase price of $1.0 million any time between January 1, 2004 and the termination of the Securitization Trust. The option
- 72 -
to purchase the Class “O” Certificates does not meet the definition of a derivative under SFAS No. 133, Accounting for
Derivative and Hedging Activities. This certificate is an equity security with no readily determinable fair value; as such, it is
excluded from the accounting treatment promulgated under SFAS 115. As a result, the option is carried at cost (which is zero).
During the third quarter of 2008 Lehman Brothers Holdings filed for bankruptcy. We are currently in discussions with
legal counsel to determine our legal rights with respect to the Class “O” certificates.
5. LOANS
The following table details our loan portfolio:
December 31,
(In Thousands)
Real estate mortgage loans:
Residential (1-4 family)
Other
Real estate construction loans
Commercial loans
Consumer loans
Less:
Deferred fees (costs), net
Allowance for loan losses
Net loans
2008
2007
$ 422,740
558,979
251,508
942,920
296,728
2,472,875
$ 447,435
465,928
276,939
787,538
278,272
2,256,112
126
31,189
$2,441,560
(716)
25,252
$2,231,576
We had impaired loans of approximately $28.4 million at December 31, 2008 compared to $31.8 million and $3.8
million at December 31, 2007 and 2006, respectively. A loan is impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.
The average recorded balance of impaired loans was $29.5 million, $10.0 million and $3.6 million during 2008, 2007 and
2006, respectively. The allowance for losses on impaired loans was $395,000, $738,000 and $369,000 at December 31,
2008, 2007 and 2006, respectively. There was no interest income recognized on impaired loans.
The total amount of loans serviced for others were $268.8 million, $255.0 million and $265.5 million at December
31, 2008, 2007 and 2006, respectively. We received fees from the servicing of loans of $650,000, $718,000 and $724,000
during 2008, 2007 and 2006, respectively.
We record mortgage-servicing rights on our mortgage loan-servicing portfolio. Mortgage servicing rights represent
the present value of the future net servicing fees from servicing mortgage loans acquired or originated by us. The value of
these servicing rights was $329,000 and $588,000 at December 31, 2008 and 2007, respectively. The total of our servicing
portfolio was $76.5 million and $81.9 million for December 31, 2008 and 2007, respectively. Mortgage loans serviced for
others are not included in loans on the accompanying Consolidated Statement of Condition. Changes in the valuation of
these servicing rights resulted in $(259,000) and $144,000 of noninterest income during 2008 and 2007, respectively.
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 on the Consolidated Statement of Operations.
Accrued interest receivable on loans outstanding was $7.5 million and $10.4 million at December 31, 2008 and
2007, respectively.
- 73 -
Nonaccruing loans aggregated $28.4 million, $31.8 million and $3.8 million at December 31, 2008, 2007 and 2006,
respectively. If interest on all such loans had been recorded in accordance with contractual terms, net interest income would
have increased by $1,955,000 in 2008, $790,000 in 2007 and $159,000 in 2006.
A summary of changes in the allowance for loan losses follows:
Year Ended December 31,
(In Thousands)
Beginning balance
Provision for loan losses
Loans charged-off (1)
Recoveries (2)
Ending balance
2008
2007
2006
$25,252
23,024
(17,839)
752
$31,189
$27,384
5,021
(8,049)
896
$25,252
$25,381
2,738
(1,418)
683
$27,384
(1) 2008 and 2007 include $940,000 and $1.4 million of overdraft charge-offs, respectively. Prior to 2006, these amounts were recognized in
other operating expenses.
(2) 2008 and 2007 include $383,000 and $446,000 of overdraft recoveries, respectively. Prior to 2006, these amounts were recognized in other
operating expenses.
6. ASSETS ACQUIRED THROUGH FORECLOSURE
Assets acquired through foreclosure are summarized as follows:
December 31,
(In Thousands)
Real estate
Less allowance for losses
7. PREMISES AND EQUIPMENT
2008
2007
$ 4,471
-
$703
-
$ 4,471
$703
Land, office buildings, leasehold improvements and furniture and equipment, at cost, are summarized by major
classifications:
December 31,
(In Thousands)
Land
Buildings
Leasehold improvements
Furniture and equipment
Less:
Accumulated depreciation
2008
2007
$ 4,422
10,797
22,990
29,892
68,101
33,135
$34,966
$ 4,415
10,713
20,967
27,817
63,912
29,061
$34,851
The Corporation occupies certain premises and operates certain equipment under noncancelable leases with terms ranging
primarily from 1 to 25 years including some with renewal options. These leases are accounted for as operating leases.
Accordingly, lease costs are expensed as incurred. Rent expense was $5.0 million in 2008, $4.5 million in 2007 and $2.4
million in 2006. Future minimum payments under these leases at December 31, 2008 are as follows:
- 74 -
(In Thousands)
2009
2010
2011
2012
2013
Thereafter
Total future minimum lease payments
$ 5,323
5,100
4,960
4,407
4,128
30,698
$54,616
8. DEPOSITS
The following is a summary of deposits by category, including a summary of the remaining time to maturity for time deposits:
December 31,
(In Thousands)
Money market and demand:
Noninterest-bearing demand
Interest-bearing demand
Money market
Total money market and demand
Savings
Customer certificates of deposit by maturity:
Less than one year
One year to two years
Two years to three years
Three years to four years
Over four years
Total customer time certificates
Jumbo certificates of deposit--customer, by maturity:
Less than one year
One year to two years
Two years to three years
Three years to four years
Over four years
Total jumbo certificates of deposit--customer
Subtotal retail deposits
- 75 -
2008
2007
$ 311,322
214,749
326,792
852,863
$ 290,424
171,363
303,931
765,718
208,368
196,571
287,546
107,593
9,681
42,161
3,075
450,056
144,925
32,399
1,463
16,795
264
195,846
1,707,133
320,474
40,191
3,234
1,022
1,796
366,717
140,353
9,569
102
-
167
150,191
1,479,197
Other jumbo certificates of deposit--by maturity:
Less than one year
One year to two years
Two years to three years
Three years to four years
Over four years
Total other jumbo time certificates
Brokered deposits less than one year
Total deposits
Interest expense by category follows:
Year Ended December 31,
(In Thousands)
Interest-bearing demand
Money market
Savings
Customer time deposits
Total customer interest expense
Other jumbo certificates of deposit
Brokered deposits
Total interest expense on deposits
9. BORROWED FUNDS
The following is a summary of borrowed funds by type:
103,825
-
-
-
-
103,825
98,582
176
-
-
-
98,758
311,394
249,206
$2,122,352
$1,827,161
2008
2007
2006
$ 1,064
5,909
736
20,775
28,484
3,091
8,234
$39,809
$ 1,393
11,870
1,679
22,357
37,299
5,176
14,836
$57,311
$ 785
8,090
2,237
15,309
26,421
4,100
12,186
$42,707
Balance at
End of
Period
Weighted
Average
Interest
Rate
Maximum
Outstanding
at Month
End
During the
Period
Weighted
Average
Interest
Rate
Average
Amount
Outstanding
During the During the
Period
Period
2008
(Dollars in Thousands)
FHLB advances .....................................................................................
Trust preferred borrowings .................................................................
Federal funds purchased and securities
sold under agreements to repurchase ...............................................
Other borrowed funds .........................................................................
$ 815,957
67,011
2.74%
3.97
75,000
108,777
1.87
0.79
$942,922
67,011
99,999
127,556
$841,005
67,011
75,844
110,237
2007
FHLB advances .......................................................................................
Trust preferred borrowings......................................................................
Federal funds purchased and securities
sold under agreements to repurchase ...................................................
Other borrowed funds .............................................................................
4.23%
6.89
4.46
3.84
$936,302
67,011
$765,974
67,011
75,000
95,087
60,649
86,602
$898,280
67,011
75,000
94,869
- 76 -
3.46%
4.81
3.11
1.96
4.97%
7.00
5.13
4.26
Federal Home Loan Bank Advances
Advances from the FHLB of Pittsburgh with rates ranging from 0.57% to 5.45% at December 31, 2008 are due as
follows:
2009 ..............................................................................................
2010 ..............................................................................................
2011 ..............................................................................................
2012 - 2013...................................................................................
Weighted
Average
Rate
Amount
(Dollars in Thousands)
$471,562
215,517
86,855
42,023
$815,957
1.98%
3.74
3.64
4.27
Pursuant to collateral agreements with the FHLB, advances are secured by qualifying first mortgage loans, qualifying
fixed-income securities, FHLB stock and an interest-bearing demand deposit account with the FHLB.
As a member of the FHLB of Pittsburgh, we are required to acquire and hold shares of capital stock in the FHLB of
Pittsburgh in an amount at least equal to 4.65% of its advances (borrowings) from the FHLB of, plus 0.65% of the unused
borrowing capacity. We were in compliance with this requirement with a stock investment in FHLB of Pittsburgh of $39.3
million at December 31, 2008. This stock is carried on the accompanying Consolidated Statement of Condition at cost, which
approximates liquidation value.
In December 2008, the FHLB of Pittsburgh announced the suspension of both dividend payments and the repurchase of
capital stock until such time as it determines it becomes prudent to reinstate both. During 2008 we received $1.5 million in
dividends from the FHLB of Pittsburgh.
Eight advances are outstanding at December 31, 2008 totaling $180.0 million, with a weighted average rate of 4.37%
maturing in 2009 and beyond. They are convertible on a quarterly basis (at the discretion of the FHLB) to a variable rate
advance based upon the three-month LIBOR rate, after an initial fixed term. If any of these advances convert, WSFS has the
option to prepay these advances at predetermined times or rates.
Trust Preferred Borrowings
On April 6, 2005, we completed the issuance of $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. The proceeds from this issuance were
used to fund the redemption of $51.5 million of Floating Rate Capital Trust I Preferred Securities.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
During 2008, we purchased federal funds as a short-term funding source. At December 31, 2008, we had purchased $50.0
million in federal funds at a rate of 0.38%. At December 31, 2007, we also had $50.0 million federal funds purchased.
During 2008, we sold securities under agreements to repurchase as a funding source. At December 31, 2008, securities
sold under agreements to repurchase had a fixed rate of 4.87%. The underlying securities are mortgage-backed securities with a
book value of $29.5 million at December 31, 2008. Securities sold under agreements to repurchase with the corresponding
carrying and market values of the underlying securities are due as follows:
- 77 -
Borrowing
Amount
Rate
Collateral
Market
Carrying
Value
Value
Accrued
Interest
(Dollars in Thousands)
2008
Over 90 days .............................
$ 25,000
4.87%
$ 29,500
$ 30,223
$
101
2007
Up to 30 days..............................
$ 25,000
4.87%
$ 29,086
$ 28,155
$ 99
Other Borrowed Funds
Included in other borrowed funds are collateralized borrowings of $108.8 million and $94.9 million at December 31, 2008
and 2007, 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. The average rates on these borrowings were 0.79% and 3.84% at December 31, 2008 and 2007,
respectively.
10. STOCKHOLDERS' EQUITY
Under Office of Thrift Supervision (OTS) capital regulations, savings institutions such as WSFS, must maintain “tangible”
capital equal to 1.5% of adjusted total assets, “core” capital equal to 4.0% of adjusted total assets, “Tier 1” capital equal to 4.0%
of risk-weighted assets and “total” or “risk-based” capital (a combination of core and “supplementary” capital) equal to 8.0% of
risk-weighted assets. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional
discretionary – actions by regulators that, if undertaken, could have a direct material effect on WSFS’ Financial Statements. At
December 31, 2008 and 2007, WSFS was in compliance with regulatory capital requirements and was deemed a “well-
capitalized” institution.
The following table presents WSFS’ consolidated capital position as of December 31, 2008 and 2007:
Consolidated
Bank Capital
Amount
Percent
For Capital
Adequacy Purposes
Amount
Percent
To Be Well-Capitalized
Under Prompt Corrective
Action Provisions
Amount
Percent
(In Thousands)
As of December 31, 2008:
Total Capital (to risk-weighted assets)
Core Capital (to adjusted tangible assets)
Tangible Capital (to tangible assets)
Tier 1 Capital (to risk-weighted assets)
$304,680
274,221
274,221
274,221
11.00% $221,561
137,303
7.99
51,489
7.99
110,780
9.90
8.00%
4.00
1.50
4.00
$276,951
171,629
N/A
166,170
10.00%
5.00
N/A
6.00
As of December 31, 2007:
Total Capital (to risk-weighted assets)
Core Capital (to adjusted tangible assets)
Tangible Capital (to tangible assets)
Tier 1 Capital (to risk-weighted assets)
$304,992
276,327
276,327
276,327
12.31%
8.63
8.63
11.16
$198,156
128,033
48,012
99,078
8.00%
4.00
1.50
4.00
$247,696
160,041
N/A
148,617
10.00%
5.00
N/A
6.00
- 78 -
We have a simple capital structure with one class of $0.01 par common stock outstanding, each share having equal voting
rights. In addition, we have authorized 7,500,000 shares of $0.01 par preferred stock. No preferred stock was outstanding at
December 31, 2008 and 2007. When infused into the Bank, the Trust Preferred Securities issued in 2005 qualify as Tier 1
capital. We are prohibited from paying any dividend or making any other capital distribution if, after making the distribution,
we would be undercapitalized within the meaning of the OTS Prompt Corrective Action regulations. Since 1996, the Board of
Directors has approved several stock repurchase programs to reacquire common shares. As part of these programs, we acquired
approximately 73,500 shares in 2008 for $3.6 million and 564,100 shares in 2007 for $36.2 million.
The Holding Company
In April 2005, WSFS Capital Trust III, an unconsolidated affiliate of WSFS Financial Corporation, issued $67.0 million of
aggregate principle of Pooled Floating Rate Securities at a variable interest rate of 177 basis points over the three-month
LIBOR rate. The proceeds were used to refinance the WSFS Capital Trust I November 1998 issuance of $51.5 million of Trust
Preferred Securities which had a variable rate of 250 basis points over the three-month LIBOR rate. At December 31, 2008, the
coupon rate of the Capital Trust III securities was 3.97% with a scheduled maturity of June 1, 2035. The effective rate will
vary, however, due to fluctuations in interest rates. The proceeds from the issue were invested in Junior Subordinated
Debentures issued by WSFS Financial Corporation. These securities are treated as borrowings with the interest included in
interest expense on the Consolidated Statement of Operations. In addition, we had an interest-rate cap with a notional amount
of $50.0 million, which limited the three-month LIBOR to 6.00%. This cap expired on December 1, 2008. Additional
information concerning the Trust Preferred Securities and the interest rate cap is included in Notes 9 and 18 to the Consolidated
Financial Statements. The proceeds were used primarily to extinguish higher rate debt and for general corporate purposes.
Pursuant to federal laws and regulations, WSFS' ability to engage in transactions with affiliated corporations is limited,
and WSFS generally may not lend funds to nor guarantee indebtedness of the Company.
11. ASSOCIATE (EMPLOYEE) 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 our common stock. Generally, the principal and earnings thereon are tax deferred until withdrawn. We match a
portion of the Associates' contributions and periodically make discretionary contributions based on our performance into the
plan for the benefit of Associates. Our total cash contributions to the plan on behalf of our Associates resulted in a cash
expenditure of $1.8 million, $1.7 million and $1.6 million for 2008, 2007 and 2006, respectively.
Effective November 2007, all of our discretionary contributions are invested in accordance with the Associates’
selection of investments. If Associates do not designate how discretionary contributions are to be invested, 80% will be
invested in a balanced fund and 20% will be invested in our common stock. Associates may make transfers to various other
investment vehicles within the plan without any significant restrictions. The plan purchased 10,000, 25,000, and 13,000 shares
of our common stock during 2008, 2007 and 2006, respectively.
Postretirement Benefits
We share certain costs of providing health and life insurance benefits to retired Associates (and their eligible
dependents). Substantially all Associates may become eligible for these benefits if they reach normal retirement age while
working for us.
- 79 -
We account for our obligations under the provisions of SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions (SFAS 106). SFAS 106 requires that the costs of these benefits be recognized over an
Associate's active working career. Amortization of unrecognized net gains or losses resulting from experience different from
that assumed and from changes in assumptions is included as a component of net periodic benefit cost over the remaining
service period of active employees to the extent that such gains and losses exceed 10% of the accumulated postretirement
benefit obligation, as of the beginning of the year.
On December 31, 2006, we adopted the recognition and disclosure provisions of SFAS No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). SFAS 158 requires that we recognize
the funded status of our defined benefit postretirement plan in our statement of financial position, with a corresponding
adjustment to accumulated other comprehensive income, net of tax. The adjustment to accumulated other comprehensive
income at adoption represented the net unrecognized actuarial losses and unrecognized transition obligation remaining from
the initial adoption of SFAS No. 87, Employers’ Accounting for Pensions (SFAS 87), all of which were previously netted
against the plan’s funded status in our statement of financial position pursuant to the provisions of SFAS 87. These amounts
will be subsequently recognized as net periodic pension costs pursuant to our 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 SFAS 158.
The incremental effect of adopting the recognition and disclosure provisions of SFAS 158 on our Consolidated
Statement of Condition at December 31, 2006 was a $905,000 (pretax) decrease in other comprehensive income. This included
a net actuarial loss of $537,000 and a net transition obligation of $368,000. Also related to the adoption of SFAS 158, the
Company recorded a deferred tax asset of $344,000 and a corresponding liability of $905,000. During 2009, the Company
expects to recognize $18,000 in expense relating to the amortization of the net actuarial loss and $61,000 in expense relating to
the amortization of the net transition obligation.
- 80 -
The following disclosures relating to postretirement benefits were measured at December 31, 2008:
2008
2007
2006
(Dollars in Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss/(gain)
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Funded status:
Funded status
Unrecognized transition obligation
Unrecognized net loss
Recognized net loss
Net amount recognized
Components of net periodic benefit cost:
Service cost
Interest cost
Amortization of transition obligation
Net loss recognition
Net periodic benefit cost
$ 2,339
142
137
56
(172)
$ 2,502
$ -
172
(172)
$ -
$(2,502)
-
-
774
$(1,728)
$ 142
137
61
16
$ 356
$ 2,233
137
125
(29)
(127)
$ 2,339
$ -
127
(127)
$ -
$(2,339)
--
--
795
$(1,544)
$ 137
125
61
19
$ 342
$ 2,287
108
93
(110)
(145)
$ 2,233
$ -
145
(145)
$ -
$(2,233)
905
$(1,328)
$108
93
61
-
$ 262
Assumptions used to determine net periodic benefit cost:
Discount rate
Health care cost trend rate
Sensitivity analysis of health care cost trends:
Effect of +1% on service cost plus interest cost
Effect of –1% on service cost plus interest cost
Effect of +1% on APBO
Effect of –1% on APBO
Assumptions used to value the Accumulated Postretirement Benefit
Obligation (APBO):
Discount rate
Health care cost trend rate
Ultimate trend rate
Year of ultimate trend rate
6.00%
5.00%
5.75%
5.00%
5.50%
5.00%
$ (12)
9
(89)
72
$ (7)
77
(74)
63
$ (8)
(76)
66
5.75%
5.00%
5.00%
2008
6.00%
5.00%
5.00%
2005
5.75%
5.00%
5.00%
2005
- 81 -
Estimated future benefit payments:
The following table shows the expected future payments for the next ten years:
During 2009
During 2010
During 2011
During 2012
During 2013
During 2014 through 2018
$ 113
112
111
115
117
640
$ 1,208
We assume that the average annual rate of increase for medical benefits will remain flat and stabilize at an average
increase of 5% 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 the Company. For 2008, this annual premium cap amounted to $2,400 per retiree. We estimate that we will
contribute approximately $113,000 to the plan during fiscal 2009.
We have three additional plans. They are a Supplemental Pension Plan with a corresponding liability of $700,000, an
Early Retirement Window Plan with a corresponding liability of $464,000 and a Director’s Plan with a corresponding liability
of $113,000.
12. TAXES ON INCOME
The Company and its subsidiaries file a consolidated federal income tax return and separate state income tax returns.
Our income tax provision consists of the following:
Year Ended December 31,
(In Thousands)
Current income taxes:
Federal taxes
State and local taxes
Deferred income taxes:
Federal taxes
State and local taxes
Total
2008
2007
2006
$9,741
119
(2,910)
-
$10,389
2,274
811
-56
$14,662
2,278
(1,336)
$6,950
$13,474
$15,660
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 our deferred tax assets and liabilities as of December 31, 2008 and 2007:
- 82 -
(In Thousands)
Deferred tax liabilities:
Accelerated depreciation
Other
Prepaid expenses
Deferred loan costs
Total deferred tax liabilities
Deferred tax assets:
Bad debt deductions
Tax credit carryforwards
Net operating loss carryforwards
Capital loss carryforwards
Loan fees
Reserves and other
Deferred gains
Unrealized losses on available-for-sale securities
Total deferred tax assets
Valuation allowance
Net deferred tax asset
2008
2007
$ (802)
(99)
(1,556)
(1,959)
(4,416)
$ (618)
(24)
(1,505)
(2,100)
(4,247)
10,916
150
-
-
20
4,379
542
7,731
23,738
8,838
150
2,482
93
3
2,732
439
2,366
17,103
-
$19,322
(2,178)
$10,678
Included in the table above is the effect of certain temporary differences for which no deferred tax expense or
benefit was recognized. Such items consisted primarily of unrealized gains and losses on certain investments in debt and
equity securities accounted for under SFAS 115. Also included above are $369,000 of deferred tax assets recorded in
conjunction with the acquisition of 1st Reverse.
Based on our history of prior earnings and our expectations of the future, it is anticipated that operating income and
the reversal pattern of its temporary differences will, more likely than not, be sufficient to realize a net deferred tax asset of
$19.3 million at December 31, 2008. Adjustments to decrease gross deferred tax assets and the related valuation allowance
in the amount of $2,028,000, $473,000 and $51,000 were made in 2008, 2007 and 2006, respectively, to reflect federal and
state tax net operating losses that have expired. No federal or state net operating losses remain at December 31, 2008.
A reconciliation setting forth the differences between our effective tax rate and the U.S. Federal statutory tax rate is
as follows:
Year Ended December 31,
Statutory federal income tax rate
State tax net of federal tax benefit
Interest income 50% excludable
Bank-owned life insurance income
Charitable donation
Incentive stock option compensation
Other
Effective tax rate
2008
35.0%
0.3
(3.2)
(2.7)
-
0.7
-
30.1%
2007
35.0%
3.4
(1.7)
(1.8)
(5.0)
0.5
0.8
31.2%
2006
35.0%
3.2
(1.6)
(3.0)
-
0.6
(0.2)
34.0%
- 83 -
During 2007, we donated an N.C. Wyeth mural which was previously displayed in our former headquarters. The
estimated fair value of the mural was $6.0 million, which was recorded as a charitable contribution expense. We recognized a
related offsetting gain on the transfer of the asset during 2007. The expense and offsetting gain was shown net in our
Consolidated Financial Statements. As the gain on the transfer of the asset is permanently excludible from taxation, the
charitable contribution transaction results in a permanent deduction for income tax purposes. The amount of the deduction
represents an income tax uncertainty because it is subject to evaluation by the Internal Revenue Service.
We record interest and penalties on potential income tax deficiencies as income tax expense. Federal tax years
2007 and 2008 remain subject to examination as of December 31, 2008, while tax years 2005 through 2008 remain subject
to examination by state taxing jurisdictions. The IRS audit of our 2004, 2005 and 2006 federal income tax returns was
completed during 2008. No state income tax return examinations are currently in process. We believe it is reasonably
possible that between $500,000 and $1.0 million of unrecognized state tax benefits, net of federal tax, will be realized
during 2009 as a result of the expiration of statutes of limitations. It is also reasonably possible that between $100,000 and
$200,000 of additional reserves will be established during 2009 related to interest on existing unrecognized tax benefits.
During 2007, an additional $3.6 million tax reserve was established related primarily to the Internal Revenue
Service (“IRS”) disallowance of the deduction for certain compensation in prior periods. This adjustment was the result of a
routine IRS audit of our 2004 through 2006 tax years. Because the original tax benefit for this item was recorded as an
increase to equity, $3.4 million of the tax liability was recorded as a reduction to equity in 2007. Even though this matter
was not yet settled, standards under FIN 48 required this reserve to be established during 2007. In order to stop interest
from accruing on this tax liability until the matter could be resolved through the IRS appeals process, we deposited the
entire $3.4 million, plus interest in 2007 so that no reserve remained for this matter as of December 31, 2007. During 2008
we successfully completed the IRS appeal process and recovered $863,000 of taxes plus $145,000 of interest that were
previously assessed during the audit phase. The tax recovery was recorded as an increase to equity in 2008 while the interest
received was recorded as a reduction of income tax expense.
The total amount of unrecognized tax benefits as of December 31, 2008 was $2.6 million, of which $2.1 million
would affect our effective tax rate if recognized. The total amount of accrued interest and penalties included in such
unrecognized tax benefits were $572,000 and $0, respectively, of which $175,000 was recorded as expense in 2008. A
reconciliation of the total amounts of unrecognized tax benefits during 2008 is as follows:
(In Thousands)
Unrecognized tax benefits at December 31, 2007
Additions as a result of tax positions taken during prior years
Additions as a result of tax positions taken during current year
Reductions relating to settlements with taxing authorities
Reductions as a result of a lapse of statues of limitations
Unrecognized tax benefits at December 31, 2008
13. STOCK-BASED COMPENSATION
$ 2,632
676
-
-
(723)
$2,585
Stock-based compensation is accounted for in accordance with SFAS 123R. We have stock options outstanding under
two plans (collectively, “Stock Incentive Plans”) for officers, directors and Associates of the Company and its subsidiaries.
After shareholder approval in 2005, the 1997 Stock Option Plan (“1997 Plan”) was replaced by the 2005 Incentive Plan (“2005
Plan”). No future awards may be granted under the 1997 Plan. The 2005 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 2005 Plan is
862,000. At December 31, 2008, there were 327,851 shares available for future grants under the 2005 Plan.
The Stock Incentive Plans provide for the granting of incentive stock options as defined in Section 422 of the Internal
Revenue Code as well as nonincentive stock options (collectively, “Stock Options”). Additionally, the 2005 Plan provides for
- 84 -
the granting of stock appreciation rights, performance awards, restricted stock and restricted stock unit awards, deferred stock
units, dividend equivalents, other stock-based awards and cash awards. All Stock Options are to be granted at not less than the
market price of our common stock on the date of the grant. All Stock Options granted during 2008 vest in 25% per annum
increments, start to become exercisable one year from the grant date and expire in five years from the grant date. Generally, all
awards become immediately exercisable in the event of a change in control, as defined within the Stock Incentive Plans.
A summary of the status of our Stock Incentive Plans as of December 31, 2008, 2007 and 2006, and changes during
the years then ended is presented below:
2008
Weighted-
Average
2007
2006
Weighted-
Average
Weighted-
Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Stock Options:
Outstanding at beginning of year 722,582
33,250
Granted
(60,240 )
Exercised
(19,705 )
Forfeited
675,887
Outstanding at end of year
$ 43.14
49.08
20.51
59.27
44.98
703,427
121,375
(80,836 )
(21,384 )
722,582
$ 39.52
54.25
23.85
60.08
43.14
742,404
106,905
(143,346 )
(2,536 )
703,427
$ 31.92
64.93
19.01
46.19
39.52
Exercisable at end of year
473,445
39.84
444,653
33.75
416,773
26.91
Weighted-average fair value
of awards granted
$ 10.57
$ 11.36
$ 13.52
Beginning January 1, 2008, 444,653 stock options were exercisable with an intrinsic value of $8.4 million. In addition,
at January 1, 2008 there were 277,929 nonvested options with a grant date fair value of $12.43. During the year ended
December 31, 2008, 105,479 options vested with an intrinsic value of $57,000, and a grant date fair value of $12.47 per option.
Also during 2008, 60,240 options were exercised with an intrinsic value of $2.0 million. In addition, 16,447 vested options
were forfeited with an intrinsic value of $7,000 and a grant date fair value of $13.59, while 19,705 options were forfeited in
total with a grant date fair value of $13.41. There were 473,445 exercisable options remaining at December 31, 2008, with an
intrinsic value of $6.1 million and a remaining contractual term of 3.4 years. At December 31, 2008 there were 675,887 stock
options outstanding with an intrinsic value of $6.1 million and a remaining contractual term of 3.5 years and 202,442 nonvested
options with a grant date fair value of $12.10. During 2007, 80,836 options were exercised with an intrinsic value of $3.3
million and 103,286 options vested with a grant date fair value of $11.86 per option.
The total amount of compensation cost related to nonvested stock options as of December 31, 2008 was $1.5 million.
The weighted-average period over which it is expected to be recognized is 2.6 years. We issue new shares upon the exercise of
options.
During 2008, we granted 33,250 options with a five-year life and a four-year vesting period. The Black-Scholes
option-pricing model was used to determine the grant date fair value of these options. Significant assumptions used in the
model included a weighted-average risk-free rate of return of between 1.1% and 2.7% in 2008; an expected option life of three
and three-quarter years; and an expected stock price volatility of between 23.4% and 29.6% in 2008. For the purposes of this
option-pricing model, a dividend yield of between 0.8% and 1.1% was used as the expected dividend yield. The expected
option life was determined based on the mid-point between the vesting date and the end of the contractual term.
- 85 -
The Black-Scholes and other option-pricing models assume that options are freely tradable and immediately vested.
Since options are not transferable, have vesting provisions, and are subject to trading blackout periods imposed by us, the value
calculated by the Black-Scholes model may significantly overstate the true economic value of the options.
During 2008, we created two new performance-based incentive programs under the terms of the 2005 Plan. Under
these programs shares of WSFS stock may be awarded to certain members of management.
We created a Performance-Based Restricted Stock Unit Program which would have awarded restricted stock to
senior management if a specified earnings per share (EPS) target was achieved during 2008. At December 31, 2008 the
target was not achieved, therefore no awards were made.
The Long-Term Performance-Based Restricted Stock Unit Program (Long-Term Program) will award up to an
aggregate of 109,200 shares of WSFS stock to seventeen participants, only after the achievement of targeted levels of return on
assets (“ROA”). Under the terms of the plan, if an annual ROA performance level of 1.20% is achieved, up to 54,900 shares
will be awarded. If an annual ROA performance level of 1.35% is achieved, up to 76,100 shares will be awarded. If an annual
ROA performance level of 1.50% or greater is achieved, up to 109,200 shares will be awarded. If these targets are achieved in
any year up until 2011, the awarded stock will then vest in 25% increments over four years.
We did not recognize any compensation expense in 2008 for these two new programs. The Performance-Based
Restricted Stock Unit Program was effective only for 2008 and has expired. Compensation expense for the Long-Term
Program will be based on the closing stock price as of May 28, 2008 and will begin to be recognized once the achievement of
target performance is considered probable.
Currently we have 327,851 shares available for issuance under the 2005 Plan. Full share awards, such as restricted
stock, have the equivalence of four option grants for the purpose of calculating shares available for issuance. Under the
provisions of the Long Term Program, if a performance level is achieved and there are insufficient shares available for grant,
then we would have the option of granting the available shares with the remainder being paid in cash.
The impact of stock-based compensation for the year ended December 31, 2008 was $851,000 pretax ($731,000 after
tax), or $0.12 per share, to salaries, benefits and other compensation, compared to $1.2 million pretax ($1.0 million after tax), or
$0.16 per share in 2007 and $1.5 million pretax ($1.3 million after tax), or $0.19 per share in 2006. The decrease in expense
related to stock-based compensation in 2008 was due to a timing change made during 2008. In prior years, stock options have
been granted to Associates during the fourth quarter. The stock options that would have been awarded in the fourth quarter of
2008 have been delayed until the first quarter of 2009. This delay and the effect of immediately expensing stock-based
compensation to retirement eligible Associates accounted for the reduction in compensation expense related to stock options.
- 86 -
The following table summarizes all stock options outstanding and exercisable for Option Plans as of December 31,
2008, segmented by range of exercise prices:
Outstanding
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual Life
Number
Exercisable
Weighted-
Average
Exercise
Price
Number
Stock Options:
$ 6.90-$13.80
$13.81-$20.70
$20.71-$27.60
$27.61-$34.50
$34.51-$41.40
$41.41-$48.30
$48.31-$55.20
$55.21-$62.10
$62.11-$69.00
40,270
118,570
-
61,755
-
85,215
120,915
71,027
178,135
$ 10.89
16.88
-
33.40
-
44.49
53.20
58.84
64.53
1.9 years
2.7 years
- years
4.0 years
- years
6.2 years
4.0 years
5.5 years
2.5 years
40,270
118,570
-
61,755
-
61,681
$ 10.89
16.88
-
33.40
-
43.77
32,726 53.16
50,291 58.89
108,152 64.34
Total
675,887
$44.98
3.7 years
473,445
$39.84
During 2008, 2007 and 2006, we issued 185, 129 and 15,269 shares, respectively, of restricted stock. These awards vest
over five years: 0% in the first two years, 25% in each of the third and fourth years and 50% in the fifth year.
14. COMMITMENTS AND CONTINGENCIES
Lending Operations
At December 31, 2008, we had commitments to extend credit of $700.5 million. Consumer lines of credit totaled
$47.7 million of which $27.9 million was secured by real estate. Outstanding letters of credit were $59.7 million and
outstanding commitments to make or acquire mortgage loans aggregated $8.3 million. Approximately $7.5 million of these
mortgage loan commitments were at fixed rates ranging from 4.38% to 6.38%, and approximately $757,000 was at variable
rates ranging from 5.75% to 6.88%. Mortgage commitments generally have closing dates within a six-month period.
Data Processing Operations
We have entered into contracts to manage our network operations, data processing and other related services. The
projected amounts of future minimum payments contractually due (in thousands) are as follows:
2009..........................................................................................................
2010 ............................................................................................. $ 906
2011 ............................................................................................. $ 74
2012 ............................................................................................. $ 11
$ 3,683
- 87 -
Legal Proceedings
In the ordinary course of business, we are subject to legal actions that involve claims for monetary relief. Based upon
information presently available to us and our counsel, it is our opinion that any legal and financial responsibility arising from
such claims will not have a material adverse effect on our results of operations.
We, as successor to originators, are from time to time involved in arbitration or litigation with reverse mortgage loan
borrowers or with the heirs of borrowers. Because reverse mortgages are a relatively new and uncommon product, there can be
no assurances regarding how the courts or arbitrators may apply existing legal principles to the interpretation and enforcement
of the terms and conditions of our reverse mortgage rights and obligations.
Financial Instruments With Off-Balance Sheet Risk
We are a party to financial instruments with off-balance sheet risk in the normal course of business primarily to meet
the financing needs of our customers. To varying degrees, these financial instruments involve elements of credit risk that are
not recognized in the Consolidated Statement of Condition.
Exposure to loss for commitments to extend credit and standby letters of credit written is represented by the contractual
amount of those instruments. We generally require collateral to support such financial instruments in excess of the contractual
amount of those instruments and essentially use the same credit policies in making commitments as we do for on-balance sheet
instruments.
The following represents a summary of off-balance sheet financial instruments at year-end:
December 31,
(In Thousands)
Financial instruments with contract amounts which
represent potential credit risk:
Construction loan commitments
Commercial mortgage loan commitments
Commercial loan commitments
Commercial standby letters of credit
Residential mortgage loan commitments
Consumer loan commitments
2008
2007
$208,307
126,918
249,643
59,703
8,270
47,699
$154,875
105,094
223,181
45,977
8,435
48,690
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. 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. We evaluate each customer's creditworthiness
and obtain collateral based on management's credit evaluation of the counterparty.
Indemnifications
Secondary Market Loan Sales. We generally do not sell loans with recourse except to the extent arising from
standard loan sale contract provisions covering violations of representations and warranties and, under certain circumstances
first payment default by the borrower. These are customary repurchase provisions in the secondary market for conforming
mortgage loan sales. We typically sell fixed-rate, conforming first mortgage loans in the secondary market as part of our
- 88 -
ongoing asset/liability management program. Loans held-for-sale are carried at the lower of cost or market of the aggregate
or in some cases individual loans. Gains and losses on sales of loans are recognized at the time of the sale.
As is customary in such sales, we provide indemnifications to the buyers under certain circumstances. These
indemnifications may include the repurchase of loans by us. Repurchases and losses are rare, and no provision is made for
losses at the time of sale. During 2008, we had no repurchases.
Swap Guarantees. We entered into agreements with two unaffiliated financial institutions whereby those
financial institutions entered into interest rate derivative contracts (interest rate swap transactions) with customers referred
to them by us. By the terms of the agreements, those financial institutions have recourse to us for any exposure created
under each swap transaction in the event the customer defaults on the swap agreement and the agreement is in a paying
position to the third-party financial institution. This is a customary arrangement that allows smaller financial institutions
like us to provide access to interest rate swap transactions for our customers without creating the swap ourselves.
At December 31, 2008, there were thirty-nine variable-rate to fixed-rate swap transactions between the third-party
financial institution and our customers with an initial notional amount aggregating approximately $176.6 million, and with
maturities ranging from four months to fourteen years. The aggregate fair value of these swaps to the customers was a
liability of $20.9 million as of December 31, 2008, and all of the swap transactions were in a paying position to third-party
financial institutions.
ATM Cash Management. In 2007, we entered into an agreement with a financial institution, whereby they
provide cash for distribution/cash management by CashConnect, our ATM division. Under this agreement we accept the
operational risk associated with this cash and are legally bound to reimburse the financial institution for any related
operational losses. We have taken steps to mitigate the risk of loss to us by purchasing a multi-layer insurance policy and
instituting strong operational controls. Additionally, CashConnect has the ability to recover losses from its vault cash
customers based on the strength of our ATM cash bailment agreements, which hold the ATM vault cash customers
responsible for any loss of cash, which is not a result of our gross negligence.
15. 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 year-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: Fair value for investment and mortgage-backed securities is based on
quoted market prices, where available. If a quoted market price is not available, fair value is estimated using quoted prices for
similar securities. 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, see Footnote 1 to the Consolidated Financial Statements.
- 89 -
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.
Bank-Owned Life Insurance: The estimated fair value approximates the book value for this investment.
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.
Deposit Liabilities: The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits,
money market and interest-bearing demand deposits and savings deposits, is assumed to be equal to the amount payable on
demand. The carrying value of variable rate time deposits and time deposits that reprice frequently also approximates fair
value. The fair value of the remaining time deposits is based on the discounted value of contractual cash flows. The discount
rate is estimated using the 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, is estimated using the fees currently charged to enter into similar agreements with
comparable remaining terms and reflects the present creditworthiness of the counterparties.
The book value and estimated fair value of our financial instruments are as follows:
December 31,
(In Thousands)
Financial assets:
2008
2007
Book Value
Fair Value
Book Value
Fair Value
Cash and cash equivalents
Investment securities
Mortgage-backed securities
Loans, net
Bank-owned life insurance
Stock in Federal Home Loan Bank of Pittsburgh
Accrued interest receivable
$ 248,558
49,688
498,205
2,443,835
59,337
39,305
11,609
$ 248,558
49,578
498,205
2,435,135
59,337
39,290
11,609
$ 267,537
28,272
496,792
2,233,980
57,551
45,537
12,905
$ 267,537
28,254
496,284
2,240,847
57,551
45,455
12,905
Financial liabilities:
Deposits
Borrowed funds
Accrued interest payable
2,122,352
1,066,745
6,794
2,101,881
1,035,401
6,794
1,827,161
1,135,160
10,189
1,811,947
1,136,020
10,189
- 90 -
The estimated fair value of our off-balance sheet financial instruments is as follows:
December 31,
(In Thousands)
Off-balance sheet instruments:
Commitments to extend credit
Standby letters of credit
16. RELATED PARTY TRANSACTIONS
2008
2007
$5,926
597
$4,942
460
We routinely enter into transactions with our directors and officers. Such transactions are made in the ordinary course of
business and management believes they are on substantially the same terms and conditions, including interest rates and collateral,
as those prevailing at the same time for comparable transactions with other customers, and do not, in the opinion of management,
involve more than the normal credit risk or present other unfavorable features. The aggregate amount of loans to such related
parties was $5.0 million and $5.4 million at December 31, 2008 and 2007, respectively. During 2008, new loans and credit line
advances to such related parties amounted to $5.3 million and repayments amounted to $5.8 million.
Our Chairman was also the Chairman of the FHLB of Pittsburgh. At December 31, 2008, we had borrowed funds
outstanding from the FHLB of Pittsburgh of $816.0 million and owned $39.3 million of FHLB of Pittsburgh stock.
During 2007 we engaged a law firm that is affiliated with one of our directors for general legal services. Total fees for
such services amounted to $56,000 during 2007. We paid no fees to this firm during 2008.
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed Statement of Financial Condition
December 31,
(In Thousands)
Assets:
Cash
Investment in subsidiaries
Investment in interest rate cap
Investment in Capital Trust III
Other assets
Total assets
Liabilities:
Borrowings
Interest payable
Other liabilities
Total liabilities
Stockholders' equity:
Common stock
Capital in excess of par value
Comprehensive loss
Retained earnings
Treasury stock
Total stockholders' equity
Total liabilities and stockholders’ equity
- 91 -
2008
2007
$ 3,228
277,439
-
2,011
1,232
$283,910
$ 67,011
229
35
67,275
157
87,033
(12,613)
390,338
(248,280)
216,635
$283,910
$ 682
275,258
-
2,011
800
$278,751
$ 67,011
372
38
67,421
157
83,077
(3,861)
376,682
(244,725)
211,330
$278,751
Condensed Statement of Operations
Year Ended December 31,
(In Thousands)
Income:
Interest income
Noninterest income
Expenses:
Interest expense
Other operating expenses
Loss before equity in undistributed income of subsidiaries
Equity in undistributed income of subsidiaries
Net income
Condensed Statement of Cash Flows
Year Ended December 31,
(In Thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash
used for operating activities:
Equity in undistributed income of subsidiaries
Amortization
Decrease (increase) in other assets
(Decrease) increase in other liabilities
Net cash used for operating activities
Investing activities:
Decrease (increase) in investment in subsidiaries
Net cash provided by (used for) investing activities
Financing activities:
Issuance of common stock
Dividends paid on common stock
Treasury stock, net of reissuance
Net cash used for financing activities
(Decrease) increase in cash
Cash at beginning of period
Cash at end of period
- 92 -
2008
2007
2006
$ 324
134
458
3,275
(941)
2,334
(1,875)
18,011
$16,136
$ 337
166
503
4,752
(1,437)
3,315
(2,812)
32,461
$29,649
$ 594
354
948
5,053
(1,386)
3,667
(2,719)
33,160
$30,441
2008
2007
2006
$ 16,136
$ 29,649
$ 30,441
(18,011)
-
(432)
(146)
(2,453)
7,430
7,430
3,956
(2,832)
(3,555)
(2,431)
2,546
682
$ 3,228
(32,461)
-
443
(38)
(2,407)
34,898
34,898
1,784
(2,403)
(36,174)
(36,793)
(4,302)
4,984
$ 682
(33,160)
560
(606)
51
(2,714)
(646)
(646)
6,907
(2,057)
(6,603)
(1,753)
(5,113)
10,097
$ 4,984
18. ACCOUNTING FOR INTEREST RATE CAP
We had an interest-rate cap with a notional amount of $50.0 million, which limited the three-month LIBOR to
6.00% for the ten years ending December 1, 2008. The fair value of the cap was estimated using a standard option model.
The cap was considered a free standing derivative and all changes in the fair value of the cap were recorded in the
Consolidated Statement of Operations. During 2008, 2007 and 2006 we recognized interest expense related to the cap of
zero, $30,000 and $560,000, respectively.
19. SEGMENT INFORMATION
Under the definition of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information
(SFAS 131), we discuss our business in three segments. There is one segment for WSFS Bank and one for Cash Connect,
the ATM division of WSFS. The third segment, “All Others,” represents the combined contributions of Montchanin, WSFS
Investment Group, Inc., our Wealth Management Services Division, and 1st Reverse. Montchanin, WSFS Investment
Group, Inc., Wealth Management Services Division, and 1st Reverse each offer different products, to a separate customer
base, through distinct distribution methods. Therefore, we have combined Montchanin, WSFS Investment Group, Inc.,
Wealth Management Services Division, and 1st Reverse to form the operating segment “All Others.”
The WSFS segment provides financial products to commercial and retail customers through its main office, 35
retail banking and loan production offices and operations center. Retail and Commercial Banking, Commercial Real Estate
Lending, Private Banking and other banking business units are operating departments of WSFS. These departments share
the same regulator, market, many of the same customers and provide similar products and services through the general
infrastructure of the Company. Because of these and other reasons, these departments are not considered discrete segments
and are appropriately aggregated within the WSFS segment of the Company in accordance with SFAS 131.
Cash Connect provides turnkey ATM services through strategic partnerships with several of the largest networks,
manufacturers and service providers in the ATM industry. The balance sheet category “Cash in non-owned ATMs”
includes cash from which fee income is earned through bailment arrangements with customers of Cash Connect.
Montchanin provides asset management products and services to customers in the Company’s primary market area.
Montchanin has one consolidated wholly-owned subsidiary, Cypress. Cypress is a Wilmington-based investment advisory
firm serving high net-worth individuals and institutions. WSFS Investment Group, Inc. markets various third-party
insurance products and securities directly to the public and through the Bank’s retail banking system. The Wealth
Management Services Division provides wealth management and personal trust services to customers in the Company’s
primary market area. 1st Reverse originates and subsequently sells reverse mortgage loans.
An operating segment is a component of an enterprise that engages in business activities from which it may earn
revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision
makers to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete
financial information is available. We evaluate performance based on pretax ordinary income relative to resources used,
and allocate resources based on these results. The accounting policies applicable to our segments are those that apply to our
preparation of the accompanying Consolidated Financial Statements. Segment information for the years ended December
31, 2008, 2007 and 2006 follows:
- 93 -
For the Year Ended December 31, 2008:
(In Thousands)
External customer revenues:
Interest income
Noninterest income
Total external customer revenues
Intersegment revenues:
Interest income
Noninterest income
Total intersegment revenues
WSFS
CashConnect
All Others (1)
Total
$ 166,477
27,479
193,956
$ -
13,752
13,752
$ -
4,758
4,758
$ 166,477
45,989
212,466
3,545
3,567
7,112
-
641
641
5
-
5
3,550
4,208
7,758
Total revenue
201,068
14,393
4,763
220,224
External customer expenses:
Interest expense
Noninterest expenses
Provision for loan loss
Total external customer expenses
Intersegment expenses:
Interest expense
Noninterest expenses
Total intersegment expenses
77,258
75,813
23,024
176,095
-
5,978
-
5,978
-
7,307
-
7,307
77,258
89,098
23,024
189,380
5
641
646
3,524
868
4,392
21
2,699
2,720
3,550
4,208
7,758
Total expenses
176,741
10,370
10,027
197,138
Income (loss) before taxes
$ 24,327
$ 4,023
$ (5,264)
$ 23,086
Provision for income taxes
Consolidated net income
Cash and cash equivalents
Other segment assets
Total segment assets
6,950
$ 16,136
$ 56,489
3,168,467
$ 3,224,956
$ 189,965
12,836
$ 202,801
$ 2,104
2,699
$ 4,803
$ 248,558
3,184,002
$ 3,432,560
Capital expenditures
$ 4,587
$ 204
$ 109
$ 4,900
(1) Includes Montchanin Capital Management, Inc., WSFS Investment Group Inc.,Wealth Management Services Division and 1st Reverse.
- 94 -
For the Year Ended December 31, 2007:
(In Thousands)
External customer revenues:
Interest income
Noninterest income
Total external customer revenues
Intersegment revenues:
Interest income
Noninterest income
Total intersegment revenues
WSFS
CashConnect
All Others (1)
Total
$ 189,477
27,991
217,468
$ -
16,584
16,584
$ -
3,591
3,591
$ 189,477
48,166
237,643
8,684
2,544
11,228
-
675
675
-
-
-
8,684
3,219
11,903
Total revenue
228,696
17,259
3,591
249,546
External customer expenses:
Interest expense
Noninterest expenses
Provision for loan loss
Total external customer expenses
Intersegment expenses:
Interest expense
Noninterest expenses
Total intersegment expenses
107,468
72,657
5,021
185,146
-
4,683
-
4,683
-
4,691
-
4,691
107,468
82,031
5,021
194,520
-
675
675
8,684
1,076
9,760
-
1,468
1,468
8,684
3,219
11,903
Total expenses
185,821
14,443
6,159
206,423
Income (loss) before taxes and minority interest
$ 42,875
$ 2,816
$ (2,568)
$ 43,123
Provision for income taxes
Minority interest
Consolidated net income
Cash and cash equivalents
Other segment assets
Total segment assets
13,474
$ 29,649
$ 83,650
2,913,328
$ 2,996,978
$ 182,523
17,314
$ 199,837
$ 1,364
2,009
$ 3,373
$ 267,537
2,932,651
$ 3,200,188
Capital expenditures
$ 8,134
$ 194
$ 5
$ 8,333
(1) Includes Montchanin Capital Management, Inc., WSFS Investment Group Inc.,Wealth Management Services Division and 1st Reverse.
- 95 -
For the Year Ended December 31, 2006:
(In Thousands)
External customer revenues:
Interest income
Noninterest income
Total external customer revenues
Intersegment revenues:
Interest income
Noninterest income
Total intersegment revenues
WSFS
CashConnect
All Others (1)
Total
$ 177,177
21,472
198,649
$ -
15,644
15,644
$ -
3,189
3,189
$ 177,177
40,305
217,482
8,071
1,704
9,775
-
685
685
-
-
-
8,071
2,389
10,460
Total revenue
208,424
16,329
3,189
227,942
External customer expenses:
Interest expense
Noninterest expenses
Provision for loan loss
Total external customer expenses
Intersegment expenses:
Interest expense
Noninterest expenses
Total intersegment expenses
99,278
61,521
2,738
163,537
-
4,222
-
4,222
-
3,571
-
3,571
99,278
69,314
2,738
171,330
-
685
685
8,071
688
8,759
-
1,016
1,016
8,071
2,389
10,460
Total expenses
164,222
12,981
4,587
181,790
Income (loss) before taxes and minority interest
$ 44,202
$ 3,348
$ (1,398)
$ 46,152
Provision for income taxes
Minority interest
Consolidated net income
Cash and cash equivalents
Other segment assets
Total segment assets
15,660
51
$ 30,441
$ 74,905
2,738,531
$ 2,813,436
$ 166,092
15,228
$ 181,320
$ 827
1,813
$ 2,640
$ 241,824
2,755,572
$ 2,997,396
Capital expenditures
$ 9,790
$ 382
$ 20
$ 10,192
(1) Includes Montchanin Capital Management, Inc., WSFS Investment Group Inc.,Wealth Management Services Division and 1st Reverse.
- 96 -
20. BUSINESS COMBINATIONS
1st Reverse Financial Services, LLC Acquisition
On April 30, 2008, we completed the acquisition of a 51% majority stake in 1st Reverse Financial Services, LLC
(“1st Reverse”). Operating results of 1st Reverse are included in the consolidated financial statements since the date of
acquisition. As a result of the acquisition, we expect to build on the knowledge and experience we have gained over nearly
15 years of success with reverse mortgages and promote this senior-friendly product to customers on a national basis. This
business is expected to enhance our revenue and fee income, further diversify and strengthen our business model and move
towards our goal of high performance.
The acquisition resulted in recording $685,000 of goodwill, which is the excess cost over the fair value of its assets
at the time of acquisition. Other intangibles amounting to $658,000 were also identified in the transaction, with
amortization periods of 5-10 years using straight-line methods. A portion of the goodwill and all the intangibles will be
deducted for tax purposes.
Sun National Bank Branch Purchase
On October 24, 2008, we completed the acquisition of six branches from Sun National Bank and their respective
deposits. The operating results of these branches have been included in the consolidated financial statements since the date
of acquisition. We expect this acquisition to further solidify our market share in Delaware, expand our customer base to
enhance deposit fee income and provide an opportunity to market additional products and services to new customers.
The aggregate cash purchase price was $11.5 million. The purchase price resulted in approximately $10 million in
goodwill and $2 million in core deposit intangibles (“CDI”). This CDI will be amortized over 7.5 years, using straight-line
methods. The goodwill and intangible assets will be deducted for tax purposes. In the transaction, WSFS acquired $95.3
million of deposits.
The goodwill related to both the 1st Reverse acquisition and the Sun National Bank branch purchase will not be
amortized, but instead will be evaluated periodically for impairment.
21. SUBSEQUENT EVENT
In January 2009, WSFS entered into a definitive agreement with the U.S. Treasury. Pursuant to the agreement,
WSFS sold to the U.S. Treasury, 52,625 shares of senior preferred stock, having a liquidation amount equal to $1,000 per
share, or $52.6 million. These shares of senior preferred stock also has an attached warrant (Warrant) to purchase 175,105
shares of WSFS’ common stock, par value $0.01 per share, for the aggregate price of $7.9 million. The preferred stock
qualifies as Tier 1 capital and will pay cumulative dividends at a rate of 5% per year, for the first five years, and 9% per year
thereafter.
The Warrant has a 10-year term with 50% vesting immediately upon issuance and the remaining 50% vesting on
January 1, 2010 if certain qualified equity offerings are not satisfied. The Warrant has an exercise price, subject to anti-
dilution adjustments, equal to $45.08 per share of common stock.
- 97 -
QUARTERLY FINANCIAL SUMMARY (Unaudited)
Three months ended
(In Thousands, Except Per Share Data)
Interest income
Interest expense
Net interest income
Provision for loan losses(1)
Net interest income after
provision for loan losses
Noninterest income
Noninterest expenses
Income before minority interest
and taxes
Less minority interest
Income before taxes
Income tax provision
Net Income
Earnings per share:
Basic
Diluted
12/31/08 09/30/08 06/30/08 03/31/08 12/31/07 09/30/07 06/30/07 03/31/07
$ 39,785 $ 41,337 $ 40,795 $ 44,560 $ 48,143 $ 47,579 $ 46,667 $ 47,088
26,028
21,060
371
27,480
20,099
1,001
27,433
20,710
2,376
26,527
20,140
1,273
18,030
23,307
3,502
18,428
22,367
2,433
17,209
22,576
14,699
23,591
20,969
2,390
7,877
10,128
23,969
19,805
11,684
23,022
19,934
11,671
21,170
18,579
12,506
20,937
18,334
13,008
22,313
19,098
12,809
21,333
18,867
11,616
19,027
20,689
10,733
19,358
(5,964)
8,467
10,435
10,148
9,029
10,574
11,456
12,064
---
-
---
-
(5,964)
(2,644)
12,064
4,283
$ (3,320) $ 5,510 $ 6,700 $ 7,246 $ 7,496 $ 7,143 $ 7,229 $ 7,781
11,456
4,227
10,574
3,431
10,435
3,735
10,148
2,902
9,029
1,533
8,467
2,957
(0.54)
(0.54)
0.90
0.88
1.09
1.07
1.17
1.15
1.21
1.18
1.14
1.11
1.15
1.11
1.19
1.15
(1) During the fourth quarter of 2008, we recorded a $14.7 million provision for loan losses, which was primarily related to the impairment of four large
construction and land development (CLD) credits.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no matters required to be disclosed under this item.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
are effective.
During the quarter ended December 31, 2008, there was no change in internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
- 98 -
Internal Control Over Financial Reporting
Management’s Report on Internal Control Over Financial Reporting
To Our Stockholders:
Management of the Corporation is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Corporation’s internal
control over financial reporting is designed to provide reasonable assurance to the Corporation’s management and board of
directors regarding the preparation and fair presentation of published financial statements.
Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of
December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on this
assessment, management has concluded that, as of December 31, 2008, the Corporation’s internal control over financial
reporting is effective based on those criteria.
KPMG LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial
statements as of and for the year ended December 31, 2008 and the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2008, as stated in their reports, which are included herein.
/s/ Mark A. Turner
Mark A. Turner
President and Chief Executive Officer
/s/ Stephen A. Fowle
Stephen A. Fowle
Executive Vice President and
Chief Financial Officer
- 99 -
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
WSFS Financial Corporation:
We have audited the internal control over financial reporting of WSFS Financial Corporation and subsidiaries (the
Company) as of December 31, 2008 based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, WSFS Financial Corporation and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated statement of condition of the Company as of December 31, 2008 and 2007, and the related
consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2008, and our report dated March 16, 2009 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 16, 2009
- 100 -
ITEM 9B. OTHER INFORMATION
There are no matters required to be disclosed under this item.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Information under “Directors and Officers of WSFS Financial Corporation and Wilmington Savings Fund Society,
FSB” and “Committees of the Board of Directors” in the Registrant’s definitive proxy statement for the registrant’s Annual
Meeting of Stockholders to be held on April 23, 2009 (the “Proxy Statement”) is incorporated into this item by reference.
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer,
principal accounting officer, controller or persons performing similar functions. A copy of the Code of Ethics is
posted on our website at www.wsfsbank.com.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading “Compensation” and “Compensation of the Board of Directors” in the Proxy
Statement is incorporated into this item by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
(a)
Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to the section captioned “Other
Information - Large Stockholders” of the Proxy Statement
(b)
Security Ownership of Management
Information required by this item is incorporated herein by reference to the section captioned “Directors and
Officers of WSFS Financial Corporation and Wilmington Savings Fund Society, FSB – Ownership of WSFS
Financial Corporation Common Stock” of the Proxy Statement
(c)
We know of no arrangements, including any pledge by any person of our securities, the operation of which
may at a subsequent date result in a change in control of the registrant.
(d)
Securities Authorized for Issuance Under Equity Compensation Plans
- 101 -
Shown below is information as of December 31, 2008 with respect to compensation plans under which equity securities of
the Registrant are authorized for issuance.
Equity Compensation Plan Information
(b)
(a)
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
Options and
Phantom Stock Awards Phantom Stock Awards reflected in column) (a)
Number of Securities
to be issued upon
exercise of outstanding
Options and
Weighted-Average
exercise price of
outstanding
Equity compensation plans
approved by stockholders (1)
Equity compensation plans
not approved by stockholders
TOTAL
675,887
$ 44.98
327,851
n/a
675,887
n/a
$ 44.98
n/a
327,851
(1) Plans approved by stockholders include the 1997 Stock Option Plan, as amended and the 2005 Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under “Directors and Officers of WSFS Financial Corporation and Wilmington Savings Fund Society,
FSB – Transactions with our Insiders” in the Proxy Statement is incorporated into this item by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information under "Committees of the Board of Directors – Audit Committee" in the Proxy Statement is
incorporated into this item by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Listed below are all financial statements and exhibits filed as part of this report, and are incorporated by
reference.
1. The consolidated statements of Condition of WSFS Financial Corporation and subsidiary as of December 31,
2008 and 2007, and the related consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three year period ended December 31, 2008, together with the related notes
and the independent auditors' report of KPMG LLP, independent registered public accounting firm.
2. Schedules omitted as they are not applicable.
- 102 -
The following exhibits are incorporated by reference herein or annexed to this Annual Report:
Exhibit
Number
Description of Document
3.1
3.2
3.3
4.1
4.2
10.1
10.2
10.3
10.4
Registrant's Certificate of Incorporation, as amended is incorporated herein by
reference to Exhibit 3.1 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
Amended and Restated Bylaws of WSFS Financial Corporation, incorporated
herein by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K
filed on October 27, 2008.
Certificate of Designations for the Fixed Rate Cumulative Perpetual Preferred
Stock, Series A, incorporated herein by reference to Exhibit 3.1 of the Registrant’s
Current Report on Form 8-K filed on January 23, 2009.
Form of Certificate for the Series A Preferred Stock, incorporated herein by
reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on
January 23, 2009.
Warrant for Purchase of Shares of Common Stock, incorporated herein by
reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed on
January 23, 2009.
WSFS Financial Corporation, 1994 Short Term Management Incentive Plan
Summary Plan Description is incorporated herein by reference to Exhibit 10.7 of
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
Amended and Restated Wilmington Savings Fund Society, Federal Savings Bank
1997 Stock Option Plan is incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 (File No. 333-26099) filed with the
Commission on April 29, 1997.
2000 Stock Option and Temporary Severance Agreement among Wilmington
Savings Fund Society, Federal Savings Bank, WSFS Financial Corporation and
Marvin N. Schoenhals on February 24, 2000 is incorporated herein by reference to
Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000.
WSFS Financial Corporation Severance Policy for Executive Vice Presidents
dated February 28, 2008.
- 103 -
10.5
10.6
10.7
10.8
10.9
10.10
21
23
31
32
WSFS Financial Corporation’s 2005 Incentive Plan is incorporated herein by
reference to appendix A of the Registrant’s Definitive Proxy Statement on
Schedule 14-A for the 2005 Annual Meeting of Stockholders.
Amendment to WSFS Financial Corporation 2005 Incentive Plan for IRC 409A
and FAS 123R dated December 31, 2008.
Amendment to the WSFS Financial Corporation Severance Policy for Executive
Vice Presidents dated December 31, 2008.
Letter Agreement, dated January 23, 2009, between WSFS Financial Corporation
and the United States Department of the Treasury, with respect to the issuance and
sale of the Series A Preferred Stock and the Warrant, incorporated herein by
reference to Exhibit 10.1 of the Registrant’s Current Report on From 8-K filed on
January 23, 2009.
Form of Waiver, executed by Messrs. Marvin N. Schoenhals, Mark A. Turner,
Stephen A. Fowle, Richard M. Wright, Rodger Levenson and Mrs. Barbara J.
Fischer, incorporated herein by reference to Exhibit 10.2 of the Registrant’s
Current Report on Form 8-K filed on January 23, 2009.
Form of Letter Agreement, executed by Messrs. Marvin N. Schoenhals, Mark A.
Turner, Stephen A. Fowle, Richard M. Wright, Rodger Levenson and Mrs.
Barbara J. Fischer, incorporated herein by reference to Exhibit 10.3 of the
Registrant’s Current Report on Form 8-K filed on January 23, 2009.
Subsidiaries of Registrant.
Consent of KPMG LLP
Certification pursuant to Rule 13a-14 of the Exchange Act
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Exhibits 10.1 through 10.10 represent management contracts or compensatory plan arrangements.
- 104 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WSFS FINANCIAL CORPORATION
Date: March 16, 2009
BY: /s/ Mark A. Turner_______________________
Mark A. Turner
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Date: March 16, 2009
BY: /s/ Marvin N. Schoenhals___________________
Marvin N. Schoenhals
Chairman
Date: March 16, 2009
BY: /s/ Mark A. Turner________________________
Date: March 16, 2009
Date: March 16, 2009
Date: March 16, 2009
Date: March 16, 2009
Mark A. Turner
President and Chief Executive Officer
BY: /s/ Charles G. Cheleden
Charles G. Cheleden
Vice Chairman and Lead Director
BY: /s/ Jennifer Davis
Jennifer Davis
Director
BY: /s/ Donald W. Delson
Donald W. Delson
Director
BY: /s/ John F. Downey
John F. Downey
Director
- 105 -
Date: March 16, 2009
BY: /s/ Linda C. Drake_________________________
Linda C. Drake
Director
Date: March 16, 2009
BY: /s/ David E. Hollowell_____________________
David E. Hollowell
Director
Date: March 16, 2009
BY: /s/ Joseph R. Julian________________________
Joseph R. Julian
Director
Date: March 16, 2009
BY: /s/ Dennis E. Klima_______________________
Dennis E. Klima
Director
Date: March 16, 2009
BY: /s/ Calvert A. Morgan, Jr.___________________
Calvert A. Morgan, Jr.
Director
Date: March 16, 2009
BY: /s/ Thomas P. Preston______________________
Thomas P. Preston
Director
Date: March 16, 2009
BY: /s/ Scott E. Reed__________________________
Scott E. Reed
Director
Date: March 16, 2009
BY: /s/ Claibourne D. Smith____________________
Claibourne D. Smith
Director
- 106 -
Date: March 16, 2009
BY: /s/ Stephen A. Fowle_______________________
Stephen A. Fowle
Executive Vice President and
Chief Financial Officer
Date: March 16, 2009
BY: /s/ Robert F. Mack
Robert F. Mack
Senior Vice President and Controller
- 107 -
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
- 108 -
Subsidiaries of the Registrant
Exhibit 21
Parent Company
Subsidiary
Percent
Owned
State or
Other Jurisdiction
of Incorporation
WSFS Financial Corporation Wilmington Savings Fund Society,
100%
United States
Federal Savings Bank
WSFS Capital Trust, III
Montchanin Capital Management, Inc.
100%
100%
Delaware
Delaware
WSFS Investment Group, Inc.
100%
Delaware
1st Reverse Financial Services, LLC
51%
Illinois
Cypress Capital Management, LLC
100%
Delaware
Wilmington Savings Fund
Society, Federal
Savings Bank
Wilmington Savings Fund
Society, Federal
Savings Bank
Montchanin Capital
Management, Inc.
.
- 109 -
EXHIBIT 23
CONSENT OF KPMG LLP
Consent of Independent Registered Public Accounting Firm
The Board of Directors
WSFS Financial Corporation:
We consent to the incorporation by reference in the registration statements (No. 333-106561, No.
333-26099, No. 333-33713, No. 333-40032, No. 333-127225, and No. 333-146443) on Form S-8
and (No. 333-157454) on Form S-3 of WSFS Financial Corporation (the Company) of our report
dated March 16, 2009, with respect to the consolidated statement of condition of WSFS
Financial Corporation and subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of operations, changes in stockholders’ equity, and cash flows for each
of the years in the three-year period ended December 31, 2008, and the effectiveness of internal
control over financial reporting as of December 31, 2008, which reports appear in the December
31, 2008 annual report on Form 10-K of WSFS Financial Corporation.
Our report dated March 16, 2009 on the consolidated statement of condition of WSFS
Financial Corporation and subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of operations, changes in stockholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2008, refers to the Company’s
adoption of FASB Statement No. 123(revised), Share-Based Payment, a revision of FASB
Statement No. 123, Accounting for Stock-Based Compensation, effective January 1, 2006,
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No. 109, effective January 1, 2007, and FASB Statement No. 157, Fair Value
Measurements, effective January 1, 2008.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 16, 2009
- 110 -
EXHIBIT 31
CERTIFICATION PURSUANT TO
RULE 13a-14
OF THE EXCHANGE ACT
- 111 -
SECTION 302 CERTIFICATION
I, Mark A. Turner, President and Chief Executive Officer, certify that:
1.
I have reviewed this annual report on Form 10-K of WSFS Financial Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
2.
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
3.
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure
4.
controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
5.
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent function):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 16, 2009
/s/ Mark A. Turner_______________
Mark A. Turner
President and Chief Executive Officer
SECTION 302 CERTIFICATION
I, Stephen A. Fowle, Executive Vice President and Chief Financial Officer, certify that:
1.
I have reviewed this annual report on Form 10-K of WSFS Financial Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
2.
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
3.
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure
4.
controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent function):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the regristrant’s internal control over financial reporting.
Date: March 16, 2009
/s/ Stephen A. Fowle
Stephen A. Fowle
Executive Vice President and
Chief Financial Officer
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of WSFS Financial Corporation (the “Company”)
for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), we, Mark A. Turner, President and Chief Executive Officer, and Stephen A. Fowle,
Executive Vice President and Chief Financial Officer (Principal Accounting Officer), hereby certify, pursuant
to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1)
2)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Mark A. Turner________________
/s/ Stephen A. Fowle_______
Mark A. Turner
President and Chief Executive Officer
March 16, 2009
Stephen A. Fowle
Executive Vice President and
Chief Financial Officer
March 16, 2009
Principal Officers, WSFS Financial Corporation
Stephen A. Fowle
Executive Vice President, Chief Financial Officer
Paul S. Greenplate
Senior Vice President, Treasurer
Thomas W. Kearney
Senior Vice President, Corporate Auditor
Robert F. Mack
Senior Vice President, Controller
Marvin N. Schoenhals
Chairman
Mark A. Turner
President, Chief Executive Officer
Principal Officers of Principal Subsidiary,
Wilmington Savings Fund Society, FSB
Raymond C. Abbott
Senior Vice President, Cash Management Manager
Syed A. Ahmed
Senior Vice President, Regional Manager
M. Scott Baylis
Senior Vice President, Business Banking Team Leader
Lisa M. Brubaker
Senior Vice President, Retail Administration
Leslie S. Carter
Senior Vice President, Director of Trust Services
Ralph A. Citino
Senior Vice President, Small Business Banking
Stephen P. Clark
Senior Vice President, Middle Market Division Manager
John D. Clatworthy
Senior Vice President, Cash Connect Client Operations
Peggy H. Eddens
Executive Vice President, Director of Human Capital Management
Barbara J. Fischer
Executive Vice President, Chief Administrative Officer
Stephen A. Fowle
Executive Vice President, Chief Financial Officer
Paul S. Greenplate
Senior Vice President, Treasurer
Cheryl A. Hughes
Senior Vice President, Transaction Services
Richard J. Immesberger
Executive Vice President, Director of Wealth Management
Janis L. Julian
Senior Vice President, Community Relations
Thomas W. Kearney
Senior Vice President, Corporate Auditor
Glenn L. Kocher
Senior Vice President, Chief Credit Officer
Shari A. Kruzinski
Senior Vice President, Regional Manager
Rodger Levenson
Executive Vice President, Director of Commercial Banking
Robert F. Mack
Senior Vice President, Controller
Douglas R. Quaintance
Senior Vice President, Business Banking Division Manager
Deborah T. Roberts
Senior Vice President, Director of Retail Lending
Ann M. Rudolph
Senior Vice President, Commercial Real Estate Division Manager
Marvin N. Schoenhals
Chairman
Thomas E. Stevenson
President, Cash Connect Division
Mark A. Turner
President, Chief Executive Officer
Richard M. Wright
Executive Vice President, Director of Retail Banking and Marketing
Andrew N. Yatzus
Senior Vice President, Business Banking Team Leader
Linda H. Ziegler
Senior Vice President, Regional Manager
Helen M. Zumsteg
Senior Vice President, Private Banking Manager
Kent County Advisory Board Members
Thomas Burns
George W. Forbes III
Robert C. MacLeish, Sr.
E. Stuart Outten
Debra Singletary
Richard Weyandt
Richard E. Yerger
Sussex County Advisory Board Members
Robert Dickerson
David C. Doane
George W. Forbes III
William Haughey
Joseph A. Kollock, Jr.
Michael Meoli
Peter Schwartzkopf
David R. Urian
James Walls
Stockholders or others seeking
information regarding the
Company may call or write:
WSFS Financial Corporation Investor Relations
WSFS Bank Center
500 Delaware Avenue
Wilmington, DE 19801
302-571-7265
Website
www.wsfsbank.com
Transfer Agent
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
WSFS Bank Center
500 Delaware Avenue
Wilmington, DE 19801
www.wsfsbank.com
©2009 WSFS Financial Corporation. All rights reserved.